SEC File Number 811-05631
033-23452
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 14
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940
Amendment No. 15
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)
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
Drinker Biddle & Reath, LLP
1345 Chestnut Street
Philadelphia, PA 19107-3496
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective
(check appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
__x__ on _02/01/99__ 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
TABLE OF CONTENTS
TO FORM N-1A
This registration statement comprises the following papers and contents:
The Facing Sheet
Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Copy of Annual Reports to Shareholders (the financial
statements from which are incorporated by reference into
the Statement of Additional Information)
Part C - Other Information
Signatures
Index to Exhibits
Exhibits
FIRST PACIFIC MUTUAL FUND, INC.
CROSS REFERENCE SHEET
PART A - PROSPECTUS
Item in PART A of
FORM N-1A PROSPECTUS LOCATION
1 Front and Back Cover Pages
2 Risk/Return Summary: Investments, Risks,
and Performance
3 Risk/Return Summary: Fee Table
4 Investment Objectives, Principal Investment
Strategies, and Related Risks
5 Management s Discussion of Fund Performance
6 Management, Organization, and Capital Structure
7 Shareholder Information
8 Distribution Arrangements
9 Financial Highlights Information
PART B - STATEMENT OF ADDITIONAL INFORMATION
Item in PART B of LOCATION IN STATEMENT OF
FORM N-1A ADDITIONAL INFORMATION
10 Cover Page and Table of Contents
11 Fund History
12 Description of the Fund and its
Investments and Risks
13 Management of the Fund
14 Control Persons and Principal Holders
of Securities
15 Investment Advisory and Other Services
16 Brokerage Allocation and Other Practices
17 Capital Stock and Other Securities
18 Purchase, Redemption, and Pricing of Shares
19 Taxation of the Fund
20 Underwriters
21 Calculation of Performance Data
22 Financial Statements
PART C - OTHER INFORMATION
Item in PART C of LOCATION IN OTHER
FORM N-1A INFORMATION
23 Exhibits
24 Persons Controlled by or Under
Common Control with the Fund
25 Indemnification
26 Business and Other Connections
of the Investment Adviser
27 Principal Underwriters
28 Location of Accounts and Records
29 Management Services
30 Undertakings
Signatures
First Pacific Mutual Fund, Inc.
2756 Woodlawn Drive, #6-201
Honolulu, HI 96822-1856
First Hawaii Municipal Bond Fund
First Hawaii Intermediate Municipal Fund
Prospectus dated February 1, 1999
TABLE OF CONTENTS
Investment Objectives
Investment Strategy
Risks
Table of Funds Average Annual Total Returns
Risk Return Summary: Fee Table
Financial Highlights
Other Investment Practices
Investment Manager
Portfolio Manager
Fund Pricing
Purchasing Fund Shares
Redeeming and Exchanging Fund Shares
Distributions, Capital Gains and Tax Consequences
Distribution Arrangements
Year 2000
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Commission passed on the accuracy or
adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
INVESTMENT OBJECTIVES
The investment objective of each Fund is to provide a high level of
current income exempt from federal and Hawaii state income taxes,
consistent with preservation of capital and prudent investment
management. This investment objective cannot be changed without
shareholder approval.
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 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.
INVESTMENT STRATEGY
Each Fund will primarily invest its assets in a varied portfolio
of investment grade municipal securities issued by or on behalf of the
State of Hawaii or any of its political subdivisions. The interest on
these securities is exempt from federal and State of Hawaii income
taxes in the opinion of bond counsel or other counsel to the issuer
of these securities. Each Fund will invest at least 80% of the Fund's
net assets in these municipal securities.
[Bullet] Maturity Range
First Hawaii Municipal Bond Fund invests in municipal bonds
with a maturity of up to 40 years and an average expected maturity
of 20 years.
First Hawaii Intermediate Municipal Fund invests in municipal
bonds with an average portfolio maturity of 3 - 10 years and an average
expected maturity of 5 years.
Each Fund will pursue these investment strategies:
[Bullet] Credit Quality
At least 90% of assets will be invested in municipal securities
within the four highest credit quality ratings assigned by Standard & Poor's
Corporation (AAA, AA, A, BBB) or Moody's Investors Service, Inc. (Aaa, Aa,
A, Baa), or in unrated municipal securities judged by the Investment Manager
to be of comparable quality.
[Bullet] Concentration
More than 25% of assets may be invested in a particular segment of
the municipal bond market. Developments affecting a particular segment
could have a significant effect on Fund performance.
[Bullet] Risk Management
The portfolio will consist of different types of municipal issuers
in order to reduce the impact on the Funds of any loss on a particular
security.
[Bullet] Downgrade Policy
Downgraded bonds will be subject to review. Based upon the
review, the Fund will elect to hold or sell the downgraded bond.
During periods of adverse market conditions each Fund may not achieve
their investment objectives. For temporary defensive purposes, including
when Hawaiian tax-exempt securities are unavailable, each Fund may invest
in money market instruments. The interest on these instruments may be
subject to federal or state income taxes.
RISKS
[Bullet] General Risk
There are no assurances that each Fund's investment objective will be
met. Each Fund's yield, share price and investment return fluctuate so that
you may receive more or less than your original investment upon redemption.
Loss of money is a risk of investing in the Fund. Investing in either Fund
subjects you to certain risks, including:
[Bullet] Interest Rate Risk
The net asset value of each Fund may change as interest rates
fluctuate. When interest rates increase, the net asset value could decline.
When interest rates decline, the net asset value could increase. When
interest rates change, intermediate term bonds generally have less market
fluctuation than long term bonds.
[Bullet] Credit Risk
Credit risk is the ability of municipal issuers to meet their
payment obligations.
[Bullet] Hawaii Securities
The Funds primarily invest in obligations of issuers located in
Hawaii. The marketability and market value of these obligations may be
affected by certain changes in Hawaiian constitutional provisions,
legislative measures, executive orders, administrative regulations and
voter initiatives.
All Hawaiian governmental activities are the responsibility of the
state. This concentration adds to the state's high level of debt. However,
the State General Fund has operated within planned deficits or with ending
fund balances since December, 1962.
[Bullet] Non-Diversified, Open End Management Investment Company
The 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.
[Bullet] Tax Laws
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 each Fund to pay tax-exempt interest dividends might be adversely
affected.
Additional information about each Funds investments and risks can be
found in the Statement of Additional Information ("SAI").
FUNDS AVERAGE ANNUAL TOTAL RETURNS
The bar chart and table shown below provide some indication of the
risks of investing in the First Hawaii Municipal Bond Fund. The information
in the bar chart shows the changes in the Fund's performance year to year.
The table compares the Fund's average annual returns with the Lehman Muni
Bond Index, which measures yield, price and total return for long term
municipal bonds. The bar chart and table assume reinvestment of dividends
and distributions. Past performance is not indicative of future performance.
First Hawaii Municipal Bond Fund
Year by Year Total Return as of 12/31 each year (%):
[bar graph omitted] plot points as follows.
1989 9.21
1990 6.16
1991 10.68
1992 8.71
1993 10.60
1994 -5.03
1995 14.40
1996 4.17
1997 7.10
1998 4.88
Best Quarter 1st Q 95 6.01%
Worst Quarter 1st Q 94 -4.40%
Average Annual Total Return as of 12/31/98
1 Year 5 Years 10 years
First Hawaii Municipal Bond Fund 4.88% 4.92% 6.97%
Lehman Muni Bond Index 6.48% 6.21% 8.21%
The bar chart and table shown below provide some indication of the
risks of investing in the First Hawaii Intermediate Municipal Fund. The
information in the bar chart shows the changes in the Fund's performance
year to year. The table compares the Fund's average annual returns with
the Lehman Muni Bond Index, which measures yield, price and total
return for long term municipal bonds. The bar chart and table assume
reinvestment of dividends and distributions. Past performance is not
indicative of future performance.
First Hawaii Intermediate Municipal Fund
Year by Year Total Return as of 12/31 each year (%):
[bar graph omitted] plot points as follows.
1995 10.32
1996 3.77
1997 4.82
1998 4.67
1994 was not a full calendar year, however the total return was -.54%.
Best Quarter 1st Q 95 3.90%
Worst Quarter 4th Q 94 -0.93%
Average Annual Total Return as of 12/31/98
Inception
1 Year July 5, 1994
First Hawaii Intermediate Municipal Fund 4.67% 5.16%
Lehman Muni Bond Index 6.48% 7.80%
RISK RETURN SUMMARY: FEE TABLE
FIRST HAWAII MUNICIPAL BOND FUND
This table describes the fees and expenses that you may pay if you buy
and hold shares of the First Hawaii Municipal Bond Fund.
Shareholder Fees (fees paid directly from your investments) NONE
Shares are offered for investment without any sales charges.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Management Fees .50%
Distribution (12b-1) Fees .22%
Other Expenses .17%
Total Annual Fund Operating Expenses .89%
The Fund's distribution plan allows the Fund to spend up to .25% per year
of its average daily net assets in connection with the activities to
distribute its shares. For the fiscal year ending September 30, 1998, .12%
of the Fund's average daily net assets was spent. The Fund also has
arrangements with its Custodian Bank to reduce fees through custodian
arrangements. Such waivers may cease at any time. Custody credits reduced
total annual Fund operating expenses from .89% to .85%. The Fund is subject
to an expense limit of .85% of average daily net assets for a two year
period beginning August 1, 1997.
EXAMPLE
This example is intended to help compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The example assumes
an investment of $10,000 in the Fund for the time periods indicated, and a
redemption of all shares at the end of those periods. The example also
assumes the investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although actual costs may be higher or
lower, based on these assumptions costs would be:
1 year 3 years 5 years 10 years
$91 $284 $493 $1,096
RISK RETURN SUMMARY: FEE TABLE
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
This table describes the fees and expenses that you may pay if you buy
and hold shares of the First Hawaii Intermediate Municipal Fund.
Shareholder Fees (fees paid directly from your investments) NONE
Shares are offered for investment without any sales charges.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Management Fees .50%
Distribution (12b-1) Fees .03%
Other Expenses .96%
Total Annual Fund Operating Expenses 1.49%
The Fund's distribution plan allows the Fund to spend up to .25% per year
of its average daily net assets. For the fiscal year ending September 30,
1998, .03% of the Fund's average daily net assets was spent. The Fund also
has arrangements with its Custodian Bank to reduce fees through custodian
arrangements. Such waivers may cease at any time. Expense waivers reduced
total annual Fund operating expenses from 1.49% to .85%. Custody credits
further reduced operating expenses from .85% to .73%.
EXAMPLE
This example is intended to help compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes an
investment of $10,000 in the Fund for the time periods indicated, and a
redemption of all shares at the end of those periods. The example also
assumes the investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although actual costs may be higher or
lower, based on these assumptions costs would be:
1 year 3 years 5 years 10 years
$152 $471 $813 $1,779
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help investors understand
the Fund's financial performance for the past 5 years. Certain information
reflects financial results for a single Fund share. The total returns in
the table represent the rate that an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Tait, Weller & Baker,
Certified Public Accountants, whose report, along with the Fund's financial
statements are included in the SAI or annual report, which is available upon
request.
<TABLE>
<CAPTION>
First Hawaii Municipal Bond Fund First Hawaii Intermediate
Municipal
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
Year Ended September 30, 1998 1997 1996 1995 1994 1998 1997
1996 1995 1994*
Net Asset Value,
Beginning of Period $11.10 $10.89 $10.84 $10.62 $11.48 $5.15 $5.12
$5.14 $4.99 $5.00
Income from investment operations
Net investment income .55 .54 .55 .55 .55 .22 .22 .22 .23
.05
Net gain (loss) on securities
(both realized and unrealized) .13 .21 .05 .31 (.80) .04 .04 (.02)
.15 (.01)
Total from investment operations .68 .75 .60 .86 (.25) .26 .26 .20
.38 .04
Less distributions
Dividends from net investment income (.55) (.54) (.55) (.55) (.55) (.22) (.22)
(.22) (.23) (.05)
Distributions from capital gains - - - (.09) (.06) (.01) (.01) - -
-
Total distributions (.55) (.54) (.55) (.64) (.61) (.23) (.23) (.22)
(.23) (.05)
End of Period $11.23 $11.10 $10.89 $10.84 $10.62 $5.18 $5.15
$5.12 $5.14 $4.99
Total Return 6.28% 7.09% 5.62% 8.42% (2.18)% 5.08% 5.17%
3.95% 7.86% .72%
Ratios/Supplemental Data
Net assets, end of period (Millions) $112.3 $106.4 $54.2 $51.1 $52.2 $5.9 $6.4
$6.6 $4.8 $2.4
Ratio of expenses to average net assets
Before expense reimbursements .89% .98% .98% 1.00% .97% 1.49%
1.43% 1.50% 1.90% 4.48%(c)
After expense reimbursements .89%(a) .98%(a) .98%(a) .97%(a) .95% .85%(b)
.86%(b) .84%(b) .66% 0%(c)
Ratio of net investment income
to average net assets
Before expense reimbursements 4.90% 4.99% 5.03% 5.19% 4.99% 3.53%
3.67% 3.66% 3.39% .12%(c)
After expense reimbursements 4.90% 4.99% 5.03% 5.22% 5.01% 4.17%
4.24% 4.32% 4.63% 4.60%(c)
Portfolio Turnover Rate 7.35% 3.21% 15.16% 17.08% 40.22% 14.57%
17.36% 17.76% 10.04% 0%
<FN>
* Period July 5, 1994 to September 30, 1994.
(a) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian arrangement was .85%, .94%, .95% and .95% in 1998, 1997,
1996 and 1995 respectively. Prior to 1995, such reductions were reflected in
the expense ratios.
(b) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian arrangement was .73%, .75%, .75% and .64% in 1998, 1997,
1996 and 1995 respectively. Prior to 1995, such reductions were reflected in
the expense ratios.
(c) Annualized.
</FN>
</TABLE>
OTHER INVESTMENT PRACTICES
The Fund's investments are subject to other limitations described in
the SAI. Each Fund may:
[Bullet] Hedge partially or fully its portfolio against market value changes,
by buying or selling financial futures contracts and options
thereon, such as municipal bond index future contracts and the
related put or call options contracts on such index futures.
[Bullet] Engage in when-issued or delayed delivery transactions. Yields
generally available on municipal securities when delivery occurs may
be higher or lower than yields on securities obtained in the
transactions.
[Bullet] Enter into reverse repurchase agreements, under which the Fund sells
securities and agrees to repurchase them at an agreed upon time and
at an agreed upon price. These transactions are treated as a
borrowing by the Fund.
[Bullet] Purchase bonds whose interest is treated as an item of tax preference
for purposes of determining federal alternative minimum tax
liability.
INVESTMENT MANAGER
The Investment Manager for each Fund is First Pacific Management
Corporation, 2756 Woodlawn Drive, #6-201, Honolulu, HI 96822. First Pacific
Management was founded in 1988 and currently manages over $115 million for
3 tax-exempt funds. First Pacific Management is responsible for: investing
the assets of each Fund, providing investment research, administering each
Funds daily business affairs, continuous review and analysis of state and
local economic conditions and trends, and evaluating the portfolios and
overseeing its performance. As compensation for services provided by First
Pacific Management, for the most recent fiscal year, each Fund pays the
Manager a fee at the annual rate of .50 of one percent (.50%) of its average
daily net assets (.18% after expense reimbursement on the First Hawaii
Intermediate Municipal Fund).
PORTFOLIO MANAGER
Louis F. D'Avanzo is the portfolio manager of each Fund. Mr. D'Avanzo
has managed the First Hawaii Municipal Bond Fund since August 1991, the First
Hawaii Intermediate Municipal Fund since July 1994 and the First Idaho
Tax-Free Fund since July 1996. He has been employed with First Pacific
Management since July 1989. BA, Economics, Tufts University.
FUND PRICING
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 the close of regular trading
on the New York Stock Exchange (generally 4:00 pm EST). Fund shares will not
be priced on national business holidays when the New York Stock Exchange is
closed.
Each Fund's shares are valued by using market quotations, prices
provided by market makers or estimates of market values obtained from yield
data from securities with similar characteristics in accordance with procedures
established in good faith by the Board of Directors of the Funds. When events
occur which may affect the accuracy of available quotations for the Funds'
investments, the Funds may use fair value pricing procedures approved by the
Board. The price determined by the Fund in such circumstances may differ
from values assigned to securities elsewhere in the marketplace.
PURCHASING FUND SHARES
Shares are distributed through First Pacific Securities, Inc., 2756
Woodlawn Drive, #6-201, Honolulu, HI 96822 or from members of the National
Association of Securities Dealers who have dealer agreements with First
Pacific Securities, Inc. If an order is placed with a broker-dealer, the
broker-dealer is responsible for promptly transmitting the order to the Fund.
In order to establish a new account, a completed Application should
accompany the investment. Purchases can be made by submitting a check or
wiring funds. Checks must be made payable to the Fund(s) being purchased;
First Hawaii Municipal Bond Fund and/or First Hawaii Intermediate Municipal
Fund . New account applications and additional investments can be mailed to:
First Pacific Recordkeeping, Inc., 2756 Woodlawn Drive, #6-201, Honolulu, HI
96822.
First Pacific Recordkeeping, Inc. performs bookkeeping, data
processing and administrative services related to the maintenance of
shareholder accounts.
Each Fund is offered for investment on a no-load basis, meaning
investors do not pay any sales charges. The minimum initial investment to
open an account is $1,000.00. The minimum subsequent investment is $100.00.
For subsequent investments, shareholders should include their Fund account
number on the check.
Purchases received by the close of the New York Stock Exchange
(generally 4:00 pm EST) are confirmed at that day's net asset value.
Purchases received after the close of the New York Stock Exchange are
confirmed at the net asset value determined on the next 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. First Pacific Securities reserves the
right to accept or reject any purchase.
Automatic Investment Plan
Shareholders can arrange to make additional monthly purchases,
automatically, through electronic funds transfer from their financial
institution. A minimum investment of $100.00 each month is required for
participation in the plan.
Service Agents
Shares of each Fund may be purchased by customers of Service Agents
such as broker-dealers or other financial intermediaries which have
established a shareholder servicing relationship with their customers.
Service Agents will be allowed to place telephone purchase and redemption
orders. Service Agents may impose additional or different conditions on
purchases and redemptions of Fund shares and may charge transaction or other
account fees. Service Agents are responsible to their customers and the Fund
for timely transmission of all subscription and redemption requests,
investment information, documentation and money.
REDEEMING and EXCHANGING FUND SHARES
Telephone redemption privileges are automatically established on
accounts unless written notification is submitted stating that this
privilege is not requested. Telephone redemptions are not allowed if stock
certificates are held for shares being redeemed. Redemptions will be
processed but proceeds may be delayed until checks received for the
purchase of shares have cleared.
The redemption price of shares is based on the next calculation of
the net asset value after the order is placed. There are no sales charges or
fees for redeeming shares. Redemptions may be suspended when the
New York Stock Exchange is closed (other than customary weekend and
holiday closings) or when the Securities and Exchange Commission deems an
emergency exists and permits such suspension or postponement.
The proceeds of the redemption are made payable to the registered
shareholder and mailed to the address of record within five business days.
If the amount being redeemed exceeds $50,000, a written redemption
request must be submitted. Signatures must be medallion signature guaranteed.
This requirement may be waived under certain circumstances.
If your account falls below $500.00, the Fund may ask you to increase
your balance. If it is still below $500.00 after 60 days, the Fund may close
your account and send you the proceeds. Shares will not be redeemed if an
account is worth less than $500.00 due to a market decline.
Telephone Redemptions (808) 988-8088
To protect accounts from unauthorized telephone redemptions,
procedures have been established to confirm that instructions communicated
by telephone are genuine. When a telephone redemption is received, the
caller must provide:
Fund Name
Account Number
Name and address exactly as registered on that account
Social security number or tax identification as registered on
that account
Dollar or share amount to be redeemed
If these procedures are followed, neither the Funds nor First Pacific
Recordkeeping will be responsible for the authenticity of instructions received
by telephone and will not be responsible for any loss, liability cost or
expense.
Written Redemption Requests
If telephone redemption privileges are not established, a written
redemption request should be sent to First Pacific Recordkeeping, Inc.,
2756 Woodlawn Drive, #6-201, Honolulu, HI 96822. The request must include:
registration of account, account number, the dollar or share amount to be
redeemed and signed exactly as the account is registered.
Exchanging Shares
Shares may be exchanged between either Fund. An exchange is
the selling of shares of one Fund to purchase shares of another.
Shareholders automatically participate in the telephone exchange program
unless they have indicated otherwise. You can exchange shares by calling
(808) 988-8088 or by sending written instructions to First Pacific
Recordkeeping, Inc., 2756 Woodlawn Drive, #6-201, Honolulu,
HI 96822. There is currently no fee for exchanges. Exchanges are
treated as a sale and purchase of shares and may have tax consequences.
DISTRIBUTIONS, CAPITAL GAINS and TAX CONSEQUENCES
Shareholders begin earning dividends on the next business day after a
purchase is made. Shareholders continue to receive dividends up to and
including the date of redemption. Fund dividends accrue daily and are paid
to shareholders on the last business day of each month.
It is expected that the Fund will distribute dividends derived from
interest earned on exempt securities, and these "exempt interest dividends"
will be exempt income for shareholders for federal income tax purposes.
However, distributions, if any, derived from net capital gains of the Fund
will generally be taxable to you as capital gains. Dividends, if any,
derived from short-term capital gains or taxable interest income will be
taxable to you as ordinary income. You will be notified annually of the
tax status of distributions to you.
You should note that if shares are purchased just prior to a capital
gain distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend".
You will recognize taxable gain or loss on a sale, exchange or
redemption of your shares, including an exchange for shares of another Fund,
based on the difference between your cost basis in the shares and the amount
you receive for them. (To aid in computing your cost basis, you should
retain your account statements for the periods during which you held
shares.) Any loss realized on shares held for six months or less will be
treated as a long-term capital loss to the extent of any capital gain
dividends that were received on the shares. If you receive an exempt-interest
dividend with respect to any share and the share is held by you for six months
or less, any loss on the sale or exchange of the share will be disallowed to
the extent of such dividend amount.
Interest on indebtedness incurred by a shareholder to purchase or
carry shares of the Fund generally will not be deductible for federal income
tax purposes.
Exempt-interest dividends will also be considered along with other
adjusted gross income in determining whether any Social Security or
railroad retirement payments received by you are subject to federal
income taxes.
Shareholders of the 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 are derived from (1) 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) 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 Fund 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.
Generally, the Fund's distributions to any shareholders who are
residents in states other than Hawaii will constitute taxable income for
state and local income tax purposes.
The foregoing is only a summary of certain tax considerations under
current law, which may be subject to change in the future. You should
consult your tax adviser for further information regarding federal, state,
local and/or foreign tax consequences relevant to your specific situation.
DISTRIBUTION ARRANGEMENTS
Each Fund has adopted a distribution plan under Rule 12b-1 which
allows each Fund to pay up to .25% per year of its average daily net assets
for the sale and distribution of its shares. The First Hawaii Municipal
Bond Fund also pays fees for services provided to shareholders.
These fees are paid out of each Fund's assets on an on-going basis.
Over time these fees will increase the cost of an investment in the Fund and
may cost more than paying other types of sales charges.
YEAR 2000
The "Year 2000" issue stems from the inability of computers and
software programs to correctly process dates in the next century. This
could result in major system or process failures or the generation of
erroneous data, which would lead to disruption in the Funds' business
operations. The Investment Manager has sought assurances from each
service provider to the Funds and the service providers have and are
taking steps to ensure that their systems will accurately reflect the Year
2000. Municipal bond issuers are also susceptible to the Year 2000
issue, which can affect the value of their securities, which in turn can
affect the value of the Funds themselves. There can be no assurance
that the Funds will not experience any adverse effects attributable to
the Year 2000 issue.
The SAI dated February 1, 1999 includes additional information about
each Fund. Additional information about the Funds' investments is available
in the Annual and Semi-Annual reports to shareholders. In the annual report
you will find a discussion of the market conditions and investment strategies
that significantly affected each Fund's performance during its last fiscal
year.
To request the Statement of Additional Information, the Annual and
Semi-Annual report, or other information, or if you have other inquiries,
call (808) 988-8088 (collect) or (800) 354-9654 inter-island. The Funds
provide the information at no charge to shareholders.
Information about the Funds (including the SAI) can be reviewed and
copied at the Commission's Public Reference Room in Washington, DC. Call
the Commission at 1-(800) SEC-0330 for information about the operation of the
public reference room. Reports and other information about the Funds are
available on the Commission's Internet site http://www.sec.gov and upon
payment of a duplicating fee, by writing the Public Reference Section of
the Commission, Washington, DC 20549-6009.
SEC File number: 811-05631
First Pacific Mutual Fund, Inc.
2756 Woodlawn Drive, #6-201
Honolulu, HI 96822-1856
First Idaho Tax-Free Fund
Prospectus dated February 1, 1999
TABLE OF CONTENTS
Investment Objectives
Investment Strategy
Risks
Table of Funds Average Annual Total Returns
Risk Return Summary: Fee Table
Financial Highlights
Other Investment Practices
Investment Manager
Portfolio Manager
Fund Pricing
Purchasing Fund Shares
Redeeming Fund Shares
Distributions, Capital Gains and Tax Consequences
Distribution Arrangements
Year 2000
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Commission passed on the accuracy or
adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
INVESTMENT OBJECTIVES
The investment objective of the Fund is to provide a high level of
current income exempt from federal and Idaho state income taxes,
consistent with preservation of capital and prudent investment
management. This investment objective cannot be changed without
shareholder approval.
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 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.
INVESTMENT STRATEGY
The Fund will primarily invest its assets in a varied portfolio of
investment grade municipal securities issued by or on behalf of the State
of Idaho or any of its political subdivisions. The interest on these
securities is exempt from federal and State of Idaho income taxes in
the opinion of bond counsel or other counsel to the issuer of these
securities. The Fund will invest at least 80% of the Fund's net assets
in these municipal securities.
[Bullet] Maturity Range
The Fund invests in municipal bonds with a maturity of up to 40
years and an average expected maturity of 20 years.
[Bullet] Credit Quality
At least 90% of assets will be invested in municipal securities
within the four highest credit quality ratings assigned by
Standard & Poor's Corporation (AAA, AA, A, BBB) or Moody's
Investors Service, Inc. (Aaa, Aa, A, Baa), or in unrated municipal
securities judged by the Investment Manager to be of comparable
quality.
[Bullet] Concentration
More than 25% of assets may be invested in a particular segment of
the municipal bond market. Developments affecting a particular
segment could have a significant effect on Fund performance.
[Bullet] Risk Management
The portfolio will consist of different types of municipal issuers
in order to reduce the impact on the Fund of any loss on a
particular security.
[Bullet] Downgrade Policy
Downgraded bonds will be subject to review. Based upon the review,
the Fund will elect to hold or sell the downgraded bond.
During periods of adverse market conditions the Fund may not achieve
its investment objectives. For temporary defensive purposes, including when
Idahoan tax-exempt securities are unavailable, the Fund may invest in money
market instruments. The interest on these instruments may be subject to
federal or state income taxes.
RISKS
[Bullet] General Risk
There are no assurances that the Fund's investment objective will
be met. The Fund's yield, share price and investment return fluctuate so
that you may receive more or less than your original investment upon
redemption. Loss of money is a risk of investing in the Fund. Investing
in the Fund subjects you to certain risks, including:
[Bullet] Interest Rate Risk
The net asset value of the Fund may change as interest rates
fluctuate. When interest rates increase, the net asset value could decline.
When interest rates decline, the net asset value could increase.
[Bullet] Credit Risk
Credit risk is the ability of municipal issuers to meet their payment
obligations.
[Bullet] Idaho Securities
The Fund primarily invests in obligations of issuers located in
Idaho. The marketability and market value of these obligations may be
affected by certain changes in Idahoan constitutional provisions,
legislative measures, executive orders, administrative regulations and
voter initiatives.
[Bullet] Non-Diversified, Open End Management Investment Company
The 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.
[Bullet] Tax Laws
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.
Additional information about Fund investments and risks can be found
in the Statement of Additional Information ("SAI").
FUNDS AVERAGE ANNUAL TOTAL RETURNS
The bar chart and table shown below provide some indication of
the risks of investing in the First Idaho Tax-Free Fund. The information
in the bar chart shows the changes in the Fund's performance year to
year. The table compares the Fund's average annual returns with the
Lehman Muni Bond Index, which measures yield, price and total return
for long term municipal bonds. The bar chart and table assume
reinvestment of dividends and distributions. Past performance is not
indicative of future performance.
Prior to February 1, 1999, shares were subject to a sales load.
If these amounts were reflected, returns would be lower than those
shown.
Year by Year Total Return as of 12/31 each year (%):
[bar graph omitted] plot points as follows.
1997 7.76
1998 5.66
1996 was not a full calendar year, however the total return was 6.45%.
Best Quarter 3rd Q96 5.45%
Worst Quarter 1st Q97 0.16%
Average Annual Total Return as of 12/31/98
Inception
1 Year July 1, 1996
First Idaho Tax-Free Fund 5.66% 7.10%
Lehman Muni Bond Index 6.48% 7.80%
RISK RETURN SUMMARY: FEE TABLE
This table describes the fees and expenses that you may pay
if you buy and hold shares of the First Idaho Tax-Free Fund.
Shareholder Fees (fees paid directly from your investments) NONE
Shares are offered for investment without any sales charges.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Management Fees .50%
Distribution (12b-1) Fees .0%
Other Expenses 5.77%
Total Annual Fund Operating Expenses 6.27%
For the fiscal year ending September 30, 1998, all of the Fund's
12b-1 fees have been waived. The Fund also has arrangements with its
Custodian Bank to reduce fees through custodian arrangements. Such waivers
may cease at any time. Expense waivers reduced total annual Fund operating
expenses from 6.27% to 1.16%. Custody credits further reduced operating
expenses from 1.16% to .11%.
EXAMPLE
This example is intended to help compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The example assumes an
investment of $10,000 in the Fund for the time periods indicated, and a
redemption of all shares at the end of those periods. The example also
assumes the investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although actual costs may be higher or
lower, based on these assumptions costs would be:
1 year 3 years 5 years 10 years
$623 $1,845 $3,037 $5,886
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help investors
understand the Fund's financial performance since inception of the Fund.
Certain information reflects financial results for a single Fund share.
The total returns in the table represent the rate that an investor would
have earned or lost on an investment in the Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by
Tait, Weller & Baker, Certified Public Accountants, whose report, along with
the Fund's financial statements are included in the SAI or annual report,
which is available upon request.
<TABLE>
<S> <C> <C> <C>
Years Ended September 30, 1998 1997 1996*
Net Asset Value, Beginning of Period $10.39 $10.15 $10.00
Income from Investment Operations
Net Investment Income .52 .49 .05
Net Unrealized Gain on Securities .22 .24 .15
Total from Investment Operations .74 .73 .20
Less Distributions
Dividends from Net Investment Income (.52) (.49) (.05)
Net Asset Value, End of Period $10.61 $10.39 $10.15
Total Return 7.29% 7.38% 2.05%
Ratios/Supplemental Data
Net Assets, End of Period (in 000's) $952 $661 $111
Ratio of Expenses to Average Net Assets
Before expense reimbursements 6.27% 12.74% 222.98%(a)
After expense reimbursements 1.16%(b) 1.59%(b) .02%(a)
Ratio of Net Investment Income to
Average Net Assets
Before expense reimbursements (1.23)% (6.23)% (219.93)%(a)
After expense reimbursements 4.93% 4.92% 3.03%(a)
Portfolio Turnover Rate 6.44% 0% 0%
<FN>
* Commencement of operations, July 1, 1996.
(a) Annualized.
(b) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian arrangement was .11% and .05% for the years ended
September 30, 1998 and 1997. There were no custodian fee reductions in 1996.
</FN>
</TABLE>
OTHER INVESTMENT PRACTICES
The Fund's investments are subject to other limitations described in
the SAI. The Fund may:
[Bullet] Hedge partially or fully its portfolio against market value changes,
by buying or selling financial futures contracts and options thereon, such as
municipal bond index future contracts and the related put or call options
contracts on such index futures.
[Bullet] Engage in "when-issued" or "delayed delivery" transactions. Yields
generally available on municipal securities when delivery occurs may be higher
or lower than yields on securities obtained in the transactions.
[Bullet] Enter into reverse repurchase agreements, under which the Fund sells
securities and agrees to repurchase them at an agreed upon time and at an
agreed upon price. These transactions are treated as a borrowing by the Fund.
[Bullet] Invest up to 20% of its net assets in bonds whose interest is
treated as an item of tax preference for purposes of determining federal
alternative minimum tax liability.
INVESTMENT MANAGER
The Investment Manager for the Fund is First Pacific Management
Corporation, 2756 Woodlawn Drive, #6-201, Honolulu, HI 96822. First
Pacific Management was founded in 1988 and currently manages over $115
million for 3 tax-exempt funds. First Pacific Management is responsible
for: investing the assets of the Fund, providing investment research,
administering daily business affairs of the Fund, continuous review and
analysis of state and local economic conditions and trends, and evaluating
the portfolios and overseeing its performance. As compensation for services
provided by First Pacific Management, for the most recent fiscal year, the
Fund pays a fee of .50 of one percent (.50%) of the average daily net assets
(0% after expense reimbursements).
PORTFOLIO MANAGER
Louis F. D'Avanzo is the portfolio manager of the Fund. Mr. D'Avanzo
has managed the First Idaho Tax-Free Fund since its inception, July 1996. Mr.
D'Avanzo manages two other Funds: First Hawaii Municipal Bond Fund
since August 1991 and First Hawaii Intermediate Municipal Fund since July
1994. He has been employed with First Pacific Management since July 1989.
BA, Economics, Tufts University.
FUND PRICING
The net asset value per share for the 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 the close of regular
trading on the New York Stock Exchange (generally 4:00 pm EST). Fund shares
will not be priced on national business holidays when the New York Stock
Exchange is closed.
The Fund's shares are valued by using market quotations, prices
provided by market makers or estimates of market values obtained from yield
data from securities with similar characteristics in accordance with
procedures established in good faith by the Board of Directors of the Fund.
When events occur which may affect the accuracy of available quotations for
the Fund's investments, the Fund may use fair value pricing procedures
approved by the Board. The price determined by the Fund in such
circumstances may differ from values assigned to securities elsewhere in
the marketplace.
