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


						FORM N-CSR

		CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
					INVESTMENT COMPANIES

			Investment Company Act file number 811-5086

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

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

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

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


				Date of fiscal year end:	12/31

				Date of reporting period:	06/30/06

						FORM N-CSR

ITEM 1.  REPORTS TO STOCKHOLDERS.


SEMI-ANNUAL
REPORT

JUNE 30, 2006

                                    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

                            "BUILT TO RIDE THE WAVES"

                                                                    August, 2006

Dear Fellow Shareholder:

      As you are no doubt aware, the financial  markets have certainly had their
fair share of crests and troughs  recently - one day the markets are up, and the
next day, they are down. Riding these waves is not always easy for investors.

      The  management  of  Churchill  Tax-Free  Fund  of  Kentucky   understands
investors'  apprehension  when it comes to  fluctuations  with your  hard-earned
investment  monies.  And, this concern is especially  pertinent as it relates to
saving for and funding your retirement.

      With this very real and  inevitable  concern in mind,  Churchill  Tax-Free
Fund of Kentucky has  endeavored  to structure the Fund to "ride the waves" with
the  least  upset  to  investors  as  possible.  How do we go about  seeking  to
accomplish this?

INVESTMENT QUALITY

      No matter what  quality  rating  exists with a security,  it will still be
subject  to  market   fluctuations.   However,  our  experience  has  been  that
top-quality  ratings  do  not  fluctuate  as  much  as  lower  quality  ratings.
Furthermore,  when they do fluctuate,  they tend to fluctuate less and return to
their base market price at a quicker rate than lower-grade securities.

      In  accordance  with the Fund's  prospectus,  Churchill  Tax-Free  Fund of
Kentucky can only  purchase  investment-grade  securities - those within the top
four credit quality ratings - AAA, AA, A and Baa. In point of practice, however,
we have  consistently  sought  to have  the  bulk  of the  portfolio  securities
invested within the top two grades - AAA and AA. On June 30, 2006,  97.6% of the
portfolio consisted of AAA and AA rated securities.

INTERMEDIATE MATURITY

      As we have  emphasized  in the past,  long-term  bonds  tend to  produce a
higher return than short-term  bonds.  However,  such longer maturity bonds also
tend to experience a higher degree of volatility in their price.

      Churchill Tax-Free Fund of Kentucky balances out longer-term maturities by
having a portion of the Fund's investments in shorter-term  maturities.  Through
utilizing a blend of maturities - both  shorter-term and longer-term - Churchill
Tax-Free  Fund of Kentucky  attempts to provide a  satisfactory  level of return
without  subjecting  the  share  price to  excessive  swings as  interest  rates
increase  and  decrease.  We feel that this  focus on  keeping  the  average  of
maturities relatively intermediate in term

                      NOT A PART OF THE SEMI-ANNUAL REPORT

<PAGE>

takes the best that each  investment  has to offer - gaining  stability from the
shorter-term maturities and higher yields from the longer-term maturities.

DIVERSIFICATION OF THE PORTFOLIO

      To the  maximum  extent  possible,  Churchill  Tax-Free  Fund of  Kentucky
strives to invest in as many  projects as  possible  throughout  the state.  The
portfolio  might  be  comprised  of a  school  district  bond in  Louisville,  a
transportation  bond in Lexington and a housing bond in Bewling  Green.  In this
way, we strive to ensure that no one  project,  type of project,  or area of the
State can have any  significant  adverse  influence upon your  investment in the
Fund.

TAX-FREE INCOME

      No matter what return  Churchill  Tax-Free Fund of Kentucky  provides,  it
must be remembered 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 an  example,  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.

SUMMARY

      The Fund uses this combination of quality,  maturity,  and diversification
as it  seeks  to  provide  you with as high a level  of  tax-free  income  as is
consistent with preservation of capital.

      As we are sure you are aware, there is no way to take ALL the waves out of
investing.  But, you can rest assured that  Churchill  Tax-Free Fund of Kentucky
continually  strives  to do its very best to make sure your ride is as smooth as
possible.

                                   Sincerely,


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

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

* For illustration purposes only - assumes a 35% Federal and 6% state tax-rate.
This does not represent past or future performance of any investment.

                      NOT A PART OF THE SEMI-ANNUAL REPORT

<PAGE>

                       CHURCHILL TAX-FREE FUND OF KENTUCKY
                             SCHEDULE OF INVESTMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                    RATING
  PRINCIPAL                                                                        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        $     211,610
                 Hardin County, Kentucky
     170,000     5.000%, 06/01/17 AMBAC Insured ................................     Aaa/NR              174,570
                 Lexington-Fayette Urban County Government, Kentucky
   2,000,000     4.750%, 05/01/24 FGIC Insured .................................    Aaa/AAA            2,021,320
                 Lexington-Fayette Urban County, Kentucky
                     Government Project Unlimited Tax
     340,000     5.150%, 12/01/17 ..............................................    Aa2/AA+              356,099
                 Louisville-Jefferson County, Kentucky Metro
                     Government Unlimited Tax
   1,590,000     5.000%, 11/01/19 ..............................................     Aa2/AA            1,667,051
   1,825,000     5.000%, 11/01/20 ..............................................     Aa2/AA            1,906,961
                 Louisville, Kentucky Unlimited Tax
   2,205,000     5.000%, 10/01/21 FGIC Insured .................................    Aaa/AAA            2,272,694
                 Warren County, Kentucky Judicial Unlimited Tax
     345,000     5.100%, 09/01/17 AMBAC Insured ................................     Aaa/NR              364,151
     365,000     5.150%, 09/01/18 AMBAC Insured ................................     Aaa/NR              385,951
                                                                                                   -------------
                 Total General Obligation Bonds                                                        9,360,407
                                                                                                   -------------

                 REVENUE BONDS (96.5%)

                 STATE AGENCIES (32.0%)
                 Kentucky Area Development District Financing
     500,000     5.000%, 12/01/23 LOC Wachovia Bank ............................     NR/AA               513,595
                 Kentucky Asset/Liability Commission
     500,000     4.500%, 10/01/22 FGIC Insured .................................    Aaa/AAA              496,555
                 Kentucky Infrastructure Authority
   1,000,000     5.250%, 06/01/12 ..............................................     Aa3/A+            1,052,840
     635,000     5.250%, 06/01/12 ..............................................     Aa3/A+              648,526
   2,740,000     5.250%, 06/01/14 ..............................................     Aa3/A+            2,873,602
   1,235,000     5.250%, 08/01/17 ..............................................     NR/AA             1,314,238
     100,000     5.000%, 06/01/18 ..............................................     Aa3/A+              103,239
     230,000     5.000%, 06/01/21 ..............................................     Aa3/A+              236,836
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                    RATING
 PRINCIPAL                                                                         MOODY'S/
  AMOUNT         REVENUE BONDS (CONTINUED)                                            S&P               VALUE
------------     ---------------------------------------------------               --------        -------------
<S>              <C>                                                                <C>            <C>
                 STATE AGENCIES (CONTINUED)
                 Kentucky State Property and Buildings Commission
$  4,000,000     5.375%, 02/01/14 FSA Insured (pre-refunded) ...................    Aaa/AAA        $   4,276,160
   1,000,000     5.000%, 11/01/15 AMBAC Insured ................................    Aaa/AAA            1,054,420
   3,775,000     5.375%, 08/01/16 (pre-refunded) ...............................    Aaa/AAA            4,019,847
   2,725,000     5.375%, 08/01/16 FSA Insured ..................................    Aaa/AAA            2,872,286
   3,905,000     5.125%, 09/01/16 (pre-refunded) ...............................    Aa3/AAA            4,085,060
   4,000,000     5.250%, 10/01/16 ..............................................     Aa3/A+            4,202,960
   1,265,000     5.250%, 08/01/17 MBIA Insured (pre-refunded) ..................    Aaa/AAA            1,353,461
     975,000     5.000%, 08/01/17 FSA Insured ..................................    Aaa/AAA            1,006,658
   8,155,000     5.125%, 09/01/17 (pre-refunded) ...............................    Aa3/AAA            8,531,027
   4,735,000     `5.250%, 10/01/17 .............................................     Aa3/A+            4,966,920
   1,250,000     5.500%, 11/01/17 FSA Insured ..................................    Aaa/AAA            1,342,875
   1,000,000     5.000%, 11/01/17 AMBAC Insured ................................    Aaa/AAA            1,047,980
     165,000     5.375%, 02/01/18 FSA Insured (pre-refunded) ...................    Aaa/AAA              176,392
   3,030,000     5.000%, 08/01/18 FSA Insured (pre-refunded) ...................    Aaa/AAA            3,174,773
   3,950,000     5.125%, 09/01/18 (pre-refunded) ...............................    Aa3/AAA            4,124,432
   6,000,000     5.250%, 10/01/18 ..............................................     Aa3/A+            6,278,100
   1,500,000     5.000%, 11/01/18 AMBAC Insured ................................    Aaa/AAA            1,567,170
   4,000,000     5.375%, 10/01/19 MBIA Insured (pre-refunded) ..................    Aaa/AAA            4,267,000
   1,925,000     5.000%, 10/01/19 ..............................................     Aa3/A+            1,982,057
     360,000     5.000%, 10/01/19 MBIA Insured (pre-refunded) ..................    Aaa/AAA              377,701
     785,000     5.150%, 11/01/19 FSA Insured ..................................    Aaa/AAA              825,522
   3,000,000     5.000%, 11/01/19 FSA Insured ..................................    Aaa/AAA            3,113,280
     250,000     5.000%, 05/01/20 FSA Insured ..................................    Aaa/AAA              256,983
   5,000,000     5.000%, 10/01/22 MBIA Insured (pre-refunded) ..................    Aaa/AAA            5,279,000
     235,000     5.000%, 08/01/23 MBIA Insured (pre-refunded) ..................    Aaa/AAA              247,859
      80,000     5.000%, 08/01/23 MBIA Insured (pre-refunded) ..................    Aaa/AAA               84,378
                 Kentucky State Property Buildings Community Revenues
   7,200,000     5.000%, 08/01/21 FSA Insured ..................................    Aaa/AAA            7,503,552
   2,500,000     5.000%, 08/01/24 FSA Insured ..................................    Aaa/AAA            2,597,825
                                                                                                   -------------
                 Total State Agencies                                                                 87,855,109
                                                                                                   -------------

