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, 2007 DATE OF REPORTING PERIOD: DECEMBER 31, 2007 ITEM 1. REPORTS TO STOCKHOLDERS. - -------------------------------------------------------------------------------- BISHOP STREET FUNDS ANNUAL REPORT DECEMBER 31, 2007 STRATEGIC GROWTH FUND LARGE CAP CORE EQUITY FUND [GRAPHIC OMITTED] 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] - -------------------------------------------------------------------------------- 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 or by visiting the Commission's website at http://www.sec.gov. Information regarding how the Funds voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge, by calling 1-800-262-9565 or by visiting the Funds' website at http://www.bishopstreetfunds.com or the website of the Securities and Exchange Commission. - -------------------------------------------------------------------------------- BISHOP STREET TABLE OF CONTENTS FUNDS - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS .................................................. 2 INVESTMENT ADVISER'S REPORT ............................................. 5 STRATEGIC GROWTH FUND Management Discussion ................................................ 7 Schedule of Investments .............................................. 11 LARGE CAP CORE EQUITY FUND Management Discussion ................................................ 14 Schedule of Investments .............................................. 18 HIGH GRADE INCOME FUND Management Discussion ................................................ 24 Schedule of Investments .............................................. 26 HAWAII MUNICIPAL BOND FUND Management Discussion ................................................ 34 Schedule of Investments .............................................. 36 MONEY MARKET & TREASURY MONEY MARKET FUNDS Management Discussion ................................................ 45 Schedule of Investments .............................................. 47 STATEMENTS OF ASSETS AND LIABILITIES .................................... 51 STATEMENTS OF OPERATIONS ................................................ 53 STATEMENTS OF CHANGES IN NET ASSETS ..................................... 55 FINANCIAL HIGHLIGHTS .................................................... 58 NOTES TO FINANCIAL STATEMENTS ........................................... 62 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ................. 73 DISCLOSURE OF FUND EXPENSES ............................................. 74 NOTICE TO SHAREHOLDERS .................................................. 76 BOARD OF TRUSTEES AND OFFICERS .......................................... 78 1 - -------------------------------------------------------------------------------- BISHOP STREET LETTER TO SHAREHOLDERS FUNDS - -------------------------------------------------------------------------------- [PHOTO OMITTED] Dear Shareholder: After years of relative calm and stability in the financial markets, volatility soared as distress in the U.S. sub-prime mortgage market set off a global credit and liquidity crisis not witnessed in years. The magnitude of the damage has not yet been fully determined but one thing is clear. Uncertainty about future economic growth both here and abroad has severely crippled investor confidence. Despite rapid and successive central bank moves, investor confidence remains fragile and risk premiums have ratcheted higher across the world's financial markets. U.S. economic activity is clearly slowing, hurt by a very weak housing market and there is now pressure on consumers to increase their savings base to offset the wealth destruction that has occurred in their real estate and financial portfolios. This undoubtedly will weigh heavily on consumer spending in 2008 and we are expecting the Federal Reserve (the "Fed") to respond with additional interest rate cuts in the months ahead. Our expectation is for a slowdown in the economy - not a recession, although that probability will increase if the Fed remains too cautious. The months ahead will be key as the story continues to unfold. A WEAK FINISH FOR STOCKS Despite the spike in volatility and uncertainty surrounding the credit markets, the U.S. stock market produced surprisingly strong results for the year even in the face of the significant correction in the second half of 2007. Ongoing problems with low-quality mortgage loans continued to rattle the markets and weighed heavily on investor confidence. Oil surged to record highs while the U.S. dollar dipped to record lows against all major currencies. Stocks finished the year on a soft note with the S&P 500 Composite Index and the Dow Jones Industrial Average gaining just 5.49% and 8.87%, Bishop Street Funds 2 - -------------------------------------------------------------------------------- [BISHOP STREET FUNDS LOGO OMITTED] - -------------------------------------------------------------------------------- respectively, after posting double-digit gains earlier. The NASDAQ Composite Index finished up 10.5%, reflecting a resurgence in the information technology sector. Meanwhile, international markets continued to outperform their domestic counterparts with the emerging markets faring particularly well followed by the European and Pacific regions. Japan was the exception. With the weak dollar, returns of most foreign equity markets remained attractive to U.S.