Registration Nos. 2-92583 and 811-4084
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933[ X ]
Pre-Effective Amendment No. _______ [ ]
Post-Effective Amendment No. 17 [ X ]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 18 [ X ]
HAWAIIAN TAX-FREE TRUST
(Exact Name of Registrant as Specified in Charter)
380 Madison Avenue, Suite 2300
New York, New York 10017
(Address of Principal Executive Offices)
(212) 697-6666
(Registrant's Telephone Number)
EDWARD M.W. HINES
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue, 27th Floor
New York, New York 10176
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
___
[___] immediately upon filing pursuant to paragraph (b)
[_X_] on July 21, 1998 pursuant to paragraph (b)
[___] 60 days after filing pursuant to paragraph (a)(i)
[___] on (date) pursuant to paragraph (a)(i)
[___] 75 days after filing pursuant to paragraph (a)(ii)
[___] on (date) pursuant to paragraph (a)(ii) of Rule 485.
[___] This post-effective amendment designates a new effective
date for a previous post-effective amendment.
<PAGE>
HAWAIIAN TAX-FREE TRUST
CROSS REFERENCE SHEET
Part A of
Form N-1A
Item No. Prospectus Caption(s)
1..............Cover Page
2..............Table of Expenses
3..............Financial Highlights; General Information
4..............Introduction; Highlights; Investment of the
Trust's Assets; Investment Restrictions;
General Information
5..............Management Arrangements
5A.............**
6..............General Information; Alternative Purchase
Plans; Dividend and Tax Information
7..............Net Asset Value per Share; Alternative
Purchase Plans; How to Invest in
the Trust; Exchange Privilege
8..............How to Redeem Your Investment; Automatic
Withdrawal Plan; Exchange Privilege
9..............*
Part B of
Form N-1A Statement of Additional Information
Item No. or Prospectus Caption(s)
10.............Cover Page
11.............Cover Page
12.............*
13.............Investment of the Trust's Assets; Municipal
Bonds; Investment Restrictions
14.............Trustees and Officers
15.............General Information;
Trustees and Officers
16.............Additional Information as to Management
Arrangements; General Information
17.............Additional Information as to Management
Arrangements
18.............General Information
19.............Limitations of Redemptions in Kind; Computa-
tion of Net Asset Value; Automatic With-
drawal Plan; Distribution Plan
20.............Additional Tax Information
21.............How to Invest in the Trust (Prospectus cap-
tion); General Information
22.............Performance
* Not applicable or negative answer
** Contained in the annual report of the Registrant
<PAGE>
Hawaiian Tax-Free Trust
380 Madison Avenue, Suite 2300
New York, New York 10017
800-228-4227
212-697-6666
Prospectus
Class A Shares
Class C Shares July 21, 1998
The Trust is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Hawaiian
State and regular Federal income taxes as is consistent with
preservation of capital by investing primarily in obligations
which pay interest exempt from Hawaiian State and Federal income
taxes. These obligations must, at the time of purchase, either be
rated within the four highest credit ratings (considered as
investment grade) assigned by Moody's Investors Service, Inc. or
Standard & Poor's Corporation or, if unrated, be determined to be
of comparable quality by the Trust's investment adviser, Pacific
Century Trust.
This Prospectus concisely states information about the
Trust that you should know before investing. A Statement of
Additional Information about the Trust dated July 21, 1998, (the
"Additional Statement") has been filed with the Securities and
Exchange Commission and is available without charge upon written
request to the Trust's Shareholder Servicing Agent, at the
address given below, or by calling the telephone number(s) given
below. The Additional Statement contains information about the
Trust and its management not included in the Prospectus. The
Additional Statement is incorporated by reference in its entirety
in this Prospectus. Only when you have read both this Prospectus
and the Additional Statement are all material facts about the
Trust available to you.
SHARES OF THE TRUST ARE NOT DEPOSITS IN, OBLIGATIONS OF
OR GUARANTEED OR ENDORSED BY PACIFIC CENTURY TRUST (THE
"ADVISER"), BANK OF HAWAII, ITS BANK OR NON-BANK AFFILIATES OR BY
ANY OTHER BANK. SHARES OF THE TRUST ARE NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY OR GOVERNMENT SPONSORED
AGENCY OF THE FEDERAL GOVERNMENT OR ANY STATE.
AN INVESTMENT IN THE TRUST INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
For Purchase, Redemption or Account inquiries contact
The Trust's Shareholder Servicing Agent:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Call 800-228-4228 toll free
For General Inquiries & Yield Information,
Call 800-228-4227 toll free or 212-697-6666
This Prospectus Should Be Read and Retained For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
Hawaiian
Tax-Free Trust
Maui Arts and Cultural Center
Honolulu Harbor, Oahu
Kapiolani Regional Park, Oahu
Saint Francis Medical Center, Oahu
Blaisdell Center Renovations, Honolulu, Oahu
Waimea Community Center, Big Island
Civil Defense Radio Communication Equipment, Kauai
Honolulu International and Interisland Airports, Oahu
Keahole Airport, Big Island
Lahaina Aquatic Center, Maui
State of Hawaii Convention Center, Oahu
The Trust invests in tax-free municipal securities, primarily
the kinds of obligations issued by various communities and
political subdivisions within Hawaii. Most of these securities
are used to finance long-term municipal projects; examples are
pictured above. (See "Investment of the Trust's Assets.") The
municipal obligations which financed these particular projects,
as well as other projects not pictured, were included in the
Trust's portfolio as of July 1, 1998, and together represented
50.1% of the Trust's portfolio. Since the portfolio is subject to
change, the Trust may not necessarily own these specific
securities at the time of the delivery of this Prospectus.
<PAGE>
HIGHLIGHTS
Hawaiian Tax-Free Trust, founded by Aquila Management
Corporation in 1984 and one of the Aquilasm Group of Funds, is an
open-end mutual fund which invests primarily in tax-free
municipal bonds, the kind of obligations issued by the State of
Hawaii, its counties and various other local authorities to
finance such long-term projects as schools, roads, hospitals,
housing and harbor facilities throughout Hawaii. (See
"Introduction.")
Tax-Free Income - The municipal obligations in which the
Trust invests pay interest which is exempt from both regular
Federal and State of Hawaii income taxes. Dividends paid by the
Trust from this income are likewise free of both such taxes. It
is, however, possible that in certain circumstances, a small
portion of the dividends paid by the Trust will be subject to
income taxes. The Federal alternative minimum tax may apply to
some investors, but its impact will be limited, since not more
than 20% of the Trust's net assets can be invested in obligations
paying interest which is subject to this tax. The receipt of
exempt-interest dividends from the Trust may result in some
portion of social security payments or railroad retirement
benefits being included in taxable income. Capital gains
distributions, if any, are taxable. (See "Dividend and Tax
Information.")
Investment Grade - The Trust will acquire only those
municipal obligations which, at the time of purchase, are within
the four highest credit ratings assigned by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, or are determined
by the Adviser to be of comparable quality. In general, there are
nine separate credit ratings, ranging from the highest to the
lowest credit ratings for municipal obligations. Obligations
within the top four ratings are considered "investment grade,"
but those in the fourth rating may have speculative
characteristics as well. (See "Investment of the Trust's
Assets.")
Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. (See the
Application, which is in the back of the Prospectus and "How to
Invest in the Trust," which includes applicable sales charge
information.)
Additional Investments - You may make additional
investments at any time and in any amount, directly or, if in an
amount of $50 or more, through the convenience of having your
investment electronically transferred from your financial
institution account into the Trust by Automatic Investment or
Telephone Investment. (See "How to Invest in the Trust.")
Alternative Purchase Plans - The Trust provides two
alternative ways for individuals to invest. (See "Alternative
Purchase Plans.") One way permits individual investors to pay
distribution and certain service charges principally at the time
they purchase shares; the other way permits investors to pay such
costs over a period of time, but without paying anything at time
of purchase, much as goods can be purchased on an installment
plan. For this purpose the Trust offers the following classes of
shares, which differ in their expense levels and sales charges:
Front-Payment Class Shares ("Class A Shares") are offered to
anyone at net asset value plus a sales charge, paid at the
time of purchase, at the maximum rate of 4.0% of the public
offering price, with lower rates for larger purchases. (See
"How to Purchase Class A Shares.") Class A Shares are
subject to an asset retention service fee under the Trust's
Distribution Plan at the rate of 0.20 of 1% of the average
annual net assets represented by the Class A Shares. (See
"Distribution Plan.")
Level-Payment Class Shares ("Class C Shares") are offered to
anyone at net asset value with no sales charge payable at
the time of purchase but with a level charge for service and
distribution fees for six years after the date of purchase
at the aggregate annual rate of 1% of the average annual net
assets of the Class C Shares. (See "Distribution Plan" and
"Shareholder Services Plan for Class C Shares.") Six years
after the date of purchase, Class C Shares are automatically
converted to Class A Shares. If you redeem Class C Shares
before you have held them for 12 months from the date of
purchase you will pay a contingent deferred sales charge
("CDSC"); this charge is 1%, calculated on the net asset
value of the Class C Shares at the time of purchase or at
redemption, whichever is less. There is no CDSC after Class
C Shares have been held beyond the applicable period. (See
"Alternative Purchase Plans," "Computation of the Holding
Periods for Class C Shares" and "How to Purchase Class C
Shares.")
The Trust also issues Institutional Class Shares ("Class
Y Shares") that are sold only to certain institutional investors
and Financial Intermediary Class Shares ("Class I Shares") which
are offered and sold only through certain financial
intermediaries. Class Y Shares and Class I Shares are not offered
by this Prospectus.
Class A Shares and Class C Shares are only offered for sale
in certain states. (See "How to Invest in the Trust.") If shares
of the Trust are sold outside those states the Trust can redeem
them. If your state of residence is not Hawaii, the dividends
from the Trust may be subject to income taxes of the state in
which you reside. Accordingly, you should consult your tax
adviser before acquiring shares of the Trust.
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends are paid by check mailed to
you, directly deposited into your financial institution account
or automatically reinvested without sales charge in additional
shares of the Trust at the then-current net asset value. Specific
classes of shares will have different dividend amounts due to
their particular expense levels. (See "Dividend and Tax
Information.")
Many Different Issues - You have the advantages of a
portfolio which consists of over 260 separate issues with
different maturities. (See "Investment of the Trust's Assets.")
Local Portfolio Management - Pacific Century Trust, a
division of Bank of Hawaii, serves as the Trust's Investment
Adviser, providing experienced local professional management. It
administers approximately $12 billion in client assets, including
investment authority over $1 billion in Hawaiian municipal bonds.
The Trust pays monthly fees to its Adviser and to its
Administrator at an aggregate rate of 0.40% of average annual net
assets. (See "Table of Expenses" and "Management
Arrangements.")
Redemptions - Liquidity - You may redeem any amount of your
account on any business day at the next determined net asset
value by telephone, FAX or mail request, with proceeds being sent
to a predesignated financial institution, if you have elected
Expedited Redemption. Proceeds will be wired or transferred
through the facilities of the Automated Clearing House, wherever
possible, upon request, if in an amount of $1,000 or more, or
will be mailed. For these and other redemption procedures see
"How to Redeem Your Investment." There are no penalties or
redemption fees for redemption of Class A Shares. However, there
is a contingent deferred sales charge with respect to certain
Class A Shares which have been purchased in amounts of $1 million
or more (see "Purchase of $1 Million or More"). If you redeem
Class C Shares before you have held them for 12 months from the
date of purchase you will pay a contingent deferred sales charge
("CDSC") at the rate of 1%. (See "Alternative Purchase Plans" -
"Class C Shares.")
Certain Stabilizing Measures - The Trust will employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
declines in the value of its investments and other market risks.
(See "Certain Stabilizing Measures.")
Other Investments - The Trust may purchase certain taxable
short-term investments. Although it has no present intention of
doing so, the Trust may also, to a limited degree, buy and sell
futures contracts and options on futures contracts. (See
"Investment of the Trust's Assets.")
Exchanges - You may exchange Class A or Class C Shares of
the Trust into corresponding classes of shares of other
Aquila-sponsored tax-free municipal bond funds or two
Aquila-sponsored equity funds. You may also exchange them into
shares of the Aquila-sponsored money market funds. The exchange
prices will be the respective net asset values of the shares.
(See "Exchange Privilege.")
Risks and Special Considerations - The share price,
determined on each business day, varies with the market prices of
the Trust's portfolio securities, which fluctuate with market
conditions, including prevailing interest rates. Accordingly, the
proceeds of redemptions may be more or less than your original
cost. (See "Factors Which May Affect the Value of the Trust's
Investments and Their Yields.") The Trust's assets, being
primarily or entirely Hawaiian issues, are subject to economic
and other conditions affecting Hawaii. (See "Risk Factors and
Special Considerations Regarding Investment in Hawaiian
Obligations.") Moreover, the Trust is classified as a
"non-diversified" investment company, because it may choose to
invest in the obligations of a relatively limited number of
issuers. (See "Investment of the Trust's Assets.") The Trust may
also, to a limited degree, buy and sell futures contracts and
options on futures contracts, although since inception the Trust
has not done so and has no present intention to do so. There may
be risks associated with these practices. (See "Certain
Stabilizing Measures.")
Statements and Reports - You will receive statements of your
account monthly as well as each time you add to your account or
take money out. Additionally, you will receive a Semi-Annual
Report and an audited Annual Report.
<PAGE>
<TABLE>
<CAPTION>
HAWAIIAN TAX-FREE TRUST
TABLE OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES Class A Class C
Shares Shares
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases 4.00% None
(as a percentage of offering price)
Maximum Sales Charge Imposed on
Reinvested Dividends None None
Maximum Deferred Sales Charge None(1) 1.00%(2)
Redemption Fees None None
Exchange Fee None None
ANNUAL TRUST OPERATING EXPENSES(3)
(as a percentage of average net assets)
Investment Advisory Fee 0.14% 0.14%
12b-1 Fee 0.20% 0.75%
All Other Expenses(4) 0.39% 0.64%
Administration Fee 0.26% 0.26%
Service Fee None 0.25%
Other Expenses(4) 0.13% 0.13%
Total Trust Operating Expenses(4) 0.73% 1.53%
Example(5)
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and redemption at the end of each time period:
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A Shares $47 $62 $79 $127
Class C Shares
With complete redemption
at end of period $26 $48 $83 $141(6)
With no redemption $16 $48 $83 $141(6)
<FN>
(1) Certain shares purchased in transactions of $1 million or more
without a sales charge may be subject to a contingent deferred sales
charge of up to 1% upon redemption during the first four years after
purchase. See "Purchase of $1 Million or More."
</FN>
<FN>
(2) A contingent deferred sales charge of 1% is imposed on the
redemption proceeds of the shares (or on the original price,
whichever is lower) if redeemed during the first 12 months after
purchase.
</FN>
<FN>
(3) Estimated based upon amounts incurred by the Trust during its most
recent fiscal year.
</FN>
<FN>
(4) Does not reflect a 0.01% expense offset in custodian fees received
for uninvested cash balances. Reflecting this offset, other expenses,
all other expenses, and total Trust operating expenses for Class A Shares
would have been 0.12%, 0.38% and 0.72%, respectively; for Class C Shares,
these expenses would have been 0.12%, 0.63% and 1.52%, respectively.
</FN>
<FN>
(5) The expense example is based upon the above shareholder transaction
expenses (in the case of Class A Shares, this includes a sales charge of
$40 for a $1,000 investment) and annual Trust operating expenses. It
is also based upon amounts at the beginning of each year which includes
the prior year's assumed results. A year's results consist of an assumed
5% annual return less total operating expenses; the expense ratio was
applied to an assumed average balance (the year's starting investment
plus one-half the year's results). Each figure represents the
cumulative expenses so determined for the period specified.
</FN>
<FN>
(6) Six years after the date of purchase, Class C Shares are
automatically converted to Class A Shares.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL MUTUAL
FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING THE
ABOVE EXAMPLE. THE EXAMPLE ALSO REFLECTS THE MAXIMUM SALES CHARGE.
(SEE "HOW TO INVEST IN THE TRUST").
The purpose of the above table is to assist the investor in
understanding the various costs that an investor in the Trust will
bear directly or indirectly. The assumed 5% annual return should not
be interpreted as a prediction of an actual return, which may be
higher or lower.
<PAGE>
<TABLE>
<CAPTION>
HAWAIIAN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights has been audited by
KPMG Peat Marwick LLP, independent auditors, whose report thereon is
included with the Trust's financial statements contained in its Annual
Report, which are incorporated by reference into the Additional
Statement. The information provided in the table should be read in
conjunction with the financial statements and related notes. The Fund's
Annual Report contains additional information about the Fund's
performance and is available upon request without charge.
Class A(1) Class C(2)
Year ended March 31,
1998 1997 1996 1995 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning
of Year.............. $11.23 $11.31 $11.13 $11.19 $11.23 $11.31
Income from
Investment Operations:
Net investment
income............... 0.57 0.59 0.61 0.62 0.48 0.46
Net gain (loss) on
securities (both
realized and
unrealized).......... 0.46 (0.08) 0.18 (0.01) 0.45 (0.08)
Total from Investment
Operations........... 1.03 0.51 0.79 0.61 0.93 0.38
Less Distributions:
Dividends from net
investment income.... (0.54) (0.58) (0.61) (0.62) (0.45) (0.45)
Distributions from
capital gains......... (0.05) (0.01) - (0.05) (0.05) (0.01)
Total Distributions... (0.59) (0.59) (0.61) (0.67) (0.50) (0.46)
Net Asset Value,
End of Year.......... $11.67 $11.23 $11.31 $11.13 $11.66 $11.23
Total Return (not
reflecting sales
charge) (%).......... 9.37 4.67 7.16 5.75 8.40 3.41
Ratios/Supplemental Data
Net Assets, End of Year
($ in thousands) ... 647,930 640,989 659,925 642,556 7,215 5,367
Ratio of Expenses
to Average Net
Assets (%)........... 0.72 0.73 0.72 0.75 1.51 1.51
Ratio of Net Investment
Income to Average
Net Assets (%)....... 4.97 5.12 5.32 5.65 4.12 4.06
Portfolio Turnover
Rate (%)............. 9 9 28 33 9 9
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:
Net Investment
Income ($)........... 0.57 0.59 0.61 0.62 0.48 0.46
Ratio of Expenses
to Average Net
Assets (%)........... 0.73 0.75 0.73 0.77 1.52 1.53
Ratio of Net Investment
Income to Average Net
Assets (%)............ 4.96 5.11 5.31 5.63 4.11 4.04
<CAPTION>
1994
<C>
$11.60
0.63
(0.38)
0.25
(0.63)
(0.03)
(0.66)
$11.19
2.01
640,465
0.74
5.46
16
0.63
0.76
5.44
<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>
<PAGE>
INTRODUCTION
The Trust's shares are designed to be a suitable investment
for individuals, corporations, institutions and fiduciaries who
seek income exempt from regular Federal and Hawaiian State income
taxes.
You may invest in shares of the Trust as an alternative to
direct investments in Hawaiian Obligations, as defined below,
which may include obligations of certain non-Hawaiian issuers.
The Trust offers you the opportunity to keep assets fully
invested in a vehicle that provides a professionally managed
portfolio of Hawaiian Obligations which may, but not necessarily
will, be more diversified, higher yielding or more stable and
more liquid than you might be able to obtain on an individual
basis by direct purchase of Hawaiian Obligations. In some cases,
the portfolio may also contain taxable investments. Through the
convenience of a single security consisting of shares of the
Trust, you are also relieved of the inconvenience associated with
direct investments of fixed denominations, including the
selecting, purchasing, handling, monitoring call provisions and
safekeeping of Hawaiian Obligations.
Hawaiian Obligations are a type of municipal obligation.
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes;
bond anticipation notes; construction loan notes; and floating
and variable rate demand notes. Municipal obligations include
municipal lease/purchase agreements which are similar to
installment purchase contracts for property or equipment. The
purposes for which municipal obligations, such as bonds, are
issued include the construction of a wide range of public
facilities such as highways, bridges, schools, hospitals,
housing, mass transportation, streets and water and sewer works.
Other public purposes for which municipal obligations may be
issued include the refunding of outstanding obligations, the
obtaining of funds for general operating expenses and the
obtaining of funds to lend to other public institutions and
facilities.
INVESTMENT OF THE TRUST'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both Hawaiian State and
regular Federal income taxes as is consistent with the
preservation of capital, the Trust will invest primarily in
Hawaiian Obligations (as defined below). There is no assurance
that the Trust will achieve its objective, which is a fundamental
policy of the Trust. (See "Investment Restrictions.") The Trust
may also invest in Taxable Short-Term Obligations (as defined
below). Although it has no present intention of doing so, it may
purchase and sell futures contracts on municipal bond indices and
on U.S. government securities and may write and purchase put and
call options on these contracts (see below).
As used in the Prospectus and the Additional Statement, the
term "Hawaiian Obligations" means obligations, including those of
certain non-Hawaiian issuers, of any maturity which pay interest
which, in the opinion of bond counsel or other appropriate
counsel, is exempt from Hawaiian State and regular Federal income
taxes. Although exempt from regular Federal income tax, interest
paid on certain types of Hawaiian Obligations, and dividends
which the Trust might pay from this interest, are preference
items as to the Federal alternative minimum tax; for further
information, see "Dividend and Tax Information." As a fundamental
policy, at least 80% of the Trust's net assets will be invested
in Hawaiian Obligations the income paid upon which will not be
subject to the alternative minimum tax; accordingly, the Trust
can invest up to 20% of its net assets in obligations which are
subject to the Federal alternative minimum tax. The Trust may
refrain entirely from purchasing these types of Hawaiian
Obligations. (See "Dividend and Tax Information.")
The non-Hawaiian bonds or other obligations the interest on
which is exempt under present law from Hawaiian State and regular
Federal income taxes are those issued by or under the authority
of Guam, Northern Mariana Islands, Puerto Rico and the Virgin
Islands. As a Hawaii-oriented trust, at least 65% of the Trust's
total assets will be invested in Hawaiian Obligations of Hawaiian
issuers.
In general, there are nine separate credit ratings,
ranging from the highest to the lowest quality standards for
municipal obligations. So that the Trust will have a portfolio of
quality-oriented (investment grade) securities, the Hawaiian
Obligations which the Trust will purchase must, at the time of
purchase, either (i) be rated within the four highest credit
ratings assigned by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Corporation ("S&P"); or (ii) if unrated, be
determined to be of comparable quality to municipal obligations
so rated, by Pacific Century Trust (the "Adviser"), the Trust's
investment adviser, subject to the direction and control of the
Trust's Board of Trustees. Municipal obligations rated in the
fourth highest credit rating are considered by such rating
agencies to be of medium quality and thus may present investment
risks not present in more highly rated obligations. Such bonds
lack outstanding investment characteristics and may in fact have
speculative characteristics as well; changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is
the case for higher grade bonds. If after purchase the rating of
any rated Hawaiian Obligation is downgraded such that it could
not then be purchased by the Trust, or, in the case of an unrated
Hawaiian Obligation, if the Adviser determines that the unrated
obligation is no longer of comparable quality to those rated
obligations which the Trust may purchase, it is the current
policy of the Trust to cause any such obligation to be sold as
promptly thereafter as the Adviser in its discretion determines
to be consistent with the Trust's objectives; such obligation
remains in the Trust's portfolio until it is sold. In addition,
because a downgrade often results in a reduction in the market
price of a downgraded obligation, sale of such an obligation may
result in a loss. (See Appendix A to the Additional Statement for
further information as to these ratings.) The Trust can purchase
industrial development bonds without limit but only if they meet
the definition of Hawaiian Obligations, i.e., the interest on
them is exempt from Hawaiian State and regular Federal income
taxes. The Trust may invest without limit in Hawaiian Obligations
which are repayable from economically related projects or
facilities. Such investments could involve an increased risk to
the Trust should any of such issuers or related projects or
facilities experience financial difficulties.
The "Taxable Short-Term Obligations" which the Trust may
purchase are obligations maturing in one year or less from the
date of purchase by the Trust which are either (i) obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Obligations"); see the
Additional Statement for further information; (ii) commercial
paper rated Prime-1 by Moody's or A-1 by S&P (see Appendix A to
the Additional Statement); or (iii) bank obligations, such as
certificates of deposit, bankers acceptances and fixed time
deposits, issued by a domestic bank subject to regulation by the
U.S. Government having total assets of at least $1.5 billion.
Under normal market conditions the Trust cannot purchase Taxable
Short-Term Obligations or purchase or sell Municipal Bond Index
Futures, U.S. Government Securities Futures or options on Futures
if thereafter more than 20% of its total assets would consist of
such Obligations, cash, margin deposits on such Futures and
margin deposits and premiums on options on such Futures, except
for defensive purposes, i.e., in anticipation of a decline or
possible decline in the value of Hawaiian Obligations. The Trust
may also invest in Taxable Short-Term Obligations (within such
20% limit) pending investment in Hawaiian Obligations of the
proceeds of the sale of shares or the sale of Hawaiian
Obligations. The Trust may enter into repurchase agreements as to
Taxable Short-Term Obligations;(see "Repurchase Agreements"
below). Income from "Taxable Short-Term Obligations" and
repurchase agreements is taxable and therefore is not included in
the "exempt-interest" dividends which the Trust will pay. (See
"Dividend and Tax Information.")
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940
Act"). The Trust also intends to continue to qualify as a
"regulated investment company" under the Internal Revenue Code
(the "Code"). One of the tests for such qualification under the
Code is, in general, that at the end of each fiscal quarter of
the Trust, at least 50% of its assets must consist of (i) cash
and (ii) securities which, as to any one issuer, do not exceed 5%
of the value of the Trust's assets. If the Trust had elected to
register under the 1940 Act as a "diversified" investment
company, it would have to meet a similar test as to 75% of its
assets. The Trust may therefore not have as much diversification
among securities, and thus diversification of risk, as if it had
made this election under the 1940 Act. In general, the more the
Trust invests in the securities of specific issuers, the more the
Trust is exposed to risks associated with investments in those
issuers. The Trust's assets, being primarily or entirely Hawaiian
issues, are accordingly subject to economic and other conditions
affecting Hawaii. (See "Risk Factors and Special Considerations
Regarding Investment in Hawaiian Obligations.")
Certain Stabilizing Measures
The Trust will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases,
broadening diversification and increasing its position in cash
and cash equivalents in attempting to protect against declines in
the value of its investments and other market risks. There can,
however, be no assurance that these will be successful.
Although the Trust has no current intention of using futures
and options, to the limited degree described below, the Trust may
purchase and sell futures contracts on municipal bond indices
("Municipal Bond Index Futures") and on United States government
securities ("U.S. Government Securities Futures"); both kinds of
futures contracts are "Futures." The Trust may also write and
purchase put and call options on Futures.
Although it does not currently do so, and since inception
has not done so, the Trust may buy and sell futures and options
to attempt to hedge against changes in the market price of the
Trust's Hawaiian Obligations caused by interest rate
fluctuations. Futures and options also may provide a hedge
against increases in the cost of securities the Trust intends to
purchase. Under normal market conditions, the Trust cannot
purchase or sell Municipal Bond Index Futures, U.S. Government
Securities Futures, or options on Futures if thereafter more than
20% of its total assets would consist of cash, margin deposits on
such Futures and margin deposits and premiums on such options,
except for temporary defensive purposes, i.e., in anticipation of
a decline or possible decline in the value of Hawaiian
Obligations. (See the Additional Statement.)
The primary risks associated with the use of Futures and
options are: (i) imperfect correlation between the change in the
market value of the securities held in the Trust's portfolio and
the prices of Futures or options purchased or sold by the Trust;
(ii) incorrect forecasts by the Adviser concerning interest rates
which may result in the hedge being ineffective; and (iii)
possible lack of a liquid secondary market for a Future or
option; the resulting inability to close a Futures or options
position could adversely affect the Trust's hedging ability.
For a hedge to be completely effective, the price change of
the hedging instrument should equal the price change of the
security being hedged. The risk of imperfect correlation of these
price changes is increased as the composition of the Trust's
portfolio is divergent from the debt securities underlying the
hedging instrument. To date the Adviser has had no experience in
the use of Futures or options on them.
The liquidity of a secondary market in a Future may be
adversely affected by "daily price fluctuation limits"
established by commodity exchanges which restrict the amount of
change in the contract price allowed during a single trading day.
Thus, once a daily limit is reached, no further trades may be
entered into beyond the limit, thereby preventing the liquidation
of open positions. Prices have in the past reached the daily
limit on a number of consecutive trading days. For further
information about Futures and options, see the Additional
Statement.
When and if the Trust determines to use Futures and options,
the Prospectus will be supplemented.
Floating and Variable Rate Demand Notes
Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one
year, but permit the holder to demand payment of principal at any
time, or at specified intervals not exceeding one year, in each
case upon not more than 30-days' notice. The issuer of such notes
normally has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the
note plus accrued interest upon a specified number of days'
notice to the noteholders. The interest rate on a floating rate
demand note is based on a known lending rate, such as a bank's
prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand note is
adjusted automatically at specified intervals.
Participation Interests
The Trust may purchase from financial institutions
participation interests in Hawaiian Obligations (such as
industrial development bonds and municipal lease/purchase
agreements). A participation interest gives the Trust an
undivided interest in the underlying Hawaiian Obligations in the
proportion that the Trust's participation interest bears to the
total amount of the underlying Hawaiian Obligations. All such
participation interests must meet the Trust's credit
requirements. (See "Limitation to 10% as to Certain
Investments.")
When-Issued and Delayed Delivery Purchases
The Trust may buy Hawaiian Obligations on a when-issued
or delayed delivery basis when it has the intention of acquiring
them. The Hawaiian Obligations so purchased are subject to market
fluctuation and no interest accrues to the Trust until delivery
and payment take place; their value at the delivery date may be
less than the purchase price. The Trust cannot enter into
when-issued commitments exceeding in the aggregate 15% of the
market value of the Trust's total assets, less liabilities other
than the obligations created by when-issued commitments. If the
Trust chooses to dispose of the right to acquire a when-issued
obligation prior to its acquisition, it could, as with the
disposition of any other portfolio holding, incur a gain or loss
due to market fluctuation; any such gain would be a taxable
short-term gain. The Trust places an amount of assets equal in
value to the amount due on the settlement date for the
when-issued or delayed delivery securities being purchased in a
segregated account, which is marked to market every business
day. (See the Additional Statement for further information.)
Repurchase Agreements
The Trust may purchase securities (limited to Taxable
Short-Term Obligations) subject to repurchase agreements.
Repurchase agreements may be entered into only with commercial
banks or broker-dealers. A repurchase agreement occurs when, at
the time the Trust purchases a security, the Trust also resells
it to the vendor and must deliver the security (or securities
substituted for it) to the vendor on an agreed-upon date in the
future. (The securities so resold or substituted are referred to
herein as the "Resold Securities.") The Resold Securities will be
held by the Trust's custodian bank. The resale price is in excess
of the purchase price in that it reflects an agreed-upon market
interest rate effective for the period of time during which the
Trust's money is invested in the Resold Securities. The majority
of these transactions run from day to day, and the delivery
pursuant to the resale typically will occur within one to five
days of the purchase. The Trust's risk is limited to the ability
of the vendor to pay the agreed-upon sum upon the delivery date;
in the event of bankruptcy or other default by the vendor, there
may be possible delays and expenses in liquidating the Resold
Securities, decline in their value and loss of interest. However,
in the opinion of the Trust this risk is not material since, upon
default, the Resold Securities constitute security for the
repurchase obligation. Repurchase agreements can be considered as
"loans" collateralized by the Resold Securities (such agreements
being defined as "loans" in the 1940 Act). The return on such
"collateral" may be more or less than that from the repurchase
agreement. The Resold Securities under any repurchase agreement
will be marked to market every business day so that the value of
the "collateral" is at least equal to the value of the loan,
including the accrued interest earned thereon, plus sufficient
additional market value as is considered necessary to provide a
margin of safety. Additionally, the Adviser will regularly review
the financial strength of all vendors of repurchase agreements to
the Trust.
Limitation to 10% as to Certain Investments
Due to their possible limited liquidity, the Trust cannot
make certain investments if thereafter more than 10% of its net
assets would consist of such investments. The investments
included in this 10% limit are (i) repurchase agreements maturing
in more than seven days; (ii) fixed time deposits subject to
withdrawal penalties other than overnight deposits; (iii)
restricted securities, i.e., securities which cannot freely be
sold for legal reasons (which the Trust does not expect to own);
and (iv) securities for which market quotations are not readily
available. However, this 10% limit does not include any
investments as to which the Trust can exercise the right to
demand payment in full within three days and as to which there is
a secondary market. Floating and variable rate demand notes and
participation interests (including municipal lease/ purchase
obligations) are considered illiquid unless determined by the
Board of Trustees to be readily marketable.
Factors Which May Affect the Value of the Trust's Investments and
Their Yields
The value of the Hawaiian Obligations and Taxable
Short-Term Obligations (collectively, "Obligations") in which the
Trust invests will fluctuate depending in large part on changes
in prevailing interest rates, and may be subject to other market,
credit and economic factors as well. If the prevailing interest
rates go up after the Trust buys Obligations, the value of the
Obligations will normally go down; if these rates go down, the
value of the Obligations will normally go up. Changes in value
and yield based on changes in prevailing interest rates may have
different effects on short-term Obligations than on long-term
Obligations. Long-term Obligations (which often have higher
yields) may fluctuate in value more than short-term ones.
Portfolio Insurance
The purpose of having insurance on some investments in
Hawaiian Obligations in the Trust's portfolio is to reduce
financial risk for investors in the Trust.
Insurance as to the timely payment of principal and interest
when due for Hawaiian Obligations is acquired as follows:
(i) obtained by the issuer of the Hawaiian Obligations at
the time of original issue of the obligations, known as "New
Issue Insurance," or
(ii) purchased by the Trust or a previous owner with respect
to specific Hawaiian Obligations, termed "Secondary Market
Insurance."
The insurance of principal under these types of insurance
policies refers to the payment of the face or par value of the
Hawaiian Obligation when due. Insurance is not affected by nor
does it insure the price paid by the Trust for the obligation.
The market value of obligations in the Trust will, from time to
time, be affected by various factors, including the general
movement of interest rates. The value of the Trust's shares is
not insured.
In order to attempt to reduce financial risk to the Trust's
investors, it is the Trust's current policy, which may be
changed, that the majority of the Trust's assets will be invested
in insured Hawaiian Obligations. However, if the Board of
Trustees determines that there is an inadequate supply in the
marketplace of Hawaiian Obligations covered by New Issue
Insurance and that appropriate Secondary Market Insurance cannot
be obtained for other Hawaiian Obligations on terms that are
financially advantageous to the Trust as a result of market
conditions or other factors, then the Trust will invest in
Hawaiian Obligations that are not insured. Use of insurance is
not a fundamental policy of the Trust.
New Issue Insurance is obtained by the issuer of the
Hawaiian Obligations and all premiums respecting such securities
are paid in advance by such issuer. Such policies are
noncancelable and continue in force so long as the Hawaiian
Obligations are outstanding and the insurer remains in business.
The Trust may also purchase Secondary Market Insurance on
any Hawaiian Obligation purchased by the Trust. By purchasing
Secondary Market Insurance, the Trust will obtain, upon payment
of a single premium, insurance against nonpayment of scheduled
principal and interest for the remaining term of the Hawaiian
Obligation, regardless of whether the Trust then owned such
security. Such insurance coverage is noncancelable and continues
in force so long as the security so insured is outstanding and
the insurer remains in business. The purposes of acquiring
Secondary Market Insurance are to insure timely payment of
principal and interest when due, and to enable the Trust to sell
a Hawaiian Obligation to a third party as a high rated insured
Hawaiian Obligation at a market price greater than what otherwise
might be obtainable if the security were sold without the
insurance coverage. There is no assurance that such insurance can
be obtained at rates that would make its purchase advantageous to
the Trust.
New Issue Insurance and Secondary Market Insurance will be
obtained from some or all of the following: Municipal Bond
Investors Assurance Corporation ("MBIA"), Financial Guaranty
Insurance Company ("FGIC") and AMBAC Indemnity Corporation
("AMBAC Indemnity"). See the Additional Statement for information
about these companies. The Trust may also purchase insurance
from, or Hawaiian Obligations insured by, other insurers.
Risk Factors and Special Considerations Regarding Investment in
Hawaiian Obligations
The following is a discussion of the general factors that
might influence the ability of Hawaiian issuers to repay
principal and interest when due on the Hawaiian Obligations
contained in the portfolio of the Trust. Such information is
derived from sources that are generally available to investors
and is believed by the Trust to be accurate, but has not been
independently verified and may not be complete.
As of the date of this Prospectus, economic data
available indicate that the real Gross State Product growth for
1997 was 1.3%, lower than the 2% that was projected in 1996.
Payroll employment stabilized in 1997 from declines experienced
between 1992 and 1996. Employment growth in 1998 is forecast to
be less than 1.0%. Although some local companies have left the
State, major retailers have entered the State and are expected to
begin operations within the next six months. The State of Hawaii
Convention Center has been completed and has had several "soft"
openings in preparation for a scheduled grand opening in July,
1999. During 1998, delegates and exhibitors at the center are
expected to spend upwards of $800 million.
Hawaii's inflation rate is forecast to be flat for 1998.
Although local housing costs have been in a deflationary trend,
recent anecdotal evidence suggests that sales volumes are
improving which could stabilize housing costs in 1998. Hawaii's
cost of living differential continues to decline as well. In the
early 1990's it peaked at 1.39 of the U.S. urban average, but in
1997 it fell to 1.33 and is projected to fall to 1.30 in
1998.
In 1997, tourism, the State's principal industry,
increased slightly by 0.7% over 1996 with 6.9 million visitors.
Westbound arrivals increased by 1.8%, offsetting the decline in
eastbound arrivals. Visitor arrivals for 1998 are projected to
increase by 1.0% over 1997. Under new authorizations by the U.S.
Department of Transportation, several airlines will either begin
service between Japan and Hawaii or increase the number of weekly
flights currently in service.
During 1997, a twenty-seven member Economic
Revitalization Task Force was established to make recommendations
for economic change. The Hawaii legislature recently passed many
of the recommendations of the Task Force, including a decrease in
the personal income tax; increased funding for tourism promotion;
a finite time frame for regulatory permitting and licensing
processes; and allowing for privatization of government services
under certain conditions. These changes, along with continuation
of the $1 billion capital improvement program approved in the
last legislative session, are positive factors for economic
growth. The State's strong reliance on tourism and the
uncertainties in Asia have, however, prompted Moody's Investors
Service to lower its rating on the State's General Obligation
debt to A1 from Aa3. Standard & Poor's affirmed the State's debt
rating at A+. The A1/A+ rating on the State's debt is still
recognized "investment grade" by both rating agencies. (See the
Additional Statement for an explanation of municipal debt
ratings.)
INVESTMENT RESTRICTIONS
The Trust has a number of policies about what it can and
cannot do. Certain of these policies, identified in the
Prospectus and in the Additional Statement as "fundamental
policies," cannot be changed unless the holders of a "majority,"
as defined in the 1940 Act, of the Trust's outstanding shares
vote to change them. (See the Additional Statement for a
definition of such a majority.) All other policies can be changed
from time to time by the Board of Trustees without shareholder
approval. Some of the more important of the Trust's fundamental
policies, not otherwise identified in the Prospectus, are set
forth below; others are listed in the Additional Statement.
1. The Trust invests only in certain limited securities.
The Trust cannot buy any securities other than those listed
under "Investment of the Trust's Assets"; the Trust may also
purchase and sell Futures and options on them within the limits
there discussed.
2. The Trust has industry investment requirements.
The Trust cannot buy the Obligations of issuers in any one
industry if more than 25% of its total assets would then be
invested in securities of issuers of that industry; Hawaiian
Obligations (except for the industrial development bonds
discussed below), U.S. Government Securities and domestic bank
Obligations are not included in this limit. In applying this
restriction, the Trust will consider that a non-governmental user
of facilities financed by industrial development bonds is an
issuer in an industry.
3. The Trust can make loans only by lending securities or
entering into repurchase agreements.
The Trust can buy those Obligations which it is permitted to
buy (see "Investment of the Trust's Assets"); this is investing,
not making a loan. The Trust can, to increase its income, lend
its portfolio securities up to 10% of the value of its total
assets on a collateralized basis to broker-dealers, banks and
certain financial institutions, (see the Additional Statement)
and enter into repurchase agreements (see "Repurchase Agreements"
above). The Trust may be considered as the beneficial owner of
the loaned securities in that any gain or loss in their market
price during the loan inures to the Trust and its shareholders;
thus, when the loan is terminated, the value of the securities
may be more or less than their value at the beginning of the
loan. Income from securities loans is taxable and therefore it is
not included in the "exempt-interest" dividends which the Trust
may pay.
4. The Trust can only borrow in limited amounts for special
purposes.
The Trust can borrow from banks for temporary or emergency
purposes but only up to 10% of its total assets and can mortgage
or pledge its assets only in connection with such borrowing and
only up to the lesser of the amounts borrowed or 5% of the value
of its total assets. However, this shall not prohibit margin
arrangements in connection with the purchase or sale of Municipal
Bond Index Futures, U.S. Government Securities Futures or options
on them, or the payment of premiums on those options. Interest on
borrowings would reduce the Trust's income. The Trust will not
purchase any Obligations while it has any outstanding borrowings
which exceed 5% of the value of its total assets. Except in
connection with borrowings, the Trust will not issue senior
securities.
NET ASSET VALUE PER SHARE
The net asset value of the shares of each of the Trust's
classes of shares is determined as of 4:00 p.m., New York time,
on each day that the New York Stock Exchange is open (a "business
day"), by dividing the value of the Trust's net assets (i.e., the
value of the assets less liabilities) allocable to each class by
the total number of shares of such class then outstanding.
Determination of the value of the Trust's assets is subject to
the direction and control of the Trust's Board of Trustees. In
general, it is based on market value, except that Hawaiian
Obligations maturing in 60 days or less are generally valued at
amortized cost; see the Additional Statement for further
information.
ALTERNATIVE PURCHASE PLANS
In this Prospectus the Trust provides you with two
alternative ways to invest in the Trust through two separate
classes of shares. All classes represent interests in the same
portfolio of Hawaiian Obligations. The classes of shares offered
to individuals differ in their sales charge structures and
ongoing expenses, as described below. You should choose the class
that best suits your own circumstances and needs.
If you choose to purchase Class A Shares you will pay the
applicable sales charge at the time of your purchase. By
purchasing Class C Shares, you will pay a sales charge over a
period of six years after purchase but without paying anything at
time of purchase, much as goods can be purchased on an
installment plan. You are subject to a contingent deferred sales
charge, described below, but only if you redeem your Class C
Shares before they have been held 12 months from your purchase.
(See "Computation of Holding Periods for Class C Shares.")
Class A Shares, "Front-Payment Class Shares," are offered
to anyone at net asset value plus a sales charge, paid at
the time of purchase, at the maximum rate of 4.0% of the
public offering price, with lower rates for larger
purchases. When you purchase Class A Shares, the amount of
your investment is reduced by the applicable sales charge.
Class A Shares are subject to an asset retention service fee
under the Trust's Distribution Plan at the rate of 0.20 of
1% of the average annual net assets represented by the Class
A Shares. Certain Class A Shares purchased in transactions
of $1 million or more are subject to a contingent deferred
sales charge. (See "Purchase of $1 Million or More.")
Class C Shares, "Level-Payment Class Shares," are offered
to anyone at net asset value with no sales charge payable at
purchase but with a level charge for distribution fees and
service fees for six years after the date of purchase at the
aggregate annual rate of 1% of the average annual net assets
represented by the Class C Shares. (See "Distribution Plan"
and "Shareholder Services Plan for Class C Shares.") Six
years after the date of purchase, Class C Shares, including
Class C Shares acquired in exchange for other Class C Shares
under the Exchange Privilege (see "Exchange Privilege"), are
automatically converted to Class A Shares. If you redeem
Class C Shares before you have held them for 12 months from
the date of purchase you will pay a contingent deferred
sales charge ("CDSC") at the rate of 1%, calculated on the
net asset value of the redeemed Class C Shares at the time
of purchase or of redemption, whichever is less. The amount
of any CDSC will be paid to the Distributor. The CDSC does
not apply to shares acquired through the reinvestment of
dividends on Class C Shares or to any Class C Shares held
for more than 12 months after purchase. For purposes of
applying the CDSC and determining the time of conversion,
the 12-month and six-year holding periods are considered
modified by up to one month depending upon when during a
month your purchase of such shares is made. (See
"Computation of Holding Periods for Class C Shares" and "How
to Purchase Class C Shares.")
In determining whether a CDSC is payable on a redemption of
Class C Shares, it will be assumed that the redemption is made
first of any shares acquired as dividends or distributions,
second of any Class C Shares you have held for more than 12
months from the date of purchase and finally of those Class C
Shares as to which the CDSC is payable which you have held the
longest. This will result in your paying the lowest possible
CDSC.
Computation of Holding Periods for Class C Shares
For purposes of determining the holding period for Class C
Shares, all of your purchases made during a calendar month will
be deemed to have been made on the first business day of that
month at the average cost of all purchases made during that
month. The 12-month CDSC holding period will end on the first
business day of the 12th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your Class C Shares may be up to one
month less than the full 12 months depending upon when your
actual purchase was made during a month. Running of the 12-month
CDSC holding period will be suspended for one month for each
period of thirty days during which you have held shares of a
money market fund you have received in exchange for Class C
Shares under the Exchange Privilege. (See "Exchange Privilege.")
Your Class C Shares will automatically convert to Class A
Shares six years after the date of purchase, together with a
pro-rata portion of all Class C Shares representing dividends and
other distributions paid in additional Class C Shares. The Class
C Shares so converted will no longer be subject to the higher
expenses borne by the Class C Shares. The conversion will be
effected at relative net asset values on the first business day
of the month following that in which the sixth anniversary of
your purchase of the Class C Shares occurred, except as noted
below. Accordingly, the holding period applicable to your Class C
Shares may be up to one month more than the six years depending
upon when your actual purchase was made during a month. Because
the per share value of Class A Shares may be higher than that of
Class C Shares at the time of conversion, you may receive fewer
Class A Shares than the number of Class C Shares converted. If
you have made one or more exchanges of Class C Shares among the
Aquila-sponsored tax-free municipal bond funds or equity funds
under the Exchange Privilege, the six-year holding period is
deemed to have begun on the date you purchased your original
Class C Shares of the Trust or of another of the Aquila bond or
equity funds. The six-year holding period will be suspended by
one month for each period of thirty days during which you hold
shares of a money market fund you have received in exchange for
Class C Shares under the Exchange Privilege. (See "Exchange
Privilege.")
The following chart summarizes the principal differences
between Class A Shares and Class C Shares.
<TABLE>
<CAPTION>
Class A Class C
<S> <C> <C>
Initial Sales Maximum of 4% of the None
Charge public offering price
Contingent None (except for Maximum CDSC of 1%
Deferred certain purchases if shares redeemed
Sales Charge over $1 Million) before 12 months;
0% after 12 months
Distribution and 0.20 of 1% Distribution fee of
Service Fees 0.75 of 1% and a service
fee of 0.25 of 1%
for a total of 1%,
payable for six years
Other Information Initial Sales Charge Shares convert to
waived or reduced in Class A Shares
some cases after six years
</TABLE>
Factors to Consider in Choosing Classes of Shares
This discussion relates to the major differences between
Class A Shares and Class C Shares. It is recommended that any
investment in the Trust be considered long-term in nature.
Over time, the cumulative total cost of the 1% annual
service and distribution fees on the Class C Shares will equal or
exceed the total cost of the initial 4% maximum initial sales
charge and 0.20 of 1% annual fee payable for Class A Shares. For
example, if equal amounts were paid at the same time for Class A
Shares (where the amount invested is reduced by the amount of the
sales charge) and for Class C Shares (which carry no sales charge
at the time of purchase) and the net asset value per share
remained constant over time, the total of such costs for Class C
Shares would equal the total of such costs for Class A Shares
after approximately four and two-thirds years. This example
assumes no redemptions and disregards the time value of money.
Purchasers of Class C Shares have all of their investment dollars
invested from the time of purchase, without having their
investment reduced at the outset by the initial sales charge
payable for Class A Shares. If you invest in Class A Shares you
will pay the entire sales charge at the time of purchase.
Accordingly, if you expect to redeem your shares within a
reasonably short time after purchase, you should consider the
total cost of such an investment in Class A Shares compared with
a similar investment in Class C Shares. The example under "Table
of Expenses" shows the effect of Trust expenses for both classes
if a hypothetical investment in each of the classes is held for
1, 3, 5 and 10 years. (See the Table of Expenses.)
Dividends and other distributions paid by the Trust with
respect to shares of each class are calculated in the same manner
and at the same time. The dividends actually paid with respect to
Class C Shares will be lower than those paid on Class A Shares
because Class C Shares bear higher distribution and service fees
and will have a higher expense ratio. In addition, the dividends
of each class can vary because each class will bear certain
class-specific charges. For example, each class will bear the
costs of printing and mailing annual reports to its own
shareholders.
HOW TO INVEST IN THE TRUST
The Trust's shares may be purchased through any
investment broker or dealer (a "selected dealer") which has a
sales agreement with Aquila Distributors, Inc. (the
"Distributor") or through the Distributor. There are two ways to
make an initial investment: (i) order the shares through your
investment broker or dealer, if it is a selected dealer; or (ii)
mail the Application with payment to the Trust's Shareholder
Servicing Agent (the "Agent") at the address on the Application.
If you purchase Class A Shares the applicable sales charge will
apply in either instance. Subsequent investments are also subject
to the applicable sales charges. You are urged to complete an
Application and send it to the Agent so that expedited
shareholder services can be established at the time of your
investment. Unless your initial investment is specified to be
made in Class C Shares, it will be made in Class A Shares.
The minimum initial investment for Class A Shares and Class
C Shares is $1,000, except as otherwise stated in the Prospectus
or Additional Statement. You may also make an initial investment
of at least $50 by establishing an Automatic Investment Program.
To do this you must open an account for automatic investments of
at least $50 each month and make an initial investment of at
least $50. (See below and "Automatic Investment Program" in the
Application.) Such investment must be drawn in United States
dollars on a United States commercial or savings bank, a credit
union or a United States branch of a foreign commercial bank
(each of which is a "Financial Institution"). You may make
subsequent investments in the same class of shares in any amount
(unless you have an Automatic Withdrawal Plan). Your subsequent
investment may be made through a selected dealer or by forwarding
payment to the Agent, with the name(s) of account owner(s), the
account number, the name of the Trust and the class of shares to
be purchased. With subsequent investments, please send the
pre-printed stub attached to the Trust's confirmations.
Subsequent investments of $50 or more in shares of the
same class as your initial investment can be made by electronic
funds transfer from your demand account at a Financial
Institution. To use electronic funds transfer for your purchases,
your Financial Institution must be a member of the Automated
Clearing House and the Agent must have received your completed
Application designating this feature, or, after your account has
been opened, a Ready Access Features Form available from the
Distributor or the Agent. A pre-determined amount can be
regularly transferred for investment ("Automatic Investment"), or
single investments can be made upon receipt by the Agent of
telephone instructions from anyone ("Telephone Investment"). The
maximum amount of each Telephone Investment is $50,000. Upon 30
days' written notice to shareholders, the Trust may modify or
terminate these investment methods at any time or charge a
service fee, although no such fee is currently contemplated.
The offering price is the net asset value per share for
Class C Shares and the net asset value per share plus the
applicable sales charge for Class A Shares. The offering price
determined on any day applies to all purchase orders received by
the Agent from selected dealers that day, except that orders
received by it after 4:00 p.m. New York time will receive that
day's offering price only if such orders were received by
selected dealers from customers prior to such time and
transmitted to the Distributor prior to its close of business
that day (normally 5:00 p.m. New York time); if not so
transmitted, such orders will be filled at the next determined
offering price. Selected dealers are required to transmit orders
promptly. Investments by mail are made at the offering price next
determined after receipt of the purchase order by the Agent.
Purchase orders received on other than a business day will be
executed on the next succeeding business day. Purchases by
Automatic Investment and Telephone Investment will be executed on
the first business day occurring on or after the date an order is
considered received by the Agent at the price determined on that
day. In the case of Automatic Investment your order will be
executed on the date you specified for investment at the price
determined on that day, except that if that day is not a business
day your order will be executed at the price determined on the
next business day. In the case of Telephone Investment your order
will be filled at the next determined offering price. If your
order is placed after the time for determining the net asset
value of the Trust shares for any day it will be executed at the
price determined on the following business day. The sale of
shares will be suspended during any period when the determination
of net asset value is suspended. The Trust and the Distributor
reserve the right to reject any order for the purchase of shares.
In addition, the offering of shares may be suspended at any time
and resumed at any time thereafter.
At the date of the Prospectus, Class A Shares and Class C
Shares of the Trust are available only in the following states:
Hawaii, Alaska, Arizona, California, Colorado, District of
Columbia, Florida, Illinois, Iowa (Class A Shares only),
Maryland, Massachusetts, Michigan (Class A Shares only),
Missouri, Montana, Nevada, New Jersey, New York, Oregon, Texas,
Virginia and Washington.
If you do not reside in one of these states you should
not purchase shares of the Trust. If Class A Shares or Class C
Shares of the Trust are sold outside of these states the Trust
can redeem them. Such a redemption may result in a loss to you
and may have tax consequences. In addition, if your state of
residence is not Hawaii, the dividends from the Trust may not be
exempt from income tax of the state in which you reside.
Accordingly, you should consult your tax adviser before acquiring
shares of the Trust.
How to Purchase Class A Shares (Front-Payment Class Shares)
The following table shows the amount of the sales charge to
a "single purchaser" (defined below) together with the dealer
discounts paid to dealers and the agency commissions paid to
brokers (collectively called the "commissions") for purchases of
Class A Shares:
<TABLE>
<CAPTION>
Sales Charge Sales Charge Commissions
as Percentage as Approximate as
of Public Percentage of Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
<S> <C> <C> <C>
Less than $25,000 4.00% 4.17% 3.50%
$25,000 but less
than $50,000 3.75% 3.90% 3.50%
$50,000 but less
than $100,000 3.50% 3.63% 3.25%
$100,000 but less
than $250,000 3.25% 3.36% 3.00%
$250,000 but less
than $500,000 3.00% 3.09% 2.75%
$500,000 but less
than $1,000,000 2.50% 2.56% 2.25%
</TABLE>
For purchases of $1 million or more see "Purchase of $1 Million
or More," below.
The table of sales charges is applicable to purchases of
Class A Shares by a "single purchaser," i.e.: (a) an individual;
(b) an individual together with his or her spouse and their
children under the age of 21 purchasing Class A Shares for his,
her or their own accounts; (c) a trustee or other fiduciary
purchasing Class A Shares for a single trust estate or a single
fiduciary account; and (d) a tax-exempt organization enumerated
in Section 501(c)(3) or (13) of the Code.
Upon notice to all selected dealers, the Distributor may
reallow up to the full amount of the applicable sales charge as
shown in the above schedule during periods specified in such
notice. During periods when all or substantially all of the
entire sales charge is reallowed, such selected dealers may be
deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Purchase of $1 Million or More
Class A Shares issued under the following circumstances are
called "CDSC Class A Shares": (i) Class A Shares issued in a
single purchase of $1 million or more by a single purchaser; and
(ii) all Class A Shares issued in a single purchase to a single
purchaser the value of which, when added to the value of the CDSC
Class A Shares and Class A Shares on which a sales charge has
been paid, already owned at the time of such purchase, equals or
exceeds $1 million. CDSC Class A Shares also include certain
Class A Shares issued under the program captioned "Special Dealer
Arrangements," below. CDSC Class A Shares do not include (i)
Class A Shares purchased without sales charge pursuant to the
terms described under "General," below and (ii) Class A Shares
purchased in transactions of less than $1 million and when
certain special dealer arrangements are not in effect under
"Certain Investment Companies" set forth under "Reduced Sales
Charges," below.
When you purchase CDSC Class A Shares you will not pay a
sales charge at the time of purchase, and the Distributor will
pay to any dealer effecting such a purchase an amount equal to 1%
of the sales price of the shares purchased for purchases of $1
million but less than $2.5 million, 0.50 of 1% for purchases of
$2.5 million but less than $5 million, and 0.25 of 1% for
purchases of $5 million or more.
If you redeem all or part of your CDSC Class A Shares
during the four years after your purchase of such shares, at the
time of redemption you will be required to pay to the
Distributor a special contingent deferred sales charge based on
the lesser of (i) the net asset value of your redeemed CDSC Class
A Shares at the time of purchase or (ii) the net asset value of
your redeemed CDSC Class A Shares at the time of redemption (the
"Redemption Value"). The special charge will be an amount equal
to 1% of the Redemption Value if the redemption occurs within the
first two years after purchase, and 0.50 of 1% of the Redemption
Value if the redemption occurs within the third or fourth year
after purchase. The special charge will apply to redemptions of
CDSC Class A Shares purchased without a sales charge pursuant to
a Letter of Intent, as described below under "Reduced Sales
Charges for Certain Purchases of Class A Shares." The special
charge does not apply to Class A Shares acquired through the
reinvestment of dividends on CDSC Class A Shares or to any CDSC
Class A Shares held for more than four years after purchase. In
determining whether the special charge is applicable, it will be
assumed that the CDSC Class A Shares you have held the longest
are the first CDSC Class A Shares to be redeemed, unless you
instruct the Agent otherwise. It will also be assumed that if you
have both CDSC Class A Shares and non-CDSC Class A Shares the
non-CDSC Class A Shares will be redeemed first.
For purposes of determining the holding period for CDSC
Class A Shares, all of your purchases made during a calendar
month will be deemed to have been made on the first business day
of that month at the average cost of all purchases made during
that month. The four-year holding period will end on the first
business day of the 48th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your CDSC Class A Shares may be up
to one month less than the full 48 months depending upon when
your actual purchase was made during a month. Running of the
48-month CDSC holding period will be suspended for one month for
each period of thirty days during which you have held shares of a
money market fund you have received in exchange for CDSC Class A
Shares under the Exchange Privilege. (See "Exchange Privilege.")
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation: If you are a "single purchaser" you
may benefit from a reduction of the sales charge in accordance
with the above schedule for subsequent purchases of Class A
Shares if the cumulative value (at cost or current net asset
value, whichever is higher) of Class A Shares you have previously
purchased with a sales charge and still own, together with Class
A Shares of your subsequent purchase with such a charge, amounts
to $25,000 or more.
