UNITED STATES
				SECURITIES AND EXCHANGE COMMISSION
					WASHINGTON, D.C. 20549


						FORM N-CSR

		CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
					INVESTMENT COMPANIES

			Investment Company Act file number 811-5086

					Churchill Tax-Free Trust
			(Exact name of Registrant as specified in charter)

					   380 Madison Avenue
					New York, New York 10017
			(Address of principal executive offices)  (Zip code)

					  Joseph P. DiMaggio
					  380 Madison Avenue
					New York, New York 10017
				(Name and address of agent for service)

		Registrant's telephone number, including area code:	(212) 697-6666


				Date of fiscal year end:	12/31

				Date of reporting period:	12/31/05

						FORM N-CSR

ITEM 1.  REPORTS TO STOCKHOLDERS.



ANNUAL
REPORT

DECEMBER 31, 2005

                                    CHURCHILL
                                TAX-FREE FUND OF
                                    KENTUCKY

                          A TAX-FREE INCOME INVESTMENT

               [LOGO OF THE CHURCHILL TAX-FREE FUND OF KENTUCKY:
                        A STANDING PEGASUS IN A CIRCLE]

[LOGO OF THE AQUILA
GROUP OF FUNDS:                    ONE OF THE
AN EAGLE'S HEAD]           AQUILA(SM) GROUP OF FUNDS

<PAGE>

[LOGO OF THE CHURCHILL TAX-FREE FUND OF KENTUCKY:
A STANDING PEGASUS IN A CIRCLE]

                SERVING KENTUCKY INVESTORS FOR ALMOST TWO DECADES

                       CHURCHILL TAX-FREE FUND OF KENTUCKY

                      "THE BENEFITS OF TAX-FREE INVESTING"

                                                                  February, 2006

Dear Fellow Shareholder:

      As the  name of your  fund  clearly  states,  Churchill  Tax-Free  Fund of
Kentucky is  tax-free* - free from  Kentucky  state and regular  Federal  income
taxes.

      This tax-free status serves many purposes.  It obviously provides you, and
our  other   shareholders,   with  tax-free   income.   But,  it  also  provides
municipalities  with  an  attractive  motivator  to  help  them  raise  revenue.
Additionally,  the  projects  funded by these  tax-free  securities  enhance the
quality of life for all community residents.

      Many  individuals pay as much as 30% to 40% of their income in Federal and
state taxes.  Obviously, if you have to pay that much in taxes, it significantly
reduces what you get to keep in your pocket.

BENEFITS TO INVESTORS

      As an  investor  seeking  tax-free  income,  do you have to forego  higher
yields? Not necessarily.

                                  [BAR CHART]

                  Hypothetical Tax-Free Yield                           3%
                  Hypothetical Taxable Equivalent Yield               5.0%

                  Hypothetical Tax-Free Yield                           4%
                  Hypothetical Taxable Equivalent Yield               6.6%

                  Hypothetical Tax-Free Yield                           5%
                  Hypothetical Taxable Equivalent Yield               8.8%

                        This chart  assumes a 35% federal and 6% state  tax-rate
                        and is for  illustration  purposes  only;  it  does  not
                        represent past or future performance of any investment.

      The chart above shows that you would have to earn  significantly more from
a  taxable  investment  in order  to be  equal  to what  you get to keep  from a
tax-free investment.

      As you can  clearly  see from the chart,  you would have to earn 6.6% on a
taxable investment in order to equal the tax-free level of 4%.

      Keep this  illustration  in mind the next time you  examine the yield that
Churchill  Tax-Free Fund of Kentucky  offers you. You will find that a 3%, 4% or
5% tax-free yield looks  considerably  more  attractive to you when you consider
the implications of taxes.

                        NOT A PART OF THE ANNUAL REPORT
<PAGE>

BENEFITS TO MUNICIPALITIES

      As you are most likely aware, states,  counties,  cities, towns, and other
forms of  municipalities  issue  tax-free  bonds to raise  monies.  These issues
generally take two forms - general obligation securities and revenue securities.

      General  obligation  municipal  securities are primarily those  securities
used to finance the general  needs of such  municipalities.  General  obligation
securities are secured by the tax-raising power of the specific  municipality in
terms of its ability to pay  interest  and repay  principal  on a timely  basis.
Thus,  these  securities  are  considered  to be  "backed  by the full faith and
credit" of the issuer.

      Revenue  securities  are issued to finance  specific  projects,  such as a
hospital  or  airport.  In this  instance,  the  municipal  issuer  pledges  the
operating  revenues  derived from the  specific  project to pay the interest and
repay the principal when due.

      In many cases, smaller  municipalities would have difficulty selling these
securities  to the  marketplace  were  it not for the  added  attractiveness  of
tax-free status.

BENEFITS TO QUALITY OF LIFE

      The benefit you may not have considered - when you made your investment in
the Fund - was that in the process of having the Fund provide you with  tax-free
income,  it also provides help to a variety of others within your  community and
Kentucky. This is a benefit in which you can take real pride.

      Municipal  bonds,  such as  those  in  which  Churchill  Tax-Free  Fund of
Kentucky invests, are the primary way infrastructure is financed. Infrastructure
is a relatively  obscure  word that by itself  doesn't mean much to most people.
But, when you translate the word "infrastructure" into projects such as schools,
roads, bridges, water facilities,  pollution control,  airports,  hospitals, and
fire and police stations, then you are speaking in terms that people more easily
understand.

      As the economy of Kentucky grows,  new and additional  municipal  projects
are  needed  for the  benefit  of the  citizens  of  Kentucky  and  the  various
communities throughout the Commonwealth.  In essence, your money invested in the
Fund  helps  pay for that new  school,  road,  airport,  etc.  that you and your
neighbors now enjoy. So, as an investor in Churchill  Tax-Free Fund of Kentucky,
you can take pride in knowing  that you are playing a vital role and a very real
part in enhancing  the quality of life for your family,  friends,  neighbors and
future generations of Kentuckians.

SUMMARY

      So the next time that you receive your statement  from Churchill  Tax-Free
Fund of  Kentucky,  remember  that  the  benefits  that  are  reaped  from  your
investment are more than just what is evident on that piece of paper.

                                   Sincerely,


/s/ Diana P. Herrmann                         /s/ Lacy B. Herrmann

Diana P. Herrmann                             Lacy B. Herrmann
President                                     Founder and Chairman Emeritus

* For certain investors, some dividends may be subject to Federal and State
taxes, including the Alternative Minimum Tax.

                        NOT A PART OF THE ANNUAL REPORT

<PAGE>

[LOGO OF THE CHURCHILL TAX-FREE FUND OF KENTUCKY:
A STANDING PEGASUS IN A CIRCLE]

                SERVING KENTUCKY INVESTORS FOR MORE THAN 15 YEARS

                       CHURCHILL TAX-FREE FUND OF KENTUCKY

                                  ANNUAL REPORT

                    MANAGEMENT DISCUSSION OF FUND PERFORMANCE

      The year ended  December  31,  2005  proved to be a bit of an enigma  that
challenged  our  long-held  perception  of how markets are  supposed to perform.
Throughout  2005, the Federal  Reserve  continued to raise  short-term  interest
rates - from 2.25% in January to 4.25% in December.  Traditionally, we have come
to expect a corresponding  mirror reaction at the longer end of the yield curve:
short  rates  going up = long  rates  going  up.  Instead,  due to a  number  of
technical factors, we saw long-term interest rates actually decline.

      From December 31, 2004 to December 31, 2005, we saw short-term  rates rise
a full  percentage  point  (100  basis  points  on a  typical  AAA-rated  2 year
municipal  bond).  Over the same time period,  we saw long-term rates decline 22
basis points (on a typical AAA-rated 30-year municipal bond).  Demand for longer
maturity bonds has been especially  strong from cash-rich foreign central banks.
And inflation, a bond's greatest nemesis,  stayed somewhat "manageable" - except
for  energy  costs.  Overall,  inflation  rose 3.4% in 2005 as  measured  by the
Consumer Price Index. The national unemployment rate ended the year at an annual
rate of 4.9%, a nice improvement versus last December's rate of 5.4%.

      As the Gulf Coast states were ravaged time and again by a record number of
hurricanes,  the  price  of oil  rose  to all  time  present  day  high  levels,
approaching $70 a barrel. Natural gas and heating oil prices also surged - thank
goodness for a relatively  mild winter- so far.  Overall,  energy  prices rose a
staggering 17% in 2005.

      The year 2005 was one in which both bonds and stocks  provided  relatively
modest  returns.  The past 12 months  marked a period when stock market  returns
were  slightly  positive.  The Dow Jones  Industrial  Average rose 1.72%.  Other
measures of equity  performance  fared a little better:  the S & P 500 closed up
4.91%;  and the NASDAQ  Composite  Index rose 2.13%. We are proud to report that
Churchill  Tax-Free Fund of Kentucky  provided its shareholders a positive total
rate of  return  of 2.39% in 2005,  outperforming  64% of our peer  group of all
intermediate single-state municipal bond funds.

      As we begin 2006, it too promises to be every bit as eventful as was 2005,
with the United States  working  towards a more peaceful,  democratic  Iraq; the
rebuilding of New Orleans and other areas of Louisiana, Alabama, and Mississippi
after the  devastation  caused by a catastrophic  series of hurricanes;  and the
usual, ongoing partisan political wrangling in Washington.

      2005 was a pretty  good year for the  Kentucky  economy,  overall.  Modest
employment gains in the manufacturing  sector were well received.  Tax revenues,
as measured by the General Fund, are also on the rise.

      For 2006,  Governor  Fletcher has embarked on his quest to come up with an
acceptable budget for the  Commonwealth.  The budgeting process from prior years
has been streamlined and we are

<PAGE>

hopeful that a bipartisan plan will soon be presented,  debated,  and enacted in
short order!  Kentucky  municipal bonds continue to be in somewhat short supply,
due in large part to continued strong retail and institutional demand.

      The  investment  objective  of Churchill  Tax-Free  Fund of Kentucky is to
provide as high a level of triple  tax-exempt  current  income as is  consistent
with the  preservation  of capital.  We believe this  objective  continues to be
successfully  addressed  by  adhering  to a  discipline  of  solid  fundamental,
conservative  portfolio  management  ideals.  The net asset  value of the Fund's
Class A shares  began  2005 at $10.74 per share and ended the year at $10.60 per
share. The Fund continues to maintain an average credit quality of "AA", with no
bonds rated less than "A". At year-end,  nearly 80% of the  portfolio  was rated
"AAA". Our "laddered"  maturity structure helps us manage price volatility.  The
Fund has an average life of approximately  12.5 years and a modified duration of
approximately 5.35 years. We maintain a  well-diversified  portfolio of over 200
different Kentucky issues.

      We are optimistic about the prospects for the U. S. and Kentucky economies
in 2006,  and will  strive to continue  to react  appropriately  to any signs of
rising  inflation.  It is going to take  continued  vigilance and, if necessary,
intervention  by the  Federal  Reserve to keep our  economy on a positive  track
while addressing  inflation  pressures over the course of 2006. To address these
concerns,  we intend to "stay the  course"  and manage the  portfolio  by taking
advantage of opportunities in the Kentucky  marketplace that are consistent with
the investment objectives of the Fund.

<PAGE>

PERFORMANCE REPORT

      The following graph illustrates the value of $10,000 invested in the Class
A shares of Churchill  Tax-Free  Fund of Kentucky  for the 10-year  period ended
December  31, 2005 as compared  with the Lehman  Brothers  Quality  Intermediate
Municipal Bond Index and the Consumer Price Index (a cost of living index).  The
performance  of each of the  other  classes  is not  shown in the  graph  but is
included in the table  below.  It should be noted that the Lehman Index does not
include any operating expenses nor sales charges and being nationally  oriented,
does not reflect state specific bond market performance.

