A FAMILY OF MUTUAL FUNDS
ADVISED BY FIRST HAWAIIAN BANK
BISHOP
STREET
FUNDS
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
MONEY MARKET FUND
TREASURY MONEY MARKET FUND
HAWAII MUNICIPAL BOND FUND
[LOGO OMITTED]
BISHOP
STREET
FUNDS
<PAGE>
BISHOP STREET FUNDS
LETTER TO SHAREHOLDERS
DEAR SHAREHOLDERS:
THE BISHOP STREET FUNDS ARE ONCE AGAIN PLEASED TO PRESENT TO YOU THE BISHOP
STREET FUNDS' ANNUAL REPORT TO SHAREHOLDERS.
IN THE FINANCIAL MARKETS, SLOW STEADY GROWTH PROPELLED THE STOCK MARKET TO ITS
SIXTH STRAIGHT BULLISH YEAR. THE PAST YEAR MADE THE CURRENT BULL MARKET -- WHICH
BEGAN IN 1990 -- THE LONGEST BULL MARKET OF THE CENTURY. BONDS, ON THE OTHER
HAND, EXPERIENCED A BIT MORE TURBULENT YEAR. WHILE THE YEAR BEGAN WITH YIELDS ON
THE 30-YEAR TREASURY BOND AT ABOUT 6 PERCENT, MID-YEAR INFLATION FEARS CAUSED
TREASURY YIELDS TO RISE ABOVE 7%. AS THE YEAR ENDED AND THE THREAT OF INFLATION
APPEARED TO SUBSIDE, THE 30-YEAR TREASURY YIELD RETREATED TO APPROXIMATELY 6.5%.
AS WE HAVE DISCUSSED IN PREVIOUS REPORTS, THERE IS NO WAY TO KNOW IF THE BULL
MARKET WILL END OR WHETHER THE EXPECTATIONS OF STEADY GROWTH AND STABLE
INFLATION WILL COME TO PASS IN 1997. YOU CAN BE ASSURED, HOWEVER, THAT
REGARDLESS OF THE DIRECTION OF THE FINANCIAL MARKETS IN 1997, THE BISHOP STREET
FUNDS WILL REMAIN DEDICATED TO PROVIDING YOU WITH HIGH QUALITY SERVICE AND
PRUDENT INVESTMENT MANAGEMENT AND WILL CONTINUE TO INTRODUCE NEW PROGRAMS
AND PRODUCTS DESIGNED TO SATISFY THE INVESTMENT NEEDS OF YOU -- OUR
SHAREHOLDERS.
ALREADY IN 1997, THE BISHOP STREET FUNDS HAVE UNDERGONE AN IMPORTANT CHANGE TO
BETTER MEET THE INVESTMENT NEEDS OF ITS SHAREHOLDERS. IN JANUARY, TWO NEW FUNDS
WERE ADDED TO THE BISHOP STREET LINE-UP: THE EQUITY FUND AND HIGH GRADE INCOME
FUND. THE LAUNCH OF THESE NEW FUNDS ADDS SIGNIFICANTLY TO THE DIVERSITY OF THE
BISHOP STREET FAMILY OF FUNDS. WE LOOK FORWARD TO REPORTING UPCOMING CHANGES AND
ENHANCEMENTS TO THE BISHOP STREET FUNDS TO YOU IN FUTURE REPORTS.
THIS REPORT CONTAINS IMPORTANT INFORMATION FROM THE ADVISER AND DETAILED
FINANCIAL INFORMATION FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996. WE ENCOURAGE
YOU TO READ IT CAREFULLY. IF YOU HAVE ANY QUESTIONS ABOUT THIS REPORT OR THE
BISHOP STREET FUNDS, WE INVITE YOU TO CALL OUR INVESTOR SERVICES DEPARTMENT AT
1-800-262-9565.
THANK YOU FOR CHOOSING THE BISHOP STREET FUNDS.
SINCERELY,
[/S/ ROBERT A. ALM]
ROBERT A. ALM
SENIOR VICE PRESIDENT AND MANAGER,
FINANCIAL MANAGEMENT GROUP
FIRST HAWAIIAN BANK, INVESTMENT ADVISER
<PAGE>
MONEY MARKET FUND
TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------
INVESTMENT ADVISER'S REPORT
After reducing short term interest rates in January, the Federal Reserve
(Fed) left them unchanged for the remaining eleven months of the year. With the
central bank anchoring short term yields at 5.25%, yields on longer maturity
instruments moved with the ebbs and flows of market psychology. Signs of
stronger economic growth, even without the shadow of inflation, prompted the Fed
to shift their bias toward raising rates later in the year.
With stronger economic trends, the credit cycle remains healthy. Money
market funds sailed smoothly through the year without exposure to credit
defaults. Two of the more interesting developments in the year involved the US
Treasury. First, Congress shut down the government and put the Treasury at risk
of defaulting, temporarily, on its maturing debt. Cooler heads prevailed and the
markets returned to normal. Second, the Treasury developed plans to issue its
first-ever inflation indexed bond, a floating rate security whose return is tied
to changes in the rate of US inflation. On the surface, although floating rate
securities are attractive for money market mutual funds, we do not believe that
these new securities are appropriate stable-value investments for the Bishop
Street Money Market Funds and will not purchase them in these portfolios.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
After the Fed raised short term interest rates in January, we believed
that further increases would be made only in the face of demonstrable economic
growth. For most of the first half of the year, we sought extra yield by
maintaining longer average maturity in the Bishop Street Money Market Fund. The
Fund held 60% of its assets in commercial paper, 16% in bank instruments, and we
looked to boost yield from the Fund's 22% holding in floating rate notes.
Unusually strong economic data in the second quarter -- around the time
the Bishop Street Treasury Money Market Fund opened -- lead us to believe a Fed
rate hike was near. Accordingly, we shortened maturities in the Bishop Street
Money Market Fund to forty-seven days by the end of June. The Bishop Street
Treasury Money Market Fund was launched at the end of May with two-thirds of its
holdings in repurchase agreements, and one-third in Treasuries.
In the second half of the year, while following the same sector strategy
in both portfolios, we looked for opportunities to lengthen maturities when we
felt the market prices fully discounted the Fed's outlook. In the fourth quarter
in particular, the Bishop Street Treasury Money Market Fund benefited from
year-end funding pressures, which drove up yields on repurchase agreements.
In summary, it was a year when short-term interest rates did not vary
beyond a narrow band; consequently, there were few opportunities for money
market funds to differentiate themselves. The Bishop Street Money Market Fund
and its competitors closely tracked the minor fluctuations in short term rates.
