As filed with the Securities and Exchange Commission on January 29, 1997
1933 Act File No. 33-17022
1940 Act File No. 811-5321
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. ___ / /
Post-Effective Amendment No. 10 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No.11 |X|
-------------------------
LEAHI INVESTMENT TRUST
---------------------------------------------
(Exact Name of Registrant as Specified in Charter)
210 Ward Avenue, Suite 129, Honolulu, Hawaii 96814
---------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (808) 522-7777
DIANNE J. QUALTROUGH
Leahi Investment Trust
210 Ward Avenue, Suite 129
Honolulu, Hawaii 96814
(Name and Address of Agent for Service)
-------------------------
Approximate Date of Proposed Public Offering:
As soon as practicable following effective date.
-------------------------
It is proposed that this filing become effective:
/ / Immediately upon filing pursuant to paragraph (b),
|X| On February 1, 1997 pursuant to paragraph (b),
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / On (date) pursuant to paragraph (a)(1).
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / On (date) pursuant to paragraph (a)(2), of Rule 485
o This post-effective amendment designates a new effective date for a previously
filed post-effective amendment.
-------------------------
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has registered under the Securities Act of 1933 an indefinite number
of shares of beneficial interest. Registrant filed a Notice under such Rule for
its fiscal year ended September 30, 1996 on or about December 17, 1996.
<PAGE>
LEAHI INVESTMENT TRUST
CROSS-REFERENCE SHEET
FORM N-1A
Part A: Information Required in Prospectus
N-1A Location in the
Item No. Item Prospectus by Heading
1. Cover Page Cover Page
2. Synopsis "Leahi Tax-Free Income Trust,"
" Expense Table"
3. Condensed Financial "Financial Highlights"
Information
4. General Description "Leahi Tax-Free Income
of Registrant Trust," "Objective and Investment
Approach of the Fund," "General
Information"
5. Management of the Fund "Management of the Fund"
5.A. Management Discussion "Discussion of Fund Performance"
of Fund Performance
6. Capital Stock and "Leahi Tax-Free Income Trust,"
Other Securities "Distributions and Tax Information,"
"General Information"
7. Purchase of Securities "How to Invest in the Fund,"
Being Offered "How the Fund's Per Share Value Is
Determined," "General Information"
8. Redemption or Repurchase "How to Sell or Redeem an Investment
in the Fund"
9. Pending Legal Not Applicable
Proceedings
-i-
<PAGE>
Part B: Information Required in
Statement of Additional Information
N-1A Location in the SAI
Item No. Item by Heading
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information "The Trust"
and History
13. Investment Objectives "Investment Objective and
and Policies Policies," "Investment Restrictions,"
Prospectus - "Objective and Investment
Approach of the Fund"
14. Management of the "Trustees and Officers"
Registrant
15. Control Persons and "General Information"
Principal Holders of
Securities
16. Investment Advisory "Promotion and Marketing of
and Other Services Fund Shares," Prospectus -
"Management of the Fund"
17. Brokerage Allocation "Execution of Portfolio Transactions"
18. Capital Stock and "The Trust," "General Information,"
Other Securities Prospectus - "General Information"
19. Purchase, Redemption "Additional Purchase and Redemption
and Pricing of Information," "Determination of Share
Securities Being Offered Price," Prospectus - "How To Invest
in the Fund"
20. Tax Status "Distributions and Tax Information"
21. Underwriters "Promotion and Marketing of Fund Shares"
22. Calculations of Not Applicable
Performance Data
23. Financial Statements Financial Statements
-ii-
<PAGE>
Ward Plaza
210 Ward Avenue
Suite 129
Honolulu, Hawaii 96814
(808) 522-7777
PROSPECTUS
FEBRUARY 1, 1997
LEAHI TAX-FREE INCOME TRUST (the "Fund") is a mutual fund whose
investment objective is to provide investors with the maximum level of income
exempt from federal and Hawaii income taxes, consistent with preservation of
capital. The Fund seeks to achieve its objective by investing primarily in
municipal securities which pay interest exempt from federal and Hawaii income
taxes.
This prospectus sets forth basic information about the Fund that
prospective investors should know before investing. It should be read and
retained for future reference. A Statement of Additional Information dated
February 1, 1997, as may be amended from time to time, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. The
Statement of Additional Information is available without charge upon written
request to the Fund at the address given above.
Page
Expense Table........................................................... 2
Financial Highlights.....................................................3
Discussion of Fund Performance...........................................4
Leahi Tax-free Income Trust..............................................5
Objective And Investment Approach of the Fund.......................... 5
Management of the Fund................................................. 13
How to Invest in the Fund.............................................. 15
How to Sell or Redeem an Investment in the Fund........................ 16
How the Fund's Per Share Value Is Determined.......................... 18
Distributions And Tax Information..................................... 18
General Information.................................................... 20
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
EXPENSE TABLE
The following table of fees and expenses is provided to assist
investors in understanding the various costs and expenses which may be borne
directly by an investor in the Fund. The percentages shown below are based on
actual expenses incurred by the Fund for the fiscal year ended September 30,
1996. Actual expenses in future years may be more or less than those shown
below. For a complete discussion of the fees connected with an investment in the
Fund and the services provided to the Fund, see "How to Invest in the Fund" and
"Management of the Fund".
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases.......................... NONE
Maximum Sales Charge Imposed on Reinvested Dividends............... NONE
Deferred Sales Charge.............................................. NONE
Redemption Fees.................................................... NONE
Exchange Fee....................................................... NONE
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (after waiver and reimbursement)................... 0.50%
12b-1 Fees......................................................... 0.06%*
Other Expenses..................................................... 0.29%
-----
Total Fund Operating Expenses...................................... 0.85%
=====
Example
The following example illustrates the total transaction and operating
expenses that an investor in the Fund will have paid over various time periods
on a hypothetical investment of $1,000 in the Fund, assuming (1) a 5% annual
rate of return and (2) redemption at the end of each time period. As noted in
the table above, the Fund charges no sales charges or redemption fees of any
kind:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$9 $27 $47 $104
This example is based on the annual operating expenses shown above and
should not be considered a representation of future expenses or performance. The
operating expenses are borne by the Fund, and only indirectly by shareholders as
a result of their investment in the Fund. Actual expenses may be greater or
lesser than those shown, and the annual rate of return may be more or less than
5%.
- --------
*12b-1 fees were paid by the Fund during this period for $10,791 reimbursing
expenses incurred in fiscal year 1993 and $17,617 reimbursing expenses incurred
in fiscal year 1994. The maximum amount which could have been paid by the Fund
was 0.25% of average net assets.
-2-
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been selected from the Fund's financial
statements, which have been audited by Tait, Weller & Baker, independent
certified public accountants, whose unqualified report thereon appears in the
Fund's Annual Report to Shareholders for the year ended September 30, 1996, and
is incorporated by reference into this Prospectus.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, 10/26/87*
------------------------------- to
1996 1995 1994 1993 1992 1991 1990 1989 1988**
---- ---- ---- ---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 13.74 $ 13.24 $ 14.42 $ 13.43 $ 12.97 $ 12.27 $ 12.40 $ 12.34 $12.00
------- ------- ------- ------- ------- ------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.70 0.71 0.69 0.71 0.74 0.74 0.79 0.66 0.49
Net gain loss) on securities (both
realized and unrealized) (0.02) 0.50 (1.08) 1.03 0.50 0.70 (0.13) 0.06 0.34
----- ----- ------ ----- ----- ---- ------ ----- ----
Total from investment operations 0.68 1.21 (0.39) 1.74 1.24 1.44 0.66 0.72 0.83
LESS DISTRIBUTIONS
Dividends from net
investment income (0.70) (0.71) (0.69) (0.71) (0.74) (0.74) (0.79) (0.66) (0.49)
Distributions from capital gains --- --- (0.10) (0.04) (0.04) --- --- --- ---
----- ----- ------ ------ ------ ------ ------ ------ -----
Total distributions (0.70) (0.71) (0.79) (0.75) (0.78) (0.74) (0.79) (0.66) (0.49)
----- ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $13.72 $ 13.74 $ 13.24 $ 14.42 $ 13.43 $ 12.97 $ 12.27 $ 12.40 $ 12.34
====== ======= ======= ======= ======= ======= ======= ======= =======
Total Return 5.05% 9.40% (2.76%) 13.34% 9.83% 12.12% 5.40% 6.74% 9.07% **
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) $47,465 $45,537 $43,928 $44,628 $30,950 $20,173 $12,576 $7,104 $5,200
Ratio of expenses to average net
assets 0.85%(b) 0.83%(b) 0.85% 0.98% 1.06% 1.09%(a) 0.89%(a) 1.19% 1.07%
Ratio of net investment income to
average net assets 5.09% 5.30% 5.04% 5.13% 5.60% 5.86%(a) 6.35%(a) 6.06% 6.23% **
Portfolio turnover 17.42% 20.16% 22.05% 12.56% 8.04% 36.78% 31.12% 11.49% 28.16% **
<FN>
(a) Prior to reimbursement from manager, ratio of expenses to average net assets was 1.39% and 1.90% for 1991 and 1990,
respectively, and ratio of net investment income to average net assets was 5.56% and 5.34% for 1991 and 1990, respectively.
(b) Ratio of Expenses to average net assets after the reduction of custodian agreement were 0.83% and 0.82% for 1996 and 1995,
respectively. Prior to 1995, such reductions were reflected in the expense ratios.
* Commencement of operations.
** Figures for Total Return, Ratios and Portfolio turnover are annualized.
</FN>
</TABLE>
-3-
<PAGE>
DISCUSSION OF FUND PERFORMANCE
Below are line graphs comparing the Fund and the broad based national
(state taxable) Lehman Muni Bond Index through the Fund's fiscal year end
September 30, 1996. The objective of the graph is to permit you to compare the
performance of the Fund with the current market, and to give perspective to
market conditions and investment strategies and techniques pursued by the
Investment Manager that materially affected the performance of the Funds. While
remaining a high quality portfolio, the Fund, under the direction of the
Investment Manager, has been converting from shorter duration, pre-refunded
issues to mid- to long-term holdings for more flexibility in a volatile interest
rate environment . Such rebalancing, in the opinion of the Investment Manager,
will help protect the Fund from movements in interest rates such as reduced the
Fund's total return for the last year from that of the previous year. Also,
below are Leahi's average annual total returns for the one-year, five-year and
inception through September 30, 1996 periods.
The graph below compares the increase in value of a $10,000 investment
in Leahi Tax-Free Income Trust with the performance of the Lehman Muni Bond
Index. The values are as of September 30th for each of the last nine years and
include reinvested dividends. The Lehman Brothers Index reflects investment of
"dividends," but not the expenses of the Fund.
[GRAPHIC OMITTED]
Plot points for mountain chart showing the information contained in the
following table. The exact dollar amounts at 9/96 are specified in the body of
the chart.
<TABLE>
<CAPTION>
9/88 9/89 9/90 9/91 9/92 9/93 9/94 9/95 9/96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Leahi Tax-Free Income Trust 10,848 11,579 12,204 13,684 15,029 17,033 16,562 18,120 19,036
Lehman Muni Bond Index 11,237 12,182 12,988 14,604 15,930 17,855 17,553 19,323 20,609
</TABLE>
Average Annual Total Return
1 Year 5 Year Inception
5.05% 6.82% 7.47%
Past performance is not a prediction of future performance.
-4-
<PAGE>
LEAHI TAX-FREE INCOME TRUST
The LEAHI TAX-FREE INCOME TRUST (the "Fund") is a series of the Leahi
Investment Trust (the "Trust"), a Massachusetts business trust organized as an
open-end, non-diversified management investment company offering redeemable
shares of beneficial interest. Shares of the Fund may be purchased at their
current net asset value with no sales charge by mailing a completed Account
Application, together with a check payable to Leahi Tax-Free Income Trust, as
indicated in the Account Application. The minimum initial investment is $1,000,
with subsequent investments of $50 or more. See "How to Invest in the Fund".
OBJECTIVE AND INVESTMENT APPROACH OF THE FUND
The investment objective of the Fund is to provide investors with the
maximum level of income exempt from federal and Hawaii income taxes, consistent
with preservation of capital. The Fund seeks to achieve its objective by
investing primarily in municipal securities which pay interest that is exempt
from federal and Hawaii income taxes ("Hawaii Municipal Securities"). Hawaii
Municipal Securities include general obligation and revenue bonds and notes of
issuers located in Hawaii, as well as
obligations issued by or under the authority of Guam, Puerto Rico, and the
Virgin Islands. The Fund expects that at least a majority of its assets will be
invested in municipal securities of issuers located in Hawaii. There are no
limitations on the maturities of the securities which the Fund may purchase.
There is, of course, no assurance that the Fund's objective will be
achieved, and the Fund's net asset value per share will fluctuate with changes
in the market value of its investment portfolio.
Investment Grade Securities. The Fund will invest solely in securities
which, at the time of purchase, are either rated within the four highest grades
assigned by Moody's Investors Service, Inc. ("Moody's) or Standard & Poor's
Corporation ("S&P") or, if unrated, are judged by Leahi Management Company,
Inc., the Fund's investment manager ("Investment Manager"), to be of comparable
quality to such rated securities. Municipal obligations rated in the fourth
highest grade are considered by such rating agencies to have some speculative
characteristics and thus may present investment risks not present in more highly
rated obligations. An Appendix to the Statement of Additional Information
contains a complete description of the municipal securities ratings of Moody's
and S&P.
Characteristics of Municipal Securities. Municipal securities include
debt obligations issued to obtain funds for various public purposes, including
construction of a wide range of public facilities such as bridges, highways,
housing, hospitals, mass transportation, schools, streets, and water and sewer
works. Other public purposes for which municipal securities or bonds may be
issued include the refunding of outstanding obligations, the obtaining of funds
for general operating expenses and the obtaining of funds to loan to other
public institutions and facilities. In addition, certain types of industrial
development bonds are or have been issued by or on behalf of public authorities
-5-
<PAGE>
to obtain funds to be provided to privately operated housing facilities, sports
facilities, convention or trade show facilities, airport, mass transit, port or
parking facilities, air or water pollution control facilities and certain local
facilities for water supply, gas, electricity or sewage or solid waste disposal.
Bonds issued after the effective date of the Tax Reform Act of 1986 for some of
these purposes, such as sports, convention or trade show, and parking
facilities, do not pay interest that is excludable from gross income for federal
income tax purposes. The Fund will limit its purchase of industrial development
bonds, however, to those the interest on which is exempt from regular federal
income tax, although the interest on certain of such bonds may be subject to the
alternative minimum tax. See "Distributions and Tax Information."
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
pledge of the credit and taxing power of the issuing municipality for the
payment of principal and interest. Revenue bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or specific revenue source.
