UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-06707
Narragansett Insured Tax-Free Income Fund
(Exact name of Registrant as specified in charter)
380 Madison Avenue
New York, New York 10017
(Address of principal executive offices) (Zip code)
Joseph P. DiMaggio
380 Madison Avenue
New York, New York 10017
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 697-6666
Date of fiscal year end: 6/30/08
Date of reporting period: 12/31/08
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMI-ANNUAL
REPORT
DECEMBER 31, 2008
A TAX-FREE INCOME INVESTMENT
[LOGO OF NARRANGANSETT INSURED TAX-FREE INCOME FUND:
RECTANGLE WITH PROFILE VIEW OF A SAILBOAT ON TOP OF
WAVES AND THREE SEAGULLS FLYING ABOVE IT]
[LOGO OF THE AQUILA
GROUP OF FUNDS: ONE OF THE
AN EAGLE'S HEAD] AQUILA GROUP OF FUNDS (R)
[LOGO OF NARRANGANSETT INSURED TAX-FREE INCOME FUND:
RECTANGLE WITH PROFILE VIEW OF A SAILBOAT ON TOP OF
WAVES AND THREE SEAGULLS FLYING ABOVE IT]
SERVING RHODE ISLAND INVESTORS FOR MORE THAN 15 YEARS
NARRAGANSETT INSURED TAX-FREE INCOME FUND
"PROPER ASSET ALLOCATION -
A STRATEGY FOR ALL SEASONS"
February, 2009
The market has definitely been volatile enough recently to cause even the
most seasoned investor to ask, "What should I do now?"
We believe you will be in a better position to weather this, or any,
economic storm, if your portfolio is built with a strong foundation. In short,
is your portfolio properly allocated based on your specific needs?
As you hopefully already know, asset allocation is an investment strategy
that strives to balance risk and reward by diversifying assets according to your
specific desires. These include:
o investment time horizon (specifically your age and retirement
objectives);
o risk threshold (how much of your investment capital you are willing
to lose during a given time frame);
o financial situation (your wealth, income, expenses, tax bracket,
liquidity needs, etc.); and
o goals (the financial goals you and your family want to achieve).
Since the three main asset classes - equities, fixed-income, and cash/cash
equivalents - have different levels of risk and return, each is expected to
behave differently over time. The objective of asset allocation is to create a
diversified portfolio with an acceptable level of risk and the highest possible
return given that level of risk.
Although there is no simple formula that can find the right asset
allocation for every individual, the consensus among most financial
professionals is that asset allocation is one of the most important decisions
that investors make.
NOT A PART OF THE SEMI-ANNUAL REPORT
The way you allocate your investment among stocks, bonds, and cash/cash
equivalents will be the principal determinant of your investment results -
secondary to your selection of individual securities.
Once you and your financial professional have developed an appropriate
asset allocation for your portfolio, we believe that changes should be made
based on need, not on scary headlines.
A properly constructed portfolio with sound asset allocation should be in
a good position to weather all seasons.
Sincerely,
/s/ Lacy B. Herrmann /s/ Diana P. Herrmann
Lacy B. Herrmann Diana P. Herrmann
Founder and Chairman Emeritus President
NOT A PART OF THE SEMI-ANNUAL REPORT
NARRAGANSETT INSURED TAX-FREE INCOME FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2008 (UNAUDITED)
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT GENERAL OBLIGATION BONDS (38.1%) OR FITCH VALUE
- --------------- ------------------------------------------------------ ------------ ---------------
Coventry, Rhode Island
$ 550,000 5.000%, 11/01/16 AMBAC Insured ....................... A1/NR/NR $ 577,533
550,000 5.000%, 11/01/17 AMBAC Insured ....................... A1/NR/NR 575,416
Cranston, Rhode Island
500,000 5.450%, 11/15/11 FGIC Insured (pre-refunded) ......... Baa1/A/BBB+ 523,700
1,000,000 4.250%, 04/01/18 MBIA Insured ........................ Baa1/AA/BBB+ 1,005,520
1,000,000 4.250%, 04/01/19 MBIA Insured ........................ Baa1/AA/BBB+ 987,690
1,000,000 4.300%, 04/01/20 MBIA Insured ........................ Baa1/AA/BBB+ 961,780
250,000 5.000%, 02/15/22 FSA Insured ......................... Aa3/AAA/AAA 254,495
1,000,000 4.500%, 04/01/23 MBIA Insured ........................ Baa1/AA/BBB+ 946,970
250,000 5.000%, 02/15/24 FSA Insured ......................... Aa3/AAA/AAA 252,003
2,455,000 4.625%, 07/01/25 FSA Insured ......................... Aa3/AAA/AAA 2,100,817
1,500,000 4.500%, 04/01/26 MBIA Insured ........................ Baa1/AA/BBB+ 1,342,710
Cumberland, Rhode Island
250,000 4.000%, 02/01/14 FGIC Insured ........................ A3/AA/NR 260,773
250,000 4.000%, 02/01/15 FGIC Insured ........................ A3/AA/NR 257,860
250,000 4.000%, 02/01/16 FGIC Insured ........................ A3/AA/NR 256,418
250,000 4.100%, 02/01/17 FGIC Insured ........................ A3/AA/NR 256,977
1,000,000 4.250%, 08/01/17 FSA Insured ......................... Aa3/AAA/AAA 1,063,470
250,000 4.150%, 02/01/18 FGIC Insured ........................ A3/AA/NR 255,917
600,000 4.250%, 08/01/18 FSA Insured ........................ Aa3/AAA/AAA 631,320
1,255,000 5.000%, 10/01/18 MBIA Insured ........................ A3/AA/NR 1,288,458
1,040,000 5.200%, 10/01/21 MBIA Insured ........................ A3/AA/NR 1,059,011
Lincoln, Rhode Island
1,000,000 4.500%, 08/01/24 MBIA Insured ........................ Aa3/NR/AA- 986,750
1,275,000 4.500%, 08/01/25 MBIA Insured ........................ Aa3/NR/AA- 1,230,171
2,000,000 4.500%, 08/01/26 MBIA Insured ........................ Aa3/NR/AA- 1,913,240
New Shoreham, Rhode Island
245,000 4.000%, 11/15/15 AMBAC Insured ....................... Baa1/A+/NR 252,323
255,000 4.250%, 11/15/16 AMBAC Insured ....................... Baa1/A+/NR 263,512
270,000 4.250%, 11/15/17 AMBAC Insured ....................... Baa1/A+/NR 278,618
910,000 4.800%, 04/15/18 AMBAC Insured ....................... Baa1/A+/NR 945,690
285,000 4.500%, 11/15/18 AMBAC Insured ....................... Baa1/A+/NR 294,984
1,105,000 5.000%, 04/15/22 AMBAC Insured ....................... Baa1/A+/NR 1,130,017
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) OR FITCH VALUE
- --------------- ------------------------------------------------------ ------------ ---------------
Newport, Rhode Island
$ 1,000,000 4.500%, 11/01/15 AMBAC Insured ....................... Aa3/NR/NR $ 1,044,440
1,000,000 4.750%, 11/01/18 AMBAC Insured ....................... Aa3/NR/NR 1,035,750
800,000 5.000%, 11/01/20 AMBAC Insured ....................... Aa3/NR/NR 825,000
North Kingstown, Rhode Island
500,000 3.750%, 10/01/12 FGIC Insured ........................ Aa3/AA/NR 523,785
200,000 5.700%, 10/01/18 FGIC Insured (pre-refunded) ......... Aa3/NR/NR 209,088
North Providence, Rhode Island
500,000 4.700%, 09/15/14 FSA Insured ......................... Aa3/AAA/AAA 523,385
500,000 3.650%, 10/15/14 FSA Insured ......................... Aa3/AAA/AAA 517,045
500,000 3.750%, 10/15/15 FSA Insured ......................... Aa3/AAA/AAA 510,735
250,000 4.000%, 10/15/17 FSA Insured ......................... Aa3/AAA/AAA 254,780
Pawtucket, Rhode Island
600,000 4.300%, 09/15/09 AMBAC Insured ....................... A3/NR/BBB+ 609,420
250,000 4.400%, 09/15/10 AMBAC Insured ....................... A3/NR/BBB+ 257,812
910,000 4.000%, 04/15/14 AMBAC Insured ....................... A3/NR/BBB+ 935,853
Providence, Rhode Island
700,000 5.500%, 01/15/11 FSA Insured ......................... Aa3/AAA/AAA 700,987
500,000 5.000%, 07/15/14 FSA Insured ......................... Aa3/AAA/AAA 558,655
1,000,000 5.000%, 01/15/16 FGIC Insured (pre-refunded) ......... A3/A/A 1,076,320
1,000,000 5.000%, 01/15/17 FGIC Insured (pre-refunded) ......... A3/A/A 1,076,320
1,000,000 5.000%, 01/15/18 FGIC Insured (pre-refunded) ......... A3/A/A 1,076,320
South Kingstown, Rhode Island
500,000 5.500%, 06/15/12 FGIC Insured (pre-refunded) ......... Aa2/NR/NR 536,075
State of Rhode Island
4,000,000 5.000%, 08/01/14 Series A FGIC Insured ............... Aa3/AA/AA- 4,206,480
2,000,000 5.000%, 08/01/12 Series B MBIA Insured ............... Aa3/AA/AA- 2,178,980
1,000,000 5.000%, 06/01/14 Series B FGIC Insured ............... Aa3/AA/AA- 1,048,370
2,000,000 5.000%, 08/01/15 Series B FGIC Insured ............... Aa3/AA/AA- 2,090,080
1,000,000 5.250%, 11/01/11 Series C MBIA Insured ............... Aa3/AA/AA- 1,079,490
3,000,000 5.000%, 09/01/18 Series C MBIA Insured ............... Aa3/AA/AA- 3,117,030
2,000,000 5.000%, 09/01/19 Series C MBIA Insured ............... Aa3/AA/AA- 2,067,260
1,500,000 5.000%, 09/01/20 Series C MBIA Insured ............... Aa3/AA/AA- 1,545,360
2,000,000 4.500%, 02/01/17 MBIA Insured ........................ Aa3/AA/AA- 2,082,680
2,000,000 5.250%, 11/01/17 FGIC Insured (pre-refunded) ......... Aa3/AA/AA- 2,237,820
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) OR FITCH VALUE
- --------------- ------------------------------------------------------ ------------ ---------------
State of Rhode Island Capital Development Loan