Since its inception, the Bishop Street Treasury Money Market Fund's large
holdings in repurchase agreements distinguished it from its peers.
<PAGE>
BISHOP STREET FUNDS
HAWAII MUNICIPAL BOND FUND
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INVESTMENT ADVISER'S REPORT
The municipal bond market outperformed taxable securities in 1996 despite
major concern early in the year about tax reform legislation and its possible
adverse effects on tax-exempts, especially the proposals calling for a flat tax.
As the year unfolded, most market participants believed that moderation and
compromise would preclude any radical changes in the tax laws and the fear of
sweeping tax reform legislation no longer pervaded the municipal landscape.
The capital markets were confronted at various times during the year with
Fed Chairman Greenspan's publicly voiced warnings that the economy was "on
track" for sustained growth, and market expectations for a Fed easing
evaporated. By the Fall, however, statistics confirmed both a moderate,
sustainable rate of growth, and a tolerable rate of inflation (3% or under), and
the Fed left interest rates unchanged.
The phenomenal growth rate of equity mutual funds undoubtedly slowed the
amount of new cash being channeled into the municipal sector as the stock market
enjoyed another excellent year. This year, however, more investors might
consider municipals the vehicle of choice, as the equity markets might be
perceived as "fully valued." For investors in the higher tax brackets,
municipals are still extremely attractive.
As 1997 unfolds, we believe that the national economy might be a little
stronger and that inflationary pressures might grow as energy and labor costs
rise. Although we don't anticipate explosive growth, these factors are likely to
move interest rates somewhat higher.
However, the State of Hawaii's economic recovery from the recession
continues to be quite slow with revenues from tourism showing only modest
increases. The State will continue to face budgetary pressures in 1997, and more
difficult political and legislative decisions lie ahead.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The primary strategy of the Fund is to maintain a high quality portfolio
which will produce an attractive and dependable after-tax income stream. In
pursuing this goal, we:
(BULLET) Maintain a very high quality portfolio. On December 31, 1996, over
78% of the bond holdings were rated either AAA or AA.
(BULLET) Maximize diversification. Our strategy is to remain broadly
diversified in such sectors as transportation, education, health
care and utilities -- as well as general obligations of the State.
For a list of securities in the Fund, please see the Statement of
Net Assets for the Hawaii Municipal Bond Fund.
(BULLET) Use a combination of high coupon premium issues and discount
non-callable bonds. Premium issues are less volatile in a bear
market when interest rates are rising. In contrast, non-callable
discount bonds perform very well in a bond market rally.
The Hawaii Municipal Bond Fund produced a total return of 4.31% for the 12
months ending December 31, 1996. In contrast, the Lehman Brothers Municipal Bond
Index produced a total return of 4.43% for the same period. A survey of our peer
group by Lipper Analytical Services Inc. indicated that the Hawaii Municipal
Funds average total return was 3.61% for 1996.
The Fund's portfolio continues to be of excellent quality, with over 78%
of holdings in the AA and AAA category. With the flatness of the yield curve
offering no significant yield advantages for the additional volatility of longer
maturities, we shortened our average maturity and duration during the year. Our
average maturity stood about 131/2 years at year end.
On December 31, 1996, the Hawaii Municipal Bond Fund was yielding 5.13%.
For an individual in the highest combined federal and state income tax bracket,
this yield translates into a taxable equivalent yield of 9.44%. This information
is based on a hypothetical illustration and is not representative of any
investment securities. Few taxable fixed income investments with the quality
comparable to a municipal bond portfolio generate such a high return today.
We will continue to look for opportunities to increase return to our
shareholders.
[GRAPHIC OMITTED]
COMPARISON OF CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE BISHOP STREET HAWAII MUNICIPAL
BOND FUND, INVESTMENT CLASS, VERSUS THE LEHMAN
BROTHERS MUNICIPAL BOND FUND, AND THE LIPPER
HAWAIIAN MUNICIPAL DEBT FUNDS AVERAGE.
BISHOP STREET
HAWAII MUNICIPAL BOND LEHMAN BROTHERS LIPPER HAWAIIAN MUNICIPAL
FUND, INVESTMENT CLASS MUNICIPAL BOND FUND DEBT FUNDS AVERAGE
9,650 10,000 10,000
9,728 10,115 10,097
9,928 10,359 10,310
10,110 10,657 10,529
10,557 11,096 11,005
10,380 10,962 10,808
10,469 11,046 10,879
10,727 11,300 11,146
11,011 11,589 11,403
One Year Annualized
Return Inception to Date
4.31% 7.31%
with load 0.66% 5.31%
[GRAPHIC OMITTED]
COMPARISON OF CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE BISHOP STREET HAWAAI MUNICIPAL
BOND FUND, INSTITUTIONAL CLASS, VERSUS THE LEHMAN
BROTHERS MUNICIPAL BOND FUND, AND THE LIPPER
HAWAIIAN MUNICIPAL DEBT FUNDS AVERAGE.
