<PAGE>
BISHOP STREET FUNDS
BISHOP STREET HAWAII TAX-FREE FUND
Supplement dated February 1, 1996
to Prospectus dated January 30, 1995
THIS SUPPLEMENT PROVIDES NEW AND ADDITIONAL INFORMATION BEYOND THAT CONTAINED
IN THE PROSPECTUS AND SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS.
The Board of Trustees of the Fund has adopted, and shareholders have
approved, an amendment to the investment policies of the Bishop Street Hawaii
Tax-Free Fund that eliminates the current requirement that 80% of the Fund's
assets be invested in municipal securities the interest income from which is
not treated as a preference item for purposes of the federal alternative
minimum tax. Consistent with this amended policy, the Fund's Board and
shareholders approved a change in the Fund's name to the "Bishop Street
Hawaii Municipal Bond Fund."
In connection with this change, the second and third paragraphs of the Fund's
"Investment Objectives and Policies" section on pages 5 and 6 of the
Prospectus are amended and restated to read as follows:
The Fund invests at least 80% of its assets in bonds and notes issued by
states, territories, and possessions of the U.S. and their agencies,
authorities, instrumentalities and political subdivisions, that are
rated AAA, AA, A or BBB by S&P, Aaa, Aa, A or Baa by Moody's or AAA, AA,
A or BBB by Fitch Investors Service ("Fitch"), and which pay interest
that is not subject to ordinary Federal income tax ("Municipal
Securities"). There is no restriction on the percentage of the fund's
assets that may be invested in obligations the interest income on which
is treated as a preference item for individuals for purposes of the
federal alternative minimum tax. Under normal circumstances, the Fund
will invest at least 65% of its assets in Municipal Securities issued by
the State of Hawaii, its agencies, instrumentalities, and political
sub-divisions, the income on which is exempt from State of Hawaii
personal income taxes ("Hawaii Municipal Securities").
The Fund may invest up to 20% of its assets in taxable securities. The
Fund may also purchase unrated securities that are of comparable quality
at the time of purchase as determined by the Adviser. The Fund may
purchase shares of other investment companies and may purchase
securities on a "when-issued" basis.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
PROSPECTUS
BISHOP STREET FUNDS
INVESTMENT ADVISER:
FIRST HAWAIIAN BANK
BISHOP STREET FUNDS (the "Trust") is a mutual fund that seeks to provide a
convenient means of investing in one or more professionally managed portfolios
of securities. The prospectus relates to the following Funds (each a "Fund"):
BISHOP STREET HIGH GRADE INCOME FUND
BISHOP STREET HAWAII TAX-FREE FUND
BISHOP STREET EQUITY FUND
An investor may purchase either Retail Class B or Institutional Class A shares
of each Fund. Retail Class B shares are sold with a front-end sales load of up
to 3.5% that will be reduced or waived in certain circumstances. Institutional
Class A shares are sold without a front-end sales load or distribution fees.
First Hawaiian Bank, the Funds' investment adviser, is an affiliate of First
Hawaiian, Inc.
INSTITUTIONAL CLASS A SHARES ARE OFFERED PRIMARILY TO AGENCY, FIDUCIARY,
CUSTODIAL AND ADVISORY CLIENTS OF FIRST HAWAIIAN BANK. RETAIL CLASS B SHARES ARE
OFFERED PRIMARILY TO INDIVIDUALS.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST HAWAIIAN BANK OR ITS AFFILIATES. THE
TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth concisely the basic information about the Funds and
the Trust that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated January 30, 1995 has been filed with
the Securities and Exchange Commission and is available without charge by
calling 1-800-262-9565. The Statement of Additional Information is incorporated
into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
JANUARY 30, 1995
<PAGE>
2
SUMMARY
BISHOP STREET FUNDS (the "Trust") is an open-end management investment company
which provides a convenient way to invest in professionally managed portfolios
of securities. This Summary provides basic information about the Retail Class B
and Institutional Class A shares of the Trust's High Grade Income Fund, Hawaii
Tax-Free Fund and Equity Fund (the "Funds").
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF EACH FUND? The High Grade
Income Fund seeks high total return consistent with prudent investment risk by
investing primarily in high grade U.S. dollar-denominated bonds and debentures
issued by U.S. and foreign corporations. The Hawaii Tax-Free Fund seeks to
provide high current income that is exempt from Federal and State of Hawaii
income taxes by investing primarily in bonds and notes issued by the State of
Hawaii, its agencies, instrumentalities and political sub-divisions ("Hawaii
Municipal Securities"). The Equity Fund seeks long-term growth of capital with a
secondary goal of current income by investing primarily in common stocks of
domestic issuers and U.S. dollar denominated equity securities of foreign
issuers. There is no assurance that any Fund will meet its investment objective.
See "Investment Objectives and Policies" and "Description of Permitted
Investments and Risk Factors."
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUNDS? The Funds' shares
will fluctuate in value with changes in the prices of their underlying portfolio
securities. Values of fixed income securities and, correspondingly, share prices
of Funds invested in such securities tend to vary inversely with interest rates
and may be affected by other market and economic factors as well. Common stocks
in which the Equity Fund invests may be more volatile and may fluctuate in value
more than other types of investments. The Hawaii Tax-Free Fund is a
non-diversified portfolio that invests primarily in Hawaii Municipal Securities.
There are other risks involved in the ownership of a mutual fund. See
"Description of Permitted Investments and Risk Factors."
WHO IS THE ADVISER? First Hawaiian Bank serves as the Adviser of the Funds. See
"Expense Summary" and "The Adviser."
WHO IS THE ADMINISTRATOR? SEI Financial Management Corporation serves as the
Administrator and shareholder servicing agent of the Trust. See "Expense
Summary" and "The Administrator."
WHO IS THE TRANSFER AGENT? Supervised Service Company serves as transfer agent
and dividend disbursing agent for the Trust. See "The Transfer Agent."
WHO IS THE DISTRIBUTOR? SEI Financial Services Company serves as distributor of
the Trust's shares. See "The Distributor."
HOW DO I PURCHASE, EXCHANGE OR REDEEM SHARES? Purchases, exchanges or
redemptions of shares may be made on any day on which both the New York Stock
Exchange and Federal Reserve wire system are open for business ("Business Days")
except for Hawaii state banking holidays. A purchase, exchange or redemption
order will be executed at a per share price equal to the net asset value per
share next determined after the receipt of the purchase, exchange or redemption
order, plus any applicable sales charges. Orders must be placed prior to 4:00
p.m., New York Time, on any Business Day for the order to be effective that day.
The minimum initial investment is $1,000 ($500 for IRAs and $500 for officers,
directors, or employees of First Hawaiian Bank and its affiliates). Subsequent
purchases of shares must be at least $100. Net asset value is determined as of
4:00 p.m., New York Time, on each Business Day. See "Purchase of Shares,"
"Exchange of Shares," and "Redemption of Shares."
HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of each Fund is distributed in the form of periodic
dividends. Any capital gain is distributed at least annually. Distributions are
paid in additional shares unless the Shareholder elects to take the payment in
cash. See "Dividends."
