A NO LOAD MUTUAL FUND FAMILY ADVISED BY FIRST HAWAIIAN BANK
BISHOP
------
STREET
------
FUNDS
ANNUAL REPORT
DECEMBER 31, 1997
EQUITY FUND
HIGH GRADE INCOME FUND
HAWAII MUNICIPAL BOND FUND
MONEY MARKET FUND
TREASURY MONEY MARKET FUND
<PAGE>
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 ............ 18
Statement of Net Assets ........................................ 21
Money Market Fund & Treasury Money Market Fund
Investment Adviser's Report & Management Discussion ............ 26
Statements of Net Assets ....................................... 28
Statements of Operations ............................................. 34
Statements of Changes in Net Assets .................................. 35
Financial Highlights ................................................. 38
Notes to Financial Statements ........................................ 40
Report of Independent Accountants .................................... 45
Notice to Shareholders ............................................... 46
1
<PAGE>
BISHOP STREET
LETTER TO SHAREHOLDERS
FUNDS
[PHOTO OMITTED]
DEAR FELLOW SHAREHOLDER:
We are pleased to present the Bishop Street Funds' Annual Report for 1997.
During the year, the Bishop Street Funds continued to grow in terms of assets
under management. Also, we introduced two new no-load funds to the Bishop Street
family in January: the Equity Fund and the High Grade Income Fund to offer
investors money management options that are designed to provide quality
investments to help achieve one's long-term objectives.
Overall, the financial markets performed well in 1997. The U.S. stock market
posted another year of excellent performance, benefiting those invested in the
Bishop Street Equity Fund. The news from Asia caused a great deal of volatility
in October, causing investors throughout the world to seek comfort in U.S.
stocks and the safety and security of U.S. Treasury Bonds. The Hawaii municipal
market continued to offer competitive tax-free yields, particularly when
compared to taxable investments of similar quality. Falling interest rates
boosted returns for fixed income investors in the second half of the year and
benefited investors in the High Grade Income Fund.
We believe that the fall out from Asia will continue to have a mixed effect on
the U.S. stock and bond markets in 1998. Inflation will likely remain very
subdued, a good environment for fixed income investors. In addition, for the
first time in 30 years, the President has submitted a balanced federal budget to
Congress, which will exert downward pressure on interest rates. That's another
good sign for the bond market.
The stock market faces some significant challenges in 1998. First, stocks have
risen by more than 20% per year for the past three years, a record performance.
It would be unlikely to see a fourth year of such strong returns. Second,
corporate profits are likely to come under pressure, since many companies are
experiencing slowing sales to the Far East. As a result, we would anticipate
stock market returns more in line with historical averages, perhaps 10-12%, in
1998.
2
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
Regardless of the environment, you can be assured that we at Bishop Street Funds
will remain dedicated to providing you with prudent investment management and
high-quality service.
This report contains important information for the year ending December 31,
1997. It includes the Investment Adviser's Report, Management's Discussion &
Analysis of Fund Performance, the Statement of Net Assets and other financial
information for each Fund. 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.
Thank you for choosing the Bishop Street Funds.
Sincerely,
[sig omitted]
Robert A. Alm
Senior Vice President and Manager
Financial Management Group
First Hawaiian Bank, Investment Advisor
3
<PAGE>
BISHOP STREET
INVESTMENT ADVISER'S REPORT & MANAGEMENT DISCUSSION
FUNDS
Equity Fund
Investment Adviser's Report:
For the third year in a row, the U.S. stock market posted a 20 percent or
greater return. Such a strong three-year performance has never happened before.
Indeed, it has been rare for stocks to rise 20 percent two years in a row.
Although the stock market was very volatile, it was also very resilient in 1997.
On October 27th, the Dow Jones Industrial Average dropped 554 points, its
biggest one-day point drop in history. But by the next day, investors came
looking for bargains, and more than half of the prior day's losses were
recouped.
The market volatility was caused by the sudden downturn in the currencies,
economies and stock markets in Southeast Asia. By year end, Thailand's stock
market was down 55%, Malaysia's was down 52%, South Korea was down 42% and
Indonesia was down 37% in local currency terms.+
The U.S. stock and bond markets became a safe haven for global investors. The
surging demand for U.S. Treasury bonds boosted bond prices and lowered yields.
In addition, slowing economic growth in Asia lowered inflation expectations. As
a result, investors in the U.S. continued to enjoy an environment of very low
inflation and interest rates.
However, the large multinational companies that have led the stock market
to new heights are now vulnerable to corporate profit disappointments. To the
extent that they depend on sales in the Far East, companies will likely report
lower earnings growth in 1998. As a result, it is very unlikely that stocks will
once again produce the kind of price appreciation that we have seen in the past
three years. We expect 1998 to be a year in which the stock market's performance
is more in line with historical norms, in which returns have averaged 10-12%.
Management Discussion & Analysis of Fund Performance:
The Equity Fund, launched January 31, 1997, primarily seeks to produce long-term
growth of capital. Its secondary goal is current income from dividends.
+ SOURCE: Wall Street Journal, January 2, 1998, page R1.
4
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
The Fund seeks to achieve long-term capital appreciation by concentrating on
large capitalization growth companies. Many of these corporations operate
globally and are leaders in their markets. The companies also tend to have
earnings that are growing at an increasing rate.
The Fund invests in a broadly diversified portfolio of 70 to 100 stocks,
representing virtually every industry sector of the S&P 500 Index. This
diversified strategy reduces the portfolio's risk. In addition, the Fund tends
to have relatively low turnover in the portfolio because we take a long-term
view of investing. Low turnover also tends to reduce expenses and tax
consequences.
During the 11 months ended December 31, 1997, the Fund produced a total return
of 20.31%. In comparison, the average domestic growth fund as measured by Lipper
Analytical Services, Inc. was up 19.09%. The unmanaged S&P 500 Index rose 25.51%
during the same time period.
The Fund's performance was positively impacted by an overweighting in
pharmaceutical and financial stocks. Pharmaceutical companies offer consistent
earnings in an investment climate in which overall corporate earnings growth is
uncertain. Financial services companies, such as banks and insurance companies,
continue to do well in an environment of lower interest rates and increased
merger activity.
However, the Fund's overweighting in technology was a negative in 1997.
Investors perceive that technology companies will suffer earnings shortfalls due
to the Asian economic crisis. The same forecast of weaker demand hurt energy
stocks, another area of emphasis in the portfolio. We believe that the
correction in energy stocks is overstated, and we would anticipate a nice rally
in the energy sector in early 1998.
Our strategy for 1998 is to reduce our weighting in technology to equal the
proportion of technology stocks in the S&P 500 Index. We believe that the Asian
crisis will continue to hurt technology stocks as demand slows for their
products. However, longer term, we're still very optimistic on technology.
In addition, we are in the process of scaling back other major multinational
beverage and consumer products companies which have heavy exposure to Asia. As
investors gravitate towards these stocks because they have demonstrated steady
earnings in the past, we may take some profits and reduce our holdings there.
