INVESTMENT ADVISER
CITIZENS BANK OF RHODE ISLAND
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
Stephen J. Caridi, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
TRANSFER AND SHAREHOLDER SERVICING AGENT
ADMINISTRATIVE DATA
MANAGEMENT CORP.
581 Main Street
Woodbridge, New Jersey 07095-1198
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus,
which must precede or accompany this report.
ANNUAL
REPORT
JUNE 30, 1997
A TAX-FREE INCOME INVESTMENT
[Logo of Aquila Group of Funds: an eagle's head]
[Logo of Narragansett Insured Tax-Free Income Fund: a rectangle with profile
view of a sailboat on top of waves and three flying seagulls above it]
ONE OF THE
AQUILAsm GROUP OF FUNDS
<PAGE>
[Logo of Narragansett Insured Tax-Free Income Fund: a rectangle with profile
view of a sailboat on top of waves and three flying seagulls above it]
NARRAGANSETT INSURED TAX-FREE INCOME FUND
ANNUAL REPORT
"INCREASED SAFETY IN NUMBERS"
August 15, 1997
Dear Investor:
A childhood lesson that is often imparted generation after generation
is "don't wander off by yourself - stick with the crowd." The underlying
premise is that there is "safety in numbers."
The idea of increased safety in numbers is also very appropriate when
discussing municipal bond funds. In fact, one of the most significant
benefits gained by owning shares of a municipal bond mutual fund is that of
"numbers."
Participating in the ownership of many different issues through such
a fund is generally less risky than purchasing individual issues. Instead of
having your money ride on a handful of securities, you can spread the risk
over a larger number of issues. And, you have the advantage of a skilled and
knowledgeable portfolio manager selecting and continuously monitoring each
security in the portfolio.
But, how does the manager decide which security to purchase? After
all, you need to know the crowd with whom you're about to associate. Being
with a large unruly group could be far worse than being alone.
KNOWING THE TERRITORY
Shareholders of Narragansett Insured Tax-Free Income Fund have the
added advantage of having a locally-based portfolio manager. Citizens Bank of
Rhode Island, located in Providence, is well aware of the issues facing the
state as a whole, as well as the nuances of many of the cities and counties.
FINDING THE RIGHT MIX
Unfortunately, there is no foolproof test to follow when considering
an issue for purchase. Security selection is really more art than science. A
portfolio manager needs to look for a security which meets certain specific
criteria and which fits in with the overall mix of the portfolio and the
Fund's investment objective.
Among other things, Citizens Bank of Rhode Island carefully examines
a security's yield, quality, maturity, and whether or not its inclusion in
the portfolio enhances overall diversification.
Keeping in mind the Fund's objective of providing as high a level of
current income as is consistent with preservation of capital, let's take a
look at each of these areas.
QUALITY
As you know, the Fund limits its investments to only those
securities in the top credit rating or equivalent. We have adopted this
policy since we have found from experience that high quality is best in the
long run. Of course, it is true that securities which possess a lower credit
rating generally produce a higher yield, since investors require
compensation for the additional potential risk. However, purchasing solely
for yield can cause feelings of unease for a risk adverse investor.
<PAGE>
Consequently, the Fund looks for high quality securities which should
produce relatively good yields. Thus, the entire investment portfolio of
Narragansett Insured Tax-Free Income Fund - 100% - is in the top credit
rating - AAA. Such high quality helps preserve shareholders' capital and
promote stability. Moreover, management has generally sought, as an extra
measure of protection, to have the Fund's holdings of municipal securities
insured by nationally-renown specialized insurance companies. Such insurance
coverage is designed to make sure that there is timely payment of interest
and principal when due, in the remote event an issuer experienced problems.
MATURITY
The key here is to assemble a blend of maturities which offers a
reasonable level of DOUBLE TAX-FREE* return yet still avoids the problem of
excessive market price volatility. As you probably are aware, short-term
maturities tend to have very little price fluctuation, but generally produce
a substantially lesser rate of return than longer maturity securities.
Conversely, long-term maturities usually produce a higher return level, but
have a much higher price volatility factor than shorter-term issues since
they reflect the risks associated with potential interest rate changes over
the extended life of the municipal bond.
By creating a blend of maturities, the Fund attempts to provide you
with a satisfactory level of return without subjecting the share price to
excessive swings as interest rates move up and down.
The Fund utilizes a spread of maturities for the portfolio which
centers upon the relatively intermediate term average maturity of 11.9 years.
In constructing the portfolio, maturities of securities in the Fund range
from one year and under to over 20 years in length. However, in order to
achieve a reasonably high level of stability for the Fund's share value, in
good markets and bad and in up and down interest rate environments, the focus
has been to keep the average of maturities relatively limited in term.
DIVERSIFICATION
Having a breadth of participation in the portfolio helps to moderate
market forces andpromote share price stability.
Although Narragansett Insured Tax-Free Income Fund is classified a
"non-diversified" fund under the Investment Company Act of 1940, the Fund
does attempt to vary its portfolio in several ways. First, there is the use
of a number of issues. At June 30, 1997, over 120 issues made up the Fund's
portfolio, with no one issue representing more than 3% of the Fund's net
assets. Next, there is investment among different types of municipal projects
- - universities, basic services, utilities, health care, pollution control,
etc. - so that there is no undue concentration in any one type of municipal
project. And, finally, there is variety achieved through geographic
representation throughout various cities, counties, and communities within
Rhode Island.
Such portfolio mixture by number of issues, by geographic
distribution, and by variety of projects lends itself to a further high level
of preservation and stability for your investment in the Fund.
HOW IS OUR "GROUP" DOING?
As you have seen, selecting investments for the Fund's portfolio is
really a balancing act. On one side, you have yield and, on the other, you
have risk. The Fund strives to construct a portfolio which keeps these two
opposing forces on an even keel - accepting a reasonable level of risk to
achieve a satisfactory return.
As mentioned, the Fund strives to provide shareholders with as high a
level of double tax-free income as practicable, commensurate with the degree
of capital preservation we strive to achieve.
Is our security selection process working well for us? We believe it
is.
<PAGE>
RATE OF RETURN
From July 1, 1996 through June 30, 1997, the Fund distributed to shareholders
a DOUBLE TAX-FREE income return, as measured against the maximum public
offering price, at the annualized rate of approximately 4.97%**.
One would have to earn an annualized taxable return of 7.45% at the
28% tax bracket and the even higher return of 9.19% at the 39.6% tax bracket
in order to match the Fund's double tax-free rate. In general, it would not
have been possible for an investor to obtain such levels of taxable return
unless additional risk was taken in the form of lesser quality and/or longer
maturity securities.
COMMITMENT TO CONSISTENCY
Management is committed to providing shareholders with as consistent
investment and overall performance results from Narragansett Insured Tax-Free
Income Fund as are possible to achieve, considering prevailing market forces.
