<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1999
FILE NO. 811-8572
FILE NO. 33-80514
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 10 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 11 /X/
------------------------
BISHOP STREET FUNDS
(Exact Name of Registrant as Specified in Charter)
C/O THE CT CORPORATION SYSTEM
2 Oliver Street
Boston, Massachusetts 02109
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code 1-888-462-5386
KEVIN P. ROBINS
c/o SEI Investments Company
Oaks, Pennsylvania 19456
(Name and Address of Agent for Service)
COPIES TO:
Richard W. Grant, Esquire
John H. Grady, Jr., Esquire
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
------------------------
It is proposed that this filing become effective (check appropriate box)
<TABLE>
<C> <S>
/ / immediately upon filing pursuant to paragraph (b)
/ / on [date] pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)
/ / 75 days after filing pursuant to paragraph (a)
/ / on [date] pursuant to paragraph (a) of Rule 485.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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.
Page 1 of 40
<PAGE>
HOW TO READ THIS PROSPECTUS
The 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
THE BOARD OF TRUSTEES XXX
PURCHASING, SELLING AND EXCHANGING FUND SHARES XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES XXX
FINANCIAL HIGHLIGHTS XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
BISHOP STREET FUNDS BACK COVER
</TABLE>
Page 2 of 40
<PAGE>
INTRODUCTION
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.
THE MONEY MARKET FUND AND TREASURY MONEY MARKET FUND TRY TO MAINTAIN
A CONSTANT PRICE PER SHARE OF $1.00, BUT THERE IS NO GUARANTEE THAT
EITHER FUND WILL ACHIEVE THIS GOAL.
Page 3 of 40
<PAGE>
EQUITY FUND
<TABLE>
Fund Summary
<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>
INVESTMENT STRATEGY OF THE EQUITY FUND
The Equity Fund primarily invests in income producing 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
$500 million. The Fund seeks to be diversified across issuers and major
economic sectors.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
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.
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
Page 4 of 40
<PAGE>
market, as generally measured by the U.S. stock market indices such as the S&P
500. Because the Adviser does not employ a specific "growth" or "value"
discipline, the Fund can be expected to perform differently than funds that
employ a specific investment style.
The Fund is also subject to the risk that its market segment, equity securities,
may underperform other fixed income market segments or the fixed income security
portion of the market as a whole.
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 the performance of the Fund's Shares from year
to year.
[BAR CHART TO BE INSERTED]
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 LIPPER
DOMESTIC EQUITY AVERAGE.
<TABLE>
<CAPTION>
1 Year Since Inception
----------------------------------------------------------
<S> <C> <C>
Equity Fund X.XX% X.XX%*
S&P 500 Composite Index X.XX% X.XX%**
Lipper Domestic Equity Average X.XX% X.XX%**
</TABLE>
*Since January 31, 1997
**Since [calc. date for index]
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.
Page 5 of 40
<PAGE>
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 None
Distributions (as a percentage of offering price)
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>
<CAPTION>
<S> <C>
Investment Advisory Fees .XX%
Service Fees .XX%
Other Expenses .XX%
-----
----------------------------------------------------
Total Annual Fund Operating Expenses X.XX%
</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 IS WAIVING
A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED
LEVEL. THE ADVISER 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:
EQUITY FUND ____%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER AND INVESTMENT
TEAM"
Page 6 of 40
<PAGE>
AND "DIVIDENDS, DISTRIBUTIONS AND TAXES."
EXAMPLE
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>
$XXX $XXX $XXX $XXX
</TABLE>
Page 7 of 40
<PAGE>
HIGH GRADE INCOME FUND
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. dollar
denominated debt obligations of
domestic and foreign corporations and
governments
Investor Profile Conservative investors seeking income,
who are willing to accept some degree
of share price volatility
</TABLE>
INVESTMENT STRATEGY OF THE HIGH GRADE INCOME FUND
The High Grade Income Fund primarily invests in high grade U.S.
dollar-denominated debt obligations of domestic and foreign corporations and
governments. High grade debt obligations are those rated in the two highest
ratings categories by either S&P or other nationally recognized statistical
rating organizations, and include mortgage-backed securities and variable and
floating rate instruments. The Fund's dollar-weighted average maturity will
be maintained at between five and twelve years.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
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, and the volatility of lower rated securities
Page 8 of 40
<PAGE>
is even greater than that of higher rated securities. Also, 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 equity market segments or the equity security
portion of the market as a whole.
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.
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.
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 the performance of the Fund's Shares from year
to year.
[BAR CHART TO BE INSERTED]
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 THE LIPPER DOMESTIC TAXABLE FIXED INCOME AVERAGE.
<TABLE>
<CAPTION>
1 Year Since Inception
----------------------------------------------------------
<S> <C> <C>
High Grade Income Fund X.XX% X.XX%*
Lehman Brothers
Government/Corporate
Bond Index X.XX% X.XX%**
Lipper Domestic Taxable
Fixed Income Average X.XX% X.XX%**
</TABLE>
*Since January 31, 1997
**Since [calc. date for index]
Page 9 of 40
<PAGE>
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.
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>
<C> <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 None
(as a percentage of offering price)
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>
<CAPTION>
<S> <C>
Investment Advisory Fees .XX%
Service Fees .XX%
Other Expenses .XX%
-----
----------------------------------------------------
Total Annual Fund Operating Expenses X.XX%
</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 IS WAIVING A
PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED
LEVEL. THE ADVISER MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT ANY TIME.
WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING
Page 10 of 40
<PAGE>
EXPENSES ARE AS FOLLOWS:
HIGH GRADE INCOME FUND ____%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER AND INVESTMENT
TEAM" AND "DIVIDENDS, DISTRIBUTIONS AND TAXES."
EXAMPLE
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> <C>
$XXX $XXX $XXX $XXX
</TABLE>
Page 11 of 40
<PAGE>
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 focused portfolio of
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>
INVESTMENT STRATEGY OF THE HAWAII MUNICIPAL BOND FUND
The Hawaii Municipal Bond Fund primarily invests 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.
There are no limits on the average maturity of the Fund's portfolio. The
Adviser will use its judgment to invest in securities with maturities that will
provide a high level of current income in light of current market conditions.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
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, and the volatility of lower rated securities is even
greater than that of higher rated securities. Also, 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 equity market segments or the equity security
portion of the market as a
Page 12 of 40
<PAGE>
whole.
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 that state.
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.
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 the Fund's performance from year to year.
[BAR CHART TO BE INSERTED]
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 THE LIPPER HAWAIIAN MUNICIPAL DEBT FUNDS AVERAGE.
<TABLE>
<CAPTION>
1 Year 3 Years Since Inception
----------------------------------------------------------
<S> <C> <C> <C>
Hawaii Municipal
Bond Fund X.XX% X.XX% X.XX%*
Lehman Brothers
Municipal Bond
Index X.XX% X.XX% X.XX%**
Lipper Hawaii
Municipal Debt
Funds Average X.XX% X/XX% X.XX%**
</TABLE>
*Since February 15, 1995
**Since [calc. date for index]
What is an Index?
Page 13 of 40
<PAGE>
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.
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 None
(as a percentage of offering price)
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>
<CAPTION>
<S> <C>
Investment Advisory Fees .XX%
Service Fees .XX%
Other Expenses .XX%
-------------------------------------------------
Total Annual Fund Operating Expenses X.XX%
</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 IS WAIVING A
PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED
LEVEL. THE ADVISER MAY DISCONTINUE ALL OR
Page 14 of 40
<PAGE>
PART OF THESE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL
TOTAL OPERATING EXPENSES ARE AS FOLLOWS:
HAWAII MUNICIPAL BOND FUND ____%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER AND INVESTMENT
TEAM" AND "DIVIDENDS, DISTRIBUTIONS AND TAXES."
EXAMPLE
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> <C>
$XXX $XXX $XXX $XXX
</TABLE>
Page 15 of 40
<PAGE>
MONEY MARKET FUND
Fund Summary
<TABLE>
<S> <C>
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.
</TABLE>
INVESTMENT STRATEGY OF THE MONEY MARKET FUND
The Money Market Fund invests only in short-term U.S. dollar denominated debt
obligations 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 in commercial paper, certificates of deposit and
other obligations of U.S. and foreign banks (including foreign branches of
such banks) and 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 setting and bottom-up security selection, 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.
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
Page 16 of 40
<PAGE>
insured or guaranteed by the FDIC or any government agency. In addition,
although a money 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. 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 short-term
money market instruments, is expected to provide current income with low risk to
principal. The Fund can be expected to provide less current income than fixed
income funds which invest in longer term securities, but with lower exposure to
fluctuations in share price.
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 the performance of the Fund's Shares from year
to year.
[BAR CHART TO BE INSERTED]
THIS TABLE COMPARES THE FUND'S RETURNS FOR THE PERIOD ENDING DECEMBER 31, 1998
TO THOSE OF THE IBC FIRST TIER INSTITUTIONAL-ONLY AVERAGE.
<TABLE>
<CAPTION>
1 Year 3 Years Since Inception
---------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund X.XX% X.XX% X.XX%*
IBC First Tier
Institutional-Only
Average X.XX% X.XX% X.XX%**
</TABLE>
*Since January 30, 1995
**Since [calc. date for index]
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 First Tier Institutional-Only Average is a composite of
mutual funds with investment goals similar to the Fund's goals.
Page 17 of 40
<PAGE>
For information concerning the Fund's 7-Day Yield, please call 1-800-262-9565.
