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)
--------
101 Federal Street
Boston, MA 02110
(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: 1-800-262-9565
DATE OF FISCAL YEAR END: DECEMBER 31, 2006
DATE OF REPORTING PERIOD: DECEMBER 31, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
BISHOP STREET
FUNDS
ANNUAL REPORT
DECEMBER 31, 2006
STRATEGIC GROWTH FUND
LARGE CAP CORE EQUITY FUND
HIGH GRADE INCOME FUND
HAWAII MUNICIPAL BOND FUND
MONEY MARKET FUND
TREASURY MONEY MARKET FUND
INVESTMENT ADVISER
BISHOP STREET
CAPITAL MANAGEMENT
[BISHOP STREET FUNDS LOGO OMITTED]
The Funds file their complete schedules 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 orby 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
30is 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
STRATEGIC GROWTH FUND
Management Discussion.......................................... 6
Schedule of Investments........................................ 10
LARGE CAP CORE EQUITY FUND
Management Discussion.......................................... 13
Schedule of Investments........................................ 16
HIGH GRADE INCOME FUND
Management Discussion.......................................... 22
Schedule of Investments........................................ 24
HAWAII MUNICIPAL BOND FUND
Management Discussion.......................................... 32
Schedule of Investments........................................ 34
MONEY MARKET & TREASURY MONEY MARKET FUNDS
Management Discussion.......................................... 43
Schedule of Investments........................................ 45
STATEMENTS OF ASSETS AND LIABILITIES................................. 49
STATEMENTS OF OPERATIONS............................................. 51
STATEMENTS OF CHANGES IN NET ASSETS.................................. 53
FINANCIAL HIGHLIGHTS................................................. 56
NOTES TO FINANCIAL STATEMENTS........................................ 60
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.............. 71
DISCLOSURE OF FUND EXPENSES.......................................... 72
NOTICE TO SHAREHOLDERS............................................... 74
BOARD OF TRUSTEES AND OFFICERS....................................... 76
SHAREHOLDER VOTING RESULTS........................................... 84
1
- --------------------------------------------------------------------------------
BISHOP STREET
LETTER TO SHAREHOLDERS
FUNDS
- --------------------------------------------------------------------------------
[PHOTOGRAPH OMITTED]
The investment environment in 2006 was marked by a tightening in global interest
rates, a marked flattening of yield curves, and bond market volatility that
reached historical lows. In the United States, the Federal Reserve ("Fed")
continued increasing interest rates, lifting its Fed funds rate by 100 basis
points to 5(1)/4% by mid-year--a full 425 basis points above their lows in
January 2004. European Central Banks followed suit tightening monetary policy
and raising Euro rates to 3(1)/2%--125 basis points above levels at the start of
the year. Yet despite this hawkish activity in global interest rate policy, bond
yields simply drifted higher early in the year only to drift back down in the
second half of 2006--no dramatic moves, just a steady flattening and stubbornly
low rates in a world awash in liquidity.
After a slow start in the first half of the year, the investment grade bond
market managed to post a respectable return with a strong showing in the second
half of 2006. Ten-year Treasuries began the year with a yield of 4.39% reaching
a high of 5.25% on June 28th only to finish the year at 4.81%--a net increase of
+42 basis points on the year. For the calendar year, the Lehman Brothers Bond
Index generated a +4.33% return with mortgages and lower-grade corporate bonds
providing the bulk of the lift. Shorter maturities continued to provide a yield
advantage with money market returns well above 4.50%. How much longer will this
phenomenon continue? We think the answer will be known this year.
Equity investors fared even better. Building on already solid gains through the
3rd quarter, the stock market staged a traditional 4th quarter rally and ensured
that 2006 would emphatically extend the stock market's winning streak. The past
12 months certainly turned out on the high side of our expectations at the start
of the year, when we forecast "single-digit returns from the stock market in
2006, and perhaps a little better." Overall, the picture was one of a very broad
based rally, with most major indices showing solid gains.
Bishop Street Funds 2
- --------------------------------------------------------------------------------
[Bishop Street Funds Logo Omitted]
- --------------------------------------------------------------------------------
So is the consumer- and housing-lead mid-cycle slowdown at hand? Will inflation
continue to moderate? Will a vigilant Fed and foreign Central Banks remain
vigilant? Will abundant liquidity continue to provide a bullish backdrop for the
financial markets? To be sure, there were plenty of surprises in 2006, and 2007
is sure to have its own.
Looking out over the next twelve months, we continue to focus on several issues
that will have a bearing on interest rates and the bond markets. We are
concerned about the extent to which a housing slowdown will impact consumer
spending, growth, and corporate profits. Will the European economies sustain
their momentum if the U.S. falters but strength overseas in the Far East
continues? We continue to monitor capital flows from pension funds supporting
the long end of the yield curve as well as the force of Central Banks driving
down government bond yields from the sheer volume of the reinvestment of their
growing reserves. We also remain concerned about the impact of credit
derivatives, a market in which volumes are growing exponentially, the
consequences of which have not yet been fully identified. Too much money chasing
too few goods is never a good thing--especially in the world of finance. Stay
tuned.
Sincerely,
/s/ Michael Hirai
Michael Hirai
President and Chief Investment Officer
Bishop Street Capital Management
December 31, 2006 3 www.bishopstreetfunds.com
- --------------------------------------------------------------------------------
BISHOP STREET
INVESTMENT ADVISER'S REPORT
FUNDS
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR'S REPORT
In many ways the year 2006 was a bleak one on the world stage, but global
financial markets at least provided some pleasant surprises. Most of the world's
stock markets experienced double-digit gains, despite the worrisome political
environment. The reason: a healthy economic backdrop characterized by robust,
low-inflation growth and structural reform. In the United States, the Federal
Open Market Committee ("Fed") seems to have engineered a soft landing, clearing
the way for the resumption of stronger growth in the latter part of 2007. The
housing bubble is unwinding, but so far without dramatic spillover effects on
consumer spending and growth. Risks centered on the housing market persist, and
core inflation remains slightly elevated, but the overall economic picture is
favorable, at least in the near term.
After three years in which real GDP growth averaged 3.7%, the economy began to
slow down in the second quarter of 2006 and has remained "sub-par" ever since,
averaging 2.0% in the third quarter and about the same in the fourth. In the
economy, as in golf, "sub-par" is not necessarily a bad thing. Most economists
believe we are in a so-called "mid-cycle slowdown", a pause in a cyclical
economic upswing whose peak may be some years off. A minority believe the
slowdown is something more worrisome, the precursor of a recession. At this
stage there is no way to know who is correct, the optimists or the pessimists,
but financial markets do not appear to be pricing in a near term recession. Nor
is the Fed, which remains more concerned by the risk of resurgent inflation.
Inflation readings have been a mixed bag. Core inflation (excluding volatile
food and energy costs) was 2.6% in November, above the Fed's comfort zone of
1.0-2.0% but in a downward trend after peaking at 2.9% in September. Headline
inflation is considerably lower, depressed by the recent dramatic fall in the
price of oil.
A year ago we perceived the two biggest risks to the economy to be a cooling
housing market, which we got, or a Fed policy blunder, which we didn't. Although
the housing market bubble is deflating, it seems to be doing so in a
Bishop Street Funds 4
- --------------------------------------------------------------------------------
[Bishop Street Funds Logo Omitted]
- --------------------------------------------------------------------------------
relatively orderly manner, and there are signs that home prices may soon find a
floor. More importantly, the spillover effects of housing weakness on the rest
of the economy, particularly consumer spending, have not been dramatic. The Fed,
having raised short term rates to 5.25%, appears to have averted inflation
without tipping us into recession (though we are not out of the woods on either
score quite yet). In addition, the market got a few important bonuses. Earnings
growth, which we expected to be under 10%, topped 20% in the 3rd quarter, and
the price of oil, after rising 36% in 2005, ended 2006 essentially flat (and in
a steep declining trend from mid-summer highs).
For 2007 we expect continued sub-par growth in the near term due to softness in
housing and consumer spending, with reacceleration in the second half of the
year, accompanied by a some recovery in housing and manufacturing. Inflation
should continue to decelerate, helped by falling commodity prices and the
cooling impact of past rate hikes, which have probably not yet exerted their
full effect. Moreover, we remain impressed by the underlying structural
disinflationary forces that are underpinning the current long period of global
low-inflation growth. Although we have mentioned them in the past, these forces
bear repeating. First, global labor arbitrage such that traded goods are easily
sourced from the lowest cost producers worldwide (especially at a time when
global manufacturing capacity has surged due to hundreds of millions of workers
entering the free market system from formerly state-controlled economies).
Second, exceptionally strong productivity growth due to the ongoing adoption of
new technologies and structural reform. These secular disinflationary forces
have a long way to run and are a major foundation of our generally optimistic
long-term investment outlook.
December 31, 2006 5 www.bishopstreetfunds.com
- --------------------------------------------------------------------------------
BISHOP STREET
MANAGEMENT DISCUSSION
FUNDS
- --------------------------------------------------------------------------------
Strategic Growth Fund
- --------------------------------------------------------------------------------
As we had expected at the end of 2005, the U.S. economy remained remarkably
strong all along 2006, and inflation did not become a serious threat at any
point in time. While our scenario was right, however, its impact on the market
appears to have been different from our anticipations, and this accounts for our
underperformance in the last twelve months.
As explained in previous reports, we entered 2006 with the conviction that it
would see a continuing steadiness in the U.S. economy, which appeared to be
firing on all cylinders. On the corporate side, services industries were
reporting strong trends, while optimism in the manufacturing sector had been
boosted by additional demand for the post-hurricanes reconstruction effort.
Employment indicators were strong, consumer confidence was continuing to
improve, thus impacting the consumption component of GDP growth. In the
meantime, inflation did not appear to be a problem, as numbers adjusted for the
impact of energy prices (which we did not expect to stay in a durable uptrend)
were relatively subdued.
Even if the manufacturing sector eventually gave signs of softness, partly due
to the car industry and a significant slowdown in the housing business, most of
these aspects remained grossly unchanged all along the year. Overall, most
indicators were just supporting the idea of a soft landing scenario, bringing
economic growth back towards 3% instead of the unsustainable levels it had
experienced a little while before. The stabilization of energy prices enabled
the Federal Reserve ("Fed") to keep its rates unchanged since last summer.
Our stock selection was based on expectations that these developments would
trigger a market rally, specially for growth stocks, boosted both by investors'
relief and by attractive market valuations. With its high beta stocks and a
strong focus on fast growing companies, our portfolio was profiled for this
Bishop Street Funds 6
- --------------------------------------------------------------------------------
[Bishop Street Funds Logo Omitted]
- --------------------------------------------------------------------------------
environment. Unfortunately, the first half of the year proved to be tougher than
expected. Not only did many of our stocks suffer from a rather normal
profit-taking after their strong outperformance in 2005, but growth stocks were
also penalized by two factors:
- fears that interest rates would go further up continued to weigh even
after it had become clear that inflation was not a threat, as investors
were not sure how to interpret the communication style of the Fed's new
chairman.
- the scandals around stock options backdating continued to loom around and
cause concerns about the credibility of many growth companies' management
teams.
This is why, even our strong recovery in the second half of the year failed to
bring us back above our benchmark as regards to 2006 performance. In line with
its long term objective, the Fund however remains ahead of the S&P 500 Composite
Index since its inception. The Fund's return for the year was 9.78% versus
15.80% for the S&P 500 Composite Index, net of our management fee.
Despite this disappointing performance in 2006, we did not feel the need to
change our portfolio too drastically. Our focus remained on the medium to long
term, for which we were confident that we had the right profile.
With only 17 stocks replaced in our portfolio during the year (excluding
the impact of Cendant's split into several independent companies), our strategy
generated one of its lowest turnover rates in the decade. Over the last few
years, the return to a more significant growth and large cap bias had often
pushed such rates towards 50%.
Although based on stock picking, and not necessarily reflective of our
assumptions regarding sectors, these changes resulted in several significant
evolutions in our industry exposures. Our (already low) exposure to energy was
further reduced over time, in favor of financials (mainly investment bankers and
asset managers) and health care (biotechs in particular). Our substantial
December 31, 2006 7 www.bishopstreetfunds.com
- --------------------------------------------------------------------------------
BISHOP STREET
MANAGEMENT DISCUSSION
FUNDS
- --------------------------------------------------------------------------------
overweights in technology and consumer discretionary were maintained, together
with our significant underweight in consumer staples and utilities.
Some of the indicators or comments released recently about the U.S. economy were
rather puzzling, and caused contrasted interpretations in the market. We however
feel confident that our relatively positive scenario will be strengthened when
more details become available about the Holidays season and, later on, quarterly
earnings.
We continue to believe that the apparent sluggishness of the U.S. economy
according to the very latest indicators is due to inventory adjustments taking
place in a limited number of industries, such as car manufacturers, homebuilders
and certain parts of IT. Given the level of confidence indicators, both among
corporate managers in the services area and among consumers, which represent a
dominant part of the economy in the U.S., we trust that the current trend is at
least resilient.
The general operating environment is obviously less easy than it used to be over
the last few years, and makes it less likely that company managers make upbeat
comments and raise their guidance dramatically. As usual under such
circumstances, bad news makes more noise than good news, and any disappointing
indicator or comment can contribute to create a sentiment of uncertainty. The
truth eventually resurfaces when earnings are finally released, and we hope the
next few weeks will confirm the rightness of our views.
Bishop Street Funds 8
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 COMPOSITE INDEX, THE CONSUMER PRICE INDEX AND
THE LIPPER MULTI CAP CORE CLASSIFICATION.
[LINE GRAPH OMITTED]
PLOT POINTS ARE AS FOLLOWS:
Strategic Growth S&P 500/Citigroup S&P 500 Consumer Price Lipper Multi Cap
Fund Class I# Growth Index Composite Index Index Core Classification++
7/1/02 $10,000 $10,000 $10,000 $10,000 $10,000
12/02 8,639 9,398 9,166 10,056 8,891
6/03 10,309 10,585 10,244 10,214 9,991
12/03 11,928 11,943 11,795 10,246 11,600
6/04 12,328 12,264 12,201 10,545 12,013
12/04 13,077 12,775 13,078 10,580 12,936
6/05 12,968 12,468 12,972 10,811 12,899
12/05 14,585 12,921 13,719 10,938 13,776
6/06 14,331 12,799 14,091 11,279 14,119
12/06 16,011 14,343 15,886 11,218 15,601
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
AVERAGE ANNUAL TOTAL RETURNS+
- --------------------------------------------------------------------------------
ONE ANNUALIZED ANNUALIZED
YEAR 3 YEAR INCEPTION
RETURN RETURN TO DATE
- --------------------------------------------------------------------------------
9.78% 10.31% 11.04% 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. Fee waivers are
in effect; if they had not been in effect, performance would have been
lower.
December 31, 2006 9 www.bishopstreetfunds.com
Strategic Growth Fund
- --------------------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS+
- --------------------------------------------------------------------------------
Percentage of
Investments
----------------------------------------------------------------------------
1. Caremark Rx 2.3%
----------------------------------------------------------------------------
2. McDonald's 2.2%
----------------------------------------------------------------------------
3. Cigna 2.2%
----------------------------------------------------------------------------
4. Nvidia 2.2%
----------------------------------------------------------------------------
5. Express Scripts 2.2%
----------------------------------------------------------------------------
6. Sepracor 2.1%
----------------------------------------------------------------------------
7. Accenture Ltd., Cl A 2.1%
----------------------------------------------------------------------------
8. UnitedHealth Group 2.1%
----------------------------------------------------------------------------
9. Coach 2.1%
----------------------------------------------------------------------------
10. Hilton Hotels 2.1%
- --------------------------------------------------------------------------------
[Bar Graph Omitted]
Percentages are as follows:
SECTOR WEIGHTINGS (UNAUDITED)+
23.7% Information Technology
20.7% Health Care
18.8% Financials
18.1% Consumer Discretionary
11.7% Industrials
3.7% Energy
2.0% Materials
0.8% Consumer Staples
0.5% Short-Term Investments
+ PERCENTAGES ARE BASED ON TOTAL INVESTMENTS.