<PAGE>
3
EXPENSE SUMMARY
<TABLE>
<CAPTION>
RETAIL CLASS B SHARES
----------------------------------
HIGH GRADE HAWAII
INCOME TAX-FREE EQUITY
SHAREHOLDER TRANSACTION EXPENSES FUND FUND FUND
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price).............................................................. 3.50% 3.50% 3.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price)..................................................... None None None
Maximum Contingent Deferred Sales Charge.............................. None None None
Exchange Fee.......................................................... None None None
Wire Redemption Fee................................................... $15 $15 $15
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
- ----------------------------------------------------------------------------------------------------------
Advisory Fees (after fee waivers)(1).................................. .25% .00% .40%
Rule 12b-1 Fees....................................................... .25% .25% .25%
Other Expenses(1)(2).................................................. .35% .65% .35%
- ----------------------------------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(3)....................... .85% .90% 1.00%
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Adviser and, with respect to the Hawaii Tax-Free Fund, the Administrator
have agreed to waive a portion of their fees. The Adviser and the
Administrator reserve the right to terminate their respective waivers at any
time in their sole discretion. Absent such fee waivers, advisory fees would
be .55% for the High Grade Income Fund, .35% for the Hawaii Tax-Free Fund,
and .74% for the Equity Fund. Absent fee waivers, the administration fee as
reflected in Other Expenses would be .20% for the Hawaii Tax-Free Fund.
(2) These amounts represent estimates for the current fiscal year.
(3) Absent the Adviser's and, with respect to the Hawaii Tax-Free Fund, the
Administrator's voluntary fee waivers, total operating expenses would be
1.15% for the High Grade Income Fund, 1.40% for the Hawaii Tax-Free Fund,
and 1.34% for the Equity Fund.
<TABLE>
<CAPTION>
EXAMPLE
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS.
- -----------------------------------------------------------------------------------------------------------------------
An investor in the Retail Class B shares of a fund would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time
period:
High Grade Income Fund..................................................................... $ 43 $ 61
Hawaii Tax-Free Fund....................................................................... $ 44 $ 63
Equity Fund................................................................................ $ 45 $ 66
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of the expense table and example is to assist the investor in understanding the
various costs and expenses that may be directly or indirectly borne by investors
in the Funds. A person who purchases shares through a financial institution may
be charged separate fees by that institution. See "Purchase of Shares."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See "Purchase of Shares."
Long-term Shareholders may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules of the National Association of
Securities Dealers ("NASD").
<PAGE>
4
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS A SHARES
-----------------------------------
HIGH GRADE HAWAII
INCOME TAX-FREE EQUITY
SHAREHOLDER TRANSACTION EXPENSES FUND FUND FUND
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)............................................................. None None None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage
of offering price)................................................. None None None
Maximum Contingent Deferred Sales Charge............................. None None None
Exchange Fee......................................................... None None None
Wire Redemption Fee.................................................. $15 $15 $15
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
- ----------------------------------------------------------------------------------------------------------
Advisory Fees (after fee waivers)(1)................................. .25% .00% .40%
Other Expenses(1)(2)................................................. .35% .65% .35%
- ----------------------------------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(3)...................... .60% .65% .75%
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Adviser and, with respect to the Hawaii Tax-Free Fund, the
Administrator, have agreed to waive a portion of their fees. The Adviser and
the Administrator reserve the right to terminate the waiver at any time in
their sole discretion. Absent such fee waivers, advisory fees would be .55%
for the High Grade Income Fund, .35% for the Hawaii Tax-Free Fund, and .74%
for the Equity Fund. Absent fee waivers, the administration fee would be
.20% for the Hawaii Tax-Free Fund.
(2) These amounts represent estimates for the current fiscal year.
(3) Absent the Adviser's, and, with respect to the Hawaii Tax-Free Fund, the
Administrator's voluntary fee waivers, total operating expenses would be
.90% for the High Grade Income Fund, 1.15% for the Hawaii Tax-Free Fund, and
1.09% for the Equity Fund.
<TABLE>
<CAPTION>
EXAMPLE
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS.
- ----------------------------------------------------------------------------------------------------------------------
An investor in the Institutional Class A shares of a fund would pay the following expenses
on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each
time period:
High Grade Income Fund.................................................................... $ 6 $ 19
Hawaii Tax-Free Fund...................................................................... $ 7 $ 21
Equity Fund............................................................................... $ 8 $ 24
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of the expense table and example is to assist the investor in understanding the
various costs and expenses that may be directly or indirectly borne by investors
in the Funds. A person who purchases Institutional Class A shares through a
First Hawaiian Bank agency, custodial, fiduciary or advisory account will pay a
separate fee for those services. See "Purchase of Shares."
<PAGE>
5
THE TRUST
BISHOP STREET FUNDS (the "Trust") is an open-end management investment company
that offers units of beneficial interest ("shares") in the Funds through
separate Classes (Retail Class B and Institutional Class A), which provide for
variations in sales charges, distribution costs, voting rights and dividends.
Except for these differences, each share of each Fund represents an undivided,
proportionate interest in the Fund. This Prospectus offers shares of the Trust's
High Grade Income Fund, Hawaii Tax-Free Fund and Equity Fund (the "Funds").
Additional information pertaining to the Trust may be obtained in writing from
SEI Financial Services Company, 680 East Swedesford Road, Wayne, PA 19087.
Information regarding the Trust's Money Market Fund is contained in a separate
prospectus that may be obtained by calling 1-800-262-9565.
INVESTMENT OBJECTIVES AND POLICIES
Each Fund has its own investment objectives and policies. There can be no
assurance that the investment objective of a Fund will be met.
HIGH GRADE INCOME FUND
The investment objective of the Fund is to provide high total return consistent
with prudent investment risk.
The Fund invests primarily (at least 65% of its assets under normal conditions)
in high grade U.S. dollar-denominated bonds and debentures issued by U.S. and
foreign corporations and governments (i.e. those that are rated at the time of
purchase AA or better by Standard & Poor's Corporation ("S&P") or Aa by Moody's
Investors Service ("Moody's")). (Each of S&P and Moody's and certain other
ratings agencies are hereinafter referred to as a Nationally Recognized
Statistical Rating Organizations, or "NRSROs"). The Fund will maintain an
average weighted remaining maturity of between five and twelve years under
normal circumstances.
Any remaining assets may consist of: (i) obligations of the U.S. Treasury; (ii)
obligations issued or guaranteed as to principal and interest by agencies and
instrumentalities of the U.S. Government; (iii) mortgage pass-through securities
issued by the Government National Mortgage Association ("GNMA"), mortgage-backed
securities issued by other government agencies and privately issued
mortgage-backed securities rated at least A by an NRSRO, including CMOs, REMICs
and ARMs; (iv) repurchase agreements involving any of such obligations; (v)
obligations issued by supranational entities; (vi) asset-backed securities rated
at least A by an NRSRO; (vii) commercial paper rated at least P-2 or A-2 by an
NRSRO; (viii) certificates of deposit, time deposits, notes, bankers'
acceptances and loan participations of U.S. and foreign banks that are rated in
the top two short-term rating categories by two or more NRSROs or that are of
comparable quality; (ix) receipts; and (x) shares of money market investment
companies investing in such obligations.
The Fund may invest up to 5% of its total assets in fixed income securities
rated as low as Baa by Moody's or BBB by S&P. Such securities possess some
speculative characteristics. The Fund intends to dispose of a security if its
rating after purchase declines below Baa or BBB.
The Fund may also invest in floating or variable rate obligations and zero
coupon securities, and may purchase securities on a "when-issued" basis.
HAWAII TAX-FREE FUND
The investment objective of this Fund is to provide high current income that is
exempt from Federal and State of Hawaii income taxes.