                 COUNTY AGENCIES (5.2%)
                 Jefferson County, Kentucky Capital Projects
     430,000     5.200%, 06/01/12 MBIA Insured .................................    Aaa/AAA              443,588
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                    RATING
 PRINCIPAL                                                                         MOODY'S/
  AMOUNT         REVENUE BONDS (CONTINUED)                                            S&P               VALUE
------------     ---------------------------------------------------               --------        -------------
<S>              <C>                                                                <C>            <C>
                 COUNTY AGENCIES (CONTINUED)
                 Jefferson County, Kentucky Capital Projects (continued)
$    570,000     5.250%, 06/01/13 MBIA Insured .................................    Aaa/AAA        $     588,263
     520,000     5.250%, 06/01/14 MBIA Insured .................................    Aaa/AAA              536,661
   3,370,000     5.375%, 06/01/18 MBIA Insured .................................    Aaa/AAA            3,481,682
   1,640,000     5.375%, 06/01/22 MBIA Insured .................................    Aaa/AAA            1,693,021
   5,935,000     5.500%, 06/01/28 MBIA Insured .................................    Aaa/AAA            6,118,332
                 Nelson County, Kentucky Court Facilities
                     Project Revenue
     185,000     5.000%, 06/01/21 ..............................................     Aa3/NR              190,513
                 Warren County, Kentucky Justice Center
     365,000         4.300%, 09/01/22 MBIA Insured .............................     Aaa/NR              350,181
                 Warren County, Kentucky Justice Center Expansion
                     Corp. Revenue
     700,000     5.400%, 09/01/24 ..............................................     Aa3/NR              743,442
                                                                                                   -------------
                 Total County Agencies                                                                14,145,683
                                                                                                   -------------

                 CITY/MUNICIPALITY OBLIGATIONS (0.5%)
                 Jeffersontown, Kentucky Public Project Corp.
     500,000     5.750%, 11/01/15 ..............................................     A3/NR               513,060
                 Lexington-Fayette Urban County Government,
                     Kentucky Public Facilities Revenue
     180,000     5.125%, 10/01/23 FSA Insured ..................................    Aaa/AAA              187,009
                 Shelbyville, Kentucky Certificates of Participation
     625,000     5.000%, 10/01/22 ..............................................     A2/NR               640,081
                                                                                                   -------------
                 Total City / Municipality Obligations                                                 1,340,150
                                                                                                   -------------

                 HOSPITALS (3.4%)
                 Jefferson County, Kentucky Health Facilities Revenue
     240,000     5.000%, 10/01/12 MBIA Insured .................................    Aaa/AAA              245,782
   1,715,000     5.650%, 01/01/17 AMBAC Insured ................................    Aaa/AAA            1,762,951
   2,200,000     5.250%, 05/01/17 ..............................................      NR/A             2,277,528
     815,000     5.125%, 10/01/17 AMBAC Insured ETM ............................    Aaa/AAA              835,253
                 Jefferson County, Kentucky Revenue Medical
                     Center Revenue
   2,000,000     5.500%, 05/01/22 ..............................................      NR/A             2,098,240
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                    RATING
 PRINCIPAL                                                                         MOODY'S/
  AMOUNT         REVENUE BONDS (CONTINUED)                                            S&P               VALUE
------------     ---------------------------------------------------               --------        -------------
<S>              <C>                                                                <C>            <C>
                 HOSPITALS (CONTINUED)
                 Kentucky Economic Development Finance Authority
$  1,000,000     5.000%, 02/01/18 FSA Insured ..................................    Aaa/AAA        $   1,015,300
                 Louisville-Jefferson County, Kentucky Medical
                     Center Revenue
   1,000,000     5.000%, 06/01/18 ..............................................      NR/A             1,038,290
                                                                                                   -------------
                 Total Hospitals                                                                       9,273,344
                                                                                                   -------------

                 HOUSING (9.7%)
                 Kentucky Housing Corporation Housing Revenue
     140,000     4.200%, 01/01/15 AMT ..........................................    Aaa/AAA              138,034
     250,000     4.100%, 01/01/15 AMT ..........................................    Aaa/AAA              243,282
     170,000     4.100%, 07/01/15 AMT ..........................................    Aaa/AAA              165,245
     265,000     4.650%, 01/01/16 AMT+ .........................................    Aaa/AAA              264,589
     210,000     4.300%, 01/01/16 AMT ..........................................    Aaa/AAA              206,466
     150,000     4.250%, 01/01/16 AMT ..........................................    Aaa/AAA              147,710
     200,000     4.200%, 01/01/16 AMT ..........................................    Aaa/AAA              195,000
     420,000     4.650%, 07/01/16 AMT+ .........................................    Aaa/AAA              418,009
     610,000     4.300%, 07/01/16 AMT ..........................................    Aaa/AAA              599,307
     550,000     4.200%, 07/01/16 AMT ..........................................    Aaa/AAA              538,269
     555,000     4.200%, 01/01/17 ..............................................    Aaa/AAA              543,018
     100,000     5.125%, 07/01/17 ..............................................    Aaa/AAA              101,426
     680,000     4.200%, 07/01/17 ..............................................    Aaa/AAA              664,768
     470,000     4.800%, 01/01/18 AMT ..........................................    Aaa/AAA              470,164
     285,000     4.250%, 01/01/18 ..............................................    Aaa/AAA              278,163
      95,000     5.550%, 07/01/18 AMT ..........................................    Aaa/AAA               96,682
     575,000     4.800%, 07/01/18 AMT ..........................................    Aaa/AAA              575,201
     180,000     4.250%, 07/01/18 ..............................................    Aaa/AAA              175,540
     920,000     5.600%, 07/01/20 AMT ..........................................    Aaa/AAA              950,130
     900,000     4.800%, 07/01/20 AMT ..........................................    Aaa/AAA              899,991
   1,150,000     5.350%, 01/01/21 AMT ..........................................    Aaa/AAA            1,170,608
   6,395,000     5.450%, 07/01/22 AMT ..........................................    Aaa/AAA            6,568,560
   4,065,000     5.250%, 07/01/22 AMT ..........................................    Aaa/AAA            4,136,585
     245,000     5.200%, 07/01/22 ..............................................    Aaa/AAA              248,731
     415,000     5.100%, 07/01/22 AMT ..........................................    Aaa/AAA              419,685
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                    RATING
 PRINCIPAL                                                                         MOODY'S/
  AMOUNT         REVENUE BONDS (CONTINUED)                                            S&P               VALUE
------------     ---------------------------------------------------               --------        -------------
<S>              <C>                                                                <C>            <C>
                 HOUSING (CONTINUED)
                 Kentucky Housing Corporation Housing Revenue
                     (continued)
$  4,140,000     5.200%, 07/01/25 AMT ..........................................    Aaa/AAA        $   4,203,715
     275,000     5.375%, 07/01/27 ..............................................    Aaa/AAA              280,684
     570,000     5.550%, 07/01/33 ..............................................    Aaa/AAA              584,524
                 Kentucky Housing Multifamily Mortgage Revenue
   1,325,000     5.000%, 06/01/35 AMT ..........................................     NR/AAA            1,324,192
                                                                                                   -------------
                 Total Housing                                                                        26,608,278
                                                                                                   -------------