            [GRAPHIC OF A LINE CHART WITH THE FOLLOWING INFORMATION:]

                     Cost         Without       With       Lehman Brothers
                      of           Sales        Sales     Quality Intermediate
Month/Year          Living        Charge        Charge    Municipal Bond Index
-----------         ------       --------     ----------    ------------
December-95        $10,000       $10,000       $ 9,600        $10,000
December-96         10,332        10,429        10,008         10,427
December-97         10,508        11,249        10,795         11,190
December-98         10,678        11,820        11,343         11,861
December-99         10,964        11,642        11,172         11,896
December-00         11,336        12,613        12,104         12,922
December-01         11,511        13,123        12,594         13,635
December-02         11,785        14,140        13,570         14,894
December-03         12,007        14,847        14,249         15,585
December-04         12,397        15,520        14,894         16,055
December-05         12,821        15,899        15,258         16,322

                                      AVERAGE ANNUAL TOTAL RETURN
                                 FOR PERIODS ENDED DECEMBER 31, 2005
                               ---------------------------------------
                                                               SINCE
CLASS AND INCEPTION DATE       1 YEAR    5 YEARS  10 YEARS   INCEPTION
                               ------    -------  --------   ---------
Class A (5/21/87)
  With Sales Charge .........  (1.75)%    3.85%     4.32%      6.00%
  Without Sales Charge ......   2.39%     4.69%     4.75%      6.23%

Class C (4/01/96)
  With CDSC .................   0.51%     3.81%      n/a       4.10%
  Without CDSC ..............   1.53%     3.81%      n/a       4.10%

Class Y (4/01/96)
  No Sales Charge ...........   2.55%     4.87%      n/a       5.13%

Class I (8/06/01)
  No Sales Charge ...........   2.24%      n/a       n/a       4.38%

COMPARATIVE INDEX

Lehman Index ................   1.66%     4.78%     5.02%      6.09% (Class A)
                                                               5.17% (Class C&Y)
                                                               4.40% (Class I)

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

<PAGE>

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

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

      We have  audited the  accompanying  statement  of assets and  liabilities,
including the schedule of investments, of Churchill Tax-Free Fund of Kentucky as
of December  31, 2005 and the related  statement of  operations,  changes in net
assets,  and the financial  highlights for the year then ended.  These financial
statements  and  financial  highlights  are  the  responsibility  of the  Fund's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and financial highlights based on our audit. The statement of changes
in net assets for the year ended December 31, 2004 and the financial  highlights
for each of the years in the four year period ended  December 31, 2004 have been
audited by other  auditors,  whose report dated  February 18, 2005  expressed an
unqualified opinion on such financial statement and financial highlights.

      We  conducted  our audit in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not  engaged to perform an audit of the  Fund's  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Fund's  internal  control  over  financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the financial  statements.  Our procedures  included  confirmation of securities
owned as of December 31, 2005, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting  principles used and significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audit provides a reasonable  basis
for our opinion.

      In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Churchill  Tax-Free Fund of Kentucky as of December 31, 2005, the results of its
operations,  the changes in its net assets and the financial  highlights for the
year then ended, in conformity with accounting  principles generally accepted in
the United States of America.

                                                        TAIT, WELLER & BAKER LLP

Philadelphia, Pennsylvania
February 16, 2006

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

<PAGE>

                       CHURCHILL TAX-FREE FUND OF KENTUCKY
                             SCHEDULE OF INVESTMENTS
                                DECEMBER 31, 2005

<TABLE>
<CAPTION>
                                                                            RATING
     FACE                                                                  MOODY'S/
    AMOUNT      GENERAL OBLIGATION BONDS (3.4%)                               S&P              VALUE
------------    ----------------------------------------------------       --------       -------------
<S>             <C>                                                         <C>           <C>
                Bowling Green, Kentucky
$    200,000    5.300%, 06/01/18 ...................................        Aa3/NR        $     215,440
                Hardin County, Kentucky
     170,000    5.000%, 06/01/17 AMBAC Insured .....................        Aaa/NR              176,732
                Lexington-Fayette Urban County Government, Kentucky
   2,000,000    4.750%, 05/01/24 FGIC Insured ......................        Aaa/AAA           2,047,080
                Lexington-Fayette Urban County, Kentucky
                   Government Project Unlimited Tax
     125,000    5.000%, 12/01/15 ...................................        Aa2/AA+             132,172
     340,000    5.150%, 12/01/17 ...................................        Aa2/AA+             362,552
                Louisville - Jefferson County, Kentucky Metro
                   Government Unlimited Tax
   1,590,000    5.000%, 11/01/19 ...................................        Aa2/AA            1,709,584
   1,825,000    5.000%, 11/01/20 ...................................        Aa2/AA            1,955,232
                Louisville, Kentucky Unlimited Tax
   2,205,000    5.000%, 10/01/21 FGIC Insured ......................        Aaa/AAA           2,316,705
                Warren County, Kentucky Judicial Unlimited Tax
     345,000    5.100%, 09/01/17 AMBAC Insured .....................        Aaa/NR              372,048
     365,000    5.150%, 09/01/18 AMBAC Insured .....................        Aaa/NR              394,277
                                                                                          -------------
                Total General Obligation Bonds                                                9,681,822
                                                                                          -------------

                REVENUE BONDS (95.6%)

                STATE AGENCIES (34.5%)
                Kentucky Area Development District Financing
     500,000    5.000%, 12/01/23 LOC Wachovia Bank .................         NR/AA              523,670
                Kentucky Asset/Liability Commission
     500,000    4.500%, 10/01/22 FGIC Insured ......................        Aaa/AAA             509,055
                Kentucky Infrastructure Authority
   1,000,000    5.250%, 06/01/12 ...................................        Aa3/A+            1,075,270
     635,000    5.250%, 06/01/12 ...................................        Aa3/A+              656,228
   2,740,000    5.250%, 06/01/14 ...................................        Aa3/A+            2,937,938
   1,235,000    5.250%, 08/01/17 ...................................         NR/AA            1,348,879
     100,000    5.000%, 06/01/18 ...................................        Aa3/A+              105,211
     230,000    5.000%, 06/01/21 ...................................        Aa3/A+              241,300
     220,000    6.000%, 09/01/08 ...................................        Aa3/A+              234,454
                Kentucky State Property and Buildings Commission
   4,000,000    5.375%, 02/01/14 FSA Insured (pre-refunded) ........        Aaa/AAA           4,393,200
     400,000    5.250%, 10/01/14 (pre-refunded) ....................        Aa3/A+              431,752
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                            RATING
     FACE                                                                  MOODY'S/
    AMOUNT      REVENUE BONDS (CONTINUED)                                     S&P              VALUE
------------    ----------------------------------------------------       --------       -------------
<S>             <C>                                                         <C>           <C>
                STATE AGENCIES (CONTINUED)
                Kentucky State Property and
                   Buildings Commission (continued)
$  3,250,000    5.625%, 09/01/15 (pre-refunded) ....................        Aa3/A+        $   3,555,858
     460,000    5.125%, 09/01/15 (pre-refunded) ....................        Aa3/AAA             493,470
   1,000,000    5.000%, 11/01/15 AMBAC Insured .....................        Aaa/AAA           1,080,490
     100,000    5.375%, 05/01/16 MBIA Insured (pre-refunded) .......        Aaa/AAA             107,092
   3,775,000    5.375%, 08/01/16 (pre-refunded) ....................        Aaa/AAA           4,126,415
   2,725,000    5.375%, 08/01/16 FSA Insured .......................        Aaa/AAA           2,945,725
   3,905,000    5.125%, 09/01/16 (pre-refunded) ....................        Aa3/AAA           4,189,128
   5,000,000    5.250%, 10/01/16 ...................................        Aa3/A+            5,360,800
   1,100,000    5.000%, 11/01/16 AMBAC Insured .....................        Aaa/AAA           1,184,689
   1,265,000    5.250%, 08/01/17 MBIA Insured (pre-refunded) .......        Aaa/AAA           1,395,181
     975,000    5.000%, 08/01/17 FSA Insured .......................        Aaa/AAA           1,024,735
   8,155,000    5.125%, 09/01/17 (pre-refunded) ....................        Aa3/AAA           8,748,358
     200,000    5.375%, 10/01/17 MBIA Insured (pre-refunded) .......        Aaa/AAA             219,116
   4,735,000    5.250%, 10/01/17 ...................................        Aa3/A+            5,065,030
   1,250,000    5.500%, 11/01/17 FSA Insured .......................        Aaa/AAA           1,382,913
   1,000,000    5.000%, 11/01/17 AMBAC Insured .....................        Aaa/AAA           1,072,100
     165,000    5.375%, 02/01/18 FSA Insured (pre-refunded) ........        Aaa/AAA             181,219
   3,030,000    5.000%, 08/01/18 FSA Insured (pre-refunded) ........        Aaa/AAA           3,255,038
   3,950,000    5.125%, 09/01/18 (pre-refunded) ....................        Aa3/AAA           4,228,633
   6,000,000    5.250%, 10/01/18 ...................................        Aa3/A+            6,403,500
   1,000,000    5.500%, 11/01/18 FSA Insured .......................        Aaa/AAA           1,106,330
     155,000    5.100%, 11/01/18 FSA Insured .......................        Aaa/AAA             165,847
     145,000    5.100%, 11/01/18 (pre-refunded) ....................        Aa3/AAA             153,598
   1,500,000    5.000%, 11/01/18 AMBAC Insured .....................        Aaa/AAA           1,602,930
   4,000,000    5.375%, 10/01/19 MBIA Insured (pre-refunded) .......        Aaa/AAA           4,382,320
   1,925,000    5.000%, 10/01/19 ...................................        Aa3/A+            2,018,767
     360,000    5.000%, 10/01/19 MBIA Insured (pre-refunded) .......        Aaa/AAA             387,450
     785,000    5.150%, 11/01/19 FSA Insured .......................        Aaa/AAA             843,239
   3,000,000    5.000%, 11/01/19 FSA Insured .......................        Aaa/AAA           3,177,420
   2,000,000    5.750%, 05/01/20 MBIA Insured (pre-refunded) .......        Aaa/AAA           2,183,980
     250,000    5.000%, 05/01/20 FSA Insured .......................        Aaa/AAA             261,377
     200,000    5.000%, 08/01/21 FSA Insured (pre-refunded) ........        Aaa/AAA             214,854
     270,000    5.100%, 10/01/21 MBIA Insured (pre-refunded) .......        Aaa/AAA             291,978
     255,000    5.150%, 02/01/22 FSA Insured (pre-refunded) ........        Aaa/AAA             276,958
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                            RATING
     FACE                                                                  MOODY'S/
    AMOUNT      REVENUE BONDS (CONTINUED)                                     S&P              VALUE
------------    ----------------------------------------------------       --------       -------------
<S>             <C>                                                         <C>           <C>
                STATE AGENCIES (CONTINUED)
                Kentucky State Property and
                   Buildings Commission (continued)
$  5,000,000    5.000%, 10/01/22 MBIA Insured (pre-refunded) .......        Aaa/AAA       $   5,440,700
     235,000    5.000%, 08/01/23 MBIA Insured (pre-refunded) .......        Aaa/AAA             255,332
      80,000    5.000%, 08/01/23 MBIA Insured (pre-refunded) .......        Aaa/AAA              86,922
                Kentucky State Property Buildings Community Revenues
   7,200,000    5.000%, 08/01/21 FSA Insured .......................        Aaa/AAA           7,690,896
                                                                                          -------------
                Total State Agencies                                                         99,017,345
                                                                                          -------------

                COUNTY AGENCIES (6.5%)
                Jefferson County, Kentucky Capital Projects
     430,000    5.200%, 06/01/12 MBIA Insured ......................        Aaa/AAA             449,208
     570,000    5.250%, 06/01/13 MBIA Insured ......................        Aaa/AAA             595,451
     520,000    5.250%, 06/01/14 MBIA Insured ......................        Aaa/AAA             543,218
   3,370,000    5.375%, 06/01/18 MBIA Insured ......................        Aaa/AAA           3,526,200
   1,640,000    5.375%, 06/01/22 MBIA Insured ......................        Aaa/AAA           1,713,702
   5,935,000    5.500%, 06/01/28 MBIA Insured ......................        Aaa/AAA           6,211,749
                Nelson County, Kentucky Court Facilities
                   Project Revenue
     185,000    5.000%, 06/01/21 ...................................        Aa3/NR              194,502
                Warren County, Kentucky Justice Center
   1,580,000    5.250%, 09/01/17 MBIA Insured ......................        Aaa/AAA           1,660,422
                Warren County, Kentucky Justice Center Expansion
                   Corp. Revenue
     700,000    5.400%, 09/01/24 ...................................        Aa3/NR              761,355
   2,895,000    5.350%, 09/01/29 MBIA Insured ......................        Aaa/AAA           3,046,988
                                                                                          -------------
                Total County Agencies                                                        18,702,795
                                                                                          -------------

