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) -------- c/o The CT Corporation System 2 Oliver Street Boston, MA 02109 (Address of principal executive offices) (Zip code) SEI Investments Company Oaks, PA 19456 (Name and address of agent for service) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-888-462-5386 DATE OF FISCAL YEAR END: DECEMBER 31, 2004 DATE OF REPORTING PERIOD: DECEMBER 31, 2004 ITEM 1. REPORTS TO STOCKHOLDERS. [BACKGROUND COMPASS GRAPHIC OMITTED] BISHOP STREET FUNDS ANNUAL REPORT DECEMBER 31, 2004 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] The Funds' Forms N-Q are available on the Commission's website at http://www.sec.gov, and may be reviewed and copied at the Commission's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. A description of the policies and procedures that the Funds use to determine how to vote proxies (if any) relating to portfolio securities is available without charge, by calling 1-800-262-9565 or by visiting the Commission's website at http://www.sec.gov. Information regarding how the Funds voted proxies relating to portfolio securities during the most recent twelve-month period ended December 31 is available without charge, by calling 1-800-262-9565 or by visiting the Funds' website at http://www.bishopstreetfunds.com or the website of the Securities and Exchange Commission. - -------------------------------------------------------------------------------- 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 ........................................ 34 Statement of Net Assets ...................................... 36 MONEY MARKET & TREASURY MONEY MARKET FUNDS Management Discussion ........................................ 46 Statements of Net Assets ..................................... 48 STATEMENTS OF OPERATIONS ........................................... 56 STATEMENTS OF CHANGES IN NET ASSETS ................................ 58 FINANCIAL HIGHLIGHTS ............................................... 62 NOTES TO FINANCIAL STATEMENTS ...................................... 66 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ............ 74 DISCLOSURE OF FUND EXPENSES ........................................ 75 NOTICE TO SHAREHOLDERS ............................................. 77 BOARD OF TRUSTEES AND OFFICERS ..................................... 78 1 - -------------------------------------------------------------------------------- BISHOP STREET LETTER TO SHAREHOLDERS FUNDS - -------------------------------------------------------------------------------- [Gregory E. Ratte Photo Omitted] "SUCCESS IS THE ABILITY TO GO FROM ONE FAILURE TO ANOTHER WITH NO LOSS OF ENTHUSIASM". - Sir Winston Churchill As we look back at 2004, what lessons can we learn that will help us to better navigate through 2005? First, we review what went right, what went wrong, and where our crystal ball failed us. (Learning from setbacks greatly increases the odds of success in the future.) On the economic front, our predictions of 4-5% in Gross Domestic Product growth, no Federal Reserve ("Fed") tightening until mid-year and a weaker dollar, in hindsight, looked pretty good. With that said, at the beginning of the year, we did not see oil spiking to over $50 a barrel. Even back in the low $40s where it ended the year, oil remained a much more significant risk to the economy than was anticipated. We also felt that the U.S. dollar would likely remain weak in 2004, but the magnitude of the decline was larger than expected. Given this decline, and the impact of the strong Euro on European growth, currency volatility will be one of the key stress points of the global system in 2005. Regarding profits and the stock market, we were optimistic, but not nearly enough so. Our forecast of low double-digit growth in earnings per share compares with what will likely be an almost 20% growth rate, surpassing even 2003's impressive performance. Finally, on interest rates, our call on the Fed was right, but our expectation of the upward pressure that this would put on longer-term interest rates was, in Wall Street parlance, "early" (Main Street for "wrong"). Despite clear language by the Fed signaling its desire to see interest rates higher across the curve, Bishop Street Funds 2 - -------------------------------------------------------------------------------- [BISHOP STREET FUNDS LOGO OMITTED] - -------------------------------------------------------------------------------- investors chose to focus on both moderate growth and moderate inflation, and 10-year Treasury rates actually ended a fraction of a percent below where they started the year. So where does this review of our forecasts lead us? Back to Sir Winston's adage; wiser but no less enthusiastic about the opportunity for future success. 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, 2004 3 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET INVESTMENT ADVISER'S REPORT FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISER'S REPORT Among the top developments of 2004 was the precipitous rise in the price of oil, driven by surging Asian (mainly Chinese) demand, supply disruptions, and secular shrinkage in reserves. Although the price has moderated from its mid-$50s peak, its "normalized" price looks to be significantly and persistently higher than was ever envisioned at the beginning of the year. Rather unsurprisingly, therefore, in the stock market, Energy was the best performing sector of 2004, followed (rather surprisingly) by Utilities. What was true of oil was also true of most basic materials in 2004, as industrial growth in China (and a rebounding global economy) continued to stretch the world's reserves of steel, aluminum, and copper. For U.S. firms, this meant higher input costs at a time when global competition limited the ability to pass through these increases. The year-long slide in the dollar (a positive for international sales, but a negative for most domestic companies) also raised producer costs. Profit margins, however, continued to be robust-so much so that analysts actually under-estimated the earning power of the S&P 500 Index in 2004 by the largest margin since 1988. For some context, consider that positive surprises of this kind have happened only five times since the mid-80's, twice in the last two years. Continued productivity gains and low long-term interest rates neutralized the effects on profit margins of higher commodity costs and a weaker dollar. Earnings were higher than consensus estimates, boosting a market that, until the fourth quarter, looked quite troubled. The market gained further momentum by an end-of-year moderation in oil prices and, probably more importantly, the resolution of the presidential election. Ultimately, American corporations ended the year in good shape, with stronger corporate balance sheets. Higher corporate liquidity and the rising stock market also prompted an increase in merger and acquisition activities, share buybacks, and dividend payouts. Finally, IPO activity was higher in 2004 than in 2003, though still a far cry from the go-go 1990s. Bishop Street Funds 4 - -------------------------------------------------------------------------------- [BISHOP STREET FUNDS LOGO OMITTED] - -------------------------------------------------------------------------------- Looking into 2005, the outlook for the stock market is still good, but definitely not as good as last year. Earnings are likely to grow in line with economic expansion. However, given current valuations, we are unlikely to see an expansion in the price-earnings multiple investors are willing to pay for stocks. This translates into a respectable single-digit return opportunity, perhaps more modest than 2004, but still reflecting the performance of the overall economy. Interest rates in the major global economies remained surprisingly low in 2004. This is especially puzzling in the U.S., given reasonably strong Gross Domestic Product growth, steady productivity gains, a weak dollar, massive trade and fiscal deficits, and burgeoning levels of consumer and government debt. So why have bond yields remained so low? It appears that investors reassessed how quickly the Federal Reserve (the "Fed") would need to tighten monetary policy following the first Fed funds hike last June. As core inflation initially moved higher last spring, it appeared that the Fed was "behind the curve" and would need to raise its target rate sooner rather than later as a preventative measure. However, the U.S. economy subsequently slowed, with core inflation falling back to more tolerable levels. That reduced the need for aggressive Fed action. In addition, both consumer prices and inflation expectations remained constrained, despite the surprising increases in oil and commodity prices. Low interest rates are also consistent with an abundance of global capital and savings. Current account surpluses and savings rates in Asia and the Euro Zone have been rising sharply and have been more than sufficient to finance existing capital spending needs, as well as our rapidly growing U.S. current account deficit. Thus, while there is a risk that U.S. Treasury yields could spike sharply higher if foreign central banks ever tire of accumulating U.S. dollar assets, we do not expect that to happen in the near term. We also think that the market has recognized that the Fed has moved aggressively enough to stay ahead of the inflation curve, rather than lagging behind, as was the case in past cycles. December 31, 2004 5 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET INVESTMENT ADVISER'S REPORT FUNDS - -------------------------------------------------------------------------------- What might we expect in 2005? There is a lot to be concerned about. Financial imbalances loom large as our twin deficits (trade and government spending) expand to record levels. Geopolitical risks abound as we struggle to establish peace in the Middle East and continue our fight against terrorism. And as we witnessed over the holiday season, mother nature is certainly capable of dishing out its share of despair. We should expect the Fed to continue to raise interest rates at a measured pace, slowly removing the stimulus that helped our economy recover from the recession and shocks of 2001. With that said, abundant global savings and currency intervention do not mean that bond yields cannot rise. The U.S. bond market will eventually move with the business cycle, and longer-term yields are likely to follow short-term yields higher even as the Fed continues to reduce the level of monetary stimulus. For the near term, the benchmark 10-year Treasury yield appears stuck in a trading range between 4.00% and 4.75%. We expect that rates will remain in that range as long as the Fed continues moving at a "measured pace" to return its target rate back to neutral and there is no dramatic external shock to the global financial system. We expect corporate bonds to continue to do well even though yield spreads have now tightened back to 1997 levels, as corporate balance sheets remain strong and there is little evidence that credit quality is deteriorating. For bond investors, the risk remains that activities such as share buybacks and merger and acquisition activity will hurt bond holders since these activities favor shareholders. Also, mortgages and callable-agencies (i.e., U.S. agency securities that may be called by the issuer) should perform well as interest volatility subsides. Finally, for taxable investors, the relative value of municipal securities remains very high because of their superior after-tax yield. All in all, it should be an interest--ing year indeed! Bishop Street Funds 6 - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- Equity Fund - -------------------------------------------------------------------------------- The Bishop Street Equity Fund's Institutional Class returned 3.72% for 2004. These results reflect a bounce back in the equity market in the fourth quarter after essentially flat performance through the first three quarters of the year. Contributors to the market rally included continuing strong economic growth, an easing in the price of oil after a period of very rapid appreciation, and an end to the uncertainty of the election. Forecasts are for continued moderate- to-strong economic growth, although some deceleration in profit growth appears inevitable. For the year, strong performance in the Energy sector positively impacted the Bishop Street Equity Fund's (the "Fund") relative performance, although Energy shares were slightly weak in the fourth quarter due to the fall in oil prices. On the negative side, the Health Care and Information Technology sectors adversely impacted performance. The pharmaceutical industry, which has been mired in controversy, particularly contributed to lagging returns for the year. Sector weightings had negligible impact on relative performance. From a style standpoint, value stocks strongly outperformed growth stocks over the past year, just as they have over the last several years. Once again, small- capitalization stocks strongly outperformed large-capitalization stocks for the year. Neither of these market trends has been helpful to the Fund's relative performance. December 31, 2004 7 www.bishopstreetfunds.com Equity Fund - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE 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 12/97 12,031 11,339 12,553 10,137 11,927 12/98 16,007 15,087 16,141 10,300 13,711 12/99 19,908 18,739 19,537 10,575 17,363 12/00 16,683 15,649 17,759 10,931 17,644 12/01 12,411 10,612 15,647 11,101 15,970 12/02 9,300 8,689 12,189 11,367 12,698 12/03 11,776 10,975 15,687 11,581 16,732 12/04 12,214 11,345 17,393 11,958 18,718 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 - ----------------------------------------------------------- 3.72% -0.53% -9.31% 2.69% Institutional Class* - ----------------------------------------------------------- 3.37% -0.77% -9.55% -5.53% Class A** - ----------------------------------------------------------- -2.61% -2.71% -10.62% -6.53% Class A, with load*** - ----------------------------------------------------------- * Commenced operations on 01/30/97. ** Commenced operations on 06/14/99. *** Reflects 5.75% sales charge. + 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. General Electric 3.4% --------------------------------------------------------------------- 2. Exxon Mobil 3.3% --------------------------------------------------------------------- 3. Pfizer 3.3% --------------------------------------------------------------------- 4. Citigroup 3.0% --------------------------------------------------------------------- 5. American International Group 2.7% --------------------------------------------------------------------- 6. Johnson & Johnson 2.6% --------------------------------------------------------------------- 7. Microsoft 2.6% --------------------------------------------------------------------- 8. IAC/InterActiveCorp 2.6% --------------------------------------------------------------------- 9. Boston Scientific 2.4% --------------------------------------------------------------------- 10. Wal-Mart Stores 2.4% - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL.] - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ 16.6% Financials 14.8% Information Technology 14.1% Health Care 11.1% Industrials 10.1% Consumer Discretion 9.8% Energy 9.1% Consumer Staples 7.8% Short-Term Investments 4.6% Materials 2.0% Telecommunications - -------------------------------------------------------------------------------- +PERCENTAGES BASED ON TOTAL INVESTMENTS. EXCLUDES SECURITIES PURCHASED WITH CASH COLLATERAL RECEIVED FROM SECURITIES LENDING. STATEMENT OF NET ASSETS Market Value Shares (000) ------ ------ COMMON STOCK -- 98.5% CONSUMER DISCRETION -- 10.8% 41,230 Carnival $ 2,376 56,990 Comcast, Cl A* 1,897 44,932 Home Depot 1,920 168,953 IAC/InterActiveCorp* (A) 4,666 21,707 Mohawk Industries* 1,981 35,253 Omnicom Group (A) 2,973 73,310 Viacom, Cl B 2,668 -------- 18,481 -------- December 31, 2004 9 www.bishopstreetfunds.com Equity Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) ------ ------ CONSUMER STAPLES -- 9.7% 47,813 CVS $ 2,155 73,540 PepsiCo 3,839 61,290 Procter & Gamble 3,376 75,300 Sysco 2,874 81,790 Wal-Mart Stores 4,320 -------- 16,564 -------- ENERGY -- 10.5% 58,660 Devon Energy 2,283 118,750 Exxon Mobil 6,087 106,990 GlobalSantaFe (A) 3,543 54,290 Halliburton 2,130 58,668 Schlumberger Ltd. 3,928 -------- 17,971 -------- FINANCIALS -- 17.7% 25,550 AMBAC Financial Group (A) 2,098 35,933 American Express 2,026 74,295 American International Group 4,879 112,173 Citigroup 5,404 32,400 Goldman Sachs Group 3,371 90,400 JPMorgan Chase 3,526 71,650 Morgan Stanley 3,978 43,504 St. Paul Travelers 1,613 56,280 Wells Fargo 3,498 -------- 30,393 -------- HEALTH CARE -- 15.0% 42,050 Amgen* 2,698 123,707 Boston Scientific* 4,398 22,370 Eli Lilly 1,269 56,210 Forest Laboratories* (A) 2,522 17,661 Genzyme* 1,026 49,620 Gilead Sciences* 1,736 74,849 Johnson & Johnson 4,747 221,620 Pfizer 5,959 15,257 UnitedHealth Group 1,343 -------- 25,698 -------- Bishop Street Funds 10 Equity Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) ------ ------ INDUSTRIALS -- 11.8% 19,482 3M $ 1,599 168,305 General Electric 6,143 75,922 Pentair 3,307 86,090 Tyco International Ltd. (A) 3,077 27,460 Union Pacific 1,846 30,420 United Parcel Service/Georgia, Cl B 2,600 16,690 United Technologies 1,725 -------- 20,297 -------- INFORMATION TECHNOLOGY -- 15.8% 203,868 Applied Materials* (A) 3,486 101,020 Cisco Systems* 1,950 61,379 Dell* 2,587 188,990 Flextronics International Ltd.