INVESTMENT ADVISER
PACIFIC CENTURY TRUST
a division of
BANK OF HAWAII
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
Diana P. Herrmann, 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
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
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, 1998
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
QUALITY FOSTERS "PEACE OF MIND"
May 22, 1998
Dear Investor:
Recently, there has been a lot of news about the Far East and the
problems that a number of countries in that area are experiencing. These
problems have included some failures of major financial corporations in
Japan, South Korea, Indonesia, Hong Kong, and various other countries. Also,
there have been major deterioration changes in the currencies of these
countries as they relate to U.S. dollars.
It is hard to believe the magnitude of recent currency
depreciation that has taken place in various countries vs. the U.S. dollar.
The currency deteriorations against the U.S. dollar have ranged from 10% to
well over 70% with various countries around the world. While we may have some
problems within our own country, these are very substantially less than those
of other countries.
In comparison to various economies and currencies of the Far
East, as well as other countries in the world, the U.S. economy, securities
markets and currency, in general, stand out as a beacon of quality. What has
occurred as a result of the problems of these Far East countries is a FLIGHT
TO QUALITY.
The financial problems in the Far East are, unfortunately, having
a direct impact upon Hawaii's budget and economy. The reason for this is that
the economy of the islands depends significantly upon tourism from that area.
Unfortunately, too, the drop in tourism from the Far East is a situation that
will not have a quick ending. Our answer to this is QUALITY for the Trust's
Investments.
<PAGE>
QUALITY
QUALITY has always been one of the hallmarks of Hawaiian Tax-Free
Trust - from the very inception of the Trust. We know that shareholders of
the Trust are primarily made up of retirees and pre-retirees who are
interested in a high level of safety for their investments. Consequently, it
has been our strong belief that you can SLEEP MUCH BETTER AT NIGHT by having
HIGH QUALITY issues in the fund in which you invest.
Indeed, as we have pointed out to you, presently the portfolio of
Hawaiian Tax-Free Trust consists of 74.3% tax-exempt securities having a AAA
rating. Not only that, most of these securities receive their high credit
rating by being insured by specialized insurance companies as to payment of
interest and principal. Such insurance becomes important for you and the Trust
should a problem ever occur with an individual issuer. Concerning the balance
of the portfolio, 14.3% of the securities have a AA rating. Thus, at March
31, 1998, 88.6% of the Trust's overall portfolio is rated as AAA or AA. These
are the TWO HIGHEST QUALITY credit ratings of securities you can possibly own.
Just as important for you to know, in the portfolio management of the
Trust, separate credit analysis is continuously done by the Trust's portfolio
managers at Pacific Century Trust (formerly Hawaiian Trust Company). We do
this to confirm for the Trust that the quality ratings of individual
securities have not changed in any way. In other words, we do not merely rely
upon the judgment of rating agencies, but rather independently verify the
credit quality of each security.
Why do we structure the portfolio this way? Primarily, so that you can
feel comfortable with your investment in Hawaiian Tax-Free Trust. We want you
to know that that portion of your savings in the Trust possesses for you a
high level of capital preservation.
<PAGE>
PATTERN OF PRICING OF SHARE VALUE
When you look at the pricing of the share value of Hawaiian Tax-Free
Trust, you will note that it presents a high level of share price
consistency. This is despite the deterioration of the budgetary and economic
problems faced by Hawaii. It also is in stark contrast to the currency
deterioration and volatility of the currency and securities markets that is
taking place around the world. The chart below shows you the level of
consistency for every year since the Trust began.
[Graphic of bar chart with the following information:]
SHARE NET ASSET VALUE
<TABLE>
<CAPTION>
In Dollars
<S> <C>
3/31/85 9.53
3/31/86 10.94
3/31/87 11.14
3/31/88 10.60
3/31/89 10.60
3/31/90 10.78
3/31/91 10.85
3/31/92 11.10
3/31/93 11.61
3/31/94 11.19
3/31/95 11.13
3/31/96 11.31
3/31/97 11.23
3/31/98 11.67
</TABLE>
OTHER STEPS TAKEN TO
PROTECT YOUR MONEY
As we have pointed out in previous reports to you, we have also
consistently sought to diversify the holdings of municipal bonds in the
portfolio so that no one segment could hurt the overall value of your money
in the remote event a problem occurred. As a result, it is worth pointing out
that the portfolio of securities presently consists of 218 individual issues
spread over a variety of categories throughout various communities in Hawaii.
This diversification is illustrated in the accompanying pie chart.
[Graphic of pie chart with the following information:]
PORTFOLIO DIVERSIFICATION BY PROJECT
<TABLE>
<S> <C>
Airports 3.4%
Harbor 7.4%
Electric 6.3%
Highway 4.7%
Water & Sewer 3.4%
Hospital 13.4%
Housing 13.8%
General Obligations 11.5%
Improvement District 2.2%
County General Obligations 27.2%
Education 1.8%
Transportation 2.0%
Other 2.9%
</TABLE>
<PAGE>
We also ensure that the maturity of the portfolio is spread out over
various time periods, as is indicated in the accompanying pie chart. The
average portfolio maturity is 15 years and duration to call is 6.1 years.
[Graphic of pie chart with the following information:]
PORTFOLIO DISTRIBUTION BY MATURITY
(In Years)
<TABLE>
<S> <C>
Under 1 .7%
1 - 5 11.0%
5 - 10 14.2%
10 - 20 51.1%
20 - 30 18.6%
Over 30 4.4%
</TABLE>
"PEACE OF MIND"
Altogether then, when you consider the quality, diversification, and
maturity of the portfolio, what we have consistently tried to do for you
is to provide you with the means by which you can have "PEACE OF MIND" with
your investment in Hawaiian Tax-Free Trust.
