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: 12/31/06
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMI-ANNUAL
REPORT
DECEMBER 31, 2006
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 GROUP OF FUNDS (SM)
[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
"TAX-FREE IN BLACK AND WHITE"
February, 2007
Dear Fellow Shareholder:
We have all seen and heard the words "tax-free" over and over in various
contexts. In fact, the name of the Fund contains the words "tax-free." But, what
does that really mean to you in black and white?
As you know, you have to pay federal, state, and/or local taxes on the
dividends distributed to you by a taxable mutual fund. Thus, a bond fund which
invests in tax-free municipal bonds, such as Narragansett Insured Tax-Free
Income Fund, may actually generate more net dividend income than a taxable bond
fund with a higher stated yield.
How is this possible? Let's use a simple example.
Suppose you invest $10,000 in a hypothetical TAX-FREE municipal bond fund
with a yield of 4%, paying dividends that are EXEMPT FROM FEDERAL INCOME TAXES,
and you also invest $10,000 in a hypothetical TAXABLE bond fund with a yield of
5.5%, paying dividends that are TAXABLE AT THE FEDERAL LEVEL. The example below
shows the outcome for an investor in the 33% federal income tax bracket. As you
can see, your investment in the tax-free municipal bond fund would have ended up
with more after-tax income even though the fund's yield was lower.
[BAR CHART]
Federal Income Interest Income
Taxes After Taxes
Tax-Free Municipal Bond $400
Fund Yielding 4% (Assumes no taxes)
Taxable Bond Fund Yielding 5.5% $181.50 $368.50
Tax Rate 33%
To help you compare taxable bond funds versus tax-free municipal bond
funds, a taxable-equivalent yield is often used. The taxable-equivalent yield
provides you with the rate that a taxable bond fund would have to yield to give
you the same after-tax yield as a tax-free municipal bond fund. (You should be
aware that the calculation does not take into account the impact of state income
taxes, or any alternative minimum taxes, to which some investors may be
subject.)
NOT A PART OF THE SEMI-ANNUAL REPORT
In its simplest terms,
- --------------------------------------------------------------------------------
Yield of tax-free municipal bond fund
- ------------------------------------- = Your taxable-equivalent yield
1.00 - your federal income tax rate
- --------------------------------------------------------------------------------
Using the above tax-free example of a 4% yield and a federal tax bracket
of 33%, the calculation would be as follows:
- --------------------------------------------------------------------------------
4
- ----------- = 5.97%
1.00 - 0.33
- --------------------------------------------------------------------------------
In other words, a tax-free investment of 4.00% and a taxable investment of
5.97% would provide the same yield after taxes.
EFFECT OF FEDERAL INCOME TAXES ON YIELDS OF TAX-EXEMPT AND TAXABLE
INSTRUMENTS
4.00% 5.97%
TAX-FREE BOND TAXABLE BOND
Cash investment $ 10,000 $ 10,000
Interest $ 400 $ 597
33% Federal income tax $ 0 $ 197.01
Net return $ 400 $ 399.99
Yield on investment after federal taxes 4.0% 4.0%
You should be aware that dividends paid by tax-free municipal bond funds,
such as Narragansett Insured Tax-Free Income Fund, are often also exempt from
state and/or local taxes. FACTORING IN THE EXEMPTION AT THE STATE AND/OR LOCAL
LEVEL WOULD HAVE THE EFFECT OF INCREASING THE TAXABLE EQUIVALENT YIELD EVEN
FURTHER.
So, the next time that you see the phrase "tax-free," remember that in
black and white, it oftentimes means more money into your pocket.
Sincerely,
/s/ Diana P. Herrmann /s/ Lacy B. Herrmann
Diana P. Herrmann Lacy B. Herrmann
President Founder and Chairman Emeritus
For certain investors, some dividends of your Fund may be subject to Federal and
State taxes. These hypothetical examples are not intended to predict or project
investment performance. Your own results will vary. State and local taxes, fees
and expenses, if any, are not taken into account.
NOT A PART OF THE SEMI-ANNUAL REPORT
NARRAGANSETT INSURED TAX-FREE INCOME FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006 (UNAUDITED)
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT GENERAL OBLIGATION BONDS (43.8%) OR FITCH VALUE
- ------------ ------------------------------------------------------------- ------------ ------------
Coventry, Rhode Island
$ 550,000 5.000%, 11/01/16 AMBAC Insured .............................. Aaa+/AAA+++ $ 584,155
550,000 5.000%, 11/01/17 AMBAC Insured .............................. Aaa+/AAA+++ 580,663
Cranston, Rhode Island
500,000 5.450%, 11/15/11 FGIC Insured ............................... Aaa+/AAA++ 529,310
1,000,000 4.250%, 04/01/18 MBIA Insured ............................... Aaa+/AAA++ 1,020,660
1,000,000 4.250%, 04/01/19 MBIA Insured ............................... Aaa+/AAA++ 1,018,330
1,000,000 4.300%, 04/01/20 MBIA Insured ............................... Aaa+/AAA++ 1,019,830
Cumberland, Rhode Island
250,000 4.000%, 02/01/14 FGIC Insured ............................... Aaa+/AAA++ 253,363
250,000 4.000%, 02/01/15 FGIC Insured ............................... Aaa+/AAA++ 253,090
500,000 5.000%, 08/01/15 MBIA Insured ............................... Aaa+/AAA++ 519,985
250,000 4.000%, 02/01/16 FGIC Insured ............................... Aaa+/AAA++ 252,548