5
<PAGE>
BISHOP STREET FUNDS
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 ARE AS FOLLOWS:
Bishop Street S&P 500 Lipper Domestic
Equity Fund Composite Index Equity Average
$10,000 $10,000 $10,000
10,020 10,078 9,854
9,593 9,665 9,420
10,139 10,241 9,628
10,655 10,863 10,402
11,105 11,350 10,825
12,030 12,252 11,617
11,294 11,566 11,410
11,845 12,200 12,103
11,466 11,793 11,632
11,904 12,339 11,760
12,031 12,551 11,909
EQUITY FUND
ANNUALIZED CUMULATIVE
ONE MONTH 3 MONTH INCEPTION INCEPTION
RETURN RETURN TO DATE* TO DATE*
-----------------------------------------------------
1.07% 1.58% 23.66% 21.52%
-----------------------------------------------------
TOP TEN HOLDINGS
Percentage of
Investments
- --------------------------------------------------------------------------------
1. General Electric Company 3.8%
2. Microsoft Corporation 2.6%
3. Cisco Systems Incorporated 2.0%
4. Intel Corporation 1.9%
5. Exxon Corporation 1.9%
6. Citicorp 1.7%
7. Boeing Company 1.7%
8. Royal Dutch Petroleum Company 1.6%
9. Merck & Company Incorporated 1.6%
10. International Business Machines Incorporated 1.5%
- --------------------------------------------------------------------------------
6
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
EQUITY FUND -- STATEMENT OF NET ASSETS
Market
Value
Shares (000)
------- -------
COMMON STOCK -- 96.4%
AEROSPACE/DEFENSE -- 1.0%
7,000 Lockheed Martin Corp. $ 689
299 Raytheon Company, Cl A* 15
------
704
------
AIR TRANSPORTATION -- 0.5%
5,400 Federal Express Corp.* 330
------
AIRCRAFT -- 3.5%
9,600 Allied Signal, Inc. 374
23,800 Boeing Co. 1,165
12,900 United Technologies Corp. 939
------
2,478
------
APPAREL/TEXTILES -- 0.4%
7,200 Liz Claiborne Inc. 301
------
AUTOMOTIVE -- 0.4%
4,700 General Motors Corp. 285
------
BANKS -- 9.1%
6,700 Bankers Trust New York Corp. 753
9,300 Chase Manhattan Corp. 1,018
9,500 Citicorp 1,201
10,000 First Chicago NBD Corp. 835
13,200 First Union Corp. 677
16,400 NationsBank Corp. 997
22,600 Norwest Corp. 873
------
6,354
------
BEAUTY PRODUCTS -- 2.3%
7,600 Gillette Co. 763
10,600 Procter & Gamble Co. 846
------
1,609
------
CHEMICALS -- 0.7%
5,500 Air Products & Chemicals, Inc. 452
------
COMMUNICATIONS EQUIPMENT -- 3.3%
10,300 Harris Corp. 473
10,300 Lucent Technologies Inc. 823
10,000 Motorola, Inc. 571
5,300 Northern Telecom 472
------
2,339
------
7
<PAGE>
BISHOP STREET FUNDS
EQUITY FUND -- STATEMENT OF NET ASSETS
(CONTINUED)
Market
Value
Shares (000)
------- -------
COMMON STOCK -- CONTINUED
COMPUTERS & SOFTWARE SERVICES -- 8.7%
24,600 Cisco Systems, Inc.* $ 1,371
12,900 First Data Corp. 377
10,700 Hewlett Packard Co. 669
10,200 International Business Machine Corp. 1,067
14,300 Microsoft Corp.* 1,848
12,300 Oracle Corp.* 274
13,600 Sun Microsystems, Inc.* 542
------
6,148
------
DRUGS -- 9.7%
4,400 American Home Products Corp. 337
10,600 Bristol-Myers Squibb Co. 1,003
14,200 Eli Lilly & Co. 989
11,600 Johnson & Johnson 764
10,600 Merck & Co., Inc. 1,126
11,400 Pfizer Inc. 850
15,000 Schering Plough Corp. 932
6,200 Warner Lambert Co. 769
------
6,770
------
ELECTRICAL UTILITIES -- 1.8%
19,000 AES Corp.* 886
5,900 FPL Group, Inc. 349
------
1,235
------
ENTERTAINMENT -- 0.9%
6,100 Walt Disney Co. 604
------
FINANCIAL SERVICES -- 3.8%
6,300 American Express Co. 562
16,500 Fannie Mae 942
9,800 Freddie Mac 411
9,800 Merrill Lynch & Co., Inc. 715
------
2,630
------
FOOD, BEVERAGE & TOBACCO -- 5.3%
13,800 Campbell Soup, Co. 802
14,600 Coca Cola, Co. 973
18,800 Pepsico, Inc. 685
17,400 Philip Morris Companies Inc. 788
7,700 Sara Lee Corp. 434
------
3,682
------
8
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
Market
Value
Shares (000)
------- -------
COMMON STOCK -- CONTINUEDH1
GAS/NATURAL GAS -- 1.1%
27,200 Williams Companies Inc. $ 772
------
INSURANCE -- 5.2%
6,300 Aetna Inc. 445
7,350 American International Group, Inc. 799
5,200 Chubb Corp. 393
1,600 Cigna Corp. 277
1,600 General Re Corp. 339
4,100 Hartford Financial Services Group Inc. 384
18,000 Travelers Group Inc. 970
------
3,607
------
MACHINERY -- 5.4%
17,450 Baker Hughes, Inc. 761
7,100 Deere & Co. 414
35,800 General Electric, Co. 2,627
------
3,802
------
MEDICAL PRODUCTS & SERVICES -- 1.9%
12,300 Baxter International Inc. 620
11,500 Guidant Corp. 716
------
1,336
------
OFFICE FURNITURE & FIXTURES -- 1.0%
14,000 Johnson Controls, Inc. 669
------
PAPER & PAPER PRODUCTS -- 0.4%
6,200 Kimberly-Clark Corp. 306
------
PETROLEUM & FUEL PRODUCTS -- 4.2%
14,800 Burlington Resources, Inc. 663
15,900 EVI, Inc.* 823
19,450 Noble Drilling Corp.* 596
10,800 Schlumberger Ltd. 869
------
2,951
------
9
<PAGE>
BISHOP STREET FUNDS
EQUITY FUND -- STATEMENT OF NET ASSETS
(CONTINUED)
Market
Value
Shares (000)
------- -------
COMMON STOCK -- CONCLUDED
PETROLEUM REFINING -- 8.6%
7,300 Amoco Corp. $ 621
7,800 British Petroleum, ADR 622
9,200 Chevron Corp. 708
21,900 Exxon Corp. 1,340
8,800 Mobil Corp. 635
20,800 Royal Dutch Petroleum Co. New York Registry 1,127
17,400 Texaco, Inc. 946
------
5,999
------
PRINTING & PUBLISHING -- 1.3%
15,000 Gannett Company, Inc. 927
------
RAILROADS -- 0.4%
8,000 Illinois Central Corp. 273
------
RETAIL -- 5.7%
8,700 Albertson's Inc. 412
21,500 Costco Companies Inc.* 959
5,700 CVS Corp. 365
13,900 Dayton-Hudson Corp. 938
15,600 Home Depot, Inc. 918
9,200 McDonald's Corp. 439
------
4,031
------
SEMI-CONDUCTORS/INSTRUMENTS -- 1.9%
19,400 Intel Corp. 1,363
------
TELEPHONES & TELECOMMUNICATION -- 7.3%
21,700 AirTouch Communications Inc.* 902
15,600 AT&T Corp. 956
8,641 Bell Atlantic Corp. 786
12,000 BellSouth Corp. 676
13,100 GTE Corp. 684
5,800 SBC Communications, Inc. 425
22,200 WorldCom Inc.* 672
------
5,101
------
WHOLESALE -- 0.6%
6,400 Unilever NV, ADR 400
------
TOTAL COMMON STOCK (Cost $55,516) 67,458
------
10
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
Market
Shares Value
(000) (000)
------- -------
CASH EQUIVALENTS -- 3.6%
1,471 SEI Daily Income Trust Money Market Portfolio $ 1,471
1,025 SEI Daily Income Trust Prime Obligation Portfolio 1,025
-------
TOTAL CASH EQUIVALENTS (Cost $2,496) 2,496
-------
TOTAL INVESTMENTS (COST $58,012) -- 100.0% 69,954
-------
OTHER ASSETS AND LIABILITIES, NET -- 0.0% 13
-------
NET ASSETS:
Fund shares (unlimited authorization -- no par
value) based on 5,801,050 outstanding shares
of beneficial interest 58,209
Accumulated net realized loss on investments (184)
Net unrealized appreciation of investments 11,942
-------
TOTAL NET ASSETS -- 100.0% $69,967
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $12.06
-------
* NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
<PAGE>
BISHOP STREET
INVESTMENT ADVISER'S REPORT & MANAGEMENT DISCUSSION
FUNDS
HIGH GRADE INCOME FUND
Investment Adviser's Report:
After turning in a mixed performance during the first half of the year, bonds
came on strong in the second half of 1997.
In the first half, the economy was surging and the Federal Reserve Board raised
short-term interest rates to slow it down. Investors anticipated inflation, and
the 30-year Treasury bond yield rose above 7%. A second Fed move was expected.
By the summer, the economy slowed, inflation data continued to be benign, the
Fed stayed on the sidelines and the bond market began to improve.
As fall approached, news from Asia began dominating the markets, as countries
began devaluing their currencies and foreign investment dwindled. The economic
duress from such countries as Thailand, South Korea and even Japan signaled
slower world growth.
Investors throughout the world sought the safe haven of U.S. Treasury bonds,
which boosted prices and reduced yields. At the same time, inflation
expectations were diminished in response to slower growth forecasts.
By the end of 1997, the yield on the 30-year Treasury bond had fallen below 6%.
The inflation rate as measured by the Consumer Price Index was just 1.7%, the
lowest in 11 years. The federal budget deficit was virtually eliminated for the
fiscal year ended September 30, 1997. Politicians were debating how they were
going to spend a possible budget surplus for fiscal 1998. The absence of a
budget deficit constrains the issuance of new government bonds, further boosting
prices and reducing yields.
Currently, interest rates are at their lowest levels in decades. But so is
inflation. Typically, the spread between nominal interest rates and inflation is
about three percentage points. That suggests that there is still room for yields
to come down and bond prices to rise in 1998.
Management Discussion & Analysis of Fund Performance:
The High Grade Income Fund, launched January 31, 1997, primarily seeks to
provide high total returns consistent with prudent investment risk. The Fund
seeks to accomplish this objective by investing primarily in U.S. government
securities as well as high-quality corporate bonds.
12
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
As of December 31, 1997, the portfolio was composed of 34.0% in U.S. Treasury
obligations, 35.3% in U.S. government agencies, 28.0% in 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 the possibility of slightly higher yields. The
average corporate bond in the portfolio is rated A by Standard & Poor's
Corporation.
