<PAGE>
FOUNDER AND ADMINISTRATOR
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
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
INDEPENDENT AUDITORS
KPMG LLP
757 Third Avenue
New York, New York 10017
Further information is contained in the Prospectus,
which must precede or accompany this report.
ANNUAL
REPORT
MARCH 31, 2000
HAWAIIAN
TAX-FREE
TRUST
A TAX-FREE INCOME INVESTMENT
[Logo of Hawaiian Tax-Free Trust: a palm tree in front of a circle which has an
island and water within it]
[Logo of the Aquila Group of Funds: an eagle's head]
ONE OF THE
AQUILASM GROUP OF FUNDS
</PAGE>
<PAGE>
[Logo of Hawaiian Tax-Free Trust: a palm tree in front of a circle which has an
island and water within it]
SERVING HAWAII INVESTORS FOR MORE THAN 15 YEARS
HAWAIIAN TAX-FREE TRUST
ANNUAL REPORT
"WE TAKE SPECIAL CARE TO ENSURE YOUR SAFETY"
May 3, 2000
Dear Fellow Shareholders:
In this topsy-turvy, highly unstable world of the "new economy" and the
"old economy" stock market, we think it is prudent and essential for all
investors to consider investments that have substantially less volatility. We
believe Hawaiian Tax-Free Trust fits into this more stable category.
LESS VOLATILITY - MORE STABILITY
Every now and then, we come across something that triggers a special point
worth considering. This happened to us on a recent trip on United Airlines. When
a pre-flight announcement was made that stated, "WE TAKE SPECIAL CARE TO ENSURE
YOUR SAFETY," that remark brought home to us a point that we practice on a
continuous basis with Hawaiian Tax-Free Trust.
We know from our surveys that many of the shareholders of Hawaiian Tax-Free
Trust are already retired, or are looking forward to retiring. We consider these
shareholders to be a very special group of people. We work very hard to make
sure that we are addressing their needs.
We know that once one is no longer in the work force, it is essential that
very careful attention be paid to whatever financial resources one has. It is
necessary to ensure that these resources really are available when needed. Just
as important, these financial resources must be counted on to produce the kind
of return, on a consistent basis, that our shareholders need.
SAFETY
SAFETY with municipal securities is a very important factor. Management of
your Trust pays considerable attention to this. Just like the United Airlines
announcement, "WE TAKE SPECIAL CARE TO ENSURE YOUR SAFETY," management wants to
make sure that this is the case with all the municipal securities in the Trust.
As you probably know, municipal securities have various credit ratings,
from the highest to the lowest quality. These ratings attempt to measure the
kind of safety and trustworthiness that the securities represent. With Hawaiian
Tax-Free Trust, we specifically limit the credit ratings to those within the TOP
FOUR grades - AAA, AA, A, AND BAA.
This world in which we live is changing extremely rapidly. As a
consequence, we feel it is important for your safety that we ensure that the
majority of securities in the Trust's portfolio are within the TOP TWO credit
grades - AAA AND AA - for your safety. Through our portfolio management, we very
carefully monitor the characteristics of each and every type of investment in
the portfolio. We do not want, or expect, "surprises" from any of the securities
that are in the portfolio of the Trust.
Recently, the marketplace for municipal securities has made it such that
the difference in yield for a AAA or AA credit rating versus a Baa credit rating
is relatively little. Therefore, our approach is to go with the very best.
Obviously, if one can buy securities which provide the very top ratings without
paying any significant premium for them, we prefer to go in that direction.
We want you to know, that at the report date of March 31, 2000, the
combination of AAA and AA securities amounted to almost 83% of the total assets
in the portfolio of your Trust.
Further, as the State of Hawaii has gone through difficult times in the
last several years, we took another step to ensure the safety of investments in
the Trust. This step involved insuring a substantial part of the individual
holdings. In fact, as of March 31st, approximately 69% of the various holdings
in the Trust were insured by specialized insurance companies which by themselves
possess a AAA rating credit.
In this way, we feel that "WE TAKE SPECIAL CARE TO ENSURE YOUR SAFETY."
</PAGE>
<PAGE>
MATURITY OF TAX-FREE MUNICIPAL BONDS
Another factor that we feel is important in building quality for your
investment is the maturity structure of the municipal bonds in the portfolio.
As we have explained to you in the past, longer-term maturity bonds - 20 -
30 years - will usually produce a higher return than shorter-term bonds - 5 - 10
years. However, such longer-term maturity bonds also have a higher degree of
price volatility.
Therefore, we have structured the average maturity of Hawaiian Tax-Free
Trust to be at a somewhat intermediate average maturity level - currently 14
years. This average maturity level is produced by using a "laddered" approach to
the selection of bonds in terms of their maturity. We have a variety of
shorter-term bonds, and a variety of longer-term bonds. However, the overall
average of these maturities run at an intermediate level. In this way, we can
capture a substantial amount of the possible income level available from the
bonds, without exposing the portfolio to an undue level of volatility.
Our goal is to maintain a reasonably high level of STABILITY for the share
net asset value of the Trust. At the same time, we want the Trust to produce the
kind of tax-free return that people want to see from their investment.
This maturity structuring is another strategy that we use in building
quality, safety, and stability into your investment in Hawaiian Tax-Free Trust.
DIVERSIFICATION
As a further measure to ensure your investment's safety, the Trust
intentionally diversifies the municipal bond holdings as much as possible.
As you will note, in reviewing the portfolio, the Trust provides funds
necessary to build the airports, fire stations, schools, harbors, and various
other infrastructure needs of the islands. In this way, Hawaiian Tax-Free Trust
gains the advantage generated by diversification through the financing of
different projects while at the same time helping to build the kind of projects
that make for a better life style for all the residents of Hawaii.
RELIABILITY OF PAYMENTS
We also recognize that a high proportion of our shareholders depend upon
the monthly income from the tax-free cash produced by Hawaiian Tax-Free Trust.
Shareholders want to know that the income from the Trust is there when the time
comes to pay various bills.
Then, too, with those shareholders who reinvest their dividends, they want
to gain the compounding effect of the dividends through these income payments.
Altogether, the quality character of the portfolio ensures that this income
reliability is the case.
To the best of our ability, we want to make sure that the monthly payments
add up to a satisfactory level of income that you can be SURE will be there when
you need it.
YOUR CONFIDENCE IS APPRECIATED
As always, we again wish to express our appreciation for the confidence you
have shown by your investment in Hawaiian Tax-Free Trust. We can assure you that
"WE TAKE SPECIAL CARE TO ENSURE YOUR SAFETY" and that we will continually do our
best to merit your level of trust.
Sincerely,
/s/ Diana P. Herrmann
----------------------
Diana P. Herrmann
President
/s/ Lacy B. Herrmann
---------------------
Lacy B. Herrmann
Chairman, Board of Trustees
</PAGE>
<PAGE>
PERFORMANCE REPORT
The following graph illustrates the value of $10,000 invested in the Class
A shares of Hawaiian Tax-Free Trust for the 10-year period ended March 31, 2000
as compared with the Lehman Brothers Quality Intermediate Municipal Bond Index
and the Consumer Price Index (a cost of living index). The performance of each
of the other classes is not shown in the graph but is included in the table
below. It should be noted that the Lehman Index does not include any operating
expenses nor sales charges and being nationally oriented, does not reflect state
specific bond market performance.