250,000 4.100%, 02/01/17 FGIC Insured ............................... Aaa+/AAA++ 253,215
250,000 4.150%, 02/01/18 FGIC Insured ............................... Aaa+/AAA++ 253,480
1,255,000 5.000%, 10/01/18 MBIA Insured ............................... Aaa+/AAA++ 1,319,156
1,040,000 5.200%, 10/01/21 MBIA Insured ............................... Aaa+/AAA++ 1,112,821
New Shoreham, Rhode Island
245,000 4.000%, 11/15/15 AMBAC Insured .............................. Aaa+/AAA++ 247,803
255,000 4.250%, 11/15/16 AMBAC Insured .............................. Aaa+/AAA++ 260,837
270,000 4.250%, 11/15/17 AMBAC Insured .............................. Aaa+/AAA++ 275,467
910,000 4.800%, 04/15/18 AMBAC Insured .............................. Aaa+/AAA++ 949,139
285,000 4.500%, 11/15/18 AMBAC Insured .............................. Aaa+/AAA++ 294,026
1,105,000 5.000%, 04/15/22 AMBAC Insured .............................. Aaa+/AAA++ 1,168,924
Newport, Rhode Island
1,000,000 4.500%, 11/01/15 AMBAC Insured .............................. Aaa+/AAA+++ 1,039,780
1,000,000 4.750%, 11/01/18 AMBAC Insured .............................. Aaa+/AAA+++ 1,044,860
800,000 5.000%, 11/01/20 AMBAC Insured .............................. Aaa+/AAA+++ 845,320
North Kingstown, Rhode Island
500,000 3.750%, 10/01/12 FGIC Insured ............................... Aaa+/AAA++ 502,035
North Providence, Rhode Island
400,000 5.700%, 07/01/08 MBIA Insured ............................... Aaa+/AAA++ 412,016
500,000 3.500%, 10/15/13 FSA Insured ................................ Aaa+/AAA++ 494,030
500,000 4.700%, 09/15/14 FSA Insured ................................ Aaa+/AAA++ 520,260
500,000 3.650%, 10/15/14 FSA Insured ................................ Aaa+/AAA++ 496,630
500,000 3.750%, 10/15/15 FSA Insured ................................ Aaa+/AAA++ 497,755
RATING
PRINCIPAL 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+++ $ 610,212
250,000 4.400%, 09/15/10 AMBAC Insured .............................. Aaa+/AAA+++ 256,505
910,000 4.000%, 04/15/14 AMBAC Insured .............................. Aaa+/AAA+++ 920,765
Providence, Rhode Island
700,000 5.500%, 01/15/11 FSA Insured ................................ Aaa+/AAA++ 708,008
1,000,000 3.600%, 07/15/13 Series A FSA Insured ....................... Aaa+/AAA++ 994,240
1,000,000 5.000%, 01/15/16 FGIC Insured ............................... Aaa+/AAA++ 1,059,580
1,000,000 5.000%, 01/15/17 FGIC Insured ............................... Aaa+/AAA++ 1,059,580
1,000,000 5.000%, 01/15/18 FGIC Insured ............................... Aaa+/AAA++ 1,059,580
Rhode Island Consolidated Capital
Development Loan
1,000,000 5.125%, 07/15/11 FGIC Insured ............................... Aaa+/AAA++ 1,031,360
1,135,000 5.000%, 08/01/11 MBIA Insured ............................... Aaa+/AAA++ 1,155,373
1,000,000 5.000%, 09/01/14 Series A FGIC Insured ...................... Aaa+/AAA++ 1,032,210
1,500,000 5.000%, 09/01/15 FGIC Insured ............................... Aaa+/AAA++ 1,548,315
1,500,000 4.750%, 09/01/17 Series A FGIC Insured ...................... Aaa+/AAA++ 1,542,330
South Kingstown, Rhode Island
500,000 5.500%, 06/15/12 FGIC Insured ............................... Aaa+/AAA+++ 534,615
500,000 3.400%, 06/15/12 AMBAC Insured .............................. Aaa+/AAA+++ 490,720
State of Rhode Island
1,000,000 5.250%, 11/01/11 Series C MBIA Insured ...................... Aaa+/AAA++ 1,069,690
2,000,000 5.000%, 08/01/12 Series B MBIA Insured ...................... Aaa+/AAA++ 2,132,960
1,000,000 5.000%, 06/01/14 Series B FGIC Insured ...................... Aaa+/AAA++ 1,052,820
4,000,000 5.000%, 08/01/14 FGIC Insured ............................... Aaa+/AAA++ 4,218,640
2,000,000 5.000%, 08/01/15 Series B FGIC Insured ...................... Aaa+/AAA++ 2,103,300
2,000,000 4.500%, 02/01/17 MBIA Insured ............................... Aaa+/AAA++ 2,073,520
2,000,000 5.250%, 11/01/17 FGIC Insured ............................... Aaa+/AAA++ 2,167,540
2,500,000 5.000%, 09/01/18 MBIA Insured ............................... Aaa+/AAA++ 2,651,125
2,000,000 5.000%, 09/01/19 MBIA Insured ............................... Aaa+/AAA++ 2,118,880
1,500,000 5.000%, 09/01/20 MBIA Insured ............................... Aaa+/AAA++ 1,586,520
Warwick, Rhode Island
665,000 4.250%, 07/15/14 AMBAC Insured .............................. Aaa+/AAA++ 681,459
195,000 5.600%, 08/01/14 FSA Insured ................................ Aaa+/AAA++ 199,083
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) OR FITCH VALUE
- ------------ ------------------------------------------------------------- ------------ ------------
Warwick, Rhode Island (continued)
$ 700,000 4.375%, 07/15/15 AMBAC Insured .............................. Aaa+/AAA++ $ 720,601
770,000 4.600%, 07/15/17 AMBAC Insured .............................. Aaa+/AAA++ 798,120
1,000,000 5.000%, 03/01/18 FGIC Insured ............................... Aaa+/AAA++ 1,032,570
905,000 4.250%, 01/15/18 XLCA Insured ............................... Aaa+/AAA++ 926,829
810,000 4.700%, 07/15/18 AMBAC Insured .............................. Aaa+/AAA++ 841,541
1,000,000 5.000%, 01/15/19 FGIC Insured ............................... Aaa+/AAA++ 1,058,030
855,000 4.750%, 07/15/19 AMBAC Insured .............................. Aaa+/AAA++ 886,951
500,000 5.000%, 01/15/20 FGIC Insured ............................... Aaa+/AAA++ 528,440
