<PAGE>
Hawaiian Tax-Free Trust
380 Madison Avenue, Suite 2300
New York, New York 10017
800-228-4227
212-697-6666
Prospectus
Class A Shares
Class C Shares July 31, 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 about the Trust datedJuly 31, 1996, (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 the
Prospectus. The Additional Statement is incorporated by reference
in its entirety in the 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 HAWAIIAN TRUST COMPANY, LTD. (THE
"ADVISER"), BANK OF HAWAII, ITS BANK OR NON-BANK AFFILIATES OR BY
ANY OTHER BANK. SHARES OF THE TRUST ARE NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY OR GOVERNMENT SPONSORED
AGENCY OF THE FEDERAL GOVERNMENT OR ANY STATE.
AN INVESTMENT IN THE TRUST INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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
FOR GENERAL INQUIRIES & YIELD INFORMATION,
CALL 800-228-4227 TOLL FREE OR 212-697-6666
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 primarily 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 - The Trust will acquire only those municipal
obligations which, at the time of purchase, are within the four
highest credit ratings assigned by Moody's Investors Service, Inc.,
or Standard & 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 or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. See the
Application, which is in the back of the Prospectus. (See "How to
Invest in the Trust," which includes applicable sales charge
information.)
Additional Investments - You may make additional investments
at any time and in any amount, directly, or if in an amount of $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.")
Alternative Purchase Plans - The Trust provides two
alternative ways for individuals to invest. (See "Alternative
Purchase Plans.") One way permits individual investors to pay
distribution and certain service charges principally at the time
they purchase shares; the other way permits investors to pay such
costs over a period of time, but without paying anything at time of
purchase, much as goods can be purchased on an installment plan.
For this purpose the Trust offers the following classes of shares,
which differ in their expense levels and sales charges:
*Front-Payment Class Shares ("Class A Shares") are offered to
anyone at net asset value plus a sales charge, paid at the
time of purchase, at the maximum rate of 4.0% of the public
offering price, with lower rates for larger purchases. (See
"How to Purchase Class A Shares.") Class A Shares are subject
to an asset retention service fee under the Trust's
Distribution Plan at the rate of 0.20 of 1% of the average
annual net assets represented by the Class A Shares. (See
"Distribution Plan.")
*Level-Payment Class Shares ("Class C Shares") are offered to
anyone at net asset value with no sales charge payable at the
time of purchase but with a level charge for service and
distribution fees for six years after the date of purchase at
the aggregate annual rate of 1% of the average annual net
assets of the Class C Shares. (See "Distribution Plan" and "
Shareholder Services Plan for Class C Shares.") Six years
after the date of purchase, Class C Shares are automatically
converted to Class A Shares. If you redeem Class C Shares
before you have held them for 12 months from the date of
purchase you will pay a contingent deferred sales charge
("CDSC") ; this charge is 1%, calculated on the net asset
value of the Class C Shares at the time of purchase or at
redemption, whichever is less. There is no CDSC after Class C
Shares have been held beyond the applicable period. (See
"Alternative Purchase Plans," "Computation of the Holding
Periods for Class C Shares" and "How to Purchase Class C
Shares.")
The Trust also issues Institutional Class Shares ("Class Y
Shares") that are sold only to certain institutional investors.
Class Y Shares are not offered by this Prospectus.
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. Specific classes
of shares will have different dividend amounts due to their
particular expense levels. (See "Dividend and Tax Information.")
Many Different Issues - You have the advantages of a portfolio
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 $12 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.")
Redemptions - Liquidity - 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, if you have elected Expedited
Redemption. 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 for
redemption of Class A Shares. However, there is a contingent
deferred sales charge with respect to certain Class A Shares which
have been purchased in amounts of $1 million or more (see "
Purchase of $1 Million or More"). If you redeem Class C Shares
before you have held them for 12 months from the date of purchase
you will pay a Contingent Deferred Sales Charge ("CDSC") at the
rate of 1%. (See "Alternative Purchase Plans" - "Class C Shares.")
Certain Stabilizing Measures - The Trust will employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
declines in the value of its investments and other market risks.
(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 Class A or Class C Shares of the
Trust into corresponding classes of shares of other
Aquila-sponsored tax-free municipal bond mutual funds or two equity
funds. You may also exchange them into shares of the
Aquila-sponsored money market funds. The exchange prices will be
the respective net asset values of the shares. (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, the proceeds of
redemptions may be more or less than your 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 " Risk Factors 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.") The
Trust may also, to a limited degree, buy and sell futures contracts
and options on futures contracts, although since inception the
Trust has not done so and has no present intention to do so. There
may be risks associated with these practices. (See "Certain
Stabilizing Measures.")
Statements and Reports - You will receive statements of your
account monthly as well as each time you add to your account or
take money out. Additionally, you will receive a Semi-Annual Report
and an audited Annual Report.
<PAGE>
<TABLE>
<CAPTION>
HAWAIIAN TAX-FREE TRUST
TABLE OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Class A Class C
Shares Shares
<S> <C> <C>
Maximum Sales Load Imposed on Purchases 4.00% None
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested Dividends None None
Deferred Sales Load None(1) 1.00%(2)
Redemption Fees None None
Exchange Fee None None
ANNUAL TRUST OPERATING EXPENSES(3)
(as a percentage of average net assets)
Investment Advisory Fee 0.14% 0.14%
12b-1 fees (Service Fee) 0.20% 0.75%
All other Expenses(4) 0.39% 0.64%
Administration Fee 0.26% 0.26%
Service Fee None 0.25%
Other Expenses(4) 0.13% 0.13%
Total Trust Operating Expenses(4) 0.73% 1.53%
Example(5)
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and redemption at the end of each time period:
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
Class A Shares $47 $62 $79 $127
Class C Shares
With complete
redemption at
at end of period $26 $48 $83 $141(6)
With no redemp-
tion $16 $48 $83 $141(6)
<FN>
(1)Certain shares purchased in transactions of $1 million or more
without a sales charge may be subject to a contingent deferred
sales charge of up to 1% upon redemption during the first four
years after purchase. See "Purchases of $1 Million or More."
</FN>
<FN>
(2)A contingent deferred sales charge of 1% is imposed on the
redemption proceeds of the shares (or on the original price,
whichever is lower) if redeemed during the first 12 months after
purchase.
</FN>
<FN>
(3)Estimated based upon amounts incurred by the Trust during its
most recent fiscal year. During that period, only Class A Shares
were outstanding.
</FN>
<FN>
(4)Does not reflect a 0.01% expense offset in custodian fees
received for uninvested cash balances. Reflecting this offset,
other expenses, all other expenses, and total Trust operating
expenses for Class A Shares were 0.12%, 0.38%, and 0.72%,
respectively; for Class C Shares, these expenses would have been
0.12%, 0.63%, and 1.52%, respectively.
</FN>
<FN>
(5)The expense example is based upon the above shareholder
transaction expenses (in the case of Class A Shares, this includes
a sales charge of $40 for a $1,000 investment) and annual Trust
operating expenses. It is also based upon amounts 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 total
operating expenses; the expense ratio was applied to an assumed
average balance (the year's starting investment plus one-half the
year's results). Each figure represents the cumulative expenses so
determined for the period specified.
</FN>
<FN>
(6)Six years after the date of purchase, Class C Shares are
automatically converted to Class A Shares.
</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.
(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. The assumed 5% annual
return should not be interpreted as a prediction of an actual
return, which may be higher or lower.
<PAGE>
<TABLE>
<CAPTION>
THE FOLLOWING HISTORICAL FINANCIAL INFORMATION APPLIES ONLY TO
SHARES OF THE TRUST WHICH HAVE BEEN DESIGNATED CLASS A SHARES, UPON
ADOPTION OF THE CLASS STRUCTURE DESCRIBED IN THE PROSPECTUS.
SIMILAR INFORMATION DOES NOT EXIST FOR CLASS C SHARES.
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, 1996 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.
Year ended March 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning
of Year $11.13 $11.19 $11.60 $11.10
Income from
Investment Operations:
Net investment
income 0.61 0.62 0.63 0.68
Net gain (loss) on
securities (both
realized and
unrealized).......... 0.18 (0.01) (0.38) 0.50
Total from Investment
Operations........... 0.79 0.61 0.25 1.18
Less Distributions:
Dividends from net
investment income (0.61) (0.62) (0.63) (0.68)
Distributions from
capital gains - (0.05) (0.03) -
Total Distributions... (0.61) (0.67) (0.66) (0.68)
Net Asset Value,
End of Year........... $11.31 $11.13 $11.19 $11.60
Total Return (not
reflecting sales
charge) 7.16% 5.75% 2.01% 10.98%
Ratios/Supplemental
Data
Net Assets,
End of Year (in
thousands) $659,925 $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........... 5.32% 5.65% 5.46% 5.92%
Portfolio Turnover
Rate.................. 28% 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 $0.61 $0.62 $0.63 $0.68
Ratio of Expenses
to Average Net
Assets 0.73% 0.77% 0.76% 0.73%
Ratio of Net
Investment Income
to Average Net
Assets................ 5.31% 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%
</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 the 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. (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
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 in attempting to protect against declines in
the value of its investments and other market risks. There can,
however, be no assurance that these will be successful.
Although the Trust has no current 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, and since inception
has not done 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 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. 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 Obligations. 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. 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 three 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
will normally go down; if these rates go down, the value of the
Obligations will normally 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.
Portfolio Insurance
The purpose of having insurance on some investments in
Hawaiian Obligations in the Trust's portfolio is to reduce
financial risk for investors in the Trust.
Insurance as to the timely payment of principal and interest
when due for Hawaiian Obligations is acquired as follows:
(i) obtained by the issuer of the Hawaiian Obligations at
the time of original issue of the obligations, known as "New
Issue Insurance," or
(ii) purchased by the Trust or a previous owner with
respect to specific Hawaiian Obligations, termed "Secondary
Market Insurance."
The insurance of principal under these types of insurance
policies refers to the payment of the face or par value of the
Hawaiian Obligation when due. Insurance is not affected by nor
does it insure the price paid by the Trust for the obligation.
The market value of obligations in the Trust will, from time to
time, be affected by various factors including the general
movement of interest rates. The value of the Trust's shares is
not insured.
In order to attempt to reduce financial risk to the Trust's
investors, it is the Trust's current policy, which may be
changed, that the majority of the Trust's assets will be invested
in insured Hawaiian Obligations. However, if the Board of
Trustees determines that there is an inadequate supply in the
marketplace of Hawaiian Obligations covered by New Issue
Insurance and that appropriate Secondary Market Insurance cannot
be obtained for other Hawaiian Obligations on terms that are
financially advantageous to the Trust as a result of market
conditions or other factors, then the Trust will invest in
Hawaiian Obligations that are not insured. Use of insurance is
not a fundamental policy of the Trust.
New Issue Insurance is obtained by the issuer of the
Hawaiian Obligations and all premiums respecting such securities
are paid in advance by such issuer. Such policies are
noncancelable and continue in force so long as the Hawaiian
Obligations are outstanding and the insurer remains in business.
The Trust may also purchase Secondary Market Insurance on
any Hawaiian Obligation purchased by the Trust. By purchasing
Secondary Market Insurance, the Trust will obtain, upon payment
of a single premium, insurance against nonpayment of scheduled
principal and interest for the remaining term of the Hawaiian
Obligation, regardless of whether the Trust then owned such
security. Such insurance coverage is noncancelable and continues
in force so long as the security so insured is outstanding and
the insurer remains in business. The purposes of acquiring
Secondary Market Insurance are to insure timely payment of
principal and interest when due, and to enable the Trust to sell
a Hawaiian Obligation to a third party as a high rated insured
Hawaiian Obligation at a market price greater than what otherwise
might be obtainable if the security were sold without the
insurance coverage. There is no assurance that such insurance can
be obtained at rates that would make its purchase advantageous to
the Trust.
New Issue Insurance and Secondary Market Insurance will be
obtained from some or all of the following: Municipal Bond
Investors Assurance Corporation ("MBIA"), Financial Guaranty
Insurance Company ("FGIC") and AMBAC Indemnity Corporation
("AMBAC Indemnity"). See the Additional Statement for
information about these companies. The Trust may also purchase
insurance from, or Hawaiian Obligations insured by, other
insurers.
