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. 20 [ X ]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 21 [ 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 31, 2000 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
380 Madison Avenue, Suite 2300
New York, New York 10017
800-228-4227
212-697-6666
Prospectus
July 31, 2000
Class A Shares
Class C Shares
Hawaiian Tax-Free Trust is a mutual fund that seeks to
provide you as high a level of current income exempt from
Hawaiian state and Federal income taxes as is consistent with
preservation of capital.
The Trust invests in municipal obligations that pay
interest exempt from Hawaiian state and Federal income taxes and
are of investment grade quality.
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
The Securities and Exchange Commission has not approved or
disapproved the Trust's securities or passed upon the adequacy of
this Prospectus. Any representation to the contrary is a criminal
offense.
The Trust's Objective, Investment Strategies and Main
Risks
"What is the Trust's objective?"
The Trust's objective is to provide you as high a level of
current income exempt from Hawaiian state and regular Federal
income taxes as is consistent with preservation of capital.
"What is the Trust's investment strategy?"
The Trust invests in tax-free municipal obligations which
pay interest exempt from Hawaiian state and regular Federal
income taxes. We call these "Hawaiian Obligations." In general,
all or almost all of these obligations are issued by the State of
Hawaii, its counties and various other local authorities; at
least 65% of the portfolio will always consist of obligations of
these issuers. These obligations can be of any maturity, but the
Trust's average portfolio maturity has traditionally been between
15 and 20 years. At the time of purchase, an obligation must be
considered "investment grade."
The Adviser selects obligations for the Trust's portfolio
to best achieve the Trust's objectives. The Adviser evaluates
specific obligations for purchase by considering various
characteristics including quality, maturity and coupon rate.
The interest paid on certain types of Hawaiian Obligations
may be subject to the Federal alternative minimum tax ("AMT"). At
least 80% of the Trust's net assets must be invested in
tax-exempt Hawaiian Obligations whose interest is not subject to
AMT.
"What are the main risks of investing in the Trust?"
Among the risks of investing in shares of the Trust and its
portfolio of securities are the following:
Loss of money is a risk of investing in the Trust.
The Trust's assets, being primarily or entirely Hawaiian
issues, are subject to economic and other conditions affecting
Hawaii. Adverse local events, such as a downturn in the Hawaiian
economy, could affect the value of the Trust's portfolio.
There are two types of risk associated with any fixed income
debt securities such as Hawaiian Obligations: interest rate risk
and credit risk.
* Interest rate risk relates to fluctuations in market value
arising from changes in interest rates. If interest rates
rise, the value of debt securities, including Hawaiian
Obligations, will normally decline. All fixed-rate debt
securities, even the most highly rated Hawaiian Obligations,
are subject to interest rate risk. Hawaiian Obligations with
longer maturities generally have a more pronounced reaction
to interest rate changes than shorter-term securities.
* Credit risk relates to the ability of the particular issuers
of the Hawaiian Obligations the Trust owns to make periodic
interest payments as scheduled and ultimately repay
principal at maturity.
An investment in the Trust is not a deposit in Pacific
Century Trust, Bank of Hawaii, Pacific Century Financial Corp. or
their bank or non-bank affiliates or by any other bank, and is
not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940
Act"). Thus, compared with "diversified" funds, it may invest a
greater percentage of its assets in obligations of a particular
issuer and may therefore not have as much diversification among
securities, and thus diversification of risk. 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.
<PAGE>
HAWAIIAN TAX-FREE TRUST
RISK/RETURN BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the
risks of investing in Hawaiian Tax-Free Trust by showing changes
in the performance of the Trust's Class A Shares from year to
year over a ten-year period and by showing how the Trust's
average annual returns for one, five and ten years compare to a
broad measure of market performance. How the Trust has performed
in the past is not necessarily an indication of how the Trust
will perform in the future.
<TABLE>
<CAPTION>
[Bar Chart]
Annual Total Returns
1990-1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20
18
16 15.41
14 XXXX
12 10.52 10.16 XXXX
10 XXXX XXXX XXXX
8 XXXX 7.98 XXXX XXXX 7.62
6 5.95 XXXX XXXX XXXX XXXX XXXX 5.72
4 XXXX XXXX XXXX XXXX XXXX 3.87 XXXX XXXX
2 XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
0 XXXX XXXX XXXX XXXX -4,67 XXXX XXXX XXXX XXXX -2.61
-2 XXXX XXXX
-4 XXXX
-6
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Calendar Years
During the 10-year period shown in the bar chart, the highest
return for a quarter was 6.27% (quarter ended March 31, 1995) and
the lowest return for a quarter was -4.19% (quarter ended March
31, 1994).
The year-to-date (from January 1, 2000 to June 30, 2000) total
return was 3.16% for Class A Shares and 2.75% for Class C Shares.
Note: The Trust's Class A Shares are sold subject to a maximum 4%
sales load which is not reflected in the bar chart. If the sales
load were reflected, returns would be less than those shown
above.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Since
For the period 1 Year 5 Years 10 Years inception
ended December 31, 1999
<S> <C> <C> <C> <C>
Hawaiian Tax-Free Trust
Class A Shares (1) -6.51% 4.98% 5.39% 6.99%*
Hawaiian Tax-Free Trust
Class C Shares -4.44%*** N/A N/A 3.24%**
Lehman Brothers
Quality Intermediate
Municipal Bond Index**** 0.29% 6.45% 8.48% 6.47%*
5.07%**
<FN>
(1) The average annual total returns do reflect the maximum 4%
sales load.
</FN>
<FN>
*From commencement of the Trust's operations on February 20,
1985. The Lehman Index commenced on January 1, 1987.
</FN>
<FN>
**From commencement of operations on April 1, 1996.
</FN>
<FN>
***The average annual total return for Class C Shares for one
year assumes redemption at the end of the year and payment of 1%
CDSC.
</FN>
<FN>
****The Lehman Brothers Quality Intermediate Municipal Bond Index
is nationally oriented and consists of an unmanaged mix of
investment-grade long-term municipal securities of issuers
throughout the United States.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAWAIIAN TAX-FREE TRUST
FEES AND EXPENSES OF THE TRUST
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Trust.
Class A Class C
Shares Shares
<S> <C> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of offering price) 4.00% None
Maximum Deferred Sales Charge (Load) None(1) 1.00%(2)
(as a percentage of the lesser of
redemption value or purchase price)
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends or
Distributions
(as a percentage of offering
price).......................... None None
Redemption Fees.................. None None
Exchange......................... None None
Annual Trust Operating Expenses (expenses that are
deducted from the Trust's assets)
Investment Advisory Fee.......... 0.14% 0.14%
Distribution and /or
Service (12b-1) Fee. 0.20% 0.75%
All Other Expenses:
Administration Fee.............. 0.26% 0.26%
Service Fee..................... None 0.25%
Other Expenses (3).............. 0.13% 0.13%
Total All Other Expenses (3).... 0.39% 0.64%
Total Annual Trust
Operating Expenses (3).......... 0.73% 1.53%
<FN>
(1) If you buy Class A Shares in transactions of $1 million or
more there is no sales charge but you will be subject to a
contingent deferred sales charge of up to 1% if you redeem your
shares during the first two years after purchase and 0.50 of 1%
during the third and fourth years after purchase.
</FN>
<FN>
(2) A contingent deferred sales charge of 1% is imposed on the
redemption proceeds of the shares if redeemed during the first 12
months after purchase.
</FN>
<FN>
(3) Does not reflect a 0.02% offset in Trust expenses received in
the year ended March 31, 2000 for uninvested cash balances.
Reflecting this offset for that year, other expenses, all other
expenses and total annual Trust operating expenses were 0.11%,
0.37% and 0.71%, respectively, for Class A Shares; for Class C
Shares, these expenses were 0.11%, 0.62% and 1.51%, respectively.
</FN>
</TABLE>
Example
This Example is intended to help you compare the cost of
investing in the Trust with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Trust for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your
investment has a 5% return each year, you reinvest all dividends
and distributions, and that the Trust's operating expenses remain
the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A Shares............$472 $624 $790 $1,270
Class C Shares............$256 $483 $834 $1,409(4)
You would pay the following expenses if you did not redeem your Class C
Shares:
Class C Shares............$156 $483 $834 $1,409(4)
<FN>
(4) Six years after the date of purchase, Class C Shares are
automatically converted to Class A Shares. Over time, long-term Class
C Shareholders could pay the economic equivalent of an amount that is
more than the maximum front-end sales charge allowed under applicable
regulations because of the 12b-1 fee and Service fee. Because these
fees are paid out of the Trust's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost
you more than paying other types of sales charges.
</FN>
</TABLE>
<PAGE>
Investment of the Trust's Assets
"Is the Trust right for me?"
The shares of the Trust are designed to be a suitable
investment for individuals, corporations, institutions and
fiduciaries who seek income exempt from Hawaiian state and
regular Federal income taxes.
Hawaiian Obligations
The Trust invests in Hawaiian Obligations which are a
type of municipal obligation. They pay interest which bond
counsel or other appropriate counsel deems to be exempt from
regular Federal and Hawaiian state income taxes. They include
obligations of Hawaiian issuers and certain non-Hawaiian issuers,
of any maturity.
At the time of purchase, the Trust's Hawaiian Obligations must be
of investment grade quality. This means that they must either
* be rated within the four highest credit ratings 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 Sub-Adviser, Pacific Century Trust.
The obligations of non-Hawaiian issuers that the Trust can
purchase are those issued by or under the authority of Guam, the
Northern Mariana Islands, Puerto Rico and the Virgin Islands.
Interest paid on these obligations is currently exempt from
regular Federal and Hawaiian income taxes. The Trust purchases
the obligations of these issuers only when obligations of
Hawaiian issuers with the appropriate characteristics of quality,
maturity and coupon rate are unavailable.
It is the Trust's current policy that the majority of the
Trust's assets will be invested in insured Hawaiian Obligations.
At April 30, 2000 approximately 67% of the Trust's assets were
invested in insured obligations. Portfolio insurance refers to
the payment of interest and the face or par value of Hawaiian
Obligations when due. Portfolio insurance does not insure the
market value of Hawaiian Obligations, which will be affected by
various factors, including the general movement of interest
rates. The value of the Trust's shares is not insured. The
Trust's current policy regarding portfolio insurance can be
changed without shareholder approval.
Municipal Obligations
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 public purposes.
There are two principal classifications of municipal
obligations: "notes" and "bonds." Notes generally have
maturities of one year or less, while bonds are paid back over
longer periods.
The various public purposes for which municipal obligations are
issued include:
* obtaining funds for general operating expenses,
* refunding outstanding obligations,
* obtaining funds for loans to other public
institutions and facilities, and
* funding the construction of highways, bridges,
schools, hospitals, housing, mass transportation,
streets and water and sewer works.
Municipal obligations include:
* tax, revenue or bond anticipation notes,
* construction loan notes,
* project notes, which sometimes carry a U.S.
government guarantee,
* municipal lease/purchase agreements, which are
similar to installment purchase contracts for property
or equipment, and
* floating and variable rate demand notes.
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 in
general to finance construction of long-term municipal projects;
examples are pictured above. The municipal obligations which
financed these particular projects were included in the Trust's
portfolio as of June 30, 2000, and together represented 53% of the
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>
"What factors may affect the value of the Trust's investments and
their yields?"
Change in prevailing interest rates is the most common
factor that affects the value of the obligations in the Trust's
portfolio. Any such change may have different effects on
short-term and long-term Hawaiian Obligations. Long-term
obligations (which usually have higher yields) may fluctuate in
value more than short-term ones. Thus, the Trust may shorten the
average maturity of its portfolio when it believes that
prevailing interest rates may rise. While this strategy may
promote one part of the Trust's objective, preservation of
capital, it may also result in a lower level of income.
"What are the main 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 Hawaiian Obligations that the
Trust owns. The Trust has derived this information from sources
that are generally available to investors and believes it to be
accurate, but it has not been independently verified and it may
not be complete. Economic conditions are subject to change and
there can be no assurance that the following information will not
change.
As of the date of this Prospectus the economic data
available indicate Hawaii's economy began to turn around in 1999
and continues to expand in 2000. Gross state product (GSP)
adjusted for inflation grew by 3.1 percent compared to the 2.0
percent growth experienced in 1998. Forecasts for 2000 GSP
continue to be revised upward to about 3.5 percent. Real
personal income growth continued to accelerate in 1999
registering an average annual growth rate of approximately 2.5
percent versus 2.1 percent in 1998. Growth in wages and salaries
are now increasing along with employment. Hawaii's consumer price
index increased by 1.0 percent in 1999 after decreasing slightly
in 1998. For 2000, the index is currently expected to increase by
2.0 percent.
Statewide the total number of jobs increased 0.5 percent
in 1999 after declining in 1998. In addition, Hawaii's
unemployment rate has declined from 5.7 percent in May 1999 to
4.3 percent in May 2000. The future for Hawaii's job market is
considered promising with several new business ventures and a
revival of the film industry.
Hawaii home prices have been increasing over the past
year on lower inventory and higher sales volume. In addition, the
decline in prices over the past several years has created an
attractive market for investors seeking resort homes and lots,
especially on the neighboring islands.
In 1999 tourism, the state's principal industry,
experienced an overall increase of 1.6 percent after declining in
1998. Total visitor arrivals increased from 6.74 million in 1998
to 6.84 million in 1999. Through May 2000, the number of visitors
to Hawaii increased 4.4% over the prior year period. Strong
domestic passenger growth offset falling numbers of international
passengers. Occupancy figures also reflected the strong domestic
visitor numbers as several neighboring islands, a favorite
destination for the repeat westbound visitor, registered
increases over the prior year. The increased westbound arrivals
have prompted several airlines to increase service between the
continental U.S. and Hawaii.
The expansion of the Hawaiian economy has led to an
increase in the tax revenues for the State of Hawaii. In turn,
this led to the stabilization of the credit ratings for the State
of Hawaii at A1/A+. As property values continue to improve, the
City and County of Honolulu should benefit from increased tax
collections. The City and County of Honolulu has a current G.O.
debt rating of Aa3/AA-.
Trust Management
"How is the Trust managed?"
Pacific Century Trust, a division of Bank of Hawaii,
Financial Plaza of the Pacific, P.O. Box 3170, Honolulu, HI
96802, (the "Adviser") is the Trust's investment adviser. Aquila
Management Corporation, 380 Madison Avenue, Suite 2300, New York,
NY 10017, the Administrator, is responsible for administrative
services, including providing for the maintenance of the
headquarters of the Trust, overseeing relationships between the
Trust and the service providers to the Trust, either keeping the
accounting records of the Trust or, at its expense and
responsibility, delegating such duties in whole or in part to a
company satisfactory to the Trust, maintaining the Trust's books
and records and providing other administrative services.
Under the Advisory Agreement, the Adviser provides for
investment supervision, including supervising continuously the
investment program of the Trust and the composition of its
portfolio; determining what securities will be purchased or sold
by the Trust; arranging for the purchase and the sale of
securities held in the portfolio of the Trust; and, at the
Adviser's expense, pricing of the Trust's portfolio daily.
During the fiscal year ended March 31, 2000, the Trust
paid to the Adviser 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 0.14 of 1%. Under the
Administration Agreement, the Trust paid a fee to the
Administrator on the same basis at the annual rate of 0.26 of 1%
for total advisory and administration fees of 0.40 of 1% of such
net asset value.
Information about the Adviser and the Administrator
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 Hawaiian 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.
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, Aquila Management Corporation,
is founder and Manager and/or administrator to the Aquilasm Group
of Funds, which consists of tax-free municipal bond funds,
money-market funds and equity funds. As of May 31, 2000, these
funds had aggregate assets of approximately $3.1 billion, of
which approximately $1.7 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.
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 (which
means the value of the assets less liabilities) allocable to each
class by the total number of shares of such class outstanding at
that time. In general, net asset value of the Trust's shares is
based on portfolio market value, except that Hawaiian Obligations
maturing in 60 days or less are generally valued at amortized
cost. The price at which a purchase or redemption of shares is
effected is based on the net asset value next calculated after
your purchase or redemption order is received in proper form. The
New York Stock 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, Jr. 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.
Purchases
"Are there alternate purchase plans?"
The Trust provides individuals with alternate ways to
purchase shares through two separate classes of shares (Class A
and Class C). Although the classes have different sales charge
structures and ongoing expenses, they both represent interests in
the same portfolio of Hawaiian Obligations. You should choose the
class that best suits your own circumstances and needs.
"Can I purchase shares of the Trust?"
You can purchase shares of the Trust if you live in Hawaii
or in one of the other states listed below. You should not
purchase shares of the Trust if you do not reside in one of the
following states. Otherwise, the Trust can redeem the shares you
purchased. This may cause you to suffer a loss and may have tax
consequences.
Also, if you do not reside in Hawaii, dividends from the
Trust may be subject to state income taxes of the state in which
you do reside. Therefore, you should consult your tax adviser
before buying shares of the Trust.
On the date of this Prospectus, Class A and C Shares are
available only in:
Hawaii, Alaska, Arizona, California, Colorado, District
of Columbia, Illinois, Iowa (Class A Shares only), Maryland,
Massachusetts (Class A Shares only), Michigan (Class A Shares
only), Missouri, Montana, Nevada, New York, Oregon, Texas,
Virginia and Washington.
"How much money do I need to invest?"
