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. 7 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ X ]
Amendment No. 9 [ 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 Troxell
Barrett 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)
[___] on (date) pursuant to paragraph (b)
[___] 60 days after filing pursuant to paragraph (a)(i)
[_X_] on October 31, 1997 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, 1997 was
filed in August, 1997.
<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 October 31, 1997
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 Bank
of Rhode Island.
This Prospectus concisely states information about the
Fund that you should know before investing. A Statement of
Additional Information about the Fund dated October 31, 1997 (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 BANK OF RHODE ISLAND (THE
"ADVISER"), CITIZENS FINANCIAL GROUP, INC. 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 732-855-5731
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>
Department of Administration - Providence, RI
Rhode Island Convention Center - Providence, RI
Andrews Hall - Brown University
Providence County Courthouse
Daphne Farago Wing
Rhode Island School of Design
Veterans Memorial Auditorium
Providence, RI
The Fund invests in tax-free municipal securities,
primarily the kinds of obligations issued by various communities
and political subdivisions within Rhode Island. Most of these
securities are used to finance long-term municipal projects;
examples are pictured above. (See "Investment of the Fund's
Assets.") The municipal obligations which financed projects of
which these are typical, were included in the Fund's portfolio as
of June 30, 1997 and together represented 18.22% of the Fund's
portfolio. Since the portfolio is subject to change, the Fund may
not necessarily own these specific securities at the time of the
delivery of this Prospectus.
<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
by the Adviser to be of comparable quality. In general there are
nine separate credit ratings, ranging from the highest to the
lowest credit ratings for municipal obligations. 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. The Federal
alternative minimum tax may apply to some investors, but its
impact will be limited since not more than 20% of the Fund's net
assets can be invested in obligations paying interest which is
subject to this tax. 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 and "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. 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"); 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
and Financial Intermediary Class Shares ("Class I Shares") which
are offered and sold only through certain financial
intermediaries. Class Y Shares and Class I Shares are not offered
by this Prospectus.
Class A Shares and Class C Shares are registered for sale
only in certain states. (See "How to Invest in the Fund.") If
shares of the Fund are sold outside those states the Fund can
redeem them. If your state of residence is not Rhode Island, the
dividends from the Fund may be subject to income taxes of the
state in which you reside. Accordingly, you should consult your
tax adviser before acquiring shares of the Fund.
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 Bank of Rhode Island 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.") It is expected that these management
arrangements will change. (See "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 two
Aquila-sponsored equity funds. 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 "Risk
Factors 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) (4)
(as a percentage of average net assets)
Investment Advisory Fee After Waiver .............. 0.05% 0.05%
12b-1 Fee After Expense Reimbursement ............. 0.00% 0.75%
All Other Expenses After Expense
Reimbursement and Fee Waiver .................. 0.18% 0.43%
Administration Fee After Waiver ................. 0.00% 0.00%
Service Fee ..................................... None 0.25%
Other Expenses After Expense Reimbursement ...... 0.18% 0.18%
Total Fund Operating Expenses After Expense
Reimbursement and Fee Waivers ................. 0.23% 1.23%
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 $47 $52 $68
Class C Shares
With complete redemption
at end of period $23 $39 $68 $95 (6)
With no redemption $13 $39 $68 $95 (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".
</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.
</FN>
<FN>
(4) 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. Also,
operating expenses are being subsidized through reimbursement by the
Administrator. This subsidy is being phased out progressively so that the
Fund will bear its own expenses, other than advisory and administration
fees, once its assets size matches approximately $60 million. The
undertakings of the Adviser and the Administrator as to fee waivers and
the practices of the Fund (see "Management Arrangements"). Other expenses
do not reflect a 0.02% expense offset in custodian fees received for
uninvested cash balances. Without fee waivers and expense reimbursement and
including the offset in custodian fees, expenses 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, 0.52%,
for total operating expenses of 1.17%; for Class C Shares, investment
advisory fee, 0.23%; 12b-1 fee, 0.75%; administration fee, 0.27%; service
fee, 0.25%; other expenses, 0.52%, for total operating expenses of
2.02%.
</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. The above table 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>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights 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.
Class A(1) Class C(2)
Year ended June 30, Year Period
Ended Ended
June 31, June 31,
1997 1996 1995 1994 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ................ $9.93 $9.80 $9.44 $10.07 $9.93 $9.94
Income from Investment
Operations:
Net investment income .... 0.51 0.52 0.54 0.53 0.41 0.07
Net gain (loss) on
securities (both realized
and unrealized) ........ 0.26 0.13 0.36 (0.63) 0.26 (0.01)
Total from Investment
Operations ............. 0.77 0.65 0.90 (0.10) 0.67 0.06
Less Distributions:
Dividends from net
investment income ...... (0.52) (0.52) (0.54) (0.53) (0.42) (0.07)
Distributions from
capital gains .......... - - - - - -
Total Distributions ...... (0.52) (0.52) (0.54) (0.53) (0.39) (0.07)
Net Asset Value, End of
Period ................... $10.18 $9.93 $9.80 $9.44 $10.18 $9.93
Total Return (not reflecting
sales charge) (%)......... 7.95 8.72 9.82 (1.11) 6.89 0.60+
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) .......... 42,540 37,988 34,373 31,660 485 0.1
Ratio of Expenses to
Average Net Assets (%).. 0.21 0.14 0.06 0.02 1,06 0.20+
Ratio of Net Investment
Income to Average Net
Assets (%).............. 5.07 5.19 5.63 5.30 4.22 0.72+
Portfolio Turnover Rate .. 5.29 0 0 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> <C> <C>
Net Investment Income (%) 0.41 0.42 0.43 0.40 0.30 0.06
Ratio of Expenses to
Average Net Assets (%).. 1.25 1.17 1.19 1.32 2.10* 0.32+
Ratio of Net Investment
Income to Average Net
Assets (%).............. 4.03 4.16 4.50 4.00 3.18 0.61+
<CAPTION>
Period Ended
June 30, 1993(3)
<C>
$9.60
0.39
0.47
0.86
(0.39)
-
$10.07
9.18+
15,249
0*
5.28*
2.56+
0.20
2.56*
2.72*
<FN>
(1)Designated as Class A Shares on May 1, 1996.
</FN>
<FN>
(2)New Class of Shares established on May 1, 1996.
</FN>
<FN>
(3)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 the 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 those 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 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 Bank of Rhode Island (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 continue 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. (See "Risk Factors and Special
Considerations Regarding Investment in Rhode Island
Obligations.")
Possible Stabilizing Measures
The Fund will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases,
broadening diversification and increasing its position in cash
and cash equivalents in attempting to protect against declines in
the value of its investments and other market risks. There can,
however, be no assurance that these will be successful.
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 "Limitation to 10% 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.)
Limitation to 10% 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) may 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.
Risk Factors 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 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 net asset value of the shares of each of the Fund's
classes of shares and offering price per share of each class is
determined as of 4:00 p.m., New York time, on each day that the
New York Stock Exchange is open (a "business day"),by dividing
the value of the Fund's net assets (i.e., the value of the assets
less liabilities) allocable to each class by the total number of
shares of such class then 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 this Prospectus the Fund provides you with two
alternative ways to invest in the Fund 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 contingent 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. 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. 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. For purposes of applying the
CDSC and determining the time of conversion, the 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% 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 within a
reasonably short time 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.
To do this you must open an account for automatic investments of
at least $50 each month and make an initial investment of 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.
At the date of the Prospectus, Class A Shares and Class C
Shares of the Fund are available only in the following states:
Rhode Island, Connecticut, District of Columbia, Florida, Hawaii,
Massachusetts, New Jersey and New York.
If you do not reside in one of these states you should
not purchase shares of the Fund. If Class A Shares or Class C
Shares are sold outside of these states the Fund can redeem them.
Such a redemption may result in a loss to you and may have tax
consequences. In addition, if your state of residence is not
Rhode Island, the dividends from the Fund may not be exempt from
income tax of the state in which you reside. Accordingly, you
should consult your tax adviser before acquiring shares of the
Fund.
How to Purchase Class A Shares (Front-Payment Class Shares)
The following table shows the amount of the sales charge
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") for Class A
Shares:
<TABLE>
<CAPTION>
Sales Charge as Sales Charge Commissions
Percentage as Approximate as Percentage
of Public Percentage of of Public
Amount of Purchase Offering Price Amount Invested Offering 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 purchases 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 Class A Shares for his,
her 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 under the following circumstances
are called "CDSC Class A Shares": (i) Class A Shares issued in a
single purchase of $1 million or more by a single purchaser; and
(ii) all Class A Shares issued in a single purchase to a single
purchaser the value of which, when added to the value of the CDSC
Class A Shares and Class A Shares on which a sales charge has
been paid, already owned at the time of such purchase, equals or
exceeds $1 million. CDSC Class A Shares also include certain
Class A Shares issued 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
"Certain Investment Companies" 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 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 Class A 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 and still own, 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 Fund or 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 Class A 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 the lesser
of (i) 1% of such proceeds or (ii) the same amounts described
under "Purchase 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 "Purchase 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. 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"). The
CDSC is charged at the rate of 1%, calculated on the net asset
value of the redeemed 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. The CDSC does
not apply to Class C 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 the
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 Fund or 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, 1997, Permitted
Payments of $59,620 were made to Qualified Recipients with
respect to Class A Shares of the Fund, of which the Distributor
received $1,175. (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 Fund or 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.
During the fiscal year ended June 30, 1997, Permitted
Payments of $1,815 were made to Qualified Recipients with respect
to Class A Shares of the Fund, of which the Distributor received
$1,815. (See the Additional Statement for a description of the
Distribution Plan.)
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 Fund or 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. During the fiscal year ended June 30, 1997, $605 of
Service Fees was paid to Qualified Recipients with respect to the
Fund's Class C Shares of which $60 was retained by 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 732-855-5731
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 732-855-5730 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 have redemption proceeds sent to a Financial
Institution Account, 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
Fund's Shareholder Servicing 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 Shareholder
Servicing 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,
you may be charged 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, you may not maintain an
Automatic Withdrawal Plan while simultaneously making regular
purchases. 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.
Current Arrangements
On November 14, 1997, the arrangements described below
under "New Arrangements" will be submitted to the shareholders
for approval. If approved by the shareholders of the Fund the New
Arrangements will be in effect and those described below under
"Current Arrangements" will be superseded. If the New
Arrangements are not approved by the shareholders, the New
Arrangements will not go into effect and the Current Arrangements
will remain in effect. In either event, the prospectus will be
supplemented to reflect the arrangements that are in effect.
The Advisory Agreement
Citizens Bank of Rhode Island (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.
New Arrangements
On November 14, 1997, the arrangements described below
under "New Arrangements" will be submitted to the shareholders
for approval. If approved by the shareholders of the Fund the New
Arrangements will be in effect and those described above under
"Current Arrangements" will be superseded. If the New
Arrangements are not approved by the shareholders, the New
Arrangements will not go into effect and the Current Arrangements
will remain in effect. In either event, the prospectus will be
supplemented to reflect the arrangements that are in effect.
The new Investment Advisory and Administration Agreement
(the "Advisory and Administration Agreement") between the Fund
and Aquila Management Corporation (the "Manager") has several
parts, most of which are substantially identical to corresponding
provisions in the Fund's former advisory agreements and
administration agreement. The Advisory and Administration
Agreement contains provisions relating to investment advice for
the Fund and management of its portfolio that are substantially
identical to prior advisory agreements, except that the Manager
has the power to delegate its advisory functions to a
Sub-Adviser, which it will employ at its own expense. It has
delegated these duties to Citizens Bank of Rhode Island (the
"Sub-Adviser"). The Advisory and Administration Agreement
contains provisions relating to administrative services that are
substantially identical to those contained in the Fund's current
administration agreement.
Description of the New Investment Advisory
and Administration Agreement
The Advisory and Administration Agreement provides that
subject to the direction and control of the Board of Trustees of
the Fund, the Manager shall:
(i) supervise continuously the investment program of the
Fund and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold
by the Fund;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Fund; and
(iv) at its expense provide 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, provide for
pricing of the Fund's portfolio at least quarterly using
another such source satisfactory to the Fund.
The Advisory and Administration Agreement provides that,
subject to the termination provisions described below, the
Manager may at its own expense delegate to a qualified
organization ("Sub-Adviser"), affiliated or not affiliated with
the Manager, any or all of the above duties. Any such delegation
of the duties set forth in (i), (ii) or (iii) above shall be by a
written agreement (the "Sub-Advisory Agreement") approved as
provided in Section 15 of the Investment Company Act of 1940. The
Manager has delegated all of such functions to the Sub-Adviser
the Sub-Advisory Agreement.
The Advisory and Administration Agreement provides that
subject to the direction and control of the Board of Trustees of
the Fund, the Manager shall provide all administrative services
to the Fund other than those relating to its investment portfolio
which have been delegated to a Sub-Adviser of the Fund under a
Sub-Advisory Agreement; as part of such administrative duties,
the Manager shall:
(i) provide office space, personnel, facilities and
equipment for the performance of the following functions and
for the maintenance of the headquarters of the Fund;
(ii) oversee all relationships between the Fund and any
sub-adviser, 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 the effective operation
of the Fund and for the sale, servicing or redemption of the
Fund's shares;
(iii) either keep the accounting records of the Fund,
including the computation of net asset value per share and
the dividends (provided that if there is a Sub-Adviser,
daily pricing of the Fund's portfolio shall be the
responsibility of the Sub-Adviser under the Sub-Advisory
Agreement) or, at its expense and responsibility, delegate
such duties in whole or in part to a company satisfactory to
the Fund;
(iv) maintain the Fund's books and records, and prepare
(or assist counsel and auditors in the preparation of) all
required proxy statements, reports to the Fund's
shareholders and Trustees, reports to and other filings with
the Securities and Exchange Commission and any other
governmental agencies, and tax returns, and oversee the
insurance relationships of the Fund;
(v) prepare, on behalf of the Fund and at the Fund's
expense, such applications and reports as may be necessary
to register or maintain the registration of the Fund and/or
its shares under the securities or "Blue-Sky" laws of all
such jurisdictions as may be required from time to time;
(vi) respond to any inquiries or other communications of
shareholders of the Fund 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, oversee such shareholder servicing and transfer
agent's or distributor's response thereto.
The Advisory and Administration Agreement contains
provisions relating to compliance of the investment program,
responsibility of the Manager for any investment program managed
by it, allocation of brokerage, and responsibility for errors
that are substantially the same as the corresponding provisions
in the Sub-Advisory Agreement. (See the Additional
Statement.)
The Advisory and Administration Agreement provides that
the Manager shall, at its own expense, provide office space,
facilities, equipment, and personnel for the performance of its
functions hereunder and shall pay all compensation of Trustees,
officers, and employees of the Fund who are affiliated persons of
the Manager.
The Fund bears the costs of preparing and setting in type
its prospectuses, statements of additional information and
reports to its 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. All costs and expenses not
expressly assumed by the Manager under this sub-section or
otherwise by the Manager, administrator or principal underwriter
or by any Sub-Adviser shall be paid by the Fund, including, but
not limited to (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation and
expenses of its Trustees other than those affiliated with the
Manager or such adviser, administrator or principal underwriter;
(v) legal and audit expenses; (vi) custodian and transfer agent,
or shareholder servicing agent, fees and expenses; (vii) expenses
incident to the issuance of its shares (including issuance on the
payment of, or reinvestment of, dividends); (viii) fees and
expenses incident to the registration under Federal or State
securities laws of the Fund or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy
material to shareholders of the Fund; (x) all other expenses
incidental to holding meetings of the Fund's shareholders; and
(xi) such non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligations for which
the Fund may have to indemnify its officers and Trustees.
The Advisory and Administration Agreement provides that
the Fund agrees to pay the Manager, and the Manager agrees to
accept as full compensation for all services rendered by the
Manager as such, an annual 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 0.50 of 1% of such net asset
value.
The Advisory and Administration Agreement provides that
the Sub-Advisory Agreement may provide for its termination by the
Manager upon reasonable notice, provided, however, that the
Manager agrees not to terminate the Sub-Advisory Agreement except
in accordance with such authorization and direction of the Board
of Trustees, if any, as may be in effect from time to time.
The Advisory and Administration Agreement provides that
it may be terminated by the Manager at any time without penalty
upon giving the Fund sixty days' written notice (which notice may
be waived by the Fund) and may be terminated by the Fund at any
time without penalty upon giving the Manager sixty days' written
notice (which notice may be waived by the Manager), provided that
such termination by the Fund shall be directed or approved by a
vote of a majority of its Trustees in office at the time or by a
vote of the holders of a majority (as defined in the Act) of the
voting securities of the Fund outstanding and entitled to vote.
The specific portions of the Advisory Agreement which relate to
providing investment advisory services will automatically
terminate in the event of the assignment (as defined in the Act)
of the Advisory Agreement, but all other provisions relating to
providing services other than investment advisory services will
not terminate, provided however, that upon such an assignment the
annual fee payable monthly and computed on the net asset value of
the Fund as of the close of business each business day shall be
reduced to the annual rate of 0.27 of 1% of such net asset
value.
The New Sub-Advisory Agreement
The Manager has delegated investment advisory
responsibility to Citizens Bank of Rhode Island (the "Adviser"),
which supervises the investment program of the Fund and the
composition of its portfolio.
The services of the Sub-Adviser are rendered under a
Sub-Advisory Agreement between the Manager and the Sub-Adviser
(the "Sub-Advisory Agreement") which provides, subject to the
control of the Board of Trustees, for investment supervision and
at the Sub-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 Sub-Advisory Agreement states that
the Sub-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 Sub-Adviser's duties under
the Sub-Advisory Agreement.
Under the Sub-Advisory Agreement, the Sub-Adviser pays
all compensation of those officers and employees of the Fund and
of those Trustees, if any, who are affiliated with the
Sub-Adviser.
The Sub-Advisory Agreement provides that the Manager
agrees to pay the Sub-Adviser, and the Sub-Adviser agrees to
accept as full compensation for all services rendered by the
Sub-Adviser as such, a management 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 rates of 0.23 of 1% of
such net asset value. The Sub-Adviser and/or the Manager may, in
order to attempt to achieve a competitive yield on the shares of
the Fund, each waive all or part of their respective fees.
The Sub-Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund; see the
Additional Statement. Under these provisions, the Sub-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.
Information About the Fund's Management
Citizens Bank of Rhode Island ("Citizens Bank") is wholly
owned by Citizens Financial Group, Inc. ("CFG"). CFG is a
subsidiary of The Royal Bank of Scotland plc. The Bank of Ireland
owns a 23.5% interest in CFG. Citizens Bank operates through 75
branch offices in Rhode Island and Connecticut; Citizens Bank of
Massachusetts, which has more than 60 branches in southeastern
Massachusetts; Citizens Bank New Hampshire, which has 81 branches
in New Hampshire; and Citizens Mortgage Corporation, a Georgia
corporation based in Atlanta with 20 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. In 1996, CFG acquired the former First New
Hampshire Bank. In June, 1996, CFG announced a definitive
agreement to acquire Farmers and Mechanics Bank in Middletown,
Connecticut. CFG is the 45th largest bank holding company in the
United States.
Salvatore C. DiSanto is the officer of Citizens Bank 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 within the Trust Group of Citizens Bank, is a
member of the its Officer Investment Committee. He has been
employed by the Citizens Bank for 38 years and has been involved
in portfolio management for the last 31 years.
Aquila Management Corporation ("Aquila") is administrator
to the Aquilasm Group of Funds, which consists of tax-free
municipal bond funds, money market funds and two equity funds. As
of June 30, 1997, 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. Aquila,
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, 1997, fees
of $92,236 and $108,154 were accrued to the Adviser and
Administrator, respectively, of which, $72,100 and $84,117,
respectively, were waived. In addition, the Administrator
reimbursed the Fund for other expenses 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.
The Distributor currently handles the distribution of the
shares of fourteen funds (seven tax-free municipal bond funds,
five money market funds, and two equity funds), 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 75% by Mr. Herrmann and 25% by Diana P.
Herrmann, will be owned by certain directors and/or officers of
the Administrator and/or the Distributor, including Mr. Herrmann
and Ms. 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 each class of its 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.
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. On the Application or by completing a Ready Access
Form, you may elect to have dividends deposited without charge by
electronic funds transfers into your account at a Financial
Institution if it is a member of the Automated Clearing
House.
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, 1997, 97.84%
of the Fund's dividends were "exempt-interest dividends." For the
calendar year 1996, 1.91% of the total dividends paid were
taxable. 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 Code 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 gain from the sale or exchange
of a capital asset held for more than one year. 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.
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.
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 contingent 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. Your gain or loss will be long-term
if you held the redeemed shares for over 18 months, mid-term if
you held the redeemed shares for over one year but not more than
18 months and short-term, if for a year or less. Long term
capital gains are currently taxed at a maximum rate of 20%, mid-
term capital gains are currently taxed at a maximum rate of 28%,
and short-term gains are currently taxed at ordinary income tax
rates. 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 a summary of certain aspects relating to
the Rhode Island tax consequences of an investment in the Fund.
This summary is based upon the advice of Edward & Angell, Rhode
Island counsel to the Fund.
This summary assumes that the Fund qualifies as a
regulated investment company for Federal income tax purposes
under Subchapter M of the Code. Such summary is based upon the
provisions of the Rhode Island tax law and the regulations
promulgated thereunder as currently in effect, all of which are
subject to change, possibly with retroactive effect. Prospective
investors in the Fund should contact their tax advisor regarding
the effect of Rhode Island or other state or local tax laws on
their investment.
Taxation of 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 Rhode Island. Gross income is
generally defined in the same manner as for Federal income tax
purposes except that (i) interest which is exempt from Federal
income tax and which is not derived from obligations of the
United States or its possessions or Rhode Island Obligations
issued by Rhode Island issuers and exempt from taxation by Rhode
Island, and(ii) 50% of the excess of capital gains over capital
losses is includable in gross income. 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. Individual holders of shares of the
Fund who are subject to Rhode Island personal income taxation
will not be required to include in income for Rhode Island
personal income tax purposes that portion of the exempt-interest
dividends which the Fund clearly identifies as directly
attributable to interest earned on Rhode Island Obligations.
Individual holders will, however, be required to include in
income any other distributions of interest, dividends or income,
except for interest or dividend income obligations or securities
issued by any authority, commission or instrumentality of the
United States.
Moreover, individual holders who are subject to Rhode
Island personal income taxation will be required to include in
income for Rhode Island personal income tax purposes the
distribution of capital gain dividends and any net short-term
capital gains realized by the Fund, unless such capital gains
dividends and short-term capital gains are derived from the sale
of underlying Rhode Island Obligations which are issued by Rhode
Island issuers and are specifically exempted from Rhode Island
capital gains tax by the Rhode Island law authorizing the
issuance of the Rhode Island Obligations.
Gain or loss recognized by an individual subject to Rhode
Island personal income taxation will be included in their Rhode
Island source income. However, Rhode Island may specifically
exempt from Rhode Island capital gains tax gain recognized on the
sale or exchange of certain Rhode Island Obligations.
Corporate Holders. Generally, corporate holders of shares
of the Fund are subject to the Rhode Island business corporation
tax or the Rhode Island franchise tax will be taxed on their net
income, authorized stock or at a flat rate minimum tax. Net
income is generally defined in the same manner as the
corporation's taxable income for Federal income tax purposes
except that distributions of exempt-interest dividends which are
derived from interest earned on municipal obligations by
governmental authorities in states other than Rhode Island will
be included in net income. Net income will also include
distributions of capital gain dividends and any net short-term
capital gains realized by the Fund, unless such distributions of
capital gain dividends and short-term capital gains are derived
from the sale of underlying Rhode Island Obligations which are
issued by Rhode Island issuers and are specifically exempted from
the Rhode Island capital gains tax.
Gain or loss recognized on the dispositions of fund
shares by corporate holders subject to the Rhode Island business
corporation tax will be included in their Rhode Island
income.
Property and Estate Taxes. Shares of the Fund will be
exempt from local property taxes in Rhode Island but will be
includable in the gross estate of a deceased individual
shareholder who is a resident of Rhode Island for purposes of the
Rhode Island estate tax.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among this
Fund and certain tax-free municipal bond funds and equity funds
(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, Aquila Cascadia 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.
Generally, you can exchange shares of a given class of a
Bond or Equity Funds including the Fund for shares of the same
class of any other Bond or Equity Fund, or for shares of any
Money Market Fund, without the payment of a sales charge or any
other fee, and there is no limit on the number of exchanges you
can make from fund to fund. However, the following important
information should be noted:
(1) CDSCs upon redemptions of shares acquired through
exchanges. If you exchange shares of the following categories, no
CDSC will be imposed at the time of exchange, but the shares you
receive in exchange for them will be subject to the applicable
CDSC if you redeem them before the requisite holding period
(extended, if required) has expired:
- CDSC Class A Shares (See "Purchase of $1 Million or
More");
- Class C Shares: and
- Shares of a Money Market Fund that were received in
exchange for CDSC Class A Shares or Class C Shares.
If the shares you redeem would have incurred a CDSC if
you had not made any exchanges, then the same CDSC will be
imposed upon the redemption regardless of the exchanges that have
taken place since the original purchase.
(2) Extension of Holding Periods by owning Money-Market
Funds. Any period of 30 days or more during which Money-Market
shares received on an exchange of CDSC Class A Shares or Class C
Shares are held is not counted in computing the applicable
holding period for CDSC Class A Shares or Class C Shares.
(3) Originally purchased Money Market Fund shares.
Shares of a Money Market Fund (and any shares acquired as a
result of reinvestment of dividends and/or distributions on these
shares) acquired directly in a purchase (or in exchange for Money
Market Fund Shares that were themselves directly purchased),
rather than in exchange for shares of a Bond or Equity Fund, may
be exchanged for shares of any class of any Bond or Equity Fund
that the investor is otherwise qualified to purchase, but the
shares received in such an exchange will be subject to the same
sales charge, if any, that they would have been subject to had
they been purchased rather than acquired in exchange for Money
Market Fund shares. If the shares received in exchange are shares
that would be subject to a CDSC if purchased directly, the
holding period governing the CDSC will run from the date of the
exchange, not from the date of the purchase of Money Market
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 732-855-5731
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 "Tax Effects of Redemptions" and 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 Aquila
Cascadia 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, 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 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 (i) 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 and (ii) Financial Intermediary
Class Shares ("Class I Shares"), which are offered and sold only
through certain financial intermediaries. Class Y Shares and
Class I 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 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 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 participation in the
Distribution Plan and Shareholder Services Plan and has exclusive
voting rights with respect to such participation.
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: AQUILAsm 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 Aquilasm 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
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
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......................................
Table of Expenses...............................
Financial Highlights............................
Introduction....................................
Investment Of The Fund's Assets.................
Investment Restrictions.........................
Net Asset Value Per Share.......................
Alternative Purchase Plans......................
How To Invest In The Fund.......................
How To Redeem Your Investment...................
Automatic Withdrawal Plan.......................
Management Arrangements.........................
Dividend And Tax Information....................
Exchange Privilege..............................
General Information.............................
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
Class I Shares October 31, 1997
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 Bank
of Rhode Island.
This Prospectus s concisely states information about the
Fund that you should know before investing. A Statement of
Additional Information about the Fund dated October 31, 1997 (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 BANK OF RHODE ISLAND (THE
"ADVISER"), CITIZENS FINANCIAL GROUP, INC., 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 732-855-5731
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 by the Adviser to be of comparable quality. In general
there are nine separate credit ratings for municipal obligations,
ranging from the highest to the lowest credit ratings for
municipal obligations. 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.")
Alternative Purchase Plans - The Fund provides
alternative ways to invest. (See "How to Invest in the Fund.")
For this purpose the Fund offers classes of shares, which differ
in their expense levels and sales charges. This prospectus
offers:
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.")
Financial Intermediary Class Shares ("Class I
Shares") are offered and sold only through financial
intermediaries with which the Aquila Distributors, Inc.
(the "Distributor") has entered into sales agreements,
and are not offered directly to retail customers. Class
I Shares are offered at net asset value with no sales
charge and no redemption fee or contingent deferred
sales charge, although a financial intermediary may
charge a fee for effecting a purchase or other
transaction on behalf of its customers. Class I Shares
may carry a distribution fee of up to 0.25 of 1% of
average annual net assets allocable to Class I Shares,
currently 0.10 of 1% of such net assets, and a services
fee of 0.25 of 1% of such assets. (See "How to Purchase
Class I Shares.")
The Fund's other classes of shares, 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.")
At the date of the Prospectus, Class Y Shares and Class I
Shares are registered for sale only in certain states. (See "How
to Invest in the Fund.") If Class Y Shares or Class I Shares of
the Fund are sold outside those states, except to certain
institutional investors, the Fund can redeem them. If your state
of residence is not Rhode Island, dividends from the Fund may be
subject to income taxes of the state in which you reside.
Accordingly, you should consult your tax adviser before acquiring
shares of the Fund.
Initial Investment - You may open your account for Class
Y Shares 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.) Class I Shares are sold only through financial
intermediaries, which may have their own minimum investment
requirement. (See "How to Invest in the Fund.")
Additional Investments - You may make additional
investments in Class Y Shares 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. Additional
investments in Class I Shares can be made only through financial
intermediaries, which may have their own requirements for
subsequent investments. (See "How to Invest in the Fund.")
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends on Class Y Shares are paid by
check mailed to you, directly deposited into your financial
institution account or automatically reinvested without sales
charge in additional Class Y Shares at the then-current net asset
value. All arrangements for the payment of dividends with respect
to Class I Shares, including reinvestment of dividends, must be
made through financial intermediaries. (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."
All arrangements for redemptions of Class I Shares must be made
through financial intermediaries. The Fund does not impose
redemption fees for redemption of Class Y Shares or Class I
Shares. However, financial intermediaries may charge a fee for
effecting redemptions.
Local Investment Management and Fee Arrangements -
Citizens Bank of Rhode Island 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.") It is expected that these management
arrangements will change. (See "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 two Aquila sponsored equity funds. You may
also exchange them into shares of the Aquila-sponsored money
market funds. Similar exchangability is available to Class I
Shares to the extent that other Aquila-sponsored funds are made
available to its customers by a financial intermediary. 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 "Risk
Factors 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 Class Y Shares account monthly as well as each time you add
to your account or take money out. Financial intermediaries
provide their own statements of Class I Shares accounts.
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 I Class Y
Shareholder Transaction Expenses Shares Shares
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases......... None None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on
Reinvested Dividends ........................... None None
Maximum Deferred Sales Charge .................... None None
Redemption Fees .................................. None None
Exchange Fee ..................................... None None
Annual Fund Operating Expenses (1)(2)
(as a percentage of average net assets)
Investment Advisory Fee After Waiver ............. 0.05% 0.05%
12b-1 Fee After Waiver ........................... 0.10% None
All Other Expenses After Expense
Reimbursement and Fee Waiver ........ ......... 0.43% 0.18%
Administration Fee After Waiver ......... ....... 0.00% 0.00%
Other Expenses After Expense Reimbursement ..... 0.38% 0.18%
Total Fund Operating Expenses After Expense
Reimbursement and Fee Waivers................ 0.43% 0.21%
<CAPTION>
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
<S> <C> <C> <C> <C>
Class I Shares....... $6 $19 $32 $73
Class Y Shares....... $2 $7 $13 $29
<FN>
(1) Estimated based on amount incurred by the Fund's Class Y Shares during
its most recent fiscal year, restated to reflect current arrangements. It
is expected that management arrangements (but not total fees) will change.
See "Management Arrangements."
</FN>
<FN>
(2) 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 the fees will be paid. Also operating expenses
are being subsidized through reimbursement by the Administrator. This
subsidy is being phased out progressively so that the fund will bear its
own expenses, other than the advisory and administration fees, once its
asset size reaches approximately $60 million. The undertaking of the Adviser
and the Administrator as to the fee waivers and the practices of the
Administrator as to expense reimbursement may operate to reduce the fees and
expenses of the Fund (see "Management Arrangements"). Other expenses do not
reflect a 0.02% expense offset in custodian fees received for uninvested cash
balances. Without fee waivers and expense reimbursement and including the
offset in custodian fees, expenses would have been incurred at the following
annual rates: for Class I Shares, investment advisory fee, 0.23%; 12b-1 fee,
0.10% (Up to 0.25% can be authorized. See "Distribution Plan.");
administration fee, 0.27%; other expenses, 0.77, for total operating
expenses of 1.42%; for Class Y Shares, investment advisory fee, 0.23%;
administration fee, 0.27%; other expenses, 0.52%, for total operating
expenses of 1.02%.
</FN>
<FN>
(3) The expense example is based upon the above shareholder transaction
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 above table should not be considered as a
commitment or a 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>
<TABLE>
<CAPTION>
The table shown below for Class A Shares
is for information purposes only. Class A Shares are
not offered by this Prospectus. Similar information does not
exist for Class I Shares which are offered by this Prospectus.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights 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.
Class A(1) Class Y(2)
Year ended 30, Year Period
Ended Ended
1997 1996 1995 June 30, June
30,
1997 1996
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ................ $9.93 $9.80 $9.44 $9.93 $9.94
Income from Investment
Operations:
Net investment income .... 0.51 0.52 0.54 0.66 0.09
Net gain (loss) on
securities (both realized
and unrealized) ........ 0.26 0.13 0.36 0.26 (0.01)
Total from Investment
Operations ............. 0.77 0.65 0.90 0.82 0.08
Less Distributions:
Dividends from net
investment income ...... (0.52) (0.52) 0.54 (0.56) (0.09)
Distributions from
capital gains .......... - - - - -
Total Distributions ...... (0.52) (0.52) 0.54 (0.56) (0.09)
Net Asset Value, End of
Period ................... $10.18 $9.93 $9.80 $10.19 $9.93
Total Return (not reflecting
sales charge)(%).......... 7.95 9.72% 9.82 8.48 0.80+
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) .......... 42,540 34,988 34,373 0.1 0.1
Ratio of Expenses to
Average Net Assets(%)... 0.21 0.14 0.06 0.06 0.14+
Ratio of Net Investment
Income to Average Net
Assets(%)............... 5.07 5.19 5.63 5.22 0.89+
Portfolio Turnover Rate(%) 5.29 0 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> <C>
Net Investment Income ($). $0.41 $0.42 $0.43 $0.55 0.08
Ratio of Expenses to
Average Net Assets (%).. 1.25 1.17 1.19 1.10 0.15+
Ratio of Net Investment
Income to Average Net
Assets (%).............. 4.03 4.16 4.50 4.18 0.77+
<CAPTION>
Class A Shares
Year Ended Period Ended(3)
June 30, June 30,
1994 1993
<C> <C>
$10.07 $9.60
0.53 0.39
(0.63) 0.47
(0.10) 0.86
(0.53) (0.39)
- -
(0.53) (0.39)
$9.44 $10.07
(1.11) 9.18+
31,660 15,249
0.02 0*
5.30 5.28*
0 2.56+
0.40 0.20
1.32 2.56*
4.00 2.72*
<FN>
(1)Designated as Class A Shares on May 1, 1996.
</FN>
<FN>
(2)New Class of Shares established on May 1, 1996.
</FN>
<FN>
(3)From September 10, 1992 (commencement of operations) to June 30, 1993.
</FN>
<FN>
+Not Annualized.
</FN>
<FN>
*Annualized.
</FN>
See accompanying notes to financial statements.
</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 the 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 those 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 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 Bank of Rhode Island (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 continue 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. (See "Risk Factors and Special
Considerations Regarding Investment In Rhode Island
Obligations.")
Possible Stabilizing Measures
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 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. There can,
however, be no assurance that these will be successful.
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 "Limitation to 10% 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.)
Limitation to 10% 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) may 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.
Risk Factors and Special Considerations
Regarding Investment in Rhode Island Obligations
The following is a discussion of the general factors that
might influence the ability of Rhode Island 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 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 net asset value of the shares of each of the Fund's
classes of shares and offering price per share of each class is
determined as of 4:00 p.m., New York time, on each day that the
New York Stock Exchange is open (a "business day"),by dividing
the value of the Fund's net assets (i.e., the value of the assets
less liabilities) allocable to each class by the total number of
shares of such class then 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
This Prospectus offers two separate classes of shares.
All classes represent interests in the same portfolio of Rhode
Island Obligations.
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.
Financial Intermediary Class Shares ("Class I
Shares") are offered and sold only through financial
intermediaries with which the Aquila Distributors, Inc.
(the "Distributor") has entered into sales agreements,
and are not offered directly to retail customers. Class
I Shares are offered at net asset value with no sales
charge and no redemption fee or contingent deferred
sales charge, although a financial intermediary may
charge a fee for effecting a purchase or other
transaction on behalf of its customers. Class I Shares
may carry a distribution fee of up to 0.25 of 1% of
average annual net assets allocable to Class I Shares,
currently 0.10 of 1% of such net assets, and a services
fee of 0.25 of 1% of such assets. (See "Distribution
Plan" and Shareholder Services Plan.")
The Fund's other classes of shares, 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.")
At the date of the Prospectus, Class Y Shares of the Fund
are registered for sale only in Rhode Island, Connecticut,
District of Columbia, Florida, Hawaii, New Jersey and New
York.
At the date of the Prospectus, Class I Shares of the Fund
are registered for sale only in Rhode Island and ****.
If you do not reside in one of those states you should
not purchase shares of the Fund. If shares are sold outside of
those states except to certain institutional investors, the Fund
can redeem them. Such a redemption may result in a loss to you
and may have tax consequences. In addition, if your state of
residence is not Rhode Island, the dividends from the Fund may
not be exempt from income tax of the state in which you reside.
Accordingly, you should consult your tax adviser before acquiring
shares of the Fund.
How to Purchase Class Y Shares
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.
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. To do this
you must open an account for automatic investments of at least
$50 each month and make an initial investment of 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.