[Graphic of a line chart with the following information:]
<TABLE>
<CAPTION>
Trust's Class A Shares
Lehman Brothers Quality
Intermediate Municipal Bond Index Without Sales Charge With Sales Charge Cost of Living Index
</CAPTION>
<S> <C> <C> <C> <C>
3/90 $10,000 $10,000 $ 9,600 $10,000
3/91 $10,928 $10,744 $10,313 $10,490
3/92 $11,878 $11,724 $11,254 $10,824
3/93 $13,115 $13,004 $12,483 $11,158
3/94 $13,446 $13,494 $12,953 $11,437
3/95 $14,337 $14,074 $13,510 $11,764
3/96 $15,462 $15,069 $14,465 $12,098
3/97 $16,162 $15,754 $15,122 $12,432
3/98 $17,344 $17,245 $16,554 $12,803
3/99 $18,546 $18,128 $17,401 $12,821
3/00 $18,731 $18,012 $17,291 $13,294
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED MARCH 31, 2000
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
Class A (2/20/85)
With Sales Charge (4.64)% 4.25% 5.63% 7.05%
Without Sales Charge (0.64)% 5.10% 6.06% 7.34%
Class C (4/1/96)
With CDSC (2.51)% n/a n/a 3.63%
Without CDSC (1.53)% n/a n/a 3.63%
Class Y (4/1/96)
No Sales Charge (0.56)% n/a n/a 5.34%
Lehman Index 1.00 % 5.50% 6.48% 6.30%* (Class A)
1.00 % n/a n/a 4.91% (Class C&Y)
* From commencement of the index on 1/1/87.
Total return figures shown for the Trust reflect any change in price and assume
all distributions within the period were invested in additional shares. Returns
for Class A shares are calculated with and without the effect of the initial 4%
maximum sales charge. Returns for Class C shares are calculated with and without
the effect of the 1% contingent deferred sales charge (CDSC), imposed on
redemptions made within the first 12 months after purchase. Class Y shares are
sold without any sales charge. The rates of return will vary and the principal
value of an investment will fluctuate with market conditions. Shares, if
redeemed, may be worth more or less than their original cost. A portion of each
classes' income may be subject to Federal and state income taxes and/or the
Federal alternative minimum tax. Past performance is not predictive of future
investment results.
Previously, the Trust's performance was compared to the Lehman Brothers
Municipal Bond Index rather than the Lehman Brothers Quality Intermediate
Municipal Bond Index. A change was made by the Trust because it provides a
better basis of comparison due to the more intermediate nature of the
portfolio's duration. During the Trust's fiscal year ended March 31, 2000, an
investment in the Trust's Class A shares (without sales charge) decreased 0.64%
whereas the Lehman Brothers Quality Intermediate Municipal Bond Index increased
1.00% and the Lehman Brothers Municipal Bond Index decreased 0.08%.
</PAGE>
<PAGE>
MANAGEMENT DISCUSSION
ECONOMY AND FINANCIAL MARKETS
For the fiscal year ended March 31, 2000, the U.S. economy continued to
surge with low unemployment and spectacular performance in the stock market.
Gross domestic product grew at a stunning rate of 7.3% for the 4th quarter of
1999 and the growth rate is expected to remain strong for 2000 albeit at a
slower pace. Concern that financial asset price inflation and the "wealth
effect" may lead to inflation prompted the Federal Reserve to raise the Federal
Funds rate five times, for a total of 1.25%, from 4.75% to 6%. With this
backdrop, the bond market substantially underperformed the stock market. During
this period, the Nasdaq Composite Index had a total return in excess of 86%
compared to the Lehman Government Corporate Bond Index total return of 1.70% and
the Lehman Municipal Bond Aggregate Index return of -0.08%. Longer term bonds
outperformed shorter term bonds as the market perceived that the Federal
Reserve's tightening moves would slow down inflation in the long run. Treasury
bonds outperformed corporate and agency bonds as the Treasury announced that it
would buy back longer term bonds with the budget surplus. This lead to an
inversion of the treasury yield curve with the 2 year treasury yielding a higher
rate than the 30 year treasury bond.
MUNICIPAL MARKET AND FUND PERFORMANCE
For the municipal bond market, the combination of inflation fears, heavy
inventory and negative cashflows for municipal bond funds led to negative
performance for the fiscal year. This negative circumstance was further
aggravated by year-end "tax loss" selling by fund holders and portfolio managers
to offset capital gains. Since year-end and the successful transition of Y2K,
the municipal bond market has improved, helped along by a significant drop in
new issuance (approximately 40% lower compared to the previous year). Under this
challenging environment, the Class A Shares of Hawaiian Tax-Free Trust ended the
fiscal year slightly negative with a total return of -0.64%, comparing very
favorably against the average single state municipal bond fund return of -2.47%
according to Morningstar. This performance ranked the fund in the top 4th
percentile in the Morningstar single state fund universe. The better performance
against the peers is partially attributable to the improved performance of
Hawaii bonds as the State's economy improved.
OUTLOOK AND STRATEGY
In anticipation of further Federal Reserve tightening, we have scaled back
the duration of the Trust. We continue to be commited to the long-term balanced
objectives of high tax exempt income coupled with principal preservation.
Recognizing that, Morningstar has awarded its highest 5-star rating to the
Trust's 5-year performance. The Trust also continues to carry an average
portfolio rating of AAA, with more than 76% of the portfolio holdings rated AAA.
We expect the municipal market to turn in a better performance compared to
last year because of a lack of supply. In addition we believe that the Federal
Reserve's interest rate hikes will work to slow down the economy to preempt
inflationary pressures.
</PAGE>
<PAGE>
[Logo of KPMG LLP: four solid rectangles with the letters KPMG in white in front
of them]
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Hawaiian Tax-Free Trust:
We have audited the accompanying statement of assets and liabilities of
Hawaiian Tax-Free Trust, including the statement of investments, as of March 31,
2000, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of March 31, 2000, by correspondence with the custodian. An
audit also includes assessing the accounting principles used, and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Hawaiian Tax-Free Trust as of March 31, 2000, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles.
