<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
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC INC.
400 Bellevue Parkway
Wilmington, Delaware 19809
INDEPENDENT AUDITORS
KPMG LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus, which must
precede or
accompany this report.
SEMI-ANNUAL
REPORT
DECEMBER 31, 1998
A TAX-FREE INCOME INVESTMENT
(Logo of Narragansett Insured Tax-Free Income Fund: rectangle with
profile view of a sailboat on top of waves and three flying
seagulls above it)
(Logo of Aquila Group of Funds: an eagle's head)
ONE OF THE
AQUILAsm GROUP OF FUNDS
</PAGE>
<PAGE>
(Logo of Narragansett Insured Tax-Free Income Fund: a rectangle
with profile view of a sailboat on top of waves and three flying
seagulls above it)
NARRAGANSETT INSURED TAX-FREE INCOME FUND
SEMI-ANNUAL REPORT
"THE BEST THINGS IN LIFE CAN BE TAX-FREE"
February 17, 1999
Dear Fellow Shareholder:
When you compare TAX-FREE municipal bonds with similar
maturity high quality taxable U.S. Treasuries, we think it is fair
to say, "THE BEST THINGS IN LIFE CAN BE TAX-FREE."
You may well come out way ahead owning a TAX-FREE bond, since
recently the ratio of return on TAXABLE U.S. Treasuries versus
TAX-FREE municipals has been running ahead of what has normally
been the case.
What this means to you in dollars and cents is that when you
take into consideration the effect of taxes you pay with a TAXABLE
bond, you actually get to keep more of your return with the
TAX-FREE investment.
Let us show you the mathematics of how this works out. Let's
suppose you purchase a $1,000 15-year U.S. Treasury bond yielding
5% and a $1,000 tax-free municipal bond with a maturity of 15 years
yielding 4.4%. Your investments would look as follows*:
U.S. TREASURY TAX-FREE
Interest Income $50.00 $44.00
Federal Tax Bracket 28% 28%
Federal Tax Paid $14.00 $-0-
Net Income Retained $36.00 $44.00
Even though on the surface the U.S. Treasury appears to be
yielding higher than the TAX-FREE municipal, once the effect of
Federal taxes is taken into consideration, the TAX-FREE investment
allows you to keep more money in your pocket. State taxes are not
applicable to either investment.
Obviously, investors in higher income tax brackets will obtain
an even greater advantage.
Given the desirability of making sure you have the right asset
allocation with your investment money, the fact that there is an
increased supply of high quality municipal bonds and a rising ratio
of taxable vs. tax-free bonds, we believe it is fair to say that,
"THE BEST THINGS IN LIFE CAN BE TAX-FREE"
This is particularly true considering the high quality of the
bonds in Narragansett Insured Tax-Free Income Fund and the
intermediate maturity of the overall portfolio of the Fund. Both
these factors lend themselves to the kind of investment that allows
you to "sleep well at night."
</PAGE>
<PAGE>
You can be assured that all those associated with the
management of your investment in Narragansett Insured Tax-Free
Income Fund are consistently working in your best interest. We very
much value you as a shareholder and appreciate the confidence you
have shown in the Fund.
Sincerely,
Lacy B. Herrmann
Chairman, Board of Trustees
* The examples given, while realistic, are for illustrative
purposes only, are strictly hypothetical in nature and do not
represent the performance of any particular investment. For
simplicity, a stable net asset value has been assumed over the life
of each investment and the effect of dividend reinvestment was not
taken into account. Of course, the actual rate of return and share
price of a municipal bond fund, such as Narragansett Insured
Tax-Free Income Fund, will fluctuate with general interest rate
changes. Thus, redemption price may be more or less than original
purchase price.
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS
DECEMBER 31, 1998 (UNAUDITED)
RATING
FACE MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (43.9%) S&P VALUE
</CAPTION>
<S> <C> <C> <C>
Town of Bristol, Rhode Island, MBIA Insured
$ 1,000,000 5.100%, 08/15/07 Aaa/AAA $ 1,045,000
100,000 6.000%, 12/15/11 Aaa/AAA 107,000
100,000 6.000%, 12/15/12 Aaa/AAA 107,000
Town of Burrillville, Rhode Island, AMBAC Insured
405,000 5.300%, 07/15/08 Aaa/AAA 426,769
Town of Burrillville, Rhode Island, MBIA Insured
250,000 5.400%, 10/15/06 Aaa/AAA 265,312
