INVESTMENT ADVISER, ADMINISTRATOR AND FOUNDER
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
CITIZENS BANK OF RHODE ISLAND
One Citizens Plaza
Providence, Rhode Island 02903
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Paul Y. Clinton
David A. Duffy
William J. Nightingale
J. William Weeks
OFFICERS
Lacy B. Herrmann, President
Stephen J. Caridi, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC INC.
400 Bellevue Parkway
Wilmington, Delaware 19809
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus,
which must precede or accompany this report.
SEMI-ANNUAL
REPORT
DECEMBER 31, 1997
A TAX-FREE INCOME INVESTMENT
AQUILA
[Logo of Aquila Group of Funds: eagle's head)
[Logo of Narragansett Insured Tax-Free Income Fund: a rectangle with profile
view of a sailboat on top of waves and three flying seagulls above it]
ONE OF THE
AQUILASM GROUP OF FUNDS
<PAGE>
[Logo of Narragansett Insured Tax-Free Income Fund: a rectangle with profile
view of a sailboat on top of waves and three flying seagulls above it]
NARRAGANSETT INSURED TAX-FREE INCOME FUND
SEMI-ANNUAL REPORT
"QUALITY FOSTERS PEACE OF MIND"
February 20, 1998
Dear Investor:
Recently, there has been a lot of news about the Far East and the
problems that a number of countries in that area are experiencing. These
problems have included some failures of major financial corporations in
Japan, South Korea, Indonesia, Hong Kong, and various other countries. Also,
there have been major deterioration changes in the currencies of these
countries as they relate to U.S. dollars.
It is hard to believe the magnitude of recent currency
depreciation that has taken place in various countries vs. the U.S. dollar.
The currency deteriorations against the U.S. dollar have ranged from 10% to
well over 70% with various countries around the world. While we may have some
problems in our own country, these are very substantially less than those of
other countries.
What has occurred as a result of the problems of these countries
is a flight to quality. In comparison to various economies and currencies of
the Far East, as well as other countries in the world, the U.S. economy,
securities markets and currency stand out as a beacon of quality.
Quality has also been one of the trademarks of Narragansett
Insured Tax-Free Income Fund from the inception of the fund. It has been our
strong belief that you can sleep much better at night by having high quality
issues in the fund in which you invest. Indeed, the portfolio of Narragansett
Insured Tax-Free Income Fund consists of 100% of tax-exempt securities having
a AAA rating. This is the highest quality security you can possibly own.
Just as important for you to know, in the portfolio management of
the fund, separate credit analysis is done by the portfolio adviser to
confirm that such top-quality assessment of the individual securities is
justified. In other words, we do not merely rely upon the judgment of rating
agencies, but rather independently verify the credit quality of each
security.
Why do we structure the portfolio this way? Primarily, so that
you can feel comfortable with your investment in Narragansett Insured
Tax-Free Income Fund in terms of knowing that that portion of your savings
possesses a high level of capital preservation.
<PAGE>
PATTERN OF PRICING OF SHARE VALUE
When you look at the pricing of share value of Narragansett
Insured Tax-Free Income Fund, you will note that it presents a high level of
share price consistency. This is in stark contrast to the currency
deterioration and volatility of currency and securities markets that is
taking place around the world. The chart below shows you that consistency for
every year since the Fund began.
[Graphic of bar chart with the following information:]
NET ASSET VALUE
In Dollars
9/10/92 9.60
12/31/92 9.59
6/30/93 10.07
12/31/93 10.31
6/30/94 9.44
12/31/94 9.11
6/30/95 9.80
12/31/95 10.24
6/30/96 10.38
12/31/96 10.14
6/30/97 10.18
12/31/97 10.46
OTHER STEPS TAKEN TO PROTECT YOUR MONEY
As we have pointed out in previous reports to you, we have also
consistently sought to diversify the holdings of municipal bonds in the
portfolio so that no one segment could hurt the overall value of your money
in the remote event a problem occurred. As a result, it is worth pointing out
that the portfolio of securities presently consists of 126 issues spread over
a variety of categories. This diversification is illustrated in the pie chart
below.
[Graphic of pie chart with the following information:]
PORTFOLIO DISTRIBUTION BY PROJECT
Development 13.48%
Education 15.74%
Hospitals 6.41%
Housing 1.30%
Water 6.29%
General Obligations 50.80%
Other 5.98%
<PAGE>
We also ensure that the maturity of the portfolio is spread out
over various time periods, with the average portfolio maturity being 12
years, as is indicated in the pie chart below.
[Graphic of pie chart with the following information:]
PORTFOLIO DISTRIBUTION BY MATURITY
(in Years)
0 - 5 7.28%
6 - 10 31.67%
11 - 15 35.33%
16 - 20 15.64%
Over 20 Years 10.08%
Altogether then, when you consider the quality, diversification,
and maturity of the portfolio, what we have consistently tried to do for you
is to provide you with the means by which you can have "PEACE OF MIND" with
your investment in Narragansett Insured Tax-Free Income Fund.
