NARRAGANSETT INSURED TAX-FREE INCOME FUND
SEMI-ANNUAL REPORT
(picture of sailboat)
January 29, 1996
"TAKING CARE OF BUSINESS"
Dear Investor:
"TAKING CARE OF BUSINESS" is the title of a popular song. It is also the
theme that we live by in the management of your investment in Narragansett
Insured Tax-Free Income Fund.
"TAKING CARE OF BUSINESS" with your investment in the Fund means working
continuously to provide the highest degree of credit safety for you through
the Fund's portfolio investments. It also means providing you with as high a
level of DOUBLE TAX-FREE income as is reasonable in carrying out our capital
preservation objective.
OBSERVERS OF THE SCENE
In the operation of Narragansett Insured Tax-Free Income Fund, we very
conscientiously attempt to be as apolitical as possible. We do not take
political positions or lobby on various policy issues. Rather, we act as
observers of the scene around us and attempt, from our observations, to
manage the Fund according to our vision as to what is in the best interests
for your investment.
From our observations, we recognize that Rhode Island is in many
respects a marvelous state. It has many excellent attributes. However, our
observations also note that the State and many of its communities have
severe financial difficulties.
That is why we have opted to have 100% of the investments in the Fund
possess a credit rating of AAA - the highest credit rating assignable to
municipal securities by such nationally-renown credit analysis and rating
firms as Standard & Poor's and Moody's Investors Services.
Moreover, every security in the portfolio, with one small exception
that is backed by U.S. Treasury securities, is insured by prominent
specialized insurance companies as to timely payment of interest and
principal when due. All these insurance companies are rated AAA as to
their claims-paying ability in the event they had to be called upon by the
Fund.
Thus, we believe that the Fund is "TAKING CARE OF BUSINESS" in terms of
protecting the value of the assets behind your investment in the Fund.
<PAGE>
MANAGEMENT GOALS
CAPITAL PRESERVATION
Clearly, under the present financial environment that exists in Rhode
Island, a key management goal for the Fund is to provide you with a high
level of capital preservation. Maximizing credit safety for your investment
through AAA municipal securities is the prime management tool we use to
achieve this goal.
STABILITY OF SHARE VALUE
As we are all aware, both bond and stock prices will fluctuate in the
marketplace. This is a situation with which we all have to live.
Nevertheless, another management goal that we strive to achieve is to
provide you with relatively high stability of the Fund's share price.
This is not an easy task since the prices of municipal securities are
influenced considerably by interest rate changes. And, in our country,
interest rate changes are primarily governed by actions of the Federal
Reserve Board in Washington.
Three management techniques are, however, used by the Fund's
Investment Adviser, Citizen's Trust, to gain share price stability. These
techniques are:
* emphasis upon quality of investments;
* varied maturities of securities in the portfolio with maintenance of
an intermediate-term average maturity, and
* diversification of Fund assets among a variety of municipal issuers.
QUALITY
Whereas the Fund's share price will change as influenced by interest
rate movements, such as those which occurred in 1993 and 1994, we have always
found that emphasis upon high quality provides the greatest protection in
providing for share price stability over any reasonable time frame. That is
why we have structured the Fund's portfolio so that it is comprised entirely
- - - 100% - of AAA credit-rated securities - the highest quality attainable.
There will be times in the market when AAA-rated securities decline in
price as interest rates increase. This is sometimes accentuated by the fact
that top-rated securities are the easiest for investors to sell. But, when
interest rates stabilize and move down again, top quality rated securities
always bounce right back up again in price quite quickly. On the other hand,
rapid price recovery action does not necessarily occur with lower quality
securities.
MATURITY
Securities in the Fund's investment portfolio have a variety of
maturities, ranging from very short-term to long-term. The Fund's Investment
Adviser intentionally creates a balance and blend of maturities among
securities within the investment portfolio. Our management goal within such
blend, however, is to maintain the average maturity of the portfolio at an
intermediate level.
At December 31, 1995, this average maturity level was
12.4 years. This maturity level is intended to provide a reasonable dividend
rate for Fund shareholders, while at the same time
2
<PAGE>
avoiding excess share price volatility. While emphasis upon longer
maturities can produce a higher level of income return, such approach would
create substantially greater price volatility for the Fund's share price.
Another maturity element used by the Investment Adviser in mitigating
interest rate risk and dampening share price volatility is the duration of
the overall portfolio. At year-end 1995, the Fund's duration was 5.8 years,
which is a plus level for shareholders.
DIVERSIFICATION
By diversifying the Fund's investments among a variety of municipal
issuers, we gain another means of providing share price stability. We
deliberately diversify the Fund's assets among different project types,
specific issuers, and, as much as possible, geographically throughout the
State. At the latest Semi-Annual report date, there were 113 separate
issues held by the Fund.
Working together, these three investment management techniques dampen
volatility and produce a relatively high level of share price stability over
any reasonable time frame. We seek to provide Fund shareholders with a
comfort level in terms of share price stability that will permit them to
"SLEEP WELL AT NIGHT" knowing that the Fund's professional management is
looking after their investment interests.