Industrial development bonds are a form of revenue bond and do not generally
constitute the pledge of the credit of the issuer of such bonds.
Other types of municipal securities include tax anticipation notes,
revenue anticipation notes, bond anticipation notes, and variable rate demand
notes. Specific information concerning these and other forms of municipal
securities is described in the Statement of Additional Information section
entitled, "Investment Objective and Policies - Municipal Securities."
It is possible that the Fund from time to time will invest more than
25% of its assets in a particular segment of the municipal securities market,
such as hospital revenue bonds, housing agency bonds, industrial development
bonds or airport bonds, or in securities the interest on which is paid from
revenues of a similar type of project. In such circumstances, economic,
business, political or other changes affecting one bond (such as proposed
legislation affecting the financing of a project, shortages or price increases
of materials, or declining markets or needs for the project) might also affect
other bonds, thereby potentially increasing market risk.
The Fund may purchase floating rate and variable rate obligations.
These obligations bear interest at rates that are not fixed, but that vary with
changes in specified market rates or indices on a predetermined schedule. These
obligations generally carry a demand feature that permits the Fund to tender
them back to the issuer or a third party at par value prior to maturity plus
accrued interest, which amount may be more or less than the amount the Fund paid
for them. The Fund will limit its purchase of municipal securities that are
floating rate and variable rate obligations to those meeting the quality
standards set forth above. Frequently such obligations are secured by letters of
credit or by other credit enhancement arrangements provided by banks. The
quality of the underlying creditor or of the bank, as the case may be, must be
equivalent to the quality standards set forth above as determined by the Fund's
-6-
<PAGE>
Investment Manager under the supervision of the Trust's Board of Trustees. In
addition, the Investment Manager monitors the earning power, cash flow and other
liquidity ratios of the issuers of such obligations, as well as the credit
worthiness of the institution responsible for paying the principal amount of the
obligation under the demand feature.
The Fund may also invest more than 25% of its assets in participation
interests purchased from banks in floating or variable rate municipal securities
(such as industrial development bonds) owned by banks. Participation interests
carry a demand feature permitting the Fund to tender them back to the bank. Each
participation generally is backed by an irrevocable letter of credit or
guarantee of a bank which the Investment Manager, acting under the supervision
of the Trust's Board of Trustees, has determined meets the prescribed quality
standards for the Fund. The Fund will only invest in such participation
interests to the extent that an opinion of counsel supports the characterization
of interest of such securities as tax-exempt. Only participation interests
issued by Federal Deposit Insurance Corporation ("FDIC") insured banks or
savings institutions having at least $1 billion in assets may be purchased by
the Fund. See the Statement of Additional Information section entitled
"Investment Objectives and Policies - Other Municipal Securities" for more
information.
For the purpose of providing greater liquidity in its portfolio, the
Fund may purchase municipal securities from banks, brokers or dealers, and other
financial institutions (such as insurance or other investment companies),
together with puts to sell the municipal security within a specified period of
time and at a specified exercise price. Because of the put feature on such
municipal securities, the prices of the securities may be higher and the yields
lower than they otherwise would be. With respect to 75% of the total value of
the Fund's assets, no more than 5% of such value may be in securities underlying
puts issued by the same institution, except that the Fund may invest up to 10%
of its asset value in unconditional puts (exercisable even in the event of a
default in the payment of principal or interest on the underlying security) and
other securities issued by the same institution.
General Policies. The Fund, under normal market conditions, will
attempt to invest 100% and, as a matter of fundamental policy, will invest at
least 80% of the value of its net assets in securities the interest on which is
exempt from regular federal and Hawaii income taxes and is not subject to the
federal alternative minimum tax. Thus, it is possible that under normal market
conditions up to 20% of the Fund's net assets could be invested in municipal
securities from other states (which would generate income not exempt from Hawaii
income taxes), Hawaiian or other municipal securities the interest on which is a
tax preference item under the federal alternative tax, U.S. Treasury
obligations, high quality commercial paper, obligations of U.S. banks (including
commercial banks and savings institutions insured by the FDIC) with assets of $1
billion or more, and repurchase agreements secured by U.S. Government
securities. (Some of the foregoing investments generate income that would be
subject to both federal and Hawaii income taxes when distributed to the Fund's
shareholders).
-7-
<PAGE>
For temporary defensive purposes only, the Fund may invest up to 100%
of its assets in (i) obligations issued or guaranteed by the full faith and
credit of the U.S. Government, its agencies, instrumentalities or authorities,
highest rated commercial paper, certificates of deposit of domestic banks with
assets of $1 billion or more, and repurchase agreements (subject to the
limitations described below), the interest on which is subject to federal and
may be subject to Hawaii income taxes; and (ii) securities the interest on which
is exempt from regular federal income taxes but not Hawaii's income taxes, such
as municipal securities issued by other states and their agencies and
instrumentalities.
Repurchase Agreements. The Fund may enter into repurchase agreements in
order to earn additional income on available cash or as a temporary defensive
investment. Under such agreements, the Fund invests in eligible U.S. Government
securities and the seller agrees to repurchase them at a mutually agreed time
and price. Income from repurchase agreements is taxable. It is anticipated that
the Fund will invest less than 5% of its net assets at any given time in
repurchase agreements.
When-Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when- issued or delayed delivery basis, for payment and delivery
at a later date. The price and yield are generally fixed on the date of
commitment to purchase, and the value of the security is thereafter reflected in
the Fund's net asset value. During the period between purchase and settlement,
the market value of the security may be more or less than the purchase price.
The Fund may forego other investment opportunities pending consummation of such
transactions and such transactions are subject to the risk of the other party
failing to consummate the transaction. When the Fund purchases securities on a
when- issued or delayed delivery basis, it maintains a segregated account with
its custodian bank in an amount equal to the purchase price as long as the
obligation to purchase continues.
Portfolio Turnover. The annual rate of portfolio turnover is generally
anticipated to be less than 100%. See the Statement of Additional Information
section entitled "Execution of Portfolio Transactions" for more information.
The Fund has adopted certain investment restrictions, which are
described fully in the Statement of Additional Information. One of these
restrictions states that the Fund may borrow money from banks only for
extraordinary or emergency purposes in amounts not to exceed 25% of the Fund's
assets, and that additional investments may not be made while any such
borrowings are in excess of 5% of the Fund's assets. Like the Fund's investment
objective, this restriction is fundamental and may be changed only by a majority
vote of the Fund's outstanding shares.
Special Considerations. An investment in shares of the Fund may not be
considered appropriate for all investors and should not be considered a complete
investment program. Each prospective investor should take into account his or
her own investment objectives as well as the investor's other investments when
considering the purchase of shares of the Fund.
-8-
<PAGE>
While the Fund is a non-diversified investment company under the
Investment Company Act of 1940 (the "1940 Act"), the Fund intends to comply with
the diversification standards applicable to regulated investment companies under
the Internal Revenue Code of 1986, as amended (the "Code").
As of the last day of each fiscal quarter, the Fund intends that its
investments in the securities of any one issuer (other than the U.S. Government)
will be limited to 25% of its total assets, and, with respect to at least 50% of
its total assets, the Fund may not have more than 5% of its assets invested in
the securities of any one issuer or hold more than 10% of the outstanding voting
securities of any one issuer. To the extent the Fund is not diversified for
purposes of the 1940 Act, it may be more susceptible
to adverse developments affecting a single issuer. Each political subdivision,
agency, or instrumentality and each multistate agency of which Hawaii (or a
territory) is a member, and each public authority which issues industrial
development bonds on behalf of a private entity, will be regarded as a separate
issuer for determining the diversification of the Fund's portfolio.
The Fund is subject to the risk of price fluctuation of the municipal
securities held in its portfolio which is generally a function of the underlying
credit rating of an issuer, the maturity length of the securities, the
securities' yield, and general economic and interest rate conditions. Yields on
municipal securities vary depending on a variety of factors, including the
general condition of the financial markets and of the municipal securities
market, the size of a particular offering, the maturity of the obligation and
the credit rating of the issue. Generally, municipal securities of longer
maturities produce higher current yields but are subject to greater price
fluctuation due to changes in interest rates, tax laws, and other general market
factors than are municipal securities with shorter maturities. Similarly, lower
rated municipal securities generally produce a higher yield with shorter
maturities than better rated municipal securities due to the perception of a
greater degree of risk as to the ability of the issuer to pay principal and
interest obligations.
The values of outstanding municipal securities will change in response
to changes in the interest rates payable on new issues of municipal securities.
Should such interest rates rise, the value of the outstanding securities,
including those held in the Fund's portfolio, will likely decline and would sell
at a discount from face amount, and if such interest rates fall, the value of
outstanding securities will likely increase and would sell at a premium to face
amount. Changes in the value of municipal securities held in the Fund's
portfolio arising from these or other factors will cause changes in the net
asset value per share of the Fund.
Certain restrictions exist on the use of tax-exempt bond financing for
various non-governmental activities. These restrictions may limit the supply of
tax-exempt obligations available for investment.
State of Hawaii. The ability of the Fund to meet its objective is
affected by the ability of the issuers of the Fund's portfolio securities to
meet their payment obligations. There are additional risks associated with an
investment which concentrates in issues of one state. Since the Fund invests
-9-
<PAGE>
primarily in obligations of issuers located in Hawaii, the marketability and
market value of these obligations may be affected by certain Hawaiian
constitutional provisions, legislative measures, executive orders,
administrative regulations, voter initiatives, and other political and economic
developments. If any such problems arise, they could adversely affect the
ability of various Hawaiian issuers to meet their financial obligation.
The Hawaiian economy is concentrated in tourism, agriculture and food
processing, construction and military operations. The Hawaiian economy has been
undergoing a slow recovery. This economic recovery continued in the second
quarter of 1996. The State of Hawaii Department of Business, Economic
Development and Tourism ("DBEDT") recently forecasted a continued recovery.
While DBEDT has projected growth of jobs and personal income of 0.0% and 2.7%,
respectively, for 1996, the outlook for 1997 and beyond is more optimistic. As
the slow economic expansion continues, the State economy is currently expected
to grow 2.6% in 1997, slightly better than the forecast for the U.S as a whole.
Tourism is Hawaii's largest economic sector. In 1992 and 1993, due
largely to the recession in the U.S., total visitor arrivals to the State fell .
Signs of recovery in this key economic sector appeared in 1994, however, with
four solid quarters of growth in visitor arrivals. While growth in visitor
arrivals slowed some in the first part of 1995, total arrivals increased
approximately 3% for calendar 1995. This growth continued during the first half
of calendar 1996, with total visitor arrivals increasing 6.3% from the previous
year. Supply constraints presented by the airline industry continues to pose a
risk for the tourism-based economy. Reflecting the increase in visitor arrivals,
transient accommodation tax ("TAT") revenues and the general excise tax base for
hotel services increased 18.7% and 11.4%, respectively, for the first half of
the year.
Agriculture is dominated by pineapple and sugar production, and has
experienced increased domestic and foreign competition resulting in downsizing
of the industries. Agricultural production has become somewhat more diversified
and now includes cattle, poultry, vegetables, coffee, flowers and other nursery
products, but the agriculture sector continues to decline. Other economic
diversification projects are underway, including expansion of containerized port
facilities and aquaculture (both experimental and with limited commercial
production).
The agriculture and food processing industries have shown improvement.
The general excise tax for producing increased 14.7% in the second quarter of
1996, relative to the year-earlier figure. This was the largest annual growth in
the quarterly figure since the third quarter of 1993. For the first half of
1996, agricultural wage and salary jobs were 4.3% higher than in the first half
of 1995.
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<PAGE>
The general excise tax base for contracting grew by 6.7% in the second
quarter over the year- earlier quarter and by 6.5% from the first half of 1995
to the first half of 1996. These were the highest annual rates of growth for
either a quarter or a half year since 1991. On the other hand, the number of
wage and salary jobs in the industry continued to fall from 26,200 in the second
quarter of 1995 to 24,200 in 1996, a 7.6% drop. For the first half of 1996,
construction jobs were 7% lower than in the year earlier.
Despite growth in key sectors of the economy, the number of
non-agricultural wages and salary jobs declined 1.0% in the first half of 1996,
a loss of more than 5,300 jobs. Most of the loss in jobs was due to the
restructuring of the State government and the decline in construction jobs. In
contrast, the number of jobs in agriculture rose from an average of 7,000 jobs
in the first half of 1995 to 7,300 jobs in the first half of 1996. The hotel
industry also added 1,000 jobs, from an average of 37,800 jobs in the first half
of 1995 to 38,800 jobs in the first half of 1996, or an increase of 2.6%. The
unemployment rate at the end of the second quarter of 1996 was 6.2%, slightly
higher than the rate at the same time in
the prior year.
Governmental activities, including activities usually administered on a
municipal or county level such as public education, libraries, hospitals and
public welfare are the responsibility of the State. This concentration
aggravates an otherwise high level of state debt obligations. Revenue is derived
primarily from excise taxes and individual and corporate income tax. The
constitution limits tax- supported debt service to 18.5% of average General Fund
revenues in the three fiscal years preceding any issuance.
The State's historically strong financial position weakened in 1992 as
the recession reduced growth in sales and income taxes. Continued sluggish tax
receipts led to a continued decline in the state's unreserved general fund
position. General fund revenues fell approximately 1.1% for the fiscal year
ended June 30, 1995. Real gross state product increased by 2.5% in 1994 and 2.4%
in 1995. During the period of September 1994 through December 1995, General Fund
revenue forecasts were reduced by a total of $619 million for the 2-1/2 year
period from December 1994 through June 1997. The General Fund balance for FY
1995 fell below 5% of General Fund revenues for the first time in many years,
therefore the State legislature did not provide for any tax refund or credit for
the 1996 tax year.
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<PAGE>
The important of the revised revenue estimated on the budget prompted
the administration to pursue additional measures to reduce expenditures and
enhance revenues. Executive departments were required to cut $139 million in FY
1996. A permanent reduction in the size of the State government was undertaken
in FY 1996. For the General Fund, approximately 550 filled and 620 vacant
permanent and temporary positions were eliminated. Additional savings and
revenues may be realized from the early retirement program instituted by the
State in FY 1995, transfers of excess funds from special and revolving funds and
the resolution of protested insurance premium taxes. By the end of FY 1996, the
State's financial condition improved slightly. Revenue collections totaled
$3.194 billion and exceeded expenditures by $70 million. The fund balance rose
to $161 million, or 5% of revenues.
For the 1997 fiscal year, the administration proposed that executive
departments carry their 1996 cuts over to 1997. These cuts, together with other
reductions to the FY 1997 budget, resulted in the 1997 General Fund budget being
reduced by $172 million from $3.247 billion to $3.075 billion.
