File Nos. 33-48696 & 811-6707
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-12
NARRAGANSETT INSURED TAX-FREE INCOME FUND
(Exact Name of Registrant as Specified in Charter)
380 Madison Avenue, Suite 2300
New York, New York 10017
(Address of Principal Executive Offices)
(212) 697-6666
(Registrant's Telephone Number)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
<page>
Important Notice
Please Read Immediately
Aquilasm
Group of Funds
Narragansett Insured Tax-Free Income Fund
380 Madison Avenue, Suite 2300, New York, NY 10017
Notice of Annual Meeting of
Shareholders to Be Held
on October 10, 2002
To Shareholders of the Fund:
The purpose of this Notice is to advise you that an Annual Meeting of the
Shareholders of Narragansett Insured Tax-Free Income Fund (the "Fund"),
will be held:
Place: (a) at the Rhode Island Convention Center
1 Sabin Street
Providence, Rhode Island;
Time: (b) on October 10, 2002
at 2:30 p.m. Eastern Daylight time;
Purposes: (c) for the following purposes:
(i) to elect eight Trustees; each Trustee elected will hold
office until the next annual meeting of the Fund's
shareholders or until his or her successor is duly elected
(Proposal No. 1);
(ii) to ratify (that is, to approve) or reject the selection
of KPMG LLP as the Fund's independent auditors for the
fiscal year ending June 30, 2003 (Proposal No. 2);
(iii) to act upon a proposed new revised and amended
Investment Advisory and Administration Agreement under which
the Fund will become responsible for Fund accounting
expenses (Proposal No. 3);
(iv) to act upon any other matters which may properly come
before the Meeting at the scheduled time and place or any
adjourned meeting or meetings.
Who Can
Vote What
Shares: (d) To vote at the Meeting, you must have been a shareholder
on the Fund's records at the close of business on July 22,
2002 (the "record date"). Also, the number of shares of
each of the Fund's outstanding classes of shares
that you held at that time and the respective net
asset values of each class of shares at that time
determine the number of votes you may cast at the
Meeting (or any adjourned meeting or meetings).
By order of the Board of Trustees,
EDWARD M. W. HINES
Secretary
September 20, 2002
Please Note:
If you do not expect to attend the Meeting, please vote by any of three ways: by
telephone, by the Internet or by completing the enclosed proxy card and
returning it in the accompanying stamped envelope. To avoid unnecessary expense
to the Fund, we request your cooperation in voting no matter how large or small
your holding may be.
<page>
Narragansett Insured Tax-Free Income Fund
380 Madison Avenue, Suite 2300, New York, NY 10017
Proxy Statement
Introduction
The purpose of the Notice (the first two pages of this document) is to
advise you of the time, place and purposes of an Annual Meeting of the
Shareholders of Narragansett Insured Tax-Free Income Fund (the "Fund"). The
purpose of this Proxy Statement (all the rest of this document) is to give you
information on which you may base your decisions as to the choices, if any, you
make in voting.
The Fund's founder and Manager (the "Manager") is Aquila Management
Corporation, 380 Madison Avenue, Suite 2300, New York, NY 10017. The Fund's
principal underwriter (the "Distributor") is Aquila Distributors, Inc., 380
Madison Avenue, Suite 2300, New York, NY 10017. The Fund's Investment
Sub-Adviser is Citizens Investment Advisors, a department of Citizens Bank of
Rhode Island (the "Sub-Adviser"), One Citizens Plaza, Providence, RI 02903.
A copy of the Fund's most recent annual report will be sent to you without
charge upon written request to the Distributor at the above address or by
calling 800-437-1020 toll-free or 212-697-6666.
This Notice and Proxy Statement are first being mailed on or about
September 20, 2002.
You should read this Proxy Statement prior to voting. If your shares are
registered in the name of your broker or someone other than yourself, you may
authorize that person to vote your shares. If your shares are registered in your
name, you may vote in one of three ways:
(1) Proxy Card
The enclosed proxy card authorizes the persons named (or their substitutes)
to vote your shares; the Fund calls these persons the "proxy holders." As to the
election of Trustees you may authorize the proxy holders to vote your shares for
the entire slate indicated below by marking the appropriate box on the proxy
card or by merely signing and returning your proxy card with no instructions. Or
you may withhold the authority of the proxy holders to vote on the election of
Trustees by marking the appropriate box. Also, you may withhold that authority
as to any particular nominee by following the instructions on the proxy card.
As to the other matters listed on the proxy card, you may direct the proxy
holders to vote your shares on the proposals by marking the appropriate box
"For" or "Against" or instruct them not to vote your shares on the proposal by
marking the "Abstain" box. If you return your signed proxy card and do not mark
a box on the proposal, the proxy holders will vote your shares for that
proposal.
(2) Telephone Voting
To vote your shares by telephone, call the toll free number on your proxy
card. You will be prompted to enter the control number on your proxy card.
Follow the recorded instructions using your proxy card as a guide. If you vote
by phone, you need not return the proxy card by mail.
(3) Internet Voting
To vote your shares by the Internet, please contact the Fund at the
Internet address shown on your proxy card. You will be prompted to enter the
control number on your proxy card. Follow the instructions on the screen, using
your proxy card as a guide. If you vote by the Internet, you need not return the
proxy card by mail.
General Information
You may end the power of the proxy holders to vote your shares by: (i) so
notifying the Fund in writing; (ii) signing a new and different proxy card (if
the Fund receives it before the old one is used); (iii) voting your shares at
the meeting in person or by your duly appointed agent; or (iv) calling the toll
free number or contacting the Fund's Internet address, both of which are
detailed on your proxy card, entering your control number and revoking your
previous vote.
Proxies for shares held by brokers in "street name" and not voted or marked
as abstentions will be counted for purposes of determining a quorum. They will
be counted as present in determining voting results, which will have the same
effect as negative votes.
The Fund is sending you this Notice and Proxy Statement in connection with
the solicitation by its Trustees of proxies to be used at the Annual Meeting to
be held at the time and place and for the purposes indicated in the Notice or
any adjourned meeting or meetings. Whenever it is stated in this Proxy Statement
that a matter is to be acted on at the Meeting, this means the Meeting held at
the scheduled time or any adjourned meeting or meetings.
The Fund pays the costs of the solicitation. Proxies are being solicited by
the use of the mails; they may also be solicited by telephone, facsimile and
personal interviews. Brokerage firms, banks and others may be requested to
forward this Notice and Proxy Statement to beneficial owners of the Fund's
shares so that these owners may authorize the voting of their shares. The Fund
will pay these firms their out-of-pocket expenses for doing so.
On the record date, the Fund had four classes of shares outstanding. All
shareholders of the Fund are entitled to vote at the meeting. Each shareholder
on the record date is entitled to one vote for each dollar (and a proportionate
fractional vote for each fraction of a dollar) of net asset value (determined as
of the record date) represented by full and fractional shares of any class held
on the record date. On the record date, the net asset value per share of each of
the Fund's outstanding classes of shares was as follows: Class A Shares, $10.57;
Class C Shares, $10.57; Class Y Shares, $10.57; and Class I Shares, $10.57. The
meeting is expected to act only upon matters that affect the Fund as a whole:
the election of Trustees, the selection of independent auditors and the approval
of a new Advisory and Administration Agreement. On matters that affect the Fund
as a whole, all shareholders of the Fund, including the shareholders of all
classes of shares of the Fund, are entitled to vote at the meeting.
