UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------- FORM N-CSR -------- CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES INVESTMENT COMPANY ACT FILE NUMBER 811-8572 BISHOP STREET FUNDS (Exact name of registrant as specified in charter) -------- 2 Oliver Street Boston, MA 02109 (Address of principal executive offices) (Zip code) DST Systems, Inc. Kansas City, MO 64141 (Name and address of agent for service) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 610-254-1000 DATE OF FISCAL YEAR END: DECEMBER 31, 2003 DATE OF REPORTING PERIOD: DECEMBER 31, 2003 ITEM 1. REPORTS TO STOCKHOLDERS. [Background Compass Graphic Omitted] BISHOP STREET FUNDS ANNUAL REPORT DECEMBER 31, 2003 EQUITY FUND STRATEGIC GROWTH FUND TAX MANAGED EQUITY FUND HIGH GRADE INCOME FUND HAWAII MUNICIPAL BOND FUND MONEY MARKET FUND TREASURY MONEY MARKET FUND INVESTMENT ADVISER BISHOP STREET CAPITAL MANAGEMENT [BISHOP STREET FUNDS Logo Omitted] YOUR AVENUE TO SOUND INVESTMENT <page> [Background Graphic Omitted] The Bishop Street Hawaii Municipal Bond Fund Taxes can take a bite out of your income. The Hawaii Municipal Bond Fund may help reduce that tax burden. If you are: o Seeking high current income substantially exempt from federal and Hawaii state income taxes. o Willing to accept the risk of investing in a portfolio of municipal securities. Then you should consider adding the Hawaii Municipal Bond Fund to your portfolio. o Invests primarily in Hawaii Municipal Bonds. o Active portfolio management. o High-quality investment portfolio. Visit us at www.bishopstreetfunds.com or call 1-800-262-9565 today to discover how the Bishop Street Funds Hawaii Municipal Bond Fund can help diversify your portfolio. THIS INFORMATION MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE BISHOP STREET FUNDS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING OR SENDING MONEY. INVESTMENT IN MUTUAL FUNDS INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL. CERTAIN SHAREHOLDERS MAY BE SUBJECT TO THE ALTERNATIVE MINIMUM TAX (AMT). FEDERAL INCOME TAX RULES WILL APPLY TO ANY CAPITAL GAINS DISTRIBUTIONS. IN ADDITION TO THE NORMAL RISKS ASSOCIATED WITH INVESTING, NARROWLY FOCUSED INVESTMENTS TYPICALLY EXHIBIT HIGHER VOLATILITY. THE BISHOP STREET FUNDS ARE DISTRIBUTED BY SEI INVESTMENTS DISTRIBUTION CO., WHICH IS NOT AFFILIATED WITH FIRST HAWAIIAN BANK, BANK OF THE WEST, OR BANCWEST CORPORATION. BANCWEST CORPORATION IS A WHOLLY-OWNED SUBSIDIARY OF BNP PARABAS. -------------------------------------------------------------------------- Not FDIC Insured No Bank Guarantee May Lose Value -------------------------------------------------------------------------- <page> - -------------------------------------------------------------------------------- BISHOP STREET TABLE OF CONTENTS FUNDS - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS ............................................. 2 INVESTMENT ADVISER'S REPORT ........................................ 4 EQUITY FUND Management Discussion ........................................ 7 Statement of Net Assets ...................................... 9 STRATEGIC GROWTH FUND Management Discussion ........................................ 14 Statement of Net Assets ...................................... 16 TAX MANAGED EQUITY FUND Management Discussion ........................................ 19 Statement of Net Assets ...................................... 21 HIGH GRADE INCOME FUND Management Discussion ........................................ 25 Statement of Net Assets ...................................... 27 HAWAII MUNICIPAL BOND FUND Management Discussion ........................................ 33 Statement of Net Assets ...................................... 35 MONEY MARKET & Treasury Money Market Funds Management Discussion ........................................ 45 Statements of Net Assets ..................................... 47 STATEMENTS OF OPERATIONS ........................................... 54 STATEMENTS OF CHANGES IN NET ASSETS ................................ 56 FINANCIAL HIGHLIGHTS ............................................... 60 NOTES TO FINANCIAL STATEMENTS ...................................... 64 REPORT OF INDEPENDENT AUDITORS ..................................... 72 NOTICE TO SHAREHOLDERS ............................................. 73 BOARD OF TRUSTEES AND OFFICERS ..................................... 74 1 <page> - -------------------------------------------------------------------------------- BISHOP STREET LETTER TO SHAREHOLDERS FUNDS - -------------------------------------------------------------------------------- [Gregory E. Ratte Photo Omitted] The litany of investor woes by the end of 2002 was considerable. It was the third down year for the equity markets, the S&P 500 Composite Index had produced its worst year since 1974, profit growth had been disappointing, corporate scandals had rocked market confidence, the world continued to be demonstrably unsafe, and the U.S. was close to declaring war on Iraq. On the economic front, U.S. employment continued to erode, business confidence was terrible, the dollar was weak, and Mideast tensions were sending the price of oil to more than $30 per barrel. There were grounds for some cautious optimism, including the very easy monetary and fiscal policies of the Fed and Bush Administration, the enduring resilience of the U.S. consumer, and a budding recovery in corporate profits. Yet even those of us in the optimistic camp looked forward to a year of gradual recovery, not a "V" shaped rebound. So what did 2003 actually look like? In a word, SPECTACULAR. The Dow Jones Index returned 28.3%, the S&P 500 Composite Index 28.7%, and the NASDAQ Composite Index recorded a blistering 50.7% return, reaching an almost two-year high (although still some 50% plus below its bubble peak). Overseas, international markets also rallied, outpacing even the strong U.S. market. Importantly, the underlying fundamentals in many ways justified the market's move in 2003, and were in their own way just as spectacular. Once uncertainty over Iraq dissipated, the economic underpinning of the market firmed dramatically. At the same time, the Bush Administration's highly stimulative tax plan sailed through Congress and the Fed continued to aggressively pursue its very easy monetary policy, reducing short-term interest rates to a 40-year low of 1%. As a result, Gross Domestic Product growth accelerated throughout the year; Bishop Street Funds 2 <page> - -------------------------------------------------------------------------------- [Bishop Street Logo Omitted] - -------------------------------------------------------------------------------- by the third-quarter, the economy was expanding at an 8.2% annualized rate--a 20-year high! Perhaps most important to the market, however, was the impact of the improving economy on corporate profits. Having reduced expenses and cut back spending during the slowdown, companies found themselves with considerable leverage to the better economic environment, and corporate profit growth accelerated dramatically. In fact, both demand and productivity were so strong in 2003 that profits for U.S. corporations expanded at the fastest rate since 1999 and were ahead of Wall Street's forecasts for the first time since 1995. Analyst estimates are actually being revised upward after years of consistent downside disappointments. Overall, while we expect 2004 to be another positive year for equity investors (acknowledging the terrorism risk caveat), chances are returns will be lower than in 2003. We also expect that unlike 2003, when 460 of 500 stocks in the S&P 500 Composite Index were up for the year, it will be easier to lose money if investors are not careful. The key in this environment will be to focus on companies with strong cash flows and disciplined management in expanding areas of the economy with reasonable valuations. Thank you for your continued support and confidence. Sincerely, /s/ Gregory E. Ratte Gregory E. Ratte President and Chief Investment Officer Bishop Street Capital Management December 31, 2003 3 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET INVESTMENT ADVISER'S REPORT FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISER'S REPORT 2004 -- CAN THE CONSENSUS EVER BE RIGHT? Unlike 2003 when there was sharp disagreement between the bulls and the bears on the U.S. economy, there is a broad consensus on the outlook for 2004. Specifically: [] U.S. GDP growth of 4-5% [] No Fed tightening until mid-year at the earliest [] 10-12% growth in S&P 500 profits [] A weaker U.S. dollar relative to our trading partners In fact, we find ourselves generally in agreement with these consensus forecasts. The trouble is the consensus expectations have an odd way of being confounded, so it's worth looking at where each of these forecasts might prove either too sanguine or too cautious. THE ECONOMY There are just too many positives not to be optimistic. Fiscal and monetary policy is still as accommodative as ever. Furthermore, with the upcoming election, the chances of higher taxes or an aggressive Fed tightening before November are pretty remote. Even more importantly for the economy, increasing business investment, as corporations gain confidence in the sustainability of the recovery and begin to expand capacity and build inventories, should spur the "virtuous circle" of confidence leading to spending, spending to investment, and investment to employment. Indeed, while concern about the exportation of U.S. jobs to China and India garnered a fair share of 2003's national discussion, recent data shows declining unemployment claims and higher household employment and the intimation of job growth down the pike. FOR ALL THESE REASONS, IF THE CONSENSUS IS WRONG ABOUT GDP GROWTH, IT'S LIKELY TO BE TOO LOW, NOT TOO HIGH. Bishop Street Funds 4 - -------------------------------------------------------------------------------- [Bishop Street Funds Logo Omitted] - -------------------------------------------------------------------------------- THE FED There is more controversy here. Despite efforts to be more open in its intentions, the Fed whip-sawed the markets in 2003 with confusing messages; we foresee more of the same for 2004. To start, the current Fed stance, citing scant inflationary pressures in the system, calls for the maintenance of current policy for a "considerable" time. The trouble is, no one knows how long "considerable" will end up being. GIVEN THE STRENGTH IN THE ECONOMY, THE WEAKNESS IN THE DOLLAR, AND THE RECOVERY IN THE STOCK MARKET, IF THE CONSENSUS IS WRONG, FED HIKES WILL PROBABLY COME SOONER THAN LATER. At the very least, even a change in the language of the Fed's policy pronouncements will lead the bond market to tighten on its own accord by pushing longer-term interest rates higher before the Fed acts on the short-end. CORPORATE PROFITS We believe that after being burned by their own overheated predications during the bubble period, analysts are, if anything, underestimating the earnings potential of the companies that comprise the S&P 500 Composite Index. For three consecutive quarters (the 2nd, 3rd and 4th quarters of 2003), they have had to raise their profit estimates, with actual operating profits even exceeding those higher expectations in every quarter. With the economy on firmer footing, the weak dollar improving corporate competitiveness, repaired balance sheets and bare-bones cost structures, U.S. companies should still be able to deliver upside surprises. At some point, rising interest rates and the need to expand investment and employment to stay competitive will begin to pressure profitability; at that point, earnings growth will slow. BUT IN THE NEAR-TERM, IF THE CONSENSUS OPINION ON PROFITS IS WRONG, IT'S LIKELY BECAUSE OF BEING TOO LOW. December 31, 2003 5 www.bishopstreetfunds.com <page> - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- THE DOLLAR This is the trickiest call of all. Essentially, we see the level of the dollar as the canary in the coal mine for both the global economy and global capital markets. The voracious U.S. appetite for imports and the ballooning federal budget deficit, along with the still dominant role of the dollar as a global reserve currency, all mean that a significant move in the dollar up or down has repercussions everywhere. Since its peak in 2002, the decline in the dollar, though dramatic against the Euro, has been steady enough that the real economy and the markets have been able to adapt. A lower dollar improved U.S. competitiveness and moderated the recession, while an avoidance of a dollar panic enabled the U.S to continue financing its current account deficit while not forcing up either interest rates or inflation. However, if the currency decline should turn into a rout or, less likely, should the dollar rally dramatically, the imbalances that would be created would undermine all of the other three forecasts. IN OUR OPINION, THE RISK IS THAT IF THE CONSENSUS OF A MODERATELY WEAKER DOLLAR IS WRONG, IT WILL BE BECAUSE OF STRENGTH, NOT WEAKNESS. THE BOTTOM LINE We believe 2004 will be another good year for the stock market, but tougher for fixed-income investors. There appears to be enough traction in the economy to sustain the recovery and fuel continued profit growth. On the other hand, inflationary pressures should be building by year-end, providing a head wind for the bond market. Bishop Street Funds 6 - -------------------------------------------------------------------------------- [Bishop Street Funds Logo Omitted] - -------------------------------------------------------------------------------- Equity Fund - -------------------------------------------------------------------------------- For the year ended December 31, 2003, the total return for the Bishop Street Equity Fund Institutional Class Shares was 26.6%, a welcome return to strong positive gains after a very difficult three years. In general, the Fund benefited most from good stock picking in biopharmaceuticals, industrial machinery, software, semiconductors, and telecommunications. Relative to the market, the strong quality bias in the portfolio proved to be a drag as smaller, riskier companies strongly outperformed higher-quality and large companies last year. Looking ahead, unlike 2003 when 460 of 500 stocks in the S&P 500 Composite Index were up for the year, it will be easier to lose money in 2004 if investors are not careful. Our strategy in this environment will be to focus on companies with strong cash flows and disciplined management, operating in expanding areas of the economy with reasonable valuations. We have also emphasized companies and sectors, which have traditionally benefited during periods of strong economic growth and favorable financial market environments. December 31, 2003 7 www.bishopstreetfunds.com Equity Fund - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE BISHOP STREET EQUITY FUND, INSTITUTIONAL CLASS OR CLASS A, VERSUS THE S&P 500 COMPOSITE INDEX, THE CONSUMER PRICE INDEX AND THE LIPPER DOMESTIC EQUITY AGGREGATE. [Line Graphic Omitted] Plot points are as follows: Bishop Street Bishop Street S&P 500 Consumer Lipper Equity Fund, Equity Fund, Composite Price Domestic Institutional Class# Class A#+ Index Index Equity Aggregate 1/31/97 10,000 9,425 10,000 10,000 10,000 6/97 11,105 10,466 11,351 10,060 10,844 12/97 12,032 11,340 12,552 10,151 11,919 6/98 14,165 13,351 14,775 10,201 13,257 12/98 16,008 15,088 16,139 10,293 13,645 6/99 17,807 16,784 18,137 10,386 15,144 12/99 19,909 18,739 19,535 10,553 17,140 6/00 19,698 18,497 19,453 10,765 17,910 12/00 16,684 15,649 17,757 10,906 17,277 6/01 13,901 12,281 16,567 11,115 16,389 12/01 12,411 10,947 15,646 11,070 15,524 6/02 10,269 9,045 13,587 11,226 13,838 12/02 9,301 8,192 12,187 11,338 12,316 6/03 10,342 9,091 13,621 11,463 13,912 12/03 11,778 10,348 15,683 11,543 16,167 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. # Account value if you reinvested income and capital gains. AVERAGE ANNUAL TOTAL RETURNS++ - ----------------------------------------------------------- ONE ANNUALIZED ANNUALIZED ANNUALIZED YEAR 3 YEAR 5 YEAR INCEPTION RETURN RETURN RETURN TO DATE - ----------------------------------------------------------- 26.62% -10.96% -5.95% 2.54% Institutional Class* - ----------------------------------------------------------- 26.31% -11.15% -6.17%+ -7.38% Class A** - ----------------------------------------------------------- 19.00% -12.88% -7.27%+ -8.58% Class A, with load*** - ----------------------------------------------------------- * Commenced operations on 01/30/97. ** Commenced operations on 06/14/99. *** Reflects 5.75% sales charge. + Prior performance information represents performance of the Institutional Class, which was offered on 01/30/97. Institutional Class performance has been adjusted to reflect the Class A sales charge, but has not been adjusted to reflect Class A Rule 12b-1 fees and expenses. Had that adjustment been made, performance would be lower than that shown. ++ Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Bishop Street Funds 8 Equity Fund - -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS* ---------------------------------------------------------------------------- Percentage of Investments* ---------------------------------------------------------------------------- 1. Pfizer 4.6% ---------------------------------------------------------------------------- 2. American International Group 3.1% ---------------------------------------------------------------------------- 3. General Electric 3.0% ---------------------------------------------------------------------------- 4. Johnson & Johnson 3.0% ---------------------------------------------------------------------------- 