File Nos. 33-48696 & 811-6707
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-12
NARRAGANSETT INSURED TAX-FREE INCOME FUND
(Exact Name of Registrant as Specified in Charter)
380 Madison Avenue, Suite 2300
New York, New York 10017
(Address of Principal Executive Offices)
(212) 697-6666
(Registrant's Telephone Number)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
Important Notice
Please Read Immediately
Aquila
Group of Funds
Narragansett Insured Tax-Free Income Fund
380 Madison Avenue, Suite 2300, New York, New York 10017
Notice of Annual Meeting of
Shareholders to Be Held
on October 7, 2008
To Shareholders of the Fund:
The purpose of this Notice is to advise you that an Annual Meeting of the
Shareholders of Narragansett Insured Tax-Free Income Fund (the "Fund") will be
held:
Place: (a) at the Rhode Island Convention Center
1 Sabin Street
Providence, Rhode Island;
Time: (b) on Tuesday, October 7, 2008
at 9:00 a.m. Eastern Daylight Time;
Purposes: (c) for the following purposes:
(i) to elect six Trustees; each Trustee
elected will hold office until the next
annual meeting of the Fund's shareholders or
until his or her successor is duly elected
(Annual Meeting Proposal No. 1);
(ii) to ratify (that is, to approve) or
reject the selection of Tait, Weller & Baker
LLP as the Fund's independent registered
public accounting firm for the fiscal year
ending June 30, 2009 (Annual Meeting
Proposal No. 2);
(iii) to act upon any other matters which
may properly come before the Annual Meeting
at the scheduled time and place or any
adjourned meeting or meetings.
Who Can
Vote What
Shares: (d) To vote at the Annual Meeting, you must
have been a shareholder on the Fund's
records at the close of business on July 11,
2008 (the "record date"). Also, the number
of shares of each of the Fund's outstanding
classes of shares that you held at that time
and the respective net asset values of each
class of shares at that time determine the
number of votes you may cast at the Annual
Meeting (or any adjourned meeting or
meetings).
By order of the Board of Trustees,
EDWARD M. W. HINES
Secretary
August 12, 2008
Please Note:
If you do not expect to attend the Annual Meeting, please vote by any of three
ways: by the Internet, by telephone, or by completing the enclosed proxy card
and returning it in the accompanying stamped envelope. To avoid unnecessary
expense to the Fund, we request your cooperation in voting no matter how large
or small your holding may be.
Important Notice
Please Read Immediately
Aquila
Group of Funds
Narragansett Insured Tax-Free Income Fund
380 Madison Avenue, Suite 2300, New York, New York 10017
Notice of Special Meeting of
Shareholders to Be Held
on October 7, 2008
To Shareholders of the Fund:
The purpose of this Notice is to advise you that a Special Meeting of the
Shareholders of Narragansett Insured Tax-Free Income Fund (the "Fund") will be
held:
Place: (a) at the Rhode Island Convention Center
1 Sabin Street
Providence, Rhode Island;
Time: (b) on Tuesday, October 7, 2008
at 9:10 a.m. Eastern Daylight Time;
Purposes: (c) for the following purposes:
(i) to act upon a new Advisory and Administration Agreement
(Special Meeting Proposal No. 1)
(ii) to act upon a new Sub-Advisory Agreement (Special
Meeting Proposal No. 2)
Who Can
Vote What
Shares: (d) To vote at the Special Meeting, you must
have been a shareholder on the Fund's
records at the close of business on July 11,
2008 (the "record date"). Also, the number
of shares of each of the Fund's outstanding
classes of shares that you held at that time
and the respective net asset values of each
class of shares at that time determine the
number of votes you may cast at the Special
Meeting (or any adjourned meeting or
meetings).
By order of the Board of Trustees,
EDWARD M. W. HINES
Secretary
August 12, 2008
Please Note:
If you do not expect to attend the Special Meeting, please vote by any of three
ways: by the Internet, by telephone, or by completing the enclosed proxy card
and returning it in the accompanying stamped envelope. To avoid unnecessary
expense to the Fund, we request your cooperation in voting no matter how large
or small your holding may be.
Narragansett Insured Tax-Free Income Fund
380 Madison Avenue, Suite 2300, New York, NY 10017
Joint Proxy Statement
Introduction
The two Notices preceding this Joint Proxy Statement are to advise you of
the times, place and purposes of an Annual Meeting of the Shareholders of
Narragansett Insured Tax-Free Income Fund (the "Fund"), and a Special Meeting of
the Shareholders that will take place immediately after the Annual Meeting. The
purpose of this Joint Proxy Statement is to give you information on which you
may base your voting decisions at both meetings.
The Fund's Manager (the "Manager") is Aquila Investment Management LLC, 380
Madison Avenue, Suite 2300, New York, NY 10017, a subsidiary of the Fund's
founder, Aquila Management Corporation. The Fund's principal underwriter (the
"Distributor") is Aquila Distributors, Inc., 380 Madison Avenue, Suite 2300, New
York, NY 10017. The Fund's Sub-Adviser is Citizens Investment Advisors, a
department of RBS Citizens, N.A. (the "Sub-Adviser"), One Citizens Plaza,
Providence, RI 02903.
A copy of the Fund's most recent annual report will be sent to you without
charge upon written request to the Distributor, at the above address, or by
calling 800-437-1020 toll-free or 212-697-6666.
These Notices and Joint Proxy Statement are first being mailed on or about
August 12, 2008.
You should read this Joint Proxy Statement prior to voting. If your shares
are registered in the name of your broker or someone other than yourself, you
may authorize that person to vote your shares. If your shares are registered in
your name, then you may vote in one of three ways:
(1) Proxy Cards
There are two proxy cards enclosed: one for the Annual Meeting and one for
the Special Meeting.
The enclosed proxy cards authorize the persons named (or their substitutes)
to vote your shares; the Fund calls these persons the "proxy holders." There are
two proxy cards, one for each meeting. As to the election of Trustees you may
authorize the proxy holders to vote your shares for the entire slate indicated
below by marking the appropriate box on the proxy card or by merely signing and
returning your proxy card with no instructions. Or you may withhold the
authority of the proxy holders to vote on the election of Trustees by marking
the appropriate box. Also, you may withhold that authority as to any particular
nominee by following the instructions on the proxy card.
As to the other matters listed on each proxy card, you may direct the proxy
holders to vote your shares on a proposal by marking the appropriate box "For"
or "Against" or instruct them not to vote your shares on a proposal by marking
the "Abstain" box. If you return your signed proxy card and do not mark a box on
the proposal, the proxy holders will vote your shares for that proposal.
(2) Internet Voting
To vote your shares by the Internet, please contact the Fund at the
Internet address shown on your proxy cards. You will be prompted to enter the
control numbers on your proxy cards. Follow the instructions on the screen,
using your proxy cards as guides. If you vote by the Internet, you need not
return the proxy cards by mail.
(3) Telephone Voting
To vote your shares by telephone, call the toll-free number on your proxy
cards. You will be prompted to enter the control numbers on your proxy cards.
Follow the recorded instructions using your proxy cards as guides. If you vote
by phone, you need not return the proxy cards by mail.
General Information
You may end the power of the proxy holders to vote your shares at either
meeting by: (i) so notifying the Fund in writing; (ii) signing a new and
different proxy card (if the Fund receives it before the old one is used); (iii)
voting your shares at the meeting in person or by your duly appointed agent; or
(iv) calling the toll-free number provided or contacting the Fund's Internet
address, both of which are detailed on your proxy card, entering your control
number and revoking your previous vote.
Proxies for shares held by brokers in "street name" and not voted or
marked as abstentions will be counted for purposes of determining quorums at the
meetings. They will be counted as present at the meeting in determining voting
results, and will therefore have the same effect as negative votes. Quorums for
the two meetings will be determined separately.
The Fund is sending you the Notices and Joint Proxy Statement in
connection with the solicitation by its Trustees of proxies to be used at the
Annual Meeting and Special Meeting to be held at the times and place and for the
purposes indicated in the Notices or any adjourned meeting or meetings. Whenever
it is stated in this Joint Proxy Statement that a matter is to be acted on at
the Annual or Special Meeting, this means the meeting held at the scheduled time
or any adjourned meeting or meetings.
The Fund pays the costs of the solicitation. Proxies are being solicited by
the use of the mails; they may also be solicited by telephone, facsimile and
personal interviews. Brokerage firms, banks and others may be requested to
forward these Notices and Joint Proxy Statement to beneficial owners of the
Fund's shares so that these owners may authorize the voting of their shares. The
Fund will pay these firms their out-of-pocket expenses for doing so. Because
your vote is important, the Fund may telephone you to urge you to vote.
On the record date, the Fund had four classes of shares outstanding. All
shareholders of the Fund are entitled to vote at the Annual Meeting and the
Special Meeting. Each shareholder on the record date is entitled to one vote for
each dollar (and a proportionate fractional vote for each fraction of a dollar)
of net asset value (determined as of the record date) represented by full and
fractional shares of any class held on the record date. On the record date, the
net asset value per share of each of the Fund's outstanding classes of shares
was as follows: Class A Shares, $10.50; Class C Shares, $10.50; Class Y Shares,
$10.50; and Class I Shares, $10.49. Both meetings are expected to act only upon
matters that affect the Fund as a whole: at the Annual Meeting, the election of
Trustees and the selection of an independent registered public accounting firm,
and at the Special Meeting, action on a new Advisory and Administration
Agreement and Sub-Advisory Agreement. On matters that affect the Fund as a
whole, all shareholders of the Fund, including the shareholders of all classes
of shares of the Fund, are entitled to vote at the meeting.
On the record date, the total number of shares outstanding for each class
of shares was as follows: Class A Shares, 10,265,175; Class C Shares, 1,086,697;
Class Y Shares, 4,350,925; and Class I Shares, 51,685.
On the record date, the following holders held 5% or more of a class of the
Fund's outstanding shares. On the basis of information received from the
institutional holders, the Fund's management believes that all of the shares
indicated are held by them for the benefit of clients.
Name and Address of Percent
The Holder of Record Number of Shares of Class
Institutional 5% shareholders:
Merrill Lynch Pierce, 1,189,046 Class A Shares 11.58%
Fenner & Smith 474,112 Class C Shares 43.63%
4800 Deer Lake Dr. East
Jacksonville, FL 32246
Citizens Bank of Rhode Island 2,759,355 Class Y Shares 63.42%
870 Westminster Street
Providence, RI 02903
SEI Trust Company 390,083 Class Y Shares 8.97%
One Freedom Valley Drive
Oaks, PA 19456
Charles Schwab and Co. Inc. 51,685 Class I Shares 100.00%
101 Montgomery Street
San Francisco, CA 94104
Additional 5% Shareholders
The Fund's management is not aware of any other person beneficially owning
more than 5% of any class of its outstanding shares as of such date.
Election of Trustees
(Proposal No. 1 at the Annual Meeting)
At the Annual Meeting, six Trustees are to be elected. Each Trustee elected
will serve until the next annual meeting or until his or her successor is duly
elected. The nominees selected by the Trustees are named in the table below. See
"Introduction" above for information as to how you can vote your shares in the
election of Trustees.
The following material includes information about each nominee and each
officer of the Fund. All shares of the Fund listed as owned by the Trustees are
Class A Shares unless indicated otherwise. All of the nominees, except for Mr.
Partridge, are presently Trustees and were elected by the shareholders in
October 2007. All nominees have consented to serve if elected. Mr. Nightingale
has advised the Fund that he intends to resign from the Board of Trustees
effective March 31, 2009.