WORKING IN YOUR INTEREST
You can be assured that all those associated with the management of
the Trust will consistently work in the interest of your investment in the
Trust. We very much value you as a shareholder and appreciate the confidence
you have shown in Hawaiian Tax-Free Trust.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
<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, 1998, 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 41,000 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 Sales Cost of
Municipal Bond Index ($) Charge and Expenses ($) Living Index ($)
<S> <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
3/98 33.142 26.786 15.240
</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, 1998 Year Years Years Since 2/20/85
<S> <C> <C> <C> <C>
Including Sales
Charge and Expenses 4.98% 4.90% 6.81% 7.80%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS
<PAGE>
The bond markets have been acting in a rather nervous manner through
the first quarter of 1998. They have been disturbed by the possibility of
the Federal Reserve raising interest rates, ostensibly to head off any
inflationary factors associated with continued economic growth in the U.S.
The Asian economic crises which disrupted international markets in 1997
and 1998 do not, in general, appear to have negatively affected U.S. markets
as yet. Reported corporate profits continue to rise, bolstering analyst and
investor expectations. As a consequence, cash flows into bond mutual funds
have been relatively nominal as compared with monies still streaming into
equity funds. In general, there has been a lack of interest in fixed income
investments as investors have been able to achieve highly attractive returns
on equities in the first quarter of 1998.
State economies for most of the mainland showed strong improvement
in 1997. The 30-year AAA General Obligation ("G.O.") bond yields dropped from
5.65% on March 31, 1997, to 5.05% on March 31, 1998 on a national basis.
Yield spreads for various bond credit ratings compressed as the general level
of municipal obligations received credit upgrades by the rating agencies due
to improving economic conditions. Generally, many municipal bond funds
associated with favorable state economies turned to lower quality credits and
longer maturity bonds in order to enhance their returns to investors. We did
not feel that we could follow this course of action for the Trust.
Unfortunately, Hawaii's economy continues to lag the nation as a
whole as it has yet to make a turnaround from the 7-year downward slide. As
anticipated by the Trust's Investment Adviser, the credit rating of Hawaii
state G.O.s was downgraded by Moody's from Aa3 to Al in March of 1998. This
leaves the Hawaii State G.O. with a Al/A+ long-term municipal rating from
both Moody's and Standard & Poor's. Hawaii has started to experience the
impact of Asia's weakness causing soft real property values, private and
public sector job layoffs and a high tax and public debt burden. The Economic
Revitalization Task Force was a positive study in joint cooperation between
public sector, private sector, organized labor and the community. However,
even if selected proposals pass legislation, economic recovery will still be
a long-term process.
<PAGE>
The Trust has taken a long-term view in terms of analyzing the local
economy. In view of various trends we saw developing, we began insuring
different municipal bond issues as early as 1991. Since then, we have either
insured individual issues which were in the Trust's portfolio, or purchased
insured bonds, to the present extent of almost 75% of the portfolio. This
portfolio strategy has definitely helped maintain market value while
providing a superior level of credit risk enhancement.
Although, over the last 5 years or so, it is true that Hawaii municipal
bond yields have widened relative to a generic AAA G.O. yield scale, our
insured bonds have remained relatively stable in value. The insurance
program we have adopted for the Trust ensures timely payment of interest and
principal when due, in the event of non-payment by the underlying issuer in
the event of default. Of course, principal value will still be subject to
market volatility. However, insured bonds will retain the AAA claims paying
ability of the municipal bond insurer even when the underlying issuer itself
is downgraded - as in the most recent case of the Hawaii State G.O. bonds.
Additionally, Hawaii bonds are still providing a very good relative yield.
Given the superior credit research abilities of Pacific Century Trust, we
remain able to identify and capitalize on specific investment opportunities,
always bearing in mind the long-term investment objective of the Trust in
terms of yield and capital preservation.
Hawaii's economic challenges will take some time to improve.
However, the Trust is continually managed with an extremely high degree of
sensitivity to economic conditions within the State, as well as
internationally.
<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, 1998, 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, 1998, by correspondence with the custodian.
