UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-4084
Hawaiian Tax-Free Trust
(Exact name of Registrant as specified in charter)
380 Madison Avenue
New York, New York 10017
(Address of principal executive offices) (Zip code)
Joseph P. DiMaggio
380 Madison Avenue
New York, New York 10017
(Name and address of agent for service)
Registrant's telephone number, including area code:
(212) 697-6666
Date of fiscal year end: 3/31
Date of reporting period: 3/31/06
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS
ANNUAL
REPORT
MARCH 31, 2006
HAWAIIAN
TAX-FREE
TRUST
A TAX-FREE INCOME INVESTMENT
[LOGO OF HAWAIIAN TAX-FREE TRUST:
A PALM TREE IN FRONT OF A CIRCLE
WHICH HAS AN ISLAND AND WATER WITHIN IT] (R)
[LOGO OF THE AQUILA
GROUP OF FUNDS: ONE OF THE
AN EAGLE'S HEAD] AQUILA(SM) GROUP OF FUNDS
[LOGO OF HAWAIIAN TAX-FREE TRUST:
A PALM TREE IN FRONT OF A CIRCLE
WHICH HAS AN ISLAND AND WATER WITHIN IT] (R)
SERVING HAWAII INVESTORS FOR MORE THAN TWO DECADES
HAWAIIAN TAX-FREE TRUST
"THE BENEFITS OF TAX-FREE INVESTING"
May 2006
Dear Fellow Shareholder:
As the name of your Trust clearly states, Hawaiian Tax-Free Trust is
tax-free - free from Hawaii state and regular Federal income taxes.
This tax-free status serves many purposes. It obviously provides you, and
our other shareholders, with tax-free income. But, it also provides
municipalities with an attractive motivator to help them raise revenue.
Additionally, the projects funded by these tax-free securities enhance the
quality of life for all community residents.
Many individuals pay as much as 30% to 40% of their income in Federal and
state taxes. Obviously, if you have to pay that much in taxes, it significantly
reduces what you get to keep in your pocket.
BENEFITS TO INVESTORS
As an investor seeking tax-free income, do you have to forego higher
yields? Not necessarily.
This chart assumes a 35% Federal and 8.25% state tax-rate and is for
illustration purposes only; it does not represent past or future performance of
any investment.
The chart above shows that you would have to earn significantly more from
a taxable investment in order to be equal to what you get to keep from a
tax-free investment.
As you can clearly see from the chart, you would have to earn 6.7% on a
taxable investment in order to equal the tax-free level of 4%.
Keep this illustration in mind the next time you examine the yield that
Hawaiian Tax-Free Trust provides you. You will find that a 3%, 4% or 5% tax-free
yield looks considerably more attractive to you when you consider the
implications of taxes.
NOT A PART OF THE ANNUAL REPORT
BENEFITS TO MUNICIPALITIES
As you are likely aware, states, counties, cities, towns, and other forms
of municipalities issue tax-free bonds to raise monies. These issues generally
take two forms - general obligation securities and revenue securities.
General obligation municipal securities are primarily those securities
used to finance the general needs of municipalities. General obligation
securities are secured by the tax-raising power of the specific municipality in
terms of its ability to pay interest and repay principal on a timely basis.
Thus, these securities are considered to be "backed by the full faith and
credit" of the issuer.
Revenue securities are issued to finance specific projects, such as a
hospital or airport. In this instance, the municipal issuer pledges the
operating revenues derived from the specific project to pay the interest and
repay the principal when due.
In many cases, smaller municipalities would have difficulty selling these
securities in the marketplace were it not for the added attractiveness of the
tax-free status.
BENEFITS TO QUALITY OF LIFE
The benefit you may not have considered - when you invested in the Trust -
was that in the process of having the Trust provide you with tax-free income, it
also provides help to a variety of others within your community and Hawaii. This
is a benefit in which you can take real pride.
Municipal bonds, such as those in which Hawaiian Tax-Free Trust invests,
are the primary way infrastructure is financed. Infrastructure is a relatively
obscure word that by itself doesn't mean much to most people. But, when you
translate the word "infrastructure" into projects such as schools, roads,
bridges, water facilities, pollution control, airports, hospitals, and fire and
police stations, then you are speaking in terms that people more easily
understand.
As the economy of Hawaii grows, new and additional municipal projects are
needed for the benefit of the citizens of Hawaii and the various communities
throughout the state. In essence, your money invested in the Trust helps pay for
that new school, road, airport, etc. that you and your neighbors now enjoy. So,
as an investor in Hawaiian Tax-Free Trust, you can take pride in knowing that
you are playing a vital role and a very real part in enhancing the quality of
life for your family, friends, neighbors and future generations of Hawaiians.
SUMMARY
So, the next time that you receive your statement from Hawaiian Tax-Free
Trust, remember that the benefits that are reaped from your investment are more
than just what is evident on that piece of paper.
Sincerely,
/s/ Diana P. Herrmann /s/ Lacy B. Herrmann
Diana P. Herrmann Lacy B. Herrmann
President Founder and Chairman Emeritus
For certain investors, some dividends may be subject to Federal and State taxes,
including the Alternative Minimum Tax.
NOT A PART OF THE ANNUAL REPORT
[LOGO OF HAWAIIAN TAX-FREE TRUST:
A PALM TREE IN FRONT OF A CIRCLE
WHICH HAS AN ISLAND AND WATER WITHIN IT] (R)
SERVING HAWAII INVESTORS FOR NEARLY TWO DECADES
HAWAIIAN TAX-FREE TRUST
ANNUAL REPORT
MANAGEMENT DISCUSSION
ECONOMY
Over the past year ended March 31, 2006, the US economy defied headwinds
from rising petroleum prices, Gulf Coast hurricanes, and from an inverted yield
curve to prove that US real Gross Domestic Product (GDP) growth, productivity
growth and `well-anchored' inflationary expectations are all intact. In the end,
long-term interest rates have risen just as expected for an economy approaching
cruising speed, and short-term interest rates have risen just as expected given
a removal of monetary policy accommodation, a transition to a neutral rate
environment and a new Fed Chairman. Sector-specific problems in the auto complex
and in homebuilding and residential real estate reflect idiosyncratic
conditions, but we believe the corresponding adjustments in those industries
will probably constrain 2006 US real GDP growth to remain around 3.0%, with core
Consumer Price Index (CPI) inflation just above 2.0%, and the unemployment rate
in the mid- to upper- 4% range, but under 5%. Bond market performance,
consistent with the continuing rise in short and intermediate interest rates,
produced a small gain for the fiscal year. Equity markets, on the other hand,
experienced a strong advance as enthusiasm for stocks reflected investor
confidence that profit growth will remain healthy in a world-wide economic
growth pattern marked by limited inflation.
Hawaii came through 2005 with a good head of steam but entered 2006 by
finding out that more of its economic energy went up in inflation smoke. The
Honolulu consumer price index measure posted a 4.5% inflation rate in the second
half of 2005, on a year-over-year basis, eroding Hawaii real personal income
growth right down to the 2 to 3% forecast range for the next several years.
Hawaii payroll employment growth continued at a scorching 2.7% into the first
quarter 2006, but rising housing costs, dependency on imported crude petroleum
and labor markets showing an ultra-tight 2.5% unemployment rate almost certainly
mean that the outlook for Hawaii's economy from this point forward is
essentially capacity-constrained. In our view, Hawaii's eight year-long
expansion in residential investment and residential construction probably will
see median single-family home prices top out around $700,000 this year, with
homebuilding volumes flattening in 2006 before declining in 2007. This year will
be one of transition from positive to negative for residential investment.
However, other construction segments that have remained sidelined look to be
warming up. Office construction has been helped by rising office rents and
falling vacancies, the latter now breaking back into the single-digits.
Medium-term military construction and spending initiatives seem to be poised to
benefit from ongoing strategic realignments benefiting rapid deployment jumping
off points like Hawaii.
Thus, Hawaii's forecast has a somewhat less robust character for the next
two years than its actual experience the last two years, however, the forecast
predicts growth nonetheless. Real Hawaii
MANAGEMENT DISCUSSION (CONTINUED)
personal income growth will subside from 3.2% in 2005 (just under our 3.5%
forecast), to 2.6% in 2006 and 2.4% in 2007. Decent macroeconomic conditions in
the US mainland and Japan seem supportive of continued tourism growth although
the pass-through of aviation fuel costs will eventually weigh on travel demand,
as it has historically, and our forecasts for 3.5% visitor arrivals growth in
2006 and 3.1% in 2007 are looking somewhat optimistic in light of recent Hawaii
bad weather and reputation effects from a resulting Waikiki sewage spill. Slower
growth surely is better than no growth, particularly after eight years of
economic expansion which will sustain a positive outlook for Hawaii bonds.
MUNICIPAL MARKET AND FUND PERFORMANCE
During the 12 months ended March 31, 2006, the municipal bond markets
responded to the continuing Federal Reserve operations to hike the short-term
Fed Funds rate from 2.75% in March 2005 to 4.75% by March 2006. Municipal rates
on the short end of the curve were higher by about 100 basis points; however at
the long end of the municipal rate curve, rates were little changed and maybe
lower by a few basis points. These changes represented continued yield curve
"flattening" with short-term yield rising closer to long-term yields.
Hawaiian Tax-Free Trust had a total return, without sales charges, of
1.79% for its Class A shares, 0.97% for Class C shares, and 1.99% for Class Y
shares for the calendar year ending December 31, 2005. For the fiscal year
ending March 31, 2006, the total return, without sales charges, was 2.19% for
Class A shares, 1.37% for Class C shares, and 2.48% for Class Y shares. Total
return reflects the market fluctuation of the share price as well as reinvested
dividends. The Lehman Brothers Quality Intermediate Municipal Bond Index had a
total return of 1.66% for the calendar year 2005 and 2.53% for the Trust's
fiscal year.
OUTLOOK AND STRATEGY
Reasonable economic growth where unemployment remains under 5% and
inflationary expectations are controlled are positive for the financial market,
particularly equities. Consumer confidence measures are at relatively high
levels lifted by job creation, higher stock wealth, and still strong home
values. It seems that the rise in commodity prices, particularly gasoline
prices, have yet to impact consumers. While there is an expectation for an
additional Fed Funds rate hike, the Federal Reserve is close to the end of that
tightening regime. The end of short-term rate hikes will spell some relief for
the bond markets. Potential low probability, high risk geopolitical events
remain as market threats along with the continuing presence of Chinese exchange
rate realignment to pressure the US dollar in currency markets.
In managing Hawaiian Tax-Free Trust, we keep in mind the Trust's goal of
maintaining a relatively high level of double tax-free income together with
reasonable principal preservation. Accordingly, we continually seek to manage
the Trust conservatively both in terms of credit quality and interest rate risk
by investing primarily in highly rated municipal bonds with intermediate
maturities.
PERFORMANCE REPORT
The following graph illustrates the value of $10,000 invested in the Class
A shares of Hawaiian Tax-Free Trust for the 10-year period ended March 31, 2006
as compared with the Lehman Brothers Quality Intermediate Municipal Bond Index
(the "Lehman Index") and the Consumer Price Index (a cost of living index). The
performance of each of the other classes is not shown in the graph but is
included in the table below. It should be noted that the Lehman Index does not
include any operating expenses nor sales charges and being nationally oriented,
does not reflect state specific bond market performance.