KPMG LLP
New York, New York
May 2, 2000
</PAGE>
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
MARCH 31, 2000
<TABLE>
<CAPTION>
RATING
FACE MOODY'S/
AMOUNT HAWAII (96.9%) S&P VALUE
</CAPTION>
<S> <C> <C> <C> <C> <C>
Board of Regents, University of Hawaii University Aaa/AAA
System Revenue Bonds, Series G, AMBAC Insured,
$ 2,910,000 5.650%, 10/01/12 $ 2,953,650
4,290,000 5.700%, 10/01/17 4,306,087
Board of Regents, University of Hawaii University Aaa/AAA
System Revenue Bonds, Series I, FGIC Insured,
1,110,000 5.300%, 10/01/08 1,125,262
2,825,000 5.500%, 10/01/18 2,772,031
Board of Water Supply City and County of Honolulu,Aaa/AAA
Hawaii Water System Revenue Bonds, Series 1996,
MBIA Insured,
1,090,000 5.400%, 07/01/09 1,106,350
1,750,000 5.800%, 07/01/16 1,776,250
1,500,000 5.800%, 07/01/21 1,507,500
City and County of Honolulu Multifamily Housing NR/NR*
Revenue Bonds (Cambridge Park Project) 1988
AMT - Series A,
8,000,000 5.850%, 12/01/02 7,999,680
City and County of Honolulu, Hawaii General Aaa/AAA
Obligation Bonds Series A, FGIC/MBIA Insured+
5,385,000 7.300%, 07/01/03 5,788,875
2,895,000 7.350%, 07/01/05 3,220,688
4,790,000 7.350%, 07/01/06 5,400,725
9,970,000 7.350%, 07/01/07 11,353,338
3,600,000 7.350%, 07/01/08 4,140,000
860,000 6.000%, 11/01/09+ 915,900
1,355,000 6.000%, 11/01/09+ 1,449,850
1,090,000 6.000%, 11/01/10+ 1,158,125
410,000 6.000%, 11/01/10+ 439,725
1,715,000 6.000%, 01/01/11 1,813,613
4,110,000 6.000%, 01/01/11 4,392,563
5,000 5.750%, 04/01/11 5,181
3,995,000 5.750%, 04/01/11 4,189,756
920,000 6.000%, 01/01/12 980,950
1,580,000 6.000%, 01/01/12 1,680,725
775,000 5.750%, 04/01/13 807,937
</PAGE>
<PAGE>
3,025,000 5.750%, 04/01/13 3,123,312
440,000 5.625%, 09/01/14 462,550
1,335,000 5.500%, 11/01/14 1,385,062
2,280,000 5.000%, 11/01/15+ 2,157,450
City and County of Honolulu, Hawaii General Aaa/AAA
Obligation Bonds Series B, FGIC Insured,
1,245,000 5.000%, 11/01/07 1,254,337
2,490,000 5.500%, 10/01/11 2,561,587
7,310,000 5.500%, 10/01/11 7,437,925
930,000 5.000%, 11/01/13 892,800
1,060,000 5.000%, 11/01/14 1,010,975
530,000 5.000%, 11/01/16 497,538
1,400,000 5.000%, 11/01/17 1,305,500
4,490,000 5.000%, 07/01/19 4,046,612
1,395,000 5.000%, 07/01/20 1,245,038
City and County of Honolulu, Hawaii General Aaa/AAA
Obligation Bonds Series C, FGIC Insured,
2,510,000 5.000%, 07/01/18 2,277,825
City and County of Honolulu Hawaii General Aaa/AAA
Obligation Bonds, Refunding and Improvement
Series, 1993B Fixed Rate Bonds, FGIC Insured,
1,050,000 6.000%, 12/01/15 1,102,500
City and County of Honolulu, Hawaii General Aaa/AAA
Obligation Water Bonds, Series 1992,
MBIA Insured,
1,125,000 6.000%, 12/01/12 1,199,531
City and County of Honolulu Improvement District NR/NR*
No. 261 (Halawa Business Park), Improvement
District Bonds,
365,000 6.700%, 10/15/04 385,075
355,000 6.800%, 10/15/05 379,406
290,000 6.900%, 10/15/06 312,113
</PAGE>
<PAGE>
City and County of Honolulu Mortgage Revenue Aaa/AAA
Refunding - FHA District No. 221 Bonds
MBIA FHA Insured
2,865,000 7.800%, 07/01/24 2,961,694
City and County of Honolulu Wastewater Systems Aaa/AAA
Revenue Bonds Second Bond Resolution -
Junior Series FGIC Insured
1,395,000 5.000%, 07/01/12 1,353,150
6,055,000 5.000%, 07/01/23 5,366,244
Kauai County General Obligation Escrowed to A/NR
Maturity Bonds,
615,000 9.000%, 08/01/04 710,325
665,000 9.000%, 08/01/05 787,194
Kauai County General Obligation Bonds Series A, Aaa/AAA
FGIC Insured,
1,000,000 6.125%, 08/01/13 1,056,250
1,010,000 6.250%, 08/01/14 1,071,863
1,000,000 6.250%, 08/01/15 1,047,500
1,000,000 6.250%, 08/01/16 1,052,500
1,275,000 6.250%, 08/01/17 1,338,750
County of Kauai, State of Hawaii General Aaa/AAA
Obligation Refunding Bonds, 1992 Series A, B & C,
AMBAC Insured,
930,000 5.250%, 08/01/01 939,300
330,000 5.450%, 08/01/03 337,012
1,030,000 5.450%, 08/01/03 1,051,887
435,000 5.900%, 08/01/08 458,381
1,355,000 5.900%, 08/01/08 1,427,831
1,300,000 5.950%, 08/01/10 1,374,750
County of Kauai, State of Hawaii General Aaa/AAA
Obligation Refunding Bonds, Series 1994A &
1994B, MBIA Insured,
365,000 5.200%, 02/01/02 368,650
460,000 5.300%, 02/01/03 466,325
</PAGE>
<PAGE>
190,000 5.300%, 02/01/03 192,613
185,000 5.400%, 02/01/04 188,700
215,000 5.500%, 02/01/05 220,644
215,000 5.600%, 02/01/06 221,987
1,010,000 5.700%, 02/01/07 1,042,825
County of Maui, Hawaii General Obligation Aaa/AAA
Refunding Bonds Series A, MBIA Insured,
1,075,000 6.000%, 06/01/15 1,108,594
County of Maui, Hawaii General Obligation Aaa/AAA
Refunding Bonds 1995, FGIC Insured,
930,000 5.050%, 06/01/08 926,512
980,000 5.050%, 06/01/09 973,875
1,040,000 5.150%, 06/01/10 1,034,800
1,100,000 5.200%, 06/01/11 1,091,750
1,160,000 5.200%, 06/01/12 1,146,950
1,230,000 5.200%, 06/01/13 1,205,400
1,300,000 5.250%, 06/01/14 1,272,375
1,380,000 5.250%, 06/01/15 1,342,050
County of Maui, Hawaii General Obligation Aaa/AAA
Refunding Bonds 1993 Series B, 1993 Series C,
1993 Series D, 1993 Series E, FGIC Insured,
1,815,000 5.000%, 09/01/07 1,808,194
2,125,000 5.000%, 09/01/08 2,106,406
1,000,000 5.000%, 09/01/09 988,750
1,000,000 5.000%, 09/01/10 983,750
3,000,000 5.125%, 12/15/11 2,958,750
1,045,000 5.125%, 12/15/13 1,014,956
County of Maui, Hawaii General Obligation 1997 Aaa/AAA
Series A, FGIC Insured,
1,130,000 5.250%, 09/01/13 1,111,637
1,265,000 5.250%, 09/01/15 1,230,212
1,335,000 5.250%, 09/01/16 1,289,944
</PAGE>
<PAGE>
County of Maui, Hawaii General Obligation Aaa/AAA
1998 Series A, FGIC Insured,
1,200,000 5.125%, 03/01/14 1,159,500
1,050,000 5.125%, 03/01/16 1,001,438
