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. 10 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ X ]
Amendment No. 12 [ 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)
[_X_] on November 1, 1999 pursuant to paragraph (b)
[___] 60 days after filing pursuant to paragraph (a)(i)
[___] on (date) pursuant to paragraph (a)(i)
[___] 75 days after filing pursuant to paragraph (a)(ii)
[___] on (date) pursuant to paragraph (a)(ii) of Rule 485.
[___] This post-effective amendment designates a new effective
date for a previous post-effective amendment.
<PAGE>
LOGO
AQUILAsm Group of Funds
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 November 1, 1999
Class C Shares
Narragansett Insured Tax-Free Income Fund is a mutual fund
that seeks 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 as to payment of
principal and interest by nationally recognized insurers of
municipal obligations.
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 may not be achieved,
is to have 100% of the Fund's assets invested in insured
obligations.
For purchase, redemption or account inquiries contact the Fund's
Shareholder Servicing Agent:
PFPC Inc.* 400 Bellevue Parkway * Wilmington, DE 19809
Call 800-637-4633 toll free
For general inquiries & yield information
Call 800-453-6864 toll free or 212-697-6666
The Securities and Exchange Commission has not approved or
disapproved the Fund's securities or passed upon the adequacy of
this Prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
THE FUND'S OBJECTIVE, INVESTMENT STRATEGIES AND MAIN RISKS
"What is the Fund's objective?"
The Fund's objective is to seek 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.
"What is the Fund's investment strategy?"
In seeking its objective, the Fund will invest primarily in
Rhode Island Obligations which are insured by nationally
recognized insurers of municipal obligations as to the timely
payment of principal and interest when due. The Fund invests in
tax-free municipal obligations which pay interest exempt from
Rhode Island state and Federal income taxes. We call these "Rhode
Island Obligations." In general, all or almost all of these
obligations are issued by the State of Rhode Island, its counties
and various other local authorities; at least 65% of the
portfolio will always consist of obligations of these issuers.
These obligations can be of any maturity but the Fund's average
portfolio maturity has traditionally been between 12 and 14
years.
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. The insurance of principal and
interest under these types of insurance policies refers to the
payment of the face or par value of the Rhode Island Obligation
and interest when due.
It is a goal of the Fund, which may not be achieved, 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 of Rhode Island Obligations
with appropriate insurance then the Fund may invest in Rhode
Island Obligations that are not insured. As a fundamental policy,
65% of the Fund's net assets will be invested in Rhode Island
Obligations which are insured.
The Sub-Adviser selects obligations for the Fund's portfolio
to best achieve the Fund's objectives. The Sub-Adviser evaluates
specific obligations for purchase by various characteristics
including quality, maturity and coupon rate.
The interest paid on certain types of Rhode Island
Obligations may be subject to the Federal alternative minimum tax
("AMT"). At least 80% of the Fund's net assets must be invested
in tax-exempt Rhode Island Obligations whose interest is not
subject to AMT.
"What are the main risks of investing in the Fund?"
Among the risks of investing in shares of the Fund and its
portfolio of securities are the following:
Loss of money is a risk of investing in the Fund.
There is no assurance that the Fund will achieve its
objective, which is a fundamental policy of the Fund.
The Fund's assets, being primarily or entirely Rhode Island
issues, are subject to economic and other conditions affecting
Rhode Island. Adverse local events, such as a downturn in the
Rhode Island economy, could affect the value of the Fund's
portfolio.
There are two types of risk associated with any fixed-income
debt securities such as Rhode Island Obligations: interest rate
risk and credit risk.
* Interest rate risk relates to fluctuations in market value
arising from changes in interest rates. If interest rates
rise, the value of debt securities, including Rhode Island
Obligations, will normally decline. All fixed-rate debt
securities, even the most highly rated Rhode Island
Obligations, are subject to interest rate risk. Rhode Island
Obligations with longer maturities generally have a more
pronounced reaction to interest rate changes than
shorter-term securities.
* Credit risk relates to the ability of the particular issuers
of the Rhode Island Obligations the Fund owns to make
periodic interest payments as scheduled and ultimately repay
principal at maturity.
Insurance on an obligation is intended to mitigate credit
risk. It does not insure the market price of the obligation. The
market value of obligations in the Fund will, over time, be
affected by various factors including the general movement of
interest rates. The value of the Fund's shares is not insured.
The proceeds of redemptions may be more or less than your
original cost.
Investment in the Fund is not a deposit in Citizens Bank of
Rhode Island, Citizens Financial Group, Inc., its bank or
non-bank affiliates or any other bank, and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
The Fund is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940
Act"). Thus, compared with "diversified" funds, it may invest a
greater percentage of its assets in obligations of a particular
issuer and may therefore not have as much diversification among
securities, and thus diversification of risk. 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.
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
RISK/RETURN BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the
risks of investing in Narragansett Insured Tax-Free Income Fund
by showing changes in performance of the Fund's Class A Shares
from year to year over a six-year period and by showing how the
Fund's average annual returns for one and five years compare to a
broad measure of market performance. How the Fund has performed
in the past is not necessarily an indication of how the Fund will
perform in the future.
<TABLE>
<CAPTION>
[Bar Chart]
Annual Total Returns
1993-1998
<S> <C> <C> <C> <C> <C> <C>
20%
18% 18.59
16% XXXX
14% 13.43 XXXX
12% XXXX XXXX
10% XXXX XXXX 8.49%
8% XXXX XXXX XXXX
6% XXXX XXXX XXXX 5.82
4% XXXX XXXX 4.28% XXXX XXXX
2% XXXX XXXX XXXX XXXX XXXX
0% XXXX XXXX XXXX XXXX XXXX
- -2% XXXX XXXX XXXX XXXX XXXX
- -4% XXXX XXXX XXXX XXXX XXXX
- -6% XXXX -6.55 XXXX XXXX XXXX XXXX
1993 1994 1995 1996 1997 1998
Calendar Years
During the period shown in the bar chart, the highest return for
a quarter was 7.63% (quarter ended March 31, 1995) and the lowest
return for a quarter was -7.02% (quarter ended March 31, 1994).
The year-to-date (from January 1, 1999 to September 30, 1999)
total return was-2.14% for Class A Shares and-2.80% for Class C
Shares.
Note: The Trust's Class A Shares are sold subject to a maximum 4%
sales load which is not reflected in the bar chart. If the sales
load were reflected, returns would be less than those shown
above.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Since
For the period 1-Year 5-Year inception
ended December 31, 1998
<S> <C> <C> <C>
Narragansett Insured Tax-Free Income Fund
Class A Shares (1) 1.55% 4.95% 6.20%*
Narragansett Insured Tax-Free Income Fund
Class C Shares 3.73%*** N/A 6.40%**
Lehman Brothers
Municipal Bond Index**** 6.47% 6.23% 7.12%
<FN>
(1) The average annual total returns shown for Class A shares
reflect the maximum 4% sales load.
</FN>
<FN>
*From commencement of operations on September 10, 1992.
</FN>
<FN>
**From commencement of new class of shares on May 1, 1996.
</FN>
<FN>
***The average annual total returns shown for Class C shares for
one year assumes redemption at the end of the year and payment of
1% CDSC.
</FN>
<FN>
****The Lehman Brothers Municipal Bond Index is nationally
oriented and consists of an unmanaged mix of investment-grade
long-term municipal securities of issuers throughout the United
States. At December 31, 1998, there were approximately 48,000
securities in the Index.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
Class A Class C
Shares Shares
<S> <C> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases.....
(as a percentage of offering price) 4.00% None
Maximum Deferred Sales Charge (Load).....None(1) 1.00%(2)
(as a percentage of the lesser of
redemption value or purchase price)
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends or
Distributions
(as a percentage of offering price).....None None
Redemption Fees..........................None None
Exchange Fee.............................None None
Annual Fund Operating Expenses (expenses that are
deducted from the Fund's assets)
Management Fee(3)...................... 0.50% 0.50%
Distribution
and /or Service (12b-1) Fee.............0.15% 0.75%
All Other Expenses(4)
Service Fee........................None 0.25%
Other Expenses (4).................0.30% 0.30%
Total All Other Expenses (4)..............0.30% 0.55%
Total Annual Fund
Operating Expenses (4)....................0.95% 1.80%
<FN>
(1) If you buy Class A Shares in transactions of $1 million or
more there is no sales charge but you will be subject to a
contingent deferred sales charge of up to 1% if you redeem your
shares during the first two years after purchase and 0.50 of 1%
during the third and fourth years after purchase.
</FN>
<FN>
(2) A contingent deferred sales charge of 1% is imposed on the
redemption proceeds of the shares if redeemed during the first 12
months after purchase.
</FN>
<FN>
(3) The Fund pays the Manager an advisory fee at the annual rate
of 0.50% of 1% of average annual net assets of which 0.41 of 1%
was waived; the Manager pays the Sub-Adviser a sub-advisory fee
at the annual rate of 0.23 of 1% of average annual net assets of
which 0.14 of 1% was waived.
</FN>
<FN>
(4) It is anticipated that once the asset size
of the Fund reaches approximately $100 million, fee waivers may
no longer be necessary. Also, operating expenses currently
subsidized through reimbursement by the Manager will similarly no
longer be reimbursed. The expense ratios for the fiscal year
ended June 30, 1999 after giving effect to the waivers and the
0.04% expense offset for uninvested cash balances were incurred
at the following annual rates: for Class A Shares, management
fee, 0.09%; 12b-1 fee, 0.04%; other expenses, 0.22%, for total
operating expenses of 0.35%; for Class C Shares, management fee,
0.09%; 12b-1 fee, 0.75%; service fee, 0.25%; other expenses,
0.22%, for total operating expenses of 1.31%.
</FN>
</TABLE>
Example
This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your
investment has a 5% return each year, you reinvest all dividends
and distributions, and that the Fund's operating expenses remain
the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A Shares............$493 $691 $904 $1,520
Class C Shares............$283 $566 $975 $1,693(5)
You would pay the following expenses if you did not redeem your Class C
Shares:
Class C Shares............$183 $566 $975 $1,693(5)
<FN>
(5) Six years after the date of purchase, Class C Shares are
automatically converted to Class A Shares. Over time, long-term Class C
Shareholders could pay the economic equivalent of an amount that is more
than the maximum front-end sales charge allowed under applicable
regulations because of the 12b-1 fee and Service fee. Because these fees
are paid out of the Fund's assets on an on-going basis, over time these
fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
</FN>
</TABLE>
<PAGE>
INVESTMENT OF THE FUND'S ASSETS
"Is the Fund right for me?"
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.
Rhode Island Obligations
The Fund invests in Rhode Island Obligations which are a
type of municipal obligation. They pay interest which bond
counsel or other appropriate counsel deems to be exempt from
regular Federal and State of Rhode Island income taxes. They
include obligations of Rhode Island issuers and certain non-Rhode
Island issuers, of any maturity. The interest paid on certain
types of Rhode Island Obligations may be subject to the Federal
alternative minimum tax ("AMT"). At least 80% of the Fund's net
assets must be invested in Rhode Island Obligations whose
interest is not subject to AMT.
The obligations of non-Rhode Island issuers that the Fund
can purchase are those issued by or under the authority of Guam,
the Northern Mariana Islands, Puerto Rico and the Virgin Islands.
Interest paid on these obligations is currently exempt from
regular Federal and Rhode Island income taxes. The Fund purchases
the obligations of these issuers only when obligations of Rhode
Island issuers with the appropriate characteristics of quality,
maturity and coupon rate are unavailable.
Municipal Obligations
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 public purposes.
There are two principal classifications of municipal
obligations: "notes" and "bonds." Notes generally have
maturities of one year or less, while bonds are paid back over
longer periods.
The various public purposes for which municipal obligations
are issued include:
* obtaining funds for general operating expenses,
* refunding outstanding obligations,
* obtaining funds for loans to other public institutions
and facilities, and
* funding the construction of highways, bridges, schools,
hospitals, housing, mass transportation, streets and
water and sewer works.
Municipal obligations include:
* tax, revenue or bond anticipation notes,
* construction loan notes,
* project notes, which sometimes carry a U.S. government
guarantee,
* municipal lease/purchase agreements, which are similar
to installment purchase contracts for property or
equipment, and
* floating and variable rate demand notes.
<PAGE>
[Picture Page]
[picture]
Department of Administration - Providence, RI
[picture]
Rhode Island Convention Center - Providence, RI
[picture]
Andrews Hall - Brown University
[LOGO]
NARRAGANSETT INSURED TAX-FREE INCOME FUND
[picture]
Providence County Courthouse
[picture]
Daphne Farago Wing
Rhode Island School of Design
[picture]
Veterans Memorial Auditorium
Providence, RI
[picture]
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 in general to finance construction of long-term municipal
projects; examples are pictured above. The municipal obligations
which financed these particular projects were included in the
Fund's portfolio as of August 11, 1999 and together represented
15.25% 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>
"What factors may affect the value of the Fund's investments and
their yields?"
Change in prevailing interest rates is the most common
factor that affects the value of the obligations in the Fund's
portfolio. Any such change may have different effects on
short-term and long-term Rhode Island Obligations. Long-term
obligations (which usually have higher yields) may fluctuate in
value more than short-term ones. Thus, the Fund may shorten the
average maturity of its portfolio when it believes that
prevailing interest rates may rise. While this strategy may
promote one part of the Fund's objective, preservation of
capital, it may also result in a lower level of income.
"What are the main 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 Rhode Island Obligations that
the Fund owns. The Fund has derived this information from sources
that are generally available to investors and believes it to be
accurate, but it has not been independently verified and it 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.
Between the late 1980's and the mid-1990's, there was a
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. Since 1997, employment has increased in all
sectors except for manufacturing.
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.
In addition to considerations specifically affecting Rhode
Island, other risk factors include the following.
Year 2000. Like other financial and business organizations,
the Fund could be adversely affected if computer systems the Fund
relies on do not properly process date-related information and
data involving the year 2000 and after. The Manager is taking
steps that it believes are reasonable to address this problem in
its own computer systems and to obtain assurances that steps are
being taken by the other major service providers to the Fund to
achieve comparable results. Certain vendors have advised the
Manager that they are currently compliant. The Fund's mission
critical vendors -- the shareholder servicing agent, the
custodian and the fund accounting agent -- as well as other
support organizations have advised the Manager that they are
actively working on necessary changes. These three vendors have
advised the Manager that they expect to be ready and will
additionally be prepared to implement contingency plans if
necessary. All such expenses are being borne, and are expected to
continue to be borne, by the respective service providers. The
Fund has not incurred, nor is it anticipated to incur, any costs
related to these matters. The Manager has also requested the
Fund's portfolio manager to attempt to evaluate the potential
impact of this problem on the issuers of securities in which the
Fund invests. At this time there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund.
FUND MANAGEMENT
"How is the Fund managed?"
Aquila Management Corporation, 380 Madison Avenue, Suite
2300, New York, NY 10017, the Manager, is the Fund's investment
adviser under an Advisory and Administration Agreement. It has
delegated its investment advisory duties, including portfolio
management, to Citizens Bank of Rhode Island, One Citizens Plaza,
Providence, Rhode Island, the Sub-Adviser, under a sub-advisory
agreement described below. The Manager is also responsible for
administrative services, including providing for the maintenance
of the headquarters of the Fund, overseeing relationships between
the Fund and the service providers to the Fund, either keeping
the accounting records of the Fund or at its expense and
responsibility, delegating such duties in whole or in part to a
company satisfactory to the Fund, maintaining the Fund's books
and records and providing other administrative services.
The Sub-Adviser provides the Fund with local advisory
services.
Under the Sub-Advisory Agreement, the Sub-Adviser provides
for investment supervision, including supervising continuously
the investment program of the Fund and the composition of its
portfolio, determining what securities will be purchased or sold
by the Fund and arranging for the purchase and the sale of
securities held in the portfolio of the Fund; and, at the
Sub-Adviser's expense, for pricing of the Fund's portfolio daily.
During the fiscal year ended June 30, 1999, the Fund accrued
management fees to the Manager at the annual rate of 0.50 of 1%
of its average annual net assets.
Information about the Manager and the Sub-Adviser
The Fund's Manager is founder and Manager and/or
administrator to the Aquilasm Group of Funds, which consists of
tax-free municipal bond funds, money-market funds and equity
funds. As of June 30, 1999, these funds had aggregate assets of
approximately $3.2 billion, of which approximately $1.9 billion
consisted of assets of the tax-free municipal bond funds. The
Manager, which was founded in 1984, is controlled by Mr. Lacy B.
Herrmann, directly, through a trust and through share ownership
by his wife.
Citizens Bank of Rhode Island, the Sub-Adviser, is
wholly-owned by Citizens Financial Group, Inc. ("CFG"). CFG is a
wholly-owned subsidiary of The Royal Bank of Scotland plc. The
Sub-Adviser operates through 62 branch offices in Rhode Island .
Among other CFG subsidiaries, Citizens Bank of Connecticut has 43
branches in southeastern Connecticut; Citizens Bank of
Massachusetts has more than 100 branches in southeastern
Massachusetts; and Citizens Bank New Hampshire has 73 branches in
New Hampshire. CFG is a $19 billion bank holding company and is
one of the 50 largest bank holding companies in the United
States. Through the Sub-Adviser and other subsidiaries, CFG
provides a full range of financial services to individuals,
businesses and governmental units. As of June 30, 1999, the Trust
and Investment Services Group of the Sub-Adviser had
approximately $6.0 billion of assets under administration,
including approximately $360 million in municipal obligations.
Salvatore C. DiSanto is the officer of the Sub-Adviser who
manages the Fund's portfolio. He has served as such since the
inception of the Fund in September, 1992. Mr. DiSanto, a Senior
Vice President within the Sub-Adviser's Trust and Investment
Services Group, is a member of its Trust Investment Committee. He
has been employed by the Sub-Adviser for 41 years and has been
involved in portfolio management for the last 34 years.
NET ASSET VALUE PER SHARE
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 (a "business
day"), by dividing the value of the Fund's net assets (which
means the value of the assets less liabilities) allocable to each
class by the total number of shares of such class outstanding at
that time. In general, net asset value of the Fund's shares is
based on portfolio market value, except that Rhode Island
Obligations maturing in 60 days or less are generally valued at
amortized cost. The price at which a purchase or redemption of
shares is effected is based on the next calculated net asset
value after your purchase or redemption order is received in
proper form. The New York Stock 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, the Exchange may close on days not
included in that announcement.
PURCHASES
"Are there alternate purchase plans?"
The Fund provides individuals with alternate ways to
purchase shares through two separate classes of shares (Class A
and Class C). Although the classes have different sales charge
structures and ongoing expenses, they both represent interests in
the same portfolio of Rhode Island Obligations. You should choose
the class that best suits your own circumstances and needs.
"Can I purchase shares of the Fund?"
You can purchase shares of the Fund if you live in Rhode
Island or in one of the other states listed below. You should not
purchase shares of the Fund if you do not reside in one of the
following states. Otherwise, the Fund can redeem the shares you
purchased. This may cause you to suffer a loss and may have tax
consequences.
Also, if you do not reside in Rhode Island, dividends from
the Fund may be subject to state income taxes of the state in
which you do reside. Therefore, you should consult your tax
adviser before buying shares of the Fund.
On the date of this Prospectus, Class A and C Shares are
available only in:
Rhode Island * Connecticut * District of Columbia * Florida *
Hawaii * Massachusetts * New Jersey * New York
The Fund and the Distributor may reject any order for the
purchase of shares.
"How much money do I need to invest?"
Option I
* Initially, $1,000.
* Subsequently, any amount (for investments in shares of the
same class).
Option II
* $50 or more if an Automatic Investment Program is
established.
* Subsequently, any amount you specify ($50 or more).
* You are not permitted to maintain both an Automatic
Investment Program and an Automatic Withdrawal Plan
simultaneously.
Your investment must be drawn in United States dollars on a
United States commercial bank, savings bank or credit union or a
United States branch of a foreign commercial bank (each of which
is a "Financial Institution").
"How do I purchase shares?"
You may purchase the Fund's shares:
* through an investment broker or dealer, or a bank or
financial intermediary, which has a sales agreement with the
Distributor, Aquila Distributors, Inc., in which case that
institution will take action on your behalf, and you will
not personally perform the steps indicated below; or
* directly through the Distributor, by mailing payment to the
Fund's Agent, PFPC Inc.
* The price you will pay is net asset value plus a sales
charge for Class A Shares and net asset value for Class C
Shares. ( See "What price will I pay for the Fund's
shares?")
In either instance, all purchases of Class A Shares are subject
to the applicable sales charge.