BISHOP STREET
HAWAII MUNICIPAL BOND LEHMAN BROTHERS LIPPER HAWAIIAN MUNICIPAL
FUND, INSTITUTIONAL CLASS MUNICIPAL BOND FUND DEBT FUNDS AVERAGE
10,000 10,000 10,000
10,082 10,115 10,097
10,289 10,359 10,310
10,478 10,657 10,529
10,941 11,096 11,005
10,757 10,962 10,808
10,850 11,046 10,879
11,106 11,300 11,146
11,402 11,589 11,403
One Year Annualized
Return Inception to Date
4.21% 7.28%
<PAGE>
DECEMBER 31, 1996 BISHOP STREET FUNDS
STATEMENT OF NET ASSETS
MONEY MARKET FUND
- --------------------------------------------------------
FACE
AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------
COMMERCIAL PAPER (60.2%)
American Brands
5.300%, 04/02/97 $10,000 $ 9,866
Bear Stearns
5.320%, 01/27/97 10,000 9,962
Chrysler Financial
5.350%, 02/13/97 10,000 9,936
Ciesco LP
5.350%, 02/26/97 10,500 10,413
Corporate Receivables
5.350%, 03/20/97 7,000 6,919
Enterprise Funding
5.900%, 01/06/97 1,000 999
5.340%, 01/21/97 10,000 9,970
Falcon Asset Securitization
5.550%, 02/18/97 530 526
Fina Oil & Chemical
5.330%, 01/31/97 9,760 9,716
General Motors Acceptance
5.620%, 03/14/97 3,500 3,461
IBM Credit
5.370%, 04/16/97 10,000 9,843
Island Finance Puerto Rico
5.360%, 03/20/97 5,800 5,733
Kitty Hawk Funding
5.380%, 03/03/97 9,308 9,223
Merrill Lynch
5.350%, 01/31/97 10,000 9,955
Morgan Stanley Group
5.330%, 01/17/97 410 409
National Fuel Gas
5.330%, 02/05/97 6,000 5,969
5.380%, 02/20/97 4,000 3,970
Nationsbank
5.400%, 01/06/97 8,000 7,994
Pitney Bowes Credit
5.470%, 02/20/97 5,205 5,165
Ranger Funding
5.320%, 02/19/97 5,000 4,964
5.380%, 02/28/97 6,000 5,948
Sears Roebuck Acceptance
5.320%, 02/11/97 11,000 10,933
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FACE
AMOUNT VALUE
DESCRIPTION (000) (000)
- -------------------------------------------------------
Transamerica Finance
5.300%, 03/19/97 $10,000 $ 9,887
Washington Gas Light
5.320%, 01/13/97 5,900 5,890
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TOTAL COMMERCIAL PAPER
(Cost $167,651) 167,651
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CERTIFICATES OF DEPOSIT/BANK NOTES (16.1%)
Chase Manhattan Bank
5.500%, 07/01/97 10,000 10,000
First Alabama Bank
5.700%, 02/03/97 10,000 10,000
First National Bank of Boston
5.470%, 02/12/97 10,000 10,000
First of America Bank
5.400%, 02/04/97 10,000 10,000
South Trust Central Carolina
5.500%, 04/30/97 5,000 5,000
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TOTAL CERTIFICATES OF DEPOSIT/BANK NOTES
(Cost $45,000) 45,000
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FLOATING RATE NOTES (21.9%)
CoreStates Capital (A)
5.870%, 01/25/97 5,000 5,000
Key Bank (A)
4.850%, 01/02/97 10,000 9,994
PNC Bank (A)
5.483%, 01/06/97 11,000 11,000
Peoples Security Life (A)
5.600%, 02/01/97 10,000 10,000
SMM Trust 96-1 (A)
5.714%, 01/30/97 8,000 8,000
SMM Trust 96-B (A)
5.613%, 01/04/97 2,000 2,000
Southtrust Bank of Alabama (A)
5.521%, 03/17/97 5,000 4,999
Travelers Insurance (A)
5.695%, 01/01/97 10,000 10,000
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TOTAL FLOATING RATE NOTES
(Cost $60,993) 60,993
--------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
DECEMBER 31, 1996
STATEMENT OF NET ASSETS
MONEY MARKET FUND (concluded)
- -------------------------------------------------------
FACE
AMOUNT VALUE
DESCRIPTION (000) (000)
- -------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (3.2%)
Federal Farm Credit Bank
5.600%, 06/03/97 $ 9,000 $ 8,995
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TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $8,995) 8,995
--------
BANKERS ACCEPTANCE (2.3%)
First National Bank of Boston
5.430%, 01/08/97 1,200 1,199
Suntrust Banks
5.300%, 03/04/97 5,141 5,094
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TOTAL BANKERS ACCEPTANCE
(Cost $6,293) 6,293
--------
REPURCHASE AGREEMENT (0.1%)
Lehman Brothers
6.85%, dated 12/31/96,
matures 01/02/97,
repurchase price $271,103
(collateralized by U.S. Treasury
STRIPS, par value $1,505,000,
6.97%, matures 05/15/21:
market value $283,351) 271 271
--------
TOTAL REPURCHASE AGREEMENT
(Cost $271) 271
--------
TOTAL INVESTMENTS (103.8%)
(Cost $289,203) 289,203
--------
OTHER ASSETS AND LIABILITIES (-3.8%)
Payable--Investment Securities
Purchased (10,000)
Other (560)
--------
OTHER ASSETS AND LIABILITIES, NET (10,560)
--------
- -------------------------------------------------------
VALUE
DESCRIPTION (000)
- -------------------------------------------------------
NET ASSETS:
Fund Shares of Institutional Class A
(unlimited authorization -- no par
value) based on 274,154,588
outstanding shares of beneficial
interest $274,154
Fund Shares of Retail Class B
(unlimited authorization -- no
par value) based on 4,519,046
outstanding shares of beneficial
interest 4,519
Undistributed net investment income 1
Accumulated net realized loss
on investments (31)
--------
TOTAL NET ASSETS (100.0%) $278,643
========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE --
INSTITUTIONAL CLASS A $1.00
========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE --
RETAIL CLASS B $1.00
========
- --------------------------------------------------------------------------------
(A) FLOATING RATE SECURITY--THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE EFFECT ON DECEMBER 31, 1996. THE DATE SHOWN IS THE NEXT
SCHEDULED RESET DATE.
STRIPS -- SEPARATE TRADING OF REGISTERED INTEREST AND PRINCIPAL OF SECURITIES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
BISHOP STREET FUNDS
TREASURY MONEY MARKET FUND
- -------------------------------------------------------
FACE
AMOUNT VALUE
DESCRIPTION (000) (000)
- -------------------------------------------------------
U.S. TREASURY OBLIGATIONS (28.8%)
U.S. Treasury Bill
5.403%, 11/13/97 $26,000 $24,821
U.S. Treasury Notes
6.750%, 02/28/97 12,000 12,023
6.875%, 02/28/97 7,000 7,017
6.875%, 04/30/97 8,000 8,030
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TOTAL U.S. TREASURY OBLIGATIONS
(Cost $51,891) 51,891
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REPURCHASE AGREEMENTS (74.0%)
Aubrey G. Lanston & Co.
