-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SNBhehpxVVNEikhFdC3S+WpjSLymbvFuhsfhwfwRoN4rsq66M/PZAduQ/OEHcQaV Kzbc9Oe8ecQoI4Bndrmdww== 0001047469-99-023948.txt : 19990615 0001047469-99-023948.hdr.sgml : 19990615 ACCESSION NUMBER: 0001047469-99-023948 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19990611 EFFECTIVENESS DATE: 19990611 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BISHOP STREET FUNDS CENTRAL INDEX KEY: 0000925737 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-80514 FILM NUMBER: 99645284 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-08572 FILM NUMBER: 99645285 BUSINESS ADDRESS: STREET 1: 530 E SWEDESFORD RD CITY: WAYNE STATE: PA ZIP: 19087-1693 BUSINESS PHONE: 6102541000 MAIL ADDRESS: STREET 1: 530 E SWEDESFORD RD CITY: WAYNE STATE: PA ZIP: 19087-1693 485BPOS 1 485BPOS AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 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. 13 /X/ AND REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / / AMENDMENT NO. 14 /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) /X/ immediately upon filing pursuant to paragraph (b) / / on [date] pursuant to paragraph (b) / / 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. CLASS A SHARES BISHOP STREET FUNDS PROSPECTUS JUNE 14, 1999 EQUITY FUND HIGH GRADE INCOME FUND HAWAII MUNICIPAL BOND FUND INVESTMENT ADVISER: FIRST HAWAIIAN BANK A SUBSIDIARY OF BANCWEST CORPORATION THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE. [Logo] BISHOP STREET FUNDS Your Avenue to Sound Investment Page 1 of 32 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 Class A Shares of 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. IN THE NEXT COLUMN, THERE IS SOME GENERAL INFORMATION YOU SHOULD KNOW ABOUT THE FUNDS. If you would like more detailed information about the Funds, please see: PAGE EQUITY FUND 4 HIGH GRADE INCOME FUND 8 HAWAII MUNICIPAL BOND FUND 12 MORE INFORMATION ABOUT RISK 16 THE FUNDS' OTHER INVESTMENTS 19 INVESTMENT ADVISER AND INVESTMENT TEAM 19 PURCHASING, SELLING AND EXCHANGING FUND SHARES 20 DIVIDENDS, DISTRIBUTIONS AND TAXES 27 THE BOARD OF TRUSTEES 28 FINANCIAL HIGHLIGHTS 29 HOW TO OBTAIN MORE INFORMATION ABOUT BISHOP STREET FUNDS BACK COVER
Page 2 of 32 INFORMATION COMMON TO ALL FUNDS Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The investment manager invests Fund assets in a way that they believe will help the Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. An investment manager's judgments about the markets, the economy, or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job an investment manager does, you could lose money on your investment in the Fund, just as you could with other investments. A Fund share is not a bank deposit and it is not insured or guaranteed by the FDIC or any government agency. The value of your investment in a Fund is based on the market value of the securities a Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely a Fund diversifies its holdings. Page 3 of 32 BISHOP STREET 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 The Equity Fund primarily invests (at least 65% of its assets) in common stocks and other equity securities that the Adviser believes have potential for capital appreciation. Such instruments include convertible securities. Generally, the Fund invests in securities of companies with market capitalizations in excess of $2 billion. The Fund seeks to be diversified across issuers and major economic sectors. In making a determination to buy, sell, or hold a security, the portfolio management team gives special consideration to the relationship of the security to the risk/reward measurement of the entire portfolio. The Fund's investment approach, with its emphasis on common stocks and other equity securities, is expected to provide returns consistent with the performance of the U.S. stock market, as generally measured by broad U.S. stock market indices such as the S&P 500. The Adviser employs a core equity investment style with a growth bias. PRINCIPAL RISKS OF INVESTING 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 is also subject to the risk that its market segment, equity securities, may underperform other market segments. Page 4 of 32 WHAT IS AN INDEX? An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500 Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks, designed to mimic the overall equity market's industry weightings. The Consumer Price Index measures prices of goods bought by a typical consumer such as food, gas, shelter and clothing. It is widely used as a cost-of-living benchmark. PERFORMANCE INFORMATION+ The bar chart and the performance table below illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. This bar chart shows the performance of the Fund's Institutional Class Shares.
1998 33.05% Best Quarter Worst Quarter 23.34% -9.11% (12/31/98) (9/30/98)
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDING DECEMBER 31, 1998 TO THOSE OF THE S&P 500 INDEX AND THE CONSUMER PRICE INDEX.
1 YEAR SINCE INCEPTION - --------------------------------------------------------- ------------------- -------------------- Equity Fund 33.05% 28.47%* S&P 500 Index 28.60% 28.38%* Consumer Price Index 1.61% 1.73%*
*Since January 31, 1997 +The Performance Information provided reflects the returns of the Institutional Class of shares not offered in this prospectus. The Institutional Class and Class A Shares will have substantially similar annual returns because the shares are invested in the same portfolio of securities. The Institutional Class of shares does not currently have a sales charge or distribution fees. Therefore, the annual returns of the Class A Shares and Institutional Class of Shares will differ only to the extent that they do not have the same expenses. Page 5 of 32 FUND FEES AND EXPENSES THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR SELL CLASS A SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN THE FUND. Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.75% Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other Distributions (as a percentage of offering price) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None Maximum Account Fee None
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 Management Fees 0.74% Distribution Fees (12b-1 fees) 0.25% Other Expenses 0.58% - ------------------------------------------------------------------ -------------- Total Annual Fund Operating Expenses 1.57%
THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES ARE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER, ADMINISTRATOR AND DISTRIBUTOR ARE WAIVING A PORTION OF THEIR FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THE ADVISER 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 1.25%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER AND INVESTMENT TEAM." Page 6 of 32 EXAMPLE: COST OF INVESTING This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of each period. The Example also assumes that each year your investment has a 5% return and Fund expenses remain the same. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------------- ----------- ----------- ------------- $726 $1,042 $1,381 $2,335
Page 7 of 32 BISHOP STREET 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 grade U.S. debt obligations of domestic corporations and the U.S. Government Investor Profile Conservative investors seeking income, who are willing to accept some degree of share price volatility INVESTMENT STRATEGY The High Grade Income Fund primarily invests (at least 65% of its assets) in high grade U.S. dollar-denominated debt obligations of domestic corporations and the U.S. Government. High grade debt obligations are those rated in the three highest ratings categories by either S&P or other nationally recognized statistical rating organizations, and include mortgage-backed and variable and floating rate instruments. In determining to buy, sell, or hold a security, the portfolio management team analyzes the security in relationship to the risk characteristics of the portfolio as a whole. PRINCIPAL RISKS OF INVESTING The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa. Also, the volatility of lower rated securities is even greater than that of higher rated securities. Longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that its market segment, fixed income securities, may underperform other market segments. The mortgages underlying mortgage-backed securities may be paid off early, which makes it difficult to determine their actual maturity and therefore calculate how they will respond to changes in interest rates. The Fund may have to reinvest prepaid amounts at lower interest rates. This risk of prepayment is an additional risk of mortgage-backed securities. 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 8 of 32 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. WHAT IS AN INDEX? An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers Government/Corporate Bond Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. Government agency obligations, corporate debt backed by the U.S. Government, and fixed-rate non-convertible corporate debt securities issued or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least one year. The Consumer Price Index measures prices of goods bought by a typical consumer such as food, gas, shelter and clothing. It is widely used as a cost-of-living benchmark. PERFORMANCE INFORMATION+ The bar chart and the performance table below illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. This bar chart shows the performance of the Fund's Institutional Class Shares.
1998 9.09% Best Quarter Worst Quarter 5.42% -0.20% (9/30/98) (12/31/98)
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDING DECEMBER 31,1998 TO THOSE OF THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX AND CONSUMER PRICE INDEX.
1 Year Since Inception - --------------------------------------------------------------- --------------------- -------------------- High Grade Income Fund 9.09% 8.90%* Lehman Brothers Government/Corporate Bond Index 9.47% 9.98%* Consumer Price Index 1.61% 1.73%*
*Since January 31, 1997 Page 9 of 32 +The Performance Information provided reflects the returns of the Institutional Class of Shares not offered in this prospectus. The Institutional Class and Class A Shares will have substantially similar annual returns because the shares are invested in the same portfolio of securities. The Institutional Class of shares does not currently have a sales charge or distribution fees. Therefore, the annual returns of the Class A Shares and Institutional Class of Shares will differ only to the extent that they do not have the same expenses. FUND FEES AND EXPENSES THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR SELL CLASS A SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN THE FUND. Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.75% Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other Distributions (as a percentage of offering price) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None Maximum Account Fee None
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 Management Fees 0.55% Distribution Fees (12b-1 fees) 0.25% Other Expenses 0.66% - ---------------------------------------------------------------- -------------- Total Annual Fund Operating Expenses 1.46%
THE FUND'S TOTAL ACTUAL ANNUAL OPERATING EXPENSES ARE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER, ADMINISTRATOR AND DISTRIBUTOR ARE WAIVING A PORTION OF THEIR FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THE ADVISER 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: HIGH GRADE INCOME FUND 1.05%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER AND INVESTMENT TEAM." Page 10 of 32 EXAMPLE: COST OF INVESTING This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return and Fund expenses remain the same. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------------- ----------- ----------- ------------- $617 $915 $1,235 $2,138
Page 11 of 32 BISHOP STREET HAWAII MUNICIPAL BOND FUND Fund Summary Investment Goal High current income exempt from federal and Hawaii income taxes Investment Focus Hawaii municipal bonds Share Price Volatility Medium Principal Investment Strategy Investing in a portfolio focused on investment grade municipal bonds Investor Profile Investors seeking tax-exempt current income who are willing to accept the risk of investing in a portfolio of municipal securities INVESTMENT STRATEGY The Hawaii Municipal Bond Fund primarily invests (at least 65% of its assets) in investment grade municipal bonds, the interest from which is exempt from federal and Hawaii state income taxes. While the Adviser attempts to maximize the portion of the Fund's assets invested in Hawaii issues, the Fund may also invest in the municipal bonds issued by other U.S. states, territories and possessions. There is no restriction upon the amount of the Fund's assets that may be invested in obligations that pay income subject to the federal alternative minimum tax. To the extent that the Fund invests in securities subject to the alternative minimum tax, the income received from these securities could be taxable. There are no limits on the average maturity of the Fund's portfolio. The Adviser will use its judgment to invest in securities that will provide a high level of current income in light of current market conditions. In making a determination to buy, sell, or hold a security, the portfolio manager gives special consideration to the relative value of the security in comparison to the available alternatives, consistent with the objectives of the portfolio. PRINCIPAL RISKS OF INVESTING The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa. Also, the volatility of lower rated securities is even greater than that of higher rated securities. Longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that its market segment, fixed income securities, may underperform other market segments. Page 12 of 32 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 and government policies within Hawaii. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or political/regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. The Fund's investment approach, with its emphasis on investment grade municipal bonds, is expected to provide current tax-exempt income with moderate risk to principal. The Fund is not expected to perform as well as a comparable taxable bond fund, but may do as well or better on an after-tax basis. WHAT IS AN INDEX? An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers Municipal Bond Index is a widely-recognized index of municipal bonds with maturities of at least one year. The Consumer Price Index measures prices of goods bought by a typical consumer such as food, gas, shelter and clothing. It is widely used as a cost-of-living benchmark. 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 Institutional Class performance from year to year.
1996 4.21% 1997 8.52% 1998 5.84% Best Quarter Worst Quarter 3.39% -1.68% (6/30/97) (3/31/96)
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDING DECEMBER 31, 1998 TO THOSE OF THE LEHMAN BROTHERS MUNICIPAL BOND INDEX AND CONSUMER PRICE INDEX.
