A NO LOAD MUTUAL FUND FAMILY ADVISED BY FIRST HAWAIIAN BANK
[PHOTO OF MAP OMITTED]
SEMI-ANNUAL
REPORT
JUNE 30, 1998
EQUITY FUND
HIGH GRADE INCOME FUND
HAWAII MUNICIPAL BOND FUND
MONEY MARKET FUND
TREASURY MONEY MARKET FUND
[BISHOP STREET FUNDS LOGO OMITTED]
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[PHOTO OF MAP OMITTED]
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THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL INFORMATION OF BISHOP STREET FUNDS' SHAREHOLDERS. THIS REPORT IS
NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
SHARES OF BISHOP STREET FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED BY FIRST HAWAIIAN BANK OR ANY OF ITS SUBSIDIARIES. SUCH SHARES ARE
ALSO NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENT IN SHARES OF MUTUAL
FUNDS INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SEI
INVESTMENTS DISTRIBUTION CO. SERVES AS DISTRIBUTOR FOR BISHOP STREET FUNDS
AND IS NOT AFFILIATED WITH FIRST HAWAIIAN BANK.
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BISHOP STREET
TABLE OF CONTENTS
FUNDS
LETTER TO SHAREHOLDERS ............................................... 2
EQUITY FUND
Investment Adviser's Report & Management Discussion ............ 4
Statement of Net Assets ........................................ 7
HIGH GRADE INCOME FUND
Investment Adviser's Report & Management Discussion ............ 12
Statement of Net Assets ........................................ 15
HAWAII MUNICIPAL BOND FUND
Investment Adviser's Report & Management Discussion ............ 19
Statement of Net Assets ........................................ 22
MONEY MARKET FUND & TREASURY MONEY MARKET FUND
Investment Adviser's Report & Management Discussion ............ 27
Statements of Net Assets ....................................... 29
Statements of Operations ............................................. 34
Statements of Changes in Net Assets .................................. 35
Financial Highlights ................................................. 38
Notes to Financial Statements ........................................ 40
1
<PAGE>
BISHOP STREET
SEMI-ANNUAL LETTER TO SHAREHOLDERS
FUNDS
[PHOTO OF ROBERT ALM OMITTED]
DEAR FELLOW SHAREHOLDER:
We're pleased to present the Bishop Street Funds' Semi-Annual Report for the
first half of 1998.
Despite the continuing Asian economic crises, the markets performed quite well
during the first half of the year. The stock market generally posted
double-digit returns, as investors continued to express their preference for
large brandname companies. And, once again, the bond market benefited from a
falling interest rate environment.
The Equity Fund and High Grade Income Fund celebrated their first-year
anniversary in early 1998, posting very attractive returns since inception. The
Hawaii Municipal Bond Fund reached its three-year anniversary and received its
first Morningstar rating. The Fund received a four-star rating out of a possible
five for the period ending 6/30/98*, making it one of only two Hawaii municipal
bond funds to receive such a distinction. The Fund was rated among 1,549 funds
in the municipal bond category.
On April 30th we introduced our Plain English prospectus. We converted to this
format to help you better understand your investment in the Bishop Street Funds.
This is an emerging trend in the mutual fund industry and we are pleased to
provide this to you in advance of most of the industry.
Bishop Street Funds
2
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Please take some time to read the following pages. They include a summary of the
economic environment affecting each fund, a discussion of performance,
statements of net assets and other financial information. If you have any
questions about this report or the Bishop Street Funds, please call your
Investment Specialist or Bishop Street Investor Services at 1-800-262-9565.
Thanks for choosing the Bishop Street Funds.
Sincerely,
/S/ SIGNATURE
Robert A. Alm
Senior Vice President and Manager
Financial Management Group
First Hawaiian Bank, Investment Adviser
*The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (if available) in excess of 90-day
Treasury bill returns. The Fund received 4 stars for the three year period
ending 6/30/98. The top 10% of funds within a rating category receive 5 stars,
the next 22.5% receive 4 stars.
Semi-Annual Report -- June 30, 1998
3
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BISHOP STREET
INVESTMENT ADVISER'S REPORT & MANAGEMENT DISCUSSION
FUNDS
Equity Fund
- --------------------------------------------------------------------------------
INVESTMENT ADVISER'S REPORT:
Although the Asian economic crisis weighed heavily on investors, the U.S. stock
market generally posted double-digit growth during the first half of 1998. The
Dow Jones Industrial Average was up 14.13%, while the broader Standard & Poor's
500 Index rose 17.70%. Reflecting the market's continuing aversion to smaller
companies, the Russell 2000 Index was up just 4.93%.
In a period of global uncertainty, investors have shown a continuing preference
for large, liquid, U.S. multinational companies. Even though the earnings of
these companies may be more vulnerable to a downturn in Asia, investors have
preferred their brand-name strength and stability to smaller, less-liquid
companies.
Investors also continue to be very clear in their industry preferences. Most
stocks of companies in chemicals, paper, metals, semiconductors and other
economically cyclical areas fared poorly during the first half of 1998. In
contrast, investors in internet-related, health care, financial services,
retailing and other consumer-oriented stocks did very well. These companies are
thought to be mostly insulated from Asia and thus able to take advantage of the
strong U.S. economy.
Although the Asian crisis appeared under control in the first quarter, certain
developments in the second quarter rendered that judgment premature. In addition
to political instability in Indonesia and nuclear testing by India and Pakistan,
Japan's economy showed signs of worsening. As the Japanese stock market fell to
a ten-year low, the Japanese yen declined sharply against the U.S. dollar. A
weakening yen is seen as worsening the Asian economic crisis by making Japanese
exports more competitive against other Asian nations. In late June, the U.S.
government intervened by using billions of dollars to buy yen. This, however,
was seen only as a temporary measure that didn't address Japan's underlying
long-term economic problems.
Although Asia is an important market for U.S. companies, its negative impact on
American corporate earnings should not be exaggerated. For one thing, many U.S.
companies import more from Asia than they export, which should create advantages
to the bottom line. For another, much of Asia's weakness as a market is being
supplanted by a booming Europe, which is basking in the optimism related to the
upcoming European Monetary Union.
Bishop Street Funds
4
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[BISHOP STREET FUNDS LOGO OMITTED]
MANAGEMENT DISCUSSION & ANALYSIS OF FUND PERFORMANCE:
The Equity Fund seeks to produce long-term capital growth by concentrating on
large capitalization growth companies. Its secondary goal is current income from
dividends. The Fund invests in a broadly diversified portfolio of 70 to 100
stocks, representing most sectors of the S&P 500 Index. This diversified
strategy reduces the portfolio's risk. The Fund tends to have low turnover,
which reduces transactional expenses and tax consequences.
During the six months ended June 30, 1998, the Fund produced a total return of
17.73%. In comparison, the average domestic equity fund as measured by Lipper
Analytical Services, Inc. was up 11.09%. The unmanaged S&P 500 Index rose 17.70%
during the same period.
Our decision to continue to emphasize pharmaceutical stocks was a positive
factor in the Fund's performance. Investors have perceived these companies as a
safer haven in an uncertain economy in which growth in corporate profits have
been slowing. The portfolio also emphasized financial services stocks, which
have benefited from the lower interest rate environment. Another positive
industry group was telecommunications, which helped to cushion the portfolio
when the market was falling.
However, the Fund's emphasis in energy stocks hurt performance, as the price of
oil plunged. We continue to emphasize the group because we believe that the bad
news on oil has already been priced into the stocks. When there is a turnaround
in the global economy, these stocks should rally.
Technology was a mixed performer during the period. Software companies that can
help companies solve problems such as the upcoming Year 2000 computer challenge
performed well. Hardware companies that depend on Asia for sales had a more
difficult period.
Our strategy is to look for companies that are growing faster than the market as
a whole and that have price-earnings ratios that are not significantly above the
market. We're also looking for companies that can increase profits through sales
growth rather than merely through cost cutting, which has a finite benefit.
Our biggest concern for the rest of 1998 is the slowing growth in U.S. corporate
profits. We have tried to focus the portfolio in areas that could best weather
this environment. However, the favorable interest rate and inflation environment
suggest that the stock market can continue to do moderately well, even with
single-digit corporate profit growth.