For the 11 months ended December 31, 1997, the Fund produced a total return of
7.95%. In comparison, the average domestic taxable fixed income fund as measured
by Lipper Analytical Services Inc. produced a total return of 8.44%. Meanwhile,
the unmanaged Lehman Brothers Government/Corporate Bond Index was up 9.62%. As
of December 31, 1997, the Fund's 30-day SEC yield, an approximation of income,
was 5.36%.
The Fund's performance was affected by our decision to keep the portfolio's
duration (sensitivity to interest rates) slightly shorter than average. In the
second half of 1997, when interest rates were falling, it would have been better
to have a portfolio with a longer duration since bond prices move inversely to
interest rates.
As the year came to a close, we shifted the portfolio's emphasis away from
corporate bonds. If Asia's economic problems in fact slow down the U.S. economy,
then corporations are likely to have reduced profits. As a result, there could
be less cash flow to service debt. Still, we are confident that the corporate
bonds that we own will have no trouble meeting their obligations.
As we move through early 1998, our strategy continues to be to maintain a
shorter than average duration to minimize interest rate risk. We would extend
the portfolio's duration if the 30-year Treasury bond yield reaches 6%. Although
Asia's slowdown should exert a downward influence on the U.S. economy, we don't
see much evidence that the slowdown has in fact taken place. Therefore, we think
there is some short-term risk in managing the portfolio on the assumption that
interest rates are going to continue to fall in a straight line from current
levels.
However, the long-term outlook for bonds is quite good. Inflation is virtually
non-existent. Bond yields are still quite attractive in relation to the rate of
inflation. The shrinking federal budget deficit and potential surplus will
constrain the supply of new bonds, boosting bond prices. Regardless of what the
future brings, the High Grade Income Fund will continue to be managed
conservatively, seeking high quality securities and the preservation of capital.
13
<PAGE>
BISHOP STREET FUNDS
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
BISHOP STREET HIGH GRADE INCOME FUND VERSUS THE LEHMAN
GOVERNMENT/CORPORATE INDEX AND THE LIPPER DOMESTIC FIXED INCOME AVERAGE
[LINE GRAPH OMITTED]
PLOT POINTS ARE AS FOLLOWS:
BISHOP STREET LEHMAN LIPPER
HIGH GRADE GOVERNMENT/ DOMESTIC FIXED
INCOME FUND CORPORATE INDEX INCOME AVERAGE
$10,000 $10,000 $10,000
10,015 10,021 10,044
9,902 9,902 9,934
10,030 10,046 10,048
10,108 10,140 10,168
10,216 10,261 10,289
10,469 10,575 10,536
10,374 10,457 10,476
10,515 10,621 10,638
10,679 10,791 10,711
10,696 10,848 10,750
10,795 10,962 10,844
HIGH GRADE INCOME FUND
ANNUALIZED CUMULATIVE
ONE MONTH 3 MONTH INCEPTION INCEPTION
RETURN RETURN TO DATE* TO DATE*
----------------------------------------------------
0.92% 2.65% 8.68% 7.94%
----------------------------------------------------
*Commenced operations 1/31/97
TOP TEN HOLDINGS Percentage
Coupon Maturity of
Rate Date Investments
- --------------------------------------------------------------------------------
1. Federal National Mortgage Association 6.60% May 8, 2002 7.9%
2. United States Treasury Note 5.88% Nov. 15, 1999 5.8%
3. Federal Home Loan Mortgage Corp. 5.69% Jan. 24, 2001 4.2%
4. United States Treasury Note 6.38% Jan. 15, 1999 3.9%
5. Federal National Mortgage Association 7.40% July 1, 2004 3.3%
6. United States Treasury Bond 7.50% Nov. 15, 2016 3.2%
7. Federal Home Loan Bank 7.57% Aug. 19, 2004 2.9%
8. United States Treasury Note 8.50% Nov. 15, 2000 2.9%
9. United States Treasury Note 7.57% Feb. 15, 2001 2.9%
10. Honeywell Incorporated 7.00% Mar. 15, 2007 2.8%
- --------------------------------------------------------------------------------
14
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
HIGH GRADE INCOME FUND -- STATEMENT OF NET ASSETS
Face Market
Amount Value
(000) (000)
------- -------
CORPORATE OBLIGATIONS -- 28.0%
AIRCRAFT -- 2.3%
Boeing Co.
$600 6.350%, 06/15/03 $ 605
------
CHEMICALS -- 4.3%
Hercules, Inc.
600 6.625%, 06/01/03 606
PPG Industries, Inc.
500 6.875%, 02/15/12 520
------
1,126
------
COMMUNICATIONS EQUIPMENT -- 1.2%
Rockwell International Corp.
300 6.625%, 06/01/05 308
------
ENTERTAINMENT -- 2.8%
Walt Disney Co.
700 6.750%, 03/30/06 722
------
FINANCIAL SERVICES -- 1.9%
H&R Block, Inc.
500 6.750%, 11/01/04 507
------
FOOD, BEVERAGE & TOBACCO -- 3.8%
Pet Inc.
300 6.500%, 07/01/03 300
Philip Morris Companies, Inc.
700 6.375%, 02/01/06 690
------
990
------
MACHINERY -- 1.2%
Dresser Industries, Inc.
300 6.250%, 06/01/00 302
------
MEASURING DEVICES -- 2.8%
Honeywell, Inc.
700 7.000%, 03/15/07 734
------
PAPER & PAPER PRODUCTS -- 1.9%
Sonoco Products Co.
500 6.750%, 11/01/10 509
------
15
<PAGE>
BISHOP STREET FUNDS
HIGH GRADE INCOME FUND -- STATEMENT OF NET ASSETS
(CONTINUED)
Face Market
Amount Value
(000) (000)
------- -------
CORPORATE OBLIGATIONS -- CONCLUDED
RETAIL -- 3.1%
Gap, Inc.
$ 500 6.900%, 09/15/07 $ 518
Lowes Companies Inc.
300 6.375%, 12/15/05 300
------
818
------
TELEPHONES & TELECOMMUNICATION -- 2.7%
US West Communications Group, Inc.
700 6.625%, 09/15/05 710
------
TOTAL CORPORATE OBLIGATIONS (Cost $7,113) 7,331
------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 35.3%
FHLB
700 7.170%, 03/29/00 720
400 6.000%, 07/05/00 401
500 5.960%, 10/06/00 501
700 7.310%, 07/06/01 730
700 7.570%, 08/19/04 759
FHLMC
1,100 5.690%, 01/24/01 1,090
700 6.220%, 03/24/03 707
FNMA
400 7.500%, 02/11/02 422
2,000 6.610%, 05/08/02 2,049
800 7.400%, 07/01/04 860
300 6.350%, 06/10/05 305
400 6.440%, 06/21/05 409
300 6.400%, 09/27/05 306
------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $9,069) 9,259
------
U.S. TREASURY OBLIGATIONS -- 34.0%
U.S. Treasury Bonds
700 7.500%, 11/15/16 817
250 7.250%, 08/15/22 289
16
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
Face Market
Amount/Shares Value
(000) (000)
------------- -------
U.S. TREASURY OBLIGATIONS -- CONCLUDED
U.S. Treasury Notes
$ 200 5.750%, 12/31/98 $ 200
1,000 6.375%, 01/15/99 1,008
500 7.500%, 10/31/99 516
1,500 5.875%, 11/15/99 1,505
250 5.625%, 11/30/99 250
700 8.500%, 11/15/00 751
700 7.750%, 02/15/01 740
700 6.125%, 12/31/01 709
300 6.250%, 02/28/02 305
700 6.375%, 08/15/02 718
400 5.875%, 11/15/05 402
700 6.125%, 08/15/07 719
-------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $8,797) 8,929
-------
CASH EQUIVALENTS -- 1.1%
223 SEI Daily Income Trust Money Market Portfolio 223
72 SEI Daily Income Trust Prime Obligation Portfolio 72
-------
TOTAL CASH EQUIVALENTS (Cost $295) 295
-------
TOTAL INVESTMENTS (COST $25,274) -- 98.4% 25,814
-------
OTHER ASSETS AND LIABILITIES, NET -- 1.6% 428
-------
NET ASSETS:
Fund shares (unlimited authorization -- no par value)
based on 2,566,050 outstanding shares of beneficial interest 25,668
Accumulated net realized gain on investments 34
Net unrealized appreciation of investments 540
-------
TOTAL NET ASSETS -- 100.0% $26,242
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $10.23
-------
FHLB -- FEDERAL HOME LOAN BANK
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
17
<PAGE>
BISHOP STREET
INVESTMENT ADVISER'S REPORT & MANAGEMENT DISCUSSION
FUNDS
HAWAII MUNICIPAL BOND FUND
Investment Adviser's Report:
Like fixed-income markets in general, municipal bonds enjoyed a good year in
1997 as interest rates fell to four-year lows during the fourth quarter.
