<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
757 Third Avenue
New York, New York 10017
Further information is contained in the Prospectus,
which must precede or accompany this report.
ANNUAL
REPORT
JUNE 30, 2000
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 seagulls flying 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: rectangle with profile view
of a sailboat on top of waves and three seagulls flying above it]
NARRAGANSETT INSURED TAX-FREE INCOME FUND
ANNUAL REPORT
"CONSISTENCY"
August 18, 2000
Dear Fellow Shareholder:
If there is one word that captures the essence of Narragansett Insured
Tax-Free Income Fund, that word is "CONSISTENCY."
The Fund has constantly attempted to provide:
* CONSISTENCY of share value,
* CONSISTENCY in the TAX-FREE return produced by the Fund
* CONSISTENCY of quality of investments and
* CONSISTENCY in the type of investments for the Fund.
CONSISTENCY OF SHARE VALUE
As you are aware, management of the Fund cannot control interest rates or
their effect upon the market. Interest rates are primarily controlled by the
Federal Reserve Board. The Fed increases or decreases rates as they feel is
necessary in order to maintain the stability and growth potential of the economy
of the United States.
When the Federal Reserve feels that growth in the economy is increasing at
too rapid a pace, they tend to increase interest rates and reduce the supply of
money in order to slow down the rate of growth. (This is what has happened
during the past year or so.) On the other hand, when the Federal Reserve feels
that the economy needs stimulation, there is a tendency to decrease interest
rates and increase the supply of money in order to provide an additional impetus
to the overall economy.
Interest rate changes have the effect in the marketplace of creating
changes in the share value of fixed-income securities such as the Fund. As we
have previously indicated, when interest rates go up, the share value goes down.
And, when interest rates go down, the share value goes up. What we have done is
to use various investment management techniques to dampen the swings that can
occur in the share value of the Fund.
</PAGE>
<PAGE>
Despite the variations in share price that have taken place since the
inception of the Fund, management of the Fund has strived to provide, to the
maximum extent possible, CONSISTENCY in the value of the Fund's shares. This you
will note from the chart below.
[Graphic of a bar chart with following information:]
SHARE NET ASSET VALUE
9/30/92 $ 9.52
12/31/92 9.59
12/31/93 10.31
12/31/94 9.11
12/31/95 10.24
12/31/96 10.14
12/31/97 10.46
12/31/98 10.55
12/31/99 9.76
6/30/2000 9.91
Since the majority of investors using the Fund are pre-retirees or
retirees, this action by the Fund of maintaining a stable share value is what we
feel is in the best interest of all shareholders. We want you to know that when
you need money from your investment in the Fund, it is THERE - at approximately
the same value that it has been all along.
CONSISTENCY IN THE TAX-FREE RETURN PRODUCED BY THE FUND
When you look at the Fund in terms of income produced on a year-by-year
basis, you will observe that we have tried to provide the maximum level of
yearly TAX-FREE return as can be produced by a quality-oriented portfolio of
municipal securities.
As you are aware, this level of return will vary from year to year as
interest rate changes by the Federal Reserve affect the overall marketplace.
Nevertheless, there is a CONSISTENCY to the level of return that the Fund would
like to provide for you and other shareholders.
Although the income level received by shareholders will vary from year to
year, it does have a CONSISTENCY to it. And, this is why shareholders buy and
own the Fund - for that CONSISTENCY of TAX-FREE income.
During recent years, the level of SPENDABLE TAX-FREE return provided to
shareholders has ranged between 4.48% to 5.05% based upon an average share value
of the Fund.
Shareholders of Narragansett Insured Tax-Free Income Fund should not buy or
sell the Fund based upon capital appreciation, such as they would with an equity
or stock fund.
An analogy for a shareholder of Narragansett Insured Tax-Free Income Fund
would be a person buying a dairy cow for the steady stream of milk it supplies,
not for what it might be worth when he/she sells it.
What the Fund is providing is a relatively steady stream of TAX-FR EE
income and a relatively stable share value.
</PAGE>
<PAGE>
Shareholders buy and hold their position in Narragansett Insured Tax-Free
Income Fund for the longer term, not for a quick in and out. Therefore,
shareholders do NOT and should NOT look upon the Fund for its total return -
but, rather for the income stream it provides in the form of TAX-FREE dividends.
Also, when you look at the recent level of TAX-FREE income provided by the
Fund and measure that against the taxable income required to provide the same
amount of money in your pocket, here's what things look like.
[Graphic of a bar chart with the following information:]
NARRAGANSETT INSURED TAX-FREE INCOME FUND'S DOUBLE TAX-FREE
DISTRIBUTION RATE AS COMPARED TO THE TAXABLE EQUIVALENT RATE
AN INVESTOR WOULD HAVE TO EARN AT VARIOUS TAX BRACKETS
TAX BRACKET DOUBLE TAX-FREE DISTRIBUTION RATE TAXABLE EQUIVALENT INCOME
28% 4.75% 7.15%
31% 4.75% 7.65%
36% 4.75% 8.41%
40% 4.75% 9.04%
CONSISTENCY OF QUALITY OF INVESTMENTS
Since inception of the Fund, management has CONSISTENTLY sought
high-quality investments for its shareholders.
