UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
|X| PRE-EFFECTIVE AMENDMENT NO. 2
POST-EFFECTIVE AMENDMENT NO.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
AREA CODE AND TELEPHONE NUMBER: 1-212-697-6666
380 Madison Avenue, Suite 2300
New York, New York 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
EDWARD M.W. HINES
BUTZEL LONG,
a professional corporation
380 MADISON AVENUE, 22ND FLOOR
NEW YORK, NY 10017
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH COPIES TO:
AMY WARD PERSHKOW
MAYER BROWN LLP
1909 K STREET N.W.
WASHINGTON, D.C. 20006
and
MARGARET D. FARRELL
HINCKLEY, ALLEN & SNYDER LLP
50 KENNEDY PLAZA, SUITE 1500
PROVIDENCE, RHODE ISLAND 02903
Approximate date of public offering: As soon as practicable after the effective
date of this Registration Statement.
Title of Securities Being Registered: Class A.
Registrant has registered an indefinite amount of securities pursuant to Section
24(f) under the Investment Company Act of 1940, as amended; accordingly, no fee
is payable herewith in reliance upon Section 24(f).
NARRAGANSETT INSURED TAX-FREE INCOME FUND
Form N-14
Cross Reference Sheet
FORM N-14 PROSPECTUS/PROXY
ITEM NO. STATEMENT CAPTION
Part A
Item 1. Beginning of Registration Statement and Outside Front Cover Page
Cover Page of Prospectus
Item 2. Beginning and Outside Back Cover Page of Prospectus Cover Page
Item 3. Synopsis Information and Risk Factors Summary; Questions and Answers; Main Risks
Item 4. Information About the Asset Transfer Letter to Shareholders; Summary; Questions
and Answers; Reasons for the Asset Transfer;
Information About the Asset Transfer;
Additional Information About the Narragansett
Fund and the Fund
Item 5. Information About the Registrant Letter to Shareholders; Cover Page; Summary;
Questions and Answers; Main Risks; Reasons
for the Asset Transfer; Information About the
Asset Transfer; Additional Information About
the Narragansett Fund and the Fund
Item 6. Information About the Fund Being Acquired Letter to Shareholders; Summary; Questions
and Answers; Main Risks; Reasons for the
Asset Transfer; Information About the Asset
Transfer; Additional Information About the
Narragansett Fund and the Fund
Item 7. Voting Information Letter to Shareholders; Cover Page; Questions
and Answers; Voting Information
Item 8. Interest of Certain Persons and Experts Not Applicable
Item 9. Additional Information Required for Reoffering by Not Applicable
Persons Deemed to be Underwriters
STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION
------ -------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Not Applicable
Item 12. Additional Information About the Registrant Statement of Additional Information of
Registrant, dated October 24, 2007 (1)
Item 13. Additional Information About the Fund Being Statement of Additional Information of Ocean
Acquired State Tax-Exempt Fund, dated March 1, 2008 (2)
Item 14. Financial Statements Annual Report of Narragansett Insured
Tax-Free Income Fund for the period ending
June 30, 2007 (3); Annual Report of Ocean
State Tax-Exempt Fund, a series of VLC Trust
for the period ending October 31, 2007 (4);
Pro-forma Financial Statements for the period
ending December 31, 2007
PART C
Item 15. Indemnification
Item 16. Exhibits
Item 17. Undertakings
----------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 19 to the
Registrant's Registration Statement on Form N-1A, filed October 17, 2007
(File No. 811-06707).
(2) Incorporated herein by reference to Post-Effective Amendment No. 27 to the
Registration Statement on Form N-1A of Ocean State Tax-Exempt Fund, a
Series of VLC Trust filed February 28, 2008 (File No. 811-04788).
(3) Incorporated herein by reference to the Registrant's Annual Report, filed
September 7, 2007 (File No. 811-06707).
(4) Incorporated herein by reference to the Annual Report, filed January 7,
2008 (File No. 811-04788), of Ocean State Tax-Exempt Fund, a Series of VLC
Trust.
OCEAN STATE TAX-EXEMPT FUND
One Regency Plaza
Providence, Rhode Island 02903
Dear Shareholder:
A Special Meeting of Shareholders of Ocean State Tax-Exempt Fund, a
series of VLC Trust (the "Fund"), will be held at the offices of the Fund, One
Regency Plaza, Providence, Rhode Island 02903, on September 29, 2008, at 10:00
a.m. As a shareholder of the Fund, you are being asked to vote on an Agreement
and Plan of Reorganization to allow the Fund to exchange its assets and certain
stated liabilities for Class A Shares of Narragansett Insured Tax-Free Income
Fund (the "Narragansett Fund"). As part of this transaction (the "Asset
Transfer"), you will receive, in exchange for your shares of the Fund, Class A
Shares of the Narragansett Fund with an aggregate value equal to your investment
in the Fund as of the date of the Asset Transfer. The Narragansett Fund, like
the Fund, seeks to invest substantially all of its assets in municipal bonds
that provide income exempt from Rhode Island personal income tax and Federal
income tax.
The Board of Trustees unanimously recommends that you read the enclosed
materials carefully and then vote FOR the proposal.
Your vote is extremely important, no matter how large or small your Fund
holdings.
To vote, you may use any of the following methods:
o By Mail. Please complete, date and sign the enclosed proxy card and mail it
in the enclosed, postage-paid envelope.
o By Internet. Have your proxy card available. Go to the website listed on
the proxy card. Follow the instructions on the website.
o By Telephone. Have your proxy card available. Call the toll-free number
listed on the proxy card. Follow the recorded instructions.
o In Person. Any shareholder who attends the meeting in person may vote by
ballot at the meeting; provided that to be able to vote shares not
registered in your own name in person at the meeting, you will need
appropriate documentation from the record holder of your shares.
Further information about the proposed Asset Transfer is contained in
the enclosed materials, which you should review carefully before you vote. If
you have any questions after considering the enclosed materials, please call
1-800-300-1116 or 1-401-421-1411.
Sincerely,
/s/ Alfred B. Van Liew
Alfred B. Van Liew
President
August 22, 2008
OCEAN STATE TAX-EXEMPT FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
---------------------------
To the Shareholders:
A Special Meeting of Shareholders of Ocean State Tax-Exempt Fund, a
series of VLC Trust (the "Fund"), will be held at the offices of the Fund, One
Regency Plaza, Providence, Rhode Island 02903, on September 29, 2008, at 10:00
a.m., for the following purposes:
1. To approve an Agreement and Plan of Reorganization providing for the
exchange of the assets and certain stated liabilities of the Fund
for Class A Shares of Narragansett Insured Tax-Free Income Fund (the
"Narragansett Fund") and the receipt by the shareholders of the Fund
of Class A Shares of the Narragansett Fund, in exchange for their
shares and in liquidation of the Fund (the "Asset Transfer"); and
2. To transact such other business as may properly come before the
meeting, or any adjournment or adjournments thereof.
Shareholders of record at the close of business on August 4, 2008 will
be entitled to receive notice of and to vote at the meeting.
By Order of the Board of Trustees
/s/ Margaret D. Farrell
Margaret D. Farrell, Secretary
Providence, Rhode Island
August 22, 2008
WE NEED YOUR PROXY VOTE
A SHAREHOLDER MAY THINK HIS OR HER VOTE IS NOT IMPORTANT, BUT IT IS VITAL.
BY LAW, THE MEETING OF SHAREHOLDERS WILL HAVE TO BE ADJOURNED WITHOUT CONDUCTING
ANY BUSINESS IF LESS THAN A QUORUM OF HOLDERS OF FUND SHARES ELIGIBLE TO VOTE IS
REPRESENTED. IN THAT EVENT, THE FUND WOULD CONTINUE TO SOLICIT VOTES IN AN
ATTEMPT TO ACHIEVE A QUORUM. CLEARLY, YOUR VOTE COULD BE CRITICAL TO ENABLE THE
FUND TO HOLD THE MEETING AS SCHEDULED, SO PLEASE RETURN YOUR PROXY CARD
PROMPTLY. YOU AND ALL OTHER SHAREHOLDERS WILL BENEFIT FROM YOUR COOPERATION.
Asset Transfer
by
OCEAN STATE TAX-EXEMPT FUND
(a series of VLC Trust)
One Regency Plaza
Providence, Rhode Island 02903
1-800-300-1116
1-401-421-1411
to
NARRAGANSETT INSURED TAX-FREE INCOME FUND
380 Madison Avenue, Suite 2300
New York, New York 10017
1-800-437-1020
1-212-697-6666
---------------------------------------
PROSPECTUS/PROXY STATEMENT
August 22, 2008
---------------------------------------
Special Meeting of Shareholders
To Be Held on September 29, 2008
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of Ocean State Tax-Exempt Fund,
a series of VLC Trust (the "Fund"), to be used at the Special Meeting of
Shareholders (the "Meeting") of the Fund to be held on September 29, 2008, at
10:00 a.m., at the offices of the Fund, One Regency Plaza, Providence, Rhode
Island 02903, for the purposes set forth in the accompanying Notice of Special
Meeting of Shareholders. Shareholders of record at the close of business on
August 4, 2008 are entitled to receive notice of and to vote at the Meeting.
It is proposed that the Fund exchange its assets and certain stated
liabilities for shares of Narragansett Insured Tax-Free Income Fund (the
"Narragansett Fund"), all as more fully described in this Prospectus/Proxy
Statement (the "Asset Transfer"). Upon consummation of the Asset Transfer, the
Class A Shares of the Narragansett Fund received by the Fund will be distributed
to Fund shareholders, with each shareholder receiving a pro rata distribution of
the Narragansett Fund's shares (or fractions thereof) for Fund shares held prior
to the Asset Transfer. It is contemplated that each shareholder will receive for
his or her Fund shares a number of Class A Shares of the Narragansett Fund (or
fractions thereof) equal in value to the aggregate net asset value of the
shareholder's Fund shares as of the date of the Asset Transfer.
This Prospectus/Proxy Statement, which should be retained for future
reference, concisely sets forth information about the Narragansett Fund that
Fund shareholders should know before voting on the proposal or investing in the
Narragansett Fund.
For a more detailed discussion of the investment objectives, policies and
restrictions of the Narragansett Fund, see the Narragansett Fund's Prospectus
and Statement of Additional Information dated October 24, 2007 and Annual Report
for its fiscal year ended June 30, 2007 (including its audited financial
statements for the fiscal year). The Narragansett Fund's Prospectus and the
financial statements contained in its Annual Report are incorporated into this
Prospectus/Proxy Statement by reference (copies of which are enclosed with this
Prospectus/Proxy Statement). For a free copy of the Narragansett Fund's
Prospectus and Statement of Additional Information, dated October 24, 2007, and
Semi-Annual Report for the six month period ended December 31, 2007, please call
1-800-437-1020 or 1-212-697-6666, or write to Narragansett Insured Tax-Free
Income Fund at its offices located at 380 Madison Avenue, Suite 2300, New York,
New York 10017. Additionally, fund documents with respect to the Narragansett
Fund may be viewed on-line at www.aquilafunds.com. For a free copy of the Fund's
most-recent Prospectus and Statement of Additional Information, its Annual
Report for the fiscal year ended October 31, 2007 and Semi-Annual Report for the
six-month period ended April 30, 2008, please call 1-401-421-1411 or
1-800-300-1116, or write to the Fund at its offices located at One Regency
Plaza, Providence, Rhode Island 02903.
The Fund and the Narragansett Fund are subject to the requirements of
the Investment Company Act of 1940 (the "1940 Act") and file reports, proxy
statements and other information with the Securities and Exchange Commission.
Reports, proxy statements and other information filed by the Fund and the
Narragansett Fund may be inspected and copied at the Public Reference Facilities
of the Securities and Exchange Commission at 100 F Street, N.E., Washington,
D.C. 20549. Text-only versions of fund documents can be viewed on-line or
downloaded from www.sec.gov. Copies of such material also can be obtained from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549, at
prescribed rates.
-------------------
Shares of the Narragansett Fund and the Fund are not bank deposits and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Investing in the Narragansett Fund, as in the Fund, involves
certain risks, including the possible loss of principal.
-------------------
The Securities and Exchange Commission has not approved or disapproved the
Narragansett Fund's shares or passed upon the adequacy of this Prospectus/Proxy
Statement. Any representation to the contrary is a criminal offense.
-------------------
The Fund and the Narragansett Fund are open-end management investment
companies. The funds have substantially similar investment objectives and
similar investment management policies. The Fund and the Narragansett Fund each
seek to invest substantially all of their respective assets in municipal bonds
that provide income exempt from Rhode Island and Federal personal income tax. A
comparison of the Fund and the Narragansett Fund is set forth in this
Prospectus/Proxy Statement.
Fund shares represented by executed and unrevoked proxies will be
voted in accordance with the specifications made thereon. Proxies, including
proxies given by telephone or over the Internet, may be revoked at any time
before they are voted either: (i) by a written revocation received by the
Secretary of the Fund; (ii) by properly executing a later-dated proxy; (iii) by
recording later-dated voting instructions by telephone or via the Internet; (iv)
in the case of brokers and nominees, by submitting written instructions to your
fund's solicitation agent or the applicable record shareholder; or (v) by
attending the Meeting and voting in person. If you sign and date your proxy
card, but do not provide voting instructions, your shares will be voted FOR the
proposal.
As of August 4, 2008, there were 2,107,864.826 Fund shares issued and
outstanding.
Proxy materials will be mailed to shareholders of record on or about August
22, 2008.
TABLE OF CONTENTS
Summary
Questions and Answers
Main Risks
Reasons for the Asset Transfer
Information about the Asset Transfer
Additional Information about the Narragansett Fund and the Fund
Voting Information
Financial Statements and Experts
Other Matters
Notice To Banks, Broker/Dealers and Voting Trustees and Their Nominees
Exhibit A: Agreement and Plan of Reorganization A-1
SUMMARY
This Summary is qualified by reference to the more complete
information contained elsewhere in this Prospectus/Proxy Statement, the
Narragansett Fund's Prospectus, the Fund's Prospectus and the Agreement and Plan
of Reorganization (the "Agreement") attached to this Prospectus/Proxy Statement
as Exhibit A.
Proposed Transaction. The Fund's Board of Trustees, including the
trustees who are not "interested persons" (as defined in the 1940 Act) of the
Fund, have unanimously approved the Agreement for the Fund. The Agreement
provides that, subject to the requisite approval of the Fund's shareholders, on
the date of the Asset Transfer, the Fund will assign, transfer and convey to the
Narragansett Fund all of the assets of the Fund, including all securities and
cash, in exchange for Class A Shares of the Narragansett Fund having an
aggregate net asset value equal to the value of the Fund's net assets, and the
Narragansett Fund will assume certain of the Fund's stated liabilities as
identified as of the date of valuation of the Fund's assets in connection with
the Asset Transfer. The Fund will distribute all Narragansett Fund shares
received by it among its shareholders so that each shareholder will receive a
pro rata distribution of the Narragansett Fund shares (or fractions thereof)
having an aggregate net asset value equal to the aggregate net asset value of
the shareholder's Fund shares as of the date of the Asset Transfer. Thereafter,
the Fund will be terminated and cease operations.
As a result of the Asset Transfer, each Fund shareholder will cease
to be a shareholder of the Fund and will become a shareholder of the
Narragansett Fund as of the close of business on the date of the Asset Transfer.
The Fund's Board of Trustees has unanimously concluded that the Asset
Transfer is in the best interests of the Fund and its shareholders. See "Reasons
for the Asset Transfer."
Tax Consequences. For federal income tax purposes, no gain or loss is
expected to be recognized by the Fund or its shareholders as a result of the
Asset Transfer. Certain tax attributes of the Fund will carry over to the
Narragansett Fund. See "Information about the Asset Transfer--Federal Income Tax
Consequences" below.
ASSET TRANSFER BY
OCEAN STATE TAX-EXEMPT FUND
(a series of VLC Trust)
TO
NARRAGANSETT INSURED TAX-FREE INCOME FUND
QUESTIONS AND ANSWERS
Set forth below is a question and answer section to address some of the
important questions you might have about the Asset Transfer. WHAT WILL HAPPEN TO
MY OCEAN STATE TAX-EXEMPT FUND INVESTMENT IF THE ASSET TRANSFER IS APPROVED?
You will become a shareholder of Narragansett Insured Tax-Free Income
Fund (the "Narragansett Fund"), an open-end investment company, on or about
October 1, 2008 (the "Closing Date"), and will no longer be a shareholder of the
Fund. You will receive Class A Shares of the Narragansett Fund with a value
equal to the value of your investment in the Fund as of the Closing Date. The
Fund will then cease operations. Aquila Investment Management LLC ("AIM") serves
as manager of the Narragansett Fund while Citizens Investment Advisors, a
department of RBS Citizens, N.A., provides the Narragansett Fund's day-to-day
portfolio management services as its sub-adviser (the "Sub-Adviser").
WHAT ARE THE BENEFITS OF THE ASSET TRANSFER FOR ME?
The Fund's Board of Trustees believes that the Asset Transfer will
permit Fund shareholders to pursue the same investment goals in a larger,
well-established fund. In addition, the Asset Transfer is expected to result in
somewhat better economies of scale, lower expenses and advisory fees which, in
turn, potentially may offer Fund shareholders the opportunity to earn higher
returns as investors in the Narragansett Fund than they could earn by remaining
shareholders of the Fund. Furthermore, subject to certain limitations, the
Narragansett Fund permits its shareholders to exchange their shares for shares
of the same class in other funds in the Aquila Group of Funds,SM without the
payment of a sales charge or any other fee, opportunities that are not currently
available to shareholders of the Fund.
DO THE FUNDS HAVE SIMILAR INVESTMENT GOALS AND STRATEGIES?
Yes. The Narragansett Fund and the Fund have substantially similar
investment goals and strategies. The objective of both funds is to seek a high
level of preservation for investors' capital and consistency in the payment of
current income which is exempt from both State of Rhode Island personal income
taxes and regular Federal income taxes. In general, management for each fund
seeks to achieve its investment goals by investing in a variety of general
obligation and revenue bonds. The adviser for each fund purchases and sells
bonds on the basis of cash flow, yield, average maturity, duration and perceived
credit quality.
To achieve a high level of preservation of capital, the Fund invests at
least 80% of its assets in municipal bonds that have credit ratings of BBB or
higher (as rated by Standard & Poor's) or Baa or higher (as rated by Moody's
Investors Service) when purchased. The Fund may also invest in unrated bonds
that, in the opinion of the Fund's adviser, are comparable to rated municipal
obligations. If a bond's rating drops below BBB or Baa (the fourth highest
rating of Standard & Poor's and Moody's Investor Service, respectively), the
Fund will sell it unless, in the adviser's opinion, the decline is temporary and
such a sale would not be in the Fund's best interests. Somewhat different from
the Fund, but in keeping with the same investment objective, according to the
Narragansett Fund's policies, it may purchase only obligations which are rated
within the four highest credit ratings assigned by nationally recognized
statistical rating organizations (such as Standard & Poor's or Moody's Investor
Service) or, if unrated, determined to be of comparable quality by the
Sub-Adviser.
In addition to ratings restrictions, to achieve the goal of a high
level of preservation of capital, the Narragansett Fund is required to invest at
least 80% of its assets in insured obligations and, as of June 30, 2008, had
approximately 100% of its assets invested in insured obligations. An insurance
feature on a municipal bond is designed to reduce the financial risk of the
investment. The insurance policy only applies to the payments to be made by the
issuer of the bond. The policy does not insure the market value of the municipal
bond or the Fund's share price, which tend to fluctuate with the general level
of interest rates. Different from Narragansett Fund, the Fund is not required to
invest in insured obligations. Notwithstanding this, as of June 30, 2008,
approximately 86% of the Fund's assets were invested in insured tax-free
municipal bonds.
To achieve consistent payment of tax exempt income, the Fund normally
invests at least 80% of its assets in municipal debt obligations of Rhode
Island, Guam, Puerto Rico and the Virgin Islands, the interest on which is
exempt from Rhode Island State and Federal income taxes. Similarly, as a
fundamental policy, the Narragansett Fund invests 80% of its assets in Rhode
Island municipal bonds which pay interest exempt from Rhode Island state and
Federal income tax, with a goal of investing 100% of the Narragansett Fund's
assets in these types of obligations. The Narragansett Fund differs from the
Fund in that it cannot purchase any securities other than Rhode Island
obligations and, therefore, does not invest in obligations of Guam, Puerto Rico
or the Virgin Islands.
Each fund is classified as a "non-diversified" investment company under
the 1940 Act. Thus, compared with "diversified" funds, the Fund and the
Narragansett Fund may invest a greater percentage of their assets in obligations
of a particular issuer and may not have as much diversification among
securities, and diversification of risk. In general, the more a fund invests in
the securities of specific issuers, the more the fund is exposed to risks
associated with investments in those issuers. Even though they are
"non-diversified" investment companies, neither the Fund nor the Narragansett
Fund can buy the obligations of issuers in any one industry if more than 25% of
its total assets would then be invested in securities of issuers of that
industry.
For more information on either the Fund's or the Narragansett Fund's
investment policies, see "Principal Investment Strategy" in the Prospectus for
the Fund and "The Fund's Objective, Investment Strategies and Main Risks" in the
Prospectus for the Narragansett Fund. Also see "Description of the Fund and its
Investment Risks" in the Statement of Additional Information for the Fund and
"Investment Strategies and Risks" in the Statement of Additional Information for
the Narragansett Fund.
WHAT ARE THE TAX CONSEQUENCES OF THE PROPOSED TRANSACTION?
In the opinion of counsel to the Fund, the Asset Transfer will not be a
taxable event for Federal income tax purposes. Shareholders will not recognize
any capital gain or loss as a direct result of the Asset Transfer. A
shareholder's tax basis in Fund shares will carry over to the shareholder's
Narragansett Fund shares. The Fund will distribute any undistributed net
investment income and net realized capital gains prior to the Asset Transfer.
