Hawaiian Tax-Free Trust
380 Madison Avenue, Suite 2300
New York, New York 10017
800-228-4227212-697-6666
Prospectus
Class A Shares
Class C Shares April 1, 1996
The Trust is a mutual fund whose objective is to seek to provide as
high a level of current income exempt from Hawaiian State and
regular Federal income taxes as is consistent with preservation of
capital by investing primarily in obligations which pay interest
exempt from Hawaiian State and Federal income taxes. These
obligations must, at the time of purchase, either be rated within
the four highest credit ratings (considered as investment grade)
assigned by Moody's Investors Service, Inc. or Standard & Poor's
Corporation or, if unrated, be determined to be of comparable
quality by the Trust's investment adviser, Hawaiian Trust Company,
Limited.
This Prospectus concisely states information about the Trust
that you should know before investing. A Statement of Additional
Information dated April 1, 1996, about the Trust (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
Administrative Data Management Corp., the Trust's Shareholder
Servicing Agent, at the address given below, or by calling the
telephone number(s) given below. The Additional Statement contains
information about the Trust and its management not included in this
Prospectus. The Additional Statement is incorporated by reference
in its entirety in this Prospectus. Only when you have read both
the Prospectus and the Additional Statement are all material facts
about the Trust available to you.
Shares of the Trust are not deposits in, obligations of or
guaranteed or endorsed by 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 PASSES UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
HIGHLIGHTS
Hawaiian Tax-Free Trust, founded by Aquila Management
Corporation in 1984 and one of the Aquilasm Group of Funds, is an
open-end mutual fund which invests in tax-free municipal bonds, the
kind of obligations issued by the State of Hawaii, its counties and
various other local authorities to finance such long-term projects
as schools, roads, hospitals, housing and harbor facilities
throughout Hawaii. (See "Introduction.")
Tax-Free Income - The municipal obligations in which the Trust
invests pay interest which is exempt from both regular Federal and
State of Hawaii income taxes. Dividends paid by the Trust from this
income are likewise free of both such taxes. It is, however,
possible that in certain circumstances, a small portion of the
dividends paid by the Trust will be subject to income taxes. In
addition, the Federal alternative minimum tax ("AMT") may apply to
some investors, but its impact will be limited, since not more than
20% of the Trust's net assets can be invested in obligations paying
interest which is subject to this tax. The receipt of
exempt-interest dividends from the Trust may result in some portion
of social security payments or railroad retirement benefits being
included in taxable income. Capital gains distributions, if any,
are taxable. (See "Dividend and Tax Information.")
Investment Grade - 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 and Poor's Corporation or are determined by the Adviser
to be of comparable quality. In general there are nine separate
credit ratings, ranging from the highest to the lowest credit
ratings for municipal obligations. Obligations within the top four
ratings are considered "investment grade" but those in the fourth
rating may have speculative characteristics as well. (See
"Investment of the Trust's Assets.")
Initial Investment - You may open your account with any
purchase of $1,000 or more 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
"Service Plan.") Six years after the date of purchase, Class
C Shares are automatically converted to Class A Shares. In
addition, Class C Shares are subject to a contingent deferred
sales charge ("CDSC") if redeemed before they have been held
for 12 months from the date of purchase; 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
on which consists of over 260 separate issues with different
maturities. (See "Investment of the Trust's Assets.")
Local Portfolio Management - Hawaiian Trust Company, Limited
serves as the Trust's Investment Adviser, providing experienced
local professional management. It is a subsidiary of Bank of
Hawaii, was founded in 1898 and is the oldest and largest trust
company in Hawaii, administering approximately $11 billion in
client assets, including investment authority over $1 billion in
Hawaiian municipal bonds. The Trust pays monthly fees to its
Adviser and to its Administrator at an aggregate rate of 0.40% of
average annual net assets. (See "Table of Expenses" and "Management
Arrangements.")
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
"Purchases 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 an equity
fund. 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, proceeds of
redemption 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 "Risks and Special Considerations Regarding
Investment in Hawaiian Obligations.") Moreover, the Trust is
classified as a "non-diversified" investment company, because it
may choose to invest in the obligations of a relatively limited
number of issuers. (See "Investment of the Trust's Assets.")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 A Class C
Shareholder Transaction Expenses Shares Shares
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases 4.00% None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None None
Deferred Sales Charge 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 Fee 0.20% 0.75%
All other expenses (4) 0.43% 0.68%
Administration Fee 0.26% 0.26%
Service Fee None 0.25%
Other Expenses (4) 0.17% 0.17%
Total Trust Operating Expenses (4) 0.77% 1.57%
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>
One Three Five Ten
Year Years Years Years
Class A Shares $48 $64 $81 $132
Class C Shares
With complete redemption
at end of period $26 $50 $86 $145 (6)
With no redemption $16 $50 $86 $145 (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" on page 19.
</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, restated to reflect current arrangements.
During that period, only Class A Shares were outstanding.
</FN>
<FN>
(4) Does not reflect a 0.02% 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 0.15%, 0.41% and 0.75%,
respectively; for Class C Shares, these expenses would have
been 0.15%, 0.66% and 1.55%, 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% ANNUAL RATE OF RETURN 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 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, 1995 has been audited by KPMG Peat
Marwick LLP, independent auditors, whose report thereon is included
in the Trust's financial statements contained in its Annual Report,
which are incorporated by reference into the Additional Statement.
The information provided in the table should be read in conjunction
with the financial statements and related notes. On October 24, 1989,
Aquila Management Corporation, originally the Trusts Sub-Adviser and
Administrator, became Administrator only.
Six Months Year ended March 31,
Ended 1995 1994 1993
9/30/95
(unaudited)
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning
of Period $11.13 $11.19 $11.60 $11.10
Income from
Investment Operations:
Net investment
income 0.31 0.62 0.63 0.68
Net gain (loss) on
securities (both
realized and
unrealized).......... 0.22 (0.01) (0.38) 0.50
Total from Investment
Operations........... 0.53 0.61 0.25 1.18
Less Distributions:
Dividends from net
investment income (0.31) (0.62) (0.63) (0.68)
Distributions from
capital gains - (0.05) (0.03) -
Total Distributions... (0.31) (0.67) (0.66) (0.68)
Net Asset Value,
End of Period......... $11.35 $11.13 $11.19 $11.60
Total Return (not
reflecting sales
load) 4.77% 5.75% 2.01% 10.98%
Ratios/Supplemental
Data
Net Assets,
End of Period (in
thousands) $661,279 $642,556 $640,465 $597,828
Ratio of Expenses
to Average Net
Assets 0.72%* 0.75% 0.74% 0.71%
Ratio of Net
Investment
Income to Average
Net Assets........... 5.38%* 5.65% 5.46% 5.92%
Portfolio Turnover
Rate 23%# 33% 16% 11%
Net investment income per share and the ratios of income and expenses
to average net assets without the Adviser's and Administrator's
voluntary waiver of fees and the expense offset in custodian fees
for uninvested cash balances would have been:
Net Investment
Income $0.31 $0.62 $0.63 $0.68
Ratio of Expenses
to Average Net
Assets 0.72%* 0.77% 0.76% 0.73%
Ratio of Net
Investment Income
to Average Net
Assets................ 5.38%* 5.63% 5.44% 5.90%
<CAPTION>
1992 1991 1990 1989 1988 1987 1986
<C> <C> <C> <C> <C> <C> <C>
$10.85 $10.78 $10.60 $10.60 $11.14 $11.02 $9.54
0.71 0.72 0.74 0.75 0.75 0.77 0.85
0.25 0.07 0.18 - (0.54) 0.13 1.46
0.96 0.79 0.92 0.75 0.21 0.90 2.31
(0.71) (0.72) (0.74) (0.75) (0.75) (0.78) (0.83)
- - - - - - -
(0.71) (0.72) (0.74) (0.75) (0.75) (0.78) (0.83)
$11.10 $10.85 $10.78 $10.60 $10.60 $11.1 $11.02
9.15% 7.62% 8.88% 7.23% 2.18% 8.52% 25.37%
$475,469 $397,258 $336,503 $254,098 $224,321 $192,462 $90,709
0.70% 0.71% 0.73% 0.78% 0.77% 0.85% 0.61%
6.44% 6.68% 6.80% 7.02% 7.06% 6.88% 7.80%
16% 27% 7% 19% 34% 20% 32%
$0.71 $0.72 $0.74 $0.75 $0.75 $0.77 $0.80
0.72% 0.73% 0.80% 0.80% 0.78% 0.87% 1.07%
6.42% 6.67% 6.75% 7.00% 7.04% 6.86% 7.33%
<FN>
# Not annualized.
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Trust's shares are designed to be a suitable investment
for individuals, corporations, institutions and fiduciaries who
seek income exempt from regular Federal and Hawaiian State income
taxes.
You may invest in shares of the Trust as an alternative to
direct investments in Hawaiian Obligations, as defined below, which
may include obligations of certain non-Hawaiian issuers. The Trust
offers you the opportunity to keep assets fully invested in a
vehicle that provides a professionally managed portfolio of
Hawaiian Obligations which may, but not necessarily will, be more
diversified, higher yielding or more stable and more liquid than
you might be able to obtain on an individual basis by direct
purchase of Hawaiian Obligations. In some cases, the portfolio may
also contain taxable investments. Through the convenience of a
single security consisting of shares of the Trust, you are also
relieved of the inconvenience associated with direct investments of
fixed denominations, including the selecting, purchasing, handling,
monitoring call provisions and safekeeping of Hawaiian Obligations.
Hawaiian Obligations are a type of municipal obligation.
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies, and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes; bond
anticipation notes; construction loan notes and floating and
variable rate demand notes. Municipal obligations include municipal
lease/purchase agreements which are similar to installment purchase
contracts for property or equipment. The purposes for which
municipal obligations are issued include the construction of a wide
range of public facilities such as highways, bridges, schools,
hospitals, housing, mass transportation, streets and water and
sewer works. Other public purposes for which municipal obligations
may be issued include the refunding of outstanding obligations, the
obtaining of funds for general operating expenses and the obtaining
of funds to lend to other public institutions and facilities.
INVESTMENT OF THE TRUST'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both Hawaiian State and regular
Federal income taxes as is consistent with the preservation of
capital, the Trust will invest primarily in Hawaiian Obligations
(as defined below). There is no assurance that the Trust will
achieve its objective, which is a fundamental policy of the Trust.
(See "Investment Restrictions.") The Trust may also invest in
Taxable Short-Term Obligations (as defined below). Although it has
no present intention of doing so, it may purchase and sell futures
contracts on municipal bond indices and on U.S. Government
securities and may write and purchase put and call options on these
contracts (see below).
As used in this Prospectus and the Additional Statement, the
term "Hawaiian Obligations" means obligations, including those of
certain non-Hawaiian issuers, of any maturity which pay interest
which, in the opinion of bond counsel or other appropriate counsel,
is exempt from Hawaiian State and regular Federal income taxes.
Although exempt from regular Federal income tax, interest paid on
certain types of Hawaiian Obligations, and dividends which the
Trust might pay from this interest, are preference items as to the
Federal alternative minimum tax; for further information, see
"Dividend and Tax Information." As a fundamental policy, at least
80% of the Trust's net assets will be invested in Hawaiian
Obligations the income paid upon which will not be subject to the
alternative minimum tax; accordingly, the Trust can invest up to
20% of its net assets in obligations which are subject to the
Federal alternative minimum tax. The Trust may refrain entirely
from purchasing these types of Hawaiian Obligations. For further
information, see "Dividend and Tax Information."
The non-Hawaiian bonds or other obligations the interest on
which is exempt under present law from Hawaiian State and regular
Federal income taxes are those issued by or under the authority of
Guam, Northern Mariana Islands, Puerto Rico and the Virgin Islands.
As a Hawaii-oriented trust, at least 65% of the Trust's total
assets will be invested in Hawaiian Obligations of Hawaiian
issuers.
In general, there are nine separate credit ratings, ranging
from the highest to the lowest quality standards for municipal
obligations. So that the Trust will have a portfolio of
quality-oriented (investment grade) securities, the Hawaiian
Obligations which the Trust will purchase must, at the time of
purchase, either (i) be rated within the four highest credit
ratings assigned by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"); or (ii) if unrated, be
determined to be of comparable quality to municipal obligations so
rated, by Hawaiian Trust Company, Limited (the "Adviser"), the
Trust's investment adviser, subject to the direction and control of
the Trust's Board of Trustees. Municipal obligations rated in the
fourth highest credit rating are considered by such rating agencies
to be of medium quality and thus may present investment risks not
present in more highly rated obligations. Such bonds lack
outstanding investment characteristics and may in fact have
speculative characteristics as well; changes in economic conditions
or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case
for higher grade bonds. If after purchase the rating of any rated
Hawaiian Obligation is downgraded such that it could not then be
purchased by the Trust, or, in the case of an unrated Hawaiian
Obligation, if the Adviser determines that the unrated obligation
is no longer of comparable quality to those rated obligations which
the Trust may purchase, it is the current policy of the Trust to
cause any such obligation to be sold as promptly thereafter as the
Adviser in its discretion determines to be consistent with the
Trust's objectives; such obligation remains in the Trust's
portfolio until it is sold. In addition, because a downgrade often
results in a reduction in the market price of a downgraded
obligation, sale of such an obligation may result in a loss. See
Appendix A to the Additional Statement for further information as
to these ratings. The Trust can purchase industrial development
bonds without limit but only if they meet the definition of
Hawaiian Obligations, i.e., the interest on them is exempt from
Hawaiian State and regular Federal income taxes. The Trust may
invest without limit in Hawaiian Obligations which are repayable
from economically related projects or facilities. Such investments
could involve an increased risk to the Trust should any of such
issuers or related projects or facilities experience financial
difficulties.