How to Purchase Class I Shares
Initial and subsequent investments in Class I Shares must
be made through financial intermediaries and cannot be made
directly. Financial intermediaries may set minimum amounts for
initial purchase and subsequent investments in Class I Shares and
may charge a fee for effecting a purchase or other transaction on
behalf of customers. Financial intermediaries that make Class I
Shares of the Fund and other mutual funds available to their
customers may offer distinct services, may have their own charges
for services and may impose their own minimum requirements for
initial and subsequent investments. Customers of financial
intermediaries should read the Prospectus in light of the terms
of their accounts with financial intermediaries. Financial
intermediaries that have entered into specific agreements with
the Fund may enter confirmed purchase orders on behalf of clients
and customers, with payment to follow not later than the Fund's
pricing of Class I Shares on the following business day. If
payment is not received by that time the financial intermediary
could be held liable for resulting fees or losses.
Offering Price
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.
The offering price for Class I Shares is the net asset
value per share. The offering price determined on any day applies
to all purchases received by each financial intermediary prior to
4:00 p.m. New York time on any business day. Purchase orders
received by financial intermediaries after that time will be
filled at the next determined offering price.
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 Class Y 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). Purchases of Class I Shares will be
confirmed by financial intermediaries. No share certificates will
be issued for Class Y Shares or Class I 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.
Under a part of the Plan, the Fund is authorized to make
payments with respect to Class I Shares ("Class I Permitted
Payments") to Qualified Recipients. Class I 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), at a rate
set from time to time by the Board of Trustees (currently 0.10 of
1%) but not more than 0.25 of 1% of the average annual net assets
represented by the Class I Shares of the Fund. Such payments
shall be made only out of the Fund's assets allocable to the
Class I Shares. "Qualified Recipients" means financial
intermediaries selected by the Distributor with which the Fund or
the Distributor has entered into written agreements to act in
such capacity.
The Plan also 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, Class C Shares and Class I 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.)
Shareholder Services Plan for Class I Shares
Under a Shareholder Services Plan, (the "Plan") the Fund
is authorized to make payments with respect to Class I Shares
("Service Payments") to Qualified Recipients. Fees paid under the
Plan are subject to such limits as may be necessary for Class I
Shares to qualify as a "no-load" class for purposes of the
Conduct Rules of the National Association of Securities Dealers,
Inc. ("NASD"). The current limitation is as follows: fees paid
under the Plan that satisfy the definition of "service fees" in
Rule 2830(d) of the Conduct Rules of the National Association of
Securities Dealers, Inc. may not exceed an amount equal to the
difference between (i) 0.25 of 1% of the average annual net
assets of the Fund represented by Class I Shares and (ii) the
amount paid under the Fund's Distribution Plan with respect to
the assets represented by the Class I Shares. That is, the total
payments under both plans will be less than 0.25 of 1% of such
net assets. Where necessary or appropriate, the Independent
Trustees, or such appropriate officer or officers of the Fund as
they may designate, shall, with the advice of counsel, determine
what fees paid under this Plan are to be deemed "service fees."
The Fund's management believes that, in general, fees allocable
to activities such as sub-accounting and record-keeping are not
"service fees," while fees allocable to activities such as
account service are "service fees." In like manner, allocation of
payments among activities is also determined by the Independent
Trustees or their delegates. Subject to the foregoing, Service
Payments 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 I Shares of the Fund.
Such payments shall be made only out of the Fund's assets
represented by the Class I 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 Fund or the
Distributor has entered into written agreements to provide
personal services to Class I Shares shareholders, maintenance of
Class I Shares shareholder accounts and/or pursuant to specific
agreements entering of confirmed purchase orders on behalf of
customers or clients and which have provided services to holders
of Class I Shares and/or maintenance of Class I Shares
shareholder accounts.
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 Class I Shares,
including without limitation, (i) activities relating to sub-
accounting and record-keeping, including the providing of
necessary personnel and facilities to establish and maintain
shareholder accounts and records, and (ii) activities relating to
account service, such as assisting shareholders in designating
and changing dividend options, account designations and
addresses; answering customer inquiries regarding account status
and history and the manner in which purchases and redemptions of
shares of the Fund may be effected; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares, including, where appropriate, arranging for the wiring of
funds; assisting in processing purchase and redemption
transactions; and verifying and guaranteeing shareholder
signatures in connection with redemption orders and transfers and
changes in shareholder designated accounts. A majority of the
Independent Trustees (as defined in the Plan) may remove any
person as a Qualified Recipient and no fees shall be paid
pursuant to the Plan for activities primarily intended to result
in the sale of shares of the Fund or to finance sales or sales
promotion expenses. No fees shall be paid, or be deemed to have
been paid, for any of the listed activities to the extent that
such payments are deemed by the Independent Trustees to be
intended for distribuion. Service Payments shall be paid through
the Distributor or shareholder servicing agent as disbursing
agent. (See the Additional Statement.)
HOW TO REDEEM YOUR INVESTMENT
Redemption of Class Y Shares
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
You have the flexibility of two expedited methods of
initiating redemptions of Class Y Shares.
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 732-855-5731
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 732-855-5730 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 have redemption proceeds sent directly to a
Financial Institution Account 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 of Class I Shares
You may redeem all or any part of your Class I Shares at
the net asset value next determined after acceptance of your
redemption request by your financial intermediary. Redemption
requests for Class I Shares must be made through a financial
intermediary and cannot to be made directly. Financial
intermediaries may charge a fee for effecting redemptions. There
is no minimum period for any investment in the Fund. The Fund
does not impose redemption fees or penalties on redemption of
Class I Shares. A redemption may result in a transaction taxable
to you.
Redemption Payments
Redemption payments with respect to Class Y Shares 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, you may be charged a fee for this
service. Redemption payments for Class I Shares are made to
financial intermediaries.
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 Class Y 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 of Class Y Shares 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 Class
Y 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.
Current Arrangements
On November 14, 1997, the arrangements described below
under "New Arrangements" will be submitted to the shareholders
for approval. If approved by the shareholders of the Fund the New
Arrangements will be in effect and those described below under
"Current Arrangements" will be superseded. If the New
Arrangements are not approved by the shareholders, the New
Arrangements will not go into effect and the Current Arrangements
will remain in effect. In either event, the prospectus will be
supplemented to reflect the arrangements that are in effect.
The Advisory Agreement
Citizens Bank of Rhode Island (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.
New Arrangements
On November 14, 1997, the arrangements described below
under "New Arrangements" will be submitted to the shareholders
for approval. If approved by the shareholders of the Fund the New
Arrangements will be in effect and those described above under
"Current Arrangements" will be superseded. If the New
Arrangements are not approved by the shareholders, the New
Arrangements will not go into effect and the Current Arrangements
will remain in effect. In either event, the prospectus will be
supplemented to reflect the arrangements that are in effect.
The new Investment Advisory and Administration Agreement
(the "Advisory and Administration Agreement") between the Fund
and Aquila Management Corporation (the "Manager") has several
parts, most of which are substantially identical to corresponding
provisions in the Fund's former advisory agreements and
administration agreement. The Advisory and Administration
Agreement contains provisions relating to investment advice for
the Fund and management of its portfolio that are substantially
identical to prior advisory agreements, except that the Manager
has the power to delegate its advisory functions to a
Sub-Adviser, which it will employ at its own expense. It has
delegated these duties to Citizens Bank of Rhode Island (the
"Sub-Adviser"). The Advisory and Administration Agreement
contains provisions relating to administrative services that are
substantially identical to those contained in the Fund's current
administration agreement.
Description of the New Investment Advisory
and Administration Agreement
The Advisory and Administration Agreement provides that
subject to the direction and control of the Board of Trustees of
the Fund, the Manager shall:
(i) supervise continuously the investment program of the
Fund and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold
by the Fund;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Fund; and
(iv) at its expense provide 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, provide for
pricing of the Fund's portfolio at least quarterly using
another such source satisfactory to the Fund.
The Advisory and Administration Agreement provides that,
subject to the termination provisions described below, the
Manager may at its own expense delegate to a qualified
organization ("Sub-Adviser"), affiliated or not affiliated with
the Manager, any or all of the above duties. Any such delegation
of the duties set forth in (i), (ii) or (iii) above shall be by a
written agreement (the "Sub-Advisory Agreement") approved as
provided in Section 15 of the Investment Company Act of 1940. The
Manager has delegated all of such functions to the Sub-Adviser
the Sub-Advisory Agreement.
The Advisory and Administration Agreement provides that
subject to the direction and control of the Board of Trustees of
the Fund, the Manager shall provide all administrative services
to the Fund other than those relating to its investment portfolio
which have been delegated to a Sub-Adviser of the Fund under a
Sub-Advisory Agreement; as part of such administrative duties,
the Manager shall:
(i) provide office space, personnel, facilities and
equipment for the performance of the following functions and
for the maintenance of the headquarters of the Fund;
(ii) oversee all relationships between the Fund and any
sub-adviser, 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 the effective operation
of the Fund and for the sale, servicing or redemption of the
Fund's shares;
(iii) either keep the accounting records of the Fund,
including the computation of net asset value per share and
the dividends (provided that if there is a Sub-Adviser,
daily pricing of the Fund's portfolio shall be the
responsibility of the Sub-Adviser under the Sub-Advisory
Agreement) or, at its expense and responsibility, delegate
such duties in whole or in part to a company satisfactory to
the Fund;
(iv) maintain the Fund's books and records, and prepare
(or assist counsel and auditors in the preparation of) all
required proxy statements, reports to the Fund's
shareholders and Trustees, reports to and other filings with
the Securities and Exchange Commission and any other
governmental agencies, and tax returns, and oversee the
insurance relationships of the Fund;
(v) prepare, on behalf of the Fund and at the Fund's
expense, such applications and reports as may be necessary
to register or maintain the registration of the Fund and/or
its shares under the securities or "Blue-Sky" laws of all
such jurisdictions as may be required from time to time;
(vi) respond to any inquiries or other communications of
shareholders of the Fund 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, oversee such shareholder servicing and transfer
agent's or distributor's response thereto.
The Advisory and Administration Agreement contains
provisions relating to compliance of the investment program,
responsibility of the Manager for any investment program managed
by it, allocation of brokerage, and responsibility for errors
that are substantially the same as the corresponding provisions
in the Sub-Advisory Agreement. (See the Additional
Statement.)
The Advisory and Administration Agreement provides that
the Manager shall, at its own expense, provide office space,
facilities, equipment, and personnel for the performance of its
functions hereunder and shall pay all compensation of Trustees,
officers, and employees of the Fund who are affiliated persons of
the Manager.
The Fund bears the costs of preparing and setting in type
its prospectuses, statements of additional information and
reports to its 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. All costs and expenses not
expressly assumed by the Manager under this sub-section or
otherwise by the Manager, administrator or principal underwriter
or by any Sub-Adviser shall be paid by the Fund, including, but
not limited to (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation and
expenses of its Trustees other than those affiliated with the
Manager or such adviser, administrator or principal underwriter;
(v) legal and audit expenses; (vi) custodian and transfer agent,
or shareholder servicing agent, fees and expenses; (vii) expenses
incident to the issuance of its shares (including issuance on the
payment of, or reinvestment of, dividends); (viii) fees and
expenses incident to the registration under Federal or State
securities laws of the Fund or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy
material to shareholders of the Fund; (x) all other expenses
incidental to holding meetings of the Fund's shareholders; and
(xi) such non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligations for which
the Fund may have to indemnify its officers and Trustees.
The Advisory and Administration Agreement provides that
the Fund agrees to pay the Manager, and the Manager agrees to
accept as full compensation for all services rendered by the
Manager as such, an annual 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 0.50 of 1% of such net asset
value.
The Advisory and Administration Agreement provides that
the Sub-Advisory Agreement may provide for its termination by the
Manager upon reasonable notice, provided, however, that the
Manager agrees not to terminate the Sub-Advisory Agreement except
in accordance with such authorization and direction of the Board
of Trustees, if any, as may be in effect from time to time.
The Advisory and Administration Agreement provides that
it may be terminated by the Manager at any time without penalty
upon giving the Fund sixty days' written notice (which notice may
be waived by the Fund) and may be terminated by the Fund at any
time without penalty upon giving the Manager sixty days' written
notice (which notice may be waived by the Manager), provided that
such termination by the Fund shall be directed or approved by a
vote of a majority of its Trustees in office at the time or by a
vote of the holders of a majority (as defined in the Act) of the
voting securities of the Fund outstanding and entitled to vote.
The specific portions of the Advisory Agreement which relate to
providing investment advisory services will automatically
terminate in the event of the assignment (as defined in the Act)
of the Advisory Agreement, but all other provisions relating to
providing services other than investment advisory services will
not terminate, provided however, that upon such an assignment the
annual fee payable monthly and computed on the net asset value of
the Fund as of the close of business each business day shall be
reduced to the annual rate of 0.27 of 1% of such net asset
value.
The New Sub-Advisory Agreement
The Manager has delegated investment advisory
responsibility to Citizens Bank of Rhode Island (the "Adviser"),
which supervises the investment program of the Fund and the
composition of its portfolio.
The services of the Sub-Adviser are rendered under a
Sub-Advisory Agreement between the Manager and the Sub-Adviser
(the "Sub-Advisory Agreement") which provides, subject to the
control of the Board of Trustees, for investment supervision and
at the Sub-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 Sub-Advisory Agreement states that
the Sub-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 Sub-Adviser's duties under
the Sub-Advisory Agreement.
Under the Sub-Advisory Agreement, the Sub-Adviser pays
all compensation of those officers and employees of the Fund and
of those Trustees, if any, who are affiliated with the
Sub-Adviser. The Sub-Advisory Agreement provides that the Manager
agrees to pay the Sub-Adviser, and the Sub-Adviser agrees to
accept as full compensation for all services rendered by the
Sub-Adviser as such, a management 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 rates of 0.23 of 1% of
such net asset value. The Sub-Adviser and/or the Manager may, in
order to attempt to achieve a competitive yield on the shares of
the Fund, each waive all or part of their respective fees.
The Sub-Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund; see the
Additional Statement. Under these provisions, the Sub-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.
Information About the Fund's Management
Citizens Bank of Rhode Island ("Citizens Bank") is
wholly-owned by Citizens Financial Group, Inc. ("CFG"). CFG is a
subsidiary of The Royal Bank of Scotland plc. The Bank of Ireland
owns a 23.5% interest in CFG. Citizens Bank operates through 75
branch offices in Rhode Island and Connecticut; Citizens Bank of
Massachusetts, which has more than 60 branches in southeastern
Massachusetts; Citizens Bank New Hampshire, which has 81 branches
in New Hampshire; and Citizens Mortgage Corporation, a Georgia
corporation based in Atlanta with 20 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. In 1996, CFG acquired the former First New
Hampshire Bank. In June, 1996, CFG announced a definitive
agreement to acquire Farmers and Mechanics Bank in Middletown,
Connecticut. CFG is the 45th largest bank holding company in the
United States.
Salvatore C. DiSanto is the officer of Citizens Bank 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 within the Trust Group of Citizens Bank, is a
member of the its Officer Investment Committee. He has been
employed by the Citizens Bank for 38 years and has been involved
in portfolio management for the last 31 years.
Aquila Management Corporation ("Aquila") is administrator
to the Aquilasm Group of Funds, which consists of tax-free
municipal bond funds, money market funds and two equity funds. As
of June 30, 1996, 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. Aquila,
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, 1997, fees
of $92,236 and $108,154 were accrued under the current
arrangements to the Adviser and Administrator,respectively, of
which, $72,100 and $84,117, respectively, were waived. In
addition, the Administrator reimbursed the Fund for other
expenses 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.
The Distributor currently handles the distribution of the
shares of fourteen funds (seven tax-free municipal bond funds,
five money market funds, and two equity funds), 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 75% by Mr. Herrmann and 25% by Diana P.
Herrmann, will be owned by certain directors and/or officers of
the Administrator and/or the Distributor, including Mr. Herrmann
and Ms. 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. The dividends of each class can vary
because each class will bear certain class-specific charges.
Dividends and other distributions paid by the Fund with respect
to each class of its shares are calculated at the same time and
in the same manner.
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. Holders of Class Y Shares 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. All arrangements for the payment of dividends with
respect to Class I Shares, including reinvestment of dividends,
must be made through financial intermediaries.
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, 1997, 97.84%
of the Fund's dividends were "exempt-interest dividends." For the
calendar year 1996, 1.91% of the total dividends paid were
taxable. 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 Class Y shareholders, and from short- and long-term gains
distributions (if any) and any other distributions that do not
qualify as "exempt-interest dividends," if Class Y 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 with respect to
Class Y Shares will be automatically reinvested in full and
fractional Class Y 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 Class Y 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.
Tax Information
The Fund qualified during its last fiscal year as a
"regulated investment company" under the Internal Revenue Code
(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 " ex-empt-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 Code 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 gain from the sale or exchange
of a capital asset held for more than one year. 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.
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.
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 contingent 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. Your gain or loss will be long-term
if you held the redeemed shares for over 18 months, mid-term if
you held the redeemed shares for over one year but not more than
18 months and short-term, if for a year or less. Long term
capital gains are currently taxed at a maximum rate of 20%, mid-
term capital gains are currently taxed at a maximum rate of 28%,
and short-term gains are currently taxed at ordinary income tax
rates. 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 a summary of certain aspects relating to
the Rhode Island tax consequences of an investment in the Fund.
This summary is based upon the advice of Edward & Angell, Rhode
Island counsel to the Fund.
This summary assumes that the Fund qualifies as a
regulated investment company for Federal income tax purposes
under Subchapter M of the Code. Such summary is based upon the
provisions of the Rhode Island tax law and the regulations
promulgated thereunder as currently in effect, all of which are
subject to change, possibly with retroactive effect. Prospective
investors in the Fund should contact their tax advisor regarding
the effect of Rhode Island or other state or local tax laws on
their investment.
Taxation of 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 Rhode Island. Gross income is
generally defined in the same manner as for Federal income tax
purposes except that (i) interest which is exempt from Federal
income tax and which is not derived from obligations of the
United States or its possessions or Rhode Island Obligations
issued by Rhode Island issuers and exempt from taxation by Rhode
Island, and(ii) 50% of the excess of capital gains over capital
losses is includable in gross income.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. Individual holders of shares of the
Fund who are subject to Rhode Island personal income taxation
will not be required to include in income for Rhode Island
personal income tax purposes that portion of the exempt-interest
dividends which the Fund clearly identifies as directly
attributable to interest earned on Rhode Island Obligations.
Individual holders will, however, be required to include in
income any other distributions of interest, dividends or income,
except for interest or dividend income obligations or securities
issued by any authority, commission or instrumentality of the
United States.
Moreover, individual holders who are subject to Rhode
Island personal income taxation will be required to include in
income for Rhode Island personal income tax purposes the
distribution of capital gain dividends and any net short-term
capital gains realized by the Fund, unless such capital gains
dividends and short-term capital gains are derived from the sale
of underlying Rhode Island Obligations which are issued by Rhode
Island issuers and are specifically exempted from Rhode Island
capital gains tax by the Rhode Island law authorizing the
issuance of the Rhode Island Obligations.
Gain or loss recognized by an individual subject to Rhode
Island personal income taxation will be included in their Rhode
Island source income. However, Rhode Island may specifically
exempt from Rhode Island capital gains tax gain recognized on the
sale or exchange of certain Rhode Island Obligations.
Corporate Holders. Generally, corporate holders of shares
of the Fund are subject to the Rhode Island business corporation
tax or the Rhode Island franchise tax will be taxed on their net
income, authorized stock or at a flat rate minimum tax. Net
income is generally defined in the same manner as the
corporation's taxable income for Federal income tax purposes
except that distributions of exempt-interest dividends which are
derived from interest earned on municipal obligations by
governmental authorities in states other than Rhode Island will
be included in net income. Net income will also include
distributions of capital gain dividends and any net short-term
capital gains realized by the Fund, unless such distributions of
capital gain dividends and short-term capital gains are derived
from the sale of underlying Rhode Island Obligations which are
issued by Rhode Island issuers and are specifically exempted from
the Rhode Island capital gains tax.
Gain or loss recognized on the dispositions of fund
shares by corporate holders subject to the Rhode Island business
corporation tax will be included in their Rhode Island
income.
Property and Estate Taxes. Shares of the Fund will be
exempt from local property taxes in Rhode Island but will be
includable in the gross estate of a deceased individual
shareholder who is a resident of Rhode Island for purposes of the
Rhode Island estate tax.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among this
Fund and certain tax-free municipal bond funds and equity funds
(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, Aquila Cascadia 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. Similar exchangability is available to Class I
Shares to the extent that other Aquila-sponsored funds are made
available to its customers by a financial intermediary. All
exchanges of Class I Shares must be made through your financial
intermediary.
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 732-855-5731
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. Exchanges of Class I Shares will be effected at the
relative net asset values of the Class I Shares being exchanged
next determined after receipt by the financial intermediary of
your exchange request.
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 "Tax Effects of Redemptions" and 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 and Aquila
Cascadia 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 four 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 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 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 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.
The Fund's Distribution Plan has four parts. In addition
to the provisions relating to Class I Shares and 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.)
Voting Rights
At any meeting of shareholders, shareholders are entitled to
(1) 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: AQUILAsm 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 Aquilasm 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
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
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......................................
Table of Expenses...............................
Financial Highlights............................
Introduction....................................
Investment Of The Fund's Assets.................
Investment Restrictions.........................
Net Asset Value Per Share.......................
How To Invest In The Fund.......................
How To Redeem Your Investment...................
Automatic Withdrawal Plan.......................
Management Arrangements.........................
Dividend And Tax Information....................
Exchange Privilege..............................
General Information.............................
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
October 31, 1997
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. There are two Prospectuses for
the Fund dated October 31, 1997: one Prospectus describes Front-
Payment Class Shares ("Class A Shares") and Level-Payment Class
Shares ("Class C Shares") of the Fund and the other describes
Institutional Class Shares ("Class Y Shares") and Financial
Intermediary Class Shares ("Class I Shares") of the Fund.
References in the Additional Statement to "the Prospectus" refer
to either of these Prospectuses. The Additional Statement should
be read in conjunction with the Prospectus for the class of
shares in which you are considering investing. Either or both
Prospectuses may be obtained from the Fund's Shareholder
Servicing Agent, Administrative Data Management Corp., by writing
to: 581 Main Street, Woodbridge, New Jersey 07095-1198 or by
calling at the following numbers:
800-637-4633 toll free or 732-855-5731
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, 1997 (audited) 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. . . . . . . . . . . . . . . . . . . . 22
Distribution Plan. . . . . . . . . . . . . . . . . . . . . . . 23
Shareholder Services Plan. . . . . . . . . . . . . . . . . . . 29
Limitation of Redemptions in Kind. . . . . . . . . . . . . . . 31
Trustees and Officers. . . . . . . . . . . . . . . . . . . . . 32
Additional Information as to Management Arrangements . . . . . 37
Computation of Net Asset Value . . . . . . . . . . . . . . . . 41
Automatic Withdrawal Plan. . . . . . . . . . . . . . . . . . . 42
Additional Tax Information . . . . . . . . . . . . . . . . . . 42
Conversion of Class C Shares . . . . . . . . . . . . . . . . . 43
General Information. . . . . . . . . . . . . . . . . . . . . . 43
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 46
<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, 1997, 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.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. 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.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 June 15, 1997 relating
to the Rhode Island General Obligations Bonds, $35,990,000
Consolidated Capital Development Loan of 1997, Refunding Series,
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 and the House of Representatives, has
final revisory and appellate jurisdiction upon all questions of
law and equity. The General Assembly has also established a
Superior Court, a 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 costs 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 $532.9 million in the Governor's
revised recommendations for the FY 1998 budget. 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 and personal income of the community.
In addition to reimbursement of operations costs, state
school construction aid is provided at levels ranging from 30
percent to 88 percent of the construction cost of new facilities.
The level is also based upon the relationship between student
counts and community wealth, and 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 will provide approximately $1.65 million to
cities and towns in FY 1998 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. However, this ruling
was subsequently overturned on appeal in a decision by the
Supreme Court of Rhode Island. The Supreme Court ruled that Rhode
Island's statutory scheme for financing public education does not
violate the State's Constitution.
The Governor and Assembly adopted a new formula for FY
1995 that distributed a total of $416.1 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 reduced 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
Superior Court.
The formula for the FY 1995 education aid budget established
a Poverty Weight Fund. Of the $416.1 million budgeted for
education aid, $46.1 million was distributed through the Poverty
Weight Fund. In addition, $1.7 million of the $416.1 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. FY 1995 expenditures included an additional $16.2
million in school construction aid.
The FY 1996 enacted budget suspended the education aid
formulae, supplanted the Poverty Weight Fund with the Equity
Fund, and calculated education aid using the same reference year
as the 1995 aid calculation. Each community receives no less than
the amount budgeted in FY 1995, with an additional $18.5 million
allocated as follows: $2.3 million for conventional public
housing aid, $2.2 million for vocational aid, $1.7 million for
regional bonus, $12.1 million in a non-restricted equity fund,
$0.9 million for school construction aid, $0.7 million for aid to
Central Falls School District, and a reduction of $1.4 million in
the State share of teacher retirement.
The Governor's FY 1997 revised budget for education aid
totals $464.0 million. This includes $411.5 million in aid to all
school districts, including Central Falls, $18.1 million for
Capital Construction Aid and $34.3 million for the State share of
teacher retirement. This represents a $13.3 million increase in
state support relative to the FY 1996 budget. The increase in
funding is primarily due to an increase in Capital Construction
Aid of $1.0 million, in Teacher Retirement obligations of $1.6
million, and $10.7 million for additional school aid. Of the
$10.7 million, $10.4 million is distributed to the school
districts, including Central Falls, based on the number of
students eligible for free or reduced lunch, reflecting $217 for
each eligible student. The remaining $0.3 million is distributed
to Hopkinton ($0.23 million), Richmond ($0.03 million),
Exeter-West Greenwich ($0.02 million), and Foster-Glochester
($0.07 million).
The Governor's FY 1997 Education Aid distribution
maintains the same categories and level of funding as the FY 1996
budget. The distribution of aid between communities has been
adjusted for changes in enrollment between 1993/1994 and
1994/1995 school years. The Legislature, recognizing that the
current methods of education aid distribution require evaluation,
has created a " Joint Commission on School Funding" to study
modifications to the current system of state aid distribution.
The Commission will report its recommendations to the Governor
and the General Assembly with the FY 1988 Budget Act. It is
expected that an increase of $25.0 million over FY 1997 will be
recommended by the Commission to provide support for targeted
student investment (need, limited English proficiency, early
childhood, core instructional cost, and professional
development). The original Governor's FY 1998 Budget recommended
an additional $12.5 million over FY 1997 funding with a poverty
school lunch student count adjustment. The Governor, as a result
of increased revenue estimates, has recommended an additional
$12.5 million in aid, for a total of $25 million over the FY 1997
funding levels. This matches the funding levels anticipated to be
recommended by the Joint Commission.
The Governor's recommended FY 1998 budget also includes
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 1994, 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 1993
to $13.6 million in FY 1995. In the Governor's recommended FY
1998 budget, $13.75 million is provided for local general revenue
sharing.
The payment-in-lieu of taxes program authorizes the
General 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 1995-1997 ($12.2 million). The Governor's recommended 1998
budget provides 13.0 million for this program.
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 three-fifths 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 three times a year specifically within the first ten
days of May, October and December 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;(d) to approve or
disapprove all requests for new personnel; and (e) 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 which
will be included in the budget submitted to the General
Assembly.
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 1996 reserve fund
balance was $53.0 million.
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 in 1990 of 1,003,464 was 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
9.7 percent over the same period. Between 1993 and 1996, the rate
of population growth in Rhode Island was negative.
Personal Income, Consumer Prices, and Poverty. Per capita
personal income levels in Rhode Island have been consistent with
those in the United States since 1970. In addition, Rhode Island
has maintained a poverty rate below the national average. In
1995, 10.6 percent of the Rhode Island population was below the
poverty line, while 13.8 percent of the population of the United
States fell below the poverty line.
Employment. Total employment levels in Rhode Island grew at a
rate of 1.0 percent in 1995, and 0.3 percent in 1996. The only
employment sector that declined in 1996 was Manufacturing, which
has experienced declining employment levels since 1985. The
sector employing the greatest number of people in Rhode Island
continues to be the service sector, which contributed
approximately one-third of total non-agricultural employment in
1996.
Economic Base and Performance. Rhode Island has a diversified
economic base which includes traditional manufacturing, high
technology, and service industries. A substantial portion of
products produced by these and other sectors is exported. Like
most other historically industrial states, Rhode Island has seen
a shift in employment from labor-intensive manufacturing
industries to technology and service-based industries.
Human Resources. Skilled human capital is the foundation of
economic strength in Rhode Island. It provides the basis for a
technologically dynamic and industrially diverse regional
economy. The Rhode Island population is well educated with 27.6
percent of its residents over the age of 25 having received at
least an Associate's degree. In addition, per pupil spending on
public elementary and secondary education in Rhode Island has
been significantly higher than the national average since 1980.
For the 1994-95 academic year Rhode Island spent twenty-five
percent more per pupil 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.
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, the Fund is unable to predict
what rate the Fund will have in any particular period or periods,
although such rate is not expected to exceed 100%. However, the
rate could be substantially higher or lower in any particular
period.
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 classes of shares.
Prior to May 1, 1996, the Fund had outstanding only one class of
shares which are currently designated "Class A Shares." On that
date the Fund began to offer shares of two other classes, Class C
Shares and Class Y Shares. During most of 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 unless otherwise indicated. 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 a 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 in shares of each of the Fund's three classes
to the value such an investment would have if it were completely
redeemed at the end of each such period.
In the case of Class A Shares, the calculation assumes
the maximum sales charge is deducted from the hypothetical
initial $1,000 purchase. In the case of Class C Shares, the
calculation assumes the applicable Conditional Deferred Sales
Charge ("CDSC") imposed on a redemption of Class C Shares held
for the period is deducted. In the case of Class Y Shares, the
calculation assumes that no sales charge is deducted and no CDSC
is imposed. For all classes, it is assumed 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 for any class). 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 for Class A Shares 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.
Average Annual Compounded Rates of Return:
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
One Year 3.67% 5.85%(1) 8.48%(1)
Since
inception on
September 10,
1992 5.80% 6.37%(1) 7.72%(1)
<FN>
(1) Period from May 1, 1996 (inception of class) through June 30,
1997.
</FN>
</TABLE>
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
for each of its three classes of shares. 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.
Total Return
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
One Year 3.67% 5.85%(1) 8.48%(1)
Since
inception on
September 10,
1992 31.10% 7.45%(1) 9.05%(1)
<FN>
(1) Period from May 1, 1996 (inception of class) through June 30,
1997.
</FN>
</TABLE>
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 for each of
the Fund's three classes 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 of each class during
the base period net of fee waivers and reimbursements of
expenses, if any.
The Fund may also quote a taxable equivalent yield for each
of its three classes of shares 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 the combined Rhode Island and
federal income tax rates upon which the Fund's tax equivalent
yield quotations are based are 10.98% and 46.18%, respectively
assuming the maximum effective state rate. The State of Rhode
Island imposes the 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. The latter rate reflects
currently-enacted Federal income tax law. From time to time, as
any changes to such rates become effective, tax 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.
Yield for the 30-day period ended June 30, 1997 (the date of
the Fund's most recent audited financial statements:
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
Yield 4.68% 3.87% 5.40%
Taxable
Equivalent
Yield 8.61% 7.12% 9.93%
</TABLE>
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
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.
Other Performance Quotations
With respect to those categories of investors who are
permitted to purchase Class A 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. 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.
The Fund may include in advertisements and sales literature,
information, examples and statistics that illustrate the effect
of taxable versus tax-free compounding income at a fixed rate of
return to demonstrate the growth of an investment over a stated
period of time resulting from the payment of dividends and
capital gains distributions in additional shares. The examples
used will be for illustrative purposes only and are not
representations by the Fund of past or future yield or return.
From time to time, in reports and promotional literature,
the Fund may compare its performance to, or cite the historical
performance of, U.S. Treasury bills, notes and bonds, or indices
of broad groups of unmanaged securities considered to be
representative of, or similar to, the Fund's portfolio holdings,
such as:
Lipper Analytical Services, Inc. ("Lipper") is a
widely-recognized independent service that monitors and ranks the
performance of regulated investment companies. The Lipper
performance analysis includes the reinvestment of capital gain
distributions and income dividends but does not take sales
charges into consideration. The method of calculating total
return data on indices utilizes actual dividends on ex-dividend
dates accumulated for the quarter and reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly
publication of Morningstar, Inc. Morningstar proprietary ratings
reflect historical risk-adjusted performance and are subject to
change every month. Funds with at least three years of
performance history are assigned ratings from one star (lowest)
to five stars (highest). Morningstar ratings are calculated from
the funds' three-, five-, and ten-year average annual returns
(when available) and a risk factor that reflects fund performance
relative to three-month Treasury bill monthly returns. Fund's
returns are adjusted for fees and sales loads. Ten percent of the
funds in an investment category receive five stars, 22.5% receive
four stars, 35% receive three stars, 22.5% receive two stars, and
the bottom 10% receive one star.
Salomon Brothers Inc., "Market Performance," a monthly
publication which tracks principal return, total return and yield
on the Salomon Brothers Broad Investment-Grade Bond Index and the
components of the Index.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond
Indices," a monthly corporate government index publication which
lists principal, coupon and total return on over 100 different
taxable bond indices which Merrill Lynch tracks. They also list
the par weighted characteristics of each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly
publication which tracks principal, coupon and total return on
the Lehman Govt./Corp. Index and Lehman Aggregate Bond Index, as
well as all the components of these Indices.
The Consumer Price Index, prepared by the U.S. Bureau of
Labor Statistics, is a commonly used measure of inflation. The
Index shows changes in the cost of selected consumer goods and
does not represent a return on an investment vehicle.
From time to time, in reports and promotional literature,
performance rankings and ratings reported periodically in
national financial publications such as MONEY, FORBES, BUSINESS
WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may also be used. In
addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE
WALL STREET JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS
may be cited.
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 four parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II), to distribution payments relating to Class I
Shares (Part III) and to certain defensive provisions (Part
IV) .
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 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 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, 1997, 1996 and
1995, respectively, $59,620, $55,194 and $48,132 was paid to
Qualified Recipients under the Plan, of which $1,175, $1,008 and
$940, respectively, was retained by 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
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 Shares and/or of any other class whose
shares are convertible into Front-Payment Class Shares. Part I
has continued, and will, unless terminated as thereinafter
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 May 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 Shares
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 Fund's Board
of Trustees, 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 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 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 Shares Class.
Part II has continued, and will, unless terminated as
thereinafter 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 (i) their
agreements with the Distributor with respect to payments under
the Fund's Distribution Plan in effect prior to May 1, 1996 or
(ii) Class C Plan Agreements entered into thereafter.
Provisions relating to Class I Shares (Part III)
Part III of the Plan applies only to the Financial
Intermediary Class Shares ("Class I Shares") of the Fund
(regardless of whether such class is so designated or is
redesignated by some other name).
As used in Part III 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 III ("Class I Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Class I Shares or
servicing of shareholder accounts with respect to such shares.
"Qualified Holdings" shall mean, as to any Qualified Recipient,
all Class I 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 Fund's Board
of Trustees, the Fund may make payments ("Class I Permitted
Payments") to Qualified Recipients, which Class I 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), at a rate fixed for time to time by the Board of
Trustees, initially 0.10 of 1% of the average annual net assets
of the Fund represented by the Class I Shares, but not more than
0.25 of 1% of such assets. Such payments shall be made only out
of the Fund's assets allocable to Class I 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 I 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 Class I 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 III 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 I 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 III 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 III 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 Class I Shares Class. Part
III has continued, and will, unless terminated as thereinafter
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 III applies. Part III 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 III
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 I 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 May 1, 1996 or
(ii) Class I Plan Agreements entered into thereafter.
Payments under the Plan
During the fiscal year ended June 30, 1997 $59,620 was
paid under the Plan to Qualified Recipients in respect to Class A
Shares. Of that amount, $1,175 was paid to the Distributor.
During the same period, $1,815 was paid with respect to Class C
Shares all of which was retained by the Distributor.
Defensive Provisions (Part IV)
Another part of the Plan (Part IV) 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; (ix) all costs of
responding to telephone or mail inquiries of investors or
prospective investors and (x) payments to financial
intermediaries for shareholder and shareholder account
services.
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 thereinafter
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 and Class I Shares of the Fund of "Service Fees" within
the meaning of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. The Services Plan applies
only to the Class C Shares and Class I Shares of the Fund
(regardless of whether such class is so designated or is
redesignated by some other name). The Services Plan has two
parts.
Provisions for Level-Payment Class Shares (Part I)
As used in Part I of 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 Fund's Board
of Trustees, 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 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. During the fiscal year ended June 30, 1997,
$605 was paid under the Services Plan with respect to Class C
Shares, of which the Distributor received all.
Provisions for Financial Intermediary Class Shares (Part
II)
As used in Part II of 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 Financial Intermediary Class Shares, maintenance
of Financial Intermediary Class Shares shareholder accounts
and/or pursuant to specific agreements entering confirmed
purchase orders on behalf of customers or clients. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all
Financial Intermediary 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
Payments") to Qualified Recipients, which Service Payments (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 this Part II of 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 Financial Intermediary Class of shares.
Such payments shall be made only out of the Fund assets allocable
to the Financial Intermediary Shares.
The Distributor shall have sole authority with respect to
the selection of any Qualified Recipient or Recipients and the
amount of Service Payments, if any, paid to each Qualified
Recipient, provided that the total such Service Payments 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 such Recipient's Qualified Holdings.