                 SCHOOLS (23.3%)
                 Beechwood, Kentucky Independent School
                     District Finance Corp.
     180,000     5.650%, 03/01/20 ..............................................     Aa3/NR              189,601
                 Berea, Kentucky Educational Facilities
                     Revenue (Berea College)
   1,000,000     4.125%, 06/01/25 ..............................................     Aaa/NR              931,670
                 Boone County, Kentucky School District Finance Corp.
   1,730,000     4.125%, 08/01/22 XLCA Insured .................................     Aaa/NR            1,646,787
                 Boone County, Kentucky School District Finance
                     Corp. School Building
     660,000     5.000%, 06/01/15 ..............................................     Aa3/NR              679,701
     285,000     5.700%, 02/01/16 ..............................................     Aa3/NR              301,772
     140,000     4.750%, 06/01/20 FSA Insured ..................................    Aaa/AAA              142,517
   1,000,000     5.375%, 08/01/20 FSA Insured ..................................     AAA/NR            1,049,270
   1,580,000     4.500%, 08/01/23 FSA Insured+ .................................     Aaa/NR            1,574,359
                 Boyd County, Kentucky School District Finance Corp.
   1,025,000     5.000%, 10/01/15 ..............................................     Aa3/NR            1,060,106
     575,000     5.375%, 10/01/17 ..............................................     Aa3/NR              595,780
                 Bullitt County, Kentucky School District Finance Corp.
     200,000     4.300%, 10/01/21 ..............................................     Aaa/NR              196,044
   2,455,000     4.500%, 10/01/22 MBIA Insured .................................     Aaa/NR            2,478,421
   2,590,000     4.500%, 10/01/23 MBIA Insured .................................     Aaa/NR            2,611,134
                 Christian County, Kentucky School District Finance Corp.
     500,000     5.000%, 06/01/09 ..............................................     Aa3/NR              514,835
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                    RATING
 PRINCIPAL                                                                         MOODY'S/
  AMOUNT         REVENUE BONDS (CONTINUED)                                            S&P               VALUE
------------     ---------------------------------------------------               --------        -------------
<S>              <C>                                                                <C>            <C>
                 SCHOOLS (CONTINUED)
                 Christian County, Kentucky School District Finance Corp.
$    820,000     4.000%, 08/01/19 XLCA Insured .................................     Aaa/NR        $     775,859
     855,000     4.000%, 08/01/20 XLCA Insured .................................     Aaa/NR              803,503
     905,000     4.000%, 08/01/21 XLCA Insured .................................     Aaa/NR              846,465
   1,465,000     4.000%, 08/01/22 XLCA Insured .................................     Aaa/NR            1,361,776
   1,525,000     4.125%, 08/01/23 XLCA Insured .................................     Aaa/NR            1,422,276
   1,590,000     4.125%, 08/01/24 XLCA Insured++ ...............................     Aaa/NR            1,480,290
                 Daviess County, Kentucky School District Finance Corp.
     200,000     5.000%, 06/01/24 ..............................................     Aa3/NR              206,044
                 Fayette County, Kentucky School Building Revenue
     200,000     5.125%, 04/01/18 AMBAC Insured ................................    Aaa/AAA              209,500
                 Fayette County, Kentucky School District Finance Corp.
   5,000,000     4.250%, 04/01/23 FSA Insured ..................................    Aaa/AAA            4,737,350
                 Floyd County, Kentucky School Building
     680,000     4.375%, 10/01/22 ..............................................     Aa3/NR              662,592
                 Floyd County, Kentucky School Finance Corporation
                     School Building
     380,000     4.000%, 03/01/17 XLCA Insured .................................     Aaa/NR              367,118
   1,320,000     4.000%, 03/01/23 XLCA Insured .................................     Aaa/NR            1,231,415
   1,855,000     4.125%, 03/01/26 XLCA Insured .................................     Aaa/NR            1,730,325
                 Fort Thomas, Kentucky Ind. School District Finance
     785,000     4.375%, 04/01/21 ..............................................     Aa3/NR              768,664
                 Franklin County, Kentucky School District Finance Corp.
     330,000     4.500%, 04/01/18 ..............................................     Aa3/NR              331,907
   1,000,000     5.000%, 04/01/24 ..............................................     Aa3/NR            1,029,660
                 Graves County, Kentucky School Building Revenue
   1,260,000     5.000%, 06/01/22 ..............................................     Aa3/NR            1,300,748
   1,320,000     5.000%, 06/01/23 ..............................................     Aa3/NR            1,361,105
                 Hardin County, Kentucky School District Finance Corp.
   1,475,000     4.000%, 02/01/19 AMBAC Insured ................................     Aaa/NR            1,400,660
                 Hickman County, Kentucky School District Finance
                     Corp. School Building Revenue
     250,000     5.000%, 06/01/24 ..............................................     Aa3/NR              257,555
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                    RATING
 PRINCIPAL                                                                         MOODY'S/
  AMOUNT         REVENUE BONDS (CONTINUED)                                            S&P               VALUE
------------     ---------------------------------------------------               --------        -------------
<S>              <C>                                                                <C>            <C>
                 SCHOOLS (CONTINUED)
                 Jefferson County, Kentucky School District Finance
                     Corp. School Building
$    250,000     5.250%, 07/01/16 FSA Insured ..................................    Aaa/AAA        $     261,005
     150,000     5.000%, 04/01/20 FSA Insured ..................................    Aaa/AAA              155,085
   1,360,000     4.250%, 06/01/21 FSA Insured ..................................    Aaa/AAA            1,310,156
                 Jessamine County, Kentucky School District Finance
                     Corp. School Building Revenue
   1,205,000     4.900%, 05/01/22 ..............................................     Aa3/NR            1,226,280
                 Kenton County, Kentucky School District
     955,000     5.000%, 04/01/16 ..............................................     Aa3/NR              985,665
   1,055,000     5.000%, 04/01/17 ..............................................     Aa3/NR            1,092,115
     605,000     5.000%, 04/01/19 ..............................................     Aa3/NR              624,735
                 Kenton County, Kentucky School District Finance Corp.
     445,000     4.300%, 04/01/22 CIFG Insured .................................     Aaa/NR              434,525
   4,250,000     5.000%, 06/01/22 MBIA Insured .................................     Aaa/NR            4,401,257
     750,000     4.375%, 04/01/24 CIFG Insured .................................     Aaa/NR              734,092
     325,000     4.400%, 04/01/26 CIFG Insured .................................     Aaa/NR              316,196
                 Kentucky Economic Development Finance Authority
                     College Revenue Centre College
   1,230,000     5.000%, 04/01/17 FSA Insured ..................................    Aaa/AAA            1,277,945
   1,675,000     5.000%, 04/01/19 FSA Insured ..................................    Aaa/AAA            1,732,871
                 Lexington-Fayette Urban County, Kentucky
                     Government Project Transylvania University
   1,320,000     5.125%, 08/01/18 MBIA Insured .................................    Aaa/AAA            1,365,329
                 Lexington-Fayette Urban County, Kentucky
                     Government Project U.K. Library
     725,000     5.000%, 11/01/15 MBIA Insured++ ...............................    Aaa/AAA              755,247
     300,000     5.000%, 11/01/20 MBIA Insured .................................    Aaa/AAA              309,972
                 Lincoln County, Kentucky School District
     250,000     4.800%, 08/01/19 ..............................................     Aa3/NR              256,013
                 Louisville & Jefferson County, Kentucky University
                     of Louisville
     500,000     5.000%, 06/01/19 AMBAC Insured ................................    Aaa/AAA              523,380
     525,000     5.000%, 06/01/20 AMBAC Insured ................................    Aaa/AAA              547,974
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                    RATING
 PRINCIPAL                                                                         MOODY'S/
  AMOUNT         REVENUE BONDS (CONTINUED)                                            S&P               VALUE
------------     ---------------------------------------------------               --------        -------------
<S>              <C>                                                                <C>            <C>
                 SCHOOLS (CONTINUED)
                 Oldham County, Kentucky School District Finance Corp.
$    900,000     5.000%, 05/01/19 MBIA Insured .................................     Aaa/NR        $     937,764
                 Scott County, Kentucky School Building
     100,000     5.000%, 03/01/22 ..............................................     Aa3/NR              103,496
                 Scott County, Kentucky School District Finance Corp.
   1,115,000     4.200%, 01/01/22 AMBAC Insured ................................     Aaa/NR            1,082,821
   1,955,000     4.250%, 01/01/23 AMBAC Insured ................................     Aaa/NR            1,902,958
   1,560,000     4.300%, 01/01/24 AMBAC Insured ................................     Aaa/NR            1,522,498
     200,000     5.000%, 06/01/24 FSA Insured ..................................     Aaa/NR              207,254
                 Spencer County, Kentucky School District Finance Corp.
   1,415,000     5.000%, 07/01/19 FSA insured ..................................     Aaa/NR            1,475,520
                 University of Kentucky Revenue
   1,335,000     5.000%, 05/01/16 FGIC Insured (pre-refunded) ..................    Aaa/AAA            1,386,090
     505,000     5.000%, 06/01/18 FSA insured ..................................     Aaa/NR              521,771
                 Warren County, Kentucky School District
                     Finance Corporation
     295,000      4.125%, 02/01/23 MBIA Insured ................................     Aaa/NR              279,524
                                                                                                   -------------
                 Total Schools                                                                        63,986,347
                                                                                                   -------------

