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: 9/30/06
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS
SEMI-ANNUAL
REPORT
SEPTEMBER 30, 2006
HAWAIIAN
TAX-FREE
TRUST
A TAX-FREE INCOME INVESTMENT
[LOGO OF HAWAIIAN TAX-FREE TRUST:
A PLAM 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 GROUP OF FUNDS (SM)
[LOGO OF HAWAIIAN TAX-FREE TRUST:
A PLAM 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
"BUILT TO RIDE THE WAVES"
November, 2006
Dear Fellow Shareholder:
As you are no doubt aware, the financial markets have certainly had their
fair share of crests and troughs recently - one day the markets are up, and the
next day, they are down. Riding these waves is not always easy for investors.
The management of Hawaiian Tax-Free Trust understands investors'
apprehension when it comes to fluctuations with your hard-earned investment
monies. And, this concern is especially pertinent as it relates to saving for
and funding your retirement.
With this very real and inevitable concern in mind, Hawaiian Tax-Free
Trust has endeavored to structure the Trust to "ride the waves" with the least
upset to investors as possible. How do we go about seeking to accomplish this?
INVESTMENT QUALITY
No matter what quality rating exists with a security, it will still be
subject to market fluctuations. However, our experience has been that
top-quality ratings do not fluctuate as much as lower quality ratings.
Furthermore, when they do fluctuate, they tend to fluctuate less and usually
return to their base market price at a quicker rate than lower-grade securities.
In accordance with the Trust's prospectus, Hawaiian Tax-Free Trust can
only purchase investment-grade securities - those within the top four credit
quality ratings - AAA, AA, A and Baa. In point of practice, however, we have
consistently sought to have the bulk of the portfolio securities invested within
the top two grades - AAA and AA. On September 30, 2006, 97.3% of the portfolio
consisted of AAA and AA rated securities.
MATURITY
As we have emphasized in the past, long-term bonds tend to produce a
higher return than short-term bonds. However, such longer maturity bonds also
tend to experience a higher degree of volatility in their price.
Hawaiian Tax-Free Trust balances out longer-term maturities by having a
portion of the Trust's investments in shorter-term maturities. Through utilizing
a blend of maturities - both shorter-term and longer-term - Hawaiian Tax-Free
Trust attempts to provide a satisfactory level of return without subjecting the
share price to excessive swings as interest rates increase and decrease.
DIVERSIFICATION OF THE PORTFOLIO
To the maximum extent possible, Hawaiian Tax-Free Trust strives to invest
in as many projects as possible throughout the islands. The portfolio might be
comprised of a school district bond on
NOT A PART OF THE SEMI-ANNUAL REPORT
Honolulu, a transportation bond on Maui and a housing bond on the Big Island. In
this way, we strive to ensure that no one project, type of project, or area of
the State can have any significant adverse influence upon your investment in the
Trust.
TAX-FREE INCOME
No matter what return Hawaiian Tax-Free Trust provides, it must be
remembered 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 an example, 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 offers 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.
SUMMARY
The Trust uses this combination of quality, maturity, and diversification
as it seeks to provide you with as high a level of tax-free income as is
consistent with preservation of capital.
As we are sure you are aware, there is no way to take ALL the waves out of
investing. But, you can rest assured that Hawaiian Tax-Free Trust continually
strives to do its very best to make sure your ride is as smooth as possible.
Sincerely,
/s/ Diana P. Herrmann /s/ Lacy B. Herrmann
Diana P. Herrmann Lacy B. Herrmann
President Founder and Chairman Emeritus
* For illustration purposes only - assumes a 35% Federal and 8.25% state
tax-rate. This does not represent past or future performance of any investment.
For certain investors, some dividends may be subject to Federal and State taxes,
Including the Alternative Minimum Tax (AMT).
NOT A PART OF THE SEMI-ANNUAL REPORT
HAWAIIAN TAX-FREE TRUST
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2006
(UNAUDITED)
RATING
PRINCIPAL MOODY'S/
AMOUNT MUNICIPAL BONDS (100.6%) S&P VALUE
- -------------- ------------------------------------------------------ -------- -------------
HAWAII (95.8%)
------------------------------------------------------
HAWAII GENERAL OBLIGATION BONDS (58.0%)
------------------------------------------------------
City and County of Honolulu, Hawaii , Series A,
FGIC Insured
$ 9,970,000 7.350%, 07/01/07**** ................................. Aaa/AAA $ 10,245,571
3,600,000 7.350%, 07/01/08 ..................................... Aaa/AAA 3,830,040
1,715,000 6.000%, 01/01/11 ..................................... Aaa/AAA 1,876,879
5,000 5.750%, 04/01/11 ..................................... Aaa/AAA 5,438
1,580,000 6.000%, 01/01/12 ..................................... Aaa/AAA 1,758,761
3,025,000 5.750%, 04/01/13**** ................................. Aaa/AAA 3,387,365
City and County of Honolulu, Hawaii, Series A,
FSA Insured
2,500,000 5.000%, 09/01/09 ..................................... Aaa/AAA 2,601,350
City and County of Honolulu, Hawaii, Series A, FSA
Insured, Prerefunded 09/01/11 @100, Collateral:
US Treasury Obligations & Resolution Funding Corp.
3,500,000 5.375%, 09/01/18 ..................................... Aaa/AAA 3,783,640
2,000,000 5.125%, 09/01/20 ..................................... Aaa/AAA 2,139,760
City and County of Honolulu, Hawaii, Series A,
MBIA Insured
9,335,000 5.000%, 07/01/21 ..................................... Aaa/AAA 10,010,294
5,000,000 5.000%, 07/01/22 ..................................... Aaa/AAA 5,350,250
City and County of Honolulu, Hawaii, Series A, MBIA
Insured, Prerefunded 03/01/13 @100, Collateral:
US Government Securities
1,885,000 5.250%, 03/01/15 ..................................... Aaa/AAA 2,059,268
3,005,000 5.250%, 03/01/17 ..................................... Aaa/AAA 3,282,812
1,255,000 5.250%, 03/01/18 ..................................... Aaa/AAA 1,371,025
City and County of Honolulu, Hawaii, 1993 Series A,
FGIC - TCRS Insured, Escrowed to Maturity,
Collateral: US Government Securities
4,110,000 6.000%, 01/01/11**** ................................. Aaa/AAA 4,501,313
920,000 6.000%, 01/01/12 ..................................... Aaa/AAA 1,025,018
RATING
PRINCIPAL MOODY'S/
AMOUNT HAWAII GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ -------- -------------
City and County of Honolulu, Hawai 1994 Series A,
FGIC Insured, Escrowed to Maturity,
Collateral: US Government Securities
$ 3,995,000 5.750%, 04/01/11**** ................................. Aaa/NR $ 4,355,189
775,000 5.750%, 04/01/13 ..................................... Aaa/AAA 869,736
City and County of Honolulu, Hawaii Refunded - 1995
Series A, Escrowed to Maturity, MBIA Insured,