PURCHASING FUND SHARES
Shares are distributed through First Pacific Securities, Inc., 2756
Woodlawn Drive, #6-201, Honolulu, HI 96822 or from members of the National
Association of Securities Dealers who have dealer agreements with First
Pacific Securities, Inc. If an order is placed with a broker-dealer, the
broker-dealer is responsible for promptly transmitting the order to the Fund.
In order to establish a new account, a completed "Application" should
accompany the investment. Purchases can be made by submitting a check or
wiring funds. Checks must be made payable to the Fund being purchased;
"First Idaho Tax-Free Fund". New account applications and additional
investments can be mailed to: First Idaho Tax-Free Fund, c/o American
Data Services, Inc., P.O. Box 5536, Hauppauge, NY 11788-0132.
American Data Services, Inc. performs bookkeeping, data
processing and administrative services related to the maintenance of
shareholder accounts.
The Fund is offered for investment on a no-load basis, meaning
investors do not pay any sales charges. The minimum initial investment to
open an account is $1,000.00. The minimum subsequent investment is $100.00.
For subsequent investments, shareholders should include their Fund account
number on the check.
Purchases received by the close of the New York Stock Exchange
(generally 4:00 pm EST) are confirmed at that day's net asset value.
Purchases received after the close of the New York Stock Exchange are
confirmed at the net asset value determined on the next 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. First Pacific Securities reserves
the right to accept or reject any purchase.
Automatic Investment Plan
Shareholders can arrange to make additional monthly purchases,
automatically, through electronic funds transfer from their financial
institution. A minimum investment of $100.00 each month is required for
participation in the plan.
Service Agents
Shares of the Fund may be purchased by customers of Service Agents
such as broker-dealers or other financial intermediaries which have
established a shareholder servicing relationship with their customers.
Service Agents will be allowed to place telephone purchase and redemption
orders. Service Agents may impose additional or different conditions on
purchases and redemptions of Fund shares and may charge transaction or other
account fees. Service Agents are responsible to their customers and the
Fund for timely transmission of all subscription and redemption requests,
investment information, documentation and money.
REDEEMING FUND SHARES
Telephone redemption privileges are automatically established on
accounts unless written notification is submitted stating that this
privilege is not requested. Telephone redemptions are not allowed if stock
certificates are held for shares being redeemed. Redemptions will be
processed but proceeds may be delayed until checks received for the
purchase of shares have cleared.
The redemption price of shares is based on the next calculation of
the net asset value after the order is placed. There are no sales charges
or fees for redeeming shares. Redemptions may be suspended
when the New York Stock Exchange is closed (other than customary weekend and
holiday closings) or when the Securities and Exchange Commission deems an
emergency exists and permits such suspension or postponement.
The proceeds of the redemption are made payable to the registered
shareholder and mailed to the address of record within five business days.
If the amount being redeemed exceeds $50,000, a written redemption
request must be submitted. Signatures must be medallion signature
guaranteed. This requirement may be waived under certain circumstances.
If your account falls below $500.00, the Fund may ask you to increase
your balance. If it is still below $500.00 after 60 days, the Fund may close
your account and send you the proceeds. Shares will not be redeemed if
an account is worth less than $500.00 due to a market decline.
Telephone Redemptions (877) 829-8412
To protect accounts from unauthorized telephone redemptions,
procedures have been established to confirm that instructions communicated
by telephone are genuine. When a telephone redemption is received, the
caller must provide:
Fund Name
Account Number
Name and address exactly as registered on that account
Social security number or tax identification as registered on
that account
Dollar or share amount to be redeemed
If these procedures are followed, neither the Fund nor American
Data Services, Inc. will be responsible for the authenticity of instructions
received by telephone and will not be responsible for any loss, liability
cost or expense.
Written Redemption Requests
If telephone redemption privileges are not established, a written
redemption request should be sent to: First Idaho Tax-Free Fund, c/o
American Data Services, Inc., P.O. Box 5536, Hauppauge, NY
11788-0132. The request must include: registration of account, account
number, the dollar or share amount to be redeemed and signed exactly
as the account is registered.
DISTRIBUTIONS, CAPITAL GAINS and TAX CONSEQUENCES
Shareholders begin earning dividends on the next business day after
a purchase is made. Shareholders continue to receive dividends up to and
including the date of redemption. Fund dividends accrue daily and are paid
to shareholders on the last business day of each month.
It is expected that the Fund will distribute dividends derived from
interest earned on exempt securities, and these "exempt interest dividends"
will be exempt income for shareholders for federal income tax purposes.
However, distributions, if any, derived from net capital gains of the Fund
will generally be taxable to you as capital gains. Dividends, if any,
derived from short-term capital gains or taxable interest income will be
taxable to you as ordinary income. You will be notified annually of the tax
status of distributions to you.
You should note that if shares are purchased just prior to a capital
gain distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend".
You will recognize taxable gain or loss on a sale, or redemption of
your shares, based on the difference between your cost basis in the shares
and the amount you receive for them. (To aid in computing your cost basis,
you should retain your account statements for the periods during which you
held shares.) Any loss realized on shares held for six months or less will
be treated as a long-term capital loss to the extent of any capital gain
dividends that were received on the shares. If you receive an
exempt-interest dividend with respect to any share and the share is held by
you for six months or less, any loss on the sale of the share will be
disallowed to the extent of such dividend amount.
Interest on indebtedness incurred by a shareholder to purchase or
carry shares of the Fund generally will not be deductible for federal income
tax purposes.
Exempt-interest dividends will also be considered along with other
adjusted gross income in determining whether any Social Security or
railroad retirement payments received by you are subject to federal
income taxes.
Shareholders of the Fund who are subject to Idaho income taxes will
not be subject to Idaho income taxes on the Fund's dividends to the extent
that such dividends are derived from (1) interest on tax-exempt obligations
of the State of Idaho or any of its political subdivisions (including bonds
issued by certain authorities of the State of Idaho) 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)
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 the 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 Idaho income tax.
Generally, the Fund's distributions to any shareholders who are
residents in states other than Idaho will constitute taxable income for
state and local income tax purposes.
The foregoing is only a summary of certain tax considerations under
current law, which may be subject to change in the future. You should
consult your tax adviser for further information regarding federal, state,
local and/or foreign tax consequences relevant to your specific situation.
DISTRIBUTION ARRANGEMENTS
The Fund has adopted a distribution plan under Rule 12b-1 which
allows the Fund to pay up to .25% per year of its average daily net assets
for the sale and distribution of its shares.
These fees are paid out of the Fund's assets on an on-going basis.
Over time these fees will increase the cost of an investment in the Fund and
may cost more than paying other types of sales charges.
YEAR 2000
The "Year 2000" issue stems from the inability of computers and
software programs to correctly process dates in the next century. This
could result in major system or process failures or the generation of
erroneous data, which would lead to disruption in the Fund's business
operations. The Investment Manager has sought assurances from each
service provider to the Fund and the service providers have and are
taking steps to ensure that their systems will accurately reflect the Year
2000. Municipal bond issuers are also susceptible to the Year 2000
issue, which can affect the value of their securities, which in turn can
affect the value of the Fund itself. There can be no assurance that the
Fund will not experience any adverse effects attributable to the Year
2000 issue.
The SAI dated February 1, 1999 includes additional information
about the Fund. Additional information about the Funds' investments is
available in the Annual and Semi-Annual reports to shareholders. In the
annual report you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance
during its last fiscal year.
To request the Statement of Additional Information, the Annual
and Semi-Annual report, or other information, or if you have other inquiries,
call (877) 829-8412 toll-free. The Fund provides the information at no
charge to shareholders.
Information about the Fund (including the SAI) can be reviewed and
copied at the Commission's Public Reference Room in Washington, DC. Call
the Commission at 1-(800) SEC-0330 for information about the operation of the
public reference room. Reports and other information about the Funds are
available on the Commission's Internet site http://www.sec.gov and upon
payment of a duplicating fee, by writing the Public Reference Section of
the Commission, Washington, DC 20549-6009.
SEC File number: 811-05631
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") and First Hawaii Intermediate Municipal
Fund (the "Intermediate Fund"), the second series of the Corporation, are
each 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 and
should be read in conjunction with the Prospectus. A copy of the
Prospectus dated February 1, 1999 may be obtained without charge
by calling (808) 988-8088.
The Prospectus and this Statement of Additional Information ( SAI )
omit certain information contained in the registration statement filed with
the Securities and Exchange Commission ("SEC"), Washington, D.C. This
omitted information may be obtained from the Commission upon payment of the
fee prescribed, or inspected at the SEC's office at no charge.
The Funds' Annual Report for the fiscal year ended September 30, 1998
is incorporated by reference into this SAI.
TABLE OF CONTENTS
Fund History..............................................................2
Investment Strategies and Risks . ........................................2
Description of Municipal Securities Ratings .............................11
Tax Information..........................................................15
Management of the Fund ..................................................15
Investment Management Agreement..........................................17
Custodian .............................................................. 19
Fund Accounting .........................................................19
Independent Auditors. .................................................. 19
Portfolio Transactions ..................................................19
Purchasing and Redeeming Fund Shares.....................................20
The Distributor ....................... .................................21
Transfer Agent ..........................................................23
Performance .............................................................24
This Statement of Additional Information is dated February 1, 1999.
FUND 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 Corporation 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 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.
INVESTMENT STRATEGIES AND RISKS
The investment objective of the Fund is to provide a high level
of current income exempt from federal and Hawaii state income taxes,
consistent with preservation of capital and prudent investment management.
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 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 the
Fund provide that the Fund may not:
1. Issue senior securities.
2. 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.
3. Invest more than 25% of its assets in a single industry.
The Fund may from time to time invest more than 25% of its assets in a
particular segment (bonds financing similar projects such as utilities,
hospitals or housing finance agencies) 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. Developments affecting a particular
segment could have significant effect on a Fund s performance. 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. The Fund may be
subject to greater risk as compared to a fund that does not follow this
practice.
4. Borrow money, except for temporary purposes from banks or in
reverse repurchase transactions as described in the SAI 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. The 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. Notwithstanding this investment restriction, the Fund may
enter into "when-issued" and "delayed delivery" transactions.
5. Make loans, except to the extent obligations in which the Fund
may invest in are considered to be loans.
6. 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.
7. Sell any securities "short", write, purchase or sell puts,
calls or combinations thereof, or purchase or sell interest rate or other
financial futures or index contracts or related options.
8. 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.
9. 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 net assets would be so
invested.
10. Make investments for the purpose of exercising control or
participation in management.
11. 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.
12. Invest in equity, interests in oil, gas or other mineral
exploration or development programs.
13. 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 Fund 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. The Fund anticipates
that the annual portfolio turnover rate of the Fund will be less than 100%.
The Fund will not seek capital gain or appreciation but may sell securities
held in its portfolio and, as a result, realize a 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 normal administrative expenses.
In order to avoid a 4% excise tax, the 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 such income 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.
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.
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. 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.
The 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 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 that 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 investing in
multiple issuers, 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 the 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. The 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.
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 Fund 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. Tourism in Hawaii last peaked in 1990-1991, falling to a cyclical
trough in 1993. A recovery in tourism activity began in 1994 and proceeded
through mid-1996 but began to dissipate in 1997 as the U.S. dollar's
appreciation against the Japanese yen eroded the purchasing power of
Japanese tourists, and with it travel demand.
Representing fully one-quarter of Hawaii gross product directly,
tourism's recovery has been the single most important stimulus to Hawaii's
economy in recent years. However, a decline in total visitor arrivals during
fourth-quarter 1996, the first significant decrease since 1993, coupled with
a 4.0% decline in eastbound arrivals in the early months of 1997 cast a
shadow on the ability of tourism to pull the Hawaii economy out of its
present doldrums. Little tourism growth is expected for 1998 as destination
fatigue, dampened Asian Travel demand, airline capacity constraints and
competition combine to limit visitor arrivals.
Sugar, the State's prime traditional crop, gives clear evidence of
contracting to a small fraction of its long-held size and perhaps
disappearing altogether in the not so distant future. Pineapple production
and exports have declined with the end of plantation operations on Lanai and
a cannery closing on Oahu. Other traditional crops have shown some gains in
recent years. Rising coffee prices and expanded plantings have nearly
doubled the value of Hawaiian coffee during the 1990 s. Macadamia nut
production has also flourished. The expanded production of fruits and
vegetables throughout the state is fulfilling an import-substitution
strategy to provide a reliable, steady supply of fresh Hawaiian grown
produce. Cut flowers remain a lucrative air export business. A recently
approved irradiation facility on the Big Island may boost exports of crops
suffering from fruit fly infestation.
Hawaii's construction industry settled into the trough of its current
cycle during 1995 and 1996, with total contracting receipts hovering at $3.1 -
$3.2 billion after declining steadily during the investment recession of the
early-1990's. This represents a real decline of about one-third in the
industry's gross taxable receipts from the construction spending peak in
1991 of $4.3 billion, closer to $4.8 billion when adjusted for construction
cost inflation (in 1996 dollars). The State s plan to spend one billion
dollars in an accelerated capital improvements program should begin to boost
the Hawaii construction industry in 1998.
The federal government maintains 26 military installations in the
State, encompassing approximately 5% of the land area of the State.
Nationwide base closings and realignments have led to increased federal
government activity in the state in recent years, as has the military's
decision to catch up to the housing problems of the 1980's with housing
construction in the 1990's. Census Bureau data on federal spending in
Hawaii showed an 8.2% surge in total expenditure (excluding grants to state
and local governments) during federal fiscal year 1996 to $6.9 billion.
Such outlays had hovered around $6.3 billion in fiscal years 1993-95 and
were only $4.9 billion as recently as 1990.
As of the date of this SAI, general obligation bonds issued by the
State of Hawaii are rated A+ by Standard & Poor's Corporation ("S&P")
and A1 by Moody's Investors Service, Inc. ("Moody's"). 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.
Hawaii's highly centralized state government provides services
typically provided by local government elsewhere in the nation, resulting in
some of the highest debt levels of any state. According to Bank of Hawaii,
debt per capita at $2,848, is more than six times the $422 median for
states. Debt to personal income is also very high at 11.6% compared to
the national median of 2.1%, although the ratio has declined slightly over
the past decade. Debt servicing will consume nearly 12% of general
resources in fiscal 1998. These high debt levels are exacerbated by
debt funding of non-capital liabilities, such as airport reimbursements
and native Hawaiian home payments, and by the Governor s plan to use public
work to spur economic activity.
Hawaii gross state product grew at only a .2% annual average rate
between 1992 and 1994, .5% in 1995 and, on a preliminary estimated basis,
.9% during 1996 after adjustment for inflation. Although at the end of 1996
forecasts for 1997 looked forward to a slightly improved growth rate, a
weakening of tourism performance in fourth-quarter 1996 and an outright
decrease in visitor arrivals in first quarter 1997 dampened prospects for
1997 as a whole.
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 Federal Home Loan Mortgage Corporation.
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 Investment Manager
determines during periods of adverse market conditions including when
Hawaiian tax-exempt securities are unavailable, the Fund may invest
up to 20% of the value of its net assets for temporary defensive purposes
in money market instruments the interest on which may be subject to federal,
state or local income tax. When the Fund takes a temporary defensive
position, the Fund will not be pursuing policies designed to achieve its
investment objective.
Investment Practices of The 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
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 options 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 the same term as the option sold by the Fund, and has the effect of
canceling 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 SEC 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's
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 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 or S&P,
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. 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 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. The 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. 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 portfolio consistent with Fund investment objectives and policies
and not for the purpose of investment leverage.
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.
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 S&P) follows:
An S&P 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 obligers 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 S&P. Capacity
to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only
in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB Debt rated "BB", "B", "CCC", "CC", or C is regarded, on balance,
B as predominantly speculative with respect to capacity to pay
CCC interest and repay principal in accordance with the terms of
CC obligation. "BB" indicates the lowest degree of speculation and
C "C" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics those
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 underlying deposit
collateral is fully insured by the Federal Savings & Loan
Insurance 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
S&P'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.
Those issues determined to possess overwhelming safety
characteristics will be given a 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
An S&P 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. Those 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. ("Moody's") rating symbols and
their meanings (as published by Moody's) 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 to as "gilt edged". 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.
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, Ba 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
strong capacity for repayment of short-term promissory obligations.
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.
TAX INFORMATION
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to invest all, or
substantially all, of its assets in debt obligations the interest on which
is exempt, for federal income tax purposes, so that the Fund itself
generally will be relieved of federal income and excise taxes. If
the Fund were to fail to so qualify: (1) the Fund would be taxed on its
taxable income at regular corporate rates without any deduction for
distributions to shareholders; and (2) Shareholders would be taxed as if
they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction.
For the Fund to pay tax-exempt dividends for any taxable year, at
least 50% of the aggregate value of the Fund's assets at the close of each
quarter of the Fund's taxable year must consist of exempt-interest
obligations.
MANAGEMENT OF THE FUND
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. 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 Directors under the laws of
Maryland.
<TABLE>
<CAPTION>
Name, Age Position & Office Principal Occupation During
and Address With the Fund the Past Five Years
<S> <C> <C>
Samuel L. Chesser (43) Director Options Market Maker and Member Pacific
24 Underhill Road Stock Exchange. Formerly: President, First
Mill Valley, CA 94941 Pacific Securities, Inc.; Vice President,
First Pacific Management Corporation.
Clayton W.H. Chow (46) Director Sr. Account Executive, Federal Express
896 Puuikena Dr.
Honolulu, HI 96821
*Jean M. Chun (42) Secretary Corporate Secretary, First Pacific
920 Ward Ave., #12G Management Corporation; Corporate
Honolulu, HI 96814 Secretary, First Pacific Securities, Inc.
Lynden M. Keala (44) Director Account Executive, Reynolds & Reynolds
47-532 Hui Iwa St. (formerly Vanier Business Forms)
Kaneohe, HI 96744
*Terrence K.H. Lee (41) Director, President President, First Pacific Management Corp.;
1441 Victoria St., #901 President, First Pacific Securities, Inc.
Honolulu, HI 96822
Stuart S. Marlowe (58) Director Vice President/General Manager Navarre Corp.
274 Poipu Drive (Distributor of music and software products.)
Honolulu, HI 96825
*Charlotte A. Meyer (45) Treasurer Corporate Treasurer, First Pacific
64-5251 Puu Nani Drive Management Corporation; Corporate
PO Box 2834 Treasurer, First Pacific Securities, Inc.
Kamuela, HI 96743
Karen T. Nakamura (54) Director President, Wallpaper Hawaii, Ltd.
3160 Waialae Avenue
Honolulu, HI 96816
Kim F. Scoggins (51) Director Commercial Real Estate, Colliers, Monroe &
2969 Kalakaua Avenue, #1201 Friedlander, Inc.
Honolulu, HI 96815
</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 Directors of the
Fund who are not interested persons of the Manager for services or 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.
Set forth below is the Directors compensation for the most recent fiscal year:
<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits Estimated From Fund
Name of Person, Compensation Accrued As Part Annual Benefits and Fund
Complex
Position From Fund of Fund Expenses Upon Retirement Paid To Directors
<S> <C> <C> <C> <C>
Samuel L. Chesser $300.00 0 0 $300.00
Director
Clayton W.H. Chow $300.00 0 0 $300.00
Director
Lynden M. Keala $300.00 0 0 $300.00
Director
Terrence K.H. Lee 0 0 0 0
Director, President
Stuart S. Marlowe $300.00 0 0 $300.00
Director
Karen T. Nakamura $200.00 0 0 $200.00
Director
Kim F. Scoggins $300.00 0 0 $300.00
Director
</TABLE>
INVESTMENT MANAGEMENT AGREEMENT
Subject to the authority of the Directors and under the laws of
Maryland, the Manager and the Corporation's Officers will supervise and
implement the Fund's investment activities. The Manager implements the
investment program of the Fund and the composition of its portfolio on a
day-to-day basis.
The Investment Management Agreement between the Manager and the Fund
provides that the Manager will provide portfolio management services to the
Fund including the selection of securities for the Fund to purchase, hold or
sell, supply investment research to the Fund and the selection of brokers
through whom the Fund's portfolio transactions are executed. The Manager
is responsible for evaluating the portfolio and overseeing its performance.
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 Manager 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 the 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 the 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 SEC 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 the Manager, the Fund pays the Manager a fee at the annual
rate of .50 of one percent (.50%) of its average daily net assets.
Fees paid by the Bond Fund for the three most recent fiscal years:
Investment Management Management
Agreement Fees Waived
1998 $545,987 $0
1997 $318,926 $0
1996 $265,680 $0
Fees paid by the Intermediate Fund for the three most recent fiscal years:
Investment Management Management
Agreement Fees Waived
1998 $29,058 $18,597
1997 $31,806 $14,396
1996 $29,311 $11,697
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 current Management Agreement between the Bond Fund and the
Manager was approved on May 14, 1991 and the Management Agreement between
the Intermediate Fund and the Manager was approved on July 7, 1994. Each
Agreement continues in effect for successive annual periods, so long as such
continuance is specifically approved at least annually by the Directors 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.
Each Agreement provides that either party may terminate by giving the other
not more than sixty days nor less than thirty days written notice. Each
Agreement will terminate automatically if assigned by either party.
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.
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 the majority 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.
The principal holders of the Intermediate Fund who own 5% or more
of the outstanding shares are listed below:
Roger Bernard Brault, TTEE
Roger Bernard Brault Trust, UAD 02/27/92
1534 Mokulua Dr.
Honolulu, HI 96734
15.10%
CUSTODIAN
Union Bank of California, N.A., 475 Sansome Street, San Francisco,
California 94111, is the custodian of the 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 the Fund.
FUND ACCOUNTING
American Data Services, Inc., 150 Motor Parkway, Suite 109, Hauppauge,
NY 11788 provides fund accounting for the Fund. The annual accounting fee
schedule for the Fund is as follows:
Calculated fee will be based upon prior month combined average net
assets for the First Hawaii Municipal Bond Fund, First Hawaii Intermediate
Municipal Fund and First Idaho Tax-Free Fund:
First $125 million of average net assets - $5,000.00
All average net assets in excess of $125 million, $5,000.00
plus 1/12th of 0.02% (2 basis points)
The fiscal years listed below reflect fees paid to First Pacific
Recordkeeping, Inc., an affiliate of the Investment Manager.
Fees paid by the Bond Fund for the three most recent fiscal years:
Fund Accounting Fund Accounting
Agreement Fees Waived
1998 $44,485 $0
1997 $47,525 $851
1996 $39,222 $0
Fees paid by the Intermediate Fund for the three most recent fiscal years:
Fund Accounting Fund Accounting
Agreement Fees Waived
1998 $21,500 $13,128
1997 $23,610 $9,893
1996 $23,865 $4,737
INDEPENDENT AUDITORS
The independent auditors for the Fund are Tait, Weller & Baker, 8 Penn
Center Plaza, Suite #800 Philadelphia, Pennsylvania 19103-2108.
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 Funds'
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 Fund 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 SEC under the Investment Company 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 the Distributor 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: 1998-none, 1997-none, 1996-none.
PURCHASING AND REDEEMING FUND SHARES
Shares of the Fund may be purchased and redeemed by customers of
broker-dealers or other financial intermediaries ( Service Agents ) which
have established a shareholder servicing relationship with their customers.
These Service Agents are authorized to designate other intermediaries to
accept purchase and redemption orders on the Fund's behalf. The Fund will
be deemed to have received a purchase or redemption order when an authorized
Service Agent, or authorized designee, accepts the order. Customer orders
will be priced at the Fund's net asset value next computed after they are
accepted by a Service Agent or authorized designee. Service Agents may
impose additional or different conditions on purchases or redemptions of
Fund shares and may charge transaction or other account fees. The Service
Agent is responsible for transmitting to its customers a schedule of any
such fees and information regarding additional or different purchase or
redemption conditions. Shareholders who are customers of Service Agents
should consult their Service Agent for information regarding these fees and
conditions. Amounts paid to Service Agents may include transaction fees
and/or service fees, which would not be imposed if shares of the Portfolio
were purchased directly from the Distributor. Service Agents may provide
shareholder services to their customers that are not available to a
shareholder dealing directly with the Fund's Distributor.
Service Agents may enter confirmed purchase and redemption orders on
behalf of their customers. If shares of a Portfolio are purchased in this
manner, the Service Agent must receive your investment order before the
close of the New York Stock Exchange, and transmit it to the Fund's Transfer
Agent prior to 8:00 pm EST to receive that day's share price. Proper payment
for the order must be received by the Transfer Agent within 3 business days
following the trade date. Service Agents are responsible to their customers
and the Fund for timely transmission of all subscription and redemption
requests, investment information, documentation and money.
The issuance of shares is recorded on the books of the 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.
Under certain circumstances, an investor may purchase Fund 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 the Fund with a purchase order, investors must contact
the Manager at (808) 988-8088 for verbal approval on 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
at the value next determined after receipt of the purchase order. Approval
of 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.
THE DISTRIBUTOR
Shares of the Fund are offered on a continuous basis through First
Pacific Securities, Inc. 2756 Woodlawn Drive, #6-201, Honolulu, Hawaii 96822
(the "Distributor"), a wholly-owned subsidiary of the Manager. Pursuant
to a Distribution Agreement, the Distributor 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 Fund
shares and how Fund 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 SEC 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.
The Distribution Agreement continues in effect from year to year if
specifically approved at least annually by the shareholders or Directors of
the Fund and by the Funds' 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.
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 Fund is 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.
Under the Distribution Plan, the Fund will pay the Distributor for
expenditures which are primarily intended to result in the sale of the
respective Funds' shares such as advertising, marketing and distributing
the Funds' 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,
the 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 Plan provides that it will continue in full force
and effect if ratified at the first meeting of the Fund's 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 purpose of voting on
the Distribution Plan. The Distribution Plan for the Fund was approved by
the Fund's initial shareholder(s). The Distribution Plan 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. The 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. While the Distribution Plan is in
effect, selection of the nominees for disinterested Directors is committed
to the discretion of the disinterested Directors.
The Plan provides that the Distributor must submit quarterly reports
to the Directors 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.
Distribution Plan payments by the Bond Fund, by category, for the
most recent fiscal year are as follows: Advertising $771; Seminars and
Meetings $3,084; Printing $246; Rent Utilities $49; Telephone $587;
Salaries and Wages $118,195; Employee Benefits $295; Miscellaneous $6,778;
Total $130,005.
Distribution Plan payments by the Intermediate Fund, by category, for
the most recent fiscal year are as follows: Salaries and Wages $1,500;
Total $1,500.
TRANSFER AGENT
First Pacific Recordkeeping, Inc., 2756 Woodlawn Drive, #6-201,
Honolulu, Hawaii 96822, a wholly-owned subsidiary of First Pacific
Management Corporation, serves as transfer agent, dividend disbursing
agent and redemption agent pursuant to a Transfer and Dividend Disbursing
Agent Agreement approved by the Directors at a meeting held for such purpose
on March 15, 1994. The Agreement is subject to annual renewal by the
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 .06 of one percent
(0.06%) of each Fund's average daily net assets 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 the Transfer and Dividend Disbursing 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 purchases and redemptions 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
stockholders.
The Shareholder Services Agreement does not duplicate services
provided under the Transfer Agent Agreement. Clerical services provided
by the Transfer Agent on behalf of the Bond Fund 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 Bond Fund 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 up to 0.10% of the Bond Fund's
average daily net assets. The Intermediate Fund no longer charges
shareholder service fees as of January 21, 1998.
Fees paid by the Bond Fund for the three most recent fiscal years:
Transfer Agent Transfer Agent Shareholder Services Service
Agreement Fees Waived Agreement Fees Waived
1998 $58,955 $0 $109,197 $0
1997 $45,135 $479 $63,785 $0
1996 $47,215 $0 $53,136 $0
Fees paid by the Intermediate Fund for the three most recent fiscal years:
Transfer Agent Transfer Agent Shareholder Services Service
Agreement Fees Waived Agreement Fees Waived
1998 $14,400 $3,272 $1,844 $1,844
1997 $31,806 $14,396 $6,361 $6,361
1996 $29,311 $11,697 $5,862 $5,862
PERFORMANCE
Current yield, tax equivalent yield and total return quotations used
by the Funds are based on standardized methods of computing performance
mandated by SEC 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 SEC formula:
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.
The yields for the Funds for the 30-day periods ending September 30, 1998 are
set forth below:
Month Ended
09/30/98
First Hawaii Municipal Bond Fund 3.70%
First Hawaii Intermediate Municipal Fund 3.33%
Tax equivalent yield is calculated by dividing that portion of the
current yield (calculated as described above) which is tax exempt by 1 minus
a stated tax rate and adding the quotient to that portion of the yield of
the Fund that is not tax exempt.
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 SEC formula:
P(1 + T)n = ERV
where
P = a hypothetical initial payment of $10,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of 1, 5 or 10 year
periods of a hypothetical $10,000 payment made at the beginning
of the 1, 5 or 10 year periods.
The average annual total return for the Funds for the periods indicated and
ended September 30, 1998 are set forth below:
Since
One Year Five Years Inception
First Hawaii
Municipal Bond Fund 6.28% 4.98% 7.10%
(Inception November 23, 1988)
First Hawaii
Intermediate Municipal Fund 5.08% ------ 5.36%
(Inception July 5, 1994)
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, tax equivalent yield or total return for the Fund as reported by
various financial publications and/or compare yield, tax equivalent yield or
total return to yield or total return as reported by other investments,
indices, and averages. The performance of the Fund may also be compared in
publications to averages, performance rankings, or other information prepared
by recognized mutual fund statistical services.
The Lehman 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 the Fund will be audited at least
annually by Tait Weller & Baker, Independent Auditors. The 1998 Annual
Report to Shareholders is incorporated by reference to this SAI.
FIRST PACIFIC MUTUAL FUND, INC.
FIRST IDAHO TAX-FREE FUND
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 Idaho
Tax-Free Fund is the third series of the Corporation. The 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 Idaho personal income taxes as is consistent with
prudent investment management and the preservation of shareholders' capital.
The Fund's portfolio is managed by First Pacific Management Corporation (the
"Manager").
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus. A copy of the Prospectus
dated February 1, 1999 may be obtained without charge by calling
(877) 829-8412.
The Prospectus and this Statement of Additional Information ("SAI")
omit certain information contained in the registration statement filed with
the Securities and Exchange Commission ("SEC"), Washington, D.C. This
omitted information may be obtained from the Commission upon payment of the
fee prescribed, or inspected at the SEC's office at no charge.
The Annual Report for the fiscal year ended September 30, 1998 is
incorporated by reference into this SAI.
TABLE OF CONTENTS
Fund History................................................................2
Investment Strategies and Risks.............................................2
Description of Municipal Securities Ratings................................10
Tax Information............................................................14
Management of the Fund ....................................................15
Investment Management Agreement............................................16
Custodian .................................................................18
Fund Accounting ...........................................................19
Independent Auditors .....................................................19
Portfolio Transactions ....................................................19
Purchasing and Redeeming Fund Shares.......................................20
The Distributor ...........................................................21
Transfer Agent ............................................................23
Performance ...............................................................23
This Statement of Additional Information is dated February 1, 1999.
FUND 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 the 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 Fund, and (2) equal
dividend, distribution and redemption rights to assets of the 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 Corporation 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 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.
INVESTMENT STRATEGIES AND RISKS
The investment objective of the Fund is to provide a high level of
current income exempt from federal and Idaho state income taxes,
consistent with preservation of capital and prudent investment
management. The Fund will primarily invest its assets in obligations
issued by or on behalf of the State of Idaho and its political subdivisions,
agencies and certain territories of the United States, the interest on
which is exempt from federal and Idaho state income taxes in the
opinion of counsel.
Fundamental investment restrictions limiting the investments of the
Fund provide that the Fund may not:
1. Issue senior securities.
2. 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.
3. Invest more than 25% of its assets in a single industry. The
Fund may from time to time invest more than 25% of its assets in a particular
segment (bonds financing similar projects such as utilities, hospitals or
housing finance agencies) 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. Developments affecting a particular segment could have
significant effect on a Fund's performance. 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. The Fund may be subject to greater risk as compared to a
fund that does not follow this practice.
4. Borrow money, except for temporary purposes from banks or in
reverse repurchase transactions as described in the SAI 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. The 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. Notwithstanding this investment restriction, the Fund may
enter into "when-issued" and "delayed delivery" transactions.
5. Make loans, except to the extent obligations in which the
Fund may invest in are considered to be loans.
6. 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.
7. Sell any securities "short", write, purchase or sell puts,
calls or combinations thereof, or purchase or sell interest rate or other
financial futures or index contracts or related options.
8. 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.
9. 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 net assets would be so
invested.
10. Make investments for the purpose of exercising control or
participation in management.
11. 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 Idaho 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.
12. Invest in equity, interests in oil, gas or other mineral
exploration or development programs.
13. 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 Fund may not change any of these investment restrictions without
the approval of the lesser of (i) more than 50% of the Fund's outstanding
shares or (ii) 67% of the 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, the 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. The Fund anticipates
that the annual portfolio turnover rate of the Fund will be less than 100%.
The Fund will not seek capital gain or appreciation but may sell securities
held in its portfolio and, as a result, realize a 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 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 normal administrative expenses.
In order to avoid a 4% excise tax, the 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 such income 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.
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.
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
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.
The 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 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 that 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. Additionally, the Fund will seek to
reduce risk through investing in multiple issuers, 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 the 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. The Fund
will purchase only those unrated securities which the Investment Manager
believes are comparable to rated securities that qualify for purchase by the
Fund.
Idaho Bonds. Idaho issues several types of municipal securities.
These include:
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 the general public, health care
facilities provided to the general public by not-for-profit corporations or
low and moderate income governmental housing programs.
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.
There is a constitutional limitation of $2 million on the issuance
of State of Idaho general obligation bonds. Idaho may exceed this limitation
only through voter referendum and approval by members of each House of the
State Legislature. This limitation on the power of the State to incur
indebtedness, applies only to the issuance of State general obligation bonds.
Because the Fund will ordinarily invest 80% or more of its net assets
in Idaho obligations, it is more susceptible to factors affecting Idaho issuers
than is a comparable municipal bond fund not concentrated in the obligations
of issuers located in a single state.
The Idaho economy is concentrated in construction, manufacturing,
agriculture, tourism, food products, lumber and mining.
