<PAGE>
 
================================================================================

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549
                                   FORM 10-K
                                        
          [ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1998

                  HAWAIIAN ELECTRIC INDUSTRIES CAPITAL TRUST I
      (Exact Name of Registrant as Specified in Its Certificate of Trust)

                       Commission File Number: 1-8503-01

<TABLE>
<S>                                                                                           <C>
                         Delaware                                                                         52-6829385
 (State or other jurisdiction of incorporation or organizaion)                               (I.R.S. Employer Identification No.)

                  c/o The Bank of New York, 101 Barclay Street, 21st Floor, New York, N.Y.  10286 (212) 815-5084
                                         Attention: Corporate Trust Trustee Administration
             (Address, including zip code, and telephone number, including area code, of principal executive offices)
</TABLE> 

          Securities registered pursuant to Section 12(b) of the Act:

<TABLE> 
<CAPTION> 

Title of each class                                                  Name of each exchange on which registered
-------------------                                                  -----------------------------------------
<S>                                                                  <C> 
8.36% Trust Originated Preferred Securities (TOPrS)                  New York Stock Exchange
(and the related guarantee of Hawaiian Electric        
Industries, Inc.)                                     
</TABLE> 
                                                       
       Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes   x          No   
                                              -----           -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.                                                 [X]

As of March 12, 1999, no common securities of the Registrant were held by
nonaffiliates of the Registrant.

                      Documents Incorporated By Reference:

Prospectus, dated January 24, 1997, and prospectus supplement, dated January 29,
1997, filed pursuant to Rule 424(b)(5) in connection with Registration Statement
on Form S-3 (Nos. 333-18809, 333-18809-01, 333-18809-02, 333-18809-03 and 333-
18809-04) filed by the Registrant and Hawaiian Electric Industries, Inc.-
Incorporated in part by reference in Part I

================================================================================
<PAGE>
 
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                   Page No.
<S>           <C>                                                                    <C>
                                     PART I

Item  1.      Business.............................................................   1
Item  2.      Properties...........................................................   2
Item  3.      Legal Proceedings....................................................   2
Item  4.      Submission of Matters to a Vote of Security Holders..................   2

                                    PART II

Item  5.      Market for Registrant's Common Equity and Related Stockholder Matters   2
Item  6.      Selected Financial Data..............................................   2
Item  7.      Management's Discussion and Analysis of Financial Condition
               and Results of Operations...........................................   3
Item  8.      Financial Statements and Supplementary Data..........................   3
Item  9.      Changes in and Disagreements with Accountants on Accounting
               and Financial Disclosure............................................   3

                                    PART III

Item 10.      Directors and Executive Officers of the Registrant...................   3
Item 11.      Executive Compensation...............................................   4
Item 12.      Security Ownership of Certain Beneficial Owners and Management.......   4
Item 13.      Certain Relationships and Related Transactions.......................   4

                                    PART IV

Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K......   4
Signatures.........................................................................   6
</TABLE>


                                       i
<PAGE>
 
                                     PART I
                                     ------
                                        
ITEM 1.   Business
          --------

Hawaiian Electric Industries Capital Trust I (the Trust) is a statutory business
trust formed under the Delaware Business Trust Act, as amended, pursuant to a
trust agreement and a certificate of trust filed with the Secretary of State of
Delaware on December 19, 1996. The Trust Agreement was subsequently amended by
an amended and restated trust agreement dated as of February 1, 1997. The Trust
exists for the exclusive purposes of (i) issuing trust securities (Trust
Securities), consisting of 8.36% Trust Originated Preferred Securities (the
Trust Preferred Securities) and trust common securities (the Trust Common
Securities), representing undivided beneficial ownership interests in the assets
of the Trust, (ii) investing the gross proceeds of the Trust Securities in 8.36%
Partnership Preferred Securities (the Partnership Preferred Securities) issued
by HEI Preferred Funding, LP (the Partnership), and (iii) engaging in only those
other activities necessary or incidental thereto. The Trust has no employees.

