Registration Nos. 33-48696 and 811-6707
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933[ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 5 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ X ]
Amendment No. 7 [ X ]
NARRAGANSETT INSURED TAX-FREE INCOME FUND
(Exact Name of Registrant as Specified in Charter)
380 Madison Avenue, Suite 2300
New York, New York 10017
(Address of Principal Executive Offices)
(212) 697-6666
(Registrant's Telephone Number)
EDWARD M.W. HINES
Hollyer Brady Smith TroxellBarrett Rockett Hines & Mone LLP
551 Fifth Avenue, 27th Floor
New York, New York 10176
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box:
___
[___] immediately upon filing pursuant to paragraph (b)
[ X ] on May 1, 1996 pursuant to paragraph (b)
[___] 60 days after filing pursuant to paragraph (a)(i)
[___] on (date) pursuant to paragraph (a)(i)
[___] 75 days after filing pursuant to paragraph (a)(ii)
[___] on (date) pursuant to paragraph (a)(ii) of Rule 485.
[___] This post-effective amendment designates a new effec-
tive date for a previous post-effective amendment.
Registrant hereby declares, pursuant to Section (a)(1) of Rule 24f-
2 under the Investment Company Act of 1940, that Registrant has
registered an indefinite number of its shares under the Securities
Act of 1933 pursuant to that Section and that the Rule 24f-2 Notice
for Registrant's fiscal year ended June 30, 1995 was filed in
August 1995.
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
Part A of
Form N-1A
Item No. Prospectus Caption(s)
1..............Cover Page
2..............Table of Expenses
3..............Financial Highlights
4..............Introduction; Investment of the Trust's
Assets; Investment Restrictions; General
Information
5..............Management Arrangements
5A.............**
6..............General Information; Dividend and Tax
Information
7..............Net Asset Value per Share; How to Invest in
the Trust; Exchange Privilege
8..............How to Redeem Your Investment; Automatic
Withdrawal Plan; Exchange Privilege
9..............*
Part B of
Form N-1A Statement of Additional Information
Item No. or Prospectus Caption(s)
10.............Cover Page
11.............Cover Page
12.............*
13.............Investment of the Trust's Assets; Municipal
Bonds; Investment Restrictions
14.............Trustees and Officers
15.............General Information (Prospectus caption);
Trustees and Officers
16.............Additional Information as to Management
Arrangements; General Information
17.............Additional Information as to Management
Arrangements
18.............General Information
19.............Limitations of Redemptions in Kind;
Computation of Net Asset Value; Automatic
Withdrawal Plan; Distribution Plan
20.............Additional Tax Information
21.............How to Invest in the Trust (Prospectus
caption); General Information
22.............Performance
* Not applicable or negative answer
** Contained in the annual report of the Registrant
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
380 Madison Avenue
Suite 2300
New York, New York 10017
800-453-6864
212-697-6666
Prospectus
Class A Shares
Class C Shares May 1, 1996
The Fund is a mutual fund whose objective is to seek to
provide a high level of preservation for investors' capital and
consistency in the payment of current income which is exempt from
both State of Rhode Island personal income taxes and regular
Federal income taxes.
To achieve this objective, the Fund will invest primarily in
tax-free municipal obligations which are insured by nationally
recognized insurers of municipal obligations. While individual
securities are insured as to the timely payment of principal and
interest when due, the Fund's share value and dividend rate are not
fixed and will vary with prevailing interest rates and economic and
market factors.
Municipal obligations which are so insured generally carry
the highest credit rating (Aaa or AAA) assigned by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P"). The Fund's goal, which is not assured, is to
have 100% of the Fund's assets invested in insured obligations. If
any uninsured obligations are purchased by the Fund, they must
either be rated within the four highest credit ratings, which are
considered as "investment grade," or, if unrated, be determined to
be of comparable quality by the Fund's Adviser, Citizens Trust
Company.
The Prospectus concisely states information about the Fund
that you should know before investing. A Statement of Additional
Information about the Fund dated May 1, 1996 (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
Administrative Data Management Corp., the Fund's Shareholder
Servicing Agent, at the address given below, or by calling the
telephone number(s) given below. The Additional Statement contains
information about the Fund and its management not included in the
Prospectus. The Additional Statement is incorporated by reference
in its entirety in the Prospectus. Only when you have read both the
Prospectus and the Additional Statement are all material facts
about the Fund available to you.
Insurance covers timely payment of principal and interest when
due on individually insured securities in the Fund's investment
portfolio. Insurance does not, however, insure against fluctuations
in the value of the Fund's shares and dividend rates, which are not
fixed and will vary with prevailing interest rates and economic and
market factors.
SHARES OF THE FUND ARE NOT DEPOSITS IN, OBLIGATIONS OF OR
GUARANTEED OR ENDORSED BY CITIZENS TRUST COMPANY (THE "ADVISER"),
CITIZENS BANK OR ITS BANK OR NON-BANK AFFILIATES OR BY ANY OTHER
BANK. SHARES OF THE FUND ARE NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENTAL AGENCY OR GOVERNMENT SPONSORED AGENCY OF THE
FEDERAL GOVERNMENT OR ANY STATE.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
For Purchase, Redemption or Account inquiries contact
The Fund's Shareholder Servicing Agent:
Administrative Data Management Corp.
581 Main Street, Woodbridge, NJ 07095-1198
Call 800-637-4633 toll free or 908-855-5731
For General Inquiries & Yield Information,
Call 800-453-6864 toll free or 212-697-6666
In Rhode Island: 401-453-6864
This Prospectus Should Be Read and Retained For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
HIGHLIGHTS
Narragansett Insured Tax-Free Income Fund, founded by
Aquila Management Corporation in 1992 and one of the Aquilasm Group
of Funds, is an open-end, non-diversified management investment
company (a "mutual fund") which invests in tax-free municipal bonds
and notes, the kind of obligations issued by the State of Rhode
Island and its various local authorities to finance such long-term
projects as schools, roads, hospitals, and water facilities
throughout Rhode Island or to finance short-term needs. (See
"Introduction.")
Insured Obligations - The Fund's investments will be primarily
municipal obligations which are insured as to the timely payment of
principal and interest when due by nationally recognized insurers
of such obligations. The goal of the Fund, which is not assured, is
to have 100% of the Fund's assets so invested. While individual
portfolio securities of the Fund will be so insured, the Fund's
share value and dividend rate are not fixed or insured and will
fluctuate with prevailing interest rates and other economic and
market factors. (See "Factors Which May Affect the Value of the
Fund's Investments and Their Yields.")
Investment Grade - Other than insured municipal obligations
which are rated Aaa or AAA, the Fund will acquire only those
municipal obligations which, at the time of purchase, are within
the four highest credit ratings assigned by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, or are determined
to be of comparable quality by the Adviser. In general there are
nine separate credit ratings for municipal obligations, ranging
from the highest to the lowest rating. Obligations within the top
four ratings are considered "investment grade," but those in the
fourth rating may have speculative characteristics as well. (See
"Investment of the Fund's Assets.")
Tax-Free Income - The municipal obligations in which the
Fund invests pay interest which is exempt from both State of Rhode
Island personal income taxes and regular Federal income taxes.
Dividends paid by the Fund from this income are likewise free of
both such taxes. It is, however, possible that in certain
circumstances, a small portion of the dividends paid by the Fund
will be subject to income taxes. In addition, the Federal
alternative minimum tax may apply to some investors; however, not
more than 20% of the Fund's net assets can be invested in
obligations paying interest which is subject to this tax. The
receipt of exempt-interest dividends from the Fund may result in
some portion of social security payments or railroad retirement
benefits being included in taxable income. Capital gains
distributions, if any, are taxable. (See "Dividend and Tax
Information.")
Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. See the
Application, which is in the back of the Prospectus. (See "How to
Invest in the Fund," which includes applicable sales charge
information.)
Additional Investments - You may make additional investments
at any time and in any amount, directly or, if in an amount of $50
or more, through the convenience of having your investment
electronically transferred from your financial institution account
into the Fund by Automatic Investment or Telephone Investment. (See
"How to Invest in the Fund.")
Alternative Purchase Plans - The Fund provides two
alternative ways for individuals to invest. (See "Alternative
Purchase Plans.") One way permits individual investors to pay
distribution and certain service charges principally at the time
they purchase shares; the other way permits investors to pay such
costs over a period of time, but without paying anything at time of
purchase, much as goods can be purchased on an installment plan.
For this purpose the Fund offers the following classes of shares,
which differ in their expense levels and sales charges:
* Front-Payment Class Shares ("Class A Shares") are offered
to anyone at net asset value plus a sales charge, paid at the
time of purchase, at the maximum rate of 4.0% of the public
offering price, with lower rates for larger purchases. (See
"How to Purchase Class A Shares.") Class A Shares are subject
to an asset retention service fee under the Fund's
Distribution Plan at the rate of 0.15 of 1% of the average
annual net assets represented by the Class A Shares. (See
"Distribution Plan.")
* Level-Payment Class Shares ("Class C Shares") are offered
to anyone at net asset value with no sales charge payable at
the time of purchase but with a level charge for service and
distribution fees for six years after the date of purchase at
the aggregate annual rate of 1% of the average annual net
assets of the Class C Shares. (See "Distribution Plan" and
"Shareholder Services Plan for Class C Shares.") Six years
after the date of purchase, Class C Shares are automatically
converted to Class A Shares. In addition, Class C Shares are
subject to a contingent deferred sales charge ("CDSC") if
redeemed before they have been held for 12 months from the
date of purchase; this charge is 1%, calculated on the net
asset value of the Class C Shares at the time of purchase or
at redemption, whichever is less. There is no CDSC after Class
C Shares have been held beyond the applicable period. (See
"Alternative Purchase Plans," "Computation of the Holding
Periods for Class C Shares" and "How to Purchase Class C
Shares.")
The Fund also issues Institutional Class Shares ("Class Y
Shares") that are sold only to certain institutional investors.
Class Y Shares are not offered by this Prospectus.
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends are paid by check mailed to you,
directly deposited into your financial institution account or
automatically reinvested without sales charge in additional shares
of the Fund at the then-current net asset value. Specific classes
of shares will have different dividend amounts due to their
particular expense levels. (See "Dividend and Tax Information.")
Redemptions - Liquidity - You may redeem any amount of your
account on any business day at the next determined net asset value
by telephone, FAX or mail request, with proceeds being sent to a
predesignated financial institution, if you have elected Expedited
Redemption. Proceeds will be wired or transferred through the
facilities of the Automated Clearing House, wherever possible, upon
request, if in an amount of $1,000 or more, or will be mailed. For
these and other redemption procedures see "How to Redeem Your
Investment." There are no penalties or redemption fees for
redemption of Class A Shares. However, there is a contingent
deferred sales charge with respect to certain Class A Shares which
have been purchased in amounts of $1 million or more (see "Purchase
of $1 Million or More"). If you redeem Class C Shares before you
have held them for 12 months from the date of purchase you will pay
a contingent deferred sales charge ("CDSC") at the rate of 1%. (See
"Alternative Purchase Plans" -- "Class C Shares.")
Local Investment Management and Fee Arrangements - Citizens
Trust Company serves as the Fund's Investment Adviser, providing
experienced local professional management. The Fund pays fees at a
rate of up to 0.23 of 1% of average annual net assets to its
Adviser and up to 0.27 of 1% of such assets to its Administrator
for total fees at a rate of up to 0.50 of 1% of average annual net
assets, although some or all of these fees will be waived
temporarily. (See "Table of Expenses" and "Management
Arrangements.")
Many Different Issues - Even a small investment in the Fund
allows you to have the advantages of a portfolio which consists of
over 110 issues with different maturities. (See "Investment of the
Fund's Assets.")
Certain Stabilizing Measures - To attempt to protect against
declines in the value of its investments and other market risks,
the Fund will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases of
other than insured issues, broadening diversification and
increasing its position in cash.
Exchanges - You may exchange Class A or Class C Shares of
the Fund into corresponding classes of shares of other
Aquila-sponsored tax-free municipal bond mutual funds or an equity
fund. You may also exchange them into shares of the
Aquila-sponsored money market funds. The exchange prices will be
the respective net asset values of the shares. (See "Exchange
Privilege.")
Risks and Special Considerations - The share price,
determined on each business day, varies with the market prices of
the Fund's portfolio securities, which fluctuate with market
conditions, including prevailing interest rates. Accordingly, the
proceeds of redemptions may be more or less than your original
cost. (See "Factors Which May Affect the Value of the Fund's
Investments and Their Yields.") The Fund's assets, being primarily
or entirely Rhode Island issues, are subject to economic and other
conditions affecting Rhode Island. (See "Risks and Special
Considerations Regarding Investment in Rhode Island Obligations.")
Moreover, the Fund is classified as a "non-diversified" investment
company, because it may choose to invest in the obligations of a
relatively limited number of issuers. (See "Investment of the
Fund's Assets.")
Statements and Reports - You will receive statements of your
account monthly as well as each time you add to your account or
take money out. Additionally, you will receive a Semi-Annual Report
and an audited Annual Report.
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
TABLE OF EXPENSES
Class A Class C
Shareholder Transaction Expenses Shares Shares
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases ......... 4.00% None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None None
Deferred Sales Charge ............................. None(1) 1.00%(2)
Redemption Fees ................................... None None
Exchange Fee ...................................... None None
Annual Fund Operating Expenses (3)
(as a percentage of average net assets)
Investment Advisory Fee After Waiver (4) .......... 0.05% 0.05%
12b-1 Fee After Expense Reimbursement (4) ......... 0.00% 0.75%
All Other Expenses After Expense
Reimbursement and Fee Waiver (4) .............. 0.16% 0.41%
Administration Fee After Waiver (4) ............ 0.06% 0.06%
Service Fee .................................... None 0.25%
Other Expenses After Expense Reimbursement (4).. 0.10% 0.10%
Total Fund Operating Expenses After Expense
Reimbursement and Fee Waivers (4) ............... 0.21% 1.21%
Example (5)
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and redemption at the end of each time period:
<CAPTION>
One Three Five Ten
Year Years Years Years
<S> <C> <C> <C> <C>
Class A Shares $42 $46 $51 $66
Class C Shares
With complete redemption
at end of period $22 $38 $67 $93 (6)
With no redemption $12 $38 $67 $93 (6)
<FN>
(1) Certain shares purchased in transactions of $1 million or more
without a sales charge may be subject to a contingent deferred sales
charge of up to 1% upon redemption during the first four years after
purchase. See "Purchase of $1 Million or More" on page 18.
</FN>
<FN>
(2) A contingent deferred sales 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.
</FN>
<FN>
(3) Estimated based upon amounts incurred by the Fund during its most
recent fiscal year, restated to reflect current arrangements. During
that period, only Class A Shares were outstanding.
</FN>
<FN>
(4) The Fund's operating expenses are being incurred at the annual rate
of 0.21%, whereas without fee waivers and expense reimbursement, they
would have been incurred at the following annual rates: for Class A
Shares, investment advisory fee, 0.23%; 12b-1 fee, 0.15%; administration
fee, 0.27%; other expenses, 0.42%, for total operating expenses of 1.07%;
for Class C Shares, investment advisory fee, 0.23%; 12b-1 fee, 0.75%;
administration fee, 0.27%; service fee, 0.25%; other expenses, 0.42%, for
total Fund operating expenses of 1.92%. Operating expenses are being
subsidized through reimbursement by the Administrator. This subsidy is
being phased out progressively so that the Fund will bear all of its own
expenses, other than advisory and administration fees, once its asset size
reaches approximately $60 million. Also, fees are being waived by the
Adviser and Administrator and it is anticipated that once the asset size
of the Fund reaches approximately $60 million these waivers will be
increasingly reduced as the asset size of the Fund increases, so that when
assets exceed approximately $150 million a substantial portion or all of
these fees will be paid. The undertakings of the Adviser and Administrator
as to fee waivers and the practices of the Administrator as to expense
reimbursement may operate to reduce the fees and expenses of the Fund
during the development stage of the Fund (see "Management Arrangements").
</FN>
<FN>
(5) The expense example is based upon the above shareholder transaction
expenses (in the case of Class A Shares, this includes a sales charge
of $40 for a $1,000 investment) and estimated annual Fund operating
expenses. It is also based upon amounts at the beginning of each year
which includes the prior year's assumed results. A year's results
consist of an assumed 5% annual return less total operating expenses;
the expense ratio was applied to an assumed average balance (the year's
starting investment plus one-half the year's results). Each figure
represents the cumulative expenses so determined for the period specified.
</FN>
<FN>
(6) Six years after the date of purchase, Class C Shares are
automatically converted to Class A Shares.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT
ALL MUTUAL FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF
PREPARING THE ABOVE EXAMPLE. THE ASSUMED 5% ANNUAL RETURN SHOULD NOT
BE INTERPRETED AS A PREDICTION OF AN ACTUAL RETURN, WHICH MAY BE
HIGHER OR LOWER. THE EXAMPLE ALSO REFLECTS THE MAXIMUM SALES CHARGE.
SEE "HOW TO INVEST IN THE FUND".
The purpose of the above table is to assist the investor in
understanding the various costs that an investor in the Fund will
bear directly or indirectly. Although not obligated to do so, those
entitled to investment advisory and administration fees expect to
waive a portion or all of those fees in the early stages of the Fund's
existence and Aquila Management Corporation, the organizer and
Administration of the Fund, may reimburse the Fund for various
expenses; the above table reflects one possible such arrangement and
should not be considered a commitment or prediction that any fees, or
that any particular portion of fees, will be waived, or that any
particular expenses will be reimbursed. (See "Management Arrangements"
for a more complete description of the various investment advisory and
administration fees.)
<PAGE>
The following historical financial information applies only to
shares of the Fund which have been designated Class A Shares, upon
adoption of the class structure described in the Prospectus.
Similar information does not exist for Class C Shares.
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights as it relates to
the periods from commencement of operations on September 10, 1992
through June 30, 1995 has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon is included in the Fund's
financial statements contained in its Annual Report, which are
incorporated by reference into the Additional Statement. The
information provided in the table should be read in conjunction with
the financial statements and related notes.
Six Months
Ended Year ended
12/31/95 June 30, Period Ended
(unaudited) 1995 1994 June 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 Adviser's and Administrator's voluntary
waiver of fees, the Administrator's 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>
<PAGE>
INTRODUCTION
The Fund's shares are designed to be a suitable investment for
investors who seek a high level of preservation for the principal
of their investment and consistency in the payment of income which
is exempt from regular State of Rhode Island personal income taxes
and regular Federal income taxes.
You may invest in shares of the Fund as an alternative to
direct investments in Rhode Island Obligations, as defined below,
which may include obligations of certain non-Rhode Island issuers.
The Fund offers you the opportunity to keep assets fully invested
in a vehicle that provides a professionally managed portfolio of
Rhode Island Obligations which may, but not necessarily will, be
more diversified, higher yielding or more stable and more liquid
than you might be able to obtain on an individual basis by direct
purchase of Rhode Island Obligations.
Through the convenience of a single security consisting of
shares of the Fund, you are also relieved of the inconvenience
associated with direct investments of fixed denominations,
including the selecting, purchasing, handling, monitoring call
provisions and safekeeping of Rhode Island Obligations.
Rhode Island Obligations are a type of municipal obligation.
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes; bond
anticipation notes; construction loan notes; and floating and
variable rate demand notes. Municipal obligations include municipal
lease/purchase agreements which are similar to installment purchase
contracts for property or equipment. The purposes for which
municipal obligations such as bonds are issued include the
construction of a wide range of public facilities such as highways,
bridges, schools, hospitals, housing, mass transportation, streets
and water and sewer works. Other public purposes for which
municipal obligations may be issued include the refunding of
outstanding obligations, the obtaining of funds for general
operating expenses and the obtaining of funds to lend to other
public institutions and facilities.
INVESTMENT OF THE FUND'S ASSETS
The Fund's objective is to seek a high level of
preservation for investor's capital and consistency in the payment
of current income which is exempt from both State of Rhode Island
personal income taxes and regular Federal income taxes. There is no
assurance, however, that the Fund will achieve its objective, which
is a fundamental policy of the Fund. (See "Investment Restrictions"
for a description of the Fund's fundamental policies.) In seeking
its objective, the Fund will invest primarily in Rhode Island
Obligations (as defined below) which are insured by nationally
recognized insurers of municipal obligations as to the timely
payment of principal and interest when due. The value of the Fund's
shares will tend to fluctuate with prevailing interest rates and
economic and market factors.
As used in the Prospectus and the Additional Statement, the
term "Rhode Island Obligations" means obligations, including those
of certain non-Rhode Island issuers, of any maturity which pay
interest which, in the opinion of bond counsel or other appropriate
counsel, is exempt from Rhode Island personal income taxes and
regular Federal income taxes. Although exempt from regular Federal
income tax, interest paid on certain types of Rhode Island
Obligations, and dividends which the Fund might pay from this
interest, are preference items as to the Federal alternative
minimum tax ("AMT"); for further information, see "Dividend and Tax
Information." As a fundamental policy, at least 80% of the Fund's
net assets will be invested in Rhode Island Obligations income paid
upon which will not be subject to the AMT; accordingly, the Fund
can invest up to 20% of its net assets in obligations which are
subject to the AMT. The Fund may refrain entirely from purchasing
Rhode Island Obligations subject to AMT.
The non-Rhode Island bonds or other obligations, the interest
on which is exempt under present law from State of Rhode Island
personal income taxes and regular Federal income taxes, are the
bonds or other obligations issued by or under the authority of such
issuers as Guam, the Northern Mariana Islands, Puerto Rico and the
Virgin Islands. The Fund will not purchase Rhode Island Obligations
of non-Rhode Island issuers unless Rhode Island Obligations of
Rhode Island issuers of the desired quality, maturity and interest
rate are not available. As a Rhode Island-oriented fund, it is a
fundamental policy that at least 65% of the Fund's total net assets
will be invested in Rhode Island Obligations of Rhode Island
issuers.
Insurance Feature
The purpose of having insurance on investments in Rhode Island
Obligations in the Fund's portfolio is to reduce financial risk for
investors in the Fund.
Insurance as to the timely payment of principal and interest
when due for Rhode Island Obligations is acquired as follows:
(i) obtained by the issuer of the Rhode Island Obligations at
the time of original issue of the obligations, known as "New Issue
Insurance," or
(ii) purchased by the Fund or a previous owner with respect to
specific Rhode Island Obligations, termed "Secondary Market
Insurance."
The insurance of principal under these types of insurance
policies refers to the payment of the face or par value of the
Rhode Island Obligation when due. Insurance is not affected by nor
does it insure the market price paid by the Fund for the
obligation. The market value of obligations in the Fund will, from
time to time, be affected by various factors including the general
movement of interest rates. The value of the Fund's shares is not
insured.
In order to reduce financial risk to the Fund's investors as
much as practical, it is a goal of the Fund, which is not assured,
that 100% of the Fund's assets will be invested in insured Rhode
Island Obligations. However, if the Board of Trustees determines
that there is an inadequate supply in the marketplace of Rhode
Island Obligations covered by New Issue Insurance and that
appropriate Secondary Market Insurance cannot be obtained for other
Rhode Island Obligations on terms that are financially advantageous
to the Fund as a result of market conditions or other factors, then
the Fund may invest in Rhode Island Obligations that are not
insured. As a fundamental policy, 65% of the Fund's total net
assets will be invested in Rhode Island Obligations which are
insured.
New Issue Insurance is obtained by the issuer of the Rhode
Island Obligations and all premiums respecting such securities are
paid in advance by such issuer. Such policies are noncancelable and
continue in force so long as the Rhode Island Obligations are
outstanding and the insurer remains in business.
The Fund may also purchase Secondary Market Insurance on
any Rhode Island Obligation purchased by the Fund. By purchasing
Secondary Market Insurance, the Fund will obtain, upon payment of
a single premium, insurance against nonpayment of scheduled
principal and interest for the remaining term of the Rhode Island
Obligation, regardless of whether the Fund then owns such security.
Such insurance coverage is noncancelable and continues in force so
long as the security so insured is outstanding and the insurer
remains in business. The purposes of acquiring Secondary Market
Insurance are to insure timely payment of principal and interest
when due and to enable the Fund to sell a Rhode Island Obligation
to a third party as a high-rated insured Rhode Island Obligation at
a market price greater than what otherwise might be obtainable if
the security were sold without the insurance coverage. There is no
assurance that such insurance can be obtained at rates that would
make its purchase advantageous to the Fund.
New Issue Insurance and Secondary Market Insurance will be
obtained from some or all of the following: Municipal Bond
Investors Assurance Corporation ("MBIA"), Financial Guaranty
Insurance Company ("Financial Guaranty") and AMBAC Indemnity
Corporation ("AMBAC Indemnity"). See the Additional Statement for
information about these companies. The Fund may also purchase
insurance from, or Rhode Island Obligations insured by, other
insurers. However, the Fund will seek to ensure that any insurer
used will itself have a Aaa or AAA rating.
Further information concerning the insurance feature appears
in the Additional Statement.
Risk Factors and Special Investment
Considerations Regarding the Insurance Feature
While the insurance feature is intended to reduce financial
risk, in some instances there is a cost to be borne by the Fund for
such a feature. In general, the insurance premium cost of New Issue
Insurance is borne by the issuer.
Secondary Market Insurance, if purchased by the Fund,
involves payment of a single premium, the cost of which is added to
the cost basis of the price of the security. It is not considered
an item of expense of the Fund, but rather an addition to the price
of the security. Upon sale of a security so insured, the excess, if
any, of the security's market value as an "Aaa" or "AAA" rated
security over its market value without such rating, including the
cost of the single premium for Secondary Market Insurance, would
inure to the Fund in determining the net capital gain or loss
realized by the Fund.
In practice, those nationally recognized insurers which
provide insurance generally do so only for municipal obligations
which on their own would be rated within the top four credit
ratings, and preferably with at least an "A" rating by such credit
rating agencies as Moody's or S&P.
New Issue Insurance and Secondary Market Insurance do not
terminate with respect to a Rhode Island Obligation once the
obligation is sold by the Fund.
Information about the Fund's Investments
Municipal obligations which are insured are generally rated
Aaa or AAA by the major credit rating agencies, the highest
attainable credit rating assigned by these rating agencies. If the
Fund purchases uninsured Rhode Island Obligations, which it may do,
in order to maintain a quality-oriented portfolio, the Fund will
purchase only investment grade securities. Any such Rhode Island
Obligations which the Fund purchases must, at the time of purchase,
either (i) be rated within the four highest credit ratings assigned
by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P"); or (ii) if unrated, be determined to be of
comparable quality to municipal obligations so rated by Citizens
Trust Company (the "Adviser"), the Fund's investment adviser
(subject to the direction and control of the Board of Trustees).
In general, there are nine separate credit ratings, ranging
from the highest to the lowest credit standards for municipal
obligations. Municipal obligations rated in the fourth highest
credit rating are considered by such rating agencies to be of
medium quality and thus may present investment risks not present in
more highly rated obligations. Such bonds lack outstanding
investment characteristics and may in fact have some speculative
characteristics as well; changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to
make principal and interest payments than is the case for higher
grade bonds.
Except as set forth under "Risk Factors and Special Investment
Considerations Regarding the Insurance Feature," above, if after
purchase the rating of any rated Rhode Island Obligation is
downgraded such that it could not then be purchased by the Fund,
or, in the case of an unrated Rhode Island Obligation, if the
Adviser determines that the unrated obligation is no longer of
comparable quality to those rated obligations which the Fund may
purchase, it is the current policy of the Fund to cause any such
obligation to be sold as promptly thereafter as the Adviser in its
discretion determines to be consistent with the Fund's objectives;
such obligation remains in the Fund's portfolio until it is sold.
In addition, because a downgrade often results in a reduction in
the market price of a downgraded obligation, sale of such an
obligation may result in a loss. See Appendix A to the Additional
Statement for further information as to these ratings. The Fund can
purchase industrial development bonds only if they meet the
definition of Rhode Island Obligations, i.e., the interest on them
is exempt from Rhode Island State and regular Federal income taxes.
The Fund is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940 Act").
The Fund also intends to qualify as a "regulated investment
company" under the Internal Revenue Code (the "Code"). One of the
tests for such qualification under the Code is, in general, that at
the end of each fiscal quarter of the Fund, at least 50% of its
assets must consist of (i) cash; and (ii) securities which, as to
any one issuer, do not exceed 5% of the value of the Fund's assets.
If the Fund had elected to register under the 1940 Act as a
"diversified" investment company, it would have to meet the same
test as to 75% of its assets. The Fund may therefore not have as
much diversification among securities, and thus diversification of
risk, as if it had made this election under the 1940 Act. In
general, the more the Fund invests in the securities of specific
issuers, the more the Fund is exposed to risks associated with
investments in those issuers. The Fund's assets, being primarily or
entirely Rhode Island issues, are accordingly subject to economic
and other conditions affecting Rhode Island.
Possible Stabilizing Measures
In attempting to protect against declines in the value of its
investments as a result of general interest rate fluctuations,
economic factors and other market risks, the Fund will employ such
traditional measures as upgrading credit standards for portfolio
purchases of other than insured obligations, varying maturities,
broadening diversification and increasing its position in cash and
cash equivalents.
Floating and Variable Rate Demand Notes
Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one year,
but permit the holder to demand payment of principal at any time,
or at specified intervals not exceeding one year, in each case upon
not more than 30 days' notice. The issuer of such notes normally
has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the note plus
accrued interest upon a specified number of days' notice to the
noteholders. The interest rate on a floating rate demand note is
based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The
interest rate on a variable rate demand note is adjusted
automatically at specified intervals.
Participation Interests
The Fund may purchase from financial institutions
participation interests in Rhode Island Obligations (such as
industrial development bonds and municipal lease/purchase
agreements). A participation interest gives the Fund an undivided
interest in the underlying Rhode Island Obligations in the
proportion that the Fund's participation interest bears to the
total amount of the underlying Rhode Island Obligations. All such
participation interests must meet the Fund's credit requirements.
See "10% Limitation as to Certain Investments."
When-Issued and Delayed Delivery Purchases
The Fund may buy Rhode Island Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring them.
The Rhode Island Obligations so purchased are subject to market
fluctuation and no interest accrues to the Fund until delivery and
payment take place; their value at the delivery date may be less
than the purchase price.The Fund cannot enter into when-issued
commitments exceeding in the aggregate 15% of the market value of
the Fund's total assets, less liabilities other than the
obligations created by when-issued commitments. If the Fund chooses
to dispose of the right to acquire a when-issued obligation prior
to its acquisition, it could, as with the disposition of any other
portfolio holding, incur a gain or loss due to market fluctuation;
any such gain would be a taxable short-term gain. The Fund places
an amount of assets equal in value to the amount due on the
settlement date for the when-issued or delayed delivery securities
being purchased in a segregated account with the Custodian, which
is marked to market every business day. See the Additional
Statement for further information.
10% Limitation as to Certain Investments
The Fund cannot purchase Rhode Island Obligations that are
not readily marketable if thereafter more than 10% of its net
assets would consist of such investments. However, this 10% limit
does not include any Rhode Island Obligations as to which the Fund
can exercise the right to demand payment in full within three days
and as to which there is a secondary market. Floating and variable
rate demand notes and participation interests (including municipal
lease/purchase obligations) are considered illiquid unless
determined by the Board of Trustees to be readily marketable. See
the Additional Statement.
Current Policy as to Certain Obligations
The Fund will not invest more than 25% of its total assets in
(i) Rhode Island Obligations the interest on which is paid from
revenues of similar type projects or (ii) industrial development
bonds, unless the Prospectus and/or the Additional Statement are
supplemented to reflect the change and to give additional
information.
Factors Which May Affect the Value
of the Fund's Investments and Their Yields
The value of the Rhode Island Obligations in which the Fund
invests will fluctuate depending in large part on changes in
prevailing interest rates, and may be subject to other market,
credit and economic factors as well. If the prevailing interest
rates go up after the Fund buys Rhode Island Obligations, the value
of these obligations will normally go down; if these rates go down,
the value of these obligations will normally go up. Changes in
value and yield based on changes in prevailing interest rates may
have different effects on short-term Rhode Island Obligations than
on long-term obligations. Long-term obligations (which often have
higher yields) generally fluctuate in value more than short-term
ones. For this reason, the Fund may, to achieve a defensive
position, shorten the average maturity of its portfolio. The Fund's
portfolio will represent a blend of short-term and long-term
obligations designed to reduce fluctuations in the net asset value
of the Fund's shares.
Risks and Special Considerations
Regarding Investment In Rhode Island Obligations
The following is a discussion of the general factors that
might influence the ability of issuers to repay principal and
interest when due on the Rhode Island Obligations contained in the
portfolio of the Fund. Such information is derived from sources
that are generally available to investors and is believed by the
Fund to be accurate, but has not been independently verified and
may not be complete.
Rhode Island experienced significant economic growth during
most of the 1980's. Its economy became more diversified as reliance
on manufacturing employment decreased and non-manufacturing
employment grew. From 1980 to 1989 per capita income growth
exceeded national growth levels, and employment growth and total
personal income growth both paralleled national growth levels.
Since 1989, there was a national and regional economic
slowdown resulting in rising unemployment rates and the slowing of
personal income growth. Rhode Island, like other New England
states, began to experience a slowdown in its economy at that time.
Its unemployment rate increased from 4.1% in 1989 to 6.8% in 1990,
to 8.6% in 1991 and to 8.9% in 1992. Personal income slowed from an
annual rate of growth of 9.0% in 1988 to 2.1% in 1991. Real
personal income growth slowed from 4.5% to -1.8% for the same
years. Personal income growth is forecast to be below the growth
rate for the United States as a whole.
The economic slowdown has resulted in significant budget
constraints. Declining revenues, combined with increased demand for
certain governmental services, such as public assistance, have
occurred as a result of the difficult general economic conditions.
The State constitution requires that Rhode Island end each year
with a balanced budget and does not permit a deficit to continue
into the next fiscal year. The constitutional mandate and overall
budgeting pressure forced state officials to review the State's
overall fiscal outlook and structural issues pertaining to its
financial structure. Revenue estimating procedures were improved,
and five-year projections were published with the annual budget
submission. Major program reductions and eliminations were adopted.
A constitutional amendment was adopted by voter referendum to
mandate a "rainy day fund." A capital budgeting process was
initiated along with increased emphasis on debt management. See the
Additional Statement for further information.
INVESTMENT RESTRICTIONS
The Fund has a number of policies about what it can and cannot
do. Certain of these policies, identified in the Prospectus and in
the Additional Statement as "fundamental policies," cannot be
changed unless the holders of a "majority," as defined in the 1940
Act, of the Fund's outstanding shares vote to change them. (See the
Additional Statement for a definition of such a majority.) All
other policies can be changed from time to time by the Board of
Trustees without shareholder approval. Some of the more important
of the Fund's fundamental policies, not otherwise identified in the
Prospectus, are set forth below; others are listed in the
Additional Statement.
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than Rhode Island
Obligations meeting the standards stated under "Investment of the
Fund's Assets."
2. The Fund has industry investment requirements.
The Fund cannot buy the obligations of issuers in any one
industry if more than 25% of its total assets would then be
invested in securities of issuers of that industry. The Fund will
consider that a non-governmental user of facilities financed by
industrial development bonds is an issuer in an industry.
3. The Fund cannot make loans.
The Fund can buy those Rhode Island Obligations which it is
permitted to buy (see "Investment of the Fund's Assets"); this is
investing, not making a loan. The Fund cannot lend its portfolio
securities.
4. The Fund can borrow only in limited amounts for special
purposes.
The Fund can borrow from banks for temporary or emergency
purposes but only up to 10% of its total assets. It can mortgage or
pledge its assets only in connection with such borrowing and only
up to the lesser of the amounts borrowed or 5% of the value of its
total assets. Interest on borrowings would reduce the Fund's
income. Except in connection with borrowings, the Fund will not
issue senior securities. The Fund will not purchase any Rhode
Island Obligations while it has any outstanding borrowings which
exceed 5% of the value of its total assets.
NET ASSET VALUE PER SHARE
The Fund's net asset value and offering price per share of
each class are determined as of 4:00 p.m. New York time on each day
that the New York Stock Exchange is open (a "business day"). The
net asset value per share is determined by dividing the value of
the net assets (i.e., the value of the assets less liabilities) by
the total number of shares outstanding. Determination of the value
of the Fund's assets is subject to the direction and control of the
Fund's Board of Trustees. In general it is based on market value,
except that Rhode Island Obligations maturing in 60 days or less
are generally valued at amortized cost; see the Additional
Statement for further information.
ALTERNATIVE PURCHASE PLANS
In the Prospectus, the Fund provides individual investors with
the option of two alternative ways to purchase shares, through two
separate classes of shares. All classes represent interests in the
same portfolio of Rhode Island Obligations. The primary distinction
among the classes of shares offered to individuals lies in their
sales charge structures and ongoing expenses, as described below.
You should choose the class that best suits your own circumstances
and needs.
If you choose to purchase Class A Shares you will pay the
applicable sales charge at the time of your purchase. By purchasing
Class C Shares, you will pay a sales charge over a period of six
years after purchase but without paying anything at time of
purchase, much as goods can be purchased on an installment plan.
You are subject to a conditional deferred sales charge, described
below, but only if you redeem your Class C Shares before they have
been held 12 months from your purchase. (See "Computation of
Holding Periods for Class C Shares.")
Class A Shares, "Front-Payment Class Shares," are offered to
anyone at net asset value plus a sales charge, paid at the
time of purchase, at the maximum rate of 4.0% of the public
offering price, with lower rates for larger purchases. When
you purchase Class A Shares, the amount of your investment is
reduced by the applicable sales charge. Under the Fund's
Distribution Plan, Class A Shares are subject to a fee of 0.15
of 1% of the average annual net assets of the Class A Shares.
Certain Class A Shares purchased in transactions of $1 million
or more are subject to a contingent deferred sales charge.
(See "Purchase of $1 Million or More.")
Class C Shares, "Level-Payment Class Shares," are offered to
anyone at net asset value with no sales charge payable at
purchase but with a level charge for distribution fees and
service fees for six years after the date of purchase at the
aggregate annual rate of 1% of the average annual net assets
of the Class C Shares. (See "Distribution Plan" and
"Shareholder Services Plan for Class C Shares.") Six years
after the date of purchase, Class C Shares, including Class C
Shares acquired in exchange for other Class C Shares under the
Exchange Privilege (see "Exchange Privilege"), are
automatically converted to Class A Shares. If you redeem Class
C Shares before you have held them for 12 months from the date
of purchase, you will pay a contingent deferred sales charge
("CDSC") at the rate of 1%, calculated on the net asset value
of the redeemed Class C Shares at the time of purchase or of
redemption, whichever is less. The amount of any CDSC will be
paid to the Distributor. The CDSC does not apply to shares
acquired through the reinvestment of dividends on Class C
Shares or to any Class C Shares held for more than 12 months
after purchase. In the Prospectus, 12-month and six-year
holding periods are considered modified by up to one month
depending upon when during a month your purchase of such
shares is made. (See "Computation of Holding Periods for Class
C Shares" and "How to Purchase Class C Shares.")
In determining whether a CDSC is payable on a redemption of
Class C Shares, it will be assumed that the redemption is made
first of any shares acquired as dividends or distributions, second
of any Class C Shares you have held for more than 12 months from
the date of purchase and finally of those Class C Shares as to
which the CDSC is payable which you have held the longest. This
will result in your paying the lowest possible CDSC.
Computation of Holding Periods for Class C Shares
For purposes of determining the holding period for Class C
Shares, all of your purchases made during a calendar month will be
deemed to have been made on the first business day of that month at
the average cost of all purchases made during that month. The
12-month CDSC holding period will end on the first business day of
the 12th calendar month after the date your purchase is deemed to
have been made. Accordingly, the CDSC holding period applicable to
your Class C Shares may be up to one month less than the full 12
months depending upon when your actual purchase was made during a
month. Running of the 12-month CDSC holding period will be
suspended for one month for each period of thirty days during which
you have held shares of a money market fund you have received in
exchange for Class C Shares under the Exchange Privilege. (See
"Exchange Privilege.")
Your Class C Shares will automatically convert to Class A
Shares six years after the date of purchase, together with a
pro-rata portion of all Class C Shares representing dividends and
other distributions paid in additional Class C Shares. The Class C
Shares so converted will no longer be subject to the higher
expenses borne by the Class C Shares. The conversion will be
effected at relative net asset values on the first business day of
the month following that in which the sixth anniversary of your
purchase of the Class C Shares occurred, except as noted below.
Accordingly, the holding period applicable to your Class C Shares
may be up to one month more than the six years depending upon when
your actual purchase was made during a month. Because the per share
value of Class A Shares may be higher than that of Class C Shares
at the time of conversion, you may receive fewer Class A Shares
than the number of Class C Shares converted. If you have made one
or more exchanges of Class C Shares among the Aquila-sponsored
tax-free municipal bond funds or equity funds under the Exchange
Privilege, the six-year holding period is deemed to have begun on
the date you purchased your original Class C Shares of the Fund or
of another of the Aquila bond or equity funds. The six-year holding
period will be suspended by one month for each period of thirty
days during which you hold shares of a money market fund you have
received in exchange for Class C Shares under the Exchange
Privilege. (See "Exchange Privilege.")
The following chart summarizes the principal differences
between Class A Shares and Class C Shares.
<TABLE>
<CAPTION>
Class A Class C
<S> <C> <C>
Initial Sales Maximum of 4.00% None
Charge of the public
offering price
Contingent None (except Maximum CDSC
Deferred for certain of 1% if shares
Sales Charge purchases over redeemed before
$1 million) 12 months; 0%
after 12 months
Distribution and 0.15 of 1% Distribution fee
Service Fees of 0.75 of 1% and
a service fee of
0.25 of 1% for a
total of 1%,
payable for six
years
Other Information Initial sales Shares convert
charge waived to Class A Shares
or reduced in after six years
some cases
</TABLE>
Factors to Consider in Choosing Classes of Shares
This discussion relates to the major differences between
Class A Shares and Class C Shares. It is recommended that any
investment in the Fund be considered long-term in nature.
Over time, the cumulative total cost of the 1% annual service
and distribution fees on the Class C Shares will equal or exceed
the total cost of the initial 4% maximum initial sales charge and
0.15 of 1% annual fee payable for Class A Shares. For example, if
equal amounts were paid at the same time for Class A Shares (where
the amount invested is reduced by the amount of the sales charge)
and for Class C Shares (which carry no sales charge at the time of
purchase) and the net asset value per share remained constant over
time, the total of such costs for Class C Shares would equal the
total of such costs for Class A Shares after approximately four and
two-thirds years. This example assumes no redemptions and
disregards the time value of money. Purchasers of Class C Shares
have all of their investment dollars invested from the time of
purchase, without having their investment reduced at the outset by
the initial sales charge payable for Class A Shares. If you invest
in Class A Shares you will pay the entire sales charge at the time
of purchase. Accordingly, if you expect to redeem your shares
shortly after purchase, you should consider the total cost of such
an investment in Class A Shares compared with a similar investment
in Class C Shares. The example under "Table of Expenses" shows the
effect of Fund expenses for both classes if a hypothetical
investment in each of the classes is held for 1, 3, 5 and 10 years.
(See the Table of Expenses.)
Dividends and other distributions paid by the Fund with
respect to shares of each class are calculated in the same manner
and at the same time. The dividends actually paid with respect to
Class C Shares will be lower than those paid on Class A Shares
because Class C Shares bear higher distribution and service fees
and will have a higher expense ratio. In addition, the dividends of
each class can vary because each class will bear certain
class-specific charges. For example, each class will bear the costs
of printing and mailing annual reports to its own shareholders.
HOW TO INVEST IN THE FUND
The Fund's shares may be purchased through any investment
broker or dealer (a "selected dealer") which has a sales agreement
with Aquila Distributors, Inc. (the "Distributor") or through the
Distributor. There are two ways to make an initial investment: (i)
order the shares through your investment broker or dealer, if it is
a selected dealer; or (ii) mail the Application with payment to
Administrative Data Management Corp. (the "Agent") at the address
on the Application. If you purchase Class A Shares, the applicable
sales charge will apply in either instance. Subsequent investments
are also subject to the applicable sales charges. You are urged to
complete an Application and send it to the Agent so that expedited
shareholder services can be established at the time of your
investment. Unless your initial investment is specified to be made
in Class C Shares, it will be made in Class A Shares.
The minimum initial investment for Class A Shares and Class
C Shares is $1,000, except as otherwise stated in the Prospectus or
Additional Statement. You may also make an initial investment of at
least $50 by establishing an Automatic Investment Program for
automatic investments of at least $50 per month and paying at least
$50. (See below and "Automatic Investment Program" in the
Application.) Such investment must be drawn in United States
dollars on a United States commercial or savings bank, a credit
union or a United States branch of a foreign commercial bank (each
of which is a "Financial Institution"). You may make subsequent
investments in the same class of shares in any amount (unless you
have an Automatic Withdrawal Plan). Your subsequent investment may
be made through a selected dealer or by forwarding payment to the
Agent, with the name(s) of account owner(s), the account number,
the name of the Fund and the class of shares to be purchased. With
subsequent investments, please send the pre-printed stub attached
to the Fund's confirmations.
Subsequent investments of $50 or more in shares of the same
class as your initial investment can be made by electronic funds
transfer from your demand account at a Financial Institution. To
use electronic funds transfer for your purchases, your Financial
Institution must be a member of the Automated Clearing House and
the Agent must have received your completed Application designating
this feature, or, after your account has been opened, a Ready
Access Features form available from the Distributor or the Agent.
A pre-determined amount can be regularly transferred for investment
("Automatic Investment"), or single investments can be made upon
receipt by the Agent of telephone instructions from anyone
("Telephone Investment"). The maximum amount of each Telephone
Investment is $50,000. Upon 30 days' written notice to
shareholders, the Fund may modify or terminate these investment
methods at any time or charge a service fee, although no such fee
is currently contemplated.
The offering price is the net asset value per share for
Class C Shares and the net asset value per share plus the
applicable sales charge for Class A Shares. The offering price
determined on any day applies to all purchase orders received by
the Agent from selected dealers that day, except that orders
received by it after 4:00 p.m. New York time will receive that
day's offering price only if such orders were received by selected
dealers from customers prior to such time and transmitted to the
Distributor prior to its close of business that day (normally 5:00
p.m. New York time); if not so transmitted, such orders will be
filled at the next determined offering price. Selected dealers are
required to transmit orders promptly. Investments by mail are made
at the offering price next determined after receipt of the purchase
order by the Agent. Purchase orders received on other than a
business day will be executed on the next succeeding business day.
Purchases by Automatic Investment and Telephone Investment will be
executed on the first business day occurring on or after the date
an order is considered received by the Agent at the price
determined on that day. In the case of Automatic Investment your
order will be executed on the date you specified for investment at
the price determined on that day. If that day is not a business day
your order will be executed at the price determined on the next
business day. In the case of Telephone Investment your order will
be filled at the next determined offering price. If your order is
placed after the time for determining the net asset value of the
Fund shares for any day it will be executed at the price determined
on the following business day. The sale of shares will be suspended
during any period when the determination of net asset value is
suspended and may be suspended by the Distributor when the
Distributor judges it in the Fund's best interest to do so.
How to Purchase Class A Shares (Front-Payment Class Shares)
The following table shows the amount of the sales charges
to a "single purchaser" (defined below) together with the dealer
discounts paid to dealers and the agency commissions paid to
brokers (collectively called the "commissions"):
<TABLE>
Sales Sales Commis-
Charge Charge sions
as as as
Percentage Approximate Percentage
of Public Percentage of
Amount of Offering of Amount Offering
Purchase Price Invested Price
<S> <C> <C> <C>
Less than $25,000...... 4.00% 4.17% 3.50%
$25,000 but less
than $50,000........ 3.75% 3.90% 3.50%
$50,000 but less
than $100,000....... 3.50% 3.63% 3.25%
$100,000 but less
than $250,000....... 3.25% 3.36% 3.00%
$250,000 but less
than $500,000....... 3.00% 3.09% 2.75%
$500,000 but less
than $1,000,000..... 2.50% 2.56% 2.25%
</TABLE>
For purchase of $1 million or more see "Purchase of $1 Million
or More," below.
The table of sales charges is applicable to purchases of
Class A Shares by a "single purchaser," i.e.: (a) an individual;
(b) an individual together with his or her spouse and their
children under the age of 21 purchasing shares for his or their own
accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; and (d) a
tax-exempt organization enumerated in Section 501(c)(3) or (13) of
the Code.
Upon notice to all selected dealers, the Distributor may
reallow up to the full amount of the applicable sales charge as
shown in the above schedule during periods specified in such
notice. During periods when all or substantially all of the entire
sales charge is reallowed, such selected dealers may be deemed to
be underwriters as that term is defined in the Securities Act of
1933.
Purchase of $1 Million or More
Class A Shares issued in purchases of $1 million or more by
a single purchaser are called "CDSC Class A Shares." CDSC Class A
Shares also include certain Class A Shares issued in purchases of
$1 million or more under the program captioned "Special Dealer
Arrangements," below. (CDSC Class A Shares do not include (i) Class
A Shares purchased without sales charge pursuant to the terms
described under "General," below and (ii) Class A Shares purchased
in transactions of less than $1 million and when certain special
dealer arrangements are not in effect under "Special Dealer
Arrangements" set forth under "Reduced Sales Charges," below.)
When you purchase CDSC Class A Shares you will not pay a
sales charge at the time of purchase, and the Distributor will pay
to any dealer effecting such a purchase an amount equal to 1% of
the sales price of the shares purchased for purchases of $1 million
but less than $2.5 million, 0.50 of 1% for purchases of $2.5
million but less than $5 million, and 0.25 of 1% for purchases of
$5 million or more, if the CDSC Class A Shares remain outstanding
for a period of at least one year. A pro-rata portion of this fee
will be payable for each day the CDSC Class A Shares are
outstanding in the first one-year period following issuance of such
shares. The fee payable for each calendar quarter will be made
within fifteen days of the end of that quarter.