WORKING IN YOUR INTEREST
You can be assured that all those associated with the management
of your investment will consistently work in your investment interest. We
very much value you as a shareholder and appreciate the confidence you have
shown in Narragansett Insured Tax-Free Income Fund.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS
DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Rating
Face Moody's/
Amount General Obligation Bonds (46.9%) S&P Value
<C> <S> <C> <C>
$ 100,000 Town of Bristol, Rhode Island, MBIA Insured
6.000%, 12/15/11 Aaa/AAA $ 106,875
100,000 Town of Bristol, Rhode Island, MBIA Insured
6.000%, 12/15/12 Aaa/AAA 106,625
1,000,000 Town of Bristol, Rhode Island, MBIA Insured
5.100%, 08/15/07 Aaa/AAA 1,033,750
405,000 Town of Burrillville, Rhode Island, AMBAC
Insured 5.300%, 07/15/08 Aaa/AAA 425,757
250,000 Town of Burrillville, Rhode Island, MBIA
Insured 5.400%, 10/15/06 Aaa/AAA 265,937
250,000 Town of Burrillville, Rhode Island, MBIA
Insured 5.500%, 10/15/07 Aaa/AAA 266,250
150,000 Town of Burrillville, Rhode Island, MBIA
Insured 5.700%, 10/15/10 Aaa/AAA 159,188
500,000 Central Falls, Rhode Island, MBIA Insured
4.900%, 11/15/05 Aaa/AAA 517,500
500,000 Central Falls, Rhode Island, MBIA Insured
5.200%, 11/15/09 Aaa/AAA 521,250
300,000 Cranston, Rhode Island, MBIA Insured 5.500%,
06/15/07 Aaa/AAA 324,000
1,120,000 Cranston, Rhode Island, MBIA Insured 5.300%,
07/15/05 Aaa/AAA 1,171,800
345,000 Town of Cumberland, Rhode Island, MBIA
Insured 5.500%, 09/01/06 Aaa/AAA 371,306
500,000 Town of Cumberland, Rhode Island, MBIA Insured
5.600%, 10/01/08 Aaa/AAA 528,125
400,000 Town of Lincoln, Rhode Island, MBIA Insured
5.100%, 01/15/06 Aaa/AAA 419,500
400,000 Town of Lincoln, Rhode Island, MBIA Insured
5.200%, 08/15/06 Aaa/AAA 420,000
850,000 Town of Lincoln, Rhode Island, MBIA Insured
5.500%, 08/15/10 Aaa/AAA 893,562
100,000 Town of Lincoln, Rhode Island, MBIA Insured
5.625%, 04/15/11 Aaa/AAA 104,500
250,000 Town of Lincoln, Rhode Island, FGIC Insured
5.750%, 08/01/15 Aaa/AAA 267,500
300,000 Narragansett, Rhode Island, MBIA Insured
5.100%, 09/15/06 Aaa/AAA 314,625
1,000,000 Narragansett, Rhode Island, MBIA Insured
5.300%, 09/15/08 Aaa/AAA 1,050,000
150,000 Newport, Rhode Island, MBIA Insured 6.550%,
08/15/07 Aaa/AAA 166,125
250,000 Newport, Rhode Island, Series B, FGIC
Insured 4.900%, 05/15/06 Aaa/AAA 258,125
500,000 Newport, Rhode Island, Series B, FGIC
Insured 5.000%, 05/15/07 Aaa/AAA 518,750
500,000 Newport, Rhode Island, Series B, FGIC
Insured 5.100%, 05/15/08 Aaa/AAA 519,375
100,000 Pawtucket, Rhode Island, MBIA Insured
6.650%, 09/15/06 Aaa/AAA 110,625
310,000 Pawtucket, Rhode Island, FGIC Insured
5.625%, 04/15/07 Aaa/AAA 332,475
500,000 Pawtucket, Rhode Island, FGIC Insured
5.750%, 04/15/09 Aaa/AAA 535,000
25,000 Providence, Rhode Island, MBIA Insured
6.600%, 01/15/01 Aaa/AAA 26,688
100,000 Providence, Rhode Island, MBIA Insured
5.500%, 01/15/04 Aaa/AAA 106,250
100,000 Providence, Rhode Island, MBIA Insured
5.900%, 01/15/09 Aaa/AAA 107,000
200,000 Providence, Rhode Island, MBIA Insured
5.250%, 01/15/12 Aaa/AAA 203,750
700,000 Providence, Rhode Island, FSA Insured 5.500%,
01/15/11 Aaa/AAA 737,625
100,000 Providence, Rhode Island, Series A, MBIA
Insured 5.400%, 08/01/01 Aaa/AAA 104,500
90,000 Providence, Rhode Island, 1992 Series A,
MBIA Insured 5.700%, 08/01/04 Aaa/AAA 95,850
500,000 East Providence, Rhode Island, MBIA Insured
5.400%, 05/15/07 Aaa/AAA 541,875
95,000 Commonwealth of Puerto Rico, MBIA Insured
5.900%, 07/01/06 Aaa/AAA 101,887
100,000 Commonwealth of Puerto Rico, MBIA Insured
5.750%, 07/01/09 Aaa/AAA 106,000
50,000 Commonwealth of Puerto Rico, FSA Insured
6.000%, 07/01/14 Aaa/AAA 53,562
100,000 Commonwealth of Puerto Rico, MBIA Insured
6.000%, 07/01/14 Aaa/AAA 107,125
500,000 Commonwealth of Puerto Rico, AMBAC Insured
5.850%, 07/01/15 Aaa/AAA 526,250
500,000 Commonwealth of Puerto Rico, MBIA Insured
5.875%, 07/01/18 Aaa/AAA 524,375
50,000 State of Rhode Island Refunding, Series A,
FGIC Insured 6.000%, 06/15/02 Aaa/AAA 53,687
300,000 Rhode Island Consolidated Capital Development
Loan, 1991 Series B, AMBAC Insured 6.250%,
05/15/07 Aaa/AAA 321,000
380,000 Rhode Island Consolidated Capital Development
Loan, 1991 Series B, MBIA Insured 6.250%,
05/15/09 Aaa/AAA 406,125
100,000 Rhode Island Consolidated Capital Development
Loan, 1991 Series B, MBIA Insured 6.250%,
05/15/10 Aaa/AAA 106,750
1,050,000 Rhode Island Consolidated Capital Development
Loan, 1992 Series A, FGIC Insured 5.500%,
08/01/07 Aaa/AAA 1,103,812
25,000 Rhode Island Consolidated Capital Development
Loan, 1992 Series A, FGIC Insured 5.500%,
08/01/08 Aaa/AAA 26,219
1,000,000 Rhode Island Consolidated Capital Development
Loan, 1993 Series A, AMBAC Insured 4.800%,
06/15/02 Aaa/AAA 1,025,000
1,000,000 Rhode Island Consolidated Capital Development
Loan, 1993 Series A, FGIC Insured 5.100%,
11/01/13 Aaa/AAA 1,017,500
375,000 Town of Scituate, Rhode Island, MBIA Insured
5.500%, 04/01/09 Aaa/AAA 398,437
390,000 South Kingstown, Rhode Island, MBIA Insured
5.000%, 03/15/08 Aaa/AAA 405,600
390,000 South Kingstown, Rhode Island, MBIA Insured
5.050%, 03/15/09 Aaa/AAA 405,112
125,000 South Kingstown, Rhode Island, MBIA Insured
5.125%, 06/01/08 Aaa/AAA 130,312