250,000 5.500%, 10/15/07 Aaa/AAA 265,938
150,000 5.700%, 10/15/10 Aaa/AAA 160,312
Central Falls, Rhode Island, MBIA Insured
500,000 4.900%, 11/15/05 Aaa/AAA 523,750
500,000 5.200%, 11/15/09 Aaa/AAA 523,125
Cranston, Rhode Island, MBIA Insured
1,120,000 5.300%, 07/15/05 Aaa/AAA 1,176,000
300,000 5.500%, 06/15/07 Aaa/AAA 327,000
Town of Cumberland, Rhode Island, MBIA Insured
345,000 5.500%, 09/01/06 Aaa/AAA 374,756
500,000 5.600%, 10/01/08 Aaa/AAA 528,750
500,000 5.000%, 08/01/15 Aaa/AAA 503,750
Town of Lincoln, Rhode Island, MBIA Insured
400,000 5.100%, 01/15/06 Aaa/AAA 423,000
400,000 5.200%, 08/15/06 Aaa/AAA 421,000
850,000 5.500%, 08/15/10 Aaa/AAA 898,875
100,000 5.625%, 04/15/11 Aaa/AAA 104,750
Town of Lincoln, Rhode Island, FGIC Insured
250,000 5.750%, 08/01/15 Aaa/AAA 270,000
Narragansett, Rhode Island, MBIA Insured
300,000 5.100%, 09/15/06 Aaa/AAA 315,000
1,000,000 5.300%, 09/15/08 Aaa/AAA 1,056,250
Newport, Rhode Island, MBIA Insured
150,000 6.550%, 08/15/07 Aaa/AAA 162,937
Newport, Rhode Island, Series B, FGIC Insured
250,000 4.900%, 05/15/06 Aaa/AAA 261,875
500,000 5.000%, 05/15/07 Aaa/AAA 525,625
500,000 5.100%, 05/15/08 Aaa/AAA 526,875
</PAGE>
<PAGE>
Pawtucket, Rhode Island, MBIA Insured
100,000 6.650%, 09/15/06 Aaa/AAA 109,375
600,000 4.300%, 09/15/09 Aaa/AAA 593,250
250,000 4.400%, 09/15/10 Aaa/AAA 248,750
Pawtucket, Rhode Island, FGIC Insured
310,000 5.625%, 04/15/07 Aaa/AAA 332,862
500,000 5.750%, 04/15/09 Aaa/AAA 539,375
Providence, Rhode Island, MBIA Insured
25,000 6.600%, 01/15/01 Aaa/AAA 26,295
100,000 5.500%, 01/15/04 Aaa/AAA 106,125
100,000 5.900%, 01/15/09 Aaa/AAA 106,875
200,000 5.250%, 01/15/12 Aaa/AAA 208,250
Providence, Rhode Island, FSA Insured
700,000 5.500%, 01/15/11 Aaa/AAA 749,875
Providence, Rhode Island, Series A, MBIA Insured
100,000 5.400%, 08/01/01 Aaa/AAA 104,375
Providence, Rhode Island, 1992 Series A, MBIA
Insured
90,000 5.700%, 08/01/04 Aaa/AAA 95,512
East Providence, Rhode Island, MBIA Insured
500,000 5.400%, 05/15/07 Aaa/AAA 541,875
Commonwealth of Puerto Rico, MBIA Insured
85,000 5.900%, 07/01/06 Aaa/AAA 92,544
100,000 5.750%, 07/01/09 Aaa/AAA 107,125
100,000 6.000%, 07/01/14 Aaa/AAA 107,375
500,000 5.875%, 07/01/18 Aaa/AAA 542,500
Commonwealth of Puerto Rico, FSA Insured
50,000 6.000%, 07/01/14 Aaa/AAA 53,687
Commonwealth of Puerto Rico, AMBAC Insured
500,000 5.850%, 07/01/15 Aaa/AAA 542,500
State of Rhode Island Refunding, Series A, FGIC
Insured
50,000 6.000%, 06/15/02 Aaa/AAA 53,687
State of Rhode Island Refunding, Series A, FGIC
Insured
</PAGE
<PAGE>
1,500,000 5.000%, 09/01/15 Aaa/AAA 1,516,875
Rhode Island Consolidated Capital Development
Loan, 1991 Series B, AMBAC Insured
300,000 6.250%, 05/15/07 Aaa/AAA 315,375
Rhode Island Consolidated Capital Development
Loan, 1991 Series B, MBIA Insured
380,000 6.250%, 05/15/09 Aaa/AAA 401,850
100,000 6.250%, 05/15/10 Aaa/AAA 105,750
Rhode Island Consolidated Capital Development
Loan, 1992 Series A, FGIC Insured
1,050,000 5.500%, 08/01/07 Aaa/AAA 1,105,125
25,000 5.500%, 08/01/08 Aaa/AAA 26,219
1,000,000 Rhode Island Consolidated Capital Development
Loan, 1993 Series A, AMBAC Insured
4.800%, 06/15/02 Aaa/AAA 1,035,000
1,000,000 Rhode Island Consolidated Capital Development
Loan, 1993 Series A, FGIC Insured
5.100%, 11/01/13 Aaa/AAA 1,030,000
Town of Scituate, Rhode Island, MBIA Insured
375,000 5.500%, 04/01/09 Aaa/AAA 399,375
South Kingstown, Rhode Island, MBIA Insured
390,000 5.000%, 03/15/08 Aaa/AAA 407,550
125,000 5.125%, 06/01/08 Aaa/AAA 130,469
390,000 5.050%, 03/15/09 Aaa/AAA 406,575
170,000 5.200%, 06/01/09 Aaa/AAA 178,075
170,000 5.250%, 06/01/10 Aaa/AAA 177,862
100,000 6.300%, 12/15/11 Aaa/AAA 109,125
South Kingstown, Rhode Island, AMBAC Insured
400,000 4.900%, 11/15/07 Aaa/AAA 417,000
Warwick, Rhode Island, MBIA Insured
150,000 6.100%, 11/15/01 Aaa/AAA 160,125
Warwick, Rhode Island, FGIC Insured
50,000 7.000%, 11/15/02 Aaa/AAA 52,632
</PAGE>
<PAGE>
Warwick, Rhode Island, FSA Insured
195,000 5.600%, 08/01/14 Aaa/AAA 209,381
1,000,000 5.000%, 03/01/18 Aaa/AAA 996,250
West Warwick, Rhode Island, MBIA Insured
500,000 5.800%, 01/01/04 Aaa/AAA 535,000
500,000 5.900%, 01/01/05 Aaa/AAA 535,000
Woonsocket, Rhode Island, MBIA Insured
385,000 5.125%, 03/01/11 Aaa/AAA 399,437
655,000 4.450%, 12/15/12 Aaa/AAA 650,906
685,000 4.550%, 12/15/13 Aaa/AAA 680,719
Total General Obligation Bonds 28,544,536