Option I
* Initially, $1,000.
* Subsequently, any amount (for investments in shares of the
same class).
Option II
* $50 or more if an Automatic Investment Program is
established.
* Subsequently, in any amount you specify ($50 or more).
* (See "Automatic Investment Program" in the Application.) You
are not permitted to maintain both an Automatic Investment
Program and an Automatic Withdrawal Plan simultaneously.
(See "Automatic Withdrawal Plan.")
Under either option your investment must be drawn in United
States dollars on a United States commercial bank, savings bank
or credit union or a United States branch of a foreign commercial
bank (each of which is a "Financial Institution").
"How do I purchase shares?"
You may purchase the Trust's shares:
* through an investment broker or dealer, or a bank or financial
intermediary, that has a sales agreement with the Distributor,
Aquila Distributors, Inc., in which case that institution will
take action on your behalf, and you will not personally perform
the steps indicated below; or
* directly through the Distributor, by mailing payment to the
Trust's Agent, PFPC Inc.
* The price you will pay is net asset value plus a sales charge
for Class A Shares and net asset value for Class C Shares. (See
"What price will I pay for the Trust's shares?")
In either instance, all purchases of Class A Shares are subject
to the applicable sales charge.
Opening an Account Adding to An Account
* Make out a check for * Make out a check for
the investment amount the investment amount
payable to Hawaiian payable to Hawaiian
Tax-Free Trust. Tax-Free Trust.
*Complete the Application * Fill out the pre-printed
included with the Prospectus, stub attached
indicating the features to the Trust's
you wish to authorize. confirmations
or supply the name(s)
of account owner(s),
the account number, and
the name of the
Trust.
*Send your check and *Send your check and
completed application account information
to your dealer or to your dealer or
to the Trust's to the Trust's
Agent, PFPC Inc. Agent, PFPC Inc.
Unless you indicate otherwise, your investment will be made
in Class A Shares.
"Can I transfer funds electronically?"
You can have funds transferred electronically, in amounts of
$50 or more, from your Financial Institution if it is a member of
the Automated Clearing House. You may make investments through
two electronic transfer features, "Automatic Investment" and
"Telephone Investment."
* Automatic Investment: You can authorize a pre-determined amount
to be regularly transferred from your account.
* Telephone Investment: You can make single investments of up to
$50,000 by telephone instructions to the Agent.
Before you can transfer funds electronically, the Trust's
Agent must have your completed application authorizing these
features. If you initially decide not to choose these
conveniences and then later wish to do so, you must complete a
Ready Access Features Form which is available from the
Distributor or Agent, or if your account is set up so that your
broker or dealer makes these sorts of changes, request your
broker or dealer to make them. The Trust may modify or terminate
these investment methods or charge a service fee, upon 30 days'
written notice to shareholders.
Redeeming Your Investment
You may redeem some or all of your shares by a request to
the Agent. Shares will be redeemed at the next net asset value
determined after your request has been received in proper form.
There is no minimum period for investment in the Trust,
except for shares recently purchased by check or by Automatic or
Telephone Investment as discussed below.
If you own both Class A and C Shares and do not specify
which class you wish to redeem, we will redeem your Class A
Shares.
Certain shares are subject to a contingent deferred sales
charge, or CDSC. These are:
- Class C Shares held for less than 12 months (from
the date of purchase).
- CDSC Class A Shares.
Upon redemption, enough additional shares will be redeemed
to pay for any applicable CDSC.
A redemption may result in a tax liability for you.
"How can I redeem my investment?"
By mail, send instructions to:
PFPC Inc.
Attn: Aquilasm Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809
By telephone, call:
800-228-4228 toll free
By FAX, send
instructions to:
302-791-3055
For liquidity and convenience, the Trust offers expedited
redemption.
Expedited Redemption Methods
(Non-Certificate Shares Only)
You may request expedited redemption for any shares not issued in
certificate form in two ways:
1. By Telephone. The Agent will take instructions from
anyone by telephone to redeem shares and make payments:
a) to a Financial Institution account you have previously
specified;
b) by check in the amount of $50,000 or less, mailed to the
same name and address (which has been unchanged for the past
30 days) as the account from which you are redeeming. You
may only redeem by check via telephone request once in any
7-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to
supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification
Note: Check the accuracy of your confirmation statements
immediately. The Trust, the Agent, and the Distributor are not
responsible for losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify a caller's identity. The Agent may record calls.
2. By FAX or Mail. You may request redemption payments to a
predesignated Financial Institution account by a letter of
instruction sent to the Agent: PFPC Inc., by FAX at 302-791-3055
or by mail to 400 Bellevue Parkway, Wilmington, DE 19809. The
letter, signed by the registered shareholder(s) (no signature
guarantee is required), must indicate:
account name(s)
account number
amount to be redeemed
any payment directions.
To have redemption proceeds sent directly to a Financial
Institution account, you must complete the Expedited Redemption
section of the Application or a Ready Access Features Form. You
will be required to provide (1) details about your Financial
Institution account, (2) signature guarantees and (3) possible
additional documentation.
The name(s) of the shareholder(s) on the Financial
Institution account must be identical to those on the Trust's
records of your account.
You may change your designated Financial Institution account
at any time by completing and returning a revised Ready Access
Features Form.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
Certificate Shares. Mail to the Trust's Agent: (1) blank
(unsigned) certificates for Class A Shares to be redeemed, (2)
redemption instructions and (3) a stock assignment form.
To be in "proper form," items (2) and (3) above must be
signed by the registered shareholder(s) exactly as the account is
registered. For a joint account, both shareholder signatures are
necessary.
For your protection, mail certificates separately from
signed redemption instructions. We recommend that certificates be
sent by registered mail, return receipt requested.
We may require additional documentation for certain types of
shareholders such as corporations, partnerships, trustees or
executors, or if redemption is requested by someone other than
the shareholder of record. The Agent may require signature
guarantees if insufficient documentation is on file.
We do not require a signature guarantee for redemptions up
to $50,000, payable to the record holder, and sent to the address
of record, except as noted above. In all other cases, signatures
must be guaranteed.
Your signature may be guaranteed by any:
member of a national securities exchange
U.S. bank or trust company
state-chartered savings bank
federally chartered savings and loan association
foreign bank having a U.S. correspondent bank; or
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.
Non-Certificate Shares. You must use the Regular Redemption
Method if you have not chosen Expedited Redemption to a
predesignated Financial Institution account. To redeem by this
method, send a letter of instruction to the Trust's Agent, which
includes:
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 (we normally mail redemption
proceeds to your address as registered with the Trust)
signature(s) of the registered shareholder(s) and
signature guarantee(s), if required, as indicated
above.
"When will I receive the proceeds of my redemption?"
Redemption proceeds are normally sent on the next business
day following receipt of your redemption request in proper form.
Except as described below, payments will normally be sent to your
address of record within 7 days.
Redemption Method of Payment Charges
Under $1,000 Check None
$1,000 or more Check or, if and None
as you requested on your
application or Ready
Access Features Form,
wired or transferred
through the Automated
Clearing House to your
Financial Institution account
Through a broker
/dealer Check or wire, to your None;
broker/dealer however, your
broker/dealer
may charge a
fee
Although the Trust does not currently intend to, it can
charge up to $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. 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.
The Trust may delay payment for redemption of shares
recently purchased by check (including certified, cashier's or
official bank check) or by Automatic Investment or Telephone
Investment up to 15 days after purchase; however, payment for
redemption will not be delayed after (i) the check or transfer of
funds has been honored, or (ii) the Agent receives satisfactory
assurance that your Financial Institution will honor the check or
transfer of funds. You can eliminate possible delays by paying
for purchased shares with wired funds or Federal Reserve drafts.
The Trust has the right to postpone payment or suspend
redemption rights during certain periods. These periods may occur
(i) when the New York Stock Exchange is closed for other than
weekends and holidays, (ii) when the Securities and Exchange
Commission (the "SEC") restricts trading on the New York Stock
Exchange, (iii) when the SEC determines an emergency exists which
causes disposal of, or determination of the value of, the
portfolio securities to be unreasonable or impracticable, and
(iv) during such other periods as the SEC may permit.
The Trust can redeem your shares if their value totals less
than $500 as a result of redemptions or failure to meet and
maintain the minimum investment level under an Automatic
Investment program. Before such a redemption is made, we will
send you a notice giving you 60 days to make additional
investments to bring your account up to the minimum.
Redemption proceeds may be paid in whole or in part by
distribution of the Trust's portfolio securities ("redemption in
kind") in conformity with SEC rules. This method will only be
used if the Board of Trustees determines that payments partially
or wholly in cash would be detrimental to the best interests of
the remaining shareholders.
"Are there any reinvestment privileges?"
If you reinvest proceeds of redemption within 120 days of a
redemption you will not have to pay any additional sales charge
on the reinvestment. You must reinvest in the same class as the
shares redeemed. You may exercise this privilege only once a
year, unless otherwise approved by the Distributor.
The Distributor will refund to you any CDSC deducted at the
time of redemption by adding it to the amount of your
reinvestment.
Reinvestment will not alter the tax consequences of your
original redemption.
"Is there an Automatic Withdrawal Plan?"
Yes, but it is only available for Class A Shares. Under an
Automatic Withdrawal Plan you can arrange to receive a monthly or
quarterly check in a stated amount, not less than $50.
Alternate Purchase Plans
"How do the different arrangements for Class A Shares and Class C
Shares affect the cost of buying, holding and redeeming shares,
and what else should I know about the two classes?"
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.
Class A Shares Class C Shares
"Front-Payment Shares" "Level-Payment Shares"
Initial Sales Class A Shares are None. Class C
Charge offered at net asset Shares are offered
value plus a maximum at net asset value
sales charge of 4%, with no sales charge
paid at the time of payable at the time
purchase. Thus, of purchase.
your investment is
reduced by the
applicable sales
charge.
Contingent None (except for A maximum CDSC of
Deferred certain purchases 1% is imposed upon
Sales Charge of $1 million the redemption of
("CDSC") or more). Class C Shares held
for less than 12
months. No CDSC
applies to Class C
Shares acquired
through the
reinvestment of
dividends or
distributions.
Distribution An asset retention Level charge
And Service service fee of 0.20 for
Fees of 1% is imposed on distribution and
the average annual service fees for 6
net assets years after the date
represented by the of purchase at the
Class A Shares. aggregate annual
rate of 1% of the
average net assets
represented by the
Class C Shares.
Other The initial sales Class C Shares,
Information charge is waived or together with a pro-
reduced in some rata portion of all
cases. Larger Class C Shares
purchases qualify acquired through
for lower sales reinvestment of
charges. dividends and other
distributions paid
in additional Class
C Shares,
automatically
convert to Class A
Shares after 6
years.
Systematic Payroll Investments
You can make systematic investments into either Class A
Shares or Class C Shares each pay period if your employer has
established a Systematic Payroll Investment Plan with the Trust.
To participate in the payroll plan, you must make your own
arrangements with your employer's payroll department, which may
include completing special forms. Additionally, the Trust
requires that you complete the application included with this
Prospectus. Once your application is received by the Trust and a
new account is opened, under the payroll plan your employer will
deduct a preauthorized amount from each payroll check. This
amount will then be sent directly to the Trust for purchase of
shares at the then current offering price, which includes any
applicable sales charge. You will receive a confirmation from the
Trust for each transaction. Should you wish to change the dollar
amount or end future systematic payroll investments, you must
notify your employer directly. Changes may take up to ten days.
"What price will I pay for the Trust's shares?"
Class A Shares Offering Price Class C Shares Offering Price
Net asset value per share Net asset value per share
plus the applicable sales charge
You will receive that day's offering price on purchase
orders, including Telephone Investments and investments by mail,
received in proper form prior to 4:00 p.m. New York time. Dealers
have the added flexibility of transmitting orders received prior
to 4:00 p.m. New York time to the Distributor or Agent before the
Distributor's close of business that day (normally 5:00 p.m. New
York time) and still receiving that day's offering price.
Otherwise, orders will be filled at the next determined offering
price. Dealers are required to submit orders promptly. Purchase
orders received on a non-business day, including those for
Automatic Investment, will be executed on the next succeeding
business day. The sale of shares will be suspended (1) during any
period when net asset value determination is suspended, or, (2)
when the Distributor judges it is in the Trust's best interest to
do so.
"What are the sales charges for purchases of Class A Shares?"
The following table shows the amount of sales charge incurred
by a "single purchaser" of Class A Shares. A "single purchaser"
is:
* an individual;
* an individual, together with his or her spouse,
and/or any children under 21 years of age purchasing
shares for their account;
* a trustee or other fiduciary purchasing shares for
a single trust estate or fiduciary account; or
* a tax-exempt organization as detailed in Section
501(c)(3) or (13) of the Internal Revenue Code.
II III
Sales Charge as Sales Charge as
Percentage of Approximate
I Public Percentage of
Amount of Purchase Offering Price Amount Invested
Less than $25,000 4.00% 4.17%
$25,000 but less
than $50,000 3.75% 3.90%
$50,000 but less
than $100,000 3.50% 3.63%
$100,000 but less
than $250,000 3.25% 3.36%
$250,000 but less
than $500,000 3.00% 3.09%
$500,000 but less
than $1,000,000 2.50% 2.56%
For purchases of $1 million or more see "Sales Charges for
Purchases of $1 Million or More."
For example:
If you pay $10,000 (Column I), your sales charge would be 4.00%
or $400 (Column II). ($10,000 x .04 = $400)
The value of your account, after deducting the sales charge from
your payment, would increase by $9,600. (This would be the
initial value of your account if you opened it with the $10,000
purchase). ($10,000 - $400 = $9,600)
The sales charge as a percentage of the increase in the value of
your account would be 4.17% (Column III) ($400 / $9,600 =
.0416666 or 4.17%)
Sales Charges for Purchases of $1 Million or More
You will not pay a sales charge at the time of purchase when
you purchase "CDSC Class A Shares." CDSC Class A Shares are Class
A Shares issued under the following circumstances:
(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 to a single
purchaser in a single purchase when the value of the
purchase, together with the value of the purchaser's
other CDSC Class A Shares and Class A Shares on which
a sales charge has been paid, equals or exceeds $1
million.
Redemption of CDSC Class A Shares
If you redeem all or part of your CDSC Class A Shares during
the four years after you purchase them, you must pay a special
contingent deferred sales charge upon redemption.
You will pay 1% of the shares' redemption or purchase
value, whichever is less, if you redeem within the first two
years after purchase, and 0.50 of 1% of that redemption value if
you redeem within the third or fourth year.
This special charge also applies to CDSC Class A Shares
purchased without a sales charge pursuant to a Letter of Intent.
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation
"Single purchasers" may qualify for a reduced sales
charge in accordance with the above schedule when making
subsequent purchases of Class A Shares.
Letters of Intent
"Single purchasers" may also qualify for reduced sales
charges, in accordance with the above schedule, after a written
Letter of Intent (included in the Application) is received by the
Distributor.
General
Class A Shares may be purchased without a sales charge by
certain classes of purchasers.
Certain Investment Companies
If you redeem shares of an investment company (not a member
of the Aquilasm Group of Funds) on which you have paid a sales
charge, within 120 days you can invest the proceeds in Class A
Shares of the Trust without paying a sales charge. You can get
additional information from the Distributor.
"What are the sales, service and distribution charges for Class C
Shares?"
* No sales charge at time of purchase.
* Annual fees for service and distribution at a combined
annual rate of 1% of average annual net assets of the Trust
represented by Class C Shares.
* After six years, Class C Shares automatically convert to
Class A Shares, which bear lower service and distribution
fees.
Redemption of Class C Shares
* 1% charge if redeemed within the first 12 months after
purchase. This contingent deferred sales charge, or CDSC, is
calculated based on the lesser of the net asset value at the
time of purchase or at the time of redemption.
* No CDSC applies if Class C Shares are held for 12 months
after purchase.
* Shares acquired by reinvestment of dividends or
distributions are not subject to any CDSC.
Broker/Dealer Compensation - Class C Shares
The Distributor will pay 1% of the sales price to any
broker/dealer executing a Class C Share purchase.
"What about confirmations?"
A statement will be mailed to you confirming each purchase
of shares in the Trust. Additionally, your account at the Agent
will be credited in full and fractional shares (rounded to the
nearest 1/1000th of a share).
General
The Trust and the Distributor may 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.
"Is there a Distribution Plan or a Services Plan?"
The Trust has adopted a Distribution Plan (the "Plan") under
the Investment Company Act of 1940's Rule 12b-1 in order to:
(i) permit the Trust to finance activities primarily
intended to result in the sale of its shares;
(ii) permit the Administrator, out of its own funds, to
make payment for distribution expenses; and
(iii) protect the Trust against any claim that some of the
expenses which it pays or may pay might be considered
to be sales-related and therefore come within the
purview of the Rule.
Pursuant to the Plan, the Trust makes payments with
respect to both Class A Shares and Class C Shares under
agreements to certain broker/dealers, or others who have (i)
rendered assistance (whether direct, administrative, or both) in
the distribution and/or retention of the Trust's shares or (ii)
assisted in the servicing of shareholder accounts.
For any fiscal year, these payments, made through the
Distributor or Agent, may not exceed 0.20 of 1% for Class A
Shares and 0.75 of 1% for Class C Shares, of the average annual
net assets represented by each such class. Because these
distributions and fees are paid out of assets on an ongoing
basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales
charges.