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 Financial Intermediary
Shares, including without limitation, (i) activities relating to
sub-accounting and record-keeping, including the providing of
necessary personnel and facilities to establish and maintain
shareholder accounts and records, and (ii) activities relating to
account service, such as assisting shareholders in designating
and changing dividend options, account designations and
addresses; answering customer inquiries regarding account status
and history and the manner in which purchases and redemptions of
shares of the Fund may be effected; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares, including, where appropriate, arranging for the wiring of
funds; assisting in processing purchase and redemption
transactions; and verifying and guaranteeing shareholder
signatures in connection with redemption orders and transfers and
changes in shareholder designated accounts. Notwithstanding the
foregoing two sentences, (a) a majority of the Independent
Trustees (as defined below) may remove any person as a Qualified
Recipient and (b) no fees shall be paid pursuant to the Plan for
activities primarily intended to result in the sale of shares of
the Fund or to finance sales or sales promotion expenses. In
particular, no fees shall be paid, or be deemed to have been
paid, for any of the listed activities to the extent that such
payments are deemed by the Independent Trustees to be so
intended.
In addition, fees paid under the Plan shall be subject to
such further limits as may be necessary for the Financial
Intermediary Class of shares to qualify as a "no-load" class for
purposes of the Conduct Rules of the National Association of
Securities Dealers, Inc. On the effective date of the Plan, such
limitation is as follows: fees paid under the Plan that satisfy
the definition of "service fees" in Rule 2830(d) of the Conduct
Rules of the National Association of Securities Dealers, Inc. may
not exceed an amount equal to the difference between (i) 0.25 of
1% of the average annual net assets of the Fund represented by
the Financial Intermediary Class of shares and (ii) the amount
paid from the assets of the Financial Intermediary Class under
the Distribution Plan of the Fund. Where necessary or
appropriate, the Independent Trustees, or such appropriate
officer or officers of the Fund as they may designate, shall,
with the advice of counsel, determine what fees paid under the
Plan are to be deemed "service fees." Nevertheless, it is
understood that, as a general matter, fees allocable to
activities in category (i) above -- sub-accounting and record-
keeping -- are not "service fees," while fees allocable to
activities in category (ii) -- account service -- are "service
fees." In like manner, allocation of payments among activities
shall also be determined by the Independent Trustees or their
delegates.
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
and Service Payments 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 Services Plan or in any agreements related to
the Services Plan (the "Independent Trustees"), with votes cast
in person at a meeting called for the purpose of voting on the
Services Plan. It will continue in effect for a period of more
than one year from its original effective 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 Services 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 Adviser or Sub-Adviser to the following
open-end investment companies, and Founder, Chairman of the Board
of Trustees, and President of each: 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 two equity funds, Aquila Rocky Mountain Equity Fund
since 1993 and Aquila Cascadia Equity Fund, since 1996, which,
together with this Fund are called the Aquila Bond and Equity
Funds; and of 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; 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; Chairman of the Board of Trustees
and President of Prime Cash Fund (which is inactive), since 1982
and of Short Term Asset Reserves 1984-1996; 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, 1990-1996 and currently Trustee Emeritus; 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 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, of Cascades Cash Fund, 1989-1994
and of Aquila Cascadia Equity Fund since 1996; 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, Plimoth 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,
and of Prime Cash Fund (which is inactive), since 1993; Trustee
of Short Term Asset Reserves 1984-1996; 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, 36 Reliance Drive, Poppasquash
Point, Bristol, Rhode Island 02809
Chairman and Chief Executive Officer of Advanstar Holdings,
Inc., since 1996. Chairman and Chief Executive Officer of Cahners
Publishing Company 1991-1996; 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 1990-1996; Director of Freedom Communications, Inc.
since 1996.
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 Yale
International, Inc. (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.
Stephen J. Caridi, Vice President, 380 Madison Avenue, New York
10017
Vice President of the Distributor since 1995, Assistant Vice
President, 1988-1995, Marketing Associate, 1986-1988; Vice
President of Tax-Free Fund For Utah since 1993; Mutual Funds
coordinator of Prudential Bache Securities, 1984-1986; Account
Representative of Astoria Federal Savings and Loan Association,
1979-1984.
Diana P. Herrmann, Vice President, 380 Madison Avenue, New
York, New York 10017
Trustee of Tax-Free Trust of Arizona and Tax-Free Trust of
Oregon since 1994, of Churchill Tax-Free Fund of Kentucky and
Churchill Cash Reserves Trust since 1995, of Aquila Cascadia
Equity Fund since 1996 and of Aquila Rocky Mountain Equity Fund
and Tax-Free Fund for Utah since 1997; President and Chief
Operating Officer of the Administrator since 1997; Senior Vice
President and Secretary, formerly Vice President of the
Administrator since 1986 and Director since 1984; Senior Vice
President or Vice President and formerly Assistant Vice President
of the Aquila Money-Market Funds since 1986; Vice President of
the Aquila Bond and Equity Funds since 1997; Vice President of
InCap Management Corporation since 1986 and Director since 1983;
Assistant Vice President of Oxford Cash Management Fund,
1986-1988; Assistant Vice President and formerly Loan Officer of
European American Bank, 1981-1986; daughter of the Fund's
President; Trustee of the Leopold Schepp Foundation (academic
scholarships) since 1995; actively involved in mutual fund and
trade associations and in college and other volunteer
organizations.
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, 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, 1997, the Fund paid $39,153 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
two equity funds. 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. 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 $2,726 $57,609 7
Paul Y.
Clinton $3,927 $7,585 2
David A.
Duffy $3,042 $3,042 1
Robert L.
Krakoff $1,600 $3,150 2
William J.
Nightingale $2,400 $15,928 3
J. William
Weeks $4,100 $13,418 2
</TABLE>
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
Additional Information as to the Advisory Agreement
Current Arrangements
On November 14, 1997, the arrangements described below
under "New Arrangements" will be submitted to the shareholders
for approval. If approved by the shareholders of the Fund the New
Arrangements will be in effect and those described below under
"Current Arrangements" will be superseded. If the New
Arrangements are not approved by the shareholders, the New
Arrangements will not go into effect and the Current Arrangements
will remain in effect. In either event, the Additional Statement
will be supplemented to reflect the arrangements that are in
effect.
The Investment Advisory Agreement (the "Advisory
Agreement") between the Fund and Citizens Bank of Rhode Island
(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 year ended June 30, 1997 all of the
Fund's transactions were principal transactions and no brokerage
commissions were paid.
During the Fund's fiscal year ended June 30, 1997, fees
of $92,236 and $108,154 were accrued to the Adviser and
Administrator, respectively, of which, $72,100 and $84,117,
respectively, were waived. In addition, the Administrator
reimbursed the Fund for other expenses 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. For the year ended
June 30, 1996, fees of $84,631 and $99,350, respectively, were
accrued to the Adviser under the Fund's advisory agreement and to
the Administrator under the Fund's administration agreement, of
which $74,614 and $94,003, respectively, were waived. In
addition, the Administrator reimbursed the Fund $205,443 in
expenses. 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.
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.
New Arrangements
On November 14, 1997, the arrangements described below
under "New Arrangements" will be submitted to the shareholders
for approval. If approved by the shareholders of the Fund the New
Arrangements will be in effect and those described above under
"Current Arrangements" will be superseded. If the New
Arrangements are not approved by the shareholders, the New
Arrangements will not go into effect and the Current Arrangements
will remain in effect. In either event, the Additional Statement
will be supplemented to reflect the arrangements that are in
effect.
Additional Information about the Investment Advisory
and Administration Agreement
The Advisory and Administration Agreement provides that
it will become effective on the date of its approval by the
shareholders of the Fund and will, unless terminated as
thereinafter provided, continue in effect until the December 31
next preceding the first anniversary of the effective date of the
Advisory and Administration Agreement, and from year to year
thereafter, but only so long as such continuance is specifically
approved at least annually (1) by a vote of the Fund's Board of
Trustees, including a vote of a majority of the Trustees who are
not parties to the Advisory and Administration Agreement or
"interested persons" (as defined in the Act) of any such party,
with votes cast in person at a meeting called for the purpose of
voting on such approval, or (2) by a vote of the holders of a
"majority" (as so defined) of the outstanding voting securities
of the Fund and by such a vote of the Trustees.
Additional Information about the Sub-Advisory Agreement
The Sub-Advisory Agreement provides that any investment
program furnished by the Sub-Adviser shall at all times conform
to, and be in accordance with, any requirements imposed by: (1)
the Investment Company Act of 1940 (the "Act") and any rules or
regulations in force thereunder; (2) any other applicable laws,
rules and regulations; (3) the Declaration of Trust and By-Laws
of the Fund as amended from time to time; (4) any policies and
determinations of the Board of Trustees of the Fund; and (5) the
fundamental policies of the Fund, as reflected in its
registration statement under the Act or as amended by the
shareholders of the Fund.
The Sub-Advisory Agreement provides that the Sub-Adviser
shall give to the Manager, as defined therein, and to the Fund
the benefit of its best judgment and effort in rendering services
hereunder, but the Sub-Adviser shall not be liable for any loss
sustained by reason of the adoption of any investment policy or
the purchase, sale or retention of any security, whether or not
such purchase, sale or retention shall have been based upon (i)
its own investigation and research or (ii) investigation and
research made by any other individual, firm or corporation, if
such purchase, sale or retention shall have been made and such
other individual, firm or corporation shall have been selected in
good faith by the Sub-Adviser. Nothing therein contained shall,
however, be construed to protect the Sub-Adviser against any
liability to the Fund or its security holders by reason of
willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard
of its obligations and duties under the Agreement.
The Sub-Advisory Agreement provides that nothing in it
shall prevent the Sub-Adviser or any affiliated person (as
defined in the Act) of the Sub-Adviser from acting as investment
adviser or manager for any other person, firm or corporation and
shall not in any way limit or restrict the Sub-Adviser or any
such affiliated person from buying, selling or trading any
securities for its own or their own accounts or for the accounts
of others for whom it or they may be acting, provided, however,
that the Sub-Adviser expressly represents that, while acting as
Sub-Adviser, it will undertake no activities which, in its
judgment, will adversely affect the performance of its
obligations to the Fund under the Agreement. It is agreed that
the Sub-Adviser shall have no responsibility or liability for the
accuracy or completeness of the Fund's Registration Statement
under the Act and the Securities Act of 1933, except for
information supplied by the Sub-Adviser for inclusion therein.
The Sub-Adviser shall promptly inform the Fund as to any
information concerning the Sub-Adviser appropriate for inclusion
in such Registration Statement, or as to any transaction or
proposed transaction which might result in an assignment (as
defined in the Act) of the Agreement. To the extent that the
Manager is indemnified under the Fund's Declaration of Trust with
respect to the services provided hereunder by the Sub-Adviser,
the Manager agrees to provide the Sub-Adviser the benefits of
such indemnification.
The Sub-Advisory Agreement provides that in connection
with its duties to arrange for the purchase and sale of the
Fund's portfolio securities, the Sub-Adviser shall select such
broker-dealers ("dealers") as shall, in the Sub-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 Sub-Adviser shall
cause the Fund to deal directly with the selling or purchasing
principal or market maker without incurring brokerage commissions
unless the Sub-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 prices. In allocating
transactions to dealers, the Sub-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
Sub-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
Sub-Adviser's overall responsibilities. If, on the foregoing
basis, the transaction in question could be allocated to two or
more dealers, the Sub-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. 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 and that such research services may or may not
be useful to the Fund and may be used for the benefit of the
Sub-Adviser or its other clients.
The Sub-Advisory Agreement provides that the Sub-Adviser
agrees to maintain, and to preserve for the periods prescribed,
such books and records with respect to the portfolio transactions
of the Fund as are required by applicable law and regulation, and
agrees that all records which it maintains for the Fund on behalf
of the Manager shall be the property of the Fund and shall be
surrendered promptly to the Fund or the Manager upon request. The
Sub-Adviser agrees to furnish to the Manager and to the Board of
Trustees of the Fund such periodic and special reports as each
may reasonably request.
The Sub-Advisory Agreement provides that the Sub-Adviser
shall bear all of the expenses it incurs in fulfilling its
obligations under the Agreement. In particular, but without
limiting the generality of the foregoing: the Sub-Adviser shall
furnish the Fund, at the Sub-Adviser's expense, all office space,
facilities, equipment and clerical personnel necessary for
carrying out its duties under the Agreement. The Sub-Adviser
shall supply, or cause to be supplied, to any investment adviser,
administrator or principal underwriter of the Fund all necessary
financial information in connection with such adviser's,
administrator's or principal underwriter's duties under any
agreement between such adviser, administrator or principal
underwriter and the Fund. The Sub-Adviser will also pay all
compensation of the Fund's officers, employees, and Trustees, if
any, who are affiliated persons of the Sub-Adviser.
The Sub-Advisory Agreement provides that it will become
effective on the day it is approved by the shareholders of the
Fund (the "Effective Date") and shall, unless terminated as
thereinafter provided, continue in effect until the December 31
next preceding the first anniversary of the effective date of the
Agreement, and from year to year thereafter, but only so long as
such continuance is specifically approved at least annually (1)
by a vote of the Fund's Board of Trustees, including a vote of a
majority of the Trustees who are not parties to the Agreement or
"interested persons" (as defined in the Act) of any such party,
with votes cast in person at a meeting called for the purpose of
voting on such approval, or (2) by a vote of the holders of a
"majority" (as so defined) of the outstanding voting securities
of the Fund and by such a vote of the Trustees.
The Sub-Advisory Agreement provides that it may be
terminated by the Sub-Adviser at any time without penalty upon
giving the Manager and the Fund sixty days' written notice (which
notice may be waived). It may be terminated by the Manager or the
Fund at any time without penalty upon giving the Sub-Adviser
sixty days' written notice (which notice may be waived by the
Sub-Adviser), provided that such termination by the Fund shall be
directed or approved by a vote of a majority of its Trustees in
office at the time or by a vote of the holders of a majority (as
defined in the Act) of the voting securities of the Fund
outstanding and entitled to vote. The Sub-Advisory Agreement will
automatically terminate in the event of its assignment (as
defined in the Act) or the termination of the Investment Advisory
Agreement. The Sub-Adviser agrees that it will not exercise its
termination rights for at least three years from the effective
date of the Agreement, except for regulatory reasons.
Glass-Steagall Act and Certain Other Banking Laws
Citizens Bank of Rhode Island ("Citizens Bank") 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.
Citizens Bank believes that it may perform 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. Citizens Bank 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. Citizens Bank 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.
Citizens Bank 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
Citizens Bank 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 Citizens Bank is
permitted to perform for the Fund.
In the event that the Citizens Bank is prohibited from
acting as the Fund's investment adviser, it is probable that the
Board of Trustees of the Fund or the Manager would either
recommend to the shareholders the selection of another qualified
adviser or sub-adviser or, if that course of action appeared
impractical, that the Fund be liquidated.
COMPUTATION OF NET ASSET VALUE
The net asset value of the shares of each of the Fund's
classes of shares is determined as of 4:00 p.m., New York time,
on each day that the New York Stock Exchange is open, by dividing
the value of the Fund's net assets allocable to each class by the
total number of shares of such class 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 will be 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, Martin Luther King 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 Class A 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 for Class A Shares 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 of Class A Shares
and Class C Shares 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 Class A Shares or Class Y 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 your account. The monthly or quarterly payments
paid to you may not be considered as a yield or income on
investment.
ADDITIONAL TAX INFORMATION
If you incur a sales commission on a purchase of shares
of one mutual fund (the original fund) and sell or exchange them
for shares of a different mutual fund without having held them at
least 91 days, you 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 your gain or reduce your 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.
Ownership of Securities
To be updated before effectiveness
Of the Class A Shares of the Fund outstanding on
September 30, 1997, Merrill, Lynch, Pierce, Fenner & Smith, Inc.,
P.O. Box 30561 New Brunswick, NJ held of record***** shares(***%)
On the basis of information received from the holder, the Fund's
management believes that all of such shares are held for the
benefit of brokerage clients.
Of the Class C Shares of the Fund outstanding on
September 30, 1997, Merrill, Lynch, Pierce, Fenner & Smith, Inc.,
P.O. Box 30561 New Brunswick, NJ held of record****
shares(****%). On the basis of information received from the
holder, the Fund's management believes that all of such shares
are held for the benefit of brokerage clients. In addition,
Thomas E. Powell and Rose Marie Powell JTWROS held of record****
shares(***), W. Thomas Knight held of record****
shares(****%).
Of the Class Y Shares of the Fund outstanding on
September 30, 1997, Aquila Management Corporation held of
record**** shares(***%).
The Fund's management is not aware of any other person
owning of record or beneficially 5% or more of the shares of any
class of Fund's outstanding shares as of that date.
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, 1997 the
aggregate dollar amount of sales charges on sales of shares of
the Fund was $260,616 and the amount retained by the Distributor
was $2,677.
Financial Statements
The financial statements for the Fund for the year ended
June 30, 1997, which are contained in the Annual Report for that
fiscal year, are hereby incorporated by reference into the
Additional Statement. Those financial statements have been
audited by KPMG Peat Marwick LLP, independent auditors, whose
report thereon is incorporated herein by reference.
<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
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
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, 1997
Statement of Assets and Liabilities as of
June 30, 1997
Statement of Operations for the period ended
June 30, 1997
Statement of Changes in Net Assets for the
periods ended June 30, 1997 and 1996
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 (i)
(2) By-laws (i)
(3) Not applicable
(4) Specimen share certificate (iii)
(5) Investment Advisory Agreement (iii)
(5) (b) Investment Advisory and Administration Agreement
(iii)
(5) (c) Sub-Advisory Agreement (iii)
(6) (a) Distribution Agreement (iii)
(6) (b) Sales Agreement for Brokerage Firms (iii)
(6) (c) Sales Agreement for Financial
Institutions (iii)
(6) (d) Sales Agreement for Investment
Advisers (iii)
(6) (e) Shareholder Services Agreement (i)
(7) Not applicable
(8) Custody Agreement (iii)
(9) (a) Transfer Agency Agreement (iii)
(9) (b) Administration Agreement (iii)
(10) Opinion & consent of Fund's counsel (iii)
(11) Consent of Adviser's counsel (iii)
(12) Not applicable
(13) Not Applicable
(14) Not applicable
(15) (a) Distribution Plan (iii)
(15) (b) Shareholder Services Plan (iii)
(16) Schedule for computation of performance
quotations (iii)
(17) Financial Data Schedules (iii)
(18) Plan Pursuant to Rule 18f-3 (iii)
(i) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 5 dated April 26, 1996 and incor-
porated herein by reference.
(ii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 6 dated October 29, 1996 and incor-
porated herein by reference.
(iii) Filed herewith.
ITEM 25. Persons Controlled By Or Under Common Control With
Registrant
None
ITEM 26. Number of Holders of Securities
As of August 21, 1997, Registrant had 908 holders
of record of its Class A Shares, 13 of its Class C
Shares and 1 of its Class Y 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
reference.
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
subsidiary of The Royal Bank of Scotland plc. The Bank
of
Ireland owns a 23% interest in CFG.
CFG is comprised of Citizens Bank of Rhode Island
(the Adviser) which operates
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
underwriter to the following Funds, including the
Registrant: Capital Cash Management Trust, Churchill
Cash Reserves Trust, Churchill Tax-Free Fund of
Kentucky, Hawaiian Tax-Free Trust, Narragansett Insured
Tax- Free Income Fund, Pacific Capital Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets Trust,
Pacific Capital U.S. Treasuries Cash Assets Trust,
Prime Cash Fund, Tax-Free Fund For Utah, Tax-Free Fund
of Colorado, Tax-Free Trust of Arizona, Aquila Rocky
Mountain Equity Fund, Aquila Cascadia Equity Fund and
Tax-Free Trust of Oregon.
(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.
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>
Independent Auditors' Consent
To the Trustees and Shareholders of
Narragansett Insured Tax-Free Income Fund:
We consent to the use of our report dated August 8, 1997,
incorporated herein by reference and to the reference to our firm
under the headings "Financial Highlights" in the Prospectus and
"Custodian and Auditors" and "Financial Statements" in the
Statement of Additional Information.
New York, New York /s/KPMG Peat Marwick LLP
August 26, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly
caused this Registration Statement or Amendment 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 29th day of
August, 1997.
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 8/29/97
______________________ President, Chairman of ___________
Lacy B. Herrmann the Board and Trustee
(Principal Executive
Officer)
/s/Vernon R. Alden 8/29/97
______________________ Trustee ___________
Vernon R. Alden
/s/Paul Y. Clinton 8/29/97
______________________ Trustee ___________
Paul Y. Clinton
/s/David A. Duffy 8/29/97
______________________ Trustee ___________
David A. Duffy
/s/Robert L. Krakoff 8/29/97
______________________ Trustee ___________
Robert L. Krakoff
/s/William J. Nightingale 8/29/97
______________________ Trustee ___________
William J. Nightingale
/s/J. William Weeks 8/29/97
______________________ Trustee ___________
J. William Weeks
/s/Rose F. Marotta 8/29/97
______________________ Chief Financial Officer ___________
Rose F. Marotta (Principal Financial and
Accounting Officer)
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
EXHIBIT INDEX
Number Name of exhibit
(4) Specimen share certificate
(5) Investment Advisory Agreement
(5) (b) Investment Advisory and Administration
Agreement
(5) (c) Sub-Advisory Agreement
(6) (a) Distribution Agreement
(6) (b) Sales Agreement for Brokerage Firms
(6) (c) Sales Agreement for Financial
Institutions
(6) (d) Sales Agreement for Investment
Advisers
(8) Custody Agreement
(9) (a) Transfer Agency Agreement
(9) (b) Administration Agreement
(10) Opinion & consent of Fund's counsel
(11) Consent of Adviser's counsel
(15) (a) Distribution Plan
(15) (b) Shareholder Services Plan
(16) Schedule for computation of performance
quotations
(17) Financial Data Schedules
(18) Plan Pursuant to Rule 18f-3
Correspondence
NARRAGANSETT INSURED TAX-FREE INCOME FUND
A MASSACHUSETTS BUSINESS TRUST
I. FRONT OF CERTIFICATE (all text and other matter lies within 7-1/2" x
11-1/2" decorative border, 1/2" wide)
(upper right) oval with heading: SHARES
(upper left) oval with heading: NUMBER
(below right oval) SEE REVERSE FOR CERTAIN DEFINITIONS
(at left) THIS CERTIFIES THAT (at right) CUSIP 631013 10 9
(at left) is the owner of
Shares having a par value of one cent per Share of Narragansett Insured
Tax-Free Income Fund (hereinafter called the "Fund"), transferable on the
books of the Fund by the holder hereof in person or by duly authorized
attorney, upon surrender of this certificate properly endorsed. This
certificate and the shares represented hereby are issued and shall be held
subject to all of the provisions of the Declaration of Trust of the Fund to
all of which the holder by acceptance hereof assents. This certificate is
not valid until countersigned by the Transfer Agent.
Witness the seal of the Fund and the signatures of its duly authorized
officers or facsimiles thereof.
Dated:
(at left of seal) (at right of seal)
/s/ Edward M. W. Hines /s/ Lacy B. Herrmann
______________________ _____________________
Secretary President
(bottom center in middle of signatures)
1-3/4" diameter facsimile
seal with legend
NARRAGANSETT INSURED TAX-FREE INCOME FUND
1992
A MASSACHUSETTS BUSINESS TRUST
(at lower right, printed vertically)
Countersigned:
ADMINISTRATIVE DATA MANAGEMENT CORP.
(WOODBRIDGE, NEW JERSEY) Transfer Agent
____________________________
Authorized Signature.
II. BACK OF CERTIFICATE (text reads from top to bottom of 11-1/2"
dimension)
The following abbreviations, when used in the inscription on the
face of this certificate, shall be construed as though they were
written out in full according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT - ..............Custodian................
(Cust) (Minor)
under Uniform Gifts to Minors
Act.....................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL
SECURITY OR OTHER
IDENTIFYING NUMBER
OF ASSIGNEE
_______________
[ (box for SS#) ]
[_______________]____________________________________________________
(Please print or typewrite name and address
of assignee)
_____________________________________________________________________
_____________________________________________________________________
______________________________________________________________ SHARES
OF THE SHARES REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
___________________________________________ ATTORNEY TO TRANSFER THE
SAID STOCK ON THE BOOKS OF THE WITHIN NAMED FUND WITH FULL POWER OF
SUBSTITUTION IN THE PREMISES.
Dated_________________
Signed____________________________
__________________________________
(Both must sign if joint tenancy)
Signature(s)
guaranteed________________________
Firm or Bank
by
__________________________________
Officer
(text printed in Signatures must be guaranteed by a
box to left of commercial bank or a member firm of a
signature(s)) domestic stock exchange.
(text printed NOTICE: The signature to this assignment
vertically to right) must correspond with the name as written
upon the face of the certificate in every
particular, without alteration or
enlargement or any change whatever.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT, made as of this 10th day of September, 1992,
by and between NARRAGANSETT INSURED TAX-FREE INCOME FUND (the
"Fund"), a Massachusetts business trust, 380 Madison Avenue,
Suite 2300, New York, New York 10017, and CITIZENS TRUST COMPANY,
One Citizens Plaza, Providence, Rhode Island 02903-1339.
W I T N E S S E T H :
WHEREAS, the Fund and the Adviser wish to enter into an
investment advisory agreement, referred to hereafter as "this
Agreement";
NOW THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. In General
The Adviser agrees, all as more fully set forth herein, to
act as managerial investment adviser to the Fund with respect to
the investment of the Fund's assets, and to supervise and arrange
the purchase of securities for and the sale of securities held in
the portfolio of the Fund.
2. Duties and Obligations of the Adviser With Respect To
Investment of the Assets of the Fund
(a) Subject to the succeeding provisions of this
section and subject to the direction and control of the Board of
Trustees of the Fund, the Adviser shall:
(i) Supervise continuously the investment program of
the Fund and the composition of its portfolio;
(ii) Determine what securities shall be purchased or
sold by the Fund;
(iii) Arrange for the purchase and the sale of
securities held in the portfolio of the Fund; and
(iv) At its expense provide 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,
provide for pricing of the Fund's portfolio at least
quarterly using another such source satisfactory to the
Fund.
(b) Any investment program furnished by the Adviser
under this section shall at all times conform to, and be in
accordance with, any requirements imposed by: (1) the Investment
Company Act of l940 (the "Act") and any rules or regulations in
force thereunder; (2) any other applicable laws, rules and
regulations; (3) the Declaration of Trust and By-Laws of the Fund
as amended from time to time; (4) any policies and determinations
of the Board of Trustees of the Fund; and (5) the fundamental
policies of the Fund. The Fund has furnished the Adviser a
schedule of such policies as of the date of this Agreement, and
agrees to amend such schedule if any of such policies are
changed.
(c) The Adviser shall give the Fund the benefit of its
best judgment and effort in rendering services hereunder, but the
Adviser shall not be liable for any loss sustained by reason of
the adoption of any investment policy or the purchase, sale or
retention of any security, whether or not such purchase, sale or
retention shall have been based upon (i) its own investigation
and research or (ii) investigation and research made by any other
individual, firm or corporation, if such purchase, sale or
retention shall have been made and such other individual, firm or
corporation shall have been selected in good faith by the
Adviser. Nothing herein contained shall, however, be construed
to protect the Adviser against any liability to the Fund or its
security holders by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason
of its reckless disregard of its obligations and duties under
this Agreement.
(d) Nothing in this Agreement shall prevent the Adviser
or any affiliated person (as defined in the Act) of the Adviser
from acting as investment adviser or manager for any other
person, firm or corporation and shall not in any way limit or
restrict the Adviser or any such affiliated person from buying,
selling or trading any securities for its own or their own
accounts or for the accounts of others for whom it or they may be
acting, provided, however, that the Adviser expressly represents
that it will undertake no activities which, in its judgment, will
adversely affect the performance of its obligations to the Fund
under this Agreement. 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 Act and the
Securities Act of 1933, except for information supplied by the
Adviser in writing specifically for inclusion therein. The
Adviser shall promptly inform the Fund as to any information
concerning the Adviser appropriate for inclusion in such
Registration Statement, or as to any transaction or proposed
transaction which might result in an assignment of the Agreement.
The Fund agrees to indemnify the Adviser to the full extent
permitted by the Fund's Declaration of Trust.
(e) 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 prices. 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 sub-adviser,
administrator 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.
3. Allocation of Expenses
The Adviser agrees that it will furnish the Fund, at the
Adviser's expense, all office space, facilities, equipment and
clerical personnel necessary for carrying out its duties under
this Agreement. The Adviser will also pay all compensation of the
Fund's officers, employees, and Trustees, if any, who are
affiliated persons of the Adviser. The Fund agrees to bear the
costs of preparing and setting in type its prospectuses,
statements of additional information and reports to its
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. All costs and expenses not expressly assumed by
the Adviser under this Agreement or by such sub-adviser,
administrator or principal underwriter shall be paid by the Fund,
including, but not limited to (i) interest and taxes; (ii)
brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of its Trustees other than those
affiliated with the Adviser or such sub-adviser, administrator or
principal underwriter; (v) legal and audit expenses; (vi)
custodian and transfer agent, or shareholder servicing agent,
fees and expenses; (vii) expenses incident to the issuance of its
shares (including issuance on the payment of, or reinvestment of,
dividends); (viii) fees and expenses incident to the registration
under Federal or State securities laws of the Fund or its shares;
(ix) expenses of preparing, printing and mailing reports and
notices and proxy material to shareholders of the Fund; (x) all
other expenses incidental to holding meetings of the Fund's
shareholders; and (xi) such non-recurring expenses as may arise,
including litigation affecting the Fund and the legal obligations
for which the Fund may have to indemnify its officers and
Trustees.
4. Compensation of the Adviser
(a) The Fund agrees to pay the Adviser, and the Adviser
agrees to accept as full compensation for all services rendered
by the Adviser as such, a management 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 .23 of 1% of
such net asset value.
(b) 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 payment of the above
fee at the end of any month will be reduced or postponed so that
at no time will there be any accrued but unpaid liability under
this expense limitation, subject to readjustment during the year.
5. Duration and Termination
(a) This Agreement shall become effective on the
effective date of the Registration Statement containing the
initial registration of shares of the Fund and shall, unless
terminated as hereinafter provided, continue in effect until the
first meeting of the Fund's shareholders and if approved at that
meeting, shall continue in effect until the December 31 next
preceding the second anniversary of the effective date of this
Agreement, and from year to year thereafter, but only so long as
such continuance is specifically approved at least annually (1)
by a vote of the Fund's Board of Trustees, including a vote of a
majority of the Trustees who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party,
with votes cast in person at a meeting called for the purpose of
voting on such approval, or (2) by a vote of the holders of a
"majority" (as so defined) of the outstanding voting securities
of the Fund and by such a vote of the Trustees. If the Fund's
shareholders fail to approve this Agreement, the Adviser may
continue to serve and act in that capacity pending further action
by the Business Trust's Board of Trustees or the Fund's
shareholders, provided that the compensation received by the
Adviser during such period is equal to no more than its actual
costs incurred in furnishing such services to the Fund or the
amount it would have received under this Agreement, whichever is
less.
(b) This Agreement may be terminated by the Adviser at
any time without penalty upon giving the Fund sixty days' written
notice (which notice may be waived by the Fund) and may be
terminated by the Fund at any time without penalty upon giving
the Adviser sixty days' written notice (which notice may be
waived by the Adviser), provided that such termination by the
Fund shall be directed or approved by a vote of a majority of its
Trustees in office at the time or by a vote of the holders of a
majority (as defined in the Act) of the voting securities of the
Fund outstanding and entitled to vote. This Agreement shall
automatically terminate in the event of its assignment (as
defined in the Act). However, the Adviser agrees that it will
not exercise its termination rights for at least two years from
the effective date of this Agreement except for regulatory
reasons.
6. Disclaimer of Shareholder Liability
The Adviser understands that the obligations of this
Agreement are not binding upon any shareholder of the Fund
personally, but bind only the Fund's property; the Adviser
represents that it has notice of the provisions of the Fund's
Declaration of Trust disclaiming shareholder liability for acts
or obligations of the Fund.
7. Notices of Meetings
The Fund agrees that notice of each meeting of the
Board of Trustees of the Fund will be sent to the Adviser and
that the Fund will make appropriate arrangements for the
attendance (as persons present by invitation) of such person or
persons as the Adviser may designate.
IN WITNESS WHEREOF, the parties hereto have caused the
foregoing instrument to be executed by their duly authorized
officers and their seals to be hereunto affixed, all as of the
day and year first above written.
ATTEST: NARRAGANSETT INSURED TAX-FREE
INCOME FUND
/s/Kenneth L. MacRitchie /s/Lacy B. Herrmann
________________________ By:_______________________________
Kenneth L. MacRitchie Lacy B. Herrmann
Assistant Secretary President and Chairman
ATTEST: CITIZENS TRUST COMPANY
/s/Anne M. Shannon /s/Michael Edwards
________________________ By:_______________________________
Secretary Executive Vice President
<PAGE>
APPENDIX A
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FUNDAMENTAL POLICIES
As of the date of this agreement, the fundamental policies
of the Fund, so described in its prospectus and Statement of
Additional Information are as follows:
In seeking its objective of providing as high a level of
safety of investor's capital and consistency in the payment of
current income which is exempt from both regular State of Rhode
Island and Federal income taxes, 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.
As a fundamental policy, at least 80% of the Fund's net
assets will be invested in Rhode Island Obligations whose income
payments 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.
As a fundamental policy, at least 65% of the Fund's total
net assets will be invested in insured Rhode Island Obligations.
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.
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 this Prospectus and/or the Additional
Statement are supplemented to reflect the change and to give
additional information.
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.
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.
Draft July 22, 1997
NARRAGANSETT INSURED TAX-FREE INCOME FUND
ADVISORY AND ADMINISTRATION AGREEMENT
THIS AGREEMENT, made as of **********, by and between
NARRAGANSETT INSURED TAX-FREE INCOME FUND (the "Fund"), a
Massachusetts business trust, 380 Madison Avenue, Suite 2300, New
York, New York 10017 and AQUILA MANAGEMENT CORPORATION (the
"Manager"), a New York corporation, 380 Madison Avenue, Suite
2300, New York, New York 10017
W I T N E S S E T H:
WHEREAS, the Fund and the Manager wish to enter into an
Advisory and Administration Agreement referred to hereafter as
"this Agreement," with respect to the Fund;
NOW THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. In General
The Manager shall perform (at its own expense) the functions
set forth more fully herein for the Fund.
2. Duties and Obligations of the Manager
(a) Investment Advisory Services Subject to the succeeding
provisions of this section and subject to the direction and
control of the Board of Trustees of the Fund, the Manager shall:
(i) supervise continuously the investment program of the
Fund and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Fund;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Fund;
(iv) at its expense provide 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, provide for
pricing of the Fund's portfolio at least quarterly using
another such source satisfactory to the Fund; and
Subject to the provisions of Section 5 hereof, the Manager may at
its own expense delegate to a qualified organization ("Sub-
Adviser"), affiliated or not affiliated with the Manager, any or
all of the above duties. Any such delegation of the duties set
forth in (i), (ii) or (iii) above shall be by a written agreement
(the "Sub-Advisory Agreement") approved as provided in Section 15
of the Investment Company Act of 1940.
(b) Administration. Subject to the succeeding provisions of
this section and subject to the direction and control of the
Board of Trustees of the Fund, the Manager shall provide all
administrative services to the Fund other than those relating to
its investment portfolio delegated to a Sub-Adviser of the Fund
under a Sub-Advisory Agreement; as part of such administrative
duties, the Manager shall:
(i) provide office space, personnel, facilities and
equipment for the performance of the following functions and
for the maintenance of the headquarters of the Fund;
(ii) oversee all relationships between the Fund and any sub-
adviser, 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 the effective operation of the Fund and for
the sale, servicing or redemption of the Fund's shares;
(iii) either keep the accounting records of the Fund,
including the computation of net asset value per share and
the dividends (provided that if there is a Sub-Adviser,
daily pricing of the Fund's portfolio shall be the
responsibility of the Sub-Adviser under the Sub-Advisory
Agreement) or, at its expense and responsibility, delegate
such duties in whole or in part to a company satisfactory to
the Fund;
(iv) maintain the Fund's books and records, and prepare (or
assist counsel and auditors in the preparation of) all
required proxy statements, reports to the Fund's
shareholders and Trustees, reports to and other filings with
the Securities and Exchange Commission and any other
governmental agencies, and tax returns, and oversee the
insurance relationships of the Fund;
(v) prepare, on behalf of the Fund and at the Fund's
expense, such applications and reports as may be necessary
to register or maintain the registration of the Fund and/or
its shares under the securities or "Blue-Sky" laws of all
such jurisdictions as may be required from time to time;
(vi) respond to any inquiries or other communications of
shareholders of the Fund 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, oversee such shareholder servicing and transfer
agent's or distributor's response thereto.
(c) Compliance with Requirements. Any investment program
furnished, and any activities performed, by the Manager or by a
Sub-Adviser under this section shall at all times conform to, and
be in accordance with, any requirements imposed by: (1) the
Investment Company Act of 1940 (the "Act") and any rules or
regulations in force thereunder; (2) any other applicable laws,
rules and regulations; (3) the Declaration of Trust and By-Laws
of the Fund as amended from time to time; (4) any policies and
determinations of the Board of Trustees of the Fund; and (5) the
fundamental policies of the Fund, as reflected in its
registration statement under the Act or as amended by the
shareholders of the Fund.
(d) Best Efforts; Responsibility. The Manager shall give
the Fund the benefit of its best judgment and effort in rendering
services hereunder, but the Manager shall not be liable for any
loss sustained by reason of the adoption of any investment policy
or the purchase, sale or retention of any security, whether or
not such purchase, sale or retention shall have been based upon
(i) its own investigation and research or (ii) investigation and
research made by any other individual, firm or corporation, if
such purchase, sale or retention shall have been made and such
other individual, firm or corporation shall have been selected in
good faith by the Manager or a Sub-Adviser.
(e) Other Customers. Nothing in this Agreement shall
prevent the Manager or any officer thereof from acting as
investment adviser, sub-adviser, administrator or manager for any
other person, firm, or corporation, and shall not in any way
limit or restrict the Manager or any of its officers,
stockholders or employees from buying, selling or trading any
securities for its own or their own accounts or for the accounts
of others for whom it or they may be acting, provided, however,
that the Manager expressly represents that it will undertake no
activities which, in its judgment, will adversely affect the
performance of its obligations under this Agreement.