West Warwick, Rhode Island
500,000 4.875%, 03/01/16 AMBAC Insured .............................. Aaa+/AAA+++ 524,700
670,000 5.000%, 03/01/17 AMBAC Insured .............................. Aaa+/AAA+++ 708,592
700,000 5.050%, 03/01/18 AMBAC Insured .............................. Aaa+/AAA+++ 744,310
735,000 5.100%, 03/01/19 AMBAC Insured .............................. Aaa+/AAA+++ 782,172
Westerly, Rhode Island
900,000 4.000%, 07/01/17 MBIA Insured ............................... Aaa+/AAA++ 914,229
900,000 4.000%, 07/01/18 MBIA Insured ............................... Aaa+/AAA++ 912,078
Woonsocket, Rhode Island
655,000 4.450%, 12/15/12 FGIC Insured ............................... Aaa+/AAA+++ 672,390
685,000 4.550%, 12/15/13 FGIC Insured ............................... Aaa+/AAA+++ 705,680
------------
Total General Obligation Bonds ........................... 66,835,651
------------
REVENUE BONDS (55.3%)
DEVELOPMENT REVENUE BONDS (9.8%)
Providence Rhode Island Redevelopment
Agency Revenue Refunding Public Safety
Building Project
1,925,000 5.200%, 04/01/11 AMBAC Insured (pre-refunded) ............... Aaa+/AAA+++ 2,028,218
Rhode Island Convention Center Authority
Revenue Refunding
925,000 5.000%, 05/15/10 Series 1993 B MBIA Insured ................. Aaa+/AAA++ 964,451
Rhode Island Public Building Authority State
Public Projects
1,000,000 5.250%, 02/01/09 Series 1998 A AMBAC Insured ................ Aaa+/AAA++ 1,026,840
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) OR FITCH VALUE
- ------------ ------------------------------------------------------------- ------------ ------------
Rhode Island State Economic Development Corp.,
Airport Revenue
$ 1,000,000 5.000%, 07/01/18 Series B FSA Insured ....................... Aaa+/AAA++ $ 1,026,840
Rhode Island State Economic Development Corp.,
Airport Revenue Refunding
1,670,000 5.000%, 07/01/13 Series C MBIA Insured ...................... Aaa+/AAA++ 1,783,343
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++ 2,014,160
1,000,000 4.000%, 06/15/15 Series A AMBAC Insured ..................... Aaa+/AAA++ 1,012,470
1,000,000 4.000%, 06/15/18 Series 2006A AMBAC Insured ................. Aaa+/AAA++ 1,005,460
Rhode Island State Economic Development
Corp., Rhode Island Airport Corp. Intermodal
Facility Project
1,000,000 4.250%, 07/01/17 CIFG Assurance North
America, Inc. Insured .................................... Aaa+/AAA++ 1,012,480
Rhode Island State Economic Development
Corp., University of Rhode Island
750,000 4.800%, 11/01/11 Series 1999 FSA Insured .................... Aaa+/NR 775,890
750,000 4.900%, 11/01/12 Series 1999 FSA Insured .................... Aaa+/NR 779,423
750,000 4.900%, 11/01/13 Series 1999 FSA Insured .................... Aaa+/NR 780,248
750,000 5.000%, 11/01/14 Series 1999 FSA Insured .................... Aaa+/NR 784,710
------------
Total Development Revenue Bonds .......................... 14,994,533
------------
HIGHER EDUCATION REVENUE BONDS (29.8%)
Providence, Rhode Island Public Building
Authority, School Projects
500,000 5.500%, 12/15/14 Series 1996 B MBIA Insured ................. Aaa+/AAA++ 510,610
500,000 5.500%, 12/15/15 Series 1996 B MBIA Insured ................. Aaa+/AAA++ 510,610
1,000,000 5.250%, 12/15/14 Series 1998 FSA Insured .................... Aaa+/AAA++ 1,048,430
500,000 5.000%, 12/15/09 Series 1999 A AMBAC Insured ................ Aaa+/AAA++ 518,975
1,395,000 4.000%, 12/15/12 Series 2003 A MBIA Insured ................. Aaa+/AAA++ 1,419,371
1,450,000 4.000%, 12/15/13 Series 2003 A MBIA Insured ................. Aaa+/AAA++ 1,471,460
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) OR FITCH VALUE
- ------------ ------------------------------------------------------------- ------------ ------------
Providence, Rhode Island Public Building
Authority, School Projects (continued)
$ 1,505,000 4.000%, 12/15/14 Series 2003 A MBIA Insured ................. Aaa+/AAA++ $ 1,524,866
1,570,000 4.000%, 12/15/15 Series 2003 A MBIA Insured ................. Aaa+/AAA++ 1,588,212
1,630,000 4.000%, 12/15/16 Series 2003 A MBIA Insured ................. Aaa+/AAA++ 1,645,452
Providence, Rhode Island Public Building School
& Public Facilities Project
1,500,000 5.250%, 12/15/17 AMBAC Insured .............................. Aaa+/AAA++ 1,589,085
1,000,000 5.250%, 12/15/19 AMBAC Insured .............................. Aaa+/AAA++ 1,057,950
Rhode Island Health & Education Building Corp.,
Brown University
2,000,000 5.250%, 09/01/17 Series 1993 MBIA Insured ................... Aaa+/AAA++ 2,126,160
1,000,000 5.000%, 09/01/23 Series 1993 MBIA Insured ................... Aaa+/AAA++ 1,017,110
Rhode Island Health & Education Building Corp.,
Bryant College
1,000,000 5.125%, 06/01/19 AMBAC Insured .............................. Aaa+/AAA++ 1,062,680
230,000 5.000%, 12/01/21 AMBAC Insured .............................. Aaa+/AAA++ 241,824
Rhode Island Health & Education Building Corp.,
Higher Educational Facilities
1,010,000 3.625%, 09/15/14 Series 2003 B MBIA Insured ................. Aaa+/AAA++ 994,941
1,050,000 4.000%, 09/15/15 Series 2003 B MBIA Insured ................. Aaa+/AAA++ 1,057,318
1,040,000 4.000%, 09/15/16 Series 2003 B MBIA Insured ................. Aaa+/AAA++ 1,044,815
600,000 3.625%, 09/15/14 Series 2003 C MBIA Insured ................. Aaa+/AAA++ 591,054
500,000 4.000%, 09/15/15 Series 2003 C MBIA Insured ................. Aaa+/AAA++ 503,485
