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
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, 2000
TABLE OF CONTENTS
Investment Objectives.......................................................2
Investment Strategy.........................................................2
Risks.......................................................................3
Funds Average Annual Total Returns..........................................5
Risk Return Summary: Fee Table.............................................7
Financial Highlights........................................................9
Other Investment Practices.................................................10
Investment Manager.........................................................10
Portfolio Manager..........................................................10
Fund Pricing...............................................................11
Purchasing Fund Shares.....................................................11
Redeeming and Exchanging Fund Shares.......................................12
Distributions, Capital Gains and Tax Consequences..........................14
Distribution Arrangements..................................................15
Year 2000..................................................................15
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 10 - 20 years.
First Hawaii Intermediate Municipal Fund invests in municipal
bonds with an average portfolio maturity of 3 - 10 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] Concentration Risk
The Funds are subject to the additional risk that they
concentrate their investments in instruments issued by or on
behalf of the State of Hawaii. Due to the level of investment in
municipal obligations issued by the State of Hawaii and its
political subdivisions, the performance of the Funds will be
closely tied to the economic and political conditions in the
State of Hawaii. Therefore, investments in the Funds may
be riskier than an investment in other types of municipal bond
funds.
[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.
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
1999 -1.92
Best Quarter 1st Q 95 6.01%
Worst Quarter 1st Q 94 -4.40%
Average Annual Total Return as of 12/31/99
1 Year 5 Years 10 years
First Hawaii Municipal Bond Fund -1.92% 5.60% 5.83%
Lehman Muni Bond Index -2.06% 6.91% 6.89%
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
1999 .95
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 12/31/99
Inception
1 Year 5 Years July 5, 1994
First Hawaii Intermediate Municipal Fund .95% 4.88% 4.38%
Lehman Muni Bond Index -2.06% 6.91% 6.12%
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 .14%
Other Expenses .30%
Total Annual Fund Operating Expenses .94%
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, 1999, .14%
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 .94% to .87%.
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
$96 $300 $520 $1,155
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 .00%
Other Expenses .48%
Total Annual Fund Operating Expenses .98%
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,
1999, .00% 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 .98% to .89%. Custody credits
further reduced operating expenses from .89% to .75%.
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
$100 $312 $542 $1,201
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>
Years Ended September 30, 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
Net Asset Value,
Beginning of Year $11.23 $11.10 $10.89 $10.84 $10.62 $5.18 $5.15 $5.12 $5.14 $4.99
Income from investment operations
Net investment income .55 .55 .54 .55 .55 .22 .22 .22 .22 .23
Net gain (loss) on securities
(both realized and unrealized) (.55) .13 .21 .05 .31 (.14) .04 .04 (.02) .15
Total from investment operations - .68 .75 .60 .86 .08 .26 .26 .20 .38
Less distributions
Dividends from net investment income (.55) (.55) (.54) (.55) (.55) (.22) (.22) (.22) (.22) (.23)
Distributions from capital gains - - - - (.09) (.01) (.01) (.01) - -
Total distributions (.55) (.55) (.54) (.55) (.64) (.23) (.23) (.23) (.22) (.23)
End of Year $10.68 $11.23 $11.10 $10.89 $10.84 $5.03 $5.18 $5.15 $5.12 $5.14
Total Return (.07)% 6.28% 7.09% 5.62% 8.42% 1.51% 5.08% 5.17% 3.95% 7.86%
Ratios/Supplemental Data
Net assets, end of year (Millions) $116.4 $112.3 $106.4 $54.2 $51.1 $5.5 $5.9 $6.4 $6.6 $4.8
Ratio of expenses to average net assets
Before expense reimbursements .94% .89% .98% .98% 1.00% .98% 1.49% 1.43% 1.50% 1.90%
After expense reimbursements .94%(a) .89%(a) .98%(a) .98%(a) .97%(a) .89%(b) .85%(b) .86%(b) .84%(b) .66%(b)
Ratio of net investment income to average net assets
Before expense reimbursements 4.88% 4.90% 4.99% 5.03% 5.19% 4.07% 3.53% 3.67% 3.66% 3.39%
After expense reimbursements 4.88% 4.90% 4.99% 5.03% 5.22% 4.18% 4.17% 4.24% 4.32% 4.63%
Portfolio Turnover Rate 10.83% 7.35% 3.21% 15.16% 17.08% 3.32% 14.57% 17.36% 17.76% 10.04%
<FN>
(a) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian arrangement were .87%, .85%, .94%, .95% and .95% for
the years ended September 30, 1999, 1998, 1997, 1996 and 1995 respectively.
(b) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian arrangement were .75%, .73%, .75%, .75% and .64% for
the years ended September 30, 1999, 1998, 1997, 1996 and 1995 respectively.
</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 $119 million for
2 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 (.41% 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, and the
First Hawaii Intermediate Municipal Fund since July 1994. He has been
employed with First Pacific Management since July 1989. Mr. D'Avanzo
has a BA in Economics from 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 $50,000.00, 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 each 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 a 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 you purchase shares 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.) 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. Any other 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.
Interest on indebtedness incurred by a shareholder to purchase or
carry shares of a Fund generally will not be deductible for federal income
tax purposes.
You should note that a portion of the exempt-interest dividends
paid by a Fund may constitute an item of tax-preference for purposes of
determining federal alternative minimum tax liability. 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 each Fund who are subject to Hawaii income taxes will
not be subject to Hawaii income taxes on each 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. It appears that the Year 2000 issue has been addressed but
the Fund and its service providers are continuing to monitor the Year
2000 issue. 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, 2000 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-(202) 942-8090 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 20549-0102.
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"), 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, 2000 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 audited financial statements and related report of Tait Weller &
Baker, Independent Auditors of the Funds, are incorporated herein by
reference in the section Financial Statements. No other portions of the
annual report are incorporated by reference.
TABLE OF CONTENTS
Fund History..............................................................2
Investment Strategies and Risks . ........................................2
Description of Municipal Securities Ratings .............................11
Tax Information..........................................................16
Management of the Fund ..................................................16
Investment Management Agreement..........................................18
Custodian .............................................................. 20
Fund Accounting .........................................................20
Independent Auditors. .................................................. 21
Portfolio Transactions ..................................................21
Purchasing and Redeeming Fund Shares.....................................22
The Distributor ....................... .................................23
Transfer Agent ..........................................................24
Performance .............................................................25
This Statement of Additional Information is dated February 1, 2000.
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.