RETURN ON INVESTMENT
We consistently try to provide shareholders with a good level of DOUBLE
TAX-FREE income - as high as possible commensurate with the degree of capital
preservation we strive to achieve.
The accompanying chart shows the average level of DOUBLE TAX-FREE income
distributed to shareholders over the past fiscal year, as measured against
the maximum public offering price.
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND'S DOUBLE TAX-FREE
DISTRIBUTION RATE AS COMPARED TO THE TAXABLE EQIVALENT RATE AN
INVESTOR WOULD HAVE TO EARN AT VARIOUS TAX BRACKETS
<S> <C> <C> <C> <C>
Tax Bracket 28% 31% 36% 39.6%
Taxable Equivalent Rate 7.52% 8.18% 9.01% 9.71%
Double Tax-Free Distribution Rate 5.00% 5.00% 5.00% 5.00%
</TABLE>
3
<PAGE>
Since shareholders are subject to the payment of income tax at Federal
tax levels as well as payment of State of Rhode Island income tax, we have
also shown in this chart the rate of taxable income return one would have
had to earn over the course of the year in order to equate to the DOUBLE
TAX-FREE income return generated by the Fund.
No matter which Federal income tax bracket applies, you can readily see
that there is quite a difference between the taxable and DOUBLE TAX-FREE
return levels.
It is important to note that it would not have been possible to find
taxable fixed-income investments that would produce the same level of after
tax return as that of the Fund during this time period, unless one settled
for a lesser quality and higher risk taxable investment.
GROWTH IN SHAREHOLDERS
We are pleased to note that a growing number of Rhode Island investors
are becoming shareholders of Narragansett Insured Tax-Free Income Fund. As
a result, and with assistance of a rebound in the market price of municipal
securities, the size of the Fund reached $37,580,291 as at December 31, 1995.
YOUR CONTINUED CONFIDENCE VALUED
We thank you for your continuing confidence in Narragansett Insured
Tax-Free Income Fund. You can be assured that we will be doing our best
to merit your further trust.
Sincerely,
Lacy B. Herrmann
/s/ Lacy B. Herrmann
President and Chairman
of the Board of Trustees
4
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS
DECEMBER 31, 1995 (UNAUDITED)
RATING
FACE MOODYS/
AMOUNT GENERAL OBLIGATION BONDS (54.7%) S&P VALUE
<S> <C> <C> <C>
$ 100,000 Town of Bristol, Rhode Island,
MBIA Insured 6.000%, 12/15/11 Aaa/AAA $ 106,500
100,000 Town of Bristol, Rhode Island,
MBIA Insured 6.000%, 12/15/12 Aaa/AAA 106,375
1,000,000 Town of Bristol, Rhode Island,
MBIA Insured 5.100%, 08/15/07 Aaa/AAA 1,005,000
405,000 Town of Burrillville, Rhode Island,
AMBAC Insured 5.300%, 07/15/08 Aaa/AAA 419,175
250,000 Town of Burrillville, Rhode Island,
MBIA Insured 5.400%, 10/15/06 Aaa/AAA 264,063
250,000 Town of Burrillville, Rhode Island,
MBIA Insured 5.500%, 10/15/07 Aaa/AAA 264,063
150,000 Town of Burrillville, Rhode Island,
MBIA Insured 5.700%, 10/15/10 Aaa/AAA 157,125
500,000 Central Falls, Rhode Island,
MBIA Insured 4.900%, 11/15/05 Aaa/AAA 506,875
500,000 Central Falls, Rhode Island,
MBIA Insured 5.200%, 11/15/09 Aaa/AAA 503,125
300,000 Cranston, Rhode Island,
MBIA Insured 5.500%, 06/15/07 Aaa/AAA 313,875
1,120,000 Cranston, Rhode Island,
MBIA Insured 5.300%, 07/15/05 Aaa/AAA 1,160,600
345,000 Town of Cumberland, Rhode Island,
MBIA Insured 5.500%, 09/01/06 Aaa/AAA 365,700
500,000 Town of Cumberland, Rhode Island,
MBIA Insured 5.600%, 10/01/08 Aaa/AAA 523,125
400,000 Town of Lincoln, Rhode Island,
MBIA Insured 6.000%, 01/15/06 Aaa/AAA 412,348
400,000 Town of Lincoln, Rhode Island,
MBIA Insured 5.100%, 01/15/06 Aaa/AAA 409,000
400,000 Town of Lincoln, Rhode Island,
MBIA Insured 5.200%, 08/15/06 Aaa/AAA 413,000
100,000 Town of Lincoln, Rhode Island,
AMBAC Insured 5.625%, 04/15/11 Aaa/AAA 103,375
300,000 Narragansett, Rhode Island,
MBIA Insured 5.100%, 09/15/06 Aaa/AAA 306,750
1,000,000 Narragansett, Rhode Island,
MBIA Insured 5.300%, 09/15/08 Aaa/AAA 1,022,500
150,000 Newport, Rhode Island,
MBIA Insured 6.550%, 08/15/07 Aaa/AAA 167,625