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 1995 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. Despite the lower unemployment rate and strong growth in
tourism, business activity in the state remained sluggish.
Disinflation has accompanied the lower growth rate.
Tourism is the State's principal industry. Tourist arrivals
and spending provided a needed boost to the Hawaiian economy in
1995. The decline in construction, underway since mid-1991,
continued.
Value retailers from the mainland have been aggressively
penetrating island markets for several years. As a result, local
retailers have been 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
continues at a low level, 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, during 1995, Hawaii was able to create
only slightly more jobs than it lost, leaving the job count
between 1993 and 1995 virtually unchanged.
The prolonged weakness has resulted in pressures for the
State to achieve a balanced budget by significant cuts in
expenditures. These reductions will pressure government to
operate in a much leaner and more efficient manner.
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 of
each class 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").
The net asset value per share is determined by dividing the value
of the net assets (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.
ALTERNATIVE PURCHASE PLANS
In this Prospectus, the Trust provides individual investors
with the option of two alternative ways to purchase shares,
through two separate classes of shares. All classes represent
interests in the same portfolio of Hawaiian Obligations. The
primary distinction among the classes of shares offered to
individuals lies in their sales charge structures and ongoing
expenses, as described below. You should choose the class that
best suits your own circumstances and needs.
If you choose to purchase Class A Shares you will pay the
applicable sales charge at the time of your purchase. By
purchasing Class C Shares, you will pay a sales charge over a
period of six years after purchase but without paying anything at
time of purchase, much as goods can be purchased on an
installment plan. You are subject to a conditional deferred sales
charge, described below, but only if you redeem your Class C
Shares before they have been held 12 months from your purchase.
(See "Computation of Holding Periods for Class C Shares.")
Class A Shares, "Front-Payment Class Shares," are
offered to anyone at net asset value plus a sales
charge, paid at the time of purchase, at the maximum
rate of 4.0% of the public offering price, with lower
rates for larger purchases. When you purchase Class A
Shares, the amount of your investment is reduced by the
applicable sales charge. Under the Trust's Distribution
Plan, Class A Shares are subject to a fee of 0.20 of 1%
of the average annual net assets of the Class A Shares.
Certain Class A Shares purchased in transactions of $1
million or more are subject to a contingent deferred
sales charge. (See " Purchase of $1 Million or More.")
Class C Shares, "Level-Payment Class Shares," are
offered to anyone at net asset value with no sales
charge payable at purchase but with a level charge for
distribution fees and service fees for six years after
the date of purchase at the aggregate annual rate of 1%
of the average annual net assets of the Class C Shares.
(See "Distribution Plan" and "Shareholder Services Plan
for Class C Shares.") Six years after the date of
purchase, Class C Shares, including Class C Shares
acquired in exchange for other Class C Shares under the
Exchange Privilege (see "Exchange Privilege"), are
automatically converted to Class A Shares. In addition,
if you redeem Class C Shares before you have held them
for 12 months from the date of purchase you will pay a
contingent deferred sales charge ("CDSC") at the rate
of 1%, calculated on the net asset value of the
redeemed Class C Shares at the time of purchase or of
redemption, whichever is less. The amount of any CDSC
will be paid to the Distributor. The CDSC does not
apply to shares acquired through the reinvestment of
dividends on Class C Shares or to any Class C Shares
held for more than 12 months after purchase. In the
Prospectus, 12-month and six-year holding periods are
considered modified by up to one month depending upon
when during a month your purchase of such shares is
made. (See "Computation of Holding Periods for Class C
Shares" and "How to Purchase Class C Shares.")
In determining whether a CDSC is payable on a redemption of
Class C Shares, it will be assumed that the redemption is made
first of any shares acquired as dividends or distributions,
second of any Class C Shares you have held for more than 12
months from the date of purchase and finally of those Class C
Shares as to which the CDSC is payable which you have held the
longest. This will result in your paying the lowest possible
CDSC.
Computation of Holding Periods for
Class C Shares
For purposes of determining the holding period for Class C
Shares, all of your purchases made during a calendar month will
be deemed to have been made on the first business day of that
month at the average cost of all purchases made during that
month. The 12-month CDSC holding period will end on the first
business day of the 12th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your Class C Shares may be up to one
month less than the full 12 months depending upon when your
actual purchase was made during a month. Running of the 12-month
CDSC holding period will be suspended for one month for each
period of thirty days during which you have held shares of a
money market fund you have received in exchange for Class C
Shares under the Exchange Privilege. (See "Exchange Privilege.")
Your Class C Shares will automatically convert to Class A
Shares six years after the date of purchase, together with a
pro-rata portion of all Class C Shares representing dividends and
other distributions paid in additional Class C Shares. The Class
C Shares so converted will no longer be subject to the higher
expenses borne by the Class C Shares. The conversion will be
effected at relative net asset values on the first business day
of the month following that in which the sixth anniversary of
your purchase of the Class C Shares occurred, except as noted
below. Accordingly, the holding period applicable to your Class C
Shares may be up to one month more than the six years depending
upon when your actual purchase was made during a month. Because
the per share value of Class A Shares may be higher than that of
Class C Shares at the time of conversion, you may receive fewer
Class A Shares than the number of Class C Shares converted. If
you have made one or more exchanges of Class C Shares among the
Aquila-sponsored tax-free municipal bond funds or equity funds
under the Exchange Privilege, the six-year holding period is
deemed to have begun on the date you purchased your original
Class C Shares of the Trust or of another of the Aquila bond or
equity funds. The six-year holding period will be suspended by
one month for each period of thirty days during which you hold
shares of a money market fund you have received in exchange for
Class C Shares under the Exchange Privilege. (See "Exchange
Privilege.")
The following chart summarizes the principal differences
between Class A Shares and Class C Shares
<TABLE>
<CAPTION>
Class A Class C
<S> <C> <C>
Initial Sales Maximum of 4% of the None
Charge Public Offering Price
Contingent None (except for Maximum CDSC of 1%
Deferred certain purchases if shares redeemed
Sales Charge over $1 Million) before 12 months;
0% after 12 months
Distribution and 0.20 of 1% Distribution fee of
Service Fees 0.75 of 1% and a service
fee of 0.25 of 1% for
a total of 1%, payable
for six years
Other Information Initial Sales Charge Shares convert to
waived or reduced Class A Shares
in some cases after six years
</TABLE>
Factors to Consider in Choosing Classes of Shares
This discussion relates to the major differences between
Class A Shares and Class C Shares. It is recommended that any
investment in the Trust be considered long-term in nature.
Over time, the cumulative total cost of the 1% annual
service and distribution fees on the Class C Shares will equal or
exceed the total cost of the initial 4% maximum initial sales
charge and 0.20 of 1% annual fee payable for Class A Shares. For
example, if equal amounts were paid at the same time for Class A
Shares (where the amount invested is reduced by the amount of the
sales charge) and for Class C Shares (which carry no sales charge
at the time of purchase) and the net asset value per share
remained constant over time, the total of such costs for Class C
Shares would equal the total of such costs for Class A Shares
after approximately four and two-thirds years. This example
assumes no redemptions and disregards the time value of money.
Purchasers of Class C Shares have all of their investment dollars
invested from the time of purchase, without having their
investment reduced at the outset by the initial sales charge
payable for Class A Shares. If you invest in Class A Shares you
will pay the entire sales charge at the time of purchase.
Accordingly, if you expect to redeem your shares within a
reasonably short time after purchase, you should consider the
total cost of such an investment in Class A Shares compared with
a similar investment in Class C Shares. The example under "Table
of Expenses" shows the effect of Trust expenses for both classes
if a hypothetical investment in each of the classes is held for
1, 3, 5 and 10 years. (See the Table of Expenses.)
Dividends and other distributions paid by the Trust with
respect to shares of each class are calculated in the same manner
and at the same time. The dividends actually paid with respect to
Class C Shares will be lower than those paid on Class A Shares
because Class C Shares bear higher distribution and service fees
and will have a higher expense ratio. In addition, the dividends
of each class can vary because each class will bear certain
class-specific charges. For example, each class will bear the
costs of printing and mailing annual reports to its own
shareholders.
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: (i) order the shares through your investment broker
or dealer, if it is a selected dealer; or (ii) mail the
Application with payment to Administrative Data Management Corp.
(the "Agent") at the address on the Application. If you purchase
Class A Shares the applicable sales charge will apply in either
instance. Subsequent investments are also subject to the
applicable sales charges. You are urged to complete an
Application and send it to the Agent so that expedited
shareholder services can be established at the time of your
investment. Unless your initial investment is specified to be
made in Class C Shares, it will be made in Class A Shares.
The minimum initial investment for Class A Shares and Class
C Shares is $1,000, except as otherwise stated in the Prospectus
or Additional Statement. You may also make an initial investment
by establishing an Automatic Investment Program. To do this you
must open an account for automatic investments of at least $50
each month and make an initial investment of at least $50. (See
below and "Automatic Investment Program" in the Application.)
Such investment must be drawn in United States dollars on a
United States commercial or savings bank, a 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 the same class of shares in any amount (unless you
have an Automatic Withdrawal Plan). Your subsequent 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, the name of the Trust and the class of shares to be
purchased. With subsequent investments, please send the
pre-printed stub attached to the Trust's confirmations.
Subsequent investments of $50 or more in shares of the same
class as your initial investment can be made by electronic funds
transfer from your demand account at a Financial Institution. To
use electronic funds transfer for your purchases, your Financial
Institution must be a member of the Automated Clearing House and
the Agent must have received your 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 for
Class C Shares and the net asset value per share plus the
applicable sales charge for Class A Shares. The offering price
determined on any day applies to all purchase orders received by
the Agent 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.
How to Purchase Class A Shares
(Front-Payment Class Shares)
The following table shows the amount of the sales charge 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") for purchases of
Class A Shares:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
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%
For purchases of $1 million or more see " Purchase of $1 Million
or More," below.
</TABLE>
The table of sales charges is applicable to purchases of
Class A Shares by a "single purchaser," i.e.: (a) an individual;
(b) an individual together with his or her spouse and their
children under the age of 21 purchasing shares for his or their
own accounts; (c) a trustee or other fiduciary purchasing shares
for a single trust estate or a single fiduciary account; and (d)
a tax-exempt organization 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.
Purchase of $1 Million or More
Shares issued under the following circumstances are called
"CDSC Class A Shares": (i) shares issued in a single purchase of
$1 million or more by a single purchaser; (ii) all shares
subsequently purchased by a single purchaser if the value of the
CDSC Class A Shares and Class A Shares on which a sales charge
has been paid, owned at the time of the subsequent purchase, is
equal to or greater than $1 million; (iii) all shares issued in a
single purchase to a single purchaser the value of which, when
added to the value of the CDSC Class A Shares and Class A Shares
on which a sales charge has been paid, already owned at the time
of such purchase, equals or exceeds $1 million. CDSC Class A
Shares also include certain Class A Shares issued under the
program captioned " Special Dealer Arrangements," below. CDSC
Class A Shares do not include (i) Class A Shares purchased
without sales charge pursuant to the terms described under
"General," below and (ii) Class A Shares purchased in
transactions of less than $1 million and when certain special
dealer arrangements are not in effect under "Certain Investment
Companies" set forth under "Reduced Sales Charges," below.
When you purchase CDSC Class A Shares you will not pay a
sales charge at the time of purchase, and the Distributor will
pay to any dealer effecting such a purchase an amount equal to 1%
of the sales price of the shares purchased for purchases of $1
million but less than $2.5 million, 0.50 of 1% for purchases of
$2.5 million but less than $5 million, and 0.25 of 1% for
purchases of $5 million or more.