[GRAPHIC OF A LINE CHART WITH THE FOLLOWING INFORMATION:]
TRUST'S CLASS A SHARES
LEHMAN
QUALITY
MONTH/YEAR COST OF WITHOUT WITH INTERMEDIATE
LIVING SALES SALES MUNICIPAL
INDEX CHARGE CHARGE BOND INDEX
MARCH - 96 $10,000 $10,000 $ 9,600 $10,000
MARCH - 97 10,276 10,458 10,041 10,453
MARCH - 98 10,417 11,448 10,991 11,336
MARCH - 99 10,597 12,034 11,554 11,994
MARCH - 00 10,996 11,919 11,444 12,114
MARCH - 01 11,317 13,082 12,561 12,963
MARCH - 02 11,484 13,508 12,969 13,786
MARCH - 03 11,830 14,579 13,997 15,095
MARCH - 04 12,036 15,491 14,873 15,824
MARCH - 05 12,415 15,579 14,957 15,951
MARCH - 06 12,832 15,931 14,296 16,355
Average Annual Total Return
for periods ended March 31, 2006
-----------------------------------------
Since
1 Year 5 Years 10 Years Inception
------ ------- -------- ---------
Class A (2/20/85)
With Sales Charge ..... (1.90)% 3.24% 4.34% 6.43%
Without Sales Charge .. 2.19% 4.08% 4.77% 6.64%
Class C (4/01/96)
With CDSC ............. 0.36% 3.25% 3.89% 3.89%
Without CDSC .......... 1.37% 3.25% 3.89% 3.89%
Class Y (4/01/96)
No Sales Charge ....... 2.48% 4.28% 5.17% 5.17%
Lehman Index ............. 2.53% 4.25% 5.04% 5.99%* (Class A)
5.04% (Class C&Y)
* From commencement of the index on 1/1/87.
Total return figures shown for the Trust reflect any change in price and assume
all distributions within the period were invested in additional shares. Returns
for Class A shares are calculated with and without the effect of the initial 4%
maximum sales charge. Returns for Class C shares are calculated with and without
the effect of the 1% contingent deferred sales charge (CDSC) imposed on
redemptions made within the first 12 months after purchase. Class Y shares are
sold without any sales charge. The rates of return will vary and the principal
value of an investment will fluctuate with market conditions. Shares, if
redeemed, may be worth more or less than their original cost. Dividend income
may be subject to Federal and state income taxes and/or the Federal alternative
minimum tax. Past performance is not predictive of future investment results.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
Hawaiian Tax-Free Trust:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Hawaiian Tax-Free Trust and the
related statement of operations, changes in net assets, and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The statements of changes in net assets for the year ended
March 31, 2005 and the financial highlights for each of the years in the four
year period ended March 31, 2005 have been audited by other auditors, whose
report dated May 23, 2005 expressed an unqualified opinion on such financial
statements and financial highlights.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Trust's internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement. Our procedures included confirmation of securities
owned as of March 31, 2006, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Hawaiian Tax-Free Trust as of March 31, 2006, the results of its operations, the
changes in its net assets and the financial highlights for the year then ended,
in conformity with accounting principles generally accepted in the United States
of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
May 15, 2006
- --------------------------------------------------------------------------------
HAWAIIAN TAX-FREE TRUST
SCHEDULE OF INVESTMENTS
MARCH 31, 2006
RATING
FACE MOODY'S/
AMOUNT MUNICIPAL BONDS (98.7%) S&P VALUE
- ------------ ------------------------------------------------------ -------- ------------
HAWAII (93.7%)
HAWAII GENERAL OBLIGATION BONDS (60.9%)
City and County of Honolulu, Hawaii, Series A,
FGIC Insured
$ 9,970,000 7.350%, 07/01/07 ..................................... Aaa/AAA $ 10,420,744
3,600,000 7.350%, 07/01/08 ..................................... Aaa/AAA 3,883,572
1,715,000 6.000%, 01/01/11 ..................................... Aaa/AAA 1,879,434
5,000 5.750%, 04/01/11 ..................................... Aaa/AAA 5,439
1,580,000 6.000%, 01/01/12 ..................................... Aaa/AAA 1,751,604
3,025,000 5.750%, 04/01/13 ..................................... Aaa/AAA 3,352,759
City and County of Honolulu, Hawaii, Series A,
Prerefunded 09/01/06 @102, FGIC Insured
440,000 5.625%, 09/01/14 ..................................... Aaa/AAA 452,566
City and County of Honolulu, Hawaii Prerefunded-
1993 Series A, Escrowed to Maturity, FGIC -
TCRS Insured
4,110,000 6.000%, 01/01/11 ..................................... Aaa/AAA 4,513,438
920,000 6.000%, 01/01/12 ..................................... Aaa/AAA 1,022,920
City and County of Honolulu, Hawaii 1994 Series A,
March 31, 2005 Escrowed to Maturity, FGIC Insured
3,995,000 5.750%, 04/01/11 ..................................... Aaa/NR 4,361,142
775,000 5.750%, 04/01/13 ..................................... Aaa/AAA 861,971
City and County of Honolulu, Hawaii, Series A,
FSA Insured
2,500,000 5.000%, 09/01/09 ..................................... Aaa/AAA 2,606,275
City and County of Honolulu, Hawaii, Series A,
Prerefunded 09/01/11 @100, FSA Insured
3,500,000 5.375%, 09/01/18 ..................................... Aaa/AAA 3,772,265
2,000,000 5.125%, 09/01/20 ..................................... Aaa/AAA 2,131,340
City and County of Honolulu, Hawaii, Series A,
MBIA Insured
9,335,000 5.000%, 07/01/21 ..................................... Aaa/AAA 9,813,699
City and County of Honolulu, Hawaii, Prerefunded
Series A, Escrowed to Maturity, MBIA Insured
630,000 5.250%, 03/01/12 ..................................... Aaa/AAA 677,546
RATING
FACE MOODY'S/
AMOUNT HAWAII GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- ------------
City and County of Honolulu, Hawaii, Prerefunded
03/01/13 @100, Series A, MBIA Insured
$ 1,885,000 5.250%, 03/01/15 ..................................... Aaa/AAA $ 2,037,685
2,885,000 5.250%, 03/01/16 ..................................... Aaa/AAA 3,118,685
3,005,000 5.250%, 03/01/17 ..................................... Aaa/AAA 3,248,405
1,255,000 5.250%, 03/01/18 ..................................... Aaa/AAA 1,356,655
City and County of Honolulu, Hawaii Refunded -
1995 Series A, Escrowed to Maturity, MBIA Insured
1,355,000 6.000%, 11/01/09 ..................................... Aaa/AAA 1,460,704
860,000 6.000%, 11/01/09 ..................................... Aaa/AAA 927,089
1,090,000 6.000%, 11/01/10 ..................................... Aaa/AAA 1,194,051
410,000 6.000%, 11/01/10 ..................................... Aaa/AAA 449,139
City and County of Honolulu, Hawaii, Unrefunded
Portion 2003- Series A, MBIA Insured
370,000 5.250%, 03/01/12 ..................................... Aaa/AAA 396,714
1,115,000 5.250%, 03/01/15 ..................................... Aaa/AAA 1,196,941
1,715,000 5.250%, 03/01/16 ..................................... Aaa/AAA 1,839,972
1,775,000 5.250%, 03/01/17 ..................................... Aaa/AAA 1,898,824
745,000 5.250%, 03/01/18 ..................................... Aaa/AAA 795,124
City and County of Honolulu, Hawaii, 2004 - Series A,
MBIA Insured, Prerefunded 07/01/14 @100
4,655,000 5.000%, 07/01/16 ..................................... Aaa/AAA 4,985,458
City and County of Honolulu, Hawaii,
2005-Series A, MBIA Insured
7,650,000 5.000%, 07/01/18 ..................................... Aaa/AAA 8,102,115
6,250,000 5.000%, 07/01/19 ..................................... Aaa/AAA 6,604,688
City and County of Honolulu, Hawaii, Series B,
FGIC Insured
7,310,000 5.500%, 10/01/11 ..................................... Aaa/AAA 7,920,458
City and County of Honolulu, Hawaii, Series B,
MBIA Insured
2,930,000 5.000%, 07/01/18 ..................................... Aaa/AAA 3,103,163
City and County of Honolulu, Hawaii, Series B,
Prerefunded 11/01/07 @101, FGIC Insured
930,000 5.000%, 11/01/13 ..................................... Aaa/AAA 959,221
1,060,000 5.000%, 11/01/14 ..................................... Aaa/AAA 1,093,305
530,000 5.000%, 11/01/16 ..................................... Aaa/AAA 546,653
1,400,000 5.000%, 11/01/17 ..................................... Aaa/AAA 1,443,988
RATING
FACE MOODY'S/
AMOUNT HAWAII GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- ------------
City and County of Honolulu, Hawaii, Series B,
Prerefunded 07/01/09 @101, FGIC Insured
$ 600,000 5.125%, 07/01/11 ..................................... Aaa/AAA $ 632,106
2,595,000 5.125%, 07/01/15 ..................................... Aaa/AAA 2,733,858
4,490,000 5.000%, 07/01/19 ..................................... Aaa/AAA 4,713,288
1,395,000 5.000%, 07/01/20 ..................................... Aaa/AAA 1,464,373
City and County of Honolulu, Hawaii, Series C,
FGIC Insured
7,750,000 5.125%, 07/01/14 ..................................... Aaa/AAA 8,128,355
2,510,000 5.000%, 07/01/18 ..................................... Aaa/AAA 2,617,579
City and County of Honolulu, Hawaii, Series C,
MBIA Insured
740,000 5.000%, 07/01/18 ..................................... Aaa/AAA 783,734
6,945,000 5.000%, 07/01/19 ..................................... Aaa/AAA 7,339,129
City and County of Honolulu, Hawaii, Series D,
MBIA Insured
1,100,000 5.000%, 07/01/14 ..................................... Aaa/AAA 1,174,107
3,750,000 5.000%, 07/01/19 ..................................... Aaa/AAA 3,962,813
6,450,000 5.000%, 07/01/20 ..................................... Aaa/AAA 6,795,849
6,080,000 5.000%, 07/01/21 ..................................... Aaa/AAA 6,391,782
City and County of Honolulu, Hawaii, Series F,
FGIC Insured
5,335,000 5.250%, 07/01/20 ..................................... Aaa/AAA 5,743,021
City and County of Honolulu, Hawaii, Water Utility
Refunding and Improvement, Escrowed to Maturity,
FGIC Insured
1,125,000 6.000%, 12/01/12 ..................................... Aaa/AAA 1,265,760
1,050,000 6.000%, 12/01/15 ..................................... Aaa/AAA 1,212,215
County of Hawaii, Series A, CIFG Insured
1,515,000 5.000%, 07/15/07 ..................................... Aaa/AAA 1,541,558
1,595,000 5.000%, 07/15/08 ..................................... Aaa/AAA 1,643,328
2,715,000 5.000%, 07/15/19 ..................................... Aaa/AAA 2,882,977
2,850,000 5.000%, 07/15/20 ..................................... Aaa/AAA 3,016,582
County of Hawaii, Series A, FGIC Insured
1,700,000 5.450%, 05/01/07 ..................................... Aaa/AAA 1,732,742
3,170,000 5.500%, 05/01/08 ..................................... Aaa/AAA 3,285,927
RATING
FACE MOODY'S/
AMOUNT HAWAII GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- ------------
County of Hawaii, Series A, FGIC Insured (continued)
$ 2,500,000 5.550%, 05/01/09 ..................................... Aaa/AAA $ 2,636,050
4,905,000 5.600%, 05/01/11 ..................................... Aaa/AAA 5,315,745