REVENUE BONDS (54.2%)
HIGHER EDUCATION REVENUE BONDS (15.5%)
25,000 Rhode Island Health & Education Building Corp.,
Higher Education, Various Purpose 1990 Series B,
FSA Insured
7.250%, 09/15/06 Aaa/AAA 26,201
100,000 Rhode Island Health & Education Building Corp.,
Bryant College, MBIA Insured
6.300%, 06/01/03 Aaa/AAA 109,250
Rhode Island Health & Education Building Corp.,
Bryant College, 1992 2nd Series, MBIA Insured
50,000 5.550%, 06/01/03 Aaa/AAA 53,375
100,000 5.800%, 06/01/05 Aaa/AAA 107,875
Rhode Island Health & Education Building Corp.,
Johnson & Wales University, 1993 Series A,
AMBAC Insured
100,000 5.200%, 04/01/04 NR/AAA 105,375
500,000 5.250%, 04/01/16 NR/AAA 506,875
1,000,000 5.000%, 09/01/23 NR/AAA 976,250
Rhode Island Health & Education Building Corp.,
Johnson & Wales University, 1992 Series A,
AMBAC Insured
200,000 5.875%, 04/01/05 NR/AAA 216,750
150,000 5.750%, 04/01/12 NR/AAA 160,687
150,000 6.375%, 04/01/12 NR/AAA 166,313
</PAGE>
<PAGE>
Rhode Island Health & Education Building Corp.,
Providence College, 1993 Series, MBIA Insured
300,000 5.600%, 11/01/09 Aaa/AAA 321,375
300,000 5.600%, 11/01/10 Aaa/AAA 319,125
500,000 5.600%, 11/01/22 Aaa/AAA 518,125
Rhode Island Health & Education Building Corp.,
Rhode Island School of Design, 1992 Series,
MBIA Insured
200,000 5.800%, 06/01/05 Aaa/AAA 216,500
Rhode Island Health & Education Building Corp.,
Brown University, 1993 Series, MBIA Insured
500,000 5.400%, 09/01/18 Aaa/AAA 505,625
500,000 5.375%, 09/01/23 Aaa/AAA 505,000
Rhode Island Health & Education Building Corp.,
Roger Williams University, 1996 Series S,
AMBAC Insured
1,000,000 5.500%, 11/15/11 NR/AAA 1,075,000
Rhode Island Health & Education Building Corp.,
Roger Williams University, 1996 Series S,
AMBAC Insured
2,500,000 5.000%, 11/15/24 Aaa/AAA 2,443,750
Rhode Island Health & Education Building Corp.,
Board of Governors, 1993 Series A, MBIA Insured
450,000 5.300%, 09/15/08 Aaa/AAA 476,438
55,000 5.500%, 09/15/13 Aaa/AAA 58,231
140,000 5.250%, 09/15/23 Aaa/AAA 141,050
500,000 5.250%, 09/15/23 Aaa/AAA 503,750
Rhode Island Health & Education Building Corp.,
Board of Governors, 1993 Series B, MBIA Insured
245,000 5.500%, 09/15/13 Aaa/AAA 259,394
Rhode Island Health & Education Building Corp.,
Salve Regina, 1993 Series, AMBAC Insured
150,000 5.300%, 03/15/00 NR/AAA 152,813
150,000 6.100%, 03/15/06 NR/AAA 163,875
</PAGE>
<PAGE>
10,089,002
HOSPITAL REVENUE BONDS (6.5%)
Rhode Island Health & Education Building
Corporation, Women & Infants Hospital, 1992
Series, FSA Insured
100,000 6.150%, 09/01/05 Aaa/AAA 108,750
400,000 6.350%, 09/01/07 Aaa/AAA 437,500
300,000 6.550%, 09/01/13 Aaa/AAA 328,875
Rhode Island Health & Education Building
Corporation, Kent County Memorial Hospital,
1992 Series, MBIA Insured
150,000 6.000%, 07/01/06 Aaa/AAA 159,375
Rhode Island Health & Education Building
Corporation - Hospital Fing - Lifespan Obligation
Group, MBIA Insured
2,000,000 5.750%, 05/15/23 Aaa/AAA 2,157,500
1,000,000 5.250%, 05/15/26 Aaa/AAA 1,010,000
4,202,000
MORTGAGE REVENUE-MULTI-FAMILY BONDS (1.0%)
Rhode Island Housing & Mortgage Finance Corp,
1995 Series A, AMBAC Insured
300,000 5.450%, 07/01/04 Aaa/AAA 316,875
300,000 5.550%, 07/01/05 Aaa/AAA 319,500
636,375
WATER AND SEWER REVENUE BONDS (2.1%)
Kent County Water Authority Revenue Bonds, 1994
Series A, MBIA Insured
250,000 5.700%, 07/15/04 Aaa/AAA 271,875
Bristol County Rhode Island Water Authority, 1997
Series A, MBIA Insured
750,000 5.250%, 07/01/17 Aaa/AAA 765,938
Bristol County Rhode Island, MBIA Insured
300,000 5.000%, 12/01/08 Aaa/AAA 316,875
1,354,688
</PAGE>
<PAGE>
UTILITY REVENUE BONDS (.2%)
Puerto Rico Electric Power Authority, Series Q, FSA
Insured
100,000 5.750%, 07/01/07 Aaa/AAA 107,250
50,000 6.000%, 07/01/10 Aaa/AAA 50,544
157,794
DEVELOPMENT REVENUE BONDS (14.9%)
Rhode Island Convention Center Authority, 1991
Series A, MBIA Insured (Escrowed to Maturity)
100,000 6.375%, 05/15/01 Aaa/AAA 107,875
100,000 6.100%, 05/15/02 Aaa/AAA 107,375
150,000 6.300%, 05/15/04 Aaa/AAA 161,625
Rhode Island Convention Center Authority, 1993
Series B, MBIA Insured
500,000 5.000%, 05/15/07 Aaa/AAA 528,750
Rhode Island Convention Center Authority, 1993
Series A, AMBAC Insured
500,000 5.400%, 05/15/08 Aaa/AAA 531,250
300,000 5.500%, 05/15/13 Aaa/AAA 317,250
800,000 5.000%, 05/15/20 Aaa/AAA 791,000
1,200,000 5.000%, 05/15/23 Aaa/AAA 1,180,500