For any class, these payments are made only from the
assets allocable to that class. Whenever the Trust makes Class A
permitted payments, the aggregate annual rate of the advisory fee
and administration fee otherwise payable by the Trust will be
reduced from 0.50 of 1% to 0.40 of 1% of the Trust's average
annual net assets.
Shareholder Services Plan for Class C Shares
The Trust's Shareholder Services Plan authorizes it to
pay a service fee under agreements to certain qualified
recipients who have agreed to provide personal services to Class
C shareholders and/or maintain their accounts. For any fiscal
year, such fees may not exceed 0.25 of 1% of the average annual
net assets represented by Class C Shares. Payment is made only
out of the Trust's assets represented by Class C Shares.
Service fees with respect to Class C Shares will be paid
to the Distributor during the first year after purchase and
thereafter to other qualified recipients.
"Transfer on Death" Registration (Both classes)
The Trust generally permits "transfer on death" ("TOD")
registration of shares, so that on the death of the shareholder
the shares are transferred to a designated beneficiary or
beneficiaries. Ask the Agent or your broker-dealer for the
Transfer on Death Registration Request Form. With it you will
receive a copy of the TOD Rules of the Aquilasm Group of Funds,
which specify how the registration becomes effective and
operates. By opening a TOD Account, you agree to be bound by the
TOD rules.
Dividends And Distributions
"How are dividends and distributions determined?"
The Trust pays dividends and other distributions with
respect to each class of shares. The Trust calculates its
dividends and other distributions with respect to each class at
the same time and in the same manner. Net income for dividend
purposes includes all interest income accrued by the Trust since
the previous dividend declaration, less expenses paid or accrued.
Net income also includes any original issue discount, which
occurs if the Trust purchases an obligation for less than its
face amount. The discount from the face amount is treated as
additional income earned over the life of the obligation. Because
the Trust's income varies, so will the Trust's dividends. There
is no fixed dividend rate. It is expected that most of the
Trust's dividends will be comprised of interest income. The
dividends and distributions of each class can vary due to certain
class-specific charges. The Trust will declare all of its net
income 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.
Redeemed shares continue to earn dividends through and
including the earlier of:
1. the day prior to the day when
redemption proceeds are mailed, wired or
transferred by the Automated Clearing House,
the Agent or paid by the Agent to a selected
dealer; or
2. the third day the New York Stock
Exchange is open after the day the net asset
value of the redeemed shares was determined.
The Trust's present policy is to pay dividends so they will
be received or credited by approximately the first day of each
month.
"How are dividends and distributions paid?"
Dividends and distributions will automatically be reinvested
in full and fractional shares of the Trust of the same class at
net asset value on the record date for the dividend or
distribution, unless you elect otherwise.
You may choose to have all or any part of the payments for
dividends or distributions paid in cash. You can elect to have
the cash portion of your dividends or distributions deposited,
without charge, by electronic funds transfers into your account
at a financial institution, if it is a member of the Automated
Clearing House.
You can make any of these elections on the Application, by a
Ready Access Features Form or by a letter to the Agent. Your
election to receive some or all of your dividends and
distributions in cash will be effective as of the next payment of
dividends after it has been received in proper form by the Agent.
It will continue in effect until the Agent receives written
notification of a change.
All shareholders, whether their dividends and distributions
are received in cash or reinvested, will receive a monthly
statement indicating the current status of their investment
account with the Trust.
If you do not comply with laws requiring you to furnish
taxpayer identification numbers and report dividends, the Trust
may be required to impose backup withholding at a rate of 31%
upon payment of redemptions to shareholders and on capital gains
distributions (if any) and any other distributions that do not
qualify as "exempt-interest dividends."
Tax Information
Net investment income includes income from Hawaiian
Obligations in the portfolio that the Trust allocates as
"exempt-interest dividends." Such dividends are exempt from
regular Federal income tax. The Trust will allocate
"exempt-interest dividends" by applying one designated percentage
to all income dividends it declares during its tax year. It will
normally make this designation in the first month following its
fiscal year end for dividends paid in the prior year.
It is possible that, under certain circumstances, a small
portion of dividends paid by the Trust will be subject to income
taxes. During the Trust's fiscal year ended March 31, 2000,
92.18% of the Trust's dividends were exempt-interest dividends.
For the calendar year 1999, 8.93% of total dividends paid were
taxable. The percentage of tax-exempt income from any particular
dividend may differ from the percentage of the Trust's tax-exempt
income during the dividend period.
Net capital gains of the Trust, if any, 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 intends to qualify during each fiscal year
under the Internal Revenue Code to pay "exempt-interest
dividends" to its shareholders. "Exempt-interest dividends"
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 Trust will treat as ordinary income in the year received
certain gains on Hawaiian Obligations it acquired after April 30,
1993 and sells for less than face or redemption value. Those
gains will be taxable to you as ordinary income, if distributed.
Capital gains dividends (net long-term gains over net
short-term losses which the Trust distributes and so designates)
are reportable by shareholders as gains from the sale or exchange
of a capital asset held for more than a year. This is the case
whether the shareholder reinvests the distribution in shares of
the Trust or receives it in cash, regardless of the length of
time the investment is held.
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 reduce future capital gains dividends and
amounts taxed to shareholders.
The Trust's gains or losses on sales of Hawaiian Obligations
will be deemed long- or short-term, depending upon the length of
time the Trust holds these obligations.
You will receive information on the tax status of the
Trust's dividends and distributions annually.
Special Tax Matters
Under the Internal Revenue 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.
If you or your spouse are receiving Social Security or
railroad retirement benefits, a portion of these benefits may
become taxable, if you receive exempt-interest dividends from the
Trust.
If you, or someone related to you, is a "substantial user"
of facilities financed by industrial development or private
activity bonds, you should consult your own tax adviser before
purchasing shares of the Trust.
Interest from all Hawaiian Obligations is tax-exempt for
purposes of computing the shareholder's regular tax. However,
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 ("AMT"). Whether or not that computation
will result in a tax will depend on the entire content of your
return. The Trust will not invest more than 20% of its assets in
the types of Hawaiian Obligations that pay interest subject to
AMT. An adjustment required by the Internal Revenue Code will
tend to make it more likely that corporate shareholders will be
subject to AMT. They should consult their tax advisers.
"What should I know about Hawaiian taxes?"
The Trust, and dividends and distributions made by the Trust
to Hawaii residents, will generally be treated for Hawaiian
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. Shareholders of the Trust should
consult their tax advisers about other state and local tax
consequences of their investment in the Trust.
<PAGE>
<TABLE>
<CAPTION>
HAWAIIAN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The financial highlights table is intended to help you understand
the Trust's financial performance for the designated periods of
the Trust's operations. Certain information reflects financial
results for a single Trust share. The total returns in the table
represent the rate that an investor would have earned or lost on
an investment in the Trust (assuming reinvestment of all
dividends and distributions). This information has been audited
by KPMG LLP, whose report, along with the Trust's financial
statements, is included in the annual report, is incorporated by
reference into the SAI and is available upon request.
<PAGE>
Class A(1) Class C(2)
Year ended March 31, Year ended March 31,
2000 1999 1998 2000 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ....$11.65 $11.67 $11.23 $11.65 $11.66 $11.23
Income (loss) from
Investment
Operations:
Net investment income ..0.56 0.56 0.57 0.47 0.46 0.48
Net gain (loss) on
securities (both
realized and
unrealized) .........(0.65) 0.03 0.46 (0.66) 0.05 0.45
Total from Investment
Operations ..........(0.09) 0.59 1.03 (0.19) 0.51 0.93
Less Distributions:
Dividends from net
investment income....(0.55) (0.57) (0.54) (0.46) (0.48) (0.45)
Distributions from
capital gains........(0.07) (0.04) (0.05) (0.07) (0.04) (0.05)
Total Distributions ...(0.62) (0.61) (0.59) (0.53) (0.52) (0.50)
Net Asset Value, End of
Period............... $10.94 $11.65 $11.67 $10.93 $11.65 $11.66
Total Return (not reflecting
sales charge)(%) ......(0.64) 5.17 9.37 (1.53) 4.45 8.40
Ratios/Supplemental Data
Net Assets, End of Year
($ millions) ..... 575 640 648 12 11 7
Ratio of Expenses to
Average Net
Assets (%) .......... 0.73 0.74 0.73 1.53 1.53 1.52
Ratio of Net Investment
Income to Average Net
Assets (%) ........... 4.99 4.76 4.96 4.18 3.95 4.11
Portfolio Turnover
Rate (%) .............. 4 14 9 4 14 9
The expense ratios after giving effect to the expense offset for uninvested
cash balances were:
Ratio of Expenses
to Average Net Assets(%)
0.71 0.70 0.72 1.51 1.49 1.51
<CAPTION>
Class A(1) Class C(2)
Year Ended March 31, Year Ended March 31,
1997 1996 1997
<C> <C> <C>
$11.31 $11.13 $11.31
0.59 0.61 0.46
(0.08) 0.18 (0.08)
0.51 0.79 0.38
(0.58) (0.61) (0.45)
(0.01) - (0.01)
(0.59) (0.61) (0.46)
$11.23 $11.31 $11.23
4.67 7.16 3.41
641 660 5
0.75 0.73 1.53
5.11 5.31 4.04
9 28 9
0.73 0.72 1.51
<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>
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
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.
** Uniform Gifts/Transfers to Minors Act.
Please type or print name(s) 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 organization. If a trust, include the name(s)
of trustees in which account will be registered and the name and date
of the trust instrument. An 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
Income dividends and capital gains distributions are automatically
reinvested in additional shares at net asset value unless otherwise
indicated below.
You can have any portion of either type reinvested, with the balance paid in
cash, by indicating a percent below:
Income dividends are to be:___ % Reinvested __%_Paid in cash*
Capital gains distributions are to be: ___% Reinvested __% Paid in cash*
* For cash payments, 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 first 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, 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 3c and signing the Application, the investor is
entitled to make each purchase at the public offering price applicable
to a single transaction of the dollar amount checked above, and agrees
to be bound by the terms and conditions applicable to Letters of Intent
appearing below.
The investor is making no commitment to purchase shares, but if
the investor's purchases within thirteen months from the date of the
investor's first purchase do not aggregate $25,000, or, if such
purchases added to the investor's present holdings do not aggregate
the minimum amount specified above, the investor will pay the increased
amount of sales charge prescribed in the terms of escrow below.
The commission to the dealer or broker, if any, named herein shall
be at the rate applicable to the minimum amount of the investor's
specified intended purchases checked above. If the investor's actual
purchases do not reach this minimum amount, the commissions previously
paid to the dealer will be adjusted to the rate applicable to the
investor's total purchases. If the investor's purchases exceed the
dollar amount of the investor's intended purchases and pass the next
commission break-point, the investor shall receive the lower sales
charge, provided that the dealer returns to the Distributor the excess
of commissions previously allowed or paid to him over that which would
be applicable to the amount of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter of
Intent in placing any future purchase orders for the investor while
this letter is in effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if necessary),
3% of the dollar amount specified in the Letter of Intent (computed
to the nearest full share) shall be held in escrow in shares of the
Trust by the Agent. All dividends and any capital distributions on the
escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the letter is
completed within a thirteen-month period, the escrowed shares will be
promptly released to the investor. However, shares disposed of prior
to completion of the purchase requirement under the letter will be
deducted from the amount required to complete the investment commitment.
3. If the total purchases pursuant to the letter are less than the
amount specified in the letter as the intended aggregate purchases,
the investor must remit to the Distributor an amount equal to the
difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total
amount purchased had been made at a single time. If such difference in
sales charges is not paid within twenty days after receipt of a
request from the Distributor or the dealer, the Distributor will,
within sixty days after the expiration of the letter, redeem the number
of escrowed shares necessary to realize such difference in sales
charges. Full shares and any cash proceeds for a fractional share
remaining after such redemption will be released to the investor. The
escrow of shares will not be released until any additional sales charge
due has been paid as stated in this section.
4. By checking Box 3c and signing the Application, the investor
irrevocably constitutes and appoints the Agent or the Distributor as
his attorney to surrender for redemption any or all escrowed shares
on the books of the Trust.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees to
the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan")
as agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Trust purchased
for and held under the Plan, but the Agent will credit all such shares
to the Planholder on the records of the Trust. Any share certificates
now held by the Planholder may be surrendered unendorsed to the Agent
with the application so that the shares represented by the certificate
may be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the
Trust at net asset value without a sales charge.
4. Redemptions of shares in connection with disbursement payments will
be made at the net asset value per share in effect at the close of
business on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address
to which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written
notice (in proper form in accordance with the requirements of the then
current Prospectus of the Trust) to redeem all, or any part of, the
shares held under the Plan. In such case the Agent will redeem the
number of shares requested at the net asset value per share in effect
in accordance with the Trust's usual redemption procedures and will
mail a check for the proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Trust. The Agent will also terminate the Plan upon
receipt of evidence satisfactory to it of the death or legal incapacity
of the Planholder. Upon termination of the Plan by the Agent or the
Trust, shares remaining unredeemed will be held in an uncertificated
account in the name of the Planholder, and the account will continue as
a dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder, his executor or guardian,
or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for
the Trust, the Planholder will be deemed to have appointed any successor
transfer agent to act as his agent in administering the Plan.
10. Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional lump sum
investment may be made, such investment should normally be an amount
equivalent to three times the annual withdrawal or $5,000, whichever
is less.
<PAGE>
[Inside Back Cover]
Administrator and Founder
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
Investment Adviser
Pacific Century Trust
a division of
Bank of Hawaii
Financial Plaza of the Pacific
P.O. Box 3170
Honolulu, Hawaii 96802
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
Diana P. Herrmann, President
Sherri Foster, Senior Vice President
Stephen J. Caridi, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
John M. Herndon, Assistant 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 LLP
737 Third Avenue
New York, New York 10017
Counsel
Hollyer Brady Smith & Hines LLP
551 Fifth Avenue
New York, New York 10176
<PAGE>
This Prospectus concisely states information about the
Trust that you should know before investing. A Statement of
Additional Information about the Trust (the "SAI") has been filed
with the Securities and Exchange Commission. The SAI contains
information about the Trust and its management not included in
this Prospectus. The SAI is incorporated by reference in its
entirety in this Prospectus. Only when you have read both this
Prospectus and the SAI are all material facts about the Trust
available to you.
You can get additional information about the Trust's
investments in the Trust's annual and semi-annual reports to
shareholders. In the Trust's annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Trust's performance during its
last fiscal year. You can get the SAI and the Trust's annual and
semi-annual reports without charge, upon request, by calling 800-
228-4228 (toll free).
In addition, you can review and copy information about the
Trust (including the SAI) at the Public Reference Room of the SEC
in Washington, D.C. Information on the operation of the Public
Reference Room is available by calling 1-202-942-8090. Reports
and other information about the Trust are also available on the
EDGAR Database on the SEC's Internet site at http://www.sec.gov.
Copies of this information can be obtained, for a duplicating
fee, by E-mail request to [email protected] or by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102.
The file number under which the Trust is registered
with the SEC under the
Investment Company Act of 1940 is 811-4084
TABLE OF CONTENTS
The Trust's Objective, Investment Strategies
and Main Risks...................................
Risk/Return Bar Chart and Performance Table .....
Fees and Expenses of the Trust...................
Investment of the Trust's Assets.................
Trust Management.................................
Net Asset Value Per Share........................
Purchases .......................................
Redeeming Your Investment........................
Alternate Purchase Plans.........................
Dividends and Distributions......................
Tax Information..................................
Financial Highlights.............................
Application and Letter of Intent.................
HAWAIIAN TAX-FREE TRUST
One of The
Aquilasm Group Of Funds
A tax-free
income investment
PROSPECTUS
To receive a free copy of the Trust's SAI, annual or semi-annual
report, or other information about the Trust, or to make
shareholder inquiries call:
the Trust's Shareholder Servicing Agent at
800-228-4228 toll free
or you can write to:
PFPC Inc
400 Bellevue Parkway
Wilmington, DE 19809
For general inquiries and yield information, call 800-228-4227 or
212-697-6666
This Prospectus should be read and retained for future reference
<PAGE>
Hawaiian Tax-Free Trust
380 Madison Avenue, Suite 2300
New York, New York 10017
800-228-4227
212-697-6666
Prospectus
July 31, 2000
Class Y Shares
Class I Shares
Hawaiian Tax-Free Trust is a mutual fund that seeks to provide
you as high a level of current income exempt from Hawaiian state and
Federal income taxes as is consistent with preservation of capital.
The Trust invests in municipal obligations that pay interest exempt
from Hawaiian state and Federal income taxes and are of investment
grade quality.
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
The Securities and Exchange Commission has not approved or
disapproved the Trust's securities or passed upon the adequacy of
this Prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
The Trust's Objective, Investment Strategies and Main
Risks
"What is the Trust's objective?"
The Trust's objective is to provide you as high a level
of current income exempt from Hawaiian state and regular Federal
income taxes as is consistent with preservation of capital.
"What is the Trust's investment strategy?"
The Trust invests in tax-free municipal obligations which
pay interest exempt from Hawaiian state and regular Federal
income taxes. We call these "Hawaiian Obligations." In
general, all or almost all of these obligations are issued
by the State of Hawaii, its counties and various other local
authorities; at least 65% of the portfolio will always
consist of obligations of these issuers. These obligations
can be of any maturity, but the Trust's average portfolio
maturity has traditionally been between 15 and 20 years. At
the time of purchase, an obligation must be considered
"investment grade."