SCHEDULE OF INVESTMENTS
Market
Value
Shares (000)
------ ------
COMMON STOCK -- 99.3%
CONSUMER DISCRETIONARY -- 18.1%
41,500 Abercrombie & Fitch, Cl A $ 2,889
69,400 Coach* 2,981
63,200 Federated Department Stores 2,410
85,407 Hilton Hotels 2,981
70,200 McDonald's 3,112
56,300 Nordstrom 2,778
110,250 Staples 2,944
48,700 Target 2,778
91,940 Wyndham Worldwide* 2,944
--------
25,817
--------
Bishop Street Funds 10
Strategic Growth Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Market
Value
Shares (000)
------ ------
CONSUMER STAPLES -- 0.8%
38,400 Pepsi Bottling Group $ 1,187
--------
ENERGY -- 3.7%
86,400 BJ Services 2,533
59,100 XTO Energy 2,781
--------
5,314
--------
FINANCIALS -- 18.7%
27,500 Affiliated Managers Group* 2,891
40,800 Allstate 2,657
23,200 American International Group 1,663
33,900 Capital One Financial 2,604
86,600 CB Richard Ellis Group, Cl A* 2,875
27,200 Everest Re Group Ltd. 2,669
25,300 Franklin Resources 2,787
14,800 Goldman Sachs Group 2,950
36,100 Lehman Brothers Holdings 2,820
30,700 Merrill Lynch 2,858
--------
26,774
--------
HEALTH CARE -- 20.7%
65,400 Aetna 2,824
42,800 Amgen* 2,924
56,600 Caremark Rx 3,232
23,600 Cigna 3,105
43,000 Express Scripts* 3,079
33,000 Genentech* 2,677
45,000 Genzyme* 2,771
44,600 Gilead Sciences* 2,896
49,400 Sepracor* 3,042
56,200 UnitedHealth Group 3,020
--------
29,570
--------
INDUSTRIALS -- 11.7%
58,200 Canadian National Railway 2,504
33,300 L-3 Communications Holdings 2,723
32,300 Lockheed Martin 2,974
55,600 McDermott International* 2,828
46,200 United Technologies 2,889
39,100 W.W. Grainger 2,735
--------
16,653
--------
December 31, 2006 11 www.bishopstreetfunds.com
Strategic Growth Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Market
Value
Shares (000)
------ ------
INFORMATION TECHNOLOGY -- 23.6%
82,100 Accenture Ltd., Cl A $ 3,032
50,200 Akamai Technologies* 2,666
67,400 Autodesk* 2,727
102,500 Cisco Systems* 2,801
6,000 Google, Cl A* 2,763
69,800 Hewlett-Packard 2,875
117,600 Jabil Circuit 2,887
137,400 Marvel Technology Group Ltd.* 2,637
132,600 Motorola 2,726
83,400 Nvidia* 3,087
152,100 Oracle* 2,607
142,900 Western Digital* 2,924
--------
33,732
--------
MATERIALS -- 2.0%
30,900 Allegheny Technologies 2,802
--------
TOTAL COMMON STOCK (Cost $113,558) 141,849
--------
CASH EQUIVALENTS (A) -- 0.5%
382,988 Dreyfus Cash Management Fund, Institutional Shares, 5.170% 383
382,988 Fidelity Institutional Money Market Portfolio, Institutional Shares, 5.230% 383
--------
TOTAL CASH EQUIVALENTS (Cost $766) 766
--------
TOTAL INVESTMENTS (COST $114,324) -- 99.8% $142,615
========
PERCENTAGES ARE BASED ON NET ASSETS OF $142,928,580
* NON-INCOME PRODUCING SECURITY
(A) RATE SHOWN IS THE 7-DAY EFFECTIVE YIELD AS OF DECEMBER 31, 2006.
CL -- CLASS
LTD. -- LIMITED
COST FIGURES ARE SHOWN WITH "000" OMITTED.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Bishop Street Funds 12
- --------------------------------------------------------------------------------
BISHOP STREET
MANAGEMENT DISCUSSION
FUNDS
- --------------------------------------------------------------------------------
Large Cap Core Equity Fund
- --------------------------------------------------------------------------------
Despite mixed economic signals, including a cooling housing market, high energy
prices, and strong job growth, the U.S. stock market performed well in 2006. Ben
Bernanke assumed the role of Federal Reserve ("Fed") Chairman in January and
continued Alan Greenspan's inflation fighting campaign by gradually raising
interest rates through the first half of the year. The Fed paused in its rate
tightening in August, citing the weak housing market and falling oil prices as
factors in slowing economic growth to a more moderate pace. Job growth boosted
consumer confidence through most of the year as unemployment reached a five year
low of 4.4% in October. From the Fund's inception on May 1, 2006 through
December 31, 2006, the S&P 500 Composite Index returned 10.10% while the Fund
returned approximately 6.63%.
We believe our approach to managing the Fund is a fairly conservative one with a
focus on risk control. We maintain a very well diversified portfolio both in
terms of the number of stocks held as well as the sector weights of the Fund. As
of December 31, 2006, the Fund held about 120 stocks, with no position larger
than 3% of the Fund. In addition, the portfolio sector allocation is very close
to the sector allocation of the benchmark. This means that we did not take
significantly larger positions relative to the benchmark, making judgments as to
which sector will be the next "hot" sector. Only small over- and under-weights
existed compared to the benchmark, with differences being less than 2.50% for
any sector. The largest sector over-weight was health care. The two largest
sector under-weights were utilities and consumer staples.
Because the Fund's sector weights are intended to be similar to the benchmark,
most value added (i.e. return value over the benchmark return) comes from the
stock selection process. Ideally, we seek to invest in companies where market
values are low relative to imputed valuations, there are good indica-
December 31, 2006 13 www.bishopstreetfunds.com
- --------------------------------------------------------------------------------
BISHOP STREET
MANAGEMENT DISCUSSION
FUNDS
- --------------------------------------------------------------------------------
tions that the market values are likely to increase over time through efficiency
gains and growth, and the companies have management teams with a proven track
record.
Briefly, in portfolio holdings, BJ Services was sold to purchase
National-Oilwell Varco, a provider of equipment used in oil and gas production.
Marvell Technology was sold to buy Google, a provider of Internet search
technology. H&R Block was sold to purchase Capital One Financial, a diversified
financial services company.
Our stock selection process is evident in the characteristics of the Fund.
Traditional measures of value such as the price-to-earnings ratio usually show a
"value" bias relative to the benchmark, while the traditional measures of growth
such as earnings growth tend to indicate a "growth" bias. As of December 31,
2006, the price-to-earnings measure on a 12-month trailing basis was 14.42 for
the Fund versus 17.79 for the benchmark. This measure shows that overall we were
able to find stocks that appear to be undervalued in the market while reflecting
potentially superior growth characteristics.
In conclusion, our focus in managing the Fund always will be on selecting
companies we believe have the attributes that indicate a superior chance of
being successful investments and on seeking to control risk relative to the
benchmark.
Bishop Street Funds 14
Large Cap Core Equity Fund
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE LARGE CAP CORE
EQUITY FUND, CLASS I, VERSUS THE S&P 500 COMPOSITE INDEX, THE CONSUMER PRICE
INDEX AND THE LIPPER LARGE CAP CORE CLASSIFICATION.
[LINE GRAPH OMITTED]
PLOT POINTS ARE AS FOLLOWS:
Large Cap Core S&P 500 Consumer Price Lipper Large Cap
Equity Fund, Class I# Composite Index Index Core Classificiation++
5/1/06 $10,000 $10,000 $10,000 $10,000
6/06 9,646 9,766 10,071 9,661
12/06 10,662 11,010 10,017 10,789
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
AVERAGE ANNUAL TOTAL RETURNS+
- --------------------------------------------------------------------------------
CUMULATIVE
INCEPTION
TO DATE
- --------------------------------------------------------------------------------
6.63% Class I*
- --------------------------------------------------------------------------------
* Commenced operations on 05/03/06.
+ Returns shown do not reflect the deduction of taxes that a shareholder would
pay on Fund distributions or the redemption of Fund shares. Fee waivers are
in effect; if they had not been in effect, performance would have been
lower.
December 31, 2006 15 www.bishopstreetfunds.com
Large Cap Core Equity Fund
- --------------------------------------------------------------------------------
TOP TEN EQUITY HOLDINGS+
- --------------------------------------------------------------------------------
Percentage of
Investments
----------------------------------------------------------------------------
1. Citigroup 2.7%
----------------------------------------------------------------------------
2. Johnson & Johnson 2.6%
----------------------------------------------------------------------------
3. Microsoft 2.4%
----------------------------------------------------------------------------
4. JPMorgan Chase 2.1%
----------------------------------------------------------------------------
5. ConocoPhillips 2.1%
----------------------------------------------------------------------------
6. American International Group 1.8%
----------------------------------------------------------------------------
7. Bear Stearns 1.5%
----------------------------------------------------------------------------
8. Amgen 1.5%
----------------------------------------------------------------------------
9. Pfizer 1.4%
----------------------------------------------------------------------------
10. St. Paul Travelers 1.4%
- --------------------------------------------------------------------------------
[Bar Graph Omitted]
Percentages are as follows:
SECTOR WEIGHTINGS (UNAUDITED)+
21.7% Financials
17.0% Information Technology
13.0% Health Care
11.4% Industrials
11.3% Consumer Discretionary
9.3% Energy
7.4% Consumer Staples
3.1% Materials
1.9% Short-Term Investments
1.8% Telecommunications
1.1% Utilities
1.0% Exchange Traded Fund
+ PERCENTAGES ARE BASED ON TOTAL INVESTMENTS. EXCLUDES SECURITIES PURCHASED WITH
CASH COLLATERAL RECEIVED FROM SECURITIES LENDING.
SCHEDULE OF INVESTMENTS
Market
Value
Shares (000)
------ ------
COMMON STOCK -- 97.8%
CONSUMER DISCRETIONARY -- 11.3%
14,400 Apollo Group, Cl A* $ 561
13,200 Best Buy 649
5,200 Black & Decker 416
10,800 Carnival (A) 530
20,700 Centex (A) 1,165
11,900 Coach* 511
17,100 Comcast, Cl A* (A) 724
Bishop Street Funds 16
Large Cap Core Equity Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Market
Value
Shares (000)
------ ------
CONSUMER DISCRETIONARY -- (CONTINUED)
8,800 EchoStar Communications, Cl A* $ 335
5,700 Fortune Brands 487
10,400 Harley-Davidson (A) 733
20,100 Hasbro 548
28,000 Home Depot 1,124
12,900 International Game Technology 596
11,435 Liberty Media Capital, Ser A* 1,120
7,300 Lowe's (A) 227
5,400 Omnicom Group 564
22,500 Pulte Homes (A) 745
7,500 Whirlpool 623
--------
11,658
--------
CONSUMER STAPLES -- 7.4%
16,000 Altria Group 1,373
23,600 Archer-Daniels-Midland 754
10,700 Campbell Soup 416
17,400 Coca-Cola 840
16,000 Constellation Brands, Cl A* 464
9,900 Costco Wholesale 524
7,400 PepsiCo 463
21,700 Procter & Gamble 1,395
24,000 Wal-Mart Stores 1,108
6,000 WM Wrigley Jr. 310
--------
7,647
--------
ENERGY -- 9.4%
13,900 Anadarko Petroleum 605
14,600 Apache 971
19,300 Chevron 1,419
30,900 ConocoPhillips 2,223
14,200 Devon Energy 953
18,800 Encana 864
17,000 Nabors Industries Ltd* (A) 506
8,900 National Oilwell Varco* 544
7,300 Noble 556
20,500 Valero Energy 1,049
--------
9,690
--------
FINANCIALS -- 21.8%
17,500 ACE 1,060
8,100 Allstate 527
25,700 American International Group 1,842
December 31, 2006 17 www.bishopstreetfunds.com
Large Cap Core Equity Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Market
Value
Shares (000)
------ ------
FINANCIALS -- (CONTINUED)
15,400 Bank of America $ 822
13,300 Bank of New York 524
9,600 Bear Stearns 1,563
15,200 Capital One Financial 1,168
6,000 CIT Group 334
50,100 Citigroup 2,790
18,000 Countrywide Financial 764
29,600 E*Trade Financial* 664
19,700 Fannie Mae 1,170
14,200 Genworth Financial 486
5,400 Goldman Sachs Group 1,076
12,000 Hartford Financial Services Group 1,120
46,100 JPMorgan Chase 2,227
4,500 Legg Mason (A) 428
10,800 Lehman Brothers Holdings 843
4,500 Merrill Lynch 419
14,400 Morgan Stanley 1,172
27,100 St. Paul Travelers 1,455
--------
22,454
--------
HEALTH CARE -- 13.2%
13,200 Abbott Laboratories 643
22,300 Amgen* 1,523
16,100 Biogen Idec* 792
11,400 Coventry Health Care* 571
13,000 Genzyme* 800
41,200 Johnson & Johnson 2,720
14,400 Laboratory Corp of America Holdings* 1,058
11,500 Medco Health Solutions* 615
19,300 Merck 841
57,700 Pfizer 1,494
5,600 St. Jude Medical* 205
18,400 UnitedHealth Group 989
11,600 Wyeth 591
8,600 Zimmer Holdings* 674
--------
13,516
--------
INDUSTRIALS -- 11.5%
16,400 Caterpillar 1,006
9,000 Danaher (A) 652
17,300 Eaton 1,300
6,800 Exelon 421
16,300 General Dynamics 1,212
Bishop Street Funds 18
Large Cap Core Equity Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Market
Value
Shares (000)
------ ------
INDUSTRIALS -- (CONTINUED)
21,800 General Electric $ 811
26,200 Illinois Tool Works 1,210
32,300 Ingersoll-Rand, Cl A 1,264
8,800 L-3 Communications Holdings 720
28,100 Norfolk Southern 1,413
9,850 Paccar 639
11,300 Parker Hannifin 869
3,400 Questar 282
--------
11,799
--------
INFORMATION TECHNOLOGY -- 17.1%
18,900 Accenture Ltd., Cl A 698
9,400 Adobe Systems* 387
12,600 Apple Computer* 1,069
41,800 Applied Materials (A) 771
14,900 Autodesk* 603
23,300 Broadcom, Cl A* 753
48,300 Cisco Systems* 1,320
14,900 Citrix Systems* 403
51,600 EMC* (A) 681
1,700 Google, Cl A* 783
8,700 International Business Machines 845
30,700 Juniper Networks* 581
7,800 Kla-Tencor 388
84,100 Microsoft 2,511
34,800 Motorola 716
16,900 Nvidia* 625
43,300 Oracle* (A) 742
13,100 Qualcomm 495
17,200 SanDisk* (A) 740
24,100 Symantec* 503
37,100 Texas Instruments 1,069
24,800 VeriSign* 596
13,000 Yahoo!* 332
--------
17,611
--------
MATERIALS -- 3.1%
13,500 Alcoa 405
9,300 Phelps Dodge 1,114
10,500 Teck Cominco Ltd, Cl B 791
12,400 United States Steel 907
--------
3,217
--------
December 31, 2006 19 www.bishopstreetfunds.com
Large Cap Core Equity Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Market
Shares/Face Value
Amount (000) (000)
------------ ------
TELECOMMUNICATION SERVICES -- 1.9%
6,200 NII Holdings* $ 400
42,300 Sprint Nextel 799
18,700 Verizon Communications 696
--------
1,895
--------
UTILITIES -- 1.1%
10,700 FirstEnergy 645
8,600 TXU 466
--------
1,111
--------
TOTAL COMMON STOCK (Cost $94,581) 100,598
--------
EXCHANGE TRADED FUND -- 1.0%
7,200 SPDR Trust, Ser 1 (A) 1,020
--------
TOTAL EXCHANGE TRADED FUND (Cost $1,021) 1,020
--------
MASTER NOTES (B) -- 2.1%
$ 819 Bank of America
5.383%, 01/02/07 819
736 Bear Stearns
5.513%, 01/03/07 736
573 JPMorgan Securities
5.393%, 01/15/07 573
--------
TOTAL MASTER NOTES (Cost $2,128) 2,128
--------
CERTIFICATE OF DEPOSIT/BANK NOTE (B) -- 0.8%
819 First Tennesee 5.333%, 04/18/07 819
--------
TOTAL CERTIFICATE OF DEPOSIT/BANK NOTE (Cost $819) 819
--------
CASH EQUIVALENTS (C) -- 1.9%
1,001,527 Dreyfus Cash Management Fund, Institutional Shares, 5.170% 1,002
1,001,527 Fidelity Institutional Money Market Portfolio, Institutional Shares, 5.230% 1,002
--------
TOTAL CASH EQUIVALENTS (Cost $2,004) 2,004
--------
Bishop Street Funds 20
Large Cap Core Equity Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face Market
Amount Value
(000) (000)
-------- --------
REPURCHASE AGREEMENT (B) -- 3.0%
$3,085 Lehman Brothers 5.363% dated 12/29/06, to be
repurchased on 01/02/07, repurchase price $3,086,707
(collateralized by a U.S. Government obligation, par
value $4,547,893, 5.500%, 11/01/34, with total
market value of $3,084,707) $ 3,085
--------
TOTAL REPURCHASE AGREEMENT (Cost $3,085) 3,085
--------
TOTAL INVESTMENTS (COST $103,638) -- 106.6% $109,654
========
PERCENTAGES ARE BASED ON NET ASSETS OF $102,849,834.
* NON-INCOME PRODUCING SECURITY
(A) THE SECURITY OR A PORTION OF THIS SECURITY IS ON LOAN AT DECEMBER 31, 2006.
THE TOTAL VALUE OF SECURITIES ON LOAN AT DECEMBER 31, 2006 WAS $5,843,989.