Rhode Island Public Building Authority State Public
Projects, 1990 Series A, AMBAC Insured
(Escrowed to Maturity)
710,000 6.000%, 02/01/01 Aaa/AAA 742,838
300,000 6.600%, 02/01/02 Aaa/AAA 322,875
Rhode Island Public Building Authority State Public
Projects, 1993 Series A, AMBAC Insured
500,000 5.100%, 02/01/05 Aaa/AAA 528,750
1,000,000 5.250%, 02/01/10 Aaa/AAA 1,043,750
Rhode Island Public Building Authority State Public
Projects, 1990 Series A, AMBAC Insured
785,000 6.000%, 02/01/11 Aaa/AAA 820,325
</PAGE>
<PAGE>
Rhode Island Public Building Authority State Public
Projects, 1989 Series A, AMBAC Insured
(Escrowed to Maturity)
370,000 7.000%, 02/01/00 Aaa/AAA 391,201
35,000 6.750%, 02/01/00 Aaa/AAA 36,915
Rhode Island Public Building Authority State Public
Projects, 1996 School Series B, MBIA Insured
500,000 5.500%, 12/15/14 Aaa/AAA 532,500
1,000,000 5.250%, 12/15/14 Aaa/AAA 1,040,000
500,000 5.500%, 12/15/15 Aaa/AAA 530,000
9,714,779
POLLUTION CONTROL REVENUE BONDS (2.9%)
Rhode Island Clean Water Protection, 1993 Series A,
MBIA Insured
200,000 5.300%, 10/01/07 Aaa/AAA 216,500
300,000 5.400%, 10/01/09 Aaa/AAA 328,500
1,250,000 5.400%, 10/01/15 Aaa/AAA 1,335,938
1,880,938
OTHER REVENUE BONDS (11.1%)
State of Rhode Island Depositors Economic
Protection Corp., 1992 Series A, FSA Insured
210,000 6.000%, 08/01/01 Aaa/AAA 221,813
State of Rhode Island Depositors Economic
Protection Corp., 1992 Series B, MBIA Insured
135,000 5.500%, 08/01/06 Aaa/AAA 146,981
500,000 6.000%, 08/01/17 Aaa/AAA 543,125
State of Rhode Island Depositors Economic
Protection Corp., 1993 Series A, MBIA Insured
355,000 5.625%, 08/01/09 Aaa/AAA 395,381
State of Rhode Island Depositors Economic
Protection Corp., MBIA Insured
1,000,000 5.000%, 07/01/18 Aaa/AAA 992,500
</PAGE>
<PAGE>
State of Rhode Island Depositors Economic
Protection Corp., MBIA Insured
1,600,000 5.000%, 07/01/23 Aaa/AAA 1,574,000
State of Rhode Island Depositors Economic
Protection Corp., 1993 Series B, MBIA Insured
300,000 5.800%, 08/01/09 Aaa/AAA 339,375
715,000 5.250%, 08/01/21 Aaa/AAA 766,838
Rhode Island State and Local Facilities, MBIA
Insured
1,500,000 5.400%, 08/01/08 Aaa/AAA 1,618,125
State of Rhode Island Certificates of Participation,
Howard Center Improvements, MBIA Insured
400,000 5.250%, 10/01/10 Aaa/AAA 425,000
200,000 5.375%, 10/01/16 Aaa/AAA 207,250
7,230,388
Total Revenue Bonds 35,265,964
Total Investments (cost $61,156,686*) 98.1% 63,810,500
Other assets in excess of liabilities 1.9 1,250,651
Net Assets 100.0% $ 65,061,151
(*)Cost for Federal tax purposes is identical.
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assurance
MBIA - Municipal Bond Investors Assurance Corp.
See accompanying notes to financial statements.
</TABLE>
</PAGE>
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $61,156,686) $ 63,810,500
Cash 129,332
Interest receivable 969,554
Receivable for Fund shares sold 310,819
Due from Administrator for reimbursement of expenses (note 3) 7,174
Receivable for investment securities sold 5,000
Other assets 86
Total assets 65,232,465
LIABILITIES
Dividends payable 74,811
Payable for Fund shares redeemed 35,733
Distribution fees payable 29,726
Accrued expenses 25,600
Management fee payable 5,444
Total liabilities 171,314
NET ASSETS $ 65,061,151
Net Assets consist of:
Capital Stock - Authorized 80,000,000 shares, par value $.01 per share $ 61,680
Additional paid-in capital 62,392,967
Overdistribution of net investment income (63,278)
Accumulated net gain on investments 15,968
Net unrealized appreciation on investments 2,653,814
$ 65,061,151
CLASS A
Net Assets $ 61,150,662
Capital shares outstanding 5,797,264
Net asset value and redemption price per share $ 10.55
Offering price per share (100/96 of $10.55 adjusted to nearest cent) $ 10.99
CLASS C
Net Assets $ 3,399,867
Capital shares outstanding 322,347
Net asset value and offering price per share $ 10.55
Redemption price per share (*generally, a charge of 1% is imposed on the
proceeds of shares redeemed during the first 12 months after purchase) $ 10.55*
CLASS I
Net Assets $ 80,041
Capital shares outstanding 7,590
Net asset value, offering and redemption price per share $ 10.55
CLASS Y
Net Assets $ 430,581
Capital shares outstanding 40,812
Net asset value, offering and redemption price per share $ 10.55
See accompanying notes to financial statements.