Any such distribution will be taxable to shareholders. It is anticipated that an
immaterial amount of losses will be realized by the Fund's shareholders as a
result of sales of securities prior to the completion of the Asset Transfer.
WILL I ENJOY THE SAME PRIVILEGES AS A SHAREHOLDER OF THE NARRAGANSETT FUND THAT
I CURRENTLY HAVE AS A SHAREHOLDER OF THE FUND?
Yes. Shareholders will be entitled to similar reinvestment plans, and sales
charge waivers or reductions. Furthermore, shareholders will be eligible,
subject to certain limitations, to exchange their shares of the Narragansett
Fund for other funds in the Aquila Group of FundsSM for no additional sales
charge or other fee.
HOW DO THE MANAGEMENT FEES AND OTHER EXPENSES OF THE FUNDS COMPARE?
The fees and expenses set forth in the tables below are based on net
assets and accruals of the Fund and the Narragansett Fund, respectively, as of
December 31, 2007. The "Pro Forma After Asset Transfer" operating expenses
information is based on the net assets and fund accruals of the Fund and the
Narragansett Fund as of December 31, 2007 as adjusted showing the effect of the
Asset Transfer had it occurred on such date.
The Narragansett Fund pays a lower management fee at the annual rate of
0.50 of 1% of the fund's net asset value as of the close of business each day as
compared to 0.60 of 1% for the Fund. Of the 0.50 of 1% management fee paid by
the Narragansett Fund to AIM, as of December 31, 2007, 0.35 of 1% was being
waived on a voluntary basis. As of December 31, 2007, AIM paid the Sub-Adviser a
sub-advisory fee at the annual rate of 0.23 of 1% of average annual net assets
of which 0.13 of 1% was being voluntarily waived. AIM and the Sub-Adviser have
waived some or all of their management fees since the inception of the
Narragansett Fund in order to provide a competitive return to shareholders. At
the present time, AIM has contractually undertaken to waive fees and/or
reimburse the Narragansett Fund's expenses during the period July 1, 2008
through June 30, 2009 so that the Narragansett Fund's total expenses will not
exceed 0.83% of average annual net assets for the Narragansett Fund's Class A
Shares. These fee waivers are not reflected in the table below or reflected in
the expense example. The Fund pays distribution expenses pursuant to a Rule
12b-1 Plan which totaled 0.08 of 1% in the fiscal year ended October 31, 2007,
while the Narragansett Fund has a distribution (Rule 12b-1) fee of 0.15 of 1%.
Historically, shares of the Narragansett Fund have had a lower total
expense ratio than the Fund based on expenses of the funds since inception.
However, there can be no assurance that the future expenses of the Narragansett
Fund will remain at this level. AIM anticipates that, over time as the
Narragansett Fund grows in size, there will be a gradual decrease in the amount
of the management fee waivers described above. The Narragansett Fund's expense
ratio therefore could increase upon the reduction or discontinuance of such
management fee waivers above. Both the Fund and Narragansett Fund are subject to
a 4.00% maximum sales charge on purchases; however, this sales charge will be
waived by the Narragansett Fund in connection with the Asset Transfer. Annual
Fund Operating Expenses (expenses paid from fund assets) (percentage of average
daily net assets):
Pro Forma After
Asset Transfer
Narragansett Fund Narragansett Fund
Fund Class A Shares Class A Shares
---------------- ------------------- -----------------
Management fees 0.60% 0.50% 0.50%
Rule 12b-1 fee (a) 0.08% 0.15% 0.15%
Shareholder services
fee None None None
Transfer Agent Services 0.40% 0.07% 0.07%
Other expenses 0.58% 0.31% 0.31%
---------------- ------------------- -----------------
Total 1.66% 1.03% 1.03%
------------------------------------
(a) Represents annual distribution expenses paid out of the Fund's assets
pursuant to a Rule 12b-1 Plan.
Expense example:
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------
Fund shares $562 $902 $1,266 $2,287
Narragansett Fund Class A Shares $501 $715 $ 946 $1,609
Pro Forma-After Asset Transfer $501 $715 $ 946 $1,609
Narragansett Fund Class A Shares
This example shows what you could pay in expenses over time. It uses
the same hypothetical conditions other funds use in their prospectuses: $10,000
initial investment, 5% total return each year, fee waiver in the first year only
and no other changes in expenses. The figures shown would be the same whether
you sold your shares at the end of a period or kept them. Because actual returns
and expenses will be different, the example is for comparison only.
HOW DOES THE INVESTMENT PERFORMANCE OF THE FUNDS COMPARE?
The following bar charts and tables illustrate the risks of investing
in the Narragansett Fund and the Fund. The bar charts for the Narragansett Fund
and the Fund show the changes in the respective fund's performance from year to
year. All returns assume reinvestment of dividends and distributions. Of course,
past performance (both before and after taxes) is no guarantee of future
results.
After-tax returns are calculated using the historical highest
individual federal marginal income tax rates, and do not reflect the impact of
state and local taxes. Actual after-tax returns depend on the investor's tax
situation and may differ from those shown, and the after-tax returns shown are
not relevant to investors who hold their shares through tax-deferred
arrangements such as 401(k) plans or individual retirement accounts.
Narragansett Fund Class A Shares
Year-by-year total returns as of December 31 each year (%)
5.81 -2.89 10.79 3.97 9.25 5.41 3.25 2.08 3.37 3.64
-----------------------------------------------------------------------------------------------------------------
'98 '99 '00 '01 '02 '03 '04 '05 '06 `07
Best Quarter: Quarter ended September 30, 2002 4.41%
Worst Quarter: Quarter ended June 30, 2004 -2.53%
The six month year-to-date total return of the Narragansett Fund's Class A
Shares as of June 30, 2008 was 0.49% (not including any
sales charges).
Narragansett Fund Class A Shares
Average annual total returns as of December 31, 2007
1 Year 5 Years 10 Years
Narragansett Fund(1)
returns before taxes -0.51% 2.69% 3.98%
Narragansett Fund
returns after taxes
on distributions -1.79% 2.41% 3.82%
Narragansett Fund
returns after taxes on distributions
and redemption -0.35% 2.57% 3.85%
Lehman Brothers Quality Intermediate Municipal
Bond Index(2) 4.88% 3.59% 4.73%
(1) The average total returns shown for the Narragansett Fund reflect the
maximum 4% sales charge.
(2) The Lehman Brothers Quality Intermediate Municipal Bond Index reflects no
deduction for fees, expenses or taxes, is nationally oriented and consists
of an unmanaged mix of investment-grade intermediate-term municipal
securities of issuers throughout the United States. Because of the
relatively short duration of the Narragansett Fund's portfolio, it is
believed that this index is appropriate, although the average maturity of
the Narragansett Fund's portfolio is somewhat longer than that of the index
and the Narragansett Fund's portfolio may accordingly experience somewhat
greater volatility.
Fund Shares
Year-by-year total returns as of December 31 each year (%)
4.69 -0.78 8.11 3.83 6.50 3.97 2.19 1.41 3.06 1.71
-----------------------------------------------------------------------------------------------------
'98 '99 '00 '01 '02 '03 '04 '05 '06 `07
Best Quarter: Quarter ended September 30, 2002 3.15%
Worst Quarter: Quarter ended June 30, 1999 -3.95%
The six month year-to-date total return of the Fund's shares as of June 30, 2008
was -0.29% (not including adjustments for sales charges).
Fund Shares
Average annual total returns as of December 31, 2007
1 Year 5 Years 10 Years
------ ------- --------
Fund(1)
returns before taxes -2.34% 1.72% 3.07%
Fund
returns after taxes on distributions -2.34% 1.64% 3.06%
Fund
returns after taxes on distributions
and redemption -2.34% 1.64% 3.06%
Lehman Brothers
Municipal Bond Index(2) 3.37% 4.30% 5.18%
(1) The average total returns shown for the Fund reflect the maximum 4% sales
charge.
(2)Lehman Brothers Municipal Bond Index is an unmanaged index representative of
the tax-exempt bond market. The index is made up of all investment grade
municipal bonds issued after December 31, 1990 having a remaining maturity of at
least one-year. It does not reflect any sales charges.
HOW DOES THE CAPITALIZATION OF THE FUNDS COMPARE?
The following table sets forth as of December 31, 2007 (1) the
capitalization of the Fund's shares, (2) the capitalization of the Narragansett
Fund's Class A Shares and (3) the pro forma capitalization of the Narragansett
Fund's Class A Shares, as adjusted showing the effect of the Asset Transfer had
it occurred on such date.
Pro Forma After
Asset Transfer
Narragansett Fund Pro Forma Narragansett Fund
Fund Class A Shares Adjustments Class A Shares
---------------- ----------------- --------------- -----------------
Total net assets $22,041,068 $103,824,324 ($66,917) $125,798,475
Net asset value per Share $10.00 $10.53 ($0.01) $10.52
Shares outstanding 2,203,433 9,864,443 (113,200) 11,954,676
WHO WILL PAY THE EXPENSES OF THE PROPOSED TRANSACTION?
All fees and expenses, including legal and accounting expenses, proxy
materials and proxy solicitation with respect to the Fund, the costs of
liquidating portfolio securities of the Fund, portfolio transfer taxes (if any)
or other similar expenses incurred in connection with the consummation of the
Asset Transfer (collectively, "Expenses") will be borne by the Fund, except that
AIM has agreed to contribute up to $20,000 for the fees of counsel to the Fund
and the Fund's independent accountants for legal and accounting expenses, and
for printing and postage in connection with the mailing of this Registration
Statement. The legal, accounting and other expenses incurred by the Narragansett
Fund in connection with the Asset Transfer will be paid by the Narragansett Fund
or its Manager. However, such Expenses will in any event be paid by the party
directly incurring such Expenses if and to the extent that the payment by the
other party of such Expenses would result in the disqualification of the
Narragansett Fund or Fund, as the case may be, as a "regulated investment
company" within the meaning of Section 851 of the Code.
The Board of Trustees of the Fund has determined that the Expenses to
be borne by the Fund are fair given the lower expense ratio of the Narragansett
Fund which will benefit Fund shareholders after the Asset Transfer.
HOW DOES THE BOARD OF TRUSTEES OF THE FUND RECOMMEND I VOTE?
The Fund's Board of Trustees has determined that permitting Fund
shareholders to exchange their shares of the Fund for shares of the Narragansett
Fund, which has substantially similar investment objectives and similar
investment management policies as the Fund, offers potential benefits to
shareholders of the Fund. These potential benefits include permitting Fund
shareholders to pursue the same investment goals in a substantially larger,
well-established fund with a history of a lower total expense ratio and better
performance than the Fund. Of course, past performance is not an indicator of
future results, and the Narragansett Fund's expenses may increase.
The Fund's Board of Trustees believes that the Asset Transfer is in the
best interests of the Fund and its shareholders. Therefore, the Board of
Trustees unanimously recommends that you vote FOR the Asset Transfer. See
"Reasons for the Asset Transfer" below for a discussion of the factors
considered by the Fund's Board of Trustees in recommending the approval of the
Asset Transfer.
WILL THE NUMBER OF SHARES I OWN CHANGE?
Yes, the number of shares you own will change, but the total value of
the shares of the Narragansett Fund you receive will equal the total value
(based on net asset value) of the shares of the Fund that you hold at the time
of the Asset Transfer. Even though the net asset value per share of each fund is
different, the total value of your holdings will not change as a result of the
Asset Transfer.
HOW WILL I BE NOTIFIED OF THE OUTCOME?
If the Asset Transfer is approved by shareholders, you will receive
confirmation after the Asset Transfer is completed, indicating your new account
number and the number of Class A Shares of the Narragansett Fund you are
receiving. To obtain information on how to return your share certificates for
the Fund, please call PNC Global Investment Servicing Inc., transfer agent for
the Fund and the Narragansett Fund, at 1-800-992-2207. If the Asset Transfer is
not approved or does not occur, you will be notified in the next shareholder
report of the Fund.
HOW CAN I VOTE MY SHARES?
You can vote in any one of the following ways:
o By mail, with the enclosed proxy card and postage-paid envelope; o By
telephone, with a toll-free call to the number listed on your proxy card;
o Through the Internet, at the website address listed on your proxy card;
or o In person at the meeting.
Whichever voting method you choose, please take the time to read this
Prospectus/Proxy Statement before you vote.
Please note: if you sign and date your proxy card, but do not provide
voting instructions, your shares will be voted FOR the proposal. Thank you in
advance for your vote.
WHAT WILL HAPPEN TO MY OCEAN STATE TAX-EXEMPT FUND INVESTMENT IF THE ASSET
TRANSFER IS NOT APPROVED?
If the Asset Transfer is not approved by Fund shareholders, the Fund's
Board will consider other appropriate courses of action with respect to the
Fund, including liquidation of the Fund.
MAIN RISKS
The principal risks associated with an investment in the Fund and the
Narragansett Fund are similar. These risks are discussed below. As a result of
these and other risks, the value of your investment in the Narragansett Fund, as
in the Fund, will fluctuate, which means you could lose money.
o Interest rate risk. Prices of municipal bonds tend to move inversely with
changes in interest rates. Typically, a rise in rates will adversely affect
bond prices and, accordingly, each fund's share price. All fixed-rate debt
securities, even the most highly rated securities, are subject to interest
rate risk. The longer the effective maturity and duration of the fund's
portfolio, the more each fund's share price is likely to react to interest
rates.
o Call risk. Some municipal bonds give the issuer the option to call, or
redeem, the bonds before their maturity date. If an issuer "calls" its bond
during a time of declining interest rates, the relevant fund might have to
reinvest the proceeds in an investment offering a lower yield. During
periods of market illiquidity or rising interest rates, prices of a fund's
"callable" issues are subject to increased price fluctuation.
o Credit risk. Failure of an issuer to make timely interest or principal
payments, or a decline or perception of a decline in the credit quality of
a municipal bond, can cause the bond's price to fall, potentially lowering
each fund's share price. Both the Fund and the Narragansett Fund invest
principally in insured municipal bonds. If an insured municipal bond held
by the either fund defaults, the fund is entitled to collect interest
payments and the full amount of principal from the insurer when such
payments come due. Insurance on an obligation is intended to mitigate
credit risk; however, it does not insure the market price of the
obligation. The credit risk of insured municipal bonds is also dependent
upon the viability of the bond insurer. Recently, municipal bond insurance
companies have been under review by the three major rating agencies
Standard & Poor's, Moody's and Fitch. The ratings of some of the insurance
companies have now either been downgraded and/or have a negative outlook.
The financial markets continue to assess the severity of the losses caused
by the subprime credit crisis and its impact on municipal bond insurance
companies and the prices of insured municipal bonds.
o Liquidity risk. The secondary market for certain municipal bonds tends to
be less well developed or liquid than many other securities markets, which
may adversely affect both funds' ability to sell such municipal bonds at
attractive prices. When there is little or no active trading market for
specific types of securities, it can become more difficult to sell the
securities at or near their perceived value. In such a market, the value of
such securities and the fund's share price may fall dramatically.
o Market sector risk. Each fund's overall risk level will depend on the
market sectors in which the fund is invested and the current interest rate,
liquidity and credit quality of such sectors. Both funds' assets, being
primarily Rhode Island governmental issues, are subject to economic and
other conditions affecting Rhode Island. Adverse local events, such as a
downturn in the Rhode Island economy, could affect the value of each fund's
portfolio.
o Tax risk. To be tax-exempt, municipal bonds generally must meet certain
regulatory requirements. Although each fund will invest in municipal bonds
that pay interest that is exempt, in the opinion of counsel to the issuer,
from federal income tax, if any such municipal bond fails to meet these
regulatory requirements, the interest received by the funds from their
investment in such bonds and distributed to fund shareholders will be
taxable.
Unlike the Fund, the Narragansett Fund is not permitted to lend its
portfolio securities to brokers, dealers and other financial institutions.
Therefore, even though it does not receive the additional income from such
transactions, the Narragansett Fund is not subject to the risks associated with
such transactions. Also, unlike the Fund, the Narragansett Fund is not
authorized to use derivative instruments, such as options, futures and options
on futures (including those relating to securities, indexes and interest rates),
inverse floaters and swap agreements. Therefore, the Narragansett Fund is not
subject to the risks associated with the use of derivative instruments, which
can be highly volatile, illiquid and difficult to value.
See "Principal Investment Risks" and "The Fund's Objective,
Investment Strategies and Main Risks" in the relevant Prospectus and
"Description of the Fund and its Investments and Risks" and "Investment
Strategies and Risks" in the relevant Statement of Additional Information for
each of the Fund and the Narragansett Fund for a more complete description of
investment risks.
REASONS FOR THE ASSET TRANSFER
The Board of Trustees of the Fund has concluded that the Asset
Transfer is in the best interests of the Fund. The Fund's Board believes that
the Asset Transfer will permit Fund shareholders to pursue the same investment
goals in a larger, well-established fund with a better performance record and a
lower total expense ratio. As of June 30, 2008 the Fund had net assets of
approximately $21.5 million and the Narragansett Fund had net assets of
approximately $162 million. By merging the Fund with the Narragansett Fund,
which has larger aggregate net assets, Fund shareholders should benefit from
more efficient portfolio management.
In determining whether to recommend approval of the Asset Transfer,
the Fund's Board considered the following factors, among others: (1) the
compatibility of the Fund's and the Narragansett Fund's investment objectives,
management policies and restrictions, as well as shareholder services offered by
the Fund and the Narragansett Fund; (2) the terms and conditions of the Asset
Transfer and whether the Asset Transfer would result in dilution of shareholder
interests; (3) the expense ratios and information regarding the fees and
expenses of the Fund and the Narragansett Fund, as well as the estimated expense
ratio of the combined Narragansett Fund; (4) the relative performance of the
Fund and the Narragansett Fund; (5) the tax consequences of the Asset Transfer;
(6) the fact that the Fund's assets have continuously declined over the past
several years resulting in increased expense ratios, which have depressed the
performance of the Fund and are likely to continue to depress the future
performance of the Fund; and (7) the costs to be incurred by the Fund and the
Narragansett Fund in connection with the Asset Transfer.
In considering the above referenced factors, the Board of the Fund
concluded that the Asset Transfer enables the shareholders of the Fund to
continue their investments in a larger, well-established fund with the same
investment objective and similar investment strategy, a history of a lower total
expense ratio and better historical performance than the Fund. Furthermore,
given that the Fund's assets have declined significantly over the past several
years, neither the Fund's Board of Trustees nor the Fund's investment adviser
believe that the Fund will experience sufficient sales of Fund shares in the
future to reverse the decline in assets. Therefore, the Fund's Board believes
that the Fund is no longer economically viable, and that absent the Asset
Transfer, the Fund would most likely have to liquidate. The Fund's Board
believes that the Asset Transfer is more beneficial to Fund shareholders than
the alternative of liquidation.
For the reasons described above, the Board of Trustees of the Fund,
including the independent trustees of the Fund, approved the Asset Transfer.
INFORMATION ABOUT THE ASSET TRANSFER
Agreement as to Asset Transfer. The following summary of the Agreement
is qualified in its entirety by reference to the Agreement attached to this
Prospectus/Proxy Statement as Exhibit A. The Agreement provides that, subject to
the requisite approval of the Fund's shareholders, the Narragansett Fund will
acquire all of the assets of the Fund in exchange for Class A Shares of the
Narragansett Fund and the assumption by the Narragansett Fund of substantially
all of the Fund's stated liabilities as identified to the Narragansett Fund. The
net asset value of the Narragansett Fund shares and the value of the assets and
stated liabilities of the Fund will be determined at 4:00 p.m. Eastern Time on a
date within ten (10) days following requisite approval by the shareholders of
the Fund of the Asset Transfer or such other date as may be agreed upon by the
parties (the "Valuation Date"). The Asset Transfer will occur on the next full
business day after the Valuation Date (the "Closing Date").
The number of Narragansett Fund shares to be issued to the Fund will be
determined on the basis of the relative net asset values per share and aggregate
net assets of the Fund and of the Narragansett Fund. Portfolio securities of the
Fund and the Narragansett Fund will be valued in accordance with the valuation
practices of the Narragansett Fund, which are described under the caption "Net
Asset Value per Share" in the Narragansett Fund's Prospectus and under the
caption "Purchase, Redemption and Pricing of Shares" in the Narragansett Fund's
Statement of Additional Information.
On or before the Closing Date, the Fund will declare a dividend or
dividends which, together with all previous dividends, will have the effect of
distributing to Fund shareholders all of the Fund's previously undistributed
investment company taxable income, if any, for the tax periods ending on or
before the Closing Date (computed without regard to any deduction for dividends
paid), its net exempt interest income for the tax periods ending on or before
the Closing Date, and all of its previously undistributed net capital gain, if
any, realized in the tax periods ending on or before the Closing Date.
As soon as practicable after the Closing Date, the Fund will liquidate
and distribute pro rata to its shareholders of record as of the close of
business on the Closing Date, the Class A Shares of the Narragansett Fund
received by it in the Asset Transfer. Such liquidation and distribution will be
accomplished by establishing accounts on the share records of the Narragansett
Fund in the name of each Fund shareholder, each account being credited with the
respective pro rata number of Narragansett Fund shares due to the shareholder.
After such distribution and the winding up of its affairs, the Fund will be
terminated and cease operations. After the Closing Date, any outstanding
certificates representing Fund shares will represent shares of the Narragansett
Fund distributed to the Fund's shareholders of record.
The Agreement may be amended at any time prior to the Asset Transfer by
Agreement between the Fund and the Narragansett Fund. The Fund will provide its
shareholders with information describing any material amendment to the Agreement
prior to shareholder consideration. The obligations of the Fund and the
Narragansett Fund under the Agreement are subject to various conditions,
including approval by Fund shareholders holding the requisite number of Fund
shares and the continuing accuracy of various representations and warranties of
the Fund and the Narragansett Fund.