During the first half of the year, the U.S. economy was robust, and the Federal
Reserve Board, which boosted short-term interest rates by 0.25% in March,
appeared ready to do so a second time. The 30-year Treasury bond yielded more
than 7%, and investors were concerned about inflation.
However, by the summer, those fears dissipated, as inflation remained quiet and
rumblings from the Far East became more ominous. By the fall, the Asian
financial crisis was in full swing, and investors from around the world sought
U.S. Treasury bonds as a safe haven.
As a result, yields on Treasury bonds fell to 5.9% by December 31, 1997,
boosting bond prices, and municipal bonds rallied in tandem. For the year,
inflation, as measured by the Consumer Price Index, was just 1.7%.
The Hawaiian economy remains sluggish, and tourism, its major industry, has been
adversely impacted by the recession in Japan and the dramatically reduced value
of the yen and other Asian currencies, making the state more expensive to visit.
Indeed, early in 1997, Standard & Poor's Corporation downgraded the state's
credit rating from AA to A+. Nevertheless, the Hawaii municipal bond market
continues to perform in line with other regions of the U.S. One reason: a
chronic shortage of supply. Meanwhile, the demand for bonds is strong because
yields are attractive on a tax-equivalent basis.
The impact of the Asian situation on tourism won't be known until the middle of
1998. In the meantime, the Governor of Hawaii has appointed an economic
revitalization task force which has made several recommendations regarding tax
reform. These measures, designed to make the state more attractive for business
expansion, will be considered by the state legislature in the coming months.
Management Discussion & Analysis of Fund Performance:
The main objective of the Hawaii Municipal Bond Fund is to deliver a high
18
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
level of current income that is exempt from both state and federal income tax.
We believe that the Fund accomplished that objective during 1997, particularly
when its yield is compared on a tax-equivalent basis to comparable investments.
At December 31, 1997, the Fund was yielding 4.72%. For an individual in the
highest combined federal and state income tax bracket, this is equivalent to a
taxable yield of 8.68%.* Few taxable fixed-income investments generate such a
high return today, particularly taxable portfolios with the credit quality
comparable to most municipal bonds.
One of our major themes is to maintain an extremely high credit quality
portfolio. About 86% of the portfolio carries a AA or AAA rating.
In addition, 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 and counties of Hawaii.
In a period of falling interest rates, bonds that can be called within a short
period of time tend to underperform. Instead of trading like long-term bonds,
which appreciate rapidly in a market rally, callable bonds trade as if they
mature at the shorter call date. As a result, we attempted to improve the call
protection of the portfolio by adding noncallable issues of Hawaii and Honolulu
general obligation securities and reduced our holdings of some shorter call
Hawaii airport bonds.
For the year ending December 31, 1997, the Hawaii Municipal Bond Fund produced a
total return of 8.52%. In comparison, the one year total return for the Lipper
Hawaii Municipal Debt Funds Average was 8.25%. We believe that we outperformed
our peer group because of our shift towards noncallable bonds. The Lehman
Brothers Municipal Bond Index, a measure of national municipal bond funds with
issues not generally exempt from Hawaii taxes, was up 9.19% for the year.
Given the low inflation environment, we don't expect much change in interest
rates in the near term. However, what happens to the Asian economies and their
currencies will undoubtedly have a major effect on U.S. bond markets, and this
won't be fully known or digested for quite some time. With interest rates at
historic 30-year lows in January, 1998, we feel it is prudent to be somewhat
cautious concerning possible upward pressure on interest rates later in the
year. As a result, we continue to keep the portfolio's average maturity under 15
years, which is shorter than most municipal bond funds. A portfolio with a
shorter maturity is less vulnerable to rising rates.
*This information is based on a hypothetical illustration and is not
representative of any investment securities.
19
<PAGE>
BISHOP STREET FUNDS
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
HAWAIIAN MUNICIPAL DEBT FUNDS AVERAGE.
[LINE GRAPH OMITTED]
PLOT POINTS ARE AS FOLLOWS:
BISHOP STREET LIPPER LEHMAN
HAWAII MUNICIPAL HAWAII MUNICIPAL MUNICIPAL
BOND FUND, DEBT AVERAGE BOND INDEX
INSTITUTIONAL CLASS
$10,000 $10,000 $10,000
10,082 10,104 10,115
10,289 10,301 10,359
10,478 10,530 10,657
10,941 11,002 11,096
10,757 10,823 10,962
10,850 10,891 11,046
11,106 11,151 11,300
11,402 11,418 11,589
11,340 11,350 11,562
11,724 11,725 11,961
12,075 12,050 12,322
12,374 12,360 12,656
HAWAII MUNICIPAL BOND FUND
ANNUALIZED CUMULATIVE
ONE YEAR INCEPTION INCEPTION
RETURN TO DATE* TO DATE*
----------------------------------------
8.52% 7.71% 23.77%
----------------------------------------
*Commenced operations 2/15/95
TOP TEN HOLDINGS Percentage
Coupon Maturity of
Rate Date Investments
- --------------------------------------------------------------------------------
1. HI Hous., Fin. & Develop/Single Family 5.55% July 1, 2007 4.4%
2. Commonwealth of Puerto Rico - GO 6.50% July 1, 2013 4.1%
3. HI Airport Systems Revenue 7.00% July 1, 2020 3.8%
4. HI Airport Systems Revenue 6.25% July 1, 2006 3.8%
5. HI Budg. & Fin./Queens Health Sys. 6.00% July 1, 2020 3.7%
6. C & C of Honolulu Board of Water Supply 5.80% July 1, 2016 3.7%
7. HI Budg. & Fin./St. Francis Med. Ctr. 6.50% July 1, 2022 3.5%
8. HI Budg. & Fin./Kapiolani Health Care 6.30% July 1, 2008 2.9%
9. HI Budg. & Fin./Hawaiian Electric 6.20% May 1, 2026 2.8%
10. HI Hous., Fin. & Develop./Rental Housing 6.05% July 1, 2022 2.7%
20
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
HAWAII MUNICIPAL BOND FUND -- STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
Face Market
Amount Value
(000) (000)
------- -------
MUNICIPAL BONDS -- 96.4%
GUAM -- 2.1%
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%, 11/15/09 161
------
600
------
HAWAII -- 83.7%
Department of Budget & Finance, Hawaiian Electric,
RB, MBIA Insured
750 6.200%, 05/01/26 810
Department of Budget & Finance, Queens Health
Systems, Ser A, RB
250 5.875%, 07/01/11 269
1,000 6.000%, 07/01/20 1,070
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
760 6.300%, 07/01/08 820
250 6.000%, 07/01/11 267
Department of Budget & Finance, Special Purpose
Mortgage, Kapiolani Health Care System Project, RB
250 6.400%, 07/01/13 268
210 5.875%, 07/01/01 221
Department of Budget & Finance, Special Purpose
Mortgage, St. Francis Medical Center Project,
RB, FSA Insured
930 6.500%, 07/01/22 1,013
Harbor Capital Improvement, RB, MBIA Insured
500 5.400%, 07/01/09 522
480 7.000%, 07/01/17 518
Harbor Capital Improvement, Ser 1992, RB, FGIC Insured
225 6.500%, 07/01/19 244
Hawaii County, GO, MBIA Insured
250 6.850%, 12/01/02 253
Hawaii County, Ser A, GO, FGIC Insured
400 5.550%, 05/01/09 433
450 5.600%, 05/01/12 487
190 5.600%, 05/01/13 205
Honolulu City & County Board of Water Supply, RB
250 5.250%, 07/01/07 262
1,000 5.800%, 07/01/16 1,060
21
<PAGE>
BISHOP STREET FUNDS
HAWAII MUNICIPAL BOND FUND -- STATEMENT OF NET ASSETS