$ 1,000,000 5.500%, 09/01/16 Series 1999 A FGIC Insured .......... Aa3/AA/AA $ 1,040,140
Warwick, Rhode Island
250,000 4.000%, 07/15/11 AMBAC Insured ....................... A1/AA-/NR 261,243
250,000 4.125%, 07/15/13 AMBAC Insured ....................... A1/AA-/NR 260,958
1,000,000 4.000%, 08/01/16 FSA Insured Series 2008 ............ Aa3/AAA/AAA 1,058,900
1,015,000 4.000%, 08/01/17 FSA Insured Series 2008 ............ Aa3/AAA/AAA 1,060,695
665,000 4.250%, 07/15/14 AMBAC Insured ....................... A1/AA-/NR 691,926
700,000 4.375%, 07/15/15 AMBAC Insured ....................... A1/AA-/NR 722,960
770,000 4.600%, 07/15/17 AMBAC Insured ....................... A1/AA-/NR 792,446
905,000 4.250%, 01/15/18 Syncora Guarantee Inc. Insured ...... A1/AA-/NR 909,905
810,000 4.700%, 07/15/18 AMBAC Insured ....................... A1/AA-/NR 830,072
1,000,000 5.000%, 01/15/19 FGIC Insured ........................ A1/AA/NR 1,027,500
855,000 4.750%, 07/15/19 AMBAC Insured ....................... A1/AA-/NR 870,253
500,000 5.000%, 01/15/20 FGIC Insured ........................ A1/AA/NR 511,790
West Warwick, Rhode Island
500,000 4.875%, 03/01/16 AMBAC Insured ....................... A3/NR/BBB 518,515
670,000 5.000%, 03/01/17 AMBAC Insured ....................... A3/NR/BBB 696,472
700,000 5.050%, 03/01/18 AMBAC Insured ....................... A3/NR/BBB 725,312
735,000 5.100%, 03/01/19 AMBAC Insured ....................... A3/NR/BBB 757,587
Westerly, Rhode Island
900,000 4.000%, 07/01/17 MBIA Insured ........................ Aa3/AA/NR 929,403
900,000 4.000%, 07/01/18 MBIA Insured ........................ Aa3/AA/NR 913,977
Woonsocket, Rhode Island
655,000 4.450%, 12/15/12 FGIC Insured ........................ Baa1/NR/A- 671,958
685,000 4.550%, 12/15/13 FGIC Insured ........................ Baa1/NR/A- 702,132
---------------
Total General Obligation Bonds ....................... 72,033,607
---------------
REVENUE BONDS (58.2%)
------------------------------------------------------
DEVELOPMENT REVENUE BONDS (10.9%)
Providence, Rhode Island Redevelopment Agency
1,925,000 5.200%, 04/01/11 Series A 1999 AMBAC Insured
(pre-refunded) .................................... Baa1/NR/NR 2,038,613
500,000 5.300%, 04/01/12 AMBAC Insured 1999 Series A
(pre-refunded) .................................... Baa1/NR/NR 530,125
2,000,000 4.750%, 04/01/22 AMBAC Insured Series A .............. Baa1/A/NR 1,990,140
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT REVENUE BONDS (CONTINUED) OR FITCH VALUE
- --------------- ------------------------------------------------------ ------------ ---------------
DEVELOPMENT REVENUE BONDS (CONTINUED)
Rhode Island Convention Center Authority
Revenue Refunding
$ 1,350,000 5.000%, 05/15/10 MBIA Insured Series 1993 B .......... Baa1/AA/NR $ 1,396,778
Rhode Island Public Building Authority State
Public Projects
1,000,000 5.250%, 02/01/09 AMBAC Insured Series 1998 A A1/AA-/A+ 1,002,300
Rhode Island State Economic Development Corp.,
Airport Revenue
540,000 4.625%, 07/01/26 Assured Guaranty Insured
Series B .......................................... Aa2/AAA/AAA 457,785
1,000,000 5.000%, 07/01/18 Assured Guaranty Insured
Series C .......................................... Aa2/AAA/AAA 1,012,050
1,670,000 5.000%, 07/01/13 MBIA Insured Series C ............... A2/AA/A 1,743,530
1,500,000 5.000%, 07/01/22 MBIA Insured Series C ............... A2/AA/A 1,390,785
Rhode Island State Economic Development Corp.,
Motor Fuel Tax Revenue (Rhode Island
Department of Transportation)
500,000 3.750%, 06/15/13 AMBAC Insured Series 2003 A ......... A2/A+/A 496,555
1,000,000 4.000%, 06/15/15 Series A AMBAC Insured .............. A2/A+/A 988,240
2,385,000 4.700%, 06/15/23 Series 2003A AMBAC Insured .......... A2/A+/A 2,401,075
1,000,000 4.000%, 06/15/18 Series 2006A AMBAC Insured .......... A2/A+/A 995,310
Rhode Island State Economic Development Corp.,
(Rhode Island Airport Corp. Intermodal Facility
Project)
1,000,000 4.250%, 07/01/17 CIFG Assurance North America,
Inc. Insured ...................................... Baa1/BBB+/NR 939,870
Rhode Island State Economic Development Corp.,
University of Rhode Island
750,000 4.800%, 11/01/11 Series 1999 FSA Insured ............. Aa3/NR/AAA 772,095
750,000 4.900%, 11/01/12 Series 1999 FSA Insured ............. Aa3/NR/AAA 771,705
750,000 4.900%, 11/01/13 Series 1999 FSA Insured ............. Aa3/NR/AAA 770,842
750,000 5.000%, 11/01/14 Series 1999 FSA Insured ............. Aa3/NR/AAA 771,007
---------------
Total Development Revenue Bonds ...................... 20,468,805
---------------
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT REVENUE BONDS (CONTINUED) OR FITCH VALUE
- --------------- ------------------------------------------------------ ------------ ---------------
HIGHER EDUCATION REVENUE BONDS (32.4%)
Providence, Rhode Island Public Building Authority,
School Projects
$ 500,000 5.500%, 12/15/14 Series 1996 B MBIA Insured .......... Baa1/AA/NR $ 500,655
500,000 5.500%, 12/15/15 Series 1996 B MBIA Insured .......... Baa1/AA/NR 500,650
1,000,000 5.250%, 12/15/14 Series 1998 A FSA Insured ........... Aa3/AAA/AAA 1,035,030
685,000 5.000%, 12/15/18 Series 1998 A FSA Insured ........... Aa3/AAA/AAA 699,070
500,000 5.000%, 12/15/09 Series 1999 A AMBAC Insured ......... Baa1/A/NR 508,880
500,000 5.125%, 12/15/14 Series 1999 A AMBAC Insured ......... Baa1/A/NR 524,700
250,000 5.250%, 12/15/15 Series 1999 A AMBAC Insured ......... Baa1/A/NR 262,227
1,395,000 4.000%, 12/15/12 Series 2003 A MBIA Insured .......... Baa1/AA/NR 1,387,439
1,450,000 4.000%, 12/15/13 Series 2003 A MBIA Insured .......... Baa1/AA/NR 1,421,435
1,505,000 4.000%, 12/15/14 Series 2003 A MBIA Insured .......... Baa1/AA/NR 1,455,997
1,570,000 4.000%, 12/15/15 Series 2003 A MBIA Insured .......... Baa1/AA/NR 1,494,326
1,630,000 4.000%, 12/15/16 Series 2003 A MBIA Insured .......... Baa1/AA/NR 1,523,088
Providence, Rhode Island Public Building Authority
150,000 5.500%, 12/15/13 MBIA Insured 2006 Series B .......... Baa1/AA/NR 150,197
Providence, Rhode Island Public Building School
& Public Facilities Project
1,500,000 5.250%, 12/15/17 Series A AMBAC Insured ............. Baa1/A/NR 1,566,855
1,000,000 5.250%, 12/15/19 Series 1999 A AMBAC Insured ........ Baa1/A/NR 1,040,070
Rhode Island Economic Development Corp. Rhode
Island Department of Transportation
395,000 5.000%, 06/15/10 FGIC Insured Series 2006 A .......... Aa3/AA/AA- 407,585
Rhode Island Health & Educational Building Corp.
Hospital Finance, Lifespan Obligation Group
1,900,000 5.250%, 05/15/26 MBIA Insured ........................ A3/AA/NR 1,655,622
Rhode Island Health & Education Building Corp.,
Brown University
2,000,000 5.250%, 09/01/17 Series 1993 MBIA Insured ............ Aa1/AA+/NR 2,088,360
Rhode Island Health & Education Building Corp.,
Bryant College
1,000,000 5.125%, 06/01/19 AMBAC Insured ....................... A2/A/NR 1,029,010
230,000 5.000%, 12/01/21 AMBAC Insured ....................... A2/A/NR 232,900
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT REVENUE BONDS (CONTINUED) OR FITCH VALUE
- --------------- ------------------------------------------------------ ------------ ---------------
HIGHER EDUCATION REVENUE BONDS (CONTINUED)
Rhode Island Health & Education Building Corp.,
Higher Educational Facilities
$ 1,010,000 3.625%, 09/15/14 Series 2003 B MBIA Insured .......... Baa1/AA/NR $ 1,008,162
1,050,000 4.000%, 09/15/15 Series 2003 B MBIA Insured .......... Baa1/AA/NR 1,056,657
1,040,000 4.000%, 09/15/16 Series 2003 B MBIA Insured .......... Baa1/AA/NR 1,035,861
600,000 3.625%, 09/15/14 Series 2003 C MBIA Insured .......... Baa1/AA/NR 598,908
500,000 4.000%, 09/15/15 Series 2003 C MBIA Insured .......... Baa1/AA/NR 503,170
500,000 4.000%, 09/15/16 Series 2003 C MBIA Insured .......... Baa1/AA/NR 498,010
1,500,000 4.250%, 05/15/21 Series A FSA Insured ................ Aa3/NR/AAA 1,312,830
1,500,000 4.375%, 05/15/22 Series A FSA Insured ................ Aa3/NR/AAA 1,309,860
Rhode Island Health & Education Building Corp.,
Johnson & Wales University
465,000 5.500%, 04/01/15 Series 1999 A MBIA Insured .......... Baa1/AA/NR 484,358
900,000 5.500%, 04/01/16 Series 1999 A MBIA Insured .......... Baa1/AA/NR 930,834
785,000 5.500%, 04/01/17 Series 1999 A MBIA Insured .......... Baa1/AA/NR 807,961
1,360,000 4.000%, 04/01/12 Series 2003 Syncora Guarantee
Inc. Insured ...................................... NR/NR/NR* 1,359,932
3,210,000 4.000%, 04/01/13 Series 2003 Syncora Guarantee
Inc. Insured ...................................... NR/NR/NR* 3,182,715
500,000 5.250%, 04/01/14 Series 2003 Syncora Guarantee
Inc. Insured ...................................... NR/NR/NR* 516,030
2,000,000 4.000%, 04/01/14 Series 2003 Syncora Guarantee
Inc. Insured ...................................... NR/NR/NR* 1,948,680
750,000 5.000%, 04/01/29 MBIA Insured ........................ Baa1/AA/NR 602,475
Rhode Island Health & Educational Building Corp.,
Higher Education Facility, Providence College
1,000,000 5.000%, 11/01/24 Syncora Guarantee Inc. Insured