Opening an Account Adding to An Account
* Make out a check for * Make out a check for
the investment amount the investment amount
payable to payable to
Narragansett Narragansett
Insured Tax-Free Insured Tax-Free
Income Fund Income Fund
* Complete the Application * Fill out the pre-printed
included with the Prospectus, stub attached
indicating the features to the Fund's
you wish to authorize confirmations or
supply the name(s)
of account owner(s),
the account number, and
the name of the Fund
* Send your check and * Send your check and
completed Application account information
to your dealer or to your dealer or
to the Fund's to the Fund's
Agent, PFPC Inc. Agent, PFPC Inc.
Unless you indicate otherwise, your investment will be made
in Class A Shares.
"Can I transfer funds electronically?"
You can have funds transferred electronically, in amounts of
$50 or more, from your Financial Institution if it is a member of
the Automated Clearing House. You may make investments through
two electronic transfer features, "Automatic Investment" and
"Telephone Investment."
* Automatic Investment: You can authorize a pre-determined
amount to be regularly transferred from your account.
* Telephone Investment: You can make single investments of up
to $50,000 by telephone instructions to the Agent.
Before you can transfer funds electronically, the Fund's
Agent must have your completed Application authorizing these
features. Or, if you initially decide not to choose these
conveniences and then later wish to do so, you must complete a
Ready Access Features Form which is available from the
Distributor or Agent, or if your account is set up so that your
broker or dealer makes these sorts of changes, request your
broker or dealer to make them. The Fund may modify or terminate
these investment methods or charge a service fee, upon 30 days'
written notice to shareholders.
REDEEMING YOUR INVESTMENT
You may redeem some or all of your shares by a request to
the Agent. Shares will be redeemed at the next net asset value
determined after your request has been received in proper form.
There is no minimum period for investment in the Fund,
except for shares recently purchased by check or by Automatic or
Telephone Investment as discussed below.
If you own both Class A and C Shares and do not specify
which class you wish to redeem, we will redeem your Class A
Shares.
Certain shares are subject to a contingent deferred sales charge,
or CDSC. These are:
- Class C Shares held for less than 12 months (from the
date of purchase).
- CDSC Class A Shares.
Upon redemption, enough additional shares will be redeemed
to pay for any applicable CDSC.
A redemption may result in a tax liability for you.
"How can I redeem my investment?"
By mail, send instructions to:
PFPC Inc.
Attn: Aquilasm Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809
By telephone, call:
800-637-4633
By FAX, send
instructions to:
302-791-3055
For liquidity and convenience, the Fund offers expedited
redemption.
Expedited Redemption Methods
(Non-Certificate Shares Only)
You may request expedited redemption for any shares not
issued in certificate form in two ways:
1 By Telephone. The Agent will take instructions from anyone
by telephone to redeem shares and make payments:
a) to a Financial Institution account you have previously
specified;
b) by check in the amount of $50,000 or less, mailed to the
same name and address (which has been unchanged for the past
30 days) as the account from which you are redeeming. You
may only redeem by check via telephone request once in any
7-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to
supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification
Note: Check the accuracy of your confirmation statements
immediately. The Fund, the Agent, and the Distributor are
not responsible for losses resulting from unauthorized
telephone transactions if the Agent follows reasonable
procedures designed to verify a caller's identity. The Agent
may record calls.
2 By FAX or Mail. You may request redemption payments to a
predesignated Financial Institution account by a letter of
instruction sent to the Agent: PFPC Inc., by FAX at 302-791-3055
or by mail to 400 Bellevue Parkway, Wilmington, DE 19809. The
letter, signed by the registered shareholder(s) (no signature
guarantee is required), must indicate:
account name(s)
account number
amount to be redeemed
any payment directions.
To have redemption proceeds sent directly to a Financial
Institution account, you must complete the Expedited
Redemption section of the Application or a Ready Access
Features Form. You will be required to provide (1) details
about your Financial Institution account, (2) signature
guarantees and (3) possible additional documentation.
The name(s) of the shareholder(s) on the Financial
Institution account must be identical to those on the Fund's
records of your account.
You may change your designated Financial Institution account
at any time by completing and returning a revised Ready
Access Features Form.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
Certificate Shares. Mail to the Fund's Agent: (1) blank
(unsigned) certificates for Class A Shares to be redeemed, (2)
redemption instructions, and (3) a stock assignment form.
To be in "proper form," items (2) and (3) above must be
signed by the registered shareholder(s) exactly as the
account is registered. For a joint account, both shareholder
signatures are necessary.
For your protection, mail certificates separately from
signed redemption instructions. We recommend that
certificates be sent by registered mail, return receipt
requested.
We may require additional documentation for certain types of
shareholders such as corporations, partnerships, trustees or
executors, or if redemption is requested by someone other
than the shareholder of record. The Agent may require
signature guarantees if insufficient documentation is on
file.
We do not require a signature guarantee for redemptions up
to $50,000, payable to the record holder, and sent to the
address of record, except as noted above. In all other
cases, signatures must be guaranteed.
Your signature may be guaranteed by any:
member of a national securities exchange
U.S. bank or trust company
state-chartered savings bank
federally chartered savings and loan association
foreign bank having a U.S. correspondent bank; or
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.
Non-Certificate Shares. You must use the Regular Redemption
Method if you have not chosen Expedited Redemption to a
predesignated Financial Institution account. To redeem by this
method, send a letter of instruction to the Fund's Agent, which
includes:
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 (we normally mail redemption proceeds
to your address as registered with the Fund)
signature(s) of the registered shareholder(s) and
signature guarantee(s), if required, as indicated above.
"When will I receive the proceeds of my redemption?"
Redemption proceeds are normally sent on the next
business day following receipt in proper form of your redemption
request. Except as described below, payments will normally be
sent to your address of record within 7 days.
Redemption Method of Payment Charges
Under $1,000 Check None
$1,000 or more Check or, if and None
as you requested on your
Application or Ready
Access Features Form,
wired or transferred
through the Automated
Clearing House to your
Financial Institution
Account
Through a broker
/dealer Check or wire, to your None;
broker/dealer however, your
broker/dealer may
charge a fee
Although the Fund does not currently intend to, it can
charge up to $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. 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.
The Fund may delay payment for redemption of shares
recently purchased by check (including certified, cashier's or
official bank check) or by Automatic Investment or Telephone
Investment up to 15 days after purchase; however, payment for
redemption will not be delayed after (i) the check or transfer of
funds has been honored, or (ii) the Agent receives satisfactory
assurance that your Financial Institution will honor the check or
transfer of funds. You can eliminate possible delays by paying
for purchased shares with wired funds or Federal Reserve
drafts.
The Fund has the right to postpone payment or suspend
redemption rights during certain periods. These periods may occur
(i) when the New York Stock Exchange is closed for other than
weekends and holidays, (ii) when the Securities and Exchange
Commission (the "SEC") restricts trading on the New York Stock
Exchange, (iii) when the SEC determines an emergency exists which
causes disposal of, or determination of the value of, the
portfolio securities to be unreasonable or impracticable, and
(iv) during such other periods as the SEC may permit.
The Fund can redeem your shares if their value totals less
than $500 as a result of redemptions or failure to meet and
maintain the minimum investment level under an Automatic
Investment program. Before such a redemption is made, we will
send you a notice giving you 60 days to make additional
investments to bring your account up to the minimum.
Redemption proceeds may be paid in whole or in part by
distribution of the Fund's portfolio securities ("redemption in
kind") in conformity with SEC rules. This method will only be
used if the Board of Trustees determines that payments partially
or wholly in cash would be detrimental to the best interests of
the remaining shareholders.
"Are there any reinvestment privileges?"
If you reinvest proceeds of redemption within 120 days of a
redemption you will not have to pay any additional sales charge
on the reinvestment. You must reinvest in the same class as the
shares redeemed. You may exercise this privilege only once a
year, unless otherwise approved by the Distributor.
The Distributor will refund to you any CDSC deducted at the
time of redemption by adding it to the amount of your
reinvestment.
Reinvestment will not alter the tax consequences of your
original redemption.
"Is there an Automatic Withdrawal Plan?"
Yes, but it is only available for Class A Shares. Under an
Automatic Withdrawal Plan you can arrange to receive a monthly or
quarterly check in a stated amount, not less than $50.
ALTERNATE PURCHASE PLANS
"How do the different arrangements for Class A Shares and
Class C Shares affect the cost of buying, holding and redeeming
shares, and what else should I know about the two classes?"
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 classes of shares
offered to individuals differ in their sales charge structures
and ongoing expenses, as described below. You should choose the
class that best suits your own circumstances and needs.
Class A Shares Class C Shares
"Front-Payment Shares" "Level-Payment Shares"
Initial Sales Class A Shares are None. Class C
Charge offered at net asset Shares are offered
value plus a maximum at net asset value
sales charge of 4%, with no sales charge
paid at the time of payable at the time
purchase. Thus, of purchase.
your investment is
reduced by the
applicable sales
charge.
Contingent None (except for A maximum CDSC of
Deferred Sales certain purchases of 1% is imposed upon
Charge ("CDSC") $1 million or more). the redemption of
Class C shares held
for less than 12
months. No CDSC
applies to Class C
shares acquired
through the
reinvestment of
dividends or
distributions.
Distribution and An asset retention Level charge for
Service Fees service fee of 0.15 distribution and
of 1% is imposed on service fees for 6
the average annual years after the date
net assets of purchase at the
represented by the aggregate annual
Class A Shares. rate of 1% of the
average net assets
represented by the
Class C Shares.
Other Information The initial sales Class C Shares,
charge is waived or together with a pro-
reduced in some rata portion of all
cases. Larger Class C Shares
purchases qualify acquired through
for lower sales reinvestment of
charges. dividends and other
distributions paid
in additional Class
C Shares,
automatically
convert to Class A
Shares after 6
years.
Factors to Consider in Choosing Classes of Shares
Class A Shares or Class C Shares are intended to be
suitable for long-term investment. 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. Consult "Fees and Expenses of the Fund" to
see the effect of Fund expenses for both classes if a
hypothetical investment is held for 1, 3, 5, and 10 years. You
should consider the total cost of an investment in Class A Shares
as compared with a similar investment in Class C Shares if you
expect to redeem your shares within a reasonably short time after
purchase.
Systematic Payroll Investments
You can make systematic investments into either Class A
Shares or C Shares each pay period if your employer has
established a Systematic Payroll Investment Plan with the Fund.
To participate in the Payroll Plan, you must make your own
arrangements with your employer's payroll department, which may
include completing special forms. Additionally, the Fund requires
that you complete the Application included with this Prospectus.
Once your application is received by the Fund and a new account
is opened, under the Payroll Plan your employer will deduct a
preauthorized amount from each payroll check. This amount will
then be sent directly to the Fund for purchase of shares at the
then current offering price, which includes applicable sales
charge. You will receive a confirmation from the Fund for each
transaction. Should you wish to change the dollar amount or end
future systematic payroll investments, you must notify your
employer directly. Changes may take up to ten days.
"What price will I pay for the Fund's shares?"
Class A Shares Offering Price Class C Shares Offering Price
Net asset value per share Net asset value per share
plus the applicable sales charge
You will receive that day's offering price on purchase
orders, including Telephone Investments and investments by mail,
received in proper form prior to 4:00 p.m. New York time. Dealers
have the added flexibility of transmitting orders received prior
to 4:00 p.m. New York time to the Distributor or Agent before the
Distributor's close of business that day (normally 5:00 p.m. New
York time) and still receiving that day's offering price.
Otherwise, orders will be filled at the next determined offering
price. Dealers are required to submit orders promptly. Purchase
orders received on a non-business day, including those for
Automatic Investment, will be executed on the next succeeding
business day. The sale of shares will be suspended (1) during any
period when net asset value determination is suspended, or (2)
when the Distributor judges it is in the Fund's best interest to
do so.
"What are the sales charges for purchases of Class A Shares?"
The following table shows the amount of sales charge incurred by
a "single purchaser" of Class A Shares. A "single purchaser is:
* an individual;
* an individual, together with his or her spouse, and/or
any children under 21 years of age purchasing shares
for their account;
* a trustee or other fiduciary purchasing shares for a
single trust estate or fiduciary account; or
* a tax-exempt organization as detailed in Section
501(c)(3) or (13) of the Internal Revenue Code.
II III
Sales Charge as Sales Charge as
Percentage of Approximate
I Public Percentage of
Amount of Purchase Offering Price Amount Invested
Less than $25,000 4.00% 4.17%
$25,000 but less
than $50,000 3.75% 3.90%
$50,000 but less
than $100,000 3.50% 3.63%
$100,000 but less
than $250,000 3.25% 3.36%
$250,000 but less
than $500,000 3.00% 3.09%
$500,000 but less
than $1,000,000 2.50% 2.56%
For purchases of $1 Million or more see "Sales Charges for
Purchases of $1 million or More."
For example:
If you pay $10,000 (Column I), your sales charge would be 4.00%
or $400 (Column II). ($10,000 x .04 = $400)
The value of your account, after deducting the sales charge
from your payment, would increase by $9,600. (This would be the
initial value of your account if you opened it with the $10,000
purchase.) ($10,000 - $400 = $9,600)
The sales charge as a percentage of the increase in the value of
your account would be 4.17% (Column III). ($400 / $9,600 =
.0416666 or 4.17%)
Sales Charges for Purchases of $1 Million or More
You will not pay a sales charge at the time of purchase when
you purchase "CDSC Class A Shares." CDSC Class A Shares are Class
A Shares issued under the following circumstances:
(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 to a single purchaser in
a single purchase when the value of the purchase,
together with the value of the purchaser's other CDSC
Class A Shares and Class A Shares on which a sales
charge has been paid, equals or exceeds $1 million.
If you redeem all or part of your CDSC Class A Shares during
the four years after you purchase them, you must pay a special
contingent deferred sales charge upon redemption.
You will pay 1% of the Redemption Value if you redeem within
the first two years after purchase, and 0.50 of 1% of the
Redemption Value if you redeem within the third or fourth year.
The "Redemption Value" of your shares is the lesser of: (i)
the net asset value when you purchased the CDSC Class A Shares
you are redeeming; or (ii) the net asset value at the time of
your redemption.
This special charge also applies to CDSC Class A Shares
purchased without a sales charge pursuant to a Letter of Intent
(see "Reduced Sales Charges for Certain Purchases of Class A
Shares").
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation
"Single purchasers" may qualify for a reduced sales charge
in accordance with the above schedule when making subsequent
purchases of Class A Shares.
Letters of Intent
"Single purchasers" may also qualify for reduced sales
charges, in accordance with the above schedule, after a written
Letter of Intent (included with the Application) is received by
the Distributor.
General
Class A Shares may be purchased without a sales charge by
certain classes of purchasers.
Certain Investment Companies
If you redeem shares of an investment company (not a member
of the Aquilasm Group of Funds) on which you have paid a sales
charge, you can invest the proceeds within 120 days in Class A
Shares of the Fund without paying a sales charge. You can get
additional information from the Distributor.
"What are the sales, service and distribution charges for Class C
Shares?"
* No sales charge at time of purchase.
* Annual fees for service and distribution at a combined
annual rate of 1% of average annual net assets of the Fund
represented by Class C Shares.
* After six years, Class C Shares automatically convert to
Class A Shares, which bear lower service and distribution
fees.
Redemption of Class C Shares
* 1% charge if redeemed within the first 12 months after
purchase. This contingent deferred sales charge, or CDSC, is
calculated based on the lesser of the net asset value at the
time of purchase or at the time of redemption.
* No CDSC applies if Class C Shares are held for 12 months
after purchase.
* Shares acquired by reinvestment of dividends or
distributions are not subject to any CDSC.
Broker/Dealer Compensation - Class C Shares
The Distributor will pay any broker/dealer executing a
Class C Share purchase 1% of the sales price.
"What about confirmations?"
A statement will be mailed to you confirming each purchase
of shares in the Fund. Additionally, your account at the Agent
will be credited in full and fractional shares (rounded to the
nearest 1/1000th of a share).
"Is there a Distribution Plan or a Services Plan?"
The Fund has adopted a Distribution Plan (the "Plan") under
the Investment Company Act of 1940's Rule 12b-1 in order to:
(i) permit the Fund to finance activities primarily
intended to result in the sale of its shares;
(ii) permit the Manager, out of its own funds, to make
payment for distribution expenses; and
(iii) protect the Fund against any claim that some of the
expenses which it pays or may pay might be considered
to be sales-related and therefore come within the
purview of the Rule.
Pursuant to the Plan, the Fund makes payments with respect
to both Class A and C Shares under agreements to certain
broker/dealers, or others who have (i) rendered assistance
(whether direct, administrative, or both) in the distribution
and/or retention of the Fund's shares or (ii) assisted in the
servicing of shareholder accounts.
For any fiscal year, these payments may not exceed 0.15 of
1% for Class A Shares, and 0.75 of 1% for Class C Shares, of the
average annual net assets represented by each class. Because
these distribution fees are paid out of assets on an ongoing
basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales
charges.
For any class, these payments are made only from the assets
allocable to that class.
Shareholder Services Plan for Class C Shares
The Fund's Shareholder Services Plan authorizes it to pay a
service fee under agreements to certain qualified recipients who
have agreed to provide personal services to Class C shareholders
and/or maintain their accounts. For any fiscal year, such fees
may not exceed 0.25 of 1% of the average annual net assets
represented by Class C Shares. Payment is be made only out of the
Fund's assets represented by Class C Shares.
Service Fees with respect to Class C Shares will be paid to
the Distributor during the first year after purchase and
thereafter to other qualified recipients.
"Transfer on Death" Registration (Both Classes)
The Fund generally permits "transfer on death" ("TOD")
registration of shares, so that on the death of the shareholder
the shares are transferred to a designated beneficiary or
beneficiaries. Ask the Agent or your broker-dealer for the
Transfer on Death Registration Request Form. With it you will
receive a copy of the TOD Rules of the Aquilasm Group of Funds,
which specify how the registration becomes effective and
operates. By opening a TOD Account, you agree to be bound by the
TOD Rules.
DIVIDENDS AND DISTRIBUTIONS
"How are dividends and distributions determined?"
The Fund pays dividends and other distributions with respect
to each class of shares. The Fund calculates its dividends and
other distributions with respect to each class at the same time
and in the same manner. Net income for dividend purposes includes
all interest income accrued by the Fund since the previous
dividend declaration less expenses paid or accrued. Net income
also includes any original issue discount, which occurs if the
Fund purchases an obligation for less than its face amount. The
discount from the face amount is treated as additional income
earned over the life of the obligation. Because the Fund's income
varies, so will the Fund's dividends. There is no fixed dividend
rate. It is expected that most of the Fund's dividends will be
comprised of interest income. The dividends and distributions of
each class can vary due to certain class-specific charges. The
Fund will declare all of its net income 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.
Redeemed shares continue to earn dividends through and
including the earlier of:
1. the day prior to the day when redemption
proceeds are mailed, wired or transferred by
the Automated Clearing House or the Agent or
paid by the Agent to a selected dealer; or
2. the third day the New York Stock Exchange
is open after the day the net asset value of
the redeemed shares was determined.
The Fund's present policy is to pay dividends so they will
be received or credited by approximately the first day of each
month.
"How are dividends and distributions paid?"
Dividends and distributions will automatically be reinvested
in full and fractional shares of the Fund of the same class at
net asset value on the record date for the dividend or
distribution, unless you elect otherwise.
You may choose to have all or any part of the payments for
dividends or distributions paid in cash. You can elect to have
the cash portion of your dividends or distributions deposited,
without charge, by electronic funds transfers into your account
at a financial institution, if it is a member of the Automated
Clearing House.
You can make any of these elections on the Application, by a
Ready Access Features Form or by a letter to the Agent. Your
election to receive some or all of your dividends and
distributions in cash will be effective as of the next payment of
dividends after it has been received in proper form by the Agent.
It will continue in effect until the Agent receives written
notification of a change.
All shareholders, whether their dividends and
distributions are received in cash or reinvested, will receive a
monthly statement indicating the current status of their
investment account with the Fund.
If you do not comply with laws requiring you to furnish
taxpayer identification numbers and report dividends, the Fund
may be required to impose backup withholding at a rate of 31%
upon payment of redemptions to shareholders, and on capital gains
distributions (if any) and any other distributions that do not
qualify as "exempt-interest dividends."
TAX INFORMATION
Net investment income includes income from Rhode Island
Obligations in the portfolio which the Fund allocates as
"exempt-interest dividends." Such dividends are exempt from
regular Federal income tax. The Fund will allocate
"exempt-interest dividends" by applying one designated percentage
to all income dividends it declares during its tax year. It will
normally make this designation in the first month following its
fiscal year end for dividends paid in the prior year.
It is possible that, under certain circumstances, a small
portion of dividends paid by the Fund will be subject to income
taxes. During the Fund's fiscal year ended June 30, 1999, 98.86%
of the Fund's dividends were exempt-interest dividends. For the
calendar year 1998, 0.66% of total dividends paid were taxable.