Semi-Annual Report -- June 30, 1998
5
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Equity Fund
- --------------------------------------------------------------------------------
CUMULATIVE PERFORMANCE
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
BISHOP STREET EQUITY FUND VERSUS THE S&P 500 COMPOSITE INDEX
AND THE LIPPER DOMESTIC EQUITY AVERAGE
[LINE GRAPH OMITTED]
PLOT POINTS FOLLOW:
BISHOP STREET S&P 500 LIPPER DOMESTIC
EQUITY FUND COMPOSITE INDEX EQUITY AVERAGE
JAN 97 $10,000 $10,000 $10,000
MAR 97 9,593 9,665 9,422
JUN 97 11,104 11,351 10,824
SEP 97 11,844 12,202 12,104
DEC 97 12,031 12,552 11,921
MAR 98 13,699 14,301 13,300
JUNE 98 14,164 14,773 13,229
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
AVERAGE ANNUAL TOTAL RETURNS
SIX ONE ANNUALIZED
MONTH YEAR INCEPTION
RETURN RETURN TO DATE
-------------------------------------
17.73% 27.55% 28.83%
-------------------------------------
Bishop Street Funds
6
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Equity Fund (UNAUDITED)
- --------------------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS
Percentage of
Investments
- --------------------------------------------------------------------------------
1. General Electric Company 3.9%
2. AES Corporation 3.2%
3. Microsoft Corporation 2.8%
4. Cisco Systems Incorporated 2.7%
5. Eli Lilly and Company 2.4%
6. Schering Plough Corporation 2.3%
7. Exxon Corporation 1.9%
8. Chase Manhattan Bank New 1.7%
9. Dayton Hudson Corporation 1.6%
10. Home Depot Incorporated 1.6%
STATEMENT OF NET ASSETS
Market
Value
Shares (000)
------ ------
COMMON STOCK -- 96.9%
AEROSPACE / DEFENSE -- 2.6%
15,800 Boeing Co. $ 704
8,100 Lockheed Martin Corp. 858
6,200 United Technologies Corp. 573
------
2,135
------
AIR TRANSPORTATION -- 0.4%
5,400 FDX Corp.* 339
------
AUTOMOTIVE -- 2.4%
4,700 General Motors Corp. 314
18,400 General Motors Corp., Cl H 867
14,000 Johnson Controls, Inc. 799
------
1,980
------
BANKS -- 7.9%
6,400 Bankers Trust New York Corp. 743
18,600 Chase Manhattan Corp. 1,404
5,500 Citicorp 821
Semi-Annual Report -- June 30, 1998
7
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Equity Fund (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
(CONTINUED)
Market
Value
Shares (000)
------ ------
COMMON STOCK -- CONTINUED
13,200 First Union Corp. $ 769
16,400 NationsBank Corp. 1,255
22,600 Norwest Corp. 845
12,000 Union Planters 706
-------
6,543
-------
BEAUTY PRODUCTS -- 2.8%
15,200 Gillette Co. 862
10,600 Procter & Gamble Co. 965
6,400 Unilever NV, ADR 505
-------
2,332
-------
BROADCASTING, NEWSPAPERS & ADVERTISING -- 0.8%
16,900 Univision Communications* 629
-------
CHEMICALS -- 0.5%
11,000 Air Products & Chemicals, Inc. 440
-------
COMMUNICATIONS EQUIPMENT -- 3.3%
10,300 Harris Corp. 460
13,400 Lucent Technologies Inc. 1,115
10,000 Motorola, Inc. 526
10,600 Northern Telecom 602
-------
2,703
-------
COMPUTERS & SERVICES -- 11.9%
22,500 Altera* 665
24,600 Cisco Systems, Inc.* 2,265
31,000 Compaq Computer Corp.* 880
14,800 Computer Associates International, Inc. 822
10,200 International Business Machines Corp. 1,171
21,400 Microsoft, Corp.* 2,319
24,000 Sterling Commerce, Inc.* 1,164
13,600 Sun Microsystems, Inc.* 591
-------
9,877
-------
DRUGS -- 13.0%
10,600 Bristol-Myers Squibb Co. 1,218
12,800 Elan, ADR* 823
30,700 Eli Lilly & Co. 2,028
11,600 Johnson & Johnson 855
7,100 Merck & Co., Inc. 950
11,400 Pfizer Inc. 1,239
21,000 Schering Plough Corp. 1,924
13,500 Warner Lambert Co. 937
18,000 Watson Pharmaceuticals* 840
-------
10,814
-------
Bishop Street Funds
8
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Equity Fund (UNAUDITED)
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STATEMENT OF NET ASSETS
(CONTINUED)
Market
Value
Shares (000)
------- -------
COMMON STOCK -- CONTINUED
ELECTRICAL UTILITIES -- 3.6%
49,800 AES Corp.* $ 2,618
5,900 FPL Group, Inc. 372
-------
2,990
-------
ENTERTAINMENT -- 1.1%
8,900 Walt Disney Co. 935
-------
FINANCIAL SERVICES -- 4.0%
8,600 American Express Co. 980
16,500 Fannie Mae 1,002
9,800 Freddie Mac 461
9,200 Merrill Lynch & Co., Inc. 849
-------
3,292
-------
FOOD, BEVERAGE & TOBACCO -- 3.7%
13,800 Campbell Soup, Co. 733
14,600 Coca-Cola, Co. 1,248
17,400 Philip Morris Companies Inc. 685
7,700 Sara Lee Corp. 431
-------
3,097
-------
INSURANCE -- 4.3%
7,350 American International Group, Inc. 1,073
5,200 Chubb Corp. 418
4,800 Cigna Corp. 331
1,600 General Re Corp. 406
4,100 Hartford Financial Services Group Inc. 469
14,500 Travelers Group Inc. 879
-------
3,576
-------
MACHINERY -- 4.4%
7,100 Deere & Co. 375
35,800 General Electric, Co. 3,258
-------
3,633
-------
MEDICAL PRODUCTS & SERVICES -- 1.0%
29,400 HEALTHSOUTH Corp.* 785
-------
PAPER & PAPER PRODUCTS -- 0.3%
6,200 Kimberly-Clark Corp. 284
-------
PETROLEUM & FUEL PRODUCTS -- 3.5%
17,450 Baker Hughes, Inc. 603
14,800 Burlington Resources, Inc. 637
15,900 EVI Weatherford, Inc.* 590
19,450 Noble Drilling Corp.* 468
9,700 Schlumberger Ltd. 663
-------
2,961
-------
Semi-Annual Report -- June 30, 1998
9
<PAGE>
Equity Fund (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
(CONTINUED)
Market
Value
Shares (000)
------- -------
COMMON STOCK -- CONCLUDED
PETROLEUM REFINING -- 7.3%
14,600 Amoco Corp. $ 608
7,800 British Petroleum, ADR 688
9,200 Chevron, Corp. 764
21,900 Exxon Corp. 1,562
8,800 Mobil Corp. 674
17,400 Royal Dutch Petroleum Co. New York Registry 954
13,600 Texaco, Inc. 812
-------
6,062
-------
PRINTING & PUBLISHING -- 1.3%
15,000 Gannett Company, Inc. 1,066
-------
RAILROADS -- 0.3%
5,064 Canadian National Railway 269
-------
RETAIL -- 7.9%
8,700 Albertson's Inc. 451
23,000 Consolidated Stores Corp.* 834
17,900 Costco Companies Inc.* 1,129
11,400 CVS Corp. 444
27,800 Dayton-Hudson Corp. 1,348
10,000 Fred Meyer, Inc.* 425
15,600 Home Depot, Inc. 1,296
9,200 McDonald's Corp. 635
-------
6,562
-------
SEMI-CONDUCTORS/INSTRUMENTS -- 1.3%
14,400 Intel Corp. 1,067
-------
TELEPHONES & TELECOMMUNICATION -- 7.3%
21,700 Airtouch Communications Inc.* 1,268
15,600 AT&T Corp. 891
17,283 Bell Atlantic Corp. 789
12,000 BellSouth Corp. 805
13,100 GTE Corp. 729
11,600 SBC Communications, Inc. 464
22,200 Worldcom Inc.* 1,075
-------
6,021
-------
TOTAL COMMON STOCK (Cost $58,505) 80,392
-------
Bishop Street Funds
10
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Equity Fund (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
(CONCLUDED)
Market
Shares Value
(000) (000)
------- -------
CASH EQUIVALENTS -- 3.2%
2,603 SEI Daily Income Trust Money Market Portfolio $ 2,603
41 SEI Daily Income Trust Prime Obligation Portfolio 41
-------
TOTAL CASH EQUIVALENTS (Cost $2,644) 2,644
-------
TOTAL INVESTMENTS (Cost $61,149) -- 100.1% 83,036
-------
OTHER ASSETS AND LIABILITIES, NET -- (0.1%) (60)
-------
NET ASSETS:
Fund shares (unlimited authorization -- no par value)
based on 5,855,206 outstanding shares of beneficial interest 58,998
Accumulated net realized gain on investments 2,091
Net unrealized appreciation of investments 21,887
-------
TOTAL NET ASSETS -- 100.0% $82,976
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $14.17
-------
* NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Semi-Annual Report -- June 30, 1998
11
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BISHOP STREET
INVESTMENT ADVISER'S REPORT & MANAGEMENT DISCUSSION
FUNDS
High Grade Income Fund
- --------------------------------------------------------------------------------
INVESTMENT ADVISER'S REPORT:
The first half of 1998 was a strong period for the bond market, as long-term
U.S. interest rates fell to historically low levels. The benchmark 30-year U.S.
Treasury bond yield fell from 5.92% to 5.62%, as the demand for bonds was fueled
by anxious global investors looking for a safe haven.
Meanwhile, the Federal Reserve Board, which regulates short-term interest rates,
stayed on the sidelines as the opposing forces of powerful U.S. economic growth
and the Asian economic crisis offset each other. After a strong first quarter,
in which Gross Domestic Product grew 4.2%, growth was relatively subdued in the
second quarter. This made it unnecessary for the Fed to intervene to prevent
inflation, which remains quiet.
Even though the Asian crisis has slowed down U.S. economic growth, we do not
believe that a recession is on the horizon. Asia's weakness is being offset to
some extent by a booming Europe, which is seeing its economy flourish as the
Continent gets ready for its new single currency, the euro, which makes its
debut in January.
For the first time in 30 years, the U.S. government should report a budget
surplus at the end of Fiscal 1998. This has profound implications for the bond
market because a surplus constrains the need for new government bond issuance,
further boosting prices and reducing yields. A budget surplus combined with
inflation under 2% is an excellent backdrop for bonds in 1998.
MANAGEMENT DISCUSSION & ANALYSIS OF FUND PERFORMANCE:
The High Grade Income Fund seeks to provide high total returns consistent with
prudent investment risk by investing primarily in U.S. government securities as
well as high-quality corporate bonds. As of June 30, 1998, the portfolio was
composed of 36% U.S. Treasury obligations, 39% U.S. government agency
obligations, 21% corporate bonds, and the balance in short-term investments.
U.S. Treasury bonds and U.S. government agency securities are backed by the U.S.
government and are considered to be of AAA quality. Corporate bonds carry some
credit risk in exchange for slightly higher yields. The average corporate bond
in the portfolio is rated A by Standard & Poor's Corporation.
Bishop Street Funds
12
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[BISHOP STREET FUNDS LOGO OMITTED]
For the six months ended June 30, 1998, the Fund produced a total return of
3.69%. In comparison, the average domestic taxable fixed-income fund as measured
by Lipper Analytical Services Inc. produced a total return of 3.54%. Meanwhile,
the unmanaged Lehman Brothers Government/Corporate Bond Index reflected a return
of 4.17%. As of June 30, 1998, the Fund's 30-day SEC yield, an approximation of
income, was 5.06%.
