INVESTMENT ADVISER
HAWAIIAN TRUST COMPANY, LIMITED
Financial Plaza of the Pacific
P.O. Box 3170
Honolulu, Hawaii 96802
ADMINISTRATOR AND FOUNDER
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
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
TRANSFER AND SHAREHOLDER SERVICING AGENT
ADMINISTRATIVE DATA
MANAGEMENT CORP.
581 Main Street
Woodbridge, New Jersey 07095-1198
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus,
which must precede or accompany this report.
ANNUAL
REPORT
MARCH 31, 1997
HAWAIIAN
TAX-FREE
TRUST
A TAX-FREE INCOME INVESTMENT
[Logo of Hawaiian Tax-Free Trust: a palm tree in front of a circle which has
an island and water within it]
[Logo of Aquila Group of Funds: eagle's head]
ONE OF THE
AQUILASM GROUP OF FUNDS
<PAGE>
[Logo of Hawaiian Tax-Free Trust: a palm tree in front of a circle which has
an island and water within it]
SERVING HAWAII INVESTORS FOR OVER A DECADE
HAWAIIAN TAX-FREE TRUST
ANNUAL REPORT
"THE VALUE OF STEADFASTNESS"
April 21, 1997
Dear Investor:
Most of us have heard, at one time or another, the story of the
tortoise and the hare. With respect to your investment in Hawaiian Tax-Free
Trust, this old adage, detailing the virtue of steadfastness, speaks volumes.
If the finish line you are seeking to cross is one of capital preservation
and double tax-free income, then an investment which performs much like the
tortoise just might "win the race."
THE CALL OF THE STOCK MARKET
As I am sure you will agree, recent years have been banner ones
for the stock market. The spectacular price increases experienced have made
the appeal of investing in equity securities extremely powerful and, at
times, almost irresistible.
If it were possible to know in advance just what and when to buy
or sell in order to maximize profit, then constantly switching your
investment vehicle, trying to capture the latest trend, would be
uncomplicated.
Unfortunately, "timing" the market, with any degree of
consistency, is near impossible. We have generally found that, for the
average investor, switching continuously from one security to another in the
management of his/her investment portfolio tends to be a fruitless, often
imprudent, exercise. With the degree of volatility inherent in the equity
markets, missing an upturn or downturn could result in a disastrous loss of
invested principal.
PROUD TO BE A TORTOISE
Our various survey results indicate that a substantial portion of
investors in Hawaiian Tax-Free Trust are retirees or pre-retirees. This is
the group that we have found to be particularly concerned about capital
preservation.
Accordingly, staying on track with your investment in the Trust
could well prove to be the most appropriate course to follow.
Although equity investments can be rewarding for a portion of
one's capital, it is still critical to keep firmly in mind your overall
investment goal and not get disproportionately distracted by the dazzle of
other investments.
It is no great secret that municipal bonds, such as those in
which the Trust invests, are generally not exciting investments. Unlike
stocks, they do not experience abrupt, dramatic highs. However, it must be
kept in mind that municipal bonds also do not experience the dumbfounding
lows of stocks. Municipal bond funds just plod along from year to year, much
like the tortoise, producing consistent DOUBLE TAX-FREE results for
shareholders.
While being a tortoise may not be as glamorous as being a hare,
this should not represent a cause for concern. The end result is really what
counts - not how you got there, but that you got there at all.
<PAGE>
CAPITAL PRESERVATION STRATEGIES
Although capital preservation is not guaranteed, the Trust does
take some very deliberate steps to ensure that there will be minimal
volatility in share price over a reasonable time frame.
The Trust's basic philosophy is "don't put all your eggs in one
basket." And, when you choose the eggs for that basket, choose only quality
ones.
DIVERSIFICATION
DIVERSIFICATION is a key stability tool used in the
construction of the Trust's investment portfolio. At March 31, 1997,
over 230 separate municipal issues were represented in the Trust's
portfolio. Having such a breadth of participation helps to ensure
against any significant loss of principal by the Trust in the remote
event anything ever did go wrong with a particular issuer. Such
diversification also enables the Trust to participate in financing many
different vital public purpose projects in numerous communities
throughout Hawaii, thereby benefitting residents of the entire state.
QUALITY
We have found from experience that sticking with QUALITY is
best in the long run. Therefore, investments in the Trust are
specifically limited to only the top four credit ratings, or
equivalent, of the nine assignable to municipal securities by
nationally-known credit rating services. At March 31, 1997, 94% of the
portfolio was comprised of the top three credit ratings - AAA, AA, AND
A. Furthermore, within the Trust's Investment Portfolio, 76.8% of the
Trust's Assets were in the highest credit rating - AAA.
AS AN EXTRA MEASURE OF CAPITAL PRESERVATION, ESPECIALLY IN LIGHT OF
HAWAII'S CURRENT FINANCIAL DIFFICULTIES, MANAGEMENT HAS SOUGHT TO HAVE A
SUBSTANTIAL AMOUNT - APPROXIMATELY 70% - OF THE TRUST'S HOLDINGS OF MUNICIPAL
SECURITIES INSURED BY NATIONALLY-KNOWN SPECIALIZED MUNICIPAL BOND INSURANCE
COMPANIES. THIS INSURANCE IS DESIGNED TO PROVIDE FOR THE TIMELY PAYMENT OF
INTEREST AND PRINCIPAL WHEN DUE, IN THE EVENT AN ISSUER SHOULD DEFAULT.
MATURITY
Emphasis is also placed on having A SPREAD OF MATURITIES in
the Trust's investment portfolio. As you probably are aware, short term
maturities tend to have very little price fluctuation, but produce a
lesser rate of return than longer maturity securities. Conversely,
long-term maturities produce a higher return level, but have a much
higher price volatility factor than shorter-term issues since they
reflect the risks associated with the unpredictability of future events
and the potential interest rate changes over the extended life of the
municipal bond.
By creating a blend of maturities, ranging from under one
year to over 20 years in length, the Trust attempts to provide you with
a satisfactory level of return without subjecting the share price to
excessive swings as interest rates move up and down. Thus, the current
average maturity of the Trust's portfolio is the relatively
intermediate term of 14.5 years and the effective duration is 7.25
years.
The Trust's Investment Adviser, HAWAIIAN TRUST COMPANY, LTD.,
examines the above elements very carefully when selecting each individual
"egg" for your basket of investments in order to obtain the most appropriate
fit. Such careful attention seeks to provide protection for shareholders'
capital and promote stability.
TAX-FREE RATE OF RETURN
What many investors sometime forget is that while the level of
income from the Trust may seem unimpressive on the surface, it is DOUBLE
TAX-FREE - free of both regular Federal and State of Hawaii income taxes.
When the rate of return achieved by the Trust is converted into a taxable
equivalent rate, the outcome is generally quite an eye-opener.
<PAGE>
[Graphic of bar chart with the following information:]
HAWAIIAN TAX-FREE TRUST'S DOUBLE TAX-FREE DISTRIBUTION RATE AS COMPARED TO
THE TAXABLE EQUIVALENT RATE AN INVESTOR WOULD HAVE TO EARN AT VARIOUS TAX
BRACKETS
<TABLE>
<CAPTION>
Tax Bracket Taxable Equivalent Rate Double Tax-Free Distribution Rate
<C> <C> <C>
28% 7.75% 5.02%
31% 8.19% 5.02%
36% 8.86% 5.02%
39.6% 9.42% 5.02%
</TABLE>
The above chart shows the average annualized level of DOUBLE
TAX-FREE income return distributed to shareholders from April 1, 1996 to
March 31, 1997, as measured against the maximum public offering price. It
additionally illustrates the rate of taxable income return one would have had
to earn in order to equate to the DOUBLE TAX-FREE income return generated by
the Trust.
