A No Load Mutual Fund Family Advised By First Hawaiian Bank
Annual
Report
December 31, 1998
-----------------
Equity Fund
High Grade Income Fund
Hawaii Municipal Bond Fund
Money Market Fund
Treasury Money Market Fund
[Bishop Street Funds -- LOGO]
<PAGE>
This report and the financial statements contained herein are submitted for the
general information of Bishop Street Funds' shareholders. This report is not
authorized for distribution to prospective investors unless preceded or
accompanied by an effective prospectus.
Shares of Bishop Street Funds are NOT deposits or obligations of, or guaranteed
by First Hawaiian Bank or any of its subsidiaries. Such shares are also NOT
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency. Investment in shares of mutual funds
involves risk, including the possible loss of principal. SEI Investments
Distribution Co. serves as Distributor for Bishop Street Funds and is not
affiliated with First Hawaiian Bank.
<PAGE>
BISHOP STREET
TABLE OF CONTENTS
FUNDS
Letter to Shareholders............................................. 2
Equity Fund
Investment Adviser's Report & Management Discussion.......... 4
Schedule of Investments...................................... 7
High Grade Income Fund
Investment Adviser's Report & Management Discussion.......... 12
Statement of Net Assets...................................... 15
Hawaii Municipal Bond Fund
Investment Adviser's Report & Management Discussion.......... 19
Statement of Net Assets...................................... 22
Money Market & Treasury Money Market Funds
Investment Adviser's Report & Management Discussion.......... 27
Statements of Net Assets..................................... 29
Statement of Assets and Liabilities................................ 35
Statements of Operations........................................... 36
Statements of Changes in Net Assets................................ 37
Financial Highlights............................................... 40
Notes to Financial Statements...................................... 42
Report of Independent Accountants.................................. 47
Notice to Shareholders............................................. 48
1
<PAGE>
BISHOP STREET
LETTER TO SHAREHOLDERS
FUNDS
Dear Fellow Shareholder:
We're pleased to present Bishop Street Funds' Annual Report for 1998.
Although the markets were very volatile, 1998 turned out to be another very good
year for stocks, particularly large growth companies. Rattled by turmoil in
international markets, investors once again sought out high-quality household
names, powering the Standard & Poor's 500 Composite Index to a 28.6% return.
That flight to quality also boosted U.S. Treasury bonds, as global investors
sought safety and liquidity. Bonds continued to benefit from virtually
non-existent inflation and declining interest rates.
The Bishop Street Funds performed well in this environment. The Bishop Street
Equity Fund, with its focus on large growth stocks, beat the S&P 500 Index,
posting a 33%* return for the year. The Wall Street Journal ranked it among the
top 15 performers of 1998, placing it in the top 2% of growth & income funds.
The Bishop Street High Grade Income Fund, due to its focus on government
securities and high quality corporate bonds, produced a 9%* return, higher than
the average domestic taxable fixed income fund. The Wall Street Journal also
ranked it among the top 15 funds in its category.**
The Hawaii Municipal Bond Fund, which provides double tax-free income for Hawaii
residents, generated a total return of nearly 6%, beating the average Hawaii
municipal bond fund. In January, the Fund reached its three-year anniversary and
received its first Morningstar Rating(TM) of four stars out of a possible five.
It also received the four star rating for the overall period ending 12/31/98.
The Fund was rated against 1,577 funds in the Municipal Bond Fund category.***
Speaking of tax savings, we are pleased to offer a variety of Individual
Retirement Account options, including the new Roth IRA, using the Bishop Street
Funds as an investment vehicle. Traditional IRAs and SEP IRAs are also
available. Contributions for 1998 must be made before April 15th, 1999.
2
Bishop Street Funds
<PAGE>
Please take some time to read the following pages. They include a summary of the
economic environment affecting each fund, a discussion of performance,
statements of net assets and other financial information. If you have any
questions about this report or the Bishop Street Funds, please call your
Investment Specialist or Bishop Street Funds Investor Services at
1-800-262-9565.
Thanks for choosing the Bishop Street Funds.
Sincerely,
/s/ Robert A. Alm
- -----------------
Robert A. Alm
Executive Vice President and Manager
Financial Management Group
First Hawaiian Bank, Investment Adviser
*The performance data quoted represents past performance and does not
guarantee future results. The investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
**As of 12/31/98, Lipper Analytical Service ranked the Bishop Street Equity
Fund 20th out of 786 funds (15th among active NASDAQ funds) in the Growth &
Income Category for the one-year period and 42nd out of 648 funds since its
inception (1/30/97). As of 12/31/98, the Bishop Street High Grade Income Fund
was ranked 17 out of 158 funds (13th among active NASDAQ funds) for the one
year period and 54 out of 143 since inception (1/30/97).
***Morningstar proprietary ratings reflect historical risk-adjusted performance
as of 12/31/98. The ratings are subject to change every month. Morningstar
ratings are calculated from the fund's three-, five-, and 10-year average
annual returns (if applicable) in excess of 90-day Treasury bill returns with
appropriate fee adjustments, and a risk factor that reflects fund performance
below 90-day T-bill returns. The Bishop Street Hawaii Municipal Bond Fund
received four stars for the three year period. The top 10% of the funds in an
investment class receive 5 stars, the next 22.5% receive 4 stars. The Fund
was rated among 1,577 funds for the three-year period within the Municipal
Bond Fund category.
3
Annual Report -- December 31, 1998
<PAGE>
BISHOP STREET
INVESTMENT ADVISER'S REPORT & MANAGEMENT DISCUSSION
FUNDS
Equity Fund
- -------------------------------------------------------------------------------
Investment Adviser's Report:
The U.S. stock market produced a fourth consecutive year of superior returns in
1998. While the Dow Jones Industrial Average rose about 18%, the broader S&P 500
Index, which includes a heavier technology component, was up nearly 29% in 1998.
Remarkably, the science & technology sector was up nearly 50% during the year
according to Lipper Inc.
Overseas, it was a tumultuous year as the Asian economic crisis spread to Latin
America and Russia's economy virtually collapsed. After having posted a strong
first half, it looked like the stock market was entering a bear market in August
and September, as the major averages dipped nearly 20%. A worldwide credit
crunch ensued, and market commentators were painting a bleak picture. During
that time, global investors sought the safety and liquidity of U.S. Treasury
bonds and the largest blue-chip stocks, shunning small companies.
By late September, the Federal Reserve Board, which previously had a bias toward
raising interest rates to slow the U.S. economy, abruptly changed course and
began lowering interest rates to ease recession fears. By mid-October,
confidence in the markets returned, and the stock market made a remarkable
comeback, hitting new highs as the holidays approached.
Still, investors continued to prefer large companies to small. During 1998, the
Russell 2000 Index fell nearly 3%, despite the fact that small companies tend to
do less business internationally than large companies.
In addition to a preference for size, investors clearly stated their preference
for industries deemed to be insulated from economic cycles. As a result,
technology, telecommunications, healthcare and specialty retailers did well,
while chemicals, energy, paper, metals and general retailers did poorly.
Management Discussion & Analysis of Fund Performance:
During the year ended December 31, 1998, the Equity Fund produced a total return
of 33.05%. In comparison, the Lipper Domestic Equity Funds Aggregate was up
13.92% while the unmanaged S&P 500 Composite Index rose 28.60%.
The Fund's strong performance was due to many factors. First, despite the
tremendous volatility of the stock market during 1998, we remained fully
invested throughout the year. Indeed, we increased our equity exposure during
the market selloff in August and September.
4
Bishop Street Funds
<PAGE>
[BISHOP STREET FUNDS -- LOGO]
Second, we continued to be overweighted in the sectors that performed well,
principally technology and healthcare, and underweighted in cyclically sensitive
sectors such as chemical and paper companies.
Our decision to stick with technology during the late summer reflects our
long-term investment strategy. We continue to believe that technology is a
growth area and the engine that is going to drive our financial markets. In the
short term, we believe that the Year 2000 computer problem will benefit the
sector, particularly companies that are sought out for a solution.
Although technology valuations are very high, we believe that there are certain
market-leading stocks that clearly deserve to trade at a premium. However, we
are not investing directly in internet stocks, which have received so much
attention in the financial press. Our strategy is to focus on large
capitalization companies that we think will provide consistent earnings growth.
Although internet stocks generally fall below our guidelines in terms of market
capitalization and profitability, we have been able to indirectly invest in this
very important sector through our investments in major technology and
telecommunications firms.
In healthcare, the pharmaceutical stocks continued to produce strong gains.
These companies have superior operating margins and appear to offer a safe haven
in an uncertain economy in which U.S. corporate profit growth is slowing. Our
overweight in specialty retailing also contributed favorably to performance.
We continue to have a higher percentage of energy companies in the portfolio as
compared to the S&P 500 Index. Because of the drop in oil prices, energy stocks
have performed poorly, and the sector has become a drag on our performance.
However, we believe that energy supply and demand is cyclical, and the stock
prices will appreciate at some point.
Our stock market outlook for 1999 is a strong first half followed by volatility.
Earnings expectations have been revised downward, and we believe that companies
in general will meet these subdued targets. However, we believe that the
uncertainty surrounding the global markets as well as expenditures needed to
solve the Year 2000 computer problem will impact the market in the second half
of the year. After four straight years of abnormally high returns in the stock
market, we don't expect 1999 to produce yet another superior year--although the
market and the U.S. economy has proven to be remarkably resilient.
5
Annual Report -- December 31, 1998
<PAGE>
Equity Fund
- -------------------------------------------------------------------------------
Performance Comparison
Comparison of Change in the Value of a $10,000 Investment Bishop
Street Equity Fund versus the S&P 500 Composite Index
and the Lipper Domestic Equity Funds Aggregate
<TABLE>
<CAPTION>
- -------------------------
Initial Investment Date 1/31/97 Mar 97 Jun 97 Sep 97 Dec 97 Mar 98 Jun 98 Sep 98 Dec 98
- -------------------------- ------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bishop Street Equity Fund $10,000 $ 9,593 $11,104 $11,844 $12,031 $13,699 $14,164 $12,873 $16,007
S&P 500 Composite Index $10,000 $ 9,665 $11,351 $12,202 $12,552 $14,301 $14,733 $13,306 $16,141
Consumer Price Index $10,000 $10,040 $10,070 $10,131 $10,171 $10,181 $10,242 $10,283 $10,335
Lipper Domestic Equity
Funds Aggregate $10,000 $ 9,427 $10,832 $12,112 $11,937 $13,324 $13,252 $11,339 $13,544
</TABLE>
Average Annual Total Returns
One Annualized
Year Inception
Return to Date*
------ ----------
33.05% 28.47%
*Commenced operations 1/31/97.