* 2,612 104,470 Intel 2,444 18,342 International Business Machines 1,808 23,732 Linear Technology 920 174,884 Microsoft 4,671 77,089 Paychex 2,627 23,120 Qualcomm 980 21,190 SAP ADR 937 81,808 Symantec* 2,107 -------- 27,129 -------- MATERIALS -- 5.0% 100,756 Alcoa 3,166 32,540 Dow Chemical (A) 1,611 84,160 Praxair 3,715 -------- 8,492 -------- TELECOMMUNICATIONS -- 2.2% 46,670 Verizon Communications 1,891 67,350 Vodafone Group ADR* (A) 1,844 -------- 3,735 -------- TOTAL COMMON STOCK (Cost $150,059) 168,760 -------- December 31, 2004 11 www.bishopstreetfunds.com Equity Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Face Amount Value (000)/Shares (000) ------------ ------ CORPORATE OBLIGATIONS (B) -- 4.6% FINANCIALS -- 4.6% Bear Stearns $ 1,594 2.463%, 01/05/05 $ 1,594 Bear Stearns MTN (C) 1,593 2.412%, 01/12/06 1,595 First Tennessee Bank MTN (C) 3,187 2.330%, 06/07/05 3,186 Lehman Brothers MTN (C) 1,593 2.403%, 05/16/05 1,593 -------- TOTAL CORPORATE OBLIGATIONS (Cost $7,968) 7,968 -------- COMMERCIAL PAPER (B)(C) -- 1.9% Morgan Stanley 3,187 2.393%, 02/18/05 3,187 -------- TOTAL COMMERCIAL PAPER (Cost $3,187) 3,187 -------- CASH EQUIVALENTS -- 8.3% 7,110,423 Dreyfus Cash Management Fund 7,110 7,110,423 Fidelity Institutional Money Market Fund 7,110 -------- TOTAL CASH EQUIVALENTS (Cost $14,220) 14,220 -------- REPURCHASE AGREEMENT (B) -- 7.1% Lehman Brothers 2.383%, dated 12/31/04, to be repurchased on 01/03/05, repurchase price $12,156,556, (collateralized by Asset-Backed and CMO Securities, ranging in par value $1,000- $94,780,051, 0.010%-7.000%, 05/25/05-07/10/37; 12,156 total market value $12,764,974) 12,156 -------- TOTAL REPURCHASE AGREEMENT (Cost $12,156) 12,156 -------- TOTAL INVESTMENTS (COST $187,590) -- 120.4% 206,291 -------- OTHER ASSETS AND LIABILITIES -- (20.4)% Payable Upon Return of Securities Loaned (23,311) Payable for Investment Securities Purchased (11,614) Payable for Capital Shares Redeemed (114) Investment Adviser Fees Payable (79) Administrative Fees Payable (15) Shareholder Servicing Fees Payable (13) Other Assets and Liabilities, Net 151 -------- TOTAL OTHER ASSETS AND LIABILITIES (34,995) -------- NET ASSETS -- 100% $171,296 ======== Bishop Street Funds 12 Equity Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Value (000) ----- NET ASSETS: Fund Shares (unlimited authorization -- no par value) $216,256 Accumulated Net Realized Loss on Investments (63,661) Net Unrealized Appreciation on Investments 18,701 -------- NET ASSETS $171,296 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- INSTITUTIONAL CLASS ($169,685,003 / 17,359,079 SHARES) $ 9.78 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- CLASS A ($1,611,379 / 165,819 SHARES) $ 9.72 ======== MAXIMUM OFFERING PRICE PER SHARE -- CLASS A SHARES ($9.72 / 94.25%) $ 10.31 ======== * NON-INCOME PRODUCING SECURITY (A) THE SECURITY OR A PORTION OF THIS SECURITY IS ON LOAN AT DECEMBER 31, 2004 (SEE NOTE 5 IN THE NOTES TO FINANCIAL STATEMENTS). THE TOTAL VALUE OF SECURITIES ON LOAN AT DECEMBER 31, 2004 WAS $22,463,800. (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, 2004 WAS $23,310,503. (C) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS IS THE RATE IN EFFECT ON DECEMBER 31, 2004. THE MATURITY DATE SHOWN IS THE NEXT SCHEDULED RESET DATE. ADR -- AMERICAN DEPOSITARY RECEIPT CL -- CLASS CMO -- COLLATERALIZED MORTGAGE OBLIGATION LTD. -- LIMITED MTN -- MEDIUM TERM NOTE COST FIGURES ARE SHOWN WITH "000S" OMITTED. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2004 13 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- Strategic Growth Fund - -------------------------------------------------------------------------------- The Strategic Growth Fund (the "Fund") returned 9.64% for the year as a strong rally in the fourth quarter more than compensated for the weak market during the first three quarters. In particular, strong stock selection in the Consumer Discretion and Health Care sectors offset weakness in the Energy and Information Technology sectors. Key macro drivers to the Fund's strong finish in 2004 were the removal of uncertainties hanging over the market, including the end of a rancorous election campaign and a weakening in energy prices. Because of the positioning of the portfolio, these elements aided fourth quarter performance. We continue to believe that the U.S. economy is on track for solid growth in 2005, and expect corporate earnings to reflect this more than currently anticipated by investors. The weakness of European and Japanese trends and, to a lesser extent, the very temporary impact of the tsunami catastrophe on Asia may, however, moderate the benefits for the equity markets. All in all, the outlook for the U.S. equity market is rather positive in the first half of the year, which should work in favor of the Fund, given its current positioning. Investors, however, remain relatively nervous, and we expect continued volatility in the first half of 2005, as companies release their 2004 results and refine their guidance for 2005. On the other hand, the U.S. economy is on track for solid growth in 2005, and we expect corporate earnings to reflect this more than currently expected by investors. Bishop Street Funds 14 Strategic Growth Fund - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE 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 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 10,056 8,915 6/03 10,309 10,233 10,026 10,214 10,002 12/03 11,928 11,559 11,543 10,246 11,562 6/04 12,328 11,873 11,941 10,545 11,950 12/04 13,077 12,267 12,799 10,580 12,844 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 ------------------------ 9.64% 11.35% 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, 2004 15 www.bishopstreetfunds.com Strategic Growth Fund - -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS+ - -------------------------------------------------------------------------------- Percentage of Investments --------------------------------------------------------------------- 1. RenaissanceRe Holdings 2.1% --------------------------------------------------------------------- 2. Staples 2.1% --------------------------------------------------------------------- 3. International Game Technology 2.1% --------------------------------------------------------------------- 4. Apollo Group, Cl A 2.1% --------------------------------------------------------------------- 5. Bed Bath & Beyond 2.1% --------------------------------------------------------------------- 6. Cognos 2.1% --------------------------------------------------------------------- 7. JetBlue Airways 2.1% --------------------------------------------------------------------- 8. BJ Services 2.1% --------------------------------------------------------------------- 9. Lowe's 2.1% --------------------------------------------------------------------- 10. Nextel Communications, Cl A 2.1% - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL.] - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ 20.2% Consumer Discretion 19.9% Financials 19.5% Information Technology 16.1% Industrials 15.8% Health Care 4.0% Energy 2.1% Telecommunications 1.9% Materials 0.5% Short-Term Investments - -------------------------------------------------------------------------------- +PERCENTAGES BASED ON TOTAL INVESTMENTS. STATEMENT OF NET ASSETS Market Value Shares (000) ------ ------ COMMON STOCK -- 99.3% CONSUMER DISCRETION -- 20.2% 41,500 Bed Bath & Beyond* $ 1,653 24,900 Best Buy 1,480 29,000 Coach* 1,636 27,000 Harley-Davidson 1,640 11,900 Harman International Industries 1,511 48,200 International Game Technology 1,657 28,600 Lowe's 1,647 44,700 PETsMART 1,588 49,400 Staples 1,665 31,800 Yum! Brands 1,500 ------- 15,977 ------- Bishop Street Funds 16 Strategic Growth Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) ------ ------ ENERGY -- 3.9% 35,400 BJ Services* $ 1,648 41,700 XTO Energy 1,475 ------- 3,123 ------- FINANCIALS -- 19.9% 28,700 Allstate 1,484 34,900 Bank of America 1,640 18,100 Capital One Financial 1,524 31,600 Citigroup 1,523 17,500 Everest Re Group Ltd. 1,567 15,700 Goldman Sachs Group 1,634 25,700 MBIA 1,626 17,400 Moody's 1,511 27,900 Morgan Stanley 1,549 32,100 RenaissanceRe Holdings 1,672 ------- 15,730 ------- HEALTH CARE -- 15.8% 22,500 Amgen* 1,443 40,600 Caremark Rx* 1,601 20,500 Express Scripts* 1,567 27,700 Genzyme* 1,609 46,300 Gilead Sciences* 1,620 99,000 IVAX* 1,566 17,900 UnitedHealth Group 1,576 13,000 WellPoint* 1,495 ------- 12,477 ------- INDUSTRIALS -- 16.1% 20,500 Apollo Group, Cl A* 1,654 68,300 Cendant 1,597 15,000 FedEx 1,477 71,100 JetBlue Airways* 1,651 21,800 L-3 Communications Holdings 1,597 42,500 Norfolk Southern 1,538 45,400 Tyco International Ltd. 1,623 15,300 United Technologies 1,581 ------- 12,718 ------- INFORMATION TECHNOLOGY -- 19.4% 56,500 Accenture Ltd., Cl A* 1,525 27,200 Affiliated Computer Services, Cl A* 1,637 24,700 Apple Computer* 1,591 38,700 Autodesk 1,469 90,100 Avaya* 1,550 37,500 Cognos* 1,652 34,400 Dell* 1,450 63,500 Intel 1,485 December 31, 2004 17 www.bishopstreetfunds.com Strategic Growth Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) ------ ------ INFORMATION TECHNOLOGY -- (CONTINUED) 58,200 Jabil Circuit* $ 1,489 24,700 Microchip Technology 658 79,500 Western Digital* 862 ------- 15,368 ------- MATERIALS -- 1.9% 30,000 United States Steel 1,537 ------- TELECOMMUNICATIONS -- 2.1% 54,700 Nextel Communications, Cl A* 1,641 ------- TOTAL COMMON STOCK (Cost $64,968) 78,571 ------- CASH EQUIVALENTS -- 0.4% 180,714 Dreyfus Cash Management Fund 181 180,714 Fidelity Institutional Money Market Fund 181 ------- TOTAL CASH EQUIVALENTS (Cost $362) 362 ------- TOTAL INVESTMENTS (COST $65,330) -- 99.7% 78,933 ------- OTHER ASSETS AND LIABILITIES -- 0.3% Payable for Investment Securities Purchased (128) Investment Adviser Fees Payable (45) Administrative Fees Payable (6) Shareholder Servicing Fees Payable (6) Other Assets and Liabilities, Net 420 ------- TOTAL OTHER ASSETS AND LIABILITIES 235 ------- NET ASSETS -- 100.0% $79,168 ======= NET ASSETS: Fund Shares (unlimited authorization -- no par value) $65,308 Accumulated Net Investment Loss (15) Accumulated Net Realized Gain on Investments 272 Net Unrealized Appreciation on Investments 13,603 ------- NET ASSETS $79,168 ======= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- INSTITUTIONAL CLASS ($79,167,774 / 6,051,922 SHARES) $ 13.08 ======= * NON-INCOME PRODUCING SECURITY CL -- CLASS LTD. -- LIMITED COST FIGURES ARE SHOWN WITH "000S" OMITTED. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Bishop Street Funds 18 - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- Tax Managed Equity Fund - -------------------------------------------------------------------------------- The Bishop Street Tax Managed Equity Fund (the "Fund") returned 6.40% for 2004. Overcoming the relative inertia of the prior three quarters in the final months of the year, the Fund portfolio advanced strongly with the overall equity market, propelled by a moderation in the price of oil and the resolution of the presidential election. The fourth quarter was noteworthy in the number of leading corporations that saw their market capitalizations shrink due to regulatory scrutiny. Among these affected behemoths were Pfizer, Merck, and AIG - -- all three Fund holdings, which negatively impacted both the overall quarterly and annual performance of the Fund. For the entire year of 2004, the Energy sector was the best performing group for the Fund, and the full effect of that performance was heightened by the relative sector overweight. Industrials also did well. On the other hand, lagging performance came in the Financials (particularly AIG and brokerage stocks) and Materials (specifically, aluminum) sectors. As in 2003, the Fund's tilt toward large-capitalization, growth stocks was again not in favor in 2004. In a repeat, albeit a muted one, the year saw small-capitalization stocks outperform large- capitalization stocks, value trounce growth, and risk win out. Looking forward, however, we expect that economic and profit growth will moderate and that earnings growth will follow the rate of economic expansion in 2005. Our 2005 equity forecast calls for a valuation multiple close to current levels. This, coupled with higher dividend payouts, will result in respectable returns in high single-digits, more modest than in 2004 but keeping with historical levels. In this type of moderate, steady growth environment, high-quality large-capitalization stocks, like those in the Fund, do best. December 31, 2004 19 www.bishopstreetfunds.com Tax Managed Equity Fund - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE 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 9,976 9,905 6/03 10,713 11,138 10,133 10,946 12/03 12,171 12,825 10,164 12,452 6/04 12,478 13,266 10,461 12,701 12/04 12,949 14,220 10,495 13,417 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 ------------------------ 6.40% 12.90% 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. Citigroup 4.1% --------------------------------------------------------------------- 2. Exxon Mobil 3.8% --------------------------------------------------------------------- 3. General Electric 3.1% --------------------------------------------------------------------- 4. Amgen 2.8% --------------------------------------------------------------------- 5. Microsoft 2.6% --------------------------------------------------------------------- 6. Johnson & Johnson 2.4% --------------------------------------------------------------------- 7. Wells Fargo 2.1% --------------------------------------------------------------------- 8. Wal-Mart Stores 2.1% --------------------------------------------------------------------- 9. IAC/InterActiveCorp 2.1% --------------------------------------------------------------------- 10. JPMorgan Chase 2.0% - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL.] - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ 19.6% Financials 16.1% Information Technology 12.2% Industrials 12.1% Consumer Discretion 10.9% Health Care 9.9% Energy 8.9% Consumer Staples 4.4% Materials 4.1% Telecommunications 1.8% Short-Term Investments - -------------------------------------------------------------------------------- +PERCENTAGES BASED ON TOTAL INVESTMENTS. STATEMENT OF NET ASSETS Market Value Shares (000) ------ ------ COMMON STOCK -- 98.0% CONSUMER DISCRETION -- 12.1% 4,300 Carnival $ 248 8,600 Comcast, Cl A* 286 3,500 eBay* 407 8,930 Home Depot 382 26,710 IAC/InterActiveCorp* 738 4,700 Mohawk Industries* 429 6,660 Omnicom Group 561 8,600 Target 446 December 31, 2004 21 www.bishopstreetfunds.com Tax Managed Equity Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) ------ ------ CONSUMER DISCRETION -- (CONTINUED) 14,750 Time Warner* $ 287 14,200 Viacom, Cl B 517 ------- 4,301 ------- CONSUMER STAPLES -- 8.9% 11,380 Avon Products 440 11,170 CVS 504 10,180 PepsiCo 531 11,940 Procter & Gamble 658 7,200 Sysco 275 14,240 Wal-Mart Stores 752 ------- 3,160 ------- ENERGY -- 9.9% 2,560 Anadarko Petroleum 166 6,820 ChevronTexaco 358 12,000 Devon Energy 467 26,100 Exxon Mobil 1,338 6,100 GlobalSantaFe 202 13,840 Halliburton 543 6,500 Schlumberger Ltd. 435 ------- 3,509 ------- FINANCIALS -- 19.6% 10,500 Allstate 543 7,580 American Express 427 3,600 American International Group 236 30,210 Citigroup 1,456 3,000 Goldman Sachs Group 312 17,790 JPMorgan Chase 694 8,320 MBIA 527 5,760 Merrill Lynch 344 8,210 Morgan Stanley 456 9,382 St. Paul Travelers 348 10,970 Wachovia 577 6,500 Washington Mutual 275 12,230 Wells Fargo 760 ------- 6,955 ------- HEALTH CARE -- 10.9% 15,400 Amgen* 988 13,800 Boston Scientific* 490 3,670 Genzyme* 213 5,000 Gilead Sciences* 175 13,360 Johnson & Johnson 847 Bishop Street Funds 22 Tax Managed Equity Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) ------ ------ HEALTH CARE -- (CONTINUED) 25,808 Pfizer $ 694 5,380 UnitedHealth Group 474 ------- 3,881 ------- INDUSTRIALS -- 12.1% 5,690 3M 467 5,030 General Dynamics 526 30,000 General Electric 1,095 4,900 Illinois Tool Works 454 14,760 Pentair 643 9,850 Tyco International Ltd. 352 4,840 United Parcel Service/Georgia, Cl B 414 3,560 United Technologies 368 ------- 4,319 ------- INFORMATION TECHNOLOGY -- 16.0% 23,500 Applied Materials* 402 25,480 Cisco Systems* 492 13,060 Dell* 550 25,200 Flextronics International Ltd.