Collateral: US Government Securities
1,355,000 6.000%, 11/01/09 ..................................... Aaa/AAA 1,452,086
860,000 6.000%, 11/01/09 ..................................... Aaa/AAA 921,619
1,090,000 6.000%, 11/01/10 ..................................... Aaa/AAA 1,190,890
410,000 6.000%, 11/01/10 ..................................... Aaa/AAA 447,950
City and County of Honolulu, Hawaii, 2003- Series A,
MBIA Insured, Unrefunded Portion
1,115,000 5.250%, 03/01/15 ..................................... Aaa/AAA 1,220,078
1,775,000 5.250%, 03/01/17 ..................................... Aaa/AAA 1,929,567
745,000 5.250%, 03/01/18 ..................................... Aaa/AAA 807,669
City and County of Honolulu, Hawaii , Series B,
FGIC Insured, Unrefunded Portion
7,310,000 5.500%, 10/01/11 ..................................... Aaa/AAA 7,946,335
City and County of Honolulu, Hawaii, Series B,
Prerefunded 11/01/07 @101, FGIC Insured,
Collateral: US Treasury Obligations & Agencies
930,000 5.000%, 11/01/13 ..................................... Aaa/AAA 953,827
1,060,000 5.000%, 11/01/14 ..................................... Aaa/AAA 1,087,157
530,000 5.000%, 11/01/16 ..................................... Aaa/AAA 543,579
1,400,000 5.000%, 11/01/17 ..................................... Aaa/AAA 1,435,868
City and County of Honolulu, Hawaii, Series B,
Prerefunded 07/01/09 @101, FGIC Insured,
Collateral: US Treasury & Agency Obligations
2,595,000 5.125%, 07/01/15 ..................................... Aaa/AAA 2,726,385
City and County of Honolulu, Hawaii, Series B,
Prerefunded to 07/01/09 @ 101, FGIC Insured,
Collateral: US Government Securities
4,490,000 5.000%, 07/01/19 ..................................... Aaa/AAA 4,702,781
1,395,000 5.000%, 07/01/20 ..................................... Aaa/AAA 1,461,109
RATING
PRINCIPAL MOODY'S/
AMOUNT HAWAII GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ -------- -------------
City and County of Honolulu, Hawaii, Series C,
FGIC Insured
$ 7,750,000 5.125%, 07/01/14 ..................................... Aaa/AAA $ 8,134,090
2,510,000 5.000%, 07/01/18 ..................................... Aaa/AAA 2,620,892
City and County of Honolulu, Hawaii, Series C,
MBIA Insured
6,740,000 5.000%, 07/01/18 ..................................... Aaa/AAA 7,289,512
City and County of Honolulu, Hawaii, Series D,
MBIA Insured
3,750,000 5.000%, 07/01/19 ..................................... Aaa/AAA 4,044,225
6,080,000 5.000%, 07/01/21 ..................................... Aaa/AAA 6,519,827
City and County of Honolulu, Hawaii, Series F,
FGIC Insured
5,335,000 5.250%, 07/01/20 ..................................... Aaa/AAA 5,843,159
City and County of Honolulu, Hawaii , Water Utility
Refunding and Improvement, Escrowed to Maturity,
FGIC Insured, Collateral: US Government Securities
1,125,000 6.000%, 12/01/12 ..................................... Aaa/AAA 1,273,545
1,050,000 6.000%, 12/01/15 ..................................... Aaa/AAA 1,236,092
County of Hawaii, Series A, CIFG Insured
2,715,000 5.000%, 07/15/19 ..................................... Aaa/AAA 2,948,843
2,850,000 5.000%, 07/15/20 ..................................... Aaa/AAA 3,083,443
County of Hawaii, Series A, FGIC Insured
1,700,000 5.450%, 05/01/07 ..................................... Aaa/AAA 1,718,173
3,170,000 5.500%, 05/01/08 ..................................... Aaa/AAA 3,263,769
2,500,000 5.550%, 05/01/09 ..................................... Aaa/AAA 2,623,825
4,905,000 5.600%, 05/01/11**** ................................. Aaa/AAA 5,319,571
1,000,000 5.600%, 05/01/12 ..................................... Aaa/AAA 1,099,650
1,000,000 5.600%, 05/01/13 ..................................... Aaa/AAA 1,112,430
1,465,000 5.500%, 07/15/16 ..................................... Aaa/AAA 1,579,490
County of Hawaii, Series A, FSA Insured
1,000,000 5.400%, 05/15/15 ..................................... Aaa/AAA 1,053,850
1,000,000 5.000%, 07/15/16 ..................................... Aaa/AAA 1,071,700
2,000,000 5.000%, 07/15/17 ..................................... Aaa/AAA 2,137,220
1,470,000 5.625%, 05/15/18 ..................................... Aaa/AAA 1,556,951
1,000,000 5.000%, 07/15/18 ..................................... Aaa/AAA 1,065,540
RATING
PRINCIPAL MOODY'S/
AMOUNT HAWAII GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ -------- -------------
County of Kauai, Hawaii, MBIA Insured,
Prerefunded 08/01/11 @100,
Collateral: State & Local Government Series 100%
$ 140,000 5.625%, 08/01/13 ..................................... NR/AAA $ 152,705
560,000 5.625%, 08/01/14 ..................................... NR/AAA 610,820
355,000 5.625%, 08/01/17 ..................................... NR/AAA 387,216
345,000 5.625%, 08/01/18 ..................................... NR/AAA 376,309
805,000 5.500%, 08/01/20 ..................................... NR/AAA 873,634
County of Kauai, Hawaii, MBIA Insured,
Unrefunded Portion
985,000 5.625%, 08/01/13 ..................................... NR/AAA 1,071,660
1,060,000 5.625%, 08/01/14 ..................................... NR/AAA 1,150,810
680,000 5.625%, 08/01/17 ..................................... NR/AAA 736,692
655,000 5.625%, 08/01/18 ..................................... NR/AAA 709,011
1,555,000 5.500%, 08/01/20 ..................................... NR/AAA 1,671,874
County of Kauai, Hawaii, Series A, FGIC Insured
1,000,000 5.000%, 08/01/23 ..................................... Aaa/AAA 1,067,550
1,500,000 5.000%, 08/01/25 ..................................... Aaa/AAA 1,595,610
County of Kauai, Hawaii, Series A, FGIC Insured,
Prerefunded 08/01/10 @100,
Collateral: State & Local Government Series 100%
1,000,000 6.125%, 08/01/13 ..................................... Aaa/AAA 1,091,660
1,010,000 6.250%, 08/01/14 ..................................... Aaa/AAA 1,107,051
1,000,000 6.250%, 08/01/15 ..................................... Aaa/AAA 1,096,090
1,000,000 6.250%, 08/01/16 ..................................... Aaa/AAA 1,096,090
1,275,000 6.250%, 08/01/17 ..................................... Aaa/AAA 1,397,515
County of Kauai, Hawaii, Series A, MBIA Insured,
Refunding Bonds
1,010,000 5.700%, 02/01/07 ..................................... Aaa/AAA 1,010,798
County of Kauai, Hawaii, 2005-Series A, FGIC Insured
1,560,000 5.000%, 08/01/16 ..................................... Aaa/AAA 1,700,384
2,010,000 5.000%, 08/01/17 ..................................... Aaa/AAA 2,183,021
2,060,000 5.000%, 08/01/18 ..................................... Aaa/AAA 2,229,311
1,075,000 5.000%, 08/01/19 ..................................... Aaa/AAA 1,160,022
RATING
PRINCIPAL MOODY'S/
AMOUNT HAWAII GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ -------- -------------
County of Kauai, Hawaii Refunding Bonds,
Series B & C, AMBAC Insured
$ 1,355,000 5.900%, 08/01/08 ..................................... Aaa/AAA $ 1,410,718
435,000 5.900%, 08/01/08 ..................................... Aaa/AAA 452,887
1,300,000 5.950%, 08/01/10 ..................................... Aaa/AAA 1,410,604