Letters of Intent: The foregoing schedule of reduced sales
charges will also be available to "single purchasers" who enter
into a written Letter of Intent (included in the Application)
providing for the purchase, within a thirteen-month period, of
Class A Shares of the Trust through a single selected dealer or
through the Distributor. Class A Shares of the Trust which you
previously purchased during a 90-day period prior to the date of
receipt by the Distributor of your Letter of Intent and which you
still own may also be included in determining the applicable
reduction. For further details, including escrow provisions, see
the Letter of Intent provisions of the Application.
General: Class A Shares may be purchased at the next
determined net asset value by the Trust's Trustees and officers,
by the directors, officers and certain employees, retired
employees and representatives of the Adviser and its parent and
affiliates, the Administrator and the Distributor, by selected
dealers and brokers and their officers and employees, by certain
persons connected with firms providing legal, advertising or
public relations assistance, by certain family members of, and
plans for the benefit of, the foregoing, and for the benefit of
trust or similar clients of banking institutions over which these
institutions have full investment authority if the Trust or the
Distributor has entered into an agreement relating to such
purchases. Except for the last category, purchasers must give
written assurance that the purchase is for investment and that
the Class A Shares will not be resold except through redemption.
There may be tax consequences of these purchases. Such purchasers
should consult their own tax counsel. Class A Shares may also be
issued at net asset value in a merger, acquisition or exchange
offer made pursuant to a plan of reorganization to which the
Trust is a party.
The Trust permits the sale of its Class A Shares at prices
that reflect the reduction or elimination of the sales charge to
investors who are members of certain qualified groups meeting the
following requirements. A qualified group (i) is a group or
association, or a category of purchasers who are represented by a
fiduciary, professional or other representative (other than a
registered broker-dealer), which (ii) satisfies uniform criteria
which enable the Distributor to realize economies of scale in its
costs of distributing Class A Shares; (iii) gives its endorsement
or authorization (if it is a group or association) to an
investment program to facilitate solicitation of its membership
by a broker or dealer; and (iv) complies with the conditions of
purchase that are set forth in any agreement entered into between
the Trust and the group, representative or broker or dealer. At
the time of purchase you must furnish the Distributor with
information sufficient to permit verification that the purchase
qualifies for a reduced sales charge, either directly or through
a broker or dealer.
Certain Investment Companies: Class A Shares of the Trust
may be purchased at net asset value without sales charge (except
as set forth below under "Special Dealer Arrangements") to the
extent that the aggregate net asset value of such Class A Shares
does not exceed the proceeds from a redemption (a "Qualified
Redemption"), made within 120 days prior to such purchase, of
shares of another investment company on which a sales charge,
including a contingent deferred sales charge, has been paid.
Additional information is available from the Distributor.
To qualify, the following special procedures must be
followed:
1. A completed Application (included in the Prospectus) and
payment for the Class A Shares to be purchased must be sent
to the Distributor, Aquila Distributors, Inc., 380 Madison
Avenue, Suite 2300, New York, NY 10017 and should not be
sent to the Shareholder Servicing Agent of the Trust. (This
instruction replaces the mailing address contained on the
Application.)
2. The Application must be accompanied by evidence
satisfactory to the Distributor that the prospective
shareholder has made a Qualified Redemption in an amount at
least equal to the net asset value of the Class A Shares to
be purchased. Satisfactory evidence includes a confirmation
of the date and the amount of the redemption from the
investment company, its transfer agent or the investor's
broker or dealer, or a copy of the investor's account
statement with the investment company reflecting the
redemption transaction.
3. You must complete and return to the Distributor a
Transfer Request Form, which is available from the
Distributor.
The Trust reserves the right to alter or terminate this
privilege at any time without notice. The Prospectus will be
supplemented to reflect such alteration or termination.
Special Dealer Arrangements: During certain periods
determined by the Distributor, the Distributor (not the Trust)
will pay to any dealer effecting a purchase of Class A Shares of
the Trust using the proceeds of a Qualified Redemption the lesser
of (i) 1% of such proceeds or (ii) the same amounts described
under "Purchase of $1 Million or More" above, on the same terms
and conditions. Class A Shares of the Trust issued in such a
transaction will be CDSC Class A Shares and if you thereafter
redeem all or part of such shares during the four-year period
from the date of purchase you will be subject to the special
contingent deferred sales charge described under "Purchase of $1
Million or More" above, on the same terms and conditions.
Whenever the Special Dealer Arrangements are in effect the
Prospectus will be supplemented.
How to Purchase Class C Shares (Level-Payment Class Shares)
Level-Payment Class Shares("Class C Shares") are offered
at net asset value with no sales charge payable at purchase. A
level charge is imposed for service and distribution fees for the
first six years after the date of purchase at the aggregate
annual rate of 1% of the average annual net assets of the Trust
represented by the Class C Shares. If you redeem Class C Shares
before you have held them for 12 months from the date of purchase
you will pay a contingent deferred sales charge ("CDSC"). The
CDSC is charged at the rate of 1%, calculated on the net asset
value of the redeemed Class C Shares at the time of purchase or
at redemption, whichever is less. There is no CDSC after Class C
Shares have been held beyond the applicable period. The CDSC does
not apply to Class C Shares acquired through the reinvestment of
dividends on Class C Shares.
The Distributor will pay to any dealer effecting a purchase
of Class C Shares an amount equal to 1% of the sales price of the
Class C Shares purchased.
Additional Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
any class of shares of the Trust. Additional compensation may
include payment or partial payment for advertising of the Trust's
shares, payment of travel expenses, including lodging, incurred
in connection with attendance at sales seminars taken by
qualifying registered representatives to locations within or
outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences. In some instances, such compensation may be made
available only to certain dealers whose representatives have sold
or are expected to sell significant amounts of such shares.
Dealers may not use sales of the Trust's shares to qualify for
the incentives to the extent such may be prohibited by the laws
of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. The cost to the
Distributor of such promotional activities and such payments to
participating dealers will not exceed the amount of the sales
charges in respect of sales of all classes of shares of the Trust
effected through such participating dealers, whether retained by
the Distributor or reallowed to participating dealers. No such
additional compensation to dealers in connection with sales of
shares of the Trust will affect the price you pay for shares or
the amount that the Trust will receive from such sales. Any of
the foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
Systematic Payroll Investments
If your employer has established with the Trust a
Systematic Payroll Investment Plan ("Payroll Plan") you may
arrange for systematic investments into the Trust through the
Payroll Plan. Investments can be made in either Class A Shares or
Class C Shares. In order to participate in a Payroll Plan, you
should make arrangements with your own employer's payroll
department, and you must complete and sign any special
application forms which may be required by your employer. You
must also complete the Application included in the Prospectus.
Once your application is received and put into effect, under a
Payroll Plan the employer will make a deduction from payroll
checks in an amount you determine, and will remit the proceeds to
the Trust. An investment in the Trust will be made for you at the
offering price, which includes applicable sales charges
determined as described above, when the Trust receives the funds
from your employer. The Trust will send a confirmation of each
transaction to you. To change the amount of or to terminate your
participation in the Payroll Plan (which could take up to ten
days), you must notify your employer.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to
you in an account maintained for you at the Agent in full and
fractional shares of the Trust (rounded to the nearest 1/1000th
of a share).
No share certificates will be issued for Class C Shares.
Share certificates for Class A Shares will be issued only if you
so request in writing to the Agent. All share certificates
previously issued by the Trust represent Class A Shares. No
certificates will be issued for fractional Class A Shares or if
you have elected Automatic Investment or Telephone Investment for
Class A Shares (see "How to Invest in the Trust" above) or
Expedited Redemption (see "How to Redeem Your Investment" below).
If certificates for Class A Shares are issued at your request,
Expedited Redemption Methods described below will not be
available. In addition, you may incur delay and expense if you
lose the certificates.
Distribution Plan
The Trust has adopted a Distribution Plan (the "Plan")
under Rule 12b-1 (the "Rule") under the 1940 Act. The Rule
provides in substance that an investment company may not engage
directly or indirectly in financing any activity which is
primarily intended to result in the sale of its shares except
pursuant to a written plan adopted under the Rule. The Plan has
four parts.
Under one part of the Plan, the Trust is authorized to
make payments with respect to Class A Shares ("Class A Permitted
Payments") to Qualified Recipients, which payments shall be made
through the Distributor or shareholder servicing agent as
disbursing agent, and may not exceed, for any fiscal year of the
Trust (as adjusted for any part or parts of a fiscal year during
which payments under the Plan are not accruable or for any fiscal
year which is not a full fiscal year) 0.20 of 1% of the average
annual net assets represented by the Class A Shares of the Trust.
Such payments shall be made only out of the Trust's assets
allocable to the Class A Shares. "Qualified Recipients" means
broker-dealers or others selected by the Distributor, including
but not limited to any principal underwriter of the Trust, with
which the Trust or the Distributor has entered into written
agreements and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Trust's Class A Shares or servicing of accounts of
shareholders owning Class A Shares. (See the Additional Statement
for a description of the Distribution Plan.)
Whenever the Trust makes Class A Permitted Payments, the
aggregate annual rate of the advisory fee and administration fee
otherwise payable by the Trust will be reduced from 0.55 of 1% to
0.40 of 1% of the Trust's average annual net assets. (See
"Management Arrangements.")
During the fiscal year ended March 31, 1998, $1,304,887
was paid to Qualified Recipients with respect to Class A Shares,
of which $72,446 was retained by the Distributor. All of such
payments were for compensation. (See the Additional Statement for
a description of the Distribution Plan.)
Under another part of the Plan, the Trust is authorized to
make payments with respect to Class C Shares ("Class C Permitted
Payments") to Qualified Recipients. Class C Permitted Payments
shall be made through the Distributor or shareholder servicing
agent as disbursing agent, and may not exceed, for any fiscal
year of the Trust (as adjusted for any part or parts of a fiscal
year during which payments under the Plan are not accruable or
for any fiscal year which is not a full fiscal year), 0.75 of 1%
of the average annual net assets represented by the Class C
Shares of the Trust. Such payments shall be made only out of the
Trust's assets allocable to the Class C Shares. "Qualified
Recipients" means broker-dealers or others selected by the
Distributor, including but not limited to any principal
underwriter of the Trust, with which the Trust or the Distributor
has entered into written agreements and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Trust's Class C Shares or
servicing of accounts of shareholders owning Class C Shares.
During the Trust's fiscal year ended March 31, 1998,
$43,743 was paid to Qualified Recipients under the Plan with
respect to the Trust's Class C Shares of which $38,109 was
retained by the Distributor. All of such payments were for
compensation. Payments with respect to Class C Shares during the
first year after purchase are paid to the Distributor and
thereafter to other Qualified Recipients.
A third part of the Plan authorizes payments ("Permitted
Payments") with respect to the Trust's Class I Shares. (See
"General Information.")
Another part of the Plan is designed to protect against any
claim against or involving the Trust that some of the expenses
which might be considered to be sales-related which the Trust
pays or may pay come within the purview of the Rule. The Trust
believes that except for Permitted Payments it is not financing
any such activity and does not consider any payment enumerated in
this part of the Plan as so financing any such activity. However,
it might be claimed that some of the expenses the Trust pays come
within the purview of the Rule. If and to the extent that any
payment as specifically listed in the Plan (see the Additional
Statement) is considered to be primarily intended to result in or
as indirect financing of any activity which is primarily intended
to result in the sale of Trust shares, these payments are
authorized under the Plan. In addition, if the Administrator, out
of its own funds, makes payment for distribution expenses such
payments are authorized. (See the Additional Statement.)
Shareholder Services Plan for Class C Shares
Under a Shareholder Services Plan, the Trust is
authorized to make payments with respect to Class C Shares
("Service Fees") to Qualified Recipients. Service Fees shall be
paid through the Distributor or shareholder servicing agent as
disbursing agent, and may not exceed, for any fiscal year of the
Trust (as adjusted for any part or parts of a fiscal year during
which payments under the Plan are not accruable or for any fiscal
year which is not a full fiscal year), 0.25 of 1% of the average
annual net assets represented by the Class C Shares of the Trust.
Such payments shall be made only out of the Trust's assets
represented by the Class C Shares. "Qualified Recipients" means
broker-dealers or others selected by the Distributor, including
but not limited to any principal underwriter of the Trust, with
which the Trust or the Distributor has entered into written
agreements and which have agreed to provide personal services to
holders of Class C Shares and/or maintenance of Class C Shares
shareholder accounts. (See the Additional Statement.) Service
Fees with respect to Class C Shares will be paid to the
Distributor. During the fiscal year ended March 31, 1998, $14,581
was paid to the Distributor.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your shares at the net
asset value next determined after acceptance of your redemption
request at the Agent (subject to any applicable contingent
deferred sales charge for redemptions of Class C Shares and CDSC
Class A Shares). For redemptions of Class C Shares and CDSC Class
A Shares, at the time of redemption a sufficient number of
additional shares will be redeemed to pay for any applicable
contingent deferred sales charge. Redemptions can be made by the
various methods described below. There is no minimum period for
any investment in the Trust, except for shares recently purchased
by check, Automatic Investment or Telephone Investment as
discussed below. Except for CDSC Class A Shares (see "Purchase of
$1 Million or More") there are no redemption fees or withdrawal
penalties for Class A Shares. Class C Shares are subject to a
contingent deferred sales charge if redeemed before they have
been held 12 months from the date of purchase. (See "Alternative
Purchase Plans.") A redemption may result in a transaction
taxable to you. If you own both Class A Shares and Class C Shares
and do not specify which you wish to redeem, it will be assumed
that you wish to redeem Class A Shares.
For your convenience the Trust offers expedited redemption
for all classes of shares to provide you with a high level of
liquidity for your investment.
Expedited Redemption Methods (Non-Certificate Shares)
You have the flexibility of two expedited methods of
initiating redemptions. They are available as to shares of any
class not represented by certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have predesignated
or
b) by check in the amount of $50,000 or less, mailed to you,
if your shares are registered in your name at the Trust and
the check is sent to your address of record, provided that
there has not been a change of your address of record during
the 30 days preceding your redemption request. You can make
only one request for telephone redemption by check in any
7-day period.
See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
800-228-4228 toll free
Note: The Trust, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name(s) and number,
name of the caller, the social security number registered to the
account and personal identification. The Agent may also record
calls. You should verify the accuracy of confirmation statements
immediately upon receipt.
2. By FAX or Mail. You may also request redemption
payments to a predesignated Financial Institution account by
a letter of instructions sent to the Trust's Shareholder
Servicing Agent: PFPC Inc., by FAX at 302-791-1777 or by
mail to 400 Bellevue Parkway, Wilmington, DE 19809,
indicating account name(s), account number, amount to be
redeemed, and any payment directions, signed by the
registered holder(s). Signature guarantees are not required.
See "Redemption Payments" below for payment methods.
If you wish to have redemption proceeds sent to a
Financial Institution Account, you should so elect on the
Expedited Redemption section of the Application or the Ready
Access Features Form and provide the required information
concerning your Financial Institution account number. The
Financial Institution account must be in the exclusive name(s) of
the shareholder(s) as registered with the Trust. You may change
the designated Financial Institution account at any time by
completing and returning a Ready Access Features Form. For
protection of your assets, this form requires signature
guarantees and possible additional documentation.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
1. Certificate Shares. Certificates representing Class A
Shares to be redeemed should be sent in blank (unsigned) to
the Trust's Shareholder Servicing Agent: PFPC Inc., 400
Bellevue Parkway, Wilmington, DE 19809 with payment
instructions. A stock assignment form signed by the
registered shareholder(s) exactly as the account is
registered must also be sent to the Shareholder Servicing
Agent.
For your own protection, it is essential that
certificates be mailed separately from signed redemption
documentation. Because of possible mail problems, it is also
recommended that certificates be sent by registered mail, return
receipt requested.
For a redemption request to be in "proper form," the
signature or signatures must be the same as in the registration
of the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required
if sufficient documentation is not on file with the Agent.
Additional documentation may be required where shares are held by
certain types of shareholders such as corporations, partnerships,
trustees or executors, or if redemption is requested by other
than the shareholder of record. If redemption proceeds of $50,000
or less are payable to the record holder and are to be sent to
the record address, no signature guarantee is required, except as
noted above. In all other cases, signatures must be guaranteed by
a member of a national securities exchange, a U.S. bank or trust
company, a state-chartered savings bank, a federally chartered
savings and loan association, a foreign bank having a U.S.
correspondent bank, a participant in the Securities Transfer
Association Medallion Program (STAMP), the Stock Exchanges
Medallion Program (SEMP) or the New York Stock Exchange, Inc.
Medallion Signature Program (MSP). A notary public is not an
acceptable signature guarantor.
2. Non-Certificate Shares. If you own non-certificate
shares registered on the books of the Trust, and you have
not elected Expedited Redemption to a predesignated
Financial Institution account, you must use the Regular
Redemption Method. Under this redemption method you should
send a letter of instruction to the Trust's Shareholder
Servicing Agent: PFPC Inc., 400 Bellevue Parkway,
Wilmington, DE 19809 containing:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the
Trust);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated
above.
Redemption Payments
Redemption payments will ordinarily be mailed to you at
your address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will,
wherever possible, be wired or transferred through the facilities
of the Automated Clearing House to the Financial Institution
account specified in the Expedited Redemption section of your
Application or Ready Access Features form. The Trust may impose a
charge, not exceeding $5.00 per wire redemption, after written
notice to shareholders who have elected this redemption
procedure. The Trust has no present intention of making this
charge. Upon 30 days' written notice to shareholders, the Trust
may modify or terminate the use of the Automated Clearing House
to make redemption payments at any time or charge a service fee,
although no such fee is presently contemplated. If any such
changes are made, the Prospectus will be supplemented to reflect
them. If you use a broker or dealer to arrange for a redemption,
you may be charged a fee for this service.
The Trust will normally make payment for all shares
redeemed on the next business day (see "Net Asset Value Per
Share") following acceptance of the redemption request made in
compliance with one of the redemption methods specified above.
Except as set forth below, in no event will payment be made more
than seven days after acceptance of such a redemption request.
However, the right of redemption may be suspended or the date of
payment postponed (i) during periods when the New York Stock
Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the
Securities and Exchange Commission by rule or regulation; (ii)
during periods in which an emergency, as determined by the
Securities and Exchange Commission, exists which causes disposal
of, or determination of the net asset value of, the portfolio
securities to be unreasonable or impracticable; or (iii) for such
other periods as the Securities and Exchange Commission may
permit. Payment for redemption of shares recently purchased by
check (irrespective of whether the check is a regular check or a
certified, cashier's or official bank check) or by Automatic
Investment or Telephone Investment may be delayed up to 15 days
or until (i) the purchase check or Automatic Investment or
Telephone Investment has been honored or (ii) the Agent has
received assurances by telephone or in writing from the Financial
Institution on which the purchase check was drawn, or from which
the funds for Automatic Investment or Telephone Investment were
transferred, satisfactory to the Agent and the Trust, that the
purchase check or Automatic Investment or Telephone Investment
will be honored. Possible delays in payment of redemption
proceeds can be eliminated by using wire payments or Federal
Reserve drafts to pay for purchases.
If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Trust to
make payment wholly or partly in cash, the Trust may pay the
redemption price in whole or in part by the distribution in kind
of securities from the portfolio of the Trust, in lieu of cash,
in conformity with applicable rules of the Securities and
Exchange Commission. (See the Additional Statement for
details.)
The Trust has the right to compel the redemption of shares
held in any account if the aggregate net asset value of such
shares is less than $500 as a result of shareholder redemptions
or failure to meet the minimum investment level under an
Automatic Purchase Program. If the Board elects to do this,
shareholders who are affected will receive prior written notice
and will be permitted 60 days to bring their accounts up to the
minimum before this redemption is processed.
Reinvestment Privilege
You may reinvest without payment of any additional sales
charge all or part of any redemption proceeds within 120 days of
a redemption of shares in shares of the Trust of the same class
as the shares redeemed at the net asset value next determined
after the Agent receives your reinvestment order. In the case of
Class C Shares or CDSC Class A Shares on which a contingent
deferred sales charge was deducted at the time of redemption, the
Distributor will refund to you the amount of such sales charge,
which will be added to the amount of the reinvestment. The Class
C Shares or CDSC Class A Shares issued on reinvestment will be
deemed to have been outstanding from the date of your original
purchase of the redeemed shares, less the period from redemption
to reinvestment. The reinvestment privilege for any class may be
exercised only once a year, unless otherwise approved by the
Distributor. If you have realized a gain on the redemption of
your shares, the redemption transaction is taxable, and
reinvestment will not alter any capital gains tax payable. If
there has been a loss on the redemption, some or all of the loss
may be tax deductible, depending on the amount reinvested and the
length of time between the redemption and the reinvestment. You
should consult your own tax advisor on this matter.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own or
purchase Class A Shares of the Trust having a net asset value of
at least $5,000. The Automatic Withdrawal Plan is not available
for Class C Shares.
Under an Automatic Withdrawal Plan you will receive a
monthly or quarterly check in a stated amount, not less than $50.
If such a plan is established, all dividends and distributions
must be reinvested in your shareholder account. Redemption of
Class A Shares to make payments under the Automatic Withdrawal
Plan will give rise to a gain or loss for tax purposes. (See the
Automatic Withdrawal Plan provisions of the Application included
in the Prospectus, the Additional Statement under "Automatic
Withdrawal Plan," and "Dividend and Tax Information" below.)
Purchases of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when
purchases are made. Accordingly, you may not maintain an
Automatic Withdrawal Plan while simultaneously making regular
purchases. While an occasional lump sum investment may be made,
such investment should normally be an amount at least equal to
three times the annual withdrawal or $5,000, whichever is less.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Trust are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Trust's Trustees and officers and provides
further information about them.
The Advisory Agreement
Pacific Century Trust, a division of Bank of Hawaii, (the
"Adviser") supervises the investment program of the Trust and the
composition of its portfolio.
The services of the Adviser are rendered under an Investment
Advisory Agreement (the "Advisory Agreement") which provides,
subject to the control of the Board of Trustees, for investment
supervision and for either keeping the accounting records of the
Trust, including the computation of the net asset value per share
and the dividends, or, at the Adviser's expense and
responsibility, delegating these accounting duties in whole or in
part to a company satisfactory to the Trust. The Advisory
Agreement states that the Adviser shall, at its expense, provide
to the Trust all office space and facilities, equipment and
clerical personnel necessary for the carrying out of the
Adviser's duties under the Advisory Agreement.
Under the Advisory Agreement, the Adviser pays all
compensation of those officers and employees of the Trust and of
those Trustees, if any, who are affiliated with the Adviser,
provided that if a Trustee is an affiliate of the Adviser solely
by reason of being a member of its Board of Directors, the Trust
may pay compensation to such Trustee, but at a rate no greater
than the rate it pays to its other Trustees. Under the Advisory
Agreement, the Trust bears the cost of preparing and setting in
type its prospectuses, statements of additional information, and
reports to its shareholders and the costs of printing or
otherwise producing and distributing those copies of such
prospectuses, statements of additional information and reports as
are sent to its shareholders. Under the Advisory Agreement, all
costs and expenses not expressly assumed by the Adviser or by the
Administrator under the Administration Agreement or by the
Trust's Distributor (principal underwriter) are paid by the
Trust. The Advisory Agreement lists examples of such expenses
borne by the Trust, the major categories of such expenses being:
legal and audit expenses, custodian and transfer agent, or
shareholder servicing agent fees and expenses, stock issuance and
redemption costs, certain printing costs, registration costs of
the Trust and its shares under Federal and State securities laws,
interest, taxes and brokerage commissions, and non-recurring
expenses, including litigation.
Under the Advisory Agreement, the Trust pays a fee payable
monthly and computed on the net asset value of the Trust as of
the close of business each business day at the annual rate of
0.19 of 1% of such net asset value, provided, however, that for
any day that the Trust pays or accrues a fee under the
Distribution Plan of the Trust based upon the assets of the
Trust, the annual investment advisory fee shall be payable at the
annual rate of 0.14 of 1% of such net asset value. Such fees
under the Plan commenced July 1, 1992 and since that date the
Trust's investment advisory fee has been payable at the annual
rate of 0.14 of 1% of such net asset value.
The Adviser agrees that the above fee shall be reduced, but
not below zero, by an amount equal to its pro-rata portion (based
upon the aggregate fees of the Adviser and the Administrator) of
the amount, if any, by which the total expenses of the Trust in
any fiscal year, exclusive of taxes, interest and brokerage fees,
shall exceed the lesser of (i) 2.5% of the first $30 million of
average annual net assets of the Trust plus 2% of the next $70
million of such assets and 1.5% of its average annual net assets
in excess of $100 million, or (ii) 25% of the Trust's total
annual investment income.
The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Trust; see the
Additional Statement. Under these provisions the Adviser, in
making such allocation, is authorized to consider sales of the
Trust's shares and sales of shares of certain other investment
companies (see "Exchange Privilege" below).
The Administration Agreement
Under an Administration Agreement (the "Administration
Agreement"), Aquila Management Corporation as Administrator, at
its own expense, provides office space, personnel, facilities and
equipment for the performance of its functions thereunder and as
is necessary in connection with the maintenance of the
headquarters of the Trust and pays all compensation of the
Trust's Trustees, officers and employees who are affiliated
persons of the Administrator.
Under the Administration Agreement, subject to the control
of the Trust's Board of Trustees, the Administrator provides all
administrative services to the Trust other than those relating to
its investment portfolio and the maintenance of its accounting
books and records. Such administrative services include, but are
not limited to, maintaining books and records (other than
accounting books and records) of the Trust, and overseeing all
relationships between the Trust and its transfer agent,
custodian, legal counsel, auditors and principal underwriter,
including the negotiation of agreements in relation thereto, the
supervision and coordination of the performance of such
agreements, and the overseeing of all administrative matters
which are necessary or desirable for effective operation of the
Trust and for the sale, servicing, or redemption of the Trust's
shares. See the Additional Statement for a further description of
functions listed in the Administration Agreement as part of such
duties.
Under the Administration Agreement, the Trust pays the
Administrator, and the Administrator accepts as full compensation
for all services rendered thereunder, a fee payable monthly and
computed on the net asset value of the Trust at the end of each
business day at the annual rate of 0.36 of 1% of such net asset
value, provided, however, that for any day that the Trust pays or
accrues a fee under the Distribution Plan of the Trust based upon
the assets of the Trust, the annual administration fee will be
payable at the annual rate of 0.26 of 1% of such net asset value.
Such fees under the Distribution Plan commenced July 1, 1992 and
since that date the Trust's administration fee is payable at the
rate of 0.26 of 1% of such net asset value. The Administrator
agrees that the above fee shall be reduced, but not below zero,
by an amount equal to its pro-rata portion (based upon the
aggregate fees of the Adviser and the Administrator) of the
amount, if any, by which the total expenses of the Trust in any
fiscal year, exclusive of taxes, interest and brokerage fees,
exceed the lesser of (i) 2.5% of the first $30 million of average
annual net assets of the Trust plus 2% of the next $70 million of
such assets and 1.5% of its average annual net assets in excess
of $100 million, or (ii) 25% of the Trust's total annual
investment income.
Information about the Adviser,the Administrator and the
Distributor
As of March 31, 1998 the Adviser had over $12 billion of
clients' assets under administration. The Adviser is a division
of Bank of Hawaii, all of whose shares are owned by Pacific
Century Financial Corp. ("PCF") and Bank of Hawaii's directors
(each of whom owns qualifying shares as required by Hawaii law).
PCF is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended, and its common stock is
registered under the Securities Exchange Act of 1934 and is
listed and traded on the New York Stock Exchange. PCF files
annual and periodic reports with the Securities and Exchange
Commission which are available for public inspection. (See the
Additional Statement as to the legality, under the Federal
banking laws, of the Adviser's acting as the Trust's investment
adviser.)
Ms. Lorene Okimoto has been the Trust's portfolio manager
since December, 1991. She has been employed by the Adviser as a
portfolio manager since 1989, and has been a Vice President of
the Adviser since 1993. She was employed by the Bank of Hawaii
from 1979 to 1984 and by Bank of Hawaii International Corporation
from 1984 to 1988. Ms. Okimoto holds a B.A. degree from the
University of Hawaii.
The Trust's Administrator is founder and administrator to
the Aquilasm Group of Funds, which consists of tax-free municipal
bond funds, money market funds and two equity funds. As of June
30, 1998, these funds had aggregate assets of approximately $2.8
billion, of which approximately $1.9 billion consisted of assets
of the tax-free municipal bond funds. The Administrator, which
was founded in 1984, is controlled by Mr. Lacy B. Herrmann,
directly, through a trust and through share ownership by his
wife. (See the Additional Statement for information on Mr.
Herrmann.)
For the Trust's fiscal year ended March 31, 1998 fees of
$921,605 and $1,711,563, respectively, were paid and/or accrued
to the Adviser and to the Administrator under the Advisory
Agreement and the Administration Agreement.
The Distributor currently handles the distribution of shares
of fourteen funds (seven tax-free municipal bond funds, five
money market funds and two equity funds) including the Trust.
Under the Distribution Agreement, the Distributor is responsible
for the payment of certain printing and distribution costs
relating to prospectuses and reports as well as the costs of
supplemental sales literature, advertising and other promotional
activities.
At the date of this Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which
are currently owned 75% by Mr. Herrmann and 25% by Diana P.
Herrmann, will be owned by certain directors and/or officers of
the Administrator and/or the Distributor, including Mr. Herrmann
and Ms. Herrmann.
The Adviser, the Administrator and the Distributor have
entered into non-binding principles of cooperation, with the
approval of the Board of Trustees, relating to various matters
including suggestion of nominees to the Board of Trustees. In
addition, the Trust has entered into separate agreements with the
Adviser, the Administrator and the Distributor under which the
service providers have respectively agreed not to serve in the
same capacities for any mutual fund with the same objectives as
the Trust under the circumstances described in these agreements.
See the Additional Statement.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Trust will declare all of its net income, as defined
below, as dividends on every day, including weekends and
holidays, on those shares outstanding for which payment was
received by the close of business on the preceding business day.
Net income for dividend purposes includes all interest income
accrued by the Trust since the previous dividend declaration,
including accretion of any original issue discount, less expenses
paid or accrued. As such net income will vary, the Trust's
dividends will also vary. The per-share dividends of Class C
Shares will be lower than the per share dividends on the Class A
Shares as a result of the higher service and distribution fees
applicable to those shares. In addition, the dividends of each
class can vary because each class will bear certain
class-specific charges. Dividends and other distributions paid by
the Trust with respect to each class of its shares are calculated
at the same time and in the same manner.
It is the Trust's present policy to pay dividends so that
they will be received or credited by approximately the first day
of each month. On the Application or by completing a Ready Access
Features Form, you may elect to have dividends deposited without
charge by electronic funds transfers into your account at a
Financial Institution if it is a member of the Automated Clearing
House.
Redeemed shares continue to earn dividends through and
including the earlier of (i) the day before the day on which the
redemption proceeds are mailed, wired or transferred by the
facilities of the Automated Clearing House by the Agent or paid
by the Agent to a selected dealer; or (ii) the third day on which
the New York Stock Exchange is open after the day on which the
net asset value of the redeemed shares has been determined. (See
"How To Redeem Your Investment.")
Net investment income includes amounts of income from the
Hawaiian Obligations in the Trust's portfolio which are allocated
as "exempt-interest dividends." "Exempt-interest dividends" are
exempt from regular Federal income tax. The allocation of
"exempt-interest dividends" will be made by the use of one
designated percentage applied uniformly to all income dividends
declared during the Trust's tax year. Such designation will
normally be made in the first month after the end of each of the
Trust's fiscal years as to income dividends paid in the prior
year. It is possible that in certain circumstances, a small
portion of the dividends paid by the Trust will be subject to
income taxes. During the Trust's fiscal year ended March 31,
1998, all of the Trust's dividends were "exempt-interest
dividends." For the calendar year 1997, 2.01% of the total
dividends paid were taxable. The percentage of income designated
as tax-exempt for any particular dividend may be different from
the percentage of the Trust's income that was tax-exempt during
the period covered by the dividend.
Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions ("long-term
gains distributions"), if any, from the excess of net long-term
capital gains over net short-term capital losses realized through
October 31st of each year and not previously paid out will be
paid out after that date; the Trust may also pay supplemental
distributions after the end of its fiscal year. If net capital
losses are realized in any year, they are charged against capital
and not against net investment income which is distributed
regardless of gains or losses. The Trust may be required to
impose backup withholding at a rate of 31% upon payment of
redemptions to shareholders, and from short- and long-term gains
distributions (if any) and any other distributions that do not
qualify as "exempt-interest dividends," if shareholders do not
comply with provisions of the law relating to the furnishing of
taxpayer identification numbers and reporting of dividends.
Unless you request otherwise by letter addressed to the
Agent or by filing an appropriate Application prior to a given
ex-dividend date, dividends and distributions will be
automatically reinvested in full and fractional shares of the
Trust at net asset value on the record date for the dividend or
distribution or other date fixed by the Board of Trustees. An
election to receive cash will continue in effect until written
notification of a change is received by the Agent. All
shareholders, whether their dividends are received in cash or are
being reinvested, will receive a monthly account summary
indicating the current status of their investment. There is no
fixed dividend rate. Corporate shareholders of the Trust are not
entitled to any deduction for dividends received from the Trust.
Tax Information
The following is a brief description of certain federal and
State of Hawaii income tax considerations with respect to the
Trust and investment therein. There can be no assurance that such
considerations will not be altered by future changes in the law
or administrative interpretations. In addition you may be subject
to local taxes or to tax in a state other than Hawaii. These
taxes are not described herein and may differ from the taxes
imposed under federal and Hawaii law.
The Trust qualified during its last fiscal year as a
"regulated investment company" under the Code, and intends to
continue to so qualify. If it does so qualify, it will not be
liable for Federal income taxes on amounts paid by it as
dividends and distributions. However, the Code contains a number
of complex tests relating to such qualification and it is
possible although not likely that the Trust might not meet one or
more of these tests in any particular year. If it does not so
qualify, it would be treated for tax purposes as an ordinary
corporation, would receive no tax deduction for payments made to
shareholders and would be unable to pay dividends or
distributions which would qualify as "exempt-interest dividends"
or "capital gains dividends," as discussed below.
The Trust intends to qualify during each fiscal year under
the Code to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net income
earned by the Trust on Hawaiian Obligations will be excludable
from gross income of the shareholders for regular Federal income
tax purposes. Capital gains dividends are not included in
exempt-interest dividends. Although "exempt-interest dividends"
are not taxed, each taxpayer must report the total amount of
tax-exempt interest (including exempt-interest dividends from the
Trust) received or acquired during the year.
The Code requires that either gains realized by the Trust
on the sale of municipal obligations acquired after April 30,
1993 at a price which is less than face or redemption value be
included as ordinary income to the extent such gains do not
exceed such discount or that the discount be amortized and
included ratably in taxable income. There is an exception to the
foregoing treatment if the amount of the discount is less than
0.25% of face or redemption value multiplied by the number of
years from acquisition to maturity. The Trust will report such
ordinary income in the years of sale or redemption rather than
amortize the discount and report it ratably. To the extent the
resultant ordinary taxable income is distributed to shareholders,
it will be taxable to them as ordinary income.
Capital gains dividends (net long-term gains over net
short-term losses which the Trust distributes and so designates)
are reportable by shareholders as gain from the sale or exchange
of a capital asset held for more than one year. This is the case
whether the shareholder takes the distribution in cash or elects
to have the distribution reinvested in Trust shares and
regardless of the length of time the shareholder has held his or
her shares.
Short-term gains, when distributed, are taxed to
shareholders as ordinary income. Capital losses of the Trust are
not distributed but carried forward by the Trust to offset gains
in later years and thereby lessen the later-year capital gains
dividends and amounts taxed to shareholders.
The Trust's gains or losses on sales of Obligations will
be long-term or short-term depending upon the length of time the
Trust has held such Obligations. Capital gains and losses of the
Trust will also include gains and losses on Futures and options ,
if any, including gains and losses actually realized on sales and
exchanges and gains and losses deemed to be realized. Those
deemed to be realized are on Futures and options held by the
Trust at year-end, which are "marked to the market," that is,
deemed sold for fair market value. Net gains or losses realized
and deemed realized on Futures and options will be reportable by
the Trust as long-term to the extent of 60% of the gains or
losses and short-term to the extent of 40% regardless of the
actual holding period of such investments.
Information as to the tax status of the Trust's dividends
and distributions will be mailed to shareholders annually.
Under the Code, interest on loans incurred by shareholders
to enable them to purchase or carry shares of the Trust may not
be deducted for regular Federal tax purposes. In addition, under
rules used by the Internal Revenue Service for determining when
borrowed funds are deemed used for the purpose of purchasing or
carrying particular assets, the purchase of shares of the Trust
may be considered to have been made with borrowed funds even
though the borrowed funds are not directly traceable to the
purchase of shares. The receipt of exempt-interest dividends from
the Trust by an individual shareholder may result in some portion
of any social security payments or railroad retirement benefits
received by the shareholder or the shareholder's spouse being
included in taxable income.
Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds
or private activity bonds should consult their own tax advisers
before purchasing shares.
While interest from all Hawaiian Obligations is tax-exempt
for purposes of computing the shareholder's regular tax, interest
from so-called private activity bonds issued after August 7,
1986, constitutes a tax preference for both individuals and
corporations and thus will enter into a computation of the
alternative minimum tax. Whether or not that computation will
result in a tax will depend on the entire content of the
taxpayer's return. The Trust will not invest in the types of
Hawaiian Obligations which would give rise to interest that would
be subject to alternative minimum taxation if more than 20% of
its net assets would be so invested, and may refrain from
investing in that type of bond completely. The 20% limit is a
fundamental policy of the Trust.
Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current
earnings, this adjustment will tend to make it more likely that
corporate shareholders will be subject to the alternative minimum
tax.
Tax Effects of Redemptions
Normally, when you redeem shares of the Trust you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid for
the shares. If you are required to pay a contingent deferred sales
charge at the time of redemption, the amount of that charge will
reduce the amount of your gain or increase the amount of your loss
as the case may be. Congress has passed legislation, which is
expected to become law, which provides that for redemptions
effected on or after January 1, 1998, your gain or loss will be
long-term if you held the redeemed shares for over one year and
short-term, if for a year or less. Long term capital gains are
currently taxed at a maximum rate of 20% and short-term gains are
currently taxed at ordinary income tax rates. However, if shares
held for six months or less are redeemed and you have a loss, two
special rules apply: the loss is reduced by the amount of
exempt-interest dividends, if any, which you received on the
redeemed shares, and any loss over and above the amount of such
exempt-interest dividends is treated as a long-term loss to the
extent you have received capital gains dividends on the redeemed
shares.
Tax Effect of Conversion
Class C Shares will automatically convert to Class A Shares
approximately six years after purchase. No gain or loss will be
recognized by the Trust or its shareholders upon such conversions;
each shareholder's adjusted tax basis in the Class A Shares
received upon conversion will equal the shareholder's adjusted tax
basis in the Class C Shares held immediately before the conversion;
and each shareholder's holding period for the Class A Shares
received upon conversion will include the period for which the
shareholder held as capital assets the converted Class C Shares
immediately before conversion.
Hawaiian Tax Information
The Trust, and dividends and distributions made by the Trust
to Hawaii residents, will generally be treated for Hawaii income
tax purposes in the same manner as they are treated under the Code
for Federal income tax purposes. Under Hawaiian law, however,
interest derived from obligations of states (and their political
subdivisions) other than Hawaii will not be exempt from Hawaiian
income taxation. (Interest derived from bonds or obligations issued
by or under the authority of the following is exempt from Hawaiian
income taxation: Guam, Northern Mariana Islands, Puerto Rico, and
the Virgin Islands.)
Interest on Hawaiian Obligations, tax-exempt obligations of
states other than Hawaii and their political subdivisions, and
obligations of the United States or its possessions is not exempt
from the Hawaii Franchise Tax. This tax applies to banks, building
and loan associations, financial services loan companies, financial
corporations, and small business investment companies.
Persons or entities who are not Hawaii residents should not be
subject to Hawaiian income taxation on dividends and distributions
made by the Trust but may be subject to other state and local
taxes.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among
this Trust and certain tax-free municipal bond funds and two equity
funds (together with the Trust, the "Bond or Equity Funds") and
certain money market funds (the "Money-Market Funds"), all of which
are sponsored by Aquila Management Corporation and Aquila
Distributors, Inc., and have the same Manager or Administrator and
Distributor as the Trust. All exchanges are subject to certain
conditions described below. As of the date of the Prospectus, the
Aquila-sponsored Bond or Equity Funds are this Trust, Aquila Rocky
Mountain Equity Fund, Aquila Cascadia Equity Fund, Tax-Free Trust
of Arizona, Tax-Free Trust of Oregon, Tax-Free Fund of Colorado,
Churchill Tax-Free Fund of Kentucky, Tax-Free Fund For Utah and
Narragansett Insured Tax-Free Income Fund; the Aquila Money-Market
Funds are Capital Cash Management Trust, Pacific Capital Cash
Assets Trust (Original Shares), Pacific Capital Tax-Free Cash
Assets Trust (Original Shares), Pacific Capital U.S. Government
Securities Cash Assets Trust (Original Shares) and Churchill Cash
Reserves Trust.
Generally, you can exchange shares of a given class of a
Bond or Equity Funds including the Trust for shares of the same
class of any other Bond or Equity Fund, or for shares of any Money
Market Fund, without the payment of a sales charge or any other
fee, and there is no limit on the number of exchanges you can make
from fund to fund. However, the following important information
should be noted:
(1) CDSCs Upon Redemptions of Shares Acquired Through
Exchanges. If you exchange shares subject to a CDSC, no CDSC will
be imposed at the time of exchange, but the shares you receive in
exchange for them will be subject to the applicable CDSC if you
redeem them before the requisite holding period (extended, if
required) has expired.
If the shares you redeem would have incurred a CDSC if you
had not made any exchanges, then the same CDSC will be imposed upon
the redemption regardless of the exchanges that have taken place
since the original purchase.
(2) Extension of Holding Periods by Owning Money-Market
Funds. Any period of 30 days or more during which Money-Market Fund
shares received on an exchange of CDSC Class A Shares or Class C
Shares are held is not counted in computing the applicable holding
period for CDSC Class A Shares or Class C Shares.
(3) Originally Purchased Money-Market Fund Shares. Shares
of a Money-Market Fund (and any shares acquired as a result of
reinvestment of dividends and/or distributions on these shares)
acquired directly in a purchase (or in exchange for Money-Market
Fund shares that were themselves directly purchased), rather than
in exchange for shares of a Bond or Equity Fund, may be exchanged
for shares of any class of any Bond or Equity Fund that the
investor is otherwise qualified to purchase, but the shares
received in such an exchange will be subject to the same sales
charge, if any, that they would have been subject to had they been
purchased rather than acquired in exchange for Money-Market Fund
shares. If the shares received in exchange are shares that would be
subject to a CDSC if purchased directly, the holding period
governing the CDSC will run from the date of the exchange, not from
the date of the purchase of Money Market shares.
This Trust, as well as the Money-Market Funds and other Bond
or Equity Funds, reserves the right to reject any exchange into its
shares, if shares of the fund into which exchange is desired are
not available for sale in your state of residence. The Trust may
also modify or terminate this exchange privilege at any time. In
the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take effect
on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset value
of the shares surrendered for exchange are at least equal to the
minimum investment requirements of the investment company whose
shares are being acquired and (iii) the ownership of the accounts
from which and to which the exchange is made are identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-228-4228 toll free
Note: The Trust, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
Exchanges will be effected at the relative exchange prices
of the shares being exchanged next determined after receipt by the
Agent of your exchange request. The exchange prices will be the
respective net asset values of the shares, unless a sales charge is
to be deducted in connection with an exchange of shares, in which
case the exchange price of shares of a Bond or Equity Fund will be
their public offering price. Prices for exchanges are determined in
the same manner as for purchases of the Trust's shares. (See "How
to Invest in the Trust.")
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the realization
of a capital gain or loss, depending on the cost or other tax basis
of the shares exchanged and the holding period (see "Tax Effects of
Redemptions" and the Additional Statement); no representation is
made as to the deductibility of any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable,
except to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free money-market
fund) are exempt from regular Federal income tax, and to the extent
that a portion or all of the dividends paid by Pacific Capital U.S.
Government Securities Cash Assets Trust (which invests in U.S.
Government obligations) are exempt from state income taxes.
Dividends paid by Aquila Rocky Mountain Equity Fund and Aquila
Cascadia Equity Fund are taxable. If your state of residence is not
the same as that of the issuers of obligations in which a tax-free
municipal bond fund or a tax-free money-market fund invests, the
dividends from that fund may be subject to income tax of the state
in which you reside. Accordingly, you should consult your tax
adviser before acquiring shares of such a bond fund or a tax-free
money-market fund under the exchange privilege arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
GENERAL INFORMATION
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Trust's
performance including current yield, taxable equivalent yield,
various expressions of total return, current distribution rate and
taxable equivalent distribution rate.
Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase,
invested at the maximum public offering price (offering price
includes any applicable sales charge) for 1-, 5- and 10-year
periods and for a period since the inception of the Trust, to the
extent applicable, through the end of such periods, assuming
reinvestment (without sales charge) of all distributions. The Trust
may also furnish total return quotations for other periods or based
on investments at various applicable sales charge levels or at net
asset value. For such purposes total return equals the total of all
income and capital gains paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in
the value of the original investment, expressed as a percentage of
the purchase price. (See the Additional Statement.)
Current yield reflects the income per share earned by each
of the Trust's portfolio investments; it is calculated by (i)
dividing the Trust's net investment income per share during a
recent 30-day period by (ii) the maximum public offering price on
the last day of that period and by (iii) annualizing the result.
Taxable equivalent yield shows the yield from a taxable investment
that would be required to produce an after-tax yield equivalent to
that of the Trust, which invests in tax-exempt obligations. It is
computed by dividing the tax-exempt portion of the Trust's yield
(calculated as indicated) by one minus a stated income tax rate and
by adding the product to the taxable portion (if any) of the
Trust's yield. (See the Additional Statement.)
Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities and
Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will be
paid to the Trust's shareholders. Dividends or distributions paid
to shareholders are reflected in the current distribution rate or
taxable equivalent distribution rate which may be quoted to
shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the Trust
during a recent 30-day period by (ii) the current maximum offering
price and by (iii) annualizing the result. A taxable equivalent
distribution rate shows the taxable distribution rate that would be
required to produce an after-tax distribution rate equivalent to
the Trust's distribution rate (calculated as indicated above). The
current distribution rate differs from the current yield
computation because it could include distributions to shareholders
from sources, if any, other than dividends and interest, such as
short-term capital gains or return of capital. If distribution
rates are quoted in advertising, they will be accompanied by
calculations of current yield in accordance with the formula of the
Securities and Exchange Commission.
In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
the Trust's income net of fee waivers and reimbursement of
expenses, if any, and will assume the payment of the maximum sales
charge, if any, on the purchase of shares, but not on reinvestment
of income dividends. The investment results of the Trust, like all
other investment companies, will fluctuate over time; thus,
performance figures should not be considered to represent what an
investment may earn in the future or what the Trust's yield, tax
equivalent yield, distribution rate, taxable equivalent
distribution rate or total return may be in any future period. The
annual report of the Trust contains additional performance
information that will be made available upon request and without
charge.
Description of the Trust and Its Shares
The Trust is an open-end, non-diversified management
investment company organized in 1984 as a Massachusetts business
trust. (See "Investment of the Trust's Assets" for further
information about the Trust's status as "non-diversified.") The
Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares and to divide or combine the
shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the Trust. Each
share represents an equal proportionate interest in the Trust with
each other share of its class; shares of the respective classes
represent proportionate interests in the Trust in accordance with
their respective net asset values. Upon liquidation of the Trust,
shareholders are entitled to share pro-rata in the net assets of
the Trust available for distribution to shareholders, in accordance
with the respective net asset values of the shares of each of the
Trust's classes at that time. All shares are presently divided into
four classes; however, if they deem it advisable and in the best
interests of shareholders, the Board of Trustees of the Trust may
create additional classes of shares, which may differ from each
other as provided in rules and regulations of the Securities and
Exchange Commission or by exemptive order. The Board of Trustees
may, at its own discretion, create additional series of shares,
each of which may have separate assets and liabilities (in which
case any such series will have a designation including the word
"Series"). (See the Additional Statement for further information
about possible additional series.) Shares are fully paid and
non-assessable, except as set forth under the caption "General
Information" in the Additional Statement; the holders of shares
have no pre-emptive or conversion rights, except that Class C
Shares automatically convert to Class A Shares after being held for
six years.
In addition to Class A Shares and Class C Shares, which are
offered by this Prospectus, the Trust also has (i) Institutional
Class Shares ("Class Y Shares"), which are offered only to
institutions acting for investors in a fiduciary, advisory, agency,
custodial or similar capacity and are not offered directly to
retail customers and (ii) Financial Intermediary Class Shares
("Class I Shares"), which are offered and sold only through certain
financial intermediaries. Class Y Shares and Class I Shares are
offered by a separate prospectus, which can be obtained by calling
the Trust at 800-228-4227.
The Trust's four classes of shares differ in their
different sales charge structures and ongoing expenses, which are
likely to be reflected in differing yields and other measures of
investment performance. All four classes represent interests in the
same portfolio of Hawaiian Obligations and have the same rights,
except that each class bears the separate expenses, if any, of its
participation in the Distribution Plan and Shareholder Services
Plan and has exclusive voting rights with respect to such
participation.
The Year 2000
Like other financial and business organizations, the Trust
could be adversely affected if computer systems the Trust relies on
do not properly process date-related information and data involving
the year 2000 and after. The Administrator is taking steps that it
believes are reasonable to address this problem in its own computer
systems and to obtain assurances that steps are being taken by the
other major service providers to the Trust to achieve comparable
results. The three mission critical vendors -- the shareholder
servicing agent, the custodian and the fund accounting agent -- as
well as other support organizations have advised the Administrator
that they are actively working on necessary changes. Certain
vendors have advised the Administrator that they are currently
compliant. The target date for compliance by the mission critical
vendors is late 1998. The Administrator has also requested the
Trust's portfolio manager to attempt to evaluate the potential
impact of this problem on the issuers of securities in which the
Trust invests. At this time there can be no assurance that the
target dates will be met or that these steps will be sufficient to
avoid any adverse impact on the Trust.
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders will
vote on the election of Trustees and on other matters submitted to
the vote of shareholders. Shares vote by classes on any matter
specifically affecting one or more classes, such as an amendment of
an applicable part of the Distribution Plan. No amendment may be
made to the Declaration of Trust without the affirmative vote of
the holders of a majority of the outstanding shares of the Trust,
except that the Trust's Board of Trustees may change the name of
the Trust. The Trust may be terminated (i) upon the sale of its
assets to another issuer, or (ii) upon liquidation and distribution
of the assets of the Trust, in either case if such action is
approved by the vote of the holders of a majority of the
outstanding shares of the Trust. If not so terminated, the Trust
will continue indefinitely.
<PAGE>
APPLICATION FOR HAWAIIAN TAX-FREE TRUST
FOR CLASS A OR CLASS C SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
PFPC Inc.
400 Bellevue Parkway, Wilmington, DE 19809
Tel.# 1-800-228-4228
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minor's Social Security Number
4. ____________________________________________________
____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s)
of Trustees in which account will be registered and the name and date
of the Trust Instrument. Account for a Pension or Profit Sharing Plan
or Trust may be registered in the name of the Plan or Trust itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:________________________
Employer's Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you
are a non-U.S. Citizen or resident and not subject to back-up
withholding (See certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
Indicate method of payment (For either method, make check
payment to: HAWAIIAN TAX-FREE TRUST)
Indicate class of shares:
__ Class A Shares (Front-Payment Class)
__ Class C Shares (Level-Payment Class)
IF NO SHARE CLASS IS MARKED, INVESTMENT WILL AUTOMATICALLY BE MADE
IN CLASS A SHARES.
__ Initial Investment $_________ (Minimum $1,000)
__ Automatic Investment $________ (Minimum $50)
For Automatic Investments of at least $50 per month, you must
complete Step 3, Section A, Step 4, Sections A & B and ATTACH A
PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK.
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be:___ Reinvested ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK showing
the Financial Institution account where I/we would like you to
deposit the dividend. (A Financial Institution is a commercial
bank, savings bank or credit union.)
___ Mail check to my/our address listed in Step 1B.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested
in your Hawaiian Tax-Free Trust Account. To establish this program,
please complete Step 4, Sections A & B of this Application.
I/We wish to make regular monthly investments of $ _________________
(minimum $50) on the ___ 1st day or ___ 16th day of the month (or
on the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to add to your
account (minimum $50 and maximum $50,000) at any time you wish by
simply calling the Trust toll-free at 1-800-228-4228. To establish
this program, please complete Step 4, Sections A & B of this
Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. LETTER OF INTENT
APPLICABLE TO CLASS A SHARES ONLY.
See Terms of Letter of Intent and Escrow at the end of this application
___ Yes ___ No
I/We intend to invest in Class A Shares of the Trust during the
13-month period from the date of my/our first purchase pursuant
to this Letter (which purchase cannot be more than 90 days prior
to the date of this Letter), an aggregate amount (excluding any
reinvestment of dividends or distributions) of at least $25,000
which, together with my/our present holdings of Trust shares (at
public offering price on date of this Letter), will equal or exceed
the minimum amount checked below:
___ $25,000 ___ $50,000 ___ $100,000 ___ $250,000
___ $500,000
D. AUTOMATIC WITHDRAWAL PLAN
(Minimum investment $5,000)
APPLICABLE TO CLASS A SHARES ONLY.
Application must be received in good order at least 2 weeks prior
to 1st actual liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions
set forth below. To realize the amount stated below, PFPC Inc. (the
"Agent") is authorized to redeem sufficient shares from this account
at the then current Net Asset Value, in accordance with the terms below:
Dollar Amount of each withdrawal $ ______________beginning________________ .
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is
payable to a Financial Institution for your account, indicate
Financial Institution name, address and your account number.
_______________________________ ______________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ______________________________________
Street Financial Institution Street Address
_______________________________ ______________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
E. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your
name within the Aquilasm Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
persons telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the
Prospectus. Except for gross negligence in acting upon such telephone
instructions to execute an exchange, and subject to the conditions set
forth herein, I/we understand and agree to hold harmless the Agent,
each of the Aquila Funds, and their respective officers, directors,
trustees, employees, agents and affiliates against any liability,
damage, expense, claim or loss, including reasonable costs and
attorneys fees, resulting from acceptance of, or acting or failure to
act upon, this Authorization.
F. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution
account listed.
Cash proceeds in any amount from the redemption of shares will
be mailed or wired, whenever possible, upon request, if in an amount
of $1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this
Trust account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________ ____________________________________
Account Registration Financial Institution Account Number
_______________________________ ____________________________________
Financial Institution Name Financial Institution Transit/Routing
Number
_______________________________ ____________________________________
Street City State Zip
STEP 4 Section A
DEPOSITORS AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT YOU MUST
ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to
my/our account any drafts or debits drawn on my/our account initiated
by the Agent, PFPC Inc. and to pay such sums in accordance therewith,
provided my/our account has sufficient funds to cover such drafts or
debits. I/We further agree that your treatment of such orders will be
the same as if I/we personally signed or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you
receive my/our written instructions to cancel this service. I/We also
agree that if any such drafts or debits are dishonored, for any reason,
you shall have no liabilities.
Financial Institution Account Number_______________________________________
Name and Address where my/our account is maintained
Name of Financial Institution______________________________________________
Street Address_____________________________________________________________
City___________________________________________State _________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account is
registered
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila
Distributors, Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted pursuant
to the above authorization shall be subject to the provisions of the
Operating Rules of the National Automated Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer in
connection with the execution and issuance of any electronic debit in
the normal course of business initiated by the Agent (except any loss
due to your payment of any amount drawn against insufficient or
uncollected funds), provided that you promptly notify us in writing of
any claim against you with respect to the same, and further provided
that you will not settle or pay or agree to settle or pay any such
claim without the written permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause, any
such electronic debit.
STEP 4 Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of
legal age to purchase shares of the Trust and has received and read
a current Prospectus of the Trust and agrees to its terms.
- - I/We authorize the Trust and its agents to act upon these
instructions for the features that have been checked.
- - I/We acknowledge that in connection with an Automatic Investment or
Telephone Investment, if my/our account at the Financial Institution
has insufficient funds, the Trust and its agents may cancel the purchase
transaction and are authorized to liquidate other shares or fractions
thereof held in my/our Trust account to make up any deficiency resulting
from any decline in the net asset value of shares so purchased and any
dividends paid on those shares. I/We authorize the Trust and its agents
to correct any transfer error by a debit or credit to my/our Financial
Institution account and/or Trust account and to charge the account for
any related charges. I/We acknowledge that shares purchased either
through Automatic Investment or Telephone Investment are subject to
applicable sales charges.
- - The Trust, the Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting upon
instructions believed to be genuine, and will not be responsible for
any losses resulting from unauthorized telephone transactions if the
Agent follows reasonable procedures designed to verify the identity
of the caller. The Agent will request some or all of the following
information: account name and number; name(s) and social security
number registered to the account and personal identification; the
Agent may also record calls. Shareholders should verify the accuracy
of confirmation statements immediately upon receipt. Under penalties
of perjury, the undersigned whose Social Security (Tax I.D.) Number
is shown above certifies (i) that Number is my correct taxpayer
identification number and (ii) currently I am not under IRS
notification that I am subject to backup withholding (line out (ii)
if under notification). If no such Number is shown, the undersigned
further certifies, under penalties of perjury, that either (a) no
such Number has been issued, and a Number has been or will soon be
applied for; if a Number is not provided to you within sixty days,
the undersigned understands that all payments (including liquidations)
are subject to 31% withholding under federal tax law, until a Number
is provided and the undersigned may be subject to a $50 I.R.S. penalty;
or (b) that the undersigned is not a citizen or resident of the U.S.;
and either does not expect to be in the U.S. for 183 days during each
calendar year and does not conduct a business in the U.S. which would
receive any gain from the Trust, or is exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW.
FOR A TRUST, ALL TRUSTEES MUST SIGN.*
__________________________ ____________________________ _________
Individual (or Custodian) Joint Registrant, if any Date
__________________________ ____________________________ _________
Corporate Officer, Partner, Title Date
Trustee, etc.
* For Trusts, Corporations or Associations, this form must be accompanied
by proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment, Expedited
Redemption and Direct Deposit of Dividends) are effective 15 days after
this form is received in good order by the Trust's Agent.
- - You may cancel any feature at any time, effective 3 days after the
Agent receives written notice from you.
- - Either the Trust or the Agent may cancel any feature, without prior
notice, if in its judgment your use of any feature involves unusual
effort or difficulty in the administration of your account.