Hawaiian Electric Industries, Inc. (the Company), holds all of the Trust Common
Securities. The Company was incorporated in 1981 under the laws of the State of
Hawaii and is a holding company with subsidiaries engaged in the electric
utility, savings bank, freight transportation and other businesses, primarily in
the State of Hawaii, and also engaged in the pursuit of independent power and
integrated energy services projects in Asia and the Pacific. The Company's
predecessor, Hawaiian Electric Company, Inc. (HECO), was incorporated under the
laws of the Kingdom of Hawaii (now the State of Hawaii) on October 13, 1891. As
a result of a 1983 corporate reorganization, HECO became a subsidiary of the
Company, and common shareholders of HECO became common shareholders of the
Company. The Company (File No. 1-8503) is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and thus files
reports, proxy statements and other information with the Securities and Exchange
Commission.

The Partnership is a limited partnership formed under the Delaware Revised
Uniform Limited Partnership Act, as amended, pursuant to an agreement of limited
partnership and the filing of a certificate of limited partnership with the
Secretary of State of Delaware on December 23, 1996, which was subsequently
amended by an amended and restated agreement of limited partnership dated as of
February 1, 1997. Hycap Management, Inc. (Hycap), a wholly owned subsidiary of
the Company, is the sole general partner of the Partnership. The Partnership is
managed by the general partner and exists for the exclusive purposes of (a)
purchasing certain eligible debt instruments of the Company and the wholly owned
subsidiaries of the Company (collectively, the Affiliate Investment Instruments)
and certain U.S. government obligations and commercial paper of unaffiliated
entities (Eligible Debt Securities) with the proceeds from (i) the sale of its
Partnership Preferred Securities, representing limited partner interests in the
Partnership, to the Trust and (ii) a capital contribution in exchange for the
general partner interest in the Partnership, (b) receiving interest and other
payments on the Affiliate Investment Instruments and the Eligible Debt
Securities held by the Partnership from time to time, (c) making distributions
on the Partnership Preferred Securities and distributions on the general partner
interest in the Partnership if, as, and when declared by the general partner in
its sole discretion, (d) subject to the restrictions and conditions contained in
the agreement of limited partnership, making additional investments in Affiliate
Investment Instruments and Eligible Debt Securities and disposing of any such
investments, and (e) except as otherwise limited in the agreement of limited
partnership, entering into, making and performing all contracts and other
undertakings, and engaging in those activities and transactions as the general
partner deems necessary or advisable for carrying out the purposes of the
Partnership.

The Trust's activities are limited to issuing securities and investing the
proceeds as described above. Since the Trust was organized on December 19, 1996,
its activities, as specified in its declaration of trust, have been limited to
the issuance of the Trust Preferred Securities and the Trust Common Securities,
the investing of the proceeds in the Partnership Preferred Securities, and the
payment of distributions on the Trust Preferred Securities and the Trust Common
Securities in accordance with their terms. All of the foregoing activities of
the Trust occurred in or after February 1997.

                                       1
<PAGE>
 
The information set forth under the headings "The Hawaiian Electric Industries
Capital Trusts", "The Partnership", "Description of the Trust Preferred
Securities", "Description of the Trust Guarantees", "Description of the
Partnership Preferred Securities", "Description of the Partnership Guarantee",
and "Description of Investment Guarantees" in the Prospectus dated January 24,
1997, and the information set forth under the headings "Description of the
Trust", "Description of the Partnership", Supplemental Description of the Trust
Preferred Securities", Supplemental Description of the Trust Guarantee",
"Supplemental Description of the Partnership Preferred Securities", and
"Supplemental Description of the Partnership Guarantee" in the Prospectus
Supplement dated January 29, 1997, of the Trust and the Partnership is
incorporated by reference herein.

ITEM 2.   Properties
          ----------

None.

ITEM 3.   Legal Proceedings
          -----------------

The Registrant knows of no legal proceedings involving the Trust or its assets.