The Adviser selects obligations for the Trust's portfolio
to best achieve the Trust's objectives. The Adviser evaluates
specific obligations for purchase by considering various
characteristics including quality, maturity and coupon rate.
The interest paid on certain types of Hawaiian
Obligations may be subject to the Federal alternative minimum tax
("AMT"). At least 80% of the Trust's net assets must be invested
in tax-exempt Hawaiian Obligations whose interest is not subject
to AMT.
"What are the main risks of investing in the Trust?"
Among the risks of investing in shares of the Trust and its
portfolio of securities are the following:
Loss of money is a risk of investing in the Trust.
The Trust's assets, being primarily or entirely Hawaiian
issues, are subject to economic and other conditions affecting
Hawaii. Adverse local events, such as a downturn in the Hawaiian
economy, could affect the value of the Trust's portfolio.
There are two types of risk associated with any fixed income
debt securities such as Hawaiian Obligations: interest rate risk
and credit risk.
* Interest rate risk relates to fluctuations in market value
arising from changes in interest rates. If interest rates
rise, the value of debt securities, including Hawaiian
Obligations, will normally decline. All fixed-rate debt
securities, even the most highly rated Hawaiian Obligations,
are subject to interest rate risk. Hawaiian Obligations with
longer maturities generally have a more pronounced reaction
to interest rate changes than shorter-term securities.
* Credit risk relates to the ability of the particular issuers
of the Hawaiian Obligations the Trust owns to make periodic
interest payments as scheduled and ultimately repay
principal at maturity.
An investment in the Trust is not a deposit in Pacific
Century Trust, Bank of Hawaii, Pacific Century Financial Corp. or
their bank or non-bank affiliates or by any other bank and is not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940
Act"). Thus, compared with "diversified" funds, it may invest a
greater percentage of its assets in obligations of a particular
issuer and may therefore not have as much diversification among
securities, and thus diversification of risk. 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.
<PAGE>
HAWAIIAN TAX-FREE TRUST
RISK/RETURN BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the
risks of investing in Hawaiian Tax-Free Trust by showing changes
in the performance of the Trust's Class Y Shares from year to
year over a three-year period and by showing how the Trust's
average annual returns for one year and since inception compare
to a broad measure of market performance. How the Trust has
performed in the past is not necessarily an indication of how the
Trust will perform in the future.
<TABLE>
<CAPTION>
[Bar Chart]
Annual Total Returns
1997-1999
<S> <C> <C>
20%
18%
16%
14%
12%
10%
9.06
8% XXXX
XXXX
6% XXXX
XXXX 5.92
4% XXXX XXXX
XXXX XXXX
2% XXXX XXXX
XXXX XXXX
0% XXXX XXXX -2.50
XXXX
-2% XXXX
-4%
-6%
1997 1998 1999
Calendar Years
During the period shown in the bar chart, the highest return for
a quarter was 3.41% (quarter ended June 30, 1997) and the lowest
return for a quarter was -1.69% (quarter ended June 30, 1999).
The year-to-date (from January 1, 2000 to June 30, 2000) total
return was 1.84% for Class Y Shares.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Since
For the period 1 Year inception*
ended December 31, 1998
<S> <C> <C>
Hawaiian Tax-Free Trust
Class Y Shares -2.50% 4.99%
Hawaiian Tax-Free Trust
Class I Shares ** N/A N/A
Lehman Brothers
Quality Intermediate
Municipal Bond Index *** 0.29% 5.07%
<FN>
*From commencement of Class Y Shares on April 1, 1996.
</FN>
<FN>
**Commencement of Class I Shares was on January 31, 1998. To date
no Class I Shares have been sold.
</FN>
<FN>
***The Lehman Brothers Quality Intermediate Municipal Bond Index
is nationally oriented and consists of an unmanaged mix of
investment-grade intermediate-term municipal securities of
issuers throughout the United States.
</FN>
</TABLE>
<PAGE>
HAWAIIAN TAX-FREE TRUST
FEES AND EXPENSES OF THE TRUST
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Trust. No Class I Shares are
currently outstanding.
<TABLE>
<CAPTION>
Class I Class Y
Shares Shares
<S> <C> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases.........................None None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load).........None None
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends or Distributions
(as a percentage of offering price)........None None
Redemption Fees..............................None None
Exchange Fee.................................None None
Annual Trust Operating Expenses (expenses that are
deducted from the Trust's assets)
Investment Advisory Fee.....................0.14% 0.14%
Distribution
and/or Service (12b-1)Fee...................0.10%(1) None
All Other Expenses:
Administration Fee......................0.26% 0.26%
Other Expenses (2)......................0.33% 0.13%
Total All Other Expenses(2).............0.59% 0.39%
Total Annual Trust Operating Expenses(2) 0.83% 0.53%
<FN>
(1) Current rate; up to 0.25% can be authorized.
</FN>
<FN>
(2) Does not reflect a 0.02% offset in Trust expenses received in
the year ended March 31, 2000 for uninvested cash balances.
Reflecting this offset for that year, all other expenses and
total annual Trust operating expenses were 0.31%, 0.57% and
0.81%, respectively, for Class I Shares; for Class Y Shares,
these expenses were 0.11%, 0.37% and 0.51%, respectively. Other
expenses for the two classes differ because Class I Shares bear
program costs for financial intermediaries of 0.25%, which
includes transfer agent services, and charges common to both
classes of 0.08%; Class Y Shares bear only the common charges of
0.08% and an allocation for transfer agent services of 0.05%
</FN>
</TABLE>
Example
This Example is intended to help you compare the cost of
investing in the Trust with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Trust for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your
investment has a 5% return each year, you reinvest all dividends
and distributions, and that the Trust's operating expenses remain
the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class I Shares.......... $85 $265 $460 $1,025
Class Y Shares...........$54 $170 $296 $665
</TABLE>
<PAGE>
Investment of the Trust's Assets
"Is the Trust right for me?"
The shares of the Trust are designed to be a suitable
investment for individuals, corporations, institutions and
fiduciaries who seek income exempt from Hawaiian state and
regular Federal income taxes.
Institutional Class Shares ("Class Y Shares") are offered
only to institutions acting for investors in a fiduciary,
advisory, agency, custodial or similar capacity. 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. The Trust does not sell the shares of either class
directly to retail customers.
Hawaiian Obligations
The Trust invests in Hawaiian Obligations which are a type
of municipal obligation. These obligations pay interest which
bond counsel or other appropriate counsel deems to be exempt from
regular Federal and Hawaiian state income taxes. They include
obligations of Hawaiian issuers and certain non-Hawaiian issuers,
of any maturity.
At the time of purchase, the Trust's Hawaiian Obligations
must be of investment grade quality. This means that they must
either
* be rated within the four highest credit ratings 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 Sub-Adviser, Pacific Century Trust.
The obligations of non-Hawaiian issuers that the Trust can
purchase are those issued by or under the authority of Guam, the
Northern Mariana Islands, Puerto Rico and the Virgin Islands.
Interest paid on these obligations is currently exempt from
regular Federal and Hawaiian income taxes. The Trust purchases
the obligations of these issuers only when obligations of
Hawaiian issuers with the appropriate characteristics of quality,
maturity and coupon rate are unavailable.
It is the Trust's current policy that the majority of the
Trust's assets will be invested in insured Hawaiian Obligations.
At April 30, 2000, approximately 67% of the Trust's assets were
invested in insured obligations. Portfolio insurance refers to
the payment of interest and the face or par value of Hawaiian
Obligations when due. Portfolio insurance does not insure the
market value of Hawaiian Obligations, which will be affected by
various factors, including the general movement of interest
rates. The value of the Trust's shares is not insured. The
Trust's current policy regarding portfolio insurance can be
changed without shareholder approval.
Municipal Obligations
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 public purposes.
There are two principal classifications of municipal
obligations: "notes" and "bonds." Notes generally have
maturities of one year or less, while bonds are paid back over
longer periods.
The various public purposes for which municipal obligations are
issued include:
* obtaining funds for general operating expenses,
* refunding outstanding obligations,
* obtaining funds for loans to other public
institutions and facilities, and
* funding the construction of highways, bridges,
schools, hospitals, housing, mass transportation,
streets and water and sewer works.
Municipal obligations include:
* tax, revenue or bond anticipation notes,
* construction loan notes,
* project notes, which sometimes carry a U.S.
government guarantee,
* municipal lease/purchase agreements, which are
similar to installment purchase contracts for property
or equipment, and
* floating and variable rate demand notes.
"What factors may affect the value of the Trust's investments and
their yields?"
Change in prevailing interest rates is the most common
factor that affects the value of the obligations in the Trust's
portfolio. Any such change may have different effects on
short-term and long-term Hawaiian Obligations. Long-term
obligations (which usually have higher yields) may fluctuate in
value more than short-term ones. Thus, the Trust may shorten the
average maturity of its portfolio when it believes that
prevailing interest rates may rise. While this strategy may
promote one part of the Trust's objective, preservation of
capital, it may also result in a lower level of income.
"What are the main 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 Hawaiian Obligations that the
Trust owns. The Trust has derived this information from sources
that are generally available to investors and believes it to be
accurate, but it has not been independently verified and it may
not be complete. Economic conditions are subject to change and
there can be no assurance that the following information will not
change.
As of the date of this Prospectus the economic data
available indicate Hawaii's economy began to turn around in 1999
and continues to expand in 2000. Gross state product (GSP)
adjusted for inflation grew by 3.1 percent compared to the 2.0
percent growth experienced in 1998. Forecasts for 2000 GSP
continue to be revised upward to about 3.5 percent. Real
personal income growth continued to accelerate in 1999
registering an average annual growth rate of approximately 2.5
percent versus 2.1 percent in 1998. Growth in wages and salaries
are now increasing along with employment. Hawaii's consumer price
index increased by 1.0 percent in 1999 after decreasing slightly
in 1998. For 2000, the index is currently expected to increase by
2.0 percent.
Statewide the total number of jobs increased 0.5 percent
in 1999 after declining in 1998. In addition, Hawaii's
unemployment rate has declined from 5.7 percent in May 1999 to
4.3 percent in May 2000. The future for Hawaii's job market is
considered promising with several new business ventures and a
revival of the film industry.
Hawaii home prices have been increasing over the past
year on lower inventory and higher sales volume. In addition, the
decline in prices over the past several years has created an
attractive market for investors seeking resort homes and lots,
especially on the neighboring islands.
In 1999 tourism, the state's principal industry,
experienced an overall increase of 1.6 percent after declining in
1998. Total visitor arrivals increased from 6.74 million in 1998
to 6.84 million in 1999. Through May 2000, the number of visitors
to Hawaii increased 4.4% over the prior year period. Strong
domestic passenger growth offset falling numbers of international
passengers. Occupancy figures also reflected the strong domestic
visitor numbers as several neighboring islands, a favorite
destination for the repeat westbound visitor, registered
increases over the prior year. The increased westbound arrivals
have prompted several airlines to increase service between the
continental U.S. and Hawaii.
The expansion of the Hawaiian economy has led to an
increase in the tax revenues for the State of Hawaii. In turn,
this led to the stabilization of the credit ratings for the State
of Hawaii at A1/A+. As property values continue to improve, the
City and County of Honolulu should benefit from increased tax
collections. The City and County of Honolulu has a current G.O.
debt rating of Aa3/AA-.
Trust Management
"How is the Trust managed?"
Pacific Century Trust, a division of Bank of Hawaii,
Financial Plaza of the Pacific, P.O. Box 3170, Honolulu, HI
96802, (the "Adviser") is the Trust's investment adviser. Aquila
Management Corporation, 380 Madison Avenue, Suite 2300, New York,
NY 10017, the Administrator, is responsible for administrative
services, including providing for the maintenance of the
headquarters of the Trust, overseeing relationships between the
Trust and the service providers to the Trust, either keeping the
accounting records of the Trust or, at its expense and
responsibility, delegating such duties in whole or in part to a
company satisfactory to the Trust, maintaining the Trust's books
and records and providing other administrative services.
Under the Advisory Agreement, the Adviser provides for
investment supervision, including supervising continuously the
investment program of the Trust and the composition of its
portfolio; determining what securities will be purchased or sold
by the Trust; arranging for the purchase and the sale of
securities held in the portfolio of the Trust; and, at the
Adviser's expense, pricing of the Trust's portfolio daily.
During the fiscal year ended March 31, 2000, the Trust
paid to the Adviser 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 0.14 of 1%. Under the
Administration Agreement, the Trust paid a fee to the
Administrator on the same basis at the annual rate of 0.26 of 1%
for total advisory and administration fees of 0.40 of 1% of such
net asset value.
Information about the Adviser and the Administrator
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 Hawaiian 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.
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, Aquila Management Corporation,
is founder and Manager and/or administrator to the Aquilasm Group
of Funds, which consists of tax-free municipal bond funds,
money-market funds and equity funds. As of May 31, 2000 these
funds had aggregate assets of approximately $3.1 billion, of
which approximately $1.7 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.
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 (which
means the value of the assets less liabilities) allocable to each
class by the total number of shares of such class outstanding at
that time. In general, net asset value of the Trust's shares is
based on portfolio market value, except that Hawaiian Obligations
maturing in 60 days or less are generally valued at amortized
cost. The price at which a purchase or redemption of shares is
effected is based on the net asset value next calculated after
your purchase or redemption order is received in proper form. The
New York Stock 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, Jr. 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.
Purchases
"Are there alternate purchase plans?"
Yes. See "Alternate Purchase Plans" below. This
Prospectus offers two separate classes of shares. All classes
represent interests in the same portfolio of Hawaiian
Obligations.
"Can I purchase shares of the Trust?"
You can purchase shares of the Trust if you live in Hawaii
or in one of the other states listed below. You should not
purchase shares of the Trust if you do not reside in one of the
following states. Otherwise, the Trust can redeem the shares you
purchased. This may cause you to suffer a loss and may have tax
consequences.
Also, if you do not reside in Hawaii, dividends from the
Trust may be subject to state income taxes of the state in which
you do reside. Therefore, you should consult your tax adviser
before buying shares of the Trust.
On the date of this Prospectus, Class Y Shares and Class
I shares are available only in:
* Hawaii * Alaska * California * Colorado * District of Columbia
* Illinois * Missouri * Montana * Nevada * New York * Oregon *
Virginia
"How much money do I need to invest?"
For Class Y Shares:
$1,000. Subsequent investments can be in any amount.
Class I Shares:
Financial intermediaries can set their own requirements for
initial and subsequent investments.
Your investment must be drawn in United States dollars on a
United States commercial bank, savings bank or credit union or a
United States branch of a foreign commercial bank (each of which
is a "Financial Institution").
"How do I purchase shares?"
You may purchase Class Y Shares:
* through an investment broker or dealer, or a bank or
financial intermediary, that has a sales agreement with the
Distributor, Aquila Distributors, Inc., in which case that
institution will take action on your behalf, and you will
not personally perform the steps indicated below; or
* directly through the Distributor, by mailing payment to the
Trust's Agent, PFPC Inc.
* The price you will pay is net asset value for both Class Y
Shares and Class I Shares. (See "What price will I pay for
the Trust's shares?")
You may purchase Class I Shares only through a financial
intermediary.
Opening a Class Y Shares Account Adding to a Class Y Shares
Account
* Make out a check for * Make out a check for
the investment amount the investment amount
payable to payable to
Hawaiian Tax-Free Trust. Hawaiian
Tax-Free Trust.
* Complete the Application * Fill out the pre-printed
included with the Prospectus, stub attached
indicating the features to the Trust's
you wish to authorize. confirmations
or supply the name(s)
of account owner(s),
the account number, and
the name of the Trust.
* Send your check and * Send your check and
completed application account information
to your dealer or to your dealer or
to the Trust's to the Trust's
Agent, PFPC Inc. Agent, PFPC Inc.
"Can I transfer funds electronically?"
You can have funds transferred electronically, in amounts of
$50 or more, from your Financial Institution if it is a member of
the Automated Clearing House. You may make investments through
two electronic transfer features, "Automatic Investment" and
"Telephone Investment."
* Automatic Investment: You can authorize a pre-determined
amount to be regularly transferred from your account.
* Telephone Investment: You can make single investments of
up to $50,000 by telephone instructions to the Agent.
Before you can transfer funds electronically, the Trust's
Agent must have your completed application authorizing these
features. If you initially decide not to choose these
conveniences and then later wish to do so, you must complete a
Ready Access Features Form which is available from the
Distributor or Agent, or if your account is set up so that your
broker or dealer makes these sorts of changes, request your
broker or dealer to make them. The Trust may modify or terminate
these investment methods or charge a service fee, upon 30 days'
written notice to shareholders.
Redeeming Your Investment
Redeeming Class Y Shares
You may redeem some or all of your shares by a request to
the Agent. Shares will be redeemed at the next net asset value
determined after your request has been received in proper form.
There is no minimum period for investment in the Trust,
except for shares recently purchased by check or by Automatic or
Telephone Investment as discussed below.
A redemption may result in a tax liability for you.
"How can I redeem my investment?"
By mail, send instructions to:
PFPC Inc.