Series 2003 A ..................................... A2/NR/NR 916,820
Rhode Island Health & Educational Building Corp.,
Higher Education Facility, Rhode Island School
of Design
250,000 4.400%, 06/01/15 MBIA Insured ........................ A1/AA/NR 259,825
585,000 4.600%, 06/01/17 MBIA Insured ........................ A1/AA/NR 604,750
900,000 5.000%, 08/15/23 Syncora Guarantee Inc. Insured
Series D .......................................... A1/NR/NR 888,030
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT REVENUE BONDS (CONTINUED) OR FITCH VALUE
- --------------- ------------------------------------------------------ ------------ ---------------
HIGHER EDUCATION REVENUE BONDS (CONTINUED)
Rhode Island Health & Educational Building Corp.,
Higher Education Facility, Roger Williams
University
$ 500,000 5.000%, 11/15/24 AMBAC Insured ....................... Baa1/A/NR $ 467,060
Rhode Island Health & Education Building Corp.,
Lifespan Obligation
2,500,000 5.000%, 05/15/20 FSA Insured Series A ................ Aa3/AAA/AAA 2,385,800
Rhode Island Health & Education Building Corp.,
Public School Financing
1,000,000 5.000%, 05/15/17 Series 2006 A FSA Insured ........... Aa3/AAA/AAA 1,089,080
500,000 5.000%, 05/15/17 FSA Insured 2008 Series A ........... Aa3/NR/AAA 508,855
500,000 5.000%, 05/15/20 Series 2007 A FSA Insured ........... Aa3/NR/AAA 494,850
1,000,000 4.250%, 05/15/21 Series 2007 B FSA Insured ........... Aa3/AAA/AAA 870,750
Rhode Island Health & Education Building Corp.,
Rhode Island School of Design
505,000 4.700%, 06/01/18 Series 2001 MBIA Insured ............ A1/AA/NR 519,327
280,000 4.750%, 06/01/19 Series 2001 MBIA Insured ............ A1/AA/NR 285,558
Rhode Island Health & Education Building Corp.,
Roger Williams University
500,000 5.125%, 11/15/11 AMBAC Insured ....................... Baa1/A/NR 509,910
1,000,000 5.125%, 11/15/14 Series 1996 S AMBAC Insured ......... Baa1/A/NR 1,031,220
1,000,000 5.000%, 11/15/18 Series 1996 S AMBAC Insured ......... Baa1/A/NR 1,006,640
Rhode Island Health & Educational Building Corp.,
University of Rhode Island
300,000 5.200%, 09/15/16 Series 2000 B AMBAC Insured
(pre-refunded) .................................... Baa1/A+/NR 320,709
800,000 5.000%, 09/15/23 Series 2003 C Refunding MBIA
Insured ........................................... Baa1/AA/NR 765,328
1,200,000 4.000%, 09/15/11 Series 2005 G AMBAC Insured ......... A1/A+/NR 1,256,124
1,200,000 4.125%, 09/15/12 Series 2005 G AMBAC Insured ......... A1/A+/NR 1,273,116
1,200,000 4.125%, 09/15/13 Series 2005 G AMBAC Insured ......... A1/A+/NR 1,278,108
1,000,000 4.500%, 09/15/26 Series 2005 G Refunding
AMBAC Insured ..................................... A1/A+/NR 905,690
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT REVENUE BONDS (CONTINUED) OR FITCH VALUE
- --------------- ------------------------------------------------------ ------------ ---------------
HIGHER EDUCATION REVENUE BONDS (CONTINUED)
Rhode Island Health & Education Facilities
Authority, Providence College
$ 1,000,000 4.250%, 11/01/14 Syncora Guarantee Inc. Insured ...... A2/NR/NR $ 999,440
2,500,000 4.375%, 11/01/15 Syncora Guarantee Inc. Insured ...... A2/NR/NR 2,494,750
2,500,000 4.500%, 11/01/16 Syncora Guarantee Inc. Insured ...... A2/NR/NR 2,490,075
1,000,000 4.500%, 11/01/17 Syncora Guarantee Inc. Insured ...... A2/NR/NR 982,800
---------------
Total Higher Education Revenue Bonds ................. 61,245,154
---------------
HOUSING REVENUE BONDS (0.5%)
Rhode Island Housing & Mortgage Finance Corp.
Homeowner Opportunity
1,000,000 3.750%, 10/01/13 Series 50-A MBIA Insured ............ A2/AA+/NR 952,900
---------------
LEASE REVENUE BONDS (0.6%)
Rhode Island State Certificates of Participation
Kent County Court House Project
250,000 5.000%, 10/01/22 MBIA Insured Series 2004 A .......... A1/AA/A+ 251,095
Rhode Island State & Providence Plantations Lease
Participation Certificates (Central Power Plant)
1,000,000 4.000%, 10/01/20 Series D FSA Insured ................ Aa3/AAA/AAA 967,150
---------------
Total Lease Revenue Bonds ............................ 1,218,245
---------------
POLLUTION CONTROL REVENUE BONDS (3.5%)
Rhode Island Clean Water Finance Agency, Water
Pollution Control Bonds
1,800,000 5.000%, 10/01/18 Series 2002 B MBIA Insured ......... Aaa/AA/NR 1,879,578
4,765,000 4.375%, 10/01/21 Series 2002 B MBIA Insured ......... Aaa/AA/NR 4,693,811
---------------
Total Pollution Control Revenue Bonds ................ 6,573,389
---------------
WATER AND SEWER REVENUE BONDS (7.5%)
Bristol County, Rhode Island Water Authority
750,000 5.250%, 07/01/17 Series 1997 A MBIA Insured .......... Baa1/AA/NR 753,495
1,000,000 3.500%, 12/01/13 Series 2004 Refunding A MBIA
Insured ........................................... Baa1/AA/NR 1,018,500
1,000,000 3.500%, 12/01/14 Series 2004 Refunding A MBIA
Insured ........................................... Baa1/AA/NR 1,015,460
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT REVENUE BONDS (CONTINUED) OR FITCH VALUE
- --------------- ------------------------------------------------------ ------------ ---------------
WATER AND SEWER REVENUE BONDS (CONTINUED)
Kent County, Rhode Island Water Authority
$ 500,000 4.000%, 07/15/12 Series 2002 A MBIA Insured ......... Baa1/AA/NR $ 527,750
1,055,000 4.150%, 07/15/14 Series 2002 A MBIA Insured ......... Baa1/AA/NR 1,094,214
Narragansett, Rhode Island Bay Commission
Water Authority
365,000 5.000%, 08/01/27 MBIA Insured Series A ............... Baa1/AA/NR 338,099
Rhode Island Clean Water Protection Finance
Agency
300,000 5.400%, 10/01/09 1993 Series 1993 A MBIA
Insured ........................................... Aaa/AA/NR 309,381
1,250,000 5.400%, 10/01/15 1993 Series A MBIA Insured .......... Aaa/AA/NR 1,387,162
500,000 4.500%, 10/01/11 1993 Series B AMBAC Insured ......... Aaa/A/NR 507,930
500,000 4.750%, 10/01/20 1999 Series A AMBAC Insured ......... Aaa/A/NR 502,125
1,000,000 5.125%, 10/01/11 1999 Series C MBIA Insured .......... Aaa/AA/NR 1,028,140
500,000 4.600%, 10/01/13 Series A AMBAC Insured .............. Aaa/A/NR 507,190
500,000 4.750%, 10/01/14 Series A AMBAC Insured .............. Aaa/A/NR 507,290
2,000,000 4.750%, 10/01/18 Series A AMBAC Insured .............. Aaa/A/NR 2,016,900
Rhode Island Water Resources Board Public
Drinking Water Protection
1,500,000 4.000%, 03/01/14 Series 2002 MBIA Insured ............ Baa1/AA/NR 1,547,955
405,000 4.250%, 03/01/15 Series 2002 MBIA Insured
(pre-refunded) ................................... Baa1/AA/NR 435,144
595,000 4.250%, 03/01/15 Series 2002 MBIA Insured ............ Baa1/AA/NR 610,518
---------------
Total Water and Sewer Revenue Bonds .................. 14,107,253
---------------
OTHER REVENUE BONDS (2.9%)
Rhode Island Convention Center Authority
Refunding Bonds
2,000,000 5.000%, 05/15/21 FSA Insured ......................... Aa3/AAA/AAA 2,056,880
Rhode Island Refunding Bond Authority State
Public Projects
500,000 5.250%, 02/01/10 AMBAC Insured Series 1998 A ......... A1/AA-/A+ 501,150
RATING
PRINCIPAL MOODY'S, S&P
AMOUNT REVENUE BONDS (CONTINUED) OR FITCH VALUE
- --------------- ------------------------------------------------------ ------------ ---------------
OTHER REVENUE BONDS (CONTINUED)
State of Rhode Island Depositors Economic
Protection Corp.
$ 445,000 6.550%, 08/01/10 MBIA Insured ETM .................... A2/AA/NR $ 464,406
500,000 6.000%, 08/01/17 Ser. 1992 B MBIA Insured ETM ........ Baa1/AA/NR 555,985
300,000 5.800%, 08/01/09 Ser. 1993 B MBIA Insured ETM ........ Baa1/AA/NR 308,328
1,045,000 5.250%, 08/01/21 Ser. 1993 B MBIA Insured ETM
(pre-refunded) .................................... Baa1/AA/NR 1,120,334
250,000 5.750%, 08/01/21 FSA Insured Series A ETM ............ NR/NR/NR* 290,460
215,000 6.375%, 08/01/22 MBIA Insured Series A ETM ........... Baa1/AA+/AAA 263,240
---------------
Total Other Revenue Bonds ............................ 5,560,783
---------------
Total Revenue Bonds ............................... 110,126,529
---------------
Total Investments (cost $181,585,990-note 4) ......... 96.3% 182,160,136
Other assets less liabilities ........................ (3.7) 6,939,198
----- ---------------
Net Assets ........................................... 100.0% $ 189,099,334
===== ===============
PERCENT OF
PORTFOLIO DISTRIBUTION BY QUALITY RATING PORTFOLIO +
---------------------------------------- -----------
Aaa of Moody's or AAA of S&P or Fitch ................ 22.2%
Aa of Moody's or AA of S&P or Fitch .................. 48.4
A of Moody's or S&P or Fitch ......................... 23.5
Baa of Moody's or BBB of S&P ......................... 1.9
Not rated* ........................................... 4.0
-----
100.0%
=====
+ Calculated using the highest rating of the three rating services.
* Any security not rated (NR) by any of the approved credit rating
services has been determined by the Investment Sub-Advisor to have
sufficient quality to be ranked in the top four credit ratings if
a credit rating were to be assigned by a rating service.