6.75%, dated 12/31/96, matures
01/02/97, repurchase price
$23,320,742 (collateralized by
U.S. Treasury Note, par value
$22,919,000, 6.50%, matures
08/31/01: market value
$23,670,949) 23,312 23,312
Chase
6.65%, dated 12/31/96, matures
01/02/97, repurchase price
$30,011,083 (collateralized by
U.S. Treasury Note, par value
$29,395,000, 6.375%, matures
07/15/99: market value
$30,540,347) 30,000 30,000
JP Morgan
6.60%, dated 12/31/96, matures
01/02/97, repurchase price
$20,007,333 (collateralized by
U.S. Treasury Note, par value
$20,123,000, 6.00%, matures
09/30/98: market value
$20,478,469) 20,000 20,000
- -------------------------------------------------------
FACE
AMOUNT VALUE
DESCRIPTION (000) (000)
- -------------------------------------------------------
Lehman Brothers
7.10%, dated 12/31/96,
matures 01/02/97, repurchase
price $30,011,833
(collateralized by various
U.S. Treasury Notes, total
par value $29,774,000,
5.88%-6.25%, 07/31/98-
08/15/98: total market
value $30,547,320) $30,000 $ 30,000
UBS
6.70%, dated 12/31/96, matures
01/02/97, repurchase price
$30,011,167 (collateralized
by various U.S. Treasury Notes,
total par value $29,865,000,
5.50%-8.50%, 08/31/00-
12/31/00: total market value
$30,604,107) 30,000 30,000
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $133,312) 133,312
--------
TOTAL INVESTMENTS (102.8%)
(Cost $185,203) 185,203
--------
OTHER ASSETS AND LIABILITIES, NET (-2.8%) (5,002)
--------
NET ASSETS:
Fund Shares of Institutional Class A
(unlimited authorization -- no
par value) based on 180,186,800
outstanding shares of beneficial
interest 180,187
Accumulated net realized gain
on investments 14
--------
TOTAL NET ASSETS (100.0%) $180,201
========
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER
SHARE --INSTITUTIONAL CLASS A $1.00
========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
DECEMBER 31, 1996
STATEMENT OF NET ASSETS
HAWAII MUNICIPAL BOND FUND
- -------------------------------------------------------
FACE MARKET
AMOUNT VALUE
DESCRIPTION (000) (000)
- -------------------------------------------------------
MUNICIPAL BONDS (95.5%)
GUAM (2.4%)
Guam Power Authority, Ser A,
RB, AMBAC Insured
6.375%, 10/01/08 $ 400 $ 433
Guam, Government Limited
Obligation, Ser A, RB
7.100%, 11/15/09 150 158
------
591
------
HAWAII (87.6%)
Hawaii County, GO, MBIA Insured
6.850%, 12/01/02 250 259
Hawaii County, Hawaii Refunding
and Improvement, GO,
Ser A, FGIC Insured
5.300%, 05/01/05 320 330
Hawaii County, Ser A, GO,
FGIC Insured
5.600%, 05/01/12 450 464
5.600%, 05/01/13 190 195
Hawaii State Airport Systems,
RB, AMBAC Insured
5.700%, 07/01/07 310 321
Hawaii State Airport Systems,
RB, FGIC Insured
7.200%, 07/01/00 300 325
7.000%, 07/01/20 755 828
Hawaii State Airport Systems,
RB, MBIA Insured
6.250%, 07/01/06 1,000 1,087
Hawaii State Airport Systems,
Ser 2, RB, FGIC Insured
7.500%, 07/01/20 50 55
Hawaii State Airport Systems,
Ser 2, RB
6.900%, 07/01/12 60 68
7.000%, 07/01/18 640 693
Hawaii State Airport Systems,
Ser 3, RB, AMBAC Insured
5.500%, 07/01/05 100 103
- -------------------------------------------------------
FACE MARKET
AMOUNT VALUE
DESCRIPTION (000) (000)
- -------------------------------------------------------
Hawaii State Department of
Budget & Finance Special
Purpose Mortgage, Hawaii
Electric Incorporated Project,
Ser A, RB, MBIA Insured
6.600%, 01/01/25 $ 350 $ 375
Hawaii State Department of
Budget & Finance Special
Purpose Mortgage, Kaiser
Permanente Project, Ser A, RB
6.500%, 03/01/11 300 315
Hawaii State Department of Budget
& Finance Special Purpose
Mortgage, Kapiolani Health
Care System Project, RB
6.300%, 07/01/08 525 552
6.000%, 07/01/11 250 256
6.400%, 07/01/13 250 258
Hawaii State Department of Budget
& Finance Special Purpose
Mortgage, St. Francis Medical
Center Project, RB, CGIC Insured
5.875%, 07/01/01 210 222
6.500%, 07/01/22 930 997
Hawaii State Department of Budget
& Finance, Hawaiian Electric, RB
6.200%, 05/01/26 750 781
Hawaii State Department of Budget
& Finance, Queens Health
Systems, Ser A, RB
5.875%, 07/01/11 250 258
6.000%, 07/01/20 1,000 1,024
Hawaii State Harbor Capital
Improvement, RB,
FGIC Insured
6.200%, 07/01/08 150 159
6.250%, 07/01/15 150 157
6.500%, 07/01/19 225 240
Hawaii State Harbor Capital
Improvement, RB, MBIA Insured
7.000%, 07/01/17 450 488
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
BISHOP STREET FUNDS
- --------------------------------------------------------
FACE MARKET
AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------
Hawaii State Highway Project, RB
5.000%, 07/01/11 $ 510 $ 490
5.250%, 07/01/12 500 492
Hawaii State Housing, Finance &
Development Corporation
Affordable Rental Housing
Program, Ser 1995 A, RB
6.000%, 07/01/15 350 350
6.050%, 07/01/22 250 250
Hawaii State Housing, Finance &
Development Corporation
University of Hawaii Faculty
Housing Project, RB,
AMBAC Insured
5.650%, 10/01/16 700 710
Hawaii State Housing, Finance &
Development Corporation Single
Family Mortgage Purchase, Ser B,
RB, FNMA Collateral
5.700%, 07/01/13 595 598
5.850%, 07/01/17 920 919
Hawaii State Housing, Finance &
Development Corporation
Single Family Mortgage
Purchase, RB
5.550%, 07/01/07 500 521
Hawaii State, Ser CE, GO
5.250%, 06/01/11 250 248
Hawaii State, Ser CH, GO
6.000%, 11/01/10 100 108
Hawaii State, Ser CJ, GO
6.250%, 01/01/15 250 263
Hawaii State, Ser CM, GO,
FGIC Insured
6.000%, 12/01/09 500 540