County of Maui, Hawaii, MBIA Insured
1,250,000 3.800%, 03/01/16 ..................................... Aaa/AAA 1,246,050
2,500,000 5.000%, 03/01/18 ..................................... Aaa/AAA 2,697,300
1,105,000 5.000%, 03/01/19 ..................................... Aaa/AAA 1,188,925
County of Maui, Hawaii, Series A, FGIC Insured,
Prerefunded 09/01/07 @101,
Collateral: US Government Securities
1,130,000 5.250%, 09/01/13 ..................................... Aaa/AAA 1,158,747
1,265,000 5.250%, 09/01/15 ..................................... Aaa/AAA 1,297,182
1,335,000 5.250%, 09/01/16 ..................................... Aaa/AAA 1,368,962
County of Maui, Hawaii, Series A, FGIC Insured,
Prerefunded 03/01/08 @101,
Collateral: US Government Securities
1,200,000 5.125%, 03/01/14 ..................................... Aaa/AAA 1,238,124
1,050,000 5.125%, 03/01/16 ..................................... Aaa/AAA 1,083,359
2,590,000 5.250%, 03/01/18 ..................................... Aaa/AAA 2,676,687
County of Maui, Hawaii, 2001 - Series A, MBIA Insured,
Partially Prerefunded 03/01/11 @ 100,
Collateral: US Government Securities
1,000,000 5.500%, 03/01/18 ..................................... NR/AAA 1,070,880
County of Maui, Hawaii, 2002 - Series A, MBIA Insured,
Prerefunded to 03/01/12 @ 100,
Collateral: US Government Securities
1,105,000 5.250%, 03/01/15 ..................................... Aaa/AAA 1,194,406
1,205,000 5.250%, 03/01/16 ..................................... Aaa/AAA 1,302,497
1,000,000 5.250%, 03/01/18 ..................................... Aaa/AAA 1,080,910
1,750,000 5.250%, 03/01/19 ..................................... Aaa/AAA 1,891,593
1,000,000 5.000%, 03/01/20 ..................................... Aaa/AAA 1,068,720
County of Maui, Hawaii , Series B, FGIC Insured
1,065,000 5.250%, 03/01/11 ..................................... Aaa/AAA 1,139,145
RATING
PRINCIPAL MOODY'S/
AMOUNT HAWAII GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ -------- -------------
County of Maui, Hawaii Series B, MBIA Insured,
Refunding Bonds,
$ 1,445,000 5.375%, 09/01/12 ..................................... Aaa/AAA $ 1,583,590
County of Maui, Hawaii, Series C, FGIC Insured
1,020,000 5.250%, 03/01/16 ..................................... Aaa/AAA 1,087,147
1,250,000 5.250%, 03/01/20 ..................................... Aaa/AAA 1,324,975
State of Hawaii, Series BZ, FGIC Insured
3,700,000 6.000%, 10/01/11 ..................................... Aaa/AAA 4,105,964
3,500,000 6.000%, 10/01/12 ..................................... Aaa/AAA 3,947,090
State of Hawaii, Series CA, FGIC Insured
2,000,000 5.750%, 01/01/11 ..................................... Aaa/AAA 2,169,260
State of Hawaii, Series CH
1,000,000 4.750%, 11/01/11 ..................................... Aa2/AA- 1,051,930
State of Hawaii, Series CH, FGIC Insured
5,000,000 6.000%, 11/01/07 ..................................... Aaa/AAA 5,129,000
3,390,000 6.000%, 11/01/08 ..................................... Aaa/AAA 3,556,008
State of Hawaii, Series CL, FGIC Insured
2,305,000 6.000%, 03/01/11 ..................................... Aaa/AAA 2,530,521
State of Hawaii, Series CM, FGIC Insured
3,000,000 6.500%, 12/01/15 ..................................... Aaa/AAA 3,636,900
State of Hawaii, Series CN, FGIC Insured,
Prerefunded 03/01/07 @102,
Collateral: US Government Securities
4,000,000 5.250%, 03/01/10 ..................................... Aaa/AAA 4,107,280
4,000,000 5.250%, 03/01/13 ..................................... Aaa/AAA 4,107,280
3,000,000 5.500%, 03/01/14 ..................................... Aaa/AAA 3,083,460
7,950,000 5.250%, 03/01/15 ..................................... Aaa/AAA 8,163,219
1,000,000 5.250%, 03/01/17 ..................................... Aaa/AAA 1,026,820
State of Hawaii, Series CP, FGIC Insured,
Prerefunded to 10/01/07 @101,
Collateral: US Government Securities
3,565,000 5.000%, 10/01/13 ..................................... Aaa/AAA 3,652,164
1,565,000 5.000%, 10/01/14 ..................................... Aaa/AAA 1,603,264
3,565,000 5.000%, 10/01/15 ..................................... Aaa/AAA 3,652,164
5,135,000 5.000%, 10/01/17 ..................................... Aaa/AAA 5,260,551
RATING
PRINCIPAL MOODY'S/
AMOUNT HAWAII GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ -------- -------------
State of Hawaii, Series CP, FGIC Insured, Unrefunded
$ 1,435,000 5.000%, 10/01/13 ..................................... Aaa/AAA $ 1,468,809
630,000 5.000%, 10/01/14 ..................................... Aaa/AAA 644,597
1,435,000 5.000%, 10/01/15 ..................................... Aaa/AAA 1,467,818
2,060,000 5.000%, 10/01/17 ..................................... Aaa/AAA 2,107,524
State of Hawaii, Series CR, MBIA Insured,
Prerefunded 04/01/08 @101,
Collateral: US Government Securities
1,000,000 5.250%, 04/01/13 ..................................... Aaa/AAA 1,034,860
5,000,000 5.000%, 04/01/16 ..................................... Aaa/AAA 5,156,300
9,600,000 5.000%, 04/01/17**** ................................. Aaa/AAA 9,900,096
State of Hawaii, Series CS, MBIA Insured
5,500,000 5.000%, 04/01/09 ..................................... Aaa/AAA 5,692,555
State of Hawaii, Series CU, Prerefunded 10/01/10 @100,
MBIA Insured, Collateral: State & Local
Government Series 100%
3,000,000 5.600%, 10/01/19 ..................................... Aaa/AAA 3,228,150
State of Hawaii, Series CV, FGIC Insured
11,000,000 5.000%, 08/01/20**** ................................. Aaa/AAA 11,536,800
5,000,000 5.250%, 08/01/21 ..................................... Aaa/AAA 5,323,400
1,015,000 5.000%, 08/01/21 ..................................... Aaa/AAA 1,060,898
State of Hawaii, Series CX, FSA Insured
8,725,000 5.500%, 02/01/13**** ................................. Aaa/AAA 9,516,881
500,000 5.000%, 02/01/19 ..................................... Aaa/AAA 525,455
2,500,000 5.500%, 02/01/21 ..................................... Aaa/AAA 2,711,775
State of Hawaii, Series CZ, FSA Insured, Unrefunded
5,305,000 5.250%, 07/01/16 ..................................... NR/AAA 5,700,965
State of Hawaii, Series CZ, FSA Insured
14,000,000 5.250%, 07/01/18 ..................................... Aaa/AAA 15,007,720
State of Hawaii, Series CZ, FSA Insured
Prerefunded to 07/01/12 @100,
Collateral: US Government Securities
3,000,000 5.250%, 07/01/17 ..................................... Aaa/AAA 3,256,140
State of Hawaii, Series DD, MBIA Insured, Unrefunded
1,470,000 5.000%, 05/01/18 ..................................... Aaa/AAA 1,576,119
RATING
PRINCIPAL MOODY'S/
AMOUNT HAWAII GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ -------- -------------
State of Hawaii, Series DE, MBIA Insured
$ 10,000,000 5.000%, 10/01/21 ..................................... Aaa/AAA $ 10,671,200
Hawaii State Series DF, AMBAC Insured
3,500,000 5.000%, 07/01/18 ..................................... Aaa/AAA 3,785,355
10,000,000 5.000%, 07/01/22 ..................................... Aaa/AAA 10,700,500
3,500,000 5.000%, 07/01/23 ..................................... Aaa/AAA 3,734,535