The "Taxable Short-Term Obligations" which the Trust may
purchase are obligations maturing in one year or less from the date
of purchase by the Trust which are either (i) obligations issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Obligations"); see the
Additional Statement for further information; (ii) commercial paper
rated Prime-1 by Moody's or A-1 by S&P (see Appendix A to the
Additional Statement); or (iii) bank obligations, such as
certificates of deposit, bankers acceptances and fixed time
deposits, issued by a domestic bank subject to regulation by the
U.S. Government having total assets of at least $1.5 billion. Under
normal market conditions the Trust cannot purchase Taxable
Short-Term Obligations or purchase or sell Municipal Bond Index
Futures, U.S. Government Securities Futures or options on Futures
if thereafter more than 20% of its total assets would consist of
such Obligations, cash, margin deposits on such Futures and margin
deposits and premiums on options on such Futures, except for
defensive purposes, i.e., in anticipation of a decline or possible
decline in the value of Hawaiian Obligations. The Trust may also
invest in Taxable Short-Term Obligations (within such 20% limit)
pending investment in Hawaiian Obligations of the proceeds of the
sale of shares or the sale of Hawaiian Obligations. The Trust may
enter into repurchase agreements as to Taxable Short-Term
Obligations; see "Repurchase Agreements" below. Income from
"Taxable Short-Term Obligations" and repurchase agreements is
taxable and therefore is not included in the "exempt-interest"
dividends which the Trust will pay; see "Dividend and Tax
Information."
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940 Act").
The Trust also intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code (the "Code").
One of the tests for such qualification under the Code is, in
general, that at the end of each fiscal quarter of the Trust, at
least 50% of its assets must consist of (i) cash and (ii)
securities which, as to any one issuer, do not exceed 5% of the
value of the Trust's assets. If the Trust had elected to register
under the 1940 Act as a "diversified" investment company, it would
have to meet the same test as to 75% of its assets. The Trust may
therefore not have as much diversification among securities, and
thus diversification of risk, as if it had made this election under
the 1940 Act. In general, the more the Trust invests in the
securities of specific issuers, the more the Trust is exposed to
risks associated with investments in those issuers. The Trust's
assets, being primarily or entirely Hawaiian issues, are
accordingly subject to economic and other conditions affecting
Hawaii. (See "Risk Factors and Special Considerations Regarding
Investment in Hawaiian Obligations.")
Certain Stabilizing Measures
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 present intention of using futures
and options, to the limited degree described below, the Trust may
purchase and sell futures contracts on municipal bond indices
("Municipal Bond Index Futures") and on United States government
securities ("U.S. Government Securities Futures"); both kinds of
futures contracts are "Futures." The Trust may also write and
purchase put and call options on Futures.
Although it does not currently do so, 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 Obligation. All such participation interests must meet the
Trust's credit requirements. (See "Limitation to 10% as to Certain
Investments.")
When-Issued and Delayed Delivery Purchases
The Trust may buy Hawaiian Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring them.
The Hawaiian Obligations so purchased are subject to market
fluctuation and no interest accrues to the Trust until delivery and
payment take place; their value at the delivery date may be less
than the purchase price. The Trust cannot enter into when-issued
commitments exceeding in the aggregate 15% of the market value of
the Trust's total assets, less liabilities other than the
obligations created by when-issued commitments. If the Trust
chooses to dispose of the right to acquire a when-issued obligation
prior to its acquisition, it could, as with the disposition of any
other portfolio holding, incur a gain or loss due to market
fluctuation; any such gain would be a taxable short-term gain. The
Trust places an amount of assets equal in value to the amount due
on the settlement date for the when-issued or delayed delivery
securities being purchased in a segregated account with the
Custodian, which is marked to market every business day. See the
Additional Statement for further information.
Repurchase Agreements
The Trust may purchase securities (limited to Taxable
Short-Term Obligations) subject to repurchase agreements.
Repurchase agreements may be entered into only with commercial
banks or broker-dealers. A repurchase agreement occurs when, at the
time the Trust purchases a security, the Trust also resells it to
the vendor and must deliver the security (or securities substituted
for it) to the vendor on an agreed-upon date in the future. (The
securities so resold or substituted are referred to herein as the
"Resold Securities.") The Resold Securities will be held by the
Trust's custodian bank. The resale price is in excess of the
purchase price in that it reflects an agreed-upon market interest
rate effective for the period of time during which the Trust's
money is invested in the Resold Securities. The majority of these
transactions run from day to day, and the delivery pursuant to the
resale typically will occur within one to five days of the
purchase. The Trust's risk is limited to the ability of the vendor
to pay the agreed-upon sum upon the delivery date; in the event of
bankruptcy or other default by the vendor, there may be possible
delays and expenses in liquidating the Resold Securities, decline
in their value and loss of interest. However, in the opinion of the
Trust this risk is not material since, upon default, the Resold
Securities constitute security for the repurchase obligation.
Repurchase agreements can be considered as "loans" collateralized
by the Resold Securities (such agreements being defined as "loans"
in the 1940 Act). The return on such "collateral" may be more or
less than that from the repurchase agreement. The Resold Securities
under any repurchase agreement will be marked to market every
business day so that the value of the "collateral" is at least
equal to the value of the loan, including the accrued interest
earned thereon, plus sufficient additional market value as is
considered necessary to provide a margin of safety. Additionally,
the Adviser will regularly review the financial strength of all
vendors of repurchase agreements to the Trust.
Limitation to 10% as to Certain Investments
Due to their possible limited liquidity, the Trust cannot make
certain investments if thereafter more than 10% of its net assets
would consist of such investments. The investments included in this
10% limit are (i) repurchase agreements maturing in more than seven
days; (ii) fixed time deposits subject to withdrawal penalties
other than overnight deposits; (iii) restricted securities, i.e.,
securities which cannot freely be sold for legal reasons (which the
Trust does not expect to own); and (iv) securities for which market
quotations are not readily available. However, this 10% limit does
not include any investments as to which the Trust can exercise the
right to demand payment in full within seven days and as to which
there is a secondary market. Floating and variable rate demand
notes and participation interests (including municipal
lease/purchase obligations) are considered illiquid unless
determined by the Board of Trustees to be readily marketable.
Factors Which May Affect the Value
of the Trust's Investments and Their Yields
The value of the Hawaiian Obligations and Taxable Short-Term
Obligations (collectively, "Obligations") in which the Trust
invests will fluctuate depending in large part on changes in
prevailing interest rates. If the prevailing interest rates go up
after the Trust buys Obligations, the value of the Obligations 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 ("Financial Guaranty") 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.
Tourism, which has become the State's principal industry, is
leading the recovery. Tourist arrivals and spending provided a
needed boost to the Hawaiian economy in 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 radically repositioning themselves to confront
the competition posed by the newcomers. Some retailers have been
forced out of the industry, and as a result, retail employment
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.
The Hawaiian economy may also be adversely impacted by the
uncertainty in the general interest rate environment caused by
outside factors.
INVESTMENT RESTRICTIONS
The Trust has a number of policies about what it can and
cannot do. Certain of these policies, identified in the Prospectus
and Additional Statement as "fundamental policies," cannot be
changed unless the holders of a "majority," as defined in the 1940
Act, of the Trust's outstanding shares vote to change them. (See
the Additional Statement for a definition of such a majority.) All
other policies can be changed from time to time by the Board of
Trustees without shareholder approval. Some of the more important
of the Trust's fundamental policies, not otherwise identified in
the Prospectus, are set forth below; others are listed in the
Additional Statement.
1. The Trust invests only in certain limited securities.
The Trust cannot buy any securities other than those listed
under "Investment of the Trust's Assets"; the Trust may also
purchase and sell Futures and options on them within the limits
there discussed.
2. The Trust has industry investment requirements.
The Trust cannot buy the Obligations of issuers in any one
industry if more than 25% of its total assets would then be
invested in securities of issuers of that industry; Hawaiian
Obligations (except for the industrial development bonds discussed
below), U.S. Government Securities and domestic bank Obligations
are not included in this limit. In applying this restriction, the
Trust will consider that a non-governmental user of facilities
financed by industrial development bonds is an issuer in an
industry.
3. The Trust can make loans only by lending securities or entering
into repurchase agreements.
The Trust can buy those Obligations which it is permitted to
buy (see "Investment of the Trust's Assets"); this is investing,
not making a loan. The Trust can, to increase its income, lend its
portfolio securities up to 10% of the value of its total assets on
a collateralized basis to broker-dealers, banks and certain
financial institutions, (see the Additional Statement) and enter
into repurchase agreements (see "Repurchase Agreements" above). The
Trust may be considered as the beneficial owner of the loaned
securities in that any gain or loss in their market price during
the loan inures to the Trust and its shareholders; thus, when the
loan is terminated, the value of the securities may be more or less
than their value at the beginning of the loan. Income from
securities loans is taxable and therefore it is not included in the
"exempt-interest" dividends which the Trust may pay.
4. The Trust can only borrow in limited amounts for special
purposes.
The Trust can borrow from banks for temporary or emergency
purposes but only up to 10% of its total assets and can mortgage or
pledge its assets only in connection with such borrowing and only
up to the lesser of the amounts borrowed or 5% of the value of its
total assets. However, this shall not prohibit margin arrangements
in connection with the purchase or sale of Municipal Bond Index
Futures, U.S. Government Securities Futures or options on them, or
the payment of premiums on those options. Interest on borrowings
would reduce the Trust's income. The Trust will not purchase any
Obligations while it has any outstanding borrowings which exceed 5%
of the value of its total assets. Except in connection with
borrowings, the Trust will not issue senior securities.
NET ASSET VALUE PER SHARE
The Trust's net asset value and offering price per share are
determined as of 4:00 p.m. New York time on each day that the New
York Stock Exchange is open (a "business day"). The net asset value
per share is determined by dividing the value of the net assets of
the Trust (i.e., the value of the assets less liabilities,
exclusive of surplus) by the total number of shares outstanding.
Determination of the value of the Trust's assets is subject to the
direction and control of the Trust's Board of Trustees. In general
it is based on fair value, except that Obligations maturing in 60
days or less are generally valued at amortized cost; see the
Additional Statement for further information.
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. 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. When you
purchase Class A Shares, the amount of your investment is
reduced by the applicable sales charge. Certain Class A
Shares purchased in transactions of $1 million or more
are subject to a contingent deferred sales charge. (See
"Purchases of $1 Million or More of Class A Shares.")
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.") 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
Class C Shares redeemed at the time of purchase or of
redemption, which ever 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 0.15 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 charges 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
shortly 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 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. 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 of at
least $50 by establishing an Automatic Investment Program for
Automatic investments of at least $50 per month and paying 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 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 "Purchases 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.
Purchases of $1 Million or More
Class A Shares issued in purchases of $1 million or more by a
single purchaser are called "CDSC Class A Shares." CDSC Class A
Shares also include certain Class A Shares issued in purchases of
$1 million or more under the program captioned "Certain Investment
Companies - 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 the CDSC Class A Shares remain outstanding for a period of
at least one year. A pro-rata portion of this fee will be payable
for each day the CDSC Class A Shares are outstanding in the first
one-year period following issuance of such shares. The fee payable
for each calendar quarter will be made within fifteen days of the
end of that quarter.
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 Class A Shares of your subsequent
purchase 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 1% of such
proceeds or the same amounts described under "Purchases 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 "Purchases 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. In addition, Class C Shares are subject to a
contingent deferred sales charge ("CDSC") if redeemed before you
have held them for 12 months from the date of purchase at the rate
of 1%, calculated on the net asset value of the Class C Shares at
the time of purchase or of 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. All share certificates previously
issued by the Trust represent Class A Shares. 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 the Plan, the Trust is authorized to make payments with
respect to Class A Shares ("Class A Permitted Payments") to
Qualified Recipients, which Permitted Payments shall be made
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 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, 1995, $1,275,442 was paid under the Plan to
Qualified Recipients, of which, $114,453 was retained by the
Distributor. (See the Additional Statement for a description of the
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 0.50 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. "Class C 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. "Service Fee 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 "Purchases 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 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, account number and 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
charges 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 shares 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.
Purchase of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when purchases
are made. Accordingly, a Planholder may not maintain an Automatic
Withdrawal Plan while simultaneously making regular purchases.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Trust are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Trust's Trustees and officers and provides
further information about them.
The Advisory Agreement
Hawaiian Trust Company, Limited (the "Adviser") supervises the
investment program of the Trust and the composition of its
portfolio.
The services of the Adviser are rendered under an Investment
Advisory Agreement (the "Advisory Agreement") which provides,
subject to the control of the Board of Trustees, for investment
supervision and for either keeping the accounting records of the
Trust, including the computation of the net asset value per share
and the dividends, or, at the Adviser's expense and responsibility,
delegating these accounting duties in whole or in part to a company
satisfactory to the Trust. The Advisory Agreement states that the
Adviser shall, at its expense, provide to the Trust all office
space and facilities, equipment and clerical personnel necessary
for the carrying out of the Adviser's duties under the Advisory
Agreement.
Under the Advisory Agreement, the Adviser pays all
compensation of those officers and employees of the Trust and of
those Trustees, if any, who are affiliated with the Adviser,
provided that if a Trustee is an affiliate of the Adviser solely by
reason of being a member of its Board of Directors, the Trust may
pay compensation to such Trustee, but at a rate no greater than the
rate it pays to its other Trustees. Under the Advisory Agreement,
the Trust bears the cost of preparing and setting in type its
prospectuses, statements of additional information, and reports to
its shareholders and the costs of printing or otherwise producing
and distributing those copies of such prospectuses, statements of
additional information and reports as are sent to its shareholders.
Under the Advisory Agreement, all costs and expenses not expressly
assumed by the Adviser or by the Administrator under the
Administration Agreement or by the Trust's Distributor (principal
underwriter) are paid by the Trust. The Advisory Agreement lists
examples of such expenses borne by the Trust, the major categories
of such expenses being: legal and audit expenses, custodian and
transfer agent, or shareholder servicing agent fees and expenses,
stock issuance and redemption costs, certain printing costs,
registration costs of the Trust and its shares under Federal and
State securities laws, interest, taxes and brokerage commissions,
and non-recurring expenses, including litigation.
Under the Advisory Agreement, the Trust pays a fee payable
monthly and computed on the net asset value of the Trust as of the
close of business each business day at the annual rate of 0.19 of
1% of such net asset value, provided, however, that for any day
that the Trust pays or accrues a fee under the Distribution Plan of
the Trust based upon the assets of the Trust, the annual investment
advisory fee shall be payable at the annual rate of 0.14 of 1% of
such net asset value. Such fees under the Plan commenced July 1,
1992 and since that date the Trust's investment advisory fee has
been payable at the annual rate of 0.14 of 1% of such net asset
value.