On the record date, the total number of shares outstanding for each class
of shares was as follows: Class A Shares, 8,236,345; Class C Shares, 1,546,601;
Class Y Shares, 1,125,003, and Class I Shares, 36,837.
On the record date, the following holders held 5% or more of the
outstanding shares of a class of Fund shares. On the basis of information
received from the institutional holders the Fund's management believes that all
of the shares indicated are held by them for the benefit of clients.
Institutional 5% shareholders
Name and Address of Percent
the Holder of Record Number of Shares of Class
National Financial Services 1,261,601 Class A Shares 15.3%
Corp.
200 Liberty Street
New York, NY 10281
Fiserv Securities Inc. 1,050,914 Class A Shares 12.8%
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
Merrill Lynch Pierce, 503,089 Class A Shares 6.11%
Fenner & Smith 391,951 Class C Shares 25.3%
4800 Deer Lake Dr. East
Jacksonville, FL 32246
Citizens Bank of Rhode Island 724,279 Class Y Shares 64.4%
870 Westminster Street
Providence, RI 02903
Donaldson Lufkin Jenrette 156,514 Class Y Shares 13.9%
Securities Corporation Inc.
P. O. Box 2052
Jersey City, NJ 07303
Perry Baker & Co. 36,837 Class I Shares 100.0%
The Washington Trust Co.
23 Broad Street
Westerly, RI 02891
The Fund's management is not aware of any other person beneficially owning
more than 5% of any class of its outstanding shares as of such date.
Election of Trustees
(Proposal No. 1)
At the Meeting, eight Trustees are to be elected. Each Trustee elected will
serve until the next annual meeting or until his or her successor is duly
elected. The nominees selected by the Trustees are named in the table below. See
"Introduction" above for information as to how you can vote your shares in the
election of Trustees.
The following material includes the name, positions with the Fund, address,
date of birth and business experience during at least the past five years of
each nominee and each officer of the Fund. All shares of the Fund listed as
owned by the Trustees are Class A Shares unless indicated otherwise. All of the
nominees are presently Trustees and were elected by the shareholders in October,
2001 except for Mr. Partridge and Mr. Ryan, who were elected by the Trustees to
fill vacancies. All nominees have consented to serve if elected.
Trustees (1)
and Officers
Number of
Positions Portfolios
Held with in Fund
Fund and Principal Complex Other
Name, Address(2) Length of Occupation(s) Overseen Directorships
and Date of Birth Service (3) During Past 5 Years by Trustee Held by Trustee
Interested Trustees(4)
Lacy B. Herrmann Chairman of Founder and Chairman of the 13 Director or trustee, OCC Cash
New York, NY the Board of Board, Aquila Management Reserves, Inc., OCC
(05/12/29) Trustees since Corporation, the sponsoring Accumulation Trust,
1992 organization and Manager or Oppenheimer Quest Value Funds
Administrator and/or Adviser or Group, Oppenheimer Small Cap
Sub-Adviser to each of the Value Fund, Oppenheimer
Aquilasm Group of Funds (5) and Midcap Fund, and Oppenheimer
Founder, Chairman of the Board of Rochester Group of Funds.
Trustees and (currently or until
1998) President of each since its
establishment, beginning in 1984;
Director of the Distributor since
1981and formerly Vice President
or Secretary, 1981-1998;
President and a Director, STCM
Management Company, Inc., sponsor
and investment adviser to Capital
Cash Management Trust and Capital
Cash U.S. Government Securities
Trust, since 1973; Trustee
Emeritus, Brown University and
active in university, school and
charitable organizations.
David A. Duffy Trustee Chairman, formerly President, 1 Citizens Bank of Rhode
North Kingstown, RI Since 1995 Duffy & Shanley, Inc., an Island since 1999.
(08/07/39) advertising, marketing and
public relations firm since
1973; National Chairman,
National Conference for
Community and Justice; Vice
Chairman, Providence College
Board of Trustees; officer or
director of numerous civic and
non-profit organizations.
John J. Partridge Trustee since Founding Partner, Partridge, 1 None
Providence, RI 2002 Snow & Hahn, LLP, a law firm,
(05/05/40) Providence, Rhode Island, since
1988; director of various
educational, civic and
charitable organizations,
including Greater Providence
Chamber of Commerce and Memorial
Hospital of Rhode Island.
Non-interested
Trustees
Vernon R. Alden Trustee since Retired; General Independent 1 Sonesta International Hotels
Boston, MA 1992 Partner, Merrill Lynch-Lee Corporation.
(04/07/23) Funds; former director or
trustee of various Fortune 500
companies, as well as various
open-end investment companies,
formerly President of Ohio
University and Associate Dean of
the Harvard University Graduate
School of Business
Administration; member of
several Japan-related advisory
councils; Honorary Consul
General of the Royal Kingdom of
Thailand; trustee of various
cultural, educational and civic
organizations.
Paul Y. Clinton Trustee since Principal, Clinton Management 3 Director or trustee, OCC
Osterville, MA 1996 Associates, a financial and Cash Reserves, Inc., OCC
Naples, FL venture capital consulting firm. Accumulation Trust,
(02/14/31) Oppenheimer Quest Value
Funds Group, Oppenheimer
Small Cap Value Fund,
Oppenheimer Midcap Fund, and
Oppenheimer Rochester Group
of Funds.
William J. Trustee since Chairman, founder (1975) and 2 Ring's End, Inc.
Nightingale 1992 Senior Advisor since 1995 of
Stamford, CT Nightingale & Associates, L.L.C.,
(09/16/29) a general management consulting
firm focusing on interim
management, divestitures,
turnaround of troubled companies,
corporate restructuring and
financial advisory services;
formerly an officer of Hanes
Corporation (women's apparel) and
General Mills, Inc. and a Senior
Associate of Booz, Allen &
Hamilton (management consultants).
Cornelius T. Ryan Trustee since Founder and General Partner, 4 Director of Neuberger &
Westport, CT and 2002 Oxford Ventures Partners, a group Berman Equity Funds.
Sun Valley, ID of investment venture capital
(11/14/31) partnerships, since 1981 and
Founder and General Partner,
Oxford Bioscience Partners, a
group of venture capital
partnerships focused on Life
Sciences, Genomics, Healthcare
Information Technology and
medical devices, since 1991.
J. William Weeks Trustee since Retired; limited partner and 4 None
Palm Beach, FL 1995 investor in various real estate
(06/22/27) partnerships since 1988; formerly
Senior Vice President or Vice
President of the Aquila Bond
Funds; and Vice President of the
Distributor.
Officers
Diana P. Herrmann President President and Chief Operating N/A None
New York, NY since 1998 Officer of the Manager since
(02/25/58) 1997, a Director since 1984,
Secretary since 1986 and
previously its Executive Vice
President, Senior Vice President
or Vice President, 1986-1997;
President, Senior Vice President
or Executive Vice President of
the Aquilasm Group of Funds since
1986; Director of the Distributor
since 1997; trustee, Reserve
Money-Market Funds, 1999-2000 and
Reserve Private Equity Series,
1998-2000; active in mutual fund
and trade organizations and in
charitable and volunteer
organizations.
