UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-06707
Narragansett Insured Tax-Free Income Fund
(Exact name of Registrant as specified in charter)
380 Madison Avenue
New York, New York 10017
(Address of principal executive offices) (Zip code)
Joseph P. DiMaggio
380 Madison Avenue
New York, New York 10017
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 697-6666
Date of fiscal year end: 6/30
Date of reporting period: 12/31/05
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMI-ANNUAL
REPORT
DECEMBER 31, 2005
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 TREE SEAGULLS FLYING ABOVE IT]
[LOGO OF THE AQUILA
GROUP OF FUNDS: ONE OF THE
AN EAGLE'S HEAD] AQUILA(SM) GROUP OF FUNDS
[LOGO OF NARRAGANSETT INSURED TAX-FREE INCOME FUND:
RECTANGLE WITH PROFILE VIEW OF A SAILBOAT ON TOP
OF WAVES AND TREE SEAGULLS FLYING ABOVE IT]
SERVING RHODE ISLAND INVESTORS FOR MORE THAN A DECADE
NARRAGANSETT INSURED TAX-FREE INCOME FUND
"THE BENEFITS OF TAX-FREE INVESTING"
February, 2006
Dear Fellow Shareholder:
As the name of your fund clearly states, Narragansett Insured Tax-Free
Income Fund is tax-free* - free from Rhode Island state and regular Federal
income taxes.
This tax-free status serves many purposes. It obviously provides you, and
our other shareholders, with tax-free income. But, it also provides
municipalities with an attractive motivator to help them raise revenue.
Additionally, the projects funded by these tax-free securities enhance the
quality of life for all community residents.
Many individuals pay as much as 30% to 40% of their income in Federal and
state taxes. Obviously, if you have to pay that much in taxes, it significantly
reduces what you get to keep in your pocket.
BENEFITS TO INVESTORS
As an investor seeking tax-free income, do you have to forego higher
yields? Not necessarily.
[BAR CHART]
Hypothetical Tax-Free Yield 3%
Hypothetical Taxable Equivalent Yield 5.2%
Hypothetical Tax-Free Yield 4%
Hypothetical Taxable Equivalent Yield 6.9%
Hypothetical Tax-Free Yield 5%
Hypothetical Taxable Equivalent Yield 8.8%
This chart assumes a 35% federal and 9% state tax-rate
and is for illustration purposes only; it does not
represent past or future performance of any investment.
The chart above shows that you would have to earn significantly more from
a taxable investment in order to be equal to what you get to keep from a
tax-free investment.
As you can clearly see from the chart, you would have to earn 6.9% on a
taxable investment in order to equal the tax-free level of 4%.
Keep this illustration in mind the next time you examine the yield that
Narragansett Insured Tax-Free Income Fund offers you. You will find that a 3%,
4% or 5% tax-free yield looks considerably more attractive to you when you
consider the implications of taxes.
NOT A PART OF THE SEMI-ANNUAL REPORT
BENEFITS TO MUNICIPALITIES
As you are most likely aware, states, counties, cities, towns, and other
forms of municipalities issue tax-free bonds to raise monies. These issues
generally take two forms - general obligation securities and revenue securities.
General obligation municipal securities are primarily those securities
used to finance the general needs of such municipalities. General obligation
securities are secured by the tax-raising power of the specific municipality in
terms of its ability to pay interest and repay principal on a timely basis.
Thus, these securities are considered to be "backed by the full faith and
credit" of the issuer.
Revenue securities are issued to finance specific projects, such as a
hospital or airport. In this instance, the municipal issuer pledges the
operating revenues derived from the specific project to pay the interest and
repay the principal when due.
In many cases, smaller municipalities would have difficulty selling these
securities to the marketplace were it not for the added attractiveness of
tax-free status.
BENEFITS TO QUALITY OF LIFE
The benefit you may not have considered - when you made your investment in
the Fund - was that in the process of having the Fund provide you with tax-free
income, it also provides help to a variety of others within your community and
Rhode Island. This is a benefit in which you can take real pride.
Municipal bonds, such as those in which Narragansett Insured Tax-Free
Income Fund invests, are the primary way infrastructure is financed.
Infrastructure is a relatively obscure word that by itself doesn't mean much to
most people. But, when you translate the word "infrastructure" into projects
such as schools, roads, bridges, water facilities, pollution control, airports,
hospitals, and fire and police stations, then you are speaking in terms that
people more easily understand.
As the economy of Rhode Island grows, new and additional municipal
projects are needed for the benefit of the citizens of Rhode Island and the
various communities throughout the state. In essence, your money invested in the
Fund helps pay for that new school, road, airport, etc. that you and your
neighbors now enjoy. So, as an investor in Narragansett Insured Tax-Free Income
Fund, you can take pride in knowing that you are playing a vital role and a very
real part in enhancing the quality of life for your family, friends, neighbors
and future generations of Rhode Islanders.
SUMMARY
So the next time that you receive your statement from Narragansett Insured
Tax-Free Income Fund, remember that the benefits that are reaped from your
investment are more than just what is evident on that piece of paper.
Sincerely,
/s/ Diana P. Herrmann /s/ Lacy B. Herrmann
Diana P. Herrmann Lacy B. Herrmann
President Chair of the Board of Trustees
* For certain investors, some dividends may be subject to Federal and State
taxes.
NOT A PART OF THE SEMI-ANNUAL REPORT
NARRAGANSETT INSURED TAX-FREE INCOME FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2005
(UNAUDITED)
RATING
FACE MOODY'S, S&P
AMOUNT GENERAL OBLIGATION BONDS (42.6%) OR FITCH VALUE
- ------------ --------------------------------------------------------------- ------------ ------------
Coventry, Rhode Island
$ 550,000 5.000%, 11/01/16 AMBAC Insured ............................... Aaa+/AAA+++ $ 585,898
550,000 5.000%, 11/01/17 AMBAC Insured ............................... Aaa+/AAA+++ 581,768
Cranston, Rhode Island
500,000 2.750%, 02/15/09 FSA Insured ................................. Aaa+/AAA++ 487,360
500,000 5.450%, 11/15/11 FGIC Insured ................................ Aaa+/AAA++ 541,540
Cumberland, Rhode Island
250,000 3.750%, 02/01/13 FGIC Insured ................................ Aaa+/AAA++ 251,695
250,000 4.000%, 02/01/14 FGIC Insured ................................ Aaa+/AAA++ 253,380
250,000 4.000%, 02/01/15 FGIC Insured ................................ Aaa+/AAA++ 252,297
500,000 5.000%, 08/01/15 MBIA Insured ................................ Aaa+/AAA++ 529,850
250,000 4.000%, 02/01/16 FGIC Insured ................................ Aaa+/AAA++ 251,065
250,000 4.100%, 02/01/17 FGIC Insured ................................ Aaa+/AAA++ 251,827
250,000 4.150%, 02/01/18 FGIC Insured ................................ Aaa+/AAA++ 251,825
1,255,000 5.000%, 10/01/18 MBIA Insured ................................ Aaa+/AAA++ 1,322,004
1,040,000 5.200%, 10/01/21 MBIA Insured ................................ Aaa+/AAA++ 1,119,934
New Shoreham, Rhode Island
245,000 4.000%, 11/15/15 AMBAC Insured ............................... Aaa+/AAA++ 247,041
255,000 4.250%, 11/15/16 AMBAC Insured ............................... Aaa+/AAA++ 259,855
270,000 4.250%, 11/15/17 AMBAC Insured ............................... Aaa+/AAA++ 274,328