The Adviser agrees that the above fee shall be reduced, but
not below zero, by an amount equal to its pro-rata portion (based
upon the aggregate fees of the Adviser and the Administrator) of
the amount, if any, by which the total expenses of the Trust in any
fiscal year, exclusive of taxes, interest and brokerage fees, shall
exceed the lesser of (i) 2.5% of the first $30 million of average
annual net assets of the Trust plus 2% of the next $70 million of
such assets and 1.5% of its average annual net assets in excess of
$100 million, or (ii) 25% of the Trust's total annual investment
income.
The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Trust; see the
Additional Statement. Under these provisions the Adviser, in making
such allocation, is authorized to consider sales of the Trust's
shares and sales of shares of certain other investment companies
(see "Exchange Privilege" below).
The Administration Agreement
Under an Administration Agreement (the "Administration
Agreement"), Aquila Management Corporation as Administrator, at its
own expense, provides office space, personnel, facilities and
equipment for the performance of its functions thereunder and as is
necessary in connection with the maintenance of the headquarters of
the Trust and pays all compensation of the Trust's Trustees,
officers and employees who are affiliated persons of the
Administrator.
Under the Administration Agreement, subject to the control of
the Trust's Board of Trustees, the Administrator provides all
administrative services to the Trust other than those relating to
its investment portfolio and the maintenance of its accounting
books and records. Such administrative services include but are not
limited to maintaining books and records (other than accounting
books and records) of the Trust, and overseeing all relationships
between the Trust and its transfer agent, custodian, legal counsel,
auditors and principal underwriter, including the negotiation of
agreements in relation thereto, the supervision and coordination of
the performance of such agreements, and the overseeing of all
administrative matters which are necessary or desirable for
effective operation of the Trust and for the sale, servicing, or
redemption of the Trust's shares. See the Additional Statement for
a further description of functions listed in the Administration
Agreement as part of such duties.
Under the Administration Agreement, the Trust pays the
Administrator, and the Administrator accepts as full compensation
for all services rendered thereunder, a fee payable monthly and
computed on the net asset value of the Trust at the end of each
business day at the annual rate of 0.36 of 1% of such net asset
value, provided, however, that for any day that the Trust pays or
accrues a fee under the Distribution Plan of the Trust based upon
the assets of the Trust, the annual administration fee will be
payable at the annual rate of 0.26 of 1% of such net asset value.
Such fees under the Distribution Plan commenced July 1, 1992 and
since that date the Trust's administration fee is payable at the
rate of 0.26 of 1% of such net asset value. The Administrator
agrees that the above fee shall be reduced, but not below zero, by
an amount equal to its pro-rata portion (based upon the aggregate
fees of the Adviser and the Administrator) of the amount, if any,
by which the total expenses of the Trust in any fiscal year,
exclusive of taxes, interest and brokerage fees, exceed the lesser
of (i) 2.5% of the first $30 million of average annual net assets
of the Trust plus 2% of the next $70 million of such assets and
1.5% of its average annual net assets in excess of $100 million, or
(ii) 25% of the Trust's total annual investment income.
Information about the Adviser,
the Administrator and the Distributor
The Adviser, a Hawaii corporation organized in 1898, is the
largest trust company in the State of Hawaii in terms of assets
under administration. As of March 31, 1995 the Adviser had over $11
billion of clients' assets under administration. The Adviser is not
authorized to, and does not carry on, a banking business. The
Adviser is a wholly-owned subsidiary of Bank of Hawaii, all of
whose shares are owned by Bancorp Hawaii, Inc. ("Bancorp") and Bank
of Hawaii's directors (each of whom owns qualifying shares as
required by Hawaii law). Bancorp is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended,
and its common stock is registered under the Securities Exchange
Act of 1934 and is listed and traded on the New York Stock
Exchange. Bancorp files annual and periodic reports with the
Securities and Exchange Commission which are available for public
inspection. See the Additional Statement as to the legality, under
the Federal banking laws, of the Adviser's acting as the Trust's
investment adviser.
Ms. Lorene Okimoto has been the Trust's portfolio manager
since December, 1991. She has been employed by the Adviser as a
portfolio manger since 1989 and has been a Vice President of the
Adviser since 1993. She was employed by the Bank of Hawaii from
1979 to 1984 and by Bank of Hawaii International Corporation from
1984 to 1988. Ms. Okimoto holds a B.A. degree from the University
of Hawaii.
The Trust's Administrator is founder and administrator to the
Aquilasm Group of Funds, which consists of tax-free municipal bond
funds, money market funds and an equity fund. As of December 31,
1995, these funds had aggregate assets of approximately $2.7
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, 1995 fees of
$893,788 and $1,659,892, respectively, were paid and/or accrued to
the Adviser and to the Administrator under the Advisory Agreement
and the Administration Agreement.
The Distributor currently handles the distribution of the
shares of thirteen funds including the Trust (seven tax-free
municipal bond funds, five money market funds and an equity fund).
Under the Distribution Agreement, the Distributor is responsible
for the payment of certain printing and distribution costs relating
to prospectuses and reports as well as the costs of supplemental
sales literature, advertising and other promotional activities.
At the date of this Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which are
currently owned by Mr. Herrmann, will be owned by certain directors
and/or officers of the Administrator and/or the Distributor
including Mr. Herrmann. In anticipation of this transaction, the
Board of Trustees, including a majority of the independent
Trustees, has approved a new Distribution Agreement for the Trust
with no material change from the currently effective Distribution
Agreement.
The Adviser, the Administrator and the Distributor have
entered into non-binding principles of cooperation, with the
approval of the Board of Trustees, relating to various matters
including suggestion of nominees to the Board of Trustees. In
addition, the Trust has entered into separate agreements with the
Adviser, the Administrator and the Distributor under which the
service providers have respectively agreed not to serve in the same
capacities for any mutual fund with the same objectives as the
Trust under the circumstances described in these agreements. See
the Additional Statement.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Trust will declare all of its net income, as defined
below, as dividends on every day, including weekends and holidays,
on those shares outstanding for which payment was received by the
close of business on the preceding business day. Net income for
dividend purposes includes all interest income accrued by the Trust
since the previous dividend declaration, including accretion of any
original issue 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 Class A
Shares and Class C 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.
Dividends so declared are paid monthly within a week before
the end of each calendar month. It is the Trust's present policy to
pay dividends so that they will be received or credited by
approximately the first day of each month. Shareholders may elect
to have dividends deposited without charge by electronic funds
transfers into an account at a Financial Institution which is a
member of the Automated Clearing House by completing a Ready Access
Features form.
Redeemed shares continue to earn dividends through and
including the day which is the earlier of (i) the day before the
day on which the redemption proceeds are mailed, wired or
transferred by the facilities of the Automated Clearing House by
the Agent or paid by the Agent to a selected dealer; or (ii) the
day which is the third day on which the New York Stock Exchange is
open after the day on which the net asset value of the redeemed
shares has been determined (see "How To Redeem Your Investment").
Net investment income includes amounts of income from the
Hawaiian Obligations in the Trust's portfolio which are allocated
as "exempt-interest dividends." "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, 1995, 98.0% 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 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. 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 an equity fund
(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, 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 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. At the date of the
Prospectus it is expected that all of the Bond and Equity Funds
will offer Class C Shares by April 30, 1996.
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 "Purchases 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 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 or Equity Fund were originally purchased as
set forth in (a) or (b); or (d) acquired as a result of
reinvestment of dividends and/or distributions on otherwise 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 the applicable
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 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 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
Trust's income net of fee waivers and reimbursement of expenses, if
any, and will assume the payment of the maximum sales charge on the
purchase of shares, but not on reinvestment of income dividends for
which the Trust does not impose a sales charge. The investment
results of the Trust, like all other investment companies, will
fluctuate over time; thus, performance figures should not be
considered to represent what an investment may earn in the future
or what the Trust's yield, tax equivalent yield, distribution rate,
taxable equivalent distribution rate or total return may be in any
future period. The annual report of the Trust contains additional
performance information that will be made available 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
As of March 19, 1996, Merrill Lynch, Pierce, Fenner & Smith,
Inc., P.O. Box 30561, New Brunswick, NJ held of record 9,104,504
shares (15.7%) of the Trust. The Trust's management is not aware of
any other person owning of record or beneficially 5% or more of the
Trust's outstanding shares as of such date. On the basis of
information received from such record owner, the Trust's management
believes that all of the shares indicated are held for the benefit
of brokerage clients.
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders will
vote on the election of Trustees and on other matters submitted to
the vote of shareholders. Shares vote by classes on any matter
specifically affecting one or more classes, such as an amendment of
an applicable part of the Distribution Plan. No amendment may be
made to the Declaration of Trust without the affirmative vote of
the holders of a majority of the outstanding shares of the 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 1.
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 are subject to applicable
sales charges.
- - The Trust, the Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting
upon instructions believed to be genuine, and will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request
some or all of the following information: account name and number;
name(s) and social security number registered to the account and
personal identification; the Agent may also record calls. Shareholders
should verify the accuracy of confirmation statements immediately upon
receipt. Under penalties of perjury, the undersigned whose Social
Security (Tax I.D.) Number is shown above certifies (i) that Number
is my correct taxpayer identification number and (ii) currently I am
not under IRS notification that I am subject to backup withholding
(line out (ii) if under notification). If no such Number is shown, the
undersigned further certifies, under penalties of perjury, that either
(a) no such Number has been issued, and a Number has been or will soon
be applied for; if a Number is not provided to you within sixty days,
the undersigned understands that all payments (including liquidations)
are subject to 31% withholding under federal tax law, until a Number is
provided and the undersigned may be subject to a $50 I.R.S. penalty; or
(b) that the undersigned is not a citizen or resident of the U.S.; and
either does not expect to be in the U.S. for 183 days during each
calendar year and does not conduct a business in the U.S. which would
receive any gain from the Trust, or is exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW.
FOR A TRUST, ALL TRUSTEES MUST SIGN.*
__________________________ ____________________________ _________
Individual (or Custodian) Joint Registrant, if any Date
__________________________ ____________________________ _________
Corporate Officer, Partner, Title Date
Trustee, etc.
* For Trust, Corporations or Associations, this form must be
accompanied by proof of authority to sign, such as a certified
copy of the corporate resolution or a certificate of incumbency
under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment,
Expedited Redemption and Direct Deposit of Dividends) are
effective 15 days after this form is received in good order by
the Trust's Agent.
- - You may cancel any feature at any time, effective 3 days after
the Agent receives written notice from you.
- - Either the Trust or the Agent may cancel any feature, without
prior notice, if in its judgment your use of any feature involves
unusual effort or difficulty in the administration of your account.
- - The Trust reserves the right to alter, amend or terminate any or
all features or to charge a service fee upon 30 days written notice
to shareholders except if additional notice is specifically required
by the terms of the Prospectus.
BANKING INFORMATION
- - If your Financial Institution account changes, you must complete a
Ready Access features form which may be obtained from Aquila
Distributors at 1-800-228-4227 and send it to the Agent together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution change is effective in 15
days after this form is received in good order by the Trust's Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 2c and signing the Application, the investor
is entitled to make each purchase at the public offering price
applicable to a single transaction of the dollar amount checked
above, and agrees to be bound by the terms and conditions applicable
to Letters of Intent appearing below.
The investor is making no commitment to purchase shares, but if
the investor's purchases within thirteen months from the date of the
investor's first purchase do not aggregate $25,000, or, if such
purchases added to the investor's present holdings do not aggregate
the minimum amount specified above, the investor will pay the increased
amount of sales charge prescribed in the terms of escrow below.
The commission to the dealer or broker, if any, named herein
shall be at the rate applicable to the minimum amount of the investor's
specified intended purchases checked above. If the investor's actual
purchases do not reach this minimum amount, the commissions previously
paid to the dealer will be adjusted to the rate applicable to the
investor's total purchases. If the investor's purchases exceed the
dollar amount of the investor's intended purchases and pass the next
commission break-point, the investor shall receive the lower sales
charge, provided that the dealer returns to the Distributor the excess
of commissions previously allowed or paid to him over that which would
be applicable to the amount of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter
of Intent in placing any future purchase orders for the investor
while this Letter is in effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if necessary),
3% of the dollar amount specified in the Letter of Intent (computed
to the nearest full share) shall be held in escrow in shares of the
Trust by the Agent. All dividends and any capital distributions on
the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is
completed within a thirteen-month period, the escrowed shares
will be promptly released to the investor. However, shares disposed
of prior to completion of the purchase requirement under the Letter
will be deducted from the amount required to complete the investment
commitment.
3. If the total purchases pursuant to the Letter are less than the
amount specified in the Letter as the intended aggregate purchases,
the investor must remit to the Distributor an amount equal to the
difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the
total amount purchased had been made at a single time. If such
difference in sales charges is not paid within twenty days after
receipt of a request from the Distributor or the dealer, the
Distributor will, within sixty days after the expiration of the
Letter, redeem the number of escrowed shares necessary to realize
such difference in sales charges. Full shares and any cash proceeds
for a fractional share remaining after such redemption will be
released to the investor. The escrow of shares will not be released
until any additional sales charge due has been paid as stated in
this section.
4. By checking Box 2c and signing the Application, the investor
irrevocably constitutes and appoints the Agent or the Distributor
as his attorney to surrender for redemption any or all escrowed
shares on the books of the Trust.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees
to the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan
(the "Plan") as agent for the person (the "Planholder") who
executed the Plan authorization.
2. Certificates will not be issued for shares of the Trust purchased
for and held under the Plan, but the Agent will credit all such
shares to the Planholder on the records of the Trust. Any share
certificates now held by the Planholder may be surrendered
unendorsed to the Agent with the application so that the shares
represented by the certificate may be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the
Trust at Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments
will be made at the Net Asset Value per share in effect at the
close of business on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the
address to which checks are to be mailed may be changed, at
any time, by the Planholder on written notification to the
Agent. The Planholder should allow at least two weeks time in
mailing such notification before the requested change can be
put in effect.