Idaho's hi-tech industry has continued to grow at a rapid pace during
the last two years. The hi-tech industry ranks as the state s second largest
production sector, accounting for almost 30,000 jobs. Both Micron Technology
and Hewlett-Packard have large production facilities in Idaho. Employment in
this sector is expected to rise 10.0% in 1998, 2.9% in 1999, and 3.1% in 2000.
Agriculture related business ranks as the state s number one industry
with cash receipts of $2.5 billion in 1996. Over 18,000 Idahoans are employed
in food processing operations and more than 32,000 work on farms and ranches.
For the past five years, Idaho and its surrounding states have led
the nation in the growth rate of construction. Employment in this sector has
nearly tripled since 1970, reaching an employment level of 31,780 jobs
in 1997.
With only 3% of the nation's forests, Idaho ranks among the largest
producers of softwood lumber in the U.S. producing 5% of the nation's
softwood lumber. Unfortunately, a nationwide glut coupled with a strong
dollar and weak Asian economies have dampened the demand for lumber and wood
product exports. Idaho has traditionally been dependent on timber from
federal lands, but in recent years the supply of logs from these public
lands has fallen. The uncertainty of public timber supply should limit
future investment and employment in the lumber and wood products sector.
From 1998 to 2002, Idaho lumber and wood products employment is projected
to fall from 13,347 to 13,096.
Idaho ranks in the top ten domestic producers of gold and has remained
one of the nation's largest producers of silver for nearly a century. Idaho
also ranks among the nation s leading producers of lead, zinc, antimony,
phosphate, and molybdenum. The phosphate and molybdenum deposits in
Southeastern Idaho are the largest in the U.S. 3,100 Idahoans were employed
in the mining industry in 1997.
Manufactured exports reached $1.3 billion in 1996 down from 1995's
$1.6 billion. Agricultural exports topped out at $900 million in 1996, down
from $1.1 billion in 1995. 72,000 Idahoans worked in manufacturing firms in
1997.
Idaho's annual unemployment increased slightly in 1997, resulting in
an unemployment rate averaging 5.3% up from 5.2% in 1996.
Idaho real personal income grew at a 1.6% annual pace in the last
quarter of 1997 and by 3.2% in the first quarter of 1998. The first quarter
of 1998 was hindered by the collapse in farm proprietors income. When
measured on a nonfarm-basis, Idaho real personal income grew by 4.6%. This
is somewhat faster than total Idaho real personal income, but still below
the national pace of 5.9%.
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 Federal Home Loan Mortgage Corporation.
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 Standard & Poor's Corporation, ("S&P")
or Aa3, or better, by Moody's Investors Service, Inc. ("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 Investment Manager determines
during periods of adverse market conditions including when Idahoan tax-exempt
securities are unavailable, the Fund may invest up to 20% of the value of
its net assets for temporary defensive purposes in money market instruments
the interest on which may be subject to federal, state or local income tax.
When the Fund takes a temporary defensive position, the Fund will not be
pursuing policies designed to achieve its investment objective.
Investment Practices of The 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
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 options 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 the same term as the option sold by the Fund, and has the effect of
canceling 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 SEC 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 the portfolio 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's
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 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 or S&P, 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. 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 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. The 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. 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 portfolio consistent with Fund
investment objectives and policies and not for the purpose of investment
leverage.
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.
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 S&P) follows:
An S&P 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 obligers 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 S&P. Capacity
to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only
in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB Debt rated "BB", "B", "CCC", "CC" or "C" , is regarded, on balance,
B as predominantly speculative with respect to capacity to pay
CCC interest and repay principal in accordance with the terms of
CC obligation. "BB" indicates the lowest degree of speculation
C and "C" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, those
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 underlying deposit
collateral is fully insured by the Federal Savings & Loan
Insurance 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
S&P'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. Those issues determined to possess overwhelming
safety characteristics will be given a 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
An S&P 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. Those 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. ("Moody's") rating symbols and
their meanings (as published by Moody's) 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
to as "gilt edged". 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.
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, Ba 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 strong capacity for repayment of short-term promissory
obligations.
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.
TAX INFORMATION
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to invest all, or
substantially all, of its assets in debt obligations the interest on which
is exempt for federal income tax purposes, so that the Fund itself generally
will be relieved of federal income and excise taxes. If the Fund were to
fail to so qualify: (1) the Fund would be taxed on its taxable income at
regular corporate rates without any deduction for distributions to
shareholders; and (2) shareholders would be taxed as if they received
ordinary dividends, although corporate shareholders could be eligible for
the dividends received deduction.
For the Fund to pay tax-exempt dividends for any taxable year, at
least 50% of the aggregate value of the Fund's assets at the close of each
quarter of the Fund's taxable year must consist of exempt-interest
obligations.
MANAGEMENT OF THE FUND
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. 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 Directors under the laws of
Maryland.
<TABLE>
<CAPTION>
Name, Age Position & Office Principal Occupation During
and Address With the Fund the Past Five Years
<S> <C> <C>
Samuel L. Chesser (43) Director Options Market Maker and Member Pacific
24 Underhill Road Stock Exchange. Formerly: President, First
Mill Valley, CA 94941 Pacific Securities, Inc.; Vice President,
First Pacific Management Corporation.
Clayton W.H. Chow (46) Director Sr. Account Executive, Federal Express
896 Puuikena Dr.
Honolulu, HI 96821
*Jean M. Chun (42) Secretary Corporate Secretary, First Pacific
920 Ward Ave., #12G Management Corporation; Corporate
Honolulu, HI 96814 Secretary, First Pacific Securities, Inc.
Lynden M. Keala (44) Director Account Executive, Reynolds & Reynolds
47-532 Hui Iwa St. (formerly Vanier Business Forms)
Kaneohe, HI 96744
*Terrence K.H. Lee (41) Director, President President, First Pacific Management Corp.;
1441 Victoria St., #901 President, First Pacific Securities, Inc.
Honolulu, HI 96822
Stuart S. Marlowe (58) Director Vice President/General Manager Navarre Corp.
274 Poipu Drive (Distributor of music and software products.)
Honolulu, HI 96825
*Charlotte A. Meyer (45) Treasurer Corporate Treasurer, First Pacific
64-5251 Puu Nani Drive Management Corporation; Corporate
PO Box 2834 Treasurer, First Pacific Securities, Inc.
Kamuela, HI 96743
Karen T. Nakamura (54) Director President, Wallpaper Hawaii, Ltd.
3160 Waialae Avenue
Honolulu, HI 96816
Kim F. Scoggins (51) Director Commercial Real Estate, Colliers, Monroe &
2969 Kalakaua Avenue, #1201 Friedlander, Inc.
Honolulu, HI 96815
</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 Directors of the Fund
who are not interested persons of the Manager for services or 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.
Set forth below is the Directors compensation for the most recent fiscal year:
<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits Estimated From Fund
Name of Person, Compensation Accrued As Part Annual Benefits and Fund Complex
Position From Fund of Fund Expenses Upon Retirement Paid To Directors
<S> <C> <C> <C> <C>
Samuel L. Chesser $300.00 0 0 $300.00
Director
Clayton W.H. Chow $300.00 0 0 $300.00
Director
Lynden M. Keala $300.00 0 0 $300.00
Director
Terrence K.H. Lee 0 0 0 0
Director, President
Stuart S. Marlowe $300.00 0 0 $300.00
Director
Karen T. Nakamura $200.00 0 0 $200.00
Director
Kim F. Scoggins $300.00 0 0 $300.00
Director
</TABLE>
INVESTMENT MANAGEMENT AGREEMENT
Subject to the authority of the Directors and under the laws of
Maryland, the Manager and the Corporation's Officers will supervise and
implement the Fund's investment activities. The Manager implements the
investment program of the Fund and the composition of its portfolio on a
day-to-day basis.
The Investment Management Agreement between the Manager and the Fund
provides that the Manager will provide portfolio management services to the
Fund including the selection of securities for the Fund to purchase,
hold or sell, supply investment research to the Fund and the selection of
brokers through whom the Fund's portfolio transactions are executed. The
Manager is responsible for evaluating the portfolio and overseeing its
performance.
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 Manager 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 the 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 the 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 SEC 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 the Manager, the Fund pays the Manager a fee at the annual
rate of .50 of one percent (.50%) of its average daily net assets.
Fees paid by the Fund for the three most recent fiscal years:
Investment Management Management
Agreement Fees Waived
1998 $4,180 $4,180
1997 $1,778 $1,778
1996 $20 $20
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 current Management Agreement between the Fund and the Manager was
approved on January 29, 1996. The Agreement continues in effect for successive
annual periods, so long as such continuance is specifically approved at least
annually by the Directors 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.
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.
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 the majority 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.
The principal holders of the Fund who own 5% or more of the
outstanding shares are listed below:
Ilene Harsip
2706 N. Cliffview Place
Boise, ID 83702
11.70%
Harold S. Steenburgen and
Viola H. Steenburgen
11478 W. Colony St.
Boise, ID 83709
10.82%
Clifford Conner and
Ethel Conner
PO Box 1
Richfield, ID 83349
6.32%
The Harper Family Trust UAD 09/01/94
William D. Harper and Annjean I Harper TTEES
2855 Model Farm Drive
Meridian, ID 83642
6.20%
Patrick J. Hewitt and
Sharon K. Hewitt
Box 743
Pinehurst, ID 83850
6.10%
David and Helen Trauernicht Co-TTEE 's
David and Helen Trauernicht Family Trust UAD 5/16/94
2410 Leo Drive
Nampa, ID 83651
5.59%
Deborah L. Shoemaker
Separate Property
1718 Holden Lane
Boise, ID 83706
5.57%
CUSTODIAN
Union Bank of California, N.A., 475 Sansome Street, San Francisco,
California 94111, is the custodian of the 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 the Fund.
FUND ACCOUNTING
American Data Services, Inc., 150 Motor Parkway, Suite 109, Hauppauge,
NY 11788 provides fund accounting for the Fund. The annual accounting fee
schedule for the Fund is as follows:
Calculated fee will be based upon prior month combined average net
assets for the First Hawaii Municipal Bond Fund, First Hawaii Intermediate
Municipal Fund and First Idaho Tax-Free Fund:
First $125 million of average net assets - $5,000.00
All average net assets in excess of $125 million, $5,000.00
plus 1/12th of 0.02% (2 basis points)
The fiscal years listed below reflect fees paid to First Pacific
Recordkeeping, Inc., an affiliate of the Investment Manager.
Fees paid by the Fund for the three most recent fiscal years:
Fund Accounting Fund Accounting
Agreement Fees Waived
1998 $21,500 $21,500
1997 $23,961 $23,961
1996 $5,287 $5,287
INDEPENDENT AUDITORS
The independent auditors for the Fund are Tait, Weller & Baker, 8 Penn
Center Plaza, Suite #800 Philadelphia, Pennsylvania 19103-2108.
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 size of the Fund 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 SEC under the Investment Company 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 the Distributor 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 Fund for the three most recent fiscal years:
1998-none, 1997-none, 1996-none.
PURCHASING AND REDEEMING FUND SHARES
Shares of the Fund may be purchased and redeemed by customers of
broker-dealers or other financial intermediaries ( Service Agents ) which
have established a shareholder servicing relationship with their customers.
These Service Agents are authorized to designate other intermediaries to
accept purchase and redemption orders on the Fund's behalf. The Fund will
be deemed to have received a purchase or redemption order when an authorized
Service Agent, or authorized designee, accepts the order. Customer orders
will be priced at the Fund s net asset value next computed after they are
accepted by a Service Agent or authorized designee. Service Agents may
impose additional or different conditions on purchases or redemptions of
Fund shares and may charge transaction or other account fees. The Service
Agent is responsible for transmitting to its customers a schedule of any
such fees and information regarding additional or different purchase or
redemption conditions. Shareholders who are customers of Service Agents
should consult their Service Agent for information regarding these fees and
conditions. Amounts paid to Service Agents may include transaction fees
and/or service fees, which would not be imposed if shares of the Portfolio
were purchased directly from the Distributor. Service Agents may provide
shareholder services to their customers that are not available to a
shareholder dealing directly with the Fund's Distributor.
Service Agents may enter confirmed purchase and redemption orders
on behalf of their customers. If shares of a Portfolio are purchased in
this manner, the Service Agent must receive your investment order before
the close of the New York Stock Exchange, and transmit it to the Fund's
Transfer Agent prior to 8:00 pm EST to receive that day's share price.
Proper payment for the order must be received by the Transfer Agent within
3 business days following the trade date. Service Agents are responsible to
their customers and the Fund for timely transmission of all subscription and
redemption requests, investment information, documentation and money.
The issuance of shares is recorded on the books of the 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.
Under certain circumstances, an investor may purchase Fund 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 the Fund with a purchase order, investors must contact
the Manager at (808) 988-8088 for verbal approval on 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
at the value next determined after receipt of the purchase order. Approval
of 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.
THE DISTRIBUTOR
Shares of the Fund are offered on a continuous basis through First
Pacific Securities, Inc. 2756 Woodlawn Drive, #6-201, Honolulu, Hawaii
96822 (the "Distributor"), a wholly-owned subsidiary of the Manager.
Pursuant to a Distribution Agreement, the Distributor 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 Fund shares and how Fund 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 SEC 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.
The Distribution Agreement continues in effect from year to year if
specifically approved at least annually by the shareholders or Directors of
the Fund and by the Funds' 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.
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 Fund is 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.
Under the Distribution Plan, the Fund will pay the Distributor for
expenditures which are primarily intended to result in the sale of Fund
shares such as advertising, marketing and distributing Fund 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, the Fund will engage banks
only to perform administrative and investor servicing functions. Fund
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 Plan provides that it will continue in full force
and effect if ratified at the first meeting of the Fund's 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 purpose of voting on
the Distribution Plan. The Distribution Plan for the Fund was approved by
the Fund's initial shareholder(s). The Distribution Plan 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 Fund, and all material amendments of a Distribution Plan must
be approved by the Directors and also by the disinterested Directors. The
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 Fund. While the Distribution Plan is in effect,
selection of the nominees for disinterested Directors is committed to the
discretion of the disinterested Directors.
The Plan provides that the Distributor must submit quarterly reports
to the Directors 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.
Distribution Plan payments by the Fund, by category, for the most
recent fiscal year are as follows: NONE.
TRANSFER AGENT
American Data Services, Inc., 150 Motor Parkway, Suite 109,
Hauppauge, NY 11788, serves as transfer agent, dividend disbursing
agent and redemption agent pursuant to a Transfer and Dividend Disbursing
Agent Agreement. The Agreement is subject to annual renewal by the
Directors, including the Directors who are not interested persons of the
Fund or of the Transfer Agent.
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 the Transfer and Dividend Disbursing 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 purchases and redemptions 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
stockholders.
The fiscal years listed below reflect fees paid to First Pacific
Recordkeeping, Inc., an affiliate of the investment manager.
Fees paid by the Fund for the three most recent fiscal years:
Transfer Agent Transfer Agent
Agreement Fees Waived
1998 $14,400 $14,400
1997 $14,400 $14,400
1996 $3,487 $3,487
PERFORMANCE
Current yield, tax equivalent yield and total return quotations used
by the Fund are based on standardized methods of computing performance
mandated by SEC 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 SEC formula:
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.
The yields for the Fund for the 30-day periods ending September 30, 1998
are set forth below:
Month Ended
09/30/98
First Idaho Tax-Free Fund 4.46%
Tax equivalent yield is calculated by dividing that portion of the
current yield (calculated as described above) which is tax exempt by 1 minus
a stated tax rate and adding the quotient to that portion of the yield of
the Fund that is not tax exempt.
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 SEC formula:
P(1 + T)n = ERV
where
P = a hypothetical initial payment of $10,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of 1, 5 or 10 year
periods of a hypothetical $10,000 payment made at the beginning
of the 1, 5 or 10 year periods.
The average annual total return for the Fund for the periods indicated and
ended September 30, 1998 are set forth below:
Since
One Year Five Year Inception
First Idaho Tax-Free Fund 7.29% ----- 6.16%
(Inception July 1, 1996)
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, tax equivalent yield or total return for the Fund as reported
by various financial publications and/or compare yield, tax equivalent yield
or total return to yield or total return as reported by other investments,
indices, and averages. The performance of the Fund may also be compared in
publications to averages, performance rankings, or other information
prepared by recognized mutual fund statistical services.
The Lehman 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 the Fund will be audited at least
annually by Tait Weller & Baker, Independent Auditors. The 1998 Annual
Report to Shareholders is incorporated by reference to this SAI.
November 13, 1998
Dear Fellow Shareholder,
As we begin our 11th year of operations, we are pleased to provide you with
our Funds' 1998 Annual Report.
Municipal bond funds caught the attention of many investors seeking a "safe
haven" and added portfolio diversification from a volatile stock market.
A moderately expanding U.S. economy with consistent price and unit labor
costs coupled with economic turmoil in Asia have contributed to declining
interest rates in 1998. Given these conditions and expectations, the primary
investment strategy of the First Hawaii Municipal Bond Fund's investment manager
was to purchase high quality long term Hawaii municipal bonds. The primary
investment strategy of the First Hawaii Intermediate Municipal Fund's investment
manager was to purchase high quality four to eight year Hawaii municipal bonds.
The decline of interest rates, paired with the strategy of purchasing high
quality municipal bonds was the primary factor producing the past year's
performance results.
If you have any questions about this Annual Report or would like us to
provide information about the Funds to your family or friends, please call us at
988-8088.
Thank you for your business as well as the many referrals. We look forward
to providing you with the same high levels of performance and service that you
have come to expect.
On behalf of the staff and management of the Funds, I would like to extend
to you and your family best wishes for a safe and happy holiday season.
Warmest Aloha,
Terrence K.H. Lee
President
First Pacific Securities, Inc.,
Distributor/Member SIPC Before investing, read the prospectus carefully for
complete information including all fees and expenses. Call 988-8088 for a free
prospectus. Fund's yields, share prices and investment returns fluctuate so that
you may receive more or less than your original investment upon redemption. Past
performance is no guarantee of future results. Some income may be subject to the
federal alternative minimum tax for certain investors. First Hawaii Municipal
Bond Fund and First Hawaii Intermediate Municipal Fund are series of First
Pacific Mutual Fund, Inc.
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, 1998, 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 audits 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, 1998, 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, 1998, the results of their operations for the year then ended, the
changes in their net assets and the financial highlights for the periods
indicated thereon, in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
November 6, 1998
<TABLE>
<CAPTION>
THE FOLLOWING DATA SUPPORTS THE COMPARATIVE GRAPH PRESENTED IN
THE ANNUAL
REPORT.
First Hawaii Municapal Bond Fund
<S> <C> <C>
FIRST HAWAII LEHMAN
MUNICAPAL MUNICAPAL
BOND FUND BOND INDEX
Year End
11/23/88 10,000 10,000
09/30/89 10,815 10,717
09/30/90 11,233 11,426
09/30/91 12,593 12,848
09/30/92 13,873 14,015
09/30/93 15,414 15,707
09/30/94 15,078 15,442
09/30/95 16,348 17,170
09/30/96 17,267 18,314
09/30/97 18,491 19,968
09/30/98 19,651 21,707
The graph above compares the increase in value of a $10,000 investment in the
First Hawaii Municipal Bond Fund with the performance of the Leman Muni Bond
Index. The objective of the graph is to permit you to compare the performance of
the Fund with the current market and to give perspective to market conditions
and investment strategies and techniques persued by the investment manager that
materially affected the performance of the Fund. The Lehman Muni Bond Index
reflects reinvestment of dividends but not the expenses of the Fund. The return
and principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Past perfomance is not indicative of future results.
First Hawaii Intermediate Municipal Fund
FIRST HAWAII LEHMAN
INTERMEDIATE MUNI
MUNICIPAL FUND BOND INDEX
Year End
07/07/94 10,000 10,000
09/30/94 10,072 10,070
09/30/95 10,864 11,197
09/30/96 11,293 11,943
09/30/97 11,877 13,021
09/30/98 12,481 14,155
The graph above compares the increase in value of a $10,000 investment in the
First Hawaii Intermediate Municipal Fund with the performance of the Leman Muni
Bond Index. The objective of the graph is to permit you to compare the
performance of the Fund with the current market and to give perspective to
market conditions and investment strategies and techniques persued by the
investment manager that materially affected the performance of the Fund. The
Lehman Muni Bond Index reflects reinvestment of dividends but not the expenses
of the Fund. The return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Past perfomance is not indicative of future results.
</TABLE>
FIRST HAWAII MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS
September 30, 1998
- ------------------------------------------------------------------------------
Value
Par Value (Note 1)
HAWAII MUNICIPAL BONDS (87.40%)
Hawaii County
General Obligation Bonds (2.64%)
$1,150,000 7.050%,6/01/01 $1,223,313
100,000 6.800%,12/01/01 101,247
200,000 7.200%,6/01/05 213,250
1,030,000 7.200%,6/01/06 1,098,238
300,000 5.600%, 5/01/11 333,750
2,969,798
Hawaii State
General Obligation Bonds (4.15%)
100,000 7.200%,9/01/06 107,375
150,000 7.000%,6/01/07 158,063
135,000 6.000%,10/01/08 153,563
330,000 7.125%,9/01/09 353,925
125,000 7.000%,6/01/10 131,719
100,000 7.125%,9/01/10 107,250
200,000 6.000%,11/01/10 230,250
500,000 6.250%,1/01/13 561,250
1,000,000 4.750%,4/01/18 991,250
300,000 6.250%,1/01/14 336,750
250,000 5.000%,10/01/16 254,375
250,000 5.000%,10/01/17 253,750
1,000,000 4.750%11/01/13 1,018,750
4,658,270
Airport Systems Revenue Bonds (6.83%)
400,000 5.125%, 7/01/00 408,500
150,000 5.800%,7/01/01 157,875
345,000 6.300%,7/01/01 366,131
200,000 7.000%,7/01/07 218,250
175,000 7.000%,7/01/10 191,844
385,000 6.900%,7/01/12 465,850
500,000 7.000%,7/01/18 542,500
1,150,000 7.000%,7/01/20 1,534,750
2,460,000 7.500%,7/01/20 2,653,725
1,045,000 6.750%,7/01/21 1,139,250
7,678,675
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST HAWAII MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 1998
- ------------------------------------------------------------------------------
Value
Par Value (Note 1)
Department of Budget & Finance Special Purpose Revenue Bonds
(Hawaiian Electric Company, Inc.) (5.67%)
$2,725,000 7.625%, 12/01/18 $2,878,281
620,000 7.600%,7/01/20 664,950
365,000 6.550%, 12/01/22 404,694
625,000 6.200%,5/01/26 685,938
600,000 5.875%, 12/01/26 651,000
1,000,000 5.650%,10/01/27 1,088,750
6,373,613
(Kapiolani Hospital) (7.38%)
400,000 6.300%,7/01/08 436,000
3,120,000 7.600%,7/01/10 3,486,600
1,650,000 6.400%,7/01/13 1,796,438
600,000 6.200%,7/01/16 658,500
985,000 6.000%,7/01/19 1,052,719
430,000 7.650%,7/01/19 486,656
340,000 6.250%,7/01/21 374,000
8,290,913
(Kaiser Permanente Center) (4.46%)
850,000 6.500%,3/01/11 906,312
3,875,000 6.250%,3/01/21 4,097,812
5,004,124
(Queen's Medical Center Program) (4.90%)
300,000 5.200%,7/01/04 316,500
250,000 6.125% 7/01/11 274,375
1,020,000 6.000%,7/01/20 1,109,250
600,000 6.200%,7/01/22 660,000
2,735,000 5.750%,7/01/26 2,892,262
250,000 5.000%,7/01/28 252,500
5,504,887
(St. Francis Medical Center) (2.70%)
2,765,000 6.500%,7/01/22 3,038,044
(Wahiawa General Hospital) (2.96%)
3,035,000 7.500%,7/01/12 3,323,325
(Wilcox Hospital) (1.50%)
700,000 5.250%,7/01/13 711,375
845,000 5.350%,7/01/18 857,675
115,000 5.500%,7/01/28 117,731
1,686,781
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST HAWAII MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 1998
- ------------------------------------------------------------------------------
Value
Par Value (Note 1)
Department of Transportation
Special Facilities Revenue Bonds (2.60%)
$2,760,000 5.750%,3/01/13 $2,918,700
Harbor Capital Improvements Revenue Bonds,
Series 1989 (4.03%)
400,000 5.650%,7/01/02 422,500
205,000 6.200%,7/01/03 222,938
310,000 6.300%,7/01/04 340,225
200,000 6.200%,7/01/08 215,750
225,000 7.250%,7/01/10 241,594
250,000 6.250%,7/01/15 276,250
810,000 7.000%,7/01/17 866,700
800,000 6.500%,7/01/19 879,000
1,000,000 5.500%,7/01/27 1,058,750
4,523,707
Highway Revenue Bonds, Series 1993 (2.27%)
200,000 5.000%,7/01/09 205,750
150,000 5.000%,7/01/11 153,000
1,000,000 5.600%,7/01/14 1,077,500
1,000,000 5.000%,7/01/16 1,113,750
2,550,000
Housing Authority Single Family
Mortgage Purpose Revenue Bonds (7.11%)
145,000 6.300%,7/01/99 147,298
405,000 7.000%,7/01/11 434,363
100,000 5.700%,7/01/13 104,375
555,000 6.900%,7/01/16 596,625
1,000,000 5.450%,7/01/17 1,035,000
310,000 6.750%,7/01/20 327,825
540,000 7.100%,7/01/24 579,150
2,235,000 5.900%,7/01/27 2,324,400
2,250,000 5.900%,7/01/27 2,365,312
105,000 7.800%,7/01/29 72,393
7,986,741
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
- ------------------------------------------------------------------------------
FIRST HAWAII MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 1998
- ------------------------------------------------------------------------------
Value
Par Value (Note 1)
Housing Authority Multi-Family
Mortgage Purpose Revenue Bonds (4.21%)
$ 180,000 4.500%,1/01/99 $ 180,275
200,000 4.800%,1/01/01 203,000
205,000 4.800%,7/01/01 209,612
210,000 4.900%,1/01/02 214,463
215,000 4.900%,7/01/02 221,450
1,000,000 5.700%,7/01/18 1,036,250
2,500,000 6.100%,7/01/30 2,659,375
4,724,425
Public Housing Authority Bonds (.40%)
185,000 5.750%,8/01/00 190,075
250,000 5.750%,8/01/04 256,526
446,601
University Faculty Housing (2.87%)
90,000 4.350%,10/01/00 91,125
330,000 4.450%,10/01/01 336,188
345,000 4.550%,10/01/02 353,625
800,000 5.650%,10/01/16 850,000
1,500,000 5.700%,10/01/25 1,591,875
3,222,813
University of Hawaii - Revenue Bonds (.56%)
100,000 5.450%,10/01/06 106,500
500,000 5.700%,10/01/17 528,125
634,625
Honolulu City & County
Board of Water Supply (1.39%)
200,000 5.000%,7/01/04 209,500
500,000 5.800%,7/01/16 539,375
750,000 5.800%,7/01/21 810,938
1,559,813
General Obligation Bonds (7.81%)
100,000 7.300%,7/01/03 114,625
375,000 6.700%,8/01/05 407,811
200,000 7.350%,7/01/06 242,750
300,000 6.900%,12/01/06 322,875
180,000 7.250%,2/01/07 190,575
200,000 7.100%,6/01/07 212,750
100,000 7.250%,2/01/08 105,750
820,000 6.700%,8/01/08 891,750
380,000 7.100%,10/01/08 385,700
1,000,000 7.300%,2/01/09 1,058,750
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST HAWAII MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 1998
- ------------------------------------------------------------------------------
Value
Par Value (Note 1)
General Obligation Bonds (7.81%) - (Continued)
$ 985,000 6.700%,8/01/09 $1,071,187
880,000 7.100%,10/01/09 893,200
250,000 7.300%,2/01/10 264,687
200,000 6.000%,6/01/10 222,250
525,000 6.700%,8/01/10 570,937
250,000 7.150%,6/01/11 265,937
725,000 6.700%,8/01/11 788,438
460,000 6.100%,6/01/12 513,475
240,000 5.500%,9/01/16 255,300
8,778,747
Halawa Business Park (.87%)
170,000 6.300%,10/15/00 177,438
370,000 6.500%,10/15/02 400,525
365,000 6.600%,10/15/03 401,500
979,463
Housing Authority Multi-Family
Mortgage Purpose Revenue Bonds (1.48%)
320,000 6.800%,7/01/28 357,600
1,200,000 6.900%,6/20/35 1,306,500
1,664,100
Kauai County
General Obligation Bonds (2.74%)
300,000 5.100%,2/01/01 309,000
410,000 5.850%,8/01/07 461,762
1,280,000 5.850%,8/01/07 1,441,600
250,000 5.900%,2/01/10 272,812
250,000 5.900%,2/01/11 271,562
295,000 5.900%,2/01/12 320,075
3,076,811
Housing Authority Paanau Project (1.67%)
1,900,000 7.250% 4/01/12 1,871,500
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST HAWAII MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 1998
- ------------------------------------------------------------------------------
Value
Par Value (Note 1)
Maui County
General Obligation Bonds (3.19%)
$ 740,000 8.000%,1/01/01 $ 807,525
250,000 6.800%,12/01/05 268,438
175,000 6.800%,12/01/08 187,906
250,000 5.700%,1/01/09 262,812
735,000 5.750%,1/01/12 773,588
235,000 5.750%,6/01/13 254,975
500,000 5.300%,9/01/14 524,375
500,000 5.000%,9/01/17 507,500
3,587,119
Water System Revenue (1.01%)
355,000 5.850%,12/01/00 370,975
300,000 6.500%,12/01/06 327,000
400,000 6.600%,12/01/07 437,000
1,134,975
Total Hawaii Municipal Bonds 98,188,570
PUERTO RICO MUNICIPAL BONDS (8.77%)
Puerto Rico Commonwealth
Electric Power Authority Revenue Bonds (1.21%)
120,000 7.000%,7/01/07 125,099
100,000 7.125%,7/01/14 104,377
100,000 7.125%,7/01/14 104,377
110,000 7.125%,7/01/14 114,774
55,000 7.125%,7/01/14 57,387
300,000 6.250%,7/01/17 331,125
500,000 5.500%,7/01/25 520,000
1,357,139
General Obligation Bonds (1.99%)
250,000 6.250%,7/01/10 270,313
100,000 6.250%,7/01/10 108,875
250,000 7.250%,7/01/10 270,000
750,000 6.450%,7/01/17 862,500
100,000 7.300%,7/01/20 108,125
300,000 6.500%,7/01/23 345,750
250,000 5.750%,7/01/24 268,438
2,234,001
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST HAWAII MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 1998
- ------------------------------------------------------------------------------
Value
Par Value (Note 1)
Highway & Transportation Authority (.99%)
$ 225,000 6.750%,7/01/05 $ 241,313
200,000 7.750%,7/01/10 218,000
630,000 6.000%,7/01/20 655,988
1,115,301
Housing Finance Corp.
Multi-Family Mortgage Revenue Bonds (.52%)
175,000 7.500%,10/01/15 183,094
380,000 7.500%,4/01/22 397,575
580,669
Single-Family Mortgage Revenue Bonds (.42%)
90,000 7.650%,10/15/22 95,063
355,000 6.250%,4/01/29 382,069
477,132
Industrial, Medical & Environmental Pollution Control
(Abbott Laboratories) (.24%)
270,000 6.500%,7/01/09 272,084
(Baxter Travenol Laboratories) (.28%)
300,000 8.000%,9/01/12 309,897
(Hospital Auxilio Mutual Obligation) (1.29%)
440,000 6.250%,7/01/24 490,050
900,000 5.500%,7/01/26 959,625
1,449,675
(Pila Hospital Project) (.45%)
455,000 6.250%,8/01/32 499,931
(Upjohn Co. Project) (.76%)
825,000 7.500%,12/01/23 854,947
Public Building Authority
Health Facilities & Services (.62%)
665,000 5.750%,7/01/15 699,081
Total Puerto Rico Municipal Bonds 9,849,857
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST HAWAII MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 1998
- ------------------------------------------------------------------------------
Value
Par Value (Note 1)
VIRGIN ISLANDS MUNICIPAL BONDS (.41%)
Virgin Islands
Port Authority Airport Revenue Bonds (.30%)
$ 325,000 8.100%,10/01/05 $ 337,080
Public Finance Authority, Series A (.11%)
100,000 7.300%,10/01/18 129,000
Total Virgin Islands Municipal Bonds 466,080
Total Investments (Cost $101,650,585) (a)96.58%
108,504,507
Other Assets Less Liabilities 3.42% 3,841,215
Net Assets 100.00% $112,345,722
(a) Aggregate cost for federal income tax purposes is $101,650,585.