Nominees(1)
Number of
Positions Held Portfolios Other Directorships
with in Fund Held by Trustee
Fund and Complex (The position held is
Name, Address(2) Length of Principal Occupation(s) Overseen a directorship unless
and Date of Birth Service(3) During Past 5 Years by Trustee indicated otherwise.)
Interested
Trustees(4)
Diana P. Herrmann Trustee since Vice Chair and Chief Executive 12 ICI Mutual Insurance Company
New York, NY 2005 and Officer of Aquila Management
(02/25/58) President since Corporation, Founder of the Aquila
1998 Group of Funds(5) and parent of
Aquila Investment Management LLC,
Manager since 2004, President and
Chief Operating Officer since
1997, a Director since 1984,
Secretary since 1986 and
previously its Executive Vice
President, Senior Vice President
or Vice President, 1986-1997;
Chief Executive Officer and Vice
Chair since 2004 and President,
Chief Operating Officer and
Manager of the Manager since 2003;
Chair, Vice Chair, President,
Executive Vice President or Senior
Vice President of funds in the
Aquila Group of Funds since 1986;
Director of the Distributor since
1997; trustee, Reserve
Money-Market Funds, 1999-2000 and
Reserve Private Equity Series,
1998-2000; Governor, Investment
Company Institute (a trade
organization for the U.S. fund
industry dedicated to protecting
shareholder interests and
educating the public about
investing) and head of its Small
Funds Committee since 2004; active
in charitable and volunteer
organizations.
John J. Partridge Assistant Founding Partner, Partridge Snow & 3 None
Providence, RI Secretary - Hahn LLP, a law firm, Providence,
(05/05/40) Advisor to the Rhode Island, since 1988, Senior
Board since 2005 Counsel, since January 1, 2007;
Assistant Secretary - Advisor to
the Board, Narragansett Insured
Tax-Free Income Fund, since 2005,
Trustee 2002-2005; director or
trustee of various educational,
civic and charitable
organizations, including Ocean
State Charities Trust, Memorial
Hospital of Rhode Island, and The
Pawtucket Foundation.
Non-interested
Trustees
William J. Chair of the Retired; formerly Chairman, 1 Ring's End, Inc.
Nightingale Rowayton, Board of founder (1975) and Senior Advisor
CT (09/16/29) Trustees since until 2000 of Nightingale &
2005 and Associates, L.L.C., a general
Trustee since management consulting firm
1992 focusing on interim management,
divestitures, turnaround of
troubled companies, corporate
restructuring and financial
advisory services.
David A. Duffy Trustee Chairman, Rhode Island Convention 1 Delta Dental of Rhode Island
North Kingstown, RI since 1995 Center Authority since 2003;
(08/07/39) director of Citizens Bank of Rhode
Island and Connecticut since 1999;
retired Founder, formerly
President, Duffy & Shanley, Inc.,
a marketing communications firm,
1973-2003; Transition Chairman for
Gov. Donald Carcieri (R.I.); past
National Chairman, National
Conference for Community and
Justice (NCCJ); Past Chair,
Providence College President's
Council; Past Vice Chair,
Providence College Board of
Trustees; officer or director of
numerous civic and non-profit
organizations including Rhode
Island Hospital.
James R. Ramsey Trustee since President, University of 2 Community Bank and Trust,
Louisville, KY 2004 Louisville since November 2002; Pikeville, KY and Texas
(11/14/48) Professor of Economics, Roadhouse Inc.
University of Louisville,
1999-present; Kentucky
Governor's Senior Policy Advisor
and State Budget Director,
1999-2002; Vice Chancellor for
Finance and Administration, the
University of North Carolina at
Chapel Hill, 1998 to 1999;
previously Vice President for
Finance and Administration at
Western Kentucky University,
State Budget Director for the
Commonwealth of Kentucky, Chief
State Economist and Executive
Director for the Office of
Financial Management and
Economic Analysis for the
Commonwealth of Kentucky,
Adjunct Professor at the
University of Kentucky,
Associate Professor at Loyola
University-New Orleans and
Assistant Professor at Middle
Tennessee State University.
Laureen L. White Trustee since President, Greater Providence 1 None
North Kingstown, RI 2005 Chamber of Commerce, since 2005,
(11/18/59) Executive Vice President
2004-2005 and Senior Vice
President, 1989-2002; Executive
Counselor to the Governor of
Rhode Island for Policy and
Communications, 2003-2004.
Other Individuals
Trustees Emeritus(6)
Lacy B. Herrmann Founder and Founder and Chairman of the N/A N/A
New York, NY Chairman Board, Aquila Management
(05/12/29) Emeritus since Corporation, the sponsoring
2005; Chairman organization and parent of the
of the Board of Manager or Administrator and/or
Trustees, Adviser or Sub-Adviser to each
1992-2005 fund of the Aquila Group of
Funds; Chairman of the Manager
or Administrator and/or Adviser
or Sub-Adviser to each since
2004; Founder and Chairman
Emeritus of each fund in the
Aquila Group of Funds;
previously Chairman and a
Trustee of each fund in the
Aquila Group of Funds since its
establishment until 2004 or
2005; Director of the
Distributor since 1981 and
formerly Vice President or
Secretary, 1981-1998; Trustee
Emeritus, Brown University and
the Hopkins School; active in
university, school and
charitable organizations.
Vernon R. Alden Trustee Retired; former director or N/A N/A
Boston, MA Emeritus since trustee of various Fortune 500
(04/07/23) 2006 companies, including
Colgate-Palmolive and McGraw
Hill; formerly President of Ohio
University and Associate Dean of
the Harvard University Graduate
School of Business
Administration; Trustee,
Narragansett Insured Tax-Free
Income Fund, 1992-2002 and
Tax-Free Trust of Oregon,
1988-2001; member of several
Japan-related advisory councils,
including Chairman of the Japan
Society of Boston; trustee of
various cultural, educational
and civic organizations.
Officers
Charles E. Executive Vice Executive Vice President of all N/A N/A
Childs, III President since funds in the Aquila Group of
New York, NY 2003 Funds and the Manager and the
(04/01/57) Manager's parent since 2003;
formerly Senior Vice President,
corporate development, Vice
President, Assistant Vice
President and Associate of the
Manager's parent since 1987;
Senior Vice President, Vice
President or Assistant Vice
President of the Aquila
Money-Market Funds, 1988-2003.
Stephen J. Caridi Senior Vice Vice President of the N/A N/A
New York, NY President since Distributor since 1995; Vice
(05/06/61) 1998 President, Hawaiian Tax-Free
Trust since 1998; Senior Vice
President, Narragansett Insured
Tax-Free Income Fund since 1998,
Vice President 1996-1997; Senior
Vice President, Tax-Free Fund of
Colorado since 2004; Vice
President, Aquila Rocky Mountain
Equity Fund since 2006.
Robert W. Anderson Chief Chief Compliance Officer of the N/A N/A
New York, NY Compliance Fund and each of the other funds
(08/23/40) Officer since in the Aquila Group of Funds,
2004 and the Manager and the Distributor
Assistant since 2004, Compliance Officer
Secretary of the Manager or its
since 2000 predecessor and current parent
1998-2004; Assistant Secretary
of the Aquila Group of Funds
since 2000.
Joseph P. DiMaggio Chief Financial Chief Financial Officer of the N/A N/A
New York, NY Officer since Aquila Group of Funds since 2003
(11/06/56) 2003 and and Treasurer since 2000.
Treasurer since
2000
Edward M. W. Hines Secretary since Shareholder of Butzel Long, a N/A N/A
New York, NY 1992 professional corporation,
(12/16/39) counsel to the Fund, since 2007;
Partner of Hollyer Brady Barrett
& Hines LLP, its predecessor as
counsel, 1989-2007; Secretary of
the Aquila Group of Funds.
John M. Herndon Assistant Assistant Secretary of the N/A N/A
New York, NY Secretary since Aquila Group of Funds since 1995
(12/17/39) 1995 and Vice President of the three
Aquila Money-Market Funds since
1990; Vice President of the
Manager or its predecessor and
current parent since 1990.
Lori A. Vindigni Assistant Assistant Treasurer of the N/A N/A
New York, NY Treasurer since Aquila Group of Funds since
(11/02/66) 2000 2000; Assistant Vice President
of the Manager or its
predecessor and current parent
since 1998; Fund Accountant for
the Aquila Group of Funds,
1995-1998.
(1) The Fund's Statement of Additional Information includes additional
information about the Trustees and is available, without charge, upon request by
calling 800-437-1020 (toll-free) or by visiting the EDGAR Database at the SEC's
internet site at www.sec.gov.
(2) The mailing address of each Trustee and officer is c/o Narragansett Insured
Tax-Free Income Fund, 380 Madison Avenue, New York, NY 10017.
(3)Each Trustee holds office until the next annual meeting of shareholders or
until his or her successor is elected and qualifies. The term of office of each
officer is one year.
(4) Ms. Herrmann is an interested person of the Fund as an officer of the Fund,
as a director, officer and shareholder of the Manager's corporate parent, as an
officer and Manager of the Manager, and as a shareholder and director of the
Distributor. Ms. Herrmann is the daughter of Lacy B. Herrmann, the Founder and
Chairman Emeritus of the Fund. Mr. Partridge is an interested person of the Fund
as a senior counsel of the law firm that performs legal services for the
Sub-Adviser.
(5) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S.
Government Securities Cash Assets Trust and Pacific Capital Tax-Free Cash Assets
Trust, each of which is a money-market fund, are called the "Aquila Money-Market
Funds"; Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of
Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free Fund of Kentucky,
Narragansett Insured Tax-Free Income Fund and Tax-Free Fund For Utah, each of
which is a tax-free municipal bond fund, are called the "Aquila Bond Funds";
Aquila Rocky Mountain Equity Fund is an equity fund; Aquila Three Peaks High
Income Fund is a high income corporate bond fund; considered together, these 12
funds are called the "Aquila Group of Funds."
(6) A Trustee Emeritus may attend Board meetings but has no voting power.
Securities Holdings of the Nominees
(as of 6/30/08)
Dollar Range Aggregate Dollar
Of Ownership Range of Ownership
In Narragansett in the Aquila Group
Insured Tax-Free of Funds (1)
Income Fund(1)
Interested Trustees
Diana P. Herrmann C E
John J. Partridge C E
Non-interested Trustees
David A. Duffy C C
William J. Nightingale C C
James R. Ramsey C E
Laureen L. White B B
(1) A. None
B. $1-$10,000
C. $10,001-$50,000
D. $50,001-$100,000
E. over $100,000
None of the non-interested nominees or their immediate family members holds
of record or beneficially any securities of the Manager or the Distributor.
The Fund does not currently pay fees to any of the Fund's officers or to
Trustees affiliated with the Manager or the Sub-Adviser. For its fiscal year
ended June 30, 2008 the Fund paid a total of $153,764 in compensation and
reimbursement of expenses to the Trustees. No other compensation or remuneration
of any type, direct or contingent, was paid by the Fund to its Trustees.
The Fund is one of the twelve funds in the Aquila Group of Funds, which
consist of three money-market funds, seven tax-free municipal bond funds, a high
income corporate bond fund and an equity fund. The following table lists the
compensation of all nominees for Trustee who received compensation from the Fund
or from other funds in the Aquila Group of Funds during the Fund's fiscal year.
None of such nominees has any pension or retirement benefits from the Fund or
any of the other funds in the Aquila Group of Funds.
Compensation
As Trustee
From
all funds Number of
in the boards on
Compensation Aquila which the
As Trustee Group Trustee
Name from the Fund of Funds now serves
David A. Duffy $16,500 $16,500 1
William J.
Nightingale $26,000 $26,000 1
John J. Partridge $0(1) $17,500(1) 3
James R. Ramsey $16,500 $32,500 2
Laureen L. White $19,000 $19,000 1
(1) During the fiscal year ended June 30, 2008, the Fund paid $14,372 to John J.