6
Bishop Street Funds
<PAGE>
Equity Fund
- -------------------------------------------------------------------------------
Top Ten Equity Holdings
Percentage of
Investments
- -------------------------------------------------------------------------------
1. Cisco Systems Incorporated 4.2%
2. Microsoft Corporation 3.9%
3. General Electric Company 3.8%
4. Eli Lilly and Company 2.9%
5. Bristol-Myers Squibb Co. 2.0%
6. IBM Corporation 2.0%
7. MCI WorldCom Inc. 1.9%
8. Elan Corporation ADR 1.8%
9. Intel Corporation 1.8%
10. Schering Plough Corporation 1.8%
- -------------------------------------------------------------------------------
Schedule of Investments
Market
Value
Shares (000)
------- COMMON STOCK -- 91.4% -----
Aerospace / Defense -- 1.5%
8,100 Lockheed Martin Corp. $ 686
7,400 United Technologies Corp. 805
---------
1,491
---------
Automotive -- 1.7%
17,100 Ford Motor 1,004
18,400 General Motors 730
----------
1,734
----------
Banks -- 5.1%
34,500 Bank of New York 1,389
16,400 BankAmerica 986
20,900 Chase Manhattan 1,422
23,100 U.S. Bancorp 820
12,000 Union Planters 544
----------
5,161
----------
7
Annual Report -- December 31, 1998
<PAGE>
Equity Fund
- -------------------------------------------------------------------------------
Schedule of Investments
(continued) Market
Value
Shares (000)
------- -----
Beauty Products -- 3.0%
8,600 Colgate-Palmolive $ 799
14,900 Proctor & Gamble 1,361
11,200 Unilever NV, ADR 929
----------
3,089
----------
Broadcasting, Newspapers & Advertising -- 1.7%
24,300 Mediaone Group* 1,142
16,900 Univision Communications* 612
----------
1,754
----------
Chemicals -- 1.6%
10,300 E.I. DuPont de Nemours 546
22,700 Monsanto Co. 1,078
----------
1,624
----------
Communications Equipment -- 1.3%
12,000 Lucent Technologies, Inc. 1,320
----------
Computers & Services -- 14.4%
43,700 Cisco Systems, Inc.* 4,056
31,000 Compaq Computer Corp. 1,300
14,800 Computer Associates International, Inc. 631
13,700 Dell Computer* 1,003
10,100 International Business Machine Corp. 1,866
26,800 Microsoft Corp.* 3,717
19,800 Sterling Commerce, Inc.* 891
14,200 Sun Microsystems, Inc.* 1,216
----------
14,680
----------
Drugs -- 15.2%
15,400 American Home Products Corp. 867
14,400 Bristol-Myers Squibb Co. 1,927
11,900 Centocor* 537
24,800 Elan, ADR* 1,725
31,400 Eli Lilly & Co. 2,791
15,900 Johnson & Johnson 1,334
7,100 Merck & Co., Inc. 1,049
11,400 Pfizer Inc. 1,430
30,600 Schering Plough Corp. 1,691
13,500 Warner Lambert Co. 1,015
18,000 Watson Pharmaceuticals* 1,132
----------
15,498
----------
8
Bishop Street Funds
<PAGE>
Equity Fund
- -------------------------------------------------------------------------------
Schedule of Investments
(continued) Market
Value
Shares (000)
------- -----
Electrical Utilities -- 1.8%
30,400 AES Corp.* $ 1,440
5,900 FPL Group, Inc. 364
----------
1,804
----------
Entertainment -- 0.8%
26,700 Walt Disney Co. 801
----------
Financial Services -- 4.2%
11,000 American Express Co. 1,125
27,600 Citigroup 1,366
16,500 Fannie Mae 1,221
9,200 Merrill Lynch & Co., Inc. 614
----------
4,326
----------
Food, Beverage & Tobacco -- 1.9%
14,600 Coca-Cola, Co. 976
17,400 Philip Morris Companies, Inc. 931
----------
1,907
----------
Household Products -- 0.9%
8,100 Clorox 946
----------
Insurance -- 3.3%
14,825 American International Group, Inc. 1,432
5,200 Chubb Corp. 337
6,600 General Re Corp. 1,623
----------
3,392
----------
Machinery -- 3.6%
35,800 General Electric, Co. 3,654
----------
Marine Transportation -- 1.2%
24,600 Carnival 1,181
----------
Miscellaneous Manufacturing -- 1.6%
22,300 Tyco International 1,682
----------
Petroleum & Fuel Products -- 2.2%
17,450 Baker Hughes, Inc. 309
14,800 Burlington Resources,Inc. 530
20,500 Halliburton 607
9,700 Schlumberger Ltd. 447
15,900 Weatherford International* 308
----------
2,201
----------
9
Annual Report -- December 31, 1998
<PAGE>
Equity Fund
- -------------------------------------------------------------------------------
Schedule of Investments
(continued) Market
Value
Shares (000)
------- -----
Petroleum Refining -- 4.5%
14,600 Amoco Corp. $ 861
9,200 Chevron, Corp. 763
8,700 Exxon Corp. 636
8,800 Mobil Corp. 767
17,400 Royal Dutch Petroleum Co., ADR New York Registry 833
13,600 Texaco, Inc. 719
----------
4,579
----------
Photographic Equipment & Supplies -- 0.9%
8,000 Xerox 944
----------
Printing & Publishing -- 2.2%
15,000 Gannett Company, Inc. 967
20,200 Time Warner 1,254
----------
2,221
----------
Railroads -- 0.3%
5,064 Canadian National Railway 263
----------
Retail -- 7.9%
8,700 Albertson's, Inc. 554
17,900 Costco Companies, Inc.* 1,292
17,200 CVS Corp. 946
27,800 Dayton-Hudson Corp. 1,508
24,000 Fred Meyer, Inc.* 1,446
25,700 Home Depot, Inc. 1,572
9,200 McDonald's Corp. 705
----------
8,023
----------
Semi-Conductors/Instruments -- 2.9%
14,400 Intel Corp. 1,707
19,800 Xilinx* 1,289
----------
2,996
----------
Telephones & Telecommunication -- 5.7%
21,700 Airtouch Communications, Inc.* 1,565
14,500 AT&T Corp. 1,091
27,600 Bellsouth Corp. 1,377
24,700 MCI WorldCom* 1,772
----------
5,805
----------
TOTAL COMMON STOCK (Cost $62,296) 93,076
----------
10
Bishop Street Funds
<PAGE>
Equity Fund
- -------------------------------------------------------------------------------
Schedule of Investments
(continued) Market
Shares Value
(000) (000)
------ -----
CASH EQUIVALENT -- 2.6%
2,547 SEI Daily Income Trust Money Market Portfolio $ 2,547
69 SEI Daily Income Trust Prime Obligation Portfolio 69
------------
TOTAL CASH EQUIVALENT (Cost $2,616) 2,616
------------
TOTAL INVESTMENTS (COST $64,912) -- 94.0% $ 95,692
============
* Non-Income producing security
ADR--American Depository Receipt
The accompanying notes are an integral part of the financial statements.
11
Annual Report -- December 31, 1998
<PAGE>
BISHOP STREET
INVESTMENT ADVISER'S REPORT & MANAGEMENT DISCUSSION
FUNDS
High Grade Income Fund
- -------------------------------------------------------------------------------
Investment Adviser's Report:
It was a strong year for high-quality bonds, as interest rates across the board
declined to record lows. Prompted by Russia's collapsing economy, a looming
global credit crunch and U.S. recession fears, the Federal Reserve Board reduced
short-term interest rates from 5.50% to 4.75% in the Fall of 1998. Similar
action was taken by more than 40 international central banks to reduce interest
rates around the world.
Meanwhile, yields on longer-term instruments also fell during 1998, with the
greatest decline coming in short- and intermediate-term bonds. The five-year
Treasury note yield fell from 5.71% on December 31, 1997 to 4.54% at December
31, 1998, while the ten-year note fell from 5.74% to 4.65% and the 30-year bond
yield fell from 5.92% to 5.09%. Since bond prices move inversely to interest
rates, U.S. Treasury securities performed very well during the year, as
investors around the world sought safety and liquidity.
However, concerns about risk caused corporate bonds to underperform. At one
point in late summer, the difference in yield, the "spread" between corporate
and government bonds, was the widest it had been since the mid-1980s. Credit
concerns receded somewhat as 1998 drew to a close, when the U.S. economic
outlook brightened and concerns for Asia had subsided. Nevertheless, corporate
bond spreads are still extremely wide by historical standards.
To be sure, Brazil's currency devaluation in January 1999 reminded investors
that the global economy is still fragile. As a result, we believe that the U.S.
economy will grow significantly slower in 1999 than the past few years. That
suggests that interest rates are likely to continue downward, boosting bond
prices. Additionally, we expect that investors will continue to be concerned
about credit quality.
12
Bishop Street Funds
<PAGE>
[BISHOP STREET FUNDS -- LOGO]
Management Discussion & Analysis of Fund Performance:
Because of our focus on high-quality bonds, the Fund outperformed the Lipper
Domestic Taxable Fixed Income Funds Aggregate. For the year ended December 31,
1998, the Fund produced a total return of 9.09%, while the Lipper aggregate
return was 5.59% and the unmanaged Lehman Brothers Government/Corporate Bond
Index was 9.47%.
The Fund's performance was enhanced by some very timely decisions regarding our
corporate bond exposure. During last summer's credit crunch, corporate bond
prices fell dramatically as investors shunned the slightest credit risk. We were
able to reduce our exposure to corporate bonds prior to this event. As
confidence returned to the markets later in the year, we came back into the
corporate bond market as that market was rebounding. By year end, we had
increased our corporate holdings significantly and extended the portfolio's
duration in line with our objective to focus on high quality bonds with high
yields, as well as our expectations for declining interest rates in 1999.
Our outlook for 1999 is for bonds to continue to do well in the current
non-inflationary environment. In addition to lower interest rates, a slowing
U.S. economy, the coming Year 2000 computer problem and the uncertain global
environment are likely to generate lower U.S. corporate profits. As a result,
the stock market is likely to be volatile in 1999, which may cause investors to
once again focus on the safety and liquidity of high quality bonds.
We continue to manage the High Grade Income Fund conservatively, seeking
high-quality securities and low risk.