                CITY/MUNICIPALITY OBLIGATIONS (0.9%)
                Jeffersontown, Kentucky Public Project Corp.
     500,000    5.750%, 11/01/15 ...................................         A3/NR              519,690
                Lexington-Fayette Urban County Government,
                   Kentucky Public Facilities Revenue
     180,000    5.125%, 10/01/23 FSA Insured .......................        Aaa/AAA             189,909
                Louisville, Kentucky Parking Authority
   1,140,000    5.000%, 12/01/14 MBIA Insured ......................        Aaa/AAA           1,190,833
                Shelbyville, Kentucky Certificates of Participation
     625,000    5.000%, 10/01/22 ...................................         A2/NR              653,669
                                                                                          -------------
                Total City/Municipality Obligations                                           2,554,101
                                                                                          -------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                            RATING
     FACE                                                                  MOODY'S/
    AMOUNT      REVENUE BONDS (CONTINUED)                                     S&P              VALUE
------------    ----------------------------------------------------       --------       -------------
<S>             <C>                                                         <C>           <C>
                HOSPITALS (3.4%)
                Jefferson County, Kentucky Health Facilities Revenue
$    240,000    5.000%, 10/01/12 MBIA Insured ......................        Aaa/AAA       $     250,051
   1,715,000    5.650%, 01/01/17 AMBAC Insured .....................        Aaa/AAA           1,783,326
   2,200,000    5.250%, 05/01/17 ...................................          NR/A            2,331,384
     815,000    5.125%, 10/01/17 AMBAC Insured ETM .................        Aaa/AAA             844,079
     125,000    5.750%, 01/01/26 AMBAC Insured .....................        Aaa/AAA             130,037
                Jefferson County, Kentucky Revenue Medical
                   Center Revenue
   2,000,000    5.500%, 05/01/22 ...................................          NR/A            2,149,080
                Kentucky Economic Development Finance Authority
   1,000,000    5.000%, 02/01/18 FSA Insured .......................        Aaa/AAA           1,028,870
                Louisville - Jefferson County, Kentucky Medical
                   Center Revenue
   1,000,000    5.000%, 06/01/18 ...................................          NR/A            1,067,070
                                                                                          -------------
                Total Hospitals                                                               9,583,897
                                                                                          -------------

                HOUSING (8.2%)
                Kentucky Housing Corp. Housing Revenue
     250,000    4.100%, 01/01/15 AMT ...............................        Aaa/AAA             248,882
     170,000    4.100%, 07/01/15 AMT ...............................        Aaa/AAA             169,206
     210,000    4.300%, 01/01/16 AMT ...............................        Aaa/AAA             211,527
     200,000    4.200%, 01/01/16 AMT ...............................        Aaa/AAA             199,402
     610,000    4.300%, 07/01/16 AMT ...............................        Aaa/AAA             604,461
     550,000    4.200%, 07/01/16 AMT ...............................        Aaa/AAA             548,289
     555,000    4.200%, 01/01/17 ...................................        Aaa/AAA             553,546
     100,000    5.125%, 07/01/17 ...................................        Aaa/AAA             102,355
     680,000    4.200%, 07/01/17 ...................................        Aaa/AAA             678,157
     285,000    4.250%, 01/01/18 ...................................        Aaa/AAA             283,940
      95,000    5.550%, 07/01/18 AMT ...............................        Aaa/AAA              95,000
     180,000    4.250%, 07/01/18 ...................................        Aaa/AAA             179,309
   2,000,000    5.600%, 07/01/20 AMT ...............................        Aaa/AAA           2,091,860
   1,150,000    5.350%, 01/01/21 AMT ...............................        Aaa/AAA           1,184,109
   6,275,000    5.450%, 07/01/22 AMT ...............................        Aaa/AAA           6,528,134
   4,065,000    5.250%, 07/01/22 AMT ...............................        Aaa/AAA           4,186,909
     245,000    5.200%, 07/01/22 ...................................        Aaa/AAA             251,715
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                            RATING
     FACE                                                                  MOODY'S/
    AMOUNT      REVENUE BONDS (CONTINUED)                                     S&P              VALUE
------------    ----------------------------------------------------       --------       -------------
<S>             <C>                                                         <C>           <C>
                HOUSING (CONTINUED)
                Kentucky Housing Corp. Housing Revenue (continued)
$    300,000    5.100%, 07/01/22 AMT ...............................        Aaa/AAA       $     307,149
   4,140,000    5.200%, 07/01/25 AMT ...............................        Aaa/AAA           4,252,277
     275,000    5.375%, 07/01/27 ...................................        Aaa/AAA             283,866
     570,000    5.550%, 07/01/33 ...................................        Aaa/AAA             590,554
                                                                                          -------------
                Total Housing                                                                23,550,647
                                                                                          -------------

                SCHOOLS (19.0%)
                Beechwood, Kentucky Independent School
                   District Finance Corp.
     180,000    5.650%, 03/01/20 ...................................         Aa3/NR             193,786
                Berea, Kentucky Educational Facilities Revenue
                   (Berea College)
   1,000,000    4.125%, 06/01/25 ...................................         Aaa/NR             975,810
                Boone County, Kentucky School District Finance Corp.
   1,730,000    4.125%, 08/01/22 XLCA Insured ......................         Aaa/NR           1,690,314
                Boone County, Kentucky School District
                   Finance Corp. School Building
     660,000    5.000%, 06/01/15 ...................................         Aa3/NR             686,756
     225,000    5.250%, 08/01/15 ...................................         Aa3/NR             240,266
     285,000    5.700%, 02/01/16 ...................................         Aa3/NR             308,587
     140,000    4.750%, 06/01/20 FSA Insured .......................        Aaa/AAA             145,156
   1,000,000    5.375%, 08/01/20 FSA Insured .......................         AAA/NR           1,067,840
                Boyd County, Kentucky School District Finance Corp.
   1,025,000    5.000%, 10/01/15 ...................................         Aa3/NR           1,079,797
     575,000    5.375%, 10/01/17 ...................................         Aa3/NR             603,830
                Bullitt County, Kentucky School District Finance Corp.
     200,000    4.300%, 10/01/21 ...................................         Aaa/NR             201,730
   2,455,000    4.500%, 10/01/22 MBIA Insured ......................         Aaa/NR           2,531,842
   2,590,000    4.500%, 10/01/23 MBIA Insured ......................         Aaa/NR           2,665,291
                Christian County, Kentucky School District Finance Corp.
     500,000    5.000%, 06/01/09 ...................................         Aa3/NR             521,115
     820,000    4.000%, 08/01/19 XLCA Insured ......................         Aaa/NR             807,315
     855,000    4.000%, 08/01/20 XLCA Insured ......................         Aaa/NR             837,396
     905,000    4.000%, 08/01/21 XLCA Insured ......................         Aaa/NR             881,407
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                            RATING
     FACE                                                                  MOODY'S/
    AMOUNT      REVENUE BONDS (CONTINUED)                                     S&P              VALUE
------------    ----------------------------------------------------       --------       -------------
<S>             <C>                                                         <C>           <C>
                SCHOOLS (CONTINUED)
                Christian County, Kentucky School District
                   Finance Corp. (continued)
$  1,465,000    4.000%, 08/01/22 XLCA Insured ......................         Aaa/NR       $   1,418,325
   1,525,000    4.125%, 08/01/23 XLCA Insured ......................         Aaa/NR           1,483,108
   1,590,000    4.125%, 08/01/24 XLCA Insured ......................         Aaa/NR           1,536,830
                Daviess County, Kentucky School District Finance Corp.
     200,000    5.000%, 06/01/24 ...................................         Aa3/NR             210,646
                Fayette County, Kentucky School Building Revenue
     200,000    5.125%, 04/01/18 AMBAC Insured .....................        Aaa/AAA             213,228
                Fayette County, Kentucky School District Finance Corp.
   5,000,000    4.250%, 04/01/23 FSA Insured .......................        Aaa/AAA           4,939,500
                Floyd County, Kentucky School Building
     250,000    5.000%, 12/01/09 ...................................         Aa3/NR             263,945
     680,000    4.375%, 10/01/22 ...................................         Aa3/NR             688,847
                Franklin County, Kentucky School District Finance Corp.
   1,000,000    5.000%, 04/01/24 ...................................         Aa3/NR           1,052,320
                Graves County, Kentucky School Building Revenue
   1,260,000    5.000%, 06/01/22 ...................................         Aa3/NR           1,330,925
   1,320,000    5.000%, 06/01/23 ...................................         Aa3/NR           1,390,858
                Hardin County, Kentucky School District Finance Corp.
     100,000    5.500%, 02/01/17 (pre-refunded) ....................         Aa3/NR             108,832
   1,475,000    4.000%, 02/01/19 AMBAC Insured .....................         Aaa/NR           1,452,816
                Hickman County, Kentucky School District Finance Corp.
                   School Building Revenue
     250,000    5.000%, 06/01/24 ...................................         Aa3/NR             263,308
                Jefferson County, Kentucky School District Finance Corp.
                   School Building
     750,000    5.300%, 01/01/13 FSA Insured .......................        Aaa/AAA             825,240
     250,000    5.250%, 07/01/16 FSA Insured .......................        Aaa/AAA             265,450
     150,000    9.500%, 04/01/20 FSA Insured .......................        Aaa/AAA             157,654
   1,360,000    4.250%, 06/01/21 FSA Insured .......................        Aaa/AAA           1,362,040
                Jessamine County, Kentucky School District Finance Corp.
                   School Building Revenue
   1,205,000    4.900%, 05/01/22 ...................................         Aa3/NR           1,250,657
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                            RATING
     FACE                                                                  MOODY'S/
    AMOUNT      REVENUE BONDS (CONTINUED)                                     S&P              VALUE
------------    ----------------------------------------------------       --------       -------------
<S>             <C>                                                         <C>           <C>
                SCHOOLS (CONTINUED)
                Kenton County, Kentucky School District
$    955,000    5.000%, 04/01/16 ...................................         Aa3/NR       $   1,008,833
   1,055,000    5.000%, 04/01/17 ...................................         Aa3/NR           1,114,470
     605,000    5.000%, 04/01/19 ...................................         Aa3/NR             637,737
                Kentucky Economic Development Finance Authority
                   College Revenue Centre College
   1,230,000    5.000%, 04/01/17 FSA Insured .......................        Aaa/AAA           1,304,194
   1,675,000    5.000%, 04/01/19 FSA Insured .......................        Aaa/AAA           1,767,929
                Lexington-Fayette Urban County, Kentucky Government
                   Project Transylvania University
   1,320,000    5.125%, 08/01/18 MBIA Insured ......................        Aaa/AAA           1,384,693
                Lexington-Fayette Urban County, Kentucky Government
                   Project U.K. Library
     725,000    5.000%, 11/01/15 MBIA Insured ......................        Aaa/AAA             765,085
     305,000    5.000%, 11/01/18 MBIA Insured ......................        Aaa/AAA             320,851
     300,000    5.000%, 11/01/20 MBIA Insured ......................        Aaa/AAA             314,598
                Lincoln County, Kentucky School District
     250,000    4.800%, 08/01/19 ...................................         Aa3/NR             261,135
                Louisville & Jefferson County, Kentucky University
                   of Louisville
     500,000    5.000%, 06/01/19 AMBAC Insured .....................        Aaa/AAA             536,825
     525,000    5.000%, 06/01/20 AMBAC Insured .....................        Aaa/AAA             561,970
                Oldham County, Kentucky School District Finance Corp.
     700,000    5.000%, 05/01/19 MBIA Insured ......................         Aaa/NR             746,543
                Scott County, Kentucky School Building
     100,000    5.000%, 03/01/22 ...................................         Aa3/NR             105,570
                Scott County, Kentucky School District Finance Corp.
   1,115,000    4.200%, 01/01/22 AMBAC Insured .....................         Aaa/NR           1,117,486
   1,955,000    4.250%, 01/01/23 AMBAC Insured .....................         Aaa/NR           1,962,253
   1,560,000    4.300%, 01/01/24 AMBAC Insured .....................         Aaa/NR           1,565,772
                Spencer County, Kentucky School District Finance Corp.
   1,415,000    5.000%, 07/01/19 FSA insured .......................         Aaa/NR           1,510,739
                University of Kentucky Revenue
   1,335,000    5.000%, 05/01/16 FGIC Insured (pre-refunded) .......        Aaa/AAA           1,420,680
     505,000    5.000%, 06/01/18 FSA insured .......................         Aaa/NR             531,654
                                                                                          -------------
                Total Schools                                                                54,591,784
                                                                                          -------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                            RATING
     FACE                                                                  MOODY'S/
    AMOUNT      REVENUE BONDS (CONTINUED)                                     S&P              VALUE
------------    ----------------------------------------------------       --------       -------------
<S>             <C>                                                         <C>           <C>
                TRANSPORTATION (11.8%)
                Kenton County, Kentucky Airport Board
                   Airport Revenue
$    500,000    5.625%, 03/01/13 MBIA Insured AMT ..................        Aaa/AAA       $     545,055
   1,570,000    5.000%, 03/01/13 MBIA Insured AMT ..................        Aaa/AAA           1,665,770
     750,000    5.625%, 03/01/14 MBIA Insured AMT ..................        Aaa/AAA             816,300
   1,000,000    5.500%, 03/01/17 MBIA Insured AMT ..................        Aaa/AAA           1,081,500
   2,230,000    5.500%, 03/01/18 MBIA Insured AMT ..................        Aaa/AAA           2,406,014
   1,300,000    5.000%, 03/01/23 MBIA Insured AMT ..................        Aaa/AAA           1,340,924
                Kentucky Interlocal School Transportation Authority
     145,000    5.400%, 06/01/17 ...................................         Aa3/A+             145,905
     400,000    6.000%, 12/01/20 ...................................         Aa3/A+             406,676
     200,000    6.000%, 12/01/20 ...................................         Aa3/A+             203,338
     300,000    5.800%, 12/01/20 ...................................         Aa3/A+             304,767
     400,000    5.650%, 12/01/20 ...................................         Aa3/A+             406,116
     350,000    5.600%, 12/01/20 ...................................         Aa3/A+             355,281
                Kentucky State Turnpike Authority Economic
                   Development & Resource Recovery Road Revenue
   1,000,000    5.625%, 07/01/12 FSA Insured (pre-refunded) ........        Aaa/AAA           1,096,980
     200,000    5.625%, 07/01/13 FSA Insured (pre-refunded) ........        Aaa/AAA             219,396
     500,000    5.625%, 07/01/14 FSA Insured (pre-refunded) ........        Aaa/AAA             548,490
     250,000    5.200%, 07/01/14 FSA Insured (pre-refunded) ........        Aaa/AAA             269,417
     450,000    5.250%, 07/01/15 FSA Insured (pre-refunded) ........        Aaa/AAA             485,973
   2,775,000    5.250%, 07/01/16 FSA Insured .......................        Aaa/AAA           2,996,889
     160,000    5.000%, 07/01/17 FSA Insured .......................        Aaa/AAA             168,862
   3,455,000    5.100%, 07/01/18 FSA Insured .......................        Aaa/AAA           3,659,812
                Louisville-Jefferson County Regional Airport, Kentucky
   1,000,000    5.500%, 07/01/12 FSA Insured AMT ...................        Aaa/AAA           1,086,170
   2,000,000    5.750%, 07/01/15 FSA Insured AMT ...................        Aaa/AAA           2,191,180
   2,000,000    5.500%, 07/01/15 FSA Insured AMT ...................        Aaa/AAA           2,184,360
   1,650,000    5.750%, 07/01/17 FSA Insured AMT ...................        Aaa/AAA           1,794,111
   1,000,000    5.250%, 07/01/18 FSA Insured AMT ...................        Aaa/AAA           1,062,900
   1,000,000    5.000%, 07/01/18 FSA Insured AMT ...................        Aaa/AAA           1,033,490
   1,370,000    5.250%, 07/01/21 FSA Insured AMT ...................        Aaa/AAA           1,445,391
   3,390,000    5.250%, 07/01/22 FSA Insured AMT ...................        Aaa/AAA           3,572,145
     275,000    5.375%, 07/01/23 FSA Insured AMT ...................        Aaa/AAA             290,309
                                                                                          -------------
                Total Transportation                                                         33,783,521
                                                                                          -------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                            RATING
     FACE                                                                  MOODY'S/
    AMOUNT      REVENUE BONDS (CONTINUED)                                     S&P              VALUE
------------    ----------------------------------------------------       --------       -------------
<S>             <C>                                                         <C>           <C>
                UTILITIES (11.3%)
                Bardstown, Kentucky
$    200,000    5.000%, 12/01/19 MBIA Insured ......................         Aaa/NR       $     213,044
                Boone County, Kentucky Pollution Control
                   Rev. - Dayton Power & Light
   1,000,000    4.700%, 01/01/28 FGIC Insured ......................        Aaa/AAA           1,013,760
                Campbell & Kenton Counties, Kentucky
                   Sanitation Sewer District
     100,000    5.000%, 08/01/24 FSA Insured .......................        Aaa/AAA             104,258
                Kentucky Rural Water Finance Corp.
     595,000    5.000%, 02/01/20 AMBAC Insured .....................        Aaa/AAA             628,487
                Lexington-Fayette Urban County Government,
                   Kentucky Sewer System
   1,000,000    5.000%, 07/01/19 ...................................         Aa3/AA           1,058,920
                Louisville & Jefferson County, Kentucky
                   Metropolitan Sewer District
   1,000,000    5.000%, 05/15/12 FGIC Insured ......................        Aaa/AAA           1,044,270
   2,565,000    5.375%, 05/15/17 MBIA Insured ......................        Aaa/AAA           2,800,159
     125,000    5.300%, 05/15/18 MBIA Insured ......................        Aaa/AAA             130,370
   2,180,000    5.000%, 05/15/18 FSA Insured .......................        Aaa/AAA           2,345,200
   2,380,000    4.250%, 05/15/20 FSA Insured .......................        Aaa/AAA           2,381,714
   2,510,000    4.250%, 05/15/21 FSA Insured .......................        Aaa/AAA           2,501,466
     400,000    5.000%, 05/15/22 FGIC Insured ......................        Aaa/AAA             415,304
                Louisville, Kentucky Waterworks Board Water
                   System Revenue
   1,000,000    5.250%, 11/15/16 FSA Insured .......................        Aaa/AAA           1,071,090
   1,000,000    5.250%, 11/15/17 FSA Insured .......................        Aaa/AAA           1,071,090
   2,530,000    5.250%, 11/15/18 FSA Insured .......................        Aaa/AAA           2,709,858
     205,000    5.250%, 11/15/19 FSA Insured .......................        Aaa/AAA             217,138
   6,600,000    5.250%, 11/15/22 FSA Insured .......................        Aaa/AAA           7,060,086
   2,415,000    5.250%, 11/15/24 FSA Insured .......................        Aaa/AAA           2,578,930
                Northern Kentucky Water District
     660,000    5.000%, 02/01/23 FGIC Insured ......................         Aaa/NR             688,024
                Owensboro-Davies County, Kentucky Water District
     600,000    5.000%, 01/01/13 AMBAC Insured .....................        Aaa/AAA             616,860
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                            RATING
     FACE                                                                  MOODY'S/
    AMOUNT      REVENUE BONDS (CONTINUED)                                     S&P              VALUE
------------    ----------------------------------------------------       --------       -------------
<S>             <C>                                                         <C>           <C>
                UTILITIES (CONTINUED)
                Owensboro, Kentucky Electric and Power
$  1,555,000    5.000%, 01/01/20 FSA Insured .......................        Aaa/AAA       $   1,628,785
                                                                                          -------------
                Total Utilities                                                              32,278,813
                                                                                          -------------
                   Total Revenue Bonds                                                      274,062,903
                                                                                          -------------

