<PAGE>
BISHOP STREET FUNDS
PROSPECTUS
APRIL 30, 1999
EQUITY FUND
HIGH GRADE INCOME FUND
HAWAII MUNICIPAL BOND FUND
MONEY MARKET FUND
TREASURY MONEY MARKET FUND
INVESTMENT ADVISER: FIRST HAWAIIAN BANK
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED
ANY FUND SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS
ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.
[logo of Bishop Street]
Page 1 of 39
<PAGE>
HOW TO READ THIS PROSPECTUS
Bishop Street Funds is a mutual fund family that offers different classes of
shares in separate investment portfolios (Funds). The Funds have individual
investment goals and strategies. This prospectus gives you important information
about the Funds that you should know about before investing. Please read this
prospectus and keep it for future reference.
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY
REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL
INFORMATION YOU SHOULD KNOW ABOUT THE FUNDS.
IF YOU WOULD LIKE MORE DETAILED INFORMATION ABOUT THE FUNDS, PLEASE SEE:
<TABLE>
<CAPTION>
PAGE
<S> <C>
EQUITY FUND XXX
HIGH GRADE INCOME FUND XXX
HAWAII MUNICIPAL BOND FUND XXX
MONEY MARKET FUND XXX
TREASURY MONEY MARKET FUND XXX
MORE INFORMATION ABOUT RISK XXX
EACH FUND'S OTHER INVESTMENTS XXX
INVESTMENT ADVISER AND INVESTMENT TEAM XXX
PURCHASING, SELLING AND EXCHANGING FUND SHARES XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES XXX
THE BOARD OF TRUSTEES XXX
FINANCIAL HIGHLIGHTS XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
BISHOP STREET FUNDS BACK COVER
</TABLE>
Page 2 of 39
<PAGE>
INFORMATION COMMON TO ALL FUNDS
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
Each Fund has its own investment goal and strategies for reaching that goal. The
investment manager invests Fund assets in a way that they believe will help the
Fund achieve its goal. Still, investing in each Fund involves risk and there is
no guarantee that a Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in the
Fund, just as you could with other investments. A Fund share is not a bank
deposit and it is not insured or guaranteed by the FDIC or any government
agency.
The value of your investment in a Fund (other than a money market fund) is based
on the market value of the securities a Fund holds. These prices change daily
due to economic and other events that affect particular companies and other
issuers. These price movements, sometimes called volatility, may be greater or
lesser depending on the types of securities a Fund owns and the markets in which
they trade. The effect on a Fund of a change in the value of a single security
will depend on how widely a Fund diversifies its holdings.
Page 3 of 39
<PAGE>
EQUITY FUND
[graphic of bulls eye omitted]
FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal Long-term capital appreciation
Investment Focus Common stocks and other
equity securities
Share Price Volatility High
Principal Investment Strategy Investing in a diversified
portfolio of U.S. equity securities
Investor Profile Investors seeking long-term
capital appreciation, who are
willing to accept the risk of
share price volatility
</TABLE>
[graphic of briefcase omitted]
INVESTMENT STRATEGY OF THE EQUITY FUND
The Equity Fund primarily invests (at least 65% of its assets) in common stocks
and other equity securities that the Adviser believes have potential for capital
appreciation. Such instruments include convertible securities. Generally, the
Fund invests in securities of companies with market capitalizations in excess of
$2 billion. The Fund seeks to be diversified across issuers and major economic
sectors. In making a determination to buy, sell, or hold a security, the
portfolio management team gives special consideration to the relationship of the
security to the risk/reward measurement of the entire portfolio.
The Fund's investment approach, with its emphasis on common stocks and other
equity securities, is expected to provide returns consistent with the
performance of the U.S. stock market, as generally measured by broad U.S. stock
market indices such as the S&P 500. The Adviser employs a core equity
investment style with a growth bias.
[graphic of magnifying glass omitted]
PRINCIPAL RISKS OF INVESTING IN THE EQUITY FUND
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
Page 4 of 39
<PAGE>
The Fund is also subject to the risk that its market segment, equity securities,
may underperform other market segments.
[graphic of graph omitted]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows the performance of the Fund's Shares.
[bar graph omitted -- plot points as follows:]
1998 33.05%
Best Quarter Worst Quarter
23.34% -9.11%
(12/31/98) (9/30/98)
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD
ENDING DECEMBER 31, 1998 TO THOSE OF THE S&P 500 COMPOSITE INDEX AND THE
CONSUMER PRICE INDEX.
<TABLE>
<CAPTION>
1 Year Since Inception
<S> <C> <C>
Equity Fund 33.05% 28.47%*
S&P 500 Composite Index 28.60% 28.38%*
Consumer Price Index 1.61% 1.73%*
</TABLE>
*Since January 31, 1997
[graphic of arrow omitted]
SIMPLY SPEAKING
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The S&P 500 Index is a widely-recognized, market
value-weighted (higher market value stocks have more influence than lower
market value stocks) index of 500 stocks designed to mimic the overall equity
market's industry weightings. The Consumer Price Index measures prices of goods
bought by a typical consumer such as food, gas, shelter and clothing. It is
widely used as a cost-of-living benchmark.
Page 5 of 39
<PAGE>
[graphic of a dollar omitted]
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL FUND SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN THE
FUND.
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends and other Distributions
(as a percentage of offering price) None
Redemption Fee
(as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
Maximum Account Fee None
</TABLE>
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, ADMINISTRATION AND CUSTODY SERVICES AND
OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST FEES AND
EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD SHARES OF THE FUND.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Management Fees 0.74%
Other Expenses 0.58%
- ---------------------------------------------------------
Total Annual Fund
Operating Expenses 1.32%
</TABLE>
The Fund's total actual annual fund operating expenses for the most recent
fiscal year were less than the amount shown above because the Adviser,
Administrator and Distributor are waiving a portion of their fees in order to
keep total operating expenses at a specified level. The Adviser,
Administrator and Distributor may discontinue all or part of these waivers at
any time. With these fee waivers, the Fund's actual total operating expenses
are as follows:
<TABLE>
<S> <C>
EQUITY FUND 1.00%
</TABLE>
For more information about these fees, see "Investment Adviser and Investment
Team."
Page 6 of 39
<PAGE>
EXAMPLE: COST OF INVESTING
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of each period.
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------
<S> <C> <C> <C>
$134 $418 $723 $1,590
</TABLE>
Page 7 of 39
<PAGE>
HIGH GRADE INCOME FUND
[graphic of bulls eye omitted]
FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal High total return
Investment Focus Corporate and U.S. Government
debt obligations
Share Price Volatility Medium
Principal Investment Strategy Investing in high grade U.S.
debt obligations of domestic
corporations and the U.S.
Government
Investor Profile Conservative investors
seeking income, who are
willing to accept some degree
of share price volatility
</TABLE>
[graphic of briefcase omitted]
INVESTMENT STRATEGY OF THE HIGH GRADE INCOME FUND
The High Grade Income Fund primarily invests (at least 65% of its assets) in
high grade U.S. dollar-denominated debt obligations of domestic corporations and
the U.S. Government. High grade debt obligations are those rated in the three
highest ratings categories by either S&P or other nationally recognized
statistical rating organizations, and include mortgage-backed and variable and
floating rate instruments. In determining to buy, sell, or hold a security, the
portfolio management team analyzes the security in relationship to the risk
characteristics of the portfolio as a whole.
[graphic of magnifying glass omitted]
PRINCIPAL RISKS OF INVESTING IN THE HIGH GRADE INCOME FUND
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if
interest rates rise and vice versa. Also, the volatility of lower rated
securities is even greater than that of higher rated securities. Longer-term
securities are generally more volatile, so the average maturity or duration
of these securities affects risk.
The Fund is also subject to the risk that its market segment, fixed income
securities, may underperform other market segments.
The mortgages underlying mortgage-backed securities may be paid off early, which
makes it difficult to determine their actual maturity and therefore calculate
how they will respond to changes in interest rates. The Fund may have to
reinvest prepaid amounts at lower interest rates. This risk of prepayment is an
additional risk of mortgage-backed securities.
Page 8 of 39
<PAGE>
Although the Fund's U.S. Government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. Government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources.
The Fund's investment approach, with its emphasis on high quality corporate and
U.S. Government obligations of medium maturity, is expected to provide total
return through income and some capital appreciation with moderate risk to
principal and less sensitivity to changing interest rates than longer term or
lower quality bond funds.
[graphic of graph omitted]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows the performance of the Fund's Shares.
[bar graph omitted -- plot points as follows:]
1998 9.09%
Best Quarter Worst Quarter
5.42% -0.20%
(9/30/98) (12/31/98)
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD
ENDING DECEMBER 31,1998 TO THOSE OF THE LEHMAN BROTHERS GOVERNMENT/CORPORATE
BOND INDEX AND CONSUMER PRICE INDEX.
<TABLE>
<CAPTION>
1 Year Since Inception
- -----------------------------------------------------------------------------------
<S> <C> <C>
High Grade Income Fund 9.09% 8.90%*
Lehman Brothers
Government/Corporate Bond Index 9.47% 9.98%*
Consumer Price Index 1.61% 1.73%*
</TABLE>
*Since January 31, 1997
[graphic of arrow omitted]
SIMPLY SPEAKING
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Lehman Brothers Government/Corporate Bond
Index is a widely-recognized, market value-weighted (higher market value
bonds have more influence than lower market value bonds) index of U.S.
Treasury securities, U.S. Government agency obligations, corporate debt
backed by the U.S. Government, and fixed-rate non-convertible corporate debt
securities issued or guaranteed by foreign governments and agencies. All
securities in the Index are rated investment grade (BBB) or higher, with
maturities of at least one year. The Consumer Price Index measures prices of
goods bought by a typical consumer such as food, gas, shelter and clothing.
It is widely used as a cost-of-living benchmark.
Page 9 of 39
<PAGE>
[graphic of dollar omitted]
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL FUND SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN THE
FUND.
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends and other Distributions
(as a percentage of offering price) None
Redemption Fee
(as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
Maximum Account Fee None
</TABLE>
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, ADMINISTRATION AND CUSTODY SERVICES AND
OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST FEES AND
EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD SHARES OF THE FUND.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Management Fees 0.55%
Other Expenses 0.66%
- --------------------------------------------------------
Total Annual Fund
Operating Expenses 1.21%
</TABLE>
The Fund's total actual annual operating expenses for the most recent fiscal
year were less than the amount shown above because the Adviser, Administrator
and Distributor are waiving a portion of their fees in order to keep total
operating expenses at a specified level. The Adviser, Administrator and
Distributor may discontinue all or part of these waivers at any time. With these
fee waivers, the Fund's actual total operating expenses are as follows:
<TABLE>
<S> <C>
HIGH GRADE INCOME FUND 0.80%
</TABLE>
For more information about these fees, see "Investment Adviser and Investment
Team."
Page 10 of 39
<PAGE>
EXAMPLE: COST OF INVESTING
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------
<S> <C> <C> <C>
$123 $384 $665 $1,466
</TABLE>
Page 11 of 39
<PAGE>
[graphic of bulls eye omitted]
HAWAII MUNICIPAL BOND FUND
FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal High current income exempt
from federal and Hawaii
income taxes
Investment Focus Hawaii municipal bonds
Share Price Volatility Medium
Principal Investment Strategy Investing in a portfolio
focused on investment grade
municipal bonds
Investor Profile Investors seeking tax-exempt
current income who are
willing to accept the risk of
investing in a portfolio of
municipal securities
</TABLE>
[graphic of briefcase omitted]
INVESTMENT STRATEGY OF THE HAWAII MUNICIPAL BOND FUND
The Hawaii Municipal Bond Fund primarily invests (at least 65% of its assets) in
investment grade municipal bonds, the interest from which is exempt from federal
and Hawaii state income taxes. While the Adviser attempts to maximize the
portion of the Fund's assets invested in Hawaii issues, the Fund may also invest
in the municipal bonds issued by other U.S. states, territories and possessions.
There is no restriction upon the amount of the Fund's assets that may be
invested in obligations that pay income subject to the federal alternative
minimum tax. To the extent that the Fund invests in securities subject to the
alternative minimum tax, the income received from these securities could be
taxable. There are no limits on the average maturity of the Fund's portfolio.
The Adviser will use its judgment to invest in securities that will provide a
high level of current income in light of current market conditions. In making a
determination to buy, sell, or hold a security, the portfolio manager gives
special consideration to the relative value of the security in comparison to the
available alternatives, consistent with the objectives of the portfolio.
[graphic of magnifying glass omitted]
PRINCIPAL RISKS OF INVESTING IN THE HAWAII MUNICIPAL BOND FUND
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if
interest rates rise and vice versa. Also, the volatility of lower rated
securities is even greater than that of higher rated securities. Longer-term
securities are generally more volatile, so the average maturity or duration
of these securities affects risk.
The Fund is also subject to the risk that its market segment, fixed income
securities, may underperform other market segments.
Page 12 of 39
<PAGE>
There may be economic or political changes that impact the ability of municipal
issuers to repay principal and to make interest payments on municipal
securities. Changes in the financial condition or credit rating of municipal
issuers also may adversely affect the value of the Fund's securities.
The Fund's concentration of investments in securities of issuers located in a
single state subjects the Fund to economic conditions and government policies
within Hawaii.
The Fund is non-diversified, which means that it may invest in the securities of
relatively few issuers. As a result, the Fund may be more susceptible to a
single adverse economic or political/regulatory occurrence affecting one or more
of these issuers, and may experience increased volatility due to its investments
in those securities.
The Fund's investment approach, with its emphasis on investment grade
municipal bonds, is expected to provide current tax-exempt income with
moderate risk to principal. The Fund is not expected to perform as well as a
comparable taxable bond fund, but may do as well or better on an after-tax
basis.
[graphic of graph omitted]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in performance of the Fund's Shares from year to
year.
[bar graph omitted -- plot points as follows:]
<TABLE>
<S> <C>
1996 4.21%
1997 8.52%
1998 5.84%
Best Quarter Worst Quarter
3.39% -1.68%
(6/30/97) (3/31/96)
</TABLE>
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD
ENDING DECEMBER 31, 1998 TO THOSE OF THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
AND CONSUMER PRICE INDEX.
<TABLE>
<CAPTION>
1 Year 3 Years Since Inception
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hawaii Municipal Bond Fund 5.84% 6.18% 7.22%*
Lehman Brothers Municipal Bond Index 6.48% 6.69% 8.09%**
Consumer Price Index 1.61% 2.22% 2.24%**
</TABLE>
*Since February 15, 1995
**Since February 28, 1995
Page 13 of 39
<PAGE>
[graphic of arrow omitted]
SIMPLY SPEAKING
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities
in a particular market or securities in a market sector. You cannot invest
directly in an index. Unlike a mutual fund, an index does not have an
investment adviser and does not pay any commissions or expenses. If an index
had expenses, its performance would be lower. The Lehman Brothers Municipal
Bond Index is a widely-recognized index of municipal bond funds with maturities
of at least one year. The Consumer Price Index measures prices of goods bought
by a typical consumer such as food, gas, shelter and clothing. It is widely
used as a cost-of-living benchmark.
[graphic of dollar omitted]
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL FUND SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN THE
FUND.
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends and other Distributions
(as a percentage of offering price) None
Redemption Fee
(as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
Maximum Account Fee None
</TABLE>
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, ADMINISTRATION AND CUSTODY SERVICES AND
OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST FEES AND
EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD SHARES OF THE FUND.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Management Fees 0.35%
Other Expenses 0.66%
- ----------------------------------------------------------
Total Annual Fund
Operating Expenses 1.01%
</TABLE>
The Fund's total actual annual operating expenses for the most recent fiscal
year were less than the amount shown above because the Adviser, Administrator
and Distributor are waiving a portion of their fees in order to keep total
operating expenses at a specified level. The Adviser, Administrator and
Distributor may discontinue all or part of these waivers at any time. With these
fee waivers, the Fund's actual total operating expenses are as follows:
<TABLE>
<S> <C>
HAWAII MUNICIPAL BOND FUND 0.41%
</TABLE>
Page 14 of 39
<PAGE>
For more information about these fees, see "Investment Adviser and Investment
Team."