13
Annual Report -- December 31, 1998
<PAGE>
High Grade Income Fund
- -------------------------------------------------------------------------------
Performance Comparison
Comparison of Change in the Value of a $10,000 Investment
Bishop Street High Grade Income Fund versus the
Lehman Government/Corporate Index and the
Lipper Domestic Taxable Fixed Income Funds Aggregate
<TABLE>
<CAPTION>
- ---------------------------------------------------
Initial Investment Date 1/31/97 Mar 97 Jun 97 Sep 97 Dec 97 Mar 98 Jun 98 Sep 98 Dec 98
- --------------------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bishop Street High Grade Income Fund $10,000 $ 9,902 $10,216 $10,514 $10,793 $10,937 $11,191 $11,798 $11,774
Lehman Government/Corporate Index $10,000 $ 9,902 $10,261 $10,621 $10,962 $11,129 $11,419 $11,985 $12,000
Consumer Price Index $10,000 $10,040 $10,070 $10,131 $10,171 $10,181 $10,242 $10,283 $10,335
Lipper Domestic Taxable Fixed Income
Funds Aggregate $10,000 $ 9,938 $10,281 $10,615 $10,828 $11,034 $11,207 $11,359 $11,441
</TABLE>
Average Annual Total Returns
One Annualized
Year Inception
Return to Date*
------ ----------
9.09% 8.90%
*Commenced operations 1/31/97.
14
Bishop Street Funds
<PAGE>
High Grade Income Fund
- -------------------------------------------------------------------------------
Top Ten Holdings
<TABLE>
<CAPTION>
Percentage
Coupon Maturity of
Rate Date Investments
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. United States Treasury Bond 7.13% Feb. 15, 2023 10.1%
2. United States Treasury Bond 7.50% Nov. 15, 2016 7.6%
3. Federal National Mortgage Association 6.61% May 8, 2002 4.3%
4. United States Treasury Note 7.75% Feb. 15, 2001 4.1%
5. United States Treasury Bond 6.25% Aug. 15, 2023 3.4%
6. United States Treasury Bond 7.25% Aug. 15, 2022 3.4%
7. United States Treasury Bond 6.00% Feb. 15, 2026 3.2%
8. Federal Home Loan Bank 7.57% Aug. 19, 2004 3.2%
9. Walt Disney Co. Global Bond 6.75% Mar. 30, 2006 3.1%
10. Honeywell Incorporated 7.00% Mar. 15, 2007 3.1%
- -------------------------------------------------------------------------------------
</TABLE>
Statement of Net Assets
Face Market
Amount Value
(000) (000)
------ ------
CORPORATE OBLIGATIONS -- 30.7%
Aircraft -- 2.5%
Boeing Co.
$ 600 6.350%, 06/15/03 $ 622
----------
Beauty Products -- 2.0%
Procter and Gamble
500 5.250%, 09/15/03 504
----------
Chemicals -- 2.3% PPG Industries, Inc.
500 6.875%, 02/15/12 559
----------
Communications Equipment -- 5.5%
Motorola
525 5.800%, 10/15/08 535
Rockwell International Corp.
300 6.625%, 06/01/05 317
Sony
500 6.125%, 03/04/03 511
----------
1,363
----------
15
Annual Report -- December 31, 1998
<PAGE>
High Grade Income Fund
- -------------------------------------------------------------------------------
Statement of Net Assets
Face (continued) Market
Amount Value
(000) (000)
------ ------
Entertainment -- 3.0%
Walt Disney Co.
$ 700 6.750%, 03/30/06 $ 758
----------
Food, Beverage & Tobacco -- 1.2%
Pet Inc.
300 6.500%, 07/01/03 311
----------
Machinery -- 1.2%
Dresser Industries, Inc.
300 6.250%, 06/01/00 305
----------
Measuring Devices -- 3.0%
Honeywell, Inc.
700 7.000%, 03/15/07 753
----------
Paper & Paper Products -- 2.2%
Sonoco Products Co.
500 6.750%, 11/01/10 543
----------
Photographic Equipment & Supplies -- 2.1%
Xerox
525 5.250%, 12/15/03 521
----------
Retail -- 3.5%
Gap, Inc.
500 6.900%, 09/15/07 548
Lowes Companies Inc.
300 6.375%, 12/15/05 317
----------
865
----------
Toys -- 2.2%
Hasbro
525 6.150%, 07/15/08 539
----------
TOTAL CORPORATE OBLIGATIONS (Cost $7,286) 7,643
----------
16
Bishop Street Funds
<PAGE>
High Grade Income Fund
- -------------------------------------------------------------------------------
Statement of Net Assets
Face (continued) Market
Amount/Shares Value
(000) (000)
------------- ------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 19.4%
FHLB
$ 700 7.170%, 03/29/00 $ 719
400 6.000%, 07/05/00 406
500 5.960%, 10/06/00 509
700 7.310%, 07/06/01 739
700 7.570%, 08/19/04 781
FHLMC
200 6.220%, 03/24/03 209
FNMA
400 7.500%, 02/11/02 428
1,000 6.610%, 05/08/02 1,049
--------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $4,669) 4,840
--------
U.S. TREASURY OBLIGATIONS -- 47.4%
U.S. Treasury Bonds
1,500 7.500%, 11/15/16 1,863
675 7.250%, 08/15/22 839
2,025 7.125%, 02/15/23 2,491
750 6.250%, 08/15/23 839
725 6.000%, 02/15/26 793
500 6.750%, 08/15/26 599
U.S. Treasury Notes
200 6.375%, 05/15/00 205
700 8.500%, 11/15/00 748
950 7.750%, 02/15/01 1,009
300 6.250%, 02/28/02 314
525 7.500%, 05/15/02 570
700 6.375%, 08/15/02 739
500 5.750%, 08/15/03 522
250 6.500%, 10/15/06 278
--------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $11,545) 11,809
--------
17
Annual Report -- December 31, 1998
<PAGE>
High Grade Income Fund
- -------------------------------------------------------------------------------
Statement of Net Assets
(continued) Market
Value
Shares (000)
------ ------
CASH EQUIVALENT -- 1.2%
291 SEI Daily Income Trust Money Market Portfolio $ 291
----------
TOTAL CASH EQUIVALENT (Cost $291) 291
----------
TOTAL INVESTMENTS (Cost $23,791) -- 98.7% 24,583
----------
OTHER ASSETS AND LIABILITIES, NET -- 1.3% 318
----------
NET ASSETS:
Fund Shares (unlimited authorization -- no par value)
based on 2,387,195 outstanding shares of beneficial interest 23,811
Accumulated net realized gain on investments 298
Net unrealized appreciation on investments 792
----------
TOTAL NET ASSETS -- 100.0% $24,901
==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 10.43
----------
FHLB -- Federal Home Loan Bank
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
The accompanying notes are an integral part of the financial statements.
18
Bishop Street Funds
<PAGE>
BISHOP STREET
INVESTMENT ADVISER'S REPORT & MANAGEMENT DISCUSION
FUNDS
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------
Investment Adviser's Report:
The fixed-income markets registered strong performance in 1998, as interest
rates generally declined. Through May, yields were largely unchanged from where
they stood at year-end 1997, as market professionals were trying to evaluate
what effect the faltering Asian economies would have on the United States.
During the summer, bond yields began to decline as it became apparent that Japan
was falling deeper into recession, and there were no substantial signs of
recovery in the other Asian economies. With Russia defaulting on its debt, and
some Latin American economies in severe turmoil, market participants concluded
that the Fed would have no choice but to reduce interest rates, igniting a rally
in the Treasury bond market.
Indeed, the Fed, convinced that there was a strong likelihood that global
economic events might very well spread to the U.S., intervened in late September
for the first of what would be three quarter-percentage-point reductions in
their targeted Fed Funds rate. The bond market rally continued, almost
uninterrupted, until the end of 1998.
Municipals were steady throughout the year, but underperformed U.S. Treasury
bonds, which were beneficiaries of significant international capital flows from
Asia, Latin America, and elsewhere. These foreign "safe haven" investors receive
no benefit from tax-exempt securities, and accordingly, the municipal bond
market was not affected by the huge demand that the Treasury market experienced.
As a result, municipals reached historically attractive levels--practically the
same yield as taxable U.S. Treasuries securities. As a percentage of Treasuries,
municipal yields increased from 85% at the beginning of 1998 to 96% of
Treasuries at year-end.
Management Discussion & Analysis of Fund Performance:
The primary goal of the Hawaii Municipal Bond Fund is to deliver a high level of
current income exempt from both State of Hawaii and federal income taxes. We
believe that the Fund accomplished that objective during 1998, particularly when
the yield is compared on a tax-equivalent basis to comparable investments.
19
Annual Report -- December 31, 1998
<PAGE>
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------
At year-end, the Fund was yielding 4.43%; for an individual in the highest
combined federal and state tax bracket, this equates to fully taxable yield of
8.15% currently, and 8.04% when the new, reduced State of Hawaii income tax
rates are phased in over the next few years.* (The maximum rate will go down to
8.75% from 10% in 1999).
For taxable investments, this yield would be difficult, to match with
alternatives of comparable quality. Indeed, high quality continues to be one of
our major priorities. At year-end, over 88% of our holdings are in the AA-AAA
rated category.
Also, this past year, we shortened the average maturity of our portfolio without
significantly sacrificing current income to our shareholders, the expectation
being that this will provide us some additional protection in the event of an
adverse market environment of rising interest rates. Our 12-year average life is
shorter than most income funds in our category. This strategy of "coming in on
the yield curve" was made possible by a continuing flat yield curve offering
only marginally higher yields for longer maturities.
For the year ending 12/31/98, the Hawaii Municipal Bond Fund produced a total
return of 5.84%. In comparison, the total return for the Lipper Hawaii Municipal
Debt Funds Average was 5.77%. The Lehman Municipal Bond Index, a broader measure
of unmanaged, mostly national issues not exempt from Hawaii income taxes,
reflected a 6.48% return for the same period.
The Hawaiian economy, with the dominant tourism industry, is still feeling the
effects of the economic downturns in Asia, and we don't anticipate any
significant recovery in 1999.
Although the national economy grew at approximately 4% in 1998, we expect growth
in 1999 to be somewhat less than that, closer to 3%. With no expected pressure
on what has been a benign inflation rate, we would expect the Federal Reserve to
leave interest rates unchanged for most of the first half of the year, and
accordingly, the bond market should be stable.
We will continue to seek out opportunities in the market place to benefit our
shareholders.
*This information is based on a hypothetical illustration and is not
representative of any investment securities.