</TABLE>
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
</CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 1,485,092
Expenses:
Management fee (note 3) $ 148,365
Distribution and service fees (note 3) 56,892
Trustees' fees and expenses 22,000
Legal fees 22,000
Shareholders' reports and proxy statements 17,000
Transfer and shareholder servicing agent fees 14,000
Audit and accounting fees 10,000
Registration fees and dues 5,000
Custodian fees 4,636
Insurance 500
Miscellaneous 13,774
314,167
Management fee waived (note 3) (127,160)
Reimbursement of expenses by Manager (note 3) (58,381)
Expenses paid indirectly (note 7) (13,537)
Net expenses 115,089
Net investment income 1,370,003
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from securities transactions 17,917
Change in unrealized appreciation on investments 382,357
Net realized and unrealized gain on investments 400,274
Net increase in net assets resulting from operations $ 1,770,277
See accompanying notes to financial statements.
</TABLE>
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX
MONTHS ENDED YEAR ENDED
DECEMBER 31, 1998 JUNE 30, 1998
</CAPTION>
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 1,370,003 $ 2,370,226
Net realized gain from securities transactions 17,917 -
Change in unrealized appreciation on investments 382,357 1,342,773
Change in net assets from operations 1,770,277 3,712,999
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6):
Class A Shares:
Net investment income (1,329,450) (2,351,223)
Net realized gain on investments - -
Class C Shares:
Net investment income (55,121) (52,701)
Net realized gain on investments - -
Class I Shares:
Net investment income (571) -
Net realized gain on investments - -
Class Y Shares:
Net investment income (4,363) (113)
Net realized gain on investments - -
Change in net assets from distributions (1,389,505) (2,404,037)
CAPITAL SHARE TRANSACTIONS (NOTE 8):
Proceeds from shares sold 11,273,126 14,588,209
Reinvested dividends and distributions 856,006 1,376,354
Cost of shares redeemed (2,249,644) (5,497,648)
Change in net assets from capital share transactions 9,879,488 10,466,915
Change in net assets 10,260,260 11,775,877
NET ASSETS:
Beginning of period 54,800,891 43,025,014
End of period $ 65,061,151 $ 54,800,891
See accompanying notes to financial statements.
</TABLE>
</PAGE>
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Narragansett Insured Tax-Free Income Fund (the "Fund"), a
non-diversified, open-end investment company, was organized on
January 22, 1992 as a Massachusetts business trust and commenced
operations on September 10, 1992. The Fund is authorized to issue
80,000,000 shares and, since its inception to May 1, 1996, offered
only one class of shares. On that date, the Fund began offering two
additional classes of shares, Class C and Class Y shares. All
shares outstanding prior to that date were designated as Class A
shares and, as was the case since inception, are sold with a
front-payment sales charge and bear an annual service fee. Class C
shares are sold with a level-payment sales charge with no payment
at time of purchase but level service and distribution fees from
date of purchase through a period of six years thereafter. A
contingent deferred sales charge of 1% is assessed to any Class C
shareholder who redeems shares of this Class within one year from
the date of purchase. The Class Y shares are only offered to
institutions acting for an investor in a fiduciary, advisory,
agency, custodian or similar capacity. They are not available to
individual retail investors. Class Y shares are sold at net asset
value without any sales charge, redemption fees, contingent
deferred sales charge or distribution or service fees. On October
31, 1997, the Fund established Class I shares, which are offered
and sold only through financial intermediaries and are not offered
directly to retail investors. Class I Shares are sold at net asset
value without any sales charge, redemption fees, or contingent
deferred sales charge. Class I Shares may carry a distribution fee
and a service fee. All classes of shares represent interests in the
same portfolio of investments in the Fund and are identical as to
rights and privileges. They differ only with respect to the effect
of sales charges, the distribution and/or service fees borne by the
respective class, expenses specific to each class, voting rights on
matters affecting a single class and the exchange privileges of
each class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles for investment companies.
a) PORTFOLIO VALUATION: Municipal securities which have remaining
maturities of more than 60 days are valued at fair value each
business day based upon information provided by a nationally
prominent independent pricing service and periodically verified
through other pricing services; in the case of securities for which
market quotations are readily available, securities are valued at
the mean of bid and asked quotations and in the case of other
securities, at fair value determined under procedures established
by and under the general supervision of the Board of Trustees.
Securities which mature in 60 days or less are valued at amortized
cost if their term to maturity at purchase was 60 days or less, or
by amortizing their unrealized appreciation or depreciation on the
61st day prior to maturity, if their term to maturity at purchase
exceeded 60 days.
</PAGE>
<PAGE>
b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME:
Securities transactions are recorded on the trade date. Realized
gains and losses from securities transactions are reported on the
identified cost basis. Interest income is recorded on the accrual
basis and is adjusted for amortization of premium and accretion of
original issue discount. Market discount is recognized upon
disposition of the security.
c) FEDERAL INCOME TAXES It is the policy of the Fund to qualify as
a regulated investment company by complying with the provisions of
the Internal Revenue Code applicable to certain investment
companies. The Fund intends to make distributions of income and
securities profits sufficient to relieve it from all, or
substantially all, Federal income and excise taxes.
d) ALLOCATION OF EXPENSES: Expenses, other than class-specific
expenses, are allocated daily to each class of shares based on the
relative net assets of each class. Class-specific expenses, which
include distribution and service fees and any other items that are
specifically attributed to a particular class, are charged directly
to such class.
e) USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual
results could differ from those estimates.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
Aquila Management Corporation (the "Manager"), the Fund's
founder and sponsor, serves as the Manager for the Fund under an
Advisory and Administration Agreement with the Fund. The portfolio
management of the Fund has been delegated to a Sub-Adviser as
described below. Under the Advisory and Administration Agreement,
the Manager provides all administrative services to the Fund, other
than those relating to the day-to-day portfolio management. The
Manager's services include providing the office of the Fund and all
related services as well as overseeing the activities of the
Sub-Adviser and all the various support organizations to the Fund
such as the shareholder servicing agent, custodian, legal counsel,
auditors and distributor and additionally maintaining the Fund's
accounting books and records. For its services, the Manager is
entitled to receive a fee which is payable monthly and computed as
of the close of business each day at the annual rate of 0.50 of 1%
on the Fund's net assets.