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, 1998, 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 8, 1998
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
RATING
FACE MOODY'S
AMOUNT HAWAII (96.2%) S&P VALUE
<C> <S> <C> <C>
Board of Regents, University of Hawaii Aaa/AAA
University System Revenue Bonds,
Series G, AMBAC Insured,
$2,910,000 5.650%, 10/01/12 $3,037,313
4,290,000 5.700%, 10/01/17 4,472,325
Board of Regents, University of Hawaii Aaa/AAA
University System Revenue Bonds,
Series I, FGIC Insured,
1,110,000 5.300%, 10/01/08 1,164,113
2,825,000 5.500%, 10/01/18 2,941,513
Board of Water Supply City and County Aaa/AAA
of Honolulu, Hawaii Water System
Revenue Bonds, Series 1996, MBIA Insured,
1,090,000 5.400%, 07/01/09 1,144,500
1,750,000 5.800%, 07/01/16 1,870,313
1,500,000 5.800%, 07/01/21 1,597,500
City and County of Honolulu NR/NR*
Multifamily Housing Revenue Bonds
(Cambridge Park Project) 1988 Series A,
8,000,000 5.850%, 12/01/02 8,140,000
City and County of Honolulu, Hawaii Aaa/AAA
General Obligation Bonds Series A, FGIC Insured,
5,385,000 7.300%, 07/01/03 6,152,363
2,895,000 7.350%, 07/01/05 3,423,338
4,790,000 7.350%, 07/01/06 5,748,000
9,970,000 7.350%, 07/01/07 12,101,088
3,600,000 7.350%, 07/01/08 4,414,500
2,500,000 6.000%, 01/01/12 2,787,500
1,000,000 5.625%, 09/01/14 1,056,250
City and County of Honolulu, Hawaii Aaa/AAA
General Obligation Bonds Series B, FGIC Insured,
1,750,000 5.000%, 11/01/13 1,758,750
2,000,000 5.000%, 11/01/14 2,002,500
1,000,000 5.000%, 11/01/16 991,250
2,945,000 5.000%, 11/01/17 2,904,506
<PAGE>
City and County of Honolulu, Hawaii Aaa/AAA
General Obligation Bonds Series 1995, MBIA Insured,
2,215,000 6.000%, 11/01/09 2,480,800
1,500,000 6.000%, 11/01/10 1,681,875
1,000,000 5.250%, 11/01/13 1,023,750
1,835,000 5.500%, 11/01/14 1,915,281
3,130,000 5.000%, 11/01/15 3,114,350
City and County of Honolulu, Hawaii Aaa/AAA
General Obligation Bonds Series 1994A,
FGIC Insured,
4,000,000 5.750%, 04/01/11 4,370,000
3,800,000 5.750%, 04/01/13 4,146,750
City and County of Honolulu, Hawaii Aaa/AAA
General Obligation Bonds Series 1994B,
FGIC Insured,
2,030,000 6.100%, 06/01/11 2,253,300
3,000,000 6.100%, 06/01/12 3,330,000
4,650,000 6.125%, 06/01/13 5,167,313
4,155,000 6.125%, 06/01/14 4,617,244
City and County of Honolulu Hawaii Aaa/AAA
General Obligation Bonds, Refunding
and Improvement Series, 1993A
Fixed Rate Bonds, FGIC Insured,
5,825,000 6.000%, 01/01/11 6,494,875
City and County of Honolulu Hawaii Aaa/AAA
General Obligation Bonds, Refunding
and Improvement Series, 1993B
Fixed Rate Bonds, FGIC Insured,
9,800,000 5.500%, 10/01/11 10,498,250
1,050,000 6.000%, 12/01/15 1,176,000
City and County of Honolulu, Hawaii Aaa/AAA
General Obligation Water Bonds,
Series 1992, MBIA Insured,
1,125,000 6.000%, 12/01/12 1,261,406
<PAGE>
City and County of Honolulu NR/NR*
Improvement District No. 261 (Halawa Business
Park), Improvement District Bonds,
365,000 6.700%, 10/15/04 404,694
355,000 6.800%, 10/15/05 398,044
345,000 6.900%, 10/15/06 385,969
City and County of Honolulu Mortgage Aaa/AAA
Revenue Refunding Bonds, Series 1992A
(FHA Insured Mortgage Loan--Smith-Beretania
Apartments Section 8 Assisted Project),
MBIA Insured,
2,945,000 7.800%, 07/01/24 3,184,281
Kauai County General Obligation A/NR
Escrowed to Maturity Bonds,
615,000 9.000%, 08/01/04 773,363
665,000 9.000%, 08/01/05 857,019
County of Kauai, State of Hawaii Aaa/AAA
General Obligation Refunding Bonds, 1992
Series A,B & C, AMBAC Insured,
930,000 5.250%, 08/01/01 964,875
330,000 5.450%, 08/01/03 349,800
1,030,000 5.450%, 08/01/03 1,091,800
435,000 5.900%, 08/01/08 484,481
1,355,000 5.900%, 08/01/08 1,509,131
1,300,000 5.950%, 08/01/10 1,449,500
County of Kauai, State of Hawaii Aaa/AAA
General Obligation Refunding Bonds,
Series 1994A & 1994B, MBIA Insured,
365,000 5.200%, 02/01/02 378,688
460,000 5.300%, 02/01/03 482,425
190,000 5.300%, 02/01/03 199,263
185,000 5.400%, 02/01/04 196,100
215,000 5.500%, 02/01/05 229,781
215,000 5.600%, 02/01/06 231,663
1,010,000 5.700%, 02/01/07 1,089,538
<PAGE>
Kauai County General Obligation Aaa/AAA
Public Improvement Bonds Series 1990
Pre-Refunded Bonds, AMBAC Insured,