(B) THIS SECURITY WAS PURCHASED WITH CASH COLLATERAL RECEIVED FROM SECURITIES
LENDING. THE TOTAL VALUE OF SUCH SECURITIES AS OF DECEMBER 31, 2006
WAS $6,031,868.
(C) RATE SHOWN IS THE 7-DAY EFFECTIVE YIELD AS OF DECEMBER 31, 2006.
CL -- CLASS
LTD. -- LIMITED
SER -- SERIES
SPDR -- STANDARD & POOR'S DEPOSITARY RECEIPT
COST FIGURES ARE SHOWN WITH "000" OMITTED.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
December 31, 2006 21 www.bishopstreetfunds.com
- --------------------------------------------------------------------------------
BISHOP STREET
MANAGEMENT DISCUSSION
FUNDS
- --------------------------------------------------------------------------------
High Grade Income Fund
- --------------------------------------------------------------------------------
Interest rates peaked mid-year as the Federal Open Market Committee ("Fed")
paused and left the Federal funds rate at 5.25%. The 10-year note hit a high of
5.25% in June and closed the year out at 4.71%. Inflationary pressures subsided
in the latter part of the year as the economy slowed and oil closed the year out
substantially below its high of $80.62 a barrel. The debate of whether the Fed
would engineer a hard or soft landing continued throughout the year which kept
interest rates within a 50 basis point range. Any volatility was prompted by the
market pricing in a fed easing and a subsequent reversal due to a stronger than
expected economic report.
Investment grade bonds posted a respectable return in 2006 as the yield curve
flattened with investor expectations of a dramatic slowdown. Corporate profits
remained strong bolstering stock and corporate bond performance. Increasing risk
appetites in search of higher yields pushed investors to higher yielding lower
rated bonds causing spreads to compress.
The Bishop Street High Grade Income Fund (the "Fund") returned 2.96% for the
year while the Lehman Brothers U.S. Government/Credit Index returned 3.77%. The
Fund performance was helped with our modestly short duration, however, our curve
positioning and sector and quality positioning hindered performance.
We look to more of the same ahead as a soft landing for the U.S. economy plays
out. While yields may rise at times, moderate inflation and strong foreign and
domestic demand should keep interest rates trading within a range below 5%.
Bishop Street Funds 22
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.
[LINE GRAPH OMITTED]
PLOT POINTS ARE AS FOLLOWS:
Lehman Brothers
High Grade Income U.S. Government/ Consumer Price Lipper Corporate Debt
Fund, Class I# Credit Index Index A-Rated Objective++
1/30/97 $10,000 $10,000 $10,000 $10,000
12/97 10,797 11,007 10,137 10,963
12/98 11,778 12,050 10,337 11,779
12/99 11,267 11,790 10,613 11,473
12/00 12,422 13,186 10,970 12,612
12/01 13,311 14,309 11,140 13,595
12/02 14,847 15,885 11,408 14,784
12/03 15,339 16,627 11,622 15,636
12/04 15,862 17,324 12,001 16,304
12/05 16,179 17,735 12,408 16,617
12/06 16,658 18,403 12,726 17,258
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
AVERAGE ANNUAL TOTAL RETURNS+
- --------------------------------------------------------------------------------
ONE ANNUALIZED ANNUALIZED ANNUALIZED
YEAR 3 YEAR 5 YEAR INCEPTION
RETURN RETURN RETURN TO DATE
- --------------------------------------------------------------------------------
2.96% 2.79% 4.59% 5.28% 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. Fee waivers are
in effect; if they had not been in effect, performance would have been
lower.
December 31, 2006 23 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 3.9%
----------------------------------------------------------------------------
2. U.S. Treasury Bonds 4.500% 02/15/36 3.1%
----------------------------------------------------------------------------
3. U.S. Treasury Bonds 7.500% 11/15/16 2.0%
----------------------------------------------------------------------------
4. FHLMC MTN 4.850% 12/01/09 1.6%
----------------------------------------------------------------------------
5. FNMA 7.250% 01/15/10 1.5%
----------------------------------------------------------------------------
6. Goldman Sachs Group 6.600% 01/15/12 1.5%
----------------------------------------------------------------------------
7. FHLMC 5.125% 10/15/08 1.4%
----------------------------------------------------------------------------
8. General Electric Capital MTN, Ser A 5.450% 01/15/13 1.4%
----------------------------------------------------------------------------
9. Bank of America 4.875% 01/15/13 1.4%
----------------------------------------------------------------------------
10. Abbott Laboratories 5.600% 05/15/11 1.3%
- --------------------------------------------------------------------------------
[Bar Graph Omitted]
Percentages are as follows:
SECTOR WEIGHTINGS (UNAUDITED)+
29.9% U.S. Government Agency Obligations
19.0% U.S. Treasury Obligations
13.8% Financials
8.2% Consumer Discretionary
5.7% Information Technology
5.6% Health Care
4.5% Energy
3.3% Industrials
2.9% U.S. Government Mortgage-Backed Obligations
2.5% Short-Term Investments
1.6% Telecommunications
1.3% Materials
1.0% Utilities
0.7% Consumer Staples
+ PERCENTAGES ARE BASED ON TOTAL INVESTMENTS. EXCLUDES SECURITIES PURCHASED
WITH CASH COLLATERAL RECEIVED FROM SECURITIES LENDING.
SCHEDULE OF INVESTMENTS
Face Market
Amount Value
(000) (000)
-------- ------
CORPORATE OBLIGATIONS -- 44.6%
AEROSPACE & DEFENSE -- 2.6%
General Dynamics
$ 1,000 4.500%, 08/15/10 $ 979
Rockwell Automation
1,200 6.700%, 01/15/28 1,319
United Technologies
1,350 6.350%, 03/01/11 1,404
--------
3,702
--------
Bishop Street Funds 24
High Grade Income Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face Market
Amount Value
(000) (000)
-------- ------
AUTO FINANCE -- 1.1%
Toyota Motor Credit
$ 1,500 5.450%, 05/18/11 $ 1,521
--------
AUTOMOTIVE -- 0.5%
DaimlerChrysler NA Holding
700 8.000%, 06/15/10 750
--------
BANKS -- 4.0%
Bank of America (A)
2,350 4.875%, 01/15/13 2,299
BHP Billiton Finance
850 5.250%, 12/15/15 836
JPMorgan Chase
1,400 5.875%, 06/13/16 1,438
Wachovia
1,000 5.625%, 10/15/16 1,009
--------
5,582
--------
BROADCASTING & CABLE -- 1.9%
TCI Communications
1,400 7.875%, 08/01/13 1,557
Turner Broadcasting System
975 8.375%, 07/01/13 1,096
--------
2,653
--------
COMPUTER HARDWARE -- 4.1%
Cisco Systems
1,400 5.500%, 02/22/16 1,401
Dell
1,325 6.550%, 04/15/08 1,340
IBM
1,400 8.375%, 11/01/19 1,747
Oracle
1,400 5.250%, 01/15/16 1,370
--------
5,858
--------
FINANCIALS -- 8.5%
American General Finance MTN, Ser G
1,400 5.750%, 03/15/07 1,401
Boeing Capital (A)
1,400 6.500%, 02/15/12 1,476
CIT Group (A)
1,350 5.000%, 11/24/08 1,343
General Electric Capital MTN, Ser A
2,350 5.450%, 01/15/13 2,373
December 31, 2006 25 www.bishopstreetfunds.com
High Grade Income Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face Market
Amount Value
(000) (000)
--------- ------
FINANCIALS -- (CONTINUED)
Goldman Sachs Group
$ 2,350 6.600%, 01/15/12 $ 2,484
Jefferies Group
675 6.250%, 01/15/36 655
Merrill Lynch
1,450 5.000%, 02/03/14 1,419
Unitrin
850 4.875%, 11/01/10 829
--------
11,980
--------
FOOD & BEVERAGE -- 0.7%
ConAgra Foods
884 7.875%, 09/15/10 957
--------
GENERAL MERCHANDISE -- 0.8%
Target
1,150 6.350%, 01/15/11 1,197
--------
HEALTH CARE -- 2.1%
Johnson & Johnson
1,400 6.950%, 09/01/29 1,673
UnitedHealth Group
1,250 5.200%, 01/17/07 1,250
--------
2,923
--------
HOUSEHOLD PRODUCTS -- 1.3%
Proctor & Gamble
1,350 8.000%, 10/26/29 1,770
--------
MEDIA -- 1.1%
News America
1,400 7.250%, 05/18/18 1,535
--------
MOVIES & ENTERTAINMENT -- 1.0%
Walt Disney MTN
1,400 6.200%, 06/20/14 1,466
--------
OIL & GAS - EQUIPMENT/SERVICES -- 1.1%
Baker Hughes
1,500 6.000%, 02/15/09 1,519
--------
OIL & GAS - EXPLORATION/PRODUCTION -- 1.0%
Anadarko Petroleum
1,250 7.200%, 03/15/29 1,372
--------
Bishop Street Funds 26
High Grade Income Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face Market
Amount Value
(000) (000)
--------- -----
OIL & GAS - INTEGRATED -- 2.3%
BP Amoco
$ 1,385 9.125%, 03/01/11 $ 1,589
Occidental Petroleum
1,600 6.750%, 01/15/12 1,697
--------
3,286
--------
PHARMACEUTICALS -- 3.4%
Abbott Laboratories
2,100 5.600%, 05/15/11 2,129
1,400 5.400%, 09/15/08 1,405
Genentech
1,400 4.750%, 07/15/15 1,340
--------
4,874
--------
RETAIL - FOOD -- 1.4%
Archer-Daniels-Midland
1,000 7.125%, 03/01/13 1,093
McDonald's MTN, Ser E (A)
900 5.950%, 01/15/08 905
--------
1,998
--------
SEMI-CONDUCTORS -- 1.5%
Applied Materials
800 6.750%, 10/15/07 807
Duke Energy
1,275 4.200%, 10/01/08 1,249
--------
2,056
--------
STEEL & STEEL WORKS -- 1.2%
Nucor
1,800 4.875%, 10/01/12 1,748
--------
TELECOMMUNICATIONS -- 1.5%
GTE South, Ser C
500 6.000%, 02/15/08 502
Sprint Capital (A)
1,475 7.625%, 01/30/11 1,579
Verizon Global Funding MTN
100 7.600%, 03/15/07 101
--------
2,182
--------
December 31, 2006 27 www.bishopstreetfunds.com
High Grade Income Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face Market
Amount Value
(000) (000)
-------- -----
TRANSPORTATION SERVICES -- 0.6%
FedEx
$ 800 7.250%, 02/15/11 $ 852
--------
UTILITIES -- 0.9%
Dominion Resources
1,350 4.125%, 02/15/08 1,330
--------
TOTAL CORPORATE OBLIGATIONS (Cost $63,897) 63,111
--------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 29.3%
FHLB
200 6.875%, 08/13/10 213
1,350 5.375%, 02/15/07 1,350
1,000 5.375%, 10/02/08 1,000
1,000 5.000%, 02/22/13 980
1,300 4.750%, 08/13/10 1,292
1,450 4.100%, 06/13/08 1,430
1,000 4.000%, 02/27/14 (C) 991
1,000 3.875%, 07/24/09 972
1,750 3.875%, 02/12/10 1,696
1,100 3.750%, 08/15/08 1,078
1,100 3.375%, 02/15/08 1,078
FHLMC
875 8.250%, 06/01/16 1,072
1,000 6.000%, 07/10/13 1,015
1,400 5.500%, 02/22/13 1,393
700 5.500%, 08/20/19 693
1,400 5.200%, 03/05/19 1,361
2,400 5.125%, 10/15/08 2,403
1,000 5.000%, 01/30/14 996
1,400 4.750%, 05/06/13 1,353
1,500 4.625%, 08/15/08 1,490
1,400 4.375%, 03/01/10 1,376
1,800 4.250%, 05/22/13 1,729
FHLMC MTN
1,400 5.750%, 05/23/11 1,406
1,400 5.400%, 02/01/16 1,383
1,400 5.250%, 12/01/14 1,367
375 5.000%, 02/08/08 374
200 5.000%, 06/18/18 (C) 193
2,800 4.850%, 12/01/09 2,772
1,000 3.650%, 05/07/08 981
Bishop Street Funds 28
High Grade Income Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face Market
Amount Value
(000) (000)
-------- -----
U.S. GOVERNMENT AGENCY OBLIGATIONS -- (CONTINUED)
FNMA
$ 2,400 7.250%, 01/15/10 $ 2,553
1,400 5.650%, 04/10/13 1,400
250 5.280%, 02/27/09 250
625 4.750%, 03/30/09 (C) 622
200 4.500%, 08/04/08 198
800 3.875%, 11/17/08 (A) 783
200 3.250%, 03/17/08 196
--------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $41,735) 41,439
--------
U.S. TREASURY OBLIGATIONS -- 18.6%
U.S. Treasury Bonds (A)
2,750 7.500%, 11/15/16 3,342
5,500 7.250%, 05/15/16 6,538
1,700 6.375%, 08/15/27 2,023
1,500 6.250%, 08/15/23 1,726
800 6.250%, 05/15/30 953
1,000 6.000%, 02/15/26 1,134
1,500 5.250%, 11/15/28 1,573
5,600 4.500%, 02/15/36 5,325
U.S. Treasury Notes
1,400 4.250%, 08/15/15 (A) 1,355
1,200 4.000%, 02/15/14 1,149
1,200 4.000%, 02/15/15 (A) 1,143
--------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $25,324) 26,261
--------
U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS -- 2.9%
FHLMC
64 3.500%, 05/01/08 62
FHLMC, Ser 3070, Cl DH
677 5.500%, 11/15/35 676
FHLMC, Ser 3196, Cl CB
1,000 5.250%, 08/15/11 985
December 31, 2006 29 www.bishopstreetfunds.com
High Grade Income Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Market
Shares/Face Value
Amount (000) (000)
------------ ------
U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS -- (CONTINUED)
FNMA
$ 966 3.500%, 08/01/10 $ 925
GNMA
1,400 5.500%, 11/16/31 1,407
--------
TOTAL U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS (Cost $4,086) 4,055
--------
MASTER NOTES (B) -- 7.7%
Bank of America
4,182 5.383%, 01/02/07 4,182
Bear Stearns
3,763 5.513%, 01/03/07 3,763
JPMorgan Securities
2,927 5.393%, 01/15/07 2,927
--------
TOTAL MASTER NOTES (Cost $10,872) 10,872
--------
CERTIFICATE OF DEPOSIT/BANK NOTE (B) -- 3.0%
First Tennessee
4,183 5.339%, 04/18/07 4,183
--------
TOTAL CERTIFICATE OF DEPOSIT/BANK NOTE (Cost $4,183) 4,183
--------
CASH EQUIVALENTS (D) -- 2.5%
1,773,202 Dreyfus Cash Management Fund, Institutional Shares, 5.170% 1,773
1,773,202 Fidelity Institutional Money Market Portfolio, Institutional Shares, 5.230% 1,773
--------
TOTAL CASH EQUIVALENTS (Cost $3,546) 3,546
--------
Bishop Street Funds 30
High Grade Income Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face Market
Amount Value
(000) (000)
------------ ------
REPURCHASE AGREEMENT (B) -- 11.1%
$15,758 Lehman Brothers 5.363%, dated 12/29/06, to be repurchased on
01/02/07, repurchase price $15,767,070 (collateralized by a
U.S. Government obligation, par value $23,232,107, 5.500%,
11/01/34, with a total market value of $16,074,054) $ 15,758
--------
TOTAL REPURCHASE AGREEMENT (Cost $15,758) 15,758
--------
TOTAL INVESTMENTS (COST $169,401) -- 119.7% $169,225
========
PERCENTAGES ARE BASED ON NET ASSETS OF $141,447,774.
(A) THIS SECURITY OR A PORTION OF THIS SECURITY IS ON LOAN AT DECEMBER 31, 2006.
THE TOTAL VALUE OF SECURITIES ON LOAN AT DECEMBER 31, 2006 WAS $29,520,256.
(B) THESE SECURITIES WERE PURCHASED WITH CASH COLLATERAL RECEIVED FROM
SECURITIES LENDING. THE TOTAL VALUE OF SUCH SECURITIES AS OF DECEMBER 31,
2006 WAS $30,812,734.
(C) STEP BOND -- COUPON RATE INCREASES IN INCREMENTS TO MATURITY. RATE DISCLOSED
IS AS OF DECEMBER 31, 2006.
(D) RATE SHOWN IS THE 7-DAY EFFECTIVE YIELD AS OF DECEMBER 31, 2006.