If you redeem all or part of your CDSC Class A Shares during
the four years after your purchase of such shares, at the time of
redemption you will be required to pay to the Distributor a
special contingent deferred sales charge based on the lesser of
(i) the net asset value of your redeemed CDSC Class A Shares at
the time of purchase or (ii) the net asset value of your redeemed
CDSC Class A Shares at the time of redemption (the "Redemption
Value"). The special charge will be an amount equal to 1% of the
Redemption Value if the redemption occurs within the first two
years after purchase, and 0.50 of 1% of the Redemption Value if
the redemption occurs within the third or fourth year after
purchase. The special charge will apply to redemptions of CDSC
Class A Shares purchased without a sales charge pursuant to a
Letter of Intent, as described below under "Reduced Sales
Charges." The special charge does not apply to shares acquired
through the reinvestment of dividends on CDSC Class A Shares or
to any CDSC Class A Shares held for more than four years after
purchase. In determining whether the special charge is
applicable, it will be assumed that the CDSC Class A Shares you
have held the longest are the first CDSC Class A Shares to be
redeemed, unless you instruct the Agent otherwise. It will also
be assumed that if you have both CDSC Class A Shares and non-CDSC
Class A Shares the non-CDSC Class A Shares will be redeemed
first.
For purposes of determining the holding period for CDSC
Class A Shares, all of your purchases made during a calendar
month will be deemed to have been made on the first business day
of that month at the average cost of all purchases made during
that month. The four-year holding period will end on the first
business day of the 48th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your CDSC Class A Shares may be up
to one month less than the full 48 months depending upon when
your actual purchase was made during a month. Running of the
48-month CDSC holding period will be suspended for one month for
each period of thirty days during which you have held shares of a
money market fund you have received in exchange for CDSC Class A
Shares under the Exchange Privilege. (See "Exchange Privilege.")
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation: If you are a " single purchaser" you
may benefit from a reduction of the sales charge in accordance
with the above schedule for subsequent purchases of Class A
Shares if the cumulative value (at cost or current net asset
value, whichever is higher) of Class A Shares you have previously
purchased with a sales charge, together with your subsequent
purchase of Class A Shares 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
Class A Shares of the Trust through a single selected dealer or
through the Distributor. Class A 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: Class A 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, retired
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 Class A Shares
will not be resold except through redemption. There may be tax
consequences of these purchases. Such purchasers should consult
their own tax counsel. Class A 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 Class A Shares 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.
Certain Investment Companies: Class A Shares of the Trust
may be purchased at net asset value without sales charge (except
as set forth below under "Special Dealer Arrangements") to the
extent that the aggregate net asset value of such Class A Shares
does not exceed the proceeds from a redemption (a "Qualified
Redemption"), made within 120 days prior to such purchase, of
shares of another investment company on which a sales charge,
including a contingent deferred sales charge, has been paid.
Additional information is available from the Distributor.
To qualify, the following special procedures must be
followed:
1. A completed Application (included in the Prospectus) and
payment for the shares to be purchased must be sent to the
Distributor, Aquila Distributors, Inc., 380 Madison Avenue,
Suite 2300, New York, NY 10017 and should not be sent to the
Shareholder Servicing Agent of the Trust, Administrative
Data Management Corp. (This instruction replaces the mailing
address contained on the Application.)
2. The Application must be accompanied by evidence
satisfactory to the Distributor that the prospective
shareholder has made a Qualified Redemption in an amount at
least equal to the net asset value of the Class A Shares to
be purchased. Satisfactory evidence includes a confirmation
of the date and the amount of the redemption from the
investment company, its transfer agent or the investor's
broker or dealer, or a copy of the investor's account
statement with the investment company reflecting the
redemption transaction.
3. You must complete and return to the Distributor a
Transfer Request Form, which is available from the
Distributor.
The Trust reserves the right to alter or terminate this
privilege at any time without notice. The Prospectus will be
supplemented to reflect such alteration or termination.
Special Dealer Arrangements: During certain periods
determined by the Distributor, the Distributor (not the Trust)
will pay to any dealer effecting a purchase of Class A Shares of
the Trust using the proceeds of a Qualified Redemption the lesser
of (i) 1% of such proceeds or (ii) the same amounts described
under " Purchase of $1 Million or More," above, on the same terms
and conditions. Class A Shares of the Trust issued in such a
transaction will be CDSC Class A Shares and if you thereafter
redeem all or part of such shares during the four-year period
from the date of purchase you will be subject to the special
contingent deferred sales charge described under " Purchase of $1
Million or More," above, on the same terms and conditions.
Whenever the Special Dealer Arrangements are in effect the
Prospectus will be supplemented.
How to Purchase Class C Shares
(Level-Payment Class Shares)
Level-Payment Class Shares (Class C Shares) are offered at
net asset value with no sales charge payable at purchase. A level
charge is imposed for service and distribution fees for the first
six years after the date of purchase at the aggregate annual rate
of 1% of the average annual net assets of the Trust represented
by the Class C Shares. If you redeem Class C Shares before you
have held them for 12 months from the date of purchase you will
pay a contingent deferred sales charge ("CDSC"). The CDSC is
charged at the rate of 1%, calculated on the net asset value of
the Class C Shares at the time of purchase or at redemption,
whichever is less. There is no CDSC after Class C Shares have
been held beyond the applicable period. The CDSC does not apply
to shares acquired through the reinvestment of dividends on Class
C Shares.
The Distributor will pay to any dealer effecting a purchase
of Class C Shares an amount equal to 1% of the sales price of the
Class C Shares purchased.
Additional Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
any class of shares of the Trust. Additional compensation may
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 taken by
qualifying registered representatives 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 all classes 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.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
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.
Investments can be made in either Class A Shares or Class C
Shares. 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 your
participation in the Payroll Plan (which could take up to ten
days), you must notify your employer.
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).
No share certificates will be issued for Class C Shares.
Share certificates for Class A Shares will be issued only if you
so request in writing to the Agent. No certificates will be
issued for fractional Class A shares or if you have elected
Automatic Investment or Telephone Investment for Class A Shares
(see "How to Invest in the Trust" above) or Expedited Redemption
(see "How to Redeem Your Investment" below). If certificates for
Class A Shares 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.
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. The Plan has three parts.
Under one part of the Plan, the Trust is authorized to make
payments with respect to Class A Shares ("Class A Permitted
Payments") to Qualified Recipients, which payments shall be made
through the Distributor or shareholder servicing agent as
disbursing agent, and 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 represented by the Class A Shares of the Trust.
Such payments shall be made only out of the Trust's assets
allocable to the Class A Shares. "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 and
which have rendered assistance (whether direct, administrative,
or both) in the distribution and/or retention of the Trust's
Class A Shares or servicing of accounts of shareholders owning
Class A Shares.
Permitted Payments under the Plan commenced July 1, 1992.
Until April 1, 1996, all outstanding shares of the Trust were
what are currently designated Class A Shares. During the fiscal
year ended March 31, 1996, $1,330,035 was paid under the Plan to
Qualified Recipients, of which, $78,658 was retained by the
Distributor. (See the Additional Statement for a description of
the Distribution Plan.)
Whenever the Trust makes Class A Permitted Payments, the
aggregate annual rate of the advisory fee and administration fee
otherwise payable by the Trust will be reduced from 0.55 of 1% to
0.40 of 1% of the Trust's average annual net assets. (See
"Management Arrangements.")
Under another part of the Plan, the Trust is authorized to
make payments with respect to Class C Shares ("Class C Permitted
Payments") to Qualified Recipients. Class C Permitted Payments
shall be made through the Distributor or shareholder servicing
agent as disbursing agent, and 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), 0.75 of 1%
of the average annual net assets represented by the Class C
Shares of the Trust. Such payments shall be made only out of the
Trust's assets allocable to the Class C Shares. " 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 and which have rendered assistance
(whether direct, administrative, or both) in the distribution
and/or retention of the Trust's Class C Shares or servicing of
accounts of shareholders owning Class C Shares. Payments with
respect to Class C Shares during the first year after purchase
are paid to the Distributor and thereafter to other Qualified
Recipients.
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. The Trust
believes that except for Permitted Payments 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.
Shareholder Services Plan for Class C Shares
Under a Shareholder Services Plan, the Trust is authorized
to make payments with respect to Class C Shares ("Service Fees")
to Qualified Recipients. Service Fees shall be paid through the
Distributor or shareholder servicing agent as disbursing agent,
and 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), 0.25 of 1% of the average annual net
assets represented by the Class C Shares of the Trust. Such
payments shall be made only out of the Trust's assets represented
by the Class C Shares. "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 and
which have agreed to provide personal services to holders of
Class C Shares and/or maintenance of Class C shareholder
accounts. See the Additional Statement. Service Fees with respect
to Class C Shares will be paid to the Distributor.
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 (subject to any applicable contingent
deferred sales charge for redemptions of Class C Shares and CDSC
Class A Shares). For redemptions of Class C Shares and CDSC Class
A Shares, at the time of redemption a sufficient number of
additional shares will be redeemed to pay for any applicable
contingent deferred sales charge. 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. Except for CDSC Class A Shares (see " Purchase
of $1 Million or More") there are no redemption fees or
withdrawal penalties for Class A Shares. Class C Shares are
subject to a contingent deferred sales charge if redeemed before
they have been held 12 months from the date of purchase. (See
"Alternative Purchase Plans.") A redemption may result in a
transaction taxable to you. If you own both Class A Shares and
Class C Shares and do not specify which you wish to redeem, it
will be assumed that you wish to redeem Class A Shares.
For your convenience the Trust offers expedited redemption
for all classes of shares 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 of any
class not represented by certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make
payments
a) to a Financial Institution account you have
predesignated or
b) by check in the amount of $50,000 or less, mailed to
you, if your shares are registered in your name at the
Trust and the check is sent to your address of record,
provided that there has not been a change of your
address of record during the 30 days preceding your
redemption request. You can make only one request for
telephone redemption by check in any 7-day period.
See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record 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(s) and number,
name of the caller, the 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 07095-1198,
indicating account name(s), 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 Class A
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 07095-1198, 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.
Because of possible mail problems, it is also recommended that
certificates be sent by registered mail, return receipt
requested.
For a 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. Signature guarantees may be required if sufficient
documentation is not on file with the Agent. Additional
documentation may be required where shares are held by certain
types of shareholders such as corporations, partnerships,
trustees or executors, or if redemption is requested by other
than the shareholder of record. If redemption proceeds of $50,000
or less are payable to the record holder and are to be sent to
the record address, no signature guarantee is required, except as
noted above. 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 07095-1198, containing:
Account Name(s);
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. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will,
wherever possible, be wired or transferred through the facilities
of the Automated Clearing House to the Financial Institution
account specified in the Expedited Redemption section of your
Application or Ready Access Features form. The Trust may impose a
charge, not exceeding $5.00 per wire redemption, after written
notice to shareholders who have elected this redemption
procedure. 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 fee is presently contemplated. If any such
changes are made, the Prospectus will be supplemented to reflect
them. If you use a broker or dealer to arrange for a redemption,
it may charge you a fee 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
or failure to meet the minimum investment level under an
Automatic Purchase Program. 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 in shares of the Trust of the same class
as the shares redeemed at the net asset value next determined
after the Agent receives your reinvestment order. In the case of
Class C Shares or CDSC Class A Shares on which a contingent
deferred sales charge was deducted at the time of redemption, the
Distributor will refund to you the amount of such sales charge,
which will be added to the amount of the reinvestment. The Class
C Shares or CDSC Class A Shares issued on reinvestment will be
deemed to have been outstanding from the date of your original
purchase of the redeemed shares, less the period from redemption
to reinvestment. The reinvestment privilege for any class may be
exercised only once a year, unless otherwise approved by the
Distributor. 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. You
should consult your own tax advisor on this matter.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own or
purchase Class A Shares of the Trust having a net asset value of
at least $5,000. The Automatic Withdrawal Plan is not available
for Class C Shares.
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
Class A 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 the Prospectus, the Additional Statement under "Automatic
Withdrawal Plan," and "Dividend and Tax Information" below.
Purchases of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when
purchases are made. Accordingly, you 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, 1996 the Adviser had over
$12 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 manager 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 founder and administrator to
the Aquilasm Group of Funds, which consists of tax-free municipal
bond funds, money market funds and two equity funds. As of June
30, 1996, these funds had aggregate assets of approximately $2.6
billion, of which approximately $1.9 billion consisted of assets
of 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, 1996 fees of
$929,291 and $1,725,826, 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 (seven tax-free municipal bond funds,
five money market funds and two equity funds) including the
Trust. 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.