170,000 South Kingstown, Rhode Island, MBIA Insured
5.200%, 06/01/09 Aaa/AAA 177,012
170,000 South Kingstown, Rhode Island, MBIA Insured
5.250%, 06/01/10 Aaa/AAA 176,588
100,000 South Kingstown, Rhode Island, MBIA Insured
6.300%, 12/15/11 Aaa/AAA 109,250
400,000 South Kingstown, Rhode Island, AMBAC Insured
4.900%, 11/15/07 Aaa/AAA 414,000
150,000 Warwick, Rhode Island, MBIA Insured 6.100%,
11/15/01 Aaa/AAA 160,688
50,000 Warwick, Rhode Island, FGIC Insured 7.000%,
11/15/02 Aaa/AAA 53,562
195,000 Warwick, Rhode Island, FSA Insured 5.600%,
08/01/14 Aaa/AAA 207,188
500,000 West Warwick, Rhode Island, MBIA Insured
5.800%,
01/01/04 Aaa/AAA 536,250
500,000 West Warwick, Rhode Island, MBIA Insured
5.900%,
01/01/05 Aaa/AAA 535,625
385,000 Woonsocket, Rhode Island, MBIA Insured 5.125%,
03/01/11 Aaa/AAA 394,625
Total General Obligation Bonds 23,215,604
Higher Education Revenue Bonds (12.3%)
25,000 Rhode Island Health & Education Building
Corp - Higher Education, Various Purpose
1990 Series B,
FSA Insured 7.250%, 09/15/06 Aaa/AAA 26,781
100,000 Rhode Island Health & Education Building
Corp - Bryant College, MBIA Insured 6.300%,
06/01/03 Aaa/AAA 109,500
50,000 Rhode Island Health & Education Building
Corp - Bryant College, 1992 2nd Series,
MBIA Insured
5.550%, 06/01/03 Aaa/AAA 52,938
100,000 Rhode Island Health & Education Building
Corp - Bryant College, 1992 2nd Series,
MBIA Insured
5.800%, 06/01/05 Aaa/AAA 107,125
100,000 Rhode Island Health & Education Building
Corp - Johnson & Wales University, 1993
Series A, Connie Lee Insured 5.200%,
04/01/04 NR/AAA 104,000
200,000 Rhode Island Health & Education Building
Corp - Johnson & Wales University, 1992
Series A,
Connie Lee Insured 5.875%, 04/01/05 NR/AAA 216,500
150,000 Rhode Island Health & Education Building
Corp - Johnson & Wales University, 1992
Series A,
Connie Lee Insured 5.750%, 04/01/12 NR/AAA 159,000
500,000 Rhode Island Health & Education Building
Corp - Johnson & Wales University, 1993
Series A,
Connie Lee Insured 5.250%, 04/01/16 NR/AAA 501,875
150,000 Rhode Island Health & Education Building
Corp - Johnson & Wales University, 1992
Series A,
Connie Lee Insured 6.375%, 04/01/12 NR/AAA 165,750
300,000 Rhode Island Health & Education Building
Corp - Providence College, 1993 Series,
MBIA Insured
5.600%, 11/01/09 Aaa/AAA 317,250
300,000 Rhode Island Health & Education Building
Corp - Providence College, 1993 Series,
MBIA Insured
5.600%, 11/01/10 Aaa/AAA 315,375
500,000 Rhode Island Health &Education Building Corp.,
Providence College, 1993 Series,
MBIA Insured 5.600%, 11/01/22 Aaa/AAA 512,500
200,000 Rhode Island Health & Education Building
Corp - Rhode Island School of Design, 1992
Series, MBIA Insured 5.800%, 06/01/05 Aaa/AAA 215,750
500,000 Rhode Island Health & Education Building
Corp - Brown University, 1993 Series, MBIA
Insured 5.400%, 09/01/18 Aaa/AAA 503,750
500,000 Rhode Island Health & Education Building
Corp - Brown University, 1993 Series, MBIA
Insured 5.375%, 09/01/23 Aaa/AAA 502,500
1,000,000 Rhode Island Health & Education Building
Corp - Roger Williams University, 1996
Series S, Connie Lee Insured
5.500%, 11/15/11 NR/AAA 1,053,750
55,000 Rhode Island Health & Education Building
Corp - Board of Governors, 1993 Series
A, MBIA Insured 5.500%, 09/15/13 Aaa/AAA 57,200
245,000 Rhode Island Health & Education Building
Corp - Board of Governors, 1993 Series B,
MBIA Insured 5.500%, 09/15/13 Aaa/AAA 254,800
140,000 Rhode Island Health & Education Building
Corp - Board of Governors, 1993 Series A,
MBIA Insured 5.250%, 09/15/23 Aaa/AAA 139,650
450,000 Rhode Island Health & Education Building
Corp - Board of Governors, 1993 Series A,
MBIA Insured 5.300%, 09/15/08 Aaa/AAA 469,688
150,000 Rhode Island Health & Education Building
Corp - Salve Regina, 1993 Series, Connie
Lee Insured 5.300%, 03/15/00 NR/AAA 153,375
150,000 Rhode Island Health & Education Building
Corp - Salve Regina, 1993 Series, Connie
Lee Insured 6.100%, 03/15/06 NR/AAA 164,250
6,103,307
Hospital Revenue Bonds (6.4%)
100,000 Rhode Island Health & Education Building
Corporation - Women & Infants Hospital,
1992 Series, FSA Insured 6.150%, 09/01/05 Aaa/AAA 109,375
400,000 Rhode Island Health & Education Building
Corporation - Women & Infants Hospital,
1992 Series, FSA Insured 6.350%, 09/01/07 Aaa/AAA 440,500
300,000 Rhode Island Health & Education Building
Corporation - Women & Infants Hospital,
1992 Series, FSA Insured 6.550%, 09/01/13 Aaa/AAA 328,500
150,000 Rhode Island Health & Education Building
Corporation - Kent County Memorial Hospital,
1992 Series, MBIA Insured 6.000%, 07/01/06 Aaa/AAA 160,500
2,000,000 Rhode Island Health & Education Building
Corp., Fing-Lifespan Obligation Group, MBIA
Insured 5.600%, 11/01/22 Aaa/AAA 2,110,000
3,148,875
Mortgage Revenue-Multi Family (1.3%)
300,000 Rhode Island Housing & Mortgage Finance
Corp, 1995 Series A, AMBAC Insured 5.550%,
07/01/05 Aaa/AAA 318,375
300,000 Rhode Island Housing & Mortgage Finance Corp,
1995 Series A, AMBAC Insured 5.450%,
07/01/04 Aaa/AAA 316,500
634,875
Water and Sewer Revenue Bonds (2.7%)
250,000 Kent County Water Authority Revenue Bonds,
1994 Series A, 5.700%, 07/15/04, MBIA
Insured Aaa/AAA 268,750
300,000 Bristol County, Rhode Island, MBIA Insured
5.000%, 12/01/08 Aaa/AAA 310,500