Partridge, Assistant Secretary - Advisor to the Board, in compensation and
reimbursement of expenses.
Class A Shares may be purchased without a sales charge by the Fund's
Trustees and officers.
The Fund's Manager is a wholly-owned subsidiary of Aquila Management
Corporation ("AMC"), founder of each fund in the Aquila Group of Funds. As of
June 30, 2008, these funds had aggregate assets of approximately $4.9 billion,
of which approximately $2.3 billion consisted of assets of the tax-free
municipal bond funds. AMC, which was founded in 1984, is currently controlled by
Mr. Lacy B. Herrmann and his wife, Mrs. Elizabeth B. Herrmann, directly and
through certain trusts, although it is anticipated that these arrangements will
change as described in Proposal No. 1 at the Special Meeting. During the fiscal
year ended June 30, 2008, the Fund incurred $777,183 in management fees, of
which $536,482 was waived, $77,718 was paid to the Manager, and the balance was
paid to the Sub-Adviser.
During the fiscal year ended June 30, 2008, $156,968 was paid under Part I
of the Fund's Distribution Plan to Qualified Recipients with respect to the
Class A Shares, of which $3,755 was retained by the Distributor. With respect to
Class C Shares, during the same period $96,426 was paid under Part II of the
Plan and $32,142 was paid under the Shareholder Services Plan. Of the total
payments under Parts I and II of the Plan of $128,568, the Distributor received
$31,975. All of such payments were for compensation. With respect to Class I
Shares, during the same period $1,887 was paid under Part III of the Plan and
$1,056 was paid under the Shareholder Services Plan.
During the fiscal year ended June 30, 2008 the Fund paid to Butzel
Long, a professional corporation, independent counsel to the Fund, $133,804 for
legal services. Edward M.W. Hines, Secretary of the Fund, is a shareholder of
that firm.
The Distributor currently handles the distribution of the shares of the
funds in the Aquila Group of Funds, including the Fund. Under the Distribution
Agreement, the Distributor is responsible for the payment of certain printing
and distribution costs relating to prospectuses and reports as well as the costs
of supplemental sales literature, advertising and other promotional activities.
The shares of the Distributor are owned 24% by Diana P. Herrmann, 74% by Mr.
Herrmann and other members of his immediate family and the balance by Aquila
Management Corporation.
Other Information on Trustees
The Trustees have appointed a standing Audit Committee consisting of all of
the Trustees who are "independent" and are not "interested persons" of the Fund,
as that term is defined in the Investment Company Act of 1940 (the "1940 Act").
The members of the Audit Committee are David A. Duffy, William J. Nightingale,
James R. Ramsey and Laureen L. White. The Committee (i) selects the Fund's
independent registered public accounting firm (subject to shareholder
ratification); (ii) reviews the methods, scope and result of audits and the fees
charged; and (iii) reviews the adequacy of the Fund's internal accounting
procedures and controls. Selection of the independent registered public
accounting firm is also ratified by the Board of Trustees. The Audit Committee
held two meeting during the Fund's last fiscal year. The Board of Trustees has
adopted a written charter for the Audit Committee.
During the Fund's last fiscal year, the Board of Trustees held four
meetings. Each current Trustee was present for at least 75% of the total number
of Board meetings and meetings of committees of which such Trustee was a member.
The Fund's policy is that all Trustees who can do so attend the Annual
Meeting. At the last Annual Meeting all of the Trustees were present.
The Fund has a Nominating Committee, consisting of all of the
non-"interested" Trustees. The Nominating Committee held one meeting during the
last fiscal year. The committee will consider nominees recommended by the
shareholders who may send recommendations to the committee in care of the
Manager at 380 Madison Avenue, New York, NY 10017. Recommendations of nominees
from shareholders are not treated differently than proposals from other sources.
The charter of the Nominating Committee is available on the Fund's website at
www.aquilafunds.com.
Shareholder communications intended for the Board of Trustees (or one
or more specified Trustees) may be sent to them in care of the Manager at the
above address.
Since the beginning of the Fund's most recently completed fiscal year,
no Trustee purchased or sold more than 1% of the outstanding shares of any class
of shares of the Manager, Sub-Adviser or the parents or subsidiaries of either.
Vote Required
To be elected, each nominee must receive the affirmative votes of a majority
of the shares present at the Annual Meeting.
Ratification or Rejection
of Selection of
Independent Registered Public Accounting Firm
(Proposal No. 2 at the Annual Meeting)
Tait, Weller & Baker LLP ("TWB"), which is currently serving as the
Fund's independent registered public accounting firm, has been selected by the
Fund's Audit Committee and ratified by the Board of Trustees, including a
majority of the non-"interested" Trustees, as the Fund's independent registered
public accounting firm for the fiscal year ending June 30, 2009. Such selection
is submitted to the shareholders for ratification or rejection.
The following table represents fees for professional audit services
rendered by TWB for the audit of the Fund's annual financial statements, and
fees billed for other services rendered by TWB for the fiscal years ended June
30, 2007 and 2008.
2007 2008
Audit Fees $14,000 $14,000
Audit related fees 0 0
------- ------
Audit and audit related fees $14,000 $14,000
Tax fees (1) 3,000 3,000
All other fees 0 0
------ ------
Total $17,000 $17,000
====== ======
(1) Tax fees consisted of fees for tax consultation and tax compliance services.
TWB did not perform any services during the last fiscal year for the
Fund's investment adviser (the Manager) or any entity controlling, controlled by
or under common control with the Manager that provides services to the Fund.
All audit and non-audit services performed by TWB on behalf of the Fund
or non-audit services performed on behalf of affiliated entities within the
investment company complex where such engagement relates directly to the
operations and financial reporting of the Fund are pre-approved by the Audit
Committee. Services to be considered between meetings of the Committee are
pre-approved by a selected member of the Committee in accordance with applicable
regulations and subject to additional procedures established by the Committee.
The Audit Committee has reviewed all services performed and fees
charged by TWB and has accepted TWB's representation that it is independent in
recommending re-appointment of it for the fiscal year ending June 30, 2009.
TWB has no direct or indirect financial interest in the Fund, the
Manager or the Sub-Adviser. It is expected that representatives of TWB will not
be present at the meeting but will be available should any matter arise
requiring their presence.
Vote Required
Approval requires the affirmative votes of a majority of the shares
present at the Annual Meeting.
Consideration of
A New Advisory and Administration Agreement
(Proposal No. 1 at the Special Meeting)
Background and Reasons for the Proposals
The Manager is the Fund's investment adviser under an Advisory and
Administration Agreement (the "Current Advisory Agreement"). Its investment
advisory duties, including portfolio management, have been delegated to the
Sub-Adviser, Citizens Investment Advisors, a department of RBS Citizens, N.A.,
under a sub-advisory agreement (the "Current Sub-Advisory Agreement"; together
with the Current Advisory Agreement, the "Current Agreements") described below.
The Current Advisory Agreement was approved by the shareholders of the Fund on
October 2, 2002. The Current Sub-Advisory Agreement was also approved by the
shareholders on November 14, 1997. Both have been renewed annually thereafter by
the Board of Trustees, most recently on November 30, 2007.
The Manager is a wholly-owned subsidiary of AMC. AMC, which was founded
in 1984, is currently controlled by Mr. Lacy B. Herrmann ("LBH") and his wife,
Mrs. Elizabeth B. Herrmann ("EBH"), directly and through certain trusts. These
ownership arrangements are described in detail below. Collectively, the current
owners of the shares of AMC are called the "Owners."
The Owners wish to ensure, to the maximum extent possible, the ongoing
continuity of management of the Manager and the Fund. Consistent with their
estate planning and tax objectives, they have sought through prudent planning to
structure an orderly generational transition of ownership changes of AMC among
the Owners (the "Transaction").
Although the proposed changes in ownership of AMC will not result in
any changes in the day-to-day operation of the Fund, the services provided to
it, the investment approach or style of the Manager with respect to the Fund, or
any increase in its advisory fees, the changes could be considered to result in
an "assignment" of the Current Advisory Agreement under the provisions of the
1940 Act. The 1940 Act provides generally that an advisory agreement of a mutual
fund must provide for its automatic termination in the event of an assignment
(as that term is defined in the 1940 Act), such as when a controlling block of
the Fund's investment adviser's voting securities is transferred. Under the 1940
Act, a person who does not own more than 25% of the voting securities of a
company shall be presumed not to control such company, while control is presumed
in an owner of more than 25%. As required by the 1940 Act, the Current Advisory
Agreement provides that in the event of an assignment, it terminates. Under the
current ownership arrangements such an assignment could also occur upon the
deaths of certain of the Owners. The Current Sub-Advisory Agreement contains a
provision that states that it terminates if the Current Advisory Agreement
terminates, and it also provides for its termination upon its assignment, which,
as with the Current Advisory Agreement, would occur upon the proposed ownership
changes.
In order to provide continuity of management services to the Fund, on
February 29, 2008, the Trustees approved a new advisory and administration
agreement (the "New Advisory Agreement") between the Manager and the Fund, which
will replace the Current Advisory Agreement when it terminates by reason of the
expected assignment. At the same time, the Trustees also approved a new
Sub-Advisory Agreement (the "New Sub-Advisory Agreement"; together with the New
Advisory Agreement, the "New Agreements") between the Manager and the
Sub-Adviser which will replace the Current Sub-Advisory Agreement which will
terminate by its terms when the Current Advisory Agreement terminates. The
Trustees are recommending that shareholders of the Fund approve the New
Agreements. As described below, the New Agreements are substantially identical
to the Current Agreements.
Under the 1940 Act a fund cannot enter into an advisory agreement, such
as the New Advisory Agreement, unless the shareholders of that fund vote to
approve the new agreement. The Shareholders must also approve the New
Sub-Advisory Agreement. The Trustees have carefully considered the matter, and
have concluded that it is appropriate to approve the New Advisory Agreement and
the New Sub-Advisory Agreement. Under the New Advisory Agreement, the Manager
shall continue, following the Transaction, to manage the Fund on the same terms
as are now in effect, thereby promoting stability of the Fund's management. No
change in the Fund's advisory fees or expenses is being proposed. Furthermore,
no changes are being proposed with respect to the services provided for the
Fund, the investment approach or style of the Manager with respect to the Fund,
or the personnel or operations of the Manager.
Information Regarding the Manager
The Manager is the Fund's investment adviser under the Current Advisory
Agreement. The Manager provides for investment supervision, including
supervising continuously the investment program of the Fund and the composition
of its portfolio, determining what securities will be purchased or sold by the
Fund and arranging for the purchase and the sale of securities held in the
portfolio of the Fund, and, at the Manager's expense, providing for pricing of
the Fund's portfolio daily. The Manager is also responsible for administrative
services, including providing for the maintenance of the headquarters of the
Fund, overseeing relationships between the Fund and the service providers to the
Fund and providing other administrative services.
Names, Addresses and Principal Occupations of Each Manager of the Manager
LBH is the Founder and Chairman Emeritus of each of the funds in the
Aquila Group of Funds. He previously served as Chairman of the Board of Trustees
of each of the funds in the Aquila Group of Funds. Additionally, LBH is the
Founder and Chairman of the Board of AMC (the sponsoring organization and parent
of the Manager or the administrator of each of the funds in the Aquila Group of
Funds), as well as the Chairman of the Manager. LBH has served as a Director of
the Aquila Group of Funds' distributor since 1981. LBH is a Trustee Emeritus of
Brown University and the Hopkins School, and remains active in university,
school and charitable organizations.
EBH is a Director of AMC and a Manager of the Manager. She does not
have any other position with AMC or the Manager. She is active with various
charitable and volunteer organizations. EBH is the wife of LBH.