PORTFOLIO ABBREVIATIONS:
------------------------
AMBAC - American Municipal Bond 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
NR - Not rated
See accompanying notes to financial statements.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2008 (UNAUDITED)
ASSETS
Investments at value (cost $181,585,990) ........................................... $ 182,160,136
Cash ............................................................................... 5,769,510
Interest receivable ................................................................ 2,219,159
Receivable for Fund shares sold .................................................... 125,514
Other assets ....................................................................... 8,385
-------------
Total assets ....................................................................... 190,282,704
-------------
LIABILITIES
Dividends payable .................................................................. 697,723
Payable for Fund shares redeemed ................................................... 367,586
Management fee payable ............................................................. 29,276
Distribution and service fees payable .............................................. 25,341
Accrued expenses ................................................................... 63,444
-------------
Total liabilities .................................................................. 1,183,370
-------------
NET ASSETS ............................................................................ $ 189,099,334
=============
Net Assets consist of:
Capital Stock - Authorized 80,000,000 shares, par value $0.01 per share ............ $ 183,980
Additional paid-in capital ......................................................... 189,133,344
Net unrealized appreciation on investments (note 4) ................................ 574,146
Accumulated net realized loss on investments ....................................... (755,260)
Distributions in excess of net investment income ................................... (36,876)
-------------
$ 189,099,334
=============
CLASS A
Net Assets ......................................................................... $ 129,436,249
=============
Capital shares outstanding ......................................................... 12,593,200
=============
Net asset value and redemption price per share ..................................... $ 10.28
=============
Maximum offering price per share (100/96 of $10.28 adjusted to nearest cent) ....... $ 10.71
=============
CLASS C
Net Assets ......................................................................... $ 10,519,863
=============
Capital shares outstanding ......................................................... 1,023,674
=============
Net asset value and offering price per share ....................................... $ 10.28
=============
Redemption price per share (*a charge of 1% is imposed on the redemption
proceeds of the shares, or on the original price, whichever is lower, if redeemed
during the first 12 months after purchase) ...................................... $ 10.28*
=============
CLASS I
Net Assets ......................................................................... $ 302,044
=============
Capital shares outstanding ......................................................... 29,401
=============
Net asset value, offering and redemption price per share ........................... $ 10.27
=============
CLASS Y
Net Assets ......................................................................... $ 48,841,178
=============
Capital shares outstanding ......................................................... 4,751,721
=============
Net asset value, offering and redemption price per share ........................... $ 10.28
=============
See accompanying notes to financial statements.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 2008 (UNAUDITED)
INVESTMENT INCOME:
Interest income ...................................... $ 3,735,110
Expenses:
Management fee (note 3) .............................. $ 436,240
Distribution and service fees (note 3) ............... 143,178
Trustees' fees and expenses (note 8) ................. 70,479
Legal fees (note 3) .................................. 52,798
Transfer and shareholder servicing agent fees (note 3) 40,382
Shareholders' reports and proxy statements ........... 28,109
Fund accounting fees ................................. 10,742
Custodian fees (note 6) .............................. 9,172
Auditing and tax fees ................................ 8,412
Registration fees and dues ........................... 7,586
Insurance ............................................ 3,810
Chief compliance officer (note 3) .................... 2,024
Miscellaneous ........................................ 34,327
-----------
Total expenses ....................................... 847,259
Management fee waived (note 3) ....................... (279,479)
Expenses paid indirectly (note 6) .................... (23,296)
-----------
Net expenses ......................................... 544,484
-----------
Net investment income ................................ 3,190,626
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions 62,445
Change in unrealized appreciation on investments ..... (1,028,087)
-----------
Net realized and unrealized gain (loss) on investments (965,642)
-----------
Net change in net assets resulting from operations ... $ 2,224,984
===========
See accompanying notes to financial statements.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended
December 31, 2008 Year Ended
(unaudited) June 30, 2008
----------------- -----------------
OPERATIONS:
Net investment income ................................... $ 3,190,626 $ 5,593,555
Net realized gain (loss) from securities transactions ... 62,445 89,660
Change in unrealized appreciation on investments ........ (1,028,087) 146,976
----------------- -----------------
Change in net assets from operations ................. 2,224,984 5,830,191
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS (note 9):
Class A Shares:
Net investment income ................................... (2,157,809) (3,893,537)
Class C Shares:
Net investment income ................................... (160,123) (369,761)
Class I Shares:
Net investment income ................................... (5,953) (25,275)
Class Y Shares:
Net investment income ................................... (911,717) (1,438,715)
----------------- -----------------
Change in net assets from distributions .............. (3,235,602) (5,727,288)
----------------- -----------------
CAPITAL SHARE TRANSACTIONS (note 7):
Proceeds from shares sold ............................... 21,214,346 34,062,506
Net asset value of shares issued in connection
with merger (note 10) ................................ 18,325,315 --
Reinvested dividends and distributions .................. 1,181,326 2,606,015
Cost of shares redeemed ................................. (12,980,066) (22,421,102)
----------------- -----------------
Change in net assets from capital share transactions .... 27,740,921 14,247,419
----------------- -----------------
Change in net assets ................................. 26,730,303 14,350,322
NET ASSETS:
Beginning of period ................................ 162,369,031 148,018,709
----------------- -----------------
End of period* ..................................... $ 189,099,334 $ 162,369,031
================= =================
* Includes distributions in excess of net investment
income and undistributed net investment income of: $ (36,876) $ 8,100
================= =================
See accompanying notes to financial statements.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 (UNAUDITED)
1. ORGANIZATION
Narragansett Insured Tax-Free Income Fund (the "Fund"), a non-diversified,
open-end investment company, was organized on January 22, 1992 as a
Massachusetts business trust and commenced operations on September 10, 1992. The
Fund is authorized to issue 80,000,000 shares and, since its inception to May 1,
1996, offered only one class of shares. On that date, the Fund began offering
two additional classes of shares, Class C and Class Y Shares. All shares
outstanding prior to that date were designated as Class A Shares and are sold
with a front-payment sales charge and bear an annual distribution fee. Class C
Shares are sold with a level-payment sales charge with no payment at time of
purchase but level service and distribution fees from date of purchase through a
period of six years thereafter. A contingent deferred sales charge of 1% is
assessed to any Class C shareholder who redeems shares of this Class within one
year from the date of purchase. Class C Shares, together with a pro-rata portion
of all Class C Shares acquired through reinvestment of dividends and other
distributions paid in additional Class C Shares, automatically convert to Class
A Shares after 6 years. The Class Y Shares are only offered to institutions
acting for an investor in a fiduciary, advisory, agency, custodian or similar
capacity and are not offered directly to retail investors. Class Y Shares are
sold at net asset value without any sales charge, redemption fees, contingent
deferred sales charge or distribution or service fees. On October 31, 1997, the
Fund established Class I Shares, which are offered and sold only through
financial intermediaries and are not offered directly to retail investors. Class
I Shares are sold at net asset value without any sales charge, redemption fees,
or contingent deferred sales charge. Class I Shares carry a distribution fee and
a service fee. All classes of shares represent interests in the same portfolio
of investments and are identical as to rights and privileges and differ with
respect to the effect of sales charges, the distribution and/or service fees
borne by each class, expenses specific to each class, voting rights on matters
affecting a single class and the exchange privileges of each class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with accounting principles generally accepted in the United States of
America for investment companies.
a) PORTFOLIO VALUATION: Municipal securities which have remaining maturities
of more than 60 days are valued each business day based upon information
provided by a nationally prominent independent pricing service and
periodically verified through other pricing services. In the case of
securities for which market quotations are readily available, securities
are valued by the pricing service at the mean of bid and asked quotations.
If market quotations or a valuation from the pricing service is not
readily available, the security is valued at fair value determined in good
faith under procedures established by and under the general supervision of
the Board of Trustees. Securities which mature in 60 days or less are
valued at amortized cost if their term to maturity at purchase is 60 days
or less, or by amortizing their unrealized appreciation or depreciation on
the 61st day prior to maturity, if their term to maturity at purchase
exceeds 60 days.
b) FAIR VALUE MEASUREMENTS: The Fund adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 157, "Fair Value
Measurements" ("SFAS 157"), effective July 1, 2008. SFAS 157 established a
three-tier hierarchy of inputs to establish classification of fair value
measurements for disclosure purposes. Inputs may be observable or
unobservable. Observable inputs reflect the assumptions market
participants would use in pricing the asset or liability developed based
on market data obtained from sources independent of the reporting entity.
Unobservable inputs reflect the reporting entity's own assumptions about
the assumptions market participants would use in pricing the asset or
liability developed based on the best information available in the
circumstances. The Fund's investments are assigned levels based upon the
observability.
The three-tier hierarchy inputs is summarized below:
Level 1 - quoted prices in active markets for identical securities
Level 2 - other significant observable inputs (including quoted prices for
similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily
an indication of the risk associated with investing in those securities
The following is a summary of the valuation inputs, representing 100% of
the Fund's investments, used to value the Fund's net assets as of December
31, 2008:
Valuation Inputs Investments in Securities
---------------- -------------------------
Level 1 - Quoted Prices ..................... $ --
Level 2 - Other Significant Observable Inputs 182,160,136
Level 3 - Significant Unobservable Inputs ... --
---------------
Total ....................................... $ 182,160,136
===============
c) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and losses
from securities transactions are reported on the identified cost basis.
Interest income is recorded on the accrual basis and is adjusted for
amortization of premium and accretion of original issue and market
discount.
d) FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as a
regulated investment company by complying with the provisions of the
Internal Revenue Code applicable to certain investment companies. The Fund
intends to make distributions of income and securities profits sufficient
to relieve it from all, or substantially all, Federal income and excise
taxes.
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48") was adopted on December 31, 2007. Management has reviewed the
tax positions for each of the open tax years (2004-2008) and has
determined that the implementation of FIN 48 did not have a material
impact on the Fund's financial statements.
e) MULTIPLE CLASS ALLOCATIONS: All income, expenses (other than
class-specific expenses), and realized and unrealized gains or losses are
allocated daily to each class of shares based on the relative net assets
of each class. Class-specific expenses, which include distribution and
service fees and any other items that are specifically attributed to a
particular class, are charged directly to such class.
f) USE OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of increases and decreases in net assets from
operations during the reporting period. Actual results could differ from
those estimates.
g) ACCOUNTING PRONOUNCEMENT: In March 2008, Statement of Financial Accounting
Standards No. 161, "Disclosures about Derivative Instruments and Hedging
Activities" ("SFAS 161") was issued and is effective for fiscal years
beginning after November 15, 2008. SFAS 161 is intended to improve
financial reporting for derivative instruments by requiring enhanced
disclosure that enables investors to understand how and why an entity uses
derivatives, how derivatives are accounted for, and how derivative
instruments affect an entity's results of operations and financial
position. Management is currently evaluating the implications of SFAS 161
and it's impact, if any, on the Fund's financial statement disclosures.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
Aquila Investment Management LLC (the "Manager"), a wholly-owned
subsidiary of Aquila Management Corporation, the Fund's founder and sponsor,
serves as the Manager for the Fund under an Advisory and Administration
Agreement with the Fund. The portfolio management of the Fund has been delegated
to a Sub-Adviser as described below. Under the Advisory and Administration
Agreement, the Manager provides all administrative services to the Fund, other
than those relating to the day-to-day portfolio management. The Manager's
services include providing the office of the Fund and all related services as
well as overseeing the activities of the Sub-Adviser and managing relationships
with all the various support organizations to the Fund such as the shareholder
servicing agent, custodian, legal counsel, fund accounting agent, auditor and
distributor. For its services, the Manager is entitled to receive a fee which is
payable monthly and computed as of the close of business each day at the annual
rate of 0.50% on the Fund's average net assets.