EXAMPLE: COST OF INVESTING
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------
<S> <C> <C> <C>
$103 $322 $558 $1,236
</TABLE>
Page 15 of 39
<PAGE>
MONEY MARKET FUND
[graphic of bulls eye omitted]
FUND SUMMARY
Investment Goal Preserving principal and maintaining
liquidity while providing current
income
Investment Focus Short-term money market instruments
Share Price Volatility Very low
Principal Investment Strategy Investing in high quality, U.S. dollar
denominated short-term securities
Investor Profile Conservative investors seeking current
income through a low risk liquid
investment.
[graphic of briefcase omitted]
INVESTMENT STRATEGY OF THE MONEY MARKET FUND
The Money Market Fund is comprised of short-term U.S. dollar denominated debt
obligations that are rated in one of the two highest categories by nationally
recognized rating organizations or securities that the Adviser determines are
of comparable quality. The Fund invests substantially all of its assets in
short-term securities including: (i) commercial paper and other short-term
corporate obligations of U.S. and foreign issuers (including asset-backed
securities); (ii) certificates of deposit, time deposits, bankers'
acceptances, bank notes and other obligations of U.S. and foreign savings and
loan institutions and commercial banks (including foreign branches of such
banks) that meet certain asset requirements; (iii) short-term obligations
issued by state and local governments; (iv) obligations of foreign
governments (including Canadian and Provincial Government, and Crown Agency
Obligations); and (v) U.S. Treasury Obligations and obligations issued or
guaranteed as to principal and interest by agencies or instrumentalities of
the U.S. Government. The Fund may also enter into fully-collateralized
repurchase agreements.
Using a top-down strategy and bottom-up security selection process, the
Adviser seeks securities with an acceptable maturity, that are marketable and
liquid, that offer competitive yields, and that are issued by issuers that
are on a sound financial footing. The Adviser also considers factors such as
the anticipated level of interest rates and the maturity of individual
securities relative to the maturity of the Fund as a whole. The Fund follows
strict SEC rules about credit quality, maturity and diversification of its
investments.
[graphic of magnifying glass omitted]
PRINCIPAL RISKS OF INVESTING IN THE MONEY MARKET FUND
An investment in the Fund is subject to income risk, which is the possibility
that the Fund's yield will decline due to falling interest rates. A Fund share
is not a bank deposit and is not insured or guaranteed by the FDIC or any
government agency. In addition, although a money
16 of 39
<PAGE>
market fund seeks to maintain a constant price per share of $1.00, you may
lose money by investing in the Fund.
Although the Fund's U.S. Government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates.
The Fund's investment approach, with its emphasis on short-term obligations, is
expected to provide current income with low risk to principal and lower
exposure to fluctuations in share price. The Fund can be expected to provide
lower returns than fixed income funds which invest in longer-term securities.
THE MONEY MARKET FUND TRIES TO MAINTAIN A CONSTANT PRICE PER SHARE OF $1.00,
BUT THERE IS NO GUARANTEE THAT THE FUND WILL ACHIEVE THIS GOAL.
[graphic of graph omitted]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in performance of the Fund's Shares from year
to year.
[bar graph omitted -- plot points as follows:]
<TABLE>
<S> <C>
1996 5.12%
1997 5.29%
1998 5.26%
Best Quarter Worst Quarter
1.33% 1.24%
(12/31/97) (6/30/96)
</TABLE>
THIS TABLE COMPARES THE FUND'S RETURNS FOR THE PERIOD ENDING DECEMBER 31, 1998
TO THOSE OF THE IBC/FINANCIAL DATA FIRST TIER INSTITUTIONS-ONLY AVERAGE.
<TABLE>
1 Year 3 Years Since Inception
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund 5.26% 5.22% 5.33%*
IBC/Financial Data First Tier 5.33% 5.31% 5.43%**
Institutions-Only Average
</TABLE>
*Since January 30, 1995
**Since January 31, 1995
[graphic of arrow omitted]
SIMPLY SPEAKING
WHAT IS AN AVERAGE?
An average measures the share prices and/or performance of a specific group of
mutual funds with a particular investment objective. You cannot invest directly
in an average. The IBC/Financial Data First Tier Institutions-Only Average is a
composite of mutual funds with investment goals similar to the Fund's goals.
For information concerning the Fund's 7-Day Yield, please call 1-800-262-9565.
17 of 39
<PAGE>
[graphic of dollar sign omitted]
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL FUND SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN THE
FUND.
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
and other Distributions (as a percentage of offering price) None
Redemption Fee
(as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
</TABLE>
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, ADMINISTRATION AND CUSTODY SERVICES AND
OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST FEES AND
EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD SHARES OF THE FUND.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Management Fees 0.30%
Other Expenses 0.51%
-------------------------------------------------------
Total Annual Fund Operating Expenses 0.81%
</TABLE>
The Fund's total actual annual operating expenses for the most recent fiscal
year were less than the amount shown above because the Adviser, Administrator
and Distributor are waiving a portion of their fees in order to keep total
operating expenses at a specified level. The Adviser, Administrator and
Distributor may discontinue all or part of these waivers at any time. With these
fee waivers, the Fund's actual total operating expenses are as follows:
<TABLE>
<S> <C>
MONEY MARKET FUND 0.50%
</TABLE>
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER AND INVESTMENT
TEAM."
18 of 39
<PAGE>
EXAMPLE: COST OF INVESTING
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<S> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
$83 $259 $450 $1,002
</TABLE>
19 of 39
<PAGE>
TREASURY MONEY MARKET FUND
[graphic of bulls eye omitted]
FUND SUMMARY
Investment Goal Preserving principal value and
maintaining a high degree of liquidity
while providing current income
Investment Focus Money market instruments issued or
guaranteed by the U.S. Treasury
Share Price Volatility Very low
Principal Investment Strategy Investing in U.S. Treasury obligations
and repurchase agreements
Investor Profile Conservative investors seeking current
income through a low risk liquid
investment
[graphic of briefcase omitted]
INVESTMENT STRATEGY OF THE TREASURY MONEY MARKET FUND
The Fund invests exclusively in U.S. Treasury obligations and repurchase
agreements fully-collateralized by U.S. Treasury obligations.
Using a top-down strategy and bottom-up security selection process, the
Adviser seeks securities with an acceptable maturity, that are marketable and
liquid and offer competitive yields. The Adviser also considers factors such
as the anticipated level of interest rates and the maturity of individual
securities relative to the maturity of the Fund as a whole. The Fund follows
strict Investment Company Act rules about credit quality, maturity and
diversification of its investments.
[graphic of magnifying glass omitted]
PRINCIPAL RISKS OF INVESTING IN THE TREASURY MONEY MARKET
FUND
An investment in the Fund is subject to income risk, which is the possibility
that the Fund's yield will decline due to falling interest rates.
Although the Fund's U.S. Treasury securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates.
An investment in the Fund is not a bank deposit. Although the Fund seeks to
maintain a constant price per share of $1.00, you may lose money by investing in
the Fund.
The Fund's investment approach with its emphasis on short-term U.S. Treasury
obligations is expected to provide current income with low risk to principal and
lower exposure to fluctuations in share price. The Fund can be expected to
provide lower returns than fixed income Funds which invest in longer term
securities.
THE TREASURY MONEY MARKET FUND TRIES TO MAINTAIN A CONSTANT PRICE PER SHARE
OF $1.00, BUT THERE IS NO GUARANTEE THAT THE FUND WILL ACHIEVE THIS GOAL.
20 of 39
<PAGE>
[graphic of graph omitted]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in performance of the Fund's Shares from year
to year.
[bar graph omitted -- plot points as follows:]
<TABLE>
<S> <C>
1997 5.22%
1998 5.10%
Best Quarter Worst Quarter
1.32% 1.16%
(12/31/97) (12/31/98)
</TABLE>
This table compares the Fund's average annual total returns for the period
ending December 31, 1998 to those of the IBC/Financial Data U.S. Treasury & Repo
Average.
<TABLE>
1 Year Since Inception
- --------------------------------------------------------------------------------
<S> <C> <C>
Treasury Money Market Fund 5.10% 5.14%*
IBC/Financial Data U.S. Treasury & Repo Average 4.81% 4.83%**
</TABLE>
*Since May 1, 1996
**Since May 31, 1996
[graphic of arrow omitted]
SIMPLY SPEAKING
WHAT IS AN AVERAGE?
An average measures the share prices and/or performance of a specific group
of mutual funds with a particular investment objective. You cannot invest
directly in an average. The IBC/Financial Data U.S. Treasury & Repo Average
is a composite of mutual funds with investment goals similar to the Fund's
goals.
For information concerning the Fund's 7-Day Yield, please call
1-800-262-9565.
21 of 39
<PAGE>
[graphic of dollar omitted]
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL FUND SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN THE
FUND.
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and
other Distributions (as a percentage of offering price) None
Redemption Fee
(as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
</TABLE>
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, ADMINISTRATION AND CUSTODY SERVICES AND
OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST FEES AND
EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD SHARES OF THE FUND.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Management Fees 0.30%
Other Expenses 0.54%
------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.84%
</TABLE>
The Fund's total actual annual operating expenses for the most recent fiscal
year were less than the amount shown above because the Adviser, Administrator
and Distributor are waiving a portion of their fees in order to keep total
operating expenses at a specified level. The Adviser, Administrator and
Distributor may discontinue all or part of these waivers at any time. With these
fee waivers, the Fund's actual total operating expenses are as follows:
<TABLE>
<S> <C>
TREASURY MONEY MARKET FUND 0.44%
</TABLE>
For more information about these fees, see "Investment Adviser and Investment
Team."
22 of 39
<PAGE>
EXAMPLE: COST OF INVESTING
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<S> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------
$86 $268 $466 $1,037
</TABLE>
23 of 39
<PAGE>
<TABLE>
<CAPTION>
<S><C>
MORE INFORMATION ABOUT RISK
MANAGEMENT RISK - The risk that a strategy used All Funds
by the fund's management may fail to produce
the intended result.
EQUITY RISK - Equity securities include public Equity Fund
and privately issued equity securities, common
and preferred stocks, warrants, rights to
subscribe to common stock and convertible
securities, as well as instruments that attempt
to track the price movement of equity indices.
Investments in equity securities and equity
derivatives in general are subject to market
risks that may cause their prices to fluctuate
over time. The value of securities convertible
into equity securities, such as warrants or
convertible debt, is also affected by
prevailing interest rates, the credit quality
of the issuer and any call provision.
Fluctuations in the value of equity securities
in which a mutual fund invests will cause a
fund's net asset value to fluctuate. An
investment in a portfolio of equity securities
may be more suitable for long-term investors
who can bear the risk of these share price
fluctuations.
FIXED INCOME RISK - The market value of fixed High Grade Income Fund
income investments changes in response to
interest rate changes and other factors. During Hawaii Municipal Bond Fund
periods of falling interest rates, the values
of outstanding fixed income securities Money Market Fund
generally rise. Moreover, while securities
with longer maturities tend to produce higher Treasury Money Market Fund
yields, the prices of longer maturity
securities are also subject to greater market
fluctuations as a result of changes in interest
rates. In addition to these fundamental risks,
different types of fixed income securities may
be subject to the following additional risks:
CALL RISK - During periods of falling interest High Grade Income Fund
rates, certain debt obligations with high
interest rates may be prepaid (or "called") by Hawaii Municipal Bond Fund
the issuer prior to maturity. This may cause a
Fund's average weighted maturity to fluctuate, Money Market Fund
and may require a Fund to invest the resulting
proceeds at lower interest rates.
Page 24 of 39
<PAGE>
CREDIT RISK - The possibility that an issuer High Grade Income Fund
will be unable to make timely payments of
either principal or interest. Since the Fund Hawaii Municipal Bond Fund
purchases securities backed by credit
enhancements from banks and other financial Money Market Fund
institutions, changes in the credit ratings of
these institutions could cause the Fund to lose
money and may affect the Fund's share price.
EVENT RISK - Securities may suffer declines in High Grade Income Fund
credit Fund quality and market value due
to issuer restructurings or other factors. Hawaii Municipal Bond Fund
This risk should be reduced because of the
Fund's multiple holdings. Money Market Fund
MUNICIPAL ISSUER RISK - There may be economic Hawaii Municipal Bond Fund
or political changes that impact the ability of
municipal issuers to repay principal and to Money Market Fund
make interest payments on municipal securities.
Changes to the financial condition or credit
rating of municipal issuers may also adversely
affect the value of the Fund's municipal
securities. Constitutional or legislative
limits on borrowing by municipal issuers may
result in reduced supplies of municipal
securities. Moreover, certain municipal
securities are backed only by a municipal
issuer's ability to levy and collect taxes.
MORTGAGE-BACKED SECURITIES - Mortgage-backed High Grade Income Fund
securities are fixed income securities
representing an interest in a pool of
underlying mortgage loans. They are sensitive
to changes in interest rates, but may respond
to these changes differently from other fixed
income securities due to the possibility of
prepayment of the underlying mortgage loans.
As a result, it may not be possible to
determine in advance the actual maturity date
or average life of a mortgage-backed security.
Rising interest rates tend to discourage
refinancings, with the result that the average
life and volatility of the security will
increase, exacerbating its decrease
Page 25 of 39
<PAGE>
in market price. When interest rates fall,
however, mortgage-backed securities may not
gain as much in market value because of the
expectation of additional mortgage prepayments
that must be reinvested at lower interest
rates. Prepayment risk may make it difficult
to calculate the average maturity of a
portfolio of mortgage-backed securities and,
therefore, to assess the volatility risk of
that portfolio.
REGIONAL RISK - To the extent that a Fund's Hawaii Municipal Bond Fund
investments are concentrated in a specific
geographic region, a Fund may be subject to the
political and other developments affecting that
region. Regional economies are often closely
interrelated, and political and economic
developments affecting one region, country or
state often affect other regions, countries or
states, thus subjecting a Fund to additional
risks.
YEAR 2000 RISK - The Funds depend on the smooth All Funds
functioning of computer systems in almost every
aspect of their business. Like other mutual
funds, businesses and individuals around the
world, the Funds could be adversely affected if
the computer systems used by its service
providers do not properly process dates on and
after January 1, 2000, and distinguish between
the year 2000 and the year 1900. The Funds have
asked their service providers whether they
expect to have their computer systems adjusted
for the year 2000 transition, and are seeking
assurances from each service provider that they
are devoting significant resources to prevent
material adverse consequences to the Funds. The
Funds are also researching and analyzing the
year 2000 compliance of the underlying
securities. While it is likely that such
assurances will be obtained, the Funds and
their shareholders may experience losses if
these assurances prove to be incorrect.
The Funds and their shareholders may also
experience losses as a result of year 2000 computer
difficulties experienced by issuers of portfolio
securities or third parties, such as custodians, banks,
broker-dealers or others with which the Funds
do business.
</TABLE>
Page 26 of 39
<PAGE>
THE FUNDS' OTHER INVESTMENTS
In addition to the principal investments and strategies described in this
prospectus, each Fund also may invest in other securities, use other strategies
and engage in other investment practices. These investments and strategies, as
well as those described in this prospectus, are described in detail in our
Statement of Additional Information. Of course, the Fund cannot guarantee that
any Fund will achieve its investment goal.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, each Fund may invest up to 100%
of its assets in taxable money market instruments, repurchase agreements and
short-term obligations. When a Fund is investing for temporary defensive
purposes, it is not pursuing its investment goal.
INVESTMENT ADVISER AND INVESTMENT TEAM
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Funds and continuously
reviews, supervises and administers its Fund's respective investment program.