Diana P. Herrmann ("DPH") is President and, in some instances, Vice
Chair of each of the funds in the Aquila Group of Funds. She serves as Vice
Chair, President, Chief Executive Officer and Director of AMC; Chief Executive
Officer, Vice Chair, President, Chief Operating Officer and Manager of the
Manager; and as Director of the distributor. She previously served as Trustee to
the Reserve Money-Market Funds (1999-2000) and Reserve Private Equity Series
(1998-2000). DPH currently serves as Governor, Investment Company Institute and
head of its Small Funds Committee, as well as Director of ICI Mutual Insurance
Company. She is active in charitable and volunteer organizations. DPH is the
daughter of LBH and EBH.
The address of each of the Managers of the Manager is c/o Aquila
Investment Management LLC, 380 Madison Avenue, Suite 2300, New York, NY 10017.
The Transaction
At the time of the Transaction, the AMC shares will be divided into two
classes: voting (the "Voting Shares") and non-voting (the "Non-Voting Shares").
Prior to dividing its share capital into two classes of shares, AMC has one
class of common shares, all of which are Voting Shares. 99.5% of the Voting
Shares are held directly by or in trust for the benefit of members of the
Herrmann family. The Voting Shares are held as follows:
Owner Direct Ownership Indirect Ownership* Total
LBH 24.9% 20.0% 44.9%
EBH 27.5% -- 27.5%
DPH 4.9% 20.0% 24.9%
Conrad B. Herrmann ("CBH") -- 0.2% 0.2%
Catherine E. Wolff ("CEW") -- 2.0% 2.0%
Other 0.5% -- 0.5%
Total 100.0%
* Indicates Voting Shares for which the indicated Owner has voting rights but does not directly own.
o LBH currently holds 24.9% of the Voting Shares directly; additionally
in his role as trustee (with voting rights) of a family trust for the
benefit of Conrad B. Herrmann ("CBH") (the "CBH Trust"), his son, LBH
holds voting rights with respect to an additional 20.0% of the Voting
Shares.
o EBH currently holds 27.5% of the Voting Shares directly.
o DPH holds 4.9% of the Voting Shares directly and, through her position
as trustee (with voting rights) of a family trust for her benefit (the
"DPH Trust"), holds voting rights with respect to an additional 20.0%
of the Voting Shares.
o CBH serves as trustee (with voting rights) of a trust for his own
benefit, and through his role as trustee (with voting rights) of that
trust holds voting rights with respect to 0.2% of the Voting Shares.
o Two family trusts (the "Family Trusts") hold 2.0% of the Voting Shares;
Catherine E. Wolff ("CEW"), a first cousin of DPH and CBH, currently
serves as trustee (with voting rights) of the Family Trusts.
In connection with their estate planning, LBH and EBH wish to (i)
transfer ownership of some of their Voting Shares, and (ii) appoint a new
trustee to serve as trustee for one of the trusts. Upon the consummation of the
Transaction, the ownership of the Voting Shares would be as follows:
Owner Direct Ownership Indirect Ownership* Total
LBH 24.9% -- 24.9%
T. Randolph Harris ("TRH") -- 24.9% 24.9%
EBH -- -- --
DPH 4.9% 20.0% 24.9%
CBH -- 0.2% 0.2%
CEW -- 24.6% 24.6%
Other 0.5% -- 0.5%
Total 100.0%
* Indicates Voting Shares for which the indicated Owner has voting rights but does not directly own.
o LBH will continue to hold 24.9% of the Voting Shares directly.
o 24.9% of the Voting Shares previously held by EBH will be held in a
trust for the benefit of EBH (the "EBH Trust"), with T. Randolph Harris
("TRH") serving as trustee (with voting rights).
o DPH's ownership will remain unchanged, such that she will continue to
hold, either directly or through her position as trustee (with voting
rights) of the DPH Trust, 24.9% of the Voting Shares.
o CBH's ownership will remain unchanged, such that he will continue to
hold voting rights with respect to 0.2% of the Voting Shares through
his position as trustee (with voting rights) of a trust for his own
benefit.
o CEW will replace LBH as trustee of the CBH Trust, such that she will
serve as trustee (with voting rights) with respect to 20.0% of the
Voting Shares. The Family Trusts will hold 4.6% of the Voting Shares
(including 2.6% of the Voting Shares previously held by EBH), with CEW
continuing as trustee (with voting rights) of the Family Trusts.
Through her position as trustee (with voting rights) of the CBH Trust
and of the Family Trusts, CEW will serve as trustee (with voting
rights) with respect to 24.6% of the Voting Shares in the aggregate.
Upon consummation of the Transaction, no individual will hold with
power to vote, directly or indirectly, more than 24.9% of the Voting Shares. As
previously stated, the Transaction will not result in any changes in the Fund's
advisory fees and expenses, the services provided, the investment approach or
style of the Manager with respect to the Fund, or the personnel or operations of
the Manager.
Although the Owners currently intend to consummate the Transaction, the
Transaction may not necessarily occur. For example, approval or disapproval by
the Fund's shareholders of the New Advisory Agreement, taken together with
consents or approvals for other funds in the Aquila Group of Funds, could affect
whether or not the Transaction occurs. It is possible, however, that the Owners
may proceed with the Transaction even if new contracts are approved by the
shareholders of less than all of the funds in the Aquila Group of Funds for
which the Manager serves as investment adviser (either because the shareholders
of one or more of such funds do not approve such fund's new advisory agreement
or because LBH or EBH dies before approvals are obtained for all such funds).
AMC currently expects that the Transaction will occur during the fourth quarter
of 2008 (or upon the earlier death of either LBH or EBH, as described below),
but the Transaction could be delayed. If for some reason the Transaction does
not occur, the automatic termination of the Current Agreements will not occur
and the New Agreements will not be entered into, even if they have been approved
by the Fund's shareholders.
Performance of the Current Advisory Agreement is currently guaranteed
by AMC. If the Transaction occurs, AMC will provide an identical guarantee of
performance of the New Advisory Agreement.
Notwithstanding the foregoing, if one or more of LBH or EBH dies after
the Fund's shareholders approve the New Advisory Agreement but before the
Manager obtains the approval or consent of the shareholders of all of the other
funds in the Aquila Group of Funds for which the Manager serves as investment
adviser, the surviving Herrmann family members may elect to proceed with the
contemplated direct and indirect ownership changes (as modified to reflect such
deaths, as described below), and the Fund's shareholders will be considered to
have approved the entry into the New Advisory Agreement after such death and the
resulting direct and indirect ownership changes. In such event, the ownership of
the Voting Shares would be as follows:
(A) If LBH dies before EBH:
Owner Direct Ownership Indirect Ownership Total
LBH -- -- --
BAS and then TRH -- 24.9% 24.9%
EBH 24.9% -- 24.9%
DPH 4.9% 20.0% 24.9%
CBH -- 0.2% 0.2%
CEW -- 24.6% 24.6%
Other 0.5% -- 0.5%
Total 100.0%
o 24.9% of the Voting Shares will be held first in LBH's estate, with
Barbara A. Sloan ("BAS") serving as executor (with voting rights), and
then in a marital trust for the benefit of EBH, with TRH serving as
trustee (with voting rights).
o EBH will hold 24.9% of the Voting Shares directly.
o DPH's ownership will remain unchanged, such that she will continue to
hold, either directly or through her position as trustee (with voting
rights) of the DPH Trust, 24.9% of the Voting Shares.
o CBH's ownership will remain unchanged, such that he will continue to
hold voting rights with respect to 0.2% of the Voting Shares through
his position as trustee (with voting rights) of a trust for his own
benefit.
o CEW will replace LBH as trustee of the CBH Trust, such that she serves
as trustee (with voting rights) with respect to 20.0% of the Voting
Shares. The Family Trusts will hold 4.6% of the Voting Shares, with CEW
continuing as trustee (with voting rights) of the Family Trusts.
Through her position as trustee (with voting rights) of the CBH Trust
and of the Family Trusts, CEW will serve as trustee (with voting
rights) with respect to 24.6% of the Voting Shares in the aggregate.
In such event, no individual will hold, directly or indirectly, more than
24.9% of the Voting Shares. The changes in ownership of the Voting Shares
will not result in any changes in the Fund's advisory fees and expenses,
services provided, the investment approach or style of the Manager with
respect to the Fund, or personnel or operations of the Manager (except that
LBH would no longer serve as a Manager or officer).
(B) If EBH dies before LBH:
Owner Direct Ownership Indirect Ownership Total
LBH 24.9% -- 24.9%
EBH -- -- --
BAS and then TRH -- 24.9% 24.9%
DPH 4.9% 20.0% 24.9%
CBH -- 0.2% 0.2%
CEW -- 24.6% 24.6%
Other 0.5% -- 0.5%
Total 100.0%
o LBH will continue to hold 24.9% of the Voting Shares directly.
o 24.9% of the Voting Shares will be held first in EBH's estate, with BAS
serving as executor (with voting rights), and then in a marital trust
for the benefit of LBH, with TRH serving as trustee (with voting
rights).
o DPH's ownership will remain unchanged, such that she will continue to
hold, either directly or through her position as trustee (with voting
rights) of the DPH Trust, 24.9% of the Voting Shares.
o CBH's ownership will remain unchanged, such that he will continue to
hold voting rights with respect to 0.2% of the Voting Shares through
his position as trustee (with voting rights) of a trust for his own
benefit.
o CEW will replace LBH as trustee of the CBH Trust, such that she serves
as trustee (with voting rights) with respect to 20.0% of the Voting
Shares. The Family Trusts will hold 4.6% of the Voting Shares, with CEW
continuing as trustee (with voting rights) of the Family Trusts.
Through her position as trustee (with voting rights) of the CBH Trust
and of the Family Trusts, CEW will serve as trustee (with voting
rights) with respect to 24.6% of the Voting Shares in the aggregate.
In such event, no individual will hold, directly or indirectly, more than
24.9% of the Voting Shares. The changes in ownership of the Voting Shares
will not result in any changes in the Fund's advisory fees and expenses,
services provided, the investment approach or style of the Manager with
respect to the Fund, or personnel or operations of the Manager (except that
EBH would no longer serve as a Manager).
Basis for the Trustees' Approval of the New Advisory Agreement
The Board of Trustees and the independent Trustees approved the renewal
until December 31, 2008 of the Current Advisory Agreement in November, 2007 at a
meeting called and held for that purpose at which a majority of the independent
Trustees were present in person. They additionally approved the New Advisory
Agreement at a meeting held June 2, 2008.
In connection with the renewal of the Current Advisory Agreement, the
following materials were considered:
o Copies of the agreement to be renewed;
o A term sheet describing the material terms of the agreement;
o The Annual Report of the Fund for the year ended June 30, 2007;
o A report, prepared by the Manager and provided to the Trustees 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
o Quarterly materials reviewed at prior meetings on the Fund's
performance, operations, portfolio and compliance.
The Trustees considered the Current Advisory Agreement separately as
well as in conjunction with the Current Sub-Advisory Agreement to determine
their combined effects on the Fund.
In approving the Fund's New Advisory Agreement, the Trustees considered
the information provided and the conclusions reached in connection with the
Annual Review. In addition, they considered such new information as they
believed appropriate, including more up-to-date performance and expense
information. In approving the New Advisory Agreement, the Trustees considered
the information provided and the factors considered in connection with the
Annual Review as well as such new information (for example, information about
the Transaction) as they considered appropriate. In considering the New Advisory
Agreement, the Trustees did not identify any single factor as determinative.
Matters considered by the Trustees, including the Independent Trustees, in
connection with their review of the New Advisory Agreement included the
following:
The nature, extent, and quality of the services provided by the Manager .