ITEM 4.   Submission of Matters to a Vote of Security Holders
          ---------------------------------------------------

During the fourth quarter of 1998, no matter was submitted to a vote of holders
of any securities of the Trust.

                                    PART II
                                    -------
                                        
ITEM 5.   Market for Registrant's Common Equity and Related Stockholder Matters
          ---------------------------------------------------------------------

(a)  There is no established public market for the Trust Common Securities.

(b)  All the Trust Common Securities are owned by the Company.

(c)  The Company, as holder of the Trust Common Securities, is entitled to
receive cumulative cash distributions accumulating from February 4, 1997 and
payable quarterly in arrears on each March 30, June 30, September 30 and
December 30, commencing March 30, 1997, at an annual rate of 8.36% of the
liquidation amount of the Trust Common Securities. Distributions not paid on the
scheduled payment date will accumulate and compound quarterly at a rate per
annum equal to 8.36%. The dividends declared and paid on the Trust Common
Securities for the four quarters of 1998 and the second, third and fourth
quarters of 1997 were $64,644 per quarter. The dividends declared and paid on
the Trust Common Securities for the period February 4, 1997 (inception) to March
31, 1997 were $39,504.


ITEM 6.   Selected Financial Data
          -----------------------

The Registrant's activities are limited to issuing securities and investing the
proceeds as described in Item 1.  "Business," above. Accordingly, the financial
statements included herein in response to Item 8.  "Financial Statements and
Supplementary Data," are incorporated by reference in response to this item.

                                       2
<PAGE>
 
ITEM 7.   Management's Discussion and Analysis of Financial Condition and
          ---------------------------------------------------------------
          Results of Operations
          ---------------------

The Registrant's activities are limited to issuing securities and investing the
proceeds as described in Item 1. "Business," above.

Since the Trust was organized on December 19, 1996, its activities, as specified
in its declaration of trust, have been limited to the issuance and sale in
February 1997 of the Trust Preferred Securities and the Trust Common Securities,
the investing of the proceeds from such sales in the aggregate amount of
$103,093,000 in the Partnership Preferred Securities, and the payment of
distributions on the Trust Preferred Securities and the Trust Common Securities
in accordance with their terms. During 1998, the Trust received distributions on
the Partnership Preferred Securities in the full amount to which it was
entitled, aggregating $8,619,000, and in turn made distributions to the holders
of the Trust Preferred Securities in the aggregate amount of $8,360,000 and to
the holders of the Common Securities in the amount of $259,000. During 1997, the
Trust received distributions on the Partnership Preferred Securities in the full
amount to which it was entitled, aggregating $7,781,000, and in turn made
distributions to the holders of the Trust Preferred Securities in the aggregate
amount of $7,547,000 and to the holders of the Common Securities in the amount
of $234,000. All of the foregoing activities of the Trust occurred in or after
February 1997.

All expenses of organizing the Trust, carrying out the issuance of its
securities, and conducting its limited activities during 1998 and 1997 were
borne by the Company, either directly or through Hycap, its wholly owned
subsidiary.

Year 2000 issue.  Ongoing receipts and distributions of the Trust are handled by
----------------                                                                
The Bank of New York, as Trustee. The Bank of New York's "Year 2000 Readiness
Disclosure" can be accessed at its website: www.bankofny.com/about/atdyy2k.htm.
If The Bank of New York is not Year 2000 ready, the Trust will place its
business with another trustee and can manually issue checks and make deposits in
the interim.

ITEM 8.  Financial Statements and Supplementary Data
         -------------------------------------------

In response to this Item 8, the financial statements and notes thereto and the
independent auditors' reports set forth on pages F-1 through F-6 are
incorporated by reference herein.

ITEM 9.  Changes in and Disagreements with Accountants on Accounting
         -----------------------------------------------------------
         and Financial Disclosure
         ------------------------

None.

