<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.
ANNUAL
REPORT
JUNE 30, 1999
A TAX-FREE INCOME INVESTMENT
[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]
[Logo of the 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
ANNUAL REPORT
"TAKE PRIDE IN HOW YOUR INVESTMENT IS HELPING OTHERS -
WHILE PRIMARILY HELPING YOU"
Dear Fellow Shareholders: August 20, 1999
Our surveys of shareholders of Narragansett Insured Tax-Free Income
Fund have shown that you and other owners of the Fund bought your shares
primarily for TAX-FREE INCOME THAT IS INSURED. And, secondarily, the knowledge
- - provided through the stability of the Fund - that your money would be there
when you needed it.
Additionally, our surveys showed that most of our shareholders are
pre-retirees or retirees. These are people who are looking forward to making
sure that they have the security of a sound income source from the Fund when
they are no longer in the workforce.
The point you may not have fully appreciated - when you made your
investment in the Fund - was that in the process of having the Fund provide
you with these benefits, it also provides help to a variety of others within
your community and Rhode Island. And, this is a factor in which you can take
real PRIDE.
The economy of Rhode Island is growing at a significant pace. As this
growth takes place, new and additional municipal projects are needed for the
benefit of the citizens of Rhode Island and the various communities in it.
These projects include schools, highways, recreational facilities, and a
whole array of useful public purpose projects. These projects are what help
economic development and provide a high quality of life for the citizens of
Rhode Island.
We think it is important for you to realize this. The projects that
the Fund helped finance are all ones that you and others can reach out and
touch. We are illustrating for you some of the various kinds of municipal
projects that your investment in the Fund has helped create in Rhode Island.
[Photo]
Department of Administration
[Photo]
Providence County Courthouse
[Photo]
Rhode Island Convention Center
[Photo]
Veterans Memorial Auditorium
</PAGE>
<PAGE>
The tax laws of Rhode Island, as well as those of the Federal
government, allow you to receive income from your investment in the Fund
DOUBLE TAX-FREE. It is realized by the State and Federal governmental
authorities that it is essential that various municipal projects be built
with an advantage to the investor. This advantage is primarily one of
TAX-FREE income for you.
You can take comfort in the knowledge that your investment in the
Fund is comprised of a portfolio of municipal securities which possess
extremely high quality. Therefore, you can "SLEEP WELL AT NIGHT" knowing that
the chances of anything happening to these high quality bonds is very slight
indeed. The reason for this, of course, is that the various municipal
projects represented in the Fund have behind them a very sound stream of
taxes and revenues generated by the projects themselves.
We again wish to emphasize that while primarily helping you,
Narragansett Insured Tax-Free Income Fund is also helping others in your
communities and Rhode Island.
Consequently, you can take great PRIDE in your investment in
Narragansett Insured Tax-Free Income Fund.
You can rest assured that the overall management of the Fund is doing
a very careful job of "MINDING THE STORE" for you.
We appreciate the continued confidence that you have placed in the
Fund through your investment in Narragansett Insured Tax-Free Income Fund.
Sincerely,
Diana P. Herrmann
President
Lacy B. Herrmann
Chairman, Board of Trustees
</PAGE>
<PAGE>
PERFORMANCE REPORT
The following graph illustrates the value of $10,000 invested in
the Class A shares of Narragansett Insured Tax-Free Income Fund at its
inception in September, 1992 and maintaining this investment through the
Fund's latest fiscal year-end, June 30, 1999 as compared with the Lehman
Brothers Quality Intermediate Municipal Bond Index and the Consumer Price
Index (a cost of living index). The performance of each of the other classes
is not shown in the graph but is included in the table below. It should be not
ed that the Lehman Index does not include any operating expenses nor sales
charges and being nationally oriented, does not reflect state specific bond
market performance.
[Graphic of line chart with the following information:]
<TABLE>
<CAPTION>
Lehman Brothers Quality Fund's Class A Shares Cost of Living Index ($)
Intermediate Municipal Bond Index ($) With Sales Charge ($) Without Sales Charge ($)
</CAPTION>
<S> <C> <C> <C> <C>
9/92 10,000 9,600 10,000 10,000
6/93 10,779 10,467 10,904 10,227
6/94 10,922 10,421 10,855 10,482
6/95 11,796 11,527 12,007 10,800
6/96 12,451 12,043 12,545 11,105
6/97 13,303 13,143 13,691 11,353
6/98 14,230 14,164 14,754 11,544
6/99 14,662 14,408 15,008 11,771
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED JUNE 30, 1999
SINCE
1 YEAR 5 YEARS INCEPTION
Class A (9/10/92)
With Sales Charge (2.36)% 5.95% 5.51%
Without Sales Charge 1.74% 6.81% 6.15%
Class C (5/1/96)
With CDSC (0.24)% n/a 4.87%
Without CDSC 0.76% n/a 4.87%
Class Y (5/1/96)
No Sales Charge 1.79% n/a 6.14%
Class I (11/4/98)
No Sales Charge n/a n/a (0.75)%*
Lehman Index 3.03% 6.06% 5.75% (Class A)
3.03% n/a 5.53% (Class C&Y)
n/a n/a (0.03)% (Class I)*
* Not annualized
Total return figures shown for the Fund reflect any change in price and
assume all distributions within the period were invested in additional
shares. Returns for Class A shares are calculated with and without the effect
of the initial 4% maximum sales charge. Returns for Class C shares are
calculated with and without the effect of the 1% contingent deferred sales
charge (CDSC), imposed on redemptions made within the first 12 months after
purchase. Class Y and Class I shares are sold without any sales charge. The
rates of return will vary and the principal value of an investment will
fluctuate with market conditions. Shares, if redeemed, may be worth more or
less than their original cost. A portion of each classes' income may be
subject to federal and state income taxes. Past performance is not predictive
of future investment results.