1,030,000 7.350%, 08/01/05 1,116,263
1,185,000 7.450%, 08/01/07 1,287,206
1,370,000 7.500%, 08/01/09 1,489,875
1,470,000 7.500%, 08/01/10 1,598,625
County of Maui, Hawaii General Aaa/AAA
Obligation Refunding Bonds Series A,
MBIA Insured,
1,075,000 6.000%, 06/01/15 1,158,313
County of Maui, Hawaii General Aaa/AAA
Obligation Refunding Bonds 1995,
FGIC Insured,
930,000 5.050%, 06/01/08 963,713
980,000 5.050%, 06/01/09 1,004,500
1,040,000 5.150%, 06/01/10 1,068,600
1,100,000 5.200%, 06/01/11 1,130,250
1,160,000 5.200%, 06/01/12 1,183,200
1,230,000 5.200%, 06/01/13 1,251,525
1,300,000 5.250%, 06/01/14 1,322,750
1,380,000 5.250%, 06/01/15 1,398,975
County of Maui, Hawaii General Aaa/AAA
Obligation Refunding Bonds 1993
Series B, 1993 Series C, 1993
Series D, 1993 Series E, FGIC Insured,
1,815,000 5.000%, 09/01/07 1,876,256
2,125,000 5.000%, 09/01/08 2,188,750
1,000,000 5.000%, 09/01/09 1,020,000
1,000,000 5.000%, 09/01/10 1,016,250
3,000,000 5.125%, 12/15/11 3,063,750
1,245,000 5.750%, 01/01/13 1,288,575
1,045,000 5.125%, 12/15/13 1,056,756
<PAGE>
County of Maui, Hawaii General Aaa/AAA
Obligation 1997 Series A, FGIC Insured,
1,130,000 5.250%, 09/01/13 1,159,663
1,265,000 5.250%, 09/01/15 1,287,138
1,335,000 5.250%, 09/01/16 1,355,025
Maui County General Obligation Aaa/AAA
Pre-Refunded Bonds, AMBAC Insured,
3,000,000 6.800%, 12/01/10 3,236,250
Maui County Water System Aaa/AAA
Revenue Pre-Refunded Bonds, FGIC Insured,
1,150,000 6.100%, 12/01/02 1,239,125
1,225,000 6.200%, 12/01/03 1,324,531
1,300,000 6.300%, 12/01/04 1,410,500
1,390,000 6.400%, 12/01/05 1,511,625
1,280,000 6.500%, 12/01/06 1,396,800
1,250,000 6.600%, 12/01/07 1,368,750
1,500,000 6.650%, 12/01/08 1,644,375
1,470,000 6.650%, 12/01/09 1,611,488
1,860,000 6.700%, 12/01/10 2,041,350
1,560,000 6.700%, 12/01/11 1,712,100
Department of Budget and Finance of NR/AA+
the State of Hawaii Special Purpose
Revenue Bonds (Citizens Utilities Company Project),
3,400,000 6.900%, 11/01/15 3,570,000
5,000,000 6.600%, 07/01/22 5,325,000
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Bonds (Lutheran Good
Samaritan Society Project), AMBAC Insured,
1,880,000 4.700%, 11/01/06 1,912,900
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Bonds (Hawaiian Electric Company, Inc.
Series A), MBIA Insured,
5,000,000 5.650%, 10/01/27 5,225,000
<PAGE>
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Bonds (The Evangelical Lutheran Good
Samaritan Society), Refunding Series 1993,
AMBAC Insured,
700,000 4.400%, 11/01/01 709,625
730,000 4.500%, 11/01/02 742,775
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Bonds (Hawaiian Electric
Company Inc. Project), MBIA Insured,
3,100,000 6.875%, 04/01/12 3,195,759
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Bonds (Hawaiian Electric
Light Company, Inc. Project), MBIA Insured,
5,600,000 7.200%, 12/01/14 6,020,000
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Bonds (Hawaiian Electric
Co., Inc., and Subsidiaries
Projects), Series 1995A, MBIA Insured,
13,000,000 6.600%, 01/01/25 14,430,000
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Bonds (Maui Electric
Company, Limited Project), MBIA Insured,
2,195,000 6.875%, 04/01/12 2,262,804
Department of Budget and Finance of A2/A+
the State of Hawaii Special Purpose
Revenue Bonds (Kaiser-Permanente
Medical Care Program),
3,565,000 6.500%, 03/01/11 3,778,900
11,450,000 6.250%, 03/01/21 12,065,438
<PAGE>
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue (Kapiolani Health Care
System) Series 1993, MBIA Insured,
1,000,000 6.300%, 07/01/08 1,095,000
6,000,000 6.400%, 07/01/13 6,607,500
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue (Kapiolani Health Care
System) Series 1996, MBIA Insured,
1,000,000 6.000%, 07/01/11 1,096,250
1,000,000 6.200%, 07/01/16 1,112,500
1,000,000 6.250%, 07/01/21 1,115,000
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Pre-Refunded Bonds -
Kapiolani Health Care System
(Pali Momi Medical Center
Project), Series 1991,
3,000,000 7.600%, 07/01/10 3,375,000
11,200,000 7.650%, 07/01/19 12,614,000
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Pre-Refunded Bonds, (The Queen's
Medical Center Project), FGIC Insured,
2,910,000 6.200%, 07/01/22 3,193,725