You should be aware, however, that although there is indeed increased
safety in numbers, we are not able to eliminate the fluctuations from market
forces that swirl around us on a continuing basis.
However, as indicated, a number of investment management techniques
are used by the Fund to create a mix of securities which will help moderate
these forces.
OUR PLEDGE TO YOU
All associated with Narragansett Insured Tax-Free Income Fund pledge
to you our continued diligence in the operation of the Fund for your benefit.
Your confidence in the Narragansett Insured Tax-Free Income Fund is
most valued and appreciated.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
* A portion of dividend income may be subject to Federal and state taxes,
including the alternative minimum tax.
** The performance shown represents that of Class A shares. Such
performance data quoted represents past performance and is not
indicative of future results. The investment return and principal value
of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. The Fund's
average annual total return as of 6/30/97 for the past one-year period
was 3.67%; and since inception was 5.80%. Returns would be less if full
management fees and expenses were applied. As of 6/30/97, the Fund's
30-day SEC yield was 4.68%.
<PAGE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
The graph below illustrates the value of $10,000 invested in Class A
shares of Narragansett Insured Tax-Free Income Fund at inception of the Fund
in September, 1992 and maintaining this investment through the Fund's latest
fiscal year end, June 30, 1997, as compared with a hypothetical similar size
investment in the Lehman Brothers Municipal Bond Index (the "Index") of
municipal securities and the Consumer Price Index (a cost of living index)
over that same period. The total return of the investment in the Fund is
shown after deduction of the maximum sales charge of 4% at the time of
initial investment. It also reflects deduction of the Fund's annual operating
expenses and reinvestment of monthly dividends without sales charge. On the
other hand, the Index does not reflect any sales charge nor operating
expenses but does reflect reinvestment of interest. The performance of the
Fund's other classes, first offered on May 1, 1996, may be greater or less
than the Class A shares performance indicated on this graph, depending on
whether greater or lesser sales charges and fees were incurred by
shareholders investing in the other classes.
It should also be specifically noted that the Index is nationally
oriented and consisted, over the period covered by the graph, of an unmanaged
mix of between 12,000 to 36,000 investment-grade long-term municipal
securities of issuers throughout the United States. The Fund, being a
single-State fund, is primarily restricted to purchasing insured tax-free
municipal bonds issued by the State of Rhode Island, its thirty-nine cities
and towns and various political subdivisions. The maturities, market prices,
and behavior of the individual securities in the Fund's investment portfolio
can be affected by local and regional factors which might well result in
variances from the market action of the securities in the Index.
Consequently, much of the difference in performance of the Index
versus the Fund can be attributed to the lack of application of annual
operating expenses and initial sales charge to the Index. Additionally, a
portion of the difference in performance can be attributed to the different
characteristics in the single-state market of the insured securities in the
Fund's portfolio as compared with the national orientation of the securities
in the Index.
[Graphic of a line chart with the following information:]
PERFORMANCE COMPARISON
<TABLE>
<CAPTION>
Lehman Brothers Fund After Sales Cost of
Municipal Bond Index Charge and Expenses Living Index
<S> <C> <C> <C>
9/92 10,000 9,600 10,000
12/92 10,182 9,709 10,085
6/93 10,905 10,478 10,227
12/93 11,432 11,011 10,361
6/94 10,927 10,355 10,489
12/94 10,844 10,290 10,630
6/95 11,891 11,374 10,800
12/95 12,738 12,200 10,907
6/96 12,681 12,146 11,098
12/96 13,303 12,747 11,275
6/97 13,730 13,110 11,353
</TABLE>
[Table setup with the following information:]
FUND'S AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED LIFE OF FUND
JUNE 30, 1997 1 YEAR SINCE 9/10/92
<S> <C> <C>
INCLUDING SALES
CHARGE AND EXPENSES 3.67% 5.80%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS
<PAGE>
Since its inception, the Fund has been managed to provide as stable a
share value as possible consistent with producing a competitive income return
to shareholders. It has not been managed for maximum total return, since one
of the aims of management in structuring the portfolio of the Fund is to
reduce fluctuations in the price of the Fund's shares resulting from changes
in interest rates.
As can be observed, however, the pattern of the Fund's results and
that of the Index over the period since inception of the Fund track quite
similarly, even though they are not entirely comparable in character.
PORTFOLIO MANAGER'S ANALYSIS
Narragansett Insured Tax-Free Income Fund (the "Fund") has strived to
provide as high a level of DOUBLE TAX-FREE income as possible within
self-imposed quality constraints. The Fund has purchased only municipal
securities rated AAA by nationally-renown credit rating services. As an extra
measure of credit protection to shareholders, nearly all securities owned by
the Fund are insured by nationally-prominent specialized insurance companies
as to timely payment when due of principal and interest. A maximum average
maturity profile of under 15 years has been and will continue to be
maintained for the Fund's portfolio in order to produce a reasonable level of
income return, yet relatively high stability for the Fund's share price. At
the June 30, 1997 fiscal year-end the portfolio had an average maturity of
11.9 years.
The 1996 calendar year ended on a very strong economic note with
Gross Domestic Product ("GDP") growth of 4.3%. Momentum was carried into the
first quarter of 1997 pushing up GDP by 4.9%. This growth spurt and the
longevity of the overall recovery - 6 years - led the Federal Reserve to
raise the Federal Funds Rate in early 1997 in order to contain inflationary
tendencies. On or about the time the Federal Open Market Committee raised
short-term rates, our nation's consumers backed off on their spending
activities. As a result, the growth of the economy in the second quarter of
1997 was at a slower pace - 2.2% - easing inflationary fears. As economic
data began to reflect a slowing in economic momentum and inflation
tendencies did not appear, interest rates began to ease from their peak
levels, with the rate on 30-year Government Bonds falling from approximately
7 1/4% to 6 3/4%.
The economic recovery has entered its seventh year and currently is
the third longest recovery on record. The consumer is presently well
positioned, higher earnings increased real estate values and larger savings,
to maintain the longevity of this recovery. While employment is tight, little
pressure has been seen in wage costs and price increases. The length and
momentum of the recovery has increased tax revenue for both the Federal and
State treasuries resulting in less bonds being issued. While interest rates
have declined in the last few months, we look for interest rates to remain in
a trading range. Quality remains a high priority with the Fund. We remain
alert to economic changes and how they influence the fixed income markets. We
strive to enhance yield without forgoing quality.
Given the current Federal income tax rates and the piggy-back Rhode
Island income tax rate, the Narragansett Insured Tax-Free Income Fund
produces a yield that is very attractive for Rhode Island residents when
compared to taxable fixed-income securities.
Management believes that having available to the Fund a locally-based
investment manager with its knowledge of and experience in the Rhode Island
municipal market continues to add considerable value to the portfolio and
provides a distinct benefit to Fund shareholders.