1 YEAR 3 YEARS SINCE INCEPTION - ------------------------------------------------- -------------------- --------------------- ---------------------- Hawaii Municipal Bond Fund 5.84% 6.18% 7.22%* Lehman Brothers Municipal Bond Index 6.48% 6.69% 8.09%** Consumer Price Index 1.61% 2.22% 2.24%**
*Since February 15, 1995 **Since February 28, 1995 Page 13 of 32 +The Performance Information provided reflects the returns of the Institutional Class of Shares not offered in this prospectus. The Institutional Class and Class A Shares will have substantially similar annual returns because the shares are invested in the same portfolio of securities. The Institutional Class of shares does not currently have a sales charge or distribution fees. Therefore, the annual returns of the Class A Shares and Institutional Class of Shares will differ only to the extent that they do not have the same expenses. FUND FEES AND EXPENSES THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR SELL CLASS A SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN THE FUND. Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.25% Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other Distributions (as a percentage of offering price) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None Maximum Account Fee None
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 Management Fees 0.35% Distribution Fees (12b-1 fees) 0.25% Other Expenses 0.66% - ------------------------------------------------- ------------- Total Annual Fund Operating Expenses 1.26%
Page 14 of 32 THE FUND'S TOTAL ACTUAL ANNUAL OPERATING EXPENSES ARE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER, ADMINISTRATOR AND DISTRIBUTOR ARE WAIVING A PORTION OF THEIR FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THE ADVISER 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: HAWAII MUNICIPAL BOND FUND 0.66%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER AND INVESTMENT TEAM." EXAMPLE: COST OF INVESTING This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return and Fund expenses remain the same. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS -------------- ------------- ------------ -------------- $548 $808 $1,087 $1,883
Page 15 of 32 MORE INFORMATION ABOUT RISK MANAGEMENT RISK - The risk that a strategy used by a fund's All Funds management may fail to produce the intended result. EQUITY RISK - Equity securities include public and privately Equity Fund issued equity securities, common and preferred stocks, warrants, rights to subscribe to common stock and convertible securities, as well as instruments that attempt to track the price movement of equity indices. Investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a mutual fund invests will cause a fund's net asset value to fluctuate. An investment in a portfolio of equity securities may be more suitable for long-term investors who can bear the risk of these share price fluctuations. FIXED INCOME RISK - The market value of fixed income investments High Grade Income Fund changes in response to interest rate changes and other factors. During periods of falling interest rates, the values of Hawaii Municipal Bond Fund 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: CALL RISK - During periods of falling interest rates, High Grade Income Fund certain debt obligations with high interest rates may be prepaid (or "called") by the issuer prior to Hawaii Municipal Bond Fund 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.
Page 16 of 32 CREDIT RISK - The possibility that an issuer will be High Grade Income Fund unable to make timely payments of either principal or interest. Since a Fund purchases securities backed by Hawaii Municipal Bond Fund credit enhancements from banks and other financial institutions, changes in the credit ratings of these institutions could cause a Fund to lose money and may affect a Fund's share price. EVENT RISK - Securities may suffer declines in credit High Grade Income Fund quality and market value due to issuer restructurings or other factors. The overall risk of these declines should Hawaii Municipal Bond Fund be reduced because of a Fund's multiple holdings. MUNICIPAL ISSUER RISK - There may be economic or political Hawaii Municipal Bond Fund changes that 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. MORTGAGE-BACKED SECURITIES - Mortgage-backed securities High Grade Income Fund 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.
Page 17 of 32 REGIONAL RISK - To the extent that the Fund's investments are Hawaii Municipal Bond Fund concentrated in a specific geographic region, the 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 the Fund to additional risks. YEAR 2000 RISK - The Funds depend on the smooth functioning of All Funds computer systems in almost every aspect of their business. Like other mutual funds, businesses and individuals around the world, the Funds could be adversely affected if the computer systems used by its service providers do not properly process dates on and after January 1, 2000, and distinguish between the year 2000 and the year 1900. The Funds have asked their service providers whether they expect to have their computer systems adjusted for the year 2000 transition, and are seeking assurances from each service provider that they are devoting significant resources to prevent material adverse consequences to the Funds. The Funds are also researching and analyzing the year 2000 compliance of the underlying securities. While it is likely that such assurances will be obtained, the Funds and their shareholders may experience losses if these assurances prove to be incorrect. The Funds and their shareholders may also experience losses as a result of year 2000 computer difficulties experienced by issuers of portfolio securities or third parties, such as custodians, banks, broker-dealers or others with which the Funds do business.
Page 18 of 32 THE FUNDS' OTHER INVESTMENTS In addition to the principal investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in our Statement of Additional Information. Of course, the Fund cannot guarantee that any Fund will achieve its investment goal. The investments and strategies described in this prospectus are those that we use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund may invest up to 100% of its assets in taxable money market instruments, repurchase agreements and short-term obligations. When a Fund is investing for temporary defensive purposes, it is not pursuing its investment goal. INVESTMENT ADVISER AND INVESTMENT TEAM INVESTMENT ADVISER The Investment Adviser makes investment decisions for the Funds and continuously reviews, supervises and administers its Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its day-to-day management activities. First Hawaiian Bank, a subsidiary of BancWest Corporation, serves as the Adviser to the Equity Fund, High Grade Income Fund and Hawaii Municipal Bond Fund. As of December 31, 1998, First Hawaiian Bank had approximately $7.25 billion in assets under management. For the fiscal year ended December 31, 1998, First Hawaiian Bank received advisory fees at the following annual rates: Equity Fund 0.65% High Grade Income Fund 0.37% Hawaii Municipal Bond Fund 0.05%
INVESTMENT TEAM The Equity and High Grade Income Funds are managed by a team of investment professionals from the Adviser. No one person is primarily responsible for making investment recommendations to the team. Louis M. Levitas has managed the Hawaii Municipal Bond Fund for the Adviser since its inception. 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 19 of 32 PURCHASING, SELLING AND EXCHANGING FUND SHARES This section tells you how to purchase, sell (sometimes called "redeem") or exchange shares of the Funds. HOW TO PURCHASE FUND SHARES You may purchase shares directly by: - - Mail; - - Telephone; - - Wire; or - - Direct Deposit. To purchase shares directly from us, please call 1-800-262-9565. Write your check, payable in U.S. dollars, to Bishop Street Funds and mail to Bishop Street Funds, P.O. Box 419721, Kansas City, MO 64141-6721. We cannot accept third-party checks, credit cards, credit card checks or cash. You may also purchase shares through a representative of BancWest Corporation and its banking and non-banking subsidiaries, 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. A Fund is deemed to have received your order upon receipt of a completed account application and a check or money order. If you already have an existing account, a Fund is deemed to have received your order upon receipt of your order and your check or money order. The Funds calculate each bond and equity fund's NAV once each Business Day at the regularly-scheduled close of normal trading (normally, 4:00 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. 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 20 of 32 In calculating NAV, a Fund generally values its investment portfolio at market price. 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. Some Funds hold securities that are listed on foreign exchanges. These securities may trade on weekends or other days when the Funds do not calculate NAV. As a result, the NAV of these Funds' shares may change on days when you cannot purchase or sell Fund shares. MINIMUM PURCHASES & AUTOMATIC INVESTMENT PLANS You may open an account with a $1,000 minimum initial investment per Fund ($500 for those investing in retirement plans and for officers, directors and employees of BancWest Corporation and its banking and non-banking subsidiaries). The minimum initial investment may be reduced with an Automatic Investment Plan (AIP). If you have a checking or savings account, you may establish an AIP and open an account with a $100 minimum initial investment per Fund ($50 for officers, directors and employees of BancWest Corporation and its banking and non-banking subsidiaries). You may then begin regularly scheduled investments of at least $50 per month through automatic deductions from your checking or savings accounts. Page 21 of 32 SALES CHARGES FRONT-END SALES CHARGES - CLASS A SHARES The offering price of Class A Shares is the NAV next calculated after a Fund receives your request, plus the front-end sales load. The amount of any front-end sales charge included in your offering price varies, depending on the amount of your investment: EQUITY FUND
YOUR SALES CHARGE AS A YOUR SALES CHARGES AS A PERCENTAGE OF OFFERING PERCENTAGE OF YOUR NET IF YOUR INVESTMENT IS: PRICE INVESTMENT - ----------------------------------------- -------------------------- ------------------------- LESS THAN $50,000 5.75% 6.10% $50,000 BUT LESS THAN $100,000 4.50% 4.71% $100,000 BUT LESS THAN $250,000 3.50% 3.63% $250,000 BUT LESS THAN $500,000 2.50% 2.56% $500,000 BUT LESS THAN $1,000,000 2.00% 2.04% $1,000,000 AND OVER* 0.00% 0.00%
* Even though you do not pay a sales charge on purchases of $1,000,000 or more, the Distributor may pay dealers a 1% commission for these transactions. HIGH GRADE INCOME FUND
YOUR SALES CHARGE AS A YOUR SALES CHARGES AS A PERCENTAGE OF OFFERING PERCENTAGE OF YOUR NET IF YOUR INVESTMENT IS: PRICE INVESTMENT - ----------------------------------------- -------------------------- ------------------------- LESS THAN $50,000 4.75% 4.99% $50,000 BUT LESS THAN $100,000 4.50% 4.71% $100,000 BUT LESS THAN $250,000 3.50% 3.63% $250,000 BUT LESS THAN $500,000 2.50% 2.56% $500,000 BUT LESS THAN $1,000,000 2.00% 2.04% $1,000,000 AND OVER* 0.00% 0.00%
* Even though you do not pay a sales charge on purchases of $1,000,000 or more, the Distributor may pay dealers a 1% commission for these transactions. HAWAII MUNICIPAL BOND FUND
YOUR SALES CHARGE AS A YOUR SALES CHARGES AS A PERCENTAGE OF OFFERING PERCENTAGE OF YOUR NET IF YOUR INVESTMENT IS: PRICE INVESTMENT - ----------------------------------------- -------------------------- ------------------------- LESS THAN $50,000 4.25% 4.44% $50,000 BUT LESS THAN $100,000 4.00% 4.17% $100,000 BUT LESS THAN $250,000 3.50% 3.63% $250,000 BUT LESS THAN $500,000 2.50% 2.56% $500,000 BUT LESS THAN $1,000,000 2.00% 2.04% $1,000,000 AND OVER* 0.00% 0.00%
* Even though you do not pay a sales charge on purchases of $1,000,000 or more, the Distributor may pay dealers a 1% commission for these transactions. Page 22 of 32 WAIVER OF FRONT-END SALES CHARGE -- CLASS A SHARES The front-end sales charge will be waived on Class A Shares purchased: - - by reinvestment of dividends and distributions; - - by persons repurchasing shares they redeemed within the last 30 days (see "Repurchase of Class A Shares"); - - by investors who purchase shares with redemption proceeds (but only to the extent of such redemption proceeds) from another investment company within 30 days of such redemption, provided that, the investors paid either a front-end or contingent deferred sales charge on the original shares redeemed; - - by present and retired Trustees of the Funds and officers, directors and employees (and members of their immediate family) of BancWest Corporation and its banking and non-banking subsidiaries; - - by persons reinvesting distributions from qualified employee benefit retirement plans and rollovers from individual retirement accounts ("IRAs") previously with BancWest Corporation and its banking and non-banking subsidiaries; - - by persons investing an amount less than or equal to the value of an account distribution when an account for which a bank affiliated with BancWest Corporation and its banking and non-banking subsidiaries acted in a fiduciary, administrative, custodial or investment advisory capacity is closed; or - - through dealers, retirement plans, asset allocation programs and financial institutions that, under their dealer agreements with the Distributor or otherwise, do not receive any portion of the front-end sales charge. REPURCHASE OF CLASS A SHARES You may repurchase any amount of Class A Shares of any Fund at NAV (without the normal front-end sales charge), up to the limit of the value of any amount of Class A Shares (other than those which were purchased with reinvested dividends and distributions) that you redeemed within the past 30 days. In effect, this allows you to reacquire shares that you may have had to redeem, without re-paying the front-end sales charge. To exercise this privilege, the Fund must receive your purchase order within 30 days of your redemption. IN ADDITION, YOU MUST NOTIFY THE FUND WHEN YOU SEND IN YOUR PURCHASE ORDER THAT YOU ARE REPURCHASING SHARES. REDUCED SALES CHARGES -- CLASS A SHARES RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this right allows you to add the value of the Class A Shares you already own to the amount that you are currently purchasing. The Fund will combine the value of your current purchases with the current value of any Class A Shares you purchased previously for (i) your account, (ii) your spouse's account, (iii) a joint account with your spouse, or (iv) your minor children's trust or custodial accounts. A fiduciary purchasing shares for the same fiduciary account, trust or estate may also use this right of accumulation. The Fund will only consider the value of Class A Shares purchased previously that were sold subject to a sales charge. TO BE