                   Total Investments (cost $275,656,661**) .........          99.0%         283,744,725
                   Other assets less liabilities ...................           1.0            2,941,995
                                                                            ------        -------------
                   Net Assets ......................................         100.0%       $ 286,686,720
                                                                            ======        =============
</TABLE>

                                                                 PERTCENT OF
   PORTFOLIO DISTRIBUTION BY QUALITY RATING (UNAUDITED)           PORTFOLIO
   -------------------------------------------------------------------------
   Aaa of Moody's or AAA of S&P ..........................          79.5%
   Aa of Moody's or AA of S&P ............................          18.1
   A of Moody's or S&P ...................................           2.4
                                                                  ------
                                                                   100.0%
                                                                  ======

      *     Any security not rated (NR) by either credit rating service has been
            determined by the Manager to have sufficient quality to be ranked in
            the top four credit ratings if a credit rating was to be assigned by
            a rating service.

      **    See note 4.

                            PORTFOLIO ABBREVIATIONS:
               -------------------------------------------------
               AMBAC -   American Municipal Bond Assurance Corp.
               AMT   -   Alternative Minimum Tax
               ETM   -   Escrowed To Maturity
               FGIC  -   Financial Guaranty Insurance Co.
               FSA   -   Financial Security Assurance
               LOC   -   Letter of Credit
               MBIA  -   Municipal Bond Investors Assurance
               NR    -   Not Rated
               XLCA  -   XL Capital Assurance

                See accompanying notes to financial statements.

<PAGE>

                       CHURCHILL TAX-FREE FUND OF KENTUCKY
                       STATEMENT OF ASSETS AND LIABILITIES
                                DECEMBER 31, 2005

<TABLE>
<S>                                                                                        <C>
ASSETS
     Investments at value (cost $275,656,661) .........................................    $283,744,725
     Cash .............................................................................         335,218
     Interest receivable ..............................................................       4,084,023
     Receivable for Fund shares sold ..................................................         105,333
     Other assets .....................................................................          10,876
                                                                                           ------------
     Total assets .....................................................................     288,280,175
                                                                                           ------------
LIABILITIES
   Payable for investment securities purchased ........................................         520,886
   Payable for Fund shares redeemed ...................................................         434,299
   Dividends payable ..................................................................         356,158
   Management fee payable .............................................................          97,275
   Distribution and service fees payable ..............................................          68,330
   Accrued expenses ...................................................................         116,507
                                                                                           ------------
Total liabilities .....................................................................       1,593,455
                                                                                           ------------
NET ASSETS ............................................................................    $286,686,720
                                                                                           ============
   Net Assets consist of:
   Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share     $    270,458
   Additional paid-in capital .........................................................     277,019,303
   Net unrealized appreciation on investments (note 4) ................................       8,088,064
   Undistributed net investment income ................................................         434,620
   Accumulated net realized gain on investments .......................................         874,275
                                                                                           ------------
                                                                                           $286,686,720
                                                                                           ============
CLASS A
   Net Assets .........................................................................    $223,810,514
                                                                                           ============
   Capital shares outstanding .........................................................      21,115,833
                                                                                           ============
   Net asset value and redemption price per share .....................................    $      10.60
                                                                                           ============
   Offering price per share (100/96 of $10.60 adjusted to nearest cent) ...............    $      11.04
                                                                                           ============
CLASS C
   Net Assets .........................................................................    $  7,295,962
                                                                                           ============
   Capital shares outstanding .........................................................         688,650
                                                                                           ============
   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 .........................................................................    $  7,764,453
                                                                                           ============
   Capital shares outstanding .........................................................         732,909
                                                                                           ============
   Net asset value, offering and redemption price per share ...........................    $      10.59
                                                                                           ============
CLASS Y
   Net Assets .........................................................................    $ 47,815,791
                                                                                           ============
   Capital shares outstanding .........................................................       4,508,378
                                                                                           ============
   Net asset value, offering and redemption price per share ...........................    $      10.61
                                                                                           ============
</TABLE>

                See accompanying notes to financial statements.

<PAGE>

                       CHURCHILL TAX-FREE FUND OF KENTUCKY
                             STATEMENT OF OPERATIONS
                          YEAR ENDED DECEmber 31, 2005

<TABLE>
<S>                                                                       <C>               <C>
INVESTMENT INCOME:

     Interest income ................................................                       $  13,123,385

Expenses:

     Management fee (note 3) ........................................     $    1,183,610
     Distribution and service fees (note 3) .........................            441,913
     Transfer and shareholder servicing agent fees ..................            174,325
     Trustees' fees and expenses (note 8) ...........................            132,112
     Legal fees (note 3) ............................................             77,219
     Fund accounting fees ...........................................             66,928
     Shareholders' reports and proxy statements .....................             66,053
     Custodian fees .................................................             57,745
     Registration fees and dues .....................................             23,483
     Auditing and tax fees ..........................................             21,000
     Insurance ......................................................             19,199
     Chief compliance officer (note 3) ..............................              4,544
     Miscellaneous ..................................................             22,057
                                                                          --------------
     Total expenses .................................................          2,290,188

     Expenses paid indirectly (note 6) ..............................            (23,752)
                                                                          --------------
     Net expenses ...................................................                           2,266,436
                                                                                            -------------
     Net investment income ..........................................                          10,856,949

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

     Net realized gain (loss) from securities transactions ..........          1,064,505
     Change in unrealized appreciation on investments ...............         (4,961,711)
                                                                          --------------
     Net realized and unrealized gain (loss) on investments .........                          (3,897,206)
                                                                                            -------------
     Net change in net assets resulting from operations .............                       $   6,959,743
                                                                                            =============
</TABLE>

                See accompanying notes to financial statements.

