Registration Nos. 2-92583 and 811-4084
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933[ X ]
Pre-Effective Amendment No. _______ [ ]
Post-Effective Amendment No. 12 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ X ]
Amendment No. 14 [ X ]
HAWAIIAN TAX-FREE TRUST
(Exact Name of Registrant as Specified in Charter)
380 Madison Avenue, Suite 2300
New York, New York 10017
(Address of Principal Executive Offices)
(212) 697-6666
(Registrant's Telephone Number)
EDWARD M.W. HINES
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue, 27th Floor
New York, New York 10176
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
___
[___] immediately upon filing pursuant to paragraph (b)
[___] on (date) pursuant to paragraph (b)
[___] 60 days after filing pursuant to paragraph (a)(i)
[_X_] on (March 26, 1996) pursuant to paragraph (a)(i)
[___] 75 days after filing pursuant to paragraph (a)(ii)
[___] on (date) pursuant to paragraph (a)(ii) of Rule 485.
[___] This post-effective amendment designates a new effec-
tive date for a previous post-effective amendment.
Registrant hereby declares, pursuant to Section (a)(1) of
Rule 24f-2 under the Investment Company Act of 1940, that
Registrant has registered an indefinite number of its shares
under the Securities Act of 1933 pursuant to that Section
and that the Rule 24f-2 Notice for Registrant's fiscal year
ended March 31, 1995 was filed in May 1995.
<PAGE>
HAWAIIAN TAX-FREE TRUST
CROSS REFERENCE SHEET
Part A of
Form N-1A
Item No. Prospectus Caption(s)
1..............Cover Page
2..............Table of Expenses
3..............Financial Highlights
4..............Introduction; Investment of the Trust's
Assets; Investment Restrictions; General
Information
5..............Management Arrangements
5A.............**
6..............General Information; Dividend and Tax
Information
7..............Net Asset Value per Share; How to Invest in
the Trust; Exchange Privilege
8..............How to Redeem Your Investment; Automatic
Withdrawal Plan; Exchange Privilege
9..............*
Part B of
Form N-1A Statement of Additional Information
Item No. or Prospectus Caption(s)
10.............Cover Page
11.............Cover Page
12.............*
13.............Investment of the Trust's Assets; Municipal
Bonds; Investment Restrictions
14.............Trustees and Officers
15.............General Information (Prospectus caption);
Trustees and Officers
16.............Additional Information as to Management
Arrangements; General Information
17.............Additional Information as to Management
Arrangements
18.............General Information
19.............Limitations of Redemptions in Kind;
Computation of Net Asset Value; Automatic
Withdrawal Plan; Distribution Plan
20.............Additional Tax Information
21.............How to Invest in the Trust (Prospectus
caption); General Information
22.............Performance
* Not applicable or negative answer
** Contained in the annual report of the Registrant
<PAGE>
Hawaiian Tax-Free Trust
380 Madison Avenue, Suite 2300
New York, New York 10017
800-228-4227
212-697-6666
Prospectus March ***, 1996
The Trust is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Hawaiian
State and regular Federal income taxes as is consistent with
preservation of capital by investing primarily in obligations which
pay interest exempt from Hawaiian State and Federal income taxes.
These obligations must, at the time of purchase, either be rated
within the four highest credit ratings (considered as investment
grade) assigned by Moody's Investors Service, Inc. or Standard &
Poor's Corporation or, if unrated, be determined to be of
comparable quality by the Trust's investment adviser, Hawaiian
Trust Company, Limited.
This Prospectus concisely states information about the
Trust that you should know before investing. A Statement of
Additional Information dated March ***, 1996, about the Trust (the
"Additional Statement") has been filed with the Securities and
Exchange Commission and is available without charge upon written
request to Administrative Data Management Corp., the Trust's
Shareholder Servicing Agent, at the address given below, or by
calling the telephone number(s) given below. The Additional
Statement contains information about the Trust and its management
not included in this Prospectus. The Additional Statement is
incorporated by reference in its entirety in this Prospectus. Only
when you have read both the Prospectus and the Additional Statement
are all material facts about the Trust available to you.
Shares of the Trust are not deposits in, obligations of or
guaranteed or endorsed by Bank of Hawaii, Hawaiian Trust Company,
Ltd. (the "Adviser"), their affiliates or by any other bank. Shares
of the Trust are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other
agency.
An investment in the Trust involves certain investment risks,
including possible loss of the principal amount invested.
For General Inquiries & Yield Information,
Call 800-228-4227 toll free or 212-697-6666
For Purchase, Redemption or Account inquiries contact The
Trust's Transfer Agent: Administrative Data Management Corp.
581 Main Street, Woodbridge, NJ 07095-1104
Call 800-228-4228 toll free or 908-855-5731
This Prospectus Should Be Read and Retained For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
HIGHLIGHTS
Hawaiian Tax-Free Trust, founded by Aquila Management
Corporation in 1984 and one of the Aquilasm Group of Funds, is an
open-end mutual fund which invests in tax-free municipal bonds, the
kind of obligations issued by the State of Hawaii, its counties and
various other local authorities to finance such long-term projects
as schools, roads, hospitals, housing and harbor facilities
throughout Hawaii. (See "Introduction.")
Tax-Free Income - The municipal obligations in which the Trust
invests pay interest which is exempt from both regular Federal and
State of Hawaii income taxes. Dividends paid by the Trust from this
income are likewise free of both such taxes. It is, however,
possible that in certain circumstances, a small portion of the
dividends paid by the Trust will be subject to income taxes. In
addition, the Federal alternative minimum tax ("AMT") may apply to
some investors, but its impact will be limited, since not more than
20% of the Trust's net assets can be invested in obligations paying
interest which is subject to this tax. The receipt of exempt-
interest dividends from the Trust may result in some portion of
social security payments or railroad retirement benefits being
included in taxable income. Capital gains distributions, if any,
are taxable. (See "Dividend and Tax Information.")
Investment Grade - Only those municipal obligations will be
acquired which, at the time of purchase, are within the four
highest credit ratings, assigned by Moody's Investors Service Inc.,
or Standard and Poor's Corporation, or are determined by the
Adviser to be of comparable quality. In general there are nine
separate credit ratings, ranging from the highest to the lowest
credit ratings for municipal obligations. Obligations within the
top four ratings are considered "investment grade" but those in the
fourth rating may have speculative characteristics as well. (See
"Investment of the Trust's Assets.")
Initial Investment - You may open your account with any
purchase of $1,000 or more. An Application is in the back of the
Prospectus. (See "How to Invest in the Trust," which includes
applicable sales charge information.)
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends are paid by check mailed to you,
directly deposited into your financial institution account or
automatically reinvested without sales charge in additional shares
of the Trust at the then-current net asset value. (See "Dividend
and Tax Information.")
Additional Investments - You may make additional investments
at any time and in any amount, directly, or if $50 or more, through
the convenience of having your investment electronically
transferred from your financial institution account into the Trust
by Automatic Investment or Telephone Investment. (See "How to
Invest in the Trust.")
Many Different Issues - Even a small investment in the Trust
allows you to have the advantages of a portfolio on which consists
of over 260 separate issues with different maturities. (See
"Investment of the Trust's Assets.")
Local Portfolio Management - Hawaiian Trust Company, Limited
serves as the Trust's Investment Adviser, providing experienced
local professional management. It is a subsidiary of Bank of
Hawaii, was founded in 1898 and is the oldest and largest trust
company in Hawaii, administering approximately $11 billion in
client assets, including investment authority over $1 billion in
Hawaiian municipal bonds. The Trust pays monthly fees to its
Adviser and to its Administrator at an aggregate rate of 0.40% of
average annual net assets. (See "Table of Expenses" and "Management
Arrangements.")
Distribution Plan - The Trust's Distribution Plan authorizes
the payment by the Trust of an asset retention service fee at the
rate of 0.20% of average annual net assets. (See "Distribution
Plan.")
Redemption - Liquidity - By electing Expedited Redemption, you
may redeem any amount of your account on any business day at the
next determined net asset value by telephone, FAX or mail request
with proceeds being sent to a predesignated financial institution.
Proceeds will be wired or transferred through the facilities of the
Automated Clearing House, wherever possible, upon request, if in an
amount of $1,000 or more, or will be mailed. For these and other
redemption procedures see "How to Redeem Your Investment." There
are no penalties or redemption fees.
Certain Stabilizing Measures - To attempt to protect against
changes in the value of its investments and other market risks, the
Trust will employ such traditional measures as varying maturities,
upgrading credit standards for portfolio purchases, broadening
diversification and increasing its position in cash and cash
equivalents. (See "Certain Stabilizing Measures.")
Other Investments - The Trust may purchase certain taxable
short-term investments. Although it has no present intention of
doing so, the Trust may also, to a limited degree, buy and sell
futures contracts and options on futures contracts. (See
"Investment of the Trust's Assets.")
Exchanges - You may exchange shares of the Trust into certain
other tax-free municipal bond mutual funds should you change your
state of residence or, if you choose, into certain money market
funds and an equity fund. (See "Exchange Privilege".)
Risks and Special Considerations - The share price, determined
on each business day, varies with the market prices of the Trust's
portfolio securities, which fluctuate with market conditions
including prevailing interest rates. Accordingly, when shares are
redeemed the proceeds may be more or less than original cost. (See
"Factors Which May Affect the Value of the Trust's Investments and
Their Yields.") The Trust's assets, being primarily or entirely
Hawaiian issues, are subject to economic and other conditions
affecting Hawaii. (See "Risks and Special Considerations Regarding
Investment in Hawaiian Obligations.") Moreover, the Trust is
classified as a "non-diversified" investment company, because it
may choose to invest in the obligations of a relatively limited
number of issuers. (See "Investment of the Trust's Assets.")
Although it has no present intention to do so, the Trust may also
to a limited degree buy and sell futures contracts and options on
futures contracts; there may be risks associated with these
practices. (See "Certain Stabilizing Measures.")
Statements and Reports - You receive statements of your
account monthly as well as each time you add to your account or
take money out. Additionally, you receive a Semi-Annual Report and
an audited Annual Report.
<PAGE>
<TABLE>
<CAPTION>
HAWAIIAN TAX-FREE TRUST
TABLE OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
<S> <C>
Maximum Sales Load Imposed on Purchases 4.00%
Maximum Sales Load Imposed on Reinvested Dividends 0%
Deferred Sales Load 0%
Redemption Fees 0%
Exchange Fee 0%
ANNUAL TRUST OPERATING EXPENSES*
(as a percentage of average net assets)
Investment Advisory Fee 0.14%
12b-1 fees (Service Fee) 0.20%
All other Expenses+ 0.41%
Administrtion Fee 0.26%
Other Expenses+ 0.15%
Total Trust Operating Expenses+ 0.75%
<S> <C> <C> <C> <C>
Example# 1 year 3 years 5 years 10 years
You would pay the
following expenses on
a $1.000 investment,
assuming (1) 5%
annual return and
(2) redemption at
the end of each
time period $47 $63 $80 $129
<FN>
*Based upon amounts incurred during the most recent fiscal year of
the Trust.
</FN>
<FN>
+Absent expense offset in custodian fees for uninvested cash
balances, other expenses would have been incurred at the rate of
0.17% of average net assets and all other expenses would have been
0.43%. Absent this offset, total Trust operating expenses would
have been incurred at the annual rate of 0.77%.
</FN>
<FN>
#The expense example is based upon the above shareholder
transaction expenses (a sales charge of $40 for a $1,000
investment) and annual Trust operating expenses (0.75% of average
net assets). It is also based upon an amount at the beginning of
each year which includes the prior year's assumed results. A year's
results consist of an assumed 5% annual return less
expenses at a 0.75% annual rate; the expense ratio was applied to
an assumed average balance (the year's starting investment plus
one-half the year's results). Each column represents the cumulative
expenses so determined for the period specified.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN. THE SECURITIES AND EXCHANGE COMMISSION
SPECIFIES THAT ALL MUTUAL FUNDS USE THE 5% RATE FOR PURPOSES OF
PREPARING THE ABOVE EXAMPLE. THE EXAMPLE ALSO REFLECTS THE
MAXIMUM SALES CHARGE. IN GENERAL, DECREASING SALES CHARGE RATES
APPLY AS INVESTMENT SIZE INCREASES (SEE "HOW TO INVEST IN THE
TRUST")
The purpose of the above table is to assist the investor in
understanding the various costs and expenses that an investor in
the Trust will bear directly or indirectly. (See "MANAGEMENT
ARRANGEMENTS" and "Distribution Plan" for a more complete
description of the various investment advisory, administration and
asset retention service fees.) Nor should the assumed 5% annual
return be interpreted as a prediction of an actual return, which
may be higher or lower.
<PAGE>
<TABLE>
<CAPTION>
HAWAIIAN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights as it relates to the
five years ended March 31, 1995 has been audited by KPMG Peat
Marwick LLP, independent auditors, whose report thereon is
included in the Trust's financial statements contained in its
Annual Report, which are incorporated by reference into the
Additional Statement. The information provided in the table should
be read in conjunction with the financial statements and related
notes. On October 24, 1989, Aquila Management
Corporation, originally the Trusts Sub-Adviser and Administrator,
became Administrator only.
Six Months Year ended March 31,
Ended 1995 1994 1993
9/30/95
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning
of Period $11.13 $11.19 $11.60 $11.10
Income from
Investment Operations:
Net investment
income 0.31 0.62 0.63 0.68 Net
gain (loss) on
securities (both
realized and
unrealized).......... 0.22 (0.01) (0.38) 0.50 Total
from Investment
Operations........... 0.53 0.61 0.25 1.18 Less
Distributions:
Dividends from net
investment income (0.31) (0.62) (0.63) (0.68)
Distributions from
capital gains - (0.05) (0.03) -
Total Distributions... (0.31) (0.67) (0.66) (0.68)
Net Asset Value,
End of Period......... $11.35 $11.13 $11.19 $11.60 Total
Return (not
reflecting sales
load) 4.77% 5.75% 2.01% 10.98%
Ratios/Supplemental
Data
Net Assets,
End of Period (in
thousands) $661,279 $642,556 $640,465 $597,828
Ratio of Expenses
to Average Net
Assets 0.72%* 0.75% 0.74% 0.71%
Ratio of Net
Investment
Income to Average
Net Assets........... 5.38%* 5.65% 5.46% 5.92%
Portfolio Turnover
Rate 23%# 33% 16% 11%
Net investment income per share and the ratios of income and
expenses to average net assets without the Adviser's and
Administrator's voluntary waiver of fees and the expense offset in
custodian fees for uninvested cash balances would have been:
Net Investment
Income $0.31 $0.62 $0.63 $0.68 Ratio
of Expenses
to Average Net
Assets 0.72%* 0.77% 0.76% 0.73% Ratio
of Net
Investment Income
to Average Net
Assets................ 5.38%* 5.63% 5.44% 5.90%
<CAPTION>
1992 1991 1990 1989 1988 1987 1986
<C> <C> <C> <C> <C> <C> <C>
$10.85 $10.78 $10.60 $10.60 $11.14 $11.02 $9.54 0.71
0.72 0.74 0.75 0.75 0.77 0.85 0.25 0.07
0.18 - (0.54) 0.13 1.46 0.96 0.79 0.92
0.75 0.21 0.90 2.31 (0.71) (0.72) (0.74)
(0.75) (0.75) (0.78) (0.83) - - - -
- - -
(0.71) (0.72) (0.74) (0.75) (0.75) (0.78) (0.83) $11.10
$10.85 $10.78 $10.60 $10.60 $11.1 $11.02 9.15% 7.62%
8.88% 7.23% 2.18% 8.52% 25.37% $475,469 $397,258
$336,503 $254,098 $224,321 $192,462 $90,709 0.70% 0.71% 0.73%
0.78% 0.77% 0.85% 0.61% 6.44% 6.68% 6.80%
7.02% 7.06% 6.88% 7.80% 16% 27% 7% 19%
34% 20% 32% $0.71 $0.72 $0.74 $0.75
$0.75 $0.77 $0.80 0.72% 0.73% 0.80% 0.80% 0.78%
0.87% 1.07% 6.42% 6.67% 6.75% 7.00% 7.04%
6.86% 7.33%
<FN>
# Not annualized.
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Trust's shares are designed to be a suitable investment
for individuals, corporations, institutions and fiduciaries who
seek income exempt from regular Federal and Hawaiian State income
taxes.
You may invest in shares of the Trust as an alternative to
direct investments in Hawaiian Obligations, as defined below, which
may include obligations of certain non-Hawaiian issuers. The Trust
offers you the opportunity to keep assets fully invested in a
vehicle that provides a professionally managed portfolio of
Hawaiian Obligations which may, but not necessarily will, be more
diversified, higher yielding or more stable and more liquid than
you might be able to obtain on an individual basis by direct
purchase of Hawaiian Obligations. In some cases, the portfolio may
also contain taxable investments. Through the convenience of a
single security consisting of shares of the Trust, you are also
relieved of the inconvenience associated with direct investments of
fixed denominations, including the selecting, purchasing, handling,
monitoring call provisions and safekeeping of Hawaiian Obligations.
Hawaiian Obligations are a type of municipal obligation.
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies, and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes; bond
anticipation notes; construction loan notes and floating and
variable rate demand notes. Municipal obligations include municipal
lease/purchase agreements which are similar to installment purchase
contracts for property or equipment. The purposes for which
municipal obligations are issued include the construction of a wide
range of public facilities such as highways, bridges, schools,
hospitals, housing, mass transportation, streets and water and
sewer works. Other public purposes for which municipal obligations
may be issued include the refunding of outstanding obligations, the
obtaining of funds for general operating expenses and the obtaining
of funds to lend to other public institutions and facilities.
INVESTMENT OF THE TRUST'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both Hawaiian State and regular
Federal income taxes as is consistent with the preservation of
capital, the Trust will invest primarily in Hawaiian Obligations
(as defined below). There is no assurance that the Trust will
achieve its objective, which is a fundamental policy of the Trust.
(See "Investment Restrictions.") The Trust may also invest in
Taxable Short-Term Obligations (as defined below). Although it has
no present intention of doing so, it may purchase and sell futures
contracts on municipal bond indices and on U.S. Government
securities and may write and purchase put and call options on these
contracts (see below).
As used in this Prospectus and the Additional Statement, the
term "Hawaiian Obligations" means obligations, including those of
certain non-Hawaiian issuers, of any maturity which pay interest
which, in the opinion of bond counsel or other appropriate counsel,
is exempt from Hawaiian State and regular Federal income taxes.
Although exempt from regular Federal income tax, interest paid on
certain types of Hawaiian Obligations, and dividends which the
Trust might pay from this interest, are preference items as to the
Federal alternative minimum tax; for further information, see
"Dividend and Tax Information." As a fundamental policy, at least
80% of the Trust's net assets will be invested in Hawaiian
Obligations the income paid upon which will not be subject to the
alternative minimum tax; accordingly, the Trust can invest up to
20% of its net assets in obligations which are subject to the
Federal alternative minimum tax. The Trust may refrain entirely
from purchasing these types of Hawaiian Obligations. For further
information, see "Dividend and Tax Information."
The non-Hawaiian bonds or other obligations the interest on
which is exempt under present law from Hawaiian State and regular
Federal income taxes are those issued by or under the authority of
Guam, Northern Mariana Islands, Puerto Rico and the Virgin Islands.
As a Hawaii-oriented trust, at least 65% of the Trust's total
assets will be invested in Hawaiian Obligations of Hawaiian
issuers.
In general, there are nine separate credit ratings, ranging
from the highest to the lowest quality standards for municipal
obligations. So that the Trust will have a portfolio of
quality-oriented (investment grade) securities, the Hawaiian
Obligations which the Trust will purchase must, at the time of
purchase, either (i) be rated within the four highest credit
ratings assigned by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"); or (ii) if unrated, be
determined to be of comparable quality to municipal obligations so
rated, by Hawaiian Trust Company, Limited (the "Adviser"), the
Trust's investment adviser, subject to the direction and control of
the Trust's Board of Trustees. Municipal obligations rated in the
fourth highest credit rating are considered by such rating agencies
to be of medium quality and thus may present investment risks not
present in more highly rated obligations. Such bonds lack
outstanding investment characteristics and may in fact have
speculative characteristics as well; changes in economic conditions
or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case
for higher grade bonds. If after purchase the rating of any rated
Hawaiian Obligation is downgraded such that it could not then be
purchased by the Trust, or, in the case of an unrated Hawaiian
Obligation, if the Adviser determines that the unrated obligation
is no longer of comparable quality to those rated obligations which
the Trust may purchase, it is the current policy of the Trust to
cause any such obligation to be sold as promptly thereafter as the
Adviser in its discretion determines to be consistent with the
Trust's objectives; such obligation remains in the Trust's
portfolio until it is sold. In addition, because a downgrade often
results in a reduction in the market price of a downgraded
obligation, sale of such an obligation may result in a loss. See
Appendix A to the Additional Statement for further information as
to these ratings. The Trust can purchase industrial development
bonds without limit but only if they meet the definition of
Hawaiian Obligations, i.e., the interest on them is exempt from
Hawaiian State and regular Federal income taxes. The Trust may
invest without limit in Hawaiian Obligations which are repayable
from economically related projects or facilities. Such investments
could involve an increased risk to the Trust should any of such
issuers or related projects or facilities experience financial
difficulties.
The "Taxable Short-Term Obligations" which the Trust may
purchase are obligations maturing in one year or less from the date
of purchase by the Trust which are either (i) obligations issued or
guaranteed by the U. S. Government or its agencies or
instrumentalities ("U.S. Government Obligations"); see the
Additional Statement for further information; (ii) commercial paper
rated Prime-1 by Moody's or A-1 by S&P (see Appendix A to the
Additional Statement); or (iii) bank obligations, such as
certificates of deposit, bankers acceptances and fixed time
deposits, issued by a domestic bank subject to regulation by the
U.S. Government having total assets of at least $1.5 billion. Under
normal market conditions the Trust cannot purchase Taxable
Short-Term Obligations or purchase or sell Municipal Bond Index
Futures, U.S. Government Securities Futures or options on Futures
if thereafter more than 20% of its total assets would consist of
such Obligations, cash, margin deposits on such Futures and margin
deposits and premiums on options on such Futures, except for
defensive purposes, i.e., in anticipation of a decline or possible
decline in the value of Hawaiian Obligations. The Trust may also
invest in Taxable Short-Term Obligations (within such 20% limit)
pending investment in Hawaiian Obligations of the proceeds of the
sale of shares or the sale of Hawaiian Obligations. The Trust may
enter into repurchase agreements as to Taxable Short-Term
Obligations; see "Repurchase Agreements" below. Income from
"Taxable Short-Term Obligations" and repurchase agreements is
taxable and therefore is not included in the "exempt-interest"
dividends which the Trust will pay; see "Dividend and Tax
Information."
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940 Act").
The Trust also intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code (the "Code").
One of the tests for such qualification under the Code is, in
general, that at the end of each fiscal quarter of the Trust, at
least 50% of its assets must consist of (i) cash and (ii)
securities which, as to any one issuer, do not exceed 5% of the
value of the Trust's assets. If the Trust had elected to register
under the 1940 Act as a "diversified" investment company, it would
have to meet the same test as to 75% of its assets. The Trust may
therefore not have as much diversification among securities, and
thus diversification of risk, as if it had made this election under
the 1940 Act. In general, the more the Trust invests in the
securities of specific issuers, the more the Trust is exposed to
risks associated with investments in those issuers. The Trust's
assets, being primarily or entirely Hawaiian issues, are
accordingly subject to economic and other conditions affecting
Hawaii. (See "Risk Factors and Special Considerations Regarding
Investment in Hawaiian Obligations.")
Certain Stabilizing Measures
In attempting to protect against declines in the value of its
investments and other market risks, the Trust will employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash and cash equivalents.
Although the Trust has no present intention of using futures
and options, to the limited degree described below, the Trust may
purchase and sell futures contracts on municipal bond indices
("Municipal Bond Index Futures") and on United States government
securities ("U.S. Government Securities Futures"); both kinds of
futures contracts are "Futures." The Trust may also write and
purchase put and call options on Futures.
Although it does not currently do so, the Trust may buy and
sell futures and options to attempt to hedge against changes in the
market price of the Trust's Hawaiian Obligations caused by interest
rate fluctuations. Futures and options also may provide a hedge
against increases in the cost of securities the Trust intends to
purchase. Under normal market conditions, the Trust cannot purchase
or sell Municipal Bond Index Futures, U.S. Government Securities
Futures, or options on Futures if thereafter more than 20% of its
total assets would consist of cash, margin deposits on such Futures
and margin deposits and premiums on such options, except for
temporary defensive purposes, i.e., in anticipation of a decline or
possible decline in the value of Hawaiian Obligations. Under an
applicable regulatory rule, the Trust will not enter into Futures
or options for which the aggregate initial margins and premiums
paid for options exceed 5% of the fair market value of the Trust's
assets. (See the Additional Statement.)
The primary risks associated with the use of Futures and
options are: (i) imperfect correlation between the change in the
market value of the securities held in the Trust's portfolio and
the prices of Futures or options purchased or sold by the Trust;
(ii) incorrect forecasts by the Adviser concerning interest rates
which may result in the hedge being ineffective; and (iii) possible
lack of a liquid secondary market for a Future or option; the
resulting inability to close a Futures or options position could
adversely affect the Trust's hedging ability. For example, if it is
not possible to close a Futures position, the Trust would continue
to be required to make daily cash payments of variation margin in
the event of adverse price movements. In such a situation, if it
has insufficient cash, the Trust might have to sell portfolio
securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so.