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 discount, less expenses
paid or accrued. As such net income will vary, the Trust's
dividends will also vary. Dividends and other distributions paid
by the Trust with respect to each class of its shares are
calculated at the same time and in the same manner. The per-share
dividends of Class C Shares will be lower than the per-share
dividends on the Class A Shares as a result of the higher service
and distribution fees applicable to those shares. In addition,
the dividends of each class can vary because each class will bear
certain class-specific charges.
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 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 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." "Exempt-interest dividends" are
exempt from regular Federal income tax. The allocation of
"exempt-interest dividends" 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,
1996, 98.69% of the Trust's dividends were "exempt-interest
dividends." For the calendar year 1995, 1.18% of the total
dividends paid were taxable. (These amounts relate to dividends
on Class A Shares; no Class C Shares were outstanding during that
period.) 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) and any other distributions that do not
qualify as "exempt-interest dividends," 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 changesin 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. Although "exempt-interest 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
dividends 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 or carry 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. If you are required to pay a conditional deferred
sales charge at the time of redemption, the amount of that charge
will reduce the amount of your gain or increase the amount of
your loss as the case may be. Your 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.
Tax Effect of Conversion
Class C Shares will automatically convert to Class A Shares
approximately six years after purchase. No gain or loss will be
recognized by the Trust or its shareholders upon such
conversions; each shareholder's adjusted tax basis in the Class A
Shares received upon conversion will equal the shareholder's
adjusted tax basis in the Class C Shares held immediately before
the conversion; and each shareholder's holding period for the
Class A Shares received upon conversion will include the period
for which the shareholder held as capital assets the converted
Class C Shares immediately before conversion.
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 two equity
funds (the "Bond or Equity Funds") and certain money market funds
(the "Money-Market Funds"), all of which are sponsored by Aquila
Management Corporation and Aquila Distributors, Inc., and have
the same Administrator and Distributor as the Trust. All
exchanges are subject to certain conditions described below. As
of the date of the Prospectus, the Aquila-sponsored Bond or
Equity Funds are this Trust, Aquila Rocky Mountain Equity Fund,
Aquila Cascadia Equity Fund, Tax-Free Trust of Arizona, Tax-Free
Trust of Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free
Fund of Kentucky, Tax-Free Fund For Utah and Narragansett Insured
Tax-Free Income Fund. The Aquila-sponsored 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) and Churchill Cash Reserves Trust.
Class A Shares of the Trust can be exchanged only into Class
A Shares of any Bond or Equity Fund or into shares of the
Money-Market Funds. Class C Shares can be exchanged only into
Class C Shares of any Bond or Equity Fund that offers Class C
Shares or into shares of the Money-Market Funds.
Class A Shares Exchange Privilege
Under the Class A Shares exchange privilege, once any
applicable sales charge has been paid on Class A 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.
CDSC Class A Shares of the Trust (see " Purchase of $1
Million or More" and "Special Dealer Arrangements") can be
exchanged for CDSC Class A Shares of a Bond or Equity Fund or
into a Money-Market Fund. The CDSC Class A Shares will not be
subject to a contingent deferred sales charge at the time of
exchange, but the contingent deferred sales charge will be
payable upon a redemption which occurs before the expiration of
the applicable holding period of any CDSC Class A Shares or any
shares of a Money-Market Fund received on exchange for CDSC Class
A Shares. (The contingent deferred sales charge does not apply to
any shares acquired as a result of reinvestment of dividends
and/or distributions.) For purposes of computing the time period
for the applicable contingent deferred sales charge, the length
of time of ownership of CDSC Class A Shares will be determined by
the time of original purchase and not by the time of the
exchange. Any period of 30 days or more during which any
Money-Market shares received on an exchange of CDSC Class A
Shares are held is not counted in computing the period of
ownership of CDSC Class A Shares. (See "Alternative Purchase
Plans.")
Class C Shares Exchange Privilege
Under the Class C Shares exchange privilege, Class C 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 for Class C Shares of Bond or
Equity Funds. Class C Shares will not be subject to a contingent
deferred sales charge at the time of exchange, but the contingent
deferred sales charge will be payable upon redemption which
occurs before the expiration of the applicable holding period of
any Class C Shares or any shares of a Money-Market Fund received
on exchange for Class C Shares. (The contingent deferred sales
charge does not apply to any shares acquired as a result of
reinvestment of dividends and/or distributions.) For purposes of
computing the time period for the applicable contingent deferred
sales charge or for the conversion of Class C Shares into Class A
Shares, the length of time of ownership of Class C Shares will be
determined by time of original purchase and not by the time of
the exchange. Any period of 30 days or more during which any
Money-Market shares received on an exchange of Class C Shares are
held is not counted in computing the period of ownership of Class
C Shares. (See "Alternative Purchase Plans.")
Eligible Shares
The "Class A Eligible Shares" of any Bond or Equity Fund are
those Class A 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); (d) acquired on conversion
of Class C Shares or (e) acquired as a result of reinvestment
of dividends and/or distributions on otherwise Class A Eligible
Shares.
The "CDSC Class A Eligible Shares" of any Bond or Equity
Fund are those CDSC Class A Shares which were (a) acquired by
direct purchase in the amount of $1 million or more without a
sales charge or in certain purchases when Special Dealer
Arrangements are in effect or which were received in exchange for
CDSC Class A Shares of another Bond or Equity Fund acquired under
the same conditions; (b) acquired by exchange for shares of a
Money-Market Fund under the same conditions; (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 orEquity
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 CDSC Class A Eligible Shares.
The "Class C Eligible Shares" of any Bond or Equity Fund are
those shares which were (a) acquired by direct purchase including
by exchange from a Money-Market Fund, or which were received in
exchange for shares of Class C Shares of another Bond or Equity
Fund; or (b) acquired as a result of reinvestment of dividends
and/or distributions on otherwise Class C Eligible Shares.
If you own Class A or Class C Eligible Shares of any Bond or
Equity Fund, you may exchange them for shares of any Money Market
Fund or the Class A or Class C Shares, respectively, of any other
Bond or Equity Fund without payment of any sales charge or CDSC.
The shares received will continue to be Class A or Class C
Eligible shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class A 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 Class A Shares of any 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 CDSC Class A 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 CDSC Class A Shares of any
Bond or Equity Fund but you will be required to pay theapplicable
contingent deferred sales charge if you redeem such shares before
you have held CDSC Class A Shares for four years. You will also
be required to pay the applicable contingent deferred sales
charge if you redeem such shares of a Money-Market Fund before
you have held CDSC Class A Shares for four years. The running of
the four-year period is suspended during the period you hold
shares of a Money-Market Fund received in exchange for CDSC Class
A Shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class C 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 Class C Shares of any Bond or
Equity Fund, but you will be required to pay the applicable
contingent deferred sales charge if you redeem such Class C
Shares before you have held Class C Shares for 12 months. You
will also be required to pay the applicable contingent deferred
sales charge if you redeem such shares of a Money-Market Fund
before you have held Class C Shares for 12 months. The running of
the 12-month CDSC period and the six-year conversion period for
Class C Shares is suspended during the period you hold shares of
a Money-Market Fund received in exchange for Class C Shares. (See
"Alternative Purchase Plans.")
Shares of a Money-Market Fund may be exchanged for shares of
another Money-Market Fund or for Class A Shares or Class C Shares
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
Class A Shares of a Bond or Equity Fund only upon payment of
the applicable sales charge.
This Trust, as well as the Money-Market Funds and other 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, the 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; (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 and (iii) the ownership of the
accounts from which and to which the exchange is made are
identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange 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(s) and number,
name of the caller, the 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.
Exchanges will be effected at the relative exchange prices
of the shares being exchanged next determined after receipt by
the Agent of your exchange request. 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, in which case the exchange price of shares of a Bond or
Equity Fund will be their public offering price. Prices for
exchanges are determined in the same manner as for purchases of
the Trust's shares. See "How to Invest in the Trust."
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.
Dividends paid by Aquila Rocky Mountain Equity Fund and Aquila
Cascadia Equity Fund are taxable. If your state of residence is
not the same as that of the issuers of obligations in which a
tax-free municipal bond 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 any applicable 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 applicable 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
the Trust's income net of fee waivers and reimbursement of
expenses, if any, and will assume the payment of the maximum
sales charge, if any, on the purchase of shares, but not on
reinvestment of income dividends. 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 upon request
and 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 of its class; shares of the
respective classes represent proportionate interests in the Trust
in accordance with their respective net asset values. Upon
liquidation of the Trust, shareholders are entitled to share
pro-rata in the net assets of the Trust available for
distribution to shareholders, in accordance with the respective
net asset values of the shares of each of the Trust's classes at
that time. All shares are presently divided into three classes;
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 (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.
In addition to Class A and Class C Shares, which are offered
by this Prospectus, the Trust also has Institutional Class Shares
("Class Y Shares"), which are offered only to institutions acting
for investors in a fiduciary, advisory, agency, custodial or
similar capacity and are not offered directly to retail
customers. Class Y Shares are offered by means of a separate
prospectus, which can be obtained by calling the Trust at
800-228-4227.
The primary distinction among the Trust's three classes of
shares lies in their different sales charge structures and
ongoing expenses, which are likely to be reflected in differing
yields and other measures of investment performance. All three
classes represent interests in the same portfolio of Hawaiian
Obligations and have the same rights, except that each class
bears the separate expenses, if any, of its Distribution Plan and
has exclusive voting rights with respect to its Plan.
Ownership of Shares of the Trust
Of the Class A Shares of the Trust outstanding on July 2,
1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., New
Brunswick, NJ, held of record 8,982,087 shares (15.4%). The
Trust's management is not aware of any other person beneficially
owning more than 5% of its outstanding shares as of such date. On
the basis of information received from the holder, the Trust's
management believes that all of the shares indicated are held for
the benefit of clients. See the Additional Statement for
ownership of the Trust's other classes of shares.
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one (1) vote for each dollar of net asset value (determined as of
the record date for the meeting) per share held (and
proportionate fractional votes for fractional dollar amounts).
Shareholders will vote on the election of Trustees and on other
matters submitted to the vote of shareholders. Shares vote by
classes on any matter specifically affecting one or more classes,
such as an amendment of an applicable part of the Distribution
Plan. No amendment may be made to the Declaration of Trust
without the affirmative vote of the holders of a majority of the
outstanding shares of the Trust, except that the Trust's Board of
Trustees may change the name 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.
<PAGE>
APPLICATION FOR HAWAIIAN TAX-FREE TRUST
FOR CLASS A OR CLASS C SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
ADM, ATTN: AQUILA SM GROUP OF FUNDS
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
Tel.# 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.________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minor's 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:________________________
Employer's 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 and not 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
Indicate method of payment (For either method, make check
payment to: HAWAIIAN TAX-FREE TRUST)
Indicate class of shares:
__ Class A Shares (Front-Payment Class)
__ Class C Shares (Level-Payment Class)
IF NO SHARE CLASS IS MARKED, INVESTMENT WILL AUTOMATICALLY BE MADE
IN CLASS A SHARES.
__ Initial Investment $_________ (Minimum $1,000)
__ Automatic Investment $________ (Minimum $50)
For Automatic Investments of at least $50 per month, you must
complete Step 3, Section A, Step 4, Sections A & B and ATTACH A
PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK.
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 1B.
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. LETTER OF INTENT
APPLICABLE TO CLASS A SHARES ONLY.
See Terms of Letter of Intent and Escrow at the end of this application
___ Yes ___ No
I/We intend to invest in Class A 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
D. AUTOMATIC WITHDRAWAL PLAN
(Minimum investment $5,000)
APPLICABLE TO CLASS A SHARES ONLY.
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
E. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your
name within the AquilaSM Group of Funds by telephone.
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.
F. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution
account listed.
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
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 may be 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.
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 3c 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 3c 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
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
LEGAL 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 5
Financial Highlights 6
Introduction 7
Investment Of The Trust's Assets 7
Investment Restrictions 13
Net Asset Value Per Share 14
Alternative Purchase Plans 14
How To Invest In The Trust 17
How To Redeem Your Investment 24
Automatic Withdrawal Plan 28
Management Arrangements 28
Dividend And Tax Information 31
Exchange Privilege 35
General Information 38
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
Prospectus
Institutional Class Shares
Class Y Shares July 31, 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.