- - The Trust reserves the right to alter, amend or terminate any or all
features or to charge a service fee upon 30 days written notice to
shareholders except if additional notice is specifically required by
the terms of the Prospectus.
BANKING INFORMATION
- - If your Financial Institution account changes, you must complete a
Ready Access Features Form which may be obtained from Aquila
Distributors at 1-800-228-4227 and send it to the Agent together with
a "voided" check or pre-printed deposit slip from the new account. The
new Financial Institution change is effective in 15 days after this
form is received in good order by the Trust's Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 2c and signing the Application, the investor is
entitled to make each purchase at the public offering price applicable
to a single transaction of the dollar amount checked above, and agrees
to be bound by the terms and conditions applicable to Letters of Intent
appearing below.
The investor is making no commitment to purchase shares, but if
the investor's purchases within thirteen months from the date of the
investor's first purchase do not aggregate $25,000, or, if such
purchases added to the investor's present holdings do not aggregate
the minimum amount specified above, the investor will pay the increased
amount of sales charge prescribed in the terms of escrow below.
The commission to the dealer or broker, if any, named herein shall
be at the rate applicable to the minimum amount of the investor's
specified intended purchases checked above. If the investor's actual
purchases do not reach this minimum amount, the commissions previously
paid to the dealer will be adjusted to the rate applicable to the
investor's total purchases. If the investor's purchases exceed the
dollar amount of the investor's intended purchases and pass the next
commission break-point, the investor shall receive the lower sales
charge, provided that the dealer returns to the Distributor the excess
of commissions previously allowed or paid to him over that which would
be applicable to the amount of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter of
Intent in placing any future purchase orders for the investor while
this Letter is in effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if necessary),
3% of the dollar amount specified in the Letter of Intent (computed
to the nearest full share) shall be held in escrow in shares of the
Trust by the Agent. All dividends and any capital distributions on the
escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is
completed within a thirteen-month period, the escrowed shares will be
promptly released to the investor. However, shares disposed of prior
to completion of the purchase requirement under the Letter will be
deducted from the amount required to complete the investment commitment.
3. If the total purchases pursuant to the Letter are less than the
amount specified in the Letter as the intended aggregate purchases,
the investor must remit to the Distributor an amount equal to the
difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total
amount purchased had been made at a single time. If such difference in
sales charges is not paid within twenty days after receipt of a
request from the Distributor or the dealer, the Distributor will,
within sixty days after the expiration of the Letter, redeem the number
of escrowed shares necessary to realize such difference in sales
charges. Full shares and any cash proceeds for a fractional share
remaining after such redemption will be released to the investor. The
escrow of shares will not be released until any additional sales charge
due has been paid as stated in this section.
4. By checking Box 3c and signing the Application, the investor
irrevocably constitutes and appoints the Agent or the Distributor as
his attorney to surrender for redemption any or all escrowed shares
on the books of the Trust.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees to
the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan")
as agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Trust purchased
for and held under the Plan, but the Agent will credit all such shares
to the Planholder on the records of the Trust. Any share certificates
now held by the Planholder may be surrendered unendorsed to the Agent
with the application so that the shares represented by the certificate
may be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the
Trust at Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments will
be made at the Net Asset Value per share in effect at the close of
business on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address
to which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written
notice (in proper form in accordance with the requirements of the then
current Prospectus of the Trust) to redeem all, or any part of, the
shares held under the Plan. In such case the Agent will redeem the
number of shares requested at the Net Asset Value per share in effect
in accordance with the Trust's usual redemption procedures and will
mail a check for the proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Trust. The Agent will also terminate the Plan upon
receipt of evidence satisfactory to it of the death or legal incapacity
of the Planholder. Upon termination of the Plan by the Agent or the
Trust, shares remaining unredeemed will be held in an uncertificated
account in the name of the Planholder, and the account will continue as
a dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder, his executor or guardian,
or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for
the Trust, the Planholder will be deemed to have appointed any successor
transfer agent to act as his agent in administering the Plan.
10. Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional lump sum
investment may be made, such investment should normally be an amount
equivalent to three times the annual withdrawal or $5,000, whichever
is less.
<PAGE>
INVESTMENT ADVISER
Pacific Century Trust
a division of
Bank of Hawaii
Financial Plaza of the Pacific
P.O. Box 3170
Honolulu, Hawaii 96802
ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Arthur K. Carlson
William M. Cole
Thomas W. Courtney
Richard W. Gushman, II
Stanley W. Hong
Theodore T. Mason
Russell K. Okata
Douglas Philpotts
Oswald K. Stender
OFFICERS
Lacy B. Herrmann, President
Sherri Foster, Senior Vice President
William C. Wallace, Senior Vice President
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
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights
Table of Expenses
Financial Highlights
Introduction
Investment Of The Trust's Assets
Investment Restrictions
Net Asset Value Per Share
Alternative Purchase Plans
How To Invest In The Trust
How To Redeem Your Investment
Automatic Withdrawal Plan
Management Arrangements
Dividend And Tax Information
Exchange Privilege
General Information
Application and Letter of Intent
HAWAIIAN
TAX-FREE TRUST
A TAX-FREE
INCOME INVESTMENT
[LOGO]
PROSPECTUS
[LOGO]
ONE OF THE
AQUILASM GROUP OF FUNDS
<PAGE>
Hawaiian Tax-Free Trust
380 Madison Avenue, Suite 2300
New York, New York 10017
800-228-4227
212-697-6666
Prospectus
Class Y Shares
Class I Shares July 21, 1998
The Trust is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Hawaiian
State and regular Federal income taxes as is consistent with
preservation of capital by investing primarily in obligations which
pay interest exempt from Hawaiian State and Federal income taxes.
These obligations must, at the time of purchase, either be rated
within the four highest credit ratings (considered as investment
grade) assigned by Moody's Investors Service, Inc. or Standard &
Poor's Corporation or, if unrated, be determined to be of
comparable quality by the Trust's investment adviser, Pacific
Century Trust.
This Prospectus concisely states information about the
Trust that you should know before investing. A Statement of
Additional Information about the Trust dated July 21, 1998, (the
"Additional Statement") has been filed with the Securities and
Exchange Commission and is available without charge upon written
request to the Trust's Shareholder Servicing Agent, at the address
given below, or by calling the telephone number(s) given below. The
Additional Statement contains information about the Trust and its
management not included in the Prospectus. The Additional Statement
is incorporated by reference in its entirety in the Prospectus.
Only when you have read both the Prospectus and the Additional
Statement are all material facts about the Trust available to
you.
SHARES OF THE TRUST ARE NOT DEPOSITS IN, OBLIGATIONS OF OR
GUARANTEED OR ENDORSED BY PACIFIC CENTURY TRUST (THE "ADVISER"),
BANK OF HAWAII, ITS BANK OR NON-BANK AFFILIATES OR BY ANY OTHER
BANK. SHARES OF THE TRUST ARE NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENTAL AGENCY OR GOVERNMENT SPONSORED AGENCY OF THE
FEDERAL GOVERNMENT OR ANY STATE.
AN INVESTMENT IN THE TRUST INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
For Purchase, Redemption or Account inquiries contact
The Trust's Shareholder Servicing Agent:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Call 800-228-4228 toll free
For General Inquiries & Yield Information,
Call 800-228-4227 toll free or 212-697-6666
This Prospectus Should Be Read and Retained For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
HIGHLIGHTS
Hawaiian Tax-Free Trust, founded by Aquila Management
Corporation in 1984 and one of the Aquilasm Group of Funds, is an
open-end mutual fund which invests primarily in tax-free municipal
bonds, the kind of obligations issued by the State of Hawaii, its
counties and various other local authorities to finance such
long-term projects as schools, roads, hospitals, housing and harbor
facilities throughout Hawaii. (See "Introduction.")
Tax-Free Income - The municipal obligations in which the Trust
invests pay interest which is exempt from both regular Federal and
State of Hawaii income taxes. Dividends paid by the Trust from this
income are likewise free of both such taxes. It is, however,
possible that in certain circumstances, a small portion of the
dividends paid by the Trust will be subject to income taxes. The
Federal alternative minimum tax may apply to some investors, but
its impact will be limited, since not more than 20% of the Trust's
net assets can be invested in obligations paying interest which is
subject to this tax. The receipt of exempt-interest dividends from
the Trust may result in some portion of social security payments or
railroad retirement benefits being included in taxable income.
Capital gains distributions, if any, are taxable. (See "Dividend
and Tax Information.")
Investment Grade - The Trust will acquire only those municipal
obligations which, at the time of purchase, are within the four
highest credit ratings assigned by Moody's Investors Service, Inc.
or Standard & Poor's Corporation, or are determined by the Adviser
to be of comparable quality. In general, there are nine separate
credit ratings, ranging from the highest to the lowest credit
ratings for municipal obligations. Obligations within the top four
ratings are considered "investment grade," but those in the fourth
rating may have speculative characteristics as well. (See
"Investment of the Trust's Assets.")
Alternative Purchase Plans - The Trust provides alternative
ways to invest. (See "How to Invest in the Trust.")For this purpose
the Trust offers classes of shares, which differ in their expense
levels and sales charges. This Prospectus offers:
Institutional Class Shares ("Class Y Shares")
are offered only to institutions acting for investors in
a fiduciary, advisory, agency, custodial or similar
capacity, and are not offered directly to retail
customers. Class Y Shares are offered at net asset value
with no sales charge, no redemption fee, no contingent
deferred sales charge and no distribution fee. (See "How
to Purchase Class Y Shares.")
Financial Intermediary Class Shares ("Class I
Shares") are offered and sold only through financial
intermediaries with which Aquila Distributors, Inc. (the
"Distributor") has entered into sales agreements, and
are not offered directly to retail customers. Class I
Shares are offered at net asset value with no sales
charge and no redemption fee or contingent deferred
sales charge, although a financial intermediary may
charge a fee for effecting a purchase or other
transaction on behalf of its customers. Class I Shares
may carry a distribution fee of up to 0.25 of 1% of
average annual net assets allocable to Class I Shares,
currently 0.10 of 1% of such net assets, and a service
fee of 0.25 of 1% of such assets. (See "How to Purchase
Class I Shares.")
The Trust's other classes of shares, Front-Payment Class
Shares ("Class A Shares") and Level-Payment Class Shares ("Class C
Shares"), are not offered by this Prospectus. (See "General
Information - Description of the Trust and Its Shares.")
At the date of the Prospectus, Class Y Shares and Class I
Shares are registered for sale only in certain states. (See "How to
Invest in the Trust.") If Class Y Shares or Class I Shares of the
Trust are sold outside those states, except to certain
institutional investors, the Trust can redeem them. If your state
of residence is not Hawaii, dividends from the Trust may be subject
to income taxes of the state in which you reside. Accordingly, you
should consult your tax adviser before acquiring shares of the
Trust.
Initial Investment - - You may open your account for Class
Y Shares with any purchase of $100,000 or more for fiduciary
accounts and $250,000 for all other eligible purchasers. These
minimums do not apply to shareholders with accounts open on July
31, 1998. (See the Application, which is in the back of the
Prospectus.) Class I Shares are sold only through financial
intermediaries, which may have their own minimum investment
requirement. (See "How to Invest in the Trust.")
Additional Investments - You may make additional investments
in Class Y Shares at any time and in any amount, directly or, if in
an amount of $50 or more, through the convenience of having your
investment electronically transferred from your financial
institution account into the Trust by Automatic Investment or
Telephone Investment. Additional investments in Class I Shares can
be made only through financial intermediaries, which may have their
own requirements for subsequent investments. (See "How to Invest in
the Trust.")
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends on Class Y Shares are paid by
check mailed to you, directly deposited into your financial
institution account or automatically reinvested without sales
charge in additional Class Y Shares at the then-current net asset
value. All arrangements for the payment of dividends with respect
to Class I Shares, including reinvestment of dividends, must be
made through financial intermediaries. (See "Dividend and Tax
Information.")
Many Different Issues - You have the advantages of a portfolio
which consists of over 260 separate issues with different
maturities. (See "Investment of the Trust's Assets.")
Local Portfolio Management - Pacific Century Trust, a
division of Bank of Hawaii, serves as the Trust's Investment
Adviser, providing experienced local professional management. It
administers approximately $12 billion in client assets, including
investment authority over $1 billion in Hawaiian municipal bonds.
The Trust pays monthly fees to its Adviser and to its Administrator
at an aggregate rate of 0.40% of average annual net assets. (See
"Table of Expenses" and "Management Arrangements.")
Redemptions - Liquidity - You may redeem any amount of your
Class Y Shares account on any business day at the next determined
net asset value by telephone, FAX or mail request, with proceeds
being sent to a predesignated financial institution, if you have
elected Expedited Redemption. Proceeds will be wired or transferred
through the facilities of the Automated Clearing House, wherever
possible, upon request, if in an amount of $1,000 or more, or will
be mailed. For these and other redemption procedures see "How to
Redeem Your Investment." All arrangements for redemptions of Class
I Shares must be made through financial intermediaries. The Trust
does not impose redemption fees for redemption of Class Y Shares or
Class I Shares. However, financial intermediaries may charge a fee
for effecting redemptions.
Certain Stabilizing Measures - The Trust will employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
declines in the value of its investments and other market risks.
(See "Certain Stabilizing Measures.")
Other Investments - The Trust may purchase certain taxable
short-term investments. Although it has no present intention of
doing so, the Trust may also, to a limited degree, buy and sell
futures contracts and options on futures contracts. (See
"Investment of the Trust's Assets.")
Exchanges - You may exchange Class Y Shares of the Trust
into Class Y Shares of other Aquila-sponsored tax-free municipal
bond funds or two Aquila-sponsored equity funds. You may also
exchange them into shares of the Aquila-sponsored money market
funds. Similar exchangability is available to Class I Shares to the
extent that other Aquila-sponsored funds are made available to its
customers by a financial intermediary. The exchange prices will be
the respective net asset values of the shares. (See "Exchange
Privilege.")
Risks and Special Considerations - The share price, determined
on each business day, varies with the market prices of the Trust's
portfolio securities, which fluctuate with market conditions,
including prevailing interest rates. Accordingly, the proceeds of
redemptions may be more or less than your original cost. (See
"Factors Which May Affect the Value of the Trust's Investments and
Their Yields.") The Trust's assets, being primarily or entirely
Hawaiian issues, are subject to economic and other conditions
affecting Hawaii. (See "Risk Factors and Special Considerations
Regarding Investment in Hawaiian Obligations.") Moreover, the Trust
is classified as a "non-diversified" investment company, because it
may choose to invest in the obligations of a relatively limited
number of issuers. (See "Investment of the Trust's Assets.") The
Trust may also, to a limited degree, buy and sell futures contracts
and options on futures contracts, although since inception the
Trust has not done so and has no present intention to do so. There
may be risks associated with these practices. (See "Certain
Stabilizing Measures.")
Statements and Reports - You will receive statements of
your Class Y Shares account monthly as well as each time you add to
your account or take money out. Financial intermediaries provide
their own statements of Class I Shares accounts. Additionally, you
will receive a Semi-Annual Report and an audited Annual Report.
<PAGE>
<TABLE>
<CAPTION>
HAWAIIAN TAX-FREE TRUST
TABLE OF EXPENSES
Class I Class Y
Shareholder Transaction Expenses Shares Shares
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases........ None None
(as a percentage of the offering price)
Maximum Sales Charge Imposed on Reinvested
Dividends............................................ None None
Deferred Sales Charge.................................None None
Redemption Fees.......................................None None
Exchange Fee..........................................None None
Annual Trust Operating Expenses (1)
(as a percentage of average net assets)
Investment Advisory Fee...............................0.14% 0.14%
12b-1 Fee (2) 0.10% None
All other expenses (3)................................0.64% 0.39%
Administration Fee...........................0.26% 0.26%
Service Fee..................................o.25% None
Other Expenses (3)...........................0.13% 0.13%
Total Trust Operating Expenses (3)....................0.88%. 0.53%
Example (4)
You would pay the following expenses on a $1,000 investment assuming a
5% annual return and redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class I Shares $9 $28 $49 $108
Class Y Shares $5 $17 $30 $66
<FN>
(1) Estimated based upon actual expenses incurred by the Trust's Class
Y Shares during its most recent fiscal year, restated to reflect current
arrangements.
</FN>
<FN>
(2) Current rate; up to 0.25% can be authorized.
</FN>
<FN>
(3) Does not reflect a 0.01% expense offset in custodian fees received
for uninvested cash balances. Reflecting this offset and based on
estimates for Class I Shares, other expenses, all other expenses, and
total Trust operating expenses for Class I Shares would have been 0.12%,
0.63% and 0.87%, respectively; for Class Y Shares, these expenses would
have been 0.12%, 0.38% and 0.52% respectively.
</FN>
<FN>
(4) The expense example is based upon the above annual Trust operating
expenses. It is also based upon amounts at the beginning of each year
which includes the prior year's assumed results. A year's results
consist of an assumed 5% annual return less total operating expenses;
the expense ratio was applied to an assumed average balance (the year's
starting investment plus one-half the year's results). Each figure
represents the cumulative expenses so determined for the period specified.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL MUTUAL FUNDS USE
THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING THE ABOVE EXAMPLE.
THE ASSUMED 5% ANNUAL RETURN SHOULD NOT BE INTERPRETED AS A PREDICTION OF
AN ANNUAL RETURN, WHICH MAY BE HIGHER OR LOWER.
The purpose of the above table is to assist the investor in understanding
the various costs that an investor in the Trust will bear directly or
indirectly.
<PAGE>
<TABLE>
<CAPTION>
The table shown below for Class A Shares is for information purposes
only. Class A Shares are not offered by this Prospectus. No historical
information exists for Class I Shares, which were established on
July 31, 1998.
HAWAIIAN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights has been audited by
KPMG Peat Marwick LLP, independent auditors, whose report thereon is
included with the Trust's financial statements contained in its Annual
Report, which are incorporated by reference into the Additional
Statement. The information provided in the table should be read in
conjunction with the financial statements and related notes. The Fund's
Annual Report contains additional information about the Fund's
performance and is available upon request without charge.
Class A(1) Class Y(2)
Year ended March 31,
1998 1997 1996 1995 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning
of Year....... $11.23 $11.31 $11.13 $11.19 $11.24 $11.31
Income from
Investment Operations:
Net investment
income............... 0.57 0.59 0.61 0.62 0.67 0.74
Net gain (loss) on
securities (both
realized and
unrealized).......... 0.46 (0.08) 0.18 (0.01) 0.45 (0.07)
Total from Investment
Operations........... 1.03 0.51 0.79 0.61 1.12 0.67
Less Distributions:
Dividends from net
investment income.... (0.54) (0.58) (0.61) (0.62) (0.63) (0.73)
Distributions from
capital gains......... (0.05) (0.01) - (0.05) (0.05) (0.01)
Total Distributions... (0.59) (0.59) (0.61) (0.67) (0.68) (0.74)
Net Asset Value,
End of Year........... $11.67 $11.23 $11.31 $11.13 $11.68 $11.24
Total Return (not
reflecting sales
charge) (%)........... 9.37 4.67 7.16 5.75 10.24 6.14
Ratios/Supplemental
Data
Net Assets,
End of Year ($ in
thousands) .......... 647,930 640,989 659,925 642,556 1,278 0.01
Ratio of Expenses
to Average Net
Assets (%)........... 0.72 0.73 0.72 0.75 0.5 0.53
Ratio of Net
Investment
Income to Average
Net Assets (%)....... 4.97 5.12 5.32 5.65 5.03 4.92
Portfolio Turnover
Rate (%).............. 9 9 28 33 9 9
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:
Net Investment
Income ($).......... 0.57 0.59 0.61 0.62 0.67 0.74
Ratio of Expenses
to Average Net
Assets (%).......... 0.73 0.75 0.73 0.77 0.52 0.55
Ratio of Net
Investment Income
to Average Net
Assets (%)........... 4.96 5.11 5.31 5.63 5.02 4.94
<CAPTION>
1994
<C>
$11.60
0.63
(0.38)
0.25
(0.63)
(0.03)
(0.66)
$11.19
2.01
640,465
0.74
5.46
16
0.63
0.76
5.44
<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>
<PAGE>
INTRODUCTION
The Trust's shares are designed to be a suitable investment
for individuals, corporations, institutions and fiduciaries who
seek income exempt from regular Federal and Hawaiian State income
taxes.
You may invest in shares of the Trust as an alternative to
direct investments in Hawaiian Obligations, as defined below, which
may include obligations of certain non-Hawaiian issuers. The Trust
offers you the opportunity to keep assets fully invested in a
vehicle that provides a professionally managed portfolio of
Hawaiian Obligations which may, but not necessarily will, be more
diversified, higher yielding or more stable and more liquid than
you might be able to obtain on an individual basis by direct
purchase of Hawaiian Obligations. In some cases, the portfolio may
also contain taxable investments. Through the convenience of a
single security consisting of shares of the Trust, you are also
relieved of the inconvenience associated with direct investments of
fixed denominations, including the selecting, purchasing, handling,
monitoring call provisions and safekeeping of Hawaiian Obligations.
Hawaiian Obligations are a type of municipal obligation.
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes; bond
anticipation notes; construction loan notes and floating and
variable rate demand notes. Municipal obligations include municipal
lease/purchase agreements which are similar to installment purchase
contracts for property or equipment. The purposes for which
municipal obligations, such as bonds, are issued include the
construction of a wide range of public facilities such as highways,
bridges, schools, hospitals, housing, mass transportation, streets
and water and sewer works. Other public purposes for which
municipal obligations may be issued include the refunding of
outstanding obligations, the obtaining of funds for general
operating expenses and the obtaining of funds to lend to other
public institutions and facilities.
INVESTMENT OF THE TRUST'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both Hawaiian State and regular
Federal income taxes as is consistent with the preservation of
capital, the Trust will invest primarily in Hawaiian Obligations
(as defined below). There is no assurance that the Trust will
achieve its objective, which is a fundamental policy of the Trust.
(See "Investment Restrictions.") The Trust may also invest in
Taxable Short-Term Obligations (as defined below). Although it has
no present intention of doing so, it may purchase and sell futures
contracts on municipal bond indices and on U.S. Government
securities and may write and purchase put and call options on these
contracts (see below).
As used in the Prospectus and the Additional Statement, the
term "Hawaiian Obligations" means obligations, including those of
certain non-Hawaiian issuers, of any maturity which pay interest
which, in the opinion of bond counsel or other appropriate counsel,
is exempt from Hawaiian State and regular Federal income taxes.
Although exempt from regular Federal income tax, interest paid on
certain types of Hawaiian Obligations, and dividends which the
Trust might pay from this interest, are preference items as to the
Federal alternative minimum tax; for further information, see
"Dividend and Tax Information." As a fundamental policy, at least
80% of the Trust's net assets will be invested in Hawaiian
Obligations the income paid upon which will not be subject to the
alternative minimum tax; accordingly, the Trust can invest up to
20% of its net assets in obligations which are subject to the
Federal alternative minimum tax. The Trust may refrain entirely
from purchasing these types of Hawaiian Obligations. (See "Dividend
and Tax Information.")
The non-Hawaiian bonds or other obligations the interest on
which is exempt under present law from Hawaiian State and regular
Federal income taxes are those issued by or under the authority of
Guam, Northern Mariana Islands, Puerto Rico and the Virgin Islands.
As a Hawaii-oriented trust, at least 65% of the Trust's total
assets will be invested in Hawaiian Obligations of Hawaiian
issuers.
In general, there are nine separate credit ratings, ranging
from the highest to the lowest quality standards for municipal
obligations. So that the Trust will have a portfolio of
quality-oriented (investment grade) securities, the Hawaiian
Obligations which the Trust will purchase must, at the time of
purchase, either (i) be rated within the four highest credit
ratings assigned by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"); or (ii) if unrated, be
determined to be of comparable quality to municipal obligations so
rated, by Pacific Century Trust (the "Adviser"), the Trust's
investment adviser, subject to the direction and control of the
Trust's Board of Trustees. Municipal obligations rated in the
fourth highest credit rating are considered by such rating agencies
to be of medium quality and thus may present investment risks not
present in more highly rated obligations. Such bonds lack
outstanding investment characteristics and may in fact have
speculative characteristics as well; changes in economic conditions
or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case
for higher grade bonds. If after purchase the rating of any rated
Hawaiian Obligation is downgraded such that it could not then be
purchased by the Trust, or, in the case of an unrated Hawaiian
Obligation, if the Adviser determines that the unrated obligation
is no longer of comparable quality to those rated obligations which
the Trust may purchase, it is the current policy of the Trust to
cause any such obligation to be sold as promptly thereafter as the
Adviser in its discretion determines to be consistent with the
Trust's objectives; such obligation remains in the Trust's
portfolio until it is sold. In addition, because a downgrade often
results in a reduction in the market price of a downgraded
obligation, sale of such an obligation may result in a loss. (See
Appendix A to the Additional Statement for further information as
to these ratings.) The Trust can purchase industrial development
bonds without limit but only if they meet the definition of
Hawaiian Obligations, i.e., the interest on them is exempt from
Hawaiian State and regular Federal income taxes. The Trust may
invest without limit in Hawaiian Obligations which are repayable
from economically related projects or facilities. Such investments
could involve an increased risk to the Trust should any of such
issuers or related projects or facilities experience financial
difficulties.
The "Taxable Short-Term Obligations" which the Trust may
purchase are obligations maturing in one year or less from the date
of purchase by the Trust which are either (i) obligations issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Obligations"); see the
Additional Statement for further information; (ii) commercial paper
rated Prime-1 by Moody's or A-1 by S&P (see Appendix A to the
Additional Statement); or (iii) bank obligations, such as
certificates of deposit, bankers acceptances and fixed time
deposits, issued by a domestic bank subject to regulation by the
U.S. Government having total assets of at least $1.5 billion. Under
normal market conditions the Trust cannot purchase Taxable
Short-Term Obligations or purchase or sell Municipal Bond Index
Futures, U.S. Government Securities Futures or options on Futures
if thereafter more than 20% of its total assets would consist of
such Obligations, cash, margin deposits on such Futures and margin
deposits and premiums on options on such Futures, except for
defensive purposes, i.e., in anticipation of a decline or possible
decline in the value of Hawaiian Obligations. The Trust may also
invest in Taxable Short-Term Obligations (within such 20% limit)
pending investment in Hawaiian Obligations of the proceeds of the
sale of shares or the sale of Hawaiian Obligations. The Trust may
enter into repurchase agreements as to Taxable Short-Term
Obligations; (see "Repurchase Agreements" below). Income from
"Taxable Short-Term Obligations" and repurchase agreements is
taxable and therefore is not included in the "exempt-interest"
dividends which the Trust will pay. (See "Dividend and Tax
Information.")
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940 Act").
The Trust also intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code (the "Code").
One of the tests for such qualification under the Code is, in
general, that at the end of each fiscal quarter of the Trust, at
least 50% of its assets must consist of (i) cash and (ii)
securities which, as to any one issuer, do not exceed 5% of the
value of the Trust's assets. If the Trust had elected to register
under the 1940 Act as a "diversified" investment company, it would
have to meet a similar test as to 75% of its assets. The Trust may
therefore not have as much diversification among securities, and
thus diversification of risk, as if it had made this election under
the 1940 Act. In general, the more the Trust invests in the
securities of specific issuers, the more the Trust is exposed to
risks associated with investments in those issuers. The Trust's
assets, being primarily or entirely Hawaiian issues, are
accordingly subject to economic and other conditions affecting
Hawaii. (See "Risk Factors and Special Considerations Regarding
Investment in Hawaiian Obligations.")
Certain Stabilizing Measures
The Trust will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases,
broadening diversification and increasing its position in cash and
cash equivalents in attempting to protect against declines in the
value of its investments and other market risks. There can,
however, be no assurance that these will be successful.
Although the Trust has no current intention of using futures
and options, to the limited degree described below, the Trust may
purchase and sell futures contracts on municipal bond indices
("Municipal Bond Index Futures") and on United States government
securities ("U.S. Government Securities Futures"); both kinds of
futures contracts are "Futures." The Trust may also write and
purchase put and call options on Futures.
Although it does not currently do so, and since inception
has not done so, the Trust may buy and sell futures and options to
attempt to hedge against changes in the market price of the Trust's
Hawaiian Obligations caused by interest rate fluctuations. Futures
and options also may provide a hedge against increases in the cost
of securities the Trust intends to purchase. Under normal market
conditions, the Trust cannot purchase or sell Municipal Bond Index
Futures, U.S. Government Securities Futures, or options on Futures
if thereafter more than 20% of its total assets would consist of
cash, margin deposits on such Futures and margin deposits and
premiums on such options, except for temporary defensive purposes,
i.e., in anticipation of a decline or possible decline in the
value of Hawaiian Obligations. (See the Additional Statement.)
The primary risks associated with the use of Futures and
options are: (i) imperfect correlation between the change in the
market value of the securities held in the Trust's portfolio and
the prices of Futures or options purchased or sold by the Trust;
(ii) incorrect forecasts by the Adviser concerning interest rates
which may result in the hedge being ineffective; and (iii) possible
lack of a liquid secondary market for a Future or option; the
resulting inability to close a Futures or options position could
adversely affect the Trust's hedging ability.
For a hedge to be completely effective, the price change of
the hedging instrument should equal the price change of the
security being hedged. The risk of imperfect correlation of these
price changes is increased as the composition of the Trust's
portfolio is divergent from the debt securities underlying the
hedging instrument. To date the Adviser has had no experience in
the use of Futures or options on them.
The liquidity of a secondary market in a Future may be
adversely affected by "daily price fluctuation limits" established
by commodity exchanges which restrict the amount of change in the
contract price allowed during a single trading day. Thus, once a
daily limit is reached, no further trades may be entered into
beyond the limit, thereby preventing the liquidation of open
positions. Prices have in the past reached the daily limit on a
number of consecutive trading days. For further information about
Futures and options, see the Additional Statement.
When and if the Trust determines to use Futures and options,
the Prospectus will be supplemented.
Floating and Variable Rate Demand Notes
Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one year,
but permit the holder to demand payment of principal at any time,
or at specified intervals not exceeding one year, in each case upon
not more than 30-days' notice. The issuer of such notes normally
has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the note plus
accrued interest upon a specified number of days' notice to the
noteholders. The interest rate on a floating rate demand note is
based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The
interest rate on a variable rate demand note is adjusted
automatically at specified intervals.
Participation Interests
The Trust may purchase from financial institutions
participation interests in Hawaiian Obligations (such as industrial
development bonds and municipal lease/purchase agreements). A
participation interest gives the Trust an undivided interest in the
underlying Hawaiian Obligations in the proportion that the Trust's
participation interest bears to the total amount of the underlying
Hawaiian Obligations. All such participation interests must meet
the Trust's credit requirements. (See "Limitation to 10% as to
Certain Investments.")
When-Issued and Delayed Delivery Purchases
The Trust may buy Hawaiian Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring them.
The Hawaiian Obligations so purchased are subject to market
fluctuation and no interest accrues to the Trust until delivery and
payment take place; their value at the delivery date may be less
than the purchase price. The Trust cannot enter into when-issued
commitments exceeding in the aggregate 15% of the market value of
the Trust's total assets, less liabilities other than the
obligations created by when-issued commitments. If the Trust
chooses to dispose of the right to acquire a when-issued obligation
prior to its acquisition, it could, as with the disposition of any
other portfolio holding, incur a gain or loss due to market
fluctuation; any such gain would be a taxable short-term gain. The
Trust places an amount of assets equal in value to the amount due
on the settlement date for the when-issued or delayed delivery
securities being purchased in a segregated account, which is marked
to market every business day. (See the Additional Statement for
further information.)
Repurchase Agreements
The Trust may purchase securities (limited to Taxable
Short-Term Obligations) subject to repurchase agreements.
Repurchase agreements may be entered into only with commercial
banks or broker-dealers. A repurchase agreement occurs when, at the
time the Trust purchases a security, the Trust also resells it to
the vendor and must deliver the security (or securities substituted
for it) to the vendor on an agreed-upon date in the future. (The
securities so resold or substituted are referred to herein as the
"Resold Securities.") The Resold Securities will be held by the
Trust's custodian bank. The resale price is in excess of the
purchase price in that it reflects an agreed-upon market interest
rate effective for the period of time during which the Trust's
money is invested in the Resold Securities. The majority of these
transactions run from day to day, and the delivery pursuant to the
resale typically will occur within one to five days of the
purchase. The Trust's risk is limited to the ability of the vendor
to pay the agreed-upon sum upon the delivery date; in the event of
bankruptcy or other default by the vendor, there may be possible
delays and expenses in liquidating the Resold Securities, decline
in their value and loss of interest. However, in the opinion of the
Trust this risk is not material since, upon default, the Resold
Securities constitute security for the repurchase obligation.
Repurchase agreements can be considered as "loans" collateralized
by the Resold Securities (such agreements being defined as "loans"
in the 1940 Act). The return on such "collateral" may be more or
less than that from the repurchase agreement. The Resold Securities
under any repurchase agreement will be marked to market every
business day so that the value of the "collateral" is at least
equal to the value of the loan, including the accrued interest
earned thereon, plus sufficient additional market value as is
considered necessary to provide a margin of safety. Additionally,
the Adviser will regularly review the financial strength of all
vendors of repurchase agreements to the Trust.
Limitation to 10% as to Certain Investments
Due to their possible limited liquidity, the Trust cannot make
certain investments if thereafter more than 10% of its net assets
would consist of such investments. The investments included in this
10% limit are (i) repurchase agreements maturing in more than seven
days; (ii) fixed time deposits subject to withdrawal penalties
other than overnight deposits; (iii) restricted securities, i.e.,
securities which cannot freely be sold for legal reasons (which the
Trust does not expect to own); and (iv) securities for which market
quotations are not readily available. However, this 10% limit does
not include any investments as to which the Trust can exercise the
right to demand payment in full within three days and as to which
there is a secondary market. Floating and variable rate demand
notes and participation interests (including municipal
lease/purchase obligations) are considered illiquid unless
determined by the Board of Trustees to be readily marketable.
Factors Which May Affect the Value of the Trust's Investments and
Their Yields
The value of the Hawaiian Obligations and Taxable
Short-Term Obligations (collectively, "Obligations") in which the
Trust invests will fluctuate depending in large part on changes in
prevailing interest rates, and may be subject to other market,
credit and economic factors as well. If the prevailing interest
rates go up after the Trust buys Obligations, the value of the
Obligations will normally go down; if these rates go down, the
value of the Obligations will normally go up. Changes in value and
yield based on changes in prevailing interest rates may have
different effects on short-term Obligations than on long-term
Obligations. Long-term Obligations (which often have higher yields)
may fluctuate in value more than short-term ones.
Portfolio Insurance
The purpose of having insurance on some investments in
Hawaiian Obligations in the Trust's portfolio is to reduce
financial risk for investors in the Trust.
Insurance as to the timely payment of principal and interest
when due for Hawaiian Obligations is acquired as follows:
(i) obtained by the issuer of the Hawaiian Obligations at the
time of original issue of the obligations, known as "New Issue
Insurance," or
(ii) purchased by the Trust or a previous owner with respect
to specific Hawaiian Obligations, termed "Secondary Market
Insurance."
The insurance of principal under these types of insurance
policies refers to the payment of the face or par value of the
Hawaiian Obligation when due. Insurance is not affected by nor does
it insure the price paid by the Trust for the obligation. The
market value of obligations in the Trust will, from time to time,
be affected by various factors, including the general movement of
interest rates. The value of the Trust's shares is not insured.
In order to attempt to reduce financial risk to the Trust's
investors, it is the Trust's current policy, which may be changed,
that the majority of the Trust's assets will be invested in insured
Hawaiian Obligations. However, if the Board of Trustees determines
that there is an inadequate supply in the marketplace of Hawaiian
Obligations covered by New Issue Insurance and that appropriate
Secondary Market Insurance cannot be obtained for other Hawaiian
Obligations on terms that are financially advantageous to the Trust
as a result of market conditions or other factors, then the Trust
will invest in Hawaiian Obligations that are not insured. Use of
insurance is not a fundamental policy of the Trust.
New Issue Insurance is obtained by the issuer of the Hawaiian
Obligations and all premiums respecting such securities are paid in
advance by such issuer. Such policies are noncancelable and
continue in force so long as the Hawaiian Obligations are
outstanding and the insurer remains in business.
The Trust may also purchase Secondary Market Insurance on any
Hawaiian Obligation purchased by the Trust. By purchasing Secondary
Market Insurance, the Trust will obtain, upon payment of a single
premium, insurance against nonpayment of scheduled principal and
interest for the remaining term of the Hawaiian Obligation,
regardless of whether the Trust then owned such security. Such
insurance coverage is noncancelable and continues in force so long
as the security so insured is outstanding and the insurer remains
in business. The purposes of acquiring Secondary Market Insurance
are to insure timely payment of principal and interest when due,
and to enable the Trust to sell a Hawaiian Obligation to a third
party as a high rated insured Hawaiian Obligation at a market price
greater than what otherwise might be obtainable if the security
were sold without the insurance coverage. There is no assurance
that such insurance can be obtained at rates that would make its
purchase advantageous to the Trust.
New Issue Insurance and Secondary Market Insurance will be
obtained from some or all of the following: Municipal Bond
Investors Assurance Corporation ("MBIA"), Financial Guaranty
Insurance Company ("FGIC") and AMBAC Indemnity Corporation ("AMBAC
Indemnity"). See the Additional Statement for information about
these companies. The Trust may also purchase insurance from, or
Hawaiian Obligations insured by, other insurers.
Risk Factors and Special Considerations Regarding Investment in
Hawaiian Obligations
The following is a discussion of the general factors that
might influence the ability of Hawaiian issuers to repay principal
and interest when due on the Hawaiian Obligations contained in the
portfolio of the Trust. Such information is derived from sources
that are generally available to investors and is believed by the
Trust to be accurate, but has not been independently verified and
may not be complete.
As of the date of this Prospectus, economic data available
indicate that the real Gross State Product growth for 1997 was
1.3%, lower than the 2% that was projected in 1996. Payroll
employment stabilized in 1997 from declines experienced between
1992 and 1996. Employment growth in 1998 is forecast to be less
than 1.0%. Although some local companies have left the State, major
retailers have entered the State and are expected to begin
operations within the next six months. The State of Hawaii
Convention Center has been completed and has had several "soft"
openings in preparation for a scheduled grand opening in July,
1999. During 1998, delegates and exhibitors at the center are
expected to spend upwards of $800 million.
Hawaii's inflation rate is forecast to be flat for 1998.
Although local housing costs have been in a deflationary trend,
recent anecdotal evidence suggests that sales volumes are improving
which could stabilize housing costs in 1998. Hawaii's cost of
living differential continues to decline as well. In the early
1990's it peaked at 1.39 of the U.S. urban average, but in 1997 it
fell to 1.33 and is projected to fall to 1.30 in 1998.
In 1997, tourism, the State's principal industry, increased
slightly by 0.7% over 1996 with 6.9 million visitors. Westbound
arrivals increased by 1.8%, offsetting the decline in eastbound
arrivals. Visitor arrivals for 1998 are projected to increase by
1.0% over 1997. Under new authorizations by the U.S. Department of
Transportation, several airlines will either begin service between
Japan and Hawaii or increase the number of weekly flights currently
in service.
During 1997, a twenty-seven member Economic Revitalization
Task Force was established to make recommendations for economic
change. The Hawaii legislature recently passed many of the
recommendations of the Task Force, including a decrease in the
personal income tax; increased funding for tourism promotion; a
finite time frame for regulatory permitting and licensing
processes; and allowing for privatization of government services
under certain conditions. These changes, along with continuation of
the $1 billion capital improvement program approved in the last
legislative session, are positive factors for economic growth. The
State's strong reliance on tourism and the uncertainties in Asia
have, however, prompted Moody's Investors Service to lower its
rating on the State's General Obligation debt to A1 from Aa3.
Standard & Poor's affirmed the State's debt rating at A+. The A1/A+
rating on the State's debt is still recognized "investment grade"
by both rating agencies. (See the Additional Statement for an
explanation of municipal debt ratings.)
INVESTMENT RESTRICTIONS
The Trust has a number of policies about what it can and
cannot do. Certain of these policies, identified in the Prospectus
and in the Additional Statement as "fundamental policies," cannot
be changed unless the holders of a "majority," as defined in the
1940 Act, of the Trust's outstanding shares vote to change them.
(See the Additional Statement for a definition of such a majority.)
All other policies can be changed from time to time by the Board of
Trustees without shareholder approval. Some of the more important
of the Trust's fundamental policies, not otherwise identified in
the Prospectus, are set forth below; others are listed in the
Additional Statement.
1. The Trust invests only in certain limited securities.
The Trust cannot buy any securities other than those listed
under "Investment of the Trust's Assets"; the Trust may also
purchase and sell Futures and options on them within the limits
there discussed.
2. The Trust has industry investment requirements.
The Trust cannot buy the Obligations of issuers in any one
industry if more than 25% of its total assets would then be
invested in securities of issuers of that industry; Hawaiian
Obligations (except for the industrial development bonds discussed
below), U.S. Government Securities and domestic bank Obligations
are not included in this limit. In applying this restriction, the
Trust will consider that a non-governmental user of facilities
financed by industrial development bonds is an issuer in an
industry.
3. The Trust can make loans only by lending securities or entering
into repurchase agreements.
The Trust can buy those Obligations which it is permitted to
buy (see "Investment of the Trust's Assets"); this is investing,
not making a loan. The Trust can, to increase its income, lend its
portfolio securities up to 10% of the value of its total assets on
a collateralized basis to broker-dealers, banks and certain
financial institutions, (see the Additional Statement) and enter
into repurchase agreements (see "Repurchase Agreements" above). The
Trust may be considered as the beneficial owner of the loaned
securities in that any gain or loss in their market price during
the loan inures to the Trust and its shareholders; thus, when the
loan is terminated, the value of the securities may be more or less
than their value at the beginning of the loan. Income from
securities loans is taxable and therefore it is not included in the
"exempt-interest" dividends which the Trust may pay.
4. The Trust can only borrow in limited amounts for special
purposes.
The Trust can borrow from banks for temporary or emergency
purposes but only up to 10% of its total assets and can mortgage or
pledge its assets only in connection with such borrowing and only
up to the lesser of the amounts borrowed or 5% of the value of its
total assets. However, this shall not prohibit margin arrangements
in connection with the purchase or sale of Municipal Bond Index
Futures, U.S. Government Securities Futures or options on them, or
the payment of premiums on those options. Interest on borrowings
would reduce the Trust's income. The Trust will not purchase any
Obligations while it has any outstanding borrowings which exceed 5%
of the value of its total assets. Except in connection with
borrowings, the Trust will not issue senior securities.
NET ASSET VALUE PER SHARE
The net asset value of the shares of each of the Trust's
classes of shares is determined as of 4:00 p.m., New York time, on
each day that the New York Stock Exchange is open (a "business
day"), by dividing the value of the Trust's net assets (i.e., the
value of the assets less liabilities) allocable to each class by
the total number of shares of such class then outstanding.
Determination of the value of the Trust's assets is subject to the
direction and control of the Trust's Board of Trustees. In general,
it is based on market value, except that Hawaiian Obligations
maturing in 60 days or less are generally valued at amortized cost;
see the Additional Statement for further information.
HOW TO INVEST IN THE TRUST
This Prospectus offers two separate classes of shares. All
classes represent interests in the same portfolio of Hawaiian
Obligations.
Institutional Class Shares ("Class Y Shares") are offered
only to institutions acting for investors in a fiduciary,
advisory, agency, custodial or similar capacity, and are not
offered directly to retail customers. Class Y Shares are
offered at net asset value with no sales charge, no redemption
fee, no contingent deferred sales charge and no distribution
fee.
Financial Intermediary Class Shares ("Class I Shares") are
offered and sold only through financial intermediaries with
which Aquila Distributors, Inc. (the "Distributor") has
entered into sales agreements, and are not offered directly to
retail customers. Class I Shares are offered at net asset
value with no sales charge and no redemption fee or contingent
deferred sales charge, although a financial intermediary may
charge a fee for effecting a purchase or other transaction on
behalf of its customers. Class I Shares may carry a
distribution fee of up to 0.25 of 1% of average annual net
assets allocable to Class I Shares, currently 0.10 of 1% of
such net assets, and a service fee of 0.25 of 1% of such
assets. (See "Distribution Plan" and "Shareholder Services
Plan for Class I Shares.")
The Trust's other classes of shares, Front-Payment Class
Shares ("Class A Shares") and Level-Payment Class Shares ("Class C
Shares"), are not offered by this Prospectus. (See "General
Information - Description of the Trust and Its Shares.")
At the date of the Prospectus, Class Y Shares of the Trust
are registered for sale only in Hawaii, Alaska, California,
Colorado, District of Columbia, Florida, Illinois, Missouri,
Nevada, New Jersey, New York and Virginia; Class I Shares of the
Trust are registered for sale only in Hawaii and New York.
If you do not reside in one of these states you should not
purchase shares of the Trust. If shares are sold outside of these
states except to certain institutional investors, the Trust can
redeem them. Such a redemption may result in a loss to you and may
have tax consequences. In addition, if your state of residence is
not Hawaii, the dividends from the Trust may not be exempt from
income tax of the state in which you reside. Accordingly, you
should consult your tax adviser before acquiring shares of the
Trust. The Trust and the Distributor reserve the right to reject
any order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.
How to Purchase Class Y Shares
Institutional Class Shares ("Class Y Shares") are offered
only to institutional investors for investments held in a
fiduciary, advisory, agency, custodial or similar capacity, or
through them to their clients, and are not offered directly to
retail customers. Class Y Shares are offered at net asset value
with no sales charge, no redemption fee, no contingent deferred
sales charge and no distribution fee.
Class Y Shares of the Trust may be purchased through any
investment broker or dealer (a "selected dealer") which has a sales
agreement with Aquila Distributors, Inc. (the "Distributor") or
through the Distributor. There are two ways to make an initial
investment: (i) order the shares through your investment broker or
dealer, if it is a selected dealer; or (ii) mail the Application
with payment to the Trust's Shareholder Servicing Agent (the
"Agent") at the address on the Application. There is no sales
charge on initial or subsequent investments. You are urged to
complete an Application and send it to the Agent so that expedited
shareholder services can be established at the time of your
investment.
The minimum initial investment for Class Y Shares is
$100,000 for fiduciaries and $250,000 for all other eligible
purchasers, except that this limitation does not apply to
shareholders with accounts open on July 31, 1998, or as otherwise
stated in the Prospectus or Additional Statement. Such investment
must be drawn in United States dollars on a United States
commercial or savings bank or credit union or a United States
branch of a foreign commercial bank (each of which is a "Financial
Institution"). You may make subsequent investments in Class Y
Shares in any amount (unless you have an Automatic Withdrawal
Plan). Your subsequent investment may be made through a selected
dealer or by forwarding payment to the Agent, with the name(s) of
account owner(s), the account number and the name of the Trust.
With subsequent investments, please send the pre-printed stub
attached to the Trust's confirmations.
Subsequent investments of $50 or more in Class Y Shares can
be made by electronic funds transfer from your demand account at a
Financial Institution. To use electronic funds transfer for your
purchases, your Financial Institution must be a member of the
Automated Clearing House and the Agent must have received your
completed Application designating this feature, or, after your
account has been opened, a Ready Access Features Form available
from the Distributor or the Agent. A pre-determined amount can be
regularly transferred for investment ("Automatic Investment"), or
single investments can be made upon receipt by the Agent of
telephone instructions from anyone ("Telephone Investment"). The
maximum amount of each Telephone Investment is $50,000. Upon 30
days' written notice to shareholders, the Trust may modify or
terminate these investment methods at any time or charge a service
fee, although no such fee is currently contemplated.
How to Purchase Class I Shares
Initial and subsequent investments in Class I Shares must
be made through financial intermediaries and cannot be made
directly. Financial intermediaries may charge a fee for effecting
a purchase or other transaction on behalf of customers. Financial
intermediaries that make Class I Shares of the Trust and other
mutual funds available to their customers may offer distinct
services, may have their own charges for services and may impose
their own minimum requirements for initial and subsequent
investments. Customers of financial intermediaries should read the
Prospectus in light of the terms of their accounts with financial
intermediaries. Financial intermediaries that have entered into
specific agreements with the Trust may enter confirmed purchase
orders on behalf of clients and customers, with payment to follow
not later than the Trust's pricing of Class I Shares on the
following business day. If payment is not received by that time the
financial intermediary could be held liable for resulting fees or
losses.
Offering Price
The offering price for Class Y Shares is the net asset
value per share. The offering price determined on any day applies
to all purchase orders received by the Agent from selected dealers
that day, except that orders received by it after 4:00 p.m. New
York time will receive that day's offering price only if such
orders were received by selected dealers from customers prior to
such time and transmitted to the Distributor prior to its close of
business that day (normally 5:00 p.m. New York time); if not so
transmitted, such orders will be filled at the next determined
offering price. Selected dealers are required to transmit orders
promptly. Investments by mail are made at the offering price next
determined after receipt of the purchase order by the Agent.
Purchase orders received on other than a business day will be
executed on the next succeeding business day. Purchases by
Automatic Investment and Telephone Investment will be executed on
the first business day occurring on or after the date an order is
considered received by the Agent at the price determined on that
day. In the case of Automatic Investment your order will be
executed on the date you specified for investment at the price
determined on that day, except that if that day is not a business
day your order will be executed at the price determined on the next
business day. In the case of Telephone Investment your order will
be filled at the next determined offering price. If your order is
placed after the time for determining the net asset value of the
Trust shares for any day it will be executed at the price
determined on the following business day. The sale of shares will
be suspended during any period when the determination of net asset
value is suspended.
The offering price for Class I Shares is the net asset
value per share. The offering price determined on any day applies
to all purchases received by each financial intermediary prior to
4:00 p.m. New York time on any business day. Purchase orders
received by financial intermediaries after that time will be filled
at the next determined offering price.
Possible Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of any
class of shares of the Trust. Additional compensation may include
payment or partial payment for advertising of the Trust's shares,
payment of travel expenses, including lodging, incurred in
connection with attendance at sales seminars taken by qualifying
registered representatives to locations within or outside of the
United States, other prizes or financial assistance to securities
dealers in offering their own seminars or conferences. In some
instances, such compensation may be made available only to certain
dealers whose representatives have sold or are expected to sell
significant amounts of such shares. Dealers may not use sales of
the Trust's shares to qualify for the incentives to the extent such
may be prohibited by the laws of any state or any self-regulatory
agency, such as the National Association of Securities Dealers,
Inc. The cost to the Distributor of such promotional activities and
such payments to participating dealers will not exceed the amount
of the sales charges in respect of sales of all classes of shares
of the Trust effected through such participating dealers, whether
retained by the Distributor or reallowed to participating dealers.
No such additional compensation to dealers in connection with sales
of shares of the Trust will affect the price you pay for shares or
the amount that the Trust will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
Confirmations and Share Certificates
All purchases of Class Y Shares will be confirmed and
credited to you in an account maintained for you at the Agent in
full and fractional shares of the Trust (rounded to the nearest
1/1000th of a share). Purchases of Class I Shares will be confirmed
by financial intermediaries. No share certificates will be issued
for Class Y Shares or Class I Shares.
The Trust and the Distributor reserve the right to reject any
order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Trust has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in
substance that an investment company may not engage directly or
indirectly in financing any activity which is primarily intended to
result in the sale of its shares except pursuant to a written plan
adopted under the Rule. No payments under the Plan from assets
represented by Class Y Shares are authorized.
Under a part of the Plan, the Trust is authorized to make
payments with respect to Class I Shares ("Class I Permitted
Payments") to Qualified Recipients. Class I Permitted Payments
shall be made through the Distributor or shareholder servicing
agent as disbursing agent, and may not exceed, for any fiscal year
of the Trust (as adjusted for any part or parts of a fiscal year
during which payments under the Plan are not accruable or for any
fiscal year which is not a full fiscal year), a rate set from time
to time by the Board of Trustees (currently 0.10 of 1%) but not
more than 0.25 of 1% of the average annual net assets represented
by the Class I Shares of the Trust. Such payments shall be made
only out of the Trust's assets allocable to the Class I Shares.
"Qualified Recipients" means financial intermediaries selected by
the Distributor with which the Trust or the Distributor has entered
into written agreements to act in such capacity.
The Plan contains provisions designed to protect against
any claim against or involving the Trust that some of the expenses
which might be considered to be sales-related which the Trust pays
or may pay come within the purview of the Rule. The Trust believes
that except for payments made with respect to Class A Shares, Class
C Shares and Class I Shares, it is not financing any such activity
and does not consider any payment enumerated in such provisions as
so financing any such activity. If and to the extent that any
payment as specifically listed in the Plan (see the Additional
Statement) is considered to be primarily intended to result in or
as indirect financing of any activity which is primarily intended
to result in the sale of Trust shares, these payments are
authorized under the Plan. In addition, if the Administrator, out
of its own funds, makes payment for distribution expenses such
payments are authorized. (See the Additional Statement.)
Shareholder Services Plan for Class I Shares
Under a Shareholder Services Plan, (the "Plan") the Trust
is authorized to make payments with respect to Class I Shares
("Service Payments") to Qualified Recipients. Fees paid under the
Plan are subject to such limits as may be necessary for Class I
Shares to qualify as a "no-load" class for purposes of the Conduct
Rules of the National Association of Securities Dealers, Inc.
("NASD"). The current limitation is as follows: fees paid under the
Plan that satisfy the definition of "service fees" in Rule 2830(d)
of the Conduct Rules of the NASD may not exceed an amount equal to
the difference between (i) 0.25 of 1% of the average annual net
assets of the Trust represented by Class I Shares and (ii) the
amount paid under the Trust's Distribution Plan with respect to the
assets represented by the Class I Shares. That is, the total
payments under both plans will not exceed 0.25 of 1% of such net
assets. Where necessary or appropriate, the Independent Trustees,
or such appropriate officer or officers of the Trust as they may
designate, shall, with the advice of counsel, determine what fees
paid under this Plan are to be deemed "service fees." The Trust's
management believes that, in general, fees allocable to activities
such as sub-accounting and record-keeping are not "service fees,"
while fees allocable to activities such as account service are
"service fees." In like manner, allocation of payments among
activities is also determined by the Independent Trustees or their
delegates. Subject to the foregoing, Service Payments may not
exceed, for any fiscal year of the Trust (as adjusted for any part
or parts of a fiscal year during which payments under the Plan are
not accruable or for any fiscal year which is not a full fiscal
year), 0.25 of 1% of the average annual net assets represented by
the Class I Shares of the Trust. Such payments shall be made only
out of the Trust's assets represented by the Class I Shares.
"Qualified Recipients" means broker-dealers or others
selected by the Distributor, including but not limited to any
principal underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements to provide personal
services to Class I Shares shareholders, maintenance of Class I
Shares shareholder accounts and/or pursuant to specific agreements
entering of confirmed purchase orders on behalf of customers or
clients and which have provided services to holders of Class I
Shares and/or maintenance of Class I Shares shareholder
accounts.
The Distributor is authorized, but not directed, to take
into account, in addition to any other factors deemed relevant by
it, the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Class I Shares, including
without limitation, (i) activities relating to sub- accounting and
record-keeping, including the providing of necessary personnel and
facilities to establish and maintain shareholder accounts and
records, and (ii) activities relating to account service, such as
assisting shareholders in designating and changing dividend
options, account designations and addresses; answering customer
inquiries regarding account status and history and the manner in
which purchases and redemptions of shares of the Trust may be
effected; transmitting and receiving funds in connection with
customer orders to purchase or redeem shares, including, where
appropriate, arranging for the wiring of funds; assisting in
processing purchase and redemption transactions; and verifying and
guaranteeing shareholder signatures in connection with redemption
orders and transfers and changes in shareholder designated
accounts. A majority of the Independent Trustees (as defined in the
Plan) may remove any person as a Qualified Recipient and no fees
shall be paid pursuant to the Plan for activities primarily
intended to result in the sale of shares of the Trust or to finance
sales or sales promotion expenses. No fees shall be paid, or be
deemed to have been paid, for any of the listed activities to the
extent that such payments are deemed by the Independent Trustees to
be intended for distribution. Service Payments shall be paid
through the Distributor or shareholder servicing agent as
disbursing agent. (See the Additional Statement.)
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your Class Y Shares at the
net asset value next determined after acceptance of your redemption
request at the Agent. Redemptions can be made by the various
methods described below. There is no minimum period for any
investment in the Trust, except for shares recently purchased by
check, Automatic Investment or Telephone Investment as discussed
below. There are no redemption fees or penalties on redemption of
Class Y Shares. A redemption may result in a transaction taxable to
you.
For your convenience the Trust offers expedited redemption for
Class Y Shares to provide you with a high level of liquidity for
your investment.
Expedited Redemption Methods
You have the flexibility of two expedited methods of
initiating redemptions of Class Y Shares.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have predesignated
or
b) by check in the amount of $50,000 or less, mailed to you,
if your shares are registered in your name at the Trust and
the check is sent to your address of record, provided that
there has not been a change of your address of record during
the 30 days preceding your redemption request. You can make
only one request for telephone redemption by check in any
7-day period.
See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
800-228-4228 toll free
Note: The Trust, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
2. By FAX or Mail. You may also request redemption
payments to a predesignated Financial Institution account by
a letter of instructions sent to the Trust's Shareholder
Servicing Agent: PFPC Inc., by FAX at 302-791-1777 or by mail
to 400 Bellevue Parkway, Wilmington, DE 19809. The letter must
provide account name(s), account number, amount to be
redeemed, and any payment directions, signed by the registered
holder(s). Signature guarantees are not required. See
"Redemption Payments," below for payment methods.
If you wish to have redemption proceeds sent to a Financial
Institution Account, you should so elect on the Expedited
Redemption section of the Application or the Ready Access Features
Form and provide the required information concerning your Financial
Institution account number. The Financial Institution account must
be in the exclusive name(s) of the shareholder(s) as registered
with the Trust. You may change the designated Financial Institution
account at any time by completing and returning a Ready Access
Features Form. For protection of your assets, this form requires
signature guarantees and possible additional documentation.
Regular Redemption Method
If you own Class Y Shares and have not elected Expedited
Redemption to a predesignated Financial Institution account, you
must use the Regular Redemption Method. Under this redemption
method you should send a letter of instruction to the Trust's
Shareholder Servicing Agent: PFPC Inc., 400 Bellevue Parkway,
Wilmington, DE 19809. The letter must contain:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the Trust);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated below.