The Manager has 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 Manager has arranged for the Sub-Adviser to provide local
management of the Fund's portfolio.
The Board considered that the Manager 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 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 New Advisory Agreement.
The investment performance of the Fund and the Manager.
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 benchmark indices. It was noted that the materials provided by the Manager
indicated that compared to the three competitive Rhode Island funds, the Fund's
average annual total return outperformed that of all of its peers for one, five
and ten-year periods. The Board considered these results to be consistent with
the purposes of the Fund. The Fund considers its local competitors to be Rhode
Island oriented funds that invest chiefly in high-quality Rhode Island municipal
obligations.
The Board concluded that the performance of the Fund was excellent in
light of market conditions, the length of its average maturities, its investment
objectives and its long-standing emphasis on minimizing risk. Evaluation of this
factor indicated to the Trustees that renewal of the New Advisory Agreement
would be appropriate.
The costs of the services to be provided and profits to be realized by the
Manager and its affiliates from their relationships 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 all single-state
tax-free municipal bond funds nationwide, including data for all such front-end
sales charge funds of a comparable asset size. The materials also showed the
profitability to the Manager of its services to the Fund.
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 similar to and were
reasonable as compared to those being paid by single-state tax-free municipal
bond funds nationwide, being less than the national average, 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 did
not argue against approval of the fees to be paid under the New Advisory
Agreement. The Board noted that the Manager was currently waiving a portion of
its 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, 2007 through June 30, 2008 so that total
Fund expenses would not exceed 0.85 of 1% for Class A Shares, 1.70 of 1% for
Class C Shares, 1.03 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 extent to which economies of scale would be realized as the Fund grows.
Data provided to the Trustees showed that the Fund's average net 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 what those
of its peers would be at comparable asset levels, including those with
breakpoints. Evaluation of this factor indicated to the Board that the New
Advisory Agreement should be renewed without addition of breakpoints at this
time.
Benefits derived or to be derived by the Manager and and its affiliates from
their relationships with the Fund.
The Board observed that, as is generally true of most fund complexes,
the Manager and its affiliates, by providing services to a number of funds or
other investment 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 its 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.
In connection with approval of the New Advisory Agreement and
recommendation that the shareholders of the Fund approve that agreement, the
Trustees noted that that agreement is substantially the same as the Current
Advisory Agreement except for its starting date and accordingly the materials
considered in connection with the Annual Review, and the reasons for renewing
the Current Advisory Agreement, apply to the New Advisory Agreement as well. In
addition, as noted above, in addressing the desirability of replacing the
Current Advisory Agreement with the New Advisory Agreement, the Trustees
considered a wide range of information relevant to the ongoing and future
continuity of management of the Fund, including:
|X| representations by representatives of AMC and the Manager that the
proposed change of control was not expected to result in a change in
the personnel or operations of the Manager or Sub-Adviser;
|X| representations from representatives of AMC and the Manager that the
investment approach or style of the Manager with respect to the Fund,
or the services provided by them to the Fund, would not change.
|X| the fact that the Transaction will not result in any change to the
advisory fees paid by the Fund or the Fund's total expense ratio;
|X| the fact that the Transaction will not result in a change in the costs
of the services to be provided by the Manager; and |X| the fact that
the Fund has operated in compliance with its investment objective and
restrictions.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel, the Trustees, including the Independent Trustees, concluded
that the New Advisory Agreement should be approved and recommended that the
shareholders of the Fund vote to approve the New Advisory Agreement for an
initial one-year term.
Description of the New Advisory Agreement
The Manager provides the Fund with local advisory services. Under the
New Advisory Agreement, the Fund will pay the Manager a fee payable monthly and
computed on the net asset value of the Fund as of the close of business each
business day at the annual rate of 0.50 of 1% of such net asset value.
The proposed New Advisory Agreement for the Fund is substantially
identical to the Current Advisory Agreement (together, the "Advisory
Agreements"). For a complete understanding of the proposed New Advisory
Agreement, please refer to the form of New Advisory Agreement provided as
Appendix A.
Action Requested
The trustees of the fund recommend that the shareholders of the fund
vote to approve the new advisory agreement.
Vote Required
The favorable vote of the holders of a majority (as defined in the 1940
Act) of the outstanding shares of the Fund is required for the approval of this
Proposal No. 3. Under the 1940 Act, the vote of the holders of a majority of the
outstanding shares of the Fund means the vote of the holders of the lesser of
(a) 67% or more of the shares of the Fund present at the Meeting or represented
by proxy if the holders of more than 50% of such shares are so present or
represented, or (b) more than 50% of the outstanding shares of the Fund, with
one (1) vote for each dollar (and a proportionate fractional vote for each
fraction of a dollar) of net asset value (determined as of the record date)
represented by full and fractional shares of all of the Fund's three outstanding
classes of shares.
If necessary or desirable, the meeting can be adjourned by the
affirmative vote of a majority of the shares present in person or by proxy. In
voting for an adjournment, the proxies will consider all relevant factors,
including possible delay of receipt of proxies and whether or not a substantial
number of negative votes have been cast with respect to any proposal. The
proxies of shareholders who have voted by proxy against a proposal will be voted
against adjournment.
If this proposal is not approved by the shareholders the Board of
Trustees will consider what further action is appropriate, which could include
calling another shareholder meeting.
Consideration of
A New Sub-Advisory Agreement
(Proposal No. 2 at the Special Meeting)
See the information under Proposal No. 1 for the reasons for this proposal.
Information About The Sub-Adviser
Citizens Investment Advisors, the Sub-Adviser, is a department of
Citizens Bank, a division of RBS Citizens, N.A., a bank subsidiary of Citizens
Financial Group, Inc. ("CFG"). CFG is a wholly-owned subsidiary of The Royal
Bank of Scotland, PLC. CFG is a $160 billion commercial bank holding company. It
is headquartered in Providence, Rhode Island, and, through its subsidiaries, has
more than 1,600 branches, more than 3,500 ATMs and more than 24,000 employees.
It operates its branch network in 13 states and has non-branch retail and
commercial offices in about 40 states. As of June 30, 2008, the Trust and
Investment Management Group of the Sub-Adviser had approximately $5,255,826,948
of assets under management, including approximately $768,551,095 in municipal
obligations.
Salvatore C. Di Santo has managed the Fund's portfolio since the
inception of the Fund in September 1992. Mr. Di Santo, a Senior Vice President
within the Sub-Adviser's Trust and Investment Services Group, is a member of its
Trust Investment Committee. He has been employed by the Sub-Adviser for 50 years
and has been involved in portfolio management for the last 43 years.
Jeffrey K. Hanna, also an officer of the Sub-Adviser, is the co-manager
of the Fund. He has held this position since 2005. He was formerly an assistant
portfolio manager of the Fund and served as such since 2000. Mr. Hanna, a Vice
President within the Sub-Adviser's Investment Management Services Group, has
been with the company since 1988.
No shareholder of RBS Citizens, N.A., owns more than 10% of its stock.
The name and principal occupations of the Board of Directors of Citizens
Financial Group, Inc., and RBS Citizens, N.A., are as follows:
Name of Director Position
Lawrence K. Fish Chairman, Citizens Financial Group
Chairman, RBS Americas
Ellen Alemany Chief Executive Officer, Citizens Financial Group
Chief Executive Officer, RBS Americas
James G. Connolly President, Citizens Financial Group, Inc.
Johnny Cameron Chief Executive, Corporate Markets
The Royal Bank of Scotland Group plc
James S. Davis Chairman and Chief Executive Officer
New Balance Athletic Shoe, Inc.
Francis A. Doyle President and Chief Executive Officer
Connell Limited Partnership
Edmond J. English Chief Executive Officer
Bob's Discount Furniture
William P. Hankowsky Chairman, President & CEO
Liberty Property Trust
Charles J. ("Bud") Koch Former Chairman, Charter One
Dr. Graham B. Spanier President, Penn State University
Shivan S. Subramaniam Chairman and Chief Executive Officer
FM Global
Gordon Pell Chief Executive, Retail Markets
The Royal Bank of Scotland Group plc
Basis for the Trustees' Approval of the New Sub-Advisory Agreement.
The Board of Trustees and the independent Trustees approved the renewal
until December 31, 2008 of the Current Sub-Advisory Agreement in November, 2007
at a meeting called and held for that purpose at which a majority of the
independent Trustees were present in person. They additionally approved the New
Sub-Advisory Agreement at a meeting held June 2, 2008.
In connection with the renewal of the Current Sub-Advisory Agreement,
the following materials were considered:
o Copies of the agreement to be renewed;
o A term sheet describing the material terms of the agreement;
o The Annual Report of the Fund for the year ended June 30, 2007;
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 Sub-Adviser; and
o Quarterly materials reviewed at prior meetings on the Fund's
performance, operations, portfolio and compliance.
The Trustees considered the Current Sub-Advisory Agreement separately
as well as in conjunction with Current Advisory Agreement to determine their
combined effects on the Fund. In approving the Fund's New Sub-Advisory
Agreement, the Trustees considered the information provided and the conclusions
reached in connection with the Annual Review. In addition, they considered such
new information as they believed appropriate, including more up-to-date
performance and expense information. In approving the New Sub-Advisory
Agreement, the Trustees considered the information provided and the factors
considered in connection with the Annual Review as well as such new information
(for example, information about the Transaction) as they considered appropriate.
In considering the New Sub-Advisory Agreement, the Trustees did not identify any
single factor as determinative. Matters considered by the Trustees, including
the Independent Trustees, in connection with their review of the New
Sub-Advisory Agreement included the following:
The nature, extent, and quality of the services provided by the Sub-Adviser.
The Manager has arranged for the Sub-Adviser to provide local
management of the Fund's portfolio. The Trustees noted that the Sub-Adviser
employs 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 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 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 New Sub-Advisory Agreement.
The investment performance of the Fund and the 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 benchmark indices. It was noted that the materials provided by the Manager
indicated that compared to the three competitive Rhode Island funds, the Fund's
average annual total return outperformed that of all of its peers for one, five
and ten-year periods. The Fund considers its local competitors to be Rhode
Island oriented funds that invest chiefly in high-quality Rhode Island municipal
obligations.
The Board concluded that the performance of the Fund was excellent in
light of market conditions, the length of its average maturities, its investment
objectives and its long-standing emphasis on minimizing risk. Evaluation of this
factor indicated to the Trustees that renewal of the New Sub-Advisory Agreement
would be appropriate.
The costs of the services to be provided and profits to be realized by
Sub-Adviser and its affiliates from their relationships 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 all single-state
tax-free municipal bond funds nationwide, including data for all such front-end
sales charge funds of a comparable asset size. The materials also showed the
profitability to the Sub-Adviser of its services to the Fund.
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 similar to and were
reasonable as compared to those being paid by single-state tax-free municipal
bond funds nationwide, being less than the national average, 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 Sub-Adviser
did not argue against approval of the fees to be paid under the New Sub-Advisory
Agreement. The Board noted that the Sub-Adviser was currently waiving a portion
of its fees and had been since the Fund's inception.
The extent to which economies of scale would be realized as the Fund grows.
Data provided to the Trustees showed that the Fund's average net 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 what those
of its peers would be at comparable asset levels, including those with
breakpoints. Evaluation of this factor indicated to the Board that the New
Sub-Advisory Agreement should be renewed without addition of breakpoints at this
time.
Benefits derived or to be derived by the Sub-Adviser and its affiliates from
their relationships with the Fund.
The Board observed that, as is generally true of most fund complexes,
the Sub-Adviser and its 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 Sub-Adviser and its 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.