20
Bishop Street Funds
<PAGE>
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------
Performance Comparison
Comparison of Change in the Value of a $10,000 Investment
Bishop Street Hawaii Municipal Bond Fund versus the
Lehman Brothers Municipal Bond Index and the
Lipper Hawaii Municipal Debt Funds Average
<TABLE>
<CAPTION>
- ---------------------------------------------------
Initial Investment Date 2/28/95 Jun 95 Dec 95 Jun 96 Dec 96 Jun 97 Dec 97 Jun 98 Dec 98
- --------------------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bishop Street Hawaii Municipal Bond Fund $10,000 $10,288 $10,941 $10,849 $11,401 $11,722 $12,373 $12,661 $13,097
Lehman Brothers Municipal Bond Index $10,000 $10,359 $11,097 $11,047 $11,589 $11,961 $12,656 $12,997 $13,478
Consumer Price Index $10,000 $10,100 $10,191 $10,376 $10,522 $10,606 $10,712 $10,787 $10,884
Lipper Hawaii Municipal Debt Funds Average $10,000 $10,301 $11,001 $10,890 $11,416 $11,723 $12,359 $12,643 $13,070
</TABLE>
Average Annual Total Returns
One Annualized Annualized
Year 3 Year Inception
Return Return to Date*
------ ---------- ----------
5.84% 6.18% 7.22%
*Commenced operations 2/15/95.
21
Annual Report -- December 31, 1998
<PAGE>
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------
Top Ten Holdings
<TABLE>
<CAPTION>
Percentage
Coupon Maturity of
Rate Date Investments
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Honolulu Waste - Wtr RB 5.25% July 1, 2018 5.8%
2. HI Airport Systems Revenue 7.00% July 1, 2020 3.7%
3. HI Airports System Revenue 5.75% July 1, 2009 3.7%
4. Commonwealth of Puerto Rico, GO 6.50% July 1, 2013 3.5%
5. HI Budg. & Fin./Queens Health Sys. 6.00% July 1, 2020 3.1%
6. C&C of Honolulu Board of Water Supply 5.80% July 1, 2016 3.0%
7. HI Hous., Fin. & Develop/Single Family 5.55% July 1, 2007 3.0%
8. Honolulu Waste - Wtr RB 5.25% July 1, 2017 2.9%
9. HI Dept. Budg. & Fin., St. Francis Medical
Center 6.50% July 1, 2022 2.9%
10. HI St Cert. of Part, Kapolei St. Office 5.00% May 1, 2017 2.8%
- -------------------------------------------------------------------------------------
</TABLE>
Statement of Net Assets
Face Market
Amount Value
(000) (000)
------ ------
MUNICIPAL BONDS -- 95.8%
Hawaii -- 87.4%
County, GO, MBIA Insured
$ 250 6.850%, 12/01/02 $ 253
County, Ser A, GO, FGIC Insured
400 5.550%, 05/01/09 440
450 5.600%, 05/01/12 496
190 5.600%, 05/01/13 208
Department of Budget & Finance, Hawaiian Electric,
RB, MBIA Insured
750 6.200%, 05/01/26 826
Department of Budget & Finance, Queens Health
Systems, Ser A, RB
250 5.875%, 07/01/11 272
1,000 6.000%, 07/01/20 1,084
Department of Budget & Finance, Special Purpose
Mortgage, Hawaiian Electric Company, Ser A, RB,
MBIA Insured
300 4.950%, 04/01/12 307
Department of Budget & Finance, Queens Health
Systems, Ser A, RB Department of Budget & Finance,
Special Purpose Mortgage, Hawaii Electric
Incorporated Project, Ser A, RB, MBIA Insured
390 6.600%, 01/01/25 436
22
Bishop Street Funds
<PAGE>
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------
Statement of Net Assets
Face (continued) Market
Amount Value
(000) (000)
------ ------
Department of Budget & Finance, Special Purpose
Mortgage, Kaiser Permanente Project, Ser A, RB
$ 300 6.500%, 03/01/11 $ 318
Department of Budget & Finance, Special Purpose
Mortgage, Kapiolani Health Care System Project, RB
760 6.300%, 07/01/08 824
250 6.000%, 07/01/11 272
250 6.400%, 07/01/13 269
Department of Budget & Finance, Special Purpose
Mortgage, St. Francis Medical Center Project, RB,
FSA Insured
930 6.500%, 07/01/22 1,017
Department of Budget & Finance, Special Purpose
Mortgage, Wilcox Memorial Hospital Projects, RB
500 5.500%, 07/01/09 532
Harbor Capital Improvement, RB, MBIA Insured
500 5.400%, 07/01/09 535
480 7.000%, 07/01/17 509
Harbor Capital Improvement, Ser 1992, RB, FGIC
Insured
225 6.500%, 07/01/19 246
Honolulu City & County Board of Water Supply, RB
250 5.250%, 07/01/07 267
1,000 5.800%, 07/01/16 1,072
Honolulu City & County Mortgage, Smith Berentia,
Ser A, RB, FHA & MBIA Insured
100 7.800%, 07/01/24 107
Honolulu City & County Ser A, GO
245 5.700%, 04/01/09 272
Honolulu City & County Waipahu Towers Project,
Ser A, RB, GNMA Collateral
200 6.900%, 06/20/35 216
Honolulu City & County, GO
230 6.000%, 12/01/09 262
Honolulu City & County, GO, FGIC Insured
125 5.500%, 11/01/07 137
Honolulu City & County, Ser A, GO
150 6.000%, 01/01/10 170
Honolulu City & County, Ser A, GO, MBIA Insured
500 6.000%, 11/01/10 574
Honolulu Waste-Water RB, FGIC Insured
1,000 5.250%, 07/01/17 1,025
2,000 5.250%, 07/01/18 2,042
Kauai County, Ser B, GO, AMBAC Insured
285 5.750%, 08/01/06 314
23
Annual Report -- December 31, 1998
<PAGE>
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------
Statement of Net Assets
Face (continued) Market
Amount Value
(000) (000)
------ ------
Kauai County, Ser B, GO, MBIA Insured
$ 120 5.050%, 08/01/12 $ 124
260 5.900%, 02/01/13 279
155 5.100%, 08/01/13 160
165 5.150%, 08/01/14 170
175 5.200%, 08/01/15 179
Maui County, Board of Water Supply, Ser A, RB,
FGIC Insured
520 6.000%, 12/01/01 553
Maui County, GO, FGIC Insured
100 5.125%, 12/15/12 103
Maui County, GO, MBIA Insured
250 5.750%, 06/01/13 268
Maui County, Refunding GO, FGIC Insured
290 5.125%, 12/15/10 301
Maui County, Ser A, GO, FGIC Insured
500 5.200%, 09/01/12 522
200 5.000%, 03/01/13 205
100 5.125%, 03/01/14 103
State Airport Systems, RB, FGIC Insured
300 7.200%, 07/01/00 315
1,210 7.000%, 07/01/20 1,316
State Airport Systems, Ser 2, RB
60 6.900%, 07/01/12 72
State Airport Systems, Ser 3, RB, AMBAC Insured
1,200 5.750%, 07/01/09 1,296
State Certificate of Participation, AMBAC Insured
500 5.000%, 05/01/16 494
1,000 5.000%, 05/01/17 987
State GO, FGIC Insured
500 5.250%, 03/01/17 511
State GO, MBIA Insured
500 5.250%, 04/01/13 522
State GO, Ser CM, FGIC Insured
500 6.000%, 12/01/09 573
State GO, Ser CN, FGIC Insured
500 5.500%, 03/01/14 529
State GO, Ser CO, FGIC Insured
200 6.000%, 09/01/05 222
250 6.000%, 03/01/09 284
250 6.000%, 09/01/09 285
State Highway RB, FGIC Insured
500 5.250%, 07/01/15 513
405 5.000%, 07/01/16 405
24
Bishop Street Funds
<PAGE>
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------
Statement of Net Assets
Face (continued) Market
Amount Value
(000) (000)
------ ------
State Highway Project, RB
$ 375 5.250%, 07/01/10 $ 395
510 5.000%, 07/01/11 520
500 5.250%, 07/01/12 519
State Housing, Finance & Development Corporation,
Affordable Rental Housing Program, Ser 1995 A, RB
350 6.000%, 07/01/15 369
750 6.050%, 07/01/22 789
State Housing, Finance & Development Corporation,
Single Family Mortgage Purchase, RB
1,005 5.550%, 07/01/07 1,053
State Housing, Finance & Development Corporation, Single
Family Mortgage Purchase, RB, AMT, Ser A, FNMA Collateral
250 5.250%, 07/01/13 252
State Housing, Finance & Development Corporation,
University of Hawaii Faculty Housing Project, RB,
AMBAC Insured
700 5.650%, 10/01/16 740
-------
31,230
-------
Puerto Rico -- 7.2%
Commonwealth Highway & Transportation Authority,
Ser Z, RB, FSA Insured 745181PE1
500 6.000%, 07/01/18 579
Commonwealth of Puerto Rico, GO, MBIA Insured
1,000 6.500%, 07/01/13 1,218
Housing, Banking & Finance Agency, Single Family
Mortgage, Affordable Housing Mortgage Portfolio I,
RB, GNMA/FNMA/FHLMC Collateral
200 6.100%, 10/01/15 211
Industrial Tourist Educational Medical Environmental
Control Facilities
Hospital Auxilio Muto Obligation Group, RB, MBIA Insured
300 6.250%, 07/01/24 333
Industrial Tourist Educational Medical Environmental
Control Facilities
Inter American University, Ser A, MBIA Insured
250 5.000%, 10/01/22 251
-------
2,592
-------
Guam -- 1.2%
Guam Power Authority, Ser A, RB, AMBAC Insured
400 6.375%, 10/01/08 438
-------
TOTAL MUNICIPAL BONDS (Cost $32,759) 34,260
-------
25
Annual Report -- December 31, 1998
<PAGE>
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------
Statement of Net Assets
(concluded) Market
Shares Value
(000) (000)
------ ------
CASH EQUIVALENT -- 2.5%
90 Dreyfus Tax Exempt Cash Management Fund $ 90
57 Nuveen Federal Tax Exempt Money Market 57
744 SEI Institutional Tax-Free Portfolio 744
-------
TOTAL CASH EQUIVALENT (Cost $891) 891
-------
TOTAL INVESTMENTS (Cost $33,650) -- 98.3% 35,151
-------
OTHER ASSETS AND LIABILITIES, NET -- 1.7% 600
-------
NET ASSETS:
Fund Shares (unlimited authorization -- no par value)
based on 3,319,612 outstanding shares of beneficial interest 34,205
Undistributed net investment income 28
Accumulated net realized gain on investments 17
Net unrealized appreciation on investments 1,501
-------
TOTAL NET ASSETS -- 100.0% $35,751
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $ 10.77
-------
AMBAC -- American Municipal Bond Assurance Company
AMT -- Alternative Minimum Tax
FGIC -- Federal Guaranty Insurance Corporation
FHA -- Federal Housing Authority
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
GO -- General Obligation
MBIA -- Municipal Bond Insurance Association
RB -- Revenue Bond
Ser -- Series
The accompanying notes are an integral part of the financial statements.