* 348 26,740 Intel 625 5,400 International Business Machines 532 5,070 Linear Technology 197 34,200 Microsoft 914 13,640 Paychex 465 10,520 Qualcomm 446 4,940 SAP ADR 218 20,000 Symantec* 515 ------- 5,704 ------- MATERIALS -- 4.4% 15,960 Alcoa 502 9,100 Dow Chemical 451 8,100 EI Du Pont de Nemours 397 5,220 Praxair 230 ------- 1,580 ------- TELECOMMUNICATIONS -- 4.1% 17,100 SBC Communications 440 13,030 Verizon Communications 528 18,000 Vodafone Group ADR* 493 ------- 1,461 ------- TOTAL COMMON STOCK (Cost $28,041) 34,870 ------- December 31, 2004 23 www.bishopstreetfunds.com Tax Managed Equity Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) ------ ------ CASH EQUIVALENTS -- 1.8% 313,662 Dreyfus Cash Management Fund $ 314 313,662 Fidelity Institutional Money Market Fund 314 ------- TOTAL CASH EQUIVALENTS (Cost $628) 628 ------- TOTAL INVESTMENTS (COST $28,669) -- 99.8% 35,498 ------- OTHER ASSETS AND LIABILITIES -- 0.2% Investment Adviser Fees Payable (15) Administrative Fees Payable (3) Shareholder Servicing Fees Payable (3) Other Assets and Liabilities, Net 98 ------- TOTAL OTHER ASSETS AND LIABILITIES 77 ------- NET ASSETS -- 100.0% $35,575 ======= NET ASSETS: Fund Shares (unlimited authorization -- no par value) $28,728 Accumulated Net Realized Gain on Investments 18 Net Unrealized Appreciation on Investments 6,829 ------- NET ASSETS $35,575 ======= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- INSTITUTIONAL CLASS ($35,574,830 / 2,888,380 SHARES) $ 12.32 ======= * NON-INCOME PRODUCING SECURITY ADR -- AMERICAN DEPOSITARY RECEIPT CL -- CLASS LTD. -- LIMITED COST FIGURES ARE SHOWN WITH "000S" OMITTED. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Bishop Street Funds 24 - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- High Grade Income Fund - -------------------------------------------------------------------------------- The bond market performed well in 2004 in spite of the 125-basis-point increase in the Federal funds rate for the year. Rising oil prices and solid economic growth failed to result in the long-anticipated sell-off in fixed-income assets. The 10-year and 30-year Treasuries ended the year below the closing levels of 2003 by 3 basis points and 25 basis points, respectively. Strong foreign central bank demand for U.S. fixed-income assets kept interest rates low. Japan and China were notable buyers of U.S. bonds, as they sought to stabilize currency fluctuations. The corporate bond sector, supported by improving company fundamentals, outperformed treasury and agency debt for the year, following similar performance in 2003. BBB rated credits outpaced AA rated credits by approximately 235 basis points, posting a total return of 6.15%. Treasury Inflation-Protected Securities ("TIPS") posted a solid 8.46% return as investors sought protection from higher oil and commodity prices. In the latter half of the year, our performance was helped by our overweight in corporate bonds and modestly long duration. However, the High Grade Income Fund Institutional Class's total return of 3.41% for the year 2004 was hindered by its under-exposure to higher risk credits, such as BBB-rated bonds. With spreads at their narrowest since 1998, the corporate bond sector may be poised for a modest pull back in 2005. The Federal Reserve (the "Fed") will probably continue to increase the Fed funds rate at a measured pace. The market expects moderately higher interest rates in 2005, but there is a risk that the market could repeat 2004 and surprise to the downside in yields. The domestic economy and foreign demand for U.S. bonds will be key components to bond performance in 2005. December 31, 2004 25 www.bishopstreetfunds.com High Grade Income Fund - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE 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 12/97 10,795 10,282 10,962 10,137 12/98 11,776 11,217 12,000 10,300 12/99 11,265 10,651 11,742 10,575 12/00 12,419 11,700 13,133 10,931 12/01 13,309 12,522 14,250 11,101 12/02 14,845 13,923 15,821 11,367 12/03 15,336 14,360 16,561 11,581 12/04 15,859 14,814 17,258 11,958 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 - ---------------------------------------------------------- 3.41% 6.02% 7.08% 6.00% Institutional Class* - ---------------------------------------------------------- 3.16% 5.76% 6.82% 6.12% Class A** - ---------------------------------------------------------- -1.77% 4.05% 5.78% 5.20% Class A, with load*** - ---------------------------------------------------------- * Commenced operations on 01/30/97. ** Commenced operations on 06/14/99. *** Reflects 4.75% sales charge. + 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 Bonds 7.250% 05/15/16 7.3% ---------------------------------------------------------------------------- 2. U.S. Treasury Bonds 5.375% 02/15/31 4.2% ---------------------------------------------------------------------------- 3. FNMA 3.750% 09/15/08 3.6% ---------------------------------------------------------------------------- 4. U.S. Treasury Bonds 6.250% 08/15/23 3.2% ---------------------------------------------------------------------------- 5. FNMA 7.250% 01/15/10 3.0% ---------------------------------------------------------------------------- 6. U.S. Treasury Bonds 7.500% 11/15/16 2.6% ---------------------------------------------------------------------------- 7. U.S. Treasury Bonds 6.375% 08/15/27 2.0% ---------------------------------------------------------------------------- 8. FHLMC MTN 4.850% 12/01/09 2.0% ---------------------------------------------------------------------------- 9. Morgan Stanley 6.600% 04/01/12 2.0% ---------------------------------------------------------------------------- 10. FNMA 2.540% 01/12/07 1.9% - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL.] - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ 31.2% U.S. Treasury Obligations 22.7% U.S. Government Obligations 22.7% Industrials 15.4% Financials 3.4% Utilities 3.3% Telecommunications 1.3% Short-Term Investments - -------------------------------------------------------------------------------- +PERCENTAGES BASED ON TOTAL INVESTMENTS. EXCLUDES SECURITIES PURCHASED WITH CASH COLLATERAL RECEIVED FROM SECURITIES LENDING. STATEMENT OF NET ASSETS Face Market Amount Value (000) (000) ------ ------- CORPORATE OBLIGATIONS -- 55.1% AEROSPACE & DEFENSE -- 4.7% Boeing $ 2,800 7.875%, 02/15/05 $ 2,816 General Dynamics 2,850 4.500%, 08/15/10 2,912 United Technologies (A) 1,500 6.350%, 03/01/11 1,671 -------- 7,399 -------- BANKS -- 1.7% Bank of America 2,600 4.875%, 01/15/13 2,645 -------- December 31, 2004 27 www.bishopstreetfunds.com High Grade Income Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ BIOTECHNOLOGY -- 1.6% Boston Scientific $ 1,500 4.250%, 01/12/11 $ 1,489 Pharmacia 1,000 5.750%, 12/01/05 1,024 -------- 2,513 -------- BROADCASTING & CABLE -- 1.2% TCI Communications 1,550 7.875%, 08/01/13 1,858 -------- COMPUTER HARDWARE -- 1.0% Dell 1,475 6.550%, 04/15/08 1,600 -------- DIVERSE FINANCIAL SERVICES -- 13.5% American General Finance MTN, Ser G 1,550 5.750%, 03/15/07 1,618 Citigroup 2,600 6.750%, 12/01/05 2,685 Countrywide Home Loan MTN, Ser H 1,500 6.250%, 04/15/09 1,617 Ford Motor Credit 700 7.375%, 10/28/09 755 Ford Motor Credit MTN 1,400 7.750%, 02/15/07 1,488 General Electric Capital MTN, Ser A 2,600 5.450%, 01/15/13 2,744 General Motors Acceptance 1,400 6.750%, 01/15/06 1,436 525 4.500%, 07/15/06 525 Goldman Sachs Group 2,600 6.600%, 01/15/12 2,902 JPMorgan Chase 1,500 3.500%, 03/15/09 1,470 Morgan Stanley 2,800 6.600%, 04/01/12 3,123 Unitrin 850 4.875%, 11/01/10 844 -------- 21,207 -------- FINANCIALS (B) -- 10.8% Bear Stearns 3,406 2.463%, 01/05/05 3,406 Bishop Street Funds 28 High Grade Income Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------- ------ FINANCIALS (B) -- (CONTINUED) Bear Stearns MTN (C) $ 3,407 2.412%, 01/12/06 $ 3,410 First Tennessee Bank MTN (C) 6,813 2.330%, 06/07/05 6,812 Lehman Brothers MTN (C) 3,407 2.403%, 05/16/05 3,407 -------- 17,035 -------- FOOD & BEVERAGE -- 1.1% ConAgra Foods 1,475 7.875%, 09/15/10 1,733 -------- FORESTRY -- 1.0% Weyerhaeuser (A) 1,420 6.750%, 03/15/12 1,600 -------- GENERAL MERCHANDISE -- 3.1% Sears Roebuck Acceptance 600 7.000%, 02/01/11 640 Target 1,300 6.350%, 01/15/11 1,449 Wal-Mart Stores 2,625 8.000%, 09/15/06 2,822 -------- 4,911 -------- HEALTH CARE -- 0.9% UnitedHealth Group 1,400 5.200%, 01/17/07 1,450 -------- HOUSEHOLD PRODUCTS -- 0.5% Rubbermaid 650 6.600%, 11/15/06 687 -------- MACHINERY - INDUSTRIAL -- 1.0% Masco 1,500 5.875%, 07/15/12 1,608 -------- OIL & GAS - EQUIPMENT/SERVICES -- 1.4% Baker Hughes 1,300 6.000%, 02/15/09 1,398 Kinder Morgan 750 6.800%, 03/01/08 810 -------- 2,208 -------- December 31, 2004 29 www.bishopstreetfunds.com High Grade Income Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ OIL & GAS - EXPLORATION/PRODUCTION -- 2.0% Anadarko Petroleum $ 1,250 7.200%, 03/15/29 $ 1,466 Ocean Energy 1,450 7.250%, 10/01/11 1,652 -------- 3,118 -------- PHARMACEUTICALS -- 1.8% Abbott Laboratories 2,700 6.400%, 12/01/06 2,851 -------- RETAIL - FOOD -- 0.7% McDonald's MTN, Ser E 1,000 5.950%, 01/15/08 1,060 -------- SEMI-CONDUCTORS -- 1.9% Constellation Energy Group (A) 1,400 7.000%, 04/01/12 1,596 Duke Energy (A) 1,425 4.200%, 10/01/08 1,436 -------- 3,032 -------- TELECOMMUNICATIONS -- 3.2% AT&T Wireless Services 1,550 7.350%, 03/01/06 1,621 GTE South, Ser C 750 6.000%, 02/15/08 791 Verizon Virginia, Ser A 1,400 4.625%, 03/15/13 1,365 Vodafone Group PLC 1,300 3.950%, 01/30/08 1,309 -------- 5,086 -------- TRANSPORTATION SERVICES -- 1.0% FedEx 1,340 7.250%, 02/15/11 1,530 -------- UTILITIES -- 1.0% Dominion Resources 1,500 4.125%, 02/15/08 1,510 -------- TOTAL CORPORATE OBLIGATIONS (Cost $85,683) 86,641 -------- Bishop Street Funds 30 High Grade Income Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ U.S. TREASURY OBLIGATIONS -- 30.8% U.S. Treasury Bonds $ 3,250 7.500%, 11/15/16 (A) $ 4,153 9,000 7.250%, 05/15/16 (A) 11,265 3,300 6.375%, 08/15/27 (A) 3,963 4,240 6.250%, 08/15/23 (A) 4,964 1,000 6.250%, 05/15/30 (A) 1,196 1,150 6.000%, 02/15/26 (A) 1,317 6,050 5.375%, 02/15/31 (A) 6,542 1,500 5.250%, 11/15/28 1,572 U.S. Treasury Bonds TIPS 1,613 3.375%, 04/15/32 2,135 1,013 2.000%, 07/15/14 1,045 U.S. Treasury Notes (A) 2,500 4.375%, 05/15/07 2,569 1,500 4.375%, 08/15/12 1,536 1,200 4.000%, 02/15/14 1,183 2,500 2.375%, 08/15/06 2,476 2,600 1.500%, 07/31/05 2,584 -------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $45,215) 48,500 -------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 22.4% FHLB 1,500 5.375%, 02/15/07 1,562 2,000 3.750%, 08/15/08 2,005 2,800 3.375%, 02/15/08 (A) 2,786 FHLMC 2,800 5.125%, 10/15/08 (A) 2,946 1,500 4.375%, 07/30/09 1,506 1,436 3.500%, 06/01/09 1,415 FHLMC MTN 3,100 4.850%, 12/01/09 3,125 FNMA 4,000 7.250%, 01/15/10 (A) 4,597 1,400 5.500%, 07/18/12 1,417 1,000 3.875%, 11/17/08 996 5,600 3.750%, 09/15/08 5,573 2,925 3.678%, 02/17/09 (C) 2,952 1,450 3.500%, 08/01/10 1,412 3,000 2.540%, 01/12/07 2,958 -------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $35,030) 35,250 -------- December 31, 2004 31 www.bishopstreetfunds.com High Grade Income Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Face Amount Value (000)/Shares (000) ------------ ------ COMMERCIAL PAPER (B)(C) -- 4.3% Morgan Stanley $ 6,813 2.393%, 02/18/05 $ 6,813 -------- TOTAL COMMERCIAL PAPER (Cost $6,813) 6,813 -------- CASH EQUIVALENTS -- 1.3% 1,007,638 Dreyfus Cash Management Fund 1,008 1,007,638 Fidelity Institutional Money Market Fund 1,008 -------- TOTAL CASH EQUIVALENTS (Cost $2,016) 2,016 -------- REPURCHASE AGREEMENT (B) -- 16.5% Lehman Brothers 2.383%, dated 12/31/04, to be repurchased on 01/03/05, repurchase price $25,989,828, (collateralized by Asset-Backed and CMO Securities, ranging in par value $1,000- $94,780,051, 0.010%-7.000%, 05/25/05-07/10/37; 25,988 total market value $27,290,582) 25,988 -------- TOTAL REPURCHASE AGREEMENT (Cost $25,988) 25,988 -------- TOTAL INVESTMENTS (COST $200,745) -- 130.4% 205,208 -------- OTHER ASSETS AND LIABILITIES -- (30.4)% Payable Upon Return of Securities Loaned (49,836) Income Distribution Payable (260) Investment Adviser Fees Payable (47) Administrative Fees Payable (14) Shareholder Servicing Fees Payable (12) Payable for Capital Shares Redeemed (10) Other Assets and Liabilities, Net 2,366 -------- TOTAL OTHER ASSETS AND LIABILITIES (47,813) -------- NET ASSETS -- 100.0% $157,395 ======== Bishop Street Funds 32 High Grade Income Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Value (000) ----- NET ASSETS: Fund Shares (unlimited authorization -- no par value) $152,748 Undistributed Net Investment Income 9 Accumulated Net Realized Gain on Investments 175 Net Unrealized Appreciation on Investments 4,463 -------- NET ASSETS $157,395 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- INSTITUTIONAL CLASS ($157,170,136 / 15,214,160 SHARES) $ 10.33 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- CLASS A ($224,938 / 21,870 SHARES) $ 10.29 ======== MAXIMUM OFFERING PRICE PER SHARE -- CLASS A SHARES ($10.29 / 95.25%) $ 10.80 ======== (A) THE SECURITY OR A PORTION OF THIS SECURITY IS ON LOAN AT DECEMBER 31, 2004 (SEE NOTE 5 IN THE NOTES TO FINANCIAL STATEMENTS). THE TOTAL VALUE OF SECURITIES ON LOAN AT DECEMBER 31, 2004 WAS $48,744,282. (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, 2004 WAS $49,836,151. (C) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS IS THE RATE IN EFFECT ON DECEMBER 31, 2004. THE MATURITY DATE SHOWN IS THE NEXT SCHEDULED RESET DATE. CMO -- COLLATERALIZED MORTGAGE OBLIGATION FHLB -- FEDERAL HOME LOAN BANK FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION MTN -- MEDIUM TERM NOTE PLC -- PUBLIC LIMITED COMPANY SER -- SERIES TIPS -- TREASURY INFLATION-PROTECTED SECURITY COST FIGURES ARE SHOWN WITH "000S" OMITTED. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2004 33 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- Tax-exempt municipal bonds performed solidly in 2004 and ended the year with performance in excess of most comparable taxable fixed-income indices. Short maturity municipal bonds ended the year very rich with municipal yields hovering close to 70% of U.S. Treasury yields. Value remained in the long end of the municipal bond curve, offering investors tax-free yields close to 93-95% of U.S. Treasury yields. Hawaii's improving economy showed no signs of slowing down in 2004. Visitor arrivals to the islands from the Mainland U.S. increased by 7.6%, arrivals from Japan grew 10.3%, and visitor days grew by 6.8% in 2004. Statewide, total wage and salary jobs are expected to grow by 2.2% in 2004 with the real personal income forecast to show a 2.5% increase for the same period. Relative to other fixed-income asset classes, municipal bonds should remain an attractive asset heading into 2005. The credit outlook for municipalities across the nation is expected to improve in the coming year. State and local governments reported an $8.6 billion surplus for the 3rd quarter of 2004, continuing a two year trend of improving fiscal management. Moreover, supply of municipal bonds remained relatively light throughout most of 2004 and is expected to be flat to lower over the next year. For the year ended December 31, 2004, the Bishop Street Hawaii Municipal Bond Fund's Institutional Class returned 3.36%, outperforming the Lipper Hawaii Municipal Debt Objective by 0.27%. The Bishop Street Hawaii Municipal Bond Fund's (the "Fund") relatively longer duration contributed to its outperformance of the Hawaii benchmark. Looking forward, the Fund is positioned to benefit from a further flattening of the yield curve as well as continued strengthening of municipal credit quality. Bishop Street Funds 34 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE 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 10,176 10,956 12/96 11,402 10,917 11,589 10,510 11,377 12/97 12,373 11,847 12,656 10,692 12,291 12/98 13,096 12,539 13,476 10,864 12,974 12/99 12,749 12,174 13,197 11,154 12,445 12/00 14,356 13,677 14,740 11,530 13,840 12/01 14,965 14,241 15,496 11,709 14,397 12/02 16,464 15,630 16,983 11,990 15,633 12/03 17,332 16,413 17,887 12,215 16,410 12/04 17,914 16,922 18,686 12,613 16,917 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* - ---------------------------------------------------------- 3.36% 6.18% 7.04% 6.09% Institutional Class* - ---------------------------------------------------------- 3.10% 5.91% 6.81% 5.78% Class A** - ---------------------------------------------------------- -1.30% 4.40% 5.89% 4.96% Class A, with load*** - ---------------------------------------------------------- * Commenced operations on 02/16/95. ** Commenced operations on 06/14/99. *** Reflects 4.25% sales charge. + 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, 2004 35 www.bishopstreetfunds.com Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- TOP TEN HOLDINGS+ - ------------------------------------------------------------------------------------------- Percentage Coupon Maturity of Rate Date Investments --------------------------------------------------------------------------------------- 1. Hawaii State Department of Budget & Finance RB 5.650% 10/01/27 2.2% --------------------------------------------------------------------------------------- 2. Honolulu City & County GO 5.000% 07/01/19 2.1% --------------------------------------------------------------------------------------- 3. Hawaii State GO 4.750% 04/01/18 2.1% --------------------------------------------------------------------------------------- 4. Hawaii State Airport System RB 5.750% 07/01/17 2.0% --------------------------------------------------------------------------------------- 5. Hawaii State Highway RB 5.250% 07/01/15 2.0% --------------------------------------------------------------------------------------- 6. Hawaii State Airport System RB 6.500% 07/01/14 1.6% --------------------------------------------------------------------------------------- 7. Schaumburg, Illinois GO 5.000% 12/01/38 1.6% --------------------------------------------------------------------------------------- 8. Honolulu City & County RB 5.250% 07/01/18 1.5% --------------------------------------------------------------------------------------- 9. Hawaii State GO 5.250% 04/01/12 1.5% --------------------------------------------------------------------------------------- 10. Puerto Rico RB 5.000% 12/01/16 1.5% - ------------------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL.] - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ 41.1% General Revenue 11.2% Transportation 7.1% Medical 6.8% Airport 6.4% Power 6.1% Facilities 4.2% Utilities 3.6% School District 3.2% Higher Education 2.3% Single Family Housing 2.1% Development 2.1% Housing 1.5% Water 0.9% Education 0.7% Multifamily Housing 0.7% Short-Term Investments - -------------------------------------------------------------------------------- +PERCENTAGES BASED ON TOTAL INVESTMENTS. STATEMENT OF NET ASSETS Face Market Amount Value (000) (000) ------ ------ MUNICIPAL BONDS -- 97.9% ARKANSAS -- 3.2% Alma, School District No. 30, Construction Project, Ser D, GO $1,015 4.800%, 01/01/33 $ 1,001 Alma, School District No. 30, Refunding & Construction Project, Ser C, GO 2,000 4.875%, 01/01/33 1,995 1,500 4.750%, 01/01/29 1,479 Bishop Street Funds 36 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ ARKANSAS -- (CONTINUED) Bentonville, School District No. 006, Construction Project, Ser C, GO $ 505 4.375%, 06/01/16 $ 512 Lincoln, School District No. 48, Construction Project, GO 430 4.875%, 02/01/34 426 Osceola, School District No. 001, Construction Project, GO 395 4.800%, 11/01/34 387 -------- 5,800 -------- CALIFORNIA -- 1.0% Highland, Redevelopment Agency, Project Area No. 1 Tax Allocation, RB, AMBAC Insured 1,440 5.650%, 12/01/24 1,690 -------- FLORIDA -- 0.3% Leesburg, Utilities, RB, FGIC Insured 500 5.000%, 10/01/34 515 -------- HAWAII -- 79.9% Hawaii County, Ser A, GO, FGIC Insured 450 5.600%, 05/01/12 515 430 5.600%, 05/01/13 493 400 5.550%, 05/01/09 446 630 5.500%, 07/15/12 712 Hawaii County, Ser A, GO, FSA Insured 1,000 5.625%, 05/15/19 1,110 500 5.400%, 05/15/15 550 1,000 5.250%, 05/15/11 1,101 1,000 5.000%, 07/15/23 1,055 Hawaii County, Ser A ,GO, MBIA Insured 1,055 5.250%, 07/15/18 1,178 1,205 5.000%, 07/15/15 1,327 1,470 5.000%, 07/15/24 1,549 Hawaii State, Airport System, RB, AMT, FGIC Insured 3,235 5.750%, 07/01/17 3,603 200 5.250%, 07/01/21 209 Hawaii State, Airport System, Second Ser, RB, AMT, ETM 60 6.900%, 07/01/12 70 Hawaii State, Airport System, Second Ser, RB, AMT, ETM, MBIA Insured 1,100 6.900%, 07/01/12 1,290 December 31, 2004 37 www.bishopstreetfunds.com Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ HAWAII -- (CONTINUED) Hawaii State, Airport System, Ser B, RB, AMT, FGIC Insured $1,500 6.625%, 07/01/18 $ 1,724 2,500 6.500%, 07/01/14 2,869 100 6.000%, 07/01/19 111 Hawaii State, Department of Budget & Finance, Electric & Subsidiary Project, Ser B, RB 1,000 5.000%, 12/01/22 1,037 Hawaii State, Department of Budget & Finance, Hawaiian Electric, Ser A, RB, AMT, AMBAC Insured 460 5.100%, 09/01/32 472 Hawaii State, Department of Budget & Finance, Hawaiian Electric, Ser A, RB, AMT, MBIA Insured 785 6.200%, 05/01/26 823 3,660 5.650%, 10/01/27 3,961 Hawaii State, Department of Budget & Finance, Hawaiian Electric, Ser B, RB, AMT, AMBAC Insured 1,000 5.750%, 12/01/18 1,100 Hawaii State, Department of Budget & Finance, Hawaiian Electric, Ser C, RB, AMT, AMBAC Insured 1,000 6.200%, 11/01/29 1,130 Hawaii State, Department of Budget & Finance, Kapiolani Health, RB 100 6.250%, 07/01/21 106 Hawaii State, Department of Budget & Finance, Queens Health Systems, Ser A, RB, Pre-Refunded @ 102 (A) 1,450 5.875%, 07/01/06 1,555 2,505 5.750%, 07/01/06 2,683 Hawaii State, Department of Budget & Finance, Queens Health Systems, Ser B, RB, MBIA Insured 750 5.250%, 07/01/11 817 1,445 5.250%, 07/01/12 1,575 1,275 5.250%, 07/01/13 1,390 1,000 5.250%, 07/01/14 1,089 Hawaii State, Department of Budget & Finance, Special Purpose Mortgage, Hawaiian Electric Project, Ser A, RB, AMT, MBIA Insured 1,090 6.600%, 01/01/25 1,115 Hawaii State, Department of Budget & Finance, Special Purpose Mortgage, Kapiolani Health Care System Project, RB 1,460 6.300%, 07/01/08 1,494 Hawaii State, Department of Budget & Finance, Special Purpose Mortgage, St. Francis Medical Center Project, RB, FSA Insured 930 6.500%, 07/01/22 933 Bishop Street Funds 38 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ HAWAII -- (CONTINUED) Hawaii State, Harbor Capital Improvement, RB, AMT, MBIA Insured $2,000 5.500%, 07/01/27 $ 2,072 545 5.400%, 07/01/09 587 Hawaii State, Harbor System, Ser A, RB, AMT, FSA Insured 2,025 5.750%, 07/01/17 2,225 670 5.750%, 07/01/29 717 1,210 5.700%, 07/01/16 1,328 1,000 5.600%, 07/01/15 1,097 Hawaii State, Harbor System, Ser B, RB, AMT, AMBAC Insured 200 5.500%, 07/01/19 218 Hawaii State, Harbor System, Ser B, RB, AMT, FSA Insured 1,000 5.000%, 01/01/13 1,089 Hawaii State, Highway, RB 1,000 6.000%, 07/01/08 1,117 2,000 6.000%, 07/01/09 2,271 375 5.250%, 07/01/10 397 500 5.250%, 07/01/12 529 2,000 5.250%, 07/01/16 2,118 Hawaii State, Highway, RB, FGIC Insured 3,280 5.250%, 07/01/15 3,572 405 5.000%, 07/01/16 435 Hawaii State, Housing, Finance & Development, Affordable Rental Housing Program, Ser A, RB, AMT, FNMA Collateral 1,275 5.750%, 07/01/30 1,308 27 5.550%, 07/01/07 27 1,140 5.400%, 07/01/30 1,158 215 5.250%, 07/01/13 224 Hawaii State, Housing, Finance & Development, Affordable Rental Housing Program, Ser A, RB, Pre-Refunded @ 102 (A) 750 6.050%, 07/01/05 779 315 6.000%, 07/01/05 327 Hawaii State, Housing, Finance & Development, Single-Family Mortgage Purchase, Ser A, RB, AMT, FNMA Collateral 150 4.900%, 07/01/28 152 Hawaii State, Housing, Finance & Development, Single-Family Mortgage Purchase, Ser B, RB, FNMA Collateral 1,000 5.450%, 07/01/17 1,038 Hawaii State, Housing, Finance & Development, University of Hawaii, Faculty Housing Project, RB, AMBAC Insured 700 5.650%, 10/01/16 724 415 5.000%, 10/01/06 428 395 4.850%, 10/01/05 403 December 31, 2004 39 www.bishopstreetfunds.com Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ HAWAII -- (CONTINUED) Hawaii State, Kapolei Office Building, Ser A, COP, AMBAC Insured $1,475 5.250%, 05/01/13 $ 1,617 1,000 5.000%, 05/01/08 1,081 1,000 5.000%, 05/01/14 1,080 1,100 5.000%, 05/01/15 1,186 1,500 5.000%, 05/01/16 1,611 1,000 5.000%, 05/01/17 1,072 500 5.000%, 05/01/18 536 Hawaii State, No. 1 Capitol District State Office, COP, MBIA Insured 1,000 5.200%, 05/01/14 1,074 175 5.000%, 05/01/11 191 Hawaii State, Ser CL, GO 1,000 6.000%, 03/01/09 1,126 Hawaii State, Ser CL, GO, MBIA Insured 555 6.000%, 03/01/08 616 Hawaii State, Ser CM, GO, FGIC Insured 2,000 6.500%, 12/01/13 2,445 500 6.000%, 12/01/09 574 1,500 6.000%, 12/01/11 1,752 Hawaii State, Ser CN, GO, FGIC Insured 500 5.500%, 03/01/14 539 500 5.250%, 03/01/12 536 540 5.250%, 03/01/17 578 Hawaii State, Ser CO, GO, FGIC Insured 200 6.000%, 09/01/05 205 Hawaii State, Ser CP, GO, FGIC Insured 300 5.000%, 10/01/16 321 Hawaii State, Ser CR, GO, MBIA Insured 270 5.250%, 04/01/11 293 2,500 5.250%, 04/01/12 2,713 3,600 4.750%, 04/01/18 3,714 Hawaii State, Ser CU, GO, MBIA Insured 500 5.750%, 10/01/11 567 550 5.750%, 10/01/12 622 Hawaii State, Ser CV, GO, FGIC Insured 1,000 5.250%, 08/01/21 1,075 Hawaii State, Ser CX, GO, FSA Insured 1,000 5.500%, 02/01/21 1,105 2,000 5.000%, 02/01/19 2,120 Hawaiian Home Lands Department, RB 1,250 4.000%, 07/01/05 1,261 Bishop Street Funds 40 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ HAWAII -- (CONTINUED) Honolulu City & County, Board of Water Supply, RB, Pre-Refunded @ 101 (A) $ 250 5.250%, 07/01/06 $ 264 Honolulu City & County, Board of Water Supply, Ser A, RB, FGIC Insured 2,350 5.000%, 07/01/33 2,423 Honolulu City & County, GO 1,320 5.400%, 09/27/07 1,421 200 1.850%, 09/11/08 200 Honolulu City & County, GO, ETM 230 6.000%, 12/01/09 265 Honolulu City & County, Ser A, GO 55 6.000%, 01/01/10 63 Honolulu City & County, Ser A, GO, ETM 500 6.000%, 01/01/09 566 95 6.000%, 01/01/10 109 245 5.700%, 04/01/09 277 Honolulu City & County, Ser A, GO, ETM, MBIA Insured 135 6.000%, 11/01/10 157 Honolulu City & County, Ser A, GO, FSA Insured, Pre-Refunded @ 100 (A) 400 5.125%, 09/01/11 449 Honolulu City & County, Ser A, GO, MBIA Insured 365 6.000%, 11/01/10 422 1,000 5.250%, 03/01/27 1,062 500 5.250%, 03/01/28 529 Honolulu City & County, Ser B, GO, ETM, FGIC Insured 635 5.500%, 10/01/11 727 Honolulu City & County, Ser B, GO, FGIC Insured, Pre-Refunded @ 101 (A) 2,000 5.125%, 07/01/09 2,232 Honolulu City & County, Ser C, GO, FGIC Insured 125 5.500%, 11/01/07 136 1,200 5.125%, 07/01/11 1,317 1,100 5.125%, 07/01/15 1,199 650 5.000%, 07/01/09 712 3,500 5.000%, 07/01/19 3,734 Honolulu City & County, Ser D, GO, AMT, FGIC Insured 245 4.850%, 02/01/10 264 Honolulu City & County, Smith-Beretania, Ser 8A, RB, MBIA/FHA Insured 1,000 5.450%, 01/01/25 1,001 December 31, 2004 41 www.bishopstreetfunds.com Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ HAWAII -- (CONTINUED) Honolulu City & County, Waipahu Towers Project, Ser A, RB, AMT, GNMA Collateral $ 200 6.900%, 06/20/35 $ 205 Honolulu City & County, Waste Water, 2nd Board Resolution, Junior Ser, RB, FGIC Insured 1,000 5.250%, 07/01/12 1,100 900 5.250%, 07/01/13 987 1,000 5.250%, 07/01/17 1,093 2,500 5.250%, 07/01/18 2,736 1,000 5.000%, 07/01/23 1,046 Kauai County, Public Improvement, Ser B, GO, MBIA Insured 175 5.200%, 08/01/15 188 165 5.150%, 08/01/14 177 155 5.100%, 08/01/13 166 120 5.050%, 08/01/12 128 140 5.000%, 08/01/11 149 135 4.950%, 08/01/10 144 100 4.850%, 08/01/09 107 120 4.750%, 08/01/08 128 Kauai County, Ser A, GO, FGIC Insured, Pre-Refunded @ 100 (A) 1,135 6.250%, 08/01/10 1,331 1,480 6.250%, 08/01/10 1,736 1,335 6.250%, 08/01/10 1,566 1,050 6.250%, 08/01/10 1,232 Kauai County, Ser A, GO, MBIA Insured 750 5.625%, 08/01/18 842 Maui County, Ser A, GO 485 5.375%, 03/01/12 539 Maui County, Ser A, GO, FGIC Insured, Pre-Refunded @ 101 (A) 100 5.125%, 03/01/08 108 615 5.100%, 03/01/09 649 200 5.000%, 03/01/08 216 795 5.000%, 03/01/09 837 Maui County, Ser A, GO, FGIC Insured, Pre-Refunded @ 101 (A) 500 5.200%, 03/01/08 542 Maui County, Ser A, GO, MBIA Insured 1,840 5.000%, 03/01/20 1,944 Maui County, Ser A, GO, MBIA Insured, Pre-Refunded @ 101 (A) 250 5.750%, 06/01/06 265 Maui County, Ser B, GO, MBIA Insured 500 5.000%, 09/01/17 544 Maui County, Ser C, GO, FGIC Insured 500 5.200%, 03/01/16 542 Maui County, Ser C, GO, FGIC Insured, Pre-Refunded @ 101 (A) 790 5.150%, 03/01/08 855 Bishop Street Funds 42 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ ------ HAWAII -- (CONTINUED) Pacific Health Special Purpose, Ser A, RB $ 580 5.600%, 07/01/33 $ 595 University of Hawaii, Ser A, RB, FGIC Insured 500 5.500%, 07/15/21 555 University of Hawaii, Ser B, RB, FSA Insured 320 5.250%, 10/01/16 350 775 5.250%, 10/01/17 844 -------- 143,117 -------- ILLINOIS -- 2.0% Illinois State, Educational Facilities Authority, Northwestern University, RB 670 5.000%, 12/01/38 681 Schaumburg, Ser B, GO, FGIC Insured 2,750 5.000%, 12/01/38 2,808 -------- 3,489 -------- INDIANA -- 0.8% Elkhart, Community School Building, First Meeting, RB 1,500 4.500%, 07/15/24 1,491 -------- KENTUCKY -- 0.6% Kenton County, Airport, RB, AMT, MBIA Insured 1,000 5.000%, 03/01/10 1,074 -------- NEW JERSEY -- 1.2% New Jersey State, Economic Development Authority, Motor Vehicle, Ser A, RB, MBIA Insured 2,000 5.000%, 07/01/34 2,060 -------- NEW YORK -- 0.6% New York State, Tobacco Settlement Financing, Ser B-1, RB 1,100 4.000%, 06/01/12 1,119 -------- OREGON -- 0.6% Portland, Airport & Marina Improvements, Ser 12C, RB, AMT, FGIC Insured 1,000 4.750%, 07/01/10 1,058 -------- PUERTO RICO -- 7.4% Puerto Rico Commonwealth, GO, MBIA Insured 1,500 6.500%, 07/01/10 1,765 500 6.500%, 07/01/14 619 Puerto Rico Commonwealth, Public Improvement, GO, FSA Insured 435 5.000%, 07/01/21 464 December 31, 2004 43 www.bishopstreetfunds.com Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Face Amount Value (000)/Shares (000) ------------ ------ PUERTO RICO -- (CONTINUED) Puerto Rico Commonwealth, Public Improvement, Ser A, GO $ 865 5.000%, 07/01/10 $ 937 870 5.000%, 07/01/11 949 1,000 5.000%, 07/01/27 1,024 Puerto Rico Commonwealth, Ser A, GO 1,000 5.000%, 07/01/30 1,074 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%, 07/01/29 529 Puerto Rico, Housing, Banking & Finance Agency, Single-Family Mortgage, Affordable Housing Mortgage, Portfolio I, RB, AMT, GNMA/FNMA/FHLMC Collateral 180 6.100%, 10/01/15 184 Puerto Rico, Housing Financial Authority, Capital Funding Program, RB 2,500 5.000%, 12/01/16 2,709 Puerto Rico, Industrial Tourist Educational Medical Environmental Control Facilities, Hospital Auxilio Mutuo Obligation Group, Ser A, RB, MBIA Insured 300 6.250%, 07/01/24 307 University of Puerto Rico, Ser O, RB, MBIA Insured 1,500 5.750%, 06/01/19 1,696 -------- 13,285 -------- TEXAS -- 0.3% Channelview, Independent School District, Ser B, GO 550 5.250%, 08/15/19 608 -------- TOTAL MUNICIPAL BONDS (Cost $165,742) 175,306 -------- CASH EQUIVALENTS -- 0.7% 597,688 Dreyfus Tax-Exempt Cash Management Fund 598 597,688 Fidelity Institutional Money Market Tax-Exempt Fund 598 -------- TOTAL CASH EQUIVALENTS (Cost $1,196) 1,196 -------- TOTAL INVESTMENTS (COST $166,938) -- 98.6% 176,502 -------- Bishop Street Funds 44 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Value (000) ----- OTHER ASSETS AND LIABILITIES -- 1.4% Income Distribution Payable $ (485) Payable for Capital Shares Redeemed (160) Investment Adviser Fees Payable (26) Shareholder Servicing Fees Payable (15) Administrative Fees Payable (10) Distribution Fees Payable (6) Other Assets and Liabilities, Net 3,259 -------- TOTAL OTHER ASSETS AND LIABILITIES 2,557 -------- NET ASSETS -- 100.0% $179,059 ======== NET ASSETS: Fund Shares (unlimited authorization -- no par value) $169,425 Undistributed Net Investment Income 45 Accumulated Net Realized Gain on Investments 25 Net Unrealized Appreciation on Investments 9,564 -------- NET ASSETS $179,059 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- INSTITUTIONAL CLASS ($148,574,937 / 13,482,481 SHARES) $ 11.02 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- CLASS A ($30,483,858 / 2,765,707 SHARES) $ 11.02 ======== MAXIMUM OFFERING PRICE PER SHARE -- CLASS A SHARES ($11.02 / 95.75%) $ 11.51 ======== (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 FHA -- FEDERAL HOUSING ADMINISTRATION 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 COST FIGURES ARE SHOWN WITH "000S" OMITTED. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2004 45 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- Money Market & Treasury Money Market Funds - -------------------------------------------------------------------------------- The U.S. economy continued to grow at a healthy rate during 2004, even though the pace of growth began to moderate from a peak of nearly 5% in early 2004. Consumer spending remained robust and capital spending improved as well. Output grew at a moderate pace, despite the rise in energy prices that occurred earlier in the year, and manufacturing activity accelerated, as the falling dollar continued to help exporters while domestic demand strengthened. The employment situation continued to show modest signs of improvement; total employment gains for the year were nearly enough to offset jobs lost from 2001 to 2003. A stronger labor market should help to sustain consumer spending, now that the effects of tax cuts and lower mortgage interest payments have faded. In light of the strong economic data, Federal Reserve ("Fed") policy makers began a tightening campaign in June, bringing Fed funds to 2.25% by year-end. Policy makers reiterated their plan to continue raising rates at a "measured" pace, suggesting the Federal Open Market Committee ("FOMC") is confident that low rates, combined with increased productivity, will continue to fuel growth. Short-term bonds priced in further rate increases after it became evident that rates would continue to rise in 2005. The money market curve shifted higher during the year, forecasting 3% Fed funds by mid-2005. While yields on shorter maturity bonds moved higher along with the Fed funds rate, longer-term interest rates remained stable causing the yield curve to flatten. Inflation remained low by historical standards, but did begin to edge up during the year. Despite rising short-term yields, money market assets were at $1.9 trillion at the end of 2004, down about 5% for the year, as investors sought higher yielding alternatives and banks became much more competitive in offering higher deposit rates. Bishop Street Funds 46 - -------------------------------------------------------------------------------- [BISHOP STREET FUNDS LOGO OMITTED] - -------------------------------------------------------------------------------- The Money Market and Treasury Money Market Funds (the "Funds") started the year with longer maturity stances that enabled us to lock in higher yields. However, we shortened the weighted average maturity of both of the Funds throughout the remainder of 2004 in anticipation of higher interest rates and further FOMC increases. Despite this shortening, we continued to opportunistically purchase longer-term instruments that priced in multiple Fed tightenings. Implementing this strategy meant that the Funds were positioned to quickly take advantage of expected further tightening in 2005. As a result, we were able to keep short-term returns competitive late in the year while positioning the Funds well for the long-term. As the economy continues to expand and the risk of rising prices increases in 2005, we believe the Fed will remain on a path of steady tightening. A weaker dollar and higher oil prices will force the Fed to remain diligent in their effort to ward off inflation. In this environment, we will keep a shorter average maturity in order to take advantage of the Fed's tightening campaign while looking for opportunities to invest in longer securities when future rate increases price in excess steepness in the curve. We continue to utilize our extensive credit research resources to emphasize high quality, liquid issues and avoid buying lower credit quality or leveraged structures that offer higher yields. December 31, 2004 47 www.bishopstreetfunds.com Money Market Fund - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL.] - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ 36.5% Commercial Paper 22.1% U.S. Government Obligations 15.1% Certificates of Deposit/Bank Notes 8.3% Insurance Funding Agreements 7.2% Corporate Obligations 6.8% Collateralized Mortgage Obligations 4.0% Repurchase Agreements - -------------------------------------------------------------------------------- +PERCENTAGES BASED ON TOTAL INVESTMENTS. STATEMENT OF NET ASSETS Face Amount Value (000) (000) ------ ------ COMMERCIAL PAPER (C) -- 36.5% ASSET-BACKED (D) -- 15.4% Apreco $3,500 2.188%, 01/18/05 $ 3,496 Cafco 4,000 2.238%, 01/18/05 3,996 Clipper Receivables 3,000 2.383%, 03/03/05 2,988 Edison Asset Securitization 4,000 2.349%, 02/11/05 3,989 Eureka Securitization 3,800 2.208%, 01/18/05 3,796 Jupiter Securitization 2,379 2.347%, 01/28/05 2,375 Park Avenue Receivables 4,000 2.228%, 01/19/05 3,996 Yorktown Capital 4,000 2.021%, 01/18/05 3,996 -------- 28,632 -------- BANKS -- 4.3% Barclays Bank 3,000 2.264%, 02/22/05 2,991 Danske Bank 5,000 2.057%, 01/25/05 4,993 -------- 7,984 -------- DIVERSE FINANCIAL SERVICES -- 14.6% Ciesco 3,800 2.190%, 01/27/05 3,794 General Electric Capital 2,500 2.273%, 02/16/05 2,493 Bishop Street Funds 48 Money Market Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Amount Value (000) (000) ------ ----- DIVERSE FINANCIAL SERVICES -- (CONTINUED) Goldman Sachs Group $4,000 2.336%, 01/28/05 $ 3,993 JPMorgan Chase 3,000 2.200%, 01/26/05 2,995 Morgan Stanley 4,000 2.176%, 01/07/05 3,999 3,500 2.253%, 02/14/05 3,490 Nationwide Building 1,450 2.090%, 01/19/05 1,449 Shell Finance 5,000 2.363%, 03/03/05 4,980 -------- 27,193 -------- SCHOOLS -- 2.2% Yale University TECP 4,000 2.310%, 02/04/05 3,991 -------- TOTAL COMMERCIAL PAPER (Cost $67,800) 67,800 -------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 22.1% FHLB 4,000 2.148%, 01/19/05 (C) 3,996 1,500 1.500%, 03/01/05 1,500 4,000 1.625%, 04/15/05 4,004 1,100 1.660%, 05/16/05 1,100 FHLMC (C) 5,250 1.980%, 01/11/05 5,247 3,500 2.287%, 02/01/05 3,493 FNMA 6,000 1.980%, 01/12/05 (C) 5,996 6,714 2.198%, 01/19/05 (C) 6,707 2,700 2.249%, 02/02/05 (C) 2,694 3,000 1.375%, 02/11/05 2,997 2,800 1.375%, 02/14/05 2,800 540 1.610%, 05/13/05 540 -------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $41,074) 41,074 -------- December 31, 2004 49 www.bishopstreetfunds.com Money Market Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Amount Value (000) (000) ------ ----- CERTIFICATES OF DEPOSIT/BANK NOTES -- 15.1% Bradford & Bingley (A)(D) $4,000 2.025%, 01/07/05 $ 4,000 Credit Suisse First Boston 4,000 2.350%, 01/20/05 4,000 Svenska Handelsbank 5,000 2.130%, 01/13/05 5,000 Wells Fargo Bank 6,000 2.010%, 01/19/05 6,000 Westdeutsche Landesbank 5,000 1.320%, 01/27/05 5,000 Wilmington Trust 4,000 2.070%, 01/05/05 4,000 -------- TOTAL CERTIFICATES OF DEPOSIT/BANK NOTES (Cost $28,000) 28,000 -------- INSURANCE FUNDING AGREEMENTS (A)(B)(D) -- 8.3% Allstate 3,000 2.580%, 03/15/05 3,000 Metropolitan Life Insurance 5,000 2.240%, 01/03/05 5,000 Monumental Life Insurance 5,500 2.230%, 01/03/05 5,500 Travelers Insurance 2,000 2.480%, 02/28/05 2,000 -------- TOTAL INSURANCE FUNDING AGREEMENTS (Cost $15,500) 15,500 -------- CORPORATE OBLIGATIONS (A) -- 7.2% BANKS -- 2.3% Barclays Bank 1,500 2.348%, 01/24/05 1,500 Chase Manhattan Bank 2,750 2.340%, 01/11/05 2,750 -------- 4,250 -------- DIVERSE FINANCIAL SERVICES -- 4.9% General Electric Capital 2,300 2.460%, 01/10/05 2,300 General Electric Capital MTN 2,000 2.510%, 01/17/05 2,000 Bishop Street Funds 50 Money Market Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Amount Value (000) (000) ------ ----- DIVERSE FINANCIAL SERVICES -- (CONTINUED) Principal Life Global Funding MTN (D) $4,800 2.630%, 03/18/05 $ 4,801 -------- 9,101 -------- TOTAL CORPORATE OBLIGATIONS (Cost $13,351) 13,351 -------- COLLATERALIZED MORTGAGE OBLIGATION (A) -- 6.8% Aire Valley Mortgages, Ser 2004-1A, Cl 1A (D) 1,800 2.140%, 01/20/05 1,800 GE Commercial Equipment Financing, Ser 2004-1, Cl A1 1,638 2.373%, 01/20/05 1,638 GE Commerical Equipment Financing, Ser 2004-A, Cl A1 (D) 1,500 2.590%, 01/22/05 1,500 Holmes Financing, Ser 8, Cl 1A 2,500 2.353%, 01/18/05 2,500 Permanent Financing, Ser 4, Cl 1A 3,500 2.320%, 01/10/05 3,500 Permanent Financing, Ser 5, Cl 1A 1,650 2.350%, 01/10/05 1,650 -------- TOTAL COLLATERALIZED MORTGAGE OBLIGATION (Cost $12,588) 12,588 -------- REPURCHASE AGREEMENT -- 4.0% Deutsche Bank 2.170%, dated 12/31/04, to be repurchased on 01/03/05, repurchase price $7,401,338 (collateralized by GNMA, par value $83,673,688, 8.500%, 04/20/26; total market 7,400 value $7,548,000) 7,400 -------- TOTAL REPURCHASE AGREEMENT (Cost $7,400) 7,400 -------- TOTAL INVESTMENTS (COST $185,713) -- 100.0% 185,713 -------- OTHER ASSETS AND LIABILITIES -- 0.0% Income Distribution Payable (232) Investment Adviser Fees Payable (34) Administrative Fees Payable (18) Shareholder Servicing Fees Payable (16) Distribution Fees Payable (4) Other Assets and Liabilities, Net 325 -------- TOTAL OTHER ASSETS AND LIABILITIES 21 -------- NET ASSETS -- 100.0% $185,734 ======== December 31, 2004 51 www.bishopstreetfunds.com Money Market Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Value (000) ----- NET ASSETS: Fund Shares (unlimited authorization -- no par value) $185,758 Accumulated Net Realized Loss on Investments (24) -------- NET ASSETS $185,734 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- INSTITUTIONAL CLASS ($167,910,230 / 167,934,800 SHARES) $ 1.00 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- CLASS A ($17,823,780 / 17,823,833 SHARES) $ 1.00 ======== (A) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS IS THE RATE IN EFFECT ON DECEMBER 31, 2004. 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) 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." ON DECEMBER 31, 2004, THE VALUE OF THESE SECURITIES TOTALED APPROXIMATELY $56,233,000 OR 30.3% OF THE FUND'S TOTAL NET ASSETS. CL -- CLASS FHLB -- FEDERAL HOME LOAN BANK FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION MTN -- MEDIUM TERM NOTE SER -- SERIES TECP -- TAX-EXEMPT COMMERCIAL PAPER COST FIGURES ARE SHOWN WITH "000S" OMITTED. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Bishop Street Funds 52 Treasury Money Market Fund - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL.] - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ 27.8% U.S. Treasury Obligations 72.2% Repurchase Agreements - -------------------------------------------------------------------------------- +PERCENTAGES BASED ON TOTAL INVESTMENTS. STATEMENT OF NET ASSETS Face Amount Value (000) (000) ------ ------ U.S. TREASURY OBLIGATIONS -- 34.5% U.S. Treasury Bills (A) $50,000 2.042%, 01/18/05 $ 49,957 20,000 2.291%, 05/12/05 19,835 U.S. Treasury Notes 2,000 1.625%, 04/30/05 2,003 -------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $71,795) 71,795 -------- REPURCHASE AGREEMENTS -- 89.7% ABN - Amro 1.500%, dated 12/31/04, to be repurchased on 01/03/05, repurchase price $45,005,625 (collateralized by U.S. Treasury Bonds, par value $39,437,000, 6.000%, 02/15/26; total market 45,000 value $45,968,850) 45,000 Deutsche Bank 1.650%, dated 12/31/04, to be repurchased on 01/03/05, repurchase price $31,704,359 (collateralized by U.S. Treasury Bills, par value $32,653,000, 2.430%, 05/26/05; total market 31,700 value $32,334,307) 31,700 Goldman Sachs Group 1.500%, dated 12/31/04, to be repurchased on 01/03/05, repurchase price $50,006,250 (collateralized by U.S. Treasury Bonds, par value $42,725,000, 6.250%, 08/15/23; total market 50,000 value $51,003,000) 50,000 Lehman Brothers 1.600%, dated 12/31/04, to be repurchased on 01/03/05, repurchase price $10,001,333 (collateralized by various U.S. Treasury Notes, ranging in par value $10,000-$695,000, 1.250%-4.250%, 10,000 02/28/05-11/15/14; total market value $10,199,262) 10,000 UBS Securities 1.600%, dated 12/31/04, to be repurchased on 01/03/05, repurchase price $50,006,667 (collateralized by U.S. Treasury Notes, par value $49,790,000, 6.750%, 05/15/05; total market 50,000 value $51,002,751) 50,000 -------- TOTAL REPURCHASE AGREEMENTS (Cost $186,700) 186,700 -------- TOTAL INVESTMENTS (COST $258,495) -- 124.2% 258,495 -------- December 31, 2004 53 www.bishopstreetfunds.com Treasury Money Market Fund - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Value (000) ----- OTHER ASSETS AND LIABILITIES -- (24.2)% Payable for Investment Securities Purchased $(49,958) Income Distribution Payable (306) Investment Adviser Fees Payable (21) Service Plan Fees Payable (19) Administrative Fees Payable (22) Other Assets and Liabilities, Net (16) -------- TOTAL OTHER ASSETS AND LIABILITIES (50,342) -------- NET ASSETS -- 100.0% $208,153 ======== NET ASSETS: Fund Shares (unlimited authorization -- no par value) $208,190 Undistributed Net Investment Income 10 Accumulated Net Realized Loss on Investments (47) -------- NET ASSETS $208,153 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- INSTITUTIONAL CLASS ($208,152,878 / 208,190,799 SHARES) $ 1.00 ======== (A) REPRESENTS THE EFFECTIVE YIELD AT THE DATE OF PURCHASE. COST FIGURES ARE SHOWN WITH "000S" OMITTED. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Bishop Street Funds 54 This page intentionally left blank. Bishop Street Funds - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004 (IN THOUSANDS) Tax High Strategic Managed Grade Equity Growth Equity Income Fund Fund Fund Fund - ----------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividend Income $2,539 $ 378 $ 583 $ -- Interest Income 31 10 7 6,354 Securities Lending, Net 33 -- -- 47 Less: Foreign Taxes Withheld (5) -- -- -- - ----------------------------------------------------------------------------------------- Total Investment Income 2,598 388 590 6,401 - ----------------------------------------------------------------------------------------- EXPENSES: Investment Adviser Fees 1,151 425 250 794 Shareholder Servicing Fees 389 144 84 360 Administrative Fees 311 115 68 289 Distribution Fees, Class A 4 -- -- 1 Transfer Agent Fees 67 26 29 64 Professional Fees 48 18 10 45 Custody Fees 15 5 3 14 Trustees' Fees 14 4 3 13 Printing Fees 12 3 3 11 Registration Fees 3 1 2 -- Miscellaneous Expenses 7 -- 1 14 - ----------------------------------------------------------------------------------------- Total Expenses 2,021 741 453 1,605 - ----------------------------------------------------------------------------------------- Less Waivers: Investment Adviser Fees (94) -- (36) (166) Shareholder Servicing Fees (233) (86) (51) (217) Administrative Fees (135) (50) (29) (126) - ----------------------------------------------------------------------------------------- Total Waivers (462) (136) (116) (509) - ----------------------------------------------------------------------------------------- Total Net Expenses 1,559 605 337 1,096 - ----------------------------------------------------------------------------------------- Net Investment Income (Loss) 1,039 (217) 253 5,305 - ----------------------------------------------------------------------------------------- Net Realized Gain on Investments 2,061 1,549 1,216 837 Change in Unrealized Appreciation (Depreciation) on Investments 2,789 5,453 706 (1,214) - ----------------------------------------------------------------------------------------- Net Realized and Unrealized Gain (Loss) on Investments 4,850 7,002 1,922 (377) - ----------------------------------------------------------------------------------------- Increase in Net Assets Resulting from Operations $5,889 $6,785 $2,175 $ 4,928 ========================================================================================= 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 OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004 (IN THOUSANDS) Hawaii Treasury Municipal Money Money Bond Market Market Fund Fund Fund - -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest Income $8,068 $3,224 $3,227 - -------------------------------------------------------------------------------- Total Investment Income 8,068 3,224 3,227 - -------------------------------------------------------------------------------- EXPENSES: Investment Adviser Fees 623 689 729 Shareholder Servicing Fees 445 574 608 Administrative Fees 356 460 486 Distribution Fees, Class A 76 45 -- Transfer Agent Fees 68 73 49 Professional Fees 55 63 70 Custody Fees 17 23 23 Trustees' Fees 16 21 21 Printing Fees 14 21 24 Registration Fees 3 -- 3 Miscellaneous Expenses 38 -- 28 - -------------------------------------------------------------------------------- Total Expenses 1,711 1,969 2,041 - -------------------------------------------------------------------------------- Less Waivers: Investment Adviser Fees (159) (231) (395) Shareholder Servicing Fees (267) (345) (365) Administrative Fees (231) (200) (212) - -------------------------------------------------------------------------------- Total Waivers (657) (776) (972) - -------------------------------------------------------------------------------- Total Net Expenses 1,054 1,193 1,069 - -------------------------------------------------------------------------------- Net Investment Income 7,014 2,031 2,158 - -------------------------------------------------------------------------------- Net Realized Gain (Loss) on Investments 1,678 (2) (46) Change in Unrealized Depreciation on Investments (2,892) -- -- - -------------------------------------------------------------------------------- Net Realized and Unrealized Loss on Investments (1,214) (2) (46) - -------------------------------------------------------------------------------- Increase in Net Assets Resulting from Operations $ 5,800 $2,029 $2,112 ================================================================================ 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, 2004 57 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) Equity Fund - ---------------------------------------------------------------------------------------------- 2004 2003 - ---------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income $ 1,039 $ 655 Net Realized Gain on Investments 2,061 1,685 Change in Unrealized Appreciation on Investments 2,789 30,565 - ---------------------------------------------------------------------------------------------- Increase in Net Assets Resulting From Operations 5,889 32,905 - ---------------------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS: Net Investment Income: Institutional Class Shares (1,043) (650) Class A Shares (6) (3) - ---------------------------------------------------------------------------------------------- Total Dividends (1,049) (653) - ---------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: Institutional Class Shares: Proceeds from Shares Issued 38,484 11,293 Reinvestments of Cash Distributions 711 393 Cost of Shares Redeemed (30,690) (17,181) - ---------------------------------------------------------------------------------------------- Total Institutional Class Capital Share Transactions 8,505 (5,495) - ---------------------------------------------------------------------------------------------- Class A Shares: Proceeds from Shares Issued 144 143 Reinvestments of Cash Distributions 3 2 Cost of Shares Redeemed (161) (521) - ---------------------------------------------------------------------------------------------- Total Class A Capital Share Transactions (14) (376) - ---------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets From Capital Share Transactions 8,491 (5,871) - ---------------------------------------------------------------------------------------------- Total Increase in Net Assets 13,331 26,381 - ---------------------------------------------------------------------------------------------- NET ASSETS: Beginning of Year 157,965 131,584 - ---------------------------------------------------------------------------------------------- End of Year $171,296 $157,965 ============================================================================================== Undistributed Net Investment Income $ -- $ 9 ============================================================================================== SHARE TRANSACTIONS: Institutional Class Shares: Shares Issued 4,055 1,341 Shares Issued in Lieu of Cash Distributions 74 46 Shares Redeemed (3,249) (2,169) - ---------------------------------------------------------------------------------------------- Total Institutional Class Share Transactions 880 (782) - ---------------------------------------------------------------------------------------------- Class A Shares: Shares Issued 15 17 Shares Issued in Lieu of Cash Distributions -- 1 Shares Redeemed (17) (64) - ---------------------------------------------------------------------------------------------- Total Class A Share Transactions (2) (46) - ---------------------------------------------------------------------------------------------- Net Increase (Decrease) in Shares Outstanding from Share Transactions 878 (828) ============================================================================================== 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) Strategic Tax Managed Growth Fund Equity Fund - ------------------------------------------------------------------------------------------------------ 2004 2003 2004 2003 - ------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income (Loss) $ (217) $ (167) $ 253 $ 205 Net Realized Gain on Investments 1,549 758 1,216 19 Change in Unrealized Appreciation on Investments 5,453 8,983 706 6,553 - ------------------------------------------------------------------------------------------------------ Increase in Net Assets Resulting From Operations 6,785 9,574 2,175 6,777 - ------------------------------------------------------------------------------------------------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net Investment Income: Institutional Class Shares -- -- (254) (204) Capital Gains: Institutional Class Shares -- -- (1,183) (46) - ------------------------------------------------------------------------------------------------------ Total Dividends and Distributions -- -- (1,437) (250) - ------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS: Institutional Class Shares: Proceeds from Shares Issued 34,231 20,073 3,777 8,008 Reinvestments of Cash Distributions -- -- 80 6 Cost of Shares Redeemed (8,693) (2,701) (3,828) (4,368) - ------------------------------------------------------------------------------------------------------ Net Increase in Net Assets From Capital Share Transactions 25,538 17,372 29 3,646 - ------------------------------------------------------------------------------------------------------ Total Increase in Net Assets 32,323 26,946 767 10,173 - ------------------------------------------------------------------------------------------------------ NET ASSETS: Beginning of Year 46,845 19,899 34,808 24,635 - ------------------------------------------------------------------------------------------------------ End of Year $79,168 $46,845 $35,575 $34,808 ====================================================================================================== Accumulated Net Investment Loss $ (15) $ (22) $ -- $ (14) ====================================================================================================== SHARE TRANSACTIONS: Institutional Class Shares: Shares Issued 2,842 1,873 311 802 Shares Issued in Lieu of Cash Distributions -- -- 7 1 Shares Redeemed (715) (251) (316) (422) - ------------------------------------------------------------------------------------------------------ Total Institutional Class Share Transactions 2,127 1,622 2 381 - ------------------------------------------------------------------------------------------------------ Net Increase in Shares Outstanding from Share Transactions 2,127 1,622 2 381 ====================================================================================================== 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, 2004 59 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 - ------------------------------------------------------------------------------------------------------------------- 2004 2003 2004 2003 - ------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income $ 5,305 $ 5,273 $ 7,014 $ 7,321 Net Realized Gain on Investments 837 4,600 1,678 1,911 Change in Unrealized Appreciation (Depreciation) on Investments (1,214) (5,397) (2,892) 64 - ------------------------------------------------------------------------------------------------------------------- Increase in Net Assets Resulting From Operations 4,928 4,476 5,800 9,296 - ------------------------------------------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net Investment Income: Institutional Class Shares (5,288) (5,260) (5,870) (6,122) Class A Shares (10) (13) (1,133) (1,218) Capital Gains: Institutional Class Shares (546) (2,572) (1,540) (1,555) Class A Shares (1) (5) (317) (317) - ------------------------------------------------------------------------------------------------------------------- Total Dividends and Distributions (5,845) (7,850) (8,860) (9,212) - ------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: Institutional Class Shares: Proceeds from Shares Issued 40,169 15,737 14,569 18,535 Reinvestments of Cash Distributions 2,530 2,901 1,202 1,112 Cost of Shares Redeemed (19,460) (18,942) (15,048) (19,607) - ------------------------------------------------------------------------------------------------------------------- Total Institutional Class Capital Share Transactions 23,239 (304) 723 40 - ------------------------------------------------------------------------------------------------------------------- Class A Shares: Proceeds from Shares Issued 2 25 2,467 2,635 Reinvestments of Cash Distributions 7 15 680 726 Cost of Shares Redeemed (57) (182) (3,099) (5,880) - ------------------------------------------------------------------------------------------------------------------- Total Class A Capital Share Transactions (48) (142) 48 (2,519) - ------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets From Capital Share Transactions 23,191 (446) 771 (2,479) - ------------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 22,274 (3,820) (2,289) (2,395) - ------------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of Year 135,121 138,941 181,348 183,743 - ------------------------------------------------------------------------------------------------------------------- End of Year $157,395 $135,121 $179,059 $181,348 =================================================================================================================== Undistributed Net Investment Income $ 9 $ 2 $ 45 $ 34 =================================================================================================================== SHARE TRANSACTIONS: Institutional Class Shares: Shares Issued 3,890 1,481 1,310 1,656 Shares Issued in Lieu of Cash Distributions 244 274 108 99 Shares Redeemed (1,881) (1,777) (1,356) (1,750) - ------------------------------------------------------------------------------------------------------------------- Total Institutional Class Share Transactions 2,253 (22) 62 5 - ------------------------------------------------------------------------------------------------------------------- Class A Shares: Shares Issued -- 2 221 234 Shares Issued in Lieu of Cash Distributions 1 2 61 65 Shares Redeemed (6) (17) (280) (521) - ------------------------------------------------------------------------------------------------------------------- Total Class A Share Transactions (5) (13) 2 (222) - ------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Shares Outstanding from Share Transactions 2,248 (35) 64 (217) =================================================================================================================== 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 60 Bishop Street Funds - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) Money Market Treasury Money Market Fund Fund - ------------------------------------------------------------------------------------------------------------------------ 2004 2003 2004 2003 - ------------------------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income $ 2,031 $ 1,740 $ 2,158 $ 2,386 Net Realized Gain (Loss) on Investments (2) -- (46) 21 - ------------------------------------------------------------------------------------------------------------------------ Increase in Net Assets Resulting From Operations 2,029 1,740 2,112 2,407 - ------------------------------------------------------------------------------------------------------------------------ DIVIDENDS TO SHAREHOLDERS: Net Investment Income: Institutional Class Shares (1,908) (1,731) (2,173) (2,386) Class A Shares (122) (9) -- -- - ------------------------------------------------------------------------------------------------------------------------ Total Dividends (2,030) (1,740) (2,173) (2,386) - ------------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS: (ALL AT $1.00 PER SHARE): Institutional Class Shares: Proceeds from Shares Issued 443,764 408,493 501,131 678,219 Reinvestments of Cash Distributions 83 25 6 9 Cost of Shares Redeemed (458,078) (464,850) (563,288) (739,562) - ------------------------------------------------------------------------------------------------------------------------ Total Institutional Class Capital Share Transactions (14,231) (56,332) (62,151) (61,334) - ------------------------------------------------------------------------------------------------------------------------ Class A Shares: Proceeds from Shares Issued 47,431 20,191 -- -- Reinvestments of Cash Distributions 99 9 -- -- Cost of Shares Redeemed (47,170) (2,948) -- -- - ------------------------------------------------------------------------------------------------------------------------ Total Class A Capital Share Transactions 360 17,252 -- -- - ------------------------------------------------------------------------------------------------------------------------ Net Decrease in Net Assets From Capital Share Transactions (13,871) (39,080) (62,151) (61,334) - ------------------------------------------------------------------------------------------------------------------------ Total Decrease in Net Assets (13,872) (39,080) (62,212) (61,313) - ------------------------------------------------------------------------------------------------------------------------ NET ASSETS: Beginning of Year 199,606 238,686 270,365 331,678 - ------------------------------------------------------------------------------------------------------------------------ End of Year $ 185,734 $ 199,606 $ 208,153 $ 270,365 ======================================================================================================================== Undistributed Net Investment Income $ -- $ (1) $ 10 $ 16 ======================================================================================================================== 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, 2004 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 (LOSS) INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS --------- ------------- -------------- ---------- ---------- ------- --------------- - ----------- EQUITY FUND - ----------- INSTITUTIONAL CLASS SHARES: 2004(1) $ 9.49 $ 0.06 $ 0.29 $ 0.35 $(0.06) $ -- $(0.06) 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) CLASS A SHARES: 2004(1) $ 9.44 $ 0.04 $ 0.28 $ 0.32 $(0.04) $ -- $(0.04) 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) - --------------------- STRATEGIC GROWTH FUND - --------------------- INSTITUTIONAL CLASS SHARES: 2004(1) $11.93 $(0.05) $ 1.20 $ 1.15 $ -- $ -- $ -- 2003(1) 8.64 (0.06) 3.35 3.29 -- -- -- 2002(2) 10.00 (0.03) (1.33) (1.36) -- -- -- - ----------------------- TAX MANAGED EQUITY FUND - ----------------------- INSTITUTIONAL CLASS SHARES: 2004(1) $12.06 $ 0.09 $ 0.68 $ 0.77 $(0.09) $(0.42) $(0.51) 2003(1) 9.83 0.07 2.25 2.32 (0.07) (0.02) (0.09) 2002(3) 10.00 0.01 (0.17) (0.16) (0.01) -- (0.01) - ---------------------- HIGH GRADE INCOME FUND - ---------------------- INSTITUTIONAL CLASS SHARES: 2004(1) $10.40 $ 0.38 $(0.03) $ 0.35 $(0.38) $(0.04) $(0.42) 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) CLASS A SHARES: 2004(1) $10.36 $ 0.35 $(0.03) $ 0.32 $(0.35) $(0.04) $(0.39) 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) + 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 (1) PER SHARE NET INVESTMENT INCOME AMOUNT CALCULATED USING AVERAGE SHARES. (2) COMMENCED OPERATIONS ON JULY 1, 2002. (3) COMMENCED OPERATIONS ON NOVEMBER 13, 2002. 