2,590,000 5.250%, 03/01/18 2,431,362
Maui County Water System Revenue Pre-Refunded Aaa/AAA
Bonds, FGIC Insured,
1,300,000 6.300%, 12/01/04 1,347,125
1,390,000 6.400%, 12/01/05 1,443,862
1,280,000 6.500%, 12/01/06 1,331,200
1,250,000 6.600%, 12/01/07 1,301,563
1,500,000 6.650%, 12/01/08 1,563,750
1,470,000 6.650%, 12/01/09 1,532,475
1,860,000 6.700%, 12/01/10 1,939,050
1,560,000 6.700%, 12/01/11 1,626,300
Department of Budget and Finance of the State of NR/AA-
Hawaii Special Purpose Revenue Bonds
(Citizens Utilities Company Project),
3,400,000 6.900%, 11/01/15 3,459,500
5,000,000 6.600%, 07/01/22 5,162,500
Department of Budget and Finance of the State of Aaa/AAA
Hawaii Special Purpose Revenue Bonds
(Lutheran Good Samaritan Society Project),
AMBAC Insured,
1,525,000 4.700%, 11/01/06 1,502,125
Department of Budget and Finance of the State of Aaa/AAA
Hawaii Special Purpose Revenue Bonds
(Hawaiian Electric Company, Inc. Series A),
AMBAC Insured,
2,965,000 5.500%, 12/01/14 2,968,706
Department of Budget and Finance of the State of Aaa/AAA
Hawaii Special Purpose Revenue Bonds
(Hawaiian Electric Company, Inc. Series D),
AMBAC Insured,
2,500,000 6.150%, 01/01/20 2,537,500
</PAGE>
<PAGE>
Department of Budget and Finance of the State of Aaa/AAA
Hawaii Special Purpose Revenue Bonds
(The Queens Health System, Series A),
SPA-Morgan Guaranty Trust,
4,500,000 3.800%, 07/01/26 4,500,000
Department of Budget and Finance of the State of Aaa/AAA
Hawaii Special Purpose Revenue Bonds
(The Queens Health System, Series B),
MBIA Insured,
8,000,000 5.250%, 07/01/23 7,240,000
Department of Budget and Finance of the State of Aaa/AAA
Hawaii Special Purpose Revenue Bonds
(The Evangelical Lutheran Good Samaritan
Society), Refunding Series 1993, AMBAC Insured,
700,000 4.400%, 11/01/01 696,500
730,000 4.500%, 11/01/02 727,263
Department of Budget and Finance of the State of Aaa/AAA
Hawaii Special Purpose Revenue Bonds
(Hawaiian Electric Co., Inc., and Subsidiaries
Projects), Series 1995A, MBIA Insured,
13,000,000 6.600%, 01/01/25 13,438,750
Department of Budget and Finance of the State of Aaa/AAA
Hawaii Special Purpose Revenue (Kapiolani
Health Care System) Series 1993, MBIA Insured,
1,000,000 6.300%, 07/01/08 1,053,750
6,000,000 6.400%, 07/01/13 6,292,500
Department of Budget and Finance of the State of Aaa/AAA
Hawaii Special Purpose Revenue (Kapiolani
Health Care System) Series 1996, MBIA Insured,
1,000,000 6.000%, 07/01/11 1,043,750
1,000,000 6.200%, 07/01/16 1,041,250
1,000,000 6.250%, 07/01/21 1,027,500
</PAGE>
<PAGE>
Department of Budget and Finance of the State of Aaa/AAA
Hawaii Special Purpose Revenue Pre-Refunded
Bonds - Kapiolani Health Care System (Pali
Momi Medical Center Project), Series 1991,
11,200,000 7.650%, 07/01/19 11,830,000
Department of Budget and Finance of the State of Aa3/AA
Hawaii Special Purpose Revenue Bonds
(The Queen's Health System), Series A,
5,000,000 6.050%, 07/01/16 4,987,500
8,625,000 6.000%, 07/01/20 8,387,813
3,500,000 5.750%, 07/01/26 3,237,500
Department of Budget and Finance of the State of Aaa/AAA
Hawaii Special Purpose Revenue Bonds
(St. Francis Medical Centers), Refunding Series
1992, FSA Insured,
20,000,000 6.500%, 07/01/22 20,625,000
Department of Hawaiian Home Lands (State of NR/NR*
Hawaii) Revenue Bonds, Series 1991,
745,000 7.000%, 07/01/00 749,254
800,000 7.100%, 07/01/01 821,000
855,000 7.200%, 07/01/02 897,750
915,000 7.300%, 07/01/03 961,894
985,000 7.400%, 07/01/04 1,036,712
1,055,000 7.500%, 07/01/05 1,111,706
1,135,000 7.550%, 07/01/06 1,196,006
1,225,000 7.600%, 07/01/07 1,292,375
1,415,000 7.650%, 07/01/09 1,492,825
1,520,000 7.650%, 07/01/10 1,603,600
1,640,000 7.650%, 07/01/11 1,730,200
Department of Hawaiian Home Lands (State of A3/NR
Hawaii) Revenue Bonds, Series 1999,
1,310,000 4.150%, 07/01/08 1,170,813
1,525,000 4.350%, 07/01/10 1,359,156
1,245,000 4.450%, 07/01/11 1,115,831
</PAGE>
<PAGE>
Department of Transportation of the State of Hawaii NR/A-
Special Facility Revenue Bonds (Matson Terminals,
Inc.), Refunding Series 1993,
11,875,000 5.750%, 03/01/13 11,563,281
Housing Finance and Development Corporation Aaa/AAA
(State of Hawaii) University of Hawaii Faculty
Housing Project, AMBAC Insured,
2,125,000 5.650%, 10/01/16 2,143,594
4,000,000 5.700%, 10/01/25 3,980,000
Housing Finance and Development Corporation A1/NR
(State of Hawaii) Rental Housing System Revenue
Bonds of 1993 Series A,
2,000,000 5.600%, 07/01/12 2,005,000
3,000,000 5.700%, 07/01/18 2,951,250
Housing Finance and Development Corporation Aa1/AA
(State of Hawaii) Single Family Mortgage Purchase
Revenue Bonds, Series B
4,805,000 7.000%, 07/01/31 4,973,175
Housing Finance and Development Corporation Aa1/AA
(State of Hawaii) Single Family Mortgage Purchase
Revenue Bonds, AMT - Series A
8,265,000 6.000%, 07/01/26 8,161,687
Housing Finance and Development Corporation Aa1/AA
(State of Hawaii) Single Family Mortgage
Purchase Revenue Bonds of 1994 Series A & B,
FNMA Insured,
2,500,000 5.700%, 07/01/13 2,512,500
16,750,000 5.850%, 07/01/17 16,833,750
Housing Finance and Development Corporation Aa1/AA
(State of Hawaii) Single Family Mortgage
Purchase Revenue Bonds of 1997 Series A,
FNMA Insured,
19,735,000 5.750%, 07/01/30 18,698,912
</PAGE>
<PAGE>
Housing Finance and Development Corporation Aa1/AA
(State of Hawaii) Single Family Mortgage
Purchase Revenue Bonds of 1997 Series B,
FNMA Insured,
9,350,000 5.450%, 07/01/17 9,127,938
Housing Finance and Development Corporation Aa1/AA
(State of Hawaii) Single Family Mortgage
Purchase Revenue Bonds of 1998 Series B,