250,000 Newport, Rhode Island, Series B,
FGIC Insured 4.900%, 05/15/06 Aaa/AAA 253,750
500,000 Newport, Rhode Island, Series B,
FGIC Insured 5.000%, 05/15/07 Aaa/AAA 507,500
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS
RATING
FACE MOODYS/
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <C>
$ 500,000 Newport, Rhode Island, Series B,
FGIC Insured 5.100%, 05/15/08 Aaa/AAA $ 507,500
100,000 Pawtucket, Rhode Island,
MBIA Insured 6.650%, 09/15/06 Aaa/AAA 111,625
310,000 Pawtucket, Rhode Island,
FGIC Insured 5.625%, 04/15/07 Aaa/AAA 327,438
25,000 Providence, Rhode Island, MBIA
Insured 6.600%, 01/15/01 Aaa/AAA 27,562
100,000 Providence, Rhode Island, MBIA
Insured 5.500%, 01/15/04 Aaa/AAA 105,500
100,000 Providence, Rhode Island, MBIA
Insured 5.900%, 01/15/09 Aaa/AAA 105,500
200,000 Providence, Rhode Island, MBIA
Insured 5.250%, 01/15/12 Aaa/AAA 201,000
100,000 Providence, Rhode Island, Series A,
MBIA Insured 5.400%, 08/01/01 Aaa/AAA 105,500
90,000 Providence, Rhode Island, Series A,
MBIA Insured 5.700%, 08/01/04 Aaa/AAA 95,850
500,000 East Providence, Rhode Island,
MBIA Insured 5.400%, 05/15/07 Aaa/AAA 525,000
100,000 Commonwealth of Puerto Rico, Series
A, MBIA Insured 5.750%, 07/01/09 Aaa/AAA 105,375
50,000 Commonwealth of Puerto Rico, Series
A, CGIC Insured 6.000%, 07/01/14 Aaa/AAA 52,500
100,000 Commonwealth of Puerto Rico,
MBIA Insured 6.000%, 07/01/14 Aaa/AAA 105,000
500,000 Commonwealth of Puerto Rico,
AMBAC Insured 5.850%, 07/01/15 Aaa/AAA 516,250
500,000 Commonwealth of Puerto Rico,
AMBAC Insured 5.875%, 07/01/18 Aaa/AAA 513,750
50,000 State of Rhode Island Refunding
Series A, FGIC Insured 6.000%,
06/15/02 Aaa/AAA 54,187
300,000 Rhode Island Consolidated Capital
Development Loan 1991 Series B,
AMBAC Insured 6.250%, 05/15/07 Aaa/AAA 323,250
380,000 Rhode Island Consolidated Capital
Development Loan 1991 Series B,
MBIA Insured 6.250%, 05/15/09 Aaa/AAA 406,600
100,000 Rhode Island Consolidated Capital
Development Loan 1991 Series B,
MBIA Insured 6.250%, 05/15/10 Aaa/AAA 106,750
1,050,000 Rhode Island Consolidated Capital
Development Loan 1992 Series A,
FGIC Insured 5.500%, 08/01/07 Aaa/AAA 1,089,375
25,000 Rhode Island Consolidated Capital
Development Loan 1992 Series A,
FGIC Insured 5.500%, 08/01/08 Aaa/AAA 25,813
1,000,000 Rhode Island Consolidated Capital
Development Loan 1993, AMBAC
Insured 4.800%, 06/15/02 Aaa/AAA 1,017,500
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS
RATING
FACE MOODYS/
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <C>
$ 1,000,000 Rhode Island Consolidated Capital
Development Loan 1993 Series A,
FGIC Insured 5.100%, 11/01/13 Aaa/AAA $ 983,750
375,000 Town Of Scituate, Rhode Island,
MBIA Insured 5.500%, 04/01/09 Aaa/AAA 390,469
390,000 South Kingstown, Rhode Island,
MBIA Insured 5.000%, 03/15/08 Aaa/AAA 393,900
390,000 South Kingstown, Rhode Island,
MBIA Insured 5.050%, 03/15/09 Aaa/AAA 389,512
125,000 South Kingstown, Rhode Island,
MBIA Insured 5.125%, 06/01/08 Aaa/AAA 127,500
170,000 South Kingstown, Rhode Island,
MBIA Insured 5.200%, 06/01/09 Aaa/AAA 171,912
170,000 South Kingstown, Rhode Island,
MBIA Insured 5.250%, 06/01/10 Aaa/AAA 171,912
100,000 South Kingstown, Rhode Island,
MBIA Insured 6.300%, 12/15/11 Aaa/AAA 109,125
400,000 South Kingstown, Rhode Island,
AMBAC Insured 4.900%, 11/15/07 Aaa/AAA 402,500
150,000 Warwick, Rhode Island, MBIA
Insured 6.100%, 11/15/01 Aaa/AAA 162,937
50,000 Warwick, Rhode Island, FGIC
Insured 7.000%, 11/15/02 Aaa/AAA 55,687
500,000 West Warwick, Rhode Island,
MBIA Insured 5.800%, 01/01/04 Aaa/AAA 536,250
500,000 West Warwick, Rhode Island, MBIA
Insured 5.900%, 01/01/05 Aaa/AAA 536,250
385,000 Woonsocket, Rhode Island, MBIA
Insured 5.125%, 03/01/11 Aaa/AAA 383,556
Total General Obligation Bonds 20,535,534
REVENUE BONDS (43.3%)
Higher Education Revenue Bonds (11.8%)
25,000 Rhode Island Health & Education
Building Corp - Higher Education,
Various Purpose Series 1990 B,
CGIC Insured 7.250%, 09/15/06 Aaa/AAA 28,000
100,000 Rhode Island Health & Education