910,000 4.800%, 04/15/18 AMBAC Insured ............................... Aaa+/AAA++ 948,475
285,000 4.500%, 11/15/18 AMBAC Insured ............................... Aaa+/AAA++ 292,946
1,105,000 5.000%, 04/15/22 AMBAC Insured ............................... Aaa+/AAA++ 1,157,620
Newport, Rhode Island
1,000,000 4.500%, 11/01/15 AMBAC Insured ............................... Aaa+/AAA+++ 1,041,040
1,000,000 4.750%, 11/01/18 AMBAC Insured ............................... Aaa+/AAA+++ 1,043,850
800,000 5.000%, 11/01/20 AMBAC Insured ............................... Aaa+/AAA+++ 845,360
North Kingstown, Rhode Island
500,000 3.750%, 10/01/12 FGIC Insured ................................ Aaa+/AAA++ 504,135
North Providence, Rhode Island
400,000 5.700%, 07/01/08 MBIA Insured ................................ Aaa+/AAA++ 421,756
500,000 3.500%, 10/15/13 FSA Insured ................................. Aaa+/AAA++ 493,610
500,000 4.700%, 09/15/14 FSA Insured ................................. Aaa+/AAA++ 523,345
500,000 3.650%, 10/15/14 FSA Insured ................................. Aaa+/AAA++ 495,160
500,000 3.750%, 10/15/15 FSA Insured ................................. Aaa+/AAA++ 493,130
RATING
FACE MOODY'S, S&P
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) OR FITCH VALUE
- ------------ --------------------------------------------------------------- ------------ ------------
Pawtucket, Rhode Island
$ 600,000 4.300%, 09/15/09 AMBAC Insured ............................... Aaa+/AAA+++ $ 619,836
795,000 3.500%, 04/15/10 AMBAC Insured ............................... Aaa+/AAA+++ 798,426
250,000 4.400%, 09/15/10 AMBAC Insured ............................... Aaa+/AAA+++ 260,532
825,000 3.500%, 04/15/11 AMBAC Insured ............................... Aaa+/AAA+++ 825,759
850,000 3.625%, 04/15/12 AMBAC Insured ............................... Aaa+/AAA+++ 853,052
545,000 3.500%, 07/01/12 FGIC Insured ................................ Aaa+/AAA+++ 541,556
880,000 3.750%, 04/15/13 AMBAC Insured ............................... Aaa+/AAA+++ 882,411
910,000 4.000%, 04/15/14 AMBAC Insured ............................... Aaa+/AAA+++ 921,057
Providence, Rhode Island
700,000 5.500%, 01/15/11 FSA Insured ................................. Aaa+/AAA++ 721,693
1,925,000 5.200%, 04/01/11 AMBAC Insured ............................... Aaa+/AAA+++ 2,070,184
1,000,000 3.600%, 07/15/13 Series A FSA Insured ........................ Aaa+/AAA++ 994,120
1,000,000 5.000%, 01/15/16 FGIC Insured ................................ Aaa+/AAA++ 1,063,190
1,000,000 5.000%, 01/15/17 FGIC Insured ................................ Aaa+/AAA++ 1,056,600
1,000,000 5.000%, 01/15/18 FGIC Insured ................................ Aaa+/AAA++ 1,052,850
Rhode Island Consolidated Capital Development Loan
1,000,000 5.250%, 11/01/11 Series C MBIA Insured ....................... Aaa+/AAA++ 1,089,760
1,000,000 5.000%, 06/01/14 Series B FGIC Insured ....................... Aaa+/AAA++ 1,059,110
1,000,000 5.000%, 09/01/14 Series A FGIC Insured ....................... Aaa+/AAA++ 1,052,530
2,000,000 5.000%, 08/01/15 Series B FGIC Insured ....................... Aaa+/AAA++ 2,111,220
1,500,000 4.750%, 09/01/17 Series A FGIC Insured ....................... Aaa+/AAA++ 1,552,800
Rhode Island State & Providence Consolidated
Capital Development Loan Refunding
2,000,000 5.000%, 08/01/12 Series B MBIA Insured ....................... Aaa+/AAA++ 2,161,300
South Kingstown, Rhode Island
500,000 5.500%, 06/15/12 FGIC Insured ................................ Aaa+/AAA+++ 546,835
500,000 3.400%, 06/15/12 AMBAC Insured ............................... Aaa+/NR 494,005
State of Rhode Island
1,000,000 5.125%, 07/15/11 FGIC Insured ................................ Aaa+/AAA++ 1,050,370
4,000,000 5.000%, 08/01/14 FGIC Insured ................................ Aaa+/AAA++ 4,243,040
1,500,000 5.000%, 09/01/15 FGIC Insured ................................ Aaa+/AAA++ 1,578,795
2,000,000 5.250%, 11/01/17 FGIC Insured ................................ Aaa+/AAA++ 2,186,560
2,500,000 5.000%, 09/01/18 MBIA Insured ................................ Aaa+/AAA++ 2,655,725
2,000,000 5.000%, 09/01/19 MBIA Insured ................................ Aaa+/AAA++ 2,123,220
1,500,000 5.000%, 09/01/20 MBIA Insured ................................ Aaa+/AAA++ 1,588,500
Warwick, Rhode Island
665,000 4.250%, 07/15/14 AMBAC Insured ............................... Aaa+/AAA++ 682,922
195,000 5.600%, 08/01/14 FSA Insured ................................. Aaa+/AAA++ 201,525
700,000 4.375%, 07/15/15 AMBAC Insured ............................... Aaa+/AAA++ 720,622
RATING
FACE MOODY'S, S&P
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) OR FITCH VALUE
- ------------ -------------------------------------------------------------- ------------ ------------
Warwick, Rhode Island (continued)
$ 770,000 4.600%, 07/15/17 AMBAC Insured .............................. Aaa+/AAA++ $ 797,196
1,000,000 5.000%, 03/01/18 FGIC Insured ............................... Aaa+/AAA++ 1,047,690
810,000 4.700%, 07/15/18 AMBAC Insured .............................. Aaa+/AAA++ 839,930
1,000,000 5.000%, 01/15/19 FGIC Insured ............................... Aaa+/AAA++ 1,062,240
855,000 4.750%, 07/15/19 AMBAC Insured .............................. Aaa+/AAA++ 885,053
500,000 5.000%, 01/15/20 FGIC Insured ............................... Aaa+/AAA++ 529,945
West Warwick, Rhode Island
500,000 4.875%, 03/01/16 AMBAC Insured .............................. Aaa+/AAA+++ 525,585
670,000 5.000%, 03/01/17 AMBAC Insured .............................. Aaa+/AAA+++ 710,709
700,000 5.050%, 03/01/18 AMBAC Insured .............................. Aaa+/AAA+++ 746,403
735,000 5.100%, 03/01/19 AMBAC Insured .............................. Aaa+/AAA+++ 784,473
Woonsocket, Rhode Island
500,000 3.500%, 03/01/12 AMBAC Insured .............................. Aaa+/AAA+++ 498,340
655,000 4.450%, 12/15/12 FGIC Insured ............................... Aaa+/AAA+++ 678,200
685,000 4.550%, 12/15/13 FGIC Insured ............................... Aaa+/AAA+++ 711,078
------------
Total General Obligation Bonds ........................... 65,299,041
------------
REVENUE BONDS (57.9%)
DEVELOPMENT REVENUE BONDS (9.9%)
Providence Rhode Island Redevelopment Agency
Revenue Refunding Public Safety Building Project
1,000,000 3.700%, 04/01/13 Series 2005 A AMBAC Insured ................ Aaa+/AAA++ 1,000,590
Rhode Island Convention Center Authority
500,000 5.000%, 05/15/07 Series 1993 B MBIA Insured ................. Aaa+/AAA++ 510,735
Rhode Island Convention Center Authority
Revenue Refunding
925,000 5.000%, 05/15/10 Series 1993 B MBIA Insured ................. Aaa+/AAA++ 984,866
Rhode Island Public Building Authority State
Public Projects
1,000,000 5.250%, 02/01/09 Series 1998 A AMBAC Insured ................ Aaa+/AAA++ 1,047,450
500,000 5.000%, 12/15/09 Series 1999 A AMBAC Insured ................ Aaa+/AAA++ 530,425
1,000,000 5.250%, 12/15/14 Series 1998 FSA Insured .................... Aaa+/AAA++ 1,068,630
500,000 5.500%, 12/15/14 Series 1996 B MBIA Insured ................. Aaa+/AAA++ 519,880
500,000 5.500%, 12/15/15 Series 1996 B MBIA Insured ................. Aaa+/AAA++ 519,880
Rhode Island State Economic Development Corp.,
Airport Revenue
1,000,000 5.000%, 07/01/18 Series B FSA Insured ....................... Aaa+/AAA++ 1,043,160
RATING
FACE MOODY'S, S&P
AMOUNT REVENUE BONDS (CONTINUED) OR FITCH VALUE
- ------------ -------------------------------------------------------------- ------------ ------------
DEVELOPMENT REVENUE BONDS (CONTINUED)
Rhode Island State Economic Development Corp.