If you redeem all or part of your CDSC Class A Shares
during the four years after your purchase of such shares, at the
time of redemption you will be required to pay to the Distributor
a special contingent deferred sales charge based on the lesser of
(i) the net asset value of your redeemed CDSC Class A Shares at the
time of purchase or (ii) the net asset value of your redeemed CDSC
Class A Shares at the time of redemption (the "Redemption Value").
The special charge will be an amount equal to 1% of the Redemption
Value if the redemption occurs within the first two years after
purchase, and 0.50 of 1% of the Redemption Value if the redemption
occurs within the third or fourth year after purchase. The special
charge will apply to redemptions of CDSC Class A Shares purchased
without a sales charge pursuant to a Letter of Intent, as described
below under "Reduced Sales Charges for Certain Purchases of Class
A Shares." The special charge does not apply to shares acquired
through the reinvestment of dividends on CDSC Class A Shares or to
any CDSC Class A Shares held for more than four years after
purchase. In determining whether the special charge is applicable,
it will be assumed that the CDSC Class A Shares you have held the
longest are the first CDSC Class A Shares to be redeemed, unless
you instruct the Agent otherwise. It will also be assumed that if
you have both CDSC Class A Shares and non-CDSC Class A Shares the
non-CDSC Class A Shares will be redeemed first.
For purposes of determining the holding period for CDSC
Class A Shares, all of your purchases made during a calendar month
will be deemed to have been made on the first business day of that
month at the average cost of all purchases made during that month.
The four-year holding period will end on the first business day of
the 48th calendar month after the date your purchase is deemed to
have been made. Accordingly, the CDSC holding period applicable to
your CDSC Class A Shares may be up to one month less than the full
48 months depending upon when your actual purchase was made during
a month. Running of the 48-month CDSC holding period will be
suspended for one month for each period of thirty days during which
you have held shares of a money market fund you have received in
exchange for CDSC Class A Shares under the Exchange Privilege. (See
"Exchange Privilege.")
Reduced Sales Charges for Certain Purchases of Class A
Shares
Right of Accumulation: If you are a "single purchaser" you
may benefit from a reduction of the sales charge in accordance with
the above schedule for subsequent purchases of Class A Shares if
the cumulative value (at cost or current net asset value, whichever
is higher) of Class A Shares you have previously purchased with a
sales charge, together with Class A Shares of your subsequent
purchase with such a charge, amounts to $25,000 or more.
Letters of Intent: The foregoing schedule of reduced sales
charges will also be available to "single purchasers" who enter
into a written Letter of Intent (included in the Application)
providing for the purchase, within a thirteen-month period, of
Class A Shares of the Fund through a single selected dealer or
through the Distributor. Class A Shares of the Fund which you
previously purchased during a 90-day period prior to the date of
receipt by the Distributor of your Letter of Intent and which you
still own may also be included in determining the applicable
reduction. For further details, including escrow provisions, see
the Letter of Intent provisions of the Application.
General: Class A Shares may be purchased at the next
determined net asset value by the Fund's Trustees and officers, by
the directors, officers and certain employees, retired employees
and representatives of the Adviser and its parent and affiliates,
the Administrator and the Distributor, by selected dealers and
brokers and their officers and employees, by certain persons
connected with firms providing legal, advertising or public
relations assistance, by certain family members of, and plans for
the benefit of, the foregoing, and for the benefit of trust or
similar clients of banking institutions over which these
institutions have full investment authority if the Distributor has
entered into an agreement relating to such purchases. Except for
the last category, purchasers must give written assurance that the
purchase is for investment and that the Class A Shares will not be
resold except through redemption. There may be tax consequences of
these purchases. Such purchasers should consult their own tax
counsel. Class A Shares may also be issued at net asset value in a
merger, acquisition or exchange offer made pursuant to a plan of
reorganization to which the Fund is a party.
The Fund permits the sale of its Class A Shares at prices
that reflect the reduction or elimination of the sales charge to
investors who are members of certain qualified groups meeting the
following requirements. A qualified group (i) is a group or
association, or a category of purchasers who are represented by a
fiduciary, professional or other representative (other than a
registered broker-dealer), which (ii) satisfies uniform criteria
which enable the Distributor to realize economies of scale in its
costs of distributing shares; (iii) gives its endorsement or
authorization (if it is a group or association) to an investment
program to facilitate solicitation of its membership by a broker or
dealer; and (iv) complies with the conditions of purchase that are
set forth in any agreement entered into between the Fund and the
group, representative or broker or dealer. At the time of purchase
you must furnish the Distributor with information sufficient to
permit verification that the purchase qualifies for a reduced sales
charge, either directly or through a broker or dealer.
Certain Investment Companies: Class A Shares of the Fund
may be purchased at net asset value without sales charge (except as
set forth below under "Special Dealer Arrangements") to the extent
that the aggregate net asset value of such Class A Shares does not
exceed the proceeds from a redemption (a "Qualified Redemption"),
made within 120 days prior to such purchase, of shares of another
investment company on which a sales charge, including a contingent
deferred sales charge, has been paid. Additional information is
available from the Distributor.
To qualify, the following special procedures must be followed:
1. A completed Application (included in the Prospectus) and
payment for the shares to be purchased must be sent to the
Distributor, Aquila Distributors, Inc., 380 Madison Avenue,
Suite 2300, New York, NY 10017 and should not be sent to the
Shareholder Servicing Agent of the Fund, Administrative Data
Management Corp. (This instruction replaces the mailing
address contained on the Application.)
2. The Application must be accompanied by evidence
satisfactory to the Distributor that the prospective
shareholder has made a Qualified Redemption in an amount at
least equal to the net asset value of the Class A Shares to be
purchased. Satisfactory evidence includes a confirmation of
the date and the amount of the redemption from the investment
company, its transfer agent or the investor's broker or
dealer, or a copy of the investor's account statement with the
investment company reflecting the redemption transaction.
3. You must complete and return to the Distributor a Transfer
Request Form, which is available from the Distributor.
The Fund reserves the right to alter or terminate this
privilege at any time without notice. The Prospectus will be
supplemented to reflect such alteration or termination.
Special Dealer Arrangements: During certain periods
determined by the Distributor, the Distributor (not the Fund) will
pay to any dealer effecting a purchase of Class A Shares of the
Fund using the proceeds of a Qualified Redemption (i) the lesser of
1% of such proceeds or (ii) the same amounts described under
"Purchases of $1 Million or More," above, on the same terms and
conditions. Class A Shares of the Fund issued in such a transaction
will be CDSC Class A Shares and if you thereafter redeem all or
part of such shares during the four-year period from the date of
purchase you will be subject to the special contingent deferred
sales charge described under "Purchases of $1 Million or More"
above, on the same terms and conditions. Whenever the Special
Dealer Arrangements are in effect the Prospectus will be
supplemented.
How to Purchase Class C Shares (Level-Payment Class Shares)
Level-Payment Class Shares (Class C Shares) are offered at net
asset value with no sales charge payable at purchase. A level
charge is imposed for service and distribution fees for the first
six years after the date of purchase at the aggregate annual rate
of 1% of the average annual net assets of the Fund represented by
the Class C Shares. In addition, Class C Shares are subject to a
contingent deferred sales charge ("CDSC") if redeemed before you
have held them for 12 months from the date of purchase at the rate
of 1%, calculated on the net asset value of the Class C Shares at
the time of purchase or of redemption, whichever is less. There is
no CDSC after Class C Shares have been held beyond the applicable
period. The CDSC does not apply to shares acquired through the
reinvestment of dividends on Class C Shares.
The Distributor will pay to any dealer effecting a purchase of
Class C Shares an amount equal to 1% of the sales price of the
Class C Shares purchased.
Additional Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of any
class of shares of the Fund. Additional compensation may include
payment or partial payment for advertising of the Fund's shares,
payment of travel expenses, including lodging, incurred in
connection with attendance at sales seminars taken by qualifying
registered representatives to locations within or outside of the
United States, other prizes or financial assistance to securities
dealers in offering their own seminars or conferences. In some
instances, such compensation may be made available only to certain
dealers whose representatives have sold or are expected to sell
significant amounts of such shares. Dealers may not use sales of
the Fund's shares to qualify for the incentives to the extent such
may be prohibited by the laws of any state or any self-regulatory
agency, such as the National Association of Securities Dealers,
Inc. The cost to the Distributor of such promotional activities and
such payments to participating dealers will not exceed the amount
of the sales charges in respect of sales of all classes of shares
of the Fund effected through such participating dealers, whether
retained by the Distributor or reallowed to participating dealers.
No such additional compensation to dealers in connection with sales
of shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and Dealers may receive different levels of
compensation for selling different classes of shares.
Systematic Payroll Investments
If your employer has established with the Fund a Systematic
Payroll Investment Plan ("Payroll Plan") you may arrange for
systematic investments into the Fund through a Payroll Plan.
Investments can be made in either Class A Shares or Class C Shares.
In order to participate in a Payroll Plan, you should make
arrangements with your own employer's payroll department, and you
must complete and sign any special application forms which may be
required by your employer. You must also complete the Application
included in the Prospectus. Once your application is received and
put into effect, under a Payroll Plan the employer will make a
deduction from payroll checks in an amount you determine, and will
remit the proceeds to the Fund. An investment in the Fund will be
made for you at the offering price, which includes applicable sales
charges determined as described above, when the Fund receives the
funds from your employer. The Fund will send a confirmation of each
transaction to you. To change the amount of or to terminate your
participation in the Payroll Plan (which could take up to ten
days), you must notify your employer.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to you
in an account maintained for you at the Agent in full and
fractional shares of the Fund (rounded to the nearest 1/1000th of
a share).
No share certificates will be issued for Class C Shares.
Share certificates for Class A Shares will be issued only if you so
request in writing to the Agent. All share certificates previously
issued by the Fund represent Class A Shares. No certificates will
be issued for fractional Class A shares or if you have elected
Automatic Investment or Telephone Investment for Class A Shares
(see "How to Invest in the Fund" above) or Expedited Redemption
(see "How to Redeem Your Investment" below). If certificates for
Class A Shares are issued at your request, Expedited Redemption
Methods described below will not be available. In addition, you may
incur delay and expense if you lose the certificates.
The Fund and the Distributor reserve the right to reject any
order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Fund has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in
substance that an investment company may not engage directly or
indirectly in financing any activity which is primarily intended to
result in the sale of its shares except pursuant to a written plan
adopted under the Rule. The Plan has three parts.
Under one part of the Plan, the Fund is authorized to make
payments with respect to Class A Shares ("Class A Permitted
Payments") to Qualified Recipients, which payments shall be made
through the Distributor or shareholder servicing agent as
disbursing agent and may not exceed, for any fiscal year of the
Fund (as adjusted for any part or parts of a fiscal year during
which payments under the Plan are not accruable or for any fiscal
year which is not a full fiscal year), 0.15 of 1% of the average
annual net assets represented by the Class A Shares of the Fund.
Such payments shall be made only out of the Fund's assets allocable
to the Class A Shares. "Qualified Recipients" means 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 and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Class A Shares or
servicing of accounts of shareholders owning Class A Shares.
During the fiscal year ended June 30, 1995, Permitted
Payments of $48,132 were made to Qualified Recipients, of which the
Distributor received $940. Until May 1, 1996, all outstanding
shares of the Fund were what are currently designated Class A
Shares. (See the Additional Statement for a description of the
Distribution Plan.)
Under another part of the Plan, the Fund is authorized to
make payments with respect to Class C Shares ("Class C Permitted
Payments") to Qualified Recipients. Class C Permitted Payments
shall be made through the Distributor or shareholder servicing
agent as disbursing agent, and may not exceed, for any fiscal year
of the Fund (as adjusted for any part or parts of a fiscal year
during which payments under the Plan are not accruable or for any
fiscal year which is not a full fiscal year), 0.75 of 1% of the
average annual net assets represented by the Class C Shares of the
Fund. Such payments shall be made only out of the Fund's assets
allocable to the Class C Shares. " Qualified Recipients" means
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 and which have
rendered assistance (whether direct, administrative, or both) in
the distribution and/or retention of the Fund's Class C Shares or
servicing of accounts of shareholders owning Class C Shares.
Payments with respect to Class C Shares during the first year after
purchase are paid to the Distributor and thereafter to other
Qualified Recipients.
Another part of the Plan is designed to protect against any
claim against or involving the Fund that some of the expenses which
might be considered to be sales-related which the Fund pays or may
pay come within the purview of the Rule. The Fund believes that
except for Permitted Payments it is not financing any such activity
and does not consider any payment enumerated in this part of the
Plan as so financing any such activity. However, it might be
claimed that some of the expenses the Fund pays come within the
purview of the Rule. If and to the extent that any payment as
specifically listed in the Plan (see the Additional Statement) is
considered to be primarily intended to result in or as indirect
financing of any activity which is primarily intended to result in
the sale of Fund shares, these payments are authorized under the
Plan. In addition, if the Administrator, out of its own funds,
makes payment for distribution expenses such payments are
authorized. See the Additional Statement.
Shareholder Services Plan for Class C Shares
Under a Shareholder Services Plan, the Fund is authorized to
make payments with respect to Class C Shares ("Service Fees") to
Qualified Recipients. Service Fees shall be paid through the
Distributor or shareholder servicing agent as disbursing agent, and
may not exceed, for any fiscal year of the Fund (as adjusted for
any part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year), 0.25 of 1% of the average annual net assets
represented by the Class C Shares of the Fund. Such payments shall
be made only out of the Fund's assets represented by the Class C
Shares. "Qualified Recipients" means 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 and which have agreed to provide
personal services to holders of Class C Shares and/or maintenance
of Class C Shares shareholder accounts. See the Additional
Statement. Service Fees with respect to Class C Shares will be paid
to the Distributor.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your shares at the net asset
value next determined after acceptance of your redemption request
at the Agent (subject to any applicable contingent deferred sales
charge for redemptions of Class C Shares and CDSC Class A Shares).
For redemptions of Class C Shares and CDSC Class A Shares, at the
time of redemption a sufficient number of additional shares will be
redeemed to pay for any applicable contingent deferred sales
charge. Redemptions can be made by the various methods described
below. There is no minimum period for any investment in the Fund,
except for shares recently purchased by check, Automatic Investment
or Telephone Investment as discussed below. Except for CDSC Class
A Shares (see "Purchase of $1 Million or More") there are no
redemption fees or withdrawal penalties for Class A Shares. Class
C Shares are subject to a contingent deferred sales charge if
redeemed before they have been held 12 months from the date of
purchase. (See "Alternative Purchase Plans.") A redemption may
result in a transaction taxable to you. If you own both Class A
Shares and Class C Shares and do not specify which you wish to
redeem, it will be assumed that you wish to redeem Class A
Shares.
For your convenience the Fund offers expedited redemption
for all classes of shares to provide you with a high level of
liquidity for your investment.
Expedited Redemption Methods
(Non-Certificate Shares)
You have the flexibility of two expedited methods of
initiating redemptions. They are available as to shares of any
class not represented by certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have
predesignated or
b) by check in the amount of $50,000 or less, mailed to
you, if your shares are registered in your name at the
Fund and the check is sent to your address of record,
provided that there has not been a change of your address
of record during the 30 days preceding your redemption
request. You can make only one request for telephone
redemption by check in any 7-day period.
See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
800-637-4633 toll free or 908-855-5731
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
2. By FAX or Mail. You may also request redemption
payments to a predesignated Financial Institution account
by a letter of instruction sent to: Administrative Data
Management Corp., Attn: Aquilasm Group of Funds, by FAX
at 908-855-5730 or by mail at 581 Main Street,
Woodbridge, NJ 07095-1198, indicating account name(s),
account number, amount to be redeemed, and any payment
directions, signed by the registered holder(s). Signature
guarantees are not required. See "Redemption Payments"
below for payment methods.
If you wish to use the above procedures you should so elect on
the Expedited Redemption section of the Application or the Ready
Access Features form and provide the required information
concerning your Financial Institution account number. The Financial
Institution account must be in the exclusive name(s) of the
shareholder(s) as registered with the Fund. You may change the
designated Financial Institution account at any time by completing
and returning a Ready Access Features form. For protection of your
assets, this form requires signature guarantees and possible
additional documentation.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
1. Certificate Shares. Certificates representing Class A
Shares to be redeemed should be sent in blank (unsigned)
to the Agent: Administrative Data Management Corp., Attn:
Aquilasm Group of Funds, 581 Main Street, Woodbridge, NJ
07095-1198, with payment instructions. A stock assignment
form signed by the registered shareholder(s) exactly as
the account is registered must also be sent to the
Agent.
For your own protection, it is essential that certificates be
mailed separately from signed redemption documentation. Because of
possible mail problems, it is also recommended that certificates be
sent by registered mail, return receipt requested.
For a redemption request to be in "proper form," the
signature or signatures must be the same as in the registration of
the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required if
sufficient documentation is not on file with the Agent. Additional
documentation may be required where shares are held by certain
types of shareholders such as corporations, partnerships, trustees
or executors, or if redemption is requested by other than the
shareholder of record. If redemption proceeds of $50,000 or less
are payable to the record holder and are to be sent to the record
address, no signature guarantee is required, except as noted above.
In all other cases, signatures must be guaranteed by a member of a
national securities exchange, a U.S. bank or trust company, a
state-chartered savings bank, a federally chartered savings and
loan association, a foreign bank having a U.S. correspondent bank,
a participant in the Securities Transfer Association Medallion
Program (STAMP), the Stock Exchanges Medallion Program (SEMP) or
the New York Stock Exchange, Inc. Medallion Signature Program
(MSP). A notary public is not an acceptable signature
guarantor.
2. Non-Certificate Shares. If you own non-certificate shares
registered on the books of the Fund, and you have not elected
Expedited Redemption to a predesignated Financial Institution
account, you must use the Regular Redemption Method. Under
this redemption method you should send a letter of instruction
to: Administrative Data Management Corp., Attn: Aquilasm Group
of Funds, 581 Main Street, Woodbridge, NJ 07095-1198,
containing:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or
a statement that all shares held in the account are
to be redeemed;
Payment instructions (normally redemption proceeds
will be mailed to your address as registered with
the Fund);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated
above.
Redemption Payments
Redemption payments will ordinarily be mailed to you at
your address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will, wherever
possible, be wired or transferred through the facilities of the
Automated Clearing House to the Financial Institution account
specified in the Expedited Redemption section of your Application
or Ready Access Features form. The Fund may impose a charge, not
exceeding $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. The Fund
has no present intention of making this charge. Upon 30 days'
written notice to shareholders, the Fund may modify or terminate
the use of the Automated Clearing House to make redemption payments
at any time or charge a service fee, although no such fee is
presently contemplated. If any such changes are made, the
Prospectus will be supplemented to reflect them. If you use a
broker or dealer to arrange for a redemption, it may charge you a
fee for this service.
The Fund will normally make payment for all shares redeemed on
the next business day (see "Net Asset Value Per Share") following
acceptance of the redemption request made in compliance with one of
the redemption methods specified above. Except as set forth below,
in no event will payment be made more than seven days after
acceptance of such a redemption request. However, the right of
redemption may be suspended or the date of payment postponed (i)
during periods when the New York Stock Exchange is closed for other
than weekends and holidays or when trading on such Exchange is
restricted as determined by the Securities and Exchange Commission
by rule or regulation; (ii) during periods in which an emergency,
as determined by the Securities and Exchange Commission, exists
which causes disposal of, or valuation of the net asset value of,
the portfolio securities to be unreasonable or impracticable; or
(iii) for such other periods as the Securities and Exchange
Commission may permit. Payment for redemption of shares recently
purchased by check (irrespective of whether the check is a regular
check or a certified, cashier's or official bank check) or by
Automatic Investment or Telephone Investment may be delayed up to
15 days or until (i) the purchase check or Automatic Investment or
Telephone Investment has been honored or (ii) the Agent has
received assurances by telephone or in writing from the Financial
Institution on which the purchase check was drawn, or from which
the funds for Automatic Investment or Telephone Investment were
transferred, satisfactory to the Agent and the Fund, that the
purchase check or Automatic Investment or Telephone Investment will
be honored. Possible delays in payment of redemption proceeds can
be eliminated by using wire payments or Federal Reserve drafts to
pay for purchases.
If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by the distribution in kind of
securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. See the Additional Statement for details.
The Fund has the right to compel the redemption of shares
held in any account if the aggregate net asset value of such shares
is less than $500 as a result of shareholder redemptions or failure
to meet the minimum investment level under an Automatic Purchase
Program. If the Board elects to do this, shareholders who are
affected will receive prior written notice and will be permitted 60
days to bring their accounts up to the minimum before this
redemption is processed.
Reinvestment Privilege
You may reinvest without payment of any additional sales
charge all or part of any redemption proceeds within 120 days of a
redemption of shares in shares of the Fund of the same class as the
shares redeemed at the net asset value next determined after the
Agent receives your reinvestment order. In the case of Class C
Shares or CDSC Class A Shares on which a contingent deferred sales
charge was deducted at the time of redemption, the Distributor will
refund to you the amount of such sales charge, which will be added
to the amount of the reinvestment. The Class C Shares or CDSC Class
A Shares issued on reinvestment will be deemed to have been
outstanding from the date of your original purchase of the redeemed
shares, less the period from redemption to reinvestment. The
reinvestment privilege for any class may be exercised only once a
year, unless otherwise approved by the Distributor. If you have
realized a gain on the redemption of your shares, the redemption
transaction is taxable, and reinvestment will not alter any capital
gains tax payable. If there has been a loss on the redemption, some
or all of the loss may be tax deductible, depending on the amount
reinvested and the length of time between the redemption and the
reinvestment. You should consult your own tax advisor on this
matter.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own or
purchase Class A Shares of the Fund having a net asset value of at
least $5,000. The Automatic Withdrawal plan is not available for
Class C Shares.
Under an Automatic Withdrawal Plan you will receive a monthly
or quarterly check in a stated amount, not less than $50. If such
a plan is established, all dividends and distributions must be
reinvested in your shareholder account. Redemption of Class A
Shares to make payments under the Automatic Withdrawal Plan will
give rise to a gain or loss for tax purposes. See the Automatic
Withdrawal Plan provisions of the Application included in the
Prospectus, the Additional Statement under "Automatic Withdrawal
Plan," and "Dividend and Tax Information" below.
Purchases of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when purchases
are made. Accordingly, a Planholder may not maintain an Automatic
Withdrawal Plan while simultaneously making regular purchases of
Class A Shares. While an occasional lump sum investment may be
made, such investment should normally be an amount at least equal
to three times the annual withdrawal or $5,000, whichever is
less.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Fund's Trustees and officers and provides
further information about them.
The Advisory Agreement
Citizens Trust Company (the "Adviser") supervises the
investment program of the Fund and the composition of its
portfolio.
The services of the Adviser are rendered under an Investment
Advisory Agreement (the "Advisory Agreement") which provides,
subject to the control of the Board of Trustees, for investment
supervision and at the Adviser's expense for pricing of the Fund's
portfolio daily using a pricing service or other source of pricing
information satisfactory to the Fund and, unless otherwise directed
by the Board of Trustees, for pricing of the Fund's portfolio at
least quarterly using another such source satisfactory to the Fund.
The Advisory Agreement states that the Adviser shall, at its
expense, provide to the Fund all office space and facilities,
equipment and clerical personnel necessary for the carrying out of
the Adviser's duties under the Advisory Agreement.
Under the Advisory Agreement, the Adviser pays all
compensation of those officers and employees of the Fund and of
those Trustees, if any, who are affiliated with the Adviser. Under
the Advisory Agreement, the Fund bears the cost of preparing and
setting in type its prospectuses, statements of additional
information, and reports to shareholders and the costs of printing
or otherwise producing and distributing those copies of such
prospectuses, statements of additional information and reports as
are sent to its shareholders. Under the Advisory Agreement, all
costs and expenses not expressly assumed by the Adviser or by the
Administrator under the Administration Agreement or by the Fund's
Distributor (principal underwriter) are paid by the Fund. The
Advisory Agreement lists examples of such expenses borne by the
Fund, the major categories of such expenses being: legal and audit
expenses, custodian and transfer agent, or shareholder servicing
agent fees and expenses, stock issuance and redemption costs,
certain printing costs, registration costs of the Fund and its
shares under Federal and State securities laws, interest, taxes and
brokerage commissions, and non-recurring expenses, including
litigation.
Under the Advisory Agreement, the Fund pays a fee payable
monthly and computed on the net asset value of the Fund as of the
close of business each business day at the annual rate of 0.23 of
1% of such net assets. (However, the total fees which the Fund pays
are at the annual rate of 0.50 of 1% of such net assets, since the
Administrator also receives a fee from the Fund under the
Administration Agreement; see below.) The Adviser and/or the
Administrator may, in order to attempt to achieve a competitive
yield on the shares of the Fund, each waive all or part of either
fee.The Adviser agrees that the above fee shall be reduced, but not
below zero, by an amount equal to its pro-rata portion (based upon
the aggregate fees of the Adviser and the Administrator) 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 Fund's total annual
investment income.
The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund; see the
Additional Statement. Under these provisions, the Adviser is
authorized to consider sales of shares of the Fund or of any other
investment company or companies having the same investment adviser,
sub-adviser, administrator or principal underwriter as the Fund.
The Administration Agreement
Aquila Management Corporation is founder of the Fund and
serves as Administrator under an Administration Agreement (the
"Administration Agreement"). At its own expense, it provides office
space, personnel, facilities and equipment for the performance of
its functions thereunder and as is necessary in connection with the
maintenance of the headquarters of the Fund and pays all
compensation of the Fund's Trustees, officers and employees who are
affiliated persons of the Administrator.
Under the Administration Agreement, subject to the control of
the Fund's Board of Trustees, the Administrator provides all
administrative services to the Fund other than those relating to
its investment portfolio. Such administrative services include, but
are not limited to, overseeing all relationships between the Fund
and its transfer agent, custodian, legal counsel, auditors and
principal underwriter, including the negotiation of agreements in
relation thereto, the supervision and coordination of the
performance of such agreements, and the overseeing of all
administrative matters which are necessary or desirable for
effective operation of the Fund and for the sale, servicing, or
redemption of the Fund's shares. Additionally, the Administrator
either keeps the accounting and other books and records of the
Fund, including the computation of net asset value per share and
the dividends (provided that daily pricing of the securities in the
Fund's portfolio shall be the responsibility of the Adviser under
the Advisory Agreement) or, at its expense and responsibility,
delegates such duties in whole or in part to a company satisfactory
to the Fund. See the Additional Statement for a further description
of functions listed in the Administration Agreement as part of such
duties.
Under the Administration Agreement, the Fund pays a fee
payable monthly and computed on the net asset value of the Fund at
the end of each business day at the annual rate of 0.27 of 1% of
such net asset value. The Administrator agrees that the above fee
shall be reduced, but not below zero, by an amount equal to its
pro-rata portion (based upon the aggregate fees of the Adviser and
the Administrator) 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 Fund's total annual investment income.
Information as to the Adviser,
the Administrator and the Distributor
Citizens Financial Group, Inc. ("CFG") is a wholly-owned
subsidiary of The Royal Bank of Scotland plc. CFG is comprised of
Citizens Savings Bank and Citizens Trust Company (the "Adviser")
which operate jointly as Citizens Bank through 74 branch offices in
Rhode Island and Connecticut; Citizens Bank of Massachusetts, which
has 60 branches in southeastern Massachusetts; and Citizens
Mortgage Corporation, a Georgia corporation based in Atlanta with
19 offices in the southeastern United States. In 1994, CFG acquired
the former Old Stone Federal Savings Bank in Providence, Rhode
Island and the former Coastal Federal Savings Bank in New London,
Connecticut. CFG also completed the acquisition of Neworld
Bankcorp, Inc., the holding company for Neworld Bank which was
merged into Citizens Bank of Massachusetts. In January, 1995, CFG
acquired Quincy Savings Bank of Massachusetts. CFG is the second
largest bank holding company headquartered in Rhode Island. Through
the Adviser and other subsidiaries, CFG provides a full range of
financial services to individuals, businesses and governmental
units. The Trust Group of the Adviser had, as of June 30, 1995,
approximately $2.2 billion of assets under administration,
including approximately $205 million in municipal obligations.
CFG's headquarters are at One Citizens Plaza, Providence, Rhode
Island 02903.
Salvatore C. DiSanto is the officer of the Adviser who manages
the Fund's portfolio. He has served as such since the inception of
the Fund in September, 1992. Mr.DiSanto, a Senior Vice President
and head of the Investment Department within the Adviser's Trust
Group, is a member of the Adviser's Officer Investment Committee.
He has been employed by the Adviser for 37 years and has been
involved in portfolio management for the last 30 years.
The Fund's Administrator is administrator to the Aquilasm
Group of Funds, which consists of tax-free municipal bond funds,
money market funds and an equity fund. As of December 30, 1995,
these funds had aggregate assets of approximately $2.7 billion, of
which approximately $1.9 billion consisted of assets of tax-free
municipal bond funds. The Administrator, which was founded in 1984,
is controlled by Mr. Lacy B. Herrmann (directly, through a trust
and through share ownership by his wife). See the Additional
Statement for information on Mr. Herrmann.
During the Fund's fiscal year ended June 30, 1995, fees of
$73,783 and $86,615 were accrued to the Adviser and Administrator,
respectively, all of which were waived. In addition, the
Administrator reimbursed the Fund for other expenses in the amount
of $197,821.
The Distributor currently handles the distribution of the
shares of thirteen funds (seven tax-free municipal bond funds, five
money market funds, and an equity fund) including the Fund. Under
the Distribution Agreement, the Distributor is responsible for the
payment of certain printing and distribution costs relating to
prospectuses and reports as well as the costs of supplemental sales
literature, advertising and other promotional activities.
At the date of this Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which are
currently owned by Mr. Herrmann, will be owned by certain directors
and/or officers of the Administrator and/or the Distributor,
including Mr. Herrmann.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Fund will declare all of its net income, as defined
below, as dividends on every day, including weekends and holidays,
on those shares outstanding for which payment was received by the
close of business on the preceding business day. Net income for
dividend purposes includes all interest income accrued by the Fund
since the previous dividend declaration, including accretion of any
original issue discount, less expenses paid or accrued. As such net
income will vary, the Fund's dividends will also vary. Dividends
and other distributions paid by the Fund with respect to Class A
Shares and Class C Shares are calculated at the same time and in
the same manner. The per share dividends of Class C Shares will be
lower than the per share dividends on the Class A Shares as a
result of the higher service and distribution fees applicable to
those shares. In addition, the dividends of each class can vary
because each class will bear certain class-specific charges.
Dividends so declared are paid monthly within a week before
the end of each calendar month. It is the Fund's present policy to
pay dividends so that they will be received or credited by
approximately the first day of each month. Shareholders may elect
to have dividends deposited without charge by electronic funds
transfers into an account at a Financial Institution which is a
member of the Automated Clearing House by completing a Ready Access
Features form.
Redeemed shares continue to earn dividends through and
including the earlier of (i) the day before the day on which the
redemption proceeds are mailed, wired or transferred by the
facilities of the Automated Clearing House by the Agent or paid by
the Agent to a selected dealer; or (ii) the third day on which the
New York Stock Exchange is open after the day on which the net
asset value of the redeemed shares has been determined. (See "How
To Redeem Your Investment.")
Net investment income includes amounts of income from the
Rhode Island Obligations in the Fund's portfolio which are
allocated as "exempt-interest dividends." "Exempt-interest
dividends" are exempt from regular Federal income tax. The
allocation of "exempt-interest dividends" will be made by the use
of one designated percentage applied uniformly to all income
dividends declared during the Fund's tax year. Such designation
will normally be made in the first month after the end of each of
the Fund's fiscal years as to income dividends paid in the prior
year. It is possible that in certain circumstances, a small portion
of the dividends paid by the Fund will be subject to income taxes.
During the fiscal year ended June 30, 1995, 98.45% of the Fund's
dividends were "exempt-interest dividends." For the calendar year
1995, 1.55% of the total dividends paid were taxable. (These
amounts relate to dividends on Class A shares; no Class C Shares
were outstanding during that period.) The percentage of income
designated as tax-exempt for any particular dividend may be
different from the percentage of the Fund's income that was
tax-exempt during the period covered by the dividend.
Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions ("long-term
gains distributions"), if any, from the excess of net long-term
capital gains over net short-term capital losses realized through
October 31st of each year and not previously paid out will be paid
out after that date; the Fund may also pay supplemental
distributions after the end of its fiscal year. If net capital
losses are realized in any year, they are charged against capital
and not against net investment income which is distributed
regardless of gains or losses. The Fund may be required to impose
backup withholding at a rate of 31% upon payment of redemptions to
shareholders, and from short- and long-term gains distributions (if
any) and any other distributions that do not qualify as
"exempt-interest dividends," if shareholders do not comply with
provisions of the law relating to the furnishing of taxpayer
identification numbers and reporting of dividends.
Unless you request otherwise by letter addressed to the Agent
or by filing an appropriate application prior to a given
ex-dividend date, dividends and distributions will be automatically
reinvested in full and fractional shares of the Fund at net asset
value on the record date for the dividend or distribution or other
date fixed by the Board of Trustees. An election to receive cash
will continue in effect until written notification of a change is
received by the Agent. All shareholders, whether their dividends
are received in cash or are being reinvested, will receive a
monthly account summary indicating the current status of their
investment. There is no fixed dividend rate. Corporate shareholders
of the Fund are not entitled to any deduction for dividends
received from the Fund.
Federal Tax Information
The Fund qualified during its last fiscal year as a "regulated
investment company" under the Code, and intends to continue to so
qualify. If it does so qualify, it will not be liable for Federal
income taxes on amounts paid by it as dividends and distributions.
However, the Code contains a number of complex tests relating to
such qualification and it is possible although not likely that the
Fund might not meet one or more of these tests in any particular
year. If it does not so qualify, it would be treated for tax
purposes as an ordinary corporation, would receive no tax deduction
for payments made to shareholders and would be unable to pay
dividends or distributions which would qualify as "exempt-interest
dividends" or "capital gains dividends," as discussed below.
The Fund intends to qualify during each fiscal year under
the Code to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net income earned
by the Fund on Rhode Island Obligations will be excludable from
gross income of the shareholders for regular Federal income tax
purposes. Capital gains dividends are not included in
exempt-interest dividends. Although "exempt-interest dividends" are
not taxed, each taxpayer must report the total amount of tax-exempt
interest (including exempt-interest dividends from the Fund)
received or acquired during the year.
The Omnibus Budget Reconciliation Act of 1993 requires that
either gains realized by the Fund on the sale of municipal
obligations acquired after April 30, 1993 at a price which is less
than face or redemption value be included as ordinary income to the
extent such gains do not exceed such discount or that the discount
be amortized and included ratably in taxable income. There is an
exception to the foregoing treatment if the amount of the discount
is less than 0.25% of face or redemption value multiplied by the
number of years from acquisition to maturity. The Fund will report
such ordinary income in the years of sale or redemption rather than
amortize the discount and report it ratably. To the extent the
resultant ordinary taxable income is distributed to shareholders,
it will be taxable to them as ordinary income.
Capital gains dividends (net long-term gains over net
short-term losses which the Fund distributes and so designates) are
reportable by shareholders as long-term capital gains. This is the
case whether the shareholder takes the distribution in cash or
elects to have the distribution reinvested in Fund shares and
regardless of the length of time the shareholder has held his or
her shares. Capital gains are taxed at the same rates as ordinary
income, except that for individuals, trusts and estates the maximum
tax rate on capital gains distributions is 28% even if the
applicable rate on ordinary income for such taxpayers is higher
than 28%.
Short-term gains, when distributed, are taxed to
shareholders as ordinary income. Capital losses of the Fund are not
distributed but carried forward by the Fund to offset gains in
later years and thereby lessen the later-year capital gains
dividends and amounts taxed to shareholders.
The Fund's gains or losses on sales of Rhode Island
Obligations will be long-term or short-term depending upon the
length of time the Fund has held such obligations. Capital gains
and losses of the Fund will also include gains and losses on
Futures and options, if any, including gains and losses actually
realized on sales and exchanges and gains and losses deemed to be
realized.
Information as to the tax status of the Fund's dividends and
distributions will be mailed to shareholders annually.
Under the Code, interest on loans incurred by shareholders
to enable them to purchase or carry shares of the Fund may not be
deducted for regular Federal tax purposes. In addition, under rules
used by the Internal Revenue Service for determining when borrowed
funds are deemed used for the purpose of purchasing or carrying
particular assets, the purchase of shares of the Fund may be
considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of
shares. The receipt of exempt-interest dividends from the Fund by
an individual shareholder may result in some portion of any social
security payments or railroad retirement benefits received by the
shareholder or the shareholder's spouse being included in taxable
income.
Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds or
private activity bonds should consult their own tax advisers before
purchasing shares.
While interest from all Rhode Island Obligations is tax-exempt
for purposes of computing the shareholder's regular tax, interest
from so-called private activity bonds issued after August 7, 1986,
constitutes a tax preference for both individuals and corporations
and thus will enter into a computation of the alternative minimum
tax. Whether or not that computation will result in a tax will
depend on the entire content of the taxpayer's return. The Fund
will not invest in the types of Rhode Island Obligations which
would give rise to interest that would be subject to alternative
minimum taxation if more than 20% of its net assets would be so
invested, and may refrain from investing in that type of bond
completely. The 20% limit is a fundamental policy of the Fund.
Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current earnings,
this adjustment will tend to make it more likely that corporate
shareholders will be subject to the alternative minimum tax.
As of the date of the Prospectus, Congress is considering a
number of changes affecting taxation. It is not possible to predict
which, if any, of such changes will become law.
Tax Effects of Redemptions
Normally, when you redeem shares of the Fund you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid for
the shares. If you are required to pay a conditional deferred sales
charge at the time of redemption, the amount of that charge will
reduce the amount of your gain or increase the amount of your loss
as the case may be. The gain or loss will be long-term if you held
the redeemed shares for over a year, and short-term, if for a year
or less. However, if shares held for six months or less are
redeemed and you have a loss, two special rules apply: the loss is
reduced by the amount of exempt-interest dividends, if any, which
you received on the redeemed shares, and any loss over and above
the amount of such exempt-interest dividends is treated as a
long-term loss to the extent you have received capital gains
dividends on the redeemed shares.
Tax Effect of Conversion
Class C Shares will automatically convert to Class A Shares
approximately six years after purchase. No gain or loss will be
recognized by the Fund or its shareholders upon such conversions;
each shareholder's adjusted tax basis in the Class A Shares
received upon conversion will equal the shareholder's adjusted tax
basis in the Class C Shares held immediately before the conversion;
and each shareholder's holding period for the Class A Shares
received upon conversion will include the period for which the
shareholder held as capital assets the converted Class C Shares
immediately before conversion.
Rhode Island Tax Information
The following is based upon the advice of Edwards & Angell,
Rhode Island counsel to the Fund.
The Fund will be subject to the Rhode Island business
corporation tax in an amount equal to the greater of $250 or $0.10
on each $100 of the gross income of the Fund that is apportioned to
the State of Rhode Island by means of an arithmetical formula.
Gross income means gross income as defined in the Federal income
tax law, plus any interest not included in Federal gross income,
minus interest on obligations of the United States or its
possessions and other interest on Rhode Island Obligations issued
by Rhode Island issuers and exempt from taxation by Rhode Island,
and minus 50% of the excess of capital gains (as determined for
Federal income tax purposes) over capital losses (as determined for
Federal income tax purposes). However, the Rhode Island law
authorizing the issuance of certain Rhode Island Obligations may
specifically exempt from Rhode Island taxation the capital gains
from the sale or exchange of such Rhode Island Obligations. While
the issue is not entirely free from doubt, it is unlikely that the
Fund, as a Massachusetts business trust, will be subject to the
Rhode Island franchise tax.
Individual holders of shares of the Fund who are subject to
Rhode Island personal income taxation will not be required to
include in their Rhode Island source income for Rhode Island
personal income tax purposes that portion of their exempt-interest
dividends (as determined for Federal income tax purposes) which the
Fund clearly identifies as directly attributable to interest earned
on Rhode Island Obligations. Individual holders of shares of the
Fund who are subject to Rhode Island personal income taxation will
be required to include in their Rhode Island source income for
Rhode Island personal income tax purposes their distributions of
exempt-interest dividends (as determined for Federal income tax
purposes) which are derived from interest earned on municipal
obligations issued by governmental authorities in states other than
Rhode Island, distributions of dividends derived from any net
income received by the Fund from taxable temporary investments and
any other distributions of dividends derived from interest that
does not qualify as exempt-interest dividends (as determined for
Federal income tax purposes).
Individual holders of shares of the Fund who are subject to
Rhode Island personal income taxation will be required to include
in their Rhode Island source income for Rhode Island personal
income tax purposes their distributions of capital gain dividends
(as determined for Federal income tax purposes) and any net
short-term capital gains realized by the Fund, unless such capital
gain dividends (as determined for Federal income tax purposes) and
such short-term capital gains are from the sale of the underlying
Rhode Island Obligations which are issued by Rhode Island issuers
and are specifically exempted from Rhode Island taxation of capital
gains by the Rhode Island law authorizing issuance of the Rhode
Island Obligations.
Under Rhode Island law, it appears that gain or loss, if any,
resulting from a sale or redemption of shares of the Fund by
individual holders of shares of the Fund who are subject to Rhode
Island personal income taxation will be included in their Rhode
Island source income.
Generally, corporate holders of shares of the Fund which
are subject to the Rhode Island business corporation tax or the
Rhode Island franchise tax, will be taxed upon their net income,
authorized stock, or at a flat rate minimum tax. Net income will
include distributions of exempt-interest dividends (as determined
for Federal income tax purposes), except to the extent such
dividends are clearly identified as directly attributable to
interest earned on Rhode Island Obligations issued by non-Rhode
Island issuers or interest earned on Rhode Island Obligations
issued by Rhode Island issuers and specifically exempted from
taxation in Rhode Island. Net income will include distributions of
exempt-interest dividends (as determined for Federal income tax
purposes), which are derived from interest earned on municipal
obligations issued by governmental authorities in states other than
Rhode Island, distributions of dividends derived from any net
income received from taxable temporary investments and any other
distributions of dividends derived from interest that does not
qualify as exempt interest dividends (as determined for Federal
income tax purposes). Net income will also include distributions of
capital gain dividends (as determined for Federal income tax
purposes) and any net short-term capital gains realized by the
Fund, unless such distributions of capital gain dividends (as
determined for Federal income tax purposes) and such short-term
capital gains are from the sale of the underlying Rhode Island
Obligations which are issued by Rhode Island issuers and are
specifically exempted from Rhode Island taxation of capital gains
by the Rhode Island law authorizing issuance of the Rhode Island
Obligations. Under Rhode Island law, it appears that gain or loss,
if any, resulting from a sale or redemption of shares of the Fund
by corporate holders of shares of the Fund which are subject to the
Rhode Island business corporation tax will be included in their
Rhode Island income.
Shares of the Fund will be exempt from local property taxes in
Rhode Island, but will be includable in the Rhode Island gross
estate of a deceased individual holder who is a resident of Rhode
Island for purposes of the Rhode Island estate tax.
The foregoing represents a summary of certain provisions of
Rhode Island tax laws presently in effect. It assumes that the Fund
qualifies as a regulated investment company for Federal income tax
purposes under subchapter M of the Code. These provisions are
subject to change by legislative or administrative action. You
should consult your tax adviser about other state and local tax
consequences of your investment in the Fund for more detailed
information concerning state taxes to which you may be subject.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among
this Fund and certain tax-free municipal bond funds and an equity
fund (the "Bond or Equity Funds") and certain money market funds
(the "Money-Market Funds"), all of which are sponsored by Aquila
Management Corporation and Aquila Distributors, Inc., and have the
same Administrator and Distributor as the Fund. All exchanges are
subject to certain conditions described below. As of the date of
the Prospectus, the Aquila Bond or Equity Funds are this Fund,
Aquila Rocky Mountain Equity Fund, Hawaiian Tax-Free Trust,
Tax-Free Trust of Arizona, Tax-Free Trust of Oregon, Tax-Free Fund
of Colorado, Churchill Tax-Free Fund of Kentucky and Tax-Free Fund
For Utah; the Aquila Money-Market Funds are Capital Cash Management
Trust, Pacific Capital Cash Assets Trust (Original Shares), Pacific
Capital Tax-Free Cash Assets Trust (Original Shares), Pacific
Capital U.S. Treasuries Cash Assets Trust (Original Shares) and
Churchill Cash Reserves Trust.
Class A Shares of the Fund can be exchanged only into Class
A Shares of any Bond or Equity Fund or into shares of the
Money-Market Funds. Class C Shares can be exchanged only into Class
C Shares of any Bond or Equity Fund that offers Class C Shares or
into shares of the Money-Market Funds. At the date of the
Prospectus, it is expected that all of the Bond and Equity Funds
will offer Class C Shares by May 31, 1996.
Class A Shares Exchange Privilege
Under the Class A Shares exchange privilege, once any
applicable sales charge has been paid on Class A Shares of any Bond
or Equity Fund, those shares (and any shares acquired as a result
of reinvestment of dividends and/or distributions) may be exchanged
any number of times between Money-Market Funds and for Class A
Shares of Bond or Equity Funds without the payment of any
additional sales charge.
CDSC Class A Shares of the Fund (see "Purchase of $1
Million or More" and "Special Dealer Arrangements") can be
exchanged for CDSC Class A Shares of a Bond or Equity Fund or into
a Money-Market Fund. The CDSC Class A Shares will not be subject to
a contingent deferred sales charge at the time of exchange, but the
contingent deferred sales charge will be payable upon a redemption
which occurs before the expiration of the applicable holding period
of any CDSC Class A Shares or any shares of a Money-Market Fund
received on exchange for CDSC Class A Shares. (The contingent
deferred sales charge does not apply to any shares acquired as a
result of reinvestment of dividends and/or distributions.) For
purposes of computing the time period for the applicable contingent
deferred sales charge, the length of time of ownership of CDSC
Class A Shares will be determined by the time of original purchase
and not by the time of the exchange. Any period of 30 days or more
during which any Money-Market shares received on an exchange of
CDSC Class A Shares are held is not counted in computing the period
of ownership of CDSC Class A Shares. (See "Alternative Purchase
Plans.")
Class C Shares Exchange Privilege
Under the Class C Shares exchange privilege, Class C Shares
(and any shares acquired as a result of reinvestment of dividends
and/or distributions) may be exchanged any number of times between
Money-Market Funds and for Class C Shares of Bond or Equity Funds.
Class C Shares will not be subject to a contingent deferred sales
charge at the time of exchange, but the contingent deferred sales
charge will be payable upon redemption which occurs before the
expiration of the applicable holding period of any Class C Shares
or any shares of a Money-Market Fund received on exchange for Class
C Shares. (The contingent deferred sales charge does not apply to
any shares acquired as a result of reinvestment of dividends and/or
distributions.) For purposes of computing the time period for the
applicable contingent deferred sales charge or for the conversion
of Class C Shares into Class A Shares, the length of time of
ownership of Class C shares will be determined by time of original
purchase and not by the time of the exchange. Any period of 30 days
or more during which any Money-Market shares received on an
exchange of Class C Shares are held is not counted in computing the
period of ownership of Class C Shares. (See "Alternative Purchase
Plans.")
Eligible Shares
The "Class A Eligible Shares" of any Bond or Equity Fund
are those Class A Shares which were (a) acquired by direct purchase
with payment of any applicable sales charge, or which were received
in exchange for shares of another Bond or Equity Fund on which any
applicable sales charge was paid; (b) acquired by exchange for
shares of a Money-Market Fund with payment of the applicable sales
charge; (c) acquired in one or more exchanges between shares of a
Money-Market Fund and a Bond or Equity Fund so long as the shares
of the Bond or Equity Fund were originally purchased as set forth
in (a) or (b); (d) acquired on conversion of Class C Shares or (e)
acquired as a result of reinvestment of dividends and/or
distributions on otherwise Class A Eligible Shares.
The "CDSC Class A Eligible Shares" of any Bond or Equity
Fund are those CDSC Class A Shares which were (a) acquired by
direct purchase in the amount of $1 million or more without a sales
charge or in certain purchases when Special Dealer Arrangements are
in effect or which were received in exchange for CDSC Class A
Shares of another Bond or Equity Fund acquired under the same
conditions; (b) acquired by exchange for shares of a Money-Market
Fund under the same conditions; (c) acquired in one or more
exchanges between shares of a Money-Market Fund and a Bond or
Equity Fund so long as the shares of the Bond or Equity Fund were
originally purchased as set forth in (a) or (b); or (d) acquired as
a result of reinvestment of dividends and/or distributions on
otherwise CDSC Class A Eligible Shares.
The "Class C Eligible Shares" of any Bond or Equity Fund
are those shares which were (a) acquired by direct purchase
including by exchange from a Money-Market Fund, or which were
received in exchange for shares of Class C Shares of another Bond
or Equity Fund; or (b) acquired as a result of reinvestment of
dividends and/or distributions on otherwise Class C Eligible
Shares.
If you own Class A or Class C Eligible Shares of any Bond
or Equity Fund, you may exchange them for shares of any Money
Market Fund or the Class A or Class C Shares, respectively, of any
other Bond or Equity Fund without payment of any sales charge or
CDSC. The shares received will continue to be Class A or Class C
Eligible shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class A Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares acquired
as a result of reinvestment of dividends and/or distributions on
these shares, for Class A Shares of any Bond or Equity Fund without
payment of any sales charge.