In connection with approval of the New Sub-Advisory Agreement and
recommendation that the shareholders of the Fund approve it, the Trustees noted
that that agreement is substantially the same as the Current Sub-Advisory
Agreement except for its starting date and accordingly the materials considered
in connection with the Annual Review, and the reasons for renewing the Current
Sub-Advisory Agreement, apply to the New Sub-Advisory Agreement as well. In
addition, as noted above, in addressing the desirability of replacing the
Current Sub-Advisory Agreement with the New Sub-Advisory Agreement, the Trustees
considered a wide range of information relevant to the ongoing and future
continuity of management of the Fund, including:
|X| representations by representatives of the Sub-Adviser that the
proposed change of control of the Manager was not expected to result
in a change in the personnel or operations of the Sub-Adviser;
|X| representations from representatives of the Sub-Adviser that the
investment approach or style of the Sub-Adviser with respect to the
Fund, or the services provided by it to the Fund, would not change.
|X| the fact that the Transaction will not result in any change to the
advisory fees paid by the Fund or the Fund's total expense ratio;
|X| the fact that the Transaction will not result in a change in the costs
of the services to be provided by the Sub-Adviser; and,
|X| the fact that the Fund has operated in compliance with its investment
objective and restrictions.
Based on their evaluation of all factors that they deemed to be
material, including those factors described above, and assisted by the advice of
independent counsel, the Trustees, including the Independent Trustees, concluded
that the New Sub-Advisory Agreement should be approved and recommended that the
shareholders of the Fund vote to approve the New Sub-Advisory Agreement for an
initial one-year term.
Description of the New Sub-Advisory Agreement
The Sub-Adviser provides the Fund with local advisory services. Under
the New Sub-Advisory Agreement, the Manager will pay the Sub-Advisor a fee
payable monthly and computed on the net asset value of the Fund as of the close
of business each business day at the annual rate of 0.23 of 1% of such net asset
value.
The proposed New Sub-Advisory Agreement is substantially identical to
the Current Sub-Advisory Agreement. For a complete understanding of the New
Sub-Advisory Agreement, please refer to the form of New Sub-Advisory Agreement
provided as Appendix B.
Action Requested
The trustees of the fund recommend that the shareholders of the fund
vote to approve the new sub-advisory agreement.
Vote Required
The vote required is the same as that for Proposal No. 1 at the Special
Meeting. Please refer to the description provided under Proposal No. 1.
General
Proposals No. 1 and No. 2 are designed to operate together. Neither
separately will have the intended results. Accordingly, the proposed New
Advisory Agreement and the proposed New Sub-Advisory Agreement will not go into
effect unless shareholders approve both Proposals No. 1 and 2. If these
proposals are not both approved, the current arrangements will remain in effect.
The Board of Trustees will consider what further action is appropriate, which
could include calling another shareholder meeting.
Shareholder Proposals
Under the proxy rules of the Securities and Exchange Commission,
shareholder proposals meeting tests contained in those rules may, under certain
conditions, be included in the Fund's proxy statement and proxy card for a
particular annual meeting. One of these conditions relates to the timely receipt
by the Fund of any such proposal. Under these rules, proposals submitted for
inclusion in the proxy material for the Fund's next annual meeting after the
annual meeting to which this Proxy Statement relates must be received by the
Fund not less than 120 days before the anniversary of the date of this Proxy
Statement. Accordingly, a shareholder proposal intended to be presented at the
Fund's 2009 annual meeting must be received by the Fund by April 14, 2009 in
order to be included in the Fund's proxy material relating to that meeting. The
date for such submission could change, depending on the scheduled date for the
next annual meeting; if so, shareholders will be notified.
The fact that the Fund receives a shareholder proposal in a timely
manner does not insure its inclusion in the Fund's proxy material, since there
are other requirements in the proxy rules relating to such inclusion.
A shareholder wishing to provide notice of a proposal in the manner
prescribed by Rule 14a-4 (c)(1) under the Securities Exchange Act of 1934 must
submit written notice of the proposal to the Fund by June 27, 2009.
Other Business
The Fund does not know of any other matter which will come up for
action at the Annual Meeting. If any other matter or matters properly come up
for action at the Annual Meeting, including any adjournment of the Annual
Meeting, the proxy holders will vote the shares which your proxy card, Internet
or telephone vote entitles them to vote, in accordance with their judgment on
such matter or matters, except as noted. That is, by signing and returning your
proxy card or by voting by the Internet or telephone, you give the proxy holders
discretionary authority as to any such matter or matters.
The Fund does not know of any other matter which will come up for
action at the Special Meeting. If any other matter or matters properly come up
for action at the Special Meeting, including any adjournment of the Special
Meeting, the proxy holders will vote the shares which your proxy card, Internet
or telephone vote entitles them to vote, in accordance with their judgment on
such matter or matters except as noted. That is, by signing and returning your
proxy card or by voting by the Internet or telephone, you give the proxy holders
discretionary authority as to any such matter or matters.
Appendix A
NARRAGANSETT INSURED TAX-FREE INCOME FUND
ADVISORY AND ADMINISTRATION AGREEMENT
THIS AGREEMENT, made as of _________, 2008 by and between NARRAGANSETT
INSURED TAX-FREE INCOME FUND (the "Fund"), a Massachusetts business trust, 380
Madison Avenue, Suite 2300, New York, New York 10017 and AQUILA INVESTMENT
MANAGEMENT LLC (the "Manager"), a Delaware limited liability company, 380
Madison Avenue, Suite 2300, New York, New York 10017
W I T N E S S E T H:
WHEREAS, the Fund and the Manager wish to enter into an Advisory and
Administration Agreement referred to hereafter as "this Agreement," with respect
to the Fund;
NOW THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. In General
The Manager shall perform (at its own expense) the functions set forth more
fully herein for the Fund.
2. Duties and Obligations of the Manager
(a) Investment Advisory Services Subject to the succeeding provisions of
this section and subject to the direction and control of the Board of Trustees
of the Fund, the Manager shall:
(i) supervise continuously the investment program of the Fund and the
composition of its portfolio;
(ii) determine what securities shall be purchased or sold by the Fund;
(iii) arrange for the purchase and the sale of securities held in the portfolio
of the Fund;
(iv) at its expense provide for pricing of the Fund's portfolio daily using a
pricing service or other source of pricing information satisfactory to the
Fund and, unless otherwise directed by the Board of Trustees, provide for
pricing of the Fund's portfolio at least quarterly using another such source
satisfactory to the Fund; and
Subject to the provisions of Section 5 hereof, the Manager may at its own
expense delegate to a qualified organization ("Sub-Adviser"), affiliated or not
affiliated with the Manager, any or all of the above duties. Any such delegation
of the duties set forth in (i), (ii) or (iii) above shall be by a written
agreement (the "Sub-Advisory Agreement") approved as provided in Section 15 of
the Investment Company Act of 1940.
(b) Administration. Subject to the succeeding provisions of this section and
subject to the direction and control of the Board of Trustees of the Fund, the
Manager shall provide all administrative services to the Fund other than those
relating to its investment portfolio delegated to a Sub-Adviser of the Fund
under a Sub-Advisory Agreement; as part of such administrative duties, the
Manager shall:
(i) provide office space, personnel, facilities and equipment for the
performance of the following functions and for the maintenance of the
headquarters of the Fund;
(ii) oversee all relationships between the Fund and any sub-adviser, transfer
agent, custodian, legal counsel, auditors, fund accounting agent and
principal underwriter, including the negotiation of agreements in relation
thereto, the supervision and coordination of the performance of such
agreements, and the overseeing of all administrative matters which are
necessary or desirable for the effective operation of the Fund and for the
sale, servicing or redemption of the Fund's shares;
(iii) maintain the Fund's books and records, and prepare (or assist counsel and
auditors in the preparation of) all required proxy statements, reports to
the Fund's shareholders and Trustees, reports to and other filings with the
Securities and Exchange Commission and any other governmental agencies, and
tax returns, and oversee the insurance relationships of the Fund;
(iv) prepare, on behalf of the Fund and at the Fund's expense, such applications
and reports as may be necessary to register or maintain the registration of
the Fund and/or its shares under the securities or "Blue-Sky" laws of all
such jurisdictions as may be required from time to time; and
(v) respond to any inquiries or other communications of shareholders of the Fund
and broker-dealers, or if any such inquiry or communication is more properly
to be responded to by the Fund's shareholder servicing and transfer agent or
distributor, oversee such shareholder servicing and transfer agent's or
distributor's response thereto.
(c) Compliance with Requirements. Any investment program furnished, and any
activities performed, by the Manager or by a Sub-Adviser under this section
shall at all times conform to, and be in accordance with, any requirements
imposed by: (1) the Investment Company Act of 1940 (the "Act") and any rules or
regulations in force thereunder; (2) any other applicable laws, rules and
regulations; (3) the Declaration of Trust and By-Laws of the Fund as amended
from time to time; (4) any policies and determinations of the Board of Trustees
of the Fund; and (5) the fundamental policies of the Fund, as reflected in its
registration statement under the Act or as amended by the shareholders of the
Fund.
(d) Best Efforts; Responsibility. The Manager shall give the Fund the
benefit of its best judgment and effort in rendering services hereunder, but the
Manager shall not be liable for any loss sustained by reason of the adoption of
any investment policy or the purchase, sale or retention of any security,
whether or not such purchase, sale or retention shall have been based upon (i)
its own investigation and research or (ii) investigation and research made by
any other individual, firm or corporation, if such purchase, sale or retention
shall have been made and such other individual, firm or corporation shall have
been selected in good faith by the Manager or a Sub-Adviser.
(e) Other Customers. Nothing in this Agreement shall prevent the Manager or
any officer thereof from acting as investment adviser, sub-adviser,
administrator or manager for any other person, firm, or corporation, and shall
not in any way limit or restrict the Manager or any of its officers,
stockholders or employees from buying, selling or trading any securities for its
own or their own accounts or for the accounts of others for whom it or they may
be acting, provided, however, that the Manager expressly represents that it will
undertake no activities which, in its judgment, will adversely affect the
performance of its obligations under this Agreement.
(f) Order Allocation. In connection with any duties for which it may become
responsible to arrange for the purchase and sale of the Fund's portfolio
securities, the Manager shall select, and shall cause any Sub-Adviser to select,
such broker-dealers ("dealers") as shall, in the Manager's judgment, implement
the policy of the Fund to achieve "best execution," i.e., prompt, efficient, and
reliable execution of orders at the most favorable net price. The Manager shall
cause the Fund to deal directly with the selling or purchasing principal or
market maker without incurring brokerage commissions unless the Manager
determines that better price or execution may be obtained by paying such
commissions; the Fund expects that most transactions will be principal
transactions at net prices and that the Fund will incur little or no brokerage
costs. The Fund understands that purchases from underwriters include a
commission or concession paid by the issuer to the underwriter and that
principal transactions placed through dealers include a spread between the bid
and asked prices. In allocating transactions to dealers, the Manager is
authorized and shall authorize any Sub-Adviser, to consider, in determining
whether a particular dealer will provide best execution, the dealer's
reliability, integrity, financial condition and risk in positioning the
securities involved, as well as the difficulty of the transaction in question,
and thus need not pay the lowest spread or commission available if the Manager
determines in good faith that the amount of commission is reasonable in relation
to the value of the brokerage and research services provided by the dealer,
viewed either in terms of the particular transaction or the Manager's overall
responsibilities. If, on the foregoing basis, the transaction in question could
be allocated to two or more dealers, the Manager is authorized, in making such
allocation, to consider whether a dealer has provided research services, as
further discussed below. Such research may be in written form or through direct
contact with individuals and may include quotations on portfolio securities and
information on particular issuers and industries, as well as on market,
economic, or institutional activities. The Fund recognizes that no dollar value
can be placed on such research services or on execution services and that such
research services may or may not be useful to the Fund and may be used for the
benefit of the Manager or its other clients. The Manager shall cause the
foregoing provisions, in substantially the same form, to be included in any
Sub-Advisory Agreement.