The Board of Trustees supervises the Adviser and establishes policies that the
Adviser must follow in its day-to-day management activities.
First Hawaiian Bank, serves as the Adviser to the Equity Fund, High Grade Income
Fund, Hawaii Municipal Bond Fund, Money Market Fund and Treasury Money Market
Fund. As of December 31, 1998, First Hawaiian Bank had approximately $7.25
billion in assets under management. For the fiscal year ended December 31, 1998,
First Hawaiian Bank received advisory fees at the following annual rates.
<TABLE>
<S> <C>
EQUITY FUND 0.65%
HIGH GRADE INCOME FUND 0.37%
HAWAII MUNICIPAL BOND FUND 0.05%
MONEY MARKET FUND 0.22%
TREASURY MONEY MARKET FUND 0.13%
</TABLE>
INVESTMENT SUB-ADVISER
The Sub-Adviser selects, buys and sells securities for the Money Market Fund and
Treasury Money Market Fund under the supervision of the Adviser and the Board of
Trustees.
Wellington Management Company, LLP serves as the investment sub-adviser to the
Money Market and Treasury Money Market Funds. As of December 31, 1998,
Wellington Management Company, LLP had approximately $211 billion in assets
under management. For the fiscal year ended December 31, 1998, First Hawaiian
Bank paid Wellington Management sub-advisory fees based on the combined net
assets of the two money market funds at the following annual rates:
Page 27 of 39
<PAGE>
<TABLE>
<S> <C>
Money Market Fund 0.07%
Treasury Money Market Fund 0.07%
</TABLE>
INVESTMENT TEAM
The Equity and High Grade Income Funds are managed by a team of investment
professionals from the Adviser. No one person is primarily responsible for
making investment recommendations to the team.
Louis M. Levitas has managed the Hawaii Municipal Bond Fund for the Adviser
since its inception in February 1995. He manages the Fund pursuant to an
agreement between the Adviser and Bank of the West. Mr. Levitas has been a
municipal bond specialist since 1970.
The Sub-Adviser, Wellington Management Company, LLP, manages the Money Market
and Treasury Money Market Funds on a day-to-day basis. The Sub-Adviser selects,
buys, and sells securities for the Money Market and Treasury Money Market Funds
under the supervision of the Adviser and the Board of Trustees.
Page 28 of 39
<PAGE>
PURCHASING, SELLING AND EXCHANGING FUND SHARES
This section tells you how to buy, sell (sometimes called "redeem") or exchange
shares of the Funds.
HOW TO PURCHASE FUND SHARES
You may purchase shares directly by:
- - Mail;
- - Telephone;
- - Wire; or
- - Direct Deposit.
To purchase shares directly from us, please call 1-800-262-9565. Write your
check, payable in U.S. dollars, to Bishop Street Funds and mail to Bishop Street
Funds, P.O. Box 419721, Kansas City, MO 64141-6721. We cannot accept
third-party checks, credit cards, credit card checks or cash.
You may also purchase shares through a representative of certain correspondent
banks of First Hawaiian Bank or other financial institutions that have executed
dealer agreements.
GENERAL INFORMATION
You may purchase shares on any day that the New York Stock Exchange (NYSE)
and the Federal Reserve are open for business (a Business Day). Shares cannot
be purchased by Federal Reserve Wire on days when either the New York Stock
Exchange or the Federal Reserve is closed.
A Fund may reject any purchase order if it is determined that accepting the
order would not be in the best interests of the Fund or its shareholders.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after a Fund receives your purchase order. A Fund is
deemed to have received your order upon receipt of a completed account
application and a check or money order. If you already have an existing account,
a Fund is deemed to have received your order upon receipt of your order and your
check or money order.
The Funds calculate each bond and equity fund's NAV once each Business Day at
4:00 p.m., Eastern time. The Funds calculate each money market fund's NAV
once each business day at 1:00 p.m., Eastern time. So, for you to be eligible
to receive dividends from the money market funds declared on the day you
submit your purchase order, we must receive your order before 1:00 p.m.,
Eastern time and federal funds (readily available funds) before 4:00 p.m.,
Eastern time.
HOW WE CALCULATE NAV
NAV for one Fund share is the value of that share's portion of all of the assets
in the Fund.
Page 29 of 39
<PAGE>
In calculating NAV, a Fund generally values its investment portfolio at market
price (except the Money Market Fund and Treasury Money Market Fund). If market
prices are unavailable or a Fund thinks that they are unreliable, fair value
prices may be determined in good faith using methods approved by the Board of
Trustees.
In calculating NAV for the Money Market Fund and Treasury Money Market Fund, we
generally value a Fund's investment portfolio using the amortized cost valuation
method, which is described in detail in our Statement of Additional Information.
If this method is determined to be unreliable during certain market conditions
or for other reasons, a Fund may value its portfolio at market price or fair
value prices may be determined in good faith using methods approved by the Board
of Trustees.
Some Funds hold securities that are listed on foreign exchanges. These
securities may trade on weekends or other days when the Funds do not calculate
NAV. As a result, the NAV of these Funds' shares may change on days when you
cannot purchase or sell Fund shares.
MINIMUM PURCHASES & AUTOMATIC INVESTMENT PLANS
You may open an account with a $1,000 minimum initial investment ($500 for
those investing in retirement plans and for officers, directors and employees
of BancWest Corporation). The minimum initial investment may be reduced with
an Automatic Investment Plan (AIP).
If you have a checking or savings account, you may establish an AIP and open
an account with a $100 minimum initial investment ($50 for officers,
directors and employees of BancWest Corporation). You may then begin
regularly scheduled investments of at least $50 per month through automatic
deductions from your checking or savings accounts.
HOW TO SELL YOUR FUND SHARES
If you own your shares directly, you may sell (sometimes called "redeem") your
shares on any Business Day by contacting the Fund by mail at P.O. Box 419721,
Kansas City, MO 64141-6721 or by telephone at 1-800-262-9565.
If you are requesting to sell $5,000 or more of your shares in writing, please
include a signature guarantee by a bank or other financial institution (a
notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after the Fund
receives your request.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $10,000 in the Equity Fund, High Grade Income Fund or
Hawaii Municipal Bond Fund; or $20,000 in the Money Market Fund or Treasury
Money Market Fund in your account, you may use the Systematic Withdrawal Plan.
Under the plan you may arrange monthly, quarterly, semi-annual or annual
automatic withdrawals of at least $50 from any Fund. The proceeds of each
withdrawal will be mailed to you by check or electronically transferred to your
bank account.
Page 30 of 39
<PAGE>
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven days after we receive
your request. Your proceeds can be wired to your bank account if your redemption
proceeds are in excess of $500 (subject to a $15 fee) or sent to you by check.
IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK, REDEMPTION PROCEEDS MAY NOT BE
AVAILABLE UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR
DATE OF PURCHASE).
REDEMPTIONS IN KIND
The Fund generally pays sale (redemption) proceeds in cash. However, under
unusual conditions that make the payment of cash unwise (and for the protection
of the Fund's remaining shareholders) we might pay all or part of your
redemption proceeds in liquid securities with a market value equal to the
redemption price (redemption in kind). It is highly unlikely that your shares
would ever be redeemed in kind, but if they were you would probably have to pay
transaction costs to sell the securities distributed to you, as well as taxes on
any capital gains from the sale as with any redemption.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below $1,000 ($500 for those investing in
retirement plans; $100 for officers, directors and employees of First Hawaiian
Bank or its affiliates who have arranged to purchase shares through the
Automatic Investment Plan) because of redemptions you may be required to sell
your shares.
But, we will always give you at least 60 days' written notice to give you time
to add to your account and avoid the sale of your shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
A Fund may suspend your right to sell your shares if the NYSE restricts trading,
the SEC declares an emergency or for other reasons. More information about this
is in our Statement of Additional Information.
HOW TO EXCHANGE YOUR SHARES
You may exchange your shares on any Business Day by contacting us directly by
mail or telephone.
You may also exchange shares through your financial institution by mail or
telephone.
IF YOU RECENTLY PURCHASED SHARES BY CHECK, YOU MAY NOT BE ABLE TO EXCHANGE YOUR
SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE
OF PURCHASE). THIS EXCHANGE PRIVILEGE MAY BE CHANGED OR CANCELED AT ANY TIME
UPON 60 DAYS' NOTICE.
Page 31 of 39
<PAGE>
When you exchange shares, you are really selling your shares and buying other
Fund shares. So, your sale price and purchase price will be based on the NAV
next calculated after the Fund receives your exchange request.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although the Fund has certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, the Fund is not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with the Fund over the telephone, you will
generally bear the risk of any loss.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund distributes its income as follows:
DECLARED DAILY AND PAID MONTHLY
- -------------------------------
High Grade Income Fund
Hawaii Municipal Bond Fund
Money Market Fund
Treasury Money Market Fund
DECLARED AND PAID QUARTERLY
- -----------------------------------
Equity Fund
Each Fund makes distributions of capital gains, if any, at least annually. If
you own Fund shares on a Fund's record date, you will be entitled to receive the
distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Fund in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after the Fund
receives your written notice. To cancel your election, simply send the Fund
written notice.
TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change.
Each Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from a Fund may be taxable whether or not you reinvest them. Capital
gains distributions may be taxable at different rates depending on the length of
time a Fund holds its portfolio securities. EACH SALE OR EXCHANGE IS A TAXABLE
EVENT.
Page 32 of 39
<PAGE>
The Hawaii Municipal Bond Fund intends to distribute primarily federally
tax-exempt income. The Fund may invest a portion of its assets in securities
that generate taxable income for federal or state income taxes. Income exempt
from federal tax may be subject to state and local taxes. Any capital gains
distributed by the Fund may be taxable.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION
Page 33 of 39
<PAGE>
THE BOARD OF TRUSTEES
The Board of Trustees supervises the management and affairs of the Trust. The
Trustees have approved contracts with certain companies that provide us with
essential management services.
The Trustees of the Trust are as follows:
<TABLE>
<CAPTION>
NAME BUSINESS HISTORY
- ---- ----------------
<S> <C>
Martin Anderson Partner, Goodsill Anderson
Quinn & Stifel since 1951
Charles E. Carlbom President and CEO, United
Grocers, Inc. since 1997;
President and CEO, Western
Family Food, Inc. - Western
Family Holding Inc.
(1982-1997)
Philip H. Ching Vice Chairman, First Hawaiian
Bank (1968-1996)
James L. Huffman Dean and Professor, Lewis &
Clark Law School since 1973
Shunichi Kimura Judge, State of Hawaii
Judiciary (1974-1994)
Robert A. Nesher Chairman, SEI Mutual Funds
since 1974; Director and
Executive Vice President of
the Administrator and the
Distributor (1981-1994)
William S. Richardson Trustee, Kamehameha Schools
Bishop Estate (1982-1992);
Chief Justice, Supreme Court
of Hawaii (1966-1983)
Peter F. Sansevero Regional Director of the
Northwestern Region and First
Vice President, Merrill Lynch
(1958-1997)
Manual R. Sylvester Managing Partner, Coopers &
Lybrand L.L.P. (1978-1992);
Executive Partner, Coopers &
Lybrand L.L.P. (1992)
Joyce S. Tsunoda Senior Vice President,
University of Hawaii System
since 1989; Chancellor,
Community Colleges-University
of Hawaii since 1983
</TABLE>
Page 34 of 39
<PAGE>
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about each Fund. This
information is intended to help you understand each Fund's financial performance
for the past five years, or, if shorter, the period of the Fund's operations.
Some of this information reflects financial information for a single Fund share.
The total returns in the table represent the rate that you would have earned (or
lost) on an investment in a Fund, assuming you reinvested all of your dividends
and distributions. This information has been audited by PricewaterhouseCoopers
LLP, independent public accountants. Their report, along with each Fund's
financial statements, appears in the annual report that accompanies our
Statement of Additional Information. You can obtain the annual report, which
contains more performance information, at no charge by calling 1-800-262-9565.
Page 35 of 39
<PAGE>
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS ENDED DECEMBER 31.
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS FROM
-------------------------------------------- ----------------------
NET
NET REALIZED
ASSET AND
VALUE, NET UNREALIZED NET
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT CAPITAL
OF PERIOD INCOME INVESTMENTS INCOME GAINS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EQUITY FUND
1998: $12.06 $0.05 $ 3.88 $(0.05) $(0.66)
1997(1): $10.00 $0.08 $ 2.06 $(0.08) --
HIGH GRADE INCOME FUND
1998: $10.23 $0.54 $ 0.37 $(0.54) $(0.17)
1997(1): $10.00 $0.51 $ 0.26 $(0.51) $(0.03)
HAWAII MUNICIPAL BOND FUND
1998: $10.67 $0.51 $ 0.10 $(0.51) --
1997: $10.34 $0.53 $ 0.33 $(0.53) --
1996: $10.47 $0.55 $(0.12) $(0.55) $(0.01)
1995(2): $10.00 $0.45 $ 0.47 $(0.45) --
MONEY MARKET FUND
1998: $ 1.00 $0.05 -- $(0.05) --
1997: $ 1.00 $0.05 -- $(0.05) --
1996: $ 1.00 $0.05 -- $(0.05) --
1995(3): $ 1.00 $0.05 -- $(0.05) --
TREASURY MONEY MARKET FUND
1998: $ 1.00 $0.05 -- $(0.05) --
1997: $ 1.00 $0.05 -- $(0.05) --
1996(4): $ 1.00 $0.03 -- $(0.03) --
Page 36 of 39
<PAGE>
<CAPTION>
RATIO OF
RATIO OF EXPENSES TO
NET NET EXPENSES AVERAGE
ASSET ASSETS, TO NET ASSETS
VALUE, END OF AVERAGE EXCLUDING FEE
END OF TOTAL PERIOD NET WAIVERS AND
PERIOD RETURN (000) ASSETS REIMBURSEMENTS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EQUITY FUND
1998: $15.28 33.05% $101,817 1.00% 1.32%
1997(1): $12.06 21.52%+ $ 69,967 0.99%* 1.39%*
HIGH GRADE INCOME FUND
1998: $10.43 9.09% $24,901 0.80% 1.21%
1997(1): $10.23 7.94%+ $26,242 0.80%* 1.30%*
HAWAII MUNICIPAL BOND FUND
1998: $10.77 5.84% $35,751 0.41% 1.01%
1997: $10.67 8.52% $29,005 0.34% 0.99%
1996: $10.34 4.21% $15,408 0.21% 0.85%
1995(2): $10.47 10.91%++ $ 9,411 0.27%* 1.10%*
MONEY MARKET FUND
1998: $1.00 5.26% $268,318 0.50% 0.81%
1997: $1.00 5.29% $246,671 0.51% 0.85%
1996: $1.00 5.12% $274,125 0.49% 0.60%
1995(3): $1.00 5.67%++ $305,120 0.50%* 0.66%*
TREASURY MONEY MARKET FUND
1998: $1.00 5.10% $299,844 0.44% 0.84%
1997: $1.00 5.22% $273,919 0.43% 0.86%
1996(4): $1.00 5.08%++ $180,201 0.42%* 0.65%*
<CAPTION>
RATIO OF
NET INVESTMENT
RATIO OF INCOME TO
NET AVERAGE
INVESTMENT NET ASSETS
INCOME TO EXCLUDING FEE PORTFOLIO
AVERAGE WAIVERS AND TURNOVER
NET ASSETS REIMBURSEMENTS RATE
- ------------------------------------------------------------------------------------
<S> C> <C> C>
EQUITY FUND
1998: 0.38% 0.06% 41%
1997(1): 0.83%* 0.43%* 30%
HIGH GRADE INCOME FUND
1998: 5.21% 4.80% 98%
1997(1): 5.58%* 5.08%* 32%
HAWAII MUNICIPAL BOND FUND
1998: 4.74% 4.14% 21%
1997: 5.05% 4.40% 29%
1996: 5.33% 4.68% 27%
1995(2): 5.24%* 4.40%* 68%
MONEY MARKET FUND
1998: 5.12% 4.81% n/a
1997: 5.18% 4.84% n/a
1996: 5.01% 4.90% n/a
1995(3): 5.50%* 5.34%* n/a
TREASURY MONEY MARKET FUND
1998: 4.98% 4.58% n/a
1997: 5.11% 4.68% n/a
1996(4): 4.96%* 4.74%* n/a
</TABLE>
+ 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.