CL -- CLASS
FHLB -- FEDERAL HOME LOAN BANK
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
MTN -- MEDIUM TERM NOTE
NA -- NORTH AMERICA
SER -- SERIES
COST FIGURES ARE SHOWN WITH "000" OMITTED.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
December 31, 2006 31 www.bishopstreetfunds.com
- --------------------------------------------------------------------------------
BISHOP STREET
MANAGEMENT DISCUSSION
FUNDS
- --------------------------------------------------------------------------------
Hawaii Municipal Bond Fund
- --------------------------------------------------------------------------------
Tax-exempt municipal securities performed moderately well over 2006 with returns
ranging from 3.20 percent for short-term assets to 6.82 percent for
long-duration bonds. The relative strength of the return of municipal assets for
the year is even more pronounced when compared to the performance of the 30 year
Treasury bond which returned a paltry 1.2 percent for the 12-month period. The
outperformance of municipal securities is attributed to the modest level of new
issuance and the continued flattening of the tax-exempt yield curve as investors
stretched for yield by extending duration in their portfolios.
2006 proved an interesting year for the Hawaii municipal market as investors
welcomed three brand new issuers. First, Chaminade University and Mid-Pacific
Institute issued municipal bonds in early 2006 marking the first time in the
state that a private school raised capital in the tax-exempt market. Later in
the year the State of Hawaii Department of Hawaiian Home Lands came to the
municipal market to raise funds for the construction of office space in Kapolei.
New issuance in the State of Hawaii is often well received due to the limited
number of issuers in the state and the subsequent need for diversification
within Hawaii-specific municipal portfolios.
The performance of tax-exempt securities in 2007 should continue where it left
off in 2006 with respectable returns over the year. Interest rates in the U.S.
will trend lower as the housing market recession spills over into the general
economy increasing unemployment and keeping growth and inflation in check. The
Treasury Futures market has priced in the likelihood of a Federal Reserve rate
cut by the 4th quarter of the 2007 to offset economic weakness and to spur
demand.
For the year ending December 31, 2006, the Bishop Street Hawaii Municipal Bond
Fund, Class I (the "Fund") returned 4.42%, outperforming the Lipper Hawaii
Municipal Debt Objective by 0.17 percent. The Fund's relatively long duration
and over-weight in 30 year securities contributed to its outperformance of the
Hawaii municipal benchmark. Heading into 2007 we are well positioned for yields
across the term structure to trend lower as the Federal Reserve transitions into
an easing cycle.
Bishop Street Funds 32
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.
[LINE GRAPH OMITTED]
PLOT POINTS ARE AS FOLLOWS:
Hawaii Municipal Bond Hawaii Municipal Bond Lehman Brothers Consumer Price Lipper Hawaii Municipa
Fund, Class I# Fund, Class A# Municipal Bond Index Index Debt Objective
12/96 $10,000 $ 9,700 $10,000 $10,000 $10,000
12/97 10,852 10,526 10,920 10,173 10,803
12/98 11,486 11,141 11,628 10,337 11,404
12/99 11,181 10,817 11,387 10,613 10,938
12/00 12,591 12,152 12,718 10,970 12,165
12/01 13,125 12,654 13,370 11,140 12,655
12/02 14,440 13,887 14,654 11,408 13,741
12/03 15,201 14,583 15,434 11,622 14,423
12/04 15,712 15,035 16,124 12,001 14,878
12/05 16,107 15,374 16,689 12,408 15,187
12/06 16,818 16,013 17,499 12,726 15,833
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
AVERAGE ANNUAL TOTAL RETURNS+
- --------------------------------------------------------------
ONE ANNUALIZED ANNUALIZED ANNUALIZED ANNUALIZED
YEAR 3 YEAR 5 YEAR 10 YEAR INCEPTION
RETURN RETURN RETURN RETURN TO DATE
- --------------------------------------------------------------
4.42% 3.43% 5.08% 5.34% 5.64% Class I
- --------------------------------------------------------------
4.16% 3.17% 4.82% 5.14%* 5.48%* Class A
- --------------------------------------------------------------
1.07% 2.12% 4.18% 4.82%* 5.21%* 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 3.00% 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. Fee waivers are
in effect; if they had not been in effect, performance would have been
lower.
December 31, 2006 33 www.bishopstreetfunds.com
Hawaii Municipal Bond Fund
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS+
- ------------------------------------------------------------------------------------------
Percentage
Coupon Maturity of
Rate Date Investments
---------------------------------------------------------------------------------------
1. Honolulu City & County 1st Board Resolution RB 5.000% 07/01/31 3.9%
---------------------------------------------------------------------------------------
2. University of Hawaii RB 4.625% 07/15/31 3.1%
---------------------------------------------------------------------------------------
3. Hawaii State Department of Budget & Finance RB 5.650% 10/01/27 2.2%
---------------------------------------------------------------------------------------
4. Puerto Rico Public Building Authority RB 5.250% 07/01/25 2.1%
---------------------------------------------------------------------------------------
5. Hawaii State Department Hawaiian Home COP 5.000% 11/01/31 1.9%
---------------------------------------------------------------------------------------
6. Honolulu City & County GO 5.000% 07/01/19 1.6%
---------------------------------------------------------------------------------------
7. Hawaii State GO 5.000% 07/01/25 1.5%
---------------------------------------------------------------------------------------
8. Puerto Rico Housing Financing Authority RB 5.000% 02/01/16 1.5%
---------------------------------------------------------------------------------------
9. Hawaii State GO 6.500% 12/01/13 1.4%
---------------------------------------------------------------------------------------
10. Hawaii State Harbor System RB 5.750% 07/01/17 1.3%
- ------------------------------------------------------------------------------------------
[Bar Graph Omitted]
Percentages are as follows:
SECTOR WEIGHTINGS (UNAUDITED)+
35.6% General Obligations
11.6% Water
11.1% Facilities
9.6% Transportation
8.6% Higher Education
4.8% Airport
4.8% Power
4.0% General Revenue
1.8% Development
1.5% Housing
1.5% Utilities
1.5% Single-Family Housing
1.3% School District
1.2% Medical
0.9% Education
0.1% Multi-Family Housing
0.1% Short-Term Investments
+ PERCENTAGES ARE BASED ON TOTAL INVESTMENTS.
SCHEDULE OF INVESTMENTS
Face Market
Amount Value
(000) (000)
-------- --------
MUNICIPAL BONDS -- 98.4%
CALIFORNIA -- 1.4%
Coast, Unified School District, School Facilities District 1-B, GO,
FSA Insured (A)
$1,610 5.050%, 08/01/40 $ 368
Highland, Redevelopment Agency, Project Area No. 1 Tax Allocation,
RB, AMBAC Insured
1,440 5.650%, 12/01/24 1,725
Bishop Street Funds 34
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face Market
Amount Value
(000) (000)
-------- -----
CALIFORNIA -- (CONTINUED)
La Mesa-Spring Valley, School District, Electric of 2002 Project,
Ser B, GO, FGIC Insured (A)
$ 630 5.250%, 08/01/27 $ 254
--------
2,347
--------
HAWAII -- 84.0%
Hawaii County, Refunding & Improvement Project, Ser A, GO,
FGIC Insured
450 5.600%, 05/01/12 492
430 5.600%, 05/01/13 476
400 5.550%, 05/01/09 417
Hawaii County, Ser A, GO, FGIC Insured
630 5.500%, 07/15/12 679
Hawaii County, Ser A, GO, FSA Insured
500 5.400%, 05/15/15 524
1,000 5.000%, 07/15/23 1,056
Hawaii County, Ser A, GO, MBIA Insured
1,055 5.250%, 07/15/18 1,156
1,205 5.000%, 07/15/15 1,304
1,470 5.000%, 07/15/24 1,562
Hawaii State Department Hawaiian Home, Kapolei Office Facilities,
Ser A, COP, FSA Insured
3,000 5.000%, 11/01/31 3,181
2,000 4.250%, 11/01/26 1,974
Hawaii State, Airport System, RB, AMT, FGIC Insured
2,000 5.625%, 07/01/18 2,129
280 5.250%, 07/01/21 292
Hawaii State, Airport System, Second Ser, RB, AMT, ETM
60 6.900%, 07/01/12 66
Hawaii State, Airport System, Second Ser, RB, AMT, ETM, MBIA Insured
1,505 6.900%, 07/01/12 1,647
Hawaii State, Airport System, Ser B, RB, AMT, FGIC Insured
1,500 6.625%, 07/01/18 1,643
1,500 6.500%, 07/01/14 1,644
500 6.000%, 07/01/19 537
Hawaii State, Department of Budget & Finance, Chaminade University,
RB, Radian Insured
1,000 5.000%, 01/01/26 1,054
1,000 4.750%, 01/01/36 1,012
1,000 4.700%, 01/01/31 1,019
December 31, 2006 35 www.bishopstreetfunds.com
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face Market
Amount Value
(000) (000)
-------- ------
HAWAII -- (CONTINUED)
Hawaii State, Department of Budget & Finance, Electric Company
& Subsidiary Project, RB, MBIA Insured
$ 170 5.450%, 11/01/23 $ 170
Hawaii State, Department of Budget & Finance, Electric Company
& Subsidiary Project, Ser A, RB, AMT, FGIC Insured
1,500 4.800%, 01/01/25 1,532
Hawaii State, Department of Budget & Finance, Electric Company
& Subsidiary Project, Ser B, RB, AMT, XLCA Insured
1,025 5.000%, 12/01/22 1,067
Hawaii State, Department of Budget & Finance, Hawaiian Electric,
Ser A, RB, AMT, AMBAC Insured
460 5.100%, 09/01/32 476
Hawaii State, Department of Budget & Finance, Hawaiian Electric,
Ser A, RB, AMT, MBIA Insured
3,330 5.650%, 10/01/27 3,616
Hawaii State, Department of Budget & Finance, Hawaiian Electric,
Ser C, RB, AMT, AMBAC Insured
1,000 6.200%, 11/01/29 1,068
Hawaii State, Department of Budget & Finance, Mid Pacific Institute,
RB, Radian Insured
1,000 5.000%, 01/01/26 1,066
1,000 4.625%, 01/01/31 1,014
Hawaii State, Department of Budget & Finance, Queens Health
Systems, Ser B, RB, MBIA Insured, Pre-Refunded @ 101 (B)
750 5.250%, 07/01/08 775
Hawaii State, Harbor Capital Improvement, RB, AMT, MBIA Insured
2,000 5.500%, 07/01/27 2,056
545 5.400%, 07/01/09 560
Hawaii State, Harbor System, Ser A, RB, AMT, FSA Insured
2,025 5.750%, 07/01/17 2,168
670 5.750%, 07/01/29 714
1,210 5.700%, 07/01/16 1,294
1,000 5.600%, 07/01/15 1,069
Hawaii State, Harbor System, Ser B, RB, AMT, AMBAC Insured
200 5.500%, 07/01/19 214
Hawaii State, Harbor System, Ser B, RB, AMT, FSA Insured
1,000 5.000%, 01/01/13 1,060
Hawaii State, Harbor System, Ser B, RB, FSA Insured
870 5.000%, 01/01/07 870
Hawaii State, Highway, RB
1,000 6.000%, 07/01/08 1,034
2,000 6.000%, 07/01/09 2,111
Bishop Street Funds 36
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face Market
Amount Value
(000) (000)
-------- -----
HAWAII -- (CONTINUED)
Hawaii State, Highway, Ser A, RB, FSA Insured
$ 725 5.000%, 07/01/21 $ 778
1,805 5.000%, 07/01/23 1,933
Hawaii State, Housing, Finance & Development, Single-Family Housing,
Ser A, RB, AMT, FNMA Collateral
380 5.750%, 07/01/30 380
650 5.400%, 07/01/30 669
145 5.250%, 07/01/13 149
Hawaii State, Housing, Finance & Development, Single-Family Housing,
Ser B, RB, FNMA Collateral
1,000 5.450%, 07/01/17 1,025
Hawaii State, Housing, Finance & Development, University of
Hawaii Faculty Housing Project, RB, AMBAC Insured
700 5.650%, 10/01/16 704
Hawaii State, Kapolei Office Building, Ser A, COP, AMBAC Insured
1,475 5.250%, 05/01/13 1,531
1,000 5.000%, 05/01/08 1,017
1,000 5.000%, 05/01/14 1,033
1,100 5.000%, 05/01/15 1,136
1,500 5.000%, 05/01/16 1,549
1,000 5.000%, 05/01/17 1,032
500 5.000%, 05/01/18 516
Hawaii State, No. 1 Capitol District State Office, COP, MBIA Insured
1,000 5.200%, 05/01/14 1,044
175 5.000%, 05/01/11 182
Hawaii State, Pacific Health Special Purpose, Ser A, RB
875 5.600%, 07/01/33 924
Hawaii State, Ser CL, GO
1,000 6.000%, 03/01/09 1,048
Hawaii State, Ser CM, GO, FGIC Insured
2,000 6.500%, 12/01/13 2,340
500 6.000%, 12/01/09 532
1,500 6.000%, 12/01/11 1,657
Hawaii State, Ser CP, GO, FGIC Insured
90 5.000%, 10/01/16 92
Hawaii State, Ser CU, GO, MBIA Insured
550 5.750%, 10/01/12 590
Hawaii State, Ser CU, GO, MBIA Insured,
Pre-Refunded @ 100 (B)
25 5.750%, 10/01/11 27
Hawaii State, Ser CV, GO, FGIC Insured
1,000 5.250%, 08/01/21 1,061
December 31, 2006 37 www.bishopstreetfunds.com
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face Market
Amount Value
(000) (000)
-------- ------
HAWAII -- (CONTINUED)
Hawaii State, Ser CX, GO, FSA Insured
$1,000 5.500%, 02/01/21 $ 1,083
Hawaii State, Ser DF, GO, AMBAC Insured
1,250 5.000%, 07/01/21 1,342
2,400 5.000%, 07/01/25 2,562
Hawaii State, University of Hawaii, Ser A, RB, FGIC Insured,
Pre-Refunded @ 100 (B)
1,805 5.500%, 07/15/12 1,967
500 5.500%, 07/15/12 545
500 5.125%, 07/15/12 536
Hawaii State, University of Hawaii, Ser B, RB, FSA Insured
320 5.250%, 10/01/16 341
775 5.250%, 10/01/17 827
Honolulu City & County, 1st Board Resolution, Senior Ser C, RB,
MBIA Insured
6,000 5.000%, 07/01/31 6,402
Honolulu City & County, 2nd Board Resolution, Junior Ser A-1, RB,
MBIA Insured
815 5.000%, 07/01/22 880
Honolulu City & County, 2nd Board, Junior Ser A-1, RB, MBIA Insured
1,130 5.000%, 07/01/23 1,218
Honolulu City & County, 2nd Board, Junior Ser B-1, RB, MBIA Insured
1,485 5.000%, 07/01/24 1,592
Honolulu City & County, Board of Water Supply, Ser A, RB,
FGIC Insured
2,000 5.000%, 07/01/33 2,107
Honolulu City & County, GO
1,320 5.400%, 09/27/07 1,337
625 5.250%, 03/01/17 678
Honolulu City & County, GO, ETM
230 6.000%, 12/01/09 245
Honolulu City & County, Senior Ser A, RB, FGIC Insured
1,280 5.000%, 07/01/20 1,377
Honolulu City & County, Ser A, GO
55 6.000%, 01/01/10 59
Honolulu City & County, Ser A, GO, ETM
500 6.000%, 01/01/09 522
95 6.000%, 01/01/10 101
Honolulu City & County, Ser A, GO, MBIA Insured
500 5.250%, 03/01/28 535
1,000 5.000%, 07/01/14 1,083
Honolulu City & County, Ser B, GO, ETM, FGIC Insured
635 5.500%, 10/01/11 685
Honolulu City & County, Ser B, GO, MBIA Insured
825 5.000%, 07/01/13 887
Bishop Street Funds 38
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face Market
Amount Value
(000) (000)
-------- ------
HAWAII -- (CONTINUED)
Honolulu City & County, Ser B, RB, AMT, MBIA Insured
$1,000 5.250%, 07/01/21 $ 1,084
Honolulu City & County, Ser C, GO, FGIC Insured
565 5.125%, 07/01/11 590
1,100 5.125%, 07/01/15 1,148
2,500 5.000%, 07/01/19 2,593
Honolulu City & County, Ser C, GO, MBIA Insured
1,000 5.000%, 07/01/16 1,088
Honolulu City & County, Ser D, GO, AMT, FGIC Insured
245 4.850%, 02/01/10 252
Honolulu City & County, Ser D, GO, MBIA Insured
885 5.000%, 07/01/19 955
2,000 5.000%, 07/01/23 2,141
Honolulu City & County, Ser E, GO, FGIC Insured
1,500 5.250%, 07/01/20 1,644
Honolulu City & County, Waipahu Towers Project, Ser A, RB, AMT,
GNMA Collateral
200 6.900%, 06/20/35 201
Honolulu City & County, Waste Water, 2nd Board Resolution,
Junior Ser, RB, FGIC Insured
1,000 5.000%, 07/01/23 1,034
Honolulu City & County, Water Board, Ser A, RB, FGIC Insured,
Pre-Refunded @ 100 (B)
1,700 4.750%, 07/01/14 1,809
2,000 4.750%, 07/01/14 2,128
Honolulu City & County, Water Board, Ser B, RB, AMT MBIA Insured
1,000 5.250%, 07/01/20 1,086
Honolulu City & County, Water Board, Ser B, RB, AMT MBIA Insured
325 5.000%, 07/01/15 348
Kauai County, Public Improvement, Ser B, GO, MBIA Insured,
Pre-Refunded @ 101 (B)
120 5.050%, 08/01/07 122