We don't like surprises. Nor, do shareholders like surprises. We believe
the best way to avoid surprises is to stick with quality.
With the securities in the Trust, we have gone one step further. We have
constantly made sure that every security in the portfolio has a AAA rating. For
the most part, this has been achieved through insurance provided by prominent
nationally-recognized insurance companies which specialize in insuring municipal
securities. We are still conscious - as many of the citizens of Rhode Island are
- of the credit problems that existed in the state in the early 1990s. Insurance
can avoid any future problems.
CONSISTENCY IN THE TYPE OF INVESTMENTS FOR THE FUND
Management of Narragansett Insured Tax-Free Income Fund has CONSISTENTLY
embraced the idea that your investment should not only help shareholders
financially, but also help your state and its communities. Thus, investments in
the Fund are as diversified as possible. Diversification geographically and by
type of project is another way of ensuring that your money is doing the best job
possible for not only you, but also for your community and state.
</PAGE>
<PAGE>
[Graphic of a pie chart with the following information:]
PORTFOLIO DISTRIBUTION BY MARKET SECTOR
Various Purposes 44.90%
School Districts 1.15%
Development 12.08%
Higher Education 22.72%
Other 9.21%
Hospitals 1.41%
Utilities 0.15%
Housing 0.89%
Water 7.49%
SUMMARY
As we have tried to illustrate in this report to you, the essence of
Narragansett Insured Tax-Free Income Fund is CONSISTENCY. This is what we feel
that shareholders are primarily interested in. And, this is exactly what we are
trying to provide to you and other shareholders.
CONSISTENCY OF APPRECIATION
As always, we again wish to express our appreciation for the confidence you
have shown by your investment in Narragansett Insured Tax-Free Income Fund. We
can assure you that we will CONSISTENTLY do our best to merit your continued
level of trust.
Sincerely,
/s/ Diana P. Herrmann
-----------------------
Diana P. Herrmann
President
/s/ Lacy B. Herrman
--------------------
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, 2000 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 a line chart with the following information:]
<TABLE>
<CAPTION>
LEHMAN BROTHERS QUALITY INTERMEDIATE FUND'S CLASS A SHARES
MUNICIPAL BOND INDEX WITH SALES CHARGE WITHOUT SALES CHARGE COST OF LIVING INDEX
</CAPTION>
<S> <C> <C> <C> <C>
6/92 $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
6/00 15,420 14,784 15,400 12,194
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED JUNE 30, 2000
SINCE
1 YEAR 5 YEARS INCEPTION
Class A (9/10/92)
With Sales Charge (1.49)% 4.50% 5.13%
Without Sales Charge 2.58 5.36 5.68
Class C (5/1/96)
With CDSC 0.70 n/a 4.09
Without CDSC 1.71 n/a 4.09
Class Y (5/1/96)
No Sales Charge 2.73 n/a 5.31
Class I (11/4/98)
No Sales Charge 2.56 n/a 1.08*
Lehman Index 4.00 5.47 5.69 (Class A)
4.00 n/a 5.38 (Class C&Y)
4.00 n/a 2.39* (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.
</PAGE>
<PAGE>
MANAGEMENT DISCUSSION
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-renowned credit rating services. As an extra measure of
credit protection to shareholders, all securities owned by the Fund are insured
by nationally-prominent municipal bond insurance companies as to timely payment
of principal and interest when due. 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, 2000 fiscal year end the
portfolio had an average maturity of 11.3 years.
The 1999 calendar year continued the strong economic pace of the prior
year. This economic momentum carried through into the second half of the Fund's
fiscal year ended June 30, 2000 and in doing so, it eclipsed the longevity of
the upward economic activity of the 1980's, 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 several major foreign
countries.
In order to control domestic economic growth, which has produced tight
labor markets, the Federal Reserve took the preemptive action of raising
interest rates six times since June 1999, for a total increase of 1 3/ 4%.