Page 37 of 39
<PAGE>
BISHOP STREET FUNDS
INVESTMENT ADVISER
First Hawaiian Bank
999 Bishop Street
Honolulu, Hawaii 96813
SUB-ADVISER
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
More information about the Funds is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated April 30, 1999, includes detailed information about the Bishop
Street Funds. The SAI is on file with the SEC and is incorporated by reference
into this prospectus. This means that the SAI, for legal purposes, is a part of
this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list each Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends. The reports
also contain detailed financial information about the Funds.
TO OBTAIN MORE INFORMATION:
BY TELEPHONE: Call 1-800-262-9565
Page 38 of 39
<PAGE>
BY MAIL: Write to the Funds
Bishop Street Funds
c/o SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,
as well as other information about the Bishop Street Funds, from the SEC's
website ("http://www.sec.gov"). You may review and copy documents at the SEC
Public Reference Room in Washington, DC (for information call 1-800-SEC-0330).
You may request documents by mail from the SEC, upon payment of a duplicating
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, DC 20549-6009. The Fund's Investment Company Act
registration number is 811-08572.
Page 39 of 39
<PAGE>
BISHOP STREET FUNDS
A NO-LOAD MUTUAL FUND FAMILY ADVISED BY FIRST HAWAIIAN BANK
EQUITY FUND, HIGH GRADE INCOME FUND, HAWAII MUNICIPAL BOND FUND,
MONEY MARKET FUND AND TREASURY MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1999
This Statement of Additional Information is not a prospectus. It is intended
to provide additional information regarding the activities and operations of
the Bishop Street Funds. Please read this in conjunction with the Bishop
Street Funds' prospectus dated April 30, 1999. A prospectus may be obtained
through the Distributor, SEI Investments Distribution Co., Oaks, Pennsylvania
19456.
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
THE TRUST..............................................................S-2
DESCRIPTION OF PERMITTED INVESTMENTS...................................S-2
INVESTMENT LIMITATIONS................................................S-13
THE ADVISER...........................................................S-14
THE SUB-ADVISER.......................................................S-15
THE ADMINISTRATOR.....................................................S-16
THE DISTRIBUTOR.......................................................S-17
TRUSTEES AND OFFICERS OF THE TRUST....................................S-18
REPORTING.............................................................S-21
PERFORMANCE...........................................................S-21
PURCHASING SHARES.....................................................S-24
DETERMINATION OF NET ASSET VALUE......................................S-25
TAXES.................................................................S-26
FUND TRANSACTIONS.....................................................S-31
DESCRIPTION OF SHARES.................................................S-34
SHAREHOLDER LIABILITY.................................................S-34
LIMITATION OF TRUSTEES' LIABILITY.....................................S-35
5% AND 25% SHAREHOLDERS...............................................S-35
FINANCIAL INFORMATION.................................................S-37
</TABLE>
<PAGE>
THE TRUST
Bishop Street Funds (the "Trust") is an open-ended management investment
company. The Trust is organized under Massachusetts law as a "Massachusetts
business trust" under an Amended and Restated Agreement and Declaration of
Trust dated September 1, 1994. The Agreement and Declaration of Trust permits
the Trust to offer separate series of units of beneficial interest
("shares"). Each share of each series represents an equal proportionate
interest in that series. Please see "Description of Shares" for more
information.
This Statement of Additional Information relates to the Trust's Equity
Fund, High Grade Income Fund, Hawaii Municipal Bond Fund, Money Market Fund
and Treasury Money Market Fund (the "Funds").
DESCRIPTION OF PERMITTED INVESTMENTS
The following information supplements the information about permitted
investments set forth in the Prospectus.
FUND INVESTMENTS & PRACTICES
LEGEND
% - Maximum percentage permissible. All percentages shown are of total
assets unless otherwise noted.
x - No Policy limitation; Fund may be currently using.
* - Permitted, but not typically used.
_ - Not permitted
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------------------------------------------
TREASURY
MONEY MARKET MONEY MARKET
FUND FUND
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRADITIONAL INVESTMENTS
- --------------------------------------------------------------------------------------------------------------------
Bank Obligations x _
- --------------------------------------------------------------------------------------------------------------------
Commerical Paper x(1) _
- --------------------------------------------------------------------------------------------------------------------
Municipal Securities x(2) _
- --------------------------------------------------------------------------------------------------------------------
Repurchase Agreements x x(3)
- --------------------------------------------------------------------------------------------------------------------
U.S. Government Agency and Treasury Obligations x x(4)
- --------------------------------------------------------------------------------------------------------------------
Zero Coupon Obligations
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------------------------------------------
TREASURY
MONEY MARKET MONEY MARKET
FUND FUND
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Variable & Floating Rate Instruments x _
- --------------------------------------------------------------------------------------------------------------------
Yankee Bonds x _
- --------------------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICES
- --------------------------------------------------------------------------------------------------------------------
Borrowing 33 1/3% 33 1/3%
- --------------------------------------------------------------------------------------------------------------------
Illiquid Securities 10%(5) 10%(5)
- --------------------------------------------------------------------------------------------------------------------
Securities Lending 50% 50%
- --------------------------------------------------------------------------------------------------------------------
Standby Commitments 33 1/3% 33 1/3%
- --------------------------------------------------------------------------------------------------------------------
When-Issued Securities 33 1/3% 33 1/3%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Rated in the highest category by S&P or Moody's, or unrated equivalent.
2. Rated in the two highest ratings categories by S&P or Moody's, or unrated
equivalent.
3. Limited to repurchase agreements involving U.S. Treasury Obligations.
4. Limited to U.S. Treasury Obligations.
5. Percentage based on net assets, not total assets.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NON-MONEY MARKET FUNDS
- ---------------------------------------------------------------------------------------------------------------------
HAWAII
MUNICIPAL HIGH GRADE
EQUITY FUND BOND FUND INCOME FUND
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRADITIONAL INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------------
ADRs 35% _ x
- ---------------------------------------------------------------------------------------------------------------------
Asset-Backed Securities _ _ 35%(7)
- ---------------------------------------------------------------------------------------------------------------------
Bank Obligations _ _ 35%(1)
- ---------------------------------------------------------------------------------------------------------------------
Commerical Paper _ _ 35%(1)
- ---------------------------------------------------------------------------------------------------------------------
Convertible Securities 35% _ _
- ---------------------------------------------------------------------------------------------------------------------
Corporate Debt Obligations _ 20%(3) x(1),(2)
- ---------------------------------------------------------------------------------------------------------------------
Equity Securities x _ _
- ---------------------------------------------------------------------------------------------------------------------
Investment Company Shares 10% 10% 10%
- ---------------------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities _ _ 35%(4)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NON-MONEY MARKET FUNDS
- ---------------------------------------------------------------------------------------------------------------------
HAWAII
MUNICIPAL HIGH GRADE
EQUITY FUND BOND FUND INCOME FUND
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Securities _ x(5) _
- ---------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 35% 20%(3) 35%
- ---------------------------------------------------------------------------------------------------------------------
Restricted Securities 15% 15% 15%
- ---------------------------------------------------------------------------------------------------------------------
Securities of Foreign Issuers * _ x(1)
- ---------------------------------------------------------------------------------------------------------------------
Supranational Agency Obligations _ _ 35%
- ---------------------------------------------------------------------------------------------------------------------
U.S. Government Agency and Treasury Obligations _ 20%(3) x(6)
- ---------------------------------------------------------------------------------------------------------------------
Variable & Floating Rate Instruments _ x x
- ---------------------------------------------------------------------------------------------------------------------
Zero Coupon Obligations _ x x
- ---------------------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ---------------------------------------------------------------------------------------------------------------------
Borrowing 33 1/3% 33 1/3% 33 1/3%
- ---------------------------------------------------------------------------------------------------------------------
Illiquid Securities 15%(3) 15%(3) 15%(3)
- ---------------------------------------------------------------------------------------------------------------------
Securities Lending 50% 50% 50%
- ---------------------------------------------------------------------------------------------------------------------
Standby Commitments 33 1/3% 33 1/3% 33 1/3%
- ---------------------------------------------------------------------------------------------------------------------
When-Issued Securities 33 1/3% 33 1/3% 33 1/3%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Rated in the two highest ratings category by S&P or Moody's, or unrated
equivalent.
2. May invest up to 5% in securities rated BBB by S&P or BAA by Moody's, or
unrated equivalent.
3. Percentage is based on net assets, not total assets.
4. Includes privately issued mortgage-backed securities rated A or higher by
S&P or Moody's, or unrated equivalents.
5. Will invest at least 65% of its assets in municipal securities issued by
the State of Hawaii. Will invest at least 80% of its net assets in
investment grade securities that pay income exempt from regular federal
income tax.
6. May invest in U.S. Treasury Receipts.
7. Rated in the three highest ratings categories by S&P or Moody's, or
unrated equivalents.
S-4
<PAGE>
AMERICAN DEPOSITORY RECEIPTS (ADRs) - ADRs are securities typically issued
by U.S. financial institutions (depositaries). ADRs represent ownership
interests in a security, or a pool of securities, issued by a foreign issuer and
deposited with the depositary. ADRs may be available through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depositary. An unsponsored
facility may be established by a depositary without the participation of the
issuer of the underlying security.
ARMS (ADJUSTABLE RATE MORTGAGE SECURITIES) are pass-through certificates
representing ownership in a pool of adjustable rate mortgages. ARMs make
monthly payments based on a pro rata share of interest and principal payments,
and prepayments of principal on the pool of underlying mortgages. The
adjustable rate feature reduces, but does not eliminate, price fluctuations in
this type of mortgage-backed security.
ASSET-BACKED SECURITIES are securities backed by non-mortgage assets such
as company receivables, truck and auto loans, leases, and credit card
receivables. These securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in the
underlying pools of assets. Asset-backed securities may also be OBLIGATIONS,
which are also known as collateralized obligations and are generally issued as
the debt of a special purpose entity, such as a trust, organized solely for the
purpose of owning these assets and issuing DEBT OBLIGATIONS.
BANK OBLIGATIONS are SHORT-TERM OBLIGATIONS issued by U.S. and foreign
banks, including bankers' acceptances, certificates of deposit, custodial
receipts, and time deposits.
COMMERCIAL PAPER is a term used to describe unsecured short-term promissory
notes issued by municipalities, corporations, and other entities that have
maturities generally from a few days to nine months.
FOREIGN SECURITIES - U.S. dollar denominated obligations of foreign issuers
may consist of obligations of foreign branches of U.S. banks and of foreign
banks, including European Certificates of Deposit, European Time Deposits,
Canadian Time Deposits and Yankee Certificates of Deposits, and investments in
Canadian Commercial Paper, foreign securities and Europaper. American
Depositary Receipts have investment risks that differ in some respects from
those related to investments in obligations of domestic issuers. Such risks
include future adverse political and economic developments, the possible
imposition of withholding taxes on interest or other income, possible seizure,
nationalization, or expropriation of foreign deposits, the possible
establishment of exchange controls or taxation at the source, greater
fluctuations in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. Such investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches of
S-5
<PAGE>
U.S. banks and foreign banks may be subject to less stringent reserve
requirements than those applicable to domestic branches of U.S. banks.
GNMA SECURITIES--Securities issued by the Government National Mortgage
Association ("GNMA"), a wholly-owned U.S. Government corporation, guarantee the
timely payment of principal and interest. The market value and interest yield
of these instruments can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages. These securities represent ownership in a
pool of federally insured mortgage loans. GNMA certificates consist of
underlying mortgages with a maximum maturity of 30 years. However, due to
scheduled and unscheduled principal payments, GNMA certificates have a shorter
average maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to
accurately predict the average maturity of a particular GNMA pool. GNMA
securities differ from conventional bonds in that principal is paid back to the
certificate holders over the life of the loan rather than at maturity. The
scheduled monthly interest and principal payments relating to mortgages in the
pool are "passed through" to investors. In addition, there may be unscheduled
principal payments representing prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available from
other types of U.S. Government securities, GNMA certificates may be less
effective than other types of securities as a means of "locking in" attractive
long-term rates because of the prepayment feature. For instance, when interest
rates decline, the value of a GNMA certificate likely will not rise as much as
comparable debt securities due to the prepayment feature. In addition, these
prepayments can cause the price of a GNMA certificate originally purchased at a
premium to decline in price to its par value, which may result in a loss.
GOVERNMENT PASS-THROUGH SECURITIES are securities issued or guaranteed by a
U.S. Government agency representing an interest in a pool of mortgage loans.
Government and private guarantees do not extend to the securities' value, which
is likely to vary inversely with fluctuations in interest rates.
ILLIQUID SECURITIES are securities that cannot be disposed of within seven
days at approximately the price at which they are being carried on a mutual
fund's books.
INVESTMENT COMPANY SHARES--Shares of other mutual funds which may be
purchased by the Funds to the extent consistent with applicable law. Under
these rules and regulations of the Investment Company Act of 1940 (the "1940
Act"), a Fund is prohibited from acquiring the securities of other investment
companies if, as a result of such acquisition, the Fund would own more than 3%
of the total voting stock of the company; securities issued by any one
investment company represented more than 5% of the Fund's assets; or securities
(other than treasury stock) issued by all investment companies would represent
more than 10% of the total assets of the Fund. These investment companies
typically incur fees that are separate from those fees incurred directly by the
Fund. A Fund's purchase of such investment company securities results in the
layering of expenses, such that shareholders of the Funds would indirectly bear
a
S-6
<PAGE>
proportionate share of the operating expenses of such investment companies,
including advisory fees.
MORTGAGE-BACKED--Two principal types of mortgage-backed securities are
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-through certificates, mortgage pay-through bonds (bonds representing an
interest in a pool of mortgages where the cash flow generated from the mortgage
collateral pool is dedicated to bond repayment), and mortgage-backed bonds
(general obligations of issuers payable out of the issuers' general funds and
additional secured by a first lien on a pool of single family properties).
Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence. Investors purchasing CMOs in
the shortest maturities receive or are credited with their PRO RATA portion of
the scheduled payments of interest and principal on the underlying mortgages
plus all unscheduled prepayments of principal up to a predetermined portion of
the total CMO obligation. Until that portion of such CMO obligation is repaid,
investors in the longer maturities receive interest only. Accordingly, CMOs in
longer maturity series are less likely than other mortgage pass-throughs to be
prepaid prior to their stated maturity. Although some of the mortgages
underlying CMOs may be supported by various types of insurance, and while some
CMOs may be backed by GNMA certificates or other mortgage pass-throughs issued
or guaranteed by U.S. Government agencies or instrumentalities, CMOs themselves
are not generally guaranteed by the U.S. Government or any other entity.
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
MUNICIPAL SECURITIES - Municipal notes include, but are not limited to,
general obligation notes, tax anticipation notes (notes sold to finance working
capital needs of the issuer in anticipation of receiving taxes on a future
date), revenue anticipation notes (notes sold to provide needed cash prior to
receipt of expected non-tax revenues from a specific source), bond anticipation
notes, certificates of indebtedness, demand notes and construction loan notes.
Private activity bonds are issued by or on behalf of states or political
subdivisions thereof to finance privately owned or operated facilities for
business and manufacturing housing, sports, and pollution control and to finance
activities of and facilities for charitable institutions. Private activity
bonds are also used to finance public facilities such as airports, mass transit
systems, ports parking and low income housing. The payment of the principal and
interest on private activity bonds is dependent solely on the ability of the
facility's user to meet its financial obligations and may be secured by a pledge
of real and personal property so financed.