Attn: Aquilasm Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809
By telephone, call:
800-228-4228 toll free
By FAX, send
instructions to:
302-791-3055
For liquidity and convenience, the Trust offers expedited
redemption for Class Y Shares.
Expedited Redemption Methods
You may request expedited redemption in two ways:
1. By Telephone. The Agent will take instructions from
anyone by telephone to redeem shares and make payments:
a) to a Financial Institution account you have previously
specified;
b) by check in the amount of $50,000 or less, mailed to the
same name and address (which has been unchanged for the past
30 days) as the account from which you are redeeming. You
may only redeem by check via telephone request once in any
7-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to
supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification.
Note: Check the accuracy of your confirmation statements
immediately. The Trust, the Agent, and the Distributor are not
responsible for losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify a caller's identity. The Agent may record calls.
2. By FAX or Mail. You may request redemption payments to a
predesignated Financial Institution account by a letter of
instruction sent to the Agent: PFPC Inc., by FAX at
302-791-3055 or by mail to 400 Bellevue Parkway, Wilmington,
DE 19809. The letter, signed by the registered
shareholder(s) (no signature guarantee is required), must
indicate:
account name(s)
account number
amount to be redeemed
any payment directions.
To have redemption proceeds sent directly to a Financial
Institution account, you must complete the Expedited Redemption
section of the Application or a Ready Access Features Form. You
will be required to provide (1) details about your Financial
Institution account, (2) signature guarantees and (3) possible
additional documentation.
The name(s) of the shareholder(s) on the Financial Institution
account must be identical to those on the Trust's records of your
account.
You may change your designated Financial Institution account at
any time by completing and returning a revised Ready Access
Features Form.
Regular Redemption Method
To redeem by the regular redemption method, send a letter of
instruction to the Trust's Agent, which includes:
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 (we normally mail redemption proceeds
to your address as registered with the Trust)
signature(s) of the registered shareholder(s); and
signature guarantee(s), if required, as indicated below. To
be in "proper form," your letter must be signed by the
registered shareholder(s) exactly as the account is
registered. For a joint account, both shareholder signatures
are necessary.
We may require additional documentation for certain types of
shareholders such as corporations, partnerships, trustees or
executors, or if redemption is requested by someone other than
the shareholder of record. The Agent may require signature
guarantees if insufficient documentation is on file.
We do not require a signature guarantee for redemptions up
to $50,000, payable to the record holder, and sent to the address
of record, except as noted above. In all other cases, signatures
must be guaranteed.
Your signature may be guaranteed by any:
member of a national securities exchange
U.S. bank or trust company
state-chartered savings bank
federally chartered savings and loan association
foreign bank having a U.S. correspondent bank; or
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 receipt in proper form 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.
"When will I receive the proceeds of my redemption?"
Redemption proceeds for Class Y Shares are normally sent on the
next business day following receipt of your redemption request in
proper form. Except as described below, payments will normally be
sent to your address of record within 7 days.
Redemption Method of Payment Charges
Under $1,000 Check None
$1,000 or more Check or, if and None
as you requested
on your application
or Ready Access Features
Form, wired or
transferred through
the Automated Clearing
House to your Financial
Institution account
Through a broker/
dealer Check or wire, to your None; however,
broker/dealer your
broker/dealer
may charge a
fee
Although the Trust does not currently intend to, it can
charge up to $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. 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.
Redemption payments for Class I Shares are made to financial
intermediaries.
The Trust may delay payment for redemption of shares
recently purchased by check (including certified, cashier's or
official bank check) or by Automatic Investment or Telephone
Investment up to 15 days after purchase; however, payment for
redemption will not be delayed after (i) the check or transfer of
funds has been honored, or (ii) the Agent receives satisfactory
assurance that your Financial Institution will honor the check or
transfer of funds. You can eliminate possible delays by paying
for purchased shares with wired funds or Federal Reserve drafts.
The Trust has the right to postpone payment or suspend
redemption rights during certain periods. These periods may occur
(i) when the New York Stock Exchange is closed for other than
weekends and holidays, (ii) when the Securities and Exchange
Commission (the "SEC") restricts trading on the New York Stock
Exchange, (iii) when the SEC determines an emergency exists which
causes disposal of, or determination of the value of, the
portfolio securities to be unreasonable or impracticable, and
(iv) during such other periods as the SEC may permit.
The Trust can redeem your shares if their value totals less
than $500 as a result of redemptions or failure to meet and
maintain the minimum investment level under an Automatic
Investment program. Before such a redemption is made, we will
send you a notice giving you 60 days to make additional
investments to bring your account up to the minimum.
Redemption proceeds may be paid in whole or in part by
distribution of the Trust's portfolio securities ("redemption in
kind") in conformity with SEC rules. This method will only be
used if the Board of Trustees determines that payments partially
or wholly in cash would be detrimental to the best interests of
the remaining shareholders.
"Is there an Automatic Withdrawal Plan?"
Yes, but it is only available for Class Y Shares. Under an
Automatic Withdrawal Plan you can arrange to receive a monthly or
quarterly check in a stated amount, not less than $50.
Alternate Purchase Plans
Distribution Arrangements
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.
Class Y Shares Class I Shares
"Institutional Class" "Financial Intermediary
Class"
Initial Sales None None. Financial Charge
Intermediaries may
charge a fee for
purchase of shares.
Contingent None None
Deferred Sales
Charge ("CDSC")
Distribution and None Distribution fee of
Service Fees up to 0.25 of 1% of
average annual net
assets allocable to
Class I Shares,
currently 0.10 of1%
of such net assets,
and a service fee
of 0.25 of 1% of
such assets.
"What price will I pay for the Trust's shares?"
The offering price for Class Y Shares is the net asset
value per share. You will receive that day's offering price on
purchase orders, including Telephone Investments and investments
by mail, received in proper form prior to 4:00 p.m. New York
time. Dealers have the added flexibility of transmitting orders
received prior to 4:00 p.m. New York time to the Distributor or
Agent before the Distributor's close of business that day
(normally 5:00 p.m. New York time) and still receiving that day's
offering price. Otherwise, orders will be filled at the next
determined offering price. Dealers are required to submit orders
promptly. Purchase orders received on a non-business day,
including those for Automatic Investment, will be executed on the
next succeeding business day. The sale of shares will be
suspended (1) during any period when net asset value
determination is suspended, or, (2) when the Distributor judges
it is in the Trust's best interest to do so.
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.
"What about confirmations and share certificates?"
A statement will be mailed to you confirming each
purchase of Class Y Shares in the Trust. Additionally, your
account at the Agent will be credited in full and fractional
shares (rounded to the nearest 1/1000th of a share). Financial
intermediaries will confirm purchases of Class I Shares. The
Trust/ Fund will not issue certificates for Class Y Shares or
Class I Shares.
"Is there a Distribution Plan or a Services Plan?"
The Trust has adopted a Distribution Plan (the "Plan") under
the Investment Company Act of 1940's Rule 12b-1 in order to:
(i) permit the Trust to finance activities primarily
intended to result in the sale of its shares;
(ii) permit the Administrator, out of its own funds, to
make payment for distribution expenses; and
(iii) protect the Trust against any claim that some of the
expenses which it pays or may pay might be considered
to be sales-related and therefore come within the
purview of the Rule.
No payments are made with respect to assets represented by
Class Y Shares.
Under the Plan, the Trust makes payments with respect to
Class I Shares under agreements to certain broker/dealers, or
others who have (i) rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Trust's shares or (ii) assisted in the servicing of
shareholder accounts.
For any fiscal year, payments with respect to Class I
Shares are made at 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 can be made only out of the Trust's
assets allocable to the Class I Shares. Because these
distribution fees are paid out of assets on an ongoing basis,
over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
For any class, these payments are made only from the
assets allocable to that class. Whenever the Trust makes Class A
permitted payments, the aggregate annual rate of the advisory fee
and administration fee otherwise payable by the Trust will be
reduced from 0.50 of 1% to 0.40 of 1% of the Trust's average
annual net assets.
Shareholder Services Plan for Class I Shares
The Trust's Shareholder Services Plan authorizes it to
pay a service fee under agreements to certain qualified
recipients who have agreed to provide personal services to Class
I shareholders and/or maintain their accounts. For any fiscal
year, such fees may not exceed 0.25 of 1% of the average annual
net assets represented by Class I Shares. Payment is made only
out of the Trust's assets represented by Class I Shares. No
payments are made with respect to assets represented by Class Y
Shares.
"Transfer on Death" Registration (Not Available for Class I
Shares)
If you own Class Y Shares, the Trust generally permits
"transfer on death" ("TOD") registration of shares so that on the
death of the shareholder the shares are transferred to a
designated beneficiary or beneficiaries. Ask the Agent or your
broker-dealer for the Transfer on Death Registration Request
Form. With it you will receive a copy of the TOD Rules of the
Aquilasm Group of Funds, which specify how the registration
becomes effective and operates. By opening a TOD Account, you
agree to be bound by the TOD rules. This service is not available
for Class I Shares.
Dividends And Distributions
"How are dividends and distributions determined?"
The Trust pays dividends and other distributions with
respect to each class of shares. The Trust calculates its
dividends and other distributions with respect to each class at
the same time and in the same manner. Net income for dividend
purposes includes all interest income accrued by the Trust since
the previous dividend declaration, less expenses paid or accrued.
Net income also includes any original issue discount, which
occurs if the Trust purchases an obligation for less than its
face amount. The discount from the face amount is treated as
additional income earned over the life of the obligation. Because
the Trust's income varies, so will the Trust's dividends. There
is no fixed dividend rate. It is expected that most of the
Trust's dividends will be comprised of interest income. The
dividends and distributions of each class can vary due to certain
class-specific charges. The Trust will declare all of its net
income 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.
Redeemed shares continue to earn dividends through and
including the earlier of:
1. the day prior to the day when
redemption proceeds are mailed, wired or
transferred by the Automated Clearing House,
the Agent or paid by the Agent to a selected
dealer; or
2. the third day the New York Stock
Exchange is open after the day the net asset
value of the redeemed shares was determined.
The Trust's present policy is to pay dividends so they will
be received or credited by approximately the first day of each
month.
"How are dividends and distributions paid?"
Dividends and distributions will automatically be reinvested
in full and fractional shares of the Trust of the same class at
net asset value on the record date for the dividend or
distribution.
If you own or purchase Class Y Shares, you may choose to
have all or any part of the payments for dividends or
distributions paid in cash. You can elect to have the cash
portion of dividends or distributions deposited, without charge,
by electronic funds transfers into your account at a financial
institution, if it is a member of the Automated Clearing House.
You can make any of these elections on the Application, by a
Ready Access Features Form or by a letter to the Agent. Your
election to receive some or all of your dividends and
distributions in cash will be effective as of the next payment of
dividends after it has been received in proper form by the Agent.
It will continue in effect until the Agent receives written
notification of a change.
All arrangements for the payment of dividends and
distributions with respect to Class I Shares, including
reinvestment of dividends, must be made through financial
intermediaries.
All Class Y shareholders, whether their dividends or
distributions are received in cash or reinvested, will receive a
monthly statement indicating the current status of their
investment account with the Trust. Financial intermediaries
provide their own statements of Class I Shares accounts.
If you do not comply with laws requiring you to furnish
taxpayer identification numbers and report dividends, the Trust
may be required to impose backup withholding at a rate of 31%
upon payment of redemptions to shareholders and on capital gains
distributions (if any) and any other distributions that do not
qualify as "exempt-interest dividends."
Tax Information
Net investment income includes income from Hawaiian
Obligations in the portfolio that the Trust allocates as
"exempt-interest dividends." Such dividends are exempt from
regular Federal income tax. The Trust will allocate
"exempt-interest dividends" by applying one designated percentage
to all income dividends it declares during its tax year. It will
normally make this designation in the first month following its
fiscal year end for dividends paid in the prior year.
It is possible that, under certain circumstances, a small
portion of dividends paid by the Trust will be subject to income
taxes. During the Trust's fiscal year ended March 31, 2000,
92.18% of the Trust's dividends were exempt-interest dividends.
For the calendar year 1999, 8.93% of total dividends paid were
taxable. The percentage of tax-exempt income from any particular
dividend may differ from the percentage of the Trust's tax-exempt
income during the dividend period.
Net capital gains of the Trust, if any, 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 intends to qualify during each fiscal year
under the Internal Revenue Code to pay "exempt-interest
dividends" to its shareholders. "Exempt-interest dividends"
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 Trust will treat as ordinary income in the year received
certain gains on Hawaiian Obligations it acquired after April 30,
1993 and sells for less than face or redemption value. Those
gains will be taxable to you as ordinary income, if distributed.
Capital gains dividends (net long-term gains over net
short-term losses which the Trust distributes and so designates)
are reportable by shareholders as gains from the sale or exchange
of a capital asset held for more than a year. This is the case
whether the shareholder reinvests the distribution in shares of
the Trust or receives it in cash, regardless of the length of
time the investment is held.
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 reduce future capital gains dividends and
amounts taxed to shareholders.
The Trust's gains or losses on sales of Hawaiian Obligations
will be deemed long- or short-term, depending upon the length of
time the Trust holds these obligations.
You will receive information on the tax status of the
Trust's dividends and distributions annually.
Special Tax Matters
Under the Internal Revenue 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.
If you or your spouse are receiving Social Security or
railroad retirement benefits, a portion of these benefits may
become taxable, if you receive exempt-interest dividends from the
Trust.
If you, or someone related to you, is a "substantial user"
of facilities financed by industrial development or private
activity bonds, you should consult your own tax adviser before
purchasing shares of the Trust.
Interest from all Hawaiian Obligations is tax-exempt for
purposes of computing the shareholder's regular tax. However,
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 ("AMT"). Whether or not that computation
will result in a tax will depend on the entire content of your
return. The Trust will not invest more than 20% of its assets in
the types of Hawaiian Obligations that pay interest subject to
AMT. An adjustment required by the Internal Revenue Code will
tend to make it more likely that corporate shareholders will be
subject to AMT. They should consult their tax advisers.
"What should I know about Hawaiian taxes?"
The Trust, and dividends and distributions made by the Trust
to Hawaii residents, will generally be treated for Hawaiian
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. Shareholders of the Trust should
consult their tax advisers about other state and local tax
consequences of their investment in the Trust.
<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, none of which were outstanding
during the periods indicated.
HAWAIIAN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The financial highlights table is intended to help you understand the
Trust's financial performance for the designated periods of the
Trust's operations. Certain information reflects financial results for
a single Trust share. The total returns in the table represent the
rate that an investor would have earned or lost on an investment in
the Trust (assuming reinvestment of all dividends and distributions).
This information has been audited by KPMG LLP, whose report, along
with the Trust's financial statements, is included in the annual
report, is incorporated by reference into the SAI and is available
upon request.
<PAGE>
Class A(1) Class Y(2)
Year ended March 31, Year ended March 31,
2000 1999 1998 2000 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ....$11.65 $11.67 $11.23 $11.67 $11.68 $11.24
Income (loss) from
Investment
Operations:
Net investment income ..0.56 0.56 0.57 0.58 0.59 0.67
Net gain (loss) on
securities (both
realized and
unrealized) .........(0.65) 0.03 0.46 (0.66) 0.03 0.45
Total from Investment
Operations ..........(0.09) 0.59 1.03 (0.08) 0.62 1.12
Less Distributions:
Dividends from net
investment income....(0.55) (0.57) (0.54) (0.57) (0.59) (0.63)
Distributions from
capital gains........(0.07) (0.04) (0.05) (0.07) 0.04) (0.05)
Total Distributions ...(0.62) (0.61) (0.59) (0.64) (0.63) (0.68)
Net Asset Value, End of
Period............... $10.94 $11.65 $11.67 $10.95 $11.67 $11.68
Total Return (not reflecting
sales charge)(%) ......(0.64) 5.17 9.37 (0.56) 5.45 10.24
Ratios/Supplemental Data
Net Assets, End of Year
($ millions) ..... 575 640 648 3 3 1
Ratio of Expenses to
Average Net
Assets (%) .......... 0.73 0.74 0.73 0.53 0.54 0.52
Ratio of Net Investment
Income to Average Net
Assets (%) ........... 4.99 4.76 4.96 5.15 4.96 5.02
Portfolio Turnover
Rate (%) .............. 4 14 9 4 14 9
The expense ratios after giving effect to the expense offset for uninvested
cash balances were:
Ratio of Expenses
to Average Net Assets(%)
0.71 0.70 0.72 0.51 0.49 0.51
<CAPTION>
Class A(1) Class Y(2)
Year Ended March 31, Year Ended March 31,
1997 1996 1997
<C> <C> <C>
$11.31 $11.13 $11.31
0.59 0.61 0.74
(0.08) 0.l8 (0.07)
0.51 0.79 0.67
(0.58) (0.61) (0.73)
(0.01) - (0.01)
(0.59) (0.61) (0.74)
$11.23 $11.31 $11.24
4.67 7.16 6.14
641 660 -
0.75 0.73 0.55
5.11 5.31 4.90
9 28 9
0.73 0.72 0.53
<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>
APPLICATION FOR HAWAIIAN TAX-FREE TRUST
FOR CLASS Y AND I SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
PFPC Inc.
400 Bellevue Parkway, Wilmington, DE 19809
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.