For your redemption request to be in "proper form," the
signature or signatures must be the same as in the registration of
the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required if
sufficient documentation is not on file with the Agent. Additional
documentation may be required where shares are held by certain
types of shareholders such as corporations, partnerships, trustees
or executors, or if redemption is requested by other than the
shareholder of record. If redemption proceeds of $50,000 or less
are payable to the record holder and are to be sent to the record
address, no signature guarantee is required, except as noted above.
In all other cases, signatures must be guaranteed by a member of a
national securities exchange, a U.S. bank or trust company, a
state-chartered savings bank, a federally chartered savings and
loan association, a foreign bank having a U.S. correspondent bank,
a participant in the Securities Transfer Association Medallion
Program (STAMP), the Stock Exchanges Medallion Program (SEMP) or
the New York Stock Exchange, Inc. Medallion Signature Program
(MSP). A notary public is not an acceptable signature
guarantor.
Redemption of Class I Shares
You may redeem all or any part of your Class I Shares at the
net asset value next determined after acceptance of your redemption
request by your financial intermediary. Redemption requests for
Class I Shares must be made through a financial intermediary and
cannot be made directly. Financial intermediaries may charge a fee
for effecting redemptions. There is no minimum period for any
investment in the Trust. The Trust does not impose redemption fees
or penalties on redemption of Class I Shares. A redemption may
result in a transaction taxable to you.
Redemption Payments
Redemption payments with respect to Class Y Shares will
ordinarily be mailed to you at your address of record. If you so
request and the amount of your redemption proceeds is $1,000 or
more, the proceeds will, wherever possible, be wired or transferred
through the facilities of the Automated Clearing House to the
Financial Institution account specified in the Expedited Redemption
section of your Application or Ready Access Features form. The
Trust may impose a charge, not exceeding $5.00 per wire redemption,
after written notice to shareholders who have elected this
redemption procedure. The Trust has no present intention of making
this charge. Upon 30 days' written notice to shareholders, the
Trust may modify or terminate the use of the Automated Clearing
House to make redemption payments at any time or charge a service
fee, although no such fee is presently contemplated. If any such
changes are made, the Prospectus will be supplemented to reflect
them. If you use a broker or dealer to arrange for a redemption, it
may charge you a fee for this service. Redemption payments for
Class I Shares are made to financial intermediaries.
The Trust will normally make payment for all shares
redeemed on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven days
after acceptance of such a redemption request. However, the right
of redemption may be suspended or the date of payment postponed (i)
during periods when the New York Stock Exchange is closed for other
than weekends and holidays or when trading on such Exchange is
restricted as determined by the Securities and Exchange Commission
by rule or regulation; (ii) during periods in which an emergency,
as determined by the Securities and Exchange Commission, exists
which causes disposal of, or determination of the net asset value
of, the portfolio securities to be unreasonable or impracticable;
or (iii) for such other periods as the Securities and Exchange
Commission may permit. Payment for redemption of shares recently
purchased by check (irrespective of whether the check is a regular
check or a certified, cashier's or official bank check) or by
Automatic Investment or Telephone Investment may be delayed up to
15 days or until (i) the purchase check or Automatic Investment or
Telephone Investment has been honored or (ii) the Agent has
received assurances by telephone or in writing from the Financial
Institution on which the purchase check was drawn, or from which
the funds for Automatic Investment or Telephone Investment were
transferred, satisfactory to the Agent and the Trust, that the
purchase check or Automatic Investment or Telephone Investment will
be honored. Possible delays in payment of redemption proceeds of
Class Y Shares can be eliminated by using wire payments or Federal
Reserve drafts to pay for purchases.
If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Trust to
make payment wholly or partly in cash, the Trust may pay the
redemption price in whole or in part by the distribution in kind of
securities from the portfolio of the Trust, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. (See the Additional Statement for details.)
The Trust has the right to compel the redemption of shares
held in any account if the aggregate net asset value of such shares
is less than $500 as a result of shareholder redemptions or failure
to meet the minimum investment level under an Automatic Purchase
Program. If the Board elects to do this, shareholders who are
affected will receive prior written notice and will be permitted 60
days to bring their accounts up to the minimum before this
redemption is processed.
AUTOMATIC WITHDRAWAL PLAN
If you had a Class Y Shares account with the Trust before
July 31, 1998, you may establish an Automatic Withdrawal Plan if
you own or purchase Class Y Shares of the Trust having a net asset
value of at least $5,000. Under an Automatic Withdrawal Plan you
will receive a monthly or quarterly check in a stated amount, not
less than $50. If such a plan is established, all dividends and
distributions must be reinvested in your shareholder account.
Redemption of shares to make payments under the Automatic
Withdrawal Plan will give rise to a gain or loss for tax purposes.
(See the Automatic Withdrawal Plan provisions of the Application
included in the Prospectus, the Additional Statement under
"Automatic Withdrawal Plan," and "Dividend and Tax Information"
below.) The Automatic Withdrawal Plan is not available to other
investors.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Trust are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Trust's Trustees and officers and provides
further information about them.
The Advisory Agreement
Pacific Century Trust, a division of Bank of Hawaii, (the
"Adviser") supervises the investment program of the Trust and the
composition of its portfolio.
The services of the Adviser are rendered under an Investment
Advisory Agreement (the "Advisory Agreement") which provides,
subject to the control of the Board of Trustees, for investment
supervision and for either keeping the accounting records of the
Trust, including the computation of the net asset value per share
and the dividends, or, at the Adviser's expense and responsibility,
delegating these accounting duties in whole or in part to a company
satisfactory to the Trust. The Advisory Agreement states that the
Adviser shall, at its expense, provide to the Trust all office
space and facilities, equipment and clerical personnel necessary
for the carrying out of the Adviser's duties under the Advisory
Agreement.
Under the Advisory Agreement, the Adviser pays all
compensation of those officers and employees of the Trust and of
those Trustees, if any, who are affiliated with the Adviser,
provided that if a Trustee is an affiliate of the Adviser solely by
reason of being a member of its Board of Directors, the Trust may
pay compensation to such Trustee, but at a rate no greater than
the rate it pays to its other Trustees. Under the Advisory
Agreement, the Trust bears the cost of preparing and setting in
type its prospectuses, statements of additional information, and
reports to its shareholders and the costs of printing or otherwise
producing and distributing those copies of such prospectuses,
statements of additional information and reports as are sent to its
shareholders. Under the Advisory Agreement, all costs and expenses
not expressly assumed by the Adviser or by the Administrator under
the Administration Agreement or by the Trust's Distributor
(principal underwriter) are paid by the Trust. The Advisory
Agreement lists examples of such expenses borne by the Trust, the
major categories of such expenses being: legal and audit expenses,
custodian and transfer agent, or shareholder servicing agent fees
and expenses, stock issuance and redemption costs, certain printing
costs, registration costs of the Trust and its shares under Federal
and State securities laws, interest, taxes and brokerage
commissions, and non-recurring expenses, including litigation.
Under the Advisory Agreement, the Trust pays a fee payable
monthly and computed on the net asset value of the Trust as of the
close of business each business day at the annual rate of 0.19 of
1% of such net asset value, provided, however, that for any day
that the Trust pays or accrues a fee under the Distribution Plan of
the Trust based upon the assets of the Trust, the annual investment
advisory fee shall be payable at the annual rate of 0.14 of 1% of
such net asset value. Such fees under the Plan commenced July 1,
1992 and since that date the Trust's investment advisory fee has
been payable at the annual rate of 0.14 of 1% of such net asset
value.
The Adviser agrees that the above fee shall be reduced, but
not below zero, by an amount equal to its pro-rata portion (based
upon the aggregate fees of the Adviser and the Administrator) of
the amount, if any, by which the total expenses of the Trust in any
fiscal year, exclusive of taxes, interest and brokerage fees, shall
exceed the lesser of (i) 2.5% of the first $30 million of average
annual net assets of the Trust plus 2% of the next $70 million of
such assets and 1.5% of its average annual net assets in excess of
$100 million, or (ii) 25% of the Trust's total annual investment
income.
The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Trust; see the
Additional Statement. Under these provisions the Adviser, in making
such allocation, is authorized to consider sales of the Trust's
shares and sales of shares of certain other investment companies
(see "Exchange Privilege" below).
The Administration Agreement
Under an Administration Agreement (the "Administration
Agreement"), Aquila Management Corporation as Administrator, at its
own expense, provides office space, personnel, facilities and
equipment for the performance of its functions thereunder and as is
necessary in connection with the maintenance of the headquarters of
the Trust and pays all compensation of the Trust's Trustees,
officers and employees who are affiliated persons of the
Administrator.
Under the Administration Agreement, subject to the control of
the Trust's Board of Trustees, the Administrator provides all
administrative services to the Trust other than those relating to
its investment portfolio and the maintenance of its accounting
books and records. Such administrative services include, but are
not limited to, maintaining books and records (other than
accounting books and records) of the Trust, and overseeing all
relationships between the Trust and its transfer agent, custodian,
legal counsel, auditors and principal underwriter, including the
negotiation of agreements in relation thereto, the supervision and
coordination of the performance of such agreements, and the
overseeing of all administrative matters which are necessary or
desirable for effective operation of the Trust and for the sale,
servicing, or redemption of the Trust's shares. See the Additional
Statement for a further description of functions listed in the
Administration Agreement as part of such duties.
Under the Administration Agreement, the Trust pays the
Administrator, and the Administrator accepts as full compensation
for all services rendered thereunder, a fee payable monthly and
computed on the net asset value of the Trust at the end of each
business day at the annual rate of 0.36 of 1% of such net asset
value, provided, however, that for any day that the Trust pays or
accrues a fee under the Distribution Plan of the Trust based upon
the assets of the Trust, the annual administration fee will be
payable at the annual rate of 0.26 of 1% of such net asset value.
Such fees under the Distribution Plan commenced July 1, 1992 and
since that date the Trust's administration fee is payable at the
rate of 0.26 of 1% of such net asset value. The Administrator
agrees that the above fee shall be reduced, but not below zero, by
an amount equal to its pro-rata portion (based upon the aggregate
fees of the Adviser and the Administrator) of the amount, if any,
by which the total expenses of the Trust in any fiscal year,
exclusive of taxes, interest and brokerage fees, exceed the lesser
of (i) 2.5% of the first $30 million of average annual net assets
of the Trust plus 2% of the next $70 million of such assets and
1.5% of its average annual net assets in excess of $100 million, or
(ii) 25% of the Trust's total annual investment income.
Information about the Adviser, the Administrator and the
Distributor
As of March 31, 1998 the Adviser had over $12 billion of
clients' assets under administration. The Adviser is a division of
Bank of Hawaii, all of whose shares are owned by Pacific Century
Financial Corp. ("PCF") and Bank of Hawaii's directors (each of
whom owns qualifying shares as required by Hawaii law). PCF is a
bank holding company registered under the Bank Holding Company Act
of 1956, as amended, and its common stock is registered under the
Securities Exchange Act of 1934 and is listed and traded on the New
York Stock Exchange. PCF files annual and periodic reports with the
Securities and Exchange Commission which are available for public
inspection. See the Additional Statement as to the legality, under
the Federal banking laws, of the Adviser's acting as the Trust's
investment adviser.
Ms. Lorene Okimoto has been the Trust's portfolio manager
since December, 1991. She has been employed by the Adviser as a
portfolio manager since 1989, and has been a Vice President of the
Adviser since 1993. She was employed by the Bank of Hawaii from
1979 to 1984 and by Bank of Hawaii International Corporation from
1984 to 1988. Ms. Okimoto holds a B.A. degree from the University
of Hawaii.
The Trust's Administrator is founder and administrator to
the Aquilasm Group of Funds, which consists of tax-free municipal
bond funds, money market funds and two equity funds. As of June 30,
1998, these funds had aggregate assets of approximately $2.8
billion, of which approximately $1.9 billion consisted of assets of
the tax-free municipal bond funds. The Administrator, which was
founded in 1984, is controlled by Mr. Lacy B. Herrmann, directly,
through a trust and through share ownership by his wife. (See the
Additional Statement for information on Mr. Herrmann.)
For the Trust's fiscal year ended March 31, 1998 fees of
$921,605 and $1,711,563, respectively, were paid and/or accrued to
the Adviser and to the Administrator under the Advisory Agreement
and the Administration Agreement.
The Distributor currently handles the distribution of shares
of fourteen funds (seven tax-free municipal bond funds, five money
market funds and two equity funds) including the Trust. Under the
Distribution Agreement, the Distributor is responsible for the
payment of certain printing and distribution costs relating to
prospectuses and reports as well as the costs of supplemental sales
literature, advertising and other promotional activities.
At the date of this Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which are
currently owned 75% by Mr. Herrmann and 25% by Diana P. Herrmann,
will be owned by certain directors and/or officers of the
Administrator and/or the Distributor, including Mr. Herrmann and
Ms. Herrmann.
The Adviser, the Administrator and the Distributor have
entered into non-binding principles of cooperation, with the
approval of the Board of Trustees, relating to various matters
including suggestion of nominees to the Board of Trustees. In
addition, the Trust has entered into separate agreements with the
Adviser, the Administrator and the Distributor under which the
service providers have respectively agreed not to serve in the same
capacities for any mutual fund with the same objectives as the
Trust under the circumstances described in these agreements. (See
the Additional Statement.)
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Trust will declare all of its net income, as defined
below, as dividends on every day, including weekends and holidays,
on those shares outstanding for which payment was received by the
close of business on the preceding business day. Net income for
dividend purposes includes all interest income accrued by the Trust
since the previous dividend declaration, including accretion of any
original issue discount, less expenses paid or accrued. As such net
income will vary, the Trust's dividends will also vary.Dividends
and other distributions paid by the Trust with respect to each
class of its shares are calculated at the same time and in the same
manner. In addition, the dividends of each class can vary because
each class will bear certain class-specific charges.
It is the Trust's present policy to pay dividends so that
they will be received or credited by approximately the first day of
each month. On the Application or by completing a Ready Access
Features Form, holders of Class Y Shares may elect to have
dividends deposited without charge by electronic funds transfers
into an account at a Financial Institution if it is a member of the
Automated Clearing House. All arrangements for the payment of
dividends with respect to Class I Shares, including reinvestment of
dividends, must be made through financial intermediaries.
Redeemed shares continue to earn dividends through and
including the earlier of (i) the day before the day on which the
redemption proceeds are mailed, wired or transferred by the
facilities of the Automated Clearing House by the Agent or paid by
the Agent to a selected dealer; or (ii) the third day on which the
New York Stock Exchange is open after the day on which the net
asset value of the redeemed shares has been determined. (See "How
To Redeem Your Investment.")
Net investment income includes amounts of income from the
Hawaiian Obligations in the Trust's portfolio which are allocated
as "exempt-interest dividends." "Exempt-interest dividends" are
exempt from regular Federal income tax. The allocation of
"exempt-interest dividends" will be made by the use of one
designated percentage applied uniformly to all income dividends
declared during the Trust's tax year. Such designation will
normally be made in the first month after the end of each of the
Trust's fiscal years as to income dividends paid in the prior year.
It is possible that in certain circumstances, a small portion of
the dividends paid by the Trust will be subject to income taxes.
During the Trust's fiscal year ended March 31, 1998, all of the
Trust's dividends were "exempt-interest dividends." For the
calendar year 1997, 2.01% of the total dividends paid were taxable.
The percentage of income designated as tax-exempt for any
particular dividend may be different from the percentage of the
Trust's income that was tax-exempt during the period covered by the
dividend.
Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions ("long-term
gains distributions"), if any, from the excess of net long-term
capital gains over net short-term capital losses realized through
October 31st of each year and not previously paid out will be paid
out after that date; the Trust may also pay supplemental
distributions after the end of its fiscal year. If net capital
losses are realized in any year, they are charged against capital
and not against net investment income which is distributed
regardless of gains or losses. The Trust may be required to impose
backup withholding at a rate of 31% upon payment of your
redemptions of Class Y Shares, and from short- and long-term gains
distributions (if any) and any other distributions with respect to
your Class Y Shares that do not qualify as "exempt-interest
dividends," if you do not comply with provisions of the law
relating to the furnishing of taxpayer identification numbers and
reporting of dividends.
Unless you request otherwise by letter addressed to the
Agent or by filing an appropriate Application prior to a given
ex-dividend date, dividends and distributions with respect to Class
Y Shares will be automatically reinvested in full and fractional
Class Y Shares of the Trust at net asset value on the record date
for the dividend or distribution or other date fixed by the Board
of Trustees. An election to receive cash will continue in effect
until written notification of a change is received by the Agent.
All Class Y Shares shareholders, whether their dividends are
received in cash or are being reinvested, will receive a monthly
account summary indicating the current status of their investment.
There is no fixed dividend rate. Corporate shareholders of the
Trust are not entitled to any deduction for dividends received from
the Trust.
Tax Information
The following is a brief description of certain federal and
State of Hawaii income tax considerations with respect to the Trust
and investment therein. There can be no assurance that such
considerations will not be altered by future changes in the law or
administrative interpretations. In addition, you may be subject to
local taxes or to tax in a state other than Hawaii. These taxes are
not described herein and may differ from the taxes imposed under
federal and Hawaii law.
The Trust qualified during its last fiscal year as a
"regulated investment company" under the Code, and intends to
continue to so qualify. If it does so qualify, it will not be
liable for Federal income taxes on amounts paid by it as dividends
and distributions. However, the Code contains a number of complex
tests relating to such qualification and it is possible although
not likely that the Trust might not meet one or more of these tests
in any particular year. If it does not so qualify, it would be
treated for tax purposes as an ordinary corporation, would receive
no tax deduction for payments made to shareholders and would be
unable to pay dividends or distributions which would qualify as
"exempt-interest dividends" or "capital gains dividends," as
discussed below.
The Trust intends to qualify during each fiscal year under the
Code to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net income earned
by the Trust on Hawaiian Obligations will be excludable from gross
income of the shareholders for regular Federal income tax purposes.
Capital gains dividends are not included in exempt-interest
dividends. Although "exempt-interest dividends" are not taxed, each
taxpayer must report the total amount of tax-exempt interest
(including exempt-interest dividends from the Trust) received or
acquired during the year.
The Code requires that either gains realized by the Trust
on the sale of municipal obligations acquired after April 30, 1993
at a price which is less than face or redemption value be included
as ordinary income to the extent such gains do not exceed such
discount or that the discount be amortized and included ratably in
taxable income. There is an exception to the foregoing treatment if
the amount of the discount is less than 0.25% of face or redemption
value multiplied by the number of years from acquisition to
maturity. The Trust will report such ordinary income in the years
of sale or redemption rather than amortize the discount and report
it ratably. To the extent the resultant ordinary taxable income is
distributed to shareholders, it will be taxable to them as ordinary
income.
Capital gains dividends (net long-term gains over net
short-term losses which the Trust distributes and so designates)
are reportable by shareholders as gain from the sale or exchange of
a capital asset held for more than one year. This is the case
whether the shareholder takes the distribution in cash or elects to
have the distribution reinvested in Trust shares and regardless of
the length of time the shareholder has held his or her shares.
Short-term gains, when distributed, are taxed to
shareholders as ordinary income. Capital losses of the Trust are
not distributed but carried forward by the Trust to offset gains in
later years and thereby lessen the later-year capital gains
dividends and amounts taxed to shareholders.
The Trust's gains or losses on sales of Obligations will be
long-term or short-term depending upon the length of time the Trust
has held such Obligations. Capital gains and losses of the Trust
will also include gains and losses on Futures and options, if any,
including gains and losses actually realized on sales and exchanges
and gains and losses deemed to be realized. Those deemed to be
realized are on Futures and options held by the Trust at year-end,
which are "marked to the market," that is, deemed sold for fair
market value. Net gains or losses realized and deemed realized on
Futures and options will be reportable by the Trust as long-term to
the extent of 60% of the gains or losses and short-term to the
extent of 40% regardless of the actual holding period of such
investments.
Information as to the tax status of the Trust's dividends and
distributions will be mailed to shareholders annually.
Under the Code, interest on loans incurred by shareholders to
enable them to purchase or carry shares of the Trust may not be
deducted for regular Federal tax purposes. In addition, under rules
used by the Internal Revenue Service for determining when borrowed
funds are deemed used for the purpose of purchasing or carrying
particular assets, the purchase of shares of the Trust may be
considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of
shares. The receipt of exempt-interest dividends from the Trust by
an individual shareholder may result in some portion of any social
security payments or railroad retirement benefits received by the
shareholder or the shareholder's spouse being included in taxable
income.
Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds or
private activity bonds should consult their own tax advisers before
purchasing shares.
While interest from all Hawaiian Obligations is tax-exempt for
purposes of computing the shareholder's regular tax, interest from
so-called private activity bonds issued after August 7, 1986,
constitutes a tax preference for both individuals and corporations
and thus will enter into a computation of the alternative minimum
tax. Whether or not that computation will result in a tax will
depend on the entire content of the taxpayer's return. The Trust
will not invest in the types of Hawaiian Obligations which would
give rise to interest that would be subject to alternative minimum
taxation if more than 20% of its net assets would be so invested,
and may refrain from investing in that type of bond completely. The
20% limit is a fundamental policy of the Trust.
Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current earnings,
this adjustment will tend to make it more likely that corporate
shareholders will be subject to the alternative minimum tax.
Tax Effects of Redemptions
Normally, when you redeem shares of the Trust you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid for
the shares. If you are required to pay a contingent deferred sales
charge at the time of redemption, the amount of that charge will
reduce the amount of your gain or increase the amount of your loss
as the case may be. Congress has passed legislation, which is
expected to become law, which provides that for redemptions
effected on or after January 1, 1998, your gain or loss will be
long-term if you held the redeemed shares for over one year and
short-term, if for a year or less. Long term capital gains are
currently taxed at a maximum rate of 20% and short-term gains are
currently taxed at ordinary income tax rates. However, if shares
held for six months or less are redeemed and you have a loss, two
special rules apply: the loss is reduced by the amount of
exempt-interest dividends, if any, which you received on the
redeemed shares, and any loss over and above the amount of such
exempt-interest dividends is treated as a long-term loss to the
extent you have received capital gains dividends on the redeemed
shares.
At the date of the Prospectus, changes in the capital gains
tax arrangements described above are being considered by Congress.
It is not possible to predict which, if any, of these changes will
become law.
Hawaiian Tax Information
The Trust, and dividends and distributions made by the Trust
to Hawaii residents, will generally be treated for Hawaii income
tax purposes in the same manner as they are treated under the Code
for Federal income tax purposes. Under Hawaiian law, however,
interest derived from obligations of states (and their political
subdivisions) other than Hawaii will not be exempt from Hawaiian
income taxation. (Interest derived from bonds or obligations issued
by or under the authority of the following is exempt from Hawaiian
income taxation: Guam, Northern Mariana Islands, Puerto Rico, and
the Virgin Islands.)
Interest on Hawaiian Obligations, tax-exempt obligations of
states other than Hawaii and their political subdivisions, and
obligations of the United States or its possessions is not exempt
from the Hawaii Franchise Tax. This tax applies to banks, building
and loan associations, financial services loan companies,
financial corporations, and small business investment companies.
Persons or entities who are not Hawaii residents should not be
subject to Hawaiian income taxation on dividends and distributions
made by the Trust but may be subject to other state and local
taxes.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among
this Trust and certain tax-free municipal bond funds and two equity
funds (together with the Trust, the "Bond or Equity Funds") and
certain money market funds (the "Money-Market Funds"), all of which
are sponsored by Aquila Management Corporation and Aquila
Distributors, Inc., and have the same Manager or Administrator and
Distributor as the Trust. All exchanges are subject to certain
conditions described below. As of the date of the Prospectus, the
Aquila-sponsored Bond or Equity Funds are this Trust, Aquila Rocky
Mountain Equity Fund, Aquila Cascadia Equity Fund, Tax-Free Trust
of Arizona, Tax-Free Trust of Oregon, Tax-Free Fund of Colorado,
Churchill Tax-Free Fund of Kentucky, Tax-Free Fund For Utah and
Narragansett Insured Tax-Free Income Fund. The Aquila Money-Market
Funds are Capital Cash Management Trust, Pacific Capital Cash
Assets Trust (Original Shares), Pacific Capital Tax-Free Cash
Assets Trust (Original Shares), Pacific Capital U.S. Government
Securities Cash Assets Trust (Original Shares) and Churchill Cash
Reserves Trust.
Class Y Shares of the Trust may be exchanged only for Class
Y Shares of the Bond or Equity Funds or for shares of a
Money-Market Fund. Similar exchangability is available to Class I
Shares to the extent that other Aquila-sponsored funds are made
available to its customers by a financial intermediary. All
exchanges of Class I Shares must be made through your financial
intermediary.
Under the Class Y exchange privilege, once Class Y Shares
of any Bond or Equity Fund have been purchased, those shares (and
any Class Y Shares acquired as a result of reinvestment of
dividends and/or distributions) may be exchanged any number of
times between Money-Market Funds and Class Y Shares of the Bond or
Equity Funds without the payment of any sales charge, provided that
the applicable minimum investment requirements for purchase of
Class Y Shares are met. (See "How to Purchase Class Y Shares.")
The "Class Y Eligible Shares" of any Bond or Equity Fund are
those shares which were (a) acquired by direct purchase, including
by exchange by an institutional investor from a Money-Market Fund,
or which were received in exchange for Class Y Shares of another
Bond or Equity Fund; or (b) acquired as a result of reinvestment of
dividends and/or distributions on otherwise Class Y Eligible
Shares. Shares of a Money-Market Fund not acquired in exchange for
Class Y Eligible Shares of a Bond or Equity Fund can be exchanged
for Class Y Shares of a Bond or Equity Fund only by persons
eligible to make an initial purchase of Class Y Shares.
This Trust, as well as the Money-Market Funds and other Bond
or Equity Funds, reserves the right to reject any exchange into its
shares, if shares of the fund into which exchange is desired are
not available for sale in your state of residence. The Trust may
also modify or terminate this exchange privilege at any time. In
the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take effect
on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset value
of the shares surrendered for exchange are at least equal to the
minimum investment requirements of the investment company whose
shares are being acquired and (iii) the ownership of the accounts
from which and to which the exchange is made are identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-228-4228 toll free
Note: The Trust, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
Exchanges of Class Y Shares will be effected at the
relative net asset values of the Class Y Shares being exchanged
next determined after receipt by the Agent of your exchange
request. Exchanges of Class I Shares will be effected at the
relative net asset values of the Class I Shares being exchanged
next determined after receipt by the financial intermediary of your
exchange request.
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the realization
of a capital gain or loss, depending on the cost or other tax basis
of the shares exchanged and the holding period (see "Tax-Effects of
Redemptions" and the Additional Statement); no representation is
made as to the deductibility of any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable,
except to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free money-market
Fund) are exempt from regular Federal income tax, and to the extent
that a portion or all of the dividends paid by Pacific Capital U.S.
Government Securities Cash Assets Trust (which invests in U.S.
Government obligations) are exempt from state income taxes.
Dividends paid by Aquila Rocky Mountain Equity Fund and Aquila
Cascadia Equity Fund are taxable. If your state of residence is not
the same as that of the issuers of obligations in which a tax-free
municipal bond fund or a tax-free money-market fund invests, the
dividends from that fund may be subject to income tax of the state
in which you reside. Accordingly, you should consult your tax
adviser before acquiring shares of such a bond fund or a tax-free
money-market fund under the exchange privilege arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
GENERAL INFORMATION
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Trust's
performance, including current yield, taxable equivalent yield,
various expressions of total return, current distribution rate and
taxable equivalent distribution rate.
Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase,
invested at the maximum public offering price (offering price
includes any applicable sales charge) for 1-, 5- and 10-year
periods and for a period since the inception of the Trust, to the
extent applicable, through the end of such periods, assuming
reinvestment (without sales charge) of all distributions. The Trust
may also furnish total return quotations for other periods or based
on investments at various applicable sales charge levels or at net
asset value. For such purposes total return equals the total of all
income and capital gains paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in
the value of the original investment, expressed as a percentage of
the purchase price. (See the Additional Statement.)
Current yield reflects the income per share earned by each
of the Trust's portfolio investments; it is calculated by (i)
dividing the Trust's net investment income per share during a
recent 30-day period by (ii) the maximum public offering price on
the last day of that period and by (iii) annualizing the result.
Taxable equivalent yield shows the yield from a taxable investment
that would be required to produce an after-tax yield equivalent to
that of the Trust, which invests in tax-exempt obligations. It is
computed by dividing the tax-exempt portion of the Trust's yield
(calculated as indicated) by one minus a stated income tax rate and
by adding the product to the taxable portion (if any) of the
Trust's yield. (See the Additional Statement.)
Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities and
Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will be
paid to the Trust's shareholders. Dividends or distributions paid
to shareholders are reflected in the current distribution rate or
taxable equivalent distribution rate which may be quoted to
shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the Trust
during a recent 30-day period by (ii) the current maximum offering
price and by (iii) annualizing the result. A taxable equivalent
distribution rate shows the taxable distribution rate that would be
required to produce an after-tax distribution rate equivalent to
the Trust's distribution rate (calculated as indicated above). The
current distribution rate differs from the current yield
computation because it could include distributions to shareholders
from sources, if any, other than dividends and interest, such as
short-term capital gains or return of capital. If distribution
rates are quoted in advertising, they will be accompanied by
calculations of current yield in accordance with the formula of the
Securities and Exchange Commission.
In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
the Trust's income net of fee waivers and reimbursement of
expenses, if any, and will assume the payment of the maximum sales
charge, if any, on the purchase of shares, but not on reinvestment
of income dividends. The investment results of the Trust, like all
other investment companies, will fluctuate over time; thus,
performance figures should not be considered to represent what an
investment may earn in the future or what the Trust's yield, tax
equivalent yield, distribution rate, taxable equivalent
distribution rate or total return may be in any future period. The
annual report of the Trust contains additional performance
information that will be made available upon request and without
charge.
Description of the Trust and Its Shares
The Trust is an open-end, non-diversified management
investment company organized in 1984 as a Massachusetts business
trust. (See "Investment of the Trust's Assets" for further
information about the Trust's status as "non-diversified"). The
Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares and to divide or combine the
shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the Trust. Each
share represents an equal proportionate interest in the Trust with
each other share of its class; shares of the respective classes
represent proportionate interests in the Trust in accordance with
their respective net asset values. Upon liquidation of the Trust,
shareholders are entitled to share pro-rata in the net assets of
the Trust available for distribution to shareholders, in accordance
with the respective net asset values of the shares of each of the
Trust's classes at that time. All shares are presently divided into
four classes; however, if they deem it advisable and in the best
interests of shareholders, the Board of Trustees of the Trust may
create additional classes of shares(subject to rules and
regulations of the Securities and Exchange Commission or by
exemptive order) or the Board of Trustees may, at its own
discretion, create additional series of shares, each of which may
have separate assets and liabilities (in which case any such series
will have a designation including the word "Series"). (See the
Additional Statement for further information about possible
additional series.) Shares are fully paid and non-assessable,
except as set forth under the caption "General Information" in the
Additional Statement; the holders of shares have no pre-emptive or
conversion rights, except that Class C Shares automatically convert
to Class A Shares after being held for six years.
The other two classes of shares of the Trust are Front-Payment
Class Shares ("Class A Shares") and Level-Payment Class Shares
("Class C Shares"), which are fully described in a separate
prospectus that can be obtained by calling the Trust at
800-228-4227.
The Trust's four classes of shares differ in their
different sales charge structures and ongoing expenses, which are
likely to be reflected in differing yields and other measures of
investment performance. All four classes represent interests in the
same portfolio of Hawaiian Obligations and have the same rights,
except that each class bears the separate expenses, if any, of its
participation in the Distribution Plan and Shareholder Services
Plan and has exclusive voting rights with respect to such
participation. There are no Distribution fees with respect to Class
Y Shares.
The Trust's Distribution Plan has three parts. In addition
to the defensive provisions described above, Parts I and II of the
Plan authorize payments, to certain "Qualified Recipients," out of
the Trust assets allocable to the Class A Shares and Class C
Shares, respectively. (See the Additional Statement.) The Trust has
also adopted a Shareholder Services Plan under which the Trust is
authorized to make certain payments out of the Trust assets
allocable to the Class C Shares. (See the Additional
Statement.)
The Year 2000
Like other financial and business organizations, the Trust
could be adversely affected if computer systems the Trust relies on
do not properly process date-related information and data involving
the year 2000 and after. The Administrator is taking steps that it
believes are reasonable to address this problem in its own computer
systems and to obtain assurances that steps are being taken by the
other major service providers to the Trust to achieve comparable
results. The three mission critical vendors -- the shareholder
servicing agent, the custodian and the fund accounting agent -- as
well as other support organizations have advised the Administrator
that they are actively working on necessary changes. Certain
vendors have advised the Administrator that they are currently
compliant. The target date for compliance by the mission critical
vendors is late 1998. The Administrator has also requested the
Trust's portfolio manager to attempt to evaluate the potential
impact of this problem on the issuers of securities in which the
Trust invests. At this time there can be no assurance that the
target dates will be met or that these steps will be sufficient to
avoid any adverse impact on the Trust.
Voting Rights
At any meeting of shareholders, shareholders are entitled
to one (1) vote for each dollar of net asset value (determined as
of the record date for the meeting) per share held (and
proportionate fractional votes for fractional dollar amounts).
Shareholders will vote on the election of Trustees and on other
matters submitted to the vote of shareholders. Shares vote by
classes on any matter specifically affecting one or more classes,
such as an amendment of an applicable part of the Distribution
Plan. No amendment may be made to the Declaration of Trust without
the affirmative vote of the holders of a majority of the
outstanding shares of the Trust, except that the Trust's Board of
Trustees may change the name of the Trust. The Trust may be
terminated (i) upon the sale of its assets to another issuer, or
(ii) upon liquidation and distribution of the assets of the Trust,
in either case if such action is approved by the vote of the
holders of a majority of the outstanding shares of the Trust. If
not so terminated, the Trust will continue indefinitely.
<PAGE>
APPLICATION FOR HAWAIIAN TAX-FREE TRUST
FOR CLASS I AND Y SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
PFPC Inc.
400 Bellevue Parkway, Wilmington, DE 19809
Tel.# 1-800-228-4228
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minor's Social Security Number
4. ____________________________________________________
____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s)
of Trustees in which account will be registered and the name and date
of the Trust Instrument. Account for a Pension or Profit Sharing Plan
or Trust may be registered in the name of the Plan or Trust itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:________________________
Employer's Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you
are a non-U.S. Citizen or resident and not subject to back-up
withholding (See certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2
PURCHASES OF SHARES
A. INITIAL INVESTMENT
(Indicate Class of Shares)
Indicate Method of Payment (For either method, make check
payable to: HAWAIIAN TAX-FREE TRUST)
___Initial Investment $ ______________ (Minimum $100,000 for
Fiduciaries and $250,000 for all other eligible purchasers.)
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be:___ Reinvested ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK
showing the Financial Institution account where I/we would like
you to deposit the dividend. (A Financial Institution is a commercial
bank, savings bank or credit union.)
___ Mail check to my/our address listed in Step 1B.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested
in your Hawaiian Tax-Free Trust Account. To establish this program,
please complete Step 4, Sections A & B of this Application.
I/We wish to make regular monthly investments of $ _________________
(minimum $50) on the ___ 1st day or ___ 16th day of the month (or on
the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to add to your
account (minimum $50 and maximum $50,000) at any time you wish by
simply calling the Trust toll-free at 1-800-228-4228. To establish
this program, please complete Step 4, Sections A & B of this Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. AUTOMATIC WITHDRAWAL PLAN
(Available only to shareholders who has Class Y Shares accounts
before July 21, 1998)
(Minimum investment $5,000)
Application must be received in good order at least 2 weeks prior
to 1st actual liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions
set forth below. To realize the amount stated below, PFPC Inc.,
(the "Agent") is authorized to redeem sufficient shares from this
account at the then current Net Asset Value, in accordance with the
terms below:
Dollar Amount of each withdrawal $ ______________beginning________________ .
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is
payable to a Financial Institution for your account, indicate
Financial Institution name, address and your account number.
_______________________________ ______________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ______________________________________
Street Financial Institution Street Address
_______________________________ ______________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
D. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your name
within the Aquilasm Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
persons telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the
Prospectus. Except for gross negligence in acting upon such telephone
instructions to execute an exchange, and subject to the conditions set
forth herein, I/we understand and agree to hold harmless the Agent, each
of the Aquila Funds, and their respective officers, directors, trustees,
employees, agents and affiliates against any liability, damage, expense,
claim or loss, including reasonable costs and attorneys fees, resulting
from acceptance of, or acting or failure to act upon, this Authorization.
E. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution account
listed.
Cash proceeds in any amount from the redemption of shares will
be mailed or wired, whenever possible, upon request, if in an amount
of $1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this
Trust account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________ ____________________________________
Account Registration Financial Institution Account Number
_______________________________ ____________________________________
Financial Institution Name Financial Institution Transit/Routing
Number
_______________________________ ____________________________________
Street City State Zip
STEP 4 Section A
DEPOSITORS AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge
to my/our account any drafts or debits drawn on my/our account
initiated by the Agent, PFPC Inc. to pay such sums in accordance
therewith, provided my/our account has sufficient funds to cover
such drafts or debits. I/We further agree that your treatment of
such orders will be the same as if I/we personally signed or
initiated the drafts or debits.
I/We understand that this authority will remain in effect until
you receive my/our written instructions to cancel this service.
I/We also agree that if any such drafts or debits are dishonored,
for any reason, you shall have no liabilities.
Financial Institution Account Number _____________________________________
Name and Address where my/our account is maintained
Name of Financial Institution_____________________________________________
Street Address____________________________________________________________
City___________________________________________State _________ Zip _______
Name(s) and Signature(s) of Depositor(s) as they appear where account is
registered
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila
Distributors, Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted
pursuant to the above authorization shall be subject to the
provisions of the Operating Rules of the National Automated
Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer
in connection with the execution and issuance of any electronic
debit in the normal course of business initiated by the Agent
(except any loss due to your payment of any amount drawn against
insufficient or uncollected funds), provided that you promptly
notify us in writing of any claim against you with respect to the
same, and further provided that you will not settle or pay or
agree to settle or pay any such claim without the written permission
of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause,
any such electronic debit.
STEP 4 Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of
legal age to purchase shares of the Trust and has received and read
a current Prospectus of the Trust and agrees to its terms.
- - I/We authorize the Trust and its agents to act upon these
instructions for the features that have been checked.
- - I/We acknowledge that in connection with an Automatic Investment or
Telephone Investment, if my/our account at the Financial Institution
has insufficient funds, the Trust and its agents may cancel the
purchase transaction and are authorized to liquidate other shares
or fractions thereof held in my/our Trust account to make up any
deficiency resulting from any decline in the net asset value of
shares so purchased and any dividends paid on those shares. I/We
authorize the Trust and its agents to correct any transfer error
by a debit or credit to my/our Financial Institution account and/or
Trust account and to charge the account for any related charges. I/We
acknowledge that shares purchased either through Automatic Investment
or Telephone Investment are subject to applicable sales charges.
- - The Trust, the Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting
upon instructions believed to be genuine, and will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name and number;
name(s) and social security number registered to the account and
personal identification; the Agent may also record calls.
Shareholders should verify the accuracy of confirmation statements
immediately upon receipt. Under penalties of perjury, the undersigned
whose Social Security (Tax I.D.) Number is shown above certifies
(i) that Number is my correct taxpayer identification number and
(ii) currently I am not under IRS notification that I am subject to
backup withholding (line out (ii) if under notification). If no such
Number is shown, the undersigned further certifies, under penalties
of perjury, that either (a) no such Number has been issued, and a
Number has been or will soon be applied for; if a Number is not
provided to you within sixty days, the undersigned understands that
all payments (including liquidations) are subject to 31% withholding
under federal tax law, until a Number is provided and the undersigned
may be subject to a $50 I.R.S. penalty; or (b) that the undersigned
is not a citizen or resident of the U.S.; and either does not expect
to be in the U.S. for 183 days during each calendar year and does not
conduct a business in the U.S. which would receive any gain from the
Trust, or is exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW. FOR A TRUST,
ALL TRUSTEES MUST SIGN.*
__________________________ ____________________________ _________
Individual (or Custodian) Joint Registrant, if any Date
__________________________ ____________________________ _________
Corporate Officer, Partner, Title Date
Trustee, etc.
* For Trusts, Corporations or Associations, this form must be accompanied
by proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment,
Expedited Redemption and Direct Deposit of Dividends) are effective
15 days after this form is received in good order by the Trust's Agent.
- - You may cancel any feature at any time, effective 3 days after the
Agent receives written notice from you.
- - Either the Trust or the Agent may cancel any feature, without prior
notice, if in its judgment your use of any feature involves unusual
effort or difficulty in the administration of your account.
- - The Trust reserves the right to alter, amend or terminate any or all
features or to charge a service fee upon 30 days written notice to
shareholders except if additional notice is specifically required by
the terms of the Prospectus.
BANKING INFORMATION
- - If your Financial Institution account changes, you must complete a
Ready Access Features Form which may be obtained from Aquila
Distributors at 1-800-228-4227 and send it to the Agent together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution change is effective in 15
days after this form is received in good order by the Trust's Agent.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees to
the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan")
as agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Trust purchased
for and held under the Plan, but the Agent will credit all such
shares to the Planholder on the records of the Trust. Any share
certificates now held by the Planholder may be surrendered unendorsed
to the Agent with the application so that the shares represented by the
certificate may be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the
Trust at Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments
will be made at the Net Asset Value per share in effect at the close
of business on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address
to which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice
(in proper form in accordance with the requirements of the then current
Prospectus of the Trust) to redeem all, or any part of, the shares held
under the Plan. In such case the Agent will redeem the number of shares
requested at the Net Asset Value per share in effect in accordance with
the Trust's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Trust. The Agent will also terminate the Plan upon
receipt of evidence satisfactory to it of the death or legal incapacity
of the Planholder. Upon termination of the Plan by the Agent or the
Trust, shares remaining unredeemed will be held in an uncertificated
account in the name of the Planholder, and the account will continue
as a dividend-reinvestment, uncertificated account unless and until
proper instructions are received from the Planholder, his executor or
guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent
for the Trust, the Planholder will be deemed to have appointed any
successor transfer agent to act as his agent in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional lump sum
investment may be made, such investment should normally be an amount
equivalent to three times the annual withdrawal or $5,000, whichever
is less.
<PAGE>
INVESTMENT ADVISER
Pacific Century Trust
a division of
Bank of Hawaii
Financial Plaza of the Pacific
P.O. Box 3170
Honolulu, Hawaii 96802
ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Arthur K. Carlson
William M. Cole
Thomas W. Courtney
Richard W. Gushman, II
Stanley W. Hong
Theodore T. Mason
Russell K. Okata
Douglas Philpotts
Oswald K. Stender
OFFICERS
Lacy B. Herrmann, President
Sherri Foster, Senior Vice President
William C. Wallace, Senior Vice President
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
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights
Table of Expenses
Financial Highlights
Introduction
Investment Of The Trust's Assets
Investment Restrictions
Net Asset Value Per Share
How To Invest In The Trust
How To Redeem Your Investment
Automatic Withdrawal Plan
Management Arrangements
Dividend And Tax Information
Exchange Privilege
General Information
Application
HAWAIIAN
TAX-FREE TRUST
A TAX-FREE
INCOME INVESTMENT
[LOGO]
PROSPECTUS
[LOGO]
ONE OF THE
AQUILAsm GROUP OF FUNDS
<PAGE>
Hawaiian Tax-Free Trust
380 Madison Avenue, Suite 2300
New York, New York 10017
800-228-4227
212-697-6666
Statement of Additional Information
July 21, 1998
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. There are two Prospectuses for the
Trust dated July 21, 1998: one Prospectus describes Front Payment
Class Shares ("Class A Shares") and Level Payment Class Shares
("Class C Shares") of the Trust and the other describes
Institutional Class Shares ("Class Y Shares") of the Trust and
Financial Intermediary Class Shares ("Class I Shares") of the
Trust. References in the Additional Statement to "the Prospectus"
refer to either of these Prospectuses. The Additional Statement
should be read in conjunction with the Prospectus for the class of
shares in which you are considering investing. Either or both
Prospectuses may be obtained from the Trust's Shareholder Servicing
Agent, PFPC Inc. by writing to it at: 400 Bellevue Parkway, P.O.
Box 8917, Wilmington, DE 19809 or by calling at the following
numbers:
800-288-4228 toll free
or from Aquila Distributors, Inc., the Trust's Distributor, by
writing to it at
380 Madison Avenue, Suite 2300, New York, New York 10017
or by calling: 800-228-4227 toll free
or 212-697-6666
The Annual Report of the Trust for the fiscal year ended
March 31, 1998 (audited) will be delivered with the Additional
Statement.
TABLE OF CONTENTS
Investment of the Trust's Assets . . . . . . . . . . . . . . .2
Municipal Bonds . . . . . . . . . . . . . . . . . . . . . . . 10
Performance . . . . . . . . . . . . . . . . . . . . . . . . . 11
Investment Restrictions . . . . . . . . . . . . . . . . . . . 14
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . 15
Shareholder Services Plan. . . . . . . . . . . . . . . . . . . 21
Limitation of Redemptions in Kind . . . . . . . . . . . . . . 23
Trustees and Officers . . . . . . . . . . . . . . . . . . . . 23
Additional Information as to Management Arrangements . . . . . 30
Computation of Net Asset Value . . . . . . . . . . . . . . . . 34
Automatic Withdrawal Plan. . . . . . . . . . . . . . . . . . . 35
Additional Tax Information . . . . . . . . . . . . . . . . . . 36
Conversion of Class C Shares . . . . . . . . . . . . . . . . . 36
General Information . . . . . . . . . . . . . . . . . . . . . 37
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 40
<PAGE>
INVESTMENT OF THE TRUST'S ASSETS
The investment objective and policies of the Trust are
described in the Prospectus, which refers to the matters described
below. See the Prospectus for the definitions of "Hawaiian
Obligations" and "Taxable Short-Term Obligations" (collectively
"Obligations").
Information On U.S. Government Securities
U.S. Government Securities (i.e., obligations issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities) include securities issued by the U.S.
Government, which in turn include Treasury Bills (which mature
within one year of the date they are issued) and Treasury Notes and
Bonds (which are issued with longer maturities). All Treasury
securities are backed by the full faith and credit of the United
States.
U.S. Government agencies and instrumentalities that issue or
guarantee securities include, but are not limited to, the Farmers
Home Administration, Federal Farm Credit System, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation, Federal Housing
Administration, Federal National Mortgage Association, Financing
Corporation, Government National Mortgage Association, Resolution
Funding Corporation, Small Business Administration, Student Loan
Marketing Association and the Tennessee Valley Authority.
Securities issued or guaranteed by U.S. Government agencies
and instrumentalities are not always supported by the full faith
and credit of the United States Government. Some, such as
securities issued by the Federal Home Loan Banks, are backed by the
right of the agency or instrumentality to borrow from the Treasury.
Others, such as securities issued by the Federal National Mortgage
Association, are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not
backed by the full faith and credit of the United States
Government, the owner of the securities must look principally to
the agency issuing the obligation for repayment and may not be able
to assert a claim against the United States in the event that the
agency or instrumentality does not meet its commitment. The Trust
will invest in securities of agencies and instrumentalities only
if Hawaiian Trust Company, Limited (the "Adviser") is satisfied
that the credit risk involved is minimal.
Ratings
The ratings assigned by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") represent
their respective opinions of the quality of the municipal bonds and
notes and Taxable Short-Term Obligations which they undertake to
rate. It should be emphasized, however, that ratings are general
and not absolute standards of quality. Consequently, obligations
with the same maturity, stated interest rate and rating may have
different yields, while obligations of the same maturity and stated
interest rate with different ratings may have the same yield. See
Appendix A to this Additional Statement for further information
about the ratings of Moody's and S&P as to the various rated
Hawaiian Obligations and Taxable Short-Term Obligations which the
Trust may purchase.
The table below gives information as to the percentage of
Trust assets invested, as of March 31, 1998, in Hawaiian
Obligations in the various rating categories:
Highest rating (1). . . . . . . . . . . . . . . . . . . 74.35%
Second highest rating (2). . . . . . . . . . . . . . . . . 14.33%
Third highest rating (3) . . . . . . . . . . . . . . . . . 5.53%
Fourth highest rating (4). . . . . . . . . . . . . . . . . . 0.0%
Not rated: . . . . . . . . . . . . . . . . . . . . . . . . 5.79%
100.0%
(1) Aaa of Moody's or AAA of S&P (or other highest rating).
(2) Aa of Moody's or AA of S&P (or other second highest rating).
(3) A of Moody's or A of S&P (or other third highest rating).
(4) Baa of Moody's or BBB of S&P (or other fourth highest rating).
When-Issued and Delayed Delivery Obligations
The Trust may buy Obligations on a when-issued or delayed
delivery basis. The purchase price and the interest rate payable on
the Obligations are fixed on the transaction date. At the time the
Trust makes the commitment to purchase Obligations on a when-issued
or delayed delivery basis, it will record the transaction and
thereafter reflect the value each day of such Obligations in
determining its net asset value. The Trust will make commitments
for such when-issued transactions only when it has the intention of
actually acquiring the Obligations. The Trust will maintain a
separate account with portfolio obligations in an amount at least
equal to such commitments. On delivery dates for such transactions,
the Trust will meet its commitments by selling the obligations held
in the separate account and/or from cash flow.
Loans of Portfolio Securities
The Trust may, to increase its income, lend its Obligations on
a short- or long-term basis to broker-dealers, banks or certain
other financial institutions (see below) if (i) the loan is
collateralized in accordance with applicable regulatory
requirements (the "Guidelines") and if (ii) after any loan, the
value of the Obligations loaned does not exceed 10% of the value of
its total assets. The financial institutions other than
broker-dealers or banks to which the Trust can lend its Obligations
are limited to "accredited investors," as that term is defined in
Section 2(15) of the Securities Act of 1933. (In general, such
institutions are insurance companies, investment companies and
certain employee benefit plans.) Under the present Guidelines
(which are subject to change) the loan collateral must, on each
business day, at least equal the value of the loaned obligations
and must consist of cash, bank letters of credit or U.S. Government
Securities. To be acceptable as collateral, a letter of credit must
obligate a bank to pay amounts demanded by the Trust if the demand
meets the terms of the letter. Such terms and the issuing banks
would have to be satisfactory to the Trust. Any loan might be
secured by any one or more of the three types of collateral.
The Trust receives amounts equal to the interest or other
distributions on loaned Obligations and also receives one or more
of the negotiated loan fees, interest on Obligations used as
collateral or interest on the securities purchased with such
collateral, either of which type interest may be shared with the
borrower. The Trust may also pay reasonable finder's, custodian and
administrative fees but only to persons not affiliated with the
Trust. The terms of the Trust's loans will meet certain tests under
the Internal Revenue Code and permit the Trust to terminate the
loan and thus reacquire loaned securities on five days' notice.
Futures Contracts and Options
Although the Trust does not presently do so and may in fact
never do so, it is permitted to buy and sell futures contracts
relating to municipal bond indices ("Municipal Bond Index Futures")
and to U.S. Government securities ("U.S. Government Securities
Futures," together referred to as "Futures"), and exchange traded
options based on Futures as a possible means to protect the asset
value of the Trust during periods of changing interest rates. The
following discussion is intended to explain briefly the workings of
Futures and options on them which would be applicable if the Trust
were to use them.
Unlike when the Trust purchases or sells a Hawaiian
Obligation, no price is paid or received by the Trust upon the
purchase or sale of a future. Initially, however, when such
transactions are entered into, the Trust will be required to
deposit with the Futures commission merchant ("broker") an amount
of cash or Hawaiian Obligations equal to a varying specified
percentage of the contract amount. This amount is known as initial
margin. Subsequent payments, called variation margin, to and from
the broker, will be made on a daily basis as the price of the
underlying index or security fluctuates making the Future more or
less valuable, a process known as marking to market. Insolvency of
the broker may make it more difficult to recover initial or
variation margin. Changes in variation margin are recorded by the
Trust as unrealized gains or losses. Margin deposits do not involve
borrowing by the Trust and may not be used to support any other
transactions. At any time prior to expiration of the future, the
Trust may elect to close the position by taking an opposite
position which will operate to terminate the Trust's position in
the future. A final determination of variation margin is then made.
Additional cash is required to be paid by or released to the Trust
and it realizes a gain or a loss. Although Futures by their terms
call for the actual delivery or acceptance of cash, in most cases
the contractual obligation is fulfilled without having to make or
take delivery. All transactions in the Futures markets are subject
to commissions payable by the Trust and are made, offset or
fulfilled through a clearing house associated with the exchange on
which the contracts are traded. Although the Trust intends to buy
and sell Futures only on an exchange where there appears to be an
active secondary market, there is no assurance that a liquid
secondary market will exist for any particular Future at any
particular time. In such event, or in the event of an equipment
failure at a clearing house, it may not be possible to close a
Futures position.
Municipal Bond Index Futures currently are based on a
long-term municipal bond index developed by the Chicago Board of
Trade ("CBT") and The Bond Buyer (the "Municipal Bond Index").
Financial Futures contracts based on the Municipal Bond Index began
trading on June 11, 1985. The Municipal Bond Index is comprised of
40 tax-exempt municipal revenue and general obligation bonds. Each
bond included in the Municipal Bond Index must be rated A or higher
by Moody's or S&P and must have a remaining maturity of 19 years or
more. Twice a month new issues satisfying the eligibility
requirements are added to, and an equal number of old issues are
deleted from, the Municipal Bond Index. The value of the Municipal
Bond Index is computed daily according to a formula based on the
price of each bond in the Municipal Bond Index, as evaluated by six
dealer-to-dealer brokers.
The Municipal Bond Index Futures contract is traded only on
the CBT. Like other contract markets, the CBT assures performance
under futures contracts through a clearing corporation, a nonprofit
organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or
withdrawals of margin.
There are at present U.S. Government Securities Futures
contracts based on long-term Treasury bonds, Treasury notes, GNMA
Certificates and three-month Treasury bills. U.S. Government
Securities Futures have traded longer than Municipal Bond Index
Futures, and the depth and liquidity available in the trading
markets for them are in general greater.
Call Options on Futures Contracts. The Trust may also
purchase and sell exchange traded call and put options on futures.
The purchase of a call option on a future is analogous to the
purchase of a call option on an individual security. Depending on
the pricing of the option compared to either the future upon which
it is based, or upon the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures
contract or underlying debt securities. Like the purchase of a
futures contract, the Trust may purchase a call option on a future
to hedge against a market advance when the Trust is not fully
invested.
The writing of a call option on a Future constitutes a partial
hedge against declining prices of the securities which are
deliverable upon exercise of the Future. If the price at expiration
of the Future is below the exercise price, the Trust will retain
the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the Trust's
portfolio holdings.
Put Options on Futures Contracts. The purchase of put options
on a Future is analogous to the purchase of protective put options
on portfolio securities. The Trust may purchase a put option on a
Future to hedge the Trust's portfolio against the risk of rising
interest rates.
The writing of a put option on a Future constitutes a partial
hedge against increasing prices of the securities which are
deliverable upon exercise of the Future. If the Future price at
expiration is higher than the exercise price, the Trust will retain
the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the
Trust intends to purchase.
The writer of an option on a Future is required to deposit
initial and variation margin pursuant to requirements similar to
those applicable to Futures. Premiums received from the writing of
an option will be included in initial margin. The writing of an
option on a Future involves risks similar to those relating to
Futures.
Risk Factors in Futures Transactions and Options
One risk in employing futures or options on them to attempt
to protect against the price volatility of the Trust's Hawaiian
Obligations is that the Adviser could be incorrect in its
expectations as to the extent of various interest rate movements
or the time span within which the movements take place. For
example, if the Trust sold a Future in anticipation of an increase
in interest rates, and then interest rates went down instead, the
Trust would lose money on the sale.
Another risk as to Futures or options on them arises because
of the imperfect correlation between movement in the price of the
Future and movements in the prices of the Hawaiian Obligations
which are the subject of the hedge. The risk of imperfect
correlation increases as the composition of the Trust's portfolio
diverges from the municipal bonds included in the applicable index
or from the security underlying the U.S. Government Securities
Futures. The price of the Future or option may move more than or
less than the price of the Hawaiian Obligations being hedged. If
the price of the Future or option moves less than the price of the
Hawaiian Obligations which are the subject of the hedge, the hedge
will not be fully effective but, if the price of the Hawaiian
Obligations being hedged has moved in an unfavorable direction, the
Trust would be in a better position than if it had not hedged at
all. If the price of the Hawaiian Obligations being hedged has
moved in a favorable direction, this advantage will be partially
offset by the Future or option. If the price of the Future or
option has moved more than the price of the Hawaiian Obligations,
the Trust will experience either a loss or gain on the Future or
option which will not be completely offset by movements in the
price of the Hawaiian Obligations which are the subject of the
hedge. To compensate for the imperfect correlation of movements in
the price of the Hawaiian Obligations being hedged and movements in
the price of the Futures or options, the Trust may buy or sell
Futures or options in a greater dollar amount than the dollar
amount of the Hawaiian Obligations being hedged if the historical
volatility of the prices of the Hawaiian Obligations being hedged
is less than the historical volatility of the debt securities
underlying the hedge. It is also possible that, where the Trust has
sold Futures or options to hedge its portfolio against a decline in
the market, the market may advance and the value of the Hawaiian
Obligations held in the Trust's portfolio may decline. If this
occurred the Trust would lose money on the Future or option and
also experience a decline in value of its portfolio securities.
Where Futures or options are purchased to hedge against a
possible increase in the price of Hawaiian Obligations before the
Trust is able to invest in them in an orderly fashion, it is
possible that the market may decline instead; if the Trust then
concludes not to invest in them at that time because of concern as
to possible further market decline or for other reasons, the Trust
will realize a loss on the Futures or options that is not offset by
a reduction in the price of the Hawaiian Obligations which it had
anticipated purchasing.
The particular municipal bonds comprising the index underlying
Municipal Bond Index Futures will vary from the bonds held by the
Trust. The correlation of the hedge with such bonds may be affected
by disparities in the average maturity, ratings, geographical mix
or structure of the Trust's investments as compared to those
comprising the Index, and general economic or political factors. In
addition, the correlation between movements in the value of the
Municipal Bond Index may be subject to change over time, as
additions to and deletions from the Municipal Bond Index alter its
structure. The correlation between U.S. Government Securities
Futures and the municipal bonds held by the Trust may be adversely
affected by similar factors and the risk of imperfect correlation
between movements in the prices of such Futures and the prices of
Municipal Bonds held by the Trust may be greater.
Trading in Municipal Bond Index Futures may be less liquid
than that in other Futures. The trading of Futures and options is
also subject to certain market risks, such as inadequate trading
activity or limits on upward or downward price movements, which
could at times make it difficult or impossible to liquidate
existing positions.