S-7
<PAGE>
Investments in floating rate instruments will normally involve industrial
development or revenue bonds which provide that the rate of interest is set as a
specific percentage of a designated base rate (such as the prime rate) at a
major commercial bank, and that the fund can demand payment of the obligation at
all times or at stipulated dates on short notice (not to exceed 30 days) at par
plus accrued interest. Such obligations are frequently secured by letters of
credit or other credit support arrangements provided by banks. The quality of
the underlying credit or of the bank, as the case may be, must, in the Adviser's
opinion be equivalent to the long-term bond or commercial paper ratings stated
above. The Adviser will monitor the earning power, cash flow and liquidity
ratios of the issuers of such instruments and the ability of an issuer of a
demand instrument to pay principal and interest on demand. The Adviser may
purchase other types of tax-exempt instruments as long as they are of a quality
equivalent to the bond or commercial paper ratings stated above.
The Adviser has the authority to purchase securities at a price which would
result in a yield to maturity lower than that generally offered by the seller at
the time of purchase when they can simultaneously acquire the right to sell the
securities back to the seller, the issuer, or a third party (the "writer") at an
agreed-upon price at any time during a stated period or on a certain date. Such
a right is generally denoted as a "standby commitment" or a "put." The purpose
of engaging in transactions involving puts is to maintain flexibility and
liquidity in order to meet redemptions and remain as fully invested as possible
in municipal securities. The right to put the securities depends on the
writer's ability to pay for the securities at the time the put is exercised.
The Funds will limit their put transactions to those with institutions which the
Adviser believes present minimum credit risks, and the Adviser will use its best
efforts to initially determine and thereafter monitor the financial strength of
the put providers by evaluating their financial statements and such other
information as is available in the marketplace. It may, however, be difficult
to monitor the financial strength of the writers where adequate current
financial information is not available. In the event that any writer is unable
to honor a put for financial reasons, the affected Fund would be a general
creditor (i.e., on a parity with all other unsecured creditors) of the writer.
Furthermore, particular provisions of the contract between a Fund and the writer
may excuse the writer from repurchasing the securities in certain circumstances
(for example, a change in the published rating of the underlying municipal
securities or any similar event that has an adverse effect on the issuer's
credit); or a provision in the contract may provide that the put will not be
exercised except in certain special cases, for example, to maintain portfolio
liquidity. A Fund could, however, sell the underlying portfolio security in the
open market or wait until the portfolio security matures, at which time it
should realize the full par value of the security.
Municipal securities purchased subject to a put may be sold to third
persons at any time, even though the put is outstanding, but the put itself,
unless it is an integral part of the security as originally issued, may not be
marketable or otherwise assignable. Sale of the securities to third parties or
lapse of time with the put unexercised may terminate the right to put the
securities. Prior to the expiration of any put option, a Fund could seek to
negotiate terms for the extension of such an option. If such a renewal cannot
be
S-8
<PAGE>
negotiated on terms satisfactory to a Fund, such Fund could, of course, sell the
portfolio security. The maturity of the underlying security will generally be
different from that of the put. There will be no limit to the percentage of
portfolio securities that the Funds may purchase subject to a put. For the
purpose of determining the "maturity" of securities purchased subject to an
option to put, and for the purpose of determining the dollar-weighted average
maturity of the Funds including such securities, the Trust will consider
"maturity" to be the first date on which it has the right to demand payment from
the writer of the put although the final maturity of the security is later than
such date.
SPECIAL CONSIDERATIONS RELATING TO HAWAII MUNICIPAL SECURITIES
The ability of issues to pay interest on, and repay principal of, Hawaii
Municipal Securities may be affected by (1) the general financial condition of
the State of Hawaii, (2) amendments to the Hawaii Constitution and related
statutes that limit the taxing and spending authority of Hawaii government
entities, (3) voter initiatives, (4) civil actions, and (5) a wide variety of
Hawaii laws and regulations.
Municipal securities which are payable only from the revenues derived from
a particular facility may be adversely affected by Hawaii laws or regulations
which make it more difficult for the particular facility to generate revenues
sufficient to pay such interest and principal including, among others, laws and
regulations which limit the amount of fees, rates or other charges which may be
imposed for use of the facility or which increase competition among facilities
of that type or which limit or otherwise have the effect of reducing the use of
such facilities generally, thereby reducing the revenues generated by the
particular facility. Municipal securities, the payment of interest and
principal on which is insured in whole or in part by a Hawaii governmentally
created fund, may be adversely affected by Hawaii laws or regulations which
restrict the aggregate proceeds available for payment of principal and interest
in the event of a default on such municipal securities. Similarly, municipal
securites, the payment of interest and principal on which is secured, in whole
or in part, by an interest in real property may be adversely affected by Hawaii
laws which limit the availability of remedies or the scope of remedies available
in the event of a default on such municipal securites. Because of the diverse
nature of such laws and regulations and the impossibility of either predicting
in which specific municipal securities the Hawaii Municpal Bond Fund will invest
from time to time or predicting the nature or extent of future changes in
existing laws or regulations or the future enactment or adoption of additional
laws or regulations, it is not presently possible to determine the impact of
such laws and regulations on the securities in which the Fund may invest and,
therefore, on the shares of the Fund.
OTHER INVESTMENTS - The Funds are not prohibited from investing in
obligations of banks which are clients of SEI Investments Company ("SEI").
However, the purchase of shares of the Trust by them or by their customers will
not be a consideration in determining which bank obligations the Funds will
purchase. The Funds will not purchase obligations of the Adviser or the
Sub-Adviser.
S-9
<PAGE>
PRIVATE PASS-THROUGH SECURITIES are mortgage-backed securities issued by a
non-governmental entity, such as a trust. While they are generally structured
with one or more types of credit enhancement, private pass-through securities
typically lack a guarantee by an entity having the credit status of a
governmental agency or instrumentality.
REPURCHASE AGREEMENTS are agreements by which a person (E.G., a Fund)
obtains a security and simultaneous commits to return the security to the seller
(a financial institution deemed to present minimal risk of bankruptcy during the
term of the agreement based on guidelines established and periodically reviewed
by the Trustees) at an agreed upon price (including principal and interest) on
an agreed upon date within a number of days (usually not more than seven) from
the date of purchase. The resale price reflects the purchase price plus an
agreed upon market rate of interest which is unrelated to the coupon rate or
maturity date of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
Repurchase agreements are considered to be loans by the participating Fund
for purposes of its investment limitations. Repurchase agreements entered into
by the Funds will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement. Under
all repurchase agreements entered into by the Funds, the Fund takes actual or
constructive possession of the underlying collateral. However, if the seller
defaults, the Fund could realize a loss on the sale of the underlying security
to the extent that the proceeds of sale including accrued interest are less than
the resale price provided in the agreement including interest. In addition,
even though the Bankruptcy Code provides protection for most repurchase
agreements, if the seller should be involved in bankruptcy or insolvency
proceedings, the Fund may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the Fund is treated
as an unsecured creditor and required to return the underlying security to the
seller's estate.
SECURITIES LENDING--Each of the Funds may lend securities pursuant to
agreements requiring that the loans be continuously secured y cash or liquid
securities as collateral equal to 100% of the market value at all times of the
securities lent. Such loans will not be made if, as a result, the aggregate
amount of all outstanding securities loans for a Fund exceed one-third of the
value of its total assets taken at fair market value. A Fund will continue to
receive interest on the securities lent while simultaneously earning interest on
the investment of the cash collateral in the U.S. Government securities.
However, a Fund will normally pay lending fees to broker-dealers and related
expenses from the interest earned on invested collateral. There may be risks of
delay in receiving additional collateral or risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. However, loans are made only to borrowers deemed
by the Adviser to be of good standing and when, in the judgment of the Adviser,
the consideration which can be earned currently from such securities loans
justifies the attendant risk. Any loan may be terminated by either party upon
reasonable notice to the other party.
S-10
<PAGE>
STANDBY COMMITMENTS AND PUTS permit the holder to sell securities subject
to the standby commitment or put at a fixed price prior to maturity. Securities
subject to a standby commitment or put may be sold at any time at the current
market price. However, unless the standby commitment or put was an integral
part of the security as originally issued, it may not be marketable or
assignable.
STRIPPED MORTGAGE-BACKED SECURITES (SMBs) are usually structured with two
classes that receive specified proportions of monthly interest and principal
payments from a pool of mortgage securities. One class may receive all of the
interest payments, and the other class may receive all of the principal
payments. SMBs are extremely sensitive to changes in interest rates because of
the impact of prepayment of principal on the underlying mortgage securities.
SUPRANATIONAL AGENCY OBLIGATIONS are DEBT OBLIGATIONS established through
the joint participation of several governments, and include the Asian
Development Bank, the Inter-American Development Bank, International Bank for
Reconstruction and Development (World Bank), African Development Bank, European
Economic Community, European Investment Bank, and the Nordic Investment Bank.
U.S. GOVERNMENT AGENCY OBLIGATIONS are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government. Some of these securities
are supported by the full faith and credit of the U.S. Treasury, others are
supported by the right of the issuer to borrow from the U.S. Treasury, and
others are supported only by the credit of the agency or instrumentality.
U.S. TREASURY OBLIGATIONS consist of bills, notes, and bonds issued by the
U.S. Treasury. They also consist of separately traded interest and principal
component parts of these obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities (STRIPS). Receipts are similar to STRIPS, but are issued by banks or
broker-dealers, and are created by depositing U.S. Treasury obligations into a
special account at a custodian bank. The custodian holds the income from the
receipts for the benefit of the receipt owners.
VARIABLE AMOUNT MASTER DEMAND NOTES are DEBT OBLIGATIONS which may or may
not be backed by bank letters of credit. These notes permit the investment of
fluctuating amounts at varying market rates of interest pursuant to direct
arrangements between the Trust, as lender, and the borrower. Such notes provide
that the interest rate on the amount outstanding varies on a daily, weekly or
monthly basis depending upon a stated short-term interest rate index. Both the
lender and the borrower have the right to reduce the amount of outstanding
indebtedness at any time. There is no secondary market of the notes. It is not
generally contemplated that such instruments will be traded.
S-11
<PAGE>
VARIABLE AND FLOATING RATE INSTRUMENTS involve certain DEBT OBLIGATIONS
that may carry variable or floating rates of interest, and may involve a
conditional or unconditional demand feature. Such instruments bear interest at
rates which are not fixed, but which vary with changes in specified market rates
or indices.
WHEN-ISSUED SECURITIES involve the purchase of DEBT OBLIGATIONS on a
when-issued basis, in which case delivery and payment normally take place
within 45 days after the date of commitment to purchase. The funds will only
make commitments to purchase obligations on a when-issued basis with the
intention of actually acquiring the securities, but may sell them before the
settlement date. The when-issued securities are subject to market
fluctuation, and no interest accrues on the security to the purchaser during
this period. The payment obligation and the interest rate that will be
received on the securities are each fixed at the time the purchaser enters
into the commitment. Purchasing obligations on a when-issued basis is a form
of leveraging and can involved a risk that the yields available in the market
when the delivery takes place may actually be higher than those obtained in
the transaction itself. In that case there could be an unrealized loss at
the time of delivery.
Segregated accounts will be established with the custodian, and the Funds
will maintain liquid assets in an amount at least equal in value to the Funds'
commitments to purchase when-issued securities. If the value of these assets
declines, the funds will place additional liquid assets in the account on a
daily basis so that the value of the assets in the account is equal to the
amount of such commitments.
YANKEE BONDS are U.S. dollar denominated DEBT OBLIGATIONS issued by the
U.S. by foreign banks and corporations.
ZERO COUPON OBLIGATIONS are DEBT OBLIGATIONS that do not bear any
interest, but instead are issued at a deep discount from face value or par.
The value of a zero coupon obligation increases over time to reflect the
interest accreted. Such obligations will not result in the payment of
interest until maturity, and will have greater price volatility than similar
securities that are issued at face value or par and pay interest periodically.
S-12
<PAGE>
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
A Fund may not:
1. Invest more than 25% of its assets in any one industry, except that the
money market funds may do so with respect to U.S. Government obligations
and U.S. bank obligations. This limitation does not apply to the Hawaii
Municipal Bond fund, but the Fund will not invest more than 25% of its
assets in securities of non-governmental entities that are in the same
industry.
2. Invest more than 5% of its assets in the securities of any one issuer
(except for the Hawaii Municipal Bond Fund).
3. Acquire more than 10% of the voting securities of any one issuer, provided
that this limitation shall apply only to 75% of the Fund's net assets
except that this restriction does not apply to the Hawaii Municipal Bond
Fund.
4. Invest in companies for the purpose of exercising control.
5. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding one-third of the value of total assets. To the extent
that such borrowing exceeds 5% of the value of the borrowing Fund's assets,
asset coverage of at least 300% is required. No Fund will purchase
securities while its borrowings exceed 5% of its total assets.
6. Make loans, except that (a) each Fund may purchase or hold debt instruments
in accordance with its investment objective and policies; (b) each Fund may
enter into repurchase agreements; and (c) the Money Market, Treasury Money
Market, High Grade Income, Hawaii Municipal Bond and Equity Funds may
engage in securities lending.
7. Pledge, mortgage or hypothecate assets except to secure borrowings
permitted by (5) above in aggregate amounts not to exceed 33% of total
assets taken at current value at the time of the incurrence of such loan.
8. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts. However, each of the Funds (other
than the Money Market and Treasury Money Market Funds) may invest in
companies which invest in real estate, and in commodities contracts.
9. Make short sales of securities or purchase securities on margin, except
that each Fund may obtain short-term credits as necessary for the clearance
of security transactions.
S-13
<PAGE>
10. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
11. Purchase securities of other investment companies, except as permitted by
the 1940 Act and the rules and regulations thereunder.
12. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the Securities and Exchange Commission (the "SEC").
13. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
NON-FUNDAMENTAL POLICY
No Fund may invest in illiquid securities in an amount exceeding, in the
aggregate, 15% of the Fund's net assets (except for all money market funds,
for which the limit is 10%).
The foregoing percentages will apply at the time the Fund purchases the
security and shall not be considered violated unless an excess occurs or
exists immediately after and as a result of a purchase of such security.
THE ADVISER
The Trust and First Hawaiian Bank (the "Adviser") have entered into an
advisory agreement (the "Advisory Agreement") dated March 31, 1999. The
Advisory Agreement provides that the Adviser shall not be protected against
any liability to the Trust or its Shareholders by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or from reckless disregard of its obligations or duties thereunder.
The Advisory Agreement provides that if, for any fiscal year, the ratio
of expenses of any Fund (including amounts payable to the Adviser but
excluding interest, taxes, brokerage, litigation, and other extraordinary
expenses) exceeds limitations established by any state, the Adviser will bear
the amount of such excess. The Adviser will not be required to bear expenses
of the Trust to an extent which would result in a Fund's inability to qualify
as a regulated investment company under provisions of the Internal Revenue
Code.
The continuance of the Advisory Agreement, after the first two years,
must be specifically approved at least annually (i) by the vote of a majority
of the Trustees who are not parties to the Agreement or "interested persons"
of any party thereto, cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the vote of the Trustees or a majority
of outstanding shares of the Funds, as defined in the 1940 Act. The Advisory
Agreement will terminate
S-14
<PAGE>
automatically in the event of its assignment, and is terminable at any time
without penalty by the Trustees of the Trust or, with respect to the Funds by
a majority of the outstanding shares of the Funds, on not less than 30 days'
nor more than 60 days' written notice to the Adviser, or by the Adviser on 90
days' written notice to the Trust.