                                   PART III
                                   --------
                                        
ITEM 10.  Directors and Executive Officers of the Registrant
          --------------------------------------------------

The Trust has no directors or executive officers. The Trustees of the Trust are
as follows:

        Regular Trustees:    Robert F. Clarke
                             Robert F. Mougeot
                             Constance H. Lau

        Property Trustee:    The Bank of New York

        Delaware Trustee:    The Bank of New York (Delaware)

Robert F. Clarke is the Chairman, President and Chief Executive Officer of the
Company. Robert F. Mougeot is the Financial Vice President and Chief Financial
Officer of the Company. Constance H. Lau is the Treasurer of the Company. Each
of them has served in that capacity with the Company for more than five years.

                                       3
<PAGE>
 
Each Trustee has served since the Trust was organized on December 19, 1996. The
Trustees serve at the pleasure of the Company, as the holder of the Trust Common
Securities.

ITEM 11.  Executive Compensation
          ----------------------

As indicated above, the Trust has no executive officers. No employee of the
Company receives any compensation for serving as a Regular Trustee or acting in
any capacity for the Trust separate from his or her compensation as an employee
of the Company.

ITEM 12.  Security Ownership of Certain Beneficial Owners and Management
          --------------------------------------------------------------

The information in Item 1.  "Business" and Item 5.  "Market for Registrant's
Common Equity and Related Stockholder Matters" with respect to ownership of the
Trust Common Securities is incorporated by reference in response to this item.

ITEM 13.  Certain Relationships and Related Transactions
          ----------------------------------------------

Intercompany charges from Hawaiian Electric Industries, Inc. to Hycap for
general management and accounting services for Hycap, the Trust and the
Partnership were approximately $7,000 for the year ended December 31, 1998.

                                    PART IV
                                    -------
                                        
ITEM 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K
          ---------------------------------------------------------------

(a)  Documents filed as part of this Report:

     1.  Financial Statements

     The contents of the financial statements are listed on page F-1 hereof, and
     the financial statements and accompanying independent auditors' reports
     appear on pages F-2 through F-6.

     2.  Financial Statement Schedules

     None.

     3.  Exhibits

     The exhibits designated by an asterisk (*) are filed herein. The exhibits
     not so designated are incorporated by reference to the indicated filing. A
     copy of any exhibit may be obtained upon written request for a $0.20 per
     page charge from the HEI Treasurer, P.O. Box 730, Honolulu, Hawaii 96808-
     0730.

<TABLE>
<CAPTION>
 
Index to Exhibits
-----------------
<S>                     <C>
Exhibit 4.1             Certificate of Trust dated as of December 19, 1996 (incorporated by reference
                        to Exhibit 4(a)(i) to Registration Statement on Form S-3 (Nos. 333-18809,
                        333-18809-01, 333-18809-02, 333-18809-03 and 333-18809-04) (the "Registration
                        Statement"))
 
Exhibit 4.2             Amended and Restated Trust Agreement of the Trust dated as of February 1,
                        1997 (incorporated by reference to Exhibit 4(f) to the Current Report on Form
                        8-K of Hawaiian Electric Industries, Inc. dated February 4, 1997, File No.
                        1-8503 (the "February 4, 1997 Form 8-K"))
 
Exhibit 4.3             Amended and Restated Certificate of Limited Partnership of the Partnership
                        dated as of December 23, 1996 (incorporated by reference to Exhibit 4(c) to
                        the Registration Statement)
</TABLE>

                                       4
<PAGE>
 
Exhibits (continued)

<TABLE>
 
<S>                     <C>
Exhibit 4.4             Amended and Restated Agreement of Limited Partnership of the Partnership
                        dated as of February 1, 1997  (incorporated by reference to Exhibit 4(e) to
                        the February 4, 1997 Form 8-K)

Exhibit 4.5             Trust Preferred Securities Guarantee Agreement with respect to the Trust
                        dated as of February 1, 1997  (incorporated by reference to Exhibit 4(o) to
                        the February 4, 1997 Form 8-K)
                  
Exhibit 4.6             Partnership Guarantee Agreement with respect to the Partnership dated as of
                        February 1, 1997  (incorporated by reference to Exhibit 4(p) to the February
                        4, 1997 Form 8-K)
                  