If the Asset Transfer is not approved by Fund shareholders, the Fund's
Board will consider other appropriate courses of action with respect to the
Fund, including liquidation of the Fund.
Fees and Expenses of the Asset Transfer. All fees and expenses,
including legal and accounting expenses, proxy materials and proxy solicitation
with respect to the Fund, the costs of liquidating portfolio securities of the
Fund, portfolio transfer taxes (if any) or other similar expenses incurred in
connection with the consummation of the Asset Transfer will be borne by the
Fund, except that AIM has agreed to contribute up to $20,000 for the fees of
legal counsel to the Fund and the Fund's independent accountants, and for
printing and postage in connection with the mailing of the Registration
Statement of which this Prospectus/Proxy Statement is a part. The legal,
accounting and other expenses incurred by the Narragansett Fund in connection
with the Asset Transfer will be paid by the Narragansett Fund or its Manager.
Notwithstanding the above, expenses in connection with the Asset Transfer will
in any event be paid by the party directly incurring such expenses if and to the
extent that the payment by the other party of such expenses would result in the
disqualification of the Narragansett Fund or the Fund, as the case may be, as a
"regulated investment company" within the meaning of Section 851 of the Code.
The total expenses of the Asset Transfer for the Fund are expected to
be approximately $75,000. In addition, an outside firm may be retained to
solicit proxies on behalf of the Fund's Board. The cost of any such outside
solicitation firm, which would be borne by the Fund, is estimated to be
approximately $8,500, which includes a $2,500 fee for solicitation of proxies
from Fund shareholders and approximately $6,000 in fees for mailing and other
related proxy services. The Fund may also pay persons holding Fund shares in
their names or those of their nominees for their expenses in sending soliciting
materials to their principals.
The Board of Trustees of the Fund has determined that the expenses to
be borne by the Fund are fair given the lower expense ratio of the Narragansett
Fund which will benefit Fund shareholders after the Asset Transfer.
Federal Income Tax Consequences. The exchange of Fund assets for
Narragansett Fund shares, the Narragansett Fund's assumption of the Fund's
stated liabilities as identified to the Narragansett Fund and the Fund's
distribution of those shares to Fund shareholders are intended to qualify for
federal income tax purposes as a tax-free reorganization under Section 368(a) of
the United States Internal Revenue Code of 1986, as amended (the "Code"). As a
condition to the closing of the Asset Transfer, the Fund and the Narragansett
Fund will receive the opinion of counsel to the Fund, to the effect that, on the
basis of the existing provisions of the Code, Treasury regulations issued
thereunder, current administrative regulations and pronouncements and court
decisions, and certain facts, assumptions and representations, for federal
income tax purposes: (1) the transfer of all of the Fund's assets to the
Narragansett Fund in exchange solely for Narragansett Fund shares and the
assumption by the Narragansett Fund of the Fund's stated liabilities, followed
by the distribution by the Fund of those Narragansett Fund shares to Fund
shareholders in complete liquidation of the Fund, will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code and each of
the Fund and the Narragansett Fund will be "a party to a reorganization"; (2) no
gain or loss will be recognized by the Narragansett Fund upon the receipt of the
assets of the Fund in exchange solely for Narragansett Fund shares and the
assumption by the Narragansett Fund of stated liabilities of the Fund pursuant
to the Asset Transfer; (3) no gain or loss will be recognized by the Fund upon
the transfer of its assets to the Narragansett Fund in exchange solely for
Narragansett Fund shares and the assumption by the Narragansett Fund of stated
liabilities of the Fund or upon the distribution (whether actual or
constructive) of those Narragansett Fund shares to Fund shareholders in exchange
for their shares of the Fund in liquidation of the Fund pursuant to the Asset
Transfer; (4) no gain or loss will be recognized by Fund shareholders upon the
exchange of their Fund shares for Narragansett Fund shares pursuant to the Asset
Transfer; (5) the aggregate tax basis for the Narragansett Fund shares received
by each Fund shareholder pursuant to the Asset Transfer will be the same as the
aggregate tax basis for the Fund shares held by such shareholder immediately
prior to the Asset Transfer, and the holding period of those Narragansett Fund
shares received by each Fund shareholder will include the period during which
the Fund shares exchanged therefor were held by such shareholder (provided the
Fund shares were held as capital assets on the date of the Asset Transfer); and
(6) the tax basis of each Fund asset acquired by the Narragansett Fund will be
the same as the tax basis of such asset to the Fund immediately prior to the
Asset Transfer, and the holding period of each Fund asset in the hands of the
Narragansett Fund will include the period during which that asset was held by
the Fund.
Neither the Fund nor the Narragansett Fund has sought a tax ruling
from the Internal Revenue Service ("IRS"). The opinion of counsel is not binding
on the IRS, nor does it preclude the IRS from adopting a contrary position. Fund
shareholders should consult their tax advisors regarding the effect, if any, of
the Asset Transfer in light of their individual circumstances. Because the
foregoing discussion relates only to the federal income tax consequences of the
Asset Transfer, Fund shareholders also should consult their tax advisors as to
state and local tax consequences, if any, of the Asset Transfer. Required Vote
and Board's Recommendation.
The Fund's Board of Trustees has approved the Agreement and the Asset
Transfer and has determined that (1) participation in the Asset Transfer is in
the best interests of the Fund and its shareholders and (2) the interests of
shareholders of the Fund will not be diluted as a result of the Asset Transfer.
The holders of a majority of the Fund's shares, present in person or represented
by proxy, will constitute a quorum for the transaction of business at the
Meeting. The affirmative vote of holders of a majority of the Fund's shares
present in person or represented by proxy at the Meeting is required to approve
the Asset Transfer.
THE FUND'S BOARD OF TRUSTEES,
INCLUDING THE INDEPENDENT
TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR"APPROVAL OF THE
AGREEMENT AND THE ASSET
TRANSFER.
ADDITIONAL INFORMATION ABOUT
THE NARRAGANSETT FUND AND THE FUND
Both the Fund and the Narragansett Fund are Massachusetts business
trusts. The Fund is a non-diversified, open-end management investment company
that was organized in 1986 and the Narragansett Fund is a non-diversified,
open-end management investment company that was organized in 1992.
Financial Statements. The financial statements for the Fund for the
fiscal year ended October 31, 2007 and the four preceding fiscal years of the
Fund have been audited by Ernst & Young LLP (excluding the unaudited information
for this fund for the six months ended April 30, 2008). Its report and the
Fund's financial statements for the past five fiscal years are included in the
Fund's annual report to shareholders, which is available upon request. The
financial statements of the Narragansett Fund for the fiscal years ended June
30, 2007 and 2006 have been audited by Tait, Weller & Baker LLP (excluding the
unaudited information for this fund for the six months ended December 31, 2007).
The financial statements of the Narragansett Fund for the fiscal years ended
June 30, 2005, 2004 and 2003 were audited by another auditor. The reports of
such auditors and the Narragansett Fund's financial statements for the past five
fiscal years are included in the Narragansett Fund's annual report to
shareholders, which is available upon request.
Investment Restrictions. Each fund has adopted certain investment
restrictions that may not be changed without the affirmative vote of a "majority
of the outstanding voting securities" of each fund, which is defined in the 1940
Act to mean the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the fund, or (2) 67% or more of the shares present at a
meeting if more than 50% of the outstanding shares of the fund are represented
at the meeting in person or by proxy. The table below contains a description and
comparison of such investment restrictions for each fund.
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Investment Restrictions Fund Investment Restrictions Narragansett Fund Comparison
---------------------------------------- --------------------------------------------- -------------------------------
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The Fund cannot borrow money in excess The Narragansett Fund can borrow from banks The Narragansett Fund
of 10% of the value of its total for temporary or emergency purposes but restriction permits borrowing
assets (not including the amount only up to 10% of its total assets. It will only for temporary or
borrowed) at the time the borrowing is not purchase any Rhode Island obligations emergency purposes and limits
made. while it has any outstanding borrowings the Narragansett Fund's
which exceed 5% of the value of its total ability to continue to make
assets. It can mortgage or pledge its investments when loans exceed
assets only in connection with such 5% of the value of its total
borrowing and only up to the lesser of the assets.
amounts borrowed or 5% of the value of its
total assets.
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The Fund cannot underwrite securities The Narragansett Fund cannot engage in the These restrictions are the
issued by other persons except to the underwriting of securities, that is, the same.
extent that, in connection with the selling of securities for others.
disposition of its portfolio
investments, it may be deemed to be an
underwriter under federal securities
laws.
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The Fund cannot purchase real estate The Narragansett Fund cannot buy real These restrictions are the
or any non-liquid interests in real estate or any non-liquid interests in real same.
estate investment trusts; however, it estate investment trusts; however, it can
can buy any securities which it can buy any securities which it can otherwise
otherwise buy even though the issuer buy even though the issuer invests in real
invests in real estate or has estate or has interests in real estate.
interests in real estate.
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The Fund cannot purchase any voting The Narragansett Fund cannot buy any voting These restrictions are
securities, any commodities or securities, any commodities or commodity substantially the same.
commodity contracts other than contracts, any mineral related programs or
Municipal Bond Index Futures, any leases, any shares of other investment
mineral related programs or leases, companies or any warrants, puts, calls or
any shares of other investment combinations thereof.
companies or any warrants, puts, calls
or combinations thereof.
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The Fund cannot purchase securities The Narragansett Fund cannot buy the These restrictions are
(other than securities of the U.S. obligations of issuers in any one industry substantially the same.
government, its agencies or if more than 25% of its total assets would
instrumentalities or tax-exempt then be invested in securities of issuers
securities, except tax-exempt of that industry. The Narragansett Fund
securities backed only by the assets will consider that a non-governmental user
and revenues of nongovernmental of facilities financed by industrial
issuers) if, as a result of such development bonds is an issuer in an
purchase, more than 25% of the Fund's industry.
total assets would be invested in any
one industry.
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The Fund cannot issue any class of Except in connection with permitted These restrictions are
securities which is senior to the borrowings, the Narragansett Fund will not substantially the same.
Fund's shares of beneficial interest. issue senior securities.
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The Fund cannot invest for the purpose The Narragansett Fund cannot invest for the These restrictions are the
of exercising control or management of purpose of exercising control or management same.
other companies. of other companies.
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The Fund cannot sell short or buy on The Narragansett Fund does not sell These restrictions are
margin, provided, however, that the securities it does not own or borrow from substantially the same.
Fund may make margin deposits in brokers to buy securities. Thus, it cannot
connection with the purchase or sale sell short or buy on margin.
of Municipal Bond Index Futures.
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---------------------------------------- --------------------------------------------- -------------------------------
The Fund may make loans by lending The Narragansett Fund may not make loans or The Narragansett Fund's
securities or entering into repurchase lend its portfolio securities. restriction eliminates the
agreements. risk (and the additional
income) associated with such
transactions.
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The Narragansett Fund cannot buy any The Fund does not have a
securities other than Rhode Island comparable investment
obligations. Also, it cannot invest in restriction.
restricted securities. (Restricted
securities are securities which cannot
freely be sold for legal reasons.)
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The Narragansett Fund cannot purchase or The Fund does not have a
hold the securities of any issuer if, to comparable investment
its knowledge, any Trustee, Director or restriction.
officer of the Narragansett Fund or its
Manager or Sub-Adviser individually owns
beneficially more than 0.5% of the
securities of that issuer and all such
Trustees, Directors and officers together
own in the aggregate more than 5% of
such securities.
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As a fundamental policy, at least 80% of The Fund does not have a
the Narragansett Fund's net assets will be comparable policy.
invested in Rhode Island obligations the
income paid upon which will not be subject
to the alternative minimum tax;
accordingly, the Narragansett Fund can
invest up to 20% of its net assets in
obligations that are subject to the Federal
alternative minimum tax.
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Management. Each fund's trustees oversee the general conduct of each
fund's business. The trustees of the Narragansett Fund are different than those
of the Fund. The trustees of the Narragansett Fund have retained AIM to be the
Narragansett Fund's investment manager, responsible for making investment
decisions for the Narragansett Fund and managing the Narragansett Fund's other
affairs and business. The Narragansett Fund's investment adviser has engaged the
Sub-Adviser to provide local advisory services for the Narragansett Fund.
AIM is a wholly-owned subsidiary of Aquila Management Corporation
("AMC"), founder of each fund in the Aquila Group of Funds, which consists of
three money-market funds, seven tax-free municipal bond funds, a high income
corporate bond fund and a regional equity fund. As of May 31, 2008, these funds
had aggregate assets of over $5.0 billion, of which approximately $2.3 billion
consisted of assets of the tax-free municipal bond funds. AMC's address is the
same as that of AIM. 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.
The Sub-Adviser is a department of RBS Citizens, N.A., which is
wholly-owned by 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, RI 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.
For management and investment advisory services to the Narragansett
Fund AIM is paid 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. Of the 0.50 of 1% management fee
paid by the Narragansett Fund to AIM, as of December 31, 2007, 0.35 of 1% was
being waived on a voluntary basis. As of December 31, 2007, AIM paid the
Sub-Adviser a sub-advisory fee at the annual rate of 0.23 of 1% of average
annual net assets of which 0.13 of 1% was being voluntarily waived. AIM and the
Sub-Adviser have waived some or all of their management fees since the inception
of the Narragansett Fund in order to provide a competitive return to
shareholders. At the present time, AIM has contractually undertaken to waive
fees and/or reimburse the Narragansett Fund's expenses during the period July 1,
2008 through June 30, 2009 so that the Narragansett Fund's total expenses will
not exceed 0.83% of average annual net assets for the Narragansett Fund's Class
A Shares. AIM anticipates that, over time as the Narragansett Fund grows in
size, there will be a gradual decrease in the amount of the management fee
waivers described above. The Narragansett Fund's expense ratio therefore could
increase upon the reduction or discontinuance of such management fee waivers
above.
Van Liew Capital, Inc. is the Fund's investment adviser. The Fund pays
Van Liew Capital, Inc. a management fee based on the average annual net assets
of the Fund at the rate 0.60 of 1% for the first $200 million of average net
assets and 0.50 of 1% of average net assets above $200 million. Fees payable to
Van Liew Capital, Inc. are computed and accrued daily and paid monthly.
The basis for the Narragansett Fund's trustees' approval of the
Narragansett Fund's advisory and administration agreement and the sub-advisory
agreement described above is discussed in the Narragansett Fund's semi-annual
report to shareholders dated December 31, 2007. The basis for the trustees'
approval of the Fund's investment advisory arrangement is discussed in the
Fund's semi-annual report to shareholders dated April 30, 2008.
Investment Management Team. Salvatore C. Di Santo is the officer of the
Sub-Adviser who manages the Narragansett Fund's portfolio. He has served as such
since the inception of the Narragansett 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 over 50 years and has been involved in portfolio management
for the last 41 years.
Jeffrey K. Hanna, also an officer of the Sub-Adviser, is the co-manager
of the Narragansett Fund. He has held this position since 2005. He was formerly
an assistant portfolio manager of the Narragansett 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.
See "Investment Advisory and Other Services" in the Statement of
Additional Information for the Narragansett Fund for additional information
about the Narragansett Fund's portfolio managers' compensation, other accounts
managed by the portfolio managers and the portfolio managers' ownership of
securities of the Narragansett Fund.
Description of Shares. The trustees of the Fund and the Narragansett
Fund have authority to issue shares of beneficial interest in such amounts,
classes and series as may be provided for in the Bylaws of the Fund and the
Narragansett Fund.
Currently, the Narragansett Fund has four classes of shares: Class A
Shares, Class C Shares, Class I Shares and Class Y Shares. Class A and Class C
Shares are offered for purchase by individual investors. Although Class A and
Class C Shares have different sales charge structures and ongoing expenses, they
both represent interests in the same portfolio of Rhode Island obligations.
Class C Shares of the Narragansett Fund are convertible into Class A Shares six
years after issuance. Neither the Class I nor Class Y Shares have sales charges
and each has different ongoing expenses. Both of the Class I and Class Y Shares
represent interests in the same portfolio as the Class A and Class C Shares.
Class I Shares are offered and sold only through financial intermediaries with
which Aquila Distributors, Inc., the distributor for the Narragansett Fund, has
entered into sales agreements. Class Y Shares are offered only to institutions
acting for investors in a fiduciary, advisory, agency, custodial or similar
capacity. The Narragansett Fund does not sell Class I shares or Class Y shares
directly to retail customers. In connection with the Asset Transfer,
shareholders of the Fund will receive Class A Shares of the Narragansett Fund.
Shareholders of the Fund and the Narragansett Fund are entitled to one
vote for each dollar of net asset value (determined as of the record date for
the meeting) per share held (and proportionate fractional votes for fractional
dollar amounts). For both the Fund and the Narragansett fund, their shareholders
are permitted to vote on the election of Trustees and on other matters submitted
to the vote of shareholders.
The Declaration of Trust of the Fund permits its trustees to issue an
unlimited number of full and fractional shares and the Declaration of Trust of
the Narragansett Fund permits its trustees to issue up to 80,000,000 full and
fractional shares. The Declaration of Trust of each fund permits its trustees to
divide or combine the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interests in the fund. Each share
of the Fund and the Narragansett Fund represents an equal proportionate interest
in such fund with each other share of its class; shares of the respective
classes represent proportionate interests in the Fund and the Narragansett Fund
in accordance with their respective net asset values. Upon liquidation of the
Fund or the Narragansett Fund, shareholders are entitled to share pro-rata in
the net assets of such fund available for distribution to shareholders, in
accordance with the respective net asset values of the shares of each of the
Fund's and the Narragansett Fund's classes at that time.
In addition, the Boards of Trustees of the Fund and the Narragansett
Fund may create additional classes of shares, which may differ from each other
as provided in rules and regulations of the Securities and Exchange Commission
or by exemptive order. The Boards of Trustees of the Fund and the Narragansett
Fund may, at their own discretion, create additional series of shares, each of
which may have separate assets and liabilities.
All shares of the Fund and the Narragansett Fund are fully paid and
non-assessable and the holders of shares of the Fund and the Narragansett Fund
have no pre-emptive or conversion rights, except that Class C Shares of the
Narragansett Fund automatically convert to Class A Shares after being held for
six years.
As of June 30, 2008, the number of Fund shares and Narragansett Fund
Class A Shares authorized and outstanding were as follows:
Amount Amount
Authorized Outstanding
Ocean State Tax-Exempt Fund Unlimited 2,123,984.124
Narragansett Insured Tax-Free Income Fund 80,000,000* 10,138,014.025
------------------------
*Total amount authorized for all classes.
Purchase Procedures. The purchase procedures of the Fund and the
Narragansett Fund, and the automatic investment services they offer, are
substantially similar. Shares of both funds may be purchased through a broker or
dealer, or a bank or other financial intermediary that has a sales agreement
with the distributor of the Fund or the Narragansett Fund, or directly through
the distributor for the funds. Both funds impose a sales charge of 4.00% upon
purchases of their shares. The minimum initial investment for both funds is
$1,000, except purchases made under automatic investment services are subject to
opening minimum requirements of $250 for the Fund and $50 for the Narragansett
Fund. See "Purchases" and "Buying and Selling Shares" in the relevant Prospectus
of the Narragansett Fund and the Fund, and "Purchase, Redemption, and Pricing of
Shares" in their Statements of Additional Information.
Determination of Net Asset Value. The net asset value per share of each
class of each of the Fund and the Narragansett Fund equals the total value of
its assets, less its liabilities, divided by the number of its outstanding
shares. Shares are only valued as of the close of regular trading on the New
York Stock Exchange each day the exchange is open.
In general, the net asset value for the Fund's shares is based on
portfolio market value, except that obligations maturing in 60 days or less are
generally valued at amortized cost. Any securities or assets for which such
market quotations are not readily available are valued at their fair value.
In determining fair value, the Fund uses a national pricing service to
provide prices on its portfolio securities. Prices provided by this service are
generally downloaded once each week. The Fund will also download prices from the
pricing service on volatile municipal market days. The Fund then utilizes a
pricing matrix based on the Bond Buyer Municipal Bond Index to adjust valuations
on a daily basis between dates when prices are downloaded.
The Bond Buyer Municipal Bond Index is comprised of 40 tax-exempt
national municipal bonds. As of June 30, 2008, this index had an average
maturity of 29.69 years, an average coupon of 5.11% and an average rating of
A13/AA - .
The change in the Fund's pricing matrix is dependent upon the closing
level of the Bond Buyer Municipal Bond Index in addition to local and national
factors which may affect the Rhode Island municipal marketplace. The intent is
to estimate daily market fluctuations while downloading prices once a week, and
recording the variances versus the valuations provided by the pricing service.
Any variances are tracked and maintained with the pricing records. Valuations
used by the Fund are frequently determined without exclusive reliance on quoted
prices and take into account appropriate factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics, broker quotes and other local market
conditions.
The Fund's pricing methodology is reviewed and approved each quarter by
the Board of Trustees.
For the Narragansett Fund, portfolio securities, other than those with
a remaining maturity of 60 days or less, are valued at the mean between bid and
asked quotations, if available. Bid and asked quotations for Rhode Island
obligations may be obtained from a reputable pricing service, which may obtain
quotations from broker/dealers or banks dealing in Rhode Island obligations. Any
securities or assets for which such market quotations are not readily available
are valued at their fair value as determined in good faith under procedures
subject to the general supervision and responsibility of the Narragansett Fund's
Board of Trustees.
In determining fair value, the Narragansett Fund's normal practice is
that most or all of the Rhode Island obligations in the Fund's portfolio are
priced daily using a reputable pricing service which may employ differential
comparisons to the market in other municipal bonds under methods which include
consideration of the current market value of tax-free debt instruments having
varying characteristics of quality, yield and maturity.