For a hedge to be completely effective, the price change of
the hedging instrument should equal the price change of the
security being hedged. The risk of imperfect correlation of these
price changes is increased as the composition of the Trust's
portfolio is divergent from the debt securities underlying the
hedging instrument. For example, there is a risk of imperfect
correlation where the securities underlying Futures have different
maturities, ratings or geographic mixes than the security being
hedged. The correlation may also be affected by additions to or
deletions from the index which serves as a basis for a Future. To
date the Adviser has had no experience in the use of Futures or
options on them.
The liquidity of a secondary market in a Future may be
adversely affected by "daily price fluctuation limits" established
by commodity exchanges which restrict the amount of change in the
contract price allowed during a single trading day. Thus, once a
daily limit is reached, no further trades may be entered into
beyond the limit, thereby preventing the liquidation of open
positions. Prices have in the past reached the daily limit on a
number of consecutive trading days. For further information about
Futures and options, see the Additional Statement.
When and if the Trust determines to use Futures and options,
the Prospectus will be supplemented.
Floating and Variable Rate Demand Notes
Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one year,
but permit the holder to demand payment of principal at any time,
or at specified intervals not exceeding one year, in each case upon
not more than 30 days' notice. The issuer of such notes normally
has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the note plus
accrued interest upon a specified number of days' notice to the
noteholders. The interest rate on a floating rate demand note is
based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The
interest rate on a variable rate demand note is adjusted
automatically at specified intervals.
Participation Interests
The Trust may purchase from financial institutions
participation interests in Hawaiian Obligations (such as industrial
development bonds and municipal lease/purchase agreements). A
participation interest gives the Trust an undivided interest in
the underlying Hawaiian Obligations in the proportion that the
Trust's participation interest bears to the total amount of the
underlying Hawaiian Obligation. All such participation interests
must meet the Trust's credit requirements. (See "Limitation to 10%
as to Certain Investments.")
When-Issued and Delayed Delivery Purchases
The Trust may buy Hawaiian Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring them.
The Hawaiian Obligations so purchased are subject to market
fluctuation and no interest accrues to the Trust until delivery and
payment take place; their value at the delivery date may be less
than the purchase price. For example, delivery and payment may take
place a month or more after the date of the transaction. The Trust
cannot enter into when-issued commitments exceeding in the
aggregate 15% of the market value of the Trust's total assets, less
liabilities other than the obligations created by when-issued
commitments. If the Trust chooses to dispose of the right to
acquire a when-issued obligation prior to its acquisition, it
could, as with the disposition of any other portfolio holding,
incur a gain or loss due to market fluctuation; any such gain would
be a taxable short-term gain. The Trust places an amount of assets
equal in value to the amount due on the settlement date for the
when-issued or delayed delivery securities being purchased in a
segregated account with the Custodian, which is marked to market
every business day. See the Additional Statement for further
information.
Repurchase Agreements
The Trust may purchase securities (limited to Taxable
Short-Term Obligations) subject to repurchase agreements.
Repurchase agreements may be entered into only with commercial
banks or broker-dealers. A repurchase agreement occurs when, at the
time the Trust purchases a security, the Trust also resells it to
the vendor and must deliver the security (or securities substituted
for it) to the vendor on an agreed-upon date in the future. (The
securities so resold or substituted are referred to herein as the
"Resold Securities.") The Resold Securities will be held by the
Trust's custodian bank. The resale price is in excess of the
purchase price in that it reflects an agreed-upon market interest
rate effective for the period of time during which the Trust's
money is invested in the Resold Securities. The majority of these
transactions run from day to day, and the delivery pursuant to the
resale typically will occur within one to five days of the
purchase. The Trust's risk is limited to the ability of the vendor
to pay the agreed-upon sum upon the delivery date; in the event of
bankruptcy or other default by the vendor, there may be possible
delays and expenses in liquidating the Resold Securities, decline
in their value and loss of interest. However, in the opinion of the
Trust this risk is not material since, upon default, the Resold
Securities constitute security for the repurchase obligation.
Repurchase agreements can be considered as "loans" collateralized
by the Resold Securities (such agreements being defined as "loans"
in the 1940 Act). The return on such "collateral" may be more or
less than that from the repurchase agreement. The Resold Securities
under any repurchase agreement will be marked to market every
business day so that the value of the "collateral" is at least
equal to the value of the loan, including the accrued interest
earned thereon, plus sufficient additional market value as is
considered necessary to provide a margin of safety. Additionally,
the Adviser will regularly review the financial strength of all
vendors of repurchase agreements to the Trust.
Limitation to 10% as to Certain Investments
Due to their possible limited liquidity, the Trust cannot make
certain investments if thereafter more than 10% of its net assets
would consist of such investments. The investments included in this
10% limit are (i) repurchase agreements maturing in more than seven
days; (ii) fixed time deposits subject to withdrawal penalties
other than overnight deposits; (iii) restricted securities, i.e.,
securities which cannot freely be sold for legal reasons (which the
Trust does not expect to own); and (iv) securities for which market
quotations are not readily available. However, this 10% limit does
not include any investments as to which the Trust can exercise the
right to demand payment in full within seven days and as to which
there is a secondary market. Floating and variable rate demand
notes and participation interests (including municipal
lease/purchase obligations) are considered illiquid unless
determined by the Board of Trustees to be readily marketable.
Factors Which May Affect the Value
of the Trust's Investments and Their Yields
The value of the Hawaiian Obligations and Taxable Short-Term
Obligations (collectively, "Obligations") in which the Trust
invests will fluctuate depending in large part on changes in
prevailing interest rates. If the prevailing interest rates go up
after the Trust buys Obligations, the value of the Obligations may
go down; if these rates go down, the value of the Obligations may
go up. Changes in value and yield based on changes in prevailing
interest rates may have different effects on short-term Obligations
than on long-term Obligations. Long-term Obligations (which often
have higher yields) may fluctuate in value more than short-term
ones.
Risk Factors and Special Considerations
Regarding Investment in Hawaiian Obligations
The following is a discussion of the general factors that
might influence the ability of Hawaiian issuers to repay principal
and interest when due on the Hawaiian Obligations contained in the
portfolio of the Trust. Such information is derived from sources
that are generally available to investors and is believed by the
Trust to be accurate, but has not been independently verified and
may not be complete.
As of the date of this Prospectus, economic data available
indicate that 1994 was a year of mild expansion in Hawaii, with
lingering areas of weakness and not enough economic growth to do
more than halt the slide in employment. Local economic sources
expect that the economy will gain some further strength this year.
Tourism, which has become the State's principal industry, is
leading the recovery. Tourist arrivals and spending provided a
needed boost to the Hawaiian economy in 1994. The continuing
decline in construction, underway since mid-1991, was exacerbated
by the tapering off of the reconstruction following Hurricane Iniki
in September, 1992.
Value retailers from the mainland have been aggressively
penetrating island markets for several years. As a result, local
retailers have been radically repositioning themselves to confront
the competition posed by the newcomers. Some retailers have been
forced out of the industry, and as a result, retail employment was
at its lowest level since 1989, despite the opening of several new
retail outlets.
Job loss also accompanied the closure or announcement of
timetables for closure of several sugar plantations around the
state.
Combined with more gradual reductions in the number of
military personnel stationed on the islands and civilian military
employees in the military, Hawaii was able to create only as many
jobs as it lost during 1994, leaving the job count between 1993 and
1994 virtually unchanged. The prolonged weakness has resulted in
pressures for the State to achieve a balanced budget by significant
cuts in expenditures.
The Hawaiian economy may also be adversely impacted by the
uncertainty in the general interest rate environment caused by
outside factors .
INVESTMENT RESTRICTIONS
The Trust has a number of policies about what it can and
cannot do. Certain of these policies, identified in the Prospectus
and Additional Statement as "fundamental policies," cannot be
changed unless the holders of a "majority," as defined in the 1940
Act, of the Trust's outstanding shares vote to change them. (See
the Additional Statement for a definition of such a majority.) All
other policies can be changed from time to time by the Board of
Trustees without shareholder approval. Some of the more important
of the Trust's fundamental policies, not otherwise identified in
the Prospectus, are set forth below; others are listed in the
Additional Statement.
1. The Trust invests only in certain limited securities.
The Trust cannot buy any securities other than those listed
under "Investment of the Trust's Assets"; the Trust may also
purchase and sell Futures and options on them within the limits
there discussed.
2. The Trust has industry investment requirements.
The Trust cannot buy the Obligations of issuers in any one
industry if more than 25% of its total assets would then be
invested in securities of issuers of that industry; Hawaiian
Obligations (except for the industrial development bonds discussed
below), U.S. Government Securities and domestic bank Obligations
are not included in this limit. In applying this restriction, the
Trust will consider that a non-governmental user of facilities
financed by industrial development bonds is an issuer in an
industry.
3. The Trust can make loans only by lending securities or
entering into repurchase agreements.
The Trust can buy those Obligations which it is permitted to
buy (see "Investment of the Trust's Assets"); this is investing,
not making a loan. The Trust can, to increase its income, lend its
portfolio securities up to 10% of the value of its total assets on
a collateralized basis to broker-dealers, banks and certain
financial institutions, (see the Additional Statement) and enter
into repurchase agreements (see "Repurchase Agreements" above). The
Trust may be considered as the beneficial owner of the loaned
securities in that any gain or loss in their market price during
the loan inures to the Trust and its shareholders; thus, when the
loan is terminated, the value of the securities may be more or less
than their value at the beginning of the loan. Income from
securities loans is taxable and therefore it is not included in the
"exempt-interest" dividends which the Trust may pay.
4. The Trust can only borrow in limited amounts for special
purposes.
The Trust can borrow from banks for temporary or emergency
purposes but only up to 10% of its total assets and can mortgage or
pledge its assets only in connection with such borrowing and only
up to the lesser of the amounts borrowed or 5% of the value of its
total assets. However, this shall not prohibit margin arrangements
in connection with the purchase or sale of Municipal Bond Index
Futures, U.S. Government Securities Futures or options on them, or
the payment of premiums on those options. Interest on borrowings
would reduce the Trust's income. The Trust will not purchase any
Obligations while it has any outstanding borrowings which exceed 5%
of the value of its total assets. Except in connection with
borrowings, the Trust will not issue senior securities.
NET ASSET VALUE PER SHARE
The Trust's net asset value and offering price per share are
determined as of 4:00 p.m. New York time on each day that the New
York Stock Exchange is open (a "business day"). However, Futures
and options on them are valued at the close of the principal
commodities exchange on which they are traded, which may be later
than 4:00 p.m. New York time. The net asset value per share is
determined by dividing the value of the net assets of the Trust
(i.e., the value of the assets less liabilities, exclusive of
surplus) by the total number of shares outstanding. Determination
of the value of the Trust's assets is subject to the direction and
control of the Trust's Board of Trustees. In general it is based on
fair value, except that Obligations maturing in 60 days or less are
generally valued at amortized cost; see the Additional Statement
for further information.
HOW TO INVEST IN THE TRUST
The Trust's shares may be purchased through any investment
broker or dealer (a "selected dealer") which has a sales agreement
with Aquila Distributors, Inc. (the "Distributor") or through the
Distributor. There are two ways to make an initial investment:
complete the Application provided in this Prospectus and either (i)
order the shares through your investment broker or dealer, if it is
a selected dealer, and include a completed Application; or (ii)
mail the Application with payment to Administrative Data Management
Corp. (the "Agent") at the address on the Application. The
applicable sales charge will apply in either instance. Subsequent
investments are also subject to the applicable sales charges.
The minimum initial investment is $1,000, except as otherwise
stated in this Prospectus or the Additional Statement, drawn in
United States dollars on a United States commercial or savings
bank, credit union or a United States branch of a foreign
commercial bank (each of which is a "Financial Institution"). You
may make subsequent investments in any amount (unless you have an
Automatic Withdrawal Plan). Your investment may be made through a
selected dealer or by forwarding payment to the Agent, with the
name(s) of account owner(s), the account number and the name of the
Trust. With subsequent investments, please send the pre-printed
stub attached to the Trust's confirmations.
You may also make subsequent investments of $50 or more using
electronic funds transfers from your demand account at a Financial
Institution if it is a member of the Automated Clearing House and
if the Agent has received a completed Application designating this
feature, or, after your account has been opened, a Ready Access
Features form available from the Distributor or the Agent. A pre-
determined amount can be regularly transferred for investment
("Automatic Investment"), or single investments can be made upon
receipt by the Agent of telephone instructions from anyone
("Telephone Investment"). The maximum amount of each Telephone
Investment is $50,000. Upon 30 days' written notice to
shareholders, the Trust may modify or terminate these investment
methods at any time or charge a service fee, although no such fee
is currently contemplated.
The offering price is the net asset value per share plus a
sales charge. The offering price determined on any day applies to
all purchase orders received by the Distributor from selected
dealers that day, except that orders received by it after 4:00 p.m.
New York time will receive that day's offering price only if such
orders were received by selected dealers from customers prior to
such time and transmitted to the Distributor prior to its close of
business that day (normally 5:00 p.m. New York time); if not so
transmitted, such orders will be filled at the next determined
offering price. Selected dealers are required to transmit orders
promptly. Investments by mail are made at the offering price next
determined after receipt of the purchase order by the Agent.
Purchase orders received on other than a business day will be
executed on the next succeeding business day. Purchases by
Automatic Investment and Telephone Investment will be executed on
the first business day occurring on or after the date an order is
considered received by the Agent at the price determined on that
day. In the case of Automatic Investment your order will be
executed on the date you specified for investment at the price
determined on that day. If that day is not a business day your
order will be executed at the price determined on the next business
day. In the case of Telephone Investment your order will be filled
at the next determined offering price. If your order is placed
after the time for determining the net asset value of the Trust
shares for any day it will be executed at the price determined on
the following business day. The sale of shares will be suspended
during any period when the determination of net asset value is
suspended and may be suspended by the Distributor when the
Distributor judges it in the Trust's best interest to do so.
The following table shows the amount of the sales charges to
a "single purchaser" (defined below) together with the dealer
discounts paid to dealers and the agency commissions paid to
brokers (collectively called the "commissions"):
<TABLE>
<CAPTION>
Sales Sales Commis-
Charge Charge sions
as as as
Percentage Approximate Percentage
of Public Percentage of
Amount of Offering of Amount Offering
Purchase Price Invested Price
<S> <C> <C> <C>
Less than $25,000...... 4.00% 4.17% 3.50%
$25,000 but less
than $50,000........ 3.75% 3.90% 3.50%
$50,000 but less
than $100,000....... 3.50% 3.63% 3.25%
$100,000 but less
than $250,000....... 3.25% 3.36% 3.00%
$250,000 but less
than $500,000....... 3.00% 3.09% 2.75%
$500,000 but less
than $1,000,000..... 2.50% 2.56% 2.25%
$1,000,000 but less
than $2,500,000..... 1.00% 1.01% 1.00%
$2,500,000 but less
than $5,000,000..... .50% .50% .50%
$5,000,000 and over.... .25% .25% .25%
</TABLE>
The above schedule of sales charges is applicable to purchases
by a "single purchaser," i.e.: (a) an individual; (b) an
individual, his or her spouse and their children under the age of
21 purchasing shares for his or her own accounts; (c) a trustee or
other fiduciary purchasing shares for a single trust estate or a
single fiduciary account; (d) a pension, profit-sharing or other
employee benefit plan qualified or non-qualified under Section 401
of the Code; and (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Code.
Upon notice to all selected dealers, the Distributor may
reallow up to the full amount of the applicable sales charge as
shown in the above schedule during periods specified in such
notice. During periods when all or substantially all of the entire
sales charge is reallowed, such selected dealers may be deemed to
be underwriters as that term is defined in the Securities Act of
1933.
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
shares of the Trust. Additional compensation will include payment
or partial payment for advertising of the Trust's shares, payment
of travel expenses, including lodging, incurred in connection with
attendance at sales seminars at luxury resorts taken by qualifying
registered representatives and members of their families to
locations within or outside of the United States, other prizes or
financial assistance to securities dealers in offering their own
seminars or conferences. In some instances, such compensation may
be made available only to certain dealers whose representatives
have sold or are expected to sell significant amounts of such
shares. Dealers may not use sales of the Trust's shares to qualify
for the incentives to the extent such may be prohibited by the laws
of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. The cost to the Distributor
of such promotional activities and such payments to participating
dealers will not exceed the amount of the sales charges in respect
of sales of shares of the Trust effected through such participating
dealers, whether retained by the Distributor or reallowed to
participating dealers. No such additional compensation to dealers
in connection with sales of shares of the Trust will affect the
price you pay for shares or the amount that the Trust will receive
from such sales. Any of the foregoing payments to be made by the
Distributor may be made instead by the Administrator out of its own
funds, directly or through the Distributor.
Systematic Payroll Investments
If your employer has established with the Trust a Systematic
Payroll Investment Plan ("Payroll Plan") you may arrange for
systematic investments into the Trust through a Payroll Plan. In
order to participate in a Payroll Plan, you should make
arrangements with your own employer's payroll department, and you
must complete and sign any special application forms which may be
required by your employer. You must also complete the Application
included in the Prospectus. Once your application is received and
put into effect, under a Payroll Plan the employer will make a
deduction from payroll checks in an amount you determine, and will
remit the proceeds to the Trust. An investment in the Trust will be
made for you at the offering price, which includes applicable sales
charges determined as described above, when the Trust receives the
funds from your employer. The Trust will send a confirmation of
each transaction to you. To change the amount of or to terminate
the payroll investment program (which could take up to ten days),
you must notify your employer.
Reduced Sales Charges
Right of Accumulation: "Single purchasers" may also benefit
from a reduction of the sales charge in accordance with the above
schedule if the cumulative value (at cost or current net asset
value, whichever is higher) of shares purchased with a sales
charge, together with shares previously purchased with such a
charge, amounts to $25,000 or more.
Letters of Intent: The foregoing schedule of reduced sales
charges will also be available to "single purchasers" who enter
into a written Letter of Intent (included in the Application)
providing for the purchase, within a thirteen-month period, of
shares of the Trust through a single selected dealer or through the
Distributor. Shares of the Trust which you previously purchased
during a 90-day period prior to the date of receipt by the
Distributor of your Letter of Intent and which you still own may
also be included in determining the applicable reduction. For
further details, including escrow provisions, see the Letter of
Intent provisions of the Application.
General: Shares may be purchased at the next determined net
asset value by the Trust's Trustees and officers, by the directors,
officers and certain employees and representatives of the Adviser
and its parent and affiliates, the Administrator and the
Distributor, by selected dealers and brokers and their officers and
employees, by certain persons connected with firms providing legal,
advertising or public relations assistance, by certain family
members of, and plans for the benefit of, the foregoing, and for
the benefit of trust or similar clients of banking institutions
over which these institutions have full investment authority if the
Distributor has entered into an agreement relating to such
purchases. Except for the last category, purchasers must give
written assurance that the purchase is for investment and that the
shares will not be resold except through redemption. There may be
tax consequences of these purchases. Such purchasers should consult
their own tax counsel. Shares may also be issued at net asset value
in a merger, acquisition or exchange offer made pursuant to a plan
of reorganization to which the Trust is a party.
The Trust permits the sale of its securities at prices that
reflect the reduction or elimination of the sales charge to
investors who are members of certain qualified groups meeting the
following requirements. A qualified group (i) is a group or
association, or a category of purchasers who are represented by a
fiduciary, professional or other representative (other than a
registered broker-dealer); which (ii) satisfies uniform criteria
which enable the Distributor to realize economies of scale in its
costs of distributing shares; (iii) gives its endorsement or
authorization (if it is a group or association) to an investment
program to facilitate solicitation of its membership by a broker or
dealer; and (iv) complies with the conditions of purchase that are
set forth in any agreement entered into between the Trust and the
group, representative or broker or dealer. At the time of purchase
you must furnish the Distributor with information sufficient to
permit verification that the purchase qualifies for a reduced sales
charge, either directly or through a broker or dealer.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to you
in an account maintained for you at the Agent in full and
fractional shares of the Trust (rounded to the nearest 1/1000th of
a share). Share certificates will not be issued unless you so
request in writing to the Agent. If certificates are issued at your
request, Expedited Redemption Methods described below will not be
available. In addition, you may incur delay and expense if you lose
the certificates. No certificates will be issued for fractional
shares or to shareholders who have elected Automatic Investment or
Telephone Investment (see "How to Invest in the Trust" above) or
Expedited Redemption (see "How to Redeem Your Investment" below).
The Trust and the Distributor reserve the right to reject any
order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Trust has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act.
The Rule provides in substance that an investment company may
not engage directly or indirectly in financing any activity which
is primarily intended to result in the sale of its shares except
pursuant to a written plan adopted under the Rule.
Under the Plan the Trust is authorized to make asset retention
service fee payments ("Permitted Payments") to Qualified
Recipients, which Permitted Payments can be made directly, or
through the Distributor as disbursing agent, which may not exceed,
for any fiscal year of the Trust (as adjusted for any part or parts
of a fiscal year during which payments under the Plan are not
accruable or for any fiscal year which is not a full fiscal year)
0.20 of 1% of the average annual net assets of the Trust.
"Qualified Recipients" means broker-dealers or others selected by
the Distributor including but not limited to any principal
underwriter of the Trust with which the Distributor has entered
into written agreements ("Related Agreements") contemplated by the
Rule and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Trust's shares or servicing of shareholder accounts. Payments
under the Plan commenced as of July 1, 1992. During the fiscal year
ended March 31, 1995, $1,275,442 was paid under the Plan to
Qualified Recipients, of which, $114,453 was retained by the
Distributor. (See the Additional Statement for a description of the
Plan.)
Whenever the Trust is authorized to make the above payments,
the advisory fee and administration fee otherwise payable by the
Trust, will be reduced to an aggregate annual rate of 0.40 of 1% of
the Trust's average annual net assets. (See "Management
Arrangements.")
Another part of the Plan is designed to protect against any
claim against or involving the Trust that some of the expenses
which might be considered to be sales-related which the Trust pays
or may pay come within the purview of the Rule. Except for
Permitted Payments, the Trust believes that it is not financing any
such activity and does not consider any payment enumerated in this
part of the Plan as so financing any such activity. However, it
might be claimed that some of the expenses the Trust pays come
within the purview of the Rule. If and to the extent that any
payment as specifically listed in the Plan (see the Additional
Statement) is considered to be primarily intended to result in or
as indirect financing of any activity which is primarily intended
to result in the sale of Trust shares, these payments are
authorized under the Plan. In addition, if the Administrator, out
of its own funds, makes payment for distribution expenses such
payments are authorized. See the Additional Statement.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your shares at the net asset
value next determined after acceptance of your redemption request
at the Agent. Redemptions can be made by the various methods
described below. There is no minimum period for any investment in
the Trust, except for shares recently purchased by check, Automatic
Investment or Telephone Investment as discussed below. There are no
redemption fees or withdrawal penalties. A redemption may result in
a transaction taxable to you.
If you purchase shares of the Trust through broker-dealers,
banks and other financial institutions which serve as shareholders
of record you must redeem through those institutions, which are
responsible for the prompt transmission of redemption requests. In
all other cases, you may redeem directly from the Trust, but if the
original purchase of shares in your account was not made through a
broker or dealer, a completed purchase Application must have been
received by the Agent before redemption requests can be honored.
For your convenience the Trust offers expedited redemption to
provide you with a high level of liquidity for your investment.
Expedited Redemption Methods
(Non-Certificate Shares)
You have the flexibility of two expedited methods of
initiating redemptions. They are available as to shares not
represented by certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments to a
Financial Institution account you have predesignated. See
"Redemption Payments," below for payment methods. Your name
and your account number must be supplied.
To redeem an investment by this method, telephone:
800-228-4228 toll free or 908-855-5731
Note: The Trust, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name and number, name(s)
and social security number registered to the account and personal
identification. The Agent may also record calls. You should verify
the accuracy of confirmation statements immediately upon receipt.
2. By FAX or Mail. You may also request redemption payments
to a predesignated Financial Institution account by a letter
of instruction sent to: Administrative Data Management Corp.,
Attn: Aquilasm Group of Funds, by FAX at 908-855-5730 or by
mail at 581 Main Street, Woodbridge, NJ 07095-1104, indicating
account number, amount to be redeemed, and any payment
directions, signed by the registered holder(s). Signature
guarantees are not required. See "Redemption Payments," below
for payment methods.
If you wish to use the above procedures you should so elect on
the Expedited Redemption section of the Application or the Ready
Access Features form and provide the required information
concerning your Financial Institution account number. The Financial
Institution account must be in the exclusive name(s) of the
shareholder(s) as registered with the Trust. You may change the
designated Financial Institution account at any time by completing
and returning a Ready Access Features form. For protection of your
assets, this form requires signature guarantees and possible
additional documentation.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
1. Certificate Shares. Certificates representing shares to be
redeemed should be sent in blank (unsigned) to the Trust's
Shareholder Servicing Agent: Administrative Data Management
Corp., Attn: Aquilasm Group of Funds, 581 Main Street,
Woodbridge, NJ 07095-1104, with payment instructions. A stock
assignment form signed by the registered shareholder(s)
exactly as the account is registered must also be sent to the
Shareholder Servicing Agent.
For your own protection, it is essential that certificates be
mailed separately from signed redemption documentation.