Tourism had a mixed performance in 1998, but should recover in 1999
from the adverse impacts of the Asian recession in 1998. Eastbound visitor
arrivals declined 10.8 percent during 1998, and 14.4 percent during fourth
quarter 1998 alone. Tourism receipts declined from $10.7 billion, in both
1996 and 1997, to 10.0 billion in 1998. However, the westbound visitor
count increased 4.1 percent during 1998. Comprising 63 percent of visitor
arrivals and 75 percent of visitor days, tourists from North America flocked
to the Neighbor Islands. Thus, total visitor days statewide actually increased
0.9 percent during 1998.
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. Hawaii's non-plantation agriculture sector, which has capitalized
on plantation closures has become a growth industry. Rising coffee prices
and expanded plantings have nearly doubled the value of Hawaiian coffee
during the 1990s. 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 in the state. 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 1998, with total contracting receipts hovering at $2.7 billion
after declining steadily during the investment recession of the early - 1990s.
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. Construction employment in Hawaii declined to 21,200 in
1998. In recent years construction employment has slipped only slightly
from 23,700 in 1996 and 22,300 in 1997. However, as recently as
1991 construction employment was 33,600 in Hawaii. Thus, the
industry's descent from that employment peak has been around one
third, while the decrease in constant-dollar receipts from the 1991
peak has been approximately one half.
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 1980s with housing
construction in the 1990s. Total federal outlays in Hawaii have been
increasing during the 1990s, with gross outlays rising from around
$6 billion to around $8 billion. However, the increase has been
concentrated in rising military and civilian pensions, along with
cost-of-living adjustments, and in rising expenditures for base
realignment and military housing construction.
As of the date of this SAI, general obligation bonds issued by
the State of Hawaii are rated A1 by Moody's Investors Services, Inc.
( Moody s ), A+ by Standard & Poor s Corporation ( S&P ) and
AA- by Fitch IBCA. 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, 1997 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 .9% in
1996. Gross state product in 1997 reached an estimated
$34.2 billion according to estimates published by the Hawaii
Department of Business, Economic Development and Tourism.
This is an increase of 1.5% over the 1996 gross state product
of $33.5 billion. Real growth in 1998 appears to be close to
1.0%.
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
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by S&P for corporate
and municipal debt:
AAA - An obligation rated AAA has the highest
rating assigned by S&P. The obligor s capacity to meet its financial
commitment on the obligation is extremely strong.
AA - An obligation rated AA differs from the
highest rated obligations only in small degree. The obligor s capacity
to meet its financial commitment on the obligation is very strong.
A - An obligation rated A is somewhat more
susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher-rated categories.
However, the obligor s capacity to meet its financial commitment on
the obligation is still strong.
BBB - An obligation rated BBB exhibits
adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment
on the obligation.
Obligations rated BB, B, CCC, CC and
C are regarded as having significant speculative characteristics.
BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions.
BB - An obligation rated BB is less vulnerable
to nonpayment than other speculative issues. However, it faces
major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to the obligor s
inadequate capacity to meet its financial commitment on the
obligation.
B - An obligation rated B is more vulnerable to
nonpayment than obligations rated BB , but the obligor currently
has the capacity to meet its financial commitment on the obligation.
Adverse business, financial or economic conditions will likely impair
the obligor s capacity or willingness to meet its financial commitment
on the obligation.
CCC - An obligation rated CCC is currently
vulnerable to nonpayment, and is dependent upon favorable business,
financial and economic conditions for the obligor to meet its financial
commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC - An obligation rated CC is currently highly
vulnerable to nonpayment.
C - The C rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action
taken, but payments on this obligation are being continued.
D - An obligation rated D is in payment default.
The D rating category is used when payments on an obligation are
not made on the date due even if the applicable grace period has
not expired, unless S&P s believes that such payments will be
made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from AA
through CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
c - The 'c' subscript is used to provide additional
information to investors that the bank may terminate its obligation to
purchase tendered bonds if the long-term credit rating of the issuer is
below an investment-grade level and/or the issuer's bonds are
deemed taxable.
p - The letter 'p' indicates that the rating is
provisional. A provisional rating assumes the successful completion
of the project financed by the debt being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful, timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of or the risk
of default upon failure of such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
* Continuance of the ratings is contingent upon
S&P's receipt of an executed copy of the escrow agreement or
closing documentation confirming investments and cash flows.
r - The 'r' highlights derivative, hybrid, and certain
other obligations that S&P's believes may experience high volatility
or high variability in expected returns as a result of noncredit risks.
Examples of such obligations are securities with principal or
interest return indexed to equities, commodities, or currencies;
certain swaps and options; and interest-only and principal-only
mortgage securities. The absence of an 'r' symbol should not be
taken as an indication that an obligation will exhibit no volatility
or variability in total return.
N.R. Not rated. Debt obligations of issuers
outside the United States and its territories are rated on the same
basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into
account currency exchange and related uncertainties.
The following summarizes the ratings used by Moody s
for corporate and municipal long-term debt:
Aaa - Bonds 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 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 risk appear
somewhat larger than the Aaa securities.
A - Bonds 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 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, B, Caa, Ca, and C - Bonds that
possess one of these ratings provide questionable protection of
interest and principal ( Ba indicates speculative elements; B
indicates a general lack of characteristics of desirable investment;
Caa indicates poor standing; Ca represents obligations which
are speculative in a high degree; and C represents the lowest
rated class of bonds). Caa, Ca and C bonds may be in
default.
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: Moody s applies numerical modifiers
1, 2, and 3 in each generic rating classification from Aa
through Caa . The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier
3 indicates a ranking in the lower end of its generic rating
category.
The following summarizes the ratings used
by Fitch IBCA for corporate and municipal bonds:
AAA - Bonds considered to be
investment grade and of the highest credit quality. These
ratings denote the lowest expectation of credit risk and are
assigned only in case of exceptionally strong capacity for
timely payment of financial commitments. This capacity
is highly unlikely to be adversely affected by foreseeable
events.
AA - Bonds considered to be
investment grade and of very high credit quality. These
ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A - Bonds considered to be investment
grade and of high credit quality. These ratings denote a
low expectation of credit risk and indicate strong capacity
for timely payment of financial commitments. This capacity
may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the
case for higher ratings.
BBB - Bonds considered to be
investment grade and of good credit quality. These ratings
denote that there is currently a low expectation of credit
risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse
changes in circumstances and in economic conditions are
more likely to impair this capacity. This is the lowest
investment grade category.