1,000,000 5.600%, 05/01/12 ..................................... Aaa/AAA 1,092,790
1,000,000 5.600%, 05/01/13 ..................................... Aaa/AAA 1,100,270
1,465,000 5.500%, 07/15/16 ..................................... Aaa/AAA 1,572,853
County of Hawaii, Series A, FSA Insured
1,000,000 5.375%, 05/15/13 ..................................... Aaa/AAA 1,055,260
1,000,000 5.400%, 05/15/15 ..................................... Aaa/AAA 1,055,990
1,000,000 5.000%, 07/15/16 ..................................... Aaa/AAA 1,054,150
2,000,000 5.000%, 07/15/17 ..................................... Aaa/AAA 2,101,880
1,470,000 5.625%, 05/15/18 ..................................... Aaa/AAA 1,564,594
1,000,000 5.000%, 07/15/18 ..................................... Aaa/AAA 1,048,380
1,000,000 5.625%, 05/15/19 ..................................... Aaa/AAA 1,063,440
County of Kauai, Hawaii, Prerefunded 08/01/11
@100, MBIA Insured
140,000 5.625%, 08/01/13 ..................................... NR/AAA 152,410
560,000 5.625%, 08/01/14 ..................................... NR/AAA 609,638
355,000 5.625%, 08/01/17 ..................................... NR/AAA 386,467
345,000 5.625%, 08/01/18 ..................................... NR/AAA 375,581
805,000 5.500%, 08/01/20 ..................................... NR/AAA 871,541
County of Kauai, Hawaii, Unrefunded Portion,
MBIA Insured
985,000 5.625%, 08/01/13 ..................................... NR/AAA 1,069,346
1,060,000 5.625%, 08/01/14 ..................................... NR/AAA 1,149,178
680,000 5.625%, 08/01/17 ..................................... NR/AAA 734,148
655,000 5.625%, 08/01/18 ..................................... NR/AAA 706,182
1,555,000 5.500%, 08/01/20 ..................................... NR/AAA 1,660,351
County of Kauai, Hawaii, Series A, FGIC Insured
1,000,000 5.000%, 08/01/23 ..................................... Aaa/AAA 1,047,760
County of Kauai, Hawaii, 2005-Series A, FGIC Insured
1,560,000 5.000%, 08/01/16 ..................................... Aaa/AAA 1,664,036
2,010,000 5.000%, 08/01/17 ..................................... Aaa/AAA 2,136,047
2,060,000 5.000%, 08/01/18 ..................................... Aaa/AAA 2,182,652
1,075,000 5.000%, 08/01/19 ..................................... Aaa/AAA 1,136,458
RATING
FACE MOODY'S/
AMOUNT HAWAII GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- ------------
County of Kauai, Hawaii, Series A, Prerefunded
08/01/10 @100, FGIC Insured
$ 1,000,000 6.125%, 08/01/13 ..................................... Aaa/AAA $ 1,095,560
1,010,000 6.250%, 08/01/14 ..................................... Aaa/AAA 1,111,515
1,000,000 6.250%, 08/01/15 ..................................... Aaa/AAA 1,100,510
1,000,000 6.250%, 08/01/16 ..................................... Aaa/AAA 1,100,510
1,275,000 6.250%, 08/01/17 ..................................... Aaa/AAA 1,403,150
County of Kauai, Hawaii Refunding Bonds,
Series A, MBIA Insured
1,010,000 5.700%, 02/01/07 ..................................... Aaa/AAA 1,011,313
County of Kauai, Hawaii Refunding Bonds,
Series B & C, AMBAC Insured
1,355,000 5.900%, 08/01/08 ..................................... Aaa/AAA 1,423,753
435,000 5.900%, 08/01/08 ..................................... Aaa/AAA 457,072
1,300,000 5.950%, 08/01/10 ..................................... Aaa/AAA 1,414,140
County of Maui, Hawaii, MBIA Insured
4,000,000 5.000%, 03/01/17 ..................................... Aaa/AAA 4,241,640
2,500,000 5.000%, 03/01/18 ..................................... Aaa/AAA 2,643,425
1,105,000 5.000%, 03/01/19 ..................................... Aaa/AAA 1,165,874
County of Maui, Hawaii, Series A, Prerefunded
09/01/07 @101, FGIC Insured
1,130,000 5.250%, 09/01/13 ..................................... Aaa/AAA 1,166,827
1,265,000 5.250%, 09/01/15 ..................................... Aaa/AAA 1,306,226
1,335,000 5.250%, 09/01/16 ..................................... Aaa/AAA 1,378,508
County of Maui, Hawaii, Series A, FGIC Insured,
Prerefunded 03/01/08 @101
250,000 5.000%, 03/01/10 ..................................... Aaa/AAA 258,857
1,200,000 5.125%, 03/01/14 ..................................... Aaa/AAA 1,245,264
1,050,000 5.125%, 03/01/16 ..................................... Aaa/AAA 1,089,606
2,590,000 5.250%, 03/01/18 ..................................... Aaa/AAA 2,693,600
County of Maui, Hawaii, 2001 - Series A,
MBIA Insured
1,000,000 5.500%, 03/01/18 ..................................... NR/AAA 1,066,170
County of Maui, Hawaii, 2002 - Series A,
MBIA Insured
1,105,000 5.250%, 03/01/15 ..................................... Aaa/AAA 1,178,770
1,205,000 5.250%, 03/01/16 ..................................... Aaa/AAA 1,284,795
RATING
FACE MOODY'S/
AMOUNT HAWAII GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- ------------
County of Maui, Hawaii, 2002 - Series A,
MBIA Insured (continued)
$ 1,000,000 5.250%, 03/01/18 ..................................... Aaa/AAA $ 1,058,660
1,750,000 5.250%, 03/01/19 ..................................... Aaa/AAA 1,849,837
1,000,000 5.000%, 03/01/20 ..................................... Aaa/AAA 1,036,650
County of Maui, Hawaii, Unrefunded Series A,
FGIC Insured
750,000 5.000%, 03/01/10 ..................................... Aaa/AAA 774,892
County of Maui, Hawaii, Series B, FGIC Insured
1,065,000 5.250%, 03/01/11 ..................................... Aaa/AAA 1,134,949
County of Maui, Hawaii, Series B, MBIA Insured
825,000 5.375%, 09/01/13 ..................................... Aaa/AAA 893,846
County of Maui, Hawaii Refunding Bonds, Series B,
MBIA Insured
1,445,000 5.375%, 09/01/12 ..................................... Aaa/AAA 1,564,733
County of Maui, Hawaii, Series C, FGIC Insured
1,020,000 5.250%, 03/01/16 ..................................... Aaa/AAA 1,079,966
1,000,000 5.250%, 03/01/17 ..................................... Aaa/AAA 1,058,340
1,250,000 5.250%, 03/01/20 ..................................... Aaa/AAA 1,319,500
State of Hawaii, Series BW, FSA Insured
Escrowed to maturity
1,000,000 6.400%, 03/01/09 ..................................... Aaa/AAA 1,075,690
State of Hawaii, Series BZ, FGIC Insured
3,700,000 6.000%, 10/01/11 ..................................... Aaa/AAA 4,099,859
3,500,000 6.000%, 10/01/12 ..................................... Aaa/AAA 3,917,795
State of Hawaii, Series CA, FGIC Insured
2,000,000 5.750%, 01/01/11 ..................................... Aaa/AAA 2,170,260
State of Hawaii, Series CC
590,000 5.125%, 02/01/07 ..................................... Aa2/AA- 597,192
State of Hawaii, Series CH
1,000,000 4.750%, 11/01/11 ..................................... Aa2/AA- 1,047,280
State of Hawaii, Series CH, FGIC Insured
5,000,000 6.000%, 11/01/07 ..................................... Aaa/AAA 5,182,450
3,390,000 6.000%, 11/01/08 ..................................... Aaa/AAA 3,588,078
State of Hawaii, Series CL, FGIC Insured
2,305,000 6.000%, 03/01/11 ..................................... Aaa/AAA 2,533,149
State of Hawaii, Series CM, FGIC Insured
3,000,000 6.500%, 12/01/15 ..................................... Aaa/AAA 3,574,410
RATING
FACE MOODY'S/
AMOUNT HAWAII GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- ------------
State of Hawaii, Series CN, FGIC Insured, Prerefunded
03/01/07 @102
$ 4,000,000 5.250%, 03/01/10 ..................................... Aaa/AAA $ 4,137,440
4,000,000 5.250%, 03/01/13 ..................................... Aaa/AAA 4,137,440
3,000,000 5.500%, 03/01/14 ..................................... Aaa/AAA 3,109,680
7,950,000 5.250%, 03/01/15 ..................................... Aaa/AAA 8,223,162
1,000,000 5.250%, 03/01/17 ..................................... Aaa/AAA 1,034,360
State of Hawaii, Series CP, Prerefunded to 10/01/07
@101, FGIC Insured
3,565,000 5.000%, 10/01/13 ..................................... Aaa/AAA 3,673,126
1,565,000 5.000%, 10/01/14 ..................................... Aaa/AAA 1,612,466
3,565,000 5.000%, 10/01/15 ..................................... Aaa/AAA 3,673,126
5,135,000 5.000%, 10/01/17 ..................................... Aaa/AAA 5,290,745
State of Hawaii, Series CP, Unrefunded, FGIC Insured
1,435,000 5.000%, 10/01/13 ..................................... Aaa/AAA 1,476,845
630,000 5.000%, 10/01/14 ..................................... Aaa/AAA 648,371
1,435,000 5.000%, 10/01/15 ..................................... Aaa/AAA 1,477,261
2,060,000 5.000%, 10/01/17 ..................................... Aaa/AAA 2,119,452
State of Hawaii, Series CR, MBIA Insured,
Prerefunded 04/01/08 @101
1,000,000 5.250%, 04/01/13 ..................................... Aaa/AAA 1,041,300
5,000,000 5.000%, 04/01/16 ..................................... Aaa/AAA 5,182,700
9,600,000 5.000%, 04/01/17 ..................................... Aaa/AAA 9,950,784
State of Hawaii, Series CS, MBIA Insured
5,500,000 5.000%, 04/01/09 ..................................... Aaa/AAA 5,706,855
State of Hawaii, Series CU, MBIA Insured
1,250,000 5.750%, 10/01/08 ..................................... Aaa/AAA 1,313,425
1,000,000 5.750%, 10/01/09 ..................................... Aaa/AAA 1,067,870
State of Hawaii, Series CU, Prerefunded 10/01/10
@100, MBIA Insured
3,000,000 5.600%, 10/01/19 ..................................... Aaa/AAA 3,232,470
State of Hawaii, Series CV, FGIC Insured
11,000,000 5.000%, 08/01/20 ..................................... Aaa/AAA 11,420,530
5,000,000 5.250%, 08/01/21 ..................................... Aaa/AAA 5,291,750
1,015,000 5.000%, 08/01/21 ..................................... Aaa/AAA 1,049,886
RATING
FACE MOODY'S/
AMOUNT HAWAII GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- ------------
State of Hawaii, Series CX, FSA Insured
$ 2,000,000 5.250%, 02/01/12 ..................................... Aaa/AAA $ 2,142,540
8,725,000 5.500%, 02/01/13 ..................................... Aaa/AAA 9,450,047
500,000 5.000%, 02/01/19 ..................................... Aaa/AAA 519,135
2,500,000 5.500%, 02/01/21 ..................................... Aaa/AAA 2,690,225
State of Hawaii, Series CY, FSA Insured
1,000,000 5.500%, 02/01/12 ..................................... Aaa/AAA 1,084,190
2,000,000 5.750%, 02/01/15 ..................................... Aaa/AAA 2,245,260
State of Hawaii, Series CZ, Prerefunded to 07/01/12
@100, FSA Insured
1,255,000 5.250%, 07/01/16 ..................................... NR/AAA 1,351,547
State of Hawaii, Series CZ, Unrefunded, FSA Insured
8,135,000 5.250%, 07/01/16 ..................................... NR/AAA 8,677,198
State of Hawaii, Series CZ, FSA Insured
1,500,000 5.250%, 07/01/12 ..................................... Aaa/AAA 1,613,670
3,000,000 5.250%, 07/01/18 ..................................... Aaa/AAA 3,184,650
State of Hawaii, Series CZ, FSA Insured Prerefunded