Previously, the Fund's performance was compared to the Lehman Brothers
Insured Municipal Bond Index rather than the Lehman Brothers Quality
Intermediate Municipal Bond Index. A change was made by the Fund because it
provides a better basis of comparison due to the intermediate nature of the
portfolio's duration and the credit quality of the investments. During the
Fund's fiscal year ended June 30, 1999, an investment in the Fund's Class A
shares (without sales charge) increased 1.74% whereas the Lehman Brothers
Quality Intermediate Municipal Bond Index and the Lehman Brothers Insured
Municipal Bond Index increased 3.03% and 2.49%, respectively.
</PAGE>
<PAGE>
MANAGEMENT DISCUSSION
PORTFOLIO MANAGER'S ANALYSIS
Narragansett Insured Tax-Free Income Fund (the "Fund") has
strived to provide as high a level of DOUBLE TAX-FREE income as possible
within self imposed quality constraints. The Fund has purchased only
municipal securities rated AAA by nationally-renown credit rating services.
As an extra measure of credit protection to shareholders, nearly all
securities owned by the Fund are insured by nationally-prominent specialized
insurance companies as to timely payment when due of principal and interest.
A maximum average maturity profile of under 15 years has been and will
continue to be maintained for the Fund's portfolio in order to produce a
reasonable level of income return, yet relatively high stability for the
Fund's share price. At the June 30, 1999 fiscal year-end the portfolio had an
average maturity of 13.7 years.
The 1998 calendar year continued the strong economic pace of the
prior year. This economic momentum carried through into the first half of the
Fund's fiscal year ending June 30, 1999. In doing so, it eclipsed the
longevity of the upward economic activity of the 1980s, to become the
second-longest recovery on record.
Indeed, the character and longevity of this upward economic
movement has been most impressive. It has been marked by a low inflation rate
combined with a low unemployment rate within the United States. Additionally,
we are even beginning to see some positive economic activity in some of the
various countries abroad.
In order to control domestic economic growth, which has produced
tight labor markets, the Federal Reserve recently took the preemptive action
of raising interest rates by 1/4 of 1%. Inflation statistics have not shown
any major resurgence, even though overall economic momentum has been above
average. However, the Federal Reserve believed it is easier to slow down
economic momentum than it is to wring out accelerated inflation.
Corporate earnings, as well as the overall level of personal
income in our country, have risen above forecasted levels. This has increased
our country's budget surplus and, as a result, raised a political call for a
reduction in personal income taxes. Indeed, continued economic improvement
and additional budget surpluses are fully anticipated. Consequently, how this
desire for reduced taxes will play out, is yet to be determined.
With a low level of inflation, the current level of real interest
rates is very attractive. Further, with the increase in interest rates that
was prompted by the Federal Reserve, the Fund will have an easier time in
maintaining a desirable level of yield. Nevertheless, the quality of the
individual issues in the portfolio remain the foundation for maintaining the
Fund's objective of preserving capital, while at the same time producing a
competitive yield.
Given the current Federal income tax rates and the piggy-back
Rhode Island income tax rate, the Narragansett Insured Tax-Free Income Fund
produces a yield that is very attractive for Rhode Island residents when
compared to taxable fixed-income securities.
Management believes that having available to the Fund a
locally-based investment manager with its knowledge of and experience in the
Rhode Island municipal market continues to add considerable value to the
portfolio and provides a distinct benefit to Fund shareholders.
The Fund's investment manager will continue to oversee the
portfolio with a strong emphasis on achieving a balance between providing
shareholders with share price stability, acceptable double tax-free income
return, and maintaining the highest standards of credit quality.