ENTITLED TO A REDUCED SALES CHARGE BASED ON SHARES ALREADY OWNED, YOU MUST ASK US FOR THE REDUCTION AT THE TIME OF PURCHASE. You must provide the Fund with your account number(s) and, if applicable, the account numbers for Page 23 of 32 your spouse and/or children (and provide the children's ages). The Fund may amend or terminate this right of accumulation at any time. LETTER OF INTENT. You may purchase Class A Shares at the sales charge rate applicable to the total amount of the purchases you intend to make over a 13-month period. In other words, a Letter of Intent allows you to purchase Class A Shares of a Fund over a 13-month period and receive the same sales charge as if you had purchased all the shares at the same time. The Fund will only consider the value of Class A Shares sold subject to a sales charge. As a result, Class A Shares purchased with dividends or distributions will not be included in the calculation. To be entitled to a reduced sales charge based on shares you intend to purchase over the 13-month period, you must send the Fund a Letter of Intent. In calculating the total amount of purchases, you may include in your letter purchases made up to 90 days before the date of the Letter. The 13-month period begins on the date of the first purchase, including those purchases made in the 90-day period before the date of the Letter. Please note that the purchase price of these prior purchases will not be adjusted. You are not legally bound by the terms of your Letter of Intent to purchase the amount of your shares stated in the Letter. The Letter does, however, authorize the Fund to hold in escrow 5% of the total amount you intend to purchase. If you do not complete the total intended purchase at the end of the 13-month period, the Fund's transfer agent will redeem the necessary portion of the escrowed shares to make up the difference between the reduced rate sales charge (based on the amount you intended to purchase) and the sales charge that would normally apply (based on the actual amount you purchased). COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE. When calculating the appropriate sales charge rate, the Fund will combine same day purchases of Class A Shares (that are subject to a sales charge) made by you, your spouse and your minor children (under age 21). This combination also applies to Class A Shares you purchase with a Letter of Intent. GENERAL INFORMATION ABOUT SALES CHARGES Your securities dealer is paid a commission when you buy your shares and is paid a distribution fee as long as you hold your shares. Your securities dealer or servicing agent may receive different levels of compensation depending on which Class of shares you buy. From time to time, some financial institutions, including brokerage firms affiliated with the Adviser, may be reallowed up to the entire sales charge. Firms that receive a reallowance of the entire sales charge may be considered underwriters for the purpose of federal securities law. 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 sales charge 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 Fund. Page 24 of 32 HOW TO SELL YOUR FUND SHARES If you own your shares directly, you may sell (sometimes called "redeem") your shares on any Business Day by contacting the Fund by mail at P.O. Box 419721, Kansas City, MO 64141-6721 or by telephone at 1-800-262-9565. If you are requesting to sell $5,000 or more of your shares in writing, please include a signature guarantee by a bank or other financial institution (a notarized signature is not sufficient). The sale price of each share will be the next NAV determined after the Fund receives your request. SYSTEMATIC WITHDRAWAL PLAN If you have at least $10,000 in the Equity Fund, High Grade Income Fund or Hawaii Municipal Bond Fund 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 days after we receive your request. Your proceeds can be wired to your bank account if your redemption proceeds are in excess of $500 (subject to a $15 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE). REDEMPTIONS IN KIND The Fund generally pays sale (redemption) proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Fund's remaining shareholders) we might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. INVOLUNTARY SALES OF YOUR SHARES If your account balance drops below $1,000 ($500 for those investing in retirement plans; $100 for officers, directors and employees of BancWest Corporation and its banking and non-banking subsidiaries, who have arranged to purchase shares through the AIP) 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. Page 25 of 32 SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons. More information about this is in our Statement of Additional Information. HOW TO EXCHANGE YOUR SHARES You may exchange your shares on any Business Day by contacting us directly by mail or telephone. You may also exchange shares through your financial institution by mail or telephone. IF YOU RECENTLY PURCHASED SHARES BY CHECK, YOU MAY NOT BE ABLE TO EXCHANGE YOUR SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE). THIS EXCHANGE PRIVILEGE MAY BE CHANGED OR CANCELED AT ANY TIME UPON 60 DAYS' NOTICE. 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. If you exchange shares that you purchased without a sales charge or with a lower sales charge into a Fund with a sales charge or with a higher sales charge, the exchange is subject to an incremental sales charge (e.g., the difference between the lower and higher applicable sales charges). If you exchange shares into a Fund with the same, lower or no sales charge there is no incremental sales charge for the exchange. 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 26 of 32 DIVIDENDS, DISTRIBUTIONS AND TAXES Each Fund distributes its income as follows: DECLARED DAILY AND PAID MONTHLY High Grade Income Fund Hawaii Municipal Bond Fund DECLARED AND PAID QUARTERLY Equity Fund Each Fund makes distributions of capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Fund receives your written notice. To cancel your election, simply send the Fund written notice. TAXES PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its income and capital gains, if any. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. 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. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. Page 27 of 32 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:
NAME BUSINESS HISTORY Martin Anderson Attorney, Goodsill Anderson Quinn & Stifel since 1951 Charles E. Carlbom Senior Executive - Mergers & Acquisitions, United Grocers, Inc. since 1999; President and CEO, United Grocers, Inc. (1997 - 1999); President and CEO, Western Family Food, Inc. - Western Family Holding Inc. (1982-1997) Philip H. Ching Vice Chairman, First Hawaiian Bank (1968-1996) James L. Huffman Dean and Professor, Lewis & Clark Law School since 1973 Shunichi Kimura Judge, State of Hawaii Judiciary (1974-1994) Robert A. Nesher Chairman, SEI Mutual Funds since 1974; Director and Executive Vice President of the Administrator and the Distributor (1981-1994) William S. Richardson Trustee, Kamehameha Schools Bishop Estate (1982-1992); Chief Justice Supreme Court of Hawaii (1966-1983) Peter F. Sansevero Regional Director of the Northwestern Region and First Vice President, Merrill Lynch (1958-1997) Manual R. Sylvester Managing Partner, Coopers & Lybrand L.L.P.(1978-1992); Executive Partner, Coopers & Lybrand L.L.P. (1992) Joyce S. Tsunoda Senior Vice President, University of Hawaii System since 1989; Chancellor, Community Colleges-University of Hawaii since 1983
Page 28 of 32 FINANCIAL HIGHLIGHTS The tables that follow present performance information of the Institutional Class Shares, an existing class of shares not offered in this prospectus. 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 29 of 32
For a Share Outstanding Throughout the Periods Ended December 31, INVESTMENT ACTIVITIES DISTRIBUTIONS FROM NET REALIZED NET AND NET ASSET UNREALIZED ASSET VALUE, NET GAIN NET VALUE, BEGINNING INVESTMENT (LOSS) ON INVESTMENT CAPITAL END OF OF PERIOD INCOME INVESTMENTS INCOME GAINS PERIOD - --------------------------------------------------------------------------------------------------------- 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 For a Share Outstanding Throughout the Periods Ended December 31, INVESTMENT ACTIVITIES DISTRIBUTIONS FROM 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 - ------------------------------------------------------------------------------------------------------------------------------- EQUITY FUND 1998: 33.05% $101,817 1.00% 1.32% 0.38% 0.06% 41% 1997(1): 21.52%+ $ 69,967 0.99%* 1.39%* 0.83%* 0.43%* 30% HIGH GRADE INCOME FUND 1998: 9.09% $ 24,901 0.80% 1.21% 5.21% 4.80% 98% 1997(1): 7.94%+ $ 26,242 0.80%* 1.30%* 5.58%* 5.08%* 32% HAWAII MUNICIPAL BOND FUND 1998: 5.84% $ 35,751 0.41% 1.01% 4.74% 4.14% 21% 1997: 8.52% $ 29,005 0.34% 0.99% 5.05% 4.40% 29% 1996: 4.21% $ 15,408 0.21% 0.85% 5.33% 4.68% 27% 1995(2): 10.91%++ $ 9,411 0.27%* 1.10%* 5.24%* 4.40%* 68%
+ 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. Page 30 of 32 BISHOP STREET FUNDS INVESTMENT ADVISER First Hawaiian Bank Portfolio Management Department 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 is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI dated June 14, 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 Page 31 of 32 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 32 of 32 BISHOP STREET FUNDS A MUTUAL FUND FAMILY ADVISED BY FIRST HAWAIIAN BANK EQUITY FUND, HIGH GRADE INCOME FUND AND HAWAII MUNICIPAL BOND FUND STATEMENT OF ADDITIONAL INFORMATION CLASS A SHARES JUNE 14, 1999 This Statement of Additional Information is not a prospectus. It is intended to provide additional information regarding the activities and operations of the Bishop Street Funds. Please read this in conjunction with the Bishop Street Funds' prospectus dated June 14, 1999. Prospectuses may be obtained through the Distributor, SEI Investments Distribution Co., Oaks, Pennsylvania 19456. TABLE OF CONTENTS
Page ---- The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-2 Description of Permitted Investments . . . . . . . . . . . . . . . . . . . . . . .S-2 Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12 The Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13 The Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14 The Distributor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15 The Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17 The Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18 Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18 Legal Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18 Trustees and Officers of the Trust . . . . . . . . . . . . . . . . . . . . . . . S-18 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21 Calculation of Total Return. . . . . . . . . . . . . . . . . . . . . . . . . . . S-22 Purchasing Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23 Redeeming Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23 Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . S-24 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24 Fund Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-29 Description of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-32 Shareholder Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-32 Limitation of Trustees' Liability. . . . . . . . . . . . . . . . . . . . . . . . S-32 5% and 25% Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33 Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
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 (the "shares") and separate classes of funds. Shareholders may purchase shares in certain funds through two separate classes, Class A and Institutional Class, which provide for variations in sales charges, distribution costs, transfer agent fees, voting rights and dividends. Except for differences between the Class A shares and the Institutional Class shares pertaining to sales charges, distribution and shareholder servicing, voting rights, dividends and transfer agent expenses, 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 Class A shares of the Trust's Equity Fund, High Grade Income Fund and Hawaii Municipal Bond Fund (the "Funds"). DESCRIPTION OF PERMITTED INVESTMENTS The following information supplements the information about permitted investments set forth in the Prospectus. FUND INVESTMENTS & PRACTICES LEGEND % - Maximum percentage permissible. All percentages shown are of total assets unless otherwise noted. X - No Policy limitation; Fund may be currently using. * - Permitted, but not typically used. - - Not permitted
HAWAII HIGH GRADE EQUITY MUNICIPAL INCOME FUND BOND FUND FUND TRADITIONAL INVESTMENTS ADRs 35% - X Asset-Backed Securities - - 35%(7) S-2 HAWAII HIGH GRADE EQUITY MUNICIPAL INCOME FUND BOND FUND FUND Bank Obligations - - 35%(1) Commercial Paper - - 35%(1) Convertible Securities 35% - - Corporate Debt Obligations - 20%(3) X(1),(2) Equity Securities X - - Investment Company Shares 10% 10% 10% Mortgage-Backed Securities - - 35%(4) Municipal Securities - X(5) - Repurchase Agreements 35% 20%(3) 35% Restricted Securities 15% 15% 15% Securities of Foreign Issuers * - X(1) Supranational Agency Obligations - - 35% U.S. Government Agency and Treasury - 20%(3) X(6) Obligations Variable & Floating Rate Instruments - X X Zero Coupon Obligations - X X INVESTMENT PRACTICES Borrowing 33 1/3% 33 1/3% 33 1/3% Illiquid Securities 15%(3) 15%(3) 15%(3) Securities Lending 15% 15% 50% Standby commitments 33 1/3% 33 1/3% 33 1/3% When-Issued Securities 33 1/3% 33 1/3% 33 1/3%