26
Bishop Street Funds
<PAGE>
- --------------------------------------------------------------------------------
BISHOP STREET
INVESTMENT ADVISER'S REPORT & MANAGEMENT DISCUSSION
FUNDS
- --------------------------------------------------------------------------------
Money Market & Treasury Money Market Funds
- --------------------------------------------------------------------------------
Investment Adviser's Report:
The U.S. enjoyed yet another year of strong economic growth in 1998, as consumer
spending and business investment both remained at high levels. Notwithstanding
this economic strength, inflation remained well under control and bond yields
fell considerably over the course of the year. The U.S. bond market's role as a
safe haven was highlighted on several occasions during the year as credit
concerns in a variety of markets kept demand for U.S. treasury securities high.
This was especially true in the third quarter, when what started as a flight to
quality became a stampede to liquidity. Financial turmoil in several emerging
markets spread quickly to the developed markets as a number of high-profile
investment funds were forced to unwind large amounts of leverage. The Federal
Reserve acted rapidly to defuse a potential crisis, cutting rates three times
and informally arranging a `work out' of the most leveraged fund. By the end of
the year, it was apparent that the corrective action had the intended effect,
and U.S. bond market investors entered 1999 much as they had 1998 - wondering
when the U.S. economy would show signs of slowing.
27
Annual Report -- December 31, 1998
<PAGE>
Money Market & Treasury Money Market Funds
- --------------------------------------------------------------------------------
Management Discussion & Analysis of Fund Performance:
In both the Money Market Fund and Treasury Money Market Fund, we adjusted the
weighted average maturity of the portfolios in response to market conditions.
Generally, we have lengthened maturities this year. During the middle of the
year, we invested in longer maturity securities to lock in advantageous yields
caused by an anticipated Fed tightening. As the year progressed and the Federal
Reserve did actually cut rates, money market instrument yields followed the
Fed's moves down. We purchased longer, higher yielding securities to compensate
for these moves. We believe that the strong economic growth evident at year-end
will keep the Fed on hold for the start of the new year, although we expect the
domestic economy to slow in coming months. We will continue to maintain a longer
average maturity in this environment.
28
Bishop Street Funds
<PAGE>
Money Market Fund
- --------------------------------------------------------------------------------
Statement of Net Assets
Face
Amount Value
(000) (000)
------ -------
COMMERCIAL PAPER -- 57.1%
Banks -- 12.7%
Bank of America
$ 9,000 5.040%, 03/11/99 $ 8,913
Centric Funding
3,000 5.070%, 03/05/99 2,973
5,000 5.120%, 04/06/99 4,932
Kitty Hawk Funding
7,000 5.500%, 02/26/99 6,940
2,500 5.180%, 03/10/99 2,476
Peacock Funding
8,000 5.200%, 02/04/99 7,961
-------
34,195
-------
Drugs -- 3.1%
Johnson & Johnson
8,500 5.000%, 02/26/99 8,434
-------
Financial Services -- 28.3%
Associates Funding
8,000 5.350%, 02/05/99 7,958
Corporate Asset Funding
9,000 5.360%, 02/19/99 8,934
Enterprise Funding
8,000 5.250%, 02/26/99 7,935
Falcon Asset Funding
5,565 5.410%, 02/08/99 5,533
Fleet Funding
8,339 5.550%, 01/14/99 8,322
International Lease Finance
8,000 5.100%, 02/19/99 7,945
Island Finance
5,000 5.160%, 03/30/99 4,937
National Rural Utilities
8,500 5.040%, 03/24/99 8,402
Sears Roebuck Acceptance Corporation
8,000 5.050%, 03/03/99 7,932
Variable Funding Capital
8,000 5.380%, 02/05/99 7,958
-------
75,856
-------
29
Annual Report -- December 31, 1998
<PAGE>
Money Market Fund
- --------------------------------------------------------------------------------
Statement of Net Assets
(continued)
Face
Amount Value
(000) (000)
------ -------
Food, Beverage & Tobacco -- 3.0%
Archer-Daniels-Midland
$ 8,000 5.070%, 02/04/99 $ 7,962
-------
Industrial -- 4.0%
Aesop Funding
1,900 5.406%, 02/10/99 1,889
Colgate Palmolive
6,035 4.926%, 03/31/99 5,963
Private Export Funding
3,000 5.160%, 05/06/99 2,948
-------
10,800
-------
Insurance -- 3.0%
Prudential Funding
8,000 5.340%, 02/05/99 7,959
-------
Telephones & Telecommunication -- 3.0%
GTE
8,000 5.310%, 02/18/99 7,943
-------
TOTAL COMMERCIAL PAPER (Cost $153,149) 153,149
-------
FLOATING RATE NOTES -- 14.5%
All-State Corporation(A)
3,000 5.309%, 03/15/99 3,000
American Express (A)
7,000 5.477%, 02/16/99 7,000
Asset-Backed Security Investment Trust (A)
5,000 5.356%, 02/15/99 5,000
Comerica Bank (A)
8,000 5.109%, 03/10/99 7,998
Peoples Security Life (A)
10,000 5.320%, 02/01/99 10,000
Travelers Insurance Co. (A)
6,000 5.300%, 03/01/99 6,000
-------
TOTAL FLOATING RATE NOTES (Cost $38,998) 38,998
-------
30
Bishop Street Funds
<PAGE>
Money Market Fund
- -------------------------------------------------------------------------------
Statement of Net Assets
Face (concluded)
Amount Value
(000) (000)
- ------ ------
CERTIFICATES OF DEPOSIT/BANK NOTES -- 18.9%
Bank of New York
$4,250 5.640%, 03/26/99 $ 4,249
Chase Manhattan
5,000 5.685%, 08/03/99 4,998
First National Bank of Chicago
4,000 5.740%, 05/07/99 3,999
Harris Bankcorp
8,000 5.150%, 02/22/99 8,000
Key Bank
8,000 4.700%, 09/16/99 7,998
PNC Bank
2,500 5.427%, 07/01/99 2,499
Regions Bank
3,000 5.770%, 05/21/99 3,000
US Bank - Minnesota
8,000 5.554%, 08/31/99 7,999
Wilmington Trust
3,000 5.900%, 04/30/99 3,000
5,000 5.850%, 05/17/99 5,000
---------
TOTAL CERTIFICATES OF DEPOSIT/BANK NOTES (Cost $50,742) 50,742
---------
TIME DEPOSIT -- 1.7%
National City
4,656 5.000%, 01/04/99 4,656
---------
TOTAL TIME DEPOSITS (Cost $4,656) 4,656
---------
CORPORATE OBLIGATION -- 3.1%
General Motors Acceptance Corporation
8,300 6.040%, 03/19/99 8,313
---------
TOTAL CORPORATE OBLIGATIONS (Cost $8,313) 8,313
---------
31
Annual Report -- December 31, 1998
<PAGE>
Money Market Fund
- -------------------------------------------------------------------------------
Statement of Net Assets
Face (concluded)
Amount Value
(000) (000)
- ------ ------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 4.7%
Federal Home Loan Mortgage
$10,000 4.885%, 03/17/99 $9,898
Federal National Mortgage Association
2,625 4.970%, 03/17/99 2,598
----------
U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $12,496) 12,496
----------
TOTAL INVESTMENTS (Cost $268,354) -- 100.0% 268,354
----------
OTHER ASSETS AND LIABILITIES, NET -- 0.0% (36)
---------
NET ASSETS:
Fund Shares (unlimited authorization -- no par value)
based on 268,323,399 outstanding shares of beneficial interest 268,323
Undistributed net investment income 4
Accumulated net realized loss on investments (9)
----------
TOTAL NET ASSETS -- 100.0% $268,318
==========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $ 1.00
---------
(A) Floating Rate Security -- the rate reflected on the Statement of Net Assets
is the rate in effect on December 31, 1998. The maturity date shown is the
next scheduled reset date.
The accompanying notes are an integral part of the financial statements.
32
Bishop Street Funds
<PAGE>
Treasury Money Market Fund
- -------------------------------------------------------------------------------
Statement of Net Assets
Face
Amount Value
(000) (000)
- ------ ------
U.S. TREASURY OBLIGATIONS -- 32.8%
U.S. Treasury Notes
$ 3,000 5.875%, 03/31/99 $ 3,003
32,000 6.250%, 03/31/99 32,056
12,000 6.375%, 04/30/99 12,031
5,000 6.000%, 06/30/99 5,012
5,000 5.875%, 11/15/99 5,047
5,000 7.875%, 11/15/99 5,132
10,000 5.625%, 11/30/99 10,077
10,000 5.625%, 12/31/99 10,085
U.S. Treasury Bills
13,000 3.940%, 01/21/99 12,972
3,000 4.550%, 11/12/99 2,880
----------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $98,295) 98,295
----------
REPURCHASE AGREEMENTS -- 66.8%
Greenwich Capital Markets, Inc.
4.75%, dated 12/31/98, matures 01/04/99,
repurchase price $20,010,556 (collateralized by
various U.S. Treasury Bonds, total par value
$14,534,000, 6.62%-12.75%,
20,000 02/15/10 - 02/15/27: total market value $20,403,800) 20,000
J.P. Morgan
4.75%, dated 12/31/98, matures 01/04/99,
repurchase price $40,021,111 (collateralized by
various U.S. Treasury Notes and Bills. total par
value $33,126,000, 0.00%-14.00%,
40,000 03/18/99 - 02/15/21: total market value $40,800,240) 40,000
J.P. Morgan
5.75%, dated 12/31/98, matures 01/04/99,
repurchase price $30,019,166 (collateralized by
U.S. Treasury Bond, par value 18,031,000, 11.25%,
30,000 02/15/15: total market value $30,600,581) 30,000
Lehman Brothers, Inc.