(f) Order Allocation. In connection with any duties for
which it may become responsible to arrange for the purchase and
sale of the Fund's portfolio securities, the Manager shall
select, and shall cause any Sub-Adviser to select, such broker-
dealers ("dealers") as shall, in the Manager'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 Manager shall cause the Fund to
deal directly with the selling or purchasing principal or market
maker without incurring brokerage commissions unless the Manager
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 prices. In allocating transactions to
dealers, the Manager is authorized and shall authorize any Sub-
Adviser, 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 Manager 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 Manager's
overall responsibilities. If, on the foregoing basis, the
transaction in question could be allocated to two or more
dealers, the Manager 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. 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 and that such research services may or may not be useful
to the Fund and may be used for the benefit of the Manager or its
other clients. The Manager shall cause the foregoing provisions,
in substantially the same form, to be included in any Sub-
Advisory Agreement.
(g) Registration Statement; Information. It is agreed that
the Manager shall have no responsibility or liability for the
accuracy or completeness of the Fund's Registration Statement
under the Act and the Securities Act of 1933, except for
information supplied by the Manager for inclusion therein. The
Manager shall promptly inform the Fund as to any information
concerning the Manager appropriate for inclusion in such
Registration Statement, or as to any transaction or proposed
transaction which might result in an assignment of the Agreement.
(h) Liability for Error. The Manager shall not be liable
for any error in judgment or for any loss suffered by the Fund or
its security holders in connection with the matters to which this
Agreement relates, except a loss resulting from wilful
misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Nothing in this
Agreement shall, or shall be construed to, waive or limit any
rights which the Fund may have under federal and state securities
laws which may impose liability under certain circumstances on
persons who act in good faith.
(j) Indemnification. The Fund shall indemnify the Manager
to the full extent permitted by the Fund's Declaration of Trust.
3. Allocation of Expenses
The Manager shall, at its own expense, provide office space,
facilities, equipment, and personnel for the performance of its
functions hereunder and shall pay all compensation of Trustees,
officers, and employees of the Fund who are affiliated persons of
the Manager.
The Fund agrees to bear the costs of preparing and setting
in type its prospectuses, statements of additional information
and reports to its 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. All costs and expenses not
expressly assumed by the Manager under this sub-section or
otherwise by the Manager, administrator or principal underwriter
or by any Sub-Adviser shall be paid by the Fund, including, but
not limited to (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation and
expenses of its Trustees other than those affiliated with the
Manager or such adviser, administrator or principal underwriter;
(v) legal and audit expenses; (vi) custodian and transfer agent,
or shareholder servicing agent, fees and expenses; (vii) expenses
incident to the issuance of its shares (including issuance on the
payment of, or reinvestment of, dividends); (viii) fees and
expenses incident to the registration under Federal or State
securities laws of the Fund or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy
material to shareholders of the Fund; (x) all other expenses
incidental to holding meetings of the Fund's shareholders; and
(xi) such non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligations for which
the Fund may have to indemnify its officers and Trustees.
4. Compensation of the Manager The Fund agrees to pay the
Manager, and the Manager agrees to accept as full compensation
for all services rendered by the Manager as such, an annual 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 0.50 of 1% of such net asset value provided, however, that for
any day that the Fund pays or accrues a fee under the
Distribution Plan of the Fund based upon the assets of the Fund,
the annual fee shall be payable at the annual rate of 0.40 of 1%
of such assets.
5. Termination of Sub-Advisory Agreement
The Sub-Advisory Agreement may provide for its termination
by the Manager upon reasonable notice, provided, however, that
the Manager agrees not to terminate the Sub-Advisory Agreement
except in accordance with such authorization and direction of the
Board of Trustees, if any, as may be in effect from time to time.
6. Duration and Termination of this Agreement
(a) Duration. This Agreement shall become effective on the
day it is approved by the shareholders of the Fund and shall,
unless terminated as hereinafter provided, continue in effect
until the December 31 next preceding the first anniversary of the
effective date of this Agreement, and from year to year
thereafter, but only so long as such continuance is specifically
approved at least annually (1) by a vote of the Fund's Board of
Trustees, including a vote of a majority of the Trustees who are
not parties to this Agreement or "interested persons" (as defined
in the Act) of any such party, with votes cast in person at a
meeting called for the purpose of voting on such approval, or (2)
by a vote of the holders of a "majority" (as so defined) of the
outstanding voting securities of the Fund and by such a vote of
the Trustees.
(b) Termination. This Agreement may be terminated by the
Manager at any time without penalty upon giving the Fund sixty
days' written notice (which notice may be waived by the Fund) and
may be terminated by the Fund at any time without penalty upon
giving the Manager sixty days' written notice (which notice may
be waived by the Manager), provided that such termination by the
Fund shall be directed or approved by a vote of a majority of its
Trustees in office at the time or by a vote of the holders of a
majority (as defined in the Act) of the voting securities of the
Fund outstanding and entitled to vote. The portions of this
Agreement which relate to providing investment advisory services
(Sections 2(a), (c), (d) and (e)) shall automatically terminate
in the event of the assignment (as defined in the Act) of this
Agreement, but all other provisions relating to providing
services other than investment advisory services shall not
terminate, provided however, that upon such an assignment the
annual fee payable monthly and computed on the net asset value of
the Fund as of the close of business each business day shall be
reduced to the annual rate of 0.27 of 1% of such net asset value.
7. Disclaimer of Shareholder Liability
The Manager understands that the obligations of this
Agreement are not binding upon any shareholder of the Fund
personally, but bind only the Fund's property; the Manager
represents that it has notice of the provisions of the Fund's
Declaration of Trust disclaiming shareholder liability for acts
or obligations of the Fund.
8. Notices of Meetings
The Fund agrees that notice of each meeting of the
Board of Trustees of the Fund will be sent to the Manager and
that the Fund will make appropriate arrangements for the
attendance (as persons present by invitation) of such person or
persons as the Manager may designate.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their duly authorized officers and
their seals to be hereunto affixed, all as of the day and year
first above written.
ATTEST: NARRAGANSETT INSURED TAX-FREE
INCOME FUND
________________________ By:___________________________________
ATTEST: AQUILA MANAGEMENT CORPORATION
_______________________ By:___________________________________
Draft July 22, 1997
NARRAGANSETT INSURED TAX-FREE INCOME FUND
SUB-ADVISORY AGREEMENT
THIS AGREEMENT, made as of ************, by and between
AQUILA MANAGEMENT CORPORATION, a New York Corporation (the
"Manager"), 380 Madison Avenue, Suite 2300, New York, New York
10017 and CITIZENS BANK OF RHODE ISLAND (the "Sub-Adviser"), One
Citizens Plaza, Providence, Rhode Island 02903-1339.
W I T N E S S E T H :
WHEREAS, Narragansett Insured Tax-Free Income Fund (the
"Fund") is a Massachusetts business trust which is registered
under the Investment Company Act of 1940 (the "Act") as an open-
end, non-diversified management investment company;
WHEREAS, the Manager has entered into an Advisory and
Administration Agreement as of the date hereof with the Fund (the
"Advisory and Administration Agreement") pursuant to which the
Manager shall act as investment adviser with respect to the Fund;
and
WHEREAS, pursuant to paragraph 2 of the Advisory and
Administration Agreement, the Manager wishes to retain the Sub-
Adviser for purposes of rendering investment advisory services to
the Manager in connection with the Fund upon the terms and
conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. In General
The Manager hereby appoints the Sub-Adviser to render, to
the Manager and to the Fund, investment research and advisory
services as set forth below under the supervision of the Manager
and subject to the approval and direction of the Board of
Trustees of the Fund. The Sub-Adviser shall, all as more fully
set forth herein, act as managerial investment adviser to the
Fund with respect to the investment of the Fund's assets, and
supervise and arrange the purchase of securities for and the sale
of securities held in the portfolio of the Fund.
2. Duties and Obligations of the Sub-Adviser With Respect To
Investment of the Assets of the Fund
(a) Subject to the succeeding provisions of this section and
subject to the direction and control of the Manager and the Board
of Trustees of the Fund, the Sub-Adviser shall:
(i) supervise continuously the investment program of the
Fund and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Fund;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Fund;
(iv) at its expense provide 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, provide for
pricing of the Fund's portfolio at least quarterly using
another such source satisfactory to the Fund; and
(v) consult with the Manager in connection with its duties
hereunder.
(b) Any investment program furnished by the Sub-Adviser
under this section shall at all times conform to, and be in
accordance with, any requirements imposed by: (1) the Investment
Company Act of 1940 (the "Act") and any rules or regulations in
force thereunder; (2) any other applicable laws, rules and
regulations; (3) the Declaration of Trust and By-Laws of the Fund
as amended from time to time; (4) any policies and determinations
of the Board of Trustees of the Fund; and (5) the fundamental
policies of the Fund, as reflected in its registration statement
under the Act or as amended by the shareholders of the Fund.
(c) The Sub-Adviser shall give to the Manager and to the
Fund the benefit of its best judgment and effort in rendering
services hereunder, but the Sub-Adviser shall not be liable for
any loss sustained by reason of the adoption of any investment
policy or the purchase, sale or retention of any security,
whether or not such purchase, sale or retention shall have been
based upon (i) its own investigation and research or (ii)
investigation and research made by any other individual, firm or
corporation, if such purchase, sale or retention shall have been
made and such other individual, firm or corporation shall have
been selected in good faith by the Sub-Adviser.
(d) Nothing in this Agreement shall prevent the Sub-Adviser
or any affiliated person (as defined in the Act) of the Sub-
Adviser from acting as investment adviser or manager for any
other person, firm or corporation and shall not in any way limit
or restrict the Sub-Adviser or any such affiliated person from
buying, selling or trading any securities for its own or their
own accounts or for the accounts of others for whom it or they
may be acting, provided, however, that the Sub-Adviser expressly
represents that, while acting as Sub-Adviser, it will undertake
no activities which, in its judgment, will adversely affect the
performance of its obligations to the Fund under this Agreement.
(e) In connection with its duties to arrange for the
purchase and sale of the Fund's portfolio securities, the Sub-
Adviser shall select such broker-dealers ("dealers") as shall, in
the Sub-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 Manager
shall cause the Fund to deal directly with the selling or
purchasing principal or market maker without incurring brokerage
commissions unless the Manager 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 prices. In
allocating transactions to dealers, the Sub-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 Sub-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 Sub-
Adviser's overall responsibilities. If, on the foregoing basis,
the transaction in question could be allocated to two or more
dealers, the Sub-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. 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 and that such research services may or may not
be useful to the Fund and may be used for the benefit of the Sub-
Adviser or its other clients.
(f) The Sub-Adviser agrees to maintain, and to preserve for
the periods prescribed, such books and records with respect to
the portfolio transactions of the Fund as are required by
applicable law and regulation, and agrees that all records which
it maintains for the Fund on behalf of the Manager shall be the
property of the Fund and shall be surrendered promptly to the
Fund or the Manager upon request.
(g) The Sub-Adviser agrees to furnish to the Manager and to
the Board of Trustees of the Fund such periodic and special
reports as each may reasonably request.
(h) It is agreed that the Sub-Adviser shall have no
responsibility or liability for the accuracy or completeness of
the Fund's Registration Statement under the Act and the
Securities Act of 1933, except for information supplied by the
Sub-Adviser for inclusion therein. The Sub-Adviser shall
promptly inform the Fund as to any information concerning the
Sub-Adviser appropriate for inclusion in such Registration
Statement, or as to any transaction or proposed transaction which
might result in an assignment (as defined in the Act) of this
Agreement.
(i) The Sub-Adviser shall not be liable for any error in
judgment or for any loss suffered by the Fund or its security
holders in connection with the matters to which this Agreement
relates, except a loss resulting from wilful misfeasance, bad
faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and
duties under this Agreement. Nothing in this Agreement shall, or
shall be construed to, waive or limit any rights which the Fund
may have under federal and state securities laws which may impose
liability under certain circumstances on persons who act in good
faith.
(j) To the extent that the Manager is indemnified under the
Fund's Declaration of Trust with respect to the services provided
hereunder by the Sub-Adviser, the Manager agrees to provide the
Sub-Adviser the benefits of such indemnification.
3. Allocation of Expenses
The Sub-Adviser shall bear all of the expenses it incurs in
fulfilling its obligations under this Agreement. In particular,
but without limiting the generality of the foregoing: the Sub-
Adviser shall furnish, at the Sub-Adviser's expense, all office
space, facilities, equipment and clerical personnel necessary for
carrying out its duties under this Agreement. The Sub-Adviser
shall supply, or cause to be supplied, to any investment adviser,
administrator or principal underwriter of the Fund all necessary
financial information in connection with such adviser's,
administrator's or principal underwriter's duties under any
agreement between such adviser, administrator or principal
underwriter and the Fund. The Sub-Adviser will also pay all
compensation of the Fund's officers, employees, and Trustees, if
any, who are affiliated persons of the Sub-Adviser.
4. Compensation of the Sub-Adviser
The Manager agrees to pay the Sub-Adviser, and the Sub-
Adviser agrees to accept as full compensation for all services
rendered by the Sub-Adviser as such, a management 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 rates of 0.23
of 1% of such net asset value.
5. Duration and Termination
(a) This Agreement shall become effective on the day it is
approved by the shareholders of the Fund and shall, unless
terminated as hereinafter provided, continue in effect until the
December 31 next preceding the first anniversary of the effective
date of this Agreement, and from year to year thereafter, but
only so long as such continuance is specifically approved at
least annually (1) by a vote of the Fund's Board of Trustees,
including a vote of a majority of the Trustees who are not
parties to this Agreement or "interested persons" (as defined in
the Act) of any such party, with votes cast in person at a
meeting called for the purpose of voting on such approval, or (2)
by a vote of the holders of a "majority" (as so defined) of the
outstanding voting securities of the Fund and by such a vote of
the Trustees.
(b) This Agreement may be terminated by the Sub-Adviser at
any time without penalty upon giving the Manager and the Fund
sixty days' written notice (which notice may be waived). This
Agreement may be terminated by the Manager or the Fund at any
time without penalty upon giving the Sub-Adviser sixty days'
written notice (which notice may be waived by the Sub-Adviser),
provided that such termination by the Fund shall be directed or
approved by a vote of a majority of its Trustees in office at the
time or by a vote of the holders of a majority (as defined in the
Act) of the voting securities of the Fund outstanding and
entitled to vote. This Agreement shall automatically terminate in
the event of its assignment (as defined in the Act) or the
termination of the Advisory and Administration Agreement.
6. Notices of Meetings
The Manager agrees that notice of each meeting of the Board
of Trustees of the Fund will be sent to the Sub-Adviser and that
Sub-Adviser will make appropriate arrangements for the attendance
(as persons present by invitation) of such person or persons as
the Sub-Adviser may designate.
IN WITNESS WHEREOF, the parties hereto have caused the
foregoing instrument to be executed by their duly authorized
officers and their seals to be hereunto affixed, all as of the
day and year first above written.
ATTEST: AQUILA MANAGEMENT CORPORATION
___________________ By:____________________________
ATTEST: CITIZENS BANK OF RHODE ISLAND
___________________ By______________________________
DISTRIBUTION AGREEMENT
AGREEMENT, made as of this 10th day of September,
1992, by and between NARRAGANSETT INSURED TAX-FREE INCOME
FUND (hereinafter called the "Fund"), and AQUILA
DISTRIBUTORS, INC. (hereinafter called the "Distributor").
W I T N E S S E T H :
In consideration of the mutual covenants herein
contained and other good and valuable consideration, the
receipt of which is hereby acknowledged, it is agreed by and
between the parties hereto as follows:
1. The Distributor agrees to act as principal
underwriter and exclusive distributor of the shares of the
Fund. The price at which shares of the Fund are issued to
the public by the Distributor shall be as computed and
effective as set forth in the Prospectus and Statement of
Additional Information of the Fund current as of the time of
such sale (collectively, the "Current Prospectus"). The
Distributor is authorized to determine from time to time (i)
the sales charges forming part of the public offering price
and any dealer discount paid to dealers and any agency
commissions paid to brokers; (ii) the terms of any privilege
reducing or eliminating such sales charges; and (iii) the
terms of any sales agreement entered into by the Distributor
relating to the sale of the Fund's shares and the identity
of any broker or dealer with which such agreements are
entered into. The Fund agrees that it will promptly amend
or supplement the Current Prospectus in connection with any
change in any of the foregoing. The Distributor agrees to
bear the costs 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, as well as the costs of
supplemental sales literature, advertising and other
promotional activities.
2. The Fund agrees to issue shares of the Fund,
subject to the provisions of its Declaration of Trust and
By-Laws, to the Distributor as ordered by the Distributor,
but only to the extent that the Distributor shall have
received purchase orders therefor at the times and subject
to the conditions set forth in the Current Prospectus.
Certificates for shares need not be created or delivered by
the Fund in any case in which the purchase is made under
terms not calling for such certificates. Shares issued by
the Fund shall be registered in such name or names and
amounts as the Distributor may request from time to time and
all shares when so paid for and issued shall be fully paid
and non-assessable to the extent set forth in the Current
Prospectus.
3. The Distributor shall act as principal in all
matters relating to promotion of the growth of the Fund and
shall enter into all of its engagements, agreements and
contracts as principal on its own account. The title to
shares of the Fund issued and sold through the Distributor
shall pass directly from the Fund to the dealer or investor,
or shall, if the Distributor so consents, first pass to the
Distributor, as may from time to time be determined by the
Board of Trustees of the Fund.
4. The Fund hereby consents to any arrangements
whereby the Distributor may act as principal underwriter for
other investment companies or as principal underwriter,
sponsor or depositor for unit investment trusts and periodic
payment plan certificates issued thereby, or as investment
adviser, sub-adviser or administrator to the Fund or other
investment companies or persons. The Fund also consents to
the Distributor carrying on a business as a broker, dealer
and underwriter in securities and to carrying on any other
lawful business.
5. The Fund covenants and agrees that it will
not during the term of this Agreement, without the consent
of the Distributor, offer any shares of the Fund for sale
directly or through any person or corporation other than the
Distributor excepting only (a) the reinvestment of dividends
and/or distributions, or their declaration in shares of the
Fund, in optional form or otherwise; (b) the issuance of
additional shares through stock splits or stock dividends;
(c) sales of shares to another investment or securities
holding company in the process of purchasing all or a
portion of its assets; or (d) in connection with an exchange
of the Fund's shares for shares of another investment
company or securities holding company.
6. The Fund agrees to use its best efforts to
register from time to time under the Securities Act of 1933
adequate amounts of shares of the Fund for sale by the
Distributor to the public and to register or qualify, or to
permit the Distributor to register or qualify, such shares
for offering to the public in such States or other
jurisdictions as may be designated by the Distributor.
7. The Fund agrees to advise the Distributor of
the net asset value of the Fund's shares as often as
computed. The Fund will also furnish to the Distributor, as
soon as practicable, such information as may reasonably be
requested by the Distributor in order that it may know all
of the facts necessary to sell shares of the Fund.
8. The Distributor is familiar with the
Declaration of Trust and By-Laws of the Fund, each as
presently in effect. Insofar as they are applicable to the
Distributor as principal underwriter of the Fund, it will
comply with the provisions of the Declaration of Trust and
By-Laws of the Fund and with the provisions of all acts
administered by the Securities and Exchange Commission (the
"Commission") and rules thereunder.
9. This amended and restated Agreement shall go
into effect on the date first above written, and shall,
unless terminated as hereinafter provided, continue in
effect until the December 31 which next precedes the second
anniversary of the effective date of this Agreement, and
from year to year thereafter, but only so long as such
continuance is specifically approved at least annually as
provided in the Investment Company Act of 1940 (the "Act").
This Agreement shall automatically terminate in the event of
its assignment (as defined in the Act) and may be terminated
by either party on sixty days written notice to the other
party.
10. The Fund agrees with the Distributor, for the
benefit of the Distributor and each person, if any, who
controls the Distributor within the meaning of Section 15 of
the Securities Act of 1933 (the "Securities Act") and each
and all and any of them, to indemnify and hold harmless the
Distributor and any such controlling person from and against
any and all losses, claims, damages or liabilities, joint or
several, to which they or any of them may become subject
under the Securities Act, under any other statute, at common
law or otherwise, and to reimburse the Distributor and such
controlling persons, if any, for any legal or other expenses
(including the cost of any investigation and preparation)
reasonably incurred by them or any of them in connection
with any litigation whether or not resulting in any
liability, insofar as such losses, claims, damages,
liabilities or litigation arise out of, or are based upon,
any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or any
Prospectus, filed with the Commission, or any amendment
thereof or supplement thereto, or which arise out of, or are
based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided,
however, that this indemnity agreement shall not apply to
amounts paid in settlement of any such litigation if such
settlement is effected without the consent of the Fund or to
any such losses, claims, damages, liabilities or litigation
arising out of, or based upon, any untrue statement or
alleged untrue statement of a material fact contained in any
such Registration Statement or Prospectus, or any amendment
thereof or supplement thereto, or arising out of, or based
upon, the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, which statement
or omission was made in reliance upon information furnished
in writing to the Fund by the Distributor for inclusion in
any such Registration Statement or Prospectus or any
amendment thereof or supplement thereto. The Distributor
and each such controlling person shall, promptly after the
complaint shall have been served upon the Distributor or
such controlling person in respect of which indemnity may be
sought from the Fund on account of its agreement contained
in this paragraph, notify the Fund in writing of the
commencement thereof. The omission of the Distributor or
such controlling person so to notify the Fund of any such
litigation shall relieve the Fund from any liability which
it may have to the Distributor or such controlling person on
account of the indemnity agreement contained in this
paragraph, but shall not relieve the Fund from any liability
which it may have to the Distributor or controlling person
otherwise than on account of the indemnity agreement
contained in the paragraph. In case any such litigation
shall be brought against the Distributor or any such
controlling person and notice of the commencement thereof
shall have been given to the Fund, the Fund shall be
entitled to participate in (and, to the extent that it shall
wish, to direct) the defense thereof at its own expense, but
such defense shall be conducted by counsel of good standing
and satisfactory to the Distributor or such controlling
person or persons, defendant or defendants in the
litigation. The indemnity agreement of the Fund contained
in this paragraph shall remain operative and in full force
and effect regardless of any investigation made by or on
behalf of the Distributor or any such controlling person,
and shall survive any delivery of shares of the Fund. The
Fund agrees to notify the Distributor promptly of the
commencement of any litigation or proceeding against it or
any of its officers or directors of which it may be advised
in connection with the issue and sale of shares of the Fund.
11. Anything herein to the contrary
notwithstanding, the agreement in paragraph 10, insofar as
it constitutes a basis for reimbursement by the Fund for
liabilities (other than payment by the Fund of expenses
incurred or paid in the successful defense of any action,
suit or proceeding) arising under the Securities Act, shall
not extend to the extent of any interest therein of any
person who is an underwriter or a partner or controlling
person of an underwriter within the meaning of Section 15 of
the Securities Act or who, at the date of this Agreement, is
a Trustee of the Fund, except to the extent that an interest
of such character shall have been determined by a court of
appropriate jurisdiction as not against public policy as
expressed in the Securities Act. Unless in the opinion of
counsel for the Fund the matter has been adjudicated by
controlling precedent, the Fund, will, if a claim for such
reimbursement is asserted, submit to a court of appropriate
jurisdiction the question of whether or not such interest is
against the public policy as expressed in the Securities
Act.
12. The Distributor agrees to indemnify and hold
harmless the Fund and its Trustees and such officers as
shall have signed any Registration Statement filed with the
Commission from and against any and all losses, claims,
damages or liabilities, joint or several, to which the Fund
or such Trustees or officers may become subject under the
Securities Act, under any other statute, at common law or
otherwise, and will reimburse the Fund or such Trustees or
officers for any legal or other expenses (including the cost
of any investigation and preparation) reasonably incurred by
it or them or any of them in connection with any litigation,
whether or not resulting in any liability, insofar as such
losses, claims, damages, liabilities or litigation arise out
of, or are based upon, any untrue statement or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading, which statement or omission was made in
reliance upon information furnished in writing to the Fund
by the Distributor for inclusion in any Registration
Statement or any Prospectus, or any amendment thereof or
supplement thereto. The Distributor shall not be liable for
amounts paid in settlement of any such litigation if such
settlement was effected without its consent. The Fund and
its Trustees and such officers, defendant or defendants, in
any such litigation shall, promptly after the complaint
shall have been served upon the Fund or any such Trustee or
officer in respect of which indemnity may be sought from the
Distributor on account of its agreement contained in this
paragraph, notify the Distributor in writing of the
commencement thereof. The omission of the Fund or such
Trustee or officer so to notify the Distributor of any such
litigation shall relieve the Distributor from any liability
which it may have to the Fund or such Trustee or officer on
account of the indemnity agreement contained in this
paragraph, but shall not relieve the Distributor from any
liability which it may have to the Fund or such Trustee or
officer otherwise than on account of the indemnity agreement
contained in this paragraph. In case any such litigation
shall be brought against the Fund or any such Trustee or
officer and notice of the commencement thereof shall have
been so given to the Distributor, the Distributor shall be
entitled to participate in (and, to the extent that it shall
wish, to direct) the defense thereof at its own expense, but
such defense shall be conducted by counsel of good standing
and satisfactory to the Fund. The indemnity agreement of
the Distributor contained in this paragraph shall remain
operative and in full force and effect regardless of any
investigation made by or on behalf of the Trust and shall
survive any delivery of shares of the Fund. The Distributor
agrees to notify the Fund promptly of the commencement of
any litigation or proceeding against it or any of its
officers or directors or against any such controlling person
of which it may be advised, in connection with the issue and
sale of the Fund's shares.
13. Notwithstanding any provision contained in
this Agreement, no party hereto and no person or persons in
control of any party hereto shall be protected against any
liability to the Fund or its security holders to which they
would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence, in the performance of their
duties, or by reason of their reckless disregard of their
obligations and duties under this Agreement.
14. The Fund shall immediately advise the
Distributor (a) when any post-effective amendment to its
Registration Statement or any further amendment or
supplement thereto or any further Registration Statement or
amendment or supplement thereto becomes effective, (b) of
any request by the Commission for amendments to the
Registration Statement or the then effective Prospectus or
for additional information, (c) of the issuance by the
Commission of any stop order suspending the effectiveness of
the Registration Statement, or the initiation of any
proceedings for that purpose, and (d) of the happening of
any event which makes untrue any material statement made in
the Registration Statement or the Current Prospectus or
which in the opinion of counsel for the Fund requires the
making of a change in the Registration Statement or the
Current Prospectus in order to make the statements therein
not misleading. In case of the happening at any time of any
event which materially affects the Fund or its securities
and which should be set forth in a supplement to or an
amendment of the then effective Prospectus in order to make
the statements therein not misleading the Fund shall prepare
and furnish to the Distributor such amendment or amendments
to the then effective Prospectus as will correct the
Prospectus so that as corrected it will not contain, or such
supplement or supplements to the then effective Prospectus
which when read in conjunction with the then effective
Prospectus will make the combined information not contain,
any untrue statement of a material fact or any omission to
state any material fact necessary in order to make the
statements in the then effective Prospectus not misleading.
The Fund shall, if at any time the Commission shall issue
any stop order suspending the effectiveness of the
Registration Statement, make every reasonable effort to
obtain the prompt lifting of such order.
15. Except as expressly provided in paragraphs 10
and 12 hereof, the agreements herein set forth have been
made and are made solely for the benefit of the Fund, the
Distributor, and the persons expressly provided for in
paragraphs 10 and 12, their respective heirs, successors,
personal representatives and assigns, and except as so
provided, nothing expressed or mentioned herein is intended
or shall be construed to give any person, firm or
corporation, other than the Fund, the Distributor, and the
persons expressly provided for in paragraphs 10 and 12, any
legal or equitable right, remedy or claim under or in
respect of this Agreement or any representation, warranty or
agreement herein contained. Except as so provided, the term
"heirs, successors, personal representatives and assigns"
shall not include any purchaser of shares merely because of
such purchase.
16. The Distributor understands that the
obligations of this Agreement are not binding upon any
shareholder of the Fund personally, but bind only the Fund's
property; the Distributor represents that it has notice of
the provisions of the Fund's Declaration of Trust
disclaiming shareholder liability for acts or obligations of
the Fund.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their respective duly
authorized officers and their seals to be affixed as of the
day and year first above written.
NARRAGANSETT INSURED TAX-FREE
INCOME FUND
/s/William Wallace
By:________________________________
Vice President
ATTEST:
__________________________
AQUILA DISTRIBUTORS, INC.
/s/Lacy B. Herrmann
By:________________________________
Vice President
ATTEST:
/s/Kenneth L. MacRitchie
__________________________
Asst. Secy
AQUILA DISTRIBUTORS, INC.
SALES AGREEMENT
(for use with brokerage firms)
From:
____________________________
____________________________
____________________________
To:
Aquila Distributors, Inc.
200 Park Avenue, Suite 4515
New York, N.Y. 10017
Gentlemen:
We desire to enter into an agreement with you for sale and
distribution of the shares of any of the mutual funds of
which you are, or may become, Distributor (hereinafter
collectively referred to as the "Funds" and individually as
the "Fund"). Upon acceptance of this Agreement by you, we
understand that we may offer and sell shares of the Funds,
subject to all terms and conditions hereof and to your right
without notice to suspend or terminate the sale of shares of
any one or more of the Funds.
1. We understand that shares of the Funds will be offered
and sold at the current offering price in effect as set
forth in each Fund's then current Prospectus (which term as
used herein includes any related Statement of Additional
Information). All purchase requests and applications
submitted by us are subject to acceptance or rejection as
set forth in each Fund's then current Prospectus.
2. Each of us certifies (a) that the party in question is a
member of the National Association of Securities Dealers,
Inc. ("NASD") and agrees to maintain membership in the NASD,
or (b) in the alternative, in our case, that we are a
foreign firm not eligible for membership in the NASD. In
any case, we and you agree to abide by all the rules and
regulations of the NASD concerning distribution of the
securities of open-end investment companies, including
without limitation, Section 26 of Article III of the NASD
Rules of Fair Practice, all of which are incorporated herein
as if set forth in full. We and you further agree to comply
with all applicable State and Federal laws and regulations.
We and you agree that we and you will sell or offer for sale
shares of the Funds only in those states or jurisdictions
whose laws permit the offers or sales in question, whether
or not such permission is dependent on registration or
qualification of the Funds or their shares under such laws.
3. We shall offer and sell shares of the Funds only in
accordance with the terms and conditions of the then current
Prospectus of each Fund, and we shall make no
representations not included in said Prospectus or in any
authorized supplemental material supplied by you. We agree
to be responsible for the proper instruction and training of
all sales personnel employed by us, in order that such
shares will be offered in accordance with the terms and
conditions of this Agreement and all applicable laws and
regulations. We agree to hold you and the Funds harmless
and to indemnify you and the Funds in the event that we, or
any of our sales representatives, violate any law or
regulation, or any provisions of this Agreement, which
violation may result in liability to you and/or any Fund;
and in the event you and/or such Fund determine to refund
any amounts paid by any investor by reason of any such
violation on our part, we shall return to you and/or such
Fund any commissions previously paid or discounts allowed by
you to us with respect to the transaction for which the
refund is made. All expenses which we incur in connection
with our activities under this Agreement will be borne by
us.
4. We understand and agree that the sales charge and dealer
commission relative to sales of shares of any Fund made by
us will be in an amount as set forth in the then current
Prospectus of such Fund or in separate written notice to us.
5. Payment for purchases of shares of any Fund made by wire
order from us will be received by you or such Fund within
five business days after the acceptance of our order or such
shorter time as may be required by law. If such payment is
not so received, we understand that you reserve the right,
without notice, forthwith to cancel the sale, or, at your
option, to sell the shares ordered by us back to such Fund,
in which latter case we may be held responsible for any
loss, including loss of profit, suffered by you and/or such
Fund resulting from our failure to make the aforesaid
payment. Where sales of shares of any Fund are contingent
upon such Fund's receipt of Federal funds in payment
therefor, we shall forward promptly to you any purchase
orders and payments received by us from investors.
6. We agree to purchase shares only from you or from our
customers. If we purchase shares from you, we agree that
all such purchases shall be made only to cover orders
received by us from our customers, or for our own bona fide
investment. If we purchase shares from our customers, we
agree to pay such customers not less than the applicable
redemption price as established by the then current
Prospectus.
7. Unless at the time of transmitting an order we advise
you to the contrary, you may consider the order to be the
total holding of the investor and assume that the investor
is not entitled to any reduction in sales price beyond that
accorded to the amount of the purchase as determined by the
schedule set forth in the then current Prospectus.
8. We understand and agree that if shares of any Fund sold
by us under the terms of this Agreement are redeemed by such
Fund (including redemptions resulting from an exchange for
shares of another investment company) or are repurchased by
you as agent for such Fund or are tendered to such Fund for
redemption within seven business days after the confirmation
to us of our original purchase order for such shares, we
shall pay forthwith to you the full amount of the commission
allowed to us on the original sale, provided you notify us
of such repurchase or redemption within ten days of the date
upon which written redemption requests (and, if applicable,
share certificates) are delivered to you or to such Fund.
9. Your obligations to us under this Agreement are subject
to all the provisions of any agreements entered into between
you and the Funds. We understand and agree that in
performing our services covered by this Agreement we are
acting as principal, and you are in no way responsible for
the manner of our performance or for any of our acts or
omissions in connection therewith. Nothing in this
Agreement shall be construed to constitute us or any of our
agents, employees or representatives as your agent, partner
or employee, or as the Funds' agent or employee.
10. We may terminate this Agreement by notice in writing to
you, which termination shall become effective thirty days
after the date of mailing such notice to you. We agree that
you have and reserve the right, in your sole discretion
without notice, to suspend sales of shares of any one or
more of the Funds, or to withdraw entirely the offering of
shares of any one or more of the Funds, or, in your sole
discretion, to modify, amend, or cancel this Agreement upon
written notice to us of such modification, amendment, or
cancellation, which shall become effective on the date
stated in such notice. Without limiting the foregoing, you
may terminate this Agreement for cause on violation by us of
any of the provisions of this Agreement, said termination to
become effective on the date of mailing notice to us of such
termination. Without limiting the foregoing, any provision
hereof to the contrary notwithstanding, our expulsion from
the NASD will automatically terminate this Agreement without
notice; our suspension from the NASD or violation of
applicable State or Federal laws or regulations will
terminate this Agreement effective upon the date of your
mailing notice to us of such termination. Your failure to
terminate for any cause will not constitute a waiver of your
right to terminate at a later date for any such cause. All
notices hereunder will be to the respective parties at the
addresses listed hereon, unless changed by notice given in
accordance with this Agreement.
11. This Agreement will become effective when it is
executed and dated by you, and will be in substitution of
any prior agreement between you and us covering shares of
the Funds. This Agreement is not assignable or
transferable, except that you may assign or transfer this
Agreement to any successor firm or corporation which becomes
a principal underwriter of the Funds.
_________________________________
(name of brokerage firm)
By:______________________________
(signature of officer)
_________________________________
(name and title of officer)
_________________________________
(telephone number)
Accepted:
Aquila Distributors, Inc.
By:________________________
(signature of officer)
___________________________
(name and title of officer)
Dated:______________, 19___
AQUILA DISTRIBUTORS, INC.
SALES AGREEMENT
(for use with financial institutions)
From:
____________________________
____________________________
____________________________
To:
Aquila Distributors, Inc.
200 Park Avenue, Suite 4515
New York, N.Y. 10017
Gentlemen:
We desire to enter into an agreement with you to make
available to our customers the shares of any of the funds of
which you are, or may become, Distributor (hereinafter
collectively referred to as the "Funds" or individually as
the "Fund") on a fully disclosed basis wherein you would
confirm transactions of our customers in such shares
directly to them. Upon acceptance of this Agreement by you,
we understand that we may make shares of the Funds available
to our customers, subject to all terms and conditions hereof
and to your right without notice to suspend or terminate the
sale of shares of any one or more of the Funds.
1. We understand that shares of the Funds will be offered
and sold by you at the current offering price in effect as
set forth in each Fund's then current Prospectus (which term
as used herein includes any related Statement of Additional
Information). All purchase requests and applications
submitted by us are subject to acceptance or rejection as
set forth in each Fund's then current Prospectus.
2. Each of us certifies (a) that the party in question is a
member of the National Association of Securities Dealers,
Inc. ("NASD") and agrees to maintain membership in the NASD,
or (b) in the alternative, in our case, that we are either
(i) a foreign firm not eligible for membership in the NASD,
or (ii) a bank, as defined in Section 3(a)(6) of the
Securities Exchange Act of 1934. In any case, we and you
agree to abide by all applicable rules and regulations of
the NASD, including without limitation, Section 26 of
Article III of the NASD Rules of Fair Practice, all of which
are incorporated herein as if set forth in full. We and you
further agree to comply with all applicable State and
Federal laws and regulations. We and you agree that we and
you will make available for sale shares of the Funds only in
those states or jurisdictions whose laws so permit, whether
or not such permission is dependent on registration or
qualification of the Funds or their shares under such laws.
3. We shall make shares of the Funds available only in
accordance with the terms and conditions of the then current
Prospectus of each Fund, and we shall make no
representations not included in said Prospectus or in any
authorized supplemental material supplied by you. In no
transaction where we make shares of the Funds available to
our customers shall we have any authority to act as agent
for the Funds. The customers in question are for all
purposes our customers and not your customers. However, you
will be responsible for mailing each Fund's then current
Prospectus (not including the related Statement of
Additional Information) with the confirmations. You will
clear transactions for each of our customers only upon our
authorization, it being understood in all cases that (i) we
are acting as agent for the customer, (ii) the transactions
are without recourse against us by the customer except to
the extent that our failure to transmit orders in a timely
fashion results in a loss to our customer, (iii) our
customer will have full beneficial ownership of the shares,
(iv) each transaction is initiated solely upon the order of
the customer, and (v) each transaction is for the account of
the customer and not for our account. We agree to be
responsible for the proper instruction and training of all
personnel employed by us in this area, in order that such
shares will be offered in accordance with the terms and
conditions of this Agreement and all applicable laws and
regulations. We agree to hold you and the Funds harmless
and to indemnify you and the Funds in the event that we, or
any of such personnel, violate any law or regulation, or any
provisions of this Agreement, which violation may result in
liability to you and/or any Fund; and in the event you
and/or such Fund determine to refund any amounts paid by any
investor by reason of any such violation on our part, we
shall return to you and/or such Fund any agency commissions
previously paid to us with respect to the transaction for
which the refund is made. All expenses which we incur in
connection with our activities under this Agreement will be
borne by us.