** Uniform Gifts/Transfers to Minors Act.
Please type or print name(s) 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 organization. If a trust, include the name(s)
of trustees in which account will be registered and the name and date
of the trust instrument. An 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)
__ Class Y Shares
__ Class I Shares
Make check payable to HAWAIIAN TAX-FREE TRUST
___Initial Investment $ ______________ (Minimum $1,000)
B. DISTRIBUTIONS
Income dividends and capital gains distributions are automatically
reinvested in additional shares at net asset value unless otherwise
indicated below.
You can have any portion of either type reinvested, with the balance paid
in cash, by indicating a percent below:
Income dividends are to be:___ % Reinvested __%_Paid in cash*
Capital gains distributions are to be: ___% Reinvested __% Paid in cash*
* For cash payments, 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
(Minimum investment $5,000)
Application must be received in good order at least 2 weeks prior
to first 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, 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>
[Inside Back Cover]
Administrator and Founder
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
Investment Adviser
Pacific Century Trust
a division of
Bank of Hawaii
Financial Plaza of the Pacific
P.O. Box 3170
Honolulu, Hawaii 96802
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
Diana P. Herrmann, President
Sherri Foster, Senior Vice President
Stephen J. Caridi, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M. W. Hines, Secretary
John M. Herndon, Assistant 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 LLP
757 Third Avenue
New York, New York 10017
Counsel
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
<PAGE>
This Prospectus concisely states information about the
Trust that you should know before investing. A Statement of
Additional Information about the Trust (the "SAI") has been filed
with the Securities and Exchange Commission. The SAI contains
information about the Trust and its management not included in
this Prospectus. The SAI is incorporated by reference in its
entirety in this Prospectus. Only when you have read both this
Prospectus and the SAI are all material facts about the Trust
available to you.
You can get additional information about the Trust's
investments in the Trust's annual and semi-annual reports to
shareholders. In the Trust's annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Trust's performance during its
last fiscal year. You can get the SAI and the Trust's annual and
semi-annual reports without charge, upon request, by calling 800-
228-4228 (toll free).
In addition, you can review and copy information about the
Trust (including the SAI) at the Public Reference Room of the SEC
in Washington, D.C. Information on the operation of the Public
Reference Room is available by calling 1-202-942-8090. Reports
and other information about the Trust are also available on the
EDGAR Database on the SEC's Internet site at http://www.sec.gov.
Copies of this information can be obtained, for a duplicating
fee, by E-mail request to [email protected] or by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102.
The file number under which the Trust is registered
with the SEC under the
Investment Company Act of 1940 is 811-4084
TABLE OF CONTENTS
The Trust's Objective, Investment Strategies
and Main Risks...................................
Risk/Return Bar Chart and Performance Table .....
Fees and Expenses of the Trust...................
Investment of the Trust's Assets.................
Trust Management.................................
Net Asset Value Per Share........................
Purchases .......................................
Redeeming Your Investment........................
Alternate Purchase Plans.........................
Dividends and Distributions......................
Tax Information..................................
Financial Highlights.............................
Application
HAWAIIAN TAX-FREE TRUST
One of The
Aquilasm Group Of Funds
A tax-free
income investment
PROSPECTUS
To receive a free copy of the Trust's SAI, annual or semi-annual
report, or other information about the Trust, or to make
shareholder inquiries call:
the Trust's Shareholder Servicing Agent at
800-228-4228 toll free
or you can write to:
PFPC Inc
400 Bellevue Parkway
Wilmington, DE 19809
For general inquiries and yield information, call 800-228-4227 or
212-697-6666
This Prospectus should be read and retained for future reference
Hawaiian Tax-Free Trust
380 Madison Avenue Suite 2300
New York, NY 10017
800-228-4227
212-697-6666
Statement
of Additional
Information July 31, 2000
This Statement of Additional Information (the "SAI") is
not a Prospectus. There are two Prospectuses for the Trust dated
July 31, 2000: 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") and Financial Intermediary Class
Shares ("Class I Shares") of the Trust. References in the SAI to
"the Prospectus" refer to either of these Prospectuses. The SAI
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, Wilmington, DE 19809 or by calling at the following
number:
800-228-4228 toll free
or from Aquila Distributors, Inc., the Trust's Distributor, by
writing to it at
380 Madison Avenue, Suite 2300, New York, NY 10017;
or by calling: 800-228-4227 toll free
or 212-697-6666
Financial Statements
The financial statements for the Trust for the year ended
March 31, 2000, which are contained in the Annual Report for that
fiscal year, are hereby incorporated by reference into the SAI.
Those financial statements have been audited by KPMG LLP,
independent auditors, whose report thereon is incorporated herein
by reference. The Annual Report of the Trust for the fiscal year
ended March 31, 2000 can be obtained without charge by calling
any of the toll-free numbers listed above. The Annual Report will
be delivered with the SAI.
Table of Contents
Trust History
Investment Strategies and Risks
Trust Policies
Management of the Trust
Ownership of Securities
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Capital Stock
Purchase, Redemption, and Pricing of Shares
Additional Tax Information
Underwriters
Performance
Appendix A
<PAGE>
Hawaiian Tax-Free Trust
Statement of Additional Information
Trust History
Hawaiian Tax-Free Trust (the "Trust"), was organized in
1984 as a Massachusetts business trust. The Trust is an open-end,
non-diversified management investment company.
Investment Strategies and Risks
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 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.
Rating agencies consider municipal obligations rated in the
fourth highest credit rating to be of medium quality. Thus, they
may present investment risks which do not exist with more highly
rated obligations. Such obligations possess less attractive
investment characteristics. 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.
See Appendix A to this SAI for further information about the
ratings of Moody's and S&P as to the various rated Hawaiian
Obligations which the Trust may purchase.
The table below gives information as to the percentage of
Trust net assets invested, as of March 31, 2000, in Hawaiian
Obligations in the various rating categories:
Highest rating (1) 76.2%
Second highest rating (2) 12.4%
Third highest rating (3) 8.2%
Fourth highest rating (4) 0.0%
Not rated: 3.2%
100.0%
(1) Aaa of Moody's or AAA of S&P.
(2) Aa of Moody's or AA of S&P.
(3) A of Moody's or A of S&P.
(4) Baa of Moody's or BBB of S&P.
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) owns 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.
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 interest and 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.
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 which the Trust may purchase
insurance from, or may purchase Obligations insured by, include
the following:
Financial Security Assurance Co., which is owned by
Dexia, is rated Aaa by Moody's and AAA by S&P;
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 Trust may also use other insurers. However, the Trust
will seek to ensure that any insurer used will itself have a AAA
or Aaa rating.
When-Issued and Delayed Delivery Obligations
The Trust may buy Hawaiian Obligations on a when-issued or
delayed delivery basis. The purchase price and the interest rate
payable on the Hawaiian Obligations are fixed on the transaction
date. At the time the Trust makes the commitment to purchase
Hawaiian Obligations on a when-issued or delayed delivery basis,
it will record the transaction and thereafter reflect the value
each day of such Hawaiian 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 Hawaiian Obligations. 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. On delivery dates for such transactions, the Trust will
meet its commitments by selling the assets held in the separate
account and/or from cash flow.
Determination of the Marketability of Certain Securities
In determining marketability of floating and variable rate
demand notes and participation interests (including municipal
lease/purchase obligations) 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.
Taxable Short-term Obligations
Although the Trust does not currently do so, it is
permitted to purchase taxable short-term obligations. 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"); (ii)
commercial paper rated Prime-1 by Moody's or A-1 by S&P (see
Appendix A to the Prospectus); 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.
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.
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 Futures 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 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 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 in conformity with restrictions it has committed to
pursuant to 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 from qualifications as a "commodity pool operator" (as
defined under the CEA). Under these restrictions the Trust will
not, as to any positions, whether long, short or a combination
thereof, enter into Futures or options for which the aggregate
initial margins and premiums paid for options exceed 5% of the
fair market value of its assets. Under the restrictions, the
Trust also must, as to its short positions, use Futures and
options solely for bona-fide hedging purposes within the meaning
and intent of the applicable provisions under the CEA. As to the
Trust's long positions which are used as part of its portfolio
strategy and are incidental to its activities in the underlying
cash market, the "underlying commodity value" (see below) of its
Futures must not exceed the sum of (i) cash set aside in an
identifiable manner, or short-term U.S. debt obligations or other
U.S. dollar-denominated high quality short-term money market
instruments so set aside, plus any funds deposited as margin;
(ii) cash proceeds from existing investments due in 30 days and
(iii) accrued profits held at the futures commission merchant.
(There is described above the segregated account which the Trust
must maintain as to its Futures and options activities due to
requirements other than those described in this paragraph; the
Trust will, as to long positions, be required to abide by the
more restrictive of the two requirements.) 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.
Trust Policies
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 and
"Investment Strategies and Risks" in the SAI; 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" in the
Prospectus); 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, 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.
5. The Trust is prohibited from making certain investments.
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, any Trustee, Director or officer of
the Trust or its Adviser individually owns beneficially more than
0.5% of the securities of that issuer and all such Trustees,
Directors and officers 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.
6. The Trust does not buy for control.
The Trust cannot invest for the purpose of exercising
control or management of other companies.
7. 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.
8. 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.
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.
Management of the Trust
The Board of Trustees
The business and affairs of the Trust are managed under the
direction and control of its Board of Trustees. The Board of
Trustees has authority over every aspect of the Trust's
operations, including approval of the advisory and sub-advisory
agreements and their annual renewal, the contracts with all other
service providers and payments under the Trust's Distribution
Plan and Shareholder Services Plan.
Trustees and Officers
The Trustees and officers of the Trust, their ages, their
affiliations, if any, with the Adviser or the Distributor and
their principal occupations during at least the past five years
are set forth below. None of the Trustees or officers of the
Trust is affiliated with the Adviser. Mr. Herrmann is an
interested person of the Trust as that term is defined in the
Investment Company Act of 1940 (the "1940 Act") as an officer of
the Trust and a director, officer and 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.
In the following material Pacific Capital Cash Assets
Trust, Churchill Cash Reserves Trust, Pacific Capital U.S.
Government Securities Cash Assets Trust , Pacific Capital Tax-
Free Cash Assets Trust, Capital Cash Management Trust and Capital
Cash U.S. Government Securities Trust, each of which is a money-
market fund, are called the "Aquila Money-Market Funds"; Hawaiian
Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of
Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free Fund of
Kentucky, Narragansett Insured Tax-Free Income Fund and Tax-Free
Fund For Utah, each of which is a tax-free municipal bond fund,
are called the "Aquila Bond Funds"; and Aquila Cascadia Equity
Fund and Aquila Rocky Mountain Equity Fund are called the "Aquila
Equity Funds."
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Position Business Experience
with the Trust,
Address, Age,
Lacy B. Herrmann* Founder and Chairman of the Board of Aquila
Chairman of the Management Corporation, the sponsoring
Board of Trustees organization and Manager or Administrator
380 Madison Avenue and/or Adviser or Sub-Adviser to the
New York, NY Aquila Money-Market Funds, the Aquila Bond
10017 Funds and the Aquila Equity Funds,
Age: 71 and Founder, Chairman of the Board of Trustees
and (currently or until 1998) President
of each since its establishment,
beginning in 1984; Director of Aquila
Distributors, Inc., distributor of the
above funds, since 1981 and formerly
Vice President or Secretary, 1981-1998;
President and a Director of STCM
Management Company, Inc., sponsor and
sub-adviser to Capital Cash Management
Trust and Capital Cash U.S. Government
Securities Trust; Founder and Chairman
of several other money market funds;
Director or Trustee of OCC Cash
Reserves, Inc. and Quest For Value
Accumulation Trust, and Director or
Trustee of Oppenheimer Quest Value
Fund, Inc., Oppenheimer Quest Global
Value Fund, Inc. and Oppenheimer
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 Director of Sonesta International Hotels
Trustee Corporation, Boston, Massachusetts
20 Park Place and General Independent Partner of
Suite 1010 the Merrill Lynch-Lee Funds; Former Director
Boston, MA of Colgate-Palmolive Company, Digital Equipment
02116 Corporation, Intermet Corporation, The McGraw
Age: 77 Hill and The Mead Corporations; 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
Hawaiian Tax-Free Trust (this Trust),
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 Emeritus, Boston
Symphony Orchestra; 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 other
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 Retired; Advisory Director
Trustee of the Renaissance Companies
8702 North Via La Serena (design and construction
Paradise Valley, companies of commercial,
AZ 85253 industrial and upscale residential
Age: 78 properties) since 1996; Senior Vice President
and Manager of the Trust Division of
The Valley National Bank of Arizona,
1977-1987; Trustee of Hawaiian Tax-Free
Trust (this Trust), 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, of Aquila
Rocky Mountain Equity Fund since 1993
and of Tax-Free Fund of Colorado, 1987-
2000; 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 Northern Arizona University
Foundation since 1990, present or
formerly an officer and/or director of
various other community and
professional organizations.
William M. Cole President of Cole International,
Trustee Inc., financial and shipping consultants,
852 Ramapo Way since 1974; President of Cole Associates,
Westfield, NJ shopping center and real estate developers,
07090 1974-1976; President of Seatrain Lines,
Age: 69 Inc., 1970-1974; former General Partner of
Jones & Thompson, international shipping
brokers; Trustee of Pacific Capital Cash
Assets Trust since 1984, of Hawaiian Tax-
Free Trust(this 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 Tax-Free Fund of Colorado, 1987-2000;
Chairman of Cole Group, a financial
consulting and real estate firm, since 1985.
Thomas W. Courtney President of Courtney Associates, Inc.,
Trustee a venture capital firm, since 1988; General
P.O. Box 8186 Partner of Trivest Venture Fund, 1983-1988;
Naples, FL 33941 President of Federated Investment Counseling
Age: 66 Inc., 1975-1982; President of Boston Company
Institutional Investors, Inc., 1970-
1975; formerly a Director of the
Financial Analysts Federation; Trustee
of Hawaiian Tax-Free Trust (this
Trust)and 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 President and Chief Executive Officer of
Trustee OKOA, INC., a private Hawaii corporation
700 Bishop Street involved in real estate; adviser to RAMPAC,
Suite 222 Inc., a wholly owned subsidiary of the Bank
Honolulu, of Hawaii, involved with commercial real
HI 96813 estate finance; Trustee of Hawaiian Tax-Free
Age: 54 Trust (this Trust) since 1992 and 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; Trustee of the University of
Hawaii Foundation, of Hawaii Pacific
University and of The Estate of James
Campbell; Member of the Boards of Aloha
United Way, Boys and Girls Club of
Honolulu and Oceanic Cablevision, Inc
and Chairman of the Real Estate
Committee and Director of Crazy Shirts,
Inc. and Director of Servco Inc., a
diversified company with interests
including distribution and retail sales
of automobiles, office equipment,
consumer appliances and educational
materials.
Stanley W. Hong President and Chief Executive Officer of
Trustee The Chamber of Commerce of Hawaii since
4976 Poola Street 1996; business consultant since 1994;Senior
Honolulu, Hawaii 96821 Vice President of McCormack Properties,Ltd.,
Age: 64 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 Hawaiian Tax-Free Trust
(this Trust) since 1992 and 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 Central Pacific
Bank since 1985 and of Hawaii Public
Television Foundation since 1998;
Trustee of Nature Conservancy of Hawaii
since 1990.
Theodore T. Mason Executive Director of Louisiana
Trustee Power Partners, LLC since 1999
26 Circle Drive, and of East Wind Power Partners
Hastings-on-Hudson, since 1994; First Vice President
NY 10706 of the Alumni Association of SUNY
Age: 64 Maritime College (Second Vice President,
1998-2000) and Director of the same
organization since 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 Capital Cash
Management Trust 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 Hawaiian Tax-Free
Trust (this Trust) and 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; Trustee of
OCC Accumulation Trust and the OCC Cash
Reserves, Inc. since 1999; 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 Executive Director, Hawaii Government
Trustee Employees Association AFSCME Local 152,
888 Miliani Street AFL-CIO since 1981; Trustee of Hawaiian
Suite 601, Tax-Free Trust (this trust) since 1992 and of
Honolulu, HI Pacific Capital Cash Assets Trust, Pacific
96813-2991 Capital Tax-Free Cash Assets Trust and
Pacific Age: 56 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* Retired; Director of Hawaiian Trust
Trustee Company, Limited 1986-1997; Chairman
5061 Maunalani Circle of the Board, 1992-1994 and President,
Honolulu, HI 96816 1986-1992; Director of Victoria Ward,
Age: 68 Limited; Trustee of Pacific Capital
Cash Assets Trust, Pacific Capital Tax-
Free Cash Assets Trust, Pacific Capital
U.S. Government Securities Cash Assets
Trust and Hawaiian Tax-Free Trust (this
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 Director of Hawaiian Electric Industries,
Trustee Inc., a public utility holding company,since
925 Bethel St. 1993; Trustee of the Bernice Pauahi Bishop
Honolulu, HI Estate 1990-1999; Senior Advisor to the
96813 Trustees of The Estate of James Campbell,
Age:68 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 Hawaiian Tax-
Free Trust(this Trust) since 1992 and
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.