There are three classes of shares of the Trust:
Institutional Class Shares ("Class Y Shares") are offered only to
institutions acting for investors in a fiduciary, advisory,
agency, custodial or similar capacity, and are not offered
directly to retail customers. Class Y Shares are offered at net
asset value with no sales charge, no redemption fee, no
contingent deferred sales charge and no distribution fee. (See
"How to Purchase Class Y Shares.") The other classes,
Front-Payment Class Shares ("Class A Shares") and Level-Payment
Class Shares ("Class C Shares") are not offered by this
Prospectus. See "General Information - Description of the Trust
and its Shares."
This Prospectus concisely states information about the Trust
that you should know before investing. A Statement of Additional
Information about the Trust dated July 31, 1996, (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 the Prospectus. The Additional Statement is
incorporated by reference in its entirety in the 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 HAWAIIAN TRUST COMPANY, LTD. (THE
"ADVISER"), BANK OF HAWAII, ITS BANK OR NON-BANK AFFILIATES OR
BY ANY OTHER BANK. SHARES OF THE TRUST ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY OR
GOVERNMENT SPONSORED AGENCY OF THE FEDERAL GOVERNMENT OR ANY
STATE.
AN INVESTMENT IN THE TRUST INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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
FOR GENERAL INQUIRIES & YIELD INFORMATION,
CALL 800-228-4227 TOLL FREE OR 212-697-6666
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 primarily 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 - The Trust will acquire only those
municipal obligations which, at the time of purchase, are within
the four highest credit ratings assigned by Moody's Investors
Service, Inc., or Standard & 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 or by opening an Automatic
Investment Program which makes purchases of $50 or more each
month. See the Application, which is in the back of the
Prospectus. (See "How to Invest in the Trust.")
Additional Investments - You may make additional
investments at any time and in any amount, directly, or if in an
amount of $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.")
Alternative Purchase Plans - The Trust provides
alternative ways to invest. (See "Description of the Trust and
its Shares.") For this purpose the Trust offers classes of
shares, which differ in their expense levels and sales charges:
Institutional Class Shares ("Class Y Shares") are offered
by this Prospectus. Class Y Shares are offered only to
institutions acting for investors in a fiduciary, advisory,
agency, custodial or similar capacity, and are not offered
directly to retail customers. Class Y Shares are offered at net
asset value with no sales charge, no redemption fee, no
contingent deferred sales charge and no distribution fee. (See
"How to Purchase Class Y Shares.")
The other classes, Front-Payment Class Shares ("Class A
Shares") and Level-Payment Class Shares ("Class C Shares")are not
offered by this Prospectus. See "General Information -
Description of the Trust and its Shares."
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. Specific
classes of shares will have different dividend amounts due to
their particular expense levels. (See "Dividend and Tax
Information.")
Many Different Issues - You 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 $12 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.")
Redemptions - Liquidity - You may redeem any amount of
your Class Y Shares 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, if you have elected Expedited Redemption. 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 redemption fees for redemption of Class Y Shares.
Certain Stabilizing Measures - The Trust will employ
such traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
declines in the value of its investments and other market risks.
(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 Class Y Shares of the
Trust into Class Y Shares of other Aquila-sponsored tax-free
municipal bond mutual funds and two Aquila- sponsored equity
funds. You may also exchange them into shares of the
Aquila-sponsored money market funds. The exchange prices will be
the respective net asset values of the shares. (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, the
proceeds of redemptions may be more or less than your 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 "Risk Factors 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.") The Trust may
also, to a limited degree, buy and sell futures contracts and
options on futures contracts, although since inception the Trust
has not done so and has no present intention to do so. There may
be risks associated with these practices. (See "Certain
Stabilizing Measures.")
Statements and Reports - You will receive statements of
your account monthly as well as each time you add to your account
or take money out. Additionally, you will receive a Semi-Annual
Report and an audited Annual Report.
<PAGE>
<TABLE>
<CAPTION>
HAWAIIAN TAX-FREE TRUST
TABLE OF EXPENSES
Class Y
Shareholder Transaction Expenses Shares
<S> <C>
Maximum Sales Charge Imposed on Purchases None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fees None
Exchange Fee None
Annual Trust Operating Expenses (1)
(as a percentage of average net assets)
Investment Advisory Fee 0.14%
All other expenses (2) 0.39%
Administration Fee 0.26%
Other Expenses (2) 0.13%
Total Trust Operating Expenses (2) 0.53%
Example (3)
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and redemption at the end of each time period:
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
$5 $17 $30 $66
<FN>
(1) Estimated based upon actual expenses incurred by the Trust during
its most recent fiscal year. During that period, only Class A shares
were outstanding.
</FN>
<FN>
(2) Does not reflect a 0.01% expense offset in custodian fees received for
uninvested cash balances. Reflecting this offset, other expenses, all other
expenses, and total Trust operating expenses for Class Y Shares would have
been 0.12%, 0.38% and 0.52%, respectively.
</FN>
<FN>
(3) The expense example is based upon the above annual Trust operating
expenses. It is also based upon amounts 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 total annual operating expenses; the expense
ratio was applied to an assumed average balance (the year's starting
investment plus one-half the year's results). Each figure 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% ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING
THE ABOVE EXAMPLE.
The purpose of the above table is to assist the investor in understanding the
various costs that an investor in the Trust will bear directly or indirectly.
The assumed 5% annual return should not be interpreted as a prediction of an
actual return, which may be higher or lower.
<PAGE>
<TABLE>
<CAPTION>
THE FOLLOWING HISTORICAL FINANCIAL INFORMATION APPLIES ONLY TO SHARES OF THE
TRUST WHICH HAVE BEEN DESIGNATED CLASS A SHARES, UPON ADOPTION OF THE CLASS
STRUCTURE DESCRIBED IN THE PROSPECTUS. CLASS A SHARES ARE NOT OFFERED BY
THIS PROSPECTUS. SIMILAR INFORMATION DOES NOT EXIST FOR CLASS Y SHARES WHICH
ARE OFFERED BY THIS PROSPECTUS.
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, 1996 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.
Year ended March 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning
of Year $11.13 $11.19 $11.60 $11.10
Inco
me from
Investment Operations:
Net investment
income 0.61 0.62 0.63 0.68
Net gain (loss) on
securities (both
realized and
unrealized).......... 0.18 (0.01) (0.38) 0.50
Total from Investment
Operations........... 0.79 0.61 0.25 1.18
Less Distributions:
Dividends from net
investment income (0.61) (0.62) (0.63) (0.68)
Distributions from
capital gains - (0.05) (0.03) -
Total Distributions... (0.61) (0.67) (0.66) (0.68)
Net Asset Value,
End of Year........... $11.31 $11.13 $11.19 $11.60
Total Return (not
reflecting sales
charge) 7.16% 5.75% 2.01% 10.98%
Ratios/Supplemental
Data
Net Assets,
End of Year (in
thousands) $659,925 $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........... 5.32% 5.65% 5.46% 5.92%
Portfolio Turnover
Rate.................. 28% 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 $0.61 $0.62 $0.63 $0.68
Ratio of Expenses
to Average Net
Assets 0.73% 0.77% 0.76% 0.73%
Ratio of Net
Investment Income
to Average Net
Assets................ 5.31% 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%
</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 the 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. (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
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 in attempting to
protect against declines in the value of its investments
and other market risks. There can, however, be no assurance
that these will be successful.
Although the Trust has no current 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, and since inception
has not done 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 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. 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
Obligations. 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.
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
three 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 will normally
go down; if these rates go down, the value of the
Obligations will normally 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.
Portfolio Insurance
The purpose of having insurance on some investments
in Hawaiian Obligations in the Trust's portfolio is to
reduce financial risk for investors in the Trust.
Insurance as to the timely payment of principal and
interest when due for Hawaiian Obligations is acquired
as follows:
(i) obtained by the issuer of the Hawaiian Obligations
at the time of original issue of the obligations, known as
"New Issue Insurance," or
(ii) purchased by the Trust or a previous owner with
respect to specific Hawaiian Obligations, termed "Secondary
Market Insurance."
The insurance of principal under these types of
insurance policies refers to the payment of the face or
par value of the Hawaiian Obligation when due. Insurance
is not affected by nor does it insure the price paid by
the Trust for the obligation. The market value of obligations
in the Trust will, from time to time, be affected by various
factors including the general movement of interest rates.
The value of the Trust's shares is not insured.
In order to attempt to reduce financial risk to the
Trust's investors, it is the Trust's current policy, which
may be changed, that the majority of the Trust's assets will
be invested in insured Hawaiian Obligations. However, if the
Board of Trustees determines that there is an inadequate
supply in the marketplace of Hawaiian Obligations covered by
New Issue Insurance and that appropriate Secondary Market
Insurance cannot be obtained for other Hawaiian Obligations
on terms that are financially advantageous to the Trust as a
result of market conditions or other factors, then the Trust
will invest in Hawaiian Obligations that are not insured. Use
of insurance is not a fundamental policy of the Trust.
New Issue Insurance is obtained by the issuer of the
Hawaiian Obligations and all premiums respecting such
securities are paid in advance by such issuer. Such policies
are noncancelable and continue in force so long as the Hawaiian
Obligations are outstanding and the insurer remains in business.
The Trust may also purchase Secondary Market Insurance
on any Hawaiian Obligation purchased by the Trust. By
purchasing Secondary Market Insurance, the Trust will
obtain, upon payment of a single premium, insurance against
nonpayment of scheduled principal and interest for the
remaining term of the Hawaiian Obligation, regardless of
whether the Trust then owned such security. Such insurance
coverage is noncancelable and continues in force so long
as the security so insured is outstanding and the insurer
remains in business. The purposes of acquiring Secondary
Market Insurance are to insure timely payment of principal
and interest when due, and to enable the Trust to sell a
Hawaiian Obligation to a third party as a high rated
insured Hawaiian Obligation at a market price greater
than what otherwise might be obtainable if the security
were sold without the insurance coverage. There is no
assurance that such insurance can be obtained at rates
that would make its purchase advantageous to the Trust.
New Issue Insurance and Secondary Market Insurance
will be obtained from some or all of the following:
Municipal Bond Investors Assurance Corporation ("MBIA"),
Financial Guaranty Insurance Company ("FGIC") and AMBAC
Indemnity Corporation ("AMBAC Indemnity"). See the
Additional Statement for information about these companies.
The Trust may also purchase insurance from, or Hawaiian
Obligations insured by, other insurers.
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 1995 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. Despite the lower unemployment
rate and strong growth in tourism, business activity in the
state remained sluggish. Disinflation has accompanied the
lower growth rate.
Tourism is the State's principal industry. Tourist
arrivals and spending provided a needed boost to the Hawaiian
economy in 1995. The decline in construction, underway
since mid-1991, continued.
Value retailers from the mainland have been
aggressively penetrating island markets for several years.
As a result, local retailers have been 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 continues
at a low level, 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, during 1995, Hawaii
was able to create only slightly more jobs than it lost,
leaving the job count between 1993 and 1995 virtually
unchanged.
The prolonged weakness has resulted in pressures
for the State to achieve a balanced budget by significant
cuts in expenditures. These reductions will pressure
government to operate in a much leaner and more efficient
manner.
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 of each class 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"). The net asset value per share is
determined by dividing the value of the net assets (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
Institutional Class Shares (Class Y Shares) are offered
only to institutional investors for investments held in a
fiduciary, advisory, agency, custodial or similar capacity, or
through them to their clients, and are not offered directly to
retail customers. Class Y Shares are offered at net asset value
with no sales charge, no redemption fee, no contingent deferred
sales charge and no distribution fee.
How to Purchase Class Y Shares
Class Y Shares of the Trust 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: (i) order the shares through your
investment broker or dealer, if it is a selected dealer; or
(ii) mail the Application with payment to Administrative Data
Management Corp. (the "Agent") at the address on the
Application. There is no sales charge on initial or
subsequent investments. You are urged to complete an
Application and send it to the Agent so that expedited
shareholder services can be established at the time of your
investment.
