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 811-08572 BISHOP STREET FUNDS (Exact name of registrant as specified in charter) -------- 2 Oliver Street Boston, MA 02109 (Address of principal executive offices) SEI Investments One Freedom Valley Drive Oaks, PA 19456 (Name and address of agent for service) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-610-254-1000 DATE OF FISCAL YEAR END: DECEMBER 31, 2005 DATE OF REPORTING PERIOD: DECEMBER 31, 2005 ITEM 1. REPORTS TO STOCKHOLDERS. [GRAPHIC OMITTED] BISHOP STREET FUNDS ANNUAL REPORT DECEMBER 31, 2005 LARGE CAP GROWTH 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 [LOGO] BISHOP STREET FUNDS The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q within sixty days after the end of the period. 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 June 30 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 LARGE CAP GROWTH 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 ........................................... 20 Statement of Net Assets ......................................... 22 HIGH GRADE INCOME FUND Management Discussion ........................................... 26 Statement of Net Assets ......................................... 28 HAWAII MUNICIPAL BOND FUND Management Discussion ........................................... 36 Statement of Net Assets ......................................... 38 MONEY MARKET & TREASURY MONEY MARKET FUNDS Management Discussion ........................................... 48 Statements of Net Assets ........................................ 50 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 .............. 75 DISCLOSURE OF FUND EXPENSES .......................................... 76 NOTICE TO SHAREHOLDERS ............................................... 78 BOARD OF TRUSTEES AND OFFICERS ....................................... 80 SHAREHOLDER VOTING RESULTS ........................................... 86 1 - -------------------------------------------------------------------------------- BISHOP STREET LETTER TO SHAREHOLDERS FUNDS - -------------------------------------------------------------------------------- [PHOTO OF DALE KOBAYASHI OMITTED] Looking solely at the low single digit returns generated by domestic equity and fixed income markets during 2005, one could arrive at the mistaken conclusion that the year was an uneventful one in the financial markets. On the contrary, the low returns in the market could be more accurately characterized as a surprising show of resiliency of the economy in the face of severe challenges as well as the continuation of persistent, growing imbalances. Indeed, the litany of challenges faced during the year was quite considerable. While headline grabbing issues arising from the effects of Katrina/Rita and the prolonged oil shock necessarily generated a great deal of angst in the financial markets, it is the persistency of the financial imbalances which lend a cautious tone to 2006 projections. In particular, the leveraging of the American consumer on the steep increase in real estate prices nationwide constitutes the primary challenge to an orderly continuation of a tenuous economic recovery. 2005 saw the fifth straight year where consumer spending represented the primary growth engine for the economy. Notably, in 2005 the personal savings rate was negative, with consumers borrowing more than they were saving, for the first time since the depression era. The housing market bubble provided the means to continue the high degree of leverage, current estimates show $880 billion of home equity was converted to cash during the year. Clearly, the steep increase in real estate prices which has made this all possible is unsustainable. The question as we ponder the prospects for the current year becomes whether these imbalances can be reversed at a gradual, orderly pace, or with the loud pop of an asset bubble bursting as history has taught us to be justifiably fearful of. Bishop Street Funds 2 - -------------------------------------------------------------------------------- [LOGO] BISHOP STREET FUNDS - -------------------------------------------------------------------------------- From where we sit, the prospects for a "soft landing" are invariably tied into the probability of a sharp rise in interest rates, the most likely catalyst for a collapse in housing prices and consumer spending. This against the backdrop of transitions in the Federal Reserve (the "Fed") chairmanship. After January 31st, Ben Bernanke will become the first new Fed chairman since Alan Greenspan was appointed by President Reagan in 1987. For all the discussion of Mr. Bernanke being better known as a deflation fighter than the inflation hawk Chairman Greenspan was, we foresee more continuity than disruption at the Fed and the reality of an end to the current tightening cycle in early 2006. At the end of the day, despite inflation concerns generated by an easy money policy, higher commodity prices, the jump in energy prices, and a tightening domestic labor market, these factors pale in significance to one overriding structural consideration: a globalized labor market where goods are easily sourced from the lowest cost producer worldwide. Looking forward, we anticipate the slowdown in consumer spending to begin revealing itself in the coming year, but to come at a reasonable pace. Sincerely, /s/ Dale Kobayashi Dale Kobayashi President and Chief Investment Officer Bishop Street Capital Management December 31, 2005 3 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET INVESTMENT ADVISER'S REPORT FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISER'S REPORT ECONOMIC BACKDROP 2005 was full of intrigue, but you would never know it looking at the financial markets, for which the year ended pretty much as it had begun. Perhaps the most surprising development was the strength of the economy in the face of severe challenges, including Katrina/Rita and a prolonged oil shock. Yet persistent and growing financial imbalances, led by the housing bubble, have not dissipated. Will 2006 see a day of reckoning? Maybe, but probably not. The more likely outcome, in our view, is a Fed-engineered "soft landing", that will prolong the current economic boom for another year at least. As many commentators have recognized, the economic recovery has been built on a rickety foundation. Defying all expectations, consumer spending fueled by rising real estate values has been the primary growth engine for the economy for the past five years. (Consumer spending in fact never faltered: the 2001 recession was entirely related to a fall off in business investment). Without question, at some point the consumer will no longer be able to shoulder the load. Notably, in 2005 the personal saving rate went negative, meaning American consumers were borrowing more than they were saving (the last time that happened was during the Depression). And boy, are they ever borrowing. According to a Federal Reserve (the "Fed") study, in 2004 homeowners converted $600 billion of home equity to cash (e.g., through home equity loans). Goldman Sachs estimates a figure of over $880 billion for 2005, or roughly 7% of personal income. The second major area of risk for the economy in 2006 can be put under the general heading of "Fed policy blunder", by which we mean a failure by the Fed to correctly calibrate monetary policy. If the Fed tightens too aggressively, economic growth may stagnate. If they don't tighten enough, excess liquidity could provoke inflation. Imbedded here is the Fed reaction function to a variety of unpredictable scenarios, such as a renewed spike in energy prices or an overheating economy. Bishop Street Funds 4 - -------------------------------------------------------------------------------- [LOGO] BISHOP STREET FUNDS - -------------------------------------------------------------------------------- Assuming that 2006 avoids a national housing market collapse or a Fed policy blunder, the economic outlook is reasonably strong. THE WALL STREET JOURNAL SEMIANNUAL ECONOMIC FORECASTING SURVEY of 56 economists provides a consensus forecast of 3.2% GDP growth for 2006, a slowdown from the last two years but still respectable in light of the tightening monetary policy and higher energy prices which are weighing on the economy. Although consumption spending will likely slow, business spending should remain robust, reflecting record levels of cash on corporate balance sheets. There is also wide agreement that interest rates will remain range bound, and few expect long term treasury yields to top 5% (vs. about 4.4% today). The key for this generally rosy consensus to happen is for inflation to remain under control, which we believe is likely. Inflation hawks justifiably point to a long period of very easy money, the jump in commodity prices (including a big run up in gold), higher energy costs, and the tightening labor market as possible precursors of resurgent inflation. These factors are tempered, however, by structural disinflationary forces, including globalization of the labor market such that goods are easily sourced from the lowest cost producers worldwide. EQUITY MARKET REVIEW AND OUTLOOK Last year, we projected "a respectable single-digit return opportunity" for U.S. equities in 2005. In the event, the S&P 500 Index had a total return of 4.8%, in line with our admittedly wide forecast range. We could hardly have envisioned the path by which we got there, however. Our expectation was for earnings growth to be in the single-digit range, with valuation multiples staying flat. Instead, earnings growth will likely exceed 13%, and multiples have continued to compress. Looking a little deeper, one can begin to see why the market was less then enamored with 2005's earnings story--virtually all of the earnings upside occurred in only one sector, Energy, while most other sectors disappointed. Not surprisingly, Energy-related stocks also showed the best price performance by wide margin, rising 29% for the year. December 31, 2005 5 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET INVESTMENT ADVISER'S REPORT FUNDS - -------------------------------------------------------------------------------- As has been the case for several years, small cap stocks outperformed large caps, and value stocks outperformed growth. We have a growing conviction that these trends are likely to reverse in 2006. We note that large cap valuations appear very reasonable. After several years of underperformance, many of the largest best known companies in America (e.g. Wal-mart, Microsoft, Pfizer) are trading at steep discounts to historical averages, while conversely small caps look expensive. Such a prolonged period of large cap underperformance has not been seen since the 1970's, a time of structural change in the financial markets that saw a large inflow of investment funds into the small cap market. Further, periods of decelerating economic growth (as we expect in 2006) tend to favor growth stocks--those companies which can achieve superior growth rates during cyclical lulls. Overall, we expect another positive but not spectacular year for the stock market. The economic backdrop, while not as robust as a couple of years ago, is generally favorable (with the caveats noted in the previous section). Earnings growth will likely fall somewhere between 5% and 10% (the consensus estimate is 7%). It is hard to believe that earnings multiples (commonly expressed as the trailing price/earnings ratio), already cut nearly in half over the past three years, will compress much further. Some modest multiple expansion appears more likely, particularly in light of the continued low interest rate environment. We expect investment returns to also be boosted by a return of more corporate cash to shareholders in the form of dividends and share buybacks. In 2005 the companies in the S&P 500 Index returned about $500 billion directly to shareholders, up 35% from 2004. All in all, we again anticipate single-digit returns or better from the stock market in 2006. Bishop Street Funds 6 - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- LARGE CAP GROWTH FUND - -------------------------------------------------------------------------------- The Bishop Street Large Cap Growth Fund (the "Fund") returned 0.94% in the fourth quarter of 2005. For the full year 2005 the Fund returned 1.59%. Early in the fourth quarter the economy faced challenges from tightening monetary policy, higher energy prices and the aftermath of Katrina/Rita. Despite these headwinds, the economy was surprisingly robust. For investors, clear signs of a slowdown in the housing market (along with related consequences for consumer spending) seem to be counterbalanced by muted core inflation and the prospect of an end to the Federal Reserve (the "Fed") tightening. Compared to the benchmark S&P 500 Index, during the quarter the portfolio had a negative impact from stock selection, mostly due to a single healthcare stock, Kinetic Concepts Inc. (KCI), which was down nearly 37% due to negative reimbursement developments. To a lesser extent performance was hurt by stock selection in the Information Technology sector. On the positive side, Energy stocks positively affected portfolio performance. In the aggregate, sector weightings had a negligible effect on relative performance. Looking ahead, assuming that 2006 avoids a national housing market collapse or a Fed policy blunder, the economic outlook is reasonably strong. The key to this forecast is that inflation remains under control, which we believe is likely. In summary, the tenuous economic recovery cannot last forever, but will likely persist through 2006. As has been the case for several years, small cap stocks outperformed large cap, and value stocks outperformed growth during 2005. We have a growing conviction that these trends are likely to reverse in 2006. In historical terms large cap valuations appear very reasonable. Further, periods of decelerating economic growth (as we expect in 2006) tend to favor growth stocks -- those companies which can achieve superior growth rates during cyclical lulls. December 31, 2005 7 www.bishopstreetfunds.com LARGE CAP GROWTH FUND - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE LARGE CAP GROWTH FUND, CLASS I, VERSUS THE S&P 500 COMPOSITE INDEX, THE CONSUMER PRICE INDEX AND THE LIPPER DOMESTIC EQUITY AGGREGATE. [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] S&P 500 Large Cap Growth Composite Consumer Lipper Domestic Fund, Class I# Index Price Index Equity Aggregate 1/31/97 10,000 10,000 10,000 10,000 12/97 12,031 12,553 10,137 11,929 12/98 16,007 16,141 10,300 13,715 12/99 19,908 19,537 10,575 17,351 12/00 16,683 17,759 10,931 17,701 12/01 12,411 15,647 11,101 16,071 12/02 9,300 12,189 11,367 12,818 12/03 11,776 15,687 11,581 16,908 12/04 12,214 17,393 11,958 18,953 12/05 12,408 18,247 12,364 20,245 # 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 --------------------------------------------------------------------- 1.59% 10.09% -5.75% 2.56% Class I* --------------------------------------------------------------------- * Commenced operations on 01/30/97. + 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 LARGE CAP GROWTH FUND - -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS+ - ----------------------------------------------------------------------------- Percentage of Investments - ----------------------------------------------------------------------------- 1. General Electric 4.2% - ----------------------------------------------------------------------------- 2. Procter & Gamble 3.5% - ----------------------------------------------------------------------------- 3. Microsoft 3.5% - ----------------------------------------------------------------------------- 4. PepsiCo 3.4% - ----------------------------------------------------------------------------- 5. Citigroup 3.2% - ----------------------------------------------------------------------------- 6. Amgen 3.1% - ----------------------------------------------------------------------------- 7. JPMorgan Chase 3.0% - ----------------------------------------------------------------------------- 8. Goldman Sachs Group 2.9% - ----------------------------------------------------------------------------- 9. Johnson & Johnson 2.8% - ----------------------------------------------------------------------------- 10. Halliburton 2.6% - ----------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.] Information Technology 17.6% Financials 15.2% Health Care 15.2% Industrials 13.1% Consumer Discretionary 