| HAWAIIAN TAX-FREE TRUST |
| SCHEDULE OF INVESTMENTS (continued) |
| SEPTEMBER 30, 2011 (unaudited) |
| |
| |
| Principal | | | | Rating | | | |
| Amount | | Revenue Bonds (continued) | | Moody’s/S&P | | Value | |
| | |
| | | University of Hawaii, Series A | | | | | |
| $ | 1,000,000 | | 4.000%, 10/01/18 | | Aa2/A+ | | $ | 1,120,830 | |
| | 2,000,000 | | 5.250%, 10/01/34 | | Aa2/A+ | | | 2,183,800 | |
| | | | University of Hawaii, Series A-2 | | | | | | |
| | 1,000,000 | | 4.000%, 10/01/14 | | Aa2/A+ | | | 1,087,810 | |
| | 500,000 | | 4.000%, 10/01/15 | | Aa2/A+ | | | 554,575 | |
| | 2,175,000 | | 4.000%, 10/01/17 | | Aa2/A+ | | | 2,444,200 | |
| | 1,000,000 | | 4.000%, 10/01/19 | | Aa2/A+ | | | 1,121,090 | |
| | | | University of Hawaii, Series B-2 | | | | | | |
| | 1,500,000 | | 4.000%, 10/01/14 | | Aa2/A+ | | | 1,631,715 | |
| | | | University of Hawaii, AGM-ICC NPFG Insured | | | | | | |
| | 2,000,000 | | 5.000%, 10/01/23 | | Aa2/AA+ | | | 2,203,540 | |
| | | | University of Hawaii, University System, FGIC Insured, | | | | | | |
| | | | Prerefunded to 07/12/12 @100 Collateral: State and | | | | | | |
| | | | Local Government Securities | | | | | | |
| | 1,650,000 | | 5.125%, 07/15/32 | | Aa2/A+ | | | 1,712,585 | |
| | | | Total Revenue Bonds | | | | | 312,573,942 | |
| | |
| | | | Total Investments (cost $742,501,758-note 4) | | 94.1% | | | 783,398,429 | |
| | | | Other assets less liabilities | | 5.9 | | | 49,524,113 | |
| | | | NET ASSETS | | 100.0% | | $ | 832,922,542 | |
| | | | | | | | | | |
| | | * | Variable rate demand obligations (VRDOs) are payable upon demand within the same day for securities with daily liquidity or seven days for securities with weekly liquidity. | | | | |
| | | | | | | | | | |
| | | ** | Any security not rated (NR) by any of the Nationally Recognized Statistical Rating Organizations (“NRSRO” or “credit rating agency”) has been determined by the Investment Adviser to have sufficient quality to be ranked in the top four credit ratings if a credit rating were to be assigned by a NRSRO. | | | | |
| | | | | | | | |
| | | Fitch Ratings: *** AA **** A | | | | |
| HAWAIIAN TAX-FREE TRUST |
| SCHEDULE OF INVESTMENTS (continued) |
| SEPTEMBER 30, 2011 (unaudited) |
| | | | Percent of | | |
| | Portfolio Distribution by Quality Rating | | Portfolio † | | |
| | | | | 5.6 | % | |
| | Prerefunded bonds †† / Escrowed to Maturity bonds | | | 6.7 | | |
| | Aa of Moody’s or AA or S&P | | | 71.6 | | |
| | A of Moody’s | | | 13.1 | | |
| | Baa of Moody’s | | | 2.6 | | |
| | Not rated** | | | 0.4 | | |
| | | | | 100.0 | % | |
| | † | Calculated using the Moody’s rating unless otherwise noted. | |
| | †† | Pre-refunded bonds are bonds for which U.S. Government Obligations have been placed in escrow to retire the bonds at their earliest call date. | |
| | | |
| | | | PORTFOLIO ABBREVIATIONS: | |
| | | ABAG | Association of Bay Area Governments | |
| | | AGC | Assured Guaranty Insurance | |
| | | AGM | Assured Guaranty Municipal Corp. | |
| | | AMBAC | American Municipal Bond Assurance Corporation | |
| | | AMT | Alternative Minimum Tax | |
| | | CR | Custodial Receipts | |
| | | FGIC | Financial Guaranty Insurance Co. | |
| | | FHLMC | Federal Home Loan Mortgage Corporation | |
| | | FNMA | Federal National Mortgage Association | |
| | | ICC | Insured Custody Certificate | |
| | | LOC | Letter of Credit | |
| | | NPFG | National Public Finance Guarantee | |
| | | NR | Not Rated | |
| | | TCRS | Transferable Custodial Receipts | |
| | | VRDO | Variable Rate Demand Obligation | |
See accompanying notes to financial statements.
| HAWAIIAN TAX-FREE TRUST |
| STATEMENT OF ASSETS AND LIABILITIES |
| SEPTEMBER 30, 2011 (unaudited) |
| ASSETS | | | |
| Investments at value (cost $742,501,758) | | $ | 783,398,429 | |
| Cash | | | 67,915,869 | |
| Interest receivable | | | 9,588,637 | |
| Receivable for Trust shares sold | | | 366,224 | |
| Other assets | | | 38,308 | |
| Total assets | | | 861,307,467 | |
| LIABILITIES | | | | |
| Payable for investment securities purchased | | | 26,872,795 | |
| Payable for Trust shares redeemed | | | 812,619 | |
| Dividends payable | | | 316,612 | |
| Adviser and Administrator fees payable | | | 274,044 | |
| Distribution and service fees payable | | | 11,916 | |
| Accrued expenses | | | 96,939 | |
| Total liabilities | | | 28,384,925 | |
| NET ASSETS | | $ | 832,922,542 | |
| Net Assets consist of: | | | | |
| Capital Stock – Authorized an unlimited number of shares, par value $0.01 per share. | | $ | 723,053 | |
| Additional paid-in capital | | | 799,360,716 | |
| Net unrealized appreciation on investments (note 4) | | | 40,896,671 | |
| Accumulated net realized loss on investments | | | (8,057,898 | ) |
| | | $ | 832,922,542 | |
| CLASS A | | | | |
| Net Assets | | $ | 733,375,812 | |
| Capital shares outstanding | | | 63,663,637 | |
| Net asset value and redemption price per share | | $ | 11.52 | |
| Maximum offering price per share (100/96 of $11.52 adjusted to nearest cent) | | $ | 12.00 | |
| CLASS C | | | | |
| Net Assets | | $ | 70,545,666 | |
| Capital shares outstanding | | | 6,128,116 | |
| Net asset value and offering price per share | | $ | 11.51 | |
| Redemption price per share (*a charge of 1% is imposed on the redemption | | | | |
| proceeds of the shares, or on the original price, whichever is lower, if redeemed | | | | |
| during the first 12 months after purchase) | | $ | 11.51 | * |
| CLASS Y | | | | |
| Net Assets | | $ | 29,001,064 | |
| Capital shares outstanding | | | 2,513,558 | |
| Net asset value, offering and redemption price per share | | $ | 11.54 | |
See accompanying notes to financial statements.