Hawaii's general obligation bonds are rated Aa by Moody's and AA by
S&P. Fitch does not currently rate the State's general obligations.
The State is currently involved in litigation in connection with the
lands transferred to the U.S. by the Republic of Hawaii at Hawaii's annexation
to the U.S. in 1898 ("Ceded Lands"). Ceded Lands are currently held by the State
as a public trust for certain defined purposes. The litigation concerns amounts
of proceeds and income from such Ceded Lands that were to be paid to the Office
of Hawaiian Affairs to be used for the betterment of native Hawaiians. The State
is also involved in certain other litigation.
Commonwealth of Puerto Rico. Subject to the Fund's investment policies,
the Fund may invest in the obligations of the government of Puerto Rico.
Accordingly, the Fund may be adversely affected by local political and economic
conditions and developments within Puerto Rico affecting the issuers of such
obligations.
Puerto Rico has a diversified economy dominated by the manufacturing
and service sectors. Puerto Rico's gross domestic product ("GDP") increased by
3.4% in fiscal year 1996 compared to growth of 3.4% during the previous fiscal
year. Growth is expected to fall to about 2.2% in the 1992 fiscal year .
Manufacturing is currently the largest sector in terms of gross domestic product
and is more diversified than during earlier phases of Puerto Rico's industrial
development. The three largest sectors of the economy (as a percentage of
employment) are services, government and manufacturing. The North American Free
Trade Agreement (NAFTA), which became effective January 1, 1994, could lead to
the loss of Puerto Rico's lower salaried or labor intensive jobs to Mexico.
Puerto Rico's unemployment rate of approximately 15.6% in December 1996, is
almost triple the national average.
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<PAGE>
The Commonwealth of Puerto Rico exercises virtually the same control
over its internal affairs as do the fifty states; however, it differs from the
states in its relationship with the federal government. Most federal taxes,
except those such as social security taxes that are imposed by mutual consent,
have not been levied in Puerto Rico. However in August 1996, Congress eliminated
Section 936 of the Code . Section 936 provided tax-free income to U.S. companies
operating in Puerto Rico. Current beneficiaries of Section 936 will not be
effected immediately as the benefits, already limited by Congress in 1993, are
to be phased out over ten years. No benefits at all will accrue for new
investments. The elimination and phase-out of benefits will likely cause a shift
in the economy away from manufacturing and toward services such as tourism and
high-technology industries and will probably slow economic growth. Damage and
losses caused by hurricane Hortense will aggravate the slowdown. There can be no
assurance that the abolition of Section 936 benefits will not lead to a weakened
economy, a lower rating on Puerto Rico's debt or lower prices for Puerto Rican
bonds that may be held by the Fund.
Puerto Rico's financial reporting was first conformed to generally
accepted accounting principles in fiscal 1990. Nonrecurring revenues have been
used frequently to balance recent years' budgets. In November 1993 Puerto Ricans
voted on whether they wished to retain their Commonwealth status, become a state
or establish an independent nation. The measure was defeated, with 48.5% voting
to remain a Commonwealth, 46% voting for statehood and 4% voting for
independence. Retaining Commonwealth status leaves intact the current
relationship with the federal government. There can be no assurance that the
statehood issue will not be brought to a vote in the future. A successful
statehood vote in Puerto Rico would then require the U.S. Congress to ratify the
election.
Puerto Rico's general obligation bonds are rated A by S&P and Baa1
(negative outlook) by Moody's. The elimination of Section 936 discussed above
will not have an immediate effect on Puerto Rico's credit ratings. Fitch does
not currently rate Puerto Rico obligations.
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<PAGE>
MANAGEMENT OF THE FUND
The Trust has a Board of Trustees which establishes the Fund's policies
and supervises and reviews the management of the Fund. The day-to-day operations
of the Fund are administered by officers elected by the Board of Trustees. The
Board of Trustees consists of the following individuals:
Ronald E. Kent Chairman of the Board of Leahi Management Company,
Inc. and the Trust, and Registered Representative of
Linsco/Private Ledger Corp.
Ernest W. Albrecht Retired; formerly Director of Traffic and Special
Projects for Pan American World Airways; former
Personal Representative and Official Greeter for the
City of Honolulu.
Gail A. Chew Vice President for Visitor Services/Community
Relations, Hawaii Visitors Bureau. Formerly with
Estate of James Campbell.
Karen T. Nakamura President, Wallpaper Hawaii, Ltd. and its subsidiary
Remodeling Specialists.
Dianne J. Qualtrough Vice President of Leahi Management Company, Inc. and
President of the Trust, and Branch Manager and
Registered Principal of Linsco/Private Ledger Corp.
Kim F. Scoggins Executive Vice President, Sales, The Prudential
Locations. Formerly, Leasing Agent, Monroe &
Friedlander, Inc. Formerly, Vice President and Chief
Operating Officer, Ralston Enterprises, Inc.
David M. Walker Retired; former Vice President, Fireman's Fund
Insurance Companies, Honolulu, Hawaii.
Investment Manager. Leahi Management Company, Inc., 210 Ward Avenue,
Suite 129, Honolulu, Hawaii 96814, serves as the Fund's Investment Manager (the
"Investment Manager"). Under the Management Agreement with the Fund, the
Investment Manager has the overall responsibility for making determinations as
to the investment of the assets of the Fund and implementing the same, including
determining which brokers or dealers to use in the execution of portfolio
transactions, and for administering all operations of the Fund. Dianne J.
Qualtrough, President and a Trustee of the Trust, is the portfolio manager for
the Fund and is primarily responsible for all investment decisions on behalf of
the Fund. The Investment Manager's responsibilities include, but are not limited
to, providing office facilities, executive, administrative and clerical services
to the Fund, as well as coordinating with various entities which deal with the
Trust, such as the accountants, attorneys, custodian, transfer agent and
distributor. The Investment Manager is also responsible for monitoring legal and
regulatory compliance, including preparation of reports and filings with
securities administrators and informing the Trustees of all information
necessary for their periodic review as required by securities laws and
otherwise.
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<PAGE>
Ronald E. Kent, the principal shareholder and President of the
Investment Manager, is the Chairman of the Board and a Trustee of the Trust. The
Investment Manager was organized on August 20, 1987, in order to provide
management services to the Fund. The principals of the Investment Manager have
been in the general securities business for over 25 years; however, the Fund is
the only mutual fund for which the Investment Manager or its principals
currently provide management or administrative services. The Fund has agreed to
pay the Investment Manager a monthly fee at the annual rate of 1/2 of 1% of the
value of the average net assets of the Fund. For the fiscal year ended September
30, 1996, the Investment Manager received fees of $233,778.
Since most of the portfolio transactions of the Fund will be on a
principal or net basis, the Fund will incur few if any brokerage commissions.
The Investment Manager considers a number of factors in determining which
brokers or dealers to use for the Fund's portfolio transactions, with the goal
of obtaining prompt execution at the most favorable net price. While these are
more fully discussed in the Statement of Additional Information, the factors
include, but are not limited to, the reasonableness of commissions and spreads
on net trades, the quality of services and execution, and the availability of
research which the Investment Manager may lawfully and appropriately use in its
investment advisory capacities. Provided the Fund receives prompt execution at
competitive prices, the Investment Manager may also consider the sale of Fund
shares as a factor in selecting broker-dealers for the Fund's portfolio
transactions. The Fund may, from time to time, effect portfolio transactions
with, and pay commissions to, Linsco/Private Ledger Corp., a broker-dealer which
is affiliated with the Investment Manager.
The Fund has adopted a Code of Ethics incorporating policies on
personal securities trading as recommended by the Investment Company Institute.
Expenses. All expenses incurred in the operation of the Fund are borne
by the Fund, except to the extent specifically assumed by the Investment Manager
and the Distributor. Expenses borne by the Fund include fees of the Investment
Manager; accounting, legal, transfer agent, custodian and disbursing agent fees;
investor servicing costs; taxes, if any; brokerage fees and commissions; fees
and expenses of Trustees who are not interested persons of or affiliated with
the Investment Manager or Distributor; salaries of certain personnel; costs and
expenses of calculating its daily net asset value; accounting, bookkeeping and
recordkeeping required under the 1940 Act; insurance premiums; trade association
dues; fees and expenses of registering and maintaining registration of its
shares for sale under federal and applicable state securities laws; payments
under the Promotion and Marketing Plan (discussed below); printing and other
expenses relating to the Fund's operations; amortization of its organization
expenses; and any extraordinary and non-recurring expenses which are not
expressly assumed by the Investment Manager or the Distributor.
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<PAGE>
Expense Limitation. The Investment Manager has agreed with the Fund
that if, in any fiscal year, the operating expenses of the Fund exceed 1% of its
average annual net assets, the following reduction in fees will occur.
Initially, the Investment Manager will reduce its fees to the extent necessary
to meet the expense limitation, if possible. This obligation is limited to the
extent of the management fees owed by the Fund and therefore net Fund expenses
may exceed 1% per annum.
HOW TO INVEST IN THE FUND
The principal distributor for the shares of the Fund is Linsco/Private
Ledger Corp., 210 Ward Avenue, Suite 129, Honolulu, Hawaii 96814, (808) 522-7000
(the "Distributor"). Shares may be purchased directly from the Fund or through
securities firms that have dealer agreements with the Distributor. The
Distributor does not participate in the management of the Fund.
The minimum initial investment is $1,000. Subsequent investments must
be at least $50. The Fund may, at its discretion, waive the minimum investment
requirements for purchases in conjunction with certain group or periodic plans.
All shares are purchased at the current net asset value with no sales
charge.
To purchase shares of the Fund, investors should follow these
instructions:
Initial Investment
- Complete the Fund's Account Application found at the back of this
Prospectus.
- Make your check payable to "Leahi Tax-Free Income Trust".
- Mail or deliver the completed Account Application and your check
to the Fund at the address shown on the Account Application.
Subsequent Investments
- Detach and complete the reinvestment form attached to your
monthly account statement or order confirmation.
- Make your check payable to "Leahi Tax-Free Income Trust".
- Write your shareholder account number on the check.
- Mail or deliver the check and reinvestment form to the Fund at
the address indicated on such form.
All investments must be made in U.S. dollars and, to avoid fees and
delays, checks should be drawn only on U.S. banks. Investments should not be
made by third party check. A charge may be imposed if any check used for
investment does not clear. The Fund reserves the right to reject any purchase
order in whole or in part.
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<PAGE>
If an order, together with payment in proper form, is received by the
Fund by the close of trading on the New York Stock Exchange ("NYSE"), Fund
shares will be purchased at the net asset value determined as of the close of
trading on the NYSE on that day. Orders received after the close of trading on
the NYSE will be purchased at the net asset value determined as of the close of
trading on the next business day. It is the responsibility of any securities
firm to transmit orders so that they will be received by the Distributor on a
timely basis.
Automatic Investment Program. Through an automatic investment program
you can invest a fixed dollar amount each month in the Fund. This results in
more shares being purchased when the Fund's net asset value is relatively low
and fewer shares being purchased when the fund's net asset value is relatively
high and may result in a lower average cost per share than a less systematic
investment approach.
Prior to participating in the program, you must establish an account
with the Fund and complete the Authorization Agreement for the program. You
should designate on the Authorization Agreement the dollar amount of each
monthly investment (minimum $50) you wish to make. Thereafter, on the designated
day of each month, an amount equal to the specified monthly investment will
automatically be withdrawn from your bank account and invested in shares of the
Fund.
General. Federal tax regulations require that non-exempt investors
provide a certified Taxpayer Identification Number and certain other required
certifications upon opening or reopening an account in order to avoid
withholding of taxes on taxable distributions and proceeds of redemptions. The
Fund may also be required to withhold tax upon such distributions and proceeds
if it is notified by the Internal Revenue Service or a broker that the number
furnished by the shareholder is incorrect or that the shareholder is subject to
withholding due to a failure to report all interest and dividend income. See the
Fund's Account Application for further information concerning this requirement.
Share certificates are issued only upon written request. No
certificates are issued for fractional shares.
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<PAGE>
HOW TO SELL OR REDEEM AN INVESTMENT IN THE FUND
A shareholder has the right to have the Fund redeem all or any portion
of his or her outstanding shares at such shares' current net asset value on each
day the NYSE is open for trading. The redemption price is the net asset value
next determined after the shares are validly tendered for redemption.
Direct Redemption. A written request for redemption, together with an
endorsed share certificate where one has been issued, must be received by the
Fund's Transfer Agent in order to constitute a valid tender for redemption. The
Transfer Agent requires that the signature(s) on the written request or endorsed
certificate be guaranteed by a commercial bank or trust company or a member firm
of a domestic stock exchange or the National Association of Securities Dealers,
Inc.
Telephone Redemption. Shareholders who complete the Telephone
Redemption Authorization portion of the Account Application may redeem shares on
any business day the NYSE is open by calling the Fund at (808) 522-7777 before
the close of trading on the NYSE. Redemption proceeds will be mailed or wired at
the shareholder's direction the next business day to the predesignated account.
The minimum amount that may be wired is $1,000 (wire charges, if any, may be
deducted from redemption proceeds). During periods of drastic economic or market
changes, the telephone redemption privilege may be difficult to implement. In
this event, shareholders should follow the other redemption procedures discussed
above.
By establishing the telephone redemption service, a shareholder
authorizes the Fund and its Transfer Agent to act upon the instructions of any
person by telephone to redeem from the account for which such service has been
authorized and transfer the proceeds to the bank account designated in the
Authorization. The Fund will employ procedures designed to provide reasonable
assurance that telephone instructions are genuine and, if it does not do so, it
may be liable for any losses due to unauthorized or fraudulent instructions. The
procedures employed by the Fund include requiring personal identification by
account number and social security or tax identification number, and providing
written confirmation of transactions. The shareholder agrees that neither the
Fund nor the Transfer Agent will be liable for any loss, expense, or cost
arising out of any telephone redemption request by a person reasonably believed
to be a shareholder, including any fraudulent or unauthorized requests.
The Fund may change, modify, or terminate this service at any time.
Shareholders may request telephone redemption privileges after an account is
opened; however, the Authorization form will require a separate signature
guarantee.
Systematic Withdrawal. As another convenience, the Fund offers a
Systematic Withdrawal Program whereby a shareholder may request that a check
drawn in a predetermined amount be sent to that shareholder each month or
calendar quarter. A shareholder's account must have Fund shares with a value of
at least $10,000 in order to start a Systematic Withdrawal Program, and the
minimum amount that may be withdrawn periodically under the Systematic
Withdrawal Program is $100. This Program may be terminated or modified by a
shareholder or the Fund at any time without charge or penalty.