</PAGE>
<PAGE>
[Logo of KPMG LLP: The letters KPMG in front of four solid rectangles]
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Narragansett Insured Tax-Free Income Fund:
We have audited the accompanying statement of assets and
liabilities of Narragansett Insured Tax-Free Income Fund, including the
statement of investments, as of June 30, 1999, and the related statement of
operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of June 30, 1999, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Narragansett Insured Tax-Free Income Fund as of June 30, 1999,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
KPMG LLP
New York, New York
July 27, 1999
</PAGE>
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS
JUNE 30, 1999
<TABLE>
<CAPTION>
RATING
FACE MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (40.0%) S&P VALUE
</CAPTION>
<S> <C><C> <C> <C> <C>
Town of Bristol, Rhode Island, MBIA Insured
$ 1,000,000 5.100%, 08/15/07 Aaa/AAA $ 1,013,750
100,000 6.000%, 12/15/11 Aaa/AAA 104,750
100,000 6.000%, 12/15/12 Aaa/AAA 104,875
Town of Burrillville, Rhode Island, AMBAC
Insured
405,000 5.300%, 07/15/18 Aaa/AAA 414,618
Town of Burrillville, Rhode Island, MBIA Insured
250,000 5.400%, 10/15/06 Aaa/AAA 259,688
250,000 5.500%, 10/15/07 Aaa/AAA 259,688
150,000 5.700%, 10/15/10 Aaa/AAA 156,562
Central Falls, Rhode Island, MBIA Insured
500,000 4.900%, 11/15/05 Aaa/AAA 508,125
500,000 5.200%, 11/15/09 Aaa/AAA 508,125
Cranston, Rhode Island, MBIA Insured
1,120,000 5.300%, 07/15/05 Aaa/AAA 1,152,200
300,000 5.500%, 06/15/07 Aaa/AAA 313,875
Town of Cumberland, Rhode Island, MBIA Insured
345,000 5.500%, 09/01/06 Aaa/AAA 364,406
500,000 5.600%, 10/01/08 Aaa/AAA 517,500
500,000 5.000%, 08/01/15 Aaa/AAA 484,375
Town of Lincoln, Rhode Island, MBIA Insured
400,000 5.100%, 01/15/06 Aaa/AAA 409,000
400,000 5.200%, 08/15/06 Aaa/AAA 412,000
850,000 5.500%, 08/15/10 Aaa/AAA 877,625
100,000 5.625%, 04/15/11 Aaa/AAA 103,125
Town of Lincoln, Rhode Island, FGIC Insured
250,000 5.750%, 08/01/15 Aaa/AAA 260,312
Narragansett, Rhode Island, MBIA Insured
300,000 5.100%, 09/15/06 Aaa/AAA 307,500
1,000,000 5.300%, 09/15/08 Aaa/AAA 1,025,000
Newport, Rhode Island, MBIA Insured
150,000 6.550%, 08/15/07 Aaa/AAA 159,188
</PAGE>
<PAGE>
Newport, Rhode Island, Series B, FGIC Insured
250,000 4.900%, 05/15/06 Aaa/AAA 253,125
500,000 5.000%, 05/15/07 Aaa/AAA 506,250
500,000 5.100%, 05/15/08 Aaa/AAA 506,250
North Providence, Rhode Island, Series A, MBIA
Insured
400,000 5.700%, 07/01/08 Aaa/AAA 425,000
Pawtucket, Rhode Island, MBIA Insured
100,000 6.650%, 09/15/06 Aaa/AAA 107,000
600,000 4.300%, 09/15/09 Aaa/AAA 569,250
250,000 4.400%, 09/15/10 Aaa/AAA 237,812
Pawtucket, Rhode Island, FGIC Insured
310,000 5.625%, 04/15/07 Aaa/AAA 323,950
500,000 5.750%, 04/15/09 Aaa/AAA 523,750
Providence, Rhode Island, MBIA Insured
25,000 6.600%, 01/15/01 Aaa/AAA 25,884
100,000 5.400%, 08/01/01 Aaa/AAA 102,500
100,000 5.500%, 01/15/04 Aaa/AAA 104,125
90,000 5.700%, 08/01/04 Aaa/AAA 93,825
100,000 5.900%, 01/15/09 Aaa/AAA 104,500
200,000 5.250%, 01/15/12 Aaa/AAA 202,750
Providence, Rhode Island, FSA Insured
700,000 5.500%, 01/15/11 Aaa/AAA 719,250
East Providence, Rhode Island, MBIA Insured
500,000 5.400%, 05/15/07 Aaa/AAA 520,000
Commonwealth of Puerto Rico, MBIA Insured
100,000 5.750%, 07/01/09 Aaa/AAA 104,500
100,000 6.000%, 07/01/14 Aaa/AAA 105,250
500,000 5.875%, 07/01/18 Aaa/AAA 530,625
</PAGE>
<PAGE>
Commonwealth of Puerto Rico, FSA Insured
50,000 6.000%, 07/01/14 Aaa/AAA 52,625
Commonwealth of Puerto Rico, AMBAC Insured
500,000 5.850%, 07/01/15 Aaa/AAA 530,000
State of Rhode Island Refunding, Series A, FGIC
Insured
50,000 6.000%, 06/15/02 Aaa/AAA 52,500
State of Rhode Island Refunding, Series A, FGIC
Insured
1,000,000 5.000%, 07/15/05 Aaa/AAA 1,023,750
State of Rhode Island Refunding, Series A, FGIC
Insured
1,000,000 5.125%, 07/15/11 Aaa/AAA 1,005,000
State of Rhode Island Refunding, Series A, FGIC
Insured
1,500,000 5.000%, 09/01/15 Aaa/AAA 1,458,750
Rhode Island Consolidated Capital Development
Loan, 1991 Series B, AMBAC Insured
300,000 6.250%, 05/15/07 Aaa/AAA 310,281
Rhode Island Consolidated Capital Development
Loan, 1991 Series B, MBIA Insured
380,000 6.250%, 05/15/09 Aaa/AAA 395,952
100,000 6.250%, 05/15/10 Aaa/AAA 104,198
Rhode Island Consolidated Capital Development
Loan, 1992 Series A, FGIC Insured
1,050,000 5.500%, 08/01/07 Aaa/AAA 1,086,750
25,000 5.500%, 08/01/08 Aaa/AAA 25,844
Rhode Island Consolidated Capital Development
Loan, 1993 Series A, AMBAC Insured
1,000,000 4.800%, 06/15/02 Aaa/AAA 1,017,500