The Fund invests primarily (at least 80% of its assets under normal market
conditions) in bonds and notes issued by states, territories, and possessions of
the U.S. and their agencies, authorities, instrumentalities and political
subdivisions, that are rated AAA, AA, A or BBB by S&P, Aaa, Aa, A or Baa by
Moody's or AAA, AA, A or BBB by Fitch Investors Service ("Fitch"), and which pay
interest that is not subject to ordinary Federal income tax and is not treated
as a preference item for purposes of the Federal alternative minimum tax
("Municipal Securities"). This is a fundamental policy of the Fund. Under normal
circumstances, the Fund will invest at least 65% of its assets in Municipal
Securities issued by the State of Hawaii, its agencies,
<PAGE>
6
instrumentalities, and political sub-divisions, the income on which is exempt
from State of Hawaii personal income taxes ("Hawaii Municipal Securities").
The Fund may invest up to 20% of its assets in taxable securities or securities
that are treated as preference items for purposes of the alternative minimum
tax, or both. The Fund may also purchase unrated securities that are of
comparable quality at the time of purchase as determined by the Adviser. The
Fund may purchase shares of other investment companies and may purchase
securities on a "when-issued" basis.
The Fund has no restrictions on the maturity of securities in which it may
invest. Accordingly, the Fund will invest in Municipal Securities of which the
maturities, in the judgment of the Adviser, will provide a high level of current
income consistent with prudent investment, with consideration given to market
conditions.
EQUITY FUND
The investment objective of the Fund is to produce long-term growth of capital,
with a secondary goal of current income.
Under normal circumstances, the Fund invests primarily (at least 65% of its
total assets) in common stocks of domestic issuers that are traded on a national
securities exchange or on NASDAQ, and U.S. dollar-denominated equity securities
of foreign issuers. The Fund may also purchase warrants and rights to purchase
common stocks, debt securities convertible into common stocks and preferred
stocks convertible into common stocks, and may acquire ADRs and shares of
open-end and closed-end investment companies. The Fund may enter into repurchase
agreements.
The Fund will invest in a diversified portfolio of common stocks and securities
convertible into common stocks of U.S. companies that have the potential for
capital appreciation. Market capitalizations of issues selected will be
primarily in excess of $500 million. Selections of issues for inclusion in the
portfolio will be based on top down/ bottom up evaluation, including fundamental
factors affecting growth such as industry position, management qualifications
and historical earnings. Industry sector rotation will occur based on an
assessment of the economic cycle.
GENERAL INVESTMENT POLICIES
The High Grade Income Fund and Equity Fund are diversified funds.
For temporary defensive purposes during periods when the Adviser determines that
market conditions warrant, each Fund may invest up to 100% of its assets in
taxable money market instruments consisting of securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, repurchase
agreements, and commercial paper rated at least A-1 by S&P, P-1 by Moody's, or
Fitch-1 by Fitch. Each Fund also may hold a portion of its assets in cash. Each
Fund will not be pursuing its investment objective to the extent that a
substantial portion of its assets is invested in cash or money market
securities.
Each of the Funds may lend up to 33 1/3% of its total assets to investors for
the purpose of realizing additional income. Each such Fund may also borrow money
in amounts up to 33 1/3% of its net assets. No Fund will purchase securities
while its borrowings exceed 5% of its total assets.
A Fund's purchase of investment company securities will result in the layering
of expenses. A Fund is prohibited from acquiring the securities of other
investment companies if, as a result of such acquisition, the Fund owns in the
aggregate (1) more than 3% of the total outstanding voting stock of the acquired
company, (2) securities issued by the acquired company having an aggregate value
of 5% of the value of the total assets of the Fund, or (3) securities issued by
the acquired company and all other investment companies having an aggregate
value in excess of 10% of the value of the total assets of the Fund.
RISK FACTORS
Under normal market conditions, the Hawaii Tax-Free Fund will be predominantly
invested in Hawaii
<PAGE>
7
Municipal Securities and, therefore, the value of its shares may be especially
affected by factors pertaining to the Hawaiian economy and other factors
specifically affecting the ability of issuers of Hawaii Municipal Securities to
meet their obligations. As a result, the value of the Fund's shares may
fluctuate more widely than the value of the shares of a portfolio investing in
securities relating to a number of different states. The ability of state,
county and local governments to meet their obligations will depend primarily on
the availability of tax and other revenues to those governments and on their
fiscal conditions generally. The amount of tax and other revenues available to
governmental issuers of Hawaii Municipal Securities may be affected from time to
time by economic, political and demographic conditions within the state. In
addition, constitutional or statutory restrictions may limit a government's
power to raise revenues or increase taxes. Further, payments of principal and
interest on limited obligation securities will depend on the economic condition
of the facility or specific revenue source from whose revenues the payments will
be made, which in turn could be affected by economic, political and demographic
conditions in the state. Moreover, the Fund is classified as "non-diversified"
because it may invest in obligations of a relatively limited number of issuers.
Under normal market conditions, it is estimated that the annual portfolio
turnover rate for the High Grade Income Fund will not exceed 200%, the rate for
the Hawaii Tax-Free Fund will not exceed 100%, and the turnover rate for the
Equity Fund will not exceed 150%. Such turnover rates, if achieved, will lead to
higher transaction costs and possible tax consequences.
INVESTMENT LIMITATIONS
The Hawaii Tax-Free Fund will comply with the diversification requirements of
Sub-Chapter M (See "Taxes").
The Bishop Street High Grade Income Fund and Bishop Street Equity Fund may not
purchase securities of any issuer (except securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, and repurchase agreements
involving such securities) if, with respect to 75% of each Fund's assets, more
than 5% of total assets of the Fund would be invested in the securities of such
issuer.
No Fund may purchase any securities which would cause more than 25% of the total
assets of the Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities, and
repurchase agreements involving such securities. The Hawaii Tax-Free Fund may
not invest more than 25% of its assets in securities issued or backed by
non-governmental users that are members of the same industry.
The foregoing percentage limitations will apply at the time of the purchase of a
security. Additional investment limitations are set forth in the Statement of
Additional Information.
FUNDAMENTAL POLICIES
Each Fund's investment objective and the foregoing investment limitations are
fundamental policies. Fundamental policies cannot be changed with respect to a
Fund without the consent of the holders of a majority of that Fund's outstanding
shares.
THE ADVISER
First Hawaiian Bank (the "Adviser") acts as the investment adviser for the
Funds. The Adviser makes investment decisions for the assets of each Fund, and
continuously reviews, supervises and administers each Fund's investment program.
The Adviser discharges its responsibilities subject to the supervision of, and
policies set by, the Trustees of the Trust.
The Adviser is a wholly-owned subsidiary of First Hawaiian, Inc. The Adviser has
not previously served as an investment adviser to mutual funds. The Adviser and
its corporate predecessors have provided asset management services in Hawaii for
over 70 years. As of December 30, 1994, the Adviser had assets under management
of approximately $1.5 billion.
<PAGE>
8
The Adviser is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .55% of the High Grade Income Fund's average daily net assets,
.35% of the Hawaii Tax-Free Fund's average daily net assets, and .74% of the
Equity Fund's average daily net assets. The Adviser may from time to time waive
all or a portion of its fee in order to limit the operating expenses of a Fund.
Any such waiver is voluntary and may be terminated at any time in the Adviser's
sole discretion.
Orest Saikevych is the portfolio manager of the Bishop Street Equity Fund. Mr.
Saikevych has been active in the investment management business for twelve years
and has managed First Hawaiian Bank's Pooled Equity Fund since 1987.
The day-to-day management of the Bishop Street High Grade Income and Bishop
Street Hawaii Tax-Free Funds' investments is the responsibility of a team of
investment professionals. Decisions are made by committee and no person has
primary responsibility for making recommendations to the committee.
THE ADMINISTRATOR
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), provides the Trust with administrative
services, including fund accounting, regulatory reporting, necessary office
space, equipment, personnel, and facilities. The Administrator also acts as
shareholder servicing agent of the Funds.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .20% of the average daily net assets of the Funds.