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<PAGE>
Withdrawals made concurrently with purchases of additional shares may
be inadvisable because of tax consequences, and accordingly no additional
purchases may be made while this Program is in effect unless they exceed the
lesser of $5,000 or three times the annual withdrawals. In addition, if the
amount withdrawn exceeds the dividends credited to the shareholder's account,
the account ultimately may be depleted.
General. No charge is made by the Fund on sales or redemptions, but
shares tendered through investment brokers or dealers (other than the
Distributor) may be subject to a service charge by such dealers. Payment of the
redemption proceeds will be made promptly, but not later than seven days after
the receipt of all documents in proper form, including any share certificate(s)
or a written redemption order with appropriate signature guarantee. Redemption
checks will be drawn on the Bank of Hawaii. The Fund may suspend the right of
redemption under certain extraordinary circumstances in accordance with the
rules of the Securities and Exchange Commission ("SEC"). The Fund will not mail
redemption proceeds until checks used for the purchase of shares have cleared,
which may take up to 15 days. Redemptions are taxable transactions upon which
shareholders may recognize a gain or a loss for federal and state tax purposes.
Due to the relatively high cost of maintaining smaller accounts, the
Fund reserves the right to redeem shares in any account if at any time, due to
redemptions by the shareholder, the total value of a shareholder account is less
than $750. Such redemptions are involuntary on the part of the shareholder;
however, a shareholder will be notified that the value of his or her account is
less than $750 and be allowed 30 days to make additional investments to bring
the value of his account to at least $750.
HOW THE FUND'S PER SHARE VALUE IS DETERMINED
The net asset value of a Fund share is determined at least daily as of
the close of trading on the NYSE on each day the NYSE is open for trading and is
calculated by dividing the value of the Fund's total net assets by the number of
Fund shares outstanding. Portfolio securities for which current market prices
are readily available are valued using the mean between the bid and the asked
prices. Securities for which current market quotations are not readily available
are valued at fair value as determined in good faith by or under the supervision
of the Trust's officers in accordance with policies which are specifically
authorized by the Board of Trustees of the Trust. Generally, fixed income
securities are valued by an independent pricing service using market quotations,
prices provided by market makers, or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics,
in accordance with procedures established in good faith by the Board of
Trustees. Short- term obligations with maturities of sixty days or less are
generally valued at amortized cost as reflecting fair value.
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<PAGE>
DISTRIBUTIONS AND TAX INFORMATION
Dividends and Distributions. Dividends from net investment income are
declared daily and paid monthly to shareholders of record on the last business
day of each month. Dividends are declared as to any shares outstanding beginning
at the close of business on the day on which federal funds for the purchase of
the shares have been received by the Fund. The Fund will distribute any net
long-term or short-term capital gains to the shareholders of the Fund on an
annual basis. Dividends and capital gains distributions are reinvested in
additional shares of the Fund at the net asset value per share on the
reinvestment date unless the shareholder has previously requested in writing to
the Transfer Agent that payment be made in cash.
That part of the net investment income of the Fund which is
attributable to interest from municipal securities which are described in
Section 103(a) of the Code and which is distributed to shareholders, less
certain deductions, will be designated by the Fund as an "exempt-interest
dividend" under the Code. The percentage of income designated as tax-exempt will
be applied uniformly to all distributions made by the Fund during each fiscal
year (ending on September 30) and may differ from the actual tax-exempt
percentage for any particular month. Exempt-interest dividends to shareholders
may be excluded from the shareholder's gross income for regular federal income
tax purposes. Any portion of distributions of net investment income not
designated as tax-exempt should be treated by shareholders as ordinary income
subject to federal income tax.
Federal Taxation. The Fund has elected to be treated as a regulated
investment company under Subchapter M of the Code and has qualified for such
treatment for its fiscal year ended September 30, 1996. It intends to continue
to so qualify. As such, the Fund will not pay any income or excise taxes on
income and capital gains distributed to its shareholders in accordance with the
timing requirements of the Code.
Interest on bonds issued to finance essential state and local
government operations is fully tax exempt for individual shareholders. However,
interest on certain private activity bonds (including loans for housing and
student loans) issued after August 7, 1986, while still excludable from gross
income for regular federal income tax purposes, will constitute a preference
item for taxpayers in determining their alternative minimum tax. The Fund may
acquire such bonds where such bonds are consistent with the Fund's objective
and, in the opinion of the Investment Manager, such bonds represent the most
attractive investment opportunity then available to the Fund. No more than 20%
of the Fund's net assets will be invested in Hawaii Municipal Securities whose
interest income is treated as a tax preference item under the federal individual
alternative minimum tax. Tax-exempt income also results in a tax preference item
for corporations, which may subject a corporate investor to liability (or
increased liability) under the corporate alternative minimum tax.
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<PAGE>
Distributions of long-term capital gains, whether in shares or cash,
are taxable as long-term capital gains for federal income tax purposes
regardless of how long a shareholder has held shares of the Fund. Distributions
of short-term capital gains are taxable to shareholders as ordinary income for
federal income tax purposes. The maximum individual tax rate applicable to
ordinary income is currently 39.6%, and the maximum individual tax rate
applicable to net long-term capital gains is currently 28%. Any loss realized
upon the redemption of shares within six months from the date of their purchase
will be disallowed to the extent of tax-exempt dividends received during such
period or will be treated as a long-term capital loss to the extent of any
amounts treated as long-term capital gain distributions during such six-month
period. Distributions declared in October, November or December as of a record
date in such a month will be treated as received by shareholders in December if
paid during January of the following year.
Shareholders will be informed annually of the amount and nature of the
Fund's income and distributions and are required to disclose their receipt of
tax-exempt income, including tax-exempt distributions from the Fund, on their
federal tax returns.
Interest on indebtedness incurred or continued by shareholders to
purchase or carry shares of the Fund is not deductible to the extent
attributable to exempt-interest dividends. In addition, persons who are
"substantial users" as defined in the Code (or persons related to substantial
users) of facilities financed by private activity bonds held by the Fund should
consult their tax advisers with respect to whether the Fund's exempt-interest
dividends retain their exclusion under the Code for such persons. Recipients of
Social Security and railroad retirement benefits may be taxable on a portion of
their benefits if their gross incomes exceed specified threshold amounts; exempt
interest dividends may be added to taxable income solely for the purpose of
determining whether the threshold amount has been exceeded.
Additional information about taxes is set forth in the Statement of
Additional Information section entitled "Distribution and Tax Information".
Shareholders should consult their own advisers concerning federal, state and
local taxation of distributions from the Fund.
State Taxation. The Fund has received an opinion letter from the Hawaii
Department of Taxation regarding the status of the Fund and its anticipated
dividends and distributions. Pursuant to that letter, individuals, estates,
trusts and corporations subject to Hawaii Income Taxation will not be required
to include dividends from the Fund in their personal or corporate taxable income
for Hawaii income tax purposes to the extent the dividends are derived from
interest on obligations of the State of Hawaii, including any political
subdivision, agency or instrumentality thereof, or of the United States and its
territories or possessions, to the extent such interest is exempt from state
income taxes under federal law.
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GENERAL INFORMATION
The Fund. The Fund is a series of Leahi Investment Trust which was
organized as a Massachusetts business trust on July 23, 1987. The Agreement and
Declaration of Trust permits the Board of Trustees to issue an unlimited number
of full and fractional shares of beneficial interest with a par value of $.01,
which may be issued in any number of series. The Fund is the first, and
currently only, series being offered to the public, although the Board of
Trustees may from time to time authorize and issue other series, the assets and
liabilities of which will be separate and distinct from any other series.
Shares issued by the Fund have no preemptive, conversion, or
subscription rights. Shareholders have equal and exclusive rights as to
dividends and distributions as declared by the Fund and to the net assets of the
Fund upon liquidation or dissolution. Voting rights are not cumulative, so that
the holders of more than 50% of the shares voting in any election of Trustees
can, if they so choose, elect all of the Trustees. While the Trust is not
required to, nor does it intend to, hold annual meetings of shareholders, such
meetings may be called by the Trustees in their discretion, or upon demand by
the holders of 10% or more of the outstanding shares of the Fund for the purpose
of electing or removing Trustees.
Promotion and Marketing Plan. The Fund has adopted a plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act whereby it may reimburse the
Investment Manager each month up to a maximum of 0.25% per annum of the Fund's
average daily net assets for actual expenses incurred in the promotion and
marketing of the Fund's shares, including expenses of the Distributor which are
paid by the Investment Manager. Reimbursable expenses include the printing of
prospectuses and reports used for sales purposes, advertisements, expenses of
preparation and printing of sales literature, and other expenses related to the
promotion and marketing of the Fund's shares (including any service fees paid to
dealers or others who assist in the promotion and marketing of the Fund's
shares). The Plan also provides that the Investment Manager may include as a
promotion and marketing expense a portion of the Investment Manager's overhead
expenses attributable to the promotion and marketing of the Fund's shares,
including personnel and out-of-pocket costs. The Plan permits the Investment
Manager to carry forward for a maximum of three years (without carrying charge)
any promotion and marketing expenses covered by the Plan.
Reimbursement for expenses under the Plan are made on a "first-in,
first-out" basis. To the extent the amount permitted to be paid to the
Investment Manager in any one year (up to 0.25% of average net assets) exceeds
the Investment Manager's actual promotion and marketing expenses in that year
plus unpaid expenses incurred in the prior three years, the maximum permissible
payment will be reduced for that year accordingly so as not to exceed the level
of the Investment Manager's actual expenses. Under this type of arrangement, the
Investment Manager may not make a profit under the Plan. From inception of the
Plan through the fiscal year ended September 30, 1990, no reimbursement was made
by the Fund. The Investment Manager incurred $20,289 , $15,800 and $9,296
respectively, in expenses during the last three fiscal years which were
reimbursable under the Plan. During the fiscal year ended September 30, 1996,
$10,791 and $17,617 was paid by the Fund reimbursing promotional expenses
incurred in fiscal years 1993 and 1994.
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<PAGE>
Unreimbursed expenses are not treated as expenses or fixed liabilities
of the Fund until they are actually submitted for reimbursement by the
Investment Manager and the requested reimbursement is approved by the Board of
Trustees in accordance with the Plan. Once approved, such expenses will be
liabilities of the Fund even if the Plan is not renewed or is terminated. Prior
to the submission and approval of such Unreimbursed expenses, the Fund has no
liability for the payment of such expenses, even if the Plan is terminated or
not renewed, and such expenses are not reflected as liabilities in the financial
statements of the Fund.
In addition to providing for the expenses discussed above, the Plan
also recognizes that the Investment Manager and Distributor may use their fees
or other resources to pay expenses associated with activities primarily intended
to result in the promotion and marketing of the Fund's shares and that some of
the Fund's normal operating expenses, such as the investment management and
distribution fees, and other payments made in the ordinary course of their
business, are appropriately used in this manner.
The Statement of Additional Information has more details on the Plan.
Custodian, Transfer and Accounting Services Agent. The First National
Bank of Boston is the Fund's Custodian. The Bank of Hawaii, acting as agent for
the Custodian, is the Fund's depository and disbursing agent for redemptions.
Fund/Plan Services, Inc. is the Fund's Transfer and Accounting Services Agent.
Shareholder Inquiries. Shareholder inquiries should be directed to
Leahi Management Company, Inc. at 210 Ward Avenue, Suite 129, Honolulu, Hawaii
96814, (808) 522-7777.
This Prospectus is not an offering of the securities herein described
in any state in which the offering is unauthorized. No salesman, dealer or other
person is authorized to give information or make any representation other than
those contained in this Prospectus or in the Statement of Additional
Information.
-23-
<PAGE>
LEAHI TAX-FREE INCOME TRUST
ACCOUNT APPLICATION
210 Ward Avenue, Suite 129, Honolulu, Hawaii 96814 - (808) 522-7777
ACCOUNT REGISTRATION o Individual o Joint Tenants
o Uniform Transfer to Minors Act o Trust o Other
ACCOUNT NAME(S)
SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER
ACCOUNT ADDRESS
PHONE NUMBER BUSINESS PHONE
INITIAL INVESTMENT $ (minimum initial purchase: $1,000.00)
DISTRIBUTION OPTION If no option is indicated, Option A will be assigned.
<TABLE>
<CAPTION>
<S> <C> <C>
A. Dividends and capital gains B. Dividends in cash; capital C. Dividends and capital
o distributions reinvested in o gains distributions in o gains distributions in
additional shares. additional shares. cash.
</TABLE>
TELEPHONE REDEMPTION AUTHORIZATION (Optional)
o Check this box and attach a deposit slip for your bank
account if you wish to make telephone redemptions of $1,000
or more and have the proceeds wired to the indicated
account. (The account names must match exactly.) Any person
you supply with the required account information can make
telephone redemptions on your behalf. Proceeds from any
telephone redemption will be sent only to the address shown
on this account application. As indicated in the Prospectus
neither the trust nor the transfer agent will be liable for
any loss, expense, or cost arising out of any telephone
redemption request by a person reasonably believed to be a
shareholder.
Upon penalties of perjury, the undersigned certifies (1) that the number shown
on this form is my (our) correct taxpayer identification number; (2) that I (we)
am not subject to backup withholding because (a) I (we) have not been notified
that I (we) am subject to backup withholding, or (b) the Internal Revenue
Service has notified me (us) that I (we) am no longer subject to backup
withholding, or (c) I (we) am an exempt recipient, (3) that I (we) am of legal
age and capacity to purchase shares for my (our) own account or for the account
of the organization above; (4) that I (we) have read the Prospectus and agree to
its terms; (5) that the above information is correct; and (6) if indicated, that
the Transfer Agent is authorized to act upon telephone redemption requests and
that I (we) will not hold the Fund or Transfer Agent liable for any loss,
liability, cost or expense for acting upon telephone instructions.
Signature X Date
Additional Signature (if any) X
<PAGE>
LEAHI TAX-FREE INCOME TRUST
ACCOUNT APPLICATION
(continued)
210 Ward Avenue, Suite 129, Honolulu, Hawaii 96814 - (808) 522-7777
SYSTEMATIC WITHDRAWAL PLAN (Optional)
o Check this box if you wish to participate in the Systematic Withdrawal
Program. To qualify for this program investors must establish an account
of at least $10,000.00.
Withdrawal amount: $ ___________________
($100 minimum)
Withdrawal schedule: o monthly o quarterly
Mail or deliver your application to:
LEAHI TAX-FREE INCOME TRUST
210 Ward Avenue
Suite 129
Honolulu, Hawaii 96814
(808) 522-7777
<PAGE>
LEAHI TAX-FREE INCOME TRUST
AUTHORIZATION AGREEMENT FOR AUTOMATIC INVESTMENT PROGRAM
(ACH DEBITS)
210 Ward Avenue, Suite 129, Honolulu, Hawaii 96814
(808) 522-7777
Leahi Account No.__________
I(we) hereby authorize Leahi Tax-Free Income Trust, hereinafter called LEAHI, to
initiate debit entry, on or about the [ ]5th or [ ]20th (check one) day of each
month for a monthly investment in my LEAHI account in the amount of $__________
(minimum $50) to my(our) [ ]Checking or [ ]Savings (check one) account at the
BANK named below to debit the same to such account.