If you own shares of a Money-Market Fund which you have
acquired by exchange for CDSC Class A Eligible Shares of any Bond
or Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for CDSC Class A shares of any Bond
or Equity Fund but you will be required to pay the applicable
contingent deferred sales charge if you redeem such shares before
you have held CDSC Class A Shares for four years. You will also be
required to pay the applicable contingent deferred sales charge if
you redeem such shares of a Money-Market Fund before you have held
CDSC Class A Shares for four years. The running of the four-year
period is suspended during the period you hold shares of a
Money-Market Fund received in exchange for CDSC Class A Shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class C Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares acquired
as a result of reinvestment of dividends and/or distributions on
these shares, for Class C Shares of any Bond or Equity Fund, but
you will be required to pay the applicable contingent deferred
sales charge if you redeem such Class C shares before you have held
Class C Shares for 12 months. You will also be required to pay the
applicable contingent deferred sales charge if you redeem such
shares of a Money-Market Fund before you have held Class C Shares
for 12 months. The running of the 12-month CDSC period and the
six-year conversion period for Class C Shares is suspended during
the period you hold shares of a Money-Market Fund received in
exchange for Class C Shares.(See "Alternative Purchase Plans.")
Shares of a Money-Market Fund may be exchanged for shares
of another Money-Market Fund or for Class A Shares or Class C
Shares of a Bond or Equity Fund; however, if the shares of a
Money-Market Fund were not acquired by exchange of Eligible Shares
of a Bond or Equity Fund or of shares of a Money-Market Fund
acquired in such an exchange, they may be exchanged for Class A
Shares of a Bond or Equity Fund only upon payment of the applicable
sales charge.
This Fund, as well as the Money-Market Funds and other Bond
or Equity Funds, reserves the right to reject any exchange into its
shares, if shares of the fund into which exchange is desired are
not available for sale in your state of residence. The Fund may
also modify or terminate this exchange privilege at any time. In
the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take effect
on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset value
of the shares surrendered for exchange are at least equal to the
minimum investment requirements of the investment company whose
shares are being acquired and (iii) the ownership of the accounts
from which and to which the exchange is made are identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-637-4633 toll free or 908-855-5731
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
Exchanges will be effected at the relative exchange prices
of the shares being exchanged next determined after receipt by the
Agent of your exchange request. The exchange prices will be the
respective net asset values of the shares, unless a sales charge is
to be deducted in connection with an exchange of shares, in which
case the exchange price of shares of a Bond or Equity Fund will be
their public offering price. Prices for exchanges are determined in
the same manner as for purchases of the Fund's shares. See "How to
Invest in the Fund."
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the realization
of a capital gain or loss, depending on the cost or other tax basis
of the shares exchanged and the holding period (see the Additional
Statement); no representation is made as to the deductibility of
any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable,
except to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free Money-Market
Fund) are exempt from regular Federal income tax, and to the extent
that a portion or all of the dividends paid by Pacific Capital U.S.
Treasuries Cash Assets Trust (which invests in U.S. Treasury
obligations) are exempt from state income taxes. Dividends paid by
Aquila Rocky Mountain Equity Fund are taxable. If your state of
residence is not the same as that of the issuers of obligations in
which a tax-free municipal bond fund or a tax-free Money-Market
Fund invests, the dividends from that fund may be subject to income
tax of the state in which you reside. Accordingly, you should
consult your tax adviser before acquiring shares of such a bond
fund or a tax-free Money-Market Fund under the exchange privilege
arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
GENERAL INFORMATION
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's performance
including current yield, taxable equivalent yield, various
expressions of total return, current distribution rate and taxable
equivalent distribution rate.
Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase,
invested at the maximum public offering price (offering price
includes any applicable sales charge) for 1- and 5-year periods and
for a period since the inception of the Fund, to the extent
applicable, through the end of such periods, assuming reinvestment
(without sales charge) of all distributions. The Fund may also
furnish total return quotations for other periods or based on
investments at various applicable sales charge levels or at net
asset value. For such purposes total return equals the total of all
income and capital gains paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in
the value of the original investment, expressed as a percentage of
the purchase price. See the Additional Statement. Current yield
reflects the income per share earned by each of the Fund's
portfolio investments; it is calculated by (i) dividing the Fund's
net investment income per share during a recent 30-day period by
(ii) the maximum public offering price on the last day of that
period and by (iii) annualizing the result. Taxable equivalent
yield shows the yield from a taxable investment that would be
required to produce an after-tax yield equivalent to that of the
Fund, which invests in tax-exempt obligations. It is computed by
dividing the tax-exempt portion of the Fund's yield (calculated as
indicated) by one minus a stated income tax rate and by adding the
product to the taxable portion (if any) of the Fund's yield. See
the Additional Statement.
Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities and
Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will be
paid to the Fund's shareholders. Dividends or distributions paid to
shareholders are reflected in the current distribution rate or
taxable equivalent distribution rate which may be quoted to
shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the Fund
during a recent 30-day period by (ii) the current maximum offering
price and by (iii) annualizing the result. A taxable equivalent
distribution rate shows the taxable distribution rate that would be
required to produce an after-tax distribution rate equivalent to
the Fund's distribution rate (calculated as indicated above). The
current distribution rate, unlike yield figures, is not limited to
investment performance, but takes into account expenses as well; it
also differs from the current yield computation because it could
include distributions to shareholders from sources, if any, other
than dividends and interest, such as short-term capital gains or
return of capital. If distribution rates are quoted in advertising
they will be accompanied by calculations of current yield in
accordance with the formula of the Securities and Exchange
Commission.
In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
the Fund's income net of fee waivers and reimbursement of expenses,
if any, and will assume the payment of the maximum sales charge, if
any, on the purchase of shares, but not on reinvestment of income
dividends. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment
may earn in the future or what the Fund's yield, tax equivalent
yield, distribution rate, taxable equivalent distribution rate or
total return may be in any future period. The annual report of the
Fund contains additional performance information that will be made
available upon request and without charge.
Description of the Fund and Its Shares
The Fund is an open-end, non-diversified management
investment company organized in 1992 as a Massachusetts business
trust. (See "Investment of the Fund's Assets" for further
information about the Fund's status as "non-diversified.") The
Declaration of Trust permits the Trustees to issue 80,000,000
shares of $.01 par value, and to divide or combine the shares into
a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in the Fund. Each share
represents an equal proportionate interest in the Fund with each
other share of its class; shares of the respective classes
represent proportionate interests in the Fund in accordance with
their respective net asset values. Upon liquidation of the Fund,
shareholders are entitled to share pro-rata in the net assets of
the Fund available for distribution to shareholders, in accordance
with the respective net asset values of the shares of each of the
Fund's classes at that time. All shares are presently divided into
three classes; however, if they deem it advisable and in the best
interests of shareholders, the Board of Trustees of the Fund may
create additional classes of shares which may differ from each
other only as to dividends (subject to rules and regulations of the
Securities and Exchange Commission or by exemptive order) or the
Board of Trustees may, at its own discretion, create additional
series of shares, each of which may have separate assets and
liabilities (in which case any such series will have a designation
including the word "Series"). See the Additional Statement for
further information about possible additional series. Shares are
fully paid and non-assessable, except as set forth under the
caption "General Information" in the Additional Statement; the
holders of shares have no pre-emptive or conversion rights.
In addition to Class A and Class C Shares, which are
offered by this Prospectus, the Fund also has Institutional Class
Shares ("Class Y Shares"), which are offered only to institutions
acting for investors in a fiduciary, advisory, agency, custodial or
similar capacity and are not offered directly to retail customers.
Class Y Shares are offered by means of a separate prospectus, which
can be obtained by calling the Fund at 800-453-6864 toll free or
212-697-6666 or in Rhode Island: 401-453-6864.
The primary distinction among the Fund's three classes of
shares lies in their different sales charge structures and ongoing
expenses, which are likely to be reflected in differing yields and
other measures of investment performance. All three classes
represent interests in the same portfolio of Rhode Island
Obligations and have the same rights, except that each class bears
the separate expenses, if any, of its Distribution Plan and has
exclusive voting rights with respect to its Plan.
Of the shares of the Fund outstanding on April 18, 1996,
Merrill Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 30561, New
Brunswick, NJ, held of record 469,872 shares (12.4%), all of which
were Class A Shares. The Fund's management is not aware of any
person beneficially owning more than 5% of its outstanding shares
as of such date. On the basis of information received from the
holder the Fund's management believes that all of these shares are
held for the benefit of brokerage clients.
Voting Rights
At any meeting of shareholders, shareholders are entitled
to one vote for each dollar of net asset value (determined as of
the record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders will
vote on the election of Trustees and on other matters submitted to
the vote of shareholders. Shares vote by classes on any matter
specifically affecting one or more classes, such as an amendment of
an applicable part of the Distribution Plan. No amendment may be
made to the Declaration of Trust without the affirmative vote of
the holders of a majority of the outstanding shares of the Fund
except that the Fund's Board of Trustees may change the name of the
Fund. The Fund may be terminated (i) upon the sale of its assets to
another issuer, or (ii) upon liquidation and distribution of the
assets of the Fund, in either case if such action is approved by
the vote of the holders of a majority of the outstanding shares of
the Fund. If not so terminated, the Fund will continue
indefinitely.
<PAGE>
APPLICATION FOR NARRAGANSETT INSURED TAX-FREE INCOME FUND
FOR CLASS A OR CLASS C SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
ADM, ATTN: AQUILA SM GROUP OF FUNDS
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
Tel.# 1-800-637-4633
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minor's Social Security Number
4. ____________________________________________________
____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of the
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust may
be registered in the name of the Plan or Trust itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:________________________
Employer's Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident and not subject to back-up withholding (See
certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2
PURCHASES OF SHARES
A. INITIAL INVESTMENT
Indicate method of payment (For either method, make check
payment to: NARRAGANSETT INSURED TAX-FREE INCOME FUND)
Indicate class of shares:
__ Class A Shares (Front-Payment Class)
__ Class C Shares (Level-Payment Class)
IF NO SHARE CLASS IS MARKED, INVESTMENT WILL AUTOMATICALLY BE MADE
IN CLASS A SHARES.
__ Initial Investment $_________ (Minimum $1,000)
__ Automatic Investment $________ (Minimum $50)
For Automatic Investment of at least $50 per month, you must complete
Step 3, Section A, Step 4, Sections A & B and ATTACH A PRE-PRINTED
DEPOSIT SLIP OR VOIDED CHECK.
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be:___ Reinvested ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK showing the
Financial Institution account where I/we would like you to deposit
the dividend. (A Financial Institution is a commercial bank, savings
bank or credit union.)
___ Mail check to my/our address listed in Step 1.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested
in your Narragansett Insured Tax-Free Income Fund Account. To establish
this program, please complete Step 4, Sections A & B of this Application.
I/We wish to make regular monthly investments of $ _________________
(minimum $50) on the ___ 1st day or ___ 16th day of the month (or
on the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to add to your account
(minimum $50 and maximum $50,000) at any time you wish by simply calling
the Fund toll-free at 1-800-637-4633. To establish this program, please
complete Step 4, Sections A & B of this Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. LETTER OF INTENT
APPLICABLE TO CLASS A SHARES ONLY.
See Terms of Letter of Intent and Escrow at the end of this application
___ Yes ___ No
I/We intend to invest in Class A Shares of the Fund during the 13-month
period from the date of my/our first purchase pursuant to this Letter
(which purchase cannot be more than 90 days prior to the date of this
Letter), an aggregate amount (excluding any reinvestment of dividends
or distributions) of at least $25,000 which, together with my/our
present holdings of Fund shares (at public offering price on date of
this Letter), will equal or exceed the minimum amount checked below:
___ $25,000 ___ $50,000 ___ $100,000 ___ $250,000
___ $500,000
D. AUTOMATIC WITHDRAWAL PLAN
(Minimum investment $5,000)
APPLICABLE TO CLASS A SHARES ONLY.
Application must be received in good order at least 2 weeks prior to 1st actual
liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions set
forth below. To realize the amount stated below, Administrative Data
Management Corp. (the Agent) is authorized to redeem sufficient shares
from this account at the then current Net Asset Value, in accordance
with the terms below:
Dollar Amount of each withdrawal $ ______________beginning________________ .
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is
payable to a Financial Institution for your account, indicate Financial
Institution name, address and your account number.
_______________________________ ______________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ______________________________________
Street Financial Institution Street Address
_______________________________ ______________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
E. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your name
within the Aquila SM Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
persons telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the
Prospectus. Except for gross negligence in acting upon such telephone
instructions to execute an exchange, and subject to the conditions set
forth herein, I/we understand and agree to hold harmless the Agent, each
of the Aquila Funds, and their respective officers, directors, trustees,
employees, agents and affiliates against any liability, damage, expense,
claim or loss, including reasonable costs and attorneys fees, resulting
from acceptance of, or acting or failure to act upon, this Authorization.
F. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution
account listed.
Cash proceeds in any amount from the redemption of shares will be
mailed or wired, whenever possible, upon request, if in an amount of
$1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this
Fund account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________ ____________________________________
Account Registration Financial Institution Account Number
_______________________________ ____________________________________
Financial Institution Name Financial Institution Transit/Routing
Number
_______________________________ ____________________________________
Street City State Zip
STEP 4 Section A
DEPOSITORS AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to
my/our account any drafts or debits drawn on my/our account initiated
by the Agent, Administrative Data Management Corp., and to pay such
sums in accordance therewith, provided my/our account has sufficient
funds to cover such drafts or debits. I/We further agree that your
treatment of such orders will be the same as if I/we personally signed
or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you
receive my/our written instructions to cancel this service. I/We also
agree that if any such drafts or debits are dishonored, for any reason,
you shall have no liabilities.
Financial Institution Account Number _______________________________________
Name and Address where my/our account is maintained
Name of Financial Institution______________________________________________
Street Address_____________________________________________________________
City___________________________________________State _________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account
is registered
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila
Distributors, Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted
pursuant to the above authorization shall be subject to the
provisions of the Operating Rules of the National Automated
Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer
in connection with the execution and issuance of any electronic
debit in the normal course of business initiated by the Agent
(except any loss due to your payment of any amount drawn against
insufficient or uncollected funds), provided that you promptly
notify us in writing of any claim against you with respect to
the same, and further provided that you will not settle or
pay or agree to settle or pay any such claim without the written
permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause,
any such electronic debit.
STEP 4
Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of
legal age to purchase shares of the Fund and has received and
read a current Prospectus of the Fund and agrees to its terms.
- - I/We authorize the Fund and its agents to act upon these
instructions for the features that have been checked.
- - I/We acknowledge that in connection with an Automatic Investment or
Telephone Investment, if my/our account at the Financial Institution
has insufficient funds, the Fund and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Fund account to make up any
deficiency resulting from any decline in the net asset value of
shares so purchased and any dividends paid on those shares. I/We
authorize the Fund and its agents to correct any transfer error by
a debit or credit to my/our Financial Institution account and/or
Fund account and to charge the account for any related charges.
I/We acknowledge that shares purchased either through Automatic
Investment or Telephone Investment are subject to applicable sales
charges.
- - The Fund, the Agent and the Distributor and their Trustees, directors,
employees and agents will not be liable for acting upon instructions
believed to be genuine, and will not be responsible for any losses
resulting from unauthorized telephone transactions if the Agent follows
reasonable procedures designed to verify the identity of the caller.
The Agent will request some or all of the following information:
account name and number; name(s) and social security number registered
to the account and personal identification; the Agent may also record
calls. Shareholders should verify the accuracy of confirmation
statements immediately upon receipt. Under penalties of perjury, the
undersigned whose Social Security (Tax I.D.) Number is shown above
certifies (i) that Number is my correct taxpayer identification number
and (ii) currently I am not under IRS notification that I am subject
to backup withholding (line out (ii) if under notification). If no such
Number is shown, the undersigned further certifies, under penalties of
perjury, that either (a) no such Number has been issued, and a Number
has been or will soon be applied for; if a Number is not provided to
you within sixty days, the undersigned understands that all payments
(including liquidations) are subject to 31% withholding under federal
tax law, until a Number is provided and the undersigned may be subject
to a $50 I.R.S. penalty; or (b) that the undersigned is not a citizen
or resident of the U.S.; and either does not expect to be in the
U.S. for 183 days during each calendar year and does not conduct a
business in the U.S. which would receive any gain from the Fund, or is
exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW.
FOR A TRUST, ALL TRUSTEES MUST SIGN.*
__________________________ ____________________________ _________
Individual (or Custodian) Joint Registrant, if any Date
__________________________ ____________________________ _________
Corporate Officer, Partner, Title Date
Trustee, etc.
* For Trust, Corporations or Associations, this form must be accompanied by
proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment,
Expedited Redemption and Direct Deposit of Dividends) are effective
15 days after this form is received in good order by the Fund's Agent.
- - You may cancel any feature at any time, effective 3 days after the
Agent receives written notice from you.
- - Either the Fund or the Agent may cancel any feature, without prior
notice, if in its judgment your use of any feature involves unusual
effort or difficulty in the administration of your account.
- - The Fund reserves the right to alter, amend or terminate any or all
features or to charge a service fee upon 30 days written notice to
shareholders except if additional notice is specifically required by
the terms of the Prospectus.
BANKING INFORMATION
- - If your Financial Institution account changes, you must complete a
Ready Access features form which may be obtained from Aquila
Distributors at 1-800-453-6864 and send it to the Agent together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution change is effective in 15
days after this form is received in good order by the Fund's Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 2c and signing the Application, the investor
is entitled to make each purchase at the public offering price
applicable to a single transaction of the dollar amount checked
above, and agrees to be bound by the terms and conditions applicable
to Letters of Intent appearing below.
The investor is making no commitment to purchase shares, but if
the investor's purchases within thirteen months from the date of the
investor's first purchase do not aggregate $25,000, or, if such
purchases added to the investor's present holdings do not aggregate
the minimum amount specified above, the investor will pay the increased
amount of sales charge prescribed in the terms of escrow below.
The commission to the dealer or broker, if any, named herein
shall be at the rate applicable to the minimum amount of the investor's
specified intended purchases checked above. If the investor's actual
purchases do not reach this minimum amount, the commissions previously
paid to the dealer will be adjusted to the rate applicable to the
investor's total purchases. If the investor's purchases exceed the
dollar amount of the investor's intended purchases and pass the next
commission break-point, the investor shall receive the lower sales
charge, provided that the dealer returns to the Distributor the excess
of commissions previously allowed or paid to him over that which would
be applicable to the amount of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter of
Intent in placing any future purchase orders for the investor
while this Letter is in effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if necessary),
3% of the dollar amount specified in the Letter of Intent (computed
to the nearest full share) shall be held in escrow in shares of the
Fund by the Agent. All dividends and any capital distributions on
the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is
completed within a thirteen-month period, the escrowed shares will
be promptly released to the investor. However, shares disposed of
prior to completion of the purchase requirement under the Letter
will be deducted from the amount required to complete the
investment commitment.
3. If the total purchases pursuant to the Letter are less than the amount
specified in the Letter as the intended aggregate purchases, the
investor must remit to the Distributor an amount equal to the
difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the
total amount purchased had been made at a single time. If such
difference in sales charges is not paid within twenty days after
receipt of a request from the Distributor or the dealer, the
Distributor will, within sixty days after the expiration of the
Letter, redeem the number of escrowed shares necessary to realize
such difference in sales charges. Full shares and any cash proceeds
for a fractional share remaining after such redemption will be
released to the investor. The escrow of shares will not be released
until any additional sales charge due has been paid as stated in
this section.
4. By checking Box 2c and signing the Application, the investor
irrevocably constitutes and appoints the Agent or the Distributor
as his attorney to surrender for redemption any or all escrowed
shares on the books of the Fund.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees
to the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan")
as agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Agent will credit all such shares
to the Planholder on the records of the Fund. Any share certificates
now held by the Planholder may be surrendered unendorsed to the Agent
with the application so that the shares represented by the certificate
may be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the Fund
at Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments will
be made at the Net Asset Value per share in effect at the close of
business on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address
to which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice
(in proper form in accordance with the requirements of the then
current Prospectus of the Fund) to redeem all, or any part of, the
shares held under the Plan. In such case the Agent will redeem the
number of shares requested at the Net Asset Value per share in effect
in accordance with the Fund's usual redemption procedures and will
mail a check for the proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Fund. The Agent will also terminate the Plan upon
receipt of evidence satisfactory to it of the death or legal
incapacity of the Planholder. Upon termination of the Plan by the
Agent or the Fund, shares remaining unredeemed will be held in an
uncertificated account in the name of the Planholder, and the account
will continue as a dividend-reinvestment, uncertificated account
unless and until proper instructions are received from the Planholder,
his executor or guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for
the Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as his agent in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional lump
sum investment may be made, such investment should normally be an
amount equivalent to three times the annual withdrawal or $5,000,
whichever is less.
<PAGE>
INVESTMENT ADVISER
Citizens Trust Company
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
Paul Y. Clinton
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
TRANSFER AND SHAREHOLDER SERVICING AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights.......................................2
Table of Expenses................................4
Financial Highlights.............................6
Introduction.....................................7
Investment Of The Fund's Assets..................7
Investment Restrictions.........................12
Net Asset Value Per Share.......................13
Alternative Purchase Plans......................13
How To Invest In The Fund.......................16
How To Redeem Your Investment...................23
Automatic Withdrawal Plan.......................26
Management Arrangements.........................27
Dividend And Tax Information....................29
Exchange Privilege..............................34
General Information.............................37
Application and Letter of Intent
AQUILA
[LOGO]
Narragansett
[LOGO]
Insured Tax-Free Income Fund
PROSPECTUS
One Of The
Aquilasm Group Of Funds
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
380 Madison Avenue
Suite 2300
New York, New York 10017
800-453-6864
212-697-6666
Prospectus
Class Y Shares May 1, 1996
The Fund is a mutual fund whose objective is to seek to
provide a high level of preservation for investors' capital and
consistency in the payment of current income which is exempt
from both State of Rhode Island personal income taxes and regular
Federal income taxes.
To achieve this objective, the Fund will invest primarily in
tax-free municipal obligations which are insured by nationally
recognized insurers of municipal obligations. While individual
securities are insured as to the timely payment of principal and
interest when due, the Fund's share value and dividend rate are not
fixed and will vary with prevailing interest rates and economic and
market factors.
Municipal obligations which are so insured generally carry the
highest credit rating (Aaa or AAA) assigned by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P").
The Fund's goal, which is not assured, is to have 100% of the
Fund's assets invested in insured obligations. If any uninsured
obligations are purchased by the Fund, they must either be rated
within the four highest credit ratings, which are considered as
"investment grade," or, if unrated, be determined to be of
comparable quality by the Fund's Adviser, Citizens Trust
Company.
There are three classes of shares of the Fund: Institutional
Class Shares ("Class Y Shares") are offered only to institutions
acting for investors in a fiduciary, advisory, agency, custodial or
similar capacity, and are not offered directly to retail customers.
Class Y Shares are offered at net asset value with no sales charge,
no redemption fee, no contingent deferred sales charge and no
distribution fee. (See "How to Purchase Class Y Shares.") The other
classes, Front-Payment Class Shares ("Class A Shares") and
Level-Payment Class Shares ("Class C Shares") are not offered by
this Prospectus. See "General Information - Description of the Fund
and its Shares."
The Prospectus concisely states information about the Fund
that you should know before investing. A Statement of Additional
Information about the Fund dated May 1, 1996 (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
Administrative Data Management Corp., the Fund's Shareholder
Servicing Agent, at the address given below, or by calling the
telephone number(s) given below. The Additional Statement contains
information about the Fund and its management not included in the
Prospectus. The Additional Statement is incorporated by reference
in its entirety in the Prospectus. Only when you have read both the
Prospectus and the Additional Statement are all material facts
about the Fund available to you.
Insurance covers timely payment of principal and interest when
due on individually insured securities in the Fund's investment
portfolio. Insurance does not, however, insure against fluctuations
in the value of the Fund's shares and dividend rates, which are not
fixed and will vary with prevailing interest rates and economic and
market factors.
SHARES OF THE FUND ARE NOT DEPOSITS IN, OBLIGATIONS OF OR
GUARANTEED OR ENDORSED BY CITIZENS TRUST COMPANY (THE "ADVISER"),
CITIZENS BANK OR ITS BANK OR NON-BANK AFFILIATES OR BY ANY OTHER
BANK. SHARES OF THE FUND ARE NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENTAL AGENCY OR GOVERNMENT SPONSORED AGENCY OF THE
FEDERAL GOVERNMENT OR ANY STATE.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUTN INVESTED.
For Purchase, Redemption or Account inquiries contact
The Fund's Shareholder Servicing Agent:
Administrative Data Management Corp.
581 Main Street, Woodbridge, NJ 07095-1198
Call 800-637-4633 toll free or 908-855-5731
For General Inquiries & Yield Information,
Call 800-453-6864 toll free or 212-697-6666
In Rhode Island: 401-453-6864
This Prospectus Should Be Read and Retained For Future
Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
HIGHLIGHTS
Narragansett Insured Tax-Free Income Fund, founded by Aquila
Management Corporation in 1992 and one of the Aquilasm Group of
Funds, is an open-end, non-diversified management investment
company (a "mutual fund") which invests in tax-free municipal bonds
and notes, the kind of obligations issued by the State of Rhode
Island and its various local authorities to finance such long-term
projects as schools, roads, hospitals, and water facilities
throughout Rhode Island or to finance short-term needs. (See
"Introduction.")
Insured Obligations - The Fund's investments will be primarily
municipal obligations which are insured as to the timely payment of
principal and interest when due by nationally recognized insurers
of such obligations. The goal of the Fund, which is not assured, is
to have 100% of the Fund's assets so invested. While individual
portfolio securities of the Fund will be so insured, the Fund's
share value and dividend rate are not fixed or insured and will
fluctuate with prevailing interest rates and other economic and
market factors. (See "Factors Which May Affect the Value of the
Fund's Investments and Their Yields.")
Investment Grade - Other than insured municipal obligations
which are rated Aaa or AAA, the Fund will acquire only those
municipal obligations which, at the time of purchase, are within
the four highest credit ratings assigned by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, or are determined
to be of comparable quality by the Fund's Adviser, Citizens Trust
Company. In general there are nine separate credit ratings for
municipal obligations, ranging from the highest to the lowest
rating. Obligations within the top four ratings are considered
"investment grade," but those in the fourth rating may have
speculative characteristics as well. (See "Investment of the Fund's
Assets.")
Tax-Free Income - The municipal obligations in which the Fund
invests pay interest which is exempt from both State of Rhode
Island personal income taxes and regular Federal income taxes.
Dividends paid by the Fund from this income are likewise free of
both such taxes. It is, however, possible that in certain
circumstances, a small portion of the dividends paid by the Fund
will be subject to income taxes. In addition, the Federal
alternative minimum tax may apply to some investors however, not
more than 20% of the Fund's net assets can be invested in
obligations paying interest which is subject to this tax. The
receipt of exempt-interest dividends from the Fund may result in
some portion of social security payments or railroad retirement
benefits being included in taxable income. Capital gains
distributions, if any, are taxable. (See "Dividend and Tax
Information.")
Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. See the
Application, which is in the back of the Prospectus. (See "How to
Invest in the Fund," which includes applicable sales charge
information.)
Additional Investments - You may make additional investments
at any time and in any amount, directly or, if in an amount of $50
or more, through the convenience of having your investment
electronically transferred from your financial institution account
into the Fund by Automatic Investment or Telephone Investment. (See
"How to Invest in the Fund.")
Alternative Purchase Plans - The Fund provides alternative
ways to invest. (See "Description of the Fund and its Shares.") For
this purpose the Fund offers classes of shares, which differ in
their expense levels and sales charges:
Institutional Class Shares ("Class Y Shares") are offered
by this Prospectus. Class Y Shares are offered only to
institutions acting for investors in a fiduciary,
advisory, agency, custodial or similar capacity, and are
not offered directly to retail customers. Class Y Shares
are offered at net asset value with no sales charge, no
redemption fee, no contingent deferred sales charge and
no distribution fee. (See "How to Purchase Class Y
Shares.")
The other classes, Front-Payment Class Shares ("Class A
Shares") and Level-Payment Class Shares ("Class C Shares"), are not
offered by this Prospectus. See "General Information - Description
of the Fund and its Shares."
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends are paid by check mailed to you,
directly deposited into your financial institution account or
automatically reinvested without sales charge in additional shares
of the Fund at the then-current net asset value. (See "Dividend and
Tax Information.")
Redemptions - Liquidity - You may redeem any amount of your
Class Y Shares account on any business day at the next determined
net asset value by telephone, FAX or mail request, with proceeds
being sent to a predesignated financial institution, if you have
elected Expedited Redemption. Proceeds will be wired or transferred
through the facilities of the Automated Clearing House, wherever
possible, upon request, if in an amount of $1,000 or more, or will
be mailed. For these and other redemption procedures see "How to
Redeem Your Investment." There are no redemption fees for
redemption of Class Y Shares.
Local Investment Management and Fee Arrangements - Citizens
Trust Company serves as the Fund's Investment Adviser, providing
experienced local professional management. The Fund pays fees at a
rate of up to 0.23 of 1% of average annual net assets to its
Adviser and up to 0.27 of 1% of such assets to its Administrator
for total fees at a rate of up to 0.50 of 1% of average annual net
assets, although some or all of these fees will be waived
temporarily. (See "Table of Expenses" and "Management
Arrangements.")
Many Different Issues - Even a small investment in the Fund
allows you to have the advantages of a portfolio which consists of
over 110 issues with different maturities. (See "Investment of the
Fund's Assets.")
Certain Stabilizing Measures - To attempt to protect against
declines in the value of its investments and other market risks,
the Fund will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases of
other than insured issues, broadening diversification and
increasing its position in cash.
Exchanges - You may exchange Class Y Shares of the Fund into
Class Y Shares of other Aquila-sponsored tax-free municipal bond
mutual funds, or an equity fund. You may also exchange them into
shares of the Aquila-sponsored money market funds. The exchange
prices will be the respective net asset values of the shares. (See
"Exchange Privilege.")
Risks and Special Considerations - The share price, determined
on each business day, varies with the market prices of the Fund's
portfolio securities, which fluctuate with market conditions,
including prevailing interest rates. Accordingly, the proceeds of
redemptions may be more or less than your original cost. (See
"Factors Which May Affect the Value of the Fund's Investments and
Their Yields.") The Fund's assets, being primarily or entirely
Rhode Island issues, are subject to economic and other conditions
affecting Rhode Island. (See "Risks and Special Considerations
Regarding Investment in Rhode Island Obligations.") Moreover, the
Fund is classified as a "non-diversified" investment company,
because it may choose to invest in the obligations of a relatively
limited number of issuers. (See "Investment of the Fund's
Assets.")
Statements and Reports - You will receive statements of your
account monthly as well as each time you add to your account or
take money out. Additionally, you will receive a Semi-Annual Report
and an audited Annual Report.
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
TABLE OF EXPENSES
Class Y
Shareholder Transaction Expenses Shares
<S> <C>
Maximum Sales Charge Imposed on Purchases .............. None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on Reinvested Dividends ... None
Deferred Sales Charge .................................. None
Redemption Fees ........................................ None
Exchange Fee ........................................... None
Annual Fund Operating Expenses (1)(2)
(as a percentage of average net assets)
Investment Advisory Fee After Waiver ................... 0.05%
All Other Expenses After Expense
Reimbursement and Fee Waiver ....................... 0.16%
Administration Fee After Waiver .................. 0.06%
Other Expenses After Expense Reimbursement ....... 0.10%
Total Fund Operating Expenses After Expense
Reimbursement and Fee Waiver ...................... 0.21%
Example (3)
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
$2 $7 $12 $27
<FN>
(1) Estimated based upon amounts incurred by the Fund during its most
recent fiscal year, restated to reflect current arrangements. During
that period, only Class A Shares were outstanding.
</FN>
<FN>
(2) The Fund's operating expenses are being incurred at the annual rate
of 0.21%, whereas without fee waivers and expense reimbursement, they
would have been incurred at the following annual rate for Class Y
Shares, investment advisory fee, 0.23%; administration fee, 0.27%; other
expenses, 0.42%, for total operating expenses of 0.92%. Operating
expenses are being subsidized through reimbursement by the Administrator.
This subsidy is being phased out progressively so that the Fund will bear
all of its own expenses, other than advisory and administration fees,
once its asset size reaches approximately $60 million. Also, fees are
being waived by the Adviser and Administrator and it is anticipated that
once the asset size of the Fund reaches approximately $60 million these
waivers will be increasingly reduced as the asset size of the Fund
increases, so that when assets exceed approximately $150 million a
substantial portion or all of these fees will be paid. The undertakings
of the Adviser and Administrator as to fee waivers and the practices of
the Administrator as to expense reimbursement may operate to reduce the
fees and expenses of the Fund during the development stage of the Fund
(see "Management Arrangements").
</FN>
<FN>
(3) The expense example is based upon the above annual Fund operating
expenses. It is also based upon amounts at the beginning of each year
which includes the prior year's assumed results. A year's results
consist of an assumed 5% annual return less total annual operating
expenses; the expense ratio was applied to an assumed average balance
(the year's starting investment plus one-half the year's results).
Each figure represents the cumulative expenses so determined for the
period specified.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT
ALL MUTUAL FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF
PREPARING THE ABOVE EXAMPLE.
The purpose of the above table is to assist the investor in
understanding the various costs that an investor in the Fund will bear
directly or indirectly. The assumed 5% annual return should not be
interpreted as a prediction of an actual return, which may be higher
or lower.
<PAGE>
The following historical financial information applies only to shares
of the Fund which have been designated Class A Shares, upon adoption
of the class structure described in the Prospectus. Class A Shares
are not offered by this Prospectus. Similar information does not exist
for Class Y Shares which are offered by this Prospectus.
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights as it relates to
the periods from commencement of operations on September 10, 1992
through June 30, 1995 has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon is included in the Fund's
financial statements contained in its Annual Report, which are
incorporated by reference into the Additional Statement. The
information provided in the table should be read in conjunction with
the financial statements and related notes.
Six Months
Ended Year ended
12/31/95 June 30, Period Ended
(unaudited) 1995 1994 June 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 Adviser's and Administrator's voluntary
waiver of fees, the Administrator's 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>
<PAGE>
INTRODUCTION
The Fund's shares are designed to be a suitable investment for
investors who seek a high level of preservation for the principal
of their investment and consistency in the payment of income which
is exempt from regular State of Rhode Island personal income taxes
and regular Federal income taxes.
You may invest in shares of the Fund as an alternative to
direct investments in Rhode Island Obligations, as defined below,
which may include obligations of certain non-Rhode Island issuers.
The Fund offers you the opportunity to keep assets fully invested
in a vehicle that provides a professionally managed portfolio of
Rhode Island Obligations which may, but not necessarily will, be
more diversified, higher yielding or more stable and more liquid
than you might be able to obtain on an individual basis by direct
purchase of Rhode Island Obligations.
Through the convenience of a single security consisting of
shares of the Fund, you are also relieved of the inconvenience
associated with direct investments of fixed denominations,
including the selecting, purchasing, handling, monitoring call
provisions and safekeeping of Rhode Island Obligations.
Rhode Island Obligations are a type of municipal obligation.
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes; bond
anticipation notes; construction loan notes; and floating and
variable rate demand notes. Municipal obligations include municipal
lease/purchase agreements which are similar to installment purchase
contracts for property or equipment. The purposes for which
municipal obligations such as bonds are issued include the
construction of a wide range of public facilities such as highways,
bridges, schools, hospitals, housing, mass transportation, streets
and water and sewer works. Other public purposes for which
municipal obligations may be issued include the refunding of
outstanding obligations, the obtaining of funds for general
operating expenses and the obtaining of funds to lend to other
public institutions and facilities.
INVESTMENT OF THE FUND'S ASSETS
The Fund's objective is to seek a high level of
preservation for investor's capital and consistency in the payment
of current income which is exempt from both State of Rhode Island
personal income taxes and regular Federal income taxes. There is no
assurance, however, that the Fund will achieve its objective, which
is a fundamental policy of the Fund. (See "Investment Restrictions"
for a description of the Fund's fundamental policies.) In seeking
its objective, the Fund will invest primarily in Rhode Island
Obligations (as defined below) which are insured by nationally
recognized insurers of municipal obligations as to the timely
payment of principal and interest when due. The value of the Fund's
shares will tend to fluctuate with prevailing interest rates and
economic and market factors.
As used in the Prospectus and the Additional Statement, the
term "Rhode Island Obligations" means obligations, including those
of certain non-Rhode Island issuers, of any maturity which pay
interest which, in the opinion of bond counsel or other appropriate
counsel, is exempt from Rhode Island personal income taxes and
regular Federal income taxes. Although exempt from regular Federal
income tax, interest paid on certain types of Rhode Island
Obligations, and dividends which the Fund might pay from this
interest, are preference items as to the Federal alternative
minimum tax ("AMT"); for further information, see "Dividend and Tax
Information." As a fundamental policy, at least 80% of the Fund's
net assets will be invested in Rhode Island Obligations income paid
upon which will not be subject to the AMT; accordingly, the Fund
can invest up to 20% of its net assets in obligations which are
subject to the AMT. The Fund may refrain entirely from purchasing
Rhode Island Obligations subject to AMT.
The non-Rhode Island bonds or other obligations, the interest
on which is exempt under present law from State of Rhode Island
personal income taxes and regular Federal income taxes, are the
bonds or other obligations issued by or under the authority of such
issuers as Guam, the Northern Mariana Islands, Puerto Rico and the
Virgin Islands. The Fund will not purchase Rhode Island Obligations
of non-Rhode Island issuers unless Rhode Island Obligations of
Rhode Island issuers of the desired quality, maturity and interest
rate are not available. As a Rhode Island-oriented fund, it is a
fundamental policy that at least 65% of the Fund's total net assets
will be invested in Rhode Island Obligations of Rhode Island
issuers.
Insurance Feature
The purpose of having insurance on investments in Rhode
Island Obligations in the Fund's portfolio is to reduce financial
risk for investors in the Fund.
Insurance as to the timely payment of principal and interest
when due for Rhode Island Obligations is acquired as follows:
(i) obtained by the issuer of the Rhode Island Obligations at
the time of original issue of the obligations, known as "New Issue
Insurance," or
(ii) purchased by the Fund or a previous owner with respect to
specific Rhode Island Obligations, termed "Secondary Market
Insurance."
The insurance of principal under these types of insurance
policies refers to the payment of the face or par value of the
Rhode Island Obligation when due. Insurance is not affected by nor
does it insure the market price paid by the Fund for the
obligation. The market value of obligations in the Fund will, from
time to time, be affected by various factors including the general
movement of interest rates. The value of the Fund's shares is not
insured.
In order to reduce financial risk to the Fund's investors as
much as practical, it is a goal of the Fund, which is not assured,
that 100% of the Fund's assets will be invested in insured Rhode
Island Obligations. However, if the Board of Trustees determines
that there is an inadequate supply in the marketplace of Rhode
Island Obligations covered by New Issue Insurance and that
appropriate Secondary Market Insurance cannot be obtained for other
Rhode Island Obligations on terms that are financially advantageous
to the Fund as a result of market conditions or other factors, then
the Fund may invest in Rhode Island Obligations that are not
insured. As a fundamental policy, 65% of the Fund's total net
assets will be invested in Rhode Island Obligations which are
insured.
New Issue Insurance is obtained by the issuer of the Rhode
Island Obligations and all premiums respecting such securities are
paid in advance by such issuer. Such policies are noncancelable and
continue in force so long as the Rhode Island Obligations are
outstanding and the insurer remains in business.
The Fund may also purchase Secondary Market Insurance on any
Rhode Island Obligation purchased by the Fund. By purchasing
Secondary Market Insurance, the Fund will obtain, upon payment of
a single premium, insurance against nonpayment of scheduled
principal and interest for the remaining term of the Rhode Island
Obligation, regardless of whether the Fund then owns such security.
Such insurance coverage is noncancelable and continues in force so
long as the security so insured is outstanding and the insurer
remains in business. The purposes of acquiring Secondary Market
Insurance are to insure timely payment of principal and interest
when due and to enable the Fund to sell a Rhode Island Obligation
to a third party as a high-rated insured Rhode Island Obligation at
a market price greater than what otherwise might be obtainable if
the security were sold without the insurance coverage. There is no
assurance that such insurance can be obtained at rates that would
make its purchase advantageous to the Fund.
New Issue Insurance and Secondary Market Insurance will be
obtained from some or all of the following: Municipal Bond
Investors Assurance Corporation ("MBIA"), Financial Guaranty
Insurance Company ("Financial Guaranty") and AMBAC Indemnity
Corporation ("AMBAC Indemnity"). See the Additional Statement for
information about these companies. The Fund may also purchase
insurance from, or Rhode Island Obligations insured by, other
insurers. However, the Fund will seek to ensure that any insurer
used will itself have a Aaa or AAA rating.
Further information concerning the insurance feature appears
in the Additional Statement.
Risk Factors and Special Investment
Considerations Regarding the Insurance Feature
While the insurance feature is intended to reduce financial
risk, in some instances there is a cost to be borne by the Fund for
such a feature. In general, the insurance premium cost of New Issue
Insurance is borne by the issuer.
Secondary Market Insurance, if purchased by the Fund, involves
payment of a single premium, the cost of which is added to the cost
basis of the price of the security. It is not considered an item of
expense of the Fund, but rather an addition to the price of the
security. Upon sale of a security so insured, the excess, if any,
of the security's market value as an "Aaa" or "AAA" rated security
over its market value without such rating, including the cost of
the single premium for Secondary Market Insurance, would inure to
the Fund in determining the net capital gain or loss realized by
the Fund.
In practice, those nationally recognized insurers which
provide insurance generally do so only for municipal obligations
which on their own would be rated within the top four credit
ratings, and preferably with at least an "A" rating by such credit
rating agencies as Moody's or S&P.
New Issue Insurance and Secondary Market Insurance do not
terminate with respect to a Rhode Island Obligation once the
obligation is sold by the Fund.
Information about the Fund's Investments
Municipal obligations which are insured are generally rated
Aaa or AAA by the major credit rating agencies, the highest
attainable credit rating assigned by these rating agencies. If the
Fund purchases uninsured Rhode Island Obligations, which it may do,
in order to maintain a quality-oriented portfolio, the Fund will
purchase only investment grade securities. Any such Rhode Island
Obligations which the Fund purchases must, at the time of purchase,
either (i) be rated within the four highest credit ratings assigned
by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P"); or (ii) if unrated, be determined to be of
comparable quality to municipal obligations so rated by Citizens
Trust Company (the "Adviser"), the Fund's investment adviser
(subject to the direction and control of the Board of
Trustees).
In general, there are nine separate credit ratings, ranging
from the highest to the lowest credit standards for municipal
obligations. Municipal obligations rated in the fourth highest
credit rating are considered by such rating agencies to be of
medium quality and thus may present investment risks not present in
more highly rated obligations. Such bonds lack outstanding
investment characteristics and may in fact have some speculative
characteristics as well; changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to
make principal and interest payments than is the case for higher
grade bonds.
Except as set forth under "Risk Factors and Special Investment
Considerations Regarding the Insurance Feature," above, if after
purchase the rating of any rated Rhode Island Obligation is
downgraded such that it could not then be purchased by the Fund,
or, in the case of an unrated Rhode Island Obligation, if the
Adviser determines that the unrated obligation is no longer of
comparable quality to those rated obligations which the Fund may
purchase, it is the current policy of the Fund to cause any such
obligation to be sold as promptly thereafter as the Adviser in its
discretion determines to be consistent with the Fund's objectives;
such obligation remains in the Fund's portfolio until it is sold.
In addition, because a downgrade often results in a reduction in
the market price of a downgraded obligation, sale of such an
obligation may result in a loss. See Appendix A to the Additional
Statement for further information as to these ratings. The Fund can
purchase industrial development bonds only if they meet the
definition of Rhode Island Obligations, i.e., the interest on them
is exempt from Rhode Island State and regular Federal income
taxes.
The Fund is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940 Act").
The Fund also intends to qualify as a "regulated investment
company" under the Internal Revenue Code (the "Code"). One of the
tests for such qualification under the Code is, in general, that at
the end of each fiscal quarter of the Fund, at least 50% of its
assets must consist of (i) cash; and (ii) securities which, as to
any one issuer, do not exceed 5% of the value of the Fund's assets.
If the Fund had elected to register under the 1940 Act as a
"diversified" investment company, it would have to meet the same
test as to 75% of its assets. The Fund may therefore not have as
much diversification among securities, and thus diversification of
risk, as if it had made this election under the 1940 Act. In
general, the more the Fund invests in the securities of specific
issuers, the more the Fund is exposed to risks associated with
investments in those issuers. The Fund's assets, being primarily or
entirely Rhode Island issues, are accordingly subject to economic
and other conditions affecting Rhode Island.
Possible Stabilizing Measures
In attempting to protect against declines in the value of its
investments as a result of general interest rate fluctuations,
economic factors and other market risks, the Fund will employ such
traditional measures as upgrading credit standards for portfolio
purchases of other than insured obligations, varying maturities,
broadening diversification and increasing its position in cash and
cash equivalents.
Floating and Variable Rate Demand Notes
Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one year,
but permit the holder to demand payment of principal at any time,
or at specified intervals not exceeding one year, in each case upon
not more than 30 days' notice. The issuer of such notes normally
has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the note plus
accrued interest upon a specified number of days' notice to the
noteholders. The interest rate on a floating rate demand note is
based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The
interest rate on a variable rate demand note is adjusted
automatically at specified intervals.
Participation Interests
The Fund may purchase from financial institutions
participation interests in Rhode Island Obligations (such as
industrial development bonds and municipal lease/purchase
agreements). A participation interest gives the Fund an undivided
interest in the underlying Rhode Island Obligations in the
proportion that the Fund's participation interest bears to the
total amount of the underlying Rhode Island Obligations. All such
participation interests must meet the Fund's credit requirements.
See "10% Limitation as to Certain Investments."
When-Issued and Delayed Delivery Purchases
The Fund may buy Rhode Island Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring them.
The Rhode Island Obligations so purchased are subject to market
fluctuation and no interest accrues to the Fund until delivery and
payment take place; their value at the delivery date may be less
than the purchase price. The Fund cannot enter into when-issued
commitments exceeding in the aggregate 15% of the market value of
the Fund's total assets, less liabilities other than the
obligations created by when-issued commitments. If the Fund chooses
to dispose of the right to acquire a when-issued obligation prior
to its acquisition, it could, as with the disposition of any other
portfolio holding, incur a gain or loss due to market fluctuation;
any such gain would be a taxable short-term gain. The Fund places
an amount of assets equal in value to the amount due on the
settlement date for the when-issued or delayed delivery securities
being purchased in a segregated account with the Custodian, which
is marked to market every business day. See the Additional
Statement for further information.
10% Limitation as to Certain Investments
The Fund cannot purchase Rhode Island Obligations that are not
readily marketable if thereafter more than 10% of its net assets
would consist of such investments. However, this 10% limit does not
include any Rhode Island Obligations as to which the Fund can
exercise the right to demand payment in full within three days and
as to which there is a secondary market. Floating and variable rate
demand notes and participation interests (including municipal
lease/purchase obligations) are considered illiquid unless
determined by the Board of Trustees to be readily marketable. See
the Additional Statement.
Current Policy as to Certain Obligations
The Fund will not invest more than 25% of its total assets in
(i) Rhode Island Obligations the interest on which is paid from
revenues of similar type projects or (ii) industrial development
bonds, unless the Prospectus and/or the Additional Statement are
supplemented to reflect the change and to give additional
information.
Factors Which May Affect the Value
of the Fund's Investments and Their Yields
The value of the Rhode Island Obligations in which the Fund
invests will fluctuate depending in large part on changes in
prevailing interest rates, and may be subject to other market,
credit and economic factors as well. If the prevailing interest
rates go up after the Fund buys Rhode Island Obligations, the value
of these obligations will normally go down; if these rates go down,
the value of these obligations will normally go up. Changes in
value and yield based on changes in prevailing interest rates may
have different effects on short-term Rhode Island Obligations than
on long-term obligations. Long-term obligations (which often have
higher yields) generally fluctuate in value more than short-term
ones. For this reason, the Fund may, to achieve a defensive
position, shorten the average maturity of its portfolio. The Fund's
portfolio will represent a blend of short-term and long-term
obligations designed to reduce fluctuations in the net asset value
of the Fund's shares.
Risks and Special Considerations
Regarding Investment In Rhode Island Obligations
The following is a discussion of the general factors that
might influence the ability of issuers to repay principal and
interest when due on the Rhode Island Obligations contained in the
portfolio of the Fund. Such information is derived from sources
that are generally available to investors and is believed by the
Fund to be accurate, but has not been independently verified and
may not be complete.
Rhode Island experienced significant economic growth during
most of the 1980's. Its economy became more diversified as reliance
on manufacturing employment decreased and non-manufacturing
employment grew. From 1980 to 1989 per capita income growth
exceeded national growth levels, and employment growth and total
personal income growth both paralleled national growth levels.
Since 1989, there was a national and regional economic
slowdown resulting in rising unemployment rates and the slowing of
personal income growth. Rhode Island, like other New England
states, began to experience a slowdown in its economy at that time.
Its unemployment rate increased from 4.1% in 1989 to 6.8% in 1990,
to 8.6% in 1991 and to 8.9% in 1992. Personal income slowed from an
annual rate of growth of 9.0% in 1988 to 2.1% in 1991. Real
personal income growth slowed from 4.5% to -1.8% for the same
years. Personal income growth is forecast to be below the growth
rate for the United States as a whole.
The economic slowdown has resulted in significant budget
constraints. Declining revenues, combined with increased demand for
certain governmental services, such as public assistance, have
occurred as a result of the difficult general economic conditions.