Stephen J. Caridi Senior Vice Vice President of the Distributor N/A N/A
New York, NY President since since 1995; Vice President,
(05/06/61) 1998 and Vice Hawaiian Tax-Free Trust since
President 1998; Senior Vice President,
1996-1997 Narragansett Insured Tax-Free
Income Fund since 1998, Vice
President 1996-1997; Assistant
Vice President, Tax-Free Fund For
Utah since 1993.
Rose F. Marotta Chief Financial Chief Financial Officer of the N/A N/A
New York, NY Officer since Aquilasm Group of Funds since
(05/08/24) 1991 1991 and Treasurer, 1981-1991;
Treasurer and Director, STCM
Management Company, Inc., since
1974; Treasurer of the Manager
since 1984 and of the
Distributor, 1985-2000.
Joseph P. DiMaggio Treasurer since Treasurer of the Aquilasm Group N/A N/A
New York, NY 2000 of Funds and the Distributor
(11/06/56) since 2000; Controller, Van Eck
Global Funds, 1993-2000.
Edward M. W. Hines Secretary since Partner, Hollyer Brady Smith & N/A N/A
New York, NY 1992 Hines LLP, legal counsel to the
(12/16/39) Fund, since 1989; Secretary of
the Aquilasm Group of Funds.
Robert W. Anderson Assistant Compliance Officer of the Manager N/A N/A
New York, NY Secretary since 1998 and Assistant
(08/23/40) Since 2000 Secretary of the Aquilasm Group
of Funds since 2000; trustee,
Alternative Investment Strategies
Fund since July, 2002;
Consultant, The Wadsworth Group,
1995-1998.
John M. Herndon Assistant Assistant Secretary of the N/A N/A
New York, NY Secretary since Aquilasm Group of Funds since
(12/17/39) 1995 1995 and Vice President of the
five Aquila Money-Market Funds
since 1990; Vice President of the
Manager since 1990.
Lori A. Vindigni Assistant Assistant Treasurer of the N/A N/A
New York, NY Treasurer since Aquilasm Group of Funds since
(11/02/66) 2000 2000; Assistant Vice President of
the Manager since 1998; Fund
Accountant for the Aquilasm Group
of Funds, 1995-1998.
(1)The Fund's Statement of Additional Information includes additional
information about the Trustees and is available, without charge, upon request by
calling 800-437-1020 (toll free).
(2) The mailing address of each Trustee and officer is c/o Narragansett Insured
Tax-Free Income Fund, 380 Madison Avenue, New York, NY 10017.
(3) Each Trustee holds office until the next annual meeting of shareholders or
until his or her successor is elected and qualifies. The term of office of each
officer is one year.
(4) Mr. Herrmann is an interested person of the Fund, as that term is defined in
the 1940 Act, as an officer of the Fund, as a director, officer and shareholder
of the Manager and as a shareholder and director of the Distributor. Mr. Duffy
is an interested person of the Fund as a director of the Sub-Adviser. Mr.
Partridge is an interested person of the Fund as a partner of the law firm that
performs legal services for the Sub-Adviser.
(5) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S.
Government Securities Cash Assets Trust, Pacific Capital Tax-Free Cash Assets
Trust, Capital Cash Management Trust and Capital Cash U.S. Government Securities
Trust, each of which is a money-market fund, are called the "Aquila Money-Market
Funds"; Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of
Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free Fund of Kentucky,
Narragansett Insured Tax-Free Income Fund and Tax-Free Fund For Utah, each of
which is a tax-free municipal bond fund, are called the "Aquila Bond Funds";
Aquila Rocky Mountain Equity Fund is an equity fund; considered together, these
13 funds are called the "Aquilasm Group of Funds."
Securities Holdings of the Trustees
(as of 07-01-02)
Aggregate Dollar Range
Dollar Range of of Ownership in Aquilasm
Name of Ownership in Narragansett (1) Investment Companies
Trustee Insured Tax-Free Income Fund Overseen by Trustee (1)
Interested Trustees
Lacy B. Herrmann A E
David A. Duffy C C
John J. Partridge C C
Non interested Trustees
Vernon R. Alden B B
Paul Y. Clinton B B
William J. Nightingale B C
Cornelius T. Ryan B(2) B
J. William Weeks B C
(1) A. None
B. $1-$10,000
C. $10,001-$50,000
D. $50,001-$100,000
E. over $100,000
(2) As of August 29, 2002
None of the non-interested Trustees or their immediate family members holds
of record or beneficially any securities of the Manager or the Distributor.
The Fund does not currently pay fees to any of the Fund's officers or to
Trustees affiliated with the Manager or the Sub-Adviser. For its fiscal year
ended June 30, 2002 the Fund paid a total of $54,064 in compensation and
reimbursement of expenses to the Trustees. No other compensation or remuneration
of any type, direct or contingent, was paid by the Fund to its Trustees.
The Fund is one of the 13 funds in the Aquilasm Group of Funds, which
consist of tax-free municipal bond funds, money-market funds and an equity fund.
The following table lists the compensation of all nominees for Trustee who
received compensation from the Fund or from other funds in the Aquilasm Group of
Funds during the Fund's fiscal year. None of such Trustees has any pension or
retirement benefits from the Fund or any of the other funds in the Aquila group.
Compensation
From
all funds Number of
in the boards on
Compensation Aquilasm which the
from the Group Trustee
Fund of Funds now serves
Vernon R. Alden $4,850 $12,575(1) 1
Paul Y. Clinton $4,850 $10,750 3
David A. Duffy $4,400 $4,400 1
William J.
Nightingale $5,500 $12,100 2
John J. Partridge $2,200 $2,200 1
Cornelius T. Ryan $-0- $9,000 4
J. William Weeks $5,350 $20,200 4
(1) During the Fund's fiscal year Mr. Alden resigned from all other Aquila Fund
boards except for this Board.
Class A Shares may be purchased without a sales charge by certain of the
Fund's Trustees and officers.
The Fund's Manager is Manager or Administrator to the Aquilasm Group of
Funds, which consists of tax-free municipal bond funds, money market funds and
an equity fund. As of August 14, 2002, these funds had aggregate assets of
approximately $3.6 billion, of which approximately $2.2 billion consisted of
assets of the tax-free municipal bond funds. The Manager is controlled by Mr.
Lacy B. Herrmann, through share ownership directly, through a trust and by his
wife. During the fiscal year ended June 30, 2002, the Fund paid $464,655 in
management fees, of which $371,724 was waived and the balance was paid to the
Sub-Adviser.
During the fiscal year ended June 30, 2002, $112,466, was paid under Part I
of the Fund's Distribution Plan to Qualified Recipients with respect to the
Class A Shares, of which $2,542 was retained by the Distributor. With respect to
Class C Shares, during the same period $80,109 was paid under Part II of the
Plan and $26,703 was paid under the Shareholder Services Plan. Of these total
payments of $106,812, the Distributor received $36,002. All of such payments
were for compensation.
The Distributor currently handles the distribution of the shares of
thirteen funds (five money-market funds, seven tax-free municipal bond funds and
an equity fund), including the Fund. Under the Distribution Agreement, the
Distributor is responsible for the payment of certain printing and distribution
costs relating to prospectuses and reports as well as the costs of supplemental
sales literature, advertising and other promotional activities. The shares of
the Distributor are owned 24% by Diana P. Herrmann, 72% by Mr. Herrmann and
other members of his immediate family and the balance by current employees of
Aquila Management Corporation.