Inflation statistics have not shown any major resurgence, even though overall
economic momentum has been above average. However, the Federal Reserve believes
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 higher level of income has
resulted in the government garnering more taxes and therefore increased our
country's budget surplus. The result has been an increased 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 pan 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 remains 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 sub-adviser 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: four solid rectangles with the letters KPMG in front of
them]
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, 2000, 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 auditing standards generally
accepted in the United States of America. 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, 2000, by correspondence
with the custodian. 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, 2000, 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 accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
------------
New York, New York
August 4, 2000
</PAGE>
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
RATING
FACE MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (47.0%) S&P VALUE
</CAPTION>
<S> <C><C> <C> <C>
Town of Bristol, Rhode Island, MBIA Insured
$ 1,000,000 5.100%, 08/15/07 Aaa/AAA $ 1,007,500
100,000 6.000%, 12/15/11 Aaa/AAA 103,500
100,000 6.000%, 12/15/12 Aaa/AAA 103,375
Town of Burrillville, Rhode Island, AMBAC Insured
405,000 5.300%, 07/15/08 Aaa/AAA 412,087
Town of Burrillville, Rhode Island, MBIA Insured
250,000 5.400%, 10/15/06 Aaa/AAA 257,187
250,000 5.500%, 10/15/07 Aaa/AAA 257,500
150,000 5.700%, 10/15/10 Aaa/AAA 154,687
Central Falls, Rhode Island, MBIA Insured
500,000 4.900%, 11/15/05 Aaa/AAA 502,500
500,000 5.200%, 11/15/09 Aaa/AAA 505,625
Cranston, Rhode Island, MBIA Insured
1,120,000 5.300%, 07/15/05, MBIA Insured Aaa/AAA 1,139,600
300,000 5.500%, 06/15/07, MBIA Insured Aaa/AAA 310,500
500,000 5.450%, 11/15/11, FGIC Insured Aaa/AAA 514,375
Town of Cumberland, Rhode Island, MBIA Insured
345,000 5.500%, 09/01/06 Aaa/AAA 357,937
500,000 5.600%, 10/01/08 Aaa/AAA 513,125
500,000 5.000%, 08/01/15 Aaa/AAA 470,625
Town of Lincoln, Rhode Island, MBIA Insured
400,000 5.100%, 01/15/06 Aaa/AAA 405,000
400,000 5.200%, 08/15/06 Aaa/AAA 407,500
1,000,000 5.500%, 08/15/10 Aaa/AAA 1,022,500
100,000 5.625%, 04/15/11 Aaa/AAA 102,125
Town of Lincoln, Rhode Island, FGIC Insured
250,000 5.750%, 08/01/15 Aaa/AAA 254,687
Narragansett, Rhode Island, MBIA Insured
300,000 5.100%, 09/15/06 Aaa/AAA 304,125
1,000,000 5.300%, 09/15/08 Aaa/AAA 1,018,750
Newport, Rhode Island, MBIA Insured
150,000 6.550%, 08/15/07 Aaa/AAA 155,813
Newport, Rhode Island, Series B, FGIC Insured
</PAGE>
<PAGE>
$ 250,000 4.900%, 05/15/06 Aaa/AAA $ 250,313
500,000 5.000%, 05/15/07 Aaa/AAA 502,500
500,000 5.100%, 05/15/08 Aaa/AAA 503,750
North Providence, Rhode Island, Series A,
MBIA Insured
400,000 5.700%, 07/01/08 Aaa/AAA 419,500
Pawtucket, Rhode Island,
100,000 6.650%, 09/15/06, MBIA Insured Aaa/AAA 104,250
600,000 4.300%, 09/15/09, AMBAC Insured Aaa/NR 558,000
250,000 4.400%, 09/15/10, AMBAC Insured Aaa/NR 232,813
Pawtucket, Rhode Island, FGIC Insured
310,000 5.625%, 04/15/07 Aaa/AAA 321,238
500,000 5.750%, 04/15/09 Aaa/AAA 518,125
Providence, Rhode Island, MBIA Insured
100,000 5.400%, 08/01/01 Aaa/AAA 101,082
100,000 5.500%, 01/15/04 Aaa/AAA 102,375
100,000 5.900%, 01/15/09 Aaa/AAA 103,125
200,000 5.250%, 01/15/12 Aaa/AAA 200,250
Providence, Rhode Island, FSA Insured
700,000 5.500%, 01/15/11 Aaa/AAA 718,375
Providence, Rhode Island, AMBAC Insured
1,925,000 5.200%, 04/01/11 NR/AAA 1,908,156
East Providence, Rhode Island, MBIA Insured
500,000 5.400%, 05/15/07 Aaa/AAA 514,375