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 None
(as a percentage of offering price)
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>
<CAPTION>
<S> <C>
Investment Advisory Fees .XX%
Service Fees .XX%
Other Expenses .XX%
-------------------------------------------------
Total Annual Fund Operating Expenses X.XX%
</TABLE>
THE FUND'S TOTAL ACTUAL ANNUAL OPERATING EXPENSES FOR THE MOST RECENT FISCAL
YEAR WERE LESS
Page 18 of 40
<PAGE>
THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS WAIVING A PORTION OF THE FEES
IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THE ADVISER 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:
MONEY MARKET FUND ____%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER AND INVESTMENT
TEAM" AND "DIVIDENDS, DISTRIBUTIONS AND TAXES."
EXAMPLE
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> <C>
$XXX $XXX $XXX $XXX
</TABLE>
Page 19 of 40
<PAGE>
TREASURY MONEY MARKET FUND
Fund Summary
<TABLE>
<S> <C>
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
</TABLE>
INVESTMENT STRATEGY OF THE TREASURY MONEY MARKET FUND
The Treasury Money Market Fund invests only in short-term debt obligations that
are rated in the highest category by nationally recognized rating organizations
or securities that the Adviser determines are of comparable quality. Using
top-down strategy setting and bottom-up security selection, the Adviser seeks
securities with an acceptable maturity, that are marketable and liquid, and that
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 SEC
rules about credit quality, maturity and diversification of its investments.
The Fund invests exclusively in U.S. Treasury obligations. The Fund may also
enter into fully-collateralized repurchase agreements.
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. 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 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.
Page 20 of 40
<PAGE>
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 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.
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 the performance of the Fund's Shares from year
to year.
[BAR CHART TO BE INSERTED]
This table compares the Fund's average annual total returns for the period
ending December 31, 1998 to those of the IBC/Donoghue U.S. Treasury & Repo
Average.
<TABLE>
<CAPTION>
1 Year Since Inception
--------------------------------------------------------------------------
<S> <C> <C>
Treasury Money Market Fund X.XX% X.XX%*
IBC/Donoghue U.S. Treasury & Repo Average X.XX% X.XX%**
</TABLE>
*Since May 1, 1996
**Since [calc. date for index]
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/Donoghue U.S. Treasury & Repo Average is a composite of
mutual funds with investment goals similar to the Fund's goals.
For more information concerning the Fund's 7-Day Yield, please call
1-800-262-9565.
Page 21 of 40
<PAGE>
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 None
(as a percentage of offering price)
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>
<CAPTION>
<S> <C>
Investment Advisory Fees .XX%
Service Fees .XX%
Other Expenses .XX%
-------------------------------------------------------
Total Annual Fund Operating Expenses X.XX%
</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 IS WAIVING A
PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED
LEVEL. THE ADVISER 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:
Page 22 of 40
<PAGE>
TREASURY MONEY MARKET FUND ____%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER AND INVESTMENT
TEAM" AND "DIVIDENDS, DISTRIBUTIONS AND TAXES."
EXAMPLE
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> <C>
$XXX $XXX $XXX $XXX
</TABLE>
Page 23 of 40
<PAGE>
MORE INFORMATION ABOUT RISK
All Funds
MANAGEMENT RISK - The risk that a strategy
used by the fund's management may fail to
produce the intended result.
Equity Fund
EQUITY RISK - Equity securities include
public 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.
High Grade Income Fund
FIXED INCOME RISK - The market value of
fixed income investments changes in Hawaii Municipal Bond
response to interest rate changes and other
factors. During periods of falling Money Market Fund
interest rates, the values of outstanding
fixed income securities generally rise. Treasury Money Market Fund
Moreover, while securities with longer
maturities tend to produce higher yields,
the prices of longer maturity securities
are also subject to greater market
fluctuations as a result of changes in
interest rates. In addition to these
fundamental risks, different types of fixed
income securities may be subject to the
following additional risks:
Page 24 of 40
<PAGE>
CALL RISK - During periods of falling
interest rates, certain debt obligations
with high interest rates may be prepaid (or
"called") by the issuer prior to maturity.
This may cause a Fund's average weighted
maturity to fluctuate, and may require a
Fund to invest the resulting proceeds at
lower interest rates.
High Grade Income Fund
CREDIT RISK - The possibility that an
issuer will be unable to make timely Hawaii Municipal Bond Fund
payments of either principal or
interest. Since the Fund purchases Money Market Fund
securities backed by credit
enhancements from banks and other
financial institutions, changes in the
credit ratings of these institutions
could cause the Fund to lose money and
may affect the Fund's share price.
High Grade Income Fund
EVENT RISK - Securities may suffer
declines in credit quality and market Hawaiian Municipal Bond Fund
value due to issuer restructurings or
other factors. This risk should be Money Market Fund
reduced because of the Fund's multiple
holdings.
Hawaii Municipal Bond Fund
MUNICIPAL ISSUER RISK - There may be
economic or political changes that Money Market Fund
impact the ability of municipal issuers
to repay principal and to 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.
Page 25 of 40
<PAGE>
High Grade Income Fund
MORTGAGE-BACKED SECURITIES - Mortgage-
backed 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 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.
Hawaii Municipal Bond Fund
REGIONAL RISK - To the extent that a
Fund's 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.
Page 26 of 40
<PAGE>
All Funds
YEAR 2000 RISK - The Funds depends 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 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.
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.
THE FUND'S OTHER INVESTMENTS
In addition to the 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.
Page 27 of 40
<PAGE>
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 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 $__
billion in assets under management. For the fiscal year ended December 31,
1998, First Hawaiian Bank received advisory fees based on the following annual
rates.
<TABLE>
<CAPTION>
<S> <C>
EQUITY FUND 0.63%
HIGH GRADE INCOME FUND 0.36%
HAWAII MUNICIPAL BOND FUND 0.05%
MONEY MARKET FUND 0.14%
TREASURY MONEY MARKET FUND 0.06%
</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, Wellington
Management received sub-advisory fees based on the following annual rates:
<TABLE>
<CAPTION>
<S> <C>
Money Market Fund XX%
Treasury Money Market Fund XX%
</TABLE>
INVESTMENT TEAM
Page 28 of 40
<PAGE>
The Adviser makes investment decisions for each Fund and continuously reviews,
supervises, and administers each Fund's investment program. The Board of
Trustees supervises the Adviser and establishes the policies that the Adviser
must follow in its day-to-day management activities.
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.
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.
Page 29 of 40
<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 Attorney, Goodsill Anderson Quinn &
Stifel since 1951
Charles E. Carlborn 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 Director and Executive Vice President
of the Administrator and the
Distributor (1981-1994)
William S. Richardson Trustee, Kamehameha Schools Bishop
Estate (1982-1992)
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,
Hawaii Community College since 1983
</TABLE>
PURCHASING, SELLING AND EXCHANGING FUND SHARES
Page 30 of 40
<PAGE>
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 the name of the Fund. 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 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.
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 declared on the day you submit your purchase order, generally
we must receive your order before 4:00 p.m., Eastern time and federal funds
(readily available funds) before 1:00 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 31 of 40
<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 PLAN
If you have a checking or savings account with a First Hawaiian Bank affiliate
bank, you may purchase shares automatically through regular deductions from your
account. With a $1,000 minimum initial investment, ($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), you may begin regularly scheduled investments from
$50.
The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs for dealers, which will be paid for by the
Distributor from any fees it receives or from any other source available to it.
Under any such program, the Distributor may provide incentives, in the form of
cash or other compensation, including merchandise, airline vouchers, trips and
vacation packages, to dealers selling shares of the Funds.
Page 32 of 40
<PAGE>
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 a Fund directly by mail or telephone at
1-800-262-9565.
If you would like to sell $5,000 or more of your shares, please notify the Fund
in writing and 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, any applicable deferred sales charge.
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.
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven Business 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
BUSINESS DAYS).
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.
Page 33 of 40
<PAGE>
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below $1,000 ($500 for officers, directors and
employees of First Hawaiian Bank or its affiliates, and 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.
Page 34 of 40
<PAGE>
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.
[You may exchange your shares up to ______ times during a calendar year. If you
exchange your shares more than _____ times during a year, you may be charged a
$______ fee for each additional exchange. You will be notified before any fee
is charged.] 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
BUSINESS DAYS). THIS EXCHANGE PRIVILEGE MAY BE CHANGED OR CANCELED AT ANY TIME
UPON 60 DAYS' NOTICE.
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.
Page 35 of 40
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund distributes its income as follows:
<TABLE>
<CAPTION>
Declared Daily and Paid Monthly Declared and Paid Quarterly
- ------------------------------- ---------------------------
<S> <C>
High Grade Income Fund Equity Fund
Hawaii Municipal Bond Fund
Money Market Fund
Treasury Money Market Fund
</TABLE>
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.
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.
The Fund uses a tax management technique known as "highest in, first out."
Using this technique, the portfolio holdings that have experienced the smallest
gain or largest loss are sold first in an effort to minimize capital gains and
enhance after-tax returns.
Page 36 of 40
<PAGE>
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 37 of 40
<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 38 of 40
<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
Page 39 of 40
<PAGE>
More information about the Funds are 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
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 40 of 40
<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
Trust. Please read this in conjunction with the Trust's prospectus dated April
30, 1999. Prospectuses may be obtained through the Distributor, SEI Investments
Distribution Co., Oaks, Pennsylvania 19456.