</PAGE>
<PAGE>
Citizens Bank of Rhode Island (the "Sub-Adviser"), formerly
known as Citizens Trust Company, serves as the Investment
Sub-Adviser for the Fund under a Sub-Advisory Agreement between the
Manager and the Sub-Adviser. Under this agreement, the Sub-Adviser
continuously provides, subject to oversight of the Manager and the
Board of Trustees of the Fund, the investment program of the Fund
and the composition of its portfolio, arranges for the purchases
and sales of portfolio securities, and provides for daily pricing
of the Fund's portfolio. For its services, the Sub-Adviser is
entitled to receive a fee from the Manager which is payable monthly
and computed as of the close of business each day at the annual
rate of 0.23 of 1% on the Fund's net assets. For the six months
ended December 31, 1998, the Fund incurred fees for advisory and
administrative services of $148,365 of which $127,160 was
voluntarily waived. Additionally, the Manager voluntarily agreed to
reimburse the Fund for other expenses during this period in the
amount of $58,381. Of this amount, $51,207 was paid prior to
December 31, 1998 and the balance of $7,174 was paid in early
January 1999.
Specific details as to the nature and extent of the services
provided by the Manager and the Sub-Adviser are more fully defined
in the Fund's Prospectus and Statement of Additional Information.
b) DISTRIBUTION AND SERVICE FEES:
The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 (the "Rule") under the Investment Company
Act of 1940. Under one part of the Plan, with respect to Class A
Shares, the Fund is authorized to make service fee payments to
broker-dealers or others ("Qualified Recipients") selected by
Aquila Distributors, Inc., ("the Distributor"), including, but
not limited to, any principal underwriter of the Fund, with which
the Distributor has entered into written agreements contemplated by
the Rule and which have rendered assistance in the distribution
and/or retention of the Fund's shares or servicing of shareholder
accounts. The Fund makes payment of this service fee at the annual
rate of 0.15% of the Fund's average net assets represented by Class
A Shares. For the six months ended December 31, 1998, service fees
on Class A Shares amounted to $42,132, of which the Distributor
received $929.
Under another part of the Plan, the Fund is authorized to
make payments with respect to Class C Shares to Qualified
Recipients which have rendered assistance in the distribution
and/or retention of the Fund's Class C shares or servicing of
shareholder accounts. These payments are made at the annual rate of
0.75% of the Fund's net assets represented by Class C Shares and
for the six months ended December 31, 1998, amounted to $11,066. In
addition, under a Shareholder Services Plan, the Fund is authorized
to make service fee payments with respect to Class C Shares to
Qualified Recipients for providing personal services and/or
maintenance of shareholder accounts. These payments are made at the
annual rate of 0.25% of the Fund's net assets represented by
Class C Shares and for the six months ended December 31, 1998,
amounted to $3,688. The total of these payments with respect to
Class C Shares amounted to $14,754, of which the Distributor
received $12,903.
</PAGE>
<PAGE>
Under another part of the Plan, the Fund is authorized to
make payments with respect to Class I Shares to Qualified
Recipients. Class I Permitted Payments may not exceed, for any
fiscal year of the Fund, 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. In
addition, the Fund has a Shareholder Services Plan under which it
may pay services fees. These fees may not exceed an amount equal to
the difference between (i) 0.25 of 1% of the average annual net
assets of the Fund represented by Class I Shares and (ii) the
amount paid under the Fund's Distribution Plan with respect to the
assets represented by the Class I Shares. That is, the total
payments under both plans will not exceed 0.25 of 1% of such net
assets. For the six months ended December 31, 1998, these payments
were made at the average annual rate of 0.05% of such net assets
and amounted to $6.
Specific details about the Plans are more fully defined in
the Fund's Prospectus and Statement of Additional Information.
Under a Distribution Agreement, the Distributor serves as the
exclusive distributor of the Fund's shares. Through agreements
between the Distributor and various broker-dealer firms
("dealers"), the Fund's shares are sold primarily through the
facilities of these dealers having offices within Rhode Island,
with the bulk of sales commissions inuring to such dealers. For the
six months ended December 31, 1998, the Distributor received
commissions of $22,810 on sales of Class A shares.
4. PURCHASES AND SALES OF SECURITIES
During the six months ended December 31, 1998, purchases of
securities and proceeds from the sales of securities aggregated
$9,875,472 and $863,500, respectively.
At December 31, 1998, aggregate gross unrealized appreciation
for all securities in which there is an excess of market value over
tax cost amounted to $2,737,683 and aggregate gross unrealized
depreciation for all securities in which there is an excess of tax
cost over market value amounted to $83,869, for a net unrealized
appreciation of $2,653,814.
5. PORTFOLIO ORIENTATION
Since the Fund invests principally and may invest entirely in
double tax-free municipal obligations of issuers within Rhode
Island, it is subject to possible risks associated with economic,
political, or legal developments or industrial or regional matters
specifically affecting Rhode Island and whatever effects these may
have upon Rhode Island issuers' ability to meet their obligations.