At September 30, 1998, unrealized appreciation (depreciation) of
securities for federal income tax purposes is as follows:
Gross unrealized appreciation $6,853,922
Gross unrealized depreciation -
Net unrealized appreciation $6,853,922
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
SCHEDULE OF INVESTMENTS
September 30, 1998
- ------------------------------------------------------------------------------
Value
Par Value (Note 1)
HAWAII MUNICIPAL BONDS (92.53%)
Hawaii County
General Obligation Bonds (4.51%)
$ 65,000 6.350%,5/15/01 $ 65,142
100,000 6.800%,12/01/01 101,247
100,000 6.500%,5/15/06 100,237
266,626
Hawaii State
General Obligation Bonds (1.77%)
100,000 5.500%,7/01/01 104,375
Airport Systems Revenue Bonds (16.83%)
105,000 6.400%,7/01/02 113,006
600,000 5.125%,7/01/00 612,750
250,000 5.700%,7/01/07 269,375
995,131
Department of Budget and Finance
Special Purpose Revenue Bonds
(Kapiolani Hospital) (5.32%)
200,000 5.500%,7/01/05 213,500
90,000 7.650%,7/01/19 100,688
314,188
(Queen's Medical Center Program) (3.57%)
200,000 5.200%,7/01/04 211,000
(St. Francis Medical Center) (3.62%)
200,000 6.000%,7/01/02 214,000
(Wilcox Hospital) (4.32%)
250,000 4.800% 7/01/04 255,313
Harbor Capital Improvements Revenue Bonds,
Series 1989 (3.60%)
100,000 5.650%,7/01/02 105,625
100,000 5.850%,7/01/02 106,875
212,500
Highway & Transportation Authority (4.92%)
275,000 5.000%,7/01/06 290,812
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 1998
- ------------------------------------------------------------------------------
Value
Par Value (Note 1)
Housing Authority
Single Family Mortgage Purpose Revenue Bonds (8.66%)
$200,000 6.300%,7/01/99 $203,170
300,000 4.800%,7/01/07 309,000
512,170
Public Housing Authority Bonds (3.48%)
200,000 5.750%,8/01/00 205,486
University Faculty Housing (3.94%)
230,000 4.350%,10/01/00 232,875
University of Hawaii (3.24%)
University Revenue Bonds
180,000 5.450%,10/01/06 191,700
Honolulu City & County
Board of Water Supply (3.54%)
200,000 5.000%,7/01/04 209,500
General Obligation Bonds (1.77%)
100,000 5.000%,10/01/02 104,375
Halawa Business Park (3.53%)
200,000 6.300%,10/15/00 208,750
Kauai County
General Obligation Bonds (3.48%)
100,000 4.400%,8/01/03 102,375
100,000 4.550%,8/01/05 103,375
205,750
Maui County
General Obligation Bonds (8.73%)
190,000 8.000%,1/01/01 207,337
300,000 4.650%,3/01/07 309,000
516,337
Water System Revenue (3.70%)
100,000 6.600%,12/01/07 109,250
100,000 6.700%,12/01/11 109,625
218,875
Total Hawaii Municipal Bonds 5,469,763
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
- ------------------------------------------------------------------------------
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 1998
- ------------------------------------------------------------------------------
Value
Par Value (Note 1)
PUERTO RICO MUNICIPAL BONDS (4.18%)
Puerto Rico Commonwealth
Electric Power Authority Revenue Bonds (1.59%)
$ 90,000 7.125%,7/01/14 $ 93,939
General Obligation Bonds (1.59%)
90,000 7.750%,7/01/17 94,347
Housing Finance Corp.
Single Family Mortgage Revenue Bonds (1.00%)
55,000 6.150%,8/01/03 58,919
Total Puerto Rico Municipal Bonds 247,205
Total Investments (Cost $5,527,125) (a)96.71% 5,716,968
Other Assets less Liabilities 3.29% 194,479
Net Assets 100.00%
$5,911,447
(a) Aggregate cost for federal income tax purposes is $5,527,125.
At September 30, 1998, unrealized appreciation (depreciation)of
securities for federal income tax purposes is as follows:
Gross unrealized appreciation $190,205
Gross unrealized depreciation (362)
Net unrealized appreciation $189,843
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST HAWAII MUNICIPAL BOND FUND
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
- ------------------------------------------------------------------------------
Municipal Intermediate
Bond Municipal
Fund Fund
ASSETS
Investments at market value
(Identified cost $101,650,585 and $5,527,125,
respectively) (Note 1 (A)) $108,504,507 $5,716,968
Cash 2,308,340 109,777
Interest receivable 1,714,015 83,975
Subscriptions receivable 30,259 546
Other assets - 4,026
Total assets 112,557,121 5,915,292
LIABILITIES
Distributions payable 120,476 39
Redemptions payable 27,268 -
Advisory fee payable 45,666 1,117
Shareholder servicing fee payable 9,131 -
Accrued expenses 8,858 2,689
Total liabilities 211,399 3,845
NET ASSETS
(Applicable to 10,007,268 and 1,141,128 shares
outstanding,$.01 par value, 20,000,000 shares
authorized)
$112,345,722 $5,911,447
NET ASSET VALUE OFFERING AND REPURCHASE
PRICE PER SHARE
($112,345,722/10,007,268 shares) $11.23
======
($5,911,447/1,141,128 shares) $5.18
=====
NET ASSETS
At September 30, 1998, net assets consisted of:
Paid-in capital $105,722,973 $5,715,578
Accumulated net realized gain/(loss)
on investments (231,173) 6,026
Net unrealized appreciation 6,853,922 189,843
$112,345,722 $5,911,447
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST HAWAII MUNICIPAL BOND FUND
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
STATEMENT OF OPERATIONS
For the year ended September 30, 1998
- ------------------------------------------------------------------------------
Municipal Intermediate
Bond Municipal
Fund Fund
---------- ---------
Interest income $6,326,555 $291,830
Expenses
Management fee (Note 2) 545,987 29,058
Distribution costs (Note 2) 130,005 1,904
Transfer agent fees (Note 2) 58,996 14,400
Shareholder services (Note 2) 109,198 1,844
Accounting fees (Note 2) 44,486 21,500
Legal and audit fees 13,414 4,352
Printing 10,337 636
Miscellaneous 23,439 7,527
Custodian fees 18,577 3,000
Insurance 6,827 1,163
Registration fees 6,632 1,164
Director's fees 1,700 -
Total expenses 969,598 86,548
Fee reductions (Note 4) (41,420) (7,434)
Expenses reimbursed or waived (Note 2) - (36,841)
Net expenses 928,178 42,273
Net investment income 5,398,377 249,557
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) from security transactions (21,415) 7,143
Change in unrealized appreciation of investments 1,310,803 30,165
Net gain on investments 1,289,388 37,308
Net increase in net assets resulting
from operations $6,687,765 $286,865
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST HAWAII MUNICIPAL BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
Years ended September 30, 1998 and 1997
- ------------------------------------------------------------------------------
1998 1997
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income $5,398,377 $3,168,224
Net realized gain (loss) on investments (21,415) 19,725
Increase in unrealized appreciation
of investments 1,310,803 3,769,988
--------- ---------
Net increase in net assets resulting from operations 6,687,765 6,957,937
Distributions to shareholders from:
Net investment income
($0.55 and $0.54 per share, respectively) (5,398,377) (3,168,224)
Capital share transactions (a)
Increase in net assets resulting from
capital share transactions 4,676,094 48,425,600
--------- ----------
Total increase in net assets 5,965,482 52,215,313
NET ASSETS
Beginning of period 106,380,240 54,164,927
----------- ----------
End of period $112,345,722 $106,380,240
=========== ===========
(a) Summary of capital share activity follows:
<TABLE>
1998 1997
---- ----
Shares Value Shares Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Shares sold ................. 1,871,699 $ 20,798,408 1,385,844 $15,233,619
Shares issued on acquisition
of Fund (Note 5) ............ -- -- 4,250,805 44,450,011
Shares issued on reinvestment
of distributions .......... 335,571 3,742,788 204,944 2,251,292
2,207,270 24,541,196 5,841,593 61,934,922
Shares redeemed ............. (1,786,284) (19,865,102) (1,228,255)
Net increase .............. 420,986 $ 4,676,094 4,613,338 $48,425,600
</TABLE>
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
STATEMENT OF CHANGES IN NET ASSETS
Years ended September 30, 1998 and 1997
- ------------------------------------------------------------------------------
1998 1997
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income $249,557 $ 269,623
Net realized gain on investments 7,143 4,272
Increase in unrealized appreciation of investments 30,165 56,068
Net increase in net assets resulting from operations 286,865 329,963
Distributions to shareholders from
Net investment income
($.22 and $.22 per share, respectively) (249,557) (269,623)
Capital gains
($.01 and $.01 per share, respectively) (5,389) (15,406)
Capital share transactions (a)
Decrease in net assets resulting from capital
share transactions (522,264) (267,381)
Total decrease in net assets (490,345) (222,447)
NET ASSETS
Beginning of period 6,401,792 6,624,239
End of period $5,911,447 $6,401,792
(a) Summary of capital share activity follows:
<TABLE>
1998 1997
---- ----
Shares ......... Value Shares Value
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold .... 282,264 $ 1,451,895 281,929 $ 1,445,252
Shares issued on
reinvestment of
distributions .. 43,202 222,275 47,134 241,769
---------- ----------- ---------- -----------
325,466 1,674,170 329,063 1,687,021
Shares redeemed (426,663) (2,196,434) (380,936) (1,954,402)
---------- ----------- ---------- -----------
Net decrease ... (101,197 $ (522,264) (51,873) $ (267,381)
========== =========== ========== ===========
</TABLE>
- -----------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST HAWAII MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
Years Ended September 30,
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
----------- ----------- ---------- ---------- ----------
Net asset value
Beginning of period ............................. $11.10 $10.89 $10.84 $10.62
$11.48
Income from investment operations
Net investment income ........................... .55 .54 .55 .55 .55
Net gain (loss) on securities
(both realized and unrealized) ................... .13 .21 .05 .31
(.80)
Total from investment operations ............... .68 .75 .60 .86
(.25)
Less distributions
Dividends from net investment income ............ (.55) (.54) (.55) (.55)
(.55)
Distributions from capital gains ................ -- -- -- (.09) (.06)
Total distributions .......................... (.55) (.54) (.55) (.64) (.61)
End of period ................................... $11.23 $11.10 $10.89 $10.84
$10.62
Total return ....................................... 6.28% 7.09% 5.62% 8.42%
(2.18)%
Ratios/Supplemental Data
Net assets, end of period (in 000's) ............ $112,346 $106,380 $54,165
$51,131
$52,230
Ratio of expenses to average net assets
Before expense reimbursements .................. .89% .98% .98% 1.00%
.97%
After expense reimbursements ................... .89%(a) .98%(a) .98%(a)
.97%(a)
.95%
Ratio of net investment income to average net assets
Before expense reimbursements .................. 4.90% 4.99% 5.03%
5.19%
4.99%
After expense reimbursements ................... 4.90% 4.99% 5.03% 5.22%
5.01%
Portfolio turnover ................................. .35% 3.21% 15.16% 17.08%
40.22%
</TABLE>
(a)Ratios of expenses to average net assets after the reduction of custodian
fees under a custodian arrangement were .85%, .94%, .95% and .95% for the
years ended September 30, 1998, 1997, 1996 and 1995, respectively. Prior to
1995, such reductions were reflected in the expense ratios.
See accompanying notes to financial statements
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
Period
Years Ended September 30, July 5, 1994*
To
September 30,
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
----------- ----------- ---------- ---------- ----------
Net asset value
Beginning of period .............................. $5.15 $5.12 $5.14 $4.99 $5.00
Income from investment operations
Net investment income ............................ .22 .22 .22 .23 .05
Net gain (loss) on securities
(both realized and unrealized) .................... .04 .04 (.02) .15 (.01)
Total from investment operations ................ .26 .26 .20 .38 .04
Less distributions
Dividends from net investment income ............. (.22) (.22) (.22) (.23)
(.05)
Distributions from capital gains ................. (.01) (.01) -- -- --
Total distributions ............................. (.23) (.23) (.22) (.23) (.05)
End of period .................................... $5.18 $5.15 $5.12 $5.14 $4.99
Total return ....................................... 5.08% 5.17% 3.95% 7.86% .72%
Ratios/Supplemental Data
Net assets, end of period (in 000's) ............. $5,911 $6,402 $6,624 $4,760
$2,447
Ratio of expenses to average net assets
Before expense reimbursements ................... 1.49% 1.43% 1.50% 1.90%
4.48% (a)
After expense reimbursements .................... .85% (b) .86% (b) .84% (b) .66% (b)
0% (a)
Ratio of net investment income to average net assets
Before expense reimbursements ................... 3.53% 3.67% 3.66% 3.39%
.12% (a)
After expense reimbursements .................... 4.17% 4.24% 4.32% 4.63%
4.60% (a)
Portfolio turnover ................................. 14.57% 17.36% 17.76% 10.04%
0%
* Commencement of operations
</TABLE>
(a) Annualized
(b) Ratios of expenses to average net assets after the reduction of
custodian fees under a custodian arrangement were .73%, .75%, .75% and
.64% for the years ended September 30, 1998, 1997, 1996 and 1995,
respectively. Prior to 1995, such reductions were reflected in the
expense ratios.
See accompanying notes to financial statements
FIRST HAWAII MUNICIPAL BOND FUND
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
- ------------------------------------------------------------------------------
(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.
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of income and
expenses during the reported period. Actual results could differ from
those estimates.
(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.
(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. At September 30, 1998, the First Hawaii Municipal Fund
had an unused capital loss carryforward of approximately $239,800 of
which $210,800 expires in 2004 and $29,000 expires in 2005.
- ------------------------------------------------------------------------------
FIRST HAWAII MUNICIPAL BOND FUND
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
- ------------------------------------------------------------------------------
(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.
Premiums and discounts are amortized in accordance with income tax
regulations.
(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.
The Funds' distributor, First Pacific Securities, Inc. ("FPS"), a
wholly-owned subsidiary of FPMC, received $130,005 for costs incurred in
connection with the sale of First Hawaii Municipal Bond Fund's shares.
FPS also received $1,904 for costs incurred with the sale of First Hawaii
Intermediate Municipal Fund's shares (See Note 3).
First Pacific Recordkeeping, Inc. ("FPR"), a wholly-owned subsidiary of
FPMC, serves as the transfer agent and accounting agent for the Funds.
FPR also provides the Funds with certain clerical, book-keeping and
shareholder services pursuant to a service agreement approved by the
Funds' directors. As compensation for these services FPR receives a fee,
computed daily and payable monthly, at an annualized rate of .10% of
First Hawaii Municipal Bond Fund's and First Hawaii Intermediate
Municipal Fund's (through January 21, 1998) average daily net assets.
Effective January 21, 1998, First Hawaii Intermediate Municipal Fund's
fee for these services was discontinued.
For the year ended September 30, 1998, FPMC and FPR voluntarily waived
certain management, transfer agent, shareholder services, and accounting
fees in the amount of $36,841 for First Hawaii Intermediate Municipal
Fund. In addition, FPMC also has agreed to be voluntarily subject to an
expense limit of .85% of average daily net assets for the First Hawaii
Municipal Bond Fund for the two year period beginning August 1, 1997.
Certain officers and directors of the Funds are also officers of FPMC,
FPS and FPR.
(3) DISTRIBUTION COSTS
The Funds' Board of Directors, including a majority of the Directors who
are not "interested persons" of the Funds, 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.
- ------------------------------------------------------------------------------
IRST HAWAII MUNICIPAL BOND FUND
FIRST HAWAII MUNICIPAL BOND FUND
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
September 30, 1998
- ------------------------------------------------------------------------------
(4) PURCHASES AND SALES/CUSTODY OF SECURITIES
Purchases and sales of securities aggregated $11,359,032 and $7,855,015,
respectively for the First Hawaii Municipal Bond Fund. Purchases and
sales of securities for the First Hawaii Intermediate Municipal Fund
aggregated $834,730 and $1,385,394, respectively. Under an agreement
with the Custodian Bank, custodian fees are reduced by credits for cash
balances. During the year ended September 30, 1998, such reductions
amounted to $41,420 and $7,434 for the First Hawaii Municipal Bond Fund
and the First Hawaii Intermediate Municipal Fund, respectively.
(5) ACQUISITION OF FUND
On July 31, 1997, First Hawaii Municipal Bond Fund acquired all the
assets of Leahi Tax-Free Income Trust, in exchange for 4,420,805 shares
(valued at $47,353,850) of First Hawaii Municipal Bond Fund that were
subsequently distributed to the shareholders of Leahi Tax-Free Income
Trust. The exchange had no effect on the net asset value per share of
First Hawaii Municipal Bond Fund. The net assets of Leahi Tax-Free
Income Trust as of July 31, 1997 were $47,353,850 consisting of paid-in
capital of $44,450,011 and net unrealized appreciation of investments of
$2,903,839.
INVESTMENT MANAGER
First Pacific Management Corporation
2756 Woodlawn Drive, #6-201
Honolulu, Hawaii 96822-1856
DISTRIBUTOR
First Pacific Securities, Inc.
2756 Woodlawn Drive, #6-201
Honolulu, Hawaii 96822-1856
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street, 15th Floor
San Francisco, California 94111
LEGAL COUNSEL TO FUND
Drinker, Biddle & Reath, LLP
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
INDEPENDENT AUDITORS
Tait, Weller & Baker
8 Penn Center Plaza, Suite 800
Philadelphia, Pennsylvania 19103-2108
TRANSFER AGENT
First Pacific Recordkeeping, Inc.
2756 Woodlawn Drive, #6-201
Honolulu, Hawaii 96822-1856
November 13, 1998
Dear Shareholder,
We are pleased to provide you with the First Idaho Tax-Free Fund's 1998
Annual Report.
Municipal bond funds caught the attention of many investors seeking a "safe
haven" and added portfolio diversification from a volatile stock market.
A moderately expanding U.S. economy with consistent price and unit labor
costs coupled with economic turmoil in Asia have contributed to declining
interest rates in 1998. Given these conditions and expectations, the primary
investment strategy of the Fund's investment manager was to purchase good
quality long term Idaho municipal bonds. The decline of interest rates, paired
with the strategy of purchasing good quality municipal bonds was the primary
factor producing the past year's performance results.
If you have any questions about this Annual Report or would like us to
provide information about the Fund to your family or friends, please call (808)
988-8088 or our local Boise office at (208) 331-7879.
Thank you for your business as well as the many referrals. We look forward
to providing you with the same high levels of performance and service that you
have come to expect.
On behalf of the staff and management of the Fund, I would like to extend
to you and your family best wishes for a safe and happy holiday season.
Sincerely,
Terrence K.H. Lee
President
First Pacific Securities, Inc.,
Distributor/Member SIPC
Before investing, read the prospectus carefully for complete information
including all fees and expenses. Call (808) 988-8088 for a free prospectus.
Fund's yields, share prices and investment returns fluctuate so that you may
receive more or less than your original investment upon redemption. Past
performance is no guarantee of future results. Some income may be subject to the
federal alternative minimum tax for certain investors. First Idaho Tax-Free Fund
is a series of First Pacific Mutual Fund, Inc. 2756 Woodlawn Drive, #6-201,
Honolulu, HI 96822
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
First Pacific Mutual Fund, Inc.
Honolulu, Hawaii
We have audited the accompanying statement of assets and liabilities of First
Idaho Tax-Free Fund (a series of shares of First Pacific Mutual Fund, Inc.),
including the schedule of investments, as of September 30, 1998, and the related
statement of operations for the year then ended and the statement 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
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit 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, 1998,
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
audit provides 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
Idaho Tax-Free Fund as of September 30, 1998, the results of its operations for
the year then ended and, the changes in its net assets and the financial
highlights for the periods indicated thereon in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
November 6, 1998
THE FOLLOWING DATA SUPPORTS THE COMPARATIVE GRAPH PRESENTED IN
THE ANNUAL
REPORT.
FIRST IDAHO LEHMAN MUNICIPAL
YEAR ENDED TAX-FREE FUND BOND FUND INDEX
- ---------- ------------- ---------------
9/30/96 10,000 10,000
9/30/96 9,927 10,100
9/30/97 10,660 10,800
9/30/98 11,437 11,741
The graph above compares the increase in value of a $10,000 investment in the
First Idaho Tax-Free Fund with the performance of the Leman Muni Bond Index. The
objective of the graph is to permit you to compare the performance of the Fund
with the current market and to give perspective to market conditions and
investment strategies and techniques persued by the investment manager that
materially affected the performance of the Fund. The Lehman Muni Bond Index
reflects reinvestment of dividends but not the expenses of the Fund. The return
and principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Past perfomance is not indicative of future results.
FIRST IDAHO TAX-FREE FUND
SCHEDULE OF INVESTMENTS
September 30, 1998
- ------------------------------------------------------------------------------
Par Value
Value (Note 1)
IDAHO MUNICIPAL BONDS (87.13%)
Ada & Canyon Counties
Joint School District (1.13%)
$10,000 5.500%, 7/30/12 $10,788
Boise City
Convention Center (2.72%)
25,000 6.250%, 12/01/09 25,844
Independent School District (1.11%)
10,000 5.300%, 7/30/09 10,587
Public Housing Authority (2.68%)
25,000 5.250%, 8/01/11 25,555
Boise State University
Revenue Bond (2.83%)
10,000 5.050%, 4/01/08 10,713
15,000 6.200%, 4/01/10 16,200
26,913
Boise-Kuna-Irrigation District
Lucky Peak Hydroelectric (2.78%)
25,000 6.000%, 7/01/08 26,438
Bonneville County
General Obligation Bonds (1.10%)
10,000 5.200%, 8/01/12 10,488
Cassia & Twin Falls County
General Obligation Bonds (2.78%)
25,000 5.375%, 8/01/13 26,469
Central Shoshone County
Water District Revenue Bond (1.13%)
10,000 6.150%, 12/01/17 10,712
Elmore County
School District #193 (2.63%)
25,000 4.500%, 7/31/13 25,000
Gooding County
School District #232 Wendell (1.10%)
10,000 5.800%, 8/01/06 10,512
Idaho Falls
Idaho Electric Revenue Bonds (8.50%)
20,000 6.750%, 4/01/09 22,950
40,000 10.375%, 4/01/13 58,000
80,950
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST IDAHO TAX-FREE FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 1998
- ------------------------------------------------------------------------------
Par Value
Value (Note 1)
Idaho Health Facilities Revenue Bonds
(Bannock Regional Medical Center) (3.21%)
15,000 5.000%, 5/01/00 $15,244
10,000 7.600%, 5/01/05 10,224
5,000 6.000%, 5/01/14 5,108
30,576
(Holy Cross Health Systems) (7.11%)
25,000 6.100%, 12/01/06 27,656
40,000 5.000%, 12/01/28 40,050
67,706
(Intermountain Health Care Inc.) (3.13%)
25,000 6.500%, 4/01/10 29,781
(Magic Valley Regional Medical Center) (1.12%)
10,000 5.500%, 12/01/10 10,700
(Mercy Medical Center) (2.84%)
25,000 7.400%, 10/01/05 27,063
(Elks Rehabilitation Hospital) (4.21%)
40,000 5.300%, 7/15/18 40,050
Idaho Housing Agency
Single Family Mortgage - Series B (11.76%)
10,000 5.625%, 7/01/05 10,337
30,000 6.600%, 7/01/12 32,250
10,000 5.700%, 7/01/13 10,500
50,000 6.500%, 1/01/27 53,625
5,000 7.850%, 1/01/21 5,219
111,931
Idaho State
Board of Education (0.54%)
5,000 7.100%, 10/01/17 5,150
Water Reserve Board (5.18%)
45,000 7.250%, 12/01/21 49,331
Student Loan Marketing Association - Series C (1.05%)
10,000 4.750%, 4/01/99 10,018
Jerome
Sewer Revenue (1.63%)
15,000 6.800%, 11/01/06 15,556
Nampa Urban Renewal Agency (1.16%)
10,000 5.700%, 8/01/05 11,038
Payette & Washington Counties
School District #371 (2.16%)
20,000 6.300%, 10/01/03 20,609
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST IDAHO TAX-FREE FUND
SCHEDULE OF INVESTMENTS - (Continued)
September 30, 1998
- ------------------------------------------------------------------------------
Par Value
Value (Note 1)
Twin Falls County
Solid Waste Disposal (2.12%)
20,000 4.500%, 9/01/99 $20,167
University of Idaho
University Commons Project (9.42%)
50,000 5.300%, 4/01/17 52,625
25,000 5.350%, 4/01/22 26,250
10,000 5.650%, 4/01/22 10,787
89,662
Total Idaho Municipal Bonds 829,594
PUERTO RICO MUNICIPAL BONDS (7.09%)
Puerto Rico Commonwealth
General Obligation Bonds (1.13%)
10,000 5.750%, 7/01/17 10,787
Housing Finance Corp.
Multi-Family Mortgage Revenue Bonds (1.10%)
10,000 7.500%, 4/01/22 10,462
Single Family Mortgage Revenue Bonds (1.69%)
15,000 6.150%, 8/01/03 16,069
Industrial, Medical & Environmental Pollution Control
Abbott Laboratories (3.17%)
30,000 6.500%, 7/01/09 30,232
Total Puerto Rico Municipal Bonds 67,550
Total Investments (cost $865,368) (a) 94.22% 897,144
Other Assets Less Liabilities 5.78 55,023
Net Assets 100.00% $952,167
(a) Aggregate cost for federal income tax purposes is $865,368.
At September 30, 1998, unrealized appreciation (depreciation) of
securities for federal income tax purposes is as follows:
Gross unrealized appreciation $32,079
Gross unrealized depreciation (303)
----
Net unrealized appreciation $31,776
=======
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST IDAHO TAX-FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
- ------------------------------------------------------------------------------
ASSETS
Investments at market value
(Identified cost $865,368) (Note 1(A)) $897,144
Cash 38,946
Interest receivable 17,700
Total assets 953,790
LIABILITIES
Distributions payable 1,311
Accrued expenses 312
Total liabilities 1,623
NET ASSETS
(Applicable to 89,779 shares outstanding,
$.01 par value, 20,000,000 shares authorized) $952,167
========
NET ASSET VALUE, OFFERING AND REPURCHASE PRICE PER SHARE
Net asset value and repurchase price per share
($952,167/89,779 shares) $10.61
Offering price per share ======
(100/97.25 of $10.61) $10.91
======
NET ASSETS
At September 30, 1998, net assets consisted of:
Paid-in capital $920,668
Accumulated net realized loss on investments (277)
Net unrealized appreciation of investments 31,776
$952,167
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST IDAHO TAX-FREE FUND
STATEMENT OF OPERATIONS
For the period ended September 30, 1998
- ------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $41,417
Expenses
Management fee (Note 2) 4,108
Transfer agent fees (Note 2) 14,400
Accounting fees (Note 2) 21,500
Legal and audit 2,000
Miscellaneous 5,643
Custodian fees 3,000
Insurance 820
Registration fees 35
Total expenses 51,506
Fee reductions (Note 4) (8,643)
Expenses reimbursed or waived (Note 2) (42,008)
Net expenses 855
Net investment income 40,562
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions (277)
Increase in unrealized appreciation of investments 19,179
Net gain on investments 18,902
Net increase in net assets resulting from operations $59,464
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST IDAHO TAX-FREE FUND
STATEMENT OF CHANGES IN NET ASSETS
Years ended September 30, 1997 and 1998
- ------------------------------------------------------------------------------
1998 1997
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income $40,562 $17,504
Net realized loss from security transactions (277) -
Increase in unrealized appreciation of investments 19,179 12,456
------ ------
Net increase in net assets resulting from operations 59,464 29,960
Distributions to shareholders from
Net investment income
($.52 and $.49 per share, respectively) (40,562) (17,504)
Capital share transactions (a)
Increase in net assets resulting from capital
share transactions 272,106 537,823
------- -------
Total increase in net assets 291,008 550,279
NET ASSETS
Beginning of period 661,159 110,880
------- -------
End of period $952,167 $661,159
======== ========
(a) Summary of capital share activity follows:
1998 1997
------------------------
Shares Value Shares Value
------------------------------------
Shares sold 30,410 $317,797 59,375 $605,567
Shares issued on acquisition
of distributions 2,560 26,831 1,197 12,290
----- ------ ----- ------
32,970 344,628 60,572 617,857
Shares redeemed (6,827) (72,522) (7,859) (80,034)
------ ------- ------ -------
Net increase 26,143 $272,106 52,713 $537,823
====== ======== ====== ========
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST IDAHO TAX-FREE FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Period
July 1, 1996*
To Year ended
Year ended September 30, September 30,
1998 1997 1996
-------------------------------------
Net asset value
Beginning of period ................................ $10.39 $10.15 $10.00
Income from investment operations
Net investment income .............................. .52 .49 .05
Net unrealized gain on securities .................. .22 .24 .15
Total from investment operations ................. .74 .73 .20
Less distributions
Dividends from net investment income ............... (.52) (.49) (.05)
End of period ...................................... $10.61 $10.39 $10.15
Total return .......................................... 7.29% 7.38% 2.05%
Ratios/Supplemental Data
Net assets, end of period (in 000's) .............. $952 $661 $111
Ratio of expenses to average net assets
Before expense reimbursements .................... 6.27% 12.74% 222.98%(a)
After expense reimbursements ..................... 1.16%(b) 1.59%(b) .02%(a)
Ratio of net investment income to average net assets
Before expense reimbursements .................... (1.23)% (6.23%) (219.93)%(a)
After expense reimbursements ..................... 4.93% 4.92% 3.03%(a)
Portfolio turnover .................................... 6.44% 0% 0%
</TABLE>
* Commencement of operations
(a) Annualized
(b) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian arrangement was .11% and .05% for the years ended
September 30, 1998 and 1997, respectively. There were no custodian fee
reductions in 1996.
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
FIRST IDAHO TAX-FREE FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
- ------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First Idaho Tax-Free Fund is 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 Fund is to provide investors with the
maximum level of income exempt from federal and Idaho income taxes
consistent with the preservation of capital. The Fund seeks to achieve
its objective by investing primarily in municipal securities which pay
interest that is exempt from federal and Idaho income taxes.
The Fund is subject to the risk of price fluctuation of the municipal
securities held in its portfolio which is generally a function of the
underlying credit rating of an issuer, the maturity length of the
securities, the securities' yield, and general economic and interest rate
conditions.
Since the Fund invests primarily in obligations of issuers located in
Idaho, the marketability and market value of these obligations may be
affected by certain Idahoan 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
Idahoan issuers to meet their financial obligation. The Fund also has a
concentration of securities from issuers located in Puerto Rico. Those
issuers could be affected by similar developments within Puerto Rico.
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of income and
expenses during the reported period. Actual results could differ from
those estimates.
(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.
(B) FEDERAL INCOME TAXES
It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies
and to distribute its taxable income, if any, to its shareholders.
Therefore, no federal income tax provision is required. At
September 30, 1998, the Fund had a capital loss carryforward of
approximately $300 which expires in 2006.
(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. Premiums and discounts are amortized in accordance with
income tax regulations.
- ------------------------------------------------------------------------------
FIRST IDAHO TAX-FREE FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
September 30, 1998
- ------------------------------------------------------------------------------
(2) INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH
AFFILIATES
First Pacific Management Corporation ("FPMC") provides the Fund 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 the Fund's
average daily net assets.
The Funds' distributor, First Pacific Securities, Inc. ("FPS"), a
wholly-owned subsidiary of FPMC, may be reimbursed for costs incurred in
connection with the sale of the Fund's shares (See Note 3). No
reimbursements were received during the year ended September 30, 1998.
First Pacific Recordkeeping, Inc. ("FPR"), a wholly-owned subsidiary of
FPMC, serves as the transfer agent and accounting agent for the Fund.
FPR also provides the Fund with certain clerical, bookkeeping and
shareholder services pursuant to a service agreement approved by the
Fund's directors.
For the year ended September 30, 1998, FPMC and FPR voluntarily waived
certain management, transfer agent, and accounting fees in the amount of
$42,008 for the Fund.
Certain officers and directors of the Fund are also officers of FPMC, FPS
and FPR.
(3) DISTRIBUTION COSTS
The Fund's 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 Fund may incur certain costs, which may not
exceed .50% per annum of the Fund's 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 Fund.
(4) PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities aggregated $288,002 and $50,625,
respectively. Under an agreement with the Custodian Bank, custodian
fees are reduced by credits for cash balances. During the year ended
September 30, 1998, such reductions amounted to $8,643.
- ------------------------------------------------------------------------------
INVESTMENT MANAGER
First Pacific Management Corporation
2756 Woodlawn Drive, #6-201
Honolulu, Hawaii 96822-1856
DISTRIBUTOR
First Pacific Securities, Inc.
2756 Woodlawn Drive, #6-201
Honolulu, Hawaii 96822-1856
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street, 15th Floor
San Francisco, California 94111
LEGAL COUNSEL TO FUND
Drinker, Biddle & Reath, LLP
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
INDEPENDENT AUDITORS
Tait, Weller & Baker
8 Penn Center Plaza, Suite 800
Philadelphia, Pennsylvania 19103-2108
TRANSFER AGENT
First Pacific Recordkeeping, Inc.
2756 Woodlawn Drive, #6-201
Honolulu, Hawaii 96822-1856
PART C
OTHER INFORMATION
Item 23. EXHIBITS.
The following are the exhibits filed as a part of this registration
statement:
(a) Articles of Incorporation.*
Filed with Form N-1A registration.
(b) By-Laws.*
Filed with Form N-1A registration.
(c) Instruments Defining Rights of Security Holders.
Not applicable.
(d) Investment Advisory Contracts.*
Filed with Form N-1A registration.
(e) Underwriting Contracts.*
Filed with Form N-1A registration.
(f) Bonus or Profit Sharing Contracts.
Not applicable because there are no pension, bonus or
other agreements for the benefit of Directors and Officers.
(g) Custodian Agreements.
Filed with Form N-1A registration.
(h) Other Material Contracts.
Not applicable as there are no other material contracts
not made in the ordinary course of business.
(i) Legal Opinion.
The legal opinion of Drinker, Biddle & Reath, LLP.
(j) Other Opinions.
The consent of Tait, Weller & Baker, Independent Certified
Public Accountants.
(k) Omitted Financial Statements.
Included in Part B to this Post-effective Amendment #13
to Form N-1A.
(l) Initial Capital Agreements.
Filed with Pre-effective Amendment #1 to Form N-1A.
(m) (1) Rule 12b-1 Plan.
Filed with Form N-1A registration.
(2) Selling Dealer Agreement.*
Filed with Form N-1A registration.
(3) Transfer Agent Agreement.
Filed with Form N-1A registration.
(4) Accounting Services Agreement.
Filed with Form N-1A registration.
(5) Shareholder Services Agreement.
Filed with Form N-1A registration.
(n) Financial Data Schedule.
(o) Rule 18f-3 Plan.
Not applicable.
*Previously filed and incorporated by reference herein.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
FUND.
None
Item 25. 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 D2-418(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 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 26. 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 27. PRINCIPAL UNDERWRITERS.
(a) First Pacific Securities, Inc., 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 20:
<TABLE>
<CAPTION>
Position and Position and
Name and Principal Offices with Offices with
Business Address Underwriter Fund
<S> <C> <C>
Terrence K.H. Lee President Director and
2756 Woodlawn Drive, #6-201 President
Honolulu, HI 96822
Jean M. Chun Secretary/ Secretary
2756 Woodlawn Drive, #6-201 Vice President
Honolulu, HI 96822
Charlotte A. Meyer Treasurer/ Treasurer
2756 Woodlawn Drive, #6-201 Vice President
Honolulu, HI 96822
Louis F. D'Avanzo Vice President n/a
2756 Woodlawn Drive, #6-201
Honolulu, HI 96822
Nora B. Simpson Vice President n/a
702 W. Idaho Street, #321
Boise, ID 83702
</TABLE>
(c) Not applicable.