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust................................................................. S-2
Description of Permitted Investments...................................... S-2
Investment Limitations.................................................... S-8
The Adviser............................................................... S-8
The Sub-Adviser........................................................... S-9
The Administrator......................................................... S-10
The Distributor........................................................... S-11
The Transfer Agent........................................................ S-11
The Custodian............................................................. S-11
Independent Auditors...................................................... S-11
Legal Counsel............................................................. S-11
Trustees and Officers of the Trust........................................ S-12
Reporting................................................................. S-14
Performance............................................................... S-14
Calculation of Total Return............................................... S-15
Purchasing Shares......................................................... S-16
Redeeming Shares.......................................................... S-16
Determination of Net Asset Value.......................................... S-17
Taxes..................................................................... S-18
Fund Transactions......................................................... S-20
Trading Practices and Brokerage........................................... S-22
Description of Shares..................................................... S-22
Shareholder Liability..................................................... S-22
Limitation of Trustees' Liability......................................... S-23
Year 2000................................................................. S-23
5% and 25% Shareholders................................................... S-23
Financial Information..................................................... S-23
</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.
AMERICAN DEPOSITARY 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 U.S. 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
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business practices different from those respecting domestic issuers of similar
securities or obligations. Foreign branches of 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
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.
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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.
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
S-4
<PAGE>
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 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 issuers 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 securities, 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 securities. Because of the diverse nature
of such laws and regulations and the impossibility of either predicting in which
specific municipal securities the Hawaii Municipal 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.
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.
S-5
<PAGE>
REPURCHASE AGREEMENTS are agreements by which a person (E.G., a Fund)
obtains a security and simultaneously 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 by 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 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.
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 SECURITIES (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
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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 for the notes. It is not
generally contemplated that such instruments will be traded.
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 involve 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 in 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.
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<PAGE>
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
A Fund may not:
1. Acquire more than 10% of the voting securities of any one issuer, provided
that this limitation shall apply only as to 75% of the Fund's net assets
except that this restriction does not apply to the Hawaii Municipal Bond
Fund.
2. Invest in companies for the purpose of exercising control.
3. 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.
4. 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.
5. Pledge, mortgage or hypothecate assets except to secure borrowings permitted
by (3) above in aggregate amounts not to exceed 33% of total assets taken at
current value at the time of the incurrence of such loan.
6. 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.
7. 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.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
9. Purchase securities of other investment companies, except as permitted by
the 1940 Act and the rules and regulations thereunder.
10. 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").
11. 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 , 1999. The
Advisory Agreement provides that the Adviser
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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 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 .74% of the daily average net assets of the Equity Fund,
.55% of the daily average net assets of the High Grade Income Fund, .35% of the
daily average net assets of the Hawaii Municipal Bond Fund, .30% of the daily
average net assets of the Money Market Fund and .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 * $121,268
High Grade Income Fund.................. * $ 77,201 * $ 49,860
Hawaii Municipal Bond Fund.............. $ 0 $ 8,620 $ 78,455 $ 84,733
Money Market Fund....................... $931,000 $445,870 $ 0 $328,496
Treasury Money Market Fund.............. $189,543 $192,621 $126,363 $469,439
</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") 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 .075% of the aggregate average daily net
assets of the Money Market and Treasury Money Market Funds, respectively, up to
$500 million and .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.
S-9
<PAGE>
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:
<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 $ 0 $ 0
Treasury Money Market Fund.............. $ 78,977 $165,499 $ 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>
Hawaii Municipal Bond Fund.............. $ 0 $ 8,621 $ $ 44,816 $ 44,724
High Grade Income Fund.................. * $ 31,706 $ * $ 14,505
Equity Fund............................. * $ 78,619 $ * $ 38,478
Treasury Money Market Fund.............. $105,303 $255,368 $ $105,000 $186,006
Money Market Fund....................... $326,909 $298,045 $ $326,909 $218,415
</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 mutual funds: The
Achievement Funds Trust, The Advisors' Inner Circle Fund, Alpha Select Funds,
The Arbor Fund, ARK Funds, Armada Funds, Boston 1784 Funds-Registered
Trademark-, CrestFunds-Registered 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.
S-10
<PAGE>
The Administrator is entitled to a fee, calculated daily and paid monthly,
at an annual rate of .20% of average daily not 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 .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 BY
THE PROSPECTUS
DISTRIBUTOR PRINTING &
FOR MAILING COSTS
DISTRIBUTOR COSTS (NEW ASSOCIATED
RELATED SHAREHOLDERS WITH
TOTAL SERVICES SALES EXPENSES ADVERTISING ONLY) REGISTRATION
PORTFOLIO ($AMOUNT) ($AMOUNT) ($AMOUNT) ($AMOUNT) ($AMOUNT) FEES ($AMOUNT)
- ----------------------------------- --------- -------------- -------------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Equity Fund........................
High Grade Income Fund.............
Hawaii Municipal Bond Fund.........
Money Market Fund..................
Treasury Money Market Fund.........
</TABLE>
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.
S-11
<PAGE>
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--P.O. Box 3196, Honolulu, HI,
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--1700 Palaau St., Honolulu, HI.
Retired since 1996. Vice Chairman First Hawaiian Bank from 1968 to 1996.
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--1701 Market Street,
Philaelphia, PA 19103, 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; Director
of Taxes of SEI Investments, 1987 to 1991. Tax Manager, Arthur Anderson LLP
prior to 1987.
JAMES L. HUFFMAN (DOB 03/25/45)--Trustee--Dean and Professor, Lewis & Clark
Law School since 1973.
SHUNICHI KIMURA (DOB 03/15/30)--Trustee--34 Lilinoe St., Hilo, HI. Mediator
- - Mediation Specialists of Hawaii from November 1994 to the present.
Judge--State of Hawaii Judiciary from May 1974 to April 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-Registered
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;
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. Staff Counsel and Secretary, Provident Mutual Family of Funds,
1990-1993.
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 and Assistant Secretary of the Manager
since 1988. Assistant Secretary of the Distributor from 1988 to 1998.
S-12
<PAGE>
*WILLIAM S. RICHARDSON (DOB 12/22/19)--Trustee--3335 Loulu Street, Honolulu,
HI. 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)--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--1487 Hiikala Place #35,
Honolulu, HI. Retired since 1992.
JOYCE S. TSUNODA (DOB 01/01/38)--Trustee--1814 Hoolehua Street, Pearl City,
HI 96782. Chancellor--Hawaii Community College since 1983. Senior Vice
President--University of Hawaii System since 1989.
<TABLE>
<CAPTION>
TOTAL
AGGREGATE PENSION OR COMPENSATION FROM
COMPENSATION RETIREMENT ESTIMATED REGISTRANT AND
FROM REGISTRANT BENEFITS ACCRUED ANNUAL FUND COMPLEX PAID TO
FOR FYE AS PART OF BENEFITS UPON DIRECTORS FOR FYE
NAME OF PERSON AND POSITION 12/31/98 FUND EXPENSES RETIREMENT 12/31/98
- ----------------------------------------- --------------- --------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Martin Anderson, Trustee*................ $ $ 0 $ 0 $ for services
on 1 board
Charles E. Carlbom,...................... $ $ 0 $ 0 $ for services
on 1 board
Philip H. Ching, Trustee*................ $ $ 0 $ 0 $ 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................. $ $ 0 $ 0 $ 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-13
<PAGE>
<TABLE>
<CAPTION>
TOTAL
AGGREGATE PENSION OR COMPENSATION FROM
COMPENSATION RETIREMENT ESTIMATED REGISTRANT AND
FROM REGISTRANT BENEFITS ACCRUED ANNUAL FUND COMPLEX PAID TO
FOR FYE AS PART OF BENEFITS UPON DIRECTORS FOR FYE
NAME OF PERSON AND POSITION 12/31/98 FUND EXPENSES RETIREMENT 12/31/98
- ----------------------------------------- --------------- --------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
William S. Richardson, Trustee*.......... $ $ 0 $ 0 $ for services
on 1 board
Kevin P. Robins, Vice President and
Assistant Secretary.................... $ $ 0 $ 0 $ for services
on 1 board
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............. $ $ 0 $ 0 $ for services
on 1 board
Joyce S. Tsunoda, Trustee................ $ $ 0 $ 0 $ 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 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
S-14
<PAGE>
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)(TO THE POWER OF
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 % and %,
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 % and
%, 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.
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 % and %,
respectively.
For the 30-day period ended December 31, 1998, the 30-day yield for the High
Grade Income Fund was %.
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
S-15
<PAGE>
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
------------------------
FUND 1-YEAR SINCE INCEPTION
- ------------------------------------------------------ ------- ---------------
<S> <C> <C>
Equity Fund...........................................
High Grade Income Fund................................
Hawaii Municipal Bond Fund............................
Money Market Fund.....................................
Treasury Money Market Fund............................
</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 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.
S-16
<PAGE>
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.
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.
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,
S-17
<PAGE>
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 income tax considerations
generally affecting a Fund and its shareholders and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisers with specific reference to their own tax situations, including their
state and local income tax liabilities.
FEDERAL INCOME TAX
ALL FUNDS
In order to qualify for treatment as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended (the "Code"), each Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) (the "Distribution Requirement") and also must meet several additional
requirements. 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
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) (A) of any one issuer or (B) of two
or more issuers which are engaged in the same, similar or related trades or
businesses if the Fund owns at least 20% of the voting power of such issuers.
Notwithstanding the Distribution Requirement described above, which only
requires a Fund to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), a
Fund will be subject to a nondeductible 4% excise tax to the extent it fails to
distribute by the end of any calendar year 98% of its ordinary income for that
year and 98% of its capital gain net income for the one-year period ending on
October 31 of that year, plus certain other amounts.
A dividends received deduction is available to corporations that receive
dividends from domestic corporations. Dividends paid by an equity fund generally
will be eligible for the dividends received deduction for corporate shareholders
to the extent they are derived from dividends from domestic corporations. Equity
Fund shareholders will be advised each year of the portion of ordinary income
dividends eligible for the deduction.
Dividends received from other funds, e.g., money market or fixed income
funds, will not be eligible for the dividends received deduction. Individual
shareholders are not entitled to the dividends received deduction regardless of
which fund paid the dividend.