The State constitution requires that Rhode Island end each year
with a balanced budget and does not permit a deficit to continue
into the next fiscal year. The constitutional mandate and overall
budgeting pressure forced state officials to review the State's
overall fiscal outlook and structural issues pertaining to its
financial structure. Revenue estimating procedures were improved,
and five-year projections were published with the annual budget
submission. Major program reductions and eliminations were adopted.
A constitutional amendment was adopted by voter referendum to
mandate a "rainy day fund." A capital budgeting process was
initiated along with increased emphasis on debt management. See the
Additional Statement for further information.
INVESTMENT RESTRICTIONS
The Fund has a number of policies about what it can and cannot
do. Certain of these policies, identified in the Prospectus and in
the Additional Statement as "fundamental policies," cannot be
changed unless the holders of a "majority," as defined in the 1940
Act, of the Fund's outstanding shares vote to change them. (See the
Additional Statement for a definition of such a majority.) All
other policies can be changed from time to time by the Board of
Trustees without shareholder approval. Some of the more important
of the Fund's fundamental policies, not otherwise identified in the
Prospectus, are set forth below; others are listed in the
Additional Statement.
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than Rhode Island
Obligations meeting the standards stated under "Investment of the
Fund's Assets."
2. The Fund has industry investment requirements.
The Fund cannot buy the obligations of issuers in any one
industry if more than 25% of its total assets would then be
invested in securities of issuers of that industry. The Fund will
consider that a non-governmental user of facilities financed by
industrial development bonds is an issuer in an industry.
3. The Fund cannot make loans.
The Fund can buy those Rhode Island Obligations which it is
permitted to buy (see "Investment of the Fund's Assets"); this is
investing, not making a loan. The Fund cannot lend its portfolio
securities.
4. The Fund can borrow only in limited amounts for special
purposes.
The Fund can borrow from banks for temporary or emergency
purposes but only up to 10% of its total assets. It can mortgage or
pledge its assets only in connection with such borrowing and only
up to the lesser of the amounts borrowed or 5% of the value of its
total assets. Interest on borrowings would reduce the Fund's
income. Except in connection with borrowings, the Fund will not
issue senior securities. The Fund will not purchase any Rhode
Island Obligations while it has any outstanding borrowings which
exceed 5% of the value of its total assets.
NET ASSET VALUE PER SHARE
The Fund's net asset value and offering price per share of
each class are determined as of 4:00 p.m. New York time on each day
that the New York Stock Exchange is open (a "business day"). The
net asset value per share is determined by dividing the value of
the net assets (i.e., the value of the assets less liabilities) by
the total number of shares outstanding. Determination of the value
of the Fund's assets is subject to the direction and control of the
Fund's Board of Trustees. In general it is based on market value,
except that Rhode Island Obligations maturing in 60 days or less
are generally valued at amortized cost; see the Additional
Statement for further information.
HOW TO INVEST IN THE FUND
Institutional Class Shares (Class Y Shares) are offered only
to institutional investors for investments held in a fiduciary,
advisory, agency, custodial or similar capacity, or through them to
their clients, and are not offered directly to retail customers.
Class Y Shares are offered at net asset value with no sales charge,
no redemption fee, no contingent deferred sales charge and no
distribution fee.
How to Purchase Class Y Shares
Class Y Shares of the Fund may be purchased through any
investment broker or dealer (a "selected dealer") which has a sales
agreement with Aquila Distributors, Inc. (the "Distributor") or
through the Distributor. There are two ways to make an initial
investment: (i) order the shares through your investment broker or
dealer, if it is a selected dealer; or (ii) mail the Application
with payment to Administrative Data Management Corp. (the "Agent")
at the address on the Application. There is no sales charge on
initial or subsequent investments. You are urged to complete an
Application and send it to the Agent so that expedited shareholder
services can be established at the time of your investment.
The minimum initial investment for Class Y Shares is $1,000,
except as otherwise stated in the Prospectus or Additional
Statement. You may also make an initial investment of at least $50
by establishing an Automatic Investment Program for automatic
investments of at least $50 per month and paying at least $50. (See
below and "Automatic Investment Program" in the Application.) Such
investment must be drawn in United States dollars on a United
States commercial or savings bank or credit union or a United
States branch of a foreign commercial bank (each of which is a
"Financial Institution"). You may make subsequent investments in
Class Y Shares in any amount (unless you have an Automatic
Withdrawal Plan). Your subsequent investment may be made through a
selected dealer or by forwarding payment to the Agent, with the
name(s) of account owner(s), the account number and the name of the
Fund. With subsequent investments, please send the pre-printed stub
attached to the Fund's confirmations.
Subsequent investments of $50 or more in Class Y Shares can be
made by electronic funds transfer from your demand account at a
Financial Institution. To use electronic funds transfer for your
purchases, your Financial Institution must be a member of the
Automated Clearing House and the Agent must have received your
completed Application designating this feature, or, after your
account has been opened, a Ready Access Features form available
from the Distributor or the Agent. A pre-determined amount can be
regularly transferred for investment ("Automatic Investment"), or
single investments can be made upon receipt by the Agent of
telephone instructions from anyone ("Telephone Investment"). The
maximum amount of each Telephone Investment is $50,000. Upon 30
days' written notice to shareholders, the Fund may modify or
terminate these investment methods at any time or charge a service
fee, although no such fee is currently contemplated.
The offering price for Class Y Shares is the net asset value
per share. The offering price determined on any day applies to all
purchase orders received by the Agent from selected dealers that
day, except that orders received by it after 4:00 p.m. New York
time will receive that day's offering price only if such orders
were received by selected dealers from customers prior to such time
and transmitted to the Distributor prior to its close of business
that day (normally 5:00 p.m. New York time); if not so transmitted,
such orders will be filled at the next determined offering price.
Selected dealers are required to transmit orders promptly.
Investments by mail are made at the offering price next determined
after receipt of the purchase order by the Agent. Purchase orders
received on other than a business day will be executed on the next
succeeding business day. Purchases by Automatic Investment and
Telephone Investment will be executed on the first business day
occurring on or after the date an order is considered received by
the Agent at the price determined on that day. In the case of
Automatic Investment your order will be executed on the date you
specified for investment at the price determined on that day. If
that day is not a business day your order will be executed at the
price determined on the next business day. In the case of Telephone
Investment your order will be filled at the next determined
offering price. If your order is placed after the time for
determining the net asset value of the Fund shares for any day, it
will be executed at the price determined on the following business
day. The sale of shares will be suspended during any period when
the determination of net asset value is suspended and may be
suspended by the Distributor when the Distributor judges it in the
Fund's best interest to do so.
Possible Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of any
class of shares of the Fund. Additional compensation may include
payment or partial payment for advertising of the Fund's shares,
payment of travel expenses, including lodging, incurred in
connection with attendance at sales seminars taken by qualifying
registered representatives to locations within or outside of the
United States, other prizes or financial assistance to securities
dealers in offering their own seminars or conferences. In some
instances, such compensation may be made available only to certain
dealers whose representatives have sold or are expected to sell
significant amounts of such shares. Dealers may not use sales of
the Fund's shares to qualify for the incentives to the extent such
may be prohibited by the laws of any state or any self-regulatory
agency, such as the National Association of Securities Dealers,
Inc. The cost to the Distributor of such promotional activities and
such payments to participating dealers will not exceed the amount
of the sales charges in respect of sales of all classes of shares
of the Fund effected through such participating dealers, whether
retained by the Distributor or reallowed to participating dealers.
No such additional compensation to dealers in connection with sales
of shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and Dealers may receive different levels of
compensation for selling different classes of shares.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to you
in an account maintained for you at the Agent in full and
fractional shares of the Fund (rounded to the nearest 1/1000th of
a share). No share certificates will be issued for Class Y
Shares.
The Fund and the Distributor reserve the right to reject any
order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Fund has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in
substance that an investment company may not engage directly or
indirectly in financing any activity which is primarily intended to
result in the sale of its shares except pursuant to a written plan
adopted under the Rule. No payments under the Plan from assets
represented by Class Y Shares are authorized.
The Plan contains provisions designed to protect against any
claim against or involving the Fund that some of the expenses which
might be considered to be sales-related which the Fund pays or may
pay come within the purview of the Rule. The Fund believes that
except for payments made with respect to Class A Shares and Class
C Shares it is not financing any such activity and does not
consider any payment enumerated in such provisions as so financing
any such activity. If and to the extent that any payment as
specifically listed in the Plan (see the Additional Statement) is
considered to be primarily intended to result in or as indirect
financing of any activity which is primarily intended to result in
the sale of Fund shares, these payments are authorized under the
Plan. In addition, if the Administrator, out of its own funds,
makes payment for distribution expenses such payments are
authorized. See the Additional Statement.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your Class Y Shares at
the net asset value next determined after acceptance of your
redemption request at the Agent. Redemptions can be made by the
various methods described below. There is no minimum period for
any investment in the Fund, except for shares recently purchased by
check, Automatic Investment or Telephone Investment as discussed
below. There are no redemption fees or penalties on redemption of
Class Y Shares. A redemption may result in a transaction taxable to
you.
For your convenience the Fund offers expedited redemption for
Class Y Shares to provide you with a high level of liquidity for
your investment.
Expedited Redemption Methods
(Non-Certificate Shares)
You have the flexibility of two expedited methods of
initiating redemptions. They are available as to shares of any
class not represented by certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have
predesignated or
b) by check in the amount of $50,000 or less, mailed to
you, if your shares are registered in your name at the
Fund and the check is sent to your address of record,
provided that there has not been a change of your address
of record during the 30 days preceding your redemption
request. You can make only one request for telephone
redemption by check in any 7-day period.
See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
800-637-4633 toll free or 908-855-5731
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
2. By FAX or Mail. You may also request redemption
payments to a predesignated Financial Institution account
by a letter of instruction sent to: Administrative Data
Management Corp., Attn: Aquilasm Group of Funds, by FAX
at 908-855-5730 or by mail at 581 Main Street,
Woodbridge, NJ 07095-1198, indicating account name(s),
account number, amount to be redeemed, and any payment
directions, signed by the registered holder(s). Signature
guarantees are not required. See "Redemption Payments"
below for payment methods.
If you wish to use the above procedures you should so elect
on the Expedited Redemption section of the Application or the Ready
Access Features form and provide the required information
concerning your Financial Institution account number. The Financial
Institution account must be in the exclusive name(s) of the
shareholder(s) as registered with the Fund. You may change the
designated Financial Institution account at any time by completing
and returning a Ready Access Features form. For protection of your
assets, this form requires signature guarantees and possible
additional documentation.
Regular Redemption Method
If you own Class Y Shares registered on the books of the
Fund, and you have not elected Expedited Redemption to a
predesignated Financial Institution account, you must use the
Regular Redemption Method. Under this redemption method you should
send a letter of instruction to: Administrative Data Management
Corp., Attn: Aquilasm Group of Funds, 581 Main Street, Woodbridge,
NJ 07095-1198, containing:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or
a statement that all shares held in the account are
to be redeemed;
Payment instructions (normally redemption proceeds
will be mailed to your address as registered with
the Fund);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated
below.
For a redemption request to be in "proper form," the signature
or signatures must be the same as in the registration of the
account. In a joint account, the signatures of both shareholders
are necessary. Signature guarantees may be required if sufficient
documentation is not on file with the Agent. Additional
documentation may be required where shares are held by certain
types of shareholders such as corporations, partnerships, trustees
or executors, or if redemption is requested by other than the
shareholder of record. If redemption proceeds of $50,000 or less
are payable to the record holder and are to be sent to the record
address, no signature guarantee is required, except as noted above.
In all other cases, signatures must be guaranteed by a member of a
national securities exchange, a U.S. bank or trust company, a
state-chartered savings bank, a federally chartered savings and
loan association, a foreign bank having a U.S. correspondent bank,
a participant in the Securities Transfer Association Medallion
Program (STAMP), the Stock Exchanges Medallion Program (SEMP) or
the New York Stock Exchange, Inc. Medallion Signature Program
(MSP). A notary public is not an acceptable signature
guarantor.
Redemption Payments
Redemption payments will ordinarily be mailed to you at
your address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will, wherever
possible, be wired or transferred through the facilities of the
Automated Clearing House to the Financial Institution account
specified in the Expedited Redemption section of your Application
or Ready Access Features form. The Fund may impose a charge, not
exceeding $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. The Fund
has no present intention of making this charge. Upon 30 days'
written notice to shareholders, the Fund may modify or terminate
the use of the Automated Clearing House to make redemption payments
at any time or charge a service fee, although no such fee is
presently contemplated. If any such changes are made, the
Prospectus will be supplemented to reflect them. If you use a
broker or dealer to arrange for a redemption, it may charge you a
fee for this service.
The Fund will normally make payment for all shares redeemed on
the next business day (see "Net Asset Value Per Share") following
acceptance of the redemption request made in compliance with one of
the redemption methods specified above. Except as set forth below,
in no event will payment be made more than seven days after
acceptance of such a redemption request. However, the right of
redemption may be suspended or the date of payment postponed (i)
during periods when the New York Stock Exchange is closed for other
than weekends and holidays or when trading on such Exchange is
restricted as determined by the Securities and Exchange Commission
by rule or regulation; (ii) during periods in which an emergency,
as determined by the Securities and Exchange Commission, exists
which causes disposal of, or valuation of the net asset value of,
the portfolio securities to be unreasonable or impracticable; or
(iii) for such other periods as the Securities and Exchange
Commission may permit. Payment for redemption of shares recently
purchased by check (irrespective of whether the check is a regular
check or a certified, cashier's or official bank check) or by
Automatic Investment or Telephone Investment may be delayed up to
15 days or until (i) the purchase check or Automatic Investment or
Telephone Investment has been honored or (ii) the Agent has
received assurances by telephone or in writing from the Financial
Institution on which the purchase check was drawn, or from which
the funds for Automatic Investment or Telephone Investment were
transferred, satisfactory to the Agent and the Fund, that the
purchase check or Automatic Investment or Telephone Investment will
be honored. Possible delays in payment of redemption proceeds can
be eliminated by using wire payments or Federal Reserve drafts to
pay for purchases.
If the Trustees determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make
payment wholly or partly in cash, the Fund may pay the redemption
price in whole or in part by the distribution in kind of securities
from the portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the Securities and Exchange Commission. See the
Additional Statement for details.
The Fund has the right to compel the redemption of shares held
in any account if the aggregate net asset value of such shares is
less than $500 as a result of shareholder redemptions or failure to
meet the minimum investment level under an Automatic Purchase
Program. If the Board elects to do this, shareholders who are
affected will receive prior written notice and will be permitted 60
days to bring their accounts up to the minimum before this
redemption is processed.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own
or purchase Class Y Shares of the Fund having a net asset value of
at least $5,000. Under an Automatic Withdrawal Plan you will
receive a monthly or quarterly check in a stated amount, not less
than $50. If such a plan is established, all dividends and
distributions must be reinvested in your shareholder account.
Redemption of shares to make payments under the Automatic
Withdrawal Plan will give rise to a gain or loss for tax purposes.
See the Automatic Withdrawal Plan provisions of the Application
included in the Prospectus, the Additional Statement under
"Automatic Withdrawal Plan," and "Dividend and Tax Information"
below.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Fund's Trustees and officers and provides
further information about them.
The Advisory Agreement
Citizens Trust Company (the "Adviser") supervises the
investment program of the Fund and the composition of its
portfolio.
The services of the Adviser are rendered under an Investment
Advisory Agreement (the "Advisory Agreement") which provides,
subject to the control of the Board of Trustees, for investment
supervision and at the Adviser's expense for pricing of the Fund's
portfolio daily using a pricing service or other source of pricing
information satisfactory to the Fund and, unless otherwise directed
by the Board of Trustees, for pricing of the Fund's portfolio at
least quarterly using another such source satisfactory to the Fund.
The Advisory Agreement states that the Adviser shall, at its
expense, provide to the Fund all office space and facilities,
equipment and clerical personnel necessary for the carrying out of
the Adviser's duties under the Advisory Agreement.
Under the Advisory Agreement, the Adviser pays all
compensation of those officers and employees of the Fund and of
those Trustees, if any, who are affiliated with the Adviser. Under
the Advisory Agreement, the Fund bears the cost of preparing and
setting in type its prospectuses, statements of additional
information, and reports to shareholders and the costs of printing
or otherwise producing and distributing those copies of such
prospectuses, statements of additional information and reports as
are sent to its shareholders. Under the Advisory Agreement, all
costs and expenses not expressly assumed by the Adviser or by the
Administrator under the Administration Agreement or by the Fund's
Distributor (principal underwriter) are paid by the Fund. The
Advisory Agreement lists examples of such expenses borne by the
Fund, the major categories of such expenses being: legal and audit
expenses, custodian and transfer agent, or shareholder servicing
agent fees and expenses, stock issuance and redemption costs,
certain printing costs, registration costs of the Fund and its
shares under Federal and State securities laws, interest, taxes and
brokerage commissions, and non-recurring expenses, including
litigation.
Under the Advisory Agreement, the Fund pays a fee payable
monthly and computed on the net asset value of the Fund as of the
close of business each business day at the annual rate of 0.23 of
1% of such net assets. (However, the total fees which the Fund pays
are at the annual rate of 0.50 of 1% of such net assets, since the
Administrator also receives a fee from the Fund under the
Administration Agreement; see below.) The Adviser and/or the
Administrator may, in order to attempt to achieve a competitive
yield on the shares of the Fund, each waive all or part of either
fee.The Adviser agrees that the above fee shall be reduced, but not
below zero, by an amount equal to its pro-rata portion (based upon
the aggregate fees of the Adviser and the Administrator) 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 Fund's total annual
investment income.
The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund; see the
Additional Statement. Under these provisions, the Adviser is
authorized to consider sales of shares of the Fund or of any other
investment company or companies having the same investment adviser,
sub-adviser, administrator or principal underwriter as the
Fund.
The Administration Agreement
Aquila Management Corporation is founder of the Fund and
serves as Administrator under an Administration Agreement (the
"Administration Agreement"). At its own expense, it provides office
space, personnel, facilities and equipment for the performance of
its functions thereunder and as is necessary in connection with the
maintenance of the headquarters of the Fund and pays all
compensation of the Fund's Trustees, officers and employees who are
affiliated persons of the Administrator.
Under the Administration Agreement, subject to the control of
the Fund's Board of Trustees, the Administrator provides all
administrative services to the Fund other than those relating to
its investment portfolio. Such administrative services include, but
are not limited to, overseeing all relationships between the Fund
and its transfer agent, custodian, legal counsel, auditors and
principal underwriter, including the negotiation of agreements in
relation thereto, the supervision and coordination of the
performance of such agreements, and the overseeing of all
administrative matters which are necessary or desirable for
effective operation of the Fund and for the sale, servicing, or
redemption of the Fund's shares. Additionally, the Administrator
either keeps the accounting and other books and records of the
Fund, including the computation of net asset value per share and
the dividends (provided that daily pricing of the securities in the
Fund's portfolio shall be the responsibility of the Adviser under
the Advisory Agreement) or, at its expense and responsibility,
delegates such duties in whole or in part to a company satisfactory
to the Fund. See the Additional Statement for a further description
of functions listed in the Administration Agreement as part of such
duties.
Under the Administration Agreement, the Fund pays a fee
payable monthly and computed on the net asset value of the Fund at
the end of each business day at the annual rate of 0.27 of 1% of
such net asset value. The Administrator agrees that the above fee
shall be reduced, but not below zero, by an amount equal to its
pro-rata portion (based upon the aggregate fees of the Adviser and
the Administrator) 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 Fund's total annual investment income.
Information as to the Adviser,
the Administrator and the Distributor
Citizens Financial Group, Inc. ("CFG") is a wholly-owned
subsidiary of The Royal Bank of Scotland plc. CFG is comprised of
Citizens Savings Bank and Citizens Trust Company (the "Adviser")
which operate jointly as Citizens Bank through 74 branch offices in
Rhode Island and Connecticut; Citizens Bank of Massachusetts, which
has 60 branches in southeastern Massachusetts; and Citizens
Mortgage Corporation, a Georgia corporation based in Atlanta with
19 offices in the southeastern United States. In 1994, CFG acquired
the former Old Stone Federal Savings Bank in Providence, Rhode
Island and the former Coastal Federal Savings Bank in New London,
Connecticut. CFG also completed the acquisition of Neworld
Bankcorp, Inc., the holding company for Neworld Bank which was
merged into Citizens Bank of Massachusetts. In January, 1995, CFG
acquired Quincy Savings Bank of Massachusetts. CFG is the second
largest bank holding company headquartered in Rhode Island. Through
the Adviser and other subsidiaries, CFG provides a full range of
financial services to individuals, businesses and governmental
units. The Trust Group of the Adviser had, as of June 30, 1995,
approximately $2.2 billion of assets under administration,
including approximately $205 million in municipal obligations.
CFG's headquarters are at One Citizens Plaza, Providence, Rhode
Island 02903.
Salvatore C. DiSanto is the officer of the Adviser who manages
the Fund's portfolio. He has served as such since the inception of
the Fund in September, 1992. Mr.DiSanto, a Senior Vice President
and head of the Investment Department within the Adviser's Trust
Group, is a member of the Adviser's Officer Investment Committee.
He has been employed by the Adviser for 37 years and has been
involved in portfolio management for the last 30 years.
The Fund's Administrator is administrator to the Aquilasm
Group of Funds, which consists of tax-free municipal bond funds,
money market funds and an equity fund. As of December 30, 1995,
these funds had aggregate assets of approximately $2.7 billion, of
which approximately $1.9 billion consisted of assets of tax-free
municipal bond funds. The Administrator, which was founded in 1984,
is controlled by Mr. Lacy B. Herrmann (directly, through a trust
and through share ownership by his wife). See the Additional
Statement for information on Mr. Herrmann.
During the Fund's fiscal year ended June 30, 1995, fees of
$73,783 and $86,615 were accrued to the Adviser and Administrator,
respectively, all of which were waived. In addition, the
Administrator reimbursed the Fund for other expenses in the amount
of $197,821.
The Distributor currently handles the distribution of the
shares of thirteen funds (seven tax-free municipal bond funds, five
money market funds, and an equity fund), including the Fund. Under
the Distribution Agreement, the Distributor is responsible for the
payment of certain printing and distribution costs relating to
prospectuses and reports as well as the costs of supplemental sales
literature, advertising and other promotional activities.
At the date of this Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which are
currently owned by Mr. Herrmann, will be owned by certain directors
and/or officers of the Administrator and/or the Distributor,
including Mr. Herrmann.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Fund will declare all of its net income, as defined below,
as dividends on every day, including weekends and holidays, on
those shares outstanding for which payment was received by the
close of business on the preceding business day. Net income for
dividend purposes includes all interest income accrued by the Fund
since the previous dividend declaration, including accretion of any
original issue discount, less expenses paid or accrued. As such net
income will vary, the Fund's dividends will also vary. Dividends
and other distributions paid by the Fund with respect to all
classes of the Fund's shares are calculated at the same time and in
the same manner. The dividends of each class can vary because each
class will bear certain class-specific charges.
Dividends so declared are paid monthly within a week before
the end of each calendar month. It is the Fund's present policy to
pay dividends so that they will be received or credited by
approximately the first day of each month. Shareholders may elect
to have dividends deposited without charge by electronic funds
transfers into an account at a Financial Institution which is a
member of the Automated Clearing House by completing a Ready Access
Features form.
Redeemed shares continue to earn dividends through and
including the earlier of (i) the day before the day on which the
redemption proceeds are mailed, wired or transferred by the
facilities of the Automated Clearing House by the Agent or paid by
the Agent to a selected dealer; or (ii) the third day on which the
New York Stock Exchange is open after the day on which the net
asset value of the redeemed shares has been determined. (See "How
To Redeem Your Investment.")
Net investment income includes amounts of income from the
Rhode Island Obligations in the Fund's portfolio which are
allocated as "exempt-interest dividends." "Exempt-interest
dividends" are exempt from regular Federal income tax. The
allocation of "exempt-interest dividends" will be made by the use
of one designated percentage applied uniformly to all income
dividends declared during the Fund's tax year. Such designation
will normally be made in the first month after the end of each of
the Fund's fiscal years as to income dividends paid in the prior
year. It is possible that in certain circumstances, a small portion
of the dividends paid by the Fund will be subject to income taxes.
During the fiscal year ended June 30, 1995, 98.45% of the Fund's
dividends were "exempt-interest dividends." For the calendar year
1995, 1.55% of the total dividends paid were taxable. (These
amounts relate to dividends on Class A shares; no Class C Shares
were outstanding during that period.) The percentage of income
designated as tax-exempt for any particular dividend may be
different from the percentage of the Fund's income that was
tax-exempt during the period covered by the dividend.
Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions ("long-term
gains distributions"), if any, from the excess of net long-term
capital gains over net short-term capital losses realized through
October 31st of each year and not previously paid out will be paid
out after that date; the Fund may also pay supplemental
distributions after the end of its fiscal year. If net capital
losses are realized in any year, they are charged against capital
and not against net investment income which is distributed
regardless of gains or losses. The Fund may be required to impose
backup withholding at a rate of 31% upon payment of redemptions to
shareholders, and from short- and long-term gains distributions (if
any) and any other distributions that do not qualify as
"exempt-interest dividends," if shareholders do not comply with
provisions of the law relating to the furnishing of taxpayer
identification numbers and reporting of dividends.
Unless you request otherwise by letter addressed to the Agent
or by filing an appropriate application prior to a given
ex-dividend date, dividends and distributions will be automatically
reinvested in full and fractional shares of the Fund at net asset
value on the record date for the dividend or distribution or other
date fixed by the Board of Trustees. An election to receive cash
will continue in effect until written notification of a change is
received by the Agent. All shareholders, whether their dividends
are received in cash or are being reinvested, will receive a
monthly account summary indicating the current status of their
investment. There is no fixed dividend rate. Corporate shareholders
of the Fund are not entitled to any deduction for dividends
received from the Fund.
Federal Tax Information
The Fund qualified during its last fiscal year as a
"regulated investment company" under the Code, and intends to
continue to so qualify. If it does so qualify, it will not be
liable for Federal income taxes on amounts paid by it as dividends
and distributions. However, the Code contains a number of complex
tests relating to such qualification and it is possible although
not likely that the Fund might not meet one or more of these tests
in any particular year. If it does not so qualify, it would be
treated for tax purposes as an ordinary corporation, would receive
no tax deduction for payments made to shareholders and would be
unable to pay dividends or distributions which would qualify as
"exempt-interest dividends" or "capital gains dividends," as
discussed below.
The Fund intends to qualify during each fiscal year under the
Code to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net income earned
by the Fund on Rhode Island Obligations will be excludable from
gross income of the shareholders for regular Federal income tax
purposes. Capital gains dividends are not included in
exempt-interest dividends. Although "exempt-interest dividends" are
not taxed, each taxpayer must report the total amount of tax-exempt
interest (including exempt-interest dividends from the Fund)
received or acquired during the year.
The Omnibus Budget Reconciliation Act of 1993 requires that
either gains realized by the Fund on the sale of municipal
obligations acquired after April 30, 1993 at a price which is less
than face or redemption value be included as ordinary income to the
extent such gains do not exceed such discount or that the discount
be amortized and included ratably in taxable income. There is an
exception to the foregoing treatment if the amount of the discount
is less than 0.25% of face or redemption value multiplied by the
number of years from acquisition to maturity. The Fund will report
such ordinary income in the years of sale or redemption rather than
amortize the discount and report it ratably. To the extent the
resultant ordinary taxable income is distributed to shareholders,
it will be taxable to them as ordinary income.
Capital gains dividends (net long-term gains over net
short-term losses which the Fund distributes and so designates) are
reportable by shareholders as long-term capital gains. This is the
case whether the shareholder takes the distribution in cash or
elects to have the distribution reinvested in Fund shares and
regardless of the length of time the shareholder has held his or
her shares. Capital gains are taxed at the same rates as ordinary
income, except that for individuals, trusts and estates the maximum
tax rate on capital gains distributions is 28% even if the
applicable rate on ordinary income for such taxpayers is higher
than 28%.
Short-term gains, when distributed, are taxed to shareholders
as ordinary income. Capital losses of the Fund are not distributed
but carried forward by the Fund to offset gains in later years and
thereby lessen the later-year capital gains dividends and amounts
taxed to shareholders.
The Fund's gains or losses on sales of Rhode Island
Obligations will be long-term or short-term depending upon the
length of time the Fund has held such obligations. Capital gains
and losses of the Fund will also include gains and losses on
Futures and options, if any, including gains and losses actually
realized on sales and exchanges and gains and losses deemed to be
realized.
Information as to the tax status of the Fund's dividends and
distributions will be mailed to shareholders annually.
Under the Code, interest on loans incurred by shareholders
to enable them to purchase or carry shares of the Fund may not be
deducted for regular Federal tax purposes. In addition, under rules
used by the Internal Revenue Service for determining when borrowed
funds are deemed used for the purpose of purchasing or carrying
particular assets, the purchase of shares of the Fund may be
considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of
shares. The receipt of exempt-interest dividends from the Fund by
an individual shareholder may result in some portion of any social
security payments or railroad retirement benefits received by the
shareholder or the shareholder's spouse being included in taxable
income.
Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds or
private activity bonds should consult their own tax advisers before
purchasing shares.
While interest from all Rhode Island Obligations is tax-exempt
for purposes of computing the shareholder's regular tax, interest
from so-called private activity bonds issued after August 7, 1986,
constitutes a tax preference for both individuals and corporations
and thus will enter into a computation of the alternative minimum
tax. Whether or not that computation will result in a tax will
depend on the entire content of the taxpayer's return. The Fund
will not invest in the types of Rhode Island Obligations which
would give rise to interest that would be subject to alternative
minimum taxation if more than 20% of its net assets would be so
invested, and may refrain from investing in that type of bond
completely. The 20% limit is a fundamental policy of the Fund.
Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current earnings,
this adjustment will tend to make it more likely that corporate
shareholders will be subject to the alternative minimum tax.
As of the date of the Prospectus, Congress is considering a
number of changes affecting taxation. It is not possible to predict
which, if any, of such changes will become law.
Effects of Redemptions
Normally, when you redeem shares of the Fund you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid for
the shares. The gain or loss will be long-term if you held the
redeemed shares for over a year, and short-term, if for a year or
less. However, if shares held for six months or less are redeemed
and you have a loss, two special rules apply: the loss is reduced
by the amount of exempt-interest dividends, if any, which you
received on the redeemed shares, and any loss over and above the
amount of such exempt-interest dividends is treated as a long-term
loss to the extent you have received capital gains dividends on the
redeemed shares.
Rhode Island Tax Information
The following is based upon the advice of Edwards & Angell,
Rhode Island counsel to the Fund.
The Fund will be subject to the Rhode Island business
corporation tax in an amount equal to the greater of $250 or $0.10
on each $100 of the gross income of the Fund that is apportioned to
the State of Rhode Island by means of an arithmetical formula.
Gross income means gross income as defined in the Federal income
tax law, plus any interest not included in Federal gross income,
minus interest on obligations of the United States or its
possessions and other interest on Rhode Island Obligations issued
by Rhode Island issuers and exempt from taxation by Rhode Island,
and minus 50% of the excess of capital gains (as determined for
Federal income tax purposes) over capital losses (as determined for
Federal income tax purposes). However, the Rhode Island law
authorizing the issuance of certain Rhode Island Obligations may
specifically exempt from Rhode Island taxation the capital gains
from the sale or exchange of such Rhode Island Obligations. While
the issue is not entirely free from doubt, it is unlikely that the
Fund, as a Massachusetts business trust, will be subject to the
Rhode Island franchise tax.
Individual holders of shares of the Fund who are subject to
Rhode Island personal income taxation will not be required to
include in their Rhode Island source income for Rhode Island
personal income tax purposes that portion of their exempt-interest
dividends (as determined for Federal income tax purposes) which the
Fund clearly identifies as directly attributable to interest earned
on Rhode Island Obligations. Individual holders of shares of the
Fund who are subject to Rhode Island personal income taxation will
be required to include in their Rhode Island source income for
Rhode Island personal income tax purposes their distributions of
exempt-interest dividends (as determined for Federal income tax
purposes) which are derived from interest earned on municipal
obligations issued by governmental authorities in states other than
Rhode Island, distributions of dividends derived from any net
income received by the Fund from taxable temporary investments and
any other distributions of dividends derived from interest that
does not qualify as exempt-interest dividends (as determined for
Federal income tax purposes).
Individual holders of shares of the Fund who are subject to
Rhode Island personal income taxation will be required to include
in their Rhode Island source income for Rhode Island personal
income tax purposes their distributions of capital gain dividends
(as determined for Federal income tax purposes) and any net
short-term capital gains realized by the Fund, unless such capital
gain dividends (as determined for Federal income tax purposes) and
such short-term capital gains are from the sale of the underlying
Rhode Island Obligations which are issued by Rhode Island issuers
and are specifically exempted from Rhode Island taxation of capital
gains by the Rhode Island law authorizing issuance of the Rhode
Island Obligations.
Under Rhode Island law, it appears that gain or loss, if any,
resulting from a sale or redemption of shares of the Fund by
individual holders of shares of the Fund who are subject to Rhode
Island personal income taxation will be included in their Rhode
Island source income.
Generally, corporate holders of shares of the Fund which are
subject to the Rhode Island business corporation tax or the Rhode
Island franchise tax, will be taxed upon their net income,
authorized stock, or at a flat rate minimum tax. Net income will
include distributions of exempt-interest dividends (as determined
for Federal income tax purposes), except to the extent such
dividends are clearly identified as directly attributable to
interest earned on Rhode Island Obligations issued by non-Rhode
Island issuers or interest earned on Rhode Island Obligations
issued by Rhode Island issuers and specifically exempted from
taxation in Rhode Island. Net income will include distributions of
exempt-interest dividends (as determined for Federal income tax
purposes), which are derived from interest earned on municipal
obligations issued by governmental authorities in states other than
Rhode Island, distributions of dividends derived from any net
income received from taxable temporary investments and any other
distributions of dividends derived from interest that does not
qualify as exempt-interest dividends (as determined for Federal
income tax purposes). Net income will also include distributions of
capital gain dividends (as determined for Federal income tax
purposes) and any net short-term capital gains realized by the
Fund, unless such distributions of capital gain dividends (as
determined for Federal income tax purposes) and such short-term
capital gains are from the sale of the underlying Rhode Island
Obligations which are issued by Rhode Island issuers and are
specifically exempted from Rhode Island taxation of capital gains
by the Rhode Island law authorizing issuance of the Rhode Island
Obligations. Under Rhode Island law, it appears that gain or loss,
if any, resulting from a sale or redemption of shares of the Fund
by corporate holders of shares of the Fund which are subject to the
Rhode Island business corporation tax will be included in their
Rhode Island income.
Shares of the Fund will be exempt from local property taxes in
Rhode Island, but will be includable in the Rhode Island gross
estate of a deceased individual holder who is a resident of Rhode
Island for purposes of the Rhode Island estate tax.
The foregoing represents a summary of certain provisions of
Rhode Island tax laws presently in effect. It assumes that the Fund
qualifies as a regulated investment company for Federal income tax
purposes under subchapter M of the Code. These provisions are
subject to change by legislative or administrative action. You
should consult your tax adviser about other state and local tax
consequences of your investment in the Fund for more detailed
information concerning state taxes to which you may be subject.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among
this Fund and certain tax-free municipal bond funds and an equity
fund (the "Bond or Equity Funds") and certain money market funds
(the "Money-Market Funds"), all of which are sponsored by Aquila
Management Corporation and Aquila Distributors, Inc., and have the
same Administrator and Distributor as the Fund. All exchanges are
subject to certain conditions described below. As of the date of
the Prospectus, the Aquila Bond or Equity Funds are this Fund,
Aquila Rocky Mountain Equity Fund, Hawaiian Tax-Free Trust,
Tax-Free Trust of Arizona, Tax-Free Trust of Oregon, Tax-Free Fund
of Colorado, Churchill Tax-Free Fund of Kentucky and Tax-Free Fund
For Utah; the Aquila Money-Market Funds are Capital Cash Management
Trust, Pacific Capital Cash Assets Trust (Original Shares), Pacific
Capital Tax-Free Cash Assets Trust (Original Shares), Pacific
Capital U.S. Treasuries Cash Assets Trust (Original Shares) and
Churchill Cash Reserves Trust.
Class Y Shares of the Fund may be exchanged only for Class Y
Shares of the Bond or Equity Funds or for shares of a Money-Market
Fund.
Under the Class Y exchange privilege, once Class Y Shares of
any Bond or Equity Fund have been purchased, those shares (and any
shares acquired as a result of reinvestment of dividends and/or
distributions) may be exchanged any number of times between
Money-Market Funds and Class Y Shares of the Bond or Equity Funds
without the payment of any sales charge.
The "Class Y Eligible Shares" of any Bond or Equity Fund are
those shares which were (a) acquired by direct purchase including
by exchange by an institutional investor from a Money-Market Fund,
or which were received in exchange for Class Y Shares of another
Bond or Equity Fund; or (b) acquired as a result of reinvestment of
dividends and/or distributions on otherwise Class Y Eligible
Shares. Shares of a Money-Market Fund not acquired in exchange for
Class Y Eligible Shares of a Bond or Equity Fund can be exchanged
for Class Y Shares of a Bond or Equity Fund only by persons
eligible to make an initial purchase of Class Y Shares.
This Fund, as well as the Money-Market Funds and other Bond or
Equity Funds, reserves the right to reject any exchange into its
shares, if shares of the fund into which exchange is desired are
not available for sale in your state of residence. The Fund may
also modify or terminate this exchange privilege at any time. In
the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take effect
on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset value
of the shares surrendered for exchange are at least equal to the
minimum investment requirements of the investment company whose
shares are being acquired and (iii) the ownership of the accounts
from which and to which the exchange is made are identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-637-4633 toll free or 908-855-5731
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
Exchanges of Class Y Shares will be effected at the relative
net asset values of the Class Y Shares being exchanged next
determined after receipt by the Agent of your exchange request.
Prices for exchanges are determined in the same manner as for
purchases of the Fund's shares. See "How to Invest in the
Fund."
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the realization
of a capital gain or loss, depending on the cost or other tax basis
of the shares exchanged and the holding period (see the Additional
Statement); no representation is made as to the deductibility of
any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable, except
to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free Money-Market
Fund) are exempt from regular Federal income tax, and to the extent
that a portion or all of the dividends paid by Pacific Capital U.S.
Treasuries Cash Assets Trust (which invests in U.S. Treasury
obligations) are exempt from state income taxes. Dividends paid by
Aquila Rocky Mountain Equity Fund are taxable. If your state of
residence is not the same as that of the issuers of obligations in
which a tax-free municipal bond fund or a tax-free Money-Market
Fund invests, the dividends from that fund may be subject to income
tax of the state in which you reside. Accordingly, you should
consult your tax adviser before acquiring shares of such a bond
fund or a tax-free Money-Market Fund under the exchange privilege
arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
GENERAL INFORMATION
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's performance
including current yield, taxable equivalent yield, various
expressions of total return, current distribution rate and taxable
equivalent distribution rate.
Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase,
invested at the maximum public offering price (offering price
includes any applicable sales charge) for 1- and 5-year periods and
for a period since the inception of the Fund, to the extent
applicable, through the end of such periods, assuming reinvestment
(without sales charge) of all distributions. The Fund may also
furnish total return quotations for other periods or based on
investments at various applicable sales charge levels or at net
asset value. For such purposes total return equals the total of all
income and capital gains paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in
the value of the original investment, expressed as a percentage of
the purchase price. See the Additional Statement. Current yield
reflects the income per share earned by each of the Fund's
portfolio investments; it is calculated by (i) dividing the Fund's
net investment income per share during a recent 30-day period by
(ii) the maximum public offering price on the last day of that
period and by (iii) annualizing the result. Taxable equivalent
yield shows the yield from a taxable investment that would be
required to produce an after-tax yield equivalent to that of the
Fund, which invests in tax-exempt obligations. It is computed by
dividing the tax-exempt portion of the Fund's yield (calculated as
indicated) by one minus a stated income tax rate and by adding the
product to the taxable portion (if any) of the Fund's yield. See
the Additional Statement.
Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities and
Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will be
paid to the Fund's shareholders. Dividends or distributions paid to
shareholders are reflected in the current distribution rate or
taxable equivalent distribution rate which may be quoted to
shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the Fund
during a recent 30-day period by (ii) the current maximum offering
price and by (iii) annualizing the result. A taxable equivalent
distribution rate shows the taxable distribution rate that would be
required to produce an after-tax distribution rate equivalent to
the Fund's distribution rate (calculated as indicated above). The
current distribution rate, unlike yield figures, is not limited to
investment performance, but takes into account expenses as well; it
also differs from the current yield computation because it could
include distributions to shareholders from sources, if any, other
than dividends and interest, such as short-term capital gains or
return of capital. If distribution rates are quoted in advertising
they will be accompanied by calculations of current yield in
accordance with the formula of the Securities and Exchange
Commission.
In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
the Fund's income net of fee waivers and reimbursement of expenses,
if any, and will assume the payment of the maximum sales charge on
the purchase of shares, but not on reinvestment of income
dividends. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment
may earn in the future or what the Fund's yield, tax equivalent
yield, distribution rate, taxable equivalent distribution rate or
total return may be in any future period. The annual report of the
Fund contains additional performance information that will be made
available upon request and without charge.
Description of the Fund and Its Shares
The Fund is an open-end, non-diversified management
investment company organized in 1992 as a Massachusetts business
trust. (See "Investment of the Fund's Assets" for further
information about the Fund's status as "non-diversified.") The
Declaration of Trust permits the Trustees to issue 80,000,000
shares of $.01 par value, and to divide or combine the shares into
a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in the Fund. Each share
represents an equal proportionate interest in the Fund with each
other share of its class; shares of the respective classes
represent proportionate interests in the Fund in accordance with
their respective net asset values. Upon liquidation of the Fund,
shareholders are entitled to share pro-rata in the net assets of
the Fund available for distribution to shareholders, in accordance
with the respective net asset values of the shares of each of the
Fund's classes at that time. All shares are presently divided into
three classes; however, if they deem it advisable and in the best
interests of shareholders, the Board of Trustees of the Fund may
create additional classes of shares which may differ from each
other only as to dividends (subject to rules and regulations of the
Securities and Exchange Commission or by exemptive order) or the
Board of Trustees may, at its own discretion, create additional
series of shares, each of which may have separate assets and
liabilities (in which case any such series will have a designation
including the word "Series"). See the Additional Statement for
further information about possible additional series. Shares are
fully paid and non-assessable, except as set forth under the
caption "General Information" in the Additional Statement; the
holders of shares have no pre-emptive or conversion rights.
The other two classes of shares of the Fund are Front-Payment
Class Shares ("Class A Shares") and Level-Payment Class Shares
("Class C Shares"), which are fully described in a separate
prospectus that can be obtained by calling the Fund at 800-453-6864
toll free or 212-697-6666 or in Rhode Island: 401-453-6864.
The primary distinction among the Fund's three classes of
shares lies in their different sales charge structures and ongoing
expenses, which are likely to be reflected in differing yields and
other measures of investment performance. All three classes
represent interests in the same portfolio of Rhode Island
Obligations and have the same rights, except that each class bears
the separate expenses, if any, of its Distribution Plan and has
exclusive voting rights with respect to its Plan. There are no
distribution fees with respect to Class Y Shares.
Dividends and other distributions paid by the Fund with
respect to shares of each class are calculated in the same manner
and at the same time, but may differ depending upon the
distribution and service fees, if any, and other class-specific
expenses borne by each class.
The Fund's Distribution Plan has three parts. In addition to
the defensive provisions described above, Parts I and II of the
Plan authorize payments, to certain "Qualified Recipients," out of
the Fund assets allocable to the Class A Shares and Class C Shares,
respectively. See the Additional Statement. The Fund has also
adopted a Shareholder Services Plan under which the Fund is
authorized to make certain payments out of the Fund assets
allocable to the Class C Shares. See the Additional Statement.
Of the shares of the Fund outstanding on April 18, 1996,
Merrill Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 30561, New
Brunswick, NJ, held of record 469,872 shares (12.4%), all of which
were Class A Shares. The Fund's management is not aware of any
person beneficially owning more than 5% of its outstanding shares
as of such date. On the basis of information received from the
holder the Fund's management believes that all of these shares are
held for the benefit of brokerage clients.
Voting Rights
At any meeting of shareholders, shareholders are entitled
to one vote for each dollar of net asset value (determined as of
the record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders will
vote on the election of Trustees and on other matters submitted to
the vote of shareholders. Shares vote by classes on any matter
specifically affecting one or more classes, such as an amendment of
an applicable part of the Distribution Plan. No amendment may be
made to the Declaration of Trust without the affirmative vote of
the holders of a majority of the outstanding shares of the Fund
except that the Fund's Board of Trustees may change the name of the
Fund. The Fund may be terminated (i) upon the sale of its assets to
another issuer, or (ii) upon liquidation and distribution of the
assets of the Fund, in either case if such action is approved by
the vote of the holders of a majority of the outstanding shares of
the Fund. If not so terminated, the Fund will continue
indefinitely.
<PAGE>
APPLICATION FOR NARRAGANSETT INSURED TAX-FREE INCOME FUND
FOR CLASS Y SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
ADM, ATTN: AQUILA SM GROUP OF FUNDS
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
Tel.# 1-800-637-4633
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minor's Social Security Number
4. ____________________________________________________
____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s)
of Trustees in which account will be registered and the name and date
of the Trust Instrument. Account for a Pension or Profit Sharing Plan
or Trust may be registered in the name of the Plan or Trust itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:________________________
Employer's Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you
are a non-U.S. Citizen or resident and not subject to back-up
withholding (See certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2
PURCHASES OF SHARES
A. INITIAL INVESTMENT
Indicate Method of Payment (For either method, make check
payable to: NARRAGANSETT INSURED TAX-FREE INCOME FUND)
___Initial Investment $ ______________ (Minimum investment $1,000)
___Automatic Investment $______________ (Minimum $50)
For Automatic Investment of at least $50 per month, you must complete
Step 3, Section A, Step 4, Sections A & B and ATTACH A PRE-PRINTED
DEPOSIT SLIP OR VOIDED CHECK.
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be:___ Reinvested ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK
showing the Financial Institution account where I/we would like you
to deposit the dividend. (A Financial Institution is a commercial
bank, savings bank or credit union.)
___ Mail check to my/our address listed in Step 1.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested
in your Narragansett Insured Tax-Free Income Fund Account. To establish
this program, please complete Step 4, Sections A & B of this Application.
I/We wish to make regular monthly investments of $ _________________
(minimum $50) on the ___ 1st day or ___ 16th day of the month (or on
the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to add to your account
(minimum $50 and maximum $50,000) at any time you wish by simply calling
the Fund toll-free at 1-800-637-4633. To establish this program, please
complete Step 4, Sections A & B of this Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. AUTOMATIC WITHDRAWAL PLAN
(Minimum investment $5,000)
Application must be received in good order at least 2 weeks
prior to 1st actual liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions set
forth below. To realize the amount stated below, Administrative
Data Management Corp. (the Agent) is authorized to redeem sufficient
shares from this account at the then current Net Asset Value, in
accordance with the terms below:
Dollar Amount of each withdrawal $ ______________beginning________________ .
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is
payable to a Financial Institution for your account, indicate
Financial Institution name, address and your account number.
_______________________________ ______________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ______________________________________
Street Financial Institution Street Address
_______________________________ ______________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
D. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your
name within the Aquila SM Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
persons telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the
Prospectus. Except for gross negligence in acting upon such telephone
instructions to execute an exchange, and subject to the conditions set
forth herein, I/we understand and agree to hold harmless the Agent, each
of the Aquila Funds, and their respective officers, directors, trustees,
employees, agents and affiliates against any liability, damage, expense,
claim or loss, including reasonable costs and attorneys fees, resulting
from acceptance of, or acting or failure to act upon, this Authorization.
E. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution
account listed.
Cash proceeds in any amount from the redemption of shares will
be mailed or wired, whenever possible, upon request, if in an amount
of $1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this
Fund account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________ ____________________________________
Account Registration Financial Institution Account Number
_______________________________ ____________________________________
Financial Institution Name Financial Institution Transit/Routing
Number
_______________________________ ____________________________________
Street City State Zip
STEP 4
Section A
DEPOSITORS AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to
my/our account any drafts or debits drawn on my/our account initiated
by the Agent, Administrative Data Management Corp., and to pay such
sums in accordance therewith, provided my/our account has sufficient
funds to cover such drafts or debits. I/We further agree that your
treatment of such orders will be the same as if I/we personally signed
or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you
receive my/our written instructions to cancel this service. I/We also
agree that if any such drafts or debits are dishonored, for any
reason, you shall have no liabilities.
Financial Institution Account Number _______________________________________
Name and Address where my/our account is maintained
Name of Financial Institution______________________________________________
Street Address_____________________________________________________________
City___________________________________________State _________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account is
registered
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila
Distributors, Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted pursuant
to the above authorization shall be subject to the provisions of the
Operating Rules of the National Automated Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer in
connection with the execution and issuance of any electronic debit
in the normal course of business initiated by the Agent (except
any loss due to your payment of any amount drawn against insufficient
or uncollected funds), provided that you promptly notify us in
writing of any claim against you with respect to the same, and further
provided that you will not settle or pay or agree to settle or pay any
such claim without the written permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause,
any such electronic debit.
STEP 4
Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of
legal age to purchase shares of the Fund and has received and
read a current Prospectus of the Fund and agrees to its terms.
- - I/We authorize the Fund and its agents to act upon these
instructions for the features that have been checked.