Kauai County, Ser A, GO, FGIC Insured
1,610 5.000%, 08/01/21 1,729
1,440 5.000%, 08/01/23 1,543
1,555 5.000%, 08/01/24 1,663
1,450 5.000%, 08/01/26 1,547
Kauai County, Ser A, GO, FGIC Insured, Pre-Refunded @ 100 (B)
1,135 6.250%, 08/01/10 1,232
1,480 6.250%, 08/01/10 1,607
1,335 6.250%, 08/01/10 1,449
1,050 6.250%, 08/01/10 1,140
December 31, 2006 39 www.bishopstreetfunds.com
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face Market
Amount Value
(000) (000)
-------- ------
HAWAII -- (CONTINUED)
Kauai County, Ser A, GO, MBIA Insured
$ 490 5.625%, 08/01/18 $ 528
1,500 5.000%, 08/01/25 1,559
Kauai County, Ser A, GO, MBIA Insured, Pre-Refunded @ 100 (B)
260 5.625%, 08/01/11 281
Maui County Hawaii, Ser A, GO, MBIA Insured
1,000 4.750%, 07/01/25 1,043
Maui County, GO, MBIA Insured
1,100 5.000%, 03/01/24 1,174
Maui County, Ser A, GO
485 5.375%, 03/01/12 517
Maui County, Ser A, GO, FGIC Insured
150 5.000%, 03/01/13 154
Maui County, Ser A, GO, FGIC Insured, Pre-Refunded @ 101 (B)
100 5.125%, 03/01/08 103
50 5.000%, 03/01/12 51
Maui County, Ser A, GO, MBIA Insured, Pre-Refunded @ 100 (B)
840 5.000%, 03/01/12 891
Maui County, Ser B, GO, MBIA Insured
500 5.000%, 09/01/17 539
University of Hawaii, Ser A, RB, MBIA Insured
5,000 4.625%, 07/15/31 5,110
--------
141,741
--------
ILLINOIS -- 0.4%
Illinois State, Educational Facilities Authority,
Northwestern University, RB
670 5.000%, 12/01/38 700
--------
INDIANA -- 0.9%
Elkhart, Community School Building Company, First Meeting,
RB, XLCA Insured
1,500 4.500%, 07/15/24 1,525
--------
MASSACHUSETTS -- 0.3%
Massachusetts State, Water Resources Authority, Ser J, RB
565 5.000%, 08/01/42 588
--------
OKLAHOMA -- 0.7%
Tulsa, Industrial Authority, RB, MBIA Insured
1,170 5.000%, 10/01/20 1,259
--------
Bishop Street Funds 40
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face Market
Amount Value
(000) (000)
-------- --------
PUERTO RICO -- 8.0%
Commonwealth of Puerto Rico, GO, MBIA Insured
$ 500 6.500%, 07/01/14 $ 590
1,500 6.000%, 07/01/15 1,748
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 1,038
Puerto Rico, Electric Power Authority, Ser DD, RB, FSA Insured
1,000 5.000%, 07/01/28 1,029
Puerto Rico, Electric Power Authority, Ser HH, RB, FSA Insured
500 5.250%, 07/01/29 530
Puerto Rico, Housing Financing Authority, Capital Funding
Program, RB
2,360 5.000%, 12/01/16 2,514
Puerto Rico, Housing, Banking & Financing Agency,
Single-Family Mortgage, Affordable Housing Mortgage, Portfolio I,
RB, AMT, GNMA/FNMA/FHLMC Collateral, Pre-Refunded @ 100 (B)
180 6.100%, 04/01/07 181
Puerto Rico, Industrial Tourist Educational Medical Environmental
Control Facilities, Hospital Auxilio Mutuo Obligation Group, Ser A,
RB, MBIA Insured
300 6.250%, 07/01/24 300
Puerto Rico, Public Buildings Authority, Ser F, RB
3,000 5.250%, 07/01/25 3,457
Puerto Rico, University of Puerto Rico, Ser O, RB, MBIA Insured,
Pre-Refunded @ 100 (B)
1,500 5.750%, 06/01/10 1,604
--------
13,451
--------
TEXAS -- 2.7%
Clint, Independent School District, GO
1,505 5.000%, 08/15/23 1,612
Harris County, Houston Texas Sports Authority, Ser A, Special RB,
MBIA Insured (A)
5,000 5.400%, 11/15/40 867
University of Texas, Permanent University Fund, Ser B, RB
2,000 4.500%, 07/01/33 2,000
--------
4,479
--------
TOTAL MUNICIPAL BONDS (Cost $160,967) 166,090
--------
December 31, 2006 41 www.bishopstreetfunds.com
Hawaii Municipal Bond Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Market
Value
Shares (000)
-------- ------
CASH EQUIVALENTS (C) -- 0.1%
73,464 Dreyfus Tax-Exempt Cash Management Fund,
Institutional Shares, 3.640% $ 73
73,464 Fidelity Institutional Tax-Exempt Portfolio, Institutional Shares, 3.700% 73
--------
TOTAL CASH EQUIVALENTS (Cost $146) 146
--------
TOTAL INVESTMENTS (COST $161,113) -- 98.5% $166,236
========
PERCENTAGES ARE BASED ON NET ASSETS OF $168,754,263.
(A) ZERO COUPON SECURITY -- THE RATE REPORTED ON THE SCHEDULE OF INVESTMENTS IS
THE EFFECTIVE YIELD AT TIME OF PURCHASE.
(B) PRE-REFUNDED SECURITY -- THE MATURITY DATE SHOWN IS THE PRE-REFUNDED DATE.
(C) RATE SHOWN IS THE 7-DAY EFFECTIVE YIELD AS OF DECEMBER 31, 2006.
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 "000" OMITTED.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Bishop Street Funds 42
- --------------------------------------------------------------------------------
BISHOP STREET
MANAGEMENT DISCUSSION
FUNDS
- --------------------------------------------------------------------------------
Money Market & Treasury Money Market Funds
- -------------------------------------------------------------------------------
The U.S. economy experienced a temporary slowdown in growth largely related to a
correction in the housing sector where the effects of elevated interest rates
were most apparent. The slowdown, however, was contained to housing and related
sectors and did not spread to other areas of the economy. Unemployment declined
throughout the year with the labor sector adding in excess of 2 million jobs
(Bureau of Labor Statistics: Non-farm Payrolls). Manufacturing sector continued
to expand, albeit at a slower rate, despite the difficulties plaguing the U.S.
automotive industry. On the inflation front, energy prices rose through mid-year
before correcting late in the third quarter. In contrast to the prior years,
sustained increases in energy prices began to have an affect on core consumer
prices (ex. food and energy). Core inflation measures rose beyond the comfort
zone of policy makers, peaking in late summer before retreating slightly in the
fourth quarter.
During 2006, the Federal Reserve ended a two year tightening cycle after
bringing the Federal funds target rate to its current level of 5.25%. The market
responded to the pause in the rate cycle with a rally in intermediate
treasuries. Rising short term yields and falling long term yields resulted in an
inverted yield curve. At year end, the Federal Open Market Committee indicated
that additional firming of monetary policy may be necessary to address
inflationary pressures. The direction of future interest rates in the U.S. has
become very "data dependent" resulting in a significant dislocation in the
market with market prices forecasting an ease in policy rates in 2007.
Regardless of the direction of interest rates, short term yields remain
attractive on a relative value basis. Elevated short term interest rates have
been rewarded
December 31, 2006 43 www.bishopstreetfunds.com
- --------------------------------------------------------------------------------
BISHOP STREET
MANAGEMENT DISCUSSION
FUNDS
- --------------------------------------------------------------------------------
with healthy inflows into money market funds. Bank deposit rates often lag money
market yields in a rising yield environment and therefore offer more attractive
opportunities for investors.
During the year the Money Market and Treasury Money Market Funds (the "Funds")
were maintained at a conservative maturity stance which provided the opportunity
to continually reinvest at increasing yield levels throughout 2006. Though, with
monetary policy rates holding firm we expect that opportunities to capture
additional yield premium by extending the average maturity of the Funds may
emerge in 2007. Meanwhile, we continue to strive to improve the yield of the
Funds while maintaining a high level of credit quality.
Bishop Street Funds 44
- --------------------------------------------------------------------------------
Money Market Fund
[Bar Graph Omitted]
Percentages are as follows:
SECTOR WEIGHTINGS (UNAUDITED)+
74.6% Commercial Paper
15.9% Certificates of Deposit/Bank Notes
7.4% Repurchase Agreement
2.0% Corporate Obligations
0.1% Asset Backed Securities
+ PERCENTAGES ARE BASED ON TOTAL INVESTMENTS.
SCHEDULE OF INVESTMENTS
Face
Amount Value
(000) (000)
--------- --------
COMMERCIAL PAPER (A) -- 74.8%
AUTO FINANCE -- 5.0%
BMW Vehicle Lease Trust
$11,000 5.293%, 01/02/07 $ 10,998
--------
BANKS -- 35.7%
Danske
3,800 5.301%, 01/04/07 3,798
2,245 5.322%, 01/18/07 2,239
2,700 5.325%, 01/22/07 2,692
Deutsche Bank
11,000 5.253%, 01/02/07 10,999
Dresdner Funding
9,000 5.310%, 01/29/07 8,963
Lloyds TSB Bank
11,500 5.264%, 01/19/07 11,470
Royal Bank of Canada
11,000 5.296%, 02/27/07 10,909
Royal Bank Scotland
11,000 5.272%, 01/22/07 10,967
UBS Finance Delaware
11,000 5.273%, 01/02/07 10,998
Westpac Capital
5,000 5.305%, 01/16/07 4,989
--------
78,024
--------
BROADCASTING & CABLE -- 5.3%
Charta
11,500 5.299%, 01/10/07 11,485
--------
December 31, 2006 45 www.bishopstreetfunds.com
Money Market Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face
Amount Value
(000) (000)
--------- ------
FINANCIALS -- 28.8%
Abbey National Treasury Services
$ 5,000 5.299%, 03/29/07 $ 4,937
ANZ Delaware
5,000 5.279%, 01/03/07 4,999
Atlantic Asset Securitization
2,030 5.372%, 01/16/07 2,025
9,000 5.334%, 01/19/07 8,976
CBA Financial
6,000 5.360%, 01/08/07 5,994
Chariot Funding
3,500 5.344%, 01/05/07 3,498
3,000 5.307%, 01/12/07 2,995
5,000 5.345%, 01/22/07 4,984
HBOS Treasury Services
5,000 5.322%, 01/26/07 4,982
6,000 5.302%, 03/14/07 5,937
Socnam
1,000 5.297%, 01/08/07 999
2,000 5.313%, 02/16/07 1,987
Svenska Handels New York
10,500 5.289%, 01/16/07 10,477
--------
62,790
--------
TOTAL COMMERCIAL PAPER (Cost $163,297) 163,297
--------
CERTIFICATES OF DEPOSIT/BANK NOTES -- 16.0%
Bank of Montreal
11,500 5.265%, 01/19/07 11,470
Citina
6,000 5.305%, 01/05/07 6,000
Toronto Dominion Bank
11,400 5.310%, 02/16/07 11,400
Westpac Banking
6,000 5.321%, 01/24/07 5,980
--------
TOTAL CERTIFICATES OF DEPOSIT/BANK NOTES (Cost $34,850) 34,850
--------
Bishop Street Funds 46
Money Market Fund
- -------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
(CONTINUED)
Face
Amount Value
(000) (000)
--------- ------
CORPORATE OBLIGATIONS (B) -- 2.0%
FINANCIALS -- 2.0%
General Electric Capital
$ 2,300 5.475%, 01/11/07 $ 2,300
General Electric Capital MTN
2,000 5.475%, 01/17/07 2,000
-------
TOTAL CORPORATE OBLIGATIONS (Cost $4,300) 4,300
-------
ASSET BACKED SECURITY -- 0.1%
AUTO FINANCE -- 0.1%
Nissan Auto Lease Trust, Ser 2006-A, Cl A1
181 5.081%, 05/15/07 181
--------
TOTAL ASSET BACKED SECURITY (Cost $181) 181
--------
REPURCHASE AGREEMENTS -- 7.4%
5,700 Barclays Bank 4.800%, dated 12/29/06, to be repurchased on
01/02/07, repurchase price $5,703,040 (collateralized by
U.S. Treasury obligation, par value $5,802,000, 4.000%,
09/30/07 with a total market value of $5,814,059) 5,700
10,500 Barclays Bank 5.260%, dated 12/29/06, to be repurchased on
01/02/07, repurchase price $10,506,137 (collateralized by
U.S. Treasury obligation, par value $18,046,521, 6.000%,
08/20/34 with a total market value of $10,710,000) 10,500
--------
TOTAL REPURCHASE AGREEMENTS (Cost $16,200) 16,200
--------
TOTAL INVESTMENTS (COST $218,828) -- 100.3% $218,828
========
PERCENTAGES ARE BASED ON NET ASSETS OF $218,255,986
(A) THE RATE REPORTED ON THE SCHEDULE OF INVESTMENTS IS THE EFFECTIVE YIELD AT
THE TIME OF PURCHASE.
(B) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE SCHEDULE OF INVESTMENTS
IS THE RATE IN EFFECT ON DECEMBER 31, 2006. THE MATURITY DATE SHOWN IS THE
NEXT SCHEDULED RESET DATE.
CL -- CLASS
MTN -- MEDIUM TERM NOTE
SER -- SERIES
COST FIGURES ARE SHOWN WITH "000" OMITTED.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
December 31, 2006 47 www.bishopstreetfunds.com
Treasury Money Market Fund
- --------------------------------------------------------------------------------
[Bar Graph Omitted]
Percentages are as follows:
SECTOR WEIGHTINGS (UNAUDITED)+
100% Repurchase Agreements
+ PERCENTAGES BASED ON TOTAL INVESTMENTS.
SCHEDULE OF INVESTMENTS
Face
Amount Value
(000) (000)
--------- ------
REPURCHASE AGREEMENTS -- 100.4%
$74,000 Barclays Bank 4.800%, dated 12/29/06, to be repurchased on
01/02/07, repurchase price $74,039,467 (collateralized by various
U.S. Treasury obligations, ranging in par value $25,099,000-
$49,831,000, 4.500%-5.500%, 05/15/09-11/15/10 with a total
market value of $75,480,372) $ 74,000
85,000 UBS Securities 4.800%, dated 12/29/06, to be repurchased on
01/02/07, repurchase price $85,045,333 (collateralized by a
U.S. Treasury obligation, par value $72,020,000, 3.375%,
01/15/12 with a total market value of $86,705,151) 85,000
--------
TOTAL REPURCHASE AGREEMENTS (Cost $159,000) 159,000
--------
TOTAL INVESTMENTS (COST $159,000) -- 100.4% $159,000
========
PERCENTAGES ARE BASED ON NET ASSETS OF $158,363,869.
COST FIGURES ARE SHOWN WITH "000" OMITTED.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Bishop Street Funds 48
Bishop Street Funds
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
(IN THOUSANDS)
Large High
Strategic Cap Core Grade
Growth Equity Income
Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at Cost $114,324 $100,553 $153,643
Repurchase Agreements, at Cost -- 3,085 15,758
====================================================================================================================================
Investments, at Value $142,615 $106,569(1) $153,467(1)
Repurchase Agreements, at Value -- 3,085 15,758
Receivable for Fund Shares Sold 403 500 1,255
Receivable for Investment Securities Sold 384 1,336 --
Dividends and Interest Receivable 67 108 2,136
Prepaid Expenses 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 143,470 111,599 172,617
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for Investment Securities Purchased 382 2,604 --
Payable for Fund Shares Redeemed 7 7 24
Collateral on Securities Loaned -- 6,032 30,813
Income Distribution Payable -- -- 210
Advisory Fees Payable 90 61 58
Administrative Fees Payable 14 10 13
Shareholder Servicing Fees Payable 12 9 12
Chief Compliance Officer Fees Payable 1 -- 1
Other Accrued Expenses 35 26 38
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 541 8,749 31,169
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets $142,929 $102,850 $141,448
- ------------------------------------------------------------------------------------------------------------------------------------
Fund Shares (unlimited authorization -- no par value) $113,904 $ 96,542 $142,399
Undistributed Net Investment Income
(Accumulated Net Investment Loss) (2) -- 3
Accumulated Net Realized Gain (Loss) on Investments 736 292 (778)
Net Unrealized Appreciation (Depreciation) on Investments 28,291 6,016 (176)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets $142,929 $102,850 $141,448
====================================================================================================================================
Class I Shares:
Net Assets $142,929 $102,850 $141,448
Outstanding Shares of Beneficial Interest 9,632 9,684 14,232
Net Asset Value, Offering and Redemption Price Per Share
(Net Assets / Shares Outstanding) $14.84 $10.62 $9.94
====================================================================================================================================
(1) INCLUDED IN "INVESTMENTS, AT VALUE" IS THE MARKET VALUE OF SECURITIES ON
LOAN IN THE AMOUNTS OF $5,843,989, AND $29,520,256 FOR THE LARGE CAP CORE
EQUITY AND HIGH GRADE INCOME FUNDS, RESPECTIVELY.