Any gain or loss recognized on a sale or redemption of shares of any Fund by
a shareholder who is not a dealer in securities will generally be treated as a
long-term capital gain or loss if the shares have been held for more than twelve
months and otherwise will be generally treated as a short-term capital gain or
loss. A non-corporate taxpayer's long-term capital gain from assets held (i) for
more than one year but not more than 18 months generally are taxable at the
maximum rate of 28 percent, and (ii) for more than 18 months generally are
taxable at the maximum rate of 20 percent. Any loss recognized by a shareholder
S-18
<PAGE>
upon the sale or redemption of shares of any Fund held for six months or less,
however, will be disallowed to the extent of any exempt-interest dividends
received by the shareholder with respect to such shares. If shares on which a
net capital gain distribution has been received are subsequently sold or
redeemed and such shares have been held for six months or less, any loss
recognized will be treated as a long-term capital gain loss.
Interest in indebtedness incurred by shareholders to purchase or carry
shares of a Fund will not be deductible for federal income tax purposes to the
extent the Fund distributes exempt-interest dividends during the taxable year.
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 may 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 percent 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.
ADDITIONAL CONSIDERATIONS FOR HAWAII MUNICIPAL BOND FUND
As noted in the Prospectus, exempt-interest dividends are generally
excludable from a shareholder's gross income for regular federal income tax
purposes. Exempt-interest dividends may nevertheless be subject to the
alternative minimum tax (the "Alternative Minimum Tax") imposed by Section 55 of
the Code. The Alternative Minimum Tax is imposed at the rate of 26-28% 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 imposed 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 for both corporate and
non-corporate taxpayers). 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.
If a Fund should fail to qualify as a RIC for any taxable year, the Fund
would pay tax on its taxable investment income and capital gains at regular
corporate rates without any deductions for amounts distributed to shareholders.
In addition, all of the Fund's distributions to Shareholders would be taxable as
ordinary income and would qualify for the corporate dividends received deduction
in the case of corporate shareholders.
The Fund may not be an appropriate investment for persons (including
corporations and other business entities) who are "substantial users" (or
persons related to such users) of facilities financed by industrial development
bonds or private activity bonds. A "substantial user" is defined generally to
include certain persons who regularly use a facility financed by the proceeds of
such bonds in their trade or business. Such entities or persons should consult
their tax advisers before purchasing shares of either Fund.
Issuers of bonds purchased by a 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 of such issuance of the bonds to which
such dividends are attributable if such
S-19
<PAGE>
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.
STATE 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.
Many states allow income received from certain United States Government
obligations that is tax exempt when received directly to be tax-exempt when
received as income dividends from an investment company. Not all states permit
such income dividends to be tax-exempt and some require that a certain minimum
percentage of an investment company's income dividend be derived from state
tax-exempt interest before any portion of the income dividends may be exempt.
The Funds will inform shareholders annually of the percentage of income that is
derived from direct U.S. Government obligations. Shareholders should consult
their tax advisers to determine whether any portion of the income dividends
received from a Fund is considered tax-exempt in their particular states.
HAWAII TAXATION
Interest derived from obligations of the Federal government and its
territories or the government of Hawaii is normally not includible in income for
the purposes of computing Hawaii tax. The State of Hawaii has adopted sections
of the Code which generally provide for pass-through treatment of a Fund's net
income derived from interest or capital gains. Therefore, distributions by the
Hawaii Municipal Bond Fund of dividends representing exempt interest and capital
gains retain their tax 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 transac-tions of the Trust will primarily consist of dealer spreads
and underwriting commissions.
S-20
<PAGE>
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 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 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.
S-21
<PAGE>
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 then
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 % for the fiscal
year ending December 31, 1997 and % 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 % for the fiscal year ended
December 31, 1998. The portfolio turnover rate for the High Grade Income Fund
was % for the fiscal year ending December 31, 1997 and % for the
fiscal year ended December 31, 1998.
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 $ .
TRADING PRACTICES AND BROKERAGE
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. Shares 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
S-22
<PAGE>
provides for indemnification out of the Trust property for any shareholder held
personally liable for the obligations of the Trust.
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 received
assurances from each that its system is expected to accommodate the year 2000
without material adverse consequences to the Funds. 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
[to be updated]
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.
S-23
<PAGE>
BISHOP STREET FUNDS
PROSPECTUS
APRIL 30, 1999
INSTITUTIONAL EQUITY FUND
INSTITUTIONAL HIGH GRADE INCOME 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.
Page 0 of 24
<PAGE>
HOW TO READ THIS PROSPECTUS
The Bishop Street Funds is a mutual fund family that offers 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 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. FOR MORE DETAILED
INFORMATION ABOUT EACH FUND, PLEASE SEE:
PAGE
INSTITUTIONAL EQUITY FUND XXX
INSTITUTIONAL HIGH GRADE INCOME FUND XXX
MORE INFORMATION ABOUT RISK XXX
EACH FUND'S OTHER INVESTMENTS XXX
INVESTMENT ADVISER AND INVESTMENT TEAM XXX
THE BOARD OF TRUSTEES XXX
PURCHASING, SELLING AND EXCHANGING FUND SHARES XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES XXX
FINANCIAL HIGHLIGHTS XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
BISHOP STREET FUNDS BACK COVER
Page 1 of 24
<PAGE>
INTRODUCTION
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 a 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 a 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 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 2 of 24
<PAGE>
INSTITUTIONAL EQUITY FUND
Fund Summary
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
INVESTMENT STRATEGY OF THE INSTITUTIONAL EQUITY FUND
The Institutional Equity Fund primarily invests 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 $500 million. The Fund seeks to be diversified across issuers and
major economic sections.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
PRINCIPAL RISKS OF INVESTING IN THE INSTITUTIONAL 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.
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 the U.S. stock
market such as the S&P 500. Because the Adviser does not employ a specific
"growth" or "value" discipline, the Fund can be expected to perform
differently than funds that employ a specific investment style.
The Fund is also subject to the risk that its market segment, equity
securities, may underperform other fixed income market segments or the fixed
income security portion of the market as a whole.
Page 3 of 24
<PAGE>
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.
The periods prior to _______, when the Fund began operating, represent the
performance of the Adviser's similarly managed common trust fund. This past
performance has been adjusted to reflect current expenses of the Fund. The
Adviser's common trust fund was not a registered mutual fund so it was not
subject to the same investment and tax restrictions as the Fund. If it had
been, the common trust fund's performance may have been lower.
This bar chart shows changes in the performance of the Fund's shares from
year to year. [bar chart to be inserted]
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
LIPPER DOMESTIC EQUITY AVERAGE.
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Institutional Equity Fund X.XX% X.XX% X.XX% X.XX% X.XX%*
S&P 500 Composite Index X.XX% X.XX% X.XX% X.XX% X.XX%**
Lipper Domestic Equity Average X.XX% X.XX% X.XX% X.XX% X.XX%**
</TABLE>
* Since [inception date]
** Since [calc. date for index]
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.
Page 4 of 24
<PAGE>
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>
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other None
Distributions (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
</TABLE>
THIS TABLE DESCRIBES THE FUND'S FEES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD
SHARES OF THE FUND.
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, DISTRIBUTION, 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>
<CAPTION>
- ------------------------------------------------------------
<S> <C>
Investment Advisory Fees .XX%
Service Fees .XX%
Other Expenses .XX%
-----
Total Annual Fund Operating Expenses X.XX%
</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 AND THE
DISTRIBUTOR ARE EACH WAIVING A PORTION OF THE FEES IN ORDER TO KEEP TOTAL
OPERATING EXPENSES AT A SPECIFIED LEVEL. THE ADVISER 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:
INSTITUTIONAL EQUITY FUND ____%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER AND INVESTMENT
TEAM" AND "DIVIDENDS, DISTRIBUTIONS AND TAXES."
Page 5 of 24
<PAGE>
EXAMPLE
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>
$XXX $XXX $XXX $XXX
</TABLE>
Page 6 of 24
<PAGE>
INSTITUTIONAL HIGH GRADE INCOME FUND
Fund Summary
Investment Goal High total return
Investment Focus Corporate and U.S. Government
debt obligations
Share Price Volatility Medium
Principal Investment Strategy Investing in high quality U.S. dollar
denominated debt obligations of
domestic and foreign corporations and
governments
Investor Profile Conservative investors seeking income,
who are willing to accept some degree
of share price volatility
INVESTMENT STRATEGY OF THE INSTITUTIONAL HIGH GRADE INCOME FUND
The Institutional High Grade Income Fund primarily invests in high grade U.S.
dollar-denominated debt obligations of domestic and foreign corporations and
governments. High-grade debt obligations are those rated in the two highest
ratings categories by S&P or other nationally recognized statistical ratings
organizations, and include mortgage-backed securities and variable and
floating instruments. The Fund's dollar-weighted average maturity will be
maintained at between five and twelve years.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
PRINCIPAL RISKS OF INVESTING IN THE INSTITUTIONAL 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, and the volatility of lower rated
securities is even greater than that of higher rated securities. Also,
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
Page 7 of 24
<PAGE>
underperform other equity market segments or the equity security portion of
the market as a whole.
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.
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.
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.
The periods prior to _______, when the Fund began operating, represent the
performance of the Adviser's similarly managed common trust fund. This past
performance has been adjusted to reflect current expenses of the Fund. The
Adviser's common trust fund was not a registered mutual fund so it was not
subject to the same investment and tax restrictions as the Fund. If it had
been, the common trust fund's performance may have been lower.
This bar chart shows changes in the performance of the Fund's shares. from
year to year [bar chart to be inserted]
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 THE LIPPER DOMESTIC TAXABLE FIXED INCOME AVERAGE.