to 07/01/12 @ 100
3,000,000 5.250%, 07/01/17 ..................................... Aaa/AAA 3,230,790
State of Hawaii, Series DD, Prerefunded to 05/01/14
@100, MBIA Insured
2,530,000 5.000%, 05/01/18 ..................................... Aaa/AAA 2,710,212
State of Hawaii, Series DD, Unrefunded, MBIA Insured
1,470,000 5.000%, 05/01/18 ..................................... Aaa/AAA 1,547,704
State of Hawaii, Series DE, MBIA Insured
5,000,000 5.000%, 10/01/21 ..................................... Aaa/AAA 5,239,450
Hawaii State Series DF, AMBAC Insured
3,500,000 5.000%, 07/01/23 ..................................... Aaa/AAA 3,665,900
Hawaii State Series DG, AMBAC Insured, Refunding
5,000,000 5.000%, 07/01/09 ..................................... Aaa/AAA 5,202,600
Hawaii State Series DI, FSA Insured
2,500,000 5.000%, 03/01/15 ..................................... Aaa/AAA 2,670,200
5,000,000 5.000%, 03/01/20 ..................................... Aaa/AAA 5,300,400
2,750,000 5.000%, 03/01/21 ..................................... Aaa/AAA 2,899,297
5,000,000 5.000%, 03/01/22 ..................................... Aaa/AAA 5,259,100
------------
438,739,811
------------
RATING
FACE MOODY'S/
AMOUNT HAWAII REVENUE BONDS (32.8%) S&P VALUE
- ------------ ------------------------------------------------------ -------- ------------
Board of Regents, University of Hawaii, University
System, Series A, FGIC Insured
$ 1,805,000 5.500%, 07/15/14 ..................................... Aaa/AAA $ 1,958,046
1,090,000 5.500%, 07/15/16 ..................................... Aaa/AAA 1,184,318
2,000,000 5.500%, 07/15/19 ..................................... Aaa/AAA 2,164,960
2,000,000 5.500%, 07/15/21 ..................................... Aaa/AAA 2,162,660
2,000,000 5.500%, 07/15/22 ..................................... Aaa/AAA 2,156,900
3,000,000 5.500%, 07/15/29 ..................................... Aaa/AAA 3,206,220
Board of Regents, University of Hawaii, University
System, Series B, FSA Insured
1,110,000 5.250%, 10/01/12 ..................................... Aaa/AAA 1,183,393
1,000,000 5.250%, 10/01/13 ..................................... Aaa/AAA 1,064,090
1,140,000 5.250%, 10/01/14 ..................................... Aaa/AAA 1,206,143
1,395,000 5.250%, 10/01/15 ..................................... Aaa/AAA 1,482,285
City and County of Honolulu, Hawaii Board of
Water Supply & System, FSA Insured
620,000 5.500%, 07/01/15 ..................................... Aaa/AAA 665,341
3,000,000 5.125%, 07/01/21 ..................................... Aaa/AAA 3,156,450
5,450,000 5.250%, 07/01/23 ..................................... Aaa/AAA 5,776,728
City and County Board of Honolulu, Hawaii Water
Supply, Series A, FGIC Insured
700,000 4.750%, 07/01/15 ..................................... Aaa/AAA 732,998
City and County of Honolulu, Hawaii Board of
Water Supply & System, Series A, FGIC Insured
600,000 4.000%, 07/01/13 ..................................... Aaa/AAA 601,470
1,365,000 4.000%, 07/01/14 ..................................... Aaa/AAA 1,362,079
2,700,000 4.750%, 07/01/16 ..................................... Aaa/AAA 2,815,749
2,805,000 4.750%, 07/01/17 ..................................... Aaa/AAA 2,915,293
2,970,000 4.750%, 07/01/18 ..................................... Aaa/AAA 3,078,405
3,095,000 4.750%, 07/01/19 ..................................... Aaa/AAA 3,201,437
3,265,000 4.750%, 07/01/20 ..................................... Aaa/AAA 3,368,109
1,230,000 5.000%, 07/01/21 ..................................... Aaa/AAA 1,287,380
City and County of Honolulu, Hawaii Improvement
District No. 261 (Halawa Business Park),
Special Assessment Bonds
290,000 6.900%, 10/15/06 ..................................... NR/NR1 293,367
RATING
FACE MOODY'S/
AMOUNT HAWAII REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- ------------
City and County of Honolulu, Hawaii Wastewater
Systems, FGIC Insured
$ 1,395,000 5.000%, 07/01/12 ..................................... Aaa/NR $ 1,459,142
City and County of Honolulu, Hawaii Wastewater
Systems, Series A, FGIC Insured
3,950,000 5.000%, 07/01/16 ..................................... Aaa/AAA 4,195,887
1,000,000 5.000%, 07/01/17 ..................................... Aaa/AAA 1,058,320
2,825,000 5.000%, 07/01/22 ..................................... Aaa/AAA 2,952,351
City and County of Honolulu, Hawaii Wastewater
Systems, Junior Series, FGIC Insured
1,000,000 5.250%, 07/01/15 ..................................... Aaa/AAA 1,053,220
2,400,000 5.250%, 07/01/16 ..................................... Aaa/AAA 2,527,728
2,000,000 5.250%, 07/01/18 ..................................... Aaa/AAA 2,107,060
5,055,000 5.000%, 07/01/23 ..................................... Aaa/AAA 5,255,987
City and County of Honolulu, Hawaii Wastewater
Systems, Senior Series, AMBAC Insured
1,810,000 5.500%, 07/01/11 ..................................... Aaa/NR 1,957,497
1,065,000 5.500%, 07/01/16 ..................................... Aaa/NR 1,140,796
3,000,000 5.500%, 07/01/17 ..................................... Aaa/NR 3,207,660
2,310,000 5.500%, 07/01/18 ..................................... Aaa/NR 2,466,526
2,000,000 5.250%, 07/01/19 ..................................... Aaa/NR 2,118,920
Department of Budget and Finance of the State of
Hawaii (Chaminade University, Honolulu),
Radian Insured
1,000,000 5.000%, 01/01/26 ..................................... NR/NR2 1,034,220
Department of Budget and Finance of the State of
Hawaii (Mid Pacific Institute), Radian Insured
2,000,000 4.625%, 01/01/31 ..................................... NR/AA 1,958,000
1,210,000 4.625%, 01/01/36 ..................................... NR/AA 1,172,841
Department of Budget and Finance of the State of
Hawaii Special Purpose (Hawaiian Electric
Company, Inc.), Series A, AMBAC Insured
4,965,000 5.500%, 12/01/14 ..................................... Aaa/AAA 5,288,271
Department of Budget and Finance of the State of
Hawaii Special Purpose (Hawaiian Electric
Company, Inc.), Series A, MBIA Insured
4,125,000 4.950%, 04/01/12 ..................................... Aaa/AAA 4,361,115
RATING
FACE MOODY'S/
AMOUNT HAWAII REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- ------------
Department of Budget and Finance of the State of
Hawaii Special Purpose (Hawaiian Electric
Company, Inc.) Refunding Series A-AMT,
FGIC Insured
$ 3,000,000 4.800%, 01/01/25 ..................................... Aaa/AAA $ 2,996,100
Department of Budget and Finance of the State of
Hawaii Special Purpose (Hawaiian Electric
Company, Inc., and Subsidiaries Projects),
Series A-AMT, MBIA Insured
5,700,000 5.650%, 10/01/27 ..................................... Aaa/AAA 6,134,682
Department of Budget and Finance of the State of
Hawaii Special Purpose (Hawaiian Electric
Company, Inc., and Subsidiaries Projects),
Series B-AMT, XL Capital Insured
1,000,000 5.000%, 12/01/22 ..................................... Aaa/AAA 1,023,670
Department of Budget and Finance of the State of
Hawaii Special Purpose (Hawaiian Electric
Company, Inc.), Series D-AMT, AMBAC Insured
2,500,000 6.150%, 01/01/20 ..................................... Aaa/AAA 2,673,150
Department of Budget and Finance of the State of
Hawaii (North Hawaii Community Hospital)
Special Purpose , VRDO3 Enhancement LOC -
First Hawaiian Bank expiring 05/26/09
1,675,000 3.240%, 05/01/19 ..................................... VMIG1/Aa3 1,675,000
Department of Budget and Finance of the State of
Hawaii Special Purpose (The Evangelical Lutheran
Good Samaritan Society), AMBAC Insured
250,000 4.700%, 11/01/06 ..................................... Aaa/AAA 251,522
Department of Budget and Finance of the State of
Hawaii Special Purpose (The Queen's Health
System), Series A, Prerefunded 07/01/06 @ 102
8,625,000 6.000%, 07/01/20 ..................................... A1/A+ 8,848,129
Department of Budget and Finance of the State of
Hawaii Special Purpose (The Queen's Health
System), Series B, MBIA Insured Prerefunded to
07/01/08 @ 102
8,000,000 5.250%, 07/01/23 ..................................... Aaa/AAA 8,360,160
RATING
FACE MOODY'S/
AMOUNT HAWAII REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- ------------
Department of Hawaiian Home Lands (State of Hawaii)
$ 1,310,000 4.150%, 07/01/08 ..................................... A3/NR $ 1,310,210
1,525,000 4.350%, 07/01/10 ..................................... A3/NR 1,538,435
1,245,000 4.450%, 07/01/11 ..................................... A3/NR 1,259,305
Housing Finance and Development Corporation
(State of Hawaii) Single Family Mortgage,
Series A-AMT, FNMA Insured
2,800,000 5.300%, 07/01/22 ..................................... Aaa/AAA 2,862,384
4,925,000 5.750%, 07/01/30 ..................................... Aaa/AAA 4,967,059
1,015,000 5.400%, 07/01/30 ..................................... Aaa/AAA 1,043,511
Housing Finance and Development Corporation
(State of Hawaii) Single Family Mortgage,
Series B, FNMA Insured
9,350,000 5.450%, 07/01/17 ..................................... Aaa/AAA 9,573,745
6,800,000 5.300%, 07/01/28 ..................................... Aaa/AAA 6,983,532
Housing Finance and Development Corporation
(State of Hawaii) University of Hawaii Faculty
Housing Project, AMBAC Insured
2,125,000 5.650%, 10/01/16 ..................................... Aaa/AAA 2,148,503
4,000,000 5.700%, 10/01/25 ..................................... Aaa/AAA 4,044,320
State of Hawaii Airport System, AMT, FGIC Insured
4,000,000 5.750%, 07/01/17 ..................................... Aaa/AAA 4,288,560
6,000,000 5.625%, 07/01/18 ..................................... Aaa/AAA 6,374,700
6,000,000 5.250%, 07/01/21 ..................................... Aaa/AAA 6,207,540
State of Hawaii Airport System, AMT, Second Series,
Escrowed to Maturity, MBIA Insured
6,455,000 6.900%, 07/01/12 ..................................... Aaa/AAA 7,127,869
State of Hawaii Airport System, Series B-AMT,
FGIC Insured
3,000,000 8.000%, 07/01/10 ..................................... Aaa/AAA 3,454,500
State of Hawaii Airport System , Series B-AMT,
FGIC Insured, Refunding
6,095,000 6.500%, 07/01/14 ..................................... Aaa/AAA 6,727,234
State of Hawaii Harbor Capital Improvement, AMT,
MBIA Insured
3,850,000 5.750%, 07/01/17 ..................................... Aaa/AAA 4,001,305
State of Hawaii Harbor Capital Improvement,
Series B-AMT, AMBAC Insured
3,000,000 5.500%, 07/01/19 ..................................... Aaa/AAA 3,186,510
RATING
FACE MOODY'S/
AMOUNT HAWAII REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- ------------
State of Hawaii Harbor System, Series A-AMT,
FSA Insured
$ 2,000,000 5.750%, 07/01/17 ..................................... Aaa/AAA $ 2,137,460
1,500,000 5.900%, 07/01/21 ..................................... Aaa/AAA 1,612,350