Citizens Investment Advisors, a department of RBS Citizens, N.A. (the
"Sub-Adviser") serves as the Investment Sub-Adviser for the Fund under a
Sub-Advisory Agreement between the Manager and the Sub-Adviser. Under this
agreement, the Sub-Adviser continuously provides, subject to oversight of the
Manager and the Board of Trustees of the Fund, the investment program of the
Fund and the composition of its portfolio, arranges for the purchases and sales
of portfolio securities, and provides for daily pricing of the Fund's portfolio.
For its services, the Sub-Adviser is entitled to receive a fee from the Manager
which is payable monthly and computed as of the close of business each day at
the annual rate of 0.23% on the Fund's average net assets.
For the six months ended December 31, 2008, the Fund incurred management
fees of $436,240 of which $279,479 was waived. The Manager has contractually
undertaken to waive fees and/or reimburse Fund expenses during the period July
1, 2008 through June 30, 2009 so that total Fund expenses would not exceed 0.83%
for Class A Shares, 1.68% for Class C Shares, 1.05% for Class I Shares or 0.70%
for Class Y Shares. A similar contractual undertaking is intended to be in place
through the period ended June 30, 2010.
Under a Compliance Agreement with the Manager, the Manager is compensated
for Chief Compliance Officer related services provided to enable the Fund to
comply with Rule 38a-1 of the Investment Company Act of 1940.
Specific details as to the nature and extent of the services provided by
the Manager and the Sub-Adviser are more fully defined in the Fund's Prospectus
and Statement of Additional Information.
b) DISTRIBUTION AND SERVICE FEES:
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part of
the Plan, with respect to Class A Shares, the Fund is authorized to make
distribution fee payments to broker-dealers or others ("Qualified Recipients")
selected by Aquila Distributors, Inc. ("the Distributor"), including, but not
limited to, any principal underwriter of the Fund with which the Distributor has
entered into written agreements contemplated by the Rule and which have rendered
assistance in the distribution and/or retention of the Fund's shares or
servicing of shareholder accounts. The Fund makes payment of this service fee at
the annual rate of 0.15% of the Fund's average net assets represented by Class A
Shares. For the six months ended December 31, 2008, distribution fees on Class A
Shares amounted to $86,928, of which the Distributor retained $2,061.
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Fund's Class C Shares or
servicing of shareholder accounts. These payments are made at the annual rate of
0.75% of the Fund's average net assets represented by Class C Shares and for the
six months ended December 31, 2008 amounted to $41,935. In addition, under a
Shareholder Services Plan, the Fund is authorized to make service fee payments
with respect to Class C Shares to Qualified Recipients for providing personal
services and/or maintenance of shareholder accounts. These payments are made at
the annual rate of 0.25% of the Fund's average net assets represented by Class C
Shares and for the six months ended December 31, 2008, amounted to $13,979. The
total of these payments with respect to Class C Shares amounted to $55,914, of
which the Distributor retained $13,064.
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class I Shares to Qualified Recipients. Class I payments, under
the Plan, may not exceed, for any fiscal year of the Fund a rate (currently
0.20%) set from time to time by the Board of Trustees of not more than 0.25% of
the average annual net assets represented by the Class I Shares. In addition,
the Fund has a Shareholder Services Plan under which it may pay service fees
(currently 0.15%) of not more than 0.25% of the average annual net assets of the
Fund represented by Class I Shares. That is, the total payments under
both plans will not exceed 0.50% of such net assets. For the six months ended
December 31, 2008, these payments were made at the average annual rate of 0.35%
of such net assets amounting to $588 of which $336 related to the Plan and $252
related to the Shareholder Services Plan.
Specific details about the Plans are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
Under a Distribution Agreement, the Distributor serves as the exclusive
distributor of the Fund's shares. Through agreements between the Distributor and
various brokerage and advisory firms ("intermediaries"), the Fund's shares are
sold primarily through the facilities of intermediaries having offices within
Rhode Island, with the bulk of sales commissions inuring to such intermediaries.
For the six months ended December 31, 2008, total commissions on sales of Class
A Shares amounted to $105,135, of which the Distributor received $9,117.
c) OTHER RELATED PARTY TRANSACTIONS:
For the six months ended December 31, 2008, the Fund incurred $52,347 of
legal fees allocable to Butzel Long PC, counsel to the Fund, for legal services
in conjunction with the Fund's ongoing operations. The Secretary of the Fund is
a shareholder of that firm.
4. PURCHASES AND SALES OF SECURITIES
During the six months ended December 31, 2008, purchases of securities and
proceeds from the sales of securities aggregated $24,972,652 and $6,570,000,
respectively.
At December 31, 2008, the aggregate tax cost for all securities was
$181,574,742. At December 31, 2008, the aggregate gross unrealized appreciation
for all securities in which there is an excess of value over tax cost amounted
to $3,748,914 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $3,163,520 for a net
unrealized appreciation of $585,394.
5. PORTFOLIO ORIENTATION
Since the Fund invests principally and may invest entirely in double
tax-free municipal obligations of issuers within Rhode Island, it is subject to
possible risks associated with economic, political, or legal developments or
industrial or regional matters specifically affecting Rhode Island and whatever
effects these may have upon Rhode Island issuers' ability to meet their
obligations. However, to mitigate against such risks, the Fund has chosen to
have at least 80% and possibly the entire number of issues in the portfolio
insured as to timely payment of principal and interest when due by nationally
prominent municipal bond insurance companies. At December 31, 2008, all of the
securities in the Fund were insured. While such insurance protects against
credit risks with portfolio securities, it does not insure against market risk
of fluctuations in the Fund's share price and income return (see note 11a).
The Fund is also permitted to invest in U.S. territorial municipal
obligations meeting comparable quality standards and providing income which is
exempt from both regular Federal and Rhode Island
income taxes. The general policy of the Fund is to invest in such securities
only when comparable securities of Rhode Island issuers are not available in the
market. At December 31, 2008, the Fund had all of its net assets invested in
Rhode Island municipal issues.
6. EXPENSES
The Fund has negotiated an expense offset arrangement with its custodian
wherein it receives credit toward the reduction of custodian fees and other Fund
expenses whenever there are uninvested cash balances. The Statement of
Operations reflects the total expenses before any offset, the amount of offset
and the net expenses.
7. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
Six Months Ended
December 31, 2008 Year Ended
(unaudited) June 30, 2008
----------------------------- -----------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
Class A Shares:
Proceeds from shares sold 1,046,547 $ 10,785,359 1,685,023 $ 17,703,105
Shares issued in merger . 1,856,329 18,325,315 -- --
Reinvested distributions 95,633 984,437 206,778 2,169,365
Cost of shares redeemed . (543,323) (5,541,522) (1,279,281) (13,392,601)
------------ ------------ ------------ ------------
Net change ........... 2,455,186 24,553,589 (612,520) (6,479,869)
------------ ------------ ------------ ------------
Class C Shares:
Proceeds from shares sold 147,800 1,530,022 242,233 2,541,616
Reinvested distributions 5,432 55,945 12,955 135,823
Cost of shares redeemed . (204,732) (2,100,628) (534,010) (5,606,965)
------------ ------------ ------------ ------------
Net change ........... (51,500) (514,661) (278,822) (2,929,526)
------------ ------------ ------------ ------------
Class I Shares:
Proceeds from shares sold -- -- 55 591
Reinvested distributions 482 4,963 2,411 25,257
Cost of shares redeemed . (22,766) (237,359) (30,490) (319,333)
------------ ------------ ------------ ------------
Net change ........... (22,284) (232,396) (28,024) (293,485)
------------ ------------ ------------ ------------
Class Y Shares:
Proceeds from shares sold 877,119 8,898,965 1,312,969 13,817,194
Reinvested distributions 13,224 135,981 26,297 275,570
Cost of shares redeemed . (501,490) (5,100,557) (295,344) (3,102,203)
------------ ------------ ------------ ------------
Net change ........... 388,853 3,934,389 1,043,922 10,990,561
------------ ------------ ------------ ------------
Total transactions in Fund
shares .................. 2,770,255 $ 27,740,921 1,349,596 $ 14,247,419
============ ============ ============ ============
8. TRUSTEES' FEES AND EXPENSES
At December 31, 2008 there were 6 Trustees, one of which is affiliated
with the Manager and is not paid any fees. The total amount of Trustees' service
and attendance fees paid during the six months ended December 31, 2008 was
$51,558, to cover carrying out their responsibilities and attendance at
regularly scheduled quarterly Board Meetings and meetings of the Independent
Trustees held prior to each quarterly Board Meeting. When additional meetings
(Audit, Nominating, Shareholder and special meetings) are held, meeting fees are
paid to those Trustees in attendance. Trustees are reimbursed for their expenses
such as travel, accommodations, and meals incurred in connection with attendance
at Board Meetings and at the Annual Meeting of Shareholders. For the six months
ended December 31, 2008, such meeting-related expenses amounted to $18,921.
9. INCOME TAX INFORMATION AND DISTRIBUTIONS
The Fund declares dividends daily from net investment income and makes
payments monthly. Net realized capital gains, if any, are distributed annually
and are taxable. These distributions are paid in additional shares at the net
asset value per share, in cash, or in a combination of both, at the
shareholder's option.
The Fund intends to maintain, to the maximum extent possible, the
tax-exempt status of interest payments received from portfolio municipal
securities in order to allow dividends paid to shareholders from net investment
income to be exempt from regular Federal and State of Rhode Island income taxes.
However, due to differences between financial statement reporting and Federal
income tax reporting requirements, distributions made by the Fund may not be the
same as the Fund's net investment income, and/or net realized securities gains.
In this regard, the Fund increased undistributed net investment income in the
amount of $128,882 and decreased additional paid-in capital in the amount of
$128,882 at June 30, 2008. This adjustment had no impact on the Fund's aggregate
net assests at June 30, 2008. Further, a small portion of the dividends may,
under some circumstances, be subject to taxes at ordinary income rates.
At June 30, 2008, the Fund had a capital loss carryover of $817,705 of
which $530,992 expires on June 30, 2009, $111,495 expires on June 30, 2013, and
$175,218 expires on June 30, 2015. This carryover is available to offset future
net realized gains on securities transactions to the extent provided for in the
Internal Revenue Code. To the extent that this loss is used to offset future
realized capital gains, it is probable the gains so offset will not be
distributed.