Securities having a remaining maturity of 60 days or less when
purchased and securities originally purchased with maturities in excess of 60
days but which currently have maturities of 60 days or less are valued at cost
adjusted for amortization of premiums and accretion of discounts. With the
approval of the Narragansett Fund's Board of Trustees, the Sub-Adviser may at
its own expense and without reimbursement from the Narragansett Fund employ a
pricing service, bank or broker/dealer experienced in such matters to perform
any of the above described functions.
The fair value pricing methodologies used by the Fund and the
Narragansett Fund are similar. However, the Narragansett Fund utilizes a pricing
service on a daily basis, while the Fund prices provided by this service will
generally be downloaded once each week.
Dividends and Distributions. Each of the Fund and the Narragansett Fund
has a policy to make monthly distributions to shareholders from net investment
income. Each fund distributes any net realized capital gains annually.
To permit each fund to maintain a more stable monthly distribution,
each fund may from time to time pay out less than the entire amount of available
net investment income to shareholders earned in any particular period. Any such
amount retained by a fund would be available to stabilize future distributions.
As a result, the distributions paid by a fund for any particular period may be
more or less than the amount of net investment income actually earned by that
fund during such period. Both funds intend, however, to make such distributions
as are necessary to maintain qualification as a regulated investment company.
See "Distributions and Taxes" in the Prospectus of the Fund and
"Dividends and Distributions" in the Prospectus of the Narragansett Fund for a
discussion of such policies.
Dividend Reinvestment Plan. Both the Fund and the Narragansett Fund
offer a dividend reinvestment plan pursuant to which income dividends and
capital gains distributions are automatically reinvested in additional shares of
the respective fund. As is the case with the Fund, if a shareholder is not
participating in the dividend reinvestment plan of the Narragansett Fund, the
shareholder will receive all dividends and/or capital gains distributions in
cash, paid by check and mailed directly to the shareholder (or deposited by
electronic funds transfer) on a monthly basis. Unless a shareholder of the
Narragansett Fund elects otherwise, a shareholder of the Narragansett Fund will
be automatically enrolled in the dividend reinvestment plan of the Narragansett
Fund.
Purchases of shares of the Fund and the Narragansett Fund through their
respective dividend reinvestment plans are not subject to any sales charge.
If a shareholder's shares are held in the name of a broker or nominee
offering a dividend reinvestment service, the shareholder should consult the
shareholder's broker or nominee to ensure that an appropriate election is made
on the shareholder's behalf. If the broker or nominee holding the shareholder's
shares does not provide a reinvestment service, the shareholder may need to
register the shareholder's shares in the shareholder's own name in order to
participate in the Narragansett Fund's dividend reinvestment plan.
After the consummation of the Asset Transfer, Fund shareholders who
have previously elected to receive income, dividends and capital gains
distributions in cash will continue to do so. All income, dividends and capital
gains distributions of other shareholders of the Fund will be automatically
reinvested in additional shares of the Narragansett Fund through the
Narragansett Fund's automatic dividend reinvestment plan. After the Asset
Transfer and after the former shareholders of the Fund are notified of their new
account information with the Narragansett Fund, former shareholders of the Fund
will be provided a toll-free number to call and an address to write in order to
opt out of the Narragansett Fund dividend reinvestment plan if any shareholder
chooses to do so.
In situations where a bank, broker or nominee holds shares for others,
the dividend reinvestment plan will be administered according to instructions
and information provided by the bank, broker or nominee.
Taxation. Net investment income of both the Fund and the Narragansett
Fund includes income from tax-exempt obligations in which each fund invests that
is allocated as "exempt-interest dividends." Such dividends are exempt from
regular Federal income tax. Each fund allocates exempt-interest dividends by
applying one designated percentage to all income dividends it declares during
its tax year. Each fund will normally make this designation in the first month
following its fiscal year end for dividends paid in the prior year. It is
possible that a portion of the distributions paid by either the Fund or the
Narragansett Fund in excess of its net tax-exempt income will be subject to
Federal and Rhode Island income taxes.
You should consult your tax advisor for more information on your own
tax situation, including possible foreign, state and local taxes.
Redemptions. Neither the Fund nor the Narragansett Fund imposes a
redemption fee on redemptions or exchanges of its shares. The redemption
procedures of the Fund and the Narragansett Fund are substantially similar. Both
funds offer expedited redemption methods for non-certificated shares.
See "Buying and Selling Shares" in the Fund Prospectus and "Redeeming
Your Investment" in the Narragansett Fund Prospectus and "Purchase, Redemption
and Pricing of Shares" in the Statement of Additional Information of the
Narragansett Fund for a discussion of redemption procedures.
Rule 12b-1 Plan. Both the Fund and the Narragansett Fund are subject to
a plan adopted pursuant to Rule 12b-1 under the 1940
Act.
Under the Narragansett Fund's 12b-1 Plan, the Narragansett Fund is
authorized to make distribution fee payments to broker-dealers or others
selected by Aquila Distributors, Inc., the Narragansett Fund's distributor, with
which the distributor has entered into written agreements contemplated by Rule
12b-1 and which have rendered assistance in the distribution and/or retention of
the Narragansett Fund's shares or servicing of shareholder accounts. The
Narragansett Fund makes payment of this service fee at the annual rate of 0.15%
of the Narragansett Fund's average net assets represented by Class A Shares;
0.75% of the Narragansett Fund's average net assets represented by Class C
Shares; and up to 0.25% (currently set by the Board at 0.20%) of the
Narragansett Fund's average net assets represented by Class I Shares.
In addition, under a Shareholder Services Plan, the Narragansett Fund
is authorized to pay service fees at annual rates of 0.25% of the Narragansett
Fund's average net assets represented by Class C Shares and up to 0.25%
(currently 0.15%) of the Narragansett Fund's average net assets represented by
Class I Shares.
The Fund has a distribution plan under Rule 12b-1 with respect to its
shares which allows it to pay the expense of printing prospectuses and reports
to shareholders which are sent to non-shareholders. The main purpose of the
Fund's 12b-1 Plan is to permit the Fund to finance activities primarily intended
to result in the sale of its shares and protect the Fund against any claim that
some of the expenses which it pays or may pay might be considered to be
sales-related and therefore come within the purview of Rule 12b-1. Distribution
expenses under the Fund's Distribution Plan are paid out of the Fund's assets on
an annual basis.
Because fees paid under 12b-1 Plans are paid out of each fund's assets
on an ongoing basis, over time these fees will increase the cost of an
investment in the Fund and the Narragansett Fund and may cost more than paying
other types of sales charges. See "Distribution Plan" in the relevant Statement
of Additional Information of the Fund and the Narragansett Fund for a discussion
of the each fund's Distribution Plan.
Information about the Fund is incorporated by reference into this
Prospectus/Proxy Statement from the Fund's Prospectus forming a part of its
Registration Statement on Form N-1A (File No. 811-04788). Information about the
Narragansett Fund is incorporated by reference into this Prospectus/Proxy
Statement from the Narragansett Fund's Prospectus forming a part of the
Company's Registration Statement on Form N-1A (File No. 811-06707).
The Fund and the Narragansett Fund are subject to the requirements of
the 1940 Act and file reports, proxy statements and other information with the
SEC. Reports, proxy statements and other information filed by the Fund and the
Narragansett Fund may be inspected and copied at the Public Reference Facilities
of the Securities and Exchange Commission at 100 F Street, N.E., Washington,
D.C. 20549. Text-only versions of fund documents can be viewed on-line or
downloaded from www.sec.gov. Copies of such material also can be obtained from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549, at
prescribed rates.
VOTING INFORMATION
In addition to the use of the mail, proxies may be solicited personally
or by telephone, and persons holding Fund shares in their names or in nominee
name may be paid for their expenses in sending soliciting materials to their
principals. An outside firm may be retained to assist in the solicitation of
proxies, primarily by contacting shareholders by telephone.
Authorizations to execute proxies may be obtained by telephonic or
electronically transmitted instructions in accordance with procedures designed
to authenticate the shareholder's identity. In all cases where a telephonic
proxy is solicited (as opposed to where the shareholder calls the toll-free
number directly to vote), the shareholder will be asked to provide his or her
address, social security number (in the case of an individual) or taxpayer
identification number (in the case of a non-individual) and the number of shares
owned and to confirm that the shareholder has received the Prospectus/Proxy
Statement and proxy card in the mail. Within 72 hours of receiving a
shareholder's telephonic or electronically transmitted voting instructions, a
confirmation will be sent to the shareholder to ensure that the vote has been
taken in accordance with the shareholder's instructions and to provide a
telephone number to call immediately if the shareholder's instructions are not
correctly reflected in the confirmation. Any shareholder giving a proxy may
revoke it at any time before it is exercised by submitting a new proxy to the
Fund or by attending the Meeting and voting in person.
A broker "non-vote" is a proxy from a broker or nominee indicating that
such person has not received instructions from the beneficial owner or other
person entitled to vote Fund shares on a particular matter with respect to which
the broker or nominee does not have discretionary power. If a proxy is executed
properly and returned accompanied by instructions to withhold authority to vote,
represents a broker "non-vote" or is marked with an abstention (collectively,
"abstentions"), the Fund shares represented thereby will be considered to be
present at the Meeting for purposes of determining the existence of a quorum for
the transaction of business. Abstentions will have the effect of a "no" vote for
the purpose of obtaining requisite approval for the proposal.
The holders of a majority of the Fund's shares, present in person or
represented by proxy, will constitute a quorum for the transaction of business
at the Meeting. The affirmative vote of holders of a majority of the Fund's
shares present in person or represented by proxy at the Meeting is required to
approve the Asset Transfer.
If a quorum is not present at the Meeting, or if a quorum is present
but sufficient votes to approve the proposal are not received, the persons named
as proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. In determining whether to adjourn the Meeting, the
following factors may be considered: the nature of the proposal, the percentage
of votes actually cast, the percentage of negative votes actually cast, the
nature of any further solicitation and the information to be provided to Fund
shareholders with respect to the reasons for the solicitation. Any adjournment
will require the affirmative vote of a majority of those shares affected by the
adjournment that are represented at the Meeting in person or by proxy. If a
quorum is present, the persons named as proxies will vote those proxies which
they are entitled to vote "FOR" the proposal in favor of such adjournment, and
will vote those proxies required to be voted "AGAINST" the proposal against any
adjournment.
The votes of the Narragansett Fund's shareholders are not being
solicited since their approval or consent is not necessary for the Asset
Transfer.
As of June 30, 2008, no shareholders were known by the Fund or the
Narragansett Fund to own of record or beneficially 5% or more of the outstanding
voting shares of the Fund or the Narragansett Fund, respectively. As of June 30,
2008, the Board members and officers of the Fund owned less than 1% of the
Fund's outstanding shares.
FINANCIAL STATEMENTS AND EXPERTS
The audited financial statements of the Fund for the fiscal year ended
October 31, 2007 and the audited financial statements of the Narragansett Fund
for the fiscal year ended June 30, 2007 have been incorporated herein by
reference in reliance on the reports of Ernst & Young LLP, the independent
registered public accounting firm for the Fund and Tait, Weller & Baker LLP, the
independent registered public accounting firm for the Narragansett Fund, given
on their authority as experts in accounting and auditing.
OTHER MATTERS
The Fund's Board of Trustees is not aware of any other matters that may
come before the Meeting. However, should any such matters properly come before
the Meeting, it is the intention of the persons named in the accompanying form
of proxy to vote the proxy in accordance with their judgment on such matters.
NOTICE TO BANKS, BROKER/DEALERS AND VOTING TRUSTEES
AND THEIR NOMINEES
Please advise PNC Global Investment Servicing Inc. at 1-800-992-2207,
transfer agent for the Fund, whether other persons are the beneficial owners of
Fund shares for which proxies are being solicited from you, and, if so, the
number of copies of the Prospectus/Proxy Statement and other soliciting material
you wish to receive in order to supply copies to the beneficial owners of Fund
shares.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE,
SHAREHOLDERS ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE WHETHER OR NOT THEY EXPECT TO ATTEND THE MEETING
IN PERSON.
EXHIBIT A
Execution Copy
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as
of June 18, 2008 by and among Narragansett Insured Tax-Free Income Fund, a
Massachusetts business trust ("Acquiring Fund"), and VLC Trust, a Massachusetts
business trust ("Selling Trust"), for itself and on behalf of Ocean State Tax
Exempt Fund, a series of Selling Trust ("Selling Fund").
W I T N E S S E T H:
WHEREAS, Selling Fund and Acquiring Fund are each open-end, registered
investment companies and Selling Fund owns securities that generally are assets
of the character in which Acquiring Fund is permitted to invest;
WHEREAS, the Board of Trustees of Acquiring Fund have determined that
the acquisition of substantially all of the assets of the Selling Fund in
exchange for Class A shares of beneficial interest of Acquiring Fund (the
"Exchange Shares") and the assumption by Acquiring Fund of the Stated
Liabilities of Selling Fund as defined in Section 1.1 hereof on the terms and
conditions hereinafter set forth are in the best interests of Acquiring Fund and
its shareholders;
WHEREAS, the Board of Trustees of Selling Trust has determined that
Selling Fund's exchange of substantially all of Selling Fund's assets and its
Stated Liabilities as defined in Section 1.1 hereof for the Exchange Shares, on
the terms and conditions herein set forth, is in the best interests of Selling
Fund and its shareholders; and
WHEREAS, this Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
United States Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties agree as follows:
I. REORGANIZATION
1.1 Plan of Reorganization. Subject to the requisite approval of the
shareholders of Selling Fund and to the other terms and conditions contained
herein (including Selling Fund's obligation to distribute to its shareholders
all of its net investment income and capital gains as described in Section
6.1(l) hereof), Selling Fund agrees to sell, assign, convey, transfer and
deliver to Acquiring Fund, and Acquiring Fund agrees to acquire from Selling
Fund, on the Exchange Date, (a) all of Selling Fund's investments shown on the
schedule of its investments as of the Valuation Time (as defined in Section
2.3), as supplemented with such changes as Selling Fund makes and changes
resulting from distributions and other actions of the issuers ("Investments")
and (b) all of the cash, other than cash reserved for settlement of liabilities
not assumed by Acquiring Fund, and other properties and assets of Selling Fund,
whether accrued or contingent (including cash received by Selling Fund upon the
liquidation by Selling Fund of any of its investments in accordance with Section
1.2 hereof), in exchange for that number of Exchange Shares provided for in
Section 2.1 hereof and the assumption by Acquiring Fund of those liabilities of
Selling Fund, whether accrued or contingent, existing at the Valuation Time and
specifically identified and listed on an unaudited statement of assets and
liabilities of Selling Fund prepared by Selling Fund and reviewed and approved
by Acquiring Fund, as of the Valuation Time, in accordance with generally
accepted accounting principles consistently applied from the prior audited
period ("Stated Liabilities"). Pursuant to this Agreement, Selling Fund will, as
soon as practicable after the Exchange Date, distribute all of the Exchange
Shares received by it to the shareholders of Selling Fund, in complete
liquidation of Selling Fund.
1.2 Liquidation of Selling Fund. On the next full business day
following the requisite approval of the shareholders of Selling Fund, Selling
Trust will provide Acquiring Fund a reasonably detailed list of all of the
portfolio securities of Selling Fund. Promptly after receipt of such list,
Acquiring Fund shall identify such listed securities as do not comply with its
portfolio management standards, customary practices or investing policies, and
provide a list of securities so identified to Selling Fund, indicating which of
such securities it does not wish to acquire. As soon as practicable thereafter,
Selling Trust, on behalf of Selling Fund, will, at its expense, liquidate such
of Selling Fund's portfolio securities as have been so identified. Such
liquidation will be completed before the Valuation Date, unless otherwise agreed
by Selling Trust and Acquiring Fund.
1.3 Distribution to Acquiring Fund. Selling Trust, on behalf of Selling
Fund, will pay or cause to be paid to Acquiring Fund any interest, cash or such
payments or other property as are received by it on or after the Exchange Date
with respect to the Investments and other properties and assets of Selling Fund,
whether accrued or contingent. Any such distribution will be deemed included in
the assets transferred to Acquiring Fund at the Exchange Date and will not be
separately valued unless the securities in respect of which such distribution is
made will have gone "ex" such distribution before the Valuation Time, in which
case any such distribution which remains unpaid at the Exchange Date will be
included in the determination of the value of the assets of Selling Fund
acquired by Acquiring Fund.
II. EXCHANGE DATE; VALUATION TIME
2.1 Transfer of Exchange Shares.
(a) On or prior to the Exchange Date, Selling Trust, on behalf of
Selling Fund, shall endeavor to pay or make reasonable provision to pay out of
Selling Fund's assets all of the liabilities, expenses, costs and charges of or
attributable to Selling Fund that are known to Selling Trust or any of its
officers or Trustees and that are or will be due and payable as of the Exchange
Date.
(b) On the Exchange Date, Acquiring Fund will deliver to Selling Fund a
number of full and fractional Exchange Shares having an aggregate net asset
value equal to the value of assets of Selling Fund transferred to Acquiring Fund
on such date less the value of the Stated Liabilities of Selling Fund assumed by
Acquiring Fund on that date, determined as hereafter provided in this Article 2.
(c) Acquiring Fund will issue the Exchange Shares to Selling Fund in a
certificate registered in the name of Selling Fund. Selling Fund will distribute
the Exchange Shares to its shareholders by redelivering the certificate to
Acquiring Fund's transfer agent, which will as soon as practicable set up
accounts for each Selling Fund shareholder in accordance with written
instructions furnished by Selling Fund. With respect to any Selling Fund
shareholder holding Selling Fund share certificates as of the Exchange Date,
Acquiring Fund will not permit such shareholder to receive dividends and other
distributions on the Exchange Shares (although such dividends and other
distributions will be credited to the account of such shareholder), receive
certificates representing the Exchange Shares or pledge such Exchange Shares
until such shareholder has surrendered his or her outstanding Selling Fund
certificates or, in the event of lost, stolen or destroyed certificates, posted
adequate bond. In the event that a shareholder is not permitted to receive
dividends and other distributions on the Exchange Shares as provided in the
preceding sentence, Acquiring Fund will pay any such dividends or distributions
in additional shares, notwithstanding any election that the shareholder made
previously with respect to the payment, in cash or otherwise, of dividends and
distributions on shares of Selling Fund. Selling Fund will, at its expense,
request the shareholders of Selling Fund to surrender their outstanding Selling
Fund certificates, or post adequate bond, as the case may be.
(d) Acquiring Fund will assume the Stated Liabilities of Selling Fund
in connection with the acquisition of assets and subsequent dissolution of
Selling Fund or otherwise.
2.2 Valuation.
(a) The net asset value of the Exchange Shares and the value of the
assets and Stated Liabilities of Selling Fund will be determined by Acquiring
Fund, in cooperation with Selling Fund, pursuant to procedures customarily used
by Acquiring Fund in determining the fair market value of Acquiring Fund's
assets and liabilities.
(b) No adjustment will be made in the net asset value of either Selling
Fund or Acquiring Fund to take into account differences in realized and
unrealized gains and losses.
2.3 Valuation Time. The net asset value of the Exchange Shares to be
delivered to Selling Fund, the value of the assets of Selling Fund and the value
of the Stated Liabilities of Selling Fund to be assumed by Acquiring Fund will
in each case be determined as of 4:00 p.m. Eastern time on a date within ten
(10) days following requisite approval by the shareholders of Selling Fund of
the reorganization as contemplated hereby and the other terms and conditions
contained herein or such earlier or later day as may be mutually agreed upon in
writing by the parties hereto (the "Valuation Time").
III. EXCHANGE DATE
3.1 Exchange Date. Delivery of the assets of Selling Fund to be
transferred, assumption of the Stated Liabilities of Selling Fund to be assumed
and the delivery of the Exchange Shares to be issued will be made at the offices
of Hinckley, Allen & Snyder LLP, 50 Kennedy Plaza, Suite 1500, Providence, Rhode
Island 02903 at 10:00 A.M. on the next full business day following the Valuation
Time, or at such other time, date and place agreed to by Acquiring Fund and
Selling Fund, the date and time upon which such delivery is to take place being
referred to herein as the "Exchange Date."
IV. REPRESENTATIONS AND WARRANTIES OF ACQUIRING FUND
4.1 Representations and Warranties. Acquiring Fund represents and warrants
to Selling Fund that:
(a) Acquiring Fund is a business trust duly established and validly
existing under the laws of The Commonwealth of Massachusetts and has the power
to own all of its properties and assets and to carry out its obligations under
this Agreement. Acquiring Fund is not required to qualify as a foreign
association in any jurisdiction in which it does not currently qualify.
Acquiring Fund has all necessary federal, state and local authorizations to
carry on its business as now being conducted and to carry out the terms of this
Agreement.
(b) Acquiring Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company,
and such registration has not been revoked or rescinded and is in full force and
effect.
(c) A statement of assets and liabilities, statement of operations,
statement of changes in net assets and schedule of investments (indicating their
market values) of Acquiring Fund for the fiscal year ended June 30, 2007,
audited by Tait, Weller & Baker LLP, Acquiring Fund's independent registered
public accounting firm, and an unaudited statement of assets and liabilities,
statement of operations, statement of changes in net assets and schedule of
investments (indicating their market values) of Acquiring Fund for the six
months ended as of December 31, 2007 have been furnished to Selling Fund. The
statements of assets and liabilities and the schedules of investments fairly
present the financial position of Acquiring Fund as of the dates thereof, and
the statements of operations and changes in net assets fairly reflect the
results of its operations and changes in net assets for the periods covered
thereby in conformity with U.S. generally accepted accounting principles.