500,000 4.000%, 09/15/16 Series 2003 C MBIA Insured ................. Aaa+/AAA++ 502,315
Rhode Island Health & Education Building Corp.,
Johnson & Wales University
465,000 5.500%, 04/01/15 Series 1999 A MBIA Insured ................. Aaa+/AAA++ 521,856
900,000 5.500%, 04/01/16 Series 1999 A MBIA Insured ................. Aaa+/AAA++ 1,018,242
785,000 5.500%, 04/01/17 Series 1999 A MBIA Insured ................. Aaa+/AAA++ 893,722
1,360,000 4.000%, 04/01/12 Series 2003 XLCA Insured ................... Aaa+/AAA++ 1,377,925
3,210,000 4.000%, 04/01/13 Series 2003 XLCA Insured ................... Aaa+/AAA++ 3,254,137
2,000,000 4.000%, 04/01/14 Series 2003 XLCA Insured ................... Aaa+/AAA++ 2,021,940
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) OR FITCH VALUE
- ------------ ------------------------------------------------------------- ------------ ------------
Rhode Island Health & Education Building Corp.,
Rhode Island School of Design
$ 505,000 4.700%, 06/01/18 Series 2001 MBIA Insured ................... Aaa+/AAA++ $ 527,407
280,000 4.750%, 06/01/19 Series 2001 MBIA Insured ................... Aaa+/AAA++ 292,726
Rhode Island Health & Education Building Corp.,
Roger Williams University
500,000 5.125%, 11/15/11 AMBAC Insured .............................. Aaa+/AAA++ 522,590
1,000,000 5.125%, 11/15/14 Series 1996 S AMBAC Insured ................ Aaa+/AAA++ 1,044,810
1,000,000 5.000%, 11/15/18 Series 1996 S AMBAC Insured ................ Aaa+/AAA++ 1,040,000
Rhode Island Health & Educational Building
Corp., University of Rhode Island
1,200,000 4.000%, 09/15/11 Series 2005 G AMBAC Insured ................ Aaa+/AAA++ 1,217,412
1,200,000 4.125%, 09/15/12 Series 2005 G AMBAC Insured ................ Aaa+/AAA++ 1,227,792
1,200,000 4.125%, 09/15/13 Series 2005 G AMBAC Insured ................ Aaa+/AAA++ 1,229,952
Rhode Island Health & Education Facilities
Authority, Providence College
1,000,000 4.250%, 11/01/14 XLCA Insured ............................... Aaa+/AAA++ 1,026,780
2,500,000 4.375%, 11/01/15 XLCA Insured ............................... Aaa+/AAA++ 2,565,925
2,500,000 4.500%, 11/01/16 XLCA Insured ............................... Aaa+/AAA++ 2,593,550
1,000,000 4.500%, 11/01/17 XLCA Insured ............................... Aaa+/AAA++ 1,031,970
------------
Total Higher Education Revenue Bonds ..................... 45,435,459
------------
HOUSING REVENUE BONDS (0.7%)
Rhode Island Housing & Meeting Finance Corp.,
Homeowner Opportunity
1,000,000 3.750%, 10/01/13 Series 50-A MBIA Insured ................... Aaa++/AAA+++ 1,005,290
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++ 1,899,918
4,765,000 4.375%, 10/01/21 Series 2002 B MBIA Insured ................. Aaa+/AAA++ 4,848,245
------------
Total Pollution Control Revenue Bonds .................... 6,748,163
------------
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) OR FITCH VALUE
- ------------ ------------------------------------------------------------- ------------ ------------
WATER AND SEWER REVENUE BONDS (8.9%)
Bristol County, Rhode Island Water Authority
$ 750,000 5.250%, 07/01/17 Series 1997 A MBIA Insured ................. Aaa+/AAA++ $ 763,013
1,000,000 3.500%, 12/01/13 Series 2004 Refunding A
MBIA Insured ............................................. Aaa+/AAA++ 987,880
1,000,000 3.500%, 12/01/14 Series 2004 Refunding A
MBIA Insured ............................................. Aaa+/AAA++ 984,350
Kent County, Rhode Island Water Authority
500,000 4.000%, 07/15/12 Series 2002 A MBIA Insured ................. Aaa+/AAA++ 508,185
1,055,000 4.150%, 07/15/14 Series 2002 A MBIA Insured ................. Aaa+/AAA++ 1,075,889
Rhode Island Clean Water Protection
Finance Agency
300,000 5.400%, 10/01/09 1993 Ser. 1993 A
MBIA Insured ............................................. Aaa+/AAA++ 313,722
500,000 4.500%, 10/01/11 1993 Ser. 1993 B
AMBAC Insured ............................................ Aaa+/AAA++ 508,745
1,000,000 5.125%, 10/01/11 Ser. 1999 C MBIA Insured ................... Aaa+/AAA++ 1,038,090
500,000 4.600%, 10/01/13 Ser. A AMBAC Insured ....................... Aaa+/AAA++ 511,340
500,000 4.750%, 10/01/14 Ser. A AMBAC Insured ....................... Aaa+/AAA++ 514,200
1,250,000 5.400%, 10/01/15 Ser. A MBIA Insured ........................ Aaa+/AAA++ 1,360,375
2,000,000 4.750%, 10/01/18 Ser. A AMBAC Insured ....................... Aaa+/AAA++ 2,052,060
500,000 4.750%, 10/01/20 Ser. A AMBAC Insured ....................... Aaa+/AAA++ 510,660
Rhode Island Water Resources Board Public
Drinking Water Protection
1,500,000 4.000%, 03/01/14 MBIA Insured ............................... Aaa+/AAA++ 1,517,385
1,000,000 4.250%, 03/01/15 MBIA Insured ............................... Aaa+/AAA++ 1,024,630
------------
Total Water and Sewer Revenue Bonds ...................... 13,670,524
------------
OTHER REVENUE BONDS (1.7%)
State of Rhode Island Certificates of Participation,
Howard Center Improvements
400,000 5.250%, 10/01/10 MBIA Insured ............................... Aaa+/AAA++ 408,720
200,000 5.375%, 10/01/16 MBIA Insured ............................... Aaa+/AAA++ 204,436
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) OR FITCH VALUE
- ------------ ------------------------------------------------------------- ------------ ------------
State of Rhode Island Depositors Economic
Protection Corp.