                 TRANSPORTATION (10.4%)
                 Kenton County, Kentucky Airport Board Airport Revenue
   1,570,000     5.000%, 03/01/13 MBIA Insured AMT .............................    Aaa/AAA            1,625,562
     750,000     5.625%, 03/01/14 MBIA Insured AMT .............................    Aaa/AAA              797,422
   1,000,000     5.500%, 03/01/17 MBIA Insured AMT .............................    Aaa/AAA            1,058,650
   2,230,000     5.500%, 03/01/18 MBIA Insured AMT .............................    Aaa/AAA            2,352,918
   1,300,000     5.000%, 03/01/23 MBIA Insured AMT .............................    Aaa/AAA            1,318,278
                 Kentucky Interlocal School Transportation Authority
     145,000     5.400%, 06/01/17 ..............................................     Aa3/A+              145,838
     400,000     6.000%, 12/01/20 ..............................................     Aa3/A+              405,684
     200,000     6.000%, 12/01/20 ..............................................     Aa3/A+              202,842
     300,000     5.800%, 12/01/20 ..............................................     Aa3/A+              304,026
     400,000     5.650%, 12/01/20 ..............................................     Aa3/A+              405,132
     350,000     5.600%, 12/01/20 ..............................................     Aa3/A+              354,421
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                    RATING
 PRINCIPAL                                                                         MOODY'S/
  AMOUNT         REVENUE BONDS (CONTINUED)                                            S&P               VALUE
------------     ---------------------------------------------------               --------        -------------
<S>              <C>                                                                <C>            <C>
                 TRANSPORTATION (CONTINUED)
                 Kentucky State Turnpike Authority Economic
                     Development & Resource Recovery Road Revenue
$  1,000,000     5.625%, 07/01/12 FSA Insured (pre-refunded) ...................    Aaa/AAA       $    1,068,240
     200,000     5.625%, 07/01/13 FSA Insured (pre-refunded) ...................    Aaa/AAA              213,648
     500,000     5.625%, 07/01/14 FSA Insured (pre-refunded) ...................    Aaa/AAA              534,120
     450,000     5.250%, 07/01/15 FSA Insured (pre-refunded) ...................    Aaa/AAA              473,832
   3,455,000     5.100%, 07/01/18 FSA Insured ..................................    Aaa/AAA            3,580,969
                 Louisville-Jefferson County Regional Airport, KY
   2,000,000     5.750%, 07/01/15 FSA Insured AMT ..............................    Aaa/AAA            2,144,140
   2,000,000     5.500%, 07/01/15 FSA Insured AMT ..............................    Aaa/AAA            2,129,840
   1,650,000     5.750%, 07/01/17 FSA Insured AMT ..............................    Aaa/AAA            1,761,260
   1,000,000     5.250%, 07/01/18 FSA Insured AMT ..............................    Aaa/AAA            1,039,670
   1,000,000     5.000%, 07/01/18 FSA Insured AMT ..............................    Aaa/AAA            1,022,560
   1,370,000     5.250%, 07/01/21 FSA Insured AMT ..............................    Aaa/AAA            1,417,717
   3,390,000     5.250%, 07/01/22 FSA Insured AMT ..............................    Aaa/AAA            3,504,006
     275,000     5.375%, 07/01/23 FSA Insured AMT ..............................    Aaa/AAA              285,313
     500,000     5.000%, 07/01/25 MBIA Insured AMT .............................    Aaa/AAA              511,090
                                                                                                   -------------
                 Total Transportation                                                                 28,657,178
                                                                                                   -------------

                 UTILITIES (12.0%)
                 Bardstown, Kentucky
     200,000     5.000%, 12/01/19 MBIA Insured .................................     Aaa/NR              208,766
                 Boone County, Kentucky Pollution Control Rev.
                     Dayton Power & Light
   1,000,000     4.700%, 01/01/28 FGIC Insured .................................    Aaa/AAA              991,980
                 Campbell & Kenton Counties, Kentucky
                     Sanitation Sewer District
     100,000     5.000%, 08/01/24 FSA Insured ..................................    Aaa/AAA              102,627
                 Kentucky Rural Water Finance Corp.
     205,000     4.250%, 08/01/19 MBIA Insured .................................     NR/AAA              199,775
     595,000     5.000%, 02/01/20 AMBAC Insured ................................    Aaa/AAA              617,116
     210,000     4.250%, 08/01/20 MBIA Insured .................................     NR/AAA              203,500
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                    RATING
 PRINCIPAL                                                                         MOODY'S/
  AMOUNT         REVENUE BONDS (CONTINUED)                                            S&P               VALUE
------------     ---------------------------------------------------               --------        -------------
<S>              <C>                                                                <C>            <C>
                 UTILITIES (CONTINUED)
                 Kentucky Rural Water Finance Corp. (continued)
$    200,000     4.375%, 08/01/22 MBIA Insured .................................     NR/AAA        $     194,700
     240,000     4.500%, 08/01/23 MBIA Insured .................................     NR/AAA              236,340
     200,000     4.500%, 02/01/24 MBIA Insured .................................     NR/AAA              196,420
     255,000     4.500%, 08/01/24 MBIA Insured .................................     NR/AAA              250,351
     290,000     4.500%, 08/01/27 MBIA Insured .................................     NR/AAA              280,781
     245,000     4.600%, 08/01/28 MBIA Insured .................................     NR/AAA              239,674
     315,000     4.625%, 08/01/29 MBIA Insured .................................     NR/AAA              308,212
                 Lexington-Fayette Urban County Government,
                     Kentucky Sewer System
   1,000,000     5.000%, 07/01/19 ..............................................     Aa3/AA            1,039,200
                 Louisville & Jefferson County, Kentucky
                     Metropolitan Sewer District
   1,000,000     5.000%, 05/15/12 FGIC Insured .................................    Aaa/AAA            1,029,520
   2,565,000     5.375%, 05/15/17 MBIA Insured .................................    Aaa/AAA            2,741,395
   2,180,000     5.000%, 05/15/18 FSA Insured ..................................    Aaa/AAA            2,286,406
   2,380,000     4.250%, 05/15/20 FSA Insured ..................................    Aaa/AAA            2,291,321
   2,510,000     4.250%, 05/15/21 FSA Insured ..................................    Aaa/AAA            2,404,982
     400,000     5.000%, 05/15/22 FGIC Insured .................................    Aaa/AAA              410,140
                 Louisville, Kentucky Waterworks Board
                     Water System Revenue
   1,000,000     5.250%, 11/15/16 FSA Insured ..................................    Aaa/AAA            1,049,900
   1,000,000     5.250%, 11/15/17 FSA Insured ..................................    Aaa/AAA            1,047,860
   2,530,000     5.250%, 11/15/18 FSA Insured ..................................    Aaa/AAA            2,647,999
     205,000     5.250%, 11/15/19 FSA Insured ..................................    Aaa/AAA              213,233
   6,600,000     5.250%, 11/15/22 FSA Insured ..................................    Aaa/AAA            6,907,824
   2,415,000     5.250%, 11/15/24 FSA Insured ..................................    Aaa/AAA            2,521,743
                 Northern Kentucky Water District
     660,000     5.000%, 02/01/23 FGIC Insured .................................     Aaa/NR              676,731
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                    RATING
 PRINCIPAL                                                                         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        $   1,601,806
                                                                                                   -------------
                 Total Utilities                                                                      32,900,302
                                                                                                   -------------
                     Total Revenue Bonds                                                             264,766,391
                                                                                                   -------------
                     Total Investments (cost $272,332,339**) ...................      99.9%          274,126,798
                     Other assets less liabilities .............................       0.1               300,293
                                                                                    ------         -------------
                     Net Assets ................................................     100.0%        $ 274,427,091
                                                                                    ======         =============
</TABLE>

                                                                   PERCENT OF
    PORTFOLIO DISTRIBUTION BY QUALITY RATING (UNAUDITED)            PORTFOLIO
    ----------------------------------------------------            ---------
    Aaa of Moody's or AAA of S&P .............................        81.0%
    Aa of Moody's or AA of S&P ...............................        16.6
    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.