10.5% Consumer Staples 10.4% Energy 9.1% Materials 5.2% Telecommunication Services 2.5% Short-Term Investments 1.2% - -------------------------------------------------------------------------------- + PERCENTAGES ARE BASED ON TOTAL INVESTMENTS. EXCLUDES SECURITIES PURCHASED WITH CASH COLLATERAL RECEIVED FROM SECURITIES LENDING. STATEMENT OF NET ASSETS Market Value Shares (000) --------- --------- COMMON STOCK -- 99.0% CONSUMER DISCRETIONARY -- 11.7% 16,610 Apollo Group, Cl A* (A) $ 1,004 38,930 Best Buy 1,693 37,030 Carnival 1,980 40,160 eBay* 1,737 14,480 EchoStar Communications, Cl A* 393 24,476 IAC/InterActiveCorp* 693 December 31, 2005 9 www.bishopstreetfunds.com LARGE CAP GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) --------- --------- CONSUMER DISCRETIONARY -- (CONTINUED) 11,867 Mohawk Industries* $ 1,032 9,503 Omnicom Group 809 27,540 Viacom, Cl B* 898 --------- 10,239 --------- CONSUMER STAPLES -- 10.4% 53,616 CVS 1,417 50,850 PepsiCo 3,004 52,820 Procter & Gamble 3,057 21,014 Whole Foods Market 1,626 --------- 9,104 --------- ENERGY -- 9.1% 12,590 Apache 863 11,960 ConocoPhillips 696 27,659 GlobalSantaFe (A) 1,332 36,900 Halliburton (A) 2,286 17,800 Peabody Energy 1,467 13,743 Schlumberger Ltd. (A) 1,335 --------- 7,979 --------- FINANCIALS -- 15.2% 14,020 AMBAC Financial Group 1,081 19,703 American Express (A) 1,014 4,048 Ameriprise Financial 166 58,583 Citigroup 2,843 20,170 Goldman Sachs Group 2,576 66,820 JPMorgan Chase 2,652 23,844 St. Paul Travelers 1,065 31,150 Wells Fargo 1,957 --------- 13,354 --------- HEALTH CARE -- 15.2% 34,980 Amgen* 2,759 17,190 Caremark Rx* 890 12,500 Eli Lilly (A) 707 5,951 Genzyme* 421 9,190 Gilead Sciences* 484 41,029 Johnson & Johnson 2,466 8,866 Kinetic Concepts* 352 16,030 Medtronic 923 89,651 Pfizer 2,091 35,924 UnitedHealth Group 2,232 --------- 13,325 --------- Bishop Street Funds 10 LARGE CAP GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) --------- --------- INDUSTRIALS -- 12.0% 40,080 Danaher (A) $ 2,236 104,805 General Electric 3,673 21,722 Pentair 750 8,460 Union Pacific 681 15,040 United Parcel Service, Cl B 1,130 36,550 United Technologies 2,044 --------- 10,514 --------- INFORMATION TECHNOLOGY -- 17.6% 11,160 Analog Devices (A) 400 61,549 Applied Materials 1,104 55,360 Cisco Systems* 948 52,302 Dell* 1,569 35,680 EMC Corp/Massachusetts* 486 88,780 Intel 2,216 10,052 International Business Machines 826 12,992 Linear Technology 469 116,424 Microsoft 3,045 19,450 Motorola 439 33,370 Oracle* 407 22,150 Paychex 844 30,530 Qualcomm 1,315 24,946 Symantec* 437 16,610 Texas Instruments 533 11,380 Yahoo!* (A) 446 --------- 15,484 --------- MATERIALS -- 5.2% 41,550 Dow Chemical 1,821 20,400 EI Du Pont de Nemours (A) 867 36,170 Praxair 1,915 --------- 4,603 --------- TELECOMMUNICATION SERVICES -- 2.6% 22,631 Corning* 445 44,240 Sprint Nextel 1,033 25,580 Verizon Communications 771 --------- 2,249 --------- TOTAL COMMON STOCK (Cost $80,211) 86,851 --------- December 31, 2005 11 www.bishopstreetfunds.com LARGE CAP GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Shares/Face Market Amount Value (000) (000) ------------- --------- CORPORATE OBLIGATIONS (B) -- 4.0% FINANCIALS -- 4.0% Bank of America $1,043 4.330%, 01/03/06 $ 1,043 Bear Stearns 522 4.400%, 01/04/06 522 Bear Stearns MTN (C) 1,043 4.348%, 01/12/06 1,044 General Electric Capital MTN (C) 417 4.301%, 03/29/06 417 Sigma Finance MTN (C) 521 4.330%, 07/07/06 521 --------- TOTAL CORPORATE OBLIGATIONS (Cost $3,547) 3,547 --------- CERTIFICATES OF DEPOSIT/BANK NOTES (B)(C) -- 2.4% First Tennessee Bank 2,086 4.330%, 03/21/06 2,086 --------- TOTAL CERTIFICATES OF DEPOSIT/BANK NOTES (Cost $2,086) 2,086 --------- COMMERCIAL PAPER (B)(C) -- 2.4% Morgan Stanley 2,086 4.330%, 02/15/06 2,086 --------- TOTAL COMMERCIAL PAPER (Cost $2,086) 2,086 --------- CASH EQUIVALENTS (D) -- 1.2% 511,239 Dreyfus Cash Management Fund, Institutional Shares, 4.110% 511 511,211 Fidelity Money Market Fund, Institutional Shares, 4.170% 511 --------- TOTAL CASH EQUIVALENTS (Cost $1,022) 1,022 --------- REPURCHASE AGREEMENTS (B) -- 2.8% Bank of America 4.300%, dated 12/30/05, to be repurchased on 01/03/06, repurchase price $814,163 (collateralized by Morgan Stanley Group, par value $699,644, 7.250%, 04/01/32; 814 with total market value $841,923) 814 Bishop Street Funds 12 LARGE CAP GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ---------- --------- REPURCHASE AGREEMENTS (B) -- (CONTINUED) Lehman Brothers 4.320%, dated 12/30/05, to be repurchased on 01/03/06, repurchase price $1,700,134 (collateralized by Banc of America Mortgage Securities, Ser 2005-1, Cl 1A19, GE Capital Commercial Mortgage, Ser 2005-C3, Cl A7B, Salomon Brothers Mortgage Securities, Ser G97AP, Cl L, and Structured Asset Securities, Ser 1995-2, Cl IIB1, ranging in par value $169,439- $2,057,523, 0.000%-5.250%, 04/01/16-07/10/45; with total market $1,699 value $1,779,052) $ 1,699 --------- TOTAL REPURCHASE AGREEMENTS (Cost $2,513) 2,513 --------- TOTAL INVESTMENTS (COST $91,465) -- 111.8% 98,105 --------- OTHER ASSETS AND LIABILITIES -- (11.8)% Payable Upon Return of Securities Loaned (10,232) Payable for Capital Shares Redeemed (182) Investment Adviser Fees Payable (48) Administrative Fees Payable (9) Shareholder Servicing Fees Payable (8) Trustees' Fees Payable (1) Other Assets and Liabilities, Net 90 --------- TOTAL OTHER ASSETS AND LIABILITIES (10,390) --------- NET ASSETS -- 100.0% $ 87,715 ========= NET ASSETS: Fund Shares (unlimited authorization -- no par value) $ 133,364 Accumulated net realized loss on investments (52,289) Net unrealized appreciation on investments 6,640 --------- NET ASSETS $ 87,715 ========= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- CLASS I ($87,715,359 / 8,869,192 SHARES) $ 9.89 ========= * NON-INCOME PRODUCING SECURITY (A) THE SECURITY OR A PORTION OF THE SECURITY IS ON LOAN AT DECEMBER 31, 2005 (SEE NOTE 5 IN THE NOTES TO FINANCIAL STATEMENTS). THE TOTAL VALUE OF SECURITIES ON LOAN AT DECEMBER 31, 2005 WAS $9,943,102. (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, 2005 WAS $10,232,107. (C) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS IS THE RATE IN EFFECT ON DECEMBER 31, 2005. THE MATURITY DATE SHOWN IS THE NEXT SCHEDULED RESET DATE. (D) RATES SHOWN ARE THE 7-DAY YIELDS AS OF DECEMBER 31, 2005. CL -- CLASS LTD. -- LIMITED MTN -- MEDIUM TERM NOTE SER -- SERIES COST FIGURES ARE SHOWN WITH "000S" OMITTED. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2005 13 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- STRATEGIC GROWTH FUND - -------------------------------------------------------------------------------- The Strategic Growth Fund (the "Fund") returned 11.52% for the year. This good performance was driven by a strong stock picking in a wide range of sectors, as illustrated by the diversity of companies among our top performers of the year. These include Apple and Western Digital in technology (although with a very different focus), Express Scripts or Gilead Sciences in healthcare, XTO in energy, or Moody's in finance. Moreover, even if a few disappointments on stocks such as Harmann or Petsmart penalized us, their number remained reasonably limited, and their magnitude manageable. Our underexposure to energy was detrimental in the first half of the year, but caused less impact as it became clear that most of the good news was discounted. In line with our anticipations, it became increasingly clear over the last few months that the disruptions caused by the September and October hurricanes would not durably impact the U.S. economy. The leading indicators, which have been back to positive territory for two consecutive months, confirm this view. With a solid optimism among company managers and a continuing rebound in consumer confidence, the U.S. looks poised to remain one of the strongest developed economies well into 2006, with a positive impact on corporate earnings. A slowdown in interest rates hikes, or more favorable trends in energy prices, could be the catalysts investors expect before they turn more positive. We therefore maintain a relatively aggressive stance in our portfolio. Our high exposure to companies that deliver, year after year, strong earnings growth should be a significant advantage, specially when the momentum fades on Japanese (and, to a lesser extent, European) companies' profits after the restructuring wave. In conclusion, 2006 seems to offer attractive opportunities for the U.S. market, but investors' current focus on the oil and interest rates threats will probably make it a difficult year for investment timing. We will therefore remain extremely selective in our stock picking, and will continue to focus on the medium and long term, without paying excessive attention to short term volatilities. We trust this is the best way to approach the market, even if it may cause some temporary bumps in our performance, especially after the very good results achieved in 2005. 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, CLASS I, VERSUS THE S&P 500/CITIGROUP GROWTH INDEX, THE S&P 500/CITIGROUP PURE GROWTH INDEX, THE S&P 500/BARRA GROWTH INDEX, THE S&P 500 COMPOSITE INDEX, THE CONSUMER PRICE INDEX AND THE LIPPER MULTI CAP CORE CLASSIFICATION. [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] S&P 500 Lipper Multi Strategic Growth S&P 500/Citigroup S&P 500/Citigroup S&P 500/BARRA Composite Consumer Cap Core Fund, Class I# Growth Index Pure Growth Index Growth Index Index Price Index Classification 7/1/02 10,000 10,000 10,000 10,000 10,000 10,000 10,000 12/02 8,639 9,195 9,370 9,198 8,971 10,056 8,912 06/03 10,309 10,357 11,432 10,233 10,026 10,214 10,011 12/03 11,928 11,686 13,337 11,559 11,543 10,246 11,581 06/04 12,328 11,999 14,258 11,873 11,941 10,545 11,972 12/04 13,077 12,499 15,507 12,267 12,799 10,580 12,875 06/05 12,968 12,199 15,727 12,055 12,695 10,811 12,838 12/05 14,585 12,642 16,631 12,691 13,427 10,938 13,711 # Account value if you reinvested income and capital gains. AVERAGE ANNUAL TOTAL RETURNS+ ----------------------------------------------- ONE ANNUALIZED ANNUALIZED YEAR 3 YEAR INCEPTION RETURN RETURN TO DATE ----------------------------------------------- 11.52% 19.07% 11.40% Class I* ----------------------------------------------- * 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, 2005 15 www.bishopstreetfunds.com STRATEGIC GROWTH FUND - -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS+ - ----------------------------------------------------------------------------- Percentage of Investments - ----------------------------------------------------------------------------- 1. Hilton Hotels 2.3% - ----------------------------------------------------------------------------- 2. Western Digital 2.1% - ----------------------------------------------------------------------------- 3. BJ Services 2.1% - ----------------------------------------------------------------------------- 4. Lowe's 2.1% - ----------------------------------------------------------------------------- 5. Cendant 2.1% - ----------------------------------------------------------------------------- 6. Capital One Financial 2.1% - ----------------------------------------------------------------------------- 7. United Technologies 2.1% - ----------------------------------------------------------------------------- 8. Abercrombie & Fitch 2.1% - ----------------------------------------------------------------------------- 9. Hewlett-Packard 2.1% - ----------------------------------------------------------------------------- 10. XTO Energy 2.1% - ----------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.] Information Technology 21.6% Consumer Discretionary 21.5% Financials 17.3% Health Care 15.4% Industrials 9.8% Energy 6.1% Materials 3.8% Short-Term Investments 2.4% Telecommunication Services 2.1% - -------------------------------------------------------------------------------- + PERCENTAGES ARE BASED ON TOTAL INVESTMENTS. STATEMENT OF NET ASSETS Market Value Shares (000) --------- --------- COMMON STOCK -- 99.2% CONSUMER DISCRETIONARY -- 21.9% 39,600 Abercrombie & Fitch, Cl A $ 2,581 62,300 Bed Bath & Beyond* 2,252 71,400 Coach* 2,380 36,100 Federated Department Stores 2,395 117,107 Hilton Hotels 2,823 38,900 Lowe's 2,593 65,400 Nordstrom 2,446 110,250 Staples 2,504 42,000 Target 2,309 Bishop Street Funds 16 STRATEGIC GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) --------- --------- CONSUMER DISCRETIONARY -- (CONTINUED) 33,400 W.W. Grainger $ 2,375 49,000 Yum! Brands 2,297 --------- 26,955 --------- ENERGY -- 6.2% 70,800 BJ Services 2,596 44,800 Exxon Mobil 2,516 58,500 XTO Energy 2,571 --------- 7,683 --------- FINANCIALS -- 17.6% 42,900 Allstate 2,320 51,600 Bank of America 2,381 29,900 Capital One Financial 2,583 23,800 Everest Re Group Ltd. 2,388 18,200 Goldman Sachs Group 2,324 18,100 Lehman Brothers Holdings 2,320 36,700 Merrill Lynch 2,486 41,200 Moody's 2,530 60,900 Paychex 2,322 --------- 21,654 --------- HEALTH CARE -- 15.6% 24,100 Aetna 2,273 29,700 Amgen* 2,342 45,300 Caremark Rx* 2,346 29,400 Express Scripts* 2,464 36,100 Genzyme* 2,555 44,600 Gilead Sciences* 2,347 42,400 Medtronic 2,441 40,000 UnitedHealth Group 2,486 --------- 19,254 --------- INDUSTRIALS -- 10.0% 150,000 Cendant 2,588 152,550 JetBlue Airways* 2,346 33,300 L-3 Communications Holdings 2,476 52,000 Norfolk Southern 2,331 46,200 United Technologies 2,583 --------- 12,324 --------- INFORMATION TECHNOLOGY -- 21.9% 88,400 Accenture Ltd., Cl A 2,552 34,000 Apple Computer* 2,444 December 31, 2005 17 www.bishopstreetfunds.com STRATEGIC GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) --------- --------- INFORMATION TECHNOLOGY -- (CONTINUED) 55,700 Autodesk $ 2,392 149,100 Cisco Systems* 2,553 89,900 Hewlett-Packard 2,574 98,900 Intel 2,469 62,700 Jabil Circuit* 2,326 102,400 Motorola 2,313 66,300 Nvidia* 2,424 196,000 Oracle* 2,393 141,600 Western Digital* 2,635 --------- 27,075 --------- MATERIALS -- 3.9% 66,700 Allegheny Technologies 2,407 55,100 Dow Chemical 2,414 --------- 4,821 --------- TELECOMMUNICATIONS -- 2.1% 109,852 Sprint Nextel 2,566 --------- TOTAL COMMON STOCK (Cost $99,165) 122,332 --------- CASH EQUIVALENTS (A) -- 2.4% 1,506,718 Dreyfus Cash Management Fund, Institutional Shares, 4.110% 1,507 1,506,718 Fidelity Money Market Fund, Institutional Shares, 4.170% 1,507 --------- TOTAL CASH EQUIVALENTS (Cost $3,014) 3,014 --------- TOTAL INVESTMENTS (COST $102,179) -- 101.6% 125,346 --------- OTHER ASSETS AND LIABILITIES -- (1.6)% Payable for Investment Securities Purchased (1,859) Payable for Capital Shares Redeemed (180) Investment Adviser Fees Payable (88) Administrative Fees Payable (12) Shareholder Servicing Fees Payable (11) Trustees' Fees Payable (1) Other Assets and Liabilities, Net 146 --------- TOTAL OTHER ASSETS AND LIABILITIES (2,005) --------- NET ASSETS -- 100.0% $ 123,341 ========= Bishop Street Funds 18 STRATEGIC GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Value (000) --------- NET ASSETS: Fund Shares (unlimited authorization -- no par value) $ 98,449 Accumulated net investment loss (8) Accumulated net realized gain on investments 1,733 Net unrealized appreciation on investments 23,167 --------- NET ASSETS $ 123,341 ========= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- CLASS I ($123,341,084 / 8,595,871 SHARES) $ 14.35 ========= * NON-INCOME PRODUCING SECURITY (A) RATE SHOWN IS THE 7-DAY YIELD AS OF DECEMBER 31, 2005. CL -- CLASS LTD. -- LIMITED COST FIGURES ARE SHOWN WITH "000S" OMITTED. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2005 19 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- TAX MANAGED EQUITY FUND - -------------------------------------------------------------------------------- The Bishop Street Tax-Managed Equity Fund (the "Fund") returned 0.5% for the fourth quarter of 2005 versus 2.09% for the S&P 500 Index. Unlike prior years, tax selling at the end of October and December offset capital gains liabilities from 2005 transactions, although higher cash balances from those sales did impact this period's returns. Although highly anticipated, the holiday season rally never truly materialized for the equity markets. November staged a strong advance off of October's retreat, but December provided negligible follow through. Energy was the weakest performing sector during the fourth quarter, partially reversing double digit returns during the prior nine months, and both natural gas and oil prices ended the year significantly higher, although measurably below their immediate post-Katrina levels. Materials, particularly gold and copper stocks, were a stern performer as well, posting the best quarterly returns for the S&P 500 Index. Financials were the second strongest performers, as investors read into the moderate inflation measures a closer than previously expected end to the Fed tightening cycle. For the Fund, an overweight position in Energy hurt performance, although better stock selection in the sector blunted the negative effects. Healthcare and technology holdings were the weakest performing sectors for the quarter, with sharp corrections in a few names held in the portfolio. An underweight position in financials also hurt. Positive performance contribution came from stock selection in consumer discretion, staples, energy and utilities. Looking forward, the Fund will continue to emphasize attractively-priced stocks with higher profitability and earnings growth, relative to the benchmark. It is anticipated that we will expand the number of stocks held in the portfolio, emphasizing less concentrated positions than in the past, in order to better balance lower turnover (and hence, lower tax liability generation) with risk control. Bishop Street Funds 20 TAX MANAGED EQUITY FUND - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE TAX MANAGED EQUITY FUND, CLASS I, VERSUS THE S&P 500 COMPOSITE INDEX, THE CONSUMER PRICE INDEX AND THE LIPPER LARGE CAP CORE CLASSIFICATION. [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] Tax Managed S&P 500 Lipper Large Equity Fund, Composite Consumer Cap Core Class I# Index Price Index Classificiation 11/13/02 10,000 10,000 10,000 10,000 12/02 9,843 9,966 9,976 9,916 06/03 10,713 11,138 10,133 10,946 12/03 12,171 12,825 10,164 12,469 06/04 12,478 13,266 10,461 12,740 12/04 12,949 14,220 10,495 13,479 06/05 12,512 14,105 10,725 13,325 12/05 13,038 14,917 10,851 14,123 # Account value if you reinvested income and capital gains. AVERAGE ANNUAL TOTAL RETURNS+ ------------------------------------------ ONE ANNUALIZED ANNUALIZED YEAR 3 YEAR INCEPTION RETURN RETURN TO DATE ------------------------------------------ 0.68% 9.83% 8.85% Class I* ------------------------------------------ * 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. December 31, 2005 21 www.bishopstreetfunds.com TAX MANAGED EQUITY FUND - -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS+ - ----------------------------------------------------------------------------- Percentage of Investments - ----------------------------------------------------------------------------- 1. Citigroup 4.6% - ----------------------------------------------------------------------------- 2. Amgen 3.6% - ----------------------------------------------------------------------------- 3. General Electric 3.5% - ----------------------------------------------------------------------------- 4. Halliburton 3.0% - ----------------------------------------------------------------------------- 5. Altria Group 2.9% - ----------------------------------------------------------------------------- 6. Exxon Mobil 2.7% - ----------------------------------------------------------------------------- 7. UnitedHealth Group 2.7% - ----------------------------------------------------------------------------- 8. Microsoft 2.6% - ----------------------------------------------------------------------------- 9. Johnson & Johnson 2.4% - ----------------------------------------------------------------------------- 10. GlobalSantaFe 2.3% - ----------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.] Information Technology 17.7% Financials 17.1% Industrials 14.4% Energy 11.6% Health Care 11.3% Consumer Staples 10.9% Consumer Discretionary 9.9% Materials 3.6% Telecommunication Services 1.9% Short-Term Investments 1.6% - -------------------------------------------------------------------------------- + PERCENTAGES ARE BASED ON TOTAL INVESTMENTS. STATEMENT OF NET ASSETS Market Value Shares (000) --------- --------- COMMON STOCK -- 97.5% CONSUMER DISCRETIONARY -- 9.9% 4,000 Best Buy $ 174 6,550 Carnival 350 8,300 eBay* 359 7,165 Expedia* 172 8,930 Home Depot 361 7,165 IAC/InterActiveCorp* 203 2,900 Michaels Stores 103 4,700 Mohawk Industries* 409 4,000 Omnicom Group 341 Bishop Street Funds 22 TAX MANAGED EQUITY FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) --------- --------- CONSUMER DISCRETIONARY -- (CONTINUED) 2,280 Sears Holdings* $ 263 6,950 Target 382 14,750 Time Warner 257 --------- 3,374 --------- CONSUMER STAPLES -- 10.8% 13,400 Altria Group 1,001 15,000 CVS 396 10,180 PepsiCo 601 11,940 Procter & Gamble 691 12,000 Sysco 373 9,200 Wal-Mart Stores 431 2,780 Whole Foods Market 215 --------- 3,708 --------- ENERGY -- 11.5% 2,920 Devon Energy 182 16,500 Exxon Mobil 927 16,020 GlobalSantaFe 771 16,250 Halliburton 1,007 3,470 Peabody Energy 286 7,850 Schlumberger Ltd. 763 --------- 3,936 --------- FINANCIALS -- 16.9% 4,200 Aflac 195 10,500 Allstate 568 7,580 American Express 390 3,130 American International Group 214 1,516 Ameriprise Financial 62 32,400 Citigroup 1,572 4,300 Goldman Sachs Group 549 12,790 JPMorgan Chase 508 5,760 Merrill Lynch 390 10,970 Wachovia 580 12,230 Wells Fargo 768 --------- 5,796 --------- HEALTH CARE -- 11.2% 15,400 Amgen* 1,214 3,300 Caremark Rx* 171 3,670 Genzyme* 260 13,360 Johnson & Johnson 803 December 31, 2005 23 www.bishopstreetfunds.com TAX MANAGED EQUITY FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) --------- --------- HEALTH CARE -- (CONTINUED) 20,600 Pfizer $ 480 14,560 UnitedHealth Group 905 --------- 3,833 --------- INDUSTRIALS -- 14.2% 5,690 3M 441 5,100 Boeing 358 11,600 Exelon 617 3,330 General Dynamics 380 34,100 General Electric 1,195 4,900 Illinois Tool Works 431 10,380 Pentair 358 7,470 Union Pacific 601 8,850 United Technologies 495 --------- 4,876 --------- INFORMATION TECHNOLOGY -- 17.5% 23,500 Applied Materials 422 25,480 Cisco Systems* 436 13,060 Dell* 392 15,480 EMC Corp/Massachusetts* 211 26,740 Intel 667 5,400 International Business Machines 444 7,570 Linear Technology 273 34,200 Microsoft 894 8,200 Motorola 185 13,640 Paychex 520 12,920 Qualcomm 557 20,000 Symantec* 350 10,900 Texas Instruments 350 7,950 Yahoo!* 312 --------- 6,013 --------- MATERIALS -- 3.6% 8,100 Dow Chemical 355 8,100 EI Du Pont de Nemours 344 10,220 Praxair 541 --------- 1,240 --------- TELECOMMUNICATION SERVICES -- 1.9% 11,180 Sprint Nextel 261 18,000 Vodafone Group ADR 387 --------- 648 --------- TOTAL COMMON STOCK (Cost $26,570) 33,424 --------- Bishop Street Funds 24 TAX MANAGED EQUITY FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) --------- --------- CASH EQUIVALENTS (A) -- 1.6% 271,892 Dreyfus Cash Management Fund, Institutional Shares, 4.110% $ 272 271,892 Fidelity Money Market Fund, Institutional Shares, 4.170% 272 --------- TOTAL CASH EQUIVALENTS (Cost $544) 544 --------- TOTAL INVESTMENTS (COST $27,114) -- 99.1% 33,968 --------- OTHER ASSETS AND LIABILITIES -- 0.9% Payable for Investment Securities Purchased (173) Investment Adviser Fees Payable (16) Payable for Capital Shares Redeemed (9) Administrative Fees Payable (3) Shareholder Servicing Fees Payable (3) Other Assets and Liabilities, Net 507 --------- TOTAL OTHER ASSETS AND LIABILITIES 303 --------- NET ASSETS -- 100.0% $ 34,271 ========= NET ASSETS: Fund Shares (unlimited authorization -- no par value) $ 27,476 Distribution in excess of net investment income (1) Accumulated net realized loss on investments (58) Net unrealized appreciation on investments 6,854 --------- NET ASSETS $ 34,271 ========= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- CLASS I ($34,271,367 / 2,791,680 SHARES) $ 12.28 ========= * NON-INCOME PRODUCING SECURITY (A) RATE SHOWN IS THE 7-DAY YIELD AS OF DECEMBER 31, 2005. ADR -- AMERICAN DEPOSITARY RECEIPT LTD. -- LIMITED COST FIGURES ARE SHOWN WITH "000S" OMITTED. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2005 25 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- HIGH GRADE INCOME FUND - -------------------------------------------------------------------------------- The conundrum of higher short term interest rates and lower long term rates continued in the second half of the year even as the Federal Reserve raised the fed funds rate by 200 basis points to 4.25% for the year. The yield curve flattened by 163 basis points during the year while the 2 year note closed up 134 basis points and the long bond closed down by 29 basis points. Treasuries outperformed most asset classes, led by the 30 year treasury bond which registered a 9.0% total return on the year. The market focused on the destruction caused by and subsequent recovery from Hurricane Katrina in the third quarter, while the Federal Open Market Committee stayed on the course of tightening. At the same time, the rise in energy prices and stronger than expected growth resulted in inflationary fears. The 10 year treasury bond tested the high end of the trading range posting a yield of 4.66% during the month of November. Corporate bonds struggled with the flattening of the yield curve as lower quality credits underperformed, led by the auto sector, which lagged significantly. The Bishop Street High Grade Income Fund (the "Fund") modestly underperformed the Lehman Brothers Government/Credit Index for the year. As a result of its modestly short position on the long end of the curve and its overweight in the corporate sector, the Fund gave up some performance in the last quarter of the year. Looking ahead, we believe that the Fund may perform well with its shorter duration as we anticipate that interest rates may be biased to the upside during the first quarter of 2006. Bishop Street Funds 26 HIGH GRADE INCOME FUND - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE HIGH GRADE INCOME FUND, CLASS I, VERSUS THE LEHMAN BROTHERS U.S. GOVERNMENT/CREDIT INDEX, THE CONSUMER PRICE INDEX AND THE LIPPER CORPORATE DEBT A-RATED OBJECTIVE. [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] Lehman Brothers Lipper U.S. Consumer Corporate High Grade Income Government/Credit Price Debt A- Rated Fund, Class I# Index Index Objective 1/31/97 10,000 10,000 10,000 10,000 12/97 10,795 10,962 10,137 10,949 12/98 11,776 12,000 10,300 11,779 12/99 11,265 11,742 10,575 11,469 12/00 12,419 13,133 10,931 12,619 12/01 13,309 14,250 11,101 13,591 12/02 14,845 15,821 11,367 14,757 12/03 15,336 16,559 11,581 15,551 12/04 15,859 17,253 11,958 16,202 12/05 16,176 17,662 12,364 16,510 # 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 --------------------------------------------------------------------- 2.00% 2.91% 5.43% 5.54% Class I* --------------------------------------------------------------------- * Commenced operations on 01/30/97. + 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, 2005 27 www.bishopstreetfunds.com HIGH GRADE INCOME FUND - -------------------------------------------------------------------------------- TOP TEN HOLDINGS+ - -------------------------------------------------------------------------------- Percentage Coupon Maturity of Rate Date Investments - -------------------------------------------------------------------------------- 1. U.S. Treasury Bonds 7.250% 05/15/16 5.3% - -------------------------------------------------------------------------------- 2. U.S. Treasury Bonds 6.250% 08/15/23 3.3% - -------------------------------------------------------------------------------- 3. U.S. Treasury Bonds 6.375% 08/15/27 2.7% - -------------------------------------------------------------------------------- 4. U.S. Treasury Bonds 7.500% 11/15/16 2.5% - -------------------------------------------------------------------------------- 5. FNMA 7.250% 01/15/10 2.0% - -------------------------------------------------------------------------------- 6. FHLMC MTN 4.850% 12/01/09 2.0% - -------------------------------------------------------------------------------- 7. FNMA 2.540% 01/12/07 1.9% - -------------------------------------------------------------------------------- 8. Goldman Sachs Group 6.600% 01/15/12 1.8% - -------------------------------------------------------------------------------- 9. U.S. Treasury Notes 4.375% 05/15/07 1.8% - -------------------------------------------------------------------------------- 10. Wal-Mart Stores 8.000% 09/15/06 1.8% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.] U.S. Government Agency Obligations 27.7% U.S. Treasury Obligations 24.1% Financials 11.5% Consumer Discretionary 6.4% Energy 6.2% Telecommunication Services 5.7% Health Care 4.8% Industrials 2.7% Municipal Bonds 2.1% Consumer Staples 1.9% Short-Term Investments 1.9% Utilities 1.8% U.S. Government Mortgage-Backed Obligations 1.6% Information Technology 1.6% - -------------------------------------------------------------------------------- + PERCENTAGES ARE BASED ON TOTAL INVESTMENTS. EXCLUDES SECURITIES PURCHASED WITH CASH COLLATERAL RECEIVED FROM SECURITIES LENDING. NARROW INDUSTRIES ARE UTILIZED FOR COMPLIANCE PURPOSES, WHEREAS BROAD SECTORS ARE UTILIZED FOR REPORTING. STATEMENT OF NET ASSETS Face Market Amount Value (000) (000) -------- --------- CORPORATE OBLIGATIONS -- 52.0% AEROSPACE & DEFENSE -- 1.7% General Dynamics $1,000 4.500%, 08/15/10 $ 984 United Technologies 1,350 6.350%, 03/01/11 1,439 --------- 2,423 --------- AUTOMOTIVE -- 0.5% DaimlerChrysler NA Holding 700 8.000%, 06/15/10 765 --------- Bishop Street Funds 28 HIGH GRADE INCOME FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ---------- --------- BANKS -- 1.6% Bank of America $2,350 4.875%, 01/15/13 $ 2,324 --------- BIOTECHNOLOGY -- 0.9% Boston Scientific 1,350 4.250%, 01/12/11 1,282 --------- BROADCASTING & CABLE -- 1.9% TCI Communications 1,400 7.875%, 08/01/13 1,582 Turner Broadcasting System 975 8.375%, 07/01/13 1,123 --------- 2,705 --------- COMPUTER HARDWARE -- 1.0% Dell 1,325 6.550%, 04/15/08 1,370 --------- FINANCIALS -- 18.8% American General Finance MTN, Ser G 1,400 5.750%, 03/15/07 1,412 Bank of America (B) 3,957 4.330%, 01/03/06 3,957 Bear Stearns (B) 1,979 4.400%, 01/04/06 1,979 Bear Stearns MTN (B)(C) 3,957 4.348%, 01/12/06 3,961 Boeing Capital 1,400 6.500%, 02/15/12 1,511 CIT Group 1,350 5.000%, 11/24/08 1,349 Fannie Mae (D) 625 2.350%, 03/30/09 621 Ford Motor Credit 1,400 7.250%, 10/25/11 1,210 General Electric Capital MTN (B)(C) 1,583 4.301%, 03/29/06 1,584 General Electric Capital MTN, Ser A 2,350 5.450%, 01/15/13 2,407 Goldman Sachs Group 2,350 6.600%, 01/15/12 2,524 JPMorgan Chase 1,350 3.500%, 03/15/09 1,295 Sigma Finance MTN (B)(C) 1,979 4.330%, 07/07/06 1,978 Unitrin 850 4.875%, 11/01/10 834 --------- 26,622 --------- December 31, 2005 29 www.bishopstreetfunds.com HIGH GRADE INCOME FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ---------- --------- FOOD & BEVERAGE -- 1.0% ConAgra Foods $1,325 7.875%, 09/15/10 $ 1,459 --------- GENERAL MERCHANDISE -- 2.6% Target 1,150 6.350%, 01/15/11 1,226 Wal-Mart Stores 2,400 8.000%, 09/15/06 2,448 --------- 3,674 --------- HEALTH CARE -- 2.1% Johnson & Johnson 1,400 6.950%, 09/01/29 1,749 UnitedHealth Group 1,250 5.200%, 01/17/07 1,249 --------- 2,998 --------- HOUSEHOLD PRODUCTS -- 0.9% Proctor & Gamble 475 8.000%, 10/26/29 639 Rubbermaid 600 6.600%, 11/15/06 609 --------- 1,248 --------- MACHINERY - INDUSTRIAL -- 1.1% Lennar, Ser B 1,600 5.500%, 09/01/14 1,545 --------- MOVIES & ENTERTAINMENT -- 1.0% Walt Disney MTN 1,400 6.200%, 06/20/14 1,473 --------- OIL & GAS - EQUIPMENT/SERVICES -- 1.4% Baker Hughes 1,175 6.000%, 02/15/09 1,213 Kinder Morgan 675 6.800%, 03/01/08 698 --------- 1,911 --------- OIL & GAS - EXPLORATION/PRODUCTION -- 2.4% Anadarko Petroleum 1,250 7.200%, 03/15/29 1,466 Ocean Energy 1,700 7.250%, 10/01/11 1,877 --------- 3,343 --------- Bishop Street Funds 30 HIGH GRADE INCOME FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ---------- --------- OIL & GAS - INTEGRATED -- 2.4% BP Amoco $1,385 9.125%, 03/01/11 $ 1,645 Occidental Petroleum 1,600 6.750%, 01/15/12 1,756 --------- 3,401 --------- PHARMACEUTICALS -- 1.7% Abbott Laboratories 2,400 6.400%, 12/01/06 2,431 --------- REAL ESTATE -- 0.8% Post Apartment Homes LP 1,050 7.700%, 12/20/10 1,160 --------- RETAIL - DRUGS -- 1.5% CVS 2,200 4.875%, 09/15/14 2,123 --------- RETAIL - FOOD -- 0.7% McDonald's MTN, Ser E 900 5.950%, 01/15/08 919 --------- SEMI-CONDUCTORS -- 1.5% Applied Materials 800 6.750%, 10/15/07 821 Duke Energy 1,275 4.200%, 10/01/08 1,247 --------- 2,068 --------- TELECOMMUNICATIONS -- 2.7% GTE South, Ser C 675 6.000%, 02/15/08 679 New Cingular Wireless Services 1,350 7.350%, 03/01/06 1,356 Sprint Capital 1,475 7.625%, 01/30/11 1,626 Verizon Global Funding MTN 100 7.600%, 03/15/07 103 --------- 3,764 --------- TRANSPORTATION SERVICES -- 0.9% FedEx 1,200 7.250%, 02/15/11 1,312 --------- UTILITIES -- 0.9% Dominion Resources 1,350 4.125%, 02/15/08 1,325 --------- TOTAL CORPORATE OBLIGATIONS (Cost $74,633) 73,645 --------- December 31, 2005 31 www.bishopstreetfunds.com HIGH GRADE INCOME FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ---------- --------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 26.9% FHLB $ 200 6.875%, 08/13/10 $ 217 1,000 6.000%, 08/24/15 1,007 1,350 5.375%, 02/15/07 1,359 1,000 5.000%, 02/22/13 976 1,300 4.750%, 08/13/10 1,297 1,400 4.100%, 06/13/08 1,379 1,000 3.875%, 07/24/09 972 1,750 3.875%, 02/12/10 (A) 1,694 1,800 3.750%, 08/15/08 1,757 1,125 3.600%, 10/19/07 1,103 2,500 3.375%, 02/15/08 (A) 2,431 200 2.625%, 02/16/07 195 FHLMC 1,300 6.375%, 08/01/11 1,307 1,400 5.200%, 03/05/19 1,366 2,400 5.125%, 10/15/08 2,425 1,000 5.000%, 01/30/14 (A) 986 1,400 4.750%, 05/06/13 1,352 1,500 4.625%, 08/15/08 1,492 1,350 4.375%, 07/30/09 1,324 1,400 4.375%, 03/01/10 1,376 FHLMC MTN 2,800 4.850%, 12/01/09 2,783 1,000 3.650%, 05/07/08 976 450 2.500%, 12/04/06 (A) 441 FNMA 2,600 7.250%, 01/15/10 2,833 1,400 4.400%, 03/08/10 1,381 800 3.875%, 11/17/08 780 200 3.250%, 03/17/08 194 2,700 2.540%, 01/12/07 2,640 --------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $38,555) 38,043 --------- Bishop Street Funds 32 HIGH GRADE INCOME FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ---------- --------- U.S. TREASURY OBLIGATIONS (A) -- 23.9% U.S. Treasury Bonds $2,750 7.500%, 11/15/16 $ 3,454 6,000 7.250%, 05/15/16 7,367 3,000 6.375%, 08/15/27 3,716 3,900 6.250%, 08/15/23 4,657 1,000 6.250%, 05/15/30 1,242 1,050 6.000%, 02/15/26 1,238 650 5.375%, 02/15/31 730 1,500 5.250%, 11/15/28 1,636 U.S. Treasury Notes 2,500 4.375%, 05/15/07 2,498 1,350 4.375%, 08/15/12 1,350 1,400 4.250%, 08/15/15 1,382 1,200 4.000%, 02/15/14 1,168 1,200 4.000%, 02/15/15 1,164 2,200 2.375%, 08/15/06 2,173 --------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $31,371) 33,775 --------- COMMERCIAL PAPER (B)(C) -- 5.6% Morgan Stanley 7,914 4.330%, 02/15/06 7,914 --------- TOTAL COMMERCIAL PAPER (Cost $7,914) 7,914 --------- CERTIFICATES OF DEPOSIT/BANK NOTES (B)(C) -- 5.6% FINANCIALS -- 5.6% First Tennessee Bank 7,914 4.330%, 03/21/06 7,914 --------- TOTAL CERTIFICATES OF DEPOSIT/BANK NOTES (Cost $7,914) 7,914 --------- December 31, 2005 33 www.bishopstreetfunds.com HIGH GRADE INCOME FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Shares/Face Value Amount (000) (000) ----------------- --------- MUNICIPAL BONDS -- 2.1% California State, GO $ 500 4.750%, 06/01/35 $ 502 Honolulu City & County, Ser E, GO, FGIC Insured 500 5.250%, 07/01/20 545 Honolulu City & County, Waste Water, Senior Ser A, RB, FGIC Insured 755 5.000%, 07/01/35 787 Kauai County, Ser A, GO, FGIC Insured 1,000 5.000%, 08/01/25 1,054 --------- TOTAL MUNICIPAL BONDS (Cost $2,864) 2,888 --------- CASH EQUIVALENTS (E) -- 1.8% 1,338,208 Dreyfus Cash Management Fund, Institutional Shares, 4.110% 1,338 1,338,208 Fidelity Money Market Fund, Institutional Shares, 4.170% 1,338 --------- TOTAL CASH EQUIVALENTS (Cost $2,676) 2,676 --------- U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS -- 1.6% FHLMC 79 3.500%, 05/01/08 76 FHLMC, Ser 2764, Cl PH 1,080 4.000%, 09/15/19 1,071 FNMA 1,166 3.500%, 08/01/10 1,106 --------- TOTAL U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS (Cost $2,316) 2,253 --------- REPURCHASE AGREEMENTS (B) -- 6.8% 3,088 Bank of America 4.300%, dated 12/30/05, to be repurchased on 01/03/06, repurchase price $3,089,029 (collateralized by Morgan Stanley Group, par value $2,654,528, 7.250%, 04/01/32; with total market value $3,194,353) 3,088 6,447 Lehman Brothers 4.320%, dated 12/30/05, to be repurchased on 01/03/06, repurchase price $6,450,502 (collateralized by Banc of America Mortgage Securities, Ser 2005-1, Cl 1A19, GE Capital Commercial Mortgage, Ser 2005-C3, Cl A7B, Salomon Brothers Mortgage Securities, Ser G97AP, Cl L, and Structured Asset Securities, Ser 1995-2, Cl IIB1, ranging in par value $642,873-$7,806,477, 0.000%-5.250%, 04/01/16-07/10/45; with total market value $6,749,926) 6,447 --------- TOTAL REPURCHASE AGREEMENTS (Cost $9,535) 9,535 --------- TOTAL INVESTMENTS (COST $177,778) -- 126.3% 178,643 --------- Bishop Street Funds 34 HIGH GRADE INCOME FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Value (000) --------- OTHER ASSETS AND LIABILITIES -- (26.3)% Payable Upon Return of Securities Loaned $ (38,822) Payable for Capital Shares Redeemed (277) Income Distribution Payable (207) Investment Adviser Fees Payable (42) Administrative Fees Payable (14) Shareholder Servicing Fees Payable (12) Trustees' Fees Payable (1) Other Assets and Liabilities, Net 2,171 --------- TOTAL OTHER ASSETS AND LIABILITIES (37,204) --------- NET ASSETS -- 100.0% $ 141,439 ========= NET ASSETS: Fund Shares (unlimited authorization -- no par value) $ 140,666 Undistributed net investment income 9 Accumulated net realized loss on investments (101) Net unrealized appreciation on investments 865 --------- NET ASSETS $ 141,439 ========= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- CLASS I ($141,438,703 / 14,065,728 SHARES) $ 10.06 ========= (A) THE SECURITY OR A PORTION OF THE SECURITY IS ON LOAN AT DECEMBER 31, 2005 (SEE NOTE 5 IN THE NOTES TO FINANCIAL STATEMENTS.) THE TOTAL VALUE OF SECURITIES ON LOAN AT DECEMBER 31, 2005 WAS $38,279,432. (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, 2005 WAS $38,821,788. (C) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS IS THE RATE IN EFFECT ON DECEMBER 31, 2005. THE MATURITY DATE SHOWN IS THE NEXT SCHEDULED RESET DATE. (D) STEP BOND -- COUPON RATE INCREASES IN INCREMENTS TO MATURITY. RATE DISCLOSED IS AS OF DECEMBER 31, 2005. (E) RATE SHOWN IS THE 7-DAY YIELD AS OF DECEMBER 31, 2005. CL -- CLASS FGIC -- FINANCIAL GUARANTEE INSURANCE CORPORATION FHLB -- FEDERAL HOME LOAN BANK FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION GO -- GENERAL OBLIGATION LP -- LIMITED PARTNERSHIP MTN -- MEDIUM TERM NOTE NA -- NATIONAL ASSOCIATION 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, 2005 35 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- Returns on municipal securities were mixed in 2005. The municipal yield curve flattened significantly over the year with short-end rates moving higher and long duration securities dropping in yield. Tax-exempt assets with maturities of 1-3 years returned approximately 1 percent for the 12 month period; assets with maturities of over 20 years returned on the average 7.1 percent, highlighting the out-performance of the long end of the municipal curve despite, the Federal Reserve raising interest rates 200 basis points. Hawaii continued to enjoy solid, widespread economic growth throughout 2005. All four of the state's counties participated in the positive growth, posting significant improvements in visitor arrivals and job creation. In the third quarter, the state saw a 4.4 percent increase in employment, the highest quarterly rate of growth in 15 years. The state of Hawaii and the city and county of Honolulu each hold Aa2 credit ratings from Moody's, only 2 levels below the credit company's highest rating of Aaa. As an asset class, municipal bonds should continue to perform well relative to other taxable fixed income securities. Balance sheets of municipalities throughout the nation continued to improve as revenues from income and property taxes grew impressively in 2005. However, the risks to the municipal investors include curve steepening with lower overall interest rates, which would allow municipalities to refund outstanding debt, creating excess supply in the market and overall wider spreads. For the year ending December 31, 2005, the Bishop Street Hawaii Municipal Bond Fund, Class I (the "Fund") returned 2.51%, outperforming the Lipper Hawaii Municipal Debt Objective of 0.43%. The Fund's relatively longer duration contributed to its out-performance of the Hawaii benchmark. Looking forward, we believe that the fund is positioned to benefit from a further flattening of the municipal yield curve as well lower overall interest rates. Bishop Street Funds 36 HAWAII MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE HAWAII MUNICIPAL BOND FUND, CLASS I OR CLASS A, VERSUS THE LEHMAN BROTHERS MUNICIPAL BOND INDEX, THE CONSUMER PRICE INDEX AND THE LIPPER HAWAII MUNICIPAL DEBT OBJECTIVE. [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] Hawaii Municipal Hawaii Municipal Lehman Brothers Lipper Hawaii Bond Fund, Bond Fund, Municipal Bond Consumer Municipal Debt Class I# Class A# Index Price Index Objective 12/1/95 10,000 9,575 10,000 10,000 10,000 12/96 10,421 9,978 10,444 10,328 10,384 12/97 11,309 10,828 11,405 10,507 11,218 12/98 11,969 11,461 12,144 10,676 11,842 12/99 11,652 11,127 11,893 10,961 11,358 12/00 13,121 12,500 13,283 11,330 12,632 12/01 13,678 13,016 13,964 11,506 13,141 12/02 15,048 14,286 15,305 11,782 14,268 12/03 15,841 15,001 16,119 12,004 14,977 12/04 16,374 15,466 16,839 12,395 15,449 12/05 16,785 15,814 17,430 12,815 15,770 # Account value if you reinvested income and capital gains. AVERAGE ANNUAL TOTAL RETURNS+ ----------------------------------------------------------------------- ONE ANNUALIZED ANNUALIZED ANNUALIZED ANNUALIZED YEAR 3 YEAR 5 YEAR 10 YEAR INCEPTION RETURN RETURN RETURN RETURN TO DATE ----------------------------------------------------------------------- 2.51% 3.71% 5.05% 5.32% 5.75% Class I 2.25% 3.45% 4.81% 5.15%* 5.60%* Class A -2.10% 1.95% 3.92% 4.70%* 5.18%* Class A with load** ----------------------------------------------------------------------- * Class A Shares of the Fund were offered beginning June 14, 1999. The performance information shown prior to that represents performance of Class I Shares, which were offered beginning February 16, 1995. Class A Shares performance reflects the maximum front-end sales charge and Rule 12b-1 fees on Class A Shares, neither of which applies to Class I Shares. ** 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, 2005 37 www.bishopstreetfunds.com HAWAII MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- TOP TEN HOLDINGS+ - ------------------------------------------------------------------------------------------ Percentage Coupon Maturity of Rate Date Investments - ------------------------------------------------------------------------------------------ 1. Puerto Rico Housing Financing Authority RB 5.000% 12/01/16 2.7% - ------------------------------------------------------------------------------------------ 2. Honolulu City & County, Hawaii RB 5.000% 07/01/35 2.4% - ------------------------------------------------------------------------------------------ 3. Hawaii State Department of Budget & Finance RB 5.650% 10/01/27 2.4% - ------------------------------------------------------------------------------------------ 4. Honolulu City & County, Hawaii GO 5.125% 07/01/15 2.1% - ------------------------------------------------------------------------------------------ 5. Hawaii State Airport System RB 5.750% 07/01/17 2.0% - ------------------------------------------------------------------------------------------ 6. Puerto Rico Public Buildings Authority RB 5.250% 07/01/25 1.9% - ------------------------------------------------------------------------------------------ 7. Maui County, Hawaii GO 5.000% 03/01/14 1.9% - ------------------------------------------------------------------------------------------ 8. Kauai County, Hawaii GO 5.000% 08/01/26 1.8% - ------------------------------------------------------------------------------------------ 9. Hawaii State Airport System RB 6.500% 07/01/14 1.6% - ------------------------------------------------------------------------------------------ 10. Honolulu City & County, Hawaii RB 5.250% 07/01/18 1.5% - ------------------------------------------------------------------------------------------ - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.] SECTOR WEIGHTINGS (UNAUDITED)+ General Obligation 46.8% Transportation 10.3% Facilities 7.6% Higher Education 7.6% Utilities 6.6% Airport 6.1% Power 5.2% Medical 3.3% Single-Family Housing 1.7% Water 1.5% Development 1.0% Education 0.9% General Revenue 0.9% School District 0.3% Multi-Family Housing 0.1% Short-Term Investments 0.1% - -------------------------------------------------------------------------------- + PERCENTAGES ARE BASED ON TOTAL INVESTMENTS. NARROW INDUSTRIES ARE UTILIZED FOR COMPLIANCE PURPOSES, WHEREAS BROAD SECTORS ARE UTILIZED FOR REPORTING. STATEMENT OF NET ASSETS Face Market Amount Value (000) (000) ---------- --------- MUNICIPAL BONDS -- 98.5% CALIFORNIA -- 4.3% California State, GO $1,000 5.000%, 02/01/33 $ 1,031 1,275 5.000%, 08/01/33 1,323 1,500 4.750%, 06/01/35 1,508 Bishop Street Funds 38 HAWAII MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ --------- CALIFORNIA -- (CONTINUED) Coast, Unified School District, School Facilities District 1-B, GO, FSA Insured (C) $1,610 5.050%, 08/01/40 $ 306 Highland, Redevelopment Agency, Project Area No. 1 Tax Allocation, RB, AMBAC Insured 1,440 5.650%, 12/01/24 1,688 La Mesa-Spring Valley, School District, Electric of 2002 Project, Ser B, GO, FGIC Insured (C) 630 5.250%, 08/01/27 224 San Bernardino, Community College District, GO, FSA Insured (C) 1,060 5.000%, 08/01/21 521 San Francisco, Bay Area Transit Financing Authority, Ser A, RB, MBIA Insured 1,000 4.500%, 07/01/30 998 --------- 7,599 --------- FLORIDA -- 0.3% Leesburg, Utilities, RB, FGIC Insured 500 5.000%, 10/01/34 523 --------- HAWAII -- 80.6% Hawaii County, Refunding & Improvement Project, Ser A, GO, FGIC Insured 450 5.600%, 05/01/12 499 430 5.600%, 05/01/13 481 400 5.550%, 05/01/09 427 Hawaii County, Ser A, GO, FGIC Insured 630 5.500%, 07/15/12 691 Hawaii County, Ser A, GO, FSA Insured 1,000 5.625%, 05/15/19 1,073 500 5.400%, 05/15/15 534 1,000 5.250%, 05/15/11 1,066 1,000 5.000%, 07/15/23 1,048 Hawaii County, Ser A, GO, MBIA Insured 1,055 5.250%, 07/15/18 1,154 1,205 5.000%, 07/15/15 1,304 1,470 5.000%, 07/15/24 1,543 Hawaii State, Airport System, RB, AMT, FGIC Insured 3,235 5.750%, 07/01/17 3,514 280 5.250%, 07/01/21 292 Hawaii State, Airport System, Second Ser, RB, AMT, ETM 60 6.900%, 07/01/12 67 December 31, 2005 39 www.bishopstreetfunds.com HAWAII MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ -------- HAWAII -- (CONTINUED) Hawaii State, Airport System, Second Ser, RB, AMT, ETM, MBIA Insured $1,505 6.900%, 07/01/12 $ 1,682 Hawaii State, Airport System, Ser B, RB, AMT, FGIC Insured 1,500 6.625%, 07/01/18 1,678 2,500 6.500%, 07/01/14 2,797 500 6.000%, 07/01/19 544 Hawaii State, Department of Budget & Finance, Electric Company & Subsidiary Project, Ser A, RB, AMT, FGIC Insured 1,500 4.800%, 01/01/25 1,509 Hawaii State, Department of Budget & Finance, Electric Company & Subsidiary Project, Ser B, RB, AMT, XLCA Insured 1,000 5.000%, 12/01/22 1,032 Hawaii State, Department of Budget & Finance, Hawaiian Electric, Ser A, RB, AMT, AMBAC Insured 460 5.100%, 09/01/32 471 Hawaii State, Department of Budget & Finance, Hawaiian Electric, Ser A, RB, AMT, MBIA Insured 805 6.200%, 05/01/26 819 3,810 5.650%, 10/01/27 4,134 Hawaii State, Department of Budget & Finance, Hawaiian Electric, Ser C, RB, AMT, AMBAC Insured 1,000 6.200%, 11/01/29 1,097 Hawaii State, Department of Budget & Finance, Kapiolani Health Care System Project, RB, Pre-Refunded @ 102 (A) 100 6.250%, 07/01/06 103 Hawaii State, Department of Budget & Finance, Queens Health Systems, Ser B, RB, MBIA Insured 750 5.250%, 07/01/11 786 1,445 5.250%, 07/01/12 1,514 1,275 5.250%, 07/01/13 1,336 1,000 5.250%, 07/01/14 1,046 Hawaii State, Harbor Capital Improvement, RB, AMT, MBIA Insured 2,000 5.500%, 07/01/27 2,050 545 5.400%, 07/01/09 570 Hawaii State, Harbor System, Ser A, RB, AMT, FSA Insured 2,025 5.750%, 07/01/17 2,187 670 5.750%, 07/01/29 717 1,210 5.700%, 07/01/16 1,305 1,000 5.600%, 07/01/15 1,080 Hawaii State, Harbor System, Ser B, RB, AMT, AMBAC Insured 200 5.500%, 07/01/19 215 Bishop Street Funds 40 HAWAII MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ --------- HAWAII -- (CONTINUED) Hawaii State, Harbor System, Ser B, RB, AMT, FSA Insured $1,000 5.000%, 01/01/13 $ 1,067 Hawaii State, Highway, RB 1,000 6.000%, 07/01/08 1,062 2,000 6.000%, 07/01/09 2,172 Hawaii State, Highway, RB, FGIC Insured, Pre-Refunded @ 101 (A) 405 5.000%, 07/01/08 425 Hawaii State, Highway, Ser A, RB, FSA Insured 1,805 5.000%, 07/01/23 1,909 Hawaii State, Highway, Ser B, RB, FSA Insured 2,000 5.000%, 07/01/16 2,167 Hawaii State, Housing, Finance & Development, Single-Family Housing, Ser A, RB, AMT, FNMA Collateral 710 5.750%, 07/01/30 710 905 5.400%, 07/01/30 934 165 5.250%, 07/01/13 170 Hawaii