BB - Bonds considered to be
speculative. These ratings indicate that there is a
possibility of credit risk developing, particularly as the
result of adverse economic change over time; however,
business or financial alternatives may be available to
allow financial commitments to be met. Securities rated
in this category are not investment grade.
B - Bonds are considered highly
speculative. These ratings indicate that significant credit
risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however,
capacity for continued payment is contingent upon a
sustained, favorable business and economic environment.
CCC , CC , C - Bonds have high
default risk. Default is a real possibility, and capacity for
meeting financial commitments is solely reliant upon
sustained, favorable business or economic developments.
CC ratings indicate that default of some kind appears
probable, and C ratings signal imminent default.
DDD, DD and D - Bonds are in
default. The ratings of obligations in this category are
based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor.
While expected recovery values are highly speculative
and cannot be estimated with any precision, the following
serve as general guidelines. DDD obligations have the
highest potential for recovery, around 90%-100% of
outstanding amounts and accrued interest. DD
indicates potential recoveries in the range of 50%-90%,
and D the lowest recovery potential, i.e., below 50%.
Entities rated in this category have
defaulted on some or all of their obligations. Entities
rated DDD have the highest prospect for resumption
of performance or continued operation with or without a
formal reorganization process. Entities rated DD and
D are generally undergoing a formal reorganization or
liquidation process; those rated DD are likely to satisfy
a higher portion of their outstanding obligations, while
entities rated D have a poor prospect for repaying all
obligations.
To provide more detailed indications
of credit quality, the Fitch IBCA ratings from and
including AA to CCC may be modified by the
addition of a plus (+) or minus (-) sign to denote relative
standing within these major rating categories.
NR indicates the Fitch IBCA does
not rate the issuer or issue in question.
Withdrawn : A rating is withdrawn when
Fitch IBCA deems the amount of information available to
be inadequate for rating purposes, or when an obligation
matures, is called, or refinanced.
RatingAlert: Ratings are placed on
RatingAlert to notify investors that there is a reasonable
probability of a rating change and the likely direction of
such change. These are designated as Positive ,
indicating a potential upgrade, Negative , for a potential
downgrade, or Evolving , if ratings may be raised,
lowered or maintained. RatingAlert is typically
resolved over a relatively short period.
Municipal Note Ratings
A S&P s note rating reflects the liquidity
factors and market access risks unique to notes due in
three years or less. The following summarizes the ratings
used by S&P s for municipal notes:
SP-1 - The issuers of these municipal
notes exhibit a strong capacity to pay principal and
interest. Those issues determined to possess a very strong
capacity to pay debt service are given a plus (+) designation.
SP-2 - The issuers of these municipal
notes exhibit satisfactory capacity to pay principal and
interest, with some vulnerability to adverse financial and
economic changes over the term of the notes.
SP-3 - The issuers of these municipal
notes exhibit speculative capacity to pay principal and
interest.
Moody s ratings for state and municipal
notes and other short-term loans are designated Moody s
Investment Grade ( MIG ) and variable rate demand
obligations are designated Variable Moody s Investment
Grade ( VMIG ). Such ratings recognize the differences
between short-term credit risk and long-term risk. The
following summarizes the ratings by Moody s Investors
Service, Inc. for short-term notes:
MIG-1 / VMIG-1 - This designation
denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for
refinancing.
MIG-2 / VMIG-2 - This designation
denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG-3 / VMIG-3 - This designation
denotes favorable quality, with all security elements
accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may
be narrow and market access for refinancing is likely to
be less well established.
MIG-4 / VMIG-4 - This designation
denotes adequate quality. Protection commonly regarded
as required of an investment security is present and
although not distinctly or predominantly speculative, there
is specific risk.
SG - This designation denotes
speculative quality. Debt instruments in this category
lack margins of protection.
TAX INFORMATION
Each 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
a 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 a 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 (44) 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 (47) Director Sr. Account Executive, Federal Express
896 Puuikena Dr.
Honolulu, HI 96821
*Jean M. Chun (43) Secretary Corporate Secretary, First Pacific
920 Ward Ave., #12G Management Corporation; Corporate
Honolulu, HI 96814 Secretary, First Pacific Securities, Inc.
Lynden M. Keala (45) Director Account Executive, Xpedx
47-532 Hui Iwa St. (Distribution Division of International Paper)
Kaneohe, HI 96744 Account Executive, Reynolds & Reynolds
(formerly Vanier Business Forms)
*Terrence K.H. Lee (42) Director, President President, First Pacific Management Corp.;
1441 Victoria St., #901 President, First Pacific Securities, Inc.
Honolulu, HI 96822
Stuart S. Marlowe (59) Director Vice President/General Manager Navarre Corp.
274 Poipu Drive (Distributor of music and software products.)
Honolulu, HI 96825
*Charlotte A. Meyer (46) 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 (55) Director Exec. Director, Building Industry Association
3160 Waialae Avenue President, Wallpaper Hawaii, Ltd.
Honolulu, HI 96816
Kim F. Scoggins (52) 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 $600.00 0 0 $600.00
Director
Lynden M. Keala $600.00 0 0 $600.00
Director
Terrence K.H. Lee 0 0 0 0
Director, President
Stuart S. Marlowe $300.00 0 0 $300.00
Director
Karen T. Nakamura $300.00 0 0 $300.00
Director
Kim F. Scoggins $600.00 0 0 $600.00
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
1999 $581,901 $0
1998 $545,987 $0
1997 $318,926 $0
Fees paid by the Intermediate Fund for the three most recent fiscal years:
Investment Management Management
Agreement Fees Waived
1999 $28,733 $5,147
1998 $29,058 $18,597
1997 $31,806 $14,396
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.
In the event the expenses of each Fund for any fiscal year exceed
the limit set by applicable regulation of state securities commissions, if any,
the compensation due to the manager hereunder will be reduced by the
amount of such excess.
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.
As of January 21, 2000, 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
14.64%%
United Fishing Agency, Ltd.
Attn: Frank Goto
117 Ahui Street
Honolulu, HI 96813
5.25%
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, and First Hawaii Intermediate
Municipal 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 American Data
Services, Inc., for 1999, and First Pacific Recordkeeping, Inc. for
1998 and 1997.