The Administrator may waive its fee in its discretion.
THE TRANSFER AGENT
Supervised Service Company ("Transfer Agent"), P.O. Box 419721, Kansas City,
Missouri 64141-6721, serves as the Transfer Agent and dividend disbursing agent
for the Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, serves as distributor. The Retail Class B shares of the Trust have a Rule
12b-1 Distribution Plan (the "Retail Class B Plan"), under which such shares of
the Funds bear distribution expenses and related service fees at the annual rate
of up to .25% of their average daily net assets. Financial institutions that are
the record owner of shares for the account of their customers may impose
separate fees for account services to their customers.
The Funds may execute brokerage or other agency transactions through the
Distributor, for which the Distributor receives compensation.
HOW TO PURCHASE SHARES
GENERAL INFORMATION
Shares of the Funds are available for sale in the State of Hawaii and Guam.
You may purchase shares of the Funds on any day on which both the New York Stock
Exchange and Federal Reserve wire system are open for business ("Business Days")
except for Hawaii state banking holidays. However, shares of the Funds cannot be
purchased by Federal Reserve wire on Federal holidays restricting wire
transfers. The minimum initial investment in any Fund is $1,000 ($500 for IRAs
and $500 for officers, directors, or employees of First Hawaiian Bank or its
affiliates). The Distributor may waive the minimum investment at its discretion.
Subsequent purchases of shares must be at least $100.
A purchase order for shares will be effective as of the Business Day received by
the Transfer Agent if the Transfer Agent receives the order and payment before
4:00 p.m., New York time. The purchase price (the "Offering Price") of Retail
Class B shares is the net asset value next determined after the purchase order
is effective plus any applicable sales charge. The purchase price of
Institutional Class A shares is the net asset value next determined after the
purchase order is effective.
<PAGE>
9
The net asset value per share of each Fund is determined as of 4:00 p.m., New
York time on each Business Day by dividing the total market value of that Fund's
investments and other assets, less any liabilities, by the total outstanding
shares of the Fund. Purchases will be made in full and fractional shares
calculated to three decimal places. Pursuant to guidelines adopted and monitored
by the Trustees of the Trust, each Fund may use a pricing service to provide
market quotations or fair market valuations. A pricing service may derive such
valuations through the use of a matrix system to value fixed income securities
which considers factors such as securities prices, yield features, ratings, and
developments related to a specific security. Although the methodology and
procedures for determining net asset value are identical for both classes of a
Fund, the net asset value per share of such classes will differ because of the
distribution expenses charged to Retail Class B shares.
The Trust reserves the right to reject a purchase order for shares when the
Distributor determines that it is not in the best interest of the Trust and/or
its Shareholders to accept such order.
Shareholders who own their shares of record and who desire to transfer
registration of their shares should contact the Transfer Agent at 1-800-262-9565
for further instructions.
HOW TO PURCHASE INSTITUTIONAL CLASS A SHARES
Institutional Class A shares may only be purchased by First Hawaiian Bank in its
capacity as Agent, Fiduciary, Custodian or Adviser.
HOW TO PURCHASE RETAIL CLASS B SHARES
Retail Class B shares of the Funds may be purchased directly from the Transfer
Agent by mail, by wire or through an automatic investment plan ("AIP"). Shares
may also be purchased through broker-dealers that have established a dealer
agreement with the Distributor.
HOW TO PURCHASE BY MAIL
You may purchase shares of a Fund by completing and signing an Account
Application form and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to "Bishop Street (Fund Name)," to the
Transfer Agent at P.O. Box 419721, Kansas City, Missouri 64141-6721. You may
purchase more shares at any time by mailing payment also to the Transfer Agent
at the above address. Orders placed by mail will be executed on receipt of your
payment. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees incurred.
You may obtain Account Application Forms by calling the Distributor at
1-800-262-9565.
HOW TO PURCHASE BY WIRE
You may purchase shares by wiring Federal funds, provided that your Account
Application has been previously received. You must wire funds to the Transfer
Agent and the wire instructions must include your account number. You must call
the Transfer Agent at 1-800-262-9565 before wiring any funds. An order to
purchase shares by Federal funds wire will be deemed to have been received by
the Fund on the Business Day of the wire; provided that the shareholder wires
funds to the Transfer Agent prior to 4:00 p.m., New York time. If the Transfer
Agent does not receive the wire by 4:00 p.m., New York time, the order will be
executed on the next Business Day.
HOW TO PURCHASE THROUGH AN AUTOMATIC INVESTMENT PLAN ("AIP")
You may arrange for periodic additional investments in the Funds through
automatic deductions by Automated Clearing House ("ACH") from a checking account
by completing an AIP Application Form. The minimum pre-authorized investment
amount is $50 per month. An AIP Application Form may be obtained by contacting
the Distributor at 1-800-262-9565. The AIP is available only for additional
investments to an existing account.
<PAGE>
10
HOW TO PURCHASE THROUGH FINANCIAL INSTITUTIONS
Shares may be purchased through financial institutions, including the Adviser,
that provide distribution assistance or shareholder services. Shares purchased
by persons ("Customers") through financial institutions may be held of record by
the financial institution. Financial institutions may impose an earlier cut-off
time for receipt of purchase orders directed through them to allow for
processing and transmittal of these orders to the Transfer Agent for
effectiveness the same day. Customers should contact their financial institution
for information as to that institution's procedures for transmitting purchase,
exchange or redemption orders to the Trust.
Customers who desire to transfer the registration of shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer account fees. Information concerning these
services and any charges will be provided to the Customer by the financial
institution.
SALES CHARGES
RETAIL CLASS B SHARES
SALES LOAD The following table shows the regular sales charge on Retail Class B
shares to a "single purchaser" (defined below) together with the sales charge
that is reallowed to certain financial intermediaries (the "reallowance").
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE REALLOWANCE
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF OFFERING OF NET OF OFFERING
OF PRICE PER AMOUNT PRICE PER
PURCHASE SHARE INVESTED SHARE
- -------------------- ----------------- ----------------- ----------------
<S> <C> <C> <C>
Less than $25,000... 3.50% 3.63% 3.15%
$25,000 but less
than $50,000...... 3.25% 3.36% 2.93%
$50,000 but less
than $100,000..... 3.00% 3.09% 2.70%
$100,000 but less
than $250,000..... 2.50% 2.56% 2.25%
$250,000 but less
than $500,000..... 1.75% 1.78% 1.58%
$500,000 but less
than $1,000,000... 1.00% 1.01% 0.90%
over $1,000,000..... none none none
</TABLE>
The sales charge shown in the table is the maximum sales charge that applies to
sales through financial intermediaries. Under certain circumstances, the
Distributor may use its own funds to compensate financial institutions and
intermediaries in amounts additional to the commissions shown above. In
addition, the Distributor may, from time to time in its sole discretion,
institute one or more promotional incentive programs, which will be paid by the
Distributor from the sales charges it receives or from any other source
available to it. Under any such program, the Distributor will provide
promotional incentives in the form of cash or other compensation, including
merchandise, airline vouchers, trips and vacation packages, to all dealers
selling shares of the Funds. Under certain circumstances, reallowances of up to
the amount of the entire sales charge may be paid to certain financial
institutions, who might then be deemed to be "underwriters" under the Securities
Act of 1933.
REDUCED SALES CHARGE:
RIGHTS OF ACCUMULATION
In calculating the sales charge rates applicable to current purchases of Retail
Class B shares, a "single purchaser" is entitled to cumulate current purchases
with the current market value of previously purchased Retail Class B shares of
the Funds sold subject to a comparable sales charge.