Commonwealth of Puerto Rico, MBIA Insured
100,000 5.750%, 07/01/09 Aaa/AAA 103,250
100,000 6.000%, 07/01/14 Aaa/AAA 103,000
500,000 5.875%, 07/01/18 Aaa/AAA 521,250
Commonwealth of Puerto Rico, AMBAC Insured
500,000 5.850%, 07/01/15 Aaa/AAA 520,625
State of Rhode Island Refunding, Series A,
FGIC Insured
1,000,000 5.000%, 07/15/05 Aaa/AAA 1,008,750
State of Rhode Island Refunding, Series A,
FGIC Insured
</PAGE>
<PAGE>
$ 1,000,000 5.125%, 07/15/11 Aaa/AAA $ 995,000
State of Rhode Island Refunding, Series A,
FGIC Insured
1,500,000 5.000%, 09/01/15 Aaa/AAA 1,411,875
Rhode Island Consolidated Capital Development
Loan, 1992 Series A, FGIC Insured
1,050,000 5.500%, 08/01/07 Aaa/AAA 1,076,166
Rhode Island Consolidated Capital Development
Loan, 1993 Series A, AMBAC Insured
1,000,000 4.800%, 06/15/02 Aaa/AAA 1,003,750
Rhode Island Consolidated Capital Development
Loan, 1993 Series A, FGIC Insured
1,000,000 5.100%, 11/01/13 Aaa/AAA 975,000
Town of Scituate, Rhode Island, MBIA Insured
375,000 5.500%, 04/01/09 Aaa/AAA 385,781
South Kingstown, Rhode Island, MBIA Insured
390,000 5.000%, 03/15/08 Aaa/AAA 390,975
390,000 5.050%, 03/15/09 Aaa/AAA 390,975
170,000 5.200%, 06/01/09 Aaa/AAA 171,700
170,000 5.250%, 06/01/10 Aaa/AAA 171,700
100,000 6.300%, 12/15/11 Aaa/AAA 104,250
500,000 5.500%, 06/15/12 Aaa/NR 509,375
South Kingstown, Rhode Island, AMBAC Insured
400,000 4.900%, 11/15/07 Aaa/AAA 399,500
Warwick, Rhode Island, MBIA Insured
150,000 6.100%, 11/15/01 Aaa/AAA 153,188
Warwick, Rhode Island, FSA Insured
195,000 5.600%, 08/01/14 Aaa/AAA 198,900
1,000,000 5.000%, 03/01/18 Aaa/AAA 917,500
West Warwick, Rhode Island, MBIA Insured
500,000 5.800%, 01/01/04 Aaa/AAA 516,875
500,000 5.900%, 01/01/05 Aaa/AAA 516,875
Woonsocket, Rhode Island,
</PAGE>
<PAGE>
$ 385,000 5.125%, 03/01/11, MBIA Insured Aaa/AAA $ 384,037
655,000 4.450%, 12/15/12, FGIC Insured Aaa/NR 595,231
685,000 4.550%, 12/15/13, FGICInsured Aaa/NR 622,494
Total General Obligation Bonds 31,486,872
REVENUE BONDS (52.5%)
HIGHER EDUCATION REVENUE BONDS (14.9%)
Rhode Island Health & Education Building Corp.,
Bryant College, MBIA Insured
100,000 6.300%, 06/01/03 Aaa/AAA 104,125
Rhode Island Health & Education Building Corp.,
Bryant College, 1992 2nd Series, MBIA Insured
50,000 5.550%, 06/01/03 Aaa/AAA 51,125
100,000 5.800%, 06/01/05 Aaa/AAA 103,625
Rhode Island Health & Education Building Corp.,
Johnson & Wales University, 1993 Series A,
AMBAC Insured
100,000 5.200%, 04/01/04 NR/AAA 100,875
500,000 5.250%, 04/01/16 NR/AAA 478,125
Rhode Island Health & Education Building Corp.,
Johnson & Wales University, 1992 Series A,
AMBAC Insured
200,000 5.875%, 04/01/05 NR/AAA 207,000
150,000 5.750%, 04/01/12 NR/AAA 153,563
150,000 6.375%, 04/01/12 NR/AAA 157,500
Rhode Island Health & Education Building Corp.,
Johnson & Wales University, 1999 Series A,
MBIA Insured
465,000 5.500%, 04/01/15 Aaa/AAA 466,163
600,000 5.500%, 04/01/16 Aaa/AAA 598,500
Rhode Island Health & Education Building Corp.,
Providence College, 1993 Series, MBIA Insured
500,000 5.125%, 11/15/11 Aaa/AAA 490,000
Rhode Island Health & Education Building Corp.,
Providence College, 1993 Series, MBIA Insured
(continued)
</PAGE>
<PAGE>
$ 300,000 5.600%, 11/01/09 Aaa/AAA $ 305,250
300,000 5.600%, 11/01/10 Aaa/AAA 304,500
1,500,000 5.600%, 11/01/22 Aaa/AAA 1,438,125
Rhode Island Health & Education Building Corp.,
Rhode Island School of Design, 1992 Series,
MBIA Insured
200,000 5.800%, 06/01/05 Aaa/AAA 207,750
Rhode Island Health & Education Building Corp.,
Brown University, 1993 Series, MBIA Insured
500,000 5.400%, 09/01/18 Aaa/AAA 481,250
500,000 5.375%, 09/01/23 Aaa/AAA 470,000
Rhode Island Health & Education Building Corp.,
Brown University, MBIA Insured
1,000,000 5.000%, 09/01/23 Aaa/AAA 875,000
Rhode Island Health & Education Building Corp.,
Roger Williams University, 1996 Series S,
AMBAC Insured