4.875%, dated 12/31/98, matures 01/04/99,
repurchase price $10,381,620 (collateralized by
U.S. Treasury STRIPS, par value $36,855,000, 0.00%,
matures
10,376 05/15/21: total market value $12,618,046) 10,376
33
Annual Report -- December 31, 1998
<PAGE>
Treasury Money Market Fund
- -------------------------------------------------------------------------------
Statement of Net Assets
Face
Amount Value
(000) (000)
- ------ ------
REPURCHASE AGREEMENTS -- continued
Morgan Stanley, Dean Witter
4.65%. dated 12/31/98, matures 01/04/99,
repurchase price $24,812,813 (collateralized by
various U.S. Treasury Notes and Bills, total
par value $22,260,738, 0.00%-8.125%,
$24,800 12/09/99-11/15/21: total market value $25,413,690) $ 24,800
Morgan Stanley, Dean Witter
4.92%. dated 12/30/98, matures 01/20/99,
repurchase price $30,086,100 (collateralized by
various U.S. Treasury Notes and Bills, total
par value $26,934,263, 0.00%-8.125%,
30,000 12/09/99-11/15/21: total market value $30,749,161) 30,000
Paribas Corp.
4.55%, dated 12/31/98, matures 01/04/99,
repurchase price $10,005,056 (collateralized by
U.S. Treasury Note, par value $8,709,000, 7.00%,
10,000 matures 07/15/06: market value $10,276,673) 10,000
Paribas Corp.
4.80%, dated 12/31/98, matures 01/04/99,
repurchase price $35,018,667 (collateralized by U.S.
Treasury Note, par value $35,350,000, 5.625%,
35,000 matures 12/31/99: market value $36,057,000) 35,000
----------
TOTAL REPURCHASE AGREEMENTS (Cost $200,176) 200,176
----------
TOTAL INVESTMENTS (Cost $298,471) -- 99.6% 298,471
----------
OTHER ASSETS AND LIABILITIES, NET -- 0.4% 1,373
----------
NET ASSETS:
Fund Shares (unlimited authorization -- no par value)
based on 299,866,077 outstanding shares of beneficial interest 299,865
Undistributed net investment income 14
Accumulated net realized loss on investments (35)
----------
TOTAL NET ASSETS -- 100.0% $299,844
==========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $ 1.00
----------
STRIPS -- Separate Trading of Registered Interest and Principal of Securities.
The accompanying notes are an integral part of the financial statements.
34
Bishop Street Funds
<PAGE>
Bishop Street Funds
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
Equity Fund
As of 12/31/98
(In Thousands)
- --------------------------------------------------------------------------------
Assets:
Investments at value (cost $64,912) $ 95,692
Accrued Income 54
Capital Shares Sold 6,227
- --------------------------------------------------------------------------------
Total Assets 101,973
- --------------------------------------------------------------------------------
Liabilities:
Income Payable 31
Accrued Expenses Payable 125
- --------------------------------------------------------------------------------
Total Liabilities 156
- --------------------------------------------------------------------------------
Total Net Assets $101,817
================================================================================
Net Assets:
Fund Shares (unlimited authorization -- no par value) based on
6,664, 015 outstanding shares of beneficial interest 70,913
Accumulated net realized gain on investments 124
Net unrealized appreciation on investments 30,780
Total Net Assets -- 100.0% $101,817
================================================================================
Net Asset Value, Offering and Redemption
Price Per Share $ 15.28
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
35
Annual Report -- December 31, 1998
<PAGE>
Bishop Street Funds
- --------------------------------------------------------------------------------
Statements of Operations
For the year ended 12/31/98
(In Thousands)
<TABLE>
<CAPTION>
High Hawaii Treasury
Grade Municipal Money Money
Equity Income Bond Market Market
Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest Income $ 17 $1,548 $1,633 $14,400 $17,481
Dividend Income 1,084 -- -- -- --
- ---------------------------------------------------------------------------------------
Total Investment Income 1,101 1,548 1,633 14,400 17,481
- ---------------------------------------------------------------------------------------
Expenses:
Investment Adviser Fee 590 142 111 768 967
Investment Adviser Fee Waiver (75) (47) (95) (209) (546)
Management Fee 159 52 64 512 645
Management Fee Waiver (64) (21) (47) (205) (258)
Shareholder Servicing Fee 199 64 79 640 806
Shareholder Servicing Fee Waiver (120) (39) (48) (384) (477)
Custody Fees 24 10 20 36 48
Transfer Agent Fees 27 22 22 29 45
Registration Fees 15 9 1 1 7
Trustees Fees 8 1 4 15 34
Printing Fees 9 1 6 23 57
Professional Fees 17 3 7 48 80
Amortization of Deferred
Organizational Costs 6 6 6 6 7
Miscellaneous Expenses 2 3 -- -- 3
- ---------------------------------------------------------------------------------------
Total Expenses 797 206 130 1,280 1,418
- ---------------------------------------------------------------------------------------
Net Investment Income 304 1,342 1,503 13,120 16,063
- ---------------------------------------------------------------------------------------
Net Realized Gain on Investments 4,270 655 78 25 2
Change in Unrealized Appreciation
on Investments 18,838 252 206 -- --
- ---------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
on Investments 23,108 907 284 25 2
- ---------------------------------------------------------------------------------------
Increase in Net Assets
Resulting from Operations $23,412 $2,249 $1,787 $13,145 $16,065
=======================================================================================
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
36
Bishop Street Funds
<PAGE>
Bishop Street Funds
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
(In Thousands)
<TABLE>
<CAPTION>
Equity High Grade
Fund Income Fund
- ---------------------------------------------------------------------------------------------------------
01/01/98 to 01/31/97 to 01/01/98 to 01/31/97 to
12/31/98 12/31/97 (1) 12/31/98 12/31/97 (1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Activities:
Net Investment Income $ 304 $ 483 $ 1,342 $ 1,290
Net Realized Gain (Loss) on Investments 4,270 (184) 655 101
Change in Unrealized Appreciation
on Investments 18,838 11,942 252 540
- ---------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting From Operations 23,412 12,241 2,249 1,931
- ---------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income (304) (483) (1,342) (1,290)
Capital Gains (3,962) -- (391) (67)
- ---------------------------------------------------------------------------------------------------------
Total Distributions (4,266) (483) (1,733) (1,357)
- ---------------------------------------------------------------------------------------------------------
Changes in Net Assets 19,146 11,758 516 574
- ---------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Proceeds from Shares Issued 8,970 59,210 1,225 25,503
Reinvestments of Cash Distributions 4,234 482 1,615 1,356
Cost of Shares Redeemed (500) (1,483) (4,697) (1,191)
- ---------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
From Capital Share Transactions 12,704 58,209 (1,857) 25,668
- ---------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 31,850 69,967 (1,341) 26,242
- ---------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period 69,967 -- 26,242 --
- ---------------------------------------------------------------------------------------------------------
End of Period $101,817 $69,967 $24,901 $26,242
=========================================================================================================
Capital Share Transactions:
Shares Issued 605 5,893 118 2,549
Shares Issued in Lieu of Cash Distributions 296 43 155 135
Shares Redeemed (38) (135) (452) (118)
- ---------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Shares 863 5,801 (179) 2,566
=========================================================================================================
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
(1) Commenced operations on January 31, 1997.
The accompanying notes are an integral part of the financial statements.
37
Annual Report -- December 31, 1998
<PAGE>
Bishop Street Funds
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
(In Thousands)
<TABLE>
<CAPTION>
Hawaii Municipal
Bond Fund
- ------------------------------------------------------------------------------------------------
01/01/98 01/01/97
to 12/31/98 to 12/31/97
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Activities:
Net Investment Income $ 1,503 $ 1,345
Net Realized Gain on Investments 78 84
Change in Unrealized Appreciation on Investments 206 800
- ------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting From Operations 1,787 2,229
- ------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income:
Institutional Class A Shares (1,503) (1,092)
Retail Class B Shares (1) -- (253)
Capital Gains:
Institutional Class A Shares -- --
- ------------------------------------------------------------------------------------------------
Total Distributions (1,503) (1,345)
- ------------------------------------------------------------------------------------------------
Change in Net Assets 284 884
- ------------------------------------------------------------------------------------------------
Capital Share Transactions:
Institutional Class A Shares:
Proceeds from Shares Issued 10,520 6,901
Proceeds in connection with transfer from Retail Class B -- 8,988
Reinvestments of Cash Distributions 705 471
Cost of Shares Redeemed (4,763) (3,804)
- ------------------------------------------------------------------------------------------------
Total Institutional Capital Share Transactions 6,462 12,556
- ------------------------------------------------------------------------------------------------
Retail Class B Shares: (1)
Proceeds from Shares Issued -- 743
Reinvestments of Cash Distributions -- 135
Cost of Shares Redeemed -- (574)
Transfer to Institutional Class A -- (8,988)
- ------------------------------------------------------------------------------------------------
Total Retail Capital Share Transactions -- (8,684)
- ------------------------------------------------------------------------------------------------
Net Increase in Net Assets From Capital Share Transactions 6,462 3,872
- ------------------------------------------------------------------------------------------------
Total Increase in Net Assets 6,746 4,756
- ------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period 29,005 24,249
- ------------------------------------------------------------------------------------------------
End of Period $35,751 $29,005
================================================================================================
Capital Share Transactions:
Institutional Class A Shares:
Shares Issued 984 661
Shares Issued in connection with transfer from Retail Class B -- 854
Shares Issued in Lieu of Cash Distributions 63 45
Shares Redeemed (445) (334)
- ------------------------------------------------------------------------------------------------
Total Institutional Capital Share Transactions 602 1,226
- ------------------------------------------------------------------------------------------------
Retail Class B Shares: (1)
Shares Issued -- 41
Shares Issued in Lieu of Cash Distributions -- 13
Shares Redeemed -- (54)
Transfer to Institutional Class A -- (854)
- ------------------------------------------------------------------------------------------------
Total Retail Capital Share Transactions -- (854)
- ------------------------------------------------------------------------------------------------
Net Increase in Capital Shares 602 372
================================================================================================
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
(1) For the period January 1, 1997 to July 20, 1997.
The accompanying notes are an integral part of the financial statements.