State of Hawaii Harbor System, Series B-AMT,
FSA Insured
870,000 5.000%, 01/01/07 ..................................... Aaa/AAA 877,804
3,275,000 4.500%, 01/01/09 ..................................... Aaa/AAA 3,328,808
2,000,000 5.000%, 01/01/11 ..................................... Aaa/AAA 2,088,080
State of Hawaii Highway, FGIC Insured,
Prerefunded 07/01/06 @102
2,000,000 5.250%, 07/01/16 ..................................... Aaa/AAA 2,048,480
State of Hawaii Highway, FSA Insured
825,000 4.800%, 07/01/08 ..................................... Aaa/AAA 846,070
State of Hawaii Highway, FSA Insured
750,000 3.000%, 07/01/09 ..................................... Aaa/AAA 728,220
1,500,000 3.000%, 07/01/11 ..................................... Aaa/AAA 1,426,140
State of Hawaii Highway, Series A, FSA Insured
1,000,000 5.000%, 07/01/20 ..................................... Aaa/AAA 1,053,620
State of Hawaii Highway, Callable 07/01/10 @100,
FSA Insured
2,000,000 4.500%, 07/01/10 ..................................... Aaa/AAA 2,059,760
2,000,000 4.500%, 07/01/11 ..................................... Aaa/AAA 2,068,720
State of Hawaii Highway, FSA Insured,
Prerefunded 07/01/11 @100
250,000 5.125%, 07/01/14 ..................................... Aaa/AAA 263,742
2,720,000 5.500%, 07/01/19 ..................................... Aaa/AAA 2,909,176
1,110,000 5.500%, 07/01/20 ..................................... Aaa/AAA 1,187,201
State of Hawaii Highway Prerefunded 07/01/11
@100, FSA Insured
500,000 5.250%, 07/01/13 ..................................... Aaa/AAA 536,080
1,530,000 5.375%, 07/01/14 ..................................... Aaa/AAA 1,649,432
1,000,000 5.375%, 07/01/19 ..................................... Aaa/AAA 1,078,060
2,000,000 5.375%, 07/01/20 ..................................... Aaa/AAA 2,156,120
State of Hawaii Housing & Community
Development, FSA Insured
910,000 2.900%, 01/01/09 ..................................... Aaa/NR 889,571
895,000 3.400%, 01/01/11 ..................................... Aaa/NR 879,105
670,000 3.450%, 07/01/11 ..................................... Aaa/NR 662,060
RATING
FACE MOODY'S/
AMOUNT HAWAII REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- ------------
State of Hawaii Housing & Community
Development, FSA Insured (continued)
$ 925,000 3.600%, 01/01/12 ..................................... Aaa/NR $ 918,802
960,000 3.600%, 07/01/12 ..................................... Aaa/NR 952,013
1,055,000 3.700%, 07/01/13 ..................................... Aaa/NR 1,045,041
------------
236,802,912
------------
PUERTO RICO (5.0%)
------------------------------------------------------
Puerto Rico Commonwealth Aqueduct and Sewer
Authority Revenue Bonds, MBIA Insured
2,500,000 5.000%, 07/01/15 ..................................... Aaa/AAA 2,546,425
Puerto Rico Commonwealth Government Facilities
Revenue Bonds, Series A, FSA Insured
1,600,000 5.250%, 07/01/19 ..................................... NR/AAA 1,765,744
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue Bonds, Series J,
Callable 07/01/14 @100, MBIA Insured
5,745,000 5.000%, 07/01/17 ..................................... Aaa/AAA 6,115,438
Puerto Rico Commonwealth Public Finance Corp.
Revenue Bonds, Series A, Prerefunded 08/01/11
@100, MBIA Insured
5,000,000 5.500%, 08/01/17 ..................................... Aaa/AAA 5,425,850
Puerto Rico Commonwealth Public Improvement
General Obligation Bonds, Series A, FGIC Insured
4,000,000 5.500%, 07/01/13 ..................................... Aaa/AAA 4,402,640
2,000,000 5.500%, 07/01/16 ..................................... Aaa/AAA 2,237,400
Puerto Rico Commonwealth Public Improvement
General Obligation Bonds, Series A, FSA Insured
5,000,000 5.000%, 07/01/16 ..................................... Aaa/AAA 5,336,850
Puerto Rico Commonwealth Public Improvement
General Obligation Bonds, MBIA Insured
1,800,000 5.250%, 07/01/13 ..................................... Aaa/AAA 1,904,076
Puerto Rico Commonwealth Public Improvement
General Obligation Bonds, Series A, MBIA Insured
1,000,000 5.500%, 07/01/15 ..................................... NR/AAA 1,109,140
Puerto Rico Municipal Finance Agency Public
Improvement General Obligation Bonds,
Series A, FSA Insured
3,900,000 5.000%, 08/01/20 ..................................... Aaa/AAA 4,153,890
RATING
FACE MOODY'S/
AMOUNT PUERTO RICO (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- ------------
Puerto Rico Commonwealth Public Improvement
General Obligation Bonds, Series CR, FSA Insured
$ 1,060,000 5.250%, 07/01/17 ..................................... Aaa/AAA $ 1,167,823
-------------
36,165,276
-------------
Total Investments (Cost $692,932,642)(4) ............. 98.7% 711,707,999
Other assets less liabilities ........................ 1.3 9,295,810
----- -------------
Net Assets ........................................... 100.0% $ 721,003,809
===== =============
Percent of
Portfolio Distribution by Quality Rating (unaudited) Portfolio
------------------------------------------------------ ----------
Aaa of Moody's and/or AAA of S&P. 97.1%
Aa of Moody's and/or AA of S&P. 0.9
A of Moody's and/or S&P. 1.8
Not rated (2) 0.2
-----
100.0%
=====
(1) Any securities not rated (NR) have 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 rating service.
(2) Rated AA by Fitch.
(3) 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.
(4) See footnote 4 to the financial statements.
PORTFOLIO ABBREVIATIONS:
------------------------
AMBAC - American Municipal Bond Assurance Corporation
AMT - Alternative Minimum Tax
CIFG - CIFG Assurance Co.
FGIC - Financial Guaranty Insurance Co.
FNMA - Federal National Mortgage Association
FSA - Financial Securities Assurance
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assurance
TCRS - Transferable Custodial Receipts
VRDO - Variable Rate Demand Obligation
See accompanying notes to financial statements.
HAWAIIAN TAX-FREE TRUST
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2006
ASSETS
Investments at value (cost $692,932,642) ........................................... $711,707,999
Cash ............................................................................... 1,227,457
Interest receivable ................................................................ 9,578,640
Receivable for Trust shares sold ................................................... 339,533
Other assets ....................................................................... 25,385
------------
Total assets ....................................................................... 722,879,014
------------
LIABILITIES
Dividends payable .................................................................. 628,522
Payable for Trust shares redeemed .................................................. 562,177
Distribution and service fees payable .............................................. 275,614
Adviser and Administrator fees payable ............................................. 245,774
Accrued expenses ................................................................... 163,118
------------
Total liabilities .................................................................. 1,875,205
------------
NET ASSETS ............................................................................ $721,003,809
============
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share $ 636,940
Additional paid-in capital ......................................................... 698,931,357
Net unrealized appreciation on investments (note 4) ................................ 18,775,357
Accumulated net realized gain on investments ....................................... 569,372
Undistributed net investment income ................................................ 2,090,783
------------
$721,003,809
============
CLASS A
Net Assets ......................................................................... $665,875,742
============
Capital shares outstanding ......................................................... 58,824,050
============
Net asset value and redemption price per share ..................................... $ 11.32
============
Offering price per share (100/96 of $11.32 adjusted to nearest cent) ............... $ 11.79
============
CLASS C
Net Assets ......................................................................... $ 36,655,202
============
Capital shares outstanding ......................................................... 3,240,418
============
Net asset value and offering price per share ....................................... $ 11.31
============
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) ...................................... $ 11.31*
============
CLASS Y
Net Assets ......................................................................... $ 18,472,865
============
Capital shares outstanding ......................................................... 1,629,517
============
Net asset value, offering and redemption price per share ........................... $ 11.34
============
See accompanying notes to financial statements.
HAWAIIAN TAX-FREE TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED ENDED MARCH 31, 2006
Investment Income:
Interest income ......................................... $ 33,192,065
Expenses:
Investment Adviser fees (note 3) ........................ $ 1,031,161
Administrator fees (note 3) ............................. 1,915,025
Distribution and service fees (note 3) .................. 1,726,146
Transfer and shareholder servicing agent fees ........... 421,174
Trustees' fees and expenses (note 8) .................... 144,358
Shareholders' reports and proxy statements .............. 126,897
Legal fees (note 3) ..................................... 125,467
Custodian fees .......................................... 74,549
Insurance ............................................... 69,264
Registration fees and dues .............................. 33,575
Auditing and tax fees ................................... 22,648
Chief compliance officer (note 3) ....................... 5,044
Miscellaneous ........................................... 43,634
-------------
5,738,942
Expenses paid indirectly (note 6) ....................... (68,448)
-------------
Net expenses ............................................ 5,670,494
-------------
Net investment income ................................... 27,521,571
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) from securities transactions ... 569,433
Change in unrealized appreciation on investments ........ (12,134,913)
-------------
Net realized and unrealized gain (loss) on investments .. (11,565,480)
-------------
Net change in net assets resulting from operations ...... $ 15,956,091
=============
See accompanying notes to financial statements.