1,000,000 5.500%, 11/15/11 NR/AAA 1,008,750
Rhode Island Health & Education Building Corp.,
Roger Williams University, 1996 Series S,
AMBAC Insured
1,000,000 5.000%, 11/15/18 Aaa/AAA 902,500
Rhode Island Health & Education Building
Corp. - Board of Governors, 1993 Series A,
MBIA Insured
450,000 5.300%, 09/15/08 Aaa/AAA 450,562
500,000 5.250%, 09/15/23 Aaa/AAA 458,125
Rhode Island Health & Education Building Corp.,
Salve Regina, 1993 Series, AMBAC Insured
150,000 6.100%, 03/15/06 NR/AAA 156,562
9,968,975
HOSPITAL REVENUE BONDS (1.5%)
Rhode Island Health & Education Building
Corporation, Women & Infants Hospital, 1992
Series, FSA Insured
</PAGE>
<PAGE>
$ 100,000 6.150%, 09/01/05 Aaa/AAA $ 104,000
400,000 6.350%, 09/01/07 Aaa/AAA 417,500
300,000 6.550%, 09/01/13 Aaa/AAA 314,625
Rhode Island Health & Education Building
Corporation, Kent County Memorial Hospital
150,000 6.000%, 07/01/06 1992 Series, MBIA Insured Aaa/AAA 153,563
989,688
MORTGAGE REVENUE-MULTI FAMILY BONDS (0.9%)
Rhode Island Housing & Mortgage Finance Corp,
1995 Series A, AMBAC Insured
300,000 5.450%, 07/01/04 Aaa/AAA 304,125
300,000 5.550%, 07/01/05 Aaa/AAA 305,625
609,750
WATER AND SEWER REVENUE BONDS (4.0%)
Kent County Water Authority Revenue Bonds,
1994 Series A, MBIA Insured
250,000 5.700%, 07/15/04 Aaa/AAA 258,125
Bristol County Rhode Island Water Authority,
750,000 1997 Series A, MBIA Insured 5.250%, 07/01/17 Aaa/AAA 713,438
Bristol County Rhode Island, MBIA Insured
300,000 5.000%, 12/01/08 Aaa/AAA 297,375
Rhode Island Clean Water Protection Finance
Agency, Series A, AMBAC Insured
500,000 4.750%, 10/01/20 Aaa/AAA 433,750
Rhode Island Clean Water Protection Finance
Agency, Series 1999C, MBIA Insured
1,000,000 5.125%, 10/01/11 Aaa/AAA 985,000
2,687,688
UTILITY REVENUE BONDS (0.1%)
Puerto Rico Electric Power Authority, Series Q,
FSA Insured
</PAGE>
<PAGE>
$ 100,000 5.750%, 07/01/07 Aaa/AAA $ 103,375
103,375
DEVELOPMENT REVENUE BONDS (19.9%)
Rhode Island Convention Center Authority, 1991
Series A, MBIA Insured (Escrowed to Maturity)
100,000 6.100%, 05/15/01 Aaa/AAA 103,311
150,000 6.300%, 05/15/01 Aaa/AAA 155,216
100,000 6.375%, 05/15/01 Aaa/AAA 103,540
Rhode Island Convention Center Authority,
1993 Series B, MBIA Insured
500,000 5.000%, 05/15/07 Aaa/AAA 497,500
Rhode Island Convention Center Authority, 1993
Series A, AMBAC Insured
500,000 5.400%, 05/15/08 Aaa/AAA 508,750
300,000 5.500%, 05/15/13 Aaa/AAA 303,000
1,000,000 5.000%, 05/15/20 Aaa/AAA 906,250
1,200,000 5.000%, 05/15/23 Aaa/AAA 1,078,500
Rhode Island Public Building Authority State Public
Projects, 1990 Series A, AMBAC Insured
(Escrowed to Maturity)
300,000 6.600%, 02/01/01 Aaa/AAA 309,459
710,000 6.000%, 02/01/01 Aaa/AAA 716,170
Rhode Island Public Building Authority State Public
Projects, 1993 Series A, AMBAC Insured
500,000 5.100%, 02/01/05 Aaa/AAA 503,125
1,000,000 5.250%, 02/01/10 Aaa/AAA 1,001,250
Rhode Island Public Building Authority State Public
Projects, 1990 Series A, AMBAC Insured
785,000 6.000%, 02/01/11 Aaa/AAA 791,602
Rhode Island Public Building Authority State Public
Projects, 1989 Series A, AMBAC Insured
</PAGE>
<PAGE>
$ 1,000,000 (Escrowed to Maturity) 5.250%, 02/01/09 Aaa/AAA $ 1,002,500
Rhode Island Public Building Authority State Public
Projects, 1996 School Series B, MBIA Insured
500,000 5.500%, 12/15/14 Aaa/AAA 501,250
1,000,000 5.250%, 12/15/14 Aaa/AAA 981,250
500,000 5.500%, 12/15/15 Aaa/AAA 498,750
Rhode Island Public Building Authority State Public
Projects, 1999 Series A, AMBAC Insured
500,000 5.000%, 12/15/09 Aaa/AAA 497,500
Rhode Island State Economic Development Corp.,
University of Rhode Island Series, FSA Insured
750,000 4.800%, 11/01/11 Aaa/NR 705,938
750,000 4.900%, 11/01/12 Aaa/NR 708,750
750,000 4.900%, 11/01/13 Aaa/NR 707,813
750,000 5.000%, 11/01/14 Aaa/NR 711,562
13,292,986
POLLUTION CONTROL REVENUE BONDS (3.3%)