4. We understand and agree that the sales charge to the
customer and the agency commission payable to us relative to
sales of shares of any Fund made by us will be in an amount
as set forth in the then current Prospectus of such Fund or
in separate written notice to us.
5. Payment for purchases by our customers of shares of any
Fund made by wire order from us will be received by you or
such Fund within five business days after the acceptance of
our order or such shorter time as may be required by law.
If such payment is not so received, we understand that you
reserve the right, without notice, forthwith to cancel the
sale, or, at your option, to sell the shares ordered by us
back to such Fund, in which latter case we may be held
responsible for any loss, including loss of profit, suffered
by you and/or such Fund resulting from our failure to make
the aforesaid payment. Where sales of shares of any Fund
are contingent upon such Fund's receipt of Federal funds in
payment therefor, we shall forward promptly to you any
purchase orders and payments received by us from our
customers.
6. We agree to make shares available to our customers only
(a) at the public offering price (except as provided in
Paragraph 12 hereunder), (b) from you, and (c) to cover
orders already received from our customers. We shall not
withhold placing with you orders received from our customers
so as to profit ourselves as a result of such withholding;
e.g., by a change in the net asset value from that used in
determining the public offering price to our customers.
7. Unless at the time of transmitting an order we advise you
to the contrary, you may consider the order to be the total
holding of the investor and assume that the investor is not
entitled to any reduction in sales price beyond that
accorded to the amount of the purchase as determined by the
schedule set forth in the then current Prospectus. If we
make shares available to our customers as provided in
Paragraph 12 hereunder, we shall so indicate to you at the
time of transmitting such order.
8. We understand and agree that if any shares sold to our
customers under the terms of this Agreement are redeemed by
any Fund (including redemptions resulting from an exchange
for shares of another investment company) or are repurchased
by you as agent for such Fund or are tendered to such Fund
for redemption within seven business days after the
confirmation to our customers of our original purchase order
for such shares, we shall pay forthwith to you the full
amount of the commission allowed to us on the original sale,
provided you notify us of such repurchase or redemption
within ten days of the date upon which written redemption
requests (and, if applicable, share certificates) are
delivered to you or to such Fund.
9. Your obligations to us under this Agreement are subject
to all the provisions of any agreements entered into between
you and the Funds. We understand and agree that in
performing our services covered by this Agreement we are
acting as agent for our customers, and you are in no way
responsible for the manner of our performance or for any of
our acts or omissions in connection therewith. Nothing in
this Agreement shall be construed to constitute us or any of
our agents, employees or representatives as your agent,
partner or employee, or as the Funds' agent or employee.
10. We may terminate this Agreement by notice in writing to
you, which termination shall become effective thirty days
after the date of mailing such notice to you. However, our
termination of this Agreement will not terminate our
responsibilities under sections (iv) and (v) of Paragraph 12
hereunder. We agree that you have and reserve the right, in
your sole discretion without notice, to suspend sales of
shares of any one or more of the Funds, or to withdraw
entirely the offering of shares of any one or more of the
Funds, or, in your sole discretion, to modify, amend, or
cancel this Agreement upon written notice to us of such
modification, amendment, or cancellation, which shall become
effective on the date stated in such notice. Without
limiting the foregoing, you may terminate this Agreement for
cause on violation by us of any of the provisions of this
Agreement, said termination to become effective on the date
of mailing notice to us of such termination. Without
limiting the foregoing, any provision hereof to the contrary
notwithstanding, our expulsion from the NASD, if we are a
member of the NASD, will automatically terminate this
Agreement without notice; our suspension from the NASD, if
we are a member of the NASD, or violation of applicable
State or Federal laws or regulations (whether or not we are
a member of the NASD) will terminate this Agreement
effective upon the date of your mailing notice to us of such
termination. Your failure to terminate for any cause will
not constitute a waiver of your right to terminate at a
later date for any such cause. All notices hereunder will
be to the respective parties at the addresses listed hereon,
unless changed by notice given in accordance with this
Agreement.
11. This Agreement will become effective when it is executed
and dated by you, and will be in substitution of any prior
agreement between you and us covering shares of the Funds.
This Agreement is not assignable or transferable, except
that you may assign or transfer this Agreement to any
successor firm or corporation which becomes a principal
underwriter of the Funds.
12. We may make shares of the Funds available to our
customers at the next determined net asset value of such
shares under the following circumstances: (i) each such
purchase order is on behalf of a trust, agency, or custodial
client, (ii) we have, as to each such purchase order,
discretionary investment responsibility over the assets in
question, (iii) the relationship between the us and the
client was not formed solely for the purpose of purchasing
shares of any Fund at net asset value, (iv) the shares
purchased pursuant to such purchase order will not be resold
except by redemption, (v) there is no charge relating to
such purchase other than our normal service charge, and (vi)
we may disclose the name of any Fund to the client without
your consent.
_________________________________
(name of financial institution)
By:______________________________
(signature of officer)
_________________________________
(name and title of officer)
_________________________________
(telephone number)
Accepted:
Aquila Distributors, Inc.
By:________________________
(signature of officer)
___________________________
(name and title of officer)
Dated:______________, 19__
August 29, 1997
Revised 2/94
AQUILA DISTRIBUTORS, INC.
SALES AGREEMENT
(for use with investment advisers)
From:
____________________________
____________________________
____________________________
To:
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, N.Y. 10017
Gentlemen:
We desire to enter into an agreement with you to make available
to our clients the shares of any of the funds of which you are,
or may become, Distributor (hereinafter collectively referred to
as the "Funds" or individually as the "Fund") on a fully
disclosed basis wherein you would confirm transactions of our
clients in such shares directly to them. Upon acceptance of this
Agreement by you, we understand that we may make shares of the
Funds available to our clients, subject to all terms and
conditions hereof and to your right without notice to suspend or
terminate the sale of shares of any one or more of the Funds.
1. We understand that shares of the Funds will be offered and
sold by you at the current net asset value in effect as set forth
in each Fund's then current Prospectus (which term as used herein
includes any related Statement of Additional Information). All
purchase requests and applications submitted by us are subject to
acceptance or rejection as set forth in each Fund's then current
Prospectus.
2. We certify that we are an investment adviser, registered with
the Securities and Exchange Commission under the Investment
Advisers Act of 1940 and registered under relevant state
statutes; we furthermore undertake to maintain such
registrations. You certify that you are a broker-dealer,
registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, registered with the National
Association of Securities Dealers, Inc., and registered under
relevant state statutes; you furthermore undertake to maintain
such registrations. We and you further agree to comply with all
applicable statutes and regulations. We and you agree that we
and you will make available for sale shares of the Funds only in
those states or jurisdictions whose laws so permit, whether or
not such permission is dependent on registration or qualification
of the Funds or their shares under such laws.
3. We shall make shares of the Funds available only in accordance
with the terms and conditions of the then current Prospectus of
each Fund, and we shall make no representations not included in
said Prospectus or in any authorized supplemental material
supplied by you. In no transaction where we make shares of the
Funds available to our clients shall we have any authority to act
as agent for the Funds. The clients in question are for all
purposes our clients and not your clients. However, you will be
responsible for mailing each Fund's then current Prospectus (not
including the related Statement of Additional Information) with
the confirmations. You will clear transactions for each of our
clients only upon our authorization, it being understood in all
cases that (i) we are acting as agent for the client, (ii) the
transactions are without recourse against us by the client, (iii)
our client will have full beneficial ownership of the shares, and
(iv) each transaction is for the account of the client and not
for our account. We agree to be responsible for the proper
instruction and training of all personnel employed by us in this
area, in order that such shares will be offered in accordance
with the terms and conditions of this Agreement and all
applicable laws and regulations. We agree to hold you and the
Funds harmless and to indemnify you and the Funds in the event
that we, or any of such personnel, violate any law or regulation,
or any provisions of this Agreement, which violation may result
in liability to you and/or any Fund. All expenses which we incur
in connection with our activities under this Agreement will be
borne by us.
4. Payment for purchases by our clients of shares of any Fund
made by wire order from us will be received by you or such Fund
within five business days after the acceptance of our order or
such shorter time as may be required by law. If such payment is
not so received, we understand that you reserve the right,
without notice, forthwith to cancel the sale, or, at your option,
to sell the shares ordered by us back to such Fund, in which
latter case we may be held responsible for any loss, including
loss of profit, suffered by you and/or such Fund resulting from
our failure to make the aforesaid payment. Where sales of shares
of any Fund are contingent upon such Fund's receipt of Federal
funds in payment therefor, we shall forward promptly to you any
purchase orders and payments received by us from our clients.
5. We agree to make shares available to our clients only (a) at
the net asset value, (b) from you, and (c) to cover orders
already received from our clients. We shall not withhold placing
with you orders received from our clients so as to profit
ourselves as a result of such withholding; e.g., by a change in
the net asset value from that used in determining the net asset
value to our clients.
6. Your obligations to us under this Agreement are subject to all
the provisions of any agreements entered into between you and the
Funds. We understand and agree that in performing our services
covered by this Agreement we are acting as agent for our clients,
and you are in no way responsible for the manner of our
performance or for any of our acts or omissions in connection
therewith. Nothing in this Agreement shall be construed to
constitute us or any of our agents, employees or representatives
as your agent, partner or employee, or as the Funds' agent or
employee.
7. We may terminate this Agreement by notice in writing to you,
which termination shall become effective thirty days after the
date of mailing such notice to you. However, our termination of
this Agreement will not terminate our responsibilities under
sections (iv) and (v) of Paragraph 9 hereunder. We agree that
you have and reserve the right, in your sole discretion without
notice, to suspend sales of shares of any one or more of the
Funds, or to withdraw entirely the offering of shares of any one
or more of the Funds, or, in your sole discretion, to modify,
amend, or cancel this Agreement upon written notice to us of such
modification, amendment, or cancellation, which shall become
effective on the date stated in such notice. Without limiting
the foregoing, you may terminate this Agreement for cause on
violation by us of any of the provisions of this Agreement, said
termination to become effective on the date of mailing notice to
us of such termination. Your failure to terminate for any cause
will not constitute a waiver of your right to terminate at a
later date for any such cause. All notices hereunder will be to
the respective parties at the addresses listed hereon, unless
changed by notice given in accordance with this Agreement.
8. This Agreement will become effective when it is executed and
dated by you, and will be in substitution of any prior agreement
between you and us covering shares of the Funds. This Agreement
is not assignable or transferable, except that you may assign or
transfer this Agreement to any successor firm or corporation
which becomes a principal underwriter of the Funds.
9. We agree that (i) each purchase order is on behalf of an
investment advisory client, (ii) the relationship between us and
the client was not formed solely for the purpose of purchasing
shares of any Fund at net asset value, (iii) the shares purchased
pursuant to such purchase order will not be resold except by
redemption, (iv) there is no charge relating to such purchase
other than our normal service charge, and (v) we may disclose the
name of any Fund to the client without your consent.
_________________________________
(name of investment adviser)
By:______________________________
(signature of officer)
_________________________________
(name and title of officer)
_________________________________
(telephone number)
Accepted:
Aquila Distributors, Inc.
By:________________________
(signature of officer)
___________________________
(name and title of officer)
Dated:______________, 19__
CUSTODY AGREEMENT
THIS AGREEMENT, is made as of March 30, 1995, by and between
NARRAGANSETT INSURED TAX-FREE INCOME FUND, a business trust
organized under the laws of the Commonwealth of Massachusetts (the
"Trust"), and BANK ONE TRUST COMPANY, N.A., a banking company
organized under the laws of the United States (the "Custodian").
WITNESSETH:
WHEREAS, the Trust desires that Securities and cash of the
Trust be held and administered by the Custodian pursuant to this
Agreement; and
WHEREAS, the Trust is an open-end management investment
company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements
herein made, the Trust and the Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the
following meanings:
1.1 "Authorized Person" means any Officer or other person
duly authorized by resolution of the Board of Trustees to give Oral
Instructions and Written Instructions on behalf of the Trust and
named in Exhibit B hereto or in such resolutions of the Board of
Trustees, certified by an Officer, as may be received by the
Custodian from time to time.
1.2 "Board of Trustees" shall mean the Trustees from time to
time serving under the Trust's Declaration of Trust, dated January
22, 1992, as from time to time amended.
1.3 "Book-Entry System" shall mean a federal book-entry
system as provided in Subpart O of Treasury Circular No. 300, 31
CFR 306, in Subpart B of 31 CFR Part 350, or in such book-entry
regulations of federal agencies as are substantially in the form of
such Subpart O.
1.4 "Business Day" shall mean any day recognized as a
settlement day by The New York Stock Exchange, Inc. and any other
day for which the Fund computes the net asset value of the Fund.
1.5 "Fund" shall mean any of the individual investment
portfolios of the Trust, including any additional portfolios
hereafter created, as each are or will be identified in Exhibit A
hereto; provided, however, that in the event that the Trust
consists of only one such portfolio, "Fund" shall refer to the
Trust.
1.6 "NASD" shall mean The National Association of Securities
Dealers, Inc.
1.7 "Officer" shall mean the President, any Senior Vice
President, Vice President or Assistant Vice President, the
Secretary, any Assistant Secretary, the Chief Financial Officer,
the Treasurer, or any Assistant Treasurer of the Trust.
1.8 "Oral Instructions" shall mean instructions orally
transmitted to and accepted by the Custodian because such
instructions are: (i) reasonably believed by the Custodian to have
been given by an Authorized Person, (ii) recorded and kept among
the records of the Custodian made in the ordinary course of
business and (iii) orally confirmed by the Custodian. The Trust
shall cause all Oral Instructions to be confirmed by Written
Instructions. If such Written Instructions confirming Oral
Instructions are not received by the Custodian prior to a
transaction, it shall in no way affect the validity of the
transaction or the authorization thereof by the Trust. If Oral
Instructions vary from the Written Instructions which purport to
confirm them, the Custodian shall notify the Trust of such variance
but such Oral Instructions will govern unless the Custodian has not
yet acted.
1.9 "Custody Account" shall mean any account in the name of
a Fund, which is provided for in Section 3.2 below, or of the
Trust.
1.10 "Proper Instructions" shall mean Oral Instructions or
Written Instructions. Proper Instructions may be continuing
Written Instructions when deemed appropriate by both parties.
1.11 "Securities Depository" shall mean The Participants Trust
Company or The Depository Trust Company and (provided that the
Custodian shall have received a copy of a resolution of the Board
of Trustees, certified by an Officer, specifically approving the
use of such clearing agency as a depository for the Trust) any
other clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities and Exchange Act of
1934 (the "1934 Act"), which acts as a system for the central
handling of Securities where all Securities of any particular class
or series of an issuer deposited within the system are treated as
fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of the Securities.
1.12 "Securities" shall include, without limitation, common
and preferred stocks, bonds, call options, put options, debentures,
notes, bank certificates of deposit, bankers' acceptances,
mortgage-backed securities, other money market instruments or other
obligations, and any certificates, receipts, warrants or other
instruments or documents representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other
rights or interests therein, or any similar property or assets that
the Custodian has the facilities to clear and to service.
1.13 "Shares" shall mean the units of beneficial interest
issued by the Trust.
1.14 "Written Instructions" shall mean (i) written
communications actually received by the Custodian and signed by one
or more persons as the Board of Trustees shall have from time to
time authorized, or (ii) communications by telex or any other such
system from a person or persons reasonably believed by the
Custodian to be Authorized, or (iii) communications transmitted
electronically through the Institutional Delivery System (IDS), or
any other similar electronic instruction system acceptable to the
Custodian and approved by resolutions of the Board of Trustees, a
copy of which, certified by an Officer, shall have been delivered
to the Custodian.
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 Appointment. The Trust hereby constitutes and appoints
the Custodian as custodian of all Securities and cash owned by or
in the possession of the Trust at any time during the period of
this Agreement, provided that such Securities or cash at all times
shall be and remain the property of the Trust.
2.2 Acceptance. The Custodian hereby accepts appointment as
such custodian and agrees to perform the duties thereof as
hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 Segregation. All Securities and non-cash property held
by the Custodian for the account of the Fund, except Securities
maintained in a Securities Depository or Book-Entry System, shall
be physically segregated from other Securities and non-cash
property in the possession of the Custodian and shall be identified
as subject to this Agreement.
3.2 Custody Account. The Custodian shall open and maintain
in its trust department a custody account in the name of each Fund,
subject only to draft or order of the Custodian, in which the
Custodian shall enter and carry all Securities, cash and other
assets of the Fund which are delivered to it.
3.3 Appointment of Agents. Subject to the continuing
approval of the Board of Trustees, the Custodian may appoint, and
at any time remove, any domestic bank or trust company, and is
qualified to act as a custodian under the 1940 Act, as sub-
custodian to hold Securities and cash of the Funds and to carry out
such other provisions of this Agreement as it may determine, and
may also open and maintain one or more banking accounts with such
a bank or trust company (any such accounts to be in the name of the
Custodian and subject only to its draft or order), provided,
however, that the appointment of any such agent shall not relieve
the Custodian of any of its obligations or liabilities under this
Agreement.
3.4 Delivery of Assets to Custodian. The Fund shall deliver,
or cause to be delivered, to the Custodian all of the Fund's
Securities, cash and other assets, including (a) all payments of
income, payments of principal and capital distributions received by
the Fund with respect to such Securities, cash or other assets
owned by the Fund at any time during the period of this Agreement,
and (b) all cash received by the Fund for the issuance, at any time
during such period, of Shares. The Custodian shall not be
responsible for such Securities, cash or other assets until
actually received by it.
3.5 Securities Depositories and Book-Entry Systems. The
Custodian may deposit and/or maintain Securities of the Funds in a
Securities Depository or in a Book-Entry System, subject to the
following provisions:
(a) Prior to a deposit of Securities of the Funds in any
Securities Depository or Book-Entry System, the Fund
shall deliver to the Custodian a resolution of the Board
of Trustees, certified by an Officer, authorizing and
instructing the Custodian on an on-going basis to deposit
in such Securities Depository or Book-Entry System all
Securities eligible for deposit therein and to make use
of such Securities Depository or Book-Entry System to the
extent possible and practical in connection with its
performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of
Securities, loans of Securities, and deliveries and
returns of collateral consisting of Securities.
(b) Securities of a Fund kept in a Book-Entry System or
Securities Depository shall be kept in an account
("Depository Account") of the Custodian in such Book-
Entry System or Securities Depository which includes only
assets held by the Custodian as a fiduciary, custodian or
otherwise for customers.
(c) The records of the Custodian and the Custodian's account
on the books of the Book-Entry System and Securities
Depository as the case may be, with respect to Securities
of a Fund maintained in a Book-Entry System or Securities
Depository shall, by book-entry or otherwise, identify
such Securities as belonging to the Fund.
(d) If Securities purchases by the Fund are to be held in a
Book-Entry System or Securities Depository, the Custodian
shall pay for such Securities upon (i) receipt of advice
from the Book-Entry System or Securities Depository that
such Securities have been transferred to the Depository
Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for
the account of the Fund. If Securities sold by the Fund
are held in a Book-Entry System or Securities Depository,
the Custodian shall transfer such Securities upon (i)
receipt of advice from the Book-Entry System or
Securities depository that payment for such Securities
has been transferred to the Depository Account, and (ii)
the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the
Fund.
(e) Upon request, the Custodian shall provide the Fund with
copies of any report (obtained by the Custodian from a
Book-Entry System or Securities Depository in which
Securities of the Fund is kept) on the internal
accounting controls and procedures for safeguarding
Securities deposited in such Book-Entry System or
Securities Depository.
(f) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the
Trust for any loss or damage to the Trust resulting (i)
from the use of a Book-Entry System or Securities
Depository by reason of any negligence or willful
misconduct on the part of the Custodian or any sub-
custodian appointed pursuant to Section 3.3 above or any
of its or their employees, or (ii) from failure of the
Custodian or any such sub-custodian to enforce
effectively such rights as it may have against a Book-
Entry System or Securities Depository. At its election,
the Trust shall be subrogated to the rights of the
Custodian with respect to any claim against a Book-Entry
System or Securities Depository or any other person for
any loss or damage to the Funds arising from the use of
such Book-Entry System or Securities Depository, if and
to the extent that the Custodian has been made whole for
any such loss or damage.
3.6 Disbursement of Moneys from Custody Accounts. Upon
receipt of Proper Instructions, the Custodian shall disburse moneys
from a Custody Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only upon
compliance with Section 4.1 of this Agreement and only
(i) in the case of Securities (other than options on
Securities, futures contracts and options on futures
contracts), against the delivery to the Custodian (or any
sub-custodian appointed pursuant to Section 3.3 above) of
such Securities registered as provided in Section 3.9
below in proper form for transfer, or if the purchase of
such Securities is effected through a Book-Entry System
or Securities Depository, in accordance with the
conditions set forth in Section 3.5 above; (ii) in the
case of options on Securities, against delivery to the
Custodian (or such sub-custodian) of such receipts as are
required by the customs prevailing among dealers in such
options; (iii) in the case of futures contracts and
options on futures contracts, against delivery to the
Custodian (or such sub-custodian) of evidence of title
thereto in favor of the Trust or any nominee referred to
in Section 3.9 below; and (iv) in the case of repurchase
or reverse repurchase agreements entered into between the
Trust and a bank which is a member of the Federal Reserve
System or between the Trust and a primary dealer in U.S.
Government securities, against delivery of the purchased
Securities either in certificate form or through an entry
crediting the Custodian's account at a Book-Entry System
or Securities Depository for the account of the Fund with
such Securities;
(b) In connection with the conversion, exchange or surrender,
as set forth in Section 3.7(f) below, of Securities owned
by the Fund;
(c) For the payment of any dividends or capital gain
distributions declared by the Fund;
(d) In payment of the redemption price of Shares as provided
in Section 5.1 below;
(e) For the payment of any expense or liability incurred by
the Trust, including but not limited to the following
payments for the account of a Fund: interest; taxes;
administration, investment management, investment
advisory, accounting, auditing, transfer agent,
custodian, trustee and legal fees; and other operating
expenses of a Fund; in all cases, whether or not such
expenses are to be in whole or in part capitalized or
treated as deferred expenses;
(f) For transfer in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer registered under the 1934 Act and a member of the
NASD, relating to compliance with rules of The Options
Clearing Corporation and of any registered national
securities exchange (or of any similar organization or
organizations) regarding escrow or other arrangements in
connection with transactions by the Trust;
(g) For transfer in accordance with the provisions of any
agreement among the Trust, the Custodian, and a futures
commission merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or
organizations) regarding account deposits in connection
with transactions by the Trust;
(h) For the funding of any uncertificated time deposit or
other interest-bearing account with any banking
institution (including the Custodian), which deposit or
account has a term of one year or less; and
(i) For any other proper purposes, but only upon receipt, in
addition to Proper Instructions, of a copy of a
resolution of the Board of Trustees, certified by an
Officer, specifying the amount and purpose of such
payment, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom such
payment is to be made.
3.7 Delivery of Securities from Fund Custody Accounts. Upon
receipt of Proper Instructions, the Custodian shall release and
deliver Securities from a Custody Account but only in the following
cases:
(a) Upon the sale of Securities for the account of a Fund but
only against receipt of payment therefor in cash, by
certified or cashiers check or bank credit;
(b) In the case of a sale effected through a Book-Entry
System or Securities Depository, in accordance with the
provisions of Section 3.5 above;
(c) To an offeror's depository agent in connection with
tender or other similar offers for Securities of a Fund;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
(d) To the issuer thereof or its agent (i) for transfer into
the name of the Trust, the Custodian or any sub-custodian
appointed pursuant to Section 3.3 above, or of any
nominee or nominees of any of the foregoing, or (ii) for
exchange for a different number of certificates or other
evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
Securities are to be delivered to the Custodian;
(e) To the broker selling Securities, for examination in
accordance with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization
or readjustment of the issuer of such Securities, or
pursuant to provisions for conversion contained in such
Securities, or pursuant to any deposit agreement,
including surrender or receipt of underlying Securities
in connection with the issuance or cancellation of
depository receipts; provided that, in any such case, the
new Securities and cash, if any, are to be delivered to
the Custodian;
(g) Upon receipt of payment therefor pursuant to any
repurchase or reverse repurchase agreement entered into
by a Fund;
(h) In the case of warrants, rights or similar Securities,
upon the exercise thereof, provided that, in any such
case, the new Securities and cash, if any, are to be
delivered to the Custodian;
(i) For delivery in connection with any loans of Securities
of a Fund, but only against receipt of such collateral as
the Trust shall have specified to the Custodian in Proper
Instructions;
(j) For delivery as security in connection with any
borrowings by the Trust on behalf of a Fund requiring a
pledge of assets by such Fund, but only against receipt
by the Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization
of the Trust or a Fund;
(l) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer registered under the 1934 Act and a member of the
NASD, relating to compliance with the rules of The
Options Clearing Corporation and of any registered
national securities exchange (or of any similar
organization or organizations) regarding escrow or other
arrangements in connection with transactions by the Trust
on behalf of a Fund;
(m) For delivery in accordance with the provisions of any
agreement among the Trust on behalf of a Fund, the
Custodian, and a futures commission merchant registered
under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading
Commission and/or any contract market (or any similar
organization or organizations) regarding account deposits
in connection with transactions by the Trust on behalf of
a Fund; or
(n) For any other proper corporate purposes, but only upon
receipt, in addition to Proper Instructions, of a copy of
a resolution of the Board of Trustees, certified by an
Officer, specifying the Securities to be delivered,
setting forth the purpose for which such delivery is to
be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom
delivery of such Securities shall be made.
3.8 Actions Not Requiring Proper Instructions. Unless
otherwise instructed by the Trust, the Custodian shall with respect
to all Securities held for a Fund;
(a) Subject to Section 7.4 below, collect on a timely basis
all income and other payments to which the Trust is
entitled either by law or pursuant to custom in the
securities business;
(b) Present for payment and, subject to Section 7.4 below,
collect on a timely basis the amount payable upon all
Securities which may mature or be called, redeemed, or
retired, or otherwise become payable;
(c) Endorse for collection, in the name of the Trust, checks,
drafts and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary
form for Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the federal income tax
laws or the laws or regulations of any other taxing
authority now or hereafter in effect, and prepare and
submit reports to the Internal Revenue Service ("IRS")
and to the Trust at such time, in such manner and
containing such information as is prescribed by the IRS;
(f) Hold for a Fund, either directly or, with respect to
Securities held therein, through a Book-Entry System or
Securities Depository, all rights and similar securities
issued with respect to Securities of the Fund; and
(g) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details in
connection with sale, exchange, substitution, purchase,
transfer and other dealings with Securities and assets of
the Fund.
3.9 Registration and Transfer of Securities. All Securities
held for a Fund that are issued or issuable only in bearer form
shall be held by the Custodian in that form, provided that any such
Securities shall be held in a Book-Entry System for the account of
the Trust on behalf of a Fund, if eligible therefor. All other
Securities held for a Fund may be registered in the name of the
Trust on behalf of such Fund, the Custodian, or any sub-custodian
appointed pursuant to Section 3.3 above, or in the name of any
nominee of any of them, or in the name of a Book-Entry System,
Securities Depository or any nominee of either thereof; provided,
however, that such Securities are held specifically for the account
of the Trust on behalf of a Fund. The Trust shall furnish to the
Custodian appropriate instruments to enable the Custodian to hold
or deliver in proper form for transfer, or to register in the name
of any of the nominees hereinabove referred to or in the name of a
Book-Entry System or Securities Depository, any Securities
registered in the name of a Fund.
3.10 Records. (a) The Custodian shall maintain, by Fund,
complete and accurate records with respect to Securities, cash or
other property held for the Trust, including (i) journals or other
records of original entry containing an itemized daily record in
detail of all receipts and deliveries of Securities and all
receipts and disbursements of cash; (ii) ledgers (or other records)
reflecting (A) Securities in transfer, (B) Securities in physical
possession, (C) monies and Securities borrowed and monies and
Securities loaned (together with a record of the collateral
therefor and substitutions of such collateral), (D) dividends and
interest received, and (E) dividends receivable and interest
accrued; and (iii) cancelled checks and bank records related
thereto. The Custodian shall keep such other books and records of
the Trust as the Trust shall reasonably request, or as may be
required by the 1940 Act, including, but not limited to Section 31
and Rule 31a-1 and 31a-2 promulgated thereunder.
(b) All such books and records maintained by the Custodian
shall (i) be maintained in a form acceptable to the Trust and in
compliance with rules and regulations of the Securities and
Exchange Commission, (ii) be the property of the Trust and at all
times during the regular business hours of the Custodian be made
available upon request for inspection by duly authorized officers,
employees or agents of the Trust and employees or agents of the
Securities and Exchange Commission, and (iii) if required to be
maintained by Rule 31a-1 under the 1940 Act, be preserved for the
periods prescribed in Rule 31a-2 under the 1940 Act.
3.11 Fund Reports by Custodian. The Custodian shall furnish
the Trust with a daily activity statement by Fund and a summary of
all transfers to or from the Custody Account on the day following
such transfers. At least monthly and from time to time, the
Custodian shall furnish the Trust with a detailed statement, by
Fund, of the Securities and moneys held for the Trust under this
Agreement.
3.12 Other Reports by Custodian. The Custodian shall provide
the Trust with such reports, as the Trust may reasonably request
from time to time, on the internal accounting controls and
procedures for safeguarding Securities, which are employed by the
Custodian or any sub-custodian appointed pursuant to Section 3.3
above.
3.13 Proxies and Other Materials. The Custodian shall cause
all proxies, if any, relating to Securities which are not
registered in the name of a Fund, to be promptly executed by the
registered holder of such Securities, without indication of the
manner in which such proxies are to be voted, and shall include all
other proxy materials, if any, promptly deliver to the Trust such
proxies, all proxy soliciting materials, and all notices to the
holders of such Securities.
3.14 Information on Corporate Actions. The Custodian will
promptly notify the Trust of corporate actions, limited to those
Securities registered in nominee name and to those Securities held
at a Depository or sub-Custodian acting as agent for the Custodian.
The Custodian will be responsible only if the notice of such
corporate actions is published by the Financial Card Service, J.J.
Kenny's Munibase System, Depository Trust Reorganization Notices,
Xcitek Inc., Standard & Poor's Called Bond Listing or The Wall
Street Journal or received by first class mail from the agent. For
market announcements not yet received and distributed by the
Custodian's services, the Trust will inform its custody
representative with appropriate instructions. The Custodian will,
upon receipt of the Trusts's response within the required deadline,
effect such action for receipt or payment for the Trust. For those
responses received after the deadline, the Custodian will effect
such action for receipt or payment, subject to the limitations of
the agent(s) effecting such actions. The Custodian will promptly
notify the Trust for put options only if the notice is received by
first class mail from the agent. The Trust will provide or cause
to be provided to the Custodian with all relevant information
contained in the prospectus for any security which has unique
put/option provisions and provide the Custodian with specific
tender instructions at least ten business days prior to the
beginning date of the tender period.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
4.1 Purchase of Securities. Promptly upon each purchase of
Securities for the Trust, Written Instructions shall be delivered
to the Custodian, specifying (a) the Fund making the purchase, (b)
the name of the issuer or writer of such Securities, and the title
or other description thereof, (c) the number of shares, principal
amount (and accrued interest, if any) or other units purchased, (d)
the date of purchase and settlement, (e) the purchase price per
unit, (f) the total amount payable upon such purchase, and (g) the
name of the person to whom such amount is payable. The Custodian
shall upon receipt of such Securities purchased by a Fund pay out
of the moneys held for the account of such Fund the total amount
specified in such Written Instructions to the person named therein.
The Custodian shall not be under any obligation to pay out moneys
to cover the cost of a purchase of Securities for a Fund, if in the
relevant Custody Account there is insufficient cash available to
the Fund for which such purchase was made.
4.2 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for the purchase of
Securities for a Fund is made by the Custodian in advance of
receipt for the account of the Fund of the Securities purchased but
in the absence of specific Written or Oral Instructions to so pay
in advance, the Custodian shall be liable to the Fund for such
Securities to the same extent as if the Securities had been
received by the Custodian.
4.3 Sale of Securities. Promptly upon each sale of
Securities by a Fund, Written Instructions shall be delivered to
the Custodian, specifying (a) the Fund making the purchase, (b) the
name of the issuer or writer of such Securities, and the title or
other description thereof, (c) the number of shares, principal
amount (and accrued interest, if any), or other units sold, (d) the
date of sale and settlement (e) the sale price per unit, (f) the
total amount payable upon such sale, and (g) the person to whom
such Securities are to be delivered. Upon receipt of the total
amount payable to the Trust as specified in such Written
Instructions, the Custodian shall deliver such Securities to the
person specified in such Written Instructions. Subject to the
foregoing, the Custodian may accept payment in such form as shall
be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in
Securities.
4.4 Delivery of Securities Sold. Notwithstanding Section 4.3
above or any other provision of this Agreement, the Custodian, when
instructed to deliver Securities against payment, shall be
entitled, if so directed in Written Instructions and if in
accordance with generally accepted market practice, to deliver such
Securities prior to actual receipt of final payment therefor. In
any such case, the Trust shall bear the risk that final payment for
such Securities may not be made or that such Securities may be
returned or otherwise held or disposed of by or through the person
to whom they were delivered, and the Custodian shall have no
liability for any of the foregoing.
4.5 Payment for Securities Sold, etc. In its sole discretion
and from time to time, the Custodian may credit the relevant
Custody Account, prior to actual receipt of final payment thereof,
with (i) proceeds from the sale of Securities which it has been
instructed to deliver against payment, (ii) proceeds from the
redemption of Securities or other assets of the Trust, and (iii)
income from cash, Securities or other assets of the Trust. Any
such credit shall be conditional upon actual receipt by the
Custodian of final payment and may be reversed if final payment is
not actually received in full. The Custodian may, in its sole
discretion and from time to time, permit the Trust to use funds so
credited to its Custody Account in anticipation of actual receipt
of final payment. Any such funds shall be repayable immediately
upon demand made by the Custodian at any time prior to the actual
receipt of all final payments in anticipation of which funds were
credited to the Custody Account.
4.6 Advances by Custodian for Settlement. If the Custodian
should, in its sole discretion, advance funds to the Trust to
facilitate the settlement of transactions on behalf of a Fund in
its Custody Account, then such advance shall be repayable
immediately upon demand made by the Custodian and shall bear
interest from the date incurred at a rate per annum (based on a
360-day year from the actual number of days involved) equal to 1%
over the Federal Funds rate in effect from time to time as
announced by The Wall Street Journal under the section entitled
Money Rates, or any successor title, such rate to be adjusted on
the effective date of any changes in such rate.
ARTICLE V
REDEMPTION OF TRUST SHARES
5.1 Transfer of Funds. From such funds as may be available
for the purpose in the relevant Custody Account, and upon receipt
of Proper Instructions specifying that the funds are required to
redeem Shares of a Fund, the Custodian shall wire each amount
specified in such Proper Instructions to or through such bank as
the Trust may designate with respect to such amount in such Proper
Instructions.
5.2 No Duty Regarding Paying Banks. The Custodian shall not
be under any obligation to effect payment or distribution by any
bank designated in Proper Instructions given pursuant to Section
5.1 above of any amount paid by the Custodian to such bank in
accordance with such Proper Instructions.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of and in conformity with Proper Instructions,
the Custodian shall establish and maintain a segregated account or
accounts for and on behalf of each Fund, into and from which
account or accounts may be transferred cash and/or Securities,
including Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement among
the Trust, the Custodian and a broker-dealer registered
under the 1934 Act and a member of the NASD (or any
futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the
rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity
Futures Trading commission or any registered contract
market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Trust,
(b) for purposes of segregating cash or Securities in
connection with securities options purchased or written
by a Fund or in connection with financial futures
contracts (or options thereon) purchased or sold by a
Fund,
(c) which constitute collateral for loans of Securities made
by a Fund,
(d) for purposes of compliance by the Trust with requirements
under the 1940 Act for the maintenance of segregated
accounts by registered investment companies in connection
with reverse repurchase agreements and when-issued,
delayed delivery and firm commitment transactions, and
(e) for other proper corporate purposes, but only upon
receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board of Trustees,
certified by an Officer, setting forth the purpose or
purposes of such segregated account and declaring such
purposes to be proper corporate purposes.
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1 Standard of Care. The Custodian shall be held to the
exercise of reasonable care in carrying out its obligations under
this Agreement, and shall be without liability to the Trust for any
loss, damage, cost, expense (including attorneys' fees and
disbursements), liability or claim unless such loss, damages, cost,
expense, liability or claim arises from negligence, bad faith or
willful misconduct on its part or on the part of any sub-custodian
appointed pursuant to Section 3.3 above. The Custodian shall be
entitled to rely on and may act upon advice of counsel on all
matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice. The Custodian shall
promptly notify the Trust of any action taken or omitted by the
Custodian pursuant to advice of counsel. The Custodian shall not
be under any obligation at any time to ascertain whether the Trust
is in compliance with the 1940 Act, the regulations thereunder, the
provisions of the Trust's charter documents or by-laws, or its
investment objectives and policies as then in effect.
7.2 Actual Collection Required. The Custodian shall not be
liable for, or considered to be custodian of, any cash belonging to
the Trust or any money represented by a check, draft or other
instrument for the payment of money, until the Custodian or its
agents actually receive such cash or collect on such instrument.
7.3 No Responsibility for title, etc. So long as and to the
extent that it is in the exercise of reasonable care, the Custodian
shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received or delivered by
it pursuant to this Agreement.