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Institutional High Grade Income Fund X.XX% X.XX% X.XX% X.XX% X.XX%*
Lehman Brothers Government X.XX% X.XX% X.XX% X.XX% X.XX%**
/Corporate Bond Index
Lipper Domestic Taxable Fixed Income
Average X.XX% X.XX% X.XX% X.XX% X.XX%**
</TABLE>
*Since [inception date]
**Since [calc. date for index]
Page 8 of 24
<PAGE>
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.
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>
<CAPTION>
-------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of net asset None
value)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and None
other Distributions (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
</TABLE>
THIS TABLE DESCRIBES THE FUND'S FEES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD
SHARES OF THE FUND.
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>
<CAPTION>
- --------------------------------------------- ---------------
<S> <C>
Investment Advisory Fees .XX%
Service Fees .XX%
Other Expenses .XX%
-----
Total Annual Fund Operating Expenses X.XX%
</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 IS
WAIVING A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A
SPECIFIED LEVEL. THE ADVISER 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:
INSTITUTIONAL HIGH GRADE INCOME FUND ____%
Page 9 of 24
<PAGE>
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER AND INVESTMENT
TEAM" AND "DIVIDENDS, DISTRIBUTIONS AND TAXES."
EXAMPLE
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>
$XXX $XXX $XXX $XXX
</TABLE>
Page 10 of 24
<PAGE>
MORE INFORMATION ABOUT RISK
<TABLE>
<CAPTION>
<S> <C>
All Funds
MANAGEMENT RISK - The risk that a strategy used by the
fund's management may fail to produce the intended
result.
EQUITY RISK - Equity securities include public and Institutional Equity Fund
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.
Institutional Equity Fund
CONVERTIBLE SECURITIES - Convertible securities
have characteristics of both fixed income and
equity securities. The value of the convertible
security tends to move with the market value of the
underlying stock, but may also be affected by
interest rates, credit quality of the issuer and
any call provisions.
Institutional High Grade
FIXED INCOME RISK - The market value of fixed income Income Fund
investments change in response to interest rate changes
and other factors. During periods of falling interest
rates, the values of outstanding fixed income securities
generally rise. Moreover, while securities with longer
maturities tend to produce higher yields, the prices of
longer maturity securities are also subject to greater
market fluctuations as a result of changes in interest
rates. In addition to these fundamental risks,
different types of fixed income securities may be
subject to the following additional risks:
Page 11 of 24
<PAGE>
Institutional High Grade
CALL RISK - During periods of falling interest Income Fund
rates, certain debt obligations with high interest
rates may be prepaid (or "called") by the issuer
prior to maturity. This may cause a Fund's average
weighted maturity to fluctuate, and may require a
Fund to invest the resulting proceeds at lower
interest rates.
Institutional High Grade
CREDIT RISK - The possibility that an Income Fund
issuer will be unable to make timely payments of
either principal or interest. Since the Fund
purchases securities backed by credit enhancements
from banks and other financial institutions, changes
in the credit ratings of these institutions could
cause the Fund to lose money and may affect the
Fund's share price.
Institutional High Grade
EVENT RISK - Securities may suffer declines in Income Fund
credit quality and market value due to issuer
restructurings or other factors. This risk should
be reduced because of the Fund's multiple holdings.
Page 12 of 24
<PAGE>
Institutional High Grade
MORTGAGE-BACKED SECURITIES - Mortgage-backed 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 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.
All Funds
YEAR 2000 RISK - 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 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. 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.
</TABLE>
Page 13 of 24
<PAGE>
THE FUND'S OTHER INVESTMENTS
In addition to the 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 that would not ordinarily be consistent with a Fund's
objectives. A Fund will do so only if the Adviser believes that the risk of
loss outweighs the opportunity for capital gains or higher income. When a Fund
is investing for temporary defensive purposes, it is not pursuing its goal.
Page 14 of 24
<PAGE>
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 management activities.
First Hawaiian Bank, serves as the Adviser to the Bishop Street Funds. As of
December 31, 1998, First Hawaiian Bank had approximately $_______ in assets
under management. For the fiscal year ended December 31, 1998, First Hawaiian
Bank received advisory fees of:
INSTITUTIONAL HIGH GRADE INCOME FUND _____%
INSTITUTIONAL EQUITY FUND _____%
INVESTMENT TEAM
The Institutional High Grade Income Fund and Institutional Equity Fund are
managed by a team of investment professionals from the First Hawaiian Bank. No
one person is primarily responsible for making investment recommendations to the
team.
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 Attorney, Goodsill Anderson Quinn & Stifel
since 1951
Charles E. Carlborn 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)
Page 15 of 24
<PAGE>
James L. Huffman Dean and Professor, Lewis & Clark Law School
since 1973
Shunichi Kimura Judge, State of Hawaii Judiciary (1974-1994)
Robert A. Nesher Director and Executive Vice President of the
Administrator and the Distributor (1981-1994)
William S. Richardson Trustee, Kamehameha Schools Bishop Estate
(1982-1992)
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, Hawaii Community
College since 1983
</TABLE>
Page 16 of 24
<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 the name of the Fund. 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 is open for
business (a Business Day).
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.
The Funds calculates each Fund's NAV once each Business Day at the
regularly-scheduled close of normal trading on the New York Stock Exchange
(normally, 4:00 p.m., Eastern time). So, for you to receive the current
Business Day's NAV, generally we must receive your purchase order 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.
In calculating NAV, a Fund generally values its investment portfolio at market
price. If market
Page 17 of 24
<PAGE>
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.
Some Funds hold securities that are listed on foreign exchanges. These
securities may trade on weekends or other days when the Fund's do not calculate
NAV. As a result, the NAV of these Fund's shares may change on days when you
cannot purchase or sell Fund shares.
MINIMUM PURCHASES
AUTOMATIC INVESTMENT PLAN
If you have a checking or savings account with a First Hawaiian Bank affiliate
bank, you may purchase shares automatically through regular deductions from your
account. With a $1,000 minimum initial investment ($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), you may begin regularly scheduled investments from
$50.
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 a Fund directly by mail or telephone at
1-800-262-9565.
If you would like to sell $5,000 or more of your shares, please notify the Fund
in writing and 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, any applicable deferred sales charge.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $10,000 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.
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven Business 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
Page 18 of 24
<PAGE>
(WHICH MAY TAKE UP TO 15 BUSINESS DAYS).
REDEMPTIONS IN KIND
The Fund generally pay 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 officers, directors and
employees of First Hawaiian Bank or its affiliates, and 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) 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 the 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 BUSINESS DAYS).
This exchange privilege may be changed or canceled at any time upon 60 days'
notice.
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
Page 19 of 24
<PAGE>
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 calers 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 xthe Fund over the telephone, you will
generally bear the risk of any loss.
Page 20 of 24
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund distributes its income as follows:
Institutional High Grade Income Fund Declared daily and paid monthly
Institutional Equity Fund Declared and paid quarterly
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 IS A TAXABLE EVENT.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 21 of 24
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents 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 the
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 22 of 24
<PAGE>
BISHOP STREET FUNDS
INVESTMENT ADVISER
First Hawaiian Bank
999 Bishop Street
Honolulu, Hawaii 96813
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 are 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
BY MAIL: Write to the Fund
Bishop Street Funds
c/o SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
Page 23 of 24
<PAGE>
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 24 of 24
<PAGE>
BISHOP STREET FUNDS
A NO-LOAD MUTUAL FUND FAMILY ADVISED BY FIRST HAWAIIAN BANK
INSTITUTIONAL EQUITY FUND, INSTITUTIONAL HIGH GRADE INCOME 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
Trust. Please read this in conjunction with the Trust's prospectus dated April
30, 1999. Prospectuses may be obtained through the Distributor, SEI Investments
Distribution Co., Oaks, Pennsylvania 19456.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Trust................................................................. S-2
Description of Permitted Investments...................................... S-2
Investment Limitations.................................................... S-8
Investment Adviser........................................................ S-8
Investment Sub-Adviser.................................................... S-
The Administrator......................................................... S-9
The Distributor........................................................... S-10
The Transfer Agent........................................................ S-10
The Custodian............................................................. S-10
Independent Auditors...................................................... S-10
Legal Counsel............................................................. S-10
Trustees and Officers of the Trust........................................ S-10
Reporting................................................................. S-13
Performance Information................................................... S-13
Calculation of Total Return............................................... S-13
Purchasing Shares......................................................... S-14
Redeeming Shares.......................................................... S-14
Determination of Net Asset Value.......................................... S-14
Taxes..................................................................... S-14
Fund Transactions......................................................... S-16
Trading Practices and Brokerage........................................... S-18
Description of Shares..................................................... S-18
Shareholder Liability..................................................... S-18
Limitation of Trustees' Liability......................................... S-18
Year 2000................................................................. S-19
5% and 25% Shareholders................................................... S-19
Experts................................................................... S-19
</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
Institutional Equity Fund and Institutional High Grade Income Fund (each a
"Fund," and together the "Funds").
DESCRIPTION OF PERMITTED INVESTMENTS
The following information supplements the information about permitted
investments set forth in the Prospectus.
AMERICAN DEPOSITARY 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 U.S. 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
establish-ment 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
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obligations. Foreign branches of 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
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
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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.
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
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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 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 issuers 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 securities, 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 securities. Because of the diverse nature
of such laws and regulations and the impossibility of either predicting in which
specific municipal securities the Hawaii Municipal 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.
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.
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REPURCHASE AGREEMENTS are agreements by which a person (E.G., a Fund)
obtains a security and simultaneously 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 by 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 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.
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 SECURITIES (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
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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 for the notes. It is not
generally contemplated that such instruments will be traded.