- - I/We acknowledge that in connection with an Automatic Investment or
Telephone Investment, if my/our account at the Financial Institution
has insufficient funds, the Fund and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Fund account to make up any deficiency
resulting from any decline in the net asset value of shares so
purchased and any dividends paid on those shares. I/We authorize the
Fund and its agents to correct any transfer error by a debit or credit
to my/our Financial Institution account and/or Fund account and to
charge the account for any related charges. I/We acknowledge that
shares purchased either through Automatic Investment or Telephone
Investment are subject to applicable sales charges.
- - The Fund, the Agent and the Distributor and their Trustees, directors,
employees and agents will not be liable for acting upon instructions
believed to be genuine, and will not be responsible for any losses
resulting from unauthorized telephone transactions if the Agent follows
reasonable procedures designed to verify the identity of the caller.
The Agent will request some or all of the following information: account
name and number; name(s) and social security number registered to the
account and personal identification; the Agent may also record calls.
Shareholders should verify the accuracy of confirmation statements
immediately upon receipt. Under penalties of perjury, the undersigned
whose Social Security (Tax I.D.) Number is shown above certifies
(i) that Number is my correct taxpayer identification number and
(ii) currently I am not under IRS notification that I am subject to
backup withholding (line out (ii) if under notification). If no such
Number is shown, the undersigned further certifies, under penalties
of perjury, that either (a) no such Number has been issued, and a
Number has been or will soon be applied for; if a Number is not
provided to you within sixty days, the undersigned understands that
all payments (including liquidations) are subject to 31% withholding
under federal tax law, until a Number is provided and the undersigned
may be subject to a $50 I.R.S. penalty; or (b) that the undersigned
is not a citizen or resident of the U.S.; and either does not expect
to be in the U.S. for 183 days during each calendar year and does
not conduct a business in the U.S. which would receive any gain from
the Fund, or is exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW.
FOR A TRUST, ALL TRUSTEES MUST SIGN.*
__________________________ ____________________________ _________
Individual (or Custodian) Joint Registrant, if any Date
__________________________ ____________________________ _________
Corporate Officer, Partner, Title Date
Trustee, etc.
* For Trust, Corporations or Associations, this form must be accompanied
by proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment,
Expedited Redemption and Direct Deposit of Dividends) are effective
15 days after this form is received in good order by the Fund's Agent.
- - You may cancel any feature at any time, effective 3 days after the
Agent receives written notice from you.
- - Either the Fund or the Agent may cancel any feature, without prior
notice, if in its judgment your use of any feature involves unusual
effort or difficulty in the administration of your account.
- - The Fund reserves the right to alter, amend or terminate any or all
features or to charge a service fee upon 30 days written notice to
shareholders except if additional notice is specifically required by
the terms of the Prospectus.
BANKING INFORMATION
- - If your Financial Institution account changes, you must complete a
Ready Access features form which may be obtained from Aquila
Distributors at 1-800-453-6864 and send it to the Agent together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution change is effective in 15
days after this form is received in good order by the Fund's Agent.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees to
the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan
(the "Plan") as agent for the person (the "Planholder") who
executed the Plan authorization.
2. Certificates will not be issued for shares of the Fund purchased
for and held under the Plan, but the Agent will credit all such
shares to the Planholder on the records of the Fund. Any share
certificates now held by the Planholder may be surrendered
unendorsed to the Agent with the application so that the shares
represented by the certificate may be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the
Fund at Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments
will be made at the Net Asset Value per share in effect at the
close of business on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address
to which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder
should allow at least two weeks time in mailing such notification
before the requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice
(in proper form in accordance with the requirements of the then current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In such case the Agent will redeem the number of shares
requested at the Net Asset Value per share in effect in accordance with
the Fund's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Fund. The Agent will also terminate the Plan upon
receipt of evidence satisfactory to it of the death or legal
incapacity of the Planholder. Upon termination of the Plan by the
Agent or the Fund, shares remaining unredeemed will be held in an
uncertificated account in the name of the Planholder, and the account
will continue as a dividend-reinvestment, uncertificated account
unless and until proper instructions are received from the Planholder,
his executor or guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for
the Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as his agent in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional lump sum
investment may be made, such investment should normally be an amount
equivalent to three times the annual withdrawal or $5,000, whichever
is less.
<PAGE>
INVESTMENT ADVISER
Citizens Trust Company
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
Paul Y. Clinton
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
TRANSFER AND SHAREHOLDER SERVICING AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights.......................................2
Table of Expenses................................4
Financial Highlights.............................5
Introduction.....................................6
Investment Of The Fund's Assets..................6
Investment Restrictions.........................11
Net Asset Value Per Share.......................12
How To Invest In The Fund.......................12
How To Redeem Your Investment...................14
Automatic Withdrawal Plan.......................17
Management Arrangements.........................17
Dividend And Tax Information....................20
Exchange Privilege..............................24
General Information.............................26
Application
AQUILA
[LOGO]
Narragansett
[LOGO]
Insured Tax-Free Income Fund
PROSPECTUS
One Of The
Aquilasm Group Of Funds
<PAGE>
Aquila
Narragansett
Insured Tax-Free Income Fund
380 Madison Avenue
Suite 2300
New York, New York 10017
800-453-6864
212-697-6666
Statement of Additional Information
May 1, 1996
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. This Additional Statement should
be read in conjunction with the Prospectus (the "Prospectus") dated
May 1, 1996, of Narragansett Insured Tax-Free Income Fund (the
"Fund"), which may be obtained by request from the Fund's transfer
agent, Administrative Data Management Corp., by writing to: 581
Main Street, Woodbridge, NJ 07095-1198 or by calling the following
numbers:
800-637-4633 toll free or 908-855-5731
or from Aquila Distributors, Inc., the Fund's Distributor, by
writing to it at 380 Madison Avenue, Suite 2300, New York, New York
10017; or by calling:
800-453-6864 toll free or 212-697-6666
In Rhode Island: 401-453-6864
The Annual Report of the Fund for the fiscal year ended
June 30, 1995 and the semi-annual report for the six months ended
December 31, 1995 (unaudited) will be delivered with the Additional
Statement.
TABLE OF CONTENTS
Investment of the Fund's Assets. . . . . . . . . . . . . . . . .2
Additional Information about the Rhode Island Economy. . . . . .5
Municipal Bonds. . . . . . . . . . . . . . . . . . . . . . . . 16
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Investment Restrictions. . . . . . . . . . . . . . . . . . . . 20
Distribution Plan. . . . . . . . . . . . . . . . . . . . . . . 21
Limitation of Redemptions in Kind. . . . . . . . . . . . . . . 23
Trustees and Officers. . . . . . . . . . . . . . . . . . . . . 24
Additional Information as to Management Arrangements . . . . . 28
Computation of Net Asset Value . . . . . . . . . . . . . . . . 32
Automatic Withdrawal Plan. . . . . . . . . . . . . . . . . . . 34
Additional Tax Information . . . . . . . . . . . . . . . . . . 34
General Information. . . . . . . . . . . . . . . . . . . . . . 34
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 36
<PAGE>
INVESTMENT OF THE FUND'S ASSETS
The investment objective and policies of the Fund are
described in the Prospectus, which refers to the matters described
below. See the Prospectus for the definition of "Rhode Island
Obligations."
Ratings
The ratings assigned by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") represent
their respective opinions of the quality of the municipal bonds and
notes which they undertake to rate. It should be emphasized,
however, that ratings are general and not absolute standards of
quality. Consequently, obligations with the same maturity, stated
interest rate and rating may have different yields, while
obligations of the same maturity and stated interest rate with
different ratings may have the same yield. See Appendix A to this
Additional Statement for further information about the ratings of
Moody's and S&P as to the various rated Rhode Island Obligations
which the Fund may purchase.
The table below gives information as to the percentage of Fund
net assets invested, as of June 30, 1995, in Rhode Island
Obligations in the various rating categories:
Highest rating (1). . . . . . . . . 100%
Second highest rating (2) . . . . . . 0%
Third highest rating (3). . . . . . . 0%
Fourth highest rating (4) . . . . . . 0%
Unrated Obligations . . . . . . . 0%
100.0%
(1) Aaa of Moody's or AAA of S&P.
(2) Aa of Moody's or AA of S&P.
(3) A of Moody's or A of S&P.
(4) Baa of Moody's or BBB of S&P.
When-Issued and Delayed Delivery Obligations
The Fund may buy Rhode Island Obligations on a when-issued or
delayed delivery basis. The purchase price and the interest rate
payable on the Rhode Island Obligations are fixed on the
transaction date. At the time the Fund makes the commitment to
purchase Rhode Island Obligations on a when-issued or delayed
delivery basis, it will record the transaction and thereafter
reflect the value each day of such Rhode Island Obligations in
determining its net asset value. The Fund will make commitments for
such when-issued transactions only when it has the intention of
actually acquiring the Rhode Island Obligations. The Fund places an
amount of assets equal in value to the amount due on the settlement
date for the when-issued or delayed delivery securities being
purchased in a segregated account with the Custodian, which is
marked to market every business day. On delivery dates for such
transactions, the Fund will meet its commitments by selling the
Rhode Island Obligations held in the separate account and/or from
cash flow.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage
computed by taking the lesser of purchases or sales of portfolio
securities for a year and dividing it by the monthly average value
of such securities during the year, excluding certain short-term
securities. Since the turnover rate of the Fund will be affected by
a number of factors (see below), the Fund is unable to predict what
rate the Fund will have in any particular period or periods,
although the rate is not expected to exceed 100%. The factors which
may affect the rate include (i) assuming or moving away from a
defensive position; a defensive position could be assumed by
shortening the average maturity of the portfolio; (ii) the possible
necessary sales of Rhode Island Obligations to meet redemptions;
and (iii) the possibility of purchasing or selling Rhode Island
Obligations without regard to the length of time these obligations
have been held to attempt to take advantage of short-term
differentials in yields on these obligations with the objective of
seeking exempt-interest income while conserving capital. Short-term
trading increases portfolio turnover and transaction costs.
However, the turnover rate could be substantially higher or lower
in any particular period versus that of a prior period.
Insurance Feature
As a matter of practice, insurers of municipal obligations
provide insurance only on issues which on their own credit rating
are of investment grade, i.e., those within the top four credit
ratings of the Nationally Recognized Statistical Rating
Organizations. In some instances, insurers restrict issuance of
insurance to those issues which would be credit rated "A" or better
by those organizations. These practices by the insurers tend to
reduce the risk that they might not be able to respond to the
default in payment of principal or interest on any particular
issue.
In general, New Issue Insurance provides that if an issuer
fails to make payment of principal or interest on an insured Rhode
Island Obligation, the payment will be made promptly by the
insurer. There are no deductible clauses, the insurance is
non-cancelable and the tax-exempt character of any payment in
respect of interest received is not affected. Premiums for such
insurance are not paid by the Fund but are paid once and for all
for the life of the issue at the time the securities are issued,
generally by the issuer and sometimes by the underwriter. The right
to receive the insurance proceeds is a part of the security and is
transferable on any resale.
The following information regarding Municipal Bond Investors
Assurance Corporation ("MBIA"), Financial Guaranty Insurance
Company ("Financial Guaranty") and AMBAC Indemnity Corporation
("AMBAC Indemnity"),has been derived from information furnished by
the insurers. The Fund has not independently verified any of the
information, but the Fund is not aware of facts which would render
such information inaccurate.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance
corporation, regulated by the Insurance Department of the State of
Wisconsin, and licensed to do business in 50 states and the
District of Columbia. AMBAC Indemnity is a wholly-owned subsidiary
of AMBAC, Inc., a publicly held company. AMBAC Indemnity had
admitted assets of approximately $1.9 billion (unaudited) and
qualified statutory capital of approximately $1.1 billion
(unaudited) as of September 30, 1993. Statutory capital consists of
AMBAC Indemnity's statutory contingency reserve and policyholders'
surplus. The claims-paying ability of AMBAC Indemnity is rated
"AAA" by S&P and "Aaa" by Moody's.
MBIA is a limited liability corporation domiciled in New York
and licensed to do business in 50 states and the District of
Columbia. It is the principal operating subsidiary of MBIA Inc., a
New York Stock Exchange listed company. Neither MBIA Inc. nor its
shareholders are obligated to pay the debts of or claims against
MBIA. As of September 30, 1993, MBIA had admitted assets of
approximately $3.0 billion (unaudited), total liabilities of
approximately $2.0 billion (unaudited) and total capital and
surplus of approximately $951 million (unaudited). The
claims-paying ability of MBIA is rated "AAA" by S&P and "Aaa" by
Moody's.
Financial Guaranty is a New York stock insurance company
regulated by the New York State Department of Insurance and
authorized to provide insurance in 49 states and the District of
Columbia. Financial Guaranty is a wholly-owned subsidiary of FGIC
Corporation, a Delaware holding company, which is 99% owned by
General Electric Capital Corporation and 1% owned by Sumitomo
Marine and Fire Insurance Company Limited. Neither FGIC Corporation
nor GE Capital Corporation is obligated to pay the debts of or the
claims against Financial Guaranty. As of September 30, 1993,
Financial Guaranty's total capital and surplus was approximately
$745 million. The claims-paying ability of Financial Guaranty is
rated "AAA" by S&P and "Aaa" by Moody's.
Other insurance companies from which the Fund has purchased
insurance from, or Rhode Island Obligations insured by include the
following:
Financial Security Assurance Co., which is owned by U.S. West
Capital Corp. (61%), Public & Employees (22.1%), Fund America
Enterprises (0.5%) and Tokyo Marine & Fire Insurance Co, Ltd.
(7.4%); it is rated Aaa by Moody's and AAA by S&P;
Connie Lee Insurance Company, a semi-public company, owned by
Student Loan Marketing Association (36.0%), Private Shareholders
(30.0%), PA School Employees Retirement System (20%) and the
U.S.Department of Education (14%); it is rated AAA by S&P and not
rated by Moody's; and
Capital Guaranty Insurance Co., owned by Constellation
Investments, Inc. (12.6%), Safeco (3.0%), Sibag Finance Corp.
(1.8%) and 82% by the public; it is rated Aaa by Moody's and AAA by
S&P.
The Fund may also use other insurers. However, the Fund will
seek to ensure that any insurer used will itself have a AAA or Aaa
rating.
ADDITIONAL INFORMATION ABOUT THE RHODE ISLAND ECONOMY
The Fund believes the information summarized below describes
some of the more significant developments relating to Rhode Island
Obligations. The sources of such information include information
provided by and relating to the State of Rhode Island appearing in
the Official Statement dated July 3, 1995 relating to the State of
Rhode Island and Providence Plantations General Obligation Tax
Anticipation Notes, due June 28, 1996, as well as other publicly
available documents. The Fund has not independently verified any of
the information contained in such official statement and other
publicly available documents, but is not aware of any facts which
would render such information inaccurate. Rhode Island operates on
a June 30 fiscal year.
STATE GOVERNMENT ORGANIZATION AND FINANCES
General
The State is governed by its Constitution, the present form of
which was adopted by the electorate in 1986.
Under the State Constitution, the powers of government are
divided into three branches: legislative, executive and judicial.
The legislative power of the government is vested in the General
Assembly, which consists of a 50 member Senate and a 100 member
House of Representatives. A question approved by the voters in the
November 8, 1994 referendum changes the composition, pay scale and
pension of the General Assembly. Commencing in 2003, there will be
seventy-five (75) members of the House of Representatives and
thirty-eight (38) members of the Senate. They shall be constituted
on the basis of population and the representative districts shall
be as nearly equal in population and as compact in territory as
possible. All members of the General Assembly are elected
biennially from senatorial and representative districts established
by general law on the basis of population. The General Assembly
meets annually beginning on the first Tuesday in January.
The chief executive power of the State is vested in the
Governor and, by succession, the Lieutenant Governor. Each are
elected for four (4) year terms. The Governor is primarily
responsible for the faithful execution of laws enacted by the
General Assembly and for the administration of the State government
through the Executive Department. The State Constitution also
provides for the election of three additional general State
Officers: the Attorney General, Secretary of State and General
Treasurer. Under the State Constitution, the Governor is granted
the power to veto any act adopted by the General Assembly,
provided, however, that any such veto can be overridden by a 3/5
vote of both houses of the General Assembly. The Governor does not
have any power of line-item veto.
The judicial power of the State is vested in the Supreme Court
and such inferior courts as are established by the General
Assembly. The Supreme Court, appointed by the Governor and
confirmed by the Senate, has final revisory and appellate
jurisdiction upon all questions of law and equity. The General
Assembly has also established a Superior Court, Family Court, a
District Court and certain municipal courts in various cities and
towns in the State.
Municipalities
Below the level of State government, Rhode Island is divided
into 39 cities and towns which exercise the functions of local
general government. There is no county governmental structure.
Local executive power is generally placed in a mayor,
administrator/manager or town council form of government, and
legislative power is vested in either a city or town council. As
provided in the State Constitution, municipalities have the right
of self government in all local matters by adopting a "home rule"
charter. Every city or town, however, has the power to levy, assess
and collect taxes, or borrow money, only as specifically authorized
by the General Assembly. Except for matters that are reserved
exclusively to the General Assembly, such as taxation and
elections, the State Constitution restricts the power of the
General Assembly on actions relating to the property, affairs and
government of any city or town which has adopted a "home rule"
charter, to general laws which apply to all cities and towns, but
which shall not affect the form of government of any city or town.
The General Assembly has the power to act in relation to a
particular home rule charter community, provided that such
legislative action shall become effective only upon approval of a
majority of the voters of the affected city or town. Rhode Island
General Law (44-35-10) requires every city and town to adopt a
balanced budget for each fiscal year. Local governments rely
principally upon general real and tangible personal property taxes
and automobile excise taxes for provision of revenue.
During the 1985 Session of the General Assembly, a law was
passed entitled "An Act Providing Property Tax Relief and
Replacement and Establishing a Cap on City and Town Property Tax
Levy Growth". Enacted as section 44-5-2 of the General Laws and
entitled "Maximum Levy", the legislation limits tax levy or rate
increases by municipalities to an increase no greater than 5.5
percent over the previous year. Legislation was also enacted which
authorized tax levy or rate increases of greater than 5.5 percent
in the event that debt service is on present and future general
obligation debt increase at a rate greater than 5.5 percent. The
legislation also provides for the certification by a state agency
of the appropriate property tax base to be used in computations in
any year when revaluation is being implemented. Provisions of
section 44-5-2 also include authorization to exceed this limitation
in the event of loss of non-property tax revenue, or when an
emergency situation arises and is certified by the State Auditor
General. In such an emergency situation, such levy in excess of a
5.5 percent increase must be approved by a majority of the city or
town governing body or electors voting at the financial town
meeting. The statute was amended to clarify that nothing in the tax
levy cap provisions was intended to constrain the payment of
obligations of cities and towns. The power of the cities and towns
to pay their general obligation bonds and notes is unlimited and
each city or town is required to levy ad valorem taxes upon all the
taxable property for the payment of such bonds and notes and the
interest thereon, without limitation as to rate or amount.
Aid to cities and towns has risen from approximately $389.7
million in FY 1991 to $469.6 million in FY 1995. The Governor
recommended $465.4 million for FY 1996. The largest category of
State aid to cities and towns involves assistance programs for
school operations and school buildings. The general school aid
program reimburses communities on the basis of the relationship
between the number of students and the property wealth of the
community and its personal income.
In addition to reimbursement of operations costs, state school
construction aid is also provided at levels ranging from 30 percent
to 87 percent of the construction cost of new facilities. The level
is also based upon the relationship between students and community
wealth, and also takes into consideration the relative weight of
school debt in the particular city or town to its total debt.
Beginning in fiscal year 1991, bond interest payments were included
as reimbursable expenditures along with other project costs for
bonds issued on or after July 1, 1988. A related program provides
approximately $1.8 million to cities and towns to provide aid in
the construction of libraries.
The distribution formula for school aid was modified in fiscal
year 1995 to weight the distribution more heavily towards districts
with proportionally more children from poorer families. This was
adopted in response to a Superior Court ruling that challenged the
then existing formulae. The Court ruled that minimum guarantee
portions of the distribution formula, certain categories of aid,
and use of "hold-harmless" provisions threatened universal
education opportunity.
The Governor and Assembly adopted a new formula for FY 1995
that distributes a total of $414.7 million in total education aid.
It modified the operations aid formula by eliminating minimum
guarantee entitlement and phasing out the regionalization bonus.
The phase out reduces the regionalization bonus by 40.0 percent in
FY 1995. That bonus, which had been provided to encourage districts
to attain efficiencies through regionalization, was one of the
categories challenged by the Court.
The formula for the FY 1995 education aid budget established
a Poverty Weight Fund. Of the $414.7 million budgeted for education
aid, $46.1 million was distributed through the Poverty Weight Fund.
In addition, $1.7 million of the $414.7 million budgeted for
education aid was distributed through the Distressed District Fund
to assist those communities that were eligible for the FY 1992
retirement deferral option and whose total reimbursable education
expenditures declined between FY 1991 and FY 1992. The FY 1995
budget also includes an additional $16.9 million in school
construction aid.
The Governor's recommended budget for FY 1996 increases school
aid by $22.9 million percent), including $20.7 million in
additional operations aid. Nearly all the additional operations aid
is distributed through the Poverty Weight Fund to further equalize
aid.
The Governor's Budget also eliminates the local general
revenue sharing and payment-in-lieu of taxes programs. The 1987
session of the General Assembly had enacted legislation which
consolidated all prior revenue sharing components into one general
revenue sharing program and incorporated a distribution formula
based upon relative population, tax effort and personal income of
each city and town. In addition, the State distributes the proceeds
of a statewide tax imposed on the tangible personal property of
telephone, telegraph, cable, express and telecommunications
companies. The 1991 General Assembly passed legislation to
dedicate, beginning in fiscal year 1991, an amount equal to one
percent of second prior year total state tax revenues to general
state aid. That program has varied since FY 1991, between no
funding in FY 1992 to $13.6 million in FY 1995.
The payment-in-lieu of taxes program authorized the Assembly
to appropriate and distribute to communities amounts not to exceed
25 percent of the property taxes that would have been collected on
tax exempt properties. These include private colleges, hospitals,
and the correctional facilities. Funding was provided in fiscal
years 1988 ($2.5 million), 1989 ($3.1 million), 1991 ($3.5
million), 1992-1994 ($2.8 million), and 1995 ($12.2 million).
One of the State's municipalities, the City of Central Falls,
has experienced financial difficulties. The Central Falls Review
Commission was established under Chapter 65 of the Public Laws of
1990 and published its report in January of 1991. The report found
the City of Central Falls to be in a serious financial condition
and made thirteen recommendations for city and state action. The
recommendation most widely publicized is the State's assumption of
responsibility for funding education in Central Falls. The FY 1992
enacted budget provided statutory authority for full funding of
educational programs in the City of Central Falls. Full financial
and administrative takeover of the Central Falls school system
occurred July 1, 1992. Another equally important provision
established a continuing review commission which will monitor,
stabilize and improve the fiscal health of the municipality,
particularly in light of the State's unique relationship with, and
investment in, the Central Falls School District.
Budget Procedures
The State budget of revenues and appropriations for
administrative and other expenses of the State is adopted annually
by the General Assembly and is prepared for submission to the
General Assembly, under the supervision of the Governor, by the
State Budget Officer within the Department of Administration.
Preparation and submission of the budget is governed by both the
State Constitution and the general laws of the State, which provide
various limitations on the powers of the General Assembly and
certain guidelines designed to maintain fiscal responsibility.
According to Article IX Section 16 of the Rhode Island
Constitution and the Rhode Island General Laws section 35-3-7, the
Governor must present spending recommendations to the Legislature
on or before the third Wednesday in February, unless extended by
statute. The budget contains a complete plan of estimated revenues
and proposed expenditures with a personnel supplement detailing
number and titles of positions of each agency and estimates of
personnel costs for the next fiscal year.
The budget as proposed by the Governor is considered by the
General Assembly which, under state law, may increase, decrease,
alter or strike out any items in the budget, provided the General
Assembly may not take action which would cause an excess of
appropriations for revenue expenditures over expected revenue
receipts. No appropriation in excess of budget recommendations may
be made by the General Assembly unless it shall provide the
necessary additional revenue to cover such appropriations. The
Governor may veto legislative appropriations bills. However, the
Rhode Island Governor does not have line-item veto authority. The
Legislature may override any veto by a two-thirds majority vote.
Supplemental appropriations measures may be submitted by the
Governor to the General Assembly at any time. Supplemental
appropriations by the General Assembly must be supported by
additional revenues and are subject to the Constitutional
limitation on state expenditures discussed below.
The General Laws of the State provide that, if the General
Assembly fails to pass the annual appropriation bill, the same
amounts as were appropriated in the prior fiscal year shall be
automatically available for expenditure, subject to monthly or
quarterly allotments as determined by the State Budget Officer.
Expenditures for general obligation bond indebtedness of the State
shall be made as required regardless of the passage of the annual
budget or the amount provided for in the prior fiscal year.
The budget as submitted by the Governor is required to contain
a statement of receipts and expenditures for the current fiscal
year, the budget year (next fiscal year), and two prior fiscal
years. Receipt estimates for the current year and budget year are
those adopted by the State Revenue Estimating Conference, as
adjusted by any change to rates recommended by the Governor.
The State Revenue Estimating Conference was created by the
1990 General Assembly to provide the Governor and the Assembly with
estimates of general revenues. It is composed of the State Budget
Officer, the House Fiscal Advisor, and the Senate Fiscal Advisor,
with the chair rotating among the three. It must meet quarterly and
can be called at any other time by any member, and must reach
consensus on revenues. The 1991 Assembly created a Medical
Assistance and Public Assistance Caseload Estimating Conference,
similar to the Revenue Estimating Conference, to adopt welfare and
medical assistance caseload estimates.
In addition to the preparation of the annual budget, the State
Budget Officer is also authorized and directed by the general laws:
(a) to exercise budgetary control over all State departments; (b)
to operate an appropriation allotment system; (c) to develop
long-term activity and financial programs, particularly capital
improvement programs; and (d) to prepare annually a five year
financial projection of anticipated general revenue receipts and
expenditures, including detail of principal revenue sources and
expenditures by major program areas. The five year financial
projection for 1996 through 2000 was included in the Executive
Summary of the Governor's Budget for FY 1996.
The 1990 Assembly instituted a limit on state expenditures
commencing in FY 1992 such that appropriations do not result in
general fund expenditures exceeding 99.5 percent of general fund
revenues in FY 1993, 98.5 percent in FY 1994 and 98.0 percent
thereafter. The remaining balance is to be deposited into a budget
reserve account, capped at 3 percent of general fund revenues. Once
capped, the excess is deposited in a Capital Account, to be used
for capital projects, debt reduction, and/or debt service. The 1991
Assembly suspended those provisions for FY 1992, but provided that
any revenues received in excess of the amount estimated shall be
deposited in the account, up to one half percent of general
revenues. Excess revenues were received in FY 1993, largely as a
result of medicaid disproportionate share and provider tax
receipts, and an $8.4 million deposit was made into the fund.
The 1992 General Assembly approved placing the spending limits
on the ballot as a constitutional requirement, which the voters
approved on November 3, 1992. The FY 1994 reserve fund balance is
$43.3 million and is projected to be $45.3 million for FY 1995.
Financial Controls
Internal financial controls utilized by the State consist
principally of statutory restrictions on the expenditure of funds
in excess of appropriations, the supervisory powers and functions
exercised by the Department of Administration and the accounting
and audit controls maintained by the State Controller and the
Bureau of Audits. Statutory restrictions include the requirement
that all bills or resolutions introduced in the General Assembly
which, if passed, would have an effect on State or local revenues
or expenditures (unless the bill includes the appropriation of a
specific dollar amount) must be accompanied by a "fiscal note,"
which sets forth such effect. Bills impacting upon State finances
are forwarded to the State Budget Officer who determines the agency
or agencies affected by the bill and is responsible, in cooperation
with such agencies, for the preparation of the fiscal note. The
State Department of Administration is responsible for the
preparation of fiscal notes for bills affecting cities and towns.
In addition, if at any time during a fiscal year the State Budget
Officer determines that actual revenue receipts or resources will
not equal the original estimates upon which appropriations were
based or that spending will exceed appropriations, the Governor,
"for the purpose of maintaining a balanced budget," has the power
to reduce or suspend appropriations for any or all departments
except the General Assembly and its legislative agencies and
commissions.
In the event the Governor reduces or suspends appropriations,
the speaker of the house, senate majority leader and chairpersons
of the house and senate finance committees are required by law to
be notified in writing. Quarterly or monthly allotments of
appropriations
are required by law to be provided to the chairpersons of the house
and senate finance committees by the budget office.
The Department of Administration is required by law to produce
a quarterly report to be made public which incorporates actual
expenditures, encumbrances, and revenues with the projected
revenues and appropriations. The report also contains a projection
of a year-end balance.
The State Controller is required by general law to administer
a comprehensive accounting system which will classify the
transactions of State departments in accordance with the budget
plan, to prescribe a uniform financial, accounting and cost
accounting system for State departments and to approve all orders
for disbursement of funds from the State treasury. In addition to
his or her other duties, the Controller is required to prepare
monthly statements of receipts and disbursements in comparison with
estimates of revenue and allotments of appropriations.
The General Treasurer is responsible for the deposit of cash
receipts; the payment of sums, as may be required from time to time
and upon due authorization from the State Controller; and as Chair
of the State Investment Commission, the investment of all monies in
the State fund structure, as directed by the State Investment
Commission. Major emphasis is placed by the General Treasurer on
cash management in order to insure that there is adequate cash on
hand to meet the obligations of the State as they arise.
The General Treasurer is responsible for the investment of
certain funds and accounts of the State on a day-to-day basis. The
State treasury balance is determined daily. In addition, the
General Treasurer is the custodian of certain other funds and
accounts and in conjunction with the State Investment Commission,
invests the amounts on deposit in such funds and accounts,
including but not limited to the State Employees' and Teachers'
Retirement Trust Fund and the Municipal Employees' Retirement Trust
Fund. The General Treasurer submits a report to the General
Assembly at the close of each fiscal year on the performance of the
State's investments.
The Finance Committee of the House of Representatives is
required by law to provide for a complete post-audit of the
financial transactions and accounts of the State on an annual
basis, which must be performed by the Auditor General, who is
appointed by the Joint Committee on Legislative Affairs of the
General Assembly. This post-audit is performed traditionally on the
basis of financial statements prepared by the State Controller with
specific attention to the violation of laws within the scope of the
audit, illegal or improper expenditures or accounting procedures
and recommendations for accounting and fiscal controls. The Auditor
General is additionally directed to review annually all capital
development programs of the State to determine: (a) the status of
such programs; (b) whether funds are being properly expended; (c)
completion dates; and (d) expended and unexpended fund balances.
The Auditor General also has the power, when directed by the Joint
Committee, to make post-audits and performance audits of all State
and local public bodies or any private entity receiving State
funds.
RHODE ISLAND ECONOMY
General Information
With the establishment of the water-powered Slater Mill in
Pawtucket in 1793, Rhode Island became the cradle of the Industrial
Revolution in America. Over time, the state has developed a modern,
diversified economy providing employment for over 470,000 Rhode
Island residents in both goods and service industries. In 1993,
goods producing industries generated $3.7 billion in earnings and
accounted for 17 percent of Rhode Island's total personal income.
Service industries in the same year generated $10.1 billion in
earnings and accounted for 48 percent of the State's personal
income.
Population Characteristics
Rhode Island's population of 1,003,464 is ranked 43rd among
the 50 states and 2nd in density, with an average of 960.3 persons
per square mile. Rhode Island's 1.0 million people represent 0.4
percent of the total United States population. Over the period 1980
to 1990, the State's population grew by 6 percent, which is less
than the national population growth of 11.3 percent over the same
period. Since the late 1980's, Rhode Island's population growth has
slowed, producing a relatively stable population.
Personal Income. Total personal income in Rhode Island
increased by 73.2 percent in nominal terms between 1984 and 1994.
In 1994, the Rhode Island economy generated $22.2 billion in
personal income. Rhode Island's per capita income of $22,251 is
ranked 19th among the 50 states and, as shown below, has grown
faster than the national average.
Economy
Composition of Employment. In recent years, Rhode Island's
employment mix has shifted with an increasing proportion of
employment in service producing sectors at the expense of goods
producing sectors. Between 1984 and 1994, employment in the goods
producing industries declined by 25.6 percent (135,000 to 100,500)
while employment in service producing industries grew by 18.5
percent (281,400 to 333,500).
The service and wholesale/retail trade sectors were the
largest source of growth in the service producing industries.
Within the service sector, health services has been the fastest
growing industry group, generating over 15,000 new jobs in the past
10 years.
Manufacturing
In 1993, the manufacturing sector contributed $3.0 billion, or
13.9 percent of Rhode Island's total personal income. Personal
income derived from this sector increased 28 percent between 1983
and 1993.
Rhode Island is the jewelry capital of the world, with over
35,000 employed in jewelry manufacturing, distribution and related
services. Precious metal jewelry, fashion jewelry, crystal,
boutique and novelty items, recognition insignia (such as key
chains and pens, awards, and military insignia) are manufactured
and assembled in Rhode Island and exported worldwide.
Hasbro, the world's second largest toy manufacturer, and
G-Tech, the world's largest supplier of on-line lottery systems,
are headquartered in Rhode Island. Electronic products manufactured
in the state include connectors, circuit boards, uninterruptable
computer power supplies, and wire and cable assemblies. Metrology
equipment, navigation equipment, medical equipment and supplies,
safety goggles, and protective breathing apparatus are also
manufactured here.
Rhode Island's skilled craftsmen produce a wide variety of
metal and plastic components. These components are used by
manufacturers throughout the world and include stampings,
fabricated metal parts, ferrous and non-ferrous castings, machined
parts, tools, dies and molds, wire and wiring products.
Chemical manufacturers located here produce products such as
pigments and dyes, drugs and advanced biomedical products, and
liquid and aerosol consumer products.
Wholesale and Retail Trade
In 1993, the wholesale and retail trade sector contributed
$2.0 billion, or 10 percent, of Rhode Island's total personal
income, and over 14.8 percent of the portion of personal income
derived from earnings. Employment in trade increased 7.3 percent
from 88,600 in 1984 to 95,100 in 1994.
Service
In 1993, the service sector contributed $4.0 billion, or 18.8
percent of Rhode Island's total personal income, and over 28.9
percent of the portion of personal income derived from earnings.
Employment in Rhode Island's service industries increased 37.8
percent from 99,200 in 1984, to 136,700 in 1994. Service is the
largest division of the State's economy with health services,
business services and educational services as the most important
groups.
Business services, engineering, accounting and research are
the fastest growing sectors of Rhode Island's economy, employing
over 29,500 in 1994. Rhode Island companies have developed
extensive system engineering and research facilities to support the
Naval Undersea Warfare Center in Newport. Over 2,600 firms not only
provide business support services for Rhode Island's diversified
economy, but also export these services throughout the United
States and the world.
Health services is the largest employment group in Rhode
Island. There are 14 general hospitals and two voluntary
psychiatric hospitals in Rhode Island. All acute care general
hospitals are approved by the Joint Commission for Accreditation,
and are eligible providers under the Medicate programs. In
addition, there are 110 nursing and personal-care facilities in
Rhode Island.
Annually, Rhode Island's colleges and universities award
almost 16,000 degrees. Three public and nine private colleges and
universities provide enrollment for over 79,000 students, including
55,000 undergraduate, and 8,900 graduate students. The majority of
these students are from other areas of the United States and
foreign countries. Rhode Island's institutions of higher learning
are widely recognized for their prominence in specialized areas:
Brown University's science, medical, and engineering programs, the
Rhode Island School of Design's art and design programs, and the
University of Rhode Island's engineering, pharmacy, and
oceanographic research programs.
Government
In 1993, the government sector contributed $2.3 billion, or
10.8 percent of Rhode Island's total personal income, and over 16.6
percent of the portion of personal income derived from earnings.
Government employment in Rhode Island has increased 7.7 percent
since 1984 from 57,400 to 61,800 in 1994.
The United States Navy maintains a significant presence in
Newport, Rhode Island, the Naval Education and Training Center;
Naval War College; and the Naval Undersea Warfare Center. These
facilities employ over 7,543 military and civilian personnel, and
have an average daily enrollment of almost 2,022 students. The
Naval Undersea Warfare Center, with its major laboratories in
Newport and Middletown, is a prime source of high technology that
provides the Navy its tactical and strategic edge in combat
systems, surface ship sonar, and undersea ranges. In 1994, the
Naval Undersea Warfare Center employed 3,829 people. Many Rhode
Island companies have developed extensive system engineering and
research facilities that provide support to the center.
Defense
In 1994, military personnel, civilian Department of Defense
personnel and private industry defense related employment in Rhode
Island was estimated at 15,887.
Total defense related employment has decreased from a 1987
high of 26,934 to 15,887 in 1994. Total defense contract awards to
Rhode Island firms have decreased from a high of $555 million in
1990, to $410 million in 1994. The Electric Boat Division of
General Dynamics, the largest defense contractor in Rhode Island,
is not included in these contract award totals. Contracts awarded
to the Electric Boat Division of General Dynamics are allocated to
the state of Connecticut.
ECONOMIC FORECAST
The recession that engulfed the Rhode Island economy appears
to have finally stabilized. After three years of falling
employment, the number of jobs in Rhode Island grew by 0.1 percent
in 1993. Data Resources, Inc. (DRI) forecasters estimate Rhode
Island job growth at an annual rate of 1.4 percent annually from
1994 to 1998 with personal income growth rates averaging 5.4
percent. Real personal income growth is forecast to average 2.2
percent.
The national recession has been longest and deepest in the New
England states. Since 1989, 9.6 percent of all of New England's
non-agricultural jobs have been lost. Rhode Island losses have
paralleled those of the rest of the region. Non-agricultural
employment in Rhode Island fell by 8.9 percent between the 1989
peak and the low point in 1992.
Rhode Island, Massachusetts, Connecticut and Maine rank among
the top 12 states in defense prime contract awards per capita. As
a result, federal defense cutbacks have affected this region
disproportionately. The national recovery did not affect all
regions equally. New England is forecast to continue to lag due to
the restructuring of the defense industry and overbuilding in real
estate markets.
The DRI estimators forecast that the national economy is
beginning to slow with a "soft landing" rather than a recession.
Consumer spending is slowing in response to higher interest rates
and rising debt burdens. Debt accumulation appears to have risen to
earlier peak levels; the rate of accumulation growth does not
appear sustainable.
The Rhode Island outlook is for continued recovery at a
sluggish pace. Non-farm employment has increased one percent
annually over the past three years and is estimated to remain at
1.2 percent annual growth through years 2000. It will continue to
lose manufacturing jobs to foreign competitors, high regulatory
costs, and the end of the Seawolf Program. Services will provide 80
percent of the new jobs created through 2000, reflecting growth in
business services, education, health care, and tourism.
Population growth is expected to average 0.4 percent annually
during FY 1995 - 2000. Population declined 0.2 percent annually
during the past three years as a result of a weak job market,
motivating out-migration. The shrinking labor force contributed to
the reduction of three points off the unemployment rate since the
spring of 1992. The unemployment rate is forecast to grow from the
currently forecast 6.4 percent for 1995 to 6.8 percent in 1996.
The gross state product has rebounded from -3.8 percent change
in 1991 to a high of 3.1 percent in 1994; however, that tracked the
overall growth rate of the U.S. economy. Growth rates are expected
to drop to 1.7 percent in 1995 and further to 1.2 percent in 1996.
Personal income growth also peaked in 1994, at 5.4 percent. Growth
drops to 5.3 percent in 1995 and 4.3 percent in 1996 before
rebounding in 1997.
MUNICIPAL BONDS
The two principal classifications of municipal bonds are
"general obligation" bonds and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, credit
and unlimited taxing power for the payment of principal and
interest. Revenue or special tax bonds are payable only from the
revenues derived from a particular facility or class of facilities
or projects or, in a few cases, from the proceeds of a special
excise or other tax, but are not supported by the issuer's power to
levy unlimited general taxes. There are, of course, variations in
the security of municipal bonds, both within a particular
classification and between classifications, depending on numerous
factors. The yields of municipal bonds depend on, among other
things, general financial conditions, general conditions of the
municipal bond market, size of a particular offering, the maturity
of the obligation and rating of the issue.
Since the Fund may invest in industrial development bonds or
private activity bonds, the Fund may not be an appropriate
investment for entities which are "substantial users" of facilities
financed by those bonds or for investors who are "related persons"
of such users. Generally, an individual will not be a "related
person" under the Internal Revenue Code unless such investor or his
or her immediate family (spouse, brothers, sisters and lineal
descendants) own directly or indirectly in the aggregate more than
50 percent of the equity of a corporation or is a partner of a
partnership which is a "substantial user" of a facility financed
from the proceeds of those bonds. A "substantial user" of such
facilities is defined generally as a "non-exempt person who
regularly uses a part of [a] facility" financed from the proceeds
of industrial development or private activity bonds.
As indicated in the Prospectus, there are certain Rhode Island
Obligations the interest on which is subject to the Federal
alternative minimum tax on individuals. While the Fund may purchase
these obligations, it may, on the other hand, refrain from
purchasing particular Rhode Island Obligations due to this tax
consequence. Also, as indicated in the Prospectus, the Fund will
not purchase obligations of Rhode Island issuers the interest on
which is subject to regular Federal income tax. The foregoing may
reduce the number of issuers the obligations of which are available
to the Fund.
As stated in the Prospectus, floating and variable rate demand
notes and participation interests (including municipal
lease/purchase obligations) are considered illiquid unless
determined by the Board of Trustees to be readily marketable. In
determining marketability of any such securities the Board of
Trustees will consider the following factors, not all of which may
be applicable to any particular issue: the quality, maturity and
coupon rate of the issue, ratings received from the nationally
recognized statistical rating organizations and any changes or
prospective changes in such ratings, the likelihood that the issuer
will continue to appropriate the required payments for the issue,
recent purchases and sales of the same or similar issues, the
general market for municipal securities of the same or similar
quality, the Adviser's opinion as to marketability of the issue and
other factors that may be applicable to any particular issue.
PERFORMANCE
As noted in the Prospectus, the Fund may from time to time
quote various performance figures to illustrate its past
performance.
Performance quotations by investment companies are subject
to rules of the Securities and Exchange Commission ("SEC"). These
rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation
furnished by the Fund be accompanied by certain standardized
performance information computed as required by the SEC. Current
yield and average annual compounded total return quotations used by
the Fund are based on these standardized methods and are computed
separately for each of the Fund's three classes of shares. Prior to
May 1, 1996, the Fund had outstanding only one class of shares
which are currently designated Class A Shares, "Front Payment Class
Shares." On that date the Fund began to offer shares of two other
classes, Class C Shares, "Level Payment Class Shares" and Class Y
Shares, "Institutional Class Shares." During the historical periods
listed below, there were no Class C Shares or Class Y Shares
outstanding and the information below relates solely to Class A
Shares. Each of these and other methods that may be used by the
Fund are described in the following material.
Total Return
Average annual total return is determined by finding the
average annual compounded rates of return over 1-year period and a
period since the inception of the operations of the Fund (on
September 10, 1992) that would equate an initial hypothetical
$1,000 investment to the value such an investment would have if it
were completely redeemed at the end of each such period. The
calculation assumes the maximum sales charge is deducted from the
hypothetical initial $1,000 purchase, that on each reinvestment
date during each such period any capital gains are reinvested at
net asset value, and all income dividends are reinvested at net
asset value, without sales charge (because the Fund does not impose
any sales charge on reinvestment of dividends). The computation
further assumes that the entire hypothetical account was completely
redeemed at the end of each such period.
Investors should note that the maximum sales charge (4%)
reflected in the following quotations is a one time charge, paid at
the time of initial investment. The greatest impact of this charge
is during the early stages of an investment in the Fund. Actual
performance will be affected less by this one time charge the
longer an investment remains in the Fund.
The average annual compounded rates of return for the Fund for
the 1-year period ended June 30, 1995 was 5.47%. The average annual
compounded rate of return for the Fund from inception to that date
was 4.72%.
These figures were calculated according to the following SEC
formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-year period
or the period since inception, at the end of each
such period.
As discussed in the Prospectus, the Fund may quote total rates
of return in addition to its average annual total return. Such
quotations are computed in the same manner as the Fund's average
annual compounded rate, except that such quotations will be based
on the Fund's actual return for a specified period as opposed to
its average return over the periods described above. The total
return for the Fund for the 1-year period ended June 30, 1995 was
5.47% and for the period from inception to that date was 13.81%. In
general, actual total rate of return will be lower than average
annual rate of return because the average annual rate of return
reflects the effect of compounding. See discussion of the impact of
the sales charge on quotations of rates of return, above.
Yield
Current yield reflects the income per share earned by the
Fund's portfolio investments. Current yield is determined by
dividing the net investment income per share earned during a 30-day
base period by the maximum offering price per share on the last day
of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base
period net of fee waivers and reimbursements of expenses, if any.
The yield for the Fund for the 30-day period ended on June 30, 1995
(the date of the Fund's most recent audited financial statements)
was 5.30%.
These figures were obtained using the Securities and Exchange
Commission formula:
6
Yield = 2 [(a-b + 1) -1]
____
cd
Where:
a = interest earned during the period
b = expenses accrued for the period (net of waivers and
reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the period
Taxable Equivalent Yield
The Fund may also quote a taxable equivalent yield which shows
the taxable yield that would be required to produce an after-tax
yield equivalent to that of a fund which invests in tax-exempt
obligations. Such yield is computed by dividing that portion of the
yield of the Fund (computed as indicated above) which is tax-exempt
by one minus the highest applicable combined federal and Rhode
Island income tax rate (and adding the result to that portion of
the yield of the Fund that is not tax-exempt, if any).
The Rhode Island and combined Rhode Island and federal income
tax rates upon which the Fund's tax equivalent yield quotations are
based are 8.92%* and 47.43%, respectively. From time to time, as
any changes to such rates become effective, taxable equivalent
yield quotations advertised by the Fund will be updated to reflect
such changes. Any tax rate increases will tend to make a tax-free
investment, such as the Fund, relatively more attractive than
taxable investments. Therefore, the details of specific tax
increases may be used in Fund sales material. The taxable
equivalent yield for the Fund for the 30-day period ended on June
30, 1995, was 10.01%.
* Maximum effective state rate. The State of Rhode Island
imposes state income taxes as a percentage of the taxpayer's
Federal Income Tax, thus the actual state rate is effectively
reduced by its deductibility for Federal tax purposes if
deductions are itemized.
Current Distribution Rate
Current yield and tax equivalent yield, which are calculated
according to a formula prescribed by the SEC, are not indicative of
the amounts which were or will be paid to the Fund's shareholders.
Amounts paid to shareholders are reflected in the quoted current
distribution rate or taxable equivalent distribution rate. The
current distribution rate is computed by (i) dividing the total
amount of dividends per share paid by the Fund during a recent
30-day period by (ii) the current maximum offering price and by
(iii) annualizing the result. A taxable equivalent distribution
rate shows the taxable distribution rate that would be required to
produce an after-tax distribution rate equivalent to the Fund's
current distribution rate (calculated as indicated above). The
current distribution rate can differ from the current yield
computation because it could include distributions to shareholders
from additional sources (i.e., sources other than dividends and
interest), such as short-term capital gains. If distribution rates
are published, they will be accompanied by calculations of current
yield in accordance with the formula of the Securities and Exchange
Commission.
Other Performance Quotations
With respect to those categories of investors who are
permitted to purchase shares of the Fund at net asset value, the
Fund may quote a "Current Distribution for Net Asset Value
Investments." This rate is computed by (i) dividing the total
amount of dividends per share paid by the Fund during a recent
30-day period by (ii) the current net asset value of the Fund and
by (iii) annualizing the result. Figures for yield, total return
and other measures of performance for Net Asset Value Investments
may also be quoted. These will be derived as described above with
the substitution of net asset value for public offering price.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used.
INVESTMENT RESTRICTIONS
The Fund has a number of policies concerning what it can and
cannot do. Those that are called fundamental policies cannot be
changed unless the holders of a "majority" (as defined in the 1940
Act) of the Fund's outstanding shares vote to change them. Under
that Act, the vote of the holders of a "majority" of the Fund's
outstanding shares means the vote of the holders of the lesser of
(a) 67% or more of the Fund's shares present at a meeting or
represented by proxy if the holders of more than 50% of its shares
are so present or represented; or (b) more than 50% of the Fund's
outstanding shares. Those fundamental policies not set forth in the
Prospectus are set forth below.
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than the Rhode Island
Obligations (discussed under "Investment of the Fund's Assets" in
the Prospectus). Therefore the Fund cannot buy any voting
securities, any commodities or commodity contracts, any mineral
related programs or leases, any shares of other investment
companies or any warrants, puts, calls or combinations thereof.
The Fund cannot purchase or hold the securities of any issuer
if, to its knowledge, Trustees, Directors or officers of the Fund
or its Adviser individually owning beneficially more than 0.5 of 1%
of the securities of that issuer together own in the aggregate more
than 5% of such securities.
The Fund cannot buy real estate or any non-liquid interests in
real estate investment trusts; however, it can buy any securities
which it can otherwise buy even though the issuer invests in real
estate or has interests in real estate.
2. The Fund does not buy for control.
The Fund cannot invest for the purpose of exercising control
or management of other companies.
3. The Fund does not sell securities it does not own or borrow
from brokers to buy securities.
Thus, it cannot sell short or buy on margin.
4. The Fund is not an underwriter.
The Fund cannot engage in the underwriting of securities, that
is, the selling of securities for others. Also, it cannot invest in
restricted securities. Restricted securities are securities which
cannot freely be sold for legal reasons.
DISTRIBUTION PLAN
The Fund's Distribution Plan has three parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II) and to certain defensive provisions (Part
III).