<PAGE>

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

<TABLE>
<CAPTION>
                                                                YEAR ENDED          YEAR ENDED
                                                            DECEMBER 31, 2005   DECEMBER 31, 2004
                                                            -----------------   -----------------
<S>                                                           <C>                 <C>
OPERATIONS:
     Net investment income ...............................    $  10,856,949       $  11,464,403
     Net realized gain (loss) from securities transactions        1,064,505             950,051
     Change in unrealized appreciation on investments ....       (4,961,711)            (56,557)
                                                              -------------       -------------
       Change in net assets from operations ..............        6,959,743          12,357,897
                                                              -------------       -------------

DISTRIBUTIONS TO SHAREHOLDERS (NOTE 10):
     Class A Shares:
     Net investment income ...............................       (8,497,105)         (9,151,161)

     Class C Shares:
     Net investment income ...............................         (226,903)           (225,967)

     Class I Shares:
     Net investment income ...............................         (277,644)           (239,947)

     Class Y Shares:
     Net investment income ...............................       (1,888,768)         (1,763,764)
                                                              -------------       -------------
       Change in net assets from distributions ...........      (10,890,420)        (11,380,839)
                                                              -------------       -------------

CAPITAL SHARE TRANSACTIONS (NOTE 7):
     Proceeds from shares sold ...........................       33,559,576          45,176,081
     Reinvested dividends and distributions ..............        4,311,984           5,174,766
     Cost of shares redeemed .............................      (44,707,514)        (40,998,605)
                                                              -------------       -------------
     Change in net assets from capital share transactions        (6,835,954)          9,352,242
                                                              -------------       -------------

     Change in net assets ................................      (10,766,631)         10,329,300

NET ASSETS:
     Beginning of period .................................      297,453,351         287,124,051
                                                              -------------       -------------

     End of period* ......................................    $ 286,686,720       $ 297,453,351
                                                              =============       =============

     * Includes undistributed net investment income of:       $     434,620       $     468,091
                                                              =============       =============
</TABLE>

                See accompanying notes to financial statements.

<PAGE>

                       CHURCHILL TAX-FREE FUND OF KENTUCKY
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2005

1. ORGANIZATION

      Churchill  Tax-Free  Fund of Kentucky  (the  "Fund"),  a  non-diversified,
open-end  investment  company,  was organized in March,  1987 as a Massachusetts
business trust and commenced  operations on May 21, 1987. The Fund is authorized
to issue an  unlimited  number of shares and,  since its  inception  to April 1,
1996,  offered only one class of shares.  On that date,  the Fund began offering
two  additional  classes  of  shares,  Class C and  Class Y shares.  All  shares
outstanding  prior to that date were  designated  as Class A shares and are sold
with a front-payment  sales charge and bear an annual  distribution fee. Class C
shares are sold with a  level-payment  sales  charge  with no payment at time of
purchase but level service and distribution fees from date of purchase through a
period of six years  thereafter.  A  contingent  deferred  sales charge of 1% is
assessed to any Class C shareholder  who redeems shares of this Class within one
year from the date of purchase.  Class C Shares together with a pro-rata portion
of all Class C Shares  acquired  through  reinvestment  of  dividends  and other
distributions paid in additional Class C Shares,  automatically convert to Class
A Shares  after 6 years.  The Class Y shares are only  offered  to  institutions
acting for an investor in a fiduciary,  advisory,  agency,  custodian or similar
capacity and are not offered  directly to retail  investors.  Class Y shares are
sold at net asset value without any sales charge,  redemption  fees,  contingent
deferred  sales charge or  distribution  or service fees. On April 30, 1998, the
Fund  established  Class I shares,  which  are  offered  and sold  only  through
financial intermediaries and are not offered directly to retail investors. Class
I Shares are sold at net asset value without any sales charge,  redemption fees,
or contingent deferred sales charge. Class I shares carry a distribution fee and
a service fee. All classes of shares  represent  interests in the same portfolio
of  investments  and are identical as to rights and  privileges  but differ with
respect to the effect of sales  charges,  the  distribution  and/or service fees
borne by each class,  expenses specific to each class,  voting rights on matters
affecting a single class and the exchange privileges of each class.

2. SIGNIFICANT ACCOUNTING POLICIES

      The following is a summary of significant  accounting policies followed by
the Fund in the  preparation  of its financial  statements.  The policies are in
conformity with accounting principles generally accepted in the United States of
America for investment companies.

a)    PORTFOLIO VALUATION:  Municipal securities which have remaining maturities
      of more than 60 days are valued each  business day based upon  information
      provided  by  a  nationally  prominent  independent  pricing  service  and
      periodically  verified  through  other  pricing  services.  In the case of
      securities for which market quotations are readily  available,  securities
      are valued by the pricing service at the mean of bid and asked quotations.
      If market  quotations  or a  valuation  from the  pricing  service  is not
      readily available, the security is valued at fair value determined in good
      faith under procedures established by and under the general supervision of
      the  Board of  Trustees.  Securities  which  mature in 60 days or less are
      valued at amortized cost if their term to maturity at

<PAGE>

      purchase  is  60  days  or  less,  or  by  amortizing   their   unrealized
      appreciation or  depreciation on the 61st day prior to maturity,  if their
      term to maturity at purchase exceeds 60 days.

b)    SECURITIES   TRANSACTIONS  AND  RELATED  INVESTMENT   INCOME:   Securities
      transactions  are  recorded on the trade date.  Realized  gains and losses
      from  securities  transactions  are reported on the identified cost basis.
      Interest income is recorded daily on the accrual basis and is adjusted for
      amortization  of  premium  and  accretion  of  original  issue and  market
      discount.

c)    FEDERAL  INCOME  TAXES:  It is the  policy  of the  Fund to  qualify  as a
      regulated  investment  company by  complying  with the  provisions  of the
      Internal Revenue Code applicable to certain investment companies. The Fund
      intends to make  distributions of income and securities profits sufficient
      to relieve it from all, or  substantially  all,  Federal income and excise
      taxes.

d)    MULTIPLE   CLASS   ALLOCATIONS:   All   income,   expenses   (other   than
      class-specific  expenses), and realized and unrealized gains or losses are
      allocated  daily to each class of shares  based on the relative net assets
      of each class.  Class-specific  expenses,  which include  distribution and
      service  fees and any other items that are  specifically  attributed  to a
      particular class, are charged directly to such class.

e)    USE OF ESTIMATES:  The  preparation of financial  statements in conformity
      with  accounting  principles  generally  accepted in the United  States of
      America requires  management to make estimates and assumptions that affect
      the  reported   amounts  of  assets  and  liabilities  and  disclosure  of
      contingent assets and liabilities at the date of the financial  statements
      and the  reported  amounts of increases  and  decreases in net assets from
      operations during the reporting  period.  Actual results could differ from
      those estimates.

f)    RECLASSIFICATION  OF CAPITAL  ACCOUNTS:  Accounting  principles  generally
      accepted in the United States of America  require that certain  components
      of net assets relating to permanent  differences be  reclassified  between
      financial and tax reporting. These reclassifications have no effect on net
      assets or net asset value per share. No reclassifications were made during
      the year ended December 31, 2005.

3. FEES AND RELATED PARTY TRANSACTIONS

a) MANAGEMENT ARRANGEMENTS:

      Aquila   Investment   Management  LLC  (the  "Manager"),   a  wholly-owned
subsidiary of Aquila  Management  Corporation,  the Fund's  founder and sponsor,
serves  as the  Manager  for the  Fund  under  an  Advisory  and  Administration
Agreement with the Fund. Under the Advisory and  Administration  Agreement,  the
Manager provides all investment  management and  administrative  services to the
Fund. The Manager's  services  include  providing the office of the Fund and all
related  services  as well as  managing  relationships  with of all the  various
support  organizations  to  theFund  such as the  shareholder  servicing  agent,
custodian,  legal counsel, fund accounting agent, auditors and distributor.  For
its services,  the Manager is entitled to receive a fee which is payable monthly
and computed as

<PAGE>

of the close of business each day at the annual rate of 0.40 of 1% on the Fund's
average net assets.

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

      Specific  details as to the nature and extent of the services  provided by
the Manager are more fully  defined in the Fund's  Prospectus  and  Statement of
Additional Information.

b) DISTRIBUTION AND SERVICE FEES:

      The Fund has adopted a  Distribution  Plan (the  "Plan")  pursuant to Rule
12b-1 (the "Rule") under the Investment  Company Act of 1940.  Under one part of
the  Plan,  with  respect  to Class A  Shares,  the Fund is  authorized  to make
distribution fee payments to broker-dealers  ("Qualified  Recipients") or others
selected by Aquila  Distributors,  Inc. (the "Distributor")  including,  but not
limited to, any principal  underwriter of the Fund,  with which the  Distributor
has entered  into  written  agreements  contemplated  by the Rule and which have
rendered assistance in the distribution and/or retention of the Fund's shares or
servicing of shareholder accounts. The Fund makes payment of this service fee at
the annual rate of 0.15% of the Fund's average net assets represented by Class A
Shares.  For the year ended  December  31,  2005,  distribution  fees on Class A
Shares amounted to $346,088 of which the Distributor retained $19,970.

      Under  another part of the Plan,  the Fund is  authorized to make payments
with  respect to Class C Shares to  Qualified  Recipients  which  have  rendered
assistance in the distribution  and/or retention of the Fund's Class C shares or
servicing of shareholder accounts. These payments are made at the annual rate of
0.75% of the Fund's average net assets represented by Class C Shares and for the
year ended  December  31,  2005,  amounted  to  $60,095.  In  addition,  under a
Shareholder  Services  Plan, the Fund is authorized to make service fee payments
with respect to Class C Shares to Qualified  Recipients  for providing  personal
services and/or maintenance of shareholder accounts.  These payments are made at
the annual rate of 0.25% of the Fund's average net assets represented by Class C
Shares and for the year ended December 31, 2005, amounted to $20,031.  The total
of these  payments  with respect to Class C Shares  amounted to $80,126 of which
the Distributor retained $15,900.

      Under  another part of the Plan,  the Fund is  authorized to make payments
with respect to Class I Shares to Qualified Recipients.  Class I payments, under
the Plan,  may not  exceed  for any  fiscal  year of the Fund a rate  (currently
0.20%),  set from time to time by the Board of Trustees,  of not more than 0.25%
of the average annual net assets represented by the Class I Shares. In addition,
Class I has a  Shareholder  Services  Plan under which it may pay  service  fees
(currently  0.15%) of not more  than  0.25% of the  average  annual  net  assets
represented by Class I Shares. That is, the total payments under both plans will
not exceed 0.50% of such net assets. For the year ended December 31, 2005, these
payments  were made at the  average  annual rate of 0.35% of such net assets and
amounted to

<PAGE>

$27,474  of  which  $15,699  related  to the  Plan and  $11,775  related  to the
Shareholder Services Plan.

      Specific  details  about the Plans are more  fully  defined  in the Fund's
Prospectus and Statement of Additional Information.

      Under a Distribution  Agreement,  the Distributor  serves as the exclusive
distributor of the Fund's shares. Through agreements between the Distributor and
various  broker-dealer  firms ("dealers"),  the Fund's shares are sold primarily
through the facilities of these dealers having offices within Kentucky, with the
bulk of sales commissions  inuring to such dealers.  For the year ended December
31, 2005,  total  commissions on sales of Class A Shares amounted to $214,451 of
which the Distributor received $20,785.

c) OTHER RELATED PARTY TRANSACTIONS:

      For the year ended December 31, 2005,  the Fund incurred  $74,729 of legal
fees  allocable to Hollyer  Brady  Barrett & Hines LLP,  counsel to the Fund for
legal services in conjunction with the Fund's ongoing operations.  The Secretary
of the Fund is a Partner of that firm.

4. PURCHASES AND SALES OF SECURITIES

      During the year ended  December 31,  2005,  purchases  of  securities  and
proceeds from the sales of securities  aggregated  $72,949,925 and  $75,859,757,
respectively.

      At  December  31,  2005 the  aggregate  tax cost  for all  securities  was
$275,644,271.  At December 31, 2005, the aggregate gross unrealized appreciation
for all  securities  in which  there is an excess of market  value over tax cost
amounted to  $8,393,352  and aggregate  gross  unrealized  depreciation  for all
securities in which there is an excess of tax cost over market value amounted to
$292,898 for a net unrealized appreciation of $8,100,454.