For the redemption request to be in "proper form," the
signature or signatures must be the same as in the registration of
the account. In a joint account, the signatures of both
shareholders are necessary. Additional documentation may be
required where shares are held by a corporation, a partnership,
trustee or executor, or if redemption is requested by other than
the shareholder of record. If redemption proceeds of less than
$50,000 are payable to the record holder and are to be sent to the
record address, no signature guarantee is required. In all other
cases, signatures must be guaranteed by a member of a national
securities exchange, a U.S. bank or trust company, a
state-chartered savings bank, a federally chartered savings and
loan association, a foreign bank having a U.S. correspondent bank,
a participant in the Securities Transfer Association Medallion
Program (STAMP), The Stock Exchanges Medallion Program (SEMP) or
The New York Stock Exchange, Inc. Medallion Signature Program
(MSP). A notary public is not an acceptable signature guarantor.
2. Non-Certificate Shares. If you own non-certificate shares
registered on the books of the Trust, and you have not elected
Expedited Redemption to a predesignated Financial Institution
account, you must use the Regular Redemption Method. Under
this redemption method you should send a letter of instruction
to: Administrative Data Management Corp., Attn: Aquilasm
Group of Funds, 581 Main Street, Woodbridge, NJ 07095-1104,
containing:
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed; Payment instructions (normally redemption
proceeds will be mailed to your address as registered
with the Trust);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated above.
Redemption Payments
Redemption payments will ordinarily be mailed to you at your
address of record. Upon your request, redemption proceeds will also
be wired or transferred through the facilities of the Automated
Clearing House to a predesignated Financial Institution, wherever
possible, if in the amount of $1,000 or more. The Trust may impose
a charge, not exceeding $5.00 per wire redemption, after written
notice to investors who have elected this redemption procedure.
However, the Trust has no present intention of making this charge.
Upon 30 days' written notice to shareholders, the Trust may modify
or terminate the use of the Automated Clearing House to make
redemption payments at any time or charge a service fee, although
no such action or fee is currently contemplated. If you use a
dealer to arrange for a redemption, you may be required by the
dealer to make a payment to that firm for this service.
The Trust will normally make payment for all shares redeemed
on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven days
after acceptance of such a redemption request. However, the right
of redemption may be suspended or the date of payment postponed (i)
during periods when the New York Stock Exchange is closed for other
than weekends and holidays or when trading on such Exchange is
restricted as determined by the Securities and Exchange Commission
by rule or regulation; (ii) during periods in which an emergency,
as determined by the Securities and Exchange Commission, exists
which causes disposal of, or valuation of the net asset value of,
the portfolio securities to be unreasonable or impracticable; or
(iii) for such other periods as the Securities and Exchange
Commission may permit. Payment for redemption of shares recently
purchased by check (irrespective of whether the check is a regular
check or a certified, cashier's or official bank check) or by
Automatic Investment or Telephone Investment may be delayed up to
15 days or until (i) the purchase check or Automatic Investment or
Telephone Investment has been honored or (ii) the Agent has
received assurances by telephone or in writing from the Financial
Institution on which the purchase check was drawn, or from which
the funds for Automatic Investment or Telephone Investment were
transferred, satisfactory to the Agent and the Trust, that the
purchase check or Automatic Investment or Telephone Investment will
be honored. Possible delays in payment of redemption proceeds can
be eliminated by using wire payments or Federal Reserve drafts to
pay for purchases.
If the Trustees determine that it would be detrimental to the
best interests of the remaining shareholders of the Trust to make
payment wholly or partly in cash, the Trust may pay the redemption
price in whole or in part by the distribution in kind of securities
from the portfolio of the Trust, in lieu of cash, in conformity
with applicable rules of the Securities and Exchange Commission.
See the Additional Statement for details.
The Trust has the right to compel the redemption of shares
held in any account if the aggregate net asset value of such shares
is less than $500 as a result of shareholder redemptions. If the
Board elects to do this, shareholders who are affected will receive
prior written notice and will be permitted 60 days to bring their
accounts up to the minimum before this redemption is processed.
Reinvestment Privilege
You may reinvest without payment of any additional sales
charge all or part of any redemption proceeds within 120 days of a
redemption of shares on which a sales charge was paid, or which
were received in exchange for shares on which a sales charge was
paid, in shares of the Trust at the net asset value next determined
after the Agent's receipt of the reinvestment order. This
reinvestment privilege may be exercised only once a year. If you
have realized a gain on the redemption of your shares, the
redemption transaction is taxable, and reinvestment will not alter
any capital gains tax payable. If there has been a loss on the
redemption, some or all of the loss may be tax deductible,
depending on the amount reinvested and the length of time between
the redemption and the reinvestment.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own or
purchase shares of the Trust having a net asset value of at least
$5,000. Under an Automatic Withdrawal Plan you will receive a
monthly or quarterly check in a stated amount, not less than $50.
If such a plan is established, all dividends and distributions must
be reinvested in your shareholder account. Redemption of shares to
make payments under the Automatic Withdrawal Plan will give rise to
a gain or loss for tax purposes. See the Automatic Withdrawal Plan
provisions of the Application included in this Prospectus, the
Additional Statement under "Automatic Withdrawal Plan," and
"Dividend and Tax Information" below.
Purchase of additional shares concurrently with withdrawals
are undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain an Automatic Withdrawal
Plan while simultaneously making regular purchases. While an
occasional lump sum investment may be made, such investment should
normally be an amount at least equal to three times the annual
withdrawal or $5,000, whichever is less.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Trust are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Trust's Trustees and officers and provides
further information about them.
The Advisory Agreement
Hawaiian Trust Company, Limited (the "Adviser") supervises the
investment program of the Trust and the composition of its
portfolio.
The services of the Adviser are rendered under an Investment
Advisory Agreement (the "Advisory Agreement") which provides,
subject to the control of the Board of Trustees, for investment
supervision and for either keeping the accounting records of the
Trust, including the computation of the net asset value per share
and the dividends, or, at the Adviser's expense and responsibility,
delegating these accounting duties in whole or in part to a company
satisfactory to the Trust. The Advisory Agreement states that the
Adviser shall, at its expense, provide to the Trust all office
space and facilities, equipment and clerical personnel necessary
for the carrying out of the Adviser's duties under the Advisory
Agreement.
Under the Advisory Agreement, the Adviser pays all
compensation of those officers and employees of the Trust and of
those Trustees, if any, who are affiliated with the Adviser,
provided that if a Trustee is an affiliate of the Adviser solely by
reason of being a member of its Board of Directors, the Trust may
pay compensation to such Trustee, but at a rate no greater than the
rate it pays to its other Trustees. Under the Advisory Agreement,
the Trust bears the cost of preparing and setting in type its
prospectuses, statements of additional information, and reports to
its shareholders and the costs of printing or otherwise producing
and distributing those copies of such prospectuses, statements of
additional information and reports as are sent to its shareholders.
Under the Advisory Agreement, all costs and expenses not expressly
assumed by the Adviser or by the Administrator under the
Administration Agreement or by the Trust's Distributor (principal
underwriter) are paid by the Trust. The Advisory Agreement lists
examples of such expenses borne by the Trust, the major categories
of such expenses being: legal and audit expenses, custodian and
transfer agent, or shareholder servicing agent fees and expenses,
stock issuance and redemption costs, certain printing costs,
registration costs of the Trust and its shares under Federal and
State securities laws, interest, taxes and brokerage commissions,
and non-recurring expenses, including litigation.
Under the Advisory Agreement, the Trust pays a fee payable
monthly and computed on the net asset value of the Trust as of the
close of business each business day at the annual rate of 0.19 of
1% of such net asset value, provided, however, that for any day
that the Trust pays or accrues a fee under the Distribution Plan of
the Trust based upon the assets of the Trust, the annual investment
advisory fee shall be payable at the annual rate of 0.14 of 1% of
such net asset value. Such fees under the Plan commenced July 1,
1992 and since that date the Trust's investment advisory fee has
been payable at the annual rate of 0.14 of 1% of such net asset
value.
The Adviser agrees that the above fee shall be reduced, but
not below zero, by an amount equal to its pro-rata portion (based
upon the aggregate fees of the Adviser and the Administrator) of
the amount, if any, by which the total expenses of the Trust in any
fiscal year, exclusive of taxes, interest and brokerage fees, shall
exceed the lesser of (i) 2.5% of the first $30 million of average
annual net assets of the Trust plus 2% of the next $70 million of
such assets and 1.5% of its average annual net assets in excess of
$100 million, or (ii) 25% of the Trust's total annual investment
income.
The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Trust; see the
Additional Statement. Under these provisions the Adviser, in making
such allocation, is authorized to consider sales of the Trust's
shares and sales of shares of certain other investment companies
(see "Exchange Privilege" below).
The Administration Agreement
Under an Administration Agreement (the "Administration
Agreement"), Aquila Management Corporation as Administrator, at its
own expense, provides office space, personnel, facilities and
equipment for the performance of its functions thereunder and as is
necessary in connection with the maintenance of the headquarters of
the Trust and pays all compensation of the Trust's Trustees,
officers and employees who are affiliated persons of the
Administrator.
Under the Administration Agreement, subject to the control of
the Trust's Board of Trustees, the Administrator provides all
administrative services to the Trust other than those relating to
its investment portfolio and the maintenance of its accounting
books and records. Such administrative services include but are not
limited to maintaining books and records (other than accounting
books and records) of the Trust, and overseeing all relationships
between the Trust and its transfer agent, custodian, legal counsel,
auditors and principal underwriter, including the negotiation of
agreements in relation thereto, the supervision and coordination of
the performance of such agreements, and the overseeing of all
administrative matters which are necessary or desirable for
effective operation of the Trust and for the sale, servicing, or
redemption of the Trust's shares. See the Additional Statement for
a further description of functions listed in the Administration
Agreement as part of such duties.
Under the Administration Agreement, the Trust pays the
Administrator, and the Administrator accepts as full compensation
for all services rendered thereunder, a fee payable monthly and
computed on the net asset value of the Trust at the end of each
business day at the annual rate of 0.36 of 1% of such net asset
value, provided, however, that for any day that the Trust pays or
accrues a fee under the Distribution Plan of the Trust based upon
the assets of the Trust, the annual administration fee will be
payable at the annual rate of 0.26 of 1% of such net asset value.
Such fees under the Distribution Plan commenced July 1, 1992 and
since that date the Trust's administration fee is payable at the
rate of 0.26 of 1% of such net asset value. The Administrator
agrees that the above fee shall be reduced, but not below zero, by
an amount equal to its pro-rata portion (based upon the aggregate
fees of the Adviser and the Administrator) of the amount, if any,
by which the total expenses of the Trust in any fiscal year,
exclusive of taxes, interest and brokerage fees, exceed the lesser
of (i) 2.5% of the first $30 million of average annual net assets
of the Trust plus 2% of the next $70 million of such assets and
1.5% of its average annual net assets in excess of $100 million,
or (ii) 25% of the Trust's total annual investment income.
Information about the Adviser,
the Administrator and the Distributor
The Adviser, a Hawaii corporation organized in 1898, is the
largest trust company in the State of Hawaii in terms of assets
under administration. As of March 31, 1995 the Adviser had over $11
billion of clients' assets under administration. The Adviser is not
authorized to, and does not carry on, a banking business. The
Adviser is a wholly-owned subsidiary of Bank of Hawaii, all of
whose shares are owned by Bancorp Hawaii, Inc. ("Bancorp") and Bank
of Hawaii's directors (each of whom owns qualifying shares as
required by Hawaii law). Bancorp is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended,
and its common stock is registered under the Securities Exchange
Act of 1934 and is listed and traded on the New York Stock
Exchange. Bancorp files annual and periodic reports with the
Securities and Exchange Commission which are available for public
inspection. See the Additional Statement as to the legality, under
the Federal banking laws, of the Adviser's acting as the Trust's
investment adviser.
Ms. Lorene Okimoto has been the Trust's portfolio manager
since December, 1991. She has been employed by the Adviser as a
portfolio manger since 1989 and has been a Vice President of the
Adviser since 1993. She was employed by the Bank of Hawaii from
1979 to 1984 and by Bank of Hawaii International Corporation from
1984 to 1988. Ms. Okimoto holds a B.A. degree from the University
of Hawaii.
The Trust's Administrator is administrator to the Aquilasm
Group of Funds, which consists of tax-free municipal bond funds,
money market funds and an equity fund. As of May 31, 1995, these
funds had aggregate assets of approximately $2.8 billion, of which
approximately $1.9 billion consisted of assets of the tax-free
municipal bond funds. The Administrator, which was founded in 1984,
is controlled by Mr. Lacy B. Herrmann (directly, through a trust
and through share ownership by his wife). See the Additional
Statement for information on Mr. Herrmann.
For the Trust's fiscal year ended March 31, 1995 fees of
$893,788 and $1,659,892, respectively, were paid and/or accrued to
the Adviser and to the Administrator under the Advisory Agreement
and the Administration Agreement.
The Distributor currently handles the distribution of the
shares of fourteen funds including the Trust (seven tax-free
municipal bond funds, six money market funds and an equity fund).
Under the Distribution Agreement, the Distributor is responsible
for the payment of certain printing and distribution costs relating
to prospectuses and reports as well as the costs of supplemental
sales literature, advertising and other promotional activities.
At the date of this Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which are
currently owned by Mr. Herrmann, will be owned by certain directors
and/or officers of the Administrator and/or the Distributor
including Mr. Herrmann. In anticipation of this transaction, the
Board of Trustees, including a majority of the independent
Trustees, has approved a new Distribution Agreement for the Trust
with no material change from the currently effective Distribution
Agreement.
The Adviser, the Administrator and the Distributor have
entered into non-binding principles of cooperation, with the
approval of the Board of Trustees, relating to various matters
including suggestion of nominees to the Board of Trustees. In
addition, the Trust has entered into separate agreements with the
Adviser, the Administrator and the Distributor under which the
service providers have respectively agreed not to serve in the same
capacities for any mutual fund with the same objectives as the
Trust under the circumstances described in these agreements. See
the Additional Statement.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Trust will declare all of its net income, as defined
below, as dividends on every day, including weekends and holidays,
on those shares outstanding for which payment was received by the
close of business on the preceding business day. Net income for
dividend purposes includes all interest income accrued by the Trust
since the previous dividend declaration, including accretion of any
original issue or market discount, less expenses paid or accrued
including any amortization of any original issue or market premium.
As such net income will vary, the Trust's dividends will also vary.
Dividends so declared are paid monthly within a week before
the end of each calendar month. It is the Trust's present policy to
pay dividends so that they will be received or credited by
approximately the first day of each month. Shareholders may elect
to have dividends deposited without charge by electronic funds
transfers into an account at a Financial Institution which is a
member of the Automated Clearing House by completing a Ready Access
Features form.
Redeemed shares continue to earn dividends through and
including the day which is the earlier of (i) the day before the
day on which the redemption proceeds are mailed, wired or
transferred by the facilities of the Automated Clearing House by
the Agent or paid by the Agent to a selected dealer; or (ii) the
day which is the third day on which the New York Stock Exchange is
open after the day on which the net asset value of the redeemed
shares has been determined (see "How To Redeem Your Investment").
Net investment income includes amounts of income from the
Hawaiian Obligations in the Trust's portfolio which are allocated
as "exempt-interest dividends" (see below) and is therefore exempt
from regular Federal income tax. This allocation will be made by
the use of one designated percentage applied uniformly to all
income dividends declared during the Trust's tax year. Such
designation will normally be made in the first month after the end
of each of the Trust's fiscal years as to income dividends paid in
the prior year. It is possible that in certain circumstances, a
small portion of the dividends paid by the Trust will be subject to
income taxes. During the Trust's fiscal year ended March 31, 1995,
98.0% of the Trust's dividends were "exempt-interest dividends."
For the calendar year 1994, 2.02% of the total dividends paid were
taxable. The percentage of income designated as tax-exempt for any
particular dividend may be different from the percentage of the
Trust's income that was tax-exempt during the period covered by
the dividend.
Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions ("long-term
gains distributions"), if any, from the excess of net long-term
capital gains over net short-term capital losses realized through
October 31st of each year and not previously paid out will be paid
out after that date; the Trust may also pay supplemental
distributions after the end of its fiscal year. If net capital
losses are realized in any year, they are charged against capital
and not against net investment income which is distributed
regardless of gains or losses. The Trust may be required to impose
backup withholding at a rate of 31% upon payment of redemptions to
shareholders, and from short- and long-term gains distributions (if
any), if shareholders do not comply with provisions of the law
relating to the furnishing of taxpayer identification numbers and
reporting of dividends.
Unless you request otherwise by letter addressed to the Agent
or by filing an appropriate application prior to a given
ex-dividend date, dividends and distributions will be automatically
reinvested in full and fractional shares of the Trust at net asset
value on the record date for the dividend or distribution or other
date fixed by the Board of Trustees. An election to receive cash
will continue in effect until written notification of a change is
received by the Agent. All shareholders, whether their dividends
are received in cash or are being reinvested, will receive a
monthly account summary indicating the current status of their
investment. There is no fixed dividend rate. Corporate shareholders
of the Trust are not entitled to any deduction for dividends
received from the Trust.
Tax Information
The following is a brief description of certain federal and
State of Hawaii income tax considerations with respect to the Trust
and investment therein. There can be no assurance that such
considerations will not be altered by future changes in the law or
administrative interpretations. In addition you may be subject to
local taxes or to tax in a state other than Hawaii. These taxes are
not described herein and may differ from the taxes imposed under
federal and Hawaii law.
The Trust qualified during its last fiscal year as a
"regulated investment company" under the Code, and intends to
continue to so qualify. If it does so qualify, it will not be
liable for Federal income taxes on amounts paid by it as dividends
and distributions. However, the Code contains a number of complex
tests relating to such qualification and it is possible although
not likely that the Trust might not meet one or more of these tests
in any particular year. If it does not so qualify, it would be
treated for tax purposes as an ordinary corporation, would receive
no tax deduction for payments made to shareholders and would be
unable to pay dividends or distributions which would qualify as
"exempt-interest dividends" or "capital gains dividends," as
discussed below.
The Trust intends to qualify during each fiscal year under the
Code to pay exempt-interest dividends to its shareholders.
Exempt-interest dividends which are derived from net income earned
by the Trust on Hawaiian Obligations will be excludable from gross
income of the shareholders for regular Federal income tax purposes.
Capital gains dividends are not included in exempt-interest
dividends. Dividends from receipts by the Trust of one or more of
(i) interest on Taxable Short-Term Obligations, and (ii) income
from repurchase agreements and securities loans are reportable by
shareholders as ordinary income. Although tax-exempt dividends are
not taxed, each taxpayer must report the total amount of tax-exempt
interest (including exempt-interest dividends from the Trust)
received or acquired during the year.
The Omnibus Budget Reconciliation Act of 1993 requires that
either gains realized by the Trust on the sale of municipal
obligations acquired after April 30, 1993 at a price which is less
than face or redemption value be included as ordinary income to the
extent such gains do not exceed such discount or that the discount
be amortized and included ratably in taxable income. There is an
exception to the foregoing treatment if the amount of the discount
is less than 0.25% of face or redemption value multiplied by the
number of years from acquisition to maturity. The Trust will report
such ordinary income in the years of sale or redemption rather than
amortize the discount and report it ratably. To the extent the
resultant ordinary taxable income is distributed to shareholders,
it will be taxable to them as ordinary income.
Capital gains dividends (net long-term gains over net
short-term losses which the Trust distributes and so designates)
are reportable by shareholders as long-term capital gains. This is
the case whether the shareholder takes the distribution in cash or
elects to have the distribution reinvested in Trust shares and
regardless of the length of time the shareholder has held his or
her shares. Capital gains are taxed at the same rates as ordinary
income, except that for individuals, trusts and estates the maximum
tax rate on capital gains distributions is 28% even if the
applicable rate on ordinary income for such taxpayers is higher
than 28%.
Short-term gains, when distributed, are taxed to shareholders
as ordinary income. Capital losses of the Trust are not distributed
but carried forward by the Trust to offset gains in later years and
thereby lessen the later-year capital gains distributions and
amounts taxed to shareholders. The Trust's gains or losses on
sales of Obligations will be long-term or short-term depending upon
the length of time the Trust has held such Obligations. Capital
gains and losses of the Trust will also include gains and losses on
Futures and Options, if any, including gains and losses actually
realized on sales and exchanges and gains and losses deemed to be
realized. Those deemed to be realized are on Futures and Options
held by the Trust at year-end, which are "marked to the market,"
that is, deemed sold for fair market value. Net gains or losses
realized and deemed realized on Futures and Options will be
reportable by the Trust as long-term to the extent of 60% of the
gains or losses and short-term to the extent of 40% regardless of
the actual holding period of such investments.
Information as to the tax status of the Trust's dividends and
distributions will be mailed to shareholders annually.
Under the Code, interest on loans incurred by shareholders to
enable them to purchase shares of the Trust may not be deducted for
regular Federal tax purposes. In addition, under rules used by the
Internal Revenue Service for determining when borrowed funds are
deemed used for the purpose of purchasing or carrying particular
assets, the purchase of shares of the Trust may be considered to
have been made with borrowed funds even though the borrowed funds
are not directly traceable to the purchase of shares. The receipt
of exempt-interest dividends from the Trust by an individual
shareholder may result in some portion of any social security
payments or railroad retirement benefits received by the
shareholder or the shareholder's spouse being included in taxable
income.
Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds or
private activity bonds should consult their own tax advisers before
purchasing shares.
While interest from all Hawaiian Obligations is tax-exempt for
purposes of computing the shareholder's regular tax, interest from
so-called private activity bonds issued after August 7, 1986,
constitutes a tax preference for both individuals and corporations
and thus will enter into a computation of the alternative minimum
tax. Whether or not that computation will result in a tax will
depend on the entire content of the taxpayer's return. The Trust
will not invest in the types of Hawaiian Obligations which would
give rise to interest that would be subject to alternative minimum
taxation if more than 20% of its net assets would be so invested,
and may refrain from investing in that type of bond completely. The
20% limit is a fundamental policy of the Trust.
Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current earnings,
this adjustment will tend to make it more likely that corporate
shareholders will be subject to the alternative minimum tax.
As of the date of the Prospectus, Congress is considering a
number of changes affecting taxation. It is not possible to predict
which, if any, of such changes will become law.
Tax Effects of Redemptions
Normally, when you redeem shares of the Trust you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid for
the shares. The gain or loss will be long-term if you held the
redeemed shares for over a year, and short-term, if for a year or
less. However, if shares held for six months or less are redeemed
and you have a loss, two special rules apply: the loss is reduced
by the amount of exempt-interest dividends, if any, which you
received on the redeemed shares, and any loss over and above the
amount of such exempt-interest dividends is treated as a long-term
loss to the extent you have received capital gains dividends on the
redeemed shares.
Hawaiian Tax Information
The Trust, and dividends and distributions made by the Trust
to Hawaii residents, will generally be treated for Hawaii income
tax purposes in the same manner as they are treated under the Code
for Federal income tax purposes. Under Hawaiian law, however,
interest derived from obligations of states (and their political
subdivisions) other than Hawaii will not be exempt from Hawaiian
income taxation. (Interest derived from bonds or obligations issued
by or under the authority of the following is exempt from Hawaiian
income taxation: Guam, Northern Mariana Islands, Puerto Rico, and
the Virgin Islands.)
Interest on Hawaiian Obligations, tax-exempt obligations of
states other than Hawaii and their political subdivisions, and
obligations of the United States or its possessions is not exempt
from the Hawaii Franchise Tax. This tax applies to banks, building
and loan associations, financial services loan companies, financial
corporations, and small business investment companies.
Persons or entities who are not Hawaii residents should not be
subject to Hawaiian income taxation on dividends and distributions
made by the Trust but may be subject to other state and local
taxes.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among this
Trust and certain tax-free municipal bond funds and an equity fund
(the "Bond or Equity Funds") and certain money market funds (the
"Money-Market Funds"), all of which are in the Aquilasm Group of
Funds and have the same Administrator and Distributor as the
Trust. All exchanges are subject to certain conditions described
below. As of the date of this Prospectus, the Aquila Bond or Equity
Funds are this Trust, Aquila Rocky Mountain Equity Fund, Tax-Free
Fund of Colorado, Tax-Free Trust of Arizona, Tax-Free Trust of
Oregon, Churchill Tax-Free Fund of Kentucky, Tax-Free Fund For Utah
and Narragansett Insured Tax-Free Income Fund; the Aquila
Money-Market Funds are Capital Cash Management Trust, Pacific
Capital Cash Assets Trust (Original Shares), Pacific Capital Tax-
Free Cash Assets Trust (Original Shares), Pacific Capital U.S.
Treasuries Cash Assets Trust (Original Shares), Prime Cash Fund and
Churchill Cash Reserves Trust.
Under the exchange privilege, once any applicable sales charge
has been paid on shares of any Bond or Equity Fund, those shares
(and any shares acquired as a result of reinvestment of dividends
and/or distributions) may be exchanged any number of times between
Money-Market Funds and Bond or Equity Funds without the payment of
any additional sales charge.
The "Eligible Shares" of any Bond or Equity Fund are those
shares which were (a) acquired by direct purchase with payment of
any applicable sales charge, or which were received in exchange for
shares of another Bond or Equity Fund on which any applicable sales
charge was paid; (b) acquired by exchange for shares of a
Money-Market Fund with payment of the applicable sales charge; (c)
acquired in one or more exchanges between shares of a Money-Market
Fund and a Bond or Equity Fund so long as the shares of the Bond or
Equity Fund were originally purchased as set forth in (a) or (b);
or (d) acquired as a result of reinvestment of dividends and/or
distributions on otherwise Eligible Shares.