The Fund's performance was adversely affected by our decision to keep the
portfolio's duration (sensitivity to interest rates) slightly shorter than
average. In a period of falling interest rates, it is generally better to have a
portfolio with a longer duration since bond prices move inversely to interest
rates. We did attempt to extend the portfolio's duration during the first
quarter when yields backed up towards 6%. However, the portfolio's duration was
shorter than average in the second quarter when yields fell significantly in
response to worsening news from Asia.
Because of the perception that global economic growth was slowing, high quality
corporate bond prices began to come under pressure, making U.S. Treasury bonds
relatively attractive during the first half of 1998. Accordingly, we reduced our
corporate bond allocation from about 28% to 22%, investing the proceeds in U.S.
Treasury bonds and government agency securities.
In light of the uncertainty in Asia, we plan to continue to emphasize a very
high quality portfolio. Looking ahead, particularly with respect to Japan, the
swift execution of effective fiscal and monetary reform is critical in order to
help other global economies. To be sure, as concerns in Japan and Asia abate and
focus returns to our strong domestic economy, over the intermediate term, we
would expect to see a firming in interest rates toward the end of 1998. Our
strategy would keep us slightly short of the index so that we could extend at
that time.
We intend to continue to manage the High Grade Income Fund conservatively,
seeking high-quality securities and the preservation of capital.
Semi-Annual Report -- June 30, 1998
13
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High Grade Income Fund
- --------------------------------------------------------------------------------
CUMULATIVE PERFORMANCE
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
BISHOP STREET HIGH GRADE INCOME FUND VERSUS THE
LEHMAN GOVERNMENT/CORPORATE BOND INDEX AND THE
LIPPER DOMESTIC FIXED INCOME AVERAGE
[LINE GRAPH OMITTED]
PLOT POINTS FOLLOW
BISHOP STREET LEHMAN LIPPER DOMESTIC
HIGH GRADE GOVERNMENT/ FIXED INCOME
INCOME FUND CORPORATE BOND INDEX AVERAGE
JAN 97 $10,000 $10,000 $10,000
MAR 97 9,902 9,902 9,937
JUN 97 10,216 10,261 10,279
SEP 97 10,514 10,621 10,611
DEC 97 10,793 10,962 10,828
MAR 98 10,937 11,129 11,031
JUN 98 11,191 11,419 11,203
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
AVERAGE ANNUAL TOTAL RETURNS
SIX ONE ANNUALIZED
MONTH YEAR INCEPTION
RETURN RETURN TO DATE
-------------------------------------
3.69% 9.55% 8.30%
-------------------------------------
Bishop Street Funds
14
<PAGE>
High Grade Income Fund (UNAUDITED)
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
Percentage
Coupon Maturity of
Rate Date Investments
- --------------------------------------------------------------------------------
1. Federal National Mortgage Association 6.60% May 8, 2002 8.2%
2. United States Treasury Bond 7.50% Nov. 15, 2016 6.0%
3. Federal Home Loan Mortgage Corp. 5.69% Jan. 24, 2001 4.4%
4. United States Treasury Note 7.25% Jan. 15, 2004 3.8%
5. Federal National Mortgage Association 7.40% July 1, 2004 3.4%
6. United States Treasury Note 6.25% Feb. 15, 2007 3.3%
7. Federal Home Loan Bank 7.57% Aug. 19, 2004 3.0%
8. United States Treasury Note 8.50% Nov. 15, 2000 3.0%
9. Honeywell Incorporated 7.00% Mar. 15, 2007 2.9%
10. United States Treasury Note 7.75% Feb. 15, 2001 2.9%
STATEMENT OF NET ASSETS
Face Market
Amount Value
(000) (000)
------- -------
CORPORATE OBLIGATIONS -- 21.4%
AIRCRAFT -- 2.4%
Boeing Co.
$600 6.350%, 06/15/03 $ 611
------
CHEMICALS -- 4.5%
Hercules, Inc.
600 6.625%, 06/01/03 611
PPG Industries, Inc.
500 6.875%, 02/15/12 528
------
1,139
------
COMMUNICATIONS EQUIPMENT -- 1.2%
Rockwell International Corp.
300 6.625%, 06/01/05 312
------
ENTERTAINMENT -- 2.8%
Walt Disney Co.
700 6.750%, 03/30/06 731
------
Semi-Annual Report -- June 30, 1998
15
<PAGE>
High Grade Income Fund (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
(CONTINUED)
Face Market
Amount Value
(000) (000)
------- -------
CORPORATE OBLIGATIONS -- CONTINUED
FOOD, BEVERAGE & TOBACCO -- 1.2%
Pet Inc.
$300 6.500%, 07/01/03 $ 302
------
MACHINERY -- 1.2%
Dresser Industries, Inc.
300 6.250%, 06/01/00 302
------
MEASURING DEVICES -- 2.9%
Honeywell, Inc.
700 7.000%, 03/15/07 740
------
PAPER & PAPER PRODUCTS -- 2.0%
Sonoco Products Co.
500 6.750%, 11/01/10 516
------
RETAIL -- 3.2%
Gap, Inc.
500 6.900%, 09/15/07 524
Lowes Companies Inc.
300 6.375%, 12/15/05 306
------
830
------
TOTAL CORPORATE OBLIGATIONS (Cost $5,262) 5,483
------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 38.5%
FHLB
700 7.170%, 03/29/00 717
400 6.000%, 07/05/00 403
500 5.960%, 10/06/00 502
700 7.310%, 07/06/01 731
700 7.570%, 08/19/04 765
FHLMC
1,100 5.690%, 01/24/01 1,097
700 6.220%, 03/24/03 715
FNMA
400 7.500%, 02/11/02 424
2,000 6.605%, 05/08/02 2,063
800 7.400%, 07/01/04 867
550 6.350%, 06/10/05 569
400 6.440%, 06/21/05 416
300 6.400%, 09/27/05 311
Bishop Street Funds
16
<PAGE>
High Grade Income Fund (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
(CONTINUED)
Face Market
Amount/Shares Value
(000) (000)
------------- -------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- CONTINUED
FNMA, MTN
$250 6.480%, 06/28/04 $ 259
-------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $9,579) 9,839
-------
U.S. TREASURY OBLIGATIONS -- 35.7%
U.S. Treasury Bonds
1,250 7.500%, 11/15/16 1,500
400 7.250%, 08/15/22 479
U.S. Treasury Notes
350 5.500%, 03/31/00 350
200 6.750%, 04/30/00 204
400 6.375%, 05/15/00 406
700 8.500%, 11/15/00 746
250 5.625%, 11/30/00 250
700 7.750%, 02/15/01 737
700 6.125%, 12/31/01 712
300 6.250%, 02/28/02 307
700 6.375%, 08/15/02 721
875 7.250%, 05/15/04 949
400 7.500%, 02/15/05 442
450 6.500%, 10/15/06 477
800 6.250%, 02/15/07 837
-------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $8,929) 9,117
-------
CASH EQUIVALENTS -- 2.9%
482 SEI Daily Income Trust Money Market Portfolio 482
252 SEI Daily Income Trust Prime Obligation Portfolio 252
-------
TOTAL CASH EQUIVALENTS (Cost $734) 734
-------
TOTAL INVESTMENTS (COST $24,504) -- 98.5% 25,173
-------
OTHER ASSETS AND LIABILITIES, NET -- 1.5% 381
-------
Semi-Annual Report -- June 30, 1998
17
<PAGE>
High Grade Income Fund (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
(CONCLUDED)
Market
Value
(000)
-------
NET ASSETS:
Fund shares (unlimited authorization -- no par value) based on
2,473,324 outstanding shares of beneficial interest $24,718
Accumulated net realized gain on investments 167
Net unrealized appreciation of investments 669
-------
TOTAL NET ASSETS -- 100.0% $25,554
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $10.33
-------
FHLB -- FEDERAL HOME LOAN BANK
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
MTN -- MEDIUM TERM NOTE
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Bishop Street Funds
18
<PAGE>
BISHOP STREET
INVESTMENT ADVISER'S REPORT & MANAGEMENT DISCUSSION
FUNDS
Hawaii Municipal Bond Fund
- --------------------------------------------------------------------------------
INVESTMENT ADVISER'S REPORT:
The fixed income markets were strong and steady throughout the first half of
1998. The same major dynamics impacting the market during the fourth quarter of
1997 continued to drive interest rates even lower. Those factors include a very
low rate of inflation, running at about 1.7% annually, and the continuing
concern and uncertainty about economic instability in the Asian economies.
As a result, dollar-denominated securities attracted strong international
capital flows. At the end of the first half, the U.S. Treasury bond stood at a
5.62% yield, about 30 basis points lower than at the end of 1997.
Municipals were steady, almost unchanged in yield, during the first half of
1998. The volume of tax-exempts coming to market increased dramatically, up
almost 50% from a year earlier, primarily due to a large number of refunding
issues that refinanced previously issued higher-cost debt.
The Hawaii economy has still not rebounded, and is not likely to do so quickly
with the probability of a slow recovery in Japan and the other Asian countries,
as well as competitive pressure from mainland and other resort destinations. In
March, Moody's Investor Service fell in line with a previous downgrade of the
state's general obligation debt by Standard & Poor's Corporation, reducing the
rating from AA3 to A-1, while stating that the state's credit outlook is stable.
In the fall of 1997, the governor appointed an economic revitalization task
force to make recommendations to the legislature for creating incentives for
business expansion and diversification. Although many of the proposals were not
enacted by the legislature, a significant individual income tax reduction
package was passed which reduced the top marginal rates over a four-year period.
However, at the new maximum state income tax rate of 8.25%, Hawaii municipal
bonds would still look exceedingly attractive compared to taxable bonds.