-based investors. BOND INVESTORS FLEE TO SAFETY As troubles in the sub-prime credit markets rippled through the financial markets here and abroad, bond investors rushed to the relative safety of U.S. treasuries. The "flight to quality" drove Treasury yields lower and widened credit spreads for riskier bonds. As a result, the yield curve steepened dramatically as recession fears forced Federal Reserve Board actions. The central bank lowered the target for short-term interest rates by 100 basis points to 4.25% during 2007 in three separate moves. And after reaching a high of 5.30% in June, the yield on the 10-year Treasury note fell to a low of 3.84% on November, only to finish the year at 4.02%. For 2007, the taxable bond market generated a return of 7.13% while tax-exempt municipal bonds earned just a 4.93% return. This sector, as most other non-Treasury spread sectors, did not benefit from the late year rally in Treasuries. The tax-exempt municipal bond yield curve steepened as well with short-term municipal yields falling while intermediate to long-term rates rose. Money markets shared the spotlight, but for a different reason. The usually safe, liquid commercial paper markets came unglued as the sub-prime mortgage contagion continued to spread. As the flight to quality ensued, Treasury bill yields fell and finished the year at 3.31% after spending most of the first half of 2007 above 5%. December 31, 2007 3 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET LETTER TO SHAREHOLDERS FUNDS - -------------------------------------------------------------------------------- DIVERSIFICATION IS THE KEY IN VOLATILE MARKETS The sharp increase in stock and bond market volatility in recent months shocked many investors. While we at Bishop Street Capital Management have always encouraged our shareholders to take a long-term view and apply sound diversification principles across and within asset classes, these basic investment tenets became ever more important during the recent uncertain and turbulent environment. Our Bishop Street Funds (the "Funds") are managed with these basic investment principles in mind. Our Funds offer excellent diversification among individual holdings and across sectors. But perhaps more importantly, our portfolio managers focus on managing each Fund in a consistent manner against their respective investment goals and objectives. And as we have advised our shareholders in the past, we believe that a balanced portfolio comprised of a combination of our Strategic Growth Fund, Large Cap Core Equity Fund, and other fixed income funds should serve as a building block of your carefully designed, balanced portfolio reflective of your investment goals, time horizon, and appetite for risk. Thank you for investing with Bishop Street Capital Management. We appreciate your continued trust and confidence. Sincerely, /s/ Michael K. Hirai Michael K. Hirai, CFA President January 15, 2008 Bishop Street Funds 4 - -------------------------------------------------------------------------------- BISHOP STREET INVESTMENT ADVISER'S REPORT FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISER'S REPORT The markets have reeled over the past several months amid growing signs that housing and credit market weakness was spilling out into the broader economy. Fourth quarter economic growth was just 0.6%, perilously close to recession territory. With weak data continuing to pour in during January, no one would be surprised if the economy slipped into a recession in 2008. In response, the Federal Reserve (the "Fed") is aggressively lowering short term interest rates, and it seems likely that Congress will also quickly enact a fiscal stimulus package. These policy moves provide hope that stronger growth will resume in the second half of the year. There is more pain to come, however. The housing industry downturn has further to run, judging by the record level of unsold home inventories, which must be whittled down before a housing recovery can begin. Further, despite over $100 billion in write-downs of subprime mortgage-related securities, we have not yet worked through the follow-on effects of the credit binge that helped fuel the housing bubble. Now, despite lower treasury rates, credit has become much tighter for consumers and corporate borrowers alike. Although housing is in a deep recession, home building is only about 5% of the economy. It is the vulnerability of consumer spending, about 70% of the economy, that most concerns the Fed and other economic forecasters. Month after month, year after year, the American consumer has not faltered. Even during the last recession in 2001, consumer spending never fell. Today, however, we are in uncharted territory, with record food and energy prices, a negative savings rate, and home prices falling nationally. We simply do not know how consumption will be affected in these circumstances. We do know that employment and personal income growth are crucial props to consumer June 30, 2007 5 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET INVESTMENT ADVISER'S REPORT FUNDS - -------------------------------------------------------------------------------- spending. It is for this reason that the Fed is so intent on preventing a general and self-reinforcing loss of confidence in the economy. In these perilous times, it can not be overstated how important the Fed's actions will be to the outlook. There are reasons for cautious optimism. The U.S. economy has been distinguished by its flexibility, innovation and productivity growth. Over the years our economy has proved its resilience time and again. Help in the form of accommodative monetary policy and fiscal stimulus is on the way. There is no capital stock or inventory overhang (outside of housing) that have presaged previous recessions. Although a "soft landing" is no longer in the cards, recession is by no means inevitable. Looking ahead, the weakening economy seems to bode ill for the markets. But it is precisely in times such as these, when markets are most volatile, that investors with skill and nerve find opportunity. It also in times like these that a well-diversified portfolio proves its value. We believe investors would do well to keep these principles in mind during 2008. Bishop Street Funds 6 - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- Strategic Growth Fund - -------------------------------------------------------------------------------- 2007 saw a dramatic slowdown of the U.S. economy, which was very strong in the first half, until developments of the "sub-prime crisis" undermined confidence and spending. The market started 2007 amid widespread expectations that economic expansion had reached the end of its cycle. This belief, initially based on the expected impact of the weakness in the housing sector, was supported by a gradual deterioration in various indicators, such as the ISM indices and manufacturing payrolls. The relatively vague guidance issued by company managers in that period also contributed to the sentiment of uncertainty. The slowdown however proved to be short-lived. In the absence of any other inflationary trend, the U.S. economy showed a remarkable resilience despite high energy prices. While officially maintaining a rather cautious stance, business leaders kept investment and employment at reasonably high levels