Fees paid by the Bond Fund for the three most recent fiscal years:
Fund Accounting Fund Accounting
Agreement Fees Waived
1999 $57,829 $0
1998 $44,485 $0
1997 $47,525 $851
Fees paid by the Intermediate Fund for the three most recent fiscal years:
Fund Accounting Fund Accounting
Agreement Fees Waived
1999 $3,911 $0
1998 $21,500 $13,128
1997 $23,610 $9,893
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: 1999-none, 1998-none, 1997-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 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 $5,408; Seminars and
Meetings $2,201; Printing $1,479; Rent $18,686, Utilities $982;
Telephone $4,812; Salaries and Wages $128,192; Employee Benefits
$2,651; Miscellaneous $636; Total $165,047.
Distribution Plan payments by the Intermediate Fund, by category, for
the most recent fiscal year are as follows: none; Total $0.
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
1999 $70,112 $0 $116,380 $0
1998 $58,955 $0 $109,197 $0
1997 $45,135 $479 $63,785 $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
1999 $4,687 $0 $0 $0
1998 $14,400 $3,272 $1,844 $1,844
1997 $31,806 $14,396 $6,361 $6,361
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, 1999 are
set forth below:
Month Ended
09/30/99
First Hawaii Municipal Bond Fund 5.09%
First Hawaii Intermediate Municipal Fund 4.25%
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 $1,000
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 $1,000 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, 1999 are set forth below:
Since
One Year Five Years Ten Years Inception
First Hawaii
Municipal Bond Fund (.07)% 5.43% 6.15% -------
(Inception November 23, 1988)
First Hawaii
Intermediate Municipal Fund 1.51% 4.69% ------ 4.62%
(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 1999
Annual Report to Shareholders is incorporated by reference to this
SAI.
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 Post-effective Amendment #11 to Form
N-1A registration.
(b) By-Laws.*
Filed with Post-effective Amendment #11 to 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 Post-effective Amendment #14 to Form
N-1A registration.
(h) Other Material Contracts.
(1) Administration Agreement
Filed with Form N-1A registration.
(2) Selling Dealer Agreement.*
Filed with Pre-effective Amendment #1 to Form
N-1A registration.
(3) Transfer Agent Agreement.*
Filed with Post-effective Amendment #14 to Form
N-1A registration.
(4) Accounting Services Agreement.
Filed with Form N-1A registration.
(5) Shareholder Services Agreement.*
Filed with Post-effective Amendment #14 to Form
N-1A registration.
(i) Legal Opinion.
The legal opinion of Drinker, Biddle & Reath, LLP is filed
herewith.
(j) Other Opinions.
The consent of Tait, Weller & Baker, Independent Certified
Public Accountants is filed herewith.
(k) Omitted Financial Statements.
(l) Initial Capital Agreements.
Filed with Pre-effective Amendment #1 to Form N-1A.
(m) Rule 12b-1 Plan.
Filed with Form N-1A registration.
(n) Financial Data Schedule.
None.
(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
2310 S. Ridgeview Way
Boise, ID 83712
</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 certifies that it meets all
of the requirements for effectiveness of this registration statement under
Rule 485(b) under the Securities Act of 1933 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
duly authorized, in the City of Honolulu, and State of Hawaii on the 20th
day of January, 2000.
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 January 20, 2000
Terrence K.H. Lee Executive and Director
/s/ Samuel L. Chesser Director January 20, 2000
Samuel L. Chesser
/s/ Clayton W.H. Chow Director January 20, 2000
Clayton W.H. Chow
/s/ Lynden M. Keala Director January 20, 2000
Lynden M. Keala
/s/ Stuart S. Marlowe Director January 20, 2000
Stuart S. Marlowe
/s/ Charlotte A. Meyer Treasurer January 20, 2000
Charlotte A. Meyer (Chief Financial Officer)
/s/ Karen T. Nakamura Director January 20, 2000
Karen T. Nakamura
/s/ Kim F. Scoggins Director January 20, 2000
Kim F. Scoggins
EXHIBIT INDEX
Item 23.
(d) Investment Management Agreement
(e) Underwriting Agreement
(h) (1) Administration Agreement
(h) (4) Accounting Services Agreement
(i) Opinion and Consent of Counsel
(j) Accountant's Consent
(m) Rule 12b-1 Plan Agreement
FUND ACCOUNTING SERVICE AGREEMENT
between
FIRST PACIFIC MUTUAL FUND, INC.
and
AMERICAN DATA SERVICES, INC.
INDEX
1. DUTIES OF ADS . . . . . . . . . . . . . . . . . . . . . . . . .2
2. COMPENSATION OF ADS . . . . . . . . . . . . . . . . . . . . . . 3
3. LIMITATION OF LIABILITY OF ADS . . . . . . . . . . . . . . . . .3
4. REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
5. ACTIVITIES OF ADS. . . . . . . . . . . . . . . . . . . . . . . .4
6. ACCOUNTS AND RECORDS . . . . . . . . . . . . . . . . . . . . . .4
7. CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . .4
8. DURATION AND TERMINATION OF THIS AGREEMENT . . . . . . . . . . .4
9. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .4
10. NEW YORK LAWS TO APPLY. . . . . . . . . . . . . . . . . . . . .4
11. AMENDMENTS TO THIS AGREEMENT. . . . . . . . . . . . . . . . . .4
12. MERGER OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . .4
13. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SCHEDULE A . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
(A) FUND ACCOUNTING SERVICE FEE . . . . . . . . . . . . . . . . . .6
(B) EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
(C) SPECIAL REPORTS . . . . . . . . . . . . . . . . . . . . . . . .6
(D) CONVERSION CHARGE . . . . . . . . . . . . . . . . . . . . . . .7
SCHEDULE B . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
FUND ACCOUNTING SERVICE AGREEMENT
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 ).
BACKGROUND
WHEREAS, the Fund is a diversified, open-end management investment company
registered with the United States 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 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
AMENDMENT TO FUND ACCOUNTING SERVICE AGREEMENT
between
First Pacific Mutual Fund, Inc.
and
American Data Services, Inc.
Dated October 1, 1999
SCHEDULE B:
PORTFOLIOS TO BE SERVICED UNDER THIS AGREEMENT:
First Hawaii Municipal Bond Fund
First Hawaii Intermediate Municipal Fund
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below 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
AMERICAN DATA SERVICES, INC.
By:____/s/ Michael Miola________________________________
Michael Miola, President
FIRST PACIFIC MUTUAL FUND, INC.