(CONTINUED)
Face Market
Amount Value
(000) (000)
------- -------
MUNICIPAL BONDS -- CONTINUED
Honolulu City & County Mortgage, Smith Berentia,
Ser A, RB, FHA & MBIA Insured
$ 100 7.800%, 07/01/24 $ 109
Honolulu City & County Ser A, GO
245 5.700%, 04/01/09 267
Honolulu City & County Waipahu Towers Project,
Ser A, RB, GNMA Collateral
200 6.900%, 06/20/35 218
Honolulu City & County, GO
230 6.000%, 12/01/09 258
Honolulu City & County, Ser A, GO
150 6.000%, 01/01/10 167
Honolulu City & County, Ser A, GO, MBIA Insured
500 6.000%, 11/01/10 561
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%, 08/01/06 312
Kauai County, Ser B, GO, MBIA Insured
120 5.050%, 08/01/12 121
260 5.900%, 02/01/13 277
155 5.100%, 08/01/13 156
165 5.150%, 08/01/14 167
175 5.200%, 08/01/15 177
Maui County, Board of Water Supply,
Ser A, RB, FGIC Insured
520 6.000%, 12/01/01 556
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, Refunding GO, FGIC Insured
290 5.125%, 12/15/10 295
Maui County, Ser A, GO, FGIC Insured
250 5.750%, 01/01/11 260
500 5.200%, 09/01/12 511
22
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
Face Market
Amount Value
(000) (000)
------- -------
MUNICIPAL BONDS -- CONTINUED
State Airport Systems, RB, FGIC Insured
$ 300 7.200%, 07/01/00 $ 321
1,000 7.000%, 07/01/20 1,100
State Airport Systems, RB, MBIA Insured
1,000 6.250%, 07/01/06 1,096
State Airport Systems, Ser 2, RB
60 6.900%, 07/01/12 71
State GO, Ser CM, FGIC Insured
500 6.000%, 12/01/09 563
State GO, Ser CN, FGIC Insured
500 5.500%, 03/01/14 523
State GO, Ser CO, FGIC Insured
200 6.000%, 09/01/05 222
250 6.000%, 03/01/09 280
250 6.000%, 09/01/09 281
State GO, Ser CP, FGIC Insured
250 5.000%, 10/01/13 250
State Highway Project, RB
375 5.250%, 07/01/10 390
510 5.000%, 07/01/11 513
500 5.250%, 07/01/12 514
State Housing, Finance & Development Corporation,
Affordable Rental Housing Program, Ser 1995 A, RB
350 6.000%, 07/01/15 366
750 6.050%, 07/01/22 785
State Housing, Finance & Development Corporation,
Single Family Mortgage Purchase, RB
1,200 5.550%, 07/01/07 1,274
State Housing, Finance & Development Corporation,
Single Family Mortgage Purchase, Ser B,
RB, FNMA Collateral
595 5.700%, 07/01/13 617
State Housing, Finance & Development Corporation,
University of Hawaii Faculty Housing Project,
RB, AMBAC Insured
700 5.650%, 10/01/16 738
-------
24,283
-------
23
<PAGE>
BISHOP STREET FUNDS
HAWAII MUNICIPAL BOND FUND -- STATEMENT OF NET ASSETS
(CONCLUDED)
Face Market
Amount/Shares Value
(000) (000)
------- -------
MUNICIPAL BONDS -- CONCLUDED
PUERTO RICO -- 10.0%
Commonwealth Highway & Transportation Authority,
Ser Z, RB, FSA Insured
500 6.000%, 07/01/18 $ 574
Commonwealth of Puerto Rico, GO, MBIA Insured
1,000 6.500%, 07/01/13 1,185
Housing, Banking & Finance Agency,
Single Family Mortgage,
Affordable Housing Mortgage Portfolio I, RB,
GNMA/FNMA/FHLMC Collateral
300 6.100%, 10/01/15 317
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%, 07/01/21 493
-------
2,899
-------
VIRGIN ISLANDS -- 0.6%
Housing Finance Authority, Single Family, GNMA
Mortgage Backed Securities Program, Ser A, RB
150 6.500%, 03/01/25 160
-------
TOTAL MUNICIPAL BONDS (Cost $26,647) 27,942
-------
CASH EQUIVALENTS -- 2.6%
206 Dreyfus Tax Exempt Cash Management Fund 206
46 Nuveen Federal Tax Exempt Money Market 46
512 SEI Institutional Tax Free Portfolio 512
-------
TOTAL CASH EQUIVALENTS (Cost $764) 764
-------
TOTAL INVESTMENTS (COST $27,411) -- 99.0% 28,706
-------
OTHER ASSETS AND LIABILITIES, NET -- 1.0% 299
-------
24
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
Value
(000)
-------
NET ASSETS:
Fund shares (unlimited authorization -- no par value)
based on 2,717,380 outstanding shares of beneficial interest $27,743
Undistributed net investment income 28
Accumulated net realized loss on investments (61)
Net unrealized appreciation of investments 1,295
-------
TOTAL NET ASSETS -- 100.0% $29,005
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $10.67
-------
AMBAC -- AMERICAN MUNICIPAL BOND ASSURANCE COMPANY
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 INSURANCE ASSOCIATION
RB -- REVENUE BOND
SER -- SERIES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
25
<PAGE>
BISHOP STREET
INVESTMENT ADVISER'S REPORT & MANAGEMENT DISCUSSION
FUNDS
MONEY MARKET FUND & TREASURY MONEY MARKET FUND
Investment Adviser's Report:
Sustained economic growth early in 1997 prompted the Federal Reserve to move the
Fed Funds Target Rate to 5.50% in March, a rise of 25 basis points. History
would indicate that such continued economic growth would lead to a higher price
scenario, but the productivity gains of this economic cycle helped subdue
inflation and made additional late increases unnecessary.
Late in the year, the currency and market upheaval in southeast Asia began to
dominate the world markets, causing a flight to quality and subsequent bond
rally in the United States. A rise in short rates was fueled by economic
activity and foreign central banks selling Treasury Bills to support their
currencies. At the same time, the sound domestic economy capital flows from non
U.S. investors, and the prospect of the Asian troubles slowing global economies,
led to increased buying of and lower rates on longer term Treasuries. The yield
on the one year Treasury ended 1997 almost exactly where it started, 5.49%.
Yields on longer Treasuries fell by nearly 70 basis points for the year, but the
90 day U.S. Treasury Bill's yield was up by 20 basis points.
The leading credit risk concern for the short term markets was Mercury Finance,
a lender in the higher risk "sub-prime" sector, facing a cashflow crisis that
left it unable to repay $500 million to its commercial paper investors. Also,
late in the year the aforementioned Asian financial crisis resulted in
significant credit rating downgrades for many issuers domiciled there. The
Bishop Street Money Market Funds were exposed to neither Mercury nor any Asian
securities.
Management Discussion & Analysis of Fund Performance:
The Money Market Fund's holdings remain concentrated in high quality
commercial paper, floating rate notes, and bank notes/CDs. The Portfolio's
weighted average maturity was reduced to as low as 30 days in the early part of
the year as we anticipated additional Fed rate hikes. By May the maturity had
stabilized around 50 days, where it remained until we successfully took
advantage of year-end funding pressures by increasing it to nearly 70 days.
Total return for the year was 5.29% compared to 5.40% for the IBC First Tier
Institutional-Only Average.
26
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
The Treasury Money Market Fund has used a barbell strategy for most of the year,
investing principally in overnight repurchase agreements (repo) and longer
maturity Treasury Bills. Large repo exposure kept the fund's weighted average
maturity under 30 days from April to September as longer Treasury Bill yields
were unattractive. In the final quarter we took advantage of both elevated
year-end repo rates, and increasing yields on longer Treasuries. Total net
return for the year was 5.22% compared to 4.90% for the IBC U.S. Treasury & Repo
Average.
Entering 1998, the Fed is more inclined to lower than raise rates. The U.S.
economy is likely to slow from its robust 1997 pace, and the inevitable slowdown
in Asia will also dampen domestic growth in a rebalancing of trade. These
factors, combined with a continued lack of inflation, should temper the Fed's
inclination to raise rates in 1998.