HAWAIIAN TAX-FREE TRUST
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
March 31, 2006 March 31, 2005
-------------- --------------
OPERATIONS:
Net investment income ................................... $ 27,521,571 $ 28,686,242
Net realized gain (loss) from securities transactions ... 569,433 1,286,593
Change in unrealized appreciation on investments ........ (12,134,913) (20,663,429)
------------- -------------
Net change in net assets resulting from operations ...... 15,956,091 9,309,406
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 10):
Class A Shares:
Net investment income ................................... (25,641,795) (26,594,626)
Net realized gain on investments ........................ (424,504) (1,165,988)
Class C Shares:
Net investment income ................................... (1,087,576) (1,158,762)
Net realized gain on investments ........................ (22,878) (65,029)
Class Y Shares:
Net investment income ................................... (791,736) (926,612)
Net realized gain on investments ........................ (11,663) (37,109)
------------- -------------
Change in net assets from distributions ................. (27,980,152) (29,948,126)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 7):
Proceeds from shares sold ............................... 55,348,246 62,021,734
Reinvested dividends and distributions .................. 15,434,343 17,008,650
Cost of shares redeemed ................................. (77,015,557) (74,491,462)
------------- -------------
Change in net assets from capital share transactions .... (6,232,968) 4,538,922
------------- -------------
Change in net assets ................................. (18,257,029) (16,099,798)
NET ASSETS:
Beginning of period ..................................... 739,260,838 755,360,636
------------- -------------
End of period* .......................................... $ 721,003,809 $ 739,260,838
============= =============
* Includes undistributed net investment income of: ...... $ 2,090,783 $ 2,090,319
============= =============
See accompanying notes to financial statements.
HAWAIIAN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2006
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 with a
front-payment sales charge and bear an annual distribution fee. Class C shares
are sold with a level-payment sales charge with no payment at time of purchase
but level service and distribution fees from date of purchase through a period
of six years thereafter. A contingent deferred sales charge of 1% is assessed to
any Class C shareholder who redeems shares of this Class within one year from
the date of purchase. Class C Shares, together with a pro-rata portion of all
Class C Shares acquired through reinvestment of dividends and other
distributions paid in additional Class C Shares, automatically convert to Class
A Shares after 6 years. The Class Y shares are only offered to institutions
acting for an investor in a fiduciary, advisory, agency, custodial or similar
capacity and are not offered directly to retail investors. Class Y shares are
sold at net asset value without any sales charge, redemption fees, contingent
deferred sales charge or distribution or service fees. 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 investors. 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.
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 at the mean of bid and asked quotations. If market quotations
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) 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 on a daily basis.
c) 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.
d) MULTIPLE CLASS ALLOCATION: All income, expenses (other than class-specific
expenses), 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 charged directly to such class.
e) 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.
f) 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.
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 net assets of the Trust.
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 Trust under an Administration Agreement with
the Trust. Under this Agreement, the Administrator provides all administrative
services, 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 net assets of the Trust.
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
(determined on the basis of the respective fees computed as described above) 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
year ended March 31, 2006.
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
service 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 service
fee at the annual rate of 0.20% of the Trust's average net assets represented by
Class A Shares. For the year ended March 31, 2006, service fees on Class A
Shares amounted to $1,359,974 of which the Distributor retained $82,680.
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 net assets represented by Class C Shares and for the year
ended March 31, 2006, amounted to $274,629. 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 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 net assets represented by Class C Shares and for the year ended March
31, 2006, amounted to $91,543. The total of these payments made with respect to
Class C Shares amounted to $366,172 of which the Distributor retained $80,316.
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 broker-dealer firms ("dealers"), the Trust's shares are sold
primarily through the facilities of these dealers having offices within Hawaii,
with the bulk of sales commissions inuring to such dealers. For the year ended
March 31, 2006, total commissions on sales of Class A Shares amounted to
$1,091,800, of which the Distributor received $106,470.
c) OTHER RELATED PARTY TRANSACTIONS:
For the year ended March 31, 2006, the Trust incurred $120,986 of legal
fees allocable to Hollyer Brady Barrett & Hines LLP, counsel to the Trust, for
legal services in conjunction with the Trust's ongoing operations. The Secretary
of the Trust is a Partner at that firm.
4. PURCHASES AND SALES OF SECURITIES
During the year ended March 31, 2006, purchases of securities and proceeds
from the sales of securities aggregated $159,187,951 and $161,547,068,
respectively.
At March 31, 2006 aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$21,875,778 and gross unrealized depreciation for all securities in which there
is an excess of tax cost over value amounted to $3,100,421 for a net unrealized
appreciation of $18,775,357. The tax cost of the Trust's securities at March 31,
2006 equaled $692,932,642.
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. It is the general intention of the Trust to invest, to the
extent practicable, some or all of cash balances in income-producing assets
rather than leave cash on deposit.
7. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Trust were as follows:
Year Ended Year Ended
March 31, 2006 March 31, 2005
--------------------------------- ---------------------------------
Shares Amount Shares Amount
----------- ------------ ----------- ------------
CLASS A SHARES:
Proceeds from shares sold ............... 3,926,945 $ 45,218,301 4,327,393 $ 50,338,345
Reinvested distributions ................ 1,260,039 14,507,021 1,374,724 16,002,996
Cost of shares redeemed ................. (5,540,604) (63,720,316) (5,178,326) (60,145,678)
----------- ------------ ----------- ------------
Net change .............................. (353,620) (3,994,994) 523,791 6,195,663
----------- ------------ ----------- ------------
CLASS C SHARES:
Proceeds from shares sold ............... 668,607 7,668,853 808,399 9,429,910
Reinvested distributions ................ 52,402 603,838 56,505 657,317
Cost of shares redeemed ................. (750,126) (8,622,247) (823,950) (9,543,036)
----------- ------------ ----------- ------------
Net change ........................... (29,117) (349,556) 40,954 544,191
----------- ------------ ----------- ------------
CLASS Y SHARES:
Proceeds from shares sold ............... 213,435 2,461,092 193,962 2,253,479
Reinvested distributions ................ 28,085 323,484 29,901 348,337
Cost of shares redeemed ................. (407,103) (4,672,994) (410,603) (4,802,748)
----------- ------------ ----------- ------------
Net change ........................... (165,583) (1,888,418) (186,740) (2,200,932)
----------- ------------ ----------- ------------
Total transactions in Trust shares ......... (548,320) $ (6,232,968) 378,005 $ 4,538,922
=========== ============ =========== ============
8. TRUSTEES' FEES AND EXPENSES
At March 31, 2006 there were 7 Trustees, one of whom is affiliated with
the Administrator and is not paid any fees. The total amount of Trustees'
service and attendance fees paid during the year ended March
31, 2006 was $126,550, to cover carrying out their responsibilities and
attendance at regularly scheduled quarterly Board Meetings and meetings of the
Independent Trustees held prior to each quarterly Board Meeting. When additional
or special meetings are held, the meeting fees are paid to those Trustees in
attendance. Trustees are reimbursed for their expenses such as travel,
accommodations and meals incurred in connection with attendance at Board
Meetings and the Annual Meeting of Shareholders. For the year ended March 31,
2006, such meeting-related expenses amounted to $17,808.
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 in additional shares at the net asset value per share, in cash,
or in a combination of both, at the shareholder's option. Net realized capital
gains, if any, are distributed annually and are taxable.
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.
However, 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.
The tax character of distributions:
Year Ended March 31,
2006 2005
----------- -----------
Net tax-exempt income $27,503,747 $28,668,394
Ordinary income 17,360 11,607
Long term capital gain 459,045 1,268,125
----------- -----------
$27,980,152 $29,948,126
=========== ===========
The difference between book basis and tax basis unrealized appreciation is
attributable primarily to the deferral of losses incurred after October 31,
2005.
As of March 31, 2006, the components of distributable earnings on a tax
basis were as follows:
Undistributed long term capital gain $ 875,012
Unrealized appreciation 18,469,717
Undistributed tax-exempt income 2,090,783
-----------
$21,435,512
===========
As of March 31, 2006 there were post-October capital loss deferrals of
$305,640 which will be recognized in the following year.
11. CHANGE IN PRINCIPAL ACCOUNTANTS
KPMG LLP was previously the principal accountants for Hawaiian Tax-Free
Trust. On July 27, 2005 KPMG LLP declined to stand for re-election as the
principal accountants of the Trust and Tait, Weller & Baker LLP was engaged as
the principal accountants to audit the Trust's financial statements for the
fiscal year of 2006. The decision was made by the Audit Committee of the Board
of Trustees.
The audit reports of KPMG LLP on the Trust's financial statements as of
and for the years ended March 31, 2005 and 2004 did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope, or accounting principles.
In connection with the audits of the two fiscal years ended March 31, 2005
and 2004 and the subsequent interim period through the opinion date of May 23,
2005, there were no reportable events or disagreements with KPMG LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements if not resolved to the
satisfaction of KPMG LLP would have caused them to make reference in connection
with their opinion to the subject matter of the disagreements.