Exhibit 4.7             Junior Indenture between HEI and The Bank of New York, as Trustee, dated as
                        of February 1, 1997 (incorporated by reference to Exhibit 4(i) to the
                        February 4, 1997 Form 8-K)
                  
Exhibit 4.8             Officers' Certificate in connection with issuance of 8.36% Junior
                        Subordinated Debenture, Series A, Due 2017 under Junior Indenture of HEI
                        (incorporated by reference to Exhibit 4(l) to the February 4, 1997 Form 8-K)
                  
Exhibit 4.9             Affiliate Investment Instruments Guarantee Agreement with respect to 8.36%
                        Junior Subordinated Debenture of HEI Diversified, Inc. dated as of February
                        1, 1997  (incorporated by reference to Exhibit 4(q) to the February 4, 1997
                        Form 8-K)
                  
Exhibit 4.10            8.36% Trust Originated Preferred Security (Liquidation Amount $25 Per Trust
                        Preferred Security) of the Trust (incorporated by reference to Exhibit 4(m)
                        to the February 4, 1997 Form 8-K)
                  
Exhibit 4.11            8.36% Junior Subordinated Debenture Series A, Due 2017, of HEI  (incorporated
                        by reference to Exhibit 4(n) to the February 4, 1997
                        Form 8-K)
                  
Exhibit 4.12            Certificate Evidencing Trust Common Securities of the Trust dated February 4,
                        1997 (incorporated by reference to Exhibit 4.12 to the Quarterly Report on
                        Form 10-Q of Hawaiian Electric Industries Capital Trust I, File No.
                        1-8503-01, and HEI Preferred Funding, LP, File No. 1-8503-02, for the quarter
                        ended March 31, 1997)
                  
Exhibit 4.13            Certificate  Evidencing Partnership Preferred Securities of the Partnership
                        dated February 4, 1997 (incorporated by reference to Exhibit 4.13 to the
                        Quarterly Report on Form 10-Q of Hawaiian Electric Industries Capital Trust
                        I, File No. 1-8503-01, and HEI Preferred Funding, LP, File No. 1-8503-02, for
                        the quarter ended March 31, 1997)
 
*Exhibit 12             Computation of ratio of earnings to combined fixed charges and preferred
                        securities distributions, for the year ended December 31, 1998 and the period
                        February 4, 1997 (inception) to December 31, 1997
</TABLE>

                                       5
<PAGE>
 
  Exhibits (continued)

<TABLE>

<S>                        <C> 
*Exhibit 23                Accountants' Consent
 
*Exhibit 27                Hawaiian Electric Industries Capital Trust I -- Financial Data Schedule
                           December 31, 1998 and year ended December 31, 1998
</TABLE>

(b)  Reports on Form 8-K:

     None.




                                  SIGNATURES
                                        
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 22nd day of March,
1999.


                              HAWAIIAN ELECTRIC INDUSTRIES
                              CAPITAL TRUST I *


                              By:    /s/ Robert F. Clarke
                                     ---------------------------
                              Name:  Robert F. Clarke
                              Title: Regular Trustee



                              By:    /s/ Robert F. Mougeot
                                     ---------------------------
                              Name:  Robert F. Mougeot
                              Title: Regular Trustee



                              By:    /s/ Constance H. Lau
                                     ---------------------------
                              Name:  Constance H. Lau
                              Title: Regular Trustee


* There is no principal executive officer, principal financial officer,
controller, principal accounting officer or board of directors of the
Registrant.  The Trustees of the Registrant (which include the Regular Trustees,
the Property Trustee and the Delaware Trustee) together exercise all powers and
perform all functions with respect to the Registrant.