10,000,000 5.000%, 07/01/24 ..................................... Aaa/AAA 10,647,400
Hawaii State Series DG, AMBAC Insured, Refunding
2,000,000 5.000%, 07/01/17 ..................................... Aaa/AAA 2,169,240
Hawaii State Series DI, FSA Insured
5,000,000 5.000%, 03/01/20 ..................................... Aaa/AAA 5,413,100
2,750,000 5.000%, 03/01/21 ..................................... Aaa/AAA 2,961,530
5,000,000 5.000%, 03/01/22 ..................................... Aaa/AAA 5,372,400
-------------
415,480,644
-------------
HAWAII REVENUE BONDS (37.8%)
------------------------------------------------------
Board of Regents, University of Hawaii, University
System, Series A, FGIC Insured,
Prerefunded to 07/15/12 @ 100,
Collateral: State & Local Government Series 100%
2,000,000 5.500%, 07/15/19 ..................................... Aaa/AAA 2,185,700
2,000,000 5.500%, 07/15/21 ..................................... Aaa/AAA 2,182,420
2,000,000 5.500%, 07/15/22 ..................................... Aaa/AAA 2,173,760
3,000,000 5.500%, 07/15/29 ..................................... Aaa/AAA 3,244,470
Board of Regents, University of Hawaii, University
System, Series B, FSA Insured
1,110,000 5.250%, 10/01/12 ..................................... Aaa/AAA 1,192,473
1,000,000 5.250%, 10/01/13 ..................................... Aaa/AAA 1,071,940
1,140,000 5.250%, 10/01/14 ..................................... Aaa/AAA 1,219,857
1,395,000 5.250%, 10/01/15 ..................................... Aaa/AAA 1,493,375
City and County of Honolulu, Hawaii Board of Water
Supply & System, FSA Insured,
Prerefunded to 07/01/11 @ 100,
Collateral: US Government Securities
5,450,000 5.250%, 07/01/23 ..................................... Aaa/AAA 5,848,286
RATING
PRINCIPAL MOODY'S/
AMOUNT HAWAII REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ -------- -------------
City and County of Honolulu, Hawaii Board of Water
Supply & System, Series A, FGIC Insured
$ 3,265,000 4.750%, 07/01/20 ..................................... Aaa/AAA $ 3,419,826
1,230,000 5.000%, 07/01/21 ..................................... Aaa/AAA 1,310,282
City and County of Honolulu, Hawaii Board of Water
Supply Water Systems, FSA Insured,
Prerefunded 07/01/2011 @100,
Collateral: US Government Securities
305,000 5.500%, 07/01/15 ..................................... Aaa/AAA 330,589
1,490,000 5.125%, 07/01/21 ..................................... Aaa/AAA 1,590,828
City and County of Honolulu, Hawaii Board of Water
Supply & System , Series A, MBIA Insured
30,000,000 4.750%, 07/01/31 ..................................... Aaa/AAA 30,631,800
City and County of Honolulu, Hawaii Improvement
District No. 261 (Halawa Business Park),
Special Assessment Bonds
290,000 6.900%, 10/15/06 ..................................... NR/NR 290,355
City and County of Honolulu, Hawaii Wastewater
Systems, FGIC Insured
1,395,000 5.000%, 07/01/12 ..................................... Aaa/NR 1,461,109
City and County of Honolulu, Hawaii Wastewater
Systems, Series A, FGIC Insured
2,825,000 5.000%, 07/01/22 ..................................... Aaa/AAA 3,022,891
City and County of Honolulu, Hawaii Wastewater
Systems, Junior Series, FGIC Insured
2,000,000 5.250%, 07/01/18 ..................................... Aaa/AAA 2,101,840
5,055,000 5.000%, 07/01/23 ..................................... Aaa/AAA 5,255,481
City and County of Honolulu, Hawaii Wastewater
Systems, Senior Series, AMBAC Insured
1,810,000 5.500%, 07/01/11 ..................................... Aaa/NR 1,960,212
City & County of Honolulu, Hawaii Wastewater
Systems Revenue First Bond Resolution-SER SR,
Prerefunded to 07/01/11 @ 100,
Collateral: State & Local Government Series 100%
1,065,000 5.500%, 07/01/16 ..................................... Aaa/NR 1,154,354
3,000,000 5.500%, 07/01/17 ..................................... Aaa/NR 3,251,700
RATING
PRINCIPAL MOODY'S/
AMOUNT HAWAII REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ -------- -------------
City & County of Honolulu, Hawaii Wastewater
Systems Revenue First Bond Resolution-SER SR,
Prerefunded to 07/01/11 @ 100,
Collateral: State & Local Government Series 100%
$ 2,310,000 5.500%, 07/01/18 ..................................... Aaa/NR $ 2,503,809
2,000,000 5.250%, 07/01/19 ..................................... Aaa/NR 2,146,160
City & County of Honolulu, Hawaii Wastewater
Systems Senior Series A, FGIC Insured
2,000,000 5.000%, 07/01/24 ..................................... Aaa/AAA 2,129,480
City and County of Honolulu, Hawaii Wastewater
System First Bond Resolution, Senior Series A,
MBIA Insured
4,560,000 4.500%, 07/01/32 ..................................... Aaa/AAA 4,573,999
1,000,000 5.000%, 07/01/36 ..................................... Aaa/AAA 1,055,980
City and County of Honolulu, Hawaii Wastewater
System Second Bond, Junior A-1, MBIA Insured
1,025,000 5.000%, 07/01/17 ..................................... Aaa/AAA 1,120,817
City and County of Honolulu, Hawaii Wastewater
System Second Bond, Junior B-1, MBIA Insured
1,340,000 5.000%, 07/01/18 ..................................... Aaa/AAA 1,459,568
1,935,000 5.000%, 07/01/19 ..................................... Aaa/AAA 2,101,120
2,035,000 5.000%, 07/01/20 ..................................... Aaa/AAA 2,201,137
19,715,000 5.000%, 07/01/32 ..................................... Aaa/AAA 20,850,978
City and County of Honolulu, Hawaii Board of Water
Supply Water Systems, FSA Insured,
Unrefunded Balance
315,000 5.500%, 07/01/15 ..................................... Aaa/AAA 341,000
City and County of Honolulu, Hawaii Board of Water
Supply Water Systems, FSA Insured,
Unrefunded Balance
1,510,000 5.125%, 07/01/21 ..................................... Aaa/AAA 1,590,619
RATING
PRINCIPAL MOODY'S/
AMOUNT HAWAII REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ -------- -------------
Hawaii State Department of Budget and Finance
Special Purpose Revenue (Chaminade University,
Honolulu), Radian Insured
$ 1,000,000 5.000%, 01/01/26 ..................................... NR/NR2 $ 1,048,960
Hawaii State Department of Budget and Finance
Special Purpose Revenue Linked Certificates
(Kapiolani Health Care)
5,000,000 6.400%, 07/01/13 ..................................... Baa1/BBB+ 5,480,000
Hawaii State Department of Budget and Finance Special
Purpose Revenue (Mid Pacific Institute),
Radian Insured
2,000,000 4.625%, 01/01/31 ..................................... NR/AA 2,011,080
1,210,000 4.625%, 01/01/36 ..................................... NR/AA 1,213,085
Hawaii State Department of Budget and Finance Special
Purpose Revenue (Hawaiian Electric Company, Inc.),
Series A, AMBAC Insured
4,965,000 5.500%, 12/01/14 ..................................... Aaa/AAA 5,289,910
Hawaii State Department of Budget and Finance Special
Purpose Revenue (Hawaiian Electric Company, Inc.),
Series A, MBIA Insured
4,125,000 4.950%, 04/01/12 ..................................... Aaa/AAA 4,398,116
Hawaii State Department of Budget and Finance Special
Purpose Revenue (Hawaiian Electric Company, Inc.)