The Fund's Investment Adviser will continue to oversee the portfolio
with a strong emphasis on achieving a balance between providing shareholders
with share price stability, acceptable DOUBLE TAX-FREE income return, and
maintaining the highest standards of credit quality.
<PAGE>
KPMG Peat Marwick LLP
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Narragansett Insured Tax-Free Income Fund:
We have audited the accompanying statement of assets and liabilities of
Narragansett Insured Tax-Free Income Fund, including the statement of
investments, as of June 30, 1997, the related statement of operations for the
year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended and the financial highlights for each
of the years in the four-year period then ended and for the period September
10, 1992 (commencement of operations) to June 30, 1993. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 1997, by correspondence with the custodian.
An audit also includes assessing the accounting principles used, and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Narragansett Insured Tax-Free Income Fund as of June 30, 1997,
the results of its operations for the year then ended, the changes in its net
assets for each of the years in the two-year period then ended and the
financial highlights for each of the years in the four-year period then ended
and for the period September 10, 1992 (commencement of operations) to June
30, 1993, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
August 8, 1997
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
RATING
FACE MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (52.4%) S&P VALUE
<C> <S> <C>
$ 100,000 Town of Bristol, Rhode Island, MBIA Insured
6.000%, 12/15/11 Aaa/AAA $ 105,250
100,000 Town of Bristol, Rhode Island, MBIA Insured
6.000%, 12/15/12 Aaa/AAA 104,750
1,000,000 Town of Bristol, Rhode Island, MBIA Insured
5.100%, 08/15/07 Aaa/AAA 1,005,000
405,000 Town of Burrillville, Rhode Island, AMBAC
Insured 5.300%, 07/15/08 Aaa/AAA 416,644
250,000 Town of Burrillville, Rhode Island, MBIA
Insured 5.400%, 10/15/06 Aaa/AAA 261,250
250,000 Town of Burrillville, Rhode Island, MBIA
Insured 5.500%, 10/15/07 Aaa/AAA 261,875
150,000 Town of Burrillville, Rhode Island, MBIA
Insured 5.700%, 10/15/10 Aaa/AAA 155,812
500,000 Central Falls, Rhode Island, MBIA Insured
4.900%, 11/15/05 Aaa/AAA 501,250
500,000 Central Falls, Rhode Island, MBIA Insured
5.200%, 11/15/09 Aaa/AAA 503,125
300,000 Cranston, Rhode Island, MBIA Insured 5.500%,
06/15/07 Aaa/AAA 312,750
1,120,000 Cranston, Rhode Island, MBIA Insured 5.300%,
07/15/05 Aaa/AAA 1,149,400
345,000 Town of Cumberland, Rhode Island, MBIA Insured
5.500%, 09/01/06 Aaa/AAA 362,250
500,000 Town of Cumberland, Rhode Island, MBIA Insured
5.600%, 10/01/08 Aaa/AAA 520,000
400,000 Town of Lincoln, Rhode Island, MBIA Insured
5.100%, 01/15/06 Aaa/AAA 405,500
400,000 Town of Lincoln, Rhode Island, MBIA Insured
5.200%, 08/15/06 Aaa/AAA 408,500
850,000 Town of Lincoln, Rhode Island, MBIA Insured
5.500%, 08/15/10 Aaa/AAA 871,250
100,000 Town of Lincoln, Rhode Island, MBIA Insured
5.625%, 04/15/11 Aaa/AAA 102,625
250,000 Town of Lincoln, Rhode Island, FGIC Insured
5.750%, 08/01/15 Aaa/AAA 256,562
<PAGE>
300,000 Narragansett, Rhode Island, MBIA Insured
5.100%, 09/15/06 Aaa/AAA 305,250
1,000,000 Narragansett, Rhode Island, MBIA Insured
5.300%, 09/15/08 Aaa/AAA 1,021,250
150,000 Newport, Rhode Island, MBIA Insured 6.550%,
08/15/07 Aaa/AAA 164,812
250,000 Newport, Rhode Island, Series B, FGIC
Insured 4.900%, 05/15/06 Aaa/AAA 249,062
500,000 Newport, Rhode Island, Series B, FGIC
Insured 5.000%, 05/15/07 Aaa/AAA 501,250
500,000 Newport, Rhode Island, Series B, FGIC
Insured 5.100%, 05/15/08 Aaa/AAA 501,250
100,000 Pawtucket, Rhode Island, MBIA Insured
6.650%, 09/15/06 Aaa/AAA 109,500
310,000 Pawtucket, Rhode Island, FGIC Insured
5.625%, 04/15/07 Aaa/AAA 325,888
500,000 Pawtucket, Rhode Island, FGIC Insured
5.750%, 04/15/09 Aaa/AAA 523,125
25,000 Providence, Rhode Island, MBIA Insured
6.600%, 01/15/01 Aaa/AAA 26,781
100,000 Providence, Rhode Island, MBIA Insured
5.500%, 01/15/04 Aaa/AAA 104,125
100,000 Providence, Rhode Island, MBIA Insured
5.900%, 01/15/09 Aaa/AAA 105,375
200,000 Providence, Rhode Island, MBIA Insured
5.250%, 01/15/12 Aaa/AAA 196,000
700,000 Providence, Rhode Island, FSA Insured
5.500%, 01/15/11 Aaa/AAA 711,375
100,000 Providence, Rhode Island, Series A, MBIA
Insured 5.400%, 08/01/01 Aaa/AAA 103,500
90,000 Providence, Rhode Island, 1992 Series A,
MBIA Insured 5.700%, 08/01/04 Aaa/AAA 94,612
500,000 East Providence, Rhode Island, MBIA Insured
5.400%, 05/15/07 Aaa/AAA 523,125
100,000 Commonwealth of Puerto Rico, MBIA Insured
5.750%, 07/01/09 Aaa/AAA 104,500
<PAGE>
50,000 Commonwealth of Puerto Rico, FSA Insured
6.000%, 07/01/14 Aaa/AAA 52,375
100,000 Commonwealth of Puerto Rico, MBIA Insured
6.000%, 07/01/14 Aaa/AAA 104,750
500,000 Commonwealth of Puerto Rico, AMBAC Insured
5.850%, 07/01/15 Aaa/AAA 513,750
500,000 Commonwealth of Puerto Rico, MBIA Insured
5.875%, 07/01/18 Aaa/AAA 513,125
50,000 State of Rhode Island Refunding, Series A,
FGIC Insured 6.000%, 06/15/02 Aaa/AAA 53,250
300,000 Rhode Island Consolidated Capital Development
Loan, 1991 Series B, AMBAC Insured 6.250%,
05/15/07 Aaa/AAA 321,000