| HAWAIIAN TAX-FREE TRUST |
| STATEMENT OF OPERATIONS |
| SIX MONTHS ENDED SEPTEMBER 30, 2011 (unaudited) |
| Investment Income: | | | | | | |
| Interest income | | | | | $ | 15,791,410 | |
| Expenses: | | | | | | | |
| | |
| Investment Adviser fees (note 3) | | $ | 574,720 | | | | | |
| Administrator fees (note 3) | | | 1,067,343 | | | | | |
| Distribution and service fees (note 3) | | | 1,065,555 | | | | | |
| Transfer and shareholder servicing agent fees | | | 209,794 | | | | | |
| Trustees’ fees and expenses (note 8) | | | 103,377 | | | | | |
| Legal fees (note 3) | | | 81,591 | | | | | |
| Shareholders’ reports and proxy statements | | | 41,433 | | | | | |
| Custodian fees (note 6) | | | 29,328 | | | | | |
| Registration fees and dues | | | 19,289 | | | | | |
| Insurance | | | 18,506 | | | | | |
| Auditing and tax fees | | | 12,838 | | | | | |
| Chief compliance officer services (note 3) | | | 2,258 | | | | | |
| Miscellaneous | | | 25,454 | | | | | |
| Total expenses | | | | | | | 3,251,486 | |
| Net investment income | | | | | | | 12,539,924 | |
| | |
| | |
| Realized and Unrealized Gain (Loss) on Investments: | | | | | | | | |
| | |
| Net realized gain (loss) from securities transactions | | | (27,219 | ) | | | | |
| Change in unrealized appreciation on investments | | | 25,292,404 | | | | | |
| | |
| Net realized and unrealized gain (loss) on investments | | | | | | | 25,265,185 | |
| Net change in net assets resulting from operations | | | | | | $ | 37,805,109 | |
See accompanying notes to financial statements.
| HAWAIIAN TAX-FREE TRUST |
| STATEMENTS OF CHANGES IN NET ASSETS |
| | | Six Months Ended | | | | |
| | | September 30, 2011 | | | Year Ended | |
| | | (unaudited) | | | March 31, 2011 | |
| OPERATIONS: | | | | | | |
| Net investment income | | $ | 12,539,924 | | | $ | 25,528,229 | |
| Net realized gain (loss) from securities transactions | | | (27,219 | ) | | | 3,826 | |
| Change in unrealized appreciation on investments | | | 25,292,404 | | | | (13,322,844 | ) |
| Net change in net assets resulting from operations | | | 37,805,109 | | | | 12,209,211 | |
| | |
| DISTRIBUTIONS TO SHAREHOLDERS (note 10): | | | | | | | | |
| Class A Shares: | | | | | | | | |
| Net investment income | | | (11,281,423 | ) | | | (22,934,179 | ) |
| | |
| Class C Shares: | | | | | | | | |
| Net investment income | | | (787,514 | ) | | | (1,448,808 | ) |
| | |
| Class Y Shares: | | | | | | | | |
| Net investment income | | | (470,987 | ) | | | (1,145,242 | ) |
| Change in net assets from distributions | | | (12,539,924 | ) | | | (25,528,229 | ) |
| | |
| CAPITAL SHARE TRANSACTIONS (note 7): | | | | | | | | |
| Proceeds from shares sold | | | 41,245,412 | | | | 108,027,539 | |
| Reinvested dividends and distributions | | | 7,180,430 | | | | 14,619,042 | |
| Cost of shares redeemed | | | (42,784,384 | ) | | | (97,369,390 | ) |
| Change in net assets from capital share transactions | | | 5,641,458 | | | | 25,277,191 | |
| | |
| Change in net assets | | | 30,906,643 | | | | 11,958,173 | |
| | |
| NET ASSETS: | | | | | | | | |
| Beginning of period | | | 802,015,899 | | | | 790,057,726 | |
| | |
| End of period | | $ | 832,922,542 | | | $ | 802,015,899 | |
See accompanying notes to financial statements.
HAWAIIAN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 (unaudited)
1. Organization
Hawaiian Tax-Free Trust (the “Trust”), a non-diversified, open-end investment company, was organized on May 7, 1984, as a Massachusetts business trust and commenced operations on February 20, 1985. The Trust is authorized to issue an unlimited number of shares and, from its inception to April 1, 1996, offered only one class of shares. On that date, the Trust began offering two additional classes of shares, Class C and Class Y Shares. All shares outstanding prior to that date were designated as Class A Shares and are sold at net asset value plus a sales charge of varying size (depending upon a variety of factors) paid at the time of purchase and bear a distribution fee. Class C Shares are sold at net asset value with no sales charge payable at the time of purchase but with a level charge for service and distribution fees for six years thereafter. Class C Shares automatically convert to Class A Shares after six years. Class Y Shares are sold only through institutions acting for investors in a fiduciary, advisory, agency, custodial or similar capacity, and are not offered directly to retail customers. Class Y Shares are sold at net asset value with no sales charge, no redemption fee, no contingent deferred sales charge (“CDSC”) and no distribution fee. On July 21, 1998, the Trust established Class I Shares, which are offered and sold only through financial intermediaries and are not offered directly to retail customers. Class I Shares are sold at net asset value with no sales charge and no redemption fee or CDSC, although a financial intermediary may charge a fee for effecting a purchase or other transaction on behalf of its customers. Class I Shares carry a distribution and a service fee. As of the report date, there were no Class I Shares outstanding. All classes of shares represent interests in the same portfolio of investments and are identical as to rights and privileges but differ with respect to the effect of sales charges, the distribution and/or service fees borne by each class, expenses specific to each class, voting rights on matters affecting a single class and the exchange privileges of each class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America for investment companies.