MANAGEMENT DISCUSSION & ANALYSIS OF FUND PERFORMANCE:
Our major objective in the Hawaii Municipal Bond Fund continues to be to deliver
a high level of current income exempt from both federal and State of Hawaii
income taxes. We believe that the Fund accomplished that objective during the
first half of 1998, particularly when its yield is compared on a tax-equivalent
basis to comparable investments.
Semi-Annual Report -- June 30, 1998
19
<PAGE>
Hawaii Municipal Bond Fund
- --------------------------------------------------------------------------------
At June 30, 1998, the Fund was yielding 4.71%. For an individual in the highest
combined federal and state income tax bracket, this is equivalent to a taxable
yield of 8.66%.* Few taxable fixed-income investments generate such a high
return today, particularly taxable portfolios with the credit quality comparable
to most municipal bonds.
We continue to place strong emphasis on high credit quality. Currently, about
88% of the portfolio carries a AA or AAA rating.
In addition, our strategy is to remain broadly diversified in such sectors as
transportation, education, housing, health care and utilities--as well as
general obligations of the state and counties of Hawaii. As an example of a bond
that provides good current income, we recently added a revenue bond from Wilcox
General Hospital, the only full-service hospital on the island of Kauai.
Ten percent of the portfolio is invested in AAA-rated bonds issued by the
Commonwealth of Puerto Rico and its governmental agencies. These bonds are
insured and offer dual tax-exempt income as well as diversification for the
portfolio.
Because of the increasing flatness of the yield curve, we shortened our average
maturity from 13 1/2 to 13 years, without sacrificing current income.
In a period of falling interest rates, bonds that can be called within a short
period of time tend to underperform. As a result, we continue to emphasize call
protection in the portfolio by adding non-callable issues whenever possible.
For the six months ended June 30, 1998, the Hawaii Municipal Bond Fund produced
a total return of 2.33%. In comparison, the six-month total return for the
Lipper Hawaii Municipal Debt Funds Average was 2.30%. The Lehman Municipal Bond
Index, a broader unmanaged measure of the municipal market including many
national issues not exempt from Hawaii income taxes, reflected a 2.69% return
for the same period.
Given the low inflation environment and the moderated effects on Hawaii's
economy that we expect from the Asian situation, we don't expect significant
volatility in interest rates during the second half of 1998. We anticipate that
the Federal Reserve Board will continue to hold the Federal Funds rate steady
until a change is perceived either in the Asian economies or in our presently
benign inflation picture.
*This information is based on a hypothetical illustration and is not
representative of any investment securities.
Bishop Street Funds
20
<PAGE>
Hawaii Municipal Bond Fund
- --------------------------------------------------------------------------------
CUMULATIVE PERFORMANCE
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
BISHOP STREET HAWAII MUNICIPAL BOND FUND VERSUS THE
LEHMAN BROTHERS MUNICIPAL BOND INDEX AND THE
LIPPER HAWAII MUNICIPAL DEBT FUNDS AVERAGE
[LINE GRAPH OMITTED}
PLOT POINTS TO FOLLOW:
BISHOP STREET LIPPER HAWAII
HAWAII MUNICIPAL MUNICIPAL DEBT LEHMAN BROTHERS
BOND FUND FUNDS AVERAGE MUNICIPAL BOND INDEX
2/28/95 $10,000 $10,000 $10,000
6/95 10,288 10,304 10,359
12/95 10,941 11,005 11,097
6/96 10,849 10,893 11,047
12/96 11,401 11,420 11,589
6/97 11,722 11,727 11,961
12/97 12,373 12,362 12,656
6/98 12,661 12,647 12,997
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
AVERAGE ANNUAL TOTAL RETURNS
SIX ONE ANNUALIZED ANNUALIZED
MONTH YEAR 3 YEAR INCEPTION
RETURN RETURN RETURN TO DATE
- -------------------------------------------------------
2.33% 8.00% 7.16% 7.27%
- -------------------------------------------------------
Semi-Annual Report -- June 30, 1998
21
<PAGE>
Hawaii Municipal Bond Fund (UNAUDITED)
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
Percentage
Coupon Maturity of
Rate Date Investments
- --------------------------------------------------------------------------------
1. HI Airport Systems Revenue 7.00% July 1, 2020 4.4%
2. HI Airports System Revenue 5.75% July 1, 2009 4.3%
3. HI Hous., Fin. & Develop/Single Family 5.55% July 1, 2007 4.2%
4. Commonwealth of Puerto Rico, GO 6.50% July 1, 2013 3.9%
5. HI Budg. & Fin./Queens Health Sys. 6.00% July 1, 2020 3.6%
6. C&C of Honolulu Board of Water Supply 5.80% July 1, 2016 3.5%
7. HI Budg. & Fin./St. Francis Med. Ctr. 6.50% July 1, 2022 3.4%
8. HI Budg. & Fin./Kapiolani Health Care 6.30% July 1, 2008 2.7%
9. HI Budg. & Fin./Hawaiian Electric 6.20% May 1, 2026 2.7%
10. HI Hous., Fin. & Develop/Rental Housing 6.05% July 1, 2022 2.6%
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
Face Market
Amount Value
(000) (000)
------- -------
MUNICIPAL BONDS -- 96.8%
GUAM -- 2.0%
Guam Power Authority, Ser A, RB, AMBAC Insured
$ 400 6.375%, 10/01/08 $ 439
Guam, Government Limited Obligation, Ser A, RB
150 7.100%, 11/15/09 160
-----
599
-----
HAWAII -- 84.0%
Department of Budget & Finance, Hawaiian Electric,
RB, MBIA Insured
750 6.200%, 05/01/26 809
Department of Budget & Finance, Queens Health
Systems, Ser A, RB
1,000 6.000%, 07/01/20 1,069
Department of Budget & Finance, Queens Health
Systems, Ser A, RB
250 5.875%, 07/01/11 267
Department of Budget & Finance, Special
Purpose Mortgage, Hawaii Electric
Incorporated Project, Ser A, RB,
MBIA Insured
350 6.600%, 01/01/25 389
Department of Budget & Finance,
Special Purpose Mortgage, Kaiser
Permanente Project, Ser A, RB
300 6.500%, 03/01/11 318
Bishop Street Funds
22
<PAGE>
Hawaii Municipal Bond Fund (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
(CONTINUED)
Face Market
Amount Value
(000) (000)
------- -------
MUNICIPAL BONDS -- CONTINUED
Department of Budget & Finance,
Special Purpose Mortgage, Kapiolani
Health Care System Project, RB
$ 760 6.300%, 07/01/08 $ 818
250 6.000%, 07/01/11 269
Department of Budget & Finance,
Special Purpose Mortgage, Hawaiian
Electric Company, Ser A, RB,
MBIA Insured
300 4.950%, 04/01/12 302
Department of Budget & Finance,
Special Purpose Mortgage, Wilcox
Memorial Hospital Projects, RB
500 5.500%, 07/01/09 523
Department of Budget & Finance,
Special Purpose Mortgage, Kapiolani
Health Care System Project, RB
250 6.400%, 07/01/13 270
Department of Budget & Finance,
Special Purpose Mortgage, St. Francis
Medical Center Project, RB, FSA Insured
210 5.875%, 07/01/01 219
930 6.500%, 07/01/22 1,008
Harbor Capital Improvement,
RB, MBIA Insured
500 5.400%, 07/01/09 526
480 7.000%, 07/01/17 512
Harbor Capital Improvement,
Ser 1992, RB, FGIC Insured
225 6.500%, 07/01/19 242
Hawaii County, GO, MBIA Insured
250 6.850%, 12/01/02 253
Hawaii County, Ser A, GO, FGIC Insured
400 5.550%, 05/01/09 432
450 5.600%, 05/01/12 485
190 5.600%, 05/01/13 204
Honolulu City & County Board of
Water Supply, RB
250 5.250%, 07/01/07 262
1,000 5.800%, 07/01/16 1,059
Honolulu City & County Mortgage,
Smith Berentia, Ser A, RB,
FHA & MBIA Insured
100 7.800%, 07/01/24 108
Honolulu City & County Ser A, GO
245 5.700%, 04/01/09 268
Honolulu City & County Waipahu
Towers Project,
Ser A, RB, GNMA Collateral
200 6.900%, 06/20/35 215
Honolulu City & County, GO
230 6.000%, 12/01/09 258
Honolulu City & County, GO,
FGIC Insured
125 5.500%, 11/01/07 135
Semi-Annual Report -- June 30, 1998
23
<PAGE>
Hawaii Municipal Bond Fund (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
(CONTINUED)
Face Market
Amount Value
(000) (000)
------- -------
MUNICIPAL BONDS -- CONTINUED
Honolulu City & County, Ser A, GO
$ 150 6.000%, 01/01/10 $ 168
Honolulu City & County, Ser A, GO,
MBIA Insured
500 6.000%, 11/01/10 562
Kauai County, Refunding Ser A, GO,
MBIA Insured
50 5.400%, 02/01/04 53
Kauai County, Ser B, GO, AMBAC Insured
285 5.750%, 08/01/06 310
Kauai County, Ser B, GO, MBIA Insured
120 5.050%, 08/01/12 121
260 5.900%, 02/01/13 277
155 5.100%, 08/01/13 157
165 5.150%, 08/01/14 166
175 5.200%, 08/01/15 177
Maui County, Board of Water Supply,
Ser A, RB, FGIC Insured
520 6.000%, 12/01/01 554
Maui County, GO, FGIC Insured
115 5.000%, 09/01/08 118
100 5.125%, 12/15/12 101
Maui County, GO, MBIA Insured
250 5.750%, 06/01/13 266
Maui County, Ser A, GO, FGIC Insured
200 5.000%, 03/01/13 200
100 5.125%, 03/01/14 100
Maui County, Refunding GO, FGIC Insured
290 5.125%, 12/15/10 297
Maui County, Ser A, GO, FGIC Insured
500 5.200%, 09/01/12 511
State Airport Systems, RB, FGIC Insured