750,000 Bristol County, Rhode Island Water
Authority Revenue Bond, 1997 Series A,
5.250%, 07/01/17 759,375
1,338,625
Utility Revenue Bonds (.3%)
100,000 Puerto Rico Electric Power Authority,
Series Q, FSA Insured 5.750%, 07/01/07 Aaa/AAA 106,625
50,000 Puerto Rico Electric Power Authority,
Series O, FSA Insured 6.000%, 07/01/10 Aaa/AAA 51,250
157,875
Development Revenue Bonds (15.2%)
100,000 Rhode Island Convention Center Authority,
1991 Series A, MBIA Insured (Escrowed to
Maturity)
6.100%, 05/15/02 Aaa/AAA 108,000
150,000 Rhode Island Convention Center Authority,
1991 Series A, MBIA Insured (Escrowed to
Maturity)
6.300%, 05/15/04 Aaa/AAA 162,937
100,000 Rhode Island Convention Center Authority,
1991 Series A, MBIA Insured (Escrowed to
Maturity)
6.375%, 05/15/01 Aaa/AAA 108,750
500,000 Rhode Island Convention Center Authority,
1993 Series B,
MBIA Insured 5.000%, 05/15/07 Aaa/AAA 524,375
500,000 Rhode Island Convention Center Authority,
1993 Series A,
AMBAC Insured 5.400%, 05/15/08 Aaa/AAA 527,500
300,000 Rhode Island Convention Center Authority,
1993 Series A,
AMBAC Insured 5.500%, 05/15/13 Aaa/AAA 310,875
300,000 Rhode Island Public Building Authority State
Public Projects, 1990 Series A, AMBAC
Insured (Escrowed to Maturity)
6.600%, 02/01/02 Aaa/AAA 326,625
500,000 Rhode Island Public Building Authority State
Public Projects, 1993 Series A, AMBAC
Insured 5.100%, 02/01/05 Aaa/AAA 522,500
1,000,000 Rhode Island Public Building Authority State
Public Projects, 1993 Series A, AMBAC
Insured 5.250%, 02/01/10 Aaa/AAA 1,028,750
785,000 Rhode Island Public Building Authority State
Public Projects, 1990 Series A,
AMBAC Insured 6.000%, 02/01/11 Aaa/AAA 825,231
710,000 Rhode Island Public Building Authority State
Public Projects, 1990 Series A,
AMBAC Insured
(Escrowed to Maturity) 6.000%, 02/01/01 Aaa/AAA 748,162
370,000 Rhode Island Public Building Authority State
Public Projects, 1989 Series A,
AMBAC Insured
(Escrowed to Maturity) 7.000%, 02/01/00 Aaa/AAA 398,213
35,000 Rhode Island Public Building Authority State
Public Projects, 1989 Series A,
AMBAC Insured
(Escrowed to Maturity) 6.750%, 02/01/00 Aaa/AAA 37,494
250,000 Rhode Island Public Building Authority State
Public Projects, Series A, MBIA Insured
5.250%, 08/01/06 Aaa/AAA 252,610
600,000 Rhode Island Public Building Authority State
Public Projects, 1986 Series A, MBIA Insured
5.250%, 08/01/07 Aaa/AAA 606,246
500,000 Rhode Island Public Building Authority State
Public Projects, 1996 School Series B, MBIA
Insured 5.500%, 12/15/14 Aaa/AAA 521,875
500,000 Rhode Island Public Building Authority State
Public Projects, 1996 School Series B, MBIA
Insured 5.500%, 12/15/15 Aaa/AAA 514,376
7,524,519
Pollution Control Revenue Bonds (3.7%)
200,000 Rhode Island Clean Water Protection, 1993
Series A, MBIA Insured 5.300%, 10/01/07 Aaa/AAA 214,000
300,000 Rhode Island Clean Water Protection, 1993
Series A, MBIA Insured 5.400%, 10/01/09 Aaa/AAA 322,500
1,250,000 Rhode Island Clean Water Protection, 1993
Series A, MBIA Insured 5.400%, 10/01/15 Aaa/AAA 1,309,375
1,845,875
Other Revenue Bonds (8.8%)
210,000 State of Rhode Island Depositors Economic
Protection Corp - 1992 Series A, FSA Insured
6.000%, 08/01/01 Aaa/AAA 223,125
135,000 State of Rhode Island Depositors Economic
Protection Corp - 1992 Series B, MBIA Insured
5.500%, 08/01/06 Aaa/AAA 145,462
355,000 State of Rhode Island Depositors Economic
Protection Corp - 1993 Series A, MBIA Insured
5.625%, 08/01/09 Aaa/AAA 388,282
500,000 State of Rhode Island Depositors Economic
Protection Corp - 1992 Series B, MBIA Insured
6.000%, 08/01/17 Aaa/AAA 538,750
500,000 State of Rhode Island Depositors Economic
Protection Corp - 1993 Series B, MBIA Insured
5.250%, 08/01/21 Aaa/AAA 523,125
1,500,000 Rhode Island State and Local Facilities
MBIA Insured 5.400%, 08/01/08 Aaa/AAA 1,603,126
200,000 State of Rhode Island Certificates of
Participation, Howard Center Improvements,
MBIA Insured 5.375%, 10/01/16 Aaa/AAA 203,750
400,000 State of Rhode Island Certificates of
Participation, Howard Center Improvements,
MBIA Insured 5.250%, 10/01/10 Aaa/AAA 415,500
300,000 State of Rhode Island Depositors Economic
Protection Corp - 1993 Series B, MBIA Insured
5.800%, 08/01/09 Aaa/AAA 333,000
4,374,120
Total Revenue Bonds 25,128,071
Total Investments (cost $46,143,399 *) 97.6% 48,343,675
Other assets in excess of liabilities 2.4 1,206,537
Net Assets 100.0% $ 49,550,212
<FN> (*)Cost for Federal income tax purposes is identical. </FN>
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assurance
MBIA - Municipal Bond Investors Assurance Corp.
See accompanying notes to financial statements.
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997 (UNAUDITED)
ASSETS
Investments at value (identified cost $46,143,399) $ 48,343,675
Cash 343,453
Interest receivable 747,776
Receivable for Fund shares sold 161,021
Due from Administrator for reimbursement of expenses (note 3) 17,829
Receivable for investment securities sold 5,000
Other assets 101
Total assets 49,618,855
LIABILITIES
Dividends payable 32,850
Distribution fees payable 19,673
Accrued expenses 13,673
Adviser and Administrator fees payable 2,064
Payable for Fund shares redeemed 383
Total liabilities 68,643
NET ASSETS $ 49,550,212
Net Assets consist of:
Capital Stock - Authorized 80,000,000 shares,
par value $.01 per share $ 47,354
Additional paid-in capital 47,304,530
Accumulated net loss on investments (1,948)
Net unrealized appreciation on investments 2,200,276
$ 49,550,212
CLASS A
Net Assets $ 48,308,281
Capital shares outstanding 4,616,702
Net asset value and redemption price per share $ 10.46
Offering price per share (100/96 of $10.46 adjusted to
nearest cent) $ 10.90
CLASS C
Net Assets $ 1,241,817
Capital shares outstanding 118,697
Net asset value and offering price per share $ 10.46
Redemption price per share (*generally, a charge of 1% is
imposed on the proceedsof shares redeemed during the
first 12 months after purchase) $ 10.46*
CLASS Y
Net Assets $ 114
Capital shares outstanding 10,901
Net asset value, offering and redemption price per share $ 10.48
See accompanying notes to financial statements.
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest income $1,194,301
Expenses:
Management fee (note 3) $ 116,312
Distribution and service fees (note 3) 37,863
Trustees' fees and expenses 24,000
Transfer and shareholder servicing agent fees 19,500
Legal fees 17,000
Shareholders' reports and proxy statements 16,000
Audit and accounting fees 10,000
Registration fees and dues 3,500
Custodian fees (note 7) 3,000
Insurance 375
Miscellaneous 26,914
274,464
Management fee waived (note 3) (104,681)
Reimbursement of expenses by Manager (note 3) (106,821)
Expenses paid indirectly (note 7) (3,000)
Net expenses 59,962
Net investment income 1,134,339
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from securities transactions -
Change in unrealized appreciation on investments 1,271,592
Net realized and unrealized gain on investments 1,271,592
Net increase in net assets resulting from operations $2,405,931
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DEC. 31, 1997 JUNE 30, 1997
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,134,339 $ 2,028,546
Net realized gain (loss) from securities
transactions - (1,948)
Change in unrealized appreciation on
investments 1,271,592 1,032,756
Change in net assets from operations 2,405,931 3,059,354
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6):
Class A Shares:
Net investment income (1,135,701) (2,047,604)
Distributions in excess of net
investment income - -
Net realized gain on investments - -
Class C Shares:
Net investment income (13,541) (9,970)
Distributions in excess of net
investment income - -
Net realized gain on investments - -
Class Y Shares:
Net investment income (3) (6)
Distributions in excess of net
investment income - -
Net realized gain on investments - -
Change in net assets from distributions (1,149,245) (2,057,580)
CAPITAL SHARE TRANSACTIONS (NOTE 8):
Proceeds from shares sold 6,827,804 8,147,455
Reinvested dividends and distributions 638,914 1,067,542
Cost of shares redeemed (2,198,206) (5,180,006)
Change in net assets from capital
share transactions 5,268,512 4,034,991
Change in net assets 6,525,198 5,036,765
NET ASSETS:
Beginning of period 43,025,014 37,988,249
End of period $ 49,550,212 $ 43,025,014
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Narragansett Insured Tax-Free Income Fund (the "Fund"), a
non-diversified, open-end investment company, was organized on January 22,
1992 as a Massachusetts business trust and commenced operations on September
10, 1992. The Fund is authorized to issue 80,000,000 shares and, since its
inception to May 1, 1996, offered only one class of shares. On that date, the
Fund began offering two additional classes of shares, Class C and Class Y
shares. All shares outstanding prior to that date were designated as Class A
shares and, as was the case since inception, are sold with a front-payment
sales charge and bear an annual service fee. Class C shares are sold with a
level-payment sales charge with no payment at time of purchase but level
service and distribution fees from date of purchase through a period of six
years thereafter. A contingent deferred sales charge of 1% is assessed to any
Class C shareholder who redeems shares of this Class within one year from the
date of purchase. The Class Y shares are only offered to institutions acting
for an investor in a fiduciary, advisory, agency, custodian or similar
capacity. They are not available to individual retail investors. Class Y
shares are sold at net asset value without any sales charge, redemption fees,
contingent deferred sales charge or distribution or service fees. On October
31, 1997, the Fund established Class I shares, which are offered and sold
only through financial intermediaries and are not offered directly to retail
customers. At December 31, 1997 there were no Class I shares outstanding. All
classes of shares represent interests in the same portfolio of investments in
the Fund and are identical as to rights and privileges. They differ only with
respect to the effect of sales charges, the distribution and/or service fees
borne by the respective class, expenses specific to each class, voting rights
on matters affecting a single class and the exchange privileges of each
class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
by the Fund in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles for investment
companies.