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 --------- ------- ----------- ----------- ----------------- ------------- --------- - ----------- EQUITY FUND - ----------- INSTITUTIONAL CLASS SHARES: 2004(1) $ 9.78 3.72% $169,685 1.00% 1.30% 0.67% 42% 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 CLASS A SHARES: 2004(1) $ 9.72 3.37% $ 1,611 1.25% 1.55% 0.42% 42% 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 - --------------------- STRATEGIC GROWTH FUND - --------------------- INSTITUTIONAL CLASS SHARES: 2004(1) $13.08 9.64% $ 79,168 1.05% 1.29% (0.38)% 59% 2003(1) 11.93 38.08 46,845 1.17 1.41 (0.57) 59 2002(2) 8.64 (13.60) 19,899 1.25* 1.67* (0.61)* 50 - ----------------------- TAX MANAGED EQUITY FUND - ----------------------- INSTITUTIONAL CLASS SHARES: 2004(1) $12.32 6.40% $ 35,575 1.00% 1.34% 0.74% 36% 2003(1) 12.06 23.66 34,808 1.00 1.43 0.68 34 2002(3) 9.83 (1.57) 24,635 1.00* 1.50* 0.99* 1 - ---------------------- HIGH GRADE INCOME FUND - ---------------------- INSTITUTIONAL CLASS SHARES: 2004(1) $10.33 3.41% $157,170 0.76% 1.11% 3.68% 45% 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 CLASS A SHARES: 2004(1) $10.29 3.16% $ 225 1.01% 1.36% 3.43% 45% 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 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2004 63 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: 2004(2) $11.21 $ 0.44 $(0.07) $ 0.37 $(0.44) $(0.12) $(0.56) 2003(2) 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) CLASS A SHARES: 2004(2) $11.21 $ 0.41 $(0.07) $ 0.34 $(0.41) $(0.12) $(0.53) 2003(2) 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) - ----------------- MONEY MARKET FUND - ----------------- INSTITUTIONAL CLASS SHARES: 2004(2) $ 1.00 $ 0.01 $ -- $ 0.01 $(0.01) $ -- $(0.01) 2003(2) 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) CLASS A SHARES: 2004(2) $ 1.00 $ 0.01 $ -- $ 0.01 $(0.01) $ -- $(0.01) 2003(2) 1.00 0.01 -- 0.01 (0.01) -- (0.01) 2002 1.00 0.01 -- 0.01 (0.01) -- (0.01) 2001(1) 1.00 0.02 -- 0.02 (0.02) -- (0.02) - -------------------------- TREASURY MONEY MARKET FUND - -------------------------- INSTITUTIONAL CLASS SHARES: 2004(2) $ 1.00 $ 0.01 $ -- $ 0.01 $(0.01) $ -- $(0.01) 2003(2) 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) + 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 MAY 1, 2001. (2) 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 64 - -------------------------------------------------------------------------------- RATIO OF RATIO OF EXPENSES RATIO OF NET NET ASSET NET ASSETS, EXPENSES TO TO AVERAGE INVESTMENT VALUE, END OF AVERAGE NET ASSETS INCOME 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: 2004(2) $11.02 3.36% $148,575 0.55% 0.92% 3.97% 40% 2003(2) 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 CLASS A SHARES: 2004(2) $11.02 3.10% $ 30,484 0.80% 1.17% 3.72% 40% 2003(2) 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 - ----------------- MONEY MARKET FUND - ----------------- INSTITUTIONAL CLASS SHARES: 2004(2) $ 1.00 0.92% $167,910 0.50% 0.84% 0.90% n/a 2003(2) 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 CLASS A SHARES: 2004(2) $ 1.00 0.67% $ 17,824 0.75% 1.09% 0.65% n/a 2003(2) 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(1) 1.00 1.96 500 0.75* 1.07* 2.66* n/a - -------------------------- TREASURY MONEY MARKET FUND - -------------------------- INSTITUTIONAL CLASS SHARES: 2004(2) $ 1.00 0.91% $208,153 0.44% 0.84% 0.89% n/a 2003(2) 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 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2004 65 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 The Funds' investments in equity securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ) are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded, or, if there is no such reported sale, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. If available, debt securities are priced based upon valuations provided by independent, third-party pricing agents. Such values generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value debt securities at an evaluated bid price by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value for such securities. Debt obligations with remaining maturities of sixty days or less may be valued at their amortized cost, which approximates market value. Prices for most securities held in the Funds are provided daily by recognized independent pricing agents. If a security price cannot be obtained from an independent, third-party pricing agent, the Funds seek to obtain a bid price from at least one independent broker. Bishop Street Funds 66 - -------------------------------------------------------------------------------- Securities for which market prices are not "readily available" are valued in accordance with Fair Value Procedures established by the Funds' Board of Trustees (the "Board"). The Funds' Fair Value Procedures are implemented through a Fair Value Pricing Committee (the "Committee") designated by the Funds' Board. Some of the more common reasons that may necessitate that a security be valued using Fair Value Procedures include: the security's trading has been halted or suspended; the security has been de-listed from a national exchange; the security's primary trading market is temporarily closed at a time when under normal conditions it would be open; or the security's primary pricing source is not able or willing to provide a price. When a security is valued in accordance with the Fair Value Procedures, the Committee will determine the value after taking into consideration relevant information reasonably available to the Committee. Investment securities held by the Money Market and Treasury Money Market Funds are stated at amortized cost, which approximates market value. Under this valuation method, purchase discounts and premiums are accreted and amortized ratably to maturity and are included in interest income. SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are accounted for on 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. The Equity, Strategic Growth, Tax Managed Equity, High Grade Income and Hawaii Municipal Bond Funds use the scientific interest method, which approximates the effective interest method. The Money Market and Treasury Money Market Funds use the straight line method. REPURCHASE AGREEMENTS Securities pledged as collateral for repurchase agreements are held by the custodian bank until the respective agreements are repurchased. 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. December 31, 2004 67 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- CLASSES Class-specific expenses are 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 Funds are prorated to the Funds on the basis of relative net assets. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income are declared daily and paid on a monthly basis for the High Grade Income, Hawaii Municipal Bond, Money Market and Treasury Money Market Funds. The Equity, Strategic Growth and Tax Managed Equity Funds declare and pay dividends from any net investment income on a quarterly basis. Any net realized capital gains will be distributed at least annually for all Funds. Distributions to shareholders are recorded on the ex-dividend date. 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. 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. Such waivers are disclosed in the Statements of Operations. 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 Bishop Street Funds 68 - -------------------------------------------------------------------------------- $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, as disclosed in the Statements of Operations. 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. 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, the Parent Company of Bishop Street Capital Management, for shareholder services performed for the Funds. SIDCO has voluntarily agreed to waive a portion of its fee in order to limit operating expenses, as disclosed in the Statements of Operations. Certain ministerial officers of the Trust are also ministerial 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 Board. These loans may not exceed 331/3% of the total asset value of the Fund (including the loan collateral). December 31, 2004 69 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- 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. INVESTMENT TRANSACTIONS The cost of security purchases and the proceeds from the sale and maturities of securities, other than temporary cash investments for the period ended December 31, 2004 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 $ -- $ -- $ -- $50,701 $ -- Other 72,160 58,925 11,848 41,159 69,340 Sales and Maturities U.S. Government Securities $ -- $ -- $ -- $15,387 $ -- Other 64,703 33,989 13,573 44,426 72,639 7. 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. Bishop Street Funds 70 - -------------------------------------------------------------------------------- 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 Gain Capital (000) (000) (000) ----------------- ----------- --------- Equity Fund $ 1 $ -- $ (1) Strategic Growth Fund 224 -- (224) Tax Managed Equity Fund 15 (15) -- Treasury Money Market Fund 9 (9) -- These reclassifications have no effect on net assets or net asset values per share. The tax character of dividends and distributions paid during the years ended December 31, 2004 and December 31, 2003 were as follows: Ordinary Tax Exempt Long-Term Income Income Capital Gain Total (000) (000) (000) (000) -------- ---------- ------------ ------- Equity Fund 2004 $1,049 $ -- $ -- $1,049 2003 653 -- -- 653 Strategic Growth Fund 2004 $ -- $ -- $ -- $ -- 2003 -- -- -- -- Tax Managed Equity Fund 2004 $ 311 $ -- $1,126 $1,437 2003 250 -- -- 250 High Grade Income Fund 2004 $5,298 $ -- $ 547 $5,845 2003 5,273 -- 2,577 7,850 Hawaii Municipal Bond Fund 2004 $ 71 $7,003 $1,786 $8,860 2003 14 7,326 1,872 9,212 Money Market Fund 2004 $2,030 $ -- $ -- $2,030 2003 1,740 -- -- 1,740 Treasury Money Market Fund 2004 $2,173 $ -- $ -- $2,173 2003 2,386 -- -- 2,386 December 31, 2004 71 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- As of December 31, 2004, 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 $ -- $ -- $ 14 $ 654 $ -- $ -- $ 9 Undistributed tax exempt income -- -- -- -- 1 -- -- Undistributed long-term capital gain -- 368 49 108 25 -- -- Capital loss carryforwards expiring: Dec. 2005 -- -- -- -- -- (2) -- Dec. 2008 -- -- -- -- -- (2) -- Dec. 2009 (36,271) -- -- -- -- (18) -- Dec. 2010 (25,686) -- -- -- -- -- -- Dec. 2011 (1,697) -- -- -- -- -- -- Dec. 2012 -- -- -- -- -- -- (27) Post-October Losses -- -- -- -- -- (2) (19) Other Temporary Differences -- (16) (15) (486) 44 -- -- Unrealized appreciation 18,694 13,508 6,799 4,371 9,564 -- -- 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, 2004 the Equity, Strategic Growth, and the Money Market Funds, utilized capital loss carryforwards of $1,987,036, $1,048,930 and $442, respectively, to offset realized capital gains. Post-October losses represent losses realized on investment transactions from November 1, 2003 through December 31, 2004 that, in accordance with Federal income tax regulations the Funds have elected to defer and treat as having arisen in the following fiscal year. The aggregate gross unrealized appreciation and depreciation of securities held by the Equity, Strategic Growth, Tax Managed Equity, High Grade Income, and Hawaii Municipal Bond Funds for Federal income tax purposes at December 31, 2004 were as follows: Bishop Street Funds 72 - -------------------------------------------------------------------------------- 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 $187,597 $65,425 $28,699 $200,837 $166,938 -------- ------- ------- -------- -------- Gross Unrealized Appreciation 26,667 14,280 7,194 4,854 9,635 Gross Unrealized Depreciation (7,973) (772) (395) (483) (71) -------- ------- ------- -------- -------- Net Unrealized Appreciation $ 18,694 $13,508 $ 6,799 $ 4,371 $ 9,564 ======== ======= ======= ======== ======== 8. 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. 9. OTHER In the normal course of business, the Funds enter 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. 