5. Wells Fargo 2.6% ---------------------------------------------------------------------------- 6. Microsoft 2.6% ---------------------------------------------------------------------------- 7. Citigroup 2.6% ---------------------------------------------------------------------------- 8. Wal-Mart Stores 2.5% ---------------------------------------------------------------------------- 9. Morgan Stanley 2.4% ---------------------------------------------------------------------------- 10. Exxon Mobil 2.3% ---------------------------------------------------------------------------- *EXCLUDES SECURITIES PURCHASED WITH CASH COLLATERAL RECEIVED FROM SECURITIES LENDING. STATEMENT OF NET ASSETS Market Value Shares (000) ------ ------ COMMON STOCK -- 99.0% CONSUMER DISCRETION -- 12.8% 77,105 Brinker International* (A) $ 2,557 47,310 Carnival (A) 1,880 53,020 Clear Channel Communications* (A) 2,483 51,492 Home Depot 1,827 66,383 InterActiveCorp* (A) 2,252 26,710 Michaels Stores 1,181 32,630 Omnicom Group (A) 2,850 20,634 Target 792 36,414 Univision Communications, Cl A* (A) 1,445 67,155 Viacom, Cl B* 2,980 -------- 20,247 -------- CONSUMER STAPLES -- 8.3% 25,410 Anheuser-Busch 1,339 55,090 PepsiCo 2,568 27,710 Procter & Gamble 2,768 67,940 Sysco 2,529 December 31, 2003 9 www.bishopstreetfunds.com Equity Fund - -------------------------------------------------------------------------------- Statement of Net Assets (CONTINUED) Market Value Shares (000) ------ ------ CONSUMER STAPLES (CONTINUED) 73,760 Wal-Mart Stores $ 3,913 -------- 13,117 -------- ENERGY -- 6.5% 25,870 Devon Energy 1,481 87,240 Exxon Mobil 3,577 94,350 GlobalSantaFe (A) 2,342 53,138 Schlumberger Ltd. (A) 2,908 -------- 10,308 -------- FINANCIALS -- 20.9% 35,090 Allstate 1,510 22,980 AMBAC Financial Group 1,595 31,683 American Express (A) 1,528 73,245 American International Group 4,855 38,302 Bank of America 3,081 85,193 Citigroup 4,135 28,580 Goldman Sachs Group 2,822 55,720 Mellon Financial 1,789 65,960 Morgan Stanley 3,817 90,917 Travelers Property Casualty, Cl B 1,543 54,150 Washington Mutual 2,172 71,040 Wells Fargo 4,183 -------- 33,030 -------- HEALTH CARE -- 15.8% 26,676 Accredo Health* 843 57,330 Amgen* 3,543 44,580 Baxter International 1,361 32,125 Boston Scientific* 1,181 37,561 Forest Laboratories* 2,321 15,581 Genzyme* (A) 769 21,272 Gilead Sciences* 1,237 90,919 Johnson & Johnson 4,697 205,860 Pfizer 7,273 29,017 UnitedHealth Group 1,688 -------- 24,913 -------- INDUSTRIALS -- 11.0% 22,632 3M 1,924 25,560 General Dynamics 2,310 151,865 General Electric 4,705 33,410 Illinois Tool Works (A) 2,803 Bishop Street Funds 10 Equity Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Shares/Face Value Amount (000) (000) ------------ ------ INDUSTRIALS (CONTINUED) 34,161 Pentair $ 1,561 56,130 SPX* (A) 3,301 11,650 Union Pacific 810 -------- 17,414 -------- INFORMATION TECHNOLOGY -- 16.7% 53,285 Agilent Technologies* 1,558 102,788 Applied Materials* 2,308 129,710 BEA Systems* 1,595 65,579 Dell* 2,227 71,430 Hewlett-Packard 1,641 71,630 Intel 2,307 57,852 Linear Technology 2,434 29,836 Mercury Interactive* (A) 1,451 151,434 Microsoft 4,171 171,770 Nokia OYJ ADR (A) 2,920 37,990 Paychex (A) 1,413 69,564 Symantec* (A) 2,410 -------- 26,435 -------- MATERIALS -- 4.5% 45,230 Alcoa 1,719 27,133 EI Du Pont de Nemours 1,245 45,680 Ecolab (A) 1,250 76,200 Praxair 2,911 -------- 7,125 -------- TELECOMMUNICATIONS -- 2.5% 43,200 SBC Communications 1,126 109,300 Vodafone Group ADR (A) 2,737 -------- 3,863 -------- TOTAL COMMON STOCK (Cost $140,540) 156,452 -------- CORPORATE OBLIGATION -- 3.8% BANKS -- 3.8% Bear Stearns MTN (B)(C) $6,041 1.130%, 02/03/04 6,041 -------- TOTAL CORPORATE OBLIGATION (Cost $6,041) 6,041 -------- December 31, 2003 11 www.bishopstreetfunds.com Equity Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Face Amount Value (000)/Shares (000) ------------ ------ COMMERCIAL PAPER (B) -- 4.8% Autobahn Funding 144A $3,020 1.120%, 01/06/04 $ 3,020 Countrywide Home Loans 3,018 1.121%, 01/30/04 3,018 Goldman Sachs Group 1,507 1.102%, 01/29/04 1,507 -------- TOTAL COMMERCIAL PAPER (Cost $7,545) 7,545 -------- CASH EQUIVALENTS -- 1.0% 745,750 Dreyfus Cash Management Fund 746 745,750 Fidelity Institutional Money Market Fund 746 -------- TOTAL CASH EQUIVALENTS (Cost $1,492) 1,492 -------- REPURCHASE AGREEMENTS (B) -- 12.4% Bank of America 1.050%, dated 12/31/03, to be repurchased on 01/02/04, repurchase price $15,004,180 (collateralized by a mortgage obligation, $15,004 total market value $15,753,929) 15,004 Lehman Brothers 1.080%, dated 12/31/03, to be repurchased on 01/02/04, repurchase price $4,590,398 (collateralized by various mortgage 4,590 obligations, total market value $4,821,880) 4,590 -------- TOTAL REPURCHASE AGREEMENTS (Cost $19,594) 19,594 -------- TOTAL INVESTMENTS (Cost $175,212)-- 121.0% 191,124 -------- OTHER ASSETS AND LIABILITIES -- (21.0)% Payable Upon Return of Securities Loaned (33,180) Investment Adviser Fees Payable (93) Administrative Fees Payable (10) Other Assets and Liabilities, Net 124 -------- TOTAL OTHER ASSETS AND LIABILITIES (33,159) -------- Bishop Street Funds 12 Equity Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Value (000) ----- NET ASSETS: Fund Shares of Institutional Shares (unlimited authorization -- no par value) Based on 16,479,301 Outstanding Shares of Beneficial Interest $201,141 Fund Shares of Class A (unlimited authorization -- no par value) Based on 167,828 Outstanding Shares of Beneficial Interest 6,625 Undistributed net investment income 9 Accumulated net realized loss on investments (65,722) Net unrealized appreciation on investments 15,912 -------- TOTAL NET ASSETS -- 100.0% $157,965 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- INSTITUTIONAL CLASS ($156,380,816 / 16,479,301 SHARES) $ 9.49 ======== NET ASSET VALUE, REDEMPTION PRICE PER SHARE -- CLASS A ($1,583,733 / 167,828 SHARES) $ 9.44 ======== MAXIMUM OFFERING PRICE PER SHARE -- CLASS A SHARES ($9.44 / 94.25%) $ 10.02 ======== * NON-INCOME PRODUCING SECURITY (A) THE SECURITY OR A PORTION OF THIS SECURITY IS ON LOAN AT DECEMBER 31, 2003 (SEE NOTE 5 IN THE NOTES TO FINANCIAL STATEMENTS). THE TOTAL VALUE OF SECURITIES ON LOAN AT DECEMBER 31, 2003 WAS $32,074,463. (B) THESE SECURITIES WERE PURCHASED WITH CASH COLLATERAL RECEIVED FROM SECURITIES LENDING (SEE NOTE 5 IN THE NOTES TO FINANCIAL STATEMENTS). THE TOTAL VALUE OF SUCH SECURITIES AS OF DECEMBER 31, 2003 WAS $33,179,912. (C) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS IS THE RATE IN EFFECT ON DECEMBER 31, 2003. THE MATURITY DATE SHOWN IS THE NEXT SCHEDULED RESET DATE. ADR -- AMERICAN DEPOSITORY RECEIPT CL -- CLASS LTD. -- LIMITED MTN -- MEDIUM TERM NOTE 144A -- SECURITIES SOLD WITHIN THE TERMS OF PRIVATE PLACEMENT MEMORANDUM, EXCEPT FROM REGISTRATION UNDER SECTION 3A-4, 4(2) OR 144A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER "ACCREDITED INVESTORS." THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2003 13 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- Strategic Growth Fund - -------------------------------------------------------------------------------- For the year ended December 31, 2003 returns for the Bishop Street Strategic Growth Fund were very strong. The total return for the Fund was 38.1%, substantially ahead of the S&P 500 Composite Index. Good stock selection was the primary contributor to performance during the year, though sector weightings also contributed to returns. As we came to the end of the year in an environment of rapid economic growth, we have gradually shifted exposure in the portfolio away from "stable growth stocks" to more economically-sensitive companies. Looking into 2004, earnings are likely to remain the driving factor for U.S. equities' performance. Many analysts have raised their expectations dramatically in the second half of 2003, thus exceeding companies' guidance in many cases. There is a risk that disappointments will come in the next few quarters, unless economic growth is surprisingly stronger than current consensus. This concern is not sufficient to make us change our stance in the portfolio, because we remain convinced that the medium- and long-term outlooks (which represent our focus) are good. This will, however, make stock selection even more important to try and avoid any major accidents. Bishop Street Funds 14 Strategic Growth Fund - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE BISHOP STREET STRATEGIC GROWTH FUND INSTITUTIONAL CLASS VERSUS THE S&P 500/BARRA GROWTH INDEX, THE S&P 500 COMPOSITE INDEX, THE CONSUMER PRICE INDEX AND THE LIPPER MULTI CAP CORE CLASSIFICATION. [Line Graphic Omitted] Plot points are as follows: Bishop Street S&P 500/ S&P 500 Consumer Lipper Strategic Growth Fund, BARRA Composite Price Multi Cap Institutional Class# Growth Index Index Index Growth Classification 7/1/02 10,000 10,000 10,000 10,000 10,000 12/02 8,639 9,198 8,971 10,100 8,919 6/02 10,309 10,233 10,026 10,212 10,017 12/03 11,928 11,559 11,543 10,283 11,587 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. # Account value if you reinvested income and capital gains. AVERAGE ANNUAL TOTAL RETURNS+ -------------------------- ONE ANNUALIZED YEAR INCEPTION RETURN TO DATE -------------------------- 38.08% 12.51% Institutional Class* -------------------------- * Commenced operations on 07/01/02. + Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. December 31, 2003 15 www.bishopstreetfunds.com Strategic Growth Fund - -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS ---------------------------------------------------------------------------- Percentage of Investments ---------------------------------------------------------------------------- 1. Tyco International Ltd. 2.3% ---------------------------------------------------------------------------- 2. UnitedHealth Group 2.2% ---------------------------------------------------------------------------- 3. United Technologies 2.1% ---------------------------------------------------------------------------- 4. Amgen 2.1% ---------------------------------------------------------------------------- 5. Capital One Financial 2.1% ---------------------------------------------------------------------------- 6. Affiliated Computer Services, Cl A 2.1% ---------------------------------------------------------------------------- 7. Intuit 2.1% ---------------------------------------------------------------------------- 8. Barr Laboratories 2.1% ---------------------------------------------------------------------------- 9. Omnicare 2.1% ---------------------------------------------------------------------------- 10. Autozone 2.1% ---------------------------------------------------------------------------- STATEMENT OF NET ASSETS Market Value Shares (000) ------ ------ COMMON STOCK -- 99.5% CONSUMER DISCRETION -- 17.9% 11,400 Autozone* $ 971 21,800 Bed Bath & Beyond* 945 16,700 Best Buy* 873 23,700 Coach* 895 18,800 Harley-Davidson 894 26,200 International Game Technology 935 16,900 Lowe's 936 35,200 Staples* 961 28,200 Yum! Brands* 970 ------- 8,380 ------- FINANCIALS -- 25.7% 25,500 AFLAC 923 16,200 Capital One Financial 993 19,700 Citigroup 956 11,000 Everest Re Group Ltd. 931 12,900 Fannie Mae 968 8,600 Goldman Sachs Group 849 Bishop Street Funds 16 Strategic Growth Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) ------ ------ FINANCIALS -- (CONTINUED) 25,800 JP Morgan Chase $ 948 15,800 MBIA 936 14,700 Merrill Lynch 862 19,400 RenaissanceRe Holdings 951 27,000 SouthTrust 884 17,900 State Street 932 22,800 Washington Mutual 915 ------- 12,048 ------- HEALTH CARE -- 18.1% 16,100 Amgen* 995 12,750 Barr Laboratories* 981 34,700 Caremark Rx* 879 13,400 Express Scripts* 890 18,200 Genzyme* 898 16,100 Gilead Sciences* 936 24,100 Omnicare 973 17,900 UnitedHealth Group 1,042 9,300 WellPoint Health Networks* 902 ------- 8,496 ------- INDUSTRIALS -- 14.0% 13,500 Apollo Group, Cl A* 918 39,100 Cendant* 871 15,900 H&R Block 880 34,100 JetBlue Airways* 904 17,700 L-3 Communications Holdings* 909 40,700 Tyco International Ltd. 1,079 10,600 United Technologies 1,005 ------- 6,566 ------- INFORMATION TECHNOLOGY -- 21.7% 18,100 Affiliated Computer Services, Cl A* 986 26,200 Broadcom, Cl A* 893 26,100 Dell* 886 20,200 Electronic Arts* 965 23,000 First Data 945 28,500 Intel 918 18,600 Intuit* 984 11,600 Lexmark International* 912 28,700 Microchip Technology 958 21,900 National Semiconductor* 863 16,900 QLogic* 872 ------- 10,182 ------- December 31, 2003 17 www.bishopstreetfunds.com Strategic Growth Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) ------ ------ TELECOMMUNICATIONS -- 2.1% 34,100 Nextel Communications, Cl A* $ 957 ------- TOTAL COMMON STOCK (Cost $38,479) 46,629 ------- CASH EQUIVALENTS -- 0.6% 128,334 Dreyfus Cash Management Fund 128 128,334 Fidelity Institutional Money Market Fund 128 ------- TOTAL CASH EQUIVALENTS (Cost $256) 256 ------- TOTAL INVESTMENTS (Cost $38,735) -- 100.1% 46,885 ------- OTHER ASSETS AND LIABILITIES -- (0.1)% Investment Adviser Fees Payable (29) Administrative Fees Payable (4) Other Assets and Liabilities, Net (7) ------- TOTAL OTHER ASSETS AND LIABILITIES (40) ------- NET ASSETS: Fund Shares of Institutional Shares (unlimited authorization -- no par value) Based on 3,925,059 Outstanding Shares of Beneficial Interest 39,994 Accumulated net investment loss (22) Accumulated net realized loss on investments (1,277) Net unrealized appreciation on investments 8,150 ------- TOTAL NET ASSETS -- 100.0% $46,845 ======= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- INSTITUTIONAL CLASS $ 11.93 ======= * NON-INCOME PRODUCING SECURITY CL -- CLASS LTD. -- LIMITED THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Bishop Street Funds 18 - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- Tax Managed Equity Fund - -------------------------------------------------------------------------------- For the year ended December 31, 2003, the Bishop Street Tax Managed Equity Fund returned 23.7%, both before and after taxes. During the year, our emphasis on large-capitalization, dividend-paying companies and remaining sector neutral to the market dampened the volatility of the Fund. On the other hand, and contrary to expectations given the favorable change in the tax treatment of dividends, dividend-paying companies in the S&P 500 Composite Index underperformed those paying no dividends at all. In fact, for the full year, riskier smaller companies outperformed higher-quality and large companies by a considerable margin. Although the most distressed companies and sectors historically benefit the most in the early stages of a rebound - both in the stock market and in the economy - our sense is that, during 2004, fundamentals will re-exert themselves. If this transition unfolds as we expect, higher-quality companies will show stronger relative performance, while a more discerning market will be less forgiving to weaker companies. We continue to believe that our conservative positioning and active tax management may reward our investors with longer time horizons. December 31, 2003 19 www.bishopstreetfunds.com Tax Managed Equity Fund - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE BISHOP STREET TAX MANAGED EQUITY FUND INSTITUTIONAL CLASS VERSUS THE S&P 500 COMPOSITE INDEX, THE CONSUMER PRICE INDEX AND THE LIPPER LARGE CAP CORE CLASSIFICATION. [Line Graphic Omitted] Plot points are as follows: Bishop Street Tax S&P 500 Consumer Lipper Managed Equity Fund, Composite Price Large Cap Institutional Class# Index Index Core Classification 11/13/02 10,000 10,000 10,000 10,000 12/02 9,843 9,966 10,020 9,885 6/03 10,713 11,138 10,130 10,909 12/03 12,171 12,825 10,201 12,409 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. # Account value if you reinvested income and capital gains. AVERAGE ANNUAL TOTAL RETURNS+ ---------------------- ONE ANNUALIZED YEAR INCEPTION RETURN TO DATE ---------------------- 23.66% 18.99% Institutional Class* ---------------------- * Commenced operations on 11/13/02. + Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Bishop Street Funds 20 Tax Managed Equity Fund - -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS ---------------------------------------------------------------------------- Percentage of Investments ---------------------------------------------------------------------------- 1. General Electric 3.1% ---------------------------------------------------------------------------- 2. Citigroup 2.7% ---------------------------------------------------------------------------- 3. Symantec 2.6% ---------------------------------------------------------------------------- 4. Pfizer 2.6% ---------------------------------------------------------------------------- 5. Exxon Mobil 2.6% ---------------------------------------------------------------------------- 6. Cisco 2.5% ---------------------------------------------------------------------------- 7. Intel 2.5% ---------------------------------------------------------------------------- 8. Microsoft 2.4% ---------------------------------------------------------------------------- 9. Wal-Mart Stores 2.2% ---------------------------------------------------------------------------- 10. Wells Fargo 2.1% ---------------------------------------------------------------------------- STATEMENT OF NET ASSETS Market Value Shares (000) ------ ------ COMMON STOCK -- 99.6% CONSUMER DISCRETION -- 10.1% 4,765 Bed Bath & Beyond* $ 207 6,727 Brinker International* 223 4,300 Carnival 171 6,045 Clear Channel Communications* 283 7,855 Harley-Davidson 373 11,930 Home Depot 424 1,820 Nike, Cl B 125 4,960 Omnicom Group 433 8,600 Target 330 6,730 Tiffany 304 14,750 Time Warner* 265 4,920 Univision Communications, Cl A* 195 7,580 Walt Disney 177 ------- 3,510 ------- December 