The Adviser is entitled to a fee which is calculated daily and paid
monthly at an annual rate of 0.74% of the daily average net assets of the
Equity Fund, 0.55% of the daily average net assets of the High Grade Income
Fund, 0.35% of the daily average net assets of the Hawaii Municipal Bond
Fund, 0.30% of the daily average net assets of the Money Market Fund and
0.30% of the daily average net assets of the Treasury Money Market Fund.
For the fiscal years ended December 31, 1996, 1997 and 1998, the Funds
paid the following advisory fees:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ADVISORY FEES PAID ADVISORY FEES WAIVED
- --------------------------------------------------------------------------------------------------------------------
1996 1997 1998 1996 1997 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Fund................. * $311,840 $514,451 * $121,268 $ 75,127
- --------------------------------------------------------------------------------------------------------------------
High Grade Income Fund...... * $ 77,201 $ 94,508 * $ 49,860 $ 47,128
- --------------------------------------------------------------------------------------------------------------------
Hawaii Municipal Bond Fund.. $0 $ 8,620 $ 16,208 $ 78,455 $ 84,733 $ 94,685
- --------------------------------------------------------------------------------------------------------------------
Money Market Fund........... $931,000 $445,870 $558,662 $0 $328,496 $209,398
- --------------------------------------------------------------------------------------------------------------------
Treasury Money Market Fund.. $189,543 $192,621 $421,356 $126,363 $469,439 $545,821
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------
* Not in operation during such period.
THE SUB-ADVISER
The Adviser has entered into a sub-advisory agreement (the "Sub-Advisory
Agreement") with Wellington Management Company, LLP (the "Sub-Adviser") dated
March 31, 1999, relating to the Money Market and Treasury Money Market Funds.
Under the Sub-Advisory Agreement, the Sub-Adviser is entitled to fees which
are calculated daily and paid monthly at an annual rate of 0.075% of the
aggregate average daily net assets of the Money Market and Treasury Money
Market Funds, respectively, up to $500 million and 0.020% of the aggregate
average daily net assets of the Money Market and Treasury Money Market Funds,
respectively, in excess of $500 million. Such fees are paid by the Adviser
and the Sub-Adviser receives no fees directly from these Funds.
For the fiscal years ended December 31, 1996, 1997 and 1998, the Money
Market and Treasury Money Market Funds paid the following sub-advisory fees:
S-15
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SUB-ADVISORY FEES PAID SUB-ADVISORY FEES WAIVED
- --------------------------------------------------------------------------------------------------------------------
1996 1997 1998 1996 1997 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund........... $245,175 $193,585 $172,523 $0 $0 $0
- --------------------------------------------------------------------------------------------------------------------
Treasury Money Market Fund.. $ 78,977 $165,499 $214,421 $0 $0 $0
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------
* Not in operation during such period.
THE ADMINISTRATOR
The Trust and SEI Investments Mutual Funds Services (the
"Administrator") have entered into an administration agreement (the
"Administration Agreement") dated January 27, 1995. Under the Administration
Agreement, the Administrator provides the Trust with administrative services,
including fund accounting, regulatory reporting, necessary office space,
equipment, personnel and facilities. The Administrator also acts as
shareholder servicing agent for the Funds.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the matters to which the
Administration Agreement relates, except a loss resulting from willful
misfeasance, bad faith or negligence on the part of the Administrator in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder.
For the fiscal years ended December 31, 1996, 1997 and 1998, the Funds
paid the following administrative fees:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ADMINISTRATIVE FEES PAID ADMINISTRATIVE FEES WAIVED
- --------------------------------------------------------------------------------------------------------------------
1996 1997 1998 1996 1997 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Fund................. * $ 78,619 $ 95,607 * $ 38,478 $ 63,739
High Grade Income Fund...... * $ 31,706 $ 30,902 * $ 14,505 $ 20,602
Hawaii Municipal Bond Fund.. $0 $ 8,621 $ 15,841 $ 44,816 $ 44,724 $ 47,526
Money Market Fund........... $326,909 $298,045 $307,224 $326,909 $218,415 $204,816
Treasury Money Market Fund.. $105,303 $255,368 $386,871 $105,000 $186,006 $257,914
</TABLE>
- -----------------------------
* Not in operation during such period.
The Administrator, a Delaware business trust, has its principal business
offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interest in the Administrator.
SEI Investments and its subsidiaries and affiliates, including the
Administrator, are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors, and money managers. The Administrator
and its affiliates also serve as administrator or sub-administrator to the
following other
S-16
<PAGE>
mutual funds: The Achievement Funds Trust, The Advisors' Inner Circle Fund,
Alpha Select Funds, The Arbor Fund, ARK Funds, Armada Funds, Boston 1784
Funds-Registration Trademark-, CrestFunds-Registration Trademark-, Inc.,
CUFUND, The Expedition Funds, First American Funds, Inc., First American
Investment Funds, Inc., First American Strategy Funds, Inc., HighMark Funds,
Huntington Funds, The Nevis Fund, Inc., Oak Associates Funds, The PBHG Funds,
Inc., PBHG Advisor Funds, Inc., PBHG Insurance Series Fund, Inc., The Pillar
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds,
SEI Institutional International Trust, SEI Institutional Investments Trust,
SEI Institutional Managed Trust, SEI Liquid Asset Trust, SEI Tax Exempt
Trust, STI Classic Funds, STI Classic Variable Trust and TIP Funds.
The Administrator is entitled to a fee, calculated daily and paid
monthly, at an annual rate of 0.20% of average daily net assets of each of
the Funds.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned
subsidiary of SEI, serves as a distributor. Financial institutions that are
the record owner of shares for the account of their customers may impose
separate fees for account services to their customers.
Each Fund has adopted a shareholder servicing plan (the "Service Plan")
under which a shareholder servicing fee of up to 0.25% of average daily net
assets attributable to each Fund will be paid to the Distributor. Under the
Service Plan, the Distributor may perform, or may compensate other service
providers for performing, the following shareholder and administrative
services: maintaining client account; arranging for bank wires; responding to
client inquiries concerning services provided on investments; assisting
clients in changing dividend options, account designations and addresses;
sub-accounting; providing information on share positions to clients;
forwarding shareholder communications to clients; processing purchase,
exchange and redemption orders; and processing dividend payments. Under the
Service Plan, the Distributor may retain as profit any difference between the
fee it receives and amount is pays to third parties.
For the fiscal year ended December 31, 1998, the Funds incurred the
following distribution expenses:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
AMOUNT PAID
TO 3RD
PARTIES PROSPECTUS COSTS
BY THE PRINTING & ASSOCIATED
TOTAL DISTRIBUTOR SALES ADVERTISING MAILING COSTS WITH
PORTFOLIO ($ AMOUNT) FOR EXPENSES ($ AMOUNT) (NEW REGISTRATION
DISTRIBUTOR ($ AMOUNT) SHAREHOLDERS FEES
RELATED ONLY) ($ AMOUNT)
SERVICES ($ AMOUNT)
($AMOUNT)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Fund................. $ 77,851 $ 77,851 $0 $0 $0 $0
- --------------------------------------------------------------------------------------------------------------------
High Grade Income Fund...... $ 25,850 $ 25,850 $0 $0 $0 $0
- --------------------------------------------------------------------------------------------------------------------
Hawaii Municipal Bond Fund.. $ 31,077 $ 31,077 $0 $0 $0 $0
- --------------------------------------------------------------------------------------------------------------------
Money Market Fund........... $255,357 $255,357 $0 $0 $0 $0
- --------------------------------------------------------------------------------------------------------------------
Treasury Money Market Fund.. $325,143 $325,143 $0 $0 $0 $0
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------
S-17
<PAGE>
THE TRANSFER AGENT
DST Systems, Inc., 330 W. 9th Street, Kansas City, Missouri 64105 serves as
the Funds' transfer agent.
THE CUSTODIAN
Chase Manhattan Bank, New York, New York 10041 serves as the Funds' custodian.
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP, 2400 Eleven Penn Center, Philadelphia,
Pennsylvania 19103 serves as the Funds' independent auditors.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, Pennsylvania
19103 serves as legal counsel to the Funds.
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees
under the laws governing business trusts in the Commonwealth of
Massachusetts. The Trustees and executive officers of the Trust and their
principal occupations for the last five years are set forth below. An
asterisk (*) indicates an interested person as defined by the 1940 Act.
*MARTIN ANDERSON (DOB 11/16/23) - Trustee - Attorney, Goodsill,
Anderson, Quinn & Stifel since 1951.
CHARLES E. CARLBOM (DOB 08/20/34) - Trustee - President and CEO, United
Grocers Inc. since 1997; President and CEO, Western Family Food Inc. -
Western Family Holding Inc.(1982-1997).
*PHILIP H. CHING (DOB 01/11/31) - Trustee - Retired since 1996; Vice
Chairman, First Hawaiian Bank (1968-1996).
S-18
<PAGE>
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant
Secretary -- Vice President and Assistant Secretary of SEI Investments, the
Administrator and the Distributor since 1995; Associate, Dewey Ballantine
(law firm) (1994-1995); Associate, Winston & Strawn (law firm) (1991-1994).
ROBERT DELLACROCE (DOB 12/17/63) -- Controller, Chief Financial Officer
- -- Director, Funds Administration and Accounting since 1994; Senior Audit
Manager; Arthur Andersen LLP (1986 - 1994).
LYDIA A. GAVALIS (DOB 06/05/64) -- Vice President and Assistant
Secretary -- Vice President and Assistant Secretary of the Administrator and
the Distributor since 1998; Assistant General Counsel and Director of
Arbitration, Philadelphia Stock Exchange, 1989-1998.
JOHN H. GRADY, JR. (DOB 06/01/61) -- Secretary; Partner since 1995,
Morgan, Lewis & Bockius LLP (law firm), counsel to the Trust, SEI
Investments, the Administrator and the Distributor.
KATHY HEILIG (DOB 12/21/58) -- Vice President and Assistant Secretary --
Treasurer of SEI Investments since 1997; Assistant Controller of SEI
Investments since 1995; Vice President of SEI Investments since 1991.
JAMES L. HUFFMAN (DOB 03/25/45) - Trustee - Dean and Professor, Lewis &
Clark Law School since 1973.
SHUNICHI KIMURA (DOB 03/15/30) - Trustee - Mediator - Mediation
Specialists of Hawaii from (1994-1997); Judge -- State of Hawaii Judiciary
(1974-1994); Regent - University of Hawaii (1995-1996).
ROBERT A. NESHER (DOB 08/17/46) - Trustee - The Advisors' Inner Circle
Fund, The Arbor Fund, Bishop Street Funds since 1998, Boston 1784
Funds-Registration Trademark-, The Expedition Funds, Oak Associates Funds,
Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust,
SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust; Chairman SEI Mutual Funds since 1974; Trustee -- and Executive
Vice President of the Administrator and the Distributor (1981-1994).
JOSEPH M. O'DONNELL (DOB 11/13/54) -- Vice President and Assistant
Secretary -- Vice President and Assistant Secretary of the Administrator and
the Distributor since 1998; Vice President and General Counsel, FPS
Services, Inc. (1993-1997).
SANDRA K. ORLOW (DOB 10/18/53) -- Vice President and Assistant Secretary
- -- Secretary of the Distributor since 1998; Vice President of the Distributor
since 1988. Vice President
S-19
<PAGE>
and Assistant Secretary of the Manager since 1988; Assistant Secretary of the
Distributor (1988-1998).
*WILLIAM S. RICHARDSON (DOB 12/22/19) - Trustee - Retired since 1992.
KEVIN P. ROBINS (DOB 04/15/61) - Vice President and Assistant Secretary -
Senior Vice President, General Counsel and Assistant Secretary of SEI, the
Administrator and Distributor since 1994. Vice President of SEI, the
Administrator and Distributor 1992-1994.
*PETER F. SANSEVERO (DOB 01/06/33) - Trustee - Regional Director of the
Northwestern Region and First Vice President, Merrill Lynch (1958-1997).
LYNDA J. STRIEGEL (DOB 10/30/48) -- Vice President and Assistant
Secretary of the Administrator and the Distributor since 1998; Senior Asset
Management Counsel, Barnett Banks, Inc. (1997-1998); Partner, Groom and
Nordberg, Chartered (1996-1997); Associate General Counsel, Riggs Bank, N.A.
(1991-1995).
MANUEL R. SYLVESTER (DOB 06/20/30) - Trustee - Retired since 1992.
JOYCE S. TSUNODA (DOB 01/01/38) - Trustee - Chancellor - Community
Colleges - University of Hawaii since 1983. Senior Vice President -
University of Hawaii System since 1989.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
AGGREGATE TOTAL COMPENSATION FROM
COMPENSATION REGISTRANT AND FUND COMPLEX
NAME OF PERSON AND POSITION FROM REGISTRANT PAID TO DIRECTORS FOR FYE
FOR FYE 12/31/98 12/31/98
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Martin Anderson, Trustee*........... $10,000 $10,000 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
Charles E. Carlbom,................. $0 $0 for services on 1 board
- ------------------------------------------------------------------------------------------------------------------
Philip H. Ching, Trustee*........... $10,000 $10,000 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
Todd B. Cipperman, Vice President
and Assistant Secretary............. $0 $0 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
Robert Dellacroce, Controller
and Chief Financial Officer......... $0 $0 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
Lydia A. Gavalis, Vice President
and Assistant Secretary............. $0 $0 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
John H. Grady, Secretary............ $0 $0 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
Kathy Heilig, Vice President
and Assistant Secretary............. $0 $0 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
James L. Huffman, Trustee........... $0 $0 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
Shunichi Kimura, Trustee............ $10,000 $10,000 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
Robert A. Nesher, Trustee........... $0 $0 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
Joseph M. O'Donnell, Vice President
and Assistant Secretary............. $0 $0 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
Sandra K. Orlow, Vice President
and Assistant Secretary............. $0 $0 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
AGGREGATE TOTAL COMPENSATION FROM
COMPENSATION REGISTRANT AND FUND COMPLEX
NAME OF PERSON AND POSITION FROM REGISTRANT PAID TO DIRECTORS FOR FYE
FOR FYE 12/31/98 12/31/98
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William S. Richardson, Trustee*..... $10,000 $10,000 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
Kevin P. Robins, Vice President $0 $0 for services on 1 board
and Assistant Secretary.............
- -------------------------------------------------------------------------------------------------------------------
Peter S. Sansevero, Trustee*........ $0 $0 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
Lynda J. Striegel, Vice President
and Assistant Secretary............. $0 $0 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
Manuel R. Sylvester, Trustee........ $10,000 $10,000 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
Joyce S. Tsunoda, Trustee........... $10,000 $10,000 for services on 1 board
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Messrs. Ching, Anderson, Richardson and Sansevero are Trustees who may be
deemed to be "interested" persons of the Trust as the term is defined in the
1940 Act.
The Trustees and officers of the Trust own less than 1% of the
outstanding shares of the Trust.
REPORTING
The Trust issues unaudited financial information semi-annually and
audited financial statements annually. The Trust furnishes proxy statements
and other shareholder reports to shareholders of record.
PERFORMANCE
YIELDS. Yields are one basis upon which investors may compare the Funds
with other funds; however, yields of other funds and other investment
vehicles may not be comparable because of the factors set forth below and
differences in the methods used in valuing portfolio instruments.
The yield of a money market fund fluctuates, and the annualization of a
week's dividend is not a representation by the Trust as to what an investment
in a money market fund will actually yield in the future. Actual yields will
depend on such variables as asset quality, average asset maturity, the type
of instruments the Fund invests in, changes in interest rates on money market
instruments, changes in the expenses of the Fund and other factors.
MONEY MARKET FUND YIELDS. From time to time the Money Market and
Treasury Money Market Funds advertise their "current yield" and "effective
yield" (also called "effective compound yield"). Both yield figures are based
on historical earnings and are not intended to indicate future performance.