BANK NAME________________________ BRANCH_________________________
CITY________________________________ STATE______________ ZIP_________
ABA NUMBER (9 digits) ______________ ACCOUNT NO.____________________
This authorization is to remain in full force and effect until LEAHI has
received written notification from me (or either of us) of its termination in
such time and in such manner as to afford LEAHI and BANK a reasonable
opportunity to act on it. (PLEASE ATTACH A VOIDED CHECK OR DEPOSIT SLIP FOR
VERIFICATION).
NAME(S)___________________________________________________________________
SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER_______________________
SIGNATURE DATE______________
SIGNATURE(joint) DATE______________
- -------------------------------------------------------------------------------
INDEMNIFICATION AGREEMENT
TO: The bank named above:
So that you may comply with your Depositor's request and authorization, LEAHI
agrees as follows:
1. To indemnify and hold you harmless from any loss you may suffer arising from
or in connection with the payment of a debit drawn by LEAHI to the order of the
fund, designated on the account of your depositor's executing the authorization,
including any costs or expenses reasonably incurred in connection with such
loss. LEAHI will not, however, indemnify you against any loss due to your
payment of any debit generated against insufficient funds.
2. To refund to you any amount erroneously paid by you to LEAHI on any such
debit upon a claim for the amount of any such debit on which erroneous payment
was made.
<PAGE>
LEAHI TAX-FREE INCOME TRUST
AUTHORIZATION AGREEMENT FOR AUTOMATIC INVESTMENT PROGRAM
(ACH DEBITS)
MAIL TO:
210 Ward Avenue, Suite 129
Honolulu, HI 96814
(808) 522-7777
INSTRUCTIONS
HOW DOES IT WORK?
1. Leahi Tax-Free Income Trust, through our bank, Bank of Hawaii, draws an
automatic clearing house (ACH) debit against your personal checking/savings
account each month.
2. Choose any amount (at least the minimum subsequent investment amount) that
you would like to invest regularly and your debit will be processed by Leahi
Tax-Free Income Trust.
3. Shares will be purchased and a confirmation sent to you.
HOW DO I SET IT UP?
1. Complete the form (and a fund application if you are establishing a new
account).
2. Attach a voided check to the Automatic Investment Program application.
3. Mail the form to Leahi Tax-Free Income Trust at the above address.
4. As soon as your bank accepts your authorization, debits will be generated and
your Automatic Investment Program started. In order for you to have Automatic
Clearing House (ACH) debits from your account, your bank must be able to accept
ACH transactions and/or be a member of an ACH association. We cannot guarantee
acceptance by your bank.
5. Please allow three to four weeks processing time before the first debit
occurs.
6. Returned items will result in a $20.00 fee being deducted from your account.
<PAGE>
TRUSTEES OF LEAHI INVESTMENT TRUST
ERNEST W. ALBRECHT, Honolulu, Hawaii
GAIL ANN CHEW, Honolulu, Hawaii
RONALD E. KENT, Honolulu, Hawaii
KAREN T. NAKAMURA, Honolulu, Hawaii
DIANNE J. QUALTROUGH, Honolulu, Hawaii
KIM F. SCOGGINS, Honolulu, Hawaii
DAVID M. WALKER , Honolulu, Hawaii
INVESTMENT MANAGER
LEAHI MANAGEMENT COMPANY, INC.
210 Ward Avenue, Suite 129, Honolulu, Hawaii 96814
DISTRIBUTOR
LINSCO/PRIVATE LEDGER, CORP.
210 Ward Avenue, Suite 129, Honolulu, Hawaii 96814
DEPOSITORY AND DISBURSING AGENT
BANK OF HAWAII
Ward Plaza Branch, Honolulu, Hawaii 96814
CUSTODIAN
THE FIRST NATIONAL BANK OF BOSTON 150
Royall Street, Canton, Massachusetts 02021
TRANSFER AGENT
FUND/PLAN SERVICES, INC.
P.O. Box 874, #2 Elm Street, Conshohocken,
Pennsylvania 19428
AUDITORS
TAIT, WELLER & BAKER
Two Penn Center, Suite 700, Philadelphia
Pennsylvania 19102
LEGAL COUNSEL TO TRUST
SULLIVAN & WORCESTER LLP One Post Office Square
Boston, Massachusetts 02109
LEAHI
TAX-FREE INCOME TRUST
Hawaii's own
double tax-free
mutual fund.
PROSPECTUS
FEBRUARY 1, 1997
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1997
LEAHI TAX-FREE INCOME TRUST
210 Ward Avenue, Suite 129
Honolulu, Hawaii 96814
(808) 522-7777
Leahi Tax-Free Income Trust (the "Fund") is a mutual fund whose
investment objective is providing investors with the maximum level of income
exempt from federal and Hawaii income taxes, consistent with preservation of
capital. The Fund seeks to achieve its objective by investing primarily in
obligations which pay interest exempt from federal and Hawaii income taxes. The
Fund is a series of Leahi Investment Trust, a Massachusetts business trust.
A prospectus for the Fund, dated February 1, 1997, provides the basic
information you should know before purchasing shares of the Fund and may be
obtained without charge from the Fund at the address stated above. This
Statement of Additional Information is not a prospectus. It contains information
in addition to and more detailed than the information set forth in the Fund's
Prospectus. It is intended to provide you with additional information regarding
the activities and operations of the Fund, and should be read in conjunction
with the Prospectus.
TABLE OF CONTENTS
The Trust.................................................B-2
Investment Objective and Policies..........................B-2
Investment Restrictions....................................B-6
Distributions and Tax Information..........................B-8
Trustees and Officers.....................................B-12
Management of the Fund....................................B-13
Execution of Portfolio Transactions.......................B-14
Additional Purchase and Redemption Information............B-14
Determination of Share Price..............................B-15
Promotion and Marketing of Fund Shares....................B-15
General Information.......................................B-18
Financial Statements......................................B-19
Appendix - Description of Municipal Securities Ratings....B-20
B-1
<PAGE>
THE TRUST
The Leahi Investment Trust (the "Trust") is an open-end,
non-diversified management investment company organized on July 23, 1987 as a
Massachusetts business trust. The Trust currently issues shares of beneficial
interest, $ .01 par value per share, in one series, the Leahi Tax-Free Income
Trust.
INVESTMENT OBJECTIVE AND POLICIES
The following discussion supplements the discussion of the Fund's
investment objective and policies as set forth in the Prospectus. There can be
no assurance, however, that the objective of the Fund will be attained.
MUNICIPAL SECURITIES
The Prospectus describes the general categories and characteristics of
municipal securities. Discussed below are the major attributes of the various
municipal and other securities in which the Fund may invest.
Municipal Notes:
Tax anticipation notes are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenues,
to be payable from these specific future taxes. They are usually general
obligations of the issuer, secured by the taxing power of the issuer for the
payment of principal and interest.
Revenue anticipation notes are issued in expectation of receipt of
other kinds of revenue, such as federal revenues available under the Federal
Revenue Sharing Program. They also are usually general obligations of the
issuer.
Bond anticipation notes normally are issued to provide interim
financing until long-term financing can be arranged. The long-term bonds then
provide the money for the repayment of the notes.
Construction loan notes are sold to provide construction financing for
specific projects. After successful completion and acceptance, many projects
receive permanent financing through the Federal Housing Administration under the
Federal National Mortgage Association or the Government National Mortgage
Association.
Short-term discount notes (tax-exempt commercial paper) are short-term
(365 days or less) promissory notes issued by municipalities to supplement their
cash flow.
B-2
<PAGE>
Municipal Bonds:
Municipal bonds, which meet longer term capital needs and generally
have maturities of more than one year when issued, have two principal
classifications: general obligation bonds and revenue bonds.
General obligation bonds are issued by states, counties, cities, towns,
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects, including construction or improvement of schools,
highways and roads, and water and sewer systems. The basic security behind
general obligation bonds is the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. The taxes that can be
levied for the payment of debt service may be limited or unlimited as to the
rate or amount of special assessments.
Revenue bonds are not secured by the full faith, credit and taxing
power of their issuer. Rather, the principal security for revenue bonds is
generally the net revenue derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue bonds are issued to finance a wide variety of
capital projects including: electric, gas, water and sewer systems; highways,
bridges, and tunnels; port and airport facilities; colleges, universities and
hospitals. Although the principal security behind these bonds may vary, many
provide additional security in the form of a debt service reserve fund whose
money may be used to make principal and interest payments on the issuer's
obligations. Housing finance authorities have a wide range of security,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities are provided further security in the form of a
state's assurance (although without obligation) to make up deficiencies in the
debt service reserve fund.
Industrial development bonds are in most cases revenue bonds and are
issued by or on behalf of public authorities to raise money to finance various
privately-operated facilities for business, manufacturing, housing, sports, and
pollution control. These bonds are also used to finance public facilities such
as airports, mass transit systems, ports, and parking. The payment of the
principal and interest on such bonds depends solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of the
real and personal property so financed as security for such payment. The Fund
will not purchase industrial development bonds to the extent that the interest
paid by particular bonds is not excluded from gross income for federal income
tax purposes pursuant to the Tax Reform Act of 1986.
There may, of course, be other types of municipal securities that
become available which are similar to the foregoing described municipal
securities in which the Fund may invest.
Other Municipal Securities:
Variable or floating rate demand notes ("VRDN's") are tax-exempt
obligations which contain a floating or variable interest rate adjustment
formula and an unconditional right of demand to receive payment of the unpaid
B-3
<PAGE>
principal balance plus accrued interest upon a short notice period prior to
specified dates, either from the issuer or by drawing on a bank letter of
credit, a guarantee or insurance issued with respect to such instrument. The
interest rates are adjustable, at intervals ranging from daily to up to six
months, to some prevailing market rate for similar investments, such adjustment
formula being calculated to maintain the market value of the VRDN at
approximately the par value of the VRDN upon the adjustment date. The
adjustments are typically based upon the prime rate of a bank or some other
appropriate interest rate adjustment index.
The Fund will decide which variable or floating rate demand instruments
it will purchase in accordance with procedures prescribed by the Trust's Board
of Trustees to minimize credit risks. Any VRDN must be of high quality as
determined by the Board of Trustees, with respect to both its long-term and
short-term aspects, except that where credit support for the instrument is
provided even in the event of default on the underlying security, the Fund may
rely only on the high quality character of the short-term aspect of the demand
instrument, i.e., the demand feature. A VRDN which is unrated must have high
quality characteristics similar to those rated in accordance with policies and
guidelines determined by the Trust's Board of Trustees. If the quality of any
VRDN falls below the high quality level required by the Board of Trustees, the
Fund must dispose of the instrument within a reasonable period of time by
exercising the demand feature or by selling the VRDN in the secondary market,
whichever is believed by the Investment Manager to be in the best interests of
the Fund and its shareholders.
The Fund may also invest in VRDN's in the form of participation
interests ("Participating VRDN's") in variable or floating rate tax-exempt
obligations held by a financial institution, typically a commercial bank
("institution"). Participating VRDN's provide the Fund with a specified
undivided interest (up to 100%) of the underlying obligation and the right to
demand payment of the unpaid principal balance plus accrued interest on the
Participating VRDN's from the institution upon a specified number of days'
notice. In addition, the Participating VRDN is backed by an irrevocable letter
of credit or guarantee of the institution. The Fund has an undivided interest in
the underlying obligation and thus participates on the same basis as the
institution which typically retains fees out of the interest paid on the
obligation for servicing the obligation, providing the letter of credit and
issuing the repurchase commitment.
The Fund may purchase from banks, brokers or dealers, or other
financial institutions, specified municipal securities with puts. A "put" is a
right to sell a defined underlying security within a specified period of time
and at a specified exercise price, which may be sold only with the underlying
security. A "standby commitment" is a put that entitles the holder to achieve
same-day settlement and to receive an exercise price equal to the amortized cost
of the underlying security plus accrued interest, if any, at the time of
exercise.
There are diversification requirements with respect to puts which may
be acquired by the Fund, to insure that the Fund's liquidity will not be
impaired by relying too heavily upon the same institution or a group of
institutions. For purposes of the diversification requirements, a put will be
considered to be from the institution to which the Fund must look for payment of
the exercise price. In the case of a standby commitment, the put would be from
the institution that has agreed to repurchase the underlying security, while in
the case of a demand feature, the put would be from the party that has provided
a letter of credit or other credit facility to insure payment of the exercise
price. The diversification limitations discussed in the Prospectus are applied
to the securities subject to puts from the same institution and not to the puts
themselves.
B-4
<PAGE>
A standby commitment may not be used to affect the Fund's valuation of
the municipal security underlying the commitment. Any consideration paid by the
Fund for the standby commitment, whether paid in cash or by paying a premium for
the underlying security, which increases the cost of the security and reduces
the yield otherwise available from the same security, will be accounted for by
the Fund as unrealized depreciation until the standby commitment is exercised or
expires.
Management understands that the Internal Revenue Service (the
"Service") has issued a revenue ruling to the effect that, under specified
circumstances, a registered investment company will be the owner of tax-exempt
municipal obligations acquired subject to a put option. The Service has also
issued private letter rulings to certain taxpayers (which do not serve as
precedent for other taxpayers) to the effect that tax-exempt interest received
by a regulated investment company with respect to such obligations will be
tax-exempt in the hands of the company and may be distributed to its
shareholders as exempt-interest dividends. The Service has subsequently
announced that it will not ordinarily issue advance ruling letters as to the
identity of the true owner of property in cases involving the sale of securities
or participation interests therein if the purchaser has the right to cause the
security, or the participation interest therein, to be purchased by either the
seller or a third party. The Fund intends to take the position that it is the
owner of any municipal obligations acquired subject to a standby commitment or
other put and that tax-exempt interest earned with respect to such municipal
obligations will be tax-exempt in its hands. There is no assurance that standby
commitments will be available to the Fund nor has the Fund assumed that such
commitments would continue to be available under all market conditions.
The Fund may also purchase escrow secured bonds, which are created when
an issuer refunds in advance of maturity (or pre-refunds) an outstanding bond
issue which is not immediately callable and it becomes necessary or desirable to
set aside funds for redemption of the bonds at a future date. In an advance
refunding the issuer will use the proceeds of a new bond issue to purchase high
grade interest bearing debt securities which are then deposited in an
irrevocable escrow account held by a trustee bank to secure all future payments
of principal and interest of the advance refunded bond. Escrow secured bonds
will often receive a triple A rating from the major rating services.