Regulatory Aspects of Futures and Options
The Trust will, due to requirements under the Investment
Company Act of 1940 (the "1940 Act"), deposit in a segregated
account liquid Hawaiian Obligations maturing in one year or less,
or cash, in an amount equal to the fluctuating market value of long
Futures or options it has purchased, less any margin deposited on
long positions.
The Trust must operate as to its long and short positions
in Futures under in conformity with a rule (the "CFTC Rule")
adopted by the Commodity Futures Trading Commission ("CFTC") under
the Commodity Exchange Act (the "CEA") to be eligible for the
exclusion provided by the CFTC Rule as a "commodity pool operator"
(as defined under the CEA). Under these restrictions the Trust will
represent to the CFTC that it will not, as to any positions,
whether long, short or a combination thereof, enter into Futures or
options for which the aggregate initial margins and premiums paid
for options exceed 5% of the fair market value of its assets. Under
the restrictions, the Trust will also represent that as to its
short positions, it will use Futures and options solely for
bona-fide hedging purposes within the meaning and intent of the
applicable provisions under the CEA. As to the Trust's long
positions which are used as part of its portfolio strategy and are
incidental to its activities in the underlying cash market, the
"underlying commodity value" (see below) of its Futures must not
exceed the sum of (i) cash set aside in an identifiable manner, or
short-term U.S. debt obligations or other U.S. dollar-denominated
high quality short-term money market instruments so set aside, plus
any funds deposited as margin; (ii) cash proceeds from existing
investments due in 30 days and (iii) accrued profits held at the
futures commission merchant. (There is described above the
segregated account which the Trust must maintain as to its Futures
and options activities due to requirements other than those of the
CFTC Rule; the Trust will, as to long positions, be required to
abide by the more restrictive of this other requirement or the
above requirements of the CFTC Rule.) The "underlying commodity
value" of a Future or option is computed by multiplying the size of
the Future by the daily settlement price of the Future or
option.
The "sale" of a Future means the acquisition by the Trust
of an obligation to deliver an amount of cash equal to a specified
dollar amount times the difference between the value of the index
or government security at the close of the last trading day of the
Future and the price at which the Future is originally struck
(which the Trust anticipates will be lower because of a subsequent
rise in interest rates and a corresponding decline in the index
value). This is referred to as having a "short" Futures position.
The "purchase" of a Future means the acquisition by the Trust of a
right to take delivery of such an amount of cash. In this case, the
Trust anticipates that the closing value will be higher than the
price at which the future is originally struck. This is referred to
as having a "long" futures position. No physical delivery of the
bonds making up the index or the U.S. government securities, as the
case may be, is made as to either a long or a short futures
position.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage
computed by taking the lesser of purchases or sales of portfolio
securities for a year and dividing it by the monthly average value
of such securities during the year, excluding certain short-term
securities. Since the turnover rate of the Trust will be affected
by a number of factors, the Trust is unable to predict what rate
the Trust will have in any particular period or periods, although
such rate is not expected to exceed 100%. However, the rate could
be substantially higher or lower in any particular period.
Insurance Feature
As a matter of practice, insurers of municipal obligations
provide insurance only on issues which on their own credit rating
are of investment grade, i.e., those within the top four credit
ratings of the Nationally Recognized Statistical Rating
Organizations. In some instances, insurers restrict issuance of
insurance to those issues which would be credit rated "A" or better
by those organizations. These practices by the insurers tend to
reduce the risk that they might not be able to respond to the
default in payment of principal or interest on any particular
issue.
In general, New Issue Insurance provides that if an issuer
fails to make payment of principal or interest on an insured
Obligation, the payment will be made promptly by the insurer. There
are no deductible clauses, the insurance is non-cancelable and the
tax-exempt character of any payment in respect of interest
received is not affected. Premiums for such insurance are not paid
by the Trust but are paid once and for all for the life of the
issue at the time the securities are issued, generally by the
issuer and sometimes by the underwriter. The right to receive the
insurance proceeds is a part of the security and is transferable on
any resale.
The following information regarding Municipal Bond Investors
Assurance Corporation ("MBIA"), Financial Guaranty Insurance
Company ("Financial Guaranty") and AMBAC Indemnity Corporation
("AMBAC Indemnity"),has been derived from publicly available
information. The Trust has not independently verified any of the
information, but the Trust is not aware of facts which would render
such information inaccurate.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance
corporation, regulated by the Insurance Department of the State of
Wisconsin, and licensed to do business in 50 states and the
District of Columbia. AMBAC Indemnity is a wholly-owned subsidiary
of AMBAC, Inc., a publicly held company.The claims-paying ability
of AMBAC Indemnity is rated "AAA" by S&P and "Aaa" by Moody's.
MBIA is a limited liability corporation domiciled in New York
and licensed to do business in 50 states and the District of
Columbia. It is the principal operating subsidiary of MBIA Inc., a
New York Stock Exchange listed company. Neither MBIA Inc. nor its
shareholders are obligated to pay the debts of or claims against
MBIA. The claims-paying ability of MBIA is rated "AAA" by S&P and
"Aaa" by Moody's.
Financial Guaranty is a New York stock insurance company
regulated by the New York State Department of Insurance and
authorized to provide insurance in 49 states and the District of
Columbia. Financial Guaranty is a wholly-owned subsidiary of FGIC
Corporation, a Delaware holding company, which is 99% owned by
General Electric Capital Corporation and 1% owned by Sumitomo
Marine and Fire Insurance Company Limited. Neither FGIC Corporation
nor GE Capital Corporation is obligated to pay the debts of or the
claims against Financial Guaranty.The claims-paying ability of
Financial Guaranty is rated "AAA" by S&P and "Aaa" by Moody's.
Other insurance companies from which the Trust may purchase
insurance from, or may purchase Obligations insured by, include the
following:
Financial Security Assurance Co., which is owned by U.S. West
Capital Corp. (50.3%), Public & Employees (22.1%), Fund America
Enterprises (7.6%) and Tokyo Marine & Fire Insurance Co, Ltd.
(6.1%); Publicly held (35.8%) it is rated Aaa by Moody's and AAA by
S&P;
Connie Lee Insurance Company, a semi-public company, owned by
Student Loan Marketing Association (36.1%), Private Shareholders
(30.0%), PA School Employees Retirement System (20%) and the
U.S.Department of Education (14%); it is rated AAA by S&P and Aaa
by Moody's; and
Capital Guaranty Insurance Co., owned by Constellation
Investments, Inc. (12.6%), Safeco (3.0%), Sibag Finance Corp.
(1.8%) and 82% by the public; it is rated Aaa by Moody's and AAA by
S&P.
The Fund may also use other insurers. However, the Fund will
seek to ensure that any insurer used will itself have a AAA or Aaa
rating.
MUNICIPAL BONDS
The two principal classifications of municipal bonds are
"general obligation" bonds and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, credit
and unlimited taxing power for the payment of principal and
interest. Revenue or special tax bonds are payable only from the
revenues derived from a particular facility or class of facilities
or projects or, in a few cases, from the proceeds of a special
excise or other tax, but are not supported by the issuer's power to
levy unlimited general taxes. There are, of course, variations in
the security of municipal bonds, both within a particular
classification and between classifications, depending on numerous
factors. The yields of municipal bonds depend on, among other
things, general financial conditions, general conditions of the
municipal bond market, the size of a particular offering, the
maturity of the obligation and rating of the issue.
Since the Trust may invest in industrial development bonds or
private activity bonds, the Trust may not be an appropriate
investment for entities which are "substantial users" of facilities
financed by those bonds or for investors who are "related persons"
of such users. Generally, an individual will not be a "related
person" under the Internal Revenue Code unless such investor or his
or her immediate family (spouse, brothers, sisters and lineal
descendants) own directly or indirectly in the aggregate more than
50 percent of the equity of a corporation or is a partner of a
partnership which is a "substantial user" of a facility financed
from the proceeds of those bonds. A "substantial user" of such
facilities is defined generally as a "non-exempt person who
regularly uses a part of a facility" financed from the proceeds of
industrial development or private activity bonds.
As indicated in the Prospectus, there are certain Hawaiian
Obligations the interest on which is subject to the Federal
alternative minimum tax on individuals. While the Trust may
purchase these obligations, it may, on the other hand, refrain from
purchasing particular Hawaiian Obligations due to this tax
consequence. Also, as indicated in the Prospectus, the Trust will
not purchase obligations of Hawaiian issuers the interest on which
is subject to regular Federal income tax. The foregoing may reduce
the number of issuers of obligations which are available to the
Trust.
As stated in the Prospectus, floating and variable rate demand
notes and participation interests (including municipal
lease/purchase obligations) are considered illiquid unless
determined by the Board of Trustees to be readily marketable. In
determining marketability of any such securities, the Board of
Trustees will consider the following factors, not all of which may
be applicable to any particular issue: the quality, maturity and
coupon rate of the issue, ratings received from the nationally
recognized statistical rating organizations and any changes or
prospective changes in such ratings, the likelihood that the issuer
will continue to appropriate the required payments for the issue,
recent purchases and sales of the same or similar issues, the
general market for municipal securities of the same or similar
quality, the Adviser's opinion as to marketability of the issue and
other factors that may be applicable to any particular issue.
PERFORMANCE
As noted in the Prospectus, the Trust may from time to time
quote various performance figures to illustrate its past
performance.
Performance quotations by investment companies are subject
to rules of the Securities and Exchange Commission ("SEC"). These
rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation
furnished by the Trust be accompanied by certain standardized
performance information computed as required by the SEC. Current
yield and average annual compounded total return quotations used by
the Trust are based on these standardized methods and are computed
separately for each of the Trust's three classes of shares. Each of
these and other methods that may be used by the Trust are described
in the following material. Prior to April 1, 1996, the Trust had
outstanding only one class of shares which are currently designated
"Class A Shares." On that date the Trust began to offer shares of
two other classes, Class C Shares and Class Y Shares. During most
of the historical periods listed below, there were no Class C
Shares or Class Y Shares outstanding and the information below
relates solely to Class A Shares unless otherwise indicated. Class
I Shares were first offered on July 21, 1998 and none were
outstanding during the periods indicated.
Total Return
Average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5- and 10-year
periods and a period since the inception of the operations of the
Trust (on February 20, 1985) that would equate an initial
hypothetical $1,000 investment in shares of each of the Trust's
classes to the value such an investment would have if it were
completely redeemed at the end of each such period.
In the case of Class A Shares, the calculation assumes the
maximum sales charge is deducted from the hypothetical initial
$1,000 purchase. In the case of Class C Shares, the calculation
assumes the applicable Contingent Deferred Sales Charge ("CDSC")
imposed on a redemption of Class C Shares held for the period is
deducted. In the case of Class Y Shares, the calculation assumes
that no sales charge is deducted and no CDSC is imposed. For all
classes, it is assumed that on each reinvestment date during each
such period any capital gains are reinvested at net asset value,
and all income dividends are reinvested at net asset value, without
sales charge (because the Trust does not impose any sales charge on
reinvestment of dividends for any class). The computation further
assumes that the entire hypothetical account was completely
redeemed at the end of each such period.
Investors should note that the maximum sales charge (4%)
reflected in the following quotations for Class A Shares is a one
time charge, paid at the time of initial investment. The greatest
impact of this charge is during the early stages of an investment
in the Trust. Actual performance will be affected less by this one
time charge the longer an investment remains in the Trust. Sales
charges at the time of purchase are payable only on purchases of
Class A Shares of the Trust.
<TABLE>
<CAPTION>
Average Annual Compounded Rates of Return:
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
One Year 9.37% 8.40% 10.24%
Five Years 4.90% N/A N/A
Ten Years 6.81% N/A N/A
Since
inception on
February 20,
1985 7.80% 5.88%(1) 8.18%(1)
<FN>
(1) Period from April 1, 1996 (inception of class) through March 31, 1998.
</FN>
</TABLE>
These figures were calculated according to the following SEC
formula:
n
P(1T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5- and
10-year periods or the period since inception, at
the end of each such period.
As discussed in the Prospectus, the Trust may quote total
rates of return in addition to its average annual total return for
each of its three classes of shares. Such quotations are computed
in the same manner as the Trust's average annual compounded rate,
except that such quotations will be based on the Trust's actual
return for a specified period as opposed to its average return over
the periods described above.
<TABLE>
<CAPTION>
Total Return
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
One Year 9.37% 8.40% 10.24%
Five Years 27.04% N/A N/A
Ten Years 93.28% N/A N/A
Since
inception on
February 20,
1985 167.86% 12.10%(1) 17.01%(1)
<FN>
(1) Period from April 1, 1996 (inception of class) through March 31, 1998.
</FN>
</TABLE>
Yield
Current yield reflects the income per share earned by the
Trust's portfolio investments. Current yield is determined by
dividing the net investment income per share earned for each of the
Trust's three classes during a 30-day base period by the maximum
offering price per share on the last day of the period and
annualizing the result. Expenses accrued for the period include any
fees charged to all shareholders of each class during the base
period net of fee waivers and reimbursements of expenses, if any.
The Trust may also quote a taxable equivalent yield for each
of its classes of shares which shows the taxable yield that would
be required to produce an after-tax yield equivalent to that of a
fund which invests in tax-exempt obligations. Such yield is
computed by dividing that portion of the yield of the Trust
(computed as indicated above) which is tax-exempt by one minus the
highest applicable combined federal and Hawaiian income tax rate
(and adding the result to that portion of the yield of the Trust
that is not tax-exempt, if any).
The Hawaiian and the combined Hawaiian and federal income tax
rates upon which the Trust's tax equivalent yield quotations are
based are 10% and 46.71%, respectively. The latter rate reflects
currently-enacted Federal income tax law. From time to time, as any
changes to such rates become effective, tax equivalent yield
quotations advertised by the Trust will be updated to reflect such
changes. Any tax rate increases will tend to make a tax-free
investment, such as the Trust, relatively more attractive than
taxable investments. Therefore, the details of specific tax
increases may be used in Trust sales material.
Yield for the 30-day period ended March 31, 1998 (the date
of the Trust's most recent audited financial statements:
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
Yield 4.05% 3.42% 4.42%
Taxable
Equivalent
Yield 7.45% 6.29% 8.13%
</TABLE>
These figures were obtained using the Securities and Exchange
Commission formula:
6
Yield = 2 [(a-b 1) -1]
----
cd
where:
a = interest earned during the period
b = expenses accrued for the period (net of waivers and
reimbursements)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
Current Distribution Rate
Current yield and tax equivalent yield, which are calculated
according to a formula prescribed by the SEC, are not indicative
of the amounts which were or will be paid to the Trust's
shareholders. Amounts paid to shareholders are reflected in the
quoted current distribution rate or taxable equivalent distribution
rate. The current distribution rate is computed by (i) dividing the
total amount of dividends per share paid by the Trust during a
recent 30-day period by (ii) the current maximum offering price and
by (iii) annualizing the result. A taxable equivalent distribution
rate shows the taxable distribution rate that would be required to
produce an after-tax distribution rate equivalent to the Trust's
current distribution rate (calculated as indicated above). The
current distribution rate can differ from the current yield
computation because it could include distributions to shareholders
from additional sources (i.e., sources other than dividends and
interest), such as short-term capital gains.
Other Performance Quotations
With respect to those categories of investors who are
permitted to purchase Class A Shares of the Trust at net asset
value, the Trust may quote a "Current Distribution Rate for Net
Asset Value Investments." This rate is computed by (i) dividing the
total amount of dividends per share paid by the Trust during a
recent 30-day period by (ii) the current net asset value of the
Trust and by (iii) annualizing the result. Figures for yield, total
return and other measures of performance for Net Asset Value
Investments may also be quoted. These will be derived as described
above with the substitution of net asset value for public offering
price.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used. If distribution rates are quoted in advertising, they will be
accompanied by calculations of current yield in accordance with the
formula of the Securities and Exchange Commission.
The Trust may include in advertisements and sales literature,
information, examples and statistics that illustrate the effect of
taxable versus tax-free compounding income at a fixed rate of
return to demonstrate the growth of an investment over a stated
period of time resulting from the payment of dividends and capital
gains distributions in additional shares. The examples used will be
for illustrative purposes only, and are not representations by the
Trust of past or future yield or return.
From time to time, in reports and promotional literature,
the Trust may compare its performance to, or cite the historical
performance of, U.S. Treasury bills, notes and bonds, or indices of
broad groups of unmanaged securities considered to be
representative of, or similar to, the Trust's portfolio holdings,
such as:
Lipper Analytical Services, Inc. ("Lipper") is a widely-
recognized independent service that monitors and ranks the
performance of regulated investment companies. The Lipper
performance analysis includes the reinvestment of capital gain
distributions and income dividends but does not take sales charges
into consideration. The method of calculating total return data on
indices utilizes actual dividends on ex-dividend dates accumulated
for the quarter and reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly
publication of Morningstar, Inc. Morningstar proprietary ratings
reflect historical risk-adjusted performance, and are subject to
change every month. Funds with at least three years of performance
history are assigned ratings from one star (lowest) to five stars
(highest). Morningstar ratings are calculated from the funds'
three-, five-, and ten-year average annual returns (when available)
and a risk factor that reflects fund performance relative to
three-month Treasury bill monthly returns. Fund's returns are
adjusted for fees and sales loads. Ten percent of the funds in an
investment category receive five stars, 22.5% receive four stars,
35% receive three stars, 22.5% receive two stars, and the bottom
10% receive one star.
Salomon Brothers Inc., "Market Performance," a monthly
publication which tracks principal return, total return and yield
on the Salomon Brothers Broad Investment-Grade Bond Index and the
components of the Index.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond
Indices," a monthly corporate government index publication which
lists principal, coupon and total return on over 100 different
taxable bond indices which Merrill Lynch tracks. They also list the
par weighted characteristics of each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly
publication which tracks principal, coupon and total return on the
Lehman Govt./Corp. Index and Lehman Aggregate Bond Index, as well
as all the components of these Indices.
The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of inflation. The Index
shows changes in the cost of selected consumer goods and does not
represent a return on an investment vehicle.
From time to time, in reports and promotional literature,
performance rankings and ratings reported periodically in national
financial publications such as MONEY, FORBES, BUSINESS WEEK,
BARRON'S, FINANCIAL TIMES and FORTUNE may also be used. In
addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE WALL
STREET JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be
cited.
INVESTMENT RESTRICTIONS
The Trust has a number of policies concerning what it can and
cannot do. Those that are called fundamental policies cannot be
changed unless the holders of a "majority" (as defined in the 1940
Act) of the Trust's outstanding shares vote to change them. Under
the 1940 Act, the vote of the holders of a "majority" of the
Trust's outstanding shares means the vote of the holders of the
lesser of (a) 67% or more of the Trust's shares present at a
meeting or represented by proxy if the holders of more than 50% of
its shares are so present or represented; or (b) more than 50% of
the Trust's outstanding shares. Those fundamental policies not set
forth in the Prospectus are set forth below:
1. The Trust invests only in certain limited securities.
The Trust cannot buy any securities other than those listed
under "Investment of the Trust's Assets" in the Prospectus;
therefore the Trust cannot buy any voting securities, any
commodities or commodity contracts other than Municipal Bond Index
Futures and U.S. Government Securities Futures, any mineral related
programs or leases, any shares of other investment companies or any
warrants, puts, calls or combinations thereof other than on
Municipal Bond Index Futures or on U.S. Government Securities
Futures.
The Trust cannot purchase or hold the securities of any issuer
if, to its knowledge, Trustees, Directors or officers of the Trust
or its Adviser individually owning beneficially more than 0.5% of
the securities of that issuer together own in the aggregate more
than 5% of such securities.
The Trust cannot buy real estate or any non-liquid interests
in real estate investment trusts; however, it can buy any
securities which it can otherwise buy even though the issuer
invests in real estate or has interests in real estate.
2. The Trust does not buy for control.
The Trust cannot invest for the purpose of exercising control
or management of other companies.
3. The Trust does not sell securities it does not own or borrow
from brokers to buy securities.
Thus, it cannot sell short or buy on margin; however, the
Trust can make margin deposits in connection with the purchase or
sale of Municipal Bond Index Futures, U.S. Government Securities
Futures or options on them, and can pay premiums on these options.
4. The Trust is not an underwriter.
The Trust cannot engage in the underwriting of securities,
that is, the selling of securities for others. Also, it cannot
invest in restricted securities. Restricted securities are
securities which cannot freely be sold for legal reasons.
DISTRIBUTION PLAN
The Trust's Distribution Plan has four parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II), to distribution payments relating to Class I
Shares (Part III) and to certain defensive provisions (Part
IV).
Provisions Relating to Class A Shares (Part I)
At the date of the Additional Statement, most of the
outstanding shares of the Trust would be considered Qualified
Holdings of various broker-dealers unaffiliated with the Adviser or
the Distributor. The Distributor will consider shares which are not
Qualified Holdings of such unrelated broker-dealers to be Qualified
Holdings of the Distributor and will authorize Permitted Payments
to the Distributor with respect to such shares whenever Permitted
Payments are being made under the Plan.
Part I of the Plan applies only to the Front-Payment Class
Shares ("Class A Shares") of the Trust (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part I of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors, Inc.
(the "Distributor"), including but not limited to any principal
underwriter of the Trust, with which the Trust or the Distributor
has entered into written agreements in connection with Part I
("Class A Plan Agreements") and which have rendered assistance
(whether direct, administrative, or both) in the distribution
and/or retention of the Trust's Front-Payment Class Shares or
servicing of shareholder accounts with respect to such shares.
"Qualified Holdings" shall mean, as to any Qualified Recipient, all
Front-Payment Class Shares beneficially owned by such Qualified
Recipient, or beneficially owned by its brokerage customers, other
customers, other contacts, investment advisory clients, or other
clients, if the Qualified Recipient was, in the sole judgment of
the Distributor, instrumental in the purchase and/or retention of
such shares and/or in providing administrative assistance or other
services in relation thereto.
Subject to the direction and control of the Board of Trustees
of the Trust, the Trust may make payments ("Class A Permitted
Payments") to Qualified Recipients, which Class A Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Trust (as adjusted for any part
or parts of a fiscal year during which payments under the Plan are
not accruable or for any fiscal year which is not a full fiscal
year), 0.20 of 1% of the average annual net assets of the Trust
represented by the Front-Payment Class Shares. Such payments shall
be made only out of the Trust's assets allocable to the
Front-Payment Class Shares. The Distributor shall have sole
authority (i) as to the selection of any Qualified Recipient or
Recipients; (ii) not to select any Qualified Recipient; and (iii)
as to the amount of Class A Permitted Payments, if any, to each
Qualified Recipient provided that the total Class A Permitted
Payments to all Qualified Recipients do not exceed the amount set
forth above.
The Distributor is authorized, but not directed, to take
into account, in addition to any other factors deemed relevant by
it, the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Front-Payment Class
Shares, including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Trust may be effected; assisting shareholders in
designating and changing dividend options, account designations and
addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records; assisting
in processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in connection
with customer orders to purchase or redeem shares; verifying and
guaranteeing shareholder signatures in connection with redemption
orders and transfers and changes in shareholder designated
accounts; furnishing (either alone or together with other reports
sent to a shareholder by such person) monthly and year-end
statements and confirmations of purchases and redemptions;
transmitting, on behalf of the Trust, proxy statements, annual
reports, updating prospectuses and other communications from the
Trust to its shareholders; receiving tabulating and transmitting to
the Trust proxies executed by shareholders with respect to meetings
of shareholders of the Trust; and providing such other related
services as the Distributor or a shareholder may request from time
to time; and (c) the possibility that the Qualified Holdings of the
Qualified Recipient would be redeemed in the absence of its
selection or continuance as a Qualified Recipient. Notwithstanding
the foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified Recipient.
Amounts within the above limits accrued to a Qualified Recipient
but not paid during a fiscal year may be paid thereafter; if less
than the full amount is accrued to all Qualified Recipients, the
difference will not be carried over to subsequent years.
While Part I is in effect, the Trust's Distributor shall
report at least quarterly to the Trust's Trustees in writing for
their review on the following matters: (i) all Class A Permitted
Payments made under Section 9 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which the
amounts were expended; and (ii) all fees of the Trust to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the 1940 Act, of the
Trust, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Trust an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part I originally went into effect when it was approved (i) by
a vote of the Trustees, including the Independent Trustees, with
votes cast in person at a meeting called for the purpose of voting
on Part I of the Plan; and (ii) by a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities of
the Front-Payment Class Shares class (or of any predecessor class
or category of shares, whether or not designated as a class) and a
vote of holders of at least a "majority" (as so defined) of the
outstanding voting securities of the Level-Payment Class Shares
and/or of any other class whose shares are convertible into
Front-Payment Class Shares. Part I has continued, and will, unless
terminated as hereinafter provided, continue in effect, until the
June 30 next succeeding such effectiveness, and from year to year
thereafter only so long as such continuance is specifically
approved at least annually by the Trust's Trustees and its
Independent Trustees with votes cast in person at a meeting called
for the purpose of voting on such continuance. Part I may be
terminated at any time by the vote of a majority of the Independent
Trustees or by the vote of the holders of a "majority" (as defined
in the 1940 Act) of the outstanding voting securities of the Trust
to which Part I applies. Part I may not be amended to increase
materially the amount of payments to be made without shareholder
approval of the class or classes of shares affected by Part I as
set forth in (ii) above, and all amendments must be approved in the
manner set forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class A Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since each
such agreement must be approved in accordance with, and contain the
provisions required by, the Rule. In the case of Qualified
Recipients which are not principal underwriters of the Trust, the
Class A Plan Agreements with them shall be (i) their agreements
with the Distributor with respect to payments under the Trust's
Distribution Plan in effect prior to April 1, 1996 or (ii) Class A
Plan Agreements entered into thereafter.
Provisions relating to Class C Shares (Part II)
Part II of the Plan applies only to the Level Payment Shares
Class ("Class C Shares") of the Trust (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part II of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements in connection
with Part II ("Class C Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Trust's Level- Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Level-Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Trust's Board of
Trustees, the Trust may make payments ("Class C Permitted
Payments") to Qualified Recipients, which Class C Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Trust (as adjusted for any
part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year) 0.75 of 1% of the average annual net assets of the
Trust represented by the Level-Payment Class Shares. Such
payments shall be made only out of the Trust's assets allocable
to the Level-Payment Class Shares. The Distributor shall have
sole authority (i) as to the selection of any Qualified Recipient
or Recipients; (ii) not to select any Qualified Recipient; and
(iii) the amount of Class C Permitted Payments, if any, to each
Qualified Recipient provided that the total Class C Permitted
Payments to all Qualified Recipients do not exceed the amount set
forth above. The Distributor is authorized, but not directed, to
take into account, in addition to any other factors deemed
relevant by it, the following: (a) the amount of the Qualified
Holdings of the Qualified Recipient; (b) the extent to which the
Qualified Recipient has, at its expense, taken steps in the
shareholder servicing area with respect to holders of Level
Payment Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Trust may be effected; assisting
shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel
and facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures
in connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year end statements and confirmations of purchases
and redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part II is in effect, the Trust's Distributor shall
report at least quarterly to the Trust's Trustees in writing for
their review on the following matters: (i) all Class C Permitted
Payments made under Section 15 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Trust, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Trust an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part II originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part II of the Plan; and (ii) by a vote of holders of
at least a "majority" (as so defined) of the outstanding voting
securities of the Level-Payment Class Shares. Part II has
continued, and will, unless terminated as hereinafter provided,
continue in effect, until the June 30 next succeeding such
effectiveness, and from year to year thereafter only so long as
such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part II may be terminated at any time by the vote of
a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust to which Part II
applies. Part II may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part II as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class C Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Trust, the Class C Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Trust's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class C Plan Agreements entered into thereafter.
Payments under the Plan
Payments under the Plan commenced as of July 1, 1992 with
respect to shares currently designated as Class A Shares. During
the fiscal years ended March 31, 1998, 1997 and 1996, $1,304,887,
$1,304,201 and $1,330,035, respectively, were paid under the Plan
to Qualified Recipients. Of those amounts, $72,446, $76,168 and
$78,658, respectively, were paid to the Distributor. All of such
payments were for compensation. During the Trust's fiscal years
ended March 31, 1998 and 1997, $43,743 and $14,765, respectively,
was paid to Qualified Recipients under the Plan with respect to
the Trust's Class C Shares of which $38,109 and $14,765,
respectively, was retained by the Distributor. All of such
payments were for compensation. Payments with respect to Class C
Shares during the first year after purchase are paid to the
Distributor and thereafter to other Qualified Recipients.
Provisions relating to Class I Shares (Part III)
Part III of the Plan applies only to the Financial
Intermediary Class Shares ("Class I Shares") of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
As used in Part III of the Plan, "Qualified Recipients"
shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to any principal underwriter of the Trust, with which the Trust
or the Distributor has entered into written agreements in
connection with Part III ("Class I Plan Agreements") and which
have rendered assistance (whether direct, administrative, or
both) in the distribution and/or retention of the Trust's Class I
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Class I Shares beneficially owned by such
Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation
thereto.
Subject to the direction and control of the Trust's Board
of Trustees, the Trust may make payments ("Class I Permitted
Payments") to Qualified Recipients, which Class I Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Trust (as adjusted for any
part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year), at a rate fixed for time to time by the Board of
Trustees, initially 0.10 of 1% of the average annual net assets
of the Trust represented by the Class I Shares, but not more than
0.25 of 1% of such assets. Such payments shall be made only out
of the Trust's assets allocable to Class I Shares. The
Distributor shall have sole authority (i) as to the selection of
any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class C Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class I Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Class I Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Trust
may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with
other reports sent to a shareholder by such person) monthly and
year-end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving,
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part III is in effect, the Trust's Distributor
shall report at least quarterly to the Trust's Trustees in
writing for their review on the following matters: (i) all Class
I Permitted Payments made under Section 15 of the Plan, the
identity of the Qualified Recipient of each payment, and the
purposes for which the amounts were expended; and (ii) all fees
of the Trust to the Distributor, sub-adviser or Administrator
paid or accrued during such quarter. In addition, if any such
Qualified Recipient is an affiliated person, as that term is
defined in the Act, of the Trust, the Adviser, the Administrator
or the Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the
Trust an accounting, in form and detail satisfactory to the Board
of Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
Part III originally went into effect when it was approved
(i) by a vote of the Trustees, including the Independent
Trustees, with votes cast in person at a meeting called for the
purpose of voting on Part III of the Plan; and (ii) by a vote of
holders of at least a "majority" (as so defined) of the
outstanding voting securities of the Class I Shares Class. Part
III has continued, and will, unless terminated as thereinafter
provided, continue in effect, until the June 30 next succeeding
such effectiveness, and from year to year thereafter only so long
as such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part II may be terminated at any time by the vote of
a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust to which Part III
applies. Part III may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part III as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class I Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Trust, the Class I Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Trust's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class I Plan Agreements entered into thereafter.
Defensive Provisions (Part IV)
Another part of the Plan (Part IV) states that if and to
the extent that any of the payments listed below are considered
to be "primarily intended to result in the sale of" shares issued
by the Trust within the meaning of Rule 12b-1, such payments are
authorized under the Plan: (i) the costs of the preparation of
all reports and notices to shareholders and the costs of printing
and mailing such reports and notices to existing shareholders,
irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares
of the Trust or other funds or other investments; (ii) the costs
of the preparation and setting in type of all prospectuses and
statements of additional information and the costs of printing
and mailing all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of
preparation, printing and mailing of any proxy statements and
proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of
the Trust's shares; (iv) all legal and accounting fees relating
to the preparation of any such reports, prospectuses, statements
of additional information, proxies and proxy statements; (v) all
fees and expenses relating to the registration or qualification
of the Trust and/or its shares under the securities or "Blue-Sky"
laws of any jurisdiction; (vi) all fees under the Securities Act
of 1933 and the 1940 Act, including fees in connection with any
application for exemption relating to or directed toward the sale
of the Trust's shares; (vii) all fees and assessments of the
Investment Company Institute or any successor organization,
irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and
mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs
of responding to telephone or mail inquiries of investors or
prospective investors.
The Plan states that while it is in effect, the selection
and nomination of those Trustees of the Trust who are not
"interested persons" of the Trust shall be committed to the
discretion of such disinterested Trustees but that nothing in the
Plan shall prevent the involvement of others in such selection
and nomination if the final decision on any such selection and
nomination is approved by a majority of such disinterested
Trustees.
The Plan states that while it is in effect, the Trust's
Administrator and Distributor shall report at least quarterly to
the Trust's Board of Trustees in writing for their review on the
following matters: (i) all Permitted Payments made under this
Plan, the identity of the Qualified Recipient of each Payment,
and the purposes for which the amounts were expended; (ii) all
costs of each item of cost specified in the Plan (making
estimates of such costs where necessary or desirable) during the
preceding calendar or fiscal quarter; and (iii) all fees of the
Trust to the distributor, sub-adviser or administrator paid or
accrued during such quarter. In addition if any such Qualified
Recipient is an affiliate, as that term is defined in the Act, of
the Trust, the Adviser, the Administrator or the Distributor,
such person shall agree to furnish to the Distributor for
transmission to the Board of Trustees of the Trust an accounting,
in form and detail satisfactory to the Board of Trustees, to
enable the Board of Trustees to make the determinations of the
fairness of the compensation paid to such affiliated person, not
less often than annually.
The Plan defines as the Trust's Independent Trustees those
Trustees who are not "interested persons" of the Trust as defined
in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements
related to the Plan. The Plan, unless terminated as therein
provided, continues in effect from year to year only so long as
such continuance is specifically approved at least annually by
the Trust's Board of Trustees and its Independent Trustees with
votes cast in person at a meeting called for the purpose of
voting on such continuance. In voting on the implementation or
continuance of the Plan, those Trustees who vote to approve such
implementation or continuance must conclude that there is a
reasonable likelihood that the Plan will benefit the Trust and
its shareholders. The Plan may be terminated at any time by vote
of a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust. The Plan may not be
amended to increase materially the amount of payments to be made
without shareholder approval and all amendments must be approved
in the manner set forth above as to continuance of the Plan.
The Plan and each Part of it shall also be subject to all
applicable terms and conditions of Rule 18f-3 under the 1940 Act
as now in force or hereafter amended. Specifically, but without
limitation, the provisions of Part III shall be deemed to be
severable, within the meaning of and to the extent required by
Rule 18f-3, with respect to each outstanding class of shares of
the Trust.
SHAREHOLDER SERVICES PLAN
The Trust has adopted a Shareholder Services Plan (the
"Services Plan") to provide for the payment with respect to Class
C Shares and Class I Shares of the Trust of "Service Fees" within
the meaning of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. The Services Plan applies
only to the Class C Shares and Class I Shares of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
Provisions for Level-Payment Class Shares (Part I)
As used in the Part I of the Services Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by
Aquila Distributors, Inc. (the "Distributor"), including but not
limited to the Distributor and any other principal underwriter of
the Trust, who have, pursuant to written agreements with the
Trust or the Distributor, agreed to provide personal services to
shareholders of Level-Payment Class Shares and/or maintenance of
Level-Payment Class Shares shareholder accounts. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all
Level-Payment Class Shares beneficially owned by such Qualified
Recipient's customers, clients or other contacts. "Administrator"
shall mean Aquila Management Corporation or any successor serving
as sub-adviser or administrator of the Trust.
Subject to the direction and control of the Trust's Board
of Trustees, the Trust may make payments ("Service Fees") to
Qualified Recipients, which Service Fees (i) may be paid directly
or through the Distributor or shareholder servicing agent as
disbursing agent and (ii) may not exceed, for any fiscal year of
the Trust (as adjusted for any part or parts of a fiscal year
during which payments under the Services Plan are not accruable
or for any fiscal year which is not a full fiscal year), 0.25 of
1% of the average annual net assets of the Trust represented by
the Level-Payment Class Shares. Such payments shall be made only
out of the Trust's assets allocable to the Level-Payment Class
Shares. The Distributor shall have sole authority with respect to
the selection of any Qualified Recipient or Recipients and the
amount of Service Fees, if any, paid to each Qualified Recipient,
provided that the total Service Fees paid to all Qualified
Recipients may not exceed the amount set forth above and
provided, further, that no Qualified Recipient may receive more
than 0.25 of 1% of the average annual net asset value of shares
sold by such Recipient. The Distributor is authorized, but not
directed, to take into account, in addition to any other factors
deemed relevant by it, the following: (a) the amount of the
Qualified Holdings of the Qualified Recipient and (b) the extent
to which the Qualified Recipient has, at its expense, taken steps
in the shareholder servicing area with respect to holders of
Level-Payment Class Shares, including without limitation, any or
all of the following activities: answering customer inquiries
regarding account status and history, and the manner in which
purchases and redemptions of shares of the Trust may be effected;
assisting shareholders in designating and changing dividend
options, account designations and addresses; providing necessary
personnel and facilities to establish and maintain shareholder
accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with customer
orders to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts; and
providing such other related services as the Distributor or a
shareholder may request from time to time. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years. Service Fees with respect to Class C Shares
will be paid to the Distributor. During the fiscal years ended
March 31, 1998 and 1997, $14,581 and $4,922, respectively, was
paid to the Distributor.
Provisions for Financial Intermediary Class Shares (Part
II)
As used in Part II of the Services Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by
Aquila Distributors, Inc. (the "Distributor"), including but not
limited to the Distributor and any other principal underwriter of
the Trust, who have, pursuant to written agreements with the
Trust or the Distributor, agreed to provide personal services to
shareholders of Financial Intermediary Class Shares, maintenance
of Financial Intermediary Class Shares shareholder accounts
and/or pursuant to specific agreements entering confirmed
purchase orders on behalf of customers or clients. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all
Financial Intermediary Class Shares beneficially owned by such
Qualified Recipient's customers, clients or other contacts.
"Administrator" shall mean Aquila Management Corporation or any
successor serving as sub-adviser or administrator of the
Trust.
Subject to the direction and control of the Trust's Board
of Trustees, the Trust may make payments ("Service Fees") to
Qualified Recipients, which Service Fees (i) may be paid directly
or through the Distributor or shareholder servicing agent as
disbursing agent and (ii) may not exceed, for any fiscal year of
the Trust (as adjusted for any part or parts of a fiscal year
during which payments under the Services Plan are not accruable
or for any fiscal year which is not a full fiscal year), 0.25 of
1% of the average annual net assets of the Trust represented by
the Financial Intermediary Class Shares. Such payments shall be
made only out of the Trust's assets allocable to the Financial
Intermediary Class Shares. The Distributor shall have sole
authority with respect to the selection of any Qualified
Recipient or Recipients and the amount of Service Fees, if any,
paid to each Qualified Recipient, provided that the total Service
Fees paid to all Qualified Recipients may not exceed the amount
set forth above and provided, further, that no Qualified
Recipient may receive more than 0.25 of 1% of the average annual
net asset value of shares sold by such Recipient. The Distributor
is authorized, but not directed, to take into account, in
addition to any other factors deemed relevant by it, the
following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Financial Intermediary
Class Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Trust may be effected; assisting
shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel
and facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures
in connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other related
services as the Distributor or a shareholder may request from
time to time. Notwithstanding the foregoing two sentences, a
majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the
above limits accrued to a Qualified Recipient but not paid during
a fiscal year may be paid thereafter; if less than the full
amount is accrued to all Qualified Recipients, the difference
will not be carried over to subsequent years. No Class I Shares
were outstanding during the year ended March 31, 1998.
General Provisions
While the Services Plan is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's
Trustees in writing for their review on the following matters:
(i) all Service Fees paid under the Services Plan, the identity
of the Qualified Recipient of each payment, and the purposes for
which the amounts were expended; and (ii) all fees of the Trust
to the Distributor paid or accrued during such quarter. In
addition, if any Qualified Recipient is an "affiliated person,"
as that term is defined in the 1940 Act, of the Trust, the
Adviser, the Administrator or the Distributor, such person shall
agree to furnish to the Distributor for transmission to the Board
of Trustees of the Trust an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
The Services Plan has been approved by a vote of the
Trustees, including those Trustees who, at the time of such vote,
were not "interested persons" (as defined in the 1940 Act) of the
Trust and had no direct or indirect financial interest in the
operation of the Services Plan or in any agreements related to
the Services Plan (the "Independent Trustees"), with votes cast
in person at a meeting called for the purpose of voting on the
Services Plan. It will continue in effect for a period of more
than one year from its original effective date only so long as
such continuance is specifically approved at least annually as
set forth in the preceding sentence. It may be amended in like
manner and may be terminated at any time by vote of the
Independent Trustees.
The Services Plan shall also be subject to all applicable
terms and conditions of Rule 18f-3 under the 1940 Act as now in
force or hereafter amended.
While the Services Plan is in effect, the selection and
nomination of those Trustees of the Trust who are not "interested
persons" of the Trust, as that term is defined in the 1940 Act,
shall be committed to the discretion of such disinterested
Trustees. Nothing therein shall prevent the involvement of others
in such selection and nomination if the final decision on any
such selection and nomination is approved by a majority of such
disinterested Trustees.
LIMITATION OF REDEMPTIONS IN KIND
The Trust has elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which the Trust is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1 percent
of the net asset value of the Trust during any 90-day period for
any one shareholder. Should redemptions by any shareholder exceed
such limitation, the Trust will have the option of redeeming the
excess in cash or in kind. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting
the assets into cash. The method of valuing securities used to
make redemptions in kind will be the same as the method of
valuing portfolio securities described under "Net Asset Value Per
Share" in the Prospectus, and such valuation will be made as of
the same time the redemption price is determined.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their affiliations,
if any, with the Administrator and the Adviser, and their
principal occupations during at least the past five years are set
forth below. Each of the Trustees holds the same position(s) with
Cash Assets Trust, a Massachusetts business trust with three
series, each of which is a money market fund having the same
Adviser and Administrator as the Trust.Mr. Herrmann is an
interested person of the Trust, as that term is defined in the
1940 Act, as an officer of the Trust, as a Director and officer
of Aquila Distributors, Inc. (the "Distributor") and as a
shareholder of the Distributor. Mr. Philpotts is an interested
person of the Trust, as that term is so defined, as a shareholder
of the Adviser's corporate parent. They are so designated by an
asterisk. As of the date of this Additional Statement, the
Trustees and officers of the Trust owned less than 1% of its
outstanding shares.
Lacy B. Herrmann*, President and Chairman of the Board of
Trustees, 380 Madison Avenue, New York, New York 10017
Founder and Chairman of the Board since 1984 and President,
1984-1997, of Aquila Management Corporation, the sponsoring
organization, Administrator and in some instances also Adviser or
Sub-Adviser of the following open-end investment companies, and
Founder, Chairman of the Board of Trustees, and President of
each: Tax-Free Trust of Arizona since 1986; Tax-Free Trust of
Oregon since 1986; Tax-Free Fund of Colorado since 1987;
Churchill Tax-Free Fund of Kentucky since 1987; Tax-Free Fund For
Utah since 1992; and Narragansett Insured Tax-Free Income Fund
since 1992; each of which is a tax-free municipal bond fund, and
two equity funds, Aquila Rocky Mountain Equity Fund since 1993
and Aquila Cascadia Equity Fund, since 1996, which, together with
this Trust are called the Aquila Bond and Equity Funds; Pacific
Capital Cash Assets Trust since 1984; Churchill Cash Reserves
Trust since 1985; Pacific Capital U.S. Government Securities Cash
Asset Trust since 1988; Pacific Capital Tax-Free Cash Assets
Trust since 1988; each of which is a money market fund, and
together with Capital Cash Management Trust ("CCMT") are called
the Aquila Money-Market Funds; Vice President and Director, and
formerly Secretary and Treasurer of Aquila Distributors, Inc.
since 1981, distributor of the above funds; President and
Chairman of the Board of Trustees of CCMT, a money market fund
since 1981, and an Officer and Trustee/Director of its
predecessors since 1974; Chairman of the Board of Trustees and
President of Prime Cash Fund (which is inactive), since 1982 and
of Short Term Asset Reserves 1984-1996; President and a Director
of STCM Management Company, Inc., sponsor and sub-adviser to
CCMT; Chairman, President, and a Director since 1984, of InCap
Management Corporation, formerly sub-adviser and administrator of
Prime Cash Fund and Short Term Asset Reserves, and Founder and
Chairman of several other money market funds; Director or Trustee
of OCC Cash Reserves, Inc., Oppenheimer Quest Global Value Fund,
Inc., Oppenheimer Quest Value Fund, Inc., and Trustee of Quest
For Value Accumulation Trust, The Saratoga Advantage Trust, and
of the Rochester Group of Funds, each of which is an open-end
investment company; Trustee of Brown University, 1990-1996 and
currently Trustee Emeritus; actively involved for many years in
leadership roles with university, school and charitable
organizations.
Vernon R. Alden, Trustee, 420 Boylston Street, Suite 403, Boston,
Massachusetts 02116
Director of Digital Equipment Corporation, a computer
manufacturing corporation, since 1959, Intermet Corporation, an
independent foundry, since 1986, and Sonesta International Hotels
Corporation since 1978; Former Director of Colgate Palmolive,
McGraw Hill and the Mead Corporation; Chairman of the Board and
Executive Committee of The Boston Company, Inc., a financial
services company, 1969-1978; Trustee of Tax-Free Trust of Oregon
since 1988, of, Pacific Capital Cash Assets Trust, Pacific
Capital Tax-Free Cash Assets Trust and Pacific Capital U.S.
Government Securities Cash Assets Trust since 1989, of Cascades
Cash Fund, 1989-1994, of Narragansett Insured Tax-Free Income
Fund since 1992, and of Aquila Cascadia Equity Fund since 1996;
Associate Dean and member of the faculty of Harvard University
Graduate School of Business Administration, 1951-1962; member of
the faculty and Program Director of Harvard Business School
- -University of Hawaii Advanced Management Program, summer of 1959
and 1960; President of Ohio University, 1962-1969; Chairman of
The Japan Society of Boston, Inc., and member of several
Japan-related advisory councils; Chairman of the Massachusetts
Business Development Council and the Massachusetts Foreign
Business Council, 1978-1983; Trustee of the Boston Symphony
Orchestra since 1975; Chairman of the Massachusetts Council on
the Arts and Humanities, 1972-1984; Member of the Board of
Fellows of Brown University, 1969-1986; Trustee of various
cultural and educational organizations; Honorary Consul General
of the Royal Kingdom of Thailand; Received Decorations from the
Emperor of Japan (1986) and the King of Thailand (1996 and
1997).
Arthur K. Carlson, Trustee, 8702 North Via La Serena, Paradise
Valley, Arizona 85253
Retired; Advisory Director of the Renaissance Companies
(design and construction companies of commercial, industrial and
upscale residential properties) since 1996; Senior Vice President
and Manager of the Trust Division of The Valley National Bank of
Arizona, 1977-1987; Trustee of Tax-Free Fund of Colorado,
Tax-Free Trust of Arizona and Pacific Capital Cash Assets Trust
since 1987, of Pacific Capital Tax-Free Cash Assets Trust and
Pacific Capital U.S. Government Securities Cash Assets Trust
since 1988 and of Aquila Rocky Mountain Equity Fund since 1993;
previously Vice President of Investment Research at Citibank, New
York City, and prior to that Vice President and Director of
Investment Research of Irving Trust Company, New York City; past
President of The New York Society of Security Analysts and
currently a member of the Phoenix Society of Financial Analysts;
formerly Director of the Financial Analysts Federation; past
Chairman of the Board and past Director of Mercy Healthcare of
Arizona, Phoenix, Arizona; Director of St. Joseph's Hospital
Foundation since 1996 and Director of Northern Arizona University
Foundation since 1990, present or formerly an officer and/or
director of various other community and professional
organizations.
William M. Cole, Trustee, 852 Ramapo Way, Westfield, New Jersey
07090
President of Cole International, Inc., financial and shipping
consultants, since 1974; President of Cole Associates, shopping
center and real estate developers, 1974-1976; President of
Seatrain Lines, Inc., 1970-1974; former General Partner of Jones
& Thompson, international shipping brokers; Trustee of Pacific
Capital Cash Assets Trust since 1984, of Tax-Free Fund of
Colorado since 1987 and of Pacific Capital Tax-Free Cash Assets
Trust and Pacific Capital U.S. Government Securities Cash Assets
Trust since 1988; Chairman of Cole Group, a financial consulting
and real estate firm, since 1985.
Thomas W. Courtney, C.F.A., Trustee, P.O. Box 8186, Naples,
Florida 33941
President of Courtney Associates, Inc., a venture capital
firm, since 1988; General Partner of Trivest Venture Fund,
1983-1988; President of Federated Investment Counseling Inc.,
1975-1982; President of Boston Company Institutional Investors,
Inc., 1970-1975; formerly a Director of the Financial Analysts
Federation; Trustee of Pacific Capital Cash Assets Trust since
1984, of Tax-Free Trust of Arizona since 1986 and of Pacific
Capital Tax-Free Cash Assets Trust and Pacific Capital U.S.
Government Securities Cash Assets Trust since 1988; Trustee of
numerous Oppenheimer Capital and Oppenheimer Management
Funds.
Richard W. Gushman, II, Trustee, 700 Bishop Street, Suite 200,
Honolulu, Hawaii 96813
President and Chief Executive Officer of OKOA, INC., a private
Hawaii corporation involved in real estate; adviser to RAMPAC,
Inc., a wholly owned subsidiary of the Bank of Hawaii, involved
with commercial real estate finance; Trustee of Pacific Capital
Cash Assets Trust, Pacific Capital Tax-Free Cash Assets Trust and
Pacific Capital U.S. Government Securities Cash Assets Trust
since 1993; Trustee of Pacific Capital Funds, which includes bond
and stock funds, since 1993; Member of the Boards of Aloha United
Way, Downtown Improvement Association, Boys and Girls Club of
Honolulu and Oceanic Cablevision, Inc.
Stanley W. Hong, Trustee, 4976 Poola Street, Honolulu, Hawaii
96821
President and Chief Executive Officer of The Chamber of
Commerce of Hawaii since 1996; Business consultant since 1994;
Senior Vice President of McCormack Properties, Ltd., 1993-1994;
President and Chief Executive of the Hawaii Visitors Bureau,
1984-1993; Vice President, General Counsel and Corporate
Secretary at Theo, Davies & Co., Ltd., a multiple business
company, 1973-1984; formerly Legislative Assistant to U.S.
Senator Hiram L. Fong; member of the Boards of Directors of
several community organizations; Trustee of Pacific Capital Cash
Assets Trust, Pacific Capital Tax-Free Cash Assets Trust and
Pacific Capital U.S. Government Securities Cash Assets Trust
since 1993; Trustee of Pacific Capital Funds, which includes bond
and stock funds, since 1993; Director of Capital Investment of
Hawaii, Inc. since 1995 (Real Estate and Wholesale Bakery);
Director, Central Pacific Bank since 1985; Trustee of Nature
Conservancy of Hawaii since 1990; Regent of Chaminade University
of Honolulu since 1990.
Theodore T. Mason, Trustee, 26 Circle Drive, Hastings-on-Hudson,
New York 10706
Managing Director of EastWind Power Partners, Ltd. since 1994;
Second Vice President, Alumni Association, SUNY Maritime
College 1998; Director for the same organization, 1997; Director
of Cogeneration Development of Willamette Industries, Inc., a
forest products company, 1991-1993; Vice President of Corporate
Development of Penntech Papers, Inc., 1978-1991; Vice President
of Capital Projects for the same company, 1977-1978; Vice
Chairman of the Board of Trustees of CCMT since 1981; Trustee and
Vice President, 1976-1981, and formerly Director of its
predecessor; Director of STCM Management Company, Inc.; Vice
Chairman of the Board of Trustees and Trustee of Prime Cash Fund
(which is inactive) since 1982; Trustee of Short Term Asset
Reserves, 1984-1986 and 1989-1996, of Pacific Capital Cash Assets
Trust since 1984, of Churchill Cash Reserves Trust since 1985, of
Pacific Capital Tax-Free Cash Assets Trust and Pacific Capital
U.S. Government Securities Cash Assets Trust since 1988 and of
Churchill Tax-Free Fund of Kentucky since 1992; Vice President
and Trustee of Oxford Cash Management Fund, 1983-1989; Vice
President of Trinity Liquid Assets Trust, 1983-1985; President
and Director of Ted Mason Venture Associates, Inc., a venture
capital consulting firm, 1972-1980; Advisor to the Commander,
U.S. Maritime Defense Zone Atlantic, 1984-1988; National Vice
President, Surface/Subsurface, Naval Reserve Association,
1985-1987; National Vice President, Budget and Finance, for the
same Association, 1983-1985; Commanding Officer of four Naval
Reserve Units, 1974-1985; Captain, USNR, 1978-1988.
Russell K. Okata, Trustee, 888 Mililani Street, Suite 601,
Honolulu, Hawaii 96813
Executive Director, Hawaii Government Employees Association
AFSCME Local 152, AFL-CIO; Trustee of Pacific Capital Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets Trust and Pacific
Capital U.S. Government Securities Cash Assets Trust since 1993;
Trustee of Pacific Capital Funds, which includes bond and stock
funds, since 1993; Chairman of the Royal State Insurance Group
since 1988; Trustee of the Blood Bank of Hawaii since 1975 (Chair
1982-1984); International Vice President of the American
Federation of State, Country and Municipal Employees, AFL-CIO
since 1981; Director of the Rehabilitation Hospital of the
Pacific since 1981; Trustee of the Public Schools of Hawaii
Foundation since 1986; Member of the Judicial Council of Hawaii
since 1987; and 1997 chair of the Hawaii Community
Foundation.
Douglas Philpotts*, Trustee, Financial Plaza of the Pacific, P.O.
Box 3170, Honolulu, Hawaii, 96802
Retired; Director of Hawaiian Trust Company, Limited
1986-1997; Chairman of the Board, 1992-1994 and President,
1986-1992; Director of Victoria Ward, Limited; Trustee of Pacific
Capital Cash Assets Trust, Pacific Capital Tax-Free Cash Assets
Trust, Pacific Capital U.S. Government Securities Cash Assets
Trust since 1992; Trustee of Pacific Capital Funds, which
includes bond and stock funds, since 1993; Trustee of the Strong
Foundation; present or former director or trustee of a number of
civic and charitable organizations in Hawaii.
Oswald K. Stender, Trustee, P.O. Box 3466, Honolulu, Hawaii 96801
Trustee of the Bernice Pauahi Bishop Estate since 1990;
Director of Hawaiian Electric Industries, Inc., a public utility
holding company, since 1993; Senior Advisor to the Trustees of
The Estate of James Campbell, 1987-1989 and Chief Executive
Officer, 1976-1988; Director of several housing and real estate
associations; Director, member or trustee of several community
organizations; Trustee of Pacific Capital Cash Assets Trust,
Pacific Capital Tax-Free Cash Assets Trust and Pacific Capital
U.S. Government Securities Cash Assets Trust since 1993; Trustee
of Pacific Capital Funds, which includes bond and stock funds,
since 1993.
Sherri Foster, Senior Vice President, 100 Ridge Road, Suite 1813-
15, Lahaina, Hawaii 96761
Senior Vice President since 1993, Vice President, 1988-1992
and Assistant Vice President, 1985-1988; Assistant Vice President
of Pacific Capital Cash Assets Trust since 1985 and of Pacific
Capital Tax-Free Cash Assets Trust and Pacific Capital U.S.
Government Securities Cash Assets Trust since 1988; Registered
Representative of the Distributor since 1985; Realtor-Associate
of Sherrian Bender Realty, successor to John Wilson Enterprises,
1983-1994; Executive Secretary of the Hyatt Regency, Maui,
1981-1983.
William C. Wallace, Senior Vice President, 380 Madison Avenue,
New York, New York 10017
Vice President of Capital Cash Management Trust and Pacific
Capital Cash Assets Trust since 1984; Senior Vice President since
1985 and Vice President, 1984-1985; Senior Vice President of
Tax-Free Trust of Arizona since 1989 and Vice President,
1986-1988; Vice President of Tax-Free Trust of Oregon since 1986,
of Churchill Tax-Free Fund of Kentucky and Tax-Free Fund of
Colorado since 1987, of Pacific Capital Tax-Free Cash Assets
Trust and Pacific Capital U.S. Government Securities Cash Assets
Trust since 1988 and of Narragansett Insured Tax-Free Income Fund
since 1992; Secretary and Director of STCM Management Company,
Inc. since 1974; President of the Distributor since 1995 and
formerly Vice President of the Distributor, 1986-1992; Member of
the Panel of Arbitrators, American Arbitration Association, since
1978; Assistant Vice President, American Stock Exchange, Market
Development Division, and Director of Marketing, American Gold
Coin Exchange, a subsidiary of the American Stock Exchange,
1976-1984.
Diana P. Herrmann, Vice President, 380 Madison Avenue, New York,
New York 10017
Trustee of Tax-Free Trust of Arizona and Tax-Free Trust of
Oregon since 1994, of Churchill Tax-Free Fund of Kentucky and
Churchill Cash Reserves Trust since 1995, of Aquila Cascadia
Equity Fund since 1996 and of Aquila Rocky Mountain Equity Fund
and Tax-Free Fund for Utah since 1997; President and Chief
Operating Officer of the Administrator since 1997; Senior Vice
President and Secretary, and formerly Vice President, of the
Administrator since 1986 and Director since 1984; Senior Vice
President or Vice President and formerly Assistant Vice President
of the Aquila Money-Market Funds since 1986; Senior Vice
President or Vice President of the Aquila Bond and Equity Funds
since 1997; Vice President of InCap Management Corporation since
1986 and Director since 1983; Assistant Vice President of Oxford
Cash Management Fund, 1986-1988; Assistant Vice President and
formerly Loan Officer of European American Bank, 1981-1986;
daughter of the Trust's President; Trustee of the Leopold Schepp
Foundation (academic scholarships) since 1995; actively involved
in mutual fund and trade associations and in college and other
volunteer organizations.
Rose F. Marotta, Chief Financial Officer, 380 Madison Avenue, New
York, New York 10017
Chief Financial Officer of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1991 and Treasurer, 1981-1991;
formerly Treasurer of the predecessor of CCMT; Treasurer and
Director of STCM Management Company, Inc., since 1974; Treasurer
of Trinity Liquid Assets Trust, 1982-1986 and of Oxford Cash
Management Fund, 1982-1988; Treasurer of InCap Management
Corporation since 1982, of the Administrator since 1984 and of
the Distributor since 1985.