27
<PAGE>
BISHOP STREET FUNDS ANNUAL REPORT -- DECEMBER 31, 1997
MONEY MARKET FUND -- STATEMENT OF NET ASSETS
Face
Amount Value
(000) (000)
------- -------
COMMERCIAL PAPER* -- 74.7%
BANKS -- 9.1%
Centric Funding
$3,000 5.550%, 01/02/98 $ 3,000
5,000 5.950%, 02/23/98 4,956
Kitty Hawk Funding
8,605 5.750%, 03/02/98 8,523
New Center Asset Trust
6,000 5.780%, 03/13/98 5,932
-------
22,411
-------
BROKERAGE -- 3.4%
Morgan Stanley, Dean Witter Discover
8,500 5.780%, 02/17/98 8,436
-------
BUSINESS CREDIT INSTITUTIONS -- 3.2%
Ciesco LP
2,500 6.000%, 01/16/98 2,494
Xerox Credit
5,300 6.850%, 01/02/98 5,299
-------
7,793
-------
FINANCIAL SERVICES -- 24.0%
American Express Credit
5,000 6.450%, 01/02/98 4,999
Avco Financial Services
5,000 5.710%, 03/02/98 4,952
Clipper Receivables
8,500 5.830%, 02/17/98 8,435
Commoloco
7,500 5.600%, 04/15/98 7,379
Delaware Funding
8,500 5.950%, 01/16/98 8,479
Falcon Asset Securitization
7,800 5.750%, 03/23/98 7,699
General Electric Capital
4,000 5.550%, 03/31/98 3,945
5,500 5.580%, 04/15/98 5,411
Island Finance Puerto Rico
8,000 5.700%, 02/27/98 7,928
-------
59,227
-------
FINANCIAL SERVICES-AUTO -- 6.5%
FCAR Owner Trust
8,000 5.710%, 03/06/98 7,919
General Motors Acceptance
5,000 5.560%, 01/14/98 4,990
3,000 5.740%, 02/13/98 2,979
-------
15,888
-------
28
<PAGE>
BISHOP STREET FUNDS ANNUAL REPORT -- DECEMBER 31, 1997
MONEY MARKET FUND -- STATEMENT OF NET ASSETS
(CONTINUED)
Face
Amount Value
(000) (000)
------- -------
COMMERCIAL PAPER* -- CONCLUDED
FOOD, BEVERAGE & TOBACCO -- 2.8%
Colgate Palmolive
$ 7,000 5.700%, 03/04/98 $ 6,931
-------
INDUSTRIAL -- 3.4%
Texaco
8,500 5.750%, 03/13/98 8,404
-------
INSURANCE -- 16.1%
Aon
8,500 5.770%, 03/10/98 8,407
Centre Square Funding
8,000 6.000%, 01/15/98 7,981
Cigna
8,000 5.940%, 01/21/98 7,974
Prudential Funding
7,500 5.550%, 01/20/98 7,478
Safeco
8,000 5.760%, 03/16/98 7,905
-------
39,745
-------
PERSONAL CREDIT INSTITUTIONS -- 6.2%
Associates
7,500 5.520%, 01/30/98 7,467
Beneficial
8,000 5.580%, 02/24/98 7,933
-------
15,400
-------
TOTAL COMMERCIAL PAPER (Cost $184,235) 184,235
-------
FLOATING RATE NOTES* -- 14.2%
Asset Backed Securities Investment Trust (A)
5,000 5.980%, 01/15/98 5,000
Bank of America (A)
5,000 5.650%, 01/01/98 4,999
Peoples Security Life (A)
10,000 5.880%, 02/01/98 10,000
PNC Bank (A)
5,000 5.600%, 01/01/98 4,998
Travelers Insurance (A)
10,000 5.956%, 01/02/98 10,000
-------
TOTAL FLOATING RATE NOTES (Cost $34,997) 34,997
-------
29
<PAGE>
BISHOP STREET FUNDS
Face
Amount Value
(000) (000)
------- -------
CERTIFICATES OF DEPOSIT/BANK NOTES* -- 10.3%
Chase Manhattan
$ 2,500 5.710%, 03/05/98 $ 2,500
Comerica Bank
10,000 5.970%, 10/27/98 9,997
Key Bank
4,830 5.900%, 09/17/98 4,827
Morgan Guaranty NY
5,000 5.965%, 06/22/98 4,999
Regions Bank
3,000 5.820%, 04/17/98 3,000
--------
TOTAL CERTIFICATES OF DEPOSIT/BANK NOTES
(Cost $25,323) 25,323
--------
REPURCHASE AGREEMENT* -- 1.1%
Lehman Brothers
6.57%, dated 12/31/97, matures 01/02/98
repurchase price $2,837,035 (collateralized
by U.S. Treasury STRIPS, par value
$9,670,000, 0.00%, matures 08/15/17:
2,836 market value $2,979,327) 2,836
--------
TOTAL REPURCHASE AGREEMENT (Cost $2,836) 2,836
--------
TOTAL INVESTMENTS (COST $247,391) -- 100.3% 247,391
--------
OTHER ASSETS AND LIABILITIES, NET (0.3%) (720)
--------
NET ASSETS:
Fund shares (unlimited authorization -- no par value) based
on 246,701,232 outstanding shares of beneficial interest 246,701
Undistributed net investment income 4
Accumulated net realized loss on investments (34)
--------
TOTAL NET ASSETS -- 100.0% $246,671
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $1.00
--------
* REPRESENTS ANNUALIZED YIELD AT DATE OF PURCHASES FOR DISCOUNT SECURITIES,
AND COUPON FOR COUPON-BEARING SECURITIES.
(A) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON DECEMBER 31, 1997. THE MATURITY 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.
30
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
TREASURY MONEY MARKET FUND -- STATEMENT OF NET ASSETS
Face
Amount Value
(000) (000)
------- -------
U.S. TREASURY OBLIGATIONS -- 18.3%
U.S. Treasury Notes
$ 4,000 5.125%, 02/28/98 $ 3,996
5,000 5.125%, 03/31/98 4,993
6,000 6.125%, 03/31/98 6,006
4,000 5.875%, 04/30/98 4,000
5,000 6.125%, 08/31/98 5,011
5,000 6.000%, 09/30/98 5,008
11,000 5.875%, 10/31/98 11,017
5,000 5.125%, 12/31/98 4,971
5,000 5.750%, 12/31/98 5,001
--------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $50,003) 50,003
--------
REPURCHASE AGREEMENTS -- 82.0%
BZW Securities, Inc.
6.625%, dated 12/31/97, matures 01/02/98,
repurchase price $45,016,563 (collateralized
by U.S. Treasury Note, par value
$45,697,000, 5.625%, matures 11/30/98:
45,000 market value $45,900,878) (A) 45,000
Greenwich
6.75%, dated 12/31/97, matures 01/02/98,
repurchase price $40,015,000 (collateralized
by various U.S. Treasury Notes, total
par value $40,848,000, 5.625%-7.75%,
11/30/99-12/31/99:total market value
40,000 $40,783,868) (A) 40,000
Aubrey G. Lanston & Co.
6.50%, dated 12/31/97, matures 01/02/98,
repurchase price $35,693,885 (collateralized
by U.S. Treasury Note, par value $36,624,000,
5.625%, matures 12/31/02: market value
35,681 $36,486,660) 35,681
Morgan Stanley
7.525%, dated 12/31/97, matures 01/02/98,
repurchase price $25,010,451 (collateralized
by U.S. Treasury Note, par value $24,620,000
7.125%, matures 09/30/99: market value
25,000 $25,630,854) (A) 25,000
31
<PAGE>
BISHOP STREET FUNDS
Face
Amount Value
(000) (000)
------- -------
REPURCHASE AGREEMENTS -- CONCLUDED
Paribas
6.75%, dated 12/31/97, matures 01/02/98,
repurchase price $50,018,750 (collateralized
by various U.S. Treasury Notes, total
par value $49,590,000, 6.25%, 03/31/99-01/31/02:
$50,000 total market value $50,997,143) $ 50,000
UBS
6.55%, dated 12/31/97, matures 01/02/98,
repurchase price $29,010,553 (collateralized
by various U.S. Treasury Bonds, total par value
$21,995,000, 8.75%-13.875%, 11/15/08-05/15/11:
29,000 total market value $29,584,155) (A) 29,000
--------
TOTAL REPURCHASE AGREEMENTS (Cost $224,681) 224,681
--------
TOTAL INVESTMENTS (COST $274,684) -- 100.3% 274,684
--------
OTHER ASSETS AND LIABILITIES, NET -- (0.3%) (765)
--------
NET ASSETS:
Fund shares (unlimited authorization -- no par value) based
on 273,944,174 outstanding shares of beneficial interest 273,944
Undistributed net investment income 12
Accumulated net realized loss on investments (37)
--------
TOTAL NET ASSETS-- 100.0% $273,919
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $1.00
--------
(A) TRI-PARTY REPURCHASE AGREEMENT.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
32
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
33
<PAGE>
<TABLE>
<CAPTION>
BISHOP STREET FUNDS
STATEMENTS OF OPERATIONS
FOR PERIOD ENDED 12/31/97
(IN THOUSANDS)
High Hawaii Treasury
Grade Municipal Money Money
Equity Income Bond Market Market
Fund (2) Fund (2) Fund Fund Fund
- ------------------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C> <C> <C> <C>
Interest Income $ 159 $1,475 $1,433 $14,679 $12,214
Dividend Income 906 -- -- -- --
- ------------------------------------------------------------------------------------------
Total Investment Income 1,065 1,475 1,433 14,679 12,214
- ------------------------------------------------------------------------------------------
EXPENSES:
Investment Adviser Fee 433 127 93 774 662
Investment Adviser Fee Waiver (121) (50) (85) (328) (469)
Management Fee 117 46 54 516 441
Management Fee Waiver (39) (15) (45) (218) (186)
Shareholder Servicing Fee 146 58 61 592 490
Shareholder Servicing Fee Waiver (88) (35) (43) (355) (285)
Custody Fees 15 3 14 67 43
Transfer Agent Fees 28 16 17 74 43
Registration Fees 19 7 -- -- 12
Distribution Fees (1) -- -- 9 2 --
Distribution Fee Waiver -- -- (9) -- --
Trustees Fees 7 2 3 29 25
Printing Fees 15 4 3 42 51
Professional Fees 22 7 4 105 84
Amortization of Deferred
Organizational Costs 5 5 10 15 8
Miscellaneous Expenses 23 10 2 7 34
- ------------------------------------------------------------------------------------------
Total Expenses 582 185 88 1,322 953
- ------------------------------------------------------------------------------------------
Net Investment Income 483 1,290 1,345 13,357 11,261
- ------------------------------------------------------------------------------------------
Net Realized Gain (Loss) on Investments (184) 101 84 1 (37)
Change in Unrealized Appreciation
(Depreciation) on Investments 11,942 540 800 -- --
- ------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments 11,758 641 884 1 (37)
- ------------------------------------------------------------------------------------------
Increase in Net Assets
Resulting from Operations $12,241 $1,931 $2,229 $13,358 $11,224
==========================================================================================
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) ALL DISTRIBUTION FEES ARE INCURRED IN THE RETAIL CLASS B. RETAIL CLASS B CLOSED
OPERATIONS ON JULY 20, 1997.