As you will note, if one were in the 28% Federal income tax
bracket, a TAXABLE return of 7.75% would have to be achieved to match the
5.02% DOUBLE TAX-FREE return of the Trust. In the highest Federal income tax
bracket of 39.6%, the equivalent return would have had to have been 9.42%.
However, no matter which Federal income tax bracket applies, you can readily
see that there is quite a difference between the TAXABLE and the DOUBLE
TAX-FREE return levels.
OUR PLEDGE TO YOU
Management of Hawaiian Tax-Free Trust values the confidence you
have placed in us. You can be assured that we will steadfastly strive to help
you cross the finish line of your investment goal.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
The performance shown represents that of
Class A shares. Such performance data quoted represents past
performance and is not indicative of future results. The investment
return and principal value of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than
their original cost. The Trust's average annual total return as of
3/31/97 for the past one-year period was 4.67%; for the past
five-year period was 6.07%; for the past ten-year period was 6.52%;
and since inception was 8.04%. These returns do not take into
consideration the maximum sales charge of 4%. Returns would be less
if the sales charge was applied. As of 3/31/97, the Trust's 30-day
SEC yield was 4.81%.
<PAGE>
MANAGEMENT DISCUSSION OF TRUST PERFORMANCE
The graph below illustrates the value of $10,000 invested in
Class A Shares of Hawaiian Tax-Free Trust at inception of the Trust in
February, 1985 and maintaining this investment through the Trust's latest
fiscal year end, March 31, 1997, as compared with a hypothetical similar size
investment in the Lehman Brothers Municipal Bond Index (the "Index") of
municipal securities and the Consumer Price Index (a cost of living index)
over that same period. The total return of the investment in the Trust is
shown after deduction of the maximum sales charge of 4% at the time of
initial investment. It also reflects deduction of the Trust's annual
operating expenses and reinvestment of monthly dividends and capital gains
distributions without sales charge. On the other hand, the Index does not
reflect any sales charge nor operating expenses but does reflect reinvestment
of interest. The performance of the Trust's other classes, first offered on
April 1, 1996, may be greater or less than the Class A shares performance
indicated on this graph, depending on whether greater or lesser sales charges
and fees were incurred by shareholders investing in the other classes.
It should also be specifically noted that the Index is nationally
oriented and consisted, over the period covered by the graph, of an unmanaged
mix of between 8,000 to 35,000 investment-grade long-term municipal
securities of issuers throughout the United States. However, the Trust's
investment portfolio consisted of a significantly lesser number of
investment-grade tax-free municipal obligations, principally of Hawaii
issuers, over the same period. The maturities, market prices, and behavior of
the individual securities in the Trust's investment portfolio can be affected
by local and regional factors which might well result in variances from the
market action of the securities in the Index.
Consequently, much of the difference in performance of the Index
versus the Trust can be attributed to the lack of application of annual
operating expenses and initial sales charge to the Index. Additionally, a
portion of the difference in performance can be attributed to the different
characteristics in the single-state market of the securities in the Trust's
portfolio as compared with the national orientation of the securities in the
Index.
Since its inception, the Trust has been managed to provide as
stable a share value as possible consistent with producing a competitive
income return to shareholders. It has not been managed for maximum total
return, since one of the aims of management in structuring the portfolio of
the Trust is to reduce fluctuations in the price of the Trust's shares
resulting from changes in interest rates.
As can be observed, however, the pattern of the Trust's results
and that of the Index over the period since inception of the Trust track
quite similarly, even though they are not entirely comparable in character.
[Graphic of line chart with the following information:]
PERFORMANCE COMPARISON
<TABLE>
<CAPTION>
Lehman Brothers Trust After Cost of
Municipal Bond Sales Charge and Living
Index ($) Expenses ($) Index ($)
<C> <C> <C> <C>
2/85 10,000 9,600 10,000
3/85 10,086 9,571 10,019
3/86 12,817 11,912 10,178
3/87 14,223 13,022 10,562
3/88 14,580 13,306 10,974
3/89 15,629 14,268 11,536
3/90 17,277 15,537 12,079
3/91 18,872 16,693 12,669
3/92 20,758 18,216 13,062
3/93 23,818 20,206 13,483
3/94 24,370 20,654 13,801
3/95 26,189 21,842 14,223
3/96 28,384 23,406 14,625
3/97 29,936 24,491 15,052
</TABLE>
[Graphic of table with the following information:]
Trust's average annual total return
<TABLE>
<CAPTION>
For the Period Ended 1 5 10 Life of Trust
March 31, 1997 Year Years Years Since 2/20/85
<S> <C> <C> <C> <C>
Including Sales
Charge and Expenses 0.49% 5.21% 6.09% 7.67%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS
<PAGE>
During the past year the bond market was characterized by much
volatility as sentiment vacillated between fears of inflation and relief over
signs of slower growth. Bond prices were driven by fear toward the
possibility that the Federal Reserve may raise interest rates to stamp out
inflation. Aside from the occasional errant signal, inflation to date has
remained benign. However the Federal Reserve Board, citing tight labor
conditions and "irrational exuberance" in the equity markets, raised the Fed
Funds' rate by 25 basis points in March in an attempt to preempt the economy
from overheating. Against this backdrop and with flat tax proposals faded
from memory, municipal bonds outperformed taxable bonds, going from over 90%
of comparable treasury yields to barely 80% of treasury yields. Long term
municipal bond yields ended the year almost unchanged while long term
treasury bond yields increased by approximately 40 basis points. Shorter
term municipal bond yields moved up more but also outperformed comparable
treasuries. Despite the superior performance, municipal bond funds, like
their taxable counterparts, did not experience significant cashflow as most
investors were focused on the equity market where prices moved higher
throughout the year.
During the past year, the State of Hawaii continued to wrestle
with budgetary problems. Tourism, Hawaii's economic mainstay, led the
recovery at the beginning of 1996 but began to fade towards the end of the
year as currency exchange rates between the Yen and the U.S. dollar began to
swing in favor of the U.S. dollar. The combination of the weaker Yen and a
weak Japanese economy caused Japanese tourist spending to decline
substantially. The number of days of hotel stay also declined but it was
offset to some extent by higher room rates. Meanwhile, construction spending
remained weak in both the private and public sectors. Real estate prices
also continued to drift lower due to a large inventory that could not be
absorbed by the soft economy. All these factors combined to support a
continuing trend of flat revenue growth. In contrast, expenses continue to
soar, led by wage increases for public employees. Uncertainties surrounding
the State's payments to OHA (Office of Hawaiian Affairs) for ceded lands and
potential wage increases for other public employee bargaining units raised
further concerns. The Governor, in an attempt to stimulate the economy
through construction spending, unveiled an aggressive $1 billion capital
improvement program which was recently approved by the legislature. As a
consequence of that, and the attendant accelerated debt issuance plan to fund
the program, at a time when revenue growth has remained stagnant, Standard
and Poor's downgraded the State's general obligation debt rating from AA to
A+. Although Moody's did not downgrade the State's debt rating, under their
new rating scale, the State's debt is rated AA3 which puts it at the lowest
end of the AA range. This means that the State's financial ratios are weaker
than the average AA credit.
The combination of concern over the protracted soft economy, and
the economies of scale available to the Trust's adviser in the negotiation of
municipal bond insurance premium, prompted a strategy of attaching secondary
municipal bond insurance to almost all of the existing holdings in the Trust.