DISTRIBUTION AGREEMENT
THIS AGREEMENT made this 16th day of March, 1994, amended January 29,
1996, by and between FIRST PACIFIC MUTUAL FUND, INC., a Maryland corporation
with an office located at 2756 Woodlawn Drive, Suite #6-201, Honolulu,
Hawaii, (the "Corporation"), for the First Hawaii Municipal Bond Fund
series and First Hawaii Intermediate Municipal Fund series, the First Idaho
Tax-Free Fund series (all references to any series of the Corporation will
be called the "Fund" unless expressly noted otherwise) and FIRST PACIFIC
SECURITIES, INC., a Hawaii corporation, with its principal office located
at 2756 Woodlawn Drive, Suite #6-201, Honolulu, Hawaii (the "Distributor").
WITNESSETH:
In consideration of the mutual covenants and agreements of the parties
hereto, the parties intending to be bound, mutually covenant and agree with
each other as follows:
1. The Corporation, on behalf of each Fund, hereby appoints the
Distributor as agent of each Fund to effect the sale and public distribution
of shares of the capital stock of each Fund. This appointment is made by
the Corporation of each Fund and accepted by the Distributor upon the
understanding that the distribution of shares of each Fund to the public
be effected by the Distributor or through various securities dealers,
either individuals or organizations, but that it shall be done in such a
manner that each Fund shall be under no responsibility or liability to any
person whatsoever on account of the acts and statements of any such
individual or organization. The Distributor shall have the sole right to
select the security dealers to whom shares will be offered by it and,
subject to express provisions of this Agreement, applicable securities
laws, the Corporation's Articles of Incorporation and the By-Laws and the
then current Prospectus of each Fund, to determine the terms and prices in
any contract for the sale of shares to any dealer made by it as such agent
for each Fund.
2. The Distributor shall be the exclusive agent for each Fund for the
sale of its shares and each Fund agrees that it will not sell any shares to
any person except to fill orders for the shares received through the
Distributor; provided, however, that the foregoing exclusive right shall
not apply: (a) to shares issued or sold in connection with the merger or
consolidation of any other investment company with each Fund or the
acquisition by purchase or otherwise of all or substantially all of the
assets of any investment company or substantially all of the outstanding
shares of any such company by each Fund; (b) to shares which may be offered
by each Fund to its stockholders for reinvestment of cash distributed from
capital gains of net investment income of each Fund; or (c) to shares which
may be issued to shareholders of other funds who exercise any exchange
privilege set forth in the Funds' Prospectus.
3. The Distributor shall have the right to sell the shares of each
Fund's capital stock to dealers, as needed (making reasonable allowance for
the clerical errors and errors of transmission), but not more than the
shares needed to fill unconditional orders for shares placed with the
Distributor by dealers. In every case, the Distributor shall charge the
public offering price and each Fund shall receive the net asset value for
shares sold, determined as provided in Paragraph 4 hereof. The Distributor
shall notify each Fund at the close of each business day (normally 5:00 pm
Eastern Standard Time), of the number of shares sold during each day.
Notwithstanding the foregoing, each Fund may sell its shares to certain
affiliated persons at net asset value, as described in the Prospectus.
4. (a) The public offering price for the First Hawaii Municipal Bond
Fund series and the First Hawaii Intermediate Municipal Fund series consists
of the net asset value per share. The public offering price of the First
Idaho Tax-Free Fund series consists of the net asset value plus any
applicable sales charge as follows:
<TABLE>
<C> <C> <C> <C>
Concession to
As a % of Net Dealers as a
Amount of As a % of Amount % of Amount
Investment Offering Price Invested Invested
_______________________________________________________________________________
Less than $50,000 2.75% 2.83% 2.25%
$50,000 but less
than $100,000 2.25% 2.30% 1.75%
$100,000 but less
than $250,000 1.75% 1.78% 1.25%
$250,000 but less
than $500,000 1.25% 1.27% 0.95%
$500,000 but less
than $1,000,000 1.00% 1.01% 0.80%
$1,000,000 and over 0.00% 0.00% 0.25%
</TABLE>
(b) The net asset value of shares of each Fund shall be determined
by each Fund or each Fund's custodian, or such officer or officers or other
persons the Board of Directors of the Corporation may designate. The
determination shall be made once a day on which the New York Stock Exchange
is open for business and in accordance with the method set out in the By-Laws
of the Corporation and the current Prospectus of the Funds.
5. The Distributor agrees that it will not sell any shares of any Fund
to any officer, director, or partner of either the Distributor or of the
Corporation or any firm or corporation which may be employed by each Fund or
by the Distributor except for investment purposes only and where
the purchaser agrees not to resell the securities to anyone except the Fund.
The Distributor further agrees that it will promptly advise the Secretary of
the Corporation of all sales of shares of each Fund to, or purchase of
shares of each Fund from any such person.
6. The Distributor agrees that it will not for its own account purchase
any shares of each Fund except for investment purposes and that it will not
for its own account sell any such shares excepting only those shares which
it may own at the time of executing this Agreement and any shares resulting
from the reinvestment of dividends paid on those shares, and the Distributor
will not sell other shares except by redemption of such shares by each Fund.
7. (a) On behalf of each Fund, the Corporation appoints and designates
the Distributor as agents of each Fund and the Distributor accepts such
appointments as such agent, to repurchase shares of each Fund in accordance
with the provisions of the Articles of Incorporation and By-Laws of the
Corporation.
(b) In connection with such redemptions or repurchases, the
Corporation authorizes and designates the Distributor to take any action,
to make any adjustments in net asset value, and to make any arrangements for
the payment of the redemption or repurchase price authorized or permitted to
be taken or made in accordance with the Investment Company Act of 1940 and
as set forth in the By-Laws and then current Prospectus of the Funds.
(c) The authority of the Distributor under this Paragraph 7 may,
with the consent of the Corporation, be delegated in whole or in part to
another person or firm.
(d) The authority granted in this Paragraph 7 may be suspended by
the Corporation at any time or from time to time pursuant to the provisions
of its Articles of Incorporation until further notice to the Distributor.
The President or any Vice President of the Corporation shall have
the power granted by said provision. After any such suspension the
authority granted to the Distributor by this Paragraph 7 shall be
reinstated only by a written instrument executed on behalf of each Fund by
the Corporation's President or any Vice President.
