SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 10
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940
Amendment No. 11
FIRST PACIFIC MUTUAL FUND, INC.
(Exact Name of Registrant as Specified in Charter)
2756 Woodlawn Drive, #6-201, Honolulu, Hawaii 96822
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code (808) 988-8088
Terrence Lee, President; First Pacific Mutual Fund, Inc.;
2756 Woodlawn Drive, #6-201, Honolulu, Hawaii 96822
(Name and address of Agent for Service)
Please send copies of all communications to: Audrey C. Talley, Esquire
Stradley, Ronon, Stevens & Young
2600 Once Commerce Square
Philadelphia, PA 19103-7098
Approximate Date of Proposed Public Offering:
Upon effectiveness of this amendment.
It is proposed that this filing will become effective
(check appropriate box)
__x__ immediately upon filing pursuant to paragraph (b)
_____ on _________ pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on _________ pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on ________ pursuant to paragraph (a)(2) of Rule
485.
The Registrant has registered an indefinite number of securities under this
Registration Statement pursuant to Rule 24f-2 under the Investment Company Act
of 1940. Registrant has filed a Rule 24f-2 Notice for its most recent fiscal
year on or about November 30, 1995.
<PAGE>
TABLE OF CONTENTS
TO FORM N-1A
The Facing Page
1- Cross-Reference Sheet
2- Part A - Prospectus
3- Part B - Statement of Additional Information
4- Part C - Other Information
5- Signature Page
Exhibits
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CROSS REFERENCE SHEET
N-1A
Item No. Caption or Location in Prospectus
Part A
1 Cover
2 Fund Expenses, Prospectus Summary
3 N/A
4 Prospectus Cover, Investment Objective and Policies, Municipal
Securities, Investment Practices
5 Officers and Directors, Manager, The Distribution Plan, Transfer
Agent, Custodian, Shareholder Services and Reports and General
Information and History
6 General Information and History, Shareholder Services and Reports,
Distributions from the Fund, Tax Status
7 Purchasing Shares of the Fund, Net Asset Value, The Distribution Plan
8 Redemption of Shares
9 N/A
Part B
10 Cover
11 Table of Contents
12 N/A
13 Cover, Investment Policies and Restrictions, Additional Investment
considerations, Description of Municipal Securities Ratings
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14 Officers and Directors
15 N/A
16 Investment Management Agreement
17 Portfolio Transactions
18 N/A
19 The Distributor
20 N/A
21 The Distributor
22 N/A
23 Financial Statements
Part C
Items 24 through 32 have been answered in order in Part C.
<PAGE>
FIRST PACIFIC MUTUAL FUND, INC. Prospectus dated
2756 Woodlawn Drive, #6-201 February 1, 1996
Honolulu, Hawaii 96822
FIRST PACIFIC MUTUAL FUND, INC.
First Pacific Mutual Fund, Inc. (the Corporation) is a mutual fund,
organized as a non-diversified open-end management investment company. In this
Prospectus all references to any series of the Corporation will be called the
"Fund" unless expressly noted otherwise. The Corporation offers two series of
shares. Each Fund's net asset value will fluctuate.
First Hawaii Municipal Bond Fund ("Bond Fund"). The objective of Bond
Fund is to provide a high level of current income exempt from federal and Hawaii
state income taxes, consistent with preservation of capital. The bond fund
attempts to achieve its objective by investing primarily in a varied portfolio
of investment grade municipal securities which pay interest exempt from federal
and Hawaii income taxes.
First Hawaii Intermediate Municipal Fund ("Intermediate Fund"). The
objective of Intermediate Fund is to provide a high level of current income
exempt from federal and Hawaii state income taxes, consistent with preservation
of capital. The Intermediate Fund attempts to achieve its objective by investing
primarily in a varied portfolio of investment grade municipal securities, with a
dollar weighted average portfolio maturity of more than three years but not more
than ten years which pay interest exempt from federal and Hawaii income taxes.
First Pacific Management Corporation (the "Manager") manages each
Fund's portfolio of investments.
There is no sales load imposed at the time of purchase of a Fund's
shares. (See "Purchasing Shares of the Fund.") Each Fund has adopted a
distribution plan which provides that the Fund may spend up to .25% of its
average daily net assets in connection with the distribution of Fund shares.
This Prospectus sets forth the information about the Funds that a
prospective investor should know before investing in a Fund. Please read and
retain this Prospectus for future reference.
---------------------
A Statement of Additional Information, dated February 1, 1996,
containing additional information about the Funds has been filed with the
Securities and Exchange Commission and is hereby incorporated by reference into
this Prospectus. A copy of the Statement of Additional Information may be
obtained without charge by calling (808) 988-8088.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
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TABLE OF CONTENTS
PAGE
FUND EXPENSE TABLE ...........................................................3
FINANCIAL HIGHLIGHTS..........................................................5
PROSPECTUS SUMMARY ...........................................................7
INVESTMENT OBJECTIVE AND POLICIES ............................................8
MUNICIPAL SECURITIES .........................................................9
INVESTMENT PRACTICES ........................................................10
PURCHASING SHARES OF THE FUND ...............................................11
DISTRIBUTIONS FROM THE FUND .................................................12
REDEMPTION OF SHARES ........................................................12
NET ASSET VALUE .............................................................14
TAX STATUS ..................................................................14
OFFICERS AND DIRECTORS ......................................................15
INVESTMENT MANAGER ..........................................................16
CUSTODIAN ...................................................................17
THE DISTRIBUTION PLAN .......................................................17
ALLOCATION OF BROKERAGE TRANSACTIONS ........................................18
SHAREHOLDER SERVICES AND REPORTS ............................................18
GENERAL INFORMATION AND HISTORY .............................................18
2
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FIRST HAWAII MUNICIPAL BOND FUND EXPENSES
The following table illustrates all expenses and fees that a
shareholder of the Bond Fund will incur.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases ...........................................None
Sales Load Imposed on Reinvested Dividends.................................None
Contingent Deferred Sales Load.............................................None
Redemption Fees............................................................None
Exchange Fees..............................................................None
Annual Operating Expenses
(as a percentage of average net assets)
Management Expenses..................................................... .50%
Shareholder Servicing Costs............................................. .10
12b-1 Fees After Waiver................................................ .11 1
Other Expenses.......................................................... .26
---
Total Operating Costs ............................................ .97% 2
The purpose of this table is to assist the investor in understanding
the various expenses that an investor in the Bond Fund will bear directly or
indirectly. The expenses set forth above are based on actual amounts for the
most recent fiscal year. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the National
Association of Securities Dealers.
The following example illustrates the expenses that you would pay on
$1,000 investment over various time periods 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 Bond Fund charges no redemption fees of any kind.
1 year 3 years 5 years 10 years
$10 $31 $54 $119
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.
- --------
1 The Fund's 12b-1 Plan provides that the Fund may incur costs not to
exceed .25% per annum of the Fund's average net assets for the distribution of
Fund shares. The Distributor has waived a portion of the Bond Fund's fees during
the year ended 9/30/95. Such waivers may cease at anytime.
2 Includes .02% custodian fees reduced through custodian arrangements.
3
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FIRST HAWAII INTERMEDIATE MUNICIPAL FUND EXPENSES
The following table illustrates all expenses and fees that a
shareholder of the Intermediate Fund will incur.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases.............................................None
Sales Load Imposed on Reinvested Dividends..................................None
Contingent Deferred Sales Load..............................................None
Redemption Fees.............................................................None
Exchange Fees...............................................................None
Annual Operating Expenses
(as a percentage of average net assets)
Management Expenses....................................................... .50%
Shareholder Servicing Costs............................................... .00
12b-1 Fees After Waiver................................................... .00 3
Other Expenses............................................................ .16
---
Total Operating Costs After Waiver............................... .66%
The Distributor has waived any 12b-1 fees for the year of operation
ending July 1, 1996. Without such waiver the 12b-1 fee could be as high as .25%
per annum and total operating costs could be as high as 1.00% per annum of the
Intermediate Fund's average net assets.
The purpose of this table is to assist the investor in understanding
the various expenses that an investor in the Intermediate Fund will bear
directly or indirectly. The expenses set forth above are based on estimated
amounts for the current fiscal year. Long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers.
The following example illustrates the expenses that you would pay on
$1,000 investment over various time periods 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 Intermediate Fund charges no redemption fees of any kind.
1 year 3 years 5 years 10 years
$7 $21 $37 $82
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.
- --------
3 The Fund's 12b-1 Plan provides that the Fund may incur costs not to
exceed .25% per annum of the Fund's average net assets for the distribution of
Fund shares. The Distributor has indicated it will waive a portion of the
Intermediate Fund's fees during the period ending 7/1/96. Such waivers may cease
at anytime.
4
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First Hawaii Municipal Bond Fund
FINANCIAL HIGHLIGHTS
The financial highlights and ratios for the periods presented have been selected
from the Fund's financial statements, which have been examined by Tait, Weller &
Baker, independent certified public accountants, whose unqualified report
thereon appears on the Fund's Annual Report to Shareholders for the year ended
September 30, 1995. Such Financial statements and report are incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
November 23,
1988 (a) to
___________Years ended September 30,______________ September 30,
1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value
Beginning of year $10.62 $11.48 $10.90 $10.47 $9.92 $10.25 $10.00
------- ------- ------- ------- ------- ------- -------
Income from investment
operations
Net investment income .55 .55 .58 .60 .62 .63 .53
Net gain (loss) on securities
(both realized and unrealized) .31 (.80) .60 .43 .55 (.24) .25
------- ------- ------- ------- ------- ------- -------
Total from investment operations .86 (.25) 1.18 1.03 1.17 .39 .78
Less distributions
Dividend from net investment income (.55) (.55) (.58) (.60) (.62) (.63) (.53)
Distributions from capital gains (.09) (.06) (.02) - - - -
Distributions from paid-in capital - - - - - (.09) -
------- ------- ------- ------- ------- ------- -------
Total distributions (.64) (.61) (.60) (.60) (.62) (.72) (.53)
------- ------- ------- ------- ------- ------- -------
End of year $10.84 $10.62 $11.48 $10.90 $10.47 $ 9.92 $10.25
------- ------- ------- ------- ------- ------- -------
Total return 8.42% (2.18)% 11.11% 10.16% 12.11% 3.87% 8.15%
Ratios/Supplemental Data
Net assets, end of year (in 000's) $51,131 $52,230 $57,396 $39,291 $25,688 $14,792 $6,619
Ratio of expenses to average net assets
Before expense reimbursements 1.00% .97% .95% .95% 1.01% 1.64% 2.22%(b)(c)
After expense reimbursements .97%(A) .95% .95% .95% .91% .83% .54%(b)(c)
Ratio of net investment income
to average net assets
Before expense reimbursements 5.19% 4.99% 5.21% 5.67% 5.95% 5.35% 4.72%(b)(c)
After expense reimbursements 5.22% 5.01% 5.21% 5.67% 6.05% 6.16% 6.40%(b)(c)
Portfolio turnover 17.08% 40.22% 27.77% 18.44% 7.28% 46.57% 21.91%
<FN>
(A) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian arrangement were .95%. Prior to 1995, such
reductions were reflected in the expense ratios. (a) Effective date of the
Fund's initial registration under the Securities Act of 1933 as amended.
(b) Annualized.
(c) Excludes taxes and tax reimbursements of 1.15% of average net assets on an
annualized basis.
</FN>
</TABLE>
5
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First Hawaii Intermediate Municipal Fund
FINANCIAL HIGHLIGHTS
The financial highlights and ratios for the period presented have been selected
from the Fund's financial statements, which have been examined 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, 1995. Such Financial statement and report are incorporated by
reference in this Prospectus.
Period
July 5, 1994*
Year Ended to
September 30, September 30,
1995 1994
Net asset value
Beginning of year $4.99 $5.00
----- -----
Income from investment
operations
Net investment income .23 .05
Net gain (loss) on securities
(both realized and unrealized) .15 ( .01)
----- -----
Total from investment operations .38 .04
Less distributions
Dividend from net investment income (.23) (.05)
----- -----
End of year $5.14 $4.99
----- -----
Total return 7.86% .72%
Ratios/Supplemental Data
Net assets, end of year (in 000's) $4.760 $2,447
Ratio of expenses to average net assets
Before expense reimbursements 1.90% 4.48% (a)
After expense reimbursements .66% (b) 0% (a)
Ratio of net investment income
to average net assets
Before expense reimbursements 3.39% .12% (a)
After expense reimbursements 4.63% 4.60% (a)
Portfolio turnover 10.04% 0%
(a) Annualized.
(b) Ratios of expenses to average net assets after the reduction of custodian
fees under a custodian arrangement were .64% Prior to 1995, such reductions
were reflected in the expense ratios.
6
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PERFORMANCE
From time to time each Fund may advertise its total return and yield. The "total
return" of a Fund refers to the average annual compounded rates of return over
1, 5 and 10 year periods or for the life of a Fund (which periods will be stated
in the advertisement) that would equate an initial amount invested at the
beginning of a stated period to the ending redeemable value of the investment.
The calculation assumes the reinvestment of all dividends and distributions,
includes all recurring fees that are charged to all shareholder accounts and a
deduction of all nonrecurring charges deducted at the end of each period.
Aggregate total return may also be presented for various periods; such return
represents the cumulative change in value of an investment in each Fund for the
specific period (reflecting changes in Fund share prices and assuming
reinvestment of dividends and distributions). Total return may be quoted with or
without giving effect to any voluntary expense limitations in effect for each
Fund during the relevant period. The "yield" of each Fund is computed by
dividing the net investment income per share earned during the period stated in
the advertisement (using the average number of shares entitled to receive
dividends) by the maximum offering price per share on the last day of the
period. The calculation includes among expenses of a Fund, for the purpose of
determining net investment income, all recurring fees that are charged to all
shareholder accounts and any nonrecurring charges for the period stated. The
yield formula provides for semi-annual compounding which assumes that net
investment income is earned and reinvested at a constant rate and annualized at
the end of a six-month period. Further information about the performance of a
Fund is contained in each Fund's annual report to shareholders, which may be
obtained without charge.
PROSPECTUS SUMMARY
Offering Price, Charge
and Minimum Purchase The minimum initial investment is $1,000 with $100
minimum subsequent investments; less in certain
circumstances. Shares are sold at net asset value.
See "Purchasing Shares of the Fund."
Investment Objective
and Policies Each Fund seeks to provide a high level of current
income exempt from federal and Hawaii state income
taxes, consistent with preservation of capital.
There is no assurance that this objective will be
achieved. Each Fund will invest primarily in a
varied portfolio of investment grade Hawaii
municipal securities. The Intermediate Fund will
attempt to achieve its objective by investing
primarily in a varied portfolio of investment
grade obligations with an average portfolio
maturity of more than three years but not more
than ten years. Each Fund will primarily invest in
municipal securities issued by or on behalf of the
State of Hawaii and its political subdivisions,
agencies and instrumentalities, certain interstate
agencies and certain territories of the United
States. Municipal securities include municipal
bonds, as well as shorter term municipal notes,
municipal leases, Zero coupon bonds, pre-refunded
bonds, and tax exempt commercial paper. Individual
bonds could range in maturity from three months to
thirty-five years. The net asset value per share
may increase or decrease depending on changes in
interest rates and other factors affecting the
municipal credit markets. Each Fund will not
invest more than 10% in lower rated municipal
securities. See "INVESTMENT OBJECTIVES AND
POLICIES."
Risks and
Investment Practices Subject to certain limitations, each Fund may lend
its portfolio securities, and enter into
when-issued or delayed delivery transactions.
These investments
7
<PAGE>
entail certain risks. Tax-exempt securities may be
adversely affected by local political and economic
conditions and developments within the State which
adversely affect issuers of such tax-exempt
securities. Adverse conditions in the State of
Hawaii's significant industries could have a
correspondingly adverse effect on specific issuers
within the State or on anticipated revenue of the
State. In the event of the bankruptcy of a
borrower of Fund portfolio securities, the Fund
could experience delays in recovering either the
securities loaned or its cash. To the extent that
the value of the securities loaned has increased
or the value of the collateral held by a Fund has
decreased, the Fund could experience a loss. When
the time comes to receive and pay for a
when-issued security, the security may have a
value greater or less than a Fund's fixed payment
obligation. See "MUNICIPAL SECURITIES" and
"INVESTMENT PRACTICES."
Investment Manager First Pacific Management Corporation is each
Fund's Investment Manager. The Investment Manager
was organized in 1988. The annual management fee
is .50% of average daily net assets. The Manager
also provides each Fund with certain shareholder
services for an annual fee of .10% of average
daily net assets.
Distributions from the Fund Distributions from net investment income are
declared daily and paid monthly. Capital gains, if
any, are distributed annually. See "DISTRIBUTIONS
FROM THE FUND."