a) PORTFOLIO VALUATION: Municipal securities which have remaining
maturities of more than 60 days are valued at fair value each business day
based upon information provided by a nationally prominent independent
pricing service and periodically verified through other pricing services;
in the case of securities for which market quotations are readily
available, securities are valued at the mean of bid and asked quotations
and in the case of other securities, at fair value determined under
procedures established by and under the general supervision of the Board
of Trustees. Securities which mature in 60 days or less are valued at
amortized cost if their term to maturity at purchase was 60 days or less,
or by amortizing their unrealized appreciation or depreciation on the 61st
day prior to maturity, if their term to maturity at purchase exceeded 60
days.
<PAGE>
In Fiscal 1997, the Fund began amortizing bond premium using the
constant yield method. Accordingly, net unrealized appreciation and
additional paid-in capital have been adjusted by equal amounts at the
beginning of the year. This change had no effect on the Fund's net asset
value or distribution policy and conforms to the amortization policy
followed by the Fund for Federal tax purposes.
b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and
losses from securities transactions are reported on the identified
cost basis. Interest income is recorded on the accrual basis
and is adjusted for amortization of premium and accretion of original
issue discount. Market discount is recognized upon disposition of the
security.
c) FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as a
regulated investment company by complying with the provisions
of the Internal Revenue Code applicable to certain investment companies.
The Fund intends to make distributions of income and securities
profits sufficient to relieve it from all, or substantially all, Federal
income and excise taxes.
d) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses,
are allocated daily to each class of shares based on the relative
net assets of each class. Class-specific expenses, which include
distribution and service fees and any other items that are
specifically attributed to a particular class, are charged directly to
such class.
e) USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
Aquila Management Corporation (the "Manager"), the Fund's founder and
sponsor, serves as the Manager for the Fund under an Advisory and
Administration Agreement with the Fund. The portfolio management of the Fund
has been delegated to a sub-adviser as described below. Under the Advisory
and Administration Agreement, the Manager provides all administrative
services to the Fund, other than those relating to the day-to-day portfolio
management. The Manager's services include providing the office of the Fund
and all related services as well as overseeing the activities of any
sub-adviser and all the various support organizations to the Fund such as the
shareholder servicing agent, custodian, legal counsel, auditors and
distributor and additionally maintaining the
<PAGE>
Fund's accounting books and records. For its services, the Manager is
entitled to receive a fee which is payable monthly and computed as of the
close of business each day at the annual rate of 0.50 of 1% on the Fund's
net assets.
Citizens Bank of Rhode Island (the "Sub-Adviser"),formerly known as
Citizens Trust Company, serves as the Investment Sub-Adviser for the Fund
under a Sub-Advisory Agreement between the Manager and the Sub-Adviser.
Under this agreement, the Sub-Adviser continuously provides, subject to
oversight of the Manager and the Board of Trustees of the Fund, the
investment program of the Fund and the composition of its portfolio, arranges
for the purchases and sales of portfolio securities, and provides for daily
pricing of the Fund's portfolio. For its services, the Sub-Adviser is
entitled to receive a fee from the Manager which is payable monthly and
computed as of the close of business each day at the annual rate of 0.23 of
1% on the Fund's net assets.
On November 14, 1997, the Management arrangements described above were
approved by the Fund's shareholders and went into effect. From inception of
the Fund to that date, Aquila Management Corporation and Citizens Bank of
Rhode Island had served as the Fund's Administrator and Investment Manager,
respectively, pursuant to agreements with the Fund, for total fees at an
annual rate of 0.50 of 1% of the Fund's net assets, the same fee as under the
new arrangements.
For the six months ended December 31, 1997, the Fund incurred fees for
advisory and administrative services of $116,312 of which $104,681 was
voluntarily waived. Additionally, the Manager voluntarily agreed to reimburse
the Fund for other expenses during this period in the amount of $106,821. Of
this amount, $88,992 was paid prior to December 31, 1997 and the balance of
$17,829 was paid in early January, 1998.
Specific details as to the nature and extent of the services provided
by the Manager and the Sub-Adviser are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
b) DISTRIBUTION AND SERVICE FEES:
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part
of the Plan, with respect to Class A Shares, the Fund is authorized to make
service fee payments to broker-dealers or others ("Qualified Recipients")
selected by Aquila Distributors, Inc., ("the Distributor"), including, but
not limited to, any principal underwriter of the Fund, with which the
Distributor has entered into written agreements contemplated by the Rule and
which have rendered assistance in the distribution and/or retention of the
Fund's shares or servicing of shareholder accounts. The Fund makes payment of
this service fee at the annual rate of 0.15% of the Fund's average net assets
represented by Class A Shares. For the six months ended December 31, 1997,
service fees on Class A Shares amounted to $34,414, of which the Distributor
received $611.