Edward M. W. Hines, Secretary, 551 Fifth Avenue, New York, New
York 10176
Partner of Hollyer Brady Smith Troxell Barrett Rockett Hines &
Mone LLP, attorneys, since 1989 and counsel, 1987-1989; Secretary
of the Aquila Money-Market Funds and the Aquila Bond and Equity
Funds since 1982; Secretary of Trinity Liquid Assets Trust,
1982-1985 and Trustee of that Trust, 1985-1986; Secretary of
Oxford Cash Management Fund, 1982-1988.
Richard F. West, Treasurer, 380 Madison Avenue, New York, New
York 10017
Treasurer of the Aquila Money-Market Funds and the Aquila Bond
and Equity Funds and of Aquila Distributors, Inc. since 1992;
Associate Director of Furman Selz Incorporated, 1991-1992; Vice
President of Scudder, Stevens & Clark, Inc. and Treasurer of
Scudder Institutional Funds, 1989-1991; Vice President of Lazard
Freres Institutional Funds Group, Treasurer of Lazard Freres
Group of Investment Companies and HT Insight Funds, Inc.,
1986-1988; Vice President of Lehman Management Co., Inc. and
Assistant Treasurer of Lehman Money Market Funds, 1981-1985;
Controller of Seligman Group of Investment Companies, 1960-1980.
John M. Herndon, Assistant Secretary, 380 Madison Avenue, New
York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995 and Vice President of the
Aquila Money-Market Funds since 1990; Vice President of the
Administrator since 1990; Investment Services Consultant and Bank
Services Executive of Wright Investors' Service, a registered
investment adviser, 1983-1989; Member of the American Finance
Association, the Western Finance Association and the Society of
Quantitative Analysts.
Patricia A. Craven, Assistant Secretary & Compliance Officer, 380
Madison Avenue, New York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995; Counsel to the
Administrator and the Distributor since 1995; Secretary of the
Distributor since 1997; formerly a Legal Associate for
Oppenheimer Management Corporation, 1993-1995.
Compensation of Trustees
The Trust does not currently pay fees to any of the
Trust's officers or to Trustees affiliated with the Administrator
or the Adviser, except for Trustees affiliated with the Adviser
solely because of membership on its Board of Directors. During
the fiscal year ended March 31, 1998, the Trust paid $208,528 in
fees and reimbursement of expenses to its other Trustees. The
Trust is one of the 14 funds in the Aquilasm Group of Funds,
which consist of tax-free municipal bond funds, money market
funds and two equity funds. The following table lists the
compensation of all Trustees who received compensation from the
Trust and the compensation they received during the Trust's
fiscal year from other funds in the Aquilasm Group of Funds. None
of such Trustees has any pension or retirement benefits from the
Trust or any of the other funds in the Aquila group.
<TABLE>
<CAPTION>
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee
Name Trust Group now serves
<S> <C> <C> <C>
Vernon R.
Alden $16,086 $53,811 7
Arthur K.
Carlson $15,394 $56,955 7
William M.
Cole $16,109 $44,625 5
Thomas W.
Courtney $15,080 $48,135 5
Richard W.
Gushman, II $15,125 $35,550 4
Stanley W.
Hong $14,854 $37,626 4
Theodore T.
Mason $14,484 $49,460 8
Russell K.
Okata $14,854 $33,464 4
Douglas
Philpotts $13,360 $33,560 4
Oswald K.
Stender $15,595 $36,350 4
</TABLE>
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
Additional Information as to the Advisory Agreement
The Investment Advisory Agreement (the "Advisory
Agreement") between the Trust and Pacific Century Trust, a
division of Bank of Hawaii (the "Adviser"), contains the
provisions described below, in addition to those described in the
Prospectus.
The Advisory Agreement may be terminated by the Adviser at
any time without penalty upon giving the Trust sixty days'
written notice, and may be terminated by the Trust at any time
without penalty upon giving the Adviser sixty days' written
notice, provided that such termination by the Trust shall be
directed or approved by the vote of a majority of all its
Trustees in office at the time or by the vote of the holders of a
majority (as defined in the 1940 Act) of its voting securities at
the time outstanding and entitled to vote; it automatically
terminates in the event of its assignment (as so defined).
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Advisory Agreement provides that in the absence of
willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, the Adviser is not
liable for any loss sustained by the adoption of any investment
policy or the purchase, sale or retention of any security and
permits the Adviser to act as investment adviser for any other
person, firm or corporation. The Trust agrees to indemnify the
Adviser to the full extent permitted under the Trust's
Declaration of Trust.
The Advisory Agreement states that it is agreed that the
Adviser shall have no responsibility or liability for the
accuracy or completeness of the Trust's Registration Statement
under the Securities Act of 1933 and the 1940 Act except for the
information supplied by the Adviser for inclusion therein.
The Advisory Agreement contains the following provisions as
to the Trust's portfolio transactions. In connection with its
duties to arrange for the purchase and sale of the Trust's
portfolio securities, the Adviser shall select such
broker-dealers ("dealers") as shall, in the Adviser's judgment,
implement the policy of the Trust to achieve "best execution",
i.e., prompt, efficient and reliable execution of orders at the
most favorable net price. The Adviser shall cause the Trust to
deal directly with the selling or purchasing principal or market
maker without incurring brokerage commissions unless the Adviser
determines that better price or execution may be obtained by
paying such commissions; the Trust expects that most transactions
will be principal transactions at net prices and that the Trust
will incur little or no brokerage costs. The Trust understands
that purchases from underwriters include a commission or
concession paid by the issuer to the underwriter and that
principal transactions placed through dealers include a spread
between the bid and asked price. In allocating transactions to
dealers, the Adviser is authorized to consider, in determining
whether a particular dealer will provide best execution, the
dealer's reliability, integrity, financial condition and risk in
positioning the securities involved, as well as the difficulty of
the transaction in question, and thus need not pay the lowest
spread or commission available if the Adviser determines in good
faith that the amount of commission is reasonable in relation to
the value of the brokerage and research services provided by the
dealer, viewed either in terms of the particular transaction or
the Adviser's overall responsibilities as to the accounts as to
which it exercises investment discretion. If, on the foregoing
basis, the transaction in question could be allocated to two or
more dealers, the Adviser is authorized, in making such
allocation, to consider (i) whether a dealer has provided
research services, as further discussed below; and (ii) whether a
dealer has sold shares of the Trust or any other investment
company or companies having the Adviser as its investment adviser
or having the same sub-adviser, Administrator or principal
underwriter as the Trust. Such research may be in written form or
through direct contact with individuals and may include
quotations on portfolio securities and information on particular
issuers and industries as well as on market, economic or
institutional activities. The Trust recognizes that no dollar
value can be placed on such research services or on execution
services, that such research services may or may not be useful to
the Trust and/or other accounts of the Adviser, and that research
received by such other accounts may or may not be useful to the
Trust.
The Adviser is a division of the Bank of Hawaii, which is a
state-chartered bank. The Adviser has advised the Trust that it
is not prohibited under current Federal banking laws from
performing the services for the Trust required by the Advisory
Agreement. The Adviser recognizes however, that future changes in
federal or state statutes and regulations relating to the
permissible activities of bank and bank holding companies,
including their bank and non-bank subsidiaries, as well as future
judicial or administrative decisions and interpretations of
present and future statutes and regulations, might prevent the
Adviser from continuing to serve as the investment adviser to the
Trust.
During the Trust's fiscal year ended March 31, 1996, all of
its transactions were principal transactions and no brokerage
commissions were paid.
For the three fiscal years ended March 31, 1998, 1997 and
1996, fees of $921,605, $915,693 and $929,291 respectively, were
paid and or accrued to the Adviser under the Advisory
Agreement.
Additional Information as to the Administration Agreement
The Administration Agreement (the "Administration
Agreement") between Aquila Management Corporation, as
Administrator, and the Trust contains the provisions described
below in addition to those described in the Prospectus.
Subject to the control of the Trust's Board of Trustees, the
Administrator also provides all administrative services to the
Trust other than those relating to its investment portfolio and
the maintenance of its accounting books and records (see below
for discussion); as part of such duties, the Administrator (i)
provides office space, personnel, facilities, and equipment for
the performance of the following functions and for the
maintenance of the Trust's headquarters; (ii) oversees all
relationships between the Trust and its transfer agent,
custodian, legal counsel, auditors and principal underwriter,
including the negotiation, subject to the approval of the Trust's
Board of Trustees, of agreements in relation thereto, the
supervision and coordination of the performance of such
agreements, and the overseeing of all administrative matters
which are necessary or desirable for effective operation and for
the sale, servicing, or redemption of the Trust's shares; (iii)
provides to the Adviser and to the Trust statistical and other
factual information and advice regarding economic factors and
trends, but does not generally furnish advice or make
recommendations regarding the purchase or sale of securities;
(iv) maintains the Trust's books and records (other than
accounting books and records), and prepares (or assists counsel
and auditors in the preparation of) all required proxy
statements, reports to shareholders and Trustees, reports to and
other filings with the Securities and Exchange Commission and any
other governmental agencies, and tax returns, and oversees the
Trust's insurance relationships; (v) prepares, on the Trust's
behalf and at its expense, such applications and reports as may
be necessary to register or maintain the Trust's registration or
that of its shares under the securities or "Blue-Sky" laws of all
such jurisdictions as may be required from time to time; and (vi)
responds to any inquiries or other communications from
shareholders and broker-dealers, or if any such inquiry or
communication is more properly to be responded to by the Trust's
shareholder servicing and transfer agent or distributor, oversees
such shareholder servicing and transfer agent's or distributor's
response thereto. Since the Trust pays its own legal and audit
expenses, to the extent that the Trust's counsel and accountants
prepare or assist in the preparation of prospectuses, proxy
statements and reports to shareholders, the costs of such
preparation or assistance are paid by the Trust.
The Administration Agreement may be terminated at any time
without penalty by the Administrator upon sixty days' written
notice to the Trust and the Adviser; it may be terminated by the
Trust at any time without penalty upon giving the Administrator
sixty days' written notice, provided that such termination by the
Trust shall be directed or approved by a vote of a majority of
the Trustees in office at the time, including a majority of the
Trustees who are not interested persons of the Trust. In either
case the notice provision may be waived.
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Administration Agreement provides that the Administrator
shall not be liable for any error in judgement or for any loss
suffered by the Trust in connection with the matters to which the
Administration Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence of the
Administrator in the performance of its duties, or from reckless
disregard by it of its obligations and duties under the
Administration Agreement. The Trust agrees to indemnify the
Administrator to the full extent permitted by the Declaration of
Trust.
For the three fiscal years ended March 31, 1998, 1997 and
1996, fees of $1,711,563, $1,700,577 and $1,725,826,
respectively, were paid and or accrued to Aquila Management
Corporation under the Administration Agreement.
Additional Information as to The Adviser, Administrator and
Distributor
The Adviser, the Administrator and the Distributor have
entered into non-binding principles of cooperation, with the
approval of the Board of Trustees, pursuant to which they have
agreed to cooperate with each other in coordinating the services
that they respectively provide to the Trust, to refrain from
taking any actions to remove each other from their respective
positions and to continue in those positions on terms at least as
favorable as at present. The parties have also agreed to consult
with each other with respect to suggested nominations to the
Board of Trustees, recognizing that ultimate selection of
nominees as "Independent Trustees" within the meaning of the
Trust's Distribution Plan is to be made by the Independent
Trustees, (See "Distribution Plan," above.) The principles apply
as well to Pacific Capital Cash Assets Trust, Pacific Capital
Tax-Free Cash Assets Trust and Pacific Capital U.S. Treasuries
Cash Assets Trust. In addition, the Trust has entered into
separate agreements with the Adviser, the Administrator and the
Distributor under which the service providers have respectively
agreed that so long as they each hold those positions with the
Trust, and for a period of two years thereafter, they will not
serve in the same capacity for any mutual fund with the same
objectives as the Trust under the circumstances described in
those agreements.
COMPUTATION OF NET ASSET VALUE
The net asset value of the shares of each of the Trust's
three classes is determined as of 4:00 p.m., New York time, on
each day that the New York Stock Exchange is open, by dividing
the value of the Trust's net assets allocable to each class by
the total number of its shares of such class then outstanding.
Securities having a remaining maturity of less than sixty days
when purchased and securities originally purchased with
maturities in excess of sixty days but which currently have
maturities of sixty days or less are valued at cost adjusted for
amortization of premiums and accretion of discounts. All other
portfolio securities are valued at the mean between bid and asked
quotations which, for Hawaiian Obligations, may be obtained from
a reputable pricing service or from one or more broker-dealers
dealing in Hawaiian Obligations, either of which may, in turn,
obtain quotations from broker-dealers or banks which deal in
specific issues. However, since Hawaiian Obligations are
ordinarily purchased and sold on a "yield" basis by banks or
dealers which act for their own account and do not ordinarily
make continuous offerings, quotations obtained from such sources
may be subject to greater fluctuations than is warranted by
prevailing market conditions. Accordingly, some or all of the
Hawaiian Obligations in the Trust's portfolio may be priced, with
the approval of the Trust's Board of Trustees, by differential
comparisons to the market in other municipal bonds under methods
which include consideration of the current market value of
tax-free debt instruments having varying characteristics of
quality, yield and maturity. Any securities or assets for which
market quotations are not readily available are valued at their
fair value as determined in good faith under procedures
established by and under the general supervision and
responsibility of the Trust's Board of Trustees. In the case of
Hawaiian Obligations, such procedures may include "matrix"
comparisons to the prices for other tax-free debt instruments on
the basis of the comparability of their quality, yield, maturity
and other special factors, if any, involved. With the approval of
the Trust's Board of Trustees, the Adviser may at its own expense
and without reimbursement from the Trust employ a pricing
service, bank or broker-dealer experienced in such matters to
perform any of the above described functions.
As indicated above, the net asset value per share of the
Trust's shares will be determined on each day that the New York
Stock Exchange is open. That Exchange annually announces the days
on which it will not be open. The most recent announcement
indicates that it will not be open on the following days: New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, the Exchange may close on days not
included in that announcement.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a
number of instances in which the Trust's Class A Shares are sold
or issued on a basis other than the maximum public offering
price, that is, the net asset value plus the highest sales
charge. Some of these relate to lower or eliminated sales charges
for larger purchases, whether made at one time or over a period
of time as under a Letter of Intent or right of accumulation.
(See the table of sales charges in the Prospectus.) The reasons
for these quantity discounts are, in general, that (i) they are
traditional and have long been permitted in the industry and are
therefore necessary to meet competition as to sales of shares of
other funds having such discounts; and (ii) they are designed to
avoid an unduly large dollar amount of sales charge on
substantial purchases in view of reduced selling expenses.
Quantity discounts are made available to certain related persons
("single purchasers") for reasons of family unity and to provide
a benefit to tax-exempt plans and organizations.
The reasons for the other instances in which there are
reduced or eliminated sales charges for Class a Shares are as
follows. Exchanges at net asset value are permitted because a
sales charge has already been paid on the shares exchanged. Sales
without sales charge are permitted to Trustees, officers and
certain others due to reduced or eliminated selling expenses
and/or since such sales may encourage incentive, responsibility
and interest and an identification with the aims and policies of
the Trust. Limited reinvestments of redemptions of Class A Shares
and Class C Shares at no sales charge are permitted to attempt to
protect against mistaken or incompletely informed redemption
decisions. Shares may be issued at no sales charge in plans of
reorganization due to reduced or eliminated sales expenses and
since, in some cases, such issuance is exempted in the 1940 Act
from the otherwise applicable restrictions as to what sales
charge must be imposed. In no case in which there is a reduced or
eliminated sales charge are the interests of existing
shareholders adversely affected since, in each case, the Trust
receives the net asset value per share of all shares sold or
issued.
AUTOMATIC WITHDRAWAL PLAN
If you own or purchases Class A Shares or Class Y Shares
of the Trust (Plan available to shareholders with Class Y
accounts open on July 21, 1998), having a net asset value of at
least $5,000, may establish an Automatic Withdrawal Plan under
which he or she will receive a monthly or quarterly check in a
stated amount, not less than $50. Stock certificates will not be
issued for shares held under an Automatic Withdrawal Plan. All
dividends and distributions must be reinvested. Shares will be
redeemed on the last business day of the month or quarter as may
be necessary to meet withdrawal payments.
Redemption of shares for withdrawal purposes may reduce
or even liquidate your account. Monthly or quarterly payments
paid to you may not be considered as a yield or income on
investment.
ADDITIONAL TAX INFORMATION
If you incur a sales commission on purchase of shares of one
mutual fund (the original fund) and then sell such shares or
exchange them for shares of a different mutual fund without
having held them at least 91 days, you must reduce the tax basis
for the shares sold or exchanged to the extent that the standard
sales commission charged for acquiring shares in the exchange or
later acquiring shares of the original fund or another fund is
reduced because of the shareholder's having owned the original
fund shares. The effect of the rule is to increase your gain or
reduce your loss on the original fund shares. The amount of the
basis reduction on the original fund shares, however, is added on
the investor's basis for the fund shares acquired in the exchange
or later acquired. The provision applies to commissions charged
after October 3, 1989.
CONVERSION OF CLASS C SHARES
Class C Shares of the Trust, which you hold will
automatically convert to Class A Shares of the Trust based on the
relative net asset values per share of the two classes as of the
close of business on the first business day of the month in
which the sixth anniversary of the your initial purchase of such
Class C Shares occurs. For these purposes, the date of your
initial purchase shall mean (1) the first business day of the
month in which such Class C Shares were issued to you, or (2) for
Class C Shares of the Trust you have obtained through an exchange
or series of exchanges under the Exchange Privilege (see
"Exchange Privilege" in the Prospectus), the first business day
of the month in which you made the original purchase of Class C
Shares so exchanged. For conversion purposes, Class C Shares
purchased through reinvestment of dividends or other
distributions paid in respect of Class C Shares will be held in a
separate sub-account. Each time any Class C Shares in your
regular account (other than those in the sub-account) convert to
Class A Shares, a pro-rata portion of the Class C Shares in the
sub-account will also convert to Class A Shares. The portion will
be determined by the ratio that your Class B Shares then
converting to Class A Shares bears to the total of your Class C
Shares not acquired through reinvestment of dividends and
distributions.
The availability of the conversion feature is subject to the
continuing applicability of a ruling of the Internal Revenue
Service ("IRS"), or an opinion of counsel, that: (1) the
dividends and other distributions paid on Class A Shares and
Class C Shares will not result in "preferential dividends" under
the Code; and (2) the conversion of shares does not constitute a
taxable event. If the conversion feature ceased to be available,
the Class C Shares of the Trust would not be converted and would
continue to be subject to the higher ongoing expenses of the
Class C Shares beyond six years from the date of purchase. The
Trust has no reason to believe that these conditions for the
availability of the conversion feature will not continue to be
met.
If the Trust implements any amendments to its
Distribution Plan that would increase materially the costs that
may be borne under such Distribution Plan by holders of Class A
Shares shareholders, Class C Shares will stop converting into
Class A Shares unless a majority of the holders of Class C
Shares, voting separately as a class, approve the proposal.
GENERAL INFORMATION
Possible Additional Series
If additional Series (as discussed in the Prospectus)
were created by the Board of Trustees, shares of each such Series
would be entitled to vote as a Series only to the extent
permitted by the 1940 Act (see below) or as permitted by the
Board of Trustees. Income and operating expenses would be
allocated among the Trust and the additional more series in a
manner acceptable to the Board of Trustees.
Under Rule 18f-2 under the 1940 Act, as to any investment
company which has two or more Series outstanding, on any matter
required to be submitted to shareholder vote, such matter is not
deemed to have been effectively acted upon unless approved by the
holders of a "majority" (as defined in that Rule) of the voting
securities of each series affected by the matter. Such separate
voting requirements do not apply to the election of trustees or
the ratification of the selection of accountants. Rule 18f-2
contains special provisions for cases in which an advisory
contract is approved by one or more, but not all, series. A
change in investment policy may go into effect as to one or more
series whose holders so approve the change, even though the
required vote is not obtained as to the holders of other affected
series.
Ownership of Securities
Of the shares of the Trust outstanding on July 3, 1998,
Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box 30561, New
Brunswick, NJ, held of record 7,621,060 Class A Shares (13.9% of
the class) and 97,339 Class C Shares (15.2% of the class) and BHC
Securities Inc., 2005 Market Street, Philadelphia, PA held of
record 3,604,324 Class A Shares (6.6% of the class) and 47,373
Class C Shares (7.4% of the class). On the basis of information
received from the holders, the Trust's management believes that
all of the shares indicated are held for the benefit of clients.
Martha N. Steele, Trustee of the Martha San Nicholas Steele
Declaration of Trust, Honolulu, Hawaii held of record 118,465
Class Y Shares (77.1% of the class), James D. McDowell, Haiku,
Hawaii held of record 22,432 Class Y Shares (14.6% of the class)
and Nancy Lee Barton, Trustee of the Nancy Lee Barton Trust,
Honolulu, Hawaii held of record 10,352 Class Y Shares (6.7% of
the class). The Trust's management is not aware of any other
person beneficially owning more than 5% of its outstanding shares
as of such date.
Indemnification of Shareholders and Trustees
Under Massachusetts law, shareholders of a trust such as
the Trust may, under certain circumstances, be held personally
liable as partners for the obligations of the Trust. For
shareholder protection, however, an express disclaimer of
shareholder liability for acts or obligations of the Trust is
contained in the Declaration of Trust which requires that notice
of such disclaimer be given in each agreement, obligation, or
instrument entered into or executed by the Trust or the Trustees.
The Declaration of Trust provides for indemnification out of the
Trust's property of any shareholder held personally liable for
the obligations of the Trust. The Declaration of Trust also
provides that the Trust shall, upon request, assume the defense
of any claim made against any shareholder for any act or
obligation of the Trust and satisfy any judgment thereon. Thus,
the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to the relatively remote
circumstances in which the Trust itself would be unable to meet
its obligations. In the event the Trust had two or more Series,
and if any such series were to be unable to meet the obligations
attributable to it (which, as is the case with the Trust, is
relatively remote), the other series would be subject to such
obligations, with corresponding increase in the risk of the
shareholder liability mentioned in the prior sentence.
The Declaration of Trust further indemnifies the Trustees of
the Trust out of the property of the Trust and provides that they
will not be liable for errors of judgment or mistakes of fact or
law; but nothing in the Declaration of Trust protects a Trustee
against any liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his or her office.
Custodian and Auditors
The Trust's Custodian, Bank One Trust Company, N.A., is
responsible for holding the Trust's assets.
The Trust's auditors, KPMG Peat Marwick LLP, perform an
annual audit of the Trust's financial statements.
Underwriting Commissions
During the Trust's fiscal year ended March 31, 1998, the
aggregate dollar amount of sales charges on sales of shares of
the Trust was $976,867 and the amount retained by the Distributor
was $100,914.
Financial Statements
The financial statements of the Trust for the fiscal year
ended March 31, 1998, which are contained in the Annual Report
for that fiscal year, are hereby incorporated by reference into
the Additional Statement. The financial statements as of the end
of the Trust's fiscal year have been audited by KPMG Peat Marwick
LLP, independent auditors, whose report thereon is incorporated
herein by reference.
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND AND COMMERCIAL PAPER RATINGS
Municipal Bond Ratings
Standard & Poor's. A Standard & Poor's municipal obligation
rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment
may take into consideration obligors such as guarantors, insurers
or lessees.
The debt rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market
price or suitability for a particular investor.
The ratings are based on current information furnished by
the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit
in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and
repayment of principal in accordance with the terms of
the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization
or other arrangement under the laws of bankruptcy and
other laws affecting creditors rights.
AAA Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the
highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest
and repay principal although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category
than in higher rated categories.
Plus (+) or Minus (:): The ratings from "AA" to "B" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the
rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the debt
being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and
risk.
Standard & Poor's ratings for municipal note issues are
designated SP in order to help investors distinguish more clearly
the credit quality of notes as compared to bonds. Notes bearing
the designation SP-1 are deemed very strong or to have strong
capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics will be given a
plus (+) designation. Notes bearing the designation SP-2 are
deemed to have a satisfactory capacity to pay principal and
interest.
Moody's Investors Service. A brief description of the
applicable Moody's Investors Service rating symbols and their
meanings follows:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium
grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are
designated by the symbols Aa1, A1, Baa1, Ba1 and B1.
Moody's Short Term Loan Ratings - There are four rating
categories for short-term obligations, all of which define an
investment grade situation. These are designated Moody's
Investment Grade as MIG 1 through MIG 4. In the case of variable
rate demand obligations (VRDOs), two ratings are assigned; one
representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the other
representing an evaluation of the degree of risk associated with
the demand feature. The short-term rating assigned to the demand
feature of VRDOs is designated as VMIG. When no rating is applied
to the long or short-term aspect of a VRDO, it will be designated
NR. Issues or the features associated with MIG or VMIG ratings
are identified by date of issue, date of maturity or maturities
or rating expiration date and description to distinguish each
rating from other ratings. Each rating designation is unique with
no implication as to any other similar issue of the same obligor.
MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issuer's
specific structural or credit features.
MIG1/VMIG1 This designation denotes best quality. There
is present strong protection by established
cash flows, superior liquidity support or
demonstrated broad-based access to the market
for refinancing.
MIG2/VMIG2 This designation denotes high quality.
Margins of protection are ample although not
so large as in the preceding group.
MIG3/VMIG3 This designation denotes favorable quality.
All security elements are accounted for but
there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow
protection may be narrow and market access
for refinancing is likely to be less well
established.
MIG4/VMIG4 This designation denotes adequate quality.
Protection commonly regarded as required of
an investment security is present and
although not distinctly or predominantly
speculative, there is specific risk.
Commercial Paper Ratings
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations. Moody's
employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of
rated issuers: Prime 1 -- Highest Quality; Prime 2 -- Higher
Quality; Prime 3 -- High Quality.
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment. Ratings are
graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as
having the greatest capacity for timely payment. Issues in this
category are designed with the numbers 1, 2 and 3 to indicate
the relative degree of safety. The designation A-1 indicates
that the degree of safety regarding timely payment is either
overwhelming or very strong. A "+" designation is applied to
those issues rated "A-1" which possess safety characteristics.
Capacity for timely payment on issues with the designation A-2 is
strong. However, the relative degree of safety is not as high as
for issues designated A-1. Issues carrying the designation A-3
have a satisfactory capacity for timely payment. They are,
however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
<PAGE>
INVESTMENT ADVISER
Pacific Century Trust
a division of
Bank of Hawaii
Financial Plaza of the Pacific
P.O. Box 3170
Honolulu, Hawaii 96802
ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Arthur K. Carlson
William M. Cole
Thomas W. Courtney
Richard W. Gushman, II
Stanley W. Hong
Theodore T. Mason
Russell K. Okata
Douglas Philpotts
Oswald K. Stender
OFFICERS
Lacy B. Herrmann, President
Sherri Foster, Senior Vice President
William C. Wallace, Senior Vice President
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
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
LEGAL COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
HAWAIIAN
TAX-FREE TRUST
A TAX-FREE
INCOME INVESTMENT
[LOGO]
STATEMENT OF ADDITIONAL INFORMATION
ONE OF THE
AQUILAsm GROUP OF FUNDS
<PAGE>
HAWAIIAN TAX-FREE TRUST
PART C: OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Per Share Income and Capital Changes
Incorporated by reference into Part B:
Report of Independent Certified Public
Accountants
Statement of Assets and Liabilities as of
March 31, 1998
Statement of Operations for the year ended
March 31, 1998
Statement of Changes in Net Assets for the
years ended March 31, 1998 and 1997
Statement of Investments as of March 31, 1998
Notes to Financial Statements
Included in Part C:
Consent of Independent Certified Public
Accountants
(b) Exhibits:
(1) (a) Amended & Restated
Declaration of Trust (ii)
(2) By-laws (ii)
(3) Not applicable
(4) Specimen share certificate (iii)
(5) Investment Advisory Agreement (i)
(6) (a) Distribution Agreement (iii)
(b) Sales Agreement (for brokerage firms) (iii)
(c) Sales Agreement (for financial
institutions (iii)
(d) Sales Agreement (for investment
advisers) (iii)
(e) Group Sales Agreement (iii)
(f) Related Agreement (iii)
(g) Services Agreement (ii)
(7) Not applicable
(8) Custody Agreement (iii)
(9) (a) Transfer Agency Agreement (iv)
(b) Administration Agreement (i)
(c) Agreement between the Trust and Aquila
Distributors, Inc. (iii)
(d) Agreement between the Trust and Aquila
Management Corporation (iii)
(e) Agreement between the Trust and
Hawaiian Trust Company, Limited (iii)
(10) Opinion and consent of counsel (iv)
(11) Not applicable
(12) Not applicable
(13) Not Applicable
(14) Not applicable
(15) Distribution Plan (iv)
(15) (a) Services Plan (iv)
(16) Schedule for computation of performance
quotations (iv)
(17) (a) Principles of Cooperation (iii)
(17) (b) Financial Data Schedules (iv)
(18) Plan pursuant to Rule 18f-3
under the 1940 Act (iv)
(i) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 14 dated March 25, 1996 and
incorporated herein by reference.
(ii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 15 dated July 25, 1996 and
incorporated herein by reference.
(iii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 16 dated July 28, 1997 and
incorporated herein by reference.
(iv) Filed herewith.
ITEM 25. Persons Controlled By or Under Common Control with
Registrant
None
ITEM 26. Number of Holders of Securities
As of July 6, 1998 Registrant had 7,669 holders of record
of its Class A Shares, 45 of its Class C Shares and 6 of
its Class Y Shares.
ITEM 27. Indemnification
Subdivision (c) of Section 12 of Article SEVENTH of
Registrant's Supplemental Declaration of Trust Amending and
Restating the Declaration of Trust, filed as Exhibit 1 to
Registrant's Post-Effective Amendment No. 15 dated July 25,
1996, is incorporated herein by reference. Insofar as
indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, officers, and
controlling persons of Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that
in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed
in that Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred
or paid by a Trustee, officer, or controlling person of
Registrant in the successful defense of any action,suit, or
proceeding) is asserted by such Trustee, officer, or
controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
ITEM 28. Business and Other Connections of Investment
Adviser
Pacific Century Trust, Registrant's investment
adviser, is division of Bank of Hawaii. Bank
of Hawaii is a state-chartered bank. Bank of
Hawaii is a subsidiary of Bancorp Hawaii, Inc.
Bancorp Hawaii, Inc. is a bank holding company.
ITEM 29. Principal Underwriters
(a) Aquila Distributors, Inc. serves as principal underwriter to
the following Funds, including the Registrant: Capital Cash
Management Trust, Churchill Cash Reserves Trust, Churchill
Tax-Free Fund of Kentucky, Hawaiian Tax-Free Trust,
Narragansett Insured Tax- Free Income Fund, Pacific Capital
Cash Assets Trust, Pacific Capital Tax-Free Cash Assets
Trust, Pacific Capital U.S. Government Securities Cash
Assets Trust, Prime Cash Fund, Tax-Free Fund For Utah, Tax-
Free Fund of Colorado, Tax-Free Trust of Arizona, Aquila
Rocky Mountain Equity Fund, Aquila Cascadia Equity Fund and
Tax-Free Trust of Oregon.
(b) For information about the directors and officers of
Aquila Distributors, Inc., reference is made to the
Form BD filed by it under the Securities Exchange Act
of 1934.
(c) Not applicable.
ITEM 30. Locations of Accounts and Records
All such accounts, books, and other documents are
maintained by the adviser, the administrator, the
custodian, and the transfer agent, whose addresses
appear on the back cover pages of the Prospectus
and Statement of Additional Information.
ITEM 31. Management Services
Not applicable.
ITEM 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) If the information called for by Item 5A is contained
in the latest annual report to shareholders, the
Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's
latest Annual Report to Shareholders, upon request and
without charge.
<PAGE>
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
Consent of Independent Auditors
To The Shareholders and Board of Trustees
Hawaiian Tax-Free Trust:
We consent to the use of our report, dated May 8, 1998,
incorporated herein by reference, and to the reference to our
firm under the headings "Financial Highlights" in the Prospectus
and "Custodian and Auditors" and "Financial Statements" in the
Statement of Additional Information.
KPMG Peat Marwick LLP
/s/KPMG Peat Marwick LLP
New York, New York
July 17, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that it meets all the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b)
under the Securities Act of 1933, and has caused this Amendment
to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 21st day of July, 1998.
HAWAIIAN TAX-FREE TRUST
(Registrant)
By /s/ Lacy B. Herrmann
_________________________
Lacy B. Herrmann,
President and Chairman
of the Board
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement or Amendment has been signed below by
the following persons in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
/s/ Lacy B. Herrmann
____________________ President, Chairman of 7/21/98
Lacy B. Herrmann the Board and Trustee
(Principal Executive
Officer)
/s/ Vernon Alden
_____________________ Trustee 7/21/98
Vernon Alden
/s/ Arthur K. Carlson
_____________________ Trustee 7/21/98
Arthur K. Carlson
/s/ William M. Cole
_______________________ Trustee 7/21/98
William M. Cole
/s/ Thomas W. Courtney
_______________________ Trustee 7/21/98
Thomas W. Courtney
/s/ Richard W. Gushman, II
_______________________ Trustee 7/21/98
Richard W. Gushman, II
/s/ Stanley W. Hong
_______________________ Trustee 7/21/98
Stanley W. Hong
/s/ Theodore T. Mason
_______________________ Trustee 7/21/98
Theodore T. Mason
/s/ Russell K. Okata
_______________________ Trustee 7/21/98
Russell K. Okata
/s/ Douglas Philpotts
_______________________ Trustee 7/21/98
Douglas Philpotts
/s/ Oswald K. Stender
_______________________ Trustee 7/21/98
Oswald K. Stender
/s/ Rose F. Marotta
_______________________ Chief Financial Officer 7/21/98
Rose F. Marotta (Principal Financial and
Accounting Officer)
<PAGE>
HAWAIIAN TAX-FREE TRUST
Exhibit List
Exhibit Exhibit
Number Description
(9) (a) Transfer Agency Agreement
10) Opinion and consent of counsel
(15) Distribution Plan
(15) (a) Services Plan
(16) Schedule for computation of performance
quotations
(17) (b) Financial Data Schedules
(18) Plan pursuant to Rule 18f-3
under the 1940 Act
Correspondence
TRANSFER AGENCY SERVICES AGREEMENT
THIS AGREEMENT is made as of November 7, 1997 by and between
PFPC INC., a Delaware corporation ("PFPC"), and HAWAIIAN TAX-FREE
TRUST, a Massachusetts business trust (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to retain PFPC to serve as transfer
agent, registrar, dividend disbursing agent and shareholder
servicing agent to its investment portfolios listed on Exhibit A
attached hereto and made a part hereof, as such Exhibit A may be
amended from time to time (each a "Portfolio"), and PFPC wishes
to furnish such services, on the terms and for the considerations
set forth in this agreement (the "Agreement").
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Definitions. As used in this Agreement:
(a) "1933 Act" means the Securities Act of 1933, as
amended.
(b) "1934 Act" means the Securities Exchange Act of
1934, as amended.
(c) "Authorized Person" means any officer of the Fund
and any other person duly authorized by the Fund's Board of
Trustees to give Oral Instructions and Written Instructions on
behalf of the Fund and listed on the Authorized Persons Appendix
attached hereto and made a part hereof or any amendment thereto
as may be received by PFPC. An Authorized Person's scope of
authority may be limited by the Fund by setting forth such
limitation in the Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as
amended.
(e) "Oral Instructions" mean oral instructions
received by PFPC from an Authorized Person or from a person
reasonably believed by PFPC to be an Authorized Person.
(f) "SEC" means the Securities and Exchange
Commission.
(g) "Securities Laws" mean the 1933 Act, the 1934 Act,
the 1940 Act and the CEA.
(h) "Shares" mean the shares of beneficial interest
of any series or class of the Fund.
(i) "Written Instructions" mean written instructions
signed by an Authorized Person and received by PFPC. The
instructions may be delivered by hand, mail, tested telegram,
cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PFPC to serve as
transfer agent, registrar, dividend disbursing agent and
shareholder servicing agent to the Fund in accordance with the
terms set forth in this Agreement. PFPC accepts such appointment
and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or, where
applicable, will provide PFPC with the following:
(a) Certified or authenticated copies of the
resolutions of the Fund's Board of Trustees,
approving the appointment of PFPC or its
affiliates to provide services to the Fund and
approving this Agreement;
(b) A copy, and all amendments thereto, of the Fund's
most recent effective registration statement;
(c) A copy of the applicable administration, advisory
and/or sub-advisory agreements, and all amendments
thereto, with respect to each Portfolio;
(d) A copy of the distribution agreement, and all
amendments thereto, with respect to each class of
Shares;
(e) Copies of any shareholder servicing agreements,
and all amendments thereto, made in respect of the
Fund or a Portfolio;
(f) The Fund's Declaration of Trust filed with the
Secretary of State of the Commonwealth of
Massachusetts and all amendments thereto (such
Declaration of Trust, as presently in effect and
as it shall from time to time be amended, is
herein called the "Declaration of Trust"); and
(g) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they
shall from time to time be amended, are
hereinafter called the "By-Laws").
PFPC has furnished the Fund with copies properly
certified or authenticated of its Registration Statement on Form
TA-1 under the Securities and Exchange Act of 1934, as amended
and all other public reports filed with the SEC related to the
services provided to the Fund as may be requested from time to
time by the Fund.
4. Compliance with Rules and Regulations. PFPC undertakes
to comply with all applicable requirements of the Securities Laws
and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by
PFPC hereunder. Except as specifically set forth herein, PFPC
assumes no responsibility for such compliance by the Fund or any
of its investment portfolios.
5. Instructions.
(a) Unless otherwise provided in this Agreement, PFPC
shall act only upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral
Instructions and Written Instructions it receives from an
Authorized Person (or from a person reasonably believed by PFPC
to be an Authorized Person) pursuant to this Agreement. PFPC may
assume that any Oral Instruction or Written Instruction received
hereunder is not in any way inconsistent with the provisions of
organizational documents or this Agreement or of any vote,
resolution or proceeding of the Fund's Board of Trustees or of
the Fund's shareholders, unless and until PFPC receives Written
Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Written
Instructions confirming Oral Instructions so that PFPC receives
the Written Instructions by the close of business on the same day
that such Oral Instructions are received. The fact that such
confirming Written Instructions are not received by PFPC shall in
no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions. Where Oral
Instructions or Written Instructions reasonably appear to have
been received from an Authorized Person, PFPC shall incur no
liability to the Fund in acting upon such Oral Instructions or
Written Instructions provided that PFPC's actions comply with the
other provisions of this Agreement.
6. Right to Receive Advice.
(a) Advice of the Fund. If PFPC is in doubt as to any
action it should or should not take, PFPC may request directions
or advice, including Oral Instructions or Written Instructions,
from the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as
to any question of law pertaining to any action it should or
should not take, PFPC may request advice at its own cost from
such counsel of its own choosing (who may be counsel for the
Fund, the Fund's investment adviser or PFPC, at the option of
PFPC).
(c) Conflicting Advice. In the event of a conflict
between directions, advice or Oral Instructions or Written
Instructions PFPC receives from the Fund, and the advice it
receives from counsel, PFPC may rely upon and follow the advice
of counsel. In the event PFPC so relies on the advice of
counsel, PFPC remains liable for any action or omission on the
part of PFPC which constitutes willful misfeasance, bad faith,
negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in
any action it takes or does not take in reliance upon directions,
advice or Oral Instructions or Written Instructions it receives
from the Fund or from counsel and which PFPC believes, in good
faith, to be consistent with those directions, advice or Oral
Instructions or Written Instructions. Nothing in this section
shall be construed so as to impose an obligation upon PFPC (i) to
seek such directions, advice or Oral Instructions or Written
Instructions, or (ii) to act in accordance with such directions,
advice or Oral Instructions or Written Instructions unless, under
the terms of other provisions of this Agreement, the same is a
condition of PFPC's properly taking or not taking such action.
Nothing in this subsection shall excuse PFPC when an action or
omission on the part of PFPC constitutes willful misfeasance, bad
faith, negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities set forth in this Agreement.
7. Records; Visits. The books and records pertaining to
the Fund which are in the possession or under the control of PFPC
shall be the property of the Fund. Such books and records shall
be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. PFPC will,
if so requested by counsel to the Fund, work with such counsel to
develop an acceptable modification to the manner in which such
books and records are prepared and maintained so as to comply
with the reasonable opinion of such counsel as to such laws and
rules. Such modification will be subject to additional mutually-
agreed upon pricing, if any. The Fund and Authorized Persons
shall have access to such books and records at all times during
PFPC's normal business hours. Copies of any such books and
records shall be provided by PFPC to the Fund or to an Authorized
Person at the Fund's expense. Prior to any destruction of any
books or records, PFPC will advise the Fund of the proposed
destruction and in accordance with instructions of the Fund, the
records will be destroyed or, at the expense of the Fund,
delivered to the Fund or as it may otherwise direct.
8. Confidentiality. PFPC agrees to keep confidential all
records of the Fund and information relating to the Fund and its
shareholders, unless the release of such records or information
is otherwise consented to, in writing, by the Fund, and shall
maintain procedures reasonably designed to protect such
confidentiality. The Fund agrees that its consent shall not be
unreasonably withheld and may not be withheld where PFPC may be
exposed to civil or criminal contempt proceedings or when
required to divulge such information or records to duly
constituted authorities, and that such consent shall not be
required where consent or notice to the Fund is not permitted by
law or regulation.
9. Cooperation with Accountants. PFPC shall cooperate
with the Fund's independent public accountants and shall take all
reasonable actions in the performance of its obligations under
this Agreement to ensure that the necessary information is made
available on a timely basis to such accountants for the
expression of their opinion, as required by the Fund.
10. Adequate Facilities; Disaster Recovery. PFPC shall
maintain adequate personnel and facilities, as well as adequate
and reliable computer and other equipment, necessary and
appropriate to carry out its obligations under this Agreement,
including appropriate duplicate files (which shall be readable
by computer or otherwise or maintained in hard copy form, and
shall be maintained at a frequency and in a detail reasonably
designed pursuant to industry standards to provide for protection
of such files in the event of a disaster to PFPC's facilities).
PFPC shall enter into and shall maintain in effect with
appropriate parties one or more agreements making adequate and
reliable provisions for emergency use of electronic data
processing equipment to the extent appropriate equipment is
available. In the event of equipment failures, PFPC shall, at no
additional expense to the Fund, take reasonable steps to minimize
service interruptions. PFPC shall periodically back up data
(including all predecessor transfer agent data delivered to PFPC
by the Fund's prior transfer agent in a machine readable format
and converted by PFPC) on appropriate media to be stored at an
offsite facility of PFPC's choosing. PFPC shall have no
liability with respect to the loss of data or service
interruptions caused by equipment failure or otherwise, provided
such loss or interruption is not caused by PFPC's own willful
misfeasance, bad faith, negligence or reckless disregard of its
duties or obligations under this Agreement.
11. Insurance. PFPC shall maintain adequate fidelity,
error and omissions and other insurance coverage in connection
with its transfer agent services throughout the duration of this
Agreement.
12. Compensation. As compensation for services rendered by
PFPC during the term of this Agreement, for the period commencing
on the date upon which PFPC becomes transfer agent for the Fund,
the Fund will pay to PFPC a fee or fees as agreed to from time to
time in writing by the Fund and PFPC. All services detailed in
this Agreement and expenses incurred in the performance of these
services will be provided by PFPC without cost to the Fund except
as otherwise stated in this Agreement or otherwise agreed to in
writing.
13. Indemnification. The Fund agrees to indemnify and hold
harmless PFPC and its affiliates from all taxes, charges,
expenses, assessments, claims and liabilities (including, without
limitation, liabilities arising under the Securities Laws and any
state and foreign securities and blue sky laws, and amendments
thereto), and expenses, including (without limitation) attorneys'
fees and disbursements, arising directly or indirectly from (i)
any action or omission to act which PFPC takes (a) at the request
or on the direction of or in reliance on the advice of the Fund
or (b) upon Oral Instructions or Written Instructions or (ii) the
acceptance, processing and/or negotiation of checks or other
methods utilized for the purchase of Shares. Neither PFPC nor
any of its affiliates shall be indemnified against any liability
(or any expenses incident to such liability) arising out of
PFPC's or its affiliates' own willful misfeasance, bad faith,
negligence or reckless disregard of its duties and obligations
under this Agreement.
14. Release. PFPC understands that the obligations of this
Agreement are not binding upon any shareholder of the Fund
personally, but bind only the Fund's property; PFPC represents
that it has notice of the provision in the Fund's Declaration of
Trust disclaiming shareholder liability for acts or obligations
of the Fund.
15. Responsibility of PFPC.
(a) PFPC shall be under no duty to take any action on
behalf of the Fund except as specifically set forth herein or as
may be specifically agreed to by PFPC in writing. PFPC shall be
obligated to exercise care and diligence in the performance of
its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, to ensure the accuracy and
completeness of all services performed under this Agreement.
PFPC shall be liable for any damages arising out of PFPC's
failure to perform its duties under this Agreement to the extent
such damages arise out of PFPC's willful misfeasance, bad faith,
negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing
or of any other provision of this Agreement, (i) PFPC shall not
be liable for losses beyond its control, provided that PFPC has
acted in accordance with the standard of care set forth above;
and (ii) PFPC shall not be under any duty or obligation to
inquire into and shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral Instruction
or Written Instruction, notice or other instrument which conforms
to the applicable requirements of this Agreement, and which PFPC
reasonably believes to be genuine; or (B) subject to Section 10,
delays or errors or loss of data occurring by reason of
circumstances beyond PFPC's control, including acts of civil or
military authority, national emergencies, labor difficulties,
fire, flood, catastrophe, acts of God, insurrection, war, riots
or failure of the mails, transportation, communication or power
supply.
(c) Notwithstanding anything in this Agreement to the
contrary, neither PFPC nor its affiliates shall be liable to the
Fund for any consequential, special or indirect losses or damages
which the Fund may incur or suffer by or as a consequence of
PFPC's or its affiliates' performance of the services provided
hereunder, whether or not the likelihood of such losses or
damages was known by PFPC or its affiliates.
16. Description of Services.
(a) Itemized Services. PFPC shall:
(i) Calculate 12b-1 payments and payments under
any Shareholder Services Plan of the Fund,
produce and mail statements and checks where
applicable or generate payments through the
National Securities Clearing Corp. (the
"NSCC") to all eligible dealers, and forward
ineligible checks and statements to Aquila
Distributors, Inc. (the "Distributor");
(ii) Make weekly payment of direct commissions,
including settlement through NSCC;
(iii) Establish and maintain proper shareholder
registrations;
(iv) Review new applications for required
information and correspond with shareholders
to complete or correct information;
(v) Provide payment processing of checks or
wires;
(vi) Prepare and certify stockholder lists in
conjunction with proxy solicitations;
(vii) Issue and countersign share certificates
(when requested in writing by a shareholder)
and cancel share certificates;
(viii) Prepare and mail to shareholders confirmation
of activity;
(ix) Provide toll-free lines and voice response
unit for direct shareholder use, plus
customer liaison staff for on-line inquiry
response (generally until 6 p.m., New York
time, on days on which the New York Stock
Exchange is open), including the ability to
receive redirected toll-free calls from the
Distributor on an as-needed basis;
(x) On a monthly basis, mail duplicate statements
to: (1) broker-dealers of their clients'
activity, whether executed through the
broker-dealer or directly with PFPC, and (2)
other parties (e.g., lawyers and accountants)
as requested by the shareholders;
(xi) Provide periodic shareholder lists and
statistics to the Fund;
(xii) Provide detailed data for underwriter/broker
confirmations, including daily outstanding
confirmed purchases, redemptions, and paid
not issued shares;
(xiii) Prepare periodic mailing of year-end tax and
statement information;
(xiv) Provide reports, notification, and where
applicable reconciliation on a timely basis
to the investment adviser, sub-adviser,
administrator, accounting agent, and
custodian of fund activity;
(xv) Perform other participating broker-dealer
shareholder services, including Fund/Serv,
Automated Customer Account Transfer System
("ACATS"), Networking and terminal access for
selected dealers, and such other services as
may be agreed upon from time to time;
(xvi) Promptly transmit to the Fund all reports,
documents and information as are requested by
the Fund and agreed to by PFPC, which
agreement shall not be unreasonably withheld,
that are necessary to enable the Fund and its
service providers to comply with the
requirements of the Internal Revenue Service,
the SEC, the National Association of
Securities Dealers, Inc, the National
Securities Clearing Corp., the state blue sky
authorities and any other regulatory bodies
having jurisdiction over the Fund, it being
understood and agreed that such reports shall
include those on the list contained in
Exhibit B hereto, as such list may be
amended from time to time by agreement
between the parties;
(xvii) Process all clerical transactions;
(xviii) Screen and maintain Transfer on Death
registrations according to Fund guidelines
(except those guidelines hereafter adopted by
the Fund which are considered in PFPC's sole
good-faith discretion to be more burdensome
than the guidelines in effect on the date of
this Agreement);
(xix) Provide electronic imaging and time-stamping
of all incoming mail;
(xx) Compute and track all front-end and
contingent deferred sales charges imposed
upon the purchase and redemption of Shares;
(xxi) Track and convert Shares in accordance with
the share conversion features described in
the prospectus of the Fund;
(xxii) Answer written or telephonic correspondence
relating to its duties hereunder (including
providing written acknowledgement of address
changes to previous addresses of record) and
such other correspondence as may from time to
time be mutually agreed upon between PFPC and
the Fund; inquiries of a non-routine nature
shall be referred to the Fund;
(xxiii) Remit supporting detail of underwriter fees
to the Distributor on a semi-monthly basis;
(xxiv) Until such time as Fund management and legal
counsel to the Fund determine otherwise and
so inform PFPC in Written Instructions,
establish, maintain for the benefit of the
Fund and control the flow of funds through
separate subscription, redemption and
dividend disbursement accounts (each an
"Operational Account") provided by PNC Bank,
N.A. or by such other financial institution
as may be agreed upon by the Fund and PFPC;
(xxv) To the extent reasonably feasible, reverse
trades (including backing out dividends) due
to nonreceipt of funds, improper
registration, or other sufficient reason;
(xxvi) Compute and track all letters of intent;
(xxvii) Screen all transactions with respect to the
Fund's Blue Sky requirements of which PFPC is
informed by the Fund by Written Instructions,
and comply with the Written Instructions of
the Fund in effect from time to time limiting
issuance of Shares to specified states (based
on address of registration), including
screening for Shares sold in states other
than those so specified (but relating only to
those Shares sold after PFPC commences its
duties as transfer agent hereunder);
(xxviii) Provide abandoned property reporting and
filing to meet the escheat requirements of
each of the states named by the Fund in
Written Instructions;
(xxix) Maintain a record of all incoming checks, new
account applications and documentation set
forth in Section 16(g), on filmstrips,
another microfilm retrieval method or
otherwise so as to be retrievable and
reproducible, upon reasonable request, within
time frames that meet reasonable industry
standards;
(xxx) Process W-9 or similar forms received by PFPC
and review taxpayer identification numbers
for all same number (e.g., 888 88 8888),
sequential numbering (e.g., 123 45 6789) and
non-numeric numbers (e.g., 128 4A 3927) and
other conditions of obvious irregularity in
accordance with PFPC's normal operating
procedures;
(xxxi) On a semi-monthly or other basis acceptable
to PFPC and the Fund (but in no event more
frequently than once per month per
shareholder account) initiate, accept and
process pre-authorized checks or, when
available, electronic funds transfers drawn
against shareholders' checking accounts;
(xxxii) In accordance with policies and procedures
established by the Fund and PFPC, furnish to
shareholders dividend and redemption checks
alleged to have been lost, stolen, destroyed
or not received; and
(xxxiii) Record all incoming telephone conversations
and telephonic transactions that are received
via the Fund's published customer service
numbers and retain such recordings for a
minimum of six months.
(xxxiv) Post and perform shareholder transfers and
post and perform exchanges for shares of
other funds with which the Fund has exchange
privileges, pursuant to shareholder
instructions; and
(xxxv) Reconcile to Fund accounting records and pay
dividends and other distributions, including
direct deposit credits through the Automatic
Clearing House ("ACH") upon proper written
shareholder authorization.
(b) Purchase of Shares. PFPC shall issue Shares and
credit an account of an investor, in the manner described in the
Fund's prospectus, once it has screened for blue sky compliance
pursuant to Section 16(a)(xxvii) and Transfer on Death
registration compliance pursuant to Section 16(a)(xviii) and
receives:
(i) A purchase order or application, either
directly from an investor or otherwise,
complying with requirements for purchases
prescribed by the prospectus;
(ii) Proper information to establish a shareholder
account; and
(iii) A purchase check or confirmation of receipt
or crediting of available funds for such
order to the Fund's custodian.
In opening new shareholder accounts, PFPC will assign account
numbers. PFPC shall assign Aquila Distributors, Inc. as broker
of record whenever dealer information is omitted and send a copy
of any related application to Aquila Distributors, Inc.
PFPC must receive a completed application before any
redemption orders are accepted and processed for an account
opened directly by an investor.
(c) Redemption of Shares. PFPC shall redeem Shares
only if that function is properly authorized by the Declaration
of Trust or resolution of the Fund's Board of Trustees. If the
Fund is a money-market fund, PFPC shall arrange, in accordance
with the Fund's prospectus, for a shareholder's redemption of
shares from a shareholder's account with a checkwriting
privilege. Shares shall be redeemed and payment therefor shall
be made in accordance with the Fund's prospectus, including
provisions set forth therein for automatic redemption, telephone
redemption requests and check-writing privileges, when the
recordholder tenders Shares in proper form and amount and
properly directs the method of redemption. If Shares are
received in proper form, Shares shall be redeemed before the
funds are provided to PFPC from the Fund's custodian. If the
recordholder has not directed that redemption proceeds be wired,
when the custodian provides PFPC with funds, a redemption check
shall be sent to and made payable to the recordholder, unless:
(i) the surrendered certificate is drawn to the
order of an assignee or holder and transfer
authorization is signed by the recordholder;
(ii) Transfer authorizations are signed by the
recordholder when Shares are held in
book-entry form;
(iii) Such redemption is through money market fund
check-writing capabilities; or
(iv) such redemption is in settlement of dealer
confirmed redemptions via Fund/Serv.
Consistent with provisions set forth in the prospectus,
redemption proceeds shall be wired upon request. When a
broker-dealer notifies PFPC of a redemption desired by a
customer, and the Fund's custodian provides PFPC with funds, PFPC
shall prepare and send the redemption check to the broker-dealer,
made payable to the broker-dealer on behalf of its customer.
PFPC shall establish procedures reasonably designed to
ensure that redemption requirements established by PFPC and
agreed to by the Fund have been met, including the receipt and
examination of stock certificates and related endorsements,
signature guarantees and obtaining any needed papers or
documents, including a properly completed application, where
required. No redemptions in accounts represented in whole or in
part by certificates shall be effected without cancellation of an
adequate number of certificate Shares, if necessary. No
signature guarantees shall be acceptable if received by facsimile
and signature guarantees must reasonably appear to have been
provided by an eligible guarantor institution of a type described
as such in the prospectus which is a participant in a medallion
program recognized by the Securities Transfer Association or in
instructions received from the Fund; provided, however, that PFPC
may accept a signature guarantee received by facsimile if so
instructed by Oral or Written Instructions.
(d) Dividends and Distributions. Upon receipt of a
resolution of the Fund's Board of Trustees authorizing the
declaration and payment of dividends and distributions, PFPC
shall issue dividends and distributions declared by the Fund in
Shares, or, upon shareholder election, pay such dividends and
distributions in cash, if and as provided for in the Fund's
prospectus. Such issuance or payment, as well as payments upon
redemption as described above, shall be made after deduction and
payment of the required amount of funds to be withheld in
accordance with any applicable tax laws or other laws, rules or
regulations. PFPC shall timely mail to the Fund's shareholders
and appropriate taxing authorities such tax forms and other
information, or permissible substitute notice, relating to
dividends and distributions paid by the Fund as are required to
be filed and mailed by applicable law, rule or regulation. PFPC
shall prepare, maintain and file with the IRS and other
appropriate taxing authorities reports relating to all dividends
paid by the Fund to its shareholders as required by tax or other
law, rule or regulation.
(e) Communications to Shareholders. PFPC shall
address, enclose and mail all communications by the Fund to its
shareholders (pre-sorting where reasonably practicable),
including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of
Shares;
(iii) Monthly or quarterly statements (with extra
print lines for additional information, such
as additional dividend information, to
shareholders), generally by the fifth
business day after the dividend payable date,
providing a combined check and statement to
shareholders electing cash distributions;
(iv) Dividend and distribution notices (at year-
end, such notices will be upon Written
Instructions);
(v) Tax form information (upon Written
Instructions);
(vi) Forms W-9 or W-8 as appropriate;
(vii) Prospectuses;
(viii) Account-related shareholder correspondence
that is considered in PFPC's sole discretion
to be routine; and
(ix) Any other routine shareholder communications
as agreed to between the Fund and PFPC.
(f) Third Party Proxy Provider. PFPC shall assist the
Fund in obtaining competitive bids for proxy services. Proxy
services shall be provided by a third party. The Fund
understands and agrees that PFPC bears no responsibility for the
provision of any proxy services or the manner in which any proxy
services are provided, that PFPC will not be considered the
Fund's agent in connection with the provision of any proxy
services, and that any party providing proxy services to the Fund
shall not be considered to be the agent of PFPC or to have any
other relationship with PFPC with respect to such services. Such
proxy services, which will be decided upon solely between the
Fund and the third party provider, shall include proxy mailing,
receiving and tabulating proxy cards for the meetings of the
Fund's shareholders, communicating to the Fund daily and final
results of such tabulation accompanied by appropriate
certificates, and preparing and furnishing to the Fund certified
lists of shareholders as of such date, and in such form and
containing such information as may be required by the Fund to
comply with any applicable provisions of law or its Declaration
of Trust and/or By-Laws relating to such meetings.
Notwithstanding the foregoing provisions of this Subsection (f),
PFPC shall furnish to the third-party proxy provider such
information as is reasonably requested by such provider
pertaining to shareholder registration information and record-
date share positions to permit the Fund to obtain the benefits of
the services necessary for conduct of its shareholder meetings.
(g) Records. PFPC shall maintain records of the
accounts for each shareholder showing the following information:
(i) Name, address, United States Tax
Identification or Social Security number, and
any pertinent beneficiary information;
(ii) Number and class of Shares held and number
and class of Shares for which certificates,
if any, have been issued, including
certificate numbers and denominations;
(iii) Historical information regarding the account
of each shareholder, including dividends and
distributions paid and the date and price for
all transactions in a shareholder's account;
(iv) Any stop or restraining order placed against
a shareholder's account;
(v) Any correspondence relating to the current
maintenance of a shareholder's account;
(vi) Information with respect to withholdings,
including withholdings in the case of a
foreign account and accounts subject to
backup withholding; and
(vii) Any information required in order for the
transfer agent to perform any calculations
contemplated or required by this Agreement.