Redemption Shares may be redeemed at net asset value next
determined. Each Fund may require involuntary
redemption of shares if the value of an account is
less than $500. See "REDEMPTION OF SHARES."
Distribution Plan Each Fund and its shareholders have adopted a
distribution plan pursuant to Rule 12b-1 of the
Investment Company Act of 1940 which provides that
the Fund may spend up to .25% of its average daily
net assets in connection with the Fund's
activities as a distributor of its shares. See
"THE DISTRIBUTION PLAN."
Transfer Agent First Pacific Recordkeeping, Inc. See "SHAREHOLDER
SERVICES AND REPORTS."
The above is qualified in its entirety by
reference to the more detailed information
included elsewhere in this Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
Each Fund's investment objective is to provide a high level of current income
exempt from federal and Hawaii state income taxes, consistent with preservation
of capital. There can be no assurance that a Fund will achieve its investment
objective, which may be changed only with shareholder approval. The Intermediate
Fund invests primarily in a portfolio of investment grade obligations with a
dollar weighted average portfolio maturity of more
8
<PAGE>
than three years but not more than ten years. Generally speaking, intermediate
bonds have less market fluctuation than long term bonds. However, intermediate
bonds may have lower yields due to their shorter maturity. There is, of course,
no assurance that the Fund's objective will be achieved.
Each Fund will generally invest its assets in a varied portfolio of investment
grade municipal securities which are general obligation and revenue bonds and
notes issued by or on behalf of the State of Hawaii and its political
subdivisions, agencies and instrumentalities, certain interstate agencies and
certain territories of the United States, the interest on which, in the opinion
of bond counsel or other counsel to the issuer of such securities, is exempt
from federal and Hawaii state income taxes. In normal circumstances up to 100%,
but not less than 80%, of a Fund's net assets will be invested in the foregoing
types of municipal securities. The foregoing is a fundamental policy and cannot
be changed without shareholder approval. Each Fund may invest up to 10% of its
assets in bonds rated BB or Ba grade municipal securities. The lowest quality
municipals in which each Fund will invest are those rated BB by S&P, Ba by
Moody's or which are unrated, but judged by the Investment Manager to be of
equivalent quality. (See "Municipal Securities-Medium and Lower Grade Municipal
Securities" below.)
When the Investment Manager determines during periods of adverse market
conditions including when Hawaiian tax exempt securities are unavailable, each
Fund may invest up to 20% of the value of its net assets for temporary defensive
purposes in money market instruments the interest of which may be subject to
federal, state or local income tax.
MUNICIPAL SECURITIES
General
Municipal securities are debt obligations issued by or on behalf of the
government of states, territories or possessions of the United States, the
District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest on which is generally exempt from the regular
Federal income tax.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. "General obligation" bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. "Revenue" bonds are usually payable only from the
revenue derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source. Industrial development bonds are usually revenue bonds, the credit
quality of which is normally directly related to the credit standing of the
industrial user involved.
There are, in addition, a variety of hybrid and special types of municipal
securities, including variable rate securities, municipal notes and municipal
leases. Variable rate securities bear rates of interest that are adjusted
periodically according to formulae intended to minimize fluctuations in values
of the instruments. Municipal notes include tax, revenue and bond anticipation
notes of short maturity, generally less than three years, which are issued to
obtain temporary funds for various public purposes. Municipal leases are
obligations issued by state and local governments or authorities to finance the
acquisition of equipment and facilities. Some municipal securities may not be
backed by the faith, credit and taxing power of the issuer. Zero coupon bonds
are debt obligations which do not require the periodic payment of interest and
are issued at a significant discount from face value. Pre-refunded bonds are
municipal bonds for which the issuer has previously provided money and/or
securities to pay the principal, any premium and interest on the bonds to their
maturity date or to a specific call date. A more detailed description of the
types of municipal securities in which each Fund may invest is included in the
Statement of Additional Information.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on income
derived from municipal securities. If such a proposal were enacted, the ability
of the Fund to pay tax exempt interest dividends might be adversely affected.
The Tax Reform Act of 1986 also limits the types and amounts of securities
eligible to pay tax exempt interest, which may restrict the range of tax exempt
securities available for investment by the Fund.
Investment Grade Municipal Securities
9
<PAGE>
Each Fund will invest its assets primarily (up to 100% but not less than 90%),
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") (Aaa, Aa,
A and Baa) or Standard & Poor's Corporation ("S&P") (AAA, AA,A and BBB); or if
unrated, are judged by the Investment Manager to be of comparable quality to
such rated securities. Bonds which are rated Baa or BBB are considered as medium
grade obligations, i.e. they are neither highly protected nor poorly secured.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Although each Fund will invest primarily in
investment grade municipal securities, from time to time each Fund may also
invest in medium grade municipal securities and in lower grade municipal
securities. The Investment Manager attributes to medium and lower quality
obligations the same general characteristics as do rating services such as
Standard & Poor's and Moody's.
Lower Grade Municipal Securities
Municipal securities which are in lower grade categories generally offer a
higher current yield than is offered by municipal securities which are in the
higher grade categories, but they also generally involve greater price
volatility and greater credit and market risk. Lower grade municipal securities,
including BB and Ba, are generally regarded as having predominantly speculative
capacity to pay interest and repay principal in accordance with their terms. A
more detailed description of the risks of investing in such municipal securities
is set forth in the Statement of Additional Information.
Certain Considerations Regarding Hawaii Securities
The ability of each Fund to meet its objective is affected by the ability of
municipal issuers to meet their payment obligations. There are additional risks
associated with an investment which invests primarily in issues of one state.
Since each Fund invests 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, and vote initiatives.
The Hawaiian economy is concentrated in tourism, agriculture, construction and
military operations. Tourism is Hawaii's largest economic sector. In 1995,
tourism rebounded from its 1992 - 1994 slump by posting a 3.2% increase in total
visitor arrivals. Agriculture, dominated by the Hawaiian pineapple and sugar
trade, has faced increased foreign competition. Agricultural production has
become somewhat more diversified and includes cattle, poultry, vegetables,
coffee, flowers and other nursery products.
Governmental activities, including activities usually administered on a
municipal or county level such as public education, are the responsibility of
the state. This concentration aggravates an otherwise high level of state debt
obligations. The state General Fund has operated either within planned deficits
or with ending fund balances since December 1962. Revenue is derived primarily
from general excise taxes and individual and corporate income tax.
Hawaii's county governments may issue government obligation bonds. The counties
have preferred to finance capital investment with cash of federal grants. As a
result, relatively minimal amounts are charged to the county general obligation
debt limit, which restricts local government indebtedness to not more than 15%
of net assessed value of real property. In Hawaii, no city or other governmental
units may issue bonds.
INVESTMENT PRACTICES
"When Issued" and "Delayed Delivery" Transactions
Each Fund may purchase and sell municipal securities on a "when issued" and
"delayed delivery" basis. No income accrues to the Fund on municipal securities
in connection with such transactions prior to the date the Fund actually takes
delivery of and makes payment for such securities. These transactions are
subject to market fluctuation; the value of the municipal securities at delivery
may be more or less than their purchase price, and yields generally available on
municipal securities when delivery occurs may be higher or lower than yields on
the municipal securities obtained pursuant to such transactions. Because the
Fund relies on the buyer
10
<PAGE>
or seller, as the case may be, to consummate the transaction, failure by the
other party to complete the transaction may result in the Fund missing the
opportunity of obtaining a price or yield considered to be advantageous. When
the Fund is the buyer in such a transaction, however, it will maintain, in a
segregated account with its custodian, cash or high-grade municipal portfolio
securities having an aggregate value equal to the amount of such purchase
commitments until payment is made. The Fund will make commitments to purchase
municipal securities on such basis only with the intention of actually acquiring
these securities, but the Fund may sell such securities prior to the settlement
date if such sale is considered advisable. To the extent the Fund engages in
"when issued" and "delayed delivery" transactions, it will do so for the purpose
of acquiring securities for the Fund's portfolio consistent with the Fund's
investment objective and policies and not for the purpose of investment
leverage.
Other Practices
The Bond Fund may invest in municipal bonds with a maturity range as long as 35
years. The Bond Fund will seek to invest in municipal bonds of such maturities
that, in the judgment of the Fund and the Investment Manager, will provide a
high level of current income consistent with liquidity requirements and market
conditions.
Each Fund may borrow amounts up to 5% of its net assets (including reverse
repurchase agreements) in order to pay for redemptions when liquidation of
portfolio securities is considered disadvantageous or inconvenient and may
pledge up to 10% of its net assets to secure such borrowing.
It is possible that a Fund will invest more than 25% of its assets in a
particular segment (bonds financing similar projects such as utilities or
hospitals) of the municipal bond market. (An investment of more than 25% of
assets in a particular segment of the municipal bond market differs from an
investment (i.e., concentration) of more than 25% of assets in a single
industry.) In such circumstances, economic, business, political or other changes
affecting one bond might also affect other bonds in the same segment, thereby
potentially increasing market risk with respect to the bonds in such segment.
Such changes could include, but are not limited to, proposed or suggested
legislation involving the financing of projects within such segments, declining
markets or needs for such projects and shortages or price increases of materials
needed for such projects.
Each Fund intends to invest its assets in a varied portfolio in order to reduce
the impact on the Fund of any loss on a particular portfolio security. However,
in order to attain economies of scale at relatively low asset size. Each Fund
may invest more than 5% of its assets in at least five issuers and may invest as
much as 50% of its assets in as few as two issuers. With respect to the
remaining 50% of its assets, it may invest no more than 5% in the securities of
one issuer. Thus, each Fund's investments may be diversified among fewer issuers
than if it were a diversified fund and, if so, the Fund's net asset value may
increase or decrease more rapidly than a diversified fund if these securities
change in value.
PURCHASING SHARES OF THE FUNDS
The Funds' shares are continuously offered through First Pacific Securities (the
"Distributor"), 2756 Woodlawn Drive, #6-210, Honolulu, Hawaii 96822. The
Distributor is a wholly owned subsidiary of the Fund's Investment Manager.
The minimum initial investment to open an account is $1,000, and the minimum
subsequent investment is $100. Shares in each Fund may be purchased from the
Distributor or from members of the National Association of Securities Dealers
who have sales agreements with the Distributor. Direct purchase orders may be
made by submitting a check or wiring funds and in the case of a new account, a
completed application to the Fund's transfer agent, First Pacific Recordkeeping,
Inc. ("Transfer Agent") at the following address: First Pacific Recordkeeping,
Inc., 2756 Woodlawn Drive, #6-201, Honolulu, Hawaii, 96822. For subsequent
investments, the stub from the bottom of the shareholder confirmation should be
sent along with the check.
All orders for the purchase of shares are subject to acceptance or rejection by
the Corporation or by the Distributor. Direct purchase orders received by the
Transfer Agent by 4:00 p.m., New York City time, are
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confirmed at that day's public offering price. Direct purchase orders received
by the Transfer Agent after 4:00 p.m. are confirmed at the public offering price
next determined on the following business day. Should an order to purchase
shares be canceled because an investor's check does not clear, the investor will
be responsible for any resulting losses or fees incurred in that transaction.
The issuance of shares is recorded on the books of each Fund in full and
fractional shares carried to the third decimal place. To avoid additional
operating costs, and for investor convenience, share certificates will no longer
be issued. Each Fund's shares are offered at the net asset value next computed
after the Transfer Agent receives a check and order to purchase from an
investor's securities dealer or broker or directly from the investor. There is
no sales load imposed on purchases of Fund shares at the time of purchase.
Investors will be entitled to begin receiving dividends on such shares on the
next business day after the Fund receives good funds for such order. It is the
responsibility of an investor, or an investor's broker or dealer, to promptly
forward payment to the Corporation for shares being purchased.
In-Kind Purchases
Under certain circumstances, an investor may purchase a Fund's shares by
delivering to the Fund securities eligible for the Fund's portfolio. All in-kind
purchases are subject to prior approval by the Manager. Prior to sending
securities to a Fund with a purchase order, investors must contact the Manager
((808)599-2400) for verbal approval of the in-kind purchase. Acceptance of such
securities will be at the discretion of the Manager based on its judgment as to
whether, in each case, acceptance of the securities will allow the Fund to
acquire the securities at no more than the cost of acquiring them through normal
channels. Fund shares purchased in exchange for securities are issued at the net
asset value next determined after receipt of securities and the purchase order.
Securities accepted for in-kind purchases will be valued in the same manner as
portfolio securities, described below under "Net Asset Value," at the value next
determined after receipt of the purchase order. Approval by the Manager of
in-kind purchases will not delay valuation of the securities accepted for
in-kind purchases or fund shares issued in exchange for such securities. The
in-kind exchange, for tax purposes, constitutes the sale of one security and the
purchase of another. The sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes.
DISTRIBUTIONS FROM THE FUNDS
Each Fund will declare distributions on a daily basis and will pay such
distributions on a monthly basis. Each Fund will also make distributions to
investors of its net realized capital gains, if any, annually. The monthly
distribution is composed of all or a portion of investment income earned by a
Fund, less the Fund's expenses. Capital gains distributions consist of a Fund's
realized gain on transactions in securities and in futures and options hedging
transactions, net of any realized capital losses, less any carryover capital
losses from previous years.
Each Fund will automatically credit monthly distributions and any annual net
long-term capital gain distributions to an investor's account in additional
shares of the Fund valued at net asset value, unless an investor elects
otherwise to the Fund's transfer agent. This election must be made by writing to
the Transfer Agent. If an investor elects to change the method of distribution,
such change will be effective only with regard to distributions for which the
payment date is seven or more business days after the Transfer Agent has
received the request.
REDEMPTION OF SHARES
Written Redemption Request
Investors may redeem shares at any time by mailing a written redemption request
in proper form to the Transfer Agent. This request should be sent to First
Pacific Recordkeeping, Inc., 2756 Woodlawn Drive, #6-201, Honolulu, HI 96822.
The request should indicate the amount to be redeemed, identify the account
number and be signed exactly as the shares are registered. If the amount being
redeemed is in excess of $50,000, or if proceeds are to be sent to anyone other
than the registered shareholder or address of record, signature(s) must
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be guaranteed by an acceptable financial institution such as a bank, savings and
loan association, trust company credit union, broker, dealer, registered
securities association and clearing agency. From time to time, the Transfer
Agent in its discretion may waive any or certain of the foregoing requirements
in particular cases. Investors will receive the net asset value per share next
computed after the Transfer Agent receives the redemption request in proper
form.
Telephone Redemptions
Investors who have previously established the telephone redemption privilege may
sell shares by calling the Transfer Agent at (808) 988-8088 before 4:00 p.m.
Eastern time to request a redemption. Prior to redeeming shares by telephone the
"Redemption Instructions" section of either the Account Application or Expedited
Telephone Redemption and Exchange Request Form (the "Authorization") must be
completed and on file with the Transfer Agent. The signature(s) on the
Authorization must be guaranteed by an acceptable financial institution such as
a bank, savings and loan association, trust company, credit union, broker,
dealer, registered securities association and clearing agency unless the
Authorization is completed at the time an account is originally established. A
redemption requested by telephone will be processed at the net asset value next
determined after receipt of the request. The proceeds would then be made payable
to the registered shareowner(s) and mailed to the address registered on the
account or wired to a bank, as requested on the Authorization. Investors cannot
redeem shares by telephone if stock certificates are held for those shares. In
addition, this service is not available with respect to shares purchased by
check until 15 days after purchase.
By utilizing the telephone redemption service, an investor authorizes the
Transfer Agent or its agent to act upon the instructions of any person by
telephone to redeem shares for any account for which such service has been
authorized to the address of record of such account. Each Fund and the Transfer
Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. These procedures include requiring the
investor to provide certain personal identification at the time an account is
opened and prior to effecting each transaction request by telephone. In
addition, investors may be required to provide additional telecopied written
instructions of such transaction requests. A Fund or the Transfer Agent may be
liable for any losses due to unauthorized or fraudulent telephone instructions
if the Fund or the Transfer Agent does not employ these procedures. Neither the
Funds nor the Transfer Agent will be responsible for any loss, liability, cost
or expense for following instructions received by telephone that it reasonably
believes to be genuine. To change the name of the commercial bank or the account
designated to receive redemption proceeds, a written request must be sent to the
Fund at the Corporation's address. Requests to change the bank or account must
be signed by each shareholder and each signature must be guaranteed. This
service may be amended or terminated at any time by the Transfer Agent or the
Fund.
General
Whether shares are redeemed by a Fund or sold through a securities dealer, a
check for the proceeds (net of any required tax withholding) ordinarily will be
mailed to investors or their dealer as the case may be within five business days
after a redemption request or repurchase order and stock certificates (if any)
are received in proper form as set forth above. Wire transfers from a Fund of
redemption proceeds, in the manner described above, ordinarily will be
transmitted to the investor within two business days. If any shares are redeemed
or repurchased shortly after purchase, the Funds will not mail the proceeds
until checks received for the purchase of shares have cleared, which may take 10
days or more. The proceeds, of course, may be more or less than the cost of the
shares.