Rhode Island Consolidated Capital Development
Loan, 1993 Series A, FGIC Insured
1,000,000 5.100%, 11/01/13 Aaa/AAA 993,750
Town of Scituate, Rhode Island, MBIA Insured
375,000 5.500%, 04/01/09 Aaa/AAA 387,656
</PAGE>
<PAGE>
South Kingstown, Rhode Island, MBIA Insured
390,000 5.000%, 03/15/08 Aaa/AAA 392,925
125,000 5.125%, 06/01/08 Aaa/AAA 126,718
390,000 5.050%, 03/15/09 Aaa/AAA 392,925
170,000 5.200%, 06/01/09 Aaa/AAA 172,550
170,000 5.250%, 06/01/10 Aaa/AAA 172,550
100,000 6.300%, 12/15/11 Aaa/AAA 106,750
South Kingstown, Rhode Island, AMBAC Insured
400,000 4.900%, 11/15/07 Aaa/AAA 402,500
Warwick, Rhode Island, MBIA Insured
150,000 6.100%, 11/15/01 Aaa/AAA 156,562
Warwick, Rhode Island, FGIC Insured
50,000 7.000%, 11/15/02 Aaa/AAA 51,628
Warwick, Rhode Island, FSA Insured
195,000 5.600%, 08/01/14 Aaa/AAA 201,338
1,000,000 5.000%, 03/01/18 Aaa/AAA 955,000
West Warwick, Rhode Island, MBIA Insured
500,000 5.800%, 01/01/04 Aaa/AAA 524,375
500,000 5.900%, 01/01/05 Aaa/AAA 524,375
Woonsocket, Rhode Island, MBIA Insured
385,000 5.125%, 03/01/11 Aaa/AAA 385,481
655,000 4.450%, 12/15/12 Aaa/AAA 605,875
685,000 4.550%, 12/15/13 Aaa/AAA 642,188
Total General Obligation Bonds 30,040,179
REVENUE BONDS (58.2%)
HIGHER EDUCATION REVENUE BONDS (16.9%)
Rhode Island Health & Education Building Corp.,
Higher Education, Various Purpose 1990 Series
B, FSA Insured
25,000 7.250%, 09/15/06 Aaa/AAA 25,678
Rhode Island Health & Education Building Corp.,
Bryant College, MBIA Insured
100,000 6.300%, 06/01/03 Aaa/AAA 106,750
</PAGE>
<PAGE>
Rhode Island Health & Education Building Corp.,
Bryant College, 1992 2nd Series, MBIA Insured
50,000 5.550%, 06/01/03 Aaa/AAA 52,125
100,000 5.800%, 06/01/05 Aaa/AAA 105,375
Rhode Island Health & Education Building Corp.,
Johnson & Wales University, 1993 Series A,
AMBAC Insured
100,000 5.200%, 04/01/04 NR/AAA 102,500
500,000 5.250%, 04/01/16 NR/AAA 491,250
1,000,000 5.000%, 09/01/23 NR/AAA 925,000
Rhode Island Health & Education Building Corp.,
Johnson & Wales University, 1992 Series A,
AMBAC Insured
200,000 5.875%, 04/01/05 NR/AAA 211,250
150,000 5.750%, 04/01/12 NR/AAA 156,188
150,000 6.375%, 04/01/12 NR/AAA 161,250
Rhode Island Health & Education Building Corp.,
Johnson & Wales University, 1999 Series A,
MBIA Insured
465,000 5.500%, 04/01/15 Aaa/AAA 474,881
600,000 5.500%, 04/01/16 Aaa/AAA 612,000
Rhode Island Health & Education Building Corp.,
Providence College, 1993 Series, MBIA Insured
300,000 5.600%, 11/01/09 Aaa/AAA 309,750
300,000 5.600%, 11/01/10 Aaa/AAA 308,625
1,500,000 5.600%, 11/01/22 Aaa/AAA 1,509,375
Rhode Island Health & Education Building Corp.,
Rhode Island School of Design, 1992 Series,
MBIA Insured
200,000 5.800%, 06/01/05 Aaa/AAA 211,500
Rhode Island Health & Education Building Corp.,
Brown University, 1993 Series, MBIA Insured
500,000 5.400%, 09/01/18 Aaa/AAA 493,750
500,000 5.375%, 09/01/23 Aaa/AAA 490,000
</PAGE>
<PAGE>
Rhode Island Health & Education Building Corp.,
Roger Williams University, 1996 Series S,
AMBAC Insured
1,000,000 5.500%, 11/15/11 NR/AAA 1,027,500
Rhode Island Health & Education Building Corp.,
Roger Williams University, 1996 Series S,
AMBAC Insured
1,000,000 5.000%, 11/15/18 Aaa/AAA 942,500
Rhode Island Health & Education Building Corp.,
Roger Williams University, 1996 Series S,
AMBAC Insured
2,500,000 5.000%, 11/15/24 Aaa/AAA 2,309,375
Rhode Island Health & Education Building Corp.,
Board of Governors, 1993 Series A, MBIA Insured
450,000 5.300%, 09/15/08 Aaa/AAA 459,000
55,000 5.500%, 09/15/13 Aaa/AAA 56,512
140,000 5.250%, 09/15/23 Aaa/AAA 134,750
500,000 5.250%, 09/15/23 Aaa/AAA 481,250
Rhode Island Health & Education Building Corp.,
Board of Governors, 1993 Series B,
MBIA Insured
245,000 5.500%, 09/15/13 Aaa/AAA 251,738
Rhode Island Health & Education Building Corp.,
Salve Regina, 1993 Series, AMBAC Insured
150,000 5.300%, 03/15/00 NR/AAA 151,914
150,000 6.100%, 03/15/06 NR/AAA 159,375
12,721,161
HOSPITAL REVENUE BONDS (5.3%)
Rhode Island Health & Education Building
Corporation, Women & Infants Hospital,
1992 Series, FSA Insured
100,000 6.150%, 09/01/05 Aaa/AAA 106,000
400,000 6.350%, 09/01/07 Aaa/AAA 426,000
300,000 6.550%, 09/01/13 Aaa/AAA 321,000
</PAGE>
<PAGE>
Rhode Island Health & Education Building
Corporation, Kent County Memorial Hospital,
1992 Series, MBIA Insured
150,000 6.000%, 07/01/06 Aaa/AAA 156,375
Rhode Island Health & Education Building
Corporation - Hospital Fing - Lifespan Obligation
Group, MBIA Insured
2,000,000 5.750%, 05/15/23 Aaa/AAA 2,042,500
1,000,000 5.250%, 05/15/26 Aaa/AAA 957,500
4,009,375