300 7.200%, 07/01/00 317
1,210 7.000%, 07/01/20 1,322
State Airport Systems, Ser 2, RB
60 6.900%, 07/01/12 70
State Airport Systems, Ser 3, RB,
AMBAC Insured
1,200 5.750%, 07/01/09 1,276
State GO, Ser CM, FGIC Insured
500 6.000%, 12/01/09 561
State GO, Ser CN, FGIC Insured
500 5.500%, 03/01/14 523
State GO, Ser CO, FGIC Insured
200 6.000%, 09/01/05 220
250 6.000%, 03/01/09 279
250 6.000%, 09/01/09 280
Bishop Street Funds
24
<PAGE>
Hawaii Municipal Bond Fund (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
(CONTINUED)
Face Market
Amount Value
(000) (000)
------- -------
MUNICIPAL BONDS -- CONTINUED
State Highway Project, RB
$ 375 5.250%, 07/01/10 $ 390
510 5.000%, 07/01/11 511
500 5.250%, 07/01/12 514
State Housing, Finance & Development
Corporation, Affordable Rental Housing
Program, Ser 1995 A, RB
350 6.000%, 07/01/15 368
750 6.050%, 07/01/22 787
State Housing, Finance & Development
Corporation, Single Family Mortgage
Purchase, RB
1,200 5.550%, 07/01/07 1,262
State Housing, Finance & Development
Corporation, Single Family Mortgage
Purchase, Ser B, RB, FNMA Collateral
595 5.700%, 07/01/13 613
State Housing, Finance & Development
Corporation, Single Family Mortgage
Purchase, RB, AMT, Ser A, FNMA Collateral
250 5.250%, 07/01/13 249
State Housing, Finance & Development
Corporation, University of Hawaii
Faculty Housing Project, RB, AMBAC Insured
700 5.650%, 10/01/16 737
-------
25,637
-------
PUERTO RICO -- 10.3%
Commonwealth Highway & Transportation
Authority, Ser Z, RB, FSA Insured
500 6.000%, 07/01/18 569
Commonwealth of Puerto Rico, GO,
MBIA Insured
1,000 6.500%, 07/01/13 1,183
Housing, Banking & Finance Agency,
Single Family Mortgage, Affordable
Housing Mortgage Portfolio I, RB,
GNMA/FNMA/FHLMC Collateral
300 6.100%, 10/01/15 318
Industrial Tourist Educational
Medical Environmental Control Facilities
Inter American University, Ser A,
MBIA Insured
250 5.000%, 10/01/22 247
Industrial Tourist Educational
Medical Environmental Control
Facilities Hospital Auxilio Muto
Obligation Group, RB, MBIA Insured
300 6.250%, 07/01/24 330
Infrastructure Financing Authority,
Ser A, RB, AMBAC Insured
500 5.000%, 07/01/21 497
-------
3,144
-------
Semi-Annual Report -- June 30, 1998
25
<PAGE>
Hawaii Municipal Bond Fund (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
(CONCLUDED)
Face Market
Amount Value
(000) (000)
------- -------
MUNICIPAL BONDS -- CONTINUED
VIRGIN ISLANDS -- 0.5%
Housing Finance Authority, Single
Family, GNMA Mortgage Backed
Securities Program, Ser A, RB
$150 6.500%, 03/01/25 $ 160
-------
TOTAL MUNICIPAL BONDS (Cost $28,300) 29,540
-------
CASH EQUIVALENTS -- 1.4%
77 Dreyfus Tax Exempt Cash Management Fund 77
59 Nuveen Federal Tax Exempt Money Market 59
311 SEI Institutional Tax Free Portfolio 311
-------
TOTAL CASH EQUIVALENTS (Cost $447) 447
-------
TOTAL INVESTMENTS (COST $28,747) -- 98.2% 29,987
-------
OTHER ASSETS AND LIABILITIES, NET -- 1.8% 541
-------
NET ASSETS:
Fund shares (unlimited authorization -- no par value)
based on 2,863,101 outstanding shares
of beneficial interest 29,300
Undistributed net investment income 28
Accumulated net realized loss on investments (40)
Net unrealized appreciation of investments 1,240
-------
TOTAL NET ASSETS -- 100.0% $30,528
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $10.66
-------
AMBAC--AMERICAN MUNICIPAL BOND ASSURANCE COMPANY
AMT--ALTERNATIVE MINIMUM TAX
FGIC--FEDERAL GUARANTY INSURANCE CORPORATION
FHA--FEDERAL HOUSING AUTHORITY
FHLMC--FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
FSA--FINANCIAL SECURITY ASSURANCE
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
GO--GENERAL OBLIGATION
MBIA--MUNICIPAL BOND INVESTORS ASSURANCE
RB--REVENUE BOND
SER--SERIES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Bishop Street Funds
26
<PAGE>
BISHOP STREET
INVESTMENT ADVISER'S REPORT & MANAGEMENT DISCUSSION
FUNDS
Money Market & Treasury Money Market Fund
- --------------------------------------------------------------------------------
INVESTMENT ADVISER'S REPORT:
Led by strong demand from free-spending consumers, the U.S. economy continued
its strong growth early in the year. Consumer confidence remained very positive
amidst low unemployment and higher wages. As we moved into the second quarter,
growth slowed from the torrid pace of the first quarter but strong consumer
spending again helped move the economy forward. Although the domestic picture
remained positive, the global picture did not. Global welfare concerns
intensified in the second quarter as Asia, which had briefly appeared to have
stabilized, continued to slide deeper into recession. In June, Federal Reserve
Chairman Greenspan noted the impressive growth and tight labor markets
domestically, but continued to fear the fallout from worldwide events,
particularly in Asia. Fears of a U.S. rate hike subsided while the deteriorating
global situation caused a flight to the quality of U.S. Treasuries, thereby
causing interest rates to decline.
Inflation pressures were benign for the first half of the year, despite the
strong economy and tight labor market. Short term rates remained unchanged from
the 5.50% level at which they have been since March, 1997. Seasonal upward
pressures -- quarter-end funding pressures in March, and speculative
anticipation around the April 15 tax deadline -- pushed rates up on money
markets, but the reduction in Treasury borrowing helped move Treasury yields
lower in the first quarter. Additionally, investor concerns occasionally pushed
market yields higher on fears of a Fed tightening, which never materialized.
MANAGEMENT DISCUSSION & ANALYSIS OF FUND PERFORMANCE:
Despite occasional fears of the Fed raising interest rates, we extended the
weighted average maturities of the Funds when we felt that any Fed moves were
fully reflected in market yields. We also extended the maturities when money
markets experienced seasonal upward rate pressures.
Semi-Annual Report -- June 30, 1998
27
<PAGE>
Money Market & Treasury Money Market Fund
- --------------------------------------------------------------------------------
The Money Market Fund's holdings are concentrated in high quality commercial
paper, floating rate notes, and bank notes/CD's. We increased the Portfolio's
weighted average maturity, which fluctuated around 50 days during the first
quarter, to between 55-65 days during the second quarter as we continued the
barbell strategy of purchasing short dated and one year paper. Total annualized
net return for the Fund for the six month period ended June 30, 1998 was
5.28% compared to 5.36% for the IBC First Tier Institutional-Only Average.
The Treasury Money Market Fund's barbell structure continues to concentrate the
portfolio's holdings in overnight repurchase agreements and longer maturity
Treasuries. This combination provided incremental returns over the competitor
group average. Total annualized net return for the six month period ended June
30, 1998 was 5.18% compared to 4.89% for the IBC U.S. Treasury & Repo average.
Despite ongoing signs of domestic strength, particularly in the consumer sector,
we anticipate reduced growth caused by slowing in the manufacturing sector from
a buildup of inventories that will require time to subside, and the domestic
fallout from global macroeconomic problems. Furthermore, if inflation continues
to surprise on the low side of expectations, the Federal Reserve may even lower
short term rates later in the year. In this environment, we will continue to
favor longer maturities.
Bishop Street Funds
28
<PAGE>
Money Market Fund (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
Face
Amount Value
(000) (000)
------- -------
COMMERCIAL PAPER -- 71.1%
BANKS -- 15.3%
Aesop Funding Corp.
$5,600 5.540%, 07/17/98 $ 5,586
Centric Capital Corp.
8,200 5.610%, 07/20/98 8,176
Fleet Funding Corp.
5,750 5.530%, 07/15/98 5,738
Kitty Hawk Funding Corp.
8,500 5.530%, 08/04/98 8,456
Park Avenue Receivables
4,615 5.550%, 07/17/98 4,604
2,800 5.550%, 07/24/98 2,790
-------
35,350
-------
BROKERAGE -- 10.4%
Bear Stearns Companies Inc.
8,000 5.530%, 07/22/98 7,974
Merrill Lynch and Co.
8,000 5.540%, 07/31/98 7,963
Morgan Stanley, Dean Witter, Discover
8,000 5.540%, 07/15/98 7,983
-------
23,920
-------
FINANCIAL SERVICES -- 28.2%
Avco Financial Services
7,000 5.550%, 08/18/98 6,948
Corporate Asset Funding (B)
7,500 5.560%, 07/16/98 7,483
Corporate Receivables
8,000 5.570%, 07/16/98 7,981
Delaware Funding Corp.
8,000 5.570%, 07/15/98 7,983
Enterprise Funding Corp.
5,403 5.560%, 07/15/98 5,391
2,640 5.530%, 08/07/98 2,625
General Electric Financial Assurance
7,500 5.500%, 07/15/98 7,484
General Electric Capital Corp.