Rhode Island Clean Water Protection, 1993 Series A,
MBIA Insured
200,000 5.300%, 10/01/07 Aaa/AAA 202,500
300,000 5.400%, 10/01/09 Aaa/AAA 304,875
1,250,000 5.400%, 10/01/15 Aaa/AAA 1,243,750
Rhode Island Clean Water Protection, 1993 Series B,
MBIA Insured,
500,000 4.500, 10/01/11 Aaa/AAA 458,750
2,209,875
OTHER REVENUE BONDS (7.9%)
State of Rhode Island Depositors Economic
Protection Corp., 1992 Series A, FSA Insured
210,000 6.000%, 08/01/01 Aaa/AAA 213,573
State of Rhode Island Depositors Economic
Protection Corp., 1992 Series B, MBIA Insured
</PAGE>
<PAGE>
$ 135,000 5.500%, 08/01/06 Aaa/AAA $ 139,050
500,000 6.000%, 08/01/17 Aaa/AAA 513,125
State of Rhode Island Depositors Economic
Protection Corp., MBIA Insured
300,000 5.800%, 08/01/09 Aaa/AAA 316,125
1,000,000 5.000%, 07/01/18 Aaa/AAA 911,250
1,045,000 5.250%, 02/01/11 (Escrowed to Maturity) Aaa/AAA 1,050,225
Rhode Island State and Local Facilities,
MBIA Insured
1,500,000 5.400%, 08/01/08 Aaa/AAA 1,539,375
State of Rhode Island Certificates of Participation,
Howard Center Improvements, MBIA Insured
400,000 5.250%, 10/01/10 Aaa/AAA 399,000
200,000 5.375%, 10/01/16 Aaa/AAA 196,250
5,277,973
Total Revenue Bonds 35,140,310
Total Investments (cost $67,509,001*) 99.5% 66,627,182
Other assets in excess of liabilities 0.5 304,966
Net Assets 100.0% $ 66,932,148
</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, 2000
<TABLE>
<S> <C> <C> <C>
ASSETS
Investments at value (cost $67,509,001) $ 66,627,182
Interest receivable 1,000,689
Receivable for Fund shares sold 181,511
Due from Manager for reimbursement of expenses (note 3) 15,277
Total assets 67,824,659
LIABILITIES
Cash overdraft 706,400
Dividends payable 63,071
Payable for Fund shares redeemed 55,967
Distribution fees payable 33,860
Accrued expenses 27,757
Management fee payable 5,456
Total liabilities 892,511
NET ASSETS $ 66,932,148
Net Assets consist of:
Capital Stock - Authorized 80,000,000 shares, par value $.01 per share $ 67,564
Additional paid-in capital 68,878,590
Net unrealized depreciation on investments (881,819)
Accumulated net realized loss on investments (1,069,116)
Distributions in excess of net investment income (63,071)
$ 66,932,148
CLASS A
Net Assets $ 59,899,338
Capital shares outstanding 6,046,494
Net asset value and redemption price per share $ 9.91
Offering price per share (100/96 of $9.91 adjusted to nearest cent) $ 10.32
CLASS C
Net Assets $ 4,680,551
Capital shares outstanding 472,527
Net asset value and offering price per share $ 9.91
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) $ 9.91*
CLASS I
Net Assets $ 75,172
Capital shares outstanding 7,590
Net asset value, offering and redemption price per share $ 9.90
CLASS Y
Net Assets $ 2,277,087
Capital shares outstanding 229,824
Net asset value, offering and redemption price per share $ 9.91
</TABLE>
</PAGE>
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
<TABLE>
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 3,736,041
Expenses:
Management fee (note 3) $ 352,128
Distribution and service fees (note 3) 139,378
Trustees' fees and expenses (note 8) 45,572
Custodian fees 40,897
Legal fees 35,403
Shareholders' reports and proxy statements 28,632
Transfer and shareholder servicing agent fees 26,437
Audit and accounting fees 19,500
Registration fees and dues 10,986
Insurance 2,801
Miscellaneous 21,158
722,892
Management fee waived (note 3) (281,702)
Reimbursement of expenses by Manager (note 3) (117,545)
Expenses paid indirectly (note 7) (23,310)
Net expenses 300,335
Net investment income 3,435,706
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss from securities transactions (1,065,120)
Change in unrealized depreciation on investments (786,488)
Net realized and unrealized loss on investments (1,851,608)
Net increase in net assets resulting from operations $ 1,584,098