PFPC shall use its best efforts to convert for use in
its system such data of the predecessor transfer agent that has
been provided to PFPC as shall permit PFPC to maintain on its
system such converted data covering a minimum of 18 months prior
to commencement of its services as transfer agent of the Fund.
PFPC is not responsible for errors or omissions in or caused by
the records of any predecessor transfer agent. PFPC shall inform
the Fund of material errors coming to its attention in the course
of performance of its duties hereunder. PFPC shall maintain on
its system in a readily viewable form pertinent account
information (i.e., the information listed in this Section 16(g))
relating to shareholders of the Fund (including all predecessor
transfer agent data delivered to PFPC by the Fund's prior
transfer agent in a machine readable format and converted by
PFPC) for a minimum of 13 months after the date of the
transaction or other matter to which the information relates and
shall thereafter maintain such information in a readily
accessible format to the extent required by the 1940 Act and
other applicable securities laws, rules and regulations.
(h) Lost or Stolen Certificates. PFPC shall place a
stop notice against any certificate reported to be lost, stolen,
destroyed or not received and comply with all applicable federal
regulatory requirements for reporting such loss or alleged
misappropriation. A new certificate shall be registered and
issued only upon:
(i) The shareholder's pledge of a lost instrument
bond or such other appropriate indemnity bond
issued by a surety company approved by PFPC;
and
(ii) Completion of a release and indemnification
agreement signed by the shareholder to
protect PFPC and its affiliates.
(i) Shareholder Inspection of Fund Records. Upon a
request from any Fund shareholder to inspect Fund records, PFPC
will notify the Fund and the Fund will issue instructions
granting or denying each such request. Unless PFPC has acted
contrary to the Fund's instructions, the Fund agrees and does
hereby release PFPC from any liability for refusal of permission
for a particular shareholder to inspect the Fund's records.
(j) Withdrawal of Shares and Cancellation of
Certificates. Upon receipt of Written Instructions, PFPC shall
cancel outstanding certificates surrendered by the Fund to reduce
the total amount of outstanding Shares by the number of Shares
surrendered by the Fund.
(k) Fraud Detection Procedures. PFPC shall establish
procedures that are reasonably designed to detect fraudulent
purchase, redemption and distribution checks (including
fraudulent or forged endorsements and altered payment amounts);
however, PFPC shall have no liability for loss resulting from any
fraud perpetrated or attempted to be perpetrated on the Fund,
unless PFPC has acted with willful misfeasance, bad faith,
negligence or reckless disregard of its duties hereunder. Such
procedures shall take into account the type of accounts involved,
the sums involved and cost/benefit considerations.
(l) Third Party Checks. PFPC shall not accept any
third party check (i.e., an investment check whose payee is other
than the Fund or PFPC) except pursuant to Written Instructions.
(m) Relationship Officer. PFPC agrees to provide a
Relationship Officer to serve as the primary point of contact
between the Fund and PFPC. PFPC will exercise due care in
assigning an individual who is conversant with standard
investment company practices.
(n) Additional Services.
(i) PFPC shall, in addition to the services
herein itemized, if so requested by the Fund
and agreed to by PFPC, which shall bargain in
good faith regarding such requests and the
fees and charges to be paid therefor, for
such additional fees and charges as the Fund
and PFPC may from time to time agree, perform
and do all other acts and services as
required by the Fund's prospectus or the law
or that are customarily performed and done by
transfer agents, dividend disbursing agents,
and shareholder servicing agents of open-end
mutual funds such as the Fund.
(ii) PFPC shall, in addition to the services
herein itemized, provide such additional
services to the Fund and in such manner as
are normally provided by PFPC to its mutual
fund transfer agency customers in the normal
course of business, subject to additional
mutually-agreed upon pricing, if any.
(o) Procedures. In order to facilitate the carrying
out of the services set forth in this Agreement, PFPC shall
follow the procedures attached hereto as Exhibit C and PFPC and
the Fund may from time to time mutually agree to changes thereto.
17. Duration and Termination. This Agreement shall
continue until terminated by the Fund on sixty (60) days' prior
written notice or by PFPC on one-hundred-twenty (120) days' prior
written notice to the other party, provided, however, that
without the Fund's consent PFPC shall not for a period of three
years after the date of this Agreement terminate this Agreement
with the intent to enter into a new agreement with the Fund that
provides for higher fees.
18. Notices. All notices and other communications,
including Written Instructions, shall be in writing or by
confirming telegram, cable, telex or facsimile sending device.
Notices shall be addressed (a) if to PFPC, at 400 Bellevue
Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at 380
Madison Avenue, Suite 2300, New York, NY 10017, Attn: President
or (c) if to neither of the foregoing, at such other address as
shall have been given by like notice to the sender of any such
notice or other communication by the other party. If notice is
sent by confirming telegram, cable, telex or facsimile sending
device, it shall be deemed to have been given immediately. If
notice is sent by first-class mail, it shall be deemed to have
been given three days after it has been mailed. If notice is
sent by messenger, it shall be deemed to have been given on the
day it is delivered.
19. Amendments. This Agreement, or any term thereof, may
be changed or waived only by a written amendment, signed by the
party against whom enforcement of such change or waiver is
sought.
20. Delegation; Assignment. PFPC may assign its rights and
delegate its duties hereunder only to any wholly-owned direct or
indirect subsidiary of PNC Bank, National Association or PNC Bank
Corp., provided that (i) PFPC gives the Fund thirty (30) days'
prior written notice; (ii) the delegate (or assignee) agrees with
PFPC and the Fund to comply with all relevant provisions of the
1940 Act; and (iii) PFPC and such delegate (or assignee) promptly
provide such information as the Fund may request, and respond to
such questions as the Fund may ask, relative to the delegation
(or assignment), including (without limitation) the capabilities
of the delegate (or assignee).
21. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
22. Further Actions. Each party agrees to perform such
further acts and execute such further documents as are necessary
to effectuate the purposes hereof.
23. Miscellaneous.
(a) Entire Agreement. This Agreement embodies the
entire agreement and understanding between the parties and
supersedes all prior agreements and understandings relating to
the subject matter hereof, provided that the parties may embody
in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are
included for convenience of reference only and in no way define
or delimit any of the provisions hereof or otherwise affect their
construction or effect.
(c) Governing Law. This Agreement shall be deemed to
be a contract made in Delaware and governed by Delaware law,
without regard to principles of conflicts of law.
(d) Partial Invalidity. If any provision of this
Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby.
(e) Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of
any party to this Agreement shall constitute the valid and
binding execution hereof by such party.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above
written.
PFPC INC.
By: Robert J. Perlsveg
Title: EVP
HAWAIIAN TAX-FREE TRUST
By: Diana P. Herrmann
Title: Vice President
<PAGE>
EXHIBIT A
THIS EXHIBIT A, dated as of Novemnber 7, 1997, is Exhibit A
to that certain Transfer Agency Services Agreement dated as of
November 7, 1997 between PFPC Inc. and Hawaiian Tax-Free Trust.
PORTFOLIOS
HAWAIIAN TAX-FREE TRUST
<PAGE>
AUTHORIZED PERSONS APPENDIX
On the date of the Agreement and thereafter until further
notice, the following persons shall be Authorized Persons as
defined therein:
Name (Type) Signature
Lacy B. Herrmann
Lacy B. Herrmann
William C. Wallace
William C. Wallace
Diana P. Herrmann
Diana P. Herrmann
Charles E. Childs, III
Charles E. Childs, III
John M. Herndon
John M. Herndon
Rose F. Marotta
Rose F. Marotta
Richard F. West
Richard F. West
Patricia A. Craven
Patricia A. Craven
Stephen J. Caridi
Stephen J. Caridi
William Killeen
William Killeen
<PAGE>
Exhibit B
Report List for Aquila Group of Funds
12b-1 Report
5 Percent or More Shareholder Listing
5 Percent or More Shareholder Listing - sorted by ssn
Account Analysis by Type
Asset Report by Dealer for Management Company
Asset Report by Fund and Dealer
Blue Sky Sales Report
Capital Stock Reporting
Daily Transaction Journal
Dealer Commission Check Register/Dealer Commission Statement
DTS Activity Summary
DTS Liquidation Placements
DTS Outstanding Trades by Fund
DTS Posted Transactions
DTS Purchase Placement
Matrix Summary by Fund With Dealer Name
Matrix Summary by Management Company With Dealer Name
Month to Sales (Demographics by Account Group)
Monthly Statistical Report
Monthly Wire Order (Purchases/Redemptions)
New Account Journal
Next Day NSCC Settlement Detail
NSAR Based on trade date
Transactions at a Glance
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
551 Fifth Avenue
New York, NY 10176
Tel: (212) 818-1110
FAX: (212) 818-0494
e-mail: [email protected]
July 15, 1998
Hawaiian Tax-Free Trust
380 Madison Avenue, Suite 2300
New York, New York 10017
Ladies and Gentlemen:
You have requested that we render an opinion to Hawaiian
Tax-Free Trust (the "Trust") with respect to Post-Effective
Amendment No. 17 (the "Amendment") to the Registration Statement
of the Trust under the Securities Act of 1933 (the "1933 Act")
and No. 18 under the Investment Company Act of 1940 (the "1940
Act") which you propose to file with the Securities and Exchange
Commission (the "Commission"). The purpose of the Amendment is to
add a new class of shares, Financial Intermediary Class Shares
("Class I Shares"), as well as other changes. The Trust already
has outstanding Class A Shares, Class C Shares and Class Y
Shares.
We have examined originals or copies, identified to our
satisfaction as being true copies, of those corporate records of
the Trust, certificates of public officials, and other documents
and matters as we have deemed necessary for the purpose of this
opinion. We have assumed without independent verification the
authenticity of the documents submitted to us as originals and
the conformity to the original documents of all documents
submitted to us as copies.
Upon the basis of the foregoing and in reliance upon such
other matters as we deem relevant under the circumstances, it is
our opinion that the Class A Shares, Class C Shares, Class Y
Shares and Class I Shares of the Trust as described in the
Amendment, when issued and paid for in accordance with the terms
set forth in the prospectus and statement of additional
information of the Trust forming a part of its then effective
Registration Statement as heretofore, herewith and hereafter
amended, will be duly issued, fully-paid and non-assessable to
the extent set forth therein.
This letter is furnished to you pursuant to your request and
to the requirements imposed upon you under the 1933 Act and 1940
Act and is intended solely for your use for the purpose of
completing the filing of the Amendment with the Commission. This
letter may not be used for any other purpose or furnished to or
relied upon by any other persons, or included in any filing made
with any other regulatory authority, without our prior written
consent.
We hereby consent to the filing of this opinion with the
Amendment.
Very truly yours,
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
/s/ W.L.D. Barrett
By:_________________________________
W. L. D. Barrett
Dated: July 21, 1998
HAWAIIAN TAX-FREE TRUST
DISTRIBUTION PLAN
1. The Plan. This amended and restated Plan (the "Plan") is
the written plan, contemplated by Rule 12b-1 (the "Rule") under
the Investment Company Act of 1940 (the "1940 Act"), of Hawaiian
Tax-Free Trust "Trust"). Part I of the Plan applies solely to
the Front-Payment Class ("Class A") of shares of the Trust, Part
II solely to the Level-Payment Class ("Class C"), Part III solely
to the Financial Intermediary Class ("Class I Shares") and Part
IV to all classes.
2. Disinterested Trustees. While any Part of this Plan is in
effect, the selection and nomination of those Trustees of the
Trust who are not "interested persons" of the Trust shall be
committed to the discretion of such disinterested Trustees.
Nothing herein shall prevent the involvement of others in such
selection and nomination if the final decision on any such
selection and nomination is approved by a majority of such
disinterested Trustees.
Part I
Payments Involving Trust Assets Allocated to Front-Payment Shares
3. Applicability. This Part I of the Plan applies only to the
Front-Payment Class ("Class A") of shares of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
4. Definitions for Part I. As used in this Part I of the Plan,
"Qualified Recipients" shall mean broker-dealers or others
selected by Aquila Distributors, Inc. (the "Distributor"),
including but not limited to any principal underwriter of the
Trust, with which the Trust or the Distributor has entered into
written agreements in connection with this Part I ("Class A Plan
Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Trust's Front-Payment Shares or servicing of shareholder
accounts with respect to such shares. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Front-Payment Shares
beneficially owned by such Qualified Recipient, or beneficially
owned by its brokerage customers, other customers, other
contacts, investment advisory clients, or other clients, if the
Qualified Recipient was, in the sole judgment of the Distributor,
instrumental in the purchase and/or retention of such shares
and/or in providing administrative assistance or other services
in relation thereto. "Administrator" shall mean Aquila
Management Corporation, or any successor serving as administrator
of the Trust.
5. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Trust, the Trust may make
payments ("Class A Permitted Payments") to Qualified Recipients,
which Class A Permitted Payments may be made directly, or through
the Distributor or shareholder servicing agent as disbursing
agent, which may not exceed, for any fiscal year of the Trust (as
adjusted for any part or parts of a fiscal year during which
payments under this Part I of the Plan are not accruable or for
any fiscal year which is not a full fiscal year) 0.15 of 1% of
the average annual net assets of the Trust represented by the
Front-Payment Class of shares. Such payments shall be made only
out of the Trust assets allocable to the Front-Payment Shares.
The Distributor shall have sole authority (i) as to the selection
of any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class A Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class A Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Front-Payment Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Trust
may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with
other reports sent to a shareholder by such person) monthly and
year end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving,
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
6. Reports. While this Part I is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's
Trustees in writing for their review on the following matters:
(i) all Class A Permitted Payments made under Section 5 of the
Plan, the identity of the Qualified Recipient of each payment,
and the purposes for which the amounts were expended; and (ii)
all fees of the Trust to the Distributor paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Trust, the Adviser, the Administrator, the Distributor or the
Trust's sub-adviser, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the
Trust an accounting, in form and detail satisfactory to the Board
of Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
7. Effectiveness, Continuation, Termination and Amendment. To
the extent required under the 1940 Act, this Part I of the Plan
has been approved (i) by a vote of the Trustees, including those
Trustees (the "Independent Trustees") who, at the time of such
vote, were not "interested persons" (as defined in the 1940 Act)
of the Trust and had no direct or indirect financial interest in
the operation of this Plan or in any agreements related to this
Plan, with votes cast in person at a meeting called for the
purpose of voting on Part I of the Plan; and (ii) by a vote of
holders of at least a "majority" (as defined in the 1940 Act) of
the outstanding voting securities of the Front-Payment Class (or
of any predecessor class or category of shares, whether or not
designated as a class) and a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities
of the Level-Payment Class and/or of any other class whose shares
are convertible into Front-Payment Shares. This Part I is
effective as of the date first above written and will, unless
terminated as hereinafter provided, continue in effect until June
30 of each year only so long as such continuance is specifically
approved at least annually by the Trust's Trustees and its
Independent Trustees with votes cast in person at a meeting
called for the purpose of voting on such continuance. This Part
I may be terminated at any time by the vote of a majority of the
Independent Trustees or by shareholder approval of the class or
classes of shares affected by this Part I as set forth in (ii)
above. This Part I may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by this Part I as set forth
in (ii) above, and all amendments must be approved in the manner
set forth in (i) above.
8. Class A Plan Agreements. In the case of a Qualified
Recipient which is a principal underwriter of the Trust, the
Class A Plan Agreement shall be the agreement contemplated by
Section 15(b) of the 1940 Act since each such agreement must be
approved in accordance with, and contain the provisions required
by, the Rule. In the case of Qualified Recipients which are not
principal underwriters of the Trust, the Class A Plan Agreements
with them shall be their agreements with the Distributor with
respect to payments under this Part I, provided, however, that
"Related Agreements" entered into under the distribution plan of
the Trust in effect prior to the Trust's initial adoption of a
multiple-class arrangement and not terminated at or prior to such
date are deemed to be "Class A Plan Agreements" for purposes of
this Part I and that, as and to the extent necessary to give
effect to this proviso, defined terms used in such agreements
shall be deemed to have the meanings assigned to their
appropriate counterparts in this Part I and the provisions of
such agreements, which shall otherwise remain in full force and
effect, are deemed to be appropriately modified.
Part II
Payments Involving Trust Assets Allocated to Level-Payment Shares
9. Applicability. This Part II of the Plan applies only to the
Level-Payment Class ("Class C") of shares of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
10. Definitions for Part II. As used in this Part II of the
Plan, "Qualified Recipients" shall mean broker-dealers or others
selected by Aquila Distributors, Inc. (the "Distributor"),
including but not limited to any principal underwriter of the
Trust, with which the Trust or the Distributor has entered into
written agreements in connection with this Part II ("Class C Plan
Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Trust's Level-Payment Shares or servicing of shareholder
accounts with respect to such shares. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Level-Payment Shares
beneficially owned by such Qualified Recipient, or beneficially
owned by its brokerage customers, other customers, other
contacts, investment advisory clients, or other clients, if the
Qualified Recipient was, in the sole judgment of the Distributor,
instrumental in the purchase and/or retention of such shares
and/or in providing administrative assistance or other services
in relation thereto. "Administrator" shall mean Aquila
Management Corporation or any successor serving as administrator
of the Trust.
11. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Trust, the Trust may make
payments ("Class C Permitted Payments") to Qualified Recipients,
which Class C Permitted Payments may be made directly, or through
the Distributor or shareholder servicing agent as disbursing
agent, which may not exceed, for any fiscal year of the Trust (as
adjusted for any part or parts of a fiscal year during which
payments under this Part II of the Plan are not accruable or for
any fiscal year which is not a full fiscal year) 0.75 of 1% of
the average annual net assets of the Trust represented by the
Level-Payment Class of shares. Such payments shall be made only
out of the Trust assets allocable to the Level-Payment Shares.
The Distributor shall have sole authority (i) as to the selection
of any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class C Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class C Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Level-Payment Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Trust
may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with
other reports sent to a shareholder by such person) monthly and
year end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving,
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
12. Reports. While this Part II is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's
Trustees in writing for their review on the following matters:
(i) all Class C Permitted Payments made under Section 11 of the
Plan, the identity of the Qualified Recipient of each payment,
and the purposes for which the amounts were expended; and (ii)
all fees of the Trust to the Distributor paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Trust, the Adviser, the Administrator, the Distributor or the
Trust's sub-adviser, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the
Trust an accounting, in form and detail satisfactory to the Board
of Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
13. Effectiveness, Continuation, Termination and Amendment. To
the extent required under the 1940 Act, this Part II has been
approved (i) by a vote of the Trustees, including the Independent
Trustees, with votes cast in person at a meeting called for the
purpose of voting on Part II of the Plan; and (ii) by a vote of
holders of at least a "majority" (as defined in the 1940 Act) of
the outstanding voting securities of the Level-Payment Class.
This Part II is effective as of the date first above written and
will, unless terminated as hereinafter provided, continue in
effect until June 30 of each year only so long as such
continuance is specifically approved at least annually by the
Trust's Trustees and its Independent Trustees with votes cast in
person at a meeting called for the purpose of voting on such
continuance. This Part II may be terminated at any time by the
vote of a majority of the Independent Trustees or by the vote of
the holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Level-Payment Class. This
Part II may not be amended to increase materially the amount of
payments to be made without shareholder approval of the class or
classes of shares affected by this Part II as set forth in (ii)
above, and all amendments must be approved in the manner set
forth in (i) above.
14. Class C Plan Agreements. In the case of a Qualified
Recipient which is a principal underwriter of the Trust, the
Class C Plan Agreement shall be the agreement contemplated by
Section 15(b) of the 1940 Act since each such agreement must be
approved in accordance with, and contain the provisions required
by, the Rule. In the case of Qualified Recipients which are not
principal underwriters of the Trust, the Class C Plan Agreements
with them shall be their agreements with the Distributor with
respect to payments under this Part II, provided, however, that
"Related Agreements" entered into under the distribution plan of
the Trust in effect prior to the Trust's initial adoption of a
multiple-class arrangement and not terminated at or prior to such
date are deemed to be "Class C Plan Agreements" for purposes of
this Part II and that, as and to the extent necessary to give
effect to this proviso, defined terms used in such agreements
shall be deemed to have the meanings assigned to their
appropriate counterparts in this Part II and the provisions of
such agreements, which shall otherwise remain in full force and
effect, are deemed to be appropriately modified.
Part III
Payments Involving Trust Assets Allocated to Financial
Intermediary Shares
15. Applicability. This Part III of the Plan applies only to
the Financial Intermediary Class ("Class I") of shares of the
Trust (regardless of whether such class is so designated or is
redesignated by some other name).
16. Definitions for Part III. As used in this Part III of the
Plan, "Qualified Recipients" shall mean broker-dealers or others
selected by Aquila Distributors, Inc. (the "Distributor"),
including but not limited to any principal underwriter of the
Trust, with which the Trust or the Distributor has entered into
written agreements in connection with this Part III ("Class I
Plan Agreements") and which have rendered assistance (whether
direct, administrative, or both) in the distribution and/or
retention of the Trust's Financial Intermediary Shares or
servicing of shareholder accounts with respect to such shares.
"Qualified Holdings" shall mean, as to any Qualified Recipient,
all Financial Intermediary Shares beneficially owned by such
Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
"Administrator" shall mean Aquila Management Corporation, or any
successor serving as administrator of the Trust.
17. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Trust, the Trust may make
payments ("Class I Permitted Payments") to Qualified Recipients,
which Class I Permitted Payments may be made directly, or through
the Distributor or shareholder servicing agent as disbursing
agent, which may not exceed, for any fiscal year of the Trust (as
adjusted for any part or parts of a fiscal year during which
payments under this Part III of the Plan are not accruable or for
any fiscal year which is not a full fiscal year) a rate fixed
from time to time by the Board of Trustees, but not in excess of
0.25% of 1% of the average annual net assets of the Trust
represented by the Class I Shares. Such payments shall be made
only out of the Trust assets allocable to the Financial
Intermediary Shares. The Distributor shall have sole authority
(i) as to the selection of any Qualified Recipient or Recipients;
(ii) not to select any Qualified Recipient; and (iii) the amount
of Class I Permitted Payments, if any, to each Qualified
Recipient provided that the total Class I Permitted Payments to
all Qualified Recipients do not exceed the amount set forth above
or such lesser amount as the Board of Trustees may determine.
The Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it,
the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Financial Intermediary
Shares, including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Trust may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving,
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year end statements and confirmations of purchases
and redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving,
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
18. Reports. While this Part III is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's
Trustees in writing for their review on the following matters:
(i) all Class I Permitted Payments made under Section 17 of the
Plan, the identity of the Qualified Recipient of each payment,
and the purposes for which the amounts were expended; and (ii)
all fees of the Trust to the Distributor paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Trust, the Adviser, the Administrator, the Distributor or the
Trust's sub-adviser, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the
Trust an accounting, in form and detail satisfactory to the Board
of Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
19. Effectiveness, Continuation, Termination and Amendment. To
the extent required under the 1940 Act, this Part III has been
approved (i) by a vote of the Trustees, including the Independent
Trustees, with votes cast in person at a meeting called for the
purpose of voting on Part III of the Plan; and (ii) by a vote of
holders of at least a "majority" (as defined in the 1940 Act) of
the outstanding voting securities of the Financial Intermediary
Class. This Part III is effective as of the date first above
written and will, unless terminated as hereinafter provided,
continue in effect until June 30 of each year only so long as
such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. This Part III may be terminated at any time by the
vote of a majority of the Independent Trustees or by the vote of
the holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Financial Intermediary
Class. This Part III may not be amended to increase materially
the amount of payments to be made without shareholder approval of
the class or classes of shares affected by this Part III as set
forth in (ii) above, and all amendments must be approved in the
manner set forth in (i) above.
20. Class I Plan Agreements. In the case of a Qualified
Recipient which is a principal underwriter of the Trust, the
Class I Plan Agreement shall be the agreement contemplated by
Section 15(b) of the 1940 Act since each such agreement must be
approved in accordance with, and contain the provisions required
by, the Rule. In the case of Qualified Recipients which are not
principal underwriters of the Trust, the Class I Plan Agreements
with them shall be their agreements with the Distributor with
respect to payments under this Part III, provided, however, that
"Related Agreements" entered into under the distribution plan of
the Trust in effect prior to the effective date of this Part III
and not terminated at or prior to such effective date may, at the
Distributor's discretion, be deemed to be "Class I Plan
Agreements" for purposes of this Part III and that, as and to the
extent necessary to give effect to this proviso, defined terms
used in such agreements shall be deemed to have the meanings
assigned to their appropriate counterparts in this Part III and
the provisions of such agreements, which shall otherwise remain
in full force and effect, are deemed to be appropriately
modified.
Part IV
Defensive Provisions
21. Certain Payments Permitted. Whenever the Administrator of
the Trust (i) makes any payment directly or through the Trust's
Distributor for additional compensation to dealers in connection
with sales of shares of the Trust, which additional compensation
may include payment or partial payment for advertising of the
Trust's shares, payment of travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered
representatives and members of their families to locations within
or outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences, or other items described in the Trust's
prospectus, in amounts that will not exceed the amount of the
sales charges in respect of sales of shares of the Trust effected
through such participating dealers whether retained by the
Distributor or reallowed to participating dealers, or (ii) bears
the costs, not borne by the Distributor, of printing and
distributing all copies of the Trust's prospectuses, statements
of additional information and reports to shareholders which are
not sent to the Trust's shareholders, or the costs of
supplemental sales literature and advertising, such payments are
authorized.
It is recognized that, in view of the bearing by the
Administrator of certain distribution expenses, the profits, if
any, of the Administrator are dependent primarily on the
administration fees paid by the Trust to the Administrator and
that its profits, if any, would be less, or losses, if any, would
be increased due to the bearing by it of such expenses. If and to
the extent that any such administration fees paid by the Trust
might, in view of the foregoing, be considered as indirectly
financing any activity which is primarily intended to result in
the sale of shares issued by the Trust, the payment of such fees
is authorized by the Plan.
22. Certain Trust Payments Authorized. If and to the extent
that any of the payments listed below are considered to be
"primarily intended to result in the sale of" shares issued by
the Trust within the meaning of the Rule, such payments are
authorized under this Plan: (i) the costs of the preparation of
all reports and notices to shareholders and the costs of printing
and mailing such reports and notices to existing shareholders,
irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares
of the Trust or other funds or other investments; (ii) the costs
of the preparation and setting in type of all prospectuses and
statements of additional information, and the costs of printing
and mailing of all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of the
preparation, printing and mailing of all proxy statements and
proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of
the Trust's shares; (iv) all legal and accounting fees relating
to the preparation of any such reports, prospectuses, statements
of additional information, proxies and proxy statements; (v) all
fees and expenses relating to the registration or qualification
of the Trust and/or its shares under the securities or "Blue-Sky"
laws of any jurisdiction; (vi) all fees under the Securities Act
of 1933 and the 1940 Act, including fees in connection with any
application for exemption relating to or directed toward the sale
of the Trust's shares; (vii) all fees and assessments of the
Investment Company Institute or any successor organization,
irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and
mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; (ix) all costs of
responding to telephone or mail inquiries of investors; and (x)
payments to financial intermediaries for shareholder and
shareholder account services.
23. Reports. While Part IV of this Plan is in effect, the
Trust's sub-adviser, Administrator or Distributor shall report at
least quarterly to the Trust's Trustees in writing for their
review on the following matters: (i) all payments made under
Section 21 of this Plan; (ii) all costs of each item specified in
Section 22 of this Plan (making estimates of such costs where
necessary or desirable) during the preceding calendar or fiscal
quarter; and (iii) all fees of the Trust to the Distributor, sub-
adviser or Administrator paid or accrued during such quarter.
24. Effectiveness, Continuation, Termination and Amendment. To
the extent required under the 1940 Act, this Part IV of the Plan
has, with respect to each class of shares outstanding, been
approved (i) by a vote of the Trustees of the Trust and of the
Independent Trustees, with votes cast in person at a meeting
called for the purpose of voting on this Plan; and (ii) by a vote
of holders of at least a "majority" (as defined in the 1940 Act)
of the outstanding voting securities of such class and a vote of
holders of at least a "majority" (as so defined) of the
outstanding voting securities of any class whose shares are
convertible into shares of such class. This Part IV is effective
as of the date first above written and will, unless terminated as
hereinafter provided, continue in effect with respect to each
class of shares to which it applies until June 30 of each year
only so long as such continuance is specifically approved with
respect to that class at least annually by the Trust's Trustees
and its Independent Trustees with votes cast in person at a
meeting called for the purpose of voting on such continuance.
This Part IV of the Plan may be terminated at any time with
respect to a given class by the vote of a majority of the
Independent Trustees or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the outstanding voting
securities of that class. This Part IV may not be amended to
increase materially the amount of payments to be made without
shareholder approval as set forth in (ii) above, and all
amendments must be approved in the manner set forth in (i) above.
--------------------------
25. Additional Terms and Conditions. This Plan and each Part of
it shall also be subject to all applicable terms and conditions
of Rule 18f-3 under the Act as now in force or hereafter amended.
Specifically, but without limitation, the provisions of Part IV
shall be deemed to be severable, within the meaning of and to the
extent required by Rule 18f-3, with respect to each outstanding
class of shares of the Trust.
Dated: July 21, 1998
HAWAIIAN TAX-FREE TRUST
SHAREHOLDER SERVICES PLAN
1. The Plan. This Shareholder Services Plan (the "Plan") is the
written plan of TAX-FREE TRUST OF ARIZONA (the "Trust") adopted
to provide for the payment by the Level-Payment Class and the
Financial Intermediary Class shares of the Trust of "service
fees" within the meaning of Rule 2830 of the Conduct Rules of the
National Association of Securities Dealers, Inc. This Plan
applies only to the Level-Payment Class ("Class C") and the
Financial Intermediary Class ("Class I") of shares of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
Provisions for Level-Payment Class Shares (Part I)
2. Definitions. As used in Part I of this Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by
Aquila Distributors, Inc. (the "Distributor"), including but not
limited to the Distributor and any other principal underwriter of
the Trust, who have, pursuant to written agreements with the
Trust or the Distributor, agreed to provide personal services to
Level-Payment shareholders and/or maintenance of Level-Payment
shareholder accounts. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Level-Payment Shares beneficially owned
by such Qualified Recipient's customers, clients or other
contacts. "Administrator" shall mean Aquila Management
Corporation, or any successor serving as administrator of the
Trust.
3. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Trust, the Trust may make
payments ("Service Fees") to Qualified Recipients, which Service
Fees (i) may be paid directly or through the Distributor or
shareholder servicing agent as disbursing agent and (ii) may not
exceed, for any fiscal year of the Trust (as adjusted for any
part or parts of a fiscal year during which payments under this
Part I of the Plan are not accruable or for any fiscal year which
is not a full fiscal year) 0.25 of 1% of the average annual net
assets of the Trust represented by the Level-Payment Class of
shares. Such payments shall be made only out of the Trust assets
allocable to the Level-Payment Shares. The Distributor shall
have sole authority with respect to the selection of any
Qualified Recipient or Recipients and the amount of Service Fees,
if any, paid to each Qualified Recipient, provided that the total
such Service Fees paid to all Qualified Recipients may not exceed
the amount set forth above and provided, further, that no
Qualified Recipient may receive more than 0.25 of 1% of the
average annual net asset value of Level-Payment Shares sold by
such Recipient. The Distributor is authorized, but not directed,
to take into account, in addition to any other factors deemed
relevant by it, the following: (a) the amount of the Qualified
Holdings of the Qualified Recipient and (b) the extent to which
the Qualified Recipient has, at its expense, taken steps in the
shareholder servicing area with respect to holders of Level-
Payment Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Trust may be effected; assisting
shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel
and facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures
in connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other related
services as the Distributor or a shareholder may request from
time to time. Notwithstanding the foregoing two sentences, a
majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the
above limits accrued to a Qualified Recipient but not paid during
a fiscal year may be paid thereafter; if less than the full
amount is accrued to all Qualified Recipients, the difference
will not be carried over to subsequent years.
Provisions for Financial Intermediary Class Shares (Part II)
4. Definitions. As used in Part II of this Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by
Aquila Distributors, Inc. (the "Distributor"), including but not
limited to the Distributor and any other principal underwriter of
the Trust, who have, pursuant to written agreements with the
Trust or the Distributor, agreed to provide personal services to
Financial Intermediary shareholders, maintenance of Financial
Intermediary shareholder accounts and/or pursuant to specific
agreements entering of confirmed purchase orders on behalf of
customers or clients. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Financial Intermediary Shares
beneficially owned by such Qualified Recipient's customers,
clients or other contacts. "Administrator" shall mean Aquila
Management Corporation, or any successor serving as administrator
of the Trust.
5. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Trust, the Trust may make
payments ("Service Payments") to Qualified Recipients, which
Service Payments (i) may be paid directly or through the
Distributor or shareholder servicing agent as disbursing agent
and (ii) may not exceed, for any fiscal year of the Trust (as
adjusted for any part or parts of a fiscal year during which
payments under this Part II of the Plan are not accruable or for
any fiscal year which is not a full fiscal year) 0.25 of 1% of
the average annual net assets of the Trust represented by the
Financial Intermediary Class of shares. Such payments shall be
made only out of the Trust assets allocable to the Financial
Intermediary Shares. The Distributor shall have sole authority
with respect to the selection of any Qualified Recipient or
Recipients and the amount of Service Payments, if any, paid to
each Qualified Recipient, provided that the total such Service
Payments paid to all Qualified Recipients may not exceed the
amount set forth above and provided, further, that no Qualified
Recipient may receive more than 0.25 of 1% of the average annual
net asset value of such Recipient's Qualified Holdings. The
Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it,
the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Financial Intermediary
Shares, including without limitation, (i) activities relating to
sub-accounting and record-keeping, including the providing of
necessary personnel and facilities to establish and maintain
shareholder accounts and records, and (ii) activities relating to
account service, such as assisting shareholders in designating
and changing dividend options, account designations and
addresses; answering customer inquiries regarding account status
and history and the manner in which purchases and redemptions of
shares of the Trust may be effected; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares, including, where appropriate, arranging for the wiring of
funds; assisting in processing purchase and redemption
transactions; and verifying and guaranteeing shareholder
signatures in connection with redemption orders and transfers and
changes in shareholder designated accounts. Notwithstanding the
foregoing two sentences, (a) a majority of the Independent
Trustees (as defined below) may remove any person as a Qualified
Recipient and (b) no fees shall be paid pursuant to this Plan for
activities primarily intended to result in the sale of shares of
the Trust or to finance sales or sales promotion expenses.(1) In
addition, fees paid under this Plan shall be subject to such
further limits as may be necessary for the Financial Intermediary
Class of shares to qualify as a "no-load" class for purposes of
the Conduct Rules of the National Association of Securities
Dealers, Inc.(2) Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
(1) In particular, no fees shall be paid, or be deemed to have
been paid, for any of the listed activities to the extent that
such payments are deemed by the Independent Trustees to be so
intended.
(2) On the effective date of this Plan, such limitation is as
follows: fees paid under the Plan that satisfy the definition of
"service fees" in Rule 2830(d) of the Conduct Rules of the
National Association of Securities Dealers, Inc. may not exceed
an amount equal to the difference between (i) 0.25 of 1% of the
average annual net assets of the Trust represented by the
Financial Intermediary Class of shares and (ii) the amount paid
from the assets of the Financial Intermediary Class under the
Distribution Plan of the Trust. Where necessary or appropriate,
the Independent Trustees, or such appropriate officer or officers
of the Trust as they may designate, shall, with the advice of
counsel, determine what fees paid under this Plan are to be
deemed "service fees." Nevertheless, it is understood that, as
a general matter, fees allocable to activities in category (i)
above -- sub-accounting and record-keeping -- are not "service
fees," while fees allocable to activities in category (ii) --
account service -- are "service fees." In like manner,
allocation of payments among activities shall also be determined
by the Independent Trustees or their delegates.
General Provisions (Part III)
6. Reports. While this Plan is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's
Trustees in writing for their review on the following matters:
(i) all Service Fees and Service Payments paid under the Plan,
the identity of the Qualified Recipient of each payment, and the
purposes for which the amounts were expended; and (ii) all fees
of the Trust to the Distributor paid or accrued during such
quarter. In addition, if any Qualified Recipient is an
"affiliated person," as that term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), of the Trust,
the Administrator, the Distributor, or the investment adviser or
sub-adviser of the Trust, such person shall agree to furnish to
the Distributor for transmission to the Board of Trustees of the
Trust an accounting, in form and detail satisfactory to the Board
of Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
7. Effectiveness, Continuation, Termination and Amendment. This
Plan has been approved by a vote of the Trustees, including those
Trustees who, at the time of such vote, were not "interested
persons" (as defined in the 1940 Act) of the Trust and had no
direct or indirect financial interest in the operation of this
Plan or in any agreements related to this Plan (the "Independent
Trustees"), with votes cast in person at a meeting called for the
purpose of voting on this Plan. It is effective as of the date
first above written and will continue in effect for a period of
more than one year from such date only so long as such
continuance is specifically approved at least annually as set
forth in the preceding sentence. It may be amended in like
manner and may be terminated at any time by vote of the
Independent Trustees.
8. Additional Terms and Conditions. (a) This Plan shall also be
subject to all applicable terms and conditions of Rule 18f-3
under the 1940 Act as now in force or hereafter amended.
(b) While this Plan is in effect, the selection and nomination
of those Trustees of the Trust who are not "interested persons"
of the Trust, as that term is defined in the 1940 Act, shall be
committed to the discretion of such disinterested Trustees.
Nothing herein shall prevent the involvement of others in such
selection and nomination if the final decision on any such
selection and nomination is approved by a majority of such
disinterested Trustees.
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Hawaiian Tax-Free Trust (Class A Shares)
1-YR AVG. TOTAL RETURN AS OF 3/31/98 4.98%
1-YR CUM. TOTAL RETURN AS OF 3/31/98 4.98%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $11.23 As of 3/31/97
Public Offering Price Per Share (POP) $11.70 As of 3/31/97
Number of Shares Purchased 85.470 Based on POP
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
APRIL 1997 1,000.00 85.470 0.04555500* 3.89 11.21
MAY 1997 962.01 85.817 0.04877300 4.19 11.32
JUNE 1997 975.64 86.187 0.04874100 4.20 11.46
JULY 1997 991.91 86.554 0.04950000 4.28 11.62
AUGUST 1997 1,010.04 86.922 0.04795900 4.17 11.50
SEPTEMBER 1997 1,003.78 87.285 0.04803400 4.19 11.59
OCTOBER 1997 1,015.83 87.647 0.04876200 4.27 11.59
NOVEMBER 1997 1,020.10 88.015 0.05009700 4.41 11.59
DECEMBER 23, 1997 1,024.51 88.396 0.01122000 0.99 11.70
DECEMBER 26, 1997 1,035.22 88.481 0.04397488 3.89 11.70
JANUARY 1998 1,039.11 88.813 0.05247050 4.66 11.73
FEBRUARY 1998 1,046.44 89.210 0.04741447 4.23 11.72
MARCH 27, 1998 1,049.78 89.571 0.04355679 3.90 11.68
MARCH 31, 1998 1,050.10 89.905 0.00618233 0.56 11.67
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
APRIL 1997 0.347 962.01 -3.80%
MAY 1997 0.370 975.64 -2.44%
JUNE 1997 0.367 991.91 -0.81%
JULY 1997 0.369 1,010.04 1.00%
AUGUST 1997 0.362 1,003.78 0.38%
SEPTEMBER 1997 0.362 1,015.83 1.58%
OCTOBER 1997 0.369 1,020.10 2.01%
NOVEMBER 1997 0.380 1,024.51 2.45%
DECEMBER 23, 1997 0.085 1,035.22 3.52%
DECEMBER 26, 1997 0.333 1,039.11 3.91%
JANUARY 1998 0.397 1,046.44 4.64%
FEBRUARY 1998 0.361 1,049.78 4.98%
MARCH 27, 1998 0.334 1,050.10 5.01%
MARCH 31, 1998 0.048 1,049.75 4.98%
</TABLE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Hawaiian Tax-Free Trust (Class C Shares)
1-YR AVG. TOTAL RETURN AS OF 3/31/98 7.35%
1-YR CUM. TOTAL RETURN AS OF 3/31/98 7.35%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $11.23 As of 3/31/97
Public Offering Price Per Share (POP) $11.23 As of 3/31/97
Number of Shares Purchased 89.047 Based on POP
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
APRIL 1997 1,000.00 89.047 0.03841900* 3.42 11.20
MAY 1997 1,000.75 89.353 0.04113600 3.68 11.32
JUNE 1997 1,015.15 89.677 0.04114500 3.69 11.46
JULY 1997 1,031.39 89.999 0.04143200 3.73 11.62
AUGUST 1997 1,049.52 90.320 0.04032500 3.64 11.50
SEPTEMBER 1997 1,042.32 90.637 0.04034200 3.66 11.58
OCTOBER 1997 1,053.23 90.953 0.04081700 3.71 11.59
NOVEMBER 1997 1,057.85 91.273 0.04187800 3.82 11.59
DECEMBER 23, 1997 1,061.68 91.603 0.01122000 1.03 11.70
DECEMBER 26, 1997 1,072.78 91.691 0.03679496 3.37 11.69
JANUARY 1998 1,075.24 91.979 0.04381542 4.03 11.72
FEBRUARY 1998 1,082.03 92.323 0.03965538 3.66 11.72
MARCH 27, 1998 1,085.69 92.635 0.03639482 3.37 11.68
MARCH 31, 1998 1,085.35 92.924 0.00517917 0.48 11.547
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
APRIL 1997 0.305 1,000.75 0.07%
MAY 1997 0.325 1,015.15 1.51%
JUNE 1997 0.322 1,031.39 3.14%
JULY 1997 0.321 1,049.52 4.95%
AUGUST 1997 0.317 1,042.32 4.23%
SEPTEMBER 1997 0.316 1,053.23 5.32%
OCTOBER 1997 0.320 1,057.85 5.79%
NOVEMBER 1997 0.330 1,061.68 6.17%
DECEMBER 23, 1997 0.088 1,072.78 7.28%
DECEMBER 26, 1997 0.289 1,075.24 7.52%
JANUARY 1998 0.344 1,082.03 8.20%
FEBRUARY 1998 0.312 1,085.69 8.57%
MARCH 27, 1998 0.289 1,085.35 8.54%
MARCH 31, 1998 0.042 1,073.54 7.35%
</TABLE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Hawaiian Tax-Free Trust (Class Y Shares)
1-YR AVG. TOTAL RETURN AS OF 3/31/98 10.24%
1-YR CUM. TOTAL RETURN AS OF 3/31/98 10.24%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $11.24 As of 3/31/97
Public Offering Price Per Share (POP) $11.24 As of 3/31/97
Number of Shares Purchased 88.968 Based on POP
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
APRIL 1997 1,000.00 88.968 0.06347600* 5.65 11.28
MAY 1997 1,009.21 89.469 0.06521900 5.84 11.38
JUNE 1997 1,023.99 89.981 0.06275600 5.65 11.43
JULY 1997 1,034.13 90.475 0.06450600 5.84 11.66
AUGUST 1997 1,060.78 90.976 0.06413900 5.84 11.51
SEPTEMBER 1997 1,052.97 91.483 0.05872500 5.37 11.59
OCTOBER 1997 1,065.66 91.946 0.04791900 4.41 11.58
NOVEMBER 1997 1,069.15 92.327 0.04896300 4.52 11.61
DECEMBER 23, 1997 1,076.44 92.716 0.01122000 1.04 11.72
DECEMBER 26, 1997 1,087.68 92.805 0.05072516 4.71 11.71
JANUARY 1998 1,091.45 93.207 0.05143860 4.79 11.78
FEBRUARY 1998 1,102.77 93.614 0.04608030 4.31 11.74
MARCH 31, 1998 1,103.34 93.981 0.05023298 4.72 11.68
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
APRIL 1997 0.501 1,009.21 0.92%
MAY 1997 0.513 1,023.99 2.40%
JUNE 1997 0.494 1,034.13 3.41%
JULY 1997 0.501 1,060.78 6.08%
AUGUST 1997 0.507 1,052.97 5.30%
SEPTEMBER 1997 0.464 1,065.66 6.57%
OCTOBER 1997 0.380 1,069.15 6.91%
NOVEMBER 1997 0.389 1,076.44 7.64%
DECEMBER 23, 1997 0.089 1,087.68 8.77%
DECEMBER 26, 1997 0.402 1,091.45 9.15%
JANUARY 1998 0.407 1,102.77 10.28%
FEBRUARY 1998 0.367 1,103.34 10.33%
MARCH 31, 1998 0.404 1,102.42 10.24%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Hawaiian Tax-Free Trust (Class A Shares)