MORTGAGE REVENUE-MULTI FAMILY BONDS (0.8%)
Rhode Island Housing & Mortgage Finance Corp,
1995 Series A, AMBAC Insured
300,000 5.450%, 07/01/04 Aaa/AAA 310,125
300,000 5.550%, 07/01/05 Aaa/AAA 312,000
622,125
WATER AND SEWER REVENUE BONDS (2.4%)
Kent County Water Authority Revenue Bonds,
1994 Series A,
250,000 5.700%, 07/15/04, MBIA Insured Aaa/AAA 263,438
Bristol County Rhode Island Water Authority, 1997
Series A,
750,000 5.250%, 07/01/17, MBIA Insured Aaa/AAA 735,938
Bristol County Rhode Island, MBIA Insured
300,000 5.000%, 12/01/08 Aaa/AAA 302,625
Rhode Island Clean Water Protection Finance
Agency, Series A, AMBAC Insured
500,000 4.750%, 10/01/20 Aaa/AAA 453,125
1,755,126
UTILITY REVENUE BONDS (.3%)
Puerto Rico Electric Power Authority, Series Q,
FSA Insured
100,000 5.750%, 07/01/07 Aaa/AAA 104,625
50,000 6.000%, 07/01/10 Aaa/AAA 50,407
Puerto Rico Aqueduct and Sewer (Escrowed to
Maturity)
85,000 5.900%, 07/01/06 88,931
243,963
</PAGE>
<PAGE>
DEVELOPMENT REVENUE BONDS (18.5%)
Rhode Island Convention Center Authority, 1991
Series A, MBIA Insured (Escrowed to Maturity)
100,000 6.375%, 05/15/01 Aaa/AAA 105,875
100,000 6.100%, 05/15/02 Aaa/AAA 105,375
150,000 6.300%, 05/15/04 Aaa/AAA 158,625
Rhode Island Convention Center Authority, 1993
Series B, MBIA Insured
500,000 5.000%, 05/15/07 Aaa/AAA 506,250
Rhode Island Convention Center Authority, 1993
Series A, AMBAC Insured
500,000 5.400%, 05/15/08 Aaa/AAA 517,500
300,000 5.500%, 05/15/13 Aaa/AAA 310,125
2,500,000 5.000%, 05/15/20 Aaa/AAA 2,353,125
1,200,000 5.000%, 05/15/23 Aaa/AAA 1,117,500
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 730,412
300,000 6.600%, 02/01/02 Aaa/AAA 316,875
Rhode Island Public Building Authority State Public
Projects, 1993 Series A, AMBAC Insured
500,000 5.100%, 02/01/05 Aaa/AAA 511,875
1,000,000 5.250%, 02/01/10 Aaa/AAA 1,011,250
Rhode Island Public Building Authority State Public
Projects, 1990 Series A, AMBAC Insured
785,000 6.000%, 02/01/11 Aaa/AAA 806,588
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 384,375
35,000 6.750%, 02/01/00 Aaa/AAA 36,311
Rhode Island Public Building Authority State Public
Projects, 1996 School Series B, MBIA Insured
500,000 5.500%, 12/15/14 Aaa/AAA 510,000
1,000,000 5.250%, 12/15/14 Aaa/AAA 995,000
500,000 5.500%, 12/15/15 Aaa/AAA 508,125
</PAGE>
<PAGE>
Rhode Island State Economic Development Corp.,
University of Rhode Island Series, FSA Insured
750,000 4.800%, 11/01/11 Aaa/NR 728,438
750,000 4.900%, 11/01/12 Aaa/NR 728,438
750,000 4.900%, 11/01/13 Aaa/NR 722,812
750,000 5.000%, 11/01/14 Aaa/NR 726,562
13,891,436
POLLUTION CONTROL REVENUE BONDS (3.0%)
Rhode Island Clean Water Protection, 1993 Series
A, MBIA Insured
200,000 5.300%, 10/01/07 Aaa/AAA 206,500
300,000 5.400%, 10/01/09 Aaa/AAA 310,875
1,250,000 5.400%, 10/01/15 Aaa/AAA 1,270,313
Rhode Island Clean Water Protection, 1993 Series
B, MBIA Insured,
500,000 4.500, 10/01/11 Aaa/AAA 470,625
2,258,313
OTHER REVENUE BONDS (11.0%)
State of Rhode Island Depositors Economic
Protection Corp., 1992 Series A, FSA Insured
210,000 6.000%, 08/01/01 Aaa/AAA 217,875
State of Rhode Island Depositors Economic
Protection Corp., 1992 Series B, MBIA Insured
135,000 5.500%, 08/01/06 Aaa/AAA 141,413
500,000 6.000%, 08/01/17 Aaa/AAA 531,875
State of Rhode Island Depositors Economic
Protection Corp., 1993 Series A, MBIA Insured
70,000 5.625%, 08/01/09 Aaa/AAA 73,413
State of Rhode Island Depositors Economic
Protection Corp., 1993 Series A, MBIA Insured
285,000 5.625%, 08/01/09 Aaa/AAA 298,181
</PAGE>
<PAGE>
State of Rhode Island Depositors Economic
Protection Corp., MBIA Insured
300,000 5.800%, 08/01/09 Aaa/AAA 318,750
1,000,000 5.000%, 07/01/18 Aaa/AAA 943,750
1,045,000 5.250%, 08/01/21 Aaa/AAA 1,055,450
2,700,000 5.000%, 07/01/23 Aaa/AAA 2,517,750
Rhode Island State and Local Facilities, MBIA
Insured
1,500,000 5.400%, 08/01/08 Aaa/AAA 1,563,750
State of Rhode Island Certificates of Participation,
Howard Center Improvements, MBIA Insured
400,000 5.250%, 10/01/10 Aaa/AAA 405,500
200,000 5.375%, 10/01/16 Aaa/AAA 200,250
8,267,957
Total Revenue Bonds 43,769,456
Total Investments (cost $73,904,966*) 98.2% 73,809,635
Other assets in excess of liabilities 1.8 1,340,470
Net Assets 100.0% $ 75,150,105
</TABLE>
(*)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.
</PAGE>
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $73,904,966) $ 73,809,635
Cash 433,282
Interest receivable 1,089,577
Receivable for Fund shares sold 486,577
Total assets 75,819,071
LIABILITIES
Payable for investment securities purchased 420,000