(g) Registration Statement; Information. It is agreed that the Manager shall
have no responsibility or liability for the accuracy or completeness of the
Fund's Registration Statement under the Act and the Securities Act of 1933,
except for information supplied by the Manager for inclusion therein. The
Manager shall promptly inform the Fund as to any information concerning the
Manager appropriate for inclusion in such Registration Statement, or as to any
transaction or proposed transaction which might result in an assignment of the
Agreement.
(h) Liability for Error. The Manager shall not be liable for any error in
judgment or for any loss suffered by the Fund or its security holders in
connection with the matters to which this Agreement relates, except a loss
resulting from wilful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Nothing in this Agreement shall, or
shall be construed to, waive or limit any rights which the Fund may have under
federal and state securities laws which may impose liability under certain
circumstances on persons who act in good faith.
(i) Indemnification. The Fund shall indemnify the Manager to the full extent
permitted by the Fund's Declaration of Trust. 3. Allocation of Expenses
The Manager shall, at its own expense, provide office space, facilities,
equipment, and personnel for the performance of its functions hereunder and
shall pay all compensation of Trustees, officers, and employees of the Fund who
are affiliated persons of the Manager.
The Fund agrees to bear the costs of preparing and setting in type its
prospectuses, statements of additional information and reports to its
shareholders, and the costs of printing or otherwise producing and distributing
those copies of such prospectuses, statements of additional information and
reports as are sent to its shareholders. All costs and expenses not expressly
assumed by the Manager under this sub-section or otherwise by the Manager,
administrator or principal underwriter or by any Sub-Adviser shall be paid by
the Fund, including, but not limited to (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation of its Trustees other
than those affiliated with the Manager or such adviser, administrator or
principal underwriter and expenses of all its Trustees; (v) legal and audit
expenses; (vi) custodian and transfer agent, or shareholder servicing agent,
fees and expenses; (vii) expenses incident to the issuance of its shares
(including issuance on the payment of, or reinvestment of, dividends); (viii)
fees and expenses incident to the registration under Federal or State securities
laws of the Fund or its shares; (ix) expenses of preparing, printing and mailing
reports and notices and proxy material to shareholders of the Fund; (x) all
other expenses incidental to holding meetings of the Fund's shareholders; (xi)
expenses of keeping the Fund's accounting records including the computation of
net asset value per share and the dividends; and (xii) such non-recurring
expenses as may arise, including litigation affecting the Fund and the legal
obligations for which the Fund may have to indemnify its officers and Trustees.
4. Compensation of the Manager
The Fund agrees to pay the Manager, and the Manager agrees to accept as full
compensation for all services rendered by the Manager as such, an annual fee
payable monthly and computed on the net asset value of the Fund as of the close
of business each business day at the annual rate of 0.50 of 1% of such net asset
value.
5. Termination of Sub-Advisory Agreement
The Sub-Advisory Agreement may provide for its termination by the Manager
upon reasonable notice, provided, however, that the Manager agrees not to
terminate the Sub-Advisory Agreement except in accordance with such
authorization and direction of the Board of Trustees, if any, as may be in
effect from time to time.
6. Duration and Termination of this Agreement
(a) Duration. This Agreement shall become effective on the day it is
approved by the shareholders of the Fund and shall, unless terminated as
hereinafter provided, continue in effect until the December 31 next preceding
the first anniversary of the effective date of this Agreement, and from year to
year thereafter, but only so long as such continuance is specifically approved
at least annually (1) by a vote of the Fund's Board of Trustees, including a
vote of a majority of the Trustees who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party, with votes cast
in person at a meeting called for the purpose of voting on such approval, or (2)
by a vote of the holders of a "majority" (as so defined) of the outstanding
voting securities of the Fund and by such a vote of the Trustees.
(b) Termination. This Agreement may be terminated by the Manager at any time
without penalty upon giving the Fund sixty days' written notice (which notice
may be waived by the Fund) and may be terminated by the Fund at any time without
penalty upon giving the Manager sixty days' written notice (which notice may be
waived by the Manager), provided that such termination by the Fund shall be
directed or approved by a vote of a majority of its Trustees in office at the
time or by a vote of the holders of a majority (as defined in the Act) of the
voting securities of the Fund outstanding and entitled to vote. The portions of
this Agreement which relate to providing investment advisory services (Sections
2(a), (c), (d) and (e)) shall automatically terminate in the event of the
assignment (as defined in the Act) of this Agreement, but all other provisions
relating to providing services other than investment advisory services shall not
terminate, provided however, that upon such an assignment the annual fee payable
monthly and computed on the net asset value of the Fund as of the close of
business each business day shall be reduced to the annual rate of 0.27 of 1% of
such net asset value.
7. Disclaimer of Shareholder Liability
The Manager understands that the obligations of this Agreement are not
binding upon any shareholder of the Fund personally, but bind only the Fund's
property; the Manager represents that it has notice of the provisions of the
Fund's Declaration of Trust disclaiming shareholder liability for acts or
obligations of the Fund.
8. Notices of Meetings
The Fund agrees that notice of each meeting of the Board of
Trustees of the Fund will be sent to the Manager and that the Fund will make
appropriate arrangements for the attendance (as persons present by invitation)
of such person or persons as the Manager may designate.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers and their seals to be hereunto
affixed, all as of the day and year first above written.
ATTEST: NARRAGANSETT INSURED TAX-FREE INCOME FUND
______________________ By:___________________________________
ATTEST: AQUILA INVESTMENT MANAGEMENT LLC
______________________ By:___________________________________
Appendix B
NARRAGANSETT INSURED TAX-FREE INCOME FUND
SUB-ADVISORY AGREEMENT
THIS AGREEMENT, made as of _________ __, 2008 by and between AQUILA
INVESTMENT MANAGEMENT LLC, a Delaware limited liability company (the "Manager"),
380 Madison Avenue, Suite 2300, New York, New York 10017 and CITIZENS INVESTMENT
ADVISORS, (the "Sub-Adviser"), a department of RBS Citizens, N.A., One Citizens
Plaza, Providence, Rhode Island 02903-1339.
W I T N E S S E T H :
WHEREAS, Narragansett Insured Tax-Free Income Fund (the "Fund") is a
Massachusetts business trust which is registered under the Investment Company
Act of 1940 (the "Act") as an open-end, non-diversified management investment
company;
WHEREAS, the Manager has entered into an Advisory and Administration
Agreement as of the date hereof with the Fund (the "Advisory and Administration
Agreement") pursuant to which the Manager shall act as investment adviser with
respect to the Fund; and
WHEREAS, pursuant to paragraph 2 of the Advisory and Administration
Agreement, the Manager wishes to retain the Sub-Adviser for purposes of
rendering investment advisory services to the Manager in connection with the
Fund upon the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. In General
The Manager hereby appoints the Sub-Adviser to render, to the Manager
and to the Fund, investment research and advisory services as set forth below
under the supervision of the Manager and subject to the approval and direction
of the Board of Trustees of the Fund. The Sub-Adviser shall, all as more fully
set forth herein, act as managerial investment adviser to the Fund with respect
to the investment of the Fund's assets, and supervise and arrange the purchase
of securities for and the sale of securities held in the portfolio of the Fund.
2. Duties and Obligations of the Sub-Adviser With Respect To Investment of the
Assets of the Fund
(a) Subject to the succeeding provisions of this section and subject to
the direction and control of the Manager and the Board of Trustees of the Fund,
the Sub-Adviser shall:
(i) supervise continuously the investment program of the Fund and the
composition of its portfolio;
(ii) determine what securities shall be purchased or sold by the Fund;
(iii) arrange for the purchase and the sale of securities held in the
portfolio of the Fund;
(iv) at its expense provide for pricing of the Fund's portfolio daily using
a pricing service or other source of pricing information satisfactory
to the Fund and, unless otherwise directed by the Board of Trustees,
provide for pricing of the Fund's portfolio at least quarterly using
another such source satisfactory to the Fund; and
(v) consult with the Manager in connection with its duties hereunder.
(b) Any investment program furnished by the Sub-Adviser under this
section shall at all times conform to, and be in accordance with, any
requirements imposed by: (1) the Investment Company Act of 1940 (the "Act") and
any rules or regulations in force thereunder; (2) any other applicable laws,
rules and regulations; (3) the Declaration of Trust and By-Laws of the Fund as
amended from time to time; (4) any policies and determinations of the Board of
Trustees of the Fund; and (5) the fundamental policies of the Fund, as reflected
in its registration statement under the Act or as amended by the shareholders of
the Fund.
(c) The Sub-Adviser shall give to the Manager and to the Fund the
benefit of its best judgment and effort in rendering services hereunder, but the
Sub-Adviser shall not be liable for any loss sustained by reason of the adoption
of any investment policy or the purchase, sale or retention of any security,
whether or not such purchase, sale or retention shall have been based upon (i)
its own investigation and research or (ii) investigation and research made by
any other individual, firm or corporation, if such purchase, sale or retention
shall have been made and such other individual, firm or corporation shall have
been selected in good faith by the Sub-Adviser.
(d) Nothing in this Agreement shall prevent the Sub-Adviser or any
affiliated person (as defined in the Act) of the Sub-Adviser from acting as
investment adviser or manager for any other person, firm or corporation and
shall not in any way limit or restrict the Sub-Adviser or any such affiliated
person from buying, selling or trading any securities for its own or their own
accounts or for the accounts of others for whom it or they may be acting,
provided, however, that the Sub-Adviser expressly represents that, while acting
as Sub-Adviser, it will undertake no activities which, in its judgment, will
adversely affect the performance of its obligations to the Fund under this
Agreement.
(e) In connection with its duties to arrange for the purchase and sale
of the Fund's portfolio securities, the Sub-Adviser shall select such
broker-dealers ("dealers") as shall, in the Sub-Adviser's judgment, implement
the policy of the Fund to achieve "best execution," i.e., prompt, efficient, and
reliable execution of orders at the most favorable net price. The Sub-Adviser
shall cause the Fund to deal directly with the selling or purchasing principal
or market maker without incurring brokerage commissions unless the Sub-Adviser
determines that better price or execution may be obtained by paying such
commissions; the Fund expects that most transactions will be principal
transactions at net prices and that the Fund will incur little or no brokerage
costs. The Fund understands that purchases from underwriters include a
commission or concession paid by the issuer to the underwriter and that
principal transactions placed through dealers include a spread between the bid
and asked prices. In allocating transactions to dealers, the Sub-Adviser is
authorized to consider, in determining whether a particular dealer will provide
best execution, the dealer's reliability, integrity, financial condition and
risk in positioning the securities involved, as well as the difficulty of the
transaction in question, and thus need not pay the lowest spread or commission
available if the Sub-Adviser determines in good faith that the amount of
commission is reasonable in relation to the value of the brokerage and research
services provided by the dealer, viewed either in terms of the particular
transaction or the Sub-Adviser's overall responsibilities. If, on the foregoing
basis, the transaction in question could be allocated to two or more dealers,
the Sub-Adviser is authorized, in making such allocation, to consider whether a
dealer has provided research services, as further discussed below. Such research
may be in written form or through direct contact with individuals and may
include quotations on portfolio securities and information on particular issuers
and industries, as well as on market, economic, or institutional activities. The
Fund recognizes that no dollar value can be placed on such research services or
on execution services and that such research services may or may not be useful
to the Fund and may be used for the benefit of the Sub-Adviser or its other
clients.