Provisions Relating to Class A Shares (Part I)
At the date of the Additional Statement, most of the
outstanding shares of the Fund would be considered Qualified
Holdings of various broker-dealers unaffiliated with the Adviser or
the Distributor. The Distributor will consider shares which are not
Qualified Holdings of such unrelated broker-dealers to be Qualified
Holdings of the Distributor and will authorize Permitted Payments
to the Distributor with respect to such shares whenever Permitted
Payments are being made under the Plan.
Part I of the Plan applies only to the Front Payment Shares
Class ("Class A Shares") of the Fund (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part I of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors, Inc.
(the "Distributor"), including but not limited to any principal
underwriter of the Fund, with which the Fund or the Distributor has
entered into written agreements in connection with Part I ("Class
A Plan Agreements") and which have rendered assistance (whether
direct, administrative, or both) in the distribution and/or
retention of the Fund's Front Payment Class Shares or servicing of
shareholder accounts with respect to such shares. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all Front
Payment shares beneficially owned by such Qualified Recipient, or
beneficially owned by its brokerage customers, other customers,
other contacts, investment advisory clients, or other clients, if
the Qualified Recipient was, in the sole judgment of the
Distributor, instrumental in the purchase and/or retention of such
shares and/or in providing administrative assistance or other
services in relation thereto.
Subject to the direction and control of the Board of Trustees
of the Fund, the Fund may make payments ("Class A Permitted
Payments") to Qualified Recipients, which Class A Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Fund (as adjusted for any part
or parts of a fiscal year during which payments under the Plan are
not accruable or for any fiscal year which is not a full fiscal
year), 0.15 of 1% of the average annual net assets of the Fund
represented by the Front Payment Class Shares. Such payments shall
be made only out of the Fund's assets allocable to the Front
Payment Class Shares.
During the fiscal years ended June 30, 1995 and 1994,
respectively, $48,132 and $38,571 was paid to Qualified Recipients
under the Plan, of which $940 and $988, respectively, was retained
by the Distributor. During the period from inception of the Fund on
September 10, 1992 through June 30, 1993 $7,529 was paid to
Qualified Recipients under the Plan; of this amount, $353 was paid
to the Distributor. All of such payments related to shares now
designated as Class A Shares.
The Distributor shall have sole authority (i) as to the
selection of any Qualified Recipient or Recipients; (ii) not to
select any Qualified Recipient; and (iii) the amount of Class A
Permitted Payments, if any, to each Qualified Recipient provided
that the total Class A Permitted Payments to all Qualified
Recipients do not exceed the amount set forth above. The
Distributor is authorized, but not directed, to take into account,
in addition to any other factors deemed relevant by it, the
following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Front Payment Class
Shares, including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Fund may be effected; assisting shareholders in
designating and changing dividend options, account designations and
addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records; assisting
in processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in connection
with customer orders to purchase or redeem shares; verifying and
guaranteeing shareholder signatures in connection with redemption
orders and transfers and changes in shareholder designated
accounts; furnishing (either alone or together with other reports
sent to a shareholder by such person) monthly and year-end
statements and confirmations of purchases and redemptions;
transmitting, on behalf of the Fund, proxy statements, annual
reports, updating prospectuses and other communications from the
Fund to its shareholders; receiving, tabulating and transmitting to
the Fund proxies executed by shareholders with respect to meetings
of shareholders of the Fund; and providing such other related
services as the Distributor or a shareholder may request from time
to time; and (c) the possibility that the Qualified Holdings of the
Qualified Recipient would be redeemed in the absence of its
selection or continuance as a Qualified Recipient. Notwithstanding
the foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified Recipient.
Amounts within the above limits accrued to a Qualified Recipient
but not paid during a fiscal year may be paid thereafter; if less
than the full amount is accrued to all Qualified Recipients, the
difference will not be carried over to subsequent years.
While Part I is in effect, the Fund's Distributor shall report
at least quarterly to the Fund's Trustees in writing for their
review on the following matters: (i) all Class A Permitted Payments
made under Section 9 of the Plan, the identity of the Qualified
Recipient of each payment, and the purposes for which the amounts
were expended; and (ii) all fees of the Fund to the Distributor,
sub-adviser or Administrator paid or accrued during such quarter.
In addition, if any such Qualified Recipient is an affiliated
person, as that term is defined in the Act, of the Fund, the
Adviser, the Administrator or the Distributor, such person shall
agree to furnish to the Distributor for transmission to the Board
of Trustees of the Fund an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part I originally went into effect when it was approved (i) by
a vote of the Trustees, including the Independent Trustees, with
votes cast in person at a meeting called for the purpose of voting
on Part I of the Plan; and (ii) by a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities of
the Front Payment Class Shares (or of any predecessor class or
category of shares, whether or not designated as a class) and a
vote of holders of at least a "majority" (as so defined) of the
outstanding voting securities of the Level Payment Class and/or of
any other class whose shares are convertible into Front Payment
Shares. Part I has continued, and will, unless terminated as
hereinafter provided, continue in effect, until the December 31
next succeeding such effectiveness, and from year to year
thereafter only so long as such continuance is specifically
approved at least annually by the Fund's Trustees and its
Independent Trustees with votes cast in person at a meeting called
for the purpose of voting on such continuance. Part I may be
terminated at any time by the vote of a majority of the Independent
Trustees or by the vote of the holders of a "majority" (as defined
in the 1940 Act) of the outstanding voting securities of the Fund
to which Part I applies. Part I may not be amended to increase
materially the amount of payments to be made without shareholder
approval of the class or classes of shares affected by Part I as
set forth in (ii) above, and all amendments must be approved in the
manner set forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Fund, the Class A Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since each
such agreement must be approved in accordance with, and contain the
provisions required by, the Rule. In the case of Qualified
Recipients which are not principal underwriters of the Fund, the
Class A Plan Agreements with them shall be (i) their agreements
with the Distributor with respect to payments under the Fund's
Distribution Plan in effect prior to April 1, 1996 or (ii) Class A
Plan Agreements entered into thereafter.
Provisions relating to Class C Shares (Part II)
Part II of the Plan applies only to the Level Payment Class
("Class C Shares") of the Fund (regardless of whether such class
is so designated or is redesignated by some other name).
As used in Part II of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Fund, with which the Fund or the
Distributor has entered into written agreements in connection
with Part II ("Class C Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Level Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Level Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation
thereto.
Subject to the direction and control of the Board of
Trustees of the Fund, the Fund may make payments ("Class C
Permitted Payments") to Qualified Recipients, which Class C
Permitted Payments may be made directly, or through the
Distributor or shareholder servicing agent as disbursing agent,
which may not exceed, for any fiscal year of the Fund (as
adjusted for any part or parts of a fiscal year during which
payments under the Plan are not accruable or for any fiscal year
which is not a full fiscal year), 0.75 of 1% of the average
annual net assets of the Fund represented by the Level Payment
Class Shares. Such payments shall be made only out of the Fund's
assets allocable to the Level Payment Class Shares. The
Distributor shall have sole authority (i) as to the selection of
any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class C Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class C Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Level Payment Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Fund
may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with
other reports sent to a shareholder by such person) monthly and
year-end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Fund, proxy
statements, annual reports, updating prospectuses and other
communications from the Fund to its shareholders; receiving,
tabulating and transmitting to the Fund proxies executed by
shareholders with respect to meetings of shareholders of the
Fund; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part II is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class C Permitted
Payments made under Section 15 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Fund to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part II originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part II of the Plan; and (ii) by a vote of holders of
at least a "majority" (as so defined) of the outstanding voting
securities of the Level Payment Class. Part II has continued, and
will, unless terminated as hereinafter provided, continue in
effect, until the December 31 next succeeding such effectiveness,
and from year to year thereafter only so long as such continuance
is specifically approved at least annually by the Fund's Trustees
and its Independent Trustees with votes cast in person at a
meeting called for the purpose of voting on such continuance.
Part II may be terminated at any time by the vote of a majority
of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the outstanding voting
securities of the Fund to which Part II applies. Part II may not
be amended to increase materially the amount of payments to be
made without shareholder approval of the class or classes of
shares affected by Part II as set forth in (ii) above, and all
amendments must be approved in the manner set forth in (i)
above.
In the case of a Qualified Recipient which is a principal
underwriter of the Fund, the Class C Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Fund, the Class C Plan Agreements with them shall be their
agreements with the Distributor with respect to payments under
Part II.
Defensive Provisions (Part III)
Another part of the Plan (Part III) states that if and to
the extent that any of the payments listed below are considered
to be "primarily intended to result in the sale of" shares issued
by the Fund within the meaning of Rule 12b-1, such payments are
authorized under the Plan: (i) the costs of the preparation of
all reports and notices to shareholders and the costs of printing
and mailing such reports and notices to existing shareholders,
irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares
of the Fund or other funds or other investments; (ii) the costs
of the preparation and setting in type of all prospectuses and
statements of additional information and the costs of printing
and mailing all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of
preparation, printing and mailing of any proxy statements and
proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of
the Fund's shares; (iv) all legal and accounting fees relating to
the preparation of any such reports, prospectuses, statements of
additional information, proxies and proxy statements; (v) all
fees and expenses relating to the registration or qualification
of the Fund and/or its shares under the securities or "Blue-Sky"
laws of any jurisdiction; (vi) all fees under the Securities Act
of 1933 and the 1940 Act, including fees in connection with any
application for exemption relating to or directed toward the sale
of the Fund's shares; (vii) all fees and assessments of the
Investment Company Institute or any successor organization,
irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and
mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs
of responding to telephone or mail inquiries of investors or
prospective investors.
The Plan states that while it is in effect, the selection
and nomination of those Trustees of the Fund who are not
"interested persons" of the Fund shall be committed to the
discretion of such disinterested Trustees but that nothing in the
Plan shall prevent the involvement of others in such selection
and nomination if the final decision on any such selection and
nomination is approved by a majority of such disinterested
Trustees.
The Plan states that while it is in effect, the Fund's
Administrator and Distributor shall report at least quarterly to
the Fund's Board of Trustees in writing for their review on the
following matters: (i) all Permitted Payments made under this
Plan, the identity of the Qualified Recipient of each Payment,
and the purposes for which the amounts were expended; (ii) all
costs of each item of cost specified in the Plan (making
estimates of such costs where necessary or desirable) during the
preceding calendar or fiscal quarter; and (iii) all fees of the
Fund to the distributor, sub-adviser or administrator paid or
accrued during such quarter. In addition if any such Qualified
Recipient is an affiliate, as that term is defined in the Act, of
the Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
The Plan defines as the Fund's Independent Trustees those
Trustees who are not "interested persons" of the Fund as defined
in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements
related to the Plan. The Plan, unless terminated as hereinafter
provided, continues in effect from year to year only so long as
such continuance is specifically approved at least annually by
the Fund's Board of Trustees and its Independent Trustees with
votes cast in person at a meeting called for the purpose of
voting on such continuance. In voting on the implementation or
continuance of the Plan, those Trustees who vote to approve such
implementation or continuance must conclude that there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Plan may be terminated at any time by vote of a
majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund. The Plan may not be
amended to increase materially the amount of payments to be made
without shareholder approval and all amendments must be approved
in the manner set forth above as to continuance of the Plan.
The Plan and each Part of it shall also be subject to all
applicable terms and conditions of Rule 18f-3 under the 1940 Act
as now in force or hereafter amended. Specifically, but without
limitation, the provisions of Part III shall be deemed to be
severable, within the meaning of and to the extent required by
Rule 18f-3, with respect to each outstanding class of shares of
the Fund.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan (the
"Services Plan") to provide for the payment with respect to Class
C Shares of the Fund of "Service Fees" within the meaning of
Article III, Section 26(b)(9) of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. The Services
Plan applies only to the Class C Shares of the Fund (regardless
of whether such class is so designated or is redesignated by some
other name).
As used in the Services Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to the
Distributor and any other principal underwriter of the Fund, who
have, pursuant to written agreements with the Fund or the
Distributor, agreed to provide personal services to shareholders
of Level-Payment Class Shares and/or maintenance of Level-Payment
Class Shares shareholder accounts. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Level-Payment Class
Shares beneficially owned by such Qualified Recipient's
customers, clients or other contacts. "Administrator" shall mean
Aquila Management Corporation or any successor serving as
sub-adviser or administrator of the Fund.
Subject to the direction and control of the Board of
Trustees of the Fund, the Fund may make payments ("Service Fees")
to Qualified Recipients, which Service Fees (i) may be paid
directly or through the Distributor or shareholder servicing
agent as disbursing agent and (ii) may not exceed, for any fiscal
year of the Fund (as adjusted for any part or parts of a fiscal
year during which payments under the Services Plan are not
accruable or for any fiscal year which is not a full fiscal
year), 0.25 of 1% of the average annual net assets of the Fund
represented by the Level Payment Class of shares. Such payments
shall be made only out of the Fund's assets allocable to the
Level Payment Class Shares. The Distributor shall have sole
authority with respect to the selection of any Qualified
Recipient or Recipients and the amount of Service Fees, if any,
paid to each Qualified Recipient, provided that the total Service
Fees paid to all Qualified Recipients may not exceed the amount
set forth above and provided, further, that no Qualified
Recipient may receive more than 0.25 of 1% of the average annual
net asset value of shares sold by such Recipient. The Distributor
is authorized, but not directed, to take into account, in
addition to any other factors deemed relevant by it, the
following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Level Payment Class
Shares, including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Fund may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other related
services as the Distributor or a shareholder may request from
time to time. Notwithstanding the foregoing two sentences, a
majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the
above limits accrued to a Qualified Recipient but not paid during
a fiscal year may be paid thereafter; if less than the full
amount is accrued to all Qualified Recipients, the difference
will not be carried over to subsequent years.
While the Services Plan is in effect, the Fund's Distributor
shall report at least quarterly to the Fund's Trustees in writing
for their review on the following matters: (i) all Service Fees
paid under the Services Plan, the identity of the Qualified
Recipient of each payment, and the purposes for which the amounts
were expended; and (ii) all fees of the Fund to the Distributor
paid or accrued during such quarter. In addition, if any
Qualified Recipient is an "affiliated person," as that term is
defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), of the Fund, the Adviser, the Administrator or the
Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the Fund
an accounting, in form and detail satisfactory to the Board of
Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
The Services Plan has been approved by a vote of the
Trustees, including those Trustees who, at the time of such vote,
were not "interested persons" (as defined in the 1940 Act) of the
Fund and had no direct or indirect financial interest in the
operation of the Service Plan or in any agreements related to the
Service Plan (the "Independent Trustees"), with votes cast in
person at a meeting called for the purpose of voting on the
Service Plan. It is effective as of the date first above written
and will continue in effect for a period of more than one year
from such date only so long as such continuance is specifically
approved at least annually as set forth in the preceding
sentence. It may be amended in like manner and may be terminated
at any time by vote of the Independent Trustees.
The Services Plan shall also be subject to all applicable
terms and conditions of Rule 18f-3 under the Act as now in force
or hereafter amended.
While the Service Plan is in effect, the selection and
nomination of those Trustees of the Fund who are not "interested
persons" of the Fund, as that term is defined in the 1940 Act,
shall be committed to the discretion of such disinterested
Trustees. Nothing herein shall prevent the involvement of others
in such selection and nomination if the final decision on any
such selection and nomination is approved by a majority of such
disinterested Trustees.
LIMITATION OF REDEMPTIONS IN KIND
The Fund has elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which the Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1 percent of the
net asset value of the Fund during any 90-day period for any one
shareholder. Should redemptions by any shareholder exceed such
limitation, the Fund will have the option of redeeming the excess
in cash or in kind. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage costs in converting the assets
into cash. The method of valuing securities used to make
redemptions in kind will be the same as the method of valuing
portfolio securities described under "Net Asset Value Per Share"
in the Prospectus, and such valuation will be made as of the same
time the redemption price is determined.
TRUSTEES AND OFFICERS
The Trustees and officers of the Fund, their affiliations,
if any, with the Administrator or the Distributor, and the
principal occupations of such persons during at least the past
five years are set forth below. As of the date of this Additional
Statement, the Trustees and officers of the Fund as a group owned
less than 1% of its outstanding shares. Mr. Herrmann is an
interested person, as that term is defined in the 1940 Act, of
the Fund as an officer of the Fund and as a Director, officer and
shareholder of the Distributor. He is so designated by an
asterisk.
Lacy B. Herrmann*, President and Chairman of the Board of
Trustees, 380 Madison Avenue, New York, New York 10017
Founder, President and Chairman of the Board of Aquila
Management Corporation since 1984, the sponsoring organization
and Administrator and/or Sub-Adviser to the following open-end
investment companies, and Founder, Chairman of the Board of
Trustees, and President of each: Prime Cash Fund, 1982-1996;
Pacific Capital Cash Assets Trust since 1984; Churchill Cash
Reserves Trust since 1985; Pacific Capital U.S. Treasuries Cash
Assets Trust since 1988; Pacific Capital Tax-Free Cash Assets
Trust since 1988; each of which is a money market fund, and
together with Capital Cash Management Trust ("CCMT") are called
the Aquila Money-Market Funds; of Hawaiian Tax-Free Trust since
1984; Tax-Free Trust of Arizona since 1986; Tax-Free Trust of
Oregon since 1986; Tax-Free Fund of Colorado since 1987;
Churchill Tax-Free Fund of Kentucky since 1987; and Tax-Free Fund
For Utah since 1992; each of which is a tax-free municipal bond
fund, and an equity fund, Aquila Rocky Mountain Equity Fund since
1993, which together with this Fund are called the Aquila Bond
and Equity Funds; Vice President, Director, Secretary and
formerly Treasurer of Aquila Distributors, Inc. since 1981,
distributor of the above funds; President and Chairman of the
Board of Trustees of CCMT, a money market fund since 1981, and an
Officer and Trustee/Director of its predecessors since 1974;
President and a Director of STCM Management Company, Inc.,
sponsor and sub-adviser to CCMT; Chairman, President, and a
Director since 1984, of InCap Management Corporation, formerly
sub-adviser and administrator of Prime Cash Fund and Short Term
Asset Reserves, and Founder and Chairman of several other money
market funds; Director or Trustee of OCC Cash Reserves, Inc.,
Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest
Value Fund, Inc., and Trustee of Quest For Value Accumulation
Trust, The Saratoga Advantage Trust, and of the Rochester Group
of Funds, each of which is an open-end investment company;
Trustee of Brown University since 1990; actively involved for
many years in leadership roles with university, school and
charitable organizations.
Vernon R. Alden, Trustee, 420 Boylston Street, Suite 403, Boston,
Massachusetts 02116
Director of Augat Inc., a manufacturing corporation, since 1979,
Colgate Palmolive Company since 1974, Digital Equipment
Corporation, a computer manufacturing corporation, since 1959,
Intermet Corporation, an independent foundry, since 1986, and
Sonesta International Hotels Corporation since 1978; Chairman of
the Board and Executive Committee of The Boston Company, Inc., a
financial services company, 1969-1978; Trustee of Tax-Free Trust
of Oregon since 1988, of Hawaiian Tax-Free Trust, Pacific Capital
Cash Assets Trust, Pacific Capital Tax-Free Cash Assets Trust and
Pacific Capital U.S. Treasuries Cash Assets Trust since 1989 and
of Cascades Cash Fund, 1989-1994; Associate Dean and member of
the faculty of Harvard University Graduate School of Business
Administration, 1951-1962; member of the faculty and Program
Director of Harvard Business School - University of Hawaii
Advanced Management Program, summer of 1959 and 1960; President
of Ohio University, 1962-1969; Chairman of The Japan Society of
Boston, Inc., and member of several Japan-related advisory
councils; Chairman of the Massachusetts Business Development
Council and the Massachusetts Foreign Business Council,
1978-1983; Trustee of the Boston Symphony Orchestra since 1975;
Chairman of the Massachusetts Council on the Arts and Humanities,
1972-1984; Member of the Board of Fellows of Brown University,
1969-1986; Trustee and member of the Executive Committee,
Plymouth Plantation; trustee of various other cultural and
educational organizations; Honorary Consul General of the Royal
Kingdom of Thailand.
Paul Y. Clinton, Trustee, 946 Morris Avenue, Bryn Mawr,
Pennsylvania 19010
Principal of Clinton Management Associates, a financial and
venture capital consulting firm; formerly Director of External
Affairs of Kravco Corporation, a national real estate owner and
developer, 1984-1995; formerly President of Essex Management
Corporation, a management and financial consulting company,
1979-1983; Trustee of Capital Cash Management Trust since 1979,
of Short Term Asset Reserves since 1984 and of Prime Cash Fund,
1993-1996; general partner of Capital Growth Fund, a venture
capital partnership, 1979-1982; President of Geneve Corp., a
venture capital fund, 1970-1978; formerly Chairman of Woodland
Capital Corp., a small business investment company; formerly Vice
President, W.R. Grace & Co; Director or Trustee of OCC Cash
Reserves, Inc., Oppenheimer Quest Global Value Fund, Inc.,
Oppenheimer Quest Value Fund, Inc., and Trustee of Quest For
Value Accumulation Trust, and of the Rochester Group of Funds,
each of which is an open-end investment company.
David A. Duffy, Trustee, 36 Reliance Drive, Poppasquash Point,
Bristol, Rhode Island 02809
President, Duffy & Shanley, Inc., an advertising, marketing and
public relations firm since 1973; Chairman, Rhode Island Public
Telecommunications Authority and Rhode Island Sports Council;
Member of the Governor's Commission on Bias and Prejudice;
Officer of numerous civic, religious and educational
organizations including the Rhode Island and Southeastern New
England Region of the National Conference of Christians & Jews,
the Greater Providence Chamber of Commerce, the Strategic
Planning Committee of the Diocese of Providence and the Board of
Trustees of Providence College; he has been the recipient of
numerous awards for public service.
Robert L. Krakoff, Trustee, 257 Commonwealth Avenue, Boston,
Massachusetts 02116
Chairman and Chief Executive Officer of Cahners Publishing
Company since 1991; President of Cahners Publishing Company
1989-1991; Executive Vice President of that company, 1985-1989;
President of Cahners Exposition Group, a division of that
company, 1979-1985; Vice President of that company, 1973-1985;
Trustee of Capital Cash Management Trust since 1976; Director of
Centennial Capital Special Fund, Inc. until 1979; Trustee of
Trinity Liquid Assets Trust, 1982-1991; Director of Reed Elsevier
International PLC (an international publishing firm) since 1990.
William J. Nightingale, Trustee, 1266 East Main Street,
Stamford Connecticut 06902
Chairman and founder (1975) and Senior Advisor since 1995 of
Nightingale & Associates, Inc., a general management consulting
firm focusing on interim management, divestitures, turnaround of
troubled companies, corporate restructuring and financial
advisory services; President, Chief Executive Officer and
Director of Bali Company, Inc., a manufacturer of women's
apparel, which became a subsidiary of Hanes Corporation,
1970-1975; prior to that, Vice President and Chief Financial
Officer of Hanes Corporation after being Vice President-Corporate
Development and Planning of that company, 1968-1970; formerly
Senior Associate of Booz, Allen & Hamilton, management
consultants, after having been Marketing Manager with General
Mills, Inc.; Trustee of Churchill Cash Reserves Trust and
Churchill Tax-Free Fund of Kentucky since 1993; Director of
Spreckels Industries, Inc. (beet sugar processing and various
industrial manufacturing companies); Glasstech Inc. (glass
bending equipment and engineering) and Ring's End, Inc. (retail
lumber and building supply chain).
J. William Weeks, Trustee, 380 Madison Avenue, New York, New York
10017
Trustee of Tax-Free Fund of Colorado since 1995; Senior Vice
President of Tax-Free Fund of Colorado and Narragansett Insured
Tax-Free Income Fund, 1992-1995; Vice President of Hawaiian
Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of
Oregon and Churchill Tax-Free Fund of Kentucky, 1990-1995; Senior
Vice President or Vice President of the Bond and Equity Funds and
Vice President of Short Term Asset Reserves and Pacific Capital
Cash Assets Trust, 1984-1988; President and Director of Weeks &
Co., Inc., financial consultants, since 1978; limited partner and
investor in various real estate partnerships since 1988; Partner
of Alex. Brown & Sons, investment bankers, 1966-1976; Vice
President of Finance and Assistant to the President of Howard
Johnson Company, a restaurant and motor lodge chain, 1961-1966;
formerly with Blyth & Co., Inc., investment bankers.
John W. Cody, Vice President, 380 Madison Avenue, New York, New
York, 10017
Vice President of the Administrator since January 1995; Vice
President of Capital Cash Management Trust and Prime Cash Fund
since 1995; Vice President and formerly Assistant Vice President
of National Westminster Bank NJ (and its predecessor, First
Jersey National Bank) 1985-1994; Vice President of SCA, Inc., a
computer software firm specializing in banking systems,
1983-1984; Second Vice President, and various other official
positions, of Savings Banks Trust Company 1962-1983; Secretary of
Institutional Investors Mutual Fund, Inc. and M.S.B. Fund, Inc.,
(for which Savings Banks Trust Company was investment adviser)
1969-1983.
William C. Wallace, Vice President, 380 Madison Avenue, New York,
New York 10017
Vice President of Capital Cash Management Trust and Pacific
Capital Cash Assets Trust since 1984; Senior Vice President of
Hawaiian Tax-Free Trust since 1985 and Vice President, 1984-1985;
Senior Vice President of Tax-Free Trust of Arizona since 1989 and
Vice President, 1986-1988; Vice President of Tax-Free Trust of
Oregon since 1986, of Churchill Tax-Free Fund of Kentucky and
Tax-Free Fund of Colorado since 1987 and of Pacific Capital
Tax-Free Cash Assets Trust and Pacific Capital U.S. Treasuries
Cash Assets Trust since 1988; Secretary and Director of STCM
Management Company, Inc. since 1974; President of the Distributor
since 1995 and formerly Vice President of the Distributor,
1986-1992; Member of the Panel of Arbitrators, American
Arbitration Association, since 1978; Assistant Vice President,
American Stock Exchange, Market Development Division, and
Director of Marketing, American Gold Coin Exchange, a subsidiary
of the American Stock Exchange, 1976-1984.
Rose F. Marotta, Chief Financial Officer, 380 Madison Avenue, New
York, New York 10017
Chief Financial Officer of the Aquila Money-Market Funds and
the Aquila Bond and Equity Funds since 1991 and Treasurer,
1981-1991; formerly Treasurer of the predecessor of CCMT;
Treasurer and Director of STCM Management Company, Inc., since
1974; Treasurer of Trinity Liquid Assets Trust, 1982-1986 and of
Oxford Cash Management Fund, 1982-1988; Treasurer of InCap
Management Corporation since 1982, of the Administrator since
1984 and of the Distributor since 1985.
Richard F. West, Treasurer, 380 Madison Avenue, New York, New
York 10017
Treasurer of the Aquila Money-Market Funds and the Aquila Bond
and Equity Funds and of Aquila Distributors, Inc. since 1992;
Associate Director of Furman Selz Incorporated, 1991-1992; Vice
President of Scudder, Stevens & Clark, Inc. and Treasurer of
Scudder Institutional Funds, 1989-1991; Vice President of Lazard
Freres Institutional Funds Group, Treasurer of Lazard Freres
Group of Investment Companies and HT Insight Funds, Inc.,
1986-1988; Vice President of Lehman Management Co., Inc. and
Assistant Treasurer of Lehman Money Market Funds, 1981-1985;
Controller of Seligman Group of Investment Companies,
1960-1980.
Edward M. W. Hines, Secretary, 551 Fifth Avenue, New York, New
York 10176
Partner of Hollyer Brady Smith Troxell Barrett Rockett Hines &
Mone LLP, attorneys, since 1989 and counsel, 1987-1989; Secretary
of the Aquila Money-Market Funds and the Aquila Bond and Equity
Funds since 1982; Secretary of Trinity Liquid Assets Trust,
1982-1985 and Trustee of that Trust, 1985-1986; Secretary of
Oxford Cash Management Fund, 1982-1988.
John M. Herndon, Assistant Secretary, 380 Madison Avenue, New
York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995 and Vice President of the
Aquila Money-Market Funds since 1990; Vice President of the
Administrator since 1990; Investment Services Consultant and Bank
Services Executive of Wright Investors' Service, a registered
investment adviser, 1983-1989; Member of the American Finance
Association, the Western Finance Association and the Society of
Quantitative Analysts.
Patricia A. Craven, Assistant Secretary & Compliance Officer, 380
Madison Avenue, New York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995; Counsel to the
Administrator and the Distributor since 1995; formerly a Legal
Associate for Oppenheimer Management Corporation, 1993-1995.
Compensation of Trustees
The Fund does not pay fees to Trustees affiliated with the
Administrator or to any of the Fund's officers. During the fiscal
year ended June 30, 1995, the Fund paid $11,574 in fees and
reimbursement of expenses to its other Trustees. The Fund is one
of the 14 funds in the Aquilasm Group of Funds, which consist of
tax-free municipal bond funds, money market funds and an equity
fund. The following table lists the compensation of all Trustees
who received compensation from the Fund and the compensation they
received during the Fund's fiscal year from other funds in the
Aquilasm Group of Funds. Mr. Weeks and Mr. Duffy became Trustees
after the end of the Fund's fiscal year. None of such Trustees
has any pension or retirement benefits from the Fund or any of
the other funds in the Aquila group.
<TABLE>
<CAPTION>
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee
Name Fund Group now serves
<S> <C> <C> <C>
Vernon R.
Alden $1,458 $31,707 7
Robert L.
Krakoff $705 $1,800 2
William J.
Nightingale $2,367 $15,469 3
</TABLE>
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
Additional Information as to the Advisory Agreement
The Investment Advisory Agreement (the "Advisory Agreement")
between the Fund and Citizens Trust Company (the "Adviser")
contains the provisions described below, in addition to those
described in the Prospectus.
The Advisory Agreement may be terminated by the Adviser at
any time without penalty upon giving the Fund sixty days' written
notice, and may be terminated by the Fund at any time without
penalty upon giving the Adviser sixty days' written notice,
provided that such termination by the Fund shall be directed or
approved by the vote of a majority of all its Trustees in office
at the time or by the vote of the holders of a majority (as
defined in the 1940 Act) of its voting securities at the time
outstanding and entitled to vote; it automatically terminates in
the event of its assignment (as so defined).
The Advisory Agreement provides that in the absence of
willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, the Adviser is not
liable for any loss sustained by the adoption of any investment
policy or the purchase, sale or retention of any security and
permits the Adviser to act as investment adviser for any other
person, firm or corporation. The Fund agrees to indemnify the
Adviser to the full extent permitted under the Fund's Declaration
of Trust.
The Advisory Agreement states that it is agreed that the
Adviser shall have no responsibility or liability for the
accuracy or completeness of the Fund's Registration Statement
under the Securities Act of 1933 and the 1940 Act, except for the
information supplied in writing by the Adviser specifically for
inclusion therein.
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Advisory Agreement contains the following provisions as
to the Fund's portfolio transactions. In connection with its
duties to arrange for the purchase and sale of the Fund's
portfolio securities, the Adviser shall select such
broker-dealers ("dealers") as shall, in the Adviser's judgment,
implement the policy of the Fund to achieve "best execution,"
i.e., prompt, efficient and reliable execution of orders at the
most favorable net price. The Adviser shall cause the Fund to
deal directly with the selling or purchasing principal or market
maker without incurring brokerage commissions unless the Adviser
determines that better price or execution may be obtained by
paying such commissions; the Fund expects that most transactions
will be principal transactions at net prices and that the Fund
will incur little or no brokerage costs. The Fund understands
that purchases from underwriters include a commission or
concession paid by the issuer to the underwriter and that
principal transactions placed through dealers include a spread
between the bid and asked price. In allocating transactions to
dealers, the Adviser is authorized to consider, in determining
whether a particular dealer will provide best execution, the
dealer's reliability, integrity, financial condition and risk in
positioning the securities involved, as well as the difficulty of
the transaction in question, and thus need not pay the lowest
spread or commission available if the Adviser determines in good
faith that the amount of commission is reasonable in relation to
the value of the brokerage and research services provided by the
dealer, viewed either in terms of the particular transaction or
the Adviser's overall responsibilities as to the accounts as to
which it exercises investment discretion. If, on the foregoing
basis, the transaction in question could be allocated to two or
more dealers, the Adviser is authorized, in making such
allocation, to consider (i) whether a dealer has provided
research services, as further discussed below; and (ii) whether a
dealer has sold shares of the Fund or any other investment
company or companies having the Adviser as its investment adviser
or having the same Administrator, sub-adviser or principal
underwriter as the Fund. Such research may be in written form or
through direct contact with individuals and may include
quotations on portfolio securities and information on particular
issuers and industries, as well as on market, economic or
institutional activities. The Fund recognizes that no dollar
value can be placed on such research services or on execution
services, that such research services may or may not be useful to
the Fund and/or other accounts of the Adviser and that research
received by such other accounts may or may not be useful to the
Fund.
During the fiscal years ended June 30, 1995, 1994 and during
the period from September 10, 1992 through June 30, 1993, all of
the Fund's transactions were principal transactions and no
brokerage commissions were paid.
During the Fund's fiscal year ended June 30, 1995, fees of
$73,783 and $86,615 were accrued to the Adviser and
Administrator, respectively, all of which were waived. In
addition, the Administrator reimbursed the Fund for other
expenses in the amount of $197,821. During the Fund's fiscal year
ended June 30, 1994, fees of $59,048 and $69,317 were accrued to
the Adviser and Administrator, respectively, all of which were
waived; during that period the Administrator reimbursed expenses
of the Fund in the amount of $196,726. During the period from
inception of the Fund on September 10, 1992, through June 30,
1993, the Fund accrued $11,498 and $13,498 respectively in fees
to the Adviser and the Administrator, all of which were waived.
In addition, the Administrator reimbursed expenses of the Fund in
the amount of $102,231.
Glass-Steagall Act and Certain Other Banking Laws
The Adviser is a trust company organized under the laws of
the state of Rhode Island and a subsidiary of Citizens Financial
Group, Inc. ("CFG") a registered bank holding company. Therefore,
it is subject to applicable state and federal banking laws and
regulations. Federal banking laws and regulations presently
prohibit a bank holding company or affiliate from sponsoring,
organizing or controlling a registered, open-end investment
company continuously engaged in the issuance of its shares, and
generally from underwriting, selling or distributing securities,
such as shares of the Fund.
The Adviser believes that it may perform the advisory
services for the Fund, with certain restrictions as enumerated
below, without violating state or federal banking laws and
regulations relating to the permissible activities of a trust
company and subsidiaries and affiliates of a bank holding
company. Regulation Y also prohibits a bank holding company and
its subsidiaries from engaging, directly or indirectly in the
issue, flotation, underwriting, public sale or distribution of
securities of any investment company for which it acts as
investment adviser. The conduct of securities brokerage
activities by a bank holding company or its subsidiaries, when
conducted in combination with investment advisory activities, is
not deemed to be underwriting, public sale or distribution of
securities. The Adviser may therefore act as agent and act upon
the order and for the account of the brokerage customers to
purchase or sell shares of the Fund. The Adviser may also
recommend to its brokerage customers the purchase of shares of
the Fund and may mail the Fund's prospectus to existing brokerage
customers. The Adviser shall not, however, make unsolicited
mailings to the general public who are not existing customers.
The Adviser must comply with the provisions of Regulation Y
(and the interpretations thereof) of the Board of Governors of
the Federal Reserve System that specify the terms on which a
subsidiary of a bank holding company may serve as investment
adviser to an open-end investment company. Among the restrictions
imposed by the Board of Governors are that the Adviser may not
purchase shares of the Fund for its own account or for
discretionary accounts managed by it, extend credit to the Fund
or accept securities of the Fund as collateral for a loan whose
purpose is to purchase securities of the Fund.
Changes in federal or state banking laws and regulations
related to the permissible activities of a trust company or
subsidiaries and affiliates of a bank holding company, as well as
judicial or administrative decisions or interpretations of
present and future statutes and regulations, could prevent the
Adviser from continuing to serve as investment adviser to the
Fund or could restrict the services which the Adviser is
permitted to perform for the Fund.
In the event that the Adviser is prohibited from acting as
the Fund's investment adviser, it is probable that the Board of
Trustees of the Fund would either recommend to the shareholders
the selection of another qualified adviser or, if that course of
action appeared impractical, that the Fund be liquidated.
Additional Information as to the Administration Agreement
The Administration Agreement (the "Administration
Agreement") between Aquila Management Corporation, as
Administrator, and the Fund contains the provisions described
below in addition to those described in the Prospectus.
Subject to the control of the Fund's Board of Trustees, the
Administrator provides all administrative services to the Fund
other than those relating to its investment portfolio. As part of
such duties, the Administrator (i) provides office space,
personnel, facilities and equipment for the performance of the
following functions and for the maintenance of the Fund's
headquarters; (ii) oversees all relationships between the Fund
and its transfer agent, custodian, legal counsel, auditors and
principal underwriter, including the negotiation, subject to the
approval of the Fund's Board of Trustees, of agreements in
relation thereto, the supervision and coordination of the
performance of such agreements, and the overseeing of all
administrative matters which are necessary or desirable for
effective operation and for the sale, servicing, or redemption of
the Fund's shares; (iii) provides to the Adviser and to the Fund
statistical and other factual information and advice regarding
economic factors and trends, but does not generally furnish
advice or make recommendations regarding the purchase or sale of
securities; (iv) maintains the Fund's books and records and
prepares (or assists counsel and auditors in the preparation of)
all required proxy statements, reports to shareholders and
Trustees, reports to and other filings with the Securities and
Exchange Commission and any other governmental agencies, and tax
returns, and oversees the Fund's insurance relationships; (v)
prepares, on the Fund's behalf and at its expense, such
applications and reports as may be necessary to register or
maintain the Fund's registration or that of its shares under the
securities or "Blue-Sky" laws of all such jurisdictions as may be
required from time to time; and (vi) responds to any inquiries or
other communications from shareholders and broker-dealers, or if
any such inquiry or communication is more properly to be
responded to by the Fund's shareholder servicing and transfer
agent or distributor, oversees such shareholder servicing and
transfer agent's or distributor's response thereto. Since the
Fund pays its own legal and audit expenses, to the extent that
the Fund's counsel and accountants prepare or assist in the
preparation of prospectuses, proxy statements and reports to
shareholders, the costs of such preparation or assistance are
paid by the Fund.
Under the Administration Agreement, the Administrator is
responsible for the payment of certain printing and distribution
costs that are not borne by the Distributor, relating to
prospectuses, reports and sales literature to other than existing
shareholders. See above as to the expenses for which the
Administrator is also responsible under the Distribution Plan.
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Administration Agreement may be terminated at any time
without penalty by the Administrator upon sixty days' written
notice to the Fund and the Adviser; it may be terminated by the
Fund at any time without penalty upon giving the Administrator
sixty days' written notice, provided that such termination by the
Fund shall be directed or approved by a vote of a majority of the
Trustees in office at the time, including a majority of the
Trustees who are not interested persons of the Fund. In either
case the notice provision may be waived.
The Administration Agreement provides that the Administrator
shall not be liable for any error in judgement or for any loss
suffered by the Fund in connection with the matters to which the
Administration Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence of the
Administrator in the performance of its duties, or from reckless
disregard by it of its obligations and duties under the
Administration Agreement. The Fund agrees to indemnify the
Administrator to the full extent permitted by the Declaration of
Trust.
COMPUTATION OF NET ASSET VALUE
The net asset value of the Fund's shares is determined at
4:00 p.m. New York time on each day the New York Stock Exchange
is open by dividing the value of the Fund's net assets by the
total number of its shares then outstanding. Securities having a
remaining maturity of less than sixty days when purchased and
securities originally purchased with maturities in excess of
sixty days but which currently have maturities of sixty days or
less are valued at cost adjusted for amortization of premiums and
accretion of discounts, so long as the Board of Trustees has
determined that amortized cost represents fair value for such
securities. All other portfolio securities are valued at the mean
between bid and asked quotations which, for Rhode Island
Obligations, may be obtained from a reputable pricing service or
from one or more broker/dealers dealing in Rhode Island
Obligations, either of which may, in turn, obtain quotations from
broker/dealers or banks which deal in specific issues. However,
since Rhode Island Obligations are ordinarily purchased and sold
on a "yield" basis by banks or dealers which act for their own
account and do not ordinarily make continuous offerings,
quotations obtained from such sources may be subject to greater
fluctuations than is warranted by prevailing market conditions.
Accordingly, some or all of the Rhode Island Obligations in the
Fund's portfolio may be priced, with the approval of the Fund's
Board of Trustees, by differential comparisons to the market in
other municipal bonds under methods which include consideration
of the current market value of tax-free debt instruments having
varying characteristics of quality, yield and maturity. Any
securities or assets for which market quotations are not readily
available are valued at their fair value as determined in good
faith under procedures established by and under the general
supervision and responsibility of the Fund's Board of Trustees.
In the case of Rhode Island Obligations, such procedures may
include "matrix" comparisons to the prices for other tax-free
debt instruments on the basis of the comparability of their
quality, yield, maturity and other special factors, if any,
involved. With the approval of the Fund's Board of Trustees, the
Adviser may at its own expense and without reimbursement from the
Fund employ a pricing service, bank or broker/dealer experienced
in such matters to perform any of the above described functions.
As indicated above, the net asset value per share of the
Fund's shares are determined on each day that the New York Stock
Exchange is open. That Exchange annually announces the days on
which it will not be open. The most recent announcement indicates
that it will not be open on the following days: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. However, that
Exchange may close on days not included in that announcement.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a
number of instances in which the Fund's shares are sold or issued
on a basis other than the maximum public offering price, that is,
the net asset value plus the highest sales charge. Some of these
relate to lower or eliminated sales charges for larger purchases,
whether made at one time or over a period of time as under a
Letter of Intent or right of accumulation. (See the table of
sales charges in the Prospectus.) The reasons for these quantity
discounts are, in general, that (i) they are traditional and have
long been permitted in the industry and are therefore necessary
to meet competition as to sales of shares of other funds having
such discounts; and (ii) they are designed to avoid an unduly
large dollar amount of sales charge on substantial purchases in
view of reduced selling expenses. Quantity discounts are made
available to certain related persons ("single purchasers") for
reasons of family unity and to provide a benefit to tax exempt
plans and organizations.
The reasons for the other instances in which there are
reduced or eliminated sales charges are as follows. Exchanges at
net asset value are permitted because a sales charge has already
been paid on the shares exchanged. Sales without sales charge are
permitted to Trustees, officers and certain others due to reduced
or eliminated selling expenses and/or since such sales may
encourage incentive, responsibility and interest and an
identification with the aims and policies of the Fund. Limited
reinvestments of redemptions at no sales charge are permitted to
attempt to protect against mistaken or incompletely informed
redemption decisions. Shares may be issued at no sales charge in
plans of reorganization due to reduced or eliminated sales
expenses and since, in some cases, such issuance is exempted in
the 1940 Act from the otherwise applicable restrictions as to
what sales charge must be imposed. In no case in which there is a
reduced or eliminated sales charge are the interests of existing
shareholders adversely affected since, in each case, the Fund
receives the net asset value per share of all shares sold or
issued.
AUTOMATIC WITHDRAWAL PLAN
If you own or purchase shares of the Fund having a net asset
value of at least $5,000 you may establish an Automatic
Withdrawal Plan under which you will receive a monthly or
quarterly check in a stated amount, not less than $50. Stock
certificates will not be issued for shares held under an
Automatic Withdrawal Plan. All dividends and distributions must
be reinvested. Shares will be redeemed on the last business day
of the month or quarter as may be necessary to meet withdrawal
payments.
Redemption of shares for withdrawal purposes may reduce or
even liquidate the account. Monthly or quarterly payments paid to
shareholders may not be considered as a yield or income on
investment.
ADDITIONAL TAX INFORMATION
Any investor who incurs a sales commission on purchase
shares of one mutual fund (the original fund) and who then sells
such shares or exchanges them for shares of a different mutual
fund without having held them at least 91 days must reduce the
tax basis for the shares sold or exchanged to the extent that the
standard sales commission charged for acquiring shares in the
exchange or later acquiring shares of the original fund or
another fund is reduced because of the shareholder's having owned
the original fund shares. The effect of the rule is to increase
the investor's gain or reduce his or her loss on the original
fund shares. The amount of the basis reduction on the original
fund shares, however, is added on the investor's basis for the
fund shares acquired in the exchange or later acquired. The
provision applies to commissions charged after October 3, 1989.
CONVERSION OF CLASS C SHARES
Level Payment Class Shares ("Class C Shares") of the Fund,
which you hold will automatically convert to Front Payment Class
Shares ("Class A Shares") of the Fund based on the relative net
asset values per share of the two classes as of the close of
business on the first business day of the month in which the
sixth anniversary of the your initial purchase of such Class C
Shares occurs. For these purposes, the date of your initial
purchase shall mean (1) the first business day of the month in
which such Class C Shares were issued to you, or (2) for Class C
Shares of the Fund you have obtained through an exchange or
series of exchanges under the Exchange Privilege (see "Exchange
Privilege" in the Prospectus), the first business day of the
month in which you made the original purchase of Class C Shares
so exchanged. For conversion purposes, Class C Shares purchased
through reinvestment of dividends or other distributions paid in
respect of Class C Shares will be held in a separate sub-account.
Each time any Class C Shares in your regular account (other than
those in the sub-account) convert to Class A Shares, a pro-rata
portion of the Class C Shares in the sub-account will also
convert to Class A Shares. The portion will be determined by the
ratio that your Class C Shares then converting to Class A Shares
bears to the total of your Class C Shares not acquired through
reinvestment of dividends and distributions.
The availability of the conversion feature is subject to the
continuing applicability of a ruling of the Internal Revenue
Service ("IRS"), or an opinion of counsel, that: (1) the
dividends and other distributions paid on Class A Shares and
Class C Shares will not result in "preferential dividends" under
the Code; and (2) the conversion of shares does not constitute a
taxable event. If the conversion feature ceased to be available,
the Class C Shares of the Fund would not be converted and would
continue to be subject to the higher ongoing expenses of the
Class C Shares beyond six years from the date of purchase. The
Fund has no reason to believe that these conditions for the
availability of the conversion feature will not continue to be
met.
If the Fund implements any amendments to its Distribution
Plan that would increase materially the costs that may be borne
under such Distribution Plan by Class A Shares shareholders,
Class C Shares will stop converting into Class A Shares unless a
majority of Class C Shares shareholders, voting separately as a
class, approve the proposal.
GENERAL INFORMATION
Possible Additional Series
When an additional Series (as discussed in the Prospectus)
is created by the Board of Trustees and becomes operational,
shares of each such Series will be entitled to vote as a Series
only to the extent permitted by the 1940 Act (see below) or as
permitted by the Board of Trustees. Income and operating expenses
will be allocated among the Fund and the additional series in a
manner acceptable to the Board of Trustees.
Under Rule 18f-2 under the 1940 Act, any matter required to
be submitted to shareholder vote is not deemed to have been
effectively acted upon unless approved by the holders of a
"majority" (as defined in that Rule) of the voting securities of
each Series affected by the matter. Such separate voting
requirements do not apply to the election of trustees or the
ratification of the selection of accountants. Rule 18f-2 contains
special provisions for cases in which an advisory contract is
approved by one or more, but not all, Series. A change in
investment policy may go into effect as to one or more Series
whose holders so approve the change, even though the required
vote is not obtained as to the holders of other affected Series.
Indemnification of Shareholders and Trustees
Under Massachusetts law, shareholders of a trust such as the
Fund may, under certain circumstances, be held personally liable
as partners for the obligations of the trust. For shareholder
protection, however, an express disclaimer of shareholder
liability for acts or obligations of the Fund is contained in the
Declaration of Trust which requires that notice of such
disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Fund or the Trustees. The
Declaration of Trust provides for indemnification out of the
Fund's property of any shareholder held personally liable for the
obligations of the Fund. The Declaration of Trust also provides
that the Fund shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of
the Fund and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder
liability is limited to the relatively remote circumstances in
which the Fund itself would be unable to meet its obligations. In
the event the Fund had two or more Series, and if any such Series
were to be unable to meet the obligations attributable to it
(which, as is the case with the Fund, is relatively remote), the
other Series would be subject to such obligations, with a
corresponding increase in the risk of the shareholder liability
mentioned in the prior sentence.
The Declaration of Trust further indemnifies the Trustees of
the Fund out of the Fund's property and provides that they will
not be liable for errors of judgment or mistakes of fact or law;
but nothing in the Declaration of Trust protects a Trustee
against any liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his or her office.
Custodian and Auditors
The Fund's Custodian, Bank One Trust Company, N.A., is
responsible for holding the Fund's assets.
The Fund's auditors, KPMG Peat Marwick LLP, will perform an
annual audit of the Fund's financial statements.
Underwriting Commissions
During the Fund's fiscal year ended June 30, 1995 the
aggregate dollar amount of sales charges on sales of shares of
the Fund was $182,117 and the amount retained by the Distributor
was $4,713.
Financial Statements
The financial statements of the Fund for the fiscal year
ended June 30, 1995, which are contained in the Annual Report for
that fiscal year, are hereby incorporated by reference into the
Additional Statement. The financial statements as of the end of
the Fund's fiscal year have been audited by KPMG Peat Marwick
LLP, independent auditors, whose report thereon is incorporated
herein by reference. The financial statements of the Fund for the
six months ended December 31, 1995, which are contained in the
Semi-Annual Report for that period, are hereby incorporated by
reference into the Additional Statement. The financial statements
of the Fund for the six months ended December 31, 1995 are
unaudited.
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND RATINGS
Municipal Bond Ratings
Standard & Poor's. A Standard & Poor's municipal obligation
rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment
may take into consideration obligors such as guarantors, insurers
or lessees.
The debt rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market
price or suitability for a particular investor.