The term "single purchaser" refers to (i) an individual, (ii) an individual and
spouse purchasing shares of the Funds for their own combined individual and
joint accounts or for trust or custodial accounts for their minor children, and
(iii) a fiduciary purchasing for any one trust, estate or fiduciary account,
including employee benefit plans created under Sections 401 or 457 of the
Internal Revenue Code of 1986, as amended (the "Code") including related plans
of the same employer.
To exercise your right of accumulation based upon shares you already own, you
must ask the Distributor for this reduced sales charge at the time of your
additional purchase and provide the account number(s) of the investor, as
applicable, the investor and
<PAGE>
11
spouse, and their minor children. The Funds may amend or terminate this right of
accumulation at any time as to subsequent purchases.
REDUCED SALES CHARGE: LETTER OF INTENT
By submitting a Letter of Intent (the "Letter") to the Transfer Agent, a "single
purchaser" may purchase shares of the Funds during a 13-month period at the
reduced sales charge rates applying to the aggregate amount of the intended
purchases stated in the Letter. The Letter may apply to purchases made up to 90
days before the date of the Letter. To receive credit for such prior purchases
and later purchases benefitting from the Letter, you must notify the Transfer
Agent at the time the Letter is submitted that there are prior purchases that
may apply, and notify the Transfer Agent again at the time of later purchases
that such purchases are applicable under the Letter.
WAIVER OF SALES LOAD
No sales charge is imposed on shares of the Funds: (i) issued as dividends and
capital gain distributions; (ii) acquired through the exercise of exchange
privileges described below; (iii) sold to officers, directors or trustees,
employees and retirees (and their spouses and immediate family members) of the
Trust, First Hawaiian Bank and its affiliates; (iv) issued in plans of
reorganization, such as mergers, asset acquisitions and exchange offers, to
which the Trust is a party; (v) purchased with the proceeds of distributions
from employee benefit plans for which the Adviser or its affiliates act in a
fiduciary capacity or (vi) purchased within thirty days of a redemption of
Retail Class B shares of such Funds (only to the amount of such redemption). You
must notify the Distributor at the time of your purchase if you are eligible for
a waiver of the sales load. An investor relying upon any of the categories of
waivers of the sales charge must qualify such waiver in advance of the purchase
with the Distributor of the financial institution or intermediary through which
the shares are purchased by the investor.
In addition, purchases of Retail Class B shares of a Fund that are funded by the
proceeds from the redemption (within 60 days of the purchase of Fund shares) of
shares of any unrelated open-end investment company that charges a sales load
may be made at net asset value. To make such a purchase at net asset value, the
investor or the investor's broker must, at the time of purchase, submit a
written request to the Transfer Agent that the purchase be processed at net
asset value pursuant to this privilege, accompanied by a photocopy of the
confirmation (or similar evidence) showing the redemption from the unrelated
fund. The redemption of the shares of the non-related fund is, for federal
income tax purposes, a sale upon which a gain or loss may be realized.
EXCHANGES OF SHARES
You may exchange Retail Class B or Institutional Class A shares of any Fund for
Retail Class B or Institutional Class A shares, respectively, of any other Fund
sold through this prospectus without paying any additional sales charge.
Exchanges are generally made at net asset value.
Exchanges will be made only after instructions in writing or by telephone (an
"Exchange Request") are received by the Transfer Agent. In order to effect an
exchange of shares by telephone, you must elect the telephone exchange option on
your Account Application Form. If an Exchange Request in good order is received
by the Transfer Agent by 4:00 p.m. New York time, on any Business Day, the
exchange will occur on that day. The exchange privilege may be exercised only in
those states where the class of shares of the "new" Fund may legally be sold.
Customers who beneficially own shares held by a financial institution should
contact that institution if they wish to exchange shares. The institution will
contact the Transfer Agent and effect the exchange on behalf of the Customer.
The Trust reserves the right to change the terms or conditions of the exchange
privilege discussed herein upon sixty days' notice.
REDEMPTION OF SHARES
You may redeem your shares without charge on any Business Day. There is,
however, a $15 charge for
<PAGE>
12
wiring redemption proceeds to a shareholder's designated account. Shares may be
redeemed by mail, by telephone or through a pre-arranged systematic withdrawal
plan. Investors who own shares held by a financial institution should contact
that institution for information on how to redeem shares.
BY MAIL
A written request for redemption must be received by the Transfer Agent, P.O.
Box 419721, Kansas City, Missouri 64141-6721 in order to constitute a valid
redemption request.
If the redemption request exceeds $5,000, or if the request directs the proceeds
to be sent or wired to an address different from that of record, the Transfer
Agent may require that the signature on the written redemption request be
guaranteed. You should be able to obtain a signature guarantee from a bank,
broker, dealer, credit union, securities exchange or association, clearing
agency or savings association. Notaries public cannot guarantee signatures. The
signature guarantee requirement will be waived if all of the following
conditions apply: (1) the redemption is for not more than $5,000 worth of
shares, (2) the redemption check is payable to the shareholder(s) of record, and
(3) the redemption check is mailed to the shareholder(s) at his or her address
of record.
BY TELEPHONE
You may redeem your shares by calling the Transfer Agent at 1-800-262-9565.
Under most circumstances, payments will be transmitted on the next Business Day
following receipt of a valid request for redemption. You may have the proceeds
mailed to your address or wired to a commercial bank account previously
designated on your Account Application. There is no charge for having redemption
proceeds mailed to you, but there is a $15 charge for wiring redemption
proceeds.
You may request a wire redemption for redemptions in excess of $500 by calling
the Transfer Agent at 1-800-262-9565, who will deduct a wire charge of $15 from
the amount of the wire redemption. Shares cannot be redeemed by Federal Reserve
wire on Federal holidays restricting wire transfers.
Neither the Transfer Agent nor the Trust will be responsible for any loss,
liability, cost or expense for acting upon wire or telephone instructions that
it reasonably believes to be genuine. The Trust and Transfer Agent will each
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, including requiring a form of personal identification
prior to acting upon instructions received by telephone and recording telephone
instructions. Such procedures may include taping of telephone conversations.
If market conditions are extraordinarily active or other extraordinary
circumstance exist, and you experience difficulties placing redemption orders by
telephone, you may consider placing your order by mail.
SYSTEMATIC WITHDRAWAL PLAN ("SWP")
The Funds offer a Systematic Withdrawal Plan ("SWP"), which you may use to
receive regular distributions from your account. Upon commencement of the SWP,
your account must have a current value of $10,000 or more. You may elect to
receive automatic payments via check or ACH of $50 or more on a monthly,
quarterly, semi-annual or annual basis. You may obtain an SWP Application Form
by contacting the Distributor at 1-800-262-9565.
To participate in the SWP, you must have your dividends automatically
reinvested. You should realize that if your automatic withdrawals exceed income
dividends, your invested principal in the account will be depleted. Thus,
depending on the frequency and amounts of the withdrawal payments and/or any
fluctuations in the net asset value per share, your original investment could be
exhausted entirely. You may change or cancel the SWP at any time on written
notice to the Transfer Agent. The Transfer Agent may require that the signature
on the written notice be guaranteed.
It is generally not in your best interest to be participating in the SWP at the
same time that you are purchasing additional shares if you have to pay a sales
load in connection with such purchases.
<PAGE>
13
OTHER INFORMATION REGARDING REDEMPTIONS
All redemption orders are effected at the net asset value per share next
determined after receipt of a valid request for redemption. Net asset value per
share is determined as of 4:00 p.m., New York time, on each Business Day.