(f) The Sub-Adviser agrees to maintain, and to preserve for the periods
prescribed, such books and records with respect to the portfolio transactions of
the Fund as are required by applicable law and regulation, and agrees that all
records which it maintains for the Fund on behalf of the Manager shall be the
property of the Fund and shall be surrendered promptly to the Fund or the
Manager upon request.
(g) The Sub-Adviser agrees to furnish to the Manager and to the Board
of Trustees of the Fund such periodic and special reports as each may reasonably
request.
(h) It is agreed that the Sub-Adviser shall have no responsibility or
liability for the accuracy or completeness of the Fund's Registration Statement
under the Act and the Securities Act of 1933, except for information supplied by
the Sub-Adviser for inclusion therein. The Sub-Adviser shall promptly inform the
Fund as to any information concerning the Sub-Adviser appropriate for inclusion
in such Registration Statement, or as to any transaction or proposed transaction
which might result in an assignment (as defined in the Act) of this Agreement.
(i) The Sub-Adviser shall not be liable for any error in judgment or
for any loss suffered by the Fund or its security holders in connection with the
matters to which this Agreement relates, except a loss resulting from wilful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement. Nothing in this Agreement shall, or shall be construed to, waive or
limit any rights which the Fund may have under federal and state securities laws
which may impose liability under certain circumstances on persons who act in
good faith.
(j) To the extent that the Manager is indemnified under the Fund's
Declaration of Trust with respect to the services provided hereunder by the
Sub-Adviser, the Manager agrees to provide the Sub-Adviser the benefits of such
indemnification.
3. Allocation of Expenses
The Sub-Adviser shall bear all of the expenses it incurs in fulfilling
its obligations under this Agreement. In particular, but without limiting the
generality of the foregoing: the Sub-Adviser shall furnish, at the Sub-Adviser's
expense, all office space, facilities, equipment and clerical personnel
necessary for carrying out its duties under this Agreement. The Sub-Adviser
shall supply, or cause to be supplied, to any investment adviser, administrator
or principal underwriter of the Fund all necessary financial information in
connection with such adviser's, administrator's or principal underwriter's
duties under any agreement between such adviser, administrator or principal
underwriter and the Fund. The Sub-Adviser will also pay all compensation of the
Fund's officers, employees, and Trustees, if any, who are affiliated persons of
the Sub-Adviser.
4. Compensation of the Sub-Adviser
The Manager agrees to pay the Sub-Adviser, and the Sub-Adviser agrees
to accept as full compensation for all services rendered by the Sub-Adviser as
such, a management fee payable monthly and computed on the net asset value of
the Fund as of the close of business each business day at the annual rate of
0.23 of 1% of such net asset value.
5. Duration and Termination
(a) This Agreement shall become effective on the day it is approved by
the shareholders of the Fund and shall, unless terminated as hereinafter
provided, continue in effect until the December 31 next preceding the first
anniversary of the effective date of this Agreement, and from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (1) by a vote of the Fund's Board of Trustees, including a vote
of a majority of the Trustees who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party, with votes cast
in person at a meeting called for the purpose of voting on such approval, or (2)
by a vote of the holders of a "majority" (as so defined) of the outstanding
voting securities of the Fund and by such a vote of the Trustees.
(b) This Agreement may be terminated by the Sub-Adviser at any time
without penalty upon giving the Manager and the Fund sixty days' written notice
(which notice may be waived). This Agreement may be terminated by the Manager or
the Fund at any time without penalty upon giving the Sub-Adviser sixty days'
written notice (which notice may be waived by the Sub-Adviser), provided that
such termination by the Fund shall be directed or approved by a vote of a
majority of its Trustees in office at the time or by a vote of the holders of a
majority (as defined in the Act) of the voting securities of the Fund
outstanding and entitled to vote. This Agreement shall automatically terminate
in the event of its assignment (as defined in the Act) or the termination of the
Advisory and Administration Agreement.
6. Notices of Meetings
The Manager agrees that notice of each meeting of the Board of Trustees
of the Fund will be sent to the Sub-Adviser and that Sub-Adviser will make
appropriate arrangements for the attendance (as persons present by invitation)
of such person or persons as the Sub-Adviser may designate.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers and their seals to
be hereunto affixed, all as of the day and year first above written.
ATTEST: AQUILA INVESTMENT MANAGEMENT LLC
By:
------------------- ------------------------------
ATTEST: CITIZENS INVESTMENT ADVISORS
By:
------------------- ------------------------------
Important Notice
Please Read Immediately
Narragansett Insured Tax-Free Income Fund
Notice of Annual Meeting of Shareholders
and
Notice of Special Meeting of Shareholders
to be held on October 7, 2008
PROXY STATEMENT
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
Your Proxy Vote is important!
And now you can Vote your Proxy on the PHONE or the INTERNET.
It saves Money! Telephone and Internet voting saves postage costs. Savings which
can help minimize expenses.
It saves Time! Telephone and Internet voting is instantaneous - 24 hours a day.
It's Easy! Just follow these simple steps:
1. Read your Proxy Statement and have it at hand.
2. Call toll-free 1-866-241-6192, or go to website: www.proxy-direct.com
3. Follow the recorded or on-screen directions.
4. Do not mail your Proxy Card when you vote by phone or Internet.
Please detach at perforation before mailing.
PROXY AQUILA GROUP OF FUNDS PROXY
NARRAGANSETT INSURED TAX-FREE INCOME FUND
Proxy for Annual Meeting of Shareholders - October 7, 2008
Proxy Solicited on Behalf of the Board of Trustees
The shareholder(s) of Narragansett Insured Tax-Free Income Fund (the "Fund")
whose signature(s) appear(s) below does/do hereby appoint DIANA P. HERRMANN,
CHARLES E. CHILDS, III and EDWARD M. W. HINES, or any of them, as attorneys and
proxies of the undersigned, with full power of substitution, to attend the
Annual Meeting of Shareholders of the Fund to be held on Tuesday, October 7,
2008 at the Rhode Island Convention Center, 1 Sabin Street, Providence, Rhode
Island, at 9:00 a.m. Eastern Daylight Time, and all adjournments thereof, and
thereat to vote the shares held in the name of the undersigned on the record
date for said meeting on the matters listed on the reverse side. Such shares are
entitled to one vote for every dollar of net asset value represented by the
share balance printed below.
Management recommends a vote FOR all nominees in Proposal No. 1 and FOR Proposal
No. 2. The shares represented hereby will be voted as indicated on the reverse
or FOR if no choice is indicated.
VOTE VIA THE TELEPHONE: 1-866-241-6192
VOTE VIA THE INTERNET: www.proxy-direct.com
Note: PLEASE SIGN EXACTLY AS YOUR NAMES(S) APPEAR(S) ON THIS
PROXY CARD. When signing as custodian, attorney, executor,
administrator, trustee, guardian, etc., please sign your
title as such. Joint owners should each sign.
------------------------------------------------
Signature
-------------------------------------------------
Signature (if held jointly)
-------------------------------------------------
Date_____________________________________________
Yes No
-- --
I plan to attend the Annual Meeting in Providence. [__] [__]
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED ABOVE.
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
Please detach at perforation before mailing.
Please read the proxy statement prior to voting.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS IN THIS EXAMPLE:
NARRAGANSETT INSURED TAX-FREE INCOME FUND ANNUAL MEETING
1. Election of Trustee Nominees:
01. David A. Duffy 02. Diana P. Herrmann* 03. William J. Nightingale
04. John J. Partridge* 05. James R. Ramsey 06. Laureen L. White
*Interested Trustees
For All Withhold All For All Except
-- -- --
[--] [--] [--]
To withhold authority to vote for one or more (but not all) nominees,
mark "For All Except" and write the nominee number(s) and/or name(s) on
the line below.
2. Action on selection of Tait, Weller & Baker LLP as independent
registered public accounting firm. (Annual Meeting Proposal No. 2 in
Proxy Statement)
As to any other matter said proxies shall vote in accordance with their
best judgment.
Annual Meeting Attendance - You are encouraged to attend the Annual Meeting of
Shareholders. If you can attend, please so indicate on the proxy card or e-mail
us at info@aquilafunds.com
HAS YOUR ADDRESS CHANGED DO YOU HAVE ANY COMMENTS
----------------------------- ------------------------------
----------------------------- ------------------------------
----------------------------- ------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED ON THE REVERSE SIDE.
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
Your Proxy Vote is important!
And now you can Vote your Proxy on the PHONE or the INTERNET.
It saves Money! Telephone and Internet voting saves postage costs. Savings which
can help minimize expenses.
It saves Time! Telephone and Internet voting is instantaneous - 24 hours a day.
It's Easy! Just follow these simple steps:
1. Read your Proxy Statement and have it at hand.
2. Call toll-free 1-866-241-6192, or go to website: www.proxy-direct.com
3. Follow the recorded or on-screen directions.
4. Do not mail your Proxy Card when you vote by phone or Internet.
Please detach at perforation before mailing.
PROXY AQUILA GROUP OF FUNDS PROXY
NARRAGANSETT INSURED TAX-FREE INCOME FUND
Proxy for Special Meeting of Shareholders - October 7, 2008
Proxy Solicited on Behalf of the Board of Trustees
The shareholder(s) of Narragansett Insured Tax-Free Income Fund (the "Fund")
whose signature(s) appear(s) below does/do hereby appoint DIANA P. HERRMANN,
CHARLES E. CHILDS, III and EDWARD M. W. HINES, or any of them, as attorneys and
proxies of the undersigned, with full power of substitution, to attend the
Special Meeting of Shareholders of the Fund to be held on Tuesday, October 7,
2008 at the Rhode Island Convention Center, 1 Sabin Street, Providence, Rhode
Island, at 9:10 a.m. Eastern Daylight Time, and all adjournments thereof, and
thereat to vote the shares held in the name of the undersigned on the record
date for said meeting on the matters listed on the reverse side. Such shares are
entitled to one vote for every dollar of net asset value represented by the
share balance printed below.
Management recommends a vote FOR the Special Meeting Proposals No. 1 and No. 2.
The shares represented hereby will be voted as indicated on the reverse or FOR
if no choice is indicated.
VOTE VIA THE TELEPHONE: 1-866-241-6192
VOTE VIA THE INTERNET: www.proxy-direct.com
Note: PLEASE SIGN EXACTLY AS YOUR NAMES(S) APPEAR(S) ON THIS
PROXY CARD. When signing as custodian, attorney, executor,
administrator, trustee, guardian, etc., please sign your
title as such. Joint owners should each sign.
------------------------------------------------
Signature
-------------------------------------------------
Signature (if held jointly)
-------------------------------------------------
Date_____________________________________________
Yes No
-- --
I plan to attend the Special Meeting in Providence. [__] [__]
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED ABOVE.
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
Please detach at perforation before mailing.
Please read the proxy statement prior to voting.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS IN THIS EXAMPLE:
NARRAGANSETT INSURED TAX-FREE INCOME FUND SPECIAL MEETING
1. Action on a new Advisory and Administration Agreement. (Special Meeting
Proposal No. 1 in Proxy Statement)
For Against Abstain
-- -- --
[--] [--] [--]
2. Action on a new Sub-Advisory Agreement. (Special Meeting Proposal No. 2
in Proxy Statement)
For Against Abstain
-- -- --
[--] [--] [--]
As to any other matter said proxies shall vote in accordance with their
best judgment.
Special Meeting Attendance - You are encouraged to attend the Special Meeting of
Shareholders. If you can attend, please so indicate on the proxy card or e-mail
us at info@aquilafunds.com
HAS YOUR ADDRESS CHANGED DO YOU HAVE ANY COMMENTS
----------------------------- ------------------------------
----------------------------- ------------------------------
----------------------------- ------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED ON THE REVERSE SIDE.