</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,
2000 1999
</CAPTION>
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 3,435,706 $ 2,966,068
Net realized gain (loss) from securities transactions (1,065,120) 17,917
Change in unrealized depreciation on investments (786,488) (2,366,788)
Change in net assets from operations 1,584,098 617,197
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6):
Class A Shares:
Net investment income (3,165,927) (2,805,557)
Net realized gain on investments - -
Class C Shares:
Net investment income (189,525) (129,420)
Net realized gain on investments - -
Class I Shares:
Net investment income (3,758) (2,402)
Net realized gain on investments - -
Class Y Shares:
Net investment income (159,634) (77,910)
Net realized gain on investments - -
Change in net assets from distributions (3,518,844) (3,015,289)
CAPITAL SHARE TRANSACTIONS (NOTE 9):
Proceeds from shares sold 9,872,797 27,352,127
Reinvested dividends and distributions 2,257,271 1,940,859
Cost of shares redeemed (18,413,279) (6,545,680)
Change in net assets from capital share transactions (6,283,211) 22,747,306
Change in net assets (8,217,957) 20,349,214
NET ASSETS:
Beginning of period 75,150,105 54,800,891
End of period $ 66,932,148 $ 75,150,105
</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 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.
Citizens Bank of Rhode Island (the "Sub-Adviser") 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 se rvices, 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.
</PAGE>
<PAGE>
For the year ended June 30, 2000, the Fund incurred fees for advisory and
administrative services of $352,128 of which $281,702 was voluntarily waived.
Additionally, the Manager voluntarily agreed to reimburse the Fund for other
expenses during this period in the amount of $117,545. Of this amount, $102,268
was paid prior to June 30, 2000 and the balance of $15,277 was paid in early
July 2000.
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, 2000, service fees on Class A Shares
amounted to $94,145, of which the Distributor received $2,032.
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, 2000, amounted to $33,911. 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, 2000, amounted to $11,303. The total of these payments with
respect to Class C Shares amounted to $45,214, of which the Distributor received
$25,718.
</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
year ended June 30, 2000, these payments were made at the average annual rate of
0.05% of such net assets and amounted to $19.
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, 2000, total commissions on sales of Class A Shares amounted to $264,578, of
which the Distributor received $26,311.
4. PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 2000, purchases of securities and proceeds
from the sales of securities aggregated $6,078,378 and $11,341,390,
respectively.
At June 30, 2000, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted to
$658,505 and aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over market value amounted to $1,540,324, for a
net unrealized depreciation of $881,819.
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, 2000, 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,
2000, the Fund had 2.0% of its net assets invested in five 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, in cash,
or in a combination of both, 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 ne t 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, one of whom is affiliated
with the Manager and is not paid any trustee fees. Trustees' fees paid during
the year were at the annual rate of $4,400 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 of Shareholders. For the fiscal year ended
June 30, 2000, such reimbursements averaged approximately $3,400 per Trustee.