Payment to shareholders for shares redeemed will be made within seven days after
the Transfer Agent receives the valid redemption request. At various times,
however, a Fund may be requested to redeem shares for which it has not yet
received good payment; collection of payment may take ten or more days. In such
circumstances, the redemption request will be rejected by the Fund. Once a Fund
has received good payment for the shares a shareholder may submit another
request for redemption.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem your shares at net asset value, if, your account in
any Fund has a value of less than the minimum initial purchase amount.
Accordingly, if you purchase shares of any Fund in only the minimum investment
amount, you may be subject to involuntary redemption if you redeem any shares.
Before any Fund exercises its right to redeem such shares, you will be given
notice that the value of the shares in your account is less than the minimum
amount and will be allowed 60 days to make an additional investment in such Fund
in an amount which will increase the value of the account to at least the
minimum amount.
PERFORMANCE
From time to time, each of the Funds may advertise yield and total return. The
Hawaii Tax-Free Fund may also advertise a tax-equivalent yield. These figures
are based on historical earnings and are not intended to indicate future
performance. No representation can be made concerning actual future yields or
returns.
The "yield" of a Fund refers to the income generated by a hypothetical
investment, net of any sales charge imposed in such Fund over a thirty day
period. This income is then "annualized," i.e., the income over thirty days is
assumed to be generated over one year and is shown as a percentage of the
investment.
"Tax-equivalent yield" is calculated by determining the rate of return that
would have to be achieved on a fully taxable investment to produce the after-tax
equivalent of a Fund's yield, assuming certain tax brackets for the shareholder.
The "total return" of a Fund refers to the average compounded rate of return on
a hypothetical investment for designated time periods, net of any sales charge
imposed on Retail Class B shares and assuming that dividend and capital gain
distributions have been reinvested.
For any Fund, the performance of Institutional Class A shares will be higher
than that of Retail Class B shares because of the sales load (when applicable)
and distribution expenses charged to Retail Class B shares.
The Funds may periodically compare their performance to that of other mutual
funds tracked by mutual funds rating services (such as Lipper Analytical),
financial and business publications and periodicals, broad groups of comparable
mutual funds or unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs. The
Funds may quote Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance. The Funds may use long-term performance of
these capital market indices to demonstrate general long-term risk versus reward
scenarios and could include the value of a hypothetical investment in any of the
capital markets. The Funds may also quote financial and business publications
and periodicals as they relate to fund management, investment philosophy, and
investment techniques.
The Funds may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
<PAGE>
14
TAXES
The following summary of Federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the Federal, state, or local income tax treatment of the Funds or
their Shareholders. Accordingly, Shareholders are urged to consult their tax
advisers regarding specific questions as to Federal, state and local income
taxes. State and local tax consequences of an investment in the Fund may differ
from the Federal income tax consequences described below. Additional information
concerning taxes is set forth in the Statement of Additional Information.
TAX STATUS OF THE FUNDS
Each Fund is treated as a separate entity for Federal income tax purposes and is
not combined with the Trust's other portfolios. Each Fund intends to continue to
qualify for the special tax treatment afforded regulated investment companies
("RICs") under Subchapter M of the Internal Revenue Code of 1986, as amended, so
as to be relieved of Federal income tax on net investment company taxable income
and net capital gains (the excess of net long-term capital gains over net
short-term capital losses) distributed to Shareholders. Subchapter M also
provides that a Fund will not invest more than 5% of its total assets in any one
issuer. This limitation applies to 50% of a Fund's total assets.
TAX STATUS OF DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income (including
net short-term capital gains) and net capital gains to Shareholders. Dividends
from the High Grade Income and Equity Funds' net investment company taxable
income are taxable to its Shareholders as ordinary income (whether received in
cash or in additional shares) to the extent of the Fund's earnings and profits.
Dividends paid by a Fund to corporate Shareholders will qualify for the
deduction for dividends received by corporations to the extent attributable to
dividends received by the Fund from domestic corporations. However, the full
amount of such dividends may be subject to the alternative minimum tax.
Distributions of net capital gains do not qualify for that deduction and are
taxable to Shareholders as long-term capital gains, regardless of how long
Shareholders have held their shares and regardless of whether the distributions
are received in cash or in additional shares.
If, at the close of each quarter of its taxable year, at least 50% of the value
of the Hawaii Tax-Free Fund's assets consist of obligations the interest on
which is excludable from gross income, the Fund may pay "exempt-interest
dividends" to its Shareholders. Those dividends constitute the portion of the
aggregate dividends as designated by the Fund, equal to the excess of the
excludable interest over certain amounts disallowed as deductions.
Exempt-interest dividends are excludable from a Shareholder's gross income for
Federal income tax purposes, but may have alternative minimum tax consequences.
The Funds provide annual reports to Shareholders of the Federal income tax
status of all distributions.
Dividends declared by a Fund in October, November or December of any year and
payable to Shareholders of record on a date in such a month, will be deemed to
have been paid by the Fund and received by the Shareholders on December 31 of
the year declared if paid by the Fund at any time during the following January.
Each Fund intends to make sufficient distributions to avoid liability for the
Federal excise tax.
With respect to investments which are sold at original issue discount and thus
do not make periodic cash interest payments, each Fund will be required to
include as part of its current income the imputed interest on such obligations
even though the Fund has not received any interest payments on such obligations
during that period. Because each Fund distributes all of its net investment
income to its Shareholders, the Funds may have to sell portfolio securities to
distribute such imputed income which may occur at a time when the Adviser would
not have chosen to sell such securities and which may result in a taxable gain
or loss.
Sale, exchange or redemption of Fund Shares is a taxable transaction to the
Shareholder.
<PAGE>
15
ADDITIONAL CONSIDERATIONS
The Hawaii Tax-Free Fund may not be an appropriate investment for persons
(including corporations and other business entities) who are "substantial users"
(or persons related to "substantial users") of facilities financed by industrial
development private activity bonds. Such persons should consult their tax
advisers before purchasing shares. A "substantial user" is defined generally to
include "certain persons" who regularly use in their trade or business a part of
a facility financed from the proceeds of such bonds.
Shares of the Hawaii Tax-Free Fund are not taxable for purposes of the Hawaii
state income tax to the extent that the Fund's investments consist of
obligations which are themselves exempt from taxation in Hawaii. See Municipal
Securities.
While the Hawaii Tax-Free Fund intends to invest primarily in obligations which
produce interest exempt from Federal and Hawaii state income taxes, if the Fund
invests in obligations that are not exempt for Hawaii purposes, a portion of the
Fund's distributions will be subject to Hawaii income tax.
GENERAL INFORMATION
THE TRUST
The Trust was organized as a Massachusetts business trust under Declaration of
Trust dated May 25, 1994. The Declaration of Trust permits the Trust to offer
separate portfolios of shares and different classes of each portfolio. In
addition to the Funds, the Trust includes the Bishop Street Money Market Fund.
All consideration received by the Trust for shares of any Fund and all assets of
such Fund belong to that Fund and would be subject to the liabilities related
thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation materials
and reports to Shareholders, costs of custodial services and registering the
shares under Federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust.