      +     Security traded on a when-issued basis.

      ++    Security pledged as collateral for the Fund's when-issued
            commitments.

                          PORTFOLIO ABBREVIATIONS:
               -----------------------------------------------
               AMBAC - American Municipal Bond Assurance Corp.
               AMT -   Alternative Minimum Tax
               CIFG -  CIFG Assurance North America, Inc.
               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
                            JUNE 30, 2006 (UNAUDITED)

<TABLE>
<S>                                                                                         <C>
ASSETS
    Investments at value (cost $272,332,339) ...........................................    $274,126,798
    Interest receivable ................................................................       3,971,278
    Receivable for investment securities sold ..........................................       1,080,000
    Receivable for Fund shares sold ....................................................          37,188
    Other assets .......................................................................          27,434
                                                                                            ------------
    Total assets .......................................................................     279,242,698
                                                                                            ------------
LIABILITIES
    Cash overdraft .....................................................................         536,851
    Payable for investment securities purchased ........................................       3,131,951
    Payable for Fund shares redeemed ...................................................         585,882
    Dividends payable ..................................................................         332,106
    Management fee payable .............................................................          97,163
    Distribution and service fees payable ..............................................          67,570
    Accrued expenses ...................................................................          64,084
                                                                                            ------------
    Total liabilities ..................................................................       4,815,607
                                                                                            ------------
NET ASSETS .............................................................................    $274,427,091
                                                                                            ============
    Net Assets consist of:
    Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share     $    264,365
    Additional paid-in capital .........................................................     270,651,607
    Net unrealized appreciation on investments (note 4) ................................       1,794,459
    Undistributed net investment income ................................................         438,146
    Accumulated net realized gain on investments .......................................       1,278,514
                                                                                            ------------
                                                                                            $274,427,091
                                                                                            ============
CLASS A
    Net Assets .........................................................................    $217,086,509
                                                                                            ============
    Capital shares outstanding .........................................................      20,914,318
                                                                                            ============
    Net asset value and redemption price per share .....................................    $      10.38
                                                                                            ============
    Offering price per share (100/96 of $10.38 adjusted to nearest cent) ...............    $      10.81
                                                                                            ============
CLASS C
    Net Assets .........................................................................    $  6,148,484
                                                                                            ============
    Capital shares outstanding .........................................................         592,615
                                                                                            ============
    Net asset value and offering price per share .......................................    $      10.38
                                                                                            ============
    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) ......................................    $      10.38*
                                                                                            ============
CLASS I
    Net Assets .........................................................................    $  7,696,364
                                                                                            ============
    Capital shares outstanding .........................................................         741,840
                                                                                            ============
    Net asset value, offering and redemption price per share ...........................    $      10.37
                                                                                            ============
CLASS Y
    Net Assets .........................................................................    $ 43,495,734
                                                                                            ============
    Capital shares outstanding .........................................................       4,187,729
                                                                                            ============
    Net asset value, offering and redemption price per share ...........................    $      10.39
                                                                                            ============
</TABLE>

                 See accompanying notes to financial statements.

<PAGE>

                       CHURCHILL TAX-FREE FUND OF KENTUCKY
                             STATEMENT OF OPERATIONS
                   SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)

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

  Interest income ............................................                            $   6,347,543

Expenses:

  Management fee (note 3) ....................................       $     564,079
  Distribution and service fees (note 3) .....................             207,640
  Transfer and shareholder servicing agent fees ..............             101,822
  Trustees' fees and expenses (note 8) .......................              67,187
  Fund accounting fees .......................................              32,900
  Legal fees (note 3) ........................................              30,828
  Custodian fees .............................................              21,869
  Shareholders' reports and proxy statements .................              19,697
  Insurance ..................................................               9,488
  Auditing and tax fees ......................................               9,416
  Registration fees and dues .................................               8,566
  Chief compliance officer (note 3) ..........................               2,278
  Miscellaneous ..............................................              18,328
                                                                     -------------
  Total expenses .............................................           1,094,098

  Expenses paid indirectly (note 6) ..........................              (6,750)
                                                                     -------------
  Net expenses ...............................................                                1,087,348
                                                                                          -------------
  Net investment income ......................................                                5,260,195

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

  Net realized gain (loss) from securities transactions ......             404,239
  Change in unrealized appreciation on investments ...........          (6,293,605)
                                                                     -------------
  Net realized and unrealized gain (loss) on investments .....                               (5,889,366)
                                                                                          -------------
  Net change in net assets resulting from operations .........                            $    (629,171)
                                                                                          =============
</TABLE>

                 See accompanying notes to financial statements.

<PAGE>

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

<TABLE>
<CAPTION>
                                                                   Six Months Ended
                                                                     June 30, 2006          Year Ended
                                                                      (unaudited)        December 31, 2005
                                                                   ----------------      -----------------
<S>                                                                  <C>                  <C>
OPERATIONS:
  Net investment income ......................................       $   5,260,195        $  10,856,949
  Net realized gain (loss) from securities transactions ......             404,239            1,064,505
  Change in unrealized appreciation on investments ...........          (6,293,605)          (4,961,711)
                                                                     -------------        -------------
    Change in net assets from operations .....................            (629,171)           6,959,743
                                                                     -------------        -------------

DISTRIBUTIONS TO SHAREHOLDERS (NOTE 10):
  Class A Shares:
  Net investment income ......................................          (4,119,295)          (8,497,105)

  Class C Shares:
  Net investment income ......................................             (98,259)            (226,903)

  Class I Shares:
  Net investment income ......................................            (139,718)            (277,644)

  Class Y Shares:
  Net investment income ......................................            (899,398)          (1,888,768)
                                                                     -------------        -------------
    Change in net assets from distributions ..................          (5,256,670)         (10,890,420)
                                                                     -------------        -------------

CAPITAL SHARE TRANSACTIONS (NOTE 7):
  Proceeds from shares sold ..................................          13,249,108           33,559,576
  Reinvested dividends and distributions .....................           2,150,615            4,311,984
  Cost of shares redeemed ....................................         (21,773,511)         (44,707,514)
                                                                     -------------        -------------
  Change in net assets from capital share transactions .......          (6,373,788)          (6,835,954)
                                                                     -------------        -------------

  Change in net assets .......................................         (12,259,629)         (10,766,631)

NET ASSETS:
  Beginning of period ........................................         286,686,720          297,453,351

  End of period* .............................................       $ 274,427,091        $ 286,686,720
                                                                     =============        =============

  * Includes undistributed net investment income of: .........       $     438,146        $     434,620
                                                                     =============        =============
</TABLE>

                 See accompanying notes to financial statements.

<PAGE>

                       CHURCHILL TAX-FREE FUND OF KENTUCKY
                          NOTES TO FINANCIAL STATEMENTS
                            JUNE 30, 2006 (UNAUDITED)

1. ORGANIZATION

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

2. SIGNIFICANT ACCOUNTING POLICIES

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

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

<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 six months ended June 30, 2006.

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 the Fund  such as the  shareholder  servicing  agent,
custodian,  legal counsel, fund accounting agent, auditors and distributor.  For
its services,  the Manager is entitled to receive a fee which is payable monthly
and computed as of the close of business  each day at the annual rate of 0.40 of
1% on the Fund's average net assets.

<PAGE>

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

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

b) DISTRIBUTION AND SERVICE FEES:

      The Fund has adopted a  Distribution  Plan (the  "Plan")  pursuant to Rule
12b-1 (the "Rule") under the Investment  Company Act of 1940.  Under one part of
the  Plan,  with  respect  to Class A  Shares,  the Fund is  authorized  to make
distribution fee payments to broker-dealers  ("Qualified  Recipients") or others
selected by Aquila  Distributors,  Inc. (the "Distributor")  including,  but not
limited to, any principal  underwriter of the Fund,  with which the  Distributor
has entered  into  written  agreements  contemplated  by the Rule and which have
rendered assistance in the distribution and/or retention of the Fund's shares or
servicing of shareholder accounts. The Fund makes payment of this service fee at
the annual rate of 0.15% of the Fund's average net assets represented by Class A
Shares.  For the six months  ended June 30, 2006,  distribution  fees on Class A
Shares amounted to $165,790 of which the Distributor retained $4,415.