FNMA Insured,
6,800,000 5.300%, 07/01/28 6,230,500
Housing Finance and Development Corporation Aa1/AA
(State of Hawaii) Single Family Mortgage
Purchase Revenue Bonds of 1998, AMT -
Series A, FNMA Insured,
4,190,000 5.400%, 07/01/30 3,750,050
County of Hawaii, Hawaii General Obligation Aaa/AAA
Bonds Refunding and Improvement Series 1993A,
FGIC Insured,
1,000,000 5.200%, 05/01/04 1,013,750
2,700,000 5.450%, 05/01/07 2,764,125
3,170,000 5.500%, 05/01/08 3,253,212
2,500,000 5.550%, 05/01/09 2,575,000
4,905,000 5.600%, 05/01/11 5,033,756
1,000,000 5.600%, 05/01/12 1,028,750
1,000,000 5.600%, 05/01/13 1,018,750
County of Hawaii, Hawaii Public Improvement Aaa/AAA
Bonds of 1996 Series A FGIC Insured,
1,440,000 4.500%, 02/01/05 1,405,800
1,900,000 5.000%, 02/01/11 1,854,875
1,970,000 5.100%, 02/01/12 1,928,138
2,205,000 5.200%, 02/01/14 2,147,119
2,440,000 5.200%, 02/01/16 2,327,150
County of Hawaii, General Obligation Bonds - 1999, Aaa/AAA
Series A FSA Insured,
1,000,000 5.400%, 05/15/15 987,500
1,470,000 5.625%, 05/15/18 1,466,325
</PAGE>
<PAGE>
Hawaii Community Development Authority NR/NR*
Improvement District Bonds (Kakaako Community
Development District Improvement District 3),
995,000 7.300%, 07/01/04 1,029,994
1,490,000 7.400%, 07/01/10 1,542,090
Hawaii Community Development Authority NR/NR*
Improvement District Refunding Bonds (Kakaako
Community Development District Improvement
District 1),
245,000 4.850%, 07/01/00 245,169
255,000 5.000%, 07/01/01 254,681
270,000 5.100%, 07/01/02 268,988
280,000 5.200%, 07/01/03 279,300
300,000 5.300%, 07/01/04 299,625
230,000 5.400%, 07/01/05 230,000
Hawaii Community Development Authority NR/NR*
Improvement District Refunding Bonds (Kakaako
Community Development District Improvement
District 2),
325,000 4.850%, 07/01/00 325,224
345,000 5.000%, 07/01/01 344,569
355,000 5.100%, 07/01/02 353,669
375,000 5.200%, 07/01/03 374,062
395,000 5.300%, 07/01/04 394,506
420,000 5.400%, 07/01/05 420,000
435,000 5.500%, 07/01/06 435,544
465,000 5.600%, 07/01/07 466,744
390,000 5.700%, 07/01/08 391,950
State of Hawaii Airport System Revenue Bonds, Aaa/AAA
MBIA/FGIC Insured +,
1,150,000 5.250%, 07/01/00 1,153,393
6,455,000 6.900%, 07/01/12 7,278,013
3,000,000 7.000%, 07/01/18+ 3,120,000
4,025,000 7.000%, 07/01/18 4,186,000
1,000,000 6.750%, 07/01/21 1,032,500
</PAGE>
<PAGE>
State of Hawaii General Obligation Bonds, Aaa/AAA
FGIC Insured,
2,000,000 5.750%, 01/01/11 2,075,000
3,700,000 6.000%, 10/01/11 3,922,000
3,500,000 6.000%, 10/01/12 3,731,875
State of Hawaii General Obligation Bonds of 1997, Aaa/AAA
Series CP, FGIG Insured,
4,195,000 5.000%, 10/01/14 4,000,981
3,000,000 5.000%, 10/01/15 2,838,750
7,195,000 5.000%, 10/01/17 6,709,338
State of Hawaii General Obligation Bonds of 1998, Aaa/AAA
Series CR, MBIA Insured,
5,000,000 5.000%, 04/01/16 4,700,000
State of Hawaii General Obligation Bonds of 1996, Aaa/AAA
Series CM, FGIC Insured,
3,000,000 6.500%, 12/01/15 3,303,750
State of Hawaii General Obligation Bonds of 1997, Aaa/AAA
Series CN, FGIC Insured,
1,000,000 5.250%, 03/01/13 983,750
5,950,000 5.250%, 03/01/15 5,786,375
2,000,000 5.500%, 03/01/16 2,087,500
1,000,000 5.250%, 03/01/17 961,250
State of Hawaii General Obligation Bonds of 1998, Aaa/AAA
Series CR, MBIA Insured,
16,000,000 5.000%, 04/01/17 14,940,000
State of Hawaii General Obligation Refunding Aaa/AAA
Bonds of 1993, Series CH, FGIC Insured,
5,000,000 6.000%, 11/01/07 5,300,000
3,390,000 6.000%, 11/01/08 3,597,638
State of Hawaii General Obligation Refunding Aaa/AAA
Bonds of 1993, Series CH, FGIC Insured,
2,305,000 6.000%, 03/01/11 2,440,419
State of Hawaii Harbor Capital Improvements Aaa/AAA
Revenue Bonds, MBIA Insured,
2,205,000 6.200%, 07/01/08 2,295,956
3,850,000 5.750%, 07/01/17 3,850,000
</PAGE>
<PAGE>
State of Hawaii Harbor Capital Improvements Aaa/AAA
Revenue Bonds, MBIA Insured,
8,000,000 7.250%, 07/01/10 8,209,280
State of Hawaii Harbor Revenue Bonds, Series 1992, Aaa/AAA
FGIC Insured,
3,850,000 6.500%, 07/01/19 3,951,063
State of Hawaii Harbor Revenue Bonds, Refunding Aaa/AAA
Series 1993, FGIC Insured,
1,260,000 6.050%, 07/01/04 1,321,425
1,225,000 6.150%, 07/01/05 1,295,438
State of Hawaii Harbor Revenue Bonds, Series of Aaa/AAA
1994, FGIC Insured,
1,000,000 6.250%, 07/01/09 1,056,250
1,000,000 6.250%, 07/01/10 1,051,250
3,725,000 6.250%, 07/01/15 3,836,750
10,180,000 6.375%, 07/01/24 10,421,775
State of Hawaii Highway Revenue Bonds Series Aaa/AAA
1993, FGIC Insured,
4,000,000 4.875%, 07/01/07 3,970,000
3,900,000 5.000%, 07/01/08 3,890,250
2,255,000 5.000%, 07/01/09 2,235,269
4,575,000 5.000%, 07/01/10 4,489,219
2,220,000 5.000%, 07/01/11 2,161,725
3,850,000 5.000%, 07/01/12 3,734,500
2,750,000 5.000%, 07/01/13 2,650,313
State of Hawaii Highway Revenue Bonds Series Aaa/AAA
1996, FGIC Insured,
3,705,000 5.600%, 07/01/13 3,746,681
2,000,000 5.250%, 07/01/16 1,922,500
State of Hawaii Highway Revenue Bonds AMT - Aaa/AAA
Series A, FSA Insured,
2,000,000 5.750%, 07/01/17 2,000,700
1,500,000 5.900%, 07/01/21 1,496,250
Total Hawaii 571,056,459
</PAGE>
<PAGE>
GUAM (0.3%)
Government of Guam Ltd. Water System Aaa/AAA
Revenue Bonds, FSA Insured,
1,500,000 7.000%, 07/01/09 1,554,030
Total Guam 1,554,030
Total Investments (cost $567,978,724**) 97.2% $ 572,610,489
Other assets in excess of liabilities 2.8 16,616,105
Net Assets 100.0% $ 589,226,594
</TABLE>
* Any security not rated has been determined by the
Investment Adviser to have sufficient quality to be
ranked in the top four credit ratings if a credit
rating were to be assigned by a rating service.