The minimum initial investment for Class Y Shares
is $1,000, except as otherwise stated in the Prospectus or
Additional Statement. You may also make an initial investment
by establishing an Automatic Investment Program . To do this
you must open an account for automatic investments of at least
$50 each month and make an initial investment of at least $50.
(See below and "Automatic Investment Program" in the
Application.) Such investment must be 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 Class Y Shares in any amount (unless
you have an Automatic Withdrawal Plan). Your subsequent
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.
Subsequent investments of $50 or more in Class Y Shares
can be made by electronic funds transfer from your demand
account at a Financial Institution. To use electronic funds
transfer for your purchases, your Financial Institution must
be a member of the Automated Clearing House and the Agent must
have received your 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 for Class Y Shares is the net asset
value per share. The offering price determined on any day
applies to all purchase orders received by the Agent 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.
Possible Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales
of any class of shares of the Trust. Additional compensation
may 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 taken
by qualifying registered representatives 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 all classes 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.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
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). No share certificates
will be issued for Class Y Shares.
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. No payments under the Plan from assets
represented by Class Y Shares are authorized.
The Plan contains provisions 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.
The Trust believes that except for payments made with respect
to Class A Shares and Class C Shares it is not financing any
such activity and does not consider any payment enumerated in
such provisions as so financing any such activity. 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 Class Y 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 penalties on redemption of Class Y Shares.
A redemption may result in a transaction taxable to you.
For your convenience the Trust offers expedited
redemption for Class Y Shares 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
of any class not represented by certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make
payments
a) to a Financial Institution account you have
predesignated or
b) by check in the amount of $50,000 or less, mailed
to you, if your shares are registered in your name
at the Trust and the check is sent to your address
of record, provided that there has not been a change
of your address of record during the 30 days
preceding your redemption request. You can make
only one request for telephone redemption by check
in any 7-day period.
See "Redemption Payments," below for payment methods. Your
name, your account number and your address of record
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(s) and number, name of the caller,
the 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
07095-1198, indicating account name(s), 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
If you own Class Y Shares registered 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 07095-1198, containing:
Account Name(s);
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
below.
For a 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. Signature
guarantees may be required if sufficient documentation is
not on file with the Agent. Additional documentation may be
required where shares are held by certain types of shareholders
such as corporations, partnerships, trustees or executors,
or if redemption is requested by other than the shareholder of
record. If redemption proceeds of $50,000 or less are payable
to the record holder and are to be sent to the record address,
no signature guarantee is required, except as noted above. 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.
Redemption Payments
Redemption payments will ordinarily be mailed to you at
your address of record. If you so request and the amount of
your redemption proceeds is $1,000 or more, the proceeds will,
wherever possible, be wired or transferred through the
facilities of the Automated Clearing House to the Financial
Institution account specified in the Expedited Redemption
section of your Application or Ready Access Features form.
The Trust may impose a charge, not exceeding $5.00 per wire
redemption, after written notice to shareholders who have
elected this redemption procedure. 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 fee is presently contemplated. If any such changes are
made, the Prospectus will be supplemented to reflect them. If
you use a broker or dealer to arrange for a redemption, it
may charge you a fee 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 or failure to meet the minimum investment level
under an Automatic Purchase Program. 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.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you
own or purchase shares Class Y 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 the Prospectus, the Additional
Statement under "Automatic Withdrawal Plan," and "Dividend
and Tax Information" below.
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,
1996 the Adviser had over $12 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 manager 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 founder and
administrator to the Aquilasm Group of Funds, which
consists of tax-free municipal bond funds, money market
funds and two equity funds. As of June 30, 1996, these funds
had aggregate assets of approximately $2.6 billion, of which
approximately $1.9 billion consisted of assets of 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, 1996
fees of $929,291 and $1,725,826, 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 (seven tax-free municipal
bond funds, five money market funds and two equity funds)
including the Trust. 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.
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 discount, less expenses paid or accrued. As such net
income will vary, the Trust's dividends will also vary.
Dividends and other distributions paid by the Trust with
respect to each class of its shares are calculated at the
same time and in the same manner. The dividends of each
class can vary because each class will bear certain
class-specific charges.
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 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 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." "Exempt-interest
dividends" are exempt from regular Federal income tax. The
allocation of "exempt-interest dividends" 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, 1996, 98.69% of the
Trust's dividends were "exempt-interest dividends." For the
calendar year 1995, 1.18% of the total dividends paid were
taxable. (These amounts relate to dividends on Class A
Shares; no Class Y Shares were outstanding during that
period.) 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) and any other distributions that
do not qualify as "exempt-interest dividends," 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. Although
"exempt-interest 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 dividends 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 or carry 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 two equity funds (the "Bond or Equity Funds") and certain
money market funds (the "Money-Market Funds"), all of which
are sponsored by Aquila Management Corporation and Aquila
Distributors, Inc., and have the same Administrator and
Distributor as the Trust. All exchanges are subject to
certain conditions described below. As of the date of the
Prospectus, the Aquila-sponsored Bond or Equity Funds are
this Trust, Aquila Rocky Mountain Equity Fund, Aquila
Cascadia Equity Fund, Tax-Free Trust of Arizona, Tax-Free
Trust of Oregon, Tax-Free Fund of Colorado, Churchill Tax-
Free Fund of Kentucky, Tax-Free Fund For Utah and
Narragansett Insured Tax-Free Income Fund. At the date of
this Prospectus, the Aquila-sponsored 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) and
Churchill Cash Reserves Trust.
Class Y Shares of the Trust may be exchanged only
for Class Y Shares of the Bond or Equity Funds or for shares
of a Money-Market Fund.
Under the Class Y exchange privilege, once Class Y
Shares of any Bond or Equity Fund have been purchased,
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 Class Y Shares of the Bond or Equity Funds without the
payment of any sales charge.
The "Class Y Eligible Shares" of any Bond or Equity
Fund are those shares which were (a) acquired by direct
purchase including by exchange by an institutional investor
from a Money-Market Fund, or which were received in exchange
for Class Y Shares another Bond or Equity Fund; or (b)
acquired as a result of reinvestment of dividends and/or
distributions on otherwise Class Y Eligible Shares. Shares
of a Money-Market Fund not acquired in exchange for Class
Y Eligible Shares of a Bond or Equity Fund can be exchanged
for Class Y Shares of a Bond or Equity Fund only by persons
eligible to make an initial purchase of Class Y Shares.
This Trust, as well as the Money-Market Funds and other
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, the 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; (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 and (iii) the ownership of the accounts from
which and to which the exchange is made are identical.
The Agent will accept telephone exchange instructions
from anyone. To make a telephone exchange 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(s) and number, name of the caller,
the 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.
Exchanges of Class Y Shares will be effected at the relative
net asset values of the Class Y Shares being exchanged next
determined after receipt by the Agent of your exchange request.
Prices for exchanges are determined in the same manner as for
purchases of the Trust's shares. See "How to Invest in the
Trust."
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.
Dividends paid by Aquila Rocky Mountain Equity Fund and Aquila
Cascadia Equity Fund are taxable. If your state of residence is
not the same as that of the issuers of obligations in which a
tax-free municipal bond 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 any applicable 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 applicable 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
the Trust's income net of fee waivers and reimbursement of
expenses, if any, and will assume the payment of the maximum
sales charge, if any, on the purchase of shares, but not on
reinvestment of income dividends . 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 upon request
and 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 of its class; shares of the
respective classes represent proportionate interests in the Trust
in accordance with their respective net asset values. Upon
liquidation of the Trust, shareholders are entitled to share
pro-rata in the net assets of the Trust available for
distribution to shareholders, in accordance with the respective
net asset values of the shares of each of the Trust's classes at
that time. All shares are presently divided into three classes;
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 (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.
The other two classes of shares of the Trust are
Front-Payment Class Shares ("Class A Shares") and Level-Payment
Class Shares ("Class C Shares"), which are fully described in a
separate prospectus that can be obtained by calling the Trust at
800-228-4227.
The primary distinction among the Trust's three classes of
shares lies in their different sales charge structures and
ongoing expenses, which are likely to be reflected in differing
yields and other measures of investment performance. All three
classes represent interests in the same portfolio of Hawaiian
Obligations and have the same rights, except that each class
bears the separate expenses, if any, of its Distribution Plan and
has exclusive voting rights with respect to its Plan. There are
no Distribution fees with respect to Class Y Shares.
Dividends and other distributions paid by the Trust with
respect to shares of each class are calculated in the same manner
and at the same time, but may differ depending upon the
distribution and service fees, if any, and other class-specific
expenses borne by each class.
The Trust's Distribution Plan has three parts. In addition
to the defensive provisions described above, Parts I and II of
the Plan authorize payments, to certain "Qualified Recipients,"
out of the Trust's assets allocable to the Class A Shares and
Class C Shares, respectively. See the Additional Statement. The
Trust has also adopted a Shareholder Services Plan under which
the Trust is authorized to make certain payments out of the
Trust's assets allocable to the Class C Shares. See the
Additional Statement.
Ownership of Shares of the Trust
Of the shares of the Trust outstanding on July 2, 1996,
Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ,
held of record 8,982,087 shares (15.4%), all of which were Class
A Shares. The Trust's management is not aware of any other person
beneficially owning more than 5% of its outstanding shares as of
such date. On the basis of information received from the holder,
the Trust's management believes that all of the shares indicated
are held for the benefit of clients.
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one (1) vote for each dollar of net asset value (determined as of
the record date for the meeting) per share held (and
proportionate fractional votes for fractional dollar amounts).
Shareholders will vote on the election of Trustees and on other
matters submitted to the vote of shareholders. Shares vote by
classes on any matter specifically affecting one or more classes,
such as an amendment of an applicable part of the Distribution
Plan. No amendment may be made to the Declaration of Trust
without the affirmative vote of the holders of a majority of the
outstanding shares of the Trust, except that the Trust's Board of
Trustees may change the name 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.
<PAGE>
APPLICATION FOR HAWAIIAN TAX-FREE TRUST
FOR CLASS Y SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
ADM, ATTN: AQUILASM GROUP OF FUNDS
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
Tel.# 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.________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minor's 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:________________________
Employer's 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 and not 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
Indicate Method of Payment (For either method, make check
payable to: HAWAIIAN TAX-FREE TRUST)
___Initial Investment $ ______________ (Minimum investment $1,000)
___Automatic Investment $______________ (Minimum $50)
For Automatic Investment of at least $50 per month, you must complete
Step 3, Section A, Step 4, Sections A & B and ATTACH A PRE-PRINTED
DEPOSIT SLIP OR VOIDED CHECK.
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 1B.
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 1-800-437-1000. 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. 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.
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
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.
- - 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.
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 Trusts 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.
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
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
LEGAL 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 12
Net Asset Value Per Share 13
How To Invest In The Trust 13
How To Redeem Your Investment 16
Automatic Withdrawal Plan 18
Management Arrangements 19
Dividend And Tax Information 21
Exchange Privilege 25
General Information 26
Application
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
July 31, 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 July 31, 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 07095-1198 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, 1996 (audited) will be delivered with the Additional
Statement.
TABLE OF CONTENTS
Investment of the Trust's Assets . . . . . . . . . . . . . . .2
Municipal Bonds . . . . . . . . . . . . . . . . . . . . . . . 10
Performance . . . . . . . . . . . . . . . . . . . . . . . . . 11
Investment Restrictions . . . . . . . . . . . . . . . . . . . 14
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . 15
Shareholder Services Plan. . . . . . . . . . . . . . . . . . . 21
Limitation of Redemptions in Kind . . . . . . . . . . . . . . 23
Trustees and Officers . . . . . . . . . . . . . . . . . . . . 23
Additional Information as to Management Arrangements . . . . . 30
Computation of Net Asset Value . . . . . . . . . . . . . . . . 34
Automatic Withdrawal Plan. . . . . . . . . . . . . . . . . . . 35
Additional Tax Information . . . . . . . . . . . . . . . . . . 36
Conversion of Class C Shares . . . . . . . . . . . . . . . . . 36
General Information . . . . . . . . . . . . . . . . . . . . . 37
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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, 1996, in Hawaiian Obligations in
the various rating categories:
Highest rating (1) . . . . . . . . . . . . . . . . . . . . 75.5%
Second highest rating (2). . . . . . . . . . . . . . . . . 14.2%
Third highest rating (3) . . . . . . . . . . . . . . . . . . 3.6%
Fourth highest rating (4). . . . . . . . . . . . . . . . . . 0.0%
Not rated: . . . . . . . . . . . . . . . . . . . . . . . . . 6.7%
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
which would be applicable if the Trust were to use 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 Standard & Poor's 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.