Honolulu City & County
Board of Water Supply, RB
5.250%, 07/01/07 250 255
5.800%, 07/01/16 750 766
- --------------------------------------------------------
FACE MARKET
AMOUNT VALUE
DESCRIPTION (000) (000)
- -------------------------------------------------------
Honolulu City & County
Mortgage Smith Berentia,
Ser A, RB, FHA & MBIA Insured
7.800%, 07/01/24 $100 $ 108
Honolulu City & County Ser A, GO
5.700%, 04/01/09 245 256
Honolulu City & County Waipahu
Towers Project, Ser A, RB,
GNMA Collateral
6.900%, 06/20/35 200 210
Honolulu City & County, Ser A,
GO, MBIA Insured
6.000%, 11/01/10 500 539
Honolulu City & County, Ser A, GO
5.300%, 04/01/04 250 258
6.000%, 01/01/10 150 161
Kauai County, Refunding Ser A,
GO, MBIA Insured
5.400%, 02/01/04 50 52
Kauai County, Ser B, GO,
AMBAC Insured
5.750%, 08/01/06 285 302
Kauai County, Ser B, GO,
MBIA Insured
5.900%, 02/01/13 260 268
Maui County, Board of Water
Supply, Ser A, RB, FGIC Insured
6.000%, 12/01/01 520 557
Maui County, GO, FGIC Insured
5.000%, 09/01/08 115 114
5.000%, 09/01/09 200 196
5.125%, 12/15/12 100 97
Maui County, GO, MBIA Insured
5.750%, 06/01/13 250 256
Maui County, Refunding GO,
FGIC Insured
5.125%, 12/15/10 290 284
Maui County, Ser A, GO,
FGIC Insured
5.750%, 01/01/11 250 256
--------
21,234
--------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
DECEMBER 31, 1996
STATEMENT OF NET ASSETS
HAWAII MUNICIPAL BOND FUND (concluded)
- --------------------------------------------------------
FACE MARKET
AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------
PUERTO RICO (4.9%)
Commonwealth of Puerto Rico,
GO, FSA Insured
5.500%, 07/01/13 $ 250 $ 252
6.000%, 07/01/22 150 155
Puerto Rico Electric Power
Authority, Ser O, RB,
CGIC Insured
6.000%, 07/01/10 150 154
Puerto Rico Housing, Banking &
Finance Agency, Single Family
Mortgage, Affordable Housing
Mortgage Portfolio I, RB,
GNMA/FNMA/FHLMC Collateral
6.100%, 10/01/15 300 304
Puerto Rico Industrial Tourist
Educational Medical
Environmental Control Facilities
Hospital Auxilio Muto Obligation
Group, RB, MBIA Insured
6.250%, 07/01/24 300 316
--------
1,181
--------
VIRGIN ISLANDS (0.6%)
Virgin Islands Housing Finance
Authority Single Family, GNMA
Mortgage Backed Securities
Program, Ser A, RB
6.500%, 03/01/25 150 153
--------
TOTAL MUNICIPAL BONDS
(Cost $22,663) 23,159
--------
CASH EQUIVALENTS (2.8%)
Dreyfus Tax Exempt Cash
Management Fund 447 447
Nuveen Federal Tax Exempt
Money Market 228 228
--------
TOTAL CASH EQUIVALENTS
(Cost $675) 675
--------
- --------------------------------------------------------
MARKET
VALUE
DESCRIPTION (000)
- --------------------------------------------------------
TOTAL INVESTMENTS (98.3%)
(Cost $23,338) $ 23,834
--------
OTHER ASSETS AND LIABILITIES, NET (1.7%) 415
--------
NET ASSETS:
Fund Shares of Institutional Class A
(unlimited authorization -- no
par value) based on 1,490,851
outstanding shares of beneficial interest 15,187
Fund Shares of Retail Class B
(unlimited authorization -- no
par value) based on 854,460
outstanding shares of beneficial interest 8,683
Undistributed net investment income 28
Accumulated net realized loss
on investments (145)
Net unrealized appreciation
on investments 496
--------
TOTAL NET ASSETS (100.0%) $ 24,249
========
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER
SHARE -- INSTITUTIONAL CLASS A $10.34
========
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER
SHARE -- RETAIL CLASS B $10.35
========
MAXIMUM OFFERING PRICE PER
SHARE ($10.35 (DIVIDE) 96.5%)
RETAIL CLASS B $10.73
========
- --------------------------------------------------------
AMBAC--AMERICAN MUNICIPAL BOND ASSURANCE COMPANY
CGIC--CAPITAL GUARANTY INSURANCE CORPORATION
FGIC--FEDERAL GUARANTY INSURANCE CORPORATION
FNMA--FEDERAL NATIONAL MORTGSGE ASSOCIATION
FSA--FINANCIAL SECURITY ASSURANCE
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
GO--GENERAL OBLIGATION
MBIA--MUNICIPAL BOND INSURANCE ASSOCIATION
RB--REVENUE BOND
SER -- SERIES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
FOR THE PERIOD ENDED DECEMBER 31, 1996 BISHOP STREET FUNDS
STATEMENT OF OPERATIONS (000)
- --------------------------------------------------------------------------------
MONEY MARKET TREASURY MONEY HAWAII MUNICIPAL
FUND MARKET FUND (2) BOND FUND
============ =============== ================
INTEREST INCOME: $17,977 $5,666 $1,242
------- ------ ------
EXPENSES:
Investment Adviser Fee 931 316 78
Investment Adviser Fee Waiver -- (126) (92)
Administration Fee 654 211 45
Administration Fee Waiver (327) (105) (45)
Custody Fees 56 15 2
Transfer Agent Fees 55 25 32
Registration Fees 72 62 11
Distribution Fees (1) 4 -- 22
Distribution Fee Waiver -- -- (22)
Trustees Fees 41 13 3
Printing Fees 32 11 2
Professional Fees 52 16 3
Amortization of Deferred
Organizational Costs 7 2 3
Miscellaneous Expenses 35 7 4
------- ------ ------
Total Expenses 1,612 447 46
------- ------ ------
Net Investment Income 16,365 5,219 1,196
------- ------ ------
Net Realized Gain (Loss)
on Investments (35) 14 (145)
Change in Unrealized Appreciation
on Investments -- -- 9
------- ------ ------
Net Realized and Unrealized Gain
(Loss) on Investments (35) 14 (136)
------- ------ ------
Increase in Net Assets
Resulting from Operations $16,330 $5,233 $1,060
======= ====== ======
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) ALL DISTRIBUTION FEES ARE INCURRED IN THE RETAIL CLASS B.