Building Corp - Bryant College,
MBIA Insured 6.300%, 06/01/03 Aaa/AAA 110,125
50,000 Rhode Island Health & Education
Building Corp - Bryant College,
MBIA Insured 5.550%, 06/01/03 Aaa/AAA 52,875
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS
RATING
FACE MOODYS/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <C>
$ 100,000 Rhode Island Health & Education
Building Corp - Bryant College,
MBIA Insured 5.800%, 06/01/05 Aaa/AAA $ 106,750
100,000 Rhode Island Health & Education
Building Corp - Johnson & Wales
Series 1993, Connie Lee Insured
5.200%, 04/01/04 NR/AAA 102,500
200,000 Rhode Island Health & Education
Building Corp - Johnson & Wales
Series 1992A,Connie Lee Insured
5.875%, 04/01/05 NR/AAA 214,000
150,000 Rhode Island Health & Education
Building Corp - Johnson & Wales
Series 1993, Connie Lee Insured
5.750%, 04/01/12 NR/AAA 153,563
500,000 Rhode Island Health & Education
Building Corp - Johnson & Wales
Series 1993, Connie Lee Insured
5.250%, 04/01/16 NR/AAA 480,625
150,000 Rhode Island Health & Education
Building Corp - Johnson & Wales
Connie Lee Insured 6.375%, 04/01/12 NR/AAA 161,625
300,000 Rhode Island Health & Education
Building Corp - Providence Series
1993, MBIA Insured 5.600%, 11/01/09 Aaa/AAA 309,750
300,000 Rhode Island Health & Education
Building Corp - Providence Series
1993, MBIA Insured 5.600%, 11/01/10 Aaa/AAA 308,250
200,000 Rhode Island Health & Education
Building Corp - School of Design
Series 1992, MBIA Insured 5.800%,
06/01/05 Aaa/AAA 213,500
500,000 Rhode Island Health & Education
Building Corp - Brown University
Series 1993, MBIA Insured 5.400%,
09/01/18 Aaa/AAA 495,000
500,000 Rhode Island Health & Education
Building Corp - Brown University
Series 1993, MBIA Insured 5.375%,
09/01/23 Aaa/AAA 492,500
55,000 Rhode Island Health & Education
Building Corp - Board of Governors
Series 1993A, MBIA Insured 5.500%,
09/15/13 Aaa/AAA 55,550
245,000 Rhode Island Health & Education
Building Corp - Board of Governors
Series 1993B, MBIA Insured 5.500%,
09/15/13 Aaa/AAA 247,450
140,000 Rhode Island Health & Education
Building Corp - Board of Governors
Series 1993A, MBIA Insured 5.250%,
09/15/23 Aaa/AAA 135,975
450,000 Rhode Island Health & Education
Building Corp - Board of Governors
Series 1993A, MBIA Insured 5.300%,
09/15/08 Aaa/AAA 456,188
150,000 Rhode Island Health & Education
Building Corp - Salve Regina Series
1993, Connie Lee Insured 5.300%,
03/15/00 NR/AAA 155,063
150,000 Rhode Island Health & Education
Building Corp - Salve Regina Series
1993, Connie Lee Insured 6.100%,
03/15/06 NR/AAA 163,125
4,442,414
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATMENT OF INVESTMENTS
RATING
FACE MOODYS/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <S>
Hospital Revenue Bonds (2.7%)
$ 100,000 Rhode Island Health & Education
Building Corporation - Women &
Infants Hospital Series 1992,
CGIC Insured 6.150%, 09/01/05 Aaa/AAA $ 108,000
400,000 Rhode Island Health & Education
Building Corporation - Women &
Infants Hospital Series 1992,
CGIC Insured 6.350%,09/01/07 Aaa/AAA 432,000
300,000 Rhode Island Health & Education
Building Corporation - Women &
Infants Hospital, CGIC Insured
6.550%, 09/01/13 Aaa/AAA 325,125
150,000 Rhode Island Health & Education
Building Corp - Kent County
Memorial Hospital Series 1992,
MBIA Insured 6.000%, 07/01/06 Aaa/AAA 159,938
1,025,063
Mortgage Revenue-Multi Family (1.7%)
300,000 Rhode Island Housing & Mortgage
Finance Corp, 1995 Series A, 5.550%,
07/01/05, AMBAC Insured Aaa/AAA 314,250
300,000 Rhode Island Housing & Mortgage
Finance Corp, 1995 Series A, 5.450%,
07/01/04, AMBAC Insured Aaa/AAA 313,125
627,375
Water and Sewer Revenue Bonds (1.0%)
250,000 Kent County Water Authority Revenue
Bonds, 1994 Series A, 5.700%,
07/15/04, MBIA Insured Aaa/AAA 265,313
100,000 Puerto Rico Commonwealth Aqueduct &
Sewer Authority, (Escrowed to
Maturity), 5.900%, 07/01/06 Aaa/AAA 106,375
371,688
Utility Revenue Bonds (1.8%)
100,000 Puerto Rico Electric Power
Authority, Series Q, FSA
Insured 5.750%, 07/01/07 Aaa/AAA 105,875