Refunding Series A-AMT, FGIC Insured
5,000,000 4.800%, 01/01/25 ..................................... Aaa/AAA 5,081,350
Hawaii State Department of Budget and Finance of the
State of Hawaii Special Purpose Revenue (Hawaiian
Electric Company, Inc., and Subsidiaries Projects),
Series A-AMT, MBIA Insured
5,700,000 5.650%, 10/01/27**** ................................. Aaa/AAA 6,184,557
Hawaii State Department of Budget and Finance Special
Purpose Revenue (Hawaiian Electric Company, Inc.,
and Subsidiaries Projects), Series B-AMT,
XL Capital Insured
1,000,000 5.000%, 12/01/22 ..................................... Aaa/AAA 1,039,860
RATING
PRINCIPAL MOODY'S/
AMOUNT HAWAII REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ -------- -------------
Hawaii State Department of Budget and Finance Special
Purpose Revenue (Hawaiian Electric Company, Inc.),
Series D-AMT, AMBAC Insured
$ 2,500,000 6.150%, 01/01/20 ..................................... Aaa/AAA $ 2,652,900
Hawaii State Department of Budget and Finance Special
Purpose Revenue (North Hawaii Community
Hospital), VRDO3 Enhancement LOC - First
Hawaiian Bank expiring 05/26/09
1,575,000 3.800%, 05/01/19 ..................................... VMIG1/Aa 1,575,000
Hawaii State Department of Budget and Finance Special
Purpose Revenue (The Evangelical Lutheran Good
Samaritan Society), AMBAC Insured
250,000 4.700%, 11/01/06 ..................................... Aaa/AAA 250,195
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,
Collateral: US Treasury Strips 100%
8,000,000 5.250%, 07/01/23 ..................................... Aaa/AAA 8,386,160
Department of Hawaiian Home Lands (State of Hawaii)
1,310,000 4.150%, 07/01/08 ..................................... A3/NR 1,311,245
1,525,000 4.350%, 07/01/10 ..................................... A3/NR 1,545,420
1,245,000 4.450%, 07/01/11 ..................................... A3/NR 1,265,518
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 2,896,292
4,060,000 5.750%, 07/01/30 ..................................... Aaa/AAA 4,070,191
960,000 5.400%, 07/01/30 ..................................... Aaa/AAA 989,203
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 9,603,852
6,800,000 5.300%, 07/01/28 ..................................... Aaa/AAA 7,003,728
RATING
PRINCIPAL MOODY'S/
AMOUNT HAWAII REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ -------- -------------
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 $ 2,137,623
4,000,000 5.700%, 10/01/25 ..................................... Aaa/AAA 4,023,880
State of Hawaii Airport System Revenue, AMT,
FGIC Insured
4,000,000 5.750%, 07/01/17 ..................................... Aaa/AAA 4,324,440
11,000,000 5.625%, 07/01/18 ..................................... Aaa/AAA 11,813,450
6,000,000 5.250%, 07/01/21 ..................................... Aaa/AAA 6,267,900
State of Hawaii Airport System Revenue, AMT, Second
Series, Escrowed to Maturity, MBIA Insured,
Collateral: US Government Securities
6,455,000 6.900%, 07/01/12**** ................................. Aaa/AAA 7,142,393
State of Hawaii Airport System , Series B-AMT,
FGIC Insured
3,000,000 8.000%, 07/01/10 ..................................... Aaa/AAA 3,430,830
State of Hawaii Harbor Capital Improvement Revenue,
AMT, MBIA Insured
3,850,000 5.750%, 07/01/17 ..................................... Aaa/AAA 3,975,279
State of Hawaii Harbor Capital Improvement Revenue,
Series B-AMT, AMBAC Insured
3,000,000 5.500%, 07/01/19 ..................................... Aaa/AAA 3,220,650
State of Hawaii Harbor System Revenue,
Series A-AMT, FSA Insured
2,000,000 5.750%, 07/01/17 ..................................... Aaa/AAA 2,147,720
1,500,000 5.900%, 07/01/21 ..................................... Aaa/AAA 1,617,465
3,345,000 5.000%, 01/01/31 ..................................... Aaa/AAA 3,467,527
State of Hawaii Harbor System Revenue Series A-AMT
2,415,000 4.750%, 01/01/11 ..................................... A1/A+ 2,496,313
State of Hawaii Harbor System Revenue,
Series B-AMT, FSA Insured
2,000,000 5.000%, 01/01/11 ..................................... Aaa/AAA 2,094,680
RATING
PRINCIPAL MOODY'S/
AMOUNT HAWAII REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ -------- -------------
State of Hawaii Highway Revenue, FSA Insured,
Prerefunded 07/01/11 @100
$ 2,720,000 5.500%, 07/01/19 ..................................... Aaa/AAA $ 2,905,123
1,110,000 5.500%, 07/01/20 ..................................... Aaa/AAA 1,185,547
State of Hawaii Highway Revenue
Prerefunded 07/01/11 @100, FSA Insured,
Collateral: State & Local Government Series 100%
1,530,000 5.375%, 07/01/14 ..................................... Aaa/AAA 1,650,090
2,000,000 5.375%, 07/01/20 ..................................... Aaa/AAA 2,156,980
State of Hawaii Highway Revenue, Series A,
FSA Insured
1,000,000 5.000%, 07/01/20 ..................................... Aaa/AAA 1,074,630
State of Hawaii Highway Revenue, Series B,
FSA Insured
2,000,000 5.000%, 07/01/16 ..................................... Aaa/AAA 2,178,540
University of Hawaii Revenue Refunding, Series A,
MBIA Insured
10,000,000 4.500%, 07/15/32*** .................................. Aaa/AAA 9,924,000
-------------
270,999,897
-------------
PUERTO RICO (4.8%)
------------------------------------------------------
Puerto Rico Commonwealth Aqueduct and Sewer
Authority Revenue Bonds, MBIA Insured
2,500,000 5.000%, 07/01/15 ..................................... Aaa/AAA 2,548,625
Puerto Rico Commonwealth Government Development
Bank Senior Notes Series B Revenue
6,280,000 5.000%, 12/01/06 ..................................... Baa3/BBB 6,290,425
Puerto Rico Commonwealth Government Facilities
Revenue Bonds, Series A, FSA Insured
1,600,000 5.250%, 07/01/19 ..................................... NR/AAA 1,816,896
Puerto Rico Commonwealth Highway & Transportation
Authority Highway Revenue, Series AA, MBIA Insured
1,000,000 5.500%, 07/01/18 ..................................... Aaa/AAA 1,150,540
RATING
PRINCIPAL MOODY'S/
AMOUNT PUERTO RICO (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ -------- -------------
Puerto Rico Commonwealth Highway & Transportation
Authority Revenue Series G, FGIC Insured
$ 1,000,000 5.250%, 07/01/15 ..................................... Aaa/AAA $ 1,096,050
Puerto Rico Commonwealth Public Finance Corp.
Revenue Bonds, Series A, Prerefunded 08/01/11 @100,
MBIA Insured, Collateral: 38% US Treasury,
62% US Government Securities
5,000,000 5.500%, 08/01/17 ..................................... Aaa/AAA 5,437,850
Puerto Rico Commonwealth Public Improvement
General Obligation Bonds, MBIA Insured
1,800,000 5.250%, 07/01/13 ..................................... Aaa/AAA 1,903,644
Puerto Rico Commonwealth Public Improvement
General Obligation Bonds, Series A, FGIC Insured
2,000,000 5.500%, 07/01/16 ..................................... Aaa/AAA 2,286,800
Puerto Rico Commonwealth Public Improvement
General Obligation Bonds, Refunding Series A,
MBIA Insured
6,245,000 5.500%, 07/01/20 ..................................... Aaa/AAA 7,277,985
Puerto Rico Commonwealth Public Improvement
General Obligation Bonds, Series CR, FSA Insured
1,060,000 5.250%, 07/01/17 ..................................... Aaa/AAA 1,196,454
Puerto Rico Electric Power Authority Power Revenue
Bonds Series QQ, XLCA Insured
3,195,000 5.500%, 07/01/16 ..................................... Aaa/AAA 3,639,169
-------------
34,644,438
-------------
Total Investments (Cost $692,072,390)(4) ............. 100.6% 721,124,979
Other assets less liabilities ........................ (0.6) (4,361,792)
-------- -------------
Net Assets ........................................... 100.0% $ 716,763,187
======== =============
PERCENT OF
PORTFOLIO DISTRIBUTION BY QUALITY RATING (UNAUDITED) PORTFOLIO
---------------------------------------------------- ----------
Aaa or #Aaa of Moody's or AAA of S&P ............... 96.5%
Aa of Moody's or AA of S&P ......................... 0.8
A of Moody's or S&P ................................ 0.9
Baa of Moody's or BBB of S&P ....................... 1.6
Not rated (1) ...................................... 0.2
----------
100.0%
==========
(1) Any security not rated (NR) by any of the approved rating
services has been determined by the Investment Adviser to
have sufficient credit 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 Corp.
AMT - Alternative Minimum Tax
CIFG - CIFG Assurance North America, Inc.
FGIC - Financial Guaranty Insurance Co.
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assurance
TCRS - Transferable Custodial Receipts
VRDO - Variable Rate Demand Obligation
XLCA - XL Capital Assurance
*** Security traded on a "when-issued" basis.
**** Securities pledged as collateral for the Trust's
when-issued commitments.
See accompanying notes to financial statements.