Payable for Fund shares redeemed 115,260
Dividends payable 59,116
Distribution fees payable 34,563
Accrued expenses 33,927
Management fee payable 6,100
Total liabilities 668,966
NET ASSETS $ 75,150,105
Net Assets consist of:
Capital Stock - Authorized 80,000,000 shares, par value $.01 per share $ 73,993
Additional paid-in capital 75,230,559
Net unrealized depreciation on investments (95,331)
Distributions in excess of net investment income (59,116)
$ 75,150,105
CLASS A
Net Assets $ 66,610,579
Capital shares outstanding 6,558,486
Net asset value and redemption price per share $ 10.16
Offering price per share (100/96 of $10.16 adjusted to nearest cent) $ 10.58
CLASS C
Net Assets $ 4,212,575
Capital shares outstanding 414,827
Net asset value and offering price per share $ 10.16
Redemption price per share (*a charge of 1% is imposed on the redemption
proceeds of the shares, or on the original price, whichever is lower, if
redeemed during the first 12 months after purchase) $ 10.16*
CLASS I
Net Assets $ 77,067
Capital shares outstanding 7,590
Net asset value, offering and redemption price per share $ 10.15
CLASS Y
Net Assets $ 4,249,884
Capital shares outstanding 418,364
Net asset value, offering and redemption price per share $ 10.16
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 3,227,230
Expenses:
Management fee (note 3) $ 322,451
Distribution and service fees (note 3) 123,498
Legal fees 40,604
Trustees' fees and expenses (note 8) 37,709
Shareholders' reports and proxy statements 25,307
Transfer and shareholder servicing agent fees 24,740
Audit and accounting fees 19,750
Custodian fees 8,919
Registration fees and dues 8,441
Insurance 2,985
Miscellaneous 20,860
635,264
Management fee waived (note 3) (266,429)
Reimbursement of expenses by Manager (note 3) (84,848)
Expenses paid indirectly (note 7) (22,825)
Net expenses 261,162
Net investment income 2,966,068
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from securities transactions 17,917
Change in unrealized depreciation on investments (2,366,788)
Net realized and unrealized loss on investments (2,348,871)
Net increase in net assets resulting from operations $ 617,197
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 1998
</CAPTION>
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 2,966,068 $ 2,370,226
Net realized gain from securities transactions 17,917 -
Change in unrealized depreciation on investments (2,366,788) 1,342,773
Change in net assets from operations 617,197 3,712,999
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6):
Class A Shares:
Net investment income (2,805,557) (2,351,223)
Net realized gain on investments - -
Class C Shares:
Net investment income (129,420) (52,701)
Net realized gain on investments - -
Class I Shares:
Net investment income (77,910) -
Net realized gain on investments - -
Class Y Shares:
Net investment income (2,402) (113)
Net realized gain on investments - -
Change in net assets from distributions (3,015,289) (2,404,037)
CAPITAL SHARE TRANSACTIONS (NOTE 9):
Proceeds from shares sold 27,352,127 14,588,209
Reinvested dividends and distributions 1,940,859 1,376,354
Cost of shares redeemed (6,545,680) (5,497,648)
Change in net assets from capital share transactions 22,747,306 10,466,915
Change in net assets 20,349,214 11,775,877
NET ASSETS:
Beginning of period 54,800,891 43,025,014
End of period (including distributions in excess of net
investment income of $59,116 and $43,776, in 1999
and 1998, respectively) $ 75,150,105 $ 54,800,891
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Narragansett Insured Tax-Free Income Fund (the "Fund"), a
non-diversified, open-end investment company, was organized on January 22,
1992 as a Massachusetts business trust and commenced operations on September
10, 1992. The Fund is authorized to issue 80,000,000 shares and, since its
inception to May 1, 1996, offered only one class of shares. On that date, the
Fund began offering two additional classes of shares, Class C and Class Y
shares. All shares outstanding prior to that date were designated as Class A
shares and 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 and are not
offered directly to 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 and are identical as to rights and privileges and
differ with respect to the effect of sales charges, the distribution and/or
service fees borne by each 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 pricing
service and periodically verified through other pricing services;
independent 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.