If you own Eligible Shares of any Bond or Equity Fund, you may
exchange them for shares of any Money-Market Fund or the shares of
any other Bond or Equity Fund without payment of any sales charge.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Eligible Shares of any Bond or Equity
Fund, you may exchange these shares, and any shares acquired as a
result of reinvestment of dividends and/or distributions on these
shares, for shares of any Bond or Equity Fund without payment of
any sales charge.
Shares of a Money-Market Fund may be exchanged for shares of
another Money-Market Fund or of a Bond or Equity Fund; however, if
the shares of a Money-Market Fund were not acquired by exchange of
Eligible Shares of a Bond or Equity Fund or of shares of a
Money-Market Fund acquired in such an exchange, they may be
exchanged for shares of a Bond or Equity Fund only upon payment of
the applicable sales charge. The shares of the Bond or Equity Fund
so acquired are then Eligible Shares.
This Trust, as well as the other Money-Market Funds and Bond
or Equity Funds, reserves the right to reject any exchange into its
shares, if shares of the fund into which exchange is desired are
not available for sale in your state of residence. The Trust may
also modify or terminate this exchange privilege at any time. In
the case of termination, this Prospectus will be appropriately
supplemented. No such modification or termination shall take effect
on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; and (ii) the aggregate net asset
value of the shares surrendered for exchange are at least equal to
the minimum investment requirements of the investment company whose
shares are being acquired.
To effect an exchange, you must complete a form which is
available from the Distributor. The exchange will be effected at
the relative exchange prices of the shares being exchanged next
determined after receipt by the Distributor of a properly completed
form. The exchange prices will be the respective net asset values
of the shares, unless a sales charge is to be deducted in
connection with an exchange of shares of a Money-Market Fund for
shares of a Bond or Equity Fund as described above, in which case
the exchange price of shares of the Bond or Equity Fund will be its
public offering price.
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the realization
of a capital gain or loss, depending on the cost or other tax basis
of the shares exchanged and the holding period (see the Additional
Statement); no representation is made as to the deductibility of
any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable, except
to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free Money-Market
Fund) are exempt from regular Federal income tax, and to the extent
that a portion or all of the dividends paid by Pacific Capital U.S.
Treasuries Cash Assets Trust (which invests in U.S. Treasury
obligations) are exempt from state income taxes. If your state of
residence is not the same as that of the issuers of obligations in
which a Bond or Equity Fund or a tax-free Money-Market Fund
invests, the dividends from that fund may be subject to income tax
of the state in which you reside. Accordingly, you should consult
your tax adviser before acquiring shares of such a Bond Fund or a
tax-free Money-Market Fund under the exchange privilege
arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
GENERAL INFORMATION
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Trust's
performance including current yield, taxable equivalent yield,
various expressions of total return, current distribution rate and
taxable equivalent distribution rate.
Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase,
invested at the maximum public offering price (offering price
includes sales charge) for 1- and 5-year periods and for a period
since the inception of the Trust, to the extent applicable, through
the end of such periods, assuming reinvestment (without sales
charge) of all distributions. The Trust may also furnish total
return quotations for other periods or based on investments at
various sales charge levels or at net asset value. For such
purposes total return equals the total of all income and capital
gains paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of the
original investment, expressed as a percentage of the purchase
price. See the Additional Statement.
Current yield reflects the income per share earned by each of
the Trust's portfolio investments; it is calculated by (i) dividing
the Trust's net investment income per share during a recent 30-day
period by (ii) the maximum public offering price on the last day of
that period and by (iii) annualizing the result. Taxable equivalent
yield shows the yield from a taxable investment that would be
required to produce an after-tax yield equivalent to that of the
Trust, which invests in tax-exempt obligations. It is computed by
dividing the tax-exempt portion of the Trust's yield (calculated as
indicated) by one minus a stated income tax rate and by adding the
product to the taxable portion (if any) of the Trust's yield. See
the Additional Statement.
Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities and
Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will be
paid to the Trust's shareholders. Dividends or distributions paid
to shareholders are reflected in the current distribution rate or
taxable equivalent distribution rate which may be quoted to
shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the Trust
during a recent 30-day period by (ii) the current maximum offering
price and by (iii) annualizing the result. A taxable equivalent
distribution rate shows the taxable distribution rate that would be
required to produce an after-tax distribution rate equivalent to
the Trust's distribution rate (calculated as indicated above). The
current distribution rate, unlike yield figures, is not limited to
investment performance, but takes into account expenses as well; it
also differs from the current yield computation because it could
include distributions to shareholders from sources, if any, other
than dividends and interest, such as short-term capital gains or
return of capital. If distribution rates are quoted in advertising,
they will be accompanied by calculations of current yield in
accordance with the formula of the Securities and Exchange
Commission.
In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
Trust income net of fee waivers and reimbursement of expenses, if
any, and will assume the payment of the maximum sales charge on the
purchase of shares, but not on reinvestment of income dividends for
which the Trust does not impose a sales charge. The investment
results of the Trust, like all other investment companies, will
fluctuate over time; thus, performance figures should not be
considered to represent what an investment may earn in the future
or what the Trust's yield, tax equivalent yield, distribution rate,
taxable equivalent distribution rate or total return may be in any
future period. The annual report of the Trust contains additional
performance information that will be made available without charge.
Description of the Trust and its Shares
The Trust is an open-end, non-diversified management
investment company organized in 1984 as a Massachusetts business
trust. (See "Investment of the Trust's Assets" for further
information about the Trust's status as "non-diversified"). The
Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares and to divide or combine the
shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the Trust. Each
share represents an equal proportionate interest in the Trust with
each other share. Upon liquidation of the Trust, shareholders are
entitled to share pro-rata in the net assets of the Trust available
for distribution to shareholders. All shares are presently of the
same class; however, if they deem it advisable and in the best
interests of shareholders, the Board of Trustees of the Trust may
create additional classes of shares which may differ from each
other only as to dividends (subject to rules and regulations of the
Securities and Exchange Commission or by exemptive order) or the
Board of Trustees may, at its own discretion, create additional
series of shares, each of which may have separate assets and
liabilities (in which case any such series will have a designation
including the word "Series"). See the Additional Statement for
further information about possible additional series. Shares are
fully paid and non-assessable, except as set forth under the
caption "General Information" in the Additional Statement; the
holders of shares have no pre-emptive or conversion rights.
As of March ***, 1996 Merrill Lynch, Pierce, Fenner &
Smith, Inc., P.O. Box 30561, New Brunswick, NJ held of record
***** shares (***%) of the Trust. The Trust's management is not
aware of any other person owning of record or beneficially 5% or
more of the Trust's outstanding shares as of such date. On the
basis of information received from such record owner, the Trust's
management believes that all of the shares indicated are held for
the benefit of brokerage clients.
Voting Rights
Shareholders are entitled to one vote for each full share held
(and fractional votes for fractional shares held) and will vote in
the election of Trustees and on other matters submitted to the vote
of shareholders. No amendment may be made to the Declaration of
Trust without the affirmative vote of the holders of a majority of
the outstanding shares of the Trust. The Trust may be terminated
(i) upon the sale of its assets to another issuer, or (ii) upon
liquidation and distribution of the assets of the Trust, in either
case if such action is approved by the vote of the holders of a
majority of the outstanding shares of the Trust. If not so
terminated, the Trust will continue indefinitely.
Additional Classes
The Trust believes it would be desirable to offer
additional classes of shares (the "Multiple-Class System") in order
to accommodate, in a cost-effective manner, the service desires and
requirements of a variety of investors. The creation of other
classes will have no effect upon the shares of the Trust now
outstanding or those which would be outstanding at such time as the
Trust begins offering shares of other classes.
It is anticipated that the Trust will offer three classes
of shares: Front-Payment Class Shares ("Class A"), Level-Payment
Class Shares ("Class C"), and Institutional Class Shares ("Class
Y"). Retail investors will be entitled to purchase Front-Payment
Shares or Level-Payment Shares or both. Institutional Class Shares
will be offered only to institutions acting for investors in a
fiduciary, advisory, agency custodial or similar capacity, and will
not be offered directly to retail customers.
The Trust believes that such Multiple-Class System might
enhance the scope and depth of its services to existing and
potential shareholders and permit it to facilitate the distribution
of its securities to a further degree. The Multiple-Class System
offers the flexibility of tailoring the payment for shares of the
Trust to the needs and circumstances of the clients of
broker-dealer firms, financial institutions and other
organizations. Moreover, to the extent that assets increase in the
Trust due to sale of shares through the Multiple-Class System,
owners of all classes of shares might benefit from the spreading
of the Trust's fixed operating costs over the larger asset base to
a greater extent than might otherwise be the case. There is, of
course, no assurance that any of these desired results will be
achieved.
Implementation of a Multiple-Class System is subject to a
number of conditions. These include: a favorable ruling from the
Internal Revenue Service that implementation of the Multiple-Class
System will not affect the Trust's status as a regulated investment
company under the applicable provisions of the Internal Revenue
Code; the filing and effectiveness of a post-effective amendment
to the Trust's Registration Statement to register with the
Securities and Exchange Commission shares of such classes for sale
to investors; and registration with various state securities
authorities of the shares of the Trust. While it is anticipated
that each of these conditions will be accomplished, there is no
assurance that this will be the case.
Shares of the new classes ("Class C Shares and Class Y
Shares") will not be available for purchase unless and until the
foregoing conditions are met. At such time, all shareholders of the
Trust will be advised as to the availability of shares in the new
classes. It is anticipated that the Trust will be able to offer
shares of the new classes in the Spring of 1996.
<PAGE>
[LOGO]
APPLICATION FOR HAWAIIAN TAX-FREE TRUST
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
ADM, ATTN: AQUILA SM GROUP OF FUNDS
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
1-800-228-4228
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless
otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.________________________________________________________________
Custodians First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minors First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minors Social Security Number 4.
____________________________________________________
____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the
name(s) of Trustees in which account will be registered and the
name and date of the Trust Instrument. Account for a Pension or
Profit Sharing Plan or Trust may be registered in the name of the
Plan or Trust itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:_____________________
___
Employers
Address:__________________________________________________
Street Address: City State Zip Citizen
or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident andnot subject to back-up withholding
(See certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
Make check payable to: HAWAIIAN TAX-FREE TRUST
Amount of investment $ _________________ Minimum initial
investment $1,000
B. DISTRIBUTIONS
All income dividends and capital gains distributions are
automatically reinvested in additional shares at Net Asset Value
unless otherwise indicated below.
Dividends are to be:___ Reinvested ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in
cash* * For cash dividends, please choose one of the following
options: ___ Deposit directly into my/our Financial Institution
account. ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED
CHECK showing the Financial Institution account where I/we
would like you to deposit the dividend.
(A Financial Institution is a commercial bank, savings bank or
credit union.)
___ Mail check to my/our address listed in Step 1.
C. LETTER OF INTENT
(Check appropriate box)
See Terms of Letter of Intent and Escrow at the end of this
application ___ Yes ___ No
I/We intend to invest in shares of the Trust during the 13-month
period from the date of my/our first purchase pursuant to this
Letter (which purchase cannot be more than 90 days prior to the
date of this Letter), an aggregate amount (excluding any
reinvestment of dividends or distributions) of at least $25,000
which, together with my/our present holdings of Trust shares (at
public offering price on date of this Letter), will equal or
exceed the minimum amount checked below:
___ $25,000 ___ $50,000 ___ $100,000 ___ $250,000
___ $500,000 ___ $1,000,000 ___ $2,500,000 ___ $5,000,000
<PAGE>
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and
invested in your Hawaiian Tax-Free Trust Account. To establish
this program, please complete Step 4, Sections A & B of this
Application.
I/We wish to make regular monthly investments of $_________________
(minimum $50) on the ___ 1st day or ___ 16th day of the month (or
on the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to add to your
account (minimum $50 and maximum $50,000) at any time you wish by
simply calling the Trust toll-free at 1-800-228-4228. To establish
this program, please complete Step 4, Sections A & B of this
Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. AUTOMATIC WITHDRAWAL PLAN
(Minimum investment $5,000)
Application must be received in good order at least 2 weeks prior
to 1st actual liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions
set forth below. To realize the amount stated below,
Administrative Data Management Corp. (the Agent) is authorized to
redeem sufficient shares from this account at the then current Net
Asset Value, in accordance with the terms below: Dollar Amount of
each withdrawal $______________beginning________________ .
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is
payable to a Financial Institution for your account, indicate
Financial Institution name, address and your account number.
_______________________________
______________________________________ First Name Middle Initial
Last Name Financial Institution Name
_______________________________
______________________________________ Street
Financial Institution Street Address
_______________________________
______________________________________ City State Zip
City State Zip
____________________________________
Financial Institution Account Number
D. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your
name within the Aquila SM Group of Funds by telephone.
TO MAKE A TELEPHONE EXCHANGE, CALL THE AGENT AT 1-800-228-4228
The Agent is authorized to accept and act upon my/our or any other
persons telephone instructions to execute the exchange of shares of
one Aquila-sponsored fund for shares of another Aquila-sponsored
fund with identical shareholder registration in the manner
described in the Prospectus. Except for gross negligence in acting
upon such telephone instructions to execute an exchange, and
subject to the conditions set forth herein, I/we understand and
agree to hold harmless the Agent, each of the Aquila Funds, and
their respective officers, directors, trustees, employees, agents
and affiliates against any liability, damage, expense, claim or
loss, including reasonable costs and attorneys fees, resulting
from acceptance of, or acting or failure to act upon, this
Authorization.
E. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution
account listed. TO MAKE AN EXPEDITED REDEMPTION, CALL THE AGENT AT
1-800-228-4228 Cash proceeds in any amount from the redemption
of shares will be mailed or wired, whenever possible, upon
request, if in an amount of $1,000 or more to my/our account at a
Financial Institution. The Financial Institution account must be
in the same name(s) as this Trust account is registered. (YOU MUST
ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________
____________________________________ Account Registration
Financial Institution Account Number
_______________________________
____________________________________ Financial Institution Name
Financial Institution Transit/Routing Number
_______________________________
____________________________________ Street
City State Zip
<PAGE>
STEP 4 Section A
DEPOSITORS AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT YOU
MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to
my/our account any drafts or debits drawn on my/our account
initiated by the Agent, Administrative Data Management Corp., and
to pay such sums in accordance therewith, provided my/our account
has sufficient funds to cover such drafts or debits. I/We further
agree that your treatment of such orders will be the same as if
I/we personally signed or initiated the drafts or debits. I/We
understand that this authority will remain in effect until you
receive my/our written instructions to cancel this service. I/We
also agree that if any such drafts or debits are dishonored, for
any reason, you shall have no liabilities.
Financial Institution Account
Number_______________________________________
Name and Address where my/our account is maintained
Name of Financial
Institution______________________________________________
Street
Address__________________________________________________________
___
City___________________________________________State _________
Zip________ Name(s) and Signature(s) of Depositor(s) as they appear
where account is registered
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila
Distributors, Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted
pursuant to the above authorization shall be subject to the
provisions of the Operating Rules of the National Automated
Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer
in connection with the execution and issuance of any electronic
debit in the normal course of business initiated by the Agent
(except any loss due to your payment of any amount drawn against
insufficient or uncollected funds), provided that you promptly
notify us in writing of any claim against you with respect to the
same, and further provided that you will not settle or pay or
agree to settle or pay any such claim without the written
permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause,
any such electronic debit.
STEP 4 Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of
legal age to purchase shares of the Trust and has received and
read a current Prospectus of the Trust and agrees to its terms.
- - I/We authorize the Trust and its agents to act upon these
instructions for the features that have been checked.
- - I/We acknowledge that in connection with an Automatic Investment
or Telephone Investment, if my/our account at the Financial
Institution has insufficient funds, the Trust and its agents may
cancel the purchase transaction and are authorized to liquidate
other shares or fractions thereof held in my/our Trust account to
make up any deficiency resulting from any decline in the net
asset value of shares so purchased and any dividends paid on
those shares. I/We authorize the Trust and its agents to correct
any transfer error by a debit or credit to my/our Financial
Institution account and/or Trust account and to charge the account
for any related charges. I/We acknowledge that shares purchased
either through Automatic Investment or Telephone Investment are
subject to applicable sales charges.
- - The Trust, the Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting
upon instructions believed to be genuine, and will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name and number;
name(s) and social security number registered to the account and
personal identification; the Agent may also record calls.
Shareholders should verify the accuracy of confirmation
statements immediately upon receipt. Under penalties of perjury,
the undersigned whose Social Security (Tax I.D.) Number is shown
above certifies (i) that Number is my correct taxpayer
identification number and (ii) currently I am not under IRS
notification that I am subject to backup withholding (line out (ii)
if under notification). If no such Number is shown, the
undersigned further certifies, under penalties of perjury, that
either (a) no such Number has been issued, and a Number has been
or will soon be applied for; if a Number is not provided to you
within sixty days, the undersigned understands that all payments
(including liquidations) are subject to 31% withholding under
federal tax law, until a Number is provided and the undersigned may
be subject to a $50 I.R.S. penalty; or (b) that the undersigned
is not a citizen or resident of the U.S.; and either does not
expect to be in the U.S. for 183 days during each calendar year
and does not conduct a business in the U.S. which would receive
any gain from the Trust, or is exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW. FOR A
TRUST, ALL TRUSTEES MUST SIGN.*
__________________________ ____________________________
_________ Individual (or Custodian) Joint Registrant, if any
Date __________________________
____________________________ _________ Corporate Officer,
Partner, Title Date Trustee, etc.
* For Trust, Corporations or Associations, this form must be
accompanied by proof of authority to sign, such as a certified copy
of the corporate resolution or a certificate of incumbency under
the trust instrument.
<PAGE>
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment,
Expedited Redemption and Direct Deposit of Dividends) are
effective 15 days after this form is received in good order by
the Trust's Agent. - You may cancel any feature at any time,
effective 3 days after the Agent receives written notice from
you.
- - Either the Trust or the Agent may cancel any feature, without
prior notice, if in its judgment your use of any feature
involves unusual effort or difficulty in the administration of
your account. - The Trust reserves the right to alter, amend or
terminate any or all features or to charge a service fee upon
30 days written notice to shareholders except if additional
notice is specifically required by the terms of the Prospectus.
BANKING INFORMATION
- - If your Financial Institution account changes, you must complete
a Ready Access features form which may be obtained from Aquila
Distributors at 1-800-228-4227 and send it to the Agent together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution change is effective in 15
days after this form is received in good order by the Trust's
Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 2c and signing the Application, the investor
is entitled to make each purchase at the public offering price
applicable to a single transaction of the dollar amount checked
above, and agrees to be bound by the terms and conditions
applicable to Letters of Intent appearing below.
The investor is making no commitment to purchase shares, but
if the investor's purchases within thirteen months from the date
of the investor's first purchase do not aggregate $25,000, or, if
such purchases added to the investor's present holdings do not
aggregate the minimum amount specified above, the investor will
pay the increased amount of sales charge prescribed in the terms
of escrow below.
The commission to the dealer or broker, if any, named herein
shall be at the rate applicable to the minimum amount of the
investor's specified intended purchases checked above. If the
investor's actual purchases do not reach this minimum amount, the
commissions previously paid to the dealer will be adjusted to the
rate applicable to the investor's total purchases. If the
investor's purchases exceed the dollar amount of the investor's
intended purchases and pass the next commission break-point, the
investor shall receive the lower sales charge, provided that the
dealer returns to the Distributor the excess of commissions
previously allowed or paid to him over that which would be
applicable to the amount of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter of
Intent in placing any future purchase orders for the investor
while this Letter is in effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if
necessary), 3% of the dollar amount specified in the Letter of
Intent (computed to the nearest full share) shall be held in
escrow in shares of the Trust by the Agent. All dividends and
any capital distributions on the escrowed shares will be
credited to the investor's account.
2. If the total minimum investment specified under the Letter is
completed within a thirteen-month period, the escrowed shares
will be promptly released to the investor. However, shares
disposed of prior to completion of the purchase requirement
under the Letter will be deducted from the amount required to
complete the investment commitment.
3. If the total purchases pursuant to the Letter are less than the
amount specified in the Letter as the intended aggregate
purchases, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales
charges actually paid and the amount of sales charges which
would have been paid if the total amount purchased had been made
at a single time. If such difference in sales charges is not
paid within twenty days after receipt of a request from the
Distributor or the dealer, the Distributor will, within sixty days
after the expiration of the Letter, redeem the number of
escrowed shares necessary to realize such difference in sales
charges. Full shares and any cash proceeds for a fractional
share remaining after such redemption will be released to the
investor. The escrow of shares will not be released until any
additional sales charge due has been paid as stated in this
section.
4. By checking Box 2c and signing the Application, the investor
irrevocably constitutes and appoints the Agent or the
Distributor as his attorney to surrender for redemption any or
all escrowed shares on the books of the Trust.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees to
the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the
"Plan") as agent for the person (the "Planholder") who executed
the Plan authorization.
2. Certificates will not be issued for shares of the Trust
purchased for and held under the Plan, but the Agent will
credit all such shares to the Planholder on the records of the
Trust. Any share certificates now held by the Planholder may be
surrendered unendorsed to the Agent with the application so that
the shares represented by the certificate may be held under the
Plan.
3. Dividends and distributions will be reinvested in shares of the
Trust at Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments
will be made at the Net Asset Value per share in effect at the
close of business on the last business day of the month or
quarter.
5. The amount and the interval of disbursement payments and the
address to which checks are to be mailed may be changed, at any
time, by the Planholder on written notification to the Agent.
The Planholder should allow at least two weeks time in mailing
such notification before the requested change can be put in
effect.
6. The Planholder may, at any time, instruct the Agent by written
notice (in proper form in accordance with the requirements of
the then current Prospectus of the Trust) to redeem all, or any
part of, the shares held under the Plan. In such case the Agent
will redeem the number of shares requested at the Net Asset
Value per share in effect in accordance with the Trust's usual
redemption procedures and will mail a check for the proceeds of
such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on
written notice to the Agent, or by the Agent upon receiving
directions to that effect from the Trust. The Agent will also
terminate the Plan upon receipt of evidence satisfactory to it
of the death or legal incapacity of the Planholder. Upon
termination of the Plan by the Agent or the Trust, shares
remaining unredeemed will be held in an uncertificated account in
the name of the Planholder, and the account will continue as a
dividend- reinvestment, uncertificated account unless and until
proper instructions are received from the Planholder, his
executor or guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any
action taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent
for the Trust, the Planholder will be deemed to have appointed
any successor transfer agent to act as his agent in
administering the Plan. 10.Purchases of additional shares
concurrently with withdrawals are undesirable because of sales
charges when purchases are made. Accordingly, a Planholder may
not maintain this Plan while simultaneously making regular
purchases. While an occasional lump sum investment may be made,
such investment should normally be an amount equivalent to three
times the annual withdrawal or $5,000, whichever is less.
<PAGE>
INVESTMENT ADVISER
Hawaiian Trust Company, Limited
Financial Plaza of the Pacific
P.O. Box 3170
Honolulu, Hawaii 96802
ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Arthur K. Carlson
William M. Cole
Thomas W. Courtney
Richard W. Gushman, II
Stanley W. Hong
Theodore T. Mason
Russell K. Okata
Douglas Philpotts
Oswald K. Stender
Thelma Chun-Hoon Zen
Peter E. Russell, Founding Trustee Emeritus
OFFICERS
Lacy B. Herrmann, President
Sherri Foster, Senior Vice President
William C. Wallace, Senior Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, 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
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1104
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights 2
Table of Expenses 4
Financial Highlights 5
Introduction 6
Investment Of The Trust's Assets 6
Investment Restrictions 11
Net Asset Value Per Share 12
How To Invest In The Trust 12
How To Redeem Your Investment 17
Automatic Withdrawal Plan 20
Management Arrangements 20
Dividend And Tax Information 23
Exchange Privilege 26
General Information 28
Application and Letter of Intent
HAWAIIAN
TAX-FREE TRUST
A TAX-FREE
INCOME INVESTMENT
[LOGO]
PROSPECTUS
[LOGO]
ONE OF THE
AQUILASM GROUP OF FUNDS
<PAGE>
Hawaiian Tax-Free Trust
380 Madison Avenue, Suite 2300
New York, New York 10017
800-228-4227
212-697-6666
Statement of Additional Information March ***, 1996
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. The Additional Statement should be
read in conjunction with the Prospectus (the "Prospectus") dated
March ***, 1996 of Hawaiian Tax-Free Trust (the "Trust"), which may
be obtained from the Trust's Shareholder Servicing Agent,
Administrative Data Management Corp., by writing to it at: 581 Main
Street, Woodbridge, New Jersey 07095-1104 or by calling the
following numbers:
800-288-4228 toll free or 908-855-5731
or from Aquila Distributors, Inc., the Trust's Distributor, by
writing to it at
380 Madison Avenue, Suite 2300, New York, New York 10017;
or by calling: 800-228-4227 toll free
or 212-697-6666
The Annual Report of the Trust for the fiscal year ended
March 31, 1995 (audited), and the semi-annual report for the six
months ended September 30, 1995 (unaudited), will be delivered with
the Additional Statement.