Insurance Feature
As a matter of practice, insurers of municipal obligations
provide insurance only on issues which on their own credit rating
are of investment grade, i.e., those within the top four credit
ratings of the Nationally Recognized Statistical Rating
Organizations. In some instances, insurers restrict issuance of
insurance to those issues which would be credit rated "A" or
better by those organizations. These practices by the insurers
tend to reduce the risk that they might not be able to respond to
the default in payment of principal or interest on any particular
issue.
In general, New Issue Insurance provides that if an issuer
fails to make payment of principal or interest on an insured
Obligation, the payment will be made promptly by the insurer.
There are no deductible clauses, the insurance is non-cancelable
and the tax-exempt character of any payment in respect of
interest received is not affected. Premiums for such insurance
are not paid by the Trust but are paid once and for all for the
life of the issue at the time the securities are issued,
generally by the issuer and sometimes by the underwriter. The
right to receive the insurance proceeds is a part of the security
and is transferable on any resale.
The following information regarding Municipal Bond Investors
Assurance Corporation ("MBIA"), Financial Guaranty Insurance
Company ("Financial Guaranty") and AMBAC Indemnity Corporation
("AMBAC Indemnity"),has been derived from publicly available
information. The Trust has not independently verified any of the
information, but the Trust is not aware of facts which would
render such information inaccurate.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance
corporation, regulated by the Insurance Department of the State
of Wisconsin, and licensed to do business in 50 states and the
District of Columbia. AMBAC Indemnity is a wholly-owned
subsidiary of AMBAC, Inc., a publicly held company. AMBAC
Indemnity had admitted assets of approximately $1.9 billion
(unaudited) and qualified statutory capital of approximately $1.1
billion (unaudited) as of September 30, 1993. Statutory capital
consists of AMBAC Indemnity's statutory contingency reserve and
policyholders' surplus. The claims-paying ability of AMBAC
Indemnity is rated "AAA" by S&P and "Aaa" by Moody's.
MBIA is a limited liability corporation domiciled in New
York and licensed to do business in 50 states and the District of
Columbia. It is the principal operating subsidiary of MBIA Inc.,
a New York Stock Exchange listed company. Neither MBIA Inc. nor
its shareholders are obligated to pay the debts of or claims
against MBIA. As of September 30, 1993, MBIA had admitted assets
of approximately $3.0 billion (unaudited), total liabilities of
approximately $2.0 billion (unaudited) and total capital and
surplus of approximately $951 million (unaudited). The
claims-paying ability of MBIA is rated "AAA" by S&P and "Aaa" by
Moody's.
Financial Guaranty is a New York stock insurance company
regulated by the New York State Department of Insurance and
authorized to provide insurance in 49 states and the District of
Columbia. Financial Guaranty is a wholly-owned subsidiary of FGIC
Corporation, a Delaware holding company, which is 99% owned by
General Electric Capital Corporation and 1% owned by Sumitomo
Marine and Fire Insurance Company Limited. Neither FGIC
Corporation nor GE Capital Corporation is obligated to pay the
debts of or the claims against Financial Guaranty. As of
September 30, 1993, Financial Guaranty's total capital and
surplus was approximately $745 million. The claims-paying ability
of Financial Guaranty is rated "AAA" by S&P and "Aaa" by Moody's.
Other insurance companies from which the Trust may purchase
insurance from, or may purchase Obligations insured by, include
the following:
Financial Security Assurance Co., which is owned by U.S.
West Capital Corp. (61%), Public & Employees (22.1%), Fund
America Enterprises (7.6%) and Tokyo Marine & Fire Insurance Co,
Ltd. (7.4%); Publicly held (24.6%) it is rated Aaa by Moody's and
AAA by S&P;
Connie Lee Insurance Company, a semi-public company, owned
by Student Loan Marketing Association (36.1%), Private
Shareholders (30.0%), PA School Employees Retirement System (20%)
and the U.S.Department of Education (14%); it is rated AAA by S&P
and not rated by Moody's; and
Capital Guaranty Insurance Co., owned by Constellation
Investments, Inc. (12.6%), Safeco (3.0%), Sibag Finance Corp.
(1.8%) and 82% by the public; it is rated Aaa by Moody's and AAA
by S&P.
The Fund may also use other insurers. However, the Fund will
seek to ensure that any insurer used will itself have a AAA or
Aaa rating.
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.
As stated in the Prospectus, 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. In
determining marketability of any such securities, 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 and are
computed separately for each of the Trust's three classes. Each
of these and other methods that may be used by the Trust are
described in the following material. Prior to April 1, 1996, the
Trust had outstanding only one class of shares which are
currently designated Class A Shares, Front-Payment Class Shares."
On that date, the Trust began to offer shares of two other
classes, Class C Shares, "Level- Payment Class Shares" and Class
Y Shares, "Institutional Class Shares." During the historical
periods listed below, there were no Class C Shares or Class Y
Shares outstanding and the information below relates solely to
Class A Shares.
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, if any,
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%) on
purchases of Class A Shares 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, 1996, were respectively, 2.91%, 5.99%, 6.55% and
7.95%.
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 period 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, 1996, were
respectively 2.91%, 34.45% 88.55% and 134.06%. 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, 1996, (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, 1996) was 4.67%.
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, 1996, (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, 1996) was
8.54%.
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 45.64% 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. If distribution rates are published, they will be
accompanied by calculations of current yield in accordance with
the formula of the Securities and Exchange Commission.
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 has three parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II) and to certain defensive provisions (Part III).
Provisions Relating to Class A Shares (Part I)
At the date of the 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.
Part I of the Plan applies only to the Front-Payment Class
Shares ("Class A Shares") of the Trust (regardless of whether
such class is so designated or is redesignated by some other
name).
As used in Part I of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements in connection
with Part I ("Class A Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Trust's Front-Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Front-Payment Class 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 shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Board of
Trustees of the Trust, the Trust may make payments ("Class A
Permitted Payments") to Qualified Recipients, which Class A
Permitted Payments may be made directly, or through the
Distributor or shareholder servicing agent 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 represented by the Front-Payment
Class Shares. Such payments shall be made only out of the Trust's
assets allocable to the Front-Payment Class Shares. The
Distributor shall have 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 Class A Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class A Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above.
Payments under the Plan commenced as of July 1, 1992 with
respect to shares currently designated as Class A Shares. During
the fiscal years ended March 31, 1996, 1995 and 1994, $1,330,035,
$1,275,442 and $1,287,884, respectively were paid under the Plan
to Qualified Recipients. Of those amounts, $78,658, $70,008 and
$68,194, respectively, were paid to the Distributor.
The Distributor is authorized, 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 with respect to holders of Front Payment Shares,
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
Distributor 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. 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.
While Part I is in effect, the Trust's Distributor shall
report at least quarterly to the Trust's Trustees in writing for
their review on the following matters: (i) all Class A Permitted
Payments made under Section 9 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Trust, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Trust an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part I originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part I of the Plan; and (ii) by a vote of holders of at
least a "majority" (as so defined) of the outstanding voting
securities of the Front-Payment Class Shares class (or of any
predecessor class or category of shares, whether or not
designated as a class) and a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities
of the Level-Payment Class Shares and/or of any other class whose
shares are convertible into Front-Payment Class Shares. Part I
has continued, and will, unless terminated as hereinafter
provided, continue in effect, until the June 30 next succeeding
such effectiveness, and from year to year thereafter only so long
as such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part I may be terminated at any time by the 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 to which Part I
applies. Part I may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part I as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class A Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Trust, the Class A Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Trust's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class A Plan Agreements entered into thereafter.
Provisions relating to Class C Shares (Part II)
Part II of the Plan applies only to the Level Payment Shares
Class ("Class C Shares") of the Trust (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part II of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements in connection
with Part II ("Class C Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Trust's Level- Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Level-Payment Class 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 shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Trust's Board of
Trustees, the Trust may make payments ("Class C Permitted
Payments") to Qualified Recipients, which Class C Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent 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) 0.75 of 1% of the average annual net assets of the
Trust represented by the Level-Payment Class Shares. Such
payments shall be made only out of the Trust's assets allocable
to the Level-Payment Class Shares. The Distributor shall have
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 Class C Permitted Payments, if any, to each
Qualified Recipient provided that the total Class C Permitted
Payments to all Qualified Recipients do not exceed the amount set
forth above. The Distributor is authorized, 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 with respect to holders of Level
Payment Shares, 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
Distributor 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. 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.
While Part II is in effect, the Trust's Distributor shall
report at least quarterly to the Trust's Trustees in writing for
their review on the following matters: (i) all Class C Permitted
Payments made under Section 15 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Trust, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Trust an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part II originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part II of the Plan; and (ii) by a vote of holders of
at least a "majority" (as so defined) of the outstanding voting
securities of the Level-Payment Class Shares . Part II has
continued, and will, unless terminated as hereinafter provided,
continue in effect, until the June 30 next succeeding such
effectiveness, and from year to year thereafter only so long as
such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part II may be terminated at any time by the 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 to which Part II
applies. Part II may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part II as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class C Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Trust, the Class C Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Trust's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class C Plan Agreements entered into thereafter.
Defensive Provisions (Part III)
Another part of the Plan (Part III) 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 and setting in type of all prospectuses and
statements of additional information and the costs of printing
and mailing all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of
preparation, 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.
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
Administrator and Distributor shall report at least quarterly to
the Trust's Board of Trustees in writing for their review on the
following matters: (i) all Permitted Payments made under this
Plan, the identity of the Qualified Recipient of each Payment,
and the purposes for which the amounts were expended; (ii) all
costs of each item of cost specified in the Plan (making
estimates of such costs where necessary or desirable) during the
preceding calendar or fiscal quarter; and (iii) all fees of the
Trust to the distributor, sub-adviser or administrator paid or
accrued during such quarter. In addition if any such Qualified
Recipient is an affiliate, as that term is defined in the Act, of
the Trust, the Adviser, the Administrator or the Distributor,
such person shall agree to furnish to the Distributor for
transmission to the Board of Trustees of the Trust an accounting,
in form and detail satisfactory to the Board of Trustees, to
enable the Board of Trustees to make the determinations of the
fairness of the compensation paid to such affiliated person, not
less often than annually.
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.
The Plan and each Part of it shall also be subject to all
applicable terms and conditions of Rule 18f-3 under the 1940 Act
as now in force or hereafter amended. Specifically, but without
limitation, the provisions of Part III shall be deemed to be
severable, within the meaning of and to the extent required by
Rule 18f-3, with respect to each outstanding class of shares of
the Trust.
SHAREHOLDER SERVICES PLAN
The Trust has adopted a Shareholder Services Plan (the
"Services Plan") to provide for the payment with respect to Class
C Shares of the Trust of "Service Fees" within the meaning of
Article III, Section 26(b)(9) of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. The Services
Plan applies only to the Class C Shares of the Trust (regardless
of whether such class is so designated or is redesignated by some
other name).
As used in the Services Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to the
Distributor and any other principal underwriter of the Trust, who
have, pursuant to written agreements with the Trust or the
Distributor, agreed to provide personal services to Level-Payment
Class Shares shareholders and/or maintenance of Level-Payment
Class Shares shareholder accounts. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Level-Payment Class
Shares beneficially owned by such Qualified Recipient's
customers, clients or other contacts. "Administrator" shall mean
Aquila Management Corporation or any successor serving as
sub-adviser or administrator of the Trust.