In addition, we also made a decision to add only insured bonds to the
portfolio. Due to our proactive strategy, the rating of the State General
Obligations Bonds in the Trust are unaffected by the downgrade and continue
to carry a AAA rating. The Trust continues to have an average rating of AAA
with approximately 77% of the portfolio holdings rated AAA and 14% rated AA.
<PAGE>
Under this challenging environment, Hawaiian Tax-Free Trust
continues to meet its objectives of high after tax income (exempt from
Federal and State of Hawaii income taxes), and principal preservation through
a very high credit quality portfolio. Looking ahead, we expect interest
rates to decline after some near term volatility caused by uncertainty over
further Federal Reserve tightening. We expect economic growth to slow down
as high consumer debt levels will stifle consumer spending. This, together
with benign inflation, will create an environment for lower interest rates
and a more stable bond market. Our strategy going forward will incorporate
this outlook while being mindful of the objectives of high after tax income
and principal preservation.
<PAGE>
KPMG Peat Marwick LLP
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Hawaiian Tax-Free Trust:
We have audited the accompanying statement of assets and liabilities of
Hawaiian Tax-Free Trust, including the statement of investments, as of March
31, 1997, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of the years in the
five-year period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 1997, by correspondence with the custodian
as well as other appropriate auditing procedures for securities purchased but
not received. An audit also includes assessing the accounting principles
used, and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Hawaiian Tax-Free Trust as of March 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
May 9, 1997
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
RATING
FACE MOODY'S/
AMOUNT HAWAII (98.0%) S&P VALUE
<C> <S> <C> <C>
Board of Regents, University
of Hawaii University
System Revenue Bonds,
Series G, AMBAC Insured, Aaa/AAA
$ 2,910,000 5.650%, 10/01/12 $ 2,880,900
4,290,000 5.700%, 10/01/17 4,231,013
Board of Regents, University
of Hawaii University
System Revenue Bonds,
Series I, FGIC Insured, Aaa/AAA
145,000 4.600%, 10/01/01 143,913
155,000 4.700%, 10/01/02 153,450
1,110,000 5.300%, 10/01/08 1,096,125
2,825,000 5.500%, 10/01/18 2,715,531
Board of Water Supply City
and County of Honolulu,
Hawaii Water System Revenue
Bonds, Series 1996,
MBIA Insured, Aaa/AAA
1,090,000 5.400%, 07/01/09 1,080,463
1,750,000 5.800%, 07/01/16 1,754,375
1,500,000 5.800%, 07/01/21 1,496,250
City and County of Honolulu
Multifamily Housing
Revenue Bonds (Cambridge
Park Project) 1988
Series A, NR/NR*
8,000,000 5.850%, 12/01/02 8,090,000
City and County of Honolulu,
Hawaii General
Obligation Bonds Series A,
FGIC Insured, Aaa/AAA
5,385,000 7.300%, 07/01/03 6,031,200
2,895,000 7.350%, 07/01/05 3,311,156
4,790,000 7.350%, 07/01/06 5,526,463
9,970,000 7.350%, 07/01/07 11,590,125
3,600,000 7.350%, 07/01/08 4,207,500
2,500,000 6.000%, 01/01/12 2,615,625
1,000,000 5.625%, 09/01/14 991,250
<PAGE>
City and County of Honolulu,
Hawaii General Obligation
Bonds Series 1995, MBIA
Insured, Aaa/AAA
2,215,000 6.000%, 11/01/09 2,350,669
1,500,000 6.000%, 11/01/10 1,580,625
1,000,000 5.250%, 11/01/13 958,750
1,835,000 5.500%, 11/01/14 1,793,713
3,130,000 5.000%, 11/01/15 2,871,775
City and County of Honolulu,
Hawaii General Obligation
Bonds Series 1994A, FGIC
Insured, Aaa/AAA
1,000,000 5.700%, 04/01/09 1,027,500
4,000,000 5.750%, 04/01/11 4,070,000
3,800,000 5.750%, 04/01/13 3,847,500
City and County of Honolulu,
Hawaii General Obligation
Bonds Series 1994B, FGIC
Insured, Aaa/AAA
4,480,000 6.000%, 06/01/10 4,648,000
2,030,000 6.100%, 06/01/11 2,116,275
3,000,000 6.100%, 06/01/12 3,127,500
4,650,000 6.125%, 06/01/13 4,830,188
4,155,000 6.125%, 06/01/14 4,295,231
City and County of Honolulu
Hawaii General Obligation
Bonds, Refunding and Improvement
Series, 1993A Fixed Rate Bonds,
FGIC Insured, Aaa/AAA
5,825,000 6.000%, 01/01/11 6,116,250
City and County of Honolulu
Hawaii General Obligation Bonds,
Refunding and Improvement
Series, 1993B Fixed Rate Bonds,
FGIC Insured, Aaa/AAA
9,800,000 5.500%, 10/01/11 9,824,500
1,050,000 6.000%, 12/01/15 1,078,875
City and County of Honolulu,
Hawaii General Obligation Water
Bonds, Series 1992,
FGIC Insured, NR/AAA
1,125,000 6.000%, 12/01/12 1,179,844
<PAGE>
City and County of Honolulu
Improvement District No. 261
(Halawa Business Park),
Improvement District Bonds, NR/NR*
365,000 6.700%, 10/15/04 390,094
355,000 6.800%, 10/15/05 381,625
345,000 6.900%, 10/15/06 374,325
City and County of Honolulu
Mortgage Revenue Refunding
Bonds, Series 1992A (FHA Insured
Mortgage Loan-- Smith-Beretania
Apartments Section 8 Assisted
Project), MBIA Insured, Aaa/AAA
2,985,000 7.800%, 07/01/24 3,201,413
City and County of Honolulu
Multifamily Housing Revenue
Bonds (GNMA Collateralized -
Waipahu Towers Project) 1995
Series A, NR/AAA
3,000,000 6.900%, 06/20/35 3,135,000
Kauai County Revenue Bonds,
Series A, MBIA Insured, Aaa/AAA
535,000 6.400%, 02/01/02 538,847
570,000 6.500%, 02/01/03 574,281
Kauai County General Obligation
Escrowed to Maturity Bonds, A/NR
615,000 9.000%, 08/01/04 763,369
665,000 9.000%, 08/01/05 837,900
County of Kauai, State of Hawaii
General Obligation Refunding
Bonds, 1992 Series A,B & C,
AMBAC Insured, Aaa/AAA
155,000 5.250%, 04/01/01 157,906
295,000 5.250%, 08/01/01 300,900
930,000 5.250%, 08/01/01 948,600
330,000 5.450%, 08/01/03 339,075
1,030,000 5.450%, 08/01/03 1,058,325
435,000 5.900%, 08/01/08 455,663
1,355,000 5.900%, 08/01/08 1,419,363
1,300,000 5.950%, 08/01/10 1,363,375
<PAGE>
County of Kauai, State of Hawaii
General Obligation Refunding
Bonds, Series 1994A
& 1994B, MBIA Insured, Aaa/AAA
170,000 5.100%, 02/01/01 172,125
365,000 5.200%, 02/01/02 370,931
185,000 5.200%, 02/01/02 188,006
460,000 5.300%, 02/01/03 468,625
190,000 5.300%, 02/01/03 193,563
185,000 5.400%, 02/01/04 188,931
215,000 5.500%, 02/01/05 220,106
215,000 5.600%, 02/01/06 220,644
1,010,000 5.700%, 02/01/07 1,039,038