      Under  another part of the Plan,  the Fund is  authorized to make payments
with  respect to Class C Shares to  Qualified  Recipients  which  have  rendered
assistance in the distribution  and/or retention of the Fund's Class C shares or
servicing of shareholder accounts. These payments are made at the annual rate of
0.75% of the Fund's average net assets represented by Class C Shares and for the
six months  ended June 30,  2006,  amounted to  $25,560.  In  addition,  under a
Shareholder  Services  Plan, the Fund is authorized to make service fee payments
with respect to Class C Shares to Qualified  Recipients  for providing  personal
services and/or maintenance of shareholder accounts.  These payments are made at
the annual rate of 0.25% of the Fund's average net assets represented by Class C
Shares and for the six months ended June 30, 2006, amounted to $8,520. The total
of these  payments  with respect to Class C Shares  amounted to $34,080 of which
the Distributor retained $8,209.

      Under  another part of the Plan,  the Fund is  authorized to make payments
with respect to Class I Shares to Qualified Recipients.  Class I payments, under
the Plan,  may not  exceed  for any  fiscal  year of the Fund a rate  (currently
0.20%),  set from time to time by the Board of Trustees,  of not more than 0.25%
of the average annual net assets represented by the Class I Shares. In addition,
Class I has a  Shareholder  Services  Plan under which it may pay  service  fees
(currently  0.15%) of not more  than  0.25% of the  average  annual  net  assets
represented by Class I Shares. That is, the total payments under both plans will
not exceed 0.50% of such net assets. For the six months ended June 30, 2006,

<PAGE>

these  payments were made at the average annual rate of 0.35% of such net assets
and amounted to $13,596 of which $7,769  related to the Plan and $5,827  related
to the Shareholder Services Plan.

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

      Under a Distribution  Agreement,  the Distributor  serves as the exclusive
distributor of the Fund's shares. Through agreements between the Distributor and
various  broker-dealer  firms ("dealers"),  the Fund's shares are sold primarily
through the facilities of these dealers having offices within Kentucky, with the
bulk of sales commissions inuring to such dealers. For the six months ended June
30, 2006,  total  commissions on sales of Class A Shares  amounted to $86,515 of
which the Distributor received $7,571.

c) OTHER RELATED PARTY TRANSACTIONS:

      For the six months ended June 30, 2006, the Fund incurred $29,663 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 at that firm.

4. PURCHASES AND SALES OF SECURITIES

      During the six months ended June 30, 2006,  purchases  of  securities  and
proceeds from the sales of securities  aggregated  $22,879,075 and  $26,155,130,
respectively.

      At  June  30,  2006  the  aggregate  tax  cost  for  all   securities  was
$272,316,969.  At June 30, 2006, the aggregate gross unrealized appreciation for
all  securities  in which  there is an  excess  of  market  value  over tax cost
amounted to  $4,206,753  and aggregate  gross  unrealized  depreciation  for all
securities in which there is an excess of tax cost over market value amounted to
$2,396,924 for a net unrealized appreciation of $1,809,829.

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,  its cash balances in  income-producing  assets rather than
leave cash uninvested.

<PAGE>

7. CAPITAL SHARE TRANSACTIONS

      Transactions in Capital Shares of the Fund were as follows:

<TABLE>
<CAPTION>
                                           SIX MONTHS ENDED
                                             JUNE 30, 2006                       YEAR ENDED
                                              (UNAUDITED)                    DECEMBER 31, 2005
                                     -----------------------------     -----------------------------
                                        SHARES           AMOUNT           SHARES           AMOUNT
                                        ------           ------           ------           ------
<S>                                    <C>            <C>                <C>            <C>
CLASS A SHARES:
  Proceeds from shares sold .....       1,024,902     $ 10,781,617        2,024,652     $ 21,593,854
  Reinvested distributions ......         186,266        1,958,320          362,716        3,868,074
  Cost of shares redeemed .......      (1,412,683)     (14,842,526)      (2,962,111)     (31,537,026)
                                     ------------     ------------     ------------     ------------
    Net change ..................        (201,515)      (2,102,589)        (574,743)      (6,075,098)
                                     ------------     ------------     ------------     ------------
CLASS C SHARES:
  Proceeds from shares sold .....          23,013          243,743           90,038          959,910
  Reinvested distributions ......           5,830           61,301           13,187          140,559
  Cost of shares redeemed .......        (124,878)      (1,312,380)        (175,383)      (1,859,038)
                                     ------------     ------------     ------------     ------------
    Net change ..................         (96,035)      (1,007,336)         (72,158)        (758,569)
                                     ------------     ------------     ------------     ------------
CLASS I SHARES:
  Proceeds from shares sold .....              --               --           44,082          471,889
  Reinvested distributions ......           9,511           99,952           22,690          241,811
  Cost of shares redeemed .......            (580)          (6,111)         (38,599)        (410,675)
                                     ------------     ------------     ------------     ------------
    Net change ..................           8,931           93,841           28,173          303,025
                                     ------------     ------------     ------------     ------------
CLASS Y SHARES:
  Proceeds from shares sold .....         209,912        2,223,748          984,142       10,533,923
  Reinvested distributions ......           3,588           31,042            5,130           61,540
  Cost of shares redeemed .......        (534,149)      (5,612,494)      (1,022,004)     (10,900,775)
                                     ------------     ------------     ------------     ------------
    Net change ..................        (320,649)      (3,357,704)         (32,732)        (305,312)
                                     ------------     ------------     ------------     ------------
Total transactions in Fund
  shares ........................        (609,268)    $ (6,373,788)        (651,460)    $ (6,835,954)
                                     ============     ============     ============     ============
</TABLE>

8. TRUSTEES' FEES AND EXPENSES

      At June 30, 2006 there were 6 Trustees,  one of which is  affiliated  with
the Manager and is not paid any fees. The total amount of Trustees'  service and
attendance  fees paid  during the six months  ended June 30, 2006 was $51,325 to
cover carrying out their responsibilities and attendance at

<PAGE>

regularly  scheduled  quarterly  Board Meetings and meetings of the  Independent
Trustees held prior to each quarterly Board Meeting.  When additional or special
meetings are held,  the meeting fees are paid to those  Trustees in  attendance.
Trustees are reimbursed for their expenses such as travel,  accommodations,  and
meals  incurred in connection  with  attendance at Board Meetings and the Annual
Meeting  of  Shareholders.  For  the  six  months  ended  June  30,  2006,  such
meeting-related expenses amounted to $15,862.

9. SECURITIES TRADED ON A WHEN-ISSUED BASIS

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

10. INCOME TAX INFORMATION AND DISTRIBUTIONS

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

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

      The tax character of distributions:

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

<PAGE>

      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.

<PAGE>

                       CHURCHILL TAX-FREE FUND OF KENTUCKY
                              FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

<TABLE>
<CAPTION>
                                                                                      Class A
                                            ---------------------------------------------------------------------------------------
                                             Six Months
                                               Ended                                  Year Ended December 31,
                                              6/30/06         ---------------------------------------------------------------------
                                            (unaudited)         2005            2004            2003            2002         2001
                                            -----------       --------        --------        --------        --------     --------
<S>                                          <C>              <C>             <C>             <C>             <C>          <C>
Net asset value, beginning of period .....   $  10.60         $  10.74        $  10.69        $  10.66        $  10.31     $  10.40
                                             --------         --------        --------        --------        --------     --------
Income (loss) from investment operations:
    Net investment income+ ...............       0.20             0.39            0.42            0.44            0.47         0.50
    Net gain (loss) on securities (both
      realized and unrealized) ...........      (0.23)           (0.14)           0.05            0.03            0.35        (0.09)
                                             --------         --------        --------        --------        --------     --------
    Total from investment operations .....      (0.03)            0.25            0.47            0.47            0.82         0.41
                                             --------         --------        --------        --------        --------     --------
Less distributions (note 10):
    Dividends from net investment income .      (0.19)           (0.39)          (0.42)          (0.44)          (0.47)       (0.50)
    Distributions from capital gains .....         --               --              --              --              --           --
                                             --------         --------        --------        --------        --------     --------
    Total distributions ..................      (0.19)           (0.39)          (0.42)          (0.44)          (0.47)       (0.50)
                                             --------         --------        --------        --------        --------     --------
Net asset value, end of period ...........   $  10.38         $  10.60        $  10.74        $  10.69        $  10.66     $  10.31
                                             ========         ========        ========        ========        ========     ========
Total return (not reflecting sales charge)      (0.25)%*          2.39%           4.49%           4.50%           8.15%        4.02%
Ratios/supplemental data
    Net assets, end of period
      (in thousands) .....................   $217,087         $223,811        $232,927        $229,176        $226.014     $201,604
    Ratio of expenses to average
      net assets .........................       0.78%**          0.77%           0.73%           0.72%           0.72%        0.72%
    Ratio of net investment income to
      average net assets .................       3.73%**          3.66%           3.96%           4.14%           4.82%        4.82%
    Portfolio turnover rate ..............       8.19%*          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 .........................       0.77%**          0.76%           0.73%           0.71%           0.71%        0.70%