50,000 Puerto Rico Electric Power
Authority, Series O, CGIC
Insured 6.000%, 07/01/10 Aaa/AAA 51,625
500,000 Puerto Rico Telephone Authority,
Series M, MBIA Insured 4.400%,
01/01/99 Aaa/AAA 503,750
</TABLE> 661,250
9
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS
RATING
FACE MOODYS/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <C>
Development Revenue Bonds (16.5%)
$ 100,000 Rhode Island Convention Center
Authority, Series A, MBIA Insured
6.100%, 05/15/01 Aaa/AAA $ 109,875
150,000 Rhode Island Convention Center
Authority, Series A, MBIA Insured
6.300%, 05/15/01 Aaa/AAA 166,312
100,000 Rhode Island Convention Center
Authority, Series A, MBIA Insured
6.375%, 05/15/01 Aaa/AAA 111,125
500,000 Rhode Island Convention Center
Authority, Series B, MBIA Insured
5.000%, 05/15/07 Aaa/AAA 500,625
500,000 Rhode Island Convention Center
Authority, Series A, AMBAC
Insured 5.400%, 05/15/08 Aaa/AAA 509,375
100,000 Rhode Island Convention Center
Authority, Series A, AMBAC
Insured 5.500%, 05/15/13 Aaa/AAA 100,750
300,000 Rhode Island Public Building
Authority State Public Projects,
1990A, AMBAC Insured (Escrowed
to Maturity) 6.600%, 02/01/01 Aaa/AAA 335,250
500,000 Rhode Island Public Building
Authority State Public Projects,
Series 1993A, AMBAC Insured
5.100%, 02/01/05 Aaa/AAA 509,375
1,000,000 Rhode Island Public Building
Authority State Public Projects,
Series 1993A, AMBAC Insured 5.250%,
02/01/10 Aaa/AAA 1,000,000
785,000 Rhode Island Public Building
Authority State Public Projects,
Series 1990A, AMBAC Insured 6.000%,
02/01/11 Aaa/AAA 809,531
710,000 Rhode Island Public Building
Authority State Public Projects,
Series 1990A, AMBAC Insured (Escowed
to Maturity) 6.000%, 02/01/01 Aaa/AAA 762,362
370,000 Rhode Island Public Building
Authority State Public Projects,
Series 1989A, AMBAC Insured (Escrowed
to Maturity) 7.000%, 02/01/00 Aaa/AAA 413,938
35,000 Rhode Island Public Building
Authority State Public Projects,
Series 1989A, AMBAC Insured (Escrowed
to Maturity) 6.750%, 02/01/00 Aaa/AAA 38,850
250,000 Rhode Island Public Building
Authority State Public Projects,
Series A, MBIA Insured 5.250%,
08/01/06 Aaa/AAA 251,875
600,000 Rhode Island Public Building
Authority State Public Projects,
Series A, MBIA Insured 5.250%,
08/01/07 Aaa/AAA 603,000
6,222,243
Pollution Control Revenue Bonds (1.4%)
200,000 Rhode Island Clean Water Protection,
Series A 1993, MBIA Insured 5.300%,
10/01/07 Aaa/AAA 209,000
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS
RATING
FACE MOODYS/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <C>
$ 300,000 Rhode Island Clean Water Protection,
Series A 1993, MBIA Insured 5.400%,
10/01/09 Aaa/AAA $ 307,875
516,875
Transportation Revenue Bonds (3.1%)
600,000 Rhode Island Port Authority &
Economic Development Corporation
Airport Revenue, Series 1993A, FSA
Insured (subject to AMT) 5.100%,
07/01/07 Aaa/AAA 591,750
600,000 Rhode Island Port Authority &
Economic Development Corporation
Airport Revenue, Series 1993A, FSA
Insured (subject to AMT) 5.125%,
07/01/08 Aaa/AAA 587,250
1,179,000
Other Revenue Bonds (3.3%)
210,000 State of Rhode Island Depositors
Economic Protection Corp - Series
A, FSA Insured 6.000%, 08/01/01 Aaa/AAA 226,275
135,000 State of Rhode Island Depositors
Economic Protection Corp - Series
B, MBIA Insured 5.500%, 08/01/06 Aaa/AAA 142,931
355,000 State of Rhode Island Depositors
Economic Protection Corp - Series
A, MBIA Insured 5.625%, 08/01/09 Aaa/AAA 371,863
100,000 State of Rhode Island Depositors
Economic Protection Corp - Series
B, MBIA Insured 6.000%, 08/01/17 Aaa/AAA 104,000
400,000 State of Rhode Island Depositors
Economic Protection Corp - Series
B, MBIA Insured 5.250%, 08/01/21 Aaa/AAA 389,000
1,234,069
Total Revenue Bonds 16,279,977
Total Investments - 98.0% (Cost $35,806,182 *) 36,815,511
Other assets in excess of liabilities - 2.0% 764,780
Net Assets (100%) $ 37,580,291
<FN>
(*)Cost for Federal income tax purposes is $35,733,326
</FN>
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC -American Municipal Bond Assurance Corp.