HAWAIIAN TAX-FREE TRUST
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2006
(UNAUDITED)
ASSETS
Investments at value (cost $694,072,390) ........................................... $ 721,124,979
Interest receivable ................................................................ 9,299,340
Receivable for Trust shares sold ................................................... 115,755
Other assets ....................................................................... 3,640
-------------
Total assets ....................................................................... 730,543,714
-------------
LIABILITIES
Cash overdraft ..................................................................... 613,895
Payable for investment securities purchased ........................................ 10,979,190
Payable for Trust shares redeemed .................................................. 1,116,553
Dividends payable .................................................................. 512,681
Distribution and service fees payable .............................................. 281,913
Adviser and Administrator fees payable ............................................. 235,509
Accrued expenses ................................................................... 40,786
-------------
Total liabilities .................................................................. 13,780,527
-------------
NET ASSETS ............................................................................ $ 716,763,187
=============
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share $ 627,871
Additional paid-in capital ......................................................... 688,691,602
Net unrealized appreciation on investments (note 4) ................................ 27,052,589
Accumulated net realized loss on investments ....................................... (1,699,322)
Undistributed net investment income ................................................ 2,090,447
-------------
$ 716,763,187
=============
CLASS A
Net Assets ......................................................................... $ 661,498,716
=============
Capital shares outstanding ......................................................... 57,946,014
=============
Net asset value and redemption price per share ..................................... $ 11.42
=============
Offering price per share (100/96 of $11.42 adjusted to nearest cent) ............... $ 11.90
=============
CLASS C
Net Assets ......................................................................... $ 37,116,676
=============
Capital shares outstanding ......................................................... 3,253,653
=============
Net asset value and offering price per share ....................................... $ 11.41
=============
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) ...................................... $ 11.41*
=============
CLASS Y
Net Assets ......................................................................... $ 18,147,795
=============
Capital shares outstanding ......................................................... 1,587,397
=============
Net asset value, offering and redemption price per share ........................... $ 11.43
=============
See accompanying notes to financial statements.
HAWAIIAN TAX-FREE TRUST
STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 2006
(UNAUDITED)
INVESTMENT INCOME:
Interest income ........................................................... $ 16,851,752
EXPENSES:
Investment Adviser fees (note 3) .......................................... $ 500,800
Administrator fees (note 3) ............................................... 930,063
Distribution and service fees (note 3) .................................... 842,678
Transfer and shareholder servicing agent fees ............................. 231,214
Trustees' fees and expenses (note 8) ...................................... 72,301
Shareholders' reports and proxy statements ................................ 62,782
Legal fees (note 3) ....................................................... 47,822
Insurance ................................................................. 34,727
Custodian fees ............................................................ 29,203
Registration fees and dues ................................................ 17,267
Auditing and tax fees ..................................................... 10,430
Chief compliance officer (note 3) ......................................... 2,278
Miscellaneous ............................................................. 23,433
-------------
2,804,998
Expenses paid indirectly (note 6) ......................................... (17,252)
-------------
Net expenses .............................................................. 2,787,746
-------------
Net investment income ..................................................... 14,064,006
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ..................... (2,268,695)
Change in unrealized appreciation on investments .......................... 8,277,232
-------------
Net realized and unrealized gain (loss) on investments .................... 6,008,537
-------------
Net change in net assets resulting from operations ........................ $ 20,072,543
=============
See accompanying notes to financial statements.
HAWAIIAN TAX-FREE TRUST
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
SEPTEMBER 30, 2006 YEAR ENDED
(UNAUDITED) MARCH 31, 2006
------------------ --------------
OPERATIONS:
Net investment income ....................................................... $ 14,064,006 $ 27,521,571
Net realized gain (loss) from securities transactions ....................... (2,268,695) 569,433
Change in unrealized appreciation on investments ............................ 8,277,232 (12,134,913)
------------- -------------
Net change in net assets resulting from operations .......................... 20,072,543 15,956,091
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 10):
Class A Shares:
Net investment income ....................................................... (13,112,129) (25,641,795)
Net realized gain on investments ............................................ -- (424,504)
Class C Shares:
Net investment income ....................................................... (574,732) (1,087,576)
Net realized gain on investments ............................................ -- (22,878)
Class Y Shares:
Net investment income ....................................................... (377,481) (791,736)
Net realized gain on investments ............................................ -- (11,663)
------------- -------------
Change in net assets from distributions ..................................... (14,064,342) (27,980,152)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 7):
Proceeds from shares sold ................................................... 25,236,674 55,348,246
Reinvested dividends and distributions ...................................... 7,689,874 15,434,343
Cost of shares redeemed ..................................................... (43,175,371) (77,015,557)
------------- -------------
Change in net assets from capital share transactions ........................ (10,248,823) (6,232,968)
------------- -------------
Change in net assets ..................................................... (4,240,622) (18,257,029)
NET ASSETS:
Beginning of period ......................................................... 721,003,809 739,260,838
------------- -------------
End of period* .............................................................. $ 716,763,187 $ 721,003,809
============= =============
* Includes undistributed net investment income of: .......................... $ 2,090,447 $ 2,090,783
============= =============
See accompanying notes to financial statements.
HAWAIIAN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 (UNAUDITED)
1. ORGANIZATION
Hawaiian Tax-Free Trust (the "Trust"), a non-diversified, open-end
investment company, was organized on May 7, 1984, as a Massachusetts business
trust and commenced operations on February 20, 1985. The Trust is authorized to
issue an unlimited number of shares and, from its inception to April 1, 1996,
offered only one class of shares. On that date, the Trust began offering two
additional classes of shares, Class C and Class Y shares. All shares outstanding
prior to that date were designated as Class A shares and are sold 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 by the pricing service 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 realized and unrealized gains or losses are allocated daily
to each class of shares based on the relative net assets of each class.
Class-specific expenses, which include distribution and service fees and
any other items that are specifically attributed to a particular class,
are 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.
g) NEW ACCOUNTING PRONOUNCEMENT: On July 13, 2006, the Financial Accounting
Standards Board ("FASB") released FASB Interpretation No. 48 "Accounting
for Uncertainty in income Taxes" ("FIN 48"). FIN 48 provides guidance for
how uncertain tax positions should be recognized, measured, presented and
disclosed in the financial statements. FIN 48 requires the evaluation of
tax positions taken or expected to be taken in the course of preparing the
Trust's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority.
Tax positions not deemed to meet the more-likely-than-not threshold would
be recorded as a tax benefit or expense in the current year. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006 and
is to be applied to all open tax years as of the effective date.
Management believes that the adoption of FIN 48 will have no impact on the
financial statements of the Trust.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value
Measurement" ("SFAS 157"), which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair
value measurements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years.
Management is currently evaluating the effect of SFAS 157 on the Trust's
financial statements.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
The Asset Management Group of Bank of Hawaii (the "Adviser"), serves as
Investment Adviser to the Trust. In this role, under an Investment Advisory
Agreement, the Adviser supervises the Trust's investments
and provides various services to the Trust, for which it is entitled to receive
a fee which is payable monthly and computed as of the close of business each day
at the annual rate of 0.14% of the 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
six months ended September 30, 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 six months ended September 30, 2006, service fees on
Class A Shares amounted to $660,978 of which the Distributor retained $42,069.
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 six
months ended September 30, 2006, amounted to $136,275. 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 six months ended September 30, 2006, amounted to $45,425. The total
of these payments made with respect to Class C Shares amounted to $181,700 of
which the Distributor retained $38,622.
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 six months
ended September 30, 2006, total commissions on sales of Class A Shares amounted
to $507,464, of which the Distributor received $49,169.
c) OTHER RELATED PARTY TRANSACTIONS:
For the six months ended September 30, 2006, the Trust incurred $45,537 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 six months ended September 30, 2006, purchases of securities
and proceeds from the sales of securities aggregated $208,008,452 and
$203,578,297, respectively.
At September 30, 2006, the aggregate tax cost for all securites was
$694,072,390. At September 30, 2006, the aggregate gross unrealized appreciation
for all securities in which there is an excess of market value over tax cost
amounted to $27,181,476 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value amounted to
$128,887 for a net unrealized appreciation of $27,052,589.
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 uninvested.
7. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Trust were as follows:
Six Months Ended
September 30, 2006 Year Ended
(unaudited) March 31, 2006
-------------------------------- --------------------------------
Shares Amount Shares Amount
----------- ------------ ----------- ------------
CLASS A SHARES:
Proceeds from shares sold .................... 1,749,402 $ 19,753,266 3,926,945 $ 45,218,301
Reinvested distributions ..................... 639,416 7,229,385 1,260,039 14,507,021
Cost of shares redeemed ...................... (3,266,854) (36,912,281) (5,540,604) (63,720,316)
----------- ------------ ----------- ------------
Net change ................................... (878,036) (9,929,630) (353,620) (3,994,994)
----------- ------------ ----------- ------------
CLASS C SHARES:
Proceeds from shares sold .................... 418,733 4,728,828 668,607 7,668,853
Reinvested distributions ..................... 28,756 324,915 52,402 603,838
Cost of shares redeemed ...................... (434,254) (4,899,607) (750,126) (8,622,247)
----------- ------------ ----------- ------------
Net change ................................. 13,235 154,136 (29,117) (349,556)
----------- ------------ ----------- ------------
CLASS Y SHARES:
Proceeds from shares sold .................... 66,663 754,580 213,435 2,461,092
Reinvested distributions ..................... 11,996 135,574 28,085 323,484
Cost of shares redeemed ...................... (120,779) (1,363,483) (407,103) (4,672,994)
----------- ------------ ----------- ------------
Net change ................................. (42,120) (473,329) (165,583) (1,888,418)
----------- ------------ ----------- ------------
Total transactions in Trust shares ............. (906,921) $(10,248,823) (548,320) $ (6,232,968)
=========== ============ =========== ============
8. TRUSTEES' FEES AND EXPENSES
At September 30, 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 six months ended September 30, 2006
was $60,866, 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
and outreach Meetings of Shareholders. For the six months ended September 30,
2006, such meeting-related expenses amounted to $11,435.
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.
HAWAIIAN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class A
----------------------------------------------------------------------
Six Months
Ended Year Ended March 31,
9/30/06 ------------------------------------------------------
(unaudited) 2006 2005 2004 2003 2002
----------- ------ ------ ------ ------ ------
Net asset value, beginning of period ..................... $11.32 $11.51 $11.83 $11.73 $11.26 $11.37
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income + ................................ 0.22 0.43 0.45 0.46 0.48 0.51
Net gain (loss) on securities (both realized
and unrealized) ...................................... 0.10 (0.18) (0.30) 0.10 0.47 (0.10)
------ ------ ------ ------ ------ ------
Total from investment operations ....................... 0.32 0.25 0.15 0.56 0.95 0.41
------ ------ ------ ------ ------ ------
Less distributions (note 10):
Dividends from net investment income ................... (0.22) (0.43) (0.45) (0.46) (0.48) (0.52)
Distributions from capital gains ....................... -- (0.01) (0.02) -- -- --
------ ------ ------ ------ ------ ------
Total distributions .................................... (0.22) (0.44) (0.47) (0.46) (0.48) (0.52)
------ ------ ------ ------ ------ ------
Net asset value, end of period ........................... $11.42 $11.32 $11.51 $11.83 $11.73 $11.26
====== ====== ====== ====== ====== ======
Total return (not reflecting sales charge) ............... 2.90%* 2.19% 1.33% 4.83% 8.57% 3.62%
Ratios/supplemental data
Net assets, end of period (in millions) ................ $ 661 $ 666 $ 681 $ 694 $ 675 $ 625
Ratio of expenses to average net assets ................ 0.75%** 0.74% 0.74% 0.73% 0.71% 0.72%
Ratio of net investment income to average
net assets ........................................... 3.96%** 3.76% 3.90% 3.89% 4.15% 4.51%
Portfolio turnover rate ................................ 25%* 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% 0.74% 0.72% 0.70% 0.70%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
* Not Annualized.
** Annualized.
See accompanying notes to financial statements.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class C
----------------------------------------------------------------------
Six Months
Ended Year Ended March 31,
9/30/06 ------------------------------------------------------
(unaudited) 2006 2005 2004 2003 2002
----------- ------ ------ ------ ------ ------
Net asset value, beginning of period ..................... $11.31 $11.50 $11.82 $11.73 $11.26 $11.36
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income + ................................ 0.18 0.34 0.36 0.36 0.38 0.41
Net gain (loss) on securities (both realized
and unrealized) ...................................... 0.10 (0.18) (0.30) 0.09 0.48 (0.08)
------ ------ ------ ------ ------ ------
Total from investment operations ....................... 0.28 0.16 0.06 0.45 0.86 0.33
------ ------ ------ ------ ------ ------
Less distributions (note 10):
Dividends from net investment income ................... (0.18) (0.34) (0.36) (0.36) (0.39) (0.43)
Distributions from capital gains ....................... -- (0.01) (0.02) -- -- --
------ ------ ------ ------ ------ ------
Total distributions .................................... (0.18) (0.35) (0.38) (0.36) (0.39) (0.43)
------ ------ ------ ------ ------ ------
Net asset value, end of period ........................... $11.41 $11.31 $11.50 $11.82 $11.73 $11.26
====== ====== ====== ====== ====== ======
Total return (not reflecting sales charge) ............... 2.49%* 1.37% 0.53% 3.91% 7.70% 2.91%
Ratios/supplemental data
Net assets, end of period (in millions) ................ $ 37.1 $ 36.7 $ 37.6 $ 38.2 $ 33.8 $ 24.1
Ratio of expenses to average net assets ................ 1.55%** 1.54% 1.54% 1.54% 1.51% 1.51%
Ratio of net investment income to average
net assets ........................................... 3.16%** 2.96% 3.10% 3.08% 3.33% 3.68%
Portfolio turnover rate ................................ 25%* 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% 1.54% 1.52% 1.50% 1.50%
Class Y
----------------------------------------------------------------------
Six Months
Ended Year Ended March 31,
9/30/06 ------------------------------------------------------
(unaudited) 2006 2005 2004 2003 2002
----------- ------ ------ ------ ------ ------
Net asset value, beginning of period ..................... $11.34 $11.52 $11.84 $11.75 $11.28 $11.39
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income + ................................ 0.24 0.46 0.48 0.48 0.50 0.52
Net gain (loss) on securities (both realized
and unrealized) ...................................... 0.09 (0.18) (0.30) 0.09 0.47 (0.09)
------ ------ ------ ------ ------ ------
Total from investment operations ....................... 0.33 0.28 0.18 0.57 0.97 0.43
------ ------ ------ ------ ------ ------
Less distributions (note 10):
Dividends from net investment income ................... (0.24) (0.45) (0.48) (0.48) (0.50) (0.54)
Distributions from capital gains ....................... -- (0.01) (0.02) -- -- --
------ ------ ------ ------ ------ ------
Total distributions .................................... (0.24) (0.46) (0.50) (0.48) (0.50) (0.54)
------ ------ ------ ------ ------ ------
Net asset value, end of period ........................... $11.43 $11.34 $11.52 $11.84 $11.75 $11.28
====== ====== ====== ====== ====== ======
Total return (not reflecting sales charge) ............... 2.92%* 2.48% 1.54% 4.97% 8.77% 3.80%
Ratios/supplemental data
Net assets, end of period (in millions) ................ $ 18.1 $ 18.5 $ 20.7 $ 23.5 $ 25.2 $ 19.3
Ratio of expenses to average net assets ................ 0.55%** 0.54% 0.54% 0.53% 0.51% 0.52%
Ratio of net investment income to average
net assets ........................................... 4.16%** 3.96% 4.09% 4.09% 4.33% 4.69%
Portfolio turnover rate ................................ 25%* 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% 0.54% 0.52% 0.50% 0.50%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
* Not Annualized.
** Annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
ANALYSIS OF EXPENSES (UNAUDITED)
As a shareholder of the Trust, you may incur two types of costs: (1)
transaction costs, including front-end sales charges with respect to Class A
shares or contingent deferred sales charges ("CDSC") with respect to Class C
shares; and (2) ongoing costs, including management fees; distribution and/or
service (12b-1) fees; and other Trust expenses. The table below is intended to
help you understand your ongoing costs (in dollars) of investing in the Trust
and to compare these costs with the ongoing costs of investing in other mutual
funds.