8. The Corporation agrees that it will cooperate with the Distributor
to prepare, execute and file applications for registration and qualification
of each Fund's shares for sale under the laws of the United States and the
provisions and regulations of the U.S. Securities and Exchange Commission
and under the Securities Acts of such States and in such amounts as the
Corporation may determine, and shall pay registration fees in connection
therewith. The Distributor shall bear all expenses incident to the sale of
shares of each Fund, including without limitation, the cost of any
sales material or literature, the cost of copies of the prospectus used as
sales material (except those being sent to existing shareholders) and the
cost of any reports or proxy material prepared for each Fund's stockholders
to the extent that such material is used in connection with the sale of
shares of each Fund except to the extent that each Fund is obligated to
bear such costs under a distribution plan adopted by each Fund.
9. For its services under this Agreement, the Distributor shall be
entitled to receive the maximum amount of the payment called for under each
Fund's Distribution Plan (the "Plan") adopted pursuant to the Investment
Company Act of 1940 Rule 12b-1 (the "Rule"). The Distributor may make
payments to others from such amounts in accordance with the Plan or any
agreement in effect under such Plan. The Distributor agrees to comply with
the Rule and the Plan in connection with receipt and disbursement of funds
under the Plan.
10. Notwithstanding anything contained herein to the contrary, shares
of each Fund may be offered for sale at a price, if such reduction or
elimination is authorized by an order of the Securities and Exchange
Commission, or the Investment Company Act of 1940 or if the rules and
regulations promulgated thereunder provide for such variation. Furthermore,
such shares may be offered and sold directly by each Fund rather than by the
Distributor as otherwise provided in this Agreement.
11. This Agreement shall become effective January 29, 1996 and shall
continue in effect for a period of more than one year from its effective
date only as long as such continuance is approved, at least annually, by the
Board of Directors of the Corporation, including a majority of those
Directors who are not "interested persons" of any party to this Agreement,
voting in person at a meeting called for the purpose of voting on such
approval. If payments hereunder are made pursuant to provisions of a plan
adopted by each Fund pursuant to the Investment Company Act of
1940 rule 12b-1, then renewals hereof shall also be made in accordance with
the requirements of such rule. This Agreement may be terminated by either
party hereto upon thirty (30) days written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment by the Distributor (as the term "assignment" is defined by the
Investment Company Act of 1940, as amended) unless the United States
Securities and Exchange Commission has issued and order exempting each Fund
and the Distributor from the provisions of the Investment Company Act
of 1940, as amended, which would otherwise have effected the termination of
this Agreement.
12. No Amendment to this Agreement shall be executed or become
effective unless its terms have been approved: (a) by a majority of the
directors of the Corporation or by the vote of a majority of the outstanding
voting securities of each Fund, and (b) by a majority of those directors
who are not interested persons of the Funds or of any party to this Agreement.
13. The Corporation, on behalf of each Fund, and the Distributor hereby
each agree that all literature and publicity issued by either of them
referring directly or indirectly to each Fund or the Distributor shall be
submitted to and receive the approval of the Corporation and the Distributor
before the same may be used by either party.
14. (a) The Distributor agrees to use its best efforts in effecting the
sale and public distribution of the shares of each Fund through dealers and to
perform its duties in redeeming and repurchasing the shares of each Fund, but
nothing contained in this Agreement shall make the Distributor or any of its
officers and directors or shareholders liable for any loss sustained by each
Fund or any of the Corporation's officers, directors or shareholders, or by
any other person on account of any act done or omitted to be done by the
Distributor under this Agreement provided that nothing herein contained
shall protect the Distributor against any liability to each Fund or to any
of its shareholders to which the Distributor would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties as Distributor or by reason of its reckless
disregard of its obligations or duties as Distributor under this Agreement.
Nothing in this Agreement shall protect the Distributor from any liabilities
which it may have under the Securities Act of 1933 or the Investment Company
Act of 1940.
(b) The Distributor may, from time to time, enter into agreements
with security dealers and other qualified entities such amounts as it deems
appropriate, provided that such payments are permitted by the then current
distribution plan adopted by each Fund in accordance with Rule 12b-1 of the
Investment Company Act of 1940, as amended.
15. As used in this Agreement, the terms "interested person",
"assignment", and "majority of the outstanding voting securities" shall
have the respective meanings specified in the Investment Company Act of
1940 as now in effect.
IN WITNESS WHEREOF, FIRST PACIFIC MUTUAL FUND, INC. for the First Hawaii
Municipal Bond Fund series, the First Hawaii Intermediate Municipal Fund
series, the First Idaho Tax-Free Fund series, and FIRST PACIFIC SECURITIES,
INC. have caused this Agreement to be signed by their duly authorized
officers and their corporate seals to be hereto duly affixed all on 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 SECURITIES, INC.
By:____/s/ Terrence K.H. Lee_________________
Terrence K.H. Lee, President
[Corporate Seal]
Attest:_/s/ Jean Chun________________________
Jean Chun, Secretary
AMENDMENT TO DISTRIBUTION AGREEMENT
Dated February 1, 1999
The following Section of the Distribution Agreement dated March 16, 1994
is Amended as follows:
Section 4. (a) The public offering price for the First Hawaii Municipal Bond
Fund series, the First Hawaii Intermediate Municipal Fund series and the First
Idaho Tax-Free Fund series consists of the net asset value per share.
IN WITNESS WHEREOF, FIRST PACIFIC MUTUAL FUND, INC. for the First Hawaii
Municipal Bond Fund series, the First Hawaii Intermediate Municipal Fund
series and the First Idaho Tax-Free Fund series, and FIRST PACIFIC
SECURITIES, INC. have caused this Agreement to be signed by their duly
authorized officers and their corporate seals to be hereto duly affixed all
on 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 SECURITIES, INC.
By:____/s/ Terrence K.H. Lee_________________
Terrence K.H. Lee, President
[Corporate Seal]
Attest:_/s/ Jean Chun________________________
Jean Chun, Secretary
AMENDMENT TO DISTRIBUTION AGREEMENT
Dated October 1, 1999
The First Idaho Tax-Free Fund has terminated any and all affiliations
with this Distribution Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below 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 SECURITIES, 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.
FIRST HAWAII MUNICIPAL BOND FUND
FIRST HAWAII INTERMEDIATE MUNICIPAL FUND
ADMINISTRATIVE AGREEMENT
ADMINISTRATIVE AGREEMENT made this 14th day of October, 1999, by and
between First Pacific Mutual Fund, Inc., a Maryland corporation, (the
"Corporation") for the First Hawaii Municipal Bond Fund series, the First
Hawaii Intermediate Municipal Fund series, and First Pacific Management
Corporation, a Hawaii corporation (the "Administrator"). All references
to any series of the Corporation will be called the "Fund" unless expressly
noted otherwise.