4,515 5.530%, 07/15/98 4,505
PREFCO
7,500 5.570%, 08/13/98 7,450
Ranger Funding Corp. (B)
7,000 5.560%, 07/22/98 6,977
-------
64,827
-------
Semi-Annual Report -- June 30, 1998
29
<PAGE>
Money Market Fund (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
(CONTINUED)
Face
Amount Value
(000) (000)
------- -------
COMMERCIAL PAPER -- CONTINUED
INDUSTRIAL--5.4%
$4,500 CommoLoCo Inc. $ 4,416
5.520%, 10/30/98
Government Development Bank of Puerto Rico
8,000 5.540%, 08/11/98 7,950
--------
12,366
--------
INSURANCE -- 9.7%
Aon Corp.
8,000 5.580%, 08/06/98 7,955
Cigna Corp.
7,500 5.580%, 07/31/98 7,465
Prudential Funding Corp.
7,000 5.390%, 08/19/98 6,949
--------
22,369
--------
TELEPHONES & TELECOMMUNICATION -- 2.1%
4,876 GTE Funding Inc. 4,864
5.580%, 07/17/98 --------
TOTAL COMMERCIAL PAPER (Cost $163,696) 163,696
--------
FLOATING RATE NOTES -- 15.7%
Asset Backed Securities Investment Trust (A)
5,000 5.656%, 08/15/98 5,000
Comerica Bank (A)
8,000 5.553%, 09/10/98 7,995
Peoples Security Life (A)
10,000 5.820%, 08/03/98 10,000
PNC Bank (A)
5,000 5.600%, 09/23/98 4,999
Travelers Insurance Co. (A)
8,000 5.738%, 07/01/98 8,000
--------
TOTAL FLOATING RATE NOTES (Cost $35,994) 35,994
--------
CERTIFICATES OF DEPOSIT/BANK NOTES -- 13.5%
Bank of New York
4,250 5.640%, 03/26/99 4,247
Bankers Trust New York Corp.
7,000 5.680%, 03/09/99 6,997
Bishop Street Funds
30
<PAGE>
Money Market Fund (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
(CONCLUDED)
Face
Amount Value
(000) (000)
------- -------
CERTIFICATES OF DEPOSIT/BANKNOTES -- CONTINUED
First National Bank of Chicago
$4,000 5.740%, 05/07/99 $ 3,998
Key Bank
4,830 5.900%, 09/17/98 4,829
Regions Bank
3,000 5.770%, 05/21/99 2,999
Wilmington Trust
3,000 5.900%, 04/30/99 3,000
5,000 5.850%, 05/17/99 5,000
--------
TOTAL CERTIFICATES OF DEPOSIT/BANK NOTES (Cost $31,070) 31,070
--------
TOTAL INVESTMENTS (COST $230,760) -- 100.3% 230,760
--------
OTHER ASSETS AND LIABILITIES, NET -- (0.3%) (607)
--------
NET ASSETS:
Fund shares (unlimited authorization -- no par value)
based on 230,156,483 outstanding shares
of beneficial interest 230,156
Undistributed net investment income 4
Accumulated net realized loss of investments (7)
--------
TOTAL NET ASSETS -- 100.0% $230,153
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $1.00
--------
(A) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JUNE 30, 1998. THE MATURITY DATE SHOWN IS THE NEXT
SCHEDULED RESET DATE.
(B) SECURITIES SOLD WITHIN THE TERMS OF A PRIVATE PLACEMENT MEMORANDUM, ARE
EXEMPT FROM REGISTRATION UNDER SECTION 4(2) OR 144A OF THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR
OTHER "ACCREDITED INVESTORS." THIS SECURITY HAS BEEN DETERMINED TO BE
LIQUID UNDER GUIDELINES ESTABLISHED BY THE BOARD OF DIRECTORS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Semi-Annual Report -- June 30, 1998
31
<PAGE>
Treasury Money Market Fund (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
Face
Amount Value
(000) (000)
------- -------
U.S. TREASURY OBLIGATIONS -- 21.2%
U.S. Treasury Notes
$ 5,000 6.125%, 08/31/98 $ 5,003
5,000 6.000%, 09/30/98 5,003
11,000 5.875%, 10/31/98 11,007
5,000 5.125%, 12/31/98 4,985
5,000 5.750%, 12/31/98 5,000
3,000 5.875%, 03/31/99 3,008
32,000 6.250%, 03/31/99 32,173
12,000 6.375%, 04/30/99 12,079
5,000 6.000%, 06/30/99 5,024
-------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $83,282) 83,282
-------
REPURCHASE AGREEMENTS -- 79.0%
Goldman Sachs & Co.
5.799%, dated 06/30/98, matures 07/01/98,
repurchase price $70,011,276 (collateralized
by various U.S. Treasury STRIPS, total par
value $198,539,000, 0.00%, 11/15/98-02/15/24:
70,000 total market value $71,400,084) (A) 70,000
Greenwich Capital Markets, Inc.
5.950%, dated 06/30/98, matures 07/01/98,
repurchase price $60,009,917 (collateralized
by U.S. Treasury Note, par value $60,065,000,
5.62%, matures 05/15/08: market value
60,000 $60,778,572) (A) 60,000
Lehman Brothers, Inc.
5.750%, dated 06/30/98, matures 07/01/98,
repurchase price $65,010,382 (collateralized
by various U.S. Treasury STRIPS, total par
value $153,456,000, 0.00%, 11/15/11-11/15/13:
65,000 total market value $66,929,411) 65,000
Morgan Stanley, Dean Witter, Discover & Co.
5.680%, dated 06/30/98, matures 07/01/98,
repurchase price $50,007,889 (collateralized
by various U.S. Treasury Notes, total par
value $42,914,000, 6.375%-7.625%,
08/15/02-11/15/22:
50,000 total market value $50,680,040) (A) 50,000
Bishop Street Funds
32
<PAGE>
Treasury Money Market Fund (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
(CONCLUDED)
Face
Amount Value
(000) (000)
------- -------
REPURCHASE AGREEMENTS -- CONTINUED
Paribas
6.00%, dated 06/30/98, matures 07/01/98,
repurchase price $65,979,995 (collateralized
by various U.S. Treasury Notes, total par
value $64,500,000, 7.50%-11.25%,
10/31/99-02/15/15:
$65,969 total market value $67,311,403) $ 65,969
--------
TOTAL REPURCHASE AGREEMENTS (Cost $310,969) 310,969
--------
TOTAL INVESTMENTS (COST $394,251) -- 100.2% 394,251
--------
OTHER ASSETS AND LIABILITIES, NET -- (0.2%) (728)
--------
NET ASSETS:
Fund shares (unlimited authorization -- no par value)
based on 393,552,160 outstanding shares
of beneficial interest 393,552
Undistributed net investment income 10
Accumulated net realized loss of investments (39)
--------
TOTAL NET ASSETS -- 100.0% $393,523
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $1.00
--------
(A) TRI-PARTY REPURCHASE AGREEMENT
STRIPS -- SEPARATELY TRADED REGISTERED INTEREST AND PRINCIPAL SECURITIES THE
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Semi-Annual Report -- June 30, 1998
33
<PAGE>
<TABLE>
<CAPTION>
Bishop Street Funds (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
High Hawaii Treasury
Grade Municipal Money Money
Equity Income Bond Market Market
Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C> <C> <C> <C>
Interest Income $ 108 $796 $773 $6,898 $8,417
Dividend Income 448 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Income 556 796 773 6,898 8,417
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment Adviser Fee 283 70 52 362 453
Investment Adviser Fee Waiver (73) (27) (44) (169) (333)
Management Fee 76 26 30 241 302
Management Fee Waiver (31) (10) (22) (96) (121)
Shareholder Servicing Fee 95 32 37 301 378
Shareholder Servicing Fee Waiver (57) (19) (22) (181) (226)
Custody Fees 21 5 9 33 31
Transfer Agent Fees 25 13 9 25 32
Registration Fees 12 6 -- -- 37
Trustees Fees 7 1 1 12 27
Printing Fees 6 1 2 19 21
Professional Fees 12 1 3 42 51
Amortization of Deferred
Organizational Costs 3 3 3 3 3
Miscellaneous Expenses 16 1 2 3 16
- ------------------------------------------------------------------------------------------------------------------------------------
Total Expenses 395 103 60 595 671
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 161 693 713 6,303 7,746
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) on Investments 2,275 133 21 27 (1)
Change in Unrealized Appreciation
(Depreciation) on Investments 9,945 129 (55) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments 12,220 262 (34) 27 (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets
Resulting from Operations $12,381 $955 $679 $6,330 $7,745
====================================================================================================================================
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Bishop Street Funds
</FN>
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Bishop Street Funds (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Equity High Grade
Fund Income Fund
- ---------------------------------------------------------------------------------------------------------------------------
01/01/98 to 01/31/97 to 01/01/97 to 01/31/97 to
06/30/98 12/31/97 (1) 12/31/97 12/31/97 (1)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
<S> <C> <C> <C> <C>
Net Investment Income $ 161 $ 483 $ 693 $ 1,290
Net Realized Gain (Loss) on Investments 2,275 (184) 133 101
Change in Unrealized Appreciation
of Investments 9,945 11,942 129 540
- ---------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting From Operations 12,381 12,241 955 1,931
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income: (161) (483) (693) (1,290)
Capital Gains: -- -- -- (67)
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions (161) (483) (693) (1,357)
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Issued 840 59,210 543 25,503
Reinvestments of Cash Distributions 160 482 689 1,356
Cost of Shares Redeemed (211) (1,483) (2,182) (1,191)
- ---------------------------------------------------------------------------------------------------------------------------
Total Capital Share Transactions 789 58,209 (950) 25,668
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
From Capital Share Transactions 789 58,209 (950) 25,668
- ---------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 13,009 69,967 (688) 26,242
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period 69,967 -- 26,242 --
- ---------------------------------------------------------------------------------------------------------------------------
End of Period $82,976 $69,967 $25,554 $26,242
===========================================================================================================================
CAPITAL SHARE TRANSACTIONS:
Shares Issued 60 5,893 53 2,549
Shares Issued in Lieu of Cash Distributions 12 43 67 135
Shares Redeemed (18) (135) (213) (118)
- ---------------------------------------------------------------------------------------------------------------------------
Total Capital Share Transactions 54 5,801 (93) 2,566
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Shares 54 5,801 (93) 2,566
===========================================================================================================================
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) COMMENCED OPERATIONS ON JANUARY 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Semi-Annual Report -- June 30, 1998
</FN>
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Bishop Street Funds (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Hawaii Municipal
Bond Fund
- --------------------------------------------------------------------------------------------------------------------------------
01/01/98 01/01/97
to 06/30/98 to 12/31/97
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
<S> <C> <C>
Net Investment Income $ 713 $ 1,345
Net Realized Gain on Investments 21 84
Change in Unrealized Appreciation (Depreciation) of Investments (55) 800