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, 2006 49 www.bishopstreetfunds.com
Bishop Street Funds
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
(IN THOUSANDS)
Hawaii Treasury
Municipal Money Money
Bond Market Market
Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at Cost $161,113 $202,628 $ --
Repurchase Agreements, at Cost -- 16,200 159,000
====================================================================================================================================
Investments, at Value $166,236 $202,628 $ --
Repurchase Agreements, at Value -- 16,200 159,000
Cash -- 99 45
Interest Receivable 3,110 176 64
Prepaid Expenses 1 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 169,347 219,105 159,110
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Income Distribution Payable 462 688 646
Advisory Fees Payable 46 47 27
Shareholder Servicing Fees Payable 14 20 13
Administrative Fees Payable 10 22 16
Distribution Fees Payable 7 11 --
Chief Compliance Officer Fees Payable 2 2 2
Accrued Expenses Payable 52 59 42
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 593 849 746
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets $168,754 $218,256 $158,364
- ------------------------------------------------------------------------------------------------------------------------------------
Fund Shares (unlimited authorization -- no par value) $163,317 $218,278 $158,421
Undistributed Net Investment Income 58 -- --
Accumulated Net Realized Gain (Loss) on Investments 256 (22) (57)
Net Unrealized Appreciation on Investments 5,123 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets $168,754 $218,256 $158,364
====================================================================================================================================
Class I Shares:
Net Assets $138,333 $159,044 $158,364
Outstanding Shares of Beneficial Interest 12,848 159,069 158,422
Net Asset Value, Offering and Redemption Price Per Share
(Net Assets / Shares Outstanding) $10.77 $1.00 $1.00
====================================================================================================================================
Class A Shares:
Net Assets $30,421 $59,212 --
Outstanding Shares of Beneficial Interest 2,825 59,212 --
Net Asset Value, Offering and Redemption Price Per Share
(Net Assets / Shares Outstanding) $10.77 $1.00 --
====================================================================================================================================
Maximum Offering Price Per Share -- Class A
($10.77 / 97.00%) $11.10 -- --
====================================================================================================================================
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 50
Bishop Street Funds
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
(IN THOUSANDS)
Large High
Strategic Cap Core Grade
Growth Equity Income
Fund Fund* Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend Income $ 1,149 $ 816 $ 89
Interest Income -- -- 6,505
Income from Securities Lending -- 5 40
Foreign Taxes Withheld (4) (2) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Income 1,145 819 6,634
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment Adviser Fees 1,019 359 747
Shareholder Servicing Fees 344 121 340
Administrative Fees 276 97 272
Chief Compliance Officer Fees 1 -- 1
Transfer Agent Fees 40 23 40
Professional Fees 40 20 39
Printing Fees 22 10 21
Custody Fees 14 5 14
Trustees' Fees 11 2 11
Registration Fees 3 -- 4
Miscellaneous Expenses 15 2 34
- ------------------------------------------------------------------------------------------------------------------------------------
Total Expenses 1,785 639 1,523
- ------------------------------------------------------------------------------------------------------------------------------------
Less Waivers:
Investment Adviser Fees -- (16) (170)
Shareholder Servicing Fees (206) (73) (204)
Administration Fees (118) (41) (116)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Waivers (324) (130) (490)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net Expenses 1,461 509 1,033
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) (316) 310 5,601
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) on Investments 7,651 300 (681)
Change in Unrealized Appreciation
(Depreciation) on Investments 5,124 6,016 (1,041)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments 12,775 6,316 (1,722)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations $12,459 $6,626 $ 3,879
====================================================================================================================================
* COMMENCED OPERATIONS ON MAY 3, 2006.
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, 2006 51 www.bishopstreetfunds.com
Bishop Street Funds
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
(IN THOUSANDS)
Hawaii Treasury
Municipal Money Money
Bond Market Market
Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest Income $7,679 $ 11,092 $9,539
Dividend Income 63 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Income 7,742 11,092 9,539
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment Adviser Fees 597 658 593
Shareholder Servicing Fees 426 549 494
Administrative Fees 341 439 395
Distribution Fees, Class A 78 110 --
Chief Compliance Officer Fees 2 2 2
Transfer Agent Fees 66 74 45
Professional Fees 48 64 54
Printing Fees 26 35 30
Custody Fees 17 24 20
Trustees' Fees 14 18 18
Registration Fees 6 7 7
Miscellaneous Expenses 46 26 64
- ------------------------------------------------------------------------------------------------------------------------------------
Total Expenses 1,667 2,006 1,722
- ------------------------------------------------------------------------------------------------------------------------------------
Less Waivers:
Investment Adviser Fees (174) (280) (389)
Shareholder Servicing Fees (256) (329) (296)
Administration Fees (221) (188) (169)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Waivers (651) (797) (854)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net Expenses 1,016 1,209 868
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 6,726 9,883 8,671
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) on Investments 842 1 (3)
Change in Unrealized Depreciation
on Investments (354) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments 488 1 (3)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations $7,214 $ 9,884 $8,668
====================================================================================================================================
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 52
Bishop Street Funds
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS OR PERIOD ENDED DECEMBER 31,
(IN THOUSANDS)
Strategic Large Cap Core
Growth Fund Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
2006 2005 2006*
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES FROM OPERATIONS:
Net Investment Income (Loss) $ (316) $ (356) $ 310
Net Realized Gain on Investments 7,651 3,839 300
Change in Unrealized Appreciation
on Investments 5,124 9,564 6,016
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations 12,459 13,047 6,626
- ------------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income:
Class I Shares -- -- (318)
Capital Gains:
Class I Shares (8,326) (2,019) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions (8,326) (2,019) (318)
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Class I Shares:
Proceeds from Shares Issued 32,077 46,780 100,103
Reinvestments of Cash Distributions 5,766 1,500 275
Cost of Shares Redeemed (22,388) (15,135) (3,836)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
From Capital Share Transactions 15,455 33,145 96,542
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 19,588 44,173 102,850
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period 123,341 79,168 --
- ------------------------------------------------------------------------------------------------------------------------------------
End of Period $142,929 $123,341 $102,850
====================================================================================================================================
Accumulated Net Investment Loss $ (2) $ (8) $ --
====================================================================================================================================
SHARE TRANSACTIONS:
Class I Shares:
Shares Issued 2,180 3,544 10,032
Shares Issued in Lieu of Cash Distributions 395 105 27
Shares Redeemed (1,539) (1,105) (375)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase in Shares Outstanding from
Share Transactions 1,036 2,544 9,684
====================================================================================================================================
* COMMENCED OPERATIONS ON MAY 3, 2006.
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, 2006 53 www.bishopstreetfunds.com
Bishop Street Funds
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
High Grade Hawaii Municipal
Income Fund Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
2006 2005 2006 2005
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES FROM OPERATIONS:
Net Investment Income $ 5,601 $ 5,507 $ 6,726 $ 7,003
Net Realized Gain (Loss) on Investments (681) 880 842 1,417
Change in Unrealized Depreciation on Investments (1,041) (3,598) (354) (4,087)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations 3,879 2,789 7,214 4,333
- ------------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income:
Class I Shares (5,603) (5,502) (5,556) (5,833)
Class A Shares -- (3) (1,160) (1,167)
Capital Gains:
Class I Shares -- (1,158) (486) (1,183)
Class A Shares -- -- (107) (252)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions (5,603) (6,663) (7,309) (8,435)
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Class I Shares:
Proceeds from Shares Issued 21,382 18,810 18,308 18,692
Reinvestments of Cash Distributions 3,249 3,659 838 1,160
Proceeds from Shares Issued in Connection
with Conversion from Class A Shares(1) -- 310 -- --
Cost of Shares Redeemed (22,898) (34,634) (25,935) (19,845)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Class I Capital Share Transactions 1,733 (11,855) (6,789) 7
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Shares:
Proceeds from Shares Issued -- 96 1,111 2,724
Reinvestments of Cash Distributions -- 1 543 652
Value of Shares Liquidated in Connection
with Conversion to Class I Shares(1) -- (310) -- --
Cost of Shares Redeemed -- (14) (2,744) (1,612)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Class A Capital Share Transactions -- (227) (1,090) 1,764
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets from
Capital Share Transactions 1,733 (12,082) (7,879) 1,771
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 9 (15,956) (7,974) (2,331)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Year 141,439 157,395 176,728 179,059
- ------------------------------------------------------------------------------------------------------------------------------------
End of Year $141,448 $141,439 $168,754 $176,728
====================================================================================================================================
Undistributed Net Investment Income $ 3 $ 9 $ 58 $ 48
====================================================================================================================================
SHARE TRANSACTIONS:
Class I Shares:
Shares Issued 2,158 1,834 1,709 1,710
Shares Issued in Lieu of Cash Distributions 328 358 78 107
Shares Issued in Connection with Conversion
from Class A Shares(1) -- 30 -- --
Shares Redeemed (2,320) (3,370) (2,425) (1,813)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Class I Share Transactions 166 (1,148) (638) 4
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Shares:
Shares Issued -- 10 104 249
Shares Issued in Lieu of Cash Distributions -- -- 51 60
Value of Shares Liquidated in Connection
with Conversion to Class I Shares(1) -- (30) -- --
Shares Redeemed -- (2) (256) (149)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Class A Share Transactions -- (22) (101) 160
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Shares Outstanding
from Share Transactions 166 (1,170) (739) 164
====================================================================================================================================
(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 54
Bishop Street Funds
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
Money Market Treasury Money
Fund Market Fund
- ------------------------------------------------------------------------------------------------------------------------------------
2006 2005 2006 2005
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES FROM OPERATIONS:
Net Investment Income $ 9,883 $ 5,595 $ 8,671 $ 6,168
Net Realized Gain (Loss) on Investments 1 (1) (3) (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations 9,884 5,594 8,668 6,161
- ------------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS:
Net Investment Income:
Class I Shares (7,975) (4,936) (8,671) (6,178)
Class A Shares (1,904) (663) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Dividends (9,879) (5,599) (8,671) (6,178)
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (ALL AT $1.00 PER SHARE):
Class I Shares:
Proceeds from Shares Issued 434,439 456,536 410,744 554,900
Reinvestments of Cash Distributions 284 192 17 13
Cost of Shares Redeemed (446,137) (454,204) (476,008) (539,435)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Class I Capital Share Transactions (11,414) 2,524 (65,247) 15,478
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Shares:
Proceeds from Shares Issued 164,007 157,534 -- --
Reinvestments of Cash Distributions 1,905 646 -- --
Cost of Shares Redeemed (142,232) (140,448) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Class A Capital Share Transactions 23,680 17,732 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 12,266 20,256 (65,247) 15,478
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 12,271 20,251 (65,250) 15,461
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Year 205,985 185,734 223,614 208,153
- ------------------------------------------------------------------------------------------------------------------------------------
End of Year $ 218,256 $ 205,985 $ 158,364 $ 223,614
====================================================================================================================================
Distributions in Excess of Net Investment Income $ -- $ (4) $ -- $ --
====================================================================================================================================
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, 2006 55 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
---------- ------------- -------------- ------------ ------------ ---------- --------------
- ---------------------
STRATEGIC GROWTH FUND
- ---------------------
CLASS I SHARES:
2006(1) $14.35 $(0.03) $ 1.41 $ 1.38 $ -- $(0.89) $(0.89)
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) -- -- --
- --------------------------
LARGE CAP CORE EQUITY FUND
- --------------------------
CLASS I SHARES:
2006(1)(3) $10.00 $ 0.04 $ 0.62 $ 0.66 $(0.04) $ -- $(0.04)
- ----------------------
HIGH GRADE INCOME FUND
- ----------------------
CLASS I SHARES:
2006(1) $10.06 $ 0.41 $(0.12) $ 0.29 $(0.41) $ -- $(0.41)
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)
- --------------------------
HAWAII MUNICIPAL BOND FUND
- --------------------------
CLASS I SHARES:
2006(1) $10.77 $ 0.43 $ 0.04 $ 0.47 $(0.43) $(0.04) $(0.47)
2005(1) 11.02 0.43 (0.16) 0.27 (0.43) (0.09) (0.52)
2004(1) 11.21 0.44 (0.07) 0.37 (0.44) (0.12) (0.56)
2003(1) 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)
CLASS A SHARES:
2006(1) $10.77 $ 0.40 $ 0.04 $ 0.44 $(0.40) $(0.04) $(0.44)
2005(1) 11.02 0.41 (0.16) 0.25 (0.41) (0.09) (0.50)
2004(1) 11.21 0.41 (0.07) 0.34 (0.41) (0.12) (0.53)
2003(1) 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)
+ 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. FEE WAIVERS ARE
IN EFFECT; IF THEY HAD NOT BEEN IN EFFECT, PERFORMANCE WOULD HAVE BEEN
LOWER.
* ANNUALIZED
(1) PER SHARE NET INVESTMENT INCOME AMOUNT CALCULATED USING AVERAGE SHARES.
(2) COMMENCED OPERATIONS ON JULY 1, 2002.
(3) COMMENCED OPERATIONS ON MAY 3, 2006.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
Bishop Street Funds 56
- ------------------------------------------------------------------------------------------------------------------------------------
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
---------- ------ ------------ ------------ ------------- -------------- --------
- ---------------------
STRATEGIC GROWTH FUND
- ---------------------
CLASS I SHARES:
2006(1) $14.84 9.78% $142,929 1.06% 1.30% (0.23)% 53%
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
- --------------------------
LARGE CAP CORE EQUITY FUND
- --------------------------
CLASS I SHARES:
2006(1)(3) $10.62 6.63% $102,850 1.05%* 1.32%* 0.64%* 51%
- ----------------------
HIGH GRADE INCOME FUND
- ----------------------
CLASS I SHARES:
2006(1) $ 9.94 2.96% $141,448 0.76% 1.12% 4.12% 41%
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
- --------------------------
HAWAII MUNICIPAL BOND FUND
- --------------------------
CLASS I SHARES:
2006(1) $10.77 4.42% $138,333 0.55% 0.93% 3.99% 47%
2005(1) 10.77 2.51 145,213 0.55 0.93 3.97 41
2004(1) 11.02 3.36 148,575 0.55 0.92 3.97 40
2003(1) 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
CLASS A SHARES:
2006(1) $10.77 4.16% $ 30,421 0.80% 1.18% 3.74% 47%
2005(1) 10.77 2.25 31,515 0.80 1.18 3.72 41
2004(1) 11.02 3.10 30,484 0.80 1.17 3.72 40
2003(1) 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
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
December 31, 2006 57 www.bishopstreetfunds.com
Bishop Street Funds
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31,
INVESTMENT ACTIVITIES
----------------------------------
TOTAL DIVIDENDS
NET ASSET NET REALIZED INVESTMENT FROM
VALUE, NET AND UNREALIZED ACTIVITIES NET
BEGINNING INVESTMENT GAIN (LOSS) ON FROM INVESTMENT TOTAL
OF YEAR INCOME INVESTMENTS OPERATIONS INCOME DIVIDENDS
---------- ---------- -------------- ------------ ---------- --------------
- -----------------
MONEY MARKET FUND
- -----------------
CLASS I SHARES:
2006(1) $1.00 $ 0.05 $ -- $ 0.05 $(0.05) $(0.05)
2005(1) 1.00 0.03 -- 0.03 (0.03) (0.03)
2004(1) 1.00 0.01 -- 0.01 (0.01) (0.01)
2003(1) 1.00 0.01 -- 0.01 (0.01) (0.01)
2002 1.00 0.01 -- 0.01 (0.01) (0.01)
CLASS A SHARES:
2006(1) $1.00 $ 0.04 $ -- $ 0.04 $(0.04) $(0.04)
2005(1) 1.00 0.03 -- 0.03 (0.03) (0.03)
2004(1) 1.00 0.01 -- 0.01 (0.01) (0.01)
2003(1) 1.00 0.01 -- 0.01 (0.01) (0.01)
2002 1.00 0.01 -- 0.01 (0.01) (0.01)
- --------------------------
TREASURY MONEY MARKET FUND
- --------------------------
CLASS I SHARES:
2006(1) $1.00 $ 0.04 $ -- $ 0.04 $(0.04) $(0.04)
2005(1) 1.00 0.03 -- 0.03 (0.03) (0.03)
2004(1) 1.00 0.01 -- 0.01 (0.01) (0.01)
2003(1) 1.00 0.01 -- 0.01 (0.01) (0.01)
2002 1.00 0.01 -- 0.01 (0.01) (0.01)
+ 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. FEE WAIVERS ARE
IN EFFECT; IF THEY HAD NOT BEEN IN EFFECT, PERFORMANCE WOULD HAVE BEEN
LOWER.