Kauai County General Obligation
Public Improvement Bonds Series
1990 Pre-Refunded Bonds, AMBAC
Insured, Aaa/AAA
780,000 7.100%, 08/01/01 846,300
960,000 7.300%, 08/01/04 1,047,600
1,030,000 7.350%, 08/01/05 1,125,275
1,185,000 7.450%, 08/01/07 1,299,056
1,370,000 7.500%, 08/01/09 1,503,575
1,470,000 7.500%, 08/01/10 1,613,325
County of Kauai, State of Hawaii
Rental Housing Revenue Bonds
(Paanau Project) Series 1992, NR/NR*
2,050,000 7.250%, 04/01/12 2,065,375
County of Maui, Hawaii General
Obligation Refunding Bonds
Series A, MBIA Insured, Aaa/AAA
1,075,000 6.000%, 06/01/15 1,103,219
County of Maui, Hawaii General
Obligation Refunding Bonds
1995, FGIC Insured, Aaa/AAA
685,000 5.350%, 06/01/02 701,269
720,000 5.150%, 06/01/03 728,100
755,000 5.150%, 06/01/04 760,663
930,000 5.050%, 06/01/08 907,913
980,000 5.050%, 06/01/09 946,925
1,040,000 5.150%, 06/01/10 1,003,600
<PAGE>
1,100,000 5.200%, 06/01/11 1,058,750
1,160,000 5.200%, 06/01/12 1,115,050
1,230,000 5.200%, 06/01/13 1,174,650
1,300,000 5.250%, 06/01/14 1,236,625
1,380,000 5.250%, 06/01/15 1,305,825
County of Maui, Hawaii General
Obligation Refunding Bonds 1993
Series B, 1993 Series C, 1993
Series D, 1993 Series E,
FGIC Insured, Aaa/AAA
750,000 5.000%, 09/01/03 752,813
1,815,000 5.000%, 09/01/07 1,774,163
2,125,000 5.000%, 09/01/08 2,066,563
1,000,000 5.000%, 09/01/09 961,250
1,000,000 5.000%, 09/01/10 950,000
3,000,000 5.125%, 12/15/11 2,865,000
1,245,000 5.750%, 01/01/13 1,257,450
1,045,000 5.125%, 12/15/13 988,831
Maui County General Obligation
Pre-Refunded Bonds Series A,
AMBAC Insured, Aaa/AAA
3,000,000 6.800%, 12/01/09 3,247,500
3,000,000 6.800%, 12/01/10 3,247,500
Maui County Water System Revenue
Pre-Refunded Bonds Series A,
FGIC Insured, Aaa/AAA
1,150,000 6.100%, 12/01/02 1,226,188
1,225,000 6.200%, 12/01/03 1,312,281
1,300,000 6.300%, 12/01/04 1,397,500
1,390,000 6.400%, 12/01/05 1,499,463
1,280,000 6.500%, 12/01/06 1,387,200
1,250,000 6.600%, 12/01/07 1,359,375
1,690,000 6.650%, 12/01/08 1,842,100
1,470,000 6.650%, 12/01/09 1,602,300
1,930,000 6.700%, 12/01/10 2,106,113
1,730,000 6.700%, 12/01/11 1,887,863
<PAGE>
Department of Budget and Finance
of the State of Hawaii Special
Purpose Revenue Bonds
(Citizens Utilities Company
Project), NR/AA+
3,400,000 6.900%, 11/01/15++ 3,582,750
5,000,000 6.600%, 07/01/22++ 5,181,250
Department of Budget and Finance
of the State of Hawaii Special
Purpose Revenue Bonds (Lutheran
Good Samaritan Society Project),
AMBAC Insured, Aaa/AAA
2,045,000 4.700%, 11/01/06 1,960,644
Department of Budget and Finance of
the State of Hawaii Special
Purpose Revenue Bonds (The
Evangelical Lutheran Good Samaritan
Society), Refunding Series 1993,
AMBAC Insured, Aaa/AAA
700,000 4.400%, 11/01/01 688,625
730,000 4.500%, 11/01/02 716,313
Department of Budget and Finance of
the State of Hawaii Special
Purpose Revenue Bonds (Hawaiian
Electric Company Inc. Project),
MBIA Insured, Aaa/AAA
8,100,000 6.875%, 04/01/12 8,347,374
Department of Budget and Finance
of the State of Hawaii Special
Purpose Revenue Bonds (Hawaiian
Electric Light Company, Inc.
Project), MBIA Insured, Aaa/AAA
5,600,000 7.200%, 12/01/14 6,083,000
Department of Budget and Finance
of the State of Hawaii Special
Purpose Revenue Bonds (Hawaiian
Electric Co., Inc., and
Subsidiaries Projects), Series
1995A, MBIA Insured, Aaa/AAA
13,000,000 6.600%, 01/01/25 13,520,000
Department of Budget and Finance
of the State of Hawaii Special
Purpose Revenue Bonds (Hawaiian
Electric Company, Inc. Project),
Series 1996A, MBIA Insured, Aaa/AAA
1,000,000 6.200%, 05/01/26 1,008,750
<PAGE>
Department of Budget and Finance
of the State of Hawaii Special
Purpose Revenue Bonds (Maui
Electric Company, Limited Project),
MBIA Insured, Aaa/AAA
2,195,000 6.875%, 04/01/12 2,262,035
Department of Budget and Finance
of the State of Hawaii Special
Purpose Revenue Bonds
(Kaiser-Permanente Medical Care
Program), Aa3/AA
3,565,000 6.500%, 03/01/11 3,712,056
11,450,000 6.250%, 03/01/21 11,750,563
Department of Budget and Finance
of the State of Hawaii Special
Purpose Revenue (Kapiolani Health
Care System) Series 1993,
MBIA Insured, Aaa/AAA
1,000,000 6.300%, 07/01/08 1,060,000
6,000,000 6.400%, 07/01/13 6,337,500
Department of Budget and Finance
of the State of Hawaii Special
Purpose Revenue (Kapiolani Health
Care System) Series 1996,
MBIA Insured, Aaa/AAA
1,000,000 6.000%, 07/01/11 1,018,750
1,000,000 6.200%, 07/01/16 1,035,000
1,000,000 6.250%, 07/01/21 1,028,750
Department of Budget and Finance
of the State of Hawaii Special
Purpose Revenue Pre-Refunded Bonds
- Kapiolani Health Care System
(Pali Momi Medical Center Project),
Series 1991, Aaa/AAA
3,000,000 7.600%, 07/01/10 3,382,500
11,200,000 7.650%, 07/01/19 12,656,000
Department of Budget and Finance of
the State of Hawaii Special Purpose
Revenue Bonds (The Queen's Medical
Center Project), FGIC Insured, Aaa/AAA
1,850,000 7.000%, 07/01/08 1,951,750
9,750,000 6.500%, 07/01/12 10,042,500
2,910,000 6.200%, 07/01/22 3,146,438
<PAGE>
Department of Budget and Finance
of the State of Hawaii Special
Purpose Revenue Bonds (The
Queen's Health System), Series A, Aa3/AA
4,000,000 6.050%, 07/01/16 4,060,000
8,625,000 6.000%, 07/01/20 8,700,469
3,500,000 5.750%, 07/01/26 3,408,125
Department of Budget and Finance
of the State of Hawaii Special
Purpose Revenue Bonds (St. Francis
Medical Centers), Refunding
Series 1992, FSA Insured, Aaa/AAA
20,000,000 6.500%, 07/01/22++ 21,025,000
Department of Hawaiian Home Lands
(State of Hawaii) Revenue Bonds,
Series 1991, NR/NR*
610,000 6.700%, 07/01/97 613,099
655,000 6.800%, 07/01/98 669,738
700,000 6.900%, 07/01/99 722,750
745,000 7.000%, 07/01/00 781,319
800,000 7.100%, 07/01/01 850,000
855,000 7.200%, 07/01/02 921,263
915,000 7.300%, 07/01/03 990,488
985,000 7.400%, 07/01/04 1,066,263
1,055,000 7.500%, 07/01/05 1,140,719
1,135,000 7.550%, 07/01/06 1,225,800
1,225,000 7.600%, 07/01/07 1,319,938
1,415,000 7.650%, 07/01/09 1,522,894
1,520,000 7.650%, 07/01/10 1,635,900
1,640,000 7.650%, 07/01/11 1,760,950
Department of Transportation of
the State of Hawaii Special
Facility Revenue Bonds
(Matson Terminals, Inc.),
Refunding Series 1993, NR/A-