The right of redemption by a Fund may be suspended or the date of payment
postponed for more than seven days during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), when an
emergency exists as defined by rules and regulations of the Securities and
Exchange Commission, or during any period when the Securities and Exchange
Commission has by order permitted such suspension or postponement.
Each Fund reserves the right to redeem an investor's account where the account
is worth less than $500. Each Fund will advise the shareholder of such intention
in writing at least sixty (60) days prior to effecting such redemption, during
which time the shareholder may purchase additional shares in an amount necessary
to bring
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the account back to $500. The Funds will not redeem an investor's account which
is worth less than $500 solely on account of a market decline.
NET ASSET VALUE
The net asset value per share for each Fund is determined by calculating the
total value of the Fund's assets, deducting its total liabilities, and dividing
the result by the number of shares outstanding. The net asset value is computed
once daily as of 4:00 p.m. Eastern time, Monday through Friday, except on
customary business holidays, or except on any day on which no purchase or
redemption orders are received, or there is not a sufficient degree of trading
in a Fund's portfolio securities such that the Fund's net asset value per share
might be materially affected. Each Fund reserves the right to calculate the net
asset value and to adjust the public offering price based thereon more
frequently than once a day if deemed desirable.
Fixed income securities are valued by 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 Directors of the Fund. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost when it is determined by First Pacific's Board of Directors that
amortized cost is the fair value of such securities. Other assets are valued at
fair value as determined in good faith by the Directors.
TAX STATUS
Federal Taxes
Each Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986 (the "Code"). In each year a Fund so
qualifies and distributes to its shareholders substantially all of its net
investment income and net capital gains, if any, in the manner required by the
Code, it will not be required to pay federal income taxes, except to the extent
that its taxable income is not distributed.
If, at the close of each quarter of a Fund's taxable year, at least 50% of the
value of the Fund's total assets consists of obligations exempt from federal
income tax ("tax-exempt obligations"), the Fund will be qualified to pay exempt
interest dividends to its shareholders to the extent of its tax-exempt interest
income (less expenses applicable thereto). Exempt interest dividends may be
treated by shareholders as interest excludable from their gross income for
federal income tax purposes, but may be taxable distributions for state and
local tax purposes. Exempt interest dividends are included, however, in
determining what portion, if any, of a person's social security benefits will be
includable in gross income subject to federal income tax. Interest with respect
to indebtedness incurred or continued by a shareholder to purchase or carry
shares of a Fund is not deductible to the extent of the exempt interest
dividends received from a Fund.
Distributions of a Fund's taxable income and net short-term capital gains, if
any, are taxable to shareholders at ordinary income rates. Distributions of a
Fund's net long-term capital gains ("capital gains dividends"), if any, are
taxable to shareholders at the rates applicable to long-term capital gains
regardless of the length of time shares of the Fund have been held by such
shareholders. Each Fund will inform shareholders of the source and tax status of
such distributions promptly after the close of each calendar year. Interest on
certain "private activity" obligations issued after August 7, 1986 will give
rise to an item of tax preference which may cause a shareholder to be subject to
(or result in an increased liability under) the alternative minimum tax.
Distributions from the Funds will not be eligible for the 70% dividends received
deduction for corporations because none of the Funds' net income will arise from
dividends on common or preferred stock.
Redemption or resale of shares of the Funds will be a taxable transaction for
federal income tax purposes, and shareholders will recognize gain or loss in an
amount equal to the difference between their basis in their shares of the Fund
and the amount received. Assuming that such shares are held as a capital asset,
the gain or loss will be a capital gain or loss and will generally be long-term
if such shareholders have held their shares for more than one year. Any loss on
shares held for six months or less will be disallowed to the extent of any
exempt interest dividends received with respect to such shares. If such loss is
not entirely disallowed, it will be treated as a long-term capital loss to the
extent of any capital gains dividends received (or deemed to have been
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<PAGE>
received) with respect to such shares.
Distributions of a Fund's taxable income and net capital gains, if any, will be
taxable as described above, whether received in shares of the Fund or in cash.
Shareholders who receive distributions in the form of additional shares will
have a basis for federal income tax purposes in each such share equal to the
value thereof on the reinvestment date.
In order to avoid a 4% excise tax on "spillover dividends," each Fund will be
required to distribute by December 31 of each year at least 98% of its net
investment income for such year and at least 98% of its capital gain net income
(computed on the basis of the one-year period ending on October 31 of such
year), plus any required distribution amounts that were not distributed in
previous tax years. Dividends that are declared by a Fund in December of any
year and that are actually paid before the following February to shareholders of
record on a specified date in December will be treated for tax purposes as
having been distributed to, and received by, shareholders in December.
Each Fund is required, in certain circumstances, to withhold 31% of taxable
dividends and certain other payments, including redemptions, paid to
shareholders who do not furnish to the Fund their correct taxpayer
identification number (in the case of individuals, their social security number)
or who are otherwise subject to backup withholding. In addition, each Fund is
required, in certain circumstances, to withhold up to 30% of dividends paid to
nonresident aliens.
Hawaii Tax Status
Shareholders of each Fund who are subject to Hawaii income taxes will not be
subject to Hawaii income taxes on the Fund's dividends to the extent that such
dividends qualify as either (1) exempt-interest dividends of a regulated
investment company under Section 852(b)(5) of the Internal Revenue Code of 1986,
which are derived from interest on tax-exempt obligations of the State of Hawaii
or any of its political subdivisions or on obligations of the possessions or
territories of the United States (such as Puerto Rico, Virgin Islands or Guam)
that are exempt from federal income tax or (2) dividends derived from interest
or dividends on obligations of the United States and its possessions or on
obligations or securities of any authority, commission or instrumentality of the
United States included in federal adjusted gross income but exempt from state
income taxes under the laws of the United States. To the extent that a Fund's
distributions are attributable to sources not described in the preceding
sentences, such as long or short term capital gains, such distributions will not
be exempt from Hawaii income tax.
Interest on Hawaiian Obligations, tax-exempt obligations of states other than
Hawaii and their political subdivisions, and obligations of the United States or
its possessions is not exempt from the Hawaii Franchise Tax. This tax applies to
banks, building and loan associations, industrial loan companies, financial
corporations, and small business investment companies.
Persons or entities who are not Hawaii residents should not be subject to Hawaii
income taxation on dividends and distributions made by the Fund but may be
subject to other state and local taxes.
Each Fund will notify its shareholders within 45 days after the close of the
year as to the interest derived from Hawaii obligations and exempt from Hawaii
income tax.
The tax discussion set forth above is for general information only. Prospective
investors should consult their tax advisors regarding the federal, state, local,
foreign and other tax consequences to them of any investment in the Funds,
including the effects of any changes, including proposed changes, in the tax
laws.
OFFICERS AND DIRECTORS
The officers of the Fund manage its day-to-day operations. The Fund's manager
and its officers are subject to the supervision and control of the Board of
Directors under the laws of Maryland. A list of the directors and
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officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the "Statement
of Additional Information."
INVESTMENT MANAGER
First Pacific Management Corporation (the "Manager"), 2756 Woodlawn Drive,
#6-201, Honolulu, Hawaii 96822, was founded in 1988, organized the Fund in 1988,
and acts as its manager. The Manager manages the investment of the assets of
each Fund, provides the Fund with investment research and administers the Fund's
daily business affairs. The Manager engages in a continuous review and analysis
of state and local economic conditions and trends and governmental activities
related to the issuance of state and local debt obligations. The Manager
provides portfolio research and services. The Manager is responsible for
evaluating the portfolio and overseeing its performance. First Pacific
Management Corporation provides or pays the cost of certain management,
supervisory and administrative services required in the normal operation of the
Corporation. This includes investment management and supervision; remuneration
of directors, officers and other personnel; rent; and such other items that
arise in daily corporate administration. Daily corporate administration includes
the coordination and monitoring of any third parties furnishing services to each
Fund, providing the necessary office space, equipment and personnel for such
Fund business and assisting in the maintenance of the Fund's federal
registration statement and other documents required to comply with federal and
state law. Not considered normal operating expenses, and therefore payable by
each Fund, are organizational expenses, custodian fees, shareholder services and
transfer agency fees, taxes, interest, governmental charges and fees, including
registration of the Fund and its shares with the Securities and Exchange
Commission and the Securities Departments of the various States, brokerage
costs, dues, and all extraordinary costs and expenses including but not limited
to legal and accounting fees incurred in anticipation of or arising out of
litigation or administrative proceedings to which the Fund, its directors or
officers may be subject or a party thereto. As compensation for the services
provided by First Pacific Management Corporation, each Fund pays the Manager a
fee at the annual rate of .50 of one percent (.50%) of its average daily net
assets. Each Fund paid the Manager .50% of average net assets in compensation
for the fiscal year ended September 30, 1995.
The Manager may voluntarily reimburse expenses such that it will waive a portion
of its fees or reimburse a Fund for its other expenses to the extent required to
meet any applicable state expense limitation or to maintain a certain voluntary
maximum annual expense ratio for the Fund. Any such expense limitation would
reduce the Fund's expenses and increase its yield.
Certain officers and directors of the Fund are also officers or directors, or
both, of First Pacific Management Corporation. Terrence K.H. Lee, President of
the Fund and the Manager, owns 58% of the stock of the Manager. The stock of the
Manager owned by Mr. Lee and by other stockholders who are not controlling
persons is subject to certain agreements providing for rights of first refusal
as to such stock.
All investment decisions are made by a committee and no person is primarily
responsible for making recommendations to that committee.
In 1995, a moderately expanding economy, modest demands for debt and the
expectations of a slower climb in prices and unit labor costs led to a
substantial drop in long term interest rates. Given these conditions and
expectations, the primary investment strategy of the Fund's investment manager
was to lengthen the average maturity of the portfolio in order to capture
prospective increases in bond prices. The Fund emphasized purchases of twenty
year high quality bonds. The decline in interest rates, coupled with the
strategy of lengthening portfolio maturities, was the primary factor producing
the past year's performance results.
Management Agreement
Subject to the authority of the Board of Directors of the Corporation, the
Manager and the Corporation's officers will supervise and implement each Fund's
investment activities. The Manager implements the investment program of the
Funds and the composition of its portfolio on a day-to-day basis.
The current Management Agreement between the Bond Fund and First Pacific
Management Corporation was approved by the shareholders of the Fund at a meeting
called for such purpose on May 14, 1991. The
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Management Agreement between the Intermediate Fund and the Manager was approved
in 1994 by the Fund's initial shareholder. Each Agreement continues in effect
for an initial two-year period and thereafter for successive annual periods, so
long as such continuance is specifically approved at least annually by the Board
of Directors of the Corporation or by a vote of the majority of the outstanding
voting securities of the Fund, and, provided also that such continuance is
approved by a vote of the majority of the directors who are not parties to the
Agreements or interested persons of any such party at a meeting held in person
and called specifically for the purpose of evaluating and voting on such
approval. The Agreement provides that either party may terminate by giving the
other not more than sixty days nor less than thirty days written notice. The
Agreement will terminate automatically if assigned by either party.
CUSTODIAN
Bank of California of San Francisco, California is the custodian of the assets
of each Fund.
THE DISTRIBUTION PLAN
Each Fund has adopted a distribution plan (the "Distribution Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940 which provides that the Fund
may spend up to .25% per year of its average daily net assets in connection with
the Fund's activities as a distributor of its shares. The Board of Directors
determined that each Distribution Plan is in the best interests of the
shareholders. Pursuant to the Distribution Plan, each Fund has entered into a
Distribution Agreement with First Pacific Securities (the "Distributor"), to
serve as the distributor of each Fund's shares. Under the Distribution Plan,
each Fund will pay the Distributor for expenditures which are primarily intended
to result in the sale of the respective Fund's shares such as advertising,
marketing and distributing the Fund's shares and servicing Fund investors,
including payments for reimbursement of and/or compensation to brokers and
dealers.
During the initial term of the Distribution Agreement the amounts payable to the
Distributor under the Distribution Plan may not fully reimburse the Distributor
for its actual distribution related expenses. The Distributor expects to recover
such excess amounts through its normal fees under the Distribution Plan in later
years. The Funds are not legally obligated to repay such excess amounts or any
interest thereon, or to continue the Distribution Plan for such purpose.
Distribution Plan payments are subject to limits under the rules of the National
Association of Securities Dealers.
Each Plan provides that the Distributor must submit quarterly reports to the
Board of Directors of the Corporation setting forth all amounts paid under the
Distribution Plan and the purposes for which such expenditures were made,
together with such other information as from time to time is reasonably
requested by the Directors.
Each Distribution Plan provides that it will continue in full force and effect
if ratified at the first meeting of Fund shareholders, and thereafter from year
to year so long as such continuance is specifically approved by a vote of the
Directors, and also by a vote of the disinterested Directors, cast in person at
a meeting called for the purposes of voting on the Distribution Plan. The
Distribution Plan for each fund was approved by the Fund's shareholders. The
Distribution Plans may not be amended to increase materially the amount to be
spent for the services described therein without approval by a vote of a
majority of the outstanding voting shares of the respective Fund, and all
material amendments of a Distribution Plan must be approved by the Directors and
also by the disinterested Directors. Each Distribution Plan may be terminated at
any time by a vote of a majority of the disinterested Directors or by a vote of
a majority of the outstanding voting shares of the respective Fund.
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While a Distribution Plan is in effect, selection of the nominees for
disinterested directors is committed to the discretion of the disinterested
directors.
ALLOCATION OF BROKERAGE TRANSACTIONS
In effecting purchases and sales of each Fund's portfolio securities, the
Manager and the Fund may place orders with and pay brokerage commissions to
brokers, including brokers which may be affiliated with the Fund, the Manager,
the Distributor or dealers participating in the offering of the Fund's shares.
In addition, in selecting among firms to handle a particular transaction,
subject to best price and execution, the Manager and the Funds may take into
account whether the firm has sold or is selling shares of the Funds.
SHAREHOLDER SERVICES AND REPORTS
First Pacific Recordkeeping, Inc., transfer agent for the Fund, performs
bookkeeping, data processing and administrative services related to the
maintenance of shareholder accounts. The Transfer Agent also provides personal
services to shareholders of each Fund pursuant to the Shareholder Services
Agreement. Services provided pursuant to this Agreement include telephone and
written communications with shareholders pertaining to changing dividend payment
options, account designations and addresses, transfers, purchase and redemption
transactions and general maintenance of shareholder relations. The Shareholder
Service Agreement does not duplicate services provided under the Transfer Agent
Agreement, such as maintenance of shareholder accounts and records, or
effectuating redemptions, transfers or opening shareholder accounts. Clerical
services provided by the Transfer Agent on behalf of the Funds under the
Shareholder Services Agreement include personnel as needed, equipment and
supplies, to respond to and process the shareholder inquiries. Bookkeeping
services provided by the Transfer Agent on behalf of the funds pursuant to this
Agreement, are generally limited to records of transactions and expenditures
originating with the Transfer Agent in connection with providing supplemental
shareholder services and maintaining shareholder relations and communications.
As compensation for its clerical, bookkeeping and shareholder services, the
Transfer Agent receives a fee, computed daily and payable monthly, at an
annualized rate of .10% of the Fund's average daily net assets.
When an initial investment is made in the Fund, an account will be opened for
each investor on the Fund's books and investors will receive a confirmation of
the opening of the account. Investors will receive monthly statements giving
details of all activity in their account during the month and will also receive
a statement whenever an investment or withdrawal is made in or from their
account. Information for federal income tax purposes will be provided at the end
of the year.
First Pacific Recordkeeping, Inc. also provides fund accounting services for the
Intermediate Fund pursuant to a Fund Accounting Agreement.
GENERAL INFORMATION AND HISTORY
First Pacific Mutual Fund, Inc. was incorporated in Maryland on July 8, 1988 and
has a present authorized capitalization of 100,000,000 shares of $.01 par value
common stock, of which, 20,000,000 shares have been allocated to each Fund. All
shares have like rights and privileges. Each full and fractional share, when
issued and outstanding, has (1) equal voting rights with respect to matters
which affect the respective Fund, and (2) equal dividend, distribution and
redemption rights to assets of the respective Fund. Shares when issued are fully
paid and nonassessable. The Corporation may create other series of stock but
will not issue any senior securities. Shareholders do not have pre-emptive or
conversion rights. These shares have noncumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors, if they choose to do so, and in such
event, the holders of the remaining less than 50% of the shares voting will not
be able to elect any Directors. The Corporation is not required to hold a
meeting of shareholders each year. The Fund intends to hold annual meetings when
it is required to do so by the Maryland General Corporate Law or the Investment
Company Act of 1940. Shareholders have the right
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to call a meeting to consider the removal of one or more of the Directors and
will be assisted in Shareholder communication in such matter.