The percentage of tax-exempt income from any particular dividend
may differ from the percentage of the Fund's tax-exempt income
during the dividend period.
Net capital gains of the Fund, if any, 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 intends to qualify during each fiscal year under
the Internal Revenue Code to pay "exempt-interest dividends" to
its shareholders. "Exempt-interest dividends" 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 Fund will treat as ordinary income in the year received
certain gains on Rhode Island Obligations it acquired after April
30, 1993 and sells for less than face or redemption value. Those
gains will be taxable to you as ordinary income, if distributed.
Capital gains dividends (net long-term gains over net
short-term losses which the Fund distributes and so designates)
are reportable by shareholders as gains from the sale or exchange
of a capital asset held for more than a year. This is the case
whether the shareholder reinvests the distribution in shares of
the Fund or receives it in cash, regardless of the length of time
the investment is held.
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 reduce future capital gains dividends and
amounts taxed to shareholders.
The Fund's gains or losses on sales of Rhode Island
Obligations will be deemed long- or short-term, depending upon
the length of time the Fund holds these obligations.
You will receive information on the tax status of the Fund's
dividends and distributions annually.
Special Tax Matters
Under the Internal Revenue 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.
If you or your spouse are receiving Social Security or
railroad retirement benefits, a portion of these benefits may
become taxable, if you receive exempt-interest dividends from the
Fund.
If you, or someone related to you, is a "substantial user"
of facilities financed by industrial development or private
activity bonds, you should consult your own tax adviser before
purchasing shares of the Fund.
Interest from all Rhode Island Obligations is tax-exempt for
purposes of computing the shareholder's regular tax. However,
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 ("AMT"). Whether or not that computation
will result in a tax will depend on the entire content of your
return. The Fund will not invest more than 20% of its assets in
the types of Rhode Island Obligations that pay interest subject
to AMT. An adjustment required by the Internal Revenue Code will
tend to make it more likely that corporate shareholders will be
subject to AMT. They should consult their tax advisers.
"What should I know about Rhode Island taxes?"
The following is a summary of certain Rhode Island tax
consequences relating to an investment in the Fund. This summary
is based upon the advice of Edward & Angell, LLP, 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 Internal Revenue 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
advisers 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 (as that term is defined in the Rhode Island tax law) that
is apportioned to Rhode Island.
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. They
will be required to include in income any interest, ordinary or
capital gain dividends and net short-term capital gains realized
by the Fund, unless those items are derived from obligations or
securities issued by any authority, commission or instrumentality
of the United States or 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 their issuance.
Gain or loss recognized by individuals 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, which 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(as such term is defined by Rhode Island
tax law) will 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.
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.
Shareholders of the Fund should consult their tax advisers
about other state and local tax consequences of their investment
in the Fund.
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The financial highlights table is intended to help you understand the
Fund's financial performance for the designated periods of the Fund's
operations. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by KPMG LLP, whose report, along with the Fund's financial
statements, is included in the annual report, is incorporated by reference
into the SAI and is available upon request.
Class C(2)
Class A(1) Year Year Year
Year Ended June 30, Ended Ended Ended
1999 1998 1997 6/30/99 6/30/98 6/30/97
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year..... $10.47 $10.18 $9.93 $10.47 $10.18 $9.93
Income from Investment
Operations:
Net investment
income............. 0.49 0.50 0.51 0.38 0.40 0.41
Net gain (loss) on
securities (both
realized and
unrealized)......... (0.30) 0.30 0.26 0.29 0.30 0.26
Total from Investment
Operations.......... 0.19 0.80 0.77 0.09 0.70 0.67
Less Distributions:
Dividends from net
investment income... (0.50) (0.51) (0.52) (0.40) (0.41) (0.42)
Total Distributions... (0.50) (0.51) (0.52) (0.40) (0.41) (0.42)
Net Asset Value, End
of Year............... $10.16 $10.47 $10.18 $10.16 $10.47 $10.18
Total Return (not
reflecting sales
charge)(%)............ 1.74 8.02 7.95 0.76 6.94 6.89
Ratios/Supplemental Data
Net Assets, End of Year
($ thousands)........ 66,611 52,006 42,540 4,213 2,778 485
Ratio of Expenses to
Average Net
Assets (%).......... 0.39 0.28 0.23 1.35 1.29 1.08
Ratio of Net Investment
Income to Average Net
Assets (%).......... 4.61 4.83 5.02 3.65 3.77 4.20
Portfolio Turnover
Rate (%).............. 1.36 0.02 5.29 1.36 0.02 5.29
The expense and net investment income ratios without the effect of the
voluntary waiver of a portion of the management fee and the voluntary
expense reimbursement were:
Ratio of Expenses
to Average Net Assets(%)
0.91 1.12 1.23 1.75 1.93 2.08
Ratio of Net Investment
Income to
Average Net
Assets(%) 4.09 3.99 4.05 3.25 3.11 3.20
The expense ratios after giving effect to the waivers, expense
reimbursement and expense offset for uninvested cash balances were:
Ratio of Expenses to
Average Net Assets(%) 0.35 0.27 0.21 1.32 1.28 1.06
<CAPTION>
Class A(1) Class C(2)
Year Ended June 30, Period Ended June 30,
1996 1995 1996(3)
<C> <C> <C>
$ 9.80 $ 9.44 $ 9.94
0.52 0.54 0.07
0.13 0.36 (0.01)
0.65 0.90 0.06
(0.52) (0.54) (0.07)
(0.52) (0.54) (0.07)
$ 9.93 $ 9.80 $ 9.93
6.72 9.09 0.60+
37,988 34,373 0.10
0.15 0.07 0.20+
5.18 5.62 0.70+
0 0 0
1.16 1.18 0.32+
4.17 4.51 0.58+
0.14 0.06 0.20+
<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 May 2, 1996 through June 30, 1996.
</FN>
<FN>
+ Not annualized.
</FN>
</TABLE>
<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:
PFPC Inc.
400 Bellevue Parkway, Wilmington, DE 19809
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.
** Uniform Gifts/Transfers to Minors Act.
Please type or print name(s) 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 Organization. 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 Class of Shares)
__ Class A Shares (Front-Payment Class)
__ Class C Shares (Level-Payment Class)
Indicate Method of Payment (For either method, make check payment to
NARRAGANSETT INSURED TAX-FREE INCOME FUND)
__ Initial Investment $______________ (Minimum $1,000)
__ Automatic Investment $______________ (Minimum $50)
For Automatic Investments of at least $50 per month, you must complete
Step 3, Section A, Step 4, Sections A & B and attached a PRE-PRINTED
DEPOSIT SLIP OR VOIDED CHECK.
IF NO SHARE CLASS IS MARKED, INVESTMENT WILL AUTOMATICALLY BE MADE IN
CLASS A SHARES.
B. DISTRIBUTIONS
Income dividends and capital gains distributions are automatically
reinvested in additional shares at net asset value unless otherwise
indicated below.
You can have any portion of either type reinvested, with the balance paid
in cash, by indicating a percent below:
Income 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 1B.
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
APPLICABLE TO CLASS A SHARES ONLY.
(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, PFPC Inc.
(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
person's 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 attorney's 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
DEPOSITOR'S 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, PFPC Inc., 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 Trusts, 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 3c 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 3c 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>
MANAGER 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
Diana P. Herrmann, President
Stephen J. Caridi, Senior 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
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG 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
<PAGE>
Back Cover
This Prospectus concisely states information about the Fund
that you should know before investing. A Statement of Additional
Information about the Fund dated November 1, 1999 (the "SAI") has
been filed with the Securities and Exchange Commission. The SAI
contains information about the Fund and its management not
included in this Prospectus. The SAI is incorporated by reference
in its entirety in this Prospectus. Only when you have read both
this Prospectus and the SAI are all material facts about the Fund
available to you.
You can get additional information about the Fund's
investments in the Fund's annual and semi-annual reports to
shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its
last fiscal year. You can get the SAI and the Fund's annual and
semi-annual reports without charge, upon request by calling
1-800-637-4633 (toll free).
In addition, you can review and copy information about the
Fund (including the SAI) at the Public Reference Room of the SEC
in Washington, D.C. You can get information on the operation of
the SEC's public reference room by calling the SEC at
1-800-SEC-0330. You can get other information about the Fund at
the SEC's Internet site at http://www.sec.gov. You can get copies
of this information, upon payment of a duplicating fee, by
writing the Public Reference Section of the SEC, Washington, D.C.
20549-6009.
This Prospectus should be read and retained for future reference
The file number under which the Fund is registered
with the SEC under the
Investment Company Act of 1940 is 811-6707.
TABLE OF CONTENTS
The Fund's Objective, Investment Strategies
and Main Risks...................................
Risk/Return Bar Chart and Performance Table .....
Fees and Expenses of the Fund...................
Investment of the Fund's Assets.................
Fund Management.................................
Net Asset Value Per Share........................
Purchases .......................................
Redeeming Your Investment........................
Alternate Purchase Plans.........................
Dividends and Distributions......................
Tax Information..................................
Financial Highlights.............................
Application and Letter of Intent.................
NARRAGANSETT INSURED TAX-FREE INCOME FUND
[LOGO]
One of The
Aquilasm Group of Funds
PROSPECTUS
To receive a free copy of the Fund's SAI, annual or semi-annual
report, or other information about the Fund, or to make
shareholder inquiries call:
the Fund's Shareholder Servicing Agent at
800-637-4633 toll free
or you can write to:
PFPC Inc
400 Bellevue Parkway
Wilmington, DE 19809
For general inquiries and yield information, call 800-453-6864 or
212-697-6666
This Prospectus should be read and retained for future reference
<PAGE>
Narragansett Insured Tax-Free Income Fund
380 Madison Avenue, Suite 2300
New York, New York 10017
800-453-6864
212-697-6666
Prospectus
November 1, 1999
Class Y Shares
Class I Shares
Narragansett Insured Tax-Free Income Fund is a mutual fund
that seeks 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 as to payment of
principal and interest by nationally recognized insurers of
municipal obligations.
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 may not be achieved,
is to have 100% of the Fund's assets invested in insured
obligations.
For purchase, redemption or account inquiries contact the Fund's
Shareholder Servicing Agent:
PFPC Inc.* 400 Bellevue Parkway * Wilmington, DE 19809
Call 800-637-4633 toll free
For general inquiries & yield information
Call 800-453-6864 toll free or 212-697-6666
The Securities and Exchange Commission has not approved or
disapproved the Fund's securities or passed upon the adequacy of
this Prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
THE FUND'S OBJECTIVE, INVESTMENT STRATEGIES AND MAIN RISKS
"What is the Fund's objective?"
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.
"What is the Fund's investment strategy?"
In seeking its objective, the Fund will invest primarily in
Rhode Island Obligations which are insured by nationally
recognized insurers of municipal obligations as to the timely
payment of principal and interest when due. The Fund invests in
tax-free municipal obligations which pay interest exempt from
Rhode Island state and Federal income taxes. We call these "Rhode
Island Obligations." In general, all or almost all of these
obligations are issued by the State of Rhode Island, its counties
and various other local authorities; at least 65% of the
portfolio will always consist of obligations of these issuers.
These obligations can be of any maturity but the Fund's average
portfolio maturity has traditionally been between 12 and 14
years.
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. The insurance of principal and
interest under these types of insurance policies refers to the
payment of the face or par value of the Rhode Island Obligation
and interest when due.
It is a goal of the Fund, which may not be achieved, 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 of Rhode Island Obligations
with appropriate insurance then the Fund may invest in Rhode
Island Obligations that are not insured. As a fundamental policy,
65% of the Fund's net assets will be invested in Rhode Island
Obligations which are insured.
The Sub-Adviser selects obligations for the Fund's portfolio
to best achieve the Fund's objectives. The Sub-Adviser evaluates
specific obligations for purchase by various characteristics
including quality, maturity and coupon rate.
The interest paid on certain types of Rhode Island
Obligations may be subject to the Federal alternative minimum tax
("AMT"). At least 80% of the Fund's net assets must be invested
in tax-exempt Rhode Island Obligations whose interest is not
subject to AMT.
"What are the main risks of investing in the Fund?"
Among the risks of investing in shares of the Fund and its
portfolio of securities are the following:
Loss of money is a risk of investing in the Fund.
There is no assurance that the Fund will achieve its
objective, which is a fundamental policy of the Fund.
The Fund's assets, being primarily or entirely Rhode Island
issues, are subject to economic and other conditions affecting
Rhode Island. Adverse local events, such as a downturn in the
Rhode Island economy, could affect the value of the Fund's
portfolio.
There are two types of risk associated with any
fixed-income debt securities such as Rhode Island Obligations:
interest rate risk and credit risk.
* Interest rate risk relates to fluctuations in market value
arising from changes in interest rates. If interest rates
rise, the value of debt securities, including Rhode Island
Obligations, will normally decline. All fixed-rate debt
securities, even the most highly rated Rhode Island
Obligations, are subject to interest rate risk. Rhode Island
Obligations with longer maturities generally have a more
pronounced reaction to interest rate changes than
shorter-term securities.
* Credit risk relates to the ability of the particular issuers
of the Rhode Island Obligations the Fund owns to make
periodic interest payments as scheduled and ultimately repay
principal at maturity.
Insurance on an obligation is intended to mitigate credit
risk. It does not insure the market price of the obligation. The
market value of obligations in the Fund will, over time, be
affected by various factors including the general movement of
interest rates. The value of the Fund's shares is not insured.
The proceeds of redemptions may be more or less than your
original cost.
Investment in the Fund is not a deposit in Citizens Bank of
Rhode Island, Citizens Financial Group, Inc., its bank or
non-bank affiliates or any other bank, and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
The Fund is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940
Act"). Thus, compared with "diversified" funds, it may invest a
greater percentage of its assets in obligations of a particular
issuer and may therefore not have as much diversification among
securities, and thus diversification of risk. 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.
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
RISK/RETURN BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the
risks of investing in Narragansett Insured Tax-Free Income Fund
by showing changes in the performance of the Fund's Class Y
Shares from year to year over a two-year period and by showing
how the Fund's average annual returns for one year and since
inception compare to a broad measure of market performance. How
the Fund has performed in the past is not necessarily an
indication of how the Fund will perform in the future.
<TABLE>
<CAPTION>
[Bar Chart]
Annual Total Returns
1997-1998
<S> <C> <C>
10%
9.62
8% XXXX
XXXX
6% XXXX
XXXX 6.15%
4% XXXX XXXX
XXXX XXXX
2% XXXX XXXX
XXXX XXXX
0% XXXX XXXX
1997 1998
Calendar Years
During the period shown in the bar chart, the highest return for
a quarter was 3.47% (quarter ended June 30, 1997) and the lowest
return for a quarter was 0.17% (quarter ended March 31, 1997).
The year-to-date (from January 1, 1999 to September 30, 1999)
total return was-1.73% for Class Y Shares.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Since
For the period 1-Year inception*
ended December 31, 1998
<S> <C> <C>
Narragansett Insured Tax-Free Income Fund
Class Y Shares 6.15% 7.87%
Narragansett Insured Tax-Free Income Fund
Class I Shares ** N/A 0.81%
Lehman Brothers
Municipal Bond Index *** 6.47% 7.12%
<FN>
*From commencement of class on May 1, 1996.
</FN>
<FN>
**Commencement of Class I Shares was on November 4, 1998.
</FN>
<FN>
***The Lehman Brothers Municipal Bond Index is nationally
oriented and consists of an unmanaged mix of investment-grade
long-term municipal securities of issuers throughout the United
States. At December 31, 1998, there were approximately 48,000
securities in the Index.
</FN>
</TABLE>
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
Class I Class Y
Shares Shares
<S> <C> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases.........................None None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load).........None None
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends or Distributions
(as a percentage of offering price)........None None
Redemption Fees..............................None None
Exchange Fee.................................None None
Annual Fund Operating Expenses (expenses that are
deducted from the Fund's assets)
Management Fee(1)........................... 0.50% 0.50%
Distribution
and/or Service (12b-1)Fee....................0.10%(2) None
All Other Expenses (2).......................0.49% 0.30%
Total Annual Fund Operating Expenses (3)....1.09% 0.80%
<FN>
(1) The Fund pays the Manager an advisory fee at the annual rate
of 0.50% of 1% of average annual net assets of which 0.41 of 1%
was waived; the Manager pays the Sub-Adviser a sub-advisory fee
at the annual rate of 0.23 of 1% of average annual net assets of
which 0.14 of 1% was waived.
</FN>
<FN>
(2) Current rate; up to 0.25% can be authorized.
</FN>
<FN>
(3) It is anticipated that once the asset size of the Fund
reaches approximately $100 million, fee waivers may no longer be
necessary. Also, operating expenses currently subsidized through
reimbursement by the Manager will similarly no longer be
reimbursed.The expense ratios for the fiscal year ended June 30,
1999 after giving effect to the waivers, expense reimbursement
and the expense offset for uninvested cash balances were
incurred at the following annual rates: management fees, all
other expenses, and total Fund operating expenses for Class I
Shares would have been 0.09%, 0.40% and 0.59% respectively: for
Class Y, these expenses would have been 0.09%, 0.26%, and 0.35%,
respectively. Other expenses for the two classes differ because
Class I Shares bear program costs for financial intermediaries of
0.20%, which includes transfer agent services, and charges common
to both classes of 0.20%; Class Y Shares bear only the common
charges of 0.20% and an allocation for transfer agent services of
0.06%.
</TABLE>
Example
This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your
investment has a 5% return each year that, you reinvest all
dividends and distributions, and that the Fund's operating
expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class I Shares.......... $111 $347 $601 $1,329
Class Y Shares...........$82 $255 $444 $990
</TABLE>
<PAGE>
INVESTMENT OF THE FUND'S ASSETS
"Is the Fund right for me?"
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.
Institutional Class Shares ("Class Y Shares") are offered
only to institutions acting for investors in a fiduciary,
advisory, agency, custodial or similar capacity. Financial
Intermediary Class Shares ("Class I Shares") are offered and sold
only through financial intermediaries with which Aquila
Distributors, Inc. (the "Distributor") has entered into sales
agreements. The Fund does not sell the shares of either class
directly to retail customers.
Rhode Island Obligations
The Fund invests in Rhode Island Obligations which are a
type of municipal obligation. They pay interest which bond
counsel or other appropriate counsel deems to be exempt from
regular Federal and State of Rhode Island income taxes. They
include obligations of Rhode Island issuers and certain non-Rhode
Island issuers, of any maturity. The interest paid on certain
types of Rhode Island Obligations may be subject to the Federal
alternative minimum tax ("AMT"). At least 80% of the Fund's net
assets must be invested in Rhode Island Obligations whose
interest is not subject to AMT.
The obligations of non-Rhode Island issuers that the Fund
can purchase are those issued by or under the authority of Guam,
the Northern Mariana Islands, Puerto Rico and the Virgin Islands.
Interest paid on these obligations is currently exempt from
regular Federal and Rhode Island income taxes. The Fund purchases
the obligations of these issuers only when obligations of Rhode
Island issuers with the appropriate characteristics of quality,
maturity and coupon rate are unavailable.
Municipal Obligations
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 public purposes.
There are two principal classifications of municipal
obligations: "notes" and "bonds." Notes generally have
maturities of one year or less, while bonds are paid back over
longer periods.
The various public purposes for which municipal obligations
are issued include:
* obtaining funds for general operating expenses,
* refunding outstanding obligations,
* obtaining funds for loans to other public institutions
and facilities, and
* funding the construction of highways, bridges, schools,
hospitals, housing, mass transportation, streets and
water and sewer works.
Municipal obligations include:
* tax, revenue or bond anticipation notes,
* construction loan notes,
* project notes, which sometimes carry a U.S. government
guarantee,
* municipal lease/purchase agreements, which are similar
to installment purchase contracts for property or
equipment, and
* floating and variable rate demand notes.
"What factors may affect the value of the Fund's investments and
their yields?"
Change in prevailing interest rates is the most common
factor that affects the value of the obligations in the Fund's
portfolio. Any such change may have different effects on
short-term and long-term Rhode Island Obligations. Long-term
obligations (which usually have higher yields) may fluctuate in
value more than short-term ones. Thus, the Fund may shorten the
average maturity of its portfolio when it believes that
prevailing interest rates may rise. While this strategy may
promote one part of the Fund's objective, preservation of
capital, it may also result in a lower level of income.
"What are the main 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 Rhode Island Obligations that
the Fund owns. The Fund has derived this information from sources
that are generally available to investors and believes it to be
accurate, but it has not been independently verified and it 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.
Between the late 1980's and the mid-1990's, there was a
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. Since 1997, employment has increased in all
sectors except for manufacturing.
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.
In addition to considerations specifically affecting Rhode
Island, other risk factors include the following.