CGIC -Capital Guaranty Insurance Co.
FGIC -Financial Guaranty Insurance Co.
FSA -Financial Security Assurance
MBIA -Municipal Bond Investors Assurance Corp.
See accompanying notes to financial statements.
<PAGE> 11
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995 (UNAUDITED)
<S> <C>
ASSETS
Investments at value (identified cost - $35,806,182) $ 36,815,511
Cash 77,849
Interest receivable 617,075
Receivable for Fund shares sold 60,621
Due from Administrator for reimbursement of expenses 36,335
Other assets 20,120
Total assets 37,627,511
LIABILITIES
Dividends payable 20,863
Distribution fees payable 13,741
Accrued expenses 12,616
Total liabilities 47,220
NET ASSETS (equivalent to $10.24 per share
on 3,670,998 shares outstanding) $ 37,580,291
Net Assets consist of:
Capital Stock - Authorized 80,000,000 shares,
par value $.01 per share $ 36,710
Additional paid-in capital 36,534,252
Net unrealized appreciation on investments 1,009,329
$ 37,580,291
Net Asset Value, redemption price per share $ 10.24
Offering price per share (100/96 of $10.24
adjusted to nearest cent) $ 10.67
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED)
<S> <C> <C>
Investment Income:
Interest income $ 958,543
Expenses:
Investment Adviser fees (note B) $ 41,215
Administrator fees (note B) 48,383
Distribution fees (note B) 27,008
Transfer and shareholder servicing agent fees 12,000
Legal fees 12,000
Shareholders reports and proxy statements 10,500
Audit and accounting fees 9,000
Trustees fees and expenses 8,900
Custodian fees (note F) 2,536
Registration fees and dues 2,500
Insurance 350
Miscellaneous 18,623
193,015
Investment Adviser fees waived (note B) (37,631)
Administrator fees waived (note B) (48,383)
Reimbursement of expenses by
Administrator (note B) (82,849)
Expenses paid indirectly (note F) (2,536)
Net expenses 21,616
Net investment income 936,927
Realized and unrealized gain on investments:
Net realized gain from securities transactions _
Change in unrealized appreciation on investments 1,561,097
Net realized and unrealized gain on investments 1,561,097
Net increase in net assets resulting
from operations $ 2,498,024
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
Six Months Year Ended
Ended December June 30,
31, 1995 1995
<S> <C> <C>
OPERATIONS:
Net investment income $ 936,927 $ 1,806,639
Net realized gain from
securities transactions _ _
Change in unrealized
appreciation on investments 1,561,097 1,230,713
Net increase in net assets
resulting from operations 2,498,024 3,037,352
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ($0.27
and $0.54 per share,
respectively) (936,927) (1,806,639)
Net realized gain on
investments _ _
Total distributions (936,927) (1,806,639)
Net increase from investment
activities 1,561,097 1,230,713
<CAPTION>
FUND SHARE TRANSACTIONS:
SHARES
Six Months Year Ended
Ended December June 30,
31, 1995 1995
<S> <C> <C> <C> <C>
Shares sold 299,389 600,443 2,998,189 5,670,799
Shares issued through
reinvestment of
dividends 43,142 76,557 432,586 723,910
Shares redeemed (178,110) (525,525) (1,784,347) (4,912,876)
Increase in shares and
net assets derived
from Fund share
transactions 164,421 151,475 1,646,428 1,481,833
Total increase in net assets 3,207,525 2,712,546
NET ASSETS:
Beginning of period 34,372,766 31,660,220
End of period $ 37,580,291 $ 34,372,766
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Narragansett Insured Tax-Free Income Fund (the Fund), a non-diversified,
open-end investment company, was organized on January 22, 1992 as a
Massachusetts business trust and is authorized to issue 80,000,000 shares.
The Fund commenced operations on September 10, 1992.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
(1) Portfolio valuation: Municipal securities which have remaining
maturities of more than 60 days are valued each business day based upon
information provided by a nationally prominent independent pricing service
and periodically verified through other pricing services; in the case of
securities for which market quotations are readily available, securities are
valued at the mean of bid and asked quotations and in the case of other
securities, at fair value determined under procedures established by and
under the general supervision of the Board of Trustees. Securities which
mature in 60 days or less are valued at amortized cost if their term to
maturity at purchase was 60 days or less, or by amortizing their unrealized
appreciation or depreciation on the 61st day prior to maturity, if their term
to maturity at purchase exceeded 60 days.
(2) 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 on the accrual basis and is adjusted for amortization of
premiums and accretion of discounts of securities purchased at other than par
with less than 60 days to maturity.
(3) 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.
NOTE B - MANAGEMENT ARRANGEMENTS AND FEES AND OTHER TRANSACTIONS WITH
AFFILIATES:
Management affairs of the Fund are conducted through two separate
management arrangements.