(2) COMMENCED OPERATIONS ON MAY 1, 1996.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
FOR THE PERIOD ENDED DECEMBER 31, 1996
STATEMENT OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
TREASURY
MONEY MARKET MONEY MARKET
FUND FUND
========================= ============
01/01/96 01/30/95 (1) 05/01/96 (2)
TO 12/31/96 TO 12/31/95 TO 12/31/96
------------------------- ------------
INVESTMENT ACTIVITIES:
Net Investment Income $ 16,365 $ 14,657 $ 5,219
Net Realized Gain (Loss)
on Investments (35) 4 14
Change in Unrealized
Appreciation on Investments -- -- --
-------- -------- ---------
Increase in Net Assets Resulting
From Operations 16,330 14,661 5,233
-------- -------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income:
Institutional Class A (16,188) (14,594) (5,219)
Retail Class B (176) (63) --
Capital Gains:
Institutional Class A -- -- --
Retail Class B -- -- --
-------- -------- ---------
Total Distributions (16,364) (14,657) (5,219)
-------- -------- ---------
CAPITAL SHARE TRANSACTIONS:
(ALL AT $1.00 PER SHARE)
Institutional Class A Shares:
Proceeds from Shares Issued 541,728 752,769 1,011,211
Reinvestment of Cash Distributions 13 6 --
Cost of Shares Redeemed (572,703) (447,659) (831,024)
-------- -------- ---------
Institutional Capital Share
Transactions (30,962) 305,116 180,187
-------- -------- ---------
Retail Class B Shares:
Proceeds from Shares Issued 4,790 5,529 --
Reinvestment of Cash Distributions 148 59 --
Cost of Shares Redeemed (4,077) (1,930) --
-------- -------- ---------
Retail Capital Share
Transactions 861 3,658 --
-------- -------- ---------
Net Increase (Decrease) in Net Assets
From Share Transactions (30,101) 308,774 180,187
-------- -------- ---------
Total Increase (Decrease) in
Net Assets (30,135) 308,778 180,201
-------- -------- ---------
NET ASSETS:
Beginning of Period 308,778 -- --
-------- -------- ---------
End of Period $278,643 $308,778 $ 180,201
======== ======== =========
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) COMMENCED OPERATIONS ON JANUARY 30, 1995.
(2) COMMENCED OPERATIONS ON MAY 1, 1996.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
FOR THE PERIOD ENDED DECEMBER 31, 1996 BISHOP STREET FUNDS
STATEMENT OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
HAWAII MUNICIPAL BOND
FUND
=========================
01/01/96 02/15/95 (1)
TO 12/31/96 TO 12/31/95
-------------------------
INVESTMENT ACTIVITIES:
Net Investment Income $ 1,196 $ 399
Net Realized Gain (Loss) on Investments (145) 41
Change in Unrealized Appreciation
(Depreciation) on Investments 9 487
------- -------
Increase in Net Assets Resulting
From Operations 1,060 927
------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income:
Institutional Class A (717) (221)
Retail Class B (451) (178)
Capital Gains:
Institutional Class A (25) --
Retail Class B (16) --
------- -------
Total Distributions (1,209) (399)
------- -------
CAPITAL SHARE TRANSACTIONS:
Institutional Class A Shares:
Proceeds from Shares Issued 7,259 9,397
Reinvestment of Cash Distributions 275 97
Cost of Shares Redeemed (1,460) (381)
------- -------
Institutional Capital Share
Transactions 6,074 9,113
------- -------
Retail Class B Shares:
Proceeds from Shares Issued 4,344 6,868
Reinvestment of Cash Distributions 310 120
Cost of Shares Redeemed (2,443) (516)
------- -------
Retail Capital Share Transactions 2,211 6,472
------- -------
Net Increase in Net Assets From Capital
Share Transactions 8,285 15,585
------- -------
Total Increase in Net Assets 8,136 16,113
------- -------
NET ASSETS:
Beginning of Period 16,113 --
------- -------
End of Period $24,249 $16,113
======= =======
CAPITAL SHARE TRANSACTIONS:
Institutional Class A Shares:
Shares Issued 709 927
Shares Issued in Lieu of Cash Distributions 27 9
Shares Redeemed (144) (37)
------- -------
Total Institutional Capital
Share Transactions 592 899
------- -------
Retail Class B Shares:
Shares Issued 424 679
Shares Issued in Lieu of Cash Distributions 30 12
Shares Redeemed (239) (51)
------- -------
Total Retail Capital Share Transactions 215 640
------- -------
Net Increase in Capital Shares 807 1,539
======= =======
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) COMMENCED OPERATIONS ON FEBRUARY 15, 1995.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
------------------------- -----------------
NET RATIO OF
NET REALIZED NET NET EXPENSES
ASSET AND ASSET ASSETS, TO
VALUE, NET UNREALIZED NET VALUE, END OF AVERAGE
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT CAPITAL END OF TOTAL PERIOD NET
OF PERIOD INCOME INVESTMENTS INCOME GAINS PERIOD RETURN(6) (000) ASSETS
--------- ---------- -------------- ---------- ------- ------ --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------
MONEY MARKET FUND
- -----------------
INSTITUTIONAL CLASS A
1996: $1.00 $0.05 -- $(0.05) -- $1.00 5.12% $274,125 0.49%
1995(1): $1.00 $0.05 -- $(0.05) -- $1.00 5.67%+ $305,120 0.50%*
RETAIL CLASS B
1996: $1.00 $0.05 -- $(0.05) -- $1.00 5.02% $ 4,518 0.59%
1995(2): $1.00 $0.05 -- $(0.05) -- $1.00 5.55%(DAGGER) $ 3,658 0.60%*
- --------------------------
TREASURY MONEY MARKET FUND
- --------------------------
INSTITUTIONAL CLASS A
1996(5): $1.00 $0.03 -- $(0.03) -- $1.00 5.08%(DAGGER) $180,201 0.42%
- --------------------------
HAWAII MUNICIPAL BOND FUND
- --------------------------
INSTITUTIONAL CLASS A
1996: $10.47 $0.55 $(0.12) $(0.55) (0.01) $10.34 4.21% $ 15,408 0.21%
1995(4): $10.00 $0.45 $ 0.47 $(0.45) -- $10.47 10.91%(DAGGER) $ 9,411 0.27%*
RETAIL CLASS B
1996: $10.47 $0.55 $(0.11) $(0.55) (0.01) $10.35 4.31% $ 8,841 0.21%
1995(3): $10.00 $0.45 $ 0.47 $(0.45) -- $10.47 10.85%(DAGGER) $ 6,702 0.33%*
</TABLE>
<TABLE>
<CAPTION>
RATIO OF
NET INVESTMENT
EXPENSES TO RATIO OF INCOME TO
AVERAGE NET AVERAGE
NET ASSETS INVESTMENT NET ASSETS
EXCLUDING FEE INCOME TO EXCLUDING FEE PORTFOLIO
WAIVERS AND AVERAGE WAIVERS AND TURNOVER
REIMBURSEMENTS NET ASSETS REIMBURSEMENTS RATE
-------------- ---------- -------------- ---------
<S> <C> <C> <C> <C>
- -----------------
MONEY MARKET FUND
- -----------------
INSTITUTIOAL CLASS A
1996: 0.60% 5.01% 4.90% --
1995(1): 0.66%* 5.50%* 5.34%* --
RETAIL CLASS B
1996: 0.76% 4.91% 4.74% --
1995(2): 0.76%* 5.26%* 5.10%* --
- --------------------------
TREASURY MONEY MARKET FUND
- --------------------------
INSTITUTIONAL CLASS A
1996(5): 0.65% 4.96% 4.74% --
- --------------------------
HAWAII MUNICIPAL BOND FUND
- --------------------------
INSTITUTIONAL CLASS A
1996: 0.85% 5.33% 4.68% 27%
1995(4): 1.10%* 5.24%* 4.40%* 68%
RETAIL CLASS B
1996: 1.05% 5.33% 4.48% 27%
1995(3): 1.45%* 5.14%* 4.02%* 68%
<FN>
(DAGGER) TOTAL RETURN HAS BEEN ANNUALIZED.