                                       6
<PAGE>
 
                  Hawaiian Electric Industries Capital Trust I
                Form 10-K--for the year ended December 31, 1998

                         INDEX TO FINANCIAL STATEMENTS
                                 ITEM 14(a)(1)

<TABLE> 
<CAPTION> 

Financial statements                                                          Page No.
<S>                                                                           <C> 
   Balance sheets  - December 31, 1998 and December 31, 1997.................    F-2
                                                                              
   Statements of earnings - for the year ended December 31, 1998              
   and the period February 4, 1997 (inception) to December 31, 1997..........    F-2
                                                                              
   Statements of changes in stockholders' equity - for the year               
   ended December 31, 1998 and the period                                     
   February 4, 1997 (inception) to December 31, 1997.........................    F-3
                                                                              
   Statements of cash flows - for the year ended December 31, 1998            
   and the period February 4, 1997 (inception) to December 31, 1997..........    F-3
                                                                              
   Notes to financial statements.............................................    F-4
 
Independent Auditors' Report.................................................    F-6
</TABLE>

                                      F-1
<PAGE>
 
<TABLE>
<CAPTION>

Hawaiian Electric Industries Capital Trust I
Balance sheets
 
                                                                       December 31,               December 31,
(in thousands)                                                             1998                      1997
--------------------------------------------------------------------------------------------------------------
 
Assets
------
<S>                                                            <C>                      <C>
Investment in partnership preferred securities..............             $103,093                  $103,093
                                                                         ========                  ========
 
Stockholders' equity
--------------------
Preferred securities (8.36% Trust Originated Preferred
   Securities; 4,000,000 authorized, issued and outstanding;
   $25 liquidation amount per security).....................             $100,000                  $100,000
 
Common securities (8.36% Trust Common Securities;
   123,720 authorized, issued and outstanding;
   $25 liquidation amount per security).....................                3,093                     3,093
                                                                         --------                  --------
                                                                         $103,093                  $103,093
                                                                         ========                  ========
</TABLE>

Hawaiian Electric Industries Capital Trust I
Statements of earnings

<TABLE> 
<CAPTION> 
                                                                                                     February 4,
                                                                                                        1997
                                                                             Year ended             (inception) to
                                                                             December 31,            December 31,
(in thousands)                                                                   1998                   1997
------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                    <C>
Earnings-equity in earnings of HEI Preferred Funding, LP.........              $  8,619               $  7,781
Distribution on preferred securities.............................                (8,360)                (7,547)
                                                                                -------                -------
Earnings available for common securities.........................               $   259                $   234
                                                                                =======                =======
</TABLE> 
 
Note: Hawaiian Electric Industries, Inc. owns all of Hawaiian Electric
Industries Capital Trust I's common securities. Therefore, per share data is not
meaningful.
 
See accompanying notes to financial statements.

                                      F-2
<PAGE>
 
Hawaiian Electric Industries Capital Trust I
Statements of changes in stockholders' equity

<TABLE> 
<CAPTION> 
                                                                                                            February 4,
                                                                                                               1997
                                                                                    Year ended            (inception) to
                                                                                    December 31,            December 31,
(in thousands)                                                                         1998                    1997
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                   <C>
Preferred securities, beginning of period............................                $100,000                 $  --
   Issuance of preferred securities on
      February 4, 1997 (inception)...................................                      --                  100,000
                                                                                     --------                 --------
Balance, end of period...............................................                 100,000                  100,000
                                                                                     --------                 --------
 
Common securities, beginning of period...............................                   3,093                       --
   Issuance of common securities on
      February 4, 1997 (inception)...................................                      --                    3,093
                                                                                     --------                 --------
Balance, end of period...............................................                   3,093                    3,093
                                                                                     --------                 --------
 
Retained earnings, beginning of period...............................                      --                       --
   Earnings available for common securities..........................                     259                      234
   Distribution on common securities.................................                    (259)                    (234)
                                                                                     --------                 --------
Balance, end of period...............................................                      --                       --
                                                                                     --------                 --------
Total stockholders' equity...........................................                $103,093                 $103,093
                                                                                     ========                 ========
</TABLE>