U.S. Government obligations which may be owned by the Fund are issued
by the U.S. Treasury and include bills, certificates of indebtedness, notes and
bonds, or are issued by agencies and instrumentalities of the U.S. Government
and backed by the full faith and credit of the U.S. Government.
Certificates of deposit are short-term obligations of commercial banks.
Commercial paper are promissory notes issued by municipalities or corporations
in order to finance their short-term credit needs.
REPURCHASE AGREEMENTS
The Fund may invest its assets in eligible U.S. Government securities
and concurrently enter into repurchase agreements with respect to such
securities. Under such agreements, the seller of the securities agrees to
repurchase such securities at a mutually agreed upon time and price. The
B-5
<PAGE>
repurchase price may be higher than the purchase price, the difference being
income to the Fund, or the purchase and repurchase prices may be the same, with
interest at a stated rate due to the Fund together with the repurchase price
upon repurchase. In either case, the income to the Fund is unrelated to the
interest rate on the U.S. Government securities. Such repurchase agreements will
be made only with member banks of the federal reserve system and primary
government securities dealers whose creditworthiness has been evaluated as
satisfactory by the Investment Manager in accordance with guidelines adopted by
the Trust's Board of Trustees. The Fund will not generally enter into repurchase
agreements with more than seven days to maturity if, as a result, more than 5%
of the value of the Fund's total assets would be invested in such repurchase
agreements.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Fund to the seller of the
U.S. Government securities subject to the repurchase agreement. It is not clear
whether a court would consider the U.S. Government securities acquired by the
Fund subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the U.S. Government securities before its repurchase under a repurchase
agreement, the Fund may encounter delays and incur costs before being able to
sell the securities. Delays may involve loss of interest or a decline in price
of the U.S. Government securities. If a court characterizes the transaction as a
loan and the Fund has not perfected a security interest in the U.S. Government
securities, the Fund may be required to return the securities to the seller's
estate and be treated as an unsecured creditor of the seller. As an unsecured
creditor, the Fund would be at the risk of losing some or all of the principal
and income involved in the transaction. As with any unsecured debt instrument
purchased for the Fund, the Investment Manager seeks to minimize the risk of
loss through repurchase agreements by analyzing the credit-worthiness of the
obligor, in this case the seller of the U.S. Government securities.
Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the securities. However,
the Fund will always receive as collateral for any repurchase agreement
securities, the market value of which is equal to at least 100% of the amount
invested by the Fund plus accrued interest, and the Fund will make payment
against such securities only upon account of its Custodian. If the market value
of the U.S. Government securities subject to the repurchase agreement becomes
less than the repurchase price (including interest), the Fund will direct the
seller of the U.S. Government securities to deliver additional securities so
that the market value of all securities subject to the repurchase agreement will
equal or exceed the repurchase price plus accrued interest. It is possible that
the Fund will be unsuccessful in seeking to impose on the seller a contractual
obligation to deliver additional securities.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by
the Fund and (unless otherwise noted) are fundamental and cannot be changed
without the affirmative vote of a majority of the Fund's outstanding voting
securities as defined in the 1940 Act. The Fund may not:
B-6
<PAGE>
1. As of the last day of each fiscal quarter, have more than 25% of its total
assets invested in the securities of any one issuer (other than the U.S.
Government and its agencies and instrumentalities), or, with respect to at least
50% of the Fund's total assets, (a) have more than 5% of the total assets of the
Fund invested in any one such issuer or (b) own more than 10% of the outstanding
voting securities or any one issuer.
2. Make loans to others, except (a) through the purchase of debt securities in
accordance with its investment objective and policies, and (b) to the extent the
entry into a repurchase agreement is deemed to be a loan.
3. (a) Borrow money, except temporarily for extraordinary or emergency purposes
from a bank and then not in excess of 25% of its total net assets (at the lower
of cost or fair market value). Any such borrowing will be made only if
immediately thereafter there is an asset coverage of at least 300% of all
borrowings, and no additional investments may be made while any such borrowings
are in excess of 5% of total assets.
(b) Mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowings.
4. Purchase securities on margin, sell securities short, participate on a joint
or joint and several basis in any securities trading account, or underwrite
securities except insofar as the Fund may be technically deemed an underwriter
under the federal securities laws in connection with the disposition of
portfolio securities. (This restriction does not preclude the Fund from
obtaining such short-term credit as may be necessary for the clearance of
purchases and sales of its portfolio securities.)
5. Buy or sell interests in oil, gas or mineral exploration or development
programs, or real estate, provided that this limitation shall not prohibit the
purchase of municipal and other debt securities secured by real estate or
interests therein.
6. Purchase or hold securities of any issuer, if, at the time of purchase or
thereafter, any of the Trustees or officers of the Trust or the Fund's
Investment Manager owns beneficially more than 1/2 of 1%, and all such Trustees
or officers holding more than 1/2 of 1% together own beneficially more than 5%,
of the issuer's securities.
7. Purchase or sell common stocks, preferred stocks, warrants or other equity
securities, commodities or commodity contracts, or futures contracts, or invest
in put, call, straddle or spread options, except that the Fund may purchase,
hold and dispose of "obligations with puts attached" in accordance with its
investment policies.
8. Invest in securities of other investment companies (except as they may be
acquired as part of a merger, consolidation or acquisition of assets) which
would result in the Fund (i) owning more than 3% of the total outstanding voting
stock of another registered investment company; (ii) investing more than 5% of
its total assets in the securities of a single registered investment company; or
(iii) investing more than 10% of its total assets in the securities (other than
treasury stock) of registered investment companies. (This is an operating policy
which may be changed upon notice to shareholders.)
B-7
<PAGE>
9. Invest, in the aggregate, more than 10% of its assets in securities with
legal or contractual restrictions on resale, securities which are not readily
marketable, and repurchase agreements with more than seven days to maturity.
10. Invest in any issuer for the purposes of exercising control or management.
11. Issue senior securities, as identified in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges, or (b) entering into repurchase
transactions.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in the percentage resulting from a change in
values or assets will not constitute a violation of that restriction.
DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS:
The Fund declares dividends from net investment income daily and pays
such dividends on a monthly basis as stated in its Prospectus. The Fund's policy
is to declare as dividends 100% of its net investment income during each
calendar year. The Fund will also declare a distribution of net realized
long-term and undistributed short-term capital gains, if any, shortly after the
Fund's fiscal year-end, although an additional distribution may be made in
December if necessary to avoid federal excise tax.
TAX INFORMATION:
Federal Taxation
The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code")
and qualified as such for its fiscal year ended September 30, 1996. It intends
to continue to so qualify, which requires compliance with certain requirements
regarding the source of its income, diversification of its assets, and timing of
its distributions. The Fund's policy is to distribute to its shareholders all of
its investment company taxable income, its net tax-exempt income, and any net
realized capital gains for each fiscal year in a manner which complies with the
distribution requirements of the Code, so that the Fund will not be subject to
any Federal income or excise taxes.
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90% of its
tax-exempt net investment income and at least 90% of its taxable net investment
income (including net short-term capital gains), if any, and is not subject to
federal income tax to the extent that it distributes annually its taxable net
investment income and net realized capital gains in the manner required under
the Code.
The Fund will be subject to a 4% non-deductible annual excise tax on
amounts required to be but not distributed under a prescribed formula. The
formula requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year
B-8
<PAGE>
(including investment company income and net capital gains, and excluding gains
and losses from the sale or exchange of capital assets and the dividends-paid
deductions) and at least 98% of the excess of its capital gains over capital
losses realized during the one-year period ending October 31 during such year.
Subchapter M of the Code permits the character of tax-exempt dividends
distributed by a regulated investment company to flow through as tax-exempt
interest to its shareholders, provided that at least 50% of the value of its
assets at the end of each quarter of its taxable year is invested in state,
municipal and other obligations, the interest on which is exempt under Section
103(a) of the Code. The Fund intends to satisfy this 50% requirement in order to
permit its distributions of tax-exempt interest to be treated as such for
federal income tax purposes in the hands of the share-holders. Distributions to
shareholders of tax-exempt interest earned by the Fund for the taxable year are
therefore not subject to federal income tax, although they may be subject to the
individual or corporate alternative minimum taxes described below. A portion of
original issue discount relating to stripped municipal bonds and their coupons
may be treated as taxable income under certain circumstances.
Distributions of net investment company income, including the excess of
net short-term capital gains over net long-term capital losses, are taxable to
shareholders as ordinary income. Distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of the Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
within six months from the date of their purchase will be disallowed to the
extent of tax-exempt dividends received during such period or will be treated as
a long-term capital loss to the extent of any amounts treated as distributions
of long-term capital gain during such six-month period.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund will elect to
treat such capital gains as having been distributed to shareholders. As a
result, shareholders will report such capital gains as long-term capital gains,
and will be able to claim their share of federal income taxes paid by the Fund
on such gains as a credit against their own federal income tax liability, and
will be entitled to increase the adjusted tax basis of their Fund shares by the
difference between their pro rata share of such gains and their tax credit.
Distributions of any net investment company taxable income and net
realized capital gains will be taxable as described above, whether received in
shares or in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purpose in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of taxable and tax-exempt income and net realized
capital gain, whether received in shares or in cash, must be reported by
shareholders on their federal income tax returns.
B-9
<PAGE>
Interest on indebtedness incurred by shareholders to purchase or carry
shares of the Fund will not be deductible for federal income tax purposes. Under
rules used by the Internal Revenue Service to determine when borrowed funds are
used for the purpose of purchasing or carrying particular assets, the purchase
of shares may be considered to have been made with borrowed funds even though
the borrowed funds are not directly traceable to the purchase of shares.
Under the federal income tax law, the Fund will be required to report
to the Internal Revenue Service all distributions of taxable income and capital
gains as well as gross proceeds from the redemption or exchange of Fund shares,
except in the case of exempt shareholders, which include most corporations.
Pursuant to the backup withholding provisions of Section 3406 of the Code,
distributions of any taxable income and capital gains and proceeds from the
redemption of Fund shares may be subject to withholding of federal income tax at
the rate of 31% in the case of non-exempt shareholders who fail to furnish the
Fund with their taxpayer identification numbers and with required certifications
regarding their status under the federal income tax law or if the Fund is
notified by the Internal Revenue Service or a broker that the number furnished
by the shareholder is incorrect or that the shareholder is subject to
withholding due to a failure to report all interest and dividend income. Under a
special exception, distributions made by the Fund will not be subject to backup
withholding if the Fund reasonably estimates that at least 95% of all such
distributions will consist of tax-exempt dividends. If the withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in additional shares, will be reduced by the amounts required
to be withheld. Corporate shareholders should certify their exempt status in
order to avoid possible erroneous application of backup withholding.
Up to 85% of an individual's social security or tier 1 railroad
retirement benefits may be included in federal taxable income for benefit
recipients whose adjusted gross income (including income from tax-exempt sources
such as tax-exempt bonds and the Fund) plus 50% of their benefits exceeds
certain base amounts. Income from the Fund is still tax-exempt to the extent
described in the Prospectus; it is only included in the calculation of whether a
recipient's income exceeds certain established amounts.
Section 147(a) of the Code prohibits exemption from taxation of
interest on certain governmental obligations to persons who are "substantial
users" (or persons related thereto) of facilities financed by such obligations.
The Fund has not undertaken any investigation as the users of the facilities
financed by tax-exempt bonds in its portfolio.
Federal tax legislation enacted in 1986 included several provisions
that may affect the supply of, and the demand for, tax-exempt bonds, as well as
the tax-exempt nature of interest paid thereon. For example:
(i) Interest on certain private activity bonds issued after August 15, 1986
(or, in certain cases, on or after September 1, 1986) is generally not exempt
from regular tax, although it might have been exempt under prior law. These
include bonds the proceeds of which are used to finance sports facilities,
convention facilities, industrial parks, and nuclear waste disposal facilities;
B-10
<PAGE>
(ii) Interest on all private activity bonds issued on or after August 8, 1986
(or, in certain cases, September 1, 1986) other than qualified Section 501(c)(3)
bonds or refundings of bonds originally issued before such dates is subject to
the individual or corporate alternative minimum tax;
(iii) Interest on all tax-exempt bonds, regardless of when issued, constitutes a
tax preference item subject to the corporate alternative minimum tax because 50%
of the difference between pre-tax adjusted book income and alternative minimum
taxable income or 75% of the difference between adjusted current earnings and
alternative minimum taxable income is subject to the corporate alternative
minimum tax; and
(iv) Due to the substantial number and range of requirements to be satisfied by
tax-exempt bonds in the future, the risk of retroactive revocation of the
tax-exempt status of bonds due to acts or omissions on the part of issuers or
conduit borrowers after the date of issuance will in general be greater than
under prior law but will vary for different types of bonds.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. domestic corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by such persons.
State Taxation
The Hawaii Department of Taxation, in an opinion letter issued to the
Fund, has indicated that income received by the Fund, as a regulated investment
company under the Code, and distributed to shareholders who are subject to
Hawaii income taxation in compliance with the Code, will be treated for Hawaii
income tax purposes in the same manner as though it were received by the
shareholders directly from the issuer. The Hawaii income tax treatment of
dividends and distributions of the Fund will, therefore, depend on the source of
such dividends.
Hawaii income tax law provides that interest paid with respect to
obligations issued by the State of Hawaii, including any political subdivision,
agency or instrumentality thereof, shall be treated by Hawaiian recipients
thereof as items of interest excludable from income for Hawaii income tax
purposes. Hawaii also does not tax interest where prohibited by federal law, as
is the case with interest derived from obligations of U.S. possessions,
including Puerto Rico, Guam, and the Virgin Islands.
Therefore, investment income of the Fund derived from Hawaii
obligations and obligations of the U.S. Government and certain of its
possessions, when distributed to individuals, estates, trusts and corporations
subject to Hawaii income taxation, will not be required to be included in the
personal or corporate Hawaii income tax of such shareholders. Dividends derived
from other sources and capital gains distributions will be taxable to Hawaii
shareholders under the Hawaii income tax law.
B-11
<PAGE>
General
Each distribution by the Fund is accompanied by a brief explanation of
the form and character of the distribution. In January of each year the Fund
will issue to each shareholder a statement of the federal income tax status of
all distributions, including a statement of the percentage of the prior calendar
year's distributions which the Fund has designated as tax- exempt, and the
percentage of such tax-exempt distributions treated as a tax-preference item for
purposes of the alternative minimum tax.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
TRUSTEES AND OFFICERS
The Trustees of the Trust serve for an indefinite term. The Trustees
are responsible for the overall management of the Fund, including general
supervision and review of its investment activities. The Trustees, in turn,
elect the officers of the Trust, who are responsible for administering the
day-to-day operations of the Trust and the Fund. The addresses of the current
Trustees and executive officers are set forth below.