$ 300,000 5.800%, 08/01/09 Series 1993 B MBIA Insured ................. Aaa+/AAA++ $ 316,008
500,000 6.000%, 08/01/17 Series 1992 B MBIA Insured ................. Aaa+/AAA++ 549,400
1,045,000 5.250%, 08/01/21 Series 1993 B MBIA Insured
ETM (pre-refunded) ....................................... Aaa+/AAA++ 1,108,557
------------
Total Other Revenue Bonds ................................ 2,587,121
------------
Total Revenue Bonds ................................... 84,441,090
------------
Total Investments (cost $147,349,188 - note 4) .............. 99.1% 151,276,741
Other assets less liabilities ............................... 0.9 1,387,150
----- ------------
Net Assets .................................................. 100.0% $152,663,891
===== ============
Rating Services:
+ Moody's Investors Service
++ Standard & Poor's
+++ Fitch
NR - Not rated by two of the three ratings services
PERCENT OF
PORTFOLIO DISTRIBUTION BY QUALITY RATING (UNAUDITED) PORTFOLIO
------------------------------------------------------------- ---------
Aaa of Moody's or AAA of S&P or Fitch ....................... 100%
PORTFOLIO ABBREVIATIONS:
------------------------
AMBAC - American Municipal Bond Assurance Corp.
ETM - Escrowed to Maturity
CIFG - CDC IXIS Financial Guaranty
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, 2006 (UNAUDITED)
ASSETS
Investments at value (cost $147,349,188) .............................................................. $ 151,276,741
Interest receivable ................................................................................... 1,831,076
Receivable for Fund shares sold ....................................................................... 109,867
Other assets .......................................................................................... 11,810
-------------
Total assets .......................................................................................... 153,229,494
-------------
LIABILITIES
Cash overdraft ........................................................................................ 175,028
Dividends payable ..................................................................................... 183,910
Payable for Fund shares redeemed ...................................................................... 72,933
Distribution and service fees payable ................................................................. 52,208
Management fee payable ................................................................................ 19,503
Accrued expenses ...................................................................................... 62,021
-------------
Total liabilities ..................................................................................... 565,603
-------------
NET ASSETS ................................................................................................ $ 152,663,891
=============
Net Assets consist of:
Capital Stock - Authorized 80,000,000 shares, par value $0.01 per share ............................... $ 144,769
Additional paid-in capital ............................................................................ 149,642,915
Net unrealized appreciation on investments (note 4) ................................................... 3,927,553
Accumulated net realized loss on investments .......................................................... (859,705)
Distributions in excess of net investment income ...................................................... (191,641)
-------------
$ 152,663,891
=============
CLASS A
Net Assets ............................................................................................ $ 102,989,519
=============
Capital shares outstanding ............................................................................ 9,766,280
=============
Net asset value and redemption price per share ........................................................ $ 10.55
=============
Offering price per share (100/96 of $10.55 adjusted to nearest cent) .................................. $ 10.99
=============
CLASS C
Net Assets ............................................................................................ $ 15,457,649
=============
Capital shares outstanding ............................................................................ 1,466,045
=============
Net asset value and offering price per share .......................................................... $ 10.54
=============
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) ......................................................... $ 10.54*
=============
CLASS I
Net Assets ............................................................................................ $ 817,970
=============
Capital shares outstanding ............................................................................ 77,576
=============
Net asset value, offering and redemption price per share .............................................. $ 10.54
=============
CLASS Y
Net Assets ............................................................................................ $ 33,398,753
=============
Capital shares outstanding ............................................................................ 3,167,004
=============
Net asset value, offering and redemption price per share .............................................. $ 10.55
=============
See accompanying notes to financial statements.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 2006 (UNAUDITED)
INVESTMENT INCOME:
Interest income .............................................................. $ 3,327,639
EXPENSES:
Management fee (note 3) ...................................................... $ 387,103
Distribution and service fees (note 3) ....................................... 159,678
Trustees' fees and expenses (note 8) ......................................... 79,902
Transfer and shareholder servicing agent fees ................................ 52,027
Custodian fees ............................................................... 31,859
Legal fees (note 3) .......................................................... 31,829
Shareholders' reports and proxy statements ................................... 27,797
Fund accounting fees ......................................................... 27,209
Auditing and tax fees ........................................................ 9,332
Registration fees and dues ................................................... 7,746
Insurance .................................................................... 5,381
Chief compliance officer (note 3) ............................................ 2,291
Miscellaneous ................................................................ 38,459
-------------
Total expenses ............................................................... 860,613
Management fee waived (note 3) ............................................... (272,102)
Expenses paid indirectly (note 6) ............................................ (945)
-------------
Net expenses ................................................................. 587,566
-------------
Net investment income ........................................................ 2,740,073
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ........................ (49,920)
Change in unrealized appreciation on investments ............................. 3,168,269
-------------
Net realized and unrealized gain (loss) on investments ....................... 3,118,349
-------------
Net change in net assets resulting from operations ........................... $ 5,858,422
=============
See accompanying notes to financial statements.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
DECEMBER 31, 2006 YEAR ENDED
(UNAUDITED) JUNE 30, 2006
----------------- --------------
OPERATIONS:
Net investment income .......................................................... $ 2,740,073 $ 5,463,632
Net realized gain (loss) from securities transactions .......................... (49,920) (66,138)
Change in unrealized appreciation on investments ............................... 3,168,269 (6,471,758)
------------- -------------
Change in net assets from operations ........................................ 5,858,422 (1,074,264)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 9):
Class A Shares:
Net investment income .......................................................... (1,938,414) (3,880,873)
Class C Shares:
Net investment income .......................................................... (229,529) (512,514)
Class I Shares:
Net investment income .......................................................... (13,356) (44,086)
Class Y Shares:
Net investment income .......................................................... (641,380) (1,170,418)
------------- -------------
Change in net assets from distributions ..................................... (2,822,679) (5,607,891)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 7):
Proceeds from shares sold ...................................................... 5,645,049 28,611,766
Reinvested dividends and distributions ......................................... 1,249,793 2,612,391
Cost of shares redeemed ........................................................ (10,090,266) (25,755,083)
------------- -------------
Change in net assets from capital share transactions ........................... (3,195,424) 5,469,074
------------- -------------
Change in net assets ........................................................ (159,681) (1,213,081)
NET ASSETS:
Beginning of period ............................................................ 152,823,572 154,036,653
------------- -------------
End of period* ................................................................. $ 152,663,891 $ 152,823,572
============= =============
* Includes distributions in excess of net investment income of: ................ $ (191,641) $ (109,035)
============= =============
See accompanying notes to financial statements.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 (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.
f) NEW ACCOUNTING PRONOUNCEMENTS: In July 2006, the Financial Accounting
Standards Board ("FASB") released FASB Interpretation No. 48 "Accounting
for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 provides guidance for
how uncertain tax positions should be recognized, measured, presented and
disclosed in the financial statements. FIN 48 requires the evaluation of
tax positions taken or expected to be taken in the course of preparing the
Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority.