38
Bishop Street Funds
<PAGE>
Bishop Street Funds
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
(In Thousands)
<TABLE>
<CAPTION>
Treasury
Money Market Money Market
Fund Fund
- -------------------------------------------------------------------------------------------------------------------
01/01/98 01/01/97 01/01/98 01/01/97
to 12/31/98 to 12/31/97 to 12/31/98 to 12/31/97
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Activities:
Net Investment Income $ 13,120 $ 13,357 $ 16,063 $ 11,261
Net Realized Gain (Loss) on Investments 25 1 2 (37)
- -------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting From Operations 13,145 13,358 16,065 11,224
- -------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income:
Institutional Class A Shares (13,120) (13,235) (16,061) (11,249)
Retail Class B Shares (1) -- (119) -- --
Capital Gains:
Institutional Class A Shares -- (4) -- (14)
- -------------------------------------------------------------------------------------------------------------------
Total Distributions (13,120) (13,358) (16,061) (11,263)
- -------------------------------------------------------------------------------------------------------------------
Changes in Net Assets 25 -- 4 (39)
- -------------------------------------------------------------------------------------------------------------------
Capital Share Transactions: All at $1.00 per share
Institutional Class A Shares:
Proceeds from Shares Issued 709,477 625,934 1,801,697 1,511,022
Proceeds in connection with transfer
from Retail Class B -- 4,014 -- --
Reinvestments of Cash Distributions 214 83 -- --
Cost of Shares Redeemed (688,069) (657,484) (1,775,776) (1,417,265)
- -------------------------------------------------------------------------------------------------------------------
Total Institutional Capital Share Transactions 21,622 (27,453) 25,921 93,757
- -------------------------------------------------------------------------------------------------------------------
Retail Class B Shares: (1)
Proceeds from Shares Issued -- 1,172 -- --
Reinvestments of Cash Distributions -- 119 -- --
Cost of Shares Redeemed -- (1,796) -- --
Cost of shares in connection with transfer
to Institutional Class A -- (4,014) -- --
- -------------------------------------------------------------------------------------------------------------------
Total Retail Capital Share Transactions -- (4,519) -- --
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
From Capital Share Transactions 21,622 (31,972) 25,921 93,757
- -------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 21,647 (31,972) 25,925 93,718
- -------------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period 246,671 278,643 273,919 180,201
- -------------------------------------------------------------------------------------------------------------------
End of Period $268,318 $ 246,671 $299,844 $ 273,919
===================================================================================================================
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0. (1) For the
period January 1, 1997 to July 20, 1997.
The accompanying notes are an integral part of the financial statements.
39
Annual Report -- December 31, 1998
<PAGE>
Bishop Street Funds
- --------------------------------------------------------------------------------
Financial Highlights
For a Share Outstanding Throughout the Periods Ended December 31,
<TABLE>
<CAPTION>
Investment Activities Distributions from
------------------------------------ -------------------
Net
Net Realized Net
Asset and Asset
Value, Net Unrealized Net Value,
Beginning Investment Gain (Loss) on Investment Capital End of
of Period Income Investments Income Gains Period
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EQUITY FUND
- -----------------------------------------------------------------------------------------------------
1998: $12.06 $0.05 $ 3.88 $(0.05) $(0.66) $15.28
1997(1): $10.00 $0.08 $ 2.06 $(0.08) -- $12.06
- -----------------------------------------------------------------------------------------------------
HIGH GRADE INCOME FUND
- -----------------------------------------------------------------------------------------------------
1998: $10.23 $0.54 $ 0.37 $(0.54) $(0.17) $10.43
1997(1): $10.00 $0.51 $ 0.26 $(0.51) $(0.03) $10.23
- -----------------------------------------------------------------------------------------------------
HAWAII MUNICIPAL BOND FUND
- -----------------------------------------------------------------------------------------------------
1998: $10.67 $0.51 $ 0.10 $(0.51) -- $10.77
1997: $10.34 $0.53 $ 0.33 $(0.53) -- $10.67
1996: $10.47 $0.55 $(0.12) $(0.55) $(0.01) $10.34
1995(2): $10.00 $0.45 $ 0.47 $(0.45) -- $10.47
- -----------------------------------------------------------------------------------------------------
MONEY MARKET FUND
- -----------------------------------------------------------------------------------------------------
1998: $ 1.00 $0.05 -- $(0.05) -- $ 1.00
1997: $ 1.00 $0.05 -- $(0.05) -- $ 1.00
1996: $ 1.00 $0.05 -- $(0.05) -- $ 1.00
1995(3): $ 1.00 $0.05 -- $(0.05) -- $ 1.00
- -----------------------------------------------------------------------------------------------------
TREASURY MONEY MARKET FUND
- -----------------------------------------------------------------------------------------------------
1998: $ 1.00 $0.05 -- $(0.05) -- $ 1.00
1997: $ 1.00 $0.05 -- $(0.05) -- $ 1.00
1996(4): $ 1.00 $0.03 -- $(0.03) -- $ 1.00
</TABLE>
+ Total return is for the period indicated and has not been annualized.
++ Total return has been annualized.
* Annualized.
Amounts designated as "--" are either $0 or have been rounded to $0.
(1) Commenced operations on January 31, 1997.
(2) Commenced operations on February 15, 1995
(3) Commenced operations on January 30, 1995.
(4) Commenced operations on May 1, 1996.
40
Bishop Sreet Funds
<PAGE>
<TABLE>
<CAPTION>
Ratio of
Ratio of Net Investment
Ratio of Expenses to Ratio of Income to
Net Expenses Average Net Average
Assets, to Net Assets Investment Net Assets
End of Average Excluding Fee Income to Excluding Fee Portfolio
Total Period Net Waivers and Average Waivers and Turnover
Return (000) Assets Reimbursements Net Assets Reimbursements Rate
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
33.05% $101,817 1.00% 1.32% 0.38% 0.06% 41%
21.52%+ $ 69,967 0.99%* 1.39%* 0.83%* 0.43%* 30%
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
9.09% $ 24,901 0.80% 1.21% 5.21% 4.80% 98%
7.94%+ $ 26,242 0.80%* 1.30%* 5.58%* 5.08%* 32%
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
5.84% $ 35,751 0.41% 1.01% 4.74% 4.14% 21%
8.52% $ 29,005 0.34% 0.99% 5.05% 4.40% 29%
4.21% $ 15,408 0.21% 0.85% 5.33% 4.68% 27%
10.91%++ $ 9,411 0.27%* 1.10%* 5.24%* 4.40%* 68%
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
5.26% $268,318 0.50% 0.81% 5.12% 4.81% n/a
5.29% $246,671 0.51% 0.85% 5.18% 4.84% n/a
5.12% $274,125 0.49% 0.60% 5.01% 4.90% n/a
5.67%++ $305,120 0.50%* 0.66%* 5.50%* 5.34%* n/a
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
5.10% $299,844 0.44% 0.84% 4.98% 4.58% n/a
5.22% $273,919 0.43% 0.86% 5.11% 4.68% n/a
5.08%++ $180,201 0.42%* 0.65%* 4.96%* 4.74%* n/a
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
Annual Report -- December 31, 1998
<PAGE>
Bishop Street Funds
- --------------------------------------------------------------------------------
Notes to Financial Statements
1. ORGANIZATION
The Bishop Street Funds (the "Trust") are registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company.
The Bishop Street Funds consist of a series of five funds (the "Funds") which
includes the Equity Fund, High Grade Income Fund, Hawaii Municipal Bond Fund,
Money Market Fund and the Treasury Money Market Fund. Effective July 20, 1997
the Retail Class B for the Hawaii Municipal Bond Fund and Money Market Fund was
closed. All Retail Class B shareholders were exchanged into the Institutional
Class for the equivalent number of shares of that class. The assets of each Fund
are segregated, and a shareholder's interest is limited to the Fund in which
shares are held. The Funds' prospectus provides a description of each Fund's
investment objectives, policies and strategies.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Trust.
Security Valuation
Bishop Street Fund investments in equity securities which are traded on a
national securities exchange (or reported on the NASDAQ national market system)
are stated at the last quoted sale price on the principal exchange on which they
are traded on valuation date, other equity securities traded in the
over-the-counter market and listed equity securities for which no sale was
reported on that date are stated at the last quoted bid price. Debt obligations
exceeding sixty days to maturity which are actively traded are valued by an
independent pricing service at the most recently quoted bid price. Debt
obligations with sixty days or less remaining until maturity may be valued at
their amortized cost. Restricted securities for which quotations are not readily
available are valued at fair value using methods determined in good faith under
general Trustee supervision.
Investment securities held by the Money Market and Treasury Money Market
Funds are stated at amortized cost, which approximates market value. Under this
valuation method, purchase discounts and premiums are accreted and amortized
ratably to maturity and are included in interest income.
Security Transactions and Investment Income
Security transactions are accounted for on the date the security is purchased
or sold (trade date). Costs used in determining net realized capital gains and
losses on the sale of securities are those of the specific securities sold
adjusted for the accretion and amortization of the purchase discounts and
premiums during the respective holding periods. Interest income is recorded on
the accrual basis.
Discounts and Premiums
Discounts and premiums are accreted or amortized over the life of each
security and are recorded as interest income for each of the Funds using a
method which approximates the effective interest method.
42
Bishop Street Funds
<PAGE>
Repurchase Agreements
Securities pledged as collateral for Repurchase Agreements are held by the
custodian bank until the respective agreements mature. The Funds may also invest
in tri-party repurchase agreements. Securities held as collateral for tri-party
repurchase agreements are maintained in a segregated account by the broker's
custodian bank until the maturity of the repurchase agreement. Provisions of
repurchase agreements and procedures adopted by the Adviser ensure that the
market value of the collateral is sufficient in the event of default by the
counterparty. If the counterparty defaults and the value of the collateral
declines or if the counterparty enters an insolvency proceeding, realization of
the collateral by the Fund may be delayed or limited.
Expenses
Expenses that are directly related to one of the Funds are charged directly
to that Fund. Other operating expenses of the Trust are prorated to the Funds on
the basis of relative net assets.
Distributions to Shareholders
Distributions from net investment income are declared daily and paid on a
monthly basis for the High Grade Income Fund, Hawaii Municipal Bond Fund, the
Money Market Fund and the Treasury Money Market Fund. The Equity Fund declares
and pays such dividends on a quarterly basis. Any net realized capital gains
will be distributed at least annually for all Funds.
Federal Income Taxes
It is each Fund's intention to qualify as a regulated investment company for
Federal income tax purposes and to distribute a majority of its taxable income
and net capital gains. Accordingly, no provision for Federal income taxes is
required. the timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
that may differ from generally accepted accounting principles. These differences
relate primarily to paydowns on asset-backed securities and certain securities
sold at a loss. As a result, net investment income (loss) and net realized gain
(loss) on investment transactions for a reporting period may differ from
distributions during such period. Accordingly, the Funds may periodically make
reclassifications among certain capital accounts without impacting the net asset
value of the Funds.
Organization Costs
Organization costs have been capitalized by the Funds and are being amortized
over sixty months commencing with operations. In the event any of the initial
shares are redeemed by any holder thereof during the period that the fund is
amortizing its organization costs, the redemption proceeds payable to the holder
thereof prior to the end of the amortization period, the proceeds will be
reduced by the unamortized organization costs in the same ratio as the
43
Annual Report -- December 31, 1998
<PAGE>
Biship Street Funds
- --------------------------------------------------------------------------------
number of initial shares being redeemed bears to the number of initial shares
outstanding at the time of the redemption.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
3. INVESTMENT ADVISORY AGREEMENT
Investment advisory services are provided to the Funds by First Hawaiian Bank
(the "Adviser"). The Adviser is entitled to receive an annual fee of 0.74% of
the average daily net assets of the Equity Fund, 0.55% of the average daily net
assets of the High Grade Income Fund, 0.35% of the average daily net assets of
the Hawaii Municipal Bond Fund, and .30% of the Money Market and Treasury Money
Market Funds. The Adviser may from time to time waive a portion of its fee in
order to limit the operating expenses of a Fund.