6. The Planholder may, at any time, instruct the Agent by written
notice (in proper form in accordance with the requirements of
the then current Prospectus of the Trust) to redeem all, or any
part of, the shares held under the Plan. In such case the Agent
will redeem the number of shares requested at the Net Asset Value
per share in effect in accordance with the Trust's usual
redemption procedures and will mail a check for the proceeds of
such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on
written notice to the Agent, or by the Agent upon receiving
directions to that effect from the Trust. The Agent will also
terminate the Plan upon receipt of evidence satisfactory to it
of the death or legal incapacity of the Planholder. Upon
termination of the Plan by the Agent or the Trust, shares
remaining unredeemed will be held in an uncertificated account
in the name of the Planholder, and the account will continue
as a dividend-reinvestment, uncertificated account unless and
until proper instructions are received from the Planholder,
his executor or guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any
action taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer
agent for the Trust, the Planholder will be deemed to have
appointed any successor transfer agent to act as his agent
in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional
lump sum investment may be made, such investment should normally
be an amount equivalent to three times the annual withdrawal or
$5,000, whichever is less.
<PAGE>
INVESTMENT ADVISER
Hawaiian Trust Company, Limited
Financial Plaza of the Pacific
P.O. Box 3170
Honolulu, Hawaii 96802
ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Arthur K. Carlson
William M. Cole
Thomas W. Courtney
Richard W. Gushman, II
Stanley W. Hong
Theodore T. Mason
Russell K. Okata
Douglas Philpotts
Oswald K. Stender
OFFICERS
Lacy B. Herrmann, President
Sherri Foster, Senior Vice President
William C. Wallace, Senior Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1104
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights 2
Table of Expenses 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 27
Management Arrangements 28
Dividend And Tax Information 31
Exchange Privilege 34
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
800-228-4227212-697-6666
Prospectus
Institutional Class Shares
Class Y Shares April 1, 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
Classes."
This Prospectus concisely states information about the Trust
that you should know before investing. A Statement of Additional
Information dated April 1, 1996, about the Trust (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
Administrative Data Management Corp., the Trust's Shareholder
Servicing Agent, at the address given below, or by calling the
telephone number(s) given below. The Additional Statement contains
information about the Trust and its management not included in this
Prospectus. The Additional Statement is incorporated by reference
in its entirety in this Prospectus. Only when you have read both
the Prospectus and the Additional Statement are all material facts
about the Trust available to you.
Shares of the Trust are not deposits in, obligations of or
guaranteed or endorsed by 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 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 and Poor's Corporation or are determined by the Adviser
to be of comparable quality. In general there are nine separate
credit ratings, ranging from the highest to the lowest credit
ratings for municipal obligations. Obligations within the top four
ratings are considered "investment grade" but those in the fourth
rating may have speculative characteristics as well. (See
"Investment of the Trust's Assets.")
Initial Investment - You may open your account with any
purchase of $1,000 or more 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 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 Classes."
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 $11 billion in
client assets, including investment authority over $1 billion in
Hawaiian municipal bonds. The Trust pays monthly fees to its
Adviser and to its Administrator at an aggregate rate of 0.40% of
average annual net assets. (See "Table of Expenses" and "Management
Arrangements.")
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 penalties or 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, or an equity fund. 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 "Risks and Special Considerations Regarding
Investment in Hawaiian Obligations.") Moreover, the Trust is
classified as a "non-diversified" investment company, because it
may choose to invest in the obligations of a relatively limited
number of issuers. (See "Investment of the Trust's Assets.")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
<S> <C>
Class Y
Shareholder Transaction Expenses Shares
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) 0.43%
Administration Fee 0.26%
Other Expenses (2) 0.17%
Total Trust Operating Expenses (2) 0.57%
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:
1 Year 3 Years 5 Years 10 Years
$6 18 32 71
<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 0.02% 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 0.15%, 0.41% and 0.55%, 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, 1995 has been audited by KPMG Peat Marwick
LLP, independent auditors, whose report thereon is included in the
Trust's financial statements contained in its Annual Report, which are
incorporated by reference into the Additional Statement. The information
provided in the table should be read in conjunction with the financial
statements and related notes. On October 24, 1989, Aquila Management
Corporation, originally the Trust's Sub-Adviser and Administrator,
became Administrator only.
Six Months Year ended March 31,
Ended 1995 1994 1993
9/30/95
(unaudited)
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $11.13 $11.19 $11.60 $11.10
Income from
Investment Operations:
Net investment
income 0.31 0.62 0.63 0.68
Net gain (loss) on
securities (both
realized and
unrealized).......... 0.22 (0.01) (0.38) 0.50
Total from Investment
Operations........... 0.53 0.61 0.25 1.18
Less Distributions:
Dividends from net
investment income (0.31) (0.62) (0.63) (0.68)
Distributions from
capital gains - (0.05) (0.03) -
Total Distributions... (0.31) (0.67) (0.66) (0.68)
Net Asset Value,
End of Period......... $11.35 $11.13 $11.19 $11.60
Total Return (not
reflecting sales
load) 4.77% 5.75% 2.01% 10.98%
Ratios/Supplemental
Data
Net Assets,
End of Period (in
thousands) $661,279 $642,556 $640,465 $597,828
Ratio of Expenses
to Average Net
Assets 0.72%* 0.75% 0.74% 0.71%
Ratio of Net
Investment
Income to Average
Net Assets........... 5.38%* 5.65% 5.46% 5.92%
Portfolio Turnover
Rate 23%# 33% 16% 11%
Net investment income per share and the ratios of income and expenses
to average net assets without the Adviser's and Administrator's
voluntary waiver of fees and the expense offset in custodian fees
for uninvested cash balances would have been:
Net Investment
Income $0.31 $0.62 $0.63 $0.68
Ratio of Expenses
to Average Net
Assets 0.72%* 0.77% 0.76% 0.73%
Ratio of Net
Investment Income
to Average Net
Assets................ 5.38%* 5.63% 5.44% 5.90%
<CAPTION>
1992 1991 1990 1989 1988 1987 1986
<C> <C> <C> <C> <C> <C> <C>
$10.85 $10.78 $10.60 $10.60 $11.14 $11.02 $9.54
0.71 0.72 0.74 0.75 0.75 0.77 0.85
0.25 0.07 0.18 - (0.54) 0.13 1.46
0.96 0.79 0.92 0.75 0.21 0.90 2.31
(0.71) (0.72) (0.74) (0.75) (0.75) (0.78) (0.83)
- - - - - - -
(0.71) (0.72) (0.74) (0.75) (0.75) (0.78) (0.83)
$11.10 $10.85 $10.78 $10.60 $10.60 $11.1 $11.02
9.15% 7.62% 8.88% 7.23% 2.18% 8.52% 25.37%
$475,469 $397,258 $336,503 $254,098 $224,321 $192,462 $90,709
0.70% 0.71% 0.73% 0.78% 0.77% 0.85% 0.61%
6.44% 6.68% 6.80% 7.02% 7.06% 6.88% 7.80%
16% 27% 7% 19% 34% 20% 32%
$0.71 $0.72 $0.74 $0.75 $0.75 $0.77 $0.80
0.72% 0.73% 0.80% 0.80% 0.78% 0.87% 1.07%
6.42% 6.67% 6.75% 7.00% 7.04% 6.86% 7.33%
<FN>
# Not annualized.
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Trust's shares are designed to be a suitable investment
for individuals, corporations, institutions and fiduciaries who
seek income exempt from regular Federal and Hawaiian State income
taxes.
You may invest in shares of the Trust as an alternative to
direct investments in Hawaiian Obligations, as defined below, which
may include obligations of certain non-Hawaiian issuers. The Trust
offers you the opportunity to keep assets fully invested in a
vehicle that provides a professionally managed portfolio of
Hawaiian Obligations which may, but not necessarily will, be more
diversified, higher yielding or more stable and more liquid than
you might be able to obtain on an individual basis by direct
purchase of Hawaiian Obligations. In some cases, the portfolio may
also contain taxable investments. Through the convenience of a
single security consisting of shares of the Trust, you are also
relieved of the inconvenience associated with direct investments of
fixed denominations, including the selecting, purchasing, handling,
monitoring call provisions and safekeeping of Hawaiian Obligations.
Hawaiian Obligations are a type of municipal obligation.
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies, and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes; bond
anticipation notes; construction loan notes and floating and
variable rate demand notes. Municipal obligations include municipal
lease/purchase agreements which are similar to installment purchase
contracts for property or equipment. The purposes for which
municipal obligations are issued include the construction of a wide
range of public facilities such as highways, bridges, schools,
hospitals, housing, mass transportation, streets and water and
sewer works. Other public purposes for which municipal obligations
may be issued include the refunding of outstanding obligations, the
obtaining of funds for general operating expenses and the obtaining
of funds to lend to other public institutions and facilities.
INVESTMENT OF THE TRUST'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both Hawaiian State and regular
Federal income taxes as is consistent with the preservation of
capital, the Trust will invest primarily in Hawaiian Obligations
(as defined below). There is no assurance that the Trust will
achieve its objective, which is a fundamental policy of the Trust.
(See "Investment Restrictions.") The Trust may also invest in
Taxable Short-Term Obligations (as defined below). Although it has
no present intention of doing so, it may purchase and sell futures
contracts on municipal bond indices and on U.S. Government
securities and may write and purchase put and call options on these
contracts (see below).
As used in this Prospectus and the Additional Statement, the
term "Hawaiian Obligations" means obligations, including those of
certain non-Hawaiian issuers, of any maturity which pay interest
which, in the opinion of bond counsel or other appropriate counsel,
is exempt from Hawaiian State and regular Federal income taxes.
Although exempt from regular Federal income tax, interest paid on
certain types of Hawaiian Obligations, and dividends which the
Trust might pay from this interest, are preference items as to the
Federal alternative minimum tax; for further information, see
"Dividend and Tax Information." As a fundamental policy, at least
80% of the Trust's net assets will be invested in Hawaiian
Obligations the income paid upon which will not be subject to the
alternative minimum tax; accordingly, the Trust can invest up to
20% of its net assets in obligations which are subject to the
Federal alternative minimum tax. The Trust may refrain entirely
from purchasing these types of Hawaiian Obligations. For further
information, see "Dividend and Tax Information."
The non-Hawaiian bonds or other obligations the interest on
which is exempt under present law from Hawaiian State and regular
Federal income taxes are those issued by or under the authority of
Guam, Northern Mariana Islands, Puerto Rico and the Virgin Islands.
As a Hawaii-oriented trust, at least 65% of the Trust's total
assets will be invested in Hawaiian Obligations of Hawaiian
issuers.
In general, there are nine separate credit ratings, ranging
from the highest to the lowest quality standards for municipal
obligations. So that the Trust will have a portfolio of
quality-oriented (investment grade) securities, the Hawaiian
Obligations which the Trust will purchase must, at the time of
purchase, either (i) be rated within the four highest credit
ratings assigned by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"); or (ii) if unrated, be
determined to be of comparable quality to municipal obligations so
rated, by Hawaiian Trust Company, Limited (the "Adviser"), the
Trust's investment adviser, subject to the direction and control of
the Trust's Board of Trustees. Municipal obligations rated in the
fourth highest credit rating are considered by such rating agencies
to be of medium quality and thus may present investment risks not
present in more highly rated obligations. Such bonds lack
outstanding investment characteristics and may in fact have
speculative characteristics as well; changes in economic conditions
or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case
for higher grade bonds. If after purchase the rating of any rated
Hawaiian Obligation is downgraded such that it could not then be
purchased by the Trust, or, in the case of an unrated Hawaiian
Obligation, if the Adviser determines that the unrated obligation
is no longer of comparable quality to those rated obligations which
the Trust may purchase, it is the current policy of the Trust to
cause any such obligation to be sold as promptly thereafter as the
Adviser in its discretion determines to be consistent with the
Trust's objectives; such obligation remains in the Trust's
portfolio until it is sold. In addition, because a downgrade often
results in a reduction in the market price of a downgraded
obligation, sale of such an obligation may result in a loss. See
Appendix A to the Additional Statement for further information as
to these ratings. The Trust can purchase industrial development
bonds without limit but only if they meet the definition of
Hawaiian Obligations, i.e., the interest on them is exempt from
Hawaiian State and regular Federal income taxes. The Trust may
invest without limit in Hawaiian Obligations which are repayable
from economically related projects or facilities. Such investments
could involve an increased risk to the Trust should any of such
issuers or related projects or facilities experience financial
difficulties.
The "Taxable Short-Term Obligations" which the Trust may
purchase are obligations maturing in one year or less from the date
of purchase by the Trust which are either (i) obligations issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Obligations"); see the
Additional Statement for further information; (ii) commercial paper
rated Prime-1 by Moody's or A-1 by S&P (see Appendix A to the
Additional Statement); or (iii) bank obligations, such as
certificates of deposit, bankers acceptances and fixed time
deposits, issued by a domestic bank subject to regulation by the
U.S. Government having total assets of at least $1.5 billion. Under
normal market conditions the Trust cannot purchase Taxable
Short-Term Obligations or purchase or sell Municipal Bond Index
Futures, U.S. Government Securities Futures or options on Futures
if thereafter more than 20% of its total assets would consist of
such Obligations, cash, margin deposits on such Futures and margin
deposits and premiums on options on such Futures, except for
defensive purposes, i.e., in anticipation of a decline or possible
decline in the value of Hawaiian Obligations. The Trust may also
invest in Taxable Short-Term Obligations (within such 20% limit)
pending investment in Hawaiian Obligations of the proceeds of the
sale of shares or the sale of Hawaiian Obligations. The Trust may
enter into repurchase agreements as to Taxable Short-Term
Obligations; see "Repurchase Agreements" below. Income from
"Taxable Short-Term Obligations" and repurchase agreements is
taxable and therefore is not included in the "exempt-interest"
dividends which the Trust will pay; see "Dividend and Tax
Information."
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940 Act").
The Trust also intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code (the "Code").