5. PORTFOLIO ORIENTATION

      Since the Fund  invests  principally  and may  invest  entirely  in triple
tax-free  municipal  obligations  of issuers within  Kentucky,  it is subject to
possible risks  associated with economic,  political,  or legal  developments or
industrial  or regional  matters  specifically  affecting  Kentucky and whatever
effects these may have upon Kentucky issuers' ability to meet their obligations.

6. EXPENSES

      The Fund has negotiated an expense offset  arrangement  with its custodian
wherein it receives credit toward the reduction of custodian fees and other Fund
expenses  whenever  there  are  uninvested  cash  balances.   The  Statement  of
Operations  reflects the total expenses before any offset,  the amount of offset
and the net expenses.  It is the general intention of the Fund to invest, to the
extent  practicable,  some or all of cash  balances in  income-producing  assets
rather than leave cash on deposit.

<PAGE>

7. CAPITAL SHARE TRANSACTIONS

      Transactions in Capital Shares of the Fund were as follows:

<TABLE>
<CAPTION>
                                          YEAR ENDED                       YEAR ENDED
                                      DECEMBER 31, 2005                 DECEMBER 31, 2004
                                -----------------------------     -----------------------------
                                   SHARES           AMOUNT           SHARES           AMOUNT
                                   ------           ------           ------           ------
<S>                               <C>            <C>                <C>            <C>
CLASS A SHARES:
   Proceeds from shares sold       2,024,652     $ 21,593,854        1,986,073     $ 21,266,749
   Reinvested distributions          362,716        3,868,074          404,551        4,328,795
   Cost of shares redeemed .      (2,962,111)     (31,537,026)      (2,129,569)     (22,709,719)
                                ------------     ------------     ------------     ------------
      Net change ...........        (574,743)      (6,075,098)         261,055        2,885,825
                                ------------     ------------     ------------     ------------

CLASS C SHARES:
   Proceeds from shares sold          90,038          959,910          262,256        2,800,388
   Reinvested distributions           13,187          140,559           13,189          141,099
   Cost of shares redeemed .        (175,383)      (1,859,038)        (187,886)      (2,010,343)
                                ------------     ------------     ------------     ------------
      Net change ...........         (72,158)        (758,569)          87,559          931,144
                                ------------     ------------     ------------     ------------

CLASS I SHARES:
   Proceeds from shares sold          44,082          471,889          283,026        2,993,441
   Reinvested distributions           22,690          241,811           21,333          227,786
   Cost of shares redeemed .         (38,599)        (410,675)         (14,757)        (156,921)
                                ------------     ------------     ------------     ------------
      Net change ...........          28,173          303,025          289,602        3,064,306
                                ------------     ------------     ------------     ------------

CLASS Y SHARES:
   Proceeds from shares sold         984,142       10,533,923        1,685,639       18,115,503
   Reinvested distributions            5,130           61,540           44,562          477,086
   Cost of shares redeemed .      (1,022,004)     (10,900,775)      (1,516,929)     (16,121,622)
                                ------------     ------------     ------------     ------------
      Net change ...........         (32,732)        (305,312)         213,272        2,470,967
                                ------------     ------------     ------------     ------------
Total transactions in Fund
   shares ..................        (651,460)    $ (6,835,954)         851,488     $  9,352,242
                                ============     ============     ============     ============
</TABLE>

<PAGE>

8. TRUSTEES' FEES AND EXPENSES

      At December  31, 2005 there were 7  Trustees,  one of which is  affiliated
with the Manager and is not paid any fees. The total amount of Trustees' service
and attendance fees paid during the year ended December 31, 2005 was $106,125 to
cover carrying out their  responsibilities and attendance at regularly scheduled
quarterly Board Meetings and meetings of the Independent  Trustees held prior to
each quarterly Board Meeting.  When additional or special meetings are held, the
meeting fees are paid to those Trustees in  attendance.  Trustees are reimbursed
for  their  expenses  such as  travel,  accommodations,  and meals  incurred  in
connection  with  attendance  at  Board  Meetings  and  the  Annual  Meeting  of
Shareholders.  For the  year  ended  December  31,  2005,  such  meeting-related
expenses amounted to $25,987.

9. SECURITIES TRADED ON A WHEN-ISSUED BASIS

      The  Fund  may  purchase  or  sell  securities  on  a  when-issued  basis.
When-issued transactions arise when securities are purchased or sold by the Fund
with payment and delivery  taking place in the future in order to secure what is
considered  to be an  advantageous  price  and  yield to the Fund at the time of
entering  into the  transaction.  Beginning  on the date the Fund  enters into a
when-issued  transaction,  cash or other liquid  securities are segregated in an
amount equal to or greater than the amount of the when-issued transaction. These
transactions  are  subject to market  fluctuations  and their  current  value is
determined in the same manner as for other securities.

10. INCOME TAX INFORMATION AND DISTRIBUTIONS

      The Fund declares  dividends  daily from net  investment  income and makes
payments monthly in additional shares at the net asset value per share, in cash,
or in a combination of both, at the shareholder's  option.  Net realized capital
gains, if any, are distributed annually and are taxable.

      The  Fund  intends  to  maintain,  to the  maximum  extent  possible,  the
tax-exempt  status  of  interest  payments  received  from  portfolio  municipal
securities in order to allow dividends paid to shareholders  from net investment
income to be exempt from  regular  Federal and State of Kentucky  income  taxes.
However,  due to differences  between financial  statement reporting and Federal
income tax reporting requirements, distributions made by the Fund may not be the
same as the Fund's net investment income,  and/or net realized securities gains.
Further,  a small portion of the dividends  may,  under some  circumstances,  be
subject to taxes at ordinary  income  and/or  capital  gain  rates.  For certain
shareholders,  some dividend income may, under some circumstances, be subject to
the alternative minimum tax.

<PAGE>

      The tax character of distributions:

                                                Year Ended December 31,
                                                 2005              2004
                                             -----------       -----------
      Net tax-exempt income                  $10,817,058       $11,146,096
      Ordinary income                             73,362           234,743
                                             -----------       -----------
                                             $10,890,420       $11,380,839
                                             ===========       ===========

      As of December 31, 2005, the components of distributable earnings on a tax
basis were as follows:

      Accumulated net realized gain                             $  879,242
      Unrealized appreciation                                    8,100,454
      Undistributed tax-exempt income                              422,230
                                                                ----------
                                                                $9,401,926
                                                                ==========

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

11. CHANGE IN PRINCIPAL ACCOUNTANTS

      KPMG  LLP was  previously  the  principal  accountants  for the  Churchill
Tax-Free Fund of Kentucky  (the  "Fund").  On July 27, 2005 KPMG LLP resigned as
the principal  accountants of the Fund and Tait,  Weller & Baker LLP was engaged
as the principal  accountants to audit the Fund's  financial  statements for the
fiscal year of 2005.  The decision was made by the Audit  Committee of the Board
of Trustees.

      The audit reports of KPMG LLP on the Fund's financial statements as of and
for the years  ended  December  31,  2004 and 2003 did not  contain  an  adverse
opinion or  disclaimer  of opinion,  nor were they  qualified  or modified as to
uncertainty, audit scope, or accounting principles.

      In connection  with the audits of the two fiscal years ended  December 31,
2004 and 2003 and the subsequent  interim  period  through July 27, 2005,  there
were no  reportable  events  or  disagreements  with  KPMG LLP on any  matter of
accounting principles of practices,  financial statement disclosure, or auditing
scope or procedures,  which disagreements if not resolved to the satisfaction of
KPMG LLP would have  caused  them to make  reference  in  connection  with their
opinion to the subject matter of the disagreements.

<PAGE>

                       CHURCHILL TAX-FREE FUND OF KENTUCKY
                              FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

<TABLE>
<CAPTION>
                                                                             Class A
                                             ----------------------------------------------------------------------
                                                                     Year Ended December 31,
                                             ----------------------------------------------------------------------
                                               2005            2004            2003            2002          2001
                                             --------        --------        --------        --------      --------
<S>                                          <C>             <C>             <C>             <C>           <C>
Net asset value, beginning of period .....   $  10.74        $  10.69        $  10.66        $  10.31      $  10.40
                                             --------        --------        --------        --------      --------
Income (loss) from investment operations:
   Net investment income+ ................       0.39            0.42            0.44            0.47          0.50
   Net gain (loss) on securities (both
     realized and unrealized) ............      (0.14)           0.05            0.03            0.35         (0.09)
                                             --------        --------        --------        --------      --------
   Total from investment operations ......       0.25            0.47            0.47            0.82          0.41
                                             --------        --------        --------        --------      --------
Less distributions (note 10):
   Dividends from net investment income ..      (0.39)          (0.42)          (0.44)          (0.47)        (0.50)
   Distributions from capital gains ......         --              --              --              --            --
                                             --------        --------        --------        --------      --------
   Total distributions ...................      (0.39)          (0.42)          (0.44)          (0.47)        (0.50)
                                             --------        --------        --------        --------      --------
Net asset value, end of period ...........   $  10.60        $  10.74        $  10.69        $  10.66      $  10.31
                                             ========        ========        ========        ========      ========
Total return (not reflecting sales charge)       2.39%           4.49%           4.50%           8.15%         4.02%

Ratios/supplemental data
   Net assets, end of period
     (in thousands) ......................   $223,811        $232,927        $229,176        $226.014      $201,604
   Ratio of expenses to average
     net assets ..........................       0.77%           0.73%           0.72%           0.72%         0.72%
   Ratio of net investment income to
     average net assets ..................       3.66%           3.96%           4.14%           4.82%         4.82%
   Portfolio turnover rate ...............      24.87%          14.31%          17.92%          18.27%        21.44%

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

   Ratio of expenses to average
     net assets ..........................       0.76%           0.73%           0.71%           0.71%         0.70%

<CAPTION>
                                                                         Class C
                                             ----------------------------------------------------------------
                                                                 Year Ended December 31,
                                             ----------------------------------------------------------------
                                               2005          2004          2003          2002          2001
                                             --------      --------      --------      --------      --------
<S>                                          <C>           <C>           <C>           <C>           <C>
Net asset value, beginning of period .....   $  10.73      $  10.69      $  10.66      $  10.31      $  10.39
                                             --------      --------      --------      --------      --------
Income (loss) from investment operations:
   Net investment income+ ................       0.30          0.33          0.35          0.38          0.41
   Net gain (loss) on securities (both
     realized and unrealized) ............      (0.14)         0.04          0.03          0.35         (0.08)
                                             --------      --------      --------      --------      --------
   Total from investment operations ......       0.16          0.37          0.38          0.73          0.33
                                             --------      --------      --------      --------      --------
Less distributions (note 10):
   Dividends from net investment income ..      (0.30)        (0.33)        (0.35)        (0.38)        (0.41)
   Distributions from capital gains ......         --            --            --            --            --
                                             --------      --------      --------      --------      --------
   Total distributions ...................      (0.30)        (0.33)        (0.35)        (0.38)        (0.41)
                                             --------      --------      --------      --------      --------
Net asset value, end of period ...........   $  10.59      $  10.73      $  10.69      $  10.66      $  10.31
                                             ========      ========      ========      ========      ========
Total return (not reflecting sales charge)       1.53%         3.51%         3.62%         7.23%         3.24%

Ratios/supplemental data
   Net assets, end of period
     (in thousands) ......................      7,296      $  8,166      $  7,197      $  4,804      $  3,355
   Ratio of expenses to average
     net assets ..........................       1.62%         1.58%         1.57%         1.56%         1.56%
   Ratio of net investment income to
     average net assets ..................       2.81%         3.11%         3.26%         3.62%         3.92%
   Portfolio turnover rate ...............      24.87%        14.31%        17.92%        18.27%        21.44%

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

   Ratio of expenses to average
     net assets ..........................       1.61%         1.58%         1.56%         1.55%         1.55%
</TABLE>

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

                See accompanying notes to financial statements.