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
</PAGE>
<PAGE>
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 year ended June 30, 1999, the Fund incurred fees for advisory
and administrative services of $322,451 of which $266,429 was voluntarily
waived. Additionally, the Manager voluntarily agreed to reimburse the Fund
for other expenses during this period in the amount of $84,848.
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 year ended June 30, 1999, service fees
on Class A Shares amounted to $89,047, of which the Distributor received
$1,996.
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Fund's Class C shares
or servicing of shareholder accounts. These payments are made at the annual
rate of 0.75% of the Fund's net assets represented by Class C Shares and for
the year ended June 30, 1999, amounted to $25,819. In addition, under a
Shareholder Services Plan, the Fund is authorized to make service fee
payments with respect to Class C Shares to Qualified Recipients for providing
personal services and/or maintenance of shareholder accounts. These payments
are made at the annual rate of 0.25% of the Fund's net assets represented by
Class C Shares and for the year ended June 30, 1999, amounted to $8,606. The
total of these payments with respect to Class C Shares amounted to $34,425,
of which the Distributor received $26,294.
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
</PAGE>
<PAGE>
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 year ended June 30, 1999, these payments were
made at the average annual rate of 0.05% of such net assets and amounted to
$26.
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
year ended June 30, 1999, the Distributor received commissions of $40,780 on
sales of Class A shares.
4. PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1999, purchases of securities and
proceeds from the sales of securities aggregated $22,646,351 and $863,500,
respectively.
At June 30, 1999, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to $1,193,929 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value amounted to
$1,289,260, for a net unrealized depreciation of $95,331.
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 June 30, 1999,
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 June 30, 1999, the Fund had 2.1% 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.
8. TRUSTEES' FEES AND EXPENSES
During the fiscal year there were six Trustees. Trustees' fees paid
during the year were at the average annual rate of $3,350 for carrying out
their responsibilities and attendance at regularly scheduled Board Meetings.
If additional or special meetings are scheduled for the Fund, separate
meeting fees are paid for each such meeting to those Trustees in attendance.
The Fund also reimburses Trustees for expenses such as travel,
accommodations, and meals incurred in connection with attendance at regularly
scheduled or special Board Meetings and at the Annual Meeting and outreach
meetings of Shareholders. For the fiscal year ended June 30, 1999, such
reimbursements averaged approximately $2,800 per Trustee. One of the
Trustees, who is affiliated with the Manager, is not paid any Trustee fees.
</PAGE>
<PAGE>
9. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1998
SHARES AMOUNT SHARES AMOUNT
</CAPTION>
<S> <C> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 2,012,032 $ 21,120,498 1,171,521 $ 12,169,353
Reinvested distributions 168,469 1,766,917 128,741 1,340,037
Cost of shares redeemed (588,072) (6,175,657) (512,096) (5,326,530)
Net change 1,592,429 16,711,758 788,166 8,182,860
CLASS C SHARES:
Proceeds from shares sold 172,113 1,808,558 230,636 2,402,356
Reinvested distributions 10,573 110,784 3,479 36,310
Cost of shares redeemed (33,179) (348,670) (16,414) (171,117)
Net change 149,507 1,570,672 217,701 2,267,549
CLASS I SHARES*:
Proceeds from shares sold 7,590 480,000 - -
Reinvested distributions - - - -
Cost of shares redeemed - - - -
Net change 7,590 80,000 - -
CLASS Y SHARES:
Proceeds from shares sold 412,735 4,343,071 1,590 16,500
Reinvested distributions 6,063 63,158 - 6
Cost of shares redeemed (2,035) (21,353) - -
Net change 416,763 4,384,876 1,590 16,506
Total transactions in Fund
shares 2,166,289 $ 22,747,306 1,007,457 $ 10,466,915
</TABLE>
* For the period November 4, 1998 to June 30, 1999.