(d) Acquiring Fund's prospectus and statement of additional information
dated October 24, 2007, previously furnished or otherwise available to Selling
Fund, as modified by any amendment or supplement thereto or any related
superseding prospectus or statement of additional information in effect before
the Exchange Date, which will be furnished to Selling Fund (collectively, the
"Acquiring Fund Prospectus") do not, as of the date hereof, and will not, as of
the Exchange Date, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that Acquiring Fund makes
no representation or warranty as to any information relating to Selling Fund in
the Acquiring Fund Prospectus.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Acquiring Fund, threatened against Acquiring
Fund which assert liability or which may, if successfully prosecuted to their
conclusion, result in liability on the part of Acquiring Fund, other than as
have been disclosed in the Prospectus (as defined below) or otherwise disclosed
in writing to Selling Fund.
(f) Acquiring Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on its
statement of assets and liabilities as of its most recent fiscal year ended June
30, 2007, and those incurred in the ordinary course of Acquiring Fund's business
as an investment company since that date.
(g) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Acquiring Fund of the
transactions contemplated by this Agreement, except such as may be required
under the Securities Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act, or state
securities or blue sky laws (which term as used herein will include the laws of
the District of Columbia and of Puerto Rico).
(h) The registration statement and any amendment thereto (including any
post-effective amendment) (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") by Acquiring Fund on Form
N-14 relating to the Exchange Shares issuable hereunder and the proxy statement
of Selling Fund included therein (the "Proxy Statement"), on the effective date
of the Registration Statement, (i) will comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 8.1 hereof and at the Exchange
Date, the prospectus contained in the Registration Statement (collectively, the
"Prospectus"), as amended or supplemented by any amendments or supplements filed
or requested to be filed with the Commission, will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that none of the representations and warranties in this
subsection will apply to statements in or omissions from the Registration
Statement, the Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by Selling Fund for use in the
Registration Statement, the Prospectus or the Proxy Statement.
(i) There are no material contracts outstanding to which Acquiring Fund
is a party, other than as will be disclosed in the Registration Statement.
(j) All of the issued and outstanding shares of beneficial interest of
Acquiring Fund have been offered for sale and sold in conformity with all
applicable state and federal securities laws.
(k) Acquiring Fund qualifies and will at all times through the Exchange
Date qualify for taxation as a "regulated investment company" under Sections 851
and 852 of the Code.
(l) Acquiring Fund has filed or will file all federal and state tax
returns which, to the knowledge of Acquiring Fund's officers, are required to be
filed by Acquiring Fund and has paid or will pay all federal and state taxes
shown to be due on said returns or on any assessments received by Acquiring
Fund. All tax liabilities of Acquiring Fund have been adequately provided for on
its books, and to the knowledge of Acquiring Fund, no tax deficiency or
liability of Acquiring Fund has been asserted, and no question with respect
thereto has been raised, by the Internal Revenue Service or by any state or
local tax authority for taxes in excess of those already paid. As of the
Exchange Date, Acquiring Fund is not under audit by the Internal Revenue Service
or by any state or local tax authority for taxes in excess of those already
paid.
(m) The issuance of the Exchange Shares pursuant to this Agreement will
be in compliance with all applicable federal and state securities laws.
(n) The Exchange Shares have been duly authorized and, when issued and
delivered pursuant to this Agreement, will be legally and validly issued and
will be fully paid and nonassessable by Acquiring Fund (except as set forth in
the Registration Statement), and no shareholder of Acquiring Fund will have any
preemptive right of subscription or purchase in respect thereof.
V. REPRESENTATIONS AND WARRANTIES OF SELLING TRUST
5.1 Representations and Warranties. Selling Trust, for itself and on behalf
of Selling Fund, represents and warrants to Acquiring Fund that:
(a) Selling Trust is a business trust duly established and validly
existing under the laws of The Commonwealth of Massachusetts and has power to
own all of its properties and assets and to carry out its obligations under this
Agreement. Selling Trust is not required to qualify as a foreign association in
any jurisdiction in which it does not currently qualify. Selling Trust has all
necessary federal, state and local authorizations to carry on its business as
now being conducted and to carry out the terms of this Agreement.
(b) Selling Trust is registered under the 1940 Act as an open-end
management investment company, and such registration has not been revoked or
rescinded and is in full force and effect.
(c) A statement of assets and liabilities, statement of operations,
statement of changes in net assets and schedule of investments (indicating their
market values) of Selling Fund for the fiscal year ended October 31, 2007,
audited by Ernst & Young LLP, Selling Fund's independent registered public
accounting firm, have been furnished to Acquiring Fund and an unaudited
statement of assets and liabilities, statement of operations, statement of
changes in net assets and schedule of investments (indicating their market
values) of Selling Fund for the six months ended April 30, 2008 will be
furnished to Acquiring Fund by June 20, 2008. The statements of assets and
liabilities and schedules of investments fairly present, or will fairly present,
the financial position of Selling Fund as of the dates thereof, and the
statements of operations and changes in net assets fairly reflect, or will
fairly reflect, the results of its operations and changes in net assets for the
periods covered thereby in conformity with U.S. generally accepted accounting
principles.
(d) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Selling Trust, threatened against Selling Trust
or Selling Fund which assert liability or which may, if successfully prosecuted
to their conclusion, result in liability on the part of Selling Fund, other than
as have been disclosed in the Registration Statement or otherwise disclosed in
writing to Acquiring Fund.
(e) Selling Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on its
statement of assets and liabilities as of October 31, 2007 and those incurred in
the ordinary course of Selling Fund's business as an investment company since
such date. Before the Exchange Date, Selling Fund will advise Acquiring Fund of
all material liabilities, contingent or otherwise, incurred by it subsequent to
October 31, 2007, whether or not incurred in the ordinary course of business.
(f) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Selling Trust, on
behalf of Selling Fund, of the transactions contemplated by this Agreement,
except such as may be required under the 1933 Act, the 1934 Act, the 1940 Act,
or state securities or blue sky laws.
(g) The Registration Statement, the Prospectus and the Proxy Statement,
on the effective date of the Registration Statement and insofar as they do not
relate to Acquiring Fund (i) will comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 8.1 hereof and on the Exchange
Date, the Prospectus, as amended or supplemented by any amendments or
supplements filed or requested to be filed with the Commission, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the representations and warranties in this
subsection will apply only to statements of fact or omissions of statements of
fact relating to Selling Fund contained in the Registration Statement, the
Prospectus or the Proxy Statement, as such Registration Statement, Prospectus
and Proxy Statement will be furnished to Selling Fund in definitive form as soon
as practicable following effectiveness of the Registration Statement and before
any public distribution of the Prospectus or Proxy Statement.
(h) Selling Fund's financial statements, copies of which have been
previously delivered to Acquiring Fund, fairly present in accordance with
generally accepted accounting principles consistently applied the financial
position of Selling Fund as of Selling Fund's most recent fiscal year-end and,
if applicable, semi-annual period-end, and the results of Selling Fund's
operations and changes in Selling Fund's known assets and known liabilities in
the ordinary course for the periods indicated. Selling Fund's financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied.
(i) There are no material contracts outstanding to which Selling Fund
is a party, other than as are set forth on Appendix A to this Agreement and
which will be disclosed in the Prospectus or the Proxy Statement.
(j) All of the issued and outstanding shares of beneficial interest of
Selling Fund have been offered for sale and sold by Selling Fund in conformity
with all applicable federal and state securities laws.
(k) For each taxable year of its operations (including the taxable year
ending on the Exchange Date), Selling Fund has met (or will meet) the
requirements for qualification as a "regulated investment company" under, and
has computed (or will compute) its federal tax liability in accordance with,
Sections 851 and 852 of the Code.
(l) To the knowledge of Selling Fund, Selling Fund does not have any
liabilities, other than liabilities disclosed or provided for in Selling Fund's
financial statements and liabilities incurred in the ordinary course of business
subsequent to the date of Selling Fund's financial statements or in connection
with the transactions contemplated hereby. Without limiting the generality of
the previous sentence, except for liabilities in connection with the
reimbursement of expenses in connection with transactions contemplated hereby,
Selling Fund does not have any liabilities to Van Liew Capital Inc. ("Van Liew")
or any other service provider of Selling Fund for fees previously waived or
deferred by Van Liew or any other such service provider.
(m) Selling Trust does not know of any claims, actions, suits,
inquiries, investigations or proceedings of any type pending or threatened
against Selling Fund, its assets or businesses or Selling Fund's adviser or
principal underwriters relating to the services such adviser or underwriter
provides to Selling Fund. Selling Trust does not know of any facts that it
currently has reason to believe are likely to form the basis for the institution
of any such claim, action, suit, inquiry, investigation or proceeding against
Selling Fund, or its adviser or principal underwriter relating to the services
such adviser or underwriter provides to Selling Fund. For purposes of this
provision, investment underperformance or negative investment performance shall
not be deemed to constitute such facts. Neither Selling Fund and to its
knowledge, neither of its adviser or principal underwriter is a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body that adversely affects, or is reasonably likely to adversely
affect, its financial condition, results of operations, business, properties or
assets or its ability to consummate the transactions contemplated by the
Agreement.
(n) Selling Fund is in compliance in all material respects with all
applicable laws, rules and regulations, including, without limitation, the 1940
Act, the 1933 Act, the 1934 Act and all applicable state securities laws, and,
from the date of this Agreement through the Exchange Date, shall comply in all
material respects with all newly adopted rules and regulations under the 1940
Act on or before their compliance dates. Selling Fund is in compliance in all
material respects with the investment policies and restrictions applicable to it
set forth in its Form N-1A Registration Statement currently in effect. The value
of the net assets of Selling Fund is determined using portfolio valuation
methods that comply in all material respects with the requirements of the 1940
Act and the policies of Selling Fund and all purchases and redemptions of shares
of Selling Fund have been effected at the net asset value per share calculated
in such a manner.
(o) Since the date of Selling Fund's financial statements, there has
been no material adverse change in the financial condition, results of
operations, business, properties or assets of Selling Fund. For purposes of this
provision, investment underperformance, negative investment performance or net
redemptions shall not be deemed to constitute such facts, provided all customary
performance disclosures have been made.
(p) Selling Trust, on behalf of Selling Fund, or Selling Fund has filed
or will file all federal and state tax returns which, to the knowledge of
Selling Trust's officers, are required to be filed by or on behalf of Selling
Fund and has paid or will pay all federal and state taxes shown to be due on
said returns or on any assessments received by Selling Fund. All tax liabilities
of Selling Fund have been adequately provided for on its books, and to the
knowledge of Selling Trust, no tax deficiency or liability of Selling Fund has
been asserted, and no question with respect thereto has been raised, by the
Internal Revenue Service or by any state or local tax authority for taxes in
excess of those already paid. Selling Fund is not under audit by the Internal
Revenue Service or by any state or local tax authority for taxes in excess of
those already paid.
(q) At both the Valuation Time and the Exchange Date, Selling Trust, on
behalf of Selling Fund, will have full right, power and authority to sell,
assign, transfer and deliver the Investments and any other assets and
liabilities of Selling Fund to be transferred to Acquiring Fund pursuant to this
Agreement. At the Exchange Date, subject only to the delivery of the Investments
and any such other assets and liabilities as contemplated by this Agreement,
Acquiring Fund will acquire the Investments and any such other assets and
liabilities subject to no encumbrances, liens or security interests whatsoever
and without any restrictions upon the transfer thereof (except as previously
disclosed to Acquiring Fund by Selling Fund).
(r) No registration under the 1933 Act of any of the Investments would
be required if they were, as of the time of such transfer, the subject of a
public distribution by either of Acquiring Fund or Selling Fund, except as
previously disclosed to Acquiring Fund by Selling Fund.
VI. CONDITIONS TO ACQUIRING FUND'S OBLIGATIONS
Section 6.1 Conditions. The obligations of Acquiring Fund hereunder are
subject to the following conditions:
(a) That this Agreement will have been adopted and the transactions
contemplated hereby will have been approved by (i) the affirmative vote of the
Trustees of Selling Trust (including a majority of those Trustees who are not
"interested persons" of Selling Trust or Selling Fund, as defined in Section
2(a)(19) of the 1940 Act) as required by the Declaration of Trust and By-laws of
Selling Trust, (ii) holders of a majority of the outstanding shares of Selling
Fund, and (iii) the Trustees of Acquiring Fund (including a majority of those
Trustees who are not "interested persons" of Acquiring Fund, as defined in
Section 2(a)(19) of the 1940 Act) as required by the Declaration of Trust and
By-laws of Acquiring Fund.
(b) That Selling Fund will have furnished to Acquiring Fund a statement
of Selling Fund's net assets, with values determined as provided in Section 2.2
hereof, together with a list of Investments with their respective tax costs, all
as of the Valuation Time, certified on Selling Fund's behalf by Selling Trust's
President and/or Treasurer and a certificate of both such officers, dated the
Exchange Date, to the effect that as of the Valuation Time and as of the
Exchange Date there has been no material adverse change in the financial
position of Selling Fund since April 30, 2008 other than changes in the
Investments and other assets and properties since that date or changes in the
market value of the Investments and other assets of Selling Fund or changes due
to dividends paid or losses from operations.
(c) That Selling Fund will have furnished to Acquiring Fund a
statement, dated the Exchange Date, signed on behalf of Selling Trust by Selling
Trust's President and/or Treasurer certifying that as of the Valuation Time and
as of the Exchange Date all representations and warranties of Selling Trust, for
itself and on behalf of Selling Fund, made in this Agreement are true and
correct in all material respects as if made at and as of such dates, and that
Selling Trust, for itself and on behalf of Selling Fund, has complied with all
of the agreements and satisfied all of the conditions on its part to be
performed or satisfied at or before each of such dates.
(d) That Selling Fund will have delivered to Acquiring Fund an agreed
upon procedures letter from Ernst & Young LLP dated the Exchange Date, setting
forth findings of Ernst & Young LLP pursuant to its performance of the agreed
upon procedures set forth therein relating to management's assertions that
Selling Fund, (i) for the taxable period from October 31, 2007 to the Exchange
Date, qualified as a regulated investment company under the Code, (ii) as of the
Exchange Date, has no liability other than liabilities stated for federal or
state income taxes and (iii) as of the Exchange Date, has no liability for
federal excise tax purposes under section 4982 of the Code.
(e) That Selling Fund will have delivered to Acquiring Fund a letter
dated as of the effective date of the N-14 Registration Statement from Ernst &
Young LLP in form and substance reasonably satisfactory to Acquiring Fund to the
effect that on the basis of limited procedures as reasonably agreed to by
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards):
(1) The data used in the preparation of the relevant unaudited pro
forma financial statements and relevant pro forma adjustments included in the
N-14 Registration Statement agree, in all material respects, with the underlying
accounting records of Selling Fund and Acquiring Fund, respectively, or with
schedules prepared by officers of Selling Fund or Acquiring Fund having
responsibility for financial and reporting matters;
(2) The data used in the calculation of any expense ratios of Selling
Fund appearing in the N-14 Registration Statement agree, in all material
respects, with the underlying accounting records of Selling Fund, as
appropriate, or with written estimates provided by officers of Selling Trust
having responsibility for financial and reporting matters; and
(3) The information relating to Selling Fund appearing in the N-14
Registration Statement that is expressed in dollars or percentages of dollars,
if any, has been obtained from the accounting records of Selling Fund, or from
schedules prepared by officers of Selling Trust having responsibility for
financial and reporting matters, and such information is in agreement, in all
material respects, with such records or schedules or with computations made
therefrom.
Acquiring Fund shall also have received a letter dated as of the
Exchange Date stating that to Ernst & Young LLP's knowledge the letter dated as
of the Effective Date of the N-14 Registration Statement (the "Prior Letter") is
true and correct, and no changes to the Prior Letter are necessary.
(f) That there will not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(g) That Acquiring Fund will have received an opinion of counsel to Selling
Trust dated the Exchange Date, in form satisfactory to Acquiring Fund, to the
effect that (i) Selling Trust is a business trust duly established and validly
existing under the laws of The Commonwealth of Massachusetts, and, to the
knowledge of such counsel, neither Selling Trust nor Selling Fund is required to
qualify to do business as a foreign association in any jurisdiction except as
may be required by state securities or blue sky laws, (ii) this Agreement has
been duly authorized, executed, and delivered by Selling Trust, on behalf of
Selling Fund, and, assuming that the Registration Statement, the Prospectus and
the Proxy Statement comply with the 1933 Act, the 1934 Act and the 1940 Act and
assuming due authorization, execution and delivery of this Agreement by
Acquiring Fund, is a valid and binding obligation of Selling Trust, on behalf of
Selling Fund, (iii) Selling Trust, on behalf of Selling Fund, has the power to
sell, assign, convey, transfer and deliver the assets contemplated hereby and,
upon consummation of the transactions contemplated hereby in accordance with the
terms of this Agreement, Selling Trust, on behalf of Selling Fund, will have
duly sold, assigned, conveyed, transferred and delivered such assets to
Acquiring Fund, (iv) the execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, violate
Selling Trust's Agreement and Declaration of Trust, as amended, or By-laws or
any provision of any agreement known to such counsel to which Selling Trust, on
behalf of Selling Fund, or Selling Fund is a party or by which either is bound,
(v) no consent, approval, authorization or order of any court or governmental
authority is required for the consummation by Selling Trust, on behalf of
Selling Fund, of the transactions contemplated hereby, except such as have been
obtained under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be
required under state securities or blue sky laws, and (vi) such other matters as
Acquiring Fund may reasonably deem necessary or desirable.
(h) That Acquiring Fund will have received an opinion of counsel to
Selling Trust dated the Exchange Date (which opinion would be based upon certain
factual representations, including without limitation representations of
Acquiring Fund contained herein or in an appropriate certificate of Acquiring
Fund delivered in connection with such opinion, and subject to certain
qualifications), reasonably satisfactory in form and substance to Acquiring
Fund, to the effect that, on the basis of the existing provisions of the Code,
current administrative rules and court decisions, generally for federal income
tax purposes: (i) the acquisition by Acquiring Fund of substantially all of the
assets of Selling Fund solely in exchange for Exchange Shares and the assumption
by Acquiring Fund of the Stated Liabilities of Selling Fund followed by the
distribution by Selling Fund to its shareholders of Exchange Shares in complete
liquidation of Selling Fund, all pursuant to the plan of reorganization,
constitutes a reorganization within the meaning of Section 368(a) of the Code
and Selling Fund and Acquiring Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code, (ii) no gain or loss will be
recognized by Acquiring Fund or its shareholders upon receipt of the Investments
transferred to Acquiring Fund pursuant to this Agreement in exchange for the
Exchange Shares, (iii) the basis to Acquiring Fund of the Investments will be
the same as the basis of the Investments in the hands of Selling Fund
immediately prior to such exchange, (iv) Acquiring Fund's holding periods with
respect to the Investments will include the respective periods for which the
Investments were held by Selling Fund and (v) Acquiring Fund will succeed to and
take into account the items of Selling Fund described in Section 381(c) of the
Code, subject to the conditions and limitations specified in Sections 381, 382,
383 and 384 of the Code and regulations thereunder; however, counsel to the
Selling Fund will express no view with respect to the effect of the
reorganization on any transferred asset as to which any unrealized gain or loss
is required to be recognized at the end of a taxable year (or on the termination
or transfer thereof) under federal income tax principles without reference to
whether such a termination or transfer would otherwise be a taxable transaction.
(i) That the assets of Selling Fund to be acquired by Acquiring Fund
will include no assets which Acquiring Fund, by reason of charter limitations or
of investment restrictions disclosed in the Registration Statement in effect on
the Exchange Date, may not properly acquire.
(j) That the Registration Statement will have become effective under
the 1933 Act as to Acquiring Fund's shares, and no stop order suspending such
effectiveness of the N-1A or N-14 Registration Statements will have been
instituted or, to the knowledge of Acquiring Fund, threatened by the Commission.
(k) That all proceedings taken by Selling Trust and Selling Fund in
connection with the transactions contemplated by this Agreement and all
documents incidental thereto will be satisfactory in form and substance to
Acquiring Fund and its counsel.
(l) Except to the extent prohibited by Rule 19b-1 under the 1940 Act,
before the Exchange Date, Selling Fund will have declared a dividend or
dividends which, together with all previous such dividends, will have the effect
of distributing to the shareholders of Selling Fund (i) all of the excess of (X)
Selling Fund's investment income excludable from gross income under Section 103
of the Code over (Y) Selling Fund's deductions disallowed under Sections 265 and
171 of the Code, (ii) all of Selling Fund's investment company taxable income
(as defined in Section 852 of the Code) for its taxable years ending on or after
October 31, 2007 and on or prior to the Exchange Date (computed in each case
without regard to any deduction for dividends paid), and (iii) all of its net
capital gain realized after reduction by any capital loss carryover in each of
its taxable years ending on or after October 31, 2007 and on or prior to the
Exchange Date.
(m) That Selling Fund's custodian will have delivered to Acquiring Fund
a certificate identifying all of the assets of Selling Fund held by such
custodian as of the Valuation Time.
(n) That Selling Fund's transfer agent will have provided to Acquiring
Fund (i) the originals or true copies of all of the records of Selling Fund in
the possession of such transfer agent as of the Exchange Date, (ii) a
certificate setting forth the number of shares of Selling Fund outstanding as of
the Valuation Time and (iii) the name and address of each holder of record of
any such shares and the number of shares held of record by each such
shareholder.
(o) That all of the issued and outstanding shares of beneficial
interest of Selling Fund will have been offered for sale by Selling Fund and
sold in conformity with all applicable state securities or blue sky laws and, to
the extent that any audit of the records of Selling Fund or its transfer agent
by Acquiring Fund or its agents will have revealed otherwise, either (i) Selling
Fund will have taken all actions that in the opinion of Acquiring Fund or its
counsel are necessary to remedy any prior failure on the part of Selling Fund to
have offered for sale and sold such shares in conformity with such laws or (ii)
Selling Fund will have furnished (or caused to be furnished) surety, or
deposited (or caused to be deposited) assets in escrow, for the benefit of
Acquiring Fund in amounts sufficient and upon terms satisfactory, in the opinion
of Acquiring Fund or its counsel, to indemnify Acquiring Fund against any
expense, loss, claim, damage or liability whatsoever that may be asserted or
threatened by reason of such failure on the part of Selling Fund to have offered
and sold such shares in conformity with such laws.