S-3 1. Rated in the two highest ratings category by S&P or Moody's, or unrated equivalent. 2. May invest up to 5% in securities rated BBB by S&P or BAA by Moody's, or unrated equivalent. 3. Percentage is based on net assets, not total assets. 4. Includes privately issued mortgage-backed securities rated A or higher by S&P or Moody's, or unrated equivalents. 5. Will invest at least 65% of its assets in municipal securities issued by the State of Hawaii. Will invest at least 80% of its net assets in investment grade securities that pay income exempt from regular federal income tax. 6. May invest in U.S. Treasury Receipts. 7. Rated in the three highest ratings categories by S&P or Moody's, or unrated equivalents. 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. S-4 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 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. S-5 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 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. S-6 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 S-7 the securities in certain circumstances (for example, a change in the published rating of the underlying municipal securities or any similar event that has an adverse effect on the issuer's credit); or a provision in the contract may provide that the put will not be exercised except in certain special cases, for example, to maintain portfolio liquidity. A Fund could, however, sell the underlying portfolio security in the open market or wait until the portfolio security matures, at which time it should realize the full par value of the security. Municipal securities purchased subject to a put may be sold to third persons at any time, even though the put is outstanding, but the put itself, unless it is an integral part of the security as originally issued, may not be marketable or otherwise assignable. Sale of the securities to third parties or lapse of time with the put unexercised may terminate the right to put the securities. Prior to the expiration of any put option, a Fund could seek to negotiate terms for the extension of such an option. If such a renewal cannot be 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 S-8 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. 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. S-9 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 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. S-10 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. S-11 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 accredited. 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. INVESTMENT LIMITATIONS FUNDAMENTAL POLICIES A Fund may not: 1. Invest more than 25% of its assets in any one industry. This limitation does not apply to the Hawaii Municipal Bond fund, but the Fund will not invest more than 25% of its assets in securities of non-governmental entities that are in the same industry. 2. Invest more than 5% of its assets in the securities of any one issuer (except for the Hawaii Municipal Bond Fund). 3. Acquire more than 10% of the voting securities of any one issuer, provided that this limitation shall apply only to 75% of the Fund's net assets except that this restriction does not apply to the Hawaii Municipal Bond Fund. 4. Invest in companies for the purpose of exercising control. 5. Borrow money except for temporary or emergency purposes and then only in an amount not exceeding one-third of the value of total assets. To the extent that such borrowing exceeds 5% of the value of the borrowing Fund's assets, asset coverage of at least 300% is required. No Fund will purchase securities while its borrowings exceed 5% of its total assets. 6. Make loans, except that (a) each Fund may purchase or hold debt instruments in accordance with its investment objective and policies; (b) each Fund may enter into repurchase agreements; and (c) Equity, High Grade Income and Hawaii Municipal Bond Funds may engage in securities lending. 7. Pledge, mortgage or hypothecate assets except to secure borrowings permitted by (5) above in aggregate amounts not to exceed 33% of total assets taken at current value at the time of the incurrence of such loan. S-12 8. 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. 9. Make short sales of securities or purchase securities on margin, except that each Fund may obtain short-term credits as necessary for the clearance of security transactions. 10. Act as an underwriter of securities of other issuers except as it may be deemed an underwriter in selling a portfolio security. 11. Purchase securities of other investment companies, except as permitted by the 1940 Act and the rules and regulations thereunder. 12. Issue senior securities (as defined in the 1940 Act) except in connection with permitted borrowings as described above or as permitted by rule, regulation or order of the Securities and Exchange Commission (the "SEC"). 13. Invest in interests in oil, gas or other mineral exploration or development programs and oil, gas or mineral leases. NON-FUNDAMENTAL POLICY No Fund may invest in illiquid securities in an amount exceeding, in the aggregate, 15% of the Fund's net assets. The foregoing percentages will apply at the time the Fund purchases the security and shall not be considered violated unless an excess occurs or exists immediately after and as a result of a purchase of such security. THE ADVISER The Trust and First Hawaiian Bank (the "Adviser") have entered into an advisory agreement (the "Advisory Agreement") dated March 31, 1999. The Advisory Agreement provides that the Adviser shall not be protected against any liability to the Trust or its Shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. The Advisory Agreement provides that if, for any fiscal year, the ratio of expenses of any Fund (including amounts payable to the Adviser but excluding interest, taxes, brokerage, litigation, and other extraordinary expenses) exceeds limitations established by any state, the Adviser will bear the amount of such excess. The Adviser will not be required to bear expenses of the Trust to an extent which would result in a Fund's inability to qualify as a regulated investment company under provisions of the Internal Revenue Code. S-13 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 0.74% of the daily average net assets of the Equity Fund, 0.55% of the daily average net assets of the High Grade Income Fund and 0.35% of the daily average net assets of the Hawaii Municipal Bond Fund. For the fiscal years ended December 31, 1996, 1997 and 1998, the Funds paid the following advisory fees:
Advisory Fees Paid Advisory Fees Waived ----------------------------------- ---------------------------------- - ---------------- 1996 1997 1998 1996 1997 1998 Equity Fund * $311,840 $514,451 * $121,268 $75,127 High Grade Income Fund * $77,201 $94,508 * $49,860 $47,128 Hawaii Municipal Bond Fund $0 $8,620 $16,208 $78,455 $84,733 $94,685
*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. S-14 For the fiscal years ended December 31, 1996, 1997 and 1998, the Funds paid the following administrative fees:
ADMINISTRATIVE FEES PAID ADMINISTRATIVE FEES WAIVED ------------------------- ----------------------------- 1996 1997 1998 1996 1997 1998 INSTITUTIONAL CLASS Equity Fund * $78,619 $95,607 * $38,478 $63,739 High Grade Income Fund * $31,706 $30,902 * $14,505 $20,602 Hawaii Municipal $0 $8,621 $15,841 $44,816 $44,724 $47,526 Bond Fund *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-, CNI Charter Funds, 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 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, TIP Funds and UAM Funds, Inc. II. The Administrator is entitled to a fee, calculated daily and paid monthly, at an annual rate of 0.20% 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. S-15 Each Fund has adopted a shareholder servicing plan (the "Service Plan") under which a shareholder servicing fee of up to 0.25% of average daily net assets attributable to each Fund will be paid to the Distributor. Under the Service Plan, the Distributor may perform, or may compensate other service providers for performing, the following shareholder and administrative services: maintaining client account; arranging for bank wires; responding to client inquiries concerning services provided on investments; assisting clients in changing dividend options, account designations and addresses; sub-accounting; providing information on share positions to clients; forwarding shareholder communications to clients; processing purchase, exchange and redemption orders; and processing dividend payments. Under the Service Plan, the Distributor may retain as profit any difference between the fee it receives and amount is pays to third parties. For the fiscal year ended December 31, 1998, the Funds incurred the following distribution expenses:
AMOUNT PAID TO 3RD PARTIES PROSPECTUS BY THE PRINTING & DISTRIBUTOR MAILING COSTS COSTS FOR (NEW ASSOCIATED DISTRIBUTOR SHAREHOLDERS WITH RELATED SALES ONLY) REGISTRATION TOTAL SERVICES EXPENSES ADVERTISING ($ AMOUNT) FEES FUND ($ AMOUNT) ($AMOUNT) ($ AMOUNT) ($ AMOUNT) ($ AMOUNT) INSTITUTIONAL CLASS Equity Fund $77,851 $77,851 $0 $0 0 $0 High Grade Income Fund $25,850 $25,850 $0 $0 $0 $0 Hawaii Municipal Bond Fund $31,077 $31,077 $0 $0 $0 $0
DISTRIBUTION PLAN The Trust has adopted a Distribution Plan (the "Plan") for the Class A shares of each Fund that offers Class A shares (only the Equity Fund, High Grade Income Fund and Hawaii Municipal Bond Fund) in accordance with the provisions of Rule 12b-1 under the 1940 Act, which regulates circumstances under which an investment company may directly or indirectly bear expenses relating to the distribution of its shares. In this regard, the Board of Trustees has determined that the Plan is in the best interests of the shareholders. Continuance of the Plan must be approved annually by a majority of the Trustees of the Trust and by a majority of the Trustees who are not "interested persons" of the Trust as that term is defined in the 1940 Act, and who have no direct or indirect financial interest in the operation of a Plan or in any agreements related thereto ("Qualified Trustees"). The Plan may not be amended to increase materially the amount that may be spent S-16 thereunder without approval by a majority of the outstanding shares of the Fund or class affected. All material amendments of the Plans will require approval by a majority of the Trustees of the Trust and of the Qualified Trustees. The Plan adopted by the Class A shares provides that the Trust will pay the Distributor a fee of up to 0.25% of the average daily net assets of a Fund's Class A shares that the Distributor can use to compensate broker-dealers and service providers, including affiliates of the Distributor, that provide distribution-related services to Class A shareholders or to their customers who beneficially own Class A shares. Payments may be made under the Plan for distribution services, including reviewing of purchase and redemption orders, assisting in processing purchase, exchange and redemption requests from customers, providing certain shareholder communications requested by the Distributor, forwarding sales literature and advertisements provided by the Distributor, and arranging for bank wires. Except to the extent that the Administrator and/or Adviser benefitted through increased fees from an increase in the net assets of the Trust which may have resulted in part from the expenditures, no interested person of the Trust nor any Trustee of the Trust who is not an interested person of the Trust has or had a direct or indirect financial interest in the operation of the Distribution Plan or related agreements. Although banking laws and regulations prohibit banks from distributing shares of open-end investment companies such as the Trust, according to an opinion issued to the staff of the Securities and Exchange Commission ("SEC") by the Office of the Comptroller of the Currency, financial institutions are not prohibited from acting in other capacities for investment companies, such as providing shareholder services. Should future legislative, judicial or administrative action prohibit or restrict the activities of financial institutions in connection with providing shareholder services, the Trust may be required to alter materially or discontinue its arrangements with such financial institutions. THE TRANSFER AGENT DST Systems (the "Transfer Agent"), Inc., 330 W. 9th Street, Kansas City, Missouri 64105 serves as the Funds' transfer agent. S-17 THE CUSTODIAN Chase Manhattan Bank (the "Custodian"), New York, New York 10041 serves as the Funds' custodian. INDEPENDENT AUDITORS PricewaterhouseCoopers LLP, 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103 serves as the Funds' independent auditors. LEGAL COUNSEL Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, Pennsylvania 19103 serves as legal counsel to the Funds. TRUSTEES AND OFFICERS OF THE TRUST The management and affairs of the Trust are supervised by the Trustees under the laws governing business trusts in the Commonwealth of Massachusetts. The Trustees and executive officers of the Trust and their principal occupations for the last five years are set forth below. An asterisk (*) indicates an interested person as defined by the 1940 Act. *MARTIN ANDERSON (DOB 11/16/23) - Trustee - Attorney, Goodsill, Anderson, Quinn & Stifel since 1951. CHARLES E. CARLBOM (DOB 08/20/34) - Trustee - Senior Executive - Mergers & Acquisitions, United Grocers, Inc. Since 1999; President and CEO, United Grocers Inc. (1997-1999); President and CEO, Western Family Food Inc. - Western Family Holding Inc. (1982-1997). *PHILIP H. CHING (DOB 01/11/31) - Trustee - Retired since 1996; Vice Chairman First Hawaiian Bank (1968-1996). 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). S-18 ROBERT DELLACROCE (DOB 12/17/63) - Controller, Chief Financial Officer - Director, Funds Administration and Accounting since 1994; Senior Audit Manager; Arthur Andersen LLP (1986-1994). LYDIA A. GAVALIS (DOB 06/05/64) -- Vice President and Assistant Secretary - -- Vice President and Assistant Secretary of the Administrator and the Distributor since 1998; Assistant General Counsel and Director of Arbitration, Philadelphia Stock Exchange (1989-1998). JOHN H. GRADY, JR. (DOB 06/01/61) -- Secretary -- Partner since 1995, Morgan, Lewis & Bockius LLP (law firm), counsel to the Trust, SEI Investments, the Administrator and the Distributor. KATHY HEILIG (DOB 12/21/58) -- Vice President and Assistant Secretary -- Treasurer of SEI Investments since 1997; Assistant Controller of SEI Investments since 1995; Vice President of SEI Investments since 1991. JAMES L. HUFFMAN (DOB 03/25/45) - Trustee - Dean and Professor, Lewis & Clark Law School since 1973. SHUNICHI KIMURA (DOB 03/15/30) - Trustee - Mediator - Mediation Specialists of Hawaii (1994-1997); Judge - State of Hawaii Judiciary (1974-1994); Regent - University of Hawaii (1995-1996). ROBERT A. NESHER (DOB 08/17/46) - Trustee - The Advisors' Inner Circle Fund, The Arbor Fund, 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; Chairman SEI Mutual Funds since 1974; Trustee - and Executive Vice President of the Administrator and the Distributor (1981-1994). JOSEPH M. O'DONNELL (DOB 11/13/54) -- Vice President and Assistant Secretary -- Vice President and Assistant Secretary of the Administrator and the Distributor since 1998; Vice President and General Counsel, FPS Services, Inc. (1993-1997). SANDRA K. ORLOW (DOB 10/18/53) -- Vice President and Assistant Secretary -- Secretary of the Distributor since 1998; Vice President of the Distributor since 1988; Vice President S-19 and Assistant Secretary of the Manager since 1988; Assistant Secretary of the Distributor (1988-1998). *WILLIAM S. RICHARDSON (DOB 12/22/19) - Trustee - Retired since 1992. KEVIN P. ROBINS (DOB 04/15/61) - Vice President and Assistant Secretary - Senior Vice President, General Counsel and Assistant Secretary of SEI, the Administrator and Distributor since 1994; Vice President of SEI, the Administrator and Distributor (1992-1994). *PETER F. SANSEVERO (DOB 01/06/33) - Trustee - Regional Director of the Northwestern Region and First Vice President, Merrill Lynch (1958-1997). LYNDA J. STRIEGEL (DOB 10/30/48) - Vice President and Assistant Secretary of the Administrator and the Distributor since 1998; Senior Asset Management Counsel, Barnett Banks, Inc. (1997-1998); Partner, Groom and Nordberg, Chartered (1996-1997); Associate General Counsel, Riggs Bank, N.A. (1991-1995). MANUEL R. SYLVESTER (DOB 06/20/30) - Trustee - Retired since 1992. JOYCE S. TSUNODA (DOB 01/01/38) - Trustee - Chancellor - Community Colleges since 1983; Senior Vice President - University of Hawaii System since 1989.