380,000 Rhode Island Consolidated Capital Development
Loan, 1991 Series B, MBIA Insured 6.250%,
05/15/09 Aaa/AAA 406,600
100,000 Rhode Island Consolidated Capital Development
Loan, 1991 Series B, MBIA Insured 6.250%,
05/15/10 Aaa/AAA 106,500
1,050,000 Rhode Island Consolidated Capital Development
Loan, 1992 Series A, FGIC Insured 5.500%,
08/01/07 Aaa/AAA 1,092,000
25,000 Rhode Island Consolidated Capital Development
Loan, 1992 Series A, FGIC Insured 5.500%,
08/01/08 Aaa/AAA 25,906
1,000,000 Rhode Island Consolidated Capital Development
Loan, 1993 Series A, AMBAC Insured 4.800%,
06/15/02 Aaa/AAA 1,012,500
1,000,000 Rhode Island Consolidated Capital Development
Loan, 1993 Series A, FGIC Insured 5.100%,
11/01/13 Aaa/AAA 970,000
375,000 Town of Scituate, Rhode Island, MBIA Insured
5.500%, 04/01/09 Aaa/AAA 389,062
390,000 South Kingstown, Rhode Island, MBIA Insured
5.000%, 03/15/08 Aaa/AAA 390,488
390,000 South Kingstown, Rhode Island, MBIA Insured
5.050%, 03/15/09 Aaa/AAA 390,000
125,000 South Kingstown, Rhode Island, MBIA Insured
5.125%, 06/01/08 Aaa/AAA 126,094
170,000 South Kingstown, Rhode Island, MBIA Insured
5.200%, 06/01/09 Aaa/AAA 171,275
<PAGE>
170,000 South Kingstown, Rhode Island, MBIA Insured
5.250%, 06/01/10 Aaa/AAA 170,638
100,000 South Kingstown, Rhode Island, MBIA Insured
6.300%, 12/15/11 Aaa/AAA 108,000
400,000 South Kingstown, Rhode Island, AMBAC Insured
4.900%, 11/15/07 Aaa/AAA 399,000
150,000 Warwick, Rhode Island, MBIA Insured 6.100%,
11/15/01 Aaa/AAA 159,375
50,000 Warwick, Rhode Island, FGIC Insured 7.000%,
11/15/02 Aaa/AAA 53,938
195,000 Warwick, Rhode Island, FGIC Insured 5.600%,
08/01/14 Aaa/AAA 198,900
500,000 West Warwick, Rhode Island, MBIA Insured
5.800%, 01/01/04 Aaa/AAA 528,125
500,000 West Warwick, Rhode Island, MBIA Insured
5.900%, 01/01/05 Aaa/AAA 528,125
385,000 Woonsocket, Rhode Island, MBIA Insured 5.125%,
03/01/11 Aaa/AAA 380,669
Total General Obligation Bonds 22,540,018
REVENUE BONDS (45.7%)
Higher Education Revenue Bonds (12.6%)
25,000 Rhode Island Health & Education Building Corp -
Higher Education, Various Purpose 1990
Series B, FSA Insured 7.250%, 09/15/06 Aaa/AAA 27,031
100,000 Rhode Island Health & Education Building Corp -
Bryant College, MBIA Insured 6.300%, 06/01/03 Aaa/AAA 108,125
50,000 Rhode Island Health & Education Building Corp -
Bryant College, 1992 2nd Series, MBIA Insured
5.550%, 06/01/03 Aaa/AAA 52,062
100,000 Rhode Island Health & Education Building Corp -
Bryant College, 1992 2nd Series, MBIA Insured
5.800%, 06/01/05 Aaa/AAA 105,000
100,000 Rhode Island Health & Education Building Corp -
Johnson & Wales University, 1993 Series A,
Connie Lee Insured 5.200%, 04/01/04 NR/AAA 101,500
<PAGE>
200,000 Rhode Island Health & Education Building Corp -
Johnson & Wales University, 1992 Series A,
Connie Lee Insured 5.875%, 04/01/05 NR/AAA 211,500
150,000 Rhode Island Health & Education Building Corp -
Johnson & Wales University, 1992 Series A,
Connie Lee Insured 5.750%, 04/01/12 NR/AAA 152,062
500,000 Rhode Island Health & Education Building Corp -
Johnson & Wales University, 1993 Series A,
Connie Lee Insured 5.250%, 04/01/16 NR/AAA 478,125
150,000 Rhode Island Health & Education Building Corp -
Johnson & Wales University, 1992 Series A,
Connie Lee Insured 6.375%, 04/01/12 NR/AAA 161,812
300,000 Rhode Island Health & Education Building Corp -
Providence College, 1993 Series, MBIA Insured
5.600%, 11/01/09 Aaa/AAA 307,125
300,000 Rhode Island Health & Education Building Corp -
Providence College, 1993 Series, MBIA Insured
5.600%, 11/01/10 Aaa/AAA 305,250
200,000 Rhode Island Health & Education Building Corp -
Rhode Island School of Design, 1992 Series,
MBIA Insured 5.800%, 06/01/05 Aaa/AAA 214,000
500,000 Rhode Island Health & Education Building Corp -
Brown University, 1993 Series, MBIA Insured
5.400%, 09/01/18 Aaa/AAA 485,625
500,000 Rhode Island Health & Education Building Corp -
Brown University, 1993 Series, MBIA Insured
5.375%, 09/01/23 Aaa/AAA 479,375
1,000,000 Rhode Island Health & Education Building Corp -
Roger Williams University, 1996 Series S,
Connie Lee Insured 5.500%, 11/15/11 NR/AAA 1,013,750
55,000 Rhode Island Health & Education Building Corp -
Board of Governors, 1993 Series A, MBIA Insured
5.500%, 09/15/13 Aaa/AAA 54,794
<PAGE>
245,000 Rhode Island Health & Education Building Corp -
Board of Governors, 1993 Series B, MBIA Insured
5.500%, 09/15/13 Aaa/AAA 244,081
140,000 Rhode Island Health & Education Building Corp -
Board of Governors, 1993 Series A, MBIA Insured
5.250%, 09/15/23 Aaa/AAA 131,775
450,000 Rhode Island Health & Education Building Corp -
Board of Governors, 1993 Series A, MBIA Insured
5.300%, 09/15/08 Aaa/AAA 455,064
150,000 Rhode Island Health & Education Building Corp -
Salve Regina, 1993 Series, Connie Lee Insured
5.300%, 03/15/00 NR/AAA 152,812
150,000 Rhode Island Health & Education Building Corp -
Salve Regina, 1993 Series, Connie Lee Insured
6.100%, 03/15/06 NR/AAA 161,250
5,402,118
Hospital Revenue Bonds (2.4%)
100,000 Rhode Island Health & Education Building
Corporation - Women & Infants Hospital, 1992
Series, FSA Insured 6.150%, 09/01/05 Aaa/AAA 107,250
400,000 Rhode Island Health & Education Building
Corporation - Women & Infants Hospital, 1992
Series, FSA Insured 6.350%, 09/01/07 Aaa/AAA 432,000
300,000 Rhode Island Health & Education Building