| a) | Portfolio valuation: Municipal securities which have remaining maturities of more than 60 days are valued each business day based upon information provided by a nationally prominent independent pricing service and periodically verified through other pricing services. In the case of securities for which market quotations are readily available, securities are valued by the pricing service at the mean of bid and asked quotations. If a market quotation or a valuation from the pricing service is not readily available, the security is valued at fair value determined in good faith under procedures established by and under the general supervision of the Board of Trustees. Securities which mature in 60 days or less are valued at amortized cost if their term to maturity at purchase is 60 days or less, or by amortizing their unrealized appreciation or depreciation on the 61st day prior to maturity, if their term to maturity at purchase exceeds 60 days. |
| b) | Fair value measurements: The Trust follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Trust’s own market assumptions |
HAWAIIAN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2011 (unaudited)
| | (unobservable inputs). These inputs are used in determining the value of the Trust’s investments and are summarized in the following fair value hierarchy: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Trust has the ability to access. Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Trust’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, based on the best information available. The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. The following is a summary of the valuation inputs, representing 100% of the Trust’s investments, used to value the Trust’s net assets as of September 30, 2011: |
Valuation Inputs | | | Investments in Securities | |
| Level 1 – Quoted Prices | | $ | – | |
| Level 2 – Other Significant Observable Inputs – | | | | |
| Municipal Bonds* | | | 783,398,429 | |
| Level 3 – Significant Unobservable Inputs | | | – | |
| Total | | $ | 783,398,429 | |
*See schedule of investments for a detailed listing of securities.
| c) | Subsequent events: In preparing these financial statements, the Trust has evaluated events and transactions for potential recognition or disclosure through the date these financial statements were issued. |
| d) | Securities transactions and related investment income: Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are reported on the identified cost basis. Interest income is recorded daily on the accrual basis and is adjusted for amortization of premium and accretion of original issue discount and market discount. |
| e) | Federal income taxes: It is the policy of the Trust to continue to qualify as a regulated investment company by complying with the provisions of the Internal Revenue Code applicable to certain investment companies. The Trust intends to make distributions of income and securities profits sufficient to relieve it from all, or substantially all, Federal income and excise taxes. |
| | Management has reviewed the tax positions for each of the open tax years (2008-2010) or expected to be taken in the Trust’s 2011 tax returns and has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. |
HAWAIIAN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2011 (unaudited)
| f) | Multiple class allocations: All income, expenses (other than class-specific expenses), and realized and unrealized gains or losses are allocated daily to each class of shares based on the relative net assets of each class. Class-specific expenses, which include distribution and service fees and any other items that are specifically attributed to a particular class, are also charged directly to such class on a daily basis. |
| | |
| g) | Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. |
| | |
| h) | Reclassification of capital accounts: Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. There were no reclassifications for the year ended March 31, 2011. |
| | |
| i) | Accounting pronouncements: In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) “Improving Disclosures about Fair Value Measurements” that requires additional disclosures regarding fair value measurements. Certain required disclosures are effective for interim and annual reporting periods beginning after December 15, 2010. |
| | In May 2011, FASB issued ASU No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements” in U.S. generally accepted accounting principles (“GAAP”) and the International Financial Reporting Standards (“IFRSs”). ASU No. 2011-04 amends FASB ASC Topic 820, Fair Value Measurements and Disclosures, to establish common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. ASU No. 2011-04 is effective for fiscal years beginning after December 15, 2011 and for interim periods within those fiscal years. Management is currently evaluating the impact these updates and amendments may have on the Trust’s financial statements. |
3. Fees and Related Party Transactions
a) Management Arrangements:
The Asset Management Group of Bank of Hawaii (the “Adviser”), serves as Investment Adviser to the Trust. In this role, under an Investment Advisory Agreement, the Adviser supervises the Trust’s investments and provides various services to the Trust, for which it is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.14% of the Trust’s net assets.
Aquila Investment Management LLC (the “Administrator”), a wholly-owned subsidiary of Aquila Management Corporation, the Trust’s founder and sponsor, serves as the Administrator for the
HAWAIIAN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2011 (unaudited)
Trust under an Administration Agreement with the Trust. Under this Agreement, the Administrator provides all administrative services to the Trust, other than those relating to the management of the Trust’s investments. These include providing the office of the Trust and all related services as well as overseeing the activities of all the various support organizations to the Trust such as the shareholder servicing agent, custodian, legal counsel, auditors and distributor. For its services, the Administrator is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.26% of the Trust’s net assets.
The Adviser and the Administrator each agree that the above fees shall be reduced, but not below zero, by an amount equal to its pro-rata portion (based on aggregate fees of the Adviser and the Administrator) of the amount, if any, by which the total expenses of the Trust in any fiscal year, exclusive of taxes, interest and brokerage fees, shall exceed the lesser of (i) 2.5% of the first $30 million of average annual net assets of the Trust plus 2% of the next $70 million of such assets and 1.5% of its average annual net assets in excess of $100 million, or (ii) 25% of the Trust’s total annual investment income. The payment of the above fees at the end of any month will be reduced or postponed so that at no time will there be any accrued but unpaid liability under this expense limitation. No such reduction in fees was required during the six months ended September 30, 2011.
Under a Compliance Agreement with the Administrator, the Administrator is additionally compensated for Chief Compliance Officer related services provided to enable the Trust to comply with Rule 38a-1 of the Investment Company Act of 1940.
Specific details as to the nature and extent of the services provided by the Adviser and the Administrator are more fully defined in the Trust’s Prospectus and Statement of Additional Information.
b) Distribution and Service Fees:
The Trust has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 (the “Rule”) under the Investment Company Act of 1940. Under one part of the Plan, with respect to Class A Shares, the Trust is authorized to make distribution fee payments to broker-dealers or others (“Qualified Recipients”) selected by Aquila Distributors, Inc. (the “Distributor”), including, but not limited to, any principal underwriter of the Trust, with which the Distributor has entered into written agreements contemplated by the Rule and which have rendered assistance in the distribution and/or retention of the Trust’s shares or servicing of shareholder accounts. The Trust makes payment of this distribution fee at the annual rate of 0.20% of the Trust’s average net assets represented by Class A Shares. For the six months ended September 30, 2011, service fees on Class A Shares amounted to $724,412 of which the Distributor retained $31,537.