** Cost for Federal tax purposes is identical.
PORTFOLIO ABBREVIATIONS:
AMBAC American Municipal Bond Assurance Corp.
FSA Financial Securities Assurance Co.
FGIC Financial Guaranty Insurance Co.
FHA Federal Housing Administration
FNMA Federal National Mortgage Association
MBIA Municipal Bond Investors Assurance Corp.
See accompanying notes to financial statements.
</PAGE>
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2000
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $567,978,724) $ 572,610,489
Cash 12,116,608
Interest receivable 9,556,029
Receivable for Trust shares sold 345,478
Other assets 7,133
Total assets 594,635,737
LIABILITIES
Payable for investment securities purchased 3,491,978
Dividends payable 654,050
Payable for Trust shares redeemed 633,199
Distribution fees payable 311,643
Adviser and Administrator fees payable 197,958
Accrued expenses 120,315
Total liabilities 5,409,143
NET ASSETS $ 589,226,594
Net Assets consist of:
Capital Stock, no par value, authorized an unlimited number of shares $ 585,988,134
Accumulated net realized loss on investments (3,475,850)
Undistributed net investment income 2,082,545
Net unrealized appreciation on investments 4,631,765
$ 589,226,594
CLASS A
Net Assets $ 574,563,608
Capital shares outstanding 52,541,993
Net asset value and redemption price per share $ 10.94
Offering price per share (100/96 of $10.94 adjusted to nearest cent) $ 11.40
CLASS C
Net Assets $ 11,747,615
Capital shares outstanding 1,074,903
Net asset value and offering price per share $ 10.93
Redemption price per share (*a charge of 1% is imposed on the redemption
proceeds of the shares, or on the original price, whichever is lower,
if redeemed during the first 12 months after purchase) $ 10.93*
CLASS Y
Net Assets $ 2,915,371
Capital shares outstanding 266,228
Net asset value, offering and redemption price per share $ 10.95
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2000
<TABLE>
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 35,311,797
Expenses:
Investment Adviser fees (note 3) $ 865,171
Administrator fees (note 3) 1,606,755
Distribution and service fees (note 3) 1,325,523
Transfer and shareholder servicing agent fees 284,244
Trustees' fees and expenses (note 8) 175,341
Shareholders' reports and proxy statements 87,976
Legal fees 94,080
Custodian fees 49,483
Insurance 27,763
Registration fees and dues 21,324
Audit and accounting fees 23,050
Miscellaneous 37,401
4,598,111
Expenses paid indirectly (note 7) (110,374)
Net expenses 4,487,737
Net investment income 30,824,060
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss from securities transactions (3,474,381)
Change in unrealized appreciation on investments (33,467,709)
Net realized and unrealized loss on investments (36,942,090)
Net decrease in net assets resulting from operations $ (6,118,030)
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
2000 1999
</CAPTION>
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 30,824,060 $ 31,251,960
Net realized gain (loss) from securities transactions (3,474,381) 6,224,420
Change in unrealized appreciation on investments (33,467,709) (4,388,807)
Change in net assets resulting from operations (6,118,030) 33,087,573
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6):
Class A Shares:
Net investment income, tax-exempt (30,170,057) (30,838,116)
Net investment income, taxable - (4,256)
Net realized gain on investments (3,502,240) (2,577,865)
Class C Shares:
Net investment income, tax-exempt (503,244) (339,168)
Net investment income, taxable - (72)
Net realized gain on investments (70,285) (37,852)
Class Y Shares:
Net investment income, tax-exempt (150,344) (99,065)
Net investment income, taxable - (17)
Net realized gain on investments (21,816) (9,383)
Change in net assets from distributions (34,417,986) (33,905,794)
CAPITAL SHARE TRANSACTIONS (NOTE 9):
Proceeds from shares sold 45,576,123 45,134,896
Reinvested dividends and distributions 18,757,851 17,971,550
Cost of shares redeemed (88,026,123) (65,256,694)
Change in net assets from capital share transactions (23,692,149) (2,150,248)
Change in net assets (64,228,165) (2,968,469)
NET ASSETS:
Beginning of period 653,454,759 656,423,228
End of period (including undistributed net
investment income of $2,082,545 and
$2,080,663, respectively) $ 589,226,594 $ 653,454,759
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
HAWAIIAN TAX-FREE TRUST NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Hawaiian Tax-Free Trust (the "Trust"), a non-diversified, open-end
investment company, was organized on May 7, 1984, as a Massachusetts business
trust and commenced operations on February 20, 1985. The Trust is authorized to
issue an unlimited number of shares and, since its inception to April 1, 1996,
offered only one class of shares. On that date, the Trust began offering two
additional classes of shares, Class C and Class Y shares. All shares outstanding
prior to that date were designated as Class A shares and are sold with a
front-payment sales charge and bear an annual service fee. Class C shares are
sold with a level-payment sales charge with no payment at time of purchase but
level service and distribution fees from date of purchase through a period of
six years thereafter. A contingent deferred sales charge of 1% is assessed to
any Class C shareholder who redeems shares of this Class within one year from
the date of purchase. The Class Y shares are only offered to institutions acting
for an investor in a fiduciary, advisory, agency, custodial or similar capacity
and are not offered directly to retail investors. Class Y shares are sold at net
asset value without any sales charge, redemption fees, contingent deferred sales
charge or distribution or service fees. On July 21, 1998, the Trust established
Class I shares, which are offered and sold only through financial intermediaries
and are not offered directly to retail investors. At March 31, 2000, there were
no Class I Shares outstanding. All classes of shares represent interests in the
same portfolio of investments and are identical as to rights and privileges but
differ with respect to the effect of sales charges, the distribution and/or
service fees borne by each class, expenses specific to each class, voting rights
on matters affecting a single class and the exchange privileges of each class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
a) PORTFOLIO VALUATION: Municipal securities which have remaining maturities
of more than 60 days are valued at fair value each business day based upon
information provided by a nationally prominent independent pricing service
and periodically verified through other pricing services; in the case of
securities for which market quotations are readily available, securities
are valued at the mean of bid and asked quotations and, in the case of
other securities, at fair value determined under procedures established by
and under the general supervision of the Board of Trustees. Securities
which mature in 60 days or less are valued at amortized cost if their term
to maturity at purchase was 60 days or less, or by amortizing their
unrealized appreciation or depreciation on the 61st day prior to maturity,
if their term to maturity at purchase exceeded 60 days.