One of the tests for such qualification under the Code is, in
general, that at the end of each fiscal quarter of the Trust, at
least 50% of its assets must consist of (i) cash and (ii)
securities which, as to any one issuer, do not exceed 5% of the
value of the Trust's assets. If the Trust had elected to register
under the 1940 Act as a "diversified" investment company, it would
have to meet the same test as to 75% of its assets. The Trust may
therefore not have as much diversification among securities, and
thus diversification of risk, as if it had made this election under
the 1940 Act. In general, the more the Trust invests in the
securities of specific issuers, the more the Trust is exposed to
risks associated with investments in those issuers. The Trust's
assets, being primarily or entirely Hawaiian issues, are
accordingly subject to economic and other conditions affecting
Hawaii. (See "Risk Factors and Special Considerations Regarding
Investment in Hawaiian Obligations.")
Certain Stabilizing Measures
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 present intention of using futures
and options, to the limited degree described below, the Trust may
purchase and sell futures contracts on municipal bond indices
("Municipal Bond Index Futures") and on United States government
securities ("U.S. Government Securities Futures"); both kinds of
futures contracts are "Futures." The Trust may also write and
purchase put and call options on Futures.
Although it does not currently do so, 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 Obligation. All such participation interests must meet the
Trust's credit requirements. (See "Limitation to 10% as to Certain
Investments.")
When-Issued and Delayed Delivery Purchases
The Trust may buy Hawaiian Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring them.
The Hawaiian Obligations so purchased are subject to market
fluctuation and no interest accrues to the Trust until delivery and
payment take place; their value at the delivery date may be less
than the purchase price. The Trust cannot enter into when-issued
commitments exceeding in the aggregate 15% of the market value of
the Trust's total assets, less liabilities other than the
obligations created by when-issued commitments. If the Trust
chooses to dispose of the right to acquire a when-issued obligation
prior to its acquisition, it could, as with the disposition of any
other portfolio holding, incur a gain or loss due to market
fluctuation; any such gain would be a taxable short-term gain. The
Trust places an amount of assets equal in value to the amount due
on the settlement date for the when-issued or delayed delivery
securities being purchased in a segregated account with the
Custodian, which is marked to market every business day. See the
Additional Statement for further information.
Repurchase Agreements
The Trust may purchase securities (limited to Taxable
Short-Term Obligations) subject to repurchase agreements.
Repurchase agreements may be entered into only with commercial
banks or broker-dealers. A repurchase agreement occurs when, at the
time the Trust purchases a security, the Trust also resells it to
the vendor and must deliver the security (or securities substituted
for it) to the vendor on an agreed-upon date in the future. (The
securities so resold or substituted are referred to herein as the
"Resold Securities.") The Resold Securities will be held by the
Trust's custodian bank. The resale price is in excess of the
purchase price in that it reflects an agreed-upon market interest
rate effective for the period of time during which the Trust's
money is invested in the Resold Securities. The majority of these
transactions run from day to day, and the delivery pursuant to the
resale typically will occur within one to five days of the
purchase. The Trust's risk is limited to the ability of the vendor
to pay the agreed-upon sum upon the delivery date; in the event of
bankruptcy or other default by the vendor, there may be possible
delays and expenses in liquidating the Resold Securities, decline
in their value and loss of interest. However, in the opinion of the
Trust this risk is not material since, upon default, the Resold
Securities constitute security for the repurchase obligation.
Repurchase agreements can be considered as "loans" collateralized
by the Resold Securities (such agreements being defined as "loans"
in the 1940 Act). The return on such "collateral" may be more or
less than that from the repurchase agreement. The Resold Securities
under any repurchase agreement will be marked to market every
business day so that the value of the "collateral" is at least
equal to the value of the loan, including the accrued interest
earned thereon, plus sufficient additional market value as is
considered necessary to provide a margin of safety. Additionally,
the Adviser will regularly review the financial strength of all
vendors of repurchase agreements to the Trust.
Limitation to 10% as to Certain Investments
Due to their possible limited liquidity, the Trust cannot make
certain investments if thereafter more than 10% of its net assets
would consist of such investments. The investments included in this
10% limit are (i) repurchase agreements maturing in more than seven
days; (ii) fixed time deposits subject to withdrawal penalties
other than overnight deposits; (iii) restricted securities, i.e.,
securities which cannot freely be sold for legal reasons (which the
Trust does not expect to own); and (iv) securities for which market
quotations are not readily available. However, this 10% limit does
not include any investments as to which the Trust can exercise the
right to demand payment in full within seven days and as to which
there is a secondary market. Floating and variable rate demand
notes and participation interests (including municipal
lease/purchase obligations) are considered illiquid unless
determined by the Board of Trustees to be readily marketable.
Factors Which May Affect the Value
of the Trust's Investments and Their Yields
The value of the Hawaiian Obligations and Taxable Short-Term
Obligations (collectively, "Obligations") in which the Trust
invests will fluctuate depending in large part on changes in
prevailing interest rates. If the prevailing interest rates go up
after the Trust buys Obligations, the value of the Obligations 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 ("Financial Guaranty") 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.
Tourism, which has become the State's principal industry, is
leading the recovery. Tourist arrivals and spending provided a
needed boost to the Hawaiian economy in 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 radically repositioning themselves to confront
the competition posed by the newcomers. Some retailers have been
forced out of the industry, and as a result, retail employment
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.
The Hawaiian economy may also be adversely impacted by the
uncertainty in the general interest rate environment caused by
outside factors.
INVESTMENT RESTRICTIONS
The Trust has a number of policies about what it can and
cannot do. Certain of these policies, identified in the Prospectus
and Additional Statement as "fundamental policies," cannot be
changed unless the holders of a "majority," as defined in the 1940
Act, of the Trust's outstanding shares vote to change them. (See
the Additional Statement for a definition of such a majority.) All
other policies can be changed from time to time by the Board of
Trustees without shareholder approval. Some of the more important
of the Trust's fundamental policies, not otherwise identified in
the Prospectus, are set forth below; others are listed in the
Additional Statement.
1. The Trust invests only in certain limited securities.
The Trust cannot buy any securities other than those listed
under "Investment of the Trust's Assets"; the Trust may also
purchase and sell Futures and options on them within the limits
there discussed.
2. The Trust has industry investment requirements.
The Trust cannot buy the Obligations of issuers in any one
industry if more than 25% of its total assets would then be
invested in securities of issuers of that industry; Hawaiian
Obligations (except for the industrial development bonds discussed
below), U.S. Government Securities and domestic bank Obligations
are not included in this limit. In applying this restriction, the
Trust will consider that a non-governmental user of facilities
financed by industrial development bonds is an issuer in an
industry.
3. The Trust can make loans only by lending securities or entering
into repurchase agreements.
The Trust can buy those Obligations which it is permitted to
buy (see "Investment of the Trust's Assets"); this is investing,
not making a loan. The Trust can, to increase its income, lend its
portfolio securities up to 10% of the value of its total assets on
a collateralized basis to broker-dealers, banks and certain
financial institutions, (see the Additional Statement) and enter
into repurchase agreements (see "Repurchase Agreements" above). The
Trust may be considered as the beneficial owner of the loaned
securities in that any gain or loss in their market price during
the loan inures to the Trust and its shareholders; thus, when the
loan is terminated, the value of the securities may be more or less
than their value at the beginning of the loan. Income from
securities loans is taxable and therefore it is not included in the
"exempt-interest" dividends which the Trust may pay.
4. The Trust can only borrow in limited amounts for special
purposes.
The Trust can borrow from banks for temporary or emergency
purposes but only up to 10% of its total assets and can mortgage or
pledge its assets only in connection with such borrowing and only
up to the lesser of the amounts borrowed or 5% of the value of its
total assets. However, this shall not prohibit margin arrangements
in connection with the purchase or sale of Municipal Bond Index
Futures, U.S. Government Securities Futures or options on them, or
the payment of premiums on those options. Interest on borrowings
would reduce the Trust's income. The Trust will not purchase any
Obligations while it has any outstanding borrowings which exceed 5%
of the value of its total assets. Except in connection with
borrowings, the Trust will not issue senior securities.
NET ASSET VALUE PER SHARE
The Trust's net asset value and offering price per share are
determined as of 4:00 p.m. New York time on each day that the New
York Stock Exchange is open (a "business day"). The net asset value
per share is determined by dividing the value of the net assets of
the Trust (i.e., the value of the assets less liabilities,
exclusive of surplus) by the total number of shares outstanding.
Determination of the value of the Trust's assets is subject to the
direction and control of the Trust's Board of Trustees. In general
it is based on fair value, except that Obligations maturing in 60
days or less are generally valued at amortized cost; see the
Additional Statement for further information.
HOW TO INVEST IN THE TRUST
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 of at least $50
by establishing an Automatic Investment Program for Automatic
investments of at least $50 per month and paying 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 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 and 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 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 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, 1995 the Adviser had over $11
billion of clients' assets under administration. The Adviser is not
authorized to, and does not carry on, a banking business. The
Adviser is a wholly-owned subsidiary of Bank of Hawaii, all of
whose shares are owned by Bancorp Hawaii, Inc. ("Bancorp") and Bank
of Hawaii's directors (each of whom owns qualifying shares as
required by Hawaii law). Bancorp is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended,
and its common stock is registered under the Securities Exchange
Act of 1934 and is listed and traded on the New York Stock
Exchange. Bancorp files annual and periodic reports with the
Securities and Exchange Commission which are available for public
inspection. See the Additional Statement as to the legality, under
the Federal banking laws, of the Adviser's acting as the Trust's
investment adviser.
Ms. Lorene Okimoto has been the Trust's portfolio manager
since December, 1991. She has been employed by the Adviser as a
portfolio manger since 1989 and has been a Vice President of the
Adviser since 1993. She was employed by the Bank of Hawaii from
1979 to 1984 and by Bank of Hawaii International Corporation from
1984 to 1988. Ms. Okimoto holds a B.A. degree from the University
of Hawaii.
The Trust's Administrator is founder and administrator to the
Aquilasm Group of Funds, which consists of tax-free municipal bond
funds, money market funds and an equity fund. As of December 31,
1995, these funds had aggregate assets of approximately $2.7
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, 1995 fees of
$893,788 and $1,659,892, respectively, were paid and/or accrued to
the Adviser and to the Administrator under the Advisory Agreement
and the Administration Agreement.
The Distributor currently handles the distribution of the
shares of thirteen funds (seven tax-free municipal bond funds, five
money market funds and an equity fund) 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. In anticipation of this transaction, the
Board of Trustees, including a majority of the independent
Trustees, has approved a new Distribution Agreement for the Trust
with no material change from the currently effective Distribution
Agreement.
The Adviser, the Administrator and the Distributor have
entered into non-binding principles of cooperation, with the
approval of the Board of Trustees, relating to various matters
including suggestion of nominees to the Board of Trustees. In
addition, the Trust has entered into separate agreements with the
Adviser, the Administrator and the Distributor under which the
service providers have respectively agreed not to serve in the same
capacities for any mutual fund with the same objectives as the
Trust under the circumstances described in these agreements. See
the Additional Statement.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Trust will declare all of its net income, as defined
below, as dividends on every day, including weekends and holidays,
on those shares outstanding for which payment was received by the
close of business on the preceding business day. Net income for
dividend purposes includes all interest income accrued by the Trust
since the previous dividend declaration, including accretion of any
original issue 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 all
classes of the Trust's 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.
Dividends so declared are paid monthly within a week before
the end of each calendar month. It is the Trust's present policy to
pay dividends so that they will be received or credited by
approximately the first day of each month. Shareholders may elect
to have dividends deposited without charge by electronic funds
transfers into an account at a Financial Institution which is a
member of the Automated Clearing House by completing a Ready Access
Features form.
Redeemed shares continue to earn dividends through and
including the day which is the earlier of (i) the day before the
day on which the redemption proceeds are mailed, wired or
transferred by the facilities of the Automated Clearing House by
the Agent or paid by the Agent to a selected dealer; or (ii) the
day which is the third day on which the New York Stock Exchange is
open after the day on which the net asset value of the redeemed
shares has been determined (see "How To Redeem Your Investment").
Net investment income includes amounts of income from the
Hawaiian Obligations in the Trust's portfolio which are allocated
as "exempt-interest dividends". "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, 1995, 98.0% of the
Trust's dividends were "exempt-interest dividends." For the
calendar year 1994, 2.02% of the total dividends paid were taxable.
(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 an equity fund
(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, 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 shares of 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 of 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 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 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
Trust's income net of fee waivers and reimbursement of expenses, if
any, and will assume the payment of the maximum sales charge on the
purchase of shares, but not on reinvestment of income dividends for
which the Trust does not impose a sales charge. The investment
results of the Trust, like all other investment companies, will
fluctuate over time; thus, performance figures should not be
considered to represent what an investment may earn in the future
or what the Trust's yield, tax equivalent yield, distribution rate,
taxable equivalent distribution rate or total return may be in any
future period. The annual report of the Trust contains additional
performance information that will be made available 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 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
As of March 19, 1996, Merrill Lynch, Pierce, Fenner & Smith,
Inc., P.O. Box 30561, New Brunswick, NJ held of record 9,104,504
shares (15.7%) of the Trust. The Trust's management is not aware of
any other person owning of record or beneficially 5% or more of the
Trust's outstanding shares as of such date. On the basis of
information received from such record owner, the Trust's management
believes that all of the shares indicated are held for the benefit
of brokerage clients.
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders will
vote on the election of Trustees and on other matters submitted to
the vote of shareholders. Shares vote by classes on any matter
specifically affecting one or more classes, such as an amendment of
an applicable part of the Distribution Plan. No amendment may be
made to the Declaration of Trust without the affirmative vote of
the holders of a majority of the outstanding shares of the 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 1.
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.
I/We acknowledge that shares purchased either through Automatic
Investment or Telephone Investment are subject to applicable
sales charges.