Tax character of distributions:
Year Ended June 30,
------------------------
2008 2007
---------- ----------
Net tax-exempt income $5,598,407 $5,334,313
Ordinary income 128,881 278,524
---------- ----------
$5,727,288 $5,612,837
========== ==========
As of June 30, 2008, the components of distributable earnings on a tax
basis were as follows:
Undistributed tax-exempt income $ 193,529
Accumulated net realized loss (817,705)
Unrealized appreciation 1,610,333
Other temporary differences (193,529)
-----------
$ 792,628
===========
At June 30, 2008, the difference between book basis and tax basis
unrealized appreciation was attributable primarily to the treatment of accretion
of discounts and amortization of premiums. The difference between book basis and
tax basis undistributed income is due to the timing of distribution.
10. TRANSFER OF NET ASSETS TRANSACTION
On October 17, 2008, the Fund acquired the assets and liabilities of the
Ocean State Tax-Exempt Fund ("Ocean State"), pursuant to an agreement and plan
of reorganization approved by the shareholders of Ocean State. Total shares
issued by the Fund and total net assets of Ocean State and the Fund on the date
of the transfer were as follows:
Shares Issued by Total Nets Assets Total Net Assets
Aquired Fund the Fund of Ocean State of the Fund
- --------------------------------------------------------------------------------
Ocean State 1,856,329 $ 18,325,315 $ 176,365,957
The total net assets of the Ocean State portfolio before acquisition
included unrealized appreciation of $133,026 and accumulated net realized loss
of $468,864. Total net assets of the Fund immediately after the transfer were
$194,691,272. The transaction was structured to qualify as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended.
11. RECENT DEVELOPMENT
a) INSURERS: Over the past year, 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.
b) SUB-ADVISER DEVELOPMENT: Citizens Investment Advisors, the Sub-Adviser of
the Fund, is a department of Citizens Bank, a division of RBS Citizens,
N.A., a bank subsidiary of Citizens Financial Group, Inc. ("CFG"). CFG is
a wholly-owned subsidiary of The Royal Bank of Scotland Group, PLC
("RBSG").
In October, 2008 the government of the United Kingdom directed RBSG to
raise 20 billion pounds of additional capital by a sale of shares. The
U.K. government, through Her Majesty's Treasury ("HMT"), agreed to
purchase any shares not sold in the offering, which closed on November 29,
2008. The current owners bought only a fraction of the issue. The purchase
by HMT was completed on December 1, 2008. HMT has, as a result of the
transaction, acquired 57.92% of the enlarged ordinary (voting) share
capital of RBSG, as well as (pound)5 billion of non-cumulative non-voting
Preferences Shares in RBSG. HMT's investment is RBSG will be managed on a
commercial basis by a new arm's-length company, UK Financial Investments
Limited, which is wholly owned by HMT.
These transactions have resulted in a change of control of RBSG. As a
consequence of the change of control of the Sub-Adviser's corporate
parent, the sub-advisory agreement has terminated by its terms.
The Board of Trustees has accordingly authorized a new sub-advisory
agreement with the same terms as the current sub-advisory agreement. The
Board also authorized calling a special meeting of the shareholders of the
Fund to approve the new agreement. The Sub-Adviser has advised the Fund
that the above transactions will not result in any changes in the
management or operations of the Sub-Adviser.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class A
----------------------------------------------------------------------------------
Six Months
Ended Year Ended June 30,
12/31/08 -----------------------------------------------------------------
(unaudited) 2008 2007 2006 2005 2004
-------- -------- -------- -------- -------- --------
Net asset value, beginning of period $ 10.39 $ 10.37 $ 10.34 $ 10.79 $ 10.49 $ 10.92
-------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income + 0.19++ 0.38++ 0.38+ 0.38+ 0.40+ 0.41+
Net gain (loss) on securities
(both realized and unrealized) (0.11) 0.03 0.04 (0.44) 0.31 (0.42)
-------- -------- -------- -------- -------- --------
Total from investment operations 0.08 0.41 0.42 (0.06) 0.71 (0.01)
-------- -------- -------- -------- -------- --------
Less distributions (note 9):
Dividends from net investment income (0.19) (0.39) (0.39) (0.39) (0.41) (0.42)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.28 $ 10.39 $ 10.37 $ 10.34 $ 10.79 $ 10.49
======== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) 0.81%* 4.00% 4.10% (0.56)% 6.81% (0.10)%
Ratios/supplemental data
Net assets, end of period (in thousands) $129,436 $105,330 $ 98,749 $103,222 $105,910 $101,413
Ratio of expenses to average net assets 0.63%** 0.64% 0.68% 0.67% 0.58% 0.53%
Ratio of net investment income to
average net assets 3.64%** 3.63% 3.63% 3.61% 3.68% 3.82%
Portfolio turnover rate 3.89%* 2.87% 2.37% 7.25% 2.20% 8.61%
The expense and net investment income ratios without the effect of the waiver of a portion of the management fee and the expense
reimbursement were (note 3):
Ratio of expenses to average net assets 0.93%** 0.97% 1.03% 1.03% 0.96% 0.91%
Ratio of net investment income to
average net assets 3.35%** 3.29% 3.28% 3.25% 3.31% 3.44%
The expense ratios after giving effect to the waiver, reimbursement and expense offset for uninvested cash balances were:
Ratio of expenses to average net assets 0.61%** 0.63% 0.68% 0.67% 0.57% 0.52%
Class C
----------------------------------------------------------------------------------
Six Months
Ended Year Ended June 30,
12/31/08 -----------------------------------------------------------------
(unaudited) 2008 2007 2006 2005 2004
-------- -------- -------- -------- -------- --------
Net asset value, beginning of period $ 10.39 $ 10.37 $ 10.34 $ 10.79 $ 10.48 $ 10.92
-------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income + 0.15++ 0.29++ 0.30+ 0.29+ 0.31+ 0.32+
Net gain (loss) on securities
(both realized and unrealized) (0.11) 0.03 0.03 (0.44) 0.31 (0.43)
-------- -------- -------- -------- -------- --------
Total from investment operations 0.04 0.32 0.33 (0.15) 0.62 (0.11)
-------- -------- -------- -------- -------- --------
Less distributions (note 9):
Dividends from net investment income (0.15) (0.30) (0.30) (0.30) (0.31) (0.33)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.28 $ 10.39 $ 10.37 $ 10.34 $ 10.79 $ 10.48
======== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) 0.38%* 3.12% 3.22% (1.40)% 6.01% (1.04)%
Ratios/supplemental data
Net assets, end of period (in thousands) $ 10,520 $ 11,169 $ 14,034 $ 16,602 $ 19,031 $ 17,901
Ratio of expenses to average net assets 1.48%** 1.51% 1.53% 1.52% 1.43% 1.38%
Ratio of net investment income to
average net assets 2.78%** 2.76% 2.78% 2.76% 2.83% 2.98%
Portfolio turnover rate 3.89%* 2.87% 2.37% 7.25% 2.20% 8.61%
The expense and net investment income ratios without the effect of the waiver of a portion of the management fee and the expense
reimbursement were (note 3):
Ratio of expenses to average net assets 1.78%** 1.82% 1.88% 1.88% 1.81% 1.76%
Ratio of net investment income to
average net assets 2.48%** 2.45% 2.43% 2.40% 2.45% 2.60%
The expense ratios after giving effect to the waiver, reimbursement and expense offset for uninvested cash balances were:
Ratio of expenses to average net assets 1.46%** 1.48% 1.53% 1.52% 1.42% 1.37%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
++ Per share amounts have been calculated using the daily average shares
method.
* Not annualized.
** Annualized.
See accompanying notes to financial statements.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class I
----------------------------------------------------------------------------------
Six Months
Ended Year Ended June 30,
12/31/08 -----------------------------------------------------------------
(unaudited) 2008 2007 2006 2005 2004
-------- -------- -------- -------- -------- --------
Net asset value, beginning of period $ 10.39 $ 10.37 $ 10.34 $ 10.79 $ 10.48 $ 10.91
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income+ 0.18++ 0.37++ 0.38+ 0.37+ 0.39+ 0.41+
Net gain (loss) on securities (both
realized and unrealized) (0.12) 0.03 0.03 (0.44) 0.32 (0.42)
-------- -------- -------- -------- -------- --------
Total from investment operations 0.06 0.40 0.41 (0.07) 0.71 (0.01)
-------- -------- -------- -------- -------- --------
Less distributions (note 9):
Dividends from net investment income (0.18) (0.38) (0.38) (0.38) (0.40) (0.42)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.27 $ 10.39 $ 10.37 $ 10.34 $ 10.79 $ 10.48
======== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) 0.63%* 3.84% 3.96% (0.67)% 6.89% (0.12)%
Ratios/supplemental data
Net assets, end of period (in thousands) $ 302 $ 537 $ 826 $ 761 $ 1,098 $ 790
Ratio of expenses to average net assets 0.79%** 0.81% 0.81% 0.79% 0.58% 0.53%
Ratio of net investment income to
average net assets 3.46%** 3.47% 3.50% 3.48% 3.68% 3.82%
Portfolio turnover rate 3.89%* 2.87% 2.37% 7.25% 2.20% 8.61%
The expense and net investment income ratios without the effect of the waiver of a portion of the management fee and the expense
reimbursement were (note 3):
Ratio of expenses to average net assets 1.09%** 1.12% 1.15% 1.15% 0.96% 0.91%
Ratio of net investment income to
average net assets 3.16%** 3.16% 3.15% 3.12% 3.30% 3.44%
The expense ratios after giving effect to the waiver, reimbursement and expense offset for uninvested cash balances were:
Ratio of expenses to average net assets 0.77%** 0.77% 0.80% 0.79% 0.57% 0.52%
Class Y
----------------------------------------------------------------------------------
Six Months
Ended Year Ended June 30,
12/31/08 -----------------------------------------------------------------
(unaudited) 2008 2007 2006 2005 2004
-------- -------- -------- -------- -------- --------
Net asset value, beginning of period $ 10.39 $ 10.37 10.34 $ 10.79 $ 10.49 $ 10.92
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income+ 0.20++ 0.40++ 0.40+ 0.40+ 0.41+ 0.43+
Net gain (loss) on securities (both
realized and unrealized) (0.11) 0.03 0.04 (0.44) 0.31 (0.43)
-------- -------- -------- -------- -------- --------
Total from investment operations 0.09 0.43 0.44 (0.04) 0.72 --
-------- -------- -------- -------- -------- --------
Less distributions (note 9):
Dividends from net investment income (0.20) (0.41) (0.41) (0.41) (0.42) (0.43)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.28 $ 10.39 $ 10.37 $ 10.34 $ 10.79 $ 10.49
======== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) 0.88%* 4.16% 4.25% (0.40)% 6.98% 0.03%
Ratios/supplemental data
Net assets, end of period (in thousands) $ 48.841 $ 45,332 $ 34,409 $ 32,239 $ 27,998 $ 22,113
Ratio of expenses to average net assets 0.49%** 0.51% 0.53% 0.52% 0.43% 0.38%
Ratio of net investment income to
average net assets 3.78%** 3.75% 3.77% 3.76% 3.83% 3.97%
Portfolio turnover rate 3.89%* 2.87% 2.37% 7.25% 2.20% 8.61%
The expense and net investment income ratios without the effect of the waiver of a portion of the management fee and the expense
reimbursement were (note 3):
Ratio of expenses to average net assets 0.78%** 0.82% 0.87% 0.88% 0.81% 0.76%
Ratio of net investment income to
average net assets 3.49%** 3.44% 3.43% 3.39% 3.45% 3.59%
The expense ratios after giving effect to the waiver, reimbursement and expense offset for uninvested cash balances were:
Ratio of expenses to average net assets 0.46%** 0.47% 0.52% 0.52% 0.42% 0.37%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
++ Per share amounts have been calculated using the daily average shares
method.