<CAPTION>
                                                                                   Class C
                                            ---------------------------------------------------------------------------------
                                            Six Months
                                              Ended                              Year Ended December 31,
                                              6/30/06        ----------------------------------------------------------------
                                            (unaudited)        2005          2004          2003          2002          2001
                                            -----------      --------      --------      --------      --------      --------
<S>                                           <C>            <C>           <C>           <C>           <C>           <C>
Net asset value, beginning of period .....    $  10.59       $  10.73      $  10.69      $  10.66      $  10.31      $  10.39
                                              --------       --------      --------      --------      --------      --------
Income (loss) from investment operations:
    Net investment income+ ...............        0.15           0.30          0.33          0.35          0.38          0.41
    Net gain (loss) on securities (both
      realized and unrealized) ...........       (0.21)         (0.14)         0.04          0.03          0.35         (0.08)
                                              --------       --------      --------      --------      --------      --------
    Total from investment operations .....       (0.06)          0.16          0.37          0.38          0.73          0.33
                                              --------       --------      --------      --------      --------      --------
Less distributions (note 10):
    Dividends from net investment income .       (0.15)         (0.30)        (0.33)        (0.35)        (0.38)        (0.41)
    Distributions from capital gains .....          --             --            --            --            --            --
                                              --------       --------      --------      --------      --------      --------
    Total distributions ..................       (0.15)         (0.30)        (0.33)        (0.35)        (0.38)        (0.41)
                                              --------       --------      --------      --------      --------      --------
Net asset value, end of period ...........    $  10.38       $  10.59      $  10.73      $  10.69      $  10.66      $  10.31
                                              ========       ========      ========      ========      ========      ========
Total return (not reflecting sales charge)       (0.57)%*        1.53%         3.51%         3.62%         7.23%         3.24%
Ratios/supplemental data
    Net assets, end of period
      (in thousands) .....................    $  6,148       $  7,296      $  8,166      $  7,197      $  4,804      $  3,355
    Ratio of expenses to average
      net assets .........................        1.63%**        1.62%         1.58%         1.57%         1.56%         1.56%
    Ratio of net investment income to
      average net assets .................        2.88%**        2.81%         3.11%         3.26%         3.62%         3.92%
    Portfolio turnover rate ..............        8.19%*        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 .........................        1.62%**        1.61%         1.58%         1.56%         1.55%         1.55%
</TABLE>

----------
+     Per share amounts have been calculated using the monthly average shares
      method.
*     Not annualized.
**    Annualized.

                 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
                                            -------------------------------------------------------------------------------------
                                             Six Months
                                               Ended                         Year Ended December 31,                   Period
                                              6/30/06        -----------------------------------------------------      Ended
                                            (unaudited)        2005           2004           2003           2002      12/31/01(1)
                                            -----------      --------       --------       --------       --------    -----------
<S>                                          <C>             <C>            <C>            <C>            <C>          <C>
Net asset value, beginning of period .....   $  10.59        $  10.73       $  10.69       $  10.66       $  10.31     $  10.44
                                             --------        --------       --------       --------       --------     --------
Income (loss) from investment operations:
    Net investment income + ..............       0.19            0.38           0.41           0.43           0.46         0.19
    Net gain (loss) on securities (both
      realized and unrealized) ...........      (0.22)          (0.14)          0.03           0.02           0.35        (0.13)
                                             --------        --------       --------       --------       --------     --------
    Total from investment operations .....      (0.03)           0.24           0.44           0.45           0.81         0.06
                                             --------        --------       --------       --------       --------     --------
Less distributions (note 10):
    Dividends from net investment income .      (0.19)          (0.38)         (0.40)         (0.42)         (0.46)       (0.19)
    Distributions from capital gains .....         --              --             --             --             --           --
                                             --------        --------       --------       --------       --------     --------
    Total distributions ..................      (0.19)          (0.38)         (0.40)         (0.42)         (0.46)       (0.19)
                                             --------        --------       --------       --------       --------     --------
Net asset value, end of period ...........   $  10.37        $  10.59       $  10.73       $  10.69       $  10.66     $  10.31
                                             ========        ========       ========       ========       ========     ========
Total return (not reflecting sales charge)      (0.31)%*         2.24%          4.24%          4.33%          7.98%        0.58%*
Ratios/supplemental data
    Net assets, end of period
      (in thousands) .....................   $  7,696        $  7,764       $  7,564       $  4,438       $  2,407     $  1,426
    Ratio of expenses to average
      net assets .........................       0.91%**         0.92%          0.89%          0.88%          0.87%        0.83%**
    Ratio of net investment income to
      average net assets .................       3.59%**         3.52%          3.79%          3.95%          4.32%        4.47%**
    Portfolio turnover rate ..............       8.19%*         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 .........................       0.90%**         0.91%          0.89%          0.87%          0.86%        0.82%**

<CAPTION>
                                                                                  Class Y
                                            ---------------------------------------------------------------------------------
                                            Six Months
                                               Ended                             Year Ended December 31,
                                              6/30/06        ----------------------------------------------------------------
                                            (unaudited)        2005          2004          2003          2002          2001
                                            -----------      --------      --------      --------      --------      --------
<S>                                           <C>            <C>           <C>           <C>           <C>           <C>
Net asset value, beginning of period .....    $  10.61       $  10.75      $  10.70      $  10.67      $  10.32      $  10.40
                                              --------       --------      --------      --------      --------      --------
Income (loss) from investment operations:
    Net investment income + ..............        0.21           0.41          0.44          0.46          0.49          0.51
    Net gain (loss) on securities (both
      realized and unrealized) ...........       (0.23)         (0.14)         0.05          0.03         (0.07)
                                              --------       --------      --------      --------      --------      --------
    Total from investment operations .....       (0.02)          0.27          0.49          0.49          0.84          0.44
                                              --------       --------      --------      --------      --------      --------
Less distributions (note 10):
    Dividends from net investment income .       (0.20)         (0.41)        (0.44)        (0.46)        (0.49)        (0.52)
    Distributions from capital gains .....          --             --            --            --            --            --
                                              --------       --------      --------      --------      --------      --------
    Total distributions ..................       (0.20)         (0.41)        (0.44)        (0.46)        (0.49)        (0.52)
                                              --------       --------      --------      --------      --------      --------
Net asset value, end of period ...........    $  10.39       $  10.61      $  10.75      $  10.70      $  10.67      $  10.32
                                              ========       ========      ========      ========      ========      ========
Total return (not reflecting sales charge)       (0.17)%*        2.55%         4.65%         4.65%         8.30%         4.28%
Ratios/supplemental data
    Net assets, end of period
      (in thousands) .....................    $ 43,496       $ 47,816      $ 48,795      $ 46,313      $ 41,223      $ 25,585
    Ratio of expenses to average
      net assets .........................        0.63%**        0.62%         0.58%         0.57%         0.57%         0.57%
    Ratio of net investment income to
      average net assets .................        3.88%**        3.81%         4.11%         4.28%         4.63%         4.94%
    Portfolio turnover rate ..............        8.19%*        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 .........................        0.62%**        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 table below is intended to
help you understand your ongoing costs (in dollars) of investing in the Fund and
to compare  these  costs with the ongoing  costs of  investing  in other  mutual
funds.

      The table below is based on an investment of $1,000 invested on January 1,
2006 and held for the six months ended June 30, 2006.