Hawaiian Electric Industries Capital Trust I
Statements of cash flows

<TABLE> 
<CAPTION> 
                                                                                                     February 4, 1997
                                                                            Year ended                 (inception) to
                                                                            December 31,                December 31,
(in thousands)                                                                  1998                        1997
---------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                      <C>
Cash flows from operating activities
Earnings before distribution on preferred securities...........                $ 8,619                   $   7,781
Equity in earnings of HEI Preferred Funding, LP................                 (8,619)                     (7,781)
Distribution from HEI Preferred Funding, LP....................                  8,619                       7,781
                                                                               -------                   ---------
Net cash provided by operating activities......................                  8,619                       7,781
                                                                               -------                   ---------
 
Cash flows used in investing activity--purchase of
  partnership preferred securities on February 4, 1997
  (inception)..................................................                     --                    (103,093)
                                                                               -------                   --------- 
Cash flows from financing activities
Proceeds from issuance of preferred securities on
  February 4, 1997 (inception).................................                     --                     100,000
Proceeds from issuance of common securities on
  February 4, 1997 (inception).................................                     --                       3,093
Distribution on common securities..............................                   (259)                       (234)
Distribution on preferred securities...........................                 (8,360)                     (7,547)
                                                                               -------                   ---------
Net cash provided by (used in) financing activities............                 (8,619)                     95,312
                                                                               -------                   ---------
 
Net change in cash.............................................                     --                          --
Cash, beginning of period......................................                     --                          --
                                                                               -------                   ---------
 
Cash, end of period............................................                $    --                   $      --
                                                                               =======                   =========
 
See accompanying notes to financial statements.
</TABLE>

                                      F-3
<PAGE>
 
Hawaiian Electric Industries Capital Trust I
NOTES TO FINANCIAL STATEMENTS
December 31, 1998

--------------------------------------------------------------------------------
(1) Organization and purpose
----------------------------

Hawaiian Electric Industries Capital Trust I (the Trust) is a statutory business
trust formed under the laws of the State of Delaware on December 19, 1996 for
the exclusive purposes of (i) issuing its 8.36% Trust Originated Preferred
Securities (TOPrS) and its 8.36% Common Securities (the Trust Preferred
Securities and the Trust Common Securities, respectively), (ii) purchasing the
8.36% Partnership Preferred Securities (the Partnership Preferred Securities),
representing the limited partner interests in HEI Preferred Funding, LP (the
Partnership), with the proceeds from the sale of Trust Preferred Securities and
Common Securities, and (iii) engaging in only those other activities necessary
or incidental thereto.

Hycap Management, Inc. (Hycap), a wholly owned subsidiary of Hawaiian Electric
Industries, Inc. (the Company) and sole general partner of the Partnership, has
paid compensation to the underwriters in connection with the offering of the
Trust Preferred Securities, which closed on February 4, 1997. The Company or
Hycap has paid all expenses relating to the issuance of the securities and the
operation of the Trust. Thus, these expenses of the Trust are not reflected on
the Trust's financial statements. The Company has agreed to (i) pay all fees and
expenses related to the organization and operations of the Trust (including
taxes, duties, assessments, or government charges of whatever nature (other than
withholding taxes) imposed by the United States or any other domestic taxing
authority upon the Trust) and the offering of the Trust Preferred Securities,
(ii) be responsible for all debts and other obligations of the Trust (other than
with respect to the Trust Preferred Securities and the Trust Common Securities)
and (iii) indemnify the trustees and certain other persons. The Company has
invested capital in Hycap as needed.

(2) Summary of significant accounting policies
----------------------------------------------

Basis of presentation

The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the Trust's financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the balance sheet and the reported amounts
of earnings for the period. Actual results could differ significantly from those
estimates.

The Trust was formed under Delaware law on December 19, 1996, but engaged in no
activity until it was capitalized through the issuance of the Trust Preferred
Securities and the Trust Common Securities on February 4, 1997 (inception) with
the proceeds from the sale of the Trust Preferred Securities and the Common
Securities. Accordingly, 1997 results are presented commencing February 4, 1997
(inception).