- - The Trust, the Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting
upon instructions believed to be genuine, and will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name and number;
name(s) and social security number registered to the account and
personal identification; the Agent may also record calls. Shareholders
should verify the accuracy of confirmation statements immediately upon
receipt. Under penalties of perjury, the undersigned whose Social
Security (Tax I.D.) Number is shown above certifies (i) that Number
is my correct taxpayer identification number and (ii) currently I am
not under IRS notification that I am subject to backup withholding
(line out (ii) if under notification). If no such Number is shown,
the undersigned further certifies, under penalties of perjury, that
either (a) no such Number has been issued, and a Number has been or
will soon be applied for; if a Number is not provided to you within
sixty days, the undersigned understands that all payments (including
liquidations) are subject to 31% withholding under federal tax law,
until a Number is provided and the undersigned may be subject to a
$50 I.R.S. penalty; or (b) that the undersigned is not a citizen or
resident of the U.S.; and either does not expect to be in the U.S.
for 183 days during each calendar year and does not conduct a business
in the U.S. which would receive any gain from the Trust, or is exempt
under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW.
FOR A TRUST, ALL TRUSTEES MUST SIGN.*
__________________________ ____________________________ _________
Individual (or Custodian) Joint Registrant, if any Date
__________________________ ____________________________ _________
Corporate Officer, Partner, Title Date
Trustee, etc.
* For Trust, Corporations or Associations, this form must be accompanied
by proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
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
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 18
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 April 1, 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
April 1, 1996, of Hawaiian Tax-Free Trust (the "Trust"), which may
be obtained from the Trust's Shareholder Servicing Agent,
Administrative Data Management Corp., by writing to it at: 581 Main
Street, Woodbridge, New Jersey 07095-1104 or by calling the
following numbers:
800-288-4228 toll free or 908-855-5731
or from Aquila Distributors, Inc., the Trust's Distributor, by
writing to it at 380 Madison Avenue, Suite 2300, New York, New York
10017; or by calling:
800-228-4227 toll free or 212-697-6666
The Annual Report of the Trust for the fiscal year ended March
31, 1995 (audited), and the semi-annual report for the six months
ended September 30, 1995 (unaudited), will be delivered with the
Additional Statement.
TABLE OF CONTENTS
Investment of the Trust's Assets . . . . . . . . . . . . . . . .2
Municipal Bonds . . . . . . . . . . . . . . . . . . . . . . . .8
Performance . . . . . . . . . . . . . . . . . . . . . . . . . .9
Investment Restrictions . . . . . . . . . . . . . . . . . . . 12
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . 13
Shareholder Services Plan. . . . . . . . . . . . . . . . . . . 20
Limitation of Redemptions in Kind . . . . . . . . . . . . . . 21
Trustees and Officers . . . . . . . . . . . . . . . . . . . . 22
Additional Information as to Management Arrangements . . . . . 29
Computation of Net Asset Value . . . . . . . . . . . . . . . . 27
Automatic Withdrawal Plan . . . . . . . . . . . . . . . . . . 34
Additional Tax Information . . . . . . . . . . . . . . . . . . 34
Conversion of Class C Shares . . . . . . . . . . . . . . . . . 34
General Information . . . . . . . . . . . . . . . . . . . . . 35
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 38
<PAGE>
INVESTMENT OF THE TRUST'S ASSETS
The investment objective and policies of the Trust are
described in the Prospectus, which refers to the matters described
below. See the Prospectus for the definitions of "Hawaiian
Obligations" and "Taxable Short-Term Obligations" (collectively
"Obligations").
Information On U.S. Government Securities
U.S. Government Securities (i.e., obligations issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities) include securities issued by the U.S.
Government, which in turn include Treasury Bills (which mature
within one year of the date they are issued) and Treasury Notes and
Bonds (which are issued with longer maturities). All Treasury
securities are backed by the full faith and credit of the United
States.
U.S. Government agencies and instrumentalities that issue or
guarantee securities include, but are not limited to, the Farmers
Home Administration, Federal Farm Credit System, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation, Federal Housing
Administration, Federal National Mortgage Association, Financing
Corporation, Government National Mortgage Association, Resolution
Funding Corporation, Small Business Administration, Student Loan
Marketing Association and the Tennessee Valley Authority.
Securities issued or guaranteed by U.S. Government agencies
and instrumentalities are not always supported by the full faith
and credit of the United States Government. Some, such as
securities issued by the Federal Home Loan Banks, are backed by the
right of the agency or instrumentality to borrow from the Treasury.
Others, such as securities issued by the Federal National Mortgage
Association, are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not
backed by the full faith and credit of the United States
Government, the owner of the securities must look principally to
the agency issuing the obligation for repayment and may not be able
to assert a claim against the United States in the event that the
agency or instrumentality does not meet its commitment. The Trust
will invest in securities of agencies and instrumentalities only if
Hawaiian Trust Company, Limited (the "Adviser") is satisfied that
the credit risk involved is minimal.
Ratings
The ratings assigned by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") represent
their respective opinions of the quality of the municipal bonds and
notes and Taxable Short-Term Obligations which they undertake to
rate. It should be emphasized, however, that ratings are general
and not absolute standards of quality. Consequently, obligations
with the same maturity, stated interest rate and rating may have
different yields, while obligations of the same maturity and stated
interest rate with different ratings may have the same yield. See
Appendix A to this Additional Statement for further information
about the ratings of Moody's and S&P as to the various rated
Hawaiian Obligations and Taxable Short-Term Obligations which the
Trust may purchase.
The table below gives information as to the percentage of Trust net
assets invested, as of March 31, 1995, in Hawaiian Obligations in
the various rating categories:
Highest rating (1) . . . . . . . . . . . . . . . .62.2%
Second highest rating (2). . . . . . . . . . . . .25.3%
Third highest rating (3) . . . . . . . . . . . . . 4.2%
Fourth highest rating (4). . . . . . . . . . . . . 0.0%
Unrated Obligations. . . . . . . . . . . . . . . . 8.3%
100.0%
(1) Aaa of Moody's or AAA of S&P (or other highest rating).
(2) Aa of Moody's or AA of S&P (or other second highest rating).
(3) A of Moody's or A of S&P (or other third highest rating).
(4) Baa of Moody's or BBB of S&P (or other fourth highest rating).
When-Issued and Delayed Delivery Obligations
The Trust may buy Obligations on a when-issued or delayed
delivery basis. The purchase price and the interest rate payable on
the Obligations are fixed on the transaction date. At the time the
Trust makes the commitment to purchase Obligations on a when-issued
or delayed delivery basis, it will record the transaction and
thereafter reflect the value each day of such Obligations in
determining its net asset value. The Trust will make commitments
for such when-issued transactions only when it has the intention of
actually acquiring the Obligations. The Trust will maintain with
the Custodian a separate account with portfolio obligations in an
amount at least equal to such commitments. On delivery dates for
such transactions, the Trust will meet its commitments by selling
the obligations held in the separate account and/or from cash flow.
Loans of Portfolio Securities
The Trust may, to increase its income, lend its Obligations on
a short- or long-term basis to broker-dealers, banks or certain
other financial institutions (see below) if (i) the loan is
collateralized in accordance with applicable regulatory
requirements (the "Guidelines") and if (ii) after any loan, the
value of the Obligations loaned does not exceed 10% of the value of
its total assets. The financial institutions other than
broker-dealers or banks to which the Trust can lend its Obligations
are limited to "accredited investors," as that term is defined in
Section 2(15) of the Securities Act of 1933. (In general, such
institutions are insurance companies, investment companies and
certain employee benefit plans.) Under the present Guidelines
(which are subject to change) the loan collateral must, on each
business day, at least equal the value of the loaned obligations
and must consist of cash, bank letters of credit or U.S. Government
Securities. To be acceptable as collateral, a letter of credit must
obligate a bank to pay amounts demanded by the Trust if the demand
meets the terms of the letter. Such terms and the issuing banks
would have to be satisfactory to the Trust. Any loan might be
secured by any one or more of the three types of collateral.
The Trust receives amounts equal to the interest or other
distributions on loaned Obligations and also receives one or more
of the negotiated loan fees, interest on Obligations used as
collateral or interest on the securities purchased with such
collateral, either of which type interest may be shared with the
borrower. The Trust may also pay reasonable finder's, custodian and
administrative fees but only to persons not affiliated with the
Trust. The terms of the Trust's loans will meet certain tests under
the Internal Revenue Code and permit the Trust to terminate the
loan and thus reacquire loaned securities on five days' notice.
Futures Contracts and Options
Although it does not currently do so, the Trust is permitted
to buy and sell futures contracts relating to municipal bond
indices ("Municipal Bond Index Futures") and to U.S. Government
securities ("U.S. Government Securities Futures"), together
referred to as "Futures," and exchange traded options based on
Futures, as a possible means to protect the asset value of the
Trust during periods of changing interest rates, although in fact
the Trust may never do so. The following discussion is intended to
explain briefly the workings of Futures and options on them 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. 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. Each of
these and other methods that may be used by the Trust are described
in the following material.
Total Return
Average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5- and 10-year
periods and a period since the inception of the operations of the
Trust (on February 20, 1985) that would equate an initial
hypothetical $1,000 investment to the value such an investment
would have if it were completely redeemed at the end of each such
period. The calculation assumes the maximum sales charge is
deducted from the hypothetical initial $1,000 purchase, that on
each reinvestment date during each such period any capital gains
are reinvested at net asset value, and all income dividends are
reinvested at net asset value, without sales charge (because the
Trust does not impose any sales charge on reinvestment of
dividends). The computation further assumes that the entire
hypothetical account was completely redeemed at the end of each
such period.
Investors should note that the maximum sales charge (4%)
reflected in the following quotations is a one time charge, paid at
the time of initial investment. The greatest impact of this charge
is during the early stages of an investment in the Trust. Actual
performance will be affected less by this one time charge the
longer an investment remains in the Trust.
The average annual compounded rates of return for the Trust
for the 1-, 5- and 10-year periods and the period since inception
ended March 31, 1995, were respectively, 1.49%, 6.18%, 8.16% and
8.03%.
These figures were calculated according to the following SEC
formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5- and
10-year periods or the period since inception, at
the end of each such period.
As discussed in the Prospectus, the Trust may quote total
rates of return in addition to its average annual total return.
Such quotations are computed in the same manner as the Trust's
average annual compounded rate, except that such quotations will be
based on the Trust's actual return for a specified period as
opposed to its average return over the periods described above. The
total return for the Trust for the 1-, 5- and 10-year periods and
the period since inception ended March 31, 1995, were respectively
1.49%, 34.97% 119.02% and 118.42%. In general, actual total rate of
return will be lower than average annual rate of return because the
average annual rate of return reflects the effect of compounding.
See discussion of the impact of the sales charge on quotations of
rates of return, above.
Yield
Current yield reflects the income per share earned by the
Trust's portfolio investments. Current yield is determined by
dividing the net investment income per share earned during a 30-day
base period by the maximum offering price per share on the last day
of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base
period net of fee waivers and reimbursements of expenses, if any.
The yield for the Trust for the 30-day period ended on March 31,
1995, (the date of the Trust's most recent audited financial
statements, which are included in the Trust's annual report for the
year ended March 31, 1995) was 4.99%.
These figures were obtained using the Securities and Exchange
Commission formula:
6
Yield = 2 [(a-b + 1) -1]
----
cd
Where:
a = interest earned during the period
b = expenses accrued for the period (net of waivers and
reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the period
Taxable Equivalent Yield
The Trust may also quote a taxable equivalent yield which
shows the taxable yield that would be required to produce an
after-tax yield equivalent to that of a fund which invests in
tax-exempt obligations. Such yield is computed by dividing that
portion of the yield of the Trust (computed as indicated above)
which is tax-exempt by one minus the highest applicable combined
federal and Hawaiian income tax rate (and adding the result to that
portion of the yield of the Trust that is not tax-exempt, if any).
The taxable equivalent yield for the Trust for the 30-day period
ended on March 31, 1995, (the date of the Trust's most recent
audited financial statements, which are included in the Trust's
annual report for the year ended March 31, 1995) was 9.28%.
The Hawaiian and the combined Hawaiian and federal income tax
rates upon which the Trust's tax equivalent yield quotations are
based are 10% and 46.71% respectively. From time to time, as any
changes to such rates become effective, tax equivalent yield
quotations advertised by the Trust will be updated to reflect such
changes. Any tax rate increases will tend to make a tax-free
investment, such as the Trust, relatively more attractive than
taxable investments. Therefore, the details of specific tax
increases may be used in Trust sales material.
Current Distribution Rate
Current yield and tax equivalent yield, which are calculated
according to a formula prescribed by the SEC, are not indicative of
the amounts which were or will be paid to the Trust's shareholders.
Amounts paid to shareholders are reflected in the quoted current
distribution rate or taxable equivalent distribution rate. The
current distribution rate is computed by (i) dividing the total
amount of dividends per share paid by the Trust during a recent
30-day period by (ii) the current maximum offering price and by
(iii) annualizing the result. A taxable equivalent distribution
rate shows the taxable distribution rate that would be required to
produce an after-tax distribution rate equivalent to the Trust's
current distribution rate (calculated as indicated above). The
current distribution rate can differ from the current yield
computation because it could include distributions to shareholders
from additional sources (i.e., sources other than dividends and
interest), such as short-term capital gains.
Other Performance Quotations
With respect to those categories of investors who are
permitted to purchase shares of the Trust at net asset value, the
Trust may quote a "Current Distribution Rate for Net Asset Value
Investments." This rate is computed by (i) dividing the total
amount of dividends per share paid by the Trust during a recent
30-day period by (ii) the current net asset value of the Trust and
by (iii) annualizing the result. Figures for yield, total return
and other measures of performance for Net Asset Value Investments
may also be quoted. These will be derived as described above with
the substitution of net asset value for public offering price.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used. If distribution rates are quoted in advertising, they will be
accompanied by calculations of current yield in accordance with the
formula of the Securities and Exchange Commission.