Item 28. LOCATION OF ACCOUNTS AND RECORDS.
Each account, book or other document required to be maintained
by section 31(a) [15 U.S.C. 80a-30(a)] and the rules under that section, 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 29. 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Fund has duly caused this
registration statement to be signed on its behalf by the undersigned,
duly authorized, in the City of Honolulu, and State of Hawaii on the 1st
day of December, 1998.
FIRST PACIFIC MUTUAL FUND, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
Pursuant to the requirements 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.
\S\ Terrence K.H. Lee President, Principal December 1, 1998
Terrence K.H. Lee Executive and Director
\S\ Samuel L. Chesser Director December 1, 1998
Samuel L. Chesser
\S\ Clayton W.H. Chow Director December 1, 1998
Clayton W.H. Chow
\S\ Lynden M. Keala Director December 1, 1998
Lynden M. Keala
\S\ Stuart S. Marlowe Director December 1, 1998
Stuart S. Marlowe
\S\ Charlotte A. Meyer Treasurer December 1, 1998
Charlotte A. Meyer (Chief Financial Officer)
\S\ Karen T. Nakamura Director December 1, 1998
Karen T. Nakamura
\S\ Kim F. Scoggins Director December 1, 1998
Kim F. Scoggins
EXHIBIT INDEX
Item 23.
(g) Custodian Agreement
(i) Opinion and Consent of Counsel
(j) Accountant's Consent
(m) (1) Rule 12b-1 Plan Agreement
(m) (3) Transfer Agent Agreement
(m) (4) Accounting Services Agreement
(m) (5) Shareholder Services Agreement
(n) Financial Data Schedules
CUSTODY AGREEMENT
This AGREEMENT is entered into as of June 24, 1994, between First Pacific
Mutual Fund, Inc. on behalf of First Hawaii Intermediate Municipal Fund (the
"Fund"), having its principal office and place of business at 1270 Queen Emma
Street #607, Honolulu, Hawaii 96813 and The Bank of California, National
Association (the "Bank"), a National Banking Association organized under the
laws of the United States with its principal place of business at 400
California Street, San Francisco, CA 94104.
In consideration of the mutual promises set forth below, the Fund and the
Bank agree as follows:
1. Definitions.
Whenever used in this Agreement or in any Schedules to this Agreement, the
words and phrases set forth below shall have the following meanings, unless
the context otherwise requires:
1.2 "Authorized Person" shall be deemed to include the President, and
any Vice President, the Secretary, the Assistant Secretary, the Treasurer
and any Assistant Treasurer of the Fund, or any other person, including
persons employed by the Investment Manager, whether or not any such person
is an officer of the Fund, duly authorized by the Board of Directors of the
Fund to give Oral Instructions and Written Instructions on behalf of the
Fund and listed in the certification annexed hereto as Appendix A or such
other certification as may be received by the Bank from time to time.
1.2 "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its
successor or successors and its nominee or nominees.
1.3 "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission under
Section 17(a) of the Securities Exchange Act of 1934, as amended, its
successor or successors and its nominee or nominees, in which the Bank is
hereby specifically authorized to make deposits. The term "Depository"
shall further mean and include any other person to be named in Written
Instructions authorized to act as a depository under the 1940 Act, its
successor or successors and its nominee or nominees.
1.4 "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to interest and
principal by the Government of the United States or agencies or
instrumentalities thereof, and repurchase and reverse repurchase agreements
with respect to any of the foregoing types of securities, commercial paper,
bank certificates of deposit, bankers' acceptances and short-term corporate
obligations, where the purchase or sale of such securities normally requires
settlement in federal funds on the same day as such purchase or sale.
1.5 "Prospectus" shall mean the Series' current prospectus and
statement of additional information relating to the registration of the
Series' Shares under the Securities Act of 1933, as amended.
1.6 "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and other
securities and investments from time to time owned by each Series.
1.7 "Shares" refers to the shares of beneficial interest of a Series
of the Fund.
1.8 "Series" refers to portfolios of the Fund shown on Schedule A,
attached hereto and made a part hereof by this reference, and any such other
Series as may from time to time be created and designated.
1.9 "Transfer Agent" shall mean the person which performs the transfer
agent, dividend disbursing agent and shareholder servicing agent functions
for the Fund.
1.10 "Written Instructions" shall mean a written or electronic
communication actually received by the Bank from an Authorized Person
or from a person reasonably believed by the Bank to be an Authorized
Person by telex or any other such system whereby the receiver of such
communication is able to verify through codes or otherwise with a reasonable
degree of certainty the authenticity of the sender of such communication.
1.11 The "1940 Act" refers to the Investment Company Act of 1940,
and the rules and regulations thereunder, all as amended from time to time.
2. Appointment of Custodian
2.1 The Fund hereby constitutes and appoints the Bank as custodian of
all the Securities and moneys owned by or in the possession of the Fund
during the period of this Agreement.
2.2 The Bank hereby accepts appointment as custodian for the Fund and
agrees to perform the duties thereof as hereinafter set forth.
3. Compensation
3.1 The Fund will compensate the Bank for its services rendered under
this Agreement in accordance with the fees set forth in the Fee Schedule
attached as Schedule B and made a part of this Agreement by this reference.
3.2 The parties to this Agreement will agree upon the compensation for
acting as Custodian for any Series hereafter established and designated, and
at the time that the Bank commences serving as such for said Series, such
agreement shall be reflected in a Fee Schedule for the Fund, which shall be
attached to Schedule B of this Agreement.
3.3 Any compensation agreed to hereunder may be adjusted from time to
time by not less than 90 days advance written notice of such fee increase
from Bank to Fund.
3.4 The Bank will bill the Fund as soon as practicable after the end of
the month, and said billings will be detailed in accordance with the Fee
Schedule. The Fund will promptly pay to the Bank the amount of such
billing. In the event such bill is not promptly paid, the Bank may charge
against any money specifically allocated to the Fund such compensation and
any expenses incurred by the Bank in the performance of its duties pursuant
to such agreement. The Bank shall also be entitled to charge against any
money held by it and specifically allocated to the Fund the amount of
any loss, damage, liability or expense incurred with respect to such
Fund, including counsel fees, for which it shall be entitled to
reimbursement under the provision of this Agreement.
The expenses which the Bank may charge against such account include, but
are not limited to, the expenses of Sub-Custodians and foreign branches of
the Bank incurred in settling transactions outside of San Francisco or New
York City involving the purchase and sale of Securities of the Fund.
4. Custody of Cash and Securities.
4.1 Receipt and Holding of Assets. The Fund will deliver or cause to
be delivered to the Bank all Securities and moneys owned by it, including
cash received from the issuances of its Shares, at any time during the
period of this Agreement and shall specify the Series to which the
Securities and moneys are to be specifically allocated. The Bank shall
physically segregate and keep apart on its books, the assets of each Series,
including separate identification of Securities held in the Book-Entry
System. The Bank will not be responsible for such Securities and moneys
until actually received by it. The Fund shall instruct the Bank from time
to time in its sole discretion, by means of Written Instructions as to the
manner in which and in what amounts Securities and moneys of a Series are to
be deposited on behalf of such Series in the Book-Entry System or the
Depository and specifically allocated on the books of the Bank to such
Series. Securities and moneys of the Fund deposited in the Book-Entry
System or the Depository will be represented in accounts which include
only assets held by the Bank for customers, including but not limited to
accounts in which the Bank acts in a fiduciary or representative capacity.
4.2 Accounts and Disbursements. The Bank shall establish and maintain
a separate account for each Series and shall credit to the separate account
of each Series all moneys received by it for the account of such Series and
shall disburse the same only:
4.2.1 In Payment for Securities purchased for such Series, as
provided in Section 5 hereof;
4.2.2 In payment of dividends or distributions with respect to
the Shares of such Series;
4.2.3 In payment of original issue or other taxes with respect
to the Shares of such Series;
4.2.4 In payment for Shares which have been redeemed by such
Series;
4.2.5 Pursuant to Written Instructions, setting forth the name
of such Series, the name and address of the person to whom the payment is to
be made, the amount to be paid and the purpose for which payment is to be
made; or
4.2.6 In payment of fees and in reimbursement of the expenses
and liabilities of the Bank attributable to such Series.
4.3 Confirmations and Statements. Promptly after the close of business
each day, the Bank shall make available to the Fund information with respect
to all transfers to and from the account of a Series during that day. The
Bank need not send written confirmation or a summary of all such transfers
to or from the account of each Series. Provided, however that upon the
written request of Funds, Bank shall provide within 5 business days of such
written request a copy of any confirmations which include transactions of
the Fund. Where securities purchased by a Series are in a fungible bulk of
Securities registered in the name of the Bank (or its nominee) or shown on
the Bank's account on the books of the Depository or the Book-Entry System,
the Bank shall by book entry or otherwise identify the quantity of those
securities belonging to such Series. At least monthly, the Bank shall
furnish the Fund with a detailed statement of the Securities and moneys
held for each Series under this Agreement.
4.4 Registration of Securities and Physical Separation.
All Securities held for a Series which are issued or issuable only in
bearer form, except such Securities as are held in the Book-Entry System,
shall be held by the Bank in that form; all other Securities held for a
Series may be registered, in the name of any duly appointed registered
nominee of the Bank as the Bank may from time to time determine, or in the
name of the Book-Entry System or the Depository of their successor or
successors, or their nominee or nominees. When a reference is made in
this Agreement to an action to be taken by Bank it is understood by the
parties that the action may be taken directly or in the case of book-entry
securities, through the appropriate depository. The Fund agrees to furnish
to the Bank appropriate instruments to enable the Bank to hold or deliver in
proper form for transfer, or to register in the name of its registered
nominee or in the name of the Book-Entry System or the Depository, and
Securities which it may hold for the account of a Series. The Bank (or
its sub-custodians) shall hold all such Securities specifically
allocated to a Series which are not held in the Book-Entry System or the
Depository in a separate account for such series in the name of such Series
physically segregated at all times from those of any other person or persons.
4.5 Collection: of Income and Other Matters Affecting Securities.
Unless otherwise instructed to the contrary by Written Instructions, the
Bank shall with respect to all Securities held for a Series in accordance
with this Agreement:
4.5.1 Collect all income due or payable and credit such income
promptly on the contractual settlement date, whether or not actually
received, to the account of the appropriate Series, except for income from
foreign issues. Income which has not been collected after reasonable effort,
within a time agreed upon between the parties, shall be repaid to the Bank
pending final collection at such date as may be mutually agreed upon by the
Fund and the Bank.
4.5.2 Present for payment and collect the amount payable upon
all Securities which may mature or be called, redeemed or retired, or
otherwise become payable. Bank shall make a good faith effort to inform
Fund of any call, redemption or retirement date with respect to securities
which are owned by a Series and held by the Bank or its nominee.
Notwithstanding the foregoing, the Bank shall have no responsibility to the
Fund or a Series for monitoring or ascertaining of any call, redemption or
retirement date with respect to securities which are held by a Series and
held by Bank or its nominee. Nor shall the Bank have any responsibility or
liability to the Fund or to a Series for any loss by a Series for any missed
payment or other default resulting therefrom unless the Bank received timely
general notification, which shall not be less than 5 business days from the
Fund or the Series specifying the time, place and manner for the presentment
of any put bond owned by a Series and held by the Bank or its nominee. The
Bank shall not be responsible and assumes no liability to the Fund or a
Series for the accuracy or completeness of any notification the Bank shall
provide to the Fund or a series with respect to put securities;
4.5.3 Execute any necessary declarations or certificates of
ownership under the Federal income tax laws or the laws or regulations of
any other taxing authority now or hereafter in effect; and
4.5.4 Hold for the account of each Series all rights and other
Securities issued with respect to any Securities held by the Bank hereunder
for such Series.
4.6 Delivery of Securities and Evidence of Authority. Upon receipt of
Written Instructions, the Bank shall:
4.6.1 Execute and deliver or cause to be executed and delivered
to such persons as may be designated in such Written Instructions, proxies,
consents, authorization, and any other instruments whereby the authority of
the Fund as owner of any Securities may be exercised;
4.6.2 Deliver or cause to be delivered any Securities held for
a Series in exchange for other Securities or cash issued or paid in
connection with the liquidation, reorganization, refinancing, merger,
consolidation or recapitalization of any Fund, or the exercise of any
conversion privilege;
4.6.3 Deliver or cause to be delivered any Securities held for
a Series to any protective committee, reorganization committee or other
person in connection with the reorganization, refinancing, merger,
consolidation or recapitalization or sale of assets of any Fund, and
receive and hold under the terms of this Agreement in the separate
(bookkeeping) account for each Series such certificates of deposit,
interim receipts or other instruments or documents as may be issued to it
to evidence such delivery;
4.6.4 Make or cause to be made such transfers or exchanges of
the assets and take such steps as shall be stated in said Written
Instructions to be for the purpose of effectuating any duly authorized
plan of liquidation, reorganization, merger, consolidation or
recapitalization of the Fund;
4.6.5 Deliver Securities owned by any Series upon sale of such
Securities for the account of such Series pursuant to Section 5;
4.6.6 Deliver Securities owned by any Series upon the receipt
of payment in connection with any repurchase agreement related to such
Securities entered into by such Series;
4.6.7 Deliver Securities owned by any Series to the issuer
thereof or its agent when such Securities are called, redeemed, retired or
otherwise becomes payable; provided, however, that in any such case the
cash or other consideration is to be delivered to the Bank.
4.6.8 Deliver Securities owned by any Series in connection
with any loans of Securities made by such Series but only against receipt
of adequate collateral as agreed upon from time to time by the Bank and the
Fund which may be in any form permitted under the 1940 Act or any
interpretations thereof issued by the Securities and Exchange Commission
or its staff;
4.6.9 Deliver Securities owned by any Series for delivery as
security in connection with any borrowings by such Series requiring a pledge
of Series assets, but only against receipt of amount borrowed;
4.6.10 Deliver Securities owned by any Series upon receipt of
instructions from such Series for delivery to the Transfer Agent or to the
holders of Shares of such Series in connection with distributions in kind,
as may be described from time to time in the Series' Prospectus, in
satisfaction of requests by holders of Shares for repurchase or redemption;
and
4.6.11 Deliver Securities owned by any Series for any other
proper business purpose, but only upon receipt of, in addition to Written
Instructions, a certified copy of a resolution of the Board of Directors
signed by an Authorized Person and certified by the Secretary or Assistant
Secretary of the Fund, specifying the Securities to be delivered, setting
forth the purpose for which such delivery is to be made, declaring such
purpose to be a proper business purpose, and naming the person or persons
to whom delivery of such Securities shall be made.
4.7 Endorsement and Collection of Checks. Etc. The Bank is hereby
authorized to endorse and collect all checks, drafts or other orders for
the payment of money received by the Bank for the account of a Series.
5. Purchase and Sale of Investments of the Series.
5.1 Promptly after each purchase of Securities for a Series, the Fund
shall deliver to the Bank Written Instructions specifying with respect to
each purchase: (1) the name of the Series to which such Securities are to
be specifically allocated; (2) the name of the issuer and the title of the
Securities; (3) the number of shares or the principal amount purchased and
accrued interest, if any; (4) the date of purchase and settlement; (5)
the purchase price per unit; (6) the total amount payable upon such
purchase; (7) the name of the person from whom or the broker through
whom the purchase was made, if any; (8) whether or not such purchase is
to be settled through the Book-Entry System or the Depository; and (9)
whether the Securities purchased are to be deposited in the Book-Entry
System or the Depository. The Bank shall receive all Securities purchased
by or for a Series and upon receipt of such Securities shall pay out of the
moneys held for the account of such Series the total amount payable upon
such purchase, provided that the same conforms to the total amount payable
as set forth in such Written Instructions.
5.2 Promptly after each sale of Securities of a Series, the Fund shall
deliver to the Bank Written Instructions specifying with respect to such
sale: (1) the name of the Series to which the Securities sold were
specifically allocated; (2) the name of the issuer and the title of the
Securities; (3) the number of shares or principal amount sold, and accrued
interest, if any; (4) the date of sale; (5) the sale price per unit;
(6) the total amount payable to the Series upon such sale; (7) the name
of the broker through whom or the person to whom the sale was made; and
(8) whether or not such sale is to be settled through the Book-Entry System
or the Depository. The Bank shall deliver or cause to be delivered the
Securities to the broker or other person designated by the Fund upon receipt
of the total amount payable to such Series upon such sale, provided that the
same conforms to the total amount payable to such Series as set forth in
such Written Instructions. Subject to the foregoing, the Bank may accept
payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs
prevailing among dealers in Securities.
6. Payment of Dividends or Distributions.
6.1 The Fund shall furnish to the Bank the resolution of the Board of
Directors of the Fund certified by the Secretary or Assistant Secretary (i)
authorizing the declaration of dividends or distributions with respect to a
Series on a specified periodic basis and authorizing the Bank to rely on
Written Instructions specifying the date of the declaration of such dividend
or distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount payable
per share to the shareholders of record as of the record date and the
total amount payable per share to the shareholders of record as of the
record date and the total amount payable to the Transfer Agent on the
payment date, or (ii) setting forth the date of declaration of any dividend
or distribution by a Series, the date of payment thereof, the record date
as of which shareholders entitled to payment shall be determined, the amount
payable per share to the shareholders of record as of the record date and
the total amount payable to the Transfer Agent on the payment date.
6.2 Upon the payment date specified in such resolution or Written
Instructions the Bank shall pay out the moneys specifically allocated to
and held for the account of the appropriate Series the total amount payable
to the Transfer Agent of the Fund.
7. Sale and Redemption of Shares of a Series.
7.1 Whenever the Fund shall sell or redeem any Shares of a Series, the
Fund shall deliver or cause to be delivered to the Bank Written Instructions
duly specifying:
7.1.1 The name of the Series whose Shares were sold or redeemed;
7.1.2 The number of Shares sold or redeemed, trade date, and
price; and
7.1.3 The amount of money to be received or paid by the Bank
for the sale or redemption of such Shares.
7.2 Upon receipt of such money from the Transfer Agent, the Bank shall
credit such money to the separate account of the Series.
7.3 Upon issuance of any Shares of a Series in accordance with the
foregoing provisions of this Section 7, the Bank shall pay, out of the
moneys specifically allocated and held for the account of such Series,
all original issue or other taxes required to be paid in connection with
such issuance upon the receipt of Written Instructions specifying the amount
to be paid.
7.4 Upon receipt from the Transfer Agent of advice setting forth the
number of Shares of a Series received by the Transfer Agent for redemption
and that such Shares are valid and in good form for redemption, the Bank
shall make payment to the Transfer Agent out of the moneys specifically
allocated to and held for the account of the Series.
8. Indebtedness.
8.1 The Fund will cause to be delivered to the Bank by any bank
(excluding the Bank) from which the Fund borrows money for temporary
administrative or emergency purposes using Securities as collateral for
such borrowings, a notice or undertaking in the form currently employed
by any such bank setting forth the amount which such bank will loan to the
Fund against delivery of a stated amount of collateral. The Fund shall
promptly deliver to the Bank Written Instructions stating with respect to
each such borrowing: (1) the name of the Series for which the borrowing is
to be made; (2) the name of the bank; (3) the amount and terms of the
borrowing, which may be set forth by incorporating by reference an attached
promissory note, duly endorsed by the Fund, or other loan agreement; (4)
the time and date, if known, on which the loan is to be entered into (the
"borrowing date"); (5) the date on which the loan becomes due and payable;
(6) the total amount payable to the Fund for the separate account of the
Series on the borrowing date; (7) the market value of Securities to be
delivered as collateral for such loan, including the name of the issuer,
the title and the number of shares or the principal amount of any particular
Securities; (8) whether the Bank is to deliver such collateral through the
Book-Entry System or the Depository; and (9) a statement that such loan is
in conformance with the 1940 Act and the Series' Prospectus.
8.2 Upon receipt of the Written Instructions referred to above, the Bank
shall deliver on the borrowing date the specified collateral and the executed
promissory note, if any, against delivery by the lending bank of the total
amount of the loan payable, provided that the same conforms to the total
amount payable as set forth in the Written Instructions. The Bank may, at
the option of the lending bank keep such collateral in its possession, but
such collateral shall be subject to all rights therein given the lending
bank by virtue of any promissory note or loan agreement. The Bank shall
deliver as additional collateral in the manner directed by the Fund from
time to time such Securities specifically allocated to such Series as may
be specified in Written Instructions to collateralize further any
transaction described in this Section 8. The Fund shall cause all
Securities released from collateral status to be returned directly to
the Bank, and the Bank shall receive from time to time such return of
collateral as may be tendered to it. In the event that the Fund fails to
specify in Written Instructions all of the information required by this
Section 8, the Bank shall not be under any obligation to deliver any
Securities. Collateral returned to the Bank shall be held hereunder as
it was prior to being used as collateral.
9. Persons Having Access to Assets of the Series.
9.1 No director, officer, employee or agent of the Fund, and no officer,
director, employee or agent of the Advisor, shall have physical access to the
assets of the Fund held by the Bank or be authorized or permitted to withdraw
any investments of the Fund, nor shall the Bank deliver any assets of the
Fund to any such person. No officer, director, employee or agent of the
Bank who holds any similar position with the Fund, the Advisor shall have
access to the assets of the Fund.
9.2 The individual employees of the Bank initially duly authorized by
the Board of Directors of the Bank to have access to the assets of the Fund
are listed on Schedule C which is attached and made a part of this Agreement
by this reference. The Bank shall advise the Fund of any change in the
individuals authorized to have access to the assets of the Fund by written
notice to the Fund.
9.3 Nothing in this Section 9 shall prohibit any officer, employee or
agent of the Fund, or any officer, director, employee or agent of the
Advisor, from giving Written Instructions to the Bank so long as it does
not result in delivery of or access to assets of the Fund prohibited by
this Section 9.
10. Concerning the Bank.
10.1 Standard of Conduct. The Bank shall not be responsible for the
title, validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Agreement and reasonably
believed by it to be valid or genuine and shall be held harmless in acting
upon proper instructions, resolutions, any notice, request, consent,
certificate or other instrument reasonably believed by it to be genuine and
to be signed by the proper party or parties and shall be entitled to receive
as conclusive proof of any fact or matter required to be ascertained
by it hereunder, a certificate signed by the President, a Vice President,
the Treasurer, the Secretary or an Assistant Secretary of the Fund. The
Bank may receive and accept a resolution as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Directors as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Bank of written notice from the Secretary or an Assistant
Secretary to the contrary.
The Bank shall be entitled to rely on and may act upon advice of counsel
(who may be counsel for the Fund) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such
advice. Provided, however, that if such reliance involves a potential
material loss to the Fund, the Bank shall advise the Fund of any such
actions to be taken in accordance with such advice of counsel to the Bank.
The Bank shall be held to the exercise of reasonable care in carrying out
the provisions of this Agreement but shall be liable only for its own negligent
or bad faith acts or wilful misconduct or wilful failures to act by the Bank
and its agents or Employees. Bank shall have no responsibility for
reviewing or questioning the acts or records of any prior custodian. The
Fund shall indemnify the Bank and hold it harmless from and against all
losses, liabilities, demands, claims, actions, expenses, attorneys' fees,
and taxes with respect to each Series which the Bank may suffer or incur
on account of being custodian hereunder except to the extent that such
losses, liabilities, demands, claims, actions, expenses, attorneys fees or
taxes arise from the Bank's own gross negligence or bad faith.
Notwithstanding the foregoing the Bank shall be liable to the Fund for
any loss or damage resulting from the use of the Book-Entry System or the
Depository arising by reason of any negligence, misfeasance or misconduct
on the part of the Bank or any of its employees or agents.
If a Series requires the Bank to take any action with respect to
Securities, which action involves the payment of money or which action may,
in the opinion of the Bank, result in the Bank or its nominee assigned to
such Series being liable for the payment of money or incurring liability
of some other form, such Series, as a prerequisite to requiring the Bank
to take such action, shall, prior to the Bank taking such action, provide
indemnity in writing to the Bank in an amount and form satisfactory to it.
10.2 Limit of Duties. Without limiting the generality of the foregoing,
the Bank shall be under no duty or obligation to inquire into, and shall not be
liable for:
10.2.1 The validity of the issue of any Securities purchased by
any Series, the legality of the purchase thereof, the permissibility of the
purchase thereof under the Fund's governing documents, or the propriety of
the amount paid therefor;
10.2.2 The legality of the sale of any Securities by any Series,
the permissibility of such sale under the fund's governing documents, or the
propriety of the amount for which the same are sold;
10.2.3 The legality of the issue or the sale of any Shares, or
the sufficiency of the amount to be received therefor;
10.2.4 The legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor;
10.2.5 The legality of the declaration or payment of any
dividend or other distribution of any Series;
10.2.6 The legality of any borrowing for temporary or emergency
administrative purposes.
10.3 No Liability Until Receipt. the Bank shall not be liable for, or
considered to be the custodian of, any money, whether or not represented by
any check, draft, or other instrument for the payment of money, received by
it on behalf of any Series until the Bank actually receives and collects
such money directly or by the final crediting of the account representing
the Fund's interest in the Book-Entry System or the Depository.
10.4 Collection Where Payment Refused. The Bank shall not be under any
duty or obligation to take action to effect collection of any amount, if the
Securities upon which such amount is payable are in default, or if payment
is refused after due demand or presentation, unless and until (a) it shall
be directed to take such action by Written Instructions and (b) it shall be
assured to its satisfaction of reimbursement of its costs and expenses in
connection with any such action.
10.5 Appointment of Agents and Sub-Custodians. The Bank may appoint
one or more banking institutions, including but not limited to banking
institutions located in foreign countries, to act as Depository or
Depositories or as Sub-Custodian or as Sub-Custodians of Securities and
moneys at any time owned by any Series, upon terms and conditions specified
in Written Instructions. The Bank shall use reasonable care in selecting a
Depository and/or Sub-Custodian located in a country other than the United
States ("Foreign Sub-Custodian"), and shall oversee the maintenance of any
Securities or moneys of the Fund by any Foreign Sub-Custodian.
10.6 No Duty to Ascertain: Authority. The Bank shall not be under any
duty or obligation to ascertain whether any Securities at any time delivered
to or held by it for the Fund and specifically allocated to a Series are
such as may properly be held by the Series and specifically allocated to
such Series under the provisions of the Declaration of Fund and the Series'
Prospectus.
10.7 Reliance on Certificates and Instructions. The Bank shall be
entitled to rely upon any Written Instructions or Oral Instructions actually
received by the Bank pursuant to the applicable Sections of this Agreement
and reasonably believed by the Bank to be genuine and to be given by
an Authorized Person. The Fund agrees to forward to the Bank Written
Instructions from an Authorized Person confirming such Oral Instructions in
such manner so that such Written Instructions are received by the Bank,
whether by hand delivery, telex, or otherwise, by the close of business on
the same day that such Oral Instructions are given to the Bank. The Fund
agrees that the fact that such confirming instructions are not received by
the Bank shall in no way affect the validity for the transactions or
enforceability of the transactions hereby authorized by the Fund. The
Fund agrees that the Bank shall incur no liability to the Fund in acting
upon Oral Instructions given to the Bank hereunder concerning such
transactions provided such instructions reasonably appear to have been
received from a duly Authorized Person.
10.8 Inspection of Books and Records. The books and records of the Bank
regarding the Fund shall be open to inspection and audit at reasonable times by
officers and auditors employed by the Fund and by employees of the Securities
and Exchange Commission. The Bank shall provide the Fund, upon request, with
any report obtained by the Bank on the system of internal accounting control
of the Book-Entry System or the Depository and with such reports on its own
systems of internal accounting control as the Fund may reasonably request
from time to time. Provided, however, that in the event that the Fund shall
require a report of internal accounting control produced by the auditors of
the Series rather than of the Bank, then such report shall be prepared at
the expense of the Series, and the Series agrees to pay for the time
expended by Bank on such audit and report at the hourly rate set forth on
the Fee agreement.
11. Term and Termination.
11.1 This Agreement shall become effective on the date first set forth
above (the "Effective Date") and shall continue in effect thereafter as the
parties may mutually agree.
11.2 Either of the parties hereto may terminate this Agreement with
respect to any Series by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than 90
days after the date of receipt of such notice. In the event such notice is
given by the Fund, it shall designate a successor custodian or custodians,
which shall be a person qualified to so act under the 1940 Act. In the
event such notice is given by the Bank, the Fund shall, on or before the
termination date, deliver to the Bank, Written Instructions designating a
successor Custodian or Custodians. In the absence of such designation by
the Fund, the Bank may designate a successor Custodian, which shall be a
person qualified to so Act under the 1940 Act. If the Fund fails to
designate a successor Custodian for any Series, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Bank of all Securities (other than Securities held in the
Book-Entry Systems which cannot be delivered to the Fund) and moneys
then owned by such Series, be deemed to be its own Custodian and the
bank shall thereby be relieved of all duties and responsibilities pursuant
to this Agreement, other than the duty with respect to Securities held in
the Book-Entry system which cannot be delivered to the Fund.
11.3 Upon the date set forth in such notice under paragraph (b) of this
Section, this Agreement shall terminate to the extent specified in such
notice, and the Bank shall upon receipt of a notice of acceptance by the
successor Custodian on that date deliver directly to the successor Custodian
all Securities and moneys then held by the Bank and specifically allocated
to the Series or Series specified, after deducting all fees, expenses and
other amounts for the payment or reimbursement of which it shall then be
entitled with respect to such Series or Series.
12. Additional Services by Bank.
12.1 If allowed by the prospectus, Investment Manager may direct that
the assets of any Series be invested in deposits in Bank or its affiliates
bearing a reasonable rate of interest.
12.2 Other Bank Services. Any authorized person may direct Bank to
utilize other services or facilities provided by BanCal Tri-State Corp.
13. Miscellaneous.
13.1 Annexed hereto as Schedule C is a certification signed by two of
the present Directors of the Fund setting forth the names and the signatures
of the present Authorized Persons. The Fund agrees to furnish to the Bank
a new certification in similar form in the event that any such present
Authorized Person ceases to be such an Authorized Person or in the event
that other or additional Authorized Persons are elected or appointed. Until
such new certification shall be received, the Bank shall be fully protected
in acting under the provisions of this Agreement upon Oral Instructions
or signatures of the present Authorized Persons as set forth in the last
delivered certification.
13.2 Annexed hereto as Appendix B is a certification signed by two of
the present Directors of the Fund setting forth the names and the signatures
of the present Directors of the Fund. The Fund agrees to furnish to the Bank
a new certification in similar form in the event any such present Director
ceases to be a Director of the Fund or in the event that other or additional
Directors are elected or appointed. Until such new certification shall be
received, the Bank shall be fully protected in acting under the provisions
of this Agreement upon the signature of the officers as set forth in the
last delivered certification.
13.3 Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Bank, shall be sufficiently given if
addressed to the Bank and mailed or delivered to it at its offices at:
The Bank of California, N.A.
Mutual Fund Services Dept., Trust Group
457 Sansome Street, 11th Floor
San Francisco, California 94111
or such other place as the Bank may from time to time designate in writing.
13.4 Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Fund, shall be sufficiently given if
addressed to the Fund and mailed or delivered to it at its offices at:
First Pacific Mutual Fund, Inc.
1270 Queen Emma Street Suite 607
Honolulu, Hawaii 96813
or at such other place as the Fund may from time to time designate in writing.
13.5 This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as
this Agreement, and as may be permitted or required by the 1940 Act.
13.6 This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Fund without
the written consent of the Bank, or by the Bank without the written consent
of the Fund authorized or approved by a resolution of the Board of Directors
of the Fund, and any attempted assignment without such written consent shall
be null and void.
13.7 This Agreement shall be construed in accordance with the laws of the
State of California.
13.8 It is expressly agreed to that the obligations of the Fund hereunder
shall not be binding upon any of the Directors, shareholders, nominees,
officers, agents or employees of the Fund, personally, but bind only the
property of the Fund. The execution and delivery of this Agreement have
been authorized by the Directors of the Fund and signed by an authorized
officer of the Fund, acting as such, and neither such authorization by such
Directors nor such execution and delivery by such officer shall be deemed to
have been made by any of them individually or to impose any liability on any
of them personally, but shall bind only the property of the Fund.
13.9 The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
13.10 This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunder duly authorized as of the
day and year first above written.
First Pacific Mutual Fund, Inc.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
Date: June 24, 1994
The Bank of California, N.A.
By: \S\ Mary Fowler
Mary Fowler, Vice President
Date: June 22, 1994
Schedule A - Series
First Hawaii Intermediate Municipal Fund
First Pacific Mutual Fund, Inc.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
Date: June 24, 1994
The Bank of California, N.A.
By: \S\ Mary Fowler
Mary Fowler, Vice President
Date: June 22, 1994
Schedule B
Mutual Fund Services
Schedule of Fees
Custody
$3,000 minimum per year per portfolio - or 2 basis points for the first
fifty million and 1.5 basis points in excess of fifty million per
portfolio. The Bank will offset 100% of the incurred fee with credits
received for uninvested cash balances. The Bank will retain as fee all
credits received from cash balances whether they are smaller or larger
than the fee quoted above.
There will be no additional charges.
First Pacific Mutual Fund, Inc.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
Date: June 24, 1994
The Bank of California, N.A.
By: \S\ Mary Fowler
Mary Fowler, Vice President
Date: June 22, 1994
Schedule C
Authorized Persons
Part I - Access Persons of Bank
Mary Fowler
Mark Peterson
Audrey Bough
Cari Umekubo
Charles Cassilas
Jeffrey Gimm
Part II - Authorized Persons of the Fund
Terrence K.H. Lee
Jean M. Chun
Charlotte A. Meyer
Louis F. D'Avanzo
Part III - Directors
First Pacific Mutual Fund, Inc.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
Date: June 24, 1994
The Bank of California, N.A.
By: \S\ Mary Fowler
Mary Fowler, Vice President
Date: June 22, 1994
Amendment to Schedule A
of the Custody Contract dated June 24, 1994
Between the First Pacific Mutual Fund, Inc.
and
Bank of California, N.A.
First Hawaii Intermediate Municipal Fund
First Hawaii Municipal Bond Fund
First Pacific Mutual Fund, Inc.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
Date: September 2, 1994
The Bank of California, N.A.
By: \S\ Mary Fowler
Mary Fowler, Vice President
Date: August 29, 1994
Amendment to Schedule C
of the Custody Contract dated June 24, 1994
Between the First Pacific Mutual Fund, Inc.
and
The Bank of California, N.A.