Under another part of the Plan, the Trust is authorized to make payments with respect to Class C Shares to Qualified Recipients which have rendered assistance in the distribution and/or retention of the Trust’s Class C shares or servicing of shareholder accounts. These payments are made at the annual rate of 0.75% of the Trust’s average net assets represented by Class C Shares and for the six months ended September 30, 2011, amounted to $255,857. In addition, under a Shareholder Services Plan, the Trust is authorized to make service fee payments with respect to Class C Shares to Qualified Recipients
HAWAIIAN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2011 (unaudited)
for providing personal services and/or maintenance of shareholder accounts. These payments are made at the annual rate of 0.25% of the Trust’s average net assets represented by Class C Shares and for the six months ended September 30, 2011, amounted to $85,286. The total of these payments made with respect to Class C Shares amounted to $341,143 of which the Distributor retained $64,496.
Specific details about the Plans are more fully defined in the Trust’s Prospectus and Statement of Additional Information.
Under a Distribution Agreement, the Distributor serves as the exclusive distributor of the Trust’s shares. Through agreements between the Distributor and various brokerage and advisory firms (“intermediaries”), the Trust’s shares are sold primarily through the facilities of these intermediaries having offices within Hawaii, with the bulk of any sales commissions inuring to such intermediaries. For the six months ended September 30, 2011, total commissions on sales of Class A Shares amounted to $642,773, of which the Distributor received $60,411.
c) Other Related Party Transactions:
On June 1, 2011, Bingham McCutchen LLP replaced Butzel Long PC (“Butzel”) as counsel to the Trust. During the period April 1, 2011 to May 31, 2011, the Trust incurred $14,814 of legal fees allocable to Butzel for legal services in conjunction with the Trust’s ongoing operations. During this period, the Trust’s former Secretary was Of Counsel to Butzel.
4. Purchases and Sales of Securities
During the six months ended September 30, 2011, purchases of securities and proceeds from the sales of securities aggregated $41,018,041, and $71,690,000, respectively.
At September 30, 2011, the aggregate tax cost for all securities was $742,501,758. At September 30, 2011, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $41,321,232 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $424,561 for a net unrealized appreciation of $40,896,671.
5. Portfolio Orientation
Since the Trust invests principally and may invest entirely in double tax-free municipal obligations of issuers within Hawaii, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Hawaii and whatever effects these may have upon Hawaii issuers’ ability to meet their obligations.
6. Expenses
The Trust has negotiated an expense offset arrangement with its custodian wherein it receives credit toward the reduction of custodian fees and other Trust expenses whenever there are uninvested cash balances. The Statement of Operations reflects the total expenses before any offset, the amount of offset and the net expenses.
HAWAIIAN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2011 (unaudited)
7. Capital Share Transactions
Transactions in Capital Shares of the Trust were as follows:
| | | Six Months Ended September 30, 2011 | | | Year Ended | |
| | | (unaudited) | | | March 31, 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Class A Shares: | | | | | | | | | | | | |
| Proceeds from shares sold | | | 2,625,192 | | | $ | 29,861,701 | | | | 6,502,521 | | | $ | 74,031,760 | |
| Reinvested distributions | | | 585,670 | | | | 6,671,015 | | | | 1,195,615 | | | | 13,579,694 | |
| Cost of shares redeemed | | | (2,987,791 | ) | | | (34,014,450 | ) | | | (6,387,902 | ) | | | (72,315,973 | ) |
| Net change | | | 223,071 | | | | 2,518,266 | | | | 1,310,234 | | | | 15,295,481 | |
| Class C Shares: | | | | | | | | | | | | | | | | |
| Proceeds from shares sold | | | 681,296 | | | | 7,748,680 | | | | 2,235,661 | | | | 25,441,707 | |
| Reinvested distributions | | | 37,154 | | | | 422,795 | | | | 65,752 | | | | 745,439 | |
| Cost of shares redeemed | | | (417,539 | ) | | | (4,754,426 | ) | | | (1,090,681 | ) | | | (12,323,787 | ) |
| Net change | | | 300,911 | | | | 3,417,049 | | | | 1,210,732 | | | | 13,863,359 | |
| Class Y Shares: | | | | | | | | | | | | | | | | |
| Proceeds from shares sold | | | 318,860 | | | | 3,635,031 | | | | 749,760 | | | | 8,554,072 | |
| Reinvested distributions | | | 7,618 | | | | 86,620 | | | | 25,770 | | | | 293,909 | |
| Cost of shares redeemed | | | (353,877 | ) | | | (4,015,508 | ) | | | (1,126,372 | ) | | | (12,729,630 | ) |
| Net change | | | (27,399 | ) | | | (293,857 | ) | | | (350,842 | ) | | | (3,881,649 | ) |
| Total transactions in Trust | | | | | | | | | | | | | | | | |
| shares | | | 496,583 | | | $ | 5,641,458 | | | | 2,170,124 | | | $ | 25,277,191 | |
8. Trustees’ Fees and Expenses
At September 30, 2011 there were 7 Trustees, one of whom is affiliated with the Administrator and is not paid any fees. The total amount of Trustees’ service fees (for carrying out their responsibilities) and attendance fees paid during the six months ended September 30, 2011 was $86,864. Attendance fees are paid to those in attendance at regularly scheduled quarterly Board Meetings and meetings of the Independent Trustees held prior to each quarterly Board Meeting, as well as additional meetings (such as Audit, Nominating, Shareholder and special meetings). Trustees are reimbursed for their expenses such as travel, accommodations and meals incurred in connection with attendance at Board Meetings and the Annual and Outreach Meetings of Shareholders. For the six months ended September 30, 2011, such meeting-related expenses amounted to $16,513.
HAWAIIAN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2011 (unaudited)
9. Securities Traded on a When-Issued Basis
The Trust may purchase or sell securities on a when-issued basis. When-issued transactions arise when securities are purchased or sold by the Trust with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Trust at the time of entering into the transaction. Beginning on the date the Trust enters into a when-issued transaction, cash or other liquid securities are segregated in an amount equal to or greater than the value of the when-issued transaction. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.
10. Income Tax Information and Distributions
The Trust declares dividends daily from net investment income and makes payments monthly. Net realized capital gains, if any, are distributed annually and are taxable. These distributions are paid in additional shares at the net asset value per share, in cash, or in a combination of both, at the shareholder’s option.