(2) COMMENCED OPERATIONS ON JANUARY 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</FN>
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS ANNUAL REPORT -- DECEMBER 31, 1997
(IN THOUSANDS)
Equity High Grade
Fund Income Fund
- -----------------------------------------------------------------------------------------
01/31/97 01/31/97
to 12/31/97 (1) to 12/31/97 (1)
- -----------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
<S> <C> <C>
Net Investment Income $ 483 $ 1,290
Net Realized Gain (Loss) on Investments (184) 101
Change in Unrealized Appreciation (Depreciation)
of Investments 11,942 540
- -----------------------------------------------------------------------------------------
Increase in Net Assets Resulting From Operations 12,241 1,931
- -----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income: (483) (1,290)
Capital Gains: -- (67)
- -----------------------------------------------------------------------------------------
Total Distributions (483) (1,357)
- -----------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Issued 59,210 25,503
Reinvestments of Cash Distributions 482 1,356
Cost of Shares Redeemed (1,483) (1,191)
- -----------------------------------------------------------------------------------------
Total Capital Share Transactions 58,209 25,668
- -----------------------------------------------------------------------------------------
Net Increase in Net Assets
From Share Transactions 58,209 25,668
- -----------------------------------------------------------------------------------------
Total Increase in Net Assets 69,967 26,242
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period -- --
- -----------------------------------------------------------------------------------------
End of Period $69,967 $26,242
=========================================================================================
CAPITAL SHARE TRANSACTIONS:
Shares Issued 5,893 2,549
Shares Issued in Lieu of Cash Distributions 43 135
Shares Redeemed (135) (118)
- -----------------------------------------------------------------------------------------
Total Capital Share Transactions 5,801 2,566
- -----------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Shares 5,801 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.
</FN>
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
BISHOP STREET FUNDS
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Hawaii Municipal
Bond Fund
- --------------------------------------------------------------------------------------------
01/01/97 01/01/96
to 12/31/97 to 12/31/96
- --------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
<S> <C> <C>
Net Investment Income $ 1,345 $ 1,196
Net Realized Gain (Loss) on Investments 84 (145)
Change in Unrealized Appreciation of Investments 800 9
- ---------------------------------------------------------------------------------------------
Increase in Net Assets Resulting From Operations 2,229 1,060
- ---------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income:
Institutional Class A Shares (1,092) (717)
Retail Class B Shares (253) (451)
Capital Gains:
Institutional Class A Shares -- (25)
Retail Class B Shares -- (16)
- ---------------------------------------------------------------------------------------------
Total Distributions (1,345) (1,209)
- ---------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Institutional Class A Shares:
Proceeds from Shares Issued 6,901 7,259
Proceeds in connection with transfer from Retail Class B 8,988 --
Reinvestments of Cash Distributions 471 275
Cost of Shares Redeemed (3,804) (1,460)
- ---------------------------------------------------------------------------------------------
Total Institutional Capital Share Transactions 12,556 6,074
- ---------------------------------------------------------------------------------------------
Retail Class B Shares: (1)
Proceeds from Shares Issued 743 4,344
Reinvestments of Cash Distributions 135 310
Cost of Shares Redeemed (574) (2,443)
Transfer to Institutional Class A (8,988) --
- ---------------------------------------------------------------------------------------------
Total Retail Capital Share Transactions (8,684) 2,211
- ---------------------------------------------------------------------------------------------
Net Increase in Net Assets From Capital Share Transactions 3,872 8,285
- ---------------------------------------------------------------------------------------------
Total Increase in Net Assets 4,756 8,136
- ---------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period 24,249 16,113
- ---------------------------------------------------------------------------------------------
End of Period $29,005 $24,249
=============================================================================================
CAPITAL SHARE TRANSACTIONS:
Institutional Class A Shares:
Shares Issued 661 709
Shares in connection with transfer from Retail Class B 854 --
Shares Issued in Lieu of Cash Distributions 45 27
Shares Redeemed (334) (144)
- ---------------------------------------------------------------------------------------------
Total Institutional Capital Share Transactions 1,226 592
- ---------------------------------------------------------------------------------------------
Retail Class B Shares: (1)
Shares Issued 41 424
Shares Issued in Lieu of Cash Distributions 13 30
Shares Redeemed (54) (239)
Transfer to Institutional Class A (854) --
- ---------------------------------------------------------------------------------------------
Total Retail Capital Share Transactions (854) 215
- ---------------------------------------------------------------------------------------------
Net Increase in Capital Shares 372 807
=============================================================================================
<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.
</FN>
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets ANNUAL REPORT -- DECEMBER 31, 1997
(IN THOUSANDS)
Treasury
Money Market Money Market
Fund Fund
- ----------------------------------------------------------------------------------------------------
01/01/97 01/01/96 01/01/97 05/01/96 (1)
to 12/31/97 to 12/31/96 to 12/31/97 to 12/31/96
- ----------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
<S> <C> <C> <C> <C>
Net Investment Income $ 13,357 $ 16,365 $ 11,261 $ 5,219
Net Realized Gain (Loss) on Investments 1 (35) (37) 14
- ----------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting
From Operations 13,358 16,330 11,224 5,233
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income:
Institutional Class A Shares (13,235) (16,188) (11,249) (5,219)
Retail Class B Shares (119) (176) -- --
Capital Gains:
Institutional Class A Shares (4) -- (14) --
Retail Class B Shares -- -- -- --
- ----------------------------------------------------------------------------------------------------
Total Distributions (13,358) (16,364) (11,263) (5,219)
- ----------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
ALL AT $1.00 PER SHARE
Institutional Class A Shares:
Proceeds from Shares Issued 625,934 541,728 1,511,022 1,011,211
Proceeds in connection with transfer
from Retail Class B 4,014 -- -- --
Reinvestments of Cash Distributions 83 13 -- --
Cost of Shares Redeemed (657,484) (572,703) (1,417,265) (831,024)
- ----------------------------------------------------------------------------------------------------
Total Institutional Capital
Share Transactions (27,453) (30,962) 93,757 180,187
- ----------------------------------------------------------------------------------------------------
Retail Class B Shares: (2)
Proceeds from Shares Issued 1,172 4,790 -- --
Reinvestments of Cash Distributions 119 148 -- --
Cost of Shares Redeemed (1,796) (4,077) -- --
Cost of shares in connection with
transfer to Institutional Class A (4,014) -- -- --
- ----------------------------------------------------------------------------------------------------
Total Retail Capital Share
Transactions (4,519) 861 -- --
- ----------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
From Capital Share Transactions (31,972) (30,101) 93,757 180,187
- ----------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (31,972) (30,135) 93,718 180,201
- ----------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period 278,643 308,778 180,201 --
- ----------------------------------------------------------------------------------------------------
End of Period $ 246,671 $ 278,643 $ 273,919 $ 180,201
====================================================================================================
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) COMMENCED OPERATIONS ON MAY 1, 1996.