<PAGE>
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Fund's Class C shares
or servicing of shareholder accounts. These payments are made at the annual
rate of 0.75% of the Fund's net assets represented by Class C Shares and for
the six months ended December 31, 1997, amounted to $2,587. In addition,
under a Shareholder Services Plan, the Fund is authorized to make service fee
payments with respect to Class C Shares to Qualified Recipients for providing
personal services and/or maintenance of shareholder accounts. These payments
are made at the annual rate of 0.25% of the Fund's net assets represented by
Class C Shares and for the six months ended December 31, 1997, amounted to
$862. The total of these payments with respect to Class C Shares amounted to
$3,449, of which the Distributor received $2,403.
Specific details about the Plans are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
Under a Distribution Agreement, Aquila Distributors, Inc. serves as the
exclusive distributor of the Fund's shares. Through agreements between the
Distributor and various broker-dealer firms ("dealers"), the Fund's shares
are sold primarily through the facilities of these dealers having offices
within Rhode Island, with the bulk of sales commissions inuring to such
dealers. For the six months ended December 31, 1997, the Distributor received
sales commissions in the amount of $6,694.
4. PURCHASES AND SALES OF SECURITIES
During the six months ended December 31, 1997, purchases of securities
and proceeds from the sales of securities aggregated $4,894,095 and $5,000,
respectively.
At December 31, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to $2,201,751 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value amounted to $1,475,
for a net unrealized appreciation of $2,200,276.
5. PORTFOLIO ORIENTATION
Since the Fund invests principally and may invest entirely in double
tax-free municipal obligations of issuers within Rhode Island, it is subject
to possible risks associated with economic, political, or legal developments
or industrial or regional matters specifically affecting Rhode Island and
whatever effects these may have upon Rhode Island issuers' ability to meet
their obligations. However, to mitigate against such risks, the Fund has
chosen to have at least 65% and possibly the entire number of issues in the
portfolio insured as to timely payment of principal and interest when due by
nationally prominent municipal bond insurance companies.
<PAGE>
The Fund is also permitted to invest in U.S. territorial municipal
obligations meeting comparable quality standards and providing income which
is exempt from both regular Federal and Rhode Island income taxes. The
general policy of the Fund is to invest in such securities only when
comparable securities of Rhode Island issuers are not available in the
market. At December 31, 1997, the Fund had 3.2% of its net assets invested in
eight Puerto Rico municipal issues, all of which are rated AAA and insured or
collateralized by U.S. Treasury securities.
At December 31, 1997, all of the securities in the Fund were insured.
While such insurance protects against credit risks with portfolio securities,
it does not insure against market risk of fluctuations in the Fund's share
price and income return.
6. DISTRIBUTIONS
The Fund declares dividends daily from net investment income and makes
payments monthly in additional shares at the net asset value per share or in
cash, at the shareholder's option. Net realized capital gains, if any, are
distributed annually.
The Fund intends to maintain, to the maximum extent possible, the
tax-exempt status of interest payments received from portfolio municipal
securities in order to allow dividends paid to shareholders from net
investment income to be exempt from regular Federal and State of Rhode Island
income taxes. However, due to differences between financial reporting and
Federal income tax reporting requirements, distributions made by the Fund may
not be the same as the Fund's net investment income, and/or net realized
securities gains. Further, a small portion of the dividends may, under some
circumstances, be subject to ordinary income taxes. For certain shareholders,
some dividend income may, under some circumstances, be subject to the
alternative minimum tax. Also, annual capital gains distributions, if any,
are taxable.
7. CUSTODIAN FEES
The Fund has negotiated an expense offset arrangement with its
custodian wherein it receives credit toward the reduction of custodian fees
whenever there are uninvested cash balances. During six months ended December
31, 1997, the Fund's custodian fees amounted to $3,000, all of which
was offset by such credits. It is the general intention of the Fund to
invest, to the extent practicable, some or all of cash balances in
income-producing assets rather than leave cash on deposit with the custodian.