Part I- Access Persons of Bank
Mary Fowler
Mark Peterson
Audrey Bough
Cari Umekubo
Charles Casillas
Part II- Authorized Persons of the Fund
Terrence K.H. Lee
Jean M. Chun
Charlotte A. Meyer
Louis D'Avanzo
First Pacific Mutual Fund, Inc.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
Date: September 2, 1994
The Bank of California, N.A.
By: \S\ Mary Fowler
Mary Fowler, Vice President
Date: August 29, 1994
WIRE TRANSFER AGREEMENT
This Agreement is entered into between the Bank of California, N.A. ("Bank"),
and the undersigned ("Client"), effective upon execution of the Agreement by
Client and acceptance by Bank. Acceptance will be deemed to have occurred
on the date Client is authorized to initiate Payment Orders as defined below.
Pursuant to the terms and conditions stated herein, Appendix A which is
attached hereto, and the information contained in the applicable Wire
Transfer Specification Sheet or such other written document provided by
Client ("Spec Sheet"), Bank agrees as follows. During normal Bank business
hours Bank will allow Client through its representatives designated in the
Spec Sheet ("Authorized Client Representative") to initiate wire transfer
requests from Client's account(s) at Bank ("Account(s)") and to initiate
outgoing reverse wire transfer requests to Client's Account(s), and, if
authorized by Client, Bank agrees to honor incoming reverse wire transfer
requests for funds from banks requesting Bank to debit Client's Account(s).
The preceding transfer requests are collectively referred to as "Payment
Orders" in this Agreement.
SPEC SHEET. Clients will initiate Payment Orders in accordance with the
Spec Sheet, regardless of any multiple signature requirements on the
Account(s) listed on the Spec Sheet. Changes to the Spec Sheet may be
made by written notice thereof by Client, and these changes will be
effective after actual receipt by Bank and after Bank has had a reasonable
opportunity to act on the notice.
SECURITY PROCEDURES. Client and Bank shall comply with the security
procedure requirements described in Appendix A, in any applicable user
guide, and in any applicable confidential code confirmation. These security
procedures are not designed to detect Client error. A Payment Order shall
not be considered received by Bank until Bank has performed all verification
procedures set forth in this Agreement.
PROCESSING, TRANSMITTAL AND SETTLEMENT BY BANK. Bank shall use its best
efforts to transmit Payment Orders on the day of receipt if receipt is prior
to Bank's cut-off time, which is set forth in Appendix A. Bank may change
its cut-off time without prior notice to Client.
Client agrees that reverse wire agreements shall be in effect with any bank
sending Bank an incoming reverse wire request.
Client understands and agrees that Bank may not effect requests for Payment
Orders in the order of receipt. Payment Orders made by telephone may be
recorded and Client hereby consents to such recording without being notified
at the time of each such recording. The decision to record any telephone
conversation shall be solely by Bank, and Bank shall have no liability for
failing to do so.
Client agrees to maintain sufficient collected balances to effect Payment
Orders. Client authorizes Bank to charge its Account(s) for any Payment
Order Bank reasonably believes is authorized by Client. Bank will be under
no obligation to honor a Payment Order from a Client Account which
(1) exceeds Client's collected funds on deposit with Bank, (2) is not
authenticated pursuant to, or is not otherwise in accordance with, this
Agreement, (3) Bank has reason to believe may not be authorized by Client,
(4) is incomplete or ambiguous, (5) involves funds subject to a hold,
dispute, or legal process preventing their withdrawal, or is otherwise
deemed unsatisfactory to Bank in its sole discretion.
In the event there are insufficient available funds in the Account to cover
Client's obligations under this Agreement, Client agrees that Bank may debit
any account maintained by Client with Bank or that Bank may set off against
any amount it owes to Client, in order to obtain payment of Client's
obligations under this Agreement. If Bank creates an overdraft to complete
a Payment Order, Client agrees to immediately repay Bank the amount of such
overdraft, whether or not demand is made, as well as any other applicable
charges previously disclosed to Client.
TERMINAL-INITIATED PAYMENT ORDERS. For terminal-initiated payment orders
using Bank's Terminal Funds Transfer (TFT) product, Client will furnish,
at Client's expense, its own computer hardware and software necessary to
access Bank's wire transfer system ("System"). For all terminal-initiated
payment orders, Client agrees to follow the instructions contained in the
applicable terminal-initiated wire transfer user's guide ("Guide") in
making any terminal-initiated Payment Order. Bank will have no obligation
to verify the validity of a Payment Order which has been received on the
System.
OWNERSHIP AND CONFIDENTIALITY. Client acknowledges that all computer
programs, data bases, any trade secrets, processes, proprietary data and
information or documentation related thereto made available by Bank
("Products") are the exclusive and confidential property of Bank or the
third parties from whom Bank has secured the right to use such computer
programs and data bases. Client will treat as confidential and will not
disclose or otherwise make available any of the Products in any
form, to any person other than employees of Client. Client will instruct
its employees who have access to the Products to keep the same confidential
by using the same care and discretion that Client uses with respect to its
own confidential property and trade secrets. Upon termination of this
Agreement, Client will return to Bank any and all copies of the Products
which are in its possession.
CLIENT REVIEW. Client will examine any confirmation or Account statement Bank
provides to Client reflecting a Payment Order and will report any
discrepancies to Bank within thirty (30) days after receipt of the advice
or Account statement, whichever is earlier. Client agrees Bank will
not be liable for any losses resulting from Client's failure to report any
discrepancies within this time.
NOTICE OF INCOMING WIRE TRANSFER. Client agrees that, unless specifically
agreed to in writing by Bank, Bank is not obligated to provide notice to
Client of receipt of an incoming wire transfer of funds other than on the
Account statement.
CANCELLATION OR AMENDMENT BY CLIENT. Client shall have no right to cancel
or amend a Payment Order after its receipt by Bank. However, Bank shall use
reasonable efforts to act on a request by Client for cancellation of a
Payment Order prior to transmitting it or, in the case of an on-us payment
order, prior to crediting a beneficiary's account, but shall have no
liability if such cancellation is not effected. A request to amend a
Payment Order shall be considered a request to cancel the Payment Order.
FUNDS TRANSFER RISK. Client assumes certain risks and responsibilities
with respect to the actions of Authorized Client Representatives and third
parties authorized by Client to act on its behalf. Client recognizes and
agrees that no individual should be allowed to initiate Payment Orders
in the absence of proper supervision and adequate safeguards. Client
assumes full responsibility for any and all loss, liability and damage
associated with transfers, omissions and/or instructions given to Bank by
Authorized Client Representatives, individuals purporting to be Authorized
Client Representatives, or said third parties acting or purporting to act
on Client's behalf.
PROVISIONAL PAYMENT; INDEMNITY. Client represents to Bank and agrees that
the payment system used to effect transfer of a Payment Order may contain
rules, including without limitation a provision making payment by a
receiving bank to another receiving bank or beneficiary provisional
until receipt by the receiving bank of final settlement for such payment
order. Client agrees that, if such settlement is not received, the
receiving bank shall be entitled to a refund from another receiving bank
or beneficiary of the amount credited and Client shall not be deemed to
have paid the receiving bank or beneficiary the amount of the payment
order. Client shall indemnify Bank against any loss, liability or expense
(including reasonable attorneys' fees and expenses) resulting from or
arising out of any breach of the foregoing.
LIABILITY, LIMITATIONS ON LIABILITY; INDEMNITY.
(a) Bank shall be responsible only for performing the services expressly
provided for in this Agreement, and shall be liable only for its negligence
in performing those services. Bank shall not be responsible for Client's
acts or omissions (including without limitation the amount, accuracy,
timeliness of transmittal or authorization of any Payment Order received
from Client) or those of any other person, including without limitation any
Federal Reserve Bank or transmission or communications facility, any
receiving bank or any beneficiary, and no such person shall be deemed
Bank's agent. Client agrees to indemnify Bank against any loss, liability
or expense (including reasonable attorneys' fees and expenses) resulting
from or arising out of any claim of any person that Bank is responsible for
any act or omission of Client or any other person described in this Section.
The foregoing shall apply to the services provided for in this Agreement,
except as otherwise required by applicable law.
(b) IN NO EVENT SHALL BANK BE LIABLE FOR ANY CONSEQUENTIAL, SPECIAL,
PUNITIVE OR INDIRECT LOSS OR DAMAGE WHICH CLIENT MAY INCUR OR
SUFFER
IN CONNECTION WITH THIS AGREEMENT, including without limitation loss
or damage from subsequent wrongful dishonor resulting from Bank's acts
or omissions pursuant to this Agreement.
(c) Without limiting the generality of the foregoing provisions, Bank shall
be excused from failing to act or delay in acting if such failure or delay
is caused by legal constraint, interruption or transmission or communication
facilities, equipment failure, war, emergency conditions or other
circumstances beyond Bank's control. In addition, Bank shall be excused
from failing to transmit or delay in transmitting a Payment Order if such
transmittal would result in Bank's having exceeded any limitation upon its
intra-day net funds position established pursuant to present or future
Federal Reserve guidelines or in Bank's otherwise violating any provision
of any present or future risk control program of the Federal Reserve or
any present of future statute, regulation or government policy to which
Bank is subject.
COMPLIANCE WITH SECURITY PROCEDURES.
(a) Except as otherwise required by applicable law, if a Payment Order
(or a request for cancellation or amendment of a Payment Order) received
by Bank purports to have been transmitted or authorized by Client, it will
be deemed effective as Client's Payment Order (or request) and Client
shall be obligated to pay Bank the amount of such Payment Order as
provided herein even though the Payment Order (or request) was not
authorized by Client, provided Bank acted in compliance with the security
procedure referred to in Appendix A with respect to such Payment Order.
(b) If a Payment Order (or request for cancellation or amendment of an Payment
Order) received by Bank was transmitted or authorized by Client, Client shall
be obligated to pay the amount of the Payment Order as provided herein
whether or not Bank complied with the security procedure referred to in
Appendix A with respect to that Payment Order.
INCONSISTENCY OF NAME AND BANK NUMBER; DESIGNATION OF FUNDS
TRANSFER
SYSTEM AND/OR INTERMEDIARY BANK. Client acknowledges and agrees
that, if a Payment Order describes the intermediary or beneficiary's
bank inconsistently by name and bank number, execution of the Payment
Order by Bank, an intermediary bank or a funds transfer system may be
made on the basis of the bank number or bank name even if they are
inconsistent, and that Client's obligation to pay the amount of the
Payment Order to Bank is not excused in such circumstances. In the
event Client fails to specify a funds transfer payment system,
communication system or intermediary bank when initiating a particular
payment order, Client hereby instructs Bank to use the following:
FedWire System, Clearing House for Interbank Payment System, Society for
World-Wide Interbank Financial Telecommunications, any intermediary bank
identified by the foregoing systems as a correspondent bank of the
beneficiary bank, or any payment system or intermediary bank which Bank
deems reasonable under the circumstances. Client agrees to be bound
by the rules of any applicable funds transfer payment system.
INCONSISTENCY OF NAME AND ACCOUNT NUMBER. Client acknowledges and agrees
that, if an Payment Order describes the beneficiary inconsistently by name
and account number, payment of the Payment Order transmitted by Bank to the
beneficiary's bank might be made by that institution (or by Bank in the case
of an on-us Payment Order) on the basis of the account number even if it
identifies a person different from the named beneficiary, and that Client's
obligation to pay the amount of the Payment Order to Bank is not excused in
such circumstances.
PAYMENT FOR SERVICES. Client shall pay Bank the charges for the services
provided for herein as set forth in pricing schedule previously provided to
Client. Such charges are in addition to the fees or charges provided for in
the agreement between Bank and Client with respect to the Account (the
"Account Agreement").
AMENDMENTS. From time to time Bank may amend any of the terms and
conditions contained in this Agreement, including without limitation, any
cut-off time, any business day, and any part of Appendices A and B attached
hereto. Such amendments shall become effective upon mailing or otherwise
giving notice to Client or at such later date as may be stated in Bank's
notice to Client.
NOTICES, INSTRUCTIONS, ETC. Bank shall be entitled to rely on any written
notice or other written communication believed by it in good faith to be
genuine and to have been signed by an Authorized Client Representative, and
any such communication shall be deemed to have been signed by such person.
Except as otherwise expressly provided herein, Bank shall not be required to
act upon any notice or instruction received from Client or any other person,
or to provide any notice or advice to Client or any other person with
respect to any matter.
DATA RETENTION. Client shall retain data on file adequate to reconstruct
Payment Orders for one year following the date of their transmittal by Bank,
and shall provide such data to Bank upon its request.
TERMINATION. Client may terminate this Agreement at any time. Such
termination shall be effective on the second business day following the
day of Bank's actual receipt of written notice of such termination or such
later date as is specified in that notice. Bank reserves the right to
terminate this Agreement immediately upon providing written notice of
such termination to Client. Any termination of this Agreement shall not
affect any of Client's obligations arising prior to such termination.
ENTIRE AGREEMENT. This Agreement (including the Appendices attached hereto),
together with the Account Agreement, is the complete and exclusive statement
of the agreement between Bank and Client with respect to the subject matter
hereof and supersedes any prior agreement(s) between Bank and Client with
respect to such subject matter. In the event of any inconsistency
between the terms of this Agreement and the Account Agreement, the terms
of this Agreement shall govern.
GENERAL.
(a) Client may not assign this Agreement or any of the rights or duties
hereunder to any person without Bank's prior written consent.
(b) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives, successors and
assigns. This Agreement is not for the benefit of any other person, and
no other person shall have any right against Bank or Client hereunder.
(c) Headings are used for reference purposes only and shall not be deemed a
part of this Agreement.
(d) This Agreement shall be construed in accordance with and governed by the
laws of the State of California.
(e) A Bank business day is Monday through Friday, excluding Bank holidays.
(f) In the absence of manifest error, Bank records shall be deemed
conclusive evidence of a Payment Order and related communications.
(g) Client agrees that no action, suit or other proceeding to recover for any
loss claimed under this Agreement shall be brought against Bank unless such
action, suit or proceeding shall have been commenced within one year from
receipt by Client of notification identifying the applicable Payment Order.
(h) Notwithstanding any provision of the California Commercial Code to the
contrary, the parties agree that attorney's fees will not be awarded in any
action regarding this Agreement.
CLIENT: First Pacific Recordkeeping, Inc.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
Date: June 24, 1994
Appendix A
SECURITY PROCEDURES - TELEPHONE-INITIATED WIRE REQUESTS TO BANK'S
DOMESTIC WIRE TRANSFER ROOM. Payment Orders may be initiated by telephone
by an Authorized Client Representative who is designated in the Spec Sheet
as authorized to initiate Payment Orders. When initiating a Payment Order,
an Authorized Client Representative shall present his/her personal
identification number (PIN), which shall previously have been provided to
Client by Bank.
In addition to requiring a PIN when a Payment Order is initiated, Bank's
standard procedure to verify Client's authorization for non-repetitive,
telephone-initiated Payment Orders made to Bank's domestic wire transfer
room consists of a call-back whereby Bank telephones a second Authorized
Client Representative. The second Authorized Client Representative must
also present his or her PIN. This call-back procedure may be based on a
non-disclosed floor limit (a dollar amount under which a call-back will not
be made). This call-back procedure will not be used for repetitive
Payment Orders unless Client has specifically requested Bank in writing to
do so. Bank will have no duty other than as stated herein to verify that a
Payment Order is made by an Authorized Client Representative.
SECURITY PROCEDURES - TERMINAL-INITIATED WIRE TRANSFERS. An authorized
Client Representative will have access to Bank's System by following the
procedures specified in the applicable Guide. On or before the effective
date of this Agreement Bank will provide Client with the Guide and passwords
and/or user identification number and/or PINs, as applicable (collectively
referred to as Codes), to be used to access the System and make Payment
Orders. Client agrees that it will not issue any single Authorized Client
Representative a combination of Codes that may enable said Representative to
make Payment Orders that would otherwise require two Authorized Client
Representatives.
CLIENT RESPONSIBILITY FOR PINS AND CODES, ETC. Client is responsible for
maintaining the confidentiality of all PINs, Codes, and other devices used
to protect the authenticity of a Payment Order. If Client has reason to
believe that any PINs, Codes or devices have or may have become known by,
or have or may become comprised by, unauthorized persons (whether or
not employed by Client), Client agrees to immediately notify Bank by
telephone and agrees to confirm oral notification in writing to Bank
within 24 hours. Bank will issue new PINs and Codes to Client in
accordance with Bank's security requirements. Bank reserves the right
to change PINs and Codes at any time by giving reasonable prior notice
to Client.
CUT-OFF TIME. Bank agrees to use its best efforts to act on all Payment
Orders on the day received if receipt is prior to the 2:30 p.m. Pacific
Time cut-off time set by Bank, which time may be changed from time to time
without prior notice.
COMPENSATION. Subject to the foregoing limitations, Bank's liability for
loss of interest resulting from its error or delay shall be calculated by
using a rate equal to the average Federal Funds rate at the Federal Reserve
Bank of New York for the period involved.
NOTICES. Except as otherwise expressly provided herein, all notices will be
in writing and will be mailed by first class mail, postage prepaid, or
personally or electronically delivered to the Client at the address
specified on the Spec Sheet and to Bank as follows: The Bank of
California, Wire Transfer Department, P.O. Box 45000, San Francisco,
CA 94145; these addresses may be amended in writing from time to time.
Such notices will be effective upon receipt and, except as otherwise
set forth in the Wire Transfer Agreement, will be deemed to be received
within five days of mailing.
Amendment to Schedule A - Series
of the Custody Contract dated June 24, 1994
between First Pacific Mutual Fund, Inc.
and Union Bank of California, N.A.
(formerly The Bank of California, N.A.
First Hawaii Intermediate Municipal Fund
First Hawaii Municipal Bond Fund
First Idaho Tax-Free Fund
First Pacific Mutual Fund, Inc.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
Date: June 28, 1996
Union Bank of California, N.A.
By: \S\ Mary Fowler
Mary Fowler, Vice President
Date: June 25, 1996
Amendment to Schedule C
of the Custody Contract dated June 24, 1994
between First Pacific Mutual Fund, Inc.
and Union Bank of California, N.A.
(formerly The Bank of California, N.A.)
Part I - Access Persons of the Bank
Mary Fowler
Charles Casillas
Mark Peterson
Audrey Bough
Part II - Authorized Persons of the Fund
Terrence K.H. Lee
Jean M. Chun
Charlotte A. Meyer
Louis F. D'Avanzo
Part III - Directors
First Pacific Mutual Fund, Inc.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
Date: June 28, 1996
Union Bank of California, N.A.
By: \S\ Mary Fowler
Mary Fowler, Vice President
Date: June 25, 1996
First Pacific Mutual Funds, Inc.
Amendment to Schedule C
Dated October 27, 1998
Part I: Access Persons of Union Bank of California, N.A.
Libby Thomas
Mark Peterson
Moon Shil Lee
Annabelle Anonuevo
Phil Clarke
Part II: Authorized Persons of First Pacific Mutual Funds, Inc.
Terrence K.H. Lee
Jean M. Chun
Charlotte A. Meyer
Louis F. D'Avanzo
Part III: Directors
First Pacific Mutual Funds, Inc.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
Date: November 2, 1998
Union Bank of California, N.A.
By: \S\ Moon Shil Lee
Moon Shil Lee, Vice President
Date: November 5, 1998
LAW OFFICES
DRINKER BIDDLE & REATH LLP
PHILADELPHIA NATIONAL BANK BUILDING
1345 CHESTNUT STREET
PHILADELPHIA, PA 19107-3496
TELEPHONE: (215) 988-2700
FAX: (215) 988-2767
December 1, 1998
First Pacific Mutual Fund, Inc.
2756 Woodlawn Drive, #6-201
Honolulu, Hawaii 96822
Re: First Pacific Mutual Fund, Inc.
Gentlemen:
We have acted as counsel for First Pacific Mutual Fund, Inc., a Maryland
corporation (the "Fund"), in connection with the registration by the Fund of
its shares of common stock, par value $.01 per share. The Articles of
Incorporation of the Fund authorize the issuance of one hundred million
(100,000,000) shares of common stock, which are divided into multiple classes.
The Board of Directors of the Fund (the "Board") has previously classified
certain of the shares of common stock and has previously authorized the
issuance of shares of these series to the public. The shares of Common
Stock designated into each such series are referred to herein as the
"Current Series Common Stock"; the shares of Common Stock that are not
designated into series are referred to herein as the "Future Common Stock";
and the Current Series Common Stock and the Future Common Stock are referred
to collectively herein as the "Common Stock". You have asked for our
opinion on certain matters relating to the Common Stock.
We have reviewed the Fund's Articles of Incorporation and By-Laws,
resolutions of the Fund's Board, certificates of public officials and of
the Fund's officers and such other legal and factual matters as we have
deemed appropriate. We have also reviewed the Fund's Registration
Statement on Form N-1A under the Securities Act of 1933 (the "Registration
Statement"), as amended through Post-Effective Amendment No. 13 thereto.
This opinion is based exclusively on the laws of the State of Maryland
and the federal law of the United States of America.
We have also assumed the following for purposes of this opinion:
1. The shares of Current Series Common Stock have been, and will
continue to be, issued in accordance with the Articles of Incorporation and
By-laws of the Fund and resolutions of the Fund's Board and shareholders
relating to the creation, authorization and issuance of the Current Series
Common Stock.
2. Prior to the issuance of any shares of Future Common Stock,
the Board (a) will duly authorize the issuance of such Future Common Stock,
(b) will determine with respect to each class of such Future Common Stock
the preferences, limitations and relative rights applicable thereto and (c)
if such Future Common Stock is classified into separate series, will duly
take the action necessary (i) to create such series and to determine the
number of shares of such series and the relative designations, preferences,
limitations and relative rights thereof ("Future Series Designations") and
(ii) to amend the Fund's Articles of Incorporation to provide for such
additional series.
3. With respect to the shares of Future Common Stock, there will
be compliance with the terms, conditions and restrictions applicable to the
issuance of such shares that are set forth in (i) the Fund's Articles of
Incorporation and By-laws, each as amended as of the date of such issuance,
and (ii) the applicable Future Series Designations.
4. The Board will not change the number of shares of any series
of Common Stock, or the preferences, limitations or relative rights of any
class or series of Common Stock after any shares of such class or series
have been issued.
Based upon the foregoing, we are of the opinion that:
1. The Fund is authorized to issue one hundred million shares of
its Common Stock.
2. The Fund's Board is authorized (i) to create from time to time
one or more additional series of shares of Common Stock, (ii) to determine,
at the time of creation of any such series, the number of shares of such
series and the designations, preferences, limitations and relative rights
thereof and (iii) to amend the Articles of Incorporation to provide for
such additional series.
3. All necessary action by the Fund to authorize the Current
Series Common Stock has been taken, and the Fund has the power to issue
the shares of Current Series Common Stock.
4. The shares of Common Stock will be, when issued in accordance
with, and sold for the consideration described in, the Registration
Statement (provided that (i) the price of such shares is not less than
the par value thereof and (ii) the number of shares of any class or series
issued does not exceed the authorized number of shares for such class or
series as of the date of issuance of the shares), validly issued, fully
paid and non-assessable by the Fund.
We consent to the filing of this opinion with Post-Effective Amendment
No. 13 to the Registration Statement to be filed by the Fund with the
Securities and Exchange Commission.
Very truly yours,
\S\ DRINKER BIDDLE & REATH LLP
DRINKER BIDDLE & REATH LLP
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 6, 1998 on the financial
statements and financial highlights of First Hawaii Municipal Bond Fund,
First Hawaii Intermediate Municipal Fund, and First Idaho Tax-Free Fund,
each a series of shares of First Pacific Mutual Fund, Inc. Such financial
statements and financial highlights appear in the 1998 Annual Report to
Shareholders which are incorporated by reference in the Registration
Statement and Prospectus.
\S\ Tait Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
November 13, 1998
FIRST PACIFIC MUTUAL FUND, INC.
DISTRIBUTION PLAN
WHEREAS, First Pacific Mutual Fund, Inc. (the "Corporation") engages in
business as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "Act").
WHEREAS, First Hawaii Municipal Bond Fund series, First Hawaii
Intermediate Municipal Fund series and First Idaho Tax-Free Fund series
are series of the Corporation operated as open-ended non-diversified
management investment companies and all references to any series of the
Corporation will be called the "Fund" unless expressly noted otherwise.
WHEREAS, each Fund intends to act as a distributor of its shares of
capital stock as defined in Rule 12b-1 under the Act, and the Board of
Directors of the Corporation has determined that there is a reasonable
likelihood that adoption of this Distribution Plan will benefit the Fund
and its shareholders.
NOW THEREFORE, the Corporation hereby adopts this Distribution Plan
for the Fund (the "Plan") in accordance with Rule 12b-1 under the Act and
containing the following terms and conditions:
1. The Fund may finance activities which are primarily intended to
result in the sale of its shares in accordance with this Plan. The expenses
of such activities ("Distribution Expenses") shall not exceed .25 of one
percent (.25%) per annum of the First Hawaii Municipal Bond Fund and
First Hawaii Intermediate Municipal Fund average daily net assets.
The expenses of such activities ("Distribution Expenses") for the First
Idaho Tax-Free Fund shall not exceed .50 of one percent (.50%) per annum of
the fund's average daily net assets.
2. The Distribution Expenses provided for in paragraph 1 of this Plan
may be spent by each Fund on any activities primarily intended to result in
the sale of each Fund's shares, including, but not limited to, compensation
paid to and expenses incurred by officers, directors, employees or
sales representatives of the Fund, or broker-dealers or other third
parties, in consideration of their promotional and distribution services,
which services may include assistance in the servicing of shareholder
accounts produced by third parties, and may include promotional, travel,
entertainment and telephone expenses, the printing of prospectuses, and
reports for other than existing shareholders, preparation and distribution
of sales literature, and advertising of any type.
3. This Plan shall not take affect until it has been approved by
(a) a vote of at least a majority of the outstanding voting securities of
the Fund and (b) a vote of the Board of Directors of the Corporation,
including the affirmative vote of at least a majority of those Directors
who are not "interested persons" ( as defined in the Act) of the Fund and
have no direct or indirect financial interest in the operation of the Plan
or in agreements related to the Plan (the "Rule 12b-1 Directors"), cast in
person at a meeting call for voting on the Plan.
4. Any agreements related to this Plan shall be in writing, the form
thereof must be approved by the Board of Directors (including the
disinterested Directors), and may be terminated at any time in the
manner provided for termination of this Plan in paragraph 7 below.
5. This Plan and agreements hereunder shall continue in effect for so
long as such continuance is specifically approved at least annually in the
manner provided for approval of this Plan in paragraph 3(b).
6. The persons authorized to direct the disposition of Distribution
Expenses paid or payable by the Fund pursuant to this Plan or any related
agreement shall be the President of the Corporation or his designee. The
President shall provide to the Corporation's Directors, and the Directors
shall review at least quarterly, a written report of the Distribution
Expenses so expended and the purposes for which such expenditures were made.
7. This Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Directors, or by vote of a majority of the outstanding voting
securities of each Fund.
8. This Plan may not be amended to increase materially the limit upon
Distribution Expenses provided in paragraph 1 or to change materially the
nature of such Distribution Expenses provided in paragraph 2 hereof unless
such amendment is approved in the manner provided for in paragraph 3 hereof.
9. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the
Fund shall be committed to the discretion of the Directors who are not
interested persons.
10. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 6 hereof, for a
period of not less than six (6) years from the date of this Plan, or the
agreements or of such reports, as the case may be, the first two (2) years
in an easily accessible place.
11. It is the opinion of the Corporation's Directors and Officers
that the following are not expenses primarily intended to result in the
sale of shares issued by the Fund: as to the First Hawaii Municipal Bond
Fund and First Hawaii Intermediate Municipal Fund, fees and expenses of
registering each Fund as a broker-dealer or of registering an agent of
each Fund under federal or state laws regulating the sale of securities,
provided that no sales commission or "load" is charged on sales of shares
of each Fund; and fees and expenses of preparing and setting in type the
Fund's registration statement under the Securities Act of 1933. Should
such expenses be deemed by a court or agency having jurisdiction to be
expenses primarily intended to result in the sale of shares issued
by each Fund, they shall be considered to be expenses contemplated by
and included in this Distribution Plan, but not subject to the limitation
prescribed in paragraph 1 hereof.
IN WITNESS WHEREOF, the Corporation has executed this Distribution
Plan on behalf of the Fund on the day and year set forth below.
FIRST PACIFIC MUTUAL FUND, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
Attest: \S\ Jean Chun
Jean Chun, Secretary
Date: January 29, 1996
AMENDMENT TO DISTRIBUTION PLAN
Dated February 1, 1999
The following Sections of the Distribution Plan are Amended as follows:
Section 1. The Fund may finance activities which are primarily intended
to result in the sale of its shares in accordance with this Plan. The
expenses of such activities ("Distribution Expenses") shall not exceed
.25 of one percent (.25%) per annum of the First Hawaii Municipal Bond Fund,
First Hawaii Intermediate Municipal Fund and First Idaho Tax-Free Fund.
Section 11. It is the opinion of the Corporation's Directors and Officers
that the following are not expenses primarily intended to result in the sale
of shares issued by the Fund: as to the First Hawaii Municipal Bond Fund,
First Hawaii Intermediate Municipal Fund and First Idaho Tax-Free Fund,
fees and expenses of registering each Fund as a broker-dealer or of
registering an agent of each Fund under federal or state laws regulating
the sale of securities, provided that no sales commission or "load" is
charged on sales of shares of each Fund; and fees and expenses of
preparing and setting in type the Fund's registration statement under
the Securities Act of 1933. Should such expenses be deemed by a court
or agency having jurisdiction to be expenses primarily intended to result
in the sale of shares issued by each Fund, they shall be considered to be
expenses contemplated by and included in this Distribution Plan, but not
subject to the limitation prescribed in paragraph 1 hereof.
FIRST PACIFIC MUTUAL FUND, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
By: \S\ Jean M. Chun
Jean M. Chun, Secretary
Date:_______________________________
TRANSFER AGENT and DIVIDEND DISBURSING AGENT AGREEMENT
This Agreement, dated as of the 16th day of March 1994, amended
January 29, 1996, made by and between First Pacific Mutual Fund, Inc.
(the "Fund"), a corporation operating as an open-end management investment
company, duly organized and existing under the laws of the State of
Maryland and First Pacific Recordkeeping, Inc. (the "Company"), a
corporation duly organized and existing under the laws of the State of Hawaii.
WITNESSETH THAT:
WHEREAS, the Fund consists of a series of Funds, at present namely:
First Hawaii Municipal Bond Fund, First Hawaii Intermediate Municipal Fund
and First Idaho Tax-Free Fund.
WHEREAS, the Fund desires to appoint the company as its Transfer,
Redemption and Dividend Disbursing Agent as set forth in this Agreement and
to perform certain other functions in connection with these duties; and
WHEREAS, the Company is willing to perform such functions upon the
terms and conditions set forth below; and
WHEREAS, the Fund will cause to be provided certain information to the
Company as set forth below.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto, intending to be legally bound, do
hereby agree as follows:
Section 1. The terms as defined in this Section wherever used in
this Agreement, or in any amendment or supplement hereto, shall have the
meanings herein specified unless the context otherwise requires.
The Fund: The term Fund shall mean any series issued by the authority
of the Board of Directors.
Share Certificates: The term Share Certificates shall mean the share
certificates for the Shares of the Fund.
Shareholders: The term Shareholders shall mean the registered owners
from time to time of the Shares of the Fund in accordance with the share
registry records of the Fund.
Shares: The term Shares shall mean the issued and outstanding shares
of the Fund.
Oral Instruction: The term Oral Instruction shall mean an authorization,
instruction approval, item or set of data, or information of any kind
transmitted to the Company in person or by telegram, telecopy or other
mechanical or documentary means lacking original signature, by a person or
persons believed in good faith by the Company to be a person or persons
authorized by a resolution of the Board of Directors of the Fund to give
Oral Instructions on behalf of the Fund.
Written Instruction: The term Written Instruction shall mean an
authorization, instruction, approval, item or set of data or information of
any kind transmitted to the Company in original writing containing original
signatures or a copy of such document transmitted by telecopy including
transmission of such signature believed in good faith by the Company to be
the signature of a person authorized by a resolution of the Board of
Directors of the Fund to give Written Instructions on behalf of the Fund.
Section 2. The Fund shall furnish to the Company as Transfer Agent a
sufficient supply of blank Share Certificates and from time to time will renew
such supply upon the request of the Company. Such blank Share Certificates
shall be signed, manually or by facsimile, signatures of officers of the
Fund authorized by law or the by-laws of the Fund to sign Share Certificates
and, if required, shall bear the corporate seal or a facsimile thereof.
Section 3. The Company as Transfer Agent, shall make original issues
of Shares in accordance with Sections 13 and 14 below and with the Fund's
Prospectus upon the written request of the Fund and upon being furnished
with (i) a certified copy of a resolution or resolutions of the Board of
Directors of the Fund authorizing such issue; (ii) an opinion of counsel
as to the validity of such additional Shares; and (iii) necessary funds for
the payment of any original issue tax applicable to such additional Shares.
Section 4. Transfers of Shares shall be registered and new Share
Certificates issued by the Company upon surrender of outstanding Share
Certificates (i) in form deemed by the Company to be properly endorsed for
transfer, (ii) with all necessary endorsers' signatures guaranteed by a
member firm of a national securities exchange or a commercial bank,
accompanied by (iii) such assurances as the Company shall deem necessary or
appropriate to evidence the genuineness and effectiveness of each necessary
endorsement, and (iv) satisfactory evidence of compliance with all
applicable laws relating to the payment or collection of taxes.
Section 5. When mail is used for delivery of Share Certificates,
the Company shall forward Share Certificates in "non-negotiable" form by
registered mail, all mail deliveries to be covered while in transit to the
addressee by insurance arranged for by the Company.
Section 6. In registering transfers, the Company as Transfer Agent
may rely upon the Uniform Commercial Code or any statues which in the
opinion of counsel protect the Company and the Fund in not requiring
complete documentation, in registering transfer without inquiry into
adverse claims, in delaying registration for purposes of such inquiry,
or in refusing registration where in its judgement an adverse claim requires
such refusal.