Airport Revenue Refunding
$ 1,670,000 5.000%, 07/01/13 Series C MBIA Insured ...................... Aaa+/AAA++ $ 1,798,423
Rhode Island State Economic Development Corp.,
Motor Fuel Tax Revenue (Rhode Island
Department of Transportation)
2,000,000 3.875%, 06/15/14 Series A AMBAC Insured ..................... Aaa+/AAA++ 2,012,200
1,000,000 4.000%, 06/15/15 Series A AMBAC Insured ..................... Aaa+/AAA++ 1,008,970
Rhode Island State Economic Development Corp.,
University of Rhode Island
750,000 4.800%, 11/01/11 Series 1999 FSA Insured .................... Aaa+/NR 786,457
750,000 4.900%, 11/01/12 Series 1999 FSA Insured .................... Aaa+/NR 787,740
750,000 4.900%, 11/01/13 Series 1999 FSA Insured .................... Aaa+/NR 788,288
750,000 5.000%, 11/01/14 Series 1999 FSA Insured .................... Aaa+/NR 792,863
------------
Total Development Revenue Bonds .......................... 15,200,557
------------
HIGHER EDUCATION REVENUE BONDS (29.7%)
Providence, Rhode Island Public Building Authority,
School Projects
1,395,000 4.000%, 12/15/12 Series 2003 A MBIA Insured ................. Aaa+/AAA++ 1,428,131
1,450,000 4.000%, 12/15/13 Series 2003 A MBIA Insured ................. Aaa+/AAA++ 1,476,405
1,505,000 4.000%, 12/15/14 Series 2003 A MBIA Insured ................. Aaa+/AAA++ 1,525,032
1,570,000 4.000%, 12/15/15 Series 2003 A MBIA Insured ................. Aaa+/AAA++ 1,583,251
1,630,000 4.000%, 12/15/16 Series 2003 A MBIA Insured ................. Aaa+/AAA++ 1,635,868
Providence, Rhode Island Public Building
School & Public Facilities Project
1,500,000 5.250%, 12/15/17 AMBAC Insured .............................. Aaa+/AAA++ 1,616,865
1,000,000 5.250%, 12/15/19 AMBAC Insured .............................. Aaa+/AAA++ 1,077,910
Rhode Island Health & Education Building Corp.,
Brown University
2,000,000 5.250%, 09/01/17 Series 1993 MBIA Insured ................... AAA++/AAA+++ 2,148,340
1,000,000 5.000%, 09/01/23 Series 1993 MBIA Insured ................... Aaa+/AAA++ 1,030,710
Rhode Island Health & Education Building Corp.,
Bryant College
1,000,000 5.125%, 06/01/19 AMBAC Insured .............................. Aaa+/AAA++ 1,064,730
230,000 5.000%, 12/01/21 AMBAC Insured .............................. Aaa+/AAA++ 241,859
Rhode Island Health & Education Building Corp.,
Higher Educational Facilities
500,000 3.500%, 09/15/13 Series 2003 B MBIA Insured ................. Aaa+/AAA++ 492,020
1,010,000 3.625%, 09/15/14 Series 2003 B MBIA Insured ................. Aaa+/AAA++ 991,103
RATING
FACE MOODY'S, S&P
AMOUNT REVENUE BONDS (CONTINUED) OR FITCH VALUE
- ------------ -------------------------------------------------------------- ------------ ------------
HIGHER EDUCATION REVENUE BONDS (CONTINUED)
Rhode Island Health & Education Building Corp.,
Higher Educational Facilities
$ 1,050,000 4.000%, 09/15/15 Series 2003 B MBIA Insured ................. Aaa+/AAA++ $ 1,052,709
1,040,000 4.000%, 09/15/16 Series 2003 B MBIA Insured ................. Aaa+/AAA++ 1,036,370
600,000 3.625%, 09/15/14 Series 2003 C MBIA Insured ................. Aaa+/AAA++ 588,774
500,000 4.000%, 09/15/15 Series 2003 C MBIA Insured ................. Aaa+/AAA++ 501,290
500,000 4.000%, 09/15/16 Series 2003 C MBIA Insured ................. Aaa+/AAA++ 498,255
Rhode Island Health & Education Building Corp.,
Johnson & Wales University
465,000 5.500%, 04/01/15 Series 1999 A MBIA Insured ................. Aaa+/AAA++ 524,148
900,000 5.500%, 04/01/16 Series 1999 A MBIA Insured ................. Aaa+/AAA++ 1,018,107
785,000 5.500%, 04/01/17 Series 1999 A MBIA Insured ................. Aaa+/AAA++ 892,223
1,360,000 4.000%, 04/01/12 Series 2003 XLCA Insured ................... Aaa+/AAA++ 1,389,335
3,210,000 4.000%, 04/01/13 Series 2003 XLCA Insured ................... Aaa+/AAA++ 3,272,563
2,000,000 4.000%, 04/01/14 Series 2003 XLCA Insured ................... Aaa+/AAA++ 2,021,220
Rhode Island Health & Education Building Corp.,
Rhode Island School of Design
505,000 4.700%, 06/01/18 Series 2001 MBIA Insured ................... Aaa+/AAA++ 525,806
280,000 4.750%, 06/01/19 Series 2001 MBIA Insured ................... Aaa+/AAA++ 291,878
Rhode Island Health & Education Building Corp.,
Roger Williams University
1,000,000 5.500%, 11/15/11 Series 1996 S AMBAC Insured ................ NR/AA++ 1,038,010
500,000 5.125%, 11/15/11 AMBAC Insured .............................. Aaa+/AAA++ 531,960
1,000,000 5.125%, 11/15/14 Series 1996 S AMBAC Insured ................ Aaa+/AAA++ 1,063,920
1,000,000 5.000%, 11/15/18 Series 1996 S AMBAC Insured ................ Aaa+/AAA++ 1,056,320
Rhode Island Health & Education Facilities
Authority Providence College
1,000,000 4.250%, 11/01/14 XLCA Insured ............................... Aaa+/AAA++ 1,028,110
2,500,000 4.375%, 11/01/15 XLCA Insured ............................... Aaa+/AAA++ 2,560,625
2,500,000 4.500%, 11/01/16 XLCA Insured ............................... Aaa+/AAA++ 2,584,825
1,000,000 4.500%, 11/01/17 XLCA Insured ............................... Aaa+/AAA++ 1,027,830
Rhode Island State Health & Educational Building
Corp., University of Rhode Island
1,000,000 3.500%, 9/15/13 Series 2004 A AMBAC Insured ................. Aaa+/AAA++ 987,340
1,200,000 4.000%, 09/15/11 Series 2005 G AMBAC Insured ................ Aaa+/AAA++ 1,228,812
1,200,000 4.125%, 09/15/12 Series 2005 G AMBAC Insured ................ Aaa+/AAA++ 1,236,408
1,200,000 4.125%, 09/15/13 Series 2005 G AMBAC Insured ................ Aaa+/AAA++ 1,234,632
------------
Total Higher Education Revenue Bonds ..................... 45,503,694
------------
RATING
FACE MOODY'S, S&P
AMOUNT REVENUE BONDS (CONTINUED) OR FITCH VALUE
- ------------ -------------------------------------------------------------- ------------ ------------
HOUSING REVENUE BONDS (0.6%)
Rhode Island Housing & Meeting Finance Corp.