11,875,000 5.750%, 03/01/13 11,637,500
<PAGE>
Hawaii Housing Authority Single
Family Mortgage Purchase Revenue
Bonds, 1986 Series B, Aa2/A
3,810,000 7.375%, 07/01/16 3,895,992
5,895,000 8.000%, 07/01/16 6,037,364
1,260,000 9.250%, 07/01/17 1,281,748
Housing Finance and Development
Corporation (State of Hawaii)
University of Hawaii Faculty
Housing Project, AMBAC Insured, Aaa/AAA
2,125,000 5.650%, 10/01/16 2,095,781
4,000,000 5.700%, 10/01/25 3,935,000
Housing Finance and Development
Corporation (State of Hawaii)
Rental Housing System
Revenue Bonds 1993 Series A, A1/NR
2,000,000 5.600%, 07/01/12 1,962,500
3,000,000 5.700%, 07/01/18 2,917,500
Housing Finance and Development
Corporation (State of Hawaii)
Single Family Mortgage
Purchase Revenue Bonds, Aa2/A
1,135,000 8.125%, 07/01/19 1,183,238
7,075,000 7.000%, 07/01/31 7,375,688
Housing Finance and Development
Corporation (State of Hawaii)
Single Family Mortgage Purchase
Revenue Bonds 1994 Series A & B, Aa2/A
2,500,000 5.700%, 07/01/13 2,500,000
15,500,000 5.850%, 07/01/17 15,364,375
10,000,000 6.000%, 07/01/26 9,837,500
County of Hawaii, Hawaii General
Obligation Pre-Refunded Refunding
and Improvement Series 1990A,
FGIC Insured, Aaa/AAA
2,380,000 7.250%, 06/01/08 2,585,275
2,550,000 7.300%, 06/01/09 2,773,125
<PAGE>
County of Hawaii, Hawaii General
Obligation Bonds Refunding and
Improvement Series 1993A,
FGIC Insured, Aaa/AAA
1,000,000 5.200%, 05/01/04 1,010,000
2,700,000 5.450%, 05/01/07 2,747,250
3,170,000 5.500%, 05/01/08 3,213,588
2,500,000 5.550%, 05/01/09 2,537,500
4,905,000 5.600%, 05/01/11 4,960,181
1,000,000 5.600%, 05/01/12 1,007,500
1,000,000 5.600%, 05/01/13 996,250
County of Hawaii, Hawaii Public
Improvement Bonds 1996 Series A,
FGIC Insured, Aaa/AAA
1,440,000 4.500%, 02/01/05 1,382,400
1,900,000 5.000%, 02/01/11 1,795,500
1,970,000 5.100%, 02/01/12 1,876,425
2,205,000 5.200%, 02/01/14 2,086,481
2,440,000 5.200%, 02/01/16 2,278,350
Hawaii Community Development
Authority Improvement District
Bonds (Kakaako Community
Development District Improvement
District 3), NR/NR*
140,000 6.800%, 07/01/97 140,832
150,000 6.900%, 07/01/98 154,875
160,000 7.000%, 07/01/99 168,200
995,000 7.300%, 07/01/04 1,089,525
1,490,000 7.400%, 07/01/10 1,614,788
Hawaii Community Development
Authority Improvement District
Refunding Bonds (Kakaako
Community Development District
Improvement District 1), NR/NR*
235,000 4.700%, 07/01/99 236,469
245,000 4.850%, 07/01/00 245,919
255,000 5.000%, 07/01/01 255,638
270,000 5.100%, 07/01/02 271,013
280,000 5.200%, 07/01/03 281,750
300,000 5.300%, 07/01/04 302,250
230,000 5.400%, 07/01/05 232,013
<PAGE>
Hawaii Community Development
Authority Improvement District
Refunding Bonds (Kakaako
Community Development District
Improvement District 2), NR/NR*
315,000 4.700%, 07/01/99 316,969
325,000 4.850%, 07/01/00 326,219
345,000 5.000%, 07/01/01 345,863
355,000 5.100%, 07/01/02 356,331
375,000 5.200%, 07/01/03 377,344
395,000 5.300%, 07/01/04 397,963
420,000 5.400%, 07/01/05 423,675
435,000 5.500%, 07/01/06 440,438
465,000 5.600%, 07/01/07 472,556
390,000 5.700%, 07/01/08 396,338
Hawaii Community Development
Authority Improvement District
Bonds (Kakaako Community
Development District Improvement
District 2) Pre-Refunded Bonds, NR/NR*
1,345,000 7.875%, 07/01/02 1,445,875
2,270,000 8.000%, 07/01/08 2,440,250
Hawaii Community Development
Authority Improvement District
Bonds (Kakaako Community
Development District Improvement
District 2) Escrowed to Maturity, NR/NR*
210,000 7.600%, 07/01/97 211,905
State of Hawaii Airport System
Revenue Bonds, MBIA Insured, Aaa/AAA
1,000,000 6.200%, 07/01/00 1,042,500
1,150,000 5.250%, 07/01/00 1,171,563
6,455,000 6.900%, 07/01/12 7,197,325
3,000,000 7.000%, 07/01/18 3,236,250
4,025,000 7.000%, 07/01/18 4,341,969
1,000,000 6.750%, 07/01/21 1,056,250
<PAGE>
State of Hawaii Airports System
Revenue Bonds Third Refunding
Series 1994, AMBAC Insured, Aaa/AAA
3,500,000 5.750%, 07/01/08 3,535,000
State of Hawaii General Obligation
Bonds, FGIC Insured, Aaa/AAA
6,000,000 8.000%, 02/01/01 6,660,000
2,000,000 5.750%, 01/01/11 2,052,500
3,700,000 6.000%, 10/01/11 3,889,625
3,500,000 6.000%, 10/01/12 3,670,625
State of Hawaii General Obligation
Bonds, FGIC Insured, Aaa/AAA
4,000,000 8.125%, 02/01/00 4,355,000
3,000,000 7.250%, 11/01/00 3,251,250
State of Hawaii General Obligation
Bonds of 1996, Series CM, FGIC
Insured, Aaa/AAA
3,000,000 6.500%, 12/01/15 3,270,000
State of Hawaii General Obligation
Bonds of 1997, Series CN, FGIC
Insured, Aaa/AAA
7,000,000 5.500%, 03/01/16 6,755,000
State of Hawaii General Obligation
Bonds of 1995, Series CK, FGIC
Insured, Aaa/AAA
5,555,000 5.250%, 09/01/09 5,464,731
1,000,000 5.600%, 09/01/13 996,250
3,000,000 5.600%, 09/01/14 2,966,250
State of Hawaii General Obligation
Bonds of 1995, Pre-Refunded
Series CJ, FGIC Insured, Aaa/AAA
5,000,000 6.250%, 01/01/14 5,187,500
5,000,000 6.250%, 01/01/15 5,175,000
State of Hawaii General Obligation
Refunding Bonds of 1993, Series
CE, FGIC Insured, Aaa/AAA
6,235,000 5.500%, 06/01/08 6,305,144
6,235,000 5.500%, 06/01/09 6,266,175
5,635,000 5.500%, 06/01/10 5,620,913
<PAGE>
State of Hawaii General Obligation
Refunding Bonds of 1993, Series
CH, FGIC Insured, Aaa/AAA
5,000,000 6.000%, 11/01/07 5,287,500
3,390,000 6.000%, 11/01/08 3,597,638
2,305,000 6.000%, 03/01/11 2,420,250
State of Hawaii Harbor Capital
Improvements Revenue Bonds,
MBIA Insured, Aaa/AAA
2,205,000 6.200%, 07/01/08 2,315,250
3,850,000 5.750%, 07/01/17+ 3,734,500
State of Hawaii Harbor Capital
Improvements Revenue Bonds,
MBIA Insured, Aaa/AAA
14,000,000 7.250%, 07/01/10 15,155,000
1,200,000 7.000%, 07/01/17 1,285,500
State of Hawaii Harbor Revenue
Bonds, Series 1992, FGIC Insured, Aaa/AAA
3,850,000 6.500%, 07/01/19 4,013,625
State of Hawaii Harbor Revenue
Bonds, Refunding Series 1993,
FGIC Insured, Aaa/AAA
1,260,000 6.050%, 07/01/04 1,335,600
1,225,000 6.150%, 07/01/05 1,306,156
State of Hawaii Harbor Revenue
Bonds, Series of 1994, FGIC
Insured, Aaa/AAA
1,000,000 6.250%, 07/01/09 1,050,000
1,000,000 6.250%, 07/01/10 1,038,750
3,725,000 6.250%, 07/01/15 3,818,125
10,180,000 6.375%, 07/01/24 10,409,050
State of Hawaii Highway Revenue