TABLE OF CONTENTS
Investment of the Trust's Assets . . . . . . . . . . . . . . . .2
Municipal Bonds . . . . . . . . . . . . . . . . . . . . . . . .8
Performance . . . . . . . . . . . . . . . . . . . . . . . . . .9
Investment Restrictions . . . . . . . . . . . . . . . . . . . 12
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . 13
Limitation of Redemptions in Kind . . . . . . . . . . . . . . 16
Trustees and Officers . . . . . . . . . . . . . . . . . . . . 16
Additional Information as to Management Arrangements . . . . . 23
Computation of Net Asset Value . . . . . . . . . . . . . . . . 27
Automatic Withdrawal Plan . . . . . . . . . . . . . . . . . . 29
Additional Tax Information . . . . . . . . . . . . . . . . . . 29
General Information . . . . . . . . . . . . . . . . . . . . . 29
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 32
<PAGE>
INVESTMENT OF THE TRUST'S ASSETS
The investment objective and policies of the Trust are
described in the Prospectus, which refers to the matters described
below. See the Prospectus for the definitions of "Hawaiian
Obligations" and "Taxable Short-Term Obligations" (collectively
"Obligations").
Information On U.S. Government Securities
U.S. Government Securities (i.e., obligations issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities) include securities issued by the U.S.
Government, which in turn include Treasury Bills (which mature
within one year of the date they are issued) and Treasury Notes and
Bonds (which are issued with longer maturities). All Treasury
securities are backed by the full faith and credit of the United
States.
U.S. Government agencies and instrumentalities that issue or
guarantee securities include, but are not limited to, the Farmers
Home Administration, Federal Farm Credit System, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation, Federal Housing
Administration, Federal National Mortgage Association, Financing
Corporation, Government National Mortgage Association, Resolution
Funding Corporation, Small Business Administration, Student Loan
Marketing Association and the Tennessee Valley Authority.
Securities issued or guaranteed by U.S. Government agencies
and instrumentalities are not always supported by the full faith
and credit of the United States Government. Some, such as
securities issued by the Federal Home Loan Banks, are backed by the
right of the agency or instrumentality to borrow from the Treasury.
Others, such as securities issued by the Federal National Mortgage
Association, are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not
backed by the full faith and credit of the United States
Government, the owner of the securities must look principally to
the agency issuing the obligation for repayment and may not be able
to assert a claim against the United States in the event that the
agency or instrumentality does not meet its commitment. The Trust
will invest in securities of agencies and instrumentalities only if
Hawaiian Trust Company, Limited (the "Adviser") is satisfied that
the credit risk involved is minimal.
Ratings
The ratings assigned by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") represent
their respective opinions of the quality of the municipal bonds and
notes and Taxable Short-Term Obligations which they undertake to
rate. It should be emphasized, however, that ratings are general
and not absolute standards of quality. Consequently, obligations
with the same maturity, stated interest rate and rating may have
different yields, while obligations of the same maturity and stated
interest rate with different ratings may have the same yield. See
Appendix A to this Additional Statement for further information
about the ratings of Moody's and S&P as to the various rated
Hawaiian Obligations and Taxable Short-Term Obligations which the
Trust may purchase.
The table below gives information as to the percentage of Trust
assets invested, as of March 31, 1995, in Hawaiian Obligations in
the various rating categories:
Highest rating (1) 62.2%
Second highest rating (2) 25.3
Third highest rating (3) 4.2
Fourth highest rating (4) 0.0
Unrated Obligations 8.3
100.0%
(1) Aaa of Moody's or AAA of S&P (or other highest rating).
(2) Aa of Moody's or AA of S&P (or other second highest rating).
(3) A of Moody's or A of S&P (or other third highest rating).
(4) Baa of Moody's or BBB of S&P (or other fourth highest rating).
When-Issued and Delayed Delivery Obligations
The Trust may buy Obligations on a when-issued or delayed
delivery basis. The purchase price and the interest rate payable on
the Obligations are fixed on the transaction date. At the time the
Trust makes the commitment to purchase Obligations on a when-issued
or delayed delivery basis, it will record the transaction and
thereafter reflect the value each day of such Obligations in
determining its net asset value. The Trust will make commitments
for such when-issued transactions only when it has the intention of
actually acquiring the Obligations. The Trust will maintain with
the Custodian a separate account with portfolio obligations in an
amount at least equal to such commitments. On delivery dates for
such transactions, the Trust will meet its commitments by selling
the obligations held in the separate account and/or from cash flow.
Loans of Portfolio Securities
The Trust may, to increase its income, lend its Obligations on
a short- or long-term basis to broker-dealers, banks or certain
other financial institutions (see below) if (i) the loan is
collateralized in accordance with applicable regulatory
requirements (the "Guidelines") and if (ii) after any loan, the
value of the Obligations loaned does not exceed 10% of the value of
its total assets. The financial institutions other than
broker-dealers or banks to which the Trust can lend its Obligations
are limited to "accredited investors," as that term is defined in
Section 2(15) of the Securities Act of 1933. (In general, such
institutions are insurance companies, investment companies and
certain employee benefit plans.) Under the present Guidelines
(which are subject to change) the loan collateral must, on each
business day, at least equal the value of the loaned obligations
and must consist of cash, bank letters of credit or U.S. Government
Securities. To be acceptable as collateral, a letter of credit must
obligate a bank to pay amounts demanded by the Trust if the demand
meets the terms of the letter. Such terms and the issuing banks
would have to be satisfactory to the Trust. Any loan might be
secured by any one or more of the three types of collateral.
The Trust receives amounts equal to the interest or other
distributions on loaned Obligations and also receives one or more
of the negotiated loan fees, interest on Obligations used as
collateral or interest on the securities purchased with such
collateral, either of which type interest may be shared with the
borrower. The Trust may also pay reasonable finder's, custodian and
administrative fees but only to persons not affiliated with the
Trust. The terms of the Trust's loans will meet certain tests under
the Internal Revenue Code and permit the Trust to terminate the
loan and thus reacquire loaned securities on five days' notice.
Futures Contracts and Options
Although it does not currently do so, the Trust is permitted
to buy and sell futures contracts relating to municipal bond
indices ("Municipal Bond Index Futures") and to U.S. Government
securities ("U.S. Government Securities Futures"), together
referred to as "Futures," and exchange traded options based on
Futures, as a possible means to protect the asset value of the
Trust during periods of changing interest rates, although in fact
the Trust may never do so. The following discussion is intended to
explain briefly the workings of Futures and options on them.
Futures Contracts. Unlike when the Trust purchases or sells a
Hawaiian Obligation, no price is paid or received by the Trust upon
the purchase or sale of a Future. Initially, however, when such
transactions are entered into, the Trust will be required to
deposit with the futures commission merchant ("broker") an amount
of cash, U.S. Treasury Bills or Hawaiian Obligations equal to a
varying specified percentage of the contract amount. This amount is
known as initial margin. Subsequent payments, called variation
margin, to and from the broker, will be made on a daily basis as
the price of the underlying index or security fluctuates making the
Future more or less valuable, a process known as marking to market.
Insolvency of the broker may make it more difficult to recover
initial or variation margin. Changes in variation margin are
recorded by the Trust as unrealized gains or losses. Margin
deposits do not involve borrowing by the Trust and may not be used
to support any other transactions. At any time prior to expiration
of the Future, the Trust may elect to close the position by taking
an opposite position which will operate to terminate the Trust's
position in the Future. A final determination of variation margin
is then made. Additional cash is required to be paid by or released
to the Trust and it realizes a gain or a loss. Although Futures by
their terms call for the actual delivery or acceptance of cash, in
most cases the contractual obligation is fulfilled without having
to make or take delivery. All transactions in the futures markets
are subject to commissions payable by the Trust and are made,
offset or fulfilled through a clearing house associated with the
exchange on which the contracts are traded. Although the Trust
intends to buy and sell Futures only on an exchange where there
appears to be an active secondary market, there is no assurance
that a liquid secondary market will exist for any particular Future
at any particular time. In such event, or in the event of an
equipment failure at a clearing house, it may not be possible to
close a futures position.
Municipal Bond Index Futures currently are based on a
long-term municipal bond index developed by the Chicago Board of
Trade ("CBT") and The Bond Buyer (the "Municipal Bond Index").
Financial futures contracts based on the Municipal Bond Index began
trading on June 11, 1985. The Municipal Bond Index is comprised of
40 tax-exempt municipal revenue and general obligation bonds. Each
bond included in the Municipal Bond Index must be rated A or higher
by Moody's or S&P and must have a remaining maturity of 19 years or
more. Twice a month new issues satisfying the eligibility
requirements are added to, and an equal number of old issues are
deleted from, the Municipal Bond Index. The value of the Municipal
Bond Index is computed daily according to a formula based on the
price of each bond in the Municipal Bond Index, as evaluated by six
dealer-to-dealer brokers.
The Municipal Bond Index futures contract is traded only on
the CBT. Like other contract markets, the CBT assures performance
under futures contracts through a clearing corporation, a
non-profit organization managed by the exchange membership which is
also responsible for handling daily accounting of deposits or
withdrawals of margin.
There are at present U.S. Government financial futures
contracts based on long-term Treasury bonds, Treasury notes, GNMA
Certificates and three-month Treasury bills. U.S. Government
Securities Futures have traded longer than Municipal Bond Index
Futures, and the depth and liquidity available in the trading
markets for them are in general greater.
Call Options on Futures Contracts. The Trust may also purchase
and sell exchange related call and put options on Futures. The
purchase of a call option on a Future is analogous to the purchase
of a call option on an individual security. Depending on the
pricing of the option compared to either the Future upon which it
is based, or upon the price of the underlying debt securities, it
may or may not be less risky than ownership of the futures
contract or underlying debt securities. Like the purchase of a
futures contract, the Trust may purchase a call option on a Future
to hedge against a market advance when the Trust is not fully
invested.
The writing of a call option on a Future constitutes a partial
hedge against declining prices of the securities which are
deliverable upon exercise of the Future. If the price at expiration
of the Future is below the exercise price, the Trust will retain
the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the Trust's
portfolio holdings.
Put Options on Futures Contracts. The purchase of put options
on a Future is analogous to the purchase of protective put options
on portfolio securities. The Trust may purchase a put option on a
Future to hedge the Trust's portfolio against the risk of rising
interest rates.
The writing of a put option on a Future constitutes a partial
hedge against increasing prices of the securities which are
deliverable upon exercise of the Future. If the Future price at
expiration is higher than the exercise price, the Trust will retain
the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the
Trust intends to purchase.
The writer of an option on a Future is required to deposit
initial and variation margin pursuant to requirements similar to
those applicable to Futures. Premiums received from the writing of
an option will be included in initial margin. The writing of an
option on a Future involves risks similar to those relating to
Futures.
Risk Factors in Futures Transactions and Options
One risk in employing Futures or options on them to attempt to
protect against the price volatility of the Trust's Hawaiian
Obligations is that the Adviser could be incorrect in its
expectations as to the extent of various interest rate movements or
the time span within which the movements take place. For example,
if the Trust sold a Future in anticipation of an increase in
interest rates, and then interest rates went down instead, the
Trust would lose money on the sale.
Another risk as to Futures or options on them arises because
of the imperfect correlation between movement in the price of the
Future and movements in the prices of the Hawaiian Obligations
which are the subject of the hedge. The risk of imperfect
correlation increases as the composition of the Trust's portfolio
diverges from the municipal bonds included in the applicable index
or from the security underlying the U.S. Government Securities
Futures. The price of the Future or option may move more than or
less than the price of the Hawaiian Obligations being hedged. If
the price of the Future or option moves less than the price of the
Hawaiian Obligations which are the subject of the hedge, the hedge
will not be fully effective but, if the price of the Hawaiian
Obligations being hedged has moved in an unfavorable direction, the
Trust would be in a better position than if it had not hedged at
all. If the price of the Hawaiian Obligations being hedged has
moved in a favorable direction, this advantage will be partially
offset by the Future or option. If the price of the Future or
option has moved more than the price of the Hawaiian Obligations,
the Trust will experience either a loss or gain on the Future or
option which will not be completely offset by movements in the
price of the Hawaiian Obligations which are the subject of the
hedge. To compensate for the imperfect correlation of movements in
the price of the Hawaiian Obligations being hedged and movements in
the price of the Futures or options, the Trust may buy or sell
Futures or options in a greater dollar amount than the dollar
amount of the Hawaiian Obligations being hedged if the historical
volatility of the prices of the Hawaiian Obligations being hedged
is less than the historical volatility of the debt securities
underlying the hedge. It is also possible that, where the Trust has
sold Futures or options to hedge its portfolio against a decline in
the market, the market may advance and the value of the Hawaiian
Obligations held in the Trust's portfolio may decline. If this
occurred the Trust would lose money on the Future or option and
also experience a decline in value of its portfolio securities.
Where Futures or options are purchased to hedge against a
possible increase in the price of Hawaiian Obligations before the
Trust is able to invest in them in an orderly fashion, it is
possible that the market may decline instead; if the Trust then
concludes not to invest in them at that time because of concern as
to possible further market decline or for other reasons, the Trust
will realize a loss on the Futures or options that is not offset by
a reduction in the price of the Hawaiian Obligations which it had
anticipated purchasing.
The particular municipal bonds comprising the index underlying
Municipal Bond Index Futures will vary from the bonds held by the
Trust. The correlation of the hedge with such bonds may be affected
by disparities in the average maturity, ratings, geographical mix
or structure of the Trust's investments as compared to those
comprising the Index, and general economic or political factors. In
addition, the correlation between movements in the value of the
Municipal Bond Index may be subject to change over time, as
additions to and deletions from the Municipal Bond Index alter its
structure. The correlation between U.S. Government Securities
Futures and the municipal bonds held by the Trust may be adversely
affected by similar factors and the risk of imperfect correlation
between movements in the prices of such Futures and the prices of
Municipal Bonds held by the Trust may be greater.
Trading in Municipal Bond Index Futures may be less liquid
than that in other Futures. The trading of Futures and options is
also subject to certain market risks, such as inadequate trading
activity or limits on upward or downward price movements, which
could at times make it difficult or impossible to liquidate
existing positions.
Regulatory Aspects of Futures and Options
The Trust will, due to requirements under the Investment
Company Act of 1940 (the "1940 Act"), deposit in a segregated
account with its custodian bank Hawaiian Obligations maturing in
one year or less or cash, in an amount equal to the fluctuating
market value of long Futures or options it has purchased, less any
margin deposited on long positions.
The Trust must operate within certain restrictions as to its
long and short positions in Futures under a rule (the "CFTC Rule")
adopted by the Commodity Futures Trading Commission ("CFTC") under
the Commodity Exchange Act (the "CEA") to be eligible for the
exclusion provided by the CFTC Rule as a "commodity pool operator"
(as defined under the CEA), and must represent to the CFTC that the
Trust will operate within such restrictions. Under these
restrictions the Trust will not, as to any positions, whether long,
short or a combination thereof, enter into Futures or options for
which the aggregate initial margins and premiums paid for options
exceed 5% of the fair market value of its assets. Under the
restrictions, the Trust also must, as to its short positions, use
Futures and options solely for bona-fide hedging purposes within
the meaning and intent of the applicable provisions under the CEA.
As to the Trust's long positions which are used as part of its
portfolio strategy and are incidental to its activities in the
underlying cash market, the "underlying commodity value" (see
below) of its Futures must not exceed the sum of (i) cash set aside
in an identifiable manner, or short-term U.S. debt obligations or
other U.S. dollar-denominated high quality short-term money market
instruments so set aside, plus any funds deposited as margin; (ii)
cash proceeds from existing investments due in 30 days and (iii)
accrued profits held at the futures commission merchant. (There is
described above the segregated account which the Trust must
maintain with its custodian bank as to its Futures and options
activities due to requirements other than those of the CFTC Rule;
the Trust will, as to long positions, be required to abide by the
more restrictive of this other requirement or the above
requirements of the CFTC Rule.) The "underlying commodity value" of
a Future or option is computed by multiplying the size of the
Future by the daily settlement price of the Future or option.
The "sale" of a Future means the acquisition by the Trust of
an obligation to deliver an amount of cash equal to a specified
dollar amount times the difference between the value of the index
or government security at the close of the last trading day of the
Future and the price at which the Future is originally struck
(which the Trust anticipates will be lower because of a subsequent
rise in interest rates and a corresponding decline in the index
value). This is referred to as having a "short" Futures position.
The "purchase" of a Future means the acquisition by the Trust of an
obligation to take delivery of such an amount of cash. In this
case, the Trust anticipates that the closing value will be higher
than the price at which the Future is originally struck. This is
referred to as having a "long" Futures position. No physical
delivery of the bonds making up the index or the U.S. government
securities, as the case may be, is made as to either a long or a
short Futures position.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage
computed by taking the lesser of purchases or sales of portfolio
securities for a year and dividing it by the monthly average value
of such securities during the year, excluding certain short-term
securities. Since the turnover rate of the Trust will be affected
by a number of factors, the Trust is unable to predict what rate
the Trust will have in any particular period or periods, although
such rate is not expected to exceed 100%. However, the rate could
be substantially higher or lower in any particular period.
MUNICIPAL BONDS
The two principal classifications of municipal bonds are
"general obligation" bonds and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, credit
and unlimited taxing power for the payment of principal and
interest. Revenue or special tax bonds are payable only from the
revenues derived from a particular facility or class of facilities
or projects or, in a few cases, from the proceeds of a special
excise or other tax, but are not supported by the issuer's power to
levy unlimited general taxes. There are, of course, variations in
the security of municipal bonds, both within a particular
classification and between classifications, depending on numerous
factors. The yields of municipal bonds depend on, among other
things, general financial conditions, general conditions of the
municipal bond market, size of a particular offering, the maturity
of the obligation and rating of the issue.
Since the Trust may invest in industrial development bonds or
private activity bonds, the Trust may not be an appropriate
investment for entities which are "substantial users" of facilities
financed by those bonds or for investors who are "related persons"
of such users. Generally, an individual will not be a "related
person" under the Internal Revenue Code unless such investor or his
or her immediate family (spouse, brothers, sisters and lineal
descendants) own directly or indirectly in the aggregate more than
50 percent of the equity of a corporation or is a partner of a
partnership which is a "substantial user" of a facility financed
from the proceeds of those bonds. A "substantial user" of such
facilities is defined generally as a "non-exempt person who
regularly uses a part of a facility" financed from the proceeds of
industrial development or private activity bonds.
As indicated in the Prospectus, there are certain Hawaiian
Obligations the interest on which is subject to the Federal
alternative minimum tax on individuals. While the Trust may
purchase these obligations, it may, on the other hand, refrain from
purchasing particular Hawaiian Obligations due to this tax
consequence. Also, as indicated in the Prospectus, the Trust will
not purchase obligations of Hawaiian issuers the interest on which
is subject to regular Federal income tax. The foregoing may reduce
the number of issuers of obligations which are available to the
Trust. If the Trust purchases floating and variable rate demand
notes and participation interests (including municipal
lease/purchase obligations) the Board of Trustees will determine
that such obligations are readily marketable. In determining
marketability of any such issue, the Board of Trustees will
consider the following factors, not all of which may be applicable
to any particular issue: the quality, maturity and coupon rate of
the issue, ratings received from the nationally recognized
statistical rating organizations and any changes or prospective
changes in such ratings, the likelihood that the issuer will
continue to appropriate the required payments for the issue, recent
purchases and sales of the same or similar issues, the general
market for municipal securities of the same or similar quality, the
Adviser's opinion as to marketability of the issue and other
factors that may be applicable to any particular issue.
PERFORMANCE
As noted in the Prospectus, the Trust may from time to time
quote various performance figures to illustrate its past
performance.
Performance quotations by investment companies are subject to
rules of the Securities and Exchange Commission ("SEC"). These
rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation
furnished by the Trust be accompanied by certain standardized
performance information computed as required by the SEC. Current
yield and average annual compounded total return quotations used by
the Trust are based on these standardized methods. Each of these
and other methods that may be used by the Trust are described in
the following material.
Total Return
Average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5- and 10-year
periods and a period since the inception of the operations of the
Trust (on February 20, 1985) that would equate an initial
hypothetical $1,000 investment to the value such an investment
would have if it were completely redeemed at the end of each such
period. The calculation assumes the maximum sales charge is
deducted from the hypothetical initial $1,000 purchase, that on
each reinvestment date during each such period any capital gains
are reinvested at net asset value, and all income dividends are
reinvested at net asset value, without sales charge (because the
Trust does not impose any sales charge on reinvestment of
dividends). The computation further assumes that the entire
hypothetical account was completely redeemed at the end of each
such period.
Investors should note that the maximum sales charge (4%)
reflected in the following quotations is a one time charge, paid at
the time of initial investment. The greatest impact of this charge
is during the early stages of an investment in the Trust. Actual
performance will be affected less by this one time charge the
longer an investment remains in the Trust.
The average annual compounded rates of return for the Trust
for the 1-, 5- and 10-year periods and the period since inception
ended March 31, 1995, were respectively, 1.49%, 6.18%, 8.16% and
8.03%.
These figures were calculated according to the following SEC
formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5- and
10-year periods or the period since inception, at
the end of each such period.
As discussed in the Prospectus, the Trust may quote total
rates of return in addition to its average annual total return.
Such quotations are computed in the same manner as the Trust's
average annual compounded rate, except that such quotations will be
based on the Trust's actual return for a specified period as
opposed to its average return over the periods described above. The
total return for the Trust for the 1-, 5- and 10-year periods and
the period since inception ended March 31, 1995, were respectively
1.49%, 34.97% 119.02% and 118.42%. In general, actual total rate of
return will be lower than average annual rate of return because the
average annual rate of return reflects the effect of compounding.
See discussion of the impact of the sales charge on quotations of
rates of return, above.
Yield
Current yield reflects the income per share earned by the
Trust's portfolio investments. Current yield is determined by
dividing the net investment income per share earned during a 30-day
base period by the maximum offering price per share on the last day
of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base
period net of fee waivers and reimbursements of expenses, if any.
The yield for the Trust for the 30-day period ended on March 31,
1995, (the date of the Trust's most recent audited financial
statements, which are included in the Trust's annual report for the
year ended March 31, 1995) was 4.99%.
These figures were obtained using the Securities and Exchange
Commission formula:
6
Yield = 2 [(a-b + 1) -1]
----
cd
Where:
a = interest earned during the period
b = expenses accrued for the period (net of waivers and
reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the period
Taxable Equivalent Yield
The Trust may also quote a taxable equivalent yield which
shows the taxable yield that would be required to produce an
after-tax yield equivalent to that of a fund which invests in
tax-exempt obligations. Such yield is computed by dividing that
portion of the yield of the Trust (computed as indicated above)
which is tax-exempt by one minus the highest applicable combined
federal and Hawaiian income tax rate (and adding the result to that
portion of the yield of the Trust that is not tax-exempt, if any).
The taxable equivalent yield for the Trust for the 30-day period
ended on March 31, 1995, (the date of the Trust's most recent
audited financial statements, which are included in the Trust's
annual report for the year ended March 31, 1995) was 9.28%.
The Hawaiian and the combined Hawaiian and federal income tax
rates upon which the Trust's tax equivalent yield quotations are
based are 10% and 46.71% respectively. From time to time, as any
changes to such rates become effective, tax equivalent yield
quotations advertised by the Trust will be updated to reflect such
changes. Any tax rate increases will tend to make a tax-free
investment, such as the Trust, relatively more attractive than
taxable investments. Therefore, the details of specific tax
increases may be used in Trust sales material.
Current Distribution Rate
Current yield and tax equivalent yield, which are calculated
according to a formula prescribed by the SEC, are not indicative of
the amounts which were or will be paid to the Trust's shareholders.
Amounts paid to shareholders are reflected in the quoted current
distribution rate or taxable equivalent distribution rate. The
current distribution rate is computed by (i) dividing the total
amount of dividends per share paid by the Trust during a recent
30-day period by (ii) the current maximum offering price and by
(iii) annualizing the result. A taxable equivalent distribution
rate shows the taxable distribution rate that would be required to
produce an after-tax distribution rate equivalent to the Trust's
current distribution rate (calculated as indicated above). The
current distribution rate can differ from the current yield
computation because it could include distributions to shareholders
from additional sources (i.e., sources other than dividends and
interest), such as short-term capital gains.
Other Performance Quotations
With respect to those categories of investors who are
permitted to purchase shares of the Trust at net asset value, the
Trust may quote a "Current Distribution Rate for Net Asset Value
Investments." This rate is computed by (i) dividing the total
amount of dividends per share paid by the Trust during a recent
30-day period by (ii) the current net asset value of the Trust and
by (iii) annualizing the result. Figures for yield, total return
and other measures of performance for Net Asset Value Investments
may also be quoted. These will be derived as described above with
the substitution of net asset value for public offering price.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used. If distribution rates are quoted in advertising, they will
be accompanied by calculations of current yield in accordance with
the formula of the Securities and Exchange Commission.
INVESTMENT RESTRICTIONS
The Trust has a number of policies concerning what it can and
cannot do. Those that are called fundamental policies cannot be
changed unless the holders of a "majority" (as defined in the 1940
Act) of the Trust's outstanding shares vote to change them. Under
that Act, the vote of the holders of a "majority" of the Trust's
outstanding shares means the vote of the holders of the lesser of
(a) 67% or more of the Trust's shares present at a meeting or
represented by proxy if the holders of more than 50% of its shares
are so present or represented; or (b) more than 50% of the Trust's
outstanding shares. Those fundamental policies not set forth in the
Prospectus are set forth below:
1. The Trust invests only in certain limited securities.
The Trust cannot buy any securities other than those listed
under "Investment of the Trust's Assets" in the Prospectus;
therefore the Trust cannot buy any voting securities, any
commodities or commodity contracts other than Municipal Bond Index
Futures and U.S. Government Securities Futures, any mineral related
programs or leases, any shares of other investment companies or any
warrants, puts, calls or combinations thereof other than on
Municipal Bond Index Futures or on U.S. Government Securities
Futures.