Homeowner Opportunity
$ 1,000,000 3.750%, 10/01/13 Series 50-A MBIA Insured ................... Aaa+/AAA+++ $ 1,004,630
------------
POLLUTION CONTROL REVENUE BONDS (4.4%)
Rhode Island Clean Water Finance Agency, Water
Pollution Control Bonds
1,800,000 5.000%, 10/01/18 Series 2002 B MBIA Insured ................. Aaa+/AAA++ 1,899,864
4,765,000 4.375%, 10/01/21 Series 2002 B MBIA Insured ................. Aaa+/AAA++ 4,813,222
------------
Total Pollution Control Revenue Bonds .................... 6,713,086
------------
WATER AND SEWER REVENUE BONDS (9.7%)
Bristol County, Rhode Island Water Authority
750,000 5.250%, 07/01/17 Series 1997 A MBIA Insured ................. Aaa+/AAA++ 776,887
1,000,000 3.250%, 12/01/12 Series 2004 Refdg. A MBIA InsuredAaa+/AAA++ 969,940
1,000,000 3.500%, 12/01/13 Series 2004 Refdg. A MBIA InsuredAaa+/AAA++ 987,050
1,000,000 3.500%, 12/01/14 Series 2004 Refdg. A MBIA InsuredAaa+/AAA++ 972,920
Kent County, Rhode Island Water Authority
500,000 4.000%, 07/15/12 Series 2002 A MBIA Insured ................. Aaa+/AAA++ 511,245
1,055,000 4.150%, 07/15/14 Series 2002 A MBIA Insured ................. Aaa+/AAA++ 1,077,387
Rhode Island Clean Water Protection Finance Agency
200,000 5.300%, 10/01/07 1993 Ser. 1993 A MBIA Insured Aaa+/AAA++ 206,524
300,000 5.400%, 10/01/09 1993 Ser. 1993 A MBIA Insured Aaa+/AAA++ 321,537
500,000 4.500%, 10/01/11 1993 Ser. 1993 B AMBAC Insured Aaa+/AAA++ 514,350
1,000,000 5.125%, 10/01/11 Ser. 1999 C MBIA Insured ................... Aaa+/AAA++ 1,058,590
500,000 4.600%, 10/01/13 Ser. A AMBAC Insured ....................... Aaa+/AAA++ 515,555
500,000 4.750%, 10/01/14 Ser. A AMBAC Insured ....................... Aaa+/AAA++ 521,165
1,250,000 5.400%, 10/01/15 Ser. A MBIA Insured ........................ Aaa+/AAA++ 1,385,838
2,000,000 4.750%, 10/01/18 Ser. A AMBAC Insured ....................... Aaa+/AAA++ 2,059,900
500,000 4.750%, 10/01/20 Ser. A AMBAC Insured ....................... Aaa+/AAA++ 511,480
Rhode Island Water Resources Board Public
Drinking Water Protection
1,500,000 4.000%, 03/01/14 MBIA Insured ............................... Aaa+/AAA++ 1,517,910
1,000,000 4.250%, 03/01/15 MBIA Insured ............................... Aaa+/AAA++ 1,024,450
------------
Total Water and Sewer Revenue Bonds ...................... 14,932,728
------------
OTHER REVENUE BONDS (3.6%)
Rhode Island State Capital Development Loan
1,500,000 5.400%, 08/01/08 MBIA Insured ............................... Aaa+/AAA++ 1,533,075
1,135,000 5.000%, 08/01/11 MBIA Insured ............................... Aaa+/AAA++ 1,175,962
RATING
FACE MOODY'S, S&P
AMOUNT REVENUE BONDS (CONTINUED) OR FITCH VALUE
- ------------ -------------------------------------------------------------- ------------ ------------
OTHER REVENUE BONDS (CONTINUED)
State of Rhode Island Certificates of Participation,
Howard Center Improvements
$ 400,000 5.250%, 10/01/10 MBIA Insured ................................ Aaa+/AAA++ $ 416,352
200,000 5.375%, 10/01/16 MBIA Insured ................................ Aaa+/AAA++ 208,594
State of Rhode Island Depositors Economic
Protection Corp.
135,000 5.500%, 08/01/06 Series 1992 B MBIA Insured .................. Aaa+/AAA++ 136,728
300,000 5.800%, 08/01/09 Series 1993 B MBIA Insured .................. Aaa+/AAA++ 324,543
500,000 6.000%, 08/01/17 Series 1992 B MBIA Insured .................. Aaa+/AAA++ 548,930
1,045,000 5.250%, 08/01/21 Series 1993 B MBIA Insured ETM .............. Aaa+/AAA++ 1,129,791
------------
Total Other Revenue Bonds ................................. 5,473,975
------------
Total Revenue Bonds .................................... 88,828,670
------------
Total Investments (cost $149,774,737*) ........ 100.5% 154,127,711
Other assets less liabilities ................. (0.5) (703,118)
------ ------------
Net Assets .................................... 100.0% $153,424,593
====== ============
* See note 4.
Rating Services:
+ Moody's Investors Service
++ Standard & Poor's
+++ Fitch
NR Not rated by two of the three rating services
Portfolio Distribution By Quality Rating (unaudited)
Aaa of Moody's or AAA of S&P or Fitch .................. 100%
PORTFOLIO ABBREVIATIONS:
------------------------
AMBAC - American Municipal Bond Assurance Corp.
ETM - Escrowed to Maturity
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assurance
MBIA - Municipal Bond Investors Assurance
XLCA - XL Capital Assurance
See accompanying notes to financial statements.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2005
(UNAUDITED)
ASSETS
Investments at value (cost $149,774,737) ......................................... $ 154,127,711
Interest receivable .............................................................. 1,799,966
Receivable for Fund shares sold .................................................. 513,338
Other assets ..................................................................... 10,185
-------------
Total assets ..................................................................... 156,451,200
-------------
LIABILITIES
Cash overdraft ..................................................................... 2,685,275
Dividends payable .................................................................. 212,906
Payable for Fund shares redeemed ................................................... 48,507
Distribution and service fees payable .............................................. 56,562
Management fee payable ............................................................. 18,143
Accrued expenses ................................................................... 5,214
-------------
Total liabilities .................................................................. 3,026,607
-------------
NET ASSETS ............................................................................. $ 153,424,593
=============
Net Assets consist of:
Capital Stock - Authorized 80,000,000 shares, par value $.01 per share ............. $ 144,853
Additional paid-in capital ......................................................... 149,884,030
Net unrealized appreciation on investments (note 4) ................................ 4,352,974
Accumulated net realized loss on investments ....................................... (746,523)
Distributions in excess of net investment income ................................... (210,741)
-------------
$ 153,424,593
=============
CLASS A
Net Assets ......................................................................... $ 104,720,682
=============
Capital shares outstanding ......................................................... 9,886,956
=============
Net asset value and redemption price per share ..................................... $ 10.59
=============
Offering price per share (100/96 of $10.59 adjusted to nearest cent) ............... $ 11.03
=============
CLASS C
Net Assets ......................................................................... $ 18,206,269
=============
Capital shares outstanding ......................................................... 1,719,159
=============
Net asset value and offering price per share ....................................... $ 10.59
=============
Redemption price per share (*a charge of 1% is imposed on the redemption
proceeds of the shares, or on the original price, whichever is lower, if redeemed
during the first 12 months after purchase) ...................................... $ 10.59*
=============
CLASS I
Net Assets ......................................................................... $ 1,211,068
=============
Capital shares outstanding ......................................................... 114,416
=============
Net asset value, offering and redemption price per share ........................... $ 10.58
=============
CLASS Y
Net Assets ......................................................................... $ 29,286,574
=============
Capital shares outstanding ......................................................... 2,764,803
=============
Net asset value, offering and redemption price per share ........................... $ 10.59
=============
See accompanying notes to financial statements.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (UNAUDITED)
INVESTMENT INCOME:
Interest income ................................................................ $ 3,311,185
Expenses:
Management fee (note 3) ........................................................ $ 389,232
Distribution and service fees (note 3) ......................................... 173,811
Trustees' fees and expenses (note 8) ........................................... 86,059
Legal fees (note 3) ............................................................ 56,999
Transfer and shareholder servicing agent fees .................................. 50,785
Fund accounting fees ........................................................... 20,759
Shareholders' reports and proxy statements ..................................... 11,512
Custodian fees ................................................................. 9,871
Auditing and tax fees .......................................................... 9,334
Registration fees and dues ..................................................... 5,653
Insurance ...................................................................... 4,916
Chief compliance officer (note 3) .............................................. 2,291
Miscellaneous .................................................................. 25,910
-----------
Total Expenses ................................................................. 847,132
Management fee waived (note 3) ................................................. (280,247)
Expenses paid indirectly (note 6) .............................................. (17,676)
-----------
Net expenses ................................................................... 549,209
------------
Net investment income .......................................................... 2,761,976
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions .......................... (2,876)
Change in unrealized appreciation on investments ............................... (2,878,068)
-----------
Net realized and unrealized gain (loss) on investments ......................... (2,880,944)
------------
Net change in net assets resulting from operations ............................. $ (118,968)
============
See accompanying notes to financial statements.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
DECEMBER 31, 2005 YEAR ENDED
(UNAUDITED) JUNE 30, 2005
----------------- -------------
OPERATIONS:
Net investment income ......................................... $ 2,761,976 $ 5,440,126
Net realized gain (loss) from securities transactions ......... (2,876) 69,974
Change in unrealized appreciation on investments .............. (2,878,068) 4,296,960
------------- -------------
Change in net assets from operations ....................... (118,968) 9,807,060
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (note 9):
Class A Shares:
Net investment income ......................................... (1,953,113) (3,966,200)
Class C Shares:
Net investment income ......................................... (268,391) (552,548)
Class I Shares:
Net investment income ......................................... (21,002) (32,733)
Class Y Shares:
Net investment income ......................................... (589,478) (1,026,562)
------------- -------------
Change in net assets from distributions .................... (2,831,984) (5,578,043)
------------- -------------
CAPITAL SHARE TRANSACTIONS (note 7):
Proceeds from shares sold ..................................... 15,523,062 23,466,693
Reinvested dividends and distributions ........................ 1,279,809 2,641,028
Cost of shares redeemed ....................................... (14,463,979) (18,517,181)
------------- -------------
Change in net assets from capital share transactions .......... 2,338,892 7,590,540
------------- -------------
Change in net assets ....................................... (612,060) 11,819,557
NET ASSETS:
Beginning of period ........................................... 154,036,653 142,217,096
------------- -------------
End of period* ................................................ $ 153,424,593 $ 154,036,653
============= =============
* Includes distributions in excess of net investment income of: $ (210,741) $ (140,733)
============= =============
See accompanying notes to financial statements.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 (UNAUDITED)
1. ORGANIZATION
Narragansett Insured Tax-Free Income Fund (the "Fund"), a non-diversified,
open-end investment company, was organized on January 22, 1992 as a
Massachusetts business trust and commenced operations on September 10, 1992. The
Fund is authorized to issue 80,000,000 shares and, since its inception to May 1,
1996, offered only one class of shares. On that date, the Fund began offering
two additional classes of shares, Class C and Class Y Shares. All shares
outstanding prior to that date were designated as Class A Shares and are sold
with a front-payment sales charge and bear an annual distribution 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. Class C Shares, together with a pro-rata portion
of all Class C Shares acquired through reinvestment of dividends and other
distributions paid in additional Class C Shares, automatically convert to Class
A Shares after 6 years. 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 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 accounting principles generally accepted in the United States of
America for investment companies.