The "current yield" of these Funds refers to the income generated by an
investment in the Funds over a seven-day period (which period will be stated
in the advertisement). This income is then "annualized." That is, the amount
of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is similarly calculated but, when
annualized, the income earned
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by an investment in the Funds is assumed to be reinvested. The "effective
yield" will be slightly higher than the "current yield" because of the
compounding effect of this assumed reinvestment.
The current yield of the Money Market and Treasury Money Market Funds
will be calculated daily based upon the seven days ending on the date of
calculation ("base period"). The yield is computed by determining the net
change (exclusive of capital changes) in the value of a hypothetical
pre-existing shareholder account having a balance of one share at the
beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing such net change by the
value of the account at the beginning of the same period to obtain the base
period return and multiplying the result by (365/7). Realized and unrealized
gains and losses are not included in the calculation of the yield.
The effective compound yield of these Funds is determined by computing
the net change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period return, and
then compounding the base period return by adding 1, raising the sum to a
power equal to 365 divided by 7, and subtracting 1 from the result, according
to the following formula: Effective Yield = (Base Period Return + 1)365/7) -
1. The current and the effective yields reflect the reinvestment of net
income earned daily on portfolio assets.
For the seven-day period ended December 31, 1998, the seven-day yield
and seven-day effective yield for the Money Market Fund were 4.85% and 4.96%,
respectively.
For the seven-day period ended December 31, 1998, the seven-day yield
and seven-day effective yield for the Treasury Money Market Fund were 4.53%
and 4.63%, respectively.
OTHER YIELDS. The Hawaii Municipal Bond Fund and the High Grade Income
Fund may advertise a 30-day yield. The Hawaii Municipal Bond Fund also may
advertise a 30-day tax-equivalent yield. Tax equivalent yields are computed
by dividing that portion of the Fund's yield which is tax-exempt by 1 minus a
stated federal and state income tax rate and adding the product to that
portion, if any, of the Fund's yield that is not tax-exempt. (Tax equivalent
yields assume the payment of Federal income taxes at a rate of 31% and Hawaii
income taxes at a rate of 10%.) These figures will be based on historical
earnings and are not intended to indicate future performance. The 30-day
yield of these Funds refers to the annualized income generated by an
investment in the Funds over a specified 30-day period. The yield is
calculated by assuming that the income generated by the investment during
that period generated each period over one year and is shown as a percentage
of the investment. In particular, yield will be calculated according to the
following formula:
Yield = (2 (a - b/cd + 1)TO THE POWER OF 6 - 1) where a = dividends and
interest earned during the period; b = expenses accrued for the period (net
of reimbursements); c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and d = the maximum
offering price per share on the last day of the period.
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<PAGE>
Tax equivalent yields are computed by dividing that portion of a Fund's
yield which is tax-exempt by one minus a stated federal and state income tax
rate and adding the product to that portion, if any, of the Fund's yield that
is not tax-exempt.
For the 30-day period ended December 31, 1998, the 30-day yield and
30-day tax equivalent yield for the Hawaii Municipal Bond Fund were 4.43% and
8.15%, respectively.
For the 30-day period ended December 31, 1998, the 30-day yield for the
High Grade Income Fund was 4.44%.
CALCULATION OF TOTAL RETURN
From time to time, certain of the Funds may advertise total return on an
"average annual total return" basis and on an "aggregate total return" basis
for various periods. Average annual total return reflects the average annual
percentage change in the value of an investment in a Fund over a particular
measuring period. Aggregate total return reflects the cumulative percentage
change in value over the measuring period. Aggregate total return is computed
according to a formula prescribed by the SEC. The formula can be expressed as
follows: P (1 + T)TO THE POWER OF n = ERV, where P = a hypothetical initial
payment of $1,000; T = average annual total return; n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the designated time period as of the end of such period or the
life of the fund. The formula for calculating aggregate total return can be
expressed as (ERV/P) - 1.
The calculation of total return assumes reinvestment of all dividends
and capital gain distribution on the reinvestment dates during the period and
that the entire investment is redeemed at the end of the period. The
performance results listed below refer to results for the fiscal year ended
December 31, 1998.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------------------------------------------
SINCE
FUND 1- YEAR INCEPTION
- -------------------------------------------------------------------------------
<S> <C> <C>
Equity Fund 33.05% 28.47%
- -------------------------------------------------------------------------------
High Grade Income Fund 9.09% 8.90%
- -------------------------------------------------------------------------------
Hawaii Municipal Bond Fund 5.84% 7.22%
- -------------------------------------------------------------------------------
Money Market Fund 5.26% 5.33%
- -------------------------------------------------------------------------------
Treasury Money Market Fund 5.10% 5.14%
- -------------------------------------------------------------------------------
</TABLE>
The Funds' performance may from time to time be compared to other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services), financial and business publications and periodicals, to broad
groups of comparable mutual funds or to unmanaged indices
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<PAGE>
which may assume investment of dividends but generally do not reflect
deductions for administrative and management costs. The Funds may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance. The Funds may quote Ibbotson Associates of
Chicago, Illinois, which provides historical returns of the capitals markets
in the U.S. The Funds may use long term performance of these capital markets
to demonstrate general long-term risk vs. reward scenarios and could include
the value of a hypothetical investment in any of the capital markets. The
Funds may also quote financial and business publications and periodicals as
they relate to fund management, investment philosophy, and investment
techniques.
The Funds may quote various measures of volatility and benchmark
correlation in advertising and may compare these measures to those of other
funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
volatility and correlation are calculated using averages of historical data
and cannot be calculated precisely.
PURCHASING SHARES
Purchases and redemptions of shares of the Funds may be made on any day
the New York Stock Exchange and the Federal Reserve wire system are open for
business. Currently, the weekdays on which the Trust is closed for business
are: New Year's Day, Martin Luther King, Jr.'s Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving Day and Christmas Day. Purchases and redemptions will be
made in full and fractional shares that are calculated to three decimal
places.
REDEEMING SHARES
It is the Trust's policy to pay for redemptions in cash. The Trust
retains the right, however, to provide for redemptions in whole or in part by
a distribution in-kind of securities held by the Funds in lieu of cash.
Shareholders may incur brokerage charges on the sale of any such securities
so received in payment of redemptions. A Shareholder will at all times be
entitled to aggregate cash redemptions from all Funds of the Trust during any
90-day period of up to the lesser of $250,000 or 1% of the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or
to postpone the date of payment upon redemption for any period on which
trading on the New York Stock Exchange is restricted, or during the existence
of an emergency (as determined by the SEC by rule or regulation) as a result
of disposal or valuation of the Fund's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Trust also reserves the right to suspend sales of shares of the Funds for any
period during which the New York Stock Exchange, the Adviser, the
Administrator and/or the Custodian are not open for business.
S-24
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Money Market and Treasury Money
Market Funds is calculated by adding the value of securities and other
assets, subtracting liabilities and dividing by the number of outstanding
shares. Securities will be valued by the amortized cost method which involves
valuing a security at its cost on the date of purchase and thereafter (absent
unusual circumstances) assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuations in general
market rates of interest on the value of the instrument. While this method
provides certainty in valuation, it may result in periods during which a
security's value, as determined by this method, is higher or lower than the
price these Funds would receive if they sold the instrument. During periods
of declining interest rates, the daily yield of the Funds may tend to be
higher than a like computation made by a company with identical investments
utilizing a method of valuation based upon market prices and estimates of
market prices for all of its portfolio securities. Thus, if the use of
amortized cost by these Funds resulted in a lower aggregate portfolio value
on a particular day, a prospective investor in these Funds would be able to
obtain a somewhat higher yield than would result from investment in a company
utilizing solely market values, and existing investors in these Funds would
experience a lower yield. The converse would apply in a period of rising
interest rates.
The Money Market and Treasury Money Market Funds' use of amortized cost
and the maintenance of these Funds' net asset value at $1.00 are permitted by
regulations promulgated by Rule 2a-7 under the 1940 Act, provided that
certain conditions are met. These conditions currently require that the Funds
maintain a dollar-weighted average maturity of 90 days or less, not purchase
any instrument having a remaining maturity of more than 397 days, and will
limit their investments to those U.S. dollar-denominated instruments which
the Trustees determine to present minimal credit risks and which are of
"eligible" quality. The regulations also require the Trustees to establish
procedures which are reasonably designed to stabilize the net asset value per
share at $1.00 for the Funds. Such procedures include the determination of
the extent of deviation, if any, of the Funds' current net asset value per
share calculated using available market quotations from the Funds' amortized
cost price per share at such intervals as the Trustees deem appropriate and
reasonable in light of market conditions and periodic reviews of the amount
of the deviation and the methods used to calculate such deviation. In the
event that such deviation exceeds 1/2 of 1%, the Trustees are required to
consider promptly what action, if any, should be initiated, and, if the
Trustees believe that the extent of any deviation may result in material
dilution or other unfair results to Shareholders, the Trustees are required
to take such corrective action as they deem appropriate to eliminate or
reduce such dilution or unfair results to the extent reasonably practicable.
Such actions may include the sale of portfolio instruments prior to maturity
to realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends; redeeming shares in kind; or establishing a net asset
value per share by using available market quotations. In addition, if the
Funds incur a significant loss or liability, the Trustees have the authority
to reduce pro rata the number of shares of these Funds in each shareholder's
account and to offset each shareholder's pro rata portion of such loss or
liability from the shareholder's accrued but unpaid dividends or from future
dividends.
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<PAGE>
The securities of the Equity, High Grade Income and Hawaii Municipal
Bond Funds are valued pursuant to prices and valuations provided by an
independent pricing service. The pricing service relies primarily on prices
of actual market transactions as well as trader quotations. However, the
service may also use a matrix system to determine valuations, which system
considers such factors as security prices, yields, maturities, call features,
ratings and developments relating to specific securities in arriving at
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of the
Trustees.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Funds and their shareholders that are
not described in the Funds' prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Funds or their shareholders,
and the discussion here and in the Funds' prospectus is not intended as a
substitute for careful tax planning. Shareholders are urged to consult with
their tax advisors with specific reference to their own tax situation,
including their state and local tax liabilities.
FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following general discussion of certain federal income tax
consequences is based on the Internal Revenue Code of 1986, as amended (the
"Code") and the regulations issued thereunder as in effect on the date of
this Statement of Additional Information. New legislation, as well as
administrative changes or court decisions, may significantly change the
conclusions expressed herein, and may have a retroactive effect with respect
to the transactions contemplated herein.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund intends to qualify and elect to be treated as a "regulated
investment company" ("RIC") as defined under Subchapter M of the Code. By
following such a policy, each Fund expects to eliminate or reduce to a
nominal amount the federal taxes to which they may be subject.
In order to qualify as a RIC, a Fund must distribute at least 90% of its
net investment income (that generally includes dividends, taxable interest,
and the excess of net short-term capital gains over net long-term capital
losses less operating expenses) and at least 90% of its net tax exempt
interest income, for each tax year, if any, to its shareholders and also must
meet several additional requirements. Included among these requirements are
the following: (i) at least 90% of the Fund's gross income each taxable year
must be derived from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of stock or securities,
or certain other income; (ii) at the close of each quarter of the Fund's
taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with such other securities limited, in
respect to any one issuer, to an amount that does not exceed 5% of the value
of the Fund's assets and that does not represent more
S-26
<PAGE>
than 10% of the outstanding voting securities of such issuer; and (iii) at
the close of each quarter of the Fund's taxable year, not more than 25% of
the value of its assets may be invested in securities (other than U.S.
Government securities or the securities of other RICs) of any one issuer or
of two or more issuers which the Fund controls and which are engaged in the
same, similar or related trades or businesses.
Some of the Funds may make investments in securities (such as STRIPS)
that bear "original issue discount" or "acquisition discount" (collectively,
"OID Securities"). The holder of such securities is deemed to have received
interest income even though no cash payments have been received. Accordingly,
OID Securities may not produce sufficient current cash receipts to match the
amount of distributable net investment income the Funds must distribute to
satisfy the Distribution Requirement. In some cases, the Funds may have to
borrow money or dispose of other investments in order to make sufficient cash
distributions to satisfy the Distribution Requirement.
Although each Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year,
each Fund will be subject to federal income taxation to the extent any such
income or gains are not distributed.
If the Funds fail to qualify for any taxable year as a RIC, all of their
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent of
a Fund's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
FUND DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares, to the extent of a
Fund's earnings and profits. Each Fund anticipates that it will distribute
substantially all of its investment company taxable income for each taxable
year.
Each Fund may either retain or distribute to shareholders its excess of
net long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they
are taxable to shareholders who are individuals at a maximum rate of 20%,
regardless of the length of time the shareholder has held the shares. If any
such gains are retained, a Fund will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than capital
gains distributions) from a RIC generally qualify for the dividends-received
deduction to the extent of the gross amount of qualifying dividends received
by a Fund for the year. Generally, and subject to certain limitations, a
dividend will be treated as a qualifying dividend if it has been received
from a domestic corporation. Accordingly, it is not expected that any High
Grade Income Fund, Hawaii Municipal Bond Fund, Money Market Fund, or Treasury
Money Market Fund distribution will qualify for the
S-27
<PAGE>
corporate dividends-received deduction. Conversely, distributions from the
Equity Fund generally will qualify for the corporate dividends-received
deduction.
Ordinarily, investors should include all dividends as income in the year
of payment. However, dividends declared payable to shareholders of record in
October, November, or December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholder and paid by the Fund in the year in which the dividends were
declared.
Each Fund will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year, including the amount of dividends eligible for the corporate
dividends-received deduction.
SALE OR EXCHANGE OF FUND SHARES
Generally, gain or loss on the sale or exchange of a Share will be
capital gain or loss that will be long-term if the Share has been held for
more than twelve months and otherwise will be short-term. For individuals,
long-term capital gains are currently taxed at a maximum rate of 20% and
short-term capital gains are currently taxed at ordinary income tax rates.
However, if a shareholder realizes a loss on the sale, exchange or redemption
of a Share held for six months or less and has previously received a capital
gains distribution with respect to the Share (or any undistributed net
capital gains of a Fund with respect to such Share are included in
determining the shareholder's long-term capital gains), the shareholder must
treat the loss as a long-term capital loss to the extent of the amount of the
prior capital gains distribution (or any undistributed net capital gains of a
Fund that have been included in determining such shareholder's long-term
capital gains). In addition, any loss realized on a sale or other disposition
of Shares will be disallowed to the extent an investor repurchases (or enters
into a contract or option to repurchase) Shares within a period of 61 days
(beginning 30 days before and ending 30 days after the disposition of the
Shares). This loss disallowance rule will apply to Shares received through
the reinvestment of dividends during the 61-day period.
In certain cases, a Fund will be required to withhold, and remit to the
United States Treasury, 31% of any distributions paid to a shareholder who
(1) has failed to provide a correct taxpayer identification number, (2) is
subject to backup withholding by the Internal Revenue Service, or (3) has
failed to certify to the Fund that such shareholder is not subject to backup
withholding.
FEDERAL EXCISE TAX
If a Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain net income (the
excess of short and long term capital gains over short and long term capital
losses) for the one-year period ending October 31 of that year (and any
retained amount from the prior calendar year), the Fund will be subject to a
nondeductible 4% Federal excise tax on the undistributed amounts. Each Fund
intends to make sufficient distributions to avoid imposition of this tax, or
to retain, at most its net capital gains and pay tax thereon.
S-28
<PAGE>
ADDITIONAL CONSIDERATIONS FOR HAWAII MUNICIPAL BOND FUND
The Fund intends to qualify to pay "exempt interest dividends" to its
shareholders by satisfying the Code's requirement that at the close of each
quarter of its taxable year at least 50% of the value of its total assets
consist of obligations the interest on which is exempt from federal income
tax. As long as this and certain other requirements are met, dividends
derived from the Fund's net tax-exempt interest income will be "exempt
interest dividends" that are excluded from your gross income for federal
income tax purposes. Exempt interest dividends may, however, have collateral
deferral income tax consequences, including alternative minimum tax
consequences, as discussed below.