Tax positions not deemed to meet the more-likely-than-not threshold would
be recorded as a tax benefit or expense in the current year. Adoption of
FIN 48 is required to be implemented no later than June 29, 2007 and is to
be applied to all open tax years as of that date. At this time, management
does not believe the adoption of FIN 48 will result in any material impact
on the Fund's financial statements.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value
Measurement" ("SFAS 157"), which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair
value measurements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007, and
interim periods within those fiscal years. The Fund believes adoption of
SFAS 157 will have no material impact on the Fund's financial statements.
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 average 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, 2006, the Fund incurred management
fees of $387,103 of which $272,102 was waived. The Manager has contractually
undertaken to waive fees and/or reimburse Fund expenses during the period July
1, 2006 through June 30, 2007 so that total Fund expenses would not exceed 0.85%
for Class A Shares, 1.70% for Class C Shares, 1.02% for Class I Shares or 0.70%
for Class Y Shares.
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, 2006, distribution fees on Class A
Shares amounted to $78,532, of which the Distributor retained $2,004.
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, 2006 amounted to $60,299. 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, 2006, amounted to $20,099. The
total of these payments with respect to Class C Shares amounted to $80,398, of
which the Distributor retained $19,901.
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,
2006, these payments were made at the average annual rate of 0.20% of such net
assets amounting to $1,309 of which $748 related to the Plan and $561 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, 2006, total commissions on sales of Class A Shares amounted to
$52,796, of which the Distributor received $4,531.
c) OTHER RELATED PARTY TRANSACTIONS:
For the six months ended December 31, 2006, the Fund incurred $31,187 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 at that firm.
4. PURCHASES AND SALES OF SECURITIES
During the six months ended December 31, 2006, purchases of securities and
proceeds from the sales of securities aggregated $0 and $5,086,518,
respectively.
At December 31, 2006, the aggregate tax cost for all securities was
$147,337,163. At December 31, 2006, the aggregate gross unrealized appreciation
for all securities in which there is an excess of value over tax cost amounted
to $4,127,004 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $187,426, for a net
unrealized appreciation of $3,939,578.
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, 2006, 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, 2006, 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.
7. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
SIX MONTHS ENDED
DECEMBER 31, 2006 YEAR ENDED
(UNAUDITED) JUNE 30, 2006
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
CLASS A SHARES:
Proceeds from shares sold ................ 182,185 $ 1,917,236 1,156,856 $ 12,253,231
Reinvested distributions ................. 100,965 1,063,283 204,800 2,162,577
Cost of shares redeemed .................. (500,131) (5,270,026) (1,191,694) (12,588,656)
------------ ------------ ------------ ------------
Net change ............................. (216,981) (2,289,507) 169,962 1,827,152
------------ ------------ ------------ ------------
CLASS C SHARES:
Proceeds from shares sold ................ 77,590 818,432 320,132 3,381,363
Reinvested distributions ................. 8,927 93,978 23,511 248,414
Cost of shares redeemed .................. (226,434) (2,380,643) (501,280) (5,288,954)
------------ ------------ ------------ ------------
Net change ............................. (139,917) (1,468,233) (157,637) (1,659,177)
------------ ------------ ------------ ------------
CLASS I SHARES:
Proceeds from shares sold ................ 23,540 250,000 42,703 454,728
Reinvested distributions ................. 1,042 10,980 2,462 25,917
Cost of shares redeemed .................. (20,601) (217,437) (73,331) (768,550)
------------ ------------ ------------ ------------
Net change ............................. 3,981 43,543 (28,166) (287,905)
------------ ------------ ------------ ------------
CLASS Y SHARES:
Proceeds from shares sold ................ 252,265 2,659,381 1,182,830 12,522,444
Reinvested distributions ................. 7,727 81,552 16,650 175,483
Cost of shares redeemed .................. (210,887) (2,222,160) (675,731) (7,108,923)
------------ ------------ ------------ ------------
Net change ............................. 49,105 518,773 523,749 5,589,004
------------ ------------ ------------ ------------
Total transactions in Fund
shares ................................... (303,812) $ (3,195,424) 507,908 $ 5,469,074
============ ============ ============ ============
8. TRUSTEES' FEES AND EXPENSES
At December 31, 2006 there were 7 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, 2006 was
$53,688, 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, 2006, such
meeting-related expenses amounted to $26,214.
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, 2006. This adjustment had no impact on the Fund's
aggregate net assests at June 30, 2006. Further, a small portion of the
dividends may, under some circumstances, be subject to taxes at ordinary income
rates.
At June 30, 2006, the Fund had a capital loss carryover of $704,487 of
which $592,992 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. As of June 30, 2006
there were post-October capital loss deferrals of $105,298 which will be
recognized in the following year.