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 involve 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 in 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.
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INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
A Fund may not:
1. Acquire more than 10% of the voting securities of any one issuer, provided
that this limitation shall apply only as to 75% of the Fund's net assets
except that this restriction does not apply to the Hawaii Municipal Bond
Fund.
2. Invest in companies for the purpose of exercising control.
3. 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.
4. 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 Funds may engage in securities
lending.
5. Pledge, mortgage or hypothecate assets except to secure borrowings permitted
by (3) above in aggregate amounts not to exceed 33% of total assets taken at
current value at the time of the incurrence of such loan.
6. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts. However, each of the Funds may invest
in companies which invest in real estate, and in commodities contracts.
7. 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.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
9. Purchase securities of other investment companies, except as permitted by
the 1940 Act and the rules and regulations thereunder.
10. 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").
11. 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.
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 , 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,
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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 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 .74% of the daily average net assets of the Institutional
Equity Fund and .55% of the daily average net assets of the Institutional High
Grade Income Fund.
For the fiscal year ended December 31, 1998, the Funds paid no advisory
fees.
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 year ended December 31, 1998, the Funds paid no
administrative fees.
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 mutual funds: The Achievement Funds
Trust, The Advisors' Inner Circle Fund, Alpha Select Funds, The Arbor Fund, ARK
Funds, Armada Funds, Boston 1784 Funds-Registered Trademark-, CrestFunds(R),
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,
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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 .20% of average daily not 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 .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 no
distribution expenses.
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. The asterisk (*) indicates an
interested person as defined by the 1940 Act.
*MARTIN ANDERSON (DOB 11/16/23)--Trustee--P.O. Box 3196, Honolulu, HI,
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).
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*PHILIP H. CHING (DOB 01/11/31)--Trustee--1700 Palaau St., Honolulu, HI.
Retired since 1996. Vice Chairman First Hawaiian Bank from 1968 to 1996.
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--1701 Market Street,
Philaelphia, PA 19103, 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; Director
of Taxes of SEI Investments, 1987 to 1991. Tax Manager, Arthur Anderson LLP
prior to 1987.
JAMES L. HUFFMAN (DOB 03/25/45)--Trustee--Dean and Professor, Lewis & Clark
Law School since 1973.
SHUNICHI KIMURA (DOB 03/15/30)--Trustee--34 Lilinoe St., Hilo, HI. Mediator
- -Mediation Specialists of Hawaii from November 1994 to the present. Judge -
State of Hawaii Judiciary from May 1974 to April 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-Registered 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; 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. Staff Counsel and Secretary, Provident Mutual Family of Funds,
1990-1993.
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 and Assistant Secretary of the Manager
since 1988. Assistant Secretary of the Distributor from 1988 to 1998.
*WILLIAM S. RICHARDSON (DOB 12/22/19)--Trustee--3335 Loulu Street, Honolulu,
HI. 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)--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);
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<PAGE>
Partner, Groom and Nordberg, Chartered (1996-1997); Associate General Counsel,
Riggs Bank, N.A. (1991-1995).
MANUEL R. SYLVESTER (DOB 06/20/30)--Trustee--1487 Hiikala Place #35,
Honolulu, HI. Retired since 1992.
JOYCE S. TSUNODA (DOB 01/01/38)--Trustee--1814 Hoolehua Street, Pearl City,
HI 96782. Chancellor - Hawaii Community College since 1983. Senior Vice
President - University of Hawaii System since 1989.
<TABLE>
<CAPTION>
ESTIMATED
AGGREGATE PENSION OR ANNUAL TOTAL COMPENSATION FROM
COMPENSATION RETIREMENT BENEFITS BENEFITS REGISTRANT AND FUND COMPLEX
FROM REGISTRANT ACCRUED AS PART UPON PAID TO DIRECTORS FOR FYE
NAME OF PERSON AND POSITION FOR FYE 12/31/98 OF FUND EXPENSES RETIREMENT 12/31/98
- ------------------------------- ----------------- ----------------------- --------------- -------------------------------
<S> <C> <C> <C> <C>
Martin Anderson, Trustee*...... $ $ 0 $ 0 $ for services on 1 board
Charles E. Carlbom,............ $ $ 0 $ 0 $ for services on 1 board
Philip H. Ching, Trustee*...... $ $ 0 $ 0 $ 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 $ $ 0 $ 0 $ 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
William S. Richardson,
Trustee*..................... $ $ 0 $ 0 $ for services on 1 board
Kevin P. Robins, Vice President
and Assistant Secretary...... $ $ 0 $ 0 $ for services on 1 board
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... $ $ 0 $ 0 $ for services on 1 board
Joyce S. Tsunoda, Trustee...... $ $ 0 $ 0 $ 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.
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<PAGE>
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
Institutional High Grade Income Fund 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 Institutional High Grade Income Fund may advertise a 30-day yield. These
figures will be based on historical earnings and are not intended to indicate
future performance. The 30-day yield of this Fund refers to the annualized
income generated by an investment in the Fund 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 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)(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.
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)(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 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 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.
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<PAGE>
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.
DETERMINATION OF NET ASSET VALUE
The securities of the Institutional Equity and Institutional High Grade
Income 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 income tax considerations
generally affecting a Fund and its shareholders and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisers with specific reference to their own tax situations, including their
state and local income tax liabilities.
FEDERAL INCOME TAX
ALL FUNDS
In order to qualify for treatment as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended (the "Code"), each Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) (the "Distribution Requirement") and also must meet several additional
requirements. 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
S-14
<PAGE>
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
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) (A) of any one issuer or (B) of two
or more issuers which are engaged in the same, similar or related trades or
businesses if the Fund owns at least 20% of the voting power of such issuers.
Notwithstanding the Distribution Requirement described above, which only
requires a Fund to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), a
Fund will be subject to a nondeductible 4% excise tax to the extent it fails to
distribute by the end of any calendar year 98% of its ordinary income for that
year and 98% of its capital gain net income for the one-year period ending on
October 31 of that year, plus certain other amounts.
A dividends received deduction is available to corporations that receive
dividends from domestic corporations. Dividends paid by an equity fund generally
will be eligible for the dividends received deduction for corporate shareholders
to the extent they are derived from dividends from domestic corporations. Equity
Fund shareholders will be advised each year of the portion of ordinary income
dividends eligible for the deduction.
Dividends received from other funds, E.G., money market or fixed income
funds, will not be eligible for the dividends received deduction. Individual
shareholders are not entitled to the dividends received deduction regardless of
which fund paid the dividend.
Any gain or loss recognized on a sale or redemption of shares of any Fund by
a shareholder who is not a dealer in securities will generally be treated as a
long-term capital gain or loss if the shares have been held for more than twelve
months and otherwise will be generally treated as a short-term capital gain or
loss. A non-corporate taxpayer's long-term capital gain from assets held (i) for
more than one year but not more than 18 months generally are taxable at the
maximum rate of 28 percent, and (ii) for more than 18 months generally are
taxable at the maximum rate of 20 percent. Any loss recognized by a shareholder
upon the sale or redemption of shares of any Fund held for six months or less,
however, will be disallowed to the extent of any exempt-interest dividends
received by the shareholder with respect to such shares. If shares on which a
net capital gain distribution has been received are subsequently sold or
redeemed and such shares have been held for six months or less, any loss
recognized will be treated as a long-term capital gain loss.
Interest in indebtedness incurred by shareholders to purchase or carry
shares of a Fund will not be deductible for federal income tax purposes to the
extent the Fund distributes exempt-interest dividends during the taxable year.
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 may 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 percent 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.
S-15
<PAGE>
HAWAII TAXATION
The State of Hawaii has specifically adopted Sections 852 through 855 of the
Internal Revenue Code of 1986, as amended (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.
STATE 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.
Many states allow income received from certain United States Government
obligations that is tax exempt when received directly to be tax-exempt when
received as income dividends from an investment company. Not all states permit
such income dividends to be tax-exempt and some require that a certain minimum
percentage of an investment company's income dividend be derived from state
tax-exempt interest before any portion of the income dividends may be exempt.
The Funds will inform shareholders annually of the percentage of income that is
derived from direct U.S. Government obligations. Shareholders should consult
their tax advisers to determine whether any portion of the income dividends
received from a Fund is considered tax-exempt in their particular states.
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
S-16
<PAGE>
consideration is to have brokers or dealers provide transactions at best price
and 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 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
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<PAGE>
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 then
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.
TRADING PRACTICES AND BROKERAGE
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. Shares 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.
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
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<PAGE>
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 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 received
assurances from each that its system is expected to accommodate the year 2000
without material adverse consequences to the Funds. 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
[to be updated]
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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<PAGE>
BISHOP STREET FUNDS
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS:
<TABLE>
<S> <C>
(a)(1) Agreement and Declaration of Trust of the Registrant as originally filed
with the Registrant's Registration Statement on June 20, 1994,
incorporated herein by reference to Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on Form N-1A (File No. 33-80514), as
filed February 29, 1996.
(a)(2) Amended and Restated Agreement and Declaration of Trust as originally filed
with the Registrant's Pre-Effective Amendment No. 1 on September 7, 1994,
incorporated herein by reference to Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on Form N-1A (File No. 33-80514), as
filed February 29, 1996.
(b)(1) By-Laws of the Registrant as originally filed with the Registrant's
Registration Statement on June 20, 1994, incorporated herein by reference
to Post-Effective Amendment No. 3 to the Registrant's Registration
Statement on Form N-1A (File No. 33-80514), as filed February 29, 1996.
(b)(2) Amended By-Laws of the Registrant as originally filed with the Registrant's
Pre-Effective Amendment No. 1 on September 7, 1994, incorporated herein by
reference to Post-Effective Amendment No. 3 to the Registrant's
Registration Statement on Form N-1A (File No. 33-80514), as filed February
29, 1996.