(p) That Selling Fund will have delivered to Acquiring Fund a statement
of (1) the assets of Selling Fund, as of the business day immediately preceding
the Exchange Date, showing the tax basis for federal income tax purposes by lot
and the holding period of such assets and (2) the capital loss carry forwards
for Selling Fund for federal income tax purposes and the taxable year(s) of
Selling Fund in which such capital losses were realized.
(q) That Acquiring Fund will have received from Ernst & Young LLP an
agreed upon procedures letter addressed to Acquiring Fund dated as of the
Exchange Date satisfactory in form and substance to Acquiring Fund setting forth
the findings of Ernst & Young LLP pursuant to its performance of the agreed upon
procedures set forth therein relating to management's assertion that as of the
Valuation Time the value of the assets of Selling Fund to be exchanged for the
Exchange Shares has been determined in accordance with the provisions of Section
2.2 hereof.
(r) That Selling Trust, on behalf of Selling Fund, will have executed
and delivered to Acquiring Fund an instrument of transfer dated as of the
Exchange Date pursuant to which Selling Trust, on behalf of Selling Fund, will
assign, transfer and convey all of the assets and other property to Acquiring
Fund at the Valuation Time in connection with the transactions contemplated by
this Agreement.
VII. CONDITIONS TO SELLING TRUST'S OBLIGATIONS
7.1 Conditions. The obligations of Selling Trust, on behalf of Selling
Fund, hereunder will be subject to the following conditions:
(a) That this Agreement will have been adopted and the transactions
contemplated hereby will have been approved by (i) the affirmative vote of the
Trustees of Selling Trust (including a majority of those Trustees who are not
"interested persons" of Selling Trust or Selling Fund, as defined in Section
2(a)(19) of the 1940 Act) as required by the Declaration of Trust and By-laws of
Selling Trust, (ii) holders of a majority of the outstanding shares of Selling
Fund, and (iii) the Trustees of Acquiring Fund (including a majority of those
Trustees who are not "interested persons" of Acquiring Fund, as defined in
Section 2(a)(19) of the 1940 Act) as required by the Declaration of Trust and
By-laws of Acquiring Fund.
(b) That Acquiring Fund will have furnished to Selling Fund a statement
of Acquiring Fund's net assets, together with a list of portfolio holdings with
values determined as provided in Section 2.2 hereof, all as of the Valuation
Time, certified on behalf of Acquiring Fund by Acquiring Fund's President and/or
Treasurer and a certificate of both such officers, dated the Exchange Date, to
the effect that as of the Valuation Time and as of the Exchange Date there has
been no material adverse change in the financial position of Acquiring Fund
since June 30, 2007, other than changes in its portfolio securities since that
date, changes due to net sales or net redemptions, changes in the market value
of its portfolio securities or changes due to dividends paid or losses from
operations.
(c) That Acquiring Fund will have executed and delivered to Selling
Fund an Assumption of Liabilities dated as of the Exchange Date pursuant to
which Acquiring Fund will assume all of the Stated Liabilities of Selling Fund
existing at the Valuation Time in connection with the transactions contemplated
by this Agreement.
(d) That Acquiring Fund will have furnished to Selling Fund a
statement, dated the Exchange Date, signed on behalf of Acquiring Fund by
Acquiring Fund's President and/or Treasurer, certifying that as of the Valuation
Time and as of the Exchange Date all representations and warranties of Acquiring
Fund made in this Agreement are true and correct in all material respects as if
made at and as of such dates, and that Acquiring Fund has complied with all of
the agreements and satisfied all of the conditions on its part to be performed
or satisfied at or prior to each of such dates.
(e) That there will not be any material litigation pending or
threatened with respect to the matters contemplated by this Agreement.
(f) That Selling Fund will have received an opinion of counsel to
Acquiring Fund, in form satisfactory to Selling Fund and dated the Exchange
Date, to the effect that (i) Acquiring Fund is a business trust duly established
and validly existing in conformity with the laws of The Commonwealth of
Massachusetts and, to the knowledge of such counsel, is not required to qualify
to do business as a foreign association in any jurisdiction except as may be
required by state securities or blue sky laws, (ii) this Agreement has been duly
authorized, executed and delivered by Acquiring Fund and, assuming that the
Prospectus, the Registration Statement and the Proxy Statements comply with the
1933 Act, the 1934 Act and the 1940 Act and assuming due authorization,
execution and delivery of this Agreement by Selling Trust, on behalf of Selling
Fund, is a valid and binding obligation of Acquiring Fund, (iii) the Exchange
Shares to be delivered to Selling Fund as provided for by this Agreement are
duly authorized and upon such delivery will be validly issued and will be fully
paid and nonassessable (except as set forth in the Registration Statement) by
Acquiring Fund and no shareholder of Acquiring Fund has any preemptive right to
subscription or purchase in respect thereof, (iv) the execution and delivery of
this Agreement did not, and the consummation of the transactions contemplated
hereby will not, violate Acquiring Fund's Agreement and Declaration of Trust, as
amended, or By-laws, or any provision of any agreement known to such counsel to
which Acquiring Fund is a party or by which it is bound, it being understood
that with respect to investment restrictions as contained in Acquiring Fund's
Agreement and Declaration of Trust, as amended, By-laws or the Registration
Statement, such counsel may rely upon a certificate of an officer of Acquiring
Fund whose responsibility it is to advise Acquiring Fund with respect to such
matters, (v) no consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Acquiring Fund of the
transactions contemplated herein, except such as have been obtained under the
1933 Act, the 1934 Act and the 1940 Act and such as may be required under state
securities or blue sky laws and (vi) the Registration Statement has become
effective under the 1933 Act, and, to the best of the knowledge of such counsel,
no stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the 1933 Act.
(g) That all proceedings taken by or on behalf of Acquiring Fund in
connection with the transactions contemplated by this Agreement and all
documents incidental thereto will be satisfactory in form and substance to
Selling Trust and its counsel.
(h) That the Registration Statement will have become effective under
the 1933 Act and no stop order suspending such effectiveness will have been
instituted or, to the knowledge of Acquiring Fund, threatened by the Commission.
(i) That Acquiring Fund will have delivered to Selling Fund a
statement certifying as to such factual matters concerning Acquiring Fund as are
reasonably necessary for counsel to Selling Fund to deliver the opinion referred
to in subsection 6.1(h).
VIII. MEETING OF SHAREHOLDERS; DISSOLUTION
8.1 Meeting of Shareholders of Selling Fund. Selling Trust, on behalf
of Selling Fund, agrees to hold a meeting of Selling Fund's shareholders as soon
as is practicable after the effective date of the Registration Statement for,
among other things, the purpose of considering the matters contemplated by this
Agreement.
8.2 Dissolution. Selling Trust agrees that the liquidation and
dissolution of Selling Fund will be effected in the manner provided in its
Agreement and Declaration of Trust, as amended, in accordance with applicable
law and that on and after the Exchange Date, Selling Fund will not conduct any
business except in connection with its liquidation and dissolution.
IX. FEES AND EXPENSES
9.1 Payment of Fees and Expenses.
(a) All fees and expenses, including legal and accounting expenses,
proxy materials and proxy solicitation with respect to Selling Fund, the costs
of liquidating before the Exchange Date portfolio securities of Selling Fund to
the extent required under Section 3(b) hereof, portfolio transfer taxes (if any)
or other similar expenses incurred in connection with the consummation by
Selling Fund and Acquiring Fund of the transactions contemplated by this
Agreement (together with the SEC registration fee specified below, "Expenses")
will be borne by Selling Fund, except that Aquila Investment Management LLC
shall contribute up to $20,000 for the fees of counsel to Selling Fund and
Selling Fund's independent accountants for legal and accounting expenses, and
for printing and postage in connection with the mailing of the Registration
Statement; provided, however, that such Expenses will in any event be paid by
the party directly incurring such Expenses if and to the extent that the payment
by the other party of such Expenses would result in the disqualification of
Acquiring Fund or Selling Fund, as the case may be, as a "regulated investment
company" within the meaning of Section 851 of the Code.
(b) In the event the transactions contemplated by this Agreement are
not consummated for any reason, then each of Acquiring Fund and Selling Fund
will bear all of its own expenses incurred in connection with such transactions.
(c) Notwithstanding any other provisions of this Agreement, if for any
reason the transactions contemplated by this Agreement are not consummated, no
party will be liable to the other party for any damages resulting therefrom,
including without limitation consequential damages, except as specifically set
forth above.
X. BROKERS
10.1 Brokers. Each of Selling Trust, on behalf of Selling Fund, and
Acquiring Fund represents that there is no person who has dealt with it who by
reason of such dealings is entitled to any broker's or finder's or other similar
fee or commission arising out of the transactions contemplated by this
Agreement.
XI. TERMINATION
11.1 Termination. Selling Trust and Acquiring Fund may, by mutual
consent of their Trustees, terminate this Agreement, and Selling Trust or
Acquiring Fund, after consultation with counsel and by consent of their Trustees
or an officer authorized by such Trustees, may waive any condition to their
respective obligations hereunder. If the transactions contemplated by this
Agreement have not been substantially completed by October 15, 2008 this
Agreement will automatically terminate on that date unless a later date is
agreed to by Selling Trust, on behalf of Selling Fund, and Acquiring Fund.
XII. MISCELLANEOUS
12.1 Covenants, etc. Deemed Material. All covenants, agreements,
representations and warranties made under this Agreement and any certificates
delivered pursuant to this Agreement will be deemed to have been material and
relied upon by each of the parties, notwithstanding any investigation made by
them or on their behalf.
12.2 Sole Agreement; Amendments. This Agreement supersedes all previous
correspondence and oral communications between the parties regarding the subject
matter hereof, constitutes the only understanding with respect to such subject
matter, may not be changed except by a letter of agreement signed by each party
hereto and will be construed in accordance with and governed by the laws of The
Commonwealth of Massachusetts without giving effect to the conflicts of laws
provisions thereof.
12.3 Agreement and Declaration of Trust. Copies of the Agreements and
Declarations of Trust, as amended, of Selling Trust and Acquiring Fund are on
file with the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of each
of Selling Trust and Acquiring Fund, respectively, as Trustees and not
individually and that the obligations of this instrument are not binding upon
any of the Trustees or officers of Selling Trust, the shareholders of Selling
Fund, or the Trustees, officers or shareholders of Acquiring Fund individually
but are binding only upon the assets and property of Selling Fund and Acquiring
Fund, respectively.
12.4 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which, when executed and delivered, will be
deemed to be an original.
[Signatures Appear on Following Page]
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all
as of the date first written above.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
By: /s/ Diana P. Herrmann
----------------------
Name: Diana P. Herrmann
Title: President
VLC TRUST, for itself and on behalf of
Ocean State Tax Exempt Fund
By: /s/ Alfred B. Van Liew
----------------------
Name: Alfred B. Van Liew
Title: President
Appendix A
Material Contracts
Investment Advisory Agreement dated March of 1988 between Van Liew Capital Inc.,
as adviser, and the Selling Fund.
Distribution Agreement dated May 31, 1990 between Van Liew Securities Inc., as
distributer, and the Selling Fund, with respect to the Selling Fund's Class A
shares.
Distribution Agreement dated February 10, 2000 between Van Liew Securities Inc.,
as distributer, and the Selling Fund, with respect to the Selling Fund's Class I
shares.
Transfer Agency Agreement between the Selling Fund and Provident Financial
Processing Corporation dated July 1, 2005.
Custodian Agreement between the Selling Fund and Provident National Bank dated
November 19, 1986, as assigned to PFPC Trust Company on December 31, 1998.
PROXY TABULATOR
P.O. BOX 9112
FARMINGDALE, NY 11735
To vote by Internet
1) Read the Proxy Statement and have the proxy card below at hand.
2) Go to website www.proxyvote.com
3) Follow the instructions provided on the website.
To vote by Telephone
1) Read the Proxy Statement and have the proxy card below at hand.
2) Call 1-800-690-6903
3) Follow the instructions.
To vote by Mail
1) Read the Proxy Statement.
2) Check the appropriate boxes on the proxy card below.
3) Sign and date the proxy card.
4) Return the proxy card in the envelope provided.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
OCEAN STATE TAX-EXEMPT FUND
1) To approve an Agreement and Plan of Reorganization providing for the exchange
of the assets and certain stated liabilities of the Fund for Class A Shares of
Narragansett Insured Tax-Free Income Fund (the "Narragansett Fund") and the
receipt by the shareholders of the Fund of Class A Shares of the Narragansett
Fund, in exchange for their shares and in liquidation of the Fund;
For Against Abstain
-- -- --
[--] [--] [--]
2) In their discretion, upon such other matters as may properly come before the
meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1.
PLEASE DATE, SIGN AND RETURN THIS PROXY
(Sign exactly as your name appears hereon. When signing as attorney, executor,
administrator, trustee, guardian or in a corporate capacity, please give full
title as such. In case of joint tenants or multiple owners, each party must
sign.)
---------------------------------- ---- ----------------------------- ----
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
OCEAN STATE TAX-EXEMPT FUND
A Series of VLC Trust
Special Meeting of Shareholders -- September 29, 2008
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE FUND
The undersigned, whose signature appears on the reverse side, hereby appoints
Alfred B. Van Liew and Kevin Oates, and each of them (with the full power of
substitution and with all the powers the undersigned would possess if personally
present), proxies for the undersigned to represent and to vote the shares held
of record on August 4, 2008 of the undersigned in Ocean State Tax-Exempt Fund, a
Series of VLC Trust (the "Fund"), at the special meeting of shareholders to be
held September 29, 2008, at the offices of the Fund, One Regency Plaza,
Providence, Rhode Island 02903, and at any adjournments thereof, as directed on
the reverse side.
STATEMENT OF ADDITIONAL INFORMATION
August 22, 2008
Asset Transfer
by
OCEAN STATE TAX-EXEMPT FUND
(a series of VLC Trust)
One Regency Plaza
Providence, Rhode Island 02903
1-800-300-1116
1-401-421-1411
to
NARRAGANSETT INSURED TAX-FREE INCOME FUND
380 Madison Avenue, Suite 2300
New York, New York 10017
1-800-437-1020
1-212-697-6666
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the Prospectus/Proxy
Statement dated August 22, 2008, relating specifically to the proposed exchange
(the "Asset Transfer") by Ocean State Tax-Exempt Fund, a series of VLC Trust
(the "Fund"), of its assets and certain stated liabilities for Class A Shares of
Narragansett Insured Tax-Free Income Fund (the "Narragansett Fund"). This
Statement of Additional Information consists of this cover page, the
accompanying pro forma financial statements and related notes, and the following
documents, each of which was filed electronically with the Securities and
Exchange Commission and is incorporated by reference herein:
1. The Narragansett Fund's Statement of Additional Information
dated October 24, 2007.
2. The financial statements contained in Narragansett Fund's
Annual Report for the fiscal year ended June 30, 2007.
3. The financial statements contained in Narragansett Fund's
Semi-Annual Report for the six month period ended December 31,
2007.
4. The Fund's Statement of Additional Information dated March 1,
2008.
5. The financial statements contained in the Fund's Annual Report
for the fiscal year ended October 31, 2007.
6. The financial statements contained in the Fund's Semi-Annual
Report for the six month period ended April 30, 2008.
The Prospectus/Proxy Statement dated August 22, 2008 may be obtained by
writing the Narragansett Fund at 380 Madison Avenue, Suite 2300, New York, New
York 10017.
DOCUMENTS INCORPORATED BY REFERENCE
The Narragansett Fund's Statement of Additional Information dated
October 24, 2007 is incorporated herein by reference to the Narragansett Fund's
Post Effective Amendment No. 19 to its Registration Statement on Form N-1A,
filed October 17, 2007 (File No. 811-06707). The financial statements of the
Narragansett Fund are incorporated herein by reference to its Annual Report
dated June 30, 2007, filed September 7, 2007.
The Fund's Statement of Additional Information dated March 1, 2008 is
incorporated herein by reference to the Fund's Post Effective Amendment No. 27
to its Registration Statement on Form N-1A, filed February 28, 2008 (File No.
811-04788). The financial statements of the Fund are incorporated herein by
reference to its Annual Report dated October 31, 2007, filed January 7, 2008.
The pro forma financial statements below are furnished as part of the
Statement of Additional Information which supplements the Prospectus/Proxy
Statement dated August 22, 2008. The pro forma financial statements are being
provided to shareholders of the Fund in connection with the Special Meeting of
the Shareholders of the Fund to be held on September 29, 2008 to seek
shareholder approval of the transfer of the assets and certain stated
liabilities of the Fund in exchange for Class A Shares of the Narragansett Fund.
The pro forma schedule of investments and statement of assets and liabilities,
both at December 31, 2007, are presented as if the asset transfer had occurred
on that date. The pro forma statement of operations is presented as of June 30,
2007, as if the asset transfer had occurred on that date.