Tax character of distributions:
Year Ended June 30,
------------------------------
2006 2005
---------- ----------
Net tax-exempt income $5,431,934 $5,444,976
Ordinary income 175,957 133,067
---------- ----------
$5,607,891 $5,578,043
========== ==========
As of June 30, 2006, the components of distributable earnings on a tax
basis were as follows:
Accumulated net realized loss $ (704,487)
Unrealized appreciation 796,048
Post-October capital loss deferrals (105,298)
----------
$ (13,737)
==========
At June 30, 2006, 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,
12/31/06 -----------------------------------------------------------------
(UNAUDITED) 2006 2005 2004 2003 2002
--------- --------- --------- --------- --------- ---------
Net asset value, beginning of period ..... $ 10.34 $ 10.79 $ 10.49 $ 10.92 $ 10.47 $ 10.32
--------- --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income + ................ 0.19 0.38 0.40 0.41 0.42 0.45
Net gain (loss) on securities
(both realized and unrealized) ....... 0.22 (0.44) 0.31 (0.42) 0.47 0.16
--------- --------- --------- --------- --------- ---------
Total from investment operations ....... 0.41 (0.06) 0.71 (0.01) 0.89 0.61
--------- --------- --------- --------- --------- ---------
Less distributions (note 9):
Dividends from net investment income ... (0.20) (0.39) (0.41) (0.42) (0.44) (0.46)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period ........... $ 10.55 $ 10.34 $ 10.79 $ 10.49 $ 10.92 $ 10.47
========= ========= ========= ========= ========= =========
Total return (not reflecting sales charge) 3.95%* (0.56)% 6.81% (0.10)% 8.64% 6.07%
Ratios/supplemental data
Net assets, end of period (in thousands) $ 102,990 $ 103,222 $ 105,910 $ 101,413 $ 106,887 $ 86,378
Ratio of expenses to average net assets 0.70%** 0.67% 0.58% 0.53% 0.51% 0.49%
Ratio of net investment income to
average net assets ................... 3.60%** 3.61% 3.68% 3.82% 3.96% 4.34%
turnover rate ............................ 0.00%* 7.25% 2.20% 8.61% 11.74% 6.02%
The expense and net investment income ratios without the effect of the waiver of a portion of the management fee and the expense
reimbursement were (note 3):
Ratio of expenses to average net assets 1.05%** 1.03% 0.96% 0.91% 0.88% 0.88%
Ratio of net investment income to
average net assets ................... 3.24%** 3.25% 3.31% 3.44% 3.59% 3.95%
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 0.70%** 0.67% 0.57% 0.52% 0.48% 0.46%
CLASS C
SIX MONTHS -----------------------------------------------------------------
ENDED YEAR ENDED JUNE 30,
12/31/06 -----------------------------------------------------------------
(UNAUDITED) 2006 2005 2004 2003 2002
--------- --------- --------- --------- --------- ---------
Net asset value, beginning of period ..... $ 10.34 $ 10.79 $ 10.48 $ 10.92 $ 10.47 $ 10.32
--------- --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income + ................ 0.15 0.29 0.31 0.32 0.33 0.36
Net gain (loss) on securities
(both realized and unrealized) ....... 0.20 (0.44) 0.31 (0.43) 0.47 0.16
--------- --------- --------- --------- --------- ---------
Total from investment operations ....... 0.35 (0.15) 0.62 (0.11) 0.80 0.52
--------- --------- --------- --------- --------- ---------
Less distributions (note 9):
Dividends from net investment income ... (0.15) (0.30) (0.31) (0.33) (0.35) (0.37)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period ........... $ 10.54 $ 10.34 $ 10.79 $ 10.48 $ 10.92 $ 10.47
========= ========= ========= ========= ========= =========
Total return (not reflecting sales charge) 3.41%* (1.40)% 6.01% (1.04)% 7.72% 5.16%
Ratios/supplemental data
Net assets, end of period (in thousands) $ 15,458 $ 16,602 $ 19,031 $ 17,901 $ 22,506 $ 15,606
Ratio of expenses to average net assets 1.55%** 1.52% 1.43% 1.38% 1.35% 1.34%
Ratio of net investment income to
average net assets ................... 2.75%** 2.76% 2.83% 2.98% 3.10% 3.46%
turnover rate ............................ 0.00%* 7.25% 2.20% 8.61% 11.74% 6.02%
The expense and net investment income ratios without the effect of the waiver of a portion of the management fee and the expense
reimbursement were (note 3):
Ratio of expenses to average net assets 1.91%** 1.88% 1.81% 1.76% 1.72% 1.72%
Ratio of net investment income to
average net assets ................... 2.40%** 2.40% 2.45% 2.60% 2.73% 3.07%
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 1.55%** 1.52% 1.42% 1.37% 1.33% 1.31%
- ----------------
+ 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,
12/31/06 -----------------------------------------------------------------
(UNAUDITED) 2006 2005 2004 2003 2002
--------- --------- --------- --------- --------- ---------
Net asset value, beginning of period ..... $ 10.34 $ 10.79 $ 10.48 $ 10.91 $ 10.47 $ 10.32
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income+ ................. 0.19 0.37 0.39 0.41 0.42 0.44
Net gain (loss) on securities (both
realized and unrealized) ............. 0.20 (0.44) 0.32 (0.42) 0.46 0.17
-------- -------- -------- -------- -------- --------
Total from investment operations ....... 0.39 (0.07) 0.71 (0.01) 0.88 0.61
-------- -------- -------- -------- -------- --------
Less distributions (note 9):
Dividends from net investment income . (0.19) (0.38) (0.40) (0.42) (0.44) (0.46)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ........... $ 10.54 $ 10.34 $ 10.79 $ 10.48 $ 10.91 $ 10.47
======== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) 3.78%* (0.67)% 6.89% (0.12)% 8.52% 6.05%
Ratios/supplemental data
Net assets, end of period (in thousands) $ 818 $ 761 $ 1,098 $ 790 $ 449 $ 386
Ratio of expenses to average net assets 0.84%** 0.79% 0.58% 0.53% 0.52% 0.50%
Ratio of net investment income to
average net assets ................... 3.46%** 3.48% 3.68% 3.82% 3.95% 4.32%
Portfolio turnover rate ................ 0.00%* 7.25% 2.20% 8.61% 11.74% 6.02%
The expense and net investment income ratios without the effect of the waiver of a portion of the management fee and the expense
reimbursement were (note 3):
Ratio of expenses to average net assets 1.19%** 1.15% 0.96% 0.91% 0.89% 0.89%
Ratio of net investment income to
average net assets ................... 3.11%** 3.12% 3.30% 3.44% 3.58% 3.93%
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 0.83%** 0.79% 0.57% 0.52% 0.49% 0.48%
CLASS Y
SIX MONTHS -----------------------------------------------------------------
ENDED YEAR ENDED JUNE 30,
12/31/06 -----------------------------------------------------------------
(UNAUDITED) 2006 2005 2004 2003 2002
--------- --------- --------- --------- --------- ---------
Net asset value, beginning of period ..... $ 10.34 $ 10.79 $ 10.49 $ 10.92 $ 10.47 $ 10.32
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income+ ................. 0.20 0.40 0.41 0.43 0.45 0.46
Net gain (loss) on securities (both
realized and unrealized) ............. 0.21 (0.44) 0.31 (0.43) 0.45 0.17
-------- -------- -------- -------- -------- --------
Total from investment operations ....... 0.41 (0.04) 0.72 -- 0.90 0.63
-------- -------- -------- -------- -------- --------
Less distributions (note 9):
Dividends from net investment income . (0.20) (0.41) (0.42) (0.43) (0.45) (0.48)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ........... $ 10.55 $ 10.34 $ 10.79 $ 10.49 $ 10.92 $ 10.47
======== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) 4.02%* (0.40)% 6.98% 0.03% 8.80% 6.22%
Ratios/supplemental data
Net assets, end of period (in thousands) $ 33,399 $ 32,239 $ 27,998 $ 22,113 $ 18,193 $ 11,726
Ratio of expenses to average net assets 0.55%** 0.52% 0.43% 0.38% 0.34%
Ratio of net investment income to
average net assets ................... 3.74%** 3.76% 3.83% 3.97% 4.10% 4.47%
Portfolio turnover rate ................ 0.00%* 7.25% 2.20% 8.61% 11.74% 6.02%
The expense and net investment income ratios without the effect of the waiver of a portion of the management fee and the expense
reimbursement were (note 3):
Ratio of expenses to average net assets 0.90%** 0.88% 0.81% 0.76% 0.73% 0.73%
Ratio of net investment income to
average net assets ................... 3.39%** 3.39% 3.45% 3.59% 3.73% 4.08%
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 0.55%** 0.52% 0.42% 0.37% 0.33% 0.31%
- ----------
+ 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 table below is 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 table below is based on an investment of $1,000 invested on July 1,
2006 and held for the six months ended December 31, 2006.