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 JUNE 30, 2006

                       ACTUAL
                    TOTAL RETURN      BEGINNING         ENDING        EXPENSES
                       WITHOUT         ACCOUNT          ACCOUNT     PAID DURING
                  SALES CHARGES(1)      VALUE            VALUE     THE PERIOD(2)
--------------------------------------------------------------------------------
Class A                (0.25)%        $1,000.00         $997.50        $3.86
--------------------------------------------------------------------------------
Class C                (0.57)%        $1,000.00         $994.30        $8.10
--------------------------------------------------------------------------------
Class I                (0.31)%        $1,000.00         $996.90        $4.51
--------------------------------------------------------------------------------
Class Y                (0.17)%        $1,000.00         $998.30        $3.11
--------------------------------------------------------------------------------

(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%, 0.90%
      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
      183/365 (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 JUNE 30, 2006

                        HYPOTHETICAL
                         ANNUALIZED    BEGINNING        ENDING        EXPENSES
                            TOTAL       ACCOUNT         ACCOUNT     PAID DURING
                           RETURN        VALUE           VALUE     THE PERIOD(1)
--------------------------------------------------------------------------------
Class A                     5.00%      $1,000.00       $1,021.21       $3.90
--------------------------------------------------------------------------------
Class C                     5.00%      $1,000.00       $1,016.95       $8.19
--------------------------------------------------------------------------------
Class I                     5.00%      $1,000.00       $1,020.56       $4.56
--------------------------------------------------------------------------------
Class Y                     5.00%      $1,000.00       $1,021.96       $3.14
--------------------------------------------------------------------------------

(1)   EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.77%,  1.62%, 0.90%
      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
      183/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).

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

<PAGE>

ADDITIONAL INFORMATION (UNAUDITED)

RENEWAL OF THE ADVISORY AND ADMINISTRATION AGREEMENT

      Renewal until June 30, 2007 of the Advisory and  Administration  Agreement
(the "Advisory  Agreement") between the Fund and the Manager was approved by the
Board of  Trustees  and the  independent  Trustees in June,  2006.  At a meeting
called and held for that purpose at which a majority of the independent Trustees
were present in person, the following materials were considered:

      o     Copies of the agreements to be renewed;

      o     A term sheet describing the material terms of the agreements;

      o     The Annual Report of the Fund for the year ended December 31, 2005;

      o     A report,  prepared by the Manager and  provided to the  Trustees in
            advance of the meeting for the  Trustees'  review,  containing  data
            about the performance of the Fund, data about its fees, expenses and
            purchases and redemptions of capital stock together with comparisons
            of such data with similar data about other comparable funds, as well
            as data as to the profitability of the Manager; and

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

      The Trustees reviewed  materials relevant to, and considered the following
factors:

THE NATURE, EXTENT, AND QUALITY OF THE SERVICES PROVIDED BY THE MANAGER.

      The Manager has provided  local  management of the Fund's  portfolio.  The
Trustees noted that the Manager employed Thomas S. Albright as portfolio manager
for the Fund and has  established  facilities for credit  analysis of the Fund's
portfolio  securities.  Mr.  Albright,  based in Louisville,  has provided local
information  regarding specific holdings in the Fund's portfolio.  The portfolio
manager has also been  available to and has met with the brokerage and financial
planner  community and with investors and prospective  investors to provide them
with information generally about the Fund's portfolio,  with which to assess the
Fund as an  investment  vehicle for residents of Kentucky in light of prevailing
interest rates and local economic conditions.

      The Board  considered that the Manager had provided all services the Board
deemed necessary or appropriate,  including the specific services that the Board
has determined  are required for the Fund,  given that its purpose is to provide
shareholders  with as high a level of current  income exempt from Kentucky state
and regular Federal income taxes as is consistent with preservation of capital.

      The Manager has additionally  provided all administrative  services to the
Fund. The Board considered the nature and extent of the Manager's supervision of
third-party service providers,  including the Fund's shareholder servicing agent
and  custodian.  The Board  considered  that the  Manager  had  established  and
maintained a strong culture of ethical conduct and regulatory compliance.

      The Board  concluded  that the  services  provided  were  appropriate  and
satisfactory  and  that  the  Fund  would  be well  served  if  they  continued.
Evaluation of this factor weighed in favor of renewal of the Advisory Agreement.

<PAGE>

THE INVESTMENT PERFORMANCE OF THE FUND AND THE MANAGER.

      The Board reviewed each aspect of the Fund's  performance and compared its
performance with that of its local  competitors,  with national averages and the
benchmark  index.  It was  noted  that the  materials  provided  by the  Manager
indicated that compared to the five largest competitive Kentucky funds, the Fund
has had investment performance that is generally comparable to its peers for the
five- and ten-year  periods,  with lower rates of return explained by the Fund's
generally higher-quality portfolio and generally shorter average maturities. The
Board considered these results to be consistent with the purposes of the Fund.

      The Board  concluded that the  performance of the Fund, in light of market
conditions,  was  satisfactory.  Evaluation  of  this  factor  indicated  to the
Trustees that renewal of the Advisory Agreement would be appropriate.

THE COSTS OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED BY THE
MANAGER AND ITS AFFILIATES FROM THE RELATIONSHIP WITH THE FUND.

      The information provided in connection with renewal contained expense data
for the Fund and its competitors as well as data for all  single-state  tax-free
municipal  bond funds  nationwide,  including  data for all such  front-end load
funds of a comparable asset size. The materials also showed the profitability to
the Manager and of its services to the Fund.

      The Board  compared  the expense and fee data with  respect to the Fund to
similar data about other funds that it found to be relevant. The Board concluded
that  the  expenses  of the  Fund and the fees  paid  were  similar  to and were
reasonable as compared to those being paid by  single-state  tax-free  municipal
bond funds  nationwide,  and by the Fund's local  competitors,  all of which had
higher management fees except for one.

      The Board further  concluded that the profitability to the Manager and the
Distributor  did not argue  against  approval  of the fees to be paid  under the
Advisory Agreement.

THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS.

      Data  provided to the Trustees  showed that the Fund's asset size had been
generally  increasing in recent years.  However,  they concluded that the recent
increases in prevailing  interest rates and the possibility of further increases
might  make it  difficult  to achieve  substantial  growth in assets in the near
future.  The Trustees  also noted that the materials  indicated  that the Fund's
fees were already generally lower than those of its peers,  including those with
breakpoints.  Evaluation of this factor indicated to the Board that the Advisory
Agreement should be renewed without addition of breakpoints at this time.

BENEFITS DERIVED OR TO BE DERIVED BY THE MANAGER AND ITS AFFILIATES FROM THE
RELATIONSHIPS WITH THE FUND.

      The Board observed that, as is generally true of most fund complexes,  the
Manager and its affiliates,  by providing services to a number of funds or other
investment  clients  including the Fund, were able to spread costs as they would
otherwise be unable to do. The Board noted that while that produces efficiencies
and increased  profitability  for the Manager and its affiliates,  it also makes
their  services  available to the Fund at  favorable  levels of quality and cost
which are more advantageous to the Fund than would otherwise have been possible.

<PAGE>

                     SHAREHOLDER MEETING RESULTS (UNAUDITED)

      The Annual Meeting of Shareholders of Churchill  Tax-Free Fund of Kentucky
(the "Fund") was held on April 28, 2006. The holders of shares  representing 71%
of the total net asset  value of the  shares  entitled  to vote were  present in
person or by proxy.  At the meeting,  the following  matters were voted upon and
approved by the shareholders (the resulting votes are presented below).

1. To elect Trustees.

                             DOLLAR AMOUNT OF VOTES

                TRUSTEE                          FOR             WITHHELD
                -------                          ---             --------
        Thomas A. Christopher               $202,300,378        $  926,498
        Diana P. Herrmann                   $202,197,486        $1,029,390
        Theodore T. Mason                   $201,945,708        $1,281,168
        Anne J. Mills                       $202,121,778        $1,105,098
        William J. Nightingale              $202,103,256        $1,123,620
        James R. Ramsey                     $202,077,363        $1,149,513

2. To ratify the selection of Tait, Weller & Baker LLP as the Fund's independent
registered accounting firm.

                             DOLLAR AMOUNT OF VOTES

                      FOR             AGAINST           ABSTAIN
                      ---             -------           -------
                 $200,966,155       $  247,128        $2,013,593

--------------------------------------------------------------------------------
INFORMATION AVAILABLE (UNAUDITED)

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

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

--------------------------------------------------------------------------------
PROXY VOTING RECORD (UNAUDITED)

      The Fund does not invest in equity securities.  Accordingly, there were no
matters relating to a portfolio security  considered at any shareholder  meeting
held during the 12 months ended June 30, 2006 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>

                      (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
  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.

		Not applicable.

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

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

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



SIGNATURES

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

CHURCHILL TAX-FREE TRUST


By:  /s/  Diana P. Herrmann
- - ---------------------------------
President and Trustee
September 7, 2006


By:  /s/  Joseph P. DiMaggio
- - -----------------------------------
Chief Financial Officer and Treasurer
September 7, 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
September 7, 2006



By:  /s/  Joseph P. DiMaggio
- - -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
September 7, 2006





CHURCHILL TAX-FREE TRUST

EXHIBIT INDEX

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

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