Department of Budget and Finance of Aa3/AA
the State of Hawaii Special Purpose
Revenue Bonds (The Queen's Health
System), Series A,
4,000,000 6.050%, 07/01/16 4,305,000
8,625,000 6.000%, 07/01/20 9,217,969
3,500,000 5.750%, 07/01/26 3,622,500
<PAGE>
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Bonds (St. Francis Medical
Centers), Refunding Series 1992, FSA Insured,
20,000,000 6.500%, 07/01/22 21,750,000
Department of Hawaiian Home Lands NR/NR*
(State of Hawaii) Revenue Bonds, Series 1991,
655,000 6.800%, 07/01/98 659,002
700,000 6.900%, 07/01/99 720,125
745,000 7.000%, 07/01/00 785,975
800,000 7.100%, 07/01/01 862,000
855,000 7.200%, 07/01/02 934,088
915,000 7.300%, 07/01/03 1,000,781
985,000 7.400%, 07/01/04 1,079,806
1,055,000 7.500%, 07/01/05 1,159,181
1,135,000 7.550%, 07/01/06 1,241,406
1,225,000 7.600%, 07/01/07 1,336,781
1,415,000 7.650%, 07/01/09 1,540,581
1,520,000 7.650%, 07/01/10 1,656,800
1,640,000 7.650%, 07/01/11 1,787,600
Department of Transportation of the NR/A-
State of Hawaii Special Facility
Revenue Bonds (Matson Terminals,
Inc.), Refunding Series 1993,
11,875,000 5.750%, 03/01/13 12,364,844
Housing Finance and Development Aaa/AAA
Corporation (State of Hawaii)
University of Hawaii Faculty
Housing Project, AMBAC Insured,
2,125,000 5.650%, 10/01/16 2,241,875
4,000,000 5.700%, 10/01/25 4,175,000
Housing Finance and Development A1/NR
Corporation (State of Hawaii) Rental
Housing System Revenue Bonds 1993 Series A,
2,000,000 5.600%, 07/01/12 2,060,000
3,000,000 5.700%, 07/01/18 3,082,500
<PAGE>
Housing Finance and Development Aa1/A
Corporation (State of Hawaii) Single
Family Mortgage Purchase Revenue Bonds,
1,000,000 8.125%, 07/01/19 1,025,740
7,075,000 7.000%, 07/01/31 7,632,156
Housing Finance and Development Aa1/A
Corporation (State of Hawaii) Single
Family Mortgage Purchase Revenue
Bonds 1994 Series A & B,
2,500,000 5.700%, 07/01/13 2,593,750
15,500,000 5.850%, 07/01/17 16,042,500
10,000,000 6.000%, 07/01/26 10,312,500
Housing Finance and Development Aa1/AA
Corporation (State of Hawaii) Single
Family Mortgage Purchase Revenue
Bonds 1997 Series A, FNMA Insured,
19,735,000 5.750%, 07/01/30 20,154,369
Housing Finance and Development Aa1/AA
Corporation (State of Hawaii) Single
Family Mortgage Purchase Revenue
Bonds 1997 Series B, FNMA Insured,
6,850,000 5.450%, 07/01/17 6,935,625
County of Hawaii, Hawaii General Aaa/AAA
Obligation Pre-Refunded Refunding
and Improvement Series 1990A, FGIC Insured,
2,550,000 7.300%, 06/01/09 2,747,625
County of Hawaii, Hawaii General Aaa/AAA
Obligation Bonds Refunding and Improvement
Series 1993A, FGIC Insured,
1,000,000 5.200%, 05/01/04 1,051,250
2,700,000 5.450%, 05/01/07 2,899,125
3,170,000 5.500%, 05/01/08 3,423,600
2,500,000 5.550%, 05/01/09 2,693,750
4,905,000 5.600%, 05/01/11 5,291,269
1,000,000 5.600%, 05/01/12 1,077,500
1,000,000 5.600%, 05/01/13 1,075,000
<PAGE>
County of Hawaii, Hawaii Public Aaa/AAA
Improvement Bonds 1996 Series A FGIC Insured,
1,440,000 4.500%, 02/01/05 1,454,400
1,900,000 5.000%, 02/01/11 1,933,250
1,970,000 5.100%, 02/01/12 2,004,475
2,205,000 5.200%, 02/01/14 2,243,588
2,440,000 5.200%, 02/01/16 2,467,450
Hawaii Community Development Authority NR/NR*
Improvement District Bonds (Kakaako
Community Development District
Improvement District 3),
150,000 6.900%, 07/01/98 151,127
160,000 7.000%, 07/01/99 165,400
995,000 7.300%, 07/01/04 1,084,550
1,490,000 7.400%, 07/01/10 1,618,513
Hawaii Community Development Authority NR/NR*
Improvement District Refunding Bonds
(Kakaako Community Development
District Improvement District 1),
235,000 4.700%, 07/01/99 236,469
245,000 4.850%, 07/01/00 248,063
255,000 5.000%, 07/01/01 259,463
270,000 5.100%, 07/01/02 276,075
280,000 5.200%, 07/01/03 287,700
300,000 5.300%, 07/01/04 309,750
230,000 5.400%, 07/01/05 241,213
Hawaii Community Development Authority NR/NR*
Improvement District Refunding Bonds
(Kakaako Community Development
District Improvement District 2),
315,000 4.700%, 07/01/99 316,969
325,000 4.850%, 07/01/00 329,063
345,000 5.000%, 07/01/01 351,038
355,000 5.100%, 07/01/02 362,988
<PAGE>
Hawaii Community Development Authority NR/NR*
Improvement District Refunding Bonds (continued)