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".
SIX MONTHS ENDED DECEMBER 31, 2006
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A 3.95% $1,000.00 $1,039.50 $ 3.60
- --------------------------------------------------------------------------------
Class C 3.41% $1,000.00 $1,034.10 $ 7.95
- --------------------------------------------------------------------------------
Class I 3.78% $1,000.00 $1,037.80 $ 4.26
- --------------------------------------------------------------------------------
Class Y 4.02% $1,000.00 $1,040.20 $ 2.83
- --------------------------------------------------------------------------------
(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 0.70%, 1.55%, 0.83%
AND 0.55% 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.
SIX MONTHS ENDED DECEMBER 31, 2006
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,021.68 $ 3.57
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,017.39 $ 7.88
- --------------------------------------------------------------------------------
Class I 5.00% $1,000.00 $1,021.02 $ 4.23
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,022.43 $ 2.80
- --------------------------------------------------------------------------------
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.70%, 1.55%, 0.83%
AND 0.55% 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 September 8, 2006. 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
------- --- --------
David A. Duffy $95,767,236 $ 787,270
Diana P. Herrmann $95,855,216 $ 699,291
Timothy J. Leach $95,722,864 $ 831,642
Willliam J. Nightingale $95,722,864 $ 831,642
James R. Ramsey $95,722,864 $ 831,642
J. William Weeks $95,767,236 $ 787,270
Laureen L. White $95,914,759 $ 639,748
2. To act on the selection of Tait, Weller & Baker LLP as the Fund's
independent registered public accounting firm.
DOLLAR AMOUNT OF VOTES:
-----------------------
FOR AGAINST ABSTAIN
--- ------- -------
$96,290,548 $91,183 $463,255
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INFORMATION AVAILABLE (UNAUDITED)
Much of the information that the funds in the Aquila Group of Funds(SM)
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, 2006 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)
RENEWAL OF THE ADVISORY AND ADMINISTRATION AGREEMENT AND THE SUB-ADVISORY
AGREEMENT
Renewal until December 31, 2007 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, 2006. 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, 2006;
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 of capital stock 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 co-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 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 Manager has additionally provided all administrative services to the
Fund. The Board considered the nature and extent of the Manager's supervision of
third-party service providers, including the Fund's shareholder servicing agent
and custodian. The Board considered that the Manager had established and
maintained a strong culture of ethical conduct and regulatory compliance.
The Board concluded that the services provided were appropriate and
satisfactory 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 reviewed each aspect of the Fund's performance and compared its
performance with that of its local competitors, with national averages and with
the benchmark index. It was noted that the materials provided by the Manager
indicated that compared to the three competitive Rhode Island funds, the Fund
outperformed 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 SUB-ADVISER AND AFFILIATES 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 and 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. Additionally, it was noted that the Manager had contractually
undertaken to waive fees and/or reimburse Fund expenses during the period July
1, 2006 through June 30, 2007 so that total Fund expenses would not exceed the
following percentages of the Fund's average net assets for that period: 0.85 of
1% for Class A Shares, 1.70 of 1% for Class C Shares, 1.02 of 1% for Class I
Shares and 0.70 of 1% for Class Y Shares. 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 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 generally 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 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)
(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
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
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC INC.
101 Sabin Street
Pawtucket, RI 02860
CUSTODIAN
JPMORGAN CHASE BANK, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
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 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included in Item 1 above
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Board of Directors of the Registrant has adopted a Nominating
Committee Charter which provides that the Nominating Committee (the 'Committee')
may consider and evaluate nominee candidates properly submitted by shareholders
if a vacancy among the Independent Trustees of the Registrant occurs and if,
based on the Board's then current size, composition and structure, the Committee
determines that the vacancy should be filled. The Committee will consider
candidates submitted by shareholders on the same basis as it considers and
evaluates candidates recommended by other sources. A copy of the qualifications
and procedures that must be met or followed by shareholders to properly submit
a nominee candidate to the Committee may be obtained by submitting a request
in writing to the Secretary of the Registrant.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-2(c) under the Investment Company Act of
1940) as of a date within 90 days of the filing of this report, the registrant's
chief financial and executive officers have concluded that the disclosure
controls and procedures of the registrant are appropriately designed to ensure
that information required to be disclosed in the registrant's reports that are
filed under the Securities Exchange Act of 1934 are accumulated and communicated
to registrant's management, including its principal executive officer(s) and
principal financial officer(s), to allow timely decisions regarding required
disclosure and is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms adopted by the Securities and Exchange
Commission.
(b) There have been no significant changes in registrant's internal controls or
in other factors that could significantly affect registrant's internal controls
subsequent to the date of the most recent evaluation, including no significant
deficiencies or material weaknesses that required corrective action.
ITEM 12. EXHIBITS.
(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, 2007
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Chief Financial Officer and Treasurer
March 9, 2007
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, 2007
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
March 9, 2007
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.