The Fund may use "First Pacific" in its name so long as First Pacific Management
Corporation or an affiliate thereof, acts as its investment manager.
This prospectus omits certain of the information contained in the registration
statement filed with the Securities and Exchange Commission, Washington, D.C.
These items may be inspected at the offices of the Commission or obtained from
the Commission upon payment of the fee prescribed.
Shareholder inquiries should be directed to: First Pacific Securities, 2756
Woodlawn Drive #6-201, Honolulu, Hawaii 96822.
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INVESTMENT MANAGER
First Pacific Management Corporation
2756 Woodlawn Drive, #6-201
Honolulu, Hawaii 96822
DISTRIBUTOR
First Pacific Securities, Inc.
2756 Woodlawn Drive, #6-201
Honolulu, Hawaii 96822
CUSTODIAN
Bank of California
San Francisco, California
LEGAL COUNSEL TO FUND
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
INDEPENDENT AUDITORS
Tait, Weller & Baker
Two Penn Center Plaza, Suite 700
Philadelphia, Pennsylvania 19102
TRANSFER AGENT
First Pacific Recordkeeping, Inc.
2756 Woodlawn Drive, #6-201
Honolulu, HI 96822
LEGAL COUNSEL TO INVESTMENT MANAGER
Goodsill Anderson Quinn & Stifel
1099 Alakea Street, Suite 1800
Alii Place
Honolulu, Hawaii 96813
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FIRST PACIFIC MUTUAL FUND, INC.
FIRST HAWAII MUNICIPAL BOND FUND SERIES AND
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND SERIES
STATEMENT OF ADDITIONAL INFORMATION
First Pacific Mutual Fund, Inc. (the "Corporation") is a series
investment company organized as a Maryland corporation. In this Statement of
Additional Information all references to any series of the Corporation will be
called the "Fund" unless expressly noted otherwise. First Hawaii Municipal Bond
Fund (the "Bond Fund") is the first series of the corporation. First Hawaii
Intermediate Municipal Fund (the "Intermediate Fund") is the second series of
the corporation. Each Fund is a non-diversified, open-end management investment
company whose investment goal is to provide investors with as high a level of
income exempt from federal income taxes and Hawaii personal income taxes as is
consistent with prudent investment management and the preservation of
shareholders' capital. The Intermediate Fund will attempt to achieve its
objective by investing primarily in a varied portfolio of investment grade
obligations with a dollar weighted average portfolio maturity of more than three
years but not more than ten years. The Fund's portfolio is managed by First
Pacific Management Corporation (the "Manager").
This Statement of Additional Information is not a prospectus but
should be read in conjunction with the Fund's Prospectus dated February 1, 1996,
(the "Prospectus"). A copy of the Prospectus may be obtained without charge by
calling (808) 988-8088.
The Prospectus and this Statement of Additional Information omit
certain information contained in the registration statement filed with the
Securities and Exchange Commission, Washington, D.C. This omitted information
may be obtained from the Commission upon payment of the fee prescribed, or
inspected at the Commission's office at no charge.
TABLE OF CONTENTS
Investment Policies and Restrictions .........................................2
Additional Investment Considerations .........................................4
Description of Municipal Securities Ratings .................................11
Officers and Directors ......................................................15
Custodian ...................................................................16
Fund Accounting .............................................................16
Independent Auditors .......................................................16
Investment Management .......................................................16
Portfolio Transactions ......................................................17
The Distributor .............................................................18
Transfer Agent ..............................................................19
Performance .................................................................19
This Statement of Additional Information is dated February 1, 1996.
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INVESTMENT POLICIES AND RESTRICTIONS
The investment objective of each Fund is to provide investors with as
high a level of income exempt from federal income taxes and Hawaii personal
income taxes as is consistent with prudent investment management and the
preservation of shareholders' capital. The Intermediate Fund will attempt to
achieve its objective by investing primarily in a varied portfolio of investment
grade obligations with a dollar weighted average portfolio maturity of more than
three years but not more than ten years. Each Fund will primarily invest its
assets in obligations issued by or on behalf of the State of Hawaii and its
political subdivisions, agencies and certain territories of the United States,
the interest on which is exempt from federal and Hawaii state income taxes in
the opinion of counsel.
Fundamental investment restrictions limiting the investments of each
Fund provide that each Fund may not:
1. Purchase any securities (other than obligations issued or
guaranteed by the United States Government or by its agencies or
instrumentalities), if as a result more than 5% of the Fund's total assets
(taken at current value) would then be invested in securities of a single issuer
or if as a result the Fund would hold more than 10% of the outstanding voting
securities of any single issuer, except that with respect to 50% of the Fund's
total assets up to 25% may be invested in one issuer.
2. Invest more than 25% of its assets in a single industry. (As
described in the Prospectus, the Fund may from time to time invest more than 25%
of its assets in a particular segment of the municipal bond market; however, the
Fund will not invest more than 25% of its assets in industrial development bonds
in a single industry.)
3. Borrow money, except for temporary purposes from banks or in
reverse repurchase transactions as described in the Statement of Additional
Information and then in amounts not in excess of 5% of the total asset value of
the Fund, or mortgage, pledge or hypothecate any assets except in connection
with a borrowing and in amounts not in excess of 10% of the total asset value of
the Fund. Borrowing (including bank borrowing and reverse repurchase
transactions) may not be made for investment leverage, but only to enable the
Fund to satisfy redemption requests where liquidation of portfolio securities is
considered disadvantageous or inconvenient. In this connection, the Fund will
not purchase portfolio securities during any period that such borrowings exceed
5% of the total asset value of the Fund. Notwithstanding this investment
restriction, the Fund may enter into "when issued" and "delayed delivery"
transactions as described in the Prospectus.
4. Make loans, except to the extent obligations in which the Fund may
invest in are considered to be loans.
5. Buy any securities "on margin." The deposit of initial or
maintenance margin in connection with municipal bond index and interest rate
futures contracts or related options transactions is not considered the purchase
of a security on margin.
6. Sell any securities "short," write, purchase or sell puts, calls or
combinations
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thereof, or purchase or sell interest rate or other financial futures or index
contracts or related options, except as described, from time to time, under the
heading "Investment Practices" in the Prospectus.
7. Act as an underwriter of securities, except to the extent the Fund
may be deemed to be an underwriter in connection with the sale of securities
held in its portfolio.
8. Purchase any illiquid assets, including any security which is
restricted as to disposition under federal securities laws or by contract
("restricted securities" or which is not readily marketable), if as a result of
such purchase more than 15% of the Fund's total assets would be so invested.
9. Make investments for the purpose of exercising control or
participation in management.
10. Invest in securities of other investment companies, except as part
of a merger, consolidation or other acquisition and except that the Fund may
temporarily invest up to 10% of the value of its assets in Hawaii tax exempt
money market funds for temporary defensive purposes, including when acceptable
investments are unavailable. Such tax exempt fund investments will be limited in
accordance with Section 12(d) of the 1940 Act.
11. Invest in equity, interests in oil, gas or other mineral
exploration or development programs.
12. Purchase or sell real estate, commodities or commodity contracts,
except to the extent the municipal securities the Fund may invest in are
considered to be interests in real estate, and except to the extent the options
and futures and index contracts the Fund may invest in are considered to be
commodities or commodities contracts.
The Funds may not change any of these investment restrictions without the
approval of the lesser of (i) more than 50% of the respective Fund's outstanding
shares or (ii) 67% of the respective Fund's shares present at a meeting at which
the holders of more than 50% of the outstanding shares are present in person or
by proxy. As long as the percentage restrictions described above are satisfied
at the time of the investment or borrowing, a Fund will be considered to have
abided by those restrictions even if, at a later time, a change in values or net
assets causes an increase or decrease in percentage beyond that allowed.
Frequent portfolio turnover is not anticipated. Each Fund anticipates
that the annual portfolio turnover rate of the Fund will be less than 100%. Each
Fund will not seek capital gain or appreciation but may sell securities held in
its portfolio and, as a result, realize capital gain or loss. Sales of portfolio
securities will be made for the following purposes: in order to eliminate unsafe
investments and investments not consistent with the preservation of the capital
or tax status of the respective Fund; honor redemption orders, meet anticipated
redemption requirements and negate gains from discount purchases; reinvest the
earnings from portfolio securities in like securities; or defray
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normal administrative expenses.
ADDITIONAL INVESTMENT CONSIDERATIONS
Municipal Securities. Municipal securities include long-term
obligations, which are often called municipal bonds, as well as shorter term
municipal notes, municipal leases, and tax-exempt commercial papers. Under
normal market conditions, longer term municipal securities have greater price
fluctuation than shorter term municipal securities, and therefore the
Intermediate Fund generally expects to invest in obligations with a dollar
weighted average portfolio maturity of more than three years but not more than
ten years. The two principal classifications of municipal bonds are "general
obligation" and "revenue" or "special obligation" bonds, which include
"industrial revenue bonds." General obligation bonds are secured by the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. Revenue or special obligation 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 tax or other specific revenue source such as from
the user of the facility being financed. Municipal leases are obligations issued
by state and local governments or authorities to finance the acquisition of
equipment and facilities. They may take the form of a lease, an installment
purchase contract, a conditional sales contract, or a participation certificate
in any of the above. Some municipal leases and participation certificates may
not be considered readily marketable. The "issuer" of municipal securities is
generally deemed to be the governmental agency, authority, instrumentality or
other political subdivision, or the nongovernmental user of a facility, the
assets and revenues of which will be used to meet the payment obligations, or
the guarantee of such payment obligations, of the municipal securities. Zero
coupon bonds are debt obligations which do not require the periodic payment of
interest and are issued at a significant discount from face value. The discount
approximates the total amount of interest the bonds will accrue and compound
over the period until maturity at a rate of interest reflecting the market rate
of the security at the time of issuance. Inverse floaters are types of
derivative municipal securities whose interest rates bear an inverse
relationship to the interest rate on another security or the value of an index.
These securities usually permit the investor to convert the floating rate to a
fixed rate (normally adjusted downward)), and this optional conversion feature
may provide a partial hedge against rising interest rates if exercised at an
opportune time. Pre-refunded bonds are municipal bonds for which the issuer has
previously provided money and/or securities to pay the principal, any premium,
and the interest on the bonds to their maturity date or to a specific call date.
The bonds are payable from principal and interest on an escrow account invested
in U.S. government obligations, rather than from the usual tax base or revenue
stream. As a result, the bonds are rated AAA by the rating agencies.
Each Fund may purchase floating and variable rate demand notes, which
are municipal securities normally having a stated maturity payment in excess of
one year, but which permit the holder to demand payment of principal at any
time, or at specified intervals. The issuer of such notes normally has a
corresponding right, after a given period, to prepay at its discretion upon
notice to the note holders the outstanding principal amount of the notes plus
accrued interest. The interest rate on a floating rate demand note is based on a
known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable rate demand
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note is adjusted automatically at specified intervals. There generally is no
secondary market for these notes, although they are redeemable at face value.
Each note purchased by the Fund will meet the criteria established for the
purchase of municipal securities.
Medium and Lower Grade Municipal Securities. Municipal securities
which are in the medium and lower grade categories generally offer a higher
current yield than is offered by municipal securities which are in the high
grade categories, but they also generally involve greater price volatility and
greater credit and market risk. Credit risk relates to the issuer's ability to
make timely payment of principal and interest when due. Market risk relates to
the changes in market value that occur as a result of variation in the level of
prevailing interest rates and yield relationships in the municipal securities
market. Generally, prices for longer maturity issues tend to fluctuate more than
for shorter maturity issues. Accordingly, the Intermediate Fund will invest in
obligations with a dollar weighted average portfolio maturity of more than three
years but not more than ten years. Additionally, the Fund will seek to reduce
risk through portfolio diversification, credit analysis, and attention to
current developments and trends in the economy and financial and credit markets.
Many issuers of medium and lower grade municipal securities choose not
to have a rating assigned to their obligations by one of the rating agencies;
hence each Fund's portfolio may at times contain unrated securities. Unrated
securities may carry a greater risk and a higher yield than rated securities.
Although unrated securities are not necessarily lower quality, the market for
them may not be so broad as for rated securities. Each Fund will purchase only
those unrated securities which the Investment Manager believes are comparable to
rated securities that qualify for purchase by the respective Fund.
Hawaii Bonds. Four types of Hawaii bonds have been authorized for
issuance (bonds, notes and other instruments of indebtedness). They are:
1. General Obligation bonds (all bonds for the payment of the
principal and interest of which the full faith and credit of the State or a
political subdivision are pledged and, unless otherwise indicated, including
reimbursable general obligation bonds);
2. Bonds issued under special improvements statutes;
3. Revenue bonds or bond anticipation notes (all bonds payable from
revenues, or user taxes, or any combination of both, of a public undertaking,
improvement, system or loan program); and
4. Special purpose revenue bonds (all bonds payable from rental or
other payments made or any issuer by a person pursuant to contract and security)
including anti-pollution revenue bonds. Such bonds shall only be authorized or
issued to finance manufacturing, processing or industrial enterprise facilities,
utilities serving general public, health care facilities provided to the general
public by not-for-profit corporations or low and moderate income governmental
housing programs.
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All bonds other than special purpose revenue bonds may be authorized
by a majority vote of the members of each House of the State Legislature.
Special purpose revenue bonds may be authorized by two-thirds vote of the
members of each House of the State Legislature.
The constitutional limitation on issuance of State general obligation
bonds is the amount of bonds outstanding that would cause the debt service
(principal and interest payable on such bonds, (either the higher or the current
projected debt service )) to exceed 18 1/2% of the average net general fund
revenues of Hawaii in the three fiscal years just preceding such issuance
(general fund revenue excludes grants from the federal government and receipts
excluded in computing the total State debt). This limitation on the power of the
State to incur indebtedness, applies only to the issuance of general obligation
bonds, is computed at the time of issuance and includes only issued general
obligation bonds.
Because the Portfolio will ordinarily invest 80% or more of its net
assets in Hawaii obligations, it is more susceptible to factors affecting Hawaii
issuers than is a comparable municipal bond fund not concentrated in the
obligations of issuers located in a single state.
The Hawaiian economy is concentrated in tourism, agriculture,
construction and military operations. Tourism is Hawaii's largest economic
sector. In 1992, due largely to the recession in the U.S., total visitor
arrivals to the State fell 5.2% from 1991. This trend continued in 1993, with a
drop in total visitor arrivals of 6.0% from 1992 figures. There appears to be a
rebound in visitor arrivals in 1994 with a projected increase of 4.8%. Sugar,
the state's prime traditional crop, gives clear evidence of contracting to a
fraction of its long-held size and perhaps disappearing altogether in the not so
distant future.
Manufacturing in the State includes food processing (sugar, pineapple,
tuna and fruit and nut products), garment making, printing and publishing,
cement production and oil refining. Manufacturing accounted for $2.26 billion in
sales in 1992. This figure decreased 7.1% to $2.10 billion in 1993. About half
of this total is accountable to sales of petroleum products refined in Hawaii
from imported oil.
After six years of rapid expansion in the construction industry,
activity declined in 1992 and 1993. Proposed budget cuts in U.S. military
construction spending may, however, adversely impact the State's construction
industry. The job count in Hawaii has been declining since late 1992, falling
3.5% between then and third-quarter 1994 from a level just under 600,000
civilian jobs to a level just under 580,000 jobs on a seasonally adjusted basis.
As of the date of this Prospectus, general obligation bonds issued by
the State of Hawaii are rated Aa by Moody's and AA by S&P. There can be no
assurance that the economic conditions on which these ratings are based will
continue or that particular bond issues may not be adversely affected by changes
in economic, political or other conditions.
The State's overall debt levels are high with debt service equalling
about 13% of current expenditures. This is due, in part, to the State's
assumption of many local
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government functions, including local education. Revenue is derived primarily
from general excise taxes and individual and corporate income tax. The State
General Fund has operated either within planned deficits or with ending fund
balances since December 1962. The State's historically strong financial position
is under pressure as the recession reduces growth in sales and income taxes.
Revenues for fiscal year 1993 are projected to decline about 0.5%, down from
fiscal year 1992's 1.5% actual growth, even while spending pressures for social
programs, particularly Medicaid, continue to grow.
The State's gross state product grew at an average annual rate of 5.4%
(after adjusting for inflation) between 1986 and 1990, but rose only 0.2% in
1991. Real gross state product declined by 2.5% in 1992, and the latest data
available suggest small to no growth for 1993.
U.S. Government Securities. Government Securities include (1) U.S.