HAWAIIAN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class A
---------------------------------------------------------------
Year Ended March 31,
---------------------------------------------------------------
2006 2005 2004 2003 2002
------- ------- ------- ------- -------
Net asset value, beginning of period $ 11.51 $ 11.83 $ 11.73 $ 11.26 $ 11.37
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income + ................................... 0.43 0.45 0.46 0.48 0.51
Net gain (loss) on securities (both realized and
unrealized) ............................................. (0.18) (0.30) 0.10 0.47 (0.10)
------- ------- ------- ------- -------
Total from investment operations .......................... 0.25 0.15 0.56 0.95 0.41
------- ------- ------- ------- -------
Less distributions (note 10):
Dividends from net investment income ...................... (0.43) (0.45) (0.46) (0.48) (0.52)
Distributions from capital gains .......................... (0.01) (0.02) -- -- --
------- ------- ------- ------- -------
Total distributions ....................................... (0.44) (0.47) (0.46) (0.48) (0.52)
------- ------- ------- ------- -------
Net asset value, end of period ............................... $ 11.32 $ 11.51 $ 11.83 $ 11.73 $ 11.26
======= ======= ======= ======= =======
Total return (not reflecting sales charge) ................... 2.19% 1.33% 4.83% 8.57% 3.62%
Ratios/supplemental data
Net assets, end of period (in millions) ................... $ 666 $ 681 $ 694 $ 675 $ 625
Ratio of expenses to average net assets ................... 0.74% 0.74% 0.73% 0.71% 0.72%
Ratio of net investment income to average
net assets ............................................. 3.76% 3.90% 3.89% 4.15% 4.51%
Portfolio turnover rate ................................... 22% 10% 8% 5% 13%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets ................... 0.74% 0.74% 0.72% 0.70% 0.70%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
See accompanying notes to financial statements.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class C
Year Ended March 31,
----------------------------------------------------------------------
2006 2005 2004 2003 2002
------ ------ ------ ------ ------
Net asset value, beginning of period ............... $11.50 $11.82 $11.73 $11.26 $11.36
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income + ......................... 0.34 0.36 0.36 0.38 0.41
Net gain (loss) on securities (both
realized and unrealized) ...................... (0.18) (0.30) 0.09 0.48 (0.08)
------ ------ ------ ------ ------
Total from investment operations ................ 0.16 0.06 0.45 0.86 0.33
------ ------ ------ ------ ------
Less distributions (note 10):
Dividends from net investment income ............ (0.34) (0.36) (0.36) (0.39) (0.43)
Distributions from capital gains ................ (0.01) (0.02) -- -- --
------ ------ ------ ------ ------
Total distributions ............................. (0.35) (0.38) (0.36) (0.39) (0.43)
------ ------ ------ ------ ------
Net asset value, end of period ..................... $11.31 $11.50 $11.82 $11.73 $11.26
====== ====== ====== ====== ======
Total return (not reflecting sales charge) ......... 1.37% 0.53% 3.91% 7.70% 2.91%
Ratios/supplemental data
Net assets, end of period (in millions) ......... $ 36.7 $ 37.6 $ 38.2 $ 33.8 $ 24.1
Ratio of expenses to average net assets ......... 1.54% 1.54% 1.54% 1.51% 1.51%
Ratio of net investment income to
average net assets ............................ 2.96% 3.10% 3.08% 3.33% 3.68%
Portfolio turnover rate ......................... 22% 10% 8% 5% 13%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets ......... 1.54% 1.54% 1.52% 1.50% 1.50%
Class Y
Year Ended March 31,
----------------------------------------------------------------------
2006 2005 2004 2003 2002
------ ------ ------ ------ ------
Net asset value, beginning of period ............... $11.52 $11.84 $11.75 $11.28 $11.39
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income + ......................... 0.46 0.48 0.48 0.50 0.52
Net gain (loss) on securities (both
realized and unrealized) ...................... (0.18) (0.30) 0.09 0.47 (0.09)
------ ------ ------ ------ ------
Total from investment operations ................ 0.28 0.18 0.57 0.97 0.43
------ ------ ------ ------ ------
Less distributions (note 10):
Dividends from net investment income ............ (0.45) (0.48) (0.48) (0.50) (0.54)
Distributions from capital gains ................ (0.01) (0.02) -- -- --
------ ------ ------ ------ ------
Total distributions ............................. (0.46) (0.50) (0.48) (0.50) (0.54)
------ ------ ------ ------ ------
Net asset value, end of period ..................... $11.34 $11.52 $11.84 $11.75 $11.28
====== ====== ====== ====== ======
Total return (not reflecting sales charge) ......... 2.48% 1.54% 4.97% 8.77% 3.80%
Ratios/supplemental data
Net assets, end of period (in millions) ......... $ 18.5 $ 20.7 $ 23.5 $ 25.2 $ 19.3
Ratio of expenses to average net assets ......... 0.54% 0.54% 0.53% 0.51% 0.52%
Ratio of net investment income to
average net assets ............................ 3.96% 4.09% 4.09% 4.33% 4.69%
Portfolio turnover rate ......................... 22% 10% 8% 5% 13%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets ......... 0.54% 0.54% 0.52% 0.50% 0.50%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
See accompanying notes to financial statements.
ADDITIONAL INFORMATION (UNAUDITED)
TRUSTEES AND OFFICERS(1)(2)
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX(5) (THE POSITION HELD IS
ADDRESS(3) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(4) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
INTERESTED TRUSTEE(6)
Diana P. Herrmann Trustee since Vice Chair and Chief Executive Officer 12 None
New York, NY 2004, President of Aquila Management Corporation,
(02/25/58) since 1998 and Founder of the Aquilasm Group of
Vice Chair since Funds(7) and parent of Aquila Investment
2003 Management LLC, Administrator, since
2004, President and Chief Operating
Officer since 1997, a Director since
1984, Secretary since 1986 and
previously its Executive Vice President,
Senior Vice President or Vice President,
1986-1997; Chief Executive Officer and
Vice Chair since 2004 and President,
Chief Operating Officer and Manager of
the Administrator since 2003; Vice
Chair, President, Executive Vice
President or Senior Vice President of
funds in the Aquilasm Group of Funds
since 1986; Director of the Distributor
since 1997; trustee, Reserve
Money-Market Funds, 1999-2000 and
Reserve Private Equity Series,
1998-2000; Governor, Investment Company
Institute and head of its Small Funds
Committee since 2004; active in
charitable and volunteer organizations.
NON-INTERESTED TRUSTEES
Theodore T. Mason Chair of the Executive Director, East Wind Power 8 Trustee, Pimco
New York, NY Board of Trustees Partners LTD since 1994 and Louisiana Advisors VIT.
(11/24/35) since 2004 and Power Partners, 1999-2003; Treasurer,
Trustee since 1984 Alumni Association of SUNY Maritime
College since 2004 (President,
2002-2003, First Vice President,
2000-2001, Second Vice President,
1998-2000) and director of the same
organization since 1997; Director, STCM
Management Company, Inc., 1973-2004;
twice national officer of Naval Reserve
Association, commanding officer of four
naval reserve units and Captain, USNR
(Ret); director, The Navy League of the
United States New York Council since
2002; trustee, The Maritime Industry
Museum at Fort Schuyler, 2000-2004; and
the Maritime College at Fort Schuyler
Foundation, Inc. since 2000.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX(5) (THE POSITION HELD IS
ADDRESS(3) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(4) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
Thomas W. Courtney Trustee President, Courtney Associates, 5 Chairman of the Board
Sewickley, PA since 1984 Inc., a venture capital firm, since 1988. of Oppenheimer Quest
(08/17/33) Value Funds Group,
Oppenheimer Small Cap
Value Fund,
Oppenheimer Midcap
Fund, and Oppenheimer
Rochester Group of
Funds; Chairman of
the Board of Pimco
Advisors VIT.
Stanley W. Hong Trustee President, Waste Management of Hawaii, 4 Trustee, Pacific
Honolulu, HI since 1992 Inc. and Corporate Vice President - Capital Funds, which
(04/05/36) Hawaii Area for Waste Management, Inc., includes bond and
2001-2005; Trustee, The King William other stock funds;
Charles Lunalilo Trust Estate since First Insurance Co.
2001; President and Chief Executive of Hawaii, Ltd.,
Officer, The Chamber of Commerce of Lanihau Properties,
Hawaii, 1996-2001; Director PBS - Hawaii Ltd., The Westye
Foundation since 1998; Regent, Chaminade Group - West
University of Honolulu since 1991; (Hawaii), Inc.
Trustee, Heald College since 1998;
Trustee, the Nature Conservancy of
Hawaii since 1998; Trustee, Child and
Family Service since 2005; Director, The
East West Center Foundation since 2006;
and a director of other corporate and
community organizations.
Russell K. Okata Trustee Executive Director, Hawaii Government 4 Trustee, Pacific
Honolulu, HI since 1992 Employees Association AFSCME Local 152, Capital Funds, which
(03/22/44) AFL-CIO since 1981; International Vice includes 11 bond and
President, American Federation of State, stock funds; Chairman,
County and Municipal Employees, AFL-CIO Royal State Group
since 1981; director of various civic (insurance).
and charitable organizations.
Douglas Philpotts Trustee Retired; formerly director, Chairman of 4 Trustee, Pacific
Honolulu, HI since 1992 the Board and President of Hawaiian Capital Funds, which
(11/21/31) Trust Company, Limited; present or includes 11 bond and
former director of various Hawaii-based stock funds.
civic and charitable organizations.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX(5) (THE POSITION HELD IS
ADDRESS(3) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(4) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
Oswald K. Stender Trustee Director, Hawaiian Electric Industries, 4 Trustee, Pacific
Honolulu, HI since 1992 Inc., a public utility holding company, Capital Funds, which
(10/08/31) 1993-2004; trustee, the Bernice Pauahi includes 11 bond and
Bishop Estate 1990-1999; trustee, Office stock funds;
of Hawaiian Affairs and a member or director, Grace
trustee of several community Pacific Corporation,
organizations. an asphalt paving
company, and ACE
Trucking Inc.
OTHER INDIVIDUALS
CHAIRMAN EMERITUS(8)
Lacy B. Herrmann Founder, Chairman Founder and Chairman of the Board, N/A N/A
New York, NY Emeritus since 2004, Aquila Management Corporation, the
(05/12/29) Trustee, 1984-2004, sponsoring organization and parent of
and Chairman of the the Manager or Administrator and/or
Board of Trustees, Adviser or Sub-Adviser to each fund of
1984-2003 the Aquilasm Group of Funds; Chairman of
the Manager or Administrator and/or
Adviser or Sub-Adviser to each since
2004; Founder and Chairman Emeritus of
each fund in the Aquilasm group of
Funds. Previously Chairman and a Trustee
of each fund in the Aquilasm Group of
Funds since its establishment until 2004
or 2005; Director of the Distributor
since 1981 and formerly Vice President
or Secretary, 1981-1998; Trustee
Emeritus, Brown University and the
Hopkins School; active in university,
school and charitable organizations.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX(5) (THE POSITION HELD IS
ADDRESS(3) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(4) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
OFFICERS
Charles E. Executive Vice Executive Vice President of all funds in N/A N/A
Childs, III President since the Aquilasm Group of Funds and the
New York, NY 2003 Administrator and the Administrator's
(04/01/57) parent since 2003; formerly Senior Vice
President, corporate development, Vice
President, Assistant Vice President and
Associate of the Administrator's parent
since 1987; Senior Vice President, Vice
President or Assistant Vice President of
the Aquila Money-Market Funds,
1988-2003.
Sherri Foster Senior Vice Senior Vice President, Hawaiian Tax-Free N/A N/A
Lahaina, HI President since Trust since 1993 and formerly Vice
(07/27/50) 1993 President or Assistant Vice President;
Vice President or Assistant Vice
President of three Aquila Money-Market
Funds; Registered Representative of the
Distributor since 1985.
Stephen J. Caridi Vice President Vice President of the Distributor since N/A N/A
New York, NY since 1998 1995; Vice President, Hawaiian Tax-Free
(05/06/61) Trust since 1998; Senior Vice President,
Narragansett Insured Tax-Free Income
Fund since 1998, Vice President
1996-1997; Senior Vice President,
Tax-Free Fund of Colorado since 2004;
Assistant Vice President, Tax-Free Fund
For Utah since 1993.
Robert W. Anderson Chief Compliance Chief Compliance Officer of the Trust N/A N/A
New York, NY Officer since 2004 and each of the other funds in the
(08/23/40) and Assistant Aquilasm Group of Funds, the
Secretary since Administrator and the Distributor since
2000 2004, Compliance Officer of the
Administrator or its predecessor and
current parent since 1998 and Assistant
Secretary of the Aquilasm Group of Funds
since 2000.
Joseph P. DiMaggio Chief Financial Chief Financial Officer of the Aquilasm N/A N/A
New York, NY Officer since 2003 Group of Funds since 2003 and Treasurer
(11/06/56) and Treasurer since since 2000.
2000
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX(5) (THE POSITION HELD IS
ADDRESS(3) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(4) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
Edward M. W. Hines Secretary since Partner, Hollyer Brady Barrett & Hines N/A N/A
New York, NY 1984 LLP, legal counsel to the Trust, since
(12/16/39) 1989; Secretary of the Aquilasm Group of
Funds.