The Trust intends to maintain, to the maximum extent possible, the tax-exempt status of interest payments received from portfolio municipal securities in order to allow dividends paid to shareholders from net investment income to be exempt from regular Federal and State of Hawaii income taxes. Due to differences between financial statement reporting and Federal income tax reporting requirements, distributions made by the Trust may not be the same as the Trust’s net investment income, and/ or net realized securities gains. Further, a portion of the dividends and distributions may, under some circumstances, be subject to taxes at ordinary income and/or capital gain rates. For certain shareholders, some dividend income may, under some circumstances, be subject to the alternative minimum tax. At March 31, 2011 the Trust had a capital loss carryover of $8,030,679, of which $2,273,607 expires in 2015, $1,251,412 expires in 2016, $1,198,556 expires in 2017, $3,244,561 expires in 2018 and $62,543 expires in 2019. This carryover is available to offset future net realized gains on securities transactions to the extent provided for in the Internal Revenue Code. To the extent that this loss carryover is used to offset future realized capital gains, it is probable the gains so offset will not be distributed.
The tax character of distributions:
| | | Year Ended March 31, | |
| | | 2011 | | | 2010 | |
| Net tax-exempt income | | $ | 25,459,392 | | | $ | 23,808,866 | |
| Ordinary income | | | 68,837 | | | | 86,636 | |
| Long-term capital gain | | | – | | | | – | |
| | | $ | 25,528,229 | | | $ | 23,895,502 | |
HAWAIIAN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2011 (unaudited)
As of March 31, 2011, the components of distributable earnings on a tax basis were as follows:
| Unrealized appreciation | | $ | 15,604,267 | |
| Undistributed tax-exempt income | | | 283,825 | |
| Other accumulated losses | | | (8,030,679 | ) |
| Other temporary differences | | | (283,825 | ) |
| | | $ | 7,573,588 | |
The difference between book basis and tax basis undistributed income is due to the timing difference in recognizing dividends paid.
11. Tax Information
The Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was enacted on December 22, 2010. The Modernization Act amends several tax provisions impacting mutual funds. In general, the amendments are effective for fiscal years beginning after enactment. The Modernization Act provides several benefits, including the unlimited carryover of future capital losses versus the prior eight year limitation. Relevant information regarding the impact of the Modernization Act, if any, will be contained within the Federal Tax Status of Distributions section of the financial statements for the fiscal year ending March 31, 2012.
12. Ongoing Development
Since December 2007, the three major rating agencies (Standard & Poor’s, Moody’s and Fitch) downgraded or eliminated ratings of the majority of the municipal bond insurance companies due to loss of capital from investments in subprime mortgages. Only a few insurers are now deemed to be investment grade. Thus, while certain bonds have insurance, some are no longer rated based upon the ratings of their insurers. Furthermore, because the ability of many of the Trust’s insurers to pay claims has been downgraded, the protection of such insurance has been diminished, and there is no assurance that some of them may be relied upon for payment.
HAWAIIAN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period
| | | Class A | |
| | | Six Months | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | |
| | | 9/30/11 | | Year Ended March 31, | |
| | | (unaudited) | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| Net asset value, beginning of period | | $ | 11.17 | | | $ | 11.34 | | | $ | 11.21 | | | $ | 11.15 | | | $ | 11.33 | | | $ | 11.32 | |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | 0.18 | (1) | | | 0.36 | (1) | | | 0.36 | (1) | | | 0.42 | (1) | | | 0.46 | (1) | | | 0.46 | (2) |
| Net gain (loss) on securities (both realized | | | | | | | | | | | | | | | | | | | | | | | | |
| and unrealized) | | | 0.35 | | | | (0.17 | ) | | | 0.13 | | | | 0.06 | | | | (0.18 | ) | | | 0.02 | |
| Total from investment operations | | | 0.53 | | | | 0.19 | | | | 0.49 | | | | 0.48 | | | | 0.28 | | | | 0.48 | |
| Less distributions (note 10): | | | | | | | | | | | | | | | | | | | | | | | | |
| Dividends from net investment income | | | (0.18 | ) | | | (0.36 | ) | | | (0.36 | ) | | | (0.42 | ) | | | 0.46 | | | | (0.46 | ) |
| Distributions from capital gains | | | – | | | | – | | | | – | | | | – | | | | – | | | | (0.01 | ) |
| Total distributions | | | (0.18 | ) | | | (0.36 | ) | | | (0.36 | ) | | | (0.42 | ) | | | (0.46 | ) | | | (0.47 | ) |
| Net asset value, end of period | | $ | 11.52 | | | $ | 11.17 | | | $ | 11.34 | | | $ | 11.21 | | | $ | 11.15 | | | $ | 11.33 | |
| Total return (not reflecting sales charge) | | | 4.75 | % (3) | | | 1.69 | % | | | 4.44 | % | | | 4.43 | % | | | 2.49 | % | | | 4.28 | % |
| Ratios/supplemental data | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (in millions) | | $ | 733 | | | $ | 709 | | | $ | 705 | | | $ | 656 | | | $ | 636 | | | $ | 645 | |
| Ratio of expenses to average net assets | | | 0.73 | % (4) | | | 0.74 | % | | | 0.74 | % | | | 0.75 | % | | | 0.75 | % | | | 0.75 | % |
| Ratio of net investment income to average | | | | | | | | | | | | | | | | | | | | | | | | |
| net assets | | | 3.12 | %(4) | | | 3.19 | % | | | 3.19 | % | | | 3.80 | % | | | 4.06 | % | | | 3.99 | % |
| Portfolio turnover rate | | | 5 | %(3) | | | 7 | % | | | 13 | % | | | 10 | % | | | 18 | % | | | 38 | % |
| | | | | | | | | | |
| The expense ratios after giving effect to the expense offset for uninvested cash balances were: | | | | | | | | | |
| | | | | | | | | | |
| Ratio of expenses to average net assets | | | 0.73 | % (4) | | | 0.74 | % | | | 0.74 | % | | | 0.74 | % | | | 0.75 | % | | | 0.75 | % |
_________________
| (1) | Per share amounts have been calculated using the daily average shares method. |
| (2) | Per share amounts have been calculated using the monthly average shares method. |
| (3) | Not annualized. |
| (4) | Annualized. |
See accompanying notes to financial statements.