7.4 Limitation on Duty to Collect. The Custodian shall not
be required to enforce collection, by legal means or otherwise, of
any money or property due and payable with respect to Securities
held for the Trust if such Securities are in default or payment is
not made after due demand or presentation. The Custodian shall
inform the Trust promptly of any such default or failure to make
payment.
7.5 Reliance Upon Documents and Instructions. The Custodian
shall be entitled to rely upon any certificate, notice or other
instrument in writing received by it and reasonably believed by it
to be genuine. The Custodian shall be entitled to rely upon any
Oral Instructions and/or any Written Instructions actually received
by it pursuant to this Agreement.
7.6 Express Duties Only. The Custodian shall have no duties
or obligations whatsoever except such duties and obligations as are
specifically set forth in this Agreement, and no covenant or
obligation shall be implied in this Agreement against the
Custodian.
7.7 Cooperation. The Custodian shall cooperate with and
supply necessary information to the entity or entities appointed by
the Trust to keep the books of account of the Trust and/or compute
the value of the assets of the Trust. The Custodian shall take all
such reasonable actions as the Trust may from time to time request
to enable the Trust to obtain, from year to year, favorable
opinions from the Trust's independent accountants with respect to
the Custodian's activities hereunder in connection with (a) the
preparation of the Trust's filings on Form N-1A and Form N-SAR and
any other reports required by the Securities and Exchange
Commission, and (b) the fulfillment by the Trust of any other
requirements of the Securities and Exchange Commission.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification. The Trust shall indemnify and hold
harmless the Custodian and any sub-custodian appointed pursuant to
Section 3.3 above, and any nominee of the Custodian or of such sub-
custodian from and against any loss, damage, cost, expense
(including attorneys' fees and disbursements), liability
(including, without limitation, liability arising under the
Securities Act of 1933, the 1934 Act, the 1940 Act, and any state
or foreign securities and/or banking laws) or claim arising
directly or indirectly (a) from the fact that Securities are
registered in the name of any such nominee, or (b) from any action
or inaction by the Custodian or such sub-custodian (i) at the
request or direction of or in reliance on the advice of the Trust,
or (ii) upon Proper Instructions, or (c) generally, from the
performance of its obligations under this Agreement or any sub-
custody agreement with a sub-custodian appointed pursuant to
Section 3.3 above or, in the case of any such sub-custodian, from
the performance of its obligations under such custody agreement,
provided that neither the Custodian nor any such sub-custodian
shall be indemnified and held harmless from and against any such
loss, damage, cost, expense, liability or claim arising from the
Custodian's or such sub-custodian's negligence, bad faith or
willful misconduct.
8.2 Indemnity to be Provided. If the Trust requests the
Custodian to take any action with respect to Securities, which may,
in the opinion of the Custodian, result in the Custodian or its
nominee becoming liable for the payment of money or incurring
liability of some other form, the Custodian shall not be required
to take such action until the Trust shall have provided indemnity
therefor to the Custodian in an amount and form satisfactory to the
Custodian.
ARTICLE IX
FORCE MAJEURE
Neither the Custodian nor the Trust shall be liable for any
failure or delay in performance of its obligations under this
Agreement arising out of or caused, directly or indirectly, by
circumstances beyond its reasonable control, including, without
limitation, acts of God; earthquakes; fires; floods; wars; civil or
military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its
reasonable control as may cause interruption, loss or malfunction
of utility, transportation, computer (hardware or software) or
telephone communication service; accidents; labor disputes, acts of
civil or military authority; governmental actions; or inability to
obtain labor, material, equipment or transportation; provided,
however, that the Custodian in the event of a failure or delay
shall use its best efforts to ameliorate the effects of any such
failure or delay.
ARTICLE X
EFFECTIVE PERIOD; TERMINATION
10.1 Effective Period. This Agreement shall become effective
as of the date first set forth above and shall continue in full
force and effect until terminated as hereinafter provided.
10.2 Termination. Either party hereto may terminate this
Agreement by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less
than ninety (90) days after the date of the giving of such notice.
If a successor custodian shall have been appointed by the Board of
Trustees, the Custodian shall, upon receipt of a notice of
acceptance by the successor custodian, on such specified date of
termination (a) deliver directly to the successor custodian all
Securities (other than Securities held in a Book-Entry System or
Securities Depository) and cash then owned by the Trust and held by
the Custodian as custodian, and (b) transfer any Securities held in
a Book-Entry System or Securities Depository to an account of or
for the benefit of the Trust at the successor custodian, provided
that the Trust shall have paid to the Custodian all fees, expenses
and other amounts to the payment or reimbursement of which it shall
then be entitled. Upon such delivery and transfer, the Custodian
shall be relieved of all obligations under this Agreement. The
Trust may at any time immediately terminate this Agreement in the
event of the appointment of a conservator or receiver for the
Custodian by regulatory authorities in the State of Ohio or upon
the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
10.3 Failure to Appoint Successor Custodian. If a successor
custodian is not designated by the Trust on or before the date of
termination specified pursuant to Section 10.1 above, then the
Custodian shall have the right to deliver to a bank or trust
company of its own selection, which is (a) a "Bank" as defined in
the 1940 Act, (b) has aggregate capital, surplus and undivided
profits as shown on its then most recent published report of not
less than $25 million, and (c) is doing business in New York, New
York, all Securities, cash and other property held by the Custodian
under this Agreement and to transfer to an account of or for the
Trust at such bank or trust company all Securities of the Trust
held in a Book-Entry System or Securities Depository. Upon such
delivery and transfer, such bank or trust company shall be the
successor custodian under this Agreement and the Custodian shall be
relieved of all obligations under this Agreement. If, after
reasonable inquiry, the Custodian cannot find a successor custodian
as contemplated in this Section 10.3, then the Custodian shall have
the right to deliver to the Trust all Securities and cash then
owned by the Trust and to transfer any Securities held in a Book-
Entry System or Securities Depository to an account of or for the
Trust. Thereafter, the Trust shall be deemed to be its own
custodian with respect to the Trust and the Custodian shall be
relieved of all obligations under this Agreement.
ARTICLE XI
COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to compensation as agreed upon
from time to time by the Trust and the Custodian. The fees and
other charges in effect on the date hereof and applicable to the
Funds are set forth in Exhibit C attached hereto.
ARTICLE XII
LIMITATION OF LIABILITY
The Trust is a business trust organized under the laws of the
Commonwealth of Massachusetts and under a Declaration of Trust, to
which reference is hereby made a copy of which is on file at the
office of the Secretary of State of Massachusetts as required by
law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of the Trust entered into in the name of
the Trust or on behalf thereof by any of the Trustees, officers,
employees or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, officers,
employees, agents or shareholders of the Trust or the Funds
personally, but bind only the assets of the Trust, and all persons
dealing with any of the Funds of the Trust must look solely to the
assets of the Trust belonging to such Fund for the enforcement of
any claims against the Trust.
ARTICLE XIII
NOTICES
Unless otherwise specified herein, all demands, notices,
instructions, and other communications to be given to a party
hereunder shall be in writing and shall be sent or delivered to the
party at the address set forth after its name herein below:
To the Trust:
NARRAGANSETT INSURED TAX-FREE INCOME FUND
380 Madison Avenue
New York, NY 10017
Attn: Mr. Richard F. West, Treasurer and Mr.
William Killeen, Senior Operations
Officer
Telephone: (212)-697-6666
Facsimile: (212)-687-5373
To the Custodian:
BANK ONE TRUST COMPANY, N.A.,
100 East Broad Street
Columbus, OH 43271-0187
Attention: Mr. Robert F. Schultz, Senior Trust
Officer
Telephone: (614)-248-5445
Facsimile: (614)-248-2554
or at such other address as either party shall have provided to the
other by notice given in accordance with this Article XIII.
Writing shall include transmission by or through teletype,
facsimile, central processing unit connection, on-line terminal and
magnetic tape.
ARTICLE XIV
MISCELLANEOUS
14.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
14.2 No Waiver. No failure by either party hereto to exercise
and no delay by such party in exercising, any right hereunder shall
operate as a waiver thereof. The exercise by either party hereto
of any right hereunder shall not preclude the exercise of any other
right, and the remedies provided herein are cumulative and not
exclusive of any remedies provided at law or in equity.
14.3 Amendments. This Agreement cannot be changed orally and
no amendment to this Agreement shall be effective unless evidenced
by an instrument in writing executed by the parties hereto.
14.4 Counterparts. This Agreement may be executed in one or
more counterparts, and by the parties hereto on separate
counterparts, each of which shall be deemed an original but all of
which together shall constitute but one and the same instrument.
14.5 Severability. If any provision of this Agreement shall
be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the
remaining provisions shall not be affected or impaired thereby.
14.6 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that this
Agreement shall not be assignable by either party hereto without
the written consent of the other party hereto.
14.7 Headings. The headings of sections in this Agreement are
for convenience of reference only and shall not affect the meaning
or construction of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered in its name and on its
behalf by its representatives thereunto duly authorized, all as of
the day and year first above written.
ATTEST: NARRAGANSETT INSURED TAX-FREE
INCOME FUND
/s/Patricia A. Craven /s/Lacy B. Herrmann
_____________________ By: ______________________
Assistant Secretary President
ATTEST: BANK ONE TRUST COMPANY, N.A.
/s/Beth Hayes /s/Robert F. Schultz
______________________ By: _______________________
Senior Trust Officer
<PAGE>
EXHIBIT A
Name of Fund (if different from Date Added (if
the Trust different from
date of original
Custody Agreement
<PAGE>
EXHIBIT B
I, Richard F. West, Treasurer, and I, Patricia Craven, Assistant
Secretary, of NARRAGANSETT INSURED TAX-FREE INCOME FUND, a
Massachusetts business trust (the "Fund"), do hereby certify that:
The following individuals have been duly authorized by the Board of
Trustees of the Fund in conformity with the Fund's Declaration of
Trust and By-Laws to give Oral Instructions and Certificate on
behalf of the Fund, and the signatures set forth opposite their
respective names are their true and correct signatures:
NAME SIGNATURE
/s/Lacy B. Herrmann
Lacy B. Herrmann _____________________________
Rose F. Marotta _____________________________
/s/Richard F. West
Richard F. West _____________________________
/s/William C. Wallace
William C. Wallace _____________________________
/s/Diana P. Herrmann
Diana P. Herrmann _____________________________
/s/Charles E. Childs III
Charles E. Childs III _____________________________
/s/John M. Herndon
John M. Herndon _____________________________
/s/William Killeen
William Killeen _____________________________
/s/Patricia A. Craven
Patricia A. Craven _____________________________
/s/Richard F. West /s/Patricia A. Craven
________________________ _____________________________
Richard F. West, Patricia A. Craven,
Treasurer Assistant Secretary
<PAGE>
EXHIBIT C
Compensation of Custodian - Bond Funds
Whereas Article XI of the Custody Agreement between Narragansett
Insured Tax-Free Income Fund and Bank One Trust Company, N.A.
stipulates that the compensation of Custodian shall be agreed upon
by the Trust and Custodian, the following is hereby agreed:
The compensation of the Custodian shall be computed according to
the following schedule:
I. Annual Holding Fee:
.00006 times the market value of assets held
II. Activity Fee:
A. $5.00 per book entry security transaction.
For the purpose of this agreement, a "transaction "
includes, but is not limited to, a purchase sale,
maturity, redemption, tender, exchange, deposit,
withdrawal, and collateral movement of a security.
B. $28.00 per ineligible security transaction.
C. $10.00 per principal paydown on amortized issues.
II. Other Activity Fees:
A. $5.00 per wire.
B. $2.00 per outgoing check from custody account.
III. Overdraft Charges:
As described in Section 4.6 of the Custody Agreement,
overdraft charges will be at 100 basis points above the
Fed Funds rate.
An earnings credit using the most recent 90-day T-bill auction rate
applied to 90% of each day's positive collected balance will reduce
custody, FDIC and other fees as allowed by law. For each month
that the charges exceed the earnings credit, the deficiency shall
be paid to Custodian. For each month that the earnings credit
exceeds the charges, the Custodian shall carry such surplus credits
forward to subsequent month(s) and calendar year(s) until utilized.
Custodian is to be reimbursed for out of pocket expenses deemed to
be exceptional.
The above fee schedule will remain in effect until March 31, 1998
and thereafter unless changed.
As stated by the Custodian in bidding to provide custody services
to the Fund, if at any time the Fund is not completely satisfied
with the Custodian's service levels, the Custodian will cease to
charge custody fees until its responsiveness and accuracy meet the
requirements of the Fund.
TRANSFER AGENCY AGREEMENT
THIS AGREEMENT is made this 14th day of September, 1992, by
and between NARRAGANSETT INSURED TAX-FREE INCOME FUND, an
unincorporated business trust organized under the laws of
Massachusetts (the "Fund"), and ADMINISTRATIVE DATA MANAGEMENT
CORP., a corporation organized and existing under the laws of the
State of New York ("ADM").
R E C I T A L S
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of
1940, as amended (the "1940 Act") currently offering one class of
shares (the "Shares"); and
WHEREAS, the Fund desires to retain ADM to serve as the
Fund's transfer agent, registrar and dividend disbursing agent,
and ADM is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties
hereto as follows:
1. Appointment. The Fund hereby appoints ADM to serve as
transfer agent, registrar and dividend disbursing agent for the
Fund, for the period and on the terms set forth in this
Agreement. ADM accepts such appointment and agrees to furnish
the services herein set forth in return for the compensation as
provided for in Paragraph 15 of this Agreement.
2. Delivery of Documents. (a) The Fund has furnished ADM
with copies properly certified or authenticated of each of the
following:
(i) Resolutions of the Fund's Board of Trustees
authorizing the execution of this Agreement;
(ii) Appendix B identifying and containing the
signatures of the Fund's officers and other persons authorized to
sign Written Instructions and give Oral Instructions, each as
hereinafter defined, on behalf of the Fund;
(iii) The Fund's Declaration of Trust filed with the
Secretary of State of the Commonwealth of Massachusetts and all
amendments thereto (such Declaration of Trust, as presently in
effect and as it shall from time to time be amended, is herein
called the "Declaration");
(iv) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they shall from time
to time be amended, are herein called the "By-Laws");
(v) The Fund's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended (the "1933 Act") and
under the 1940 Act as filed with the Securities and Exchange
Commission ("SEC") and all amendments thereto;
(vi) The Fund's most recent prospectus and statement
of additional information (such prospectus and statement of
additional information, as from time to time in effect and all
amendments and supplements thereto are herein called the
"Prospectus").
(b) ADM has furnished the Fund with copies properly
certified or authenticated its Registration Statement on Form TA-
1 under the Securities Exchange Act of 1934, as amended and all
annual or other public reports filed with the SEC as may be
requested by the Fund.
(c) Each party from time to time will furnish the
other with copies, properly certified or authenticated, of all
amendments or supplements to the foregoing, if any. Neither
party is obligated hereby to provide the other with otherwise
confidential information.
3. Definitions.
(a) "Authorized Person". As used in this Agreement,
the term "Authorized Person" means the Fund's officers and other
persons duly authorized by the Board of Trustees of the Fund to
give Oral and Written Instructions on behalf of the Fund and
listed on the Certificate annexed hereto as Appendix B or any
amendment thereto as may be received by ADM from time to time.
(b) "Oral Instructions". As used in this Agreement,
the term "Oral Instructions" means verbal instructions actually
received by ADM from an Authorized Person or from a person
reasonably believed by ADM to be an Authorized Person. The Fund
agrees to deliver to ADM Written Instructions confirming Oral
Instructions.
(c) "Written Instructions". As used in this
Agreement, the term "Written Instructions" means written
instructions delivered by mail, telegram, cable, telex or
facsimile sending device, and received by ADM and signed by an
Authorized Person or reasonably believed by ADM to have been
signed by or authorized by an Authorized Person unless otherwise
required by a resolution of the Board of Trustees furnished to
ADM pursuant to Section 2(a) hereof.
4. Instructions Consistent with Declaration, etc.
(a) Unless otherwise provided in this Agreement, ADM
shall act only upon Oral or Written Instructions. Although ADM
may take cognizance of the provisions of the Declaration and By-
Laws of the Fund, the Fund's Prospectus and the laws, rules and
regulations applicable to the Fund, ADM may assume that any Oral
or Written Instructions received hereunder are not in any way
inconsistent with any provisions of such Declaration or By-Laws,
the Fund's Prospectus or with any laws, rules or regulations
applicable to the Fund or any vote, resolution or proceeding of
the Shareholders, or of the Board of Trustees, or of any
committee thereof.
(b) ADM shall be entitled to rely upon any Oral
Instructions and any Written Instructions actually received by
ADM pursuant to this Agreement and shall have no liability for
any action which it takes or omits in accordance with such Oral
Instructions or Written Instructions, whether received from
personnel of the Fund, its investment adviser, its administrator,
or otherwise. The Fund agrees to forward to ADM Written
Instructions confirming Oral Instructions in such manner that the
Written Instructions are received by ADM, whether by hand
delivery, telex, facsimile sending device or otherwise, as
promptly as practicable after Oral Instructions are given to ADM.
The Fund agrees that the fact that such confirming Written
Instructions are not received by ADM shall in no way affect the
validity of the actions or transactions or enforceability of the
actions or transactions authorized by the Fund by giving Oral
Instructions.
5. Transactions Not Requiring Instructions.
(a) In the absence of contrary Written Instructions,
ADM is authorized to take and to the extent set forth in the
Activities List shall take the following actions:
(i) issuance, transfer and redemption of Shares;
(ii) opening, maintenance, servicing and closing
of accounts of Shareholders or prospective Shareholders;
(iii) acting as agent of the Fund, in connection
with plan accounts, upon the terms and subject to the conditions
contained in the application relating to the plan account in
question;
(iv) causing the reinvestment in Shareholders'
accounts of dividends and distributions declared upon shares;
(v) transferring the investment of an investor
into, or from, the shares of other open-end investment companies,
if and to the extent permitted by the Prospectus;
(vi) processing redemptions;
(vii) examining and approving legal transfers;
(viii) furnishing to Shareholders confirmations
of transactions relating to their Shares;
(ix) preparing and mailing to the Internal Revenue
Service and all payees all information returns and payee
statements required under the Internal Revenue Code in respect to
the Fund's dividends and distributions and taking all other
necessary actions in connection with the dividend and other
withholding requirements of that Code;
(x) mailing to Shareholders annual and semi-
annual reports prepared by or on behalf of the Fund, and mailing
new Prospectuses upon their issue to shareholders.
(xi) preparation and sending such other
information from the Fund records held by ADM as may be
reasonably requested by the Fund;
(xii) preparation and sending to the Fund such
affidavits of mailing and certifications as are reasonably
requested by an officer of the Fund;
(xiii) transferring stock certificates
representing shares for other stock certificates representing
such shares;
(xiv) replacing allegedly lost, stolen or
destroyed stock certificates with or without surety bonds; and
(xv) maintaining such books and records relating
to transactions effected by ADM as are required by the 1940 Act,
or by any other applicable provisions of law, to be maintained by
the Fund or its transfer agent with respect to such transactions,
and preserving, or causing to be preserved, any such books and
records for such periods as may be required by any such law, rule
or regulation.
(b) ADM agrees to act as Proxy Agent in connection
with the holding of annual or special meetings of Shareholders,
mailing to Shareholders notices, proxies and proxy statements in
connection with the holding of such meetings, receiving and
tabulating votes cast by proxy and communicating to the Fund the
results of such tabulation accompanied by appropriate
certificates, and preparing and furnishing to the Fund certified
lists of Shareholders as of such date, and in such form and
containing such information as may be required by the Fund to
comply with any applicable provisions of law or its Declaration
and/or By-Laws relating to such meetings. ADM shall be
reimbursed for out-of-pocket expenses in performing such
services, such as the costs of forms, envelopes and postage. ADM
at its cost with the consent of the Fund may employ another firm
to perform all or some of the functions required by this
subsection. The Fund shall pay such additional charges as the
parties may agree upon for the services of the Transfer Agent in
connection with special meetings of shareholders of the Fund in
excess of one such meeting held in any fiscal year of the Fund.
(c) ADM shall furnish to the Fund such information and
at such intervals as the Fund may reasonably request for the Fund
to comply with the normal registration and/or the normal
reporting requirements of the SEC, Blue Sky authorities or other
regulatory agencies. All such information shall be materially
correct and complete based upon information supplied to ADM.
(d) ADM shall, in addition to the services herein
itemized, if so requested by the Fund and for such additional
fees as the Fund and ADM may from time to time agree, perform and
do all other acts and services that are customarily performed and
done by transfer agents, dividend disbursing agents and
shareholder servicing agents of open-end mutual funds such as the
Fund, provided that normally occurring improvements in the
services of such agents will be provided without initial capital
cost to the Fund and at service fees which are competitive with
those prevailing in the industry.
(e) The parties hereto agree that without prejudice
to any other provisions of this Agreement, the functions of ADM
and the Fund under this Agreement will be substantially performed
in accordance with the Activities List set out in Appendix A to
this Agreement. Such activities List as amended from time to
time is an integral part of this Agreement. In the event that
the provisions of this Agreement are in conflict with or are
inconsistent with those set forth in such Activity List the
provisions of the Activities List shall govern.
(f) ADM agrees to provide to the Fund upon request
such information as may reasonably be required to enable the Fund
to reconcile the number of outstanding shares of the Fund between
ADM's records and the account books of the Fund.
6. Authorized Shares. The Fund hereby represents that the
Declaration authorizes the Board of Trustees to issue an
unlimited number of shares.
7. Dividends and Distributions. The Fund shall furnish
ADM with the amount of each daily dividend and with appropriate
evidence of action by the Fund's Board of Trustees authorizing
the daily declaration of dividends and distributions in respect
of Shares as described in the then current Prospectus. Upon
declaration of each dividend other than daily dividends, each
capital gain distribution or other distribution by the Board of
Trustees of the Fund, the Fund shall promptly notify ADM of the
date of such declaration, the amount payable per share, the
record date for determining the shareholders entitled to payment,
the payment date, and the reinvestment date and price which is to
be used to purchase shares for reinvestment, all sufficiently in
advance to permit ADM to process properly such dividend or
capital gain distribution or other distribution in a timely and
orderly manner.
Sufficiently in advance of each payment date to permit ADM
to have federal funds available to it for the payment thereof,
the Fund will transfer, or cause the Custodian to transfer, to
ADM in its capacity as dividend disbursing agent, at First
Financial Savings Bank, S.L.A. or at such bank or other financial
institution as ADM with the consent of the Fund shall select,
which may but need not be an affiliate of ADM, the total amount
of the dividend or distribution currently payable. After
deducting any amount reasonably believed by ADM to be required to
be withheld by any applicable tax laws, rules and regulations or
other applicable laws, rules and regulations, based upon
information available to it, ADM shall, as agent for each
Shareholder and in accordance with the provisions of the Fund's
Declaration and then current Prospectus, invest dividends in
Shares in the manner described in the Prospectus or pay them in
cash.
ADM shall prepare, file with the Internal Revenue Service,
and address and mail to shareholders such returns and information
relating to dividends and distributions paid by the Fund as are
required to be so prepared, filed and mailed by applicable laws,
rules and regulations, or such substitute form of notice as may
from time to time be permitted or required by the Internal
Revenue Service. The Fund shall promptly provide ADM with the
information necessary to prepare such returns and information,
all sufficiently in advance to permit ADM to prepare properly and
mail such returns and information in a timely and orderly manner.
On behalf of the Fund, ADM shall pay on a timely basis to the
appropriate Federal authorities any taxes withheld on dividends
and distributions paid by the Fund.
8. Notification of ADM: The Fund shall promptly notify
ADM of the closing net asset value per share and the offering
price per share each day there are any transaction in shares of
the Fund, but in any event not later than sixty (60) minutes
after the closing of the New York Stock Exchange (if the Fund is
not a money market Fund) or before 1:00 p.m. New York Time (if
the Fund is a money market Fund.) In the event ADM is not so
notified, it may assume that the price is unchanged from the
prior price.
9. Communications with Shareholders.
(a) Communications to Shareholders. The Fund shall
prepare, print and provide ADM with sufficient quantities of all
communications by the Fund to its shareholders all sufficiently
in advance to permit ADM to properly address and mail in a timely
and orderly manner all communications by the Fund to its
Shareholders, including reports to Shareholders, dividend and
distribution notices and proxy material for its meetings of
Shareholders. ADM agrees to mail all such material to
shareholders of the Fund in a timely manner. ADM or a firm
employed by ADM will at ADM'S cost and expense receive and
tabulate the proxy cards for the meetings of the Fund's
Shareholders.
(b) Correspondence. ADM will answer such
correspondence from Shareholders, securities brokers and others
relating to its duties hereunder and such other correspondence as
may from time to time be mutually agreed upon between ADM and the
Fund.
10. Records. ADM shall keep the records described on the
Activities List, including but not limited to the following:
(a) accounts for each Shareholder showing the
following information:
(i) name, address and United States Tax
Identification or Social Security number;
(ii) number of Shares held and number of Shares
for which certificates, if any, have been issued, including
certificate numbers and denominations;
(iii) historical information regarding the
account of each Shareholder, including dividends and
distributions paid and the date and the price, if applicable, for
all transactions in a Shareholder's account;
(iv) any stop or restraining order placed against
a Shareholder's account;
(v) any correspondence relating to the current
maintenance of a Shareholder's account;
(vi) information with respect to withholdings in
the case of a foreign account; and
(vii) information with respect to withholding
in the case of an account subject to backup withholding;
(ix) any information required in order for ADM to
perform any calculations contemplated or required by this
Agreement.
(b) If agreed between the Fund and ADM, subaccounts
may be maintained for each Shareholder requesting such services
in connection with shares held by such Shareholder for separate
accounts containing the same information for each subaccount as
required by subparagraph (a) above.
The books and records pertaining to the Fund which
are in the possession of ADM shall be the property of the Fund.
Such books and records shall be prepared and maintained as
required by the 1940 Act and other applicable securities laws and
rules and regulations in effect from time to time. ADM will, if
so requested by the counsel to the Fund, modify the manner in
which such books and records are prepared and maintained so as to
comply with the reasonable opinion of such counsel as to such
laws and rules. The Fund, or the Fund's authorized
representatives, shall have access to such books and records at
all times during ADM's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and
records shall be provided by ADM to the Fund or the Fund's
authorized representative at the Fund's expense.
11. Reports and Other Information.
Upon reasonable request of the Fund, provided that the
cost or effort required therefor are, singly or in the aggregate,
not unduly burdensome or expensive to it, ADM will promptly
transmit to the Fund, at no additional cost to the Fund, (a)
documents and information in the possession of ADM and not
otherwise available necessary to enable it and its affiliates to
comply with the requirements of the Internal Revenue Service, the
SEC, the National Association of Securities Dealers, Inc., state
blue sky authorities, and any other regulatory bodies having
jurisdiction; (b) documents and information in the possession of
ADM necessary to enable the Fund to conduct annual and special
meetings of its shareholder; and (c) such other information,
including shareholder lists and statistical information
concerning accounts as may be agreed upon from time to time
between the Fund and ADM.
12. Cooperation with Accountants. ADM shall cooperate with
the Fund's independent public accountants and shall take all
reasonable action in the performance of its obligations under
this Agreement to assure that the necessary information is made
available on a timely basis to such accountants for the
expression of their unqualified opinion, including but not
limited to the opinion included in the Fund's annual report to
Shareholders and on Form N-SAR, or similar form.
13. Confidentiality. ADM agrees on behalf of itself and
its employees to treat confidentially all confidential records
and other confidential information relative to the Fund and its
prior, present or potential shareholders and relative to the
Fund's Distributor and its prior, present or potential customers.
ADM will under normal circumstances not divulge any such
confidential records or information to anyone other than the
shareholder, dealer, Fund or other person, firm, corporation or
other entity which ADM reasonably believes is entitled to such
records or information except, after prior notification to and
approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where ADM may be
exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Fund.
ADM shall not be considered to have breached this provision
if it, in good faith, has provided information or documents to an
individual, firm, corporation or other entity (governmental or
otherwise) which it reasonably believes is entitled to such
information or documents; provided that it shall, with respect to
any non-routine governmental investigation or inquiry, first
provide notice thereof to the Fund.
14. Equipment Failures. ADM shall maintain adequate and
reliable computer and other equipment necessary or appropriate to
carry out its obligations under this Agreement. In the event of
computer or other equipment failures at its own facilities beyond
ADM's reasonable control, ADM shall, at its expense, take
reasonable steps to minimize service interruptions. The
foregoing obligation of ADM shall not extend to computer
terminals owned or maintained by others, located outside of
premises maintained by ADM. ADM represents that it has presently
in effect backup and emergency systems described on Appendix C
hereto. ADM will maintain such arrangements or equivalent while
this Agreement is in force unless ADM notifies the Fund to the
contrary and establishes to the satisfaction of the Fund that
industry standards no longer require such arrangements.
15. Compensation. As compensation for the services
rendered by ADM during the term of this Agreement, ADM shall be
entitled to receive such reimbursement for out-of-pocket expenses
and such compensation is specified on Appendix D attached hereto
or as may from time to time be otherwise agreed on in writing
between the parties.
16. Responsibility of ADM. In the performance of its
duties hereunder, ADM shall be obligated to exercise care and
diligence and to act in good faith and to use its best efforts
within reasonable limits to insure the accuracy and completeness
of all services performed under this Agreement.
ADM and the affiliates and agents of ADM shall not be
responsible for or liable for any taxes, assessments, penalties,
fines or other governmental charges of whatever description which
may be levied or assessed on any basis whatsoever in connection
with withholding of amounts, verifying or providing taxpayer
identification numbers or otherwise under applicable tax laws and
preparing and filing of tax forms, excepting only for taxes
assessed on the basis of its compensation hereunder, provided
that ADM exercises the care and diligence required by this
Agreement, and in the case of its responsibilities for backup
withholding, verifying or providing taxpayer identification
numbers or otherwise, as to any shareholder from whom such
withholding is required, it withholds the necessary amount and
attempts with reasonable frequency, but no less often than once a
calendar quarter, to obtain the necessary information from the
shareholder until withholding is no longer required.
ADM and the affiliates and agents of ADM shall not be
responsible or liable for the actions, inactions, or any losses
or damages caused by any such actions or inactions of any agents,
brokers or others who are specifically selected by the Fund in
writing.
17. Release. ADM understands that the obligations of this
Agreement are not binding upon any Shareholder of the Fund
personally, but bind only the Fund's property; ADM represents
that it has notice of the provisions of the Fund's Declaration
disclaiming Shareholder liability for acts or obligations of the
Fund.
The Fund understands that the obligations of this
Agreement are not binding upon the parent corporation of ADM or
any affiliates or subsidiaries of ADM and that the Fund, its
Directors, Trustees, Officers, Shareholders and others shall look
only to the separate assets of ADM.
18. Right to Receive Advice. (a) Advice of Fund. If ADM
shall be in doubt as to any action to be taken or omitted by it,
it may request, and shall receive, from the Fund directions or
advice, including Oral or Written Instructions where appropriate.
(b) Advice of Counsel. If ADM shall be in doubt as to
any question of law involved in any action to be taken or omitted
by ADM, it may request advice without cost to itself from counsel
of its own choosing (who may be counsel for the Adviser, the Fund
or ADM, at the option of ADM).
(c) Conflicting Advice. In case of conflict between
directions, advice or Oral or Written Instructions received by
ADM pursuant to subparagraph (a) of this paragraph and advice
received by ADM pursuant to subparagraph (b) of this paragraph,
ADM shall be entitled to rely on and follow the advice received
pursuant to the latter provision alone.
(d) Protection of ADM. ADM shall be fully protected
in any action or inaction which it takes in reliance on the
provisions of the Fund's Prospectus, procedures established
between ADM and the Fund, or in reliance on any directions,
advice or Oral or Written Instructions received pursuant to
subparagraph (a) or (b) of this paragraph which ADM, after
receipt of any such directions, advice or Oral or Written
Instructions, in good faith believes to be consistent with such
directions, advice or Oral or Written Instructions, as the case
may be. However, nothing in this paragraph shall be construed as
imposing upon ADM any obligation (i) to seek such directions,
advice or Oral or Written Instructions, or (ii) to act in
accordance with such directions, advice or Oral or Written
Instructions when received, unless, under the terms of another
provision of this Agreement, the same is a condition to ADM's
properly taking or omitting to take such action.
19. Compliance with Governmental Rules and Regulations.
ADM shall have no responsibility for insuring that the
contents of each Prospectus of the Fund complies with all
applicable requirements of the 1933 Act, the 1940 Act, and any
laws, rules and regulations of governmental authorities having
jurisdiction, except that ADM shall cause a senior officer of
ADM, who shall be its General Counsel unless otherwise agreed
upon, or his designee to provide such information and represents
and warrants that all information so furnished by it for specific
use in any such Prospectus will be correct and complete in all
material respects.
20. Records From Others: ADM, its affiliates and agents
shall have no responsibility or liability for the accuracy or
completeness of any documents, records, or information maintained
or provided by or reasonably believed by ADM to have been
maintained or provided by any prior transfer agent, any
shareholder or dealer, or by the Fund or anyone on behalf of the
Fund and the Fund hereby specifically agrees that ADM, its
affiliates and agents may rely on and will be fully protected in
so relying on the completeness and accuracy of all such
documents, records and information; provided, that ADM will
inform the Fund of material errors coming to its attention in the
course of the performance of its duties hereunder.
ADM, its affiliates and agents may conclusively rely on, and
will be fully protected in relying on, the authenticity and
accuracy of any documents or communications, whether oral,
written or facsimile, it receives from the Fund or which ADM, its
affiliates or agents reasonably believes are from the Fund,
provided these are received from Authorized Persons in accordance
with this Agreement. This provision will apply to, among other
things, the daily public offering and net asset value prices for
Fund shares; instructions from the Fund concerning dividends and
other distributions; and other matters relating to the Fund and
its shareholders.
21. Responsibilities of the Fund: The Fund and the Agents
of the Fund hereby acknowledge and agree that ADM, its affiliates
and its agents are responsible only for those functions and
duties set forth in this Agreement and unless so set forth are
not responsible for any of the following which are to be handled
by the Fund:
(a) creating or maintaining any records on behalf of the
Fund or others required by any federal or state law, or
regulation or rule of any agency thereof or any self-
regulatory authority except (i) those relating to
shareholder account information set forth in Rule 31a-
1(b)(2)(iv) promulgated under the 1940 Act or
equivalent regulation applicable from time to time; and
(ii) such additional records as may reasonably be
requested from time to time by the Fund which are
customarily maintained by transfer agents to mutual
funds, and which ADM by use of its best efforts may
provide at minimal cost and inconvenience to it; with
respect to these records ADM agrees that they: (i) are
the property of the Fund; (ii) will be maintained by
ADM for the period prescribed in Rule 31a-2 or
equivalent regulation; (iii) will be made available,
upon request to the Fund and the SEC; and (iv) will be
surrendered promptly upon the request of the Fund;
(b) determining the legality of any sale, exchange,
issuance or redemption of any shares of the Fund;
(c) determining the legality of any communications, oral or
written, which is sent or provided by ADM, its
affiliates or its agents on behalf of the Fund;
(d) complying with any federal or state laws or the
regulations or rules of any agency thereof or of any
self-regulatory authority except those specifically
applicable to ADM as a transfer agent;
(e) filing any documents on behalf of the Fund or any one
else with any federal or state government or with any
agency thereof or of any self-regulatory authority
except ADM will file with the Internal Revenue Service
copies of 1099 Div, 1099R and 1099B Forms sent to
shareholders of the Fund and forms relating to
withholding and non-resident alien withholding;
(f) monitoring the activities of the Fund or any one else
or their compliance with applicable law, rules and
regulations or with the provisions of the Fund's
Prospectus, of Trust, By-Laws or other governing
instruments; or
(g) compliance of the Fund or others with applicable
federal and state laws, regulations and rules of any
agency thereof, or of any self-regulatory authority
pertaining to the registration of the Fund or of shares
of the Fund or the legality of their sale although ADM
will, in order to provide the Fund with assistance in
complying with normal Blue Sky requirements, upon the
reasonable request of the Fund provide the Fund with a
report generated from the information readily available
to ADM detailing the amount of shares of the Fund
purchased and redeemed and the states of residence of
the shareholders purchasing or redeeming such shares.
22. Information and Documents: (a) The Fund shall promptly
provide ADM with the current Prospectus for the Fund, the Annual
and Semi-Annual Reports to shareholders of the Fund, Proxy
Statement and other Fund material, all in sufficient quantities
and sufficiently in advance to permit ADM to provide them to
shareholders of the Fund in a timely and orderly fashion.
(b) To the extent necessary or appropriate to enable ADM to
carry out its responsibilities under this Agreement, the Fund
shall
(i) promptly notify ADM of all material events which
affect the Fund or any affiliate of the Fund;
(ii) promptly notify ADM of any suits or other
proceedings threatened or actually instituted
against the Fund or any affiliate of the Fund by
the federal government, any state government, or
any agency thereof (including but not limited to
the SEC, the Securities Commission of any state)
or by the National Association of Securities
Dealers, Inc., or any other self-regulatory
authority;
(iii) promptly notify ADM of any consent order, stop
orders or similar orders affecting the Fund or any
affiliate of the Fund issued by the federal
government, any state government, or any agency
thereof (including but not limited to the SEC, the
Securities Commission of any state) or by the
National Association of Securities Dealers, Inc.
or any other self-regulatory authority;
(iv) promptly provide ADM, with copies of the audited
Annual Financial Statements for each affiliate of
the Fund which is an Investment Advisor,
Investment Sub-Advisor, Distributor or
Administrator of the Fund;
(v) promptly provide ADM, upon request, with copies of
any filings made by the Fund or any affiliate of
the Fund which is an Investment Advisor,
Investment Sub-Advisor, Distributor or
Administrator of the Fund with the federal
government or any state government or any agency
thereof or with any self-regulatory authority; and
(vi) promptly provide ADM, upon request, with copies of
any documents relating to items (ii) and (iii)
above.