Corporation - Women & Infants Hospital, 1992
Series, FSA Insured 6.550%, 09/01/13 Aaa/AAA 322,500
150,000 Rhode Island Health & Education Building
Corporation - Kent County Memorial Hospital,
1992 Series, MBIA Insured 6.000%, 07/01/06 Aaa/AAA 158,250
1,020,000
<PAGE>
Mortgage Revenue-Multi Family (1.4%)
300,000 Rhode Island Housing & Mortgage Finance Corp.,
1995 Series A, AMBAC Insured 5.550%, 07/01/05 Aaa/AAA 309,750
300,000 Rhode Island Housing & Mortgage Finance Corp.,
1995 Series A, AMBAC Insured 5.450%, 07/01/04 Aaa/AAA 308,625
618,375
Water and Sewer Revenue Bonds (1.6%)
250,000 Kent County Water Authority Revenue Bonds, 1994
Series A, 5.700%, 07/15/04, MBIA Insured Aaa/AAA 262,812
100,000 Puerto Rico Commonwealth Aqueduct & Sewer
Authority, (Escrowed to Maturity), 5.900%,
07/01/06 Aaa/AAA 104,376
300,000 Town of Bristol, Rhode Island, MBIA Insured
5.000%, 12/01/08 Aaa/AAA 297,750
664,938
Utility Revenue Bonds (.4%)
100,000 Puerto Rico Electric Power Authority, Series Q,
FSA Insured, 5.750%, 07/01/07 Aaa/AAA 105,000
50,000 Puerto Rico Electric Power Authority, Series O,
FSA Insured, 6.000%, 07/01/10 Aaa/AAA 51,250
156,250
Development Revenue Bonds (17.0%)
100,000 Rhode Island Convention Center Authority,
Series A, MBIA Insured (Escrowed to
Maturity) 6.100%, 05/15/02 Aaa/AAA 107,500
150,000 Rhode Island Convention Center Authority,
Series A, MBIA Insured (Escrowed to
Maturity) 6.300%, 05/15/04 Aaa/AAA 162,188
100,000 Rhode Island Convention Center Authority,
Series A, MBIA Insured (Escrowed to
Maturity) 6.375%, 05/15/01 Aaa/AAA 108,375
500,000 Rhode Island Convention Center Authority,
Series B, MBIA Insured 5.000%, 05/15/07 Aaa/AAA 503,750
<PAGE>
500,000 Rhode Island Convention Center Authority,
Series A, AMBAC Insured 5.400%, 05/15/08 Aaa/AAA 513,750
300,000 Rhode Island Convention Center Authority,
Series A, AMBAC Insured 5.500%, 05/15/13 Aaa/AAA 298,875
300,000 Rhode Island Public Building Authority State
Public Projects, 1990 Series A, AMBAC
Insured (Escrowed to Maturity) 6.600%, 02/01/02 Aaa/AAA 326,250
500,000 Rhode Island Public Building Authority State
Public Projects, 1993 Series A, AMBAC
Insured 5.100%, 02/01/05 Aaa/AAA 506,250
1,000,000 Rhode Island Public Building Authority State
Public Projects, 1993 Series A, AMBAC Insured
5.250%, 02/01/10 Aaa/AAA 996,250
785,000 Rhode Island Public Building Authority State
Public Projects, 1990 Series A, AMBAC Insured
6.000%, 02/01/11 Aaa/AAA 816,400
710,000 Rhode Island Public Building Authority State
Public Projects, 1990 Series A, AMBAC Insured
(Escrowed to Maturity) 6.000%, 02/01/01 Aaa/AAA 745,500
370,000 Rhode Island Public Building Authority State
Public Projects, 1989 Series A, AMBAC Insured
(Escrowed to Maturity) 7.000%, 02/01/00 Aaa/AAA 400,062
35,000 Rhode Island Public Building Authority State
Public Projects, 1989 Series A, AMBAC Insured
(Escrowed to Maturity) 6.750%, 02/01/00 Aaa/AAA 37,625
250,000 Rhode Island Public Building Authority State
Public Projects, Series A, MBIA Insured
5.250%, 08/01/06 Aaa/AAA 250,688
600,000 Rhode Island Public Building Authority State
Public Projects, 1986 Series A, MBIA Insured
5.250%, 08/01/07 Aaa/AAA 601,337
500,000 Rhode Island Public Building Authority State
Public Projects, 1996 School Series B, MBIA
Insured 5.500%, 12/15/14 Aaa/AAA 500,000
<PAGE>
500,000 Rhode Island Public Building Authority State
Public Projects, 1996 School Series B, MBIA
Insured 5.500%, 12/15/15 Aaa/AAA 492,500
7,367,300
Pollution Control Revenue Bonds (4.1%)
200,000 Rhode Island Clean Water Protection, 1993
Series A, MBIA Insured 5.300%, 10/01/07 Aaa/AAA 204,750
300,000 Rhode Island Clean Water Protection, 1993
Series A, MBIA Insured 5.400%, 10/01/09 Aaa/AAA 306,750
1,250,000 Rhode Island Clean Water Protection, 1993
Series A, MBIA Insured 5.400%, 10/01/15 Aaa/AAA 1,245,312
1,756,812
Other Revenue Bonds (6.2%)
210,000 State of Rhode Island Depositors Economic
Protection Corp., - 1992 Series A, FSA
Insured 6.000%, 08/01/01 Aaa/AAA 221,814
135,000 State of Rhode Island Depositors Economic
Protection Corp., - 1992 Series B, MBIA
Insured 5.500%, 08/01/06 Aaa/AAA 140,569
500,000 State of Rhode Island Depositors Economic
Protection Corp., - 1992 Series B, MBIA
Insured 6.000%, 08/01/17 Aaa/AAA 520,624
355,000 State of Rhode Island Depositors Economic
Protection Corp., - 1993 Series A, MBIA
Insured 5.625%, 08/01/09 Aaa/AAA 372,307
300,000 State of Rhode Island Depositors Economic
Protection Corp., - 1993 Series B, MBIA
Insured 5.800%, 08/01/09 Aaa/AAA 319,125
500,000 State of Rhode Island Depositors Economic
Protection Corp., - 1993 Series B, MBIA
Insured 5.250%, 08/01/21 Aaa/AAA 501,250
400,000 State of Rhode Island Certificates of
Participation, Howard Center Improvements,
MBIA Insured 5.250%, 10/01/10 Aaa/AAA 396,500
<PAGE>
200,000 State of Rhode Island Certificates of
Participation, Howard Center Improvements,
MBIA Insured 5.375%, 10/01/16 Aaa/AAA 195,000
2,667,189
Total Revenue Bonds 19,652,982
Total Investments (cost $41,264,317*) 98.1% 42,193,001
Other assets in excess of liabilities 1.9 832,013
Net Assets 100.0% $43,025,014
<FN> * Cost for Federal tax purposes is identical. </FN>
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assurance
MBIA - Municipal Bond Investors Assurance Corp.