31, 2003 21 www.bishopstreetfunds.com Tax Managed Equity Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) ------ ------ CONSUMER STAPLES -- 11.6% 5,680 Altria Group $ 309 7,470 Anheuser-Busch 394 5,690 Avon Products 384 9,940 Coca-Cola 504 11,170 CVS 404 11,310 Kraft Foods, Cl A 364 6,880 PepsiCo 321 5,970 Procter & Gamble 596 14,240 Wal-Mart Stores 755 ------- 4,031 ------- ENERGY -- 5.5% 6,560 Anadarko Petroleum 335 2,160 ChevronTexaco 186 22,100 Exxon Mobil 906 11,640 Halliburton 303 3,600 Royal Dutch Petroleum 189 ------- 1,919 ------- FINANCIALS -- 21.3% 5,420 AFLAC 196 10,500 Allstate 452 1,620 AMBAC Financial Group 112 7,580 American Express 366 10,700 American International Group 709 6,630 Bank of America 533 19,010 Citigroup 923 7,600 Freddie Mac 443 3,000 Goldman Sachs Group 296 5,820 MBIA 345 5,760 Merrill Lynch 338 5,210 Morgan Stanley 302 12,650 Travelers Property Casualty, Cl B 215 18,010 US Bancorp 536 10,970 Wachovia 511 10,540 Washington Mutual 423 12,230 Wells Fargo 720 ------- 7,420 ------- HEALTH CARE -- 14.0% 7,000 Accredo Health* 221 9,200 Amgen* 569 6,100 Baxter International 186 7,521 Biogen Idec* 277 Bishop Street Funds 22 Tax Managed Equity Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) ------ ------ HEALTH CARE (CONTINUED) 7,570 Bristol-Myers Squibb $ 216 10,000 Forest Laboratories* 618 3,670 Genzyme* 181 3,200 Gilead Sciences* 186 9,060 Johnson & Johnson 468 5,680 Medtronic 276 3,630 Merck 168 25,808 Pfizer 912 10,380 UnitedHealth Group 604 ------- 4,882 ------- INDUSTRIALS -- 12.6% 7,960 3M 677 5,030 General Dynamics 455 34,960 General Electric 1,083 4,900 Illinois Tool Works 411 12,300 Pentair 562 6,900 SPX* 406 6,140 Union Pacific 426 4,840 United Parcel Service, Cl B 361 ------- 4,381 ------- INFORMATION TECHNOLOGY -- 17.8% 4,700 Analog Devices 215 12,000 BEA Systems* 148 36,100 Cisco Systems* 877 13,060 Dell* 443 26,740 Intel 861 5,400 International Business Machines 500 8,770 Linear Technology 369 7,270 Mercury Interactive* 354 29,700 Microsoft 818 19,000 Nokia ADR 323 28,360 Oracle* 374 26,400 Symantec* 915 ------- 6,197 ------- MATERIALS -- 3.3% 15,960 Alcoa 607 3,530 EI Du Pont de Nemours 162 6,460 Ecolab 177 5,220 Praxair 199 ------- 1,145 ------- December 31, 2003 23 www.bishopstreetfunds.com Tax Managed Equity Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) ------ ------ TELECOMMUNICATIONS -- 3.4% 3,070 BellSouth $ 87 11,760 SBC Communications 306 9,830 Verizon Communications 345 18,000 Vodafone Group ADR 451 ------- 1,189 ------- TOTAL COMMON STOCK (Cost $28,551) 34,674 ------- CASH EQUIVALENTS -- 0.4% 63,454 Dreyfus Cash Management Fund 63 63,454 Fidelity Institutional Money Market Fund 63 ------- TOTAL CASH EQUIVALENTS (Cost $126) 126 ------- TOTAL INVESTMENTS (Cost $28,677) -- 100.0% 34,800 ------- OTHER ASSETS AND LIABILITIES -- 0.0% Investment Adviser Fees Payable (18) Administrative Fees Payable (3) Other Assets and Liabilities, Net 29 ------- TOTAL OTHER ASSETS AND LIABILITIES 8 ------- NET ASSETS: Fund Shares of Institutional Shares (unlimited authorization -- no par value) Based on 2,885,789 Outstanding Shares of Beneficial Interest 28,699 Distributions in excess of net investment income (14) Net unrealized appreciation on investments 6,123 ------- TOTAL NET ASSETS -- 100.0% $34,808 ======= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- INSTITUTIONAL CLASS $ 12.06 ======= * NON-INCOME PRODUCING SECURITY ADR -- AMERICAN DEPOSITORY RECEIPT CL -- CLASS THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Bishop Street Funds 24 - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- High Grade Income Fund - -------------------------------------------------------------------------------- Mid-year marked a psychological, if not an actual economic, turning point for bonds. The economy grew at a much higher than expected rate with third-quarter Gross Domestic Product growth at 8.2%. New and existing home sales maintained their torrid pace despite an uptick in interest rates. Solid gains on the equity indices bolstered consumer balance sheets and provided further gains in consumer confidence fueling aggregate demand. The Fed continued to maintain its accommodative monetary policy and held the Fed Funds rate at 1% for the duration of the year. Bonds sold off during the second half of the year as the deflation scenario unwound and a more upbeat outlook on the economy developed. By year-end, the Fed had reversed their "balanced disinflation" risk assessment to "balanced". The 10-year bond hit a high yield of 4.60% in September but disappointing payroll reports supported its 4.25% year-end close. With corporate profits expanding at its fastest rate since 1999 and interest rates still relatively low, investors continued to reach for more yield. Risk continued to pay off as 2003 was the best year on record for the Credit asset class with BBB credits outperforming single A credits by 545 basis points. With a high-quality bias, the Fund's performance was hindered by the outperformance of lower risk credits. Its shorter duration contributed to performance as the 5-year sector outperformed for the year. Looking ahead, we feel that the Fund is positioned well for a continued economic rebound in 2004 with its overweight in the corporate sector and its shorter duration. December 31, 2003 25 www.bishopstreetfunds.com S High Grade Income Fund - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE BISHOP STREET HIGH GRADE INCOME FUND, INSTITUTIONAL CLASS OR CLASS A, VERSUS THE LEHMAN BROTHERS U.S. GOVERNMENT/CREDIT INDEX AND THE CONSUMER PRICE INDEX. [Line Graphic Omitted] Plot points are as follows: Bishop Street High Bishop Street High Lehman Brothers Consumer Grade Income Fund, Grade Income Fund, U.S. Government/ Price Institutional Class# Class A#+ Credit Index Index 1/31/97 10,000 9,525 10,000 10,000 6/97 10,216 9,731 10,261 10,060 12/97 10,793 10,280 10,962 10,151 6/98 11,191 10,660 11,419 10,201 12/98 11,774 11,215 12,000 10,293 6/99 11,316 10,755 11,727 10,386 12/99 11,264 10,651 11,741 10,553 6/00 11,778 11,110 12,230 10,765 12/00 12,419 11,701 13,131 10,906 6/01 12,690 11,942 13,592 11,115 12/01 13,307 12,523 14,247 11,070 6/02 13,834 12,990 14,711 11,226 12/02 14,843 13,922 15,818 11,338 6/03 15,521 14,543 16,645 11,463 12/03 15,334 14,360 16,558 11,543 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. # Account value if you reinvested income and capital gains. AVERAGE ANNUAL TOTAL RETURNS++ - ---------------------------------------------------------- ONE ANNUALIZED ANNUALIZED ANNUALIZED YEAR 3 YEAR 5 YEAR INCEPTION RETURN RETURN RETURN TO DATE - ---------------------------------------------------------- 3.31% 7.28% 5.43% 6.38% Institutional Class* - ---------------------------------------------------------- 3.14% 7.07% 5.07%+ 6.78% Class A** - ---------------------------------------------------------- -1.76% 5.33% 4.05%+ 5.65% Class A, with load*** - ---------------------------------------------------------- * Commenced operations on 01/30/97. ** Commenced operations on 06/14/99. *** Reflects 4.75% sales charge. + Prior performance information represents performance of the Institutional Class, which was offered on 01/30/97. Institutional Class performance has been adjusted to reflect the Class A sales charge, but has not been adjusted to reflect Class A Rule 12b-1 fees and expenses. Had that adjustment been made, performance would be lower than that shown. ++ Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Bishop Street Funds 26 High Grade Income Fund - -------------------------------------------------------------------------------- TOP TEN HOLDINGS* ---------------------------------------------------------------------------- Percentage Coupon Maturity of Rate Date Investments* ---------------------------------------------------------------------------- 1. U.S. Treasury Bond 7.250% 05/15/16 8.4% ---------------------------------------------------------------------------- 2. U.S. Treasury Bond 6.250% 08/15/23 3.6% ---------------------------------------------------------------------------- 3. FNMA 7.250% 01/15/10 3.5% ---------------------------------------------------------------------------- 4. U.S. Treasury Bond 7.500% 11/15/16 3.1% ---------------------------------------------------------------------------- 5. Pharmacia 5.750% 12/01/05 2.6% ---------------------------------------------------------------------------- 6. Pitney Bowes 5.750% 08/15/08 2.5% ---------------------------------------------------------------------------- 7. U.S. Treasury Bond 6.375% 08/15/27 2.3% ---------------------------------------------------------------------------- 8. Abbott Laboratories 6.400% 12/01/06 2.2% ---------------------------------------------------------------------------- 9. Wal-Mart Stores 8.000% 09/15/06 2.2% ---------------------------------------------------------------------------- 10. FNMA 2.540% 01/12/07 2.2% ---------------------------------------------------------------------------- *EXCLUDES SECURITIES PURCHASED WITH CASH COLLATERAL RECEIVED FROM SECURITIES LENDING. STATEMENT OF NET ASSETS Face Market Amount Value (000) (000) ------ ------ CORPORATE OBLIGATIONS -- 59.1% AEROSPACE & DEFENSE -- 3.4% Boeing $2,700 7.875%, 02/15/05 $ 2,873 United Technologies (A) 1,500 6.350%, 03/01/11 1,676 -------- 4,549 -------- ALUMINUM -- 2.0% Alcoa, Ser B 2,600 6.125%, 06/15/05 2,762 -------- BANKS -- 6.8% Bank of America (A) 2,600 4.875%, 01/15/13 2,596 Bear Stearns MTN (B)(C) 3,959 1.130%, 02/03/04 3,959 Wells Fargo (A) 2,650 3.500%, 04/04/08 2,658 -------- 9,213 -------- December 31, 2003 27 www.bishopstreetfunds.com High Grade Income Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ BIOTECHNOLOGY -- 2.6% Pharmacia $3,275 5.750%, 12/01/05 $ 3,507 -------- BROADCASTING & CABLE -- 2.5% Cox Communications (A) 1,400 6.750%, 03/15/11 1,586 TCI Communications 1,550 7.875%, 08/01/13 1,835 -------- 3,421 -------- BUILDING & CONSTRUCTION -- 1.1% Centex 1,400 5.800%, 09/15/09 1,500 -------- DIVERSE FINANCIAL SERVICES -- 10.5% Citigroup 2,600 6.750%, 12/01/05 2,824 Countrywide Home Loan MTN, Ser K 1,400 5.500%, 02/01/07 1,500 General Electric Capital MTN, Ser A 2,600 5.450%, 01/15/13 2,705 General Motors Acceptance 2,100 7.000%, 02/01/12 2,258 1,400 6.750%, 01/15/06 1,503 525 4.500%, 07/15/06 540 Goldman Sachs Group 2,600 6.600%, 01/15/12 2,906 -------- 14,236 -------- FORESTRY -- 1.2% Weyerhaeuser (A) 1,420 6.750%, 03/15/12 1,549 -------- GENERAL MERCHANDISE -- 3.3% Target 1,300 6.350%, 01/15/11 1,451 Wal-Mart Stores 2,625 8.000%, 09/15/06 2,992 -------- 4,443 -------- HOUSEHOLD PRODUCTS -- 2.7% Avon Products 2,500 7.150%, 11/15/09 2,915 Newell Rubbermaid 650 6.600%, 11/15/06 717 -------- 3,632 -------- Bishop Street Funds 28 High Grade Income Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ INFORMATION TECHNOLOGY -- 4.2% AT&T (A) $1,400 7.250%, 11/15/06 $ 1,548 Dominion Resources 1,400 4.125%, 02/15/08 1,427 Vodafone Group 2,700 3.950%, 01/30/08 2,743 -------- 5,718 -------- MACHINERY - INDUSTRIAL -- 1.1% Masco 1,400 5.875%, 07/15/12 1,489 -------- MOVIES & ENTERTAINMENT -- 2.2% Viacom 1,400 5.625%, 08/15/12 1,490 Walt Disney MTN 1,400 5.500%, 12/29/06 1,501 -------- 2,991 -------- OIL & GAS - EQUIPMENT/SERVICES -- 2.3% Baker Hughes 1,300 6.000%, 02/15/09 1,432 Global Marine 1,550 7.000%, 06/01/28 1,720 -------- 3,152 -------- OIL & GAS - EXPLORATION/PRODUCTION -- 3.0% Anadarko Petroleum 1,250 7.200%, 03/15/29 1,409 1,400 6.750%, 05/15/08 1,560 Ocean Energy 925 7.250%, 10/01/11 1,065 -------- 4,034 -------- PHARMACEUTICALS -- 2.2% Abbott Laboratories 2,700 6.400%, 12/01/06 2,997 -------- RAILROADS -- 1.2% CSX 1,400 6.750%, 03/15/11 1,576 -------- December 31, 2003 29 www.bishopstreetfunds.com High Grade Income Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ RETAIL - DRUGS -- 0.9% CVS $1,100 5.625%, 03/15/06 $ 1,176 -------- SEMI-CONDUCTORS -- 3.5% Applied Materials 440 7.125%, 10/15/17 512 Constellation Energy Group 1,400 7.000%, 04/01/12 1,584 Texas Instruments 2,500 7.000%, 08/15/04 2,586 -------- 4,682 -------- SERVICES - OFFICE EQUIPMENT -- 2.4% Pitney Bowes 3,000 5.750%, 08/15/08 3,278 -------- TOTAL CORPORATE OBLIGATIONS (Cost $77,469) 79,905 -------- U.S. TREASURY OBLIGATIONS -- 21.4% U.S. Treasury Bonds 3,250 7.500%, 11/15/16 (A) 4,137 9,000 7.250%, 05/15/16 (A) 11,227 2,600 6.375%, 08/15/27 (A) 3,020 4,200 6.250%, 08/15/23 (A) 4,787 1,350 6.000%, 02/15/26 1,497 950 5.375%, 02/15/31 (A) 991 U.S. Treasury Notes (A) 1,800 7.500%, 02/15/05 1,924 1,300 4.375%, 08/15/12 1,326 -------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $26,190) 28,909 -------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 18.4% FHLB 1,000 6.250%, 08/13/04 1,031 2,600 4.000%, 08/25/08 2,630 FHLMC 1,100 5.375%, 08/16/06 1,128 2,600 4.500%, 07/23/07 (A) 2,641 2,650 3.670%, 02/12/08 2,657 2,600 3.125%, 08/25/06 (A) 2,629 Bishop Street Funds 30 High Grade Income Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Face Amount Value (000)/Shares (000) ------------ ------ U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED) FHLMC MTN $ 500 2.325%, 08/26/05 $ 504 FHLMC MTN, Ser 1 625 6.250%, 08/15/16 641 FNMA 4,000 7.250%, 01/15/10 4,716 1,250 4.520%, 10/05/06 1,281 2,000 2.650%, 02/13/06 2,002 3,000 2.540%, 01/12/07 2,991 -------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $24,329) 24,851 -------- COMMERCIAL PAPER (B) -- 3.7% Autobahn Funding 144A 1,979 1.120%, 01/06/04 1,979 Countrywide Home Loans 1,977 1.121%, 01/30/04 1,977 Goldman Sachs Group 988 1.102%, 01/29/04 988 -------- TOTAL COMMERCIAL PAPER (Cost $4,944) 4,944 -------- CASH EQUIVALENTS -- 2.6% 1,764,501 Dreyfus Cash Management Fund 1,765 1,764,501 Fidelity Institutional Money Market Fund 1,765 -------- TOTAL CASH EQUIVALENTS (Cost $3,530) 3,530 -------- REPURCHASE AGREEMENTS (B) -- 9.5% Bank of America 1.050%, dated 12/31/03, to be repurchased on 01/02/04, repurchase price $9,832,727 (collateralized by a mortgage obligation, $9,832 total market value $10,324,062) 9,832 Lehman Brothers 1.080%, dated 12/31/03, to be repurchased on 01/02/04, repurchase price $3,008,237 (collateralized by various mortgage obligations, 3,008 total market value $3,159,935) 3,008 -------- TOTAL REPURCHASE AGREEMENTS (Cost $12,840) 12,840 -------- TOTAL INVESTMENTS (Cost $149,302) -- 114.7% 154,979 -------- December 31, 2003 31 www.bishopstreetfunds.com High Grade Income Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Value (000) ----- OTHER ASSETS AND LIABILITIES -- (14.7)% Payable Upon Return of Securities Loaned $(21,744) Investment Adviser Fees Payable (50) Administrative Fees Payable (13) Other Assets and Liabilities, Net 1,949 -------- TOTAL OTHER ASSETS AND LIABILITIES (19,858) -------- NET ASSETS: Fund Shares of Institutional Shares (unlimited authorization -- no par value) Based on 12,961,057 Outstanding Shares of Beneficial Interest 129,306 Fund Shares of Class A (unlimited authorization-- no par value) Based on 26,653 Outstanding Shares of Beneficial Interest 251 Undistributed net investment income 2 Accumulated net realized loss on investments (115) Net unrealized appreciation on investments 5,677 -------- TOTAL NET ASSETS -- 100.0% $135,121 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- INSTITUTIONAL CLASS ($134,845,301 / 12,961,057 SHARES) $ 10.40 ======== NET ASSET VALUE, REDEMPTION PRICE PER SHARE -- CLASS A ($276,064 / 26,653 SHARES) $ 10.36 ======== MAXIMUM OFFERING PRICE PER SHARE -- CLASS A SHARES ($10.36 / 95.25%) $ 10.88 ======== (A) THE SECURITY OR A PORTION OF THIS SECURITY IS ON LOAN AT DECEMBER 31, 2003 (SEE NOTE 5 IN THE NOTES TO FINANCIAL STATEMENTS). THE TOTAL VALUE OF SECURITIES ON LOAN AT DECEMBER 31, 2003 WAS $21,247,120. (B) THESE SECURITIES WERE PURCHASED WITH CASH COLLATERAL RECEIVED FROM SECURITIES LENDING (SEE NOTE 5 IN THE NOTES TO FINANCIAL STATEMENTS). THE TOTAL VALUE OF SUCH SECURITIES AS OF DECEMBER 31, 2003 WAS $21,743,876. (C) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS IS THE RATE IN EFFECT ON DECEMBER 31, 2003. THE MATURITY DATE SHOWN IS THE NEXT SCHEDULED RESET DATE. FHLB -- FEDERAL HOME LOAN BANK FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION MTN -- MEDIUM TERM NOTE SER -- SERIES 144A -- SECURITIES SOLD WITHIN THE TERMS OF PRIVATE PLACEMENT MEMORANDUM, EXCEPT FROM REGISTRATION UNDER SECTION 3A-4, 4(2) OR 144A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER "ACCREDITED INVESTORS." THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Bishop Street Funds 32 - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- Tax-exempt municipal bonds outperformed most other taxable fixed-income instruments for the 4th quarter of 2003, as the after-tax difference between municipal yields and Treasury yields declined from historically very high levels at the beginning of the year. Longer-dated municipal bonds performed the best due to a decline in investors' resistance to low yields and a reduction in new issuance of 30-year municipal bonds. In general, the credit outlook for states and municipalities improved over the last half of 2003. According to Moody's Investors Service, the 4th quarter of 2003 has shown a meaningful increase in revenues for the first time since fiscal 2001. The improvement is attributed to increased personal income taxes and sales taxes, both of which had shown weak results in recent years. Moreover, the ratings agency predicts that the majority of state downgrades due to the recession have already occurred, but budget problems will persist if further measures are not taken to improve municipal balance sheets. The State of Hawaii and its municipalities faired well fiscally in 2003 and managed to avoid the significant budget woes that troubled the rest of the nation. The high-grade nature of Hawaii's municipal bonds, coupled