Ernest W. Albrecht - 1010 Wilder Avenue #802, Honolulu, Hawaii 96822.
Gail A. Chew - 50 Bates Street #G, Honolulu, Hawaii 96817.
Ronald E. Kent* - 210 Ward Avenue, Suite 129, Honolulu, Hawaii 96814.
Karen T. Nakamura - 3160 Waialae Avenue, Honolulu, Hawaii 96816.
Dianne J. Qualtrough* - 210 Ward Avenue, Suite 129, Honolulu, Hawaii 96814.
Kim F. Scoggins - 220 South King Street, Suite 1806, Honolulu, Hawaii 96813
David Walker - 4611 Kilauea Avenue, Honolulu, Hawaii 96816.
- -------
* Mr. Kent and Ms. Qualtrough are "interested persons" of the Trust.
The Trustees of the Fund who are not affiliated with the Fund's Investment
Manager receive $100.00 for each meeting attended. The officers of the Fund
receive no compensation directly from the Fund for performing the duties of
their offices.
As of November 30, 1996, the Trustees and officers of the Trust as a group
owned less than 1% of the outstanding shares of the Fund.
B-12
<PAGE>
MANAGEMENT OF THE FUND
The following information supplements, and should be read in conjunction
with, the section in the Fund's prospectus entitled "Management of the Fund".
Investment Manager
The Investment Manager serves as the Fund's Investment Manager pursuant to
an Investment Management Agreement with the Fund which was first approved by the
Board of Trustees, including those Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust or the Investment Manager (the
"Independent Trustees"), on October 29, 1992, and by a majority of the Fund's
outstanding shares at a special meeting of shareholders held on January 7, 1993.
The Investment Management Agreement continues in effect if approved annually by
(i) the Board of Trustees of the Trust, or (ii) the vote of a majority of the
Fund's outstanding voting securities (as defined in the 1940 Act), provided that
in either event the continuance also is approved by a majority of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on such approval. The Investment Management Agreement was last approved
by the Board of Trustees of the Trust, including a majority of the Independent
Trustees, on October 31, 1996. The Investment Management Agreement is terminable
without penalty on 60 days' written notice, by the Board of Trustees of the
Trust, by vote of the holders of a majority of the Fund's shares, or by the
Investment Manager. The Investment Management Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
The Investment Management Agreement provides that the Investment Manager
will not be liable to the Trust or any shareholder for any act or omission in
connection with its services to the Trust, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties under the Agreement.
The Investment Manager, Leahi Management Company, Inc., is a Hawaii
corporation. Ronald E. Kent is the principal shareholder and President of the
Investment Manager. Dianne J. Qualtrough is the Vice President of the Investment
Manager and Portfolio Manager of the Fund.
The use of the name "Leahi" by the Trust and the Fund is pursuant to a
license granted by the Investment Manager, and in the event the Investment
Management Agreement with the Fund is terminated, the Investment Manager has
reserved the right to require the Trust to amend its Declaration of Trust to
remove the reference to the name "Leahi" and to cease using such name in the
name of the Fund.
For the fiscal year ended September 30, 1994, the Investment Manager was
paid $219,675, no part of which was waived. Total expenses paid by the Fund for
the fiscal year ended September 30, 1994, amounted to 0.85% of average net
assets. For the fiscal year ended September 30, 1995, the Investment Manager was
paid $214,800, no part of which was waived. Total expenses paid by the Fund for
the fiscal year ended September 30, 1995, amounted to .83% of average net
assets. For the fiscal year ended September 30, 1996, the Investment Manager was
paid $233,778, no part of which was waived. Total expenses paid by the Fund for
the fiscal year ended September 30, 1996, amounted to .85% of average net
assets.
B-13
<PAGE>
EXECUTION OF PORTFOLIO TRANSACTIONS
Under the Investment Management Agreement, the selection of brokers and
dealers to execute transactions is made by the Investment Manager in accordance
with criteria set forth in the Investment Management Agreement and any
directions which the Trustees may give. Since most purchases made by the Fund
are principal transactions at net prices, the Fund incurs little or no brokerage
commissions. The Fund will not purchase securities on a principal basis from any
broker-dealer which is affiliated with the Fund or the Investment Manager.
The Fund deals directly with the selling or purchasing principal or market
maker without incurring charges for the services of a broker on its behalf
unless it is determined that a better price or execution may be obtained by
utilizing the services of a broker. Purchases from dealers include a spread
between the bid and asked price and purchases of portfolio securities from
underwriters include a commission or concession paid by the issuer to the
underwriter. The Fund seeks to obtain prompt execution of orders at the most
favorable net price. Transactions may be directed to dealers for services
rendered by such dealers in the execution of orders or in return for the
Investment Manager's receipt of special research and statistical information
which the Investment Manager may lawfully and appropriately use in its
investment advisory capacities. It is not possible to place a dollar value on
the special executions or on the research services received by the Investment
Manager from dealers effecting transactions in portfolio securities. The
allocation of transactions in order to obtain additional research services
permits the Investment Manager to supplement its own research and analysis
activities and to obtain the views and information of individuals and research
staffs of other securities firms. Provided that the best execution is obtained,
sales of Fund shares may also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions. For the fiscal
years ended 1994, 1995 and 1996 the Fund paid no brokerage commissions.
If purchases or sales of securities of the Fund and one or more other
investment companies or clients supervised by the Investment Manager (or any of
its affiliates) are considered at or about the same time, transactions in such
securities will be allocated among the several investment companies and clients
in a manner deemed equitable to all by the Investment Manager, taking into
account the respective sizes of the entities and the amount of securities to be
purchased or sold. It is possible that in some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the Fund is
concerned. In other cases, however, it is possible that the ability to
participate in volume transactions and to negotiate lower commissions will be
beneficial to the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Trust reserves the right in its sole discretion (i) to suspend the
continued offering of the Fund's shares, (ii) to reject purchase orders in whole
or in part when, in the judgment of the Investment Manager, such rejection is in
the best interest of the Fund, and (iii) to reduce or waive the minimum for
initial and subsequent investments for certain fiduciary accounts or under
circumstances where certain economics can be achieved in sales of the Fund's
shares.
B-14
<PAGE>
Payments to shareholders for shares of the Fund redeemed directly from the
Fund will be made as promptly as possible but no later than seven days after
receipt by the Fund's Transfer Agent of the written request in proper form, with
the appropriate documentation as stated in the Prospectus, except that the Fund
may suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission ("SEC") or such Exchange is
closed for other than weekends and holidays; (b) an emergency exists as
determined by the SEC making disposal of portfolio securities or valuation of
net assets of the Fund not reasonably practicable; or (c) for such other period
as the SEC may permit for the protection of the Fund's shareholders. At various
times, the Fund may be requested to redeem its shares for which it has not yet
received good payment. In this circumstance, the Fund may delay the mailing of
redemption checks until the payment has been collected for the purchase of such
shares.
The Fund intends to pay cash (U.S. dollars) for all shares redeemed, but
under abnormal conditions which make payment in cash unwise, the Fund may make
payment wholly or partly in securities with a current market value equal to the
redemption price. In such case an investor may incur brokerage costs in
converting such securities to cash. The Fund has elected to be governed by the
provisions of Rule 18f-1 under the 1940 Act, which contains a formula for
determining the redemption amounts that must be paid in cash.
The value of shares on redemption may be more or less than the investor's
cost, depending upon the market value of the Fund's portfolio securities at the
time of redemption.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of
shares of the Fund will be determined once daily as of the close of trading on
the New York Stock Exchange, on each day such Exchange is open for trading. It
is expected that the Exchange will be closed on Saturdays and Sundays and on New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. The Fund does not expect to determine
the net asset value of its shares on any day when the Exchange is not open for
trading even if there is sufficient trading in its portfolio securities on such
days to materially affect the net asset value per share.
The net asset value per share of the Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets
(as described in the Prospectus); the resulting net assets are divided by the
number of shares of the Fund outstanding at the time of the calculation and the
result (adjusted to the nearest cent) is the net asset value per share.
PROMOTION AND MARKETING OF FUND SHARES
The Fund has adopted a plan (the "Plan"), pursuant to Rule 12b-1 under the
1940 Act, whereby it may reimburse the Investment Manager each month up to a
maximum of 0.25% per annum of its average daily net assets for actual expenses
incurred in the promotion and marketing of the Fund's shares. The basic terms of
the Plan are set forth in the Prospectus.
B-15
<PAGE>
The Board of Trustees has determined that a continuous cash flow resulting
from the sale of new shares is necessary and appropriate to enable the Fund to
meet redemptions and to take advantage of buying opportunities without having to
make unwarranted liquidations of portfolio securities. Because the Fund imposes
no sales charge, the Board of Trustees determined that it would benefit the Fund
to have additional monies available for the promotion and marketing activities
undertaken on behalf of the Fund by the Investment Manager in connection with
the continuous sale of the Fund's shares. The Board of Trustees, including the
Trustees who are not interested persons as defined in the 1940 Act, concluded
that in the exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders.
The Plan covers not only reimbursements for expenses incurred in the
promotion and marketing activities with respect to the Fund's shares, but also
payments pursuant to the Investment Management Agreement and Distribution
Agreement and any other payments made by the Fund in the ordinary course of its
business to the extent such payments, although primarily intended to cover
operational and not promotion-related activities, may be deemed primarily
intended to result in the sale of the Fund's shares within the context of Rule
12b-1 under the 1940 Act. The costs and activities, the payment of which is
intended to be within the scope of the Plan if deemed to be primarily intended
to result in the sale of the Fund's shares may include, but are not limited to,
the costs of preparation and mailing of all required reports and notices to
shareholders, prospectuses and proxy materials; all fees and expenses relating
to the qualification of the Fund and/or its shares under the Securities Act of
1933 and the 1940 Act; all costs in preparation and mailing of confirmations of
shares sold or redeemed, reports of share balances, and responding to telephone
or mail inquiries of investors or prospective investors; and payments to
financial institutions, advisers, or other firms.
As stated in the Prospectus, the Plan permits the Investment Manager to
receive reimbursement each month for actual expenses incurred in connection with
the promotion and marketing of the Fund shares and permits the Investment
Manager to include as part of such expenses for which is received reimbursement
under the Plan a pro rata portion of its overhead expenses attributable to such
activities. These overhead expenses include leases, communications, salaries,
training, supplies, photocopying and any other category of the Investment
Manager's expenses attributable to the promotion and marketing activities
undertaken by the Investment Manager with respect to the Fund's shares.
To the extent promotion and marketing expenses of the Investment Manager
covered by the Plan in any one year are not fully reimbursed because they exceed
0.25% per annum of the Fund's average daily net assets, the Plan permits the
Investment Manager to carry forward such expenses (without carrying charge) for
a maximum of three years. Reimbursement for expenses under the Plan will be made
on a "first -in, first-out" basis. To the extent the amount permitted to be paid
under the Plan exceeds the Investment Manager's reimbursable expenses (including
those carried forward from prior years), the amount receivable by the Investment
Manager under the Plan will be reduced for that year so as not to exceed the
level of Investment Manager's actual expenses.
The Plan was last renewed for an additional year on October 31, 1996, and
must be renewed annually by the Board of Trustees, including a majority of the
Independent Trustees, cast in person at a meeting called for that purpose. It is
also required that the selection and nomination of such Trustees who are not
interested persons (should any election be necessary) be made by the current
Trustees who are not interested persons. The Plan and any marketing or service
agreement entered into pursuant to the Plan may be terminated at any time,
without any penalty, on 60 days' written notice, by such Trustees, by the
Investment Manager, or by vote of a majority of the Fund's outstanding shares
(as defined in the 1940 Act). Any dealer or other firm which enters into a
marketing or service agreement pursuant to the Plan may also terminate such
marketing or services agreement at any time upon written notice to the other
party. The Plan will terminate automatically upon termination of the Investment
Management Agreement.
B-16
<PAGE>
The Plan and any related marketing or service agreement may not be amended
to increase materially the amount spent for promotion and marketing without
approval by a majority of the Fund's outstanding shares, and all such material
amendments to the Plan or any related marketing or service agreement also must
be approved by the Trustees who are not interested persons, cast in person at a
meeting called for the purpose of voting on any such amendment.
The Investment Manager is required to report in writing to the Trustees at
least quarterly on the amounts and purpose of any payment made under the Plan
and any related marketing or service agreement, as well as to furnish the
Trustees with such other information as may reasonably be requested in order to
enable the Trustees to make an informed determination of whether the Plan should
be continued.
For the fiscal year ended September 30, 1996, the expenses incurred by the
Investment Manager which were reimbursable by the Fund pursuant to the Plan
were:
Advertising $ 2,250
Distribution 6,070
Printing 416
Promotion and Marketing 560
---------
Total $ 9,296
============
Reimbursements of $10,791 and $17,617 were made by the Fund to the
Investment Manager for 1993 and 1994 carry forwards stated under the Plan. The
Investment Manager carried forward $15,800 from the 1995 fiscal year, as
permitted under the Plan.
Distribution Agreement
The Fund has entered into a Distribution Agreement with Linsco/Private
Ledger Corp. (the "Distributor") which provides that the Distributor is the
principal distributor of the shares of the Fund. The Agreement is renewable
annually by the Trust's Board of Trustees or by vote of a majority of the Fund's
outstanding shares, and in either event by vote of a majority of the Trustees
who are not interested persons of the Distributor or the Trust. The Agreement
may be terminated on 60 days' notice by either party, and is automatically
terminated upon assignment.
The Distributor is responsible for certain of the expenses of
distribution of the Fund's shares, including advertising expenses, costs of
printing sales material and prospectuses used to offer shares to the public, and
expenses of preparing and printing amendments to the Trust's registration
statement necessitated solely by the activities of the Distributor. These
expenses may be paid or reimbursed by the Investment Manager, and are included
in the expenses eligible for reimbursement by the Fund under the Plan.
The branch office of the Distributor located in Honolulu, Hawaii will
be the office primarily responsible for the sale of Fund shares.
The Distribution Agreement contains provisions with respect to renewal
and termination similar to those in the Investment Management Agreement.
Pursuant to the Distribution Agreement, the Trust has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act of 1933.
B-17
<PAGE>
GENERAL INFORMATION
Investors in the Fund will be informed of the Fund's progress through
periodic reports. Financial statements certified by independent public
accountants will be submitted to shareholders at least annually.
The First National Bank of Boston, 150 Royall Street, Canton,
Massachusetts 02021, acts as Custodian of the securities and other assets of the
Fund. The Custodian does not participate in decisions relating to the purchase
and sale of securities by the Fund.