Bonds Series 1993, FGIC Insured, Aaa/AAA
4,000,000 4.875%, 07/01/07 3,865,000
3,900,000 5.000%, 07/01/08 3,768,375
2,255,000 5.000%, 07/01/09 2,164,800
4,575,000 5.000%, 07/01/10 4,340,531
2,220,000 5.000%, 07/01/11 2,081,250
3,850,000 5.000%, 07/01/12 3,575,688
2,750,000 5.000%, 07/01/13 2,533,438
<PAGE>
State of Hawaii Highway Revenue
Bonds Series 1996, FGIC Insured, Aaa/AAA
3,705,000 5.600%, 07/01/13 3,644,770
2,000,000 5.250%, 07/01/16 1,875,000
Total Hawaii 633,398,000
GUAM (0.2%)
Government of Guam Ltd. Water
System Revenue Bonds, FSA Insured, Aaa/AAA
1,500,000 7.000%, 07/01/09 1,606,875
Total Guam 1,606,875
Total Investments
(cost $615,156,778**) 98.2% 635,004,875
Other assets in excess of
liabilities 1.8 11,351,028
Net Assets 100.0% $ 646,355,903
<FN>
* Any security not rated has been determined by the
Investment Adviser to have sufficient quality to
be ranked in the top four credit ratings if a credit
rating were to be assigned by a rating service.
</FN>
<FN>
+ When-issued security.
</FN>
<FN>
++ This security is pledged as collateral for
the Trust's when-issued commitments.
</FN>
<FN>
** Cost for Federal tax purposes is identical.
</FN>
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC American Municipal Bond Assurance Corp.
FGIC Financial Guaranty Insurance Co.
FHA Federal Housing Administration
FSA Financial Security Assurance
MBIA Municipal Bond Investors Assurance Corp.
See accompanying notes to financial statements.
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments at value (identified cost - $615,156,778) $ 635,004,875
Cash 12,314,886
Interest receivable 10,760,188
Receivable for Trust shares sold 1,349,110
Other assets 13,213
Total assets 659,442,272
LIABILITIES
Payable for investment securities purchased 10,586,578
Payable for Trust shares redeemed 1,382,390
Dividends payable 365,761
Distribution fees payable 334,480
Adviser and Administrator fees payable 222,551
Accrued expenses 194,609
Total liabilities 13,086,369
NET ASSETS $ 646,355,903
Net Assets consist of:
Capital Stock, no par value, authorized an unlimited
number of shares $ 626,895,276
Distributions in excess of net investment income (387,470)
Net unrealized appreciation on investments 19,848,097
$ 646,355,903
CLASS A
Net Assets $ 640,988,793
Capital shares outstanding 57,070,761
Net asset value and redemption price per share $ 11.23
Offering price per share (100/96 of $11.23 adjusted
to nearest cent) $ 11.70
CLASS C
Net Assets $ 5,367,004
Capital shares outstanding 478,038
Net asset value and offering price per share $ 11.23
Redemption price per share (*varies by length of
time shares are held) $ *
CLASS Y
Net Assets $ 106
Capital shares outstanding 9
Net asset value, offering and redemption price
per share $ 11.24
</TABLE>
See accompanying notes to financial statements.
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest income $ 38,487,871
EXPENSES:
Investment Adviser fees (note 2) $ 915,693
Administrator fees (note 2) 1,700,577
Distribution fees (note 2) 1,323,888
Transfer and shareholder servicing
agent fees 349,784
Trustees' fees and expenses 174,902
Shareholders' reports and proxy statements 115,769
Legal fees 88,935
Custodian fees 61,139
Registration fees and dues 48,171
Audit and accounting fees 39,428
Insurance 13,302
Miscellaneous 84,023
4,915,611
Expenses paid indirectly (note 7) (115,208)
Net expenses 4,800,403
Net investment income 33,687,468
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain from securities transactions 528,297
Change in net unrealized appreciation on
investments (4,593,162)
Net realized and unrealized loss on
investments (4,064,865)
Net increase in net assets resulting from
operations $ 29,622,603
</TABLE>
See accompanying notes to financial statements.
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 33,687,468 $ 35,225,979
Net realized gain from securities
transactions 528,297 3,423,716
Change in unrealized appreciation on
investments (4,593,162) 7,014,254
Change in net assets resulting from
operations 29,622,603 45,663,949
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6):
Class A Shares:
Net investment income, tax-exempt (33,607,523) (34,763,602)
Net investment income, taxable - (16,422)
Net realized gain on investments (721,443) (445,955)
Class C Shares:
Net investment income (79,938) -
Net realized gain on investments (3,408) -
Class Y Shares:
Net investment income (7) -
Net realized gain on investments - -
Change in net assets from distributions (34,412,319) (35,225,979)
CAPITAL SHARE TRANSACTIONS (NOTE 9):
Proceeds from shares sold 44,348,965 50,608,455
Reinvested dividends and distributions 17,392,444 17,419,894
Cost of shares redeemed (70,521,098) (61,096,857)
Change in net assets from capital
share transactions (8,779,689) 6,931,492
Change in net assets (13,569,405) 17,369,462
NET ASSETS:
Beginning of period 659,925,308 642,555,846
End of period $ 646,355,903 $ 659,925,308
</TABLE>
See accompanying notes to financial statements.
<PAGE>
HAWAIIAN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Hawaiian Tax-Free Trust (the "Trust"), a non-diversified, open-end
investment company, was organized on May 7, 1984, as a Massachusetts business
trust and commenced operations on February 20, 1985. The Trust is authorized
to issue an unlimited number of shares and, since its inception to April 1,
1996, offered only one class of shares. On that date, the Trust began
offering two additional classes of shares, Class C and Class Y shares. All
shares outstanding prior to that date were designated as Class A shares and,
as was the case since inception, are sold with a front-payment sales charge
and bear an annual service fee. Class C shares are sold with a level-payment
sales charge with no payment at time of purchase but level service and
distribution fees from date of purchase through a period of six years
thereafter. A contingent deferred sales charge of 1% is assessed to any Class
C shareholder who redeems shares of this Class within one year from the date
of purchase. The Class Y shares are only offered to institutions acting for
an investor in a fiduciary, advisory, agency, custodial or similar capacity.