with the dearth of new issuance, contributed to the historically narrow spreads afforded by our state's bonds. For the year ended December 31, 2003, the Bishop Street Hawaii Municipal Bond Fund Institutional Class Shares returned 5.27%, outperforming the Lipper Hawaii Municipal Debt Objective by 0.29% and marginally underperformed the Lehman Brothers Municipal Bond Index by 0.05%. Successful trading strategies contributed to the Funds' outperformance of the Lipper Hawaii Index and allowed the Fund to perform in line with the Lehman Brothers Municipal Bond Index despite having a shorter duration. In anticipation of a higher interest rate environment in 2004, the Fund will remain short duration while seeking to add value through opportunistic trading. December 31, 2003 33 www.bishopstreetfunds.com Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE BISHOP STREET HAWAII MUNICIPAL BOND FUND, INSTITUTIONAL CLASS OR CLASS A, VERSUS THE LEHMAN BROTHERS MUNICIPAL BOND INDEX, THE CONSUMER PRICE INDEX AND THE LIPPER HAWAII MUNICIPAL DEBT OBJECTIVE. [Line Graphic Omitted] Plot points are as follows: Bishop Street Hawaii Bishop Street Hawaii Lehman Brothers Consumer Lipper Hawaii Municipal Bond Fund, Municipal Bond Fund, Municipal Bond Price Municipal Debt Institutional Class# Class A#+ Index Index Objective 2/28/95 10,000 9,575 10,000 10,000 10,000 12/95 10,941 10,476 11,097 10,192 10,958 12/96 11,402 10,917 11,589 10,533 11,378 12/97 12,373 11,847 12,656 10,713 12,308 12/98 13,096 12,539 13,476 10,864 12,999 12/99 12,749 12,174 13,197 11,139 12,448 12/00 14,356 13,677 14,740 11,512 13,859 12/01 14,965 14,241 15,496 11,686 14,430 12/02 16,464 15,630 16,983 11,970 15,683 12/03 17,332 16,413 17,887 12,187 16,464 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. # Account value if you reinvested income and capital gains. AVERAGE ANNUAL TOTAL RETURNS++ - ----------------------------------------------------------- ONE ANNUALIZED ANNUALIZED ANNUALIZED YEAR 3 YEAR 5 YEAR INCEPTION RETURN RETURN RETURN TO DATE* - ----------------------------------------------------------- 5.27% 6.48% 5.77% 6.40% Institutional Class* - ----------------------------------------------------------- 5.01% 6.26% 5.53%+ 6.38% Class A** - ----------------------------------------------------------- 0.52% 4.75% 4.61%+ 5.37% Class A, with load*** - ----------------------------------------------------------- * Commenced operations on 02/16/95. ** Commenced operations on 06/14/99. *** Reflects 4.25% sales charge. + Prior performance information represents performance of the Institutional Class, which was offered on 02/16/95. Institutional Class performance has been adjusted to reflect the Class A sales charge, but has not been adjusted to reflect Class A Rule 12b-1 fees and expenses. Had that adjustment been made, performance would be lower than that shown. ++ Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Bishop Street Funds 34 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- TOP TEN HOLDINGS ---------------------------------------------------------------------------- Percentage Coupon Maturity of Rate Date Investments ---------------------------------------------------------------------------- 1. Department of Budget & Finance RB 5.750% 07/01/26 2.8% ---------------------------------------------------------------------------- 2. Honolulu City & County GO 5.000% 07/01/19 2.0% ---------------------------------------------------------------------------- 3. Hawaii State Highway RB 5.250% 07/01/15 2.0% ---------------------------------------------------------------------------- 4. Hawaii State Highway RB 6.000% 07/01/09 1.9% ---------------------------------------------------------------------------- 5. Honolulu City & CountyGO 5.125% 07/01/17 1.8% ---------------------------------------------------------------------------- 6. Hawaii State Airport System RM 6.500% 07/01/14 1.6% ---------------------------------------------------------------------------- 7. Hawaii State GO 5.250% 04/01/12 1.5% ---------------------------------------------------------------------------- 8. Honolulu City & County RB 5.250% 07/01/18 1.5% ---------------------------------------------------------------------------- 9. Hawaii State GO 3.000% 09/01/05 1.4% ---------------------------------------------------------------------------- 10. Hawaii State GO 6.500% 12/01/13 1.4% ---------------------------------------------------------------------------- STATEMENT OF NET ASSETS Face Market Amount Value (000) (000) -------- ------ MUNICIPAL BONDS -- 99.3% ARKANSAS -- 0.3% Little Rock Capital Improvement, GO, FSA Insured $ 500 3.950%, 04/01/19 $ 497 -------- CALIFORNIA -- 0.9% East Bay Regional District, Ser D, GO 500 5.000%, 09/01/23 512 Los Angeles Community College, Ser A, GO, MBIA Insured 1,000 5.500%, 08/01/12 1,142 -------- 1,654 -------- HAWAII -- 83.1% Department of Budget & Finance, Electric & Subsidiary Project, Ser B, RB 1,000 5.000%, 12/01/22 1,017 Department of Budget & Finance, Hawaiian Electric, Ser A, RB, AMBAC Insured 2,000 5.500%, 12/01/14 2,270 December 31, 2003 35 www.bishopstreetfunds.com Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ HAWAII (CONTINUED) Department of Budget & Finance, Hawaiian Electric, Ser A, RB, AMT, MBIA Insured $ 785 6.200%, 05/01/26 $ 858 290 5.650%, 10/01/27 312 Department of Budget & Finance, Hawaiian Electric, Ser B, RB, AMT, AMBAC Insured 1,000 5.750%, 12/01/18 1,113 Department of Budget & Finance, Hawaiian Electric, Ser C, RB, AMT, AMBAC Insured 1,000 6.200%, 11/01/29 1,131 Department of Budget & Finance, Kapiolani Heath, RB 100 6.250%, 07/01/21 105 Department of Budget & Finance, Queens Health Systems, Ser A, RB, Pre-Refunded @ 102 (A) 1,450 5.875%, 07/01/11 1,629 4,505 5.750%, 07/01/26 5,051 Department of Budget & Finance, Queens Health Systems, Ser B, RB, MBIA Insured 750 5.250%, 07/01/11 826 1,445 5.250%, 07/01/12 1,580 1,275 5.250%, 07/01/13 1,414 1,000 5.250%, 07/01/14 1,103 Department of Budget & Finance, Special Purpose Mortgage, Hawaiian Electric Project, Ser A, RB, AMT, MBIA Insured 1,090 6.600%, 01/01/25 1,149 Department of Budget & Finance, Special Purpose Mortgage, Kapiolani Health Care System Project, RB 1,510 6.300%, 07/01/08 1,547 Department of Budget & Finance, Special Purpose Mortgage, St. Francis Medical Center Project, RB, FSA Insured 930 6.500%, 07/01/22 942 Harbor Capital Improvement, RB, AMT, FGIC Insured 305 6.200%, 07/01/08 317 Harbor Capital Improvement, RB, AMT, MBIA Insured 2,000 5.500%, 07/01/27 2,120 545 5.400%, 07/01/09 612 Harbor System, Ser A, RB, AMT, FSA Insured 2,025 5.750%, 07/01/17 2,215 1,210 5.700%, 07/01/16 1,336 1,000 5.600%, 07/01/15 1,109 Harbor System, Ser B, RB, AMT, AMBAC Insured 200 5.500%, 07/01/19 216 Bishop Street Funds 36 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ HAWAII (CONTINUED) Hawaii County, Ser A, GO, FGIC Insured $ 450 5.600%, 05/01/12 $ 524 430 5.600%, 05/01/13 501 400 5.550%, 05/01/09 457 630 5.500%, 07/15/12 725 Hawaii County, Ser A, GO, FSA Insured 1,000 5.625%, 05/15/19 1,119 500 5.400%, 05/15/15 555 1,000 5.250%, 05/15/11 1,124 1,000 5.000%, 07/15/23 1,036 Hawaii State, Airport System, Second Ser, RB, AMT, ETM 60 6.900%, 07/01/12 72 Hawaii State, Airport System, Second Ser, RB, AMT, ETM, MBIA Insured 1,100 6.900%, 07/01/12 1,332 Hawaii State, Airport System, Ser B, RB, AMT, FGIC Insured 1,500 6.625%, 07/01/18 1,755 2,500 6.500%, 07/01/14 2,949 100 6.000%, 07/01/19 113 Hawaii State, Highway, RB 1,000 6.000%, 07/01/08 1,149 3,000 6.000%, 07/01/09 3,503 375 5.250%, 07/01/10 418 500 5.250%, 07/01/12 553 2,000 5.250%, 07/01/16 2,159 Hawaii State, Highway, RB, FGIC Insured 3,280 5.250%, 07/01/15 3,634 405 5.000%, 07/01/16 435 Hawaii State, Highway, RB, FSA Insured 1,000 4.500%, 07/01/07 1,080 Hawaii State, Housing, Finance & Development, Affordable Rental Housing Program, Ser A, RB 750 6.050%, 07/01/22 777 330 6.000%, 07/01/15 344 Hawaii State, Housing, Finance & Development, Affordable Rental Housing Program, Ser A, RB, AMT, FNMA Collateral 1,780 5.750%, 07/01/30 1,836 227 5.550%, 07/01/07 234 1,355 5.400%, 07/01/30 1,385 250 5.250%, 07/01/13 264 Hawaii State, Housing, Finance & Development, Single-Family Mortgage Purchase, Ser B, RB, FNMA Collateral 1,000 5.450%, 07/01/17 1,041 December 31, 2003 37 www.bishopstreetfunds.com Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ HAWAII (CONTINUED) Hawaii State, Housing, Finance & Development, University of Hawaii, Faculty Housing Project, RB, AMBAC Insured $ 700 5.650%, 10/01/16 $ 752 415 5.000%, 10/01/06 444 395 4.850%, 10/01/05 418 Hawaii State, Kapolei Office Building, Ser A, COP, AMBAC Insured 1,475 5.250%, 05/01/13 1,652 1,000 5.000%, 05/01/08 1,107 1,000 5.000%, 05/01/14 1,091 1,100 5.000%, 05/01/15 1,193 1,500 5.000%, 05/01/16 1,618 1,000 5.000%, 05/01/17 1,074 500 5.000%, 05/01/18 532 Hawaii State, No. 1 Capitol District State Office, COP, MBIA Insured 1,000 5.200%, 05/01/14 1,087 175 5.000%, 05/01/11 194 Hawaii State, Ser CL, GO 1,000 6.000%, 03/01/09 1,163 Hawaii State, Ser CL, GO, MBIA Insured 555 6.000%, 03/01/08 636 Hawaii State, Ser CM, GO, FGIC Insured 2,000 6.500%, 12/01/13 2,500 500 6.000%, 12/01/09 590 1,500 6.000%, 12/01/11 1,799 Hawaii State, Ser CN, GO, FGIC Insured 500 5.500%, 03/01/14 555 500 5.250%, 03/01/12 550 535 5.250%, 03/01/17 577 Hawaii State, Ser CO, GO, FGIC Insured 200 6.000%, 09/01/05 215 Hawaii State, Ser CP, GO, FGIC Insured 300 5.000%, 10/01/16 319 Hawaii State, Ser CR, GO, MBIA Insured 1,500 5.750%, 04/01/09 1,726 270 5.250%, 04/01/11 297 2,500 5.250%, 04/01/12 2,761 1,000 4.750%, 04/01/18 1,033 Hawaii State, Ser CS, GO, MBIA Insured 255 5.000%, 04/01/09 284 Hawaii State, Ser CU, GO, MBIA Insured 500 5.750%, 10/01/07 565 500 5.750%, 10/01/11 579 550 5.750%, 10/01/12 628 Bishop Street Funds 38 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ HAWAII (CONTINUED) Hawaii State, Ser CU, GO, MBIA Insured, Pre-Refunded @ 100 (A) $ 250 5.300%, 10/01/15 $ 287 Hawaii State, Ser CV, GO, FGIC Insured 1,000 5.250%, 08/01/21 1,062 Hawaii State, Ser CX, GO, FSA Insured 1,000 5.500%, 02/01/21 1,090 2,000 5.000%, 02/01/19 2,130 Hawaii State, Ser CY, GO, FSA Insured 1,000 5.500%, 02/01/11 1,156 1,000 5.250%, 02/01/07 1,099 Hawaii State, Ser CZ, GO, FSA Insured, Pre-Refunded @ 100 (A) 1,860 5.250%, 07/01/19 2,140 Hawaii State, Ser DB, GO, MBIA Insured 1,000 5.000%, 09/01/09 1,120 Hawaii State, Ser DC, GO 2,560 3.000%, 09/01/05 2,624 Hawaiian Home Lands Department, RB 1,250 4.000%, 07/01/05 1,294 Honolulu City & County, Board of Water Supply, RB, FSA Insured 620 5.500%, 07/01/15 701 Honolulu City & County, Board of Water Supply, RB, Pre-Refunded @ 101 (A) 1,000 5.800%, 07/01/16 1,114 250 5.250%, 07/01/07 275 Honolulu City & County, FHA-Smith-Beretania-8A, RB, MBIA Insured 1,000 5.450%, 01/01/25 1,000 Honolulu City & County, GO 820 5.400%, 09/27/07 916 200 1.100%, 09/11/08 200 Honolulu City & County, GO, ETM 230 6.000%, 12/01/09 273 Honolulu City & County, Ser A, GO 55 6.000%, 01/01/10 65 Honolulu City & County, Ser A, GO, ETM 500 6.000%, 01/01/09 582 95 6.000%, 01/01/10 112 800 5.750%, 04/01/10 937 245 5.700%, 04/01/09 283 Honolulu City & County, Ser A, GO, ETM, MBIA Insured 135 6.000%, 11/01/10 161 Honolulu City & County, Ser A, GO, FSA Insured 400 5.125%, 09/01/21 419 December 31, 2003 39 www.bishopstreetfunds.com Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ HAWAII (CONTINUED) Honolulu City & County, Ser A, GO, MBIA Insured $ 365 6.000%, 11/01/10 $ 435 1,000 5.250%, 03/01/27 1,045 Honolulu City & County, Ser B, GO, ETM, FGIC Insured 635 5.500%, 10/01/11 741 Honolulu City & County, Ser B, GO, FGIC Insured 2,000 5.125%, 07/01/16 2,156 3,000 5.125%, 07/01/17 3,217 Honolulu City & County, Ser C, GO, FGIC Insured 125 5.500%, 11/01/07 141 1,200 5.125%, 07/01/11 1,341 2,100 5.125%, 07/01/15 2,278 650 5.000%, 07/01/09 726 3,500 5.000%, 07/01/19 3,698 Honolulu City & County, Waipahu Towers Project, Ser A, RB, AMT, GNMA Collateral 200 6.900%, 06/20/35 209 Honolulu City & County, Waste Water, 2nd Board Resolution, Junior Ser, RB, FGIC Insured 1,000 5.250%, 07/01/12 1,112 1,900 5.250%, 07/01/13 2,104 1,000 5.250%, 07/01/17 1,089 2,500 5.250%, 07/01/18 2,711 Kauai County, Public Improvement, Ser B, GO, MBIA Insured 175 5.200%, 08/01/15 192 165 5.150%, 08/01/14 181 155 5.100%, 08/01/13 171 120 5.050%, 08/01/12 131 140 5.000%, 08/01/11 153 135 4.950%, 08/01/10 146 100 4.850%, 08/01/09 109 120 4.750%, 08/01/08 130 Kauai County, Ser A, GO, FGIC Insured, Pre-Refunded @ 100 (A) 1,135 6.250%, 08/01/18 1,373 1,480 6.250%, 08/01/20 1,790 1,335 6.250%, 08/01/21 1,615 1,050 6.250%, 08/01/22 1,270 Kauai County, Ser A, GO, MBIA Insured 750 5.625%, 08/01/18 843 Kauai County, Ser B, GO, MBIA Insured, Pre-Refunded @ 102 (A) 260 5.900%, 02/01/13 266 Maui County, GO, FGIC Insured, Pre-Refunded @ 101 (A) 355 5.125%, 12/15/10 360 Bishop Street Funds 40 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ HAWAII (CONTINUED) Maui County, Ser A, GO $ 485 5.375%, 03/01/12 $ 548 Maui County, Ser A, GO, FGIC Insured 500 5.200%, 09/01/12 549 100 5.125%, 03/01/14 109 615 5.100%, 03/01/19 645 200 5.000%, 03/01/13 217 795 5.000%, 03/01/18 833 Maui County, Ser A, GO, FGIC Insured, Pre-Refunded @ 101 (A) 450 5.800%, 03/01/15 531 Maui County, Ser A, GO, MBIA Insured, Pre-Refunded @ 101 (A) 250 5.750%, 06/01/13 277 Maui County, Ser C, GO, FGIC Insured 1,000 5.250%, 03/01/17 1,086 500 5.200%, 03/01/16 543 790 5.150%, 03/01/15 860 Pacific Health Special Purpose, Ser A, RB 500 5.600%, 07/01/33 496 University of Hawaii, Ser A, RB, FGIC Insured 500 5.500%, 07/15/19 554 500 5.500%, 07/15/21 547 University of Hawaii, Ser B, RB, FSA Insured 320 5.250%, 10/01/16 352 775 5.250%, 10/01/17 847 -------- 150,752 -------- ILLINOIS -- 0.3% Illinois, Educational Facilities, Augustana College, RB 550 5.250%, 10/01/18 619 -------- KENTUCKY -- 0.6% Kenton County, Airport, RB, AMT, MBIA Insured 1,000 5.000%, 03/01/10 1,090 -------- MASSACHUSETTS -- 0.7% Massachusetts State, Port Authority, Ser B, RB, AMT, FSA Insured 1,265 5.500%, 07/01/14 1,379 -------- NEW YORK -- 1.5% New York State, Tobacco Settlement Financing Corp, Ser B-1, RB 1,500 4.000%, 06/01/07 1,567 1,100 4.000%, 06/01/12 1,103 -------- 2,670 -------- December 31, 2003 41 www.bishopstreetfunds.com Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ OREGON -- 0.6% Portland, Airport & Marina Improvements, Ser 12C RB, AMT, FGIC Insured $1,000 4.750%, 07/01/10 $ 1,072 -------- PUERTO RICO -- 9.1% Puerto Rico Commonwealth, GO, FGIC Insured 1,000 5.500%, 07/01/12 1,168 Puerto Rico Commonwealth, GO, MBIA Insured 1,500 6.500%, 07/01/10 1,832 500 6.500%, 07/01/14 630 Puerto Rico Commonwealth, Public Improvement, Ser A, GO 1,000 5.000%, 07/01/10 1,107 1,000 5.000%, 07/01/11 1,108 1,000 5.000%, 07/01/27 1,018 Puerto Rico, Electric Power Authority, Ser DD, RB, FSA Insured 1,000 5.000%, 07/01/28 1,028 Puerto Rico, Electric Power Authority, Ser HH, RB, FSA Insured 500 5.250%, 07/01/29 528 Puerto Rico, Highway & Transportation Authority Revenue, Ser D, RB, FSA Insured 500 5.000%, 07/01/32 516 Puerto Rico, Housing Financial Authority, Capital Funding Program, RB 1,000 5.000%, 12/01/16 1,080 1,000 4.500%, 12/01/09 1,090 1,000 2.500%, 12/01/07 1,015 Puerto Rico, Housing, Banking & Finance Agency, Single- Family Mortgage, Affordable Housing Mortgage, Portfolio I, RB, AMT, GNMA/FNMA/FHLMC Collateral 180 6.100%, 10/01/15 186 Puerto Rico, Industrial Tourist Educational Medical Environmental Control Facilities, Hospital Auxilio Mutuo Obligation Group, Ser A, RB, MBIA Insured 300 6.250%, 07/01/24 319 Puerto Rico, Public Building Authority, Government Facilities, Ser B, RB, MBIA Insured 1,000 5.000%, 07/01/15 1,080 Puetro Rico Commonwealth, Public Improvement, GO, FSA Insured 1,000 5.000%, 07/01/21 1,055 University of Puerto Rico, Ser O, RB, MBIA Insured 1,500 5.750%, 06/01/19 1,725 -------- 16,485 -------- Bishop Street Funds 42 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000)/Shares (000) ------------ ------ TEXAS -- 0.3% Dallas, Waterworks & Sewer Systems, Refunding & Improvement, Ser A, RB, FSA Insured $ 500 4.125%, 10/01/16 $ 507 -------- UTAH -- 1.9% Davis County, Sales Tax Revenue, Ser B, RB, AMBAC Insured 1,000 5.250%, 10/01/23 1,063 Utah, Transit Sales Tax Revenue, Ser A, RB, FSA Insured 860 5.000%, 06/15/32 879 Webber County, Sales Tax Revenue, Ser B, RB, AMBAC Insured 1,385 5.000%, 07/01/23 1,435 -------- 3,377 -------- TOTAL MUNICIPAL BONDS (Cost $167,646) 180,102 -------- CASH EQUIVALENTS -- 0.9% 835,573 Dreyfus Tax-Exempt Cash Management Fund 836 835,572 Fidelity Institutional Money Market Tax-Exempt Fund 836 -------- TOTAL CASH EQUIVALENTS (Cost $1,672) 1,672 -------- TOTAL INVESTMENTS (Cost $169,318)-- 100.2% 181,774 -------- OTHER ASSETS AND LIABILITIES -- (0.2)% Investment Adviser Fees Payable (18) Administrative Fees Payable (11) Other Assets and Liabilities, Net (397) -------- TOTAL OTHER ASSETS AND LIABILITIES (426) -------- December 31, 2003 43 www.bishopstreetfunds.com Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Value (000) ----- NET ASSETS: Fund Shares of Institutional Shares (unlimited authorization -- no par value) Based on 13,419,815 Outstanding Shares of Beneficial Interest $139,699 Fund Shares of Class A (unlimited authorization -- no par value) Based on 2,763,888 Outstanding Shares of Beneficial Interest 28,955 Undistributed net investment income 34 Accumulated net realized gain on investments 204 Net unrealized appreciation on investments 12,456 -------- TOTAL NET ASSETS -- 100.0% $181,348 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- INSTITUTIONAL CLASS ($150,373,234 / 13,419,815 SHARES) $ 11.21 ======== NET ASSET VALUE, REDEMPTION PRICE PER SHARE -- CLASS A ($30,974,300 / 2,763,888 SHARES) $ 11.21 ======== MAXIMUM OFFERING PRICE PER SHARE -- CLASS A