* ANNUALIZED.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) COMMENCED OPERATIONS ON JANUARY 30, 1995.
(2) COMMENCED OPERATIONS ON FEBRUARY 17, 1995.
(3) COMMENCED OPERATIONS ON FEBRUARY 16, 1995.
(4) COMMENCED OPERATIONS ON FEBRUARY 15, 1995.
(5) COMMENCED OPERATIONS ON MAY 1, 1996.
(6) TOTAL RETURN DOES NOT REFLECT APPLICABLE SALES CHARGE FOR THE HAWAII
MUNICIPAL BOND FUND.
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
DECEMBER 31, 1996 BISHOP STREET FUNDS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
================================================================================
The Bishop Street Funds (the "Trust") are registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company.
The Bishop Street Funds consists of a series of five funds (the "Funds") which
includes the High Grade Income Fund, Hawaii Municipal Bond Fund (formerly Hawaii
Tax-Free Fund), Equity Fund, the Treasury Money Market Fund and the Money Market
Fund. Effective January 29, 1996, the Hawaii Tax Free Bond Fund officially
changed its name to the Hawaii Municipal Bond Fund. The Bishop Street Funds
Declaration of Trust permits the Trust to offer separate portfolios of shares
and different classes of each portfolio. The assets of each Fund are segregated,
and a shareholder's interest is limited to the Fund in which shares are held.
Each Fund, with the exception of the High Grade Income Fund and Equity Fund, has
commenced operations prior to December 31, 1996. This report pertains only to
the Treasury Money Market Fund, Money Market Fund and the Hawaii Municipal Bond
Fund. The Funds' prospectus provides a description of each Fund's investment
objectives, policies and strategies.
2. SIGNIFICANT ACCOUNTING POLICIES
================================================================================
The following is a summary of significant accounting policies followed by
the Trust.
SECURITY VALUATION -- Investment securities held by the Money Market and
Treasury Money Market Funds are stated at amortized cost, which approximates
market value. Under this valuation method, purchase discounts and premiums are
accreted and amortized ratably to maturity and are included in interest income.
For the Hawaii Municipal Bond Fund debt obligations exceeding sixty days
to maturity for which market quotations are readily available are valued at the
most recently quoted bid price. Debt obligations with sixty days or less
remaining until maturity may be valued at their amortized cost. Restricted
securities for which quotations are not readily available are valued at fair
value using methods determined in good faith under general Trustee supervision.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the date the security is purchased or sold (trade date). Costs
used in determining net realized capital gains and losses on the sale of
securities are those of the specific securities sold adjusted for the accretion
and amortization of the purchase discounts and premiums during the respective
holding periods. Interest income is recorded on the accrual basis.
DISCOUNTS AND PREMIUMS -- Discounts and premiums are accreted or amortized over
the life of each security and are recorded as interest income for each of the
Funds using a method which approximates the effective interest method.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for Repurchase
Agreements are held by the custodian bank until the respective agreements
mature. Provisions of repurchase agreements and
<PAGE>
DECEMBER 31, 1996
procedures adopted by the Adviser ensure that the market value of the collateral
is sufficient in the event of default by the counterparty. If the counterparty
defaults and the value of the collateral declines or if the counterparty enters
an insolvency proceeding, realization of the collateral by the Fund may be
delayed or limited.
CLASSES -- Class specific expenses are borne by that class. Income, nonclass
specific expenses and realized/unrealized gains and losses are allocated to the
respective classes on the basis of the relative daily net assets.
EXPENSES -- Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses of the Trust are prorated to the
Funds on the basis of relative net assets.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are
declared daily and paid on a monthly basis for the Hawaii Municipal Bond Fund,
the Money Market Fund and the Treasury Money Market Fund. Any net realized
capital gains will be distributed at least annually for all Funds.
FEDERAL INCOME TAXES -- It is each Fund's intention to qualify as a regulated
investment company for Federal income tax purposes and to distribute all of its
taxable income and net capital gains. Accordingly, no provision for Federal
income taxes is required.
ORGANIZATION COSTS -- Organization costs of approximately $134,000 have been
capitalized by the Funds and are being amortized over sixty months commencing
with operations. In the event any of the initial shares are redeemed by any
holder thereof during the period that the fund is amortizing its organization
costs, the redemption proceeds payable to the holder thereof prior to the end of
the amortization period, the proceeds will be reduced by the unamortized
organization costs in the same ratio as the number of initial shares being
redeemed bears to the number of initial shares outstanding at the time of the
redemption.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation
of financial statements, in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
3. INVESTMENT ADVISORY AGREEMENT
================================================================================
Investment advisory services are provided to the Funds by First Hawaiian
Bank (the "Adviser"). The Adviser is entitled to receive an annual fee of 0.30%
of the average daily net assets of the Treasury Money Market Fund, 0.30% of the
average daily net assets of the Money Market Fund and 0.35% of the average daily
net assets of the Hawaii Municipal Bond Fund. The Adviser may from time to time
waive a portion of its fee in the Treasury Money Market Fund, the Money Market
Fund and the Hawaii Municipal Bond Fund, in order to limit the operating
expenses of the
<PAGE>
BISHOP STREET FUNDS
Fund to 0.44%, 0.50% and 0.21%, respectively for the Institutional Class of
shares and 0.60% and 0.21% respectively for the Money Market Fund and Hawaii
Municipal Bond Fund Retail Class of shares.
Wellington Management Company (The "Sub-Adviser") serves as the investment
sub-adviser for the Money Market Fund and the Treasury Money Market Fund
pursuant to a sub-adviser agreement. The Sub-Adviser is entitled to receive from
the Adviser a fee, computed daily and paid monthly, at the annual rate of 0.075%
of the average daily net assets of the Fund up to $500 million and 0.020% of the
average daily net assets of the Fund in excess of $500 million.