The Trust cannot purchase or hold the securities of any issuer
if, to its knowledge, Trustees, Directors or officers of the Trust
or its Adviser individually owning beneficially more than 0.5% of
the securities of that issuer together own in the aggregate more
than 5% of such securities.
The Trust cannot buy real estate or any non-liquid interests
in real estate investment trusts; however, it can buy any
securities which it can otherwise buy even though the issuer
invests in real estate or has interests in real estate.
2. The Trust does not buy for control.
The Trust cannot invest for the purpose of exercising control
or management of other companies.
3. The Trust does not sell securities it does not own or borrow
from brokers to buy securities.
Thus, it cannot sell short or buy on margin; however, the
Trust can make margin deposits in connection with the purchase or
sale of Municipal Bond Index Futures, U.S. Government Securities
Futures or options on them, and can pay premiums on these options.
4. The Trust is not an underwriter.
The Trust cannot engage in the underwriting of securities,
that is, the selling of securities for others. Also, it cannot
invest in restricted securities. Restricted securities are
securities which cannot freely be sold for legal reasons.
DISTRIBUTION PLAN
The Trust's Distribution Plan (the "Plan") states that if and
to the extent that any of the payments listed below are considered
to be "primarily intended to result in the sale of" shares issued
by the Trust within the meaning of Rule 12b-1, such payments are
authorized under the Plan: (i) the costs of the preparation of all
reports and notices to shareholders and the costs of printing and
mailing such reports and notices to existing shareholders,
irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares of
the Trust or other funds or other investments; (ii) the costs of
the preparation, setting in type, printing, and mailing of all
prospectuses and statements of additional information to existing
shareholders; (iii) the costs of preparation, setting in type,
printing and mailing of any proxy statements and proxies,
irrespective of whether any such proxy statement includes any item
relating to, or directed toward, the sale of the Trust's shares;
(iv) all legal and accounting fees relating to the preparation of
any such reports, prospectuses, statements of additional
information, proxies and proxy statements; (v) all fees and
expenses relating to the registration or qualification of the Trust
and/or its shares under the securities or "Blue-Sky" laws of any
jurisdiction; (vi) all fees under the Securities Act of 1933 and
the 1940 Act, including fees in connection with any application for
exemption relating to or directed toward the sale of the Trust's
shares; (vii) all fees and assessments of the Investment Company
Institute or any successor organization, irrespective of whether
some of its activities are designed to provide sales assistance;
(viii) all costs of the preparation and mailing of confirmations of
shares sold or redeemed or share certificates, and reports of share
balances; and (ix) all costs of responding to telephone or mail
inquiries of investors or prospective investors.
As used in the Plan, "Qualified Recipients" means
broker-dealers or others selected by the Distributor including but
not limited to any principal underwriter of the Trust with which
the Distributor has entered into written agreements ("Related
Agreements") contemplated by the Rule and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Trust's shares or servicing of
shareholder accounts.
"Qualified Holdings" means, as to any Qualified Recipient, all
Trust shares beneficially owned by such Qualified Recipient, or
beneficially owned by its brokerage customers, other customers,
other contacts, investment advisory clients, or other clients, if
the Qualified Recipient was, in the sole judgment of the
Distributor, instrumental in the purchase and/or retention of such
Trust shares and/or in providing administrative assistance in
relation thereto.
At the date of this Additional Statement, most of the
outstanding shares of the Trust would be considered Qualified
Holdings of various broker-dealers unaffiliated with the Adviser or
the Distributor. The Distributor will consider shares which are not
Qualified Holdings of such unrelated broker-dealers to be Qualified
Holdings of the Distributor and will authorize Permitted Payments
to the Distributor with respect to such shares whenever Permitted
Payments are being made under the Plan.
Under the Plan when the Trust is authorized to make payments
("Permitted Payments") to Qualified Recipients, which Permitted
Payments shall be made directly, or through the Distributor as
disbursing agent, which may not exceed, for any fiscal year of the
Trust (as adjusted for any part or parts of a fiscal year during
which payments under the Plan are not accruable or for any fiscal
year which is not a full fiscal year) 0.20 of 1% of the average
annual net assets of the Trust. Amounts within the above limits
accrued to a Qualified Recipient but not paid during a fiscal year
may be paid thereafter; if less than the full amount is accrued to
all Qualified Recipients, the difference will not be carried over
to subsequent years. Payments under the Plan commenced as of July
1, 1992. During the fiscal years ended March 31, 1995, 1994 and
1993, $1,275,442, $1,287,884 and $819,283, respectively were paid
under the Plan to Qualified Recipients. Of those amounts, $70,008,
$68,194 and $48,261, respectively, were paid to the Distributor.
Under the Plan the Distributor has sole authority (i) as to
the selection of any Qualified Recipient or Recipients; (ii) not to
select any Qualified Recipient; and (iii) the amount of Permitted
Payments, if any, to each Qualified Recipient provided that the
total Permitted Payments to all Qualified Recipients do not exceed
the amount set forth above.
The Distributor is authorized under the Plan, but not
directed, to take into account, in addition to any other factors
deemed relevant by it, the following: (a) the amount of the
Qualified Holdings of the Qualified Recipient; (b) the extent to
which the Qualified Recipient has, at its expense, taken steps in
the shareholder servicing area, including without limitation, any
or all of the following activities: answering customer inquiries
regarding account status and history, and the manner in which
purchases and redemptions of shares of the Trust may be effected;
assisting shareholders in designating and changing dividend
options, account designations and addresses; providing necessary
personnel and facilities to establish and maintain shareholder
accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with customer orders
to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts;
furnishing (either alone or together with other reports sent to a
shareholder by such person) monthly and year end statements and
confirmations of purchases and redemptions; transmitting, on behalf
of the Trust, proxy statements, annual reports, updating
prospectuses and other communications from the Trust to its
shareholders; receiving, tabulating and transmitting to the Trust
proxies executed by shareholders with respect to meetings of
shareholders of the Trust; and providing such other related
services as the Administrator or a shareholder may request from
time to time; and (c) the possibility that the Qualified Holdings
of the Qualified Recipient would be redeemed in the absence of its
selection or continuance as a Qualified Recipient. Notwithstanding
the foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified Recipient.
The Plan states that while it is in effect, the selection and
nomination of those Trustees of the Trust who are not "interested
persons" of the Trust shall be committed to the discretion of such
disinterested Trustees but that nothing in the Plan shall prevent
the involvement of others in such selection and nomination if the
final decision on any such selection and nomination is approved by
a majority of such disinterested Trustees.
The Plan states that while it is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's Board of
Trustees in writing all costs of each item specified in the second
preceding paragraph (making estimates of such costs where necessary
or desirable) during the preceding calendar or fiscal quarter.
The Plan defines as the Trust's Independent Trustees those
Trustees who are not "interested persons" of the Trust as defined
in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related
to the Plan. The Plan, unless terminated as hereinafter provided,
continues in effect from year to year only so long as such
continuance is specifically approved at least annually by the
Trust's Board of Trustees and its Independent Trustees with votes
cast in person at a meeting called for the purpose of voting on
such continuance. In voting on the implementation or continuance of
the Plan, those Trustees who vote to approve such implementation or
continuance must conclude that there is a reasonable likelihood
that the Plan will benefit the Trust and its shareholders. The Plan
may be terminated at any time by vote of a majority of the
Independent Trustees or by the vote of the holders of a "majority"
(as defined in the 1940 Act) of the outstanding voting securities
of the Trust. The Plan may not be amended to increase materially
the amount of payments to be made without shareholder approval and
all amendments must be approved in the manner set forth above as to
continuance of the Plan.
LIMITATION OF REDEMPTIONS IN KIND
The Trust has elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which the Trust is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1 percent of the net
asset value of the Trust during any 90-day period for any one
shareholder. Should redemptions by any shareholder exceed such
limitation, the Trust will have the option of redeeming the excess
in cash or in kind. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage costs in converting the assets
into cash. The method of valuing securities used to make
redemptions in kind will be the same as the method of valuing
portfolio securities described under "Net Asset Value Per Share" in
the Prospectus, and such valuation will be made as of the same time
the redemption price is determined.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their affiliations,
if any, with the Administrator and the Adviser, and their principal
occupations during at least the past five years are set forth
below. Each of the Trustees holds the same position(s) with Cash
Assets Trust, a Massachusetts business trust with three series,
each of which is a money market fund having the same Adviser and
Administrator as the Trust. Mrs. Thelma Chen-Hoon Zen, a founding
Trustee, will resign as of March 31, 1996 because of health
reasons. Mr. Herrmann is an interested person of the Trust, as that
term is defined in the 1940 Act, as an officer of the Trust, as a
Director and officer of Aquila Distributors, Inc. (the
"Distributor") and as a shareholder of the Distributor. Mr.
Philpotts is an interested person of the Trust, as that term is so
defined, as an officer and Director of the Adviser. They are so
designated by an asterisk. As of the date of this Additional
Statement, the Trustees and officers of the Trust owned less than
1% of its outstanding shares.
Lacy B. Herrmann*, President and Chairman of the Board of Trustees,
380 Madison Avenue, New York, New York 10017
Founder of the Trust and President and a Director of the
Administrator since 1984; Founder, President and Chairman of the
Board of Trustees of Tax-Free Trust of Arizona and Tax-Free Trust
of Oregon since 1986, of Churchill Tax-Free Fund of Kentucky and
Tax-Free Fund of Colorado since 1987 and of Tax-Free Fund For Utah
and Narragansett Insured Tax-Free Income Fund since 1992, all of
which are tax-free municipal bond funds, and an equity fund, Aquila
Rocky Mountain Equity Fund since 1993, to all of which the
Administrator is administrator and which are referred to as the
"Bond and Equity Funds"; Chairman and President, Chief Executive
Officer (Chairman of the Board of Trustees and/or President) and
Trustee of Capital Cash Management Trust ("CCMT"), since 1981 and
Founder and executive officer (since 1974) of CCMT and its
predecessor; Founder, President and Chairman of the Board of
Trustees of Prime Cash Fund since 1982, of Short Term Asset
Reserves and Pacific Capital Cash Assets Trust since 1984, of
Churchill Cash Reserves Trust since 1985, of Pacific Capital Tax-
Free Cash Assets Trust and of Pacific Capital U.S. Treasuries Cash
Assets Trust since 1988 and of Cascades Cash Fund, 1989-1994, all
of which are money market funds to which the Administrator is
administrator and which are referred to as the "Money Funds"; Vice
President, a Director and Secretary since 1981 (formerly Treasurer)
of the Distributor, which is distributor (i.e., principal
underwriter) for the Money Funds and the Bond and Equity Funds;
President and a Director of STCM Management Company, Inc., Adviser
to CCMT; Chairman, President and a Director since 1984 of InCap
Management Corporation, formerly sub-adviser and administrator of
Prime Cash Fund and Short Term Asset Reserves; Director or Trustee
of the various Quest for Value Funds, a group of stock, bond and
money market mutual funds, since 1983; Director of Saratoga
Advantage Trust, a group of mutual funds, since 1994; Trustee of
Brown University since 1990; actively involved for many years in
leadership roles with university, school and charitable
organizations.
Vernon R. Alden, Trustee, 420 Boylston Street, Suite 403, Boston,
Massachusetts 02116
Director of Augat Inc., a manufacturing corporation, since 1979,
Colgate Palmolive Company since 1974, Digital Equipment
Corporation, a computer manufacturing corporation, since 1959,
Intermet Corporation, an independent foundry, since 1986, and
Sonesta International Hotels Corporation since 1978; Chairman of
the Board and Executive Committee of The Boston Company, Inc., a
financial services company, 1969-1978; Trustee of Tax-Free Trust of
Oregon since 1988, of Pacific Capital Cash Assets Trust, Pacific
Capital Tax-Free Cash Assets Trust and Pacific Capital U.S.
Treasuries Cash Assets Trust since 1989, of Cascades Cash Fund,
1989-1994 and of Narragansett Insured Tax-Free Income Fund since
1992; Associate Dean and member of the faculty of Harvard
University Graduate School of Business Administration, 1951-1962;
member of the faculty and Program Director of Harvard Business
School - University of Hawaii Advanced Management Program, summer
of 1959 and 1960; President of Ohio University, 1962-1969; Chairman
of The Japan Society of Boston, Inc., and member of several Japan-
related advisory councils; Chairman of the Massachusetts Business
Development Council and the Massachusetts Foreign Business Council,
1978-1983; Trustee of the Boston Symphony Orchestra since 1975;
Chairman of the Massachusetts Council on the Arts and Humanities,
1972-1984; Member of the Board of Fellows of Brown University,
1969-1986; Trustee and member of the Executive Committee, Plimoth
Plantation; trustee of various other cultural and educational
organizations; Honorary Consul General of the Royal Kingdom of
Thailand.
Arthur K. Carlson, Trustee, 8702 North Via La Serena, Paradise
Valley, Arizona 85253
Retired; Senior Vice President and Manager of the Trust Division of
The Valley National Bank of Arizona, 1977-1987; Trustee of Tax-Free
Fund of Colorado, Tax-Free Trust of Arizona and Pacific Capital
Cash Assets Trust since 1987, of Pacific Capital Tax-Free Cash
Assets Trust and Pacific Capital U.S. Treasuries Cash Assets Trust
since 1988 and of Aquila Rocky Mountain Equity Fund since 1993;
previously Vice President of Investment Research at Citibank, New
York City, and prior to that Vice President and Director of
Investment Research of Irving Trust Company, New York City; past
President of The New York Society of Security Analysts and
currently a member of the Phoenix Society of Financial Analysts;
formerly Director of the Financial Analysts Federation; past
Chairman of the Board and, currently, Director of Mercy Healthcare
of Arizona, Phoenix, Arizona since 1990; Director of Northern
Arizona University Foundation since 1990; present or formerly an
officer and/or director of various other community and professional
organizations.
William M. Cole, Trustee, 852 Ramapo Way, Westfield, New Jersey
07090
President of Cole International, Inc., financial and shipping
consultants, since 1974; President of Cole Associates, shopping
center and real estate developers, 1974-1976; President of Seatrain
Lines, Inc., 1970-1974; former General Partner of Jones & Thompson,
international shipping brokers; Trustee of Pacific Capital Cash
Assets Trust since 1984, of Tax-Free Fund of Colorado since 1987
and of Pacific Capital Tax-Free Cash Assets Trust and Pacific
Capital U.S. Treasuries Cash Assets Trust since 1988; Chairman of
Cole Group, a financial consulting and real estate firm, since
1985.
Thomas W. Courtney, C.F.A., Trustee, P.O. Box 580, Sewickley,
Pennsylvania 15143
President of Courtney Associates, Inc., a venture capital firm,
since 1988; General Partner of Trivest Venture Fund, 1983-1988;
President of Investment Counseling, Federated Investors, Inc.,
1975-1982; President of Boston Company Institutional Investors,
Inc., 1970-1975; Director of several privately owned corporations;
formerly a Director of the Financial Analysts Federation; Trustee
of Pacific Capital Cash Assets Trust since 1984, of Tax-Free Trust
of Arizona since 1986 and of Pacific Capital Tax-Free Cash Assets
Trust and Pacific Capital U.S. Treasuries Cash Assets Trust since
1988; Director or Trustee of the various Quest for Value Funds, a
group of stock, bond and money market mutual funds, since 1983.
Richard W. Gushman, II, Trustee, 700 Bishop Street, Suite 200,
Honolulu, Hawaii 96813
President and Chief Executive Officer of OKOA, INC., a private
Hawaii corporation involved in real estate; adviser to RAMPAC,
Inc., a wholly owned subsidiary of the Bank of Hawaii, involved
with commercial real estate finance; Trustee of Pacific Capital
Cash Assets Trust, Pacific Capital Tax-Free Cash Assets Trust and
Pacific Capital U.S. Treasuries Cash Assets Trust since 1993;
Trustee of Pacific Capital Funds, which includes bond and stock
funds, since 1993; Chairman of the Board of Aloha United Way;
member of the Board of Trustees of the Mari-Med Foundation,
Downtown Improvement Association, Boys and Girls Club of Honolulu.
Stanley W. Hong, Trustee, 4976 Poola Street, Honolulu, Hawaii 96821
Business consultant since 1994; Senior Vice President of McCormack
Properties, Ltd., 1993-1994; President and Chief Executive of the
Hawaii Visitors Bureau, 1984-1993; Vice President, General Counsel
and Corporate Secretary at TheoDavies & Co., Ltd., a multiple
business company, 1973-1984; formerly Legislative Assistant to U.S.
Senator Hiram L. Fong; member of the Boards of Directors of several
community organizations; Trustee of Pacific Capital Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets Trust and Pacific
Capital U.S. Treasuries Cash Assets Trust since 1993; Trustee of
Pacific Capital Funds, which includes bond and stock funds, since
1993; Trustee of Nature Conservancy of Hawaii since 1990; Regent of
Chaminade University of Honolulu since 1990.
Theodore T. Mason, Trustee, 26 Circle Drive, Hastings-on-Hudson,
New York 10706
Managing Director of EastWind Power Partners, Ltd. since 1994;
Director of Cogeneration Development of Willamette Industries,
Inc., a forest products company, 1991-1993; Vice President of
Corporate Development of Penntech Papers, Inc., 1978-1991; Vice
President of Capital Projects for the same company, 1977-1978; Vice
Chairman of the Board of Trustees of CCMT since 1981; Trustee and
Vice President, 1976-1981, and formerly Director of its
predecessor; Director of STCM Management Company, Inc.; Vice
Chairman of the Board of Trustees and Trustee of Prime Cash Fund
since 1982; Trustee of Short Term Asset Reserves, 1984-1986 and
since 1989, of Pacific Capital Cash Assets Trust since 1984, of
Churchill Cash Reserves Trust since 1985, of Pacific Capital Tax-
Free Cash Assets Trust and Pacific Capital U.S. Treasuries Cash
Assets Trust since 1988 and of Churchill Tax-Free Fund of Kentucky
since 1992; Vice President and Trustee of Oxford Cash Management
Fund, 1983-1989; Vice President of Trinity Liquid Assets Trust,
1983-1985; President and Director of Ted Mason Venture Associates,
Inc., a venture capital consulting firm, 1972-1980; Advisor to the
Commander, U.S. Maritime Defense Zone Atlantic, 1984-1988; National
Vice President, Surface/Subsurface, Naval Reserve Association,
1985-1987; National Vice President, Budget and Finance, for the
same Association, 1983-1985; Commanding Officer of four Naval
Reserve Units, 1974-1985; Captain, USNR, 1978-1988.
Russell K. Okata, Trustee, 888 Mililani Street, Suite 601,
Honolulu, Hawaii 96813-298
Executive Director, Hawaii Government Employees Association AFSCME
Local 152, AFL-CIO; Trustee of Pacific Capital Cash Assets Trust,
Pacific Capital Tax-Free Cash Assets Trust and Pacific Capital U.S.
Treasuries Cash Assets Trust since 1993; Trustee of Pacific Capital
Funds, which includes bond and stock funds, since 1993; Chairman of
the Royal State Insurance Group since 1988; Trustee of several
charitable organizations.
Douglas Philpotts, Trustee, Financial Plaza of the Pacific, P.O.
Box 3170, Honolulu, Hawaii, 96802
Retired; Director of Hawaiian Trust Company, Limited since 1986,
Chairman of the Board, 1992-1994 and President, 1986-1992; Director
of Victoria Ward, Limited; Trustee of Pacific Capital Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets Trust and Pacific
Capital U.S. Treasuries Cash Assets Trust since 1992; Trustee of
Pacific Capital Funds, which includes bond and stock funds, since
1993; Trustee of the Strong Foundation; present or former director
or trustee of a number of civic and charitable organizations in
Hawaii.
Oswald K. Stender, Trustee, P.O. Box 3466, Honolulu, Hawaii 96801
Trustee of the Bernice Pauahi Bishop Estate since 1990; Director of
Hawaiian Electric Industries, Inc., a public utility holding
company, since 1993; Senior Advisor to the Trustees of The Estate
of James Campbell, 1987-1989 and Chief Executive Officer, 1976-
1988; Director of several housing and real estate associations;
Director, member or trustee of several community organizations;
Trustee of Pacific Capital Cash Assets Trust, Pacific Capital Tax-
Free Cash Assets Trust and Pacific Capital U.S. Treasuries Cash
Assets Trust since 1993; Trustee of Pacific Capital Funds, which
includes bond and stock funds, since 1993; Board Member, KBPS
Public Radio Foundation.
Thelma Chun-Hoon Zen, Trustee, 2231 Hyde Street, Honolulu, Hawaii
96822
Treasurer and Director of Chun-Hoon Properties, Ltd., real estate
property management, until 1986; Director of Chun-Hoon, Ltd. until
1985; Trustee of Pacific Capital Cash Assets Trust since 1984 and
of Pacific Capital Tax-Free Cash Assets Trust and Pacific Capital
U.S. Treasuries Cash Assets Trust since 1988; Trustee of Pacific
Capital Funds, which includes bond and stock funds, since 1993;
Trustee of Kuan Yin Temple since 1966; Trustee of Honolulu Academy
of Arts since 1978; Trustee of Queen's Medical Center since 1970;
Trustee of The Queen Emma Foundation since 1978; Trustee of Queen's
Health Systems since 1985; Trustee of Molokai General Hospital
since 1988.
Peter E. Russell, Founding Trustee Emeritus, 44-018 Aumoana Place,
Kaneohe, Hawaii 96744
Chairman of the Board, 1980-1984, and Chief Executive Officer,
1975-1984, of Hawaiian Trust Company, Limited; Trustee of Bernice
P. Bishop Museum; Trustee Emeritus of Pacific Capital Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets Trust and Pacific
Capital U.S. Treasuries Cash Assets Trust since 1992; Trustee of
those Trusts, 1984-1992; presently or formerly a director or
trustee of a number of civic and charitable organizations and
private companies in Hawaii.
Sherri Foster, Senior Vice President, c/o Kaanapali, Alii IV-702,
Nohea Kai Drive, Lahaina, Hawaii 96761
Vice President, 1988-1992 and Assistant Vice President, 1985-1988;
Assistant Vice President of Pacific Capital Cash Assets Trust since
1985 and of Pacific Capital Tax-Free Cash Assets Trust and Pacific
Capital U.S. Treasuries Cash Assets Trust since 1988; Registered
Representative of the Distributor since 1985; Realtor-Associate of
Sherrian Bender Realty, successor to John Wilson Enterprises, 1983-
1994; Executive Secretary of the Hyatt Regency, Maui, 1981-1983.
William C. Wallace, Senior Vice President, 380 Madison Avenue, New
York, New York 10017
Vice President of Capital Cash Management Trust and Pacific Capital
Cash Assets Trust since 1984; Vice President, 1984-1985; Senior
Vice President of Tax-Free Trust of Arizona since 1989 and Vice
President, 1986-1988; Vice President of Tax-Free Trust of Oregon
since 1986, of Churchill Tax-Free Fund of Kentucky and Tax-Free
Fund of Colorado since 1987, of Pacific Capital Tax-Free Cash
Assets Trust and Pacific Capital U.S. Treasuries Cash Assets Trust
since 1988 and of Narragansett Insured Tax-Free Income Fund since
1992; Secretary and Director of STCM Management Company, Inc. since
1974; President of the Distributor since 1995 and formerly Vice
President of the Distributor, 1986-1992; Member of the Panel of
Arbitrators, American Arbitration Association, since 1978;
Assistant Vice President, American Stock Exchange, Market
Development Division, and Director of Marketing, American Gold Coin
Exchange, a subsidiary of the American Stock Exchange, 1976-1984.
Rose F. Marotta, Chief Financial Officer, 380 Madison Avenue, New
York, New York 10017
Chief Financial Officer of the Money Funds and the Bond and Equity
Funds since 1991; Treasurer of the Money Funds and the Bond and
Equity Funds, 1981-1991; formerly Treasurer of the predecessor of
CCMT; Treasurer and Director of STCM Management Company, Inc.,
since 1974; Treasurer of Trinity Liquid Assets Trust, 1982-1986 and
of Oxford Cash Management Fund, 1982-1988; Treasurer of InCap
Management Corporation since 1982, of the Administrator since 1984
and of the Distributor since 1985.
Richard F. West, Treasurer, 380 Madison Avenue, New York, New York
10017
Treasurer of the Money Funds and the Bond and Equity Funds and of
Aquila Distributors, Inc. since 1992; Associate Director of Furman
Selz Incorporated, 1991-1992; Vice President of Scudder, Stevens &
Clark, Inc. and Treasurer of Scudder Institutional Funds, 1989-
1991; Vice President of Lazard Freres Institutional Funds Group,
Treasurer of Lazard Freres Group of Investment Companies and HT
Insight Funds, Inc., 1986-1988; Vice President of Lehman Management
Co., Inc. and Assistant Treasurer of Lehman Money Market Funds,
1981-1985; Controller of Seligman Group of Investment Companies,
1960-1980.
Edward M. W. Hines, Secretary, 551 Fifth Avenue, New York, New York
10176
Partner of Hollyer Brady Smith Troxell Barrett Rockett Hines & Mone
LLP, attorneys, since 1989 and counsel, 1987-1989; Secretary of the
Money Funds and the Bond and Equity Funds since 1982; Secretary of
Trinity Liquid Assets Trust, 1982-1985 and Trustee of that Trust,
1985-1986; Secretary of Oxford Cash Management Fund, 1982-1988.