Year 2000. Like other financial and business organizations,
the Fund could be adversely affected if computer systems the Fund
relies on do not properly process date-related information and
data involving the year 2000 and after. The Manager is taking
steps that it believes are reasonable to address this problem in
its own computer systems and to obtain assurances that steps are
being taken by the other major service providers to the Fund to
achieve comparable results. Certain vendors have advised the
Manager that they are currently compliant. The Fund's mission
critical vendors -- the shareholder servicing agent, the
custodian and the fund accounting agent -- as well as other
support organizations have advised the Manager that they are
actively working on necessary changes. These three vendors have
advised the Manager that they expect to be ready and will
additionally be prepared to implement contingency plans if
necessary. All such expenses are being borne, and are expected to
continue to be borne, by the respective service providers. The
Fund has not incurred, nor is it anticipated to incur, any costs
related to these matters. The Manager has also requested the
Fund's portfolio manager to attempt to evaluate the potential
impact of this problem on the issuers of securities in which the
Fund invests. At this time there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund.
FUND MANAGEMENT
"How is the Fund managed?"
Aquila Management Corporation, 380 Madison Avenue, Suite
2300, New York, NY 10017, the Manager, is the Fund's investment
adviser under an Advisory and Administration Agreement. It has
delegated its investment advisory duties, including portfolio
management, to Citizens Bank of Rhode Island, One Citizens Plaza,
Providence, Rhode Island, the Sub-Adviser, under a sub-advisory
agreement described below. The Manager is also responsible for
administrative services, including providing for the maintenance
of the headquarters of the Fund, overseeing relationships between
the Fund and the service providers to the Fund, either keeping
the accounting records of the Fund or, at its expense and
responsibility, delegating such duties in whole or in part to a
company satisfactory to the Fund, maintaining the Fund's books
and records and providing other administrative services.
The Sub-Adviser provides the Fund with local advisory
services.
Under the Sub-Advisory Agreement, the Sub-Adviser provides
for investment supervision, including supervising continuously
the investment program of the Fund and the composition of its
portfolio, determining what securities will be purchased or sold
by the Fund, and arranging for the purchase and the sale of
securities held in the portfolio of the Fund; and, at the
Sub-Adviser's expense, for pricing of the Fund's portfolio daily.
During the fiscal year ended June 30, 1999, the Fund accrued
management fees to the Manager at the annual rate of 0.50 of 1%
of its average annual net assets.
Information about the Manager and the Sub-Adviser
The Fund's Manager is founder and Manager and/or
administrator to the Aquilasm Group of Funds, which consists of
tax-free municipal bond funds, money-market funds and equity
funds. As of June 30, 1999, these funds had aggregate assets of
approximately $3.2 billion, of which approximately $1.9 billion
consisted of assets of the tax-free municipal bond funds. The
Manager, which was founded in 1984, is controlled by Mr. Lacy B.
Herrmann, directly, through a trust and through share ownership
by his wife.
Citizens Bank of Rhode Island, the Sub-Adviser, is
wholly-owned by Citizens Financial Group, Inc. ("CFG"). CFG is a
wholly-owned subsidiary of The Royal Bank of Scotland plc. The
Sub-Adviser operates through 62 branch offices in Rhode Island .
Among other CFG subsidiaries, Citizens Bank of Connecticut has 43
branches in southeastern Connecticut; Citizens Bank of
Massachusetts has more than 100 branches in southeastern
Massachusetts; and Citizens Bank New Hampshire has 73 branches in
New Hampshire. CFG is a $19 billion bank holding company and is
one of the 50 largest bank holding companies in the United
States. Through the Sub-Adviser and other subsidiaries, CFG
provides a full range of financial services to individuals,
businesses and governmental units. As of June 30, 1999, the Trust
and Investment Services Group of the Sub-Adviser had
approximately $6.0 billion of assets under administration,
including approximately $360 million in municipal obligations.
Salvatore C. DiSanto is the officer of the Sub-Adviser who
manages the Fund's portfolio. He has served as such since the
inception of the Fund in September, 1992. Mr. DiSanto, a Senior
Vice President within the Sub-Adviser's Trust and Investment
Services Group, is a member of its Trust Investment Committee. He
has been employed by the Sub-Adviser for 41 years and has been
involved in portfolio management for the last 34 years.
NET ASSET VALUE PER SHARE
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 (a "business
day"), by dividing the value of the Fund's net assets (which
means the value of the assets less liabilities) allocable to each
class by the total number of shares of such class outstanding at
that time. In general, net asset value of the Fund's shares is
based on portfolio market value, except that Rhode Island
Obligations maturing in 60 days or less are generally valued at
amortized cost. The price at which a purchase or redemption of
shares is effected is based on the next calculated net asset
value after your purchase or redemption order is received in
proper form. The New York Stock 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, the Exchange may close on days not
included in that announcement.
PURCHASES
"Are there alternate purchase plans?"
This Prospectus offers two separate classes of shares. All
classes represent interests in the same portfolio of Rhode Island
Obligations.
"Can I purchase shares of the Fund?"
You can purchase shares of the Fund if you live in Rhode
Island or in one of the other states listed below. You should not
purchase shares of the Fund if you do not reside in one of the
following states. Otherwise, the Fund can redeem the shares you
purchased. This may cause you to suffer a loss and may have tax
consequences.
Also, if you do not reside in Rhode Island, dividends from
the Fund may be subject to state income taxes of the state in
which you do reside. Therefore, you should consult your tax
adviser before buying shares of the Fund.
On the date of this Prospectus, Class Y Shares are available
only in:
*Rhode Island * Connecticut * District of Columbia *Florida *
Hawaii * New Jersey * New York
Class I Shares are available only in:
* Rhode Island * District of Columbia * New Jersey * New York
The Fund and the Distributor may reject any order for the
purchase of shares.
"How much money do I need to invest?"
For Class Y Shares:
$1,000. Subsequent investments can be in any amount.
Class I Shares:
Financial intermediaries can set their own requirements for
initial and subsequent investments.
Your investment must be drawn in United States dollars on a
United States commercial bank, savings bank or credit union or a
United States branch of a foreign commercial bank (each of which
is a "Financial Institution").
"How do I purchase shares?"
You may purchase Class I Shares only through a financial
intermediary.
You may purchase Class Y Shares:
* through an investment broker or dealer, or a bank or
financial intermediary, which has a sales agreement with the
Distributor, Aquila Distributors, Inc., in which case that
institution will take action on your behalf, and you will
not personally perform the steps indicated below; or
* directly through the Distributor, by mailing payment to the
Fund's Agent, PFPC Inc.
The price you will pay is net asset value for both Class Y
Shares and Class I Shares. (See "What price will I pay for the
Fund's shares?")
Opening a Class Y Shares Account Adding to a Class Y Shares
Account
* Make out a check for * Make out a check for
the investment amount the investment amount
payable to payable to
Narragansett Narragansett
Insured Tax-Free Insured Tax-Free
Income Fund Income Fund
* Complete the Application * Fill out the pre-printed
included with the Prospectus, stub attached
indicating the features to the Fund's
you wish to authorize confirmations or
supply the name(s)
of account owner(s),
the account number, and
the name of the Fund
* Send your check and * Send your check and
completed application account information
to your dealer or to your dealer or
to the Fund's to the Fund's
Agent, PFPC Inc. Agent, PFPC Inc.
"Can I transfer funds electronically?"
You can have funds transferred electronically, in amounts of
$50 or more, from your Financial Institution if it is a member of
the Automated Clearing House. You may make investments through
two electronic transfer features, "Automatic Investment" and
"Telephone Investment."
* Automatic Investment: You can authorize a pre-determined
amount to be regularly transferred from your account.
* Telephone Investment: You can make single investments of
up to $50,000 by telephone instructions to the Agent.
Before you can transfer funds electronically, the Fund's
Agent must have your completed Application authorizing these
features. Or, if you initially decide not to choose these
conveniences and then later wish to do so, you must complete a
Ready Access Features Form which is available from the
Distributor or Agent, or if your account is set up so that your
broker or dealer makes these sorts of changes, request your
broker or dealer to make them. The Fund may modify or terminate
these investment methods or charge a service fee, upon 30 days'
written notice to shareholders.
REDEEMING YOUR INVESTMENT
Redeeming Class Y Shares
You may redeem some or all of your shares by a request to
the Agent. Shares will be redeemed at the next net asset value
determined after your request has been received in proper form.
There is no minimum period for investment in the Fund,
except for shares recently purchased by check or by Automatic
Telephone Investment as discussed below.
A redemption may result in a tax liability for you.
"How can I redeem my investment?"
By mail, send instructions to:
PFPC Inc.
Attn: Aquilasm Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809
By telephone, call:
800-637-4633 toll free
By FAX, send
instructions to:
302-791-3055
For liquidity and convenience, the Fund offers expedited
redemption for Class Y Shares.
Expedited Redemption Methods
You may request expedited redemption in two ways:
1. By Telephone. The Agent will take instructions from
anyone by telephone to redeem shares and make payments:
a) to a Financial Institution account you have previously
specified;
b) by check in the amount of $50,000 or less, mailed to the
same name and address (which has been unchanged for the past
30 days) as the account from which you are redeeming. You
may only redeem by check via telephone request once in any
7-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to
supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification
Note: Check the accuracy of your confirmation statements
immediately. The Fund, the Agent, and the Distributor are not
responsible for losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify a caller's identity. The Agent may record calls.
2 By FAX or Mail. You may request redemption payments to a
predesignated Financial Institution account by a letter of
instruction sent to the Agent: PFPC Inc., by FAX at
302-791-3055 or by mail to 400 Bellevue Parkway, Wilmington,
DE 19809. The letter, signed by the registered
shareholder(s) (no signature guarantee is required), must
indicate:
account name(s)
account number
amount to be redeemed
any payment directions.
To have redemption proceeds sent directly to a Financial
Institution account, you must complete the Expedited Redemption
section of the Application or a Ready Access Features Form. You
will be required to provide (1) details about your Financial
Institution account, (2) signature guarantees and (3) possible
additional documentation.
The name(s) of the shareholder(s) on the Financial Institution
account must be identical to those on the Fund's records of your
account.
You may change your designated Financial Institution account at
any time by completing and returning a revised Ready Access
Features Form.
Regular Redemption Method
To redeem by the regular redemption method, send a letter of
instruction to the Fund's Agent, which includes:
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 (we normally mail redemption proceeds
to your address as registered with the Fund)
signature(s) of the registered shareholder(s) and
signature guarantee(s), if required, as indicated below.
To be in "proper form," your letter must be signed by the
registered shareholder(s) exactly as the account is
registered. For a joint account, both shareholder signatures
are necessary.
We may require additional documentation for certain types of
shareholders such as corporations, partnerships, trustees or
executors, or if redemption is requested by someone other
than the shareholder of record. The Agent may require
signature guarantees if insufficient documentation is on
file.
We do not require a signature guarantee for redemptions up
to $50,000, payable to the record holder, and sent to the
address of record, except as noted above. In all other
cases, signatures must be guaranteed.
Your signature may be guaranteed by any:
member of a national securities exchange
U.S. bank or trust company
state-chartered savings bank
federally chartered savings and loan association
foreign bank having a U.S. correspondent bank; or
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 receipt in proper form of
your redemption request by your financial intermediary.
Redemption requests for Class I Shares must be made through a
financial intermediary and cannot 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.
"When will I receive the proceeds of my redemption?"
Redemption proceeds for Class Y Shares are normally sent on
the next business day following receipt of your redemption
request in proper form. Except as described below, payments will
normally be sent to your address of record within 7 days after
acceptance of your redemption request.
Redemption Method of Payment Charges
Under $1,000 Check None
$1,000 or more Check or, if and None
as you requested
on your Application
or Ready Access Features
Form, wired or
transferred through
the Automated Clearing
House to your Financial
Institution account
Through a broker/ Check or wire, to None; however,
dealer your broker/dealer your broker/dealer
may
charge a fee
Although the Fund does not currently intend to, it can
charge up to $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. 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.
Redemption payments for Class I Shares are made to financial
intermediaries.
The Fund may delay payment for redemption of shares
recently purchased by check (including certified, cashier's or
official bank check) or by Automatic Investment or Telephone
Investment up to 15 days after purchase; however, payment for
redemption will not be delayed after (i) the check or transfer of
funds has been honored, or (ii) the Agent receives satisfactory
assurance that your Financial Institution will honor the check
or transfer of funds. You can eliminate possible delays by paying
for purchased shares with wired funds or Federal Reserve
drafts.
The Fund has the right to postpone payment or suspend
redemption rights during certain periods. These periods may occur
(i) when the New York Stock Exchange is closed for other than
weekends and holidays, (ii) when the Securities and Exchange
Commission (the "SEC") restricts trading on the New York Stock
Exchange, (iii) when the SEC determines an emergency exists which
causes disposal of, or determination of the value of, the
portfolio securities to be unreasonable or impracticable, and
(iv) during such other periods as the SEC may permit.
The Fund can redeem your shares if their value totals less
than $500 as a result of redemptions or failure to meet and
maintain the minimum investment level under an Automatic
Investment program. Before such a redemption is made, we will
send you a notice giving you 60 days to make additional
investments to bring your account up to the minimum.
Redemption proceeds may be paid in whole or in part by
distribution of the Fund's portfolio securities ("redemption in
kind") in conformity with SEC rules. This method will only be
used if the Board of Trustees determines that payments partially
or wholly in cash would be detrimental to the best interests of
the remaining shareholders.
"Is there an Automatic Withdrawal Plan?"
Yes, but it is only available for Class Y Shares. Under an
Automatic Withdrawal Plan you can arrange to receive a monthly or
quarterly check in a stated amount, not less than $50.
ALTERNATE PURCHASE PLANS
Distribution Arrangements
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.
Class Y Shares Class I Shares
"Institutional Class" "Financial Intermediary
Class"
Initial Sales None None. Financial
Charge Intermediaries may
charge a fee for
purchase of shares.
Contingent None None
Deferred Sales
Charge ("CDSC")
Distributions and None Distribution fee of
Service Fees 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 service fee
of 0.25 of 1% of
such assets.
"What price will I pay for the Fund's shares?"
The offering price for Class Y Shares is the net asset value
per share. You will receive that day's offering price on purchase
orders received in proper form, including Telephone Investments
and investments by mail, considered received prior to 4:00 p.m.
New York time. Dealers have the added flexibility of transmitting
orders received prior to 4:00 p.m. New York time to the
Distributor or Agent before the Distributor's close of business
that day (normally 5:00 p.m. New York time) and still receiving
that day's offering price. Otherwise, orders will be filled at
the next determined offering price. Dealers are required to
submit orders promptly. Purchase orders received on a
non-business day, including those for Automatic Investment, will
be executed on the next succeeding business day. The sale of
shares will be suspended (1) during any period when net asset
value determination is suspended, or (2) when the Distributor
judges it is 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.
"What about confirmations and share certificates?"
A statement will be mailed to you confirming each purchase
of Class Y Shares in the Fund. Additionally, your account at the
Agent will be credited in full and fractional shares (rounded to
the nearest 1/1000th of a share). Purchases of Class I Shares
will be confirmed by financial intermediaries. The Fund will not
issue certificates for Class Y Shares or Class I Shares.
"Is there a Distribution Plan or a Services Plan?"
The Fund has adopted a Distribution Plan (the "Plan") under
the Investment Company Act of 1940's Rule 12b-1 in order to:
(i) permit the Fund to finance activities primarily
intended to result in the sale of its shares;
(ii) permit the Manager, out of its own funds, to make
payment for distribution expenses; and
(iii) protect the Fund against any claim that some of the
expenses which it pays or may pay might be considered
to be sales-related and therefore come within the
purview of the Rule.
No payments are made by the Fund with respect to assets
represented by Class Y Shares.
Under the Plan, the Fund makes payments with respect to
Class I Shares under agreements to certain broker/dealers, or
others who have (i) rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Fund's shares or (ii) assisted in the servicing of
shareholder accounts.
For any fiscal year, payments with respect to Class I Shares
are made 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 can be made only out of the Fund's assets
allocable to the Class I Shares. Because these distribution fees
are paid out of assets on an ongoing basis, over time these fees
will increase the cost of your investment and may cost you more
than paying other types of sales charges.
Shareholder Services Plan for Class I Shares
The Fund's Shareholder Services Plan authorizes it to pay a
service fee under agreements to certain qualified recipients who
have agreed to provide personal services to Class I shareholders
and/or maintain their accounts. For any fiscal year, such fees
may not exceed 0.25 of 1% of the average annual net assets
represented by Class I Shares. Payment is made only out of the
Fund's assets represented by Class I Shares. No payments are made
with respect to assets represented by Class Y Shares.
"Transfer on Death" Registration (Not Available for Class I
Shares)
If you own Class Y Shares, the Fund generally permits
"transfer on death" ("TOD") registration of shares, so that on
the death of the shareholder the shares are transferred to a
designated beneficiary or beneficiaries. Ask the Agent or your
broker-dealer for the Transfer on Death Registration Request
Form. With it you will receive a copy of the TOD Rules of the
Aquilasm Group of Funds, which specify how the registration
becomes effective and operates. By opening a TOD Account, you
agree to be bound by the TOD Rules. This service is not available
for Class I Shares.
DIVIDENDS AND DISTRIBUTIONS
"How are dividends and distributions determined?"
The Fund pays dividends and other distributions with respect
to each class of shares. The Fund calculates its dividends and
other distributions with respect to each class at the same time
and in the same manner. Net income for dividend purposes includes
all interest income accrued by the Fund since the previous
dividend declaration, less expenses paid or accrued. Net income
also includes any original issue discount, which occurs if the
Fund purchases an obligation for less than its face amount. The
discount from the face amount is treated as additional income
earned over the life of the obligation. As this income varies, so
will the Fund's dividends. There is no fixed dividend rate. It is
expected that most of the Fund's dividends will be comprised of
interest income. The dividends and distributions of each class
can vary due to certain class-specific charges. The Fund will
declare all of its net income 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.
Redeemed shares continue to earn dividends through and
including the earlier of:
1. the day prior to the day when redemption
proceeds are mailed, wired or transferred by
the Automated Clearing House or the Agent or
paid by the Agent to a selected dealer; or
2. the third day the New York Stock Exchange
is open after the day the net asset value of
the redeemed shares was determined.
The Fund's present policy is to pay dividends so they will
be received or credited by approximately the first day of each
month.
"How are dividends and distributions paid?"
Dividends and distributions will automatically be reinvested
in full and fractional shares of the Fund of the same class at
net asset value on the record date for the dividend or
distribution.
If you own or purchase Class Y Shares, you may choose to
have all or any part of the payments for dividends or
distributions paid in cash. You can elect to have the cash
portion of dividends or distributions deposited, without charge,
by electronic funds transfers into your account at a financial
institution, if it is a member of the Automated Clearing House.
You can make any of these elections on the Application, by a
Ready Access Features Form or by a letter to the Agent. Your
election to receive some or all of your dividends and
distributions in cash will be effective as of the next payment of
dividends after it has been received in proper form by the Agent.
It will continue in effect until the Agent receives written
notification of a change.
All arrangements for the payment of dividends and
distributions with respect to Class I Shares, including
reinvestment of dividends, must be made through financial
intermediaries.
All Class Y shareholders, whether their dividends or
distributions are received in cash or reinvested, will receive a
monthly statement indicating the current status of their
investment account with the Fund. Financial intermediaries
provide their own statements of Class I Shares accounts.
If you do not comply with laws requiring you to furnish
taxpayer identification numbers and report dividends, the Fund
may be required to impose backup withholding at a rate of 31%
upon payment of redemptions to shareholders, and on capital gains
distributions (if any) and any other distributions that do not
qualify as "exempt-interest dividends."
TAX INFORMATION
Net investment income includes income from Rhode Island
Obligations in the portfolio which the Fund allocates as
"exempt-interest dividends." Such dividends are exempt from
regular Federal income tax. The Fund will allocate
"exempt-interest dividends" by applying one designated percentage
to all income dividends it declares during its tax year. It will
normally make this designation in the first month following its
fiscal year end for dividends paid in the prior year.
It is possible that, under certain circumstances, a small
portion of dividends paid by the Fund will be subject to income
taxes. During the Fund's fiscal year ended June 30, 1999, 98.86%
of the Fund's dividends were exempt-interest dividends. For the
calendar year 1998, 0.66% of total dividends paid were taxable.
The percentage of tax-exempt income from any particular dividend
may differ from the percentage of the Fund's tax-exempt income
during the dividend period.
Net capital gains of the Fund, if any, 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 intends to qualify during each fiscal year under
the Internal Revenue Code to pay "exempt-interest dividends" to
its shareholders. "Exempt-interest dividends" 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 Fund will treat as ordinary income in the year received
certain gains on Rhode Island Obligations it acquired after April
30, 1993 and sells for less than face or redemption value. Those
gains will be taxable to you as ordinary income, if distributed.