10. SUBSEQUENT EVENT On or about April 29, 2005, the Class A Shares for the Equity Fund and High Grade Income Fund will be reclassified as Institutional Class Shares of the respective Funds. Those Class A Shares will then be liquidated. This reclassification will result in reduced expenses for the former Class A shareholders as the Institutional Class Shares are not subject to a 12b-1 fee. Shareholders of the relevant Funds will continue to be invested in the same Bishop Street Fund(s), whose management, fund objective and investment strategies will not change as a result of the reclassification of Class A Shares into Institutional Class Shares. The reclassification will not have any tax implications for the affected Funds or their respective shareholders. December 31, 2004 73 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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, 2004, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 17, 2005 Bishop Street Funds 74 Bishop Street Funds - -------------------------------------------------------------------------------- DISCLOSURE OF FUND EXPENSES (UNAUDITED) All mutual funds have operating expenses. As a shareholder of a mutual fund, your investment is affected by these ongoing costs, which include (among others) costs for portfolio management, administrative services, and shareholder reports like this one. It is important for you to understand the impact of these costs on your investment returns. Operating expenses such as these are deducted from a mutual fund's gross income and directly reduce your final investment return. These expenses are expressed as a percentage of the mutual fund's average net assets; this percentage is known as the mutual fund's expense ratio. The following examples use the expense ratio and are intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period. The table on the next page illustrates your Fund's costs in two ways: o ACTUAL FUND RETURN. This section helps you to estimate the actual expenses after fee waivers that your Fund incurred over the period. The "Expenses Paid During Period" column shows the actual dollar expense cost incurred by a $1,000 investment in the Fund, and the "Ending Account Value" number is derived from deducting that expense cost from the Fund's gross investment return. You can use this information, together with the actual amount you invested in the Fund, to estimate the expenses you paid over that period. Simply divide your actual account value by $1,000 to arrive at a ratio (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply that ratio by the number shown for your Fund under "Expenses Paid During Period". o HYPOTHETICAL 5% FUND RETURN. This section helps you compare your Fund's costs with those of other mutual funds. It assumes that the Fund had an annual 5% return before expenses during the year, but that the expense ratio (Column 3) for the period is unchanged. This example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to make this 5% calculation. You can assess your Fund's comparative cost by comparing the hypothetical result for your Fund in the "Expenses Paid During Period" column with those that appear in the same charts in the shareholder reports for other funds. NOTE: Because the return is set at 5% for comparison purposes -- NOT your Fund's actual return -- the account values shown may not apply to your specific investment. December 31, 2004 75 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Beginning Ending Expenses Account Account Annualized Paid Value Value Expense During 6/30/04 12/31/04 Ratios Period* - ------------------------------------------------------------------------------------------- EQUITY FUND -- INSTITUTIONAL CLASS - ------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,034.40 1.00% $5.11 HYPOTHETICAL 5% FUND RETURN 1,000.00 1,020.11 1.00% 5.08 - ------------------------------------------------------------------------------------------- EQUITY FUND -- CLASS A - ------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,033.30 1.24% $6.34 HYPOTHETICAL 5% FUND RETURN 1,000.00 1,018.90 1.24% 6.29 - ------------------------------------------------------------------------------------------- STRATEGIC GROWTH FUND -- INSTITUTIONAL CLASS - ------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,060.80 1.08% $5.59 HYPOTHETICAL 5% FUND RETURN 1,000.00 1,019.71 1.08% 5.48 - ------------------------------------------------------------------------------------------- TAX MANAGED EQUITY FUND -- INSTITUTIONAL CLASS - ------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,037.80 1.00% $5.12 HYPOTHETICAL 5% FUND RETURN 1,000.00 1,020.11 1.00% 5.08 - ------------------------------------------------------------------------------------------- HIGH GRADE INCOME FUND -- INSTITUTIONAL CLASS - ------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,039.30 0.76% $3.90 HYPOTHETICAL 5% FUND RETURN 1,000.00 1,021.32 0.76% 3.86 - ------------------------------------------------------------------------------------------- HIGH GRADE INCOME FUND -- CLASS A - ------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,039.10 1.01% $5.18 HYPOTHETICAL 5% FUND RETURN 1,000.00 1,020.06 1.01% 5.13 - ------------------------------------------------------------------------------------------- HAWAII MUNICIPAL BOND FUND -- INSTITUTIONAL CLASS - ------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,044.00 0.55% $2.83 HYPOTHETICAL 5% FUND RETURN 1,000.00 1,022.37 0.55% 2.80 - ------------------------------------------------------------------------------------------- HAWAII MUNICIPAL BOND FUND -- CLASS A - ------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,042.70 0.80% $4.11 HYPOTHETICAL 5% FUND RETURN 1,000.00 1,021.11 0.80% 4.06 - ------------------------------------------------------------------------------------------- MONEY MARKET FUND -- INSTITUTIONAL CLASS - ------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,006.00 0.50% $2.52 HYPOTHETICAL 5% FUND RETURN 1,000.00 1,022.62 0.50% 2.54 - ------------------------------------------------------------------------------------------- MONEY MARKET FUND -- CLASS A - ------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,004.70 0.75% $3.78 HYPOTHETICAL 5% FUND RETURN 1,000.00 1,021.37 0.75% 3.81 - ------------------------------------------------------------------------------------------- TREASURY MONEY MARKET FUND -- INSTITUTIONAL CLASS - ------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,005.90 0.44% $2.22 HYPOTHETICAL 5% FUND RETURN 1,000.00 1,022.92 0.44% 2.24 - ------------------------------------------------------------------------------------------- <FN> *Expenses are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). </FN> Bishop Street Funds 76 Bishop Street Funds - -------------------------------------------------------------------------------- NOTICE TO SHAREHOLDERS OF BISHOP STREET FUNDS (UNAUDITED) For shareholders that do not have a December 31, 2004 taxable year end, this notice is for informational purposes only. For shareholders with a December 31, 2004 tax year end, please consult your tax advisor as to the pertinence of this notice. For the fiscal year ended December 31, 2004, each Fund has designated the following items with regard to distributions paid during the year: (A) (B) (C) LONG TERM SHORT TERM ORDINARY CAPITAL GAINS CAPITAL GAINS INCOME (D) DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS TAX EXEMPT FUND (TAX BASIS) (TAX BASIS) (TAX BASIS) INTEREST - ------ ------------- ------------- ------------- ---------- Equity 0% 0% 100% 0% Strategic Growth 0% 0% 0% 0% Tax Managed Equity 78% 4% 18% 0% High Grade Income 9% 0% 91% 0% Hawaii Municipal Bond 20% 1% 0% 79% Money Market 0% 0% 100% 0% Treasury Money Market 0% 1% 99% 0% (F) DIVIDENDS (E) QUALIFYING FOR (A+B+C+D) CORPORATE (G) (H) TOTAL DIVIDENDS QUALIFYING U.S. DISTRIBUTIONS RECEIVABLE DIVIDEND GOVERNMENT FUND (TAX BASIS) DEDUCTION(1) INCOME(2) INTEREST (3) - ------ ------------- ------------- ----------- ------------ Equity 100% 100% 100% 0% Strategic Growth 0% 0% 0% 0% Tax Managed Equity 100% 100% 100% 0% High Grade Income 100% 0% 0% 7% Hawaii Municipal Bond 100% 0% 0% 0% Money Market 100% 0% 0% 5% Treasury Money Market 100% 0% 0% 35% (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" (THE TOTAL OF SHORT TERM CAPITAL GAIN AND NET INVESTMENT INCOME DISTRIBUTIONS). IT IS THE INTENTION OF THE FUND TO DESIGNATE THE MAXIMUM AMOUNT PERMITTED BY THE LAW. (3) "U.S. GOVERNMENT INTEREST" REPRESENTS THE AMOUNT OF INTEREST THAT WAS DERIVED FROM DIRECT U.S. GOVERNMENT OBLIGATIONS AND DISTRIBUTED DURING THE FISCAL YEAR. THIS AMOUNT IS REFLECTED AS A PERCENTAGE OF TOTAL ORDINARY INCOME DISTRIBUTIONS (THE TOTAL OF SHORT TERM CAPITAL GAIN AND NET INVESTMENT INCOME DISTRIBUTIONS). GENERALLY, INTEREST FROM DIRECT U.S. GOVERNMENT OBLIGATIONS IS EXEMPT FROM STATE INCOME TAX. HOWEVER, FOR RESIDENTS OF CALIFORNIA, CONNECTICUT AND NEW YORK, THE STATUTORY THRESHHOLD REQUIREMENTS WERE NOT SATISFIED TO PERMIT EXEMPTION OF THESE AMOUNTS FROM STATE INCOME. * ITEMS (A), (B), (C) AND (D) ARE BASED ON THE PERCENTAGE OF EACH FUND'S TOTAL DISTRIBUTION. ** ITEMS (F), (G) AND (H) ARE BASED ON A PERCENTAGE OF ORDINARY INCOME DISTRIBUTIONS (THE TOTAL OF SHORT TERM CAPITAL GAIN AND NET INVESTMENT INCOME) OF EACH FUND. December 31, 2004 77 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS The following table lists the Trustees and Officers as of February 17, 2005. 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 81 [Photo Omitted] MR. PETER F. SANSEVERO Trustee Since 1999 71 [Photo Omitted] MR. MANUEL R. SYLVESTER Trustee Since 1994 74 [Photo Omitted] DR. JOYCE S. TSUNODA Trustee Since 1994 66 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) - --------------------------------------------- ------------- ------------- PARTNER -- Goodsill, Anderson, Quinn & Stifel 7 None since 1951 REGIONAL DIRECTOR OF THE NORTHWESTERN REGION AND 7 None FIRST VICE PRESIDENT -- Merrill Lynch (1958-1997) RETIRED SINCE 1992 7 None EMERITUS CHANCELLOR FOR THE COMMUNITY COLLEGES -- 7 None University of Hawaii since October 2003 DISTINGUISHED VISITING SCHOLAR -- East-West Center since January 2004 VICE PRESIDENT FOR INTERNATIONAL EDUCATION -- University of Hawaii System (2003-2004) CHANCELLOR FOR COMMUNITY COLLEGES -- University of Hawaii (1983-2003) SENIOR VICE PRESIDENT -- University of Hawaii (1989-2003) December 31, 2004 79 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 73 President [Photo Omitted] and MR. ROBERT A. NESHER Chairman of Since 1998 58 the Board of Trustees [Photo Omitted] MR. JOHN K. TSUI Trustee Since 2004 66 OFFICERS Peter (Pedro) A. Rodriquez Treasurer Since February 2005 42 and Controller Philip T. Masterson Vice President 1 40 and Secretary Bishop Street Funds 80 (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 ADVISORS' INNER CIRCLE FUND II, CURRENTLY PERFORMS VARIOUS SERVICES ON BEHALF OF 7 EXPEDITION FUNDS, SEI ASSET ALLOCATION SEI INVESTMENTS FOR WHICH MR. NESHER IS COMPENSATED. TRUST, SEI DAILY INCOME TRUST, SEI EXECUTIVE VICE PRESIDENT -- SEI Investments (1986-1994) INDEX FUNDS, SEI INSTITUTIONAL INVESTMENTS DIRECTOR AND EXECUTIVE VICE PRESIDENT OF THE ADVISER, TRUST, SEI INSTITUTIONAL MANAGED TRUST, THE ADMINISTRATOR AND THE DISTRIBUTOR (1981-1994) SEI INSTITUTIONAL INTERNATIONAL TRUST, SEI LIQUID ASSET TRUST AND SEI TAX EXEMPT TRUST. PRESIDENT, CHIEF OPERATING OFFICER, DIRECTOR -- First 7 None Hawaiian Bank (1994-2002) VICE CHAIRMAN, CHIEF CREDIT OFFICER -- BancWest Corporation (2000-2002) DIRECTOR -- Bank of the West (2000-2002) Director, SEI Investments, Fund Accounting and N/A N/A Administration (1997-present); Vice President, Blackrock Financial Management, Fund Administration (April 2002-September 2002). Employed by SEI Investments since 2004. General N/A N/A counsel, CITCO Mutual Fund Services (2003- 2004); Vice President and Associate Counsel, Oppenheimer Funds (1998-2003). December 31, 2004 81 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- TERM OF POSITION(S) OFFICE AND PERSONAL HELD WITH THE LENGTH OF INFORMATION(1) COMPANY TIME SERVED(2) - ------------------------------- ------------- ------------ James Ndiaye Vice President and Since February 2005 37 Assistant Secretary Sofia A. Rosala Vice President and Since February 2005 31 Assistant Secretary Timothy D. Barto Vice President and 4 36 Assistant Secretary Michael T. Pang Vice President and Since February 2005 32 Assistant Secretary Ryan S. Ushijima Chief 1 48 Compliance Officer Lori Foo Vice President and 3 47 Assistant Secretary 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 JUNE 30, 2004, THE BISHOP STREET FUNDS COMPLEX CONSISTED OF 7 FUNDS. Bishop Street Funds 82 (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) - --------------------------------------------- --------------- --------------- Employed by SEI Investments since 2004. Vice N/A N/A President, Deutsche Asset Management (2003- 2004); Associate, Morgan, Lewis & Bockius LLP (2000-2003); Assistant Vice President, ING Variable Annuities Group (1999-2000). Compliance Officer of SEI Investments N/A N/A since September 2001. Account and Product Consultant, SEI Private Trust Company (1998-2001). Vice President and Assistant Secretary of SEI N/A N/A Investments Global Funds Services since 1999; Associate, Dechert (1997-1999). Employed by SEI Investments since January 2005. N/A N/A Counsel, Caledonian Bank and Trust's Mutual Funds Group in 2004; Counsel, Permal Asset Management (2001-2004); Associate, Schulte, Roth and Zabel's Investment Management Group (2000-2001). Chief Compliance Officer of Bishop Street Funds; N/A N/A Commissioner of Securities, Department of Commerce and Consumer Affairs, State of Hawaii (1998-2004). Assistant Vice President of First Hawaiian Bank since N/A N/A 2000; Employed by First Hawaiian Bank since 1994. 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 TSUI 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, 2004 83 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- NOTES [Background 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 64121 CUSTODIAN UNION BANK OF CALIFORNIA, N.A. SAN FRANCISCO, CA 94101 LEGAL COUNSEL MORGAN, LEWIS & BOCKIUS LLP PHILADELPHIA, PA 19103 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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-006-1000 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, controller 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 (PwC LLP) Related to the Trust PwC LLP billed the Trust aggregate fees for services rendered to the Trust for the last two fiscal years as follows: - ------------------------------------------------------------------------------------------------------------------------------ 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------ 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 pre- did not require were pre- did not require approved pre-approval approved pre-approval - ------------------------------------------------------------------------------------------------------------------------------ (a) Audit $98,200 N/A N/A $90,500 N/A N/A Fees(1) - ------------------------------------------------------------------------------------------------------------------------------ (b) Audit- N/A N/A N/A N/A N/A N/A Related Fees - ------------------------------------------------------------------------------------------------------------------------------ (c) Tax N/A N/A N/A N/A N/A N/A Fees - ------------------------------------------------------------------------------------------------------------------------------ (d) All N/A N/A N/A N/A N/A N/A 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: --------------------------------------------------------------- 2004 2003 --------------------------------------------------------------- Audit-Related Fees N/A N/A --------------------------------------------------------------- Tax Fees N/A N/A --------------------------------------------------------------- All Other Fees N/A N/A --------------------------------------------------------------- (f) Not applicable. (g) The aggregate non-audit fees and services billed by PwC LLP for the last two fiscal years were $0 and $0 for 2004 and 2003, respectively. (h) Not Applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable to open-end management investment companies. ITEM 6. SCHEDULE OF INVESTMENTS Not applicable. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to open-end management investment companies. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES Not applicable. Effective for closed-end management investment companies for fiscal years ending on or after December 31, 2005. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable to open-end management investment companies. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 11. 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 registrant's internal control over financial reporting. ITEMS 12. 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 Street Funds /s/ Robert A. Nesher By (Signature and Title)* ------------------------------ Robert A. Nesher President Date: 02/28/05 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. /s/ Robert A. Nesher By (Signature and Title)* ------------------------------ Robert A. Nesher President Date: 02/28/05 /s/ Peter (Pedro) A. Rodriguez By (Signature and Title)* ------------------------------ Peter (Pedro) A. Rodriguez Treasurer and Controller Date 02/28/05 * Print the name and title of each signing officer under his or her signature.