a) PORTFOLIO VALUATION: Municipal securities which have remaining maturities
of more than 60 days are valued 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 by the pricing service at the mean of bid and asked quotations.
If market quotations or a valuation from the pricing service is not
readily available, the security is valued at fair value determined in good
faith 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 is 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
exceeds 60 days.
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 and market
discount.
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) MULTIPLE CLASS ALLOCATIONS: All income, expenses (other than
class-specific expenses), and realized and unrealized gains or losses 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 accounting principles generally accepted in the United States of
America 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 Investment Management LLC (the "Manager"), a wholly-owned
subsidiary of Aquila Management Corporation, 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 managing relationships
with all the various support organizations to the Fund such as the shareholder
servicing agent, custodian, legal counsel, fund accounting agent, auditor and
distributor. 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% on the Fund's net assets.
Citizens Investment Advisors, a department of 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 services, the Sub-Adviser is entitled to receive a fee from the Manager
which is payable monthly and computed as of the close of business each day at
the annual rate of 0.23% on the Fund's average net assets.
For the six months ended December 31, 2005, the Fund incurred management
fees of $389,232 of which $280,247 was voluntarily waived. Such waivers are
voluntary and can be terminated in the future at the Manager's discretion.
However, the Manager has indicated that it intends to continue waiving fees as
necessary in order that the Fund will remain competitive.
Under a Compliance Agreement with the Manager, the Manager is compensated
for Chief Compliance Officer related services provided to enable the Fund to
comply with Rule 38a-1 of the Investment Company Act of 1940.
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
distribution fee payments to broker-dealers or others ("Qualified Recipients")
selected by Aquila Distributors, Inc., ("the Distributor"), including, but not
limited to, any principal underwriter of the Fund, with which the Distributor
has entered into written agreements contemplated by the Rule and which have
rendered assistance in the distribution and/or retention of the Fund's shares or
servicing of shareholder accounts. The Fund makes payment of this service fee at
the annual rate of 0.15% of the Fund's average net assets represented by Class A
Shares. For the six months ended December 31, 2005, distribution fees on Class A
Shares amounted to $78,881, of which the Distributor retained $2,040.
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 average net assets represented by Class C Shares and for the
six months ended December 31, 2005 amounted to $70,317. 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 average net assets represented by Class C
Shares and for the six months ended December 31, 2005, amounted to $23,439. The
total of these payments with respect to Class C Shares amounted to $93,756, of
which the Distributor retained $23,582.
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class I Shares to Qualified Recipients. Class I payments, under
the Plan, may not exceed, for any fiscal year of the Fund a rate (currently
0.20%) set from time to time by the Board of Trustees of not more than 0.25% 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 service fees
(currently 0.15%) of not more than 0.25% of the average annual net assets of the
Fund represented by Class I Shares. That is, the total payments under both plans
will not exceed 0.50% of such net assets. For the six months ended December 31,
2005, these payments were made at the average annual rate of 0.20% of such net
assets amounting to $2,055 of which $1,173 related to the Plan and $881 related
to the Shareholder Services Plan.
Specific details about the Plans are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
Under a Distribution Agreement, the Distributor serves as the exclusive
distributor of the Fund's shares. Through agreements between the Distributor and
various broker-dealer firms ("dealers"), the
Fund's shares are sold primarily through the facilities of these dealers having
offices within Rhode Island, with the bulk of sales commissions inuring to such
dealers. For the six months ended December 31, 2005, total commissions on sales
of Class A Shares amounted to $109,131, of which the Distributor received
$10,571.
c) OTHER RELATED PARTY TRANSACTIONS:
For the six months ended December 31, 2005, the Fund incurred $56,621 of
legal fees allocable to Hollyer Brady Barrett & Hines LLP, counsel to the Fund
for legal fees in conjunction with the Fund's ongoing operations. The Secretary
of the Fund is a partner in that firm.
4. PURCHASES AND SALES OF SECURITIES
During the six months ended December 31, 2005, purchases of securities and
proceeds from the sales of securities aggregated $9,726,912 and $4,323,240,
respectively.
At December 31, 2005, the aggregate tax cost for all securities was
$149,737,972. At December 31, 2005, the aggregate gross unrealized appreciation
for all securities in which there is an excess of market value over tax cost
amounted to $4,651,954 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value amounted to
$262,215, for a net unrealized appreciation of $4,389,739.
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 80% and possibly the entire number of issues in the portfolio
insured as to timely payment of principal and interest when due by nationally
prominent municipal bond insurance companies. At December 31, 2005, 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.
The Fund is also permitted to invest in U.S. territorial municipal
obligations meeting comparable quality standards and providing income which is
exempt from both regular Federal and Rhode Island income taxes. The general
policy of the Fund is to invest in such securities only when comparable
securities of Rhode Island issuers are not available in the market. At December
31, 2005, the Fund had all of its net assets invested in Rhode Island municipal
issues.
6. 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.
7. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
SIX MONTHS ENDED
DECEMBER 31, 2005 YEAR ENDED
(UNAUDITED) JUNE 30, 2005
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
CLASS A SHARES:
Proceeds from shares sold 640,677 $ 6,811,200 931,519 $ 9,994,878
Reinvested distributions 100,409 1,067,065 202,028 2,171,443
Cost of shares redeemed . (667,429) (7,090,061) (992,461) (10,653,817)
------------ ------------ ------------ ------------
Net change ............ 73,657 788,204 141,086 1,512,504
------------ ------------ ------------ ------------
CLASS C SHARES:
Proceeds from shares sold 163,705 1,741,840 401,962 4,311,527
Reinvested distributions 12,585 133,744 28,360 304,774
Cost of shares redeemed . (220,730) (2,342,617) (374,180) (4,019,022)
------------ ------------ ------------ ------------
Net change ............ (44,440) (467,033) 56,142 597,279
------------ ------------ ------------ ------------
CLASS I SHARES:
Proceeds from shares sold 20,967 224,728 31,300 335,079
Reinvested distributions 905 9,597 954 10,249
Cost of shares redeemed . (9,217) (97,882) (5,874) (63,159)
------------ ------------ ------------ ------------
Net change ............ 12,655 136,443 26,380 282,169
------------ ------------ ------------ ------------
CLASS Y SHARES:
Proceeds from shares sold 631,647 6,745,294 822,843 8,825,209
Reinvested distributions 6,532 69,403 14,389 154,562
Cost of shares redeemed . (467,526) (4,933,419) (352,016) (3,781,183)
------------ ------------ ------------ ------------
Net change ............ 170,653 1,881,278 485,216 5,198,588
------------ ------------ ------------ ------------
Total transactions in Fund
shares .................. 212,525 $ 2,338,892 708,824 $ 7,590,540
============ ============ ============ ============
8. TRUSTEES' FEES AND EXPENSES
At December 31, 2005 there were 8 Trustees, one of which is affiliated
with the Manager and is not paid any fees. The total amount of Trustees'service
and attendance fees paid during the six months ended December 31, 2005 was
$75,775, to cover carrying out their responsibilities and attendance at
regularly scheduled quarterly Board Meetings and meetings of the Independent
Trustees held prior to each quarterly Board Meeting. When additional or special
meetings are held, the meeting fees are paid to those Trustees in attendance.