Diana P. Herrmann President and Chief Operating Officer of
President the Administrator since 1997, a
380 Madison Director since 1984, Secretary since 1986
Avenue and previously its Executive Vice
New York, President, Senior Vice President
NY 10017 or Vice President, 1986-1997;
Age: 42 President of various Aquila Bond and
Money-Market Funds since 1998; Assistant
Vice President, Vice President, Senior
Vice President or Executive Vice
President of Aquila Money-Market, Bond
and Equity Funds since 1986; Trustee of
a number of Aquila Money-Market, Bond
and Equity Funds since 1995; Trustee of
Reserve Money-Market Funds, 1999-2000
and of Reserve Private Equity Series,
1998-2000; Assistant Vice President and
formerly Loan Officer of European
American Bank, 1981-1986; daughter of
the Trust's Chairman; 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.
Sherri Foster Senior Vice President of Hawaiian
Senior Vice Tax-Free Trust (this Trust) since 1993,
President President, Vice President, 1988-1992
100 Ridge Road and Assistant Vice President, 1985-1988;
Suite 1813-15 Assistant Vice President of Pacific
Lahaina, HI 96761 Capital Cash Assets Trust since 1985
Age: 49 and of Pacific Capital Tax-Free Cash Assets
Trust and Pacific Capital U.S.
Government Securities Cash Assets Trust
since 1988; Vice President of Aquila
Cascadia Equity Fund since 1998;
Registered Representative of the
Distributor since 1985; Realtor-
Associate of Tom Soeten Realty; Sherian
Bender Realty, successor to John Wilson
Enterprises, 1983-1998; Executive
Secretary of the Hyatt Regency, Maui,
1981-1983.
Stephen J. Caridi Vice President of the Distributor since
Vice 1995, Assistant Vice President 1988-1995,
President Marketing Associate, 1986-1988; Vice
380 Madison President of Hawaiian Tax-Free Trust(this
Avenue Trust) since 1998; Senior Vice President of
New York, Narragansett Insured Tax-Free Income Fund since
NY 10017 1998, Vice President since 1996; Assistant Vice
Age: 39 President of Tax-Free Fund For Utah since 1993;
Mutual Funds Coordinator of Prudential
Bache Securities, 1984-1986; Account
Representative of Astoria Federal
Savings and Loan Association, 1979-1984.
Rose F. Marotta Chief Financial Officer of the Aquila
Chief Financial Officer Money-Market, Bond and Equity Funds
380 Madison Avenue since 1991 and Treasurer, 1981-1991;
New York, NY formerly Treasurer of the predecessor of
10017 Capital Cash Management Trust; Treasurer
Age: 76 and Director of STCM Management Company,
Inc., since 1974; Treasurer of InCap
Management Corporation since 1982, of
the Administrator since 1984 and of the
Distributor, 1985-2000.
Richard F. West Treasurer of the Aquila Money-Market,
Treasurer Bond and Equity Funds and of Aquila
380 Madison Avenue Distributors, Inc. since 1992;
New York, NY Associate Director of Furman Selz
10017 Incorporated, 1991-1992; Vice
Age: 64 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.
Lori A. Vindigni Assistant Vice President of Aquila Management
Assistant Treasurer Corporation since 1998, formerly Fund
380 Madison Avenue Accountant for the Aquila Group of Investment
New York, NY since 1995; Staff Officer and Fund Accountant
10017 of Citibank Global Asset Management Group of
Age: 33 Investment Companies, 1994-1995; Fund
Accounting Supervisor of Dean Witter Group of
Investment Companies, 1990-1994; BS Kean
College of New Jersey, 1990.
Edward M. W. Hines Partner of Hollyer Brady Smith Troxell
Secretary Barrett Rockett Hines & Mone LLP,
551 Fifth Avenue attorneys, since 1989 and counsel,
New York, NY 1987-1989; Secretary of the Aquila
10176 Money-Market, Bond and Equity Funds since 1982;
Age: 60 Secretary of Trinity Liquid Assets Trust, 1982-
1985 and Trustee of that Trust, 1985-
1986; Secretary of Oxford Cash
Management Fund, 1982-1988.
John M. Herndon Assistant Secretary of the Aquila Money-
Assistant Secretary Market, Bond and Equity Funds since 1995
380 Madison Avenue and Vice President of the Aquila Money-
New York, NY Market Funds since 1990; Vice President of
10017 the Administrator since 1990; Investment
Age: 60 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.
Robert W. Anderson Compliance Officer since 1998 and Assistant
Assistant Secretary and Secretary of the Aquila Money-Market Funds
Compliance Officer and the Aquila Bond and Equity Funds;
380 Madison Avenue, Consultant, The Wadsworth Group, 1995-1998;
New York, Executive Vice President of Sheffield
NY 10017 Management Company (investment adviser and
Age: 59 distributor of a mutual fund group), 1986-1995.
</TABLE>
The Trust does not currently pay fees to any of the
Trust's officers or to Trustees affiliated with the Adviser or
Administrator. For its fiscal year ended March 31, 2000, the
Trust paid a total of $175,341 in compensation and reimbursement
of expenses to the Trustees. No other compensation or
remuneration of any type, direct or contingent, was paid by the
Trust to its Trustees.
[CAPTION]
<TABLE>
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>
Arthur K.
Carlson $14,900 $64,250 7
William M Cole $13,900 $46,450 5
Theodore T. Mason $14,600 $53,550 7
Vernon Alden $14,600 $56,750 7
Thomas W.
Courtney $14,600 $51,550 5
Richard W
Gushman $15,364 $43,750 4
Stanley W. Hong $14,250 $41,450 4
Russell K. Okata $14,250 $41,450 4
Douglas Philpotts $13,175 $36,350 4
Oswald Stender $14,600 41,800 4
</TABLE>
Certain Trustees are also trustees of the funds in the
Pacific Capital Group of Funds for which the Adviser is also
investment adviser. During the calendar year 1999, these funds
paid the following Trustees the amounts listed: Mr. Gushman,
$16,750; Mr. Hong, $16,750; Mr. Okata, $16,750; Mr. Philpotts,
$16,750; and Mr. Stender, $16,750.
Class A Shares may be purchased without a sales charge by
certain the Trust's Trustees and officers. (See "Reduced Sales
Charges for Class A Shares," below.)
Ownership of Securities
Name and address Number of shares Percent of class
of the holder of
record
Merrill Lynch Pierce
Fenner & Smith, Inc.,
4800 Deer Lake Drive,
Jacksonville, FL 6,161,104 Class A Shares 12%
273,234 Class C Shares 24%
Fiserv Securities Inc.
2005 Market Street
STE 1200
Philadelphia,
PA 19103 3,817,723 Class A Shares 7%
116,087 Class C Shares 10%
(in 5 accounts)
Additional 5% shareholders
Martha N. Steele,
Trustee of the Martha
San Nicholas Steele
Declaration of Trust,
Honolulu,
HI 96817 136,497 Class Y Shares 46.5%
L.T. Miccio and B.A. Annis,
Trustees
1314 Kalakaua Ave.
Honolulu, HI 96826 28,039 Class Y Shares 9.5%
(in 2 accounts)
L.T. Miccio,
Trustee
1314 Kalakaua Ave.
Honolulu, HI 96826 28,031 Class Y Shares 13%
Pacific Century Trust Agent
u/a/w Axel Ornelles
P.O. Box 1930
Honolulu, Hi 96805 36,770 Class Y Shares 12.5%
The Trust's management is not aware of any other person
beneficially owning more than 5% of any class of its outstanding
shares as of such date.
Management Ownership
As of the date of this SAI, all of the Trustees and officers
as a group owned less than 1% of its outstanding shares.
Investment Advisory And Other Services
Information about the Adviser, the Administrator and the
Distributor
Management Fees
During the fiscal years ended March 31, 2000, 1999 and
1998 the Trust incurred Management fees as follows:
Adviser Administrator
2000 $865,171 $1,606,755
1999 $912,501 $1,694,655
1998 $921,605 $1,711,563
Aquila Distributors, Inc. 380 Madison Avenue, Suite 2300,
New York, NY 10017 is the Trust's Distributor. The Distributor
currently handles the distribution of the shares of fifteen funds
(six money-market funds, seven tax-free municipal bond 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.
The shares of the Distributor are owned 72% by Mr.
Herrmann and other members of his immediate family, 24% by Diana
P. Herrmann and the balance by a former officer of the
Distributor.
The Advisory Agreement
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 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 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 provisions as to the
Trust's portfolio transactions described under "Brokerage
Allocation and Other Practices."
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.
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.
The Administrator also provides all administrative services
to the Trust; 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 Administration Agreement provides that the Administrator
shall not be liable for any error in judgment 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.
Underwriting Commissions
During the fiscal years ended March 31, 2000, 1999 and
1998 the aggregate dollar amount of sales charges on sales of
shares in the Trust was $839,462, $917,448 and $976,867
respectively, and the amount retained by the Distributor was
$74,098, $92,410 and $100,914, respectively.
In connection with sales of Class A Shares, the Distributor
pays a portion of the sales charge on such shares to dealers in
the form of discounts and to brokers in the form of agency
commissions (together, "Commissions"), in amounts that vary with
the size of the sales charge as follows:
Sales Charge as
Percentage Commissions
of Public as Percentage
Offering of Offering
Price Price
4.00% 3.00%
3.75% 3.00%
3.50% 2.75%
3.25% 2.75%
3.00% 2.50%
2.50% 2.25%
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 SAI, most of the outstanding shares of
the Trust would be considered Qualified Holdings of various
broker-dealers unaffiliated with the Adviser, Administrator or
Distributor. The Distributor will consider shares which are not
Qualified Holdings of such unrelated broker-dealers to be
Qualified Holdings of the Distributor and will authorize
Permitted Payments to the Distributor with respect to such shares
whenever Permitted Payments are being made under the Plan.
Part I of the Plan applies only to the Front-Payment Class
Shares ("Class A Shares") of the Trust (regardless of whether
such class is so designated or is redesignated by some other
name).
As used in Part I of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements in connection
with Part I ("Class A Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Trust's Front-Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Front-Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Trust's Board of
Trustees, the Trust may make payments ("Class A Permitted
Payments") to Qualified Recipients, which Class A Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Trust (as adjusted for any
part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year), 0.20 of 1% of the average annual net assets of the
Trust represented by the Front-Payment Class Shares. Such
payments shall be made only out of the Trust's assets allocable
to the Front-Payment Class Shares. The Distributor shall have
sole authority (i) as to the selection of any Qualified Recipient
or Recipients; (ii) not to select any Qualified Recipient; and
(iii) 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 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 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 Adviser,
Administrator or 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 1940 Act, of the Trust,
Adviser, Administrator or 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 April 30 next succeeding
such effectiveness, and from year to year thereafter only so long
as such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part I may be terminated at any time by the vote of
a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust to which Part I
applies. Part I may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part I as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class A Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Trust, the Class A Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Trust's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class A Plan Agreements entered into thereafter.
Provisions relating to Class C Shares (Part II)
Part II of the Plan applies only to the Level-Payment
Class Shares ("Class C Shares") of the Trust (regardless of
whether such class is so designated or is redesignated by some
other name).
As used in Part II of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements in connection
with Part II ("Class C Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Trust's Level-Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Level-Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Trust's Board of
Trustees, the Trust may make payments ("Class C Permitted
Payments") to Qualified Recipients, which Class C Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Trust (as adjusted for any
part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year), 0.75 of 1% of the average annual net assets of the
Trust represented by the Level-Payment Class Shares. Such
payments shall be made only out of the Trust's assets allocable
to the Level-Payment Class Shares. The Distributor shall have
sole authority (i) as to the selection of any Qualified Recipient
or Recipients; (ii) not to select any Qualified Recipient; and
(iii) the amount of Class C Permitted Payments, if any, to each
Qualified Recipient provided that the total Class C Permitted
Payments to all Qualified Recipients do not exceed the amount set
forth above. The Distributor is authorized, but not directed, to
take into account, in addition to any other factors deemed
relevant by it, the following: (a) the amount of the Qualified
Holdings of the Qualified Recipient; (b) the extent to which the
Qualified Recipient has, at its expense, taken steps in the
shareholder servicing area with respect to holders of
Level-Payment Class Shares, including without limitation, any or
all of the following activities: answering customer inquiries
regarding account status and history, and the manner in which
purchases and redemptions of shares of the Trust may be effected;
assisting shareholders in designating and changing dividend
options, account designations and addresses; providing necessary
personnel and facilities to establish and maintain shareholder
accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with customer
orders to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts;
furnishing (either alone or together with other reports sent to a
shareholder by such person) monthly and year-end statements and
confirmations of purchases and redemptions; transmitting, on
behalf of the Trust, proxy statements, annual reports, updating
prospectuses and other communications from the Trust to its
shareholders; receiving, tabulating and transmitting to the Trust
proxies executed by shareholders with respect to meetings of
shareholders of the Trust; and providing such other related
services as the Distributor or a shareholder may request from
time to time; and (c) the possibility that the Qualified Holdings
of the Qualified Recipient would be redeemed in the absence of
its selection or continuance as a Qualified Recipient.
Notwithstanding the foregoing two sentences, a majority of the
Independent Trustees (as defined below) may remove any person as
a Qualified Recipient. Amounts within the above limits accrued to
a Qualified Recipient but not paid during a fiscal year may be
paid thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part II is in effect, the Trust's Distributor shall
report at least quarterly to the Trust's Trustees in writing for
their review on the following matters: (i) all Class C Permitted
Payments made under 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 Adviser,
Administrator or 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 1940 Act, of the Trust,
Adviser, Administrator or 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 therein provided,
continue in effect, until the April 30 next succeeding such
effectiveness, and from year to year thereafter only so long as
such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part II may be terminated at any time by the vote of
a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust to which Part II
applies. Part II may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part II as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class C Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Trust, the Class C Plan Agreements with them shall be (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.
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 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. 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 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 Adviser,
Administrator or 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,
Adviser, Administrator or 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 April 30 next succeeding
such effectiveness, and from year to year thereafter only so long
as such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part 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 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 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 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.
During the fiscal years ended March 31, 2000, 1999 and
1998 payments were made only under Part I and Part II of the
Plan. All payments were to Qualified Recipients and were made for
compensation. During those periods, no payments were made under
Part III or Part IV of the Plan.
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, 2000, 1999 and
1998, $1,205,651, $1,282,269 and $1,304,887, respectively, were
paid under Part I of the Plan to Qualified Recipients. Of those
amounts, $68,857, $70,253 and $72,446, respectively, were paid to
the Distributor. All of such payments were for compensation.
During the Trust's fiscal years ended March 31, 2000,
1999 and 1998, $89,904, 63,590 and $43,743, respectively, were
paid to Qualified Recipients under Part II of the Plan with
respect to the Trust's Class C Shares. Together with amounts paid
to it under the Shareholder Services Plan, the Distributor
received $62,688, $45,213 and $52,690., respectively. 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.
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 Conduct Rules 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 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, 2000, 1999 and 1998, $29,968, $21,196 and $14,581
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, 2000.
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, Adviser,
Administrator or 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.
Codes of Ethics
The Trust, the Administrator, the Distributor and
the Adviser (proposed) have adopted codes of ethics pursuant
to Rule 17j-1 under the 1940 Act. The codes permit personnel
of these organizations who are subject to the codes to
purchase securities, including the types of securities in
which the Trust invests, but only in compliance with the
provisions of the codes.
Transfer Agent, Custodian and Auditors
The Trust's Shareholder Servicing Agent (transfer agent)
is PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809.
The Trust's Custodian, Bank One Trust Company, N.A., 100
East Broad Street, Columbus, Ohio 43271, is responsible for
holding the Trust's assets.
The Trust's auditors, KPMG LLP, 757 3rd Avenue, New York,
New York, 10017, perform an annual audit of the Trust's financial
statements.
Brokerage Allocation and Other Practices
During the fiscal years ended March 31, 2000, 1999 and
1998, all of the Trust's transactions were principal transactions
and no brokerage commissions were paid. The following provisions
regarding brokerage allocation and other practices relating to
purchases and sales of the Trust's securities are contained in
the the Advisory Agreement. 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 prices. 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.
During the Trust's fiscal years ended March 31, 2000,
1999 and 1998 all of its transactions were principal transactions
and no brokerage commissions were paid.
Capital Stock
The Trust has four classes of shares.
* 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. 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.
* 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. 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. 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.
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. 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 services fee of 0.25 of 1% of such
assets.
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.
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, whether or not affecting the rights of the
shareholders, 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 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").
Shares are fully paid and non-assessable, except as set forth in
the next paragraph; 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 Trust is an entity of the type commonly known as a
"Massachusetts business trust." 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
does, however, contain an express disclaimer of shareholder
liability for acts or obligations of the Trust. 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 a corresponding
increase in the risk of the shareholder liability mentioned in
the prior sentence.
Purchase, Redemption and Pricing of Shares
The following supplements the information about purchase,
redemption and pricing of shares set forth in the Prospectus.
Sales Charges for Purchases of $1 Million or More of Class A
Shares
You will not pay a sales charge at the time of purchase when
you purchase "CDSC Class A Shares." CDSC Class A Shares are Class
A Shares issued under the following circumstances:
(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 to a single
purchaser in a single purchase when the value of the
purchase, together with the value of the purchaser's
other CDSC Class A Shares and Class A Shares on which a
sales charge has been paid, equals or exceeds $1
million:
See "Special Dealer Arrangements" for other circumstances
under which Class A Shares are considered CDSC Class A Shares.