(1) 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 58
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF EXPENSES RATIO OF NET
NET ASSET NET ASSETS, EXPENSES TO TO AVERAGE INVESTMENT
VALUE, END OF AVERAGE NET ASSETS INCOME
END OF TOTAL YEAR NET EXCLUDING FEE TO AVERAGE
YEAR RETURN+ (000) ASSETS WAIVERS NET ASSETS
---------- ---------- ------------ ------------ ----------------- ----------------
- -----------------
MONEY MARKET FUND
- -----------------
CLASS I SHARES:
2006(1) $1.00 4.63% $159,044 0.50% 0.86% 4.55%
2005(1) 1.00 2.78 170,455 0.50 0.87 2.73
2004(1) 1.00 0.92 167,910 0.50 0.84 0.90
2003(1) 1.00 0.76 182,166 0.50 0.83 0.76
2002 1.00 1.34 238,498 0.50 0.81 1.33
CLASS A SHARES:
2006(1) $1.00 4.37% $ 59,212 0.75% 1.11% 4.33%
2005(1) 1.00 2.53 35,530 0.75 1.12 2.60
2004(1) 1.00 0.67 17,824 0.75 1.09 0.65
2003(1) 1.00 0.50 17,440 0.75 1.08 0.41
2002 1.00 1.08 188 0.75 1.06 1.10
- --------------------------
TREASURY MONEY MARKET FUND
- --------------------------
CLASS I SHARES:
2006(1) $1.00 4.51% $158,364 0.44% 0.87% 4.39%
2005(1) 1.00 2.62 223,614 0.44 0.87 2.61
2004(1) 1.00 0.91 208,153 0.44 0.84 0.89
2003(1) 1.00 0.74 270,365 0.44 0.83 0.75
2002 1.00 1.29 331,678 0.44 0.83 1.28
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
December 31, 2006 59 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 six funds (each a Fund,
collectively the "Funds") which includes the Strategic Growth Fund, Large Cap
Core 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.
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. Debt securities are priced based upon valuations provided by
independent, third-party pricing agents, if available. Such values generally
reflect the last reported sales price if the security is actively traded. The
third-party pricing agents may also value debt securities at an evaluated bid
price by employing methodologies that utilize actual market transactions,
broker-supplied valuations, or other methodologies designed to identify the
market value for such securities. Debt obligations with remaining maturities of
sixty days or less may be valued at their amortized cost, which approximates
market value. Prices for most securities held in the Funds are provided daily by
recognized independent pricing agents. If a security price cannot be obtained
from an independent, third-party pricing agent, the Funds seek to obtain a bid
price from at least one independent broker.
Bishop Street Funds 60
- --------------------------------------------------------------------------------
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 Strategic Growth, Large Cap
Core 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 (as defined in 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, 2006 61 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 Strategic Growth and Large Cap Core Equity
Funds declare and pay dividends from any net investment income, if available, 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, 2006, 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 Statements 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 Strategic
Growth and the Large Cap Core 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
feeto 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:
Bishop Street Funds 62
- --------------------------------------------------------------------------------
Strategic Growth Fund (Class I) 1.25%, Large Cap Core Equity Fund (Class I)
1.05%, High Grade Income Fund (Class I) 0.76%, Hawaii Municipal Bond Fund (Class
I) 0.55%, Hawaii Municipal Bond Fund (Class A) 0.80%, 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 December
15, 2006 as approved by shareholders on December 15, 2006. 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.
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.
December 31, 2006 63 www.bishopstreetfunds.com
Bishop Street Funds
- --------------------------------------------------------------------------------
The Trust has adopted and entered into a shareholder service plan and
agreement with SIDCO. Each Fund pays to SIDCO a shareholder servicing fee at an
annual rate of 0.25% of the average daily net asset value of all shares of each
Fund, which is computed daily and paid monthly. Under the shareholder service
plan, SIDCO may perform, or may compensate other service providers for
performing various shareholder and administrative services. SIDCO may also
retain as profit any difference between the fee it receives and amount it pays
to third parties. For the period, SIDCO paid the entire amount of fees received
under the shareholder service plan to First Hawaiian Bank, the Parent Company of
Bishop Street Capital Management, for shareholder services performed for the
Funds. SIDCO has voluntarily agreed to waive a portion of its 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 ofportfolio 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, a 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 Statements of
Operations is net of commissions to the security lending agent.
Bishop Street Funds 64
- --------------------------------------------------------------------------------
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,
2006 are presented below for the Funds.
Strategic Large High Grade Hawaii
Growth Cap Core Income Municipal
Fund Equity Fund Fund Bond Fund
(000) (000) (000) (000)
---------- ------------ ---------- ----------
Purchases
U.S.
Government
Securities $ -- $ -- $28,344 $ --
Other 79,457 133,683 24,487 77,403
Sales and Maturities
U.S.
Government
Securities $ -- $ -- $28,086 $ --
Other 72,516 38,380 22,692 86,308
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 undistributed net investment income/(loss), paid-in
capital or accumulated net realized gain/(loss), as appropriate, in the period
that the differences arise.
December 31, 2006 65 www.bishopstreetfunds.com
Bishop Street Funds
- --------------------------------------------------------------------------------
Accordingly, the following permanent differences, primarily attributable to
paydown gains and losses and reclassification of distributions have been
reclassified:
Undistributed Accumulated
Net Investment Net Realized
Income (Loss) Gain (Loss)
(000) (000)
------------- -----------
Strategic Growth Fund $322 $(322)
Large Cap Core Equity Fund 8 (8)
High Grade Income Fund (4) 4
Theses reclassifications had no effect on net assets or net asset value per
share.
The tax character of dividends and distributions declared during the years
ended December 31, 2006 and December 31, 2005 were as follows:
Ordinary Tax Exempt Long-Term
Income Income Capital Gain Total
(000) (000) (000) (000)
-------- ---------- ------------ -------
Strategic Growth
Fund
2006 $ 93 $ -- $8,233 $8,326
2005 -- -- 2,019 2,019
Large Cap Core
Equity Fund
2006 $ 318 $ -- $ -- $ 318
High Grade Income
Fund
2006 $5,603 $ -- $ -- $5,603
2005 6,284 -- 379 6,663
Hawaii Municipal
Bond Fund
2006 $ 67 $6,717 $ 525 $7,309
2005 24 7,000 1,411 8,435
Money Market Fund
2006 $9,879 $ -- $ -- $9,879
2005 5,599 -- -- 5,599
Treasury Money
Market Fund
2006 $8,671 $ -- $ -- $8,671
2005 6,178 -- -- 6,178
Bishop Street Funds 66
- --------------------------------------------------------------------------------
As of December 31, 2006, the components of Distributable Earnings
(Accumulated Losses) on a tax basis were as follows:
Large Cap Treasury
Strategic Core High Grade Hawaii Money Money
Growth Equity Income Municipal Market Market
Fund Fund Fund Bond Fund Fund Fund
(000) (000) (000) (000) (000) (000)
---------- ---------- ---------- ---------- ---------- ----------
Undistributed net
investment income $ -- $ 410 $ 492 $ 132 $ 930 $ 647
Undistributed tax
exempt income -- -- -- 557 -- --
Undistributed
long-term
capital gain 862 -- -- 127 -- --
Capital loss
carryforwards -- -- (642) -- (22) (57)
Post-October losses -- -- (83) -- -- --
Other temporary
differences (1) -- (489) (556) (930) (647)
Unrealized
appreciation
(depreciation) 28,164 5,898 (229) 5,177 -- --
------- ------ ----- ------ ----- -----
Total Distributable
Earnings
(Accumulated
Losses) $29,025 $6,308 $(951) $5,437 $ (22) $ (57)
======= ====== ===== ====== ===== =====
Post-October losses represent losses realized on investment transactions from
November 1, 2006 through December 31, 2006 that, in accordance with Federal
income tax regulations the Funds have elected to defer and treat as having
arisen in the following fiscal year.
December 31, 2006 67 www.bishopstreetfunds.com
Bishop Street Funds
- --------------------------------------------------------------------------------
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:
High Treasury
Grade Money Money
Income Market Market
Fund Fund Fund
(000) (000) (000)
---------- ---------- ----------
Dec. 2008 $ -- $ 1 $--
Dec. 2009 -- 18 --
Dec. 2012 -- -- 27
Dec. 2013 -- 3 27
Dec. 2014 642 -- 3
---- --- ---
Total $642 $22 $57
==== === ===
During the year ended December 31, 2006, the Money Market Fund utilized
capital loss carryforwards of $838 to offset realized capital gains.
The aggregate gross unrealized appreciation and depreciation of securities
held by the Strategic Growth, Large Cap Core Equity, High Grade Income, and
Hawaii Municipal Bond Funds for Federal income tax purposes at December 31, 2006
were as follows:
Strategic Large Cap High Grade Hawaii
Growth Core Income Municipal
Fund Equity Fund Fund Bond Fund
(000) (000) (000) (000)
------------ --------------- ------------ -----------
Federal Tax Cost $114,451 $103,756 $169,454 $161,059
-------- -------- -------- --------
Gross
Unrealized
Appreciation 29,118 7,880 1,563 5,256
Gross
Unrealized
Depreciation (954) (1,982) (1,792) (79)
-------- -------- -------- --------
Net
Unrealized
Appreciation
(Depreciation) $ 28,164 $ 5,898 $ (229) $ 5,177
======== ======== ======= ========
Bishop Street Funds 68
- --------------------------------------------------------------------------------
8. RISKS
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.
As of December 31, 2006, the Treasury Money Market Fund was invested in two
repurchase agreements. This results in a concentration risk at the
counterparties because of the high concentration in these investments. If one of
the counterparties were to default and the value of the collateral decline, the
Fund would be negatively impacted. Collateral for repurchase agreements is held
by the Custodian and monitored to be sure the market value of the collateral is
sufficient in the event of default by the counterparty, thus mitigating the
risk.
9. OTHER
At December 31, 2006, the percentage of total shares outstanding held by
shareholders for each Fund, which comprised an omnibus account that was held on
behalf of several individual shareholders, was as follows:
Number of % of Outstanding
Shareholders Shares
-------------- ----------------
Strategic Growth Fund, Class I Shares 2 91.71%
Large Cap Core Equity Fund, Class I Shares 2 93.61
High Grade Income Fund, Class I Shares 2 88.11
Hawaii Municipal Bond Fund, Class I Shares 1 83.88
Hawaii Municipal Bond Fund, Class A Shares 1 13.43
Money Market Fund, Class I Shares 1 95.90
Money Market Fund, Class A Shares 1 99.96
Treasury Money Market Fund, Class I Shares 1 99.81
10. NEW ACCOUNTING PRONOUNCEMENTS
On July 13, 2006, the Financial Accounting Standards Board ("FASB") released
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured,presented and disclosed in the financial statements. FIN 48
requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the Funds tax returns to
December 31, 2006 69 www.bishopstreetfunds.com
Bishop Street Funds
- --------------------------------------------------------------------------------
determine whether the tax positions are "more-likely-than-not" of being
sustained by the applicable tax authority. Tax positions not deemed to meet the
more-likely-than-not threshold would be recorded as a tax benefit or expense in
the current year. Adoption of FIN 48 is required for fiscal years beginning
after December 15, 2006 and is to be applied to all open tax years as of the
effective date. The Funds will not be required to adopt FIN 48 until June 29,
2007 (the last NAV calculation in the first required financial statement
reporting period for its fiscal year beginning after December 15, 2006) and the
impact of FIN 48 will then be reflected in the Fund's semi-annual financial
statements contained in their Form N-CSR filing. As of December 31, 2006, the
Funds have not completed their evaluation of the impact, if any, that will
result from the adoption of FIN 48.
In September 2006, the FASB issued STATEMENT ON FINANCIAL ACCOUNTING
STANDARDS ("SFAS") NO. 157, "FAIR VALUE MEASUREMENTS." This standard establishes
a single authoritative definition of fair value, sets out a framework for
measuring fair value and requires additional disclosures about fair value
measurements. SFAS No. 157 applies to fair value measurements already required
or permitted by existing standards. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. The changes to current generally accepted
accounting principles from the application of this Statement relate to the
definition of fair value, the methods used to measure fair value, and the
expanded disclosures about fair value measurements. As of December 31, 2006, the
Funds do not believe the adoption of SFAS No. 157 will impact the amounts
reported in the financial statements, however, additional disclosures may be
required about the inputs used to develop the measurements and the effect of
certain of the measurements reported on the Statements of Changes in net assets
for a fiscal period.
Bishop Street Funds 70
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 assets and liabilities, including
the schedule of investments, 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 Strategic Growth Fund, Large Cap
Core Equity Fund, High Grade Income Fund, Hawaii Municipal Bond Fund, Money
Market Fund and Treasury Money Market Fund (constituting Bishop Street Funds,
hereafter referred to as the "Funds") at December 31, 2006, the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, except for the Large Cap Core Equity
Fund for which the results of operations, the changes in net assets and the
financial highlights are for the period May 3, 2006 to December 31, 2006, 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, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 23, 2007
December 31, 2006 71 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 72
- ------------------------------------------------------------------------------------------
Beginning Ending Expenses
Account Account Annualized Paid
Value Value Expense During
7/1/06 12/31/06 Ratios Period*
- ------------------------------------------------------------------------------------------
STRATEGIC GROWTH FUND -- CLASS I
- ------------------------------------------------------------------------------------------
ACTUAL FUND RETURN $1,000.00 $1,117.20 1.05% $5.60
HYPOTHETICAL 5% RETURN 1,000.00 1,019.91 1.05 5.35
- ------------------------------------------------------------------------------------------
LARGE CAP CORE EQUITY FUND -- CLASS I
- ------------------------------------------------------------------------------------------
ACTUAL FUND RETURN $1,000.00 $1,105.30 1.05% $5.57
HYPOTHETICAL 5% RETURN 1,000.00 1,019.91 1.05 5.35
- ------------------------------------------------------------------------------------------
HIGH GRADE INCOME FUND -- CLASS I
- ------------------------------------------------------------------------------------------
ACTUAL FUND RETURN $1,000.00 $1,044.30 0.76% $3.92
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 $1,045.90 0.55% $2.84
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 $1,044.60 0.80% $4.12
HYPOTHETICAL 5% RETURN 1,000.00 1,021.17 0.80 4.08
- ------------------------------------------------------------------------------------------
MONEY MARKET FUND -- CLASS I
- ------------------------------------------------------------------------------------------
ACTUAL FUND RETURN $1,000.00 $1,024.70 0.50% $2.55
HYPOTHETICAL 5% RETURN 1,000.00 1,022.68 0.50 2.55
- ------------------------------------------------------------------------------------------
MONEY MARKET FUND -- CLASS A
- ------------------------------------------------------------------------------------------
ACTUAL FUND RETURN $1,000.00 $1,023.40 0.75% $3.83
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 $1,024.50 0.44% $2.25
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, 2006 73 www.bishopstreetfunds.com
Bishop Street Funds
- --------------------------------------------------------------------------------
NOTICE TO SHAREHOLDERS OF BISHOP STREET FUNDS (UNAUDITED)
For shareholders that do not have a December 31, 2006 taxable year end,
this notice is for informational purposes only. For shareholders with a December
31, 2006 tax year end, please consult your tax advisor as to the pertinence of
this notice.
(A) (B)
LONG TERM ORDINARY (C)
CAPITAL GAINS INCOME TAX
DISTRIBUTIONS DISTRIBUTIONS EXEMPT
FUND (TAX BASIS) (TAX BASIS) INTEREST
- ------ -------------- -------------- --------
Strategic Growth 99% 1% 0%
Large Cap Core Equity 0% 100% 0%
High Grade Income 0% 100% 0%
Hawaii Municipal Bond 7% 1% 92%
Money Market 0% 100% 0%
Treasury Money Market 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 74
- --------------------------------------------------------------------------------
For the fiscal year ended December 31, 2006, each Fund has designated the
following items with regard to distributions paid during the year:
(E)
DIVIDENDS
QUALIFYING
(D) FOR (I)
(A+B+C) CORPORATE (F) (G) (H) 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% 0% 100%
100% 78% 76% 0% 0% 100%
100% 0% 0% 27% 98% 0%
100% 0% 0% 0% 99% 100%
100% 0% 0% 3% 100% 0%
100% 0% 0% 35% 100% 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) AND (C) ARE BASED ON THE PERCENTAGE OF EACH FUND'S TOTAL
DISTRIBUTION.