* Not annualized.
** Annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
ANALYSIS OF EXPENSES (UNAUDITED)
As a shareholder of the Fund, you may incur two types of costs: (1)
transaction costs, including front-end sales charges with respect to Class A
shares or contingent deferred sales charges ("CDSC") with respect to Class C
shares; and (2) ongoing costs, including management fees; distribution and/or
service (12b-1) fees; and other Fund expenses. The table below is intended to
help you understand your ongoing costs (in dollars) of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The table below is based on an investment of $1,000 invested on July 1,
2008 and held for the six months ended December 31, 2008.
ACTUAL EXPENSES
This table provides information about actual account values and actual
expenses. You may use the information provided in this table, together with the
amount you invested, to estimate the expenses that you paid over the period. To
estimate the expenses you paid on your account, divide your ending account value
by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During the Period".
SIX MONTHS ENDED DECEMBER 31, 2008
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A 0.81% $1,000.00 $1,008.10 $3.09
- --------------------------------------------------------------------------------
Class C 0.38% $1,000.00 $1,003.80 $7.37
- --------------------------------------------------------------------------------
Class I 0.63% $1,000.00 $1,006.30 $3.89
- --------------------------------------------------------------------------------
Class Y 0.88% $1,000.00 $1,008.80 $2.33
- --------------------------------------------------------------------------------
(1) ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS, IF
ANY, AT NET ASSET VALUE AND DOES NOT REFLECT THE DEDUCTION OF THE
APPLICABLE SALES CHARGES WITH RESPECT TO CLASS A SHARES OR THE APPLICABLE
CONTINGENT DEFERRED SALES CHARGES ("CDSC") WITH RESPECT TO CLASS C SHARES.
TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE
TOTAL RETURN FOR THE YEAR.
(2) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.61%, 1.46%, 0.77%
AND 0.46% FOR THE FUND'S CLASS A, C, I AND Y SHARES, RESPECTIVELY,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANALYSIS OF EXPENSES (UNAUDITED) (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio and an assumed rate of
return of 5.00% per year before expenses, which is not the Fund's actual return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
the information provided in this table to compare the ongoing costs of investing
in the Fund and other mutual funds. To do so, compare this 5.00% hypothetical
example relating to the Fund with the 5.00% hypothetical examples that appear in
the shareholder reports of other mutual funds.
Please note that the expenses shown in the table below are meant to
highlight your ongoing costs only and do not reflect any transactional costs
with respect to Class A shares. The example does not reflect the deduction of
contingent deferred sales charges ("CDSC") with respect to Class C shares.
Therefore, the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different mutual funds. In
addition, if these transaction costs were included, your costs would have been
higher.
SIX MONTHS ENDED DECEMBER 31, 2008
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,022.13 $3.11
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,017.85 $7.43
- --------------------------------------------------------------------------------
Class I 5.00% $1,000.00 $1,021.32 $3.92
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,022.89 $2.35
- --------------------------------------------------------------------------------
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.61%, 1.46%, 0.77%
AND 0.46% FOR THE TRUST'S CLASS A, C, I AND Y SHARES, RESPECTIVELY,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INFORMATION AVAILABLE (UNAUDITED)
Much of the information that the funds in the Aquila Group of Funds
produce is automatically sent to you and all other shareholders. Specifically,
you are routinely sent the entire list of portfolio securities of your Fund
twice a year in the semi-annual and annual reports you receive. Additionally, we
prepare, and have available, portfolio listings at the end of each quarter.
Whenever you may be interested in seeing a listing of your Fund's portfolio
other than in your shareholder reports, please check our website
http://www.aquilafunds.com or call us at 1-800-437-1020.
The Fund additionally files a complete list of its portfolio holdings with
the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms
N-Q are available free of charge on the SEC website at http://www.sec.gov. You
may also review or, for a fee, copy the forms at the SEC's Public Reference Room
in Washington, DC or by calling 1-800-SEC-0330.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROXY VOTING RECORD (UNAUDITED)
The Fund does not invest in equity securities. Accordingly, there were no
matters relating to a portfolio security considered at any shareholder meeting
held during the 12 months ended June 30, 2008 with respect to which the Fund was
entitled to vote. Applicable regulations require us to inform you that the
foregoing proxy voting information is available on the SEC website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING RESULTS (UNAUDITED)
The Annual Meeting of Shareholders of Narragansett Insured Tax-Free Income
Fund (the "Fund") was held on October 7, 2008. The holders of shares
representing 70% of the total net asset value of the shares entitled to vote
were present in person or by proxy. At the meeting, the following matters were
voted upon and approved by the shareholders (the resulting votes for each matter
are presented below).
1. To elect Trustees.
Dollar Amount of Votes:
-----------------------
Trustee For Withheld
------- --- --------
David A. Duffy $115,462,968 $572,995
Diana P. Herrmann $115,452,825 $583,128
Willliam J. Nightingale $115,462,968 $572,995
John J. Partridge $115,462,968 $572,995
James R. Ramsey $115,462,968 $572,995
Laureen L. White $115,462,968 $572,995
2. To act on the selection of Tait, Weller & Baker LLP as the Fund's
independent registered public accounting firm.
Dollar Amount of Votes:
-----------------------
For Against Abstain
--- ------- -------
$115,803,673 $152,010 $80,269
A Special Meeting of Shareholders of Narragansett Insured Tax-Free Income
Fund (the "Fund") was held on October 7, 2008. The holders of shares
representing 55% of the total net asset value of the shares entitled to vote
were present in person or by proxy. At the meeting, the following matters were
voted upon and approved by the shareholders (the resulting votes for each matter
are presented below).
1. To act on a new Advisory and Administration Agreement
Dollar Amount of Votes:
-----------------------
For Against Abstain
--- ------- -------
$88,279,203 $585,048 $2,101,105
2. To act on a new Sub-Advisory Agreement
Dollar Amount of Votes:
-----------------------
For Against Abstain
--- ------- -------
$88,431,424 $585,048 $1,948,885
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
RENEWAL OF THE ADVISORY AND ADMINISTRATION AGREEMENT AND
APPROVAL OF A NEW SUB-ADVISORY AGREEMENT
Renewal until December 31, 2009 of the Advisory and Administration
Agreement (the "Advisory Agreement") between the Fund and the Manager and entry
by the Manager until April 30, 2009 and, if it is approved by Fund shareholders,
until December 31, 2009, into a new Sub-Advisory Agreement (the "New
Sub-Advisory Agreement") between the Manager and Citizens Investment Advisors, a
department of RBS Citizens, N.A. (the "Sub-Adviser"), were approved by the Board
of Trustees and the independent Trustees in December, 2008. The need to approve
a new Sub-Advisory Agreement as opposed to renewing the previous agreement with
the Sub-Adviser arose out of the "assignment," as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), of the previous sub-advisory
agreement by virtue of a change of control of an indirect parent of the
Sub-Adviser.
At a meeting called and held for the foregoing purposes at which a
majority of the independent Trustees were present in person, the following
materials were considered:
o Copies of the Advisory Agreement and the previous sub-advisory
agreement;
o A term sheet describing the material terms of those agreements;
o The Annual Report of the Fund for the year ended June 30, 2008
o A report, prepared by the Manager and provided to the Trustees for
the Trustees' review, containing data about the performance of the
Fund, data about its fees, expenses and purchases and redemptions of
capital shares together with comparisons of such data with similar
data about other comparable funds, as well as data as to the
profitability of the Manager and the Sub-Adviser; and
o Quarterly materials reviewed at prior meetings on the Fund's
performance, operations, portfolio and compliance.
The Trustees acted on the Advisory Agreement and the New Sub-Advisory
Agreement separately, but they considered each in conjunction with the other to
determine the agreements' combined effects on the Fund. Although the Trustees
were called upon to approve a new Sub-Advisory Agreement, that agreement and the
sub-advisory arrangement it governed were substantially identical to those
previously in place; accordingly, the Trustees' deliberations closely resembled
those formerly conducted in considering renewal of both the Advisory Agreement
and the former Sub-Advisory Agreement. The Trustees reviewed materials relevant
to, and considered, the factors set forth below, and as to each agreement
reached the conclusions described.
THE NATURE, EXTENT, AND QUALITY OF THE SERVICES PROVIDED BY THE MANAGER AND THE
SUB-ADVISER.
The Manager and Sub-Adviser have provided local management of the Fund's
portfolio. The Trustees noted that the Sub-Adviser employed Salvatore C. DiSanto
and Jeffrey K. Hanna as co-portfolio managers for the Fund and had provided
facilities for credit analysis of the Fund's portfolio securities. Messrs.
DiSanto and Hanna, based in Providence, have provided local information
regarding specific holdings in the Fund's portfolio. The portfolio managers have
also been available to and have met with the brokerage and financial planner
community and with investors and
prospective investors to provide them with information generally about the
Fund's portfolio, with which to assess the Fund as an investment vehicle for
residents of Rhode Island in light of prevailing interest rates and local
economic conditions. In addition, one or both of them have been present at all
regular meetings of the Board and Shareholders.
The Board considered that the Manager and the Sub-Adviser had provided all
services the Board deemed necessary or appropriate, including the specific
services that the Board has determined are required for the Fund, given that its
purpose is to provide shareholders with as high a level of current income exempt
from Rhode Island state and regular Federal income taxes as is consistent with
preservation of capital. It noted that compared to other Rhode Island
state-specific municipal bond funds, the portfolio of the Fund was of higher
quality, was the only fund in the state with 100% of its portfolio instruments
insured or pre-refunded, and contained no securities subject to the alternative
minimum tax.
The Manager has additionally provided all administrative services to the
Fund. The Board considered the nature and extent of the Manager's supervision of
third-party service providers, including the Fund's shareholder servicing agent
and custodian. The Board considered that the Manager had established and
maintained a strong culture of ethical conduct and regulatory compliance.
The Board concluded that the services provided were appropriate and
satisfactory and that the Fund would be well served if they continued.
Evaluation of this factor weighed in favor of renewal of the Advisory Agreement
and approval of the New Sub-Advisory Agreement.
THE INVESTMENT PERFORMANCE OF THE FUND, THE MANAGER AND SUB-ADVISER.
The Board reviewed each aspect of the Fund's performance and compared its
performance with that of its local competitors, with national averages and with
the benchmark index. It was noted that the materials provided by the Manager
indicated that compared to the two competitive Rhode Island funds, the Fund's
average annual total return outperformed that of both of its peers for the one,
five- and ten-year periods. The Board considered these results to be consistent
with the purposes of the Fund.