SHARES ($11.21 / 95.75%) $ 11.71 ======== (A) PRE-REFUNDED SECURITY -- THE MATURITY DATE SHOWN IS THE PRE-REFUNDED DATE. AMBAC -- AMERICAN MUNICIPAL BOND ASSURANCE COMPANY AMT -- ALTERNATIVE MINIMUM TAX COP -- CERTIFICATE OF PARTICIPATION ETM -- ESCROWED TO MATURITY FGIC -- FINANCIAL GUARANTEE INSURANCE CORPORATION FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION FSA -- FINANCIAL SECURITY ASSURANCE GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION GO -- GENERAL OBLIGATION MBIA -- MUNICIPAL BOND INVESTORS ASSURANCE RB -- REVENUE BOND SER -- SERIES THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Bishop Street Funds 44 - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- Money Market & Treasury Money Market Funds - -------------------------------------------------------------------------------- The U.S. economy ended 2003 on a strong note, signaling a strengthening, broad-based recovery that, for the first time, began to reflect increasing contributions to growth from the business sector. Gross Domestic Product numbers released during the fourth quarter showed that the economy expanded at an impressive rate of 8.2% during the prior quarter. Consumer spending remained robust and capital spending, led by business equipment and software needs, improved as well. In addition, with the recent decline in jobless claims, the labor market now appears to be improving modestly. This economic backdrop favored equities and other riskier assets in the final period, while subdued inflation reports eased the market's fear of significantly higher interest rates. In light of the improving economic backdrop, Federal Reserve (Fed) policymakers upgraded their assessment of the U.S. economy at their meeting on December 10th while also signaling that an interest-rate hike may not occur for some time. With favorable inflationary indicators surprising on the downside, markets reassessed interest rate levels accounting for continued easy monetary policy. While bond yields had moved higher earlier in the quarter with the strength in economic data, they retraced some of that increase following benign inflationary signs. The money market curve remained relatively unchanged on the quarter, pricing in a 30% chance of a Fed tightening in mid 2004. The Fed Funds rate capped the year at a 41-year low of 1%. December 31, 2003 45 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- The U.S. economy showed signs that aggressive monetary and fiscal stimulus has contributed to solid growth in 2003, and we expect this to continue in 2004. While the consumer has been a key contributor to the economy, thanks in part to record mortgage refinancing at low interest rates, capital spending and exports will accelerate, resulting in a more balanced growth rate. Despite the recent growth, there are only scant signs of higher prices on the horizon - the U.S. dollar's value has been declining versus other currencies, while oil, gold and other commodity prices have been rising. We believe the Fed will not raise short-term rates until it has observed months of solid job growth and signs that inflation is increasing, which would be well into 2004. By assuring the market that that it will hold rates steady for a "considerable period," the Fed should have a continued positive influence on both the U.S. economy and financial markets. Finally, we do not believe that this year's U.S. Presidential election will be an important factor - one way or the other - for the makers of U.S. interest rate policy. Bishop Street Funds 46 Money Market Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS Face Amount Value (000) (000) ------ ----- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 34.4% FHLB $1,400 5.375%, 01/05/04 $ 1,401 2,000 5.715%, 05/12/04 2,031 FHLMC 3,000 3.250%, 01/15/04 3,002 3,000 1.348%, 01/29/04 (C) 2,997 4,000 1.075%, 02/18/04 (C) 3,994 2,750 1.223%, 02/26/04 (C) 2,745 3,500 1.094%, 03/12/04 (C) 3,492 4,000 1.136%, 04/22/04 (C) 3,986 3,000 0.949%, 06/17/04 (C) 2,987 6,000 1.360%, 08/06/04 6,003 4,000 1.190%, 08/19/04 (C) 3,970 FNMA 10,000 1.207%, 02/06/04 (C) 9,988 4,000 5.125%, 02/13/04 4,018 2,000 3.625%, 04/15/04 2,014 4,000 4.125%, 04/23/04 4,035 5,000 1.071%, 06/25/04 (C) 4,974 7,000 1.219%, 07/01/04 (C) 6,957 -------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $68,594) 68,594 -------- COMMERCIAL PAPER (D) -- 33.1% ASSET-BACKED -- 16.8% Apreco 3,000 1.110%, 02/17/04 2,996 Clipper Receivables 4,500 1.080%, 01/28/04 4,496 CRC Funding 4,500 1.090%, 02/06/04 4,495 Delaware Funding 4,500 1.090%, 01/12/04 4,499 Greyhawk Funding 4,000 1.100%, 01/09/04 3,999 Park Avenue Receivables 4,500 1.090%, 01/14/04 4,498 Variable Funding Capital 4,000 1.080%, 01/09/04 3,999 Windmill Funding 4,500 1.090%, 01/09/04 4,499 -------- 33,481 -------- December 31, 2003 47 www.bishopstreetfunds.com Money Market Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Amount Value (000) (000) -------- ----- BANKS -- 4.0% Svenska Handelsbank $5,000 1.080%, 02/04/04 $ 4,995 UBS Finance 3,000 1.100%, 01/21/04 2,998 -------- 7,993 -------- DIVERSE FINANCIAL SERVICES -- 5.5% International Lease Finance 3,000 1.060%, 01/12/04 2,999 Morgan Stanley 2,000 1.080%, 02/19/04 1,997 Nationwide Building 1,000 1.116%, 01/20/04 999 Toyota Motor Credit 5,000 1.070%, 02/17/04 4,993 -------- 10,988 -------- FOREIGN GOVERNMENTS -- 1.6% Quebec Province 3,200 1.110%, 03/26/04 3,192 -------- RETAIL - BEVERAGES -- 1.7% Diageo Capital 3,500 1.070%, 02/10/04 3,496 -------- RETAIL - FOOD -- 1.5% Archer Daniels Midland 3,000 1.140%, 04/06/04 2,991 -------- SPECIAL PURPOSE ENTITY -- 2.0% Westpac Capital 4,000 1.150%, 05/05/04 3,984 -------- TOTAL COMMERCIAL PAPER (Cost $66,125) 66,125 -------- CERTIFICATES OF DEPOSIT/BANK NOTES (C) -- 10.5% American Express Centurion (A) 5,000 1.090%, 09/27/04 5,000 Bradford & Bingley 144A 4,000 1.150%, 01/07/05 4,000 Wells Fargo Bank 3,000 1.070%, 01/15/04 3,000 Bishop Street Funds 48 Money Market Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Amount Value (000) (000) ------- ----- CERTIFICATES OF DEPOSIT/BANK NOTES (CONTINUED) Westdeutsche Landesbank $6,000 1.350%, 01/27/04 $ 6,000 Wilmington Trust 3,000 1.100%, 01/22/04 3,000 -------- TOTAL CERTIFICATES OF DEPOSIT/BANK NOTES (Cost $21,000) 21,000 -------- CORPORATE OBLIGATIONS (A) -- 9.1% DIVERSE FINANCIAL SERVICES -- 7.1% Abbey National Treasury Services 5,000 1.040%, 03/10/04 5,000 General Electric Capital 2,300 1.250%, 01/07/05 2,300 General Electric Capital MTN 2,000 1.230%, 01/14/05 2,000 Nationwide Building 144A 900 1.140%, 07/23/04 900 Permanent Financing 2,000 1.130%, 03/10/04 2,000 2,055 1.130%, 12/10/04 2,055 -------- 14,255 -------- INDUSTRIALS -- 2.0% BP Capital Markets 4,000 1.045%, 03/08/04 4,000 -------- TOTAL CORPORATE OBLIGATIONS (Cost $18,255) 18,255 -------- INSURANCE FUNDING AGREEMENTS (A)(B) -- 8.8% Allstate 144A 3,000 1.260%, 03/15/04 3,000 Metropolitan Life Insurance 144A 5,000 1.243%, 02/02/04 5,000 Monumental Life Insurance 144A 5,500 1.260%, 01/02/04 5,500 Travelers Insurance 144A 4,000 1.242%, 02/28/04 4,000 -------- TOTAL INSURANCE FUNDING AGREEMENTS (Cost $17,500) 17,500 -------- December 31, 2003 49 www.bishopstreetfunds.com Money Market Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Amount Value (000) (000) ------- ----- MUNICIPAL BOND -- 2.0% CONNECTICUT -- 2.0% Yale University TECP (C) $4,000 1.072%, 02/12/04 $ 3,995 -------- TOTAL MUNICIPAL BOND (Cost $3,995) 3,995 -------- REPURCHASE AGREEMENT -- 2.1% UBS Warburg Dillion 1.000%, dated 12/31/03, to be repurchased on 01/02/04, repurchase price $4,100,228, (collateralized by Government Obligations, total market 4,100 value $4,182,757) 4,100 -------- TOTAL REPURCHASE AGREEMENT (Cost $4,100) 4,100 -------- TOTAL INVESTMENTS (COST $199,569) -- 100.0% 199,569 -------- OTHER ASSETS AND LIABILITIES -- 0.0% Investment Adviser Fees Payable (37) Administrative Fees Payable (21) Other Assets and Liabilities, Net 95 -------- TOTAL OTHER ASSETS AND LIABILITIES 37 -------- NET ASSETS: Fund Shares of Institutional Shares (unlimited authorization -- no par value) Based on 182,189,368 Outstanding Shares of Beneficial Interest 182,190 Fund Shares of Class A (unlimited authorization -- no par value) Based on 17,440,456 Outstanding Shares of Beneficial Interest 17,439 Distributions in excess of net investment income (1) Accumulated net realized loss on investments (22) -------- TOTAL NET ASSETS -- 100.0% $199,606 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- INSTITUTIONAL CLASS ($182,165,949 / 182,189,368 SHARES) $ 1.00 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- CLASS A ($17,440,331 / 17,440,456 SHARES) $ 1.00 ======== Bishop Street Funds 50 Money Market Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) (A) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS IS THE RATE IN EFFECT ON DECEMBER 31, 2003. THE MATURITY DATE SHOWN IS THE NEXT SCHEDULED RESET DATE. (B) SECURITY CONSIDERED ILLIQUID. (C) REPRESENTS THE EFFECTIVE YIELD AT THE DATE OF PURCHASE. (D) REPRESENTS THE DISCOUNT YIELD AT THE DATE OF PURCHASE. FHLB -- FEDERAL HOME LOAN BANK FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION MTN -- MEDIUM TERM NOTE TECP -- TAX-EXEMPT COMMERCIAL PAPER 144A -- SECURITIES SOLD WITHIN THE TERMS OF PRIVATE PLACEMENT MEMORANDUM, EXCEPT FROM REGISTRATION UNDER SECTION 3A-4, 4(2) OR 144A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER "ACCREDITED INVESTORS." THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2003 51 www.bishopstreetfunds.com Treasury Money Market Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS Face Amount Value (000) (000) ------- ----- U.S. TREASURY OBLIGATIONS -- 50.7% U.S. Treasury Bills (A) $35,000 0.846%, 01/02/04 $ 34,999 3,000 1.015%, 01/29/04 2,998 8,000 0.801%, 02/12/04 7,993 6,000 1.035%, 02/26/04 5,990 U.S. Treasury Notes 10,000 3.000%, 01/31/04 10,015 6,000 4.750%, 02/15/04 6,027 4,000 3.625%, 03/31/04 4,023 30,500 3.375%, 04/30/04 30,720 5,000 7.250%, 05/15/04 5,111 4,000 5.250%, 05/15/04 4,061 5,500 2.875%, 06/30/04 5,549 5,000 7.250%, 08/15/04 5,187 5,000 6.000%, 08/15/04 5,148 9,000 2.125%, 08/31/04 9,053 -------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $136,874) 136,874 -------- REPURCHASE AGREEMENTS -- 49.1% ABN Amro 0.820%, dated 12/31/03, to be repurchased on 01/02/04, repurchase price $10,000,456 (collateralized by U.S. Treasury Note, 10,000 total market value $10,106,354) 10,000 JP Morgan Chase 0.830%, dated 12/31/03, to be repurchased on 01/02/04, repurchase price $62,002,922 (collateralized by U.S. Government Obligations, 62,000 total market value $63,242,984) 62,000 UBS Warburg Dillion 0.850%, dated 12/31/03, to be repurchased on 01/02/04, repurchase price $60,902,876 (collateralized by U.S. Government Obligation, 60,900 total market value $62,118,581) 60,900 -------- TOTAL REPURCHASE AGREEMENTS (Cost $132,900) 132,900 -------- TOTAL INVESTMENTS (COST $269,774) -- 99.8% 269,774 -------- Bishop Street Funds 52 Treasury Money Market Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Value (000) ------- OTHER ASSETS AND LIABILITIES -- 0.2% Investment Adviser Fees Payable $ (36) Administrative Fees Payable (26) Other Assets and Liabilities, Net 653 -------- TOTAL OTHER ASSETS AND LIABILITIES 591 -------- NET ASSETS: Fund Shares of Institutional Shares (unlimited authorization -- no par value) based on 270,341,173 outstanding shares of beneficial interest 270,341 Undistributed net investment income 16 Accumulated net realized gain on investments 8 -------- TOTAL NET ASSETS -- 100.0% $270,365 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE - INSTITUTIONAL CLASS $ 1.00 ======== (A) REPRESENTS THE EFFECTIVE YIELD AT THE DATE OF PURCHASE. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2003 53 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003 (IN THOUSANDS) Tax High Strategic Managed Grade Equity Growth Equity Income Fund Fund Fund Fund - ----------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividend Income $ 1,969 $ 172 $ 497 $ -- Interest Income 47 4 14 6,257 Securities Lending, Net 32 -- -- 42 Less: Foreign Taxes Withheld (9) -- (2) -- - ----------------------------------------------------------------------------------------- Total Investment Income 2,039 176 509 6,299 - ----------------------------------------------------------------------------------------- EXPENSES: Investment Adviser Fees 1,021 218 224 741 Shareholder Servicing Fees 345 73 76 337 Administrative Fees 276 59 61 270 Distribution Fees, Class A 4 -- -- 1 Transfer Agent Fees 53 24 27 52 Professional Fees 25 7 8 28 Trustees Fees 18 4 4 16 Custody Fees 12 4 3 12 Printing Fees 10 3 3 10 Registration Fees 2 1 1 2 Offering Costs -- 16 24 -- Miscellaneous Expenses 3 4 3 11 - ----------------------------------------------------------------------------------------- Total Expenses 1,769 413 434 1,480 - ----------------------------------------------------------------------------------------- Less Waivers: Investment Adviser Fees (52) -- (58) (134) Shareholder Servicing Fees (207) (44) (46) (202) Administrative Fees (126) (26) (26) (118) - ----------------------------------------------------------------------------------------- Total Waivers (385) (70) (130) (454) - ----------------------------------------------------------------------------------------- Total Net Expenses 1,384 343 304 1,026 - ----------------------------------------------------------------------------------------- Net Investment Income (Loss) 655 (167) 205 5,273 - ----------------------------------------------------------------------------------------- Net Realized Gain on Investments 1,685 758 19 4,600 Change in Unrealized Appreciation (Depreciation) on Investments 30,565 8,983 6,553 (5,397) - ----------------------------------------------------------------------------------------- Net Realized and Unrealized Gain (Loss) on Investments 32,250 9,741 6,572 (797) - ----------------------------------------------------------------------------------------- Increase in Net Assets Resulting from Operations $32,905 $9,574 $6,777 $ 4,476 ========================================================================================= AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Bishop Street Funds 54 Bishop Street Funds - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003 (IN THOUSANDS) Hawaii Treasury Municipal Money Money Bond Market Market Fund Fund Fund - -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest Income $8,232 $2,899 $ 3,781 - -------------------------------------------------------------------------------- Total Investment Income 8,232 2,899 3,781 - -------------------------------------------------------------------------------- EXPENSES: Investment Adviser Fees 646 691 950 Shareholder Servicing Fees 461 576 792 Administrative Fees 369 461 633 Distribution Fees, Class A 81 6 -- Transfer Agent Fees 59 58 44 Professional Fees 42 47 73 Trustees Fees 22 27 38 Printing Fees 18 14 26 Custody Fees 17 19 26 Registration Fees 3 3 4 Miscellaneous Expenses 36 13 36 - -------------------------------------------------------------------------------- Total Expenses 1,754 1,915 2,622 - -------------------------------------------------------------------------------- Less Waivers: Investment Adviser Fees (326) (209) (475) Shareholder Servicing Fees (277) (346) (475) Administrative Fees (240) (201) (277) - -------------------------------------------------------------------------------- Total Waivers (843) (756) (1,227) - -------------------------------------------------------------------------------- Total Net Expenses 911 1,159 1,395 - -------------------------------------------------------------------------------- Net Investment Income 7,321 1,740 2,386 - -------------------------------------------------------------------------------- Net Realized Gain on Investments 1,911 -- 21 Change in Unrealized Appreciation on Investments 64 -- -- - -------------------------------------------------------------------------------- Net Realized and Unrealized Gain on Investments 1,975 -- 21 - -------------------------------------------------------------------------------- Increase in Net Assets Resulting from Operations $9,296 $1,740 $ 2,407 ================================================================================ AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2003 55 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) Equity Fund - ---------------------------------------------------------------------------------------------- 2003 2002 - ---------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income $ 655 $ 428 Net Realized Gain (Loss) on Investments 1,685 (21,478) Change in Unrealized Appreciation (Depreciation) on Investments 30,565 (31,683) - ---------------------------------------------------------------------------------------------- Increase (Decrease) in Net Assets Resulting From Operations 32,905 (52,733) - ---------------------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS: Net Investment Income: Institutional Class Shares (650) (420) Class A Shares (3) -- - ---------------------------------------------------------------------------------------------- Total Dividends (653) (420) - ---------------------------------------------------------------------------------------------- Changes in Net Assets 32,252 (53,153) - ---------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: Institutional Class Shares: Proceeds from Shares Issued 11,293 19,672 Reinvestments of Cash Distributions 393 246 Cost of Shares Redeemed (17,181) (53,829) - ---------------------------------------------------------------------------------------------- Total Institutional Class Capital Share Transactions (5,495) (33,911) - ---------------------------------------------------------------------------------------------- Class