Name of Person and Position Aggregate Total Compensation From Compensation Registrant and Fund Complex From Registrant Paid to Directors for FYE for FYE 12/31/98 12/31/98 Martin Anderson, Trustee* . . . . . $10,000 $10,000 for services on 1 board Charles E. Carlbom, . . . . . . . . $0 $0 for services on 1 board Philip H. Ching, Trustee* . . . . . $10,000 $10,000 for services on 1 board Todd B. Cipperman, Vice President and Assistant Secretary . . . . . . $0 $0 for services on 1 board Robert Dellacroce, Controller and Chief Financial Officer . . . . . . $0 $0 for services on 1 board Lydia A. Gavalis, Vice President and Assistant Secretary . . . . . . . . $0 $0 for services on 1 board John H. Grady, Secretary . . . . . $0 $0 for services on 1 board Kathy Heilig, Vice President and Assistant Secretary . . . . . . . . $0 $0 for services on 1 board James L. Huffman, Trustee . . . . . $0 $0 for services on 1 board Shumichi Kimura, Trustee. . . . . . $10,000 $10,000 for services on 1 board Robert A. Nesher, Trustee . . . . . $0 $0 for services on 1 board Joseph M. O'Donnell, Vice President and Assistant Secretary . . . . . . $0 $0 for services on 1 board S-20 Name of Person and Position Aggregate Total Compensation From Compensation Registrant and Fund Complex From Registrant Paid to Directors for FYE for FYE 12/31/98 12/31/98 Sandra K. Orlow, Vice President and Assistant Secretary . . . . . . . $0 $0 for services on 1 board William S. Richardson, Trustee* . . $10,000 $10,000 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 . . . $10,000 $10,000 for services on 1 board Joyce S. Tsunoda, Trustee . . . . . $10,000 $10,000 for services on 1 board
- ----------------------------- * 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. 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: 6 Yield = (2 (a - b/cd + 1) - 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 S-21 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 Institutional Class of the Hawaii Municipal Bond Fund were 4.43% and 8.15%, respectively. For the 30-day period ended December 31, 1998, the 30-day yield for the Institutional Class of the High Grade Income Fund was 4.44%. CALCULATION OF TOTAL RETURN From time to time, certain of the Funds may advertise total return on an "average annual total return" basis and on an "aggregate total return" basis for various periods. Average annual total return reflects the average annual percentage change in the value of an investment in a Fund over a particular measuring period. Aggregate total return reflects the cumulative percentage change in value over the measuring period. Aggregate total return is computed according to a formula prescribed by the SEC. The formula can be expressed as follows: P (1 + T) to the power of n = ERV, where P = a hypothetical initial payment of $1,000; T = average annual total return; n = number of years; and ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the designated time period as of the end of such period or the life of the fund. The formula for calculating aggregate total return can be expressed as (ERV/P) - 1. The calculation of total return assumes reinvestment of all dividends and capital gain distribution on the reinvestment dates during the period and that the entire investment is redeemed at the end of the period. The performance results listed below refer to results for the fiscal year ended December 31, 1998.
AVERAGE ANNUAL TOTAL RETURN --------------------------- SINCE FUND 1-YEAR INCEPTION ---- ------ --------- INSTITUTIONAL CLASS Equity Fund 33.05% 28.47% High Grade Income Fund 9.09% 8.90% Hawaii Municipal Bond Fund 5.84% 7.22%
S-22 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. The Trust reserves the right to suspend the right of redemption and/or to postpone the date of payment upon redemption for any period on which trading on the New York Stock Exchange is restricted, or during the existence of an emergency (as determined by the SEC by rule or regulation) as a result of disposal or valuation of the Fund's securities is not reasonably practicable, or for such other periods as the SEC has by order permitted. The Trust also reserves the right to suspend sales of shares of the Funds for any period during which the New York Stock Exchange, the Adviser, the Administrator and/or the Custodian are not open for business. S-23 DETERMINATION OF NET ASSET VALUE The securities of the Equity, High Grade Income and Hawaii Municipal Bond Funds are valued pursuant to prices and valuations provided by an independent pricing service. The pricing service relies primarily on prices of actual market transactions as well as trader quotations. However, the service may also use a matrix system to determine valuations, which system considers such factors as security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Trust under the general supervision of the Trustees. TAXES The following is only a summary of certain additional federal income tax considerations generally affecting the Funds and their shareholders that are not described in the Funds' prospectus. No attempt is made to present a detailed explanation of the tax treatment of the Funds or their shareholders, and the discussion here and in the Funds' prospectus is not intended as a substitute for careful tax planning. Shareholders are urged to consult with their tax advisors with specific reference to their own tax situation, including their state and local tax liabilities. FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS The following general discussion of certain federal income tax consequences is based on the Internal Revenue Code of 1986, as amended (the "Code") and the regulations issued thereunder as in effect on the date of this Statement of Additional Information. New legislation, as well as administrative changes or court decisions, may significantly change the conclusions expressed herein, and may have a retroactive effect with respect to the transactions contemplated herein. QUALIFICATION AS A REGULATED INVESTMENT COMPANY Each Fund intends to qualify and elect to be treated as a "regulated investment company" ("RIC") as defined under Subchapter M of the Code. By following such a policy, each Fund expects to eliminate or reduce to a nominal amount the federal taxes to which they may be subject. In order to qualify as a RIC, a Fund must distribute at least 90% of its net investment income (that generally includes dividends, taxable interest, and the excess of net short-term capital gains over net long-term capital losses less operating expenses) and at least 90% of its net tax exempt interest income, for each tax year, if any, to its shareholders and also must meet several additional requirements. Included among these requirements are the following: (i) at least 90% of the Fund's gross income each taxable year must be derived from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of stock or securities, or certain other income; (ii) at the close of each quarter of the Fund's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. Government securities, securities of other RICs and other securities, with such other securities limited, in respect to any one issuer, to S-24 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) of any one issuer or of two or more issuers which the Fund controls and which are engaged in the same, similar or related trades or businesses. Some of the Funds may make investments in securities (such as STRIPS) that bear "original issue discount" or "acquisition discount" (collectively, "OID Securities"). The holder of such securities is deemed to have received interest income even though no cash payments have been received. Accordingly, OID Securities may not produce sufficient current cash receipts to match the amount of distributable net investment income the Funds must distribute to satisfy the distribution requirement. In some cases, the Funds may have to borrow money or dispose of other investments in order to make sufficient cash distributions to satisfy the distribution requirement. Although each Fund intends to distribute substantially all of its net investment income and may distribute its capital gains for any taxable year, each Fund will be subject to federal income taxation to the extent any such income or gains are not distributed. If the Funds fail to qualify for any taxable year as a RIC, all of their taxable income will be subject to tax at regular corporate income tax rates without any deduction for distributions to shareholders and such distributions generally will be taxable to shareholders as ordinary dividends to the extent of a Fund's current and accumulated earnings and profits. In this event, distributions generally will be eligible for the dividends-received deduction for corporate shareholders. FUND DISTRIBUTIONS Distributions of investment company taxable income will be taxable to shareholders as ordinary income, regardless of whether such distributions are paid in cash or are reinvested in additional Shares, to the extent of a Fund's earnings and profits. Each Fund anticipates that it will distribute substantially all of its investment company taxable income for each taxable year. Each Fund may either retain or distribute to shareholders its excess of net long-term capital gains over net short-term capital losses ("net capital gains"). If such gains are distributed as a capital gains distribution, they are taxable to shareholders who are individuals at a maximum rate of 20%, regardless of the length of time the shareholder has held the shares. If any such gains are retained, a Fund will pay federal income tax thereon. In the case of corporate shareholders, distributions (other than capital gains distributions) from a RIC generally qualify for the dividends-received deduction to the extent of the gross amount of qualifying dividends received by a Fund for the year. Generally, and subject to certain limitations, a dividend will be treated as a qualifying dividend if it has been received from a domestic corporation. Accordingly, it is not expected that any High Grade Income Fund or Hawaii Municipal S-25 Bond Fund distribution will qualify for the corporate dividends-received deduction. Conversely, distributions from the Equity Fund generally will qualify for the corporate dividends-received deduction. Ordinarily, investors should include all dividends as income in the year of payment. However, dividends declared payable to shareholders of record in October, November, or December of one year, but paid in January of the following year, will be deemed for tax purposes to have been received by the shareholder and paid by the Fund in the year in which the dividends were declared. Each Fund will provide a statement annually to shareholders as to the federal tax status of distributions paid (or deemed to be paid) by the Fund during the year, including the amount of dividends eligible for the corporate dividends-received deduction. SALE OR EXCHANGE OF FUND SHARES Generally, gain or loss on the sale or exchange of a Share will be capital gain or loss that will be long-term if the Share has been held for more than twelve months and otherwise will be short-term. For individuals, long-term capital gains are currently taxed at a maximum rate of 20% and short-term capital gains are currently taxed at ordinary income tax rates. However, if a shareholder realizes a loss on the sale, exchange or redemption of a Share held for six months or less and has previously received a capital gains distribution with respect to the Share (or any undistributed net capital gains of a Fund with respect to such Share are included in determining the shareholder's long-term capital gains), the shareholder must treat the loss as a long-term capital loss to the extent of the amount of the prior capital gains distribution (or any undistributed net capital gains of a Fund that have been included in determining such shareholder's long-term capital gains). In addition, any loss realized on a sale or other disposition of Shares will be disallowed to the extent an investor repurchases (or enters into a contract or option to repurchase) Shares within a period of 61 days (beginning 30 days before and ending 30 days after the disposition of the Shares). This loss disallowance rule will apply to Shares received through the reinvestment of dividends during the 61-day period. In certain cases, a Fund will be required to withhold, and remit to the United States Treasury, 31% of any distributions paid to a shareholder who (1) has failed to provide a correct taxpayer identification number, (2) is subject to backup withholding by the Internal Revenue Service, or (3) has failed to certify to the Fund that such shareholder is not subject to backup withholding. FEDERAL EXCISE TAX If a Fund fails to distribute in a calendar year at least 98% of its ordinary income for the year and 98% of its capital gain net income (the excess of short and long term capital gains over short and long term capital losses) for the one-year period ending October 31 of that year (and any retained amount from the prior calendar year), the Fund will be subject to a nondeductible 4% Federal excise S-26 tax on the undistributed amounts. Each Fund intends to make sufficient distributions to avoid imposition of this tax, or to retain, at most its net capital gains and pay tax thereon. ADDITIONAL CONSIDERATIONS FOR HAWAII MUNICIPAL BOND FUND The Fund intends to qualify to pay "exempt interest dividends" to its shareholders by satisfying the Code's requirement that at the close of each quarter of its taxable year at least 50% of the value of its total assets consist of obligations the interest on which is exempt from federal income tax. As long as this and certain other requirements are met, dividends derived from the Fund's net tax-exempt interest income will be "exempt interest dividends" that are excluded from your gross income for federal income tax purposes. Exempt interest dividends may, however, have collateral deferral income tax consequences, including alternative minimum tax consequences, as discussed below. Exempt-interest dividends may be subject to the alternative minimum tax imposed by Section 55 of the Code (the "Alternative Minimum Tax"). The Alternative Minimum Tax is imposed at a rate of up to 28% in the case of non-corporate taxpayers and at the rate of 20% in the case of corporate taxpayers, to the extent it exceeds the taxpayer's regular tax liability. The Alternative Minimum Tax may be affected by the receipt of exempt-interest dividends in two circumstances. First, exempt-interest dividends derived from certain "private activity bonds" issued after August 7, 1986, will generally be an item of tax preference and therefore potentially subject to the Alternative Minimum Tax. The Fund intends, when possible, to avoid investing in private activity bonds. Second, in the case of exempt-interest dividends received by corporate shareholders, all exempt-interest dividends, regardless of when the bonds from which they are derived were issued or whether they are derived from private activity bonds, will be included in the corporation's "adjusted current earnings," as defined in Section 56(g) of the Code, in calculating the corporation's alternative minimum taxable income for purposes of determining the Alternative Minimum Tax. The percentage of income that constitutes "exempt-interest dividends" will be determined for each year for the Fund and will be applied uniformly to all dividends declared with respect to the Fund during that year. This percentage may differ from the actual percentage for any particular day. Interest on indebtedness incurred or continued by shareholders to purchase or carry Shares of the Fund will not be deductible for federal income tax purposes. The deduction otherwise allowable to property and casualty insurance companies for "losses incurred" will be reduced by an amount equal to a portion of exempt-interest dividends received or accrued during any taxable year. Foreign corporations engaged in a trade or business in the United States will be subject to a "branch profits tax" on their "dividend equivalent amount" for the taxable year, which will include exempt-interest dividends. Certain Subchapter S corporations may also be subject to taxes on their "passive investment income," which could include exempt-interest dividends. Up to 85% of the Social Security benefits or railroad retirement benefits received by an individual during any taxable year will be included in the gross income of such individual if the individual's "modified adjusted gross income" (which includes exempt-interest dividends) plus one-half of the Social Security benefits or S-27 railroad retirement benefits received by such individual during that taxable year exceeds the base amount described in Section 86 of the Code. Entities or persons who are "substantial users" (or persons related to "substantial users") of facilities financed by industrial development bonds or private activity bonds should consult their tax advisors before purchasing Shares. "Substantial user" is defined generally as including a "non-exempt person" who regularly uses in trade or business a part of such a facility. Current federal law limits the types and volume of bonds qualifying for the federal income tax exemption of interest, which may have an effect on the ability of the Fund to purchase sufficient amounts of tax-exempt securities to satisfy the Code's requirements for the payment of exempt interest dividends. Issuers of bonds purchased by the Fund (or the beneficiary of such bonds) may have made certain representations or covenants in connection with the issuance of such bonds to satisfy certain requirements of the Code that must be satisfied subsequent to the issuance of such bonds. Investors should be aware that exempt-interest dividends derived from such bonds may become subject to federal income taxation retroactively to the date thereof if such representations are determined to have been inaccurate or if the issuer of such bonds (or the beneficiary of such bonds) fails to comply with such covenants. The Fund may not be a suitable investment for tax-exempt shareholders and plans because such shareholders and plans would not gain any additional benefit from the receipt of exempt-interest dividends. STATE AND LOCAL TAXES A Fund is not liable for any income or franchise tax in Massachusetts if it qualifies as a RIC for federal income tax purposes. Depending upon state and local law, distributions by the Funds to shareholders and the ownership of shares may be subject to state and local taxes. Shareholders are urged to consult their tax advisors as to the consequences of these and other state and local tax rules affecting an investment in the Funds. HAWAII TAXATION The State of Hawaii has specifically adopted Sections 852 through 855 of the Code, which provisions provide for pass-through treatment of exempt interest dividends and capital gains, i.e., distributions by the Hawaii Municipal Bond Fund of dividends representing exempt interest and capital gains retain their original character in the hands of shareholders. As the State of Hawaii's Department of Taxation has confirmed in response to a request by special counsel for the Trust, distributions from the Hawaii Municipal Bond Fund to its shareholders which are attributable to interest on obligations exempt from income tax in the State of Hawaii will not be subject to Hawaii income tax in the hands of shareholders so long as at least 50% of the Hawaii Municipal Bond S-28 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 is 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. The cost of executing portfolio securities transactions of the Trust will primarily consist of dealer spreads and underwriting commissions. The Trust selects brokers or dealers to execute transactions for the purchase or sale of portfolio securities on the basis of its judgment of their professional capability to provide the service. The primary consideration is to have brokers or dealers provide transactions at best price and 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 S-29 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 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. S-30 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 30% for the fiscal year ending December 31, 1997 and 41% for the fiscal year ended December 31, 1998. The portfolio turnover rate for the Hawaii Municipal Bond Fund was 29% for the fiscal year ending December 31, 1997 and 21% for the fiscal year ended December 31, 1998. The portfolio turnover rate for the High Grade Income Fund was 32 % for the fiscal year ending December 31, 1997 and 98% for the fiscal year ended December 31, 1998. For the fiscal year ended December 31, 1996, the Trust paid no brokerage fees. For the fiscal year ended December 31, 1997, the Trust paid $40,380. For the fiscal year ended December 31, 1998, the Trust paid $58,933. DESCRIPTION OF SHARES The Agreement and Declaration of Trust ("Declaration of Trust") authorizes the issuance of an unlimited number of each series. Each share of each Fund represents an equal proportionate interest in that Fund with each other share of that Fund. Each share upon liquidation entitles a shareholder to a PRO RATA share in the net assets of that Fund, after taking into account additional distribution and transfer agency expenses attributable to Class A shares. Shareholders have no preemptive rights. The Agreement and Declaration of Trust provides that the Trustees of the Trust may create additional series of shares or separate classes of funds. All consideration received by the Trust for shares of any additional series or separate class and all assets in which such consideration is invested would belong to that series or separate class and would be subject to the liabilities related thereto. Share certificates representing shares will not be issued. S-31 VOTING Each share held entitles the shareholder of record to one vote. The shareholders of each Fund or class will vote separately on matters pertaining solely to that Fund or class, such as any distribution plan. As a Massachusetts business trust, the Trust is not required to hold annual meetings of shareholders, but approval will be sought for certain changes in the operation of the Trust and for the election of Trustees under certain circumstances. In addition, a Trustee may be removed by the remaining Trustees or by shareholders at a special meeting called upon written request of shareholders owning at least 10% of the outstanding shares of the Trust. In the event that such a meeting is requested, the Trust will provide appropriate assistance and information to the shareholders requesting the meeting. Where the Trust's Prospectuses or Statements of Additional Information state that an investment limitation or a fundamental policy may not be changed without shareholder approval, such approval means the vote of (1) 67% or more of the affected Fund's shares present at a meeting if the holders of more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the affected Fund's outstanding shares, whichever is less. 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 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. S-32 5% AND 25% SHAREHOLDERS A shareholder owning of record or beneficially more than 25% of a particular Fund's shares may be considered to be a "controlling person" of that Fund. Accordingly, its vote could have a more significant effect on matters presented at shareholder meetings than the votes of the Fund's other shareholders. As of May 19, 1999, the following persons were the only persons who were record owners (or to the knowledge of the Adviser, beneficial owners) of 5% and 25% or more of the Fund's shares:
FUND SHAREHOLDER % ---- ----------- - Equity Fund Miter & Co. 91.32% FBO TA C/O Marshall & Ilsley Trust Co. P.O. Box 2977 Milwaukee, WI 53201-2977 REINCO 5.89% P.O. Box 1930 Honolulu, HI 96805-1930 High Grade Income Fund Miter & Co. 93.65% FBA TA C/O Marshall & Ilsley Trust Co. P.O. Box 2977 Milwaukee, WI 53201-2977 Hawaii Municipal Bond Fund FIDAC 41.76% C/O Marshall & Ilsley Trust Co. P.O. Box 2977 Milwaukee, WI 53201-2977 Miter & Co. 16.52% FBA TA C/O Marshall & Ilsley Trust Co. P.O. Box 2977 Milwaukee, WI 53201-2977
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-33 BISHOP STREET FUNDS PART C: OTHER INFORMATION ITEM 23. EXHIBITS: (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 C-1 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. (d)(5) Investment Advisory Agreement between the Registrant and First Hawaiian Bank, is incorporated herein by reference to Post-Effective Amendment No. 12 to the Registrant's Registration Statement on Form N-1A (File No. 33-80514), as filed April 30, 1999. (d)(6) Investment Sub-Advisory Agreement by and among the Registrant, First Hawaiian Bank and Wellington Management Company, LLP, is incorporated herein by reference to Post-Effective Amendment No. 12 to the Registrant's Registration Statement on Form N-1A (File No. 33-80514), as filed April 30, 1999. (e)(1) 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. (e)(2) Amended and Restated Distribution Agreement between the Registrant and SEI Investments Distribution Co. is filed herewith. (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. (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 C-2 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)(1) 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. (i)(2) Consent of Counsel is incorporated herein by reference to Post-Effective Amendment No. 12 to the Registrant's Registration Statement on Form N-1A (File No. 33-80514), as filed April 30, 1999. (i)(3) Opinion and Consent of Counsel is filed herewith. (j) Consent of Independent Auditors (PricewaterhouseCoopers LLP) is filed herewith. (k) Not Applicable. (l) Not Applicable. (m)(1) 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. (m)(2) 12b-1 Plan is filed herewith. (o)(1) 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. (o)(2) Rule 18f-3 Plan is filed herewith. C-3 (p) Power of Attorney for Martin Anderson, Charles E. Carlbom, Philip H. Ching, James L. Huffman, Shunichi Kimura, William S. Richardson, Peter F. Sansevero, Manuel R. Sylvester and Joyce S. Tsunoda are incorporated herein by reference to Post-Effective Amendment No. 12 to the Registrant's Registration Statement on Form N-1A (File No. 33-80514), as filed April 30, 1999. 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. C-4 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 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:
NAME AND POSITION NAME OF CONNECTION WITH WITH INVESTMENT ADVISER OTHER COMPANY OTHER COMPANY ------------------------ ------------- ------------- 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 C-5 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 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, Ltd. Chairman, President & Chief Director Executive 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 ALBERT M. YAMADA -- -- Executive Vice President and Chief C-6 Financial Officer Lily K. Yao -- -- Vice Chairman
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. 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-Registered Trademark, 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 C-7 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 other wise noted, the business address of each director or officer is Oaks, PA 19456.
POSITION AND OFFICERS NAME POSITION AND OFFICER WITH UNDERWRITER WITH REGISTRANT - ---- ------------------------------------- --------------------- Alfred P. West, Jr. Director, Chairman & Chief Executive Officer -- Henry H. Greer Director -- Carmen V. Romeo Director -- Mark J. Held President & Chief Operating Officer -- 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 -- C-8 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 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 --
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 therunder, 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 C-9 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: First Hawaiian Bank Wellington Management Company, LLP 999 Biship Street 75 State Street Honolulu, Hawaii 96813 Boston, Massachusetts 02109 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 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-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post- Effective Amendment No. 13 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 10th day of June, 1999. By: /s/ Robert A. Nesher -------------------- 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. Trustee June 10 , 1999 * - ------------------------------ Martin Anderson Trustee June 10 , 1999 * - ------------------------------ Charles E. Carlbom Trustee June 10 , 1999 * - ------------------------------ Philip H. Ching Trustee June 10 , 1999 * - ------------------------------ James L. Huffman Trustee June 10 , 1999 * - ------------------------------ Shunichi Kimura Trustee June 10 , 1999 * - ------------------------------ William S. Richardson Trustee June 10 , 1999 * - ------------------------------ Peter F. Sansevero Trustee June 10 , 1999 * - ------------------------------ Manuel R. Sylvester Trustee June 10 , 1999 * - ------------------------------ Joyce S. Tsunoda Controller and Chief /s/ Robert J. DellaCroce Financial Officer June 10 , 1999 - ------------------------------ Robert DellaCroce President and Trustee /s/ Robert A. Nesher - ------------------------------ June 10 , 1999 Robert A. Nesher /s/ Robert A. Nesher *By: ------------------------ Robert A. Nesher Attorney-in-Fact C-11 EXHIBIT INDEX NAME EXHIBIT - ---- ------- 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 From 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 From 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 From 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 From N-1A (File No. 33-80514), as filed April 30, 1997. C-12 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 From N-1A (File No. 33-80514), as filed April 30, 1997. EX-99.D(5) Investment Advisory Agreement between the Registrant and First Hawaiian Bank,is incorporated herein by reference to Post-Effective Amendment No. 12 to the Registrant's Registration Statement on Form N-1A (File No. 33-80514), as filed April 30, 1999. EX-99.D(6) Investment Sub-Advisory Agreement by and among the Registrant, First Hawaiian Bank and Wellington Management Company, LLP,is incorporated herein by reference to Post-Effective Amendment No. 12 to the Registrant's Registration Statement on Form N-1A (File No. 33-80514), as filed April 30, 1999. EX-99.E(1) 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. EX-99E(2) Amended and Restated Distribution Agreement is filed herewith. 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 From 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(1) 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 C-13 to the Registrant's Registration Statement on Form N-1A (File No. 33- 80514), as filed February 29, 1996. Ex-99.I(2) Consent of Counsel is incorporated herein by reference to Post-Effective Amendment No. 12 to the Registrant's Registration Statement on Form N-1A (File No. 33-80514), as filed April 30, 1999. EX-99.I(3) Opinion and Consent of Counsel is filed herewith. EX-99.J Consent of Independent Auditors (PricewaterhouseCoopers LLP) is filed herewith. EX-99.M(1) 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.M(2) 12b-1 Plan is filed herewith. EX-99.O(1) 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. EX-99.O(2) Rule 18f-3 Plan is filed herewith. EX-99.P Power of Attorney for Martin Anderson, Charles E. Carlbom, Philip H. Ching, James L. Huffman, Shunichi Kimura, William S. Richardson, Peter F. Sansevero, Manuel R. Sylvester and Joyce S. Tsunoda are incorporated herein by reference to Post-Effective Amendment No. 12 to the Registrant's Registration Statement on Form N-1A (File No. 33-80514), as filed April 30, 1999. C-14 EX-99.E(2) 2 EXHIBIT 99.E(2) AMENDED AND RESTATED DISTRIBUTION AGREEMENT BISHOP STREET FUNDS THIS AGREEMENT is made as of this 10th day of June, 1999 between Bishop Street Funds (the "Trust"), a Massachusetts business trust and SEI Investments Distribution Co. (the "Distributor"), a Pennsylvania corporation. WHEREAS, the Trust is registered as an investment company with the Securities and Exchange Commission (the "SEC") under the Investment Company Act of 1940, as amended (the "1940 Act"), and its shares (the "Shares") are registered with the SEC under the Securities Act of 1933, as amended (the "1933 Act"); and WHEREAS, the Distributor is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934, as amended; NOW, THEREFORE, in consideration of the mutual covenants hereinafter contained, the Trust and Distributor hereby agree as follows: ARTICLE 1. SALE OF SHARES. The Trust grants to the Distributor the exclusive right to sell Shares of the Trust at the net asset value per Share, plus any applicable sales charges in accordance with the current prospectus, as agent and on behalf of the Trust, during the term of this Agreement and subject to the registration requirements of the 1933 Act, the rules and regulations of the SEC and the laws governing the sale of securities in the various states (the "Blue Sky Laws"). ARTICLE 2. SOLICITATION OF SALES. In consideration of these rights granted to the Distributor, the Distributor agrees to use all reasonable efforts, consistent with its other business, in connection with the distribution of Shares of the Trust; provided, however, that the Distributor shall not be prevented from entering into like arrangements with other