John M. Herndon, Assistant Secretary, 380 Madison Avenue, New York,
New York 10017
Assistant Secretary of the Money Funds and the Bond and Equity
Funds since 1995; Vice President of the Money Funds since 1990;
Vice President of the Administrator since 1990; Investment Services
Consultant and Bank Services Executive of Wright Investors'
Service, a registered investment adviser, 1983-1989; Member of the
American Finance Association, the Western Finance Association and
the Society of Quantitative Analysts.
Patricia A. Craven, Assistant Secretary & Compliance Officer, 380
Madison Avenue, New York, New York 10017
Assistant Secretary of the Money Funds and the Bond and Equity
Funds since 1995; Counsel to the Administrator and the Distributor
since 1995; formerly a Legal Associate for Oppenheimer Management
Corporation, 1993-1995.
Compensation of Trustees
The Funds do not pay fees to Trustees affiliated with the
Administrator or Adviser or to any of the Fund's officers. During
the fiscal year ended March 31, 1995, the Trust paid $109,530
respectively in compensation and reimbursement of expenses to its
other Trustees. The Trust is one of the 14 funds in the Aquilasm
Group of Funds, which consist of tax-free municipal bond funds,
money market funds and an equity fund. The following tables list
the compensation of all Trustees who received compensation from the
Trust, the compensation each received during the Trust's fiscal
year from all funds in the Aquilasm Group of Funds and the number
of such funds. None of such Trustees has any pension or retirement
benefits from the Trust or any of the other funds in the Aquila
group.
<TABLE>
<CAPTION>
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee
Name Trust Group now serves
<S> <C> <C> <C>
Vernon R.
Alden $7,383 $33,591 7
Arthur K.
Carlson $7,967 $34,706 7
William M.
Cole $8,895 $27,842 5
Thomas W.
Courtney $8,080 $27,037 5
Richard W.
Gushman, II $8,050 $19,050 4
Stanley W.
Hong $9,258 $20,258 4
Theodore T.
Mason $8,310 $40,290 8
Russell K.
Okata $7,150 $19,492 4
Douglas
Philpotts $1,248 $1,877 4
Oswald K.
Stender $6,500 $17,250 4
Thelma Chun-
Hoon Zen $6,000 $13,750 4
Peter E.
Russell $2,500 $6,375 4
</TABLE>
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
Additional Information as to the Advisory Agreement
The Investment Advisory Agreement (the "Advisory Agreement")
between the Trust and Hawaiian Trust Company, Limited (the
"Adviser") contains the provisions described below, in addition to
those described in the Prospectus.
The Advisory Agreement may be terminated by the Adviser at any
time without penalty upon giving the Trust sixty days' written
notice, and may be terminated by the Trust at any time without
penalty upon giving the Adviser sixty days' written notice,
provided that such termination by the Trust shall be directed or
approved by the vote of a majority of all its Trustees in office at
the time or by the vote of the holders of a majority (as defined in
the 1940 Act) of its voting securities at the time outstanding and
entitled to vote; it automatically terminates in the event of its
assignment (as so defined).
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its obligations thereunder, the Adviser is not liable for any loss
sustained by the adoption of any investment policy or the purchase,
sale or retention of any security and permits the Adviser to act as
investment adviser for any other person, firm or corporation. The
Trust agrees to indemnify the Adviser to the full extent permitted
under the Trust's Declaration of Trust.
The Advisory Agreement states that it is agreed that the
Adviser shall have no responsibility or liability for the accuracy
or completeness of the Trust's Registration Statement under the
Securities Act of 1933 and the 1940 Act except for the information
supplied by the Adviser for inclusion therein.
The Advisory Agreement contains the following provisions as
to the Trust's portfolio transactions. In connection with its
duties to arrange for the purchase and sale of the Trust's
portfolio securities, the Adviser shall select such broker-dealers
("dealers") as shall, in the Adviser's judgment, implement the
policy of the Trust to achieve "best execution", i.e., prompt,
efficient and reliable execution of orders at the most favorable
net price. The Adviser shall cause the Trust to deal directly with
the selling or purchasing principal or market maker without
incurring brokerage commissions unless the Adviser determines that
better price or execution may be obtained by paying such
commissions; the Trust expects that most transactions will be
principal transactions at net prices and that the Trust will incur
little or no brokerage costs. The Trust understands that purchases
from underwriters include a commission or concession paid by the
issuer to the underwriter and that principal transactions placed
through dealers include a spread between the bid and asked price.
In allocating transactions to dealers, the Adviser is authorized to
consider, in determining whether a particular dealer will provide
best execution, the dealer's reliability, integrity, financial
condition and risk in positioning the securities involved, as well
as the difficulty of the transaction in question, and thus need not
pay the lowest spread or commission available if the Adviser
determines in good faith that the amount of commission is
reasonable in relation to the value of the brokerage and research
services provided by the dealer, viewed either in terms of the
particular transaction or the Adviser's overall responsibilities as
to the accounts as to which it exercises investment discretion. If,
on the foregoing basis, the transaction in question could be
allocated to two or more dealers, the Adviser is authorized, in
making such allocation, to consider (i) whether a dealer has
provided research services, as further discussed below; and (ii)
whether a dealer has sold shares of the Trust or any other
investment company or companies having the Adviser as its
investment adviser or having the same sub-adviser, Administrator or
principal underwriter as the Trust. Such research may be in written
form or through direct contact with individuals and may include
quotations on portfolio securities and information on particular
issuers and industries as well as on market, economic or
institutional activities. The Trust recognizes that no dollar value
can be placed on such research services or on execution services,
that such research services may or may not be useful to the Trust
and/or other accounts of the Adviser, and that research received by
such other accounts may or may not be useful to the Trust.
The Adviser has been advised by legal counsel that, in its
opinion, as a subsidiary of Bank of Hawaii, the Adviser is
permitted under current Federal banking laws to perform the
services for the Trust required by the Advisory Agreement, provided
that the Adviser remains in compliance with applicable statutes and
regulations. However, such counsel has pointed out that future
changes in federal or state statutes and regulations relating to
the permissible activities of bank and bank holding companies,
including their bank and non-bank subsidiaries, as well as future
judicial or administrative decisions and interpretations of present
and future statutes and regulations, might prevent the Adviser from
continuing to serve as the investment adviser to the Trust.
During the Trust's fiscal year ended March 31, 1995, all of
its transactions were principal transactions and no brokerage
commissions were paid.
For the three fiscal years ended March 31, 1995, 1994 and
1993, fees of $893,788, $903,787 and $809,803 respectively, were
paid and or accrued to the Adviser under the Advisory Agreement.
Additional Information as to the Administration Agreement
The Administration Agreement (the "Administration Agreement")
between Aquila Management Corporation, as Administrator, and the
Trust contains the provisions described below in addition to those
described in the Prospectus.
Subject to the control of the Trust's Board of Trustees, the
Administrator also provides all administrative services to the
Trust other than those relating to its investment portfolio and the
maintenance of its accounting books and records (see below for
discussion); as part of such duties, the Administrator (i) provides
office space, personnel, facilities, and equipment for the
performance of the following functions and for the maintenance of
the Trust's headquarters; (ii) oversees all relationships between
the Trust and its transfer agent, custodian, legal counsel,
auditors and principal underwriter, including the negotiation,
subject to the approval of the Trust's Board of Trustees, of
agreements in relation thereto, the supervision and coordination of
the performance of such agreements, and the overseeing of all
administrative matters which are necessary or desirable for
effective operation and for the sale, servicing, or redemption of
the Trust's shares; (iii) provides to the Adviser and to the Trust
statistical and other factual information and advice regarding
economic factors and trends, but does not generally furnish advice
or make recommendations regarding the purchase or sale of
securities; (iv) maintains the Trust's books and records (other
than accounting books and records), and prepares (or assists
counsel and auditors in the preparation of) all required proxy
statements, reports to shareholders and Trustees, reports to and
other filings with the Securities and Exchange Commission and any
other governmental agencies, and tax returns, and oversees the
Trust's insurance relationships; (v) prepares, on the Trust's
behalf and at its expense, such applications and reports as may be
necessary to register or maintain the Trust's registration or that
of its shares under the securities or "Blue-Sky" laws of all such
jurisdictions as may be required from time to time; and (vi)
responds to any inquiries or other communications from
shareholders and broker-dealers, or if any such inquiry or
communication is more properly to be responded to by the Trust's
shareholder servicing and transfer agent or distributor, oversees
such shareholder servicing and transfer agent's or distributor's
response thereto. Since the Trust pays its own legal and audit
expenses, to the extent that the Trust's counsel and accountants
prepare or assist in the preparation of prospectuses, proxy
statements and reports to shareholders, the costs of such
preparation or assistance are paid by the Trust.
The Administration Agreement may be terminated at any time
without penalty by the Administrator upon sixty days' written
notice to the Trust and the Adviser; it may be terminated by the
Trust at any time without penalty upon giving the Administrator
sixty days' written notice, provided that such termination by the
Trust shall be directed or approved by a vote of a majority of the
Trustees in office at the time, including a majority of the
Trustees who are not interested persons of the Trust. In either
case the notice provision may be waived.
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Administration Agreement provides that the Administrator
shall not be liable for any error in judgement or for any loss
suffered by the Trust in connection with the matters to which the
Administration Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence of the
Administrator in the performance of its duties, or from reckless
disregard by it of its obligations and duties under the
Administration Agreement. The Trust agrees to indemnify the
Administrator to the full extent permitted by the Declaration of
Trust.
For the three fiscal years ended March 31, 1995, 1994 and
1993, fees of $1,659,892, $1,678,461 and $1,512,583 respectively,
were paid and or accrued to Aquila Management Corporation under the
Administration Agreement.
Additional Information as to The Adviser, Administrator and
Distributor
The Adviser, the Administrator and the Distributor have
entered into non-binding principles of cooperation, with the
approval of the Board of Trustees, pursuant to which they have
agreed to cooperate with each other in coordinating the services
that they respectively provide to the Trust, to refrain from taking
any actions to remove each other from their respective positions
and to continue in those positions on terms at least as favorable
as at present. The parties have also agreed to consult with each
other with respect to suggested nominations to the Board of
Trustees, recognizing that ultimate selection of nominees as
"Independent Trustees" within the meaning of the Trust's
Distribution Plan is to be made by the Independent Trustees, (See
"Distribution Plan," above.) The principles apply as well to
Pacific Capital Cash Assets Trust, Pacific Capital Tax-Free Cash
Assets Trust and Pacific Capital U.S. Treasuries Cash Assets Trust.
In addition, the Trust has entered into separate agreements with
the Adviser, the Administrator and the Distributor under which the
service providers have respectively agreed that so long as they
each hold those positions with the Trust, and for a period of two
years thereafter they will not serve in the same capacity for any
mutual fund with the same objectives as the Trust under the
circumstances described in those agreements.
COMPUTATION OF NET ASSET VALUE
The net asset value of the Trust's shares is determined as of
4:00 p.m., New York time, on each day that the New York Stock
Exchange is open, by dividing the value of the Trust's net assets
by the total number of its shares then outstanding. However,
Futures and options on them are valued at the last sales price on
the principal commodities exchange on which the Future or option is
traded or, if there are no sales, at the mean between the bid and
asked prices as of the close of that exchange; such close may be
later than 4:00 p.m., New York time. Securities having a remaining
maturity of less than sixty days when purchased and securities
originally purchased with maturities in excess of sixty days but
which currently have maturities of sixty days or less are valued at
cost adjusted for amortization of premiums and accretion of
discounts. All other portfolio securities are valued at the mean
between bid and asked quotations which, for Hawaiian Obligations,
may be obtained from a reputable pricing service or from one or
more broker-dealers dealing in Hawaiian Obligations either of which
may, in turn, obtain quotations from broker-dealers or banks which
deal in specific issues. However, since Hawaiian Obligations are
ordinarily purchased and sold on a "yield" basis by banks or
dealers which act for their own account and do not ordinarily make
continuous offerings, quotations obtained from such sources may be
subject to greater fluctuations than is warranted by prevailing
market conditions. Accordingly, some or all of the Hawaiian
Obligations in the Trust's portfolio may be priced, with the
approval of the Trust's Board of Trustees, by differential
comparisons to the market in other municipal bonds under methods
which include consideration of the current market value of tax-free
debt instruments having varying characteristics of quality, yield
and maturity. Any securities or assets for which market quotations
are not readily available are valued at their fair value as
determined in good faith under procedures established by and under
the general supervision and responsibility of the Trust's Board of
Trustees. In the case of Hawaiian Obligations, such procedures may
include "matrix" comparisons to the prices for other tax-free debt
instruments on the basis of the comparability of their quality,
yield, maturity and other special factors, if any, involved. With
the approval of the Trust's Board of Trustees, the Adviser may at
its own expense and without reimbursement from the Trust employ a
pricing service, bank or broker-dealer experienced in such matters
to perform any of the above described functions.
As indicated above, the net asset value per share of the
Trust's shares will be determined on each day that the New York
Stock Exchange is open. That Exchange annually announces the days
on which it will not be open. The most recent announcement
indicates that it will not be open on the following days: New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, that Exchange may close on days not included in that
announcement.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a number
of instances in which the Trust's shares are sold or issued on a
basis other than the maximum public offering price, that is, the
net asset value plus the highest sales charge. Some of these relate
to lower or eliminated sales charges for larger purchases, whether
made at one time or over a period of time as under a Letter of
Intent or right of accumulation. (See the table of sales charges in
the Prospectus.) The reasons for these quantity discounts are, in
general, that (i) they are traditional and have long been permitted
in the industry and are therefore necessary to meet competition as
to sales of shares of other funds having such discounts; and (ii)
they are designed to avoid an unduly large dollar amount of sales
charge on substantial purchases in view of reduced selling
expenses. Quantity discounts are made available to certain related
persons ("single purchasers") for reasons of family unity and to
provide a benefit to tax-exempt plans and organizations.
The reasons for the other instances in which there are reduced
or eliminated sales charges are as follows. Exchanges at net asset
value are permitted because a sales charge has already been paid on
the shares exchanged. Sales without sales charge are permitted to
Trustees, officers and certain others due to reduced or eliminated
selling expenses and/or since such sales may encourage incentive,
responsibility and interest and an identification with the aims and
policies of the Trust. Limited reinvestments of redemptions at no
sales charge are permitted to attempt to protect against mistaken
or incompletely informed redemption decisions. Shares may be issued
at no sales charge in plans of reorganization due to reduced or
eliminated sales expenses and since, in some cases, such issuance
is exempted in the 1940 Act from the otherwise applicable
restrictions as to what sales charge must be imposed. In no case in
which there is a reduced or eliminated sales charge are the
interests of existing shareholders adversely affected since, in
each case, the Trust receives the net asset value per share of all
shares sold or issued.
AUTOMATIC WITHDRAWAL PLAN
Any shareholder who owns or purchases shares of the Trust
having a net asset value of at least $5,000 may establish an
Automatic Withdrawal Plan under which he or she will receive a
monthly or quarterly check in a stated amount, not less than $50.
Stock certificates will not be issued for shares held under an
Automatic Withdrawal Plan. All dividends and distributions must be
reinvested. Shares will be redeemed on the last business day of the
month or quarter as may be necessary to meet withdrawal payments.
Redemption of shares for withdrawal purposes may reduce or
even liquidate the account. Monthly or quarterly payments paid to
shareholders may not be considered as a yield or income on
investment.
ADDITIONAL TAX INFORMATION
Any investor who incurs a sales commission on purchase shares
of one mutual fund (the original fund) and who then sells such
shares or exchanges them for shares of a different mutual fund
without having held them at least 91 days must reduce his tax basis
for the shares sold or exchanged to the extent that the standard
sales commission charged for acquiring shares in the exchange or
later acquiring shares of the original fund or another fund is
reduced because of the shareholder's having owned the original fund
shares. The effect of the rule is to increase the investor's gain
or reduce his or her loss on the original fund shares. The amount
of the basis reduction on the original fund shares, however, is
added on the investor's basis for the fund shares acquired in the
exchange or later acquired. The provision applies to commissions
charged after October 3, 1989.
GENERAL INFORMATION
Possible Additional Series
If additional Series (as discussed in the Prospectus) were
created by the Board of Trustees, shares of each such Series would
be entitled to vote as a Series only to the extent permitted by the
1940 Act (see below) or as permitted by the Board of Trustees.
Income and operating expenses would be allocated among two or more
series in a manner acceptable to the Board of Trustees.
Under Rule 18f-2 under the 1940 Act, any matter required to be
submitted to shareholder vote is not deemed to have been
effectively acted upon unless approved by the holders of a
"majority" (as defined in that Rule) of the voting securities of
each Series affected by the matter. Such separate voting
requirements do not apply to the election of trustees or the
ratification of the selection of accountants. Rule 18f-2 contains
special provisions for cases in which an advisory contract is
approved by one or more, but not all, Series. A change in
investment policy may go into effect as to one or more Series whose
holders so approve the change even though the required vote is not
obtained as to the holders of other affected Series.
Indemnification of Shareholders and Trustees
Under Massachusetts law, shareholders of a trust such as the
Trust may, under certain circumstances, be held personally liable
as partners for the obligations of the Trust. For shareholder
protection, however, an express disclaimer of shareholder liability
for acts or obligations of the Trust is contained in the
Declaration of Trust which requires that notice of such disclaimer
be given in each agreement, obligation, or instrument entered into
or executed by the Trust or the Trustees. The Declaration of Trust
provides for indemnification out of the Trust's property of any
shareholder held personally liable for the obligations of the
Trust. The Declaration of Trust also provides that the Trust shall,
upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
the relatively remote circumstances in which the Trust itself would
be unable to meet its obligations. In the event the Trust had two
or more Series, and if any such Series were to be unable to meet
the obligations attributable to it (which, as is the case with the
Trust, is relatively remote), the other Series would be subject to
such obligations, with corresponding increase in the risk of the
shareholder liability mentioned in the prior sentence.
The Declaration of Trust further indemnifies the Trustees of
the Trust out of the property of the Trust and provides that they
will not be liable for errors of judgment or mistakes of fact or
law; but nothing in the Declaration of Trust protects a Trustee
against any liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his
office.
Custodian and Auditors
The Trust's Custodian, Bank One Trust Company, N.A., is
responsible the Trust's assets.
The Trust's auditors, KPMG Peat Marwick LLP, perform an annual
audit of the Trust's financial statements.
The financial statements of the Trust for the fiscal year
ended March 31, 1995, which are contained in the Annual Report for
that fiscal year, are hereby incorporated by reference into the
Additional Statement. Those financial statements have been audited
by KPMG Peat Marwick LLP, independent auditors, whose report
thereon is incorporated herein by reference. The financial
statements of the Trust for the six months ended December 31, 1995,
which are contained in the Semi-Annual Report for that period, are
hereby incorporated by reference into the Additional Statement. The
financial statements of the Trust for the six months ended
September 30, 1995 are unaudited.
Underwriting Commissions
During the Trust's fiscal year ended March 31, 1995 the
aggregate dollar amount of sales charges on sales of shares of the
Trust was $1,309,406 and the amount retained by the Distributor was
$114,433.
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND AND COMMERCIAL PAPER RATINGS
Municipal Bond Ratings
Standard & Poor's. A Standard & Poor's municipal obligation
rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment may
take into consideration obligors such as guarantors, insurers or
lessees.
The debt rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market price
or suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit in
connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and
repayment of principal in accordance with the terms of
the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization
or other arrangement under the laws of bankruptcy and
other laws affecting creditors rights.
AAA Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the
highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest
and repay principal although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category
than in higher rated categories.
Plus (+) or Minus (:): The ratings from "AA" to "B" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating
is provisional. A provisional rating assumes the successful
completion of the project being financed by the debt being rated
and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of
the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
Standard and Poor's ratings for municipal note issues are
designated SP in order to help investors distinguish more clearly
the credit quality of notes as compared to bonds. Notes bearing the
designation SP-1 are deemed very strong or to have strong capacity
to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics will be given a plus (+)
designation. Notes bearing the designation SP-2 are deemed to have
a satisfactory capacity to pay principal and interest.
Moody's Investors Service. A brief description of the
applicable Moody's Investors Service rating symbols and their
meanings follows:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium
grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated
by the symbols Aa1, A1, Baa1, Ba1 and B1.
Moody's Short Term Loan Ratings - There are four rating
categories for short-term obligations, all of which define an
investment grade situation. These are designated Moody's Investment
Grade as MIG 1 through MIG 4. In the case of variable rate demand
obligations (VRDOs), two ratings are assigned; one representing an
evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other representing an
evaluation of the degree of risk associated with the demand
feature. The short-term rating assigned to the demand feature of
VRDOs is designated as VMIG. When no rating is applied to the long
or short-term aspect of a VRDO, it will be designated NR. Issues or
the features associated with MIG or VMIG ratings are identified by
date of issue, date of maturity or maturities or rating expiration
date and description to distinguish each rating from other ratings.
Each rating designation is unique with no implication as to any
other similar issue of the same obligor. MIG ratings terminate at
the retirement of the obligation while VMIG rating expiration will
be a function of each issuer's specific structural or credit
features.
MIG1/VMIG1 This designation denotes best quality. There
is present strong protection by established
cash flows, superior liquidity support or
demonstrated broad-based access to the market
for refinancing.
MIG2/VMIG2 This designation denotes high quality.
Margins of protection are ample although not
so large as in the preceding group.
MIG3/VMIG3 This designation denotes favorable quality.
All security elements are accounted for but
there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow
protection may be narrow and market access
for refinancing is likely to be less well
established.
MIG4/VMIG4 This designation denotes adequate quality.
Protection commonly regarded as required of
an investment security is present and
although not distinctly or predominantly
speculative, there is specific risk.
Commercial Paper Ratings
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations. Moody's
employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of
rated issuers: Prime 1 -- Highest Quality; Prime 2 -- Higher
Quality; Prime 3 -- High Quality.
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment. Ratings are graded
into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as having
the greatest capacity for timely payment. Issues in this category
are designed with the numbers 1, 2 and 3 to indicate the relative
degree of safety. The designation A-1 indicates that the degree of
safety regarding timely payment is either overwhelming or very
strong. A "+" designation is applied to those issues rated "A-1"
which possess safety characteristics. Capacity for timely payment
on issues with the designation A-2 is strong. However, the
relative degree of safety is not as high as for issues designated
A-1. Issues carrying the designation A-3 have a satisfactory
capacity for timely payment. They are, however, somewhat more
vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations.
<PAGE>
INVESTMENT ADVISER
Hawaiian Trust Company, Limited
Financial Plaza of the Pacific
P.O. Box 3170
Honolulu, Hawaii 96802
ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Arthur K. Carlson
William M. Cole
Thomas W. Courtney
Richard W. Gushman, II
Stanley W. Hong
Theodore T. Mason
Russell K. Okata
Douglas Philpotts
Oswald K. Stender
Thelma Chun-Hoon Zen
Peter E. Russell, Founding Trustee Emeritus
OFFICERS
Lacy B. Herrmann, President
Sherri Foster, Senior Vice President
William C. Wallace, Senior Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, 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
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1104
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
HAWAIIAN
TAX-FREE TRUST
A tax-free
income investment
[LOGO]
STATEMENT OF
ADDITIONAL
INFORMATION
[LOGO]
One Of The
Aquilasm Group Of Funds
<PAGE>
HAWAIIAN TAX-FREE TRUST
PART C: OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Per Share Income and Capital Changes
Incorporated by reference into Part B:
Report of Independent Certified Public
Accountants
Statement of Assets and Liabilities as of
March 31, 1995
Statement of Operations for the year ended
March 31, 1995
Statement of Changes in Net Assets for the
years ended March 31, 1995 and 1994
Statement of Investments as of March 31, 1995
Notes to Financial Statements
Statement of Assets and Liabilities as of
September 30, 1995 (unaudited)
Statement of Operations for the six months
ended September 30, 1995 (unaudited)
Statement of Changes in Net Assets for the
six months ended September 30, 1995 and for
the year ended March 31, 1995 (unaudited)
Statement of Investments as of
September 30, 1995 (unaudited)
Notes to Financial Statements
Included in Part C:
Consent of Independent Certified Public
Accountants
(b) Exhibits:
(1) (a) Amended & Restated Declaration of Trust (v)
(b) Supplemental Declaration of Trust (ix)
(2) By-laws (i)
(3) Not applicable
(4) Specimen share certificate (i)
(5) Investment Advisory Agreement (xi)
(6) (a) Distribution Agreement (v)
(b) Sales Agreement (for brokerage firms) (vi)
(c) Sales Agreement (for financial insti-
tutions (vi)
(d) Sales Agreement (for investment advi-
sers) (viii)
(e) Group Sales Agreement (viii)
(f) Related Agreement (vii)
(7) Not applicable
(8) Custody Agreement (x)
(9) (a) Transfer Agency Agreement (iv)
(b) Administration Agreement (xi)
(c) Agreement between the Trust and Aquila
Distributors, Inc. (viii)
(d) Agreement between the Trust and Aquila
Management Corporation (viii)
(e) Agreement between the Trust and
Hawaiian Trust Company, Limited (viii)
(10) Opinion and consent of counsel (ii)
(11) Not applicable
(12) Not applicable
(13) Agreement with initial shareholder (ii)
(14) Not applicable
(15) Distribution Plan (vii)
(16) Schedule for computation of performance
quotations (x)
(17) Principles of Cooperation (viii)
(i) Filed as an exhibit to Registrant's Pre-Effective
Amendment No. 1 dated December 21, 1984 and incorpo-
rated herein by reference.
(ii) Filed as an exhibit to Registrant's Pre-Effective
Amendment No. 2 dated February 4, 1985 and incorpo-
rated herein by reference.
(iii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 2 dated July 11, 1986 and incorporated
herein by reference.