Other Information on Trustees
The Trustees have appointed a standing Audit Committee consisting of all of
the Trustees who are not "interested persons" of the Fund, as that term is
defined in the 1940 Act. The members of the Audit Committee are Vernon R. Alden,
Paul Y. Clinton, William J. Nightingale, Cornelius T. Ryan, and J. William
Weeks. None of the members of the Committee is an "interested person" of the
Fund. The Committee (i) recommends to the Board of Trustees what firm of
independent auditors will be selected by the Board of Trustees (subject to
shareholder ratification); (ii) reviews the methods, scope and result of audits
and the fees charged; and (iii) reviews the adequacy of the Fund's internal
accounting procedures and controls. The Committee held one meeting during the
Fund's last fiscal year.
During the Fund's last fiscal year, the Board of Trustees held four
meetings. Each current Trustee was present for at least 75% of the total number
of Board meetings and Audit Committee meetings (if such Trustee was a member of
that committee). The Board of Trustees does not have a nominating committee.
Since the beginning of the Fund's most recently completed fiscal year, no
Trustee purchased or sold shares of the Manager, Sub-adviser or the parents or
subsidiaries of either.
Vote Required
To be elected, each nominee must receive the affirmative vote of a majority
of the shares present.
Ratification or Rejection
of Selection of
Independent Auditors
(Proposal No. 2)
KPMG LLP ("KPMG"), which is currently serving as the Fund's independent
auditors, has been selected by the Fund's Board of Trustees, including a
majority of the Independent Trustees, as the Fund's independent auditors for the
fiscal year ending June 30, 2003. Such selection is submitted to the
shareholders for ratification or rejection.
KPMG billed the Fund for the following fees for the fiscal year ended
June 30, 2002:
Audit Fees: $14,500
Financial Information
Systems Design and Implementation $-0-
All Other Fees $8,900
(Fees for preparation
of the Fund's tax
returns and related
memoranda.)
KPMG did not perform any services during the fiscal year for the Fund's
investment adviser (the Manager) or any entity controlling, controlled by or
under common control with the Manager that provides services to the Fund.
The Audit Committee of the Fund's Board of Trustees, which consists of all
of the independent Trustees, has reviewed all services performed and fees
charged by KPMG and has accepted its representation that it is independent in
recommending re-appointment of it for the fiscal year ending June 30, 2003.
KPMG has no direct or indirect financial interest in the Fund, the Manager
or the Sub-Adviser. It is expected that representatives of KPMG will not be
present at the meeting but will be available should any matter arise requiring
their presence.
Vote Required
Approval requires the affirmative votes of a majority of the shares
present.
Consideration of a New Revised and Amended
Advisory and Administration Agreement
Which will Provide that the Fund
Will pay for Fund Accounting Services
Currently paid for by the Manager
(Proposal No. 3)
Background and Reasons for the Proposal
The purpose of this proposal is to authorize a new revised and amended
Advisory and Administration Agreement (the "Proposed Agreement") between the
Fund and Aquila Management Corporation, the Manager. The only change between the
current Advisory and Administration Agreement (the "Current Agreement") and the
Proposed Agreement is that the payment for the cost of fund accounting,
currently the responsibility of the Manager, will become the responsibility of
the Fund under the Proposed Agreement.
The Current Agreement provides that the Manager shall either keep the
accounting records of the Fund, including the computation of net asset value per
share and the dividends or, at its expense and responsibility, delegate such
duties in whole or in part to a company satisfactory to the Fund. These services
are called "Fund Accounting." The Fund Accounting services for the Fund are
currently delegated to an outside service provider and are currently supervised
and paid for by the Manager. It is proposed that while an outside service
provider will continue to provide accounting services to the Fund under the
Manager's continued supervision, the costs of the Fund Accounting services will
be shifted from the Manager to the Fund. If the Proposal is approved, these
costs will be borne by the Fund and not by the Manager.
What is Fund Accounting?
Fund Accounting is the routine bookkeeping function under which the Fund's
per share price (net asset value) is computed each day for the purposes of sales
and redemptions of the Fund's shares. Fund Accounting also tracks the Fund's
income and expenses for the purpose of calculating the Fund's daily dividends.
What are the current and anticipated costs of Fund Accounting?
The cost of providing Fund Accounting to the Fund at its current asset
level of approximately $117.7 million is approximately $52,200 per year. Based
on the Fund's current net assets, this equates to approximately 4.4 basis points
(0.044%) in annual expenses.
At the present time there would be no change in the Fund's net expenses
because the Manager is currently reimbursing Fund expenses as necessary to
maintain a competitive yield and waiving its management fee. The Manager has
assured the Board of Trustees that it intends to continue such support in order
that the Fund remains competitive in the marketplace. Thus, while the Fund would
become responsible for the Fund Accounting fee, that fee would currently
continue to be reimbursed by the Manager under the current arrangements.
Under the current Fund Accounting fee structure, the maximum fee paid by
the Fund would be as follows at various asset sizes:
Estimated Class A Share
Expense Ratio (%)
Net of Waivers
Net Assets Annual Fund Accounting Fee Gross and Reimbursements
($MM) ($) (%) (%) (%)
118(8/14/02) 52,200 0.044 0.91 0.46
150 52,200 0.035 0.90 0.52
200 56,200 0.028 0.86 0.60
250 66,200 0.026 0.83 0.66
300 76,200 0.025 0.81 0.71
At present, there would be no change in the Fund's net expenses because the
Manager intends to continue to waive its management fee and reimburse expenses
as necessary.
What will happen if the Fund grows?
Although the Manager intends to continue to subsidize the Fund in order
that it will remain competitive within the marketplace, it is not obligated to
do so and could discontinue subsidization at any time. The Manager expects to
continue to waive fees and reimburse fund expenses so long as it considers such
subsidization necessary for competitive reasons. Accordingly, as Fund assets
grow, the Manager intends to reduce its subsidization of fund expenses, while at
the same time assuring that the Fund continues to remain competitive with its
yield in the marketplace. Initially the subsidization would be reduced with
respect to regular fund operating expenses, followed by reduction of the waiver
of management fees. Assuming continued growth of the Fund, at some point the
full Fund Accounting fee will be borne by the Fund.
When will the Manager cease to subsidize the Fund?
The Fund's yield is dependent on market factors, particularly the level of
interest rates, as well as its expenses, which are dependent upon the
competitive environment. Accordingly, it is difficult to specify the asset level
at which subsidization would be completely eliminated. Similarly, growth of the
asset size of the Fund is dependent on market factors, including competing funds
and the relative desirability of alternative investments. It is accordingly
difficult to predict when the Fund will reach a given level of assets.
It should be noted that since inception of the Fund in 1992, the Manager
has spent approximately $3 million in subsidization of Fund expenses to ensure
that the Fund has a competitive return. The Manager intends to continue such
subsidization as necessary. Based on past experience, the Manager currently
estimates that if and when Fund assets exceed approximately $130 million,
reimbursement of fund operating expenses would cease. The Manager would also
begin to take a part of the Management fee that is now being waived. As
currently projected, depending on the competitive environment, the Manager
expects that it will continue to waive some portion of the Management fee until
Fund assets reach $300 million.
What are the reasons for the Proposal?
The Manager is seeking this change to reduce its costs and thereby
effectively increase its net income without an increase in its management fee.