The ratings are based on current information furnished by
the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit
in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and
repayment of principal in accordance with the terms of
the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization
or other arrangement under the laws of bankruptcy and
other laws affecting creditors rights.
AAA Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the
highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest
and repay principal although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category
than in higher rated categories.
Plus (+) or Minus (:): The ratings from "AA" to "B" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the
rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the debt
being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and
risk.
Standard & Poor's ratings for municipal note issues are
designated SP in order to help investors distinguish more clearly
the credit quality of notes as compared to bonds. Notes bearing
the designation SP-1 are deemed very strong or to have strong
capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics will be given a
plus (+) designation. Notes bearing the designation SP-2 are
deemed to have a satisfactory capacity to pay principal and
interest.
Moody's Investors Service. A brief description of the
applicable Moody's Investors Service rating symbols and their
meanings follows:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium
grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are
designated by the symbols Aa1, A1, Baa1, Ba1 and B1.
Moody's Short Term Loan Ratings - There are four rating
categories for short-term obligations, all of which define an
investment grade situation. These are designated Moody's
Investment Grade as MIG 1 through MIG 4. In the case of variable
rate demand obligations (VRDOs), two ratings are assigned; one
representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the other
representing an evaluation of the degree of risk associated with
the demand feature. The short-term rating assigned to the demand
feature of VRDOs is designated as VMIG. When no rating is applied
to the long or short-term aspect of a VRDO, it will be designated
NR. Issues or the features associated with MIG or VMIG ratings
are identified by date of issue, date of maturity or maturities
or rating expiration date and description to distinguish each
rating from other ratings. Each rating designation is unique with
no implication as to any other similar issue of the same obligor.
MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issuer's
specific structural or credit features.
MIG1/VMIG1 This designation denotes best quality. There
is present strong protection by established
cash flows, superior liquidity support or
demonstrated broad-based access to the market
for refinancing.
MIG2/VMIG2 This designation denotes high quality.
Margins of protection are ample although not
so large as in the preceding group.
MIG3/VMIG3 This designation denotes favorable quality.
All security elements are accounted for but
there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow
protection may be narrow and market access
for refinancing is likely to be less well
established.
MIG4/VMIG4 This designation denotes adequate quality.
Protection commonly regarded as required of
an investment security is present and
although not distinctly or predominantly
speculative, there is specific risk.
<PAGE>
INVESTMENT ADVISER
Citizens Trust Company
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
Paul Y. Clinton
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
TRANSFER AND SHAREHOLDER SERVICING AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
Aquila
[LOGO]
Narragansett
[LOGO]
Insured Tax-Free Income Fund
STATEMENT OF
ADDITIONAL
INFORMATION
One of The
Aquilasm Group Of Funds
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
PART C: OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Incorporated by reference into Part B:
Report of Independent Auditors
Statement of Investments as of June 30, 1995
Statement of Assets and Liabilities as of
June 30, 1995
Statement of Operations for the period ended
June 30, 1995
Statement of Changes in Net Assets for the
periods ended June 30, 1995 and 1994
Notes to Financial Statements
Statement of Assets and Liabilities as of
December 31, 1995 (unaudited)
Statement of Operations for the six months
ended December 31, 1995 (unaudited)
Statement of Changes in Net Assets for the
six months ended December 31, 1995 and for
the year ended June 30, 1995 (unaudited)
Statement of Investments as of
December 31, 1995 (unaudited)
Notes to Financial Statements
Included in Part C:
Consent of Independent Auditors
(b) Exhibits:
(1) Supplemental Declaration of Trust Amending and
Restating the Declaration of Trust (vii)
(2) By-laws (vii)
(3) Not applicable
(4) Specimen share certificate (ii)
(5) Investment Advisory Agreement (ii)
(6) (a) Distribution Agreement (i)
(6) (b) Sales Agreement for Brokerage Firms (i)
(6) (c) Sales Agreement for Financial
Institutions (i)
(6) (d) Sales Agreement for Investment
Advisers (v)
(6) (e) Shareholder Services Agreement (vii)
(7) Not applicable
(8) Custody Agreement (vi)
(9) (a) Transfer Agency Agreement (i)
(9) (b) Administration Agreement (iv)
(10) Opinion & consent of Fund's counsel (vii)
(11) Consent of Adviser's counsel (v)
(12) Not applicable
(13) Agreement with initial shareholder (i)
(14) Not applicable
(15) (a) Distribution Plan (vii)
(15) (b) Shareholder Services Plan (vii)
(16) Schedule for computation of performance
quotations (vi)
(17) Financial Data Schedule (vii)
(18) Plan Pursuant to Rule 18f-3 (vii)
(i) Filed as an exhibit to Registrant's Initial Registra-
tion Statement dated June 19, 1992 and incorporated
herein by reference.
(ii) Filed as an exhibit to Registrant's Pre-Effective
Amendment No. 2 dated September 8, 1992 and incor-
porated herein by reference.
(iii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 1 dated March 10, 1993 and incorporated
herein by reference.
(iv) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 2 dated October 29, 1993 and incor-
porated herein by reference.
(v) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 3 dated October 26, 1994 and incor-
porated herein by reference.
(vi) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 4 dated October 26, 1995 and incor-
porated herein by reference.
(vii) Filed herewith.
ITEM 25. Persons Controlled By Or Under Common Control With
Registrant
None
ITEM 26. Number of Holders of Securities
As of April 24, 1996, Registrant had 848 hol-
ders of record of its shares.
ITEM 27. Indemnification
Subdivision (c) of Section 12 of Article SEVENTH of
Registrant's Declaration of Trust, filed as Exhibit
1 to Registrant's Initial Registration Statement
dated June 19, 1992, is incorporated herein by re-
ference.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted
to Trustees, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in that Act and is, therefore, unenforce-
able. In the event that a claim for indemnifica-
tion against such liabilities (other than the
payment by Registrant of expenses incurred or paid
by a Trustee, officer, or controlling person of
Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such Trustee,
officer, or controlling person in connection with
the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether such indemnification by it is against
public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 28. Business & Other Connections of Investment Adviser
Citizens Financial Group, Inc. ("CFG") is a wholly-
owned subsidiary of The Royal Bank of Scotland plc.
CFG is comprised of Citizens Savings Bank and
Citizens Trust Company (the Adviser) which operate
jointly through numerous branch offices in Rhode
Island; Citizens Bank of Massachusetts, which has
branches in southeastern Massachusetts; and Gulf
States Mortgage Company, Inc., a Georgia corpora-
tion based in Atlanta with offices in the southeas-
tern United States. Through the Adviser and other
subsidiaries, CFG provides financial services to
individuals, businesses, and governmental units.
CFG's headquarters are at One Citizens Plaza, Pro-
vidence, Rhode Island 02903. For information as to
the business, profession, vocation, or employment
of a substantial nature of the directors and offi-
cers of Citizens Trust Company, reference is made
to the Form ADV filed by it under the Investment
Advisers Act of 1940.
ITEM 29. Principal Underwriters
(a) Aquila Distributors, Inc. serves as principal un-
derwriter to Aquila Rocky Mountain Equity Fund, Ca-
pital Cash Management Trust, Churchill Cash Re-
serves Trust, Churchill Tax-Free Fund of Kentucky,
Hawaiian Tax-Free Trust, Pacific Capital Cash As-
sets Trust, Pacific Capital Tax-Free Cash Assets
Trust, Pacific Capital U.S. Treasuries Cash Assets
Trust, Prime Cash Fund, Short Term Asset Reserves,
Tax-Free Fund For Utah, Tax-Free Fund of Colorado,
Tax-Free Trust of Arizona, and Tax-Free Trust of
Oregon, in addition to serving as Registrant's
principal underwriter.
(b) For information about the Directors and officers of
Aquila Distributors, Inc., reference is made to the
Form BD filed by it under the Securities Exchange
Act of 1934.
(c) Not applicable.
ITEM 30. Location of Accounts and Records
All such accounts, books, and other documents are
maintained by the adviser, the administrator, the
custodian, and the transfer agent, whose addresses
appear on the back cover pages of the Prospectus
and Statement of Additional Information.
ITEM 31. Management Services
Not applicable.
ITEM 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) If the information called for by Item 5A is contained
in the Registrant's latest annual report to
shareholders, the Registrant undertakes to furnish each
person to whom a prospectus is delivered with a copy of
the Registrant's latest Annual Report to Shareholders,
upon request and without charge.
(d) Registrant undertakes that so long as its By-Laws
do not provide for regular annual meetings of the
shareholders of Registrant, the shareholders of Re-
gistrant shall have such rights, and Registrant,
its Board of Trustees, and its Trustees shall have
such obligations as would exist if Registrant were
a common law trust covered by Section 16(c) of the
Investment Company Act of 1940. In the event that
Registrant has outstanding two or more Series, each
such Series shall be considered as if it were a se-
parate common law trust covered by said Section 16
(c). However, Registrant may at any time or from
time to time apply to the Commission for one or
more exemptions from all or part of said Section
16(c) and, if an exemptive order or orders are is-
sued by the Commission, such order or orders shall
be deemed part of said Section 16(c) for the pur-
pose of this undertaking.
<PAGE>
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
Independent Auditors' Consent
To the Trustees and Shareholders of
Narragansett Insured Tax-Free Income Fund:
We consent to the use of our report dated July 31, 1995
incorporated herein by reference and to the reference to our firm
under the heading "Financial Highlights" in the Prospectus.
New York, New York KPMG Peat Marwick LLP
April 24, 1996 /s/KPMG Peat Marwick LLP
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Registrant
certifies that it meets all the requirements for effectiveness of
this Amendment to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, and has caused this
Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of New York and State of New York, on the 26th day of April,
1996.
NARRAGANSETT INSURED TAX-FREE
INCOME FUND
(Registrant)
/s/Lacy B. Herrmann
By____________________________
Lacy B. Herrmann, President
and Chairman of the Board
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement or Amendment has been signed
below by the following persons in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
/s/Lacy B. Herrmann 4/26/96
______________________ President, Chairman of ___________
Lacy B. Herrmann the Board and Trustee
(Principal Executive
Officer)
/s/Vernon R. Alden 4/26/96
______________________ Trustee ___________
Vernon R. Alden
______________________ Trustee ___________
David A. Duffy
/s/Robert L. Krakoff 4/26/96
______________________ Trustee ___________
Robert L. Krakoff
/s/William J. Nightingale 4/26/96
_____________________ Trustee ___________
William J. Nightingale
/s/J. William Weeks 4/26/96
_____________________ Trustee ___________
J. William Weeks
/s/Rose F. Marotta 4/26/96
_____________________ Chief Financial Officer ___________
Rose F. Marotta (Principal Financial and
Accounting Officer)
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
EXHIBIT INDEX
Exhibit Exhibit Page
Number Name Number
1 Amended and Restated Declaration
of Trust
2 Bylaws
6 Services Agreement
10 Opinion and Consent of Trust Counsel
15 Distribution Plan
15(a) Services Plan
17 Financial Data Schedule
18 Plan pursuant to Rule 18f-3
Correspondence
NARRAGANSETT INSURED TAX-FREE INCOME FUND
SUPPLEMENTAL DECLARATION OF TRUST
AMENDING AND RESTATING THE DECLARATION OF TRUST
SUPPLEMENTAL DECLARATION OF TRUST made on March 6, 1996, to
the DECLARATION OF TRUST (the "Present Declaration of Trust") of
NARRAGANSETT INSURED TAX-FREE INCOME FUND (the "Trust").
WHEREAS, paragraph 12 of Article EIGHTH of the Present
Declaration of Trust permits the Trustees of the Trust to amend
or otherwise supplement the Present Declaration of Trust by
making a Supplemental Declaration of Trust, if authorized by vote
of the Trustees and the Shareholders; and
WHEREAS, the making of this Supplemental Declaration of
Trust was duly authorized by the Trustees on June 10, 1995, and
by the shareholders on November 6, 1995, such approval having
been by the vote of the holders of a majority of the shares
issued, outstanding and entitled to vote; and
WHEREAS, the officer of the Trust executing this
Supplemental Declaration of Trust has been authorized and
directed to do so by the Trustees of the Trust and the
shareholders of the Trust on behalf of the Trustees and the
Trust;
NOW, THEREFORE, the Present Declaration of Trust is amended
and restated so that the Declaration of Trust of the Trust
(hereinafter referred to as the "Declaration of Trust") shall
read in its entirety as follows:
<PAGE>
FIRST: This Trust shall be known as Narragansett Insured
Tax-Free Income Fund.
SECOND: Whenever used herein, unless otherwise required by
the context or specifically provided:
1. All terms used in this Declaration of Trust which are
defined in the 1940 Act shall have the meanings given to them in
the 1940 Act.
2. The "Trust" refers to Narragansett Insured Tax-Free
Income Fund.
3. "Shareholder" means a record owner of Shares of the
Trust.
4. The "Trustees" refer to the individual trustees in
their capacity as trustees hereunder of the Trust and their
successor or successors for the time being in office as such
trustees.
5. "Shares" means the units of interest into which the
beneficial interest in the Trust shall be divided from time to
time and includes fractions of Shares as well as whole Shares.
6. The "1940 Act" refers to the Investment Company Act of
1940, as amended from time to time.
7. "Commission" means the Securities and Exchange
Commission.
8. "Board" or "Board of Trustees" means the Board of
Trustees of the Trust.
THIRD: The purpose or purposes for which the Trust is
formed and the business or objects to be transacted, carried on
and promoted by it are as follows:
1. To hold, invest and reinvest its funds, and in
connection therewith to hold part or all of its funds in cash,
and to purchase or otherwise acquire, hold for investment or
otherwise, sell, sell short, assign, negotiate, transfer,
exchange or otherwise dispose of or turn to account or realize
upon, securities (which term "securities" shall for the purposes
of this Declaration of Trust, without limitation of the
generality thereof, be deemed to include any stocks, shares,
bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the
same, or evidencing or representing any other rights or interests
therein, or in any property or assets) created or issued by any
issuer (which term "issuer" shall for the purposes of this
Declaration of Trust, without limitation of the generality
thereof be deemed to include any persons, firms, associations,
corporations, syndicates, combinations, organizations,
governments, or subdivisions thereof); and to exercise, as owner
or holder of any securities (or other financial instruments), all
rights, powers and privileges in respect thereof; and to do any
and all acts and things for the preservation, protection,
improvement and enhancement in value of any or all such
securities (or other financial instruments).
2. To borrow money and pledge assets in connection with
any of the objects or purposes of the Trust, and to issue notes
or other obligations evidencing such borrowings, to the extent
permitted by the 1940 Act and by the Trust's fundamental
investment policies under the 1940 Act.
3. To issue and sell its Shares in such amounts and on
such terms and conditions, for such purposes and for such amount
or kind of consideration (including without limitation thereto,
securities) now or hereafter permitted by the laws of the
Commonwealth of Massachusetts and by this Declaration of Trust,
as the Trustees may determine.
4. To purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or
consent of the Shareholders of the Trust) its Shares, in any
manner and to the extent now or hereafter permitted by the laws
of Commonwealth of Massachusetts and by this Declaration of
Trust.
5. To conduct its business in all its branches at one or
more offices in the Commonwealth of Massachusetts and elsewhere
in any part of the world, without restriction or limit as to
extent.
6. To carry out all or any of the foregoing objects and
purposes as principal or agent, and alone or with associates or,
to the extent now or hereafter permitted by the laws of the
Commonwealth of Massachusetts, as a member of, or as the owner or
holder of any stock of, or share of interest in, any issuer, and
in connection therewith to make or enter into such deeds or
contracts with any issuers and to do such acts and things and to
exercise such powers, as a natural person could lawfully make,
enter into, do or exercise.
7. To do any and all such further acts and things and to
exercise any and all such further powers as may be necessary,
incidental, relative, conducive, appropriate or desirable for the
accomplishment, carrying out or attainment of all or any of the
foregoing purposes or objects.
The foregoing objects and purposes shall, except as
otherwise expressly provided, be in no way limited or restricted
by reference to, or inference from, the terms of any other clause
of this or any other Articles of this Declaration of Trust, and
shall each be regarded as independent and construed as powers as
well as objects and purposes, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or
restrict in any manner the meaning of general terms or the
general powers of the Trust now or hereafter conferred by the
laws of the Commonwealth of Massachusetts, nor shall the
expression of one thing be deemed to exclude another, though it
be of like nature, not expressed; provided, however, that the
Trust shall not carry on any business, or exercise any powers, in
any state, territory, district or country except to the extent
that the same may lawfully be carried on or exercised under the
laws thereof.
FOURTH: The beneficial interest in the Trust shall at all
times be divided into up to 80,000,000 transferable Shares, each
such Share having a par value of one cent per Share, each of
which shall represent an equal proportionate interest in the
Trust with each other Share outstanding, none having priority or
preference over another, subject to the further provisions of
this Article FOURTH. The Trustees may from time to time divide
or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the
Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or 1/1,000ths of a
Share or multiple thereof.
Subject to the further provisions of Article FOURTH, the
Board of Trustees may, without obtaining any authorization or
vote of the Shareholders of any series or class of Shares,
classify unissued Shares into one or more additional series and
classes which shall, together with the issued Shares of
beneficial interest of the Trust, have such designations as the
Board may determine (but which shall in the case of a series
include the word "Series" and in the case of a class include the
word "Class"). Subject to the distinctions permitted among
classes of the same series established by the Board of Trustees
consistent with the requirements of the 1940 Act and any rule,
regulation or order of the Commission, each Share of a series of
the Trust shall represent an equal interest in the net assets of
the series, and each holder of Shares of a series shall be
entitled to receive such holder's pro-rata share of distributions
of income and capital gains, if any, made with respect to such
series. Upon redemption of the Shares of any series, the
applicable Shareholder shall be paid solely out of funds and
property of such series of the Trust.
All references to Shares in this Declaration of Trust shall
be deemed to be to Shares of any or all series or classes
thereof, as the context may require.
Series and classes shall, subject to any applicable rule,
regulation or order of the Commission or other applicable law or
regulation, have the characteristics set forth in (a) through and
including (h) below.
(a) All consideration received by the Trust for the
issue or sale of Shares of each such series, together with all
income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably
belong to the series of Shares with respect to which such assets,
payments, or funds were received by the Trust for all purposes,
subject only to the rights of creditors, and shall be so handled
upon the books of account of the Trust. Such assets, income,
earnings, profits and proceeds thereof, and any asset derived
from any reinvestment of such proceeds, in whatever form the same
may be, are herein referred to as "assets belonging to" such
series.
(b) Dividends or distributions on Shares of any such
series, whether payable in Shares or cash, shall be paid only out
of earnings, surplus or other assets belonging to such series.
(c) In the event of the liquidation or dissolution of
the Trust, Shareholders of each such series shall be entitled to
receive, as a series, out of the assets of the Trust available
for distribution to Shareholders, but other than general assets
not belonging to any particular series, the assets belonging to
such series; and the assets so distributable to the Shareholders
of any such series shall be distributed among such Shareholders
in proportion to the number of Shares of such series held by them
and recorded on the books of the Trust. In the event that there
are any general assets not belonging to any particular series of
Shares and available for distribution, such distribution shall be
made to the holders of Shares of all series in proportion to the
asset value of the Shares.
(d) The assets belonging to any such series of Shares
shall be charged with the liabilities in respect to such series
and shall be charged with their share of the general liabilities
of the Trust, in proportion to the asset value of the respective
series. The determination of the Board of Trustees shall be
conclusive as to the amount of liabilities, including accrued
expenses and reserves, and as to the allocation of the same as to
a given series, and as to whether the same, or general assets of
the Trust, are allocable to one or more series. The liabilities
so allocated to a series are herein referred to as "liabilities
belonging to" such series.
(e) The Board of Trustees may without the requirement
of Shareholder approval, classify Shares of any series or divide
the Shares of any series into classes, each class having such
different dividend, liquidation, voting and other rights as the
Trustees may determine, and may establish and designate the
specific classes of Shares of each series. The fact that a
series shall have initially been established and designated
without any specific establishment or designation of classes
(i.e., that all Shares of such series are initially of a single
class), or that a series shall have more than one established and
designated class, shall not limit the authority of the Trustees
to establish and designate separate classes, or one or more
further classes, of said series without approval of the holders
of the initial class thereof, or previously established and
designated class or classes thereof, provided that the
establishment and designation of such further separate classes
would not adversely affect the rights of the holders of the
initial or previously established and designated class or
classes.
(f) At all meetings of Shareholders, each Shareholder
of each Share of each such series or class of the Trust shall be
entitled to one vote for each dollar of net asset value
represented by such Share, determined as provided in the then
current Prospectus of such series or class, as of the record date
for such meeting, irrespective of series or class, standing in
his name on the books of the Trust, except that where a vote of
the holders of the Shares of any series or class, or of more than
one series or class, voting by series or class, is required by
the 1940 Act, any rule, regulation or order of the Commission or
other applicable law or regulation as to any proposal, only the
holders of such series or series, or class or classes, voting by
series or class, shall be entitled to vote upon such proposal and
the holders of any other series or class or classes shall not be
entitled to vote thereon. Any fractional Share, if any such
fractional Shares are outstanding, shall carry proportionately
all the rights of a whole Share, including the right to vote and
the right to receive dividends. There shall be no cumulative
voting rights with respect to any Shares or series or class of
Shares of the Trust.
(g) The provisions of Article FIFTH relating to voting
shall apply when the Trust has only one series or class of Shares
outstanding or when the Trust has more than one series or class
of Shares outstanding but which differ only as to their dividend
rights. Otherwise, the provisions of Article FIFTH shall be
subject to the provisions of this Article FOURTH.
(h) When the Trust has more than one series or class
of Shares outstanding: (i) the redemption rights provided to the
holders of the Trust's Shares shall be deemed to apply only to
the assets belonging to the series or class of Shares in
question; and (ii) the net asset value per Share computation as
provided for in Article SEVENTH shall be applied as if each such
series or class of Shares were the Trust as referred to in such
computation, but with its assets limited to the assets belonging
to such series or class and its liabilities limited to the
liabilities belonging to such series or class.
(i) The ownership of Shares shall be recorded in the
books of the Trust or a transfer agent. The Trustees may make
such rules as they consider appropriate for the transfer of
Shares and similar matters. The record books of the Trust or any
transfer agent, as the case may be, shall be conclusive as to who
are the holders of Shares and as to the number of Shares held
from time to time by each.
(j) The Trustees shall accept investments in the Trust
from such persons and on such terms as they may from time to time
authorize.
(k) Shareholders shall have no pre-emptive or other
right to subscribe to any additional Shares or other securities
issued by the Trust or the Trustees.
(l) The dividends payable to Shareholders shall,
subject to any applicable rule, regulation or order of the
Commission or other applicable law or regulation, be determined
by the Board and need not be individually declared but may be
declared and paid in accordance with a formula adopted by the
Board.
FIFTH: The following provisions are hereby adopted with
respect to voting Shares of the Trust and certain other rights:
1. The Shareholders shall have power to vote (i) for
the election of Trustees when that issue is submitted to
them, (ii) with respect to the amendment of this Declaration
of Trust, except as stated in Article EIGHTH as to the name
of the trust, and (iii) with respect to such additional
matters relating to the Trust as may be required by the 1940
Act or authorized by law, by this Declaration of Trust, or
the By-Laws of the Trust or any registration statement of
the Trust with the Commission or any State, or as the
Trustees may consider desirable.
2. At all meetings of Shareholders each Shareholder
shall be entitled to one vote for each dollar of net asset
value for each Share (determined in the manner described in
the current Prospectus or Prospectuses, if more than one
class or series is outstanding) standing in his name on the
books of the Trust on the date, fixed in accordance with the
By-Laws, for determination of Shareholders entitled to vote
at such meeting except (if so determined by the Board of
Trustees) for Shares redeemed prior to the meeting. Any
fractional Share shall carry proportionately all the rights
of a whole Share, including the right to vote and the right
to receive dividends. The presence in person or by proxy of
the holders of Shares outstanding and entitled to vote
thereat representing one-third of the net asset value of the
Trust as so determined shall constitute a quorum at any
meeting of the Shareholders. If at any meeting of the
Shareholders there shall be less than a quorum present, the
Shareholders present at such meeting may, without further
notice, adjourn the same from time to time until a quorum
shall attend, but no business shall be transacted at any
such adjourned meeting except such as might have been
lawfully transacted had the meeting not been adjourned.
3. Each Shareholder, upon request to the Trust in
proper form determined by the Trust, shall be entitled to
require the Trust to redeem all or any part of the Shares
standing in the name of such Shareholder. The method of
computing such net asset value, the time at which such net
asset value shall be computed and the time within which the
Trust shall make payment therefor, shall be determined as
hereinafter provided in Article SEVENTH of this Declaration
of Trust. Notwithstanding the foregoing, the Trustees, when
permitted or required to do so by the 1940 Act, may suspend
the right of the Shareholders to require the Trust to redeem
Shares.
4. No Shareholder shall, as such holder, have any
right to purchase or subscribe for any security of the Trust
which it may issue or sell, other than such right, if any,
as the Trustees, in their discretion, may determine.
5. All persons who shall acquire Shares shall acquire
the same subject to the provisions of this Declaration of
Trust.
6. Notwithstanding anything elsewhere contained in
this Declaration of Trust or in the By-Laws of the Trust, so
long as the By-Laws of the Trust do not provide for regular
annual meetings of Shareholders of the Trust, the
Shareholders of the Trust shall have such rights, and the
Trust, the Board of Trustees and the Trustees shall have
such obligations as would exist if the Trust were a common
law trust covered by Section 16(c) of the 1940 Act. In the
event that the Trust has outstanding two or more Series,
each such Series shall be considered as if it were a
separate common law trust covered by said Section 16(c).
However, the Trust may at any time or from time to time
apply to the Commission for one or more exemptions from all
or part of said Section 16(c) and, if an exemptive order or
orders are issued by the Commission, such order or orders
shall be deemed part of said Section 16(c) for the purposes
of this paragraph 6.
SIXTH: The persons who shall act as initial Trustees are
the Trustees initially executing this Declaration of Trust or any
counterpart thereof.
However, the By-Laws of the Trust may fix the number of
Trustees at a number greater than that of the number of initial
Trustees and may authorize the Trustees, by the vote of a
majority of the entire number of Trustees, to increase or
decrease the number of Trustees fixed by this Declaration of
Trust or by the By-Laws within limits specified in the By-Laws,
provided that in no case shall the number of Trustees be less
than two, and to fill the vacancies created by any such increase
in the number of Trustees. Unless otherwise provided by the By-
Laws of the Trust, the Trustees need not be Shareholders.
SEVENTH: The following provisions are hereby adopted for
the purpose of defining, limiting and regulating the powers of
the Trust and of the Trustees and Shareholders.
1. As soon as any Trustee is duly elected by the
Shareholders or the Trustees and shall have accepted this
trust, the Trust estate shall vest in the new Trustee or
Trustees, together with the continuing Trustees, without any
further act or conveyance, and he shall be deemed a Trustee
hereunder.
2. The death, declination, resignation, retirement,
removal, or incapacity of the Trustees, or any one of them
shall not operate to annul the Trust or to revoke any
existing agency created pursuant to the terms of this
Declaration of Trust.
3. The assets of the Trust shall be held separate and
apart from any assets now or hereafter held in any capacity
other than as Trustee hereunder by the Trustees or any
successor Trustees. All of the assets of the Trust shall at
all times be considered as vested in the Trustees. Except
as provided in this Declaration of Trust, no Shareholder
shall have, as such holder of beneficial interest in the
Trust, any authority, power or right whatsoever to transact
business for or on behalf of the Trust, or on behalf of the
Trustees, in connection with the property or assets of the
Trust, or in any part thereof, except the rights to receive
the income and distributable amounts arising therefrom as
set forth herein.
4. The Trustees in all instances shall act as
principals, and are and shall be free from the control of
the Shareholders. The Trustees shall have full power and
authority to do any and all acts and to make and execute any
and all contracts and instruments that they may consider
necessary or appropriate in connection with the management
of the Trust. The Trustees shall not in any way be bound or
limited by present or future laws or customs in regard to
Trust investments, but shall have full authority and power
to make any and all investments which they, in their
uncontrolled discretion, shall deem proper to accomplish the
purposes of this Trust. Subject to any applicable
limitation in this Declaration of Trust or in the By-Laws of
the Trust, the Trustees shall have power and authority:
(a) to adopt By-laws not inconsistent with this
Declaration of Trust providing for the conduct of the
business of the Trust and to amend and repeal them to the
extent that they do not reserve that right to the
Shareholders;
(b) to elect and remove such officers and appoint
and terminate such officers as they consider appropriate
with or without cause;
(c) to employ a bank or trust company as
custodian of any assets of the Trust subject to any
conditions set forth in this Declaration of Trust or in the
By-Laws;
(d) to retain a transfer agent and Shareholder
servicing agent, or both;
(e) to provide for the distribution of Shares
either through a principal underwriter or the Trust itself
or both;
(f) to set record dates in the manner provided
for in the By-Laws of the Trust;
(g) to delegate such authority as they consider
desirable to any officers of the Trust and to any agent,
custodian or underwriter;
(h) to vote or give assent, or exercise any
rights of ownership, with respect to stock or other
securities or property held in trust hereunder; and to
execute and deliver powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such
person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(i) to exercise powers and rights of subscription
or otherwise which in any manner arise out of ownership of
securities held in trust hereunder;
(j) to hold any security or property in a form
not indicating any trust, whether in bearer, unregistered or
other negotiable form; or either in its own name or in the
name of a custodian or a nominee or nominees, subject in
either case to proper safeguards according to the usual
practice of Massachusetts business trusts or investment
companies;
(k) to consent to or participate in any plan for
the reorganization, consolidation or merger of any
corporation or concern, any security of which is held in the
Trust; to consent to any contract, lease, mortgage,
purchase, or sale of property by such corporation or
concern, and to pay calls or subscriptions with respect to
any security held in the Trust;
(l) to compromise, arbitrate, or otherwise adjust
claims in favor of or against the Trust or any matter in
controversy including, but not limited to, claims for taxes;
(m) to make, in the manner provided in the By-
Laws, distributions of income and of capital gains to
Shareholders;
(n) to borrow money to the extent and in the
manner permitted by the 1940 Act and the Trust's fundamental
policy thereunder as to borrowing; and
(o) to enter into investment advisory, sub-
advisory, management, administrative or similar contracts,
subject to the 1940 Act, with any one or more corporations,
partnerships, trusts, associations or other persons; if the
other party or parties to any such contract are authorized
to enter into securities transactions on behalf of the
Trust, such transactions shall be deemed to have been
authorized by all of the Trustees.
5. No one dealing with the Trustees shall be under
any obligation to make any inquiry concerning the authority
of the Trustees, or to see to the application of any
payments made or property transferred by the Trustees or
upon their order.
6. (a) The Trustees shall have no power to bind any
Shareholder personally or to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever
other than such as the Shareholder may at any time
personally agree to pay by way of subscription to any Shares
or otherwise. Every note, bond, contract or other
undertaking issued by or on behalf of the Trust or the
Trustees relating to the Trust shall include a recitation
limiting the obligation represented thereby to the Trust and
its assets (but the omission of such a recitation shall not
operate to bind any Shareholder).
(b) Except as otherwise provided in this
Declaration of Trust or the By-Laws, whenever this
Declaration of Trust calls for or permits any action to be
taken by the Trustees hereunder, such action shall mean that
taken by the Board of Trustees by vote of the majority of a
quorum of Trustees as set forth from time to time in the By-
Laws of the Trust or as required pursuant to the provisions
of the 1940 Act and the rules and regulations promulgated
thereunder.
(c) The Trustees shall possess and exercise any
and all such additional powers as are reasonably implied
from the powers herein contained such as may be necessary or
convenient in the conduct of any business or enterprise of
the Trust, to do and perform anything necessary, suitable,
or proper for the accomplishment of any of the purposes, or
the attainment of any one or more of the objects, herein
enumerated, or which shall at any time appear conducive to
or expedient for the protection or benefit of the Trust, and
to do and perform all other acts or things necessary or
incidental to the purposes herein before set forth, or that
may be deemed necessary by the Trustees.
(d) The Trustees shall have the power to
determine conclusively whether any moneys, securities, or
other properties of the Trust property are, for the purposes
of this Trust, to be considered as capital or income and in
what manner any expenses or disbursements are to be borne as
between capital and income whether or not in the absence of
this provision such moneys, securities, or other properties
would be regarded as capital or income and whether or not in
the absence of this provision such expenses or disbursements
would ordinarily be charged to capital or to income.
7. The By-Laws of the Trust may divide the Trustees
into classes and prescribe the tenure of office of the
several classes, but no class shall be elected for a period
shorter than that from the time of the election following
the division into classes until the next annual meeting and
thereafter for a period shorter than the interval between
annual meetings or for a period longer than five years, and
the term of office of at least one class shall expire each
year.
8. The Shareholders shall have the right to inspect
the records, documents, accounts and books of the Trust,
subject to reasonable regulations of the Trustees, not
contrary to Massachusetts law, as to whether and to what
extent, and at what times and places, and under what
conditions and regulations, such right shall be exercised.
9. Any Trustee, or any officer elected or appointed
by the Trustees or by any committee of the Trustees or by
the Shareholders or otherwise, may be removed at any time,
with or without cause, in such lawful manner as may be
provided in the By-Laws of the Trust.
10. If the By-Laws so provide, the Trustees shall have
power to hold their meetings, to have an office or offices
and, subject to the provisions of the laws of the
Commonwealth of Massachusetts, to keep the books of the
Trust outside of said Commonwealth at such places as may
from time to time be designated by them.
11. Securities held by the Trust shall be voted in
person or by proxy by the President or a Vice-President, or
such officer or officers of the Trust as the Trustees shall
designate for the purpose, or by a proxy or proxies
thereunto duly authorized by the Trustees, except as
otherwise ordered by vote of the holders of a majority of
the Shares outstanding and entitled to vote in respect
thereto.
12. (a) Subject to the provisions of the 1940 Act,
any Trustee, officer or employee, individually, or any
partnership of which any Trustee, officer or employee may be
a member, or any corporation or association of which any
Trustee, officer or employee may be an officer, director,
trustee, employee or stockholder, may be a party to, or may
be pecuniarily or otherwise interested in, any contract or
transaction of the Trust, and in the absence of fraud no
contract or other transaction shall be thereby affected or
invalidated; provided that in case a Trustee, or a
partnership, corporation or association of which a Trustee
is a member, officer, director, trustee, employee or
stockholder is so interested, such fact shall be disclosed
or shall have been known to the Trustees or a majority
thereof; and any Trustee who is so interested, or who is
also a director, officer, trustee, employee or stockholder
of such other corporation or association or a member of such
partnership which is so interested, may be counted in
determining the existence of a quorum at any meeting of the
Trustees which shall authorize any such contract or
transaction, and may vote thereat to authorize any such
contract or transaction, with like force and effect as if he
were not such director, officer, trustee, employee or
stockholder of such other trust or corporation or
association or a member of a partnership so interested.
(b) Specifically, but without limitation of the
foregoing, the Trust may enter into a management, investment
advisory, sub-advisory, administration or underwriting
contract and other contracts with, and may otherwise do
business with any manager, investment adviser, sub-adviser,
or administrator for the Trust, or principal underwriter of
the Shares of the Trust, or any subsidiary or affiliate of
any such manager, investment adviser, sub-adviser or
administrator and/or principal underwriter and may permit
any such firm or corporation to enter into any contracts or
other arrangements with any other firm or corporation
relating to the Trust notwithstanding that the Board of
Trustees of the Trust may be composed in part of partners,
directors, officers or employees of any such firm or
corporation, and officers of the Trust may have been or may
be or become partners, directors, officers or employees of
any such firm or corporation, and in the absence of fraud
the Trust and any such firm or corporation may deal freely
with each other, and no such contract or transaction between
the Trust and any such firm or corporation shall be
invalidated or in any wise affected thereby, nor shall any
Trustee or officer of the Trust be liable to the Trust or to
any Shareholder or creditor thereof or to any other person
for any loss incurred by it or him solely because of the
existence of any such contract or transaction; provided that
nothing herein shall protect any Trustee or officer of the
Trust against any liability to the Trust or to its security
holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office.
(c) (1) As used in this paragraph the following
terms shall have the meanings set forth below:
(i) the term "indemnitee" shall mean any
present or former Trustee, officer or
employee of the Trust, any present or former
Trustee or officer of another trust or
corporation whose securities are or were
owned by the Trust or of which the Trust is
or was a creditor and who served or serves in
such capacity at the request of the Trust,
any present or former investment adviser,
sub-adviser, administrator or principal
underwriter of the Trust and the heirs,
executors, administrators, successors and
assigns of any of the foregoing; however,
whenever conduct by an indemnitee is referred
to, the conduct shall be that of the original
indemnitee rather than that of the heir,
executor, administrator, successor or
assignee;
(ii) the term "covered proceeding" shall
mean any threatened, pending or completed
action, suit or proceeding, whether civil,
criminal, administrative or investigative, to
which an indemnitee is or was a party or is
threatened to be made a party by reason of
the fact or facts under which he or it is an
indemnitee as defined above;
(iii) the term "disabling conduct" shall
mean willful misfeasance, bad faith, gross
negligence or reckless disregard of the
duties involved in the conduct of the office
in question;
(iv) the term "covered expenses" shall mean
expenses (including attorney's fees),
judgments, fines and amounts paid in
settlement actually and reasonably incurred
by an indemnitee in connection with a covered
proceeding; and
(v) the term "adjudication of liability"
shall mean, as to any covered proceeding and
as to any indemnitee, an adverse
determination as to the indemnitee whether by
judgment, order, settlement, conviction or
upon a plea of nolo contendere or its
equivalent.
(d) The Trust shall not indemnify any indemnitee
for any covered expenses in any covered proceeding if there
has been an adjudication of liability against such
indemnitee expressly based on a finding of disabling
conduct.
(e) Except as set forth in (d) above, the Trust
shall indemnify any indemnitee for covered expenses in any
covered proceeding, whether or not there is an adjudication
of liability as to such indemnitee, if a determination has
been made that the indemnitee was not liable by reason of
disabling conduct by (i) a final decision of the court or
other body before which the covered proceeding was brought;
or (ii) in the absence of such decision, a reasonable
determination, based on a review of the facts, by either (a)
the vote of a majority of a quorum of Trustees who are
neither "interested persons," as defined in the 1940 Act nor
parties to the covered proceeding or (b) an independent
legal counsel in a written opinion; provided that such
Trustees or counsel, in reaching such determination, may but
need not presume the absence of disabling conduct on the
part of the indemnitee by reason of the manner in which the
covered proceeding was terminated.
(f) Covered expenses incurred by an indemnitee in
connection with a covered proceeding shall be advanced by
the Trust to an indemnitee prior to the final disposition of
a covered proceeding upon the request of the indemnitee for
such advance and the undertaking by or on behalf of the
indemnitee to repay the advance unless it is ultimately
determined that the indemnitee is entitled to
indemnification thereunder, but only if one or more of the
following is the case: (i) the indemnitee shall provide a
security for such undertaking; (ii) the Trust shall be
insured against losses arising out of any lawful advances;
or (iii) there shall have been a determination, based on a
review of the readily available facts (as opposed to a full
trial-type inquiry) that there is a reason to believe that
the indemnitee ultimately will be found entitled to
indemnification by either independent legal counsel in a
written opinion or by the vote of a majority of a quorum of
trustees who are neither "interested persons" as defined in
the 1940 Act nor parties to the covered proceeding.
(g) Nothing herein shall be deemed to affect the
right of the Trust and/or any indemnitee to acquire and pay
for any insurance covering any or all indemnitees to the
extent permitted by the 1940 Act or to affect any other
indemnification rights to which any indemnitee may be
entitled to the extent permitted by the 1940 Act.
13. For purposes of the computation of net asset
value, as in this Declaration of Trust referred to, the
following rules shall apply:
(a) The net asset value of each Share of the
Trust tendered to the Trust for redemption shall be
determined as of the close of business on the New York Stock
Exchange next succeeding the tender of such Share;
(b) The net asset value of each Share of the
Trust for the purpose of the issue of such Shares shall be
determined as of the close of business on the New York Stock
Exchange next succeeding the receipt of an order to purchase
such Shares;
(c) The net asset value of each Share of the
Trust, as of time of valuation on any day, shall be the
quotient obtained by dividing the value, as at such time, of
the net assets of the Trust (i.e., the value of the assets
of the Trust less its liabilities exclusive of its surplus)
by the total number of Shares outstanding at such time. The
assets and liabilities of the Trust shall be determined in
accordance with generally accepted accounting principles;
provided, however, that in determining the liabilities of
the Trust there shall be included such reserves for taxes or
contingent liabilities as may be authorized or approved by
the Trustees, and provided further that in determining the
value of the assets of the Trust for the purpose of
obtaining the net asset value, each security listed on the
New York Stock Exchange shall be valued on the basis of the
closing sale at the time of valuation on the business day as
of which such value is being determined; if there be no sale
on such day, then the security shall be valued on the basis
of the mean between closing bid and asked prices on such
day; if no bid and asked prices are quoted for such day,
then the security shall be valued by such method as the
Trustees shall deem in good faith to reflect its fair market
value; securities not listed on the New York Stock Exchange
shall be valued in like manner on the basis of quotations on
any other stock or commodities exchange which the Trustees
may from time to time approve for that purpose; readily
marketable securities traded in the over-the-counter market
shall be valued at the mean between their bid and asked
prices, or, if the Trustees shall so determine, at their bid
prices; and all other assets of the Trust and all securities
as to which the Trust might be considered an "underwriter"
(as that term is used in the Securities Act of 1933),
whether or not such securities are listed or traded in the
over-the-counter market, shall be valued by such method as
they shall deem in good faith to reflect their fair market
value. In connection with the accrual of any fee or refund
payable to or by an investment adviser of the Trust, the
amount of which accrual is not definitely determinable as of
any time at which the net asset value of each Share of the
Trust is being determined due to the contingent nature of
such fee or refund, the Trustees are authorized to establish
from time to time formulae for such accrual, on the basis of
the contingencies in question to the date of such
determination, or on such other basis as the Trustees may
establish.
(1) Shares to be issued shall be deemed to
be outstanding as of the time of the determination
of the net asset value per share applicable to
such issuance and the net price thereof shall be
deemed to be an asset of the Trust;
(2) Shares to be redeemed by the Trust shall
be deemed to be outstanding until the time of the
determination of the net asset value applicable to
such redemption and thereupon and until paid the
redemption price thereof shall be deemed to be a
liability of the Trust; and
(3) Shares voluntarily purchased or
contracted to be purchased by the Trust pursuant
to the provisions of paragraph 13(d) of this
Article SEVENTH shall be deemed to be outstanding
until whichever is the later of (i) the time of
the making of such purchase or contract of
purchase, and (ii) the time as of which the
purchase price is determined, and thereupon and
until paid, the purchase price thereof shall be
deemed to be a liability of the Trust.
(d) The net asset value of each Share of the
Trust, as of any time other than the close of business on
the New York Stock Exchange of any day, may be determined by
applying to the net asset value as of the close of business
on that Exchange on the preceding business day, computed as
provided in this Article SEVENTH, such adjustments as are
authorized by or pursuant to the direction of the Trustees
and designed reasonably to reflect any material changes in
the market value of securities and other assets held and any
other material changes in the assets or liabilities of the
Trust and in the number of its outstanding Shares which
shall have taken place since the close of business on such
preceding business day.
(e) In addition to the foregoing, the Trustees
are empowered, in their absolute discretion, to establish
other bases or times, or both, for determining the net asset
value of each Share of the Trust in accordance with the 1940
Act and to authorize the voluntary purchase by the Trust,
either directly or through an agent, of Shares of the Trust
upon such terms and conditions and for such consideration as
the Trustees shall deem advisable in accordance with any
such provision, rule or regulation.
(f) Payment of the net asset value of Shares of
the Trust properly surrendered to it for redemption shall be
made by the Trust within seven days after tender of such
Shares to the Trust for such purpose plus any period of time
during which the right of the holders of the Shares of the
Trust to require the Trust to redeem such Shares has been
suspended. Any such payment may be made in portfolio
securities of the Trust and/or in cash, as the Trustees
shall deem advisable, and no Shareholder shall have a right,
other than as determined by the Trustees, to have his Shares
redeemed in kind.
EIGHTH:
1. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of
his being or having been a Shareholder and not because of
his acts or omissions or for some other reason, the
Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or in the case
of a corporation or other entity, its corporate or other
general successor) shall be entitled out of the Trust estate
to be held harmless from and indemnified against all loss
and expense arising from such liability. This Trust shall,
upon request by the Shareholder, assume the defense of any
claim made against any Shareholder for any act or obligation
of the Trust and satisfy any judgment thereon.
2. It is hereby expressly declared that a trust and
not a partnership is created hereby. No Trustee hereunder
shall have any power to bind personally either the Trust's
officers or any Shareholder. All persons extending credit
to, contracting with or having any claim against the Trust
or the Trustees shall look only to the assets of the Trust
for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of their
agents, whether past, present or future, shall be personally
liable therefor. Nothing in this Declaration of Trust shall
protect a Trustee against any liability to which such
Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the
office of Trustee hereunder.
3. The exercise by the Trustees of their powers and
discretion hereunder in good faith and with reasonable care
under the circumstances then prevailing, shall be binding
upon everyone interested. Subject to the provisions of
paragraph 2 of this Article EIGHTH, the Trustees shall not
be liable for errors of judgment or mistakes of fact or law.
The Trustees may take advice of counsel or other experts
with respect to the meaning and operations of this
Declaration of Trust, and subject to the provisions of
paragraph 2 of this Article EIGHTH, shall be under no
liability for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees
shall not be required to give any bond as such, nor any
surety if a bond is required.
4. This Trust shall continue without limitation of
time but subject to the provisions of sub-sections (a), (b)
and (c) of this paragraph 4.
(a) The Trustees, with the favorable vote of the
holders of a "majority," as defined in the 1940 Act, of the
outstanding Shares entitled to vote, and if the Trust has
outstanding shares of more than one series or class, such
vote shall be in accordance with the provisions of Article
FIFTH section (2), may sell and convey the assets of the
Trust, (which sale may be subject to the retention of assets
for the payment of liabilities and expenses) to another
issuer for a consideration which may be or include
securities of such issuer. Upon making provision for the
payment of liabilities, by assumption by such issuer or
otherwise, the Trustees shall distribute the remaining
proceeds ratably among the holders of the Shares of the
Trust, or Shares of such Series, then outstanding.
(b) The Trustees, with the favorable vote of the
holders of a "majority," as defined in the 1940 Act, of the
outstanding Shares entitled to vote, and if the Trust has
outstanding Shares of more than one series or class, such
vote shall be in accordance with the provisions of Article
FIFTH section (2), may at any time sell and convert into
money all the assets of the Trust or of any Series. Upon
making provision for the payment of all outstanding
obligations, taxes and other liabilities, accrued or
contingent, of the Trust, the Trustees shall distribute the
remaining assets of the Trust ratably among the holders of
the outstanding Shares, or Shares of such Series.
(c) Upon completion of the distribution of the
remaining proceeds or the remaining assets as provided in
sub-sections (a) and (b), the Trust shall terminate and the
Trustees shall be discharged of any and all further
liabilities and duties hereunder and the right, title and
interest of all parties shall be cancelled and discharged.
5. The original or a copy of this instrument and of
each declaration of trust supplemental hereto shall be kept
at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each
supplemental declaration of trust shall be filed with the
Massachusetts Secretary of State, as well as any other
governmental office where such filing may from time to time
be required. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not
any such supplemental declarations of trust have been made
and as to any matters in connection with the Trust
hereunder, and with the same effect as if it were the
original, may rely on a copy certified by an officer of the
Trust to be a copy of this instrument or of any such
supplemental declaration of trust. In this instrument or in
any such supplemental declaration of trust, references to
this instrument, and all expressions like "herein," "hereof"
and "hereunder" shall be deemed to refer to this instrument
as amended or affected by any such supplemental declaration
of trust. This instrument may be executed in any number of
counterparts, each of which shall be deemed an original.
6. The trust set forth in this instrument is created
under and is to be governed by and construed and
administered according to the laws of the Commonwealth of
Massachusetts. The Trust shall be of the type commonly
called a Massachusetts business trust, and without limiting
the provisions hereof, the Trust may exercise all powers
which are ordinarily exercised by such a trust.
7. The Board of Trustees is empowered to cause the
redemption of the Shares held in any account if the
aggregate net asset value of such Shares (taken at cost or
value, as determined by the Board) has been reduced by a
Shareholder to $500 or less upon such notice to the
Shareholders in question, with such permission to increase
the investment in question and upon such other terms and
conditions as may be fixed by the Board of Trustees in
accordance with the 1940 Act.
8. In the event that any person advances the
organizational expenses of the Trust, such advances shall
become an obligation of the Trust subject to such terms and
conditions as may be fixed by, and on a date fixed by, or
determined in accordance with criteria fixed by the Board of
Trustees, to be amortized over a period or periods to be
fixed by the Board.
9. Whenever any action is taken under this
Declaration of Trust under any authorization to take action
which is permitted by the 1940 Act, such action shall be
deemed to have been properly taken if such action is in
accordance with the construction of the 1940 Act then in
effect as expressed in "no-action" letters of the staff of
the Commission or any release, rule, regulation or order
under the 1940 Act or any decision of a court of competent
jurisdiction, notwithstanding that any of the foregoing
shall later be found to be invalid or otherwise reversed or
modified by any of the foregoing.
10. Any action which may be taken by the Board of
Trustees under this Declaration of Trust or its By-Laws may
be taken by the description thereof in the then effective
prospectus and/or statement of additional information
relating to the Shares under the Securities Act of 1933 or
in any proxy statement of the Trust rather than by formal
resolution of the Board.