</PAGE>
<PAGE>
b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and losses from
securities transactions are reported on the identified cost basis. Interest
income is recorded daily on the accrual basis and is adjusted for
amortization of premium and accretion of original issue discount. Market
discount is recognized upon disposition of the security.
c) FEDERAL INCOME TAXES: It is the policy of the Trust to qualify as a
regulated investment company by complying with the provisions of the
Internal Revenue Code applicable to certain investment companies. The Trust
intends to make distributions of income and securities profits sufficient
to relieve it from all, or substantially all, Federal income and excise
taxes.
d) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses, are
allocated daily to each class of shares based on the relative net assets of
each class. Class-specific expenses, which include distribution and service
fees and any other items that are specifically attributed to a particular
class, are charged directly to such class.
e) USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
Management affairs of the Trust are conducted through two separate
management arrangements.
Pacific Century Trust (the "Adviser"), a division of Bank of Hawaii, serves
as Investment Adviser to the Trust. In this role, under an Investment Advisory
Agreement, the Adviser supervises the Trust's investments and provides various
services to the Trust, including maintenance of the Trust's accounting books and
records, for which it is entitled to receive a fee which is payable monthly and
computed as of the close of business each day at the annual rate of 0.14 of 1%
of the net assets of the Trust.
The Trust also has an Administration Agreement with Aquila Management
Corporation (the "Administrator"), the Trust's founder and sponsor. Under this
Agreement, the Administrator provides all administrative services, other than
those relating to the management of the Trust's investments. These include
providing the office of the Trust and all related services as well as overseeing
the activities of all the various support organizations to the Trust such as the
shareholder servicing agent, custodian, legal counsel, auditors and distributor.
For its services, the Administrator is entitled to receive a fee which is
payable monthly and computed as of the close of business each day at the annual
rate of 0.26 of 1% of the net assets of the Trust.
</PAGE>
<PAGE>
Specific details as to the nature and extent of the services provided by
the Adviser and the Administrator are more fully defined in the Trust's
Prospectus and Statement of Additional Information.
The Adviser and the Administrator each agrees that the above fees shall be
reduced, but not below zero, by an amount equal to its pro-rata portion
(determined on the basis of the respective fees computed as described above) of
the amount, if any, by which the total expenses of the Trust in any fiscal year,
exclusive of taxes, interest and brokerage fees, shall exceed the lesser of (i)
2.5% of the first $30 million of average annual net assets of the Trust plus 2%
of the next $70 million of such assets and 1.5% of its average annual net assets
in excess of $100 million, or (ii) 25% of the Trust's total annual investment
income. The payment of the above fees at the end of any month will be reduced or
postponed so that at no time will there be any accrued but unpaid liability
under this expense limitation. No such reduction in fees was required during the
year ended March 31, 2000.
For the year ended March 31, 2000, the Trust incurred fees under the
Advisory Agreement and Administration Agreement of $865,171 and $1,606,755,
respectively.
b) DISTRIBUTION AND SERVICE FEES:
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part of
the Plan, with respect to Class A Shares, the Trust is authorized to make
service fee payments to broker-dealers or others ("Qualified Recipients")
selected by Aquila Distributors, Inc. (the "Distributor"), including, but not
limited to, any principal underwriter of the Trust, with which the Distributor
has entered into written agreements contemplated by the Rule and which have
rendered assistance in the distribution and/or retention of the Trust's shares
or servicing of shareholder accounts. The Trust makes payment of this service
fee at the annual rate of 0.20% of the Trust's average net assets represented by
Class A Shares. For the year ended March 31, 2000, service fees on Class A
Shares amounted to $1,205,651, of which the Distributor received $68,857.
Under another part of the Plan, the Trust is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Trust's Class C shares or
servicing of shareholder accounts. These payments are made at the annual rate of
0.75% of the Trust's net assets represented by Class C Shares and for the year
ended March 31, 2000, amounted to $89,904. In addition, under a Shareholder
Services Plan, the Trust is authorized to make service fee payments with respect
to Class C Shares to Qualified Recipients for providing personal services and/or
maintenance of shareholder accounts. These payments are made at the annual rate
of 0.25% of the Trust's net assets represented by Class C Shares and for the
year ended March 31, 2000, amounted to $29,968. The total of these payments made
with respect to Class C Shares amounted to $119,872, of which the Distributor
received $62,688.
Specific details about the Plans are more fully defined in the Trust's
Prospectus and Statement of Additional Information.
</PAGE>
<PAGE>
Under a Distribution Agreement, the Distributor serves as the exclusive
distributor of the Trust's shares. Through agreements between the Distributor
and various broker-dealer firms ("dealers"), the Trust's shares are sold
primarily through the facilities of these dealers having offices within Hawaii,
with the bulk of sales commissions inuring to such dealers. For the year ended
March 31, 2000, total commissions on sales of Class A Shares amounted to
$933,337, of which the Distributor received $90,586.
4. PURCHASES AND SALES OF SECURITIES
During the year ended March 31, 2000, purchases of securities and proceeds
from the sales of securities aggregated $23,554,329 and $68,543,072,
respectively.
At March 31, 2000, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted to
$13,346,121 and gross unrealized depreciation for all securities in which there
is an excess of tax cost over market value amounted to $8,714,356 for a net
unrealized depreciation of $4,631,765.
5. PORTFOLIO ORIENTATION
Since the Trust invests principally and may invest entirely in double
tax-free municipal obligations of issuers within Hawaii, it is subject to
possible risks associated with economic, political, or legal developments or
industrial or regional matters specifically affecting Hawaii and whatever
effects these may have upon Hawaii issuers' ability to meet their obligations.
6. DISTRIBUTIONS
The Trust declares dividends daily from net investment income and makes
payments monthly in additional shares at the net asset value per share, in cash,
or in a combination of both, at the shareholder's option. Net realized capital
gains, if any, are distributed annually and are taxable.
At March 31, 2000 Hawaiian Tax-Free Trust had a capital loss carryover of
approximately $111,200 which expires on March 31, 2008. This amount is available
to offset future net gains on securities transactions to the extent provided for
in the Internal Revenue Code and it is probable the gain so offset will not be
distributed.
The Trust intends to maintain, to the maximum extent possible, the
tax-exempt status of interest payments received from portfolio municipal
securities in order to allow dividends paid to shareholders from net investment
income to be exempt from regular Federal and State of Hawaii income taxes.
However, due to differences between financial statement reporting and Federal
income tax reporting requirements, distributions made by the Trust may not be
the same as the Trust's net investment income, and/or net realized securities
gains. Further, a small portion of the dividends may, under some circumstances,
be subject to taxes at ordinary income and/or capital gain rates. For certain
shareholders, some dividend income may, under some circumstances, be subject to
the alternative minimum tax.
</PAGE>
<PAGE>
7. EXPENSES
The Trust has negotiated an expense offset arrangement with its custodian
wherein it receives credit toward the reduction of custodian fees and other
Trust expenses whenever there are uninvested cash balances. The Statement of
Operations reflects the total expenses before any offset, the amount of offset
and the net expenses. It is the general intention of the Trust to invest, to the
extent practicable, some or all of cash balances in income-producing assets
rather than leave cash on deposit.