See accompanying notes to financial statements.
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments at value (identified cost - $41,264,317) $ 42,193,001
Cash 87,168
Interest receivable 656,158
Due from Administrator for reimbursement of expenses (note 3) 177,612
Receivable for Fund shares sold 20,703
Other assets 101
Total assets 43,134,743
LIABILITIES
Payable for fund shares redeemed 41,143
Accrued expenses 30,055
Dividends payable 17,942
Distribution fees payable 16,701
Adviser and Administrator fees payable 3,888
Total liabilities 109,729
NET ASSETS $ 43,025,014
Net Assets consist of:
Capital Stock - Authorized 80,000,000 shares, par
value $.01 per share $ 42,255
Additional paid-in capital 42,056,023
Accumulated net loss on investments (1,948)
Net unrealized appreciation on investments 928,684
$ 43,025,014
CLASS A
Net Assets $ 42,540,175
Capital shares outstanding 4,177,889
Net asset value and redemption price per share $ 10.18
Offering price per share (100/96 of $10.18 adjusted
to nearest cent) $ 10.60
CLASS C
Net Assets $ 484,731
Capital shares outstanding 47,620
Net asset value and offering price per share $ 10.18
Redemption price per share (*varies by length of time
shares are held) $ *
CLASS Y
Net Assets $ 108
Capital shares outstanding 11
Net asset value, offering and redemption price per share $ 10.19
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest income $ 2,114,373
Expenses:
Investment Adviser fees (note 3) $ 92,236
Administrator fees (note 3) 108,154
Distribution and service fees (note 3) 62,040
Transfer and shareholder servicing agent fees 45,878
Trustees' fees and expenses (note 8) 39,153
Shareholders' reports and proxy statements 36,795
Legal fees 31,212
Audit and accounting fees 21,223
Custodian fees (note 7) 9,261
Registration fees and dues 6,945
Insurance 750
Miscellaneous 48,727
502,374
Investment Adviser fees waived (note 3) (72,100)
Administrator fees waived (note 3) (84,117)
Reimbursement of expenses by Administrator (note 3) (251,853)
Expenses paid indirectly (note 7) (8,477)
Net expenses 85,827
Net investment income 2,028,546
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from securities transactions (1,948)
Change in unrealized depreciation on investments 1,032,756
Net realized and unrealized gain (loss) on
investments 1,030,808
Net increase in net assets resulting from
operations $ 3,059,354
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,028,546 $ 1,912,631
Net realized loss from securities transactions (1,948) -
Change in unrealized appreciation/depreciation
on investments 1,032,756 375,457
Change in net assets from operations 3,059,354 2,288,088
DISTRIBUTIONS TO SHAREHOLDERS (note 6):
Class A Shares:
Net investment income (2,047,604) (1,912,631)
Distributions in excess of net investment income - -
Net realized gain on investments - -
Class C Shares:
Net investment income (9,970) -
Distributions in excess of net investment income - -
Net realized gain on investments - -
Class Y Shares:
Net investment income (6) -
Distributions in excess of net investment income - -
Net realized gain on investments - -
Change in net assets from distributions (2,057,580) (1,912,631)
CAPITAL SHARE TRANSACTIONS (note 9):
Proceeds from shares sold 8,147,455 6,562,446
Reinvested dividends and distributions 1,067,542 917,354
Cost of shares redeemed (5,180,006) (4,239,774)
Change in net assets from capital share
transactions 4,034,991 3,240,026
Change in net assets 5,036,765 3,615,483
NET ASSETS:
Beginning of period 37,988,249 34,372,766
End of period $ 43,025,014 $ 37,988,249
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Narragansett Insured Tax-Free Income Fund (the "Fund"), a
non-diversified, open-end investment company, was organized on January 22,
1992 as a Massachusetts business trust and commenced operations on September
10, 1992. The Fund is authorized to issue 80,000,000 shares and, since its
inception to May 1, 1996, offered only one class of shares. On that date, the
Fund began offering two additional classes of shares, Class C and Class Y
shares. All shares outstanding prior to that date were designated as Class A
shares and, as was the case since inception, are sold with a front-payment
sales charge and bear an annual service fee. Class C shares are sold with a
level-payment sales charge with no payment at time of purchase but level
service and distribution fees from date of purchase through a period of six
years thereafter. A contingent deferred sales charge of 1% is assessed to any
Class C shareholder who redeems shares of this Class within one year from the
date of purchase. The Class Y shares are only offered to institutions acting
for an investor in a fiduciary, advisory, agency, custodian or similar
capacity. They are not available to individual retail investors. Class Y
shares are sold at net asset value without any sales charge, redemption fees,
contingent deferred sales charge or distribution or service fees. All classes
of shares represent interests in the same portfolio of investments in the
Fund and are identical as to rights and privileges. They differ only with
respect to the effect of sales charges, the distribution and/or service fees
borne by the respective class, expenses specific to each class, voting rights
on matters affecting a single class and the exchange privileges of each
class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
a) PORTFOLIO VALUATION: Municipal securities which have remaining
maturities of more than 60 days are valued each business
day based upon information provided by a nationally prominent
independent pricing service and periodically verified through other
pricing services; in the case of securities for which market
quotations are readily available, securities are valued at the mean
of bid and asked quotations and in the case of other securities, at
fair value determined under procedures established by and under the
general supervision of the Board of Trustees. Securities which
mature in 60 days or less are valued at amortized cost if their
term to maturity at purchase was 60 days or less, or by amortizing
their unrealized appreciation or depreciation on the 61st day prior
to maturity, if their term to maturity at purchase exceeded 60
days.
In Fiscal 1997, the Fund began amortizing bond premium using the
constant yield method. Accordingly, net unrealized appreciation and
additional paid-in capital have been adjusted by equal amounts at
the beginning of the year. This change had no effect on the Fund's
net asset value or distribution policy and conforms to the
amortization policy followed by the Fund for Federal tax purposes.
<PAGE>
b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized
gains and losses from securities transactions are reported on the
identified cost basis. Interest income is recorded on the accrual
basis and is adjusted for amortization of premium and accretion of
original issue discount. Market discount is recognized upon
disposition of the security.
c) FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as a
regulated investment company by complying with the
provisions of the Internal Revenue Code applicable to certain
investment companies. The Fund intends to make distributions of
income and securities profits sufficient to relieve it from all, or
substantially all, Federal income and excise taxes.
d) ALLOCATION OF EXPENSES: Expenses, other than class-specific
expenses, are allocated daily to each class of shares based
on the relative net assets of each class. Class-specific expenses,
which include distribution and service fees and any other items
that are specifically attributed to a particular class, are charged
directly to such class.
e) USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
Management affairs of the Fund are conducted through two separate
management arrangements.