375,000 5.200%, 07/01/03 385,313
395,000 5.300%, 07/01/04 407,838
420,000 5.400%, 07/01/05 440,475
435,000 5.500%, 07/01/06 455,119
465,000 5.600%, 07/01/07 486,506
390,000 5.700%, 07/01/08 407,063
Hawaii Community Development Authority NR/NR*
Improvement District Bonds (Kakaako
Community Development District
Improvement District 2) Pre-Refunded Bonds,
1,345,000 7.875%, 07/01/02 1,398,867
2,270,000 8.000%, 07/01/08 2,361,595
State of Hawaii Airport System Aaa/AAA
Revenue Bonds, MBIA Insured,
1,150,000 5.250%, 07/01/00 1,185,938
6,455,000 6.900%, 07/01/12 7,689,519
3,000,000 7.000%, 07/01/18 3,285,000
4,025,000 7.000%, 07/01/18 4,407,375
1,000,000 6.750%, 07/01/21 1,083,750
State of Hawaii Airports Syste Aaa/AAA
Revenue Bonds Third Refunding
Series 1994, AMBAC Insured,
3,500,000 5.750%, 07/01/08 3,723,125
State of Hawaii General Obligation Aaa/AAA
Bonds, FGIC Insured,
2,000,000 5.750%, 01/01/11 2,182,500
3,700,000 6.000%, 10/01/11 4,144,000
3,500,000 6.000%, 10/01/12 3,920,000
State of Hawaii General Obligation Aaa/AAA
Bonds of 1997, Series CP, FGIG Insured,
4,195,000 5.000%, 10/01/14 4,200,244
3,000,000 5.000%, 10/01/15 2,985,000
1,000,000 5.000%, 10/01/16 991,250
7,195,000 5.000%, 10/01/17 7,096,069
<PAGE>
State of Hawaii General Obligation Aaa/AAA
Bonds of 1996, Series CM, FGIC Insured,
3,000,000 6.500%, 12/01/15 3,536,250
State of Hawaii General Obligation Aaa/AAA
Bonds of 1997, Series CN, FGIC Insured,
1,950,000 5.250%, 03/01/15 1,984,125
7,000,000 5.500%, 03/01/16 7,288,750
1,000,000 5.250%, 03/01/17 1,011,250
State of Hawaii General Obligation Aaa/AAA
Bonds of 1995, Series CK, FGIC Insured,
5,555,000 5.250%, 09/01/09 5,756,369
3,000,000 5.600%, 09/01/14 3,123,750
State of Hawaii General Obligation Bonds of Aaa/AAA
1995, Pre-Refunded, Series CJ, FGIC Insured,
3,500,000 6.250%, 01/01/14 3,906,875
5,000,000 6.250%, 01/01/15 5,581,250
State of Hawaii General Obligation Aaa/AAA
Refunding Bonds of 1993, Series CE,
FGIC Insured,
3,000,000 5.500%, 06/01/08 3,157,500
State of Hawaii General Obligation Aaa/AAA
Refunding Bonds of 1993, Series CH,
FGIC Insured,
5,000,000 6.000%, 11/01/07 5,600,000
3,390,000 6.000%, 11/01/08 3,809,513
2,305,000 6.000%, 03/01/11 2,572,956
State of Hawaii Harbor Capital Aaa/AAA
Improvements Revenue Bonds, MBIA Insured,
2,205,000 6.200%, 07/01/08 2,381,400
3,850,000 5.750%, 07/01/17 4,081,000
State of Hawaii Harbor Capital Aaa/AAA
Improvements Revenue Bonds, MBIA Insured,
14,000,000 7.250%, 07/01/10 15,155,000
1,200,000 7.000%, 07/01/17 1,287,000
<PAGE>
State of Hawaii Harbor Revenue Bonds, Aaa/AAA
Series 1992, FGIC Insured,
3,850,000 6.500%, 07/01/19 4,162,813
State of Hawaii Harbor Revenue Bonds, Aaa/AAA
Refunding Series 1993, FGIC Insured,
1,260,000 6.050%, 07/01/04 1,381,275
1,225,000 6.150%, 07/01/05 1,344,438
State of Hawaii Harbor Revenue Bonds, Aaa/AAA
Series of 1994, FGIC Insured,
1,000,000 6.250%, 07/01/09 1,095,000
1,000,000 6.250%, 07/01/10 1,090,000
3,725,000 6.250%, 07/01/15 4,046,281
10,180,000 6.375%, 07/01/24 11,032,575
State of Hawaii Highway Revenue Aaa/AAA
Bonds Series 1993, FGIC Insured,
4,000,000 4.875%, 07/01/07 4,090,000
3,900,000 5.000%, 07/01/08 3,982,875
2,255,000 5.000%, 07/01/09 2,294,463
4,575,000 5.000%, 07/01/10 4,643,625
2,220,000 5.000%, 07/01/11 2,247,750
3,850,000 5.000%, 07/01/12 3,883,688
2,750,000 5.000%, 07/01/13 2,767,188
State of Hawaii Highway Revenue Aaa/AAA
Bonds Series 1996, FGIC Insured,
3,705,000 5.600%, 07/01/13 3,913,406
2,000,000 5.250%, 07/01/16 2,032,500
Total Hawaii 631,487,787
<PAGE>
GUAM (0.2%)
Government of Guam Ltd. Aaa/AAA
Water System Revenue Bonds, FSA Insured,
1,500,000 7.000%, 07/01/09 1,597,500
Total Guam 1,597,500
Total Investments (cost $590,597,006**) 96.4% $633,085,287
Other assets in excess of liablilities 3.6 23,337,941
Net Assets 100.0% $656,423,228
<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> ** Cost for Federal tax purposes is identical </FN>
</TABLE>
PORTFOLIO ABBREVIATIONS:
AMBAC American Municipal Bond Assurance Corp.
FSA Financial Security Assurance Co.
FGIC Financial Guaranty Insurance Co.
FHA Federal Housing Administration
FNMA Federal National Mortgage Association
MBIA Municipal Bond Investors Assurance Corp.