State, Housing, Finance & Development, Single-Family Housing, Ser B, RB, FNMA Collateral 1,000 5.450%, 07/01/17 1,030 Hawaii State, Housing, Finance & Development, University of Hawaii Faculty Housing Project, RB, AMBAC Insured 700 5.650%, 10/01/16 710 415 5.000%, 10/01/06 421 Hawaii State, Kapolei Office Building, Ser A, COP, AMBAC Insured 1,475 5.250%, 05/01/13 1,559 1,000 5.000%, 05/01/08 1,036 1,000 5.000%, 05/01/14 1,050 1,100 5.000%, 05/01/15 1,154 1,500 5.000%, 05/01/16 1,571 1,000 5.000%, 05/01/17 1,047 500 5.000%, 05/01/18 523 Hawaii State, No. 1 Capitol District State Office, COP, MBIA Insured 1,000 5.200%, 05/01/14 1,055 175 5.000%, 05/01/11 186 Hawaii State, Pacific Health Special Purpose, Ser A, RB 615 5.600%, 07/01/33 642 Hawaii State, Ser CL, GO 1,000 6.000%, 03/01/09 1,076 Hawaii State, Ser CL, GO, MBIA Insured 555 6.000%, 03/01/08 585 Hawaii State, Ser CM, GO, FGIC Insured 2,000 6.500%, 12/01/13 2,376 500 6.000%, 12/01/09 548 1,500 6.000%, 12/01/11 1,694 December 31, 2005 41 www.bishopstreetfunds.com HAWAII MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ --------- HAWAII -- (CONTINUED) Hawaii State, Ser CP, GO, FGIC Insured $ 90 5.000%, 10/01/16 $ 93 Hawaii State, Ser CR, GO, MBIA Insured, Pre-Refunded @ 101 (A) 270 5.250%, 04/01/08 284 Hawaii State, Ser CU, GO, MBIA Insured 475 5.750%, 10/01/11 522 550 5.750%, 10/01/12 602 Hawaii State, Ser CU, GO, MBIA Insured, Pre-Refunded @ 100 (A) 25 5.750%, 10/01/10 28 Hawaii State, Ser CV, GO, FGIC Insured 1,000 5.250%, 08/01/21 1,071 Hawaii State, Ser CX, GO, FSA Insured 1,000 5.500%, 02/01/21 1,087 Hawaii State, Ser DF, GO, AMBAC Insured 2,400 5.000%, 07/01/25 2,529 Hawaii State, Ser DG, GO, AMBAC Insured 2,000 5.000%, 07/01/17 2,158 Hawaii State, University of Hawaii, Ser A, RB, FGIC Insured 500 5.500%, 07/15/21 546 500 5.125%, 07/15/32 523 Hawaii State, University of Hawaii, Ser B, RB, FSA Insured 320 5.250%, 10/01/16 343 775 5.250%, 10/01/17 831 Honolulu City & County, Board of Water Supply, Ser A, RB, FGIC Insured 2,000 5.000%, 07/01/33 2,085 Honolulu City & County, GO 1,320 5.400%, 09/27/07 1,365 Honolulu City & County, GO, ETM 230 6.000%, 12/01/09 252 Honolulu City & County, Ser A, GO 55 6.000%, 01/01/10 60 Honolulu City & County, Ser A, GO, ETM 500 6.000%, 01/01/09 538 95 6.000%, 01/01/10 104 Honolulu City & County, Ser A, GO, MBIA Insured 1,000 5.250%, 03/01/27 1,066 500 5.250%, 03/01/28 533 1,000 5.000%, 07/01/14 1,086 Honolulu City & County, Ser B, GO, ETM, FGIC Insured 635 5.500%, 10/01/11 700 Honolulu City & County, Ser B, GO, FGIC Insured, Pre-Refunded @ 101 (A) 2,000 5.125%, 07/01/09 2,134 Bishop Street Funds 42 HAWAII MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ --------- HAWAII -- (CONTINUED) Honolulu City & County, Ser B, GO, MBIA Insured $ 825 5.000%, 07/01/13 $ 893 Honolulu City & County, Ser C, GO, FGIC Insured 125 5.500%, 11/01/07 130 1,200 5.125%, 07/01/11 1,277 1,100 5.125%, 07/01/15 1,169 3,500 5.000%, 07/01/19 3,681 Honolulu City & County, Ser D, GO, AMT, FGIC Insured 245 4.850%, 02/01/10 255 Honolulu City & County, Ser D, GO, MBIA Insured 885 5.000%, 07/01/19 948 2,000 5.000%, 07/01/23 2,115 Honolulu City & County, Ser E, GO, FGIC Insured 1,500 5.250%, 07/01/20 1,635 Honolulu City & County, Waipahu Towers Project, Ser A, RB, AMT, GNMA Collateral 200 6.900%, 06/20/35 203 Honolulu City & County, Waste Water, 2nd Board Resolution, Junior Ser, RB, FGIC Insured 1,000 5.250%, 07/01/12 1,066 900 5.250%, 07/01/13 960 1,000 5.250%, 07/01/17 1,063 2,500 5.250%, 07/01/18 2,659 1,000 5.000%, 07/01/23 1,048 Honolulu City & County, Waste Water, Senior Ser A, RB, FGIC Insured 4,050 5.000%, 07/01/35 4,222 Kauai County, Public Improvement, Ser B, GO, MBIA Insured, Pre-Refunded @ 101 (A) 175 5.200%, 08/01/07 182 165 5.150%, 08/01/07 171 155 5.100%, 08/01/07 161 120 5.050%, 08/01/07 124 140 5.000%, 08/01/07 145 135 4.950%, 08/01/07 140 100 4.850%, 08/01/07 103 120 4.750%, 08/01/07 124 Kauai County, Ser A, GO, FGIC Insured 1,610 5.000%, 08/01/21 1,713 2,000 5.000%, 08/01/22 2,123 2,440 5.000%, 08/01/23 2,583 1,555 5.000%, 08/01/24 1,641 500 5.000%, 08/01/25 527 2,900 5.000%, 08/01/26 3,052 December 31, 2005 43 www.bishopstreetfunds.com HAWAII MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ --------- HAWAII -- (CONTINUED) Kauai County, Ser A, GO, FGIC Insured, Pre-Refunded @ 100 (A) $5,000 6.250%, 08/01/10 $ 5,595 Kauai County, Ser A, GO, MBIA Insured 490 5.625%, 08/01/18 535 Kauai County, Ser A, GO, MBIA Insured, Pre-Refunded @ 100 (A) 260 5.625%, 08/01/11 287 Maui County, GO, MBIA Insured 3,000 5.000%, 03/01/14 3,251 1,100 5.000%, 03/01/24 1,158 1,450 3.800%, 03/01/16 1,434 Maui County, Ser A, GO 485 5.375%, 03/01/12 525 Maui County, Ser A, GO, FGIC Insured 150 5.000%, 03/01/13 156 Maui County, Ser A, GO, FGIC Insured, Pre-Refunded @ 101 (A) 100 5.125%, 03/01/08 105 50 5.000%, 03/01/08 52 Maui County, Ser A, GO, MBIA Insured 840 5.000%, 03/01/20 879 Maui County, Ser B, GO, MBIA Insured 500 5.000%, 09/01/17 537 --------- 142,411 --------- ILLINOIS -- 1.0% Illinois State, Educational Facilities Authority, Northwestern University, RB 670 5.000%, 12/01/38 691 Schaumburg, Ser B, GO, FGIC Insured 1,000 5.000%, 12/01/38 1,031 --------- 1,722 --------- INDIANA -- 0.8% Elkhart, Community School Building Company, First Meeting, RB, XLCA Insured 1,500 4.500%, 07/15/24 1,506 --------- MASSACHUSETTS -- 0.3% Massachusetts State, Water Resources Authority, Ser J, RB 500 5.000%, 08/01/42 514 --------- Bishop Street Funds 44 HAWAII MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Market Amount Value (000) (000) ------ --------- PUERTO RICO -- 8.7% Commonwealth of Puerto Rico, GO, MBIA Insured $1,500 6.500%, 07/01/10 $ 1,687 500 6.500%, 07/01/14 597 Commonwealth of Puerto Rico, Public Improvement, GO, FSA Insured 435 5.000%, 07/01/21 460 Commonwealth of Puerto Rico, Public Improvement, Ser A, GO 1,000 5.000%, 07/01/27 1,021 Puerto Rico, Electric Power Authority, Ser DD, RB, FSA Insured 1,000 5.000%, 07/01/28 1,031 Puerto Rico, Electric Power Authority, Ser HH, RB, FSA Insured 500 5.250%, 07/01/29 536 Puerto Rico, Housing Financing Authority, Capital Funding Program, RB 4,360 5.000%, 12/01/16 4,627 Puerto Rico, Housing, Banking & Financing Agency, Single-Family Mortgage, Affordable Housing Mortgage, Portfolio I, RB, AMT, GNMA/FNMA/FHLMC Collateral 180 6.100%, 10/01/15 182 Puerto Rico, Industrial Tourist Educational Medical Environmental Control Facilities, Hospital Auxilio Mutuo Obligation Group, Ser A, RB, MBIA Insured 300 6.250%, 07/01/24 303 Puerto Rico, Public Buildings Authority, Ser F, RB 3,000 5.250%, 07/01/25 3,360 Puerto Rico, University of Puerto Rico, Ser O, RB, MBIA Insured 1,500 5.750%, 06/01/19 1,631 --------- 15,435 --------- TEXAS -- 1.1% Harris County, Houston Texas Sports Authority, Ser A, Special RB, MBIA Insured (C) 5,000 5.400%, 11/15/40 737 Mckinney, GO, XLCA Insured 1,145 5.000%, 08/15/24 1,201 --------- 1,938 --------- WASHINGTON -- 1.4% Washington State, University of Washington, RB, FSA Insured 2,315 5.000%, 06/01/23 2,439 --------- TOTAL MUNICIPAL BONDS (Cost $168,610) 174,087 --------- December 31, 2005 45 www.bishopstreetfunds.com HAWAII MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Market Value Shares (000) -------- --------- CASH EQUIVALENTS (B) -- 0.1% 93,968 Dreyfus Tax-Exempt Cash Management Fund, Institutional Shares, 3.200% $ 94 93,968 Fidelity Money Market Tax-Exempt Fund, Institutional Shares, 3.190% 94 --------- TOTAL CASH EQUIVALENTS (Cost $188) 188 --------- TOTAL INVESTMENTS (COST $168,798) -- 98.6% 174,275 --------- OTHER ASSETS AND LIABILITIES -- 1.4% Income Distribution Payable (466) Payable for Fund Shares Redeemed (170) Investment Adviser Fees Payable (29) Shareholder Servicing Fees Payable (15) Administrative Fees Payable (11) Distribution Fees Payable (7) Trustees' Fees Payable (2) Other Assets and Liabilities, Net 3,153 --------- TOTAL OTHER ASSETS AND LIABILITIES 2,453 --------- NET ASSETS -- 100.0% $ 176,728 ========= NET ASSETS: Fund Shares (unlimited authorization -- no par value) $ 171,196 Undistributed net investment income 48 Accumulated net realized gain on investments 7 Net unrealized appreciation on investments 5,477 --------- NET ASSETS $ 176,728 ========= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- CLASS I ($145,213,395 / 13,485,917 SHARES) $ 10.77 ========= NET ASSET VALUE AND REDEMPTION PRICE PER SHARE -- CLASS A ($31,514,991 / 2,926,230 SHARES) $ 10.77 ========= MAXIMUM OFFERING PRICE PER SHARE -- CLASS A SHARES ($10.77 / 97.00%) $ 11.10 ========= Bishop Street Funds 46 HAWAII MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) (A) PREREFUNDED SECURITY -- THE MATURITY DATE SHOWN IS THE PRE-REFUNDED DATE. (B) RATE SHOWN IS THE 7-DAY YIELD AS OF DECEMBER 31, 2005. (C) ZERO COUPON SECURITY -- THE RATE REPORTED IS THE EFFECTIVE YIELD AT TIME OF PURCHASE. AMBAC -- AMERICAN MUNICIPAL BOND ASSURANCE COMPANY AMT -- ALTERNATIVE MINIMUM TAX COP -- CERTIFICATE OF PARTICIPATION ETM -- ESCROWED TO MATURITY FGIC -- FINANCIAL GUARANTEE INSURANCE CORPORATION FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION FSA -- FINANCIAL SECURITY ASSURANCE GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION GO -- GENERAL OBLIGATION MBIA -- MUNICIPAL BOND INVESTORS ASSURANCE RB -- REVENUE BOND SER -- SERIES XLCA -- XL CAPITAL COST FIGURES ARE SHOWN WITH "000S" OMITTED. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2005 47 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- MONEY MARKET & TREASURY MONEY MARKET FUNDS - -------------------------------------------------------------------------------- Economic growth in the U.S. continued at a steady pace during 2005 despite increases in short term interest rates. Growth was led primarily by healthy consumer spending while corporate capital expenditures were soft. Unemployment declined throughout the year to levels last seen in 2001 and the labor sector added in excess of 2 million jobs (Bureau of Labor Statistics: Non-farm Payrolls), contributing to consumer strength. The manufacturing sector remained robust despite the difficulties plaguing the U.S. automotive industry. A demand driven rise in commodity and energy prices around the globe has led to increased pricing pressure for intermediate goods. There is, however, scant evidence of transmission to core consumer prices (ex. food and energy). The yield curve flattened in 2005 as the Federal Reserve policy makers increased the Federal Funds target rate at each meeting during the year. Thirteen consecutive increases in monetary policy rates have reduced the term premium in the U.S. Treasury yield curve. The alignment of short term and long term interest rates has brought an end to the "carry" trade which had benefited from the previously steep curve. At year end, the Federal Open Market Committee indicated that the monetary policy tightening campaign was nearing an end and that current policy rates may no longer be accommodative. Markets, however, continue to price in 1-2 additional Federal Funds Rate increases in 2006. Significant increases in short term interest rates have been followed by healthy inflows into money market funds. Money market yields often increase more quickly than bank deposit rates in rising yield environments and therefore offer more attractive opportunities for investors. Taxable money funds increased 6% in 2005 to $1.659 trillion. Bishop Street Funds 48 - -------------------------------------------------------------------------------- [LOGO] BISHOP STREET FUNDS - -------------------------------------------------------------------------------- The Money Market and Treasury Money Market Funds (the "Funds") were maintained at a conservative maturity stance which enabled us to continually reinvest at increasing yield levels throughout 2005. As monetary policy rates approach neutral levels, however, we expect that opportunities to capture additional yield premium by extending the maturity of the Funds will emerge in 2006. While growth is strong and inflation is benign, we are conscious of the risks posed by rising energy and commodity prices. The direction of future interest rates in the U.S. has become "data dependent". We believe that the Federal Funds rate will reach a level of 5.00% in 2006, after which the Fed will pause to reassess the state of the economy. We expect that the future direction of interest rates will become clearer with time. We continue to strive to improve the yield of the Funds while maintaining a high level of credit quality. December 31, 2005 49 www.bishopstreetfunds.com MONEY MARKET FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.] Commercial Paper 62.9% Certificates of Deposit/Bank Notes 13.3% U.S. Government Agency Obligations 10.5% Asset Backed Securities 8.2% Corporate Obligations 3.6% Collateralized Mortgage Obligations 1.5% - -------------------------------------------------------------------------------- + PERCENTAGES ARE BASED ON TOTAL INVESTMENTS. STATEMENT OF NET ASSETS Face Amount Value (000) (000) ------ --------- COMMERCIAL PAPER (B) -- 62.4% AUTO FINANCE -- 4.6% BMW Vehicle Lease Trust $9,500 4.182%, 01/03/06 $ 9,498 --------- BANKS -- 30.6% ANZ 3,800 4.372%, 02/22/06 3,776 Danske Bank 9,000 4.296%, 01/30/06 8,969 Deutsche Ausgleichsbank 9,000 4.394%, 01/03/06 8,998 Lloyds TSB Bank 8,500 4.285%, 01/17/06 8,484 Royal Bank of Canada 8,000 4.018%, 01/11/06 7,991 Societe Generale 6,000 4.164%, 01/27/06 5,982 3,000 4.279%, 02/01/06 2,989 UBS Finance 9,500 4.192%, 01/03/06 9,498 Westpack Banking 6,400 4.382%, 02/28/06 6,355 --------- 63,042 --------- FINANCIALS -- 27.2% Abbey National Treasury Services 9,000 4.324%, 01/03/06 8,998 ABN-Amro North America Finance 7,500 4.262%, 01/19/06 7,484 Atlantic Asset Securitization 9,000 4.248%, 01/06/06 8,995 Bishop Street Funds 50 MONEY MARKET FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Amount Value (000) (000) ------ --------- FINANCIALS -- (CONTINUED) CBA Finance $2,000 4.152%, 01/03/06 $ 2,000 7,000 4.272%, 01/31/06 6,975 1,000 4.441%, 03/14/06 991 Chariot Funding 5,700 4.338%, 01/31/06 5,679 Charta 6,000 4.113%, 01/19/06 5,988 Svenska Handels New York 5,000 4.286%, 02/16/06 4,973 Svenska Handelsbank 4,000 4.098%, 01/20/06 3,991 --------- 56,074 --------- TOTAL COMMERCIAL PAPER (Cost $128,614) 128,614 --------- CERTIFICATES OF DEPOSIT/BANK NOTES -- 18.0% Barclays Capital New York 8,000 4.300%, 02/01/06 8,000 Citigroup 4,500 4.125%, 01/20/06 4,500 Dresdner Funding Trust I 8,500 4.100%, 01/17/06 8,500 Toronto Dominion New York 8,000 4.290%, 01/23/06 8,000 Wells Fargo Bank 8,000 4.310%, 01/26/06 8,000 --------- TOTAL CERTIFICATES OF DEPOSIT/BANK NOTES (Cost $37,000) 37,000 --------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 11.1% FHLB (B) 5,000 4.161%, 01/25/06 4,986 FHLMC 6,000 3.990%, 01/24/06 5,985 4,000 2.180%, 01/30/06 3,987 FNMA (B) 8,000 4.208%, 01/26/06 7,977 --------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $22,935) 22,935 --------- December 31, 2005 51 www.bishopstreetfunds.com MONEY MARKET FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Face Amount Value (000) (000) -------- --------- ASSET BACKED SECURITIES -- 10.2% AUTO FINANCE -- 7.5% Americredit Automobile Receivables Trust, Ser 2005-CF, Cl A1 $1,809 3.845%, 09/06/06 $ 1,809 Honda Auto Receivables Owner Trust, Ser 2005-4, Cl A1 1,452 3.827%, 08/21/06 1,452 Honda Auto Receivables Owner Trust, Ser 2005-6, Cl A1 4,000 4.512%, 12/18/06 4,000 Nissan Auto Lease Trust, Ser 2005-A, Cl A1 3,813 4.271%, 11/15/06 3,813 Volkswagen Auto Loan Enhanced Trust, Ser 2005-1, Cl A1 4,376 4.366%, 11/20/06 4,376 --------- 15,450 --------- MORTGAGE RELATED -- 1.6% Lothian Mortgages, Ser 4A, Cl A1 (C) 1,675 4.369%, 01/24/06 1,675 Permanent Financing, Ser 7, Cl 1A 1,540 4.320%, 03/10/06 1,540 --------- 3,215 --------- OTHER (C)-- 1.1% GE Commercial Equipment Financing, Ser 2005-1A, Cl A1 2,281 3.994%, 09/22/06 2,281 --------- TOTAL ASSET BACKED SECURITIES (Cost $20,946) 20,946 --------- CORPORATE OBLIGATIONS (A) -- 3.8% FINANCIALS -- 3.8% American Express Centurion 3,500 4.339%, 02/28/06 3,500 General Electric Capital 2,300 4.440%, 10/06/06 2,300 General Electric Capital MTN 2,000 4.470%, 12/15/06 2,000 --------- TOTAL CORPORATE OBLIGATIONS (Cost $7,800) 7,800 --------- TOTAL INVESTMENTS (COST $217,295) -- 105.5% 217,295 --------- Bishop Street Funds 52 MONEY MARKET FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Value (000) --------- OTHER ASSETS AND LIABILITIES -- (5.5%) Cash Overdraft $ (9,147) Payable for Capital Shares Redeemed (1,734) Income Distribution Payable (548) Administrative Fees Payable (20) Investment Adviser Fees Payable (19) Shareholder Servicing Fees Payable (18) Distribution Fees Payable (7) Trustees' Fees Payable (2) Other Assets and Liabilities, Net 185 --------- TOTAL OTHER ASSETS AND LIABILITIES (11,310) --------- NET ASSETS -- 100.0% $ 205,985 ========= NET ASSETS: Fund Shares (unlimited authorization -- no par value) $ 206,012 Distributions in Excess of Net Investment Income (4) Accumulated Net Realized Loss on Investments (23) --------- NET ASSETS $ 205,985 ========= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- CLASS I ($170,454,783 / 170,482,899 SHARES) $ 1.00 ========= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- CLASS A ($35,530,615 / 35,531,815 SHARES) $ 1.00 ========= (A) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS IS THE RATE IN EFFECT ON DECEMBER 31, 2005. THE MATURITY DATE SHOWN IS THE NEXT SCHEDULED RESET DATE. (B) REPRESENTS THE EFFECTIVE YIELD AT THE DATE OF PURCHASE. (C) 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." CL -- CLASS FHLB -- FEDERAL HOME LOAN BANK FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION MTN -- MEDIUM TERM NOTE SER -- SERIES COST FIGURES ARE SHOWN WITH "000S" OMITTED. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2005 53 www.bishopstreetfunds.com TREASURY MONEY MARKET FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.] U.S. Treasury Obligations 94.6% Repurchase Agreement 5.4% - -------------------------------------------------------------------------------- + PERCENTAGES BASED ON TOTAL INVESTMENTS. STATEMENT OF NET ASSETS Face Amount Value (000) (000) ------ --------- U.S. TREASURY OBLIGATIONS (A) -- 97.0% U.S. Treasury Bills $10,000 3.557%, 01/05/06 $ 9,996 15,000 4.026%, 01/17/06 14,977 40,000 3.589%, 01/19/06 39,924 15,000 3.684%, 01/26/06 14,962 10,000 3.858%, 02/02/06 9,966 20,000 3.871%, 02/09/06 19,917 15,000 3.902%, 02/16/06 14,926 8,000 3.869%, 03/09/06 7,943 10,000 4.008%, 03/16/06 9,919 45,000 3.913%, 03/23/06 44,607 15,000 3.956%, 04/06/06 14,845 15,000 3.995%, 04/13/06 14,832 --------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $216,814) 216,814 --------- REPURCHASE AGREEMENT -- 5.5% 12,400 Lehman Brothers 3.250%, dated 12/30/05, to be repurchased on 01/03/06, repurchase price $12,401,593 (collateralized by a U.S. Treasury Note, par value $11,710,000, 5.750%, 08/15/10; total market value $12,652,260) (Cost $12,400) 12,400 --------- TOTAL INVESTMENTS (COST $229,214) -- 102.5% 229,214 --------- Bishop Street Funds 54 TREASURY MONEY MARKET FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) Value (000) --------- OTHER ASSETS AND LIABILITIES -- (2.5)% Payable for Investment Securities Purchased $ (14,977) Income Distribution Payable (662) Administrative Fees Payable (22) Shareholder Servicing Fees Payable (19) Investment Adviser Fee Payable (9) Trustees' Fees Payable (2) Other Assets and Liabilities, Net 10,091 --------- TOTAL OTHER ASSETS AND LIABILITIES (5,600) --------- NET ASSETS -- 100.0% $ 223,614 ========= NET ASSETS: Fund Shares of Institutional Shares (unlimited authorization -- no par value) $ 223,668 Accumulated net realized loss on investments (54) --------- TOTAL NET ASSETS $ 223,614 ========= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- INSTITUTIONAL CLASS ($223,613,711 / 223,669,395 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. December 31, 2005 55 www.bishopstreetfunds.com BISHOP STREET FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2005 (IN THOUSANDS) Tax High Large Cap Strategic Managed Grade Growth Growth Equity Income Fund Fund Fund Fund - ---------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividend Income $ 1,702 $ 724 $ 667 $ 72 Interest Income -- -- -- 6,449 Securities Lending, Net 22 -- -- 82 - ---------------------------------------------------------------------------------------------- Total Investment Income 1,724 724 667 6,603 - ---------------------------------------------------------------------------------------------- EXPENSES: Investment Adviser Fees 893 744 264 793 Shareholder Servicing Fee 302 251 89 361 Administrative Fees 241 201 71 289 Distribution Fees, Class A 1 -- -- -- Transfer Agent Fees 52 38 30 53 Professional Fees 30 37 11 44 Trustees' Fees 17 13 5 20 Custody Fees 12 10 4 14 Printing Fees 12 12 4 15 Registration Fees 5 3 6 4 Miscellaneous Expenses 19 10 6 29 - ---------------------------------------------------------------------------------------------- Total Expenses 1,584 1,319 490 1,622 - ---------------------------------------------------------------------------------------------- Less Waivers: Investment Adviser Fees (90) -- (48) (185) Shareholder Servicing Fees (181) (151) (54) (216) Administrative Fees (105) (88) (31) (125) - ---------------------------------------------------------------------------------------------- Total Waivers (376) (239) (133) (526) - ---------------------------------------------------------------------------------------------- Net Expenses 1,208 1,080 357 1,096 - ---------------------------------------------------------------------------------------------- Net Investment Income (Loss) 516 (356) 310 5,507 - ---------------------------------------------------------------------------------------------- Net Realized Gain (Loss) on Investments 11,372 3,839 (27) 880 Change in Unrealized Appreciation (Depreciation) on Investments (12,061) 9,564 25 (3,598) - ---------------------------------------------------------------------------------------------- Net Realized and Unrealized Gain (Loss) on Investments (689) 13,403 (2) (2,718) - ---------------------------------------------------------------------------------------------- Increase (Decrease) in Net Assets Resulting from Operations ($ 173) $13,047 $ 308 $ 2,789 ============================================================================================== 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, 2005 (IN THOUSANDS) Hawaii Treasury Municipal Money Money Bond Market Market Fund Fund Fund - ------------------------------------------------------------------------------- INVESTMENT INCOME: Dividend Income $ 35 $ -- $ -- Interest Income 8,027 6,691 7,208 - ------------------------------------------------------------------------------- Total Investment Income 8,062 6,691 7,208 - ------------------------------------------------------------------------------- EXPENSES: Investment Adviser Fees 624 618 710 Shareholder Servicing Fee 446 515 591 Administrative Fees 356 412 473 Distribution Fees, Class A 78 64 -- Transfer Agent Fees 70 71 54 Professional Fees 56 64 69 Trustees' Fees 24 28 33 Printing Fees 19 28 25 Custody Fees 18 20 24 Registration Fees 5 5 5 Miscellaneous Expenses 47 32 64 - ------------------------------------------------------------------------------- Total Expenses 1,743 1,857 2,048 - ------------------------------------------------------------------------------- Less Waivers: Investment Adviser Fees (185) (273) (447) Shareholder Servicing Fees (267) (309) (355) Administrative Fees (232) (179) (206) - ------------------------------------------------------------------------------- Total Waivers (684) (761) (1,008) - ------------------------------------------------------------------------------- Net Expenses 1,059 1,096 1,040 - ------------------------------------------------------------------------------- Net Investment Income 7,003 5,595 6,168 - ------------------------------------------------------------------------------- Net Realized Gain (Loss) on Investments 1,417 (1) (7) - ------------------------------------------------------------------------------- Change in Unrealized Depreciation on Investments (4,087) -- -- - ------------------------------------------------------------------------------- Net Realized and Unrealized Loss on Investments (2,670) (1) (7) - ------------------------------------------------------------------------------- Increase in Net Assets Resulting from Operations $ 4,333 $5,594 $ 6,161 =============================================================================== 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, 2005 57 www.bishopstreetfunds.com BISHOP STREET FUNDS - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) Large Cap Growth Fund - ------------------------------------------------------------------------------------------------ 2005 2004 - ------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income $ 516 $ 1,039 Net Realized Gain on Investments 11,372 2,061 Change in Unrealized Appreciation (Depreciation) on Investments (12,061) 2,789 - ------------------------------------------------------------------------------------------------ Increase (Decrease) in Net Assets Resulting from Operations (173) 5,889 - ------------------------------------------------------------------------------------------------ DIVIDENDS TO SHAREHOLDERS: Net Investment Income: Class I Shares (523) (1,043) Class A Shares (1) (6) - ------------------------------------------------------------------------------------------------ Total Dividends (524) (1,049) - ------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS: Class I Shares: Proceeds from Shares Issued 8,226 38,484 Reinvestments of Cash Distributions 403 711 Proceeds from Shares Issued in Connection with Conversion from Class A Shares(1) 1,428 -- Cost of Shares Redeemed (91,416) (30,690) - ------------------------------------------------------------------------------------------------ Total Class I Capital Share Transactions (81,359) 8,505 - ------------------------------------------------------------------------------------------------ Class A Shares: Proceeds from Shares Issued 2 144 Reinvestments of Cash Distributions -- 3 Value of Shares Liquidated in Connection with Conversion to Class I Shares(1) (1,428) -- Cost of Shares Redeemed (99) (161) - ------------------------------------------------------------------------------------------------ Total Class A Capital Share Transactions (1,525) (14) - ------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Net Assets From Capital Share Transactions (82,884) 8,491 - ------------------------------------------------------------------------------------------------ Total Increase (Decrease) in Net Assets (83,581) 13,331 - ------------------------------------------------------------------------------------------------ NET ASSETS: Beginning of Year 171,296 157,965 - ------------------------------------------------------------------------------------------------ End of Year $ 87,715 $ 171,296 ================================================================================================ Undistributed Net Investment Income $ -- $ -- ================================================================================================ SHARE TRANSACTIONS: Class I Shares: Shares Issued 858 4,055 Shares Issued in Lieu of Cash Distributions 42 74 Shares Issued in Connection with Conversion from Class A Shares(1) 155 -- Shares Redeemed (9,545) (3,249) - ------------------------------------------------------------------------------------------------ Total Class I Share Transactions (8,490) 880 - ------------------------------------------------------------------------------------------------ Class A Shares: Shares Issued -- 15 Shares Issued in Lieu of Cash Distributions -- -- Value of Shares Liquidated in Connection with Conversion to Class I Shares(1) (156) -- Shares Redeemed (10) (17) - ------------------------------------------------------------------------------------------------ Total Class A Share Transactions (166) (2) - ------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Shares Outstanding from Share Transactions (8,656) 878 ================================================================================================ (1) ON APRIL 29, 2005, CLASS A SHARES OF THE BISHOP STREET EQUITY FUND WERE CONVERTED TO CLASS I SHARES. SEE NOTE 1 IN NOTES TO FINANCIAL STATEMENTS FOR ADDITIONAL INFORMATION. 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 - ------------------------------------------------------------------------------------------------------ 2005 2004 2005 2004 - ------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income (Loss) $ (356) $ (217) $ 310 $ 253 Net Realized Gain (Loss) on Investments 3,839 1,549 (27) 1,216 Change in Unrealized Appreciation on Investments 9,564 5,453 25 706 - ------------------------------------------------------------------------------------------------------ Increase in Net Assets Resulting from Operations 13,047 6,785 308 2,175 - ------------------------------------------------------------------------------------------------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net Investment Income: Class I Shares -- -- (311) (254) Capital Gains: Class I Shares (2,019) -- (49) (1,183) - ------------------------------------------------------------------------------------------------------ Total Dividends and Distributions (2,019) -- (360) (1,437) - ------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS: Class I Shares: Proceeds from Shares Issued 46,780 34,231 11,074 3,777 Reinvestments of Cash Distributions 1,500 -- 29 80 Cost of Shares Redeemed (15,135) (8,693) (12,355) (3,828) - ------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Net Assets From Capital Share Transactions 33,145 25,538 (1,252) 29 - ------------------------------------------------------------------------------------------------------ Total Increase (Decrease) in Net Assets 44,173 32,323 (1,304) 767 - ------------------------------------------------------------------------------------------------------ NET ASSETS: Beginning of Year 79,168 46,845 35,575 34,808 - ------------------------------------------------------------------------------------------------------ End of Year $ 123,341 $ 79,168 $ 34,271 $ 35,575 ====================================================================================================== Accumulated Net Investment Loss/Distributions in Excess of Net Investment Income $ (8) $ (15) $ (1) $ -- ====================================================================================================== SHARE TRANSACTIONS: Class I Shares: Shares Issued 3,544 2,842 921 311 Shares Issued in Lieu of Cash Distributions 105 -- 2 7 Shares Redeemed (1,105) (715) (1,019) (316) - ------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Shares Outstanding from Share Transactions 2,544 2,127 (96) 2 ====================================================================================================== 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, 2005 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 - ----------------------------------------------------------------------------------------------------------------- 2005 2004 2005 2004 - ----------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income $ 5,507 $ 5,305 $ 7,003 $ 7,014 Net Realized Gain on Investments 880 837 1,417 1,678 Change in Unrealized Depreciation on Investments (3,598) (1,214) (4,087) (2,892) - ----------------------------------------------------------------------------------------------------------------- Increase in Net Assets Resulting from Operations 2,789 4,928 4,333 5,800 - ----------------------------------------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net Investment Income: Class I Shares (5,502) (5,288) (5,833) (5,870) Class A Shares (3) (10) (1,167) (1,133) Capital Gains: Class I Shares (1,158) (546) (1,183) (1,540) Class A Shares -- (1) (252) (317) - ----------------------------------------------------------------------------------------------------------------- Total Dividends and Distributions (6,663) (5,845) (8,435) (8,860) - ----------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: Class I Shares: Proceeds from Shares Issued 18,810 40,169 18,692 14,569 Reinvestments of Cash Distributions 3,659 2,530 1,160 1,202 Proceeds from Shares Issued in Connection with Conversion from Class A Shares(1) 310 -- -- -- Cost of Shares Redeemed (34,634) (19,460) (19,845) (15,048) - ----------------------------------------------------------------------------------------------------------------- Total Class I Capital Share Transactions (11,855) 23,239 7 723 - ----------------------------------------------------------------------------------------------------------------- Class A Shares: Proceeds from Shares Issued 96 2 2,724 2,467 Reinvestments of Cash Distributions 1 7 652 680 Value of Shares Liquidated in Connection with Conversion to Class I Shares(1) (310) -- -- -- Cost of Shares Redeemed (14) (57) (1,612) (3,099) - ----------------------------------------------------------------------------------------------------------------- Total Class A Capital Share Transactions (227) (48) 1,764 48 - ----------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets from Capital Share Transactions (12,082) 23,191 1,771 771 - ----------------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets (15,956) 22,274 (2,331) (2,289) - ----------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of Year 157,395 135,121 179,059 181,348 - ----------------------------------------------------------------------------------------------------------------- End of Year $ 141,439 $ 157,395 $ 176,728 $ 179,059 ================================================================================================================= Undistributed Net Investment Income $ 9 $ 9 $ 48 $ 45 ================================================================================================================= SHARE TRANSACTIONS: Class I Shares: Shares Issued 1,834 3,890 1,710 1,310 Shares Issued in Lieu of Cash Distributions 358 244 107 108 Shares Issued in Connection with Conversion from Class A Shares(1) 30 -- -- -- Shares Redeemed (3,370) (1,881) (1,813) (1,356) - ----------------------------------------------------------------------------------------------------------------- Total Class I Share Transactions (1,148) 2,253 4 62 - ----------------------------------------------------------------------------------------------------------------- Class A Shares: Shares Issued 10 -- 249 221 Shares Issued in Lieu of Cash Distributions -- 1 60 61 Value of Shares Liquidated in Connection with Conversion to Class I Shares(1) (30) -- -- -- Shares Redeemed (2) (6) (149) (280) - ----------------------------------------------------------------------------------------------------------------- Total Class A Share Transactions (22) (5) 160 2 - ----------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Shares Outstanding from Share Transactions (1,170) 2,248 164 64 ================================================================================================================= (1) ON APRIL 29, 2005, CLASS A SHARES OF THE BISHOP STREET HIGH GRADE INCOME FUND WERE CONVERTED TO CLASS I SHARES. SEE NOTE 1 IN NOTES TO FINANCIAL STATEMENTS FOR ADDITIONAL INFORMATION. 