<PAGE>

                       CHURCHILL TAX-FREE FUND OF KENTUCKY
                        FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

<TABLE>
<CAPTION>
                                                                              Class I
                                                  -------------------------------------------------
                                                                          Year Ended December 31,         Period
                                                  -------------------------------------------------       Ended
                                                    2005          2004          2003          2002      12/31/01(1)
                                                  -------       -------       -------       -------     -----------
<S>                                               <C>           <C>           <C>           <C>           <C>
Net asset value, beginning of period ..........   $ 10.73       $ 10.69       $ 10.66       $ 10.31       $ 10.44
                                                  -------       -------       -------       -------       -------
Income (loss) from investment operations:
   Net investment income+ .....................      0.38          0.41          0.43          0.46          0.19
   Net gain (loss) on securities (both realized
     and unrealized) ..........................     (0.14)         0.03          0.02          0.35         (0.13)
                                                  -------       -------       -------       -------       -------
   Total from investment operations ...........      0.24          0.44          0.45          0.81          0.06
                                                  -------       -------       -------       -------       -------
Less distributions (note 10):
   Dividends from net investment income .......     (0.38)        (0.40)        (0.42)        (0.46)        (0.19)
   Distributions from capital gains ...........        --            --            --            --            --
                                                  -------       -------       -------       -------       -------
   Total distributions ........................     (0.38)        (0.40)        (0.42)        (0.46)        (0.19)
                                                  -------       -------       -------       -------       -------
Net asset value, end of period ................   $ 10.59       $ 10.73       $ 10.69       $ 10.66       $ 10.31
                                                  =======       =======       =======       =======       =======
Total return (not reflecting sales charge) ....      2.24%         4.24%         4.33%         7.98%         0.58%*

Ratios/supplemental data
   Net assets, end of period
     (in thousands) ...........................   $ 7,764       $ 7,564       $ 4,438       $ 2,407       $ 1,426
   Ratio of expenses to average net assets ....      0.92%         0.89%         0.88%         0.87%         0.83%**
   Ratio of net investment income to average
     net assets ...............................      3.52%         3.79%         3.95%         4.32%         4.47%**
   Portfolio turnover rate ....................     24.87%        14.31%        17.92%        18.27%        21.44%*

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

   Ratio of expenses to average net assets ....      0.91%         0.89%         0.87%         0.86%         0.82%**

<CAPTION>
                                                                                Class Y
                                                  -------------------------------------------------------------------
                                                                        Year Ended December 31,
                                                  -------------------------------------------------------------------
                                                    2005           2004           2003           2002           2001
                                                  -------        -------        -------        -------        -------
<S>                                               <C>            <C>            <C>            <C>            <C>
Net asset value, beginning of period ..........   $ 10.75        $ 10.70        $ 10.67        $ 10.32        $ 10.40
                                                  -------        -------        -------        -------        -------
Income (loss) from investment operations:
   Net investment income+ .....................      0.41           0.44           0.46           0.49           0.51
   Net gain (loss) on securities (both realized
     and unrealized) ..........................     (0.14)          0.05           0.03           0.35          (0.07)
                                                  -------        -------        -------        -------        -------
   Total from investment operations ...........      0.27           0.49           0.49           0.84           0.44
                                                  -------        -------        -------        -------        -------
Less distributions (note 10):
   Dividends from net investment income .......     (0.41)         (0.44)         (0.46)         (0.49)         (0.52)
   Distributions from capital gains ...........        --             --             --             --             --
                                                  -------        -------        -------        -------        -------
   Total distributions ........................     (0.41)         (0.44)         (0.46)         (0.49)         (0.52)
                                                  -------        -------        -------        -------        -------
Net asset value, end of period ................   $ 10.61        $ 10.75        $ 10.70        $ 10.67        $ 10.32
                                                  =======        =======        =======        =======        =======
Total return (not reflecting sales charge) ....      2.55%          4.65%          4.65%          8.30%          4.28%

Ratios/supplemental data
   Net assets, end of period
     (in thousands) ...........................   $47,816        $48,795        $46,313        $41,223        $25,585
   Ratio of expenses to average net assets ....      0.62%          0.58%          0.57%          0.57%          0.57%
   Ratio of net investment income to average
     net assets ...............................      3.81%          4.11%          4.28%          4.63%          4.94%
   Portfolio turnover rate ....................     24.87%         14.31%         17.92%         18.27%         21.44%

The expense ratios after giving effect to the expe

   Ratio of expenses to average net assets ....      0.61%          0.58%          0.56%          0.56%          0.55%
</TABLE>

----------
(1)   For the period August 6, 2001 to December 31, 2001.
+     Per share amounts have been calculated using the monthly average shares
      method.
*     Not annualized.
**    Annualized.

                See accompanying notes to financial statements.

<PAGE>

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

ANALYSIS OF EXPENSES (UNAUDITED)

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

      The tables below are based on an investment of $1,000  invested on July 1,
2005 and held for the six months ended December 31, 2005.

ACTUAL EXPENSES

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

FOR THE SIX MONTHS ENDED DECEMBER 31, 2005

                    ACTUAL
                 TOTAL RETURN      BEGINNING          ENDING          EXPENSES
                    WITHOUT         ACCOUNT           ACCOUNT       PAID DURING
               SALES CHARGES(1)      VALUE             VALUE       THE PERIOD(2)
--------------------------------------------------------------------------------
Class A              0.34%         $1,000.00         $1,003.40         $3.89
--------------------------------------------------------------------------------
Class C             (0.08)%        $1,000.00         $  999.20         $8.16
--------------------------------------------------------------------------------
Class I              0.28%         $1,000.00         $1,002.80         $4.59
--------------------------------------------------------------------------------
Class Y              0.52%         $1,000.00         $1,005.20         $3.13
--------------------------------------------------------------------------------

(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 0.77%,  1.62%, 0.91%
      AND  0.62%  FOR  THE  FUND'S  CLASS  A, C, I AND Y  SHARES,  RESPECTIVELY,
      MULTIPLIED  BY THE AVERAGE  ACCOUNT  VALUE OVER THE PERIOD,  MULTIPLIED BY
      184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).

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

<PAGE>

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

ANALYSIS OF EXPENSES (UNAUDITED) (CONTINUED)

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

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

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

FOR THE SIX MONTHS ENDED DECEMBER 31, 2005

                 HYPOTHETICAL
                  ANNUALIZED       BEGINNING         ENDING          EXPENSES
                     TOTAL          ACCOUNT          ACCOUNT        PAID DURING
                    RETURN           VALUE            VALUE        THE PERIOD(1)
--------------------------------------------------------------------------------
Class A              5.00%        $1,000.00         $1,021.32          $3.92
--------------------------------------------------------------------------------
Class C              5.00%        $1,000.00         $1,017.04          $8.24
--------------------------------------------------------------------------------
Class I              5.00%        $1,000.00         $1,020.62          $4.63
--------------------------------------------------------------------------------
Class Y              5.00%        $1,000.00         $1,022.08          $3.16
--------------------------------------------------------------------------------

(1)   EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.77%,  1.62%, 0.91%
      AND  0.62%  FOR  THE  FUND'S  CLASS  A, C, I AND Y  SHARES,  RESPECTIVELY,
      MULTIPLIED  BY THE AVERAGE  ACCOUNT  VALUE OVER THE PERIOD,  MULTIPLIED BY
      184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).

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

<PAGE>

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

FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)

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

      For the fiscal year ended December 31, 2005, $10,817,058 of dividends paid
by Churchill Tax-Free Fund of Kentucky,  constituting  99.33% of total dividends
paid during fiscal 2005, were exempt-interest dividends.

      Prior to January 31,  2006,  shareholders  were  mailed IRS Form  1099-DIV
which  contained  information on the status of  distributions  paid for the 2005
CALENDAR YEAR.

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


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

INFORMATION AVAILABLE (UNAUDITED)

      Much of the  information  that the funds in the Aquila(SM)  Group of Funds
produce is automatically sent to you and all other  shareholders.  Specifically,
you are  routinely  sent the entire list of  portfolio  securities  of your Fund
twice a year in the semi-annual and annual reports you receive. Additionally, we
prepare,  and have  available,  portfolio  listings at the end of each  quarter.
Whenever  you may be  interested  in seeing a listing of your  Fund's  portfolio
other   than  in  your   shareholder   reports,   please   check   our   website
(http://www.aquilafunds.com) or call us at 1-800-437-1020.

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

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


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

PROXY VOTING RECORD (UNAUDITED)

      The Fund does not invest in equity securities.  Accordingly, there were no
matters relating to a portfolio security  considered at any shareholder  meeting
held during the 12 months ended June 30, 2005 with respect to which the Fund was
entitled  to vote.  Applicable  regulations  require  us to inform  you that the
foregoing  proxy  voting   information  is  available  on  the  SEC  website  at
http://www.sec.gov.

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

<PAGE>

ADDITIONAL INFORMATION (UNAUDITED)

TRUSTEES(1) AND OFFICERS

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

Diana P. Herrmann       Trustee                Vice Chair and Chief Executive Officer           11          None
New York, NY            since 1995             of Aquila Management Corporation,
(02/25/58)              and President          Founder of the Aquila(SM) Group of
                        since 1999             Funds(5) and parent of Aquila Investment
                                               Management LLC, Manager, since 2004,
                                               President and Chief Operating Officer
                                               since 1997, a Director since 1984,
                                               Secretary since 1986 and previously its
                                               Executive Vice President, Senior Vice
                                               President or Vice President, 1986-1997;
                                               Chief Executive Officer and Vice Chair
                                               since 2004 and President, Chief
                                               Operating Officer and Manager of the
                                               Manager since 2003; Vice Chair,
                                               President, Executive Vice President or
                                               Senior Vice President of funds in the
                                               Aquila(SM) Group of Funds since 1986;
                                               Director of the Distributor since 1997;
                                               trustee, Reserve Money-Market Funds,
                                               1999-2000 and Reserve Private Equity
                                               Series, 1998-2000; Governor, Investment
                                               Company Institute and head of its Small
                                               Funds Committee since 2004; active in
                                               charitable and volunteer organizations.

NON-INTERESTED TRUSTEES

Thomas A.Christopher    Chair of the           Vice President of Robinson, Hughes &              2          None
Danville, KY            Board of Trustees      Christopher, C.P.A.s, P.S.C., since
(12/19/47)              since 2005             1977; President, A Good Place for Fun,
                        and Trustee            Inc., a sports facility, since 1987;
                        since 1992             currently or formerly active with
                                               various professional and community
                                               organizations.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                            NUMBER OF
                        POSITIONS                                                           PORTFOLIOS      OTHER DIRECTORSHIPS
                        HELD WITH                                                           IN FUND         HELD BY TRUSTEE
NAME,                   FUND AND               PRINCIPAL                                    COMPLEX         (THE POSITION HELD IS
ADDRESS(2)              LENGTH OF              OCCUPATION(S)                                OVERSEEN        A DIRECTORSHIP UNLESS
AND DATE OF BIRTH       SERVICE(3)             DURING PAST 5 YEARS                          BY TRUSTEE      INDICATED OTHERWISE.)
-----------------       ----------             -------------------                          ----------      ---------------------
<S>                     <C>                    <C>                                              <C>         <C>
Douglas Dean            Trustee                Founder and Chairman of the Board of              1          None
Lexington, KY           since 1987             Directors, Dean, Dorton & Ford P.S.C., a
(03/21/49)                                     public accounting firm, since 1982;
                                               active as an officer and member of
                                               various charitable and community
                                               organizations.

Theodore T. Mason       Trustee                Executive Director, East Wind Power               8          Trustee, Pimco Advisors
New York, NY            since 1987             Partners LTD since 1994 and Louisiana                        VIT.
(11/24/35)                                     Power Partners, 1999-2003; Treasurer,
                                               Alumni Association of SUNY Maritime
                                               College since 2004 (President,
                                               2002-2003, First Vice President,
                                               2000-2001, Second Vice President,
                                               1998-2000) and director of the same
                                               organization since 1997; Director, STCM
                                               Management Company, Inc., 1973-2004;
                                               twice national officer of Naval Reserve
                                               Association, commanding officer of four
                                               naval reserve units and Captain, USNR
                                               (Ret); director, The Navy League of the
                                               United States New York Council since
                                               2002; trustee, The Maritime Industry
                                               Museum at Fort Schuyler, 2000-2004; and
                                               the Maritime College at Fort Schuyler
                                               Foundation, Inc. since 2000.