Capital gains dividends (net long-term gains over net
short-term losses which the Fund distributes and so designates)
are reportable by shareholders as gains from the sale or exchange
of a capital asset held for more than a year. This is the case
whether the shareholder reinvests the distribution in shares of
the Fund or receives it in cash, regardless of the length of time
the investment is held.
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 reduce future capital gains dividends and
amounts taxed to shareholders.
The Fund's gains or losses on sales of Rhode Island
Obligations will be deemed long- or short-term, depending upon
the length of time the Fund holds these obligations.
You will receive information on the tax status of the Fund's
dividends and distributions annually.
Special Tax Matters
Under the Internal Revenue 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.
If you or your spouse are receiving Social Security or
railroad retirement benefits, a portion of these benefits may
become taxable, if you receive exempt-interest dividends from the
Fund.
If you, or someone related to you, is a "substantial user"
of facilities financed by industrial development or private
activity bonds, you should consult your own tax adviser before
purchasing shares of the Fund.
Interest from all Rhode Island Obligations is tax-exempt for
purposes of computing the shareholder's regular tax. However,
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 ("AMT"). Whether or not that computation
will result in a tax will depend on the entire content of your
return. The Fund will not invest more than 20% of its assets in
the types of Rhode Island Obligations that pay interest subject
to AMT. An adjustment required by the Internal Revenue Code will
tend to make it more likely that corporate shareholders will be
subject to AMT. They should consult their tax advisers.
"What should I know about Rhode Island taxes?"
The following is a summary of certain Rhode Island tax
consequences relating to an investment in the Fund. This summary
is based upon the advice of Edward & Angell, LLP, 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 Internal Revenue 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
advisers 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 (as that term is defined in Rhode Island tax law) that is
apportioned to Rhode Island.
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. They
will be required to include in income any interest, ordinary or
capital gain dividends and net short-term capital gains realized
by the Fund, unless those items are derived from obligations or
securities issued by any authority, commission or instrumentality
of the United States or 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 their issuance.
Gain or loss recognized by individuals 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, which are subject to the Rhode Island business
corporation tax or the Rhode Island franchise tax, will be taxed
on their net income or authorized stock or at a flat rate minimum
tax. Net income(as such term is defined by Rhode Island tax law)
will 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.
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.
Shareholders of the Fund should consult their tax advisers
about other state and local tax consequences of their investment
in the Fund.
<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.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class Y(2) Class I(4)
Class A(1) Year Year Period(5)
Year Ended June 30, Ended Ended Ended
1999 1998 1997 6/30/99 6/30/98 6/30/99
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year..... $10.49 $10.18 $9.93 $10.47 $10.19 $10.54
Income from Investment
Operations:
Net investment
income............. 0.30 0.50 0.51 0.49 0.59 0.31
Net gain (loss) on
securities (both
realized and
unrealized)......... (0.31) 0.30 0.26 (0.30) 0.29 (0.38)
Total from Investment
Operations.......... 0.19 0.80 0.77 0.19 0.88 (0.07)
Less Distributions:
Dividends from net
investment income... (0.50) (0.51) (0.52) (0.50) (0.60) (0.32)
Total Distributions... (0.50) (0.51) (0.52) (0.50) (0.60) (0.32)
Net Asset Value, End
of Year............... $10.16 $10.47 $10.18 $10.16 $10.47 $10.15
Total Return (not
reflecting sales
charge)(%)............ 1.74 8.02 7.95 1.79 8.80 (0.75)+
Ratios/Supplemental Data
Net Assets, End of Year
($ thousands)........ 66,611 52,006 42,540 4,250 17 77
Ratio of Expenses to
Average Net
Assets (%).......... 0.39 0.28 0.23 0.33 0.28 0.49*
Ratio of Net Investment
Income to Average Net
Assets (%).......... 4.61 4.83 5.02 4.65 4.66 4.54*
Portfolio Turnover
Rate (%).............. 1.36 0.02 5.29 1.36 0.02 1.36
The expense and net investment income ratios without the effect of the
voluntary waiver of a portion of the management fee and the voluntary
expense reimbursement were:
Ratio of Expenses
to Average Net Assets(%)
0.91 1.12 1.23 0.70 0.83 0.87*
Ratio of Net Investment
Income to
Average Net
Assets(%) 4.09 3.99 4.05 4.29 4.11 4.16*
The expense ratios after giving effect to the waivers, expense
reimbursement and expense offset for uninvested cash balances were:
Ratio of Expenses to
Average Net Assets(%) 0.35 0.27 0.21 0.30 0.06 0.46*
<CAPTION>
Class A(1) Class Y(3)
Year Ended June 30, Period Ended June 30,
1996 1995 1996
<C> <C> <C>
$ 9.80 $ 9.44 $ 9.94
0.52 0.54 0.09
0.13 0.36 (0.01)
0.65 0.90 0.08
(0.52) (0.54) (0.09)
(0.52) (0.54) (0.09)
$ 9.93 $ 9.80 $ 9.93
6.72 9.09 0.80+
37,988 34,373 0.10
0.15 0.07 0.14+
5.18 5.62 0.89+
0 0 0
1.16 1.18 0.15+
4.17 4.51 0.88+
0.14 0.06 0.14+
<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 May 2, 1996 through June 30, 1996.
</FN>
<FN>
(4) New Class of Shares established on October 31, 1997.
</FN>
<FN>
(5) From November 4, 1998 through June 30, 1999.
</FN>
<FN>
+ Not annualized.
</FN>
<FN>
* Not annualized.
</FN>
</TABLE>
<PAGE>
APPLICATION FOR NARRAGANSETT INSURED TAX-FREE INCOME FUND
FOR CLASS I and Y SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
PFPC Inc.
400 Bellevue Parkway, Wilmington, DE 19809
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.
** Uniform Gifts/Transfers to Minors Act.
Please type or print name(s) 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 Organization. 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 Class of Shares)
__ Class Y Shares
__ Class I Shares
Make check payment to NARRAGANSETT INSURED TAX-FREE INCOME FUND
__ Initial Investment $______________ (Minimum $1,000)
B. DISTRIBUTIONS
Income dividends and capital gains distributions are automatically
reinvested in additional shares at net asset value unless otherwise
indicated below.
You can have any portion of either type reinvested, with the balance paid
in cash, by indicating a percent below:
Income 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 1B.
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, PFPC Inc
(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
person's 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 attorney's 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
DEPOSITOR'S 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, PFPC Inc., 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 Trusts, 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>
MANAGER 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
Diana P. Herrmann, President
Stephen J. Caridi, Senior 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
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG 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
Back Cover
This Prospectus concisely states information about the
Fund that you should know before investing. A Statement of
Additional Information about the Fund dated November 1, 1999(the
"SAI") has been filed with the Securities and Exchange
Commission. The SAI contains information about the Fund and its
management not included in this Prospectus. The SAI is
incorporated by reference in its entirety in this Prospectus.
Only when you have read both this Prospectus and the SAI are all
material facts about the Fund available to you.
You can get additional information about the Fund's
investments in the Fund's annual and semi-annual reports to
shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its
last fiscal year. You can get the SAI and the Fund's annual and
semi-annual reports without charge, upon request.
In addition, you can review and copy information about the
Fund (including the SAI) at the Public Reference Room of the SEC
in Washington, D.C. You can get information on the operation of
the SEC's public reference room by calling the SEC at
1-800-SEC-0330. You can get other information about the Fund at
the SEC's Internet site at http://www.sec.gov. You can get copies
of this information, upon payment of a duplicating fee, by
writing the Public Reference Section of the SEC, Washington, D.C.
20549-6009.
This Prospectus should be read and retained for future reference
The file number under which the Fund is registered
with the SEC under the
Investment Company Act of 1940 is 811-6707.
TABLE OF CONTENTS
The Fund's Objective, Investment Strategies
and Main Risks...................................
Risk/Return Bar Chart and Performance Table .....
Fees and Expenses of the Fund...................
Investment of the Fund's Assets.................
Fund Management.................................
Net Asset Value Per Share........................
Purchases .......................................
Redeeming Your Investment........................
Alternate Purchase Plans.........................
Dividends and Distributions......................
Tax Information..................................
Financial Highlights.............................
Application
NARRAGANSETT INSURED TAX-FREE INCOME FUND
[LOGO]
One of The
Aquilasm Group of Funds
PROSPECTUS
To receive a free copy of the Fund's SAI, annual or semi-annual
report, or other information about the fund, or to make
shareholder inquiries call:
the Fund's Shareholder Servicing Agent at
800-637-4633 toll free
or you can write to:
PFPC Inc
400 Bellevue Parkway
Wilmington, DE 19809
For general inquiries and yield information, call 800-453-6864 or
212-697-6666
This Prospectus should be read and retained for future reference
<PAGE>
Aquila
Narragansett Insured Tax-Free Income Fund
380 Madison Avenue Suite 2300
New York, NY 10017
800-453-6864
212-697-6666
Statement
of Additional
Information November 1, 1999
This Statement of Additional Information (the "SAI") is not
a Prospectus. There are two Prospectuses for the Fund dated
November 1, 1999: 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 SAI to
"the Prospectus" refer to either of these Prospectuses. The SAI
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, PFPC Inc., by writing to it at: 400 Bellevue
Parkway, Wilmington, DE 19809 or by calling at the following
number:
800-637-4633 toll free
or from Aquila Distributors, Inc., the Fund's Distributor, by
writing to it at
380 Madison Avenue, Suite 2300, New York, New York 10017;
800-453-6864 toll free or 212-697-6666
In Rhode Island: 401-453-6864
Financial Statements
The financial statements for the Fund for the year ended
June 30, 1999, which are contained in the Annual Report for that
fiscal year, are hereby incorporated by reference into the SAI.
Those financial statements have been audited by KPMG LLP,
independent auditors, whose report thereon is incorporated herein
by reference. The Annual Report of the Fund for the fiscal year
ended June 30, 1999 can be obtained without charge by calling any
of the toll-free numbers listed above. The Annual Report will be
delivered with the SAI.
TABLE OF CONTENTS
Fund History
Investment Strategies and Risks
Fund Policies
Management of the Fund
Ownership of Securities
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Capital Stock
Purchase, Redemption, and Pricing of Shares
Additional Tax Information
Underwriters
Performance
Appendix a
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
Statement of Additional Information
FUND HISTORY
The Fund is a Massachusetts business trust formed in 1992.
The Fund is an open-end, non-diversified management
investment company.
INVESTMENT STRATEGIES AND RISKS
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.
Rating agencies consider municipal obligations rated in the
fourth highest credit rating to be of medium quality. Thus, they
may present investment risks which do not exist with more highly
rated obligations. Such obligations possess less attractive
investment characteristics. 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.
See Appendix A to this SAI 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, 1999 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%
Not rated: . . . . . . . . . . . . . . . . . . . . . . . . . .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.
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, the 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) owns 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.
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. 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 of obligations which are available
to the Fund.
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, 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.
Determination of the Marketability of Certain Securities
In determining marketability of floating and variable rate
demand notes and participation interests (including municipal
lease/purchase obligations) 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 Sub-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 (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
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"). 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.
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.
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.
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.
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 State of Rhode Island and Rhode
Island Obligations
The Fund believes the information summarized below
describes some of the more significant developments relating to
Rhode Island Obligations. The sources of such information include
information provided by and relating to the State of Rhode Island
appearing in the Official Statement dated July 21, 1999 relating
to Resource Recovery Corporation Landfill Lease Notes, 1999,
Series A, 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 referendum approved by the voters in
the November 8, 1994 election changes the composition, pay scale
and pension of the General Assembly. Commencing in 2003, there
will be 75 members of the House of Representatives and 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 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%
over the previous year. Legislation was also enacted which
authorized tax levy or rate increases of greater than 5.5% in the
event that debt service costs on present and future general
obligation debt increase at a rate greater than 5.5%. 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% 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.
During the 1998 session, the General Assembly enacted three
separate measures designed to provide taxpayer relief from local
property taxes. The first measure expanded the existing
homestead tax credit program, by allowing eligible households
with excise and incomes of up to $25,000 to claim a refundable
credit against the state income tax. Previously, a credit was
allowed for eligible households with income up to $18,000. The
second and third measures would phase out, over a number of
years, two separate components of the local tax levy.
The first component of the local tax levy that would be
phased out is the local property tax levy on inventories. The
phase out period would span 10 years and would progressively
eliminate 10% of the tax levy each year. Local communities would
be reimbursed for lost revenues through the State's General
Revenue Sharing Program, which would be increased from 1% of tax
revenues in fiscal year 1998 to 4.7% of tax receipts in fiscal
year 2009.
The second component of the local property tax levy that
would be eliminated is the local excise tax levy on motor
vehicles and trailers. This tax would be phased out over a
seven-year period by providing increasing exemptions against the
assessed value of all motor vehicles. Local communities would be
reimbursed by the State on the value of the exempted amounts and
assumed cumulative growth in the tax rate equal to the CPI.
State aid to cities and towns has risen from approximately
$389.7 million in FY 1991 to $700.4 million in the enacted FY
2000 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% to
88% 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 1997, the definition of reimbursable
expenditures was expanded to include capital expenditures made
through a capital lease or lease revenue bonds or from the
municipalities capital reserve account. A related program will
provide approximately $1.6 million to cities and towns in FY 2000
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.
The Legislature, recognizing that the current methods of
education aid distribution required evaluation, created a "Joint
Commission on School Funding" to study modifications to the
current system of state aid distribution. The Commission
recommended that an increase of $25.0 million over FY 1997 be
included in FY 1998 to provide support for targeted student
investments.
The FY 1999 Budget included $534.3 million in Education Aid
to Local Governments. This represented a $38.3 million increase
above FY 1998. The fiscal year 2000 budget continued the
initiatives adopted in both fiscal year 1998 and fiscal year 1999
budgets and provided for an additional $48.8 million in Education
Aid to Local Governments. Other local aid programs include the
general revenue sharing and payment-in-lieu of taxes programs.
The 1987 session of the General Assembly enacted legislation that
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. Funding for this program has
varied since FY 1991, between no funding in FY 1993 to $13.6
million in FY 1995. The FY 1999 Enacted Budget included $19.7
million for this program. The fiscal year 2000 Enacted Budget
includes $27.6 million for this program, and increases the share
dedicated to 1.7% of the state revenues in fiscal year 2000.
This percentage will increase annually until it reaches 4.7% in
FY 2009.
The payment-in-lieu of taxes program authorizes the General
Assembly to appropriate and distribute to communities amounts not
to exceed 27% of the property taxes that would have been
collected on tax exempt properties. Funding was provided in
fiscal years 1988 ($2.5 million), 1989 ($3.1 million), 1991 ($3.5
million), 1992-1994 ($2.8 million), 1995-1997 ($12.2 million) and
1998 ($14.2 million). The enacted FY 1999 budget provided $15.9
million for this program. The FY 2000 Enacted Budget includes
funding of $16.1 million.
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 vote of the
members present and voting of both houses of the General
Assembly. Supplemental appropriations measures may be submitted
by the Governor to the General Assembly on or before the second
Tuesday in January. 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
twice a year (specifically in May and November) 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% of general fund
revenues in FY 1993, 98.5% in FY 1994 and 98.0% thereafter. The
remaining balance is to be deposited into a budget reserve
account, capped at 3% 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
FY 1998 reserve fund balance was $61.2 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.
The Department of Administration is required by law to
produce a quarterly report to be made public that 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, 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.
Revenues
The State draws nearly all of its revenue from a series of
non-property related taxes and excises, principally the personal
income tax and general retail sales and use tax, from federal
assistance payments and grant-in-aid, and from earnings and
receipts from certain State-operated programs and facilities. The
State additionally derives revenue from a variety of special
purpose fees and charges that must be used for specific purposes
as required by State law.
Rhode Island Economy
Population Characteristics
Rhode Island's population in 1990 was 1,005,000. While the
Rhode Island population did not change significantly between 1989
and 1993, it decreased by 0.6% between 1994 and 1996. Bureau of
the Census estimates for 1996 show the Rhode Island population to
be 990,225. In contrast, the total U.S. population increased by
approximately 9.7% between 1980 and 1990, 3.4% between 1990 and
1993, and 2.9% between 1993 and 1996.
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
1997, 12.7% of the Rhode Island population was below the poverty
line, while 13.3% of the population of the United States fell
below the poverty line.
Employment. Total employment levels in Rhode Island grew
at a rate of 0.3% in 1996, 1.9% in 1997 and 1.8% in 1998. The
only employment sector that did not grow in 1998 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 1998.
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 27.2%
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 1983. For
the 1995-96 academic year Rhode Island spent 29% more per pupil
than the national average.
Economy
Composition of Employment. Between 1989 and 1991, total
non-agricultural employment in Rhode Island declined 8.7%. The
construction, manufacturing and trade sectors experienced the
greatest decreases during this time. In 1993, 1994, and 1995,
however, total non-agricultural employment increased by 1.3%,
1.0% and 1.4%, respectively. Employment levels increased in all
sectors except manufacturing. The manufacturing sector has
experienced employment declines in every year since 1984. The
most rapid growth in 1997 came in the finance, insurance, and
real-estate sector, which grew at a rate of 4.7%. Total
non-agricultural employment increased by 3.5% between 1994 and
1997.
The Rhode Island services sector, with 33.6% of the
non-agricultural work force in 1997, is the largest employment
sector in the Rhode Island economy, followed by wholesale and
retail trade (21.9%), manufacturing (17.8%) and government
employment (14.2%).
Economic Forecast
This section describes the economic forecast used as input
for the Revenue Estimating Conference's consensus estimate. The
Revenue Estimating Conference incorporates a range of economic
forecasts and economic information in making revenue estimates.
During its May, 1999 meeting, forecasts were presented by Data
Resources Inc. (DRI), Regional Financial Associates (RFA), and
The New England Economic Project (NEEP). Current employment and
labor force trends were also presented by the Department of Labor
and Training.
During the 1997-1998 legislative session, the statutes
covering the Revenue Estimating Conference were amended.
Beginning in fiscal year 1999, the statute requires that the
principal members (the Budget Officer, the House Fiscal Adviser
and the Senate Fiscal Adviser) " shall adopt a consensus forecast
upon which to base revenue estimates."
The economic outlook provided by the economists for Rhode
Island was more optimistic than the November forecast revealed.
RFA and DRI acknowledged the possibility that the positive
impacts of the global economic crisis, such as low interest rates
and low commodity prices (in particular oil prices) on the United
States may have been underestimated in the past. Consumer
confidence,(which translates into consumer spending) although
subject to fluctuation, has remained quite strong. All three
economists noted that consumer spending has been a major driving
force in the economy of late. Also noteworthy is the fact that
Rhode Island's household balance sheets are improving due to
increasing home values.
Although there was a small disparity among the forecasts,
the principles adopted a forecast characterized by low consumer
price inflation, continued employment growth, and continued
personal income growth.
REVENUE ESTIMATES
Revenue estimates are predicated upon the May Revenue
Estimating conference, as well as changes to general revenues
reflected in the fiscal year 1999 budget plan adopted by the
Legislature and the fiscal year 2000 Appropriations Act. The
Consensus Revenue Estimating Conference is required by
legislation to convene at least twice annually to forecast
general revenues for the current year and budget year, based on
current law and collection trends, as well as the economic
forecast.
Fiscal year 1999 Revenue Estimate
The fiscal year 1999 estimate was revised downward by
$1.4 million from the estimate adopted by the November Revenue
Estimating Conference. This is a revision of negative 0.1% to
the November estimate. The estimate includes adjustments adopted
by the Revenue Estimating Conference and changes included in the
FY 1999 budget plan adopted by the legislature for 1999. FY 1999
revenues were expected to be 2.0% greater than those collected in
fiscal year 1998. Total taxes in fiscal year 1999 were expected
to rise by 2.6% over the prior fiscal year, largely due to growth
in personal income and sales taxes. Personal income taxes were
expected to total $758.2 million in fiscal year 1999. Annual
growth of 4.9%, or $35.4 million is expected. The income tax
estimate included the second phase of the tax rate reduction (to
26.5% of federal liability) which became effective on January 1,
1999.
Significant negative revisions were made to the several of
the general business taxes. The business corporation tax was
reduced by $7.5 million and was expected to yield total of $62.5
million for the year. Insurance taxes for also reduced by $7.6
million, with total anticipated collections of $33.7 million.
Revisions in these taxes were made based on year to date
collections, which reflect significant refunds. The insurance
tax, which was based on gross premiums, was partially impacted by
a rate reduction to automobile insurance premiums. Small
increases were made to estimates for franchise taxes ($0.6
million) and public utility gross earnings taxes ($1.2 million)
for total expected collections of $7.9 million and $63.5 million,
respectively. The November estimates for taxes on financial
institutions,(negative $0.8 million) bank deposits (negative $0.9
million) and health-care providers ($24.2 million) were
unchanged.