BACKGROUND
Each Fund, a series of the Corporation, is organized and operated as an
open-end, non-diversified management investment company, registered under
the Investment Company Act of 1940 as amended (the "1940 Act"). The
Corporation desires to retain the Administrator to render administrative
services to each Fund, and the Administrator is willing to render such
services on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. The Corporation hereby appoints the Administrator to act as
administrator to each Fund, subject to the supervision and direction of the
Board of Directors of each Fund, for the period and on the terms set forth
in this Agreement. The Administrator accepts such appointment and
agrees to render the services herein described, for the compensation herein
provided.
2. The Administrator shall furnish each Fund administrative services.
Administrative services shall include the compliance matters of each Fund.
Compliance for each Fund includes, but is not limited to: filings with the
Securities and Exchange Commission, the National Association of Securities
Dealers, and state and other regulatory organizations (updating, amending
and filing prospectus, annual and semi-annual reports, proxy material and
blue sky requirements); establishing and maintaining written supervisory
procedures and compliance manuals; researching and communicating changes
in applicable rules and regulations; preserving all books and records.
(a) The Administrator shall use its best judgement in the
performance of its duties under this Agreement.
(b) The Administrator, in the performance of its duties and
obligations under this Agreement, shall act in conformity with the
Corporation's Articles of Incorporation and By-Laws, and the Prospectus of
each Fund and the instructions and directions of the Board of Directors of
the Corporation, and will conform to and comply with the requirements of the
1940 Act and all other applicable federal and state laws and regulations.
(c) The Administrator shall maintain all books and records and
shall render to the Corporation's Board of Directors such periodic and
special reports as the Board may reasonably request.
(d) The services provided by the Administrator hereunder are not
to be deemed exclusive, and the Administrator shall be free to render
similar services to others. While information and recommendations supplied
to each Fund shall, in the Administrator's judgement, be appropriate
under the circumstances, they may be different from the information supplied
to other investment companies and customers. Each Fund shall be entitled to
equitable treatment under the circumstances in receiving information, and
any other services, but each Fund shall not be entitled to receive
preferential treatment as compared with the treatment given to any other
investment company or customer.
(e) The Administrator shall perform such other services as are
reasonably incidental to the foregoing duties.
3. The Administrator agrees that no officer or director of the
Administrator, or of any affiliate of the Administrator, will deal for or
on behalf of each Fund with himself as principal or agent, or with any
corporation, partnership or other person in which he may have a financial
interest, except that this shall not prohibit:
(a) Officers and directors of the Administrator, or of any
affiliate of the Administrator, from having a financial interest in each
Fund, in the Administrator or any affiliate of the Administrator.
(b) Officers and directors of the Administrator, or of any
affiliate of the Administrator, from providing services to each Fund of a
type usually and customarily provided to an investment company, pursuant to
a written agreement approved by the Board of Directors of each Fund,
including a majority of the disinterested directors of each Fund (as
defined in the 1940 Act).
4. If any occasion should arise in which the Administrator or any of
its officers or directors advises persons concerning the shares of each
Fund, the Administrator or such officer or director will act solely on its,
her or his own behalf and not in any way on behalf of each Fund.
5. The Administrator agrees that, except as herein otherwise expressly
provided, neither it nor any of its officers or directors shall at any time
during the period of this Agreement make, accept or receive, directly or
indirectly, any fees, profits or emoluments of any character in connection
with the purchase or sale of securities (except securities issued by each
Fund) or other assets by or for each Fund.
6. The Administrator shall keep each Funds books and records required
to be maintained by it pursuant to paragraph 3 hereof. The Administrator
agrees that all records which it maintains for each Fund are the property of
each Fund and it will surrender promptly to each Fund any of such records
upon each Funds' request. The Administrator further agrees to preserve for
the periods prescribed by Rule 31a-2 of the Commission under the 1940 Act
any such records as are required to be maintained by the Administrator
pursuant to paragraph 2 hereof.
7. For the services provided and the expenses assumed pursuant to
this Agreement, each Fund will pay to the Administrator as full compensation
therefor a fee at an annualized rate of up to .05% of each Funds' average
daily net assets. This fee will be compounded daily as of the close
of business and will be paid to the Administrator monthly within ten
(10) business days after the last day of each month and such management
fee shall be adjusted, if necessary, at the time of the payment due in the
last month in the fiscal year of each Fund. The Administrator fee shall be
prorated for any fraction of a month at the commencement or termination of
this Agreement.
8. In the event the expenses of each Fund for any fiscal year (including
the fees payable to the Administrator but excluding interest, taxes, brokerage
commissions, distribution fees, amortization of organization expenses and
litigation and indemnification expenses and other extraordinary expenses
not incurred in the ordinary course of each funds' business) exceed the
limit set by applicable regulation of state securities commissions, if any,
the compensation due to the Administrator hereunder will be reduced by the
amount of such excess of postponed so that at no time will there be any
accrued but unpaid liability under this expense limitation. Any such
reductions or payments are subject to readjustment during the year, and
the Administrator's obligation hereunder will be limited to the amount of
its fee paid or accrued with respect to such fiscal year.
9. The Administrator shall give each Fund the benefit of its best
judgement and effort in rendering service hereunder. The Administrator shall
not be liable for any error of judgement or mistake of law for any loss
suffered by each Fund in connection with the matters to which this
Agreement relates, except a loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services (in which
case any award of damages shall be limited to the period and the amount set
forth in Section 36(b)(3) of the 1940 Act) of a loss resulting from willful
misfeasance, bad faith or negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under
this Agreement. Any person employed by the Administrator, who may be or
become an employee of and paid by any other entity affiliated with each
Fund, such as the manager, distributor, or custodian to each Fund, shall be
deemed, when acting within the scope of his employment by such other
affiliated entity, to be acting in such employment solely for such
other affiliated entity and not as the Administrator's employee or agent.
10. This Agreement shall continue in effect for a period of more than
two (2) years from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the requirements
of the 1940 Act; provided, however, that this Agreement may be
terminated by each Fund at any time, without the payment of any penalty,
by the Board of Directors of each Fund or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of each Fund,
or by the Administrator at any time, without the payment of any penalty,
on not more than sixty (60) days nor less than thirty (30) days written
notice to the other party. This Agreement shall terminate automatically in
the event of its assignment (as defined in the 1940 Act).