However, to mitigate against such risks, the Fund has chosen to
have at least 65% and possibly the entire number of issues in the
portfolio insured as to timely payment of principal and interest
when due by nationally prominent municipal bond insurance
companies. At December 31, 1998, all of the securities in the Fund
were insured. While such insurance protects against credit risks
with portfolio securities, it does not insure against market risk
of fluctuations in the Fund's share price and income return.
</PAGE>
<PAGE>
The Fund is also permitted to invest in U.S. territorial
municipal obligations meeting comparable quality standards and
providing income which is exempt from both regular Federal and
Rhode Island income taxes. The general policy of the Fund is to
invest in such securities only when comparable securities of Rhode
Island issuers are not available in the market. At December 31,
1998, the Fund had 2.5% of its net assets invested in eight Puerto
Rico municipal issues, all of which are rated AAA and insured or
collateralized by U.S. Treasury securities.
6. DISTRIBUTIONS
The Fund declares dividends daily from net investment income
and makes payments monthly in additional shares at the net asset
value per share or in cash, at the shareholder's option. Net
realized capital gains, if any, are distributed annually and are
taxable.
The Fund intends to maintain, to the maximum extent possible,
the tax-exempt status of interest payments received from portfolio
municipal securities in order to allow dividends paid to
shareholders from net investment income to be exempt from regular
Federal and State of Rhode Island income taxes. However, due to
differences between financial statement reporting and Federal
income tax reporting requirements, distributions made by the Fund
may not be the same as the Fund's net investment income, and/or net
realized securities gains. Further, a small portion of the
dividends may, under some circumstances, be subject to taxes at
ordinary income and/or capital gain rates. For certain
shareholders, some dividend income may, under some circumstances,
be subject to the alternative minimum tax.
7. EXPENSES
The Fund has negotiated an expense offset arrangement with
its custodian wherein it receives credit toward the reduction of
custodian fees and other Fund expenses whenever there are
uninvested cash balances. The Statement of Operations reflects the
total expenses before any offset, the amount of offset and the net
expenses. It is the general intention of the Fund to invest, to the
extent practicable, some or all of cash balances in
income-producing assets rather than leave cash on deposit.
</PAGE>
<PAGE>
8. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1998 JUNE 30, 1998
SHARES AMOUNT SHARES AMOUNT
</CAPTION>
<S> <C> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 956,156 $ 10,096,559 1,171,521 $12,169,353
Reinvested distributions 76,597 807,796 128,741 1,340,037
Cost of shares redeemed (201,545) (2,125,830) (512,096) (5,326,530)
Net change 831,208 8,778,525 788,166 8,182,860
CLASS C SHARES:
Proceeds from shares sold 64,353 679,567 230,636 2,402,356
Reinvested distributions 4,353 45,897 3,479 36,310
Cost of shares redeemed (11,680) (123,111) (16,414) (171,117)
Net change 57,026 602,353 217,701 2,267,549
CLASS I SHARES*:
Proceeds from shares sold 7,590 80,000 - -
Reinvested distributions - - - -
Cost of shares redeemed - - - -
Net change 7,590 80,000 - -
CLASS Y SHARES:
Proceeds from shares sold 39,059 417,000 1,590 16,500
Reinvested distributions 219 2,313 - 6
Cost of shares redeemed (67) (703) - -
Net change 39,211 418,610 1,590 16,506
Total transactions in Fund
shares 935,035 $ 9,879,488 1,007,457 $10,466,915
* For the period November 4, 1998 to December 31, 1998.
</TABLE>
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
(UNAUDITED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A(1) CLASS I(2)
SIX MONTHS PERIOD(3)
ENDED YEAR ENDED JUNE 30, ENDED
12/31/98 1998 1997 1996 1995 1994 12/31/98
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.47 $10.18 $9.93 $9.80 $9.44 $10.07 $10.54
Income from Investment Operations:
Net investment income 0.25 0.50 0.51 0.52 0.54 0.53 0.07
Net gain (loss) on securities
(both realized and unrealized) 0.08 0.30 0.26 0.13 0.36 (0.63) 0.02
Total from Investment Operations 0.33 0.80 0.77 0.65 0.90 (0.10) 0.09
Less Distributions (note 6):
Dividends from net investment income (0.25) (0.51) (0.52) (0.52) (0.54) (0.53) (0.08)
Distributions from capital gains - - - - - - -
Total Distributions (0.25) (0.51) (0.52) (0.52) (0.54) (0.53) (0.08)
Net Asset Value, End of Period $10.55 $10.47 $10.18 $9.93 $9.80 $9.44 $10.55
Total Return (not reflecting sales charge)(%) 3.20+ 8.02 7.95 6.72 9.82 (1.11) 0.81+
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 61,151 52,006 42,540 37,988 34,373 31,660 80
Ratio of Expenses to Average Net Assets (%) 0.38* 0.28 0.23 0.15 0.07 0.05 0.55*
Ratio of Net Investment Income to
Average Net Assets (%) 4.63* 4.83 5.02 5.18 5.62 5.27 4.53*
Portfolio Turnover Rate (%) 1.49+ 0.02 5.29 0 0 0 1.49+
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 (%) 0.97* 1.12 1.23 1.16 1.18 1.29 0.93*
Ratio of Net Investment Income (Loss) to
Average Net Assets (%) 4.04* 3.99 4.05 4.17 4.51 4.03 4.15*
The expense ratios after giving effect to the waiver, reimbursement and
expense offset for uninvested cash balances were:
Ratio of Expenses to Average Net Assets (%) 0.34* 0.27 0.21 0.14 0.06 0.02 0.50*
(1)Designated as Class A Shares on May 1, 1996.
(2)New Class of Shares established on October 31, 1997.
(3) From November 4, 1998 to December 31, 1998.
+ Not annualized.
* Annualized.
See accompanying notes to financial statements.