HAWAIIAN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS (continued)
For a share outstanding throughout each period
| | | Class C | | | Class Y | |
| | | Six Months | | | | | | | | | | | | | | | | | Six Months | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | | Ended | | | | | | | | | | | | | | | |
| | | 9/30/11 | | Year Ended March 31, | | | 9/30/11 | | Year Ended March 31, | |
| | | (unaudited) | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | | | (unaudited) | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| Net asset value, beginning of period | | $ | 11.16 | | | $ | 11.34 | | | $ | 11.20 | | | $ | 11.14 | | | $ | 11.33 | | | $ | 11.31 | | | $ | 11.19 | | | $ | 11.36 | | | $ | 11.23 | | | $ | 11.17 | | | $ | 11.35 | | | $ | 11.34 | |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | 0.13 | (1) | | | 0.27 | (1) | | | 0.27 | (1) | | | 0.33 | (1) | | | 0.37 | (1) | | | 0.36 | (2) | | | 0.19 | (1) | | | 0.38 | (1) | | | 0.39 | (1) | | | 0.44 | (1) | | | 0.48 | (1) | | | 0.48 | (2) |
| Net gain (loss) on securities (both | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| realized and unrealized) | | | 0.35 | | | | (0.18 | ) | | | 0.14 | | | | 0.06 | | | | (0.19 | ) | | | 0.03 | | | | 0.35 | | | | (0.16 | ) | | | 0.13 | | | | 0.06 | | | | (0.18 | ) | | | 0.02 | |
| Total from investment operations | | | 0.48 | | | | 0.09 | | | | 0.41 | | | | 0.39 | | | | 0.18 | | | | 0.39 | | | | 0.54 | | | | 0.22 | | | | 0.52 | | | | 0.50 | | | | 0.30 | | | | 0.50 | |
| Less distributions (note 10): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dividends from net investment income | | | (0.13 | ) | | | (0.27 | ) | | | (0.27 | ) | | | (0.33 | ) | | | (0.37 | ) | | | (0.36 | ) | | | (0.19 | ) | | | (0.39 | ) | | | (0.39 | ) | | | (0.44 | ) | | | (0.48 | ) | | | (0.48 | ) |
| Distributions from capital gains | | | – | | | | – | | | | – | | | | – | | | | – | | | | (0.01 | ) | | | – | | | | – | | | | – | | | | – | | | | – | | | | (0.01 | ) |
| Total distributions | | | (0.13 | ) | | | (0.27 | ) | | | (0.27 | ) | | | (0.33 | ) | | | (0.37 | ) | | | (0.37 | ) | | | (0.19 | ) | | | (0.39 | ) | | | (0.39 | ) | | | (0.44 | ) | | | (0.48 | ) | | | (0.49 | ) |
| Net asset value, end of period | | $ | 11.51 | | | $ | 11.16 | | | $ | 11.34 | | | $ | 11.20 | | | $ | 11.14 | | | $ | 11.33 | | | $ | 11.54 | | | $ | 11.19 | | | $ | 11.36 | | | $ | 11.23 | | | $ | 11.17 | | | $ | 11.35 | |
| Total return | | | 4.34 | %(3)(4) | | | 0.79 | %(3) | | | 3.70 | %(3) | | | 3.60 | %(3) | | | 1.59 | %(3) | | | 3.55 | %(3) | | | 4.85 | % (4) | | | 1.89 | % | | | 4.65 | % | | | 4.64 | % | | | 2.70 | % | | | 4.49 | % |
| Ratios/supplemental data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (in millions) | | $ | 71 | | | $ | 65 | | | $ | 52 | | | $ | 34 | | | $ | 30 | | | $ | 36 | | | $ | 29 | | | $ | 28 | | | $ | 33 | | | $ | 30 | | | $ | 28 | | | $ | 23 | |
| Ratio of expenses to average net assets | | | 1.54 | % (5) | | | 1.54 | % | | | 1.54 | % | | | 1.55 | % | | | 1.55 | % | | | 1.55 | % | | | 0.53 | % (5) | | | 0.54 | % | | | 0.54 | % | | | 0.55 | % | | | 0.55 | % | | | 0.55 | % |
Ratio of net investment income to average net assets | | | 2.31 | %(5) | | | 2.38 | % | | | 2.37 | % | | | 2.99 | % | | | 3.26 | % | | | 3.19 | % | | | 3.33 | % (5) | | | 3.38 | % | | | 3.39 | % | | | 4.00 | % | | | 4.26 | % | | | 4.19 | % |
| Portfolio turnover rate | | | 5 | %(4) | | | 7 | % | | | 13 | % | | | 10 | % | | | 18 | % | | | 38 | % | | | 5 | %(4) | | | 7 | % | | | 13 | % | | | 10 | % | | | 18 | % | | | 38 | % |
| | |
| The expense ratios after giving effect to the expense offset for uninvested cash balances were: | |
| | |
| Ratio of expenses to average net assets | | | 1.54 | % (5) | | | 1.54 | % | | | 1.54 | % | | | 1.54 | % | | | 1.55 | % | | | 1.55 | % | | | 0.53 | % (5) | | | 0.54 | % | | | 0.54 | % | | | 0.54 | % | | | 0.55 | % | | | 0.55 | % |
_________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Per share amounts have been calculated using the monthly average shares method. |
(3) | Not reflecting CDSC. |
(4) | Not annualized. |
(5) | Annualized. |
See accompanying notes to financial statements.
Analysis of Expenses (unaudited)
As a shareholder of the Trust, you may incur two types of costs: (1) transaction costs, including front-end sales charges with respect to Class A shares or contingent deferred sales charges (“CDSC”) with respect to Class C shares; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Trust expenses. The table below is intended to help you understand your ongoing costs (in dollars) of investing in the Trust and to compare these costs with the ongoing costs of investing in other mutual funds.
The table below is based on an investment of $1,000 invested on April 1, 2011 and held for the six months ended September 30, 2011.
Actual Expenses
This table provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.