Subject to the direction and control of the Trust's Board of
Trustees, the Trust may make payments ("Service Fees") to
Qualified Recipients, which Service Fees (i) may be paid directly
or through the Distributor or shareholder servicing agent as
disbursing agent and (ii) 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 Services Plan are not accruable
or for any fiscal year which is not a full fiscal year), 0.25 of
1% of the average annual net assets of the Trust represented by
the Level-Payment Class Shares. Such payments shall be made only
out of the Trust's assets allocable to the Level-Payment Class
Shares. The Distributor shall have sole authority with respect to
the selection of any Qualified Recipient or Recipients and the
amount of Service Fees, if any, paid to each Qualified Recipient,
provided that the total Service Fees paid to all Qualified
Recipients may not exceed the amount set forth above and
provided, further, that no Qualified Recipient may receive more
than 0.25 of 1% of the average annual net asset value of shares
sold by such Recipient. The Distributor is authorized, 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 and (b) the extent
to which the Qualified Recipient has, at its expense, taken steps
in the shareholder servicing area with respect to holders of
Level-Payment Class Shares, 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; and
providing such other related services as the Distributor or a
shareholder may request from time to time. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. 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.
While the Services Plan is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's
Trustees in writing for their review on the following matters:
(i) all Service Fees paid under the Services Plan, the identity
of the Qualified Recipient of each payment, and the purposes for
which the amounts were expended; and (ii) all fees of the Trust
to the Distributor paid or accrued during such quarter. In
addition, if any Qualified Recipient is an "affiliated person,"
as that term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), of the Trust, the Adviser, the
Administrator or the Distributor, such person shall agree to
furnish to the Distributor for transmission to the Board of
Trustees of the Trust an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
The Services Plan has been approved by a vote of the
Trustees, including those Trustees who, at the time of such vote,
were not "interested persons" (as defined in the 1940 Act) of the
Trust and had no direct or indirect financial interest in the
operation of the Services Plan or in any agreements related to
the Service Plan (the "Independent Trustees"), with votes cast in
person at a meeting called for the purpose of voting on the
Services Plan. It will continue in effect for a period of more
than one year from its original effective date only so long as
such continuance is specifically approved at least annually as
set forth in the preceding sentence. It may be amended in like
manner and may be terminated at any time by vote of the
Independent Trustees.
The Services Plan shall also be subject to all applicable
terms and conditions of Rule 18f-3 under the Act as now in force
or hereafter amended.
While the Service Plan is in effect, the selection and
nomination of those Trustees of the Trust who are not "interested
persons" of the Trust, as that term is defined in the 1940 Act,
shall be committed to the discretion of such disinterested
Trustees. Nothing herein 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.
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 Chun-Hoon
Zen, a founding Trustee, resigned 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 and as a
shareholder of the Adviser's corporate parent. 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, President and Chairman of the Board of Aquila Management
Corporation since 1984, the sponsoring organization and
Administrator and/or Adviser or Sub-Adviser to the following
open-end investment companies, and Founder, Chairman of the Board
of Trustees, and President of each: Prime Cash Fund, 1982-1996;
Pacific Capital Cash Assets Trust since 1984; Short Term Asset
Reserves since 1984; Churchill Cash Reserves Trust since 1985;
Pacific Capital U.S. Treasuries Cash Assets Trust since 1988;
Pacific Capital Tax-Free Cash Assets Trust since 1988; each of
which is a money market fund, and together with Capital Cash
Management Trust ("CCMT") are called the Aquila Money-Market
Funds; Tax-Free Trust of Arizona since 1986; Tax-Free Trust of
Oregon since 1986; Tax-Free Fund of Colorado since 1987;
Churchill Tax-Free Fund of Kentucky since 1987; Tax-Free Fund For
Utah since 1992; and Narragansett Insured Tax-Free Income Fund
since 1992; each of which is a tax-free municipal bond fund, and
two equity funds, Aquila Rocky Mountain Equity Fund since 1993
and Aquila Cascadia Equity Fund since 1996, which, together with
this Trust are called the Aquila Bond and Equity Funds; Vice
President, Director, Secretary and formerly Treasurer of Aquila
Distributors, Inc. since 1981, distributor of the above funds;
President and Chairman of the Board of Trustees of CCMT, a money
market fund since 1981, and an Officer and Trustee/Director of
its predecessors since 1974; President and a Director of STCM
Management Company, Inc., sponsor and sub-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, and Founder and
Chairman of several other money market funds; Director or Trustee
of OCC Cash Reserves, Inc., Oppenheimer Quest Global Value Fund,
Inc., Oppenheimer Quest Value Fund, Inc., and Trustee of Quest
For Value Accumulation Trust, The Saratoga Advantage Trust, and
of the Rochester Group of Funds, each of which is an open-end
investment company; Trustee of Brown University, 1990-1996 and
currently Trustee Emeritus; 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 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, of Narragansett Insured Tax-Free
Income Fund since 1992, and of Aquila Cascadia Equity Fund since
1996; 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; Advisory Director of the Renaissance Companies (design
and construction companies of commercial, industrial and upscale
residential properties) since 1996; 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 8186, Naples,
Florida 33941
President of Courtney Associates, Inc., a venture capital firm,
since 1988; General Partner of Trivest Venture Fund, 1983-1988;
President of Federated Investment Counseling Inc., 1975-1982;
President of Boston Company Institutional Investors, Inc.,
1970-1975; 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
OCC Cash Reserves, Inc., Oppenheimer Quest Global Value Fund,
Inc., Oppenheimer Quest Value Fund, Inc., and Trustee of Quest
For Value Accumulation Trust and of the Rochester Group of Funds,
each of which is an open-end investment company.
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; Member the Boards of Aloha United Way Downtown
Improvement Association, Boys and Girls Club of Honolulu and
Oceanic Cablevision, Inc.
Stanley W. Hong, Trustee, 4976 Poola Street, Honolulu, Hawaii
96821
President and Chief Executive Officer of The Chamber of Commerce
of Hawaii since 1996; 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; Director of
Capital Investment of Hawaii, Inc. since 1995 (Real Estate and
Wholesale Bakery ); Director, Central Pacific Bank since 1995;
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
1989-1996, 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.
Sherri Foster, Senior Vice President, 100 Ridge Road, Suite 1813-
15, Lahaina, Hawaii 96761
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; 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.
John M. Herndon, Assistant Secretary, 380 Madison Avenue, New
York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995 and Vice President of the
Aquila Money-Market 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.
Rose F. Marotta, Chief Financial Officer, 380 Madison Avenue, New
York, New York 10017
Chief Financial Officer of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1991 and Treasurer, 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 Aquila Money-Market Funds and the Aquila 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 Aquila Money-Market Funds and the Aquila 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.
Patricia A. Craven, Assistant Secretary & Compliance Officer,
380 Madison Avenue, New York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila 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 Trust does not currently pay fees to any of the Trust's
officers or to Trustees affiliated with the Administrator or the
Adviser, except for Trustees affiliated with the Adviser solely
because of membership on its Board of Directors. During the
fiscal year ended March 31, 1996, the Trust paid $153,681 in fees
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 two
equity funds. The following table lists the compensation of all
Trustees who received compensation from the Trust and the
compensation they received during the Trust's fiscal year from
other funds in the Aquilasm Group of 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 $23,358 $47,210 7
Arthur K.
Carlson $10,150 $39,290 7
William M.
Cole $11,470 $31,403 5
Thomas W.
Courtney $10,897 $32,871 5
Richard W.
Gushman, II $10,450 $23,650 4
Stanley W.
Hong $11,300 $23,967 4
Theodore T.
Mason $10,559 $43,015 8
Russell K.
Okata $10,147 $23,070 4
Douglas
Philpotts $5,107 $10,307 4
Oswald K.
Stender $8,750 $20,302 4
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, 1996, all of
its transactions were principal transactions and no brokerage
commissions were paid.
For the three fiscal years ended March 31, 1996, 1995 and
1994, fees of $929,291, $893,788 and $903,787 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, 1996, 1995 and
1994, fees of $1,725,826, $1,659,892 and $1,678,461,
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 Class A Shares or
Class Y 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 of
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 the
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 investor'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.
CONVERSION OF CLASS C SHARES
Level Payment Class Shares ("Class C Shares") of the Trust,
which you hold will automatically convert to Front-Payment Class
Shares ("Class A Shares") of the Trust based on the relative net
asset values per share of the two classes as of the close of
business on the first business day of the month in which the
sixth anniversary of the your initial purchase of such Class C
Shares occurs. For these purposes, the date of your initial
purchase shall mean (1) the first business day of the month in
which such Class C Shares were issued to you, or (2) for Class C
Shares of the Trust you have obtained through an exchange or
series of exchanges under the Exchange Privilege (see "Exchange
Privilege" in the Prospectus), the first business day of the
month in which you made the original purchase of Class C Shares
so exchanged. For conversion purposes, Class C Shares purchased
through reinvestment of dividends or other distributions paid in
respect of Class C Shares will be held in a separate sub-account.
Each time any Class C Shares in your regular account (other than
those in the sub-account) convert to Class A Shares, a pro-rata
portion of the Class C Shares in the sub-account will also
convert to Class A Shares. The portion will be determined by the
ratio that your Class B Shares then converting to Class A Shares
bears to the total of your Class C Shares not acquired through
reinvestment of dividends and distributions.
The availability of the conversion feature is subject to the
continuing applicability of a ruling of the Internal Revenue
Service ("IRS"), or an opinion of counsel, that: (1) the
dividends and other distributions paid on Class A Shares and
Class C Shares will not result in "preferential dividends" under
the Code; and (2) the conversion of shares does not constitute a
taxable event. If the conversion feature ceased to be available,
the Class C Shares of the Trust would not be converted and would
continue to be subject to the higher ongoing expenses of the
Class C Shares beyond six years from the date of purchase. The
Trust has no reason to believe that these conditions for the
availability of the conversion feature will not continue to be
met.
If the Trust implements any amendments to its Distribution
Plan that would increase materially the costs that may be borne
under such Distribution Plan by Class A Shares shareholders,
Class C Shares will stop converting into Class A Shares unless a
majority of Class C Shares shareholders, voting separately as a
class, approve the proposal.
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.
Ownership of Securities
In addition to the ownership of Class A Shares described in
the Prospectus, of the Class C Shares of the Trust outstanding on
July 2, 1996, Kimiko Higo and Harold K. Higo as Trustees of the
Kimiko Higo Revocable Trust, Honolulu, HI held of record 1,344
shares (8.9%), Yoon Pro Kwak, Honolulu held of record 901 shares
(5.9%), Lawrence A. Julian for Jason K. Kawakamiu /HI/UTMA,
Honolulu, HI held of record 896 shares (5.9%), Teruko Takara as
Trustee of the Teruko Takara Trust, Honolulu, HI held of record
901 shares (5.9%), Lynne N. Chow and Nelson C.K. Chow held of
record 4,505 shares (29.7%). In addition, BHC Securities Inc.,
Philadelphia, PA held of record 4,516 shares (29.7%) and Merrill,
Lynch, Pierce, Fenner & Smith held of record 893 shares (5.8%).
On the basis of information received from the last two holders,
the Trust's management believes that all of the shares indicated
are held for the benefit of clients.
Of the Class Y Shares of the Trust outstanding on July 2,
1996, Aquila Management Corporation held of record 9 shares
(100%).
The Trust's management is not aware of any other person
beneficially owning more than 5% of its outstanding Class C
Shares or Class Y Shares as of such date.
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 or she 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 or her office.
Custodian and Auditors
The Trust's Custodian, Bank One Trust Company, N.A., is
responsible for holding the Trust's assets.
The Trust's auditors, KPMG Peat Marwick LLP, perform an
annual audit of the Trust's financial statements.
Underwriting Commissions
During the Trust's fiscal year ended March 31, 1996 the
aggregate dollar amount of sales charges on sales of shares of
the Trust was $1,330,035 and the amount retained by the
Distributor was $112,083.
Financial Statements
The financial statements of the Trust for the fiscal year
ended March 31, 1996, which are contained in the Annual Report
for that fiscal year, are hereby incorporated by reference into
the Additional Statement. The financial statements as of the end
of the Trust's fiscal year have been audited by KPMG Peat Marwick
LLP, independent auditors, whose report thereon is incorporated
herein by reference.
<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 & 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
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
LEGAL 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
ONE OF THE
AQUILASM GROUP OF FUNDS
</TABLE>