(vii) discuss with ADM changes in the description of ADM
and the services which ADM provides to
shareholders contained in the Prospectus of the
Fund at the time of filing any amendments to the
registration statement of the Fund involving any
such change. ADM shall use its best efforts to
assure the accuracy and completeness of all
material information furnished by it for inclusion
in any such document.
23. Indemnification. Neither party nor any of its
nominees shall be indemnified against any liability to the other
party (or any expenses incident to such liability) arising solely
out of (a) such party's or such nominee's own willful
misfeasance, bad faith or gross negligence or reckless disregard
of its duties in connection with the performance of any duties,
obligations or responsibilities provided for in this Agreement or
(b) such party's or such nominee's own negligent failure to
perform its duties expressly provided for in this Agreement or
otherwise agreed to in writing.
24. Liability. (a) ADM shall be responsible for the
performance of its obligations under this Agreement
notwithstanding the delegation of some or all of such obligations
to others in accordance with the terms of this Agreement.
(b) ADM shall not be responsible for loss, liability
cost or expense arising out of occurrences beyond its control
caused by fire, flood, power failure, unanticipated equipment
failure, acts of God, or war or civil insurrection; provided,
however, that it shall have contingency planning for equipment or
electrical failure and such other contingencies as provided in
this Agreement.
25. Insurance. ADM shall maintain fidelity, errors
and omissions and other insurance coverage in amounts and on
terms and conditions as set forth in information provided to the
Fund from time to time.
26. Advancement of Monies: Nothing in this Agreement
shall require ADM or any affiliate or agent of ADM to pay any
monies prior to its receipt of federal funds for such payment or
for ADM or any of its affiliates or agents to incur or assume any
liability for the payment of any such monies prior to its receipt
of federal funds for such payment.
27. Exclusivity. It is expressly understood and
agreed that the services to be rendered by ADM to the Fund under
the provisions of this Transfer Agency Agreement are not deemed
to be exclusive and ADM shall be free to render similar or
different services to others.
28. Further Actions. Each party agrees to perform
such further acts and execute such further documents as are
reasonably necessary to effectuate the purposes hereof.
29. Amendments. This Agreement or any part hereof may
be changed or waived only by an instrument in writing signed by
the party against which enforcement of such change or waiver is
sought.
30. Assignment. This Agreement and the performance
hereunder may not be assigned by ADM without the Fund's written
consent. Not withstanding the previous sentence, ADM may,
without the Fund's consent, assign the performance of all or a
portion of its responsibilities and duties hereunder to an
affiliate of ADM, provided that the Fund shall incur no
additional cost or expense in connection therewith.
31. Declaration and Termination. This Agreement shall
continue until termination by the Fund on sixty (60) days'
written notice or by ADM on ninety (90) days' written notice.
32. Notices. All notices and other communications,
including Written Instructions (collectively referred to as
"Notice" or "Notices" in this paragraph), hereunder shall be in
writing or by confirming telegram, cable, telex or facsimile
sending device. Notices shall be addressed;
(a) if to ADM at:
Administrative Data Management Corp.
10 Woodbridge Center Drive
Woodbridge, New Jersey 07095
Attn: Ms. Anne Condon, Vice President
or to such other address as ADM shall instruct the Fund, in
writing, from time to time;
(b) if to the Fund at:
380 Madison Avenue, Suite 2300
New York, New York 10017
Attention: President
or to such other address as the Fund shall instruct ADM, in
writing, from time to time; or
(c) if to neither of the foregoing, at such other address as
shall have been notified to the sender of any such Notice or
other communication.
33. Miscellaneous. This Agreement embodies the entire
agreement and understanding between the parties hereto, and
supersedes all prior agreements and understandings relating to
the subject matter hereof, provided that the parties hereto may
embody in one or more separate documents their agreement, if any,
with respect to Oral Instructions. The captions in this
Agreement are included for convenience of reference only and in
no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement
shall be deemed to be a contract made in New York and governed by
New York law. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
None of the provisions contained in this Agreement shall be
deemed waived or modified because of a previous failure of a
party to insist upon strict performance thereof. This Agreement
shall be binding and shall inure to the benefit of the parties
hereto and their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below
on the day and year first above written.
NARRAGANSETT INSURED
TAX-FREE INCOME FUND
/s/Kenneth L. MacRitchie /s/Lacy B. Herrmann
Attest: ______________________ By:______________________
Kenneth L. MacRitchie, Lacy B. Herrmann,
Assistant Secretary President
ADMINISTRATIVE DATA
MANAGEMENT CORP.
/s/Glenn O. Head
Attest: ______________________ By:_______________________
[ ] Glenn O. Head
Secretary Chairman
<PAGE>
APPENDIX A
ACTIVITIES LIST
It is understood that the Fund, its Custodian, and other
persons, firms, corporations or other entities performing
services for or on behalf of the Fund shall provide ADM and the
Fund with such services, information, or other assistance as may
be necessary or appropriate to permit the Transfer Agent to
properly perform the services hereunder.
A. SHAREHOLDER ACCOUNTING SERVICES
1. General Scope
All terms used herein shall be as defined in the
attached Agreement (the "Agreement") except that ADM is
referred to as the "Transfer Agent." In accordance
with the terms of the Agreement the Transfer Agent will
provide a comprehensive Shareholder accounting service
generally consistent with that provided to other
investment companies, including:
a. dividend accounting;
b. arrangement for wire receipt and payout of
Shareholder funds;
c. to the extent that it is reasonably within the
control of, or can be reasonably arranged without
additional cost by, the Transfer Agent, the rapid
and efficient transfer of investment monies
between various accounts;
d. to the extent that it is reasonably within the
control of, or can reasonably be arranged without
additional cost by, the Transfer Agent, the
effective and controlled processing of expedited
redemptions and exchanges by telegraphic and
telephonic means.
2. Computer Accounting and Record Keeping
The Transfer Agent will perform daily maintenance and
routine file update.
The Transfer Agent will perform a dividend credit run
as required in order to credit all existing Shareholder
accounts with each daily dividend, monthly dividend,
capital gain distribution or other distribution. The
Transfer Agent will establish new and adjust or close
existing Shareholder accounts if necessary on or as of
each business day.
The Transfer Agent will take reasonable precautions for
safeguarding of all Shareholder accounts during these
computer runs.
The Transfer Agent will provide continuous proof to the
outstanding Shares maintained by the Fund on a daily
basis, and off-line availability of all file data
pertaining to Shareholder accounts.
The Transfer Agent will to the extent technically
feasible create and maintain the ability to liquidate
and back out dividends reinvested in accounts which are
subsequently liquidated by or on behalf of the Fund due
to nonreceipt of funds, improper registration, or other
sufficient reason.
3. Establishing and Servicing Accounts
The Transfer agent will, as set forth in the Fund's
Prospectus, or substantially in conformity with
procedures established by or on behalf of the Fund,
accept instructions from investors to open new accounts
and perform such functions consistent with opening a
new account:
a. Accept applications in proper form sent directly
to the Fund or its Custodian when they are
properly delivered to the Transfer Agent;
b. Accept applications in proper form sent directly
to it when they are received by the Transfer
Agent;
c. Transfer Shares accompanied by apparent proper
instructions;
d. Audit and verify payment items for apparent
compliance with the requirements established by
the Fund, e.g. minimum investment amount, apparent
proper endorsements on third party checks or
drafts if the Fund elects to accept such third
party checks or drafts, and other particulars as
prescribed in the prospectus. The Fund will
provide the Transfer Agent, from time to time,
with names and taxpayer identification numbers of
individuals entitled to purchase shares at a
reduced offering price as described in the
prospectus;
e. Review existing accounts to determine whether
there are any other existing accounts with the
same registration; process W-9 or similar forms
received by the Transfer Agent; and compare upon
receipt of a computer tape from the Internal
Revenue Service taxpayer identification numbers
contained in such tape against those maintained by
the Transfer Agent for the Fund.
f. Assign account numbers as necessary and, where
appropriate, indicate the account number on
applications;
g. Review payment items to determine whether the
payee, original or by endorsement, on such payment
items corresponds to the registration of the
account to which it is to be credited (permitted
exceptions include ADM or the Fund specified as
the payee when accompanied by a valid account
number or all necessary documents to establish a
new account or such other exceptions as the
Transfer Agent and the Fund shall agree);
h. Upon opening incoming mail, record the date and
approximate time of day all checks were received;
i. Produce microfilm record of all incoming checks
and other documentation on filmstrips or other
microfilm retrieval method so as to be retrievable
and reproducible upon request;
j. Process address changes and acknowledge such
changes to previous address of record;
k. Answer inquiries from Shareholders or other
individuals, corporations, or other entity who
appear to be the Shareholder, dealer or otherwise
entitled to receive information as to account
information;
l. Open new accounts per telephone instructions
received from a prospective Shareholder, his
dealer or his fiduciary pending receipt of funds
transmitted by bank wire or other means; forward a
new account application to the prospective
investor; and issue a confirmation, including
duplicates where requested, when funds are
received by the Transfer Agent or the Fund's
Custodian; under normal circumstances the new
account application bearing the Shareholder
account number assigned must be completed by or
appear to have been completed by the Shareholder
and received by the Transfer Agent before any
redemption orders are accepted and processed for
that account.
m. Prepare confirmations in such form as may be
agreed between the Fund and the Transfer Agent
from time to time for all "Open Accounts" after
each non-dividend transaction in a Shareholder's
account which affects the share balance; mailing
confirmations to the Shareholder as such changes
occur;
n. Process on a daily basis if necessary or
appropriate routine transactions such as:
(1) Deposit or withdrawal of Shares from
Shareholders' accounts;
(2) Changes of address;
(3) Miscellaneous changes;
(4) Stop-transfers;
(5) Instructions relating to the remittance or
reinstatement of Dividends and other
distributions;
o. Incorporate in the Shareholder accounting software
and procedures the necessary flags, audits, and
tests reasonably designed to assure that the
various provisions and requirements specified
elsewhere in this Agreement to be performed by the
Transfer Agent will be substantially satisfied.
B. TRANSFER AGENT SERVICES
In accordance with the Agreement, and in particular Section
5(d) thereof, the Transfer Agent will perform the functions
normally performed by the Transfer Agent for other
investment companies of a similar type. Such functions
shall include but not necessarily be limited to:
1. Processing
a. Keep such records in the form and manner as the
Transfer Agent may deem advisable but not
inconsistent with the rules and regulations of
appropriate governmental authorities applicable to
the Transfer Agent or as may otherwise be agreed
from time to time in writing between the Fund and
the Transfer Agent;
b. Process transfers as requested by Shareholders or
persons, firms, corporations or other entities the
Transfer Agent reasonably believes to be the
Shareholder or authorized to act on behalf of the
Shareholder including obtaining and reviewing
papers and all other documents necessary to
satisfy transfer requirements; the Fund will, upon
request of the Transfer Agent, advise the Transfer
Agent of the transfer requirements of the Fund,
and the Transfer Agent will be fully protected by
the Fund if it is following such transfer
requirements;
c. Process initial and subsequent investments from
Shareholders;
d. On a semi-monthly or other basis acceptable to the
Transfer Agent and the Fund initiate, accept and
process pre-authorized checks or, when available,
electronic funds transfers drawn against
Shareholders' checking accounts;
e. Process and record redemption of Shares to satisfy
ordinary redemptions and Plan account;
f. Proportionally allocate dividends, which are
provided to the Transfer Agent by the Fund in
gross dollar amount, to the benefit of the Fund
Shareholders entitled to receive them. The
procedure used must show that the amounts
allocated daily substantially balance to the gross
dollar amount provided by the Fund to the Transfer
Agent. Until otherwise specified by the Fund,
dividends shall be in accordance with the
following: Three-day accrual on Monday for the
previous weekend; Two-day accrual on the first
business day following a holiday or Four-day
accrual if the holiday immediately precedes or
follows a weekend; compatibility with the Merrill
Lynch Automatic Investment of Dividends System,
and the issuance of all reports incidental thereto
provided the Fund's method of operation is so
compatible.
2. Custody and Control of Shares and Certificates:
Certificates will not be issued except on Shareholder
request but shares will be credited to the
Shareholder's account in non-certificate form. The
Transfer Agent will examine certificates surrendered
for transfer or redemption, or requests for transfer or
redemption of shares not represented by certificates,
for apparent genuineness or alterations; pass upon the
apparent validity thereof including endorsements,
signature guarantees and (if applicable) tax stamps or
waivers, provided that the Transfer Agent shall not be
required to compare any such endorsements against other
records it maintains except in accordance with written
procedures agreed upon between it and the Fund. The
Transfer Agent will also:
a. Countersign all certificates;
b. Prepare, mail, or deliver certificates for
original issue, subsequent investments, exchanges,
or transfers upon request from the Shareholder or
one reasonably believed to be the Shareholder;
c. Prepare, mail, or deliver certificates for Shares
previously held in non-certificate form;
d. Deposit certificate Shares;
e. Cancel surrendered certificates;
f. Establish and maintain safeguards for cancelled
and uncancelled certificates;
g. Establish and maintain a system to monitor stop-
transfers;
h. Replace lost certificates.
C. SUBSCRIPTION AGENT SERVICES:
The Transfer Agent will act as Subscription Agent for the
Fund. In addition to subscription functions described
elsewhere in this Agreement, the Transfer Agent will:
1. Maintain a Subscription Account for the Fund. This
account shall be established and operated so as to
satisfy the following criteria:
a. The account shall be established by the Transfer
Agent for the benefit of the Fund in accordance
with the terms of the Agreement;
b. The account shall be provided at no additional
cost except as may otherwise be stated in Appendix
D of the Agreement;
c. The account shall serve as the sole depository for
subscription monies intended for the purchase of
Fund Shares until such funds are transferred to
the Custody Account;
d. The Transfer Agent shall be prepared to receive
and efficiently process incoming cash, checks,
Federal Reserve Drafts and bank wire transfers of
funds;
e. Withdrawals from the account shall be for the
purpose of transferring funds into the Custody
Account or, where appropriate, the crediting or
payment of commission or dealer's commissions;
withdrawals are also permitted to accommodate net
settlements with the Custodian;
f. No dividend or redemption or any other payments
shall be made to Fund Shareholders from the
Subscription Account;
g. The Transfer Agent will cashier all items
presented in payment as expeditiously as possible.
2. In connection with managing the Subscription Account,
the Transfer Agent will exercise all possible care in
satisfying operational requirements in each of the
following critical areas:
a. Validation Receipt of Good Subscription Funds
Procedures and criteria are to be established by
the Transfer Agent and approved by the Fund for
the purpose of providing assurance that good
(collected) funds were received from Shareholders
prior to paying out any redemption proceeds (under
a Plan account or as a result of one or more
specific redemption requests). Such procedures
are to deal with:
(1) Screening subscriptions to prevent:
-forgery, fraud, improper endorsement or other
unauthorized use particularly when accepting third
party funds;
-maintenance of accounts in names other than
proper form; funds received where the legal
existence or legal capacity of the subscriber is
in doubt shall be employed in a temporary
investment status until a proper account is
established to which prior income will be
credited, or until the funds are returned upon
determination that no subscriber of legal
existence and capacity exits.
(2) Establishing and maintaining procedures
reasonably designed to assure the clearance and
collection of checks which are otherwise properly
drawn.
In this regard, the Transfer Agent with the
approval of the Fund will:
-Establish for all parts of the United States the
normal number of days required for check clearance
and return notice of uncollectability;
-Establish redemption amount and clearing time
criteria which together place an automatic stop on
issuance of certificates, if any, and upon
redemption payments until the Transfer Agent
reasonably believes that good subscription funds
were received.
In general, the redemption of a subscription
payment received in the form of a check, draft or
similar instrument shall not be made until the
Transfer Agent has determined, by telephone call
to the drawee bank or otherwise, that the deposit
has cleared the drawee bank or until fifteen (15)
calendar days after the receipt of such
subscription payment, in order to permit the
orderly clearing thereof.
-Provide a means to record and promptly retrieve
the status of a subscription received (which may
include days remaining before redemptions
permitted, name of bank, or other similar
information as may be agreed upon.)
Shareholder checks returned for insufficient funds or
other reasons will be promptly processed for
liquidation on or after the date of receipt or
notification to the effect that a check is being
returned. Returned checks will be cleared promptly and
processed through a Returned Check Account in
conjunction with the following actions:
(1) Place a freeze on the account to prevent
redemption of the amount of such returned check or
such lesser amount as is in the affected account;
(2) Determine how many shares are to be liquidated due
to the investment attributable to such returned
check;
(3) Calculate and back out accrued dividends, if any,
attributable to such investment;
(4) Process the liquidation for the appropriate
amount;
(5) Mail the Shareholder confirmation of the
liquidation and the check with a letter of
explanation;
(6) Allocate the accrued dividends, if any, which were
attributable to such investment, as the Fund shall
direct which will normally be to the remaining
Shareholder accounts as of the next month-end
dividend run;
(7) Take reasonable steps to recover commissions or
dealer concessions applicable to such returned
check, although the Distributor shall be
ultimately responsible therefor.
b. Establish Procedures to Process Effectively Bank
Wire Transfers
Establish and maintain procedures reasonably
designed by the Transfer Agent and approved by the
Fund to maintain positive control over movements
of incoming money by bank wire so as to:
(1) Accept requests (WATS and local calls) for bank
wire instructions, record account information and
client telephone number, assign as appropriate a
wire control number, establish Shareholder pending
file, and if appropriate alert the bank wire
department;
(2) Advise the Fund of pending bank wire receipts at
selected cutoff times during the course of each
business day so as to facilitate full investment
of Fund assets;
(3) Confirm to the Fund actual bank wire receipts at
selected cutoff times during the course of each
business day;
(4) Close out pending Shareholder files if bank wire
receipts are not received as of the date agreed
upon;
(5) Open new or credit existing Shareholder account in
accordance with the provisions of the current
prospectus upon receipt of bank wire funds;
(6) Take appropriate action to secure from
Shareholders who invest by bank wire the necessary
written applications and redemption
authorizations.
D. DIVIDEND DISBURSING AND REDEMPTION AGENT SERVICES
In performance of the Dividend Disbursing and Redemption
Agent functions, the Transfer Agent will provide the Fund
with regular checks (or electronic funds transfer if
available, at the Shareholder's option) and carry out the
following functional activities:
1. Dividends
a. The Fund shall advise the Transfer Agent of
dividend amounts which shall then be applied as
described in the Prospectus or as directed by the
Fund, or its officers or Trustees;
b. Confirmation of dividend reinvestments shall be
mailed to Shareholders after each reinvestment.
c. Additional dividend information, if provided by
the Fund to the Transfer Agent shall then be
provided to Shareholders upon written request.
2. Redemption Procedures
The Transfer Agent with the approval of the Fund shall
establish procedures reasonably designed to insure that
redemption requirements established by the Transfer
Agent and agreed to by the Fund have been met,
including the receipt and examination of stock
certificates, endorsements, signature guarantees and
obtaining any needed papers or documents, including
properly completed Application, where lacking. More
specifically:
a. The Transfer Agent will accept redemption requests
in written, telegraphic or telephonic form
provided the necessary instructions and
authorizations are reasonably believed by the
Transfer Agent to be in good form. Generally,
telephonic redemption requests will be repeated
for confirmation to the person making the request,
and upon voice confirmation by such person, will
be recorded in a log kept for that purpose.
b. Requests for the redemption of shares not
represented by certificates received and without
signature guarantees will be honored only if:
(1) the applicable portion of the Application has been
completed and the proceeds are forwarded to the
previously designated bank account, address, or
other destination identified on the Application;
(2) Expedited Redemption Authorization instructions
filed at any time other than upon the original
opening of a Shareholder's account are filed on an
appropriate form and bear or reasonably appear to
bear a signature guarantee;
(3) Shareholder accounts in the name of joint tenants
shall generally be handled on the basis of jointly
signed instructions and signature guarantees
(where applicable) for any payments.
c. The Transfer Agent will provide a means to record,
call up, and display on Cathode Ray tube or
otherwise an appropriate symbol or other
indication that redemption authorization
instructions are on file and appear to be in
proper form.
d. All redemption requests will be promptly reviewed
to insure:
(1) that there are sufficient shares available in the
Shareholder's account;
(2) the applicable subscription check has not been
returned to ADM or its agent and the applicable
period of days has expired before using the funds
for redemption (see above);
(3) that no redemptions in accounts represented in
whole or in part by certificates are effected
without cancellation of an adequate number of
certificate shares, if necessary.
(4) that no signature guarantees shall be acceptable
unless they reasonably appear to have been
provided by a commercial bank or by a brokerage
firm which is a member of the New York, American,
Midwest, or Pacific Stock Exchanges, except as
otherwise stated in the Prospectus or in
instructions received from the Fund.
e. Certificate acceptance and replacement:
(1) Accept for redemption, certificates received for
redemptions accompanied by what reasonably appears
to be Shareholder's instructions.
(2) Furnish to the Shareholder, after with the
policies and procedures established by the Fund
and the Transfer Agent proper investigation and
receipt of necessary documentation for protection
of the Fund, replacement certificates and dividend
and redemption checks alleged to have been lost,
stolen, destroyed, or not received.
3. Dividend Account
The Transfer Agent will maintain a Dividend Account for
the Fund. This account shall be established and operated so as
to satisfy the following criteria:
1. This account shall be used to disburse cash in
payment of dividends, capital gain distributions and
returns of capital.
2. This account shall be operated in the same manner
as the Redemption Account (see below) except as
otherwise required by the purpose for which it shall be
used; it may, at the election of the Transfer Agent, be
operated as a combined account with the Redemption
Account (see below).
4. Redemption Account
The Transfer Agent will maintain a Redemption Account
for the Fund. This account shall generally be
established and operated so as to satisfy the following
criteria.
1. All withdrawals from the account shall be for the
exclusive purpose of making payments to Fund
Shareholders. These payments are to be made only
to satisfy automatic or other account liquidation
payment requirements.
2. No deposits or subscription receipts shall be made
directly in the Redemption Account.
3. The Transfer Agent will advise the Fund at various
mutually established times during each business
day as to the total demand for valid payments to
be honored that day or the following day. Valid
payments consist of liquidations of shares for
which funds are payable in cash or check to
shareholders, whether initiated by check, wire,
letter, automatic distribution plan, determination
of the Fund or otherwise. The notification of
demand for payments shall only include valid
demands for payment which are actually in hand,
such that the Fund need not fund the Redemption
Account with any more funds than are actually
required. The Fund agrees to fund, or cause the
Custodian to fund, the Redemption Account
sufficiently to cover all demands for payment
which are currently valid or will become valid the
following business day. The Fund and the Transfer
Agent agree that a goal of this procedure is to
allow for the maximum employment of Fund Assets
while still adequately funding the Redemption
Account. The Transfer Agent and its affiliates
shall not be required to honor any demand for
payment for which previously collected funds have
not been received from the Custodian or other
Agent of the Fund.
4. The Transfer Agent with the approval of the Fund
will develop specific procedures reasonably
designed to protect against:
(a) raising of dollar amounts or any other alteration
of instruments representing redemption payments;
(b) fraudulent or forged endorsements;
(c) other improper use of a redemption item which
could result in the Fund or its Shareholders being
defrauded.
Such procedures shall take into account the type
of accounts involved, the sums involved and the
cost effectiveness of such procedures.
5. Employ due diligence in servicing redemption requests
as promptly as possible.
E. EXCHANGE AGENT SERVICES
The Transfer Agent will provide services as required to
implement the exchange privileges described from time to
time in the prospectus of the Fund. The Transfer Agent will
install and utilize a telephonic system that is designed to
afford the Shareholder the opportunity to exchange Shares
among eligible Funds and that will record the telephone
request for such exchange. It is understood that the
Transfer Agent is only able to effect exchanges among funds
for which the Transfer Agent has entered into an agreement
similar to this Agreement for provision of Transfer Agency
services.
F. PROXY AGENT SERVICES
The Transfer Agent agrees to act as Proxy Agent in
connection with the holding of annual or special meetings of
Shareholders, mailing to Shareholders notice, proxies and
proxy statements in connection with the holding of such
meetings, receiving and tabulating votes cast by proxy and
communicating to the Fund the results of such tabulation
accompanied by appropriate certificates, and preparing and
communicating to the Fund certified lists of Shareholders as
of such date, and in such form and containing such
information as may be required by the Fund to comply with
any applicable provisions relating to such meetings. The
Transfer Agent may at its expense employ another firm to
provide all or a portion of such services.
I. Reports to be provided by Transfer Agent:
A. Daily
1. Payment Journals
2. Transfers
3. Non-Certificate Redemption Journal
4. Original Issue Non-Certificate Shares
5. Clerical Journal
6. New Account Journal
7. Closed Account Journal
B. Monthly
1. Sales By State and Dividends Reinvested
2. Withdrawals and Dividends Paid in Cash List
3. Record of Out-of-Pocket Costs Incurred
C. Annual Reports
Provide Fund Management upon request with all
reports reasonably required to conduct an annual
review of Transfer Agency functions relating to
the Fund, including but not limited to
performance, volume, error ratios, costs and other
matters relating to the Fund. The Transfer Agent
shall also provide to the Fund general information
concerning its operations which might be believed
to affect adversely the future services to the
Fund.
D. Periodic Marketing Reports - Provided these
reports are readily available from existing
information and can be produced without
unreasonable effort or expense by the Transfer
Agent, including, e.g.,
1. Geographic Distribution Data
2. Size of Holdings Data
II. Other Services
The Transfer Agent will provide the following
additional services:
A. Security
1. Design and maintain security procedures reasonably
designed to guard against the possible theft
and/or use by others of the names and addresses of
Fund Shareholders.
2. Periodic duplication of all records
(computer/microfilm/hardcopy/copy) at a frequency
and in a detail reasonably designed to assure
protection of Shareholder record information in
the event of a disaster to the Transfer Agent's
facilities, including:
(a) significant voltage drop;
(b) power blackout;
(c) major destruction of the Transfer Agent's
central facilities.
3. The Transfer Agent will maintain equipment
reasonably designed or represented to assure an
uninterrupted power supply of at least 10 minutes
at the offices of the Transfer Agent to allow for
orderly shut down of hardware in the event of a
power outage; periodic back-up of tapes to be
stored at an offsite facility of the Transfer
Agent's choosing; and will provide redundancy
capacity in accordance with the Agreement.
B. Statements
1. Provide for up to two extra lines of print on
Shareholder statements which may be employed by
the Fund to advise Shareholders of such
information as yield or other explanatory account
information. The Fund will advise the Transfer
Agent of such information sufficiently in advance
to permit it to properly insert such information
in a timely and orderly manner.
2. Provide a combined dividend check and statement to
Shareholders electing cash distributions.
C. Processing Routine Shareholder Inquiries
1. Receive, control, research, and promptly reply to
all routine Shareholder and other inquiries
whether received by written or telephonic means
which pertain to a Shareholder's account.
2. Exercise due care to protect confidential
information in responding to inquiries.
3. Request ATT or such other telephone company as may
be appropriate to provide, at the Distributor's
expense, for a dedicated transmission line between
Aquila Distributors, 200 Park Avenue, New York and
Transfer Agent, Woodbridge, N.J. for inquiry via a
dedicated or P.C. terminal.
4. Provide if possible for continuity of present 800
telephone numbers for existing funds and adequate
personnel for live telephone response generally
until 7:00 PM, New York time on normal business
days. It is mutually understood that continuity
of the 800 numbers is dependant on cooperation
from the prior transfer agent and appropriate
telephone companies.
5. Provide for the automated tracking of all
Shareholder/Dealer telephone inquiries with on
line update status.
D. Other Mailings
1. Mailing services include addressing, enclosing,
and mailing quarterly reports, semi-annual
reports, annual reports, prospectuses and notices
to all accounts will be provided. To the extent
the Transfer Agent utilizes the services of
another firm to accomplish this for any First
Investors Fund, it shall be permitted to do so for
the Fund, at the Transfer Agent's expense.
2. All routine mailings to Shareholder/Dealers will,
where appropriate, utilize pre-sorted zip codes.
3. All month-end reinvestment statements, with any
month-end dividend check attached, will generally
be mailed to Shareholders, with duplicates to
dealer and representative, by the fourth business
day of the next month.
4. Commission checks and statements will generally be
mailed to brokerage firms on at least a weekly
basis for direct investments of prior weeks.
E. Other Services
1. Refer all Shareholder, dealer or governmental
inquiries of a policy or non-routine nature to the
Fund.
2. Provide an Account Officer to serve as the primary
point of contact between the Fund and the Transfer
Agent. The Transfer Agent will exercise due care
in assigning an individual who is both conversant
with standard investment company practices and of
sufficient stature to deal quickly and efficiently
with problems peculiar to placing a new investment
company on line.
F. Messenger Service
Provide messenger pick-up and delivery as necessary but
no less frequently than once daily between the Fund's
offices provided they are located within the borough of
Manhattan and the offices of the Transfer Agent.
<PAGE>
Exhibit 1
The Fund and the Transfer Agent anticipate that the
following activities should be incorporated into and become
a part of Appendix A as they become effective:
1. Installation of the National Security Clearing
Corporation, Fund/SERV system which shall be
operational no later than June 30, 1989.
2. The Transfer Agent will make a best effort to
provide networking capabilities with tape
transmission to dealers when and as required by
market competitiveness.
3. The Transfer Agent will work with the Distributor
to define criteria for an Audio Response system
and arrange for the implementation of such a
system on a timely basis.
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
APPENDIX B
Signatures
On the date of the Agreement and thereafter until further
notice, the following persons shall be Authorized Persons as
defined therein:
Lacy B Herrmann _____________________
Chairman of the Board of Trustees Lacy B. Herrmann
William C. Wallace _____________________
Senior Vice President William C. Wallace
Robert P. Sanchez _____________________
Vice President Robert P. Sanchez
Rose F. Marotta _____________________
Chief Financial Officer Rose F. Marotta
Kenneth L. MacRitchie _____________________
Assistant Secretary Kenneth L. MacRitchie
William K. Killeen _____________________
William K. Killeen
Diana P. Herrmann _____________________
Diana P. Herrmann
Charles E. Childs III _____________________
Charles E. Childs III
Stephen J. Caridi _____________________
Stephen J. Caridi
Brian R. Katzman _____________________
Brian R. Katzman
Sandra J. Hermida _____________________
Sandra J. Hermida
<PAGE>
APPENDIX C
Backup Arrangement
ADM currently has in effect a redundancy arrangement with
Comdisco Disaster Recovery Services, Inc. The agreement with
Comdisco provides that in the event of a data processing systems
disaster at ADM's facilities in Woodbridge, New Jersey, ADM may
use equipment available at Comdisco's facilities for routine and
other processing. The agreement with Comdisco also provides for
dedicated time on Comdisco's data processing equipment each year
to allow ADM to test the redundancy system.
<PAGE>
APPENDIX D
Compensation
The Fund shall pay ADM the following amounts:
1. Set-up Charge: One time set-up charge of $3,000.00.
2. Account Maintenance Charges: $1.40 per account.
3. Account Opening Charge/Account Closing Charge: one-time
charge of $1.50 per account to open or close an account.
4. Telephone Investment Charge: $15.00 per transaction.
5. Minimum Monthly Charges: $500.00
6. Disbursements: All reasonable disbursements, including,
without limitation, messenger charges.
7. Late Pricing Charges:
a. $25 on each day the Fund fails to notify ADM of the
Fund's closing net asset value and offering price by
5:15 p.m.
b. $50 on each day the Fund fails to notify ADM of the
Fund's closing net asset value and offering price after
5:15 p.m. and before 6:00 p.m.
c. In the event of a subsequent price adjustment, (i) $50
per hour for actual time spent on manual corrections
and (ii) $300 per hour for actual time spent for
adjustments requiring computer processing.
8. Demand Deposit Account Fees: Fees payable to First Financial
Savings Bank, S.L.A. in the amounts set forth on Appendix D-
1.
The Fund shall not be obligated to pay any charge enumerated
in paragraphs 2 through 5 above until the earlier of (a) six
months following the last day of the month in which this
Agreement was executed, or (b) the month during which the Fund
has established an aggregate of 2,000 accounts (including
accounts that were established and subsequently liquidated).
<PAGE>
APPENDIX D-1
FIRST FINANCIAL SAVINGS BANK, S.L.A.
LIST OF SERVICE CHARGES FOR BUSINESS ACCOUNTS
ACCOUNT MAINTENANCE $ 5.00 PER MONTH
CHECKS CLEARED $ .05 PER ITEM
CHECK SORTING $ .02 PER CHECK
DEPOSITS $ .50 PER DEPOSIT
DEPOSITED ITEMS $ .07 PER ITEM
RETURNED DEPOSITED ITEMS $ 7.50 PER ITEM
INCOMING AND OUTGOING WIRES $10.00 PER WIRE
STOP PAYMENTS $10.00 PER MONTH
TAX DEPOSITS $10.00 PER DEPOSIT
CURRENCY SHIPMENT $ 1.50 PER ORDER
CURRENCY SHIPMENT (PER $1000) $ .20 PER ORDER
COIN ORDERS $ 2.00 PER ORDER
BOND REDEMPTION $ 1.00 PER BOND
BOND REDEMPTION (PER BATCH) $ 5.00 PER BATCH
PHOTOCOPIES $ 3.00 PER ITEM
INTERNAL TRANSFERS $ 3.00 PER TRANS
RETURNED CHECK - NSF $15.00 PER CHECK
RETURNED CHECK - NCF $10.00 PER CHECK
ACH FILES (SUBJECT TO MONTHLY MINIMUM) $ 5.00 PER FILE
ACH ITEM (SUBJECT TO MONTHLY MINIMUM) $ .20 PER ITEM
ACH MONTHLY MINIMUM $50.00 PER MONTH
ACH RETURNED ITEMS $10.00 PER ITEM
MILITARY ALLOTMENTS (MONTHLY) $ 1.25 PER ACCOUNT
NARRAGANSETT INSURED TAX-FREE INCOME FUND
ADMINISTRATION AGREEMENT
THIS AGREEMENT, made as of the 16th day of December, 1992,
by and between NARRAGANSETT INSURED TAX-FREE INCOME FUND (the
"Fund"), a Massachusetts business Trust, 380 Madison Avenue,
Suite 2300, New York, New York 10017 and AQUILA MANAGEMENT
CORPORATION (the "Administrator"), a New York corporation, 380
Madison Avenue, Suite 2300, New York, New York 10017
W I T N E S E T H
WHEREAS, the Fund and the Administrator wish to enter into
an Administration Agreement as herein set forth (referred to
hereafter as "this Agreement");
NOW THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. In General.
The Administrator shall perform (at its own expense) the
functions set forth more fully herein for the Fund and for the
investment adviser for the Fund (the "Adviser").
2. Duties and Obligations of the Adviser and Administrator to
the Fund and to Each Other.
(a) Subject to the succeeding provisions of this section and
subject to the direction and control of the Board of Trustees of
the Fund, the Administrator shall provide all administrative
services to the Fund other than those services relating to the
investment portfolio of the Fund and the maintenance of its
accounting books and records; as part of such duties, the
Administrator shall:
(i) provide office space, personnel, facilities and
equipment for the performance of the following functions and
for the maintenance of the headquarters of the Fund;
(ii) oversee 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 the effective operation of the Fund and for
the sale, servicing or redemption of the Fund's shares;
(iii) provide to the Adviser and the Fund statistical and
other factual information and advice regarding economic
factors and trends, but shall not generally furnish advice
or make recommendations regarding the purchase or sale of
securities;
(iv) Either keep the accounting records of the Fund,
including the computation of net asset value per share and
the dividends (provided that daily pricing of the Fund's
portfolio shall be the responsibility of the Adviser under
the Advisory Agreement) or, at its expense and
responsibility, delegate such duties in whole or in part to
a company satisfactory to the Fund, maintain the Fund's
other books and records and prepare (or assist counsel and
auditors in the preparation of) all required proxy
statements, reports to the Fund's shareholders and Trustees,
reports to and other filings with the Securities and
Exchange Commission and any other governmental agencies, and
tax returns, and oversee the insurance relationships of the
Fund;
(v) prepare, on behalf of the Fund and at the Fund's
expense, such applications and reports as may be necessary
to register or maintain the registration of the Fund and/or
its shares under the securities or "Blue-Sky" laws of all
such jurisdictions as may be required from time to time;
(vi) respond to any inquiries or other communications of
shareholders of the Fund 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, oversee such shareholder servicing and transfer
agent's or distributor's response thereto.
(b) Any activities performed by the Administrator under this
section shall at all times conform to, and be in accordance with,
any requirements imposed by: (1) the Investment Company Act of
1940 (the "Act") and any rules or regulations in force
thereunder; (2) any other applicable laws, rules and regulations;
(3) the Declaration of Trust and By-Laws of the Fund as amended
and restated from time to time; (4) any policies and
determinations of the Board of Trustees of the Fund; and (5) the
fundamental policies of the Fund, as reflected in its
registration statement under the Act, or as amended by the
shareholders of the Fund.
(c) The Administrator assumes no responsibility under this
agreement other than to render the services called for hereunder,
and specifically assumes no responsibilities for investment
advice or the investment or reinvestment of the Fund's assets.
(d) The Administrator shall not be liable for any error in
judgment or for any loss suffered by the Fund in connection with
the matters to which this Agreement relates, except a loss
resulting from wilful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this
Agreement.
(e) Nothing in this Agreement shall prevent the
Administrator or any officer thereof from acting as investment
adviser, sub-adviser, administrator or manager for any other
person, firm, or corporation, and shall not in any way limit or
restrict the Administrator or any of its officers, stockholders
or employees from buying, selling or trading any securities for
its own or their own accounts or for the accounts of others for
whom it or they may be acting, provided, however, that the
Administrator expressly represents that it will undertake no
activities which, in its judgment, will adversely affect the
performance of its obligations to the Adviser or the Fund under
this Agreement. The Fund shall indemnify the Administrator to
the full extent permitted by the Fund's Declaration of Trust.