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

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

<PAGE>

<TABLE>
<CAPTION>
                                                                                            NUMBER OF
                        POSITIONS                                                           PORTFOLIOS      OTHER DIRECTORSHIPS
                        HELD WITH                                                           IN FUND         HELD BY TRUSTEE
NAME,                   FUND AND               PRINCIPAL                                    COMPLEX         (THE POSITION HELD IS
ADDRESS(2)              LENGTH OF              OCCUPATION(S)                                OVERSEEN        A DIRECTORSHIP UNLESS
AND DATE OF BIRTH       SERVICE(3)             DURING PAST 5 YEARS                          BY TRUSTEE      INDICATED OTHERWISE.)
-----------------       ----------             -------------------                          ----------      ---------------------
<S>                     <C>                    <C>                                              <C>         <C>
James R. Ramsey         Trustee                President, University of Louisville               2          Community Bank and
Louisville, KY          since 1987             since November 2002; Professor of                            Trust, Pikeville, KY
(11/14/48)                                     Economics, University of Louisville,                         and Texas Roadhouse
                                               1999-present; Kentucky Governor's Senior                     Inc.
                                               Policy Advisor and State Budget
                                               Director, 1999-2002; Vice Chancellor for
                                               Finance and Administration, the
                                               University of North Carolina at Chapel
                                               Hill, 1998 to 1999; previously Vice
                                               President for Finance and Administration
                                               at Western Kentucky University, State
                                               Budget Director for the Commonwealth of
                                               Kentucky, Chief State Economist and
                                               Executive Director for the Office of
                                               Financial Management and Economic
                                               Analysis for the Commonwealth of
                                               Kentucky, Adjunct Professor at the
                                               University of Kentucky, Associate
                                               Professor at Loyola University-New
                                               Orleans and Assistant Professor at
                                               Middle Tennessee State University.

OTHER INDIVIDUALS

TRUSTEES EMERITUS(6)

Lacy B. Herrmann        Founder and            Founder and Chairman of the Board,               N/A         N/A
New York, NY            Chairman Emeritus      Aquila Management Corporation, the
(05/12/29)              since 2006,            sponsoring organization and parent of
                        Chairman of the        the Manager or Administrator and/or
                        Board of Trustees,     Adviser or Sub-Adviser to each fund of
                        1987-2005              the Aquila(SM) Group of Funds; Chairman
                                               of the Manager or Administrator and/or
                                               Adviser or Sub-Adviser to each since
                                               2004; Founder and Chairman Emeritus of
                                               Hawaiian Tax-Free Trust, Pacific Capital
                                               Cash Assets Trust, Pacific Capital
                                               Tax-Free Cash Assets Trust, Pacific
                                               Capital U.S. Government Securities Cash
                                               Assets Trust, Tax-Free Fund of Colorado,
                                               Churchill Tax-Free Fund of Kentucky,
                                               Narragansett Insured Tax-Free Income
                                               Fund, Tax-Free Trust of Arizona,
                                               Tax-Free Trust of Oregon, Tax-Free Fund
                                               For Utah and Aquila Rocky Mountain
                                               Equity Fund; previously Chairman and a
                                               Trustee of each fund in the Aquila(SM)
                                               Group of Funds since its establishment
                                               until 2004 or 2005; Director of the
                                               Distributor since 1981 and formerly Vice
                                               President or Secretary, 1981-1998;
                                               Trustee Emeritus, Brown University and
                                               the Hopkins School; active in
                                               university, school and charitable
                                               organizations.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                            NUMBER OF
                        POSITIONS                                                           PORTFOLIOS      OTHER DIRECTORSHIPS
                        HELD WITH                                                           IN FUND         HELD BY TRUSTEE
NAME,                   FUND AND               PRINCIPAL                                    COMPLEX         (THE POSITION HELD IS
ADDRESS(2)              LENGTH OF              OCCUPATION(S)                                OVERSEEN        A DIRECTORSHIP UNLESS
AND DATE OF BIRTH       SERVICE(3)             DURING PAST 5 YEARS                          BY TRUSTEE      INDICATED OTHERWISE.)
-----------------       ----------             -------------------                          ----------      ---------------------
<S>                     <C>                    <C>                                              <C>         <C>
Carroll F. Knicely      Trustee Emeritus       President, Associated Publications Inc.,         N/A         N/A
Glasgow, KY             since 2004             Glasgow, Kentucky; director and member,
(12/08/28)                                     Executive Board of West Kentucky
                                               Corporation and director and
                                               Secretary-Treasurer, South Gate Plaza,
                                               Inc. (owner and developer of shopping
                                               centers and commercial real estate);
                                               director, Vice President and Treasurer,
                                               Knicely and Knicely, Inc. (owner and
                                               developer of rental properties and
                                               residential real estate); former
                                               trustee, Cambellsville University;
                                               formerly Secretary of Commerce and
                                               Commissioner of Commerce, Commonwealth
                                               of Kentucky.

OFFICERS

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

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

<PAGE>

<TABLE>
<CAPTION>
                                                                                            NUMBER OF
                        POSITIONS                                                           PORTFOLIOS      OTHER DIRECTORSHIPS
                        HELD WITH                                                           IN FUND         HELD BY TRUSTEE
NAME,                   FUND AND               PRINCIPAL                                    COMPLEX         (THE POSITION HELD IS
ADDRESS(2)              LENGTH OF              OCCUPATION(S)                                OVERSEEN        A DIRECTORSHIP UNLESS
AND DATE OF BIRTH       SERVICE(3)             DURING PAST 5 YEARS                          BY TRUSTEE      INDICATED OTHERWISE.)
-----------------       ----------             -------------------                          ----------      ---------------------
<S>                     <C>                    <C>                                              <C>         <C>
Jerry G. McGrew         Senior Vice            President of the Distributor since 1998,         N/A         N/A
New York, NY            President              Registered Principal since 1993, Senior
(06/18/44)              since 1994             Vice President, 1997-1998 and Vice
                                               President, 1993-1997; Senior Vice
                                               President, Aquila Rocky Mountain Equity
                                               Fund and five Aquila Bond Funds since
                                               1995; Vice President, Churchill Cash
                                               Reserves Trust, 1995-2001.

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

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

Robert W. Anderson      Chief Compliance       Chief Compliance Officer of the Trust,           N/A         N/A
New York, NY            Officer since 2004     the Manager and the Distributor since
(08/23/40)              and Assistant          2004, Compliance Officer of the Manager
                        Secretary              or its predecessor and current parent
                        since 2000             since 1998 and Assistant Secretary of
                                               the Aquila(SM) Group of Funds since
                                               2000.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                            NUMBER OF
                        POSITIONS                                                           PORTFOLIOS      OTHER DIRECTORSHIPS
                        HELD WITH                                                           IN FUND         HELD BY TRUSTEE
NAME,                   FUND AND               PRINCIPAL                                    COMPLEX         (THE POSITION HELD IS
ADDRESS(2)              LENGTH OF              OCCUPATION(S)                                OVERSEEN        A DIRECTORSHIP UNLESS
AND DATE OF BIRTH       SERVICE(3)             DURING PAST 5 YEARS                          BY TRUSTEE      INDICATED OTHERWISE.)
-----------------       ----------             -------------------                          ----------      ---------------------
<S>                     <C>                    <C>                                              <C>         <C>
Joseph P. DiMaggio      Chief Financial        Chief Financial Officer of the                   N/A         N/A
New York, NY            Officer since 2003     Aquila(SM) Group of Funds since 2003 and
(11/06/56)              and Treasurer          Treasurer since 2000.
                        since 2000

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

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

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

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

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

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

(4)   Ms.  Herrmann  is an  interested  person of the Fund as an  officer of the
      Fund, as a director,  officer and  shareholder of the Manager's  corporate
      parent, as an officer and Manager of the Manager, and as a shareholder and
      director of the Distributor.

(5)   In this material  Pacific Capital Cash Assets Trust,  Pacific Capital U.S.
      Government  Securities Cash Assets Trust and Pacific Capital Tax-Free Cash
      Assets Trust, each of which is a money-market fund, are called the "Aquila
      Money-Market Funds";  Hawaiian Tax-Free Trust,  Tax-Free Trust of Arizona,
      Tax-Free Trust of Oregon,  Tax-Free Fund of Colorado,  Churchill  Tax-Free
      Fund of Kentucky,  Narragansett  Insured Tax-Free Income Fund and Tax-Free
      Fund For Utah, each of which is a tax-free municipal bond fund, are called
      the "Aquila Bond Funds";  Aquila Rocky  Mountain  Equity Fund is an equity
      fund;  considered together,  these 11 funds are called the "Aquilasm Group
      of Funds."

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

<PAGE>

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

PRIVACY NOTICE (UNAUDITED)

                       CHURCHILL TAX-FREE FUND OF KENTUCKY

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

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

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

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

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

                            AQUILA DISTRIBUTORS, INC.
                        AQUILA INVESTMENT MANAGEMENT LLC

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

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

<PAGE>

                      (THIS PAGE INTENTIONALLY LEFT BLANK)

<PAGE>

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
   Douglas Dean
   Diana P. Herrmann
   Theodore T. Mason
   Anne J. Mills
   William J. Nightingale
   James R. Ramsey

OFFICERS

   Diana P. Herrmann, President
   Thomas S. Albright, Senior Vice President and Portfolio Manager
   Jerry G. McGrew, Senior Vice President
   Jason T. McGrew, Vice President
   Robert W. Anderson, Chief Compliance Officer
   Joseph P. DiMaggio, Chief Financial Officer and Treasurer
   Edward M.W. Hines, Secretary

DISTRIBUTOR

   AQUILA DISTRIBUTORS, INC.
   380 Madison Avenue, Suite 2300
   New York, New York 10017

CUSTODIAN

   BANK ONE TRUST COMPANY, N.A.
   1111 Polaris Parkway
   Columbus, Ohio 43240

TRANSFER AND SHAREHOLDER SERVICING AGENT

   PFPC INC.
   101 Sabin Street
   Pawtuckett, RI 02860

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

   Tait, Weller & Baker LLP
   1818 Market Street, Suite 2400
   Philadelphia, PA 19103

Further information is contained in the Prospectus, which must precede or
accompany this report.




ITEM 2. CODE OF ETHICS.

(a) As of December 31, 2005 (the end of the reporting period) the
Trust has adopted a code of ethics that applies to the Fund's
principal executive officer(s)and principal financial officer(s)
and persons performing similar functions ("Covered Officers") as
defined in the Aquila Group of Funds Code of Ethics for Principal
Executive and Senior Financial Officers under Section 406 of the
Sarbanes-Oxley Act of 2002.;

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

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


ITEM 3.  AUDIT COMMITTEE FINANCIAL EXPERT.

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

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


ITEM 4.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

a) Audit Fees - The aggregate fees billed for each of the last two
fiscal years for professional services rendered by the principal
accountant for the audit of the Registrant's annual financial statements
or services that are normally provided by the accountant in connection
with statutory and regulatory filings or engagements were $16,000 in 2005
and $20,700 in 2004.

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

c) Tax Fees - The Registrant was billed by the principal accountant
$3,000 and $8,942 in 2005 and 2004, respectively, for tax return
preparation, tax compliance and tax planning.

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

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

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

f)  No applicable.

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

h)  Not applicable.


ITEM 5.  AUDIT COMMITTEE OF LISTED REGISTRANTS.
		Not applicable.

ITEM 6.  [RESERVED]

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

905:   	Not applicable.

ITEM 8. [RESERVED]

ITEM 9.  CONTROLS AND PROCEDURES.

(a)  Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-2(c) under the Investment Company Act of
1940) as of a date within 90 days of the filing of this report, the registrant's
chief financial and executive officers have concluded that the disclosure
controls and procedures of the registrant are appropriately designed to ensure
that information required to be disclosed in the registrant's reports that are
filed under the Securities Exchange Act of 1934 are accumulated and communicated
to registrant's management, including its principal executive officer(s) and
principal financial officer(s), to allow timely decisions regarding required
disclosure and is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms adopted by the Securities and Exchange
Commission.

(b)  There have been no significant changes in registrant's internal controls or
in other factors that could significantly affect registrant's internal controls
subsequent to the date of the most recent evaluation, including no significant
deficiencies or material weaknesses that required corrective action.

ITEM 10.  EXHIBITS.

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

(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act of
1940.

(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.




SIGNATURES

	Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.

CHURCHILL TAX-FREE TRUST


By:  /s/  Diana P. Herrmann
- - ---------------------------------
President and Trustee
March 9, 2006


By:  /s/  Joseph P. DiMaggio
- - -----------------------------------
Chief Financial Officer and Treasurer
March 9, 2006


Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.


By:  /s/  Diana P. Herrmann
- - ---------------------------------
Diana P. Herrmann
President and Trustee
March 9, 2006



By:  /s/  Joseph P. DiMaggio
- - -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
March 9, 2006




CHURCHILL TAX-FREE TRUST

EXHIBIT INDEX

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


(a) (2) Certifications of principal executive officer
and principal financial officer as required by Rule 30a-2(a)
under the Investment Company Act of 1940.

(b) Certification of chief executive officer and chief financial
officer as required by Rule 30a-2(b) of the Investment Company Act
of 1940.