(iv) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 5 dated July 31, 1989 and incorporated
herein by reference.
(v) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 6 dated June 1, 1990 and incorporated
herein by reference.
(vi) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 7 dated July 26, 1991 and incorporated
herein by reference.
(vii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 8 dated June 1, 1992 and incorporated
herein by reference.
(viii)Filed as an exhibit to Registrant's Post-Effective
Amendment No. 9 dated June 30, 1993 and incorporated
herein by reference.
(ix) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 10 dated July 26, 1994 and incorporated
herein by reference.
(x) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 11 dated July 26, 1995 and incorporated
herein by reference.
(xi) Filed herewith.
ITEM 25. Persons Controlled By or Under Common Control with
Registrant
None
ITEM 26. Number of Holders of Securities
As of June 30, 1995, Registrant had 13,460 holders
of record of its shares.
ITEM 27. Indemnification
Subdivision (c) of Section 12 of Article SEVENTH of
Registrant's Amended and Restated Declaration of
Trust, filed as Exhibit 1 to Registrant's Post-
Effective Amendment No. 6 dated June 1, 1990, is
incorporated herein by reference.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted
to Trustees, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in that Act and is, therefore, unenforce-
able. In the event that a claim for indemnifica-
tion against such liabilities (other than the pay-
ment by Registrant of expenses incurred or paid by
a Trustee, officer, or controlling person of Regis-
trant in the successful defense of any action,
suit, or proceeding) is asserted by such Trustee,
officer, or controlling person in connection with
the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether such indemnification by it is against pub-
lic policy as expressed in the Act and will be go-
verned by the final adjudication of such issue.
ITEM 28. Business and Other Connections of Investment
Adviser
Hawaiian Trust Company, Limited, Registrant's
investment adviser, is a trust company. Hawaiian
Trust Company, Limited is a subsidiary of Bank of
Hawaii. Bank of Hawaii is a state-chartered bank.
Bank of Hawaii is a subsidiary of Bancorp Hawaii,
Inc. Bancorp Hawaii, Inc. is a bank holding com-
pany.
ITEM 29. Principal Underwriters
(a) Aquila Distributors, Inc. serves as principal un-
derwriter to Aquila Rocky Mountain Equity Fund,
Capital Cash Management Trust,
Churchill Cash Reserves Trust, Churchill Tax-Free
Fund of Kentucky, Narragansett Insured Tax-Free In-
come Fund, Pacific Capital Cash Assets Trust, Pa-
cific Capital Tax-Free Cash Assets Trust, Pacific
Capital U.S. Treasuries Cash Assets Trust, Prime
Cash Fund, Short Term Asset Reserves, Tax-Free Fund
For Utah, Tax-Free Fund of Colorado, Tax-Free Trust
of Arizona, and Tax-Free Trust of Oregon, in addi-
tion to serving as Registrant's principal underwri-
ter.
(b) For information about the Directors and officers of
Aquila Distributors, Inc., reference is made to the
Form BD filed by it under the Securities Exchange
Act of 1934.
(c) Not applicable.
ITEM 30. Locations of Accounts and Records
All such accounts, books, and other documents are
maintained by the adviser, the administrator, the
custodian, and the transfer agent, whose addresses
appear on the back cover pages of the Prospectus
and Statement of Additional Information.
ITEM 31. Management Services
Not applicable.
ITEM 32. Undertakings
(a) Not applicable.
(b) Not applicable.
<PAGE>
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
Independent Auditors' Consent
To the Trustees and Shareholders of
Hawaiian Tax-Free Trust:
We consent to the use of our report dated May 12, 1995
incorporated herein by reference and to the reference to our firm
under the heading "Financial Highlights" in the Prospectus.
New York, New York KPMG Peat Marwick LLP
January 24, 1996 /s/KPMG Peat Marwick LLP
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly
caused this Registration Statement or Amendment to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York, on the 25th day of
January, 1996.
HAWAIIAN TAX-FREE TRUST
(Registrant)
By /s/Lacy B. Herrmann
-----------------------
Lacy B. Herrmann, President
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement or Amendment has been signed below by
the following persons in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
/s/Lacy B. Herrmann 1/25/96
- ---------------------- President, Chairman of -----------
Lacy B. Herrmann the Board and Trustee
(Principal Executive
Officer)
/s/Vernon Alden 1/25/96
- ---------------------- Trustee -----------
Vernon Alden
/s/Arthur K. Carlson 1/25/96
- ---------------------- Trustee -----------
Arthur K. Carlson
/s/William M. Cole 1/25/96
- ---------------------- Trustee -----------
William M. Cole
/s/Thomas W. Courtney 1/25/96
- ---------------------- Trustee -----------
Thomas W. Courtney
/s/Richard W. Gushman 1/25/96
- ---------------------- Trustee -----------
Richard W. Gushman, II
/s/Stanley W. Hong 1/25/96
- ---------------------- Trustee -----------
Stanley W. Hong
/s/Theodore T. Mason 1/25/96
- ---------------------- Trustee -----------
Theodore T. Mason
/s/Russell K. Okata 1/25/96
- ---------------------- Trustee -----------
Russell K. Okata
/s/Douglas Philpotts 1/25/96
- ---------------------- Trustee -----------
Douglas Philpotts
/s/Oswald K. Stender 1/25/96
- ---------------------- Trustee -----------
Oswald K. Stender
- ---------------------- Trustee -----------
Thelma Chun-Hoon Zen
/s/Rose F. Marotta 1/25/96
- ---------------------- Chief Financial Officer -----------
Rose F. Marotta (Principal Financial and
Accounting Officer)
<PAGE>
HAWAIIAN TAX-FREE TRUST
EXHIBIT INDEX
Exhibit Exhibit Page
Number Name Number
5 Investment Advisory Agreement
9b Administration Agreement
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT, made October 30, 1995 by and
between Hawaiian Tax-Free Trust (the "Trust"), a Massachusetts
business trust, 380 Madison Avenue, Suite 2300, New York, New York
10017, and Hawaiian Trust Company, Limited (the "Adviser"),
Financial Plaza of the Pacific, P.O. Box 3170, Honolulu, Hawaii
96802,
W I T N E S S E T H :
WHEREAS, the Trust and the Adviser have previously
entered into an investment advisory agreement; and
WHEREAS, the Trust and the Adviser now wish to amend
and restate their agreement as herein set forth, referred to
hereafter as "this Agreement";
NOW THEREFORE, in consideration of the mutual
promises and agreements herein contained and other good and
valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. In General
The Adviser agrees, all as more fully set forth
herein, to act as managerial investment adviser to the Trust with
respect to the investment of the Trust's assets, and to supervise
and arrange the purchase of securities for and the sale of
securities held in the portfolio of the Trust.
2. Duties and Obligations of the Adviser With Respect To
Investment of the Assets of the Trust
(a) Subject to the succeeding provisions of
this section and subject to the direction and control of the
Board of Trustees of the Trust, the Adviser shall:
(i) Supervise continuously the investment
program of the Trust and the composition of
its portfolio;
(ii) Determine what securities shall be
purchased or sold by the Trust;
(iii) Arrange for the purchase and the sale
of securities held in the portfolio of the
Trust; and
(iv) Either keep the accounting records of
the Trust, including the computation of net
asset value per share and the dividends or,
at its expense and responsibility, delegate
such duties in whole or in part to a company
satisfactory to the Trust.
(b) Any investment program furnished by the
Adviser under this section shall at all times conform to, and be
in accordance with, any requirements imposed by: (1) the
Investment Company Act of l940 (the "Act") and any rules or
regulations in force thereunder; (2) any other applicable laws,
rules and regulations; (3) the Declaration of Trust and By-Laws
of the Trust as amended from time to time; (4) any policies and
determinations of the Board of Trustees of the Trust; and (5) the
fundamental policies of the Trust, as reflected in its
registration statement under the Act or as amended by the
shareholders of the Trust.
(c) The Adviser shall give the Trust the
benefit of its best judgment and effort in rendering services
hereunder, but the Adviser shall not be liable for any loss
sustained by reason of the adoption of any investment policy or
the purchase, sale or retention of any security, whether or not
such purchase, sale or retention shall have been based upon (i)
its own investigation and research or (ii) investigation and
research made by any other individual, firm or corporation, if
such purchase, sale or retention shall have been made and such
other individual, firm or corporation shall have been selected in
good faith by the Adviser. Nothing herein contained shall,
however, be construed to protect the Adviser against any
liability to the Trust or its security holders by reason of
willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard
of its obligations and duties under this Agreement.
(d) Nothing in this Agreement shall prevent
the Adviser or any affiliated person (as defined in the Act) of
the Adviser from acting as investment adviser or manager for any
other person, firm or corporation and shall not in any way limit
or restrict the Adviser or any such affiliated person from
buying, selling or trading any securities for its own or their
own accounts or for the accounts of others for whom it or they
may be acting, provided, however, that the Adviser expressly
represents that it will undertake no activities which, in its
judgment, will adversely affect the performance of its
obligations to the Trust under this Agreement. It is agreed that
the Adviser shall have no responsibility or liability for the
accuracy or completeness of the Trust's Registration Statement
under the Act and the Securities Act of 1933, except for
information supplied by the Adviser for inclusion therein. The
Adviser shall promptly inform the Trust as to any information
concerning the Adviser appropriate for inclusion in such
Registration Statement, or as to any transaction or proposed
transaction which might result in an assignment of the Agreement.
The Trust agrees to indemnify the Adviser to the full extent
permitted by the Trust's Declaration of Trust.
(e) In connection with its duties to arrange
for the purchase and sale of the Trust's portfolio securities,
the Adviser shall select such broker-dealers ("dealers") as
shall, in the Adviser's judgment, implement the policy of the
Trust to achieve "best execution," i.e., prompt, efficient, and
reliable execution of orders at the most favorable net price.
The Adviser shall cause the Trust to deal directly with the
selling or purchasing principal or market maker without incurring
brokerage commissions unless the Adviser determines that better
price or execution may be obtained by paying such commissions;
the Trust expects that most transactions will be principal
transactions at net prices and that the Trust will incur little
or no brokerage costs. The Trust understands that purchases from
underwriters include a commission or concession paid by the
issuer to the underwriter and that principal transactions placed
through dealers include a spread between the bid and asked
prices. In allocating transactions to dealers, the Adviser is
authorized to consider, in determining whether a particular
dealer will provide best execution, the dealer's reliability,
integrity, financial condition and risk in positioning the
securities involved, as well as the difficulty of the transaction
in question, and thus need not pay the lowest spread or
commission available if the Adviser determines in good faith that
the amount of commission is reasonable in relation to the value
of the brokerage and research services provided by the dealer,
viewed either in terms of the particular transaction or the
Adviser's overall responsibilities as to the accounts as to which
it exercises investment discretion. If, on the foregoing basis,
the transaction in question could be allocated to two or more
dealers, the Adviser is authorized, in making such allocation, to
consider (i) whether a dealer has provided research services, as
further discussed below; and (ii) whether a dealer has sold
shares of the Trust or any other investment company or companies
having the Adviser as its investment adviser or having the same
sub-adviser, administrator or principal underwriter as the Trust.
Such research may be in written form or through direct contact
with individuals and may include quotations on portfolio
securities and information on particular issuers and industries,
as well as on market, economic, or institutional activities. The
Trust recognizes that no dollar value can be placed on such
research services or on execution services, that such research
services may or may not be useful to the Trust and/or other
accounts of the Adviser, and that research received by such other
accounts may or may not be useful to the Trust.
3. Allocation of Expenses
The Adviser agrees that it will furnish the Trust,
at the Adviser's expense, all office space, facilities, equipment
and clerical personnel necessary for carrying out its duties
under this Agreement. The Adviser agrees that it will supply, or
cause to be supplied, to any sub-adviser, administrator or
principal underwriter of the Trust all necessary financial
information in connection with such sub-adviser's,
administrator's or principal underwriter's duties under any
agreement between such sub-adviser, administrator or principal
underwriter and the Trust. The Adviser will also pay all
compensation of the Trust's officers, employees, and Trustees, if
any, who are affiliated persons of the Adviser, provided,
however, that if any Trustee is an affiliate of the Adviser
solely by reason of being a member of its Board of Directors, the
Trust may pay compensation to such Trustee, but at a rate no
greater than that it pays to its other Trustees. The Trust
agrees to bear the costs of preparing and setting in type its
prospectuses, statements of additional information and reports to
its shareholders, and the costs of printing or otherwise
producing and distributing those copies of such prospectuses,
statements of additional information and reports as are sent to
its shareholders. All costs and expenses not expressly assumed
by the Adviser under this Agreement or by such sub-adviser,
administrator or principal underwriter shall be paid by the
Trust, including, but not limited to (i) interest and taxes; (ii)
brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of its Trustees other than those
affiliated with the Adviser or such sub-adviser, administrator or
principal underwriter; (v) legal and audit expenses; (vi)
custodian and transfer agent, or shareholder servicing agent,
fees and expenses; (vii) expenses incident to the issuance of its
shares (including issuance on the payment of, or reinvestment of,
dividends); (viii) fees and expenses incident to the registration
under Federal or State securities laws of the Trust or its
shares; (ix) expenses of preparing, printing and mailing reports
and notices and proxy material to shareholders of the Trust; (x)
all other expenses incidental to holding meetings of the Trust's
shareholders; and (xi) such non-recurring expenses as may arise,
including litigation affecting the Trust and the legal
obligations for which the Trust may have to indemnify its
officers and Trustees.
4. Compensation of the Adviser
(a) The Trust agrees to pay the Adviser, and
the Adviser agrees to accept as full compensation all services
rendered by the Adviser as such, an annual management fee payable
monthly and computed on the net asset value of the Trust as of
the close of business each business day at the annual rate of .19
of 1% of such net asset value, provided, however, that for any
day that the Trust pays or accrues a fee under the Distribution
Plan of the Trust based upon the assets of the Trust, the annual
management fee shall be payable at the annual rate of .14 of 1%
of such net asset value.
(b) The Adviser agrees that the fee under (a)
above shall be reduced, but not below zero, by an amount equal to
its pro-rata portion (based upon the aggregate fees of the
Adviser and the Administrator) of the amount, if any, by which
the total expenses of the Trust in any fiscal year, exclusive of
taxes, interest, and brokerage fees, shall exceed the lesser of
(i) 2.5% of the first $30 million of average annual net assets of
the Trust plus 2% of the next $70 million of such net assets of
the Trust plus 1.5% of its average annual net assets in excess of
$100 million, or (ii) 25% of the Trust's total annual investment
income. The payment of the fee under (a) above at the end of any
month will be reduced or postponed so that at no time will there
be any accrued but unpaid liability under this expense
limitation, subject to readjustment during the year.
5. Duration and Termination
(a) This Amended and Restated Investment
Advisory Agreement shall become effective upon approval by the
shareholders of the Trust and shall, unless terminated as
hereinafter provided, continue in effect until the June 30 next
preceding the second anniversary of the effective date of this
Agreement, and from year to year thereafter, but only so long as
such continuance is specifically approved at least annually (1)
by a vote of the Trust's Board of Trustees, including a vote of a
majority of the Trustees who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party,
with votes cast in person at a meeting called for the purpose of
voting on such approval, or (2) by a vote of the holders of a
"majority" (as so defined) of the outstanding voting securities
of the Trust and by such a vote of the Trustees.
(b) This Agreement may be terminated by the
Adviser at any time without penalty upon giving the Trust sixty
days' written notice (which notice may be waived by the Trust)
and may be terminated by the Trust at any time without penalty
upon giving the Adviser sixty days' written notice (which notice
may be waived by the Adviser), provided that such termination by
the Trust shall be directed or approved by a vote of a majority
of its Trustees in office at the time or by a vote of the holders
of a majority (as defined in the Act) of the voting securities of
the Trust outstanding and entitled to vote. This Agreement shall
automatically terminate in the event of its assignment (as
defined in the Act).
6. Disclaimer of Shareholder Liability
The Adviser understands that the obligations
of this Agreement are not binding upon any shareholder of the
Trust personally, but bind only the Trust's property; the Adviser
represents that it has notice of the provisions of the Trust's
Declaration of Trust disclaiming shareholder liability for acts
or obligations of the Trust.
7. Notices of Meetings
The Trust agrees that notice of each meeting
of the Board of Trustees of the Trust will be sent to the Adviser
and that the Trust will make appropriate arrangements for the
attendance (as persons present by invitation) of such person or
persons as the Adviser may designate.
IN WITNESS WHEREOF, the parties hereto have
caused the foregoing instrument to be executed by their duly
authorized officers and their seals to be hereunto affixed, all
as of the day and year first above written.
ATTEST: Hawaiian Tax-Free Trust
________________________ By:___________________________________
William C. Wallace
Assistant Secretary Senior Vice President
ATTEST: Hawaiian Trust Company, Limited
________________________ By:___________________________________
AMENDED AND RESTATED ADMINISTRATION AGREEMENT
THIS AGREEMENT, made the 30th day of October, 1995, by and
between Hawaiian Tax-Free Trust (the "Trust"), a Massachusetts
business Trust, 380 Madison Avenue, Suite 2300, New York, New
York 10017 and Aquila Management Corporation (the
"Administrator"), a New York corporation, 380 Madison Avenue,
Suite 2300, New York, New York 10017
W I T N E S S E T H
WHEREAS, the Trust and the Administrator wish to amend the
Administration Agreement between them dated October 24, 1989 so
that it shall be as herein set forth (referred to hereafter as
"this Agreement");
NOW THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. In General.
The Administrator shall perform (at its own expense) the
functions set forth more fully herein for the Trust and for the
investment adviser for the Trust (the "Adviser").
2. Duties and Obligations of the Adviser and Administrator to
the Trust and to Each Other.
(a) Subject to the succeeding provisions of this section and
subject to the direction and control of the Board of Trustees of
the Trust, the Administrator shall provide all administrative
services to the Trust other than those services relating to the
investment portfolio of the Trust and the maintenance of its
accounting books and records; as part of such duties, the
Administrator shall:
(i) provide office space, personnel, facilities and
equipment for the performance of the following functions and
for the maintenance of the headquarters of the Trust;
(ii) oversee all relationships between the Trust and its
transfer agent, custodian, legal counsel, auditors and
principal underwriter, including the negotiation of
agreements in relation thereto, the supervision and
coordination of the performance of such agreements, and the
overseeing of all administrative matters which are necessary
or desirable for the effective operation of the Trust and
for the sale, servicing or redemption of the Trust's shares;
(iii) provide to the Adviser and the Trust statistical and
other factual information and advice regarding economic
factors and trends, but shall not generally furnish advice
or make recommendations regarding the purchase or sale of
securities;
(iv) maintain the Trust's books and records (other than
accounting books and records), and prepare (or assist
counsel and auditors in the preparation of) all required
proxy statements, reports to the Trust's shareholders and
Trustees, reports to and other filings with the Securities
and Exchange Commission and any other governmental agencies,
and tax returns, and oversee the insurance relationships of
the Trust;
(v) prepare, on behalf of the Trust and at the Trust's
expense, such applications and reports as may be necessary
to register or maintain the registration of the Trust and/or
its shares under the securities or "Blue-Sky" laws of all
such jurisdictions as may be required from time to time;
(vi) respond to any inquiries or other communications of
shareholders of the Trust and broker-dealers, or if any such
inquiry or communication is more properly to be responded to
by the Trust's shareholder servicing and transfer agent or
distributor, oversee such shareholder servicing and transfer
agent's or distributor's response thereto.
(b) Any activities performed by the Administrator under this
section shall at all times conform to, and be in accordance with,
any requirements imposed by: (1) the Investment Company Act of
1940 (the "Act") and any rules or regulations in force
thereunder; (2) any other applicable laws, rules and regulations;
(3) the Declaration of Trust and By-Laws of the Trust as amended
and restated from time to time; (4) any policies and
determinations of the Board of Trustees of the Trust; and (5) the
fundamental policies of the Trust, as reflected in its
registration statement under the Act, or as amended by the
shareholders of the Trust.
(c) The Administrator assumes no responsibility under this
Agreement other than to render the services called for hereunder,
and specifically assumes no responsibilities for investment
advice or the investment or reinvestment of the Trust's assets.
(d) The Administrator shall not be liable for any error in
judgment or for any loss suffered by the Trust in connection with
the matters to which this Agreement relates, except a loss
resulting from wilful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this
Agreement.
(e) Nothing in this Agreement shall prevent the
Administrator or any officer thereof from acting as investment
adviser, sub-adviser, administrator or manager for any other
person, firm, or corporation, and shall not in any way limit or
restrict the Administrator or any of its officers, stockholders
or employees from buying, selling or trading any securities for
its own or their own accounts or for the accounts of others for
whom it or they may be acting, provided, however, that the
Administrator expressly represents that it will undertake no
activities which, in its judgment, will adversely affect the
performance of its obligations to the Adviser or the Trust under
this Agreement. The Trust shall indemnify the Administrator to
the full extent permitted by the Trust's Declaration of Trust.
3. Allocation of Expenses.
The Administrator shall, at its own expense, provide office
space, facilities, equipment, and personnel for the performance
of its functions hereunder and shall pay all compensation of
Trustees, officers, and employees of the Trust who are affiliated
persons of the Administrator.
4. Compensation of the Administrator.
(a) The Trust shall pay the Administrator, and the
Administrator shall accept as full compensation for all services
rendered hereunder, a fee payable monthly and computed on the net
asset value of the Trust at the end of each business day at the
annual rate of 0.36 of 1% of such net asset value, provided,
however, that for any day that the Trust pays or accrues a fee
under the Distribution Plan of the Trust based upon the assets of
the Trust, the annual management fee shall be payable at the
annual rate of 0.26 of 1% of such net asset value.
(b) The above fee shall be reduced, but not below zero, by
an amount equal to its pro-rata portion (based upon the aggregate
fees of the Adviser and the Administrator) of the amount, if any,
by which the total expenses of the Trust in any fiscal year,
exclusive of taxes, interest, and brokerage fees, shall exceed
the lesser of (i) 2.5% of the first $30 million of average annual
net assets of the Trust plus 2% of the next $70 million of such
net assets of the Trust plus 1.5% of its average annual net
assets in excess of $100 million, or (ii) 25% of the Trust's
total annual investment income. The payment of the above fee at
the end of any month will be reduced or postponed so that at no
time will there be any accrued but unpaid liability under this
expense limitation, subject to readjustment during the year.
5. Duration and Termination.
(a) This Agreement shall become effective as of the date
first written above, after approval by a vote of a majority of
the Trustees who are not parties to this Agreement or "interested
persons" (as defined in the Act) of any such party, with votes
cast in person at a meeting called for the purpose of voting on
such approval and shall, unless terminated as hereinafter
provided, continue in effect until the June 30 next preceding the
first anniversary of the effective date of this Agreement, and
from year to year thereafter.
(b) This Agreement may be terminated by the Administrator at
any time without penalty upon giving the Adviser and the Trust
sixty days' written notice (which notice may be waived by them)
and may be terminated by the Trust at any time without penalty
upon giving the Administrator sixty days' written notice (which
notice may be waived by the Administrator) provided that such
termination by the Trust shall be directed or approved by a vote
of a majority of its Trustees in office at the time, including a
majority of the Trustees who are not interested persons (as
defined in the Act) of the Trust.
(c) This Agreement may not be amended, nor shall any
successor agreement between the parties be executed or delivered,
to increase the compensation of the Administrator without the
vote of the Trust's Board of Trustees, including a vote of a
majority of the Trustees who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party,
with votes cast in person at a meeting called for the purpose of
voting on such approval, and the vote of the holders of a
"majority" (as so defined) of the outstanding voting securities
of the Trust.
6. Disclaimer of Shareholder Liability
The Administrator understands that the obligations of this
Agreement are not binding upon any shareholder of the Trust
personally, but bind only the Trust's property; the Administrator
represents that it has notice of the provisions of the Trust's
Declaration of Trust disclaiming shareholder liability for acts
or obligations of the Trust.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their duly authorized officers and
their seals to be hereunto affixed, all as of the day and year
first above written.
ATTEST: Hawaiian Tax-Free Trust
________________________ By:___________________________________
ATTEST: Aquila Management Corporation
_______________________ By:___________________________________
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S SEMI-ANNUAL REPORT DATED SEPTEMBER 30, 1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000750909
<NAME> HAWAIIAN TAX-FREE TRUST
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 622,240,653
<INVESTMENTS-AT-VALUE> 650,881,506
<RECEIVABLES> 16,536,440
<ASSETS-OTHER> 783,065
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 668,201,011
<PAYABLE-FOR-SECURITIES> 5,538,742
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,383,268
<TOTAL-LIABILITIES> 6,922,010
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 58,237,009
<SHARES-COMMON-PRIOR> 57,707,539
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,219,052)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28,640,853
<NET-ASSETS> 661,279,001
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20,050,429
<OTHER-INCOME> 0
<EXPENSES-NET> (2,359,633)
<NET-INVESTMENT-INCOME> 17,690,796
<REALIZED-GAINS-CURRENT> 1,236,916
<APPREC-INCREASE-CURRENT> 11,552,725
<NET-CHANGE-FROM-OPS> 30,480,437
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (17,689,019)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,208,632
<NUMBER-OF-SHARES-REDEEMED> (2,452,777)
<SHARES-REINVESTED> 773,615
<NET-CHANGE-IN-ASSETS> 18,723,155
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (585,100)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 457,494
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,359,633
<AVERAGE-NET-ASSETS> 638,424,643
<PER-SHARE-NAV-BEGIN> 11.13
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 0.22
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.35
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