5-YR AVG. TOTAL RETURN AS OF 3/31/98 4.90%
5-YR CUM. TOTAL RETURN AS OF 3/31/98 27.04%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $11.61 As of 3/31/93
Public Offering Price Per Share (POP) $12.09 As of 3/31/93
Number of Shares Purchased 82.713 Based on POP
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
APRIL 1993 1,000.00 82.713 0.049489000* 4.09 11.64
MAY 1993 966.87 83.065 0.053382000 4.43 11.63
JUNE 1993 970.48 83.446 0.054467000 4.55 11.73
JULY 1993 983.37 83.833 0.052408000 4.39 11.68
AUGUST 1993 983.57 84.210 0.052486000 4.42 11.84
SEPTEMBER 1993 1,001.46 84.583 0.054350000 4.60 11.93
OCTOBER 1993 1,013.67 84.968 0.052667000 4.48 11.86
NOVEMBER 1993 1,012.20 85.346 0.052567000 4.49 11.72
DECEMBER 1993 1,004.74 85.728 0.079486000 6.81 11.83
JANUARY 1994 1,020.98 86.304 0.050977000 4.40 11.84
FEBRUARY 1994 1,026.24 86.676 0.052934000 4.59 11.62
MARCH 1994 1,011.76 87.071 0.050753000 4.42 11.37
APRIL 1994 994.41 87.459 0.054179000 4.74 11.22
MAY 1994 986.03 87.882 0.050441000 4.43 11.18
JUNE 1994 986.95 88.278 0.050789000 4.48 11.16
JULY 1994 989.67 88.680 0.052203000 4.63 11.16
AUGUST 1994 994.30 89.095 0.052185000 4.65 11.15
SEPTEMBER 1994 998.06 89.512 0.054138000 4.85 11.05
OCTOBER 1994 993.95 89.950 0.048973000 4.41 10.83
NOVEMBER 1994 978.57 90.357 0.052580000 4.75 10.47
DECEMBER 1994 950.79 90.811 0.107867000 9.80 10.63
JANUARY 1995 975.11 91.732 0.051222000 4.70 10.75
FEBRUARY 1995 990.82 92.169 0.049202000 4.53 11.05
MARCH 1995 1,023.01 92.580 0.052996000 4.91 11.15
APRIL 1995 1,037.17 93.020 0.050835000 4.73 11.19
MAY 1995 1,045.62 93.442 0.050673000 4.74 11.35
JUNE 1995 1,065.31 93.860 0.052172000 4.90 11.35
JULY 1995 1,070.20 94.291 0.051719000 4.88 11.33
AUGUST 1995 1,073.19 94.721 0.053241000 5.04 11.29
SEPTEMBER 1995 1,074.45 95.168 0.049607000 4.72 11.29
OCTOBER 1995 1,079.17 95.586 0.049680000 4.75 11.41
NOVEMBER 1995 1,095.39 96.003 0.050957000 4.89 11.47
DECEMBER 1995 1,106.04 96.429 0.048868000 4.71 11.59
JANUARY 1996 1,122.32 96.836 0.049032000 4.75 11.59
FEBRUARY 1996 1,127.07 97.245 0.050689000 4.93 11.54
MARCH 1996 1,127.14 97.672 0.049181000 4.80 11.32
APRIL 1996 1,110.46 98.097 0.049260000 4.83 11.27
MAY 1996 1,110.38 98.526 0.052569000 5.18 11.25
JUNE 1996 1,113.59 98.986 0.047552000 4.71 11.14
JULY 1996 1,107.41 99.408 0.048434000 4.81 11.25
AUGUST 1996 1,123.16 99.836 0.050571000 5.05 11.30
SEPTEMBER 1996 1,133.20 100.283 0.050646000 5.08 11.32
OCTOBER 1996 1,140.29 100.732 0.050864000 5.12 11.32
NOVEMBER 1996 1,145.41 101.185 0.047675000 4.82 11.50
DECEMBER 1996 1,168.45 101.604 0.051972000 5.28 11.46
JANUARY 1997 1,169.66 102.065 0.049973000 5.10 11.35
FEBRUARY 1997 1,163.54 102.514 0.047082000 4.83 11.50
MARCH 1997 1,183.74 102.934 0.048569000 5.00 11.23
APRIL 1997 1,160.95 103.379 0.051919000 5.37 11.21
MAY 1997 1,164.25 103.858 0.048773000 5.07 11.32
JUNE 1997 1,180.74 104.305 0.048741000 5.08 11.46
JULY 1997 1,200.42 104.749 0.049500000 5.19 11.62
AUGUST 1997 1,222.37 105.195 0.047959000 5.05 11.50
SEPTEMBER 1997 1,214.79 105.634 0.048034000 5.07 11.59
OCTOBER 1997 1,229.37 106.072 0.048762000 5.17 11.59
NOVEMBER 1997 1,234.54 106.518 0.050097000 5.34 11.59
DECEMBER 23, 1997 1,239.88 106.978 0.011220000 1.20 11.70
DECEMBER 26, 1997 1,252.85 107.081 0.043974881 4.71 11.70
JANUARY 1998 1,257.56 107.483 0.052470502 5.64 11.73
FEBRUARY 1998 1,266.42 107.964 0.047414474 5.12 11.72
MARCH 27, 1998 1,270.46 108.401 0.043556792 4.72 11.68
MARCH 31, 1998 1,270.85 108.805 0.006182328 0.67 11.67
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
APRIL 1993 0.352 966.87 -3.31%
MAY 1993 0.381 970.48 -2.95%
JUNE 1993 0.387 983.37 -1.66%
JULY 1993 0.376 983.57 -1.64%
AUGUST 1993 0.373 1,001.46 0.15%
SEPTEMBER 1993 0.385 1,013.67 1.37%
OCTOBER 1993 0.377 1,012.20 1.22%
NOVEMBER 1993 0.383 1,004.74 0.47%
DECEMBER 1993 0.576 1,020.98 2.10%
JANUARY 1994 0.372 1,026.24 2.62%
FEBRUARY 1994 0.395 1,011.76 1.18%
MARCH 1994 0.389 994.41 -0.56%
APRIL 1994 0.422 986.03 -1.40%
MAY 1994 0.396 986.95 -1.30%
JUNE 1994 0.402 989.67 -1.03%
JULY 1994 0.415 994.30 -0.57%
AUGUST 1994 0.417 998.06 -0.19%
SEPTEMBER 1994 0.439 993.95 -0.60%
OCTOBER 1994 0.407 978.57 -2.14%
NOVEMBER 1994 0.454 950.79 -4.92%
DECEMBER 1994 0.921 975.11 -2.49%
JANUARY 1995 0.437 990.82 -0.92%
FEBRUARY 1995 0.410 1,023.01 2.30%
MARCH 1995 0.440 1,037.17 3.72%
APRIL 1995 0.423 1,045.62 4.56%
MAY 1995 0.417 1,065.31 6.53%
JUNE 1995 0.431 1,070.20 7.02%
JULY 1995 0.430 1,073.19 7.32%
AUGUST 1995 0.447 1,074.45 7.44%
SEPTEMBER 1995 0.418 1,079.17 7.92%
OCTOBER 1995 0.416 1,095.39 9.54%
NOVEMBER 1995 0.427 1,106.04 10.60%
DECEMBER 1995 0.407 1,122.32 12.23%
JANUARY 1996 0.410 1,127.07 12.71%
FEBRUARY 1996 0.427 1,127.14 12.71%
MARCH 1996 0.424 1,110.46 11.05%
APRIL 1996 0.429 1,110.38 11.04%
MAY 1996 0.460 1,113.59 11.36%
JUNE 1996 0.423 1,107.41 10.74%
JULY 1996 0.428 1,123.16 12.32%
AUGUST 1996 0.447 1,133.20 13.32%
SEPTEMBER 1996 0.449 1,140.29 14.03%
OCTOBER 1996 0.453 1,145.41 14.54%
NOVEMBER 1996 0.419 1,168.45 16.84%
DECEMBER 1996 0.461 1,169.66 16.97%
JANUARY 1997 0.449 1,163.54 16.35%
FEBRUARY 1997 0.420 1,183.74 18.37%
MARCH 1997 0.445 1,160.95 16.09%
APRIL 1997 0.479 1,164.25 16.42%
MAY 1997 0.447 1,180.74 18.07%
JUNE 1997 0.444 1,200.42 20.04%
JULY 1997 0.446 1,222.37 22.24%
AUGUST 1997 0.439 1,214.79 21.48%
SEPTEMBER 1997 0.438 1,229.37 22.94%
OCTOBER 1997 0.446 1,234.54 23.45%
NOVEMBER 1997 0.460 1,239.88 23.99%
DECEMBER 23, 1997 0.103 1,252.85 25.28%
DECEMBER 26, 1997 0.402 1,257.56 25.76%
JANUARY 1998 0.481 1,266.42 26.64%
FEBRUARY 1998 0.437 1,270.46 27.05%
MARCH 27, 1998 0.404 1,270.85 27.08%
MARCH 31, 1998 0.058 1,270.43 27.04%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Hawaiian Tax-Free Trust (Class A Shares)
10-YR AVG. TOTAL RETURN AS OF 3/31/98 6.81%
10-YR CUM. TOTAL RETURN AS OF 3/31/98 93.28%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $10.60 As of 3/31/88
Public Offering Price Per Share (POP) $11.04 As of 3/31/88
Number of Shares Purchased 90.580 Based on POP
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
APRIL 1988 1,000.00 90.580 0.058685000 5.32 10.54
MAY 1988 960.03 91.084 0.064492000 5.87 10.50
JUNE 1988 962.26 91.643 0.060732000 5.57 10.57
JULY 1988 974.24 92.170 0.058227000 5.37 10.56
AUGUST 1988 978.68 92.678 0.066943000 6.20 10.59
SEPTEMBER 1988 987.67 93.264 0.061032000 5.69 10.66
OCTOBER 1988 999.89 93.798 0.063482000 5.95 10.78
NOVEMBER 1988 1,017.10 94.350 0.061839000 5.83 10.63
DECEMBER 1988 1,008.78 94.899 0.061360000 5.82 10.65
JANUARY 1989 1,016.50 95.446 0.065140000 6.22 10.83
FEBRUARY 1989 1,039.90 96.020 0.057822000 5.55 10.69
MARCH 1989 1,032.01 96.540 0.064697000 6.25 10.60
APRIL 1989 1,029.56 97.129 0.057759000 5.61 10.79
MAY 1989 1,053.63 97.649 0.068463000 6.69 10.88
JUNE 1989 1,069.10 98.263 0.059599000 5.86 10.93
JULY 1989 1,079.87 98.799 0.056950000 5.63 10.97
AUGUST 1989 1,089.45 99.312 0.065173000 6.47 10.87
SEPTEMBER 1989 1,085.99 99.907 0.058936000 5.89 10.75
OCTOBER 1989 1,079.89 100.455 0.058596000 5.89 10.85
NOVEMBER 1989 1,095.82 100.998 0.066505000 6.72 10.87
DECEMBER 1989 1,104.56 101.615 0.058255000 5.92 10.93
JANUARY 1990 1,116.58 102.157 0.061882000 6.32 10.82
FEBRUARY 1990 1,111.66 102.741 0.065447000 6.72 10.80
MARCH 1990 1,116.33 103.364 0.056625000 5.85 10.79
APRIL 1990 1,121.15 103.906 0.060687000 6.31 10.72
MAY 1990 1,120.18 104.495 0.060333000 6.30 10.74
JUNE 1990 1,128.58 105.082 0.061988000 6.51 10.77
JULY 1990 1,138.24 105.686 0.060489000 6.39 10.83
AUGUST 1990 1,150.98 106.277 0.060413000 6.42 10.65
SEPTEMBER 1990 1,138.27 106.880 0.061261000 6.55 10.61
OCTOBER 1990 1,140.54 107.497 0.061533000 6.61 10.69
NOVEMBER 1990 1,155.75 108.115 0.062873000 6.80 10.80
DECEMBER 1990 1,174.44 108.745 0.058927000 6.41 10.81
JANUARY 1991 1,181.94 109.338 0.059835000 6.54 10.87
FEBUARY 1991 1,195.04 109.940 0.060330000 6.63 10.95
MARCH 1991 1,210.47 110.545 0.056563000 6.25 10.84
APRIL 1991 1,204.56 111.122 0.059170000 6.58 10.90
MAY 1991 1,217.81 111.725 0.057007000 6.37 10.95
JUNE 1991 1,229.76 112.307 0.060513000 6.80 10.87
JULY 1991 1,227.57 112.932 0.059776000 6.75 10.92
AUGUST 1991 1,239.97 113.550 0.062253000 7.07 10.98
SEPTEMBER 1991 1,253.85 114.194 0.058078000 6.63 11.05
OCTOBER 1991 1,268.48 114.794 0.057405000 6.59 11.08
NOVEMBER 1991 1,278.51 115.389 0.059632000 6.88 11.04
DECEMBER 1991 1,280.78 116.012 0.060317000 7.00 11.17
JANUARY 1992 1,302.86 116.639 0.062239000 7.26 11.2
FEBRUARY 1992 1,313.61 117.287 0.058537000 6.87 11.13
MARCH 1992 1,312.27 117.904 0.058063000 6.85 11.09
APRIL 1992 1,314.40 118.521 0.059649000 7.07 11.11
MAY 1992 1,323.84 119.157 0.057639000 6.87 11.15
JUNE 1992 1,335.47 119.773 0.057077000 6.84 11.26
JULY 1992 1,355.49 120.381 0.057710000 6.95 11.50
AUGUST 1992 1,391.32 120.985 0.055217000 6.68 11.35
SEPTEMBER 1992 1,379.86 121.573 0.055393000 6.73 11.37
OCTOBER 1992 1,389.02 122.166 0.056239000 6.87 11.18
NOVEMBER 1992 1,372.68 122.780 0.054301000 6.67 11.34
DECEMBER 1992 1,398.99 123.368 0.059981000 7.40 11.37
JANUARY 1993 1,410.09 124.019 0.054741000 6.79 11.43
FEBRUARY 1993 1,424.32 124.613 0.054392000 6.78 11.72
MARCH 1993 1,467.24 125.191 0.056257000 7.04 11.59
APRIL 1993 1,458.01 125.799 0.053120000 6.68 11.64
MAY 1993 1,470.98 126.373 0.053382000 6.75 11.63
JUNE 1993 1,476.46 126.953 0.054467000 6.91 11.73
JULY 1993 1,496.07 127.542 0.052408000 6.68 11.68
AUGUST 1993 1,496.38 128.115 0.052486000 6.72 11.84
SEPTEMBER 1993 1,523.60 128.683 0.054350000 6.99 11.93
OCTOBER 1993 1,542.18 129.269 0.052667000 6.81 11.86
NOVEMBER 1993 1,539.94 129.843 0.052567000 6.83 11.72
DECEMBER 1993 1,528.58 130.425 0.079486000 10.37 11.83
JANUARY 1994 1,553.30 131.302 0.050977000 6.69 11.84
FEBRUARY 1994 1,561.30 131.867 0.052934000 6.98 11.62
MARCH 1994 1,539.27 132.468 0.050753000 6.72 11.37
APRIL 1994 1,512.88 133.059 0.054179000 7.21 11.22
MAY 1994 1,500.13 133.701 0.050441000 6.74 11.18
JUNE 1994 1,501.53 134.305 0.050789000 6.82 11.16
JULY 1994 1,505.66 134.916 0.052203000 7.04 11.16
AUGUST 1994 1,512.70 135.547 0.052185000 7.07 11.15
SEPTEMBER 1994 1,518.42 136.181 0.054138000 7.37 11.05
OCTOBER 1994 1,512.18 136.849 0.048973000 6.70 10.83
NOVEMBER 1994 1,488.77 137.467 0.052580000 7.23 10.47
DECEMBER 1994 1,446.51 138.158 0.107867000 14.90 10.63
JANUARY 1995 1,483.52 139.560 0.051222000 7.15 10.75
FEBRUARY 1995 1,507.42 140.225 0.049202000 6.90 11.05
MARCH 1995 1,556.38 140.849 0.052996000 7.46 11.15
APRIL 1995 1,577.93 141.519 0.050835000 7.19 11.19
MAY 1995 1,590.79 142.161 0.050673000 7.20 11.35
JUNE 1995 1,620.74 142.796 0.052172000 7.45 11.35
JULY 1995 1,628.19 143.452 0.051719000 7.42 11.33
AUGUST 1995 1,632.74 144.107 0.053241000 7.67 11.29
SEPTEMBER 1995 1,634.64 144.787 0.049607000 7.18 11.29
OCTOBER 1995 1,641.83 145.423 0.049680000 7.22 11.41
NOVEMBER 1995 1,666.50 146.056 0.050957000 7.44 11.47
DECEMBER 1995 1,682.71 146.705 0.048868000 7.17 11.59
JANUARY 1996 1,707.48 147.324 0.049032000 7.22 11.59
FEBRUARY 1996 1,714.71 147.947 0.050689000 7.50 11.54
MARCH 1996 1,714.81 148.597 0.049181000 7.31 11.32
APRIL 1996 1,689.42 149.242 0.049260000 7.35 11.27
MAY 1996 1,689.31 149.895 0.052569000 7.88 11.25
JUNE 1996 1,694.20 150.595 0.047552000 7.16 11.14
JULY 1996 1,684.79 151.238 0.048434000 7.33 11.25
AUGUST 1996 1,708.75 151.889 0.050571000 7.68 11.30
SEPTEMBER 1996 1,724.03 152.569 0.050646000 7.73 11.32
OCTOBER 1996 1,734.81 153.251 0.050864000 7.79 11.32
NOVEMBER 1996 1,742.60 153.940 0.047675000 7.34 11.50
DECEMBER 1996 1,777.65 154.578 0.051972000 8.03 11.46
JANUARY 1997 1,779.50 155.279 0.049973000 7.76 11.35
FEBRUARY 1997 1,770.18 155.963 0.047082000 7.34 11.50
MARCH 1997 1,800.92 156.601 0.048569000 7.61 11.23
APRIL 1997 1,766.24 157.279 0.051919000 8.17 11.21
MAY 1997 1,771.26 158.007 0.048773000 7.71 11.32
JUNE 1997 1,796.35 158.688 0.048741000 7.73 11.46
JULY 1997 1,826.30 159.363 0.049500000 7.89 11.62
AUGUST 1997 1,859.69 160.042 0.047959000 7.68 11.50
SEPTEMBER 1997 1,848.16 160.709 0.048034000 7.72 11.59
OCTOBER 1997 1,870.34 161.375 0.048762000 7.87 11.59
NOVEMBER 1997 1,878.21 162.054 0.050097000 8.12 11.59
DECEMBER 23, 1997 1,886.33 162.755 0.011220000 1.83 11.70
DECEMBER 26, 1997 1,906.06 162.911 0.043974881 7.16 11.70
JANUARY 1998 1,913.22 163.523 0.052470502 8.58 11.73
FEBRUARY 1998 1,926.71 164.254 0.047414474 7.79 11.72
MARCH 27, 1998 1,932.85 164.919 0.043556792 7.18 11.68
MARCH 31, 1998 1,933.44 165.534 0.006182328 1.02 11.67
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
APRIL 1988 0.504 960.03 -4.00%
MAY 1988 0.559 962.26 -3.77%
JUNE 1988 0.527 974.24 -2.58%
JULY 1988 0.508 978.68 -2.13%
AUGUST 1988 0.586 987.67 -1.23%
SEPTEMBER 1988 0.534 999.89 -0.01%
OCTOBER 1988 0.552 1,017.10 1.71%
NOVEMBER 1988 0.549 1,008.78 0.88%
DECEMBER 1988 0.547 1,016.50 1.65%
JANUARY 1989 0.574 1,039.90 3.99%
FEBRUARY 1989 0.519 1,032.01 3.20%
MARCH 1989 0.589 1,029.56 2.96%
APRIL 1989 0.520 1,053.63 5.36%
MAY 1989 0.614 1,069.10 6.91%
JUNE 1989 0.536 1,079.87 7.99%
JULY 1989 0.513 1,089.45 8.95%
AUGUST 1989 0.595 1,085.99 8.60%
SEPTEMBER 1989 0.548 1,079.89 7.99%
OCTOBER 1989 0.543 1,095.82 9.58%
NOVEMBER 1989 0.618 1,104.56 10.46%
DECEMBER 1989 0.542 1,116.58 11.66%
JANUARY 1990 0.584 1,111.66 11.17%
FEBRUARY 1990 0.623 1,116.33 11.63%
MARCH 1990 0.542 1,121.15 12.11%
APRIL 1990 0.588 1,120.18 12.02%
MAY 1990 0.587 1,128.58 12.86%
JUNE 1990 0.605 1,138.24 13.82%
JULY 1990 0.590 1,150.98 15.10%
AUGUST 1990 0.603 1,138.27 13.83%
SEPTEMBER 1990 0.617 1,140.54 14.05%
OCTOBER 1990 0.619 1,155.75 15.58%
NOVEMBER 1990 0.629 1,174.44 17.44%
DECEMBER 1990 0.593 1,181.94 18.19%
JANUARY 1991 0.602 1,195.04 19.50%
FEBUARY 1991 0.606 1,210.47 21.05%
MARCH 1991 0.577 1,204.56 20.46%
APRIL 1991 0.603 1,217.81 21.78%
MAY 1991 0.582 1,229.76 22.98%
JUNE 1991 0.625 1,227.57 22.76%
JULY 1991 0.618 1,239.97 24.00%
AUGUST 1991 0.644 1,253.85 25.39%
SEPTEMBER 1991 0.600 1,268.48 26.85%
OCTOBER 1991 0.595 1,278.51 27.85%
NOVEMBER 1991 0.623 1,280.78 28.08%
DECEMBER 1991 0.626 1,302.86 30.29%
JANUARY 1992 0.648 1,313.61 31.36%
FEBRUARY 1992 0.617 1,312.27 31.23%
MARCH 1992 0.617 1,314.40 31.44%
APRIL 1992 0.636 1,323.84 32.38%
MAY 1992 0.616 1,335.47 33.55%
JUNE 1992 0.607 1,355.49 35.55%
JULY 1992 0.604 1,391.32 39.13%
AUGUST 1992 0.589 1,379.86 37.99%
SEPTEMBER 1992 0.592 1,389.02 38.90%
OCTOBER 1992 0.615 1,372.68 37.27%
NOVEMBER 1992 0.588 1,398.99 39.90%
DECEMBER 1992 0.651 1,410.09 41.01%
JANUARY 1993 0.594 1,424.32 42.43%
FEBRUARY 1993 0.578 1,467.24 46.72%
MARCH 1993 0.608 1,458.01 45.80%
APRIL 1993 0.574 1,470.98 47.10%
MAY 1993 0.580 1,476.46 47.65%
JUNE 1993 0.589 1,496.07 49.61%
JULY 1993 0.572 1,496.38 49.64%
AUGUST 1993 0.568 1,523.60 52.36%
SEPTEMBER 1993 0.586 1,542.18 54.22%
OCTOBER 1993 0.574 1,539.94 53.99%
NOVEMBER 1993 0.582 1,528.58 52.86%
DECEMBER 1993 0.876 1,553.30 55.33%
JANUARY 1994 0.565 1,561.30 56.13%
FEBRUARY 1994 0.601 1,539.27 53.93%
MARCH 1994 0.591 1,512.88 51.29%
APRIL 1994 0.643 1,500.13 50.01%
MAY 1994 0.603 1,501.53 50.15%
JUNE 1994 0.611 1,505.66 50.57%
JULY 1994 0.631 1,512.70 51.27%
AUGUST 1994 0.634 1,518.42 51.84%
SEPTEMBER 1994 0.667 1,512.18 51.22%
OCTOBER 1994 0.619 1,488.77 48.88%
NOVEMBER 1994 0.690 1,446.51 44.65%
DECEMBER 1994 1.402 1,483.52 48.35%
JANUARY 1995 0.665 1,507.42 50.74%
FEBRUARY 1995 0.624 1,556.38 55.64%
MARCH 1995 0.669 1,577.93 57.79%
APRIL 1995 0.643 1,590.79 59.08%
MAY 1995 0.635 1,620.74 62.07%
JUNE 1995 0.656 1,628.19 62.82%
JULY 1995 0.655 1,632.74 63.27%
AUGUST 1995 0.680 1,634.64 63.46%
SEPTEMBER 1995 0.636 1,641.83 64.18%
OCTOBER 1995 0.633 1,666.50 66.65%
NOVEMBER 1995 0.649 1,682.71 68.27%
DECEMBER 1995 0.619 1,707.48 70.75%
JANUARY 1996 0.623 1,714.71 71.47%
FEBRUARY 1996 0.650 1,714.81 71.48%
MARCH 1996 0.646 1,689.42 68.94%
APRIL 1996 0.652 1,689.31 68.93%
MAY 1996 0.700 1,694.20 69.42%
JUNE 1996 0.643 1,684.79 68.48%
JULY 1996 0.651 1,708.75 70.88%
AUGUST 1996 0.680 1,724.03 72.40%
SEPTEMBER 1996 0.683 1,734.81 73.48%
OCTOBER 1996 0.689 1,742.60 74.26%
NOVEMBER 1996 0.638 1,777.65 77.76%
DECEMBER 1996 0.701 1,779.50 77.95%
JANUARY 1997 0.684 1,770.18 77.02%
FEBRUARY 1997 0.639 1,800.92 80.09%
MARCH 1997 0.677 1,766.24 76.62%
APRIL 1997 0.728 1,771.26 77.13%
MAY 1997 0.681 1,796.35 79.63%
JUNE 1997 0.675 1,826.30 82.63%
JULY 1997 0.679 1,859.69 85.97%
AUGUST 1997 0.667 1,848.16 84.82%
SEPTEMBER 1997 0.666 1,870.34 87.03%
OCTOBER 1997 0.679 1,878.21 87.82%
NOVEMBER 1997 0.700 1,886.33 88.63%
DECEMBER 23, 1997 0.156 1,906.06 90.61%
DECEMBER 26, 1997 0.612 1,913.22 91.32%
JANUARY 1998 0.731 1,926.71 92.67%
FEBRUARY 1998 0.665 1,932.85 93.29%
MARCH 27, 1998 0.615 1,933.44 93.34%
MARCH 31, 1998 0.088 1,932.81 93.28%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Hawaiian Tax-Free Trust (Class A Shares)
AVG. ANNUAL TOTAL RETURN FROM INCEPTION TO 3/31/98 7.80%
CUMULATIVE TOTAL RETURN FROM INCEPTION TO 3/31/98 167.86%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $9.60 As of 2/20/85
Public Offering Price Per Share (POP) $10.00 As of 2/20/85
Number of Shares Purchased 100.000 Based on POP
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
MARCH 1985 1,000.00 100.000 0.041000000 4.10 9.53
APRIL 1985 957.10 100.430 0.058000000 5.82 9.77
MAY 1985 987.03 101.026 0.067000000 6.77 10.09
JUNE 1985 1,026.13 101.697 0.066370000 6.75 10.11
JULY 1985 1,034.91 102.365 0.077184000 7.90 10.04
AUGUST 1985 1,035.64 103.152 0.069461000 7.17 9.97
SEPTEMBER 1985 1,035.59 103.870 0.072064000 7.49 9.74
OCTOBER 1985 1,019.18 104.639 0.071547000 7.49 9.98
NOVEMBER 1985 1,051.78 105.389 0.067451000 7.11 10.10
DECEMBER 1985 1,071.54 106.093 0.073168000 7.76 10.37
JANUARY 1986 1,107.95 106.842 0.071716000 7.66 10.69
FEBRUARY 1986 1,149.80 107.558 0.064746000 6.96 11.01
MARCH 1986 1,191.18 108.191 0.070578000 7.64 10.94
APRIL 1986 1,191.24 108.889 0.066553000 7.25 10.84
MAY 1986 1,187.60 109.557 0.064655000 7.08 10.56
JUNE 1986 1,164.01 110.228 0.065784000 7.25 10.64
JULY 1986 1,180.08 110.910 0.066319000 7.36 10.66
AUGUST 1986 1,189.65 111.600 0.064410000 7.19 10.93
SEPTEMBER 1986 1,226.97 112.257 0.068887000 7.73 10.88
OCTOBER 1986 1,229.09 112.968 0.065865000 7.44 11.04
NOVEMBER 1986 1,254.61 113.642 0.058541000 6.65 11.14
DECEMBER 1986 1,272.62 114.239 0.069400000 7.93 11.09
JANUARY 1987 1,274.84 114.954 0.063296000 7.28 11.19
FEBRUARY 1987 1,293.61 115.604 0.058801000 6.80 11.23
MARCH 1987 1,305.03 116.210 0.065995000 7.67 11.14
APRIL 1987 1,302.24 116.898 0.062899000 7.35 10.64
MAY 1987 1,251.15 117.589 0.060018000 7.06 10.54
JUNE 1987 1,246.45 118.259 0.065902000 7.79 10.63
JULY 1987 1,264.88 118.992 0.062715000 7.46 10.59
AUGUST 1987 1,267.59 119.697 0.062483000 7.48 10.60
SEPTEMBER 1987 1,276.26 120.402 0.061111000 7.36 10.19
OCTOBER 1987 1,234.26 121.124 0.062018000 7.51 10.20
NOVEMBER 1987 1,242.98 121.861 0.064331000 7.84 10.38
DECEMBER 1987 1,272.75 122.616 0.063598000 7.80 10.53
JANUARY 1988 1,298.94 123.356 0.060031000 7.41 10.77
FEBRUARY 1988 1,335.95 124.044 0.064414000 7.99 10.79
MARCH 1988 1,346.43 124.785 0.063315000 7.90 10.60
APRIL 1988 1,330.62 125.530 0.058685000 7.37 10.54
MAY 1988 1,330.45 126.229 0.064492000 8.14 10.50
JUNE 1988 1,333.54 127.004 0.060732000 7.71 10.57
JULY 1988 1,350.15 127.734 0.058227000 7.44 10.56
AUGUST 1988 1,356.31 128.438 0.066943000 8.60 10.59
SEPTEMBER 1988 1,368.76 129.250 0.061032000 7.89 10.66
OCTOBER 1988 1,385.69 129.990 0.063482000 8.25 10.78
NOVEMBER 1988 1,409.55 130.756 0.061839000 8.09 10.63
DECEMBER 1988 1,398.02 131.516 0.061360000 8.07 10.65
JANUARY 1989 1,408.72 132.274 0.065140000 8.62 10.83
FEBRUARY 1989 1,441.14 133.070 0.057822000 7.69 10.69
MARCH 1989 1,430.21 133.789 0.064697000 8.66 10.60
APRIL 1989 1,426.82 134.606 0.057759000 7.77 10.79
MAY 1989 1,460.17 135.326 0.068463000 9.26 10.88
JUNE 1989 1,481.62 136.178 0.059599000 8.12 10.93
JULY 1989 1,496.54 136.921 0.056950000 7.80 10.97
AUGUST 1989 1,509.82 137.631 0.065173000 8.97 10.87
SEPTEMBER 1989 1,505.02 138.457 0.058936000 8.16 10.75
OCTOBER 1989 1,496.57 139.216 0.058596000 8.16 10.85
NOVEMBER 1989 1,518.65 139.968 0.066505000 9.31 10.87
DECEMBER 1989 1,530.76 140.824 0.058255000 8.20 10.93
JANUARY 1990 1,547.41 141.574 0.061882000 8.76 10.82
FEBRUARY 1990 1,540.60 142.384 0.065447000 9.32 10.80
MARCH 1990 1,547.07 143.247 0.056625000 8.11 10.79
APRIL 1990 1,553.75 143.999 0.060687000 8.74 10.72
MAY 1990 1,552.41 144.814 0.060333000 8.74 10.74
JUNE 1990 1,564.04 145.627 0.061988000 9.03 10.77
JULY 1990 1,577.43 146.466 0.060489000 8.86 10.83
AUGUST 1990 1,595.08 147.284 0.060413000 8.90 10.65
SEPTEMBER 1990 1,577.47 148.119 0.061261000 9.07 10.61
OCTOBER 1990 1,580.62 148.974 0.061533000 9.17 10.69
NOVEMBER 1990 1,601.70 149.832 0.062873000 9.42 10.80
DECEMBER 1990 1,627.60 150.704 0.058927000 8.88 10.81
JANUARY 1991 1,637.99 151.526 0.059835000 9.07 10.87
FEBUARY 1991 1,656.15 152.360 0.060330000 9.19 10.95
MARCH 1991 1,677.53 153.199 0.056563000 8.67 10.84
APRIL 1991 1,669.34 153.999 0.059170000 9.11 10.90
MAY 1991 1,687.70 154.835 0.057007000 8.83 10.95
JUNE 1991 1,704.26 155.641 0.060513000 9.42 10.87
JULY 1991 1,701.23 156.507 0.059776000 9.36 10.92
AUGUST 1991 1,718.41 157.364 0.062253000 9.80 10.98
SEPTEMBER 1991 1,737.65 158.256 0.058078000 9.19 11.05
OCTOBER 1991 1,757.92 159.088 0.057405000 9.13 11.08
NOVEMBER 1991 1,771.82 159.912 0.059632000 9.54 11.04
DECEMBER 1991 1,774.96 160.776 0.060317000 9.70 11.17
JANUARY 1992 1,805.56 161.644 0.062239000 10.06 11.20
FEBRUARY 1992 1,820.47 162.542 0.058537000 9.51 11.13
MARCH 1992 1,818.61 163.397 0.058063000 9.49 11.09
APRIL 1992 1,821.56 164.253 0.059649000 9.80 11.11
MAY 1992 1,834.64 165.134 0.057639000 9.52 11.15
JUNE 1992 1,850.77 165.988 0.057077000 9.47 11.26
JULY 1992 1,878.50 166.829 0.057710000 9.63 11.50
AUGUST 1992 1,928.17 167.667 0.055217000 9.26 11.35
SEPTEMBER 1992 1,912.27 168.482 0.055393000 9.33 11.37
OCTOBER 1992 1,924.98 169.303 0.056239000 9.52 11.18
NOVEMBER 1992 1,902.33 170.155 0.054301000 9.24 11.34
DECEMBER 1992 1,938.79 170.970 0.059981000 10.25 11.37
JANUARY 1993 1,954.18 171.871 0.054741000 9.41 11.43
FEBRUARY 1993 1,973.90 172.695 0.054392000 9.39 11.72
MARCH 1993 2,033.37 173.496 0.056257000 9.76 11.59
APRIL 1993 2,020.58 174.338 0.053120000 9.26 11.64
MAY 1993 2,038.56 175.134 0.053382000 9.35 11.63
JUNE 1993 2,046.16 175.938 0.054467000 9.58 11.73
JULY 1993 2,073.33 176.755 0.052408000 9.26 11.68
AUGUST 1993 2,073.76 177.548 0.052486000 9.32 11.84
SEPTEMBER 1993 2,111.48 178.335 0.054350000 9.69 11.93
OCTOBER 1993 2,137.23 179.147 0.052667000 9.44 11.86
NOVEMBER 1993 2,134.12 179.943 0.052567000 9.46 11.72
DECEMBER 1993 2,118.39 180.750 0.079486000 14.37 11.83
JANUARY 1994 2,152.64 181.964 0.050977000 9.28 11.84
FEBRUARY 1994 2,163.73 182.748 0.052934000 9.67 11.62
MARCH 1994 2,133.20 183.580 0.050753000 9.32 11.37
APRIL 1994 2,096.63 184.400 0.054179000 9.99 11.22
MAY 1994 2,078.96 185.290 0.050441000 9.35 11.18
JUNE 1994 2,080.89 186.126 0.050789000 9.45 11.16
JULY 1994 2,086.62 186.973 0.052203000 9.76 11.16
AUGUST 1994 2,096.38 187.848 0.052185000 9.80 11.15
SEPTEMBER 1994 2,104.31 188.727 0.054138000 10.22 11.05
OCTOBER 1994 2,095.65 189.652 0.048973000 9.29 10.83
NOVEMBER 1994 2,063.21 190.509 0.052580000 10.02 10.47
DECEMBER 1994 2,004.65 191.466 0.107867000 20.65 10.63
JANUARY 1995 2,055.94 193.409 0.051222000 9.91 10.75
FEBRUARY 1995 2,089.05 194.330 0.049202000 9.56 11.05
MARCH 1995 2,156.91 195.196 0.052996000 10.34 11.15
APRIL 1995 2,186.78 196.123 0.050835000 9.97 11.19
MAY 1995 2,204.59 197.014 0.050673000 9.98 11.35
JUNE 1995 2,246.10 197.894 0.052172000 10.32 11.35
JULY 1995 2,256.42 198.804 0.051719000 10.28 11.33
AUGUST 1995 2,262.73 199.711 0.053241000 10.63 11.29
SEPTEMBER 1995 2,265.37 200.653 0.049607000 9.95 11.29
OCTOBER 1995 2,275.33 201.535 0.049680000 10.01 11.41
NOVEMBER 1995 2,309.52 202.412 0.050957000 10.31 11.47
DECEMBER 1995 2,331.98 203.311 0.048868000 9.94 11.59
JANUARY 1996 2,366.31 204.169 0.049032000 10.01 11.59
FEBRUARY 1996 2,376.32 205.032 0.050689000 10.39 11.54
MARCH 1996 2,376.47 205.933 0.049181000 10.13 11.32
APRIL 1996 2,341.29 206.828 0.049260000 10.19 11.27
MAY 1996 2,341.14 207.732 0.052569000 10.92 11.25
JUNE 1996 2,347.90 208.702 0.047552000 9.92 11.14
JULY 1996 2,334.87 209.593 0.048434000 10.15 11.25
AUGUST 1996 2,368.07 210.496 0.050571000 10.64 11.30
SEPTEMBER 1996 2,389.24 211.438 0.050646000 10.71 11.32
OCTOBER 1996 2,404.18 212.384 0.050864000 10.80 11.32
NOVEMBER 1996 2,414.98 213.338 0.047675000 10.17 11.50
DECEMBER 1996 2,463.56 214.222 0.051972000 11.13 11.46
JANUARY 1997 2,466.12 215.194 0.049973000 10.75 11.35
FEBRUARY 1997 2,453.20 216.141 0.047082000 10.18 11.50
MARCH 1997 2,495.80 217.026 0.048569000 10.54 11.23
APRIL 1997 2,447.74 217.965 0.051919000 11.32 11.21
MAY 1997 2,454.70 218.974 0.048773000 10.68 11.32
JUNE 1997 2,489.47 219.918 0.048741000 10.72 11.46
JULY 1997 2,530.98 220.853 0.049500000 10.93 11.62
AUGUST 1997 2,577.25 221.794 0.047959000 10.64 11.50
SEPTEMBER 1997 2,561.27 222.719 0.048034000 10.70 11.59
OCTOBER 1997 2,592.01 223.642 0.048762000 10.91 11.59
NOVEMBER 1997 2,602.92 224.583 0.050097000 11.25 11.59
DECEMBER 23, 1997 2,614.17 225.554 0.011220000 2.53 11.70
DECEMBER 26, 1997 2,641.51 225.770 0.043974881 9.93 11.70
JANUARY 1998 2,651.44 226.618 0.052470502 11.89 11.73
FEBRUARY 1998 2,670.13 227.632 0.047414474 10.79 11.72
MARCH 27, 1998 2,678.64 228.553 0.043556792 9.96 11.68
MARCH 31, 1998 2,679.45 229.405 0.006182328 1.42 11.67
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
MARCH 1985 0.430 957.10 -4.29%
APRIL 1985 0.596 987.03 -1.30%
MAY 1985 0.671 1,026.13 2.61%
JUNE 1985 0.668 1,034.91 3.49%
JULY 1985 0.787 1,035.64 3.56%
AUGUST 1985 0.719 1,035.59 3.56%
SEPTEMBER 1985 0.769 1,019.18 1.92%
OCTOBER 1985 0.750 1,051.78 5.18%
NOVEMBER 1985 0.704 1,071.54 7.15%
DECEMBER 1985 0.749 1,107.95 10.79%
JANUARY 1986 0.717 1,149.80 14.98%
FEBRUARY 1986 0.633 1,191.18 19.12%
MARCH 1986 0.698 1,191.24 19.12%
APRIL 1986 0.669 1,187.60 18.76%
MAY 1986 0.671 1,164.01 16.40%
JUNE 1986 0.682 1,180.08 18.01%
JULY 1986 0.690 1,189.65 18.97%
AUGUST 1986 0.658 1,226.97 22.70%
SEPTEMBER 1986 0.711 1,229.09 22.91%
OCTOBER 1986 0.674 1,254.61 25.46%
NOVEMBER 1986 0.597 1,272.62 27.26%
DECEMBER 1986 0.715 1,274.84 27.48%
JANUARY 1987 0.650 1,293.61 29.36%
FEBRUARY 1987 0.605 1,305.03 30.50%
MARCH 1987 0.688 1,302.24 30.22%
APRIL 1987 0.691 1,251.15 25.11%
MAY 1987 0.670 1,246.45 24.64%
JUNE 1987 0.733 1,264.88 26.49%
JULY 1987 0.705 1,267.59 26.76%
AUGUST 1987 0.706 1,276.26 27.63%
SEPTEMBER 1987 0.722 1,234.26 23.43%
OCTOBER 1987 0.736 1,242.98 24.30%
NOVEMBER 1987 0.755 1,272.75 27.28%
DECEMBER 1987 0.741 1,298.94 29.89%
JANUARY 1988 0.688 1,335.95 33.60%
FEBRUARY 1988 0.741 1,346.43 34.64%
MARCH 1988 0.745 1,330.62 33.06%
APRIL 1988 0.699 1,330.45 33.05%
MAY 1988 0.775 1,333.54 33.35%
JUNE 1988 0.730 1,350.15 35.01%
JULY 1988 0.704 1,356.31 35.63%
AUGUST 1988 0.812 1,368.76 36.88%
SEPTEMBER 1988 0.740 1,385.69 38.57%
OCTOBER 1988 0.765 1,409.55 40.95%
NOVEMBER 1988 0.761 1,398.02 39.80%
DECEMBER 1988 0.758 1,408.72 40.87%
JANUARY 1989 0.796 1,441.14 44.11%
FEBRUARY 1989 0.720 1,430.21 43.02%
MARCH 1989 0.817 1,426.82 42.68%
APRIL 1989 0.721 1,460.17 46.02%
MAY 1989 0.852 1,481.62 48.16%
JUNE 1989 0.743 1,496.54 49.65%
JULY 1989 0.711 1,509.82 50.98%
AUGUST 1989 0.825 1,505.02 50.50%
SEPTEMBER 1989 0.759 1,496.57 49.66%
OCTOBER 1989 0.752 1,518.65 51.86%
NOVEMBER 1989 0.856 1,530.76 53.08%
DECEMBER 1989 0.751 1,547.41 54.74%
JANUARY 1990 0.810 1,540.60 54.06%
FEBRUARY 1990 0.863 1,547.07 54.71%
MARCH 1990 0.752 1,553.75 55.37%
APRIL 1990 0.815 1,552.41 55.24%
MAY 1990 0.814 1,564.04 56.40%
JUNE 1990 0.838 1,577.43 57.74%
JULY 1990 0.818 1,595.08 59.51%
AUGUST 1990 0.835 1,577.47 57.75%
SEPTEMBER 1990 0.855 1,580.62 58.06%
OCTOBER 1990 0.858 1,601.70 60.17%
NOVEMBER 1990 0.872 1,627.60 62.76%
DECEMBER 1990 0.822 1,637.99 63.80%
JANUARY 1991 0.834 1,656.15 65.62%
FEBUARY 1991 0.839 1,677.53 67.75%
MARCH 1991 0.799 1,669.34 66.93%
APRIL 1991 0.836 1,687.70 68.77%
MAY 1991 0.806 1,704.26 70.43%
JUNE 1991 0.866 1,701.23 70.12%
JULY 1991 0.857 1,718.41 71.84%
AUGUST 1991 0.892 1,737.65 73.77%
SEPTEMBER 1991 0.832 1,757.92 75.79%
OCTOBER 1991 0.824 1,771.82 77.18%
NOVEMBER 1991 0.864 1,774.96 77.50%
DECEMBER 1991 0.868 1,805.56 80.56%
JANUARY 1992 0.898 1,820.47 82.05%
FEBRUARY 1992 0.855 1,818.61 81.86%
MARCH 1992 0.855 1,821.56 82.16%
APRIL 1992 0.882 1,834.64 83.46%
MAY 1992 0.854 1,850.77 85.08%
JUNE 1992 0.841 1,878.50 87.85%
JULY 1992 0.837 1,928.17 92.82%
AUGUST 1992 0.816 1,912.27 91.23%
SEPTEMBER 1992 0.821 1,924.98 92.50%
OCTOBER 1992 0.852 1,902.33 90.23%
NOVEMBER 1992 0.815 1,938.79 93.88%
DECEMBER 1992 0.902 1,954.18 95.42%
JANUARY 1993 0.823 1,973.90 97.39%
FEBRUARY 1993 0.801 2,033.37 103.34%
MARCH 1993 0.842 2,020.58 102.06%
APRIL 1993 0.796 2,038.56 103.86%
MAY 1993 0.804 2,046.16 104.62%
JUNE 1993 0.817 2,073.33 107.33%
JULY 1993 0.793 2,073.76 107.38%
AUGUST 1993 0.787 2,111.48 111.15%
SEPTEMBER 1993 0.812 2,137.23 113.72%
OCTOBER 1993 0.796 2,134.12 113.41%
NOVEMBER 1993 0.807 2,118.39 111.84%
DECEMBER 1993 1.214 2,152.64 115.26%
JANUARY 1994 0.783 2,163.73 116.37%
FEBRUARY 1994 0.832 2,133.20 113.32%
MARCH 1994 0.819 2,096.63 109.66%
APRIL 1994 0.890 2,078.96 107.90%
MAY 1994 0.836 2,080.89 108.09%
JUNE 1994 0.847 2,086.62 108.66%
JULY 1994 0.875 2,096.38 109.64%
AUGUST 1994 0.879 2,104.31 110.43%
SEPTEMBER 1994 0.925 2,095.65 109.57%
OCTOBER 1994 0.858 2,063.21 106.32%
NOVEMBER 1994 0.957 2,004.65 100.46%
DECEMBER 1994 1.943 2,055.94 105.59%
JANUARY 1995 0.922 2,089.05 108.91%
FEBRUARY 1995 0.865 2,156.91 115.69%
MARCH 1995 0.928 2,186.78 118.68%
APRIL 1995 0.891 2,204.59 120.46%
MAY 1995 0.880 2,246.10 124.61%
JUNE 1995 0.910 2,256.42 125.64%
JULY 1995 0.907 2,262.73 126.27%
AUGUST 1995 0.942 2,265.37 126.54%
SEPTEMBER 1995 0.882 2,275.33 127.53%
OCTOBER 1995 0.877 2,309.52 130.95%
NOVEMBER 1995 0.899 2,331.98 133.20%
DECEMBER 1995 0.857 2,366.31 136.63%
JANUARY 1996 0.864 2,376.32 137.63%
FEBRUARY 1996 0.901 2,376.47 137.65%
MARCH 1996 0.895 2,341.29 134.13%
APRIL 1996 0.904 2,341.14 134.11%
MAY 1996 0.971 2,347.90 134.79%
JUNE 1996 0.891 2,334.87 133.49%
JULY 1996 0.902 2,368.07 136.81%
AUGUST 1996 0.942 2,389.24 138.92%
SEPTEMBER 1996 0.946 2,404.18 140.42%
OCTOBER 1996 0.954 2,414.98 141.50%
NOVEMBER 1996 0.884 2,463.56 146.36%
DECEMBER 1996 0.972 2,466.12 146.61%
JANUARY 1997 0.947 2,453.20 145.32%
FEBRUARY 1997 0.885 2,495.80 149.58%
MARCH 1997 0.939 2,447.74 144.77%
APRIL 1997 1.010 2,454.70 145.47%
MAY 1997 0.943 2,489.47 148.95%
JUNE 1997 0.935 2,530.98 153.10%
JULY 1997 0.941 2,577.25 157.72%
AUGUST 1997 0.925 2,561.27 156.13%
SEPTEMBER 1997 0.923 2,592.01 159.20%
OCTOBER 1997 0.941 2,602.92 160.29%
NOVEMBER 1997 0.971 2,614.17 161.42%
DECEMBER 23, 1997 0.216 2,641.51 164.15%
DECEMBER 26, 1997 0.849 2,651.44 165.14%
JANUARY 1998 1.014 2,670.13 167.01%
FEBRUARY 1998 0.921 2,678.64 167.86%
MARCH 27, 1998 0.852 2,679.45 167.95%
MARCH 31, 1998 0.122 2,678.58 167.86%
</TABLE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Hawaiian Tax-Free Trust (Class C Shares)
AVG. ANNUAL TOTAL RETURN FROM INCEPTION TO 3/31/98 5.88%
CUMULATIVE TOTAL RETURN FROM INCEPTION TO 3/31/98 12.10%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $11.31 As of 3/31/96
Public Offering Price Per Share (POP) $11.31 As of 3/31/96
Number of Shares Purchased 88.417 Based on POP
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
APRIL 1996 1,000.00 88.417 0.006996000 0.62 11.27
MAY 1996 997.08 88.472 0.043154000 3.82 11.24
JUNE 1996 998.25 88.812 0.038902000 3.45 11.13
JULY 1996 991.93 89.122 0.039024000 3.48 11.24
AUGUST 1996 1,005.21 89.432 0.042051000 3.76 11.29
SEPTEMBER 1996 1,013.44 89.765 0.041604000 3.73 11.31
OCTOBER 1996 1,018.97 90.095 0.041841000 3.77 11.32
NOVEMBER 1996 1,023.65 90.428 0.038596000 3.49 11.49
DECEMBER 1996 1,042.51 90.732 0.040984000 3.72 11.46
JANUARY 1997 1,043.50 91.056 0.042073000 3.83 11.34
FEBRUARY 1997 1,036.41 91.394 0.039615000 3.62 11.50
MARCH 1997 1,054.65 91.709 0.040844000 3.75 11.23
APRIL 1997 1,033.64 92.042 0.043792000 4.03 11.20
MAY 1997 1,034.91 92.402 0.041136000 3.80 11.32
JUNE 1997 1,049.80 92.738 0.041145000 3.82 11.46
JULY 1997 1,066.60 93.071 0.041432000 3.86 11.62
AUGUST 1997 1,085.34 93.403 0.040325000 3.77 11.50
SEPTEMBER 1997 1,077.90 93.730 0.040342000 3.78 11.58
OCTOBER 1997 1,089.18 94.057 0.040817000 3.84 11.59
NOVEMBER 1997 1,093.96 94.388 0.041878000 3.95 11.59
DECEMBER 23, 1997 1,097.91 94.729 0.011220000 1.06 11.70
DECEMBER 26, 1997 1,109.40 94.820 0.036794964 3.49 11.69
JANUARY 28, 1998 1,111.94 95.119 0.043815418 4.17 11.72
FEBRUARY 27, 1998 1,118.96 95.474 0.039655377 3.79 11.72
MARCH 27, 1998 1,122.74 95.797 0.036394819 3.49 11.68
MARCH 31, 1998 1,122.40 96.096 0.005179166 0.50 11.66
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
APRIL 1996 0.055 997.08 -0.29%
MAY 1996 0.340 998.25 -0.18%
JUNE 1996 0.310 991.93 -0.81%
JULY 1996 0.309 1,005.21 0.52%
AUGUST 1996 0.333 1,013.44 1.34%
SEPTEMBER 1996 0.330 1,018.97 1.90%
OCTOBER 1996 0.333 1,023.65 2.36%
NOVEMBER 1996 0.304 1,042.51 4.25%
DECEMBER 1996 0.324 1,043.50 4.35%
JANUARY 1997 0.338 1,036.41 3.64%
FEBRUARY 1997 0.315 1,054.65 5.47%
MARCH 1997 0.334 1,033.64 3.36%
APRIL 1997 0.360 1,034.91 3.49%
MAY 1997 0.336 1,049.80 4.98%
JUNE 1997 0.333 1,066.60 6.66%
JULY 1997 0.332 1,085.34 8.53%
AUGUST 1997 0.328 1,077.90 7.79%
SEPTEMBER 1997 0.327 1,089.18 8.92%
OCTOBER 1997 0.331 1,093.96 9.40%
NOVEMBER 1997 0.341 1,097.91 9.79%
DECEMBER 23, 1997 0.091 1,109.40 10.94%
DECEMBER 26, 1997 0.298 1,111.94 11.19%
JANUARY 28, 1998 0.356 1,118.96 11.90%
FEBRUARY 27, 1998 0.323 1,122.74 12.27%
MARCH 27, 1998 0.299 1,122.40 12.24%
MARCH 31, 1998 0.043 1,120.97 12.10%
</TABLE>
<TABLE>
<CAPTION>
T O T A L R E T U R N B A S E D O N P O P
Hawaiian Tax-Free Trust (Class Y Shares)
AVG. ANNUAL TOTAL RETURN FROM INCEPTION TO 3/31/98 8.18%
CUMULATIVE TOTAL RETURN FROM INCEPTION TO 3/31/98 17.01%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $11.31 As of 3/31/96
Public Offering Price Per Share (POP) $11.31 As of 3/31/96
Number of Shares Purchased 88.417 Based on POP
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
APRIL 1996 1,000.00 88.417 0.004520000 0.40 11.27
MAY 1996 996.86 88.453 0.072287000 6.39 11.25
JUNE 1996 1,001.49 89.021 0.065080000 5.79 11.14
JULY 1996 997.49 89.541 0.066935000 5.99 11.25
AUGUST 1996 1,013.33 90.074 0.077648000 6.99 11.24
SEPTEMBER 1996 1,019.43 90.696 0.068294000 6.19 11.32
OCTOBER 1996 1,032.88 91.243 0.067890000 6.19 11.39
NOVEMBER 1996 1,045.46 91.787 0.063133000 5.79 11.52
DECEMBER 1996 1,063.18 92.290 0.069283000 6.39 11.44
JANUARY 1997 1,062.19 92.849 0.066686000 6.19 11.42
FEBRUARY 1997 1,066.53 93.391 0.059892000 5.59 11.46
MARCH 1997 1,075.86 93.879 0.065968000 6.19 11.24
APRIL 1997 1,061.40 94.430 0.063476000 5.99 11.28
MAY 1997 1,071.17 94.962 0.065219000 6.19 11.38
JUNE 1997 1,086.86 95.506 0.062756000 5.99 11.43
JULY 1997 1,097.63 96.030 0.064506000 6.19 11.66
AUGUST 1997 1,125.91 96.562 0.064139000 6.19 11.51
SEPTEMBER 1997 1,117.62 97.100 0.058725000 5.70 11.59
OCTOBER 1997 1,131.09 97.592 0.047919000 4.68 11.58
NOVEMBER 1997 1,134.79 97.996 0.048963000 4.80 11.61
DECEMBER 23, 1997 1,142.53 98.409 0.011220000 1.10 11.72
DECEMBER 26, 1997 1,154.46 98.503 0.050725162 5.00 11.71
JANUARY 28, 1998 1,158.47 98.930 0.051438598 5.09 11.78
FEBRUARY 27, 1998 1,170.48 99.362 0.046080298 4.58 11.74
MARCH 31, 1998 1,171.09 99.752 0.050232981 5.01 11.68
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
APRIL 1996 0.035 996.86 -0.31%
MAY 1996 0.568 1,001.49 0.15%
JUNE 1996 0.520 997.49 -0.25%
JULY 1996 0.533 1,013.33 1.33%
AUGUST 1996 0.622 1,019.43 1.94%
SEPTEMBER 1996 0.547 1,032.88 3.29%
OCTOBER 1996 0.544 1,045.46 4.55%
NOVEMBER 1996 0.503 1,063.18 6.32%
DECEMBER 1996 0.559 1,062.19 6.22%
JANUARY 1997 0.542 1,066.53 6.65%
FEBRUARY 1997 0.488 1,075.86 7.59%
MARCH 1997 0.551 1,061.40 6.14%
APRIL 1997 0.531 1,071.17 7.12%
MAY 1997 0.544 1,086.86 8.69%
JUNE 1997 0.524 1,097.63 9.76%
JULY 1997 0.531 1,125.91 12.59%
AUGUST 1997 0.538 1,117.62 11.76%
SEPTEMBER 1997 0.492 1,131.09 13.11%
OCTOBER 1997 0.404 1,134.79 13.48%
NOVEMBER 1997 0.413 1,142.53 14.25%
DECEMBER 23, 1997 0.094 1,154.46 15.45%
DECEMBER 26, 1997 0.427 1,158.47 15.85%
JANUARY 28, 1998 0.432 1,170.48 17.05%
FEBRUARY 27, 1998 0.390 1,171.09 17.11%
MARCH 31, 1998 0.429 1,170.11 17.01%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Hawaiian Tax Free Trust
Class A
SEC Yield
3/31/98
<S> <C>
Dividend and Interest Income 2,639,297.89
Expenses Accrued for Period 381,765.49
Avg. Daily Shares Outstanding 55,516,132.239
Maximum Offering Price 12.16
Yield 4.05
</TABLE>
--------------------------------------------------------------
<TABLE>
<CAPTION>
Hawaiian Tax Free Trust
Class C
SEC Yield
3/31/98
<S> <C>
Dividend and Interest Income 29,697.08
Expenses Accrued for Period 9,098.29
Avg. Daily Shares Outstanding 624,902.167
Maximum Offering Price 11.66
Yield 3.42
</TABLE>
--------------------------------------------------------------
<TABLE>
<CAPTION>
Hawaiian Tax Free Trust
Class Y
SEC Yield
3/31/98
<S> <C>
Dividend and Interest Income 5,161.03
Expenses Accrued for Period 538.22
Avg. Daily Shares Outstanding 108,416.777
Maximum Offering Price 11.68
Yield 4.42
</TABLE>
--------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Hawaiian Tax-Free Trust
Class A
<S> <C>
Yield (Pre-tax) 0.0405
Percent Exempt From Federal Tax 1
Federal Tax Rate 0.396
State Tax Rate 0.1
Taxable Equivalent Yield 0.0745
Formula Y = ((y*Fe)/(1-(F+S*(1-F))))+(y*(1-Fe))
</TABLE>
------------------
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Hawaiian Tax-Free Trust
Class C
<S> <C>
Yield (Pre-tax) 0.0342
Percent Exempt From Federal Tax 1
Federal Tax Rate 0.396
State Tax Rate 0.1
Taxable Equivalent Yield 0.0629
Formula Y = ((y*Fe)/(1-(F+S*(1-F))))+(y*(1-Fe))
</TABLE>
------------------
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Hawaiian Tax-Free Trust
Class Y
<S> <C>
Yield (Pre-tax) 0.0442
Percent Exempt From Federal Tax 1
Federal Tax Rate 0.396
State Tax Rate 0.1
Taxable Equivalent Yield 0.0813
Formula Y = ((y*Fe)/(1-(F+S*(1-F))))+(y*(1-Fe))
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's Annual report dated March 31, 1998 and is qualified in its entirety
by reference to such Financial Statements.
</LEGEND>
<CIK> 0000750909
<NAME> HAWAIIAN TAX-FREE TRUST - CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 590,597,006
<INVESTMENTS-AT-VALUE> 633,085,287
<RECEIVABLES> 11,465,005
<ASSETS-OTHER> 11,529
<OTHER-ITEMS-ASSETS> 13,717,896
<TOTAL-ASSETS> 658,279,717
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,856,489
<TOTAL-LIABILITIES> 1,856,489
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 611,830,534
<SHARES-COMMON-STOCK> 55,526,011
<SHARES-COMMON-PRIOR> 57,070,761
<ACCUMULATED-NII-CURRENT> 2,104,413
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,488,281
<NET-ASSETS> 647,929,691
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 37,434,349
<OTHER-INCOME> 0
<EXPENSES-NET> 4,774,280
<NET-INVESTMENT-INCOME> 32,660,069
<REALIZED-GAINS-CURRENT> 3,486,866
<APPREC-INCREASE-CURRENT> 22,640,184
<NET-CHANGE-FROM-OPS> 58,787,119
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 29,979,152
<DISTRIBUTIONS-OF-GAINS> 3,442,638
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,752,188
<NUMBER-OF-SHARES-REDEEMED> 6,777,819
<SHARES-REINVESTED> 1,480,881
<NET-CHANGE-IN-ASSETS> 10,067,325
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 387,470
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 921,605
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,841,862
<AVERAGE-NET-ASSETS> 651,867,903
<PER-SHARE-NAV-BEGIN> 11.23
<PER-SHARE-NII> .57
<PER-SHARE-GAIN-APPREC> .46
<PER-SHARE-DIVIDEND> .54
<PER-SHARE-DISTRIBUTIONS> .05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.67
<EXPENSE-RATIO> .72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's Annual report dated March 31, 1998 and is qualified in its entirety
by reference to such Fincial Statements.
</LEGEND>
<CIK> 0000750909
<NAME> HAWAIIAN TAX-FREE TRUST - CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 590,597,006
<INVESTMENTS-AT-VALUE> 633,085,287
<RECEIVABLES> 11,465,005
<ASSETS-OTHER> 11,529
<OTHER-ITEMS-ASSETS> 13,717,896
<TOTAL-ASSETS> 658,279,717
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,856,489
<TOTAL-LIABILITIES> 1,856,489
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 611,830,534
<SHARES-COMMON-STOCK> 618,535
<SHARES-COMMON-PRIOR> 478,038
<ACCUMULATED-NII-CURRENT> 2,104,413
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,488,281
<NET-ASSETS> 7,215,072
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 37,434,349
<OTHER-INCOME> 0
<EXPENSES-NET> 4,774,280
<NET-INVESTMENT-INCOME> 32,660,069
<REALIZED-GAINS-CURRENT> 3,486,866
<APPREC-INCREASE-CURRENT> 22,640,184
<NET-CHANGE-FROM-OPS> 58,787,119
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 217,304
<DISTRIBUTIONS-OF-GAINS> 37,620
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 327,859
<NUMBER-OF-SHARES-REDEEMED> 198,156
<SHARES-REINVESTED> 10,794
<NET-CHANGE-IN-ASSETS> 10,067,325
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 387,470
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 921,605
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,841,862
<AVERAGE-NET-ASSETS> 245,164
<PER-SHARE-NAV-BEGIN> 11.23
<PER-SHARE-NII> .48
<PER-SHARE-GAIN-APPREC> .45
<PER-SHARE-DIVIDEND> .45
<PER-SHARE-DISTRIBUTIONS> .05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.66
<EXPENSE-RATIO> 1.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's Annual report dated March 31, 1998 and is qualified in its entirety
by reference to such Financial statements.
</LEGEND>
<CIK> 0000750909
<NAME> HAWAIIAN TAX-FREE TRUST - CLASS Y
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 590,597,006
<INVESTMENTS-AT-VALUE> 633,085,287
<RECEIVABLES> 11,465,005
<ASSETS-OTHER> 11,529
<OTHER-ITEMS-ASSETS> 13,717,896
<TOTAL-ASSETS> 658,279,717
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,856,489
<TOTAL-LIABILITIES> 1,856,489
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 611,830,534
<SHARES-COMMON-STOCK> 109,418
<SHARES-COMMON-PRIOR> 9
<ACCUMULATED-NII-CURRENT> 2,104,413
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,488,281
<NET-ASSETS> 1,278
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 37,434,349
<OTHER-INCOME> 0
<EXPENSES-NET> 4,774,280
<NET-INVESTMENT-INCOME> 32,660,069
<REALIZED-GAINS-CURRENT> 3,486,866
<APPREC-INCREASE-CURRENT> 22,640,184
<NET-CHANGE-FROM-OPS> 58,787,119
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19,583
<DISTRIBUTIONS-OF-GAINS> 6,608
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 107,201
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 2,207
<NET-CHANGE-IN-ASSETS> 10,067,325
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 387,470
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 921,605
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,841,862
<AVERAGE-NET-ASSETS> 493,006
<PER-SHARE-NAV-BEGIN> 11.24
<PER-SHARE-NII> .67
<PER-SHARE-GAIN-APPREC> .45
<PER-SHARE-DIVIDEND> .63
<PER-SHARE-DISTRIBUTIONS> .05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.68
<EXPENSE-RATIO> .51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Dated: July 21, 1998
HAWAIIAN TAX-FREE TRUST
Rule 18f-3
Multiple Class Plan
HAWAIIAN TAX-FREE TRUST (the "Trust") has elected to
rely on Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"), in offering multiple classes of shares
with differing distribution arrangements, voting rights and
expense allocations.
Pursuant to Rule 18f-3, the Board of Trustees of the
Trust has approved and adopted this written plan (the "Plan")
specifying all of the differences among the classes of shares to
be offered by the Trust. Prior to such offering, the Plan will
be filed as an exhibit to the Trust's registration statement.
The Plan sets forth the differences among the classes, including
shareholder services, distribution arrangements, expense
allocations, and conversion or exchange options.
I. Attributes of Share Classes
This section discusses the attributes of the various classes
of shares. Each share of the Trust represents an equal pro rata
interest in the Trust and has identical voting rights, powers,
qualifications, terms and conditions and, in proportion to each
share's net asset value, liquidation rights and preferences.
Each class differs in that: (a) each class has a different class
designation; (b) only the Front-Payment Shares are subject to a
front-end sales charge ("FESC"); (c) only the Level-Payment and
certain Front-Payment Shares are subject to a contingent deferred
sales charge ("CDSC"); (d) only the Front-Payment Shares, Level-
Payment Shares and Financial Intermediary Shares (as described
below) are subject to distribution fees under a plan adopted
pursuant to Rule 12b-1 under the 1940 Act (a "Rule 12b-1 Plan"),
the distribution fees for the Level-Payment Class and Financial
Intermediary Class being higher than that for the Front-Payment
Class; (e) only the Level-Payment Shares and Financial
Intermediary Shares are subject to a shareholder servicing fee
under a non-Rule 12b-1 shareholder services plan (a "Shareholder
Services Plan"); (f) to the extent that one class alone is
affected by a matter submitted to a vote of the shareholders,
then only that class has voting power on the matter, provided,
however, that any class whose shares convert automatically to
shares of another class also votes separately with respect to
class-specific Rule 12b-1 matters applying to the latter class;
(g) the expenses attributable to a specific class ("Class
Expenses")* are borne only by shares of that class on a pro-rata
basis; and (h) exchange privileges and conversion features may
vary among the classes.
* Class Expenses are limited to (i) transfer agency fees;
(ii) preparation and mailing expenses for shareholder
communications required by law, sent to current shareholders
of a class; (iii) state Blue Sky registration fees; (iv)
Securities and Exchange Commission ("SEC") registration
fees; (v) trustees' fees; (vi) expenses incurred for
periodic meetings of trustees or shareholders; and (vii)
legal and accounting fees, other than fees for income tax
return preparation or income tax advice.
A. Front-Payment Shares
Front-Payment Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Front-Payment
Shares under the exchange privileges of the Trust. Shares
of the Trust outstanding on the date that different classes
of shares were first made available were redesignated Front-
Payment Shares. Front-Payment Shares are also issued upon
automatic conversion of Level-Payment Shares, as described
below.
1. Sales Loads. Front-Payment Shares are sold
subject to the current maximum FESC (with scheduled
variations or eliminations of the sales charge, as
permitted by the 1940 Act). Certain Front-Payment
Shares sold without a FESC are subject to a CDSC.
2. Distribution and Service Fees. Front-Payment
Shares are subject to a distribution fee pursuant to
Part I of the Trust's Rule 12b-1 Plan. They are not
subject to charges applicable to a Shareholder Services
Plan.
3. Class Expenses. Class Expenses that are
attributable to the Front-Payment Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Front-Payment Shares are exchangeable for Front-Payment
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Trust.
Front-Payment Shares have no conversion features.
B. Level-Payment Shares
Level-Payment Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Level-Payment
Shares under the exchange privileges of the Trust.
1. Sales Loads. Level-Payment Shares are sold
without the imposition of any FESC, but are subject to
a CDSC (with scheduled variations or eliminations of
the sales charge, as permitted by the 1940 Act).
2. Distribution and Service Fees. Level-Payment
Shares are subject to a distribution fee pursuant to
Part II of the Trust's Rule 12b-1 Plan and to a
shareholder servicing fee under a Shareholder Services
Plan not to exceed .25% of the average daily net assets
of the Level-Payment Class.
3. Class Expenses. Class Expenses that are
attributable to the Level-Payment Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Level-Payment Shares are exchangeable for Level-Payment
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Trust.
After a period of no greater than six years, Level-
Payment Shares automatically convert to Front-Payment
Shares on the basis of the relative net asset values of
the two classes without the imposition of any sales
charge, fee, or other charge, provided, however, that
the expenses, including distribution fees, for Front-
Payment Shares are not higher than the expenses,
including distribution fees, for Level-Payment Shares.
If the amount of expenses, including distribution fees,
for the Front-Payment Class is increased materially
without approval of the shareholders of the Level-
Payment Class, a new class will be established -- on
the same terms as apply to the Front-Payment Class
prior to such increase -- as the class into which
Level-Payment Shares automatically convert.
C. Institutional Shares
Institutional Shares are not offered to retail
customers but are sold only to (1) institutional investors
investing funds held in a fiduciary, advisory, agency,
custodial or other similar capacity and (2) persons entitled
to exchange into Institutional Shares under the exchange
privileges of the Trust.
1. Sales Loads. Institutional Shares are sold
without the imposition of any FESC, CDSC or any other
sales charge.
2. Distribution and Service Fees. Institutional
Shares are not subject to any distribution fee or
shareholder servicing fee.
3. Class Expenses. Class Expenses that are
attributable to the Institutional Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Institutional Shares are exchangeable for Institutional
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Trust.
Institutional Shares have no conversion features.
D. Financial Intermediary Shares
Financial Intermediary Shares are sold (1) only through
financial intermediaries with which Aquila Distributors,
Inc. has entered into sales agreements, and are not offered
directly to retail customers and (2) persons entitled to
exchange into Financial Intermediary Shares under the
exchange privileges of the Trust.
1. Sales Loads. Financial Intermediary Shares are
sold without the imposition of any FESC, CDSC or any
other sales charge.
2. Distribution and Service Fees. Financial
Intermediary Shares are subject to a distribution fee
pursuant to Part III of the Trust's Rule 12b-1 Plan and
to a shareholder servicing fee under a Shareholder
Services Plan not to exceed 0.25% of the average daily
net assets of the Financial Intermediary Class.
3. Class Expenses. Class Expenses that are
attributable to the Financial Intermediary Class are
allocated to that particular class.
4. Exchange Privileges . Financial Intermediary
Shares are exchangeable for Financial Intermediary
Shares issued by other funds sponsored by Aquila
Management Corporation to the extent that shares of
such funds are sold by the respective financial
intermediaries, and as may additionally be set forth in
the then current prospectus of the Trust.
E. Additional Classes
In the future, the Trust may offer additional classes
of shares which differ from the classes discussed above.
However, any additional classes of shares must be approved
by the Board, and the Plan must be amended to describe those
classes.
II. Approval of Multiple Class Plan
The Board of the Trust, including a majority of the
independent Trustees, must approve the Plan initially. In
addition, the Board must approve any material changes to the
classes and the Plan prior to their implementation. The Board
must find that the Plan is in the best interests of each class
individually and the Trust as a whole. In making its findings,
the Board should focus on, among other things, the relationships
among the classes and examine potential conflicts of interest
among classes regarding the allocation of fees, services, waivers
and reimbursements of expenses, and voting rights. Most
significantly, the Board should evaluate the level of services
provided to each class and the cost of those services to ensure
that the services are appropriate and that the allocation of
expenses is reasonable. In accordance with the foregoing
provisions of this Section II, the Board of the Trust has
approved and adopted this Plan as of the date written above.
III. Dividends and Distributions
Because of the differences in fees paid under a Rule
12b-1 Plan and Shareholder Services Plan and the special
allocation of Class Expenses among the classes of shares of the
Trust, the dividends payable to shareholders of a class will
differ from the dividends payable to shareholders of one or more
of the other classes. Dividends paid to each class of shares in
the Trust will, however, be declared and paid at the same time
and, except for the differences in expenses listed above, will be
determined in the same manner and paid in the same amounts per
outstanding shares.
IV. Expense Allocations
The methodology and procedures for calculating the net
asset value and dividends and distributions of the various
classes of shares and the proper allocation of income and
expenses among the various classes of shares are set forth in the
Memorandum (together with exhibits) of Richard F. West,
Treasurer, dated November 24, 1995, revised August 28, 1997 and
entitled "Methodologies Used In Accounting For Multiple Class
Shares."