Investment

The investment in Partnership Preferred Securities represents limited partner
interests in the Partnership and is accounted for under the equity method.

Income taxes

The Trust does not incur any income tax liabilities. Such liabilities are
incurred directly by the security holders.

                                      F-4
<PAGE>
 
(3) Investment in Partnership Preferred Securities
--------------------------------------------------

The trust holds 4,123,720 8.36% Partnership Preferred Securities, $25
liquidation preference per security. The scheduled distribution payment dates
and redemption provisions of the Partnership Preferred Securities, which are
redeemable on or after February 4, 2002 at the option of the Partnership,
correspond to the distribution payment dates and redemption provisions of the
Trust Preferred Securities. Upon any redemption of the Partnership Preferred
Securities, the Trust Preferred Securities will be redeemed. The Company has
guaranteed, on a subordinated basis, the payment of distributions by the
Partnership on the Partnership Preferred Securities if, as, and when declared by
the general partner of the Partnership out of funds legally available therefor,
and payments upon liquidation of the Partnership or the redemption of the
Partnership Preferred Securities to the extent the Partnership has funds legally
available therefor. At December 31, 1998, Partnership assets consisted of cash
($1.2 million) and investments in debt instruments issued by the Company and its
subsidiary ($120.1 million). These assets were funded by the general partner
($18.2 million) and limited partner ($103.1 million). Partnership activity
during 1998 included interest income on the previously mentioned debt
instruments ($10.0 million) and other interest income ($0.1 million) and
distributions on the limited partner ($8.6 million) and general partner ($1.5
million) interests.

(4) Stockholders' equity
------------------------

Trust Preferred Securities

The Trust issued 4,000,000 8.36% Trust Preferred Securities, $25 liquidation
amount per security, in a public offering which closed on February 4, 1997 for
an aggregate purchase price of $100 million. The Company or Hycap paid all the
expenses of the offering. The Trust Preferred Securities are redeemable on or
after February 4, 2002 at the option of the Trust, in whole or in part, at a
redemption price equal to $25 per security. Distributions on the Trust Preferred
Securities are cumulative from the date of original issue and are payable
quarterly if, as, and when the Trust has funds available for payment. Holders of
the Trust Preferred Securities have limited voting rights and are not entitled
to vote, to appoint, remove or replace, or to increase or decrease the number of
trustees, which voting rights are vested exclusively in the holder of the Trust
Common Securities. Under certain circumstances, the Trust Preferred Securities
have preferential rights to payment relative to the Trust Common Securities.

The Company has guaranteed, on a subordinated basis, the payment in full of all
distributions and other payments on the Trust Preferred Securities to the extent
that the Trust has funds legally available therefor. This guarantee and the
partnership distribution guarantee are subordinated to all other liabilities of
the Company and rank pari passu with the Company's most senior preferred stock,
of which there is none currently outstanding.

Trust Common Securities

The trust issued 123,720 8.36% Trust Common Securities, $25 liquidation amount
per security, to the Company on February 4, 1997 for an aggregate purchase price
of $3,093,000. The Trust Common Securities are redeemable on or after February
4, 2002 at the option of the Trust, in whole or in part, at a redemption price
equal to $25 per security.

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<PAGE>
 
[KPMG LLP letterhead]



INDEPENDENT AUDITORS' REPORT

To the Trustees of Hawaiian Electric Industries Capital Trust I:

We have audited the accompanying balance sheets of Hawaiian Electric Industries
Capital Trust I (the "Trust") as of December 31, 1998 and 1997, and the related
statements of earnings, changes in stockholders' equity and cash flows for the
year ended December 31, 1998 and the period from February 4, 1997 (inception) to
December 31, 1997. These financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hawaiian Electric Industries
Capital Trust I as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the year ended December 31, 1998 and the
period from February 4, 1997 (inception) to December 31, 1997 in conformity with
generally accepted accounting principles.



/s/ KPMG LLP

Honolulu, Hawaii
January 18, 1999

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