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 Fund Market Fund - -------------------------------------------------------------------------------------------------------- 2005 2004 2005 2004 - -------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income $ 5,595 $ 2,031 $ 6,168 $ 2,158 Net Realized Loss on Investments (1) (2) (7) (46) - -------------------------------------------------------------------------------------------------------- Increase in Net Assets Resulting from Operations 5,594 2,029 6,161 2,112 - -------------------------------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS: Net Investment Income: Class I Shares (4,936) (1,908) (6,178) (2,173) Class A Shares (663) (122) -- -- - -------------------------------------------------------------------------------------------------------- Total Dividends (5,599) (2,030) (6,178) (2,173) - -------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: (ALL AT $1.00 PER SHARE): Class I Shares: Proceeds from Shares Issued 456,536 443,764 554,900 501,131 Reinvestments of Cash Distributions 192 83 13 6 Cost of Shares Redeemed (454,204) (458,078) (539,435) (563,288) - -------------------------------------------------------------------------------------------------------- Total Class I Capital Share Transactions 2,524 (14,231) 15,478 (62,151) - -------------------------------------------------------------------------------------------------------- Class A Shares: Proceeds from Shares Issued 157,534 47,431 -- -- Reinvestments of Cash Distributions 646 99 -- -- Cost of Shares Redeemed (140,448) (47,170) -- -- - -------------------------------------------------------------------------------------------------------- Total Class A Capital Share Transactions 17,732 360 -- -- - -------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets from Capital Share Transactions 20,256 (13,871) 15,478 (62,151) - -------------------------------------------------------------------------------------------------------- Total Increase (Decrease) in Net Assets 20,251 (13,872) 15,461 (62,212) - -------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of Year 185,734 199,606 208,153 270,365 - -------------------------------------------------------------------------------------------------------- End of Year $ 205,985 $ 185,734 $ 223,614 $ 208,153 ======================================================================================================== Undistributed (Distributions in Excess of) Net Investment Income $ (4) $ -- $ -- $ 10 ======================================================================================================== 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, 2005 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 --------- ------------- -------------- ---------- ---------- ------- ------------- - ----------------------- LARGE CAP GROWTH FUND - ----------------------- CLASS I SHARES: 2005(1) $ 9.78 $ 0.04 $ 0.11 $ 0.15 $(0.04) $ -- $(0.04) 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) -- -- -- - ----------------------- STRATEGIC GROWTH FUND - ----------------------- CLASS I SHARES: 2005(1) $13.08 $(0.05) $ 1.56 $ 1.51 $ -- $(0.24) $(0.24) 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 - ----------------------- CLASS I SHARES: 2005(1) $12.32 $ 0.10 $(0.01) $ 0.09 $(0.11) $(0.02) $(0.13) 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 - ----------------------- CLASS I SHARES: 2005(1) $10.33 $ 0.39 $(0.19) $ 0.20 $(0.39) $(0.08) $(0.47) 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) + 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) 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 --------- -------- ----------- ------------ ----------------- ------------- --------- - ----------------------- LARGE CAP GROWTH FUND - ----------------------- CLASS I SHARES: 2005(1) $ 9.89 1.59% $ 87,715 1.00% 1.31% 0.43% 40% 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 - ----------------------- STRATEGIC GROWTH FUND - ----------------------- CLASS I SHARES: 2005(1) $14.35 11.52% $123,341 1.07% 1.31% (0.35)% 55% 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 - ----------------------- CLASS I SHARES: 2005(1) $12.28 0.68% $ 34,271 1.00% 1.37% 0.87% 29% 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 - ----------------------- CLASS I SHARES: 2005(1) $10.06 2.00% $141,439 0.76% 1.13% 3.82% 45% 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 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2005 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 - --------------------------- CLASS I SHARES: 2005(2) $11.02 $ 0.43 $(0.16) $ 0.27 $(0.43) $(0.09) $(0.52) 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) CLASS A SHARES: 2005(2) $11.02 $ 0.41 $(0.16) $ 0.25 $(0.41) $(0.09) $(0.50) 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) - --------------------------- MONEY MARKET FUND - --------------------------- CLASS I SHARES: 2005(2) $ 1.00 $ 0.03 $ -- $ 0.03 $(0.03) $ -- $(0.03) 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) CLASS A SHARES: 2005(2) $ 1.00 $ 0.03 $ -- $ 0.03 $(0.03) $ -- $(0.03) 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 - --------------------------- CLASS I SHARES: 2005(2) $ 1.00 $ 0.03 $ -- $ 0.03 $(0.03) $ -- $(0.03) 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) + 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) 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 - -------------------------- CLASS I SHARES: 2005(2) $10.77 2.51% $145,213 0.55% 0.93% 3.97% 41% 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 CLASS A SHARES: 2005(2) $10.77 2.25% 31,515 0.80% 1.18% 3.72% 41% 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 - -------------------------- MONEY MARKET FUND - -------------------------- CLASS I SHARES: 2005(2) $ 1.00 2.78% $170,455 0.50% 0.87% 2.73% n/a 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 CLASS A SHARES: 2005(2) $ 1.00 2.53% $ 35,531 0.75% 1.12% 2.60% n/a 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 - -------------------------- CLASS I SHARES: 2005(2) $ 1.00 2.62% $223,614 0.44% 0.87% 2.61% n/a 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 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2005 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 Large Cap Growth Fund (previously known as 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 Hawaii Municipal Bond Fund 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. Prior to April 29, 2005, the Large Cap Growth Fund and High Grade Income Fund offered Class A Shares and Class I Shares. Effective April 29, 2005, Class A Shares were fully liquidated and converted as Class I Shares. 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 increases and decreases in net assets from operations 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 Bishop Street Funds 66 - -------------------------------------------------------------------------------- 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. 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 specific identification. Interest income is recorded on the accrual basis; dividend income is recorded on ex-dividend date. Discounts and premiums are accreted or amortized over the life of each security and are recorded as interest income. The Large Cap Growth, 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, 2005 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 Large Cap Growth, 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. At December 31, 2005, there were no illiquid securities held by the Funds. CASH OVERDRAFT CHARGES Per the terms of an informal agreement with Union Bank of California, N.A., the custodian of the Funds, if a fund has a cash overdraft on a given day, it will be assessed an overdraft charge of 110% of the current Fed Funds rate. Cash overdraft charges are included in miscellaneous expenses on the Statement of Operations. 3. INVESTMENT ADVISORY AND CUSTODIAN AGREEMENT Investment advisory services are provided to the Funds by Bishop Street Capital Management (the "Adviser"), a registered adviser and wholly-owned subsidiary of First Hawaiian Bank. First Hawaiian Bank is a subsidiary of Banc West Corporation, itself a subsidiary of BNP Paribas. The Adviser is entitled to receive an annual fee of 0.74% of the average daily net assets of the Large Cap Growth, 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 has voluntarily agreed to waive a portion of its advisory fee to the extent necessary to keep operating expenses at or below certain percentages of the respective average daily net assets. The voluntary expense limitations are as follows: Large Cap Growth Fund (Class I) 1.00%, Strategic Growth Fund (Class I) 1.25%, Tax Managed Equity Fund (Class I) 1.00%, High Grade Income Fund (Class I) 0.76%, Hawaii Municipal Bond Fund (Class I) 0.55%, Hawaii Municipal Bond Fund (Class A) 0.80%, Bishop Street Funds 68 - -------------------------------------------------------------------------------- Money Market Fund (Class I) 0.50%, Money Market Fund (Class A) 0.75% and Treasury Money Market Fund (Class I) 0.44%. 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. Fischer, Francis, Trees & Watts ("FFTW") serves as the investment sub-adviser for the Money Market Funds, pursuant to a sub-adviser agreement dated July 1, 2005, as approved by shareholders on August 15, 2005. FFTW is entitled to receive from the Adviser a fee, computed daily and paid monthly, at the annual rate of 0.060% of the average daily net assets of the Money Market Funds up to $500 million and 0.020% of the average daily net assets of the Money Market Funds in excess of $500 million. Prior to July 1, 2005, Wellington Management Company, LLP served as the investment sub-adviser for the Money Market Funds. Wellington was entitled to receive from the Adviser a fee, computed daily and paid monthly, at the annual rate of 0.075% of the average daily net assets of the Money Market Funds up to $500 million and 0.020% of the average daily net assets of the Money Market Funds in excess of $500 million. Union Bank of California, N.A. acts as custodian (the "Custodian") for the Funds. The Custodian plays no role in determining the investment policies of the Funds or which securities are to be purchased or sold by the Funds. 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 administrative fee to the extent necessary to keep operating expenses at or below certain percentages of the respective average daily net assets. 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 December 31, 2005 69 www.bishopstreetfunds.com BISHOP STREET FUNDS - -------------------------------------------------------------------------------- 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 shareholder servicing fee to the extent necessary to keep operating expenses at or below certain percentages of the respective average daily net assets. 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 33 1/3% of the total asset value of the Fund (including the loan collateral). No Fund will lend portfolio securities to its investment adviser, sub-adviser or their affiliates unless it has applied for and received specific authority to do so from the SEC. Loans of portfolio securities will be fully collateralized by cash, letters of credit or U.S. Government securities, and the collateral will be maintained in an amount equal to at least 100% of the current market value of the loaned securities by marking to market daily, although the borrower will be required to deliver collateral of 102% of the market value of borrowed securities. 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. Securities lending on the Statement of Operations is net of commissions to the security lending agent. 6. INVESTMENT TRANSACTIONS The cost of security purchases and the proceeds from the sale and maturities of securities, other than short-term investments for the year ended December 31, 2005 are presented below for the Funds. Large Cap Strategic Tax High Grade Hawaii Growth Growth Managed Income Municipal Fund Fund Equity Fund Fund Bond Fund (000) (000) (000) (000) (000) --------- --------- ----------- ---------- --------- Purchases U.S. Government Securities $ -- $ -- $ -- $ 31,584 $ -- Other 47,511 84,326 10,084 27,449 73,378 Sales and Maturities U.S. Government Securities $ -- $ -- $ -- $ 42,379 $ -- Other 128,722 54,162 11,530 33,185 70,089 Bishop Street Funds 70 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 substantially all of its taxable income and net capital gains. Accordingly, no provision for federal income taxes is required. The timing and characterization of certain income and capital gains distributions are determined annually in accordance with Federal tax regulations which may differ from accounting principles generally accepted in the United States of America. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for the reporting period may differ from distributions during such period. These book/tax differences may be temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in-capital or accumulated net realized gain, as appropriate, in the period that the differences arise. Accordingly, the following permanent differences, primarily attributable to net operating loss, paydown gains and losses, reclassification of distributions, and expiration of capital loss carryforwards have been reclassified: Undistributed Accumulated Paid Net Investment Realized in Income Gain Capital (000) (000) (000) -------------- ----------- -------- Large Cap Growth Fund $ 8 $ -- $ (8) Strategic Growth Fund 363 (359) (4) High Grade Income Fund (2) 2 -- Money Market Fund -- 2 (2) The tax character of dividends and distributions declared during the years ended December 31, 2005 and December 31, 2004 were as follows: Ordinary Tax Exempt Long-Term Income Income Capital Gain Total (000) (000) (000) (000) -------- ---------- ------------ ------- Large Cap Growth Fund 2005 $ 524 $ -- $ -- $ 524 2004 1,049 -- -- 1,049 Strategic Growth Fund 2005 $ -- $ -- $ 2,019 $2,019 2004 -- -- -- -- Tax Managed Equity Fund 2005 $ 311 $ -- $ 49 $ 360 2004 311 -- 1,126 1,437 December 31, 2005 71 www.bishopstreetfunds.com BISHOP STREET FUNDS - -------------------------------------------------------------------------------- Ordinary Tax Exempt Long-Term Income Income Capital Gain Total (000) (000) (000) (000) --------- --------- ------------ -------- High Grade Income Fund 2005 $6,284 $ -- $ 379 $6,663 2004 5,298 -- 547 5,845 Hawaii Municipal Bond Fund 2005 $ 24 $7,000 $1,411 $8,435 2004 71 7,003 1,786 8,860 Money Market Fund 2005 $5,599 $ -- $ -- $5,599 2004 2,030 -- -- 2,030 Treasury Money Market Fund 2005 $6,178 $ -- $ -- $6,178 2004 2,173 -- -- 2,173 As of December 31, 2005, the components of Distributable Earnings (Accumulated Losses) on a tax basis were as follows: Treasury Large Cap Strategic Tax High Grade Hawaii Money Money Growth Growth Managed Income Municipal Market Market Fund Fund Equity Fund Fund Bond Fund Fund Fund (000) (000) (000) (000) (000) (000) (000) --------- ---------- ----------- ---------- --------- -------- -------- Undistributed (Distributions in excess of) net investment income $ -- $ -- $ 7 $ 9 $ -- $ (4) $ -- Undistributed tax exempt income -- -- -- -- 2 -- -- Undistributed long-term capital gain -- 2,042 -- -- 7 -- -- Capital loss carryforwards (52,057) -- (30) -- -- (23) (54) Post-October Losses -- -- -- (44) -- -- -- Other Temporary Differences -- (8) (10) -- -- -- -- Unrealized appreciation 6,408 22,858 6,828 808 5,523 -- -- -------- -------- -------- -------- -------- -------- -------- Total Distributable Earnings (Accumulated Losses) $(45,649) $ 24,892 $ 6,795 $ 773 $ 5,532 $ (27) $ (54) ======== ======== ======== ======== ======== ======== ======== Bishop Street Funds 72 - -------------------------------------------------------------------------------- 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 as follows: Treasury Large Cap Strategic Tax High Grade Hawaii Money Money Growth Growth Managed Income Municipal Market Market Fund Fund Equity Fund Fund Bond Fund Fund Fund (000) (000) (000) (000) (000) (000) (000) ---------- --------- ----------- ---------- --------- -------- --------- Dec. 2008 -- -- -- -- -- (2) -- Dec. 2009 (24,675) -- -- -- -- (18) -- Dec. 2010 (25,686) -- -- -- -- -- -- Dec. 2011 (1,696) -- -- -- -- -- -- Dec. 2012 -- -- -- -- -- -- (27) Dec. 2013 -- -- (30) -- -- (3) (27) During the year ended December 31, 2005 the Large Cap Growth Fund, utilized capital loss carryforwards of $11,595,848, to offset realized capital gains. Post-October losses represent losses realized on investment transactions from November 1, 2005 through December 31, 2005 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 Large Cap Growth, Strategic Growth, Tax Managed Equity, High Grade Income, and Hawaii Municipal Bond Funds for Federal income tax purposes at December 31, 2005 were as follows: Large Cap Strategic Tax High Grade Hawaii Growth Growth Managed Income Municipal Fund Fund Equity Fund Fund Bond Fund (000) (000) (000) (000) (000) --------- --------- ----------- --------- --------- Federal Tax Cost $ 91,697 $ 102,488 $ 27,140 $ 177,835 $ 168,752 --------- --------- --------- --------- --------- Gross Unrealized Appreciation 10,967 25,100 7,203 2,944 5,918 Gross Unrealized Depreciation (4,559) (2,242) (375) (2,136) (395) --------- --------- --------- --------- --------- Net Unrealized Appreciation $ 6,408 $ 22,858 $ 6,828 $ 808 $ 5,523 ========= ========= ========= ========= ========= December 31, 2005 73 www.bishopstreetfunds.com BISHOP STREET FUNDS - -------------------------------------------------------------------------------- 8. 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. 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. 9. OTHER At December 31, 2005, the percentage of total shares outstanding held by shareholders for each Fund, which comprised of an omnibus account that was held on behalf of several individual shareholders, was as follows: Number of % of Outstanding Shareholders Shares ------------ ---------------- Equity Fund, Class I Shares 1 84.92% Strategic Growth Fund, Class I Shares 1 92.55 Tax Managed Equity Fund, Class I Shares 1 90.79 High Grade Income Fund, Class I Shares 1 86.34 Hawaii Municipal Bond Fund, Class I Shares 1 90.45 Hawaii Municipal Bond Fund, Class A Shares 1 12.92 Money Market Fund, Class I Shares 1 95.24 Money Market Fund, Class A Shares 1 99.93 Treasury Money Market Fund, Class I Shares 1 99.82 Bishop Street Funds 74 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 Large Cap Growth (formerly 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 "Funds") at December 31, 2005, 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 Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with 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, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 17, 2006 December 31, 2005 75 www.bishopstreetfunds.com 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 its 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% 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. Bishop Street Funds 76 BISHOP STREET FUNDS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- Beginning Ending Expenses Account Account Annualized Paid Value Value Expense During 7/1/05 12/31/05 Ratios Period* - -------------------------------------------------------------------------------------------------- LARGE CAP GROWTH FUND -- CLASS I - -------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,052.00 1.00% $5.17 HYPOTHETICAL 5% RETURN $1,000.00 1,020.16 1.00% 5.09 - -------------------------------------------------------------------------------------------------- STRATEGIC GROWTH FUND -- CLASS I - -------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,124.70 1.09% $5.84 HYPOTHETICAL 5% RETURN 1,000.00 1,019.71 1.09% 5.55 - -------------------------------------------------------------------------------------------------- TAX MANAGED EQUITY FUND -- CLASS I - -------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,042.10 1.00% $5.15 HYPOTHETICAL 5% RETURN 1,000.00 1,020.16 1.00% 5.09 - -------------------------------------------------------------------------------------------------- HIGH GRADE INCOME FUND -- CLASS I - -------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $ 992.50 0.76% $3.82 HYPOTHETICAL 5% RETURN 1,000.00 1,021.37 0.76% 3.87 - -------------------------------------------------------------------------------------------------- HAWAII MUNICIPAL BOND FUND -- CLASS I - -------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,004.10 0.55% $2.78 HYPOTHETICAL 5% RETURN 1,000.00 1,022.43 0.55% 2.80 - -------------------------------------------------------------------------------------------------- HAWAII MUNICIPAL BOND FUND -- CLASS A - -------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,002.80 0.80% $4.04 HYPOTHETICAL 5% RETURN 1,000.00 1,021.17 0.80% 4.08 - -------------------------------------------------------------------------------------------------- MONEY MARKET FUND -- CLASS I - -------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,016.50 0.50% $2.54 HYPOTHETICAL 5% RETURN 1,000.00 1,022.68 0.50% 2.55 - -------------------------------------------------------------------------------------------------- MONEY MARKET FUND -- CLASS A - -------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,015.30 0.75% $3.81 HYPOTHETICAL 5% RETURN 1,000.00 1,021.42 0.75% 3.82 - -------------------------------------------------------------------------------------------------- TREASURY MONEY MARKET FUND -- CLASS I - -------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,015.30 0.44% $2.24 HYPOTHETICAL 5% RETURN 1,000.00 1,022.99 0.44% 2.24 - -------------------------------------------------------------------------------------------------- * Expenses are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). December 31, 2005 77 www.bishopstreetfunds.com BISHOP STREET FUNDS - -------------------------------------------------------------------------------- NOTICE TO SHAREHOLDERS OF BISHOP STREET FUNDS (UNAUDITED) For shareholders that do not have a December 31, 2005 taxable year end, this notice is for informational purposes only. For shareholders with a December 31, 2005 tax year end, please consult your tax advisor as to the pertinence of this notice. (A) (B) (C) LONG TERM SHORT TERM NET INVESTMENT (D) CAPITAL GAINS CAPITAL GAINS INCOME TAX DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS EXEMPT FUND (TAX BASIS) (TAX BASIS) (TAX BASIS) INTEREST - ---- ------------- ------------- -------------- -------- Large Cap Growth 0% 0% 100% 0% Strategic Growth 100% 0% 0% 0% Tax Managed Equity 14% 0% 86% 0% High Grade Income 6% 12% 82% 0% Hawaii Municipal Bond 17% 0% 0% 83% Money Market 0% 0% 100% 0% Treasury Money Market 0% 0% 100% 0% (1) QUALIFYING DIVIDENDS REPRESENT DIVIDENDS WHICH QUALIFY FOR THE CORPORATE DIVIDENDS RECEIVED DEDUCTION. THIS AMOUNT IS REFLECTED AS A PERCENTAGE OF TOTAL ORDINARY INCOME DISTRIBUTIONS (THE TOTAL OF SHORT-TERM CAPITAL GAIN AND NET INVESTMENT INCOME DISTRIBUTIONS. (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. Bishop Street Funds 78 - -------------------------------------------------------------------------------- For the fiscal year ended December 31, 2005, each Fund has designated the following items with regard to distributions paid during the year: (F) DIVIDENDS QUALIFYING (E) FOR (J) (A+B+C+D) CORPORATE (G) (H) (I) QUALIFIED TOTAL DIVIDENDS QUALIFYING U.S. QUALIFIED SHORT-TERM DISTRIBUTIONS RECEIVABLE DIVIDEND GOVERNMENT INTEREST CAPITAL (TAX BASIS) DEDUCTION(1) INCOME(2) INTEREST (3) INCOME (4) GAIN (5) - --------------------------------------------------------------------------------------- 100% 100% 100% 0% 3% 0% 100% 0% 0% 0% 0% 0% 100% 100% 100% 0% 4% 0% 100% 0% 0% 30% 91% 79% 100% 0% 0% 0% 95% 0% 100% 0% 0% 5% 95% 0% 100% 0% 0% 69% 95% 0% (4) THE PERCENTAGE IN THIS COLUMN REPRESENTS THE AMOUNT OF "QUALIFYING INTEREST INCOME" AS CREATED BY THE AMERICAN JOBS CREATION ACT OF 2004 AND IS A PERCENTAGE OF NET INVESTMENT INCOME THAT IS EXEMPT FROM U.S. WITHHOLDING TAX WHEN PAID TO FOREIGN INVESTORS. (5) THE PERCENTAGE IN THIS COLUMN REPRESENTS THE AMOUNT OF "QUALIFYING SHORT-TERM CAPITAL GAIN" AS CREATED BY THE AMERICAN JOBS CREATION ACT OF 2004 AND IS REFLECTED AS A PERCENTAGE OF SHORT-TERM CAPITAL GAIN DISTRIBUTIONS THAT IS EXEMPT FROM U.S. WITHHOLDING TAX WHEN PAID TO FOREIGN INVESTORS. * ITEMS (A), (B), (C) AND (D) ARE BASED ON THE PERCENTAGE OF EACH FUND'S TOTAL DISTRIBUTION. December 31, 2005 79 www.bishopstreetfunds.com BISHOP STREET FUNDS - -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS The following table lists the Trustees and Officers as of February 17, 2006. 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 82 [PHOTO OMITTED] MR. PETER F. SANSEVERO Trustee Since 1999 72 [PHOTO OMITTED] MR. MANUEL R. SYLVESTER Trustee Since 1994 75 [PHOTO OMITTED] DR. JOYCE S. TSUNODA Trustee Since 1994 67 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) - ---------------------------------------------------------- --------------- --------------------- PARTNER -- Goodsill, Anderson, Quinn & Stifel since 1951 7 None 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, 2005 81 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 74 President and [PHOTO OMITTED] MR. ROBERT A. NESHER Chairman of Since 1998 59 the Board of Trustees [PHOTO OMITTED] MR. JOHN K. TSUI Trustee Since 2004 67 OFFICERS Michael Lawson Treasurer Since 2005 45 and Controller Philip T. Masterson Vice President 1 41 and Secretary 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) - ---------------------------------------------------------- --------------- ----------------------------------------- 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 SEI ASSET ALLOCATION TRUST, SEI DAILY SEI INVESTMENTS FOR WHICH MR. NESHER IS COMPENSATED. INCOME TRUST, SEI INDEX FUNDS, EXECUTIVE VICE PRESIDENT -- SEI Investments (1986-1994) SEI INSTITUTIONAL INVESTMENTS TRUST, DIRECTOR AND EXECUTIVE VICE PRESIDENT OF THE ADMINISTRATOR SEI INSTITUTIONAL MANAGED TRUST, AND THE DISTRIBUTOR (1981-1994) SEI INSTITUTIONAL INTERNATIONAL TRUST, SEI LIQUID ASSET TRUST AND SEI TAX EXEMPT TRUST. CHAIRMAN -- Towne Development of Hawaii since 7 None 2003. DIRECTOR -- First Hawaiian Bank since 1994. DIRECTOR -- Bank of the West since 2000. DIRECTOR -- BancWest Corporation since 1998. PRESIDENT -- CHIEF OPERATING OFFICER -- First Hawaiian Bank (1994-2002). VICE CHAIRMAN -- CHIEF CREDIT OFFICER, BANKWEST Corporation (1998-2002). Director, SEI Investments, Fund Accounting N/A N/A (2005-present); Manager, SEI Investments AVP (1995-2005). 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, 2005 83 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 38 Assistant Secretary Sofia A. Rosala Vice President and Since February 2005 32 Assistant Secretary Timothy D. Barto Vice President and 4 37 Assistant Secretary Michael T. Pang Vice President and Since February 2005 33 Assistant Secretary Ryan S. Ushijima Chief 1 49 Compliance Officer Lori Foo Vice President and 3 48 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 DECEMBER 31, 2005, THE BISHOP STREET FUNDS COMPLEX CONSISTED OF 7 FUNDS. Bishop Street Funds 84 (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 N/A N/A since 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, 2005 85 www.bishopstreetfunds.com BISHOP STREET FUNDS - -------------------------------------------------------------------------------- SHAREHOLDER VOTING RESULTS (UNAUDITED) At a special meeting held on August 15, 2005, the shareholders of the Bishop Street Funds voted on the proposal listed below. Proposal: To approve the new investment sub-advisory agreement between the Trust, on behalf of the Funds, Bishop Street Capital Management, and Fischer Francis Trees & Watts, Inc. The results of the voting were as follows: TREASURY MONEY MARKET FUND % OF NUMBER OUTSTANDING % OF SHARES OF SHARES SHARES VOTED --------------- ----------- ----------- Affirmative 140,753,432.000 55.037% 99.961% Against 0.000 0.000% 0.000% Abstain 54,966.000 0.021% 0.039% TOTAL 140,808,398.000 55.058% 100.000% Record Total 255,743,563.690 Voted Shares 140,808,398.000 Percent Voted 55.058% MONEY MARKET FUND % OF NUMBER OUTSTANDING % OF SHARES OF SHARES SHARES VOTED --------------- ----------- ----------- Affirmative 120,280,730.000 64.348% 98.293% Against 11,692.000 0.006% 0.010% Abstain 2,077,034.000 1.111% 1.697% TOTAL 122,369,456.000 65.465% 100.000% Record Total 186,922,125.776 Voted Shares 122,369,456.000 Percent Voted 65.465% Bishop Street Funds 86 NOTES NOTES - -------------------------------------------------------------------------------- [GRAPHIC OMMITED] 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 [LOGO] BISHOP STREET FUNDS FOR MORE INFORMATION ABOUT BISHOP STREET FUNDS, CALL 1-800-262-9565 OR YOUR INVESTMENT SPECIALIST VISIT US ONLINE AT WWW.BISHOPSTREETFUNDS.COM - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [LOGO] BISHOP BISHOP STREET FUNDS STREET P.O. BOX 3708 FUNDS 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-006-1100 - -------------------------------------------------------------------------------- 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: - ------------------ ----------------------------------------------------- ----------------------------------------------------- 2005 2004 - ------------------ ----------------------------------------------------- ----------------------------------------------------- All fees and All fees and All other fees All fees and All fees and All other fees services to the services to and services to services to the services to and services to Trust that were service service Trust that were service service pre-approved affiliates that affiliates that pre-approved affiliates that affiliates that were did not require were did not require pre-approved pre-approval pre-approved pre-approval - ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- (a) Audit $104,100 N/A N/A $98,200 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: ------------------------- ----------------- ---------------- 2005 2004 ------------------------- ----------------- ---------------- 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 2005 and 2004, 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 registrants 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 By (Signature and Title)* /s/ Robert A. Nesher ------------------------ Robert A. Nesher President Date: March 6, 2006 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. (Registrant) Bishop Street Funds By (Signature and Title)* /s/ Robert A. Nesher ------------------------ Robert A. Nesher President Date: March 6, 2006 By (Signature and Title)* /s/ Michael Lawson ------------------------ Michael Lawson Treasurer and Controller Date: March 6, 2006 * Print the name and title of each signing officer under his or her signature.