Six months ended September 30, 2011
| | Actual | | | |
| | Total Return | Beginning | Ending | Expenses |
| | Without | Account | Account | Paid During |
| | Sales Charges(1) | Value | Value | the Period(2) |
| Class A | 4.75% | $1,000.00 | $1,047.50 | $3.74 |
| Class C | 4.34% | $1,000.00 | $1,043.40 | $7.87 |
| Class Y | 4.85% | $1,000.00 | $1,048.50 | $2.71 |
| (1) | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charges with respect to Class A shares or the applicable contingent deferred sales charges (“CDSC”) with respect to Class C shares. Total return is not annualized, as it may not be representative of the total return for the year. |
| | |
| (2) | Expenses are equal to the annualized expense ratio of 0.73%, 1.54% and 0.53% for the Trust’s Class A, C and Y shares, respectively, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). |
Analysis of Expenses (unaudited) (continued)
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Trust’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Trust and other mutual funds. To do so, compare this 5.00% hypothetical example relating to the Trust with the 5.00% hypothetical examples that appear in the shareholder reports of other mutual funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, with respect to Class A shares. The example does not reflect the deduction of contingent deferred sales charges (“CDSC”) with respect to Class C shares. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different mutual funds. In addition, if these transaction costs were included, your costs would have been higher.
Six Months ended September 30, 2011
| | Hypothetical | | | |
| | Annualized | Beginning | Ending | Expenses |
| | Total | Account | Account | Paid During |
| | Return | Value | Value | the Period(1) |
| Class A | 5.00% | $1,000.00 | $1,021.41 | $3.69 |
| Class C | 5.00% | $1,000.00 | $1,017.40 | $7.77 |
| Class Y | 5.00% | $1,000.00 | $1,022.41 | $2.68 |
| (1) | Expenses are equal to the annualized expense ratio of 0.73%, 1.54% and 0.53% for the Trust’s Class A, C and Y shares, respectively, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). |
Information Available (unaudited)
Much of the information that the funds in the Aquila Group of Funds produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent your Trust’s entire list of portfolio securities twice a year in the semi-annual and annual reports you receive. Additionally, under Trust policies, the Administrator publicly discloses the complete schedule of the Trust’s portfolio holdings, as of each calendar quarter, generally by the 15th day after the end of each calendar quarter. Such information remains accessible until the next schedule is made publicly available. You may obtain a copy of the Trust’s portfolio holdings schedule for the most recently completed period by visiting the Trust’s website at www.aquilafunds.com. The Trust may also disclose other portfolio holdings as of a specified date (currently the Trust discloses its five largest holdings by value as of the close of the last business day of each calendar month in a posting to its website on approximately the 5th business day following the month end). This information remains on the website until the next such posting. Whenever you wish to see a listing of your Trust’s portfolio other than in your shareholder reports, please check our website at www.aquilafunds.com or call us at 1-800-437-1020.
The Trust additionally files a complete list of its portfolio holdings with the SEC for the first and third quarter ends of each fiscal year on Form N-Q. Forms N-Q are available free of charge on the SEC website at www.sec.gov. You may also review or, for a fee, copy the forms at the SEC’s Public Reference Room in Washington, D.C. or by calling 1-800-SEC-0330.
Proxy Voting Record (unaudited)
The Trust does not invest in equity securities. Accordingly, there were no matters relating to a portfolio security considered at any shareholder meeting held during the 12 months ended June 30, 2011 with respect to which the Trust was entitled to vote. Applicable regulations require us to inform you that the foregoing proxy voting information is available on the SEC website at www.sec.gov.
Federal Tax Status of Distributions (unaudited)
This information is presented in order to comply with a requirement of the Internal Revenue Code and no current action on the part of shareholders is required.
For the fiscal year ended March 31, 2011, $25,459,392 of dividends paid by Hawaiian Tax-Free Trust, constituting 99.73% of total dividends paid during the fiscal year ended March 31, 2011, were exempt-interest dividends, exempt from regular Federal income tax and Hawaii state income tax; and the balance was ordinary dividend income.
Prior to February 15, 2011, shareholders were mailed the appropriate tax form(s) which contained information on the status of distributions paid for the 2010 calendar year.
Prior to February 15, 2012, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2011 calender year.
Additional Information (unaudited)
Renewal of the Investment Advisory Agreement
Renewal until June 30, 2012 of the Investment Advisory Agreement (the “Advisory Agreement”) between the Trust and the Adviser was approved by the Board of Trustees and the independent Trustees in June, 2011. At a meeting called and held for the foregoing purpose at which a majority of the independent Trustees were present in person, the following materials were considered:
| | · | Copies of the agreements to be renewed; |
| | · | A term sheet describing the material terms of the agreements; |
| | · | The Annual Report of the Trust for the year ended March 31, 2011; |
| | · | A report, prepared by the Adviser and Administrator and provided to the Trustees for the Trustees’ review, containing data about the performance of the Trust, data about its fees, expenses and purchases and redemptions of its shares together with comparisons of such data with similar data about other comparable funds, as well as data as to the profitability of the Adviser and the Administrator; and |
| | · | Quarterly materials reviewed at prior meetings on the Trust’s performance, operations, portfolio and compliance. |
The Trustees reviewed materials relevant to, and considered, the following factors:
The nature, extent, and quality of the services provided by the Adviser.
The Adviser has employed Mr. Stephen K. Rodgers, Ms. Janet Katakura and Mr. Denis Massey as the portfolio management team for the Trust and has provided facilities for credit analysis of the Trust’s portfolio securities. Mr. Rodgers is Executive Vice President and Chief Investment Officer of the Adviser and oversees approximately $4 billion of client assets in a variety of taxable and tax-free products and portfolios. Ms. Katakura is a Vice President and Senior Portfolio Manager with the Adviser’s parent, Bank of Hawaii (BOH) and has been employed by BOH since 1983 and has over 30 years of experience in the investment industry. Mr. Massey is Assistant Vice President and Portfolio Manager with BOH and started his career with the Adviser as a Market Risk Analyst and joined the Fixed Income Department in 2007 to focus on tax-exempt portfolios. The portfolio management team, based in Honolulu, has provided local information regarding specific holdings in the Trust’s portfolio. The portfolio management team has also been available to and has met with the brokerage and financial planner community and with investors and prospective investors to provide them with information generally about the Trust’s portfolio, with which to assess the Trust as an investment vehicle for residents of Hawaii in light of prevailing interest rates and local economic conditions. In addition, members of the portfolio management team have been present at all regular meetings of the Board and Shareholders.
The Board considered that the Adviser had provided all services the Board deemed necessary or appropriate, including the specific services that the Board has determined are required for the Trust, given that its purpose is to provide shareholders with as high a level of current income exempt from Hawaii state and regular Federal income taxes as is consistent with preservation of capital.