11. Whenever under this Declaration of Trust, the
Board of Trustees is permitted or required to place a value
on assets of the Trust, such action may be delegated by the
Board, and/or determined in accordance with a formula
determined by the Board, to the extent permitted by the 1940
Act.
12. If authorized by vote of the Trustees and the
favorable vote of the holders of a "majority," as defined in
the 1940 Act, of the outstanding Shares entitled to vote, or
by any larger vote which may be required by applicable law
in any particular case, the Trustees shall amend or
otherwise supplement this instrument, by making a
declaration of trust supplemental hereto, which thereafter
shall form a part hereof; however, any such supplemental
Declaration of Trust may be authorized by the vote of a
majority of the Trustees then in office without any
Shareholder vote if the sole purpose of such supplemental
Declaration of Trust is to change the name of the Trust; any
Supplemental Declaration of Trust may be executed by and on
behalf of the Trust and the Trustees by any officer or
officers of the Trust.
[balance of page intentionally left blank]
<PAGE>
13. The address of the Trust is 380 Madison Avenue,
Suite 2300, New York, NY 10017. The agent of the Trust in
the Commonwealth of Massachusetts is United Corporate
Services, Inc., 9 Crestway Road, East Boston, Massachusetts
02128.
IN WITNESS WHEREOF, the undersigned have executed
this Supplemental Declaration of Trust on behalf of the Trust and
the Trustees as of the date first above written.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
______________________________
Lacy B. Herrmann
President, Chairman of the
Board of Trustees and Trustee
Attest:
______________________________
Patricia A. Craven
Assistant Secretary
THE UNDERSIGNED, President, Chairman of the Board of
Trustees and Trustee of NARRAGANSETT INSURED TAX-FREE INCOME FUND
who executed on behalf of said Trust and its Trustees the
foregoing Supplemental Declaration of Trust, hereby acknowledges,
in the name and on behalf of said Trust and its Trustees, the
foregoing Supplemental Declaration of Trust to be the act of said
Trust and its Trustees and further certifies that to the best of
his information, knowledge and belief, the matters and facts set
forth therein with respect to the approval thereof are true in
all material respects, under penalties of perjury.
________________________________
Lacy B. Herrmann
Dated: March 6, 1996
NARRAGANSETT INSURED TAX-FREE INCOME FUND
BY-LAWS
ARTICLE I
SHAREHOLDERS
Section 1. Place of Meeting. All meetings of the
Shareholders (which term as used herein shall, together with all
other terms defined in the Declaration of Trust, have the same
meaning as in the Declaration of Trust) shall be held at the
principal office of the Fund or at such other place as may from
time to time be designated by the Board of Trustees and stated in
the notice of meeting.
Section 1A. Shareholder Voting. At any meeting of
Shareholders, Shareholders are entitled to one (1) vote for each
dollar of net asset value (determined as of the record date for
the meeting) per Share held (and fractional votes for fractional
dollar amounts.)
Section 2. Annual Meeting. The annual meeting of the
Shareholders of the Fund shall be held on such date and at such
time as may be determined by the Board of Trustees and as shall
be designated in the notice of meeting for the purpose of
electing Trustees until the next annual meeting and for the
transaction of such other business as may properly be brought
before the meeting.
Section 3. Special or Extraordinary Meetings. Special or
extraordinary meetings of Shareholders for any purpose or
purposes may be called by the Chairman of the Board of Trustees,
if any, or by the President or by the Board of Trustees and shall
be called by the Secretary upon receipt of the request in writing
signed by holders of Shares representing not less than ten
percent (10%) of the votes eligible to be cast thereat. Such
request shall state the purpose or purposes of the proposed
meeting.
Section 4. Notice of Meetings of Shareholders. Not less
than ten days' and not more than ninety days' written or printed
notice of every meeting of Shareholders, stating the time and
place thereof (and the general nature of the business proposed to
be transacted at any special or extraordinary meeting), shall be
given to each Shareholder entitled to vote thereat by leaving the
same with him or at his residence or usual place of business or
by mailing it, postage prepaid and addressed to him at his
address as it appears upon the books of the Fund.
No notice of the time, place or purpose of any meeting of
Shareholders need be given to any Shareholder who attends in
person or by proxy or to any Shareholder who, in writing executed
and filed with the records of the meeting, either before or after
the holding thereof, waives such notice.
Section 5. Record Dates. The Board of Trustees may fix, in
advance, a date, not exceeding ninety days and not less than ten
days preceding the date of any meeting of Shareholders, and not
exceeding ninety days preceding any dividend payment date or any
date for the allotment of rights, as a record date for the
determination of the Shareholders entitled to receive such
dividends or rights, as the case may be; and only Shareholders of
record on such date shall be entitled to notice of and to vote at
such meeting or to receive such dividends or rights, as the case
may be.
Section 6. Quorum, Adjournment of Meetings. The presence
in person or by proxy of the holders of record of outstanding
Shares of the Fund representing at least one-third of the votes
eligible to be cast thereat shall constitute a quorum at all
meetings of Shareholders. If at any meeting of the Shareholders
there shall be less than a quorum present, the Shareholders
present at such meeting may, without further notice, adjourn the
same from time to time until a quorum shall attend, but no
business shall be transacted at any such adjourned meeting except
such as might have been lawfully transacted had the meeting not
been adjourned.
Section 7. Voting and Inspectors. At all meetings of
Shareholders every Shareholder of record entitled to vote thereat
shall be entitled to vote at such meeting either in person or by
proxy appointed by instrument in writing subscribed by such
Shareholder or his duly authorized attorney-in-fact.
All elections of Trustees shall be had by a plurality of the
votes cast and all questions shall be decided by a majority of
the votes cast, in each case at a duly constituted meeting,
except as otherwise provided in the Declaration of Trust or in
these By-Laws or by specific statutory provision superseding the
restrictions and limitations contained in the Declaration of
Trust or in these By-Laws.
At any election of Trustees, the Board of Trustees prior
thereto may, or, if they have not so acted, the Chairman of the
meeting may, and upon the request of the holders of the
outstanding Shares of the Fund representing 10% of its net asset
value entitled to vote at such election shall, appoint two
inspectors of election who shall first subscribe an oath or
affirmation to execute faithfully the duties of inspectors at
such election with strict impartiality and according to the best
of their ability, and shall after the election make a certificate
of the result of the vote taken. No candidate for the office of
Trustee shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be
taken upon any election or matter, and such vote shall be taken
upon the request of the holders of the outstanding Shares of the
Fund representing 10% of its net asset value entitled to vote on
such election or matter.
Section 8. Conduct of Shareholders' Meetings. The meetings
of the Shareholders shall be presided over by the Chairman of the
Board of Trustees, if any, or if he shall not be present, by the
President, or if he shall not be present, by a Vice-President, or
if neither the Chairman of the Board of Trustees, the President
nor any Vice-President is present, by a chairman to be elected at
the meeting. The Secretary of the Fund, if present, shall act as
Secretary of such meetings, or if he is not present, an Assistant
Secretary shall so act; if neither the Secretary nor an Assistant
Secretary is present, then the meeting shall elect its secretary.
Section 9. Concerning Validity of Proxies, Ballots, Etc.
At every meeting of the Shareholders, all proxies shall be
received and taken in charge of and all ballots shall be received
and canvassed by the secretary of the meeting, who shall decide
all questions touching the qualification of voters, the validity
of the proxies, and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed as provided in
Section 7, in which event such inspectors of election shall
decide all such questions.
ARTICLE II
BOARD OF TRUSTEES
Section 1. Number and Tenure of Office. The business and
property of the Fund shall be conducted and managed by a Board of
Trustees consisting of the number of initial Trustees, which
number may be increased or decreased as provided in Section 2 of
this Article. Each Trustee shall, except as otherwise provided
herein, hold office until the annual meeting of Shareholders of
the Fund next succeeding his election or until his successor is
duly elected and qualifies. Trustees need not be Shareholders.
Section 2. Increase or Decrease in Number of Trustees;
Removal. The Board of Trustees, by the vote of a majority of the
entire Board, may increase the number of Trustees to a number not
exceeding fifteen, and may elect Trustees to fill the vacancies
created by any such increase in the number of Trustees until the
next annual meeting or until their successors are duly elected
and qualify; the Board of Trustees, by the vote of a majority of
the entire Board, may likewise decrease the number of Trustees to
a number not less than two but the tenure of office of any
Trustee shall not be affected by any such decrease. Vacancies
occurring other than by reason of any such increase shall be
filled as provided for a Massachusetts business corporation. In
the event that after proxy material has been printed for a
meeting of Shareholders at which Trustees are to be elected any
one or more management nominees dies or becomes incapacitated,
the authorized number of Trustees shall be automatically reduced
by the number of such nominees, unless the Board of Trustees
prior to the meeting shall otherwise determine. Any Trustee at
any time may be removed either with or without cause by
resolution duly adopted by the affirmative votes of the holders
of the majority of the Shares of the Fund present in person or by
proxy at any meeting of Shareholders at which such vote may be
taken, provided that a quorum is present, or by such larger vote
as may be required by Massachusetts law. Any Trustee at any time
may be removed for cause by resolution duly adopted at any
meeting of the Board of Trustees provided that notice thereof is
contained in the notice of such meeting and that such resolution
is adopted by the vote of at least two thirds of the Trustees
whose removal is not proposed. As used herein, "for cause" shall
mean any cause which under Massachusetts law would permit the
removal of a Trustee of a business trust.
Section 3. Place of Meeting. The Trustees may hold their
meetings, have one or more offices, and keep the books of the
Fund outside Massachusetts, at any office or offices of the Fund
or at any other place as they may from time to time by resolution
determine, or, in the case of meetings, as they may from time to
time by resolution determine or as shall be specified or fixed
in the respective notices or waivers of notice thereof.
Section 4. Regular Meetings. Regular meetings of the Board
of Trustees shall be held at such time and on such notice, if
any, as the Trustees may from time to time determine.
The annual meeting of the Board of Trustees shall be held as
soon as practicable after the annual meeting of the Shareholders
for the election of Trustees.
Section 5. Special Meetings. Special meetings of the Board
of Trustees may be held from time to time upon call of the
Chairman of the Board of Trustees, if any, the President or two
or more of the Trustees, by oral or telegraphic or written notice
duly served on or sent or mailed to each Trustee not less than
one day before such meeting. No notice need be given to any
Trustee who attends in person or to any Trustee who, in writing
executed and filed with the records of the meeting either before
or after the holding thereof, waives such notice. Such notice or
waiver of notice need not state the purpose or purposes of such
meeting.
Section 6. Quorum. One-third of the Trustees then in
office shall constitute a quorum for the transaction of business,
provided that a quorum shall in no case be less than two
Trustees. If at any meeting of the Board there shall be less
than a quorum present (in person or by open telephone line, to
the extent permitted by the 1940 Act), a majority of those
present may adjourn the meeting from time to time until a quorum
shall have been obtained. The act of the majority of the
Trustees present at any meeting at which there is a quorum shall
be the act of the Board, except as may be otherwise specifically
provided by statute, by the Declaration of Trust or by these By-
Laws.
Section 7. Executive Committee. The Board of Trustees may,
by the affirmative vote of a majority of the entire Board, elect
from the Trustees an Executive Committee to consist of such
number of Trustees as the Board may from time to time determine.
The Board of Trustees by such affirmative vote shall have power
at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Trustees. When
the Board of Trustees is not in session, the Executive Committee
shall have and may exercise any or all of the powers of the Board
of Trustees in the management of the business and affairs of the
Fund (including the power to authorize the seal of the Fund to be
affixed to all papers which may require it) except as provided by
law and except the power to increase or decrease the size of, or
fill vacancies on the Board. The Executive Committee may fix its
own rules of procedure, and may meet, when and as provided by
such rules or by resolution of the Board of Trustees, but in
every case the presence of a majority shall be necessary to
constitute a quorum. In the absence of any member of the
Executive Committee the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a member of
the Board of Trustees to act in the place of such absent member.
Section 8. Other Committees. The Board of Trustees, by the
affirmative vote of a majority of the entire Board, may appoint
other committees which shall in each case consist of such number
of members (not less than two) and shall have and may exercise
such powers as the Board may determine in the resolution
appointing them. A majority of all members of any such committee
may determine its action, and fix the time and place of its
meetings, unless the Board of Trustees shall otherwise provide.
The Board of Trustees shall have power at any time to change the
members and powers of any such committee, to fill vacancies, and
to discharge any such committee.
Section 9. Informal Action by and Telephone Meetings of
Trustees and Committees. Any action required or permitted to be
taken at any meeting of the Board of Trustees or any committee
thereof may be taken without a meeting, if a written consent to
such action is signed by all members of the Board, or of such
committee, as the case may be. Trustees or members of a
committee of the Board of Trustees may participate in a meeting
by means of a conference telephone or similar communications
equipment; such participation shall, except as otherwise required
by the 1940 Act, have the same effect as presence in person.
Section 10. Compensation of Trustees. Trustees shall be
entitled to receive such compensation from the Fund for their
services as may from time to time be voted by the Board of
Trustees.
Section 11. Dividends. Dividends or distributions payable
on the Shares may, but need not be, declared by specific
resolution of the Board as to each dividend or distribution; in
lieu of such specific resolutions, the Board may, by general
resolution, determine the method of computation thereof, the
method of determining the Shareholders to which they are payable
and the methods of determining whether and to which Shareholders
they are to be paid in cash or in additional Shares.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of
the Fund shall be chosen by the Board of Trustees as soon as may
be practicable after the annual meeting of the Shareholders.
These may include a Chairman of the Board of Trustees, and shall
include a President, one or more Vice-Presidents (the number
thereof to be determined by the Board of Trustees), a Secretary
and a Treasurer. The Chairman of the Board of Trustees, if any,
and the President may, but need not be, selected from among the
Trustees. The Board of Trustees may also in its discretion
appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and
perform such duties as the Board or the Executive Committee may
determine. The Board of Trustees may fill any vacancy which may
occur in any office. Any two offices, except those of President
and Vice-President, may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law or
these By-Laws to be executed, acknowledged or verified by two or
more officers.
Section 2. Term of Office. The term of office of all
officers shall be one year and until their respective successors
are chosen and qualify; however, any officer may be removed from
office at any time with or without cause by the vote of a
majority of the entire Board of Trustees.
Section 3. Powers and Duties. The officers of the Fund
shall have such powers and duties as generally pertain to their
respective offices, as well as such powers and duties as may from
time to time be conferred by the Board of Trustees or the
Executive Committee.
ARTICLE IV
SHARES
Section 1. Certificates of Shares. Each Shareholder of the
Fund may be issued a certificate or certificates for his Shares
in such form as the Board of Trustees may from time to time
prescribe, but only if and to the extent and on the conditions
prescribed by the Board.
Section 2. Transfer of Shares. Shares shall be
transferable on the books of the Fund by the holder thereof in
person or by his duly authorized attorney or legal
representative, upon surrender and cancellation of certificates,
if any, for the same number of Shares, duly endorsed or
accompanied by proper instruments of assignment and transfer,
with such proof of the authenticity of the signature as the Fund
or its agent may reasonably require; in the case of Shares not
represented by certificates, the same or similar requirements may
be imposed by the Board of Trustees.
Section 3. Stock Ledgers. The stock ledgers of the Fund,
containing the name and address of the Shareholders and the
number of Shares held by them respectively, shall be kept at the
principal offices of the Fund or, if the Fund employs a transfer
agent, at the offices of the transfer agent of the Fund.
Section 4. Lost, Stolen or Destroyed Certificates. The
Board of Trustees may determine the conditions upon which a new
certificate may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their
discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety to the Fund
and the transfer agent, if any, to indemnify it and such transfer
agent against any and all loss or claims which may arise by
reason of the issue of a new certificate in the place of the one
so lost, stolen or destroyed.
ARTICLE V
SEAL
The Board of Trustees shall provide a suitable seal of the
Fund, in such form and bearing such inscriptions as it may
determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Fund shall be fixed by the Board of
Trustees.
ARTICLE VII
AMENDMENT OF BY-LAWS
The By-Laws of the Fund may be altered, amended, added to or
repealed by the Shareholders or by majority vote of the entire
Board of Trustees, but any such alteration, amendment, addition
or repeal of the By-Laws by action of the Board of Trustees may
be altered or repealed by the Shareholders.
draft 3/22/96
SHAREHOLDER SERVICING AGREEMENT
Aquila Distributors, Inc. (the "Distributor")
380 Madison Avenue
Suite 2300
New York, NY 10017
Dear Sirs:
Narragansett Insured Tax-Free Income Fund (the "Fund")
confirms its agreement with Aquila Distributors, Inc. (the
"Distributor") with respect to the servicing of shareholder
accounts representing shares of the Level-Payment Class of the
Fund. This Agreement is entered into pursuant to the Fund's
Shareholder Services Plan dated ________, 1996 (the "Plan").
Section 1. Compensation and Services to be Rendered
(a) The Fund will pay the Distributor an annual fee (the
"Service Fee") in compensation for its services in connection
with the servicing of shareholder accounts. The Service Fee paid
will be calculated daily and paid monthly by the Fund at the
annual rate of .25% of the average annual net assets of the Fund
represented by the Level-Payment ("Class C") Shares.
(b) The Service Fee will be used by the Distributor to
provide compensation for ongoing servicing and/or maintenance of
shareholder accounts and to cover an allocable portion of
overhead and other office expenses of the Distributor and/or
selected dealers related to the servicing and/or maintenance of
shareholder accounts. It is understood that compensation may be
paid by the Distributor to persons, including employees of the
Distributor, who respond to inquiries of Level-Payment
Shareholders of the Fund regarding their ownership of shares or
their accounts with the Fund or who provide other similar
services not otherwise required to be provided by the Fund's
investment manager, transfer agent or other agent of the Fund.
Section 2. Reports
While this Agreeement is in effect, the Distributor shall
provide the reports called for in Section 4 of the Plan.
Section 3. Approval of Trustees
This agreement has been approved by a majority vote of both
(a) the full Board of Trustees of the Fund and (b) those Trustees
who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or
this Agreement (the "Independent Trustees"), cast in person at a
meeting called for the purpose of voting on this Agreement.
Section 4. Continuance of Agreement
This Agreement will continue in effect for a period of more
than one year from the date of its effectiveness only so long as
its continuance is specifically approved annually by vote of the
Fund's Board of Trustees in the manner described in Section 3
above.
Section 5. Termination
(a) This agreement may be terminated at any time, without
the payment of any penalty, by vote of a majority of the
Independent Trustees or by a vote of a majority of the
outstanding Level-Payment Shares on not more than 60 days'
written notice to the Distributor.
(b) This Agreement will terminate automatically in the
event of its assignment.
Section 6. Selection of Certain Trustees
While this Agreement is in effect, the selection and
nomination of the Fund's Trustees who are not interested persons
of the Fund will be committed to the discretion of the Trustees
then in office who are not interested persons of the Fund.
Section 7. Amendments
No material amendment to this Agreement may be made unless
approved by the Fund's Board of Trustees in the manner described
in Section 3 above.
Section 8. Meaning of Certain Terms
As used in this Agreement, the terms "assignment,"
"interested person" and "majority of this outstanding voting
securities" will be deemed to have the same meaning that those
terms have under the Investment Company Act of 1940, as amended
(the "Act") and the rules and regulations under the Act, subject
to any exemption that may be granted to the Fund under the Act by
the Securities and Exchange Commission.
Section 9. Dates
This Agreement has been executed by the parties as of
________, 1996 and will become effective on _______, 1996.
If the terms and conditions described above are in
accordance with your understanding, kindly indicate your
acceptance of this Agreement by signing and returning to us the
enclosed copy of this Agreement.
Very truly yours,
NARRAGANSETT INSURED
TAX-FREE INCOME FUND
By:________________________
Richard F. West,
Treasurer
Accepted:
AQUILA DISTRIBUTORS, INC.
By:_____________________________
Lacy B. Herrmann
Secretary
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
551 Fifth Avenue
New York, NY 10176
Tel: (212) 818-1110
FAX: (212) 818-0494
e-mail: [email protected]
April 24, 1996
Narragansett Insured Tax-Free Income Fund
380 Madison Avenue, Suite 2300
New York, New York 10017
Ladies and Gentlemen:
You have requested that we render an opinion to Narragansett
Insured Tax-Free Income Fund (the "Fund") with respect to Post-
Effective Amendment No. 5 (the "Amendment") to the Registration
Statement of the Fund under the Securities Act of 1933 (the "1933
Act") and No. 7 under the Investment Company Act of 1940 (the
"1940 Act") which you propose to file with the Securities and
Exchange Commission (the "Commission"). The purpose of the
Amendment is to redesignate existing shares of the Fund as Front-
Payment Class Shares ("Class A Shares") and to designate two new
classes of shares to be offered by the Fund as Level-Payment
Class Shares ("Class C Shares") and Institutional Class Shares
("Class Y Shares").
We have examined originals or copies, identified to our
satisfaction as being true copies, of those corporate records of
the Fund, certificates of public officials, and other documents
and matters as we have deemed necessary for the purpose of this
opinion. We have assumed without independent verification the
authenticity of the documents submitted to us as originals and
the conformity to the original documents of all documents
submitted to us as copies.
Upon the basis of the foregoing and in reliance upon such
other matters as we deem relevant under the circumstances, it is
our opinion that the Class A Shares, Class C Shares and Class Y
Shares of the Fund as described in the Amendment, when issued and
paid for in accordance with the terms set forth in the prospectus
and statement of additional information of the Fund forming a
part of its then effective Registration Statement as heretofore,
herewith and hereafter amended, will be duly issued, fully-paid
and non-assessable to the extent set forth therein.
This letter is furnished to you pursuant to your request and
to the requirements imposed upon you under the 1933 Act and 1940
Act and is intended solely for your use for the purpose of
completing the filing of the Amendment with the Commission. This
letter may not be used for any other purpose or furnished to or
relied upon by any other persons, or included in any filing made
with any other regulatory authority, without our prior written
consent.
We hereby consent to the filing of this opinion with the
Amendment.
Very truly yours,
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
/s/ W.L.D. Barrett
By:_________________________________
W. L. D. Barrett
Dated: , 1996
NARRAGANSETT INSURED TAX-FREE INCOME FUND
DISTRIBUTION PLAN
1. The Plan. This amended and restated Plan (the "Plan") is
the written plan, contemplated by Rule 12b-1 (the "Rule") under
the Investment Company Act of 1940 (the "1940 Act"), of
Narragansett Insured Tax-Free Income Fund (the "Fund"). Part I
of the Plan applies solely to the Front-Payment Class ("Class A")
of shares of the Fund, Part II solely to the Level-Payment Class
("Class C") and Part III to all classes.
2. Disinterested Trustees. While any Part of this Plan is in
effect, the selection and nomination of those Trustees of the
Fund who are not "interested persons" of the Fund shall be
committed to the discretion of such disinterested Trustees.
Nothing herein shall prevent the involvement of others in such
selection and nomination if the final decision on any such
selection and nomination is approved by a majority of such
disinterested Trustees.
Part I
Payments Involving Fund Assets Allocated to Front-Payment Shares
3. Applicability. This Part I of the Plan applies only to the
Front-Payment Class ("Class A") of shares of the Fund (regardless
of whether such class is so designated or is redesignated by some
other name).
4. Definitions for Part I. As used in this Part I of the Plan,
"Qualified Recipients" shall mean broker-dealers or others
selected by Aquila Distributors, Inc. (the "Distributor"),
including but not limited to any principal underwriter of the
Fund, with which the Fund or the Distributor has entered into
written agreements in connection with this Part I ("Class A Plan
Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Fund's Front-Payment Shares or servicing of shareholder
accounts with respect to such shares. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Front-Payment Shares
beneficially owned by such Qualified Recipient, or beneficially
owned by its brokerage customers, other customers, other
contacts, investment advisory clients, or other clients, if the
Qualified Recipient was, in the sole judgment of the Distributor,
instrumental in the purchase and/or retention of such shares
and/or in providing administrative assistance or other services
in relation thereto. "Administrator" shall mean Aquila
Management Corporation or any successor serving as sub-adviser or
administrator of the Fund.
5. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Fund, the Fund may make
payments ("Class A Permitted Payments") to Qualified Recipients,
which Class A Permitted Payments may be made directly, or through
the Distributor or shareholder servicing agent as disbursing
agent, which may not exceed, for any fiscal year of the Fund (as
adjusted for any part or parts of a fiscal year during which
payments under the Plan are not accruable or for any fiscal year
which is not a full fiscal year) 0.15 of 1% of the average annual
net assets of the Fund represented by the Front-Payment Class of
shares. Such payments shall be made only out of the Fund assets
allocable to the Front-Payment Shares. The Distributor shall
have sole authority (i) as to the selection of any Qualified
Recipient or Recipients; (ii) not to select any Qualified
Recipient; and (iii) the amount of Class A Permitted Payments, if
any, to each Qualified Recipient provided that the total Class A
Permitted Payments to all Qualified Recipients do not exceed the
amount set forth above. The Distributor is authorized, but not
directed, to take into account, in addition to any other factors
deemed relevant by it, the following: (a) the amount of the
Qualified Holdings of the Qualified Recipient; (b) the extent to
which the Qualified Recipient has, at its expense, taken steps in
the shareholder servicing area with respect to holders of Front-
Payment Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Fund may be effected; assisting
shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel
and facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures
in connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year end statements and confirmations of purchases
and redemptions; transmitting, on behalf of the Fund, proxy
statements, annual reports, updating prospectuses and other
communications from the Fund to its shareholders; receiving
tabulating and transmitting to the Fund proxies executed by
shareholders with respect to meetings of shareholders of the
Fund; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
6. Reports. While this Part I is in effect, the Fund's
Distributor shall report at least quarterly to the Fund's
Trustees in writing for their review on the following matters:
(i) all Class A Permitted Payments made under Section 5 of the
Plan, the identity of the Qualified Recipient of each payment,
and the purposes for which the amounts were expended; and (ii)
all fees of the Fund to the Distributor paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
7. Effectiveness, Continuation, Termination and Amendment. To
the extent required by the 1940 Act, this Part I of the Plan has
been approved (i) by a vote of the Trustees, including those
Trustees (the "Independent Trustees") who, at the time of such
vote, were not "interested persons" (as defined in the 1940 Act)
of the Fund and had no direct or indirect financial interest in
the operation of this Plan or in any agreements related to this
Plan, with votes cast in person at a meeting called for the
purpose of voting on Part I of the Plan; and (ii) by a vote of
holders of at least a "majority" (as defined in the 1940 Act) of
the outstanding voting securities of the Front-Payment Class (or
of any predecessor class or category of shares, whether or not
designated as a class) and a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities
of the Level-Payment Class and/or of any other class whose shares
are convertible into Front-Payment Shares. This Part I is
effective as of the date first above written and will, unless
terminated as hereinafter provided, continue in effect until
December 31 of each year only so long as such continuance is
specifically approved at least annually by the Fund's Trustees
and its Independent Trustees with votes cast in person at a
meeting called for the purpose of voting on such continuance.
This Part I may be terminated at any time by the vote of a
majority of the Independent Trustees or by shareholder approval
of the class or classes of shares affected by this Part I as set
forth in (ii) above. This Part I may not be amended to increase
materially the amount of payments to be made without shareholder
approval of the class or classes of shares affected by this Part
I as set forth in (ii) above, and all amendments must be approved
in the manner set forth in (i) above.
8. Class A Plan Agreements. In the case of a Qualified
Recipient which is a principal underwriter of the Fund, the Class
A Plan Agreement shall be the agreement contemplated by Section
15(b) of the 1940 Act since each such agreement must be approved
in accordance with, and contain the provisions required by, the
Rule. In the case of Qualified Recipients which are not
principal underwriters of the Fund, the Class A Plan Agreements
with them shall be their agreements with the Distributor with
respect to payments under this Part I, provided, however, that
"Related Agreements" entered into under the distribution plan of
the Fund in effect prior to the effective date of this Part I and
not terminated at or prior to such effective date are deemed to
be "Class A Plan Agreements" for purposes of this Part I and
that, as and to the extent necessary to give effect to this
proviso, defined terms used in such agreements shall be deemed to
have the meanings assigned to their appropriate counterparts in
this Part I and the provisions of such agreements, which shall
otherwise remain in full force and effect, are deemed to be
appropriately modified.
Part II
Payments Involving Fund Assets Allocated to Level-Payment Shares
9. Applicability. This Part II of the Plan applies only to the
Level-Payment Class ("Class C") of shares of the Fund (regardless
of whether such class is so designated or is redesignated by some
other name).
10. Definitions for Part II. As used in this Part II of the
Plan, "Qualified Recipients" shall mean broker-dealers or others
selected by Aquila Distributors, Inc. (the "Distributor"),
including but not limited to any principal underwriter of the
Fund, with which the Fund or the Distributor has entered into
written agreements in connection with this Part II ("Class C Plan
Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Fund's Level-Payment Shares or servicing of shareholder
accounts with respect to such shares. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Level-Payment Shares
beneficially owned by such Qualified Recipient, or beneficially
owned by its brokerage customers, other customers, other
contacts, investment advisory clients, or other clients, if the
Qualified Recipient was, in the sole judgment of the Distributor,
instrumental in the purchase and/or retention of such shares
and/or in providing administrative assistance or other services
in relation thereto. "Administrator" shall mean Aquila
Management Corporation or any successor serving as sub-adviser or
administrator of the Fund.
11. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Fund, the Fund may make
payments ("Class C Permitted Payments") to Qualified Recipients,
which Class C Permitted Payments may be made directly, or through
the Distributor or shareholder servicing agent as disbursing
agent, which may not exceed, for any fiscal year of the Fund (as
adjusted for any part or parts of a fiscal year during which
payments under the Plan are not accruable or for any fiscal year
which is not a full fiscal year) 0.75 of 1% of the average annual
net assets of the Fund represented by the Level-Payment Class of
shares. Such payments shall be made only out of the Fund assets
allocable to the Level-Payment Shares. The Distributor shall
have sole authority (i) as to the selection of any Qualified
Recipient or Recipients; (ii) not to select any Qualified
Recipient; and (iii) the amount of Class C Permitted Payments, if
any, to each Qualified Recipient provided that the total Class C
Permitted Payments to all Qualified Recipients do not exceed the
amount set forth above. The Distributor is authorized, but not
directed, to take into account, in addition to any other factors
deemed relevant by it, the following: (a) the amount of the
Qualified Holdings of the Qualified Recipient; (b) the extent to
which the Qualified Recipient has, at its expense, taken steps in
the shareholder servicing area with respect to holders of Level-
Payment Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Fund may be effected; assisting
shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel
and facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures
in connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year end statements and confirmations of purchases
and redemptions; transmitting, on behalf of the Fund, proxy
statements, annual reports, updating prospectuses and other
communications from the Fund to its shareholders; receiving
tabulating and transmitting to the Fund proxies executed by
shareholders with respect to meetings of shareholders of the
Fund; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
12. Reports. While this Part II is in effect, the Fund's
Distributor shall report at least quarterly to the Fund's
Trustees in writing for their review on the following matters:
(i) all Class C Permitted Payments made under Section 11 of the
Plan, the identity of the Qualified Recipient of each payment,
and the purposes for which the amounts were expended; and (ii)
all fees of the Fund to the Distributor paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
13. Effectiveness, Continuation, Termination and Amendment.
This Part II has been approved (i) by a vote of the Trustees,
including the Independent Trustees, with votes cast in person at
a meeting called for the purpose of voting on Part II of the
Plan; and (ii) by a vote of holders of at least a "majority" (as
defined in the 1940 Act) of the outstanding voting securities of
the Level-Payment Class. This Part II is effective as of the
date first above written and will, unless terminated as
hereinafter provided, continue in effect until December 31 of
each year only so long as such continuance is specifically
approved at least annually by the Fund's Trustees and its
Independent Trustees with votes cast in person at a meeting
called for the purpose of voting on such continuance. This Part
II may be terminated at any time by the vote of a majority of the
Independent Trustees or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the outstanding voting
securities of the Level-Payment Class. This Part II may not be
amended to increase materially the amount of payments to be made
without shareholder approval of the class or classes of shares
affected by this Part II as set forth in (ii) above, and all
amendments must be approved in the manner set forth in (i) above.
14. Class C Plan Agreements. In the case of a Qualified
Recipient which is a principal underwriter of the Fund, the Class
C Plan Agreement shall be the agreement contemplated by Section
15(b) of the 1940 Act since each such agreement must be approved
in accordance with, and contain the provisions required by, the
Rule. In the case of Qualified Recipients which are not
principal underwriters of the Fund, the Class C Plan Agreements
with them shall be their agreements with the Distributor with
respect to payments under this Part II, provided, however, that
"Related Agreements" entered into under the distribution plan of
the Fund in effect prior to the effective date of this Part II
and not terminated at or prior to such effective date are deemed
to be "Class C Plan Agreements" for purposes of this Part II and
that, as and to the extent necessary to give effect to this
proviso, defined terms used in such agreements shall be deemed to
have the meanings assigned to their appropriate counterparts in
this Part II and the provisions of such agreements, which shall
otherwise remain in full force and effect, are deemed to be
appropriately modified.
Part III
Defensive Provisions
15. Certain Payments Permitted. Whenever the Administrator of
the Fund (i) makes any payment directly or through the Fund's
Distributor for additional compensation to dealers in connection
with sales of shares of the Fund, which additional compensation
may include payment or partial payment for advertising of the
Fund's shares, payment of travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered
representatives and members of their families to locations within
or outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences, or other items described in the Fund's
prospectus, in amounts that will not exceed the amount of the
sales charges in respect of sales of shares of the Fund effected
through such participating dealers whether retained by the
Distributor or reallowed to participating dealers, or (ii) bears
the costs, not borne by the Distributor, of printing and
distributing all copies of the Fund's prospectuses, statements of
additional information and reports to shareholders which are not
sent to the Fund's shareholders, or the costs of supplemental
sales literature and advertising, such payments are authorized.
It is recognized that, in view of the bearing by the
Administrator of certain distribution expenses, the profits, if
any, of the Administrator are dependent primarily on the
administration fees paid by the Fund to the Administrator and
that its profits, if any, would be less, or losses, if any, would
be increased due to the bearing by it of such expenses. If and to
the extent that any such administration fees paid by the Fund
might, in view of the foregoing, be considered as indirectly
financing any activity which is primarily intended to result in
the sale of shares issued by the Fund, the payment of such fees
is authorized by the Plan.
16. Certain Fund Payments Authorized. If and to the extent that
any of the payments listed below are considered to be "primarily
intended to result in the sale of" shares issued by the Fund
within the meaning of the Rule, such payments are authorized
under this Plan: (i) the costs of the preparation of all reports
and notices to shareholders and the costs of printing and mailing
such reports and notices to existing shareholders, irrespective
of whether such reports or notices contain or are accompanied by
material intended to result in the sale of shares of the Fund or
other funds or other investments; (ii) the costs of the
preparation and setting in type of all prospectuses and
statements of additional information, and the costs of printing
and mailing of all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of the
preparation, printing and mailing of all proxy statements and
proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of
the Fund's shares; (iv) all legal and accounting fees relating to
the preparation of any such reports, prospectuses, statements of
additional information, proxies and proxy statements; (v) all
fees and expenses relating to the registration or qualification
of the Fund and/or its shares under the securities or "Blue-Sky"
laws of any jurisdiction; (vi) all fees under the Securities Act
of 1933 and the 1940 Act, including fees in connection with any
application for exemption relating to or directed toward the sale
of the Fund's shares; (vii) all fees and assessments of the
Investment Company Institute or any successor organization,
irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and
mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs
of responding to telephone or mail inquiries of investors.
17. Reports. While Part III of this Plan is in effect, the
Fund's sub-adviser, Administrator or Distributor shall report at
least quarterly to the Fund's Trustees in writing for their
review on the following matters: (i) all payments made under
Section 15 of this Plan; (ii) all costs of each item specified in
Section 16 of this Plan (making estimates of such costs where
necessary or desirable) during the preceding calendar or fiscal
quarter; and (iii) all fees of the Fund to the Distributor, sub-
adviser or Administrator paid or accrued during such quarter.
18. Effectiveness, Continuation, Termination and Amendment. To
the extent required by the 1940 Act, this Part III of the Plan
has, with respect to each class of shares outstanding, been
approved (i) by a vote of the Trustees of the Fund and of the
Independent Trustees, with votes cast in person at a meeting
called for the purpose of voting on this Plan; and (ii) by a vote
of holders of at least a "majority" (as defined in the 1940 Act)
of the outstanding voting securities of such class and a vote of
holders of at least a "majority" (as so defined) of the
outstanding voting securities of any class whose shares are
convertible into shares of such class. This Part III is
effective as of the date first above written and will, unless
terminated as hereinafter provided, continue in effect with
respect to each class of shares to which it applies until
December 31 of each year only so long as such continuance is
specifically approved with respect to that class at least
annually by the Fund's Trustees and its Independent Trustees with
votes cast in person at a meeting called for the purpose of
voting on such continuance. This Part III of the Plan may be
terminated at any time with respect to a given class by the vote
of a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of that class. This Part III may
not be amended to increase materially the amount of payments to
be made without shareholder approval as set forth in (ii) above,
and all amendments must be approved in the manner set forth in
(i) above.
--------------------------
19. Additional Terms and Conditions. This Plan and each Part of
it shall also be subject to all applicable terms and conditions
of Rule 18f-3 under the Act as now in force or hereafter amended.
Specifically, but without limitation, the provisions of Part III
shall be deemed to be severable, within the meaning of and to the
extent required by Rule 18f-3, with respect to each outstanding
class of shares of the Fund.
Dated: ________ __, 1996
NARRAGANSETT INSURED TAX-FREE INCOME FUND
SHAREHOLDER SERVICES PLAN
1. The Plan. This Shareholder Services Plan (the "Plan") is the
written plan of NARRAGANSETT INSURED TAX-FREE INCOME FUND (the
"Fund") adopted to provide for the payment by the Level-Payment
Class of shares of the Fund of ""service fees" within the meaning
of Article III, Section 26(b)(9) of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. This Plan
applies only to the Level-Payment Class ("Class C") of shares of
the Fund (regardless of whether such class is so designated or is
redesignated by some other name).
2. Definitions. As used in this Plan, "Qualified Recipients"
shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to the Distributor and any other principal underwriter of the
Fund, who have, pursuant to written agreements with the Fund or
the Distributor, agreed to provide personal services to Level-
Payment shareholders and/or maintenance of Level-Payment
shareholder accounts. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Level-Payment Shares beneficially owned
by such Qualified Recipient's customers, clients or other
contacts. "Administrator" shall mean Aquila Management
Corporation or any successor serving as sub-adviser or
administrator of the Fund.
3. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Fund, the Fund may make
payments ("Service Fees") to Qualified Recipients, which Service
Fees (i) may be paid directly or through the Distributor or
shareholder servicing agent as disbursing agent and (ii) may not
exceed, for any fiscal year of the Fund (as adjusted for any part
or parts of a fiscal year during which payments under the Plan
are not accruable or for any fiscal year which is not a full
fiscal year) 0.25 of 1% of the average annual net assets of the
Fund represented by the Level-Payment Class of shares. Such
payments shall be made only out of the Fund assets allocable to
the Level-Payment Shares. The Distributor shall have sole
authority with respect to the selection of any Qualified
Recipient or Recipients and the amount of Service Fees, if any,
paid to each Qualified Recipient, provided that the total Service
Fees paid to all Qualified Recipients may not exceed the amount
set forth above and provided, further, that no Qualified
Recipient may receive more than 0.25 of 1% of the average annual
net asset value of shares sold by such Recipient. The
Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it,
the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Level-Payment Shares,
including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Fund may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other related
services as the Distributor or a shareholder may request from
time to time. Notwithstanding the foregoing two sentences, a
majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the
above limits accrued to a Qualified Recipient but not paid during
a fiscal year may be paid thereafter; if less than the full
amount is accrued to all Qualified Recipients, the difference
will not be carried over to subsequent years.
4. Reports. While this Plan is in effect, the Fund's
Distributor shall report at least quarterly to the Fund's
Trustees in writing for their review on the following matters:
(i) all Service Fees paid under the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Fund to the
Distributor paid or accrued during such quarter. In addition, if
any Qualified Recipient is an "affiliated person," as that term
is defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), of the Fund, the Adviser, the Administrator or the
Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the Fund
an accounting, in form and detail satisfactory to the Board of
Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
5. Effectiveness, Continuation, Termination and Amendment. This
Plan has been approved by a vote of the Trustees, including those
Trustees who, at the time of such vote, were not "interested
persons" (as defined in the 1940 Act) of the Fund and had no
direct or indirect financial interest in the operation of this
Plan or in any agreements related to this Plan (the "Independent
Trustees"), with votes cast in person at a meeting called for the
purpose of voting on this Plan. It is effective as of the date
first above written and will continue in effect for a period of
more than one year from such date only so long as such
continuance is specifically approved at least annually as set
forth in the preceding sentence. It may be amended in like
manner and may be terminated at any time by vote of the
Independent Trustees.
6. Additional Terms and Conditions. (a) This Plan shall also be
subject to all applicable terms and conditions of Rule 18f-3
under the Act as now in force or hereafter amended.
(b) While this Plan is in effect, the selection and nomination
of those Trustees of the Fund who are not "interested persons" of
the Fund, as that term is defined in the 1940 Act, shall be
committed to the discretion of such disinterested Trustees.
Nothing herein shall prevent the involvement of others in such
selection and nomination if the final decision on any such
selection and nomination is approved by a majority of such
disinterested Trustees.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S SEMI-ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000888955
<NAME> NARRAGANSETT INSURED TAX-FREE INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 35,806,182
<INVESTMENTS-AT-VALUE> 36,815,511
<RECEIVABLES> 714,031
<ASSETS-OTHER> 20,120
<OTHER-ITEMS-ASSETS> 77,849
<TOTAL-ASSETS> 37,627,511
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47,220
<TOTAL-LIABILITIES> 47,220
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,570,962
<SHARES-COMMON-STOCK> 3,670,998
<SHARES-COMMON-PRIOR> 3,506,577
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,009,329
<NET-ASSETS> 37,580,291
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 958,543
<OTHER-INCOME> 0
<EXPENSES-NET> 21,616
<NET-INVESTMENT-INCOME> 936,927
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 1,561,097
<NET-CHANGE-FROM-OPS> 2,498,024
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 936,927
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 299,389
<NUMBER-OF-SHARES-REDEEMED> 178,110
<SHARES-REINVESTED> 43,142
<NET-CHANGE-IN-ASSETS> 164,421
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 41,215
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 193,015
<AVERAGE-NET-ASSETS> 35,741,284
<PER-SHARE-NAV-BEGIN> 9.80
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> .44
<PER-SHARE-DIVIDEND> .27
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> .12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
Rule 18f-3
Multiple Class Plan
NARRAGANSETT INSURED TAX-FREE INCOME FUND (the "Fund")
has elected to rely on Rule 18f-3 under the Investment Company
Act of 1940, as amended (the "1940 Act"), in offering multiple
classes of shares with differing distribution arrangements,
voting rights and expense allocations.
Pursuant to Rule 18f-3, the Board of Trustees of the
Fund has approved and adopted this written plan (the "Plan")
specifying all of the differences among the classes of shares to
be offered by the Fund. Prior to such offering, the Plan will be
filed as an exhibit to the Fund's registration statement. The
Plan sets forth the differences among the classes, including
shareholder services, distribution arrangements, expense
allocations, and conversion or exchange options.
I. Attributes of Share Classes
This section discusses the attributes of the various classes
of shares. Each share of the Fund represents an equal pro rata
interest in the Fund and has identical voting rights, powers,
qualifications, terms and conditions, and in proportion to each
share's net asset value, liquidation rights and preferences.
Each class differs in that: (a) each class has a different class
designation; (b) only the Front-Payment Shares are subject to a
front-end sales charge ("FESC"); (c) only the Level-Payment
Shares are subject to a contingent deferred sales charge
("CDSC"); (d) only the Front-Payment Shares and Level-Payment
Shares (as described below) are subject to distribution fees
under a plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), the distribution fee for the Level-Payment
Class being higher than that for the Front-Payment Class; (e)
only the Level-Payment Shares are subject to a shareholder
servicing fee under a non-Rule 12b-1 shareholder services plan (a
"Shareholder Services Plan"); (f) to the extent that one class
alone is affected by a matter submitted to a vote of the
shareholders, then only that class has voting power on the
matter, provided, however, that any class whose shares convert
automatically to shares of another class also votes separately
with respect to class-specific Rule 12b-1 matters applying to the
latter class; (g) the expenses attributable to a specific class
("Class Expenses")* are borne only by shares of that class on a
pro-rata basis; and (h) exchange privileges may vary among the
classes.
* Class Expenses are limited to (i) transfer agency fees;
(ii) preparation and mailing expenses for shareholder
communications required by law, sent to current shareholders
of a class; (iii) state Blue Sky registration fees; (iv)
Securities and Exchange Commission ("SEC") registration
fees; (v) trustees' fees; (vi) expenses incurred for
periodic meetings of trustees or shareholders; and (vii)
legal and accounting fees, other than fees for income tax
return preparation or income tax advice.
A. Front-Payment Shares
Front-Payment Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Front-Payment
Shares under the exchange privileges of the Fund. Shares of
the Fund outstanding on the date that the three classes of
shares are first made available will be redesignated Front-
Payment Shares. Front-Payment Shares will also be issued
upon automatic conversion of Level-Payment Shares, as
described below.
1. Sales Loads. Front-Payment Shares are sold
subject to the current maximum FESC (with scheduled
variations or eliminations of the sales charge, as
permitted by the 1940 Act).
2. Distribution and Service Fees. Front-Payment
Shares are subject to a distribution fee pursuant to
Part I of the Fund's Rule 12b-1 Plan. They are not
subject to charges applicable to a Shareholder Services
Plan.
3. Class Expenses. Class Expenses that are
attributable to the Front-Payment Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Front-Payment Shares are exchangeable for Front-Payment
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Fund.
Front-Payment Shares have no conversion features.
B. Level-Payment Shares
Level-Payment Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Level-Payment
Shares under the exchange privileges of the Fund.
1. Sales Loads. Level-Payment Shares are sold
without the imposition of any FESC, but are subject to
a CDSC (with scheduled variations or eliminations of
the sales charge, as permitted by the 1940 Act).
2. Distribution and Service Fees. Level-Payment
Shares are subject to a distribution fee pursuant to
Part II of the Fund's Rule 12b-1 Plan and to a
shareholder servicing fee under a Shareholder Services
Plan not to exceed .25% of the average daily net assets
of the Level-Payment Class.
3. Class Expenses. Class Expenses that are
attributable to the Level-Payment Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Level-Payment Shares are exchangeable for Level-Payment
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Fund. After
a period of no greater than six years, Level-Payment
Shares automatically convert to Front-Payment Shares on
the basis of the relative net asset values of the two
classes without the imposition of any sales charge,
fee, or other charge, provided, however, that the
expenses, including distribution fees, for Front-
Payment Shares are not higher than the expenses,
including distribution fees, for Level-Payment Shares.
If the amount of expenses, including distribution fees,
for the Front-Payment Class is increased materially
without approval of the shareholders of the Level-
Payment Class, a new class will be established -- on
the same terms as apply to the Front-Payment Class
prior to such increase -- as the class into which
Level-Payment Shares automatically convert.
C. Institutional Shares
Institutional Shares are not offered to retail
customers but are sold only to (1) institutional investors
investing funds held in a fiduciary, advisory, agency,
custodial or other similar capacity and (2) persons entitled
to exchange into Institutional Shares under the exchange
privileges of the Fund.
1. Sales Loads. Institutional Shares are sold
without the imposition of any FESC, CDSC or any other
sales charge.
2. Distribution and Service Fees. Institutional
Shares are not subject to any distribution fee or
shareholder servicing fee.
3. Class Expenses. Class Expenses that are
attributable to the Institutional Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Institutional Shares are exchangeable for Institutional
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Fund.
Institutional Shares have no conversion features.
D. Additional Classes
In the future, the Fund may offer additional classes of
shares which differ from the classes discussed above.
However, any additional classes of shares must be approved
by the Board, and the Plan must be amended to describe those
classes.
II. Approval of Multiple Class Plan
The Board of the Fund, including a majority of the
independent Trustees, must approve the Plan initially. In
addition, the Board must approve any material changes to the
classes and the Plan prior to their implementation. The Board
must find that the Plan is in the best interests of each class
individually and the Fund as a whole. In making its findings,
the Board should focus on, among other things, the relationships
among the classes and examine potential conflicts of interest
among classes regarding the allocation of fees, services, waivers
and reimbursements of expenses, and voting rights. Most
significantly, the Board should evaluate the level of services
provided to each class and the cost of those services to ensure
that the services are appropriate and that the allocation of
expenses is reasonable. In accordance with the foregoing
provisions of this Section II, the Board of the Fund has approved
and adopted this Plan as of the date written below.
III. Dividends and Distributions
Because of the differences in fees paid under a Rule
12b-1 Plan and Shareholder Services Plan and the special
allocation of Class Expenses among the classes of shares of the
Fund, the dividends payable to shareholders of a class will
differ from the dividends payable to shareholders of the other
classes. Dividends paid to each class of shares in the Fund
will, however, be declared and paid at the same time and, except
for the differences in expenses listed above, will be determined
in the same manner and paid in the same amounts per outstanding
shares.
IV. Expense Allocations
The methodology and procedures for calculating the net
asset value and dividends and distributions of the various
classes of shares and the proper allocation of income and
expenses among the various classes of shares are set forth in the
Memorandum (together with exhibits) of Richard F. West,
Treasurer, dated November 24, 1995 and entitled "Methodologies
Used In Accounting For Multiple Class Shares."
Dated: December 3, 1995