(b)(3) Amended By-Laws of the Registrant incorporated herein by reference to
Post-Effective Amendment No. 7 to the Registrant's Registration Statement
on Form N-1A (File No. 33-80514), as filed February 26, 1998.
(c) Not applicable.
(d)(1) Investment Advisory Agreement between the Registrant and First Hawaiian
Bank, incorporated herein by reference to Post-Effective Amendment No. 3
to the Registrant's Registration Statement on Form N-1A (File No.
33-80514), as filed February 29, 1996.
(d)(2) Investment Sub-Advisory Agreement by and among the Registrant, First
Hawaiian Bank and Wellington Management Company, LLP, incorporated herein
by reference to Post-Effective Amendment No. 3 to the Registrant's
Registration Statement on Form N-1A (File No. 33-80514), as filed February
29, 1996.
(d)(3) Amended and Restated Investment Sub-Advisory Agreement by and among the
Registrant, First Hawaiian Bank and Wellington Management Company, LLP,
incorporated herein by reference to Post-Effective Amendment No. 5 to the
Registrant's Registration Statement on Form N-1A (File No. 33-80514), as
filed April 30, 1997.
(d)(4) Schedule B dated April 30, 1996, to the Investment Advisory Agreement dated
January 27, 1995, between the Registrant and First Hawaiian Bank,
incorporated herein by reference to Post-Effective Amendment No. 5 to the
Registrant's Registration Statement on Form N-1A (File No. 33-80514), as
filed April 30, 1997.
(e) Distribution Agreement between the Registrant and SEI Financial Services
Company, incorporated herein by reference to Post-Effective Amendment No.
3 to the Registrant's Registration Statement on Form N-1A (File No.
33-80514), as filed February 29, 1996.
(f) Not Applicable.
(g) Custodian Agreement between the Registrant and Chemical Bank, N.A.,
incorporated herein by reference to Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on Form N-1A (File No. 33-80514), as
filed February 29, 1996.
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
(h)(1) Administration Agreement between the Registrant and SEI Financial Management
Corporation, incorporated herein by reference to Post-Effective Amendment
No. 3 to the Registrant's Registration Statement on Form N-1A (File No.
33-80514), as filed February 29, 1996.
(h)(2) Transfer Agent Agreement between the Registrant and Supervised Service
Company, incorporated herein by reference to Post-Effective Amendment No.
3 to the Registrant's Registration Statement on Form N-1A (File No.
33-80514), as filed February 29, 1996.
(h)(3) Consent to Assignment and Assumption of the Administration Agreement between
the Trust and SEI Financial Management Corporation to SEI Fund Resources,
incorporated herein by reference to Post-Effective Amendment No. 5 to the
Registrant's Registration Statement on Form N-1A (File No. 33-80514), as
filed April 30, 1997
(i) Opinion and Consent of Counsel as originally filed with the Registrant's
Pre-Effective Amendment No. 1 on September 7, 1994, incorporated herein by
reference to Post-Effective Amendment No. 3 to the Registrant's
Registration Statement on Form N-1A (File No. 33-80514), as filed February
29, 1996.
(j) Consent of Independent Public Accountants (PricewaterhouseCoopers LLP) is
filed herewith.
(k) Not Applicable.
(l) Not Applicable.
(m) 12b-1 Plan as originally filed with the Registrant's Pre-Effective Amendment
No. 1 on September 7, 1994, incorporated herein by reference to
Post-Effective Amendment No. 3 to the Registrant's Registration Statement
on Form N-1A (File No. 33-80514), as filed February 29, 1996.
(n) To be filed by Amendment.
(o) Rule 18f-3 Plan as originally filed with the Registrant's Post-Effective
Amendment No. 1 on July 31, 1995, incorporated herein by reference to
Post-Effective Amendment No. 3 to the Registrant's Registration Statement
on Form N-1A (File No. 33-80514), as filed February 29, 1996.
(p) Not Applicable.
</TABLE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:
See the Statement of Additional Information regarding the Registrant's
control relationships. The Administrator is a subsidiary of SEI Investments
Company, which also controls the distributor of the Registrant, SEI Investments
Distribution Co., other corporations engaged in providing various financial and
record keeping services, primarily to bank trust departments, pension plan
sponsors, and investment managers.
ITEM 25. INDEMNIFICATION:
Article VIII of the Agreement of Declaration of Trust filed as Exhibit 1 to
the Registration Statement is incorporated by reference. Insofar as
indemnification liabilities arising under the Securities Act of 1933, as
amended, may be permitted to trustees, directors, officers and controlling
persons of the Registrant by the Registrant pursuant to the Declaration of
Trustor otherwise, the Registrant is aware that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and, therefore, is unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees, directors,
officers or controlling persons in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled
C-2
<PAGE>
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND INVESTMENT
SUB-ADVISER:
Other business, profession, vocation, or employment of a substantial nature
in which each director or principal executive officer of the Adviser is or has
been, at any time during the last two fiscal years, engaged for his own account
or in the capacity of director, officer, employee, partner or trustee are as
follows:
<TABLE>
<CAPTION>
NAME AND POSITION
WITH INVESTMENT ADVISER NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY
- --------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
John W.A. Buyers C. Brewer & Co., Ltd. Chairman & Chief Executive Officer
Director
John C. Couch Alexander & Baldwin, Inc. Chairman, President & Chief Executive
Officer
Walter A. Dods, Jr. First Hawaiian, Inc. Chairman & Chief Executive Officer
Director, Chairman and Chief
Executive Officer
Dr. Julia Ann Forhlich Blood Bank of Hawaii President
Director
Paul Mullin Ganley Estate of S.W. Damon, Carlsmith, Ball President
Director
Wichman, Case & Ichiki Partner
Estate of S.M. Damon
David W. Haig Estate of S.W. Damon Trustee
Director
Warren H. Haruki GTE Hawaiian Tel President
Director
Howard K. Hiroki PricewaterhouseCoopers LLP Partner (retired)
Director
John A. Hoag First Hawaiian, Inc. President (retired)
Director
David C. Hulihee Royal Contracting Co., Ltd. President & Treasurer
Director
Glenn A. Kaya Hawaii Seiyu, Ltd. President
Director
Dr. Richard R. Kelly Outrigger Enterprises Chairman of the Board
Director
Bert T. Kobayashi, Jr. Kobayashi, Sugita & Goda Principal
Director
Dr. Richard T. Mamiya Richard Mamiya, M.D., Inc. Heart Surgeon
Director
Dr. Fujio Matsuda Pacific International Center for High Chairman
Director Technology Research
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION
WITH INVESTMENT ADVISER NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY
- --------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Dr. Roderick F. McPhee Punahou School President (retired)
Director
Wesley T. Park Hawaii Dental Service President & Chief Executive Officer
Director
George P. Shea, Jr. First Insurance Company of Hawaii, Chairman, President & Chief Executive
Director Ltd. Officer (retired)
R. Dwayne Steele Grace Pacific Corporation Chairman
Director
John K. Tsui First Hawaiian, Inc. President
Director, President & Chief
Operating Officer
Jenai Sullivan Wall Foodland Super Market, Ltd. President
Director
Gen. Fred C. Weyand Estate of S.M. Damon Trustee
Director
James C. Wo Bojim Investments Chairman & Chief Executive Officer
Director
BJ Management Corp. Vice President & Treasurer
Robert C. Wo BJ Management Corp. President & Secretary
Director C.S. Wo & Sons, Ltd. Chairman
Howard H. Karr -- --
Vice Chairman
Donald G. Horner -- --
Vice Chairman
Robert A. Alm -- --
Senior Vice President
Gary L. Caulfield -- --
Executive Vice President
Anthony R. Guerro, Jr. -- --
Executive Vice President
Thomas P. Huber -- --
Executive Vice President,
General Counsel and Assistant
Secretary
Gerald M. Pang -- --
Executive Vice President and
Chief Credit Officer
Barbara S. Tomber -- --
Executive Vice President
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION
WITH INVESTMENT ADVISER NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY
- --------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Albert M. Yamada -- --
Executive Vice President and
Chief Financial Officer
Lily K. Yao -- --
Vice Chairman
</TABLE>
WELLINGTON MANAGEMENT COMPANY
The list required by this Item 28 of officers and directors of Wellington
Management Company, LLP, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules A and D of Form ADV, filed by Wellington Management Company, LLP,
pursuant to the Investment Advisers Act of 1940 (SEC File No. 801-15908).
ITEM 27. PRINCIPAL UNDERWRITER:
(a) Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing the securities of
the Registrant also acts as a principal underwriter, distributor or investment
adviser.
C-5
<PAGE>
Registrant's distributor, SEI Investments Distribution Co. (the
"Distributor"), acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds-Registered Trademark- June 1, 1993
The PBHG Funds, Inc. July 16, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Huntington Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1997
The Expedition Funds June 9, 1997
Alpha Select Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Fund, Inc. June 29, 1998
The Parkstone Group of Funds September 14, 1998
The Distributor provides numerous financial services to investment managers,
pension plan sponsors, and bank trust departments. These services include
portfolio evaluation, performance measurement and consulting services
("Funds Evaluation") and automated execution, clearing and settlement of
securities transactions ("MarketLink").
(b) Furnish the Information required by the following table with respect to
each director, officer or partner of each principal underwriter named in the
answer to Item 21 of Part B. Unless otherwise noted, the business address of
each director or officer is Oaks, PA 19456.