Exempt-interest dividends may be subject to the alternative minimum tax
imposed by Section 55 of the Code (the "Alternative Minimum Tax"). The
Alternative Minimum Tax is imposed at a rate of up to 28% in the case of
non-corporate taxpayers and at the rate of 20% in the case of corporate
taxpayers, to the extent it exceeds the taxpayer's regular tax liability. The
Alternative Minimum Tax may be affected by the receipt of exempt-interest
dividends in two circumstances. First, exempt-interest dividends derived from
certain "private activity bonds" issued after August 7, 1986, will generally
be an item of tax preference and therefore potentially subject to the
Alternative Minimum Tax. The Fund intends, when possible, to avoid investing
in private activity bonds. Second, in the case of exempt-interest dividends
received by corporate shareholders, all exempt-interest dividends, regardless
of when the bonds from which they are derived were issued or whether they are
derived from private activity bonds, will be included in the corporation's
"adjusted current earnings," as defined in Section 56(g) of the Code, in
calculating the corporation's alternative minimum taxable income for purposes
of determining the Alternative Minimum Tax.
The percentage of income that constitutes "exempt-interest dividends"
will be determined for each year for the Fund and will be applied uniformly
to all dividends declared with respect to the Fund during that year. This
percentage may differ from the actual percentage for any particular day.
Interest on indebtedness incurred or continued by shareholders to
purchase or carry Shares of the Fund will not be deductible for federal
income tax purposes. The deduction otherwise allowable to property and
casualty insurance companies for "losses incurred" will be reduced by an
amount equal to a portion of exempt-interest dividends received or accrued
during any taxable year. Foreign corporations engaged in a trade or business
in the United States will be subject to a "branch profits tax" on their
"dividend equivalent amount" for the taxable year, which will include
exempt-interest dividends. Certain Subchapter S corporations may also be
subject to taxes on their "passive investment income," which could include
exempt-interest dividends. Up to 85% of the Social Security benefits or
railroad retirement benefits received by an individual during any taxable
year will be included in the gross income of such individual if the
individual's "modified adjusted gross income" (which includes exempt-interest
dividends) plus one-half of the Social Security benefits or railroad
retirement benefits received by such individual during that taxable year
exceeds the base amount described in Section 86 of the Code.
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<PAGE>
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by industrial development bonds
or private activity bonds should consult their tax advisors before purchasing
Shares. "Substantial user" is defined generally as including a "non-exempt
person" who regularly uses in trade or business a part of such a facility.
Current federal law limits the types and volume of bonds qualifying for
the federal income tax exemption of interest, which may have an effect on the
ability of the Fund to purchase sufficient amounts of tax-exempt securities
to satisfy the Code's requirements for the payment of exempt interest
dividends.
Issuers of bonds purchased by the Fund (or the beneficiary of such
bonds) may have made certain representations or covenants in connection with
the issuance of such bonds to satisfy certain requirements of the Code that
must be satisfied subsequent to the issuance of such bonds. Investors should
be aware that exempt-interest dividends derived from such bonds may become
subject to federal income taxation retroactively to the date thereof if such
representations are determined to have been inaccurate or if the issuer of
such bonds (or the beneficiary of such bonds) fails to comply with such
covenants.
The Fund may not be a suitable investment for tax-exempt shareholders
and plans because such shareholders and plans would not gain any additional
benefit from the receipt of exempt-interest dividends.
STATE AND LOCAL TAXES
A Fund is not liable for any income or franchise tax in Massachusetts if
it qualifies as a RIC for federal income tax purposes. Depending upon state
and local law, distributions by the Funds to shareholders and the ownership
of shares may be subject to state and local taxes. Shareholders are urged to
consult their tax advisors as to the consequences of these and other state
and local tax rules affecting an investment in the Funds.
S-30
<PAGE>
HAWAII TAXATION
The State of Hawaii has specifically adopted Sections 852 through 855 of
the Code, which provisions provide for pass-through treatment of exempt
interest dividends and capital gains, i.e., distributions by the Hawaii
Municipal Bond Fund of dividends representing exempt interest and capital
gains retain their original character in the hands of shareholders. As the
State of Hawaii's Department of Taxation has confirmed in response to a
request by special counsel for the Trust, distributions from the Hawaii
Municipal Bond Fund to its shareholders which are attributable to interest on
obligations exempt from income tax in the State of Hawaii will not be subject
to Hawaii income tax in the hands of shareholders so long as at least 50% of
the Hawaii Municipal Bond Fund's assets are invested in securities the
interest from which is exempt from Hawaii state taxation. In addition, the
Department of Taxation has confirmed that interest income on obligations
issued by the U.S. Government and its territories is exempt from State of
Hawaii income taxation. While the Hawaii Municipal Bond Fund intends to
invest primarily in obligations which produce tax-exempt interest, if the
Fund invests in obligations that are not exempt for Hawaii purposes, a
portion of the Fund's distribution will be subject to Hawaii income tax.
FUND TRANSACTIONS
Subject to policies established by the Trustees, the Adviser (and, where
applicable, the Sub-Adviser) are responsible for placing the orders to
execute transactions for the Funds. In placing orders, it is the policy of
the Adviser to seek to obtain the best net results taking into account such
factors as price (including the applicable dealer spread), the size, type and
difficulty of the transaction involved, the firm's general execution and
operational facilities, and the firm's risk in positioning the securities
involved. While the Adviser generally seeks reasonably competitive spreads or
commissions, the Funds will not necessarily be paying the lowest spread or
commission available. The Funds will not purchase portfolio securities from
any affiliated person acting as principal except in conformity with the
regulations of the SEC.
The money market securities in which the Funds invest are traded
primarily in the over-the-counter market. Bonds and debentures are usually
traded over-the-counter, but may be traded on an exchange. Where possible,
the Adviser will deal directly with the dealers who make a market in the
securities involved except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually are acting as
principal for their own account. On occasion, securities may be purchased
directly from the issuer. Money market securities are generally traded on a
net basis and do not normally involve either brokerage commissions or
transfer taxes. The cost of executing portfolio securities transactions of
the Trust will primarily consist of dealer spreads and underwriting
commissions.
The Trust selects brokers or dealers to execute transactions for the
purchase or sale of portfolio securities on the basis of its judgment of
their professional capability to provide the service. The primary
consideration is to have brokers or dealers provide transactions at best
price and
S-31
<PAGE>
execution for the Trust. Best price and execution includes many factors,
including the price paid or received for a security, the commission charged,
the promptness and reliability of execution, the confidentiality and
placement accorded the order and other factors affecting the overall benefit
obtained by the account on the transaction. The Trust's determination of what
are reasonably competitive rates is based upon the professional knowledge of
its trading department as to rates paid and charged for similar transactions
throughout the securities industry. In some instances, the Trust pays a
minimal share transaction cost when the transaction presents no difficulty.
Some trades are made on a net basis where the Trust either buys securities
directly from the dealer or sells them to the dealer. In these instances,
there is no direct commission charged but there is a spread (the difference
between the buy and sell price) which is the equivalent of a commission.
The Trust may allocate out of all commission business generated by all
of the Funds and accounts under management by the Adviser, brokerage business
to brokers or dealers who provide brokerage and research services. These
research services include advice, either directly or through publications or
writings, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing of analyses and reports
concerning issuers, securities or industries; providing information on
economic factors and trends, assisting in determining portfolio strategy,
providing computer software used in security analyses, and providing
portfolio performance evaluation and technical market analyses. Such services
are used by the Adviser in connection with its investment decision-making
process with respect to one or more funds and accounts managed by it, and may
not be used exclusively with respect to the Fund or account generating the
brokerage.
As provided in the Securities Exchange Act of 1934 (the "1934 Act"),
higher commissions may be paid to broker-dealers who provide brokerage and
research services than to broker-dealers who do not provide such services if
such higher commissions are deemed reasonable in relation to the value of the
brokerage and research services provided. Although transactions are directed
to broker-dealers who provide such brokerage and research services, the Trust
believes that the commissions paid to such broker-dealers are not, in
general, higher than commissions that would be paid to broker-dealers not
providing such services and that such commissions are reasonable in relation
to the value of the brokerage and research services provided. In addition,
portfolio transactions which generate commissions or their equivalent are
directed to broker-dealers who provide daily portfolio pricing services to
the Trust. Subject to best price and execution, commissions used for pricing
may or may not be generated by the Funds receiving the pricing service.
The Adviser may place a combined order for two or more accounts or Funds
engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will result
in best price and execution. Transactions involving commingled orders are
allocated in a manner deemed equitable to each account or Fund. It is
believed that the ability of the accounts to participate in volume
transactions will generally be beneficial to the accounts and Funds. Although
it is recognized that, in some cases, the joint execution of orders could
adversely affect the price or volume of the security that a particular
account or Fund may obtain, it is the
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opinion of the Adviser and the Trust's Board of Trustees that the advantages
of combined orders outweigh the possible disadvantages of separate
transactions.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution,
the Funds, at the request of the Distributor, give consideration to sales of
shares of the Trust as a factor in the selection of brokers and dealers to
execute Trust portfolio transactions.
The Funds may execute brokerage or other agency transactions through the
Distributor, which is a registered broker-dealer in conformity with the 1940
Act, the 1934 Act and rules promulgated by the SEC. Under these provisions,
the Distributor is permitted to receive and retain compensation for effecting
portfolio transactions for the Funds on an exchange if a written contract is
in effect between the Distributor and the Trust expressly permitting the
Distributor to receive and retain such compensation.
These rules further require that commissions paid to the Distributor by
the Trust for exchange transactions not exceed "usual and customary"
brokerage commissions. The rules define "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of
time." In addition, the Funds may direct commission business to one or more
designated broker/dealers, including the Distributor, in connection with such
broker/dealer's payment of certain of the Funds' expenses. The Trustees,
including those who are not "interested persons" of the Trust, have adopted
procedures for evaluating the reasonableness of commissions paid to the
Distributor and will review the procedures periodically.
Since the Trust does not market its shares through intermediary
broker-dealers, it is not the Trust's practice to allocate brokerage business
on the basis of sales of its shares which may be made through such firms.
However, the Adviser may place Fund orders with qualified broker-dealers who
recommend the Trust to clients, and may, when a number of brokers and dealers
can provide best price and execution on a particular transaction, consider
such recommendations by a broker or dealer in selecting among broker-dealers.
The portfolio turnover rate for the Equity Fund was 30% for the fiscal
year ending December 31, 1997 and 41% for the fiscal year ended December 31,
1998. The portfolio turnover rate for the Hawaii Municipal Bond Fund was 29%
for the fiscal year ending December 31, 1997 and 21% for the fiscal year
ended December 31, 1998. The portfolio turnover rate for the High Grade
Income Fund was 32 % for the fiscal year ending December 31, 1997 and 98% for
the fiscal year ended December 31, 1998.
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For the fiscal year ended December 31, 1996, the Trust paid no brokerage
fees. For the fiscal year ended December 31, 1997, the Trust paid $40,380.
For the fiscal year ended December 31, 1998, the Trust paid $58,933.
DESCRIPTION OF SHARES
The Agreement and Declaration of Trust ("Declaration of Trust")
authorizes the issuance of an unlimited number of each series. Each share of
each Fund represents an equal proportionate interest in that Fund with each
other share of that Fund. Shareholders are entitled upon liquidation to a PRO
RATA share in the net assets of the Funds Shareholders have no preemptive
rights. The Agreement and Declaration of Trust provides that the Trustees of
the Trust may create additional series of shares. All consideration received
by the Trust for shares of any additional series and all assets in which such
consideration is invested would belong to that series and would be subject to
the liabilities related thereto. Share certificates representing shares will
not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust could,
under certain circumstances, be held personally liable as partners for the
obligations of the Trust. Even if, however, the Trust were held to be a
partnership, the possibility of the shareholders' incurring financial loss
for that reason appears remote because the Trust's Declaration of Trust
contains an express disclaimer of shareholder liability for obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by or on behalf
of the Trust or the Trustees, and because the Declaration of Trust provides
for indemnification out of the Trust property for any shareholder held
personally liable for the obligations of the Trust.
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<PAGE>
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only
for his or her own willful defaults and, if reasonable care has been
exercised in the selection of officers, agents, employees or investment
advisers, shall not be liable for any neglect or wrongdoing of any such
person. The Declaration of Trust also provides that the Trust will indemnify
its Trustees and officers against liabilities and expenses incurred in
connection with actual or threatened litigation in which they may be involved
because of their Offices with the Trust unless it is determined in the manner
provided in the Declaration of Trust that they have not acted in good faith
in the reasonable belief that their actions were in the best interests of the
Trust. However, nothing in the Declaration of Trust shall protect or
indemnify a Trustee against any liability for his or her willful misfeasance,
bad faith, gross negligence or reckless disregard of his or her duties.
YEAR 2000
The Funds depend on the smooth functioning of computer systems in almost
every aspect of their business. Like other mutual funds, businesses and
individuals around the world, the Fund could be adversely affected if the
computer systems used by their service providers do not properly process
dates on and after January 1, 2000 and distinguish between the year 2000 and
the year 1900. The Funds have asked their service providers whether they
expect to have their computer systems adjusted for the year 2000 transition,
and are seeking assurances from each service provider that they are devoting
significant resources to prevent material adverse consequences to the Funds.
While it is likely that such assurances will be obtained, the Funds and their
shareholders may experience losses if these assurances prove to be incorrect
or as a result of year 2000 computer difficulties experienced by issuers of
portfolio securities or third parties, such as custodians, banks,
broker-dealers or others with which the Funds do business.
5% AND 25% SHAREHOLDERS
A shareholder owning of record or beneficially more than 25% of a particular
Fund's shares may be considered to be a "controlling person" of that Fund.
Accordingly, its vote could have a more significant effect on matters
presented at shareholder meetings than the votes of the Fund's other
shareholders. As of April 22, 1999, the following persons were the only
persons who were record owners (or to the knowledge of the Adviser,
beneficial owners) of 5% and 25% or more of the Fund's shares:
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<PAGE>
<TABLE>
<CAPTION>
FUND SHAREHOLDER %
- ---- ----------- -
<S> <C> <C>
Equity Fund Miter & Co. 91.60%
FBO TA
C/O Marshall & Ilsley Trust Co.
P.O. Box 2977
Milwaukee, WI 53201-2977
REINCO 5.95%
P.O. Box 1930
Honolulu, HI 96805-1930
High Grade Income Fund Miter & Co. 93.69%
FBA TA
C/O Marshall & Ilsley Trust Co.
P.O. Box 2977
Milwaukee, WE 53201-2977
Hawaii Municipal Bond Fund FIDAC 36.61%
C/O Marshall & Ilsley Trust Co.
P.O. Box 2977
Milwaukee, WE 53201-2977
Miter & Co. 19.22%
FBA TA
C/O Marshall & Ilsley Trust Co.
P.O. Box 2977
Milwaukee, WE 53201-2977
Money Market Fund Maril & Co. 85.23%
C/O First Hawaiian Bank
Trust & Investments Division
P.O. Box 3708
Honolulu, HI 96811-3708
Maril & Co. 11.80%
C/O First Hawaiian Bank
Trust & Investments Division
P.O. Box 3708
Honolulu, HI 96811-3708
Treasury Money Market Fund Maril & Co. 69.56%
C/O First Hawaiian Bank
Trust & Investments Division
P.O. Box 3708
Honolulu, HI 96811-3708
Maril & Co. 30.37%
C/O First Hawaiian Bank
Trust & Investments Division
P.O. Box 3708
Honolulu, HI 96811-3708
</TABLE>
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FINANCIAL INFORMATION
The Trust's financial statements for the fiscal year ended December 31,
1998, including notes thereto and the report of PricewaterhouseCoopers LLP
thereon, are herein incorporated by reference. A copy of the 1998 Annual Report
must accompany the delivery of this Statement of Additional Information.
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