John M. Herndon Assistant Secretary Assistant Secretary of the Aquilasm N/A N/A
New York, NY since 1995 Group of Funds since 1995 and Vice
(12/17/39) President of the three Aquila
Money-Market Funds since 1990; Vice
President of the Administrator or its
predecessor and current parent since
1990.
Lori A. Vindigni Assistant Treasurer Assistant Treasurer of the Aquilasm N/A N/A
New York, NY since 2000 Group of Funds since 2000; Assistant
(11/02/66) Vice President of the Administrator or
its predecessor and current parent since
1998; Fund Accountant for the Aquilasm
Group of Funds, 1995-1998.
- ----------
(1) The Trust's Statement of Additional Information includes additional
information about the Trustees and is available, without charge, upon request by
calling 800-437-1020 (toll free).
(2) From time to time Bank of Hawaii may enter into normal investment
management, commercial banking and lending arrangements with one or more of the
Trustees of the Trust and their affiliates. The Asset Management Group of Bank
of Hawaii is the Trust's investment adviser.
(3) The mailing address of each Trustee and officer is c/o Hawaiian Tax-Free
Trust, 380 Madison Avenue, Suite 2300, New York, NY 10017.
(4) Each Trustee holds office until the next annual meeting of shareholders or
until his or her successor is elected and qualifies. The term of office of each
officer is one year.
(5) Includes certain Aquila-sponsored funds that are dormant and have no public
shareholders.
(6) Ms. Herrmann is an interested person of the Trust as an officer of the
Trust, as a director, officer and shareholder of the Administrator's corporate
parent, as an officer and Manager of the Administrator, and as a shareholder and
director of the Distributor.
(7) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S.
Government Securities Cash Assets Trust and Pacific Capital Tax-Free Cash Assets
Trust, each of which is a money-market fund, are called the "Aquila Money-Market
Funds"; Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of
Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free Fund of Kentucky,
Narragansett Insured Tax-Free Income Fund and Tax-Free Fund For Utah, each of
which is a tax-free municipal bond fund, are called the "Aquila Bond Funds";
Aquila Rocky Mountain Equity Fund is an equity fund; considered together, these
11 funds, which do not include the dormant funds described in footnote 5, are
called the "Aquilasm Group of Funds."
(8) The Chairman Emeritus may attend Board meetings but has no voting power.
- --------------------------------------------------------------------------------
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 tables below are 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 tables below are based on an investment of $1,000 invested on October
1, 2005 and held for the year ended March 31, 2006.
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".
FOR THE SIX MONTHS ENDED MARCH 31, 2006
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A 0.28% $1,000.00 $1,002.80 $ 3.65
- --------------------------------------------------------------------------------
Class C (0.12)% $1,000.00 $ 998.80 $ 7.62
- --------------------------------------------------------------------------------
Class Y 0.48% $1,000.00 $1,004.80 $ 2.65
- --------------------------------------------------------------------------------
(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%, 1.53% 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 182/365 (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
the applicable sales charges or 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.
FOR THE SIX MONTHS ENDED MARCH 31, 2006
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,021.29 $ 3.68
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,017.30 $ 7.62
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,022.29 $ 2.65
- --------------------------------------------------------------------------------
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.73%, 1.53% 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 182/365 (TO
REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
This information is presented in order to comply with a requirement of the
Internal Revenue Code and no action on the part of shareholders is required.
For the fiscal year ended March 31, 2006, $27,503,747 of dividends paid by
Hawaiian Tax-Free Trust, constituting 98.3% of total dividends paid during
fiscal 2006, were exempt-interest dividends, exempt from regular Federal income
tax and Hawaii state income tax; $459,045 of dividends paid by the Trust
constituting 1.64% of total dividends paid during the fiscal year were capital
gain distributions; and the balance was ordinary dividend income.
Prior to January 31, 2006, shareholders were mailed IRS Form 1099-DIV
which contained information on the status of distributions paid for the 2005
calendar year.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INFORMATION AVAILABLE (UNAUDITED)
Much of the information that the funds in the Aquilasm Group of Funds
produce is automatically sent to you and all other shareholders. Specifically,
you are routinely sent the entire list of portfolio securities of your Trust
twice a year in the semi-annual and annual reports you receive. Additionally, we
prepare, and have available, portfolio listings at the end of each quarter.
Whenever you may be interested in seeing a listing of your Trust's portfolio
other than in your shareholder reports, please check our website
http://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 quarters of each fiscal year on Form N-Q.
Forms N-Q are available free of charge on the SEC website at http://www.sec.gov.
You may also review or, for a fee, copy the forms at the SEC's Public Reference
Room in Washington, DC or by calling 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, 2005 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
http://www.sec.gov.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIVACY NOTICES (UNAUDITED)
HAWAIIAN TAX-FREE TRUST
OUR PRIVACY POLICY. In providing services to you as an individual who owns or is
considering investing in shares of the Trust we collect certain nonpublic
personal information about you. Our policy is to keep this information strictly
safeguarded and confidential, and to use or disclose it only as necessary to
provide services to you or as otherwise permitted by law. Our privacy policy
applies equally to former shareholders and persons who inquire about a fund.
INFORMATION WE COLLECT. "Nonpublic personal information" is personally
identifiable financial information about you as an individual or your family.
The kinds of nonpublic personal information we have about you may include the
information you provide us on your share purchase application or in telephone
calls or correspondence with us, and information about your fund transactions
and holdings, how you voted your shares and the account where your shares are
held.
INFORMATION WE DISCLOSE. We disclose nonpublic personal information about you to
companies that provide necessary services to us, such as the Trust's transfer
agent, distributor, investment adviser or sub-adviser, as permitted or required
by law, or as authorized by you. Any other use is strictly prohibited. We do not
sell information about you or any of our fund shareholders to anyone.
HOW WE SAFEGUARD YOUR INFORMATION. We restrict access to nonpublic personal
information about you to only those persons who need it to provide services to
you or who are permitted by law to receive it. We maintain physical, electronic
and procedural safeguards to protect the confidentiality of all nonpublic
personal information we have about you.
If you have any questions regarding our Privacy Policy, please contact us at
1-800-437-1020.
AQUILA DISTRIBUTORS, INC.
AQUILA INVESTMENT MANAGEMENT LLC
This Privacy Policy also has been adopted by Aquila Distributors, Inc. and
Aquila Investment Management LLC and applies to all nonpublic information about
you that each of these companies may obtain in connection with services provided
to the Trust or to you as a shareholder of the Trust.
- --------------------------------------------------------------------------------
(THIS PAGE INTENTIONALLY LEFT BLANK)
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
Thomas W. Courtney
Stanley W. Hong
Russell K. Okata
Douglas Philpotts
Oswald K. Stender
OFFICERS
Diana P. Herrmann, President
Sherri Foster, Senior Vice President
Stephen J. Caridi, Vice President
Robert W. Anderson, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer and Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
101 Sabin Street
Pawtucket, RI 02860
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
1818 Market Street, Suite 2400
Philadelphia, PA 19103
Further information is contained in the Prospectus, which must precede or
accompany this report.
ITEM 2. CODE OF ETHICS.
(a) As of March 31, 2006 (the end of the reporting period) the
Trust has adopted a code of ethics that applies to the Trust's
principal executive officer(s)and principal financial officer(s)
and persons performing similar functions ("Covered Officers") as
defined in the Aquila Group of Funds Code of Ethics for Principal
Executive and Senior Financial Officers under Section 406 of the
Sarbanes-Oxley Act of 2002;
(f)(1) Pursuant to Item 10(a)(1), a copy of the Trust's Code of
Ethics that applies to the Trust's principal executive officer(s)
and principal financial officer(s) and persons performing similar
functions is included as an exhibit to its annual report on this
Form N-CSR;
(f)(2) The text of the Trust's Code of Ethics that applies to the
Trust's principal executive officer(s) and principal financial
officer(s) and persons performing similar functions has been
posted on its Internet website which can be found at the Trust's
Internet address at aquilafunds.com.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1)(ii) The Board of Trustees of the Fund has determined that
it does not have at least one audit committee financial expert
serving on its audit committee. The Fund does not have such a
person serving on the audit committee because none of the persons
currently serving as Trustees happens to have the technical
accounting and auditing expertise included in the definition of
"audit committee financial expert" recently adopted by the Securities
and Exchange Commission in connection with this Form N-CSR, and the
Board has not heretofore deemed it necessary to seek such a person
for election to the Board.
The primary mission of the Board, which is that of oversight over
the operations and affairs of the Fund, confronts the Trustees with
a wide and expanding range of issues and responsibilities. The
Trustees believe that, accordingly, it is essential that the Board's
membership consist of persons with as extensive experience as possible
in fulfilling the duties and responsibilities of mutual fund directors
and audit committee members and, ideally, with extensive experience
and background relating to the economic and financial sectors and
securities in which the Fund invests, including exposure to the
financial and accounting matters commonly encountered with respect
to those sectors and securities. The Board believes that its current
membership satisfies those criteria. It recognizes that it would
also be helpful to have a member with the relatively focused accounting
and auditing expertise reflected in the applicable definition of
"audit committee financial expert," just as additional members with
similarly focused technical expertise in other areas relevant to
the Fund's operations and affairs would also contribute added value.
However, the Board believes that the Fund is better served, and its
assets better employed, by a policy of hiring experts in various
areas, including the specialized area of technical accounting and
auditing matters, if and as the Board identifies the need, rather
than by seeking to expand its numbers by adding technical experts
in the areas constituting its domain of responsibility. The Fund's
Audit Committee Charter explicitly authorizes the Committee to
retain such experts as it deems necessary in fulfilling its duties
under the Charter.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
a) Audit Fees - The aggregate fees billed for professional services
rendered by the principal accountant for the audit of the Registrant's
annual financial statements were $23,320 in 2005 and $18,000 in 2006.
b) Audit Related Fees - There were no amounts billed for audit-related
fees over the past two years.
c) Tax Fees - The Registrant was billed by the principal accountant
$8,279 and $3,000 in 2005 and 2006, respectively, for return preparation
and tax compliance.
d) All Other Fees - There were no additional fees paid for audit and
non-audit services other than those disclosed in a) thorough c) above.
e)(1) Currently, the audit committee of the Registrant pre-approves audit
services and fees on an engagement-by-engagement basis
e)(2) None of the services described in b) through d) above were approved
by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X, all were pre-approved on an engagement-by-engagement basis.
f) No applicable.
g) There were no non-audit services fees billed by the Registrant's accountant
to the Registrant's investment adviser or distributor over the past two years
h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. 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 fling 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.
ITEM 10. EXHIBITS.
(a)(1) Aquila Group of Funds Code of Ethics for Principal Executive and
Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act of 2002.
(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
June 8, 2006
By: /s/ Joseph P. DiMaggio
- - -----------------------------------
Chief Financial Officer and Treasurer
June 8, 2006
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
June 8, 2006
By: /s/ Joseph P. DiMaggio
- - -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
June 8, 2006
HAWAIIAN TAX-FREE TRUST
EXHIBIT INDEX
(a)(1) Aquila Group of Funds Code of Ethics for Principal Executive and
Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act
of 2002.
(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.