Citizens Bank of Rhode Island (the "Adviser"), formerly known as Citizens
Trust Company, serves as Investment Adviser to the Fund. In this role, under
an Investment Advisory Agreement, the Adviser supervises the Fund's
investments and provides various services to the Fund for which it is
entitled to receive a fee which is payable monthly and computed as of the
close of business each day at the annual rate of 0.23 of 1% of the net assets
of the Fund.
The Fund also has an Administration Agreement with Aquila Management
Corporation (the "Administrator"), the Fund's founder and sponsor. Under this
Agreement, the Administrator provides all administrative services, other than
those relating to the management of the Fund's investments. These include
providing the office of the Fund and all related services as well as
overseeing the activities of all the various support organizations to the
Fund such as the shareholder servicing agent, custodian, legal counsel,
auditors and distributor and additionally maintaining the Fund's accounting
books and records. For its services, the Administrator is entitled to receive
a fee which is payable monthly and computed as of the close of business each
day at the annual rate of 0.27 of 1% of the net assets of the Fund.
<PAGE>
Specific details as to the nature and extent of the services provided by
the Adviser and the Administrator are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
The Adviser and the Administrator each agrees that the above fees shall
be reduced, but not below zero, by an amount equal to its pro-rata portion
(determined on the basis of the respective fees computed as described above)
of the amount, if any, by which the total expenses of the Fund in any fiscal
year, exclusive of taxes, interest and brokerage fees, shall exceed the
lesser of (i) 2.5% of the first $30 million of average annual net assets of
the Fund plus 2% of the next $70 million of such assets and 1.5% of its
average annual net assets in excess of $100 million, or (ii) 25% of the
Fund's total annual investment income. No such reduction in fees was required
during the year ended June 30, 1997.
For the year ended June 30, 1997, the Fund incurred fees under the
Advisory Agreement and Administration Agreement of $92,236 and $108,154,
respectively, of which amounts the Adviser and Administrator waived $72,100
and $84,117, respectively. Additionally, the Administrator voluntarily agreed
to reimburse the Fund for other expenses during this period in the amount of
$251,853. Of this amount, $74,241 was paid prior to June 30, 1997 and the
balance of $177,612 was paid in July, 1997.
b) DISTRIBUTION AND SERVICE FEES:
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part
of the Plan, with respect to Class A Shares, the Fund is authorized to make
service fee payments to broker-dealers or others ("Qualified Recipients")
selected by the Distributor, including, but not limited to, any principal
underwriter of the Fund, with which the Distributor has entered into written
agreements contemplated by the Rule and which have rendered assistance in the
distribution and/or retention of the Fund's shares or servicing of
shareholder accounts. The Fund makes payment of this service fee at the
annual rate of 0.15% of the Fund's average net assets represented by Class A
Shares. For the year ended June 30, 1997, service fees on Class A Shares
amounted to $59,620, of which the Distributor received $1,175.
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Fund's Class C shares
or servicing of shareholder accounts. These payments are made at the annual
rate of 0.75% of the Fund's net assets represented by Class C Shares and for
the year ended June 30, 1997, amounted to $1,815, of which the Distributor
received $1,815.
In addition, under a Shareholder Services Plan, the Fund is authorized to
make service fee payments with respect to Class C Shares to Qualified
Recipients for providing personal services and/or maintenance of shareholder
accounts. These payments are made at the annual rate of 0.25% of the Fund's
net assets represented by Class C Shares and for the year ended June 30,
1997, amounted to $605, of which the Distributor received $605.
<PAGE>
Specific details about the Plans are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
Under a Distribution Agreement, Aquila Distributors, Inc. (the
"Distributor") serves as the exclusive distributor of the Fund's shares.
Through agreements between the Distributor and various broker-dealer firms
("dealers"), the Fund's shares are sold primarily through the facilities of
these dealers having offices within Rhode Island, with the bulk of sales
commissions inuring to such dealers. For the year ended June 30, 1997, the
Distributor received sales commissions in the amount of $2,677.
4. PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1997, purchases of securities and proceeds
from the sales of securities aggregated $5,972,443 and $2,094,216,
respectively.
At June 30, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to $1,021,101 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value amounted to
$92,417, for a net unrealized appreciation of $928,684.
5. PORTFOLIO ORIENTATION
Since the Fund invests principally and may invest entirely in double
tax-free municipal obligations of issuers within Rhode Island, it is subject
to possible risks associated with economic, political, or legal developments
or industrial or regional matters specifically affecting Rhode Island and
whatever effects these may have upon Rhode Island issuers' ability to meet
their obligations. However, to mitigate against such risks, the Fund has
chosen to have at least 65% and possibly the entire number of issues in the
portfolio insured as to timely payment of principal and interest when due by
nationally prominent municipal bond insurance companies.
The Fund is also permitted to invest in U.S. territorial municipal
obligations meeting comparable quality standards and providing income which
is exempt from both regular Federal and Rhode Island income taxes. The
general policy of the Fund is to invest in such securities only when
comparable securities of Rhode Island issuers are not available in the
market. At June 30, 1997, the Fund had 3.6% of its net assets invested in
eight Puerto Rico municipal issues, all of which are rated AAA and insured or
collateralized by U.S. Treasury securities.
At June 30, 1997, 99.2% of the securities in the Fund were insured. The
balance were collateralized by U.S. Treasury securities. While such insurance
protects against credit risks with portfolio securities, it does not insure
against market risk of fluctuations in the Fund's share price and income
return.
<PAGE>
6. DISTRIBUTIONS
The Fund declares dividends daily from net investment income and makes
payments monthly in additional shares at the net asset value per share or in
cash, at the shareholder's option. Net realized capital gains, if any, are
distributed annually.
The Fund intends to maintain, to the maximum extent possible, the
tax-exempt status of interest payments received from portfolio municipal
securities in order to allow dividends paid to shareholders from net
investment income to be exempt from regular Federal and State of Rhode Island
income taxes. However, due to differences between financial reporting and
Federal income tax reporting requirements, distributions made by the Fund may
not be the same as the Fund's net investment income, and/or net realized
securities gains. Further, a small portion of the dividends may, under some
circumstances, be subject to ordinary income taxes. For certain shareholders,
some dividend income may, under some circumstances, be subject to the
alternative minimum tax. Also, annual capital gains distributions, if any,
are taxable.
7. EXPENSES
The Fund has negotiated an expense offset agreement with its custodian
wherein it receives credit toward the reduction of custodian fees whenever
there are uninvested cash balances. During the year ended June 30, 1997, the
Fund's custodian fees amounted to $9,261, of which $8,477 was offset by such
credits. It is the general intention of the Fund to invest, to the extent
practicable, some or all of cash balances in income-producing assets rather
than leave cash on deposit with the custodian.
8. TRUSTEES' FEES AND EXPENSES
During the fiscal year there were seven Trustees. Trustees' fees paid
during the year were at the average annual rate of $2,000 for carrying out
their responsibilities and attendance at regularly scheduled Board Meetings.