Expected sales tax collections remained at $565.0
million, or 6.5% annual growth. Motor vehicle taxes are expected
to yield $41.4 million, and motor fuel taxes are expected to
yield $850,000. Alcohol tax collections are expected to grow by
4.8 % over the year, for total of $9.0 million. The cigarette
tax estimate was dramatically reduced (by $4.1 million) from the
November estimate. Immediately following the tobacco settlement,
which was announced in late November of 1998, tobacco
manufacturers instituted a price increase which has had a
negative effect on consumption. Total collections of $62.0
million are expected or a decrease of 3.4% from fiscal year 1998.
Gains were expected in the "Other Taxes" category. Inheritance
taxes were increased by $3.0 million, for an expected total of
$30.0 million. Racing and athletics and realty transfer taxes
are expected to garner $5.9 million, and $2.5 million,
respectively.
Departmental receipts, which include licenses and fees,
fines and penalties, sales and services, and miscellaneous
revenues collected by individual departments, are expected to
total $196.2 million in the current fiscal year. The total
reflects an increase of $5.0 million, due in large part to
substantial gains in income on investments.
The gas tax transfer to the general fund was increased by
$0.3 million for total of $20.5 million. Lottery receipts are
expected to garner $133.5 million. The revised estimate reflects
an increase of $11.7 million to the November estimate, or annual
growth of 16.0%, due to strong year to date receipts. Unclaimed
property receipts are expected to total $4.5 million.
"Other Miscellaneous" receipts were expected to total $14.5
million. The final estimate was $6,552,419 lower than the
November estimate in large part due to the expectation that the
estimated $6.0 million in employee medical recovery is not likely
to occur until fiscal year 2000; originally the $6.0 million
recovery was expected to occur in fiscal year 1999. The
components in this category include: airport lease payments ($3.2
million); airport lease offsets for underground storage tank
remediation (negative $1.9 million); addendum to the airport
lease contract (negative $0.1 million); earnings on bond proceeds
($7.5 million); Blue Cross Settlement ($0.5 million); interyear
adjustments ($1.3 million); and Resource Recovery Corporation
transfer to the general fund ($4.0 million).
Fiscal year 2000 Revenue Estimate
Fiscal year 2000 revenues are expected to be 4.7% greater
than those collected in fiscal year 1999. The May estimate for
the budget year was revised upward by $100.4 million from the
November 1998 estimate. The substantial increase is due in large
part to the inclusion of tobacco settlement proceeds of $63.9
million and increased lottery transfers which are expected to
total $146.4 million.
Total taxes in fiscal year 2000 are expected to rise by
4.1% over the prior fiscal year, largely due to growth in
personal income and sales taxes. Personal income taxes are
expected to total $787.5 million in fiscal year 1999. Annual
growth of 3.9%, or $29.3 million is expected. The income tax
estimate includes the third phase of the tax reduction (to 26.0%
of federal liability) which will become effective on January 1,
2000. Large negative revisions were also made in the budget year
to the business corporations and insurance taxes, reflecting
fiscal year 1999 collection experience. The business corporation
tax was reduced by $7.5 million and is expected to yield total of
$63.3 million for the year. Insurance taxes were revised
downward by $6.1 million, with total anticipated collections of
$35.5 million.
Increases consistent with those made to the fiscal year 1999
estimate for franchise taxes($0.6 million) and public utility
gross earnings taxes ($1.2 million) were made to fiscal year
2000, for total expected collections of $7.9 million and $63.5
million respectively. The November estimates for taxes on
financial institutions, bank deposits, and health care providers
were unchanged, with respective collections of $7.0 million, $0.7
million, and $24.9 million.
The sales tax estimate for fiscal year 2000 was increased
by $9.5 million, anticipating an annual increase of $28.5
million, or growth of 5.0 %. Total collections are expected to
reach $593.5 million. Motor vehicle taxes are expected the yield
$41.8 million, and motor fuel taxes are expected to yield
$850,000. Alcohol tax collections are expected to remain at the
fiscal year 1999 level of $9.0 million.
Cigarette tax collections are expected to further declined
by $2.2 million or 3.5 %, due to a continued decline consumption.
Total collections of $59.8 billion are expected in the budget
year.
Inheritance tax and racing and athletics tax collections
are expected to remain at fiscal year 1999 levels of $30.0
million and $5.9 million, respectively. Realty transfer taxes
are estimated to total $2.1 million, or an annual decline of 16%.
The fiscal year 1999 Appropriations Act included a provision
whereby local communities would retain all realty transfer taxes,
except for the distressed community portion, which is remitted to
the state, effective in fiscal year 1999. The fiscal year 2000
estimate reflects this change, which is based on the fiscal year
1999 estimate, adjusted for collections timing issues and small
anticipated growth. Departmental receipts are expected to total
$153.2 million in fiscal year 2000. The total reflects a
decrease of $43.0 million, due to the sunset of the hospital
license fee, ($37.4 million) conversion of inspection sticker
fees to restricted receipts, ($4.4 million) and fewer gains in
income on investments ($1.0 million).
The gas tax transfer to the general fund was increased by
$0.2 million from November 1998 estimate and is expected to
garner $16,135,000. The fiscal year 2000 estimate is based upon
an annual decrease of $4,412,000, due to the transfer of the
value of one additional cent of the total gasoline tax to the
Department of Transportation. The fiscal year 2000 estimate for
lottery transfers was increased to $146.4 million, or annual
growth of 9.7%. Unclaimed property receipts are expected to
remain unchanged from those collected in fiscal year 1999, or a
total of $4.5 million.
"Other Miscellaneous" receipts are expected to total $76.5
million. The current estimate reflects an increase of $71.8
million from the November estimate. Most of the difference is
attributable to inclusion of $63.9 million in the proceeds from
the tobacco settlement. Additionally, $6.0 million in employee
medical recovery is expected to be received fiscal year 2000
rather than fiscal year 1999. Other components of this category
include the airport lease payment ($3.3 million); anticipated
reimbursement from the Underground Storage Tank Fund for airport
and state tank expenditures ($1.5 million and $0.5 million
respectively); an anticipated adjustment to the airport lease
settlement (negative $0.1 million); and interyear adjustments
($1.3 million). Earnings on bond proceeds, estimated at $6.0
million in fiscal year 2000, will no longer be included in this
category as general revenues, but rather will be deposited into a
sinking fund for debt defeasance in accordance with the
provisions of the fiscal year 1999 Appropriations Act.
FUND POLICIES
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 the 1940 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 and in "Investment Strategies and
Risks" in the SAI)). 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, any Trustee, Director or officer of
the Fund or its Manager or Sub-Adviser individually owns
beneficially more than 0.5% of the securities of that issuer and
all such Trustees, Directors and officers 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.
5. 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.
6. 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.
7. 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.
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 alternative minimum
tax; accordingly, the Fund can invest up to 20% of its net assets
in obligations which are subject to the Federal alternative
minimum tax.
MANAGEMENT OF THE FUND
The Board of Trustees
The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Board of
Trustees has authority over every aspect of the Fund's
operations, including approval of the advisory and sub-advisory
agreements and their annual renewal, the contracts with all other
service providers and payments under the Fund's Distribution Plan
and Shareholder Services Plan.
Trustees and Officers
The Trustees and officers of the Fund, their ages, their
affiliations, if any, with the Manager or the Distributor and
their principal occupations during at least the past five years
are set forth below. None of the Trustees or officers of the Fund
is affiliated with the Sub-Adviser. Mr. Herrmann is an interested
person of the Fund as that term is defined in the Investment
Company Act of 1940 (the "1940 Act") as an officer of the Fund
and a director, officer and shareholder of the Manager and the
Distributor. Mr. Duffy is an interested person as a director of
the Sub-Adviser. They are so designated by an asterisk.
Described in the following material are the name, positions
with the Fund, age and business experience during at least the
past five years (other than with the Fund) of each Trustee and
all officers of the Fund.
(1) (2) (3)
Name, Address, Age Positions(s) Principal
Held with Occupation(s)
Fund During
Past 5 Years
Lacy B. Herrmann* Chairman Founder and Chairman of
380 Madison Avenue of the the Board of Aquila
New York, New York Board of Management Corporation,
10017 Trustees the sponsoring organization
Age: 70 and Manager or Administrator
and/or Adviser or Sub-Adviser
to the Aquila Money Market
Funds, the Aquila Bond Funds
and the Aquila Equity Funds,
and Founder, Chairman of the
Board of Trustees and
(currently or until 1998)
President of each since its
establishment, beginning in
1984; Director, of Aquila
Distributors, Inc.,
distributor of the above
funds, since 1981 and formerly
Vice President or Secretary,
1981-1998; President and a
Director of STCM Management
Company, Inc., sponsor and
sub-adviser to CCMT; Founder
and Chairman of several other
money market funds; Director
or Trustee of OCC Cash
Reserves, Inc. and Quest For
Value Accumulation Trust, and
Director or Trustee of
Oppenheimer Quest Value Fund,
Inc., Oppenheimer Quest Global
Value Fund, Inc. and
Oppenheimer 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 Director of Sonesta
20 Park Plaza, Suite 1010 International Hotels
Boston, Massachusetts Corporation Boston, 02116
Massachusetts and
Age: 76 Independent General Partner of
the Merrill Lynch-Lee Funds;
Former Director of
Colgate-Palmolive Company,
Digital Equipment Corporation,
Intermet Corporation, The
McGraw Hill and The Mead
Corporation; 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.
Government Securities Cash
Assets Trust since 1989, of
Cascades Cash Fund, 1989-1994,
of Narragansett Insured
Tax-Free Income Fund (this
Fund) since 1992, 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
Emeritus, Boston Symphony
Orchestra; Chairman of the
Massachusetts Council on the
Arts and Humanities,
1972-1984; Member of the Board
of Fellows of Brown
University, 1969-1986; Trustee
of various other cultural and
educational organizations;
Honorary Consul General of the
Royal Kingdom of Thailand;
Received Decorations from the
Emperor of Japan (1986) and
the King of Thailand (1996 and
1997).
Paul Y. Clinton Trustee Principal of Clinton
39 Blossom Avenue Management Associates,
Osterville, MA a financial and venture
02655 capital consulting firm;
Age: 68 formerly Director of External
Affairs of Kravco Corporation,
a national real estate owner
and developer, 1984-1995;
formerly President of Essex
Management Corporation, a
management and financial
consulting company, 1979-1983;
Trustee of Capital Cash
Management Trust since 1979,
of Narragansett Insured
Tax-Free Income Fund (this
Fund) since 1996 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 Trustee of Narragansett
36 Reliance Drive Insured Tax-Free Income
Poppasquash Point, Bristol Fund since 1995.
Rhode Island 02809 President, Duffy & Shanley,
Age: 59 Inc., an advertising,
marketing and public relations
firm since 1973; Director of
Citizens Bank of Rhode Island
since 1999; National Chairman
of the National Conference for
Community and Justice
(formerly the National
Conference of Christians and
Jews); Vice Chairman of the
Providence College Board of
Trustees and Chairman of the
College's President's Council;
Past Chair and current member
of the Executive Committee of
the Greater Providence Chamber
of Commerce; past Chair of the
Rhode Island Sports Council;
past Chair of the Rhode Island
Public Telecommunications
Authority; and many other
civic and non-profit
organizations. He has been
the recipient of numerous
awards for public service. He
served with the U.S. Army.
William J. Nightingale Trustee Chairman and founder
1266 East Main Street (1975) and Senior Advisor
Stamford, Connecticut since 1995 of Nightingale &
06902 Associates, L.L.C., a
Age: 69 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 Narragansett
Insured Tax-Free Income Fund
(this Fund) since 1992 and of
Churchill Cash Reserves Trust
and Churchill Tax-Free Fund of
Kentucky since 1993; Director
of Kasper A.S.L. Ltd., an
apparel company, since 1997,
of Ring's End, Inc., a
building materials and
construction company, since
1989, and of Furr's/Bishop's
Inc., operator of a chain of
restaurants, since 1998.
J. William Weeks Trustee Trustee of Narragansett
380 Madison Avenue Insured Tax-Free Income
New York, New York 10017 Fund and of Tax
Age: 72 -Free Fund of Colorado since
1995; Senior Vice President of
Tax-Free Fund of Colorado and
Narragansett Insured Tax-Free
Income Fund (this 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, 1978-1988;
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.
Diana P. Herrmann President President and Chief
380 Madison Avenue Operating Officer of the
New York, New York Manager since 1997,
10017 a Director since 1984,
Age: 41 Secretary since 1986 and
previously its Executive Vice
President, Senior Vice
President or Vice President,
1986-1997; President of
various Aquila Bond and
Money-Market Funds since 1998;
Assistant Vice President, Vice
President, Senior Vice
President or Executive Vice
President of Aquila
Money-Market, Bond and Equity
Funds since 1986; Trustee of a
number of Aquila Money-Market,
Bond and Equity Funds since
1995; Trustee of Reserve
Money-Market Funds since 1999
and Reserve Private Equity
Series since 1998; Assistant
Vice President and formerly
Loan Officer of European
American Bank, 1981-1986;
daughter of the Fund's
Chairman; 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.
Stephen J. Caridi Senior Vice President of the
380 Madison Avenue Vice Distributor since 1995,
New York, New York President Assistant Vice
10017 President, 1988-1995,
Age: 38 Marketing Associate,
1986-1988; Vice President of
Hawaiian Tax-Free Trust since
1998; Senior Vice President of
Narragansett Insured Tax-Free
Income Fund (this Fund) since
1998, Vice President since
1996; Assistant 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.
Rose F. Marotta Chief Chief Financial Officer
380 Madison Avenue, Financial of the Aquila Money-
New York, New York Officer Market, Bond and Equity
10017 Funds since 1991 and
Age: 75 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 Manager since
1984 and of the Distributor
since 1985.
Richard F. West Treasurer Treasurer of the Aquila
380 Madison Avenue Money-Market, Bond
New York, New York 10017 and Equity Funds and
Age: 63 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 Partner of Hollyer Brady
551 Fifth Avenue Smith Troxell Barrett
New York, New York 10176 Rockett Hines & Mone
Age: 59 LLP, attorneys, since
1989 and counsel, 1987-1989;
Secretary of the Aquila
Money-Market, 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 Vice Assistant Secretary of
380 Madison Avenue President, the Aquila Money-Market,
New York, New York Assistant Bond and Equity Funds
10017 Secretary since 1995 and Vice
Age: 59 President of the Aquila
Money-Market Funds since 1990;
Vice President of the Manager
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.
The Fund does not currently pay fees to any of the Fund's
officers or to Trustees affiliated with the Manager or the
Sub-Adviser. For its fiscal year ended June 30, 1999, the Fund
paid a total of $37,709 in compensation and reimbursement of
expenses to the Trustees. No other compensation or remuneration
of any type, direct or contingent, was paid by the Fund to its
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 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.
Compensation Number of
from all funds boards on which
Compensation in the the Trustee
Name from the Fund Aquilasm Group now serves
[S] [C] [C] [C]
Vernon R. Alden $4,026 $51,802 7
Paul Y. Clinton $4,684 $7,050 2
David A. Duffy $3,500 $3,500 1
William J.
Nightingale $4,461 $15,060 3
J. William Weeks $6,238 $14,458 2
OWNERSHIP OF SECURITIES
On August 6, 1999, National Financial Services Corp., 200
Liberty Street, New York, NY 10281 held of record 1,048,937 Class
A Shares (16% of the class) and 181,205 Class Y Shares (43.8% of
the class); Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800
Deer Lake Drive, East, Jacksonville, FL held of record 510,396
Class A Shares (7.9% of the class) and 46,883 Class C Shares
(11.3% of the class); Corelink Financial Inc., P.O. Box 4054,
Concord, CA 94524 held of record 831,500 Class A Shares (12.7% of
the Class) and 190,608 Class C Shares (45.9% of the Class);
Donaldson Lufkin Jenrette Securities Corporation, P.O. Box 2052,
Jersey City, NJ held of record 48,943 Class C Shares (11.8% of
the class) and Citizens Bank, 870 westminster Street, providence,
RI held of record 200,714 Class Y Shares (48.5% of the class);
Perry Baker & Co., Washington Trust Co., Westerly, RI held of
record 7,590 Class I Shares (100% of the class). On the basis of
information received from the holders, the Fund's management
believes that all of the shares indicated are held for the
benefit of clients. Mark S. Mandell, Park Row, Providence, RI
held of record 25,066 Class C Shares (6.0% of the class). The
Fund's management is not aware of any other person beneficially
owning more than 5% of any class of its outstanding shares as of
such date.
Management Ownership
As of the date of this SAI, all of the Trustees and officers
as a group owned less than 1% of its outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
Information about the Sub-Adviser, the Manager and the
Distributor
Management Fees
During the fiscal years ended June 30, 1999, 1998 and 1997
the Fund incurred Management fees as follows. During the periods
indicated, the following management arrangements were in effect:
November 17, 1997 through June 30, 1999: current arrangements.
Prior to November 17, 1997, the Manager was the administrator and
the sub-adviser was the adviser under agreements then in effect.
Manager Other
1999 $322,451(1)
1998 $46,426(2) $39,548(2)
$160,215(3)
1997 $92,236(4) $108,154(4)
(1) $266,429 was waived; in addition, the Manager reimbursed
expenses in the amount of $84,848.
(2) Accrued under former administration and advisory agreements
in effect until November 17, 1997, to the manager and former
adviser, of which all and $30,951, respectively, was waived.
(3) Accrued under Advisory and Administration agreement, of which
$144,191 was waived. In addition, the Manager reimbursed expenses
in the amount of $195,380.
(4) Accrued to the Manager and sub-adviser under administration
and advisory agreements then in effect, of which $72,100 and
$84,117, respectively, was waived. In addition the Manager
reimbursed expenses in the amount of $251,853.
Aquila Distributors, Inc. 380 Madison Avenue, Suite 2300,
New York, NY 10017 is the Fund's Distributer. The Distributor
currently handles the distribution of the shares of fourteen
funds (five money market funds, seven tax-free municipal bond
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.
The shares of the Distributor are owned 72% by Mr. Herrmann
and other members of his immediate family, 24% by Diana P.
Herrmann and the balance by an officer of the Distributor.
The 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 in
the Sub-Advisory Agreement.
The Advisory and Administration Agreement also 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 the
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.
The Advisory and Administration Agreement provides that the
Manager shall, at its own expense, 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 the agreement 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
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.
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 1940 Act) of
the voting securities of the Fund outstanding and entitled to
vote. The specific portions of the Advisory and Administration
Agreement which relate to providing investment advisory services
will automatically terminate in the event of the assignment (as
defined in the 1940 Act) of the Advisory and Administration
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 0.26 of 1% of such net asset value.
The Sub-Advisory Agreement
The services of the Sub-Adviser are rendered under the
Sub-Advisory Agreement between the Manager and the Sub-Adviser,
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.
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 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.
During the fiscal years ended June 30, 1999, 1998 and 1997
all of the Fund's transactions were principal transactions and no
brokerage commissions were paid.
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 became effective on May 1, 1998
and provides that it shall, unless terminated as therein
provided, continue in effect until the June 30 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 Sub-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
Sub-Adviser from continuing to serve as investment adviser to the
Fund or could restrict the services which 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.
Underwriting Commissions
During the fiscal years ended June 30, 1999, 1998 and 1997
the aggregate dollar amount of sales charges on sales of shares
in the Fund was $442,757, $333,676 and $260,616, respectively,
and the amount retained by the Distributor was $40,780, $22,582
and $2,677, respectively.
In connection with sales of Class A Shares, the Distributor
pays a portion of the sales charge on such shares to dealers in
the form of discounts and to brokers in the form of agency
commissions (together, "Commissions"), in amounts that vary with
the size of the sales charge as follows:
Sales Charge as
Percentage Commissions
of Public as Percentage
Offering of Offering
Price Price
4.00% 3.00%
3.75% 3.00%
3.50% 2.75%
3.25% 2.75%
3.00% 2.50%
2.50% 2.25%
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 SAI, most of the outstanding shares of
the Fund would be considered Qualified Holdings of various
broker-dealers unaffiliated with the Manager, Sub-Adviser or
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 Class
Shares ("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 Fund's Board of
Trustees, 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.
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) as to 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 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 Manager,
Sub-Adviser or 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 1940 Act, of the Fund,
Manager, Sub-Adviser or 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 hereinafter
provided, continue in effect, until the April 30 next succeeding
such effectiveness, and from year to year thereafter only so long
as such continuance is specifically approved at least annually by
the Fund's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part I may be terminated at any time by the vote of
a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund to which Part I
applies. Part I may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part I as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Fund, the Class A Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Fund, the Class A Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Fund's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class A Plan Agreements entered into thereafter.