Treasury obligations, which differ only in their interest rates, maturities and
times of issuance: U.S. Treasury bills (maturity of one year or less), U.S.
Treasury notes (maturities of one to 10 years), and U.S. Treasury bonds
(generally maturities of greater than 10 years), and separated or divided U.S.
Treasury securities (stripped by the U.S. Treasury) whose payments of principal
and interest are all backed by the full faith and credit of the United States;
and (2) obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, some of which are backed by the full faith and credit of the
U.S. Treasury, e.g., direct pass-through certificates of the Government National
Mortgage Association (generally referred to as "GNMA"); some of which are
supported by the right of the issuer to borrow from the U.S. Government, e.g.,
obligations of Federal Home Loan Banks; and some of which are backed only by the
credit of the issuer itself, e.g., obligations of the Student Loan Marketing
Association.
Investments in taxable securities will be substantially in securities
issued or guaranteed by the United States Government (such as bills, notes and
bonds), its agencies, instrumentalities or authorities, highly-rated corporate
debt securities (rated AA, or better, by S&P or Aa3, or better, by Moody's);
prime commercial paper (rated A-1 + or A-2 by S&P or P-1 or P-2 by Moody's) and
certificates of deposit of the 100 largest domestic banks in terms of assets
which are subject to regulatory supervision by the U.S. Government or state
governments and the 50 largest foreign banks in terms of assets with branches or
agencies in the United States. Investments in certificates of deposit of foreign
banks and foreign branches of U.S. banks may involve certain risks, including
different regulation, use of different accounting procedures, political or other
economic developments, exchange controls, withholding income taxes at the
source, or possible seizure or nationalization of foreign deposits. When the
Fund takes a temporary defensive position, the Fund will not be pursuing
policies designed to achieve its investment objective.
Investment Practices of Each Fund.
Hedging. Hedging is a means of offsetting, or neutralizing, the price
movement of an investment by making another investment, the price of which
should tend to move in the opposite direction from that of the original
investment. If the Investment Manager deems it appropriate to hedge partially or
fully the Fund's portfolio against market value changes, the Fund may buy or
sell financial futures contracts and options thereon, such
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as municipal bond index future contracts and the related put or call options
contracts on such index futures.
Both parties entering into a financial futures contract are required
by the contract marketplace to post a good faith deposit, known as "initial
margin." Thereafter, the parties must make additional deposits equal to any net
losses due to unfavorable price movements of the contract, and are credited with
an amount equal to any net gains due to favorable price movements. These
additional deposits or credits are calculated and required daily and are known
as "maintenance margin." In situations in which the Fund is required to deposit
additional maintenance margin, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet such maintenance margin requirements at a time
when it may be disadvantageous to do so. When the Fund engages in the purchase
or sale of futures contracts or the sale of options thereon, it will deposit the
initial margin required for such contracts in a segregated account maintained
with the Fund's custodian, in the name of the futures commission merchant with
whom the Fund maintains the related account. Thereafter, if the Fund is required
to make maintenance margin payments with respect to the futures contracts, or
mark-to-market payments with respect to such option sale positions, the Fund
will make such payments directly to such futures commission merchant. The SEC
currently requires mutual funds to demand promptly the return of any excess
maintenance margin or mark-to-market credits in its account with futures
commission merchants. The fund will comply with SEC requirements concerning such
excess margin.
The Fund may also purchase and sell put and call options on financial
futures, including option on municipal bond index futures. An option on a
financial future gives the holder the right to receive, upon exercise of the
option, a position in the underlying futures contract. When the Fund purchases
an option on a financial futures contract, it receives in exchange for the
payment of a cash premium the right, but not the obligation, to enter into the
underlying futures contract at a price (the "strike price") determined at the
time the option was purchased, regardless of the comparative market value of
such futures position at the time the option is exercised. The holder of a call
option has the right to receive a long (or buyer's) position in the underlying
futures and the holder of a put option has the right to receive a short (or
seller's) position in the underlying futures.
When the Fund sells an option on a financial futures contract, it
receives a cash premium which can be used in whatever way is deemed most
advantageous to the Fund. In exchange for such premium, the Fund grants to the
option purchaser the right to receive from the Fund, at the strike price, a long
position in the underlying futures contract, in the case of a call option, or a
short position in such futures contract, in the case of a put option, even
though the strike price upon exercise of the option is less (in the case of a
call option) or greater (in the case of a put option) than the value of the
futures position received by such holder. If the value of the underlying futures
position is not such that exercise of the option would be profitable to the
option holder, the option will generally expire without being exercised. The
Fund has no obligation to return premiums paid to it whether or not the option
is exercised. It will generally be the policy of the Fund, in order to avoid the
exercise of an option sold by it, to cancel its obligation under the option by
entering into a closing purchase transaction, if available, unless it is
determined to be in the Fund's interest to deliver the underlying futures
position. A closing purchase transaction consists of the purchase by the Fund of
an option having
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the same term as the option sold by the Fund, and has the effect of cancelling
the Fund's position as a seller. The premium which the Fund will pay in
executing a closing purchase transaction may be higher than the premium received
when the option was sold, depending in large part upon the relative price of the
underlying futures position at the time of each transaction. The Securities and
Exchange Commission requires that the obligations of mutual funds, such as the
Fund, under option sale positions must be "covered."
The Fund does not intend to engage in transactions in futures contracts
or related options for speculative purposes but only as a hedge against changes
in the values of securities in their portfolios resulting from market
conditions, such as fluctuations in interest rates. In addition, the Fund will
not enter into futures contracts or related options (except in closing
transactions) if, immediately thereafter, the sum of the amount of its initial
margin deposits and premiums paid for its open futures and options positions,
less the amount by which any such options are "in-the-money", would exceed 5% of
the Fund's total assets (taken at current value).
Investments in financial futures and related options entail certain
risks. Among these are the possibility that the cost of hedging could have an
adverse effect on the performance of the Fund if the Investment Manager
predictions as to interest rate trends are incorrect or due to the imperfect
correlation between movement in the price of the futures contracts and the price
of the Fund's actual portfolio of municipal securities. Although the
contemplated use of these contracts should tend to minimize the risk of loss due
to a decline in the value of the securities in the Fund's portfolio, at the same
time hedging transactions tend to limit any potential gains which might result
in an increase in the value of such securities. In addition, futures and options
markets may not be liquid in all circumstances due, among other things, to daily
price movement limits which may be imposed under the rules of the contract
marketplace, which could limit the Fund's ability to enter into positions or
close out existing positions, at a favorable price. If the Fund is unable to
close out a futures position in connection with adverse market movements, the
Fund would be required to make daily payments on maintenance margin until such
position is closed out. Also, the daily maintenance margin requirement in
futures and option sales transactions creates greater potential financial
exposure than do option purchase transactions, where the Fund's exposure is
limited to the initial cost of the option.
Income earned or deemed to be earned, if any, by the Fund from its
hedging activities will be distributed to its shareholders in taxable
distributions.
The Fund's hedging activities are subject to special provisions of the
Internal Revenue Code. These provisions may, among other things, limit the use
of losses of the Fund and affect the holding period of the securities held by
the Fund and the nature of the income realized by the Fund. These provisions may
also require the Fund to mark-to-market some of the positions in its portfolio
(i.e., treat them as if they were closed out), which may cause the Fund to
recognize income without the cash to distribute such income and to incur tax at
the Fund level. The Fund and its shareholders may recognize taxable income as a
result of the Fund's hedging activities. The Fund will monitor its transactions
and may make certain tax elections in order to mitigate the effect of these
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rules and prevent disqualification of the Fund as a regulated investment
company.
If the Manager deems it appropriate to seek to hedge the Fund's
portfolio against market value changes, the Fund may buy or sell financial
futures contracts and related options, such as municipal bond index futures
contracts and the related put or call options contracts on such index futures. A
tax exempt bond index fluctuates with changes in the market values of the tax
exempt bonds included in the index. An index future is an agreement pursuant to
which two parties agree to receive or deliver at settlement an amount of cash
equal to a specified dollar amount multiplied by the difference between the
value of the index at the close of the last trading day of the contract and the
price at which the future was originally written. A financial future is an
agreement between two parties to buy and sell a security for a set price on a
future date. An index future has similar characteristics to a financial future
except that settlement is made through delivery of cash rather than the
underlying securities. An example is the Long-Term Municipal Bond futures
contract traded on the Chicago Board of Trade. It is based on the Bond Buyer's
Municipal Bond Index, which represents an adjusted average price of the forty
most recent long-term municipal issues of $50 million or more ($75 million in
the instance of housing issues) rated A or better by either Moody's Investor
Service, Inc. or Standard & Poor's Corporation, maturing in no less than
nineteen years, having a first call in no less than seven nor more than sixteen
years, and callable at par.
"When-issued" and "delayed delivery" transactions. The Fund may engage
in "when issued" and "delayed delivery" transactions and utilize futures
contracts and options thereon for hedging purposes. The Securities and Exchange
Commission ("SEC") generally requires that when mutual funds, such as the Fund,
effect transactions of the foregoing nature, such funds must either segregate
cash or readily marketable portfolio securities with its custodian in an amount
of its obligations under the foregoing transactions, or cover such obligations
by maintaining positions in portfolio securities, futures contracts or options
that would serve to satisfy or offset the risk of such obligations. When
effecting transactions of the foregoing nature, the Fund will comply with such
segregation or cover requirements.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements with selected commercial banks or broker-dealers, under
which the Fund sells securities and agrees to repurchase them at an agreed upon
time and at an agreed upon price. The difference between the amount the Fund
receives for the securities and the amount it pays on repurchase is deemed to be
a payment of interest by the Fund. The Fund will maintain in a segregated
account having an aggregate value with its custodian, cash, treasury bills, or
other U.S. Government securities having an aggregate value equal to the amount
of such commitment to repurchase, including accrued interest, until payment is
made. Reverse repurchase agreements are treated as a borrowing by the Fund and
will be used by it as a source of funds on a short-term basis, in an amount not
exceeding 5% of the net assets of the Fund (which 5% includes bank borrowings)
at the time of entering into any such agreement. The Fund will enter into
reverse repurchase agreements only with commercial banks whose deposits are
insured by the Federal Deposit Insurance Corporation and whose assets exceed
$500 million or broker-dealers who are registered with the SEC. In determining
whether to enter into a reverse repurchase agreement with a bank or
broker-dealer, the Fund will take into account the credit worthiness of such
party and will monitor such credit worthiness on an ongoing basis.
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DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
Standard & Poor's Corporation - A brief description of the applicable
Standard & Poor's Corporation (S&P) rating symbols and their meanings (as
published by Standard & Poor's Corporation) follows:
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the credit worthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely on
audited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information, or
for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provision of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
1. Municipal bonds.
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issued only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
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BB Debt rated "BB", "B", "CCC", or "CC" is regarded, on balance, as
B predominantly speculative with respect to capacity to pay interest and
CCC repay principal in accordance with the terms of the obligation. "BB"
CC indicates the lowest degree of speculation and "CC" the highest degree
of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the debt being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of
the project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should exercise
judgment with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal
amount of those bonds where the underlyi ng deposit collateral is
fully insured by the Federal Savings & Loan Insuranc e Corp. or the
Federal Deposit Insurance Corp.
+ Continuance of the rating is contingent upon S&P's receipt of
closing documentation confirming investments and cash flow.
* Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement.
NR Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
2. Short-term tax exempt notes
Standard & Poor's tax exempt note ratings are generally given to such
notes that mature in three years or less. The three rating categories are as
follows:
SP-1 Very strong or strong capacity to pay principal and interest. These
issues determined to possess overwhelming safety characteristics will
be given plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
3. Tax-exempt Commercial Paper
12
<PAGE>
A Standard & Poor's commercial paper rating is 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. The two categories the Fund
will invest in are as follows:
A Issues assigned this highest rating are regarded as having
the greatest capacity for timely payment. Issues in this
category are further refined with the designation 1, 2 and 3
to indicate the relative degree of safety. These issues
determined to possess overwhelming safety characteristics
are denoted with a plus (+) sign designation.
A-1 This designation indicates that the degree of safety
regarding timely payment is very strong.
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.
Moody's Investors Service, Inc. - A brief description of the
applicable Moody's Investors Service, Inc. rating symbols and their meanings (as
published by Moody's Investors Service, Inc.) follows:
1. Municipal bonds
Aaa-Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
13
<PAGE>
Baa-Bonds which are rated Baa are considered as medium grade
obligations, i.e. they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Con.(...)-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 operating 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 or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa 1, A 1, Baa 1, and B 1.
2. Short-term tax exempt notes
Short-term Notes. The four ratings of Moody's for short-term notes are
MIG 1, MIG 2, MIG 3 and MIG 4; MIG 1 denotes "best quality, enjoying strong
protection from established cash flows"; MIG 2 denotes "high quality" with
"ample margins of protection"; MIG 3 notes are of "favorable quality....but
lacking the undeniable strength of the preceding grades"; MIG 4 notes are of
"adequate quality, carrying specific risk but having protection...and not
distinctly or predominantly speculative."
3. Tax-exempt commercial paper
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
14
<PAGE>
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
OFFICERS AND DIRECTORS
The officers and directors of First Pacific Mutual Fund, Inc., their
principal occupations for the last five years and their affiliation, if any,
with the Manager, or the Fund's Distributor, are shown below. Interested persons
of the Fund as defined in the Investment Company Act of 1940 are indicated by an
asterisk in the table below.
<TABLE>
<CAPTION>
Name Position & Office Principal occupation during
and Address With the Fund the past five years
<S> <C> <C>
*Terrence K.H. Lee Director, President, First Pacific Management Corp.;
1441 Victoria St #901 President President, First Pacific Securities
Honolulu, HI 96822
Samuel L. Chesser Director Market Maker and Member Pacific Stock
21 Seacape Drive Exchange: Formerly President, First
Muir Beach, CA 94965 Pacific Securities; Vice President,
First Pacific Management Corporation.
Clayton W.H. Chow Director Sr. Account Executive, Federal Express
1723 Bertram Street
Honolulu, HI 96816
Lynden Keala Director Market Analyst, Vanier Graphics, Inc.
47-532 Hui Iwa St.
Kaneohe, HI 96744
Stuart S. Marlowe Director President, Record Service, Inc.
274 Poipu Drive
Honolulu, HI 96825
Jean M. Chun Secretary Corporate Secretary, First Pacific
217 Prospect St B-14 Management Corporation; Corporate
Honolulu, HI 96813 Secretary, First Pacific Securities
Charlotte A. Meyer Treasurer Corporate Treasurer, First Pacific
4186-3 Keanu St Management Corporation; Corporate
Honolulu, HI 96816 Treasurer, First Pacific Securities
</TABLE>
The compensation of the officers who are interested persons (as
defined in the Investment Company Act of 1940) of the Manager is paid by the
Manager. The Fund pays the compensation of all other officers of the Fund who
are not interested persons for services or reimbursed for expenses incurred in
connection with attending meetings of the Board of Directors. The directors of
the Fund are not compensated for services or reimbursed for expenses incurred in
connection with attending meetings of the Board of Directors. The directors and
officers as a group own less than 1% of the Fund's shares.
15
<PAGE>
CUSTODIAN
Bank of California, of San Francisco, California, is the custodian of
each Fund and has custody of all securities and cash. The custodian, among other
things, attends to the collection of principal and income, and payment for the
collection of proceeds of securities bought and sold by each Fund.
FUND ACCOUNTING
Fund/Plan Services, Inc. provides fund accounting for the Bond fund.
First Pacific Recordkeeping, Inc., a wholly owned subsidiary of First Pacific
Management, Corporation provides fund accounting for the Intermediate Fund. The
accounting fee schedule for the Intermediate Fund is as follows:
$21,5000 Minimum to $ 20 Million of Average Net Assets
.000325 On Next $ 30 Million of Average Net Assets
.00026 On Next $ 50 Million of Average Net Assets
.000195 On Next $100 Million of Average Net Assets
.0001625 On Next $200 Million of Average Net Assets
INDEPENDENT AUDITORS
The independent auditors for the Fund are Tait, Weller & Baker,
Philadelphia, Pennsylvania.
INVESTMENT MANAGEMENT AGREEMENT
The investment management agreement between the Manager and the Fund
provides that the Manager will provide portfolio management services to the Fund
and to supply investment research including the selection of securities for the
Fund to purchase, hold or sell and the selection of brokers through whom the
Fund's portfolio transactions are executed. The Manager also administers the
business affairs of the Fund, furnishes offices, necessary facilities and
equipment, provides administrative services, and permits its officers and
employees to serve without compensation as directors and officers of the Fund if
duly elected to such positions.
The agreement provides that the Manager shall not be liable for any
error of judgment or of law, or for any loss suffered by the Fund in connection
with the matters to which the agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Manager in
the performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the agreement.