If additional or special meetings are scheduled for the Fund, separate
meeting fees are paid for each such meeting to those Trustees in attendance.
The Fund also reimburses Trustees for expenses such as travel,
accommodations, and meals incurred in connection with attendance at regularly
scheduled or special Board Meetings and at the Annual Meeting and outreach
meetings of Shareholders. For the fiscal year ended June 30, 1997, such
reimbursements averaged approximately $3,500 per Trustee. One of the
Trustees, who is affiliated with the Administrator, is not paid any Trustee
fees.
<PAGE>
9. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 760,202 $ 7,656,627 659,760 $ 6,562,246
Reinvested distributions 105,705 1,064,301 91,389 917,354
Cost of shares redeemed (513,856) (5,167,501) (431,888) (4,239,774)
Net change 352,051 3,553,427 319,261 3,239,826
<CAPTION>
Period Ended
June 30, 1996*
Shares Amount
<S> <C> <C> <C> <C>
CLASS C SHARES:
Proceeds from shares sold 48,532 490,828 10 100
Reinvested distributions 320 3,235 - -
Cost of shares redeemed (1,242) (12,505) - -
Net change 47,610 481,558 10 100
<CAPTION>
Period Ended
June 30, 1996*
Shares Amount
<S> <C> <C> <C> <C>
CLASS Y SHARES:
Proceeds from shares sold - - 10 100
Reinvested distributions 1 6 - -
Cost of shares redeemed - - - -
Net change 1 6 10 100
Total transactions in
Fund shares 399,662 $ 4,034,991 319,281 $ 3,240,026
<FN> * From May 1, 1996 (date of inception) through June 30, 1996. </FN>
</TABLE>
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Class A(1)
Period(2)
Year Ended June 30, Ended June
1997 1996 1995 1994 30, 1993
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $9.93 $9.80 $9.44 $10.07 $9.60
Income from Investment Operations:
Net investment income 0.51 0.52 0.54 0.53 0.39
Net gain (loss) on securities
(both realized and unrealized) 0.26 0.13 0.36 (0.63) 0.47
Total from Investment Operations 0.77 0.65 0.90 (0.10) 0.86
Less Distributions (note 6):
Dividends from net investment
income (0.52) (0.52) (0.54) (0.53) (0.39)
Distributions from capital gains - - - - -
Total Distributions (0.52) (0.52) (0.54) (0.53) (0.39)
Net Asset Value, End of Period $10.18 $9.93 $9.80 $9.44 $10.07
Total Return (not reflecting
sales charge) (%) 7.95 6.72 9.82 (1.11) 9.18#
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) 42,540 37,988 34,373 31,660 15,249
Ratio of Expenses to Average
Net Assets (%) 0.21 0.14 0.06 0.02 0*
Ratio of Net Investment Income
to Average Net Assets (%) 5.07 5.19 5.63 5.30 5.28*
Portfolio Turnover Rate (%) 5.29 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> <C>
Net Investment Income ($) 0.41 0.42 0.43 0.40 0.20
Ratio of Expenses to Average
Net Assets (%) 1.25 1.17 1.19 1.32 2.56*
Ratio of Net Investment Income
to Average Net Assets (%) 4.03 4.16 4.50 4.00 2.72*
<FN> (1) Designated as Class A Shares on May 1, 1996.</FN>
<FN> (2) From September 10, 1992 (commencement of operations) to June 30,
1993.</FN>
<FN> # Not annualized </FN>
<FN> * Annualized. </FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Class C(1) Class Y(1)
Year Period(2) Year Period(2)
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.93 $9.94 $9.93 $9.94
Income from Investment Operations:
Net investment income 0.41 0.07 0.56 0.09
Net gain (loss) on securities (both
realized and unrealized) 0.26 (0.01) 0.26 (0.01)
Total from Investment Operations 0.67 0.06 0.82 0.08
Less Distributions (note 6):
Dividends from net investment
income (0.42) (0.07) (0.56) (0.09)
Distributions from capital gains - - - -
Total Distributions (0.42) (0.07) (0.56) (0.09)
Net Asset Value, End of Period $10.18 $9.93 $10.19 9.93
Total Return (not reflecting
sales charge) (%) 6.89 0.60# 8.48 0.80#
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) 485 0.1 0.1 0.1
Ratio of Expenses to Average Net
Assets (%) 1.06 0.20# 0.06 0.14#
Ratio of Net Investment Income to
Average Net Assets (%) 4.22 0.72# 5.22 0.89#
Portfolio Turnover Rate (%) 5.29 0 5.29 0
<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 ($) 0.30 0.06 0.55 0.08
Ratio of Expenses to Average Net
Assets (%) 2.10 0.32# 1.10 0.15#
Ratio of Net Investment Income to
Average Net Assets (%) 3.18 0.61# 4.18 0.77#
<FN> (1) New Class of Shares established on May 1, 1996.</FN>
<FN> (2) From May 1, 1996 to June 30, 1996.</FN>
<FN> # Not annualized</FN>
<FN> * Annualized.</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
REPORT ON THE ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
The Annual Meeting of Shareholders of Narragansett Insured Tax-Free
Income Fund (the "Fund") was held on October 7, 1996.* At the meeting, the
following matters were submitted to a shareholder vote and approved:
(i) the election of Lacy B. Herrmann, Vernon R. Alden, Paul Y.
Clinton, David A. Duffy, Robert L. Krakoff, William J. Nightingale,
and J. William Weeks as Trustees to hold office until the next
annual meeting of the Fund's shareholders or until his successor is
duly elected (each Trustee received at least 21,598,216.25
affirmative votes (96.77%); no more than 721,902.35 votes (3.23%)
were withheld for any Trustee), and
(ii) the ratification of the selection of KPMG Peat Marwick LLP as
the Fund's independent auditors for the fiscal year ending June 30,
1997 (votes for: 21,678,204.30 (97.12%); votes against: 265,227.20
(1.19%); abstentions: 376,687.10 (1.69%); broker non-votes: 0
(0.00%)).
_______________________________
* On the record date for this meeting, the holders of 3,817,441 Class A
Shares, 10 Class C Shares, and 10 Class Y Shares were outstanding and
entitled to vote representing a total net asset value of $37,983,736.95. The
holders of shares entitled to vote representing a total net asset value of
$22,320,118.60 (58.76%) were present in person or by proxy at the meeting.
FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
This information is presented in order to comply with a requirement
of the Internal Revenue Code AND NO CURRENT ACTION ON THE PART OF
SHAREHOLDERS IS REQUIRED.
For the fiscal year ended June 30, 1997, of the total amount of
dividends paid by Narragansett Insured Tax-Free Income Fund, 97.84% was
"exempt-interest dividends" and the balance was ordinary dividend income.
Prior to January 31, 1997, shareholders were mailed IRS Form 1099-DIV
which contained information on the status of distributions paid for the 1996
CALENDAR YEAR.