They are not available to individual retail investors. Class Y share are sold
at net asset value without any sales charge, redemption fees, contingent
deferred sales charge or distribution or service fees. All classes of shares
represent interests in the same portfolio of investments and are identical as
to rights and privileges but differ with respect to the effect of sales
charges, the distribution and/or service fees borne by each class, expenses
specific to each class, voting rights on matters affecting a single class and
the exchange privileges of each class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
a) PORTFOLIO VALUATION: Municipal securities which have remaining
maturities of more than 60 days are valued each business day based upon
information provided by a nationally prominent independent pricing
service and periodically verified through other pricing services; in the
case of securities for which market quotations are readily available,
securities are valued at the mean of bid and asked quotations and, in
the case of other securities, at fair value determined under procedures
established by and under the general supervision of the Board of
Trustees. Securities which mature in 60 days or less are valued at
amortized cost if their term to maturity at purchase was 60 days or
less, or by amortizing their unrealized appreciation or depreciation on
the 61st day prior to maturity, if their term to maturity at purchase
exceeded 60 days.
In Fiscal 1997, the Trust began amortizing bond premium using the
constant yield method. Accordingly, net unrealized appreciation and
additional paid-in capital have been adjusted by equal amounts at the
beginning of the year. This change had no effect on the Trust's net
asset value or distribution policy and conforms to the amortization
policy followed by the Trust for Federal tax purposes.
<PAGE>
b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and losses
from securities transactions are reported on the identified cost basis.
Interest income is recorded daily on the accrual basis and is adjusted
for amortization of premium and accretion of original issue discount.
Market discount is recognized upon disposition of the security.
c) FEDERAL INCOME TAXES: It is the policy of the Trust to qualify as
a regulated investment company by complying with the provisions of the
Internal Revenue Code applicable to certain investment companies. The
Trust intends to make distributions of income and securities profits
sufficient to relieve it from all, or substantially all, Federal income
and excise taxes.
d) ALLOCATION OF EXPENSES: Expenses, other than class-specific
expenses, are allocated daily to each class of shares based on the
relative net assets of each class. Class-specific expenses, which
include distribution and service fees and any other items that are
specifically attributed to a particular class, are charged directly to
such class.
e) USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
Management affairs of the Trust are conducted through two separate
management arrangements.
Hawaiian Trust Company, Limited (the "Adviser"), became Investment
Adviser to the Trust in February, 1985. In this role, under an Investment
Advisory Agreement, the Adviser supervises the Trust's investments and
provides various services to the Trust, including maintenance of the Trust's
accounting books and records, for which it is entitled to receive a fee which
is payable monthly and computed as of the close of business each day at the
annual rate of 0.14 of 1% of the net assets of the Trust.
The Trust also has an Administration Agreement with Aquila Management
Corporation (the "Administrator"), the Trust's founder and sponsor. Under
this Agreement, the Administrator provides all administrative services, other
than those relating to the management of the Trust's investments. These
include providing the office of the Trust and all related services as well as
overseeing the activities of all the various support organizations to the
Trust such as the shareholder servicing agent, custodian, legal counsel,
auditors and distributor. For its services, the Administrator is entitled to
receive a fee which is payable monthly and computed as of the close of
business each day at the annual rate of 0.26 of 1% of the net assets of the
Trust.
<PAGE>
Specific details as to the nature and extent of the services provided by
the Adviser and the Administrator are more fully defined in the Trust's
Prospectus and Statement of Additional Information.
The Adviser and the Administrator each agrees that the above fees shall
be reduced, but not below zero, by an amount equal to its pro-rata portion
(determined on the basis of the respective fees computed as described above)
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 payment of the above fees at the
end of any month will be reduced or postponed so that at no time will there
be any accrued but unpaid liability under this expense limitation. No such
reduction in fees was required during the year ended March 31, 1997.
For the year ended March 31, 1997, the Trust incurred fees under the
Advisory Agreement and Administration Agreement of $915,693 and $1,700,577,
respectively.
b) DISTRIBUTION AND SERVICING FEES:
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part
of the Plan, with respect to Class A Shares, the Trust is authorized to make
service fee payments to broker-dealers or others ("Qualified Recipients")
selected by the Distributor, including, but not limited to, any principal
underwriter of the Trust, with which the Distributor has entered into written
agreements contemplated by the Rule and which have rendered assistance in the
distribution and/or retention of the Trust's shares or servicing of
shareholder accounts. The Trust makes payment of this service fee at the
annual rate of 0.20% of the Trust's average net assets represented by Class A
Shares. For the year ended March 31, 1997, service fees on Class A Shares
amounted to $1,304,201, of which the Distributor received $76,168.
Under another part of the Plan, the Trust is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Trust's Class C shares
or servicing of shareholder accounts. These payments are made at the annual
rate of 0.75% of the Trust's net assets represented by Class C Shares and for
the year ended March 31, 1997, amounted to $14,765, of which the Distributor
received $14,765.
In addition, under a Shareholder Services Plan, the Trust is authorized
to make service fee payments with respect to Class C Shares to Qualified
Recipients for providing personal services and/or maintenance of shareholder
accounts. These payments are made at the annual rate of 0.25% of the Trust's
net assets represented by Class C Shares and for the year ended March 31,
1997, amounted to $4,922, of which the Distributor received $4,922.
<PAGE>
Specific details about the Plans are more fully defined in the Trust's
Prospectus and Statement of Additional Information.
Under a Distribution Agreement, Aquila Distributors, Inc. (the
"Distributor") serves as the exclusive distributor of the Trust's shares.
Through agreements between the Distributor and various broker-dealer firms
("dealers"), the Trust's shares are sold primarily through the facilities of
these dealers having offices within Hawaii, with the bulk of sales
commissions inuring to such dealers. For the year ended March 31, 1997, the
Distributor received sales commissions in the amount of $81,561.
4. PURCHASES AND SALES OF SECURITIES
During the year ended March 31, 1997, purchases of securities and
proceeds from the sales of securities aggregated $58,402,173 and $70,318,684,
respectively.
At March 31, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to $23,481,637 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value amounted to
$3,633,540 for a net unrealized appreciation of $19,848,097.
5. PORTFOLIO ORIENTATION
Since the Trust invests principally and may invest entirely in double
tax-free municipal obligations of issuers within Hawaii, it is subject to
possible risks associated with economic, political, or legal developments or
industrial or regional matters specifically affecting Hawaii and whatever
effects these may have upon Hawaii issuers' ability to meet their
obligations.
6. DISTRIBUTIONS
The Trust declares dividends daily from net investment income and makes
payments monthly in additional shares at the net asset value per share or in
cash, at the shareholder's option. Net realized capital gains, if any, are
distributed annually.
The Trust intends to maintain, to the maximum extent possible, the
tax-exempt status of interest payments received from portfolio municipal
securities in order to allow dividends paid to shareholders from net
investment income to be exempt from regular Federal and State of Hawaii
income taxes. However, due to differences between financial reporting and
Federal income tax reporting requirements, distributions made by the Trust
may not be the same as the Trust's net investment income, and/or net realized
securities gains. Further, a small portion of the dividends may, under some
circumstances, be subject to ordinary income taxes. For certain shareholders,
some dividend income may, under some circumstances, be subject to the
alternative minimum tax. Also, annual capital gains distributions, if any,
are taxable.