The table below is based on an investment of $1,000 invested on April 1,
2006 and held for the six months ended September 30, 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".
SIX MONTHS ENDED SEPTEMBER 30, 2006
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A 2.90% $1,000.00 $1,029.00 $ 3.76
- --------------------------------------------------------------------------------
Class C 2.49% $1,000.00 $1,024.90 $ 7.82
- --------------------------------------------------------------------------------
Class Y 2.92% $1,000.00 $1,029.20 $ 2.75
- --------------------------------------------------------------------------------
(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 0.74%, 1.54% AND
0.54% FOR THE TRUST'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/365 (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
contingent deferred sales charges ("CDSC") with respect to Class C shares.
Therefore, the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different mutual funds. In
addition, if these transaction costs were included, your costs would have been
higher.
SIX MONTHS ENDED SEPTEMBER 30, 2006
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,021.36 $ 3.75
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,017.35 $ 7.79
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,022.36 $ 2.74
- --------------------------------------------------------------------------------
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.74%, 1.54% AND
0.54% FOR THE TRUST'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/365 (TO
REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING RESULTS (UNAUDITED)
The Annual Meeting of Shareholders of Hawaiian Tax-Free Trust (the
"Trust") was held on September 19, 2006. The holders of shares representing 74%
of the total net asset value of the shares entitled to vote were present in
person or by proxy. At the meeting, the following matters were voted upon and
approved by the shareholders (the resulting votes are presented below).
1. To elect Trustees.
DOLLAR AMOUNT OF VOTES:
-----------------------
TRUSTEE FOR WITHHELD
------- --- --------
Thomas W. Courtney $511,576,413 $2,956,509
Diana P. Herrmann $519,622,096 $2,849,813
Stanley W. Hong $519,252,177 $3,219,721
Theodore T. Mason $519,074,580 $3,397,328
Russell K. Okata $517,267,809 $5,204,088
Douglas Philpotts $518,473,532 $3,998,377
Oswald K. Stender $516,605,585 $5,866,323
2. To ratify the selection of Tait, Weller & Baker LLP as the Trust's
independent registered public accounting firm.
DOLLAR AMOUNT OF VOTES:
-----------------------
FOR AGAINST ABSTAIN
--- ------- -------
$516,045,615 $ 827,175 $5,599,117
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
RENEWAL OF THE INVESTMENT ADVISORY AGREEMENT
Renewal until June 30, 2007 of the Investment Advisory Agreement (the
"Advisory Agreement") between the Trust and the Adviser was approved by the
Board of Trustees and the independent Trustees in June, 2006. At a meeting
called and held for that purpose at which a majority of the independent Trustees
were present in person, the following materials were considered:
o Copies of the agreement to be renewed;
o A term sheet describing the material terms of the agreement;
o The Annual Report of the Trust for the year ended March 31, 2006;
o A report, prepared by the Adviser and Administrator and provided to
the Trustees in advance of the meeting for the Trustees' review,
containing data about the performance of the Trust, data about its
fees, expenses and purchases and redemptions of capital stock
together with comparisons of such data with similar data about other
comparable funds, as well as data as to the profitability of the
Adviser and the Administrator; and
o Quarterly materials reviewed at prior meetings on the Trust's
performance, operations, portfolio and compliance.
The Trustees reviewed materials relevant to, and considered, the following
factors:
THE NATURE, EXTENT, AND QUALITY OF THE SERVICES PROVIDED BY THE ADVISER.
The Adviser has employed Mr. Robert Crowell as portfolio manager for the
Trust and has provided facilities for credit analysis of the Trust's portfolio
securities. Mr. Crowell, based in Honolulu, has provided local information
regarding specific holdings in the Trust's portfolio. The portfolio manager has
also been available to and has met with the brokerage and financial planner
community and with investors and prospective investors to provide them with
information generally about the Trust's portfolio, with which to assess the
Trust as an investment vehicle for residents of Hawaii in light of prevailing
interest rates and local economic conditions.
The Board considered that the Adviser had provided all services the Board
deemed necessary or appropriate, including the specific services that the Board
has determined are required for the Trust, given that its purpose is to provide
shareholders with as high a level of current income exempt from Hawaii state and
regular Federal income taxes as is consistent with preservation of capital.
The Board concluded that the services provided were appropriate and
satisfactory and that the Trust would be well served if they continued.
Evaluation of this factor weighed in favor of renewal of the Advisory Agreement.
THE INVESTMENT PERFORMANCE OF THE TRUST AND ADVISER.
The Board reviewed each aspect of the Trust's performance and compared its
performance with that of 1) its local competitors, 2) single-state intermediate
municipal bond funds of similar duration and quality, and 3) a benchmark index.
It was noted that the materials provided by the Adviser indicated that compared
to the four largest competitive Hawaii funds, the Trust has had investment
performance that is generally lower compared to that of its peers but generally
higher compared to
similarly managed funds with the like duration and quality portfolio
characteristic for one-, five- and ten-year periods. The Board considered these
results to be consistent with the purposes of the Trust.
The Board concluded that the performance of the Trust, in light of market
conditions, was satisfactory. Evaluation of this factor indicated to the
Trustees that renewal of the Advisory Agreement would be appropriate.
THE COSTS OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED BY THE
ADVISER AND ITS AFFILIATES FROM THE RELATIONSHIP WITH THE TRUST.
The information provided in connection with renewal contained expense data
for the Trust and its competitors as well as data for all single-state tax-free
municipal bond funds nationwide, including data for all such front-end load
funds of a comparable asset size. The materials also showed the profitability to
the Adviser of its services to the Trust.
The Board compared the expense and fee data with respect to the Trust to
similar data about other funds that it found to be relevant. The Board concluded
that the expenses of the Trust and the fees paid were similar to and were
reasonable as compared to those being paid by single-state tax-free municipal
bond funds nationwide, and by the Trust's local competitors, all of which had
higher management fees, except for one.
The Board further concluded that the profitability to the Adviser did not
argue against approval of the fees to be paid under the Advisory Agreement.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE TRUST
GROWS.
Data provided to the Trustees showed that the Trust's asset size had
slightly declined in recent years. They concluded that the recent increase in
prevailing interest rates and the possibility of further increases might make it
difficult to achieve substantial growth in assets in the near future. The
Trustees also noted that the materials indicated that the Trust's fees were
already generally lower than those of its peers, including those with
breakpoints. Evaluation of this factor indicated to the Board that the Advisory
Agreement should be renewed without addition of breakpoints at this time.
BENEFITS DERIVED OR TO BE DERIVED BY THE ADVISER AND ITS AFFILIATES FROM
THE RELATIONSHIP WITH THE TRUST.
The Board observed that, as is generally true of most fund complexes, the
Adviser and its affiliates, by providing services to a number of funds or other
investment clients including the Trust, were able to spread costs as they would
otherwise be unable to do. The Board noted that while that produces efficiencies
and increased profitability for the Adviser and its affiliates, it also makes
their services available to the Trust at favorable levels of quality and cost
which are more advantageous to the Trust than would otherwise have been
possible.
- --------------------------------------------------------------------------------
INFORMATION AVAILABLE (UNAUDITED)
Much of the information that the funds in the Aquila Group of Fundssm
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.
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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, 2006 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.
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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
JPMorgan Chase Bank, 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.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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)(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
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Vice Chair, President and Trustee
December 6, 2006
By: /s/ Joseph P. DiMaggio
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Chief Financial Officer and Treasurer
December 6, 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
December 6, 2006
By: /s/ Joseph P. DiMaggio
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Joseph P. DiMaggio
Chief Financial Officer and Treasurer
December 6, 2006
HAWAIIAN TAX-FREE TRUST
EXHIBIT INDEX
(a) (2)Certifications of principal executive officer
and principal financial officer as required by Rule 30a-2(a)
under the Investment Company Act of 1940.
(b) Certification of chief executive officer and chief financial
officer as required by Rule 30a-2(b) of the Investment Company Act
of 1940.