The Manager's activities are subject to the review and supervision of
the Fund's Board of Directors, to whom the Manager renders periodic reports of
the Fund's investment activities.
Fees paid by Bond Fund to Investment Manager for three most recent
fiscal years:
16
<PAGE>
Investment Management Agreement Shareholder Services Agreement
------------------------------- ------------------------------
1995 $245,192 $49,050
1994 $275,965 $55,193
1993 $237,202 $47,580
Fees paid by Intermediate Fund to Investment Manager for most recent
fiscal year:
Investment Management Agreement Shareholder Services Agreement
------------------------------- ------------------------------
1995 $ 20,231 $ 4,046
1994 $ 1,427 $ 285
PORTFOLIO TRANSACTIONS
The Manager will place orders for portfolio transactions for the Fund
with broker-dealer firms giving consideration to the quality, quantity and
nature of each firm's professional services. These services include execution,
clearance procedures, wire service quotations and statistical and other research
information provided to the Fund and the Manager, including quotations necessary
to determine the value of the Fund's net assets. Any research benefits derived
are available for all clients of the Manager. Since statistical and other
research information is only supplementary to the research efforts of the
Manager and still must be analyzed and reviewed by its staff, the receipt of
research information is not expected to materially reduce its expenses. In
selecting among the firms believed to meet the criteria for handling a
particular transaction, the Fund or the Manager may (subject always to best
price and execution) take into consideration that certain firms have sold or are
selling shares of the Fund, and/or that certain firms provide market,
statistical or other research information to the Fund. Securities may be
acquired through firms that are affiliated with the Fund, its Manager, or its
Distributor and other principal underwriters acting as agent, and not as
principal. Transactions will only be placed with affiliated brokers if the price
to be paid by the Fund is at least as good as the price the Fund would pay to
acquire the security from other unaffiliated parties.
If it is believed to be in the best interests of the Fund the Manager
may place portfolio transactions with unaffiliated brokers or dealers who
provide the types of service (other than sales) described above, even if it
means the Fund will have to pay a higher commission (or, if the dealer's profit
is part of the cost of the security, will have to pay a higher price for the
security) than would be the case if no weight were given to the broker's or
dealer's furnishing of those services. This will be done, however, only if, in
the opinion of the Manager, the amount of additional commission or increased
cost is reasonable in relation to the value of the services.
If purchases or sales of securities of the Fund and of one or more
other clients advised by the Manager are considered at or about the same time,
transactions in such securities will be allocated among the several clients in a
manner deemed equitable to all by the Manager, taking into account the
respective sizes of the funds and the amount of securities to be purchased or
sold. Although it is possible that in some cases this procedure could have a
detrimental effect on the price or volume of the security as far as the Fund is
concerned, it is also possible that the ability to participate in volume
transactions and to negotiate lower brokerage commissions generally will be
beneficial to the Fund.
The Directors have adopted certain policies incorporating the
standards of Rule 17e-1 issued by the Securities and Exchange Commission under
the Investment Company
17
<PAGE>
Act of 1940 which requires that the commission paid to the Distributor and other
affiliates of the Fund must be reasonable and fair compared to the commissions,
fees or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time. The rule and procedures also contain review
requirements and require First Pacific Securities to furnish reports to the
Directors and to maintain records in connection with such reviews.
Commissions, fees or other remuneration paid to the Distributor for
portfolio transactions for the Bond Fund and Intermediate Fund for the three
most recent fiscal years: 1995-none; 1994-none; 1993-none.
THE DISTRIBUTOR
Shares of the Fund are offered on a continuous basis through First
Pacific Securities, 2756 Woodlawn Drive, #6-201, Honolulu, Hawaii 96822 (the
"Distributor"), a wholly-owned subsidiary of the Manager. Pursuant to a
distribution agreement, First Pacific Securities will purchase shares of the
Fund for resale to the public, either directly or through securities dealers and
brokers, and is obligated to purchase only those shares for which it has
received purchase orders. A discussion of how to purchase and redeem the Fund's
shares and how the Fund's shares are priced is contained in the Prospectus.
Under the Distribution Agreement between the Fund and the Distributor,
the Distributor pays the expenses of distribution of Fund shares, including
preparation and distribution of literature relating to the Fund and its
investment performance and advertising and public relations material. The Fund
bears the expenses of registration of its shares with the Securities and
Exchange Commission and of sending prospectuses to existing shareholders. The
Distributor pays the cost of qualifying and maintaining qualification of the
shares for sale under the securities laws of the various states and permits its
officers and employees to serve without compensation as directors and officers
of the Fund if duly elected to such positions.
Under the Distribution Plan, each Fund will pay the distributor for
expenditures which are primarily intended to result in the sale of the
respective Fund's shares such as advertising, marketing and distributing the
fund's shares and servicing Fund investors, including payments for reimbursement
of and/or compensation to brokers, dealers, certain financial institutions,
(which may include banks) and other intermediaries for administrative and
accounting services for Fund investors who are also their clients. Such third
party institutions will receive fees based on the average daily value of the
Fund's shares owned by investors for whom the institution performs
administrative and accounting services. The Glass-Steagall Act and other
applicable laws, among other things, generally prohibit federally chartered or
supervised banks from engaging in the business of underwriting, selling or
distributing securities. Accordingly, each Fund will engage banks only to
perform administrative and investor servicing functions. The Funds' management
believes that such laws should not preclude a bank from performing these
services. However, if a bank were prohibited by law from so acting, its investor
clients would be permitted to remain Fund investors and alternative means for
continuing the servicing of such investors would be sought.
The Distribution Agreement continues in effect from year to year if
specifically
18
<PAGE>
approved at least annually by the shareholders or directors of the Fund and by
the Fund's disinterested directors in compliance with the Investment Company Act
of 1940. The agreement may be terminated without penalty upon thirty days
written notice by either party and will automatically terminate if it is
assigned.
Distribution Plan payments by the Bond Fund, by category, for the most
recent fiscal year: Advertising $12,601; Seminars and Meetings $7,422; Printing
$4,984: Total $25,007.
TRANSFER AGENT
First Pacific Recordkeeping Inc., Honolulu, Hawaii, a wholly owned
subsidiary of First Pacific Management, Corporation, serves as transfer agent,
dividend disbursing agent and redemption agent for redemptions pursuant to a
Transfer and Dividend Disbursing Agency Agreement approved by the Board of
Directors of First Pacific Mutual Fund, Inc. at a meeting held for such purpose
on March 15, 1994. The agreement is subject to annual renewal by the Board of
Directors, including the directors who are not interested persons of the Fund or
of the Transfer Agent. Pursuant to the agreement, the Transfer Agent will
receive a fee calculated at an annual rate of $16.50 per shareholder account and
will be reimbursed out-of-pocket expenses incurred on the Fund's behalf.
The Transfer Agent acts as paying agent for all Fund expenses and
provides all the necessary facilities, equipment and personnel to perform the
usual or ordinary services of Transfer and Dividend Paying Agent, including:
receiving and processing orders and payments for purchases of shares, opening
stockholder accounts, preparing annual stockholder meeting lists, mailing proxy
material, receiving and tabulating proxies, mailing stockholder reports and
prospectuses, withholding certain taxes on nonresident alien accounts,
disbursing income dividends and capital distributions, preparing and filing U.S.
Treasury Department Form 1099 (or equivalent) for all stockholders, preparing
and mailing confirmation forms to stockholders for all purposes and redemption
of the Fund's shares and all other confirmable transactions in stockholders'
accounts, recording reinvestment of dividends and distributions of the Fund's
shares and causing redemption of shares for and disbursements of proceeds to
withdrawal plan stockholders.
PERFORMANCE
Current yield and total return quotations used by the Fund are based
on standardized methods of computing performance mandated by Securities and
Exchange Commission rules. An explanation of those and other methods used by the
Portfolios to compute or express performance follows:
As indicated below, current yield is determined by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period and annualizing the result.
Expenses accrued for the period include any fees charged to all shareholders
during the 30-day base period. According to the new Securities and Exchange
Commission formula:
19
<PAGE>
Yield = 2 [(a-b + 1)6-1]
----------------
cd
where
a= dividends and interest earned during the period.
b= expenses accrued for the period (net of reimbursements).
c= the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d= the maximum offering price per share on the last day of the period.
Yield Month ended
9/30/95
First Hawaii Municipal
Bond Fund 4.83%
First Hawaii Intermediate
Municipal Fund 4.35%
As the following formula indicates, the average annual total return is
determined by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period less any fees charged to all shareholder accounts and
annualizing the result. The calculation assumes that all dividends and
distributions are reinvested at the public offering price on the reinvestment
dates during the period. The quotation assumes the account was completely
redeemed at the end of each period and the deduction of all applicable charges
and fees. According to the new Securities and Exchange Commission formula:
P(1 + T)n = ERV
where
p = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or
10 year periods (or fractional portion thereof).
<TABLE>
<CAPTION>
One Year Five Year
Inception to Ending Ending Ending Ending
Total Return 9/30/95 12/31/95 9/30/95 12/31/95 9/30/95 12/31/95
<S> <C> <C> <C> <C> <C> <C>
First Hawaii Municipal
Bond Fund 7.34% 7.58% 8.42% 14.39% 7.63% 8.35%
First Hawaii Intermediate
Municipal Fund 6.92%
</TABLE>
Comparisons and Advertisements
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss yield or total return for the Fund as reported by various financial
publications and/or compare yield or total return to yield or total return as
reported by other investments, indices, and averages.
The Shearson Lehman Hutton Municipal Bond Index measures yield, price, and total
return for the municipal bond market. The Bond Buyer 20 Bond Index is an index
of municipal bond yields based on yields of 20 general obligation bonds maturing
in 20 years. The Bond Buyer 40 Bond Index is an index of municipal bond yields
of 40 general obligation bonds maturing in 40 years.
Financial Statements
The Financial Statements of each Fund will be audited at least
annually by Tait Weller & Baker, Independent Auditors. The 1995 Annual Report to
Shareholders is incorporated by reference to this Statement of Additional
Information.
20
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
First Pacific Mutual Fund, Inc.
Honolulu, Hawaii
We have audited the accompanying statements of assets and liabilities of First
Hawaii Municipal Bond Fund and First Hawaii Intermediate Municipal Fund (each a
series of shares of First Pacific Mutual Fund, Inc.), including the schedules of
investments, as of September 30, 1995, and the related statements of operations
for the year then ended, the statements of changes in net assets and the
financial highlights for the periods indicated thereon. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of First
Hawaii Municipal Bond Fund and First Hawaii Intermediate Municipal Fund as of
September 30, 1995, the results of their operations for the year then ended, the
changes in their net assets and the financial highlights for the periods
referred to above, in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
November 8, 1995
<PAGE>
FIRST HAWAII MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Par Value (Note 1)
<C> <S> <C>
HAWAII MUNICIPAL BONDS - 91.46%
Hawaii County
General Obligation Bonds - 4.77%
$1,150,000 7.050%, 6/01/01 $ 1,286,563
100,000 6.800%, 12/01/01 105,750
400,000 7.200%, 5/01/05 413,500
565,000 7.200%, 6/01/06 635,625
--------------
2,441,438
--------------
Hawaii State
General Obligation Bonds - 1.19%
230,000 6.600%, 9/01/96 235,750
330,000 7.125%, 9/01/09 372,075
--------------
607,825
--------------
Airport Systems Revenue Bonds - 6.10%
150,000 7.600%, 7/01/98 157,125
500,000 5.125%, 7/01/00 512,500
345,000 6.300%, 7/01/01 373,031
560,000 7.000%, 7/01/20 608,300
1,325,000 7.500%, 7/01/20 1,470,750
-------------
3,121,706
--------------
Department of Budget & Finance Special Purpose Revenue Bonds
Citizens Utilities Company - 2.04%
400,000 7.375%, 11/01/15 418,000
510,000 7.250%, 9/01/18 520,837
100,000 7.375%, 9/01/18 103,250
--------------
1,042,087
--------------
Evangelical Lutheran Good Samaritan - .30%
150,000 8.600%, 9/01/98 155,625
--------------
Hawaiian Electric Company, Inc. - 4.16%
1,655,000 7.625%, 12/01/18 1,789,469
310,000 7.600%, 7/01/20 335,575
--------------
2,125,044
--------------
Kapiolani Hospital - 4.08%
1,550,000 6.400%, 7/01/13 1,579,063
430,000 7.650%, 7/01/19 504,712
--------------
2,083,775
--------------
Kaiser Permanente Center - 4.23%
2,150,000 6.250%, 3/01/21 2,160,750
-------------
Queen's Medical Center Program - 3.47%
300,000 6.800%, 7/01/00 324,000
540,000 6.900%, 7/01/04 579,825
250,000 6.125%, 7/01/11 257,500
600,000 6.200%, 7/01/22 612,750
--------------
1,774,075
--------------
St. Francis Medical Center - 3.60%
1,765,000 6.500%, 7/01/22 1,837,806
-------------
Wahiawa General Hospital - 6.79%
330,000 7.125%, 7/01/98 344,438
2,960,000 7.500%, 7/01/12 3,126,500
-------------
3,470,938
--------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
FIRST HAWAII MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Par Value (Note 1)
<C> <S> <C>
Department of Transportation Special Facilities
Revenue Bonds - 4.29%
$2,250,000 5.750%, 3/01/13 $ 2,193,750
------------
Harbor Capital Improvements Revenue Bonds,
Series 1989 - 4.09%
400,000 5.650%, 7/01/02 417,000
100,000 6.200%, 7/01/03 108,125
280,000 6.300%, 7/01/04 302,400
125,000 7.250%, 7/01/10 137,188
260,000 7.250%, 7/01/13 275,275
500,000 7.000%, 7/01/17 538,750
300,000 6.500%, 7/01/19 311,625
--------------
2,090,363
--------------
Highway Revenue Bonds, Series 1993 - 2.23%
500,000 4.875%, 7/01/06 484,375
300,000 5.000%, 7/01/09 283,875
250,000 5.000%, 7/01/10 234,688
150,000 5.000%, 7/01/11 138,937
--------------
1,141,875
--------------
Housing Authority
Single Family Mortgage Purpose Revenue Bonds - 19.21%
145,000 6.300%, 7/01/99 150,256
530,000 8.000%, 7/01/08 549,213
400,000 8.000%, 7/01/10 419,000
405,000 7.000%, 7/01/11 420,188
100,000 5.700%, 7/01/13 97,375
590,000 6.900%, 7/01/16 608,437
1,530,000 8.125%, 7/01/17 1,608,413
535,000 9.250%, 7/01/17 550,381
1,520,000 5.400%, 7/01/19 1,463,000
505,000 8.125%, 7/01/19 530,881
345,000 6.750%, 7/01/20 349,743
540,000 7.100%, 7/01/24 555,525
2,365,000 5.900%, 7/01/27 2,350,219
160,000 7.800%, 7/01/29 168,400
--------------
9,821,031
--------------
Multi-Family Mortgage Purpose Revenue Bonds - 4.24%
65,000 4.000%, 1/01/97 64,350
170,000 4.000%, 7/01/97 168,300
180,000 4.500%, 1/01/99 177,750
200,000 4.800%, 1/01/01 196,000
205,000 4.800%, 7/01/01 202,181
210,000 4.900%, 1/01/02 205,275
215,000 4.900%, 7/01/02 211,775
1,000,000 5.700%, 7/01/18 942,500
--------------
2,168,131
--------------
Public Housing Authority Bonds - .37%
185,000 5.750%, 8/01/00 189,394
--------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
FIRST HAWAII MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Par Value (Note 1)
<C> <S> <C>
Honolulu City & County
General Obligation Bonds - 3.04%
$ 100,000 7.300%, 7/01/03 $ 116,375
200,000 7.350%, 7/01/06 237,500
100,000 7.250%, 2/01/08 109,250
1,000,000 7.300%, 2/01/09 1,091,250
-------------
1,554,375
--------------
Halawa Business Park - 1.96%
170,000 6.300%, 10/15/00 183,812
370,000 6.500%, 10/15/02 408,850
365,000 6.600%, 10/15/03 407,888
--------------
1,000,550
--------------
Housing Authority
Multi-Family Mortgage Purpose Revenue Bonds - 2.28%
120,000 8.700%, 12/01/28 124,950
1,000,000 6.900%, 6/20/35 1,041,250
-------------
1,166,200
--------------
Kauai County
General Obligation Bonds - 5.59%
595,000 6.700%, 8/01/97 622,519
355,000 6.100%, 2/01/99 364,762
300,000 5.100%, 2/01/01 309,750
410,000 5.850%, 8/01/07 432,038
780,000 5.850%, 8/01/07 826,800
295,000 5.900%, 2/01/12 300,900
--------------
2,856,769
--------------
Maui County
General Obligation Bonds - 1.91%
840,000 8.000%, 1/01/01 977,550
--------------
Water System Revenue - 1.52%
315,000 5.850%, 12/01/00 333,505
400,000 6.600%, 12/01/07 448,000
--------------
781,505
--------------
Total Hawaii Municipal Bonds 46,762,562
--------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
FIRST HAWAII MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Par Value (Note 1)
<C> <S> <C>
PUERTO RICO MUNICIPAL BONDS - 5.45%
Puerto Rico Commonwealth
Electric Power Authority Revenue Bonds - .79%
$ 100,000 7.125%, 7/01/14 $ 111,125
100,000 7.125%, 7/01/14 111,125
110,000 7.125%, 7/01/14 119,900
55,000 7.125%, 7/01/14 59,950
---------------
402,100
---------------
General Obligation Bonds - .15%
70,000 7.750%, 7/01/13 77,700
---------------
Housing Finance Corp.