issuers. The provisions of this paragraph do not obligate the Distributor to register as a broker or dealer under the Blue Sky Laws of any jurisdiction when it determines it would be uneconomical for it to do so or to maintain its registration in any jurisdiction in which it is now registered nor obligate the Distributor to sell any particular number of Shares. ARTICLE 3. AUTHORIZED REPRESENTATIONS. The Distributor is not authorized by the Trust to give any information or to make any representations other than those contained in the current registration statements and prospectuses of the Trust filed with the SEC or contained in Shareholder reports or other material that may be prepared by or on behalf of the Trust for the Distributor's use. The Distributor may prepare and distribute sales literature and other material as it may deem appropriate, provided that such literature and materials have been approved by an officer of the Trust prior to their use. ARTICLE 4. REGISTRATION OF SHARES. The Trust agrees that it will take all action necessary to register Shares under the federal and state securities laws so that there will be available for sale the number of Shares the Distributor may reasonably be expected to sell and to pay all fees associated with said registration. The Trust shall make available to the Distributor such number of copies of its currently effective prospectus and statement of additional information as the Distributor may reasonably request. The Trust shall furnish to the Distributor copies of all information, financial statements and other papers which the Distributor may reasonably request for use in connection with the distribution of Shares of the Trust. ARTICLE 5. COMPENSATION. As compensation for providing the services under this Agreement: (a) The Distributor shall receive from the Trust: (1) all distribution fees at the rate and under the terms and conditions set forth in the Distribution Plan adopted by the appropriate class of shares of each of the Funds, as such Plan may be amended from time to time, and subject to any further limitations on such fees as the Board of Trustees may impose; (2) all front-end sales charges, if any, on purchases of Class A Shares of each Fund sold subject to such charges as described in the Trust's Registration Statement and current prospectuses, as amended from time to time. The Distributor, or brokers, dealers and other financial institutions and intermediaries that have entered into sub-distribution agreements with the Distributor, may collect the gross proceeds derived from the sale of such Class A Shares, remit the net asset value thereof to the Trust upon receipt of the proceeds and retain the applicable sales charge. (b) The Distributor may reallow any or all of the distribution fees and front-end sales charges which it is paid by the Trust to such brokers, dealers and other financial institutions and intermediaries as the Distributor may from time to time determine. ARTICLE 6. INDEMNIFICATION OF DISTRIBUTOR. The Trust agrees to indemnify and hold harmless the Distributor and each of its directors and officers and each person, if any, who controls the Distributor within the meaning of Section 15 of the 1933 Act against any loss, liability, claim, damages or expense (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damages, or expense and reasonable counsel fees and disbursements incurred in connection therewith), arising by reason of any person acquiring any Shares, based upon the ground that the registration statement, prospectus, Shareholder reports or other information filed or made public by the Trust (as from time to time amended) included an untrue statement of material fact or omitted to state a material fact required to be stated or necessary in order to make the statements made not misleading. However, the Trust does not agree to indemnify the Distributor or hold it harmless to the extent that the statement or omission was made in reliance upon, and in conformity with, information furnished to the Trust by or on behalf of the Distributor. In no case (i) is the indemnity of the Trust to be deemed to protect the Distributor against any liability to the Trust or its Shareholders to which the Distributor or such person otherwise would be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement, or (ii) is the Trust to be liable to the Distributor under the indemnity agreement contained in this paragraph with respect to any claim made against the Distributor or any person indemnified unless the Distributor or other person shall have notified the Trust in writing of the claim within a reasonable time after the summons or other first written notification giving information of the nature of the claim shall have been served upon the Distributor or such other person (or after the Distributor or the person shall have received notice of service on any designated agent). However, failure to notify the Trust of any claim shall not relieve the Trust from any liability which it may have to the Distributor or any person against whom such action is brought otherwise than on account of its indemnity agreement contained in this paragraph. The Trust shall be entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce any claims subject to this indemnity provision. If the Trust elects to assume the defense of any such claim, the defense shall be conducted by counsel chosen by the Trust and satisfactory to the indemnified defendants in the suit whose approval shall not be unreasonably withheld. In the event that the Trust elects to assume the defense of any suit and retain counsel, the indemnified defendants shall bear the fees and expenses of any additional counsel retained by them. If the Trust does not elect to assume the defense of a suit, it will reimburse the indemnified defendants for the reasonable fees and expenses of any counsel retained by the indemnified defendants. The Trust agrees to notify the Distributor promptly of the commencement of any litigation or proceedings against it or any of its officers or Trustees in connection with the issuance or sale of any of its Shares. ARTICLE 7. INDEMNIFICATION OF TRUST. The Distributor covenants and agrees that it will indemnify and hold harmless the Trust and each of its Trustees and officers and each person, if any, who controls the Trust within the meaning of Section 15 of the Act, against any loss, liability, damages, claim or expense (including the reasonable cost of investigating or defending any alleged loss, liability, damages, claim or expense and reasonable counsel fees incurred in connection therewith) based upon the 1933 Act or any other statute or common law and arising by reason of any person acquiring any Shares, and alleging a wrongful act of the Distributor or any of its employees or alleging that the registration statement, prospectus, Shareholder reports or other information filed or made public by the Trust (as from time to time amended) included an untrue statement of a material fact or omitted to state a material fact required to be stated or necessary in order to make the statements not misleading insofar as the statement or omission was made in reliance upon and in conformity with information furnished to the Trust by or on behalf of the Distributor. In no case (i) is the indemnity of the Distributor in favor of the Trust or any other person indemnified to be deemed to protect the Trust or any other person against any liability to which the Trust or such other person would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement, or (ii) is the Distributor to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Trust or any person with respect to any claim made against the Trust or any person indemnified unless the Trust or person, as the case may be, shall have notified the Distributor in writing of the claim within a reasonable time after the summons or other first written notification giving information of the nature of the claim shall have been served upon the Trust or upon any person (or after the Trust or such person shall have received notice of service on any designated agent). However, failure to notify the Distributor of any claim shall not relieve the Distributor from any liability which it may have to the Trust or any person against whom the action is brought otherwise than on account of its indemnity agreement contained in this paragraph. The Distributor shall be entitled to participate, at its own expense, in the defense or, if its so elects, to assume the defense of any suit brought to enforce the claim, but if the Distributor elects to assume the defense, the defense shall be conducted by counsel chosen by the Distributor and satisfactory to the indemnified defendants whose approval shall not be unreasonably withheld. In the event that the Distributor elects to assume the defense of any suit and retain counsel, the defendants in the suit shall bear the fees and expenses of any additional counsel retained by them. If the Distributor does not elect to assume the defense of any suit, it will reimburse the indemnified defendants in the suit for the reasonable fees and expenses of any counsel retained by them. The Distributor agrees to notify the Trust promptly of the commencement of any litigation or proceedings against it in connection with the issue and sale of any of the Trusts' Shares. ARTICLE 8. EFFECTIVE DATE. This Agreement shall be effective upon its execution, and unless terminated as provided, shall continue in force for two years from the effective date and thereafter from year to year, provided that such annual continuance is approved by (i) either the vote of a majority of the Trustees of the Trust, or the vote of a majority of the outstanding voting securities of the Trust, and (ii) the vote of a majority of those Trustees of the Trust who are not parties to this Agreement or the Trust's Distribution Plan or interested persons of any such party (the "Qualified Trustees"), cast in person at a meeting called for the purpose of the voting on the approval. This Agreement shall automatically terminate in the event of its assignment. As used in this paragraph the terms "vote of a majority of the outstanding voting securities," "assignment" and "interested person" shall have the respective meanings specified in the 1940 Act. In addition, this Agreement may at any time be terminated without penalty by the Distributor, by a vote of a majority of Qualified Trustees or by vote of a majority of the outstanding voting securities of the Trust, upon not less than sixty days prior written notice to the other party. ARTICLE 9. NOTICES. Any notice required or permitted to be given by either party to the other shall be deemed sufficient if sent by registered or certified mail, postage prepaid, addressed by the party giving notice to the other party at the last address furnished by the other party to the party giving notice: if to the Trust, at One Freedom Valley Drive, Oaks, PA 19456, Attention: Legal Department, and if to the Distributor, One Freedom Valley Drive, Oaks, PA 19456, Attention: General Counsel. ARTICLE 10. LIMITATION OF LIABILITY. A copy of the Declaration of Trust of the Trust is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed on behalf of the Trustees of the Trust as Trustees and not individually and that the obligations of this instrument are not binding upon any of the Trustees, officers or shareholders of the Trust individually, but binding only upon the assets and property of the Trust. ARTICLE 11. GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts and the applicable provisions of the 1940 Act. To the extent that the applicable laws of the Commonwealth of Massachusetts, or any of the provisions herein, conflict with the applicable provisions of the 1940 Act, the latter shall control. ARTICLE 12. MULTIPLE ORIGINALS. This Agreement may be executed in two or more counterparts, each of which when so executed shall be deemed to be an original, but such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the Trust and the Distributor have each duly executed this Agreement, as of the day and year above written. BISHOP STREET FUNDS SEI INVESTMENTS DISTRIBUTION CO. By: /s/Joseph M. O'Donnell By: /s/Lydia A. Gavalis ---------------------- ------------------------ Name: Joseph M. O'Donnell Name: Lydia A. Gavalis ---------------------- ------------------------ Vice President and Title: Assistant Secretary Title: Vice President ---------------------- ------------------------ Attest: /s/ Derek B. Boles Attest: /s/ Derek B. Boles ---------------------- ------------------------ Name: Derek B. Boles Name: Derek B. Boles ---------------------- ------------------------ EX-99.I(3) 3 EXHIBIT 99.I(3) June 11, 1999 Bishop Street Funds c/o SEI Investments Distribution Co. One Freedom Valley Drive Oaks, Pennsylvania 19456 Re: Opinion of Counsel regarding Post-Effective Amendment No. 13 to the Registration Statement filed on Form N-1A under the Securities Act of 1933 (File No. 33-80514). -------------------------------------------------------------------------- Ladies and Gentlemen: We have acted as counsel to the Bishop Street Funds, a Massachusetts trust (the "Trust"), in connection with the above-referenced Registration Statement (as amended, the "Registration Statement") which relates to the Trust's units of beneficial interest, par value $.00001 per share (collectively, the "Shares") of the Bishop Street Funds. This opinion is being delivered to you in connection with the Trust's filing of Post-Effective Amendment No. 12 to the Registration Statement (the "Amendment") to be filed with the Securities and Exchange Commission pursuant to Rule 485(b) of the Securities Act of 1933 (the "1933 Act"). With your permission, all assumptions and statements of reliance herein have been made without any independent investigation or verification on our part except to the extent otherwise expressly stated, and we express no opinion with respect to the subject matter or accuracy of such assumptions or items relied upon. In connection with this opinion, we have reviewed, among other things, executed copies of the following documents: (a) a certificate of the Commonwealth of Massachusetts as to the existence and good standing of the Trust; (b) the Agreement and Declaration of Trust for the Trust and all amendments and supplements thereto (the "Declaration of Trust"); Bishop Street Funds June 11, 1999 Page 2 (c) a certificate executed by John H. Grady, Jr., the Secretary of the Trust, certifying as to, and attaching copies of, the Trust's Declaration of Trust and Amended and Restated By-Laws (the "By-Laws"), and certain resolutions adopted by the Board of Trustees of the Trust authorizing the issuance of the Shares; and (d) a printer's proof of the Amendment. Bishop Street Funds June 11, 1999 Page 3 In our capacity as counsel to the Trust, we have examined the originals, or certified, conformed or reproduced copies, of all records, agreements, instruments and documents as we have deemed relevant or necessary as the basis for the opinion hereinafter expressed. In all such examinations, we have assumed the legal capacity of all natural persons executing documents, the genuineness of all signatures, the authenticity of all original or certified copies, and the conformity to original or certified copies of all copies submitted to us as conformed or reproduced copies. As to various questions of fact relevant to such opinion, we have relied upon, and assume the accuracy of, certificates and oral or written statements of public officials and officers or representatives of the Fund. We have assumed that the Amendment, as filed with the Securities and Exchange Commission, will be in substantially the form of the printer's proof referred to in paragraph (d) above. Based upon, and subject to, the limitations set forth herein, we are of the opinion that the Shares, when issued and sold in accordance with the Declaration of Trust and By-Laws, and for the consideration described in the Registration Statement, will be legally issued, fully paid and nonassessable under the laws of the Commonwealth of Massachusetts. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not concede that we are in the category of persons whose consent is required under Section 7 of the 1933 Act. Very truly yours, /s/ Morgan, Lewis & Bockius LLP Morgan, Lewis & Bockius LLP Bishop Street Funds June 11, 1999 Page 4 Prepared by: Ursula Robinson - --------------- Reviewed by: John H. Grady, Jr. - ------------------ Signed by: /s/ John H. Grady, Jr. - --------------------------- John H. Grady, Jr. EX-99.J 4 EXHIBIT 99.J CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in Post-Effective Amendment No.13 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 herein 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 Prospectus and "Independent Auditors" and "Financial Information" in the Statement of Additional Information. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP 2400 Eleven Penn Center Philadelphia, Pennsylvania June 10, 1999 EX-99.M(2) 5 EXHIBIT 99.M(2) DISTRIBUTION PLAN BISHOP STREET FUNDS CLASS A SHARES WHEREAS, Bishop Street Funds (the "Trust") is engaged in business as an open-end investment company registered under the Investment Company Act of 1940, as amended ("1940 Act"); and WHEREAS, the Trustees of the Trust have determined that there is a reasonable likelihood that the following Distribution Plan will benefit the Funds of the Trust listed on Exhibit A hereto (the "Funds") and the owners of the Class A shares of such Funds (the "Shares"); NOW, THEREFORE, the Trustees of the Trust hereby adopt this Distribution Plan pursuant to Rule 12b-1 under the 1940 Act. SECTION 1. The Trust has adopted this Class A Distribution Plan ("Plan") to enable the Trust to directly or indirectly bear expenses relating to the distribution of the Shares of the Trust. SECTION 2. Distribution Activities. (a) The Shares of each Fund are authorized to pay the principal underwriter of the shares (the "Distributor") a total fee in connection with distribution-related services provided in respect of such class, calculated and payable monthly, at the annual rate of 0.25% of the value of the average daily net assets of such class. (b) The fee paid pursuant to this Section 2 may be used by the Distributor to provide initial and ongoing sales compensation to its investment executives and to other broker-dealers in respect of sales of Shares of the applicable Funds and to pay for other advertising and promotional expenses in connection with the distribution of the Shares. These advertising and promotional expenses include, by way of example but not by way of limitation, costs of printing and mailing prospectuses, statements of additional information and shareholder reports to prospective investors; preparation and distribution of sales literature; advertising of any type; an allocation of overhead and other expenses of the Distributor related to the distribution of the Shares; and payments to, and expenses of, officers, employees or representatives of the Distributor, of other broker-dealers, banks or other financial institutions, and of any other persons who provide support services in connection with the distribution of the Shares, including travel, entertainment, and telephone expenses. (c) Payments under this Section of the Plan are not tied exclusively to the expenses for distribution-related activities actually incurred by the Distributor, so that such payments may exceed expenses actually incurred by the Distributor. The Trust's Board of Trustees will evaluate the appropriateness of the Plan and its payment terms on a continuing basis and in doing so will consider all relevant factors, including expenses borne by the Distributor and amount it receives under the Plan. 1 (d) The Trust's investment adviser and the Distributor may, at their option and in their sole discretion, make payments from their own resources to cover costs of additional distribution. SECTION 3. This Plan shall not take effect with respect to any Fund until it has been approved together with any related agreements, by votes of the majority of both (i) the Trustees of the Trust and (ii) the Qualified Trustees, as hereinafter defined, cast in person at a Board of Trustees meeting called for the purpose of voting on this Plan or such agreement. SECTION 4. This Plan shall continue in effect for a period of more than one year after it takes effect only for so long as such continuance is specifically approved at least annually in the manner provided in Part (b) of Section 3 herein for the approval of this Plan. SECTION 5. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. SECTION 6. This Plan may be terminated at any time by the vote of a majority of the Qualified Trustees or by vote of a majority of the outstanding voting securities of the Shares of the Funds. SECTION 7. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide (a) that such agreement may be terminated at any time, without payment of any penalty, by the vote of a majority of the Qualified Trustees or by the vote of a majority of the Trust's outstanding voting securities of the Shares of the Funds, on not more than 60 days written notice to any other party to the agreement; and (b) that such agreement shall terminate automatically in the event of its assignment. SECTION 8. This Plan may not be amended to increase materially the amount of distribution expenses permitted pursuant to Section 2 hereof without the approval of Shareholders holding a majority of the outstanding voting securities of the Shares of the Funds, and all material amendments to this Plan shall be approved in the manner provided in Part (b) of Section 3 herein for the approval of this Plan. SECTION 9. As used in this Plan, (a) the term "Qualified Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the 1940 Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission. SECTION 10. While this Plan is in effect, the selection and nomination of those Trustees who are not interested persons of the Trust within the meaning of Section 2(a)(19) of the 1940 Act shall be committed to the discretion of the Trustees then in office who are not interested persons of the Trust. SECTION 11. This Plan shall not obligate the Trust or any other party to enter into an agreement with any particular person. 2 EXHIBIT A
- -------------------------------------------------------------------------------- FUND 12b-1 FEE - -------------------------------------------------------------------------------- Bishop Street Equity Fund 0.25% - -------------------------------------------------------------------------------- Bishop Street High Grade Income Fund 0.25% - -------------------------------------------------------------------------------- Bishop Street Hawaii Municipal Bond 0.25% Fund - --------------------------------------------------------------------------------
EX-99.O(2) 6 EXHIBIT 99.O(2) BISHOP STREET FUNDS RULE 18f-3 MULTIPLE CLASS PLAN MAY 13, 1999 Bishop Street Funds (the "Trust"), a registered investment company that currently consists of a number of separately managed funds, has elected to rely on Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act"), in offering multiple classes of shares in the funds listed on Schedule A hereto (each a "Fund" and together the "Funds"). A. ATTRIBUTES OF SHARE CLASSES 1. The rights of each class of shares of the Funds shall be as set forth in the respective Certificate of Class Designation for each class (each a "Certificate") as each such Certificate is approved by the Trust's Board of Trustees and as attached hereto as Exhibits. 2. With respect to each class of shares created hereunder, each share of a Fund will represent an equal PRO RATA interest in the Fund and will have identical terms and conditions, except that: (i) each new class will have a different class name (or other designation) that identifies the class as separate from any other class; (ii) each class will be offered and sold only to investors meeting the qualifications set forth in the Certificate and disclosed in the Trust's Prospectuses; (iii) each class will separately bear any distribution fees that are payable in connection with a distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act (a "Distribution Plan"), and separately bear any other service fees ("service fees") that are payable under any service agreement entered into with respect to that class which are not contemplated by or within the scope of the Distribution Plan; (iv) each class may bear, consistent with rulings and other published statements of position by the Internal Revenue Service, the expenses of the Fund's operations which are directly attributable to such class ("Class Expenses"); and (v) shareholders of each class will have exclusive voting rights regarding any matter submitted to shareholders that relates solely to such class (such as a Distribution Plan or service agreement relating to such class), and will have separate voting rights on any matter submitted to shareholders in which the interests of that class differ from the interests of any other class. B. EXPENSE ALLOCATIONS With respect to each Fund, the expenses of each class shall be allocated as follows: (i) any Rule 12b-1 fees relating to a particular class of shares associated with a Distribution Plan or service fees relating to a particular class of shares are (or will be) borne exclusively by that class; (ii) any incremental transfer agency fees relating to a particular class are (or will be) borne exclusively by that class; and (iii) Class Expenses relating to a particular class are (or will be) borne exclusively by that class. Non-class specific expenses shall be allocated in accordance with Rule 18f-3(c). C. AMENDMENT OF PLAN; PERIODIC REVIEW This Plan must be amended to properly describe (through additional exhibits hereto) each new class of shares upon its approval by the Board. The Board of Trustees of the Trust, including a majority of the Trustees who are not "interested persons" of the Trust as defined in the 1940 Act, must review this Plan at least annually for its continued appropriateness, and must approve any material amendment of the Plan as it relates to any class of any Fund covered by the Plan. In approving any material amendment to the Plan, the Trustees, including a majority of the Trustees who are not interested persons of the Trust, must find that the amendment is in the best interests of each class individually and the Trust as a whole. SCHEDULE A BISHOP STREET FUNDS CLASS A SHARES Bishop Street Equity Fund Bishop Street High Grade Income Fund Bishop Street Hawaii Municipal Bond Fund INSTITUTIONAL CLASS SHARES Bishop Street Equity Fund Bishop Street High Grade Income Fund Bishop Street Hawaii Municipal Bond Fund Bishop Street Money Market Fund Bishop Street Treasury Money Market Fund EXHIBIT A BISHOP STREET FUNDS CERTIFICATE OF CLASS DESIGNATION CLASS A SHARES 1. CLASS-SPECIFIC DISTRIBUTION ARRANGEMENTS; OTHER EXPENSES. Class A Shares are sold subject to a front-end sales charge. The front-end sales charges are indicated on the following tables. Class A Shares of the Funds are subject to a 0.25% Rule 12b-1 fee. Additionally, Class A Shares are subject to shareholder and administrative servicing fees including: maintaining client accounts; arranging for bank wires; responding to client inquiries concerning services provided for investments; changing dividend options; account designation and addresses; providing sub-accounting; providing information on share positions to clients; forwarding shareholder communications to clients; processing purchase, exchange and redemption order; and processing dividend payments. The following tables show the regular sales charge on Class A Shares of the Funds to a "single purchaser" (defined below): EQUITY FUND
- -------------------------------------------------------------------------------- SALES CHARGE AS A SALES CHARGE AS A PERCENTAGE OF OFFERING PERCENTAGE OF NET AMOUNT AMOUNT OF PURCHASE PRICE INVESTED - -------------------------------------------------------------------------------- $0 - $50,000 5.75% 6.10% - -------------------------------------------------------------------------------- $50,000 - $99,999 4.50% 4.71% - -------------------------------------------------------------------------------- $100,000 - 249,999 3.50% 3.63% - -------------------------------------------------------------------------------- $250,000 - $499,999 2.50% 2.56% - -------------------------------------------------------------------------------- $500,000 - $999,999 2.00% 2.04% - -------------------------------------------------------------------------------- $1,000,000 and above 0.00% 0.00% - --------------------------------------------------------------------------------
HIGH GRADE INCOME FUND
- -------------------------------------------------------------------------------- SALES CHARGE AS A SALES CHARGE AS A PERCENTAGE OF OFFERING PERCENTAGE OF NET AMOUNT AMOUNT OF PURCHASE PRICE INVESTED - -------------------------------------------------------------------------------- $0 - $50,000 4.75% 4.99% - -------------------------------------------------------------------------------- $50,000 - $99,999 4.50% 4.71% - -------------------------------------------------------------------------------- $100,000 - 249,999 3.50% 3.63% - -------------------------------------------------------------------------------- $250,000 - $499,999 2.50% 2.56% - -------------------------------------------------------------------------------- $500,000 - $999,999 2.00% 2.04% - -------------------------------------------------------------------------------- $1,000,000 and above 0.00% 0.00% - --------------------------------------------------------------------------------
HAWAII MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------- SALES CHARGE AS A SALES CHARGE AS A PERCENTAGE OF OFFERING PERCENTAGE OF NET AMOUNT AMOUNT OF PURCHASE PRICE INVESTED - -------------------------------------------------------------------------------- $0 - $50,000 4.25% 4.44% - -------------------------------------------------------------------------------- $50,000 - $99,999 4.00% 4.17% - -------------------------------------------------------------------------------- $100,000 - 249,999 3.50% 3.63% - -------------------------------------------------------------------------------- $250,000 - $499,999 2.50% 2.56% - -------------------------------------------------------------------------------- $500,000 - $999,999 2.00% 2.04% - -------------------------------------------------------------------------------- $1,000,000 and above 0.00% 0.00% - --------------------------------------------------------------------------------
2. ELIGIBILITY OF PURCHASERS Class A Shares are offered to individual investors. 3. EXCHANGE PRIVILEGES Class A Shares of each Fund may be exchanged for Class A Shares of each other Fund of the Trust in accordance with the procedures disclosed in the Fund's Prospectus and subject to any applicable limitations resulting from the closing of Funds to new investors. 4. VOTING RIGHTS Each Class A shareholder will have one vote for each full Class A Share held and a fractional vote for each fractional Class A Share held. Class A shareholders will have exclusive voting rights regarding any matter submitted to shareholders that relates solely to Class A (such as a distribution plan or service agreement relating to Class A), and will have separate voting rights on any other matter submitted to shareholders in which the interests of the Class A Shareholders differ from the interests of holders of any other class. 5. CONVERSION RIGHTS Class A Shares do not have a conversion feature. EXHIBIT B BISHOP STREET FUNDS CERTIFICATE OF CLASS DESIGNATION INSTITUTIONAL CLASS SHARES 1. CLASS-SPECIFIC DISTRIBUTION ARRANGEMENTS; OTHER EXPENSES. Institutional Class Shares are sold without a sales charge and are not subject to a Rule 12b-1 fee. Institutional Class Shares are subject to shareholder and administrative servicing fees including: maintaining client accounts; arranging for bank wires; responding to client inquiries concerning services provided for investments; changing dividend options; account designation and addresses; providing sub-accounting; providing information on share positions to clients; forwarding shareholder communications to clients; processing purchase, exchange and redemption order; and processing dividend payments. 2. ELIGIBILITY OF PURCHASERS Institutional Class Shares are offered to institutional investors and individual investors investing through a trust account with BancWest Corporation or its affiliates. 3. EXCHANGE PRIVILEGES Institutional Class Shares of each Fund may be exchanged for Institutional Class Shares of each other Fund of the Trust in accordance with the procedures disclosed in the Fund's Prospectus and subject to any applicable limitations resulting from the closing of Funds to new investors. 4. VOTING RIGHTS Each Institutional Class shareholder will have one vote for each full Institutional Class Share held and a fractional vote for each fractional Institutional Class Share held. Institutional Class shareholders will have exclusive voting rights regarding any matter submitted to shareholders that relates solely to the Institutional Class (such as a distribution plan or service agreement relating to the Institutional Class), and will have separate voting rights on any other matter submitted to shareholders in which the interests of Institutional Class shareholders differ from the interests of holders of any other class. 5. CONVERSION RIGHTS Institutional Class Shares do not have a conversion feature. -----END PRIVACY-ENHANCED MESSAGE-----