</TABLE>
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C(1)
SIX MONTHS PERIOD(2) SIX MONTHS
1 ENDED YEAR ENDED JUNE 30, ENDED ENDED
12/31/98 1998 1997 6/30/96 12/31/98
</CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.47 $10.18 $9.93 $9.94 $10.47
Income from Investment Operations:
Net investment income 0.19 0.40 0.41 0.07 0.23
Net gain (loss) on securities (both
realized and unrealized) 0.09 0.30 0.26 (0.01) 0.10
Total from Investment Operations 0.28 0.70 0.67 0.06 0.33
Less Distributions (note 6):
Dividends from net investment income (0.20) (0.41) (0.42) (0.07) (0.25)
Distributions from capital gains - - - - -
Total Distributions (0.20) (0.41) (0.42) (0.07) (0.25)
Net Asset Value, End of Period $10.55 $10.47 $10.18 $9.93 $10.55
Total Return (not reflecting sales charge) (%) 2.68+ 6.94 6.89 0.60+ 3.18+
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 3,400 2,778 485 0.1 431
Ratio of Expenses to Average Net
Assets (%) 1.38* 1.29 1.08 0.20+ 0.37*
Ratio of Net Investment Income to
Average Net Assets (%) 3.63* 3.77 4.20 0.70+ 4.35*
Portfolio Turnover Rate (%) 1.49+ 0.02 5.29 0 1.49+
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 (%) 1.82* 1.93 2.08 0.32+ 0.75*
Ratio of Net Investment Income (Loss) to
Average Net Assets (%) 3.19* 3.11 3.20 0.58+ 3.97*
The expense ratios after giving effect to the waiver, reimbursement and
expense offset for uninvested cash balances were:
Ratio of Expenses to Average Net Assets (%) 1.34* 1.28 1.06 0.20+ 0.33*
(1) New Class of Shares established on May 1, 1996.
(2) From May 1, 1996 to June 30, 1996.
+ Not annualized.
* Annualized.
See accompanying notes to financial statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS Y(1)
SIX MONTHS PERIOD(2)
ENDED YEAR ENDED JUNE 30, ENDED
12/31/98 1998 1997 6/30/96
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.47 $10.19 $9.93 $9.94
Income from Investment Operations:
Net investment income 0.23 0.59 0.56 0.09
Net gain (loss) on securities (both
realized and unrealized) 0.10 0.29 0.26 (0.01)
Total from Investment Operations 0.33 0.88 0.82 0.08
Less Distributions (note 6):
Dividends from net investment income (0.25) (0.60) (0.56) (0.09)
Distributions from capital gains - - - -
Total Distributions (0.25) (0.60) (0.56) (0.09)
Net Asset Value, End of Period $10.55 $10.47 $10.19 $9.93
Total Return (not reflecting sales charge) (%) 3.18+ 8.80 8.48 0.80+
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 431 17 0.1 0.1
Ratio of Expenses to Average Net
Assets (%) 0.37* 0.28 0.08 0.14+
Ratio of Net Investment Income to
Average Net Assets (%) 4.35* 4.66 5.20 0.89+
Portfolio Turnover Rate (%) 1.49+ 0.02 5.29 0
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 (%) 0.75* 0.83 1.08 0.15+
Ratio of Net Investment Income (Loss) to
Average Net Assets (%) 3.97* 4.11 4.20 0.88+
The expense ratios after giving effect to the waiver, reimbursement and
expense offset for uninvested cash balances were:
Ratio of Expenses to Average Net Assets (%) 0.33* 0.27 0.06 0.14+
(1) New Class of Shares established on May 1, 1996.
(2) From May 1, 1996 to June 30, 1996.
+ Not annualized.
* Annualized.
See accompanying notes to financial statements.
</TABLE>
</PAGE>
<PAGE>
SHAREHOLDER MEETING RESULTS (UNAUDITED)
The Annual Meeting of Shareholders of Narragansett Insured Tax-Free
Income Fund (the "Fund") was held on November 13, 1998. The holders
of shares representing 78% of the total net asset value of the
shares entitled to vote were present in person or by proxy. At the
meeting, the following matters were voted upon and approved by the
shareholders (the resulting votes for each matter are presented
below).
1. To elect Trustees.
NUMBER OF VOTES:
TRUSTEE FOR WITHHELD
Lacy B. Herrmann 42,821,291.94 678,661.04
Vernon R. Alden 42,840,131.98 659,821.00
Paul Y. Clinton 42,840,131.98 659,821.00
David A. Duffy 42,840,131.98 659,821.00
William J. Nightingale 42,840,131.98 659,821.00
J. William Weeks 42,840,131.98 659,821.00
2. To ratify the selection of KPMG Peat Marwick LLP as the
Fund's independent auditors.
NUMBER OF VOTES:
FOR AGAINST ABSTAIN
42,712,300.84 0 787,652.14
PREPARING FOR YEAR 2000 (UNAUDITED)
The Trustees and officers of the Fund have been
monitoring issues involving preparedness for the turn of the
century for some time in an effort to minimize or eliminate any
potential impact upon the Fund and its shareholders. Our officers
have focussed significant time and effort in order that the various
computerized functions that could affect the Fund are ready by the
beginning of the year 2000.
The Fund is highly reliant on certain mission-critical
suppliers' services. Each supplier of these services has provided
the Fund's officers with assurances that it is actively addressing
potential problems relating to the year 2000. The officers, in
turn, are monitoring and will continue to monitor the progress of
its suppliers.
As you can well understand, we cannot directly control
our supplier operations. We assure you, however, that we recognize
a responsibility to inform our shareholders if in the future we
become aware of any developments which would lead us to believe
that the Fund will be significantly affected by year 2000 problems.
We will continue to keep you up-to-date through future
communications.
<PAGE>