Section 7. The Company as Transfer Agent may issue new Share
Certificates in place of Share Certificates represented to have been lost,
destroyed or stolen, upon receiving indemnity satisfactory to the Company
and may issue new Share Certificates in exchange for and upon surrender of
mutilated Share Certificates.
Section 8. In case any officer of the Fund who shall have signed
manually or whose facsimile signature shall have been affixed to blank
Share Certificates shall die, resign or be removed prior to the issuance
of such Share Certificates, the Company as Transfer Agent may issue or
register such Share Certificates as the Share Certificates of the Fund
notwithstanding such death, resignation or removal; and the Fund shall
file promptly with the Company such approval, adoption or certification
as may be required by law.
Section 9. The Company will maintain stock registry records in the
usual form in which it will note the issuance, transfer and redemption of
Shares and the issuance and transfer of Share Certificates, and is also
authorized to maintain an account entitled Unissued Certificate Account in
which it will record the Shares and fractions issued and outstanding from
time to time for which issuance of Share Certificates is deferred. The
Fund is responsible to provide the Company reports of Fund Share purchases,
redemptions and total Shares outstanding on the next business day after
each net asset valuation. The Company is authorized to keep records,
which will be part of the stock transfer records, in which it will note
the names and registered address of Shareholders and the number of Shares
and fraction from time to time owned by them for which no Share Certificates
are outstanding. Each shareholder will be assigned a single account number
even though Shares for which Certificates have been issued will be accounted
for separately.
Section 10. The Company will issue Share Certificates for Shares of
the Fund, only upon receipt of a written request from a Shareholder. In
all other cases, the Fund authorizes the Company to dispense with the
issuance and countersignature of Share Certificates whenever Shares are
purchased. In such case the Company as Transfer Agent, shall merely,
note on its stock registry records the issuance of the Shares and fractions
(if any), shall credit the Unissued Certificate Account with the Shares and
fractions issued and shall credit the proper number of Shares and
fractions to the respective Shareholders. Likewise, whenever the Company
has occasion to surrender for redemption Shares and fractions owned by
Shareholders, it shall be unnecessary to issue Share Certificates for
redemption purposes. The Fund authorizes the Company in such cases to
process the transactions by appropriate entries in its share transfer
records, and debiting of the Unissued Certificate Account and the record
of issued Shares outstanding.
Section 11. The Company in its capacity as Transfer Agent will, in
addition to the duties and functions above-mentioned, perform the usual
duties and functions of a Stock Transfer Agent for a corporation. It will
countersign for issuance or reissuance Share Certificates representing
original issue or reissued treasury Shares as directed by the Written
Instructions of the Fund and will transfer Share Certificates registered
in the name of Shareholders from one Shareholder to another in the usual
manner. The Company may rely conclusively and act without further
investigation upon any list, instruction, certification, authorization,
Share Certificate or other instrument or paper believed by it in good
faith to be genuine and unaltered, and to have been signed, countersigned
or executed by a duly authorized person or persons, or upon the instructions
of any officer of the Fund, or upon the advice of counsel for the Fund or
for the Company. The Company may record any transfer of Share Certificates
which is believed by it in good faith to have been duly authorized or
may refuse to record any transfer of Share Certificates if in good faith
the Company in its capacity as Transfer Agent deems such refusal necessary
in order to avoid any liability either to the Fund or to the Company. The
Fund agrees to indemnify and hold harmless the Company from and against
any and all losses, costs, claims, and liability which it may suffer or
incur by reason of so relying or acting or refusing to act.
Section 12. In case of any request or demand for the inspection of
the share records of the Fund, the Company as Transfer Agent, shall endeavor
to notify the Fund and to secure instructions as to permitting or refusing
such inspections. However, the Company may exhibit such records to
any person in any case where it is advised by its counsel that it may be
held liable for failure to do so.
ISSUANCE OF SHARES
Section 13. Prior to the daily determination of net asset value in
accordance with the Fund's Prospectus, the Company shall process all
purchase orders received since the last determination of the Fund's net
asset value.
The Company shall calculate daily the amount available for investment in
Shares at the net asset value determined by the Company as pricing agent
(see Accounting Services Agreement) as of the close of trading on the New
York Stock Exchange, the number of Shares and fractional Shares to be
purchased and the net asset value to be deposited with the Custodian.
The Company as agent for the Shareholders, shall place a purchase order
daily with the Fund for the proper number of Shares and fractional Shares
to be purchased and confirm such number to the Fund in writing.
Section 14. The Company having made the calculations provided for in
Section 13, shall thereupon pay over the net asset value of Shares purchased
to the Custodian. The proper number of Shares and fractional Shares shall
then be issued daily and credited by the Company to the Unissued Certificate
Account. The shares and fractional Shares purchased for each Shareholder
will be credited by the Company to his separate Account. The Company shall
mail to each Shareholder a confirmation of each purchase with copies to the
Fund if requested. Such confirmations will show the prior Share balance,
the new Share balance, the Shares for which Stock Certificates are
outstanding (if any) the amount invested and the price paid for the newly
purchased Shares.
REDEMPTIONS
Section 15. The Company shall, prior to the daily determination of
net asset value in accordance with the Fund's Prospectus, process all
requests from Shareholders to redeem Shares and determine the number of
Shares required to be redeemed to make monthly payments, automatic payments
or the like. Thereupon, the Company shall advise the Fund of the total
number of Shares available for redemption and the number of Shares and
fractional Shares requested to be redeemed. The Company as Pricing Agent
shall then determine the applicable net asset value, whereupon the
Company shall furnish the Fund with an appropriate confirmation of the
redemption and process the redemption by filing with the Custodian an
appropriate statement and making the proper distribution and application
of the redemption proceeds in accordance with the Fund's Prospectus. The
stock registry books recording outstanding Shares, the Unissued Certificate
Account and the individual account of the Shareholder or Planholder shall be
properly debited.
Section 16. The proceeds of redemption shall be remitted by the
Company in accordance with the Fund's Prospectus by check mailed to the
Shareholder at his registered address. If Share Certificates have been
issued for Shares being redeemed, then such Share Certificates and a stock
power with a signature guarantee of a commercial bank or a member of a
national securities exchange shall accompany the redemption request.
If share Certificates have not been issued to the redeeming Shareholder,
the Shareholder may redeem shares by mailing a written redemption request in
proper form to the Transfer Agent or by establishing telephone redemption
privileges. The written 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 Shareholder or address of
record, signature(s) must be guaranteed by an acceptable financial
institution. From time to time, the Transfer Agent, in its discretion may
waive any or certain of the foregoing requirements in particular cases.
Investors who have previously established the telephone redemption privilege
may redeem Shares by calling the Transfer Agent at (808) 988-8088 before
4:00 pm 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
institution unless the Authorization is completed at the time an account
is originally established. If the telephone redemption request is $50,000
or more, a written redemption request must be completed as noted above.
For the purposes of redemption of Shares which have been purchased
within fifteen (15) days of a redemption request, the Fund shall provide
the Company, from time to time, with Written Instructions concerning the
time within which such requests may be honored.
Section 17. In lieu of the Company receiving a properly executed
signature guarantee from a commercial bank or trust company, or a member
firm of a national securities exchange, or the National Association of
Securities Dealers, the Fund agrees to indemnify and hold harmless the
Company from and against any and all losses, costs, claims and liability
by acting upon a shareholder(s) signature for redemption.
DIVIDENDS
Section 18. Upon the declaration of each dividend and each capital
gain distribution by the Board of Directors of the Fund, the Fund shall
notify the Company of the date of such declaration, the amount payable per
share, the record date for determining the Shareholders entitled to payment,
the payment and the reinvestment date price.
Section 19. On or before each payment date, the Fund will transfer,
or cause the Custodian to transfer, to the Company in its capacity as
Dividend Disbursing Agent, the total amount of the dividend or distribution
currently payable. The Company will, on the designated payment date,
automatically reinvest all dividends in additional shares, except in cases
where Shareholders have elected to receive distributions in cash, in which
case the Company will mail distribution checks to the Shareholders for the
proper amounts payable to them.
GENERAL PROVISIONS
Section 20. The Company shall maintain records (which may be part
of the stock transfer records) in connection with the issuance and
redemption of Shares, and the disbursement of dividends and dividend
reinvestment, in which will be noted the transactions effected for each
Shareholder and the number of Shares and fractional Shares owned by each
for which no Share Certificates are outstanding. The Company agrees to
make available upon request and to preserve for the periods prescribed in
Rule 31a-2 any records relating to services provided under this Agreement
which are required to be maintained by Rule 31a-1.
Section 21. In addition to the services as Transfer Agent and
Dividend Disbursing Agent as above set forth, the Company will perform
other services for the Fund as agreed from time to time including but
not limited to, preparation of and mailing Federal Tax Information Forms,
mailing semi-annual reports of the Fund, preparation of one annual list of
Shareholders, and mailing notices of Shareholders' meetings, proxies and
proxy statements.
Section 22. Nothing contained in this Agreement is intended to or
shall require the Company in any capacity hereunder, to perform any
functions or duties on any holiday, day of special observance or any
other day on which the Custodian or the New York Stock Exchange are
closed. Functions or duties normally scheduled to be performed on
such days shall be performed on, and as of, the next business day on which
both the New York Stock Exchange and Custodian are open.
Section 23. The Fund agrees to pay the Company compensation for
its services and to reimburse it for expenses, as set forth in Schedule A
attached hereto or as shall be set forth in amendments to such Schedule the
Fund authorizes the Company to debit the Fund's custody account for invoices
which are rendered for the services performed for the applicable function.
The invoices for the service will be sent to the Fund after the debiting
with the indication that payment has been made.
Section 24. (a) The Company, its directors, officers, employees,
Shareholders and agents shall not be liable for any error of judgement or
mistake of law or for any loss suffered by the Fund in connection with the
performance of this Agreement, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Company
in the performance of its obligations and duties under this Agreement.
(b) Any person, even though also a director, officer,
employee, Shareholder or agent of the Company, who may be or become an
officer, trustee, employee or agent of the Fund, shall be deemed, when
rendering services to the Fund or acting on any business of the Fund
(other than services or business in connection with the Company's duties
hereunder), to be rendering such services to or acting solely for the Fund
and not as a director, officer, employee, Shareholder or agent of, or one
under the control or direction of the Company, even though paid by it.
(c) Notwithstanding any other provision of this Agreement,
the Fund shall indemnify and hold harmless the Company, its directors,
officers, employees, Shareholders and agents from and against any and all
claims, demands, expenses and liabilities (whether with or without basis in
fact or law) of any and every nature which the Company may sustain or
incur or which may be asserted against the Company by any person by reason
of, or as a result of: (i) any action taken or omitted to be taken by the
Company in good faith hereunder; (ii) in reliance upon any certificate,
instrument, order or stock certificate or other document reasonably believed
by it to be genuine and to be signed, countersigned or executed by any duly
authorized person upon the Oral Instructions or Written Instructions of an
authorized person of the Fund or upon the opinion of legal counsel for the
Fund or its own counsel; or (iii) any action taken or omitted to be taken
by the Company in connection with its appointment in good faith in reliance
upon any law, act, regulation or interpretation of the same even though the
same may thereafter have been altered, changed, amended or repealed.
However, indemnification under this subparagraph shall not apply to actions
or omissions of the Company or its directors, officers, employees,
shareholders or agents in cases of its or their own negligence, willful
misconduct, bad faith or reckless disregard of its or their own duties
hereunder.
(d) The Company shall give written notice to the Fund within
twenty (20) business days of receipt by the Company of a written assertion
or claim of any threatened or pending legal proceeding which may be subject
to this indemnification. However, the failure to notify the Fund of such
written assertion or claim shall not operate in any manner whatsoever to
relieve the Fund of any liability arising from this Section or otherwise.
(e) For any legal proceeding giving rise to this
indemnification, the Fund shall be entitled to defend or prosecute any
claim in the name of the Company at its own expense and through counsel of
its own choosing if it gives written notice to the Company within twenty (20)
business days of receiving notice of such claim. Notwithstanding the
foregoing, the Company may participate in the litigation at its own expense
through counsel of its own choosing. If the Fund does choose to defend or
prosecute such claim, then the parties shall cooperate in the defense of
prosecution thereof and shall furnish such records and other information
as are reasonably necessary.
(f) The Fund shall not settle any claim without the
Company's express written consent which shall not be unreasonably withheld.
The Company shall not settle any claim without the Fund's express written
consent which shall not be unreasonably withheld.
Section 25. The Company is authorized upon receipt of Written
Instructions from the Fund, to make payment upon redemption of Shares
without a signature guarantee. The Fund hereby agrees to indemnify and hold
the Company, its successors and assigns, harmless of and from any and
all expenses, damages, claims, suits, liabilities, actions, demands, or
losses whatsoever arising out of or in connection with a payment by the
Company upon redemption of Shares without a signature guarantee and upon
the request of the Company the Fund shall assume the entire defense of any
action, suit or claim subject to the foregoing indemnity. The Company shall
notify the Fund of any such action, suit or claim within thirty (30) days
after receipt by the Company of notice thereof.
Section 26. The Fund shall file with the Company a certified copy of
each resolution of its Board of Directors authorizing the execution of
Written Instructions or the transmittal of Oral Instructions, as provided in
Section 1 of this Agreement.
Section 27. This Agreement may be amended from time to time by a
supplemental agreement executed by the Fund and the Company.
Section 28. The Fund or the Company may give written notice to the
other of the termination of this Agreement, such termination to take effect
at the time specified in the notice, not less than one hundred and twenty
(120) days after the giving of the notice. Upon the effective termination
date, subject to payment to the Company by the Fund of all amounts due to
the Company as of said date, the Company shall make available to the Fund
or its designated recordkeeping successor, all of the records of the Fund
maintained under this Agreement then in the Company's possession.
Section 29. Any notice or other communication required by or
permitted to be given in connection with this Agreement shall be in writing,
and shall be delivered in person or sent by first class mail, postage
prepaid to the respective parties as follows:
If to the Fund:
First Pacific Mutual Fund, Inc.
2756 Woodlawn Drive, Suite #6-201
Honolulu, HI 96822
Attention: Terrence K.H. Lee
If to the Company:
First Pacific Recordkeeping, Inc.
2756 Woodlawn Drive, Suite #6-201
Honolulu, HI 96822
Attention: Charlotte Meyer
Section 30. The Fund represents and warrants to the Company that the
execution and delivery of this Transfer Agency Agreement by the undersigned
officers of the Fund has been duly and validly authorized by resolution of
the Board of Directors of the Fund.
Section 31. This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original but such
counterparts shall together constitute but one and the same instrument.
Section 32. This Agreement shall extend to and shall be binding upon
the parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Fund without the
written consent of the Company or by the Company without the written consent
of the Fund authorized or approved by a resolution of its Board of Directors.
Section 33. This Agreement shall be governed by the laws of the State
of Hawaii.
SCHEDULE A
FIRST HAWAII MUNICIPAL BOND FUND
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
FIRST IDAHO TAX-FREE FUND
Transfer Agent and Dividend Disbursing Agent
$16.50 per Shareholder account, annually (1/12th payable monthly).
Minimum monthly fee of $1,200.00
Services
1.) Opening new accounts and entering demographic data into shareholder
base.
2.) 100% quality control of new accounts opened.
3.) Processing all investments.
4.) Processing Tax ID certifications and handling backup withholding.
5.) Issuing and cancelling certificates.
6.) Replacing lost certificates.
7.) Processing partial and complete redemptions and systematic
withdrawal plans.
8.) Regular and legal transfers of accounts.
9.) Processing daily dividends.
10.) Preparation of monthly statements to shareholders.
11.) Blue Sky reports. This indicates shares sold to investors in
various states. There is also a "warning system" that informs
the Fund when it is within a certain percentage of the
shares registered in the state, or within a certain time period
when the registration statement is up for renewal.
12.) Maintaining shareholder records of certificate and whole and
fractional unissued shares.
13.) Changing shareholders' addresses, dividend status, etc.
14.) Daily or periodic reports on number of shares, accounts, etc.
15.) Addressing and tabulating annual proxy cards.
16.) Supplying an annual stockholder list.
17.) Preparation of federal tax information forms to include 1099's,
1099B, 1042's etc. to shareholders and the IRS.
Optional Services
There are also optional services available. Fees and descriptions for
any of these services will be provided upon request.
In addition, all out-of-pocket expenses shall be separately charged; i.e.:
expenses such as postage, stationary, retention of records, mailing,
insurance, conversion, etc. and expenses in the development of Agreements
between the Company and First Pacific Recordkeeping, Inc.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers and their corporate seals hereunto
duly affixed and attested, as of the day and year above written.
FIRST PACIFIC MUTUAL FUND, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
Attest: \S\ Jean Chun
Jean Chun, Secretary
FIRST PACIFIC RECORDKEEPING, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
Attest: \S\ Jean Chun
Jean Chun, Secretary
AMENDMENT TO TRANSFER AGENT and DIVIDEND
DISBURSING AGENT AGREEMENT
Dated October 15, 1998
The following Sections of the Transfer Agent and Dividend Disbursing
Agent Agreement dated March 16, 1994 are Amended as follows:
Section 13. Prior to the daily determination of net asset value in
accordance with the Fund's Prospectus, the Company shall process all
purchase orders received since the last determination of the Fund's net
asset value.
The Company shall calculate daily the amount available for investment in
Shares at the net asset value determined by the Pricing Agent (see Accounting
Services Agreement) as of the close of trading on the New York Stock Exchange,
the number of Shares and fractional Shares to be purchased and the net asset
value to be deposited with the Custodian. The Company as agent for the
Shareholders, shall place a purchase order daily with the Fund for the
proper number of Shares and fractional Shares to be purchased and confirm
such number to the Fund in writing.
Section 15. The Company shall, prior to the daily determination of net
asset value in accordance with the Fund's Prospectus, process all requests
from Shareholders to redeem Shares and determine the number of Shares
required to be redeemed to make monthly payments, automatic payments or
the like. Thereupon, the Company shall advise the Fund of the total
number of Shares available for redemption and the number of Shares and
fractional Shares requested to be redeemed. The Pricing Agent shall then
determine the applicable net asset value, whereupon the Company shall
furnish the Fund with an appropriate confirmation of the redemption and
process the redemption by filing with the Custodian an appropriate statement
and making the proper distribution and application of the redemption
proceeds in accordance with the Fund's Prospectus. The stock registry
books recording outstanding Shares, the Unissued Certificate Account and
the individual account of the Shareholder or Planholder shall be properly
debited.
SCHEDULE A AMENDMENT - Effective November 1, 1998
FIRST HAWAII MUNICIPAL BOND FUND
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
FIRST IDAHO TAX-FREE FUND
Transfer Agent and Dividend Disbursing Agent
For the services provided and the expenses assumed pursuant to this
Agreement, each Fund will pay to the Transfer Agent as full compensation,
a fee at an annualized rate of .06% of each Fund's average daily net assets.
This fee will be computed daily as of the close of business and will be paid
to the Transfer Agent monthly within ten (10) business days after the last
day of each month. The fee shall be prorated for any fraction of a month
at the commencement or termination of this Agreement.
Services
1.) Opening new accounts and entering demographic data into
shareholder base.
2.) 100% quality control of new accounts opened.
3.) Processing all investments.
4.) Processing Tax ID certifications and handling backup withholding.
5.) Issuing and cancelling certificates.
6.) Replacing lost certificates.
7.) Processing partial and complete redemptions and systematic
withdrawal plans.
8.) Regular and legal transfers of accounts.
9.) Processing daily dividends.
10.) Preparation, processing, printing and mailing of monthly statements
to shareholders.
11.) Preparation, processing, printing, mailing, filing and reconciling
of monthly checks to shareholders.
12.) Blue Sky reports. This indicates shares sold to investors in
various states.
13.) Maintaining shareholder records of certificate and whole and
fractional unissued shares.
14.) Changing shareholders' addresses, dividend status, etc.
15.) Mailing semi-annual reports.
16.) Daily or periodic reports on number of shares, accounts, etc.
17.) Addressing and tabulating annual proxy cards.
18.) Supplying an annual stockholder list.
19.) Preparation of federal tax information forms to include 1099's,
1099B, 1042's etc. to shareholders and the IRS.
20.) Liaison to the Custodian Bank for disbursing dividends, settling
purchases and redemptions.
Optional Services
There are also optional services available. Fees and descriptions for
any of these services will be provided upon request.
In addition, all out-of-pocket expenses shall be separately charged;
i.e.: expenses such as postage, stationary, retention of records, mailing,
insurance, conversion, etc. and expenses in the development of Agreements
between the Company and First Pacific Recordkeeping, Inc.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers and their corporate seals hereunto
duly affixed and attested, as of the day and year above written.
FIRST PACIFIC MUTUAL FUND, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
Attest: \S\ Jean Chun
Jean Chun, Secretary
FIRST PACIFIC RECORDKEEPING, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
Attest: \S\ Jean Chun
Jean Chun, Secretary
AMENDMENT TO TRANSFER AGENT and DIVIDEND
DISBURSING AGENT AGREEMENT
Dated February 1, 1999
The following Sections of the Transfer Agent and Dividend Disbursing
Agent Agreement dated March 16, 1994 are Amended as follows:
In accordance with Section 28, First Idaho Tax-Free Fund has
terminated any and all affiliations with this Transfer Agent and Dividend
Disbursing Agent Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized officers and their corporate
seals hereunto duly affixed and attested, as of the day and year above written.
FIRST PACIFIC MUTUAL FUND, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
Attest: \S\ Jean Chun
Jean Chun, Secretary
FIRST PACIFIC RECORDKEEPING, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
Attest: \S\ Jean Chun
Jean Chun, Secretary
TRANSFER AGENCY AND SERVICE AGREEMENT
between
FIRST IDAHO TAX-FREE FUND
and
AMERICAN DATA SERVICES, INC.
INDEX
1. TERMS OF APPOINTMENT; DUTIES OF ADS.....................................3
2. FEES AND EXPENSES.......................................................4
3. REPRESENTATIONS AND WARRANTIES OF ADS...................................4
4. REPRESENTATIONS AND WARRANTIES OF THE FUND..............................5
5. INDEMNIFICATION ........................................................5
6. COVENANTS OF THE FUND AND ADS...........................................7
7. TERMINATION OF AGREEMENT................................................7
8. ASSIGNMENT..............................................................7
9. AMENDMENT...............................................................8
10. NEW YORK LAWS TO APPLY.................................................8
11. MERGER OF AGREEMENT....................................................8
12. NOTICES ...............................................................8
SCHEDULE A.................................................................12
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made the 1ST day of February 1999, by and between First Idaho
Tax-Free Fund, a Maryland Corporation, having its principal office and place
of business at 2756 Woodlawn Drive, Suite #6-201, Honolulu, HI 96822 (the
"Fund"), and American Data Services, Inc., a New York corporation having its
principal office and place of business at the Hauppauge Corporate Center,
150 Motor Parkway, Suite 109, Hauppauge, New York 11788 ("ADS").
WHEREAS, the Fund desires to appoint ADS as its transfer agent, dividend
disbursing agent and agent in connection with certain other activities, and
ADS desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. TERMS OF APPOINTMENT; DUTIES OF ADS
1.01 Subject to the terms and conditions set forth in this agreement, the
Fund hereby employs and appoints ADS to act as, and ADS agrees to act as
its transfer agent for the Fund's authorized and issued shares of its common
stock, ("Shares"), dividend disbursing agent and agent in connection with any
accumulation, open-account or similar plans provided to the shareholders of
the fund ("Shareholders") set out in the currently effective prospectus and
statement of additional information ("prospectus") of the Fund.
1.02 ADS agrees that it will perform the following services:
(a) In accordance with procedures established from time to
time by agreement between the Fund and ADS, ADS shall:
Receive for acceptance, orders for the purchase of Shares, and promptly
deliver payment and appropriate documentation therefore to the Custodian of
the Fund authorized by the Board of Directors of the Fund (the "Custodian");
Pursuant to purchase orders, issue the appropriate number of Shares and hold
such Shares in the appropriate Shareholder account;
Receive for acceptance redemption requests and redemption directions and
deliver the appropriate documentation therefore to the Custodian;
At the appropriate time as and when it receives monies paid to it by the
Custodian with respect to any redemption, pay over or cause to be paid over
in the appropriate manner such monies as instructed by the redeeming
Shareholders;
Effect transfers of Shares by the registered owners thereof upon receipt of
appropriate instructions;
Prepare and transmit payments for dividends and distributions declared by the
Fund;
Maintain records of account for and advise the Fund and its Shareholders as
to the foregoing; and
Record the issuance of shares of the Fund and maintain pursuant to SEC Rule
17Ad-10(e) a record of the total number of shares of the Fund which are
authorized, based upon data provided to it by the Fund, and issued and
outstanding. ADS shall also provide the Fund on a regular basis with the
total number of shares which are authorized and issued and outstanding and
shall have no obligation, when recording the issuance of shares, to monitor
the issuance of such shares or to take cognizance of any laws relating to
the issue or sale of such shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in the above
paragraph (a), ADS shall:
Perform all of the customary services of a transfer agent, dividend disbursing
agent, including but not limited to: maintaining all Shareholder accounts,
preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099 and
other appropriate forms required with respect to dividends and distributions
by federal authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for all
purchases redemption s of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information and (ii)
provide a system and reports which will enable the Fund to monitor the
total number of Shares sold in each State.
In addition, the Fund shall (i) identify to ADS in writing those transactions
and shares to be treated as exempt from blue sky reporting for each State
and (ii) verify the establishment of such transactions for each state on the
system prior to activation and thereafter monitor the daily activity for
each State as provided by ADS. The responsibility of ADS for the Fund's
blue sky State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by the
Fund and the reporting of such transactions to the Fund as provided above.
Procedures applicable to certain of these services may be established from
time to time by agreement between the Fund and ADS.
2. FEES AND EXPENSES
2.01 For performance by ADS pursuant to this Agreement, the Fund agrees to
pay ADS an annual maintenance fee for each Shareholder account and
transaction fees for each portfolio or class of shares serviced under this
Agreement (See Schedule A). Such fees and out-of pocket expenses and
advances identified under Section 2.02 below may be changed from time to
time subject to mutual written agreement between the Fund and ADS.
2.02 In addition to the fee paid under Section 2.01 above, the Fund agrees
to reimburse ADS for out-of-pocket expenses or advances incurred by ADS for
the items set out in the fee schedule attached hereto. In addition, any
other expenses incurred by ADS at the request or with the consent of the
Fund, will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses within five
days following the receipt of the respective billing notice. Postage for
mailing of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to ADS by the Fund at least seven
(7) days prior to the mailing date of such materials.
3. REPRESENTATIONS AND WARRANTIES OF ADS
ADS represents and warrants to the Fund that:
3.01 It is empowered under applicable laws and by its charter and by-laws
to enter into and perform this Agreement.
3.02 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.03 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
3.04 ADS is duly registered as a transfer agent under the Securities Act of
1934 and shall continue to be registered throughout the remainder of this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to ADS that;
4.01 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws / Declaration of Trust to enter into and perform
this Agreement.
4.02 All proceedings required by said Articles of Incorporation and By-Laws
/ Declaration of Trust have been taken to authorize it to enter into and
perform this Agreement.
4.03 It is an open-end management investment company registered under the
Investment Company Act of 1940.
4.04 A registration statement under the Securities Act of 1933 is currently
or will become effective and will remain effective, and appropriate state
securities law filings as required, have been or will be made and will
continue to be made, with respect to all Shares of the Fund being offered
for sale.
5. INDEMNIFICATION
5.01 ADS shall not be responsible for, and the Fund shall indemnify and
hold ADS harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of ADS or its agents or subcontractors required to be taken
pursuant to this Agreement, provided that such actions are taken in good
faith and without gross negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack good faith, gross
negligence or willful misconduct or which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by ADS or its agents or subcontractors of
information, records and documents which (i) are received by ADS or its
agents or subcontractors and furnished to it by or on behalf of the
Fund, and (ii) have been prepared and/or maintained by the Fund or any
other person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by ADS or its agents or
subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or regulations
of any state that such Shares be registered in such state or in violation of
any stop order or other determination or ruling by any federal agency or any
state with respect to the offer or sale of such Shares in such state.
5.02 ADS shall indemnify and hold the Fund harmless from and against any
and all losses, damages, costs, charges, counsel fees, payments, expenses
and liability arising out of or attributable to any action or failure or
omission to act by ADS as a result of ADS's lack of good faith, gross
negligence or willful misconduct.
5.03 At any time ADS may apply to any officer of the Fund for instructions,
and may consult with legal counsel with respect to any matter arising in
connection with the services to be performed by ADS under this Agreement,
and ADS and its agents or subcontractors shall not be liable and shall be
indemnified by the Fund for any action taken or omitted by it in reliance
upon such instructions or upon the opinion of such counsel. ADS, its agents
and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably believed
to be genuine and to have been signed by the proper person or persons, or
upon any instruction, information, data, records or documents provided ADS
or its agents or subcontractors by machine readable input, telex, CRT data
entry or other similar means authorized by the Fund, and shall not be held
to have notice of any change of authority of any person, until receipt of
written notice thereof from the Fund. ADS, its agents and subcontractors
shall also be protected and indemnified in recognizing stock certificates
which are reasonably believed to bear the proper manual or facsimile
signatures of the officers of the Fund, and the proper countersignature
of any former transfer agent or registrar, or of a co-transfer agent or
co-registrar.
5.04 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform
or otherwise from such causes.
5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any
act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this Article
5 shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party of seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The
party who may be required to indemnify shall have the option to participate
with the party seeking indemnification the defense of such claim. The party
seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify
it except with the other party's prior written consent.
6. COVENANTS OF THE FUND AND ADS
6.01 The Fund shall promptly furnish to ADS a certified copy of the
resolution of the Board of Directors of the Fund authorizing the appointment
of ADS and the execution and delivery of this Agreement.
6.02 ADS hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates,
check forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms and
devices.
6.03 ADS shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, ADS agrees that all such records prepared or
maintained by ADS relating to the services to be performed by ADS hereunder
are the property of the Fund and will be preserved, maintained and made
available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
6.04 ADS and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed
to any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, ADS will endeavor to notify the Fund and to secure
instructions from an authorized officer of the Fund as to such inspection.
ADS reserves the right, however, to exhibit the Shareholder records to any
person whenever it is advised by its counsel that it may be held liable for
the failure to exhibit the Shareholder records to such person, and shall
promptly notify the Fund of any unusual request to inspect or copy the
shareholder records of the Fund or the receipt of any other unusual request
to inspect, copy or produce the records of the Fund.
7. TERMINATION OF AGREEMENT
7.01 This Agreement shall become effective as of the date hereof and shall
remain in force for a period of three (3) years, provided however, that both
parties to this Agreement have the option to terminate the Agreement upon
ninety (90) days prior written notice.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne
by the Fund. Additionally, ADS reserves the right to charge for any other
reasonable expenses associated with such termination.
8. ASSIGNMENT
8.01 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
9. AMENDMENT
9.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the
Board of Directors / Trustees of the Fund.
10. NEW YORK LAWS TO APPLY
10.01 The provisions of this Agreement shall be construed and interpreted
in accordance with the laws of the State of New York as at the time in effect
and the applicable provisions of the 1940 Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
11. MERGER OF AGREEMENT
11.01 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
12. NOTICES.
All notices and other communications hereunder shall be in writing, shall
be deemed to have been given when received or when sent by telex or
facsimile, and shall be given to the following addresses (or such other
addresses as to which notice is given):
To the Fund: To ADS:
Mr. Terry Lee Michael Miola
President President
First Idaho Tax-Free Fund American Data Services, Inc.
2756 Woodlawn Drive, Suite #6-201 150 Motor Parkway, Suite 900
Honolulu, HI 96822 Hauppauge, NY 11788
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
FIRST IDAHO TAX-FREE FUND AMERICAN DATA SERVICES, INC.
By:_\S\ Terrence K. H. Lee__ By:_\S\ Michael Miola__________
Terry Lee, President Michael Miola, President
SCHEDULE A
PORTFOLIOS TO BE SERVICED UNDER THIS AGREEMENT:
FIRST IDAHO TAX-FREE FUND
FUND ACCOUNTING SERVICE AGREEMENT
between
FIRST PACIFIC MUTUAL FUND, INC.
and
AMERICAN DATA SERVICES, INC.
INDEX
1. DUTIES OF ADS........................................................3
2. COMPENSATION OF ADS..................................................4
3. LIMITATION OF LIABILITY OF ADS ......................................4
4. REPORTS..............................................................5
5. ACTIVITIES OF ADS....................................................5
6. ACCOUNTS AND RECORDS.................................................5
7. CONFIDENTIALITY......................................................5
8. DURATION AND TERMINATION OF THIS AGREEMENT...........................5
9. ASSIGNMENT...........................................................6
10. NEW YORK LAWS TO APPLY..............................................6
11. AMENDMENTS TO THIS AGREEMENT........................................6
12. MERGER OF AGREEMENT.................................................6
13. NOTICES.............................................................6
SCHEDULE A...............................................................7
(A) FUND ACCOUNTING SERVICE FEE.........................................7
(B) EXPENSES............................................................7
(C) SPECIAL REPORTS.....................................................7
(D) CONVERSION CHARGE...................................................8
SCHEDULE B...............................................................9
FUND ACCOUNTING SCHEDULE
AGREEMENT made the 1st day of October, 1998, by and between First Pacific
Mutual Fund, Inc., a Maryland Corporation, having its principal office and
place of business at 2756 Woodlawn Drive, #6-201, Honolulu, HI 96822
(the "Fund"), and American Data Services, Inc., a New York corporation having
its principal office and place of business at the Hauppauge Corporate Center,
150 Motor Parkway, Suite 109, Hauppauge, New York, 11788 ("ADS").
WHEREAS, the Fund is a diversified, open-end management investment company
registered with the United State Securities and Exchange Commission under
the Investment Company Act of 1940, as amended, (the "1940 Act"); and
WHEREAS, ADS is a corporation experienced in providing accounting services
to mutual funds and possesses facilities sufficient to provide such services;
and
WHEREAS, the Fund desires to avail itself of the experience, assistance and
facilities of ADS and to have ADS perform for the Fund certain services
appropriate to the operations of the Fund, and ADS is willing to furnish
such services in accordance with the terms hereinafter set forth.