<TABLE>
<CAPTION>
POSITION AND OFFICE POSITION AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ------------------------------- ------------------------------------------------------ ------------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief Executive Officer --
Henry H. Greer Director --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating Officer --
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
POSITION AND OFFICE POSITION AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ------------------------------- ------------------------------------------------------ ------------------------
<S> <C> <C>
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchinson Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President, Vice President and
Assistant Secretary
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary Vice President and
Assistant Secretary
S. Courtney E. Collier Vice President & Assistant Secretary --
Robert Crudup Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary Vice President and
Assistant Secretary
Greg Gettinger Vice President & Assistant Secretary --
Kathy Heilig Vice President Vice President and
Assistant Secretary
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President --
Mark Nagle Vice President --
Joanne Nelson Vice President --
Joseph M. O'Donnell Vice President & Assistant Secretary Vice President and
Assistant Secretary
Sandra K. Orlow Vice President & Assistant Secretary Vice President &
General Counsel & Secretary Assistant Secretary
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
POSITION AND OFFICE POSITION AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ------------------------------- ------------------------------------------------------ ------------------------
<S> <C> <C>
Cynthia M. Parrish Vice President & Assistant Secretary --
Donald Pepin Vice President & Managing Director --
Kim Rainey Vice President --
Rob Redican Vice President --
Maria Rinehart Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary --
Lynda J. Striegel Vice President & Assistant Secretary Vice President and
Assistant Secretary
Lori L. White Vice President & Assistant Secretary --
Wayne M. Withrow Vice President & Managing Director --
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS:
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules promulgated the runer, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31(a)-1(b); (2)(a) and (b); (3);
(6); (8); (12); and 31a-1(d), the required books and records will be
maintained at the offices of Registrant's Custodian:
Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
(b)/(c) With respect to Rules 31a-1(a); 31a-1(b)(1), (4); (2)(C) and
(D); (4); (5); (6); (8); (9); (10); (11); and 31a-1(f), the required books
and records are maintained at the offices of Registrant's Administrator:
SEI Investments Mutual Funds Services
Oaks, Pennsylvania 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f),
the required books and records are maintained at the principal offices of
the Registrant's Advisor and Sub-Adviser:
<TABLE>
<S> <C>
First Hawaiian Bank Wellington Management Company, LLP
999 Biship Street 75 State Street
Honolulu, Hawaii 96813 Boston, Massachusetts 02109
</TABLE>
ITEM 29. MANAGEMENT SERVICES:
None.
ITEM 30: UNDERTAKINGS:
Registrant hereby undertakes that whenever shareholders meeting the
requirements of Section 16(c) of the Investment Company Act of 1940 inform the
Board of Trustees of their desire to communicate with Shareholders of the Trust,
the Trustees will inform such Shareholders as to the appropriate number of
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<PAGE>
Shareholders of record and the approximate costs of mailing or afford said
Shareholders access to a list of Shareholders.
Registrant hereby undertakes to call a meeting of Shareholders for the
purpose of voting upon the question of removal of a Trustee(s) when requested in
writing to do so by the holders of at least 10% of Registrant's outstanding
shares and in connection with such meetings to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940 relating to Shareholder
communications.
Registrant undertakes to furnish each person to whom a prospectus for any
series of the Registrant is delivered with a copy of the Registrant's latest
annual report to shareholders for such series, when such annual report is issued
containing information called for by Item 5A of Form N-1A, upon request and
without charges.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment No. 9 to Registration Statement No. 33-80514 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Honolulu, State of Hawaii on the 26th day of February, 1999.
By: /s/ ROBERT A. NESHER
-----------------------------------------
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacity on the dates indicated.
/s/ MARTIN ANDERSON
- ------------------------------ Trustee February 26, 1999
Martin Anderson
/s/ PHILIP H. CHING
- ------------------------------ Trustee February 26, 1999
Philip H. Ching
/s/ SHUNICHI KIMURA
- ------------------------------ Trustee February 26, 1999
Shunichi Kimura
/s/ WILLIAM S. RICHARDSON
- ------------------------------ Trustee February 26, 1999
William S. Richardson
/s/ MANUEL SYLVESTER
- ------------------------------ Trustee February 26, 1999
Manuel R. Sylvester
/s/ JOYCE S. TSUNODA
- ------------------------------ Trustee February 26, 1999
Joyce S. Tsunoda
/s/ ROBERT DELLACROCE
- ------------------------------ Controller & Chief February 26, 1999
Robert DellaCroce Financial Officer
/s/ ROBERT A. NESHER
- ------------------------------ President February 26, 1999
Robert A. Nesher
C-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NAME EXHIBIT
- -------------------- -----------------------------------------------------------------------------------
<S> <C>
EX-99.A(1) Agreement and Declaration of Trust of the Registrant dated May 25, 1994, as
originally filed with the Registrant's Registration on June 20, 1994,
incorporated herein by reference to Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on Form N-1A (File No. 33-80514), as filed
February 29, 1996.
EX-99.A(2) Amended and Restated Agreement and Declaration of Trust as originally filed with
the Registrant's Pre-Effective Amendment No. 1 on September 7, 1994, incorporated
herein by reference to Post-Effective Amendment No. 3 to the Registrant's
Registration Statement on Form N-1A (File No. 33-80514), as filed February 29,
1996.
EX-99.B(1) By-Laws of the Registrant as originally filed with the Registrant's Registration
Statement on June 20, 1994, incorporated herein by reference to Post-Effective
Amendment No. 3 to the Registrant's Registration Statement on Form N-1A (File No.
33-80514), as filed February 29, 1996.
EX-99.B(2) Amended By-Laws of the Registrant's Pre-Effective Amendment No. 1 on September 7,
1994, incorporated herein by reference to Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on Form N-1A (File No. 33-80514), as filed
February 29, 1996.
EX-99.B(3) Amended By-Laws of the Registrant, incorporated herein by reference to
Post-Effective Amendment No. 7 to the Registrant's Registration Statement on Form
N-1A (File No. 33-80514), as filed on February 26, 1998.
EX-99.D(1) Investment Advisory Agreement between the Registrant and First Hawaiian Bank,
incorporated herein by reference to Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on Form N1-A (File No. 33-80514), as filed
February 29, 1996.
EX-99.D(2) Investment Sub-Advisory Agreement by and among the Registrant, First Hawaiian Bank
and Wellington Management Company, LLP, incorporated herein by reference to
Post-Effective Amendment No. 3 to the Registrant's Registration Statement on Form
N-1A (File No. 33-80514), as filed February 29, 1996.
EX-99.D(3) Amended and Restated Investment Sub-Advisory Agreement by and among the Registrant,
First Hawaiian Bank and Wellington Management Company, LLP, incorporated herein
by reference to Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form N-1A (File No. 33-80514), as filed April 30, 1997.
EX-99.D(4) Schedule B dated April 30, 1996, to the Investment Advisory Agreement dated January
27, 1995, between the Registrant and First Hawaiian Bank, incorporated herein by
reference to Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form N-1A (File No. 33-80514), as filed April 30, 1997.
EX-99.E Distribution Agreement between the Registrant and SEI Financial Services Company,
incorporated herein by reference to Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on Form N-1A (File No. 33-80514), as filed
February 29, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME EXHIBIT
- -------------------- -----------------------------------------------------------------------------------
<S> <C>
EX.99.G Custodian Agreement between the Registrant and Chemical Bank, N.A., incorporated
herein by reference to Post-Effective Amendment No. 3 to the Registrant's
Registration Statement on Form N-1A (File No. 80514), as filed February 29, 1996.
EX-99.H(1) Administration Agreement between the Registrant and SEI Financial Management
Corporation, incorporated herein by reference to Post-Effective Amendment No. 3
to the Registrant's Registration Statement on Form N-1A (File No. 33-80514), as
filed February 29, 1996.
EX-99.H(2) Transfer Agent Agreement between the Registrant and Supervised Service Company,
incorporated herein by reference to Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on Form N-1A (File No. 33-80514), as filed
February 29, 1996.
EX-99.H(3) Consent to Assignment and Assumption of the Administration Agreement between the
Trust and SEI Financial Management Corporation to SEI Fund Resources,
incorporated herein by reference to Post-Effective Amendment No. 5 to the
Registrant's Registration Statement on Form N-1A (File No. 33-80514), as filed
April 30, 1997.
EX-99.I Opinion and Consent of Counsel as originally filed with the Registrant's Pre-
Effective Amendment No. 1 on September 7, 1994, incorporated herein by reference
to Post-Effective Amendment No. 3 to the Registrant's Registration Statement on
Form N-1A (File No. 33-80514), as filed February 29, 1996.
EX-99.J Consent of Independent Public Accountants (PricewaterhouseCoopers LLP) is filed
herewith.
EX-99.M 12b-1 Plan as originally filed with the Registrant's Pre-Effective Amendment No. 1
on September 7, 1994, incorporated herein by reference to Post-Effective
Amendment No. 3 to the Registrant's Registration Statement on Form N-1A (File No.
33-80514), as filed February 29, 1996.
EX-99.O Rule 18f-3 Plan as originally filed with the Registrant's Post-Effective Amendment
No. 1 on July 31, 1995, incorporated herein by reference to Post-Effective
Amendment No. 3 to the Registrant's Registration Statement on Form N-1A (File No.
33-80514), as filed February 29, 1996.
</TABLE>
<PAGE>
Ex-99.J
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment No. 10
to the Registration Statement of Bishop Street Funds on Form N-1A (File No.
33-80514) of our report dated February 2, 1999 on our audit of the financial
statements and financial highlights of the Funds which report is included in the
Annual Report to Shareholders for the year ended December 31, 1998 which is
incorporated by reference in the Post-Effective Amendment to the Registration
Statement. We also consent to the reference to our Firm under the headings
"Financial Highlights" in the Prospectuses and "Independent Auditors" and
"Financial Information" in the Statements of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1999