A Shares: Proceeds from Shares Issued 143 459 Reinvestments of Cash Distributions 2 -- Cost of Shares Redeemed (521) (1,036) - ---------------------------------------------------------------------------------------------- Total Class A Capital Share Transactions (376) (577) - ---------------------------------------------------------------------------------------------- Net Decrease in Net Assets From Capital Share Transactions (5,871) (34,488) - ---------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 26,381 (87,641) - ---------------------------------------------------------------------------------------------- NET ASSETS: Beginning of Year 131,584 219,225 - ---------------------------------------------------------------------------------------------- End of Year $157,965 $131,584 ============================================================================================== SHARE TRANSACTIONS: Institutional Class Shares: Issued 1,341 2,383 Issued in Lieu of Cash Distributions 46 33 Redeemed (2,169) (6,627) - ---------------------------------------------------------------------------------------------- Total Institutional Class Share Transactions (782) (4,211) - ---------------------------------------------------------------------------------------------- Class A Shares: Shares Issued 17 49 Shares Issued in Lieu of Cash Distributions 1 -- Shares Redeemed (64) (116) - ---------------------------------------------------------------------------------------------- Total Class A Share Transactions (46) (67) - ---------------------------------------------------------------------------------------------- Net Decrease in Shares Outstanding from Share Transactions (828) (4,278) ============================================================================================== AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Bishop Street Funds 56 Bishop Street Funds - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIODS ENDED DECEMBER 31, (IN THOUSANDS) Strategic Tax Managed Growth Fund(1) Equity Fund(2) - ----------------------------------------------------------------------------------------------------------------- 2003 2002 2003 2002 - ----------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income (Loss) $ (167) $ (58) $ 205 $ 33 Net Realized Gain (Loss) on Investments 758 (2,035) 19 12 Change in Unrealized Appreciation (Depreciation) on Investments 8,983 (833) 6,553 (430) - ----------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Net Assets Resulting From Operations 9,574 (2,926) 6,777 (385) - ----------------------------------------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net Investment Income: Institutional Class Shares -- -- (204) (33) Capital Gains: Institutional Class Shares -- -- (46) -- - ----------------------------------------------------------------------------------------------------------------- Total Dividends and Distributions -- -- (250) (33) - ----------------------------------------------------------------------------------------------------------------- Changes in Net Assets 9,574 (2,926) 6,527 (418) - ----------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: Institutional Class Shares: Proceeds from Shares Issued 20,073 22,869 8,008 25,278 Reinvestments of Cash Distributions -- -- 6 -- Cost of Shares Redeemed (2,701) (44) (4,368) (225) - ----------------------------------------------------------------------------------------------------------------- Total Institutional Class Capital Share Transactions 17,372 22,825 3,646 25,053 - ----------------------------------------------------------------------------------------------------------------- Net Increase in Net Assets From Capital Share Transactions 17,372 22,825 3,646 25,053 - ----------------------------------------------------------------------------------------------------------------- Total Increase in Net Assets 26,946 19,899 10,173 24,635 - ----------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of Period 19,899 -- 24,635 -- - ----------------------------------------------------------------------------------------------------------------- End of Period $46,845 $19,899 $34,808 $24,635 ================================================================================================================= SHARE TRANSACTIONS: Institutional Class Shares: Shares Issued 1,873 2,308 802 2,527 Shares Issued in Lieu of Cash Distributions -- -- 1 -- Shares Redeemed (251) (5) (422) (22) - ----------------------------------------------------------------------------------------------------------------- Total Institutional Class Share Transactions 1,622 2,303 381 2,505 - ----------------------------------------------------------------------------------------------------------------- Net Increase in Shares Outstanding from Share Transactions 1,622 2,303 381 2,505 ================================================================================================================= (1) COMMENCED OPERATIONS ON JULY 1, 2002. (2) COMMENCED OPERATIONS ON NOVEMBER 13, 2002. AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2003 57 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) High Grade Hawaii Municipal Income Fund Bond Fund - -------------------------------------------------------------------------------------------------------------------- 2003 2002 2003 2002 - -------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income $ 5,273 $ 5,851 $ 7,321 $ 7,597 Net Realized Gain on Investments 4,600 576 1,911 1,253 Change in Unrealized Appreciation (Depreciation) on Investments (5,397) 8,053 64 8,384 - -------------------------------------------------------------------------------------------------------------------- Increase in Net Assets Resulting From Operations 4,476 14,480 9,296 17,234 - -------------------------------------------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net Investment Income: Institutional Class Shares (5,260) (5,833) (6,122) (6,293) Class A Shares (13) (17) (1,218) (1,289) Capital Gains: Institutional Class Shares (2,572) -- (1,555) (600) Class A Shares (5) -- (317) (133) - -------------------------------------------------------------------------------------------------------------------- Total Dividends and Distributions (7,850) (5,850) (9,212) (8,315) - -------------------------------------------------------------------------------------------------------------------- Changes in Net Assets (3,374) 8,630 84 8,919 - -------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: Institutional Class Shares: Proceeds from Shares Issued 15,737 23,640 18,535 22,766 Reinvestments of Cash Distributions 2,901 1,748 1,112 945 Cost of Shares Redeemed (18,942) (19,891) (19,607) (17,946) - -------------------------------------------------------------------------------------------------------------------- Total Institutional Class Capital Share Transactions (304) 5,497 40 5,765 - -------------------------------------------------------------------------------------------------------------------- Class A Shares: Proceeds from Shares Issued 25 169 2,635 4,677 Reinvestments of Cash Distributions 15 14 726 613 Cost of Shares Redeemed (182) (110) (5,880) (3,936) - -------------------------------------------------------------------------------------------------------------------- Total Class A Capital Share Transactions (142) 73 (2,519) 1,354 - -------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets From Capital Share Transactions (446) 5,570 (2,479) 7,119 - -------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets (3,820) 14,200 (2,395) 16,038 - -------------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of Year 138,941 124,741 183,743 167,705 - -------------------------------------------------------------------------------------------------------------------- End of Year $135,121 $138,941 $181,348 $183,743 ==================================================================================================================== SHARE TRANSACTIONS: Institutional Class Shares: Shares Issued 1,481 2,310 1,656 2,089 Shares Issued in Lieu of Cash Distributions 274 170 99 86 Shares Redeemed (1,777) (1,934) (1,750) (1,629) - -------------------------------------------------------------------------------------------------------------------- Total Institutional Class Share Transactions (22) 546 5 546 - -------------------------------------------------------------------------------------------------------------------- Class A Shares: Shares Issued 2 17 234 429 Shares Issued in Lieu of Cash Distributions 2 1 65 56 Shares Redeemed (17) (11) (521) (359) - -------------------------------------------------------------------------------------------------------------------- Total Class A Share Transactions (13) 7 (222) 126 - -------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Shares Outstanding from Share Transactions (35) 553 (217) 672 ==================================================================================================================== AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Bishop Street Funds 58 Bishop Street Funds - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) Money Market Treasury Money Market Fund Fund - ------------------------------------------------------------------------------------------------------------------------ 2003 2002 2003 2002 - ------------------------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income $ 1,740 $ 3,690 $ 2,386 $ 4,508 Net Realized Gain (Loss) on Investments -- 1 21 (9) - ------------------------------------------------------------------------------------------------------------------------ Increase in Net Assets Resulting From Operations 1,740 3,691 2,407 4,499 - ------------------------------------------------------------------------------------------------------------------------ DIVIDENDS TO SHAREHOLDERS: Net Investment Income: Institutional Class Shares (1,731) (3,687) (2,386) (4,508) Class A Shares (9) (3) -- -- - ------------------------------------------------------------------------------------------------------------------------ Total Dividends (1,740) (3,690) (2,386) (4,508) - ------------------------------------------------------------------------------------------------------------------------ Changes in Net Assets -- 1 21 (9) - ------------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS: (ALL AT $1.00 PER SHARE): Institutional Class Shares: Proceeds from Shares Issued 408,493 498,190 678,219 879,834 Reinvestments of Cash Distributions 25 60 9 25 Cost of Shares Redeemed (464,850) (569,687) (739,562) (920,594) - ------------------------------------------------------------------------------------------------------------------------ Total Institutional Class Capital Share Transactions (56,332) (71,437) (61,334) (40,735) - ------------------------------------------------------------------------------------------------------------------------ Class A Shares: Proceeds from Shares Issued 20,191 9 -- -- Reinvestments of Cash Distributions 9 3 -- -- Cost of Shares Redeemed (2,948) (325) -- -- - ------------------------------------------------------------------------------------------------------------------------ Total Class A Capital Share Transactions 17,252 (313) -- -- - ------------------------------------------------------------------------------------------------------------------------ Net Decrease in Net Assets From Capital Share Transactions (39,080) (71,750) (61,334) (40,735) - ------------------------------------------------------------------------------------------------------------------------ Total Decrease in Net Assets (39,080) (71,749) (61,313) (40,744) - ------------------------------------------------------------------------------------------------------------------------ NET ASSETS: Beginning of Year 238,686 310,435 331,678 372,422 - ------------------------------------------------------------------------------------------------------------------------ End of Year $ 199,606 $ 238,686 $ 270,365 $ 331,678 ======================================================================================================================== AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2003 59 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS ENDED DECEMBER 31, DIVIDENDS AND INVESTMENT ACTIVITIES DISTRIBUTIONS FROM ------------------------------- --------------------- TOTAL NET ASSET NET REALIZED INVESTMENT TOTAL VALUE, NET AND UNREALIZED ACTIVITIES NET DIVIDENDS BEGINNING INVESTMENT GAIN (LOSS) ON FROM INVESTMENT CAPITAL AND OF PERIOD INCOME (LOSS) INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS --------- ------------- -------------- ---------- ---------- ------- --------------- - ----------- EQUITY FUND - ----------- INSTITUTIONAL CLASS SHARES: 2003(1) $ 7.53 $ 0.04 $ 1.96 $ 2.00 $(0.04) $ -- $(0.04) 2002(1) 10.08 0.02 (2.55) (2.53) (0.02) -- (0.02) 2001 13.55 -- (3.47) (3.47) -- -- -- 2000 17.88 -- (2.77) (2.77) -- (1.56) (1.56) 1999(1) 15.28 -- 3.68 3.68 -- (1.08) (1.08) CLASS A SHARES: 2003(1) $ 7.49 $ 0.02 $ 1.95 $ 1.97 $(0.02) $ -- $(0.02) 2002(1) 10.01 -- (2.52) (2.52) -- -- -- 2001 13.49 (0.07) (3.41) (3.48) -- -- -- 2000 17.87 -- (2.82) (2.82) -- (1.56) (1.56) 1999(2) 15.74 -- 3.19 3.19 -- (1.06) (1.06) - --------------------- STRATEGIC GROWTH FUND - --------------------- INSTITUTIONAL CLASS SHARES: 2003(1) $ 8.64 $(0.06) $ 3.35 $ 3.29 $ -- $ -- $ -- 2002(3) 10.00 (0.03) (1.33) (1.36) -- -- -- - ----------------------- TAX MANAGED EQUITY FUND - ----------------------- INSTITUTIONAL CLASS SHARES: 2003(1) $ 9.83 $ 0.07 $ 2.25 $ 2.32 $(0.07) $(0.02) $(0.09) 2002(4) 10.00 0.01 (0.17) (0.16) (0.01) -- (0.01) - ---------------------- HIGH GRADE INCOME FUND - ---------------------- INSTITUTIONAL CLASS SHARES: 2003(1) $10.67 $ 0.42 $(0.07) $ 0.35 $(0.42) $(0.20) $(0.62) 2002 10.00 0.46 0.67 1.13 (0.46) -- (0.46) 2001 9.81 0.50 0.19 0.69 (0.50) -- (0.50) 2000 9.39 0.52 0.42 0.94 (0.52) -- (0.52) 1999 10.43 0.48 (0.92) (0.44) (0.50) (0.10) (0.60) CLASS A SHARES: 2003(1) $10.62 $ 0.39 $(0.06) $ 0.33 $(0.39) $(0.20) $(0.59) 2002 9.96 0.43 0.66 1.09 (0.43) -- (0.43) 2001 9.76 0.48 0.19 0.67 (0.47) -- (0.47) 2000 9.35 0.52 0.38 0.90 (0.49) -- (0.49) 1999(2) 9.69 0.19 (0.19) -- (0.24) (0.10) (0.34) + TOTAL RETURN IS FOR THE PERIOD INDICATED AND HAS NOT BEEN ANNUALIZED. TOTAL RETURN DOES NOT REFLECT THE SALES CHARGE ON CLASS A SHARES. RETURNS SHOWN DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. * ANNUALIZED AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0. Bishop Street Funds 60 - -------------------------------------------------------------------------------- RATIO OF RATIO OF EXPENSES RATIO OF NET NET ASSET NET ASSETS, EXPENSES TO TO AVERAGE INVESTMENT VALUE, END OF AVERAGE NET ASSETS INCOME (LOSS) PORTFOLIO END OF TOTAL PERIOD NET EXCLUDING FEE TO AVERAGE TURNOVER PERIOD RETURN+ (000) ASSETS WAIVERS NET ASSETS RATE --------- ------- ----------- ----------- ----------------- ------------- --------- - ----------- EQUITY FUND - ----------- INSTITUTIONAL CLASS SHARES: 2003(1) $ 9.49 26.62% $156,381 1.00% 1.28% 0.48% 43% 2002(1) 7.53 (25.06) 129,981 1.00 1.27 0.24 60 2001 10.08 (25.61) 216,412 1.00 1.27 -- 86 2000 13.55 (16.20) 300,565 1.00 1.28 (0.23) 52 1999(1) 17.88 24.37 391,227 1.00 1.27 (0.01) 58 CLASS A SHARES: 2003(1) $ 9.44 26.31% $ 1,584 1.25% 1.53% 0.23% 43% 2002(1) 7.49 (25.17) 1,603 1.25 1.52 (0.02) 60 2001 10.01 (25.80) 2,813 1.25 1.52 (0.29) 86 2000 13.49 (16.49) 10,631 1.25 1.53 (0.51) 52 1999(2) 17.87 20.52 583 1.25* 1.61* (0.33)* 58 - --------------------- STRATEGIC GROWTH FUND - --------------------- INSTITUTIONAL CLASS SHARES: 2003(1) $11.93 38.08% $ 46,845 1.17% 1.41% (0.57)% 59% 2002(3) 8.64 (13.60) 19,899 1.25* 1.67* (0.61)* 50 - ----------------------- TAX MANAGED EQUITY FUND - ----------------------- INSTITUTIONAL CLASS SHARES: 2003(1) $12.06 23.66% $ 34,808 1.00% 1.43% 0.68% 34% 2002(4) 9.83 (1.57) 24,635 1.00* 1.50* 0.99* 1 - ---------------------- HIGH GRADE INCOME FUND - ---------------------- INSTITUTIONAL CLASS SHARES: 2003(1) $10.40 3.31% $134,845 0.76% 1.10% 3.91% 48% 2002 10.67 11.54 138,516 0.76 1.09 4.45 19 2001 10.00 7.16 124,416 0.76 1.09 5.02 89 2000 9.81 10.25 127,888 0.77 1.14 5.41 88 1999 9.39 (4.34) 127,881 0.80 1.19 5.12 56 CLASS A SHARES: 2003(1) $10.36 3.14% $ 276 1.01% 1.35% 3.69% 48% 2002 10.62 11.19 425 1.01 1.34 4.21 19 2001 9.96 7.02 325 1.01 1.34 4.72 89 2000 9.76 9.85 26 1.02 1.39 5.24 88 1999(2) 9.35 (0.05) 1 1.05* 1.87* 4.89* 56 (1) PER SHARE NET INVESTMENT INCOME AMOUNT CALCULATED USING AVERAGE SHARES. (2) COMMENCED OPERATIONS ON JUNE 14, 1999. (3) COMMENCED OPERATIONS ON JULY 1, 2002. (4) COMMENCED OPERATIONS ON NOVEMBER 13, 2002. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2003 61 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS ENDED DECEMBER 31, DIVIDENDS AND INVESTMENT ACTIVITIES DISTRIBUTIONS FROM ------------------------------- --------------------- TOTAL NET ASSET NET REALIZED INVESTMENT TOTAL VALUE, NET AND UNREALIZED ACTIVITIES NET DIVIDENDS BEGINNING INVESTMENT GAIN (LOSS) ON FROM INVESTMENT CAPITAL AND OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS --------- ------------- -------------- ---------- ---------- ------- --------------- - -------------------------- HAWAII MUNICIPAL BOND FUND - -------------------------- INSTITUTIONAL CLASS SHARES: 2003(3) $11.20 $0.45 $ 0.13 $ 0.58 $(0.45) $(0.12) $(0.57) 2002 10.66 0.47 0.57 1.04 (0.46) (0.04) (0.50) 2001 10.70 0.49 (0.04) 0.45 (0.49) -- (0.49) 2000 9.98 0.50 0.72 1.22 (0.50) -- (0.50) 1999 10.77 0.48 (0.75) (0.27) (0.50) (0.02) (0.52) CLASS A SHARES: 2003(3) $11.20 $0.42 $0.13 $ 0.55 $(0.42) $(0.12) $(0.54) 2002 10.66 0.44 0.58 1.02 (0.44) (0.04) (0.48) 2001 10.69 0.46 (0.02) 0.44 (0.47) -- (0.47) 2000 9.97 0.46 0.73 1.19 (0.47) -- (0.47) 1999(1) 10.42 0.26 (0.44) (0.18) (0.25) (0.02) (0.27) - ----------------- MONEY MARKET FUND - ----------------- INSTITUTIONAL CLASS SHARES: 2003(3) $ 1.00 $0.01 $ -- $ 0.01 $(0.01) $ -- $(0.01) 2002 1.00 0.01 -- 0.01 (0.01) -- (0.01) 2001 1.00 0.04 -- 0.04 (0.04) -- (0.04) 2000 1.00 0.06 -- 0.06 (0.06) -- (0.06) 1999 1.00 0.05 -- 0.05 (0.05) -- (0.05) CLASS A SHARES: 2003(3) $ 1.00 $0.01 $ -- $ 0.01 $(0.01) $ -- $(0.01) 2002 1.00 0.01 -- 0.01 (0.01) -- (0.01) 2001(2) 1.00 0.02 -- 0.02 (0.02) -- (0.02) - -------------------------- TREASURY MONEY MARKET FUND - -------------------------- INSTITUTIONAL CLASS SHARES: 2003(3) $ 1.00 $0.01 $ -- $ 0.01 $(0.01) $ -- $(0.01) 2002 1.00 0.01 -- 0.01 (0.01) -- (0.01) 2001 1.00 0.04 -- 0.04 (0.04) -- (0.04) 2000 1.00 0.06 -- 0.06 (0.06) -- (0.06) 1999 1.00 0.05 -- 0.05 (0.05) -- (0.05) + TOTAL RETURN IS FOR THE PERIOD INDICATED AND HAS NOT BEEN ANNUALIZED. RETURNS SHOWN DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. * ANNUALIZED (1) COMMENCED OPERATIONS ON JUNE 14, 1999. (2) COMMENCED OPERATIONS ON MAY 1, 2001. (3) PER SHARE NET INVESTMENT INCOME AMOUNT CALCULATED USING AVERAGE SHARES. AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0. Bishop Street Funds 62 - -------------------------------------------------------------------------------- RATIO OF RATIO OF EXPENSES RATIO OF NET NET ASSET NET ASSETS, EXPENSES TO TO AVERAGE INVESTMENT VALUE, END OF AVERAGE NET ASSETS INCOME (LOSS) PORTFOLIO END OF TOTAL PERIOD NET EXCLUDING FEE TO AVERAGE TURNOVER PERIOD RETURN+ (000) ASSETS WAIVERS NET ASSETS RATE --------- ------- ----------- ----------- ----------------- ------------- --------- - -------------------------- HAWAII MUNICIPAL BOND FUND - -------------------------- INSTITUTIONAL CLASS SHARES: 2003(3) $11.21 5.27% $150,373 0.45% 0.91% 4.01% 38% 2002 11.20 10.02 150,287 0.45 0.89 4.23 26 2001 10.66 4.24 137,206 0.45 0.88 4.54 4 2000 10.70 12.61 134,901 0.44 0.92 4.89 19 1999 9.98 (2.65) 141,341 0.41 0.99 4.79 14 CLASS A SHARES: 2003(3) $11.21 5.01% $ 30,975 0.70% 1.16% 3.76% 38% 2002 11.20 9.75 33,456 0.70 1.14 3.98 26 2001 10.66 4.13 30,499 0.70 1.13 4.29 4 2000 10.69 12.34 19,951 0.69 1.17 4.63 19 1999(1) 9.97 (1.76) 6,131 0.66* 1.24* 4.89* 14 - ----------------- MONEY MARKET FUND - ----------------- INSTITUTIONAL CLASS SHARES: 2003(3) $ 1.00 0.76% $182,166 0.50% 0.83% 0.76% n/a 2002 1.00 1.34 238,498 0.50 0.81 1.33 n/a 2001 1.00 3.86 309,935 0.50 0.82 3.71 n/a 2000 1.00 6.13 305,678 0.50 0.83 5.95 n/a 1999 1.00 4.88 284,291 0.50 0.84 4.78 n/a CLASS A SHARES: 2003(3) $ 1.00 0.50% $ 17,440 0.75% 1.08% 0.41% n/a 2002 1.00 1.08 188 0.75 1.06 1.10 n/a 2001(2) 1.00 1.96 500 0.75* 1.07* 2.66* n/a - -------------------------- TREASURY MONEY MARKET FUND - -------------------------- INSTITUTIONAL CLASS SHARES: 2003(3) $ 1.00 0.74% $270,365 0.44% 0.83% 0.75% n/a 2002 1.00 1.29 331,678 0.44 0.83 1.28 n/a 2001 1.00 3.68 372,422 0.44 0.85 3.68 n/a 2000 1.00 5.89 455,612 0.44 0.82 5.73 n/a 1999 1.00 4.65 331,064 0.44 0.85 4.56 n/a THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2003 63 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION The Bishop Street Funds (the "Trust") are registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Bishop Street Funds consist of a series of seven funds (each a Fund, collectively the "Funds") which includes the Equity Fund, Strategic Growth Fund, Tax Managed Equity Fund, High Grade Income Fund, Hawaii Municipal Bond Fund, Money Market Fund and the Treasury Money Market Fund. Class A Shares of the Equity, High Grade Income and Hawaii Municipal Bond Funds are subject to a sales load as disclosed in the prospectus. The assets of each Fund are segregated, and a shareholder's interest is limited to the Fund in which shares are held. The Funds' prospectus provides a description of each Fund's investment objectives, policies and strategies. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Trust. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. SECURITY VALUATION Bishop Street Funds' investments in equity securities which are traded on a national securities exchange are stated at the last official closing price on the principal exchange on which they are traded on valuation date or, if there is none, at the last sales price. Equity securities which are reported on the NASDAQ national market system are stated at the official closing price. Other equity securities traded in the over-the-counter market and listed equity securities for which no sale was reported on that date are stated at the last quoted bid price. Debt obligations exceeding sixty days to maturity which are actively traded are valued by an independent pricing service at the most recently quoted bid price. Debt obligations with sixty days or less remaining until maturity may be valued at their amortized cost. Restricted securities for which quotations are not readily available are valued at fair value using methods determined in good faith under general Trustee supervision. Investment securities held by the Money Market and Treasury Money Market Funds are stated at amortized cost, which approximates market value. Under this valuation method, purchase discounts and premiums are accreted and amortized ratably to maturity and are included in interest income. Bishop Street Funds 64 - -------------------------------------------------------------------------------- SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are accounted for on trade date. Costs used in determining net realized capital gains and losses on the sale of securities are on the basis of the specific identification method. Interest income is recorded on the accrual basis; dividend income is recorded on ex-dividend date. DISCOUNTS AND PREMIUMS Discounts and premiums are accreted or amortized over the life of each security and are recorded as interest income for each of the Funds using the scientific interest method, which approximates the effective interest method. REPURCHASE AGREEMENTS Securities pledged as collateral for repurchase agreements are held by the custodian bank until the respective agreements mature. The Funds may also invest in tri-party repurchase agreements. Securities held as collateral for tri-party repurchase agreements are maintained in a segregated account by the broker's custodian bank. Provisions of repurchase agreements and procedures adopted by the Adviser (see Note 3) monitor that the market value of the collateral is sufficient in the event of default by the counterparty. If the counterparty defaults and the value of the collateral declines or if the counterparty enters an insolvency proceeding, realization of the collateral by the Fund may be delayed or limited. CLASSES Class-specific expenses were borne by that class of shares. Income, realized and unrealized gains/losses and non class-specific expenses are allocated to the respective class on the basis of relative daily net assets. EXPENSES Expenses that are directly related to one of the Funds are charged directly to that Fund. Other operating expenses of the Trust are prorated to the Funds on the basis of relative net assets. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Distributions from net investment income are declared daily and paid on a monthly basis for the High Grade Income Fund, Hawaii Municipal Bond Fund, Money Market Fund and Treasury Money Market Fund. The Equity Fund, Strategic Income Fund and Tax Managed Equity Fund declare and pay distributions from net investment income on a quarterly basis. Any net realized capital gains will be distributed at least annually for all Funds. ILLIQUID SECURITIES Valuations of illiquid securities may differ significantly from the values that would have been used had an active market value for these securities existed. December 31, 2003 65 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- 3. INVESTMENT ADVISORY AGREEMENT Investment advisory services are provided to the Funds by Bishop Street Capital Management (the "Adviser"). The Adviser is entitled to receive an annual fee of 0.74% of the average daily net assets of the Equity, Strategic Growth and the Tax Managed Equity Funds, 0.55% of the average daily net assets of the High Grade Income Fund, 0.35% of the average daily net assets of the Hawaii Municipal Bond Fund, and 0.30% of the average daily net assets of the Money Market and Treasury Money Market Funds (collectively, the "Money Market Funds"). The Adviser may from time to time waive a portion of its fee in order to limit the operating expenses of a Fund. BNP Paribas Asset Management, Inc. ("BNP PAM") serves as the investment sub-adviser for the Strategic Growth Fund, pursuant to a sub-adviser agreement. BNP PAM is entitled to receive from the Adviser a fee, computed daily and paid monthly, at the annual rate of 0.37% of the average daily net assets of the Strategic Growth Fund. Wellington Management Company, LLP ("Wellington") serves as the investment sub-adviser for the Money Market Funds, pursuant to a sub-adviser agreement. Wellington is entitled to receive from the Adviser a fee, computed daily and paid monthly, at the annual rate of 0.075% of the average daily net assets of the Money Market Funds up to $500 million and 0.020% of the average daily net assets of the Money Market Funds in excess of $500 million. 4. ADMINISTRATIVE, TRANSFER AGENT AND DISTRIBUTION SERVICES Pursuant to an administration agreement dated January 27, 1995, (the "Agreement") SEI Investments Global Funds Services ("GFS"), a wholly owned subsidiary of SEI Investments Company, acts as the Trust's Administrator. Under the terms of the Agreement, GFS is entitled to receive an annual fee of 0.20% of the average daily net assets of the Funds. GFS has voluntarily agreed to waive a portion of its fee in order to limit operating expenses. Pursuant to an agreement dated January 30, 1995, DST Systems, Inc. ("DST") acts as the Transfer Agent of the Trust. As such, DST provides transfer agency, dividend disbursing and shareholder services to the Trust. SEI Investments Distribution Co. ("SIDCO"), a wholly owned subsidiary of SEI Investments Company, acts as the Trust's Distributor pursuant to a distribution agreement dated June 10, 1999. The Funds have adopted a Distribution Plan (the "Plan") on behalf of Class A Shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plan provides that Class A Shares will bear the cost of their distribution expenses. SIDCO, as compensation for its services under the Plan, receives a distribution fee, computed daily and payable monthly, of 0.25% of the average daily net assets attributable to each Fund's Class A Shares. Bishop Street Funds 66 - -------------------------------------------------------------------------------- The Trust has adopted and entered into a shareholder service plan and agreement with SIDCO. Each Fund pays to SIDCO a shareholder servicing fee at an annual rate of 0.25% of the average daily net asset value of all shares of each fund, which is computed daily and paid monthly. Under the shareholder service plan, SIDCO may perform, or may compensate other service providers for performing various shareholder and administrative services. SIDCO may also retain as profit any difference between the fee it receives and amount it pays to third parties. For the period, SIDCO paid the entire amount of fees received under the shareholder service plan to First Hawaiian Bank for shareholder services performed for the Funds. SIDCO has voluntarily agreed to waive a portion of its fee in order to limit operating expenses. Certain officers of the Trust are also officers of the Administrator. Such officers are paid no fees by the Trust. 5. SECURITIES LENDING Each Fund may lend portfolio securities to brokers, dealers and other financial organizations that meet capital and other credit requirements or other criteria established by the Trust's Board of Trustees. These loans may not exceed 331/3% of the total asset value of the Fund (including the loan collateral). No Fund will lend portfolio securities to its investment adviser, sub-adviser or their affiliates unless it has applied for and received specific authority to do so from the SEC. Loans of portfolio securities will be fully collateralized by cash, letters of credit or U.S. Government securities, and the collateral will be maintained in an amount equal to at least 100% of the current market value of the loaned securities by marking to market daily, although the borrower will be required to deliver collateral of 102% of the market value of borrowed securities for domestic and foreign securities, respectively. Although the risk of lending is mitigated by the collateral, the Fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return them. 6. OFFERING COSTS Offering costs, which include registration fees, typesetting and prospectus printing, and preparation of the initial registration statement, were capitalized and amortized to expense over a twelve-month period. As of December 31, 2003, these fees have been fully amortized. December 31, 2003 67 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- 7. INVESTMENT TRANSACTIONS The cost of security purchases and the proceeds from the sale of securities, other than temporary cash investments for the period ended December 31, 2003 are presented below for the Funds. Strategic Tax High Grade Hawaii Equity Growth Managed Income Municipal Fund Fund Equity Fund Fund Bond Fund (000) (000) (000) (000) (000) -------- --------- ----------- ---------- --------- Purchases U.S. Government Securities $ -- $ -- $ -- $ 5,241 $ -- Other 57,398 34,625 14,711 53,499 68,089 Sales U.S. Government Securities $ -- $ -- $ -- $26,243 $ -- Other 58,180 17,493 9,736 50,232 71,110 8. FEDERAL TAX INFORMATION It is each Fund's intention to continue to qualify as a regulated investment company for federal income tax purposes under Subchapter M of the Internal Revenue Code as amended and to distribute a majority of its taxable income and net capital gains. Accordingly, no provision for federal income taxes is required. The timing and characterization of certain income and capital gains distributions are determined annually in accordance with Federal tax regulations which may differ from accounting principles generally accepted in the United States of America. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for the reporting period may differ from distributions during such period. These book/tax differences may be temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in-capital or accumulated net realized gain, as appropriate, in the period that the differences arise. Accordingly, the following permanent differences, primarily attributable to net operating losses and reclass of distributions for tax purposes have been reclassified: Undistributed Net Accumulated Paid Investment Realized in Income (Loss) Gain Capital (000) (000) (000) ----------------- ----------- ------- Strategic Growth Fund $158 $-- $(158) Tax Managed Equity Fund (15) 15 -- These reclassifications have no effect on net assets or net asset values per share. Bishop Street Funds 68 - -------------------------------------------------------------------------------- The tax character of dividends and distributions paid during the years ended December 31, 2003 and December 31, 2002 were as follows: Ordinary Tax Exempt Long-Term Income Income Capital Gain Total (000) (000) (000) (000) -------- ---------- ------------ ------- Equity Fund 2003 $ 653 $ -- $ -- $ 653 2002 420 -- -- 420 Strategic Growth Fund 2003 $ -- $ -- $ -- $ -- 2002 -- -- -- -- Tax Managed Equity Fund 2003 $ 250 $ -- $ -- $ 250 2002 33 -- -- 33 High Grade Income Fund 2003 $5,273 $ -- $2,577 $7,850 2002 5,850 -- -- 5,850 Hawaii Municipal Bond Fund 2003 $ 14 $7,326 $1,872 $9,212 2002 -- 7,582 733 8,315 Money Market Fund 2003 $1,740 $ -- $ -- $1,740 2002 3,690 -- -- 3,690 Treasury Money Market Fund 2003 $2,386 $ -- $ -- $2,386 2002 4,508 -- -- 4,508 December 31, 2003 69 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- As of December 31, 2003, the components of Distributable Earnings (Accumulated Losses) on a tax basis were as follows: Treasury Strategic Tax High Grade Hawaii Money Money Equity Growth Managed Income Municipal Market Market Fund Fund Equity Fund Fund Bond Fund Fund Fund (000) (000) (000) (000) (000) (000) (000) -------- --------- ----------- ---------- --------- ------ -------- Undistributed ordinary income $ 9 $ -- $ 7 $ 425 $ 72 $ 117 $ 172 Undistributed tax exempt income -- -- -- -- 5 -- -- Undistributed long-term capital gain -- -- -- 11 130 -- -- Capital loss carryforwards expiring: Dec. 2005 -- -- -- -- -- (2) -- Dec. 2008 -- -- -- -- -- (2) -- Dec. 2009 (38,258) -- -- -- -- (18) -- Dec. 2010 (25,686) (1,049) -- -- -- -- -- Dec. 2011 (1,697) -- -- -- -- -- -- Post-October Losses -- -- -- (57) -- -- -- Other Temporary Differences -- (22) (21) (423) 31 (118) (148) Unrealized appreciation 15,831 7,922 6,123 5,608 12,456 -- -- For Federal income tax purposes, capital loss carryforwards represent realized losses of the Funds that may be carried forward for a maximum period of eight years and applied against future capital gains. During the year ended December 31, 2003, the Strategic Growth Fund, the High Grade Income Fund and the Treasury Money Market Fund, utilized capital loss carryforwards of $310,043, $2,068,477 and $11,795, respectively, to offset realized capital gains. Post-October losses represent losses realized on investment transactions from November 1, 2003 through December 31, 2003 that, in accordance with Federal income tax regulations the Funds have elected to defer and treat as having arisen in the following fiscal year. Bishop Street Funds 70 The aggregate gross unrealized appreciation and depreciation of securities held by the Equity Fund, Strategic Growth Fund, Tax Managed Equity Fund, High Grade Income Fund, and Hawaii Municipal Bond Fund for Federal income tax purposes at December 31, 2003 were as follows: Strategic Tax High Grade Hawaii Equity Growth Managed Income Municipal Fund Fund Equity Fund Fund Bond Fund (000) (000) (000) (000) (000) -------- --------- ----------- ---------- --------- Federal Tax Cost $175,293 $38,963 $28,677 $149,371 $169,318 -------- ------- ------- -------- -------- Gross Unrealized Appreciation 23,605 8,267 6,301 5,913 12,518 Gross Unrealized Depreciation (7,774) (345) (178) (305) (62) -------- ------- ------- -------- -------- Net Unrealized Appreciation $ 15,831 $ 7,922 $ 6,123 $ 5,608 $ 12,456 ======== ======= ======= ======== ======== 9. CONCENTRATION OF CREDIT RISK The Hawaii Municipal Bond Fund invests primarily in debt instruments in the state of Hawaii. The issuers' ability to meet their obligations may be affected by economic developments in that state. 