Trustees are reimbursed for their expenses such as travel, accommodations, and
meals incurred in connection with attendance at
Board Meetings and at the Annual Meeting of Shareholders. For the six months
ended December 31, 2005, such meeting-related expenses amounted to $10,284.
9. INCOME TAX INFORMATION AND 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 net realized securities gains.
In this regard, the Fund credited distributions in excess of net investment
income in the amount of $131,004 and debited additional paid-in capital in the
amount of $131,004 at June 30, 2005. This adjustment had no impact on the Fund's
aggregate net assests at June 30, 2005. Further, a small portion of the
dividends may, under some circumstances, be subject to taxes at ordinary income
rates.
At June 30, 2005, the Fund had a capital loss carryover of $743,647 of
which $632,152 expires on June 30, 2009 and $111,495 which expires on June 30,
2013. This carryover is available to offset future net realized gains on
securities transactions to the extent provided for in the Internal Revenue Code.
To the extent that this loss is used to offset future realized capital gains, it
is probable the gains so offset will not be distributed.
Tax character of distributions:
Year Ended June 30,
2005 2004
---------- ----------
Net tax-exempt income $5,444,976 $5,557,238
Ordinary income 133,067 95,054
---------- ----------
$5,578,043 $5,652,292
========== ==========
As of June 30, 2005, the components of distributable earnings on a tax
basis were as follows:
Accumulated net realized loss $ (743,647)
Unrealized appreciation 7,264,099
-----------
$ 6,520,452
===========
At June 30, 2005, the difference between book basis and tax basis
unrealized appreciation was attributable primarily to the treatment of accretion
of discounts and amortization of premiums.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A
--------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
12/31/05 ---------------------------------------------------------------
(UNAUDITED) 2005 2004 2003 2002 2001
----------- -------- -------- -------- -------- --------
Net asset value, beginning of period ........ $ 10.79 $ 10.49 $ 10.92 $ 10.47 $ 10.32 $ 9.91
-------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income+ ................. 0.19 0.40 0.41 0.42 0.45 0.47
Net gain (loss) on securities
(both realized and unrealized) ..... (0.19) 0.31 (0.42) 0.47 0.16 0.44
-------- -------- -------- -------- -------- --------
Total from investment operations ....... (0.00) 0.71 (0.01) 0.89 0.61 0.91
-------- -------- -------- -------- -------- --------
Less distributions (note 9):
Dividends from net investment income ... (0.20) (0.41) (0.42) (0.44) (0.46) (0.50)
-------- -------- -------- -------- -------- --------
Net asset value, end of period .............. $ 10.59 $ 10.79 $ 10.49 $ 10.92 $ 10.47 $ 10.32
======== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) .. 0.00%* 6.81% (0.10)% 8.64% 6.07% 9.19%
Ratios/supplemental data
Net assets, end of period (in thousands) $104,721 $105,910 $101,413 $106,887 $ 86,378 $ 67,669*
Ratio of expenses to average net assets 0.65%** 0.58% 0.53% 0.51% 0.49% 0.41%
Ratio of net investment income to
average net assets ................. 3.60%** 3.68% 3.82% 3.96% 4.34% 4.65%
Portfolio turnover rate ................ 2.81%* 2.20% 8.61% 11.74% 6.02% 3.08%
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 (note 3):
Ratio of expenses to average net assets 0.99%** 0.96% 0.91% 0.88% 0.88% 0.95%
Ratio of net investment income to
average net assets ................. 3.26%** 3.31% 3.44% 3.59% 3.95% 4.11%
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 0.63%** 0.57% 0.52% 0.48% 0.46% 0.40%
CLASS C
------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
12/31/05 --------------------------------------------------------------------
(UNAUDITED) 2005 2004 2003 2002 2001
----------- -------- -------- -------- -------- --------
Net asset value, beginning of period ........ $ 10.79 $ 10.48 $ 10.92 $ 10.47 $ 10.32 $ 9.91
-------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income+ ................. 0.15 0.31 0.32 0.33 0.36 0.38
Net gain (loss) on securities
(both realized and unrealized) ..... (0.20) 0.31 (0.43) 0.47 0.16 0.43
-------- -------- -------- -------- -------- --------
Total from investment operations ....... (0.05) 0.62 (0.11) 0.80 0.52 0.81
-------- -------- -------- -------- -------- --------
Less distributions (note 9):
Dividends from net investment income ... (0.15) (0.31) (0.33) (0.35) (0.37) (0.40)
-------- -------- -------- -------- -------- --------
Net asset value, end of period .............. $ 10.59 $ 10.79 $ 10.48 $ 10.92 $ 10.47 $ 10.32
======== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) .. (0.43)%* 6.01% (1.04)% 7.72% 5.16% 8.27%
Ratios/supplemental data
Net assets, end of period (in thousands) $ 18,206 $ 19,031 $ 17,901 $ 22,506 $ 15,606 $ 7,023
Ratio of expenses to average net assets 1.50%** 1.43% 1.38% 1.35% 1.34% 1.26%
Ratio of net investment income to
average net assets ................. 2.75%** 2.83% 2.98% 3.10% 3.46% 3.78%
Portfolio turnover rate ................ 2.81%* 2.20% 8.61% 11.74% 6.02% 3.08%
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 (note 3):
Ratio of expenses to average net assets
Ratio of net investment income to
average net assets ................. 1.84%** 1.81% 1.76% 1.72% 1.72% 1.80%
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 1.48%** 1.42% 1.37% 1.33% 1.31% 1.25%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
* Not Annualized
** Annualized
See accompanying notes to financial statements.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS I
---------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
12/31/05 ---------------------------------------------------------
(UNAUDITED) 2005 2004 2003 2002 2001
----------- ------- ------- ------- ------- -------
Net asset value, beginning of period .............. $ 10.79 $ 10.48 $ 10.91 $ 10.47 $ 10.32 $ 9.90
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income+ ....................... 0.19 0.39 0.41 0.42 0.44 0.47
Net gain (loss) on securities (both
realized and unrealized) ................. (0.21) 0.32 (0.42) 0.46 0.17 0.43
------- ------- ------- ------- ------- -------
Total from investment operations ............. (0.02) 0.71 (0.01) 0.88 0.61 0.90
------- ------- ------- ------- ------- -------
Less distributions (note 9):
Dividends from net investment income ......... (0.19) (0.40) (0.42) (0.44) (0.46) (0.48)
------- ------- ------- ------- ------- -------
Net asset value, end of period .................... $ 10.58 $ 10.79 $ 10.48 $ 10.91 $ 10.47 $ 10.32
======= ======= ======= ======= ======= =======
Total return (not reflecting sales charge) ........ (0.16)%* 6.89% (0.12)% 8.52% 6.05% 9.29%
Ratios/supplemental data
Net assets, end of period (in thousands) ..... $ 1,211 $ 1,098 $ 790 $ 449 $ 386 $ 93
Ratio of expenses to average net assets ...... 0.79%** 0.58% 0.53% 0.52% 0.50% 0.41%
Ratio of net investment income to
average net assets ....................... 3.46%** 3.68% 3.82% 3.95% 4.32% 4.65%
Portfolio turnover rate ...................... 2.81%* 2.20% 8.61% 11.74% 6.02% 3.08%
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 (note 3):
Ratio of expenses to average net assets ...... 1.13%** 0.96% 0.91% 0.89% 0.89% 0.96%
Ratio of net investment income to
average net assets ....................... 3.13%** 3.30% 3.44% 3.58% 3.93% 4.10%
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 ...... 0.77%** 0.57% 0.52% 0.49% 0.48% 0.41%
CLASS Y
----------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
12/31/05 -----------------------------------------------------------
(UNAUDITED) 2005 2004 2003 2002 2001
----------- ------- ------- ------- ------- -------
Net asset value, beginning of period .............. $ 10.79 $ 10.49 $ 10.92 $ 10.47 $ 10.32 $ 9.91
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income+ ....................... 0.20 0.41 0.43 0.45 0.46 0.48
Net gain (loss) on securities (both
realized and unrealized) ................. (0.19) 0.31 (0.43) 0.45 0.17 0.44
------- ------- ------- ------- ------- -------
Total from investment operations ............. 0.01 0.72 -- 0.90 0.63 0.92
------- ------- ------- ------- ------- -------
Less distributions (note 9):
Dividends from net investment income ......... (0.21) (0.42) (0.43) (0.45) (0.48) (0.51)
------- ------- ------- ------- ------- -------
Net asset value, end of period .................... $ 10.59 $ 10.79 $ 10.49 $ 10.92 $ 10.47 $ 10.32
======= ======= ======= ======= ======= =======
Total return (not reflecting sales charge) ........ 0.07%* 6.98% 0.03% 8.80% 6.22% 9.35%