- --------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting From Operations 679 2,229
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income:
Institutional Class A Shares (713) (1,092)
Retail Class B Shares (1) -- (253)
Capital Gains:
Institutional Class A Shares -- --
Retail Class B Shares (1) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (713) (1,345)
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Institutional Class A Shares:
Proceeds from Shares Issued 4,253 6,901
Proceeds in connection with transfer from Retail Class B -- 8,988
Reinvestments of Cash Distributions 348 471
Cost of Shares Redeemed (3,044) (3,804)
- --------------------------------------------------------------------------------------------------------------------------------
Total Institutional Capital Share Transactions 1,557 12,556
- --------------------------------------------------------------------------------------------------------------------------------
Retail Class B Shares: (1)
Proceeds from Shares Issued -- 743
Reinvestments of Cash Distributions -- 135
Cost of Shares Redeemed -- (574)
Transfer to Institutional Class A -- (8,988)
- --------------------------------------------------------------------------------------------------------------------------------
Total Retail Capital Share Transactions -- (8,684)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets From Capital Share Transactions 1,557 3,872
- --------------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 1,523 4,756
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period 29,005 24,249
- --------------------------------------------------------------------------------------------------------------------------------
End of Period $30,528 $29,005
================================================================================================================================
CAPITAL SHARE TRANSACTIONS:
Institutional Class A Shares:
Shares Issued 399 661
Shares in connection with transfer from Retail Class B -- 854
Shares Issued in Lieu of Cash Distributions 33 45
Shares Redeemed (286) (334)
- ------------------------------------------------------------------------------------------------------------------------------
Total Institutional Capital Share Transactions 146 1,226
- ------------------------------------------------------------------------------------------------------------------------------
Retail Class B Shares: (1)
Shares Issued -- 41
Shares Issued in Lieu of Cash Distributions -- 13
Shares Redeemed -- (54)
Transfer to Institutional Class A -- (854)
- ------------------------------------------------------------------------------------------------------------------------------
Total Retail Capital Share Transactions -- (854)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase in Capital Shares 146 372
==============================================================================================================================
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) FOR THE PERIOD JANUARY 1, 1997 TO JULY 20, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Bishop Street Funds
</FN>
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Bishop Street Funds (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Treasury
Money Market Money Market
Fund Fund
- --------------------------------------------------------------------------------------------------------------------------------
01/01/98 01/01/97 01/01/98 01/01/97
to 06/30/98 to 12/31/97 to 06/30/98 to 12/31/97
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
<S> <C> <C> <C> <C>
Net Investment Income $ 6,303 $ 13,357 $ 7,746 $ 11,261
Net Realized Gain (Loss) on Investments 27 1 (1) (37)
- --------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting From Operations 6,330 13,358 7,745 11,224
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income:
Institutional Class A Shares (6,303) (13,235) (7,748) (11,249)
Retail Class B Shares (1) -- (119) -- --
Capital Gains:
Institutional Class A Shares -- (4) -- (14)
Retail Class B Shares (1) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (6,303) (13,358) (7,748) (11,263)
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: ALL AT $1.00 PER SHARE
Institutional Class A Shares:
Proceeds from Shares Issued 353,319 625,934 924,453 1,511,022
Proceeds in connection with transfer
from Retail Class B -- 4,014 -- --
Reinvestments of Cash Distributions 103 83 -- --
Cost of Shares Redeemed (369,967) (657,484) (804,846) (1,417,265)
- --------------------------------------------------------------------------------------------------------------------------------
Total Institutional Capital Share Transactions (16,545) (27,453) 119,607 93,757
- --------------------------------------------------------------------------------------------------------------------------------
Retail Class B Shares: (1)
Proceeds from Shares Issued -- 1,172 -- --
Reinvestments of Cash Distributions -- 119 -- --
Cost of Shares Redeemed -- (1,796) -- --
Cost of shares in connection with transfer
to Institutional Class A -- (4,014) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total Retail Capital Share Transactions -- (4,519) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
From Capital Share Transactions (16,545) (31,972) 119,607 93,757
- --------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (16,518) (31,972) 119,604 93,718
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period 246,671 278,643 273,919 180,201
- --------------------------------------------------------------------------------------------------------------------------------
End of Period $230,153 $ 246,671 $393,523 $ 273,919
================================================================================================================================
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) FOR THE PERIOD JANUARY 1, 1997 TO JULY 20, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Semi-Annual Report -- June 30, 1998
</FN>
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Bishop Street Funds
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JUNE 30, 1998 (UNAUDITED) AND THE PERIODS ENDED DECEMBER 31,
INVESTMENT ACTIVITIES DISTRIBUTIONS FROM
---------------------------------- ---------------------
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 (000) ASSETS
---------- ---------- -------------- ---------- ------ ------ -------- ------ --------
- --------------------------------------------------------------------------------------------------------------------------------
EQUITY FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998: $12.06 $0.03 $ 2.11 $(0.03) -- $14.17 17.73%+ $ 82,976 1.04%*
1997(1): $10.00 $0.08 $ 2.06 $(0.08) -- $12.06 21.52%+ $ 69,967 0.99%*
- --------------------------------------------------------------------------------------------------------------------------------
HIGH GRADEINCOME FUND
- --------------------------------------------------------------------------------------------------------------------------------
1998: $10.23 $0.27 $ 0.10 $(0.27) -- $10.33 3.69%+ $ 25,554 0.80%*
1997(1): $10.00 $0.51 $ 0.26 $(0.51) $(0.03) $10.23 7.94%+ $ 26,242 0.80%*
- --------------------------------------------------------------------------------------------------------------------------------
HAWAII MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------------------------------------------------------
1998: $10.67 $0.26 $(0.01) $(0.26) -- $10.66 2.33%+ $ 30,528 0.40%*
1997: $10.34 $0.53 $ 0.33 $(0.53) -- $10.67 8.52% $ 29,005 0.34%
1996: $10.47 $0.55 $(0.12) $(0.55) $(0.01) $10.34 4.21% $ 15,408 0.21%
1995(2): $10.00 $0.45 $ 0.47 $(0.45) -- $10.47 10.91%++ $ 9,411 0.27%*
- --------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND
- --------------------------------------------------------------------------------------------------------------------------------
1998: $ 1.00 $0.03 $ -- $(0.03) -- $ 1.00 5.36%++ $230,153 0.49%*
1997: $ 1.00 $0.05 -- $(0.05) -- $ 1.00 5.29% $246,671 0.51%
1996: $ 1.00 $0.05 -- $(0.05) -- $ 1.00 5.12% $274,125 0.49%
1995(3): $ 1.00 $0.05 -- $(0.05) -- $ 1.00 5.67%++ $305,120 0.50%*
- --------------------------------------------------------------------------------------------------------------------------------
TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------------------------------------------------------
1998: $ 1.00 $0.03 $ -- $(0.03) -- $ 1.00 5.27%++ $393,523 0.44%*
1997: $ 1.00 $0.05 -- $(0.05) -- $ 1.00 5.22% $273,919 0.43%
1996(4): $ 1.00 $0.03 -- $(0.03) -- $ 1.00 5.08%++ $180,201 0.42%*
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
-------------- ---------- -------------- --------
- --------------------------------------------------------------------------------------------------------------------------------
EQUITY FUND
- --------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1998: 1.46%* 0.42%* 0.00%* 16%
1997(1): 1.39%* 0.83%* 0.43%* 30%
- --------------------------------------------------------------------------------------------------------------------------------
HIGH GRADE INCOME FUND
- --------------------------------------------------------------------------------------------------------------------------------
1998: 1.24%* 5.36%* 4.92%* 31%
1997(1): 1.30%* 5.58%* 5.08%* 32%
- --------------------------------------------------------------------------------------------------------------------------------
HAWAII MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------------------------------------------------------
1998: 1.00%* 4.83%* 4.23%* 9%
1997: 0.99% 5.05% 4.40% 29%
1996: 0.85% 5.33% 4.68% 27%
1995(2): 1.10%* 5.24%* 4.40%* 68%
- --------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND
- --------------------------------------------------------------------------------------------------------------------------------
1998: 0.86%* 5.23%* 4.86%* --
1997: 0.85% 5.18% 4.84% --
1996: 0.60% 5.01% 4.90% --
1995(3): 0.66%* 5.50%* 5.34%* --
- --------------------------------------------------------------------------------------------------------------------------------
TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------------------------------------------------------
1998: 0.89%* 5.12%* 4.67%* --
1997: 0.86% 5.11% 4.68% --
1996(4): 0.65%* 4.96%* 4.74%* --
<FN>
+ TOTAL RETURN IS FOR THE PERIOD INDICATED AND HAS NOT BEEN ANNUALIZED.
++ TOTAL RETURN HAS BEEN ANNUALIZED.
* ANNUALIZED.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) COMMENCED OPERATIONS ON JANUARY 31, 1997.
(2) COMMENCED OPERATIONS ON FEBRUARY 15, 1995.
(3) COMMENCED OPERATIONS ON JANUARY 30, 1995.