<PAGE>
8. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1997 June 30, 1997
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class A Shares:
Proceeds from shares sold 590,060 $ 6,090,659 760,202 $ 7,656,627
Reinvested distributions 61,119 633,003 105,705 1,064,301
Cost of shares redeemed (212,367) (2,192,172) (513,856) (5,167,501)
Net change 438,812 4,531,490 352,051 3,553,427
Class C Shares:
Proceeds from shares sold 71,087 737,145 48,532 490,828
Reinvested distributions 570 5,908 320 3,235
Cost of shares redeemed (580) (6,034) (1,242) (12,505)
Net change 71,077 737,019 47,610 481,558
Class Y Shares:
Proceeds from shares sold - - - -
Reinvested distributions - 3 1 6
Cost of shares redeemed - - - -
Net change - 3 1 6
Total transactions in Fund
shares 509,889 $ 5,268,512 399,662 $ 4,034,991
</TABLE>
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
(UNAUDITED)
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Class A(1)
Six Months
ended Period(2)
December 31, Year ended June 30, ended
1997 1997 1996 1995 1994 6/30/93
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.18 $9.93 $9.80 $9.44 $10.07 $9.60
Income from Investment
Operations:
Net investment income 0.25 0.51 0.52 0.54 0.53 0.39
Net gain (loss) on
securities (both
realized and
unrealized) 0.29 0.26 0.13 0.36 (0.63) 0.47
Total from Investment
Operations 0.54 0.77 0.65 0.90 (0.10) 0.86
Less Distributions
(note 6):
Dividends from net
investment income (0.26) (0.52) (0.52) (0.54) (0.53) (0.39)
Distributions from
capital gains - - - - - -
Total Distributions (0.26) (0.52) (0.52) (0.54) (0.53) (0.39)
Net Asset Value, End
of Period $10.46 $10.18 $9.93 $9.80 $9.44 $10.07
Total Return (not
reflecting sales
charge)(%) 5.34# 7.95 6.72 9.82 (1.11) 9.18#
Ratios/Supplemental
Data
Net Assets, End of
Period ($ thousands) 48,308 42,540 37,988 34,373 31,660 15,249
Ratio of Expenses to
Average Net Assets
(%) 0.24* 0.21 0.14 0.06 0.02 0*
Ratio of Net
Investment Income
to Average Net
Assets (%) 4.89* 5.07 5.19 5.63 5.30 5.28*
Portfolio Turnover
Rate (%) 0.01# 5.29 0 0 0 2.56#
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary waiver
of fees, the Administrator's voluntary expense reimbursement and the expense
offset in custodian fees for uninvested cash balances would have been:
<S> <C> <C> <C> <C> <C> <C>
Net Investment
Income ($) 0.21 0.41 0.42 0.43 0.40 0.20
Ratio of Expenses
to Average Net
Assets (%) 1.06* 1.25 1.17 1.19 1.32 2.56*
Ratio of Net
Investment Income
to Average Net
Assets (%) 4.07* 4.03 4.16 4.50 4.00 2.72*
<FN> (1) Designated as Class A Shares on May 1, 1996. </FN>
<FN> (2) From September 10, 1992 (commencement of operations) to June 30,
1993. </FN>
<FN> # Not annualized </FN>
<FN> * Annualized </FN>
See accompanying notes to financial statements.
<PAGE>
For a share outstanding throughout each period
</TABLE>
<TABLE>
<CAPTION>
Class C(1) Class Y(1)
Six Period Six Period
Months Year (2) Months Year (2)
Ended Ended Ended Ended Ended Ended
Dec. June June Dec. June June
31, 30, 30, 31, 30, 30,
1997 1997 1996 1997 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $10.18 $9.93 $9.94 $10.19 $9.93 $9.94
Income from Investment
Operations:
Net investment income 0.30 0.41 0.07 0.31 0.56 0.09
Net gain (loss) on
securities (both
realized and unrealized) 0.28 0.26 (0.01) 0.29 0.26 (0.01)
Total from Investment
Operations 0.58 0.67 0.06 0.60 0.82 0.08
Less Distributions (note 6):
Dividends from net
investment income (0.30) (0.42) (0.07) (0.31) (0.56) (0.09)
Distributions from capital
gains - - - - - -
Total Distributions (0.30) (0.42) (0.07) (0.31) (0.56) (0.09)
Net Asset Value, End of
Period $10.46 $10.18 $9.93 $10.48 $10.19 $9.93
Total Return (not
reflecting sales
charge) (%) 4.81# 6.89 0.60# 5.76# 8.48 0.80#
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) 1,242 485 0.1 0.1 0.1 0.1
Ratio of Expenses to
Average Net Assets (%) 1.24* 1.06 0.20# 0.07* 0.06 0.14#
Ratio of Net Investment
Income to Average Net
Assets (%) 3.82* 4.22 0.70# 5.95* 5.22 0.89#
Portfolio Turnover Rate(%) 0.01# 5.29 0 0.01# 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 ($) 0.25 0.30 0.06 0.31 0.55 0.08
Ratio of Expenses to
Average Net Assets (%) 1.85* 2.10 0.32# 0.91* 1.10 0.15#
Ratio of Net Investment
Income to Average Net
Assets (%) 3.21* 3.18 0.61# 4.22* 4.18 0.77#
<FN> (1) New Class of Shares established on May 1, 1996. </FN>
<FN> (2) From May 1, 1996 to June 30, 1996. </FN>
<FN> # Not annualized. </FN>
<FN> * Annualized. </FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
REPORT ON THE ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
The Annual Meeting of Shareholders of Narragansett Insured
Tax-Free Income Fund (the "Fund") was held on November 14, 1997.* At the
meeting, the following matters were submitted to a shareholder vote and
approved:
(i) the election of Lacy B. Herrmann, Vernon R. Alden, Paul Y. Clinton,
David A. Duffy, Robert L. Krakoff, William J. Nightingale, and
J. William Weeks as Trustees to hold office until the next annual
meeting of the Fund's shareholders or until his or her successor is
duly elected (each Trustee received at least 31,665,320.51 affirmative
votes (98.69%); no more than 421,457.31 votes (1.31%) were withheld
for any Trustee),
(ii) the ratification of the selection of KPMG Peat Marwick LLP as
the Fund's independent auditors for the fiscal year ending June 30,
1998 (votes for: 31,419,289.84 (97.92%); votes against: 84,778.45
(0.26%); abstentions: 582,709.53 (1.82%); broker non-votes: 0
(0.00%)),
(iii) the approval of a proposed Investment Advisory and
Administration Agreement with Aquila Management Corp. (votes for:
29,310,061.31 (91.35%); votes against: 435,991.83 (1.36%);
abstentions: 712,590.10 (2.22%); broker non-votes: 1,628,134.58
(5.07%)), and
(iv) the approval of a proposed Sub-Advisory Agreement with
Citizens Bank of Rhode Island (votes for: 27,770,787.93 (86.55%);
votes against: 343,106.89 (1.07%); abstentions: 685,106.48 (2.14%);
broker non-votes: 3,287,776.52 (10.25%)).
* On the record date for the Annual Meeting, the holders of 4,338,140.613
Class A Shares, 54,828.484 Class C Shares, and 10.686 Class Y Shares were
outstanding and entitled to vote representing a total net asset value of
$45,291,073.38. The holders of shares entitled to vote representing a total
net asset value of $32,086,777.82 (70.85%) were present in person or by proxy
at the meeting.