Provisions relating to Class C Shares (Part II)
Part II of the Plan applies only to the Level-Payment 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 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 Manager,
Sub-Adviser or 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 1940 Act, of the Fund,
Manager, Sub-Adviser or Distributor such person shall agree to
furnish to the Distributor for transmission to the Board of
Trustees of the Fund an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part II originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part II of the Plan; and (ii) by a vote of holders of
at least a "majority" (as so defined) of the outstanding voting
securities of the Level- Payment Class Shares. Part II has
continued, and will, unless terminated as therein provided,
continue in effect, until the April 30 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 April 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 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. 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
Manager, Sub-Adviser or 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, Manager, Sub-Adviser or 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 April 30 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 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 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 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 (i) their
agreements with the Distributor with respect to payments under
the Fund's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class I Plan Agreements entered into thereafter.
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; and (ix) all costs
of responding to telephone or mail inquiries of investors or
prospective investors.
The Plan states that while it is in effect, the selection
and nomination of those Trustees of the Fund who are not
"interested persons" of the Fund shall be committed to the
discretion of such disinterested Trustees but that nothing in the
Plan shall prevent the involvement of others in such selection
and nomination if the final decision on any such selection and
nomination is approved by a majority of such disinterested
Trustees.
The Plan 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 therein
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 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.
Payments Under the Plan
During the fiscal years ended June 30, 1999, 1998 and 1997
payments were made only under Part I and Part II of the Plan. All
payments were to Qualified Recipients and were made were for
compensation. During those periods, except as indicated, no
payments were made under Part III or Part IV of the Plan.
Payments to Qualified Recipients
During the fiscal years ended June 30, 1999, 1998 and 1997,
$89,047, $72,087 and $59,620, respectively, were paid under Part
I of the Plan to Qualified Recipients. Of those amounts, $1,996,
$1,455 and $1,175, respectively, were paid to the Distributor.
All of such payments were for compensation.
During the Fund's fiscal years ended June 30, 1999, 1998 and
1997, $25,819, $10,093 and $1,815, respectively, were paid to
Qualified Recipients under Part II of the Plan with respect to
the Fund's Class C Shares, of which $17,688, $7,946 and $1,815,
respectively, was retained by the Distributor. All of such
payments were for compensation. Payments with respect to Class C
Shares during the first year after purchase are paid to the
Distributor and thereafter to other Qualified Recipients. In
addition, during the fiscal year ended June 30, 1999 payments
were made to Qualified Recipients under Part III of the Plan with
respect the Fund's Class I Shares, together with amounts paid
with respect to the same shares under the Fund's Shareholder
Services Plan amounted to $26.
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).
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. "Manager" 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. Service Fees with respect to Class C Shares
will be paid to the Distributor. During the fiscal years ended
June 30, 1999, 1998 and 1997, $8,606, $3,364 and $605,
respectively, of Service Fees were paid to Qualified Recipients
with respect to the Fund's Class C Shares. All of such payments
were for compensation.
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.
"Manager" 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 Financial Intermediary Class Shares. Such payments shall be
made only out of the Fund's assets allocable to the Financial
Intermediary 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 Financial Intermediary
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, 1999 payments were made to Qualified
Recipients under Part III of the Plan with respect the Fund's
Class I Shares, together with amounts paid with respect to the
same shares under the Fund's Distribution Plan amounted to $26.
No Class I Shares were outstanding during the year ended June 30,
1998 or 1997.
General Provisions
While the Services Plan is in effect, the Fund's Distributor
shall report at least quarterly to the Fund's Trustees in writing
for their review on the following matters: (i) all Service Fees
paid under the Services Plan, the identity of the Qualified
Recipient of each payment, and the purposes for which the amounts
were expended; and (ii) all fees of the Fund to the Distributor
paid or accrued during such quarter. In addition, if any
Qualified Recipient is an "affiliated person," as that term is
defined in the 1940 Act, of the Fund, Manager, Sub-Adviser or
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 1940 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 therein 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.
Transfer Agent, Custodian and Auditors
The Fund's Shareholder Servicing Agent (transfer agent) is
PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809.
The Fund's Custodian, Bank One Trust Company, N.A., 100 East
Broad Street, Columbus, Ohio 43271, is responsible for holding
the Fund's assets.
The Fund's auditor, KPMG LLP, 345 Park Avenue, New York,
New York, 10154, performs an annual audit of the Fund's financial
statements.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Brokerage allocation and other practices relating to
purchases and sales of the Fund's securities are set forth in the
description of the Sub-Advisory Agreement. It provides that 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.
CAPITAL STOCK
The Fund has four classes of shares.
* 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. 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.
* 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. 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. 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.
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 Aquila Distributors, Inc. 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.
The Fund's four classes of shares differ 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 four 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.
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, whether or not affecting the rights of the
shareholders, 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 Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares 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 as provided in rules
and regulations of the Securities and Exchange Commission or by
exemptive order. 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").
Shares are fully paid and non-assessable, except as set forth in
the next paragraph; the holders of shares have no pre-emptive or
conversion rights, except that Class C Shares automatically
convert to Class A Shares after being held for six years.
The Fund is an entity of the type commonly known as a
"Massachusetts business trust." 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 does, however,
contain an express disclaimer of shareholder liability for acts
or obligations of the Fund. 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.
PURCHASE, REDEMPTION, AND PRICING OF SHARES
In addition to information about purchase, redemption and
pricing of shares set forth in the Prospectus, the Fund provides
additional services and information.
Sales Charges for Purchases of $1 Million or More of Class A
Shares
You will not pay a sales charge at the time of purchase when
you purchase "CDSC Class A Shares." CDSC Class A Shares are Class
A Shares issued under the following circumstances:
(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 to a single purchaser in
a single purchase when the value of the purchase,
together with the value of the purchaser's other CDSC
Class A Shares and Class A Shares on which a sales
charge has been paid, equals or exceeds $1 million:
See "Special Dealer Arrangements" for other circumstances
under which Class A Shares are considered CDSC Class A Shares.
CDSC Class A Shares do not include: (i)Class A Shares purchased
without a sales charge as described under "General" below and
(ii)Class A Shares purchased in transactions of less than $1
million when certain special dealer arrangements are not in
effect under "Certain Investment Companies" set forth under
"Reduced Sales Charges," below.
Broker/Dealer Compensation - Class A Shares
Upon notice to all selected dealers, the Distributor may
distribute up to the full amount of the applicable sales charge
to broker/dealers. Under the Securities Act of 1933,
broker/dealers may be deemed to be underwriters during periods
when they receive all, or substantially all, of the sales charge.
Redemption of CDSC Class A Shares
If you redeem all or part of your CDSC Class A Shares during
the four years after you purchase them, you must pay a special
contingent deferred sales charge upon redemption.
You will pay 1% of the Redemption Value if you redeem within
the first two years after purchase, and 0.50 of 1% of the
Redemption Value if you redeem within the third or fourth year.
This charge is based on the "Redemption Value" of your
shares which is the lesser of: (i) the net asset value when you
purchased the CDSC Class A Shares you are redeeming; or (ii) the
net asset value at the time of your redemption.
This special charge also applies to CDSC Class A Shares
purchased without a sales charge pursuant to a Letter of Intent
(see "Reduced Sales Charges for Certain Purchases of Class A
Shares"). This special charge will not apply to shares acquired
through the reinvestment of dividends or distributions on CDSC
Class A Shares or to CDSC Class A Shares held for longer than
four years. When redeeming shares, the Agent will redeem the CDSC
Class A Shares held the longest, unless otherwise instructed. If
you own both CDSC and non-CDSC Class A Shares, the latter will be
redeemed first.
The Fund will treat all CDSC Class A Shares purchases made
during a calendar month as if they were made on the first
business day of that month at the average cost of all purchases
made during that month. Therefore, the four-year holding period
will end on the first business day of the 48th calendar month
after the date of those purchases. Accordingly, the holding
period may, in fact, be one month less than the full 48 depending
on when your actual purchase was made. If you exchange your CDSC
Class A Shares for shares of an Aquila money-market fund (see
"Exchange Privilege" in the Additional Statement), running of the
48-month holding period for those exchanged shares will be
suspended.
Broker/Dealer Compensation - CDSC Class A Shares
The Distributor currently intends to pay any dealer executing a
purchase of CDSC Class A Shares as follows:
Amount of Purchase Amount Distributed
to
Broker/Dealer as a %
of Purchase Price
$1 millon but less than $2.5 million 1%
$2.5 million but less than $5 million 0.50 of 1%
$5 million or more 0.25 of 1%
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation
"Single purchasers" may qualify for a reduced sales charge
in accordance with the above schedule when making subsequent
purchases of Class A Shares. A reduced sales charge applies if
the cumulative value (based on purchase cost or current net asset
value, whichever is higher) of Class A Shares previously
purchased with a sales charge, together with Class A Shares of
your subsequent purchase, also with a sales charge, amounts to
$25,000 or more.
Letters of Intent
"Single purchasers" may also qualify for reduced sales
charges, in accordance with the above schedule, after a written
Letter of Intent (included in the Application) is received by the
Distributor. The Letter of Intent confirms that you intend to
purchase, within a thirteen month period, Class A Shares of the
Fund through a single selected dealer or the Distributor. Class A
Shares of the Fund which you previously purchased within 90 days
prior to the Distributor's receipt of your Letter of Intent and
which you still own may also be included in determining the
applicable reduction. For more information, including escrow
provisions, see Letter of Intent provisions of the Application.
General
Class A Shares may be purchased without a sales charge by:
* the Fund's Trustees and officers,
* the directors, officers and certain employees, retired
employees and representatives of the Adviser,
Administrator, Distributor and their parents and/or
affiliates,
* selected dealers and brokers and their officers and
employees,
* certain persons connected with firms providing legal,
advertising or public relations assistance,
* certain family members of, and plans for the benefit
of, the foregoing,
* and plans for the benefit of trust or similar clients
of banking institutions over which these institutions
have full investment authority, if the Distributor has
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. Since
there may be tax consequences of these purchases, your tax
advisor should be consulted.
Class A Shares may also be issued without a sales charge 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.
A qualified group 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
(i) satisfies uniform criteria which enable the Distributor
to realize economies of scale in its costs of
distributing shares;
(ii) 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
(iii) complies with the conditions of purchase that make up
an agreement between the Fund and the group,
representative or broker or dealer.
At the time of purchase, the Distributor must receive
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 without sales
charge from proceeds of a redemption, made within 120 days prior
to such purchase, of shares of an investment company (not a
member of the Aquilasm Group of Funds) on which a sales charge,
including a contingent deferred sales charge, has been paid.
Additional information is available from the Distributor.
To qualify, follow these special procedures:
1. Send a completed Application (included with the
Prospectus) and payment for the shares to be purchased
directly to the Distributor, Aquila Distributors, Inc.,
380 Madison Avenue, Suite 2300, New York, NY
10017-2513. Do not send this material to the address
indicated on the Application.
2. Your completed Application must be accompanied by
evidence satisfactory to the Distributor that you, as
the prospective shareholder, have made a Qualifying
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. 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 from the proceeds of a
redemption of the shares of an investment company (not a member
of the Aquilasm Group of Funds), up to 1% of the proceeds. The
shareholder, however, will not be subject to any sales charge.
These arrangements will be in effect through ********, unless
extended or earlier terminated by a supplement to the SAI.
Dealer payments will be made in up to 4 payments of 0.25 of
1% of the proceeds over a 4 year period. The first payment will
be made subsequent to receipt of the proper documentation
detailed above. Future payments, over the remaining years, will
be made at the end of the quarter of the anniversary month that
the purchase of Class A Shares took place, with respect to any
part of the investment that remains in the Fund during the entire
time period. No payments will be made with respect to any shares
redeemed during the four-year period.
Additional Compensation for Broker/Dealers
The Distributor may compensate broker/dealers, above the
normal sales commissions, in connection with sales of any class
of shares. However, broker/dealers may receive levels of
compensation which differ as between classes of share sold.
The Distributor, not the Fund, will pay these additional
expenses. Therefore, the price you pay for shares and the amount
that the Fund receives from your payment will not be affected.
Additional compensation may include full or partial payment
for:
* advertising of the Fund's shares;
* payment of travel expenses, including lodging, for
attendance at sales seminars by qualifying registered
representatives; and/or
* other prizes or financial assistance to broker/dealers
conducting their own seminars or conferences.
Such compensation may be limited to broker/dealers whose
representatives have sold or are expected to sell significant
amounts of the Fund's shares. However, broker/dealers may not use
sales of the Fund's shares to qualify for additional compensation
to the extent such may be prohibited by the laws of any state or
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. 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.
Automatic Withdrawal Plan
You may establish an 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. The Automatic Withdrawal Plan
is not available for Class C Shares or Class I 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.
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.
Share Certificates
You may obtain Share certificates for full Class A Shares
only if you make a written request to the Agent. All share
certificates previously issued by the Fund represent Class A
Shares. If you lose the certificates, you may incur delay and
expense when redeeming shares or having the certificates
reissued.
Share certificates will not be issued:
* for fractional Class A Shares;
* if you have selected Automatic Investment or Telephone
Investment for Class A Shares.
* if you have selected Expedited Redemption. However, if
you specifically request, Class A Share certificates
will be issued with a concurrent automatic suspension
of Expedited Redemption on your account.
Share certificates will not be issued for Class C Shares,
Class Y Shares or Class I Shares.
Reinvestment privilege
If you reinvest proceeds of redemption within 120 days of a
redemption you will not have to pay any additional sales charge
on the reinvestment. You must reinvest in the same class as the
shares redeemed. You may exercise this privilege only once a
year, unless otherwise approved by the Distributor.
The Distributor will refund to you any CDSC deducted at the
time of redemption by adding it to the amount of your
reinvestment. The Class C or CDSC Class A Shares purchased upon
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.
Reinvestment will not alter the tax consequences of your
original redemption.
Exchange Privilege
There is an exchange privilege as set forth below among this
Fund, certain tax-free municipal bond funds and equity funds
(together with the Fund, the "Bond or Equity Funds") and certain
money market funds (the "Money-Market Funds"), all of which are
sponsored by Aquila Management Corporation and Aquila
Distributors, Inc., and have the same Manager or Administrator
and Distributor as the Fund. All exchanges are subject to certain
conditions described below. As of the date of the Prospectus, the
Aquila-sponsored 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, Churchill Tax-Free Fund of Kentucky, Tax-Free Fund of
Colorado, Tax-Free Fund For Utah and Narragansett Insured
Tax-Free Income Fund; the Aquila Money-Market Funds are Capital
Cash Management Trust (Original Shares), Capital Cash U.S.
Government Securities Trust (Original Shares), Pacific Capital
Cash Assets Fund (Original Shares), Pacific Capital Tax-Free Cash
Assets Fund (Original Shares), Pacific Capital U.S. Government
Securities Cash Assets Fund (Original Shares) and Churchill Cash
Reserves Fund.
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. 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. However, the following important
information should be noted:
(1) CDSCs Upon Redemptions of Shares Acquired Through
Exchanges. If you exchange shares subject to a CDSC, 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.
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
Fund 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 Fund 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 is 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
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"); 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 Fund (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. Government Securities Cash Assets Fund and
Capital Cash U.S. Government Securities Trust (which invest in
U.S. Government 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.
Conversion of Class C Shares
Conversion of Class C Shares into Class A Shares 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 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.
"Transfer on Death" Registration (Not Available for Class I
Shares)
Each of the funds in the Aquilasm Group of Funds now permits
registration of its shares in beneficiary form, subject to the
funds' rules governing Transfer on Death ("TOD") registration, if
the investor resides in a state that has adopted the Uniform
Transfer on Death Security Registration Act (a "TOD State"; for
these purposes, Missouri is deemed to be a TOD State). This form
of registration allows you to provide that, on your death, your
shares are to be transferred to the one or more persons (to a
maximum of three) that you specify as beneficiaries. To register
shares of the Fund in TOD form, complete the special TOD
Registration Request Form and review the Rules Governing TOD
Registration; both are available from the Agent. The Rules, which
are subject to amendment upon 60 days' notice to TOD account
owners, contain important information regarding TOD accounts with
the Fund; by opening such an account you agree to be bound by
them, and failure to comply with them may result in your shares'
not being transferred to your designated beneficiaries. If you
open a TOD account with the Fund that is otherwise acceptable
but, for whatever reason, neither the Fund nor the Agent receives
a properly completed TOD Registration Request Form from you prior
to your death, the Fund reserves the right not to honor your TOD
designation, in which case your account will become part of your
estate.
You are eligible for TOD registration only if, and as long
as, you reside in a TOD State. If you open a TOD account and your
account address indicates that you do not reside in a TOD State,
your TOD registration will be ineffective and the Fund may, in
its discretion, either open the account as a regular (non-TOD)
account or redeem your shares. Such a redemption may result in a
loss to you and may have tax consequences. Similarly, if you open
a TOD account while residing in a TOD State and later move to a
non-TOD State, your TOD registration will no longer be effective.
In both cases, should you die while residing in a non-TOD State
the Fund reserves the right not to honor your TOD designation. At
the date of this SAI, most states are TOD States.
Computation of Net Asset Value
The net asset value of the shares of each of the Fund's
classes 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 its 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. 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, the 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.
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.
ADDITIONAL TAX INFORMATION
Certain Exchanges
If you incur a sales commission on a purchase of shares of
one mutual fund (the original fund) and then sell such shares 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.
Tax Status of the Fund
During its last fiscal year, the Fund qualified as a
"regulated investment company" under the Code and intends to
continue such qualification. A regulated investment company is
not liable for federal income taxes on amounts paid by it as
dividends and distributions.
The Code, however, contains a number of complex qualifying
tests. Therefore, it is possible, although not likely, that the
Fund might not meet one or more of these tests in any particular
year. If the Fund fails to qualify, it would be treated for tax
purposes as an ordinary corporation. As a consequence, it would
receive no tax deduction for payments made to shareholders and
would be unable to pay dividends and distributions which would
qualify as "exempt-interest dividends" or "capital gains
dividends."
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. For redemptions made after January
1, 1998, your gain or loss will be long-term if you held the
redeemed shares for over one year and short-term if for a year or
less. Long-term capital gains are currently taxed at a maximum
rate of 20% 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
When Class C Shares automatically convert to Class A Shares,
approximately six years after purchase, you will recognize no
gain or loss. Your adjusted tax basis in the Class A Shares you
receive upon conversion will equal your adjusted tax basis in the
Class C Shares you held immediately before conversion. Your
holding period for the Class A Shares you receive will include
the period you held the converted Class C Shares.
UNDERWRITERS
Aquila Distributors, Inc. acts as the Fund's principal
underwriter in the continuous public offering of all of the
Fund's classes of shares. The Distributor is not obligated to
sell a specific number of shares. 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.
(1) (2) (3) (4) (5)
Name of Net Under- Compensation Brokerage Other
Principal writing on Redemptions Commissions Compen-
Underwriter Discounts and sation
and Repurchases
Commissions
Aquila $156,496 None None None(1)
Distributors
Inc.
(1) Amounts paid to the Distributor under the Fund's Distribution
Plan described in the Prospectus are for compensation.
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.
Each of these and other methods that may be used by the Fund are
described in the following material. Prior to April 6, 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. Class I Shares were first offered on January 31, 1998
and none were outstanding during the periods indicated.
Average Annual Compounded Rates of Return:
Class A Class C Class I Class Y
Shares Shares Shares Shares
One Year -2.36 -0.24 -0.75%* 1.79%
Five Years 5.95% N/A N/A N/A
Since
inception on
September 10, 5.51% 4.87%(1) -0.75%(2) 6.14%(1)
1992
(1) Period from May 1, 1996 (inception of class) through June 30,
1999.
(2) Period from November 4, 1998 (inception of class) through
June 30, 1999.
* Not Annualized
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-, 5- and
10-year periods 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 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
Class A Class C Class I Class Y
Shares Shares Shares Shares
One Year -2.36 -0.24 -0.75%* 1.79%
Five Years 33.50% N/A N/A N/A
Since
inception on
September 10, 44.08% 15.79%(1) 20.76%(1) 0.75%(2)
1992
(1) Period from May 1, 1996 (inception of class) through June 30,
1999.
(2) Period from November 4, 1998 (inception of class) through
June 30, 1999.
* Not Annualized
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 classes of shares 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 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 9.0% and 46.12%, respectively. 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, 1999 (the date of the
Fund's most recent audited financial statements):
Class A Class C Class I Class Y
Shares Shares Shares Shares
Yield 4.42% 3.75% 4.62%* 4.76%
Taxable
Equivalent
Yield 8.13% 6.90% 8.50% 8.76%
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.
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.