8. TRUSTEES' FEES AND EXPENSES
During the fiscal year there were 11 Trustees, one of which is affiliated
with the Administrator and is not paid any trustee fees. Trustees' fees paid
during the year were at the annual rate of $12,400 for carrying out their
responsibilities and attendance at regularly scheduled quarterly Board Meetings.
A meeting of the independent trustees is often held prior to each quarterly
Board Meeting for which each attendee is paid a fee of $350. If additional or
special meetings are scheduled for the Trust, separa te meeting fees are paid
for each such meeting to those Trustees in attendance. The Trust also reimburses
Trustees for expenses such as travel, accomodations, and meals incurred in
connection with attendance at regularly scheduled or special Board Meetings and
at the Annual Meeting and outreach meetings of Shareholders. For the fiscal year
ended March 31, 2000, such reimbursements averaged approximately $2,800 per
Trustee.
9. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Trust were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999
SHARES AMOUNT SHARES AMOUNT
</CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 3,333,838 $ 37,252,026 3,332,950 $ 38,989,739
Reinvested distributions 1,661,522 18,368,221 1,509,482 17,670,897
Cost of shares redeemed (7,378,408) (81,647,430) (5,443,402) (63,676,622)
Net change (2,383,048) (26,027,183) (600,970) (7,015,986)
CLASS C SHARES:
Proceeds from shares sold 401,429 4,566,435 421,329 4,931,665
Reinvested distributions 23,149 255,368 16,958 198,529
Cost of shares redeemed (271,263) (3,027,928) (135,233) (1,580,072)
Net change 153,315 1,793,875 303,054 3,550,122
CLASS Y SHARES:
Proceeds from shares sold 341,620 3,757,662 103,622 1,213,492
Reinvested distributions 12,082 134,262 8,702 102,124
Cost of shares redeemed (309,216) (3,350,765) - -
Net change 44,486 541,159 112,324 1,315,616
Total transactions in Trust
shares (2,185,247) $ (23,692,149) (185,592) $ (2,150,248)
</TABLE>
</PAGE>
<PAGE>
HAWAIIAN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED MARCH 31,
2000 1999 1998 1997 1996
</CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.65 $11.67 $11.23 $11.31 $11.13
Income from Investment Operations:
Net investment income 0.56 0.56 0.57 0.59 0.61
Net gain (loss) on securities (both
realized and unrealized) (0.65) 0.03 0.46 (0.08) 0.18
Total from Investment Operations (0.09) 0.59 1.03 0.51 0.79
Less Distributions (note 6):
Dividends from net investment income (0.55) (0.57) (0.54) (0.58) (0.61)
Distributions from capital gains (0.07) (0.04) (0.05) (0.01) -
Total Distributions (0.62) (0.61) (0.59) (0.59) (0.61)
Net Asset Value, End of Period $10.94 $11.65 $11.67 $11.23 $11.31
Total Return (not reflecting sales charge)(%) (0.64) 5.17 9.37 4.67 7.16
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 574,564 640,131 647,930 640,989 659,925
Ratio of Expenses to Average Net Assets (%) 0.73 0.74 0.73 0.75 0.73
Ratio of Net Investment Income to Average
Net Assets (%) 4.99 4.76 4.96 5.11 5.31
Portfolio Turnover Rate (%) 4 14 9 9 28
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 0.73 0.72
</TABLE>
</PAGE>
<PAGE>
HAWAIIAN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C CLASS Y
YEAR ENDED MARCH 31, YEAR ENDED MARCH 31,
2000 1999 1998 1997 2000 1999 1998 1997
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.65 $11.66 $11.23 $11.31 $11.67 $11.68 $11.24 $11.31
Income from Investment Operations:
Net investment income 0.47 0.46 0.48 0.46 0.58 0.59 0.67 0.74
Net gain (loss) on securities
both realized and unrealized) (0.66) 0.05 0.45 (0.08) (0.66) 0.03 0.45 (0.07)
Total from Investment Operations (0.19) 0.51 0.93 0.38 (0.08) 0.62 1.12 0.67
Less Distributions (note 6):
Dividends from net investment income (0.46) (0.48) (0.45) (0.45) (0.57) (0.59) (0.63) (0.73)
Distributions from capital gains (0.07) (0.04) (0.05) (0.01) (0.07) (0.04) (0.05) (0.01)
Total Distributions (0.53) (0.52) (0.50) (0.46) (0.64) (0.63) (0.68) (0.74)
Net Asset Value, End of Period $10.93 $11.65 $11.66 $11.23 $10.95 $11.67 $11.68 $11.24
Total Return (not reflecting
sales charge) (%) (1.53) 4.45 8.40 3.41 (0.56) 5.45 10.24 6.14
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) 11,748 10,736 7,215 5,367 2,915 2,588 1,278 0.1
Ratio of Expenses to Average Net
Assets (%) 1.53 1.53 1.52 1.53 0.53 0.54 0.52 0.55
Ratio of Net Investment Income
to Average Net Assets (%) 4.18 3.95 4.11 4.04 5.15 4.96 5.02 4.90
Portfolio Turnover Rate (%) 4 14 9 9 4 14 9 9
The expense ratios after giving effect to the expense offset for uninvested
cash balances were:
Ratio of Expenses to Average
Net Assets (%) 1.51 1.49 1.51 1.51 0.51 0.49 0.51 0.53
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
This information is presented in order to comply with a requirement of the
Internal Revenue Code AND NO CURRENT ACTION ON THE PART OF SHAREHOLDERS IS
REQUIRED.
For the fiscal year ended March 31, 2000, $30,782,784 of dividends paid by
Hawaiian Tax-Free Trust, constituting 89.54% of total dividends paid during
fiscal 2000, were exempt-interest dividends; $3,594,338 of dividends paid,
constituting 10.45% of total dividends paid during fiscal 2000, were capital
gain dividends; and the balance was ordinary dividend income.
Prior to January 31, 2000, shareholders were mailed IRS Form 1099-DIV which
contained information on the status of distributions paid for the 1999 CALENDAR
YEAR.
</PAGE>
<PAGE>
SHAREHOLDER MEETING RESULTS (UNAUDITED)
The Annual Meeting of Shareholders of Hawaiian Tax-Free Trust (the "Trust")
was held on October 29, 1999. The holders of shares representing 65% of the
total net asset value of the shares entitled to vote were present in person or
by proxy. At the meeting, the following matters were voted upon and approved by
the shareholders (the resulting votes for each matter are presented below).
1. To elect Trustees.
Number of Votes:
TRUSTEE FOR WITHHELD
Lacy B. Herrmann 411,669,783 3,749,641
Vernon R. Alden 411,574,968 3,844,456
Arthur K. Carlson 411,692,159 3,727,265
William M. Cole 411,918,284 3,153,087
Thomas W. Courtney 412,104,033 2,967,338
Richard W. Gushman, II 411,758,096 3,313,276
Stanley W. Hong 411,125,024 3,946,347
Theodore T. Mason 411,967,728 3,103,643
Russell K. Okata 409,372,694 5,698,677
Douglas Philpotts 411,559,117 3,512,255
Oswald K. Stender 408,846,494 6,224,877
2. To ratify the selection of KPMG LLP as the Trust's independent auditors.
Number of Votes:
FOR AGAINST ABSTAIN
407,541,534 2,791,639 4,738,197
</PAGE>