The Board concluded that the services provided were appropriate and satisfactory and that the Trust would be well served if they continued. Evaluation of this factor weighed in favor of renewal of the Advisory Agreement.
The investment performance of the Trust and Adviser.
The Board reviewed each aspect of the Trust’s performance and compared its performance with that of 1) its local competitors, 2) its peer group (i.e., Morningstar single-state intermediate tax-free municipal bond funds nationwide) and 3) benchmark indices. It was noted that there was a very limited number of local competitors and, accordingly, more weight was given to the Trust’s investment performance compared to its peer group and benchmark indices. It was noted that the materials provided by the Adviser indicated that the Trust had investment performance that was generally comparable to that of its local competition and peer group for the one-, three-, five- and ten-year periods.
The Board concluded that the performance of the Trust was good, in light of market conditions, the length of its average maturities, its investment objectives and its long-standing emphasis on minimizing risk, while observing that the Trust’s Sharpe and Treynor ratios, which measure risk-adjusted return, were more favorable than those of its instate competitors. Evaluation of this factor indicated to the Trustees that renewal of the Advisory Agreement would be appropriate.
The costs of the services to be provided and profits to be realized by the Adviser and its affiliates from the relationship with the Trust.
The information provided contained expense data for the Trust and its local competitors as well as data for its Morningstar peer group, including data for such front-end load funds of a comparable asset size. The materials also showed the profitability to the Adviser of its services to the Trust.
The Board compared the expense and fee data with respect to the Trust to similar data about other funds that it found to be relevant. It was noted that there was a very limited number of local competitors and, accordingly, more weight was given to the comparative expense and fee data of the Trust’s Morningstar peer group. The Board concluded that the expenses of the Trust and the fees paid were similar to and were reasonable as compared to those being paid by single-state tax-free municipal bond funds nationwide, and by the Trust’s local competitors.
The Board further concluded that the profitability to the Adviser did not argue against approval of the fees to be paid under the Advisory Agreement.
The extent to which economies of scale would be realized as the Trust grows.
Data provided to the Trustees showed that the Trust’s asset size had increased after several years of general decline. The Trustees also noted that the materials indicated that the Trust’s fees were already generally lower than those of its peers, including those with breakpoints. Evaluation of this factor indicated to the Board that the Advisory Agreement should be renewed without addition of breakpoints at this time.
Benefits derived or to be derived by the Adviser and its affiliates from the relationship with the Trust.
The Board observed that, as is generally true of most fund complexes, the Adviser and its affiliates, by providing services to a number of funds or other investment clients including the Trust, were able to spread costs as they would otherwise be unable to do. The Board noted that while that produces efficiencies and increased profitability for the Adviser and its affiliates, it also makes their services available to the Trust at favorable levels of quality and cost which are more advantageous to the Trust than would otherwise have been possible.
Founders
Lacy B. Herrmann, Chairman Emeritus
Aquila Management Corporation
Administrator
AQUILA INVESTMENT MANAGEMENT LLC
380 Madison Avenue, Suite 2300
New York, New York 10017
Investment Adviser
ASSET MANAGEMENT GROUP of BANK of HAWAII
P.O. Box 3170
Honolulu, Hawaii 96802
Board of Trustees
Theodore T. Mason, Chair
Diana P. Herrmann, Vice Chair
Stanley W. Hong
Richard L. Humphreys
Bert A. Kobayashi, Jr.
Glenn P. O’Flaherty
Russell K. Okata
Officers
Diana P. Herrmann, President
Charles E. Childs, III, Executive Vice President and Secretary
Marie E. Aro, Senior Vice President
Sherri Foster, Senior Vice President
Paul G. O’Brien, Senior Vice President
Stephen J. Caridi, Vice President
Robert S. Driessen, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer and Treasurer
Distributor
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
Transfer and Shareholder Servicing Agent
BNY MELLON
4400 Computer Drive
Westborough, Massachusetts 01581
Custodian
JPMORGAN CHASE BANK, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
Further information is contained in the Prospectus,
which must precede or accompany this report.
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
| ITEM 6. | SCHEDULE OF INVESTMENTS. |
Included in Item 1 above
| ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
| ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
| ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
The Board of Directors of the Registrant has adopted a Nominating Committee Charter which provides that the Nominating Committee (the 'Committee') may consider and evaluate nominee candidates properly submitted by shareholders if a vacancy among the Independent Trustees of the Registrant occurs and if, based on the Board's then current size, composition and structure, the Committee determines that the vacancy should be filled. The Committee will consider candidates submitted by shareholders on the same basis as it considers and evaluates candidates recommended by other sources. A copy of the qualifications and procedures that must be met or followed by shareholders to properly submit a nominee candidate to the Committee may be obtained by submitting a request in writing to the Secretary of the Registrant.
| ITEM 11. | CONTROLS AND PROCEDURES. |
(a) Based on their evaluation of the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) as of a date within 90 days of the filing of this report, the registrant's chief financial and executive officers have concluded that the disclosure controls and procedures of the registrant are appropriately designed to ensure that information required to be disclosed in the registrant's reports that are filed under the Securities Exchange Act of 1934 are accumulated and communicated to registrant's management, including its principal executive officer(s) and principal financial officer(s), to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported, within the time periods specified in the rules and forms adopted by the Securities and Exchange Commission.
(b) There have been no significant changes in registrant's internal controls or in other factors that could significantly affect registrant's internal controls subsequent to the date of the most recent evaluation, including no significant deficiencies or material weaknesses that required corrective action.
(a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of1940.
(b) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HAWAIIAN TAX-FREE TRUST
| By: | /s/ Diana P. Herrmann | |
| | Vice Chair, President and Trustee December 7, 2011 | |
| | | |
| | | |
| By: | /s/ Joseph P. DiMaggio | |
| | Chief Financial Officer and Treasurer December 7, 2011 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ Diana P. Herrmann | |
| | Diana P. Herrmann Vice Chair, President and Trustee December 7, 2011 | |
| | | |
| | | |
| By: | /s/ Joseph P. DiMaggio | |
| | Joseph P. DiMaggio Chief Financial Officer and Treasurer December 7, 2011 | |
HAWAIIAN TAX-FREE TRUST
EXHIBIT INDEX
| (a)(2) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. |
| (b) | Certification of chief executive officer and chief financial officer as required by Rule 30a-2(b) of the Investment Company Act of 1940. |