The Board concluded that the performance of the Fund was good in light of
market conditions, the length of its average maturities, its investment
objectives and its long-standing emphasis on minimizing risk. Evaluation of this
factor indicated to the Trustees that renewal of the Advisory Agreement and
approval of the New Sub-Advisory Agreement would be appropriate.
THE COSTS OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED BY THE
MANAGER AND SUB-ADVISER AND THEIR AFFILIATES FROM THEIR RELATIONSHIPS WITH THE
FUND.
The information provided in connection with renewal contained expense data
for the Fund and its local competitors as well as data for insured single-state
funds and all single-state tax-free municipal bond funds nationwide, including
data for all such front-end load funds of a comparable asset size. The materials
also showed the profitability to the Manager and the Sub-Adviser of their
services to the Fund. The Board noted that both the Manager and Sub-Adviser were
currently waiving a portion of their respective fees and had been since the
Fund's inception. Additionally, it was noted that the Manager had contractually
undertaken to waive fees and/or reimburse Fund expenses during the period July
1, 2008 through June 30, 2009 so that total Fund expenses would
not exceed 0.83 of 1% for Class A Shares. The Manager had indicated that it
intended to continue waiving fees as necessary in order that the Fund would
remain competitive.
The Board compared the expense and fee data with respect to the Fund to
similar data about other funds that it found to be relevant. The Board concluded
that the expenses of the Fund and the fees paid were generally lower than those
being paid by single-state tax-free municipal bond funds nationwide, and by the
Fund's local competitors.
The Board further concluded that the profitability to the Manager,
Sub-Adviser and Distributor did not argue against approval of the fees to be
paid under the Advisory Agreement or the New Sub-Advisory Agreement.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS.
Data provided to the Trustees showed that the Fund's asset size had been
generally increasing in recent years. The Trustees also noted that the materials
indicated that the Fund's fees were already generally lower than those of its
peers, including those with breakpoints. Additionally, the Trustees noted that
both the Manager and Sub-Adviser were currently waiving a substantial portion of
their respective fees. Evaluation of these factors indicated to the Board that
the Advisory Agreement should be renewed, and the New Sub-Advisory Agreement
should be approved, without addition of breakpoints at this time.
BENEFITS DERIVED OR TO BE DERIVED BY THE MANAGER AND SUB-ADVISER AND THEIR
AFFILIATES FROM THEIR RELATIONSHIPS WITH THE FUND.
The Board observed that, as is generally true of most fund complexes, the
Manager and Sub-Adviser and their affiliates, by providing services to a number
of clients including the Fund, were able to spread costs as they would otherwise
be unable to do. The Board noted that while that produces efficiencies and
increased profitability for the Manager and Sub-Adviser and their affiliates, it
also makes their services available to the Fund at favorable levels of quality
and cost which are more advantageous to the Fund than would otherwise have been
possible.
RENEWAL OF THE ADVISORY AGREEMENT
Based on their evaluation of all factors that they deemed to be material,
including those factors described above (the "Disclosed Factors"), with no
single factor being dispositive in itself, and assisted by the advice of
independent counsel, the Trustees, including the Independent Trustees, concluded
that the Advisory Agreement should be renewed for an additional term through
December 31, 2009.
APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT
On December 1, 2008, a change of control of the Sub-Adviser's indirect
parent caused an "assignment" of the existing sub-advisory agreement between the
Manager and the Sub-Adviser (the "Old Sub-Advisory Agreement"), resulting in
termination of the Old Sub-Advisory Agreement. Accordingly, as contemplated by
the applicable regulation under the 1940 Act, at the meeting referred to above
the Trustees approved the New Sub-Advisory Agreement, pending approval of that
agreement by the shareholders of the Fund. Under the applicable regulation, the
agreement would remain effective for 150 days or until the earlier of either its
termination or its approval by the
Fund's shareholders. In the event of shareholder approval, under the terms of
the agreement it would then remain in effect until December 31, 2009.
In connection with approval of the New Sub-Advisory Agreement and
recommendation that the shareholders of the Fund approve it, the Trustees noted
that the agreement is substantially the same as the Old Sub-Advisory Agreement
except for its duration and certain additional provisions, mandated by the
pertinent regulation under the 1940 Act and applicable only to the initial
period of 150 days prior to the earlier of the agreement's approval by
shareholders or its termination. Those provisions call for the holding of the
fees due to the Sub-Adviser in an escrow account, to be disbursed as required by
the regulation depending upon whether the agreement is approved by the Fund's
shareholders within the 150-day period, and they also permit termination of the
agreement by the Trustees or the Fund's shareholders, at any time during the
150-day period prior to shareholder approval, on 10 days' notice to the
Sub-Adviser.
The Trustees also considered a wide range of information relevant to the
ongoing and future continuity of management of the Fund (the "Additional
Information"), including
* Representations by representatives of the Sub-Adviser that
o The change of control of its parent company was not expected
to result in a change in the personnel or operations of the
Sub-Adviser; and
o The investment approach or style of the Sub-Adviser with
respect to the Fund, or the services provided by it to the
Fund, would not change; and
* The facts that
o The change of control of the Sub-Adviser's parent company will
not result in
* Any change to the advisory fees paid by the Fund or the
Fund's total expense ratio; or
* A change in the costs of the services to be provided by
the Sub-Adviser; and
o The Fund has operated in compliance with its investment
objective and restrictions and can be expected to continue to
do so.
Based on their evaluation of all factors that they deemed to be material,
including the Disclosed Factors, with no single factor being dispositive in
itself, and the Additional Information, and assisted by the advice of
independent counsel, the Trustees, including the Independent Trustees, concluded
that the New Sub-Advisory Agreement should be approved and recommended that the
shareholders of the Fund vote to approve the New Sub-Advisory Agreement for an
initial one-year term.
APPROVAL OF AN ADDITIONAL NEW SUB-ADVISORY AGREEMENT
Earlier in 2008, the shareholders of the Fund had approved a new advisory
and administration agreement and a new sub-advisory agreement (the "2008
Sub-Advisory Agreement"), each to take effect upon termination of the existing
agreements as a result of a planned reorganization of the Manager. Because the
planned reorganization had not yet been effected at the time of the December 1,
2008 change of control of the Sub-Adviser, the Board decided to ask the
shareholders to ratify their earlier approval of the 2008 Sub-Advisory Agreement
in light of the subsequent change of control of the Sub-Adviser. To provide for
the possibility of the Manager's reorganization
occurring before such shareholder ratification and causing the termination of
the New Sub-Advisory Agreement adopted at the December Board meeting and
discussed above, the Board approved an additional sub-advisory agreement (the
"Additional Sub-Advisory Agreement"), to take effect in accordance with the
applicable 1940 Act regulation only if the reorganization of the Manager, which
would cause termination of the New Sub-Advisory Agreement, occurred before
shareholder ratification of the 2008 Sub-Advisory Agreemen
The Additional Sub-Advisory Agreement is substantially identical to the
Old Sub-Advisory Agreement, except with respect to its duration. Based on their
evaluation of all factors that they deemed to be material, including the
Disclosed Factors, with no single factor being dispositive in itself, and the
Additional Information, and assisted by the advice of independent counsel, the
Trustees, including the Independent Trustees, concluded that the Additional New
Sub-Advisory Agreement should be approved, to take effect only in the event that
the reorganization of the Manager should occur prior to shareholder ratification
of the 2008 Sub-Advisory Agreement and cause termination of the New Sub-Advisory
Agreement.
FOUNDERS
Lacy B. Herrmann, Chairman Emeritus
Aquila Management Corporation
MANAGER
AQUILA INVESTMENT MANAGEMENT LLC
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
CITIZENS INVESTMENT ADVISORS,
A DEPARTMENT OF RBS CITIZENS, N. A.
One Citizens Plaza
Providence, Rhode Island 02903
BOARD OF TRUSTEES
William J. Nightingale, Chair
David A. Duffy
Diana P. Herrmann
John J. Partridge
James R. Ramsey
Laureen L. White
OFFICERS
Diana P. Herrmann, President
Stephen J. Caridi, Senior Vice President
Robert W. Anderson, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer
and Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
PNC Global Investment Servicing
101 Sabin Street
Pawtucket, RI 02860
CUSTODIAN
JPMORGAN CHASE BANK, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TAIT, WELLER & BAKER LLP
1818 Market Street, Suite 2400
Philadelphia, PA 19103
Further information is contained in the Prospectus,
which must precede or accompany this report.
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included in Item 1 above
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Board of Directors of the Registrant has adopted a Nominating
Committee Charter which provides that the Nominating Committee (the 'Committee')
may consider and evaluate nominee candidates properly submitted by shareholders
if a vacancy among the Independent Trustees of the Registrant occurs and if,
based on the Board's then current size, composition and structure, the Committee
determines that the vacancy should be filled. The Committee will consider
candidates submitted by shareholders on the same basis as it considers and
evaluates candidates recommended by other sources. A copy of the qualifications
and procedures that must be met or followed by shareholders to properly submit
a nominee candidate to the Committee may be obtained by submitting a request
in writing to the Secretary of the Registrant.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-2(c) under the Investment Company Act of
1940) as of a date within 90 days of the filing of this report, the registrant's
chief financial and executive officers have concluded that the disclosure
controls and procedures of the registrant are appropriately designed to ensure
that information required to be disclosed in the registrant's reports that are
filed under the Securities Exchange Act of 1934 are accumulated and communicated
to registrant's management, including its principal executive officer(s) and
principal financial officer(s), to allow timely decisions regarding required
disclosure and is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms adopted by the Securities and Exchange
Commission.
(b) There have been no significant changes in registrant's internal controls or
in other factors that could significantly affect registrant's internal controls
subsequent to the date of the most recent evaluation, including no significant
deficiencies or material weaknesses that required corrective action.
ITEM 12. EXHIBITS.
(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act of
1940.
(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
NARRAGANSETT INSURED TAX-FREE INCOME FUND
By: /s/ Diana P. Herrmann
- -----------------------------------
President and Trustee
March 4, 2009
By: /s/ Joseph P. DiMaggio
- -------------------------------------
Chief Financial Officer and Treasurer
March 4, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Diana P. Herrmann
- -----------------------------------
Diana P. Herrmann
President and Trustee
March 4, 2009
By: /s/ Joseph P. DiMaggio
- -------------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
March 4, 2009
NARRAGANSETT INSURED TAX-FREE INCOME FUND
EXHIBIT INDEX
(a)(1) Aquila Group of Funds Code of Ethics for Principal Executive and
Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act
of 2002.
(a) (2) Certifications of principal executive officer
and principal financial officer as required by Rule 30a-2(a)
under the Investment Company Act of 1940.
(b) Certification of chief executive officer and chief financial
officer as required by Rule 30a-2(b) of the Investment Company Act
of 1940.