See accompanying notes to financial statements
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments at value (identified cost $590,597,006) $633,085,287
Cash 13,717,896
Interest receivable 10,160,782
Receivable for Trust shares sold 1,304,223
Other assets 11,529
Total assets 658,279,717
LIABILITIES
Payable for Trust shares redeemed 779,298
Dividends payable 351,225
Distribution fees payable 339,136
Adviser and Administrator fees payable 223,095
Accrued expenses 163,735
Total liabilities 1,856,489
NET ASSETS $656,423,228
Net Assets consist of:
Capital Stock, no par value, authorized an
unlimited number of shares $611,830,534
Undistributed net investment income 2,104,413
Net unrealized appreciation on investments 42,488,281
$656,423,228
CLASS A
Net Assets $647,929,691
Capital shares outstanding 55,526,011
Net asset value and redemption price per share $ 11.67
Offering price per share (100/96 of $11.67 adjusted
to nearest cent) $ 12.16
CLASS C
Net Assets $ 7,215,072
Capital shares outstanding 618,535
Net asset value and offering price per share $ 11.66
Redemption price per share (*generally, a charge of
1% is imposed on the proceeds of shares redeemed
during the first 12 months after purchase.) $ 11.66*
CLASS Y
Net Assets $ 1,278,465
Capital shares outstanding 109,418
Net asset value, offering and redemption price per share $ 11.68
</TABLE>
See accompanying notes to financial statements.
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest income $37,434,349
Expenses:
Investment Adviser fees (note 3) $ 921,605
Administrator fees (note 3) 1,711,563
Distribution and service fees (note 3) 1,363,211
Transfer and shareholder servicing agent fees 317,765
Trustees' fees and expenses (note 8) 208,528
Legal fees 81,056
Custodian fees 67,582
Shareholders' reports and proxy statements 63,081
Audit and accounting fees 28,071
Registration fees and dues 21,880
Insurance 8,758
Miscellaneous 48,762
4,841,862
Expenses paid indirectly (note 7) (67,582)
Net expenses 4,774,280
Net investment income 32,660,069
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from securities transactions 3,486,866
Change in unrealized appreciation on investments 22,640,184
Net realized and unrealized gain on investments 26,127,050
Net increase in net assets resulting from operations $58,787,119
</TABLE>
See accompanying notes to financial statements.
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997
<S> <C> <C>
OPERATIONS:
Net investment income $ 32,660,069 $ 33,687,468
Net realized gain from securities transactions 3,486,866 528,297
Change in unrealized appreciation on investments 22,640,184 (4,593,162)
Change in net assets resulting from operations 58,787,119 29,622,603
DISTRIBUTIONS TO SHAREHOLDERS (note 6):
Class A Shares:
Net investment income, tax-exempt (29,979,152) (33,607,523)
Net realized gain on investments (3,442,638) (721,443)
Class C Shares:
Net investment income, tax-exempt (217,304) (79,938)
Net realized gain on investments (37,620) (3,408)
Class Y Shares:
Net investment income, tax-exempt (19,583) (7)
Net realized gain on investments (6,608) -
Change in net assets from distributions (33,702,905) (34,412,319)
CAPITAL SHARE TRANSACTIONS (note 9):
Proceeds from shares sold 48,300,227 44,348,965
Reinvested dividends and distributions 17,263,035 17,392,444
Cost of shares redeemed (80,580,151) (70,521,098)
Change in net assets from capital share
transactions (15,016,889) (8,779,689)
Change in net assets 10,067,325 (13,569,405)
NET ASSETS:
Beginning of period 646,355,903 659,925,308
End of period $656,423,228 $ 646,355,903
</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 shares 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 at fair value 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.
On September 30, 1997, Pacific Century Trust (the "Adviser"), a division
of Bank of Hawaii, succeeded to the operations of Hawaiian Trust Company,
Limited, a subsidiary of Bank of Hawaii, which had served as Investment
Adviser to the Trust since 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
<PAGE>
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.
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, 1998.
For the year ended March 31,1998, the Trust incurred fees under the
Advisory Agreement and Administration Agreement of $921,605 and $1,711,563,
respectively.
b) DISTRIBUTION AND SERVICE 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 Aquila Distributors, Inc. (the "Distributor"), including, but not
limited to, any principal underwriter of the Trust, with which the
Distributor has entered into written agreements contemplated by 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, 1998,
service fees on Class A Shares amounted to $1,304,887, of which the
Distributor received $72,446.
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, 1998, amounted to $43,743. In addition, under a
Shareholder Services Plan, the Trust is
<PAGE>
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, 1998, amounted to $14,581. The total of these payments made with
respect to Class C Shares amounted to $58,324, of which the Distributor
received $52,690.
Specific details about the Plans are more fully defined in the Trust's
Prospectus and Statement of Additional Information.
Under a Distribution Agreement, 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, 1998, the Distributor received sales commissions in the
amount of $100,914.
4. PURCHASES AND SALES OF SECURITIES
During the year ended March 31, 1998, purchases of securities and
proceeds from the sales of securities aggregated $60,823,232 and $88,672,677,
respectively.
At March 31, 1998, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to $42,515,461 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value amounted to $27,180
for a net unrealized appreciation of $42,488,281.
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 statement
reporting and Federal
<PAGE>
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.
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' FEES AND EXPENSES
During the fiscal year there were 11 Trustees, one of which is
affiliated with the Administrator and is not paid any trustee fees. Trustees'
fees paid during the year were at the annual rate of $12,000 for carrying out
their responsibilities and attendance at regularly scheduled quarterly Board
Meetings. A meeting of the independent trustees is often held prior to each
quarterly Board Meeting for which each attendee is paid a fee of $250. 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, 1998, such reimbursements
averaged approximately $6,200 per Trustee.