Multi-Family Mortgage Revenue Bonds - 1.29%
460,000 7.500%, 4/01/22 485,875
165,000 7.650%, 10/15/22 174,694
--------------
660,569
---------------
Industrial, Medical & Environmental Pollution Control
Abbott Laboratories - .59%
300,000 6.500%, 7/01/09 301,500
--------------
Baxter Travenol Laboratories - .65%
300,000 8.000%, 9/01/12 333,000
--------------
Upjohn Co. Project - 1.77%
825,000 7.500%, 12/01/23 903,375
--------------
Public Building Authority
Health Facilities & Services - .21%
100,000 7.250%, 7/01/17 109,250
--------------
Total Puerto Rico Municipal Bonds 2,787,494
-------------
VIRGIN ISLANDS MUNICIPAL BONDS - .92%
Virgin Islands
Port Authority Airport Revenue Bonds - .69%
325,000 8.100%, 10/01/05 349,782
--------------
Public Finance Authority, Series A - .23%
100,000 7.300%, 10/01/18 119,625
--------------
Total Virgin Islands Municipal Bonds 469,407
--------------
Total Investments (Cost $48,448,346) (a) 97.83% 50,019,463
Other Assets Less Liabilities 2.17 1,111,419
---- --------------
Net Assets 100.00% $51,130,882
====== ==============
(a) Aggregate cost for federal income tax purposes is $48,454,174.
At September 30, 1995, unrealized appreciation (depreciation) of securities
for federal income tax purposes is as follows:
Gross unrealized appreciation $ 1,803,094
Gross unrealized depreciation (237,805)
-------------
Net unrealized appreciation $ 1,565,289
===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
<PAGE>
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
SCHEDULE OF INVESTMENTS
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Par Value (Note 1)
<C> <S> <C>
HAWAII MUNICIPAL BONDS - 88.36%
Hawaii County
General Obligation Bonds - 3.59%
$ 65,000 6.350%, 5/15/01 $ 65,082
100,000 6.800%, 12/01/01 105,750
------------
170,832
------------
Hawaii State
General Obligation Bonds - 2.20%
100,000 5.500%, 7/01/01 104,750
------------
Airport Systems Revenue Bonds - 13.16%
105,000 6.400%, 7/01/02 114,318
500,000 5.125%, 7/01/00 512,500
------------
626,818
------------
Department of Budget & Finance Special Purpose Revenue Bonds
Citizens Utilities Company - 4.34%
200,000 7.375%, 9/01/18 206,500
------------
Evangelical Lutheran Good Samaritan - 5.67%
125,000 8.400%, 9/01/96 129,913
135,000 8.500%, 9/01/97 139,894
------------
269,807
------------
Kaiser Permanente - 3.03%
140,000 9.250%, 3/01/15 144,375
------------
Kapiolani Hospital - 4.69%
190,000 7.650%, 7/01/19 223,012
------------
Queen's Medical Center Program - 2.27%
100,000 6.800%, 7/01/00 108,000
------------
Wahiawa General Hospital - 9.32%
425,000 7.125%, 7/01/98 443,593
------------
Harbor Capital Improvements Revenue Bonds, Series 1989 - 4.43%
100,000 5.650%, 7/01/02 104,250
100,000 5.850%, 7/01/02 106,750
------------
211,000
------------
Highway Revenue Bonds, Series 1993 - 4.06%
100,000 4.700%, 7/01/04 97,500
100,000 5.000%, 7/01/08 95,750
-------------
193,250
------------
Housing Authority
Single Family Mortgage Purpose Revenue Bonds - 7.30%
200,000 6.300%, 7/01/99 207,250
135,000 6.800%, 7/01/99 140,063
------------
347,313
------------
Housing Authority
Multi-Family Mortgage Purpose Revenue Bonds - 2.08%
100,000 4.000%, 1/01/97 99,000
-------------
Public Housing Authority Bonds - 4.30%
200,000 5.750%, 8/01/00 204,750
------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Par Value (Note 1)
<C> <S> <C>
Honolulu City & County
General Obligation Bonds - 2.14%
$100,000 5.000%, 10/01/02 $ 101,750
-----------
Halawa Business Park - 4.54%
200,000 6.300%, 10/15/00 216,250
------------
Kauai County
General Obligation Bonds - 4.32%
200,000 6.100%, 2/01/99 205,500
------------
Maui County
General Obligation Bonds - 2.20%
90,000 8.000%, 1/01/01 104,737
------------
Water System Revenue - 4.72%
100,000 6.600%, 12/01/07 112,000
100,000 6.700%, 12/01/11 112,500
------------
224,500
------------
Total Hawaii Municipal Bonds 4,205,737
------------
PUERTO RICO MUNICIPAL BONDS - 5.81%
Puerto Rico Commonwealth
Electric Power Authority Revenue Bonds - 2.10%
90,000 7.125%, 7/01/14 100,013
------------
General Obligation Bonds - 2.14%
90,000 7.750%, 7/01/17 101,925
------------
Housing Finance Corp.
Single Family Mortgage Revenue Bonds - 1.57%
70,000 6.150%, 8/01/03 74,725
-------------
Total Puerto Rico Municipal Bonds 276,663
-------------
Total Investments (Cost $4,342,913) (a) 94.17% 4,482,400
Other Assets Less Liabilities 5.83 277,661
------ -------------
Net Assets 100.00% $4,760,061
====== ==========
(a) Aggregate cost for federal income tax purposes is $4,342,913.
At September 30, 1995, unrealized appreciation (depreciation) of securities
for federal income tax purposes is as follows:
Gross unrealized appreciation $ 139,644
Gross unrealized depreciation (157)
---------------
Net unrealized appreciation $ 139,487
===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
<PAGE>
FIRST HAWAII MUNICIPAL BOND FUND
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Municipal Intermediate
Bond Municipal
Fund Fund
<S> <C> <C>
ASSETS
Investments at market value
(Identified cost $48,448,346 and $4,342,913
respectively) (Note 1(A)) $50,019,463 $4,482,400
Cash 391,998 214,295
Interest receivable 794,211 66,218
Prepaid expenses 4,525 -
------------ -----------
Total assets 51,210,197 4,762,913
------------ -----------
LIABILITIES
Payable for Fund shares repurchased 1,747 -
Accrued expenses 21,204 2,852
Distributions payable 56,364 -
------------ -----------
Total liabilities 79,315 2,852
------------ -----------
NET ASSETS
(applicable to 4,717,139 and 925,551 shares
outstanding, $.01 par value, 20,000,000 shares authorized) $51,130,882 $4,760,061
=========== ==========
NET ASSET VALUE, OFFERING AND REPURCHASE PRICE PER SHARE
($51,130,882 / 4,717,139 shares) $10.84
======
($4,760,061 / 925,551 shares) $5.14
=====
NET ASSETS
At September 30, 1995, net assets consisted of:
Paid-in capital $49,810,465 $4,622,385
Accumulated net realized loss on investments (250,700) (1,811)
Net unrealized appreciation 1,571,117 139,487
------------- ------------
$51,130,882 $4,760,061
=========== ==========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
<PAGE>
FIRST HAWAII MUNICIPAL BOND FUND
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
STATEMENT OF OPERATIONS
Year ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Municipal Intermediate
Bond Municipal
Fund Fund
<S> <C> <C>
INVESTMENT INCOME
Interest income $3,026,326 $213,326
-------------- -------------
Expenses
Management fee (Note 2) 245,192 20,231
Distribution costs (Note 2) 48,291 756
Transfer agent fees (Note 2) 50,515 14,400
Shareholder services (Note 2) 49,050 4,046
Accounting fees (Note 2) 34,424 30,000
Legal and audit fees 25,668 5,871
Custodian fees 9,570 776
Printing 17,144 -
Insurance 8,053 755
Registration fees 164 -
Miscellaneous 1,438 179
-------------- ------------
Total expenses 489,509 77,014
Fee reductions (Note 4) (9,570) (776)
Expenses reimbursed or waived (13,597) (50,240)
------------- ----------
Net expenses 466,342 25,998
------------ ----------
Net investment income 2,559,984 187,328
----------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions (264,520) (1,811)
Increase in unrealized appreciation of investments 1,552,334 150,634
----------- ---------
Net gain on investments 1,287,814 148,823
----------- ---------
Net increase in net assets resulting from operations $3,847,798 $336,151
========== ========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
<PAGE>
FIRST HAWAII MUNICIPAL BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
Years ended September 30, 1995 and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income $ 2,559,984 $ 2,765,780
Net realized gain (loss) on investments (264,520) 400,633
Increase (decrease) in unrealized appreciation of investments 1,552,334 (4,401,913)
-------------- -------------
Net increase (decrease) in net assets resulting from operations 3,847,798 (1,235,500)
Distributions to shareholders from
Net investment income
($.55 and $.55 per share, respectively) (2,559,984) (2,765,780)
Realized capital gains
($.09 and $.06 per share, respectively) (393,211) (320,017)
Capital share transactions (a)
Decrease in net assets resulting from capital share transactions (1,993,708) (844,536)
-------------- --------------
Total decrease in net assets (1,099,105) (5,165,833)
NET ASSETS
Beginning of period 52,229,987 57,395,820
------------- ------------
End of period $51,130,882 $52,229,987
=========== ===========
</TABLE>
(a) Summary of capital share activity follows:
<TABLE>
<CAPTION>
1995 1994
Shares Value Shares Value
<S> <C> <C> <C> <C>
Shares sold 857,509 $ 9,080,787 1,252,737 $ 13,871,618
Shares issued on reinvestment
of distributions 200,904 2,110,188 206,871 2,276,070
----------- -------------- ----------- --------------
1,058,413 11,190,975 1,459,608 16,147,688
Shares redeemed (1,261,140) (13,184,683) (1,541,335) (16,992,224)
---------- ------------- ---------- -------------
Net decrease (202,727) $ (1,993,708) (81,727) $ (844,536)
=========== ============= =========== =============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
<PAGE>
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period
Year Ended July 5, 1994* to
September 30, September 30,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income $ 187,328 $ 13,150
Net realized loss on investments (1,811) -
Increase (decrease) in unrealized appreciation of investments 150,634 (11,147)
------------ -------------
Net increase in net assets resulting from operations 336,151 2,003
Distributions to shareholders from
Net investment income ($.23 and $.05 per share, respectively) (187,328) (13,150)
Capital share transactions (a)
Increase in net assets resulting from capital share transactions 2,164,414 2,457,971
------------ -------------
Total increase in net assets 2,313,237 2,446,824
NET ASSETS
Beginning of period 2,446,824 -
------------ -------------
End of period $4,760,061 $2,446,824
========== ==========
</TABLE>
(a) Summary of capital share activity follows:
<TABLE>
<CAPTION>
Year Ended Period July 5, 1994*
September 30, 1995 to September 30, 1994
Shares Value Shares Value
<S> <C> <C> <C> <C>
Shares sold 730,169 $ 3,638,418 568,135 $2,852,993
Shares issued on reinvestment of distributions 34,948 176,499 2,349 11,804
--------- ------------- --------- -------------
765,117 3,814,917 570,484 2,864,797
Shares redeemed (329,433) (1,650,503) (80,617) (406,826)
-------- ------------ -------- ------------
Net increase 435,684 $ 2,164,414 489,867 $2,457,971
======== =========== ======= ==========
</TABLE>
* Commencement of operations
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
<PAGE>
FIRST HAWAII MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended September 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net asset value
Beginning of period $10.62 $11.48 $10.90 $10.47 $ 9.92
-------- -------- -------- -------- --------
Income from investment operations
Net investment income .55 .55 .58 .60 .62
Net gain (loss) on securities
(both realized and unrealized) .31 (.80) .60 .43 .55
-------- -------- -------- -------- --------
Total from investment operations .86 (.25) 1.18 1.03 1.17
-------- -------- -------- -------- --------
Less distributions
Dividends from net investment income (.55) (.55) (.58) (.60) (.62)
Distributions from capital gains (.09) (.06) (.02) - -
-------- -------- -------- -------- --------
Total distributions (.64) (.61) (.60) (.60) (.62)
-------- -------- -------- -------- --------
End of period $10.84 $10.62 $11.48 $10.90 $10.47
====== ====== ====== ====== ======
Total return 8.42% (2.18)% 11.11% 10.16% 12.11%
Ratios/Supplemental Data
Net assets, end of period (in 000's) $51,131 $52,230 $57,396 $39,291 $25,688
Ratio of expenses to average net assets
Before expense reimbursements 1.00% .97% .95% .95% 1.01%
After expense reimbursements .97%(A) .95% .95% .95% .91%
Ratio of net investment income to
average net assets
Before expense reimbursements 5.19% 4.99% 5.21% 5.67% 5.95%
After expense reimbursements 5.22% 5.01% 5.21% 5.67% 6.05%
Portfolio turnover 17.08% 40.22% 27.77% 18.44% 7.28%
<FN>
(A) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian arrangement were .95%. Prior to 1995, such
reductions were reflected in the expense ratios.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
<PAGE>
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period
July 5, 1994*
Year Ended to
September 30, September 30,
1995 1994
<S> <C> <C>
Net asset value
Beginning of period $4.99 $5.00
------- -------
Income from investment operations
Net investment income .23 .05
Net gain (loss) on securities (unrealized) .15 (.01)
------- -------
Total from investment operations .38 .04
Less distributions
Dividends from net investment income (.23) (.05)
------- -------
End of period $5.14 $4.99
===== =====
Total return 7.86% .72%
Ratios/Supplemental Data
Net assets, end of period (in 000's) $4,760 $2,447
Ratio of expenses to average net assets
Before expense reimbursements 1.90% 4.48% (a)
After expense reimbursements .66% (b) 0% (a)
Ratio of net investment income to average net assets
Before expense reimbursements 3.39% .12% (a)
After expense reimbursements 4.63% 4.60% (a)
Portfolio turnover 10.04% 0%
* Commencement of operations
<FN>
(a) Annualized
(b) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian arrangement were .64%. Prior to 1995, such
reductions were reflected in the expense ratios.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
<PAGE>
FIRST HAWAII MUNICIPAL BOND FUND
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First Hawaii Municipal Bond Fund and First Hawaii Intermediate Municipal
Fund ("Funds") are each a series of shares of First Pacific Mutual Fund,
Inc. which is registered under the Investment Company Act of 1940, as a
non-diversified open-end management company.
The investment objective of the Funds is to provide investors with the
maximum level of income exempt from federal and Hawaii income taxes
consistent with the preservation of capital. The Funds seek to achieve
their objective by investing primarily in municipal securities which pay
interest that is exempt from federal and Hawaii income taxes.
The Funds are 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.
Since the Funds invest 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.
(A) SECURITY VALUATION
Portfolio securities, which are 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 Directors. Securities with remaining maturities
of 60 days or less are valued on the amortized cost basis as
reflecting fair value. All other securities are valued at their fair
value as determined in good faith by the Board of Directors.
The Funds invest in debt instruments of municipal issuers. The
issuers' abilities to meet their obligations may be affected by
economic developments in the state of Hawaii.
(B) FEDERAL INCOME TAXES
It is the Funds' policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies
and to distribute their taxable income, if any, to their
shareholders. Therefore, no federal income tax provision is required.
(C) SECURITY TRANSACTIONS, INVESTMENT INCOME AND DISTRIBUTIONS TO
SHAREHOLDERS
Security transactions are recorded on the trade date. Interest income
is recorded on the accrual basis. Bond discounts and premiums are
amortized as required by the Internal Revenue Code. Distributions to
shareholders are declared daily and reinvested or paid in cash
monthly.
(2) INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
First Pacific Management Corporation ("FPMC") provides the Funds with
management and administrative services pursuant to a management agreement.
In accordance with the terms of the management agreement, FPMC receives
compensation at the annual rate of .50% of each Fund's average daily net
assets.
FPMC also provides the Funds with certain clerical, bookkeeping and
shareholder services pursuant to a service agreement approved by the
Funds' directors. As compensation for these services FPMC receives a fee,
computed daily and payable monthly, at an annualized rate of .10% of each
Fund's average daily net assets.