Ratios/supplemental data
Net assets, end of period (in thousands) ..... $29,287 $27,998 $22,113 $18,193 $11,726 $ 3,332
Ratio of expenses to average net assets ...... 0.50%** 0.43% 0.38% 0.36% 0.34% 0.26%
Ratio of net investment income to
average net assets ....................... 3.74%** 3.83% 3.97% 4.10% 4.47% 4.79%
Portfolio turnover rate ...................... 2.81%* 2.20% 8.61% 11.74% 6.02% 3.08%
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 (note 3):
Ratio of expenses to average net assets ...... 0.84%** 0.81% 0.76% 0.73% 0.73% 0.80%
Ratio of net investment income to
average net assets ....................... 3.41%** 3.45% 3.59% 3.73% 4.08% 4.24%
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 ...... 0.48%** 0.42% 0.37% 0.33% 0.31% 0.26%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
* Not Annualized
** Annualized
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
ANALYSIS OF EXPENSES (UNAUDITED)
As a shareholder of the Fund, you may incur two types of costs: (1)
transaction costs, including front-end sales charges with respect to Class A
shares or contingent deferred sales charges ("CDSC") with respect to Class C
shares; and (2) ongoing costs, including management fees; distribution and/or
service (12b-1) fees; and other Fund expenses. The tables below are intended to
help you understand your ongoing costs (in dollars) of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The tables below are based on an investment of $1,000 invested on July 1,
2005 and held for the six months ended December 31, 2005.
ACTUAL EXPENSES
This table provides information about actual account values and actual
expenses. You may use the information provided in this table, together with the
amount you invested, to estimate the expenses that you paid over the period. To
estimate the expenses you paid on your account, divide your ending account value
by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During the Period".
FOR THE SIX MONTHS ENDED DECEMBER 31, 2005
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A 0.00% $1,000.00 $1,000.00 $3.18
- --------------------------------------------------------------------------------
Class C (0.43)% $1,000.00 $ 995.70 $7.46
- --------------------------------------------------------------------------------
Class I (0.16)% $1,000.00 $ 998.40 $3.86
- --------------------------------------------------------------------------------
Class Y 0.07% $1,000.00 $1,000.70 $2.43
- --------------------------------------------------------------------------------
(1) ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS, IF
ANY, AT NET ASSET VALUE AND DOES NOT REFLECT THE DEDUCTION OF THE
APPLICABLE SALES CHARGES WITH RESPECT TO CLASS A SHARES OR THE APPLICABLE
CONTINGENT DEFERRED SALES CHARGES ("CDSC") WITH RESPECT TO CLASS C SHARES.
TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE
TOTAL RETURN FOR THE YEAR.
(2) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.63%, 1.48%, 0.77%
AND 0.48% FOR THE FUND'S CLASS A, C, I AND Y SHARES, RESPECTIVELY,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANALYSIS OF EXPENSES (UNAUDITED) (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio and an assumed rate of
return of 5.00% per year before expenses, which is not the Fund's actual return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
the information provided in this table to compare the ongoing costs of investing
in the Fund and other mutual funds. To do so, compare this 5.00% hypothetical
example relating to the Fund with the 5.00% hypothetical examples that appear in
the shareholder reports of other mutual funds.
Please note that the expenses shown in the table below are meant to
highlight your ongoing costs only and do not reflect any transactional costs,
with respect to Class A shares. The example does not reflect the deduction of
contingent deferred sales charges ("CDSC") with respect to Class C shares.
Therefore, the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different mutual funds. In
addition, if these transaction costs were included, your costs would have been
higher.
FOR THE SIX MONTHS ENDED DECEMBER 31, 2005
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,022.02 $3.22
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,017.73 $7.54
- --------------------------------------------------------------------------------
Class I 5.00% $1,000.00 $1,021.34 $3.91
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,022.78 $2.45
- --------------------------------------------------------------------------------
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.63%, 1.48%, 0.77%
AND 0.48% FOR THE TRUST'S CLASS A, C, I AND Y SHARES, RESPECTIVELY,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING RESULTS (UNAUDITED)
The Annual Meeting of Shareholders of Narragansett Insured Tax-Free Income Fund
(the "Fund") was held on October 28, 2005. The holders of shares representing
70% of the total net asset value of the shares entitled to vote were present in
person or by proxy. At the meeting, the following matters were voted upon and
approved by the shareholders (the resulting votes for each matter are presented
below).
1. To elect Trustees.
DOLLAR AMOUNT OF VOTES
------------------------------
TRUSTEE FOR WITHHELD
------- --- --------
Vernon R. Alden $106,360,538 $ 520,036
David A. Duffy $106,362,160 $ 518,414
Diana P. Herrmann $106,368,763 $ 511,810
Timothy J. Leach $106,350,924 $ 529,650
Willliam J. Nightingale $106,359,234 $ 521,340
James R. Ramsey $106,353,764 $ 526,809
J. William Weeks $106,359,234 $ 521,340
Laureen L. White $106,563,888 $ 316,685
2. To act on the selection of Tait, Weller & Baker LLP as the Fund's
independent registered public accounting firm.
FOR AGAINST ABSTAIN
--- ------- -------
$105,818,252 $165,381 $896,230
- --------------------------------------------------------------------------------
INFORMATION AVAILABLE (UNAUDITED)
Much of the information that the funds in the Aquilasm Group of Funds
produce is automatically sent to you and all other shareholders. Specifically,
you are routinely sent the entire list of portfolio securities of your Fund
twice a year in the semi-annual and annual reports you receive. Additionally, we
prepare, and have available, portfolio listings at the end of each quarter.
Whenever you may be interested in seeing a listing of your Fund's portfolio
other than in your shareholder reports, please check our website
http://www.aquilafunds.com or call us at 1-800-437-1020.
The Fund additionally files a complete list of its portfolio holdings with
the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms
N-Q are available free of charge on the SEC website at http://www.sec.gov. You
may also review or, for a fee, copy the forms at the SEC's Public Reference Room
in Washington, DC or by calling 800-SEC-0330.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROXY VOTING RECORD (UNAUDITED)
The Fund does not invest in equity securities. Accordingly, there were no
matters relating to a portfolio security considered at any shareholder meeting
held during the 12 months ended June 30, 2005 with respect to which the Fund was
entitled to vote. Applicable regulations require us to inform you that the
foregoing proxy voting information is available on the SEC website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
NARRAGANSETT INSURED TAX-FREE INCOME FUND (THE "FUND"):
RENEWAL OF THE ADVISORY AND ADMINISTRATION AGREEMENT AND THE SUB-ADVISORY
AGREEMENT
Renewal until December 31, 2006 of the Advisory and Administration Agreement
(the "Advisory Agreement") between the Fund and the Manager and the Sub-Advisory
Agreement (the "Sub-Advisory Agreement") between the Manager and Citizens
Investment Advisors, a department of Citizens Bank of Rhode Island (the
"Sub-Adviser") was approved by the Board of Trustees and the independent
Trustees in December, 2005. At a meeting called and held for that purpose at
which a majority of the independent Trustees were present in person, the
following materials were considered:
o Copies of the agreements to be renewed;
o A term sheet describing the material terms of the agreements;
o The Annual Report of the Fund for the year ended June 30, 2005;
o A report, prepared by the Manager and provided to the Trustees in
advance of the meeting for the Trustees' review, containing data
about the performance of the Fund, data about its fees, expenses and
purchases and redemptions together with comparisons of such data
with similar data about other comparable funds, as well as data as
to the profitability of the Manager and the Sub-Adviser; and
o Quarterly materials reviewed at prior meetings on the Fund's
performance, operations, portfolio and compliance.