(4) COMMENCED OPERATIONS ON MAY 1, 1996.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Bishop Street Funds Semi-Annual Report -- June 30, 1998
</FN>
</TABLE>
38 & 39
<PAGE>
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 consist of a series of five funds (the "Funds") which
includes the Equity Fund, High Grade Income Fund, Hawaii Municipal Bond Fund,
Money Market Fund and the Treasury Money Market Fund. Effective July 20, 1997
the Retail Class B for the Hawaii Municipal Bond Fund and Money Market Fund was
closed. All Retail Class B shareholders were exchanged into the Institutional
Class for the equivalent number of shares of that class. The assets of each Fund
are segregated, and a shareholder's interest is limited to the Fund in which
shares are held. 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
Bishop Street Fund investments in equity securities which are traded on a
national securities exchange (or reported on the NASDAQ national market system)
are stated at the last quoted sales price if readily available for such equity
securities on each business day, other equity securities traded in the
over-the-counter market and listed equity securities for which no sale was
reported on that date are stated at the last quoted bid price. Debt obligations
exceeding sixty days to maturity which are actively traded are valued by an
independent pricing service 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.
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.
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.
Bishop Street Funds
40
<PAGE>
(UNAUDITED)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Securities pledged as collateral for Repurchase Agreements are held by the
custodian bank until the respective agreements mature. The Funds may also invest
in tri-party repurchase agreements. Securities held as collateral for tri-party
repurchase agreements are maintained in a segregated account by the broker's
custodian bank until the maturity of the repurchase agreement. Provisions of
repurchase agreements and 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.
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 High Grade Income Fund, Hawaii Municipal Bond Fund, the
Money Market Fund and the Treasury Money Market Fund. The Equity Fund declares
and pays such dividends on a quarterly basis. 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 a majority of its taxable income
and net capital gains. Accordingly, no provision for Federal income taxes is
required. The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
that may differ from generally accepted accounting principles. These differences
relate primarily to paydowns on asset-backed securities and certain securities
sold at a loss. As a result, net investment income (loss) and net realized gain
(loss) on investment transactions for a reporting period may differ from
distributions during such period. Accordingly, the Funds may periodically make
reclassifications among certain capital accounts without impacting the net asset
value of the Funds.
ORGANIZATION COSTS
Organization costs 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
Semi-Annual Report -- June 30, 1998
41
<PAGE>
Bishop Street Funds
- --------------------------------------------------------------------------------
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 0.74% of
the average daily net assets of the Equity Fund, 0.55% of the average daily net
assets of the High Grade Income Fund, 0.35% of the average daily net assets of
the Hawaii Municipal Bond Fund, and .30% of the Money Market and Treasury Money
Market Funds. The Adviser may from time to time waive a portion of its fee in
order to limit the operating expenses of a Fund.
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 Investments Mutual Funds Services ("SEI"), a wholly owned
subsidiary of SEI Investments, acts as the Trust's Administrator. Under the
terms of the Agreement, SEI is entitled to receive an annual fee of 0.20% of the
average daily net assets of each Fund. SEI 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 Investments Distribution Co. ("SEI Investments"), a wholly owned
subsidiary of SEI Investments Company, acts as the Trust's Distributor pursuant
to a distribution agreement dated January 27, 1995.
Bishop Street Funds
42
<PAGE>
(UNAUDITED)
- --------------------------------------------------------------------------------
The Trust has adopted and entered into a shareholder service plan and
agreement with SEI Investments. Each Fund pays to SEI Investments a shareholder
servicing fee at an annual rate of 0.25% of the average daily net asset value of
all shares of each Fund, which is computed daily and paid monthly. SEI
Investments has voluntarily agreed to waive a portion of its fee in order to
limit operating expenses.
Certain officers of the Trust are also officers of the Administrator. Such
officers are paid no fees by the Trust.
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 June 30,
1998 are presented below for the Funds.
FUND INVESTMENT TRANSACTIONS (000)
EQUITY HIGH GRADE HAWAII MUNICIPAL
FUND INCOME FUND BOND FUND
---------- ----------- ----------------
Purchases
U.S. Government Securities $ -- $ 7,916 $ --
Other 12,677 -- 4,239
Sales
U.S. Government Securities -- (7,319) --
Other (11,963) (1,916) (2,573)
At December 31, 1997 the following Funds have capital loss carryforwards
for federal income tax purposes. 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.
EXPIRATION
AMOUNT (000) DATE
-------------- ------------
Equity $177 2005
Hawaii Municipal Bond 61 2004
Money Market 34 2004-2005
Treasury Money Market 37 2005
Semi-Annual Report -- June 30, 1998
43
<PAGE>
Bishop Street Funds
- --------------------------------------------------------------------------------
At June 30, 1998 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 June 30, 1998
for the Funds is as follows (000):
EQUITY HIGH GRADE HAWAII MUNICIPAL
FUND INCOME FUND BOND FUND
-------- ----------- ----------------
Gross Unrealized Appreciation $ 23,134 $ 672 $ 1,248
Gross Unrealized Depreciation (1,247) (3) (8)
-------- -------- --------
Net Unrealized Appreciation $ 21,887 $ 669 $ 1,240
======== ======== ========
6. CONCENTRATION OF CREDIT RISK
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 June 30, 1998, the
percentage of the Fund investments by each revenue source was as follows:
HAWAII MUNICIPAL
BOND FUND
----------------
Cash Equivalents 1%
Education Bonds 3%
General Obligation Bonds 29%
Hospital Bonds 17%
Housing Bonds 14%
Transportation Bonds 21%
Utility Bonds 13%
Other Revenue Bonds 2%
---------
100%
---------
Bishop Street Funds
44
<PAGE>
(UNAUDITED)
- --------------------------------------------------------------------------------
The ratings of long-term debt holdings as a percentage of total value of
investments at June 30, 1998 are as follows:
STANDARD & HAWAII MUNICIPAL
POOR'S RATING BOND FUND
------------- ----------------
AAA 64%
AA 24%
A 5%
BBB+ 2%
Not Rated 5%
--------
100%
========
Semi-Annual Report -- June 30, 1998
45
<PAGE>
Bishop Street Funds
- --------------------------------------------------------------------------------
INVESTMENT TEAM
[PHOTO OF INVESTMENT TEAM OMITTED]
BISHOP STREET FUNDS' INVESTMENT TEAM (LEFT TO RIGHT):
MICHAEL MASUDA, VICE-PRESIDENT; JENNY CARIAS, ASSISTANT VICE-PRESIDENT;
LORI FOO, COMPLIANCE OFFICER; LOU LEVITAS, PORTFOLIO MANAGER;
TONY GOO, VICE-PRESIDENT.
Bishop Street Funds
46
<PAGE>
BOARD OF TRUSTEES
MR. MARTIN ANDERSON PARTNER--Goodsill, Anderson, Quinn & Stifel
MR. PHILIP H. CHING VICE CHAIRMAN--First Hawaiian Bank
(through January 1996)
HONORABLE SHUNICHI KIMURA REGENT--University of Hawaii (1995-1996)
JUDGE--State of Hawaii Judiciary (1974-1994)
MAYOR--County of Hawaii (1968-1974)
CHAIRMAN & CHIEF EXECUTIVE--County of Hawaii
(1964-1968)
MR. ROBERT A. NESHER CHAIRMAN--SEI Mutual Funds
HONORABLE WILLIAM S. RICHARDSON TRUSTEE--Kamehameha Schools Bishop Estate
(through 1992)
CHIEF JUSTICE--Supreme Court of Hawaii
(through 1983)
LIEUTENANT GOVERNOR--State of Hawaii
(1962-1966)
MR. MANUEL R. SYLVESTER MANAGING & EXECUTIVE PARTNER--Coopers & Lybrand
(through 1992)
DR. JOYCE S. TSUNODA SENIOR VICE PRESIDENT & CHANCELLOR FOR
COMMUNITY COLLEGES--University of Hawaii
Semi-Annual Report -- June 30, 1998
47
<PAGE>
Bishop Street Funds
- --------------------------------------------------------------------------------
NOTES
Bishop Street Funds
48
<PAGE>
[PHOTO OF MAP OMITTED]
INVESTMENT ADVISOR
FIRST HAWAIIAN BANK
HONOLULU, HI 96813
ADMINISTRATOR
SEI INVESTMENTS MUTUAL FUNDS SERVICES
WAYNE, PA 19087
DISTRIBUTOR
SEI INVESTMENTS DISTRIBUTION CO.
OAKS, PA 19456
TRANSFER AGENT
DST SYSTEMS INC.
KANSAS CITY, MO 64141
CUSTODIAN
CHASE MANHATTAN BANK
NEW YORK, NY 10041
LEGAL COUNSEL
MORGAN, LEWIS & BOCKIUS LLP
PHILADELPHIA, PA 20036
AUDITORS
PRICEWATERHOUSECOOPERS LLP
PHILADELPHIA, PA 19103
[BISHOP STREET FUNDS LOGO OMITTED]
FOR MORE INFORMATION ABOUT BISHOP STREET FUNDS, CALL 1-800-262-9565 OR
YOUR INVESTMENT SPECIALIST
<PAGE>
[BISHOP STREET FUNDS LOGO OMITTED]
BISHOP STREET FUNDS
C/O FIRST HAWAIIAN BANK
P.O. BOX 3708
HONOLULU, HI 96811
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE
GENERAL INFORMATION OF BISHOP STREET FUNDS' SHAREHOLDERS. THIS REPORT IS NOT
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
SHARES OF BISHOP STREET FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY FIRST HAWAIIAN BANK OR ANY OF ITS SUBSIDIARIES. SUCH SHARES ARE ALSO NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENT IN SHARES OF MUTUAL FUNDS
INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SEI INVESTMENTS
DISTRIBUTION CO. SERVES AS DISTRIBUTOR FOR THE BISHOP STREET FUNDS AND IS NOT
AFFILIATED WITH FIRST HAWAIIAN BANK.
BSF-F-004-04