INVESTMENT RESTRICTIONS
The Trust has a number of policies concerning what it can and
cannot do. Those that are called fundamental policies cannot be
changed unless the holders of a "majority" (as defined in the 1940
Act) of the Trust's outstanding shares vote to change them. Under
that Act, the vote of the holders of a "majority" of the Trust's
outstanding shares means the vote of the holders of the lesser of
(a) 67% or more of the Trust's shares present at a meeting or
represented by proxy if the holders of more than 50% of its shares
are so present or represented; or (b) more than 50% of the Trust's
outstanding shares. Those fundamental policies not set forth in the
Prospectus are set forth below:
1. The Trust invests only in certain limited securities.
The Trust cannot buy any securities other than those listed
under "Investment of the Trust's Assets" in the Prospectus;
therefore the Trust cannot buy any voting securities, any
commodities or commodity contracts other than Municipal Bond Index
Futures and U.S. Government Securities Futures, any mineral related
programs or leases, any shares of other investment companies or any
warrants, puts, calls or combinations thereof other than on
Municipal Bond Index Futures or on U.S. Government Securities
Futures.
The Trust cannot purchase or hold the securities of any issuer
if, to its knowledge, Trustees, Directors or officers of the Trust
or its Adviser individually owning beneficially more than 0.5% of
the securities of that issuer together own in the aggregate more
than 5% of such securities.
The Trust cannot buy real estate or any non-liquid interests
in real estate investment trusts; however, it can buy any
securities which it can otherwise buy even though the issuer
invests in real estate or has interests in real estate.
2. The Trust does not buy for control.
The Trust cannot invest for the purpose of exercising control
or management of other companies.
3. The Trust does not sell securities it does not own or borrow
from brokers to buy securities.
Thus, it cannot sell short or buy on margin; however, the
Trust can make margin deposits in connection with the purchase or
sale of Municipal Bond Index Futures, U.S. Government Securities
Futures or options on them, and can pay premiums on these options.
4. The Trust is not an underwriter.
The Trust cannot engage in the underwriting of securities,
that is, the selling of securities for others. Also, it cannot
invest in restricted securities. Restricted securities are
securities which cannot freely be sold for legal reasons.
DISTRIBUTION PLAN
The Trust's Distribution Plan 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 Trust's Board of
Trustees, 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, 1995, 1994 and 1993, $1,275,442,
$1,287,884 and $819,283, respectively were paid under the Plan to
Qualified Recipients. Of those amounts, $70,008, $68,194 and
$48,261, respectively, were paid to the Distributor.
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 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; 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 (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 Class
Shares ("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 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; 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 April 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 their agreements with
the Distributor with respect to payments under Part II.
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 Services Plan
(the "Independent Trustees"), with votes cast in person at a
meeting called for the purpose of voting on the Services Plan. It
is effective as of the date first above written and will continue
in effect for a period of more than one year from such 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 Services 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. 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 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;
and 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 an equity
fund, Aquila Rocky Mountain Equity Fund since 1993, 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 since 1990; actively involved
for many years in leadership roles with university, school and
charitable organizations.
Vernon R. Alden, Trustee, 420 Boylston Street, Suite 403, Boston,
Massachusetts 02116
Director of Augat Inc., a manufacturing corporation, since 1979,
Colgate Palmolive Company since 1974, Digital Equipment
Corporation, a computer manufacturing corporation, since 1959,
Intermet Corporation, an independent foundry, since 1986, and
Sonesta International Hotels Corporation since 1978; Chairman of
the Board and Executive Committee of The Boston Company, Inc., a
financial services company, 1969-1978; Trustee of Tax-Free Trust of
Oregon since 1988, of Pacific Capital Cash Assets Trust, Pacific
Capital Tax-Free Cash Assets Trust and Pacific Capital U.S.
Treasuries Cash Assets Trust since 1989, of Cascades Cash Fund,
1989-1994 and of Narragansett Insured Tax-Free Income Fund since
1992; Associate Dean and member of the faculty of Harvard
University Graduate School of Business Administration, 1951-1962;
member of the faculty and Program Director of Harvard Business
School - University of Hawaii Advanced Management Program, summer
of 1959 and 1960; President of Ohio University, 1962-1969; Chairman
of The Japan Society of Boston, Inc., and member of several Japan-
related advisory councils; Chairman of the Massachusetts Business
Development Council and the Massachusetts Foreign Business Council,
1978-1983; Trustee of the Boston Symphony Orchestra since 1975;
Chairman of the Massachusetts Council on the Arts and Humanities,
1972-1984; Member of the Board of Fellows of Brown University,
1969-1986; Trustee and member of the Executive Committee, Plymouth
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 580, Sewickley,
Pennsylvania 15143
President of Courtney Associates, Inc., a venture capital firm,
since 1988; General Partner of Trivest Venture Fund, 1983-1988;
President of Investment Counseling, Federated Investors, Inc.,
1975-1982; President of Boston Company Institutional Investors,
Inc., 1970-1975; Director of several privately owned corporations;
formerly a Director of the Financial Analysts Federation; Trustee
of Pacific Capital Cash Assets Trust since 1984, of Tax-Free Trust
of Arizona since 1986 and of Pacific Capital Tax-Free Cash Assets
Trust and Pacific Capital U.S. Treasuries Cash Assets Trust since
1988; Director or Trustee of 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; Chairman of the Board of Aloha United Way;
member of the Board of Trustees of the Mari-Med Foundation,
Downtown Improvement Association, Boys and Girls Club of Honolulu.
Stanley W. Hong, Trustee, 4976 Poola Street, Honolulu, Hawaii 96821
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; Trustee of Nature Conservancy of
Hawaii since 1990; Regent of Chaminade University of Honolulu since
1990.
Theodore T. Mason, Trustee, 26 Circle Drive, Hastings-on-Hudson,
New York 10706
Managing Director of EastWind Power Partners, Ltd. since 1994;
Director of Cogeneration Development of Willamette Industries,
Inc., a forest products company, 1991-1993; Vice President of
Corporate Development of Penntech Papers, Inc., 1978-1991; Vice
President of Capital Projects for the same company, 1977-1978; Vice
Chairman of the Board of Trustees of CCMT since 1981; Trustee and
Vice President, 1976-1981, and formerly Director of its
predecessor; Director of STCM Management Company, Inc.; Vice
Chairman of the Board of Trustees and Trustee of Prime Cash Fund
since 1982; Trustee of Short Term Asset Reserves, 1984-1986 and
since 1989, of Pacific Capital Cash Assets Trust since 1984, of
Churchill Cash Reserves Trust since 1985, of Pacific Capital Tax-
Free Cash Assets Trust and Pacific Capital U.S. Treasuries Cash
Assets Trust since 1988 and of Churchill Tax-Free Fund of Kentucky
since 1992; Vice President and Trustee of Oxford Cash Management
Fund, 1983-1989; Vice President of Trinity Liquid Assets Trust,
1983-1985; President and Director of Ted Mason Venture Associates,
Inc., a venture capital consulting firm, 1972-1980; Advisor to the
Commander, U.S. Maritime Defense Zone Atlantic, 1984-1988; National
Vice President, Surface/Subsurface, Naval Reserve Association,
1985-1987; National Vice President, Budget and Finance, for the
same Association, 1983-1985; Commanding Officer of four Naval
Reserve Units, 1974-1985; Captain, USNR, 1978-1988.
Russell K. Okata, Trustee, 888 Mililani Street, Suite 601,
Honolulu, Hawaii 96813-298
Executive Director, Hawaii Government Employees Association AFSCME
Local 152, AFL-CIO; Trustee of Pacific Capital Cash Assets Trust,
Pacific Capital Tax-Free Cash Assets Trust and Pacific Capital U.S.
Treasuries Cash Assets Trust since 1993; Trustee of Pacific Capital
Funds, which includes bond and stock funds, since 1993; Chairman of
the Royal State Insurance Group since 1988; Trustee of several
charitable organizations.
Douglas Philpotts*, Trustee, Financial Plaza of the Pacific, P.O.
Box 3170, Honolulu, Hawaii, 96802
Retired; Director of Hawaiian Trust Company, Limited since 1986,
Chairman of the Board, 1992-1994 and President, 1986-1992; Director
of Victoria Ward, Limited; Trustee of Pacific Capital Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets Trust and Pacific
Capital U.S. Treasuries Cash Assets Trust since 1992; Trustee of
Pacific Capital Funds, which includes bond and stock funds, since
1993; Trustee of the Strong Foundation; present or former director
or trustee of a number of civic and charitable organizations in
Hawaii.
Oswald K. Stender, Trustee, P.O. Box 3466, Honolulu, Hawaii 96801
Trustee of the Bernice Pauahi Bishop Estate since 1990; Director of
Hawaiian Electric Industries, Inc., a public utility holding
company, since 1993; Senior Advisor to the Trustees of The Estate
of James Campbell, 1987-1989 and Chief Executive Officer, 1976-
1988; Director of several housing and real estate associations;
Director, member or trustee of several community organizations;
Trustee of Pacific Capital Cash Assets Trust, Pacific Capital Tax-
Free Cash Assets Trust and Pacific Capital U.S. Treasuries Cash
Assets Trust since 1993; Trustee of Pacific Capital Funds, which
includes bond and stock funds, since 1993; Board Member, KBPS
Public Radio Foundation.
Sherri Foster, Senior Vice President, c/o Kaanapali, Alii IV-702,
Nohea Kai Drive, Lahaina, Hawaii 96761
Vice President, 1988-1992 and Assistant Vice President, 1985-1988;
Assistant Vice President of Pacific Capital Cash Assets Trust since
1985 and of Pacific Capital Tax-Free Cash Assets Trust and Pacific
Capital U.S. Treasuries Cash Assets Trust since 1988; Registered
Representative of the Distributor since 1985; Realtor-Associate of
Sherrian Bender Realty, successor to John Wilson Enterprises, 1983-
1994; Executive Secretary of the Hyatt Regency, Maui, 1981-1983.
William C. Wallace, Senior Vice President, 380 Madison Avenue, New
York, New York 10017
Vice President of Capital Cash Management Trust and Pacific Capital
Cash Assets Trust since 1984; Vice President, 1984-1985; Senior
Vice President of Tax-Free Trust of Arizona since 1989 and Vice
President, 1986-1988; Vice President of Tax-Free Trust of Oregon
since 1986, of Churchill Tax-Free Fund of Kentucky and Tax-Free
Fund of Colorado since 1987, of Pacific Capital Tax-Free Cash
Assets Trust and Pacific Capital U.S. Treasuries Cash Assets Trust
since 1988 and of Narragansett Insured Tax-Free Income Fund since
1992; Secretary and Director of STCM Management Company, Inc. since
1974; President of the Distributor since 1995 and formerly Vice
President of the Distributor, 1986-1992; Member of the Panel of
Arbitrators, American Arbitration Association, since 1978;
Assistant Vice President, American Stock Exchange, Market
Development Division, and Director of Marketing, American Gold Coin
Exchange, a subsidiary of the American Stock Exchange, 1976-1984.
Rose F. Marotta, Chief Financial Officer, 380 Madison Avenue, New
York, New York 10017
Chief Financial Officer of the 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.
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.
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 pay fees to Trustees affiliated with the
Administrator or Adviser or to any of the Trust's officers. During
the fiscal year ended March 31, 1995, the Trust paid $109,530
respectively in compensation and reimbursement of expenses to its
other Trustees. The Trust is one of the 13 funds in the Aquilasm
Group of Funds, which consist of tax-free municipal bond funds,
money market funds and an equity fund. The following tables list
the compensation of all Trustees who received compensation from the
Trust, the compensation each received during the Trust's fiscal
year from all funds in the Aquilasm Group of Funds and the number
of such funds. None of such Trustees has any pension or retirement
benefits from the Trust or any of the other funds in the Aquila
group.
<TABLE>
<CAPTION>
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee
Name Trust Group now serves
<S> <C> <C> <C>
Vernon R.
Alden $7,383 $33,591 7
Arthur K.
Carlson $7,967 $34,706 7
William M.
Cole $8,895 $27,842 5
Thomas W.
Courtney $8,080 $27,037 5
Richard W.
Gushman, II $8,050 $19,050 4
Stanley W.
Hong $9,258 $20,258 4
Theodore T.
Mason $8,310 $40,290 8
Russell K.
Okata $7,150 $19,492 4
Douglas
Philpotts $1,248 $1,877 4
Oswald K.
Stender $6,500 $17,250 4
</TABLE>
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
Additional Information as to the Advisory Agreement
The Investment Advisory Agreement (the "Advisory Agreement")
between the Trust and Hawaiian Trust Company, Limited (the
"Adviser") contains the provisions described below, in addition to
those described in the Prospectus.
The Advisory Agreement may be terminated by the Adviser at any
time without penalty upon giving the Trust sixty days' written
notice, and may be terminated by the Trust at any time without
penalty upon giving the Adviser sixty days' written notice,
provided that such termination by the Trust shall be directed or
approved by the vote of a majority of all its Trustees in office at
the time or by the vote of the holders of a majority (as defined in
the 1940 Act) of its voting securities at the time outstanding and
entitled to vote; it automatically terminates in the event of its
assignment (as so defined).
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its obligations thereunder, the Adviser is not liable for any loss
sustained by the adoption of any investment policy or the purchase,
sale or retention of any security and permits the Adviser to act as
investment adviser for any other person, firm or corporation. The
Trust agrees to indemnify the Adviser to the full extent permitted
under the Trust's Declaration of Trust.
The Advisory Agreement states that it is agreed that the
Adviser shall have no responsibility or liability for the accuracy
or completeness of the Trust's Registration Statement under the
Securities Act of 1933 and the 1940 Act except for the information
supplied by the Adviser for inclusion therein.
The Advisory Agreement contains the following provisions as to
the Trust's portfolio transactions. In connection with its duties
to arrange for the purchase and sale of the Trust's portfolio
securities, the Adviser shall select such broker-dealers
("dealers") as shall, in the Adviser's judgment, implement the
policy of the Trust to achieve "best execution", i.e., prompt,
efficient and reliable execution of orders at the most favorable
net price. The Adviser shall cause the Trust to deal directly with
the selling or purchasing principal or market maker without
incurring brokerage commissions unless the Adviser determines that
better price or execution may be obtained by paying such
commissions; the Trust expects that most transactions will be
principal transactions at net prices and that the Trust will incur
little or no brokerage costs. The Trust understands that purchases
from underwriters include a commission or concession paid by the
issuer to the underwriter and that principal transactions placed
through dealers include a spread between the bid and asked price.