(2) FOR THE PERIOD JANUARY 1, 1997 TO JULY 20, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</FN>
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
BISHOP STREET FUNDS ANNUAL REPORT -- DECEMBER 31, 1997
Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED DECEMBER 31,
INVESTMENT ACTIVITIES DISTRIBUTION 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
- -----------
INSTITUTIONAL CLASS A
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997(1): $10.00 $0.08 $ 2.06 $(0.08) -- $12.06 21.52%+ $ 69,967 0.99%*
- ---------------------
HIGH GRADEINCOME FUND
- ---------------------
INSTITUTIONAL CLASS A
1997(1): $10.00 $0.51 $ 0.26 $(0.51) $(0.03) $10.23 7.94%+ $ 26,242 0.80%*
- --------------------------
HAWAII MUNICIPAL BOND FUND
- --------------------------
INSTITUTIONAL CLASS A
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%*
RETAIL CLASS B
1997(7): $10.35 $0.29 $ 0.19 $(0.29) -- $10.54 4.77%+ $ -- 0.26%*
1996(8): $10.47 $0.55 $(0.11) $(0.55) $(0.01) $10.35 4.31% $ 8,841 0.21%
1995(3)(8): $10.00 $0.45 $ 0.47 $(0.45) -- $10.47 10.85%++ $ 6,702 0.33%*
- -----------------
MONEY MARKET FUND
- -----------------
INSTITUTIONAL CLASS A
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(4): $ 1.00 $0.05 -- $(0.05) -- $ 1.00 5.67%++ $305,120 0.50%*
RETAIL CLASS B
1997(7): $ 1.00 $0.03 -- $(0.03) -- $ 1.00 2.80%+ $ -- 0.59%*
1996: $ 1.00 $0.05 -- $(0.05) -- $ 1.00 5.02% $ 4,518 0.59%
1995(5): $ 1.00 $0.05 -- $(0.05) -- $ 1.00 5.55%++ $ 3,658 0.60%*
- --------------------------
TREASURY MONEY MARKET FUND
- --------------------------
INSTITUTIONAL CLASS A
1997: $ 1.00 $0.05 -- $(0.05) -- $ 1.00 5.22% $273,919 0.43%
1996(6): $ 1.00 $0.03 -- $(0.03) -- $ 1.00 5.08%++ $180,201 0.42%*
</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 AVERAGE
WAIVERS AND AVERAGE WAIVERS AND TURNOVER COMMISSION
REIMBURSEMENTS NET ASSETS REIMBURSEMENTS RATE RATE (9)
-------------- ---------- -------------- -------- ----------
- -----------
EQUITY FUND
- -----------
INSTITUTIONAL CLASS A
<S> <C> <C> <C> <C> <C>
1997(1): 1.39%* 0.83%* 0.43%* 30% $0.0622
- ---------------------
HIGH GRADEINCOME FUND
- ---------------------
INSTITUTIONAL CLASS A
1997(1): 1.30%* 5.58%* 5.08%* 32% n/a
- --------------------------
HAWAII MUNICIPAL BOND FUND
- --------------------------
INSTITUTIONAL CLASS A
1997: 0.99% 5.05% 4.40% 29% n/a
1996: 0.85% 5.33% 4.68% 27% n/a
1995(2): 1.10%* 5.24%* 4.40%* 68% n/a
RETAIL CLASS B
1997(7): 0.86%* 5.15%* 4.55%* 29% n/a
1996(8): 1.05% 5.33% 4.48% 27% n/a
1995(3)(8): 1.45%* 5.14%* 4.02%* 68% n/a
- -----------------
MONEY MARKET FUND
- -----------------
INSTITUTIONAL CLASS A
1997: 0.85% 5.18% 4.84% -- n/a
1996: 0.60% 5.01% 4.90% -- n/a
1995(4): 0.66%* 5.50%* 5.34%* -- n/a
RETAIL CLASS B
1997(7): 0.88%* 5.09%* 4.80%* -- n/a
1996: 0.76% 4.91% 4.74% -- n/a
1995(5): 0.76%* 5.26%* 5.10%* -- n/a
- --------------------------
TREASURY MONEY MARKET FUND
- --------------------------
INSTITUTIONAL CLASS A
1997: 0.86% 5.11% 4.68% -- n/a
1996(6): 0.65%* 4.96%* 4.74%* -- n/a
<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 FEBRUARY 16, 1995.
(4) COMMENCED OPERATIONS ON JANUARY 30, 1995.
(5) COMMENCED OPERATIONS ON FEBRUARY 17, 1995.
(6) COMMENCED OPERATIONS ON MAY 1, 1996.
(7) CLOSED OPERATIONS ON JULY 20, 1997.
(8) TOTAL RETURN DOES NOT REFLECT APPLICABLE SALES CHARGE FOR THE HAWAII MUNICIPAL BOND FUND.
(9) AVERAGE COMMISSION RATE PAID PER SHARE FOR SECURITY PURCHASES AND SALES DURING THE PERIOD.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</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 consists 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 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.
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.
40
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
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 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 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 all 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 number of
initial shares being redeemed bears to the number of initial shares outstanding
at the time of the redemption.
41
<PAGE>
BISHOP STREET FUNDS
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 Fund Resources ("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. 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. SEI Investments 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. Effective May 15, 1997,
the Board of Trustees terminated the Distribution Plan for Retail Class B shares
that had previously been approved pursuant to Rule 12b-1.
42
<PAGE>
ANNUAL REPORT --DECEMBER 31, 1997
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 year ended December
31, 1997 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 $ -- $21,604 $ --
Other 73,561 10,604 11,369
Sales
U.S. Government Securities $ -- $ 3,707 $ --
Other 17,861 3,596 7,415
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
43
<PAGE>
BISHOP STREET FUNDS
At December 31, 1997 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,
1997 for the Funds is as follows (000):
EQUITY HIGH GRADE HAWAII MUNICIPAL
FUND INCOME FUND BOND FUND
-------- ------------- ------------------
Gross Unrealized Appreciation $12,856 $ 542 $1,303
Gross Unrealized Depreciation (914) (2) (8)
-------- ------------- ------------------
Net Unrealized Appreciation $11,942 $540 $1,295
======== ============= ==================
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, 1997, 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 30%
Hospital Bonds 16%
Housing Bonds 13%
Transportation Bonds 20%
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, 1997 are as follows:
STANDARD & HAWAII MUNICIPAL
POOR'S RATING BOND FUND
------------- ----------------
AAA 64%
AA 24%
A 5%
A- 1%
Not Rated 6%
----------------
100%
================
44
<PAGE>
ANNUAL REPORT -- DECEMBER 31, 1997
Report of Independent Accountants
To the Shareholders and Board of Trustees
of the Bishop Street Funds:
We have audited the accompanying statements of net assets of the Bishop Street
Funds (comprising, respectively, the Equity, High Grade Income, Hawaii Municipal
Bond, Money Market and Treasury Money Market Funds) as of December 31, 1997, the
related statements of operations for the year then ended, or the period from
January 31, 1997 (commencement of operations) to December 31, 1997 for the
Equity and High Grade Income Funds, the statements of changes in net assets for
each of the two years (or periods) in the period then ended, or the period
January 31, 1997 (commencement of operations) to December 31, 1997 for the
Equity and High Grade Income Funds, 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 disclosure in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1997 by correspondence with the custodian 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 the
Bishop Street Funds (comprising, respectively, the Equity, High Grade Income,
Hawaii Municipal Bond, Money Market and Treasury Money Market Funds) as of
December 31, 1997, and the results of their operations for the year then ended,
or the period from January 31, 1997 (commencement of operations) to December 31,
1997 for the Equity and High Grade Income Funds, changes in their net assets for
each of the two years (or periods) in the period then ended, or the period
January 31, 1997 (commencement of operations) to December 31, 1997 for the
Equity and High Grade Income Funds, 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 13, 1998
45
<PAGE>
BISHOP STREET FUNDS
NOTICE TO SHAREHOLDERS OF BISHOP STREET FUNDS (UNAUDITED)
For shareholders that do not have a December 31, 1997 taxable year end,
this notice is for informational purposes only. For shareholders with a December
31, 1997 tax year end, please consult your tax advisor as to the pertinence of
this notice.
For the fiscal year ended December 31, 1997, each Fund has designated the
following items with regard to distributions paid during the year :
(A) (B) (C)
LONG TERM ORDINARY (A+B)
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
FUND (TAX BASIS) (TAX BASIS) (TAX BASIS)
- ------ ------------- ------------- -------------
Equity 0% 100% 100%
High Grade Income 0% 100% 100%
Hawaii Municipal Bond 0% 100% 100%
Money Market 0% 100% 100%
Treasury Money Market 0% 100% 100%
(C) (D)
QUALIFYING TAX EXEMPT
FUND DIVIDENDS(1) INTEREST
- ------ ------------- -------------
Equity 100% 0%
High Grade Income 0% 0%
Hawaii Municipal Bond 0% 100%
Money Market 0% 0%
Treasury Money Market 0% 0%
(1) QUALIFYING DIVIDENDS REPRESENT DIVIDENDS WHICH QUALIFY FOR THE CORPORATE
DIVIDENDS RECEIVED DEDUCTION.
* ITEMS (A) AND (B) ARE BASED ON THE PERCENTAGE OF EACH FUND'S
TOTAL DISTRIBUTION.
** ITEMS (D) AND (E) ARE BASED ON A PERCENTAGE OF ORDINARY INCOME
DISTRIBUTIONS OF EACH FUND.
46
<PAGE>
NOTES
47
<PAGE>
NOTES
48
<PAGE>
[Logo Omitted[
INVESTMENT ADVISER
FIRST HAWAIIAN BANK
HONOLULU, HI 96813
ADMINISTRATOR
SEI FUND RESOURCES
WAYNE, PA 19087
DISTRIBUTOR
SEI INVESTMENTS DISTRIBUTION CO.
OAKS, PA 19456
TRANSFER AGENT
DSTSYSTEMS INC.
KANSAS CITY, MO 64141
CUSTODIAN
CHASE MANHATTAN BANK
NY, NY 10041
LEGAL COUNSEL
MORGAN,LEWIS & BOCKIUS LLP
PHILADELPHIA, PA 19103
AUDITORS
COOPERS & LYBRAND LLP
PHILADELPHIA, PA 19103
FOR MORE INFORMATION ABOUT
BISHOP STREET FUNDS,
CALL 1-800-262-9565
OR YOUR INVESTMENT SPECIALIST
<PAGE>
[Logo Omitted[
THANK YOU FOR YOUR
INVESTMENT IN
BISHOP STREET FUNDS.
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.
BSF-F-006-03