The Manager has advised the Board of Trustees that it has had increasing costs
of operations. A significant amount of such increased costs pertain to new
systems and additional resource requirements in a number of areas, including
compliance with new regulations regarding privacy, combating money laundering
and protecting against terrorism. The Manager noted that maintaining new and/or
upgraded systems and other technology investments and related support represents
an area of growing criticality for all mutual fund companies.
What changes in the Fund's expenses will result from the change?
Under the Proposed Agreement, the contractual advisory fee (currently being
waived) will continue to accrue at the annual rate of 0.50 of 1% of the Fund's
net asset value. The following tables show the Management fee and Other Expenses
(including Accounting) under the Current Agreement and the Proposed Agreement.
Annual Fund Operating Expenses
(as a percentage of the Fund's average daily net assets)
Annual Fund Operating Expenses (expenses that are deducted from the Fund's
assets) as they were for the fiscal year ended June 30, 2002.
Class A Class C Class I Class Y
Shares Shares Shares Shares
Management Fee(1)......... 0.50% 0.50% 0.500% 0.50%
Distribution (12b-1) Fee. 0.15% 0.75% 0.025% None
All Other Expenses:(2)
Service Fee..... None 0.25% 0.025% None
Other Expenses(2) 0.26% 0.26% 0.370% 0.26%
Total All Other Expenses(2).. 0.26% 0.51% 0.395% 0.26%
Total Annual Fund
Operating Expenses(3)...0.91% 1.76% 0.920% 0.76%
Annual Fund Operating Expenses (expenses that are deducted from the
Fund's assets) as they would have been for that year under the proposed
arrangement.
Class A Class C Class I Class Y
Shares Shares Shares Shares
Management Fee(1)......... 0.50% 0.50% 0.500% 0.50%
Distribution (12b-1) Fee. 0.15% 0.75% 0.025% None
All Other Expenses:(2)
Service Fee.... None 0.25% 0.025% None
Other Expenses...
(including 0.044%
fund accounting)(2) . 0.305% 0.305% 0.415% 0.305%
Total All Other Expenses(2)... 0.305% 0.555% 0.440% 0.305%
Total Annual Fund
Operating Expenses(3)....0.955% 1.805% 0.965% 0.805%
(1) The Fund pays the Manager an advisory fee at the annual rate of 0.50% of 1%
of average annual net assets of which all but a small portion (that is paid to
the Sub-Adviser) is being waived. It is anticipated that once the asset size of
the Fund reaches approximately $130 million, these waivers would begin to
be phased out.
(2) Operating expenses are being subsidized through reimbursement by the Manager
as necessary. This subsidy is being phased out progressively so that the Fund
will bear its own expenses, other than management fees, once its asset size
reaches approximately $130 million.
(3) The undertakings of the Manager as to fee waivers and the practices of the
Manager as to expense reimbursement may reduce the fees and expenses of the Fund
in order for the Fund to maintain a competitive yield. These waivers and
reimbursements can be discontinued at any time. The expense ratios for the
fiscal year ended June 30, 2002 after giving effect to the waivers including
waivers by the former sub-adviser and the 0.03% expense offset for uninvested
cash balances were incurred at the following annual rates: for Class A Shares,
management fee, 0.10%; 12b-1 fee, 0.15%; other expenses, 0.21%, for total
operating expenses of 0.46%; for Class C Shares, management fee, 0.10%; 12b-1
fee, 0.75%; service fee, 0.25%; other expenses, 0.21%, for total operating
expenses of 1.31%; management fees, all other expenses, and total Fund operating
expenses for Class I Shares would have been 0.10%, 0.345% and 0.47%
respectively; for Class Y, these expenses would have been 0.10%, 0.21%, and
0.31%, respectively. Other expenses for the various classes differ because Class
I Shares bear program costs for financial intermediaries of 0.175%, which
includes transfer agent services, and charges common to both classes of 0.22%;
Class Y Shares bear only the common charges of 0.22% and an allocation for
transfer agent services of 0.04%.
The following table shows the contractual Management fees and Fund Accounting
fees during the Fund's latest fiscal year, the contractual fees if the proposed
arrangements had been in effect during that fiscal year and the percentage
change.
Fee accrued
if new
arrangements
Type of Fund Actually had been Percent
Fee accrued in effect change
Management fee $464,655(1) $464,655(1) 0%
Fund Accounting fee N/A $52,200(2) N/A
Total $464,655(1) $516,855(1)(2) 11%
(1) $371,724 waived; the balance was paid to the Sub-Adviser.
(2) Would have been reimbursed by the Manager. Fund Accounting fee reflects a
recent contractual increase.
What information about the Manager should I know?
The Fund's Manager is founder and Manager and/or administrator of each fund
in the Aquilasm Group of Funds, which consists of tax-free municipal bond funds,
money-market funds and equity funds. As of August 14, 2002 these funds had
aggregate assets of approximately $3.6 billion, of which approximately $2.2
billion consisted of assets of seven tax-free municipal bond funds. The Manager,
founded in 1984, is controlled by Mr. Lacy B. Herrmann, directly, through a
trust and through share ownership by his wife and daughter as follows:
Elizabeth B. Herrmann 27.5%
Lacy B. Herrmann 25%
Elizabeth B. Herrmann
1993 Annuity Trust 40%
Diana P. Herrmann 5%
The names, addresses and principal occupations of the
principal executive officer and each director of the Manager are as
follows:
Name Position with The Manager
Lacy B. Herrmann Chairman, Chief Executive Officer
and Director
Diana P. Herrmann President, Chief Operating Officer
and Director
Elizabeth B. Herrmann Director
The address of all of these individuals is 380 Madison Avenue, Suite
2300, New York, NY 10017.
When was the Current Agreement last approved?
The Current Agreement between the Fund and the Manager was approved by the
shareholders of the Fund in November, 1997. It has been renewed annually by the
Board of Trustees since that time, most recently in December, 2001.
What changes are proposed in the Proposed Agreement?
The complete text of the Proposed Agreement, marked to show the proposed
changes, is attached to this Proxy Statement.
What factors did the Board of Trustees consider
in approving the Proposed Agreement?
The Trustees noted that the Manager had presented for the Board's
consideration materials including, among other things: conditions and trends in
the municipal securities markets; an analysis of the Fund's current and
historical expenses, originally included in the contract evaluation material
reviewed by the Board in connection with renewal of the current agreement in
December, 2001; information about the non-profitability of the Manager's mutual
fund operations with respect to the Fund due to its fee waiver and subsidization
of Fund operating expenses; performance of the Fund as related to various
industry indices; and a statement of the rationale underlying the proposed
advisory fee structure. Copies of the Proposed Agreement were also provided.
The Trustees also noted that at their request, the Manager had retained at
the Manager's expense a recognized independent outside consulting firm to
analyze the frequency with which investment managers have unbundled Fund
Accounting from the management fee. The report of that firm indicated that there
may be a trend in this regard in the mutual fund industry. While the analysis
noted that 21 - 25% of funds disclose Fund Accounting as a separate fund
expense, it also noted that the frequency is higher in actuality because fund
accounting costs are often bundled into custody fees. The Manager advised the
Board that this is particularly the case with some of the larger custodian banks
based upon its discussions with a number of industry representatives. The
independent consultant's analysis also noted that a number of comparable funds
treat fund accounting as a fund expense.