December 31, 2006 75 www.bishopstreetfunds.com
Bishop Street Funds
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
Set forth below are the names, age, position with the Trust, length of term of
office, and the principal occupations for the last five years of each of the
persons currently serving as Trustees and Officers of the Trust. Trustees who
are deemed not to be "interested persons" of the Trust are referred to as
"Independent Board Members." Messrs. Nesher and Doran are Trustees who may be
deemed to be "interested" persons of the Trust as that term
TERM OF
POSITION(S) OFFICE AND
NAME, ADDRESS, HELD WITH LENGTH OF
AGE(1) THE TRUST TIME SERVED(2)
- --------------------------------------------------------------------------------
INTERESTED
BOARD MEMBERS
- -------------
ROBERT A. NESHER Chairman (Since 1998)
60 yrs. old of the Board
of Trustees
- --------------------------------------------------------------------------------
WILLIAM M. DORAN Trustee (Since 2006)
1701 Market Street
Philadelphia, PA 19103
66 yrs. old
- --------------------------------------------------------------------------------
Bishop Street Funds 76
is defined in the 1940 Act by virtue of their affiliation with the Trust's
Distributor. The Trust's Statement of Additional Information ("SAI") includes
additional information about the Trustees and Officers. The SAI may be obtained
without charge by calling 1-800-262-9565. The following chart lists Trustees and
Officers as of February 1, 2007.
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
IN BISHOP
STREET FUNDS
PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DURING PAST 5 YEARS BOARD MEMBER HELD BY BOARD MEMBER(3)
- --------------------------------------------------------------------------------------------------------------
SEI employee 1974-present. Currently 6 Trustee of The Advisors' Inner Circle
performs various services on behalf of Fund, The Advisors' Inner Circle
SEI Investments for which Mr. Nesher Fund II, SEI Asset Allocation Trust,
is compensated. Executive Vice President SEI Daily Income Trust, SEI Index
of SEI Investments, 1986-1994. Director Funds, SEI Institutional International
and Executive Vice President of the Trust, SEI Institutional Investments
Administrator and the Distributor, Trust, SEI Institutional Managed Trust,
1981-1994. SEI Liquid Asset Trust, SEI Tax Exempt
Trust, SEI Opportunity Master Fund,
L.P., SEI Opportunity Fund, L.P., SEI
Global Master Fund, PLC, SEI Global
Assets Fund, PLC, SEI Global
Investments Fund, PLC, SEI Investments
Global, Limited, SEI
Investments-Global Fund Services,
Limited, SEI Investments (Europe)
Ltd., SEI Investments-Unit Trust
Management (UK) Limited, and
SEI Global Nominee Ltd.
- --------------------------------------------------------------------------------------------------------------
Self-employed consultant since 2003. Partner, 6 Director of SEI Investments Company
Morgan, Lewis & Bockius LLP (law firm) and SEI Investments Distribution Co.,
from 1976-2003, counsel to the Trust, SEI Investments-Global Fund Services,
SEI Investments, the Administrator and the Limited, SEI Investments Global
Distributor. Director of SEI Investments since Limited, SEI Investments (Europe),
1974; Secretary of SEI Investments since 1978. Limited, SEI Investments (Asia)
Limited, SEI Asset Korea Co., Ltd.,
Trustee of The Advisors' Inner Circle
Fund, The Advisors' Inner Circle
Fund II, SEI Investments, SEI Asset
Allocation Trust, SEI Daily Income
Trust, SEI Index Funds, SEI Institutional
International Trust, SEI Institutional
Investments Trust, SEI Institutional
Managed Trust, SEI Liquid Asset Trust
and SEI Tax Exempt Trust.
- --------------------------------------------------------------------------------------------------------------
December 31, 2006 77 www.bishopstreetfunds.com
Bishop Street Funds
- --------------------------------------------------------------------------------
TERM OF
POSITION(S) OFFICE AND
NAME, ADDRESS, HELD WITH LENGTH OF
AGE(1) THE TRUST TIME SERVED(2)
- --------------------------------------------------------------------------------
INDEPENDENT
BOARD MEMBERS
- -------------
EUGENE B. PETERS Trustee (Since 2006)
77 yrs. old
- --------------------------------------------------------------------------------
JAMES M. STOREY Trustee (Since 2006)
75 yrs. old
- --------------------------------------------------------------------------------
GEORGE J. SULLIVAN, JR. Trustee (Since 2006)
64 yrs. old
- --------------------------------------------------------------------------------
BETTY L. KRIKORIAN Trustee (Since 2006)
64 yrs. old
- --------------------------------------------------------------------------------
Bishop Street Funds 78
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
IN BISHOP
STREET FUNDS
PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DURING PAST 5 YEARS BOARD MEMBER HELD BY BOARD MEMBER3
- -------------------------------------------------------------------------------------------------------------
Private investor from 1987 to present. 6 Trustee of The Advisors' Inner Circle
Vice President and Chief Financial Fund and The Advisors' Inner Circle
Officer, Western Company of North Fund II.
America (petroleum service company),
1980-1986. President of Gene Peters
and Associates (import company),
1978-1980. President and Chief
Executive Officer of Jos. Schlitz
Brewing Company before 1978.
- -------------------------------------------------------------------------------------------------------------
Attorney, Solo Practitioner since 6 Trustee of The Advisors' Inner Circle
1994. Partner, Dechert (law firm), Fund, The Advisors' Inner Circle
September 1987-December 1993. Fund II, SEI Asset Allocation Trust,
SEI Daily Income Trust, SEI Index
Funds, SEI Institutional International
Trust, SEI Institutional Investments
Trust, SEI Institutional Managed Trust,
SEI Liquid Asset Trust, SEI Tax Exempt
Trust and U.S. Charitable Gift Trust.
- -------------------------------------------------------------------------------------------------------------
Chief Executive Officer, Newfound 6 Trustee, State Street Navigator
Consultants, Inc. since April 1997. Securities Lending Trust, since 1995.
General Partner, Teton Partners, L.P., Trustee of The Fulcrum Trust. Trustee
June 1991-December 1996; Chief of The Advisors' Inner Circle Fund,
Financial Officer, Nobel Partners, The Advisors' Inner Circle Fund II,
L.P., March 1991-December 1996; SEI Asset Allocation Trust, SEI Daily
Treasurer and Clerk, Peak Asset Income Trust, SEI Index Funds, SEI
Management, Inc., since 1991. Institutional International Trust,
SEI Institutional Investments Trust,
SEI Institutional Managed Trust, SEI
Liquid Asset Trust, SEI Tax Exempt
Trust, SEI Opportunity Master Fund,
L.P. and SEI Opportunity Fund, L.P.
- -------------------------------------------------------------------------------------------------------------
Self-Employed Legal and Financial 6 Trustee of The Advisors' Inner Circle
Services Consultant since 2003. State Fund and The Advisors' Inner Circle
Street Bank Global Securities and Fund II.
Cash Operations from 1995 to 2003.
- -------------------------------------------------------------------------------------------------------------
December 31, 2006 79 www.bishopstreetfunds.com
Bishop Street Funds
- --------------------------------------------------------------------------------
TERM OF
POSITION(S) OFFICE AND
NAME, ADDRESS, HELD WITH LENGTH OF
AGE(1) THE TRUST TIME SERVED(2)
- --------------------------------------------------------------------------------
INDEPENDENT BOARD
MEMBERS (CONTINUED)
- -------------------
CHARLES E. CARLBOM Trustee (Since 2006)
72 yrs. old
- --------------------------------------------------------------------------------
MITCHELL A. JOHNSON Trustee (Since 2006)
64 yrs. old
- --------------------------------------------------------------------------------
OFFICERS
- --------
JAMES F. VOLK, CPA President (Since 2006)
44 yrs. old
- --------------------------------------------------------------------------------
MICHAEL LAWSON Controller (Since 2005)
46 yrs. old and Chief
Financial Officer
- --------------------------------------------------------------------------------
RUSSELL EMERY Chief Compliance (Since 2006)
44 yrs. old Officer
- --------------------------------------------------------------------------------
JAMES NDIAYE Vice President (Since 2005)
38 yrs. old and Secretary
- --------------------------------------------------------------------------------
Bishop Street Funds 80
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
IN BISHOP
STREET FUNDS
PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DURING PAST 5 YEARS BOARD MEMBER HELD BY BOARD MEMBER(3)
- -------------------------------------------------------------------------------------------------------------
Self-Employed Business Consultant, 6 Director, Crown Pacific, Inc. and
Business Project Inc. since 1997. CEO Trustee of The Advisors' Inner Circle
and President, United Grocers Inc. Fund and The Advisors' Inner Circle
from 1997 to 2000. Fund II.
- -------------------------------------------------------------------------------------------------------------
Retired. 6 Director, Federal Agricultural Mortgage
Corporation. Trustee of The Advisors'
Inner Circle Fund and The Advisors'
Inner Circle Fund II.
- -------------------------------------------------------------------------------------------------------------
Senior Operations Officer, SEI Investments, N/A N/A
Fund Accounting and Administration
(1996-present); Assistant Chief Accountant
for the U.S. Securities and Exchange
Commission's Division of Investment
Management (1993-1996).
- -------------------------------------------------------------------------------------------------------------
Director, SEI Investments, Fund N/A N/A
Accounting since July 2005. Manager,
SEI Investments AVP from April 1995
to February 1998 and November 1998
to July 2005.
- -------------------------------------------------------------------------------------------------------------
Director of Investment Product Management N/A N/A
and Development at SEI Investments
since February 2003. Senior Investment
Analyst, Equity team at SEI Investments
from March 2000 to February 2003.
- -------------------------------------------------------------------------------------------------------------
Employed by SEI Investments Company N/A N/A
since 2004. Vice President, Deutsche
Asset Management from 2003-2004.
Associate, Morgan, Lewis & Bockius LLP
from 2000-2003. Counsel, Assistant Vice
President, ING Variable Annuities
Group from 1999-2000.
- -------------------------------------------------------------------------------------------------------------
December 31, 2006 81 www.bishopstreetfunds.com
Bishop Street Funds
- --------------------------------------------------------------------------------
TERM OF
POSITION(S) OFFICE AND
NAME, ADDRESS, HELD WITH LENGTH OF
AGE(1) THE TRUST TIME SERVED(2)
- --------------------------------------------------------------------------------
OFFICERS (CONTINUED)
- --------------------
TIMOTHY D. BARTO Vice President and (Since 2000)
38 yrs. old Assistant Secretary
- --------------------------------------------------------------------------------
SOFIA ROSALA Vice President and (Since 2005)
33 yrs. old Assistant Secretary
- --------------------------------------------------------------------------------
NICOLE WELCH AML Officer (Since 2006)
29 yrs. old
- --------------------------------------------------------------------------------
1 Unless otherwise noted, the business address of each Trustee is SEI
Investments Company, 1 Freedom Valley Drive, Oaks, Pennsylvania 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.
Bishop Street Funds 82
(UNAUDITED)
- ------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
IN BISHOP
STREET FUNDS
PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DURING PAST 5 YEARS BOARD MEMBER HELD BY BOARD MEMBER3
- ------------------------------------------------------------------------------------------------
General Counsel, Vice President and Assistant N/A N/A
Secretary of SEI Investments Global Funds
Services since 1999; Associate, Dechert
(law firm) from 1997-1999; Associate, Richter,
Miller & Finn (law firm) from 1994-1997.
- ------------------------------------------------------------------------------------------------
Vice President and Assistant Secretary of SEI N/A N/A
Investments Management Corp. and SEI
Global Funds Services since 2005. Compliance
Officer of SEI Investments from 2001-2004.
Account and Product Consultant SEI Private
Trust Company, 1998-2001.
Assistant Vice President and AML Compliance N/A N/A
Officer of SEI Investments since January 2005.
Compliance Analyst at TD Waterhouse from
January 2004 to November 2004. Senior
Compliance Analyst at UBS Financial Services
from October 2002 to January 2004.
Knowledge Management Analyst at
PricewaterhouseCoopers Consulting from
September 2000 to October 2002.
- ------------------------------------------------------------------------------------------------
3 Directorships of companies 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.
December 31, 2006 83 www.bishopstreetfunds.com
Bishop Street Funds (unaudited)
- --------------------------------------------------------------------------------
SHAREHOLDER VOTING RESULTS
At a special meeting held on December 15, 2006, the shareholders of the Bishop
Street Money Market Fund and Bishop Street Treasury Money Market Fund voted to
approve a new investment sub-advisory agreement between Bishop Street Funds, on
behalf of the Funds, Bishop Street Capital Management, and Fischer, Francis,
Trees & Watts, Inc.
The results of the voting were as follows:
% OF % OF
SHARES SHARES SHARES
VOTED VOTED OUTSTANDING
----------- ------ -----------
1. BISHOP STREET MONEY MARKET FUND
FOR 118,967,070 99.63% 51.44%
AGAINST 396,375 0.33% 0.17%
ABSTAIN 41,623 0.04% 0.01%
----------- ------- ------
TOTAL 119,405,068 100.00% 51.62%
2. BISHOP STREET TREASURY MONEY MARKET FUND
FOR 103,524,370 100.00% 55.69%
AGAINST -- -- --
ABSTAIN 2,016 0.00% 0.00%
----------- ------- ------
TOTAL 103,526,386 100.00% 55.69%
[GRAPHIC OMITTED]
INVESTMENT ADVISER
BISHOP STREET CAPITAL MANAGEMENT
HONOLULU, HI 96813
ADMINISTRATOR
SEI INVESTMENTS GLOBAL FUNDS SERVICES
OAKS, PA 19456
DISTRIBUTOR
SEI INVESTMENTS DISTRIBUTION CO.
OAKS, PA 19456
TRANSFER AGENT
DST SYSTEMS, INC.
KANSAS CITY, MO 64121
CUSTODIAN
UNION BANK OF CALIFORNIA, N.A.
SAN FRANCISCO, CA 94101
LEGAL COUNSEL
MORGAN, LEWIS & BOCKIUS LLP
PHILADELPHIA, PA 19103
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PRICEWATERHOUSECOOPERS LLP
PHILADELPHIA, PA 19103
[BISHOP STREET LOGO OMITTED]
FOR MORE INFORMATION ABOUT BISHOP STREET FUNDS, CALL 1-800-262-9565
OR YOUR INVESTMENT SPECIALIST
VISIT US ONLINE AT WWW.BISHOPSTREETFUNDS.COM
[BISHOP STREET LOGO OMITTED]
BISHOP STREET FUNDS
P.O. BOX 3708
HONOLULU, HI 96811
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE
GENERAL INFORMATION OF BISHOP STREET FUNDS' SHAREHOLDERS. THIS REPORT IS NOT
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
SHARES OF BISHOP STREET FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY FIRST HAWAIIAN BANK OR ANY OF ITS AFFILIATES. SUCH SHARES ARE ALSO NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENT IN SHARES OF MUTUAL FUNDS
INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE BISHOP STREET FUNDS
ARE DISTRIBUTED BY SEI INVESTMENTS DISTRIBUTION CO., WHICH IS NOT AFFILIATED
WITH FIRST HAWAIIAN BANK, BANK OF THE WEST OR BANCWEST CORPORATION. BANCWEST
CORPORATION IS A WHOLLY-OWNED SUBSIDIARY OF BNP PARIBAS.
BSF-AR-006-1200
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 George Sullivan 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:
- ------------------ ----------------------------------------------------- -----------------------------------------------------
2006 2005
- ------------------ ----------------------------------------------------- -----------------------------------------------------
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 $102,900 N/A N/A $104,100 N/A N/A
Fees(1)
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(b) Audit- N/A N/A N/A N/A N/A N/A
Related
Fees
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(c) Tax Fees N/A N/A N/A N/A N/A N/A
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(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:
---------------------------- ----------------- ----------------
2006 2005
---------------------------- ----------------- ----------------
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 2006 and 2005, respectively.
(h) During the past fiscal year, all non-audit services provided by
Registrant's principal accountant to either Registrant's investment adviser or
to any entity controlling, controlled by, or under common control with
Registrant's investment adviser that provides ongoing services to Registrant
were pre-approved by the audit committee of Registrant's Board of Trustees.
Included in the audit committee's pre-approval was the review and consideration
as to whether the provision of these non-audit services is compatible with
maintaining the principal accountant's independence.
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 have materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEMS 12. EXHIBITS.
(a)(1) Code of Ethics attached hereto.
(a)(2) A separate certification for the principal executive officer and the
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), are filed
herewith.
(b) Officer certifications as required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing
as an Exhibit.
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Bishop Street Funds
By (Signature and Title)* /s/ James F. Volk
------------------------
James F. Volk
President
Date: March 5, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ James F. Volk
------------------------
James F. Volk
President
Date: March 5, 2007
By (Signature and Title)* /s/ Michael Lawson
------------------------
Michael Lawson
Controller & CFO
Date: March 5, 2007
* Print the name and title of each signing officer under his or her signature.