In allocating transactions to dealers, the Adviser is authorized to
consider, in determining whether a particular dealer will provide
best execution, the dealer's reliability, integrity, financial
condition and risk in positioning the securities involved, as well
as the difficulty of the transaction in question, and thus need not
pay the lowest spread or commission available if the Adviser
determines in good faith that the amount of commission is
reasonable in relation to the value of the brokerage and research
services provided by the dealer, viewed either in terms of the
particular transaction or the Adviser's overall responsibilities as
to the accounts as to which it exercises investment discretion. If,
on the foregoing basis, the transaction in question could be
allocated to two or more dealers, the Adviser is authorized, in
making such allocation, to consider (i) whether a dealer has
provided research services, as further discussed below; and (ii)
whether a dealer has sold shares of the Trust or any other
investment company or companies having the Adviser as its
investment adviser or having the same sub-adviser, Administrator or
principal underwriter as the Trust. Such research may be in written
form or through direct contact with individuals and may include
quotations on portfolio securities and information on particular
issuers and industries as well as on market, economic or
institutional activities. The Trust recognizes that no dollar value
can be placed on such research services or on execution services,
that such research services may or may not be useful to the Trust
and/or other accounts of the Adviser, and that research received by
such other accounts may or may not be useful to the Trust.
The Adviser has been advised by legal counsel that, in its
opinion, as a subsidiary of Bank of Hawaii, the Adviser is
permitted under current Federal banking laws to perform the
services for the Trust required by the Advisory Agreement, provided
that the Adviser remains in compliance with applicable statutes and
regulations. However, such counsel has pointed out that future
changes in federal or state statutes and regulations relating to
the permissible activities of bank and bank holding companies,
including their bank and non-bank subsidiaries, as well as future
judicial or administrative decisions and interpretations of present
and future statutes and regulations, might prevent the Adviser from
continuing to serve as the investment adviser to the Trust.
During the Trust's fiscal year ended March 31, 1995, all of
its transactions were principal transactions and no brokerage
commissions were paid.
For the three fiscal years ended March 31, 1995, 1994 and
1993, fees of $893,788, $903,787 and $809,803 respectively, were
paid and or accrued to the Adviser under the Advisory Agreement.
Additional Information as to the Administration Agreement
The Administration Agreement (the "Administration Agreement")
between Aquila Management Corporation, as Administrator, and the
Trust contains the provisions described below in addition to those
described in the Prospectus.
Subject to the control of the Trust's Board of Trustees, the
Administrator also provides all administrative services to the
Trust other than those relating to its investment portfolio and the
maintenance of its accounting books and records (see below for
discussion); as part of such duties, the Administrator (i) provides
office space, personnel, facilities, and equipment for the
performance of the following functions and for the maintenance of
the Trust's headquarters; (ii) oversees all relationships between
the Trust and its transfer agent, custodian, legal counsel,
auditors and principal underwriter, including the negotiation,
subject to the approval of the Trust's Board of Trustees, of
agreements in relation thereto, the supervision and coordination of
the performance of such agreements, and the overseeing of all
administrative matters which are necessary or desirable for
effective operation and for the sale, servicing, or redemption of
the Trust's shares; (iii) provides to the Adviser and to the Trust
statistical and other factual information and advice regarding
economic factors and trends, but does not generally furnish advice
or make recommendations regarding the purchase or sale of
securities; (iv) maintains the Trust's books and records (other
than accounting books and records), and prepares (or assists
counsel and auditors in the preparation of) all required proxy
statements, reports to shareholders and Trustees, reports to and
other filings with the Securities and Exchange Commission and any
other governmental agencies, and tax returns, and oversees the
Trust's insurance relationships; (v) prepares, on the Trust's
behalf and at its expense, such applications and reports as may be
necessary to register or maintain the Trust's registration or that
of its shares under the securities or "Blue-Sky" laws of all such
jurisdictions as may be required from time to time; and (vi)
responds to any inquiries or other communications from shareholders
and broker-dealers, or if any such inquiry or communication is more
properly to be responded to by the Trust's shareholder servicing
and transfer agent or distributor, oversees such shareholder
servicing and transfer agent's or distributor's response thereto.
Since the Trust pays its own legal and audit expenses, to the
extent that the Trust's counsel and accountants prepare or assist
in the preparation of prospectuses, proxy statements and reports to
shareholders, the costs of such preparation or assistance are paid
by the Trust.
The Administration Agreement may be terminated at any time
without penalty by the Administrator upon sixty days' written
notice to the Trust and the Adviser; it may be terminated by the
Trust at any time without penalty upon giving the Administrator
sixty days' written notice, provided that such termination by the
Trust shall be directed or approved by a vote of a majority of the
Trustees in office at the time, including a majority of the
Trustees who are not interested persons of the Trust. In either
case the notice provision may be waived.
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Administration Agreement provides that the Administrator
shall not be liable for any error in judgement or for any loss
suffered by the Trust in connection with the matters to which the
Administration Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence of the
Administrator in the performance of its duties, or from reckless
disregard by it of its obligations and duties under the
Administration Agreement. The Trust agrees to indemnify the
Administrator to the full extent permitted by the Declaration of
Trust.
For the three fiscal years ended March 31, 1995, 1994 and
1993, fees of $1,659,892, $1,678,461 and $1,512,583 respectively,
were paid and or accrued to Aquila Management Corporation under the
Administration Agreement.
Additional Information as to The Adviser, Administrator and
Distributor
The Adviser, the Administrator and the Distributor have
entered into non-binding principles of cooperation, with the
approval of the Board of Trustees, pursuant to which they have
agreed to cooperate with each other in coordinating the services
that they respectively provide to the Trust, to refrain from taking
any actions to remove each other from their respective positions
and to continue in those positions on terms at least as favorable
as at present. The parties have also agreed to consult with each
other with respect to suggested nominations to the Board of
Trustees, recognizing that ultimate selection of nominees as
"Independent Trustees" within the meaning of the Trust's
Distribution Plan is to be made by the Independent Trustees, (see
"Distribution Plan," above.) The principles apply as well to
Pacific Capital Cash Assets Trust, Pacific Capital Tax-Free Cash
Assets Trust and Pacific Capital U.S. Treasuries Cash Assets Trust.
In addition, the Trust has entered into separate agreements with
the Adviser, the Administrator and the Distributor under which the
service providers have respectively agreed that so long as they
each hold those positions with the Trust, and for a period of two
years thereafter they will not serve in the same capacity for any
mutual fund with the same objectives as the Trust under the
circumstances described in those agreements.
COMPUTATION OF NET ASSET VALUE
The net asset value of the Trust's shares is determined as of
4:00 p.m., New York time, on each day that the New York Stock
Exchange is open, by dividing the value of the Trust's net assets
by the total number of its shares then outstanding. However,
Futures and options on them are valued at the last sales price on
the principal commodities exchange on which the Future or option is
traded or, if there are no sales, at the mean between the bid and
asked prices as of the close of that exchange; such close may be
later than 4:00 p.m., New York time. Securities having a remaining
maturity of less than sixty days when purchased and securities
originally purchased with maturities in excess of sixty days but
which currently have maturities of sixty days or less are valued at
cost adjusted for amortization of premiums and accretion of
discounts. All other portfolio securities are valued at the mean
between bid and asked quotations which, for Hawaiian Obligations,
may be obtained from a reputable pricing service or from one or
more broker-dealers dealing in Hawaiian Obligations either of which
may, in turn, obtain quotations from broker-dealers or banks which
deal in specific issues. However, since Hawaiian Obligations are
ordinarily purchased and sold on a "yield" basis by banks or
dealers which act for their own account and do not ordinarily make
continuous offerings, quotations obtained from such sources may be
subject to greater fluctuations than is warranted by prevailing
market conditions. Accordingly, some or all of the Hawaiian
Obligations in the Trust's portfolio may be priced, with the
approval of the Trust's Board of Trustees, by differential
comparisons to the market in other municipal bonds under methods
which include consideration of the current market value of tax-free
debt instruments having varying characteristics of quality, yield
and maturity. Any securities or assets for which market quotations
are not readily available are valued at their fair value as
determined in good faith under procedures established by and under
the general supervision and responsibility of the Trust's Board of
Trustees. In the case of Hawaiian Obligations, such procedures may
include "matrix" comparisons to the prices for other tax-free debt
instruments on the basis of the comparability of their quality,
yield, maturity and other special factors, if any, involved. With
the approval of the Trust's Board of Trustees, the Adviser may at
its own expense and without reimbursement from the Trust employ a
pricing service, bank or broker-dealer experienced in such matters
to perform any of the above described functions.
As indicated above, the net asset value per share of the
Trust's shares will be determined on each day that the New York
Stock Exchange is open. That Exchange annually announces the days
on which it will not be open. The most recent announcement
indicates that it will not be open on the following days: New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, that Exchange may close on days not included in that
announcement.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a number
of instances in which the Trust's shares are sold or issued on a
basis other than the maximum public offering price, that is, the
net asset value plus the highest sales charge. Some of these relate
to lower or eliminated sales charges for larger purchases, whether
made at one time or over a period of time as under a Letter of
Intent or right of accumulation. (See the table of sales charges in
the Prospectus.) The reasons for these quantity discounts are, in
general, that (i) they are traditional and have long been permitted
in the industry and are therefore necessary to meet competition as
to sales of shares of other funds having such discounts; and (ii)
they are designed to avoid an unduly large dollar amount of sales
charge on substantial purchases in view of reduced selling
expenses. Quantity discounts are made available to certain related
persons ("single purchasers") for reasons of family unity and to
provide a benefit to tax-exempt plans and organizations.
The reasons for the other instances in which there are reduced
or eliminated sales charges are as follows. Exchanges at net asset
value are permitted because a sales charge has already been paid on
the shares exchanged. Sales without sales charge are permitted to
Trustees, officers and certain others due to reduced or eliminated
selling expenses and/or since such sales may encourage incentive,
responsibility and interest and an identification with the aims and
policies of the Trust. Limited reinvestments of redemptions at no
sales charge are permitted to attempt to protect against mistaken
or incompletely informed redemption decisions. Shares may be issued
at no sales charge in plans of reorganization due to reduced or
eliminated sales expenses and since, in some cases, such issuance
is exempted in the 1940 Act from the otherwise applicable
restrictions as to what sales charge must be imposed. In no case in
which there is a reduced or eliminated sales charge are the
interests of existing shareholders adversely affected since, in
each case, the Trust receives the net asset value per share of all
shares sold or issued.
AUTOMATIC WITHDRAWAL PLAN
Any shareholder who owns or purchases Class A 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 shares
of one mutual fund (the original fund) and who then sells such
shares or exchanges them for shares of a different mutual fund
without having held them at least 91 days must reduce his tax basis
for the shares sold or exchanged to the extent that the standard
sales commission charged for acquiring shares in the exchange or
later acquiring shares of the original fund or another fund is
reduced because of the shareholder's having owned the original fund
shares. The effect of the rule is to increase the investor's gain
or reduce his or her loss on the original fund shares. The amount
of the basis reduction on the original fund shares, however, is
added on the investor's basis for the fund shares acquired in the
exchange or later acquired. The provision applies to commissions
charged after October 3, 1989.
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 C
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 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.
Indemnification of Shareholders and Trustees
Under Massachusetts law, shareholders of a trust such as the
Trust may, under certain circumstances, be held personally liable
as partners for the obligations of the Trust. For shareholder
protection, however, an express disclaimer of shareholder liability
for acts or obligations of the Trust is contained in the
Declaration of Trust which requires that notice of such disclaimer
be given in each agreement, obligation, or instrument entered into
or executed by the Trust or the Trustees. The Declaration of Trust
provides for indemnification out of the Trust's property of any
shareholder held personally liable for the obligations of the
Trust. The Declaration of Trust also provides that the Trust shall,
upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
the relatively remote circumstances in which the Trust itself would
be unable to meet its obligations. In the event the Trust had two
or more Series, and if any such Series were to be unable to meet
the obligations attributable to it (which, as is the case with the
Trust, is relatively remote), the other Series would be subject to
such obligations, with corresponding increase in the risk of the
shareholder liability mentioned in the prior sentence.
The Declaration of Trust further indemnifies the Trustees of
the Trust out of the property of the Trust and provides that they
will not be liable for errors of judgment or mistakes of fact or
law; but nothing in the Declaration of Trust protects a Trustee
against any liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his
office.
Custodian and Auditors
The Trust's Custodian, Bank One Trust Company, N.A., is
responsible for holding the Trust's assets.
The Trust's auditors, KPMG Peat Marwick LLP, perform an annual
audit of the Trust's financial statements.
The financial statements of the Trust for the fiscal year
ended March 31, 1995, which are contained in the Annual Report for
that fiscal year, are hereby incorporated by reference into the
Additional Statement. 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. The financial statements of the Trust for the six
months ended September 30, 1995, which are contained in the Semi-
Annual Report for that period, are hereby incorporated by reference
into the Additional Statement. The financial statements of the
Trust for the six months ended September 30, 1995 are unaudited.
Underwriting Commissions
During the Trust's fiscal year ended March 31, 1995 the
aggregate dollar amount of sales charges on sales of shares of the
Trust was $1,309,406 and the amount retained by the Distributor was
$114,433.
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND AND COMMERCIAL PAPER RATINGS
Municipal Bond Ratings
Standard & Poor's. A Standard & Poor's municipal obligation
rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment may
take into consideration obligors such as guarantors, insurers or
lessees.
The debt rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market price
or suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit in
connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and
repayment of principal in accordance with the terms of
the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or
other arrangement under the laws of bankruptcy and other
laws affecting creditors rights.
AAA Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the highest
rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher
rated categories.
Plus (+) or Minus (:): The ratings from "AA" to "B" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating
is provisional. A provisional rating assumes the successful
completion of the project being financed by the debt being rated
and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of
the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
Standard & 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
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
HAWAIIAN
TAX-FREE TRUST
A tax-free
income investment
[LOGO]
STATEMENT OF
ADDITIONAL
INFORMATION
[LOGO]
One Of The
Aquilasm Group Of Funds