From the foregoing, the Board of Trustees derived the following
considerations:
o Due to the current and prior management fee waiver and the subsidization of
the majority of Fund's expenses by the Manager, the performance and expense
ratio of the Fund continued to be at a highly competitive level.
o Consistent with previous determinations by the Board of Trustees, the
contracted Advisory and Administration fees were reasonable and well in
line with industry standards and the Fund's peer group, being in general
below those of comparable Funds. As of March 31, 2002, the Fund's gross
management fee was 0.50 of 1% versus the average and median of 0.57 and
0.55 of 1%, respectively, of those of comparable funds and the 0.55 of 1%
average of the three competing Rhode Island funds.
o Since inception of the Fund in 1992, the Manager has spent approximately $3
million on subsidization of Fund expenses to ensure that the Fund has a
competitive return. The waiver and expense reimbursement, as necessary, by
the Manager would continue until such time that the Fund reaches a size
significant enough that these fees and expenses can be phased in without
adversely affecting the Fund and its performance.
o It was noted that two of the competing Rhode Island funds treated fund
accounting as an appropriate fund expense.
o A comparison of the Fund's net operating expenses vis-a-vis comparable
funds reflected that most of the comparable funds have higher expense
structures than the Fund, based upon data provided by outside consultants
and fund financial reports. The Fund's net expense ratio for its Class A
Shares of 0.47 of 1% was also significantly lower than the 0.84 of 1%
average and 0.85 of 1% median for all front-end load shares of single-state
municipal bond funds (466 funds) and the 0.87 of 1% average of the three
competing Rhode Island funds.
o The overall nature and quality of the services provided by the Manager had
historically been, and continued to be, very high.
o The Fund has traditionally had a relatively low net ratio of expenses. The
Manager has assured through subsidization that the Fund has had consistent
performance relative to comparable and competing funds.
o The Manager has had increasing costs of its operations. Being relieved of
Fund Accounting costs would assist the Manager in maintaining new and/or
upgraded systems and other technology investments and related support and
in providing resources for compliance with the new regulatory and other
requirements, an area of growing criticality for all mutual fund companies.
o The proposed direct contractual relationship would make the Fund
Accounting service provider accountable to the Board of Trustees and give
the Board of Trustees greater ability to exercise oversight over its
functions.
o The Manager had agreed to share the costs with the Fund relating to the
proxy statement preparation.
o Due to the Manager's subsidization, the proposed change would have no
current impact on the Fund's net expense ratio.
o If the Fund's asset size increases, the cost of Fund Accounting services as
a percentage of its operating expenses will be well within the range of
expense ratios of comparable and competing funds and is not expected to
adversely affect its competitive position in the future.
On the basis of the foregoing considerations, the Board of Trustees,
including all of the Independent Trustees, voted to approve the proposed change
and recommend that the shareholders of the Fund approve it.
The Board of Trustees will consider the proposal again at an in-person
meeting immediately preceding the Shareholder Meeting, at which time the above
action is expected to be re-approved. If the Board of Trustees should not
approve the Proposed Agreement at that meeting, the proposal will be withdrawn
and will not be voted on by the shareholders.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE NEW REVISED AND AMENDED ADVISORY AND
ADMINISTRATION AGREEMENT DESCRIBED ABOVE BE APPROVED.
Vote Required
The favorable vote of the holders of a majority (as defined in the 1940
Act) of the outstanding shares of the Fund is required for the approval of this
Proposal No. 3. Under the 1940 Act, the vote of the holders of a majority of the
outstanding shares of the Fund means the vote of the holders of the lesser of
(a) 67% or more of the shares of the Fund present at the Meeting or represented
by proxy if the holders of more than 50% of such shares are so present or
represented, or (b) more than 50% of the outstanding shares of the Fund, with
one (1) vote for each dollar (and a proportionate fractional vote for each
fraction of a dollar) of net asset value (determined as of the record date)
represented by full and fractional shares of all of the Fund's three classes of
shares.
If the shareholders of the Fund fail to approve Proposal No. 3, the Board
of Trustees will consider what action might be appropriate, including calling
another meeting of the shareholders or continuing with the present arrangements.
Receipt of
Shareholder Proposals
Under the proxy rules of the Securities and Exchange Commission,
shareholder proposals meeting tests contained in those rules may, under certain
conditions, be included in the Fund's proxy statement and proxy card for a
particular annual meeting. One of these conditions relates to the timely receipt
by the Fund of any such proposal. Under these rules, proposals submitted for
inclusion in the proxy material for the Fund's next annual meeting after the
meeting to which this Proxy Statement relates must be received by the Fund not
less than 120 days before the anniversary of the date stated in this Proxy
Statement for the first mailing of this Proxy Statement. The date for such
submission could change, depending on the scheduled date for the next annual
meeting; if so, the Fund will so advise you.
The fact that the Fund receives a shareholder proposal in a timely manner
does not insure its inclusion in the Fund's proxy material, since there are
other requirements in the proxy rules relating to such inclusion.
Other Business
The Fund does not know of any other matter which will come up for action at
the Meeting. If any other matter or matters properly come up for action at the
Meeting, including any adjournment of the Meeting, the proxy holders will vote
the shares which your proxy card, telephone or Internet vote entitles them to
vote, in accordance with their judgment on such matter or matters, except as
noted. That is, by signing and returning your proxy card or by voting by
telephone or the Internet, you give the proxy holders discretionary authority as
to any such matter or matters.
<page>
Attachment A
NARRAGANSETT INSURED TAX-FREE INCOME FUND
ADVISORY AND ADMINISTRATION AGREEMENT
THIS AGREEMENT, made as of by and between NARRAGANSETT
INSURED TAX-FREE INCOME FUND (the "Fund"), a Massachusetts business trust, 380
Madison Avenue, Suite 2300, New York, New York 10017 and AQUILA MANAGEMENT
CORPORATION (the "Manager"), a New York corporation, 380 Madison Avenue, Suite
2300, New York, New York 10017
W I T N E S S E T H:
WHEREAS, the Fund and the Manager wish to enter into an Advisory and
Administration Agreement referred to hereafter as "this Agreement," with respect
to the Fund;
NOW THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. In General
The Manager shall perform (at its own expense) the functions set forth
more fully herein for the Fund.
2. Duties and Obligations of the Manager
(a) Investment Advisory Services Subject to the succeeding
provisions of this section and subject to the direction and control of the
Board of Trustees of the Fund, the Manager shall:
(i) supervise continuously the investment program of the Fund and the
composition of its portfolio;
(ii) determine what securities shall be purchased or sold by the Fund;
(iii) arrange for the purchase and the sale of securities held in the
portfolio of the Fund;
(iv) at its expense provide for pricing of the Fund's portfolio daily using
a pricing service or other source of pricing information satisfactory to
the Fund and, unless otherwise directed by the Board of Trustees, provide
for pricing of the Fund's portfolio at least quarterly using another such
source satisfactory to the Fund; and
Subject to the provisions of Section 5 hereof, the Manager may at its own
expense delegate to a qualified organization ("Sub-Adviser"), affiliated or not
affiliated with the Manager, any or all of the above duties. Any such delegation
of the duties set forth in (i), (ii) or (iii) above shall be by a written
agreement (the "Sub-Advisory Agreement") approved as provided in Section 15 of
the Investment Company Act of 1940.