<PAGE>
7. EXPENSES
The Trust has negotiated an expense offset arrangement with its custodian
wherein it receives credit toward the reduction of custodian fees and other
Trust expenses whenever there are uninvested cash balances. The Statement of
Operations reflects the total expenses before any offset, the amount of
offset and the net expenses. It is general intention of the Fund to invest,
to the extent practicable, some or all of cash balances in income-producing
assets rather than leave cash on deposit.
8. TRUSTEES' FEE AND EXPENSES
During the fiscal year there were 11 Trustees. Trustees' fees paid during
the year were at the average annual rate of $12,000 for carrying out their
responsibilities and attendance at regularly scheduled Board Meetings. If
additional or special meetings are scheduled for the Trust, separate meeting
fees are paid for each such meeting to those Trustees in attendance. The
Trust also reimburses Trustees for expenses such as travel, accommodations,
and meals incurred in connection with attendance at regularly scheduled or
special Board Meetings and at the Annual Meeting and outreach meetings of
Shareholders. For the fiscal year ended March 31, 1997 such reimbursements
averaged approximately $4,400 per Trustee. One of the Trustees, who is
affiliated with the Administrator, is not paid any Trustee fees.
9. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Trust were as follows:
<TABLE>
<CAPTION>
Year Ended 3/31/97 Year Ended 3/31/96
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class A Shares:
Proceeds from shares sold 3,435,559 $ 38,837,050 4,446,713 $ 50,608,455
Reinvested distributions 1,531,621 17,341,570 1,529,160 17,419,894
Cost of shares redeemed (6,222,801) (70,398,321) (5,357,030) (61,096,857)
Net change (1,255,621) (14,219,701) 618,843 6,931,492
Class C Shares:
Proceeds from shares sold 484,452 5,511,815
Reinvested distributions 4,471 50,867
Cost of shares redeemed (10,885) (122,777)
Net change 478,038 5,439,905
Class Y Shares:
Proceeds from shares sold 8 100
Reinvested distributions 1 7
Cost of shares redeemed - -
Net change 9 107
Total transactions in Trust
shares (777,574) $ (8,779,689) 618,843 $ 6,931,492
</TABLE>
<PAGE>
HAWAIIAN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Class C(2) Class Y(2) Class A(1)
Year ended Year ended March 31,
March 31, 1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $11.31 $11.31 $11.31 $11.13 $11.19 $11.60 $11.10
Income from Investment
Operations:
Net investment income 0.46 0.74 0.59 0.61 0.62 0.63 0.68
Net gain (loss) on
securities (both
realized and
unrealized) (0.08) (0.07) (0.08) 0.18 (0.01) (0.38) 0.50
Total from
Investment
Operations 0.38 0.67 0.51 0.79 0.61 0.25 1.18
Less Distributions
(note 6):
Dividends from net
investment income (0.45) (0.73) (0.58) (0.61) (0.62) (0.63) (0.68)
Distributions from
capital gains (0.01) (0.01) (0.01) - (0.05) (0.03) -
Total Distributions (0.46) (0.74) (0.59) 0.61 (0.67) (0.66) (0.68)
Net Asset Value, End
of Period $11.23 $11.24 $11.23 $11.31 $11.13 $11.19 $11.60
Total Return (not
reflecting sales
charge) (%) 3.41 6.14 4.67 7.16 5.75 2.01 10.98
Ratios/Supplemental
Data
Net Assets, End
of Period
($ thousands) 5,367 0.1 640,989 659,925 642,556 640,465 597,828
Ratio of Expenses
to Average Net
Assets (%) 1.51 0.53 0.73 0.72 0.75 0.74 0.71
Ratio of Net
Investment Income
to Average Net
Assets (%) 4.06 4.92 5.12 5.32 5.65 5.46 5.92
Portfolio Turnover
Rate (%) 9 9 9 28 33 16 11
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the expense offset for uninvested cash balances
would have been:
<S> <C> <C> <C> <C> <C> <C> <C>
Net Investment
Income ($) 0.46 0.74 0.59 0.61 0.62 0.63 0.68
Ratio of Expenses
to Average Net
Assets (%) 1.53 0.55 0.75 0.73 0.77 0.76 0.73
Ratio of Net
Investment Income
to Average Net
Assets (%) 4.04 4.94 5.11 5.31 5.63 5.44 5.90
<FN>
(1) Designated as Class A Shares on April 1, 1996.
</FN>
<FN>
(2) New Class of Shares established on April 1, 1996.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
REPORT OF THE ANNUAL AND SPECIAL MEETINGS OF SHAREHOLDERS (UNAUDITED)
A Special Meeting of Class Y Shareholders of Hawaiian Tax-Free Trust
(the "Trust") was held on April 4, 1996(1). At the meeting, the Class Y
Shareholders voted on and unanimously approved the provisions of the Trust's
Distribution Plan relating to Class Y Shares (votes for: 100 (100%).
The Annual Meeting of Shareholders of the Trust was held on September
23, 1996(2). At the meeting, the following matters were submitted to a
shareholder vote and approved:
(i) the election of Lacy B. Herrmann, Vernon R. Alden, Arthur K.
Carlson, William M. Cole, Thomas W. Courtney, Richard W. Cushman, II,
Stanley W. Hong, Theodore T. Mason, Russell K. Okata, Douglas
Philpotts, and Oswald K. Stender as Trustees to hold office until the
next annual meeting of the Trust's shareholders or until his or her
successor is duly elected (each Trustee received at least
392,331,746.13 affirmative votes (98.43%); no more than 6,245,443.86
votes were withheld for any Trustee (1.57%)), and
(ii) the ratification of the selection of KPMG Peat Marwick LLP as the
Trust's independent auditors for the fiscal year ending March 31, 1997
(votes for: 392,331,746.13 (98.43%); votes against: 1,725,777.59
(0.43%); abstentions: 4,519,666.26 (1.13%); broker non-votes: 0
(0.00%)).
- -----------
1 On the record date for this meeting, Class Y Shares of the Trust
representing a total net asset value of $100 were outstanding and entitled to
vote. The holders of all Class Y Shares entitled to vote were present in
person at the meeting.
2 On the record date for this meeting, 57,998,826.29 Class A Shares,
15,153.01 Class C Shares, and 8.96 Class Y Shares were outstanding and
entitled to vote representing a total net asset value of $648,596,388.84. The
holders of shares entitled to vote representing a total net asset value of
$398,577,189.99 (61.45%) were present in person or by proxy at the meeting.
FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
This information is presented in order to comply with a requirement of
the Internal Revenue Code AND NO CURRENT ACTION ON THE PART OF SHAREHOLDERS
IS REQUIRED.
As reported in the financial statements for the fiscal year ended March
31, 1997, 97.89% of the total amount of dividends reported by the Trust
should be considered "exempt-interest dividends" and 2.11% of such dividends
should be considered a capital gain dividend. 18.27% of the Trust's dividends
was derived from interest on "private activity bonds."
The Trust hereby designates $33,661,324 as exempt-interest dividends for
the fiscal year ended March 31, 1997, where such dividends are not subject to
regular Federal income tax. The Trust also designates $768,461 as capital
gain dividends for Federal income tax purposes for its fiscal year ended
March 31, 1997 where such amounts are taxable as long-term capital gains.
Prior to January 31, 1997, shareholders were mailed IRS Form 1099-DIV
which contained information on the status of distributions paid for the 1996
CALENDAR YEAR.