3. Allocation of Expenses.
The Administrator shall, at its own expense, provide office
space, facilities, equipment, and personnel for the performance
of its functions hereunder and shall pay all compensation of
Trustees, officers, and employees of the Fund who are affiliated
persons of the Administrator.
4. Compensation of the Administrator.
(a) The Fund shall pay the Administrator, and the
Administrator shall accept as full compensation for all services
rendered hereunder, 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 .27 of 1% of such net asset value.
(b) 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 payment of the above fee at the end of any month will
be reduced or postponed so that at no time will there be any
accrued but unpaid liability under this expense limitation,
subject to readjustment during the year.
5. Duration and Termination.
(a) This Agreement shall become effective as of the date
first written above, after approval by a vote of a majority of
the Trustees who are not parties to this Agreement or "interested
persons" (as defined in the Act) of any such party, with votes
cast in person at a meeting called for the purpose of voting on
such approval and shall, unless terminated as hereinafter
provided, continue in effect until the December 31 next preceding
the first anniversary of the effective date of this Agreement,
and from year to year thereafter.
(b) This Agreement may be terminated by the Administrator at
any time without penalty upon giving the Adviser and the Fund
sixty days' written notice (which notice may be waived by them)
and may be terminated by the Fund at any time without penalty
upon giving the Administrator sixty days' written notice (which
notice may be waived by the Administrator) provided that such
termination by the Fund shall be directed or approved by a vote
of a majority of its Trustees in office at the time, including a
majority of the Trustees who are not interested persons (as
defined in the Act) of the Fund. However, the Administrator
agrees that it will not exercise its termination rights for at
least two years from the effective date of this Agreement except
for regulatory reasons.
6. Disclaimer of Shareholder Liability
The Administrator understands that the obligations of this
Agreement are not binding upon any shareholder of the Fund
personally, but bind only the Fund's property; the Administrator
represents that it has notice of the provisions of the Fund's
Declaration of Trust disclaiming shareholder liability for acts
or obligations of the Fund.
[remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their duly authorized officers and
their seals to be hereunto affixed, all as of the day and year
first above written.
ATTEST: NARRAGANSETT INSURED TAX-FREE
INCOME FUND
/s/Kenneth L. MacRitchie /s/Robert Sanchez
________________________ By:___________________________________
Assistant Secretary Vice President
ATTEST: AQUILA MANAGEMENT CORPORATION
/s/Rose F. Marotta /s/Lacy B. Herrmann
_______________________ By:___________________________________
Treasurer President and Chairman
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]
August 26, 1997
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. 7 (the "Amendment") to the Registration
Statement of the Fund under the Securities Act of 1933 (the "1933
Act") and No. 9 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 add a new class of shares, Financial Intermediary
Class Shares ("Class I Shares"), as well as other changes. The
Fund already has outstanding Class A Shares, Class C Shares and
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, Class Y
Shares and Class I 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
CONSENT
We consent to the reference to our firm under the caption
"Rhode Island Tax Information" in the Registration Statement and
the related Prospectuses of Narragansett Insured Tax-Free Income
Fund.
/s/ Edwards & Angell
Edwards & Angell
Providence, RI
August 25, 1997
Dated: October 31, 1997
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"), Part III solely to the Financial Intermediary Class
("Class I Shares") and Part IV 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 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 this Part I of 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, the Distributor or the
Fund's sub-adviser, 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 under 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 Fund's initial adoption of a
multiple-class arrangement and not terminated at or prior to such
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 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 this Part II of 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, the Distributor or the
Fund's sub-adviser, 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. To
the extent required under the 1940 Act, 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 Fund's initial adoption of a
multiple-class arrangement and not terminated at or prior to such
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
Payments Involving Fund Assets Allocated to Financial
Intermediary Shares
15. Applicability. This Part III of the Plan applies only to
the Financial Intermediary Class ("Class I") of shares of the
Fund (regardless of whether such class is so designated or is
redesignated by some other name).
16. Definitions for Part III. As used in this Part III 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 III ("Class I
Plan Agreements") and which have rendered assistance (whether
direct, administrative, or both) in the distribution and/or
retention of the Fund's Financial Intermediary Shares or
servicing of shareholder accounts with respect to such shares.
"Qualified Holdings" shall mean, as to any Qualified Recipient,
all Financial Intermediary 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 administrator of the Fund.
17. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Fund, the Fund may make
payments ("Class I Permitted Payments") to Qualified Recipients,
which Class I 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 this Part III of the Plan are not accruable or for
any fiscal year which is not a full fiscal year) a rate fixed
from time to time by the Board of Trustees, but not in excess of
0.25% of 1% of the average annual net assets of the Fund
represented by the Class I Shares. Such payments shall be made
only out of the Fund assets allocable to the Financial
Intermediary 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 I Permitted Payments, if any, to each Qualified
Recipient provided that the total Class I Permitted Payments to
all Qualified Recipients do not exceed the amount set forth above
or such lesser amount as the Board of Trustees may determine.
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 Financial Intermediary
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.
18. Reports. While this Part III 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 I Permitted Payments made under Section 17 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, the Distributor or the
Fund's sub-adviser, 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.
19. Effectiveness, Continuation, Termination and Amendment.
To the extent required under the 1940 Act, this Part III 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 III 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 Financial Intermediary
Class. This Part III 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 III 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 Financial Intermediary
Class. This Part III 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 III as set
forth in (ii) above, and all amendments must be approved in the
manner set forth in (i) above.
20. Class I Plan Agreements. In the case of a Qualified
Recipient which is a principal underwriter of the Fund, the Class
I 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 I Plan Agreements
with them shall be their agreements with the Distributor with
respect to payments under this Part III, provided, however, that
"Related Agreements" entered into under the distribution plan of
the Fund in effect prior to the effective date of this Part III
and not terminated at or prior to such effective date may, at the
Distributor's discretion, be deemed to be "Class I Plan
Agreements" for purposes of this Part III 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 III and
the provisions of such agreements, which shall otherwise remain
in full force and effect, are deemed to be appropriately
modified.
Part IV
Defensive Provisions
21. 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.
22. 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; (ix) all costs of
responding to telephone or mail inquiries of investors; and (x)
payments to financial intermediaries for shareholder and
shareholder account services.
23. Reports. While Part IV 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 21 of this Plan; (ii) all costs of each item specified in
Section 22 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.
24. Effectiveness, Continuation, Termination and Amendment. To
the extent required under the 1940 Act, this Part IV 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 IV 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 IV 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 IV 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.
--------------------------
25. 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 IV
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: October 31, 1997
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 and the Financial Intermediary Class shares of the Fund of
"service fees" within the meaning of Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc.
This Plan applies only to the Level-Payment Class ("Class C") and
the Financial Intermediary Class ("Class I") of shares of the
Fund (regardless of whether such class is so designated or is
redesignated by some other name).
Provisions for Level-Payment Class Shares (Part I)
2. Definitions. As used in Part I of 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 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 this Part I
of 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 such
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 Level-Payment 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.
Provisions for Financial Intermediary Class Shares (Part II)
4. Definitions. As used in Part II of 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
Financial Intermediary shareholders, maintenance of Financial
Intermediary shareholder accounts and/or pursuant to specific
agreements entering of confirmed purchase orders on behalf of
customers or clients. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Financial Intermediary Shares
beneficially owned by such Qualified Recipient's customers,
clients or other contacts. "Administrator" shall mean Aquila
Management Corporation, or any successor serving as 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 ("Service Payments") to Qualified Recipients, which
Service Payments (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 this Part II of 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
Financial Intermediary Class of shares. Such payments shall be
made only out of the Fund assets allocable to the Financial
Intermediary Shares. The Distributor shall have sole authority
with respect to the selection of any Qualified Recipient or
Recipients and the amount of Service Payments, if any, paid to
each Qualified Recipient, provided that the total such Service
Payments 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 such Recipient's Qualified Holdings. 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 Financial Intermediary
Shares, including without limitation, (i) activities relating to
sub-accounting and record-keeping, including the providing of
necessary personnel and facilities to establish and maintain
shareholder accounts and records, and (ii) activities relating to
account service, such as assisting shareholders in designating
and changing dividend options, account designations and
addresses; answering customer inquiries regarding account status
and history and the manner in which purchases and redemptions of
shares of the Fund may be effected; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares, including, where appropriate, arranging for the wiring of
funds; assisting in processing purchase and redemption
transactions; and verifying and guaranteeing shareholder
signatures in connection with redemption orders and transfers and
changes in shareholder designated accounts. Notwithstanding the
foregoing two sentences, (a) a majority of the Independent
Trustees (as defined below) may remove any person as a Qualified
Recipient and (b) no fees shall be paid pursuant to this Plan for
activities primarily intended to result in the sale of shares of
the Fund or to finance sales or sales promotion expenses. In
addition, fees paid under this Plan shall be subject to such
further limits as may be necessary for the Financial Intermediary
Class of shares to qualify as a "no-load" class for purposes of
the Conduct Rules of the National Association of Securities
Dealers, Inc. 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.
General Provisions (Part III)
6. 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 and Service Payments 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 Administrator, the Distributor, or the investment adviser or
sub-adviser of the Fund, 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. 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.
8. Additional Terms and Conditions. (a) This Plan 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.
(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>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Narragansett Insured Tax-Free Income Fund (Class A Shares)
1-YR AVG. TOTAL RETURN AS OF 6/30/97 3.67%
1-YR CUM. TOTAL RETURN AS OF 6/30/97 3.67%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $9.93 As of 6/30/96
Public Offering Price Per Share (POP) $10.34 As of 6/30/96
Number of Shares Purchased 96.712 Based on POP
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
JULY 1996 1,000.00 96.712 0.03943738* 3.81 9.96
AUGUST 1996 967.06 97.095 0.04359142 4.23 10.00
SEPTEMBER 1996 975.18 97.518 0.04382884 4.27 10.00
OCTOBER 1996 979.45 97.945 0.04560091 4.47 10.01
NOVEMBER 1996 984.90 98.392 0.04251684 4.18 10.20
DECEMBER 1996 1,007.78 98.802 0.04238732 4.19 10.16
JANUARY 1997 1,008.01 99.214 0.04417815 4.38 10.06
FEBRUARY 1997 1,002.48 99.650 0.04150504 4.14 10.22
MARCH 1997 1,022.55 100.054 0.04267851 4.27 9.99
APRIL 1997 1,003.81 100.482 0.04581513 4.60 9.95
MAY 1997 1,004.40 100.944 0.04264128 4.30 10.08
JUNE 27, 1997** 1,021.82 101.371 0.04270653 4.33 10.21
JUNE 30, 1997 1,039.33 101.795 0.00425363 0.43 10.18
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
JULY 1996 0.383 967.06 -3.29%
AUGUST 1996 0.423 975.18 -2.48%
SEPTEMBER 1996 0.427 979.45 -2.05%
OCTOBER 1996 0.446 984.90 -1.51%
NOVEMBER 1996 0.410 1,007.78 0.78%
DECEMBER 1996 0.412 1,008.01 0.80%
JANUARY 1997 0.436 1,002.48 0.25%
FEBRUARY 1997 0.405 1,022.55 2.26%
MARCH 1997 0.427 1,003.81 0.38%
APRIL 1997 0.463 1,004.40 0.44%
MAY 1997 0.427 1,021.82 2.18%
JUNE 27, 1997** 0.424 1,039.33 3.93%
JUNE 30, 1997 0.043 1,036.71 3.67%
<FN>
* For the period 7/1/96-7/26/96
</FN>
<FN>
** Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N N A V
Narragansett Insured Tax-Free Income Fund (Class C Shares)
1-YR AVG. TOTAL RETURN AS OF 6/30/97 5.85%
1-YR CUM. TOTAL RETURN AS OF 6/30/97 5.85%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $9.93 As of 6/30/96
Number of Shares Purchased 100.705 Based on NAV
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
JULY 1996 1,000.00 100.705 0.02979121* 3.00 9.96
AUGUST 1996 1,006.02 101.006 0.03684499 3.72 10.00
SEPTEMBER 1996 1,013.78 101.378 0.03717375 3.77 10.00
OCTOBER 1996 1,017.55 101.755 0.03808218 3.88 10.01
NOVEMBER 1996 1,022.44 102.142 0.03407269 3.48 10.19
DECEMBER 1996 1,044.31 102.484 0.03408149 3.49 10.16
JANUARY 1997 1,044.73 102.828 0.03545414 3.65 10.06
FEBRUARY 1997 1,038.09 103.190 0.03338536 3.45 10.22
MARCH 1997 1,058.05 103.527 0.03338035 3.46 9.99
APRIL 1997 1,037.69 103.873 0.03706479 3.85 9.95
MAY 1997 1,037.39 104.260 0.03436976 3.58 10.08
JUNE 27, 1997* 1,054.52 104.615 0.03430218 3.59 10.21
JUNE 30, 1997 1,071.71 104.967 0.00341499 0.36 10.08
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
JULY 1996 0.301 1,006.02 0.60%
AUGUST 1996 0.372 1,013.78 1.38%
SEPTEMBER 1996 0.377 1,017.55 1.76%
OCTOBER 1996 0.387 1,022.44 2.24%
NOVEMBER 1996 0.342 1,044.31 4.43%
DECEMBER 1996 0.344 1,044.73 4.47%
JANUARY 1997 0.362 1,038.09 3.81%
FEBRUARY 1997 0.337 1,058.05 5.80%
MARCH 1997 0.346 1,037.69 3.77%
APRIL 1997 0.387 1,037.39 3.74%
MAY 1997 0.355 1,054.52 5.45%
JUNE 27, 1997* 0.351 1,071.71 7.17%
JUNE 30, 1997 0.036 1,058.50 5.85%
<FN>
* For the period 7/1/96-7/26/96
</FN>
<FN>
** Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N N A V
Narragansett Insured Tax-Free Income Fund (Class Y Shares)
1-YR AVG. TOTAL RETURN AS OF 6/30/97 8.48%
1-YR CUM. TOTAL RETURN AS OF 6/30/97 8.48%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $9.93 As of 6/30/96
Number of Shares Purchased 100.705 Based on NAV
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET
ASSET
@ BEGINNING OF DIVIDEND $ VALUE
PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
JULY 1996 1,000.00 100.705 0.02947501 2.97 9.95
AUGUST 1996 1,004.98 101.003 0.03469699 3.50 9.93
SEPTEMBER 1996 1,006.47 101.356 0.04347130 4.41 10.00
OCTOBER 1996 1,017.97 101.797 0.04032264 4.10 10.07
NOVEMBER 1996 1,029.20 102.204 0.05191506 5.31 10.22
DECEMBER 1996 1,049.83 102.724 0.04872819 5.01 10.14
JANUARY 1997 1,046.62 103.217 0.05528601 5.71 10.13
FEBRUARY 1997 1,051.30 103.781 0.04919919 5.11 10.18
MARCH 1997 1,061.59 104.282 0.05376336 5.61 10.00
APRIL 1997 1,048.43 104.843 0.05347582 5.61 10.03
MAY 1997 1,057.18 105.402 0.05414145 5.71 10.13
JUNE 1997 1,073.43 105.965 0.04725106 5.01 10.19
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
JULY 1996 0.298 1,004.98 0.50%
AUGUST 1996 0.353 1,006.47 0.65%
SEPTEMBER 1996 0.441 1,017.97 1.80%
OCTOBER 1996 0.408 1,029.20 2.92%
NOVEMBER 1996 0.519 1,049.83 4.98%
DECEMBER 1996 0.494 1,046.62 4.66%
JANUARY 1997 0.563 1,051.30 5.13%
FEBRUARY 1997 0.502 1,061.59 6.16%
MARCH 1997 0.561 1,048.43 4.84%
APRIL 1997 0.559 1,057.18 5.72%
MAY 1997 0.563 1,073.43 7.34%
JUNE 1997 0.491 1,084.79 8.48%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Narragansett Insured Tax-Free Income Fund (Class A Shares)
INCEP. TO 6/30/97 AVG. ANNL TOTAL RETURN 5.80%
INCEP. TO 6/30/97 TOTAL RETURN 31.10%
Initial Investment $10,000
Net Asset Value Per Share (NAV) $9.60 As of 9/10/92
Public Offering Price Per Share (POP) $10.00 As of 9/10/92
Number of Shares Purchased 1000.000 Based on POP
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET
ASSET
@ BEGINNING OF DIVIDEND $ VALUE
PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
OCTOBER 1992 10,000.00 1,000.000 0.02764800 27.65 9.35
NOVEMBER 1992 9,377.65 1,002.957 0.03973300 39.85 9.56
DECEMBER 1992 9,628.12 1,007.125 0.05001800 50.37 9.58
JANUARY 1993 9,698.64 1,012.384 0.04268200 43.21 9.65
FEBRUARY 1993 9,812.71 1,016.862 0.04444000 45.19 10.02
MARCH 1993 10,234.14 1,021.371 0.04397000 44.91 9.83
APRIL 1993 10,084.99 1,025.940 0.04599700 47.19 9.91
MAY 1993 10,214.26 1,030.702 0.04774700 49.21 9.94
JUNE 1993 10,294.39 1,035.653 0.04704300 48.72 10.06
JULY 1993 10,467.39 1,040.496 0.04388300 45.66 9.99
AUGUST 1993 10,440.21 1,045.066 0.04621300 48.30 10.24
SEPTEMBER 1993 10,749.78 1,049.783 0.04436900 46.58 10.31
OCTOBER 1993 10,869.84 1,054.301 0.04294200 45.27 10.24
NOVEMBER 1993 10,841.31 1,058.722 0.04338400 45.93 10.06
DECEMBER 1993 10,696.67 1,063.288 0.04576200 48.66 10.30
JANUARY 1994 11,000.52 1,068.012 0.04264800 45.55 10.31
FEBRUARY 1994 11,056.75 1,072.430 0.04395800 47.14 10.03
MARCH 1994 10,803.61 1,077.130 0.04281100 46.11 9.73
APRIL 1994 10,526.59 1,081.869 0.04557200 49.30 9.56
MAY 1994 10,391.97 1,087.026 0.04328900 47.06 9.53
JUNE 1994 10,406.42 1,091.964 0.04321000 47.18 9.50
JULY 1994 10,420.84 1,096.931 0.04473600 49.07 9.53
AUGUST 1994 10,502.82 1,102.080 0.04471200 49.28 9.52
SEPTEMBER 1994 10,541.08 1,107.256 0.04637000 51.34 9.37
OCTOBER 1994 10,426.33 1,112.735 0.04275400 47.57 9.18
NOVEMBER 1994 10,262.49 1,117.918 0.04577800 51.18 8.84
DECEMBER 1994 9,933.57 1,123.707 0.04756700 53.45 9.12
JANUARY 1995 10,301.66 1,129.568 0.04471400 50.51 9.26
FEBRUARY 1995 10,510.31 1,135.022 0.04289200 48.68 9.58
MARCH 1995 10,922.20 1,140.104 0.04542100 51.78 9.69
APRIL 1995 11,099.39 1,145.448 0.04370500 50.06 9.73
MAY 1995 11,195.27 1,150.593 0.04349900 50.05 9.87
JUNE 1995 11,406.40 1,155.664 0.04427000 51.16 9.93
JULY 1995 11,526.91 1,160.816 0.04439700 51.54 9.87
AUGUST 1995 11,508.79 1,166.038 0.04562200 53.20 9.92
SEPTEMBER 1995 11,620.29 1,171.400 0.04303900 50.42 9.91
OCTOBER 1995 11,658.99 1,176.488 0.04278900 50.34 10.08
NOVEMBER 1995 11,909.34 1,181.482 0.04424000 52.27 10.14
DECEMBER 1995 12,032.50 1,186.637 0.04290300 50.91 10.22
JANUARY 1996 12,178.34 1,191.618 0.04295300 51.18 10.26
FEBRUARY 1996 12,277.19 1,196.607 0.04419800 52.89 10.22
MARCH 1996 12,282.21 1,201.782 0.04290400 51.56 10.04
APRIL 1996 12,117.45 1,206.917 0.04276700 51.62 9.96
MAY 1996 12,072.51 1,212.100 0.04519500 54.78 9.98
JUNE 1996 12,151.53 1,217.589 0.04095500 49.87 9.85
JULY 1996 12,043.11 1,222.651 0.04225234 51.66 9.96
AUGUST 1996 12,229.27 1,227.838 0.04359142 53.52 10.00
SEPTEMBER 1996 12,331.90 1,233.190 0.04382884 54.05 10.00
OCTOBER 1996 12,385.95 1,238.595 0.04560091 56.48 10.01
NOVEMBER 1996 12,454.82 1,244.238 0.04251684 52.90 10.20
DECEMBER 1996 12,744.13 1,249.424 0.04238732 52.96 10.16
JANUARY 1997 12,747.11 1,254.637 0.04417815 55.43 10.06
FEBRUARY 1997 12,677.07 1,260.146 0.04150504 52.30 10.22
MARCH 1997 12,931.00 1,265.264 0.04267851 54.00 9.99
APRIL 1997 12,693.99 1,270.669 0.04581513 58.22 9.95
MAY 1997 12,701.38 1,276.520 0.04264128 54.43 10.08
JUNE 27, 1997* 12,921.76 1,281.920 0.04270653 54.75 10.21
JUNE 30, 1997 13,143.15 1,287.282 0.00425363 5.48 10.18
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
OCTOBER 1992 2.957 9,377.65 -6.22%
NOVEMBER 1992 4.168 9,628.12 -3.72%
DECEMBER 1992 5.258 9,698.64 -3.01%
JANUARY 1993 4.478 9,812.71 -1.87%
FEBRUARY 1993 4.510 10,234.14 2.34%
MARCH 1993 4.569 10,084.99 0.85%
APRIL 1993 4.762 10,214.26 2.14%
MAY 1993 4.951 10,294.39 2.94%
JUNE 1993 4.843 10,467.39 4.67%
JULY 1993 4.571 10,440.21 4.40%
AUGUST 1993 4.716 10,749.78 7.50%
SEPTEMBER 1993 4.518 10,869.84 8.70%
OCTOBER 1993 4.421 10,841.31 8.41%
NOVEMBER 1993 4.566 10,696.67 6.97%
DECEMBER 1993 4.724 11,000.52 10.01%
JANUARY 1994 4.418 11,056.75 10.57%
FEBRUARY 1994 4.700 10,803.61 8.04%
MARCH 1994 4.739 10,526.59 5.27%
APRIL 1994 5.157 10,391.97 3.92%
MAY 1994 4.938 10,406.42 4.06%
JUNE 1994 4.967 10,420.84 4.21%
JULY 1994 5.149 10,502.82 5.03%
AUGUST 1994 5.176 10,541.08 5.41%
SEPTEMBER 1994 5.480 10,426.33 4.26%
OCTOBER 1994 5.182 10,262.49 2.62%
NOVEMBER 1994 5.789 9,933.57 -0.66%
DECEMBER 1994 5.861 10,301.66 3.02%
JANUARY 1995 5.454 10,510.31 5.10%
FEBRUARY 1995 5.082 10,922.20 9.22%
MARCH 1995 5.344 11,099.39 10.99%
APRIL 1995 5.145 11,195.27 11.95%
MAY 1995 5.071 11,406.40 14.06%
JUNE 1995 5.152 11,526.91 15.27%
JULY 1995 5.222 11,508.79 15.09%
AUGUST 1995 5.363 11,620.29 16.20%
SEPTEMBER 1995 5.087 11,658.99 16.59%
OCTOBER 1995 4.994 11,909.34 19.09%
NOVEMBER 1995 5.155 12,032.50 20.32%
DECEMBER 1995 4.981 12,178.34 21.78%
JANUARY 1996 4.989 12,277.19 22.77%
FEBRUARY 1996 5.175 12,282.21 22.82%
MARCH 1996 5.136 12,117.45 21.17%
APRIL 1996 5.182 12,072.51 20.73%
MAY 1996 5.489 12,151.53 21.52%
JUNE 1996 5.063 12,043.11 20.43%
JULY 1996 5.187 12,229.27 22.29%
AUGUST 1996 5.352 12,331.90 23.32%
SEPTEMBER 1996 5.405 12,385.95 23.86%
OCTOBER 1996 5.642 12,454.82 24.55%
NOVEMBER 1996 5.186 12,744.13 27.44%
DECEMBER 1996 5.213 12,747.11 27.47%
JANUARY 1997 5.510 12,677.07 26.77%
FEBRUARY 1997 5.118 12,931.00 29.31%
MARCH 1997 5.405 12,693.99 26.94%
APRIL 1997 5.851 12,701.38 27.01%
MAY 1997 5.400 12,921.76 29.22%
JUNE 27, 1997* 5.362 13,143.15 31.43%
JUNE 30, 1997 0.538 13,110.01 31.10%
<FN>
* Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N N A V
Narragansett Insured Tax-Free Income Fund (Class C Shares)
INCEP. TO 6/30/97 AVG. ANNL TOTAL RETURN 6.37%
INCEP. TO 6/30/97 TOTAL RETURN 7.45%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $9.94 As of 5/1/96
(Inception of Class)
Number of Shares Purchased 100.604 Based on NAV
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET
ASSET
@ BEGINNING OF DIVIDEND $ VALUE
PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
MAY 1996 1,000.00 100.604 0.03202000 3.22 9.98
JUNE 1996 1,007.25 100.926 0.02991000 3.02 9.85
JULY 1996 997.14 101.233 0.02979121 3.02 9.96
AUGUST 1996 1,011.30 101.536 0.03684499 3.74 10.00
SEPTEMBER 1996 1,019.10 101.910 0.03717375 3.79 10.00
OCTOBER 1996 1,022.89 102.289 0.03808218 3.90 10.01
NOVEMBER 1996 1,027.80 102.678 0.03407289 3.50 10.19
DECEMBER 1996 1,049.78 103.021 0.03408149 3.51 10.16
JANUARY 1997 1,050.21 103.367 0.03545414 3.66 10.06
FEBRUARY 1997 1,043.53 103.731 0.03338536 3.46 10.22
MARCH 1997 1,063.59 104.070 0.03338035 3.47 9.99
APRIL 1997 1,043.13 104.418 0.03706479 3.87 9.95
MAY 1997 1,042.82 104.807 0.03436976 3.60 10.08
JUNE 27, 1997* 1,060.05 105.164 0.03430218 3.61 10.21
JUNE 30, 1997 1,077.33 105.517 0.00341499 0.36 10.18
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
MAY 1996 0.323 1,007.25 0.72%
JUNE 1996 0.306 997.14 -0.29%
JULY 1996 0.303 1,011.30 1.13%
AUGUST 1996 0.374 1,019.10 1.91%
SEPTEMBER 1996 0.379 1,022.89 2.29%
OCTOBER 1996 0.389 1,027.80 2.78%
NOVEMBER 1996 0.343 1,049.78 4.98%
DECEMBER 1996 0.346 1,050.21 5.02%
JANUARY 1997 0.364 1,043.53 4.35%
FEBRUARY 1997 0.339 1,063.59 6.36%
MARCH 1997 0.348 1,043.13 4.31%
APRIL 1997 0.389 1,042.82 4.28%
MAY 1997 0.357 1,060.05 6.01%
JUNE 27, 1997* 0.353 1,077.33 7.73%
JUNE 30, 1997 0.035 1,074.53 7.45%
<FN>
* Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N N A V
Narragansett Insured Tax-Free Income Fund (Class Y Shares)
INCEP. TO 6/30/97 AVG. ANNL TOTAL RETURN 7.72%
INCEP. TO 6/30/97 TOTAL RETURN 9.05%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $9.94 As of 5/1/96
(Inception of Class)
Number of Shares Purchased 100.604 Based on NAV
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET
ASSET
@ BEGINNING OF DIVIDEND $ VALUE
PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
MAY 1996 1,000.00 100.604 0.03200100 3.22 9.98
JUNE 1996 1,007.24 100.926 0.02991000 3.02 9.85
JULY 1996 997.14 101.233 0.02947501 2.98 9.95
AUGUST 1996 1,010.25 101.533 0.03469699 3.52 9.93
SEPTEMBER 1996 1,011.74 101.887 0.04347130 4.43 10.00
OCTOBER 1996 1,023.30 102.330 0.04032264 4.13 10.07
NOVEMBER 1996 1,034.59 102.740 0.05191506 5.33 10.22
DECEMBER 1996 1,055.34 103.262 0.04872819 5.03 10.14
JANUARY 1997 1,052.11 103.758 0.05528601 5.74 10.13
FEBRUARY 1997 1,056.81 104.324 0.04919919 5.13 10.18
MARCH 1997 1,067.16 104.829 0.05376336 5.64 10.00
APRIL 1997 1,053.92 105.392 0.05347582 5.64 10.03
MAY 1997 1,062.72 105.954 0.05414145 5.74 10.13
JUNE 30, 1997 1,079.05 106.520 0.04725106 5.03 10.19
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
MAY 1996 0.323 1,007.24 0.72%
JUNE 1996 0.306 997.14 -0.29%
JULY 1996 0.300 1,010.25 1.02%
AUGUST 1996 0.355 1,011.74 1.17%
SEPTEMBER 1996 0.443 1,023.30 2.33%
OCTOBER 1996 0.410 1,034.59 3.46%
NOVEMBER 1996 0.522 1,055.34 5.53%
DECEMBER 1996 0.496 1,052.11 5.21%
JANUARY 1997 0.566 1,056.81 5.68%
FEBRUARY 1997 0.504 1,067.16 6.72%
MARCH 1997 0.564 1,053.92 5.39%
APRIL 1997 0.562 1,062.72 6.27%
MAY 1997 0.566 1,079.05 7.91%
JUNE 30, 1997 0.494 1,090.48 9.05%
<FN>
* Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Narragansett Insured Tax Free Income Fund
Class A
SEC Yield
6/30/97
<S> <C>
Dividend and Interest Income 177,974.42
Long Term Securities 177,974.42
Short Term Securities 0.00
Foreign Securities 0.00
Other Securities 0.00
Expenses Accrued for Period 7,342.95
Common Expenses 7,342.95
Specific Expenses 0.00
Avg. Daily Shares Outstanding 4,167,495.989
Maximum Offering Price 10.60
Yield 4.68
-------------------------------------------------------------
<CAPTION>
Narragansett Insured Tax Free Income Fund
Class C
SEC Yield
6/30/97
<S> <C>
Dividend and Interest Income 1,977.71
Long Term Securities 1,977.71
Short Term Securities 0.00
Foreign Securities 0.00
Other Securities 0.00
Expenses Accrued for Period 470.65
Common Expenses 81.58
Specific Expenses 389.07
Avg. Daily Shares Outstanding 46,325.163
Maximum Offering Price 10.18
Yield 3.87
-------------------------------------------------------------
<CAPTION>
Narragansett Insured Tax Free Income Fund
Class Y
SEC Yield
6/30/97
<S> <C>
Dividend and Interest Income 0.48
Long Term Securities 0.48
Short Term Securities 0.00
Foreign Securities 0.00
Other Securities 0.00
Expenses Accrued for Period 0.00
Common Expenses 0.00
Specific Expenses 0.00
Avg. Daily Shares Outstanding 10.584
Maximum Offering Price 10.19
Yield 5.40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Narragansett Insured Tax-Free Income Fund
Class A
6/30/97
---------
<S> <C>
y Yield (Pre-tax) 0.0468
Fe Percent Exempt From Federal Tax 0.9784
F Federal Tax Rate 0.396
S State Tax Rate (27.5% of Federal Rate)
Y Taxable Equivalent Yield 0.0861
Formula Y = ((y*Fe)/(1-(F+F*0.275*(1-F))))+(y*(1
------------
<CAPTION>
Taxable Equivalent Yield
Narragansett Insured Tax-Free Income Fund
Class C
6/30/97
---------
<S> <C>
y Yield (Pre-tax) 0.0387
Fe Percent Exempt From Federal Tax 0.9784
F Federal Tax Rate 0.396
S State Tax Rate (27.5% of Federal Rate)
Y Taxable Equivalent Yield 0.0712
Formula Y = ((y*Fe)/(1-(F+F*0.275*(1-F))))+(y*(1
------------
<CAPTION>
Taxable Equivalent Yield
Narragansett Insured Tax-Free Income Fund
Class Y
6/30/97
-------
<S> <C>
y Yield (Pre-tax) 0.054
Fe Percent Exempt From Federal Tax 0.9784
F Federal Tax Rate 0.396
S State Tax Rate (27.5% of Federal Rate)
Y Taxable Equivalent Yield 0.0993
Formula Y = ((y*Fe)/(1-(F+F*0.275*(1-F))))+(y*(1
------------
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's annual report dated June 30, 1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000888955
<NAME> NARRAGANSETT INSURED TAX-FREE INCOME FUND, CLASS A SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 41,264,317
<INVESTMENTS-AT-VALUE> 42,193,001
<RECEIVABLES> 854,473
<ASSETS-OTHER> 87,269
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 43,134,743
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 109,729
<TOTAL-LIABILITIES> 109,729
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42,098,278
<SHARES-COMMON-STOCK> 4,177,889
<SHARES-COMMON-PRIOR> 3,825,838
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,948)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 928,684
<NET-ASSETS> 42,540,175
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,114,373
<OTHER-INCOME> 0
<EXPENSES-NET> 85,827
<NET-INVESTMENT-INCOME> 2,028,546
<REALIZED-GAINS-CURRENT> (1,948)
<APPREC-INCREASE-CURRENT> 1,032,756
<NET-CHANGE-FROM-OPS> 3,059,354
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,047,604
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 760,202
<NUMBER-OF-SHARES-REDEEMED> 513,856
<SHARES-REINVESTED> 105,705
<NET-CHANGE-IN-ASSETS> 3,059,354
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 92,236
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 502,374
<AVERAGE-NET-ASSETS> 39,813,347
<PER-SHARE-NAV-BEGIN> 9.93
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> .26
<PER-SHARE-DIVIDEND> .52
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> .21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's Annual Report dated June 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000888955
<NAME> NARRAGANSETT INSURED TAX-FREE INCOME FUND, CLASS Y SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 41,264,317
<INVESTMENTS-AT-VALUE> 42,193,001
<RECEIVABLES> 854,473
<ASSETS-OTHER> 87,269
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 43,134,743
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 109,729
<TOTAL-LIABILITIES> 109,729
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42,098,278
<SHARES-COMMON-STOCK> 11
<SHARES-COMMON-PRIOR> 10
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,948)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 928,684
<NET-ASSETS> 108
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,114,373
<OTHER-INCOME> 0
<EXPENSES-NET> 85,827
<NET-INVESTMENT-INCOME> 2,028,546
<REALIZED-GAINS-CURRENT> (1,948)
<APPREC-INCREASE-CURRENT> 1,032,756
<NET-CHANGE-FROM-OPS> 3,059,354
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 3,059,354
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 92,236
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 502,374
<AVERAGE-NET-ASSETS> 104
<PER-SHARE-NAV-BEGIN> 9.93
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> .26
<PER-SHARE-DIVIDEND> .56
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.19
<EXPENSE-RATIO> .06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's Annual Report dated June 30, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000888955
<NAME> NARRAGANSETT INSURED TAX-FREE INCOME FUND, CLASS C SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 41,264,317
<INVESTMENTS-AT-VALUE> 42,193,001
<RECEIVABLES> 854,473
<ASSETS-OTHER> 87,269
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 43,134,743
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 109,729
<TOTAL-LIABILITIES> 109,729
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42,098,278
<SHARES-COMMON-STOCK> 47,620
<SHARES-COMMON-PRIOR> 10
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,948)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 928,684
<NET-ASSETS> 484,731
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,114,373
<OTHER-INCOME> 0
<EXPENSES-NET> 85,827
<NET-INVESTMENT-INCOME> 2,028,546
<REALIZED-GAINS-CURRENT> (1,948)
<APPREC-INCREASE-CURRENT> 1,032,756
<NET-CHANGE-FROM-OPS> 3,059,354
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,970
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 48,532
<NUMBER-OF-SHARES-REDEEMED> 1,242
<SHARES-REINVESTED> 320
<NET-CHANGE-IN-ASSETS> 3,059,354
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 92,236
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 502,374
<AVERAGE-NET-ASSETS> 243,228
<PER-SHARE-NAV-BEGIN> 9.93
<PER-SHARE-NII> .41
<PER-SHARE-GAIN-APPREC> .26
<PER-SHARE-DIVIDEND> .42
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> 1.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Dated: October 31, 1997
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 and certain Front-Payment
Shares are subject to a contingent deferred sales charge ("CDSC"); (d) only
the Front-Payment Shares, Level-Payment Shares and Financial Intermediary
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 fees for the Level-Payment Class and Financial Intermediary Class
being higher than that for the Front-Payment Class; (e) only the Level-Payment
Shares and Financial Intermediary 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
and conversion features 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 different classes of shares were first made available were
redesignated Front-Payment Shares. Front-Payment Shares are also 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). Certain Front-
Payment Shares sold without a FESC are subject to a CDSC.
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. Financial Intermediary Shares
Financial Intermediary Shares are sold (1) only through financial
intermediaries with which Aquila Distributors, Inc. has entered into
sales agreements, and are not offered directly to retail customers and
(2) persons entitled to exchange into Financial Intermediary Shares
under the exchange privileges of the Fund.
1. Sales Loads. Financial Intermediary Shares are sold without
the imposition of any FESC, CDSC or any other sales charge.
2. Distribution and Service Fees. Financial Intermediary
Shares are subject to a distribution fee pursuant to Part III of
the Fund's Rule 12b-1 Plan and to a shareholder servicing fee
under a Shareholder Services Plan not to exceed 0.25% of the
average daily net assets of the Financial Intermediary Class.
3. Class Expenses. Class Expenses that are attributable to the
Financial Intermediary Class are allocated to that particular
class.
4. Exchange Privileges . Financial Intermediary Shares are
exchangeable for Financial Intermediary Shares issued by other
funds sponsored by Aquila Management Corporation to the extent
that shares of such funds are sold by the respective financial
intermediaries, and as may additionally be set forth in the then
current prospectus of the Fund.
E. 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 above.
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 one or
more 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, revised October 1, 1997 and entitled
"Methodologies Used In Accounting For Multiple Class Shares."