11. Nothing in this Agreement shall limit or restrict the right of any
of the Administrator's directors, officers, or employees who may also be a
director, officer or employee of each Fund to engage in any other business
or to devote his time and attention in part to the administration or other
aspects of any business, whether of a similar or dissimilar nature, nor
limit nor restrict the Administrator's right to engage in any other business
or to render services of any kind to any other corporation, firm, individual
or association. Nothing in this Agreement shall prevent the Administrator
or any affiliated person (as defined in the 1940 Act) of the Administrator
from acting as administrator for any other person, firm or corporation and
expressly represents that it will undertake no activities which, in its
judgement, will adversely affect the performance of its obligations to each
Fund under the Agreement.
12. Neither this Agreement nor any transaction made pursuant hereto
shall be invalidated or in any way affected by the fact that directors,
officers, agents and/or shareholders of each Fund are or may be interested
in the Administrator, or any successor or assignee thereof, as directors,
officers, shareholders or otherwise; that directors, officers, shareholders
or agents of the Administrator are or may be interested in each Fund as
directors, officers, shareholders or otherwise; or that the Administrator
or any successor or assignee, is or may be interested in each Fund as
shareholders or otherwise; provided, however, that neither the Administrator
nor any officer or director of the Administrator or of the Corporation shall
sell to or buy from each Fund any property or security other than a security
issued by the Fund, except in accordance with an applicable order or
exemptive rule of the Commission.
13. Except as otherwise provided herein or authorized by the Board of
Directors of the Corporation from time to time, the Administrator shall for
all purposes herein deemed to be an independent contractor, and, except as
expressly provided or authorized in this Agreement, shall have no authority
to act for or represent each Fund in any way or otherwise be deemed an agent
of each Fund. Each Fund and the Administrator are not partners or joint
venturers with each other and nothing herein shall be construed so as to
make them such partners or joint venturers or impose any liability as such
on either of them.
14. During the term of this Agreement, the Corporation agrees to
furnish the Administrator at its principal office with all prospectuses,
proxy statements, report to stockholders, sales literature, or other
material prepared for distribution to stockholders of each Fund or the
public, which refer to the Administrator in any way, prior to use thereof
and not to use such material if the Administrator reasonably objects in
writing within five (5) business days (or such other time as may
be mutually agreed) after receipt thereof. In the event of termination of
this Agreement, the Corporation will continue to furnish to the
Administrator copies of any of the above mentioned materials which refer
in any way to the Administrator. The Corporation shall furnish or otherwise
make available to the Administrator such other information relating to the
business affairs of the Corporation or of each Fund as the Administrator at
any time, or from time to time, reasonably requests in order to discharge
its obligations hereunder.
15. This Agreement may be amended by mutual consent, but the consent of
each Fund must be obtained in conformity with the requirement of the 1940 Act.
16. This Agreement shall be subject to all applicable provisions of law,
including, without limitation, the applicable provisions of the 1940 Act.
17. This Agreement shall be governed by an construed in accordance with
the laws of the State of Hawaii.
18. Compensation to be paid to the Administrator hereunder shall be
separate and distinct from organizational expenses, if any, to be reimbursed
to the Administrator.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below 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 MANAGEMENT CORPORATION
By:____/s/ Terrence K.H. Lee_______________________
Terrence K.H. Lee, President
[Corporate Seal]
Attest:__/s/ Jean Chun_____________________________
Jean Chun, Secretary
FUND ACCOUNTING SERVICE AGREEMENT
between
FIRST PACIFIC MUTUAL FUND, INC.
and
AMERICAN DATA SERVICES, INC.
INDEX
1. DUTIES OF ADS . . . . . . . . . . . . . . . . . . . . . . . . .2
2. COMPENSATION OF ADS . . . . . . . . . . . . . . . . . . . . . . 3
3. LIMITATION OF LIABILITY OF ADS . . . . . . . . . . . . . . . . .3
4. REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
5. ACTIVITIES OF ADS. . . . . . . . . . . . . . . . . . . . . . . .4
6. ACCOUNTS AND RECORDS . . . . . . . . . . . . . . . . . . . . . .4
7. CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . .4
8. DURATION AND TERMINATION OF THIS AGREEMENT . . . . . . . . . . .4
9. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .4
10. NEW YORK LAWS TO APPLY. . . . . . . . . . . . . . . . . . . . .4
11. AMENDMENTS TO THIS AGREEMENT. . . . . . . . . . . . . . . . . .4
12. MERGER OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . .4
13. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SCHEDULE A . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
(A) FUND ACCOUNTING SERVICE FEE . . . . . . . . . . . . . . . . . .6
(B) EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
(C) SPECIAL REPORTS . . . . . . . . . . . . . . . . . . . . . . . .6
(D) CONVERSION CHARGE . . . . . . . . . . . . . . . . . . . . . . .7
SCHEDULE B . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
FUND ACCOUNTING SERVICE AGREEMENT
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 ).
BACKGROUND
WHEREAS, the Fund is a diversified, open-end management investment company
registered with the United States 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 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
AMENDMENT TO FUND ACCOUNTING SERVICE AGREEMENT
between
First Pacific Mutual Fund, Inc.
and
American Data Services, Inc.
Dated October 1, 1999
SCHEDULE B:
PORTFOLIOS TO BE SERVICED UNDER THIS AGREEMENT:
First Hawaii Municipal Bond Fund
First Hawaii Intermediate Municipal Fund
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below 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
AMERICAN DATA SERVICES, INC.
By:____/s/ Michael Miola________________________________
Michael Miola, President
LAW OFFICES
DRINKER BIDDLE & REATH LLP
ONE LOGAN SQUARE
18th & CHERRY STREETS
PHILADELPHIA, PA 19103-6996
TELEPHONE: (215) 988-2700
FAX: (215) 988-2757
January 21, 2000
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. 15 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. 15 to the Registration Statement to be filed by the Fund with the
Securities and Exchange Commission.
Very truly yours,
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 October 21, 1999 on the financial
statements and financial highlights of First Hawaii Municipal Bond Fund
and First Hawaii Intermediate Municipal Fund, each a series of shares of
First Pacific Mutual Fund, Inc. Such financial statements and financial
highlights appear in the 1999 Annual Report to Shareholders which are
incorporated by reference in the Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 24, 2000
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:_____________________________________
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:_______________________________
AMENDMENT TO DISTRIBUTION PLAN AGREEMENT
Dated October 1, 1999
The First Idaho Tax-Free Fund has terminated any and all affiliations
with this Distribution Plan Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below 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