4. ADMINISTRATIVE, TRANSFER AGENT AND DISTRIBUTION SERVICES
================================================================================
Pursuant to an administration agreement dated January 27, 1995, (the
"Agreement") SEI Financial Management Corporation ("SFM"), a wholly owned
subsidiary of SEI Corporation ("SEI"), acts as the Trust's Administrator. Under
the terms of the Agreement, SFM is entitled to receive an annual fee of 0.20% of
the average daily net assets of each Fund. SFM has voluntarily agreed to waive a
portion of its fee in order to limit operating expenses.
Pursuant to an agreement dated January 30, 1995, DST Systems, Inc. ("DST")
acts as the Transfer Agent of the Trust. As such, DST provides transfer agency,
dividend disbursing and shareholder services to the Trust.
SEI Financial Services Company ("SFS"), wholly owned subsidiary of SEI,
acts as the Trust's Distributor pursuant to a distribution agreement dated
January 27, 1995. The Retail Class B shares of the Trust have a Rule 12b-1
Distribution Plan under which such shares of the Funds bear distribution
expenses and related service fees at the annual rate of 0.10% and 0.25% of their
average daily net assets for the Money Market Fund and Hawaii Municipal Bond
Fund, respectively. SFS has voluntarily agreed to waive the distribution charge
for the Hawaii Municipal Bond Fund in order to limit operating expenses for the
Retail Class B shares.
Certain officers of the Trust are also officers of the Administrator. Such
officers are paid no fees by the Trust.
<PAGE>
DECEMBER 31, 1996
5. INVESTMENT TRANSACTIONS
================================================================================
The cost of security purchases and the proceeds from the sale of
securities, other than temporary cash investments for the period ended December
31, 1996 are presented below for the Hawaii Municipal Bond Fund.
FUND INVESTMENT TRANSACTIONS
HAWAII MUNICIPAL BOND
FUND
=====================
Purchases
U.S. Government Securities $ --
Other 13,848,864
Sales
U.S. Government Securities $ --
Other 5,911,680
At December 31, 1996, the Money Market Fund and Hawaii Municipal Bond Fund
had capital loss carryforwards for federal income tax purposes of approximately
$26,152 and $144,864, respectively, resulting from security sales. For tax
purposes, the losses in the Funds can be carried forward for a maximum of eight
years to offset any net realized capital gains. The carryforwards for the Money
Market Fund and Hawaii Municipal Bond Fund expire in 2004.
At December 31, 1996 the total cost of securities and the net realized
gains and losses on securities sold for federal income tax purposes were not
materially different from amounts reported for financial reporting purposes. The
aggregate unrealized appreciation/depreciation on securities at December 31,
1996 for the Hawaii Municipal Bond Fund is as follows:
Gross Unrealized Appreciation $520,125
Gross Unrealized Depreciation (24,089)
--------
Net Unrealized Appreciation $496,036
========
<PAGE>
BISHOP STREET FUNDS
6. CONCENTRATION OF CREDIT RISK (Unaudited)
================================================================================
The Hawaii Municipal Bond Fund invests primarily in debt instruments in
the state of Hawaii. The issuers' ability to meet their obligations may be
affected by economic developments in that state. At December 31, 1996, the
percentage of the Fund investments by each revenue source was as follows:
HAWAII MUNICIPAL BOND
FUND
=====================
Cash Equivalents 3%
Education Bonds 3%
General Obligation Bonds 25%
Hospital Bonds 18%
Housing Bonds 13%
Transportation Bonds 23%
Utility Bonds 14%
Other Revenue Bonds 1%
----
100%
====
The ratings of long-term debt holdings as a percentage of total value of
investments at December 31, 1996 are as follows:
HAWAII MUNICIPAL BOND
STANDARD & POOR'S RATING FUND
======================== =====================
AAA 57%
AA 21%
A 13%
A- 4%
Not Rated 5%
----
100%
====
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF BISHOP STREET FUNDS:
We have audited the accompanying statements of net assets of Bishop Street
Funds (comprising, respectively, Money Market, Treasury Money Market, and Hawaii
Municipal Bond Funds) as of December 31, 1996, and the related statements of
operations, statements of changes in net assets and the financial highlights for
each of periods presented. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1996 by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the Bishop Street Funds as of December 31, 1996, and the results of
their operations, changes in their net assets, and their financial highlights
for each of the periods presented in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 18, 1997
<PAGE>
BISHOP STREET FUNDS
NOTICE TO SHAREHOLDERS OF BISHOP STREET FUNDS (Unaudited)
- --------------------------------------------------------------------------------
For shareholders that do not have a December 31, 1996 tax year end, this
notice is for informational purposes only. For shareholders with a December 31,
1996 tax year end, please consult your tax advisor as to the pertinence of this
notice.
For the fiscal year ended December 31, 1996, each fund has designated the
following items with regard to distributions paid during the year.
(A) (B) (C)
LONG TERM ORDINARY (A+B)
CAPITAL GAIN INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
FUND (TAX BASIS) (TAX BASIS) (TAX BASIS)
- --------------------------------------------------------------------------------
Money Market 0% 100% 100%
Treasury Money Market 0% 100% 100%
Hawaii Municipal Bond 0% 100% 100%
(D) (E)
QUALIFYING TAX EXEMPT
FUND DIVIDENDS(1) INTEREST
- --------------------------------------------------------------------------------
Money Market 0% 0%
Treasury Money Market 0% 0%
Hawaii Municipal Bond 0% 95%
(1) QUALIFYING DIVIDENDS REPRESENTS DIVIDENDS WHICH QUALIFY FOR THE
CORPORATE DIVIDENDS RECEIVED DEDUCTION.
* ITEMS (A) AND (B) ARE BASED ON A PERCENTAGE OF EACH FUND'S
TOTAL DISTRIBUTIONS.
** ITEMS (D) AND (E) ARE BASED ON A PERCENTAGE OF ORDINARY INCOME
DISTRIBUTIONS OF EACH FUND.
NONE OF THE BISHOP STREET FUNDS SATISFY CA, NY OR CT'S STATUTORY REQUIREMENTS TO
PASS-THROUGH INCOME FROM FEDERAL OBLIGATIONS. ACCORDINGLY, THE PRORATA PORTION
OF INCOME FROM FEDERAL OBLIGATIONS WILL NOT BE EXEMPT FOR THE RESPECTIVE STATES'
INCOME TAX PURPOSES.
<PAGE>
NOTES
<PAGE>
NOTES
<PAGE>
INVESTMENT ADVISER:
FIRST HAWAIIAN BANK
DISTRIBUTOR:
SEI FINANCIAL SERVICES COMPANY
THIS INFORMATION MUST BE PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS FOR
EACH FUND DESCRIBED.
ADVISED BY
FIRST
HAWAIIAN
BANK
[LOGO OMITTED]
BSF-F-006-02