Tait, Weller & Baker, Two Penn Center, Suite 700, Philadelphia,
Pennsylvania 19102, are independent auditors for the Trust.
Sullivan & Worcester LLP, One Post Office Square, Boston, Massachusetts
02109, are legal counsel to the Trust and the Fund.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Agreement and Declaration of Trust ("Declaration of Trust")
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust. The Declaration of Trust also provides for indemnification and
reimbursement of expenses out of the Fund's assets for any shareholder held
personally liable for obligations of the Fund or Trust. The Declaration of Trust
provides that the Trust shall, upon written request, assume the defense of any
claim made against any shareholder for any act or obligation of the Fund or
Trust and satisfy any judgment thereon. All such rights are limited to the
assets of the Fund. The Declaration of Trust further provides that the Trust may
maintain appropriate insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the Trust, its shareholders,
trustees, officers, employees and agents to cover possible tort and other
liabilities. Furthermore, the activities of the Trust as an investment company
as distinguished from an operating company would not likely give rise to
liabilities in excess of the Fund's total assets. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance exists and the Fund
itself is unable to meet its obligations.
The Declaration of Trust and Bylaws of the Trust further provide that
no officer or Trustee of the Trust will be personally liable for any obligations
of the Trust, nor will any officer or Trustee be personally liable to the Trust
or its shareholders except by reason of his own bad faith, willful misfeasance,
gross negligence in the performance of his duties or reckless disregard of his
obligations and duties. With these exceptions, the Declaration of Trust provides
that an officer or Trustee of the Trust is entitled to be indemnified against
all liabilities and expenses incurred by the officer or Trustee in connection
with the defense or disposition of any proceeding in which he may be involved or
with which he may be threatened by reason of his being or having been an officer
or Trustee.
The Trust is registered with the SEC as a management investment
company. Such registration does not involve supervision of the management or
policies of the Fund. The Prospectus of the Fund and this Statement of
Additional Information omit certain of the information contained in the
Registration Statement filed with the SEC. Copies of such information may be
obtained from the SEC upon payment of the prescribed fee.
As of December 30, 1996, no shareholder of record directly or
beneficially owned 5% or more of the outstanding shares of the Fund.
FINANCIAL STATEMENTS
The audited financial statements of the Fund set forth in its Annual
Report to Shareholders for the year ended September 30, 1996, filed with the
Securities and Exchange Commission, are incorporated herein by reference. Any
person not receiving a copy of the Annual Report with this Statement of
Additional Information may call or write to the Trust and obtain a free copy.
B-18
<PAGE>
APPENDIX - DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
The following paragraphs summarize the descriptions for the rating
symbols of municipal securities.
Municipal Bonds
Moody's Investors Services:
Aaa: Municipal 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 anticipated are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Municipal 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 Aaa
bonds because margins of protection may not be as large 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.
A: Municipal 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 sometime in the future.
Bbb: Bonds which are rated Bbb 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.
Conditional Rating: Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operations experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction of elimination of basis of condition.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2 and 3 in each
generic rating classification from Aa through B in its municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
Standard & Poor's Corporation:
AAA: Municipal bonds rated AAA are highest grade obligations. They possess
the ultimate degree of protection as to principal and interest. The
market they move with interest rates, and hence provide the maximum
safety on all counts.
AA: Municipal bonds rated AA also qualify as high grade obligations, and in
the majority of instances differ from AAA issues only in small degree.
Here, too, prices move with the long-term money market.
B-19
<PAGE>
A: Municipal bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from adverse
effects of changes in economic and trade conditions. Interest and
principal are regarded as safe. They predominantly reflect money rates
in their market behaviors, but also to some extent, economic
conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest
Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this category than
for bonds in the A category.
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 bonds 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.
Note: The S&P ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories.
Municipal Notes
Moody's:
Moody's ratings for state and municipal and other short-term
obligations will be designated Moody's Investment Grade ("MIG"). This
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors of the
first importance in long-term borrowing risk are of lesser importance in the
short run. Symbols used will be as follows:
MIG-1: Notes are of the best quality enjoying strong protection from established
cash flows of funds for their servicing of from established and broad-based
access to the market for refinancing, or both.
MIG-2: Notes are of high quality, with margins of protections ample, although
not so large as in the preceding group.
MIG-3: Notes are of favorable quality, with all security elements accounted for,
but lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
MIG-4: Notes are of adequate quality, carrying specific risk but having
protection and not being distinctly or predominantly speculative.
Standard & Poor's:
For municipal note issues due in three years or less the ratings below
usually will be assigned. Notes maturing beyond three years will most likely
receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
B-20
<PAGE>
Commercial Paper
Moody's:
Moody's Commercial Paper ratings, which are also applicable to
municipal paper investments permitted to be made by the Trust, are opinions of
the ability of issuers to repay punctually their promissory obligations not
having an original maturity in excess of nine months. Moody's employs the
following designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
P-2 (Prime-3): Acceptable capacity for repayment.
Standard & Poor's:
S & P ratings are a current assessment of the likelihood of timely
payment of debt having an original maturity of no more than 365 days. Ratings
are graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Issues within the "A" category are delineated
with the numbers 1, 2, and 3 to indicate the relative degree of safety, as
follows:
A-1: This designation indicates the degree of safety regarding timely
payment is very strong. A "plus" (+) designation indicates an even
stronger likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for
issues designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying
the higher designations.
B: Issues rated "B" are regarded as having only an adequate capacity for
timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
The Commercial Paper Rating is not a recommendation to purchase or sell
a security. The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in or unavailability of, such information.
B-21
<PAGE>
LEAHI INVESTMENT TRUST
--------------------------
FORM N-1A
PART C
-------------------------
Item 1. Financial Statements and Exhibits
(a) Financial Statements for the Fiscal Year Ended September 30, 1996;
Schedule of Investments; Statement of Assets and Liabilities
dated September 30, 1996; Statement of Operations for the year
ended September 30, 1996; Statement of Changes in Net Assets
for the two years ended September 30, 1996; Financial
Highlights; the Notes to the Financial Statements; and the
Report of the Independent Certified Public Accountants
included in the Fund's Annual Report to Shareholders for the
year ended September 30, 1996 are incorporated herein by
reference.
(b) Exhibits:
(1) Agreement and Declaration of Trust.1
(2) By-Laws of the Registrant.1
(3) The Registrant is not a party to any Voting Trust
Agreement.
(4) Specimen copy of share certificate.
(5) Investment Management Agreement. 1
(6)(a) Distribution Agreement.1
(6)(b) Selling Group Agreement.1
(7) The Registrant has no bonus, profit sharing, pension or
other similar contract or agreement.
(8) Custodian Agreement.1
(9) The Registrant has no other material contracts not made
in the ordinary course of business.
(10) Opinion of Counsel .2
(11) Consent of Independent Certified Public Accountants.2
(12) There are no Financial Statements omitted from Item 23.
(13) Letter of Understanding relating to initial capital.1
(14) The Registrant has no retirement plan.
(15) Promotion and Marketing Plan pursuant to Rule 12b-1.1
(16) The Registrant does not quote performance as provided in
Item 22.
(17) Financial Data Schedule. 2
(18) The Registrant has not adopted a plan pursuant to Rule
18f-2.
(19) Powers of Attorney.1
1 Previously filed as part of the Registrant's Registration Statement,
File Nos. 33-17022, 811-5321 and incorporated herein by reference.
2 Filed herewith.
<PAGE>
Item 2. Persons Controlled by or Under Common Control with Registrant
This item is not applicable. There is no person controlled
by or under common control with the Registrant.
Item 3. Number of Holders of Securities
Number of Record Holders
Title of Class as of November 30,1996
-------------- ---------------------
Shares of Beneficial
Interest, $0.01 par value 1,118
Item 4. Indemnification
Article VII, Sections 2 and 3, of the Agreement and
Declaration of Trust and Article VI of the By-Laws of the
Trust, previously filed, contain the provisions concerning
indemnification and are incorporated herein by reference.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to the
trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as therefore
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
trustee, officer or controlling person of the 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, the
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 whether
such indemnification by its is against public policy as
expressed in the 1940 Act and will be governed by the final
adjudication of such issue.
Item 5. Business and Other Connections of Investment Adviser of
Registrant
Investment Manager. The officers and director of the
Investment Manager also serve as officers and/or Trustees
of the Registrant. For additional information, please
see Part B.
Item 6. Principal Underwriters
(a) Other investment companies for which Registrant's
principal underwriter ("Distributor") acts as
principal underwriter, depositor, or exclusive
distributor.
None
(b) Information on each director and officer of the
Distributor is as follows:
<PAGE>
Positions
Name and Principal Position With and Offices
Business Address Distributor with Registrant
Todd Anthony Robinson Chairman of the Board,
Chief Executive Officer None
David H. Butterfield President, Chief Operating
Officer, Director None
Andrew J. Micheletti Chief Financial Officer,
Managing Director of Finance, None
Assistant Secretary
Stephanie L. Brown Managing Director of
Compliance/General None
Counsel/Secretary
James S. Putnam Managing Director of
National Sales None
Karen Forslund Managing Director of
Trading & Operations None
Mark G. Lopez Managing Director of
Insurance & Direct None
Investments
(c) Not Applicable.
Item 7. Location of Accounts and Records
The accounts, books or other documents required to be
maintained by Section 31(a) of the 1940 Act are kept by the
Registrant's Transfer Agent, except those records relating
to portfolio transactions and the basic organizational and
Trust documents of the Registrant (see Subsections
(2)(iii), (4), (5), (6), (7), (9), (10) and (11) of Rules
31a-1(b)) which are kept by the Registrant at 210 Ward
Avenue, Suite 129, Honolulu, Hawaii 96814.
Item 8. Management Services
There are no management-related service contracts which are
not discussed in Parts A and B to this Registration
Statement.
Item 9. Undertaking
Not Applicable.
- --------
* The address of each individual is 5935 Cornerstone Court West, San Diego,
California 92121.
<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 of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 10 to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Honolulu, the State of Hawaii, on the
27th day of January, 1997.
LEAHI INVESTMENT TRUST
By: /s/ Dianne J. Qualtrough
Dianne J. Qualtrough,
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 10 has been signed below by the following persons
in the capacities and on the dates indicated.
Signature Title Date
Ronald E. Kent* Trustee and January 27, 1997
Ronald E. Kent Chairman of the Board
/s/ Dianne J. Qualtrough Trustee and President January 27, 1997
Dianne J. Qualtrough
Ernest W. Albrecht* Trustee January 27, 1997
Ernest W. Albrecht
Gail Ann Chew* Trustee January 27, 1997
Gail Ann Chew
Karen T. Nakamura* Trustee January 27, 1997
Karen T. Nakamura
Kim F. Scoggins* Trustee January 27, 1997
Kim F. Scoggins
David M. Walker* Trustee January 27, 1997
David M. Walker
*By: /s/ Dianne J. Qualtrough
Dianne J. Qualtrough
(Attorney-in-fact pursuant to Powers of
Attorney previously filed or filed herewith)
EXHIBIT 99.1
January 27, 1997
Leahi Investment Trust
Ward Plaza
210 Ward Avenue
Suite 129
Honolulu, Hawaii 96814
Ladies and Gentlemen:
As counsel to Leahi Investment Trust, a Massachusetts business trust
(the "Trust"), we have been asked to render our opinion with respect to the
issuance by the Trust of shares of beneficial interest (the "Shares") of Leahi
Tax-Free Income Trust (the "Fund"), which is a series of the Trust which has
been established and designated pursuant to Section 6 of Article III of the
Trust's Agreement and Declaration of Trust dated July 23, 1987, all as more
fully described in the prospectus (the "Prospectus") and statement of additional
information ("SAI") contained in Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of the Trust (file No. 33-17022) under the
Securities Act of 1933, as amended
We wish to advise you that we have made such inquiry of your officers
and trustees and have examined such corporate documents, records and
certificates and other documents and such questions of law as we have deemed
necessary for the purposes of this opinion.
In rendering this opinion, we have relied, with your approval, as to
all questions of fact material to this opinion, upon certificates of public
officials and of your officers and have assumed, with your approval, that the
signatures on all documents examined by us are genuine, which facts we have not
independently verified.
Based upon and subject to the foregoing, we are of the opinion that the
Shares when issued and sold pursuant to the terms, provisions and conditions of
the Prospectus and SAI in effect at the time of sale, will be legally and
validly issued, fully paid and nonassessable by the Trust.
With respect to the opinion stated above, we wish to point out that the
shareholders of a Massachusetts business trust may, under some circumstances, be
subject to assessment at the instance of creditors to pay the obligations of
such trust in the event that its assets are insufficient for the purpose.
<PAGE>
-2-
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm as the legal counsel to
the Trust in the Prospectus and SAI contained in the Registration Statement. In
giving such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
SULLIVAN & WORCESTER LLP
EXHIBIT 99.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm in the Registration Statement,
(Form N-1A), and related Statement of Additional Information of Leahi Investment
Trust and to the inclusion of our report dated October 17, 1996 to the
Shareholders and Board of Trustees of Leahi Investment Trust.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 20, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from the
Registrant's financial statements contained in its most recent Annual Report and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<NAME> Leahi Investment Trust
<CIK> 0000821196
<SERIES>
<NUMBER> 001
<NAME> Leahi Tax-Free Income Trust
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 144,645,481
<INVESTMENTS-AT-VALUE> 46,662,137
<RECEIVABLES> 803,849
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 90,409
<TOTAL-ASSETS> 47,556,395
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 91,841
<TOTAL-LIABILITIES> 91,841
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,466,811
<SHARES-COMMON-STOCK> 3,460,706
<SHARES-COMMON-PRIOR> 3,314,325
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (18,913)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,016,656
<NET-ASSETS> 47,464,554
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,766,773
<OTHER-INCOME> 0
<EXPENSES-NET> 389,627
<NET-INVESTMENT-INCOME> 2,377,146
<REALIZED-GAINS-CURRENT> 53,839
<APPREC-INCREASE-CURRENT> (147,240)
<NET-CHANGE-FROM-OPS> 2,283,745
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,377,146
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 453,555
<NUMBER-OF-SHARES-REDEEMED> 420,514
<SHARES-REINVESTED> 113,340
<NET-CHANGE-IN-ASSETS> 1,927,557
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (72,752)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 233,778
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 395,234
<AVERAGE-NET-ASSETS> 46,724,147
<PER-SHARE-NAV-BEGIN> 13.74
<PER-SHARE-NII> .70
<PER-SHARE-GAIN-APPREC> (.02)
<PER-SHARE-DIVIDEND> .70
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.72
<EXPENSE-RATIO> .83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