(b) Administration. Subject to the succeeding provisions of this section
and subject to the direction and control of the Board of Trustees of the Fund,
the Manager shall provide all administrative services to the Fund other than
those relating to its investment portfolio delegated to a Sub-Adviser of the
Fund under a Sub-Advisory Agreement; as part of such administrative duties, the
Manager shall:
(i) provide office space, personnel, facilities and equipment for the
performance of the following functions and for the maintenance of the
headquarters of the Fund;
(ii) oversee all relationships between the Fund and any sub-adviser,
transfer agent, custodian, legal counsel, auditors, fund accounting agent
and principal underwriter, including the negotiation of agreements in
relation thereto, the supervision and coordination of the performance of
such agreements, and the overseeing of all administrative matters which are
necessary or desirable for the effective operation of the Fund and for the
sale, servicing or redemption of the Fund's shares;
(iii) maintain the Fund's books and records, and prepare (or assist counsel
and auditors in the preparation of) all required proxy statements, reports
to the Fund's shareholders and Trustees, reports to and other filings with
the Securities and Exchange Commission and any other governmental agencies,
and tax returns, and oversee the insurance relationships of the Fund;
(iv) prepare, on behalf of the Fund and at the Fund's expense, such
applications and reports as may be necessary to register or maintain the
registration of the Fund and/or its shares under the securities or
"Blue-Sky" laws of all such jurisdictions as may be required from time to
time; and
(v) respond to any inquiries or other communications of shareholders of the
Fund and broker-dealers, or if any such inquiry or communication is more
properly to be responded to by the Fund's shareholder servicing and
transfer agent or distributor, oversee such shareholder servicing and
transfer agent's or distributor's response thereto.
(c) Compliance with Requirements. Any investment program furnished, and any
activities performed, by the Manager or by a Sub-Adviser under this section
shall at all times conform to, and be in accordance with, any requirements
imposed by: (1) the Investment Company Act of 1940 (the "Act") and any rules or
regulations in force thereunder; (2) any other applicable laws, rules and
regulations; (3) the Declaration of Trust and By-Laws of the Fund as amended
from time to time; (4) any policies and determinations of the Board of Trustees
of the Fund; and (5) the fundamental policies of the Fund, as reflected in its
registration statement under the Act or as amended by the shareholders of the
Fund.
(d) Best Efforts; Responsibility. The Manager shall give the Fund the
benefit of its best judgment and effort in rendering services hereunder, but the
Manager shall not be liable for any loss sustained by reason of the adoption of
any investment policy or the purchase, sale or retention of any security,
whether or not such purchase, sale or retention shall have been based upon (i)
its own investigation and research or (ii) investigation and research made by
any other individual, firm or corporation, if such purchase, sale or retention
shall have been made and such other individual, firm or corporation shall have
been selected in good faith by the Manager or a Sub-Adviser.
(e) Other Customers. Nothing in this Agreement shall prevent the Manager or
any officer thereof from acting as investment adviser, sub-adviser,
administrator or manager for any other person, firm, or corporation, and shall
not in any way limit or restrict the Manager or any of its officers,
stockholders or employees from buying, selling or trading any securities for its
own or their own accounts or for the accounts of others for whom it or they may
be acting, provided, however, that the Manager expressly represents that it will
undertake no activities which, in its judgment, will adversely affect the
performance of its obligations under this Agreement.
(f) Order Allocation. In connection with any duties for which it may become
responsible to arrange for the purchase and sale of the Fund's portfolio
securities, the Manager shall select, and shall cause any Sub-Adviser to select,
such broker-dealers ("dealers") as shall, in the Manager's judgment, implement
the policy of the Fund to achieve "best execution," i.e., prompt, efficient, and
reliable execution of orders at the most favorable net price. The Manager shall
cause the Fund to deal directly with the selling or purchasing principal or
market maker without incurring brokerage commissions unless the Manager
determines that better price or execution may be obtained by paying such
commissions; the Fund expects that most transactions will be principal
transactions at net prices and that the Fund will incur little or no brokerage
costs. The Fund understands that purchases from underwriters include a
commission or concession paid by the issuer to the underwriter and that
principal transactions placed through dealers include a spread between the bid
and asked prices. In allocating transactions to dealers, the Manager is
authorized and shall authorize any Sub-Adviser, to consider, in determining
whether a particular dealer will provide best execution, the dealer's
reliability, integrity, financial condition and risk in positioning the
securities involved, as well as the difficulty of the transaction in question,
and thus need not pay the lowest spread or commission available if the Manager
determines in good faith that the amount of commission is reasonable in relation
to the value of the brokerage and research services provided by the dealer,
viewed either in terms of the particular transaction or the Manager's overall
responsibilities. If, on the foregoing basis, the transaction in question could
be allocated to two or more dealers, the Manager is authorized, in making such
allocation, to consider (i) whether a dealer has provided research services, as
further discussed below; and (ii) whether a dealer has sold shares of the Fund.
Such research may be in written form or through direct contact with individuals
and may include quotations on portfolio securities and information on particular
issuers and industries, as well as on market, economic, or institutional
activities. The Fund recognizes that no dollar value can be placed on such
research services or on execution services and that such research services may
or may not be useful to the Fund and may be used for the benefit of the Manager
or its other clients. The Manager shall cause the foregoing provisions, in
substantially the same form, to be included in any Sub-Advisory Agreement.
(g) Registration Statement; Information. It is agreed that the Manager
shall have no responsibility or liability for the accuracy or completeness of
the Fund's Registration Statement under the Act and the Securities Act of 1933,
except for information supplied by the Manager for inclusion therein. The
Manager shall promptly inform the Fund as to any information concerning the
Manager appropriate for inclusion in such Registration Statement, or as to any
transaction or proposed transaction which might result in an assignment of the
Agreement.
(h) Liability for Error. The Manager shall not be liable for any error in
judgment or for any loss suffered by the Fund or its security holders in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Nothing in this Agreement shall, or
shall be construed to, waive or limit any rights which the Fund may have under
federal and state securities laws which may impose liability under certain
circumstances on persons who act in good faith.
(i) Indemnification. The Fund shall indemnify the Manager to the full
extent permitted by the Fund's Declaration of Trust.
3. Allocation of Expenses
The Manager shall, at its own expense, provide office space, facilities,
equipment, and personnel for the performance of its functions hereunder and
shall pay all compensation of Trustees, officers, and employees of the Fund who
are affiliated persons of the Manager.
The Fund agrees to bear the costs of preparing and setting in type its
prospectuses, statements of additional information and reports to its
shareholders, and the costs of printing or otherwise producing and distributing
those copies of such prospectuses, statements of additional information and
reports as are sent to its shareholders. All costs and expenses not expressly
assumed by the Manager under this sub-section or otherwise by the Manager,
administrator or principal underwriter or by any Sub-Adviser shall be paid by
the Fund, including, but not limited to (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation and expenses of its
Trustees other than those affiliated with the Manager or such adviser,
administrator or principal underwriter; (v) legal and audit expenses; (vi)
custodian and transfer agent, or shareholder servicing agent, fees and expenses;
(vii) expenses incident to the issuance of its shares (including issuance on the
payment of, or reinvestment of, dividends); (viii) fees and expenses incident to
the registration under Federal or State securities laws of the Fund or its
shares; (ix) expenses of preparing, printing and mailing reports and notices and
proxy material to shareholders of the Fund; (x) all other expenses incidental to
holding meetings of the Fund's shareholders; (xi) expenses of keeping the Fund's
accounting records including the computation of net asset value per share and
the dividends; and (xii) such non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligations for which the Fund may
have to indemnify its officers and Trustees.