Narragansett Insured Tax-Free Income Fund
Pro Forma
Schedule of Investments
December 31, 2007
(unaudited)
-------------------------------------- ----------------------- --------------------------------------------------------------
% of Combined
Pro Forma Value
Narragansett Ocean Narragansett Combined Narragansett Ocean
Insured State Insured Net Assets Insured State
Tax-Free Tax-Exempt Tax-Free Tax-Free Tax-Exempt
Income Fund Income Income Fund
Fund Pro Forma Fund Market
Combined Market Value
Value
Principal
Amount General Obligation Bonds 41.1%
---------------------------------------
---------- --------- ------------ --------------------------------------------
Barrington, Rhode Island School
District
$ 500,000(a)$ 500,000 5.000%, 10/01/14 $ 522,215 $ 522,215
Coventry, Rhode Island
$550,000 550,000 5.000%, 11/01/16 AMBAC Insured $ 580,641 580,641
550,000 550,000 5.000%, 11/01/17 AMBAC Insured 576,824 576,824
Cranston, Rhode Island
5.450%, 11/15/11 FGIC Insured
500,000 500,000 526,850 526,850
1,000,000 1,000,000 4.250%, 04/01/18 MBIA Insured 1,015,950 1,015,950
1,000,000 1,000,000 4.250%, 04/01/19 MBIA Insured 1,011,740 1,011,740
1,000,000 1,000,000 4.300%, 04/01/20 MBIA Insured 1,011,020 1,011,020
5.000%, 2/15/22 FSA Insured
250,000 250,000 263,015 263,015
5.000%, 2/15/24 FSA Insured
250,000 250,000 261,360 261,360
1,500,000 1,500,000 4.500%, 04/01/26 MBIA Insured 1,496,205 1,496,205
Cumberland, Rhode Island
250,000 250,000 4.000%, 02/01/14 FGIC Insured 255,645 255,645
250,000 250,000 4.000%, 02/01/15 FGIC Insured 254,595 254,595
500,000(b) 500,000 5.000%, 08/01/15 MBIA Insured 513,905 513,905
250,000 250,000 4.000%, 02/01/16 FGIC Insured 253,320 253,320
250,000 250,000 4.100%, 02/01/17 FGIC Insured 253,310 253,310
250,000 250,000 4.150%, 02/01/18 FGIC Insured 253,075 253,075
1,255,000 1,255,000 5.000%, 10/01/18 MBIA Insured 1,306,104 1,306,104
1,040,000 1,040,000 5.200%, 10/01/21 MBIA Insured 1,088,058 1,088,058
Lincoln, Rhode Island
2,000,000 2,000,000 4.500%, 08/01/26 MBIA Insured 1,994,940 1,994,940
Middletown, Rhode Island
225,000(a) 225,000 4.000%, 7/15/12 230,909 230,909
New Shoreham, Rhode Island
245,000 245,000 4.000%, 11/15/15 AMBAC Insured 249,768 249,768
255,000 255,000 4.250%, 11/15/16 AMBAC Insured 261,638 261,638
270,000 270,000 4.250%, 11/15/17 AMBAC Insured 275,821 275,821
910,000 910,000 4.800%, 04/15/18 AMBAC Insured 944,498 944,498
285,000 285,000 4.500%, 11/15/18 AMBAC Insured 294,029 294,029
1,105,000 1,105,000 5.000%, 04/15/22 AMBAC Insured 1,156,427 1,156,427
Newport, Rhode Island
1,000,000 1,000,000 4.500%, 11/01/15 AMBAC Insured 1,040,210 1,040,210
1,000,000 1,000,000 4.750%, 11/01/18 AMBAC Insured 1,040,320 1,040,320
800,000 800,000 5.000%, 11/01/20 AMBAC Insured 838,136 838,136
North Kingstown, Rhode Island
500,000 500,000 3.750%, 10/01/12 FGIC Insured 508,025 508,025
200,000 200,000 5.700%, 10/01/18 FGIC Insured 210,950 210,950
North Providence, Rhode Island
500,000 500,000 4.700%, 09/15/14 FSA Insured 521,320 521,320
500,000 500,000 3.650%, 10/15/14 FSA Insured 504,920 504,920
500,000 500,000 3.750%, 10/15/15 FSA Insured 504,120 504,120
250,000 250,000 4.000%, 10/15/17 FSA Insured 252,950 252,950
Pawtucket, Rhode Island
600,000 600,000 4.300%, 09/15/09 AMBAC Insured 612,090 612,090
250,000 250,000 4.400%, 09/15/10 AMBAC Insured 258,140 258,140
910,000 910,000 4.000%, 04/15/14 AMBAC Insured 927,545 927,545
Providence, Rhode Island
700,000 700,000 5.500%, 01/15/11 FSA Insured 704,858 704,858
500,000 500,000 5.000%, 7/15/14 FSA Insured 544,965 544,965
1,000,000 1,000,000 5.000%, 01/15/16 FGIC Insured 1,061,860 1,061,860
1,000,000 1,000,000 5.000%, 01/15/17 FGIC Insured 1,061,860 1,061,860
1,000,000 1,000,000 5.000%, 01/15/18 FGIC Insured 1,061,860 1,061,860
Rhode Island Consolidated
Capital
Development Loan
1,000,000(b) 1,000,000 5.125%, 07/15/11 FGIC Insured 1,019,760 1,019,760
250,000 250,000 5.000%, 09/01/15 FGIC Insured 255,843 255,843
250,000 250,000 5.000%, 09/01/16 FGIC Insured 255,843 255,843
1,000,000 1,000,000 5.000%, 09/01/14 Series A FGIC
Insured 1,023,370 1,023,370
1,000,000 1,000,000 5.500%, 09/01/16 Series A FGIC Insured 1,049,790 1,049,790
1,500,000 1,500,000 5.000%, 09/01/15 FGIC Insured 1,535,055 1,535,055
1,500,000 1,500,000 4.750%, 09/01/17 Series A FGIC Insured 1,532,625 1,532,625
South Kingstown, Rhode Island
500,000 500,000 5.500%, 06/15/12 FGIC Insured 532,945 532,945
State of Rhode Island, Kent County
Courthouse
250,000 250,000 5.000%, 10/01/22 MBIA Insured 261,770 261,770
State of Rhode Island
1,000,000 1,000,000 5.250%, 11/01/11 Series C MBIA Insured 1,069,860 1,069,860
2,000,000 2,000,000 5.000%, 08/01/12 Series B MBIA Insured 2,137,100 2,137,100
1,000,000 1,000,000 5.000%, 06/01/14 Series B FGIC Insured 1,050,070 1,050,070
4,000,000 4,000,000 5.000%, 08/01/14 FGIC Insured 4,209,480 4,209,480
2,000,000 2,000,000 5.000%, 08/01/15 Series B FGIC Insured 2,095,820 2,095,820
2,000,000 2,000,000 4.500%, 02/01/17 MBIA Insured 2,064,300 2,064,300
2,000,000 2,000,000 5.250%, 11/01/17 FGIC Insured 2,178,140 2,178,140
2,500,000 500,000 3,000,000 5.000%, 09/01/18 MBIA Insured 2,632,000 526,220 3,158,220
2,000,000 2,000,000 5.000%, 09/01/19 MBIA Insured 2,102,580 2,102,580
1,500,000 1,500,000 5.000%, 09/01/20 MBIA Insured 1,573,245 1,573,245
Warwick, Rhode Island
250,000 250,000 4.000%, 07/15/11 FSA Insured 256,288 256,288
250,000 250,000 4.125, 08/01/13 FSA Insured 257,338 257,338
665,000 665,000 4.250%, 07/15/14 AMBAC Insured 685,442 685,442
195,000(b) 195,000 5.600%, 08/01/14 FSA Insured 199,286 199,286
700,000 700,000 4.375%, 07/15/15 AMBAC Insured 722,190 722,190
770,000 770,000 4.600%, 07/15/17 AMBAC Insured 795,087 795,087
1,000,000(b) 1,000,000 5.000%, 03/01/18 FGIC Insured 1,022,240 1,022,240
905,000 905,000 4.250%, 01/15/18 XLCA Insured 922,267 922,267
810,000 810,000 4.700%, 07/15/18 AMBAC Insured 838,366 838,366
1,000,000 1,000,000 5.000%, 01/15/19 FGIC Insured 1,045,000 1,045,000
855,000 855,000 4.750%, 07/15/19 AMBAC Insured 883,831 883,831
500,000 500,000 5.000%, 01/15/20 FGIC Insured 522,355 522,355
West Warwick, Rhode Island
500,000 500,000 4.875%, 03/01/16 AMBAC Insured 522,230 522,230
670,000 670,000 5.000%, 03/01/17 AMBAC Insured 702,991 702,991
700,000 700,000 5.050%, 03/01/18 AMBAC Insured 736,631 736,631
735,000 735,000 5.100%, 03/01/19 AMBAC Insured 773,418 773,418
500,000(a) 500,000 5.000%, 10/15/25 511,310 511,310
Westerly, Rhode Island
4.000%, 07/01/17 MBIA Insured
900,000 900,000 912,960 912,960
4.000%, 07/01/18 MBIA Insured
900,000 900,000 908,397 908,397
Woonsocket, Rhode Island
4.450%, 12/15/12 FGIC Insured
655,000 655,000 673,753 673,753
4.550%, 12/15/13 FGIC Insured
685,000 685,000 705,146 705,146
--------------------------------------
Total General Obligation Bonds 66,547,567 5,660,766 72,208,333
--------------------------------------
Revenue Bonds 57.3%
----------------------------------------
Development Revenue Bonds 10.4%
----------------------------------------
Providence Rhode Island Redevelopment
Agency
Revenue Refunding Public Safety
Building Project
500,000 500,000 5.250%, 02/01/10 AMBAC Insured 505,735 505,735
1,925,000 1,925,000 5.200%, 04/01/11 AMBAC Insured
(pre-refunded) 2,027,622 2,027,622
500,000 500,000 5.300%, 04/01/12 AMBAC Insured 527,730 527,730
200,000(a) 200,000 4.250%, 9/01/13 Radian Insured 201,694 201,694
Rhode Island Convention Center
Authority
Revenue
Refunding
925,000 925,000 5.000%, 05/15/10 Series 1993
B MBIA Insured 963,221 963,221
Rhode Island Public Building
Authority State
Public Projects
1,000,000 1,000,000 5.250%, 02/01/09 Series 1998 A AMBAC
Insured 1,011,580 1,011,580
Rhode Island State Economic Development
Corp.,
Airport Revenue
1,000,000(b) 450,000(b)1,450,000 5.000%, 07/01/18 Series B FSA Insured 1,015,450 456,930 1,472,380
500,000(b) 500,000 5.250%, 7/01/12 FSA Insured 509,265 509,265
395,000(b) 395,000 5.250%, 7/01/13 FSA Insured 402,201 402,201
545,000(b) 545,000 5.250%, 7/01/14 FSA Insured 554,859 554,859
Rhode Island State Economic Development Corp.,
Airport Revenue Refunding
1,670,000 1,670,000 5.000%, 07/01/13 Series C MBIA Insured 1,782,124 1,782,124
Rhode Island State Economic Development Corp.,
Department of Transportation
395,000(a) 395,000 5.000%, 06/15/10 411,791 411,791
Rhode Island State Economic Development Corp.,
Motor Fuel Tax Revenue (Rhode Island
Department of Transportation)
500,000 500,000 3.750%, 06/15/13 AMBAC Insured 508,380 508,380
1,000,000 1,000,000 4.000%, 06/15/15 Series A AMBAC Insured 1,019,110 1,019,110
1,000,000 1,000,000 4.000%, 06/15/18 Series 2006A AMBAC Insured 1,005,690 1,005,690
Rhode Island State Economic Development
Corp., (Rhode Island Airport Corp. Intermodal
Facility Project)
1,000,000 1,000,000 4.250%, 07/01/17 CIFG Assurance North America,
Inc. Insured 1,012,090 1,012,090
Rhode Island State Economic Development Corp.,
University of Rhode Island
750,000 750,000 4.800%, 11/01/11 Series 1999 FSA Insured 776,123 776,123
750,000 750,000 4.900%, 11/01/12 Series 1999 FSA Insured 777,300 777,300
750,000 750,000 4.900%, 11/01/13 Series 1999 FSA Insured 777,300 777,300
750,000 750,000 5.000%, 11/01/14 Series 1999 FSA Insured 779,295 779,295
Rhode Island State Economic Development Corp.,
Providence Place Mall
900,000(b) 900,000 6.125%, 7/01/00 AMBAC Insured 963,027 963,027
Rhode Island State Lease Participation
Certificates, Shepards Building
300,000(b) 300,000 5.125%, 6/01/12 AMBAC Insured 303,195 303,195
---------------------------------------
Total Development Revenue Bonds 12,946,905 5,344,807 18,291,712
--------------------------------------
Higher Education and Hospital Revenue Bonds 30.6%
----------------------------------------------
Providence, Rhode Island Public Building
Authority, School Projects
150,000 150,000 5.500%, 12/15/13 MBIA Insured 151,788 151,788
500,000 500,000 5.500%, 12/15/14 Series 1996 B MBIA Insured 505,965 505,965
500,000 500,000 5.500%, 12/15/15 Series 1996 B MBIA Insured 505,965 505,965
1,000,000 1,000,000 5.250%, 12/15/14 Series 1998 FSA Insured 1,038,840 1,038,840
500,000 500,000 5.125%, 12/15/14 AMBAC Insured 526,155 526,155
500,000 500,000 5.000%, 12/15/09 Series 1999 A AMBAC Insured 518,095 518,095
1,395,000 1,395,000 4.000%, 12/15/12 Series 2003 A MBIA Insured 1,434,074 1,434,074
1,450,000 1,450,000 4.000%, 12/15/13 Series 2003 A MBIA Insured 1,485,293 1,485,293
1,505,000 1,505,000 4.000%, 12/15/14 Series 2003 A MBIA Insured 1,534,769 1,534,769
1,570,000 1,570,000 4.000%, 12/15/15 Series 2003 A MBIA Insured 1,593,927 1,593,927
250,000 250,000 5.250%, 12/15/15 AMBAC Insured 263,858 263,858
1,630,000 1,630,000 4.000%, 12/15/16 Series 2003 A MBIA Insured 1,646,740 1,646,740
685,000 685,000 5.000%, 12/15/18 FSA Insured 705,071 705,071
Providence, Rhode Island Public Building
School & Public Facilities Project
1,500,000 1,500,000 5.250%, 12/15/17 AMBAC Insured 1,582,845 1,582,845
1,000,000 1,000,000 5.250%, 12/15/19 AMBAC Insured 1,055,230 1,055,230
100,000(a) 100,000 5.500%, 5/15/16 FSA Insured 113,025 113,025
Rhode Island Health & Education Building Corp.,
Times Square Academy
500,000(a) 500,000 5.000%, 12/15/24 LOC Citizens 504,950 504,950
Rhode Island Health & Education Building Corp.,
Brown University
2,000,000 2,000,000 5.250%, 09/01/17 Series 1993 MBIA Insured 2,119,100 2,119,100
Rhode Island Health & Education Building Corp.,
Bryant College
100,000(a) 100,000 4.600%, 06/01/12 AMBAC Insured 105,206 105,206
1,000,000 1,000,000 5.125%, 06/01/19 AMBAC Insured 1,049,970 1,049,970
230,000 230,000 5.000%, 12/01/21 AMBAC Insured 238,998 238,998
Rhode Island Health & Education Building
Corp., Public School Financing
500,000 500,000 5.00%, 05/15/20 FSA Insured 540,740 540,740
1,000,000 1,000,000 4.25%, 05/15/21 Series B FSA Insured 1,006,880 1,006,880
Rhode Island Health & Education Building
Corp., Higher Educational Facilities
1,010,000 1,010,000 3.625%, 09/15/14 Series 2003 B MBIA Insured 1,007,879 1,007,879
1,050,000 1,050,000 4.000%, 09/15/15 Series 2003 B MBIA Insured 1,062,768 1,062,768
1,040,000 1,040,000 4.000%, 09/15/16 Series 2003 B MBIA Insured 1,046,802 1,046,802
600,000 600,000 3.625%, 09/15/14 Series 2003 C MBIA Insured 598,740 598,740
500,000 500,000 4.000%, 09/15/15 Series 2003 C MBIA Insured 506,080 506,080
500,000 500,000 4.000%, 09/15/16 Series 2003 C MBIA Insured 503,270 503,270
Rhode Island Health & Education Building
Corp., Johnson & Wales University
465,000 465,000 5.500%, 04/01/15 Series 1999 A MBIA Insured 520,223 520,223
900,000 900,000 5.500%, 04/01/16 Series 1999 A MBIA Insured 1,012,761 1,012,761
785,000 785,000 5.500%, 04/01/17 Series 1999 A MBIA Insured 886,179 886,179
1,360,000 1,360,000 4.000%, 04/01/12 Series 2003 XLCA Insured 1,391,919 1,391,919
3,210,000 3,210,000 4.000%, 04/01/13 Series 2003 XLCA Insured 3,287,650 3,287,650
2,000,000 2,000,000 4.000%, 04/01/14 Series 2003 XLCA Insured 2,036,860 2,036,860
500,000 500,000 5.250%, 04/01/14 XLCA Insured 539,805 539,805
750,000 750,000 5.000%, 04/01/29 MBIA Insured 765,450 765,450
Rhode Island Health & Education
Building Corp., Rhode Island School
of Design
250,000 250,000 4.400%, 06/01/15 MBIA Insured 258,873 258,873
585,000 585,000 4.600%, 06/01/17 MBIA Insured 605,639 605,639
505,000 505,000 4.700%, 06/01/18 Series 2001 MBIA Insured 524,513 524,513
280,000 280,000 4.750%, 06/01/19 Series 2001 MBIA Insured 290,388 290,388
Rhode Island Health & Education Building
Corp., Roger Williams University
500,000 500,000 5.125%, 11/15/11 AMBAC Insured 517,760 517,760
1,000,000 1,000,000 5.125%, 11/15/14 Series 1996 S AMBAC Insured 1,035,260 1,035,260
1,000,000 1,000,000 5.000%, 11/15/18 Series 1996 S AMBAC Insured 1,033,500 1,033,500
Rhode Island Health & Educational Building
Corp., University of Rhode Island
800,000 800,000 5.000%, 09/15/23 Series 2003 C Refunding
MBIA Insured 832,080 832,080
1,200,000 1,200,000 4.000%, 09/15/11 Series 2005 G AMBAC Insured 1,231,908 1,231,908
1,200,000 1,200,000 4.125%, 09/15/12 Series 2005 G AMBAC Insured 1,241,652 1,241,652
1,200,000 1,200,000 4.125%, 09/15/13 Series 2005 G AMBAC Insured 1,244,040 1,244,040
100,000(a) 100,000 5.200%, 09/15/15 AMBAC Insured 106,363 106,363
300,000 300,000 5.200%, 09/15/16 AMBAC Insured 319,089 319,089
1,000,000 1,000,000 4.500%, 09/15/26 Series 2005 G Refunding
AMBAC Insured 1,001,880 1,001,880
Rhode Island Health & Educational
Building Corp., Salve Regina
250,000(a) 250,000 5.250%, 3/15/18 Radian Insured 258,090 258,090
Rhode Island Health & Education Building
Corp., Lifespan
30,000(a) 30,000 5.750%, 5/15/23 MBIA Insured 30,588 30,588
Rhode Island Health & Education Building
Corp., St. Antoine
500,000(a) 500,000 6.125%, 11/15/18 LOC Allied Irish Bank 517,035 517,035
Rhode Island Health & Education Facilities
Authority Providence College
1,000,000 1,000,000 4.250%, 11/01/14 XLCA Insured 1,033,310 1,033,310
2,500,000 2,500,000 4.375%, 11/01/15 XLCA Insured 2,573,050 2,573,050
2,500,000 2,500,000 4.500%, 11/01/16 XLCA Insured 2,587,900 2,587,900
1,000,000 1,000,000 4.500%, 11/01/17 XLCA Insured 1,027,800 1,027,800
-----------------------------------
Total Higher Education & Hospital
Revenue Bonds 47,352,863 6,311,725 53,664,588
------------------------------------
Housing Revenue Bonds 1.2%
----------------------------------------------
Rhode Island Housing & Mortgage Finance
Corp. Homeowner Opportunity
1,000,000 1,000,000 3.750%, 10/01/13 Series 50-A MBIA Insured 993,830 993,830
10,000(b) 10,000 6.5000%, 10/01/22 10,018 10,018
5,000(b) 5,000 6.500%, 4/01/27 5,019 5,019
200,000(a) 200,000 3.950%, 10/01/15 201,026 201,026
950,000(a) 950,000 4.300%, 10/01/17 950,428 950,428
---------------------------------
Total Housing Revenue Bonds 993,830 1,166,491 2,160,321
---------------------------------
Lease Revenue Bonds 0.6%
----------------------------------------------
Rhode Island State and Providence
Plantations
Lease Participation
Certificates (Central Power Plant)
1,000,000 1,000,000 4.000%, 10/01/20 Series D FSA Insured 995,010 995,010
---------------------------------
Total Lease Revenue Bonds 995,010 - 995,010
---------------------------------
Pollution Control Revenue Bonds 3.9%
----------------------------------------------
Rhode Island Clean Water Finance Agency,
Water Pollution
Control Bonds
225,000 225,000 5.000%, 10/01/18 MBIA Insured 232,607 232,607
1,800,000 1,800,000 5.000%, 10/01/18 Series 2002 B MBIA Insured 1,880,892 1,880,892
4,765,000 4,765,000 4.375%, 10/01/21 Series 2002 B MBIA Insured 4,808,405 4,808,405
-----------------------------------
Total Pollution Control Revenue Bonds 6,689,297 232,607 6,921,904
-----------------------------------
Water and Sewer Revenue Bonds 8.3%
----------------------------------------------
Bristol County, Rhode Island Water Authority
750,000 750,000 5.250%, 07/01/17 Series 1997 A MBIA Insured 758,798 758,798
1,000,000 1,000,000 3.500%, 12/01/13 Series 2004 Refunding A
MBIA Insured 1,001,570 1,001,570
1,000,000 1,000,000 3.500%, 12/01/14 Series 2004 Refunding
A MBIA Insured 996,940 996,940
Kent County, Rhode Island Water Authority
500,000 500,000 4.000%, 07/15/12 Series 2002 A MBIA Insured 513,130 513,130
1,055,000 1,055,000 4.150%, 07/15/14 Series 2002 A MBIA Insured 1,080,826 1,080,826
Rhode Island Clean Water Protection
Finance Agency
300,000 300,000 5.400%, 10/01/09 1993 Ser. 1993 A MBIA Insured 311,235 311,235
500,000 500,000 4.500%, 10/01/11 1993 Ser. 1993 B AMBAC Insured 509,200 509,200
1,000,000 1,000,000 5.125%, 10/01/11 Ser. 1999 C MBIA Insured 1,029,910 1,029,910
500,000 500,000 4.600%, 10/01/13 Ser. A AMBAC Insured 509,955 509,955
500,000 500,000 4.750%, 10/01/14 Ser. A AMBAC Insured 511,210 511,210
1,250,000 1,250,000 5.400%, 10/01/15 Ser. A MBIA Insured 1,357,200 1,357,200
2,000,000 2,000,000 4.750%, 10/01/18 Ser. A AMBAC Insured 2,035,680 2,035,680
500,000 500,000 4.750%, 10/01/20 Ser. A AMBAC Insured 507,145 507,145
500,000 500,000 4.400%, 10/01/25 AMBAC Insured 502,250 502,250
Narragansett Bay Wastewater Treatment
365,000 365,000 5.400%, 10/01/09 1993 Ser. 1993 A MBIA Insured 379,206 379,206
Rhode Island Water Resources Board Public
Drinking Water Protection
1,500,000 1,500,000 4.000%, 03/01/14 MBIA Insured 1,525,245 1,525,245
1,000,000 1,000,000 4.250%, 03/01/15 MBIA Insured 1,024,860 1,024,860
------------------------------------
Total Water and Sewer Revenue Bonds 13,672,904 881,456 14,554,360
------------------------------------
Other Revenue Bonds 1.9%
-----------------------------------------------
State of Rhode Island Certificates of
Participation, Howard Center Improvements
100,000(b) 100,000 5.375%, 10/01/16 MBIA Insured 101,072 101,072
State of Rhode Island Depositors Economic
Protection Corp.
500,000 500,000 6.000%, 08/01/17 Series 1992 B MBIA Insured 549,575 549,575
300,000 300,000 5.800%, 08/01/09 Series 1993 B MBIA Insured 312,867 312,867
1,045,000 1,045,000 5.250%, 08/01/21 Series 1993 B MBIA Insured
ETM (pre-refunded) 1,108,494 1,108,494
215,000 215,000 6.375%, 8/1/22 CAPMAC Insured 271,250 271,250
250,000 250,000 5.750%, 8/01/21 FSA Insured 295,477 295,477
445,000 445,000 6.550%, 8/01/10 MBIA Insured 471,687 471,687
205,000(b) 205,000 6.550%, 8/01/10 MBIA Insured 209,231 209,231
-----------------------------------
Total Other Revenue Bonds 1,970,936 1,348,717 3,319,653
-----------------------------------
Puerto Rico Bonds 0.4%
------------------------------------------------
Puerto Rico Electric Authority
105,000(a) 105,000 5.125%, 7/01/29 114,663 114,663
395,000(a) 395,000 5.125%, 7/01/29 431,352 431,352
Puerto Rico Municipal Finance Authority
120,000(a) 120,000 5.500%, 7/01/17 FSA Insured 122,029 122,029
--------------------------------------------
Total Puerto Rico Bonds - 668,044 668,044
--------------------------------------------
Total Revenue Bonds 84,621,745 15,953,847 100,575,592
-------------------------------------------
Total Investments in Securities 98.4% 151,169,312 21,614,613 172,783,925
-------------------------------------
Other Assets Less Liabilities 1.6% 2,425,202 426,455 2,777,501
--------------------------------------------
Total Net Assets 100.0% $153,594,514 $22,041,068 $175,561,426
====== =========== ========== ===========
Total Investments at Cost $147,406,441 $21,087,213 $168,493,654
============= =========== ============
PORTFOLIO ABBREVIATIONS:
AMBAC - American Municipal Bond Assurance Corp.
CAPMAC - Capital Markets Assurance Corp.