<PAGE>
9. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Trust were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1998 March 31, 1997
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 3,752,188 $ 43,271,862 3,435,559 $ 38,837,050
Reinvested distributions 1,480,881 17,114,154 1,531,621 17,341,570
Cost of shares redeemed (6,777,819) (78,338,324) (6,222,801) (70,398,321)
Net change (1,544,750) (17,952,308) (1,255,621) (14,219,701)
CLASS C SHARES:
Proceeds from shares sold 327,859 3,780,103 484,452 5,511,815
Reinvested distributions 10,794 123,070 4,471 50,867
Cost of shares redeemed (198,156) (2,241,827) (10,885) (122,777)
Net change 140,497 1,661,346 478,038 5,439,905
CLASS Y SHARES:
Proceeds from shares sold 107,201 1,248,262 8 100
Reinvested distributions 2,207 25,811 1 7
Cost of shares redeemed - - - -
Net change 109,408 1,274,073 9 107
Total transactions in Trust
shares (1,294,845) $(15,016,889) (777,574) $ (8,779,689)
</TABLE>
<PAGE>
HAWAIIAN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Class A(1)
Year ended March 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.23 $11.31 $11.13 $11.19 $11.60
Income from Investment Operations:
Net investment income 0.57 0.59 0.61 0.62 0.63
Net gain (loss) on securities (both realized
and unrealized) 0.46 (0.08) 0.18 (0.01) (0.38)
Total from Investment Operations 1.03 0.51 0.79 0.61 0.25
Less Distributions (note 6):
Dividends from net investment income (0.54) (0.58) (0.61) (0.62) (0.63)
Distributions from capital gains (0.05) (0.01) - (0.05) (0.03)
Total Distributions (0.59) (0.59) (0.61) (0.67) (0.66)
Net Asset Value, End of Period $11.67 $11.23 $11.31 $11.13 $11.19
Total Return (not reflecting sales charge)(%) 9.37 4.67 7.16 5.75 2.01
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 647,930 640,989 659,925 642,556 640,465
Ratio of Expenses to Average Net Assets (%) 0.72 0.73 0.72 0.75 0.74
Ratio of Net Investment Income to Average
Net Assets (%) 4.97 5.12 5.32 5.65 5.46
Portfolio Turnover Rate (%) 9 9 28 33 16
<CAPTIION>
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>
Net Investment Income ($) 0.57 0.59 0.61 0.62 0.63
Ratio of Expenses to Average Net Assets (%) 0.73 0.75 0.73 0.77 0.76
Ratio of Net Investment Income to Average Net
Assets (%) 4.96 5.11 5.31 5.63 5.44
<FN> (1) Designated as Class A Shares on April 1, 1996. </FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Class C(1) Class Y(1)
Year Ended March 31, Year Ended March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.23 $11.31 $11.24 $11.31
Income from Investment Operations:
Net investment income 0.48 0.46 0.67 0.74
Net gain (loss) on securities (both
realized and unrealized) 0.45 (0.08) 0.45 (0.07)
Total from Investment Operations 0.93 0.38 1.12 0.67
Less Distributions (note 6):
Dividends from net investment income (0.45) (0.45) (0.63) (0.73)
Distributions from capital gains (0.05) (0.01) (0.05) (0.01)
Total Distributions (0.50) (0.46) (0.68) (0.74)
Net Asset Value, End of Period $11.66 $11.23 $11.68 $11.24
Total Return (not reflecting sales charge) (%) 8.40 3.41 10.24 6.14
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 7,215 5,367 1,278 0.1
Ratio of Expenses to Average Net
Assets (%) 1.51 1.51 0.51 0.53
Ratio of Net Investment Income to
Average Net Assets (%) 4.12 4.06 5.03 4.92
Portfolio Turnover Rate (%) 9 9 9 9
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the expense offset in custodian fees for
uninvested cash balances would have been:
<S> <C> <C> <C> <C>
Net Investment Income ($) 0.48 0.46 0.67 0.74
Ratio of Expenses to Average Net
Assets (%) 1.52 1.53 0.52 0.55
Ratio of Net Investment Income to
Average Net Assets (%) 4.11 4.04 5.02 4.94
<FN> (1) New Class of Shares established on April 1, 1996. </FN>
</TABLE>
See accompanying notes to financial statements
<PAGE>
REPORT ON THE ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
The Annual Meeting of Shareholders of Hawaiian Tax-Free Trust
(the "Trust") was held on September 29, 1997*. 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. Gushman, 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
401,321,102.741 affirmative votes (97.73%); no more than 9,310,477.659
votes were withheld for any Trustee (2.27%)), 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,
1998 (votes for: 402,892,893.850 (98.12%); votes against:
1,644,400.454 (0.40%); abstentions: 6,094,286.091 (1.48%); broker
non-votes: 0 (0.00%)).
________________________
* On the record date for this meeting, 56,921,512.12 Class A Shares,
428,986.35 Class C Shares, and 9.61 Class Y Shares were outstanding and
entitled to vote representing a total net asset value of $657,236,822.60 The
holders of shares entitled to vote representing a total net asset value of
$410,631,580.40 (62.48%) 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, 1998, 89.65% of the total amount of dividends reported by the Trust
should be considered "exempt-interest dividends" and 10.35% of such dividends
should be considered a capital gain dividend. 17.59% of the Trust's dividends
was derived from interest on "private activity bonds."
The Trust hereby designates $30,230,575 as exempt-interest dividends
for the fiscal year ended March 31, 1998, where such dividends are not
subject to regular Federal income tax. The Trust also designates $3,486,866
as capital gain dividends for Federal income tax purposes for its fiscal
year ended March 31, 1998 where such amounts are taxable as "20%" long-term
capital gains.
Prior to January 31, 1998, shareholders were mailed IRS Form 1099-DIV
which contained information on the status of distributions paid for the 1997
CALENDAR YEAR.