Citizens Trust Company (the "Adviser"), part of Citizens Bank, serves as
Investment Adviser to the Fund. In this role, under an Investment Advisory
Agreement, the Adviser supervises the Fund's investments and provides various
services to the Fund for which it is entitled to receive a fee which is
payable monthly and computed as of the close of business each day at the
annual rate of 0.23 of 1% of the net assets of the Fund.
The Fund also has an Administration Agreement with Aquila Management
Corporation (the "Administrator"), the Fund's founder and sponsor. Under this
Agreement, the Administrator provides all administrative services, other than
those relating to the management of the Fund's investments.
15
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
(unaudited)
This includes providing the office of the Fund and all related services as
well as overseeing the activities of all the various support organizations to
the Fund such as the shareholder servicing agent, custodian, legal counsel,
auditors and distributor and additionally maintaining the Fund's accounting
books and records. For its services, the Administrator is entitled to receive
a fee which is payable monthly and computed as of the close of business each
day at the annual rate of 0.27 of 1% of the net assets of the Fund.
Specific details as to the nature and extent of the services provided by
the Adviser and the Administrator are more fully defined in the Funds
Prospectus and Statement of Additional Information.
The Adviser and the Administrator each agrees that the above fees shall
be reduced, but not below zero, by an amount equal to its pro-rata portion
(determined on the basis of the respective fees computed as described above)
of the amount, if any, by which the total expenses of the Fund in any fiscal
year, exclusive of taxes, interest and brokerage fees, shall exceed the
lesser of (i) 2.5% of the first $30 million of average annual net assets of
the Fund plus 2% of the next $70 million of such assets and 1.5% of its
average annual net assets in excess of $100 million, or (ii) 25% of the Funds
total annual investment income. No such reduction in fees was required during
the six months ended December 31, 1995.
For the six months ended December 31, 1995, the Fund incurred fees under
the Advisory Agreement and Administration Agreement of $41,215 and $48,383,
respectively, of which amounts the Adviser and Administrator waived $37,631
and $48,383, respectively. Additionally, the Administrator voluntarily agreed
to reimburse the Fund for other expenses during this period in the amount of
$82,849.
Under a Distribution Agreement, Aquila Distributors, Inc. (the
"Distributor") serves as the exclusive distributor of the Fund's shares.
Through agreements between the Distributor and various broker-dealer firms
(dealers), the Fund's shares are sold primarily through the facilities of
these dealers having offices within Rhode Island, with the bulk of sales
commissions inuring to such dealers. However, during the six months ended
December 31, 1995, the Distributor received sales commissions in the amount
of $1,472.
The Fund adopted a Distribution Plan (the Plan) pursuant to Rule 12b-1
(the Rule) under the Investment Company Act of 1940. The Plan authorizes the
Fund to make service fee payments at the annual rate of 0.15% of the average
net assets of the Fund to broker-dealers or others selected by the
Distributor, including, but not limited to, any principal underwriter of the
Fund, with which the Distributor has entered into written agreements
contemplated by the Rule and which have rendered assistance in the
distribution and/or retention of the Funds shares or servicing of shareholder
accounts. For the six months ended December 31, 1995, service fees totaled
$27,008 of which the Distributor received $478. Specific details about the
Plan are more fully defined in the Fund's Prospectus and Statement of
Additional Information.
16
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE C - PURCHASES AND SALES OF SECURITIES:
During the six months ended December 31, 1995, purchases of securities
aggregated $1,767,058. There were no sales during this period.
At December 31, 1995, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to $1,150,937 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value amounted to
$68,752, for a net unrealized appreciation of $1,082,185.
NOTE D - PORTFOLIO ORIENTATION:
Since the Fund invests principally and may invest entirely in double
tax-free municipal obligations of issuers within Rhode Island, it is subject
to possible risks associated with economic, political, or legal developments
or industrial or regional matters specifically affecting Rhode Island and
whatever effects these may have upon Rhode Island issuers ability to meet
their obligations. However, to mitigate against such risks, the Fund has
chosen to have at least 65% and possibly the entire number of issues in the
portfolio insured as to timely payment of principal and interest when due by
nationally prominent municipal bond insurance companies. At December 31,
1995, 99.7% of the securities in the Fund were so insured by such type of
insurance companies. While such insurance protects against credit risks with
portfolio securities, it does not insure against market risk of fluctuations
in the Fund's share price and income return.
NOTE E - DISTRIBUTIONS:
The Fund declares dividends daily from net investment income and makes
payments monthly in additional shares at the net asset value per share or in
cash, at the shareholder's option. Net realized capital gains, if any, are
distributed annually.
The Fund intends to maintain, to the maximum extent possible, the
tax-exempt status of interest payments received from portfolio municipal
securities in order to allow dividends paid to shareholders from net
investment income to be exempt from regular Federal and State of Rhode Island
income taxes. However, due to differences between financial reporting and
Federal income tax reporting requirements, distributions made by the Fund may
not be the same as the Funds net investment income, and/or net realized
securities gains. Further, a small portion of the dividends may, under some
circumstances, be subject to ordinary income taxes. For certain shareholders,
some dividend income may be subject to the alternative minimum tax. Also,
annual capital gains distributions, if any, are taxable.