</PAGE>
<PAGE>
9. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999
SHARES AMOUNT SHARES AMOUNT
</CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 795,001 $ 7,869,851 2,012,032 $ 21,120,498
Reinvested distributions 200,509 1,974,841 168,469 1,766,917
Cost of shares redeemed (1,507,502) (14,838,922) (588,072) (6,175,657)
Net change (511,992) (4,994,230) 1,592,429 16,711,758
CLASS C SHARES:
Proceeds from shares sold 161,719 1,585,370 172,113 1,808,558
Reinvested distributions 16,259 160,033 10,573 110,784
Cost of shares redeemed (120,278) (1,178,838) (33,179) (348,670)
Net change 57,700 566,565 149,507 1,570,672
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 42,471 417,576 412,735 4,343,071
Reinvested distributions 12,385 122,397 6,063 63,158
Cost of shares redeemed (243,396) (2,395,519) (2,035) (21,353)
Net change (188,540) (1,855,546) 416,763 4,384,876
Total transactions in Fund
shares (642,832) $ (6,283,211) 2,166,289 $ 22,747,306
</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 CLASS I
YEAR PERIOD
YEAR ENDED JUNE 30, ENDED ENDED
2000 1999 1998 1997 1996 6/30/00 6/30/99(1)
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.16 $10.47 $10.18 $9.93 $9.80 $10.15 $10.54
Income from Investment Operations:
Net investment income 0.49 0.49 0.50 0.51 0.52 0.48 0.31
Net gain (loss) on securities
(both realized and unrealized) (0.24) (0.30) 0.30 0.26 0.13 (0.23) (0.38)
Total from Investment Operations 0.25 0.19 0.80 0.77 0.65 0.25 (0.07)
Less Distributions (note 6):
Dividends from net investment income (0.50) (0.50) (0.51) (0.52) (0.52) (0.50) (0.32)
Distributions from capital gains - - - - - - -
Total Distributions (0.50) (0.50) (0.51) (0.52) (0.52) (0.50) (0.32)
Net Asset Value, End of Period $9.91 $10.16 $10.47 $10.18 $9.93 $9.90 $10.15
Total Return (not reflecting sales charge)(%) 2.58 1.74 8.02 7.95 6.72 2.56 (0.75)+
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 59,899 66,611 52,006 42,540 37,988 75 77
Ratio of Expenses to Average Net Assets (%) 0.41 0.39 0.28 0.23 0.15 0.43 0.49*
Ratio of Net Investment Income to Average
Net Assets (%) 4.89 4.61 4.83 5.02 5.18 4.87 4.54*
Portfolio Turnover Rate (%) 8.66 1.36 0.02 5.29 0 8.66 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 (%) 0.95 0.91 1.12 1.23 1.16 0.97 0.87*
Ratio of Net Investment Income to Average
Net Assets (%) 4.36 4.09 3.99 4.05 4.17 4.34 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 (%) 0.38 0.35 0.27 0.21 0.14 0.40 0.46*
</TABLE>
(1) For the period November 4, 1998 (commencement of operations) through June
30, 1999.
+ Not annualized.
* Annualized.
</PAGE>
<PAGE>
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C CLASS Y
PERIOD PERIOD
YEAR ENDED JUNE 30, ENDED YEAR ENDED JUNE 30, ENDED
2000 1999 1998 1997 6/30/96(1) 2000 1999 1998 1997 6/30/96(1)
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.16 $10.47 $10.18 $9.93 $9.94 $10.16 $10.47 $10.19 $9.93 $9.94
Income from Investment Operations:
Net investment income 0.40 0.38 0.40 0.41 0.07 0.50 0.49 0.59 0.56 0.09
Net gain (loss) on securities (both
realized and unrealized) (0.24) (0.29) 0.30 0.26 (0.01) (0.24) (0.30) 0.29 0.26 (0.01)
Total from Investment Operations 0.16 0.09 0.70 0.67 0.06 0.26 0.19 0.88 0.82 0.08
Less Distributions (note 6):
Dividends from net investment income (0.41) (0.40) (0.41) (0.42) (0.07) (0.51) (0.50) (0.60) (0.56) (0.09)
Distributions from capital gains - - - - - - - - - -
Total Distributions (0.41) (0.40) (0.41) (0.42) (0.07) (0.51) (0.50) (0.60) (0.56) (0.09)
Net Asset Value, End of Period $9.91 $10.16 $10.47 $10.18 $9.93 $9.91 $10.16 $10.47 $10.19 $9.93
Total Return (not reflecting sales
charge) (%) 1.71 0.76 6.94 6.89 0.60+ 2.73 1.79 8.80 8.48 0.80+
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) 4,681 4,213 2,778 485 0.1 2,277 4,250 17 0.1 0.1
Ratio of Expenses to Average Net
Assets (%) 1.26 1.35 1.29 1.08 0.20+ 0.26 0.33 0.28 0.08 0.14+
Ratio of Net Investment Income to
Average Net Assets (%) 4.04 3.65 3.77 4.20 0.70+ 5.07 4.65 4.66 5.20 0.89+
Portfolio Turnover Rate (%) 8.66 1.36 0.02 5.29 0 8.66 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 (%) 1.80 1.75 1.93 2.08 0.32+ 0.79 0.70 0.83 1.08 0.15+
Ratio of Net Investment Income to
Average Net Assets (%) 3.50 3.25 3.11 3.20 0.58+ 4.54 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 (%) 1.23 1.32 1.28 1.06 0.20+ 0.23 0.30 0.27 0.06 0.14+
</TABLE>
(1) For the period May 1, 1996 (commencement of operations) through June 30,
1996.
+ Not annualized.
See accompanying notes to financial statements.
</PAGE>
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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, 2000, $3,435,606 of dividends paid by
Narragansett Insured Tax-Free Income Fund, constituting 97.74% of total
dividends paid during fiscal 2000, were exempt-interest dividends; $3,996 of
dividends paid, constituting 0.11% of total dividends paid during fiscal 2000,
were capital gain dividends; and the balance was ordinary dividend income.
Prior to January 31, 2000, shareholders were mailed IRS Form 1099-DIV which
contained information on the status of distributions paid for the 1999 CALENDAR
YEAR.
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