4. Compensation of the Manager
The Fund agrees to pay the Manager, and the Manager agrees to accept as
full compensation for all services rendered by the Manager as such, an annual
fee payable monthly and computed on the net asset value of the Fund as of the
close of business each business day at the annual rate of 0.50 of 1% of such net
asset value.
5. Termination of Sub-Advisory Agreement
The Sub-Advisory Agreement may provide for its termination by the Manager
upon reasonable notice, provided, however, that the Manager agrees not to
terminate the Sub-Advisory Agreement except in accordance with such
authorization and direction of the Board of Trustees, if any, as may be in
effect from time to time.
6. Duration and Termination of this Agreement
(a) Duration. This Agreement shall become effective on the day it is
approved by the shareholders of the Fund and shall, unless terminated as
hereinafter provided, continue in effect until the December 31 next preceding
the first anniversary of the effective date of this Agreement, and from year to
year thereafter, but only so long as such continuance is specifically approved
at least annually (1) by a vote of the Fund's Board of Trustees, including a
vote of a majority of the Trustees who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party, with votes cast
in person at a meeting called for the purpose of voting on such approval, or (2)
by a vote of the holders of a "majority" (as so defined) of the outstanding
voting securities of the Fund and by such a vote of the Trustees.
(b) Termination. This Agreement may be terminated by the Manager at any
time without penalty upon giving the Fund sixty days' written notice (which
notice may be waived by the Fund) and may be terminated by the Fund at any time
without penalty upon giving the Manager sixty days' written notice (which notice
may be waived by the Manager), provided that such termination by the Fund shall
be directed or approved by a vote of a majority of its Trustees in office at the
time or by a vote of the holders of a majority (as defined in the Act) of the
voting securities of the Fund outstanding and entitled to vote. The portions of
this Agreement which relate to providing investment advisory services (Sections
2(a), (c), (d) and (e)) shall automatically terminate in the event of the
assignment (as defined in the Act) of this Agreement, but all other provisions
relating to providing services other than investment advisory services shall not
terminate, provided however, that upon such an assignment the annual fee payable
monthly and computed on the net asset value of the Fund as of the close of
business each business day shall be reduced to the annual rate of 0.27 of 1% of
such net asset value.
7. Disclaimer of Shareholder Liability
The Manager understands that the obligations of this Agreement are not
binding upon any shareholder of the Fund personally, but bind only the Fund's
property; the Manager represents that it has notice of the provisions of the
Fund's Declaration of Trust disclaiming shareholder liability for acts or
obligations of the Fund.
8. Notices of Meetings
The Fund agrees that notice of each meeting of the Board of Trustees of the
Fund will be sent to the Manager and that the Fund will make appropriate
arrangements for the attendance (as persons present by invitation) of such
person or persons as the Manager may designate.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers and
[balance of page intentionally left blank]
<page>
their seals to be hereunto affixed, all as of the day and year first above
written.
ATTEST: NARRAGANSETT INSURED TAX-FREE INCOME
FUND
________________________ By:___________________________________
ATTEST: AQUILA MANAGEMENT CORPORATION
_______________________ By:___________________________________
<page>
IMPORTANT NOTICE
PLEASE READ IMMEDIATELY
Narragansett Insured Tax-Free Income Fund
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on October 10, 2002
PROXY STATEMENT
THE AQUILASM GROUP OF FUNDS
380 MADISON AVENUE, SUITE 2300
NEW YORK, NY 10017
VOTE BY TELEPHONE OR INTERNET OR MAIL 24 Hours a day, 7 days a week
Telephone
1-888-221-0697
To vote your shares by telephone, call toll free 1-888-221-0697. You will
be prompted to enter the 14-digit control number on this proxy card. Follow the
simple recorded instructions using this proxy card as a guide. If you vote by
phone, you need not return the proxy card by mail.
Internet voting
www.proxyweb.com/aquila
To vote your shares by the Internet, contact the Fund at
www.proxyweb.com/aquila. You will be prompted to enter the 14-digit control
number on this proxy card. Follow the simple instructions at the website, using
your proxy card as a guide. If you vote by the Internet, you need not return the
proxy card by mail.
Mail
You can vote your shares by completing and returning this proxy card.
Please mark your proxy, date and sign it below and return it promptly in the
accompanying envelope which requires no postage if mailed in the United States.
Please fold and detach card at perforation before mailing.
Aquilasm Group of Funds
NARRAGANSETT INSURED TAX-FREE INCOME FUND
Proxy for Shareholders Meeting October 10, 2002
Proxy Solicited on Behalf of the Board of Trustees
The shareholder of NARRAGANSETT INSURED TAX-FREE INCOME FUND (the "Fund")
whose signature(s) appears below does hereby appoint LACY B. HERRMANN, DIANA P.
HERRMANN and EDWARD M. W. HINES, or any of them, as attorneys and proxies of the
undersigned, with full power of substitution, to attend the Annual Meeting of
Shareholders of the Fund to be held on Thursday, October 10, 2002 at the Rhode
Island Convention Center, One Sabin Street, Providence, Rhode Island; at 2:30
p.m. local time, and at all adjournments thereof, and thereat to vote the shares
held in the name of the undersigned on the record date for said meeting on the
matters listed on the reverse side. Such shares are entitled to one vote for
every dollar of net asset value represented by the share balance printed below.
Please read the proxy statement prior to voting.
Annual Meeting Attendance
We encourage you to attend the Annual Meeting of Shareholders. If you can join
us, please so indicate on the proxy card or e-mail us at info@aquilafunds.com
Address changes/comments: _______________________________
_______________________________
_______________________________
(If you noted any address changes/comments above, please mark
corresponding box on other side.)
Dated: __________________, 2002
_________________________________
Signature(s)
[Please sign within the box]
PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEARS ON THIS PROXY CARD.
When signing as a custodian, attorney, executor, administrator,
trustee, guardian, etc., please sign your full title as such. Joint
owners should each sign.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
Please fill in box(es) as shown using black or blue ink or number 2 pencil.
[X] PLEASE DO NOT USE FINE POINT PENS
1. Election of Trustees
01) Lacy B. Herrmann* 02) Vernon R. Alden 03) Paul Y. Clinton
04) David A. Duffy* 05) William J. Nightingale 06) John J.
Partridge* 07) Cornelius T. Ryan 08) J. William Weeks
* interested Trustees
__
[__] For all
__
[__] Withhold all
__
[__] For all except
INSTRUCTION: To withhold authority to vote for one or more (but
not all) nominees, mark "For all except" and write the nominee
number(s) and/or name(s)on the line below.
_______________
[bolded in printed form]
Management recommends a vote FOR all nominees listed above
and FOR the proposals listed below. The shares represented hereby
will be voted as indicated below or FOR if no choice is indicated.
2. Action on selection of KPMG LLP as independent auditors
(Proposal No.2 in Proxy Statement)
__ __ __
FOR [__] AGAINST [__] ABSTAIN [__]
3. Action on a proposed new revised and amended Investment
Advisory and Administration Agreement under which the Fund will
become responsible for Fund accounting expenses.
(Proposal No. 3 in Proxy Statement)
As to any other matter said proxies shall vote in accordance with
their best judgment.
__
I plan to attend the annual meeting [__]
For address changes and/or comments,
please check this box and write them on the front where
indicated. _
[_]
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED ON THE REVERSE SIDE.