NOTE F - CUSTODIAN FEES:
The Fund has negotiated an expense offset agreement with its custodian
wherein it receives credit toward the reduction of custodian fees whenever
there are uninvested cash balances. During the six months ended December 31,
1995, the Fund's custodian fees amounted to $2,536, all of which were offset
by such credits. The Fund could have invested its cash balances in an
income-producing asset if it had not agreed to a reduction in fees under the
expense offset arrangement with the custodian.
17
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
(unaudited)
<TABLE>
<CAPTION>
For a share outstanding throughout each period
Six Months Year Ended Period
Ended December June 30, Ended June
31, 1995 1995 1994 30, 1993**
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $9.80 $9.44 $10.07 $9.60
Income from Investment
Operations:
Net investment income 0.27 0.54 0.53 0.39
Net gain (loss) on
securities (both
realized and
unrealized) 0.44 0.36 (0.63) 0.47
Total from Investment
Operations 0.71 0.90 (0.10) 0.86
Less Distributions:
Dividends from net investment
income (0.27) (0.54) (0.53) (0.39)
Distributions from capital
gains _ _ _ _
Total Distributions (0.27) (0.54) (0.53) (0.39)
Net Asset Value, End of Period $10.24 $9.80 $9.44 $10.07
Total Return (not reflecting
sales load) 7.32%# 9.82% (1.11)% 9.18%#
Ratios/Supplemental Data
Net Assets, End of Period
(in thousands) $37,580 $34,373 $31,660 $15,249
Ratio of Expenses to
Average Net Assets 0.12%* 0.06% 0.02% 0%*
Ratio of Net Investment
Income to Average Net Assets 5.20%* 5.63% 5.30% 5.28%*
Portfolio Turnover Rate 0% 0% 0% 2.56%#
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Advisers and Administrators voluntary waiver
of fees, the Administrators voluntary expense reimbursement and the expense
offset in custodian fees for uninvested cash balances would have been:
<S> <C> <C> <C> <C>
Net Investment Income $0.22 $0.43 $0.40 $0.20
Ratio of Expenses to
Average Net Assets 1.07%* 1.19% 1.32% 2.56%*
Ratio of Net Investment
Income to Average Net Assets 4.25%* 4.50% 4.00% 2.72%*
<FN>
** For the period from September 10, 1992 (commencement of operations)
to June 30, 1993.
</FN>
<FN>
# Not annualized
</FN>
<FN>
* Annualized
</FN>
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
Report on the Annual Meeting of Shareholders (unaudited)
The Annual Meeting of Shareholders of the Fund was held on October 6,
1995 and an adjourned session of the meeting was held on November 6, 1995.
At the meeting, the following matters were submitted to a shareholder vote*
and approved:
(i) the election of Lacy B. Herrmann, Vernon R. Alden, David A. Duffy,
Robert L. Krakoff, William J. Nightingale, and J. William Weeks as
Trustees to hold office until the next annual meeting of the Funds
shareholders or until his or her successor is duly elected (each
Trustee received at least 1,971,256 affirmative votes (99.2%); no
more than 15,910 votes were withheld for any Trustee (0.8%)),
(ii) the ratification of the selection of KPMG Peat Marwick LLP as the
Fund's independent auditors for the fiscal year ending June 30, 1996
(votes for: 1,927,350 (97.0%); votes against: 11,785 (0.6%);
abstentions: 48,030 (2.4%); broker non-votes: 0),
(iii) the approval of an amendment to the Declaration of Trust of the
Fund to authorize the creation of classes of shares (votes for:
1,942,229 (78.8%); votes against: 101,693 (4.1%); abstentions:
98,632(4.0%); broker non-votes: 322,616 (13.1%)), and
(iv) the approval of an amendment to the Declaration of Trust of the
Fund to authorize voting by net asset value of shares (votes for:
1,924,917 (78.1%); votes against: 108,067 (4.4%); abstentions:
109,571 (4.4%); broker non-votes: 322,616 (13.1%)).
___________
* On the record date for this meeting, 3,507,479 shares of the Fund were
outstanding and entitled to vote. The holders of 1,987,166 shares (56.6%)
entitled to vote were present in person or by proxy at the initial session
of the meeting and the holders of 2,465,171 shares (70.3%) entitled to vote
were present in person or by proxy at the adjourned session of the meeting.
19
<PAGE>
INVESTMENT ADVISER
CITIZENS TRUST COMPANY
(Part of Citizens Bank)
One Citizens Plaza
Providence, Rhode Island 02903
ADMINISTRATOR AND FOUNDER
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
David A. Duffy
Robert L. Krakoff
William J. Nightingale
J. William Weeks
OFFICERS
Lacy B. Herrmann, President
John W. Cody, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
TRANSFER AND SHAREHOLDER SERVICING AGENT
ADMINISTRATIVE DATA
MANAGEMENT CORP.
581 Main Street
Woodbridge, New Jersey 07095-1198
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus,
which must precede or accompany this report.
<PAGE>
Semi-Annual
Report
December 31, 1995
A tax-free income investment
Aquila
(picture of eagle)
Narragansett Insured Tax-Free Income Fundsm
(picture of sail boat)
One of the
AQUILAsm Group of Funds
