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.