CDSC Class A Shares do not include: (i)Class A Shares purchased
without a sales charge as described under "General" below and
(ii)Class A Shares purchased in transactions of less than $1
million when certain special dealer arrangements are not in
effect under "Certain Investment Companies" set forth under
"Reduced Sales Charges," below.
Broker/Dealer Compensation - Class A Shares
Upon notice to all selected dealers, the Distributor may
distribute up to the full amount of the applicable sales charge
to broker/dealers. Under the Securities Act of 1933,
broker/dealers may be deemed to be underwriters during periods
when they receive all, or substantially all, of the sales charge.
Redemption of CDSC Class A Shares
If you redeem all or part of your CDSC Class A Shares during
the four years after you purchase them, you must pay a special
contingent deferred sales charge upon redemption.
You will pay 1% of the shares' redemption or purchase
value, whichever is less, if you redeem within the first two
years after purchase, and 0.50 of 1% of that value if you redeem
within the third or fourth year.
This special charge also applies to CDSC Class A Shares
purchased without a sales charge pursuant to a Letter of Intent
(see "Reduced Sales Charges for Certain Purchases of Class A
Shares"). This special charge will not apply to shares acquired
through the reinvestment of dividends or distributions on CDSC
Class A Shares or to CDSC Class A Shares held for longer than
four years. When redeeming shares, the Agent will redeem the CDSC
Class A Shares held the longest, unless otherwise instructed. If
you own both CDSC and non-CDSC Class A Shares, the latter will be
redeemed first.
The Trust will treat all CDSC Class A Shares purchases
made during a calendar month as if they were made on the first
business day of that month at the average cost of all purchases
made during that month. Therefore, the four-year holding period
will end on the first business day of the 48th calendar month
after the date of those purchases. Accordingly, the holding
period may, in fact, be one month less than the full 48 depending
on when your actual purchase was made. If you exchange your CDSC
Class A Shares for shares of an Aquila money-market fund (see
"Exchange Privilege" below), running of the 48-month holding
period for those exchanged shares will be suspended.
Broker/Dealer Compensation - CDSC Class A Shares
The Distributor currently intends to pay any dealer executing a
purchase of CDSC Class A Shares as follows:
Amount of Purchase Amount Distributed
to Broker/Dealer
as a %
of Purchase Price
$1 million but less than $2.5 million 1%
$2.5 million but less than $5 million 0.50 of 1%
$5 million or more 0.25 of 1%
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation
"Single purchasers" may qualify for a reduced sales charge
in accordance with the above schedule when making subsequent
purchases of Class A Shares. A reduced sales charge applies if
the cumulative value (based on purchase cost or current net asset
value, whichever is higher) of Class A Shares previously
purchased with a sales charge, together with Class A Shares of
your subsequent purchase, also with a sales charge, amounts to
$25,000 or more.
Letters of Intent
"Single purchasers" may also qualify for reduced sales
charges, in accordance with the above schedule, after a written
Letter of Intent (included in the Application) is received by the
Distributor. The Letter of Intent confirms that you intend to
purchase, within a thirteen-month period, Class A Shares of the
Trust through a single selected dealer or the Distributor. Class
A Shares of the Trust which you previously purchased within 90
days prior to the Distributor's receipt of your Letter of Intent
and which you still own may also be included in determining the
applicable reduction. For more information, including escrow
provisions, see Letter of Intent provisions of the Application.
General
Class A Shares may be purchased without a sales charge by:
* the Trust's Trustees and officers,
* the directors, officers and certain employees,
retired employees and representatives of the Adviser,
Administrator, Distributor and their parents and/or
affiliates,
* selected dealers and brokers and their officers
and employees,
* certain persons connected with firms providing
legal, advertising or public relations assistance,
* certain family members of, and plans for the
benefit of, the foregoing,
* and plans for the benefit of trust or similar
clients of banking institutions over which these
institutions have full investment authority, if the
Distributor has 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. Since
there may be tax consequences of these purchases, your tax
advisor should be consulted.
Class A Shares may also be issued without a sales charge 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.
A qualified group is a group or association, or a
category of purchasers who are represented by a fiduciary,
professional or other representative, including a registered
broker-dealer that is acting as a registered investment adviser
or certified financial planner for investors participating in
comprehensive fee programs (but not any other broker-dealer),
which
(i) satisfies uniform criteria which enable the
Distributor to realize economies of scale in its costs
of distributing shares;
(ii) 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
(iii) complies with the conditions of purchase that make up
an agreement between the Trust and the group,
representative or broker or dealer.
At the time of purchase, the Distributor must receive
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 without sales
charge from proceeds of a redemption, made within 120 days prior
to such purchase, of shares of an investment company (not a
member of the Aquilasm Group of Funds) on which a sales charge,
including a contingent deferred sales charge, has been paid.
Additional information is available from the Distributor.
To qualify, follow these special procedures:
1. Send a completed Application (included with the
Prospectus) and payment for the shares to be purchased
directly to the Distributor, Aquila Distributors, Inc.,
380 Madison Avenue, Suite 2300, New York, NY
10017-2513. Do not send this material to the address
indicated on the Application.
2. Your completed Application must be accompanied by
evidence satisfactory to the Distributor that you, as
the prospective shareholder, have made a qualifying
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. 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
The Distributor (not the Trust) will pay to any dealer
with which it has made prior arrangements and which effects a
purchase of Class A Shares of the Trust from the proceeds of a
qualifying redemption of the shares of an investment company (not
a member of the Aquilasm Group of Funds) up to 1% of the
purchase. The shareholder, however, will not be subject to any
sales charge.
Dealer payments will be made in up to four payments of
0.25 of 1% of the proceeds over a four-year period. The first
payment will be made subsequent to receipt of the proper
documentation detailed above. Future payments, over the remaining
years, will be made at the end of the quarter of the anniversary
month that the purchase of Class A Shares took place, with
respect to any part of the investment that remains in the Trust
during the entire time period. No payments will be made with
respect to any shares redeemed during the four-year period.
Additional Compensation for Broker/Dealers
The Distributor may compensate broker/dealers, above the
normal sales commissions, in connection with sales of any class
of shares. However, broker/dealers may receive levels of
compensation which differ as between classes of share sold.
The Distributor, not the Trust, will pay these additional
expenses. Therefore, the price you pay for shares and the amount
that the Trust receives from your payment will not be affected.
Additional compensation may include full or partial payment
for:
* advertising of the Trust's shares;
* payment of travel expenses, including lodging, for
attendance at sales seminars by qualifying registered
representatives; and/or
* other prizes or financial assistance to
broker/dealers conducting their own seminars or
conferences.
Such compensation may be limited to broker/dealers whose
representatives have sold or are expected to sell significant
amounts of the Trust's shares. However, broker/dealers may not
use sales of the Trust's shares to qualify for additional
compensation to the extent such may be prohibited by the laws of
any state or 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. 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.
Automatic Withdrawal Plan
You may establish an Automatic Withdrawal Plan if you own or
purchase Class A Shares or Class Y 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 or Class I 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
with the Prospectus.)
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.
Share Certificates
You may obtain Share certificates for full Class A Shares
only if you make a written request to the Agent. All share
certificates previously issued by the Trust represent Class A
Shares. If you lose the certificates, you may incur delay and
expense when redeeming shares or having the certificates
reissued.
Share certificates will not be issued:
* for fractional Class A Shares;
* if you have selected Automatic Investment or
Telephone Investment for Class A Shares; or
* if you have selected Expedited Redemption.
However, if you specifically request, Class A Share
certificates will be issued with a concurrent automatic
suspension of Expedited Redemption on your account.
Share certificates will not be issued for Class C Shares,
Class Y Shares or Class I Shares.
Reinvestment privilege
If you reinvest proceeds of redemption within 120 days of a
redemption you will not have to pay any additional sales charge
on the reinvestment. You must reinvest in the same class as the
shares redeemed. You may exercise this privilege only once a
year, unless otherwise approved by the Distributor.
The Distributor will refund to you any CDSC deducted at the
time of redemption by adding it to the amount of your
reinvestment. The Class C or CDSC Class A Shares purchased upon
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.
Reinvestment will not alter the tax consequences of your
original redemption.
Exchange Privilege
There is an exchange privilege as set forth below among
this Trust, certain tax-free municipal bond funds and 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 Fund. All exchanges are subject to certain
conditions described below. As of the date of the SAI, 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, Capital
Cash U.S. Government Securities 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 Fund 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. Such 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.
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 Fund 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 is 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.
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"); 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 and
Capital Cash U.S. Government Securities Trust (both of which
invest 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.
Conversion of Class C Shares
Conversion of Class C Shares into Class A Shares 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 Bond 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.
"Transfer on Death" ("TOD") Registration (Not Available for
Class I Shares)
Each of the funds in the Aquilasm Group of Funds now permits
registration of its shares in beneficiary form, subject to the
funds' rules governing Transfer on Death ("TOD") registration, if
the investor resides in a state that has adopted the Uniform
Transfer on Death Security Registration Act (a "TOD State"; for
these purposes, Missouri is deemed to be a TOD State). This form
of registration allows you to provide that, on your death, your
shares are to be transferred to the one or more persons that you
specify as beneficiaries. To register shares of the Trust in TOD
form, complete the special TOD Registration Request Form and
review the Rules Governing TOD Registration; both are available
from the Agent. The Rules, which are subject to amendment upon 60
days' notice to TOD account owners, contain important information
regarding TOD accounts with the Trust; by opening such an account
you agree to be bound by them, and failure to comply with them
may result in your shares' not being transferred to your
designated beneficiaries. If you open a TOD account with the
Trust that is otherwise acceptable but, for whatever reason,
neither the Trust nor the Agent receives a properly completed TOD
Registration Request Form from you prior to your death, the Trust
reserves the right not to honor your TOD designation, in which
case your account will become part of your estate.
You are eligible for TOD registration only if, and as long
as, you reside in a TOD State. If you open a TOD account and your
account address indicates that you do not reside in a TOD State,
your TOD registration will be ineffective and the Trust may, in
its discretion, either open the account as a regular (non-TOD)
account or redeem your shares. Such a redemption may result in a
loss to you and may have tax consequences. Similarly, if you open
a TOD account while residing in a TOD State and later move to a
non-TOD State, your TOD registration will no longer be effective.
In both cases, should you die while residing in a non-TOD State
the Trust reserves the right not to honor your TOD designation.
At the date of this SAI, most states are TOD States.
Computation of Net Asset Value
The net asset value of the shares of each of the Trust's
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.
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.
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.
Additional Tax Information
Certain Exchanges
If you incur a sales commission on a 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.
Tax Status of the Trust
During its last fiscal year, the Trust qualified as a
"regulated investment company" under the Internal Revenue Code
and intends to continue such qualification. A regulated
investment company is not liable for federal income taxes on
amounts paid by it as dividends and distributions.
The Internal Revenue Code, however, contains a number of
complex qualifying tests. Therefore, it is possible, although not
likely, that the Trust might not meet one or more of these tests
in any particular year. If the Trust fails to qualify, it would
be treated for tax purposes as an ordinary corporation. As a
consequence, it would receive no tax deduction for payments made
to shareholders and would be unable to pay dividends and
distributions which would qualify as "exempt-interest dividends"
or "capital gains dividends."
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. For redemptions made 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
When Class C Shares automatically convert to Class A Shares,
approximately six years after purchase, you will recognize no
gain or loss. Your adjusted tax basis in the Class A Shares you
receive upon conversion will equal your adjusted tax basis in the
Class C Shares you held immediately before conversion. Your
holding period for the Class A Shares you receive will include
the period you held the converted Class C Shares.
Underwriters
Aquila Distributors, Inc. acts as the Trust's principal
underwriter in the continuous public offering of all of the
Trust's classes of shares. The Distributor is not obligated to
sell a specific number of shares. 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.
(1) (2) (3) (4) (5)
Name of Net Under- Compensation Brokerage Other
Principal writing on Redemptions Commissions Compen-
Underwriter Discounts and sation
and Repurchases
Commissions
Aquila $74,098 None None None(1)
Distributors
Inc.
(1) Amounts paid to the Distributor under the Trust's
Distribution Plan described in the Prospectus are for
compensation.
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 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.
Average Annual Compounded Rates of Return:
Class A Shares Class C Shares Class Y Shares
One Year -4.64% -2.51% -0.56%
Five Years 4.25% N/A N/A
Ten Years 5.63% N/A N/A
Since
inception on
February 20, 7.05% 3.63%(1) 5.34%(1)
1985
(1) Period from April 1, 1996 (inception of class) through March
31, 2000.
These figures were calculated according to the following SEC
formula:
P(1+T)n = 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 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.
Total Return
Class A Shares Class C Shares Class Y Shares
One Year -4.64% -2.51% -0.56%
Five Years 23.12% N/A N/A
Ten Years 72.71% N/A N/A
Since
inception on
February 20, 180.05% 15.33%(1) 22.74%(1)
1985
(1) Period from April 1, 1996 (inception of class) through March
31, 2000.
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 classes of shares 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 8.75% and 45.97%, 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, 2000 (the date of
the Trust's most recent audited financial statements):
Class A Shares Class C Shares Class Y Shares
Yield 4.71% 4.11% 5.10%
Taxable
Equivalent
Yield 8.14% 7.11% 8.82%
These figures were obtained using the Securities and
Exchange Commission formula:
Yield = 2 [(a-b + 1)6 -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.
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND 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.
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.
<PAGE>
HAWAIIAN TAX-FREE TRUST
PART C: OTHER INFORMATION
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, 2000
Statement of Operations for the year ended
March 31, 2000
Statement of Changes in Net Assets for the
years ended March 31, 2000 and 1999
Statement of Investments as of March 31, 2000
Notes to Financial Statements
Included in Part C:
Consent of Independent Certified Public
Accountants
ITEM 23 EXHIBITS
(a) Amended & Restated
Declaration of Trust (ii)
(b) By-laws (v)
(c) Instruments defining rights of shareholders
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.
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.
(d) Investment Advisory Agreement (i)
(e) (i) Distribution Agreement (vi)
(ii) Sales Agreement (for brokerage firms) (iii)
(iii) Sales Agreement (for financial
institutions (iii)
(iv) Sales Agreement (for investment
advisers) (iii)
(v) Group Sales Agreement (iii)
(vi) Related Agreement (iii)
(vii) Services Agreement (ii)
(f) Not applicable
(g) Custody Agreement (iii)
(h) (i) Transfer Agency Agreement (iv)
(ii) Administration Agreement (i)
(iii) Agreement between the Trust and Aquila
Distributors, Inc. (iii)
(iv) Agreement between the Trust and Aquila
Management Corporation (iii)
(v) Agreement between the Trust and
Pacific Century Trust (formerly Hawaiian
Trust Company, Limited) (iii)
(i) (i) Opinion of counsel (iv)
(ii) Consent of counsel (vi)
(j) Consent of Independent Public Accountants (vi)
(k) Not applicable
(l) Not Applicable
(m) (i) Distribution Plan (iv)
(ii) Services Plan (iv)
(iii) Principles of Cooperation (iii)
(n) Plan pursuant to Rule 18f-3
under the 1940 Act (iv)
(o) Reserved
(p) Codes of Ethics
(i) The Trust (vi)
(ii) The Adviser (vi)
(iii) The Distributor (vi)
(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 as an exhibit to Registrant's Post-Effective
Amendment No. 17 dated July 21, 1998 and
incorporated herein by reference.
(v) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 19 dated July 28, 1999 and
incorporated herein by reference.
(vi) Filed herewith.
ITEM 24. Persons Controlled By or Under Common Control with
Registrant
None
ITEM 25. 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 26. 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 27. 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 28. 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 29. Management Services
Not applicable.
ITEM 30. Undertakings
Not applicable.
<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 28th day of July, 2000.
HAWAIIAN TAX-FREE TRUST
(Registrant)
By /s/ Lacy B. Herrmann
Lacy B. Herrmann, 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
____________________ Chairman of 7/28/00
Lacy B. Herrmann the Board and Trustee
(Principal Executive
Officer)
/s/ Vernon Alden
_____________________ Trustee 7/28/00
Vernon Alden
/s/ Arthur K. Carlson
_____________________ Trustee 7/28/00
Arthur K. Carlson
/s/ William M. Cole
_______________________ Trustee 7/28/00
William M. Cole
/s/ Thomas W. Courtney
_______________________ Trustee 7/28/00
Thomas W. Courtney
/s/ Richard W. Gushman, II
_______________________ Trustee 7/28/00
Richard W. Gushman, II
/s/ Stanley W. Hong
_______________________ Trustee 7/28/00
Stanley W. Hong
/s/ Theodore T. Mason
_______________________ Trustee 7/28/00
Theodore T. Mason
/s/ Russell K. Okata
_______________________ Trustee 7/28/00
Russell K. Okata
/s/ Douglas Philpotts
_______________________ Trustee 7/28/00
Douglas Philpotts
/s/ Oswald K. Stender
_______________________ Trustee 7/28/00
Oswald K. Stender
/s/ Rose F. Marotta
_______________________ Chief Financial Officer 7/28/00
Rose F. Marotta (Principal Financial and
Accounting Officer)
<PAGE>
HAWAIIAN TAX-FREE TRUST
Exhibit List
Exhibit Exhibit
Number Description
(i) (ii) Consent of counsel
(j) Consent of Independent Public Accountants
(p) Codes of Ethics
(i) The Trust
(ii) The Adviser
(iii) The Distributor
Correspondence