TERMS
NOW, THEREFORE, in consideration of the promises and mutual covenants
hereinafter contained, the Fund and ADS hereby agree as follows:
1. DUTIES OF ADS.
ADS will provide the Fund with the necessary office space, communication
facilities and personnel to perform the following services for the Fund:
(a) Timely calculate and transmit to NASDAQ the Fund s daily net asset
value and communicate such value to the Fund and its transfer agent;
(b) Maintain and keep current all books and records of the Fund as
required by Rule 31a-1 under the 1940 Act, as such rule or any successor
rule may be amended from time to time ( Rule 31a-1 ), that are applicable
to the fulfillment of ADS s duties hereunder, as well as any other documents
necessary or advisable for compliance with applicable regulations as may be
mutually agreed to between the Fund and ADS. Without limiting the
generality of the foregoing, ADS will prepare and maintain the following
records upon receipt of information in proper form from the Fund or its
authorized agents:
* Cash receipts journal
* Cash disbursements journal
* Dividend record
* Purchase and sales - portfolio securities journals
* Subscription and redemption journals
* Security ledgers
* Broker ledger
* General ledger
* Daily expense accruals
* Daily income accruals
* Securities and monies borrowed or loaned and collateral therefore
* Foreign currency journals
* Trial balances
(c) Provide the Fund and its investment adviser with daily portfolio
valuation, net asset value calculation and other standard operational
reports as requested from time to time.
(d) Provide all raw data available from our fund accounting system (PAIRS)
for management's or the administrators preparation of the following:
1. Semi-annual financial statements
2. Semi-annual form N-SAR
3. Annual tax returns
4. Financial data necessary to update form N-1A
5. Annual proxy statement
(e) Provide facilities to accommodate annual audit and any audits or
examinations conducted by the Securities and Exchange Commission or any
other governmental or quasi-governmental entities with jurisdiction.
ADS shall for all purposes herein be deemed to be an independent contractor
and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be
deemed an agent of the Fund.
2. COMPENSATION OF ADS.
In consideration of the services to be performed by ADS as set forth
herein for each portfolio listed in Schedule B, ADS shall be entitled to
receive compensation and reimbursement for all reasonable out-of-pocket
expenses. The Fund agrees to pay ADS the fees and reimbursement of
out-of-pocket expenses as set forth in the fee schedule attached hereto
as Schedule A.
3. LIMITATION OF LIABILITY OF ADS.
(a) ADS shall be held to the exercise of reasonable care in carrying out
the provisions of the Agreement, but shall be without liability to the Fund
for any action taken or omitted by it in good faith without gross negligence,
bad faith, willful misconduct or reckless disregard of its duties hereunder.
It shall be entitled to rely upon and may act upon the accounting records
and reports generated by the Fund, advice of the Fund, or of counsel for the
Fund and upon statements of the Fund s independent accountants, and shall be
without liability for any action reasonably taken or omitted pursuant to
such records and reports or advice, provided that such action is not, to
the knowledge of ADS, in violation of applicable federal or state laws or
regulations, and provided further that such action is taken without gross
negligence, bad faith, willful misconduct or reckless disregard of its
duties.
(b) Nothing herein contained shall be construed to protect ADS against any
liability to the Fund or its security holders to which ADS shall otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence in the
performance of its duties on behalf of the Fund, reckless disregard of ADS
obligations and duties under this Agreement or the willful violation of any
applicable law.
(c) Except as may otherwise be provided by applicable law, neither ADS nor
its stockholders, officers, directors, employees or agents shall be subject
to, and the Fund shall indemnify and hold such persons harmless from and
against, any liability for and any damages, expenses or losses incurred by
reason of the inaccuracy of information furnished to ADS by the Fund or its
authorized agents.
4. REPORTS.
(a) The Fund shall provide to ADS on a quarterly basis a report of a
duly authorized officer of the Fund representing that all information
furnished to ADS during the preceding quarter was true, complete
and correct in all material respects. ADS shall not be responsible for
the accuracy of any information furnished to it by the Fund or its
authorized agents, and the Fund shall hold ADS harmless in regard to any
liability incurred by reason of the inaccuracy of such information.
(b) Whenever, in the course of performing its duties under this Agreement,
ADS determines, on the basis of information supplied to ADS by the Fund or
its authorized agents, that a violation of applicable law has occurred or
that, to its knowledge, a possible violation of applicable law may have
occurred or, with the passage of time, would occur, ADS shall promptly
notify the Fund and its counsel of such violation.
5. ACTIVITIES OF ADS.
The services of ADS under this Agreement are not to be deemed exclusive,
and ADS shall be free to render similar services to others so long as its
services hereunder are not impaired thereby.
6. ACCOUNTS AND RECORDS.
The accounts and records maintained by ADS shall be the property of the
Fund, and shall be surrendered to the Fund, at the expense of the Fund,
promptly upon request by the Fund, provided that all service fees and
expenses charged by ADS in the performance of its duties hereunder have
been fully paid to the satisfaction of ADS, in the form in which such
accounts and records have been maintained or preserved. ADS agrees to
maintain a back-up set of accounts and records of the Fund (which back-up
set shall be updated on at least a weekly basis) at a location other than
that where the original accounts and records are stored. ADS shall assist
the Fund's independent auditors, or, upon approval of the Fund, any
regulatory body, in any requested review of the Fund s accounts and records.
ADS shall preserve the accounts and records as they are required to be
maintained and preserved by Rule 31a-1.
7. CONFIDENTIALITY.
ADS agrees that it will, on behalf of itself and its officers and employees,
treat all transactions contemplated by this Agreement, and all other
information germane thereto, as confidential and not to be disclosed to any
person except as may be authorized by the Fund.
8. DURATION AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective as of the date hereof and shall
remain in force for a period of three (3) years, provided however, that
both parties to this Agreement have the option to terminate the Agreement,
without penalty, upon ninety (90) days prior written notice.
Should the Fund exercise its right to terminate, all out-of-pocket expenses
associated with the movement of records and material will be borne by the
Fund. Additionally, ADS reserves the right to charge for any other
reasonable expenses associated with such termination.
9. ASSIGNMENT.
This Agreement shall extend to and shall be binding upon the parties hereto
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by the Fund without the prior written
consent of ADS, or by ADS without the prior written consent of the Fund.
10. NEW YORK LAWS TO APPLY.
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect
and the applicable provisions of the 1940 Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
11. AMENDMENTS TO THIS AGREEMENT.
This Agreement may be amended by the parties hereto only if such amendment
is in writing and signed by both parties.
12. MERGER OF AGREEMENT.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter hereof
whether oral or written.
13. NOTICES.
All notices and other communications hereunder shall be in writing, shall be
deemed to have been given when received or when sent by telex or facsimile,
and shall be given to the following addresses (or such other addresses as to
which notice is given):
To the Fund: To ADS:
Terry K.H. Lee Michael Miola
President President
First Pacific Mutual Fund, Inc. American Data Services, Inc.
2756 Woodlawn Drive, #6-201 150 Motor Parkway, Suite 109
Honolulu, HI 96822 Hauppauge, NY 11788
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
FIRST PACIFIC MUTUAL FUND, INC. AMERICAN DATA SERVICES, INC.
By: \S\ Terry K.H. Lee By: \S\ Michael Miola
Terry K.H. Lee, President Michael Miola, President
SCHEDULE A
(a) FUND ACCOUNTING SERVICE FEE:
For the services rendered by ADS in its capacity as fund accounting agent,
as specified in Paragraph 1. DUTIES OF ADS, the Fund shall pay ADS within
ten (10) days after receipt of an invoice from ADS at the beginning of each
month, a fee equal to:
MONTHLY FEE
Calculated Fee Will Be Based Upon Prior Month Combined Average Net Assets for
the Portfolios listed in Schedule B of this Agreement ( Average Net Assets ):
(No prorating partial months)
10/1/98 through 9/30/00
First $125 million of Average Net Assets - $5,000
All Average Net Assets in excess of $125 million $5,000 plus 1/12th of
0.02% (2 basis points)
10/1/00 through 9/30/03
First $150 million of Average Net Assets - $6,667
All Average Net Assets in excess of $150 million $6,667 plus 1/12th of
0.02% (2 basis points)
MULTI-CLASS PROCESSING CHARGE
$300 per month will be charged for each additional class of stock per
portfolio.
(b) EXPENSES.
The Fund shall reimburse ADS for any out-of-pocket expenses, exclusive of
salaries, advanced by ADS in connection with but not limited to the printing
or filing of documents for the Fund, travel, telephone, quotation services
(currently (1) $0.12 per equity valuation, $0.60 per bond valuation, and
1.50 for each foreign quotation or manual quote insertion), facsimile
transmissions, stationary and supplies, record storage, NASDAQ insertion
fee ($22 (1) per month), prorata portion of annual SAS 70 review, postage,
telex, and courier charges, incurred in connection with the performance of
its duties hereunder. ADS shall provide the Fund with a monthly invoice of
such expenses and the Fund shall reimburse ADS within fifteen (15) days
after receipt thereof.
(1) Rate subject to change on 30 days notice.
(c) SPECIAL REPORTS.
All reports and/or analyses requested by the Fund, its auditors, legal
counsel, portfolio manager, or any regulatory agency having jurisdiction
over the Fund, that are not in the normal course of fund accounting
activities as specified in Section 1 of this Agreement shall be subject
to an additional charge, agreed upon in advance, based upon the following
rates:
Labor:
Senior staff - $150.000/hr.
Junior staff - $75.00/hr.
Computer time - $45.00/hr.
(d) CONVERSION CHARGE.
NOTE: FOR EXISTING FUNDS ONLY (new funds please ignore):
There will be no service charge for ADS to convert the records of the
Portfolios listed in Schedule B of the Agreement. However, ADS will be
reimbursed for all out-of-pocket expenses, enumerated in paragraph (b)
above, incurred during the conversion process.
SCHEDULE B:
PORTFOLIOS TO BE SERVICED UNDER THIS AGREEMENT:
First Hawaii Municipal Bond Fund
First Hawaii Intermediate Municipal Fund
First Idaho Tax-Free Fund
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT, dated as of the 1st day of June, 1994, amended January 29,
1996, made by and between First Pacific Mutual Fund, Inc., (the Fund) a
corporation operating as an open-end management company, duly organized and
existing under the laws of the State of Maryland, and First Pacific
Recordkeeping, Inc. (the "Company") a corporation duly organized and
existing under the laws of the State of Delaware.
WITNESSETH THAT:
WHEREAS, the Fund consists of a series of Funds, at present namely: First
Hawaii Municipal Bond Fund, First Hawaii Intermediate Municipal Fund and
First Idaho Tax-Free Fund.
WHEREAS, the Fund desires to appoint the Company as its Accounting Services
Agent to maintain and keep current the books, accounts, records, journals or
other records of original entry relating to the business of the Fund as set
forth in Section 2 of this Agreement (the "Accounts and Records") and to
perform certain other functions in connection with such accounts and
records; and
WHEREAS, the Company is willing to perform such functions upon the terms
and conditions set forth below; and
WHEREAS, the Fund will cause to be provided certain information to the
Company as set forth below; and
WHEREAS, the Company shall perform the duties of transfer agent and
dividend disbursing agent pursuant to a separate agreement ("Shareholder
Services Agreement").
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto, intending to be legally bound, do hereby agree
as follows:
Section 1. The Fund shall promptly turn over to the Company such of
the Accounts and Records previously maintained by or for it as are necessary
for the Company to perform its functions under this Agreement. The Fund
authorizes the Company to rely on such Accounts and Records turned over to
it and hereby indemnifies and holds the Company, its successors and assigns,
harmless of and from any and all expenses, damages, claims, suits
liabilities, actions, demands and losses whatsoever arising out of or in
connection with any error, omission, inaccuracy or other deficiency of such
Accounts and Records or in the failure of the Fund to provide any portion of
such or to provide any information needed by the Company to knowledgeably
perform its functions.
Section 2. To the extent it receives the necessary information from the
Fund or its agents by Written or Oral Instructions, the Company shall maintain
and keep current the following Accounts and Records relating to the business
of the Fund, in such form as may be mutually agreed to between the Fund and
the Company:
(a) Cash Receipts Journal
(b) Cash Disbursements Journal
(c) Dividends Paid Record
(d) Subscription and Redemption Journals
(e) Daily Expense Accruals
(f) Daily Interest Accruals
Unless necessary information to perform the above functions is furnished by
Written or Oral Instructions to the Company daily, prior to 4:00 pm Eastern
Standard Time (the close of trading on the New York Stock Exchange), and the
calculation of the Fund's net asset value as provided below, the Company
shall incur no liability, and the Fund shall indemnify and hold harmless the
Company from and against any liability arising from any failure to provide
complete information or from any discrepancy between the information received
by the Company and used in such calculations and any subsequent information
received from the Fund or any of its designated Agents.
Section 3. The Company shall perform the ministerial calculations
necessary to calculate the Fund's net asset value daily, in accordance with
the Fund's current prospectus and utilizing the information described in
this Section. Portfolio items for which market quotations are available by
the Company's use of automated financial information ("Service") shall be
based on the closing prices of such Service except where the Fund has
given or caused to be given specific Written or Oral Instructions to
utilize a different value. All of the portfolio securities shall be given
such values as the Fund provides by Written or Oral Instructions including
all foreign securities, restricted securities and other securities
requiring valuation not readily ascertainable solely by such Service.
The Company shall have no responsibility or liability for the accuracy of
prices quoted by such Services; for the accuracy of the information
supplied by the Fund; or for any loss, liability, damage, or cost arising
out of any inaccuracy of such data. The Company shall have no responsibility
or duty to include information or valuations to be provided by the Fund in
any computation unless and until it is timely supplied to the Company in
usable form. Unless the necessary information to calculate the net asset
value daily is furnished by Written or Oral Instructions from the Fund, the
Company shall incur no liability, and the Fund shall indemnify and hold
harmless the Company from and against any liability arising from any failure
to provide complete information or from any discrepancy between the
information received by the Company and used in such calculation and any
subsequent information received from the Fund or any of its designated
agents.
Section 4. For all purposes under this Agreement, the Company is
authorized to act upon receipt of the first of any Written or Oral
Instruction it receives from the Fund or its agents on behalf of the Fund.
In cases where the first instruction is an Oral Instruction that is not in
the form of a document or written record, a confirmatory Written Instruction
or Oral Instruction in the form of a document or written record, a
confirmatory Written Instruction or Oral Instruction in the form of a
document or written record shall be delivered, and in cases where the
Company receives an Instruction, whether Written or Oral, to enter
a portfolio transaction on the records, the Fund shall cause the
Broker-Dealer to send a written confirmation to the Company. The Company
shall be entitled to rely on the first Instruction received, and for any act
or omission undertaken in compliance therewith shall be free of liability
and fully indemnified and held harmless by the Fund, provided however,
that in the event a Written or Oral Instruction received by the Company
is countermanded by a timely later Written or Oral Instruction received
by the Company prior to acting upon such countermanded Instruction, the
Company shall act upon such later Written or Oral Instruction. The sole
obligation of the Company with respect to any follow-up or confirmatory
Written Instruction, Oral Instruction in documentary or written form, or
Broker-Dealer written confirmation shall be to make reasonable efforts to
detect any discrepancy between the original Instruction and such
confirmation and to report such discrepancy to the Fund. The Fund shall
be responsible, at the Fund's expense, for taking any action, including
any reprocessing, necessary to correct any discrepancy or error, and to
the extent such action requires the Company to act, the Fund shall give
the Company specific Written Instruction as to the action required.
Section 5. At the end of each month, the Fund shall cause the
Custodian to forward to the Company a monthly statement of cash and
portfolio transactions, which will be reconciled with the Company's
Accounts and Records maintained for the Fund. The Company will report
any discrepancies to the Custodian, and report any unreconciled items
to the Fund.
Section 6. The Company shall promptly supply daily and periodic
reports of the Fund as requested by the Fund and agreed upon by the Company.
Section 7. The Fund shall and shall require each of its agents
(including without limitation its Transfer Agent and its Custodian) to
provide the Company as of the close of each Business Day, or on such other
schedule as the Fund determines is necessary, with Written or Oral
Instructions (to be delivered to the Company by 10:00 am the next following
business day) containing all data and information necessary for the Company
to maintain the Fund's Accounts and Records and the Company may conclusively
assume that the information it receives by Written or Oral Instructions is
complete and accurate. The Fund is responsible to provide or cause to be
provided to the Company reports of share purchases, redemptions, and total
shares outstanding on the next business day after each net asset valuation.
Section 8. The Accounts and Records, in the agreed upon format,
maintained by the Company shall be the property of the Fund, and shall be
made available to the Fund promptly upon request and shall be maintained
for the periods prescribed in Rule 31(a)-2 of the Investment Company Act of
1940, as amended. The Company shall assist the Fund's independent auditors,
or upon approval of the Fund, or upon demand, any regulatory body,
in any requested review of the Fund's Accounts and Records but shall be
reimbursed for all expenses and employee time invested in any such review
of the Fund's Accounts and Records outside of routine and normal periodic
reviews. Upon receipt from the Fund of the necessary information, the
Company shall supply the necessary data for the Fund or accountant's
completion of any necessary tax returns, questionnaires, periodic reports
to shareholders and such other reports and information requests as the Fund
and the Company shall agree upon from time to time.
Section 9. The Company and the Fund may from time to time adopt such
procedures as they agree upon in writing, and the Company may conclusively
assume that any procedure approved by the Fund or directed by the Fund, does
not conflict with or violate any requirements of its Prospectus, Articles of
Incorporation, By-Laws, or any rule or regulation of any regulatory body or
governmental agency. The Fund shall be responsible for notifying the
Company of any changes in regulations or rules which might necessitate
changes in the Company's procedures, and for working out with the Company
such changes.
Section 10. (a) The Company, its directors, officers, employees,
shareholders and agents shall not be liable for any error of judgement or
mistake of law or for any loss suffered by the Fund in connection with the
performance of this Agreement, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Company
in the performance of its obligations and duties under this Agreement.
(b) Any person, even though also a director, officer, employee,
shareholder or agent of the Company, who may be or become an officer,
trustee, employee or agent of the Fund, shall be deemed, when rendering
services to the Fund or acting on any business of the Fund (other than
services or business in connection with the Company's duties hereunder),
to be rendering such services to or acting solely for the Fund and not as
a director, officer, employee, shareholder or agent of, or one under the
control or direction of the Company even though paid by it.
(c) Notwithstanding any other provision of this Agreement, the
Fund shall indemnify and hold harmless the Company, its directors, officers,
employees, shareholders and agents from and against any and all claims,
demands, expenses and liabilities (whether with or without basis in fact or
law) of any and every nature which the Company may sustain or incur or which
may be asserted against the Company by any person by reason of, or as a
result of: (i) any action taken or omitted to be taken by the Company
in good faith hereunder; (ii) in reliance upon any certificate, instrument,
order or stock certificate or other document reasonably believed by it to be
genuine and to be signed, countersigned or executed by any duly authorized
person, upon the Oral Instructions or Written Instructions of an authorized
person of the Fund or upon the opinion of legal counsel for the Fund or its
own counsel; or (iii) any action taken or omitted to be taken by the
Company in connection with its appointment in good faith in reliance
upon any law, act, regulation or interpretation of the same even though
the same may thereafter have been altered, changed, amended or repealed.
However, indemnification under this subparagraph shall not apply to actions
or omissions of the Company or its directors, officers, employees,
shareholders or agents in cases of its or their own negligence, willful
misconduct, bad faith, or reckless disregard of its or their own duties
hereunder.
(d) The Company shall give written notice to the Fund within
twenty (20) business days of receipt by the Company of a written assertion
or claim of any threatened or pending legal proceeding which may be subject
to this indemnification. However, the failure to notify the Fund of such
written assertion or claim shall not operate in any manner whatsoever to
relieve the Fund of any liability arising from this Section or otherwise.
(e) For any legal proceeding giving rise to this indemnification,
the Fund shall be entitled to defend or prosecute any claim in the name of
the Company at its own expense and through counsel of its own choosing if it
gives written notice to the Company within twenty (20) business days of
receiving notice of such claim. Notwithstanding the foregoing, the Company
may participate in the litigation at its own expense through counsel of its
own choosing. If the Fund does choose to defend or prosecute such claim,
then the parties shall cooperate in the defense or prosecution thereof
and shall furnish such records and other information as are reasonably
necessary.
(f) The Fund shall not settle any claim without the Company's
express written consent which shall not be unreasonably withheld. The
Company shall not settle any claim without the Fund's express written
consent which shall not be unreasonably withheld.
Section 11. All financial data provided to, processed by, and reported
by the Company under this Agreement shall be stated in United States dollars
or currency. The Company shall have no obligation to convert to, equate, or
deal in foreign currencies or values, and expressly assumes no liability for
any currency conversion or equation computations relating to the affairs of
the Fund.
Section 12. The Fund agrees to pay the Company, within 15 days from the
execution date of this Agreement, an amount equal to reasonable costs and
expenses (including counsel fees), incurred by the Company in connection
with the transfer of the services subject to this Agreement to the Company
from the Fund.
Section 13. The Fund agrees to pay the Company compensation for its
services and to reimburse it for expenses, as set forth in Schedule A
attached hereto, or as shall be set forth in amendments to such Schedule
approved by the Fund and Company. The Fund authorizes the Company to debit
the Fund's custody account for invoices which are rendered for the services
performed for the accounting agent function. The invoices for the service
will be sent to the Fund after the debiting with the indication the payment
has been made.
Section 14. Nothing contained in this Agreement is intended to or shall
require the Company, in any capacity hereunder, to perform any functions or
duties on any holiday, day of special observance or any other day on which
the Custodian or the New York Stock Exchange is closed. Functions or duties
normally scheduled to be performed on such days shall be performed on, and
as of, the next succeeding business day on which both the New York Stock
Exchange and the Custodian are open. Notwithstanding the foregoing, the
Company shall compute the net asset value of the Fund on each day required
pursuant to Rule 22c-1 promulgated under the Investment Act of 1940.
Section 15. This Agreement may be executed in two or more counterparts,
each of which, when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 16. The terms defined in Section 1 of the Shareholder Services
Agreement shall have the same meanings wherever used in this Agreement.
The Fund shall file with the Company a certified copy of each resolution
of its Board of Directors authorizing execution of Written Instructions or
the transmittal of Oral Instructions as provided in Section 1 of the
Shareholder Services Agreement.
Section 17. The Fund or the Company may give written notice to the other
of the termination of this Agreement, such termination to take effect at the
time specified in the notice not less than 120 days after the giving of the
notice. Upon the effective termination date, subject to payment to the
Company by the Fund of all amounts due to the Company as of said date, the
Company shall make available to the Fund or its designated recordkeeping
successor, all of the records of the Fund maintained under this Agreement
then in the Company's possession.
Section 18. Any notice or other communication required by or permitted
to be given in connection with this Agreement shall be in writing, and shall
be delivered in person or sent by first class mail, postage prepaid to the
respective parties as follows:
If to the Fund:
First Pacific Mutual Fund, Inc.
2756 Woodlawn Drive, Suite #6-201
Honolulu, HI 96822
Attention: Terrence K.H. Lee
If to the Company:
First Pacific Recordkeeping, Inc.
2756 Woodlawn Drive, Suite #6-201
Honolulu, HI 96822
Attention: Terrence K.H. Lee
Section 19. This Agreement may be amended from time to time by
supplemental agreements executed by the Fund and the Company.
Section 20. This Agreement shall be governed by the laws of the State
of Hawaii.
SCHEDULE A
ACCOUNTING AND PORTFOLIO VALUATION SERVICES AND FEES
First Hawaii Municipal Bond Fund
First Hawaii Intermediate Municipal Fund
First Idaho Tax-Free Fund
Accounting Services:
1.) Compute net asset value (and offering price) per share, daily.
2.) Maintain security ledger.
3.) Maintain general ledger.
4.) Prepare and submit to client:
Daily: Trial Balance.
Portfolio Pricing Report or interest evaluation (money market
funds).
Cash Availability.
Monthly: Statement of Assets and Liabilities.
Statement of Operations.
Statement of Changes in Net Assets.
Summary of Purchases.
Summary of Sales.
Schedule of Brokerage Commissions.
Schedule of Principal Trade Transactions.
Semi- In addition to monthly reports, Statement of Investments and
Annually: a draft of footnotes.
Annually: Schedules supporting securities and shareholder transactions,
income and expense accrual during the year.
Portfolio Pricing Services:
1.) Update the daily market value of securities held by Fund.
The following pricing is included in the fee quoted:
Listed Securities:
Traded: Closing price.
Untraded: Mean, bid or ask.
NASDAQ National Market Issues:
Traded: Closing price.
Untraded: Mean, bid or ask.
Other Over-the-Counter Securities:
Traded: Mean, bid or ask.
Untraded: Mean bid or ask.
2.) Monitor securities held for stock splits, stock dividends, mergers,
spin-offs. (Domestic securities only).
3.) Determine gain or loss on security trades.
SCHEDULE A (continued)
NSAR Reporting Services:
Prepare answers to the following items (if applicable):
2, 12B, 20, 21, 22, 23, 28, 30A, 31, 32, 35, 36, 37, 38, 40, 41,
42, 43, 53, 55, 62, 63, 64B, 71, 72, 73, 74, 75, 76.
Yield Calculation:
Provide up to 12 reports per year to reflect the yield calculation changes
to Rule 482 required by the SEC effective July 1, 1988.
$1,000.00 per year per portfolio.
Bond Quotation Fee (If Applicable):
Corporate Bonds: $ .50 Per Quote Per Bond
Municipal Bonds: $ .75 Per Quote Per Bond
Cost of copying and sending material to auditors for off-site audits will
be an additional expense.
Annual Fee Schedule: (1/12th payable monthly)
$21,500 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 Over $200 Million of Average Net Assets
A.) Securities Transaction Charge: (Payable Monthly)
Book Entry DTC or
Federal Book Entry $12.00
Physical (Mutual Fund Trades) $22.50
GNMA $23.00
Options $17.50
(Should an option expire, our transaction fee will be only $12.00.)
Mortgage Backed Securities -
Principal Pay Down Per Pool $10.00
Security Lending $17.00
Now Account $12.00
B.) When Issued, Securities Lending, Index Futures: Should each of these
investment vehicles require separate segregated custody accounts, there will
be a fee of $250.00 per account per month.
C.) Out-of Pocket Expenses: The Fund will reimburse the custodian
monthly for all out- of-pocket expenses, i.e. postage, stationary,
insurance, retention of records, conversion, etc. and expenses in the
development of agreements between the Company and the Custodian.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their duly authorized officers and their Corporate seals hereunto duly
affixed and attested, as of the day and year first above written.
FIRST PACIFIC MUTUAL FUND, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
Attest: \S\ Jean Chun
Jean Chun, Secretary
FIRST PACIFIC RECORDKEEPING, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
Attest: \S\ Jean Chun
Jean Chun, Secretary
AMENDMENT TO ACCOUNTING SERVICES AGREEMENT
Dated October 15, 1998
In accordance with Section 17 of the Accounting Services Agreement dated
June 1, 1994, written notice is hereby given that effective November 23,
1998, First Pacific Recordkeeping, Inc. will terminate this Accounting
Services Agreement. Upon the effective termination date, subject to payment
to the Company by the Fund of all amounts due to the Company of said date,
the Company shall make available to the Fund or its designated recordkeeping
successor, all of the records of the Fund maintained under this Agreement
then in the Company's possession.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their duly authorized officers and their Corporate seals hereunto duly
affixed and attested, as of the day and year first above written.
FIRST PACIFIC MUTUAL FUND, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
Attest: \S\ Jean Chun
Jean Chun, Secretary
FIRST PACIFIC RECORDKEEPING, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
Attest: \S\ Jean Chun
Jean Chun, Secretary
SHAREHOLDER SERVICES AGREEMENT
AGREEMENT dated March 16, 1994, amended, January 29, 1996, and
January 21, 1998, between First Pacific Recordkeeping, Inc. ("FPR"), a
Hawaii Corporation and First Pacific Mutual Fund, Inc. (the "Corporation"),
a Maryland Corporation. First Hawaii Municipal Bond Fund series, First
Hawaii Intermediate Municipal Fund series and First Idaho Tax-Free Fund
series are series of the Corporation operated as open-end, non-diversified
management investment companies. All references to any series of the
Corporation will be called the "Fund" unless expressly noted otherwise.
WITNESSETH:
WHEREAS, each Fund is a non-diversified, open-end management
investment company registered under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, FPR serves as Transfer Agent to each Fund under a separate
Transfer Agent Agreement and each Fund desires to avail itself of certain
administrative services provided by FPR with regard to personal services of
shareholder accounts which are not covered by the Transfer Agent Agreement;
and
WHEREAS, FPR is willing to furnish such services on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
Section 1. Each Fund hereby appoints FPR to administer certain
of the affairs of each Fund for the period and on the terms set forth in
this Agreement. FPR hereby accepts such appointment and agrees during such
period to render the services herein described and to assume the obligations
set forth herein, for the compensation herein provided.
Section 2. FPR shall provide personal servicing of shareholder
accounts, which may include telephone and written conversations, assistance
in redemptions, exchanges, transfers and opening accounts as may be required
from time to time. FPR shall, in addition, provide such additional
administrative management services as it and each Fund may from time to
time agree.
Section 3. First Pacific Management Corporation shall oversee
all relationships between the Fund and its Custodian, Transfer Agent and any
accounting services agents, including the supervision of the performance of
the Fund's agreements with such parties.
Section 4. The accounts and records maintained by FPR shall be the
property of each Fund and shall be made available to each Fund within a
reasonable period of time, upon demand. FPR shall assist each Fund's
independent auditors, or upon approval of each Fund, or upon demand, any
regulatory body, in any requested review of each Fund's accounts and records
but shall be reimbursed for all expenses and employee time invested in any
such review outside of routine and normal periodic reviews. FPR shall
supply the necessary data for each Fund's completion of any necessary tax
returns, questionnaires, periodic reports to shareholders and such other
reports and information requests as each Fund and FPR shall agree upon from
time to time.
Section 5. FPR may rely upon the advice of each Fund and counsel to
each Fund and upon statements of each Fund's accountants and other persons
believed by it in good faith to be expert in matters upon which they are
consulted, and FPR shall not be liable for any actions taken in good faith
upon such statements.
Section 6. FPR shall not be liable for any action taken in good faith
reliance upon any authorized Oral Instructions, any Written Instructions and
certified copy of any resolution of the Board of Directors of each Fund or
any other document reasonably believed by FPR to be genuine and to have been
executed or signed by the proper person or persons.
Section 7. Each Fund shall indemnify and hold FPR harmless from any
and all expenses, damages, claims, suits, liabilities, actions, demands and
losses whatsoever arising out of or in connection with any error, omission,
inaccuracy or other deficiency of any information provided to FPR by each
Fund, or the failure of each Fund to provide any information needed by FPR
knowledgeably to perform its functions hereunder. Also, each Fund shall
indemnify and hold harmless FPR from all claims and liabilities (including
reasonable expenses for legal counsel) incurred by or assessed against FPR
in connection with the performance of this Agreement, except such as may
arise from FPR's own negligent action, omission or willful misconduct;
provided, however, that before confessing any claim against it, FPR shall
give the Fund reasonable opportunity to defend against such claim in the
name of the Fund or FPR or both.
Section 8. As full compensation for the services performed by FPR,
First Hawaii Municipal Bond Fund shall pay FPR a fee at the annualized rate
of .10 of one percent (.10%) of the average daily net assets of the Fund.
This fee will be computed daily and be paid monthly within ten (10) business
days after the last six (6) days of each month. This fee shall be prorated
for any fraction of a month at the commencement or termination of this
Agreement. First Hawaii Intermediate Municipal Fund and First Idaho
Tax-Free Fund will not pay FPR any fees.
Section 9. Except as required by laws and regulations governing
investment companies, nothing contained in this Agreement is intended to
or shall require FPR, in any capacity hereunder, to perform any functions
or duties on any holiday or other day of special observance on which FPR
is closed. Functions or duties normally scheduled to be performed on such
days shall be performed on, and as of, the next business day on which both
each Fund and FPR are open.
Section 10. Either each Fund or FPR may give written notice to the
other of the termination of this Agreement, such termination to take effect
at the time specified in the notice, which time shall be not less than sixty
(60) days from the giving of such notice. Such termination shall be without
penalty.
Section 11. This Agreement may be executed in two or more counterparts,
each of which, when so executed, shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 12. This Agreement shall extend to and shall be binding upon
the parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by FPR without the
approval of each Fund by a resolution of its Board of Directors.
Section 13. This Agreement shall be governed by the laws of the State
of Hawaii.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
FIRST PACIFIC RECORDKEEPING, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
Attest: \S\ Jean Chun
Jean Chun, Secretary
FIRST PACIFIC MUTUAL FUND, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
Attest: \S\ Jean Chun
Jean Chun, Secretary
AMENDMENT TO SHAREHOLDER SERVICES AGREEMENT
Dated October 15, 1998
The following Section of the Shareholder Services Agreement dated
March 16, 1994 is Amended as follows:
Section 8. As full compensation for the services performed by FPR,
First Hawaii Municipal Bond Fund shall pay FPR a fee at the annualized
rate of up to .10 of one percent (.10%) of the average daily net
assets of the Fund. This fee will be computed daily and be paid monthly
within ten (10) business days after the last day of each month. This fee
shall be prorated for any fraction of a month at the commencement or
termination of this Agreement. First Hawaii Intermediate Municipal
Fund and First Idaho Tax-Free Fund will not pay FPR any fees.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed by their duly authorized officers as of the day and year
first above written.
FIRST PACIFIC RECORDKEEPING, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
Attest: \S\ Jean Chun
Jean Chun, Secretary
FIRST PACIFIC MUTUAL FUND, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
Attest: \S\ Jean Chun
Jean Chun, Secretary
AMENDMENT TO SHAREHOLDER SERVICES AGREEMENT
Dated February 1, 1999
The following Section of the Shareholder Services Agreement dated March
16, 1994 is Amended as follows:
In accordance with Section 10, First Idaho Tax-Free Fund has terminated
any and all affiliations with this Shareholder Services Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
FIRST PACIFIC RECORDKEEPING, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
Attest: \S\ Jean Chun
Jean Chun, Secretary
FIRST PACIFIC MUTUAL FUND, INC.
By: \S\ Terrence K.H. Lee
Terrence K.H. Lee, President
[Corporate Seal]
Attest: \S\ Jean Chun
Jean Chun, Secretary
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