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>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
PART C: OTHER INFORMATION
(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, 1999
Statement of Assets and Liabilities as of
June 30, 1999
Statement of Operations for the period ended
June 30, 1999
Statement of Changes in Net Assets for the
periods ended June 30, 1999 and 1998
Notes to Financial Statements
Included in Part C:
Consent of Independent Auditors
(b) Exhibits:
(a) Supplemental Declaration of Trust Amending and
Restating the Declaration of Trust (i)
(b) By-laws (v)
(c) Instruments defining rights of shareholders
The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares 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 as provided in rules and
regulations of the Securities and Exchange Commission
or by exemptive order. 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"). 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, except that Class C Shares automatically
convert to Class A Shares after being held for six
years.
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.
(d) (ii) Investment Advisory and Administration
Agreement (iii)
(d) (ii) Sub-Advisory Agreement (iii)
(e) (i) Distribution Agreement (v)
(e) (ii) Sales Agreement for Brokerage Firms (iii)
(e) (iii) Sales Agreement for Financial
Institutions (iii)
(e) (iv) Sales Agreement for Investment
Advisers (iii)
(e) (v) Shareholder Services Agreement (i)
(f) Not applicable
(g) Custody Agreement (iii)
(h) (a) Transfer Agency Agreement (iv)
(i) Opinion of Fund counsel (iii)
(i) (ii) Consent of Fund Counsel (v)
(j) Consent of Sub-Adviser's counsel (v)
(k) Not applicable
(l) Not Applicable
(m) (i) Distribution Plan (iii)
(m) (ii) Shareholder Services Plan (iii)
(n) 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 incorporated
herein by reference.
(ii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 6 dated October 29, 1996 and incorporated
herein by reference.
(iii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 7 dated October 29, 1997 and incorporated
herein by reference.
(iv) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 8 dated October 28, 1998 and incorporated
herein by reference.
(v) Filed herewith.
ITEM 24. Persons Controlled By Or Under Common Control With
Registrant
None
ITEM 25. 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, unenforceable.
In the event that a claim for indemnification 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 26. Business & Other Connections of Investment Adviser
The business and other connections of Aquila Management
Corporation, the Fund's Investment Adviser and
Administrator is set forth in the prospectus (Part A);
the business and other connections of Mr. Lacy B.
Herrmann, its controlling shareholder are set forth in
the Statement of Additional Information (Part B). For
information as to the business, profession, vocation,
or employment of a substantial nature of its Directors
and officers, reference is made to the Form ADV filed
by it under the Investment Advisers Act of 1940.
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 Sub-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 corporation based in Atlanta with
offices in the southeastern United States. Through
the Sub-Adviser and other subsidiaries, CFG provides
financial services to individuals, businesses, and
governmental units. CFG's headquarters are at One
Citizens Plaza, Providence, Rhode Island 02903.
For information as to the business, profession,
vocation, or employment of a substantial nature of
the directors and officers of Citizens Trust
Company, reference is made to the Form ADV filed
by it under the Investment Advisers Act of 1940.
ITEM 27. 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 28. 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 29. Management Services
Not applicable.
ITEM 30. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(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
Registrant 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
separate 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
issued by the Commission, such order or orders shall
be deemed part of said Section 16(c) for the purpose
of this undertaking.
<PAGE>
Independent Auditors' Consent
To the Board of Trustees and Shareholders of
Narragansett Insured Tax-Free Income Fund:
We consent to the use of our report dated July 27, 1999
incorporated herein by reference and to the references to our
firm under the headings "Financial Highlights" in the Prospectus
and "Financial Statements" and "Transfer Agent, Custodian and
Auditors" in the Statement of Additional Information.
New York, New York KPMG LLP
October 26, 1999 /s/KPMG LLP
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Registrant
certifies that it meets all the requirements for effectiveness of
this Amendment to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, and has caused this
Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of New York and State of New York, on the 28th day of October
1999.
NARRAGANSETT INSURED TAX-FREE
INCOME FUND
(Registrant)
/s/Lacy B. Herrmann
By____________________________
Lacy B. Herrmann, 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 10/28/99
______________________ Chairman of ___________
Lacy B. Herrmann the Board and Trustee
(Principal Executive
Officer)
/s/Vernon R. Alden 10/28/99
______________________ Trustee ___________
Vernon R. Alden
/s/Paul Y. Clinton 10/28/99
______________________ Trustee ___________
Paul Y. Clinton
/s/David A. Duffy 10/28/99
______________________ Trustee ___________
David A. Duffy
/s/William J. Nightingale 10/28/99
______________________ Trustee ___________
William J. Nightingale
/s/J. William Weeks 10/28/99
______________________ Trustee ___________
J. William Weeks
/s/Rose F. Marotta 10/28/99
______________________ Chief Financial Officer ___________
Rose F. Marotta (Principal Financial and
Accounting Officer)
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
EXHIBIT INDEX
Number Name of Exhibit
(b) By-laws
(e) (i) Distribution Agreement
(i) (ii) Consent of Fund Counsel
(j) Consent of Sub-Adviser's Counsel
Correspondence
Dated: November 13, 1998
NARRAGANSETT INSURED TAX-FREE INCOME FUND
BY-LAWS
ARTICLE I
SHAREHOLDERS
Section 1. Place of Meeting. All meetings of the
Shareholders (which term as used herein shall, together with all
other terms defined in the Declaration of Trust, have the same
meaning as in the Declaration of Trust) shall be held at the
principal office of the Fund or at such other place as may from
time to time be designated by the Board of Trustees and stated in
the notice of meeting.
Section 1A. Shareholder Voting. At any meeting of
Shareholders, Shareholders are entitled to one (1) vote for each
dollar of net asset value (determined as of the record date for
the meeting) per Share held (and fractional votes for fractional
dollar amounts.)
Section 2. Annual Meeting. The annual meeting of the
Shareholders of the Fund shall be held on such date and at such
time as may be determined by the Board of Trustees and as shall
be designated in the notice of meeting for the purpose of
electing Trustees until the next annual meeting and for the
transaction of such other business as may properly be brought
before the meeting.
Section 3. Special or Extraordinary Meetings. Special or
extraordinary meetings of Shareholders for any purpose or
purposes may be called by the Chairman of the Board of Trustees,
if any, or by the President or by the Board of Trustees and shall
be called by the Secretary upon receipt of the request in writing
signed by holders of Shares representing not less than one third
of the votes eligible to be cast thereat. Such request shall
state the purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings of Shareholders. Not less
than ten days' and not more than ninety days' written or printed
notice of every meeting of Shareholders, stating the time and
place thereof (and the general nature of the business proposed to
be transacted at any special or extraordinary meeting), shall be
given to each Shareholder entitled to vote thereat by leaving the
same with him or at his residence or usual place of business or
by mailing it, postage prepaid and addressed to him at his
address as it appears upon the books of the Fund.
No notice of the time, place or purpose of any meeting of
Shareholders need be given to any Shareholder who attends in
person or by proxy or to any Shareholder who, in writing executed
and filed with the records of the meeting, either before or after
the holding thereof, waives such notice.
Section 5. Record Dates. The Board of Trustees may fix, in
advance, a date, not exceeding ninety days and not less than ten
days preceding the date of any meeting of Shareholders, and not
exceeding ninety days preceding any dividend payment date or any
date for the allotment of rights, as a record date for the
determination of the Shareholders entitled to receive such
dividends or rights, as the case may be; and only Shareholders of
record on such date shall be entitled to notice of and to vote at
such meeting or to receive such dividends or rights, as the case
may be.
Section 6. Quorum, Adjournment of Meetings. The presence
in person or by proxy of the holders of record of outstanding
Shares of the Fund representing at least one-third of the votes
eligible to be cast thereat shall constitute a quorum at all
meetings of Shareholders. If at any meeting of the Shareholders
there shall be less than a quorum present, the Shareholders
present at such meeting may, without further notice, adjourn the
same from time to time until a quorum shall attend, but no
business shall be transacted at any such adjourned meeting except
such as might have been lawfully transacted had the meeting not
been adjourned.
Section 7. Voting and Inspectors. At all meetings of
Shareholders every Shareholder of record entitled to vote thereat
shall be entitled to vote at such meeting either in person or by
proxy appointed by such Shareholder or his duly authorized
attorney-in-fact.
All elections of Trustees shall be had by a plurality of the
votes cast and all questions shall be decided by a majority of
the votes cast, in each case at a duly constituted meeting,
except as otherwise provided in the Declaration of Trust or in
these By-Laws or by specific statutory provision superseding the
restrictions and limitations contained in the Declaration of
Trust or in these By-Laws.
At any election of Trustees, the Board of Trustees prior
thereto may, or, if they have not so acted, the Chairman of the
meeting may, and upon the request of the holders of the
outstanding Shares of the Fund representing 10% of its net asset
value entitled to vote at such election shall, appoint two
inspectors of election who shall first subscribe an oath or
affirmation to execute faithfully the duties of inspectors at
such election with strict impartiality and according to the best
of their ability, and shall after the election make a certificate
of the result of the vote taken. No candidate for the office of
Trustee shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be
taken upon any election or matter, and such vote shall be taken
upon the request of the holders of the outstanding Shares of the
Fund representing 10% of its net asset value entitled to vote on
such election or matter.
Section 8. Conduct of Shareholders' Meetings. The meetings
of the Shareholders shall be presided over by the Chairman of the
Board of Trustees, if any, or if he shall not be present, by the
President, or if he shall not be present, by a Vice-President, or
if neither the Chairman of the Board of Trustees, the President
nor any Vice-President is present, by a chairman to be elected at
the meeting. A person who relinguishes the Chair shall not be
considered present for purposes of this Section until such time
as he or she resumes the Chair. The Secretary of the Fund, if
present, shall act as Secretary of such meetings, or if he is not
present, an Assistant Secretary shall so act; if neither the
Secretary nor an Assistant Secretary is present, then the meeting
shall elect its secretary.
Section 9. Concerning Validity of Proxies, Ballots, Etc.
At every meeting of the Shareholders, all proxies shall be
received and taken in charge of and all ballots shall be received
and canvassed by the secretary of the meeting, who shall decide
all questions touching the qualification of voters, the validity
of the proxies, and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed as provided in
Section 7, in which event such inspectors of election shall
decide all such questions.
ARTICLE II
BOARD OF TRUSTEES
Section 1. Number and Tenure of Office. The business and
property of the Fund shall be conducted and managed by a Board of
Trustees consisting of the number of initial Trustees, which
number may be increased or decreased as provided in Section 2 of
this Article. Each Trustee shall, except as otherwise provided
herein, hold office until the annual meeting of Shareholders of
the Fund next succeeding his election or until his successor is
duly elected and qualifies. Trustees need not be Shareholders.
Section 2. Increase or Decrease in Number of Trustees;
Removal. The Board of Trustees, by the vote of a majority of the
entire Board, may increase the number of Trustees to a number not
exceeding fifteen, and may elect Trustees to fill the vacancies
created by any such increase in the number of Trustees until the
next annual meeting or until their successors are duly elected
and qualify; the Board of Trustees, by the vote of a majority of
the entire Board, may likewise decrease the number of Trustees to
a number not less than two but the tenure of office of any
Trustee shall not be affected by any such decrease. Vacancies
occurring other than by reason of any such increase shall be
filled as provided for a Massachusetts business corporation. In
the event that after proxy material has been printed for a
meeting of Shareholders at which Trustees are to be elected any
one or more management nominees dies or becomes incapacitated,
the authorized number of Trustees shall be automatically reduced
by the number of such nominees, unless the Board of Trustees
prior to the meeting shall otherwise determine. Any Trustee at
any time may be removed either with or without cause by
resolution duly adopted by the affirmative votes of the holders
of the majority of the Shares of the Fund present in person or by
proxy at any meeting of Shareholders at which such vote may be
taken, provided that a quorum is present, or by such larger vote
as may be required by Massachusetts law. Any Trustee at any time
may be removed for cause by resolution duly adopted at any
meeting of the Board of Trustees provided that notice thereof is
contained in the notice of such meeting and that such resolution
is adopted by the vote of at least two thirds of the Trustees
whose removal is not proposed. As used herein, "for cause" shall
mean any cause which under Massachusetts law would permit the
removal of a Trustee of a business trust.
Section 3. Place of Meeting. The Trustees may hold their
meetings, have one or more offices, and keep the books of the
Fund outside Massachusetts, at any office or offices of the Fund
or at any other place as they may from time to time by resolution
determine, or, in the case of meetings, as they may from time to
time by resolution determine or as shall be specified or fixed
in the respective notices or waivers of notice thereof.
Section 4. Regular Meetings. Regular meetings of the Board
of Trustees shall be held at such time and on such notice, if
any, as the Trustees may from time to time determine.
The annual meeting of the Board of Trustees shall be held as
soon as practicable after the annual meeting of the Shareholders
for the election of Trustees.
Section 5. Special Meetings. Special meetings of the Board
of Trustees may be held from time to time upon call of the
Chairman of the Board of Trustees, if any, the President or two
or more of the Trustees, by oral or telegraphic or written notice
duly served on or sent or mailed to each Trustee not less than
one day before such meeting. No notice need be given to any
Trustee who attends in person or to any Trustee who, in writing
executed and filed with the records of the meeting either before
or after the holding thereof, waives such notice. Such notice or
waiver of notice need not state the purpose or purposes of such
meeting.
Section 6. Quorum. One-third of the Trustees then in
office shall constitute a quorum for the transaction of business,
provided that a quorum shall in no case be less than two
Trustees. If at any meeting of the Board there shall be less
than a quorum present (in person or by open telephone line, to
the extent permitted by the 1940 Act), a majority of those
present may adjourn the meeting from time to time until a quorum
shall have been obtained. The act of the majority of the
Trustees present at any meeting at which there is a quorum shall
be the act of the Board, except as may be otherwise specifically
provided by statute, by the Declaration of Trust or by these By-
Laws.
Section 7. Executive Committee. The Board of Trustees may,
by the affirmative vote of a majority of the entire Board, elect
from the Trustees an Executive Committee to consist of such
number of Trustees as the Board may from time to time determine.
The Board of Trustees by such affirmative vote shall have power
at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Trustees. When
the Board of Trustees is not in session, the Executive Committee
shall have and may exercise any or all of the powers of the Board
of Trustees in the management of the business and affairs of the
Fund (including the power to authorize the seal of the Fund to be
affixed to all papers which may require it) except as provided by
law and except the power to increase or decrease the size of, or
fill vacancies on the Board. The Executive Committee may fix its
own rules of procedure, and may meet, when and as provided by
such rules or by resolution of the Board of Trustees, but in
every case the presence of a majority shall be necessary to
constitute a quorum. In the absence of any member of the
Executive Committee the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a member of
the Board of Trustees to act in the place of such absent member.
Section 8. Other Committees. The Board of Trustees, by the
affirmative vote of a majority of the entire Board, may appoint
other committees which shall in each case consist of such number
of members (not less than two) and shall have and may exercise
such powers as the Board may determine in the resolution
appointing them. A majority of all members of any such committee
may determine its action, and fix the time and place of its
meetings, unless the Board of Trustees shall otherwise provide.
The Board of Trustees shall have power at any time to change the
members and powers of any such committee, to fill vacancies, and
to discharge any such committee.
Section 9. Informal Action by and Telephone Meetings of
Trustees and Committees. Any action required or permitted to be
taken at any meeting of the Board of Trustees or any committee
thereof may be taken without a meeting, if a written consent to
such action is signed by all members of the Board, or of such
committee, as the case may be. Trustees or members of a
committee of the Board of Trustees may participate in a meeting
by means of a conference telephone or similar communications
equipment; such participation shall, except as otherwise required
by the 1940 Act, have the same effect as presence in person.
Section 10. Compensation of Trustees. Trustees shall be
entitled to receive such compensation from the Fund for their
services as may from time to time be voted by the Board of
Trustees.
Section 11. Dividends. Dividends or distributions payable
on the Shares may, but need not be, declared by specific
resolution of the Board as to each dividend or distribution; in
lieu of such specific resolutions, the Board may, by general
resolution, determine the method of computation thereof, the
method of determining the Shareholders to which they are payable
and the methods of determining whether and to which Shareholders
they are to be paid in cash or in additional Shares.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of
the Fund shall be chosen by the Board of Trustees as soon as may
be practicable after the annual meeting of the Shareholders.
These may include a Chairman of the Board of Trustees, and shall
include a President, one or more Vice-Presidents (the number
thereof to be determined by the Board of Trustees), a Secretary
and a Treasurer. The Chairman of the Board of Trustees, if any,
and the President may, but need not be, selected from among the
Trustees. The Board of Trustees may also in its discretion
appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and
perform such duties as the Board or the Executive Committee may
determine. The Board of Trustees may fill any vacancy which may
occur in any office. Any two offices, except those of President
and Vice-President, may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law or
these By-Laws to be executed, acknowledged or verified by two or
more officers.
Section 2. Term of Office. The term of office of all
officers shall be one year and until their respective successors
are chosen and qualify; however, any officer may be removed from
office at any time with or without cause by the vote of a
majority of the entire Board of Trustees.
Section 3. Powers and Duties. The officers of the Fund
shall have such powers and duties as generally pertain to their
respective offices, as well as such powers and duties as may from
time to time be conferred by the Board of Trustees or the
Executive Committee.
ARTICLE IV
SHARES
Section 1. Certificates of Shares. Each Shareholder of the
Fund may be issued a certificate or certificates for his Shares
in such form as the Board of Trustees may from time to time
prescribe, but only if and to the extent and on the conditions
prescribed by the Board.
Section 2. Transfer of Shares. Shares shall be
transferable on the books of the Fund by the holder thereof in
person or by his duly authorized attorney or legal
representative, upon surrender and cancellation of certificates,
if any, for the same number of Shares, duly endorsed or
accompanied by proper instruments of assignment and transfer,
with such proof of the authenticity of the signature as the Fund
or its agent may reasonably require; in the case of Shares not
represented by certificates, the same or similar requirements may
be imposed by the Board of Trustees.
Section 3. Stock Ledgers. The stock ledgers of the Fund,
containing the name and address of the Shareholders and the
number of Shares held by them respectively, shall be kept at the
principal offices of the Fund or, if the Fund employs a transfer
agent, at the offices of the transfer agent of the Fund.
Section 4. Lost, Stolen or Destroyed Certificates. The
Board of Trustees may determine the conditions upon which a new
certificate may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their
discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety to the Fund
and the transfer agent, if any, to indemnify it and such transfer
agent against any and all loss or claims which may arise by
reason of the issue of a new certificate in the place of the one
so lost, stolen or destroyed.
ARTICLE V
SEAL
The Board of Trustees shall provide a suitable seal of the
Fund, in such form and bearing such inscriptions as it may
determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Fund shall be fixed by the Board of
Trustees.
ARTICLE VII
AMENDMENT OF BY-LAWS
The By-Laws of the Fund may be altered, amended, added to or
repealed by the Shareholders or by majority vote of the entire
Board of Trustees, but any such alteration, amendment, addition
or repeal of the By-Laws by action of the Board of Trustees may
be altered or repealed by the Shareholders.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
DISTRIBUTION AGREEMENT
AGREEMENT, made as of this 28th day of May, 1999 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:
WHEREAS, the Fund and the Distributor have previously
entered into the Distribution Agreement dated as of February 10,
1999;
WHEREAS, on March 6, 1999 the Board of Trustees of the Fund
approved a new Distribution Agreement, to go into effect upon
anticipated changes in ownership of the Distributor; and
WHEREAS, the transfer of shares of the Distributor effecting
such changes in ownership occurred as of the date hereof; and
WHEREAS, contemporaneously therewith pursuant to an
instrument executed and delivered between the parties, a new
Distribution Agreement went into effect, identical in its
provisions to the Distribution Agreement in effect immediately
prior thereto, except for the date of its effectiveness; and
WHEREAS, this Agreement is a document explicitly containing
all of the provisions of the new Distribution Agreement,
representing in explicit form the new Distribution Agreement
created thereby;
NOW, THEREFORE, 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 a
between the parties hereto as follows:
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 Trust/Fund's shares and the identity
of any broker or dealer with which such agreements are entered
into. The Trust/Fund agrees that it will promptly amend or
supplement the Current Prospectus in connection with any change
in any of the foregoing. 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
next June 30, 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 Fund
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.
ATTEST:
_______________________ By:______________________________
ATTEST: AQUILA DISTRIBUTORS, INC.
_______________________ By:______________________________
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
551 Fifth Avenue
New York, NY 10176
Tel: (212) 818-1110
FAX: (212) 818-0494
October 28, 1999
To the Trustees of Narragansett Insured Tax-Free Income Fund
We consent to the incorporation by reference into post-
effective amendment No. 10 under the 1933 Act and No. 12 under
the 1940 Act of our opinion dated October 29, 1997.
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
/s/ W.L.D. Barrett
by__________________________
Partner
<PAGE>
Consent
We consent to the reference to our firm under the caption
"What should I know about Rhode Island taxes" in the Registration
Statement and the related Prospectus of Narragansett Insured Tax-
Free Income Fund.
Short Hills, New Jersey /s/Edwards & Angell, LLP
October 28, 1999