10. OTHER In the normal course of business, the Funds enters into contracts that provide general indemnifications. The Funds' maximum exposure under these arrangements is dependent on future claims that may be made against the Funds and, therefore, cannot be established; however, based on experience, the risk of loss from such claim is considered remote. 11. SUBSEQUENT EVENT The Bishop Street Funds Board of Trustees approved to change the voluntary expense cap for the Hawaii Municipal Bond Fund from 45 basis points to 55 basis points effective January 1, 2004. December 31, 2003 71 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS To the Board of Trustees and Shareholders of Bishop Street Funds: In our opinion, the accompanying statements of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Equity, Strategic Growth, Tax Managed Equity, High Grade Income, Hawaii Municipal Bond, Money Market and Treasury Money Market Funds (constituting Bishop Street Funds, hereafter referred to as the "Fund") at December 31, 2003, the results of each of their operations for the year then ended and the changes in each of their net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 13, 2004 Bishop Street Funds 72 - -------------------------------------------------------------------------------- NOTICE TO SHAREHOLDERS OF BISHOP STREET FUNDS (Unaudited) For shareholders that do not have a December 31, 2003 taxable year end, this notice is for informational purposes only. For shareholders with a December 31, 2003 tax year end, please consult your tax advisor as to the pertinence of this notice. For the fiscal year ended December 31, 2003, each fund has designated the following items with regard to distributions paid during the year: (A) (B) (D) LONG TERM ORDINARY (A+B+C) CAPITAL GAINS INCOME (C) TOTAL DISTRIBUTIONS DISTRIBUTIONS TAX EXEMPT DISTRIBUTIONS FUND (TAX BASIS) (TAX BASIS) INTEREST (TAX BASIS) - ------ ------------- ------------- ---------- ------------- Equity 0% 100% 0% 100% Strategic Growth 0% 0% 0% 0% Tax Managed Equity 0% 100% 0% 100% High Grade Income 35% 65% 0% 100% Hawaii Municipal Bond 18% 2% 80% 100% Money Market 0% 100% 0% 100% Treasury Money Market 0% 100% 0% 100% (E) DIVIDENDS QUALIFYING FOR CORPORATE (F) DIVIDENDS QUALIFYING RECEIVABLE DIVIDEND FUND DEDUCTION(1) INCOME(2) - ------ -------------- ---------- Equity 100% 100% Strategic Growth 0% 0% Tax Managed Equity 100% 100% High Grade Income 0% 0% Hawaii Municipal Bond 0% 0% Money Market 0% 0% Treasury Money Market 0% 0% (1) QUALIFYING DIVIDENDS REPRESENT DIVIDENDS WHICH QUALIFY FOR THE CORPORATE DIVIDENDS RECEIVED DEDUCTION. (2) THE PERCENTAGE IN THIS COLUMN REPRESENTS THE AMOUNT OF "QUALIFYING DIVIDEND INCOME" AS REQUIRED BY THE JOBS AND GROWTH TAX RELIEF RECONCILIATION ACT OF 2003 AND IS REFLECTED AS A PERCENTAGE OF "ORDINARY INCOME DISTRIBUTIONS." IT IS THE INTENTION OF THE FUND TO DESIGNATE THE MAXIMUM AMOUNT PERMITTED BY THE LAW. * ITEMS (A) AND (B) ARE BASED ON THE PERCENTAGE OF EACH FUND'S TOTAL DISTRIBUTION. ** ITEMS (D) AND (E) ARE BASED ON A PERCENTAGE OF ORDINARY INCOME DISTRIBUTIONS OF EACH FUND. December 31, 2003 73 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- Board of Trustees and Officers TERM OF POSITION OFFICE AND PERSONAL HELD WITH THE LENGTH OF INFORMATION(1) COMPANY TIME SERVED(2) - ---------------------------------------- ------------- ------------ INDEPENDENT BOARD MEMBERS [Photo Omitted] MR. MARTIN ANDERSON Trustee Since 1994 80 [Photo Omitted] MR. CHARLES E. CARLBOM* Trustee Since 1999 69 [Photo Omitted] MR. PETER F. SANSEVERO Trustee Since 1999 70 [Photo Omitted] MR. MANUEL R. SYLVESTER Trustee Since 1994 73 [Photo Omitted] DR. JOYCE S. TSUNODA Trustee Since 1994 65 Bishop Street Funds 74 (UNAUDITED) - -------------------------------------------------------------------------------- NUMBER OF PORTFOLIOS IN BISHOP STREET OTHER FUNDS COMPLEX DIRECTORSHIPS PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY DURING PAST 5 YEARS BOARD MEMBER(3) BOARD MEMBER(4) - --------------------------------------------- ------------- ------------- PARTNER -- Goodsill, Anderson, Quinn & Stifel 7 None since 1951 CHAIRMAN -- B.P.I., Inc. since 1999 7 None PRESIDENT AND CEO -- United Grocers, Inc. (1997-1999) Western Family Food, Inc. Western Family Holdings, Inc. (1982-1997) REGIONAL DIRECTOR OF THE NORTHWESTERN REGION AND 7 None FIRST VICE PRESIDENT -- Merrill Lynch (1958-1997) RETIRED SINCE 1992 7 None VICE PRESIDENT FOR INTERNATIONAL EDUCATION -- 7 None University of Hawaii System since January 2003 CHANCELLOR FOR COMMUNITY COLLEGES -- University of Hawaii since 1983 SENIOR VICE PRESIDENT -- University of Hawaii 1989-2003 VICE PRESIDENT, INTERNATIONAL EDUCATION, University of Hawaii, 2003-present December 31, 2003 75 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- Board of Trustees and Officers TERM OF POSITION(S) OFFICE AND PERSONAL HELD WITH THE LENGTH OF INFORMATION(1) COMPANY TIME SERVED(2) - -------------------------------------- ------------- ------------ INTERESTED BOARD MEMBERS(5) [Photo Omitted] MR. PHILLIP H. CHING Trustee Since 1994 72 President [Photo Omitted] MR. ROBERT A. NESHER Chairman of Since 1998 57 the Board of Trustees [Photo Omitted] HONORABLE WILLIAM S. RICHARDSON** Trustee Since 1994 84 OFFICERS Peter J. Golden Treasurer 2 39 & Controller John Munch Vice President 2 32 and Secretary Bishop Street Funds 76 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------ NUMBER OF PORTFOLIOS IN BISHOP STREET OTHER FUNDS COMPLEX DIRECTORSHIPS PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY DURING PAST 5 YEARS BOARD MEMBER(3) BOARD MEMBER(4) - ----------------------------------------- ------------- ------------- RETIRED SINCE 1996 7 None VICE CHAIRMAN -- First Hawaiian Bank (1968-1996) TRUSTEE OF: THE ADVISORS' INNER CIRCLE FUND, THE ARBOR FUND, EXPEDITION CURRENTLY PERFORMS VARIOUS SERVICES ON BEHALF OF 7 FUNDS, SEI ASSET ALLOCATION TRUST, SEI SEI INVESTMENTS FOR WHICH MR. NESHER IS COMPENSATED. DAILY INCOME TRUST, SEI INDEX FUNDS, EXECUTIVE VICE PRESIDENT -- SEI Investments (1986-1994) SEI INSTITUTIONAL INVESTMENTS TRUST, DIRECTOR AND EXECUTIVE VICE PRESIDENT OF THE ADVISER, SEI INSTITUTIONAL MANAGED TRUST, THE ADMINISTRATOR AND THE DISTRIBUTOR (1981-1994) SEI INSTITUTIONAL INTERNATIONAL TRUST, SEI LIQUID ASSET TRUST AND SEI TAX EXEMPT TRUST. RETIRED SINCE 1992 7 None Director, SEI Investments, Fund Accounting and N/A N/A Administration since June 2001. Vice President, Fund Administration, J.P. Morgan Chase & Co., 2000-2001; Vice President, Fund & Pension Accounting, Chase Manhattan Bank, 1997-2000. Vice President and Assistant Secretary of the N/A N/A Administrator and Distributor since November 2001; Associate at Howard Rice Nemorovoski Canady Falk & Rabin, 1998-2001; Associate at Seward & Kissel, 1996-1998. December 31, 2003 77 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- TERM OF POSITION(S) OFFICE AND PERSONAL HELD WITH THE LENGTH OF INFORMATION(1) COMPANY TIME SERVED(2) - -------------------------------------- ------------- ------------ Lydia A. Gavalis Vice President and 5 39 Assistant Secretary Timothy D. Barto Vice President and 3 35 Assistant Secretary William E. Zitelli Vice President and 3 35 Assistant Secretary Christine M. McCullough Vice President and 3 43 Assistant Secretary Lori Foo Vice President and 2 46 Assistant Secretary John Munera Vice President and 1 40 Assistant Secretary * AS OF JANUARY 30, 2004, MR. CARLBOM TENDERED HIS RESIGNATION AS A TRUSTEE OF THE BISHOP STREET FUNDS. ** AS OF JANUARY 30, 2004, HONORABLE RICHARDSON TENDERED HIS RESIGNATION AS A TRUSTEE OF THE BISHOP STREET FUNDS. 1 EACH TRUSTEE MAY BE CONTACTED BY WRITING TO THE TRUSTEE C/O BISHOP STREET FUNDS, PO BOX 3708, HONOLULU, HI 96811. EACH OFFICER MAY BE CONTACTED BY WRITING TO THE OFFICER C/O SEI INVESTMENTS, ONE FREEDOM VALLEY DRIVE, OAKS, PA 19456. 2 EACH TRUSTEE SHALL HOLD OFFICE DURING THE LIFETIME OF THIS TRUST UNTIL THE ELECTION AND QUALIFICATION OF HIS OR HER SUCCESSOR, OR UNTIL HE OR SHE SOONER DIES, RESIGNS OR IS REMOVED IN ACCORDANCE WITH THE TRUST'S DECLARATION OF TRUST. 3 THE "BISHOP STREET FUNDS COMPLEX" CONSISTS OF ALL REGISTERED INVESTMENT COMPANIES FOR WHICH BISHOP STREET CAPITAL MANAGEMENT SERVES AS INVESTMENT ADVISER. AS OF DECEMBER 31, 2003, THE BISHOP STREET FUNDS COMPLEX CONSISTED OF 7 FUNDS. Bishop Street Funds 78 (UNAUDITED) - ------------------------------------------------------------------------------------------------- NUMBER OF PORTFOLIOS IN BISHOP STREET OTHER FUNDS COMPLEX DIRECTORSHIPS PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY DURING PAST 5 YEARS BOARD MEMBER(3) BOARD MEMBER(4) - --------------------------------------------- --------------- --------------- Vice President and Assistant Secretary of SEI N/A N/A Investments, SEI Investments Global Funds Services and SEI Investments Distribution Co. since 1998; Assistant General Counsel and Director of Arbitration, Philadelphia Stock Exchange from 1989-1998. Vice President and Assistant Secretary of SEI N/A N/A Investments Global Funds Services and SEI Investments Distribution Co. since 1999; Associate, Dechert (law firm) from 1997-1999. Vice President and Assistant Secretary of SEI N/A N/A Investments Global Funds Services and SEI Investments Distribution Co. since 2000; Vice President, Merrill Lynch & Co. Asset Management Group from 1998-2000; Associate at Pepper Hamilton LLP from 1997-1998. Vice President and Assistant Secretary of SEI N/A N/A Investments Global Funds Services and SEI Investments Distribution Co. since 1999; Associate at White and Williams LLP from 1991-1999. Assistant Vice President of First Hawaiian Bank since N/A N/A 2000; Employed by First Hawaiian Bank since 1994. Middle Office Compliance Officer of the Administrator N/A N/A and Distributor since 2000; Supervising Examiner at the Federal Reserve Bank of Philadelphia from 1998-2000. 4 DIRECTORSHIPS OF COMPANIES ARE REQUIRED TO REPORT TO THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES EXCHANGE ACT OF 1934 (I.E., "PUBLIC COMPANIES") OR OTHER INVESTMENT COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED. 5 MESSRS. CHING, NESHER AND RICHARDSON ARE TRUSTEES WHO MAY BE DEEMED TO BE AN "INTERESTED PERSON" OF THE TRUST, AS THAT TERM IS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED. FOR MORE INFORMATION REGARDING THE TRUSTEES AND OFFICERS, PLEASE REFER TO THE STATEMENT OF ADDITIONAL INFORMATION, WHICH IS AVAILABLE UPON REQUEST BY CALLING 1-800-262-9565. December 31, 2003 79 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- NOTES [Background Compass Graphic Omitted] INVESTMENT ADVISER BISHOP STREET CAPITAL MANAGEMENT HONOLULU, HI 96813 ADMINISTRATOR SEI INVESTMENTS GLOBAL FUNDS SERVICES OAKS, PA 19456 DISTRIBUTOR SEI INVESTMENTS DISTRIBUTION CO. OAKS, PA 19456 TRANSFER AGENT DST SYSTEMS, INC. KANSAS CITY, MO 64141 CUSTODIAN UNION BANK OF CALIFORNIA, N.A. SAN FRANCISCO, CA 94101 LEGAL COUNSEL MORGAN, LEWIS & BOCKIUS LLP PHILADELPHIA, PA 19103 AUDITORS PRICEWATERHOUSECOOPERS LLP PHILADELPHIA, PA 19103 [Bishop Street Funds Logo Omitted] For more information about Bishop Street Funds, Call 1-800-262-9565 or your Investment Specialist Visit us online at www.bishopstreetfunds.com [Bishop Street Funds Logo Omitted] BISHOP STREET FUNDS P.O. BOX 3708 HONOLULU, HI 96811 THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF BISHOP STREET FUNDS' SHAREHOLDERS. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. SHARES OF BISHOP STREET FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY FIRST HAWAIIAN BANK OR ANY OF ITS AFFILIATES. SUCH SHARES ARE ALSO NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENT IN SHARES OF MUTUAL FUNDS INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE BISHOP STREET FUNDS ARE DISTRIBUTED BY SEI INVESTMENTS DISTRIBUTION CO., WHICH IS NOT AFFILIATED WITH FIRST HAWAIIAN BANK, BANK OF THE WEST OR BANCWEST CORPORATION. BANCWEST CORPORATION IS A WHOLLY-OWNED SUBSIDIARY OF BNP PARIBAS. BSF-AR-006-0900 ITEM 2. CODE OF ETHICS. The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, comptroller or principal accounting officer, and any person who performs a similar function. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT (a)(1) The registrant's Board of Trustees has determined that the registrant has at least one audit committee financial expert serving on the audit committee. (a)(2) The audit committee financial expert is Manuel R. Sylvester and is independent as defined in Form N-CSR Item 3 (a) (2). ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Fees billed by PriceWaterhouseCoopers LLP Related to the Funds PriceWaterhouseCoopers LLP billed the Funds aggregate fees for services rendered to the Funds for the last two fiscal years as follows: - ------------------ ----------------------------------------------------- ----------------------------------------------------- 2003 2002 - ------------------ ----------------------------------------------------- ----------------------------------------------------- All fees and All fees and All other fees All fees and All fees and All other fees services to the services to and services to services to the services to and services to Trust that were service service Trust that were service service pre-approved affiliates that affiliates that pre-approved affiliates that affiliates that were did not require were did not require pre-approved pre-approval pre-approved pre-approval - ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- (a) Audit $ 90,500 N/A $ 0 $ 85,000 N/A $ 0 Fees(1) - ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- (b) Audit- $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Related Fees - ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- (c) Tax $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Fees - ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- (d) All $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Fees - ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- Notes: (1) Audit fees include amounts related to the audit of the registrant's annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. (e)(1) Not applicable. (e)(2) Percentage of fees billed applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows: ---------------------------- ----------------- ---------------- 2003 2002 ---------------------------- ----------------- ---------------- Audit-Related Fees 0 % 0 % ---------------------------- ----------------- ---------------- Tax Fees 0 % 0 % ---------------------------- ----------------- ---------------- All Other Fees 0 % 0 % ---------------------------- ----------------- ---------------- (f) Not applicable (g) The aggregate non-audit fees and services billed by PriceWaterhouseCoopers LLP for the last two fiscal years were $0 for 2003 and $0 for 2002. (h) Not applicable ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. (RESERVED) ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED- END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PURCHASERS OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 9. CONTROLS AND PROCEDURES. (a) The certifying officers, whose certifications are included herewith, have evaluated the registrant's disclosure controls and procedures within 90 days of the filing date of this report. In their opinion, based on their evaluation, the registrant's disclosure controls and procedures are adequately designed, and are operating effectively to ensure, that information required to be disclosed by the registrant in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no significant changes in the registrant's internal control over financial reporting that occurred during the registrant's last fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. ITEMS 10. EXHIBITS. (a)(1) Code of Ethics attached hereto. (a)(2) A separate certification for the principal executive officer and the principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), are filed herewith. (b) Officer certifications as required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing as an Exhibit. SIGNATURES Pursuant to the requirements of the securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Bishop Steet Funds By (Signature and Title)* /s/Robert A. Nesher ----------------------------------------- Robert A. Nesher, Trustee, Chairman and President of the Board of Trustees Date 02/24/04 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/Robert A. Nesher --------------------------------------- Date 02/24/04 Robert A. Nesher, Trustee, Chairman and President of the Board of Trustees By (Signature and Title)* /s/Peter J. Golden ----------------------------------------- Peter J. Golden, Treasurer and Controller Date 02/24/04 o Print the name and title of each signing officer under his or her signature.