</PAGE>
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A(1) CLASS I(2)
PERIOD (3)
YEAR ENDED JUNE 30, ENDED
1999 1998 1997 1996 1995 6/30/99
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.47 $10.18 $9.93 $9.80 $9.44 $10.54
Income from Investment Operations:
Net investment income 0.49 0.50 0.51 0.52 0.54 0.31
Net gain (loss) on securities
(both realized and unrealized) (0.30) 0.30 0.26 0.13 0.36 (0.38)
Total from Investment Operations 0.19 0.80 0.77 0.65 0.90 (0.07)
Less Distributions (note 6):
Dividends from net investment income (0.50) (0.51) (0.52) (0.52) (0.54) (0.32)
Distributions from capital gains - - - - - -
Total Distributions (0.50) (0.51) (0.52) (0.52) (0.54) (0.32)
Net Asset Value, End of Period $10.16 $10.47 $10.18 $9.93 $9.80 $10.15
Total Return (not reflecting sales charge)(%) 1.74 8.02 7.95 6.72 9.82 (0.75)+
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 66,611 52,006 42,540 37,988 34,373 77
Ratio of Expenses to Average Net Assets (%) 0.39 0.28 0.23 0.15 0.07 0.49*
Ratio of Net Investment Income to
Average Net Assets (%) 4.61 4.83 5.02 5.18 5.62 4.54*
Portfolio Turnover Rate (%) 1.36 0.02 5.29 0 0 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 1.16 1.18 0.87*
Ratio of Net Investment Income (Loss) to
Average Net Assets (%) 4.09 3.99 4.05 4.17 4.51 4.16*
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 (%) 0.35 0.27 0.21 0.14 0.06 0.46*
</TABLE>
(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 June 30, 1999.
+ Not annualized.
* Annualized.
See accompanying notes to financial statements.
</PAGE>
<PAGE>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C(1) CLASS Y(1)
PERIOD(2) PERIOD(2)
YEAR ENDED JUNE 30, ENDED YEAR ENDED JUNE 30, ENDED
1999 1998 1997 6/30/96 1999 1998 1997 6/30/96
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.47 $10.18 $9.93 $9.94 $10.47 $10.19 $9.93 $9.94
Income from Investment Operations:
Net investment income 0.38 0.40 0.41 0.07 0.49 0.59 0.56 0.09
Net gain (loss) on securities (both
realized and unrealized) (0.29) 0.30 0.26 (0.01) (0.30) 0.29 0.26 (0.01)
Total from Investment Operations 0.09 0.70 0.67 0.06 0.19 0.88 0.82 0.08
Less Distributions (note 6):
Dividends from net investment income (0.40) (0.41) (0.42) (0.07) (0.50) (0.60) (0.56) (0.09)
Distributions from capital gains - - - - - - - -
Total Distributions (0.40) (0.41) (0.42) (0.07) (0.50) (0.60) (0.56) (0.09)
Net Asset Value, End of Period $10.16 $10.47 $10.18 $9.93 $10.16 $10.47 $10.19 $9.93
Total Return (not reflecting sales charge) (%) 0.76 6.94 6.89 0.60+ 1.79 8.80 8.48 0.80+
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 4,213 2,778 485 0.1 4,250 17 0.1 0.1
Ratio of Expenses to Average Net
Assets (%) 1.35 1.29 1.08 0.20+ 0.33 0.28 0.08 0.14+
Ratio of Net Investment Income to
Average Net Assets (%) 3.65 3.77 4.20 0.70+ 4.65 4.66 5.20 0.89+
Portfolio Turnover Rate (%) 1.36 0.02 5.29 0 1.36 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 (%) 1.75 1.93 2.08 0.32+ 0.70 0.83 1.08 0.15+
Ratio of Net Investment Income (Loss) to
Average Net Assets (%) 3.25 3.11 3.20 0.58+ 4.29 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 (%) 1.32 1.28 1.06 0.20+ 0.30 0.27 0.06 0.14+
</TABLE>
(1) New Class of Shares established on May 1, 1996.
(2) From May 1, 1996 to June 30, 1996.
+ Not annualized.
See accompanying notes to financial statements.
</PAGE>
<PAGE>
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.
The Fund has not incurred, nor is anticipated to incur, any costs
related to Y2K. All such costs are being incurred by the respective vendors.
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.
FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
This information is presented in order to comply with a
requirement of the Internal Revenue Code AND NO CURRENT ACTION ON THE PART OF
SHAREHOLDERS IS REQUIRED.
For the fiscal year ended June 30, 1999, $2,965,835 of dividends
paid by Narragansett Insured Tax-Free Income Fund, constituting 98.86% of
total dividends paid during fiscal 1999, were exempt-interest dividends;
$15,969 of dividends paid, constituting .53% of total dividends paid during
fiscal 1999, were capital gain dividends; and the balance was ordinary
dividend income.
Prior to January 31, 1999, shareholders were mailed IRS Form
1099-DIV which contained information on the status of distributions paid for
the 1998 CALENDAR YEAR.
</PAGE>
Independent Auditors Report
To the Board of Trustees and Shareholders of
Narragansett Insured Tax-Free Income Fund:
We have audited the accompanying statement of assets and liabilities
of Narragansett Insured Tax-Free Income Fund , including the statement
of investments, as of June 30, 1999, and the related statement of operations
for the year ended, the statements of change in net assets for each of the two
years in the period then ended and the financial highlights for each of the five
years in the period then ended. These financial statements and financial high-
lights are the responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and financial highlights
based on our audits.
We have conducted our auditors in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
June 30, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates may
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Narragansett Insured Tax-Free Income Fund as of June 30, 1999, the results of
its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
- ---------------------
New York, New York,
July 27, 1999