Wellington Management Company, LLP (the "Sub-Adviser") serves as the
investment sub-adviser for the Money Market Fund and the Treasury Money Market
Fund (collectively, the "Money Market Funds"), pursuant to a sub-adviser
agreement. The Sub-Adviser is entitled to receive from the Adviser a fee,
computed daily and paid monthly, at the annual rate of 0.075% of the average
daily net assets of the Money Market Funds up to $500 million and 0.020% of the
average daily net assets of the Money Market Funds in excess of $500 million.
4. ADMINISTRATIVE, TRANSFER AGENT AND DISTRIBUTION SERVICES
Pursuant to an administration agreement dated January 27, 1995, (the
"Agreement") SEI Investments Mutual Funds Services ("SEI"), a wholly owned
subsidiary of SEI Investments Company, acts as the Trust's Administrator. Under
the terms of the Agreement, SEI is entitled to receive an annual fee of 0.20% of
the average daily net assets of each Fund. SEI has voluntarily agreed to waive a
portion of its fee in order to limit operating expenses. Pursuant to an
agreement dated January 30, 1995, DST Systems, Inc. ("DST") acts as the Transfer
Agent of the Trust. As such, DST provides transfer agency, dividend disbursing
and shareholder services to the Trust. SEI Investments Distribution Co. ("SEI
Investments"), a wholly owned subsidiary of SEI Investments Company, acts as the
Trust's Distributor pursuant to a distribution agreement dated January 27, 1995.
44
Bishop Street Funds
<PAGE>
- --------------------------------------------------------------------------------
The Trust has adopted and entered into a shareholder service plan and
agreement with SEI Investments. Each Fund pays to SEI Investments a shareholder
servicing fee at an annual rate of 0.25% of the average daily net asset value of
all shares of each fund, which is computed daily and paid monthly. SEI
Investments has voluntarily agreed to waive a portion of its fee in order to
limit operating expenses.
Certain officers of the Trust are also officers of the Administrator. Such
officers are paid no fees by the Trust.
5. INVESTMENT TRANSACTIONS
The cost of security purchases and the proceeds from the sale of
securities, other than temporary cash investments for the year ended December
31, 1998 are presented below for the Funds.
Fund Investment Transactions (000)
<TABLE>
<CAPTION>
EQUITY HIGH GRADE HAWAII MUNICIPAL
FUND INCOME FUND BOND FUND
------ ----------- ----------------
<S> <C> <C> <C>
Purchases
U.S. Government Securities $ -- $21,744 $ --
Other 33,668 2,613 12,453
Sales
U.S. Government Securities -- 23,910 --
Other 31,157 2,520 6,353
</TABLE>
At December 31, 1998 the following funds have capital loss carryforwards
for federal income tax purposes. For tax purposes, the losses in the Funds can
be carried forward for a maximum of eight years to offset any net realized
capital gains.
EXPIRATION
AMOUNT (000) DATE
----------- ----------
Money Market 9 2004-2005
Treasury Money Market 36 2005
The Equity and Hawaii Municipal Bond Funds used $177,335 and $60,709,
respectively, of its capital loss carryforward from the previous year.
45
Annual Report -- December 31, 1998
<PAGE>
Bishop Street Funds
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY HIGH GRADE HAWAII MUNICIPAL
FUND INCOME FUND BOND FUND
------ ----------- ----------------
<S> <C> <C> <C>
Gross Unrealized Appreciation $32,543 $810 $1,525
Gross Unrealized Depreciation (1,763) (18) (24)
------- ---- ------
Net Unrealized Appreciation $30,780 $792 $1,501
======= ==== ======
</TABLE>
6. CONCENTRATION OF CREDIT RISK
The Hawaii Municipal Bond Fund invests primarily in debt instruments in
the state of Hawaii. The issuers' ability to meet their obligations may be
affected by economic developments in that state. At December 31, 1998, the
percentage of the Fund investments by each revenue source was as follows:
HAWAII MUNICIPAL
BOND FUND
----------------
Cash Equivalents 2.5
Education Bonds 2.8
General Obligation Bonds 27.5
Hospital Bonds 14.0
Housing Bonds 8.5
Transportation Bonds 20.5
Utility Bonds 19.9
Public Facility Bonds 4.3
-------
100%
=======
The ratings of long-term debt holdings as a percentage of total value of
long-term debt investments at December 31, 1998 are as follows (unaudited):
STANDARD & HAWAII MUNICIPAL
POOR'S RATING BOND FUND
------------- ----------------
AAA 72
AA 19
A 4
BBB+ 2
Not Rated 3
-----
100%
=====
46
Bishop Street Funds
<PAGE>
- -------------------------------------------------------------------------------
Report of Independent Accountants
To the Shareholders and Board of Trustees
of the Bishop Street Funds:
In our opinion, the accompanying statements of net assets of the Bishop Street
Funds (including, respectively, the High Grade Income, Hawaii Municipal Bond,
Money Market and Treasury Money Market Funds) and the statement of assets and
liabilities, including the schedule of investments, of the Equity Fund and the
related statements of operations and of changes in net assets, and the financial
highlights present fairly, in all material respects, the financial position of
the Bishop Street Funds (the "Funds") at December 31, 1998, and the results of
their operations for the year then ended, the changes in their net assets for
each of the two years (or periods) in the period then ended and their financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform theaudit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 2, 1999
47
Annual Report -- December 31, 1998
<PAGE>
Bishop Street Funds
- -------------------------------------------------------------------------------
Notice to Shareholders of Bishop Street Funds (Unaudited)
For shareholders that do not have a December 31, 1998 taxable year end, this
notice is for informational purposes only. For shareholders with a December 31,
1998 tax year end, please consult your tax advisor as to the pertinence of this
notice.
For the fiscal year ended December 31, 1998, each fund has designated the
following items with regard to distributions paid during the year:
<TABLE>
<CAPTION>
(A) (B) (C)
Long Term Ordinary (A+B)
Capital Gains Income Total
Distributions Distributions Distributions
Fund (Tax Basis) (Tax Basis) (Tax Basis)
- ---- ------------- ------------- -------------
<S> <C> <C> <C>
Equity 91% 9% 100%
High Grade Income 5% 95% 100%
Hawaii Municipal Bond 0% 100% 100%
Money Market 0% 100% 100%
Treasury Money Market 0% 100% 100%
</TABLE>
(D) (E)
Qualifying Tax Exempt
Fund Dividends(1) Interest
- ---- ----------- ----------
Equity 100% 0%
High Grade Income 0% 0%
Hawaii Municipal Bond 0% 100%
Money Market 0% 0%
Treasury Money Market 0% 0%
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* Items (A) and (B) are based on the percentage of each fund's total
distribution.
** Items (D) and (E) are based on a percentage of ordinary income distributions
of each fund.
48
Bishop Street Funds
<PAGE>
- --------------------------------------------------------------------------------
Investment Team
[Photograph of Team]
Bishop Street Funds' Investment Team (left to right):
Michael Masuda, Vice-President; Jenny Carias, Assistant Vice-President;
Lori Foo, Compliance Officer; Lou Levitas, Portfolio Manager; Tony Goo,
Senior Vice-President.
49
Annual Report -- December 31, 1998
<PAGE>
Bishop Street Funds
- -------------------------------------------------------------------------------
Board of Trustees
[Photo-
graph] Mr. Martin Anderson
Partner--Goodsill, Anderson, Quinn & Stifel
[Photo- Mr. Philip H. Ching
graph] Vice Chairman--First Hawaiian Bank
(through January 1996)
Honorable Shunichi Kimura
Regent--University of Hawaii (1995-1996)
Judge--State of Hawaii Judiciary (1974-1994)
Mayor--County of Hawaii (1968-1974)
Chairman & Chief Executive--County of Hawaii (1964-1968)
Mr. Robert A. Nesher
Chairman--SEI Mutual Funds
Honorable William S. Richardson
Trustee--Kamehameha Schools Bishop Estate (through 1992)
Chief Justice--Supreme Court of Hawaii (through 1983)
Lieutenant Governor--State of Hawaii (1962-1966)
Mr. Manuel R. Sylvester
Managing & Executive Partner--
Coopers & Lybrand (through 1992)
Dr. Joyce S. Tsunoda
Senior Vice President & Chancellor
for Community Colleges--University of Hawaii
50
Bishop Street Funds
<PAGE>
- -------------------------------------------------------------------------------
Notes
51
Annual Report -- December 31, 1998
<PAGE>
Bishop Street Funds
- -------------------------------------------------------------------------------
Notes
52
Bishop Street Funds
<PAGE>
Investment Advisor
First Hawaiian Bank
Honolulu, HI 96813
Administrator
SEI Investments Mutual Funds Services
Wayne, PA 19087
Distributor
SEI Investments Distribution Co.
Oaks, PA 19456
Transfer Agent
DST Systems Inc.
Kansas City, MO 64141
Custodian
Chase Manhattan Bank
New York, NY 10041
Legal Counsel
Morgan, Lewis & Bockius LLP
Philadelphia, PA 20036
Auditors
PricewaterhouseCoopers LLP
Philadelphia, PA 19103
[BISHOP STREET FUNDS LOGO]
For more information about Bishop Street Funds, Call 1-800-262-9565
or your Investment Specialist
<PAGE>
[BISHOP BISHOP STREET FUNDS
c/o FIRST HAWAIIAN BANK
STREET P.O. BOX 3708
HONOLULU, HI 96811
FUNDS Logo]
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE
GENERAL INFORMATION OF BISHOP STREET FUNDS' SHAREHOLDERS. THIS REPORT IS NOT
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
SHARES OF BISHOP STREET FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY FIRST HAWAIIAN BANK OR ANY OF ITS SUBSIDIARIES. SUCH SHARES ARE ALSO NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION. THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENT IN SHARES OF MUTUAL FUNDS
INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SEI INVESTMENTS
DISTRIBUTION CO. SERVES AS DISTRIBUTOR FOR THE BISHOP STREET FUNDS AND IS NOT
AFFILIATED WITH FIRST HAWAIIAN BANK.
BSF-F-006-04