CIFG - CDC IXIS Financial Guaranty
ETM - Escrowed to Maturity
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assurance
MBIA - Municipal Bond Investors Assurance
XLCA - XL Capital Assurance
(a) These securities may be sold prior to the completion of the asset
transfer.
(b) These securities were sold or redeemed between December 31, 2007 and
August 12, 2008.
See notes to pro forma financial statements.
Narragansett Insured Tax-Free Income Fund
Pro Forma Statement of Assets & Liabilities
December 31, 2007
(unaudited)
Pro Forma Combined
Narragansett Ocean State Narragansett
Insured Tax-Free Tax-Exempt Pro Forma Insured Tax-Free
Income Fund Fund Adjustments Income Fund
ASSETS
Cash $0 $162,344 $0 $162,344
Investments in securities, at value
(cost $147,406,441, $21,087,214 and
$168,493,655, respectively) 151,169,312 21,614,613 0 172,783,925
Interest receivable 1,836,531 311,819 0 2,148,350
Receivable for investment securities sold 606,000 0 0 606,000
Receivable for Fund shares sold 353,353 0 0 353,353
Other assets 27,623 0 0 27,623
------------------------------------------------------------------
Total Assets 153,992,819 22,088,776 0 176,081,595
-----------------------------------------------------------------
LIABILITIES
Cash Overdraft 120,718 0 0 120,718
Payable for investment securities purchased 0 0 0 0
Payable for Fund shares redeemed 7,503 0 0 7,503
Dividends payable 179,100 20,794 0 199,894
Distribution and service fees payable 24,443 0 0 24,443
Management fee payable 19,503 10,735 0 30,238
Accrued expenses 47,038 16,179 74,156 (a) 137,373
--------------------------------------------------------------
Total Liabilities 398,305 47,708 74,156 520,169
-------------------------------------------------------------
Total Net Assets $153,594,514 $22,041,068 $(74,156) $175,561,426
==================================================================
Capital Stock $145,932 $22,034 $0 $167,966
Additional paid in capital 150,602,757 21,582,264 0 172,185,021
Net unrealized appreciation on investments 3,762,871 527,399 0 4,290,270
Accumulated net realized loss
on investments (849,874) (18,173) 0 (868,047)
Distributions in excess of net
investment income (67,172) (72,456) (74,156)(a) (213,784)
-------------------------------------------------------------------
Total Net Assets $153,594,514 $22,041,068 $(74,156) $175,561,426
==================================================================
Net Asset Value Per Share:
Capital shares outstanding
(No par value, unlimited number of shares authorized)
Class A 9,864,443 2,203,433 (b) (113,200) 11,954,676
Class C 1,262,285 0 1,262,285
Class I 68,856 0 68,856
Class Y 3,397,584 0 3,397,584
Computation of Net Asset Value (A shares only)
Net assets $103,824,324 $22,041,068 $(66,917) $125,798,475
Divided by number of shares outstanding 9,864,443 2,203,433 (b) (113,200) 11,954,676
Net asset value $10.53 $10.00 $(0.01) $10.52
Maximum Offering Price (A shares only)
Class A $10.97 $10.42 $(0.01) $10.96
(a) Reflects costs related to the reorganization.
(b) Class A shares of Ocean State Tax-Exempt Fund of 2,203,433 are exchanged for
Class A shares of Narragansett Insured Tax-Free Income Fund at the net asset
value per share of $10.52 which equates to 2,090,233 shares. The exact amount of
shares will be determined upon consummation of the asset transfer.
See accompanying notes to pro forma financial statements.
Narragansett Insured Tax-Free Income Fund
Pro Forma Statement of Operations
For the period ended December 31, 2007
(unaudited)
Narragansett Ocean State Pro Forma
Insured Tax-Free Tax-Exempt Pro Forma Combined
Income Fund Fund Adjustments Fund
INVESTMENT INCOME
Interest income $3,264,994 $518,425 $0 $3,783,419
------------------------------------------------------------------
EXPENSES
Management Fee 380,400 67,574 (11,457)(a) 436,517
Distribution and service fees 145,869 8,799 8,036 (a) 162,704
Trustees' fees and expenses 75,630 12,250 (12,250)(a) 75,630
Transfer and shareholder servicing
agent fees 48,548 51,254 (45,671)(a) 54,131
Custodian fees 8,982 9,696 (8,523)(a) 10,155
Legal fees 49,645 11,289 (11,289)(a) 49,645
Shareholders' reports and proxy statements 14,148 3,673 (1,173)(a) 16,648
Fund accounting fees 9,978 0 0 9,978
Auditing and tax fees 8,578 29,725 (29,725)(a) 8,578
Merger costs 7,661 (b) 32,653 (b) 0 40,314
Registration fees and dues 3,742 987 (987)(a) 3,742
Insurance 3,410 689 (689)(a) 3,410
Chief Compliance Officer 2,291 0 0 2,291
Miscellaneous 23,644 2,935 (2,935)(a) 23,644
---------------------------------------------------------------
Total expenses 782,526 231,524 (116,663) 897,387
Management fee waived (266,280) 0 (39,282)(c) (305,562)
Expense paid indirectly (13,679) 0 0 (13,679)
------------------------------------------------------------------
Net expenses 502,567 231,524 (155,945) 578,146
-----------------------------------------------------------------
Net investment income 2,762,427 286,901 (155,945) 3,205,273
-----------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) from
securities transactions 57,491 (66,287) 0 (8,796)
Change in unrealized appreciation
on investments 2,307,614 138,807 0 2,446,421
-----------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 2,365,105 72,520 0 2,437,625
------------------------------------------------------------------
Net change in net assets resulting
from operations $5,127,532 $359,421 $155,945 $5,642,898
==================================================================
(a) Reflects expense adjustments of the combined Fund.
(b) Reflects costs related to the reorganization.
(C) Waiver conformed to Narragansett Insured Tax-Free Income Fund's
waiver for the period ended December 31, 2007.
See accompanying notes to pro forma financial statements.
Narragansett Insured Tax-Free Income Fund Pro Forma Statement of Operations For
the year ended June 30, 2007 (unaudited)
Narragansett Ocean State Pro Forma
Insured Tax-Free Tax-Exempt Pro Forma Combined
Income Fund Fund Adjustments Fund
INVESTMENT INCOME
Interest income $6,568,129 $1,200,710 $0 $7,768,839
-----------------------------------------------------------------------
EXPENSES
Management Fee 762,636 151,700 (24,978)(a) 889,358
Distribution and service fees 309,451 18,129 19,888 (a) 347,468
Trustees' fees and expenses 146,628 25,250 (25,250)(a) 146,628
Transfer and shareholder
servicing agent fees 107,021 51,550 (39,972)(a) 118,599
Custodian fees 44,206 20,602 (18,610)(a) 46,198
Legal fees 71,107 25,442 (25,442)(a) 71,107
Shareholders' reports and
proxy statements 53,319 10,084 (5,084)(a) 58,319
Fund accounting fees 47,446 0 0 47,446
Auditing and tax fees 19,999 53,897 (53,897)(a) 19,999
Registration fees and dues 14,390 1,975 (1,975)(a) 14,390
Insurance 10,675 1,377 (1,377)(a) 10,675
Chief Compliance Officer 4,995 0 0 4,995
Miscellaneous 63,613 6,844 (6,844)(a) 63,613
------------------------------------------------------------------------
Total expenses 1,655,486 366,850 (183,541) 1,838,795
Management fee waived (534,974) 0 (88,896)(b) (623,870)
Expense paid indirectly (8,682) 0 0 (8,682)
------------------------------------------------------------------------
Net expenses 1,111,830 366,850 (272,437) 1,206,243
-----------------------------------------------------------------------
Net investment income 5,456,299 833,860 (272,437) 6,562,596
-----------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss)
from securities transactions (97,580) 23,081 0 (74,499)
Change in unrealized appreciation
on investments 695,973 14,758 0 710,731
----------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 598,393 37,839 0 636,232
------------------------------------------------------------------------
Net change in net assets
resulting from operations $6,054,692 $871,699 $272,437 $7,198,828
============================================-------=====================
(a) Reflects expense adjustments of the combined Fund.
(b) Waiver conformed to Narragansett Insured Tax-Free Income Fund's
waiver for the year ended June 30, 2007.
See accompanying notes to pro forma financial statements.
PRO FORMA FOOTNOTES REGARDING THE REORGANIZATION OF OCEAN STATE TAX EXEMPT FUND
INTO NARRAGANSETT INSURED TAX-FREE INCOME FUND AS OF DECEMBER 31, 2007
(UNAUDITED)
NOTE 1. BASIS OF COMBINATION
The accompanying pro forma financial statements are presented to show the effect
of the reorganization of Ocean State Tax-Exempt Fund into Narragansett Insured
Tax-Free Income Fund, as if such reorganization had taken place as of December
31, 2007. For purposes of these pro forma statements, the data for Ocean State
Tax-Exempt Fund and Narragansett Insured Tax-Free Income Fund is for the
six-month period ended December 31, 2007. We are also presenting pro forma
statements of operations for the fiscal year ended June 30, 2007.
Under the terms of the Agreement and Plan of Reorganization dated June 18, 2008,
the reorganization of Ocean State Tax-Exempt Fund and Narragansett Insured
Tax-Free Income Fund should be treated as a tax-free business combination and
accordingly will be accounted for by a method of accounting for tax-free mergers
of investment companies. The acquisition would be accomplished by an acquisition
of the net assets of Ocean State Tax-Exempt Fund in exchange for Class A Shares
of Narragansett Insured Tax-Free Income Fund at net asset value. The statements
of assets and liabilities of Ocean State Tax-Exempt Fund and Narragansett
Insured Tax-Free Income Fund have been combined using data from Ocean State
Tax-Exempt Fund and data from Narragansett Insured Tax-Free Income Fund as of
December 31, 2007. The related statements of operations have been combined using
data from Ocean State Tax-Exempt Fund and data from Narragansett Insured
Tax-Free Income Fund as of December 31, 2007 and June 30, 2007.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedules of investments of Ocean State
Tax-Exempt Fund and Narragansett Insured Tax-Free Income Fund and should be read
in conjunction with the historical financial statements of each of Ocean State
Tax-Exempt Fund and Narragansett Insured Tax-Free Income Fund which have been
incorporated by reference into this Statement of Additional Information.
NOTE 2. SHARES OF BENEFICIAL INTEREST
Under the reorganization, Ocean State Tax-Exempt Fund will receive Class A
Shares of Narragansett Insured Tax-Free Income Fund with an aggregate value
equal to Ocean State Tax-Exempt Fund's net assets transferred to Narragansett
Insured Tax-Free Income Fund. Accordingly, shareholders of Ocean State
Tax-Exempt Fund will become Class A shareholders of Narragansett Insured
Tax-Free Income Fund.
The pro forma net asset value per share assumes that additional Class A Shares
of Narragansett Insured Tax-Free Income Fund would have been issued on December
31, 2007 as a result of the reorganization. The amount of additional shares
assumed to be issued was calculated based on the net assets of Ocean State
Tax-Exempt Fund and the net asset value per share of Narragansett Insured
Tax-Free Income Fund Class A Shares as of December 31, 2007.
NOTE 3. PORTFOLIO VALUATION
Municipal securities which have remaining maturities of more than 60 days are
valued each business day based upon information provided by a nationally
prominent independent pricing service and periodically verified through other
pricing services. In the case of securities for which market quotations are
readily available, securities are valued by the pricing service at the mean of
bid and asked quotations. If market quotations or a valuation from the pricing
service is not readily available, the security is valued at fair value
determined in good faith under procedures established by and under the general
supervision of the Board of Trustees. Securities which mature in 60 days or less
are valued at amortized cost if their term to maturity at purchase is 60 days or
less, or by amortizing their unrealized appreciation or depreciation on the 61st
day prior to maturity, if their term to maturity at purchase exceeds 60 days.
NOTE 4. PRO FORMA ADJUSTMENTS
The Pro Forma Statement of Operations assumes similar rates of gross investment
income for Ocean State Tax-Exempt Fund's and Narragansett Insured Tax-Free
Income Fund's investments. Accordingly, the combined gross investment income is
equal to the sum of each of Ocean State Tax-Exempt Fund and Narragansett Insured
Tax-Free Income Fund's gross investment income. Certain expenses have been
adjusted to reflect the expected expenses of the combined entity. The pro forma
management fee, shareholder servicing costs, professional fees, custodian fees
and registration fees of the combined fund and/or any related waivers would have
decreased by $155,945 for the six months ended December 31, 2007, and decreased
by $272,437 for the fiscal year ended June 30, 2007. The pro forma expenses are
based on the fee schedule to be in effect for Narragansett Insured Tax-Free
Income Fund based on the projected average net assets of Narragansett Insured
Tax-Free Income Fund and Ocean State Tax-Exempt Fund. The costs of the
reorganization to the funds are estimated to be $114,470 of which $84,470 will
be borne by the Fund and $30,000 will be borne by the Narragansett Fund. The
Board of Trustees believes that this allocation of these costs is fair and
reasonable to the Fund in view of the benefits the reorganization will provide
to the Fund's shareholders.
NOTE 5. CAPITAL SHARES
The pro forma net asset value per share assumes the issuance of shares of
Narragansett Insured Tax-Free Income Fund that would have been issued at
December 31, 2007, in connection with the proposed reorganization. The number of
shares assumed to be issued is equal to the net asset value of Class A Shares of
Narragansett Insured Tax-Free Income Fund, as of December 31, 2007, divided by
the net asset value per share of Ocean State Tax-Exempt Fund's shares as of
December 31, 2007.
NOTE 6. FEDERAL INCOME TAXES
Each of Ocean State Tax-Exempt Fund and Narragansett Insured Tax-Free Income
Fund has elected to be taxed as a "regulated investment company" under the
Internal Revenue Code. After the reorganization, it will continue to be
Narragansett Insured Tax-Free Income Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income and net realized capital
gains, if any, to its shareholders. Therefore, no federal income tax provision
is required.
As of June 30, 2007, the capital loss carry forward for Narragansett Insured
Tax-Free Income Fund was $879,705. As of October 31, 2007, the capital loss
carry forward for Ocean State Tax-Exempt Fund was $25,706. There may be
limitations on the capital loss carry forward upon the merger.
The identified cost of investments for Ocean State Tax-Exempt Fund and
Narragansett Insured Tax-Free Income Fund is substantially the same for both
financial and federal income tax purposes. The tax cost of investments will
remain unchanged for Narragansett Insured Tax-Free Income Fund after the
reorganization.
Narragansett Insured Tax-Free Income Fund
Part C
Other Information
Item 15. Indemnification.
The response to this item is incorporated by reference to Item 25 of
Part C of Post Effective Amendment No. 19 to the Registrant's
Registration Statement on Form N1-A filed October 17, 2007 (File No.
811-06707).
Item 16. Exhibits.
(1) Supplemental Declaration of Trust Amending and Restating the
Declaration of Trust.(1)
(2) By-laws.(2)
(3) Not Applicable.
(4) Filed as Exhibit A to the Prospectus herein.
(5) Instruments defining rights of shareholders. The Declaration of Trust
permits the Trustees to issue up to 80,000,000 full and fractional
shares and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial
interests in the Registrant. Each share represents an equal
proportionate interest in the Registrant with each other share of its
class; shares of the respective classes represent proportionate
interests in the Registrant in accordance with their respective net
asset values. Upon liquidation of the Registrant, shareholders are
entitled to share pro-rata in the net assets of the Registrant
available for distribution to shareholders, in accordance with the
respective net asset values of the shares of each of the Registrant's
classes at that time. All shares are presently divided into four
classes; however, if they deem it advisable and in the best interests
of shareholders, the Board of Trustees of the Registrant may create
additional classes of shares, which may differ from each other as
provided in rules and regulations of the Securities and Exchange
Commission or by exemptive order. The Board of Trustees may, at its
own discretion, create additional series of shares, each of which may
have separate assets and liabilities (in which case any such series
will have a designation including the word "Series"). Shares are fully
paid and non-assessable, except as set forth under the caption
"General Information" in the Registrant's Statement of Additional
Information dated October 24, 2007; the holders of shares have no
pre-emptive or conversion rights, except that Class C Shares
automatically convert to Class A Shares after being held for six
years.
At any meeting of shareholders, shareholders are entitled to one vote
for each dollar of net asset value (determined as of the record date
for the meeting) per share held (and proportionate fractional votes
for fractional dollar amounts). Shareholders will vote on the election
of Trustees and on other matters submitted to the vote of
shareholders. Shares vote by classes on any matter specifically
affecting one or more classes, such as an amendment of an applicable
part of the Distribution Plan. No amendment may be made to the
Declaration of Trust without the affirmative vote of the holders of a
majority of the outstanding shares of the Registrant except that the
Registrant's Board of Trustees may change the name of the Registrant.
The Registrant may be terminated (i) upon the sale of its assets to
another issuer, or (ii) upon liquidation and distribution of the
assets of the Registrant, in either case if such action is approved by
the vote of the holders of a majority of the outstanding shares of the
Registrant.
(6)(a)(i) Advisory and Administration Agreement.(3)
(6)(a)(ii) Assignment and Assumption Agreement.(4)
(6)(a)(iii) Amendment of Advisory and Administration Agreement.(2)
(6)(b)(i) Sub-Advisory Agreement.(5)
(6)(b)(ii) Amendment of Sub-Advisory Agreement.(4)
(7)(a) Distribution Agreement(6)
(7)(b) Anti-Money Laundering Amendment to Distribution Agreement.(7)
(7)(c) Sales Agreement for Brokerage Firms.(5)
(7)(d) Sales Agreement for Financial Institutions.(5)
(7)(e) Sales Agreement for Investment Advisers.(5)
(7)(f) Shareholder Services Agreement.(7)
(8) Not applicable.
(9) Custody Agreement.(5)
(10)(a) Distribution Plan.(5)
(10)(b) Shareholder Services Plan.(5)
(10)(c) Plan Pursuant to Rule 18f-3.(8)
(11) (a) Opinion of counsel to the Registrant.(12)
(11) (b) Consent of counsel to the Registrant, filed herewith.
(12) Opinion and Consent of counsel regarding tax matters.(9)
(13)(a) Transfer Agency Agreement.(10)
(13)(b) Anti-Money Laundering Amendment to Transfer Agency Agreement.(11)
(13)(c) Customer Identification Services Amendment to Transfer Agency
Agreement.(11)
(14)(a) Consent of Independent Registered Public Accounting Firm (Ocean
State Fund).(12)
(b) Consent of Independent Registered Public Accounting Firm
(Registrant), filed herewith.
(15) Not applicable.
(16) Not applicable.
(17) Not applicable.
------------------------------------------
(1) Filed as an exhibit to Post Effective Amendment No. 5 to the Registrant's
Registration Statement on Form N1-A dated April 26, 1996 and incorporated
herein by reference.
(2) Filed as an exhibit to Post Effective Amendment No. 19 to the Registrant's
Registration Statement on Form N1-A dated October 16, 2007 and incorporated
herein by reference.
(3) Filed as an exhibit to Post Effective Amendment No. 12 to the Registrant's
Registration Statement on Form N1-A dated October 19, 2001 and incorporated
herein by reference.
(4) Filed as an exhibit to Post Effective Amendment No. 16 to the Registrant's
Registration Statement on Form N1-A dated October 21, 2004 and incorporated
herein by reference.
(5) Filed as an exhibit to Post Effective Amendment No. 7 to the Registrant's
Registration Statement on Form N1-A dated October 29, 1997 and incorporated
herein by reference.
(6) Filed as an exhibit to Post Effective Amendment No. 9 to the Registrant's
Registration Statement on Form N1-A dated October 28, 1999 and incorporated
herein by reference.
(7) Filed as an exhibit to Post Effective Amendment No. 14 to the Registrant's
Registration Statement on Form N1-A dated October 31, 2002 and incorporated
herein by reference.
(8) Filed as an exhibit to Post Effective Amendment No. 18 to the Registrant's
Registration Statement on Form N1-A dated October 23, 2006 and incorporated
herein by reference.
(9) To be filed by Post Effective Amendment.
(10) Filed as an exhibit to Post Effective Amendment No. 8 to the Registrant's
Registration Statement on Form N1-A dated October 28, 1998 and incorporated
herein by reference.
(11) Filed as an exhibit to Post Effective Amendment No. 15 to the Registrant's
Registration Statement on Form N1-A dated October 2, 2003 and incorporated
herein by reference.
(12) Filed as an exhibit to Form N-14 Registration Statement of the Registrant
dated July 11, 2008 and incorporated herein by reference.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is
a part of this registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, the reoffering prospectus will contain the
information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to
the registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities
Act of 1933 each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the
initial bona fide offering of them.
(3) The undersigned Registrant agrees to file by post-effective amendment
the final opinion of counsel regarding tax matters within a reasonable
period of time after receiving such opinion.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement or Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York and State of New York, on the 19th day of August, 2008.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
(Registrant)
By: /s/ Diana P. Herrmann
Diana P. Herrmann
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendment has been signed below by the following
persons in the capacities and on the date indicated.
Signatures Title Date
/s/ Diana P. Herrmann President (Principal Executive August 19, 2008
-------------------------- Officer) and Trustee
Diana P. Herrmann
/s/ David A. Duffy Trustee August 19, 2008
-------------------------
David A. Duffy
-------------------------- Trustee
James R. Ramsey
/s/ William J. Nightingale Trustee and Chair August 19, 2008
--------------------------
William J. Nightingale
/s/ J. William Weeks Trustee August 19, 2008
--------------------------
J. William Weeks
/s/ Laureen L. White Trustee August 19, 2008
--------------------------
Laureen L. White
/s/ Joseph. P. DiMaggio Chief Financial Officer August 19, 2008
--------------------------- and Treasurer
Joseph P. DiMaggio
Exhibit Index
(11) (b) Consent of Counsel to the Registrant
(14) (b) Consent of Independent Registered Public Accounting Firm (Registrant)