The Funds' distributor, First Pacific Securities ("FPS"), a wholly-owned
subsidiary of FPMC, received $48,291 for costs incurred in connection with
the sale of First Hawaii Municipal Bond Fund's shares. FPS also received
$756 for costs incurred with the sale of First Hawaii Intermediate
Municipal Fund's shares (See Note 3).
First Pacific Recordkeeping, ("FPR"), a wholly-owned subsidiary of FPMC,
serves as the transfer agent and accounting agent for the Funds.
For the year ended September 30, 1995, FPMC and FPR voluntarily waived
certain management, transfer agent, shareholder services, and accounting
fees in the amount of $50,240 for First Hawaii Intermediate Municipal
Fund. FPMC also waived $13,597 of management fees for First Hawaii
Municipal Bond Fund for 1995.
Certain officers and directors of the Funds are also officers of FPMC, FPS
and FPR.
- --------------------------------------------------------------------------------
<PAGE>
FIRST HAWAII MUNICIPAL BOND FUND
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
September 30, 1995
- --------------------------------------------------------------------------------
(3) DISTRIBUTION COSTS
The Funds' Board of Directors, including a majority of the Directors who
are not "interested persons" of the Fund as defined in the Investment
Company Act of 1940, adopted a distribution plan pursuant to Rule 12b-1 of
the Act. The Plan regulates the manner in which a regulated investment
company may assume costs of distributing and promoting the sales of its
shares.
The Plan provides that the Funds may incur certain costs, which may not
exceed .25% per annum of the Funds' average daily net assets, for payment
to the distributor for items such as advertising expenses, selling
expenses, commissions or travel reasonably intended to result in sales of
shares of the Funds.
(4) PURCHASES AND SALES/CUSTODY OF SECURITIES
Purchases and sales of securities aggregated $8,170,233 and $10,304,523,
respectively for the First Hawaii Municipal Bond Fund. Purchases and sales
of securities for First Hawaii Intermediate Municipal Fund aggregated
$2,616,471 and $390,000, respectively. Under an agreement with the
Custodian Bank, custodian fees are reduced by credits for cash balances.
Such reductions amounted to $9,570 and $776 during the year ended
September 30, 1995, for the First Hawaii Municipal Bond Fund and the First
Hawaii Intermediate Municipal Bond Fund, respectively.
- --------------------------------------------------------------------------------
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON INTERNAL CONTROL STRUCTURE
Board of Directors
First Pacific Mutual Fund, Inc.
Honolulu, Hawaii
In planning and performing our audits of the financial statements of First
Hawaii Municipal Bond Fund and First Hawaii Intermediate Municipal Fund, each a
series of shares of capital stock of First Pacific Mutual Fund, Inc., for the
respective periods ended September 30, 1995, we considered their internal
control structure, including procedures for safeguarding securities, in order to
determine our auditing procedures for the purpose of expressing our opinion on
their financial statements and to comply with the requirements of Form N-SAR,
not to provide assurance on the internal control structure.
The management of the Funds is responsible for establishing and maintaining an
internal control structure. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and related
costs of internal control structure policies and procedures. Two of the
objectives of an internal control structure are to provide management with
reasonable, but not absolute, assurance that assets are safeguarded against loss
from unauthorized use or disposition, and that transactions are executed in
accordance with management's authorization and recorded properly to permit
preparation of financial statements in conformity with generally accepted
accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projection of any evaluation
of the structure to future periods is subject to the risk that it may become
inadequate because of changes in conditions or that the effectiveness of the
design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce to
a relatively low level the risk that errors or irregularities in amounts that
would be material in relation to the financial statements being audited may
occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses, as defined above, as of
September 30, 1995.
This report is intended solely for the information and use of management and the
Securities and Exchange Commission, and should not be used for any other
purpose.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
November 8, 1995
<PAGE>
PART C
OTHER INFORMATION
Item 24. STATEMENTS AND EXHIBITS.
The following are the financial statements and exhibits filed as a
part of this registration statement:
(a) Financial Statements:
(Included in Part B to this Post-effective Amendment #11 to Form
N-1A.)
(b) Exhibits:
(1) Registrant's Articles of Incorporation.* (Filed with Form
N-1A registration.)
(2) Registrant's bylaws.* (Filed with Form N-1A registration.)
(3) Not applicable, because there is no voting trust agreement.
(4) Specimen copy of each security to be issued by the
registrant.* (Filed with Form N-1A registration.)
(5) (a) Form of Management Agreement between First Pacific
Management Corporation and the Registrant.*
(Filed with Form N-1A registration.)
(6) Form of principal Underwriting Agreement between First
Pacific Securities and the Registrant.*
(Filed with Form N-1A registration.)
(7) Not applicable, because there are no pension, bonus or other
agreements for the benefit of directors and officers.
(8) Form of Custodian Agreement between Registrant and Bank of
California.
<PAGE>
(9) There are no other material contracts not made in the
ordinary course of business between the Registrant and
others.
(10) Opinion and consent of counsel as to the legality of the
registrant's securities being registered. (To be supplied
annually pursuant to Rule 24f-2 of the Investment Company
Act of 1940.)
(11) The consent of Tait, Weller & Baker Independent Public
Accountants.
(12) Not applicable.
(13) Letter from contributors of initial capital to the
Registrant that purchase was made for investment purposes
without any present intention of redeeming or selling.*
(Filed with Pre-effective Amendment #1 to Form N-1A).
(14) Not applicable.
(15) (a) Rule 12b-1 Plan of Distribution.* (Filed with Form N-1A
registration.)
(b) Service Agreement.*
(Filed with Form N-1A registration.)
(c) Selling Dealer Agreement*
(Filed with Form N-1A registration.)
(d) First Pacific Mutual Fund Inc Transfer Agent Agreement.
(16) Schedule of Computation of Performance Quotations.
*Previously filed and incorporated by reference herein.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL OF THE REGISTRANT.
NONE*
<PAGE>
Item 26. NUMBER OF HOLDERS OF SECURITIES.
The number of record holders of each class of securities of the
Registrant as of January 11, 1996, is as follows:
(1) (2)
Title of Class Number of Record Holders
Common stock $.01 par value:
First Hawaii Municipal Bond Fund 1,943
First Hawaii Intermediate Municipal Fund 198
Item 27. INDEMNIFICATION.
Under the terms of the Maryland General Corporation Law and the
company's Articles of Incorporation, the company shall indemnify any person who
was or is a director, officer or employee of the company to the maximum extent
permitted by the Maryland General Corporation Law; provided however, that any
such indemnification (unless ordered by a court) shall be made by the company
only as authorized in the specific case upon a determination that
indemnification of such persons is proper in the circumstances. Such
determination shall be made:
(i) by the Board of Directors by a majority vote of a quorum which
consists of the directors who are neither "interested persons" of the company as
defined in Section 2(a)(19) of the 1940 Act, nor parties to the proceedings, or,
(ii) if the required quorum is not obtainable or if a quorum of such
directors so directs, by independent legal counsel in a written opinion.
No indemnification will be provided by the company to any director or
officer of the company for any liability to the company or shareholders to which
he would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty.
As permitted by Article ELEVENTH of the company's Articles of
Incorporation and subject to the restrictions under 2-418(F)(1) of the Maryland
General Corporation Law, reasonable expenses incurred by a director who is a
party to a proceeding may be paid by the company in advance of the final
disposition of the action, after a determination that the facts then known would
not preclude indemnification, upon receipt by the company of a written
affirmation by the director of the director's good faith belief that the
standard of conduct necessary for
<PAGE>
indemnification by the company has been met and a written undertaking by or on
behalf of the director to repay the amount if it is ultimately determined that
the standard of conduct has not been met.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, 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 director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, 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 it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The principal business of First Pacific Management Corporation is to provide
investment counsel and advice to individuals and institutional investors.
Item 29. PRINCIPAL UNDERWRITERS.
(a) First Pacific Securities, the only principal underwriter of the
Registrant, does not act as principal underwriter, depositor or investment
advisor to any other investment company.
(b) Herewith is the information required by the following table with
respect to each director, officer or partner of the only underwriter named in
answer to Item 21 of Part B:
Position and Position and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
Terrence Lee President Director and
2756 Woodlawn Drive, #6-201 President
Honolulu, HI 96822
Jean Chun Secretary Secretary
2756 Woodlawn Drive, #6-201
Honolulu, HI 96822
<PAGE>
Charlotte Meyer Treasurer Treasurer
2756 Woodlawn Drive, #6-201
Honolulu, HI 96822
(c) Not applicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Each account, book or other document required to be maintained by
Section 31(a) of the 1940 Act and the Rules (17 CFR 270.31a-1 to 31a-3)
promulgated thereunder is in the physical possession of:
First Pacific Management Corporation
2756 Woodlawn Drive, #6-201
Honolulu, HI 96822;
First Pacific Recordkeeping, Inc.
2756 Woodlawn Drive, #6-201
Honolulu, HI 96822
Item 31. MANAGEMENT SERVICES.
All management services are covered in the management agreement
between the Registrant and First Pacific Management Corporation, as discussed in
Parts A and B.
Item 32. UNDERTAKINGS.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all 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
registration statement to be signed on its behalf by the undersigned, thereunto
authorized, in the City of Honolulu and State of Hawaii on the 18th day of
January, 1996.
FIRST PACIFIC MUTUAL FUND, INC.
(Registrant)
By: (sig. on original)
Terrence K.H. Lee, President
Pursuant to the requirement of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
_____(sig. on orig.)____________ President, Principal January 18, 1996
Terrence K.H. Lee Executive and Financial
Officer, and Director
_____(sig. on orig.)____________ Director January 18, 1996
Samuel L. Chesser
_____(sig. on orig.)____________ Director January 18, 1996
Clayton W.H. Chow
_____(sig. on orig.)____________ Director January 18, 1996
Lynden Keala
_____(sig. on orig.)____________ Director January 18, 1996
Stuart Marlowe
<PAGE>
EXHIBIT INDEX
Item 24. Page
(b) (11) Accountant's Consent
(b) (16) Computation of Performance Quotations
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our firm in the Post-Effective Amendment to
the Registration Statement on Form N-1A of First Pacific Mutual Fund, Inc. and
to the use of our report dated November 8, 1995 on the financial statements and
financial highlights of First Hawaii Municipal Bond Fund and First Hawaii
Intermediate Municipal Fund, each a series of shares of First Pacific Mutual
Fund, Inc. Such financial statements and financial highlights appear in the 1995
Annual Report to Shareholders which are incorporated by reference in the
Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 27, 1996
Exhibit 16
FIRST PACIFIC MUTUAL FUND, INC.
First Hawaii Municipal Bond Fund Series
Schedule for Computation of Performance Quotations
1. Average Annual Total Return:
P(1 + T) = ERV
Inception to December 31, 1995: 7.58%
P = 1,000
T = .0758
n = 7.0833
ERV = $1,677.46
1,000 (1 + .0758) = $1,677.46
Inception to September 30, 1995: 7.34%
P = 1,000
T = .0734
n = 6.8333
ERV = $1,622.39
1,000 (1 + .0734) = $1,622.39
October 1, 1994 to September 30, 1995: 8.42%
P = 1,000
T = (.0842)
n = 1
ERV = $ 1,084.24
1,000 (1 + .0842) = $1,084.24
October 1, 1990 to September 30, 1995: 7.63%
P = 1,000
T = .0763
n = 1
ERV = $ 1,444.50
January 1, 1991 to December 31, 1995: 8.35%
P = 1,000
T = .0835
n = 1
ERV = $1,493.52
1,000 (1 + .0835) = $1,493.52
<PAGE>
January 1, 1995 to December 31, 1995: 14.39%
P = 1,000
T = (.1439)
n = 1
ERV = $1,143.90
1,000 (1 + .1439) = $1,143.90
2. December 30 Day SEC Yield: 4.74
2 [(a-b + 1) - 1]
------------------
cd
a = 208,028.37
b = 42,793.74
c = 11.07
d = 4,801,753.646
2 [(208,028.37 - 42,793.74 + 1) -1]
-----------------------------------
11.07 x 4,801,753.646
September 30 Day SEC Yield: 4.83%
2 [(a-b + 1) - 1]
------------------
cd
a = 203,707.35
b = 39,889.60
c = 10.84
d = 4,711,340.667
2 [(203,707.35 - 39,889.60 + 1) -1]
-----------------------------------
10.84 x 4,711,340.667
<PAGE>
FIRST PACIFIC MUTUAL FUND, INC.
First Hawaii Intermediate Municipal Fund Series
Schedule for Computation of Performance Quotations
1. Average Annual Total Return:
P(1 + T) = ERV
Inception to December 31, 1995: 6.90%
P = 1,000
T = .0690
n = 1.4904
ERV = $1,104.61
1,000 (1 + .0690) = $1,104.61
Inception to September 30, 1995: 6.92%
P = 1,000
T = .0692
n = 1.2384
ERV = $1,086.41
1,000 (1 + .0072) = $1,007.23
October 1, 1994 to September 30, 1995: 7.86%
P = 1,000
T = (.0786)
n = 1
ERV = $ 1,078.61
1,000 (1 + .0786) = $1,078.61
January 1, 1995 to December 31, 1995: 10.26%
P = 1,000
T = (.1026)
n = 1
ERV = $1,102.59
1,000 (1 + .1026) = $1,102.59
2. December 30 Day SEC Yield: 4.22
2 [(a-b + 1)6 - 1]
------------------
cd
a = 18,854.65
b = 3,421.34
c = 5.17
d = 1,045,217.96
2 [(18,854.65 - 3,421.34 + 1)6-1]
-----------------------------------
5.17 x 1,045,217.96
<PAGE>
September 30 Day SEC Yield: 4.35%
a = 16,888.00
b = 2,884.83
c = 5.14
d = 913,524.159
2 [(16,888.00- 2,884.83]
------------------------
5.14 x 913,524.159
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information for the First Hawaii
Municipal Bond Fund.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> First Hawaii Municipal Bond Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 48,448,346
<INVESTMENTS-AT-VALUE> 50,019,463
<RECEIVABLES> 794,211
<ASSETS-OTHER> 396,523
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 51,210,197
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 79,315
<TOTAL-LIABILITIES> 79,315
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,810,465
<SHARES-COMMON-STOCK> 4,717,139
<SHARES-COMMON-PRIOR> 4,919,866
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (250,700)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,571,117
<NET-ASSETS> 51,130,882
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,026,326
<OTHER-INCOME> 0
<EXPENSES-NET> 466,342
<NET-INVESTMENT-INCOME> 2,559,984
<REALIZED-GAINS-CURRENT> (264,520)
<APPREC-INCREASE-CURRENT> 1,552,334
<NET-CHANGE-FROM-OPS> 3,847,798
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,559,984
<DISTRIBUTIONS-OF-GAINS> 393,211
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 857,509
<NUMBER-OF-SHARES-REDEEMED> 1,261,140
<SHARES-REINVESTED> 200,904
<NET-CHANGE-IN-ASSETS> (1,099,105)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 407,031
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 245,192
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 489,509
<AVERAGE-NET-ASSETS> 49,038,400
<PER-SHARE-NAV-BEGIN> 10.62
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> .31
<PER-SHARE-DIVIDEND> .55
<PER-SHARE-DISTRIBUTIONS> .09
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.84
<EXPENSE-RATIO> .97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information for the First Hawaii
Intermediate Municipal Fund.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> First Hawaii Intermediate Municipal Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 4,342,913
<INVESTMENTS-AT-VALUE> 4,482,400
<RECEIVABLES> 66,218
<ASSETS-OTHER> 214,295
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,762,913
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,852
<TOTAL-LIABILITIES> 2,852
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,622,385
<SHARES-COMMON-STOCK> 925,551
<SHARES-COMMON-PRIOR> 489,867
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,811)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 139,487
<NET-ASSETS> 4,760,061
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 213,326
<OTHER-INCOME> 0
<EXPENSES-NET> 25,998
<NET-INVESTMENT-INCOME> 187,328
<REALIZED-GAINS-CURRENT> (1,811)
<APPREC-INCREASE-CURRENT> 150,634
<NET-CHANGE-FROM-OPS> 336,151
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 187,328
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 730,169
<NUMBER-OF-SHARES-REDEEMED> 329,433
<SHARES-REINVESTED> 34,948
<NET-CHANGE-IN-ASSETS> 2,313,237
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 20,231
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 77,014
<AVERAGE-NET-ASSETS> 4,046,200
<PER-SHARE-NAV-BEGIN> 4.99
<PER-SHARE-NII> .23
<PER-SHARE-GAIN-APPREC> .15
<PER-SHARE-DIVIDEND> .23
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.14
<EXPENSE-RATIO> .66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