The Trustees considered the Advisory Agreement and the Sub-Advisory
Agreement separately as well as in conjunction with each other to determine
their combined effects on the Fund. The Trustees reviewed materials relevant to,
and considered, the factors set forth below, and as to each agreement reached
the conclusions described.
THE NATURE, EXTENT, AND QUALITY OF THE SERVICES PROVIDED BY THE MANAGER AND THE
SUB-ADVISER.
The Manager and Sub-Adviser have provided local management of the Fund's
portfolio. The Trustees noted that the Sub-Adviser employed Salvatore C. DiSanto
and Jeffrey K. Hanna as portfolio managers for the Fund and had provided
facilities for credit analysis of the Fund's portfolio securities. Messrs.
DiSanto and Hanna, based in Providence, have provided local information
regarding specific holdings in the Fund's portfolio. The portfolio managers have
also been available to and have met with the brokerage and financial planner
community and with investors and prospective investors to provide them with
information generally about the Fund's portfolio, with which to assess the Fund
as an investment vehicle for residents of Rhode Island in light of prevailing
interest rates and local economic conditions. In addition, one or both of them
have been present at all regular meetings of the Board and Shareholders.
The Board considered that the Manager and the Sub-Adviser had provided all
services the Board deemed necessary or appropriate, including the specific
services that the Board has
determined are required for the Fund, given that its purpose is to provide
shareholders with as high a level of current income exempt from Rhode Island
state and regular Federal income taxes as is consistent with preservation of
capital. It noted that compared to other Rhode Island state-specific municipal
bond funds, the portfolio of the Fund was of significantly higher quality, was
the only fund in the state with 100% of its portfolio instruments insured or
pre-refunded, and contained no securities subject to the alternative minimum
tax.
The Board considered that the Manager had established and maintained a
strong culture of ethical conduct and regulatory compliance, and had not been
subject to the kinds of regulatory and legal difficulties recently affecting a
significant number of other investment advisers.
The Board concluded that a commendable quality of services was provided
and that the Fund would be well served if they continued. Evaluation of this
factor weighed in favor of renewal of the Advisory Agreement and the
Sub-Advisory Agreement.
THE INVESTMENT PERFORMANCE OF THE FUND, THE MANAGER AND SUB-ADVISER.
The Board determined it appropriate to consider the Fund's performance.
For the one, five and ten-year periods ended September 30, 2005 the Fund's
average annual rate of return for Class A Shares was 2.20%, 5.48% and 5.29%,
respectively. Performance for the other classes was similar.
The Board reviewed each aspect of the Fund's performance and compared its
performance with that of its local competitors and with national averages. It
was noted that the materials provided by the Manager indicated that compared to
the three competitive Rhode Island funds, the Fund has had investment
performance that is comparable to that of two of its three peers for one-, five-
and ten-year periods, with lower rates of return compared to the third peer
explained by the Fund's generally higher-quality portfolio and generally shorter
average maturities. The Board considered these results to be consistent with the
purposes of the Fund.
The Board concluded that the performance of the Fund, in light of market
conditions, was satisfactory. Evaluation of this factor indicated to the
Trustees that renewal of the Advisory Agreement and Sub-Advisory Agreement would
be appropriate.
THE COSTS OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED BY THE
MANAGER AND ITS AFFILIATES AND THE SUB-ADVISER FROM THE RELATIONSHIP WITH THE
FUND.
The information provided in connection with renewal contained expense data
for the Fund and its local competitors as well as data for insured single-state
funds, all single-state tax-free municipal bond funds nationwide, including data
for all such front-end load funds of a comparable asset size. The materials also
showed the profitability to the Manager and the Sub-Adviser of their services to
the Fund. The Board noted that both the Manager and Sub-Adviser were currently
waiving a portion of their respective fees and had been since the Fund's
inception. For the year ended June 30, 2005, the Fund incurred management fees
of $753,282, of which $579,069 was voluntarily waived. While such waivers were
voluntary and could be terminated in the future, the Manager had indicated that
it intended to continue waiving fees as necessary in order that the Fund would
remain competitive.
The Board compared the expense and fee data with respect to the Fund to
similar data about other funds that it found to be relevant. The Board concluded
that the expenses of the Fund and the fees paid were generally lower than those
being paid by single-state tax-free municipal bond funds nationwide, and by the
Fund's local competitors.
The Board considered that the foregoing indicated the appropriateness of
the costs of the services to the Fund, which was being well managed as indicated
by the factors considered previously.
The Board further concluded that the profitability to the Manager,
Sub-Adviser and the Distributor did not argue against approval of the fees to be
paid under the Advisory Agreement or the Sub-Advisory Agreement.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS.
Data provided to the Trustees showed that the Fund's asset size had been
generally increasing in recent years. The Trustees also noted that the materials
indicated that the Fund's fees were already lower than those of its peers,
including those with breakpoints. Additionally, the Trustees noted that both the
Manager and Sub-Adviser were currently waiving a substantial portion of their
respective fees. Evaluation of these factors indicated to the Board that the
Advisory Agreement and Sub-Advisory Agreement should be renewed without addition
of breakpoints at this time.
BENEFITS DERIVED OR TO BE DERIVED BY THE MANAGER AND SUB-ADVISER AND THEIR
AFFILIATES FROM THEIR RELATIONSHIPS WITH THE FUND.
The Board observed that, as is generally true of most fund complexes, the
Manager and Sub-Adviser and their affiliates, by providing services to a number
of funds or other investment clients including the Fund, were able to spread
costs as they would otherwise be unable to do. The Board noted that while that
produces efficiencies and increased profitability for the Manager and
Sub-Adviser and their affiliates, it also makes their services available to the
Fund at favorable levels of quality and cost which are more advantageous to the
Fund than would otherwise have been possible.
(THIS PAGE INTENTIONALLY LEFT BLANK)
FOUNDERS
Lacy B. Herrmann, Chairman Emeritus
AQUILA MANAGEMENT CORPORATION
MANAGER
AQUILA INVESTMENT MANAGEMENT LLC
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
CITIZENS INVESTMENT ADVISORS,
A DEPARTMENT OF CITIZENS BANK
OF RHODE ISLAND
One Citizens Plaza
Providence, Rhode Island 02903
BOARD OF TRUSTEES
William J. Nightingale, Chair
Vernon R. Alden
David A. Duffy
Diana P. Herrmann
Timothy J. Leach
James R. Ramsey
J. William Weeks
Laureen L. White
OFFICERS
Diana P. Herrmann, President
Stephen J. Caridi, Senior Vice President
Robert W. Anderson, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer and 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.
1111 Polaris Parkway
Columbus, Ohio 43240
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC INC.
101 Sabin Street
Pawtuckett, RI 02860
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
1818 Market Street, Suite 2400
Philadelphia, PA 19103
Further information is contained in the Prospectus, which must precede or
accompany this report.
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not applicable.
ITEM 10. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act of
1940.
(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
By: /s/ Diana P. Herrmann
- - - ---------------------------------
President and Trustee
March 9, 2006
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Chief Financial Officer and Treasurer
March 9, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Diana P. Herrmann
- - - ---------------------------------
Diana P. Herrmann
President and Trustee
March 9, 2006
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
March 9, 2006
NARRAGANSETT INSURED TAX-FREE INCOME FUND
EXHIBIT INDEX
(a) (2) Certifications of principal executive officer
and principal financial officer as required by Rule 30a-2(a)
under the Investment Company Act of 1940.
(b) Certification of chief executive officer and chief financial
officer as required by Rule 30a-2(b) of the Investment Company Act
of 1940.