The Trustees of the Trust are as follows:
<TABLE>
<CAPTION>
NAME BUSINESS HISTORY
- ------------------------- ----------------------------
<S> <C>
Mr. Martin Anderson Attorney--Goodsill,
Anderson, Quinn & Stifel
Mr. Philip H. Ching Vice Chairman--First
Hawaiian Bank
Honorable Shunichi Kimura Judge--State of Hawaii
Judiciary 1974-1994
Honorable William S. Trustee--Kamehameha Schools
Richardson Bishop Estate (through
1992); Chief
Justice--Supreme Court of
Hawaii, (through 1983)
Lieutenant Governor--State
of Hawaii (1962-1966)
Mr. Manuel R. Sylvester Managing and Executive
Partner--Coopers & Lybrand
(through 1992)
Dr. Joyce S. Tsunoda Educator and Administrator--
University of Hawaii
Mr. David G. Lee Senior Vice President--SEI
Financial Management
Corporation
</TABLE>
VOTING RIGHTS
Each share held entitles the Shareholder of record to one vote for each dollar
invested. In other words, each shareholder of record is entitled to one vote for
each dollar of net asset value of the shares held on the record date for the
meeting. The Shareholders of each Fund will vote separately on matters
pertaining solely to that Fund. The Shareholders of each class of each Fund will
vote separately on matters pertaining to its distribution plan. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
of
<PAGE>
16
Shareholders but approval will be sought for certain changes in the operation of
the Trust and for the election of Trustees under certain circumstances.
In addition, a Trustee may be removed by the remaining Trustees or by
Shareholders at a special meeting called upon written request of Shareholders
owning at least 10% of the outstanding shares of the Trust. In the event that
such a meeting is requested the Trust will provide appropriate assistance and
information to the Shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
SHAREHOLDER INQUIRIES
Shareholders should direct inquiries to Bishop Street Funds at P.O. Box 419721,
Kansas City, MO 64141-6721 or by calling 1-800-262-9565.
DIVIDENDS
Substantially all of the net investment income (exclusive of capital gains) of
the High Grade Income and Hawaii Tax-Free Funds is declared daily and
distributed in the form of monthly dividends. The Equity Fund declares and pays
such dividends on a quarterly basis. Shareholders of record on the date each
dividend is declared will be entitled to receive the dividend. If any net
capital gains are realized, they will be distributed by each Fund at least
annually.
Shareholders automatically receive all income dividends and capital gains
distributions in the form of additional shares at the net asset value next
determined following the record date, unless the Shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Bishop Street Funds at P.O. Box 419721, Kansas City, MO
64141-6721, at least 15 days prior to the distribution. Shareholders may receive
payments for cash distributions in the form of a check, by Federal Reserve wire
transfer or ACH.
Dividends and distributions of a Fund are paid on a per-share basis. The value
of each share will be reduced by the amount of any such payment. If shares are
purchased shortly before the record date for a dividend or the distribution of
capital gains, a Shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable dividend or distribution.
The dividends on Retail Class B Shares of the Funds will normally be lower than
those on Institutional Class A Shares because of the distribution expenses
charged to Retail Class B Shares.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Morgan, Lewis & Bockius serves as counsel to the Trust. Coopers & Lybrand L.L.P.
serves as the independent accountant of the Trust.
CUSTODIAN
Chemical Bank, (the "Custodian"), acts as custodian of the Trust's assets. The
Custodian holds cash, securities and other assets of the Trust as required by
the 1940 Act.
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of the permitted investments for the various
Funds and the various risk factors associated therewith:
AMERICAN DEPOSITARY RECEIPTS ("ADRs")--ADRs are typically issued by a U.S.
financial institution that evidence ownership of underlying securities issued by
a foreign issuer. While the Funds expect to invest primarily in sponsored ADRs,
a joint arrangement between the foreign issuer and the depositary, some ADRs may
be unsponsored. Unlike sponsored ADRs the holders of unsponsored ADRs bear all
expenses and the depositary may not be obligated to distribute Shareholder
communications or to pass-through the voting rights on the deposited securities.
ADRS are typically listed and traded in the U.S. in the form of American
Depositary Shares (ADSs).
<PAGE>
17
BANKERS' ACCEPTANCES--Bills of exchange or time drafts drawn on and accepted by
a commercial bank. Bankers' acceptances are used by corporations to finance the
shipment and storage of goods and to furnish dollar exchange. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT--Interest bearing instruments with a specific maturity.
Certificates of deposit are issued by banks and savings and loan institutions in
exchange for the deposit of funds and normally can be traded in the secondary
market prior to maturity. Certificates of deposit have penalties for early
withdrawal.
COMMERCIAL PAPER--The term used to designate unsecured short-term promissory
notes issued by municipalities, corporations and other entities. Maturities on
these issues vary, generally from a few days to nine months.
CONVERTIBLE SECURITIES--Convertible securities have characteristics similar to
both fixed income and equity securities. Because of the conversion feature, the
market value of convertible securities tends to move together with the market
value of the underlying stock. As a result, the Fund's selection of convertible
securities is based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The value of convertible
securities is also affected by prevailing interest rates, the credit quality of
the issuer and any call provisions.
EQUITY SECURITIES--Investments in common stocks are subject to market risks
which may cause their prices to fluctuate over time. Changes in the value of
portfolio securities will not necessarily affect cash income derived from these
securities but will affect a Fund's net asset value.
FIXED INCOME SECURITIES--The market value of fixed income investments will
change in response to interest rate changes and other factors. During periods of
falling interest rates, the values of outstanding fixed income securities
generally rise. Conversely, during periods of rising interest rates, the values
of such securities generally decline. Moreover, while securities with longer
maturities tend to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a result of
changes in interest rates. Changes by recognized agencies in the rating of any
fixed income security and in the ability of an issuer to make payments of
interest and principal will also affect the value of these investments. Changes
in the value of portfolio securities will not affect cash income derived from
these securities but will affect a Fund's net asset value.
GNMA PASS-THROUGH SECURITIES--GNMA securities represent participations in
mortgage pools. Although GNMA guarantees the timely payment of principal and
interest, the market value and yield of these instruments can vary due to
interest rate fluctuations and prepayments of underlying mortgages. In addition,
any premiums paid to purchase these instruments are not subject to GNMA
guarantees. Moreover, although GNMA certificates may offer higher yields than
those available from other types of U.S. Government securities, they may not be
as effective in "locking in" attractive long-interest rates because of
prepayments of the mortgage pools when interest rates decline. Due to this
prepayment feature, GNMA certificates tend not to increase in value as much as
most other debt securities when interest rates decline.
MORTGAGE-BACKED SECURITIES--Securities representing an interest in a pool of
mortgage loans that are issued or guaranteed by a U.S. Government agency. The
primary issuers or guarantors of these mortgage-backed securities are GNMA, FNMA
and the Federal Home Loan Mortgage Corporation. Mortgage-backed securities are
also issued by non-governmental entities which consist of collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs") that are rated by S&P or Moody's. The mortgages backing these
securities include conventional thirty-year fixed rate mortgages, graduated
payment mortgages and adjustable rate mortgages.
Mortgage-backed securities are in most cases "pass-through" instruments, through
which the holder receives a share of all interest and principal payments from
the mortgages underlying the certificate.
