PORTFOLIO MANAGER LETTER – NEBRASKA TAX-FREE INCOME FUND
December 31, 2007 – QUARTERLY REPORT

January 17, 2008

Dear Fellow Shareholder:

The Nebraska Tax-Free Income Fund’s total return for the fourth quarter of 2007 was +1.2%, which consisted of approximately +0.9% from net interest income (after deducting fees and expenses) and +0.3% from (unrealized) appreciation of our bonds. Our Fund’s primary benchmark, the Lehman Brothers 5-Year Municipal Bond Index, returned +1.9%.

The table below shows the results of the Nebraska Tax-Free Income Fund over various time periods through December 31, 2007, along with the Lehman Brothers 5-Year Municipal Bond Index, our primary benchmark. The key measures of the Fund’s portfolio (average maturity and duration) have most closely resembled this Lehman Brothers index. As a reminder, we don’t manage the Fund to mimic any particular index but thought it would be informative to provide an example of a broadly constructed unmanaged index whose credit quality and maturity composition were similar to the Fund.

The following table shows a profile of our portfolio as of December 31:

Overview

The fourth quarter was a good one for most municipal bond investors, our Fund included. Interest income was enhanced by capital gains as interest rates generally declined in response to broadening economic weakness. Our portfolio performed reasonably well despite being defensively positioned with approximately 10% of our Fund in cash and other short-term securities (with maturities of 7 to 35 days).

In the economy, the ripple effects from the continued fallout in the housing market were felt in declining consumer confidence, disappointing holiday sales and concern that corporate profits would be negatively impacted. The Federal Reserve responded by continuing to lower short-term interest rates, further supporting bond investor returns in the quarter.

A noteworthy, and ongoing, development was an overall re-pricing of credit risk sparked by the summer meltdown in the mortgage industry, particularly in the subprime segment. Some municipal bonds have even been caught in the credit crunch despite having little to do with subprime mortgages. This occurred in an indirect manner and not because the creditworthiness of municipalities has deteriorated.

About half of all municipal bonds issued by state and local governments carry the highest rating (AAA) possible by independent rating services because of guarantees issued by a handful of insurance companies. In industry lingo these bonds are oftentimes dubbed ‘insured munis’. Some of these insurance companies have come under severe pressure because of guarantees they have issued on bonds away from the municipal marketplace, notably subprime. These exposures, with both actual and projected future losses, have caused the rating services and investors to question the claims paying ability of some of these insurance companies. It’s conceivable that some municipal bonds could experience meaningful ratings declines should these insurance companies lose their coveted AAA rating.

We believe the economic impact of potential insurer downgrades on our Fund would be minimal, if any.  Approximately 45% of our investments carry some form of insurance protection. However, we underwrite each investment on the merits of the underlying municipality, before considering any potential insurance benefit.  A significant portion of our insured municipal bonds have a solid investment grade rating (A rating or better). In addition, we are broadly diversified across various insurance companies for those bonds that are insured.  Our single largest exposure is to Financial Security Assurance, FSA, one of only two insurance companies with no negative assessment from the major credit-rating companies. On balance, we believe any negative reaction (higher yields and lower prices) from rating downgrades to ‘insured munis’ would provide credit sensitive investors with attractive opportunities.

Much discussion in the press lately has dealt with the likelihood of a recession and whether or not it has already begun. It seems plausible that many factors (housing weakness, rising unemployment and declining profits, to name a few) may be conspiring to set the stage for the next recession. However, we’re mindful of the difficulty in accurately predicting these economic turning points. It has been said, tongue in cheek, that economists have successfully predicted 10 of the last 3 recessions. Whether a recession is imminent, our goal will be to continue to select investments one security at a time, being mindful of the risk/reward attributes that each adds to our portfolio.

The recent sharp decline in U.S. Treasury interest rates, with yields at or below 3% for maturities of 5 years or less while the ten-year Treasury yields 3.8% (as of this writing), seem to be discounting dire economic consequences and has led us to become even more defensively positioned (i.e. shorter average life). This may cause our performance to lag our primary benchmark should interest rates continue to fall since the benchmark has a longer duration relative to our Fund. Given an elevated inflation and falling dollar risk, with its attendant negative consequences for fixed-income investors, this posture seems warranted while we search for qualifying investments. Should there be disruptions in the municipal market from downgrades in the insured segment, we are well positioned to take advantage of any opportunities.

We welcome any questions you may have and appreciate the confidence in and support of the Fund and our firm.

Best Regards,

Thomas D. Carney
Portfolio Manager

Investors should consider carefully the investment objectives, risks, and charges and expenses of the Fund before investing. The Fund’s Prospectus contains this and other information about the Fund. The Prospectus should be read carefully before investing. Portfolio composition is subject to change at any time and references to specific securities, industries, and sectors referenced in this letter are not recommendations to purchase or sell any particular security. See the Schedule of Investments in Securities included in the Fund’s quarterly report for the percent of assets of the Fund invested in a particular state.