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CMOs are debt obligation or multiclass pass-through certificates issued by
agencies or instrumentalities of the U.S. Government or by private originators
or investors in mortgage loans. In a CMO, series of bonds or certificates are
usually issued in multiple classes. Principal and interest paid on the
underlying mortgage assets may be allocated among the several classes of a
series of a CMO in a variety of ways. Each class of a CMO, often referred to as
a "tranche," is issued with a specific fixed or floating coupon rate and has a
stated maturity or final distribution date. Principal payments on the underlying
mortgage assets may cause CMOs to be retired substantially earlier than their
stated maturities or final distribution dates, resulting in a loss of all or
part of any premium paid.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code and invests in certain mortgages principally secured by interests
in real property. Investors may purchase beneficial interests in REMICs, which
are known as "regular" interests, or "residual" interests. Guaranteed REMIC
pass-through certificates ("REMIC Certificates") issued by FNMA or FHLMC
represent beneficial ownership interests in a REMIC trust consisting principally
of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage pass-through
certificates. For FHLMC REMIC Certificates, FHLMC guarantees the timely payment
of interest, and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates. FNMA
REMIC Certificates are issued and guaranteed as to timely distribution of
principal and interest by FNMA.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the average life or realized yield of a
particular issue of pass-through certificates. In the absence of a known
maturity, market participants generally refer to an estimated average life as
the most appropriate measure of the maturity of a mortgage-backed security. An
average life estimate is a function of an assumption regarding anticipated
prepayment patterns. The assumption is based upon current interest rates,
current conditions in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants
could produce somewhat different average life estimates with regard to the same
security. There can be no assurance that the estimated average life will be the
actual average life.
MUNICIPAL SECURITIES--Municipal Securities are generally issued to finance
public works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
Municipal Securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
Certain Municipal Securities are municipal lease revenue obligations (or
certificates of participation ("COPs")), which typically provide that the
municipality has no obligation to make lease or installment payments in future
years unless such amounts are appropriated for such purpose. While the risk of
appropriation is inherent to COP financing, this risk is mitigated by the Fund's
policy, to invest in COPs that are rated in one of the four highest rating
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19
categories used by Moody's, S&P or Fitch, or of equivalent quality, as
determined by the Adviser, under guidelines adopted by the Board of Trustees.
PARTICIPATION INTERESTS--Participation interests are interests in loans from
financial institutions such as commercial and investment banks, savings and loan
associations and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership.
RECEIPTS--Separately traded interest and principal component parts of U.S.
Treasury obligations that are issued by banks or brokerage firms and are created
by depositing U.S. Treasury obligations into a special account at a custodian
bank. The custodian holds the interest and principal payments for the benefit of
the registered owners of the receipts. The custodian arranges for the issuance
of the receipts evidencing ownership and maintains the register. Receipts
include "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
("TIGRs"), "Liquid Yield Option Notes" ("LYONs"), and "Certificates of Accrual
on Treasury Securities" ("CATS"). TIGRs, LYONs and CATS are interests in private
proprietary accounts while TRs are interests in accounts sponsored by the U.S.
Treasury. Securities denominated as TRs, TIGRs, LYONs and CATS are sold as zero
coupon securities which means that they are sold at a substantial discount and
redeemed at face value at their maturity date without interim cash payments of
interest or principal.
REPURCHASE AGREEMENTS--Agreements by which a financial institution agrees to
sell a security to a Fund and commits to repurchase the security at an agreed
upon price (including principal and interest) on an agreed upon date within a
number of days from the date of purchase. The securities purchased by a Fund
will be held as collateral by the Custodian and will be equal to at least 102%
of the repurchase price. Repurchase agreements are considered to be loans by a
Fund. The Trust bears a risk of loss in the event the other party defaults on
its obligations and the Trust is delayed or prevented from its right to dispose
of the collateral securities or if the Trust realizes a loss on the sale of the
collateral securities. The Adviser will enter into repurchase agreements on
behalf of the Trust only with financial institutions deemed to present minimal
risk of bankruptcy during the term of the agreement based on guidelines
established and periodically reviewed by the Trustees. Repurchase agreements are
considered loans under the 1940 Act.
RESTRICTED AND ILLIQUID SECURITIES--Restricted securities are securities that
may not be sold freely to the public absent registration under the Securities
Act of 1933, as amended or an exemption from registration. Section 4(2)
commercial paper is issued in reliance on an exemption from registration under
Section 4(2) of the Act and is generally sold to institutional investors who
purchase for investment. Any resale of such commercial paper must be in an
exempt transaction, usually to an institutional investor through the issuer or
investment dealers who make a market on such commercial paper. Illiquid
securities are securities which cannot be disposed of in 7 days or less at
approximately their carrying value (which is the value given the security by the
Fund on its books). Each of the Funds may invest up to 15% of its net assets in
illiquid securities including Restricted Securities other than liquid Section
4(2) commercial paper.
SECURITIES LENDING--A Fund may lend the securities in which it is invested, in
order to generate additional income, pursuant to agreements requiring that the
loan be continuously secured by cash, securities of the U.S. Government or its
agencies or any combination of cash and such securities as collateral equal to
102% of the market value at all times of the securities lent. The Fund will
continue to receive interest on the securities lent while simultaneously earning
interest on the investment of cash collateral in U.S. Government securities.
Collateral is marked to market daily to provide a level of collateral at least
equal to the value of the securities lent. There may be risks of delay in
receiving additional collateral or risks of delay in recovery of the securities
or even loss of rights in the collateral should the borrower of the securities
fail financially.
SECURITIES OF FOREIGN ISSUERS--Investment in securities of foreign issuers, may
subject the Trust to different risks than those attendant to investments in
securities of U.S. issuers. These risks include
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20
differences in accounting, auditing and financial reporting standards, the
possibility of expropriation or confiscatory taxation, and political
instability. There may also be less publicly available information with regard
to foreign issuers than domestic issuers. Foreign markets may be characterized
by less liquidity, greater price volatility, less regulation and higher
transaction costs than U.S. markets.
U.S. GOVERNMENT AGENCY OBLIGATIONS--Certain Federal agencies such as the
Government National Mortgage Association ("GNMA") have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the United States Government, are either backed by the full faith
and credit of the United States (e.g., GNMA) or supported by the issuing
agencies' right to borrow from the Treasury. The issues of other agencies are
supported by the credit of the instrumentality (e.g., Federal National Mortgage
Association).
U.S. TREASURY OBLIGATIONS--Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ("STRIPS").
WHEN-ISSUED SECURITIES--Securities purchased on a when-issued basis are subject
to settlement within 45 days of the purchase date. The price and yield on these
securities is fixed as of the purchase date and no interest accrues to the Fund
before settlement. These securities are therefore subject to market fluctuation
due to changes in market interest rates, and, although the purchase of
securities on a when-issued basis is not considered leveraging, it has the
effect of leveraging the Fund's assets. A Fund will maintain with the Custodian
a separate account with liquid high grade securities or cash in an amount at
least equal to these commitments.
ZERO-COUPON SECURITIES--STRIPS and Receipts (TRs, TIGRs, LYONs and CATS) are
sold as zero coupon securities, that is, fixed income securities that have been
stripped of their unmatured interest coupons. Zero coupon securities are sold at
a (usually substantial) discount and redeemed at face value at their maturity
date without interim cash payments of interest or principal. The amount of this
discount is accreted over the life of the security, and the accretion
constitutes the income earned on the security for both accounting and tax
purposes. Because of these features, the market prices of zero coupon securities
are generally more volatile than the market prices of securities that have
similar maturity but that pay interest periodically. Zero coupon securities are
likely to respond to a greater degree to interest rate changes than are non-zero
coupon securities with similar maturity and credit qualities.
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
Summary....................................... 2
Expense Summary............................... 3
The Trust..................................... 5
Investment Objectives and Policies............ 5
General Investment Policies................... 6
Risk Factors.................................. 7
Investment Limitations........................ 7
Fundamental Policies.......................... 7
The Adviser................................... 7
The Administrator............................. 8
The Transfer Agent............................ 8
The Distributor............................... 8
How to Purchase Shares........................ 8
Sales Charges................................. 10
Exchange of Shares............................ 11
Redemption of Shares.......................... 11
Performance................................... 13
Taxes......................................... 14
General Information........................... 15
Description of Permitted Investments and Risk
Factors..................................... 16
</TABLE>