which, in turn, had a favorable impact on consumer confidence and retails sales. As we had expected, GDP growth was quite strong in both the second and the third quarter. The crisis which developed during summer however derailed this favorable trend. Starting from a slight rise in mortgage default rates among sub-prime borrowers, the problem developed into a serious confidence crisis throughout the financial sector. Large banking groups were led to report huge losses whose direct and indirect consequences spiraled into a sharp slowdown of the economy. Thanks to a good stock picking and a swift adjustment to the new economic outlook, our portfolio outperformed in both periods of the year, and finished 2007 well ahead of the S&P 500 Composite Index. December 31, 2007 7 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- Given our strong belief that the U.S. economy would prove to be much more resilient than anticipated by most investors, and that many growth companies would benefit from the anticipated stabilization in interest rates, we started the year with a significant exposure to economically-sensitive stocks. The relatively defensive contribution of our continuing overweight in healthcare was far from offsetting the exposure resulting from our many stock picks in consumer discretionary, investment banking and technology, as well as our underweight in consumer staples. The cautious guidance issued by retailers later caused us to resell several store chains and select slightly less exposed companies in services and other areas. Thanks to a good stock picking and a relatively swift reaction to the first loss announcements, we also managed to reduce our significant exposure to investment banks without incurring excessive damages. If our bets on technology and healthcare were maintained, we finished the year with a substantially lower risk on consumer stocks and finance. Thanks to this rapid adjustment to a fast-changing environment, we managed to perform well in both parts of the year. As often, stock selection was the main driver behind this result. The variety of sectors represented among the top contributors to our strong out performance illustrates this situation: these belonged to categories as diverse as healthcare (Express Scripts, Aetna, Gilead Sciences), technology (MEMC Electronic Materials, Google, Nvidia, Western Digital), engineering (McDermott International), agricultural products (Monsanto), or consumer services (Apollo Group, Hilton, McDonald's). At the eve of 2008, we remain in a "wait and see" mode as regards the evolution of the economy. A slowdown is certain but the Federal Reserve's (the "Fed") efforts to fight it through interest rate cuts should limit its magnitude. Besides the risk of a higher inflation, driven by commodity prices, the question is how long it will take for confidence to return. Bishop Street Funds 8 - -------------------------------------------------------------------------------- [BISHOP STREET FUNDS LOGO OMITTED] - -------------------------------------------------------------------------------- As illustrated by our current portfolio, where many of our recent decisions have resulted in a reduction of the largest sector spreads, it is difficult to take clear-cut active bets as long as market trends depend more on psychology than fundamentals. We view the current situation as very uncertain, and feel particularly concerned about the evolution of employment. New jobless claims reported in the last few weeks reflect a gradual deterioration, which had not been the case so far. As explained several times in previous reports, confidence and employment were key in allowing us to maintain a relatively optimistic view about the economy's resilience. As long as employment was holding up well, we assumed that the decline in confidence indicators was overstating actual pessimism, under the influence of media reports. The next few weeks will be key in helping us refine this analysis. More details will be released about the strength of consumer demand in the Holidays season, and will help us make a first opinion before retailers (whose fiscal year often ends on Jan 31) start pre-announcing their earnings. Should the threat of a recession in the U.S. become more significant, the Fed's stance would be key for the market. Further interest rate cuts would be expected, but the central bank's leeway in this respect would depend on inflation, which has also given signs of a resumption lately. This difficult environment may not necessarily be bad for equities but will certainly cause more volatility. As usual, a reliable stock selection focused on long term views, which are easier to predict than short term emotional factors, will be key to achieving a good performance. Our strategy has usually done reasonably well in this respect. December 31, 2007 9 www.bishopstreetfunds.com 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. [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE MATERIAL.] 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 8,908 6/03 10,309 10,585 10,244 10,214 10,011 12/03 11,928 11,943 11,795 10,246 11,641 6/04 12,328 12,264 12,201 10,545 12,087 12/04 13,077 12,775 13,078 10,580 13,036 6/05 12,968 12,468 12,972 10,811 13,015 12/05 14,585 12,921 13,719 10,938 13,932 6/06 14,331 12,799 14,091 11,279 14,333 12/06 16,011 14,343 15,886 11,218 15,837 6/07 17,370 15,280 16,992 11,583 17,101 12/07 17,629 15,653 16,759 11,676 16,846 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. # Account value if you reinvested income and capital gains. ++ Performance begins on June 30, 2002. AVERAGE ANNUAL TOTAL RETURNS+ --------------------------------- ONE ANNUALIZED ANNUALIZED YEAR 3 YEAR INCEPTION RETURN RETURN TO DATE --------------------------------- 10.10% 10.46% 10.87% 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. Bishop Street Funds 10 Strategic Growth Fund - -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS+ ----------------------------------------------------------------------- Percentage of Investments ----------------------------------------------------------------------- 1. GameStop, Cl A 2.1% ----------------------------------------------------------------------- 2. Intuit 2.1% ----------------------------------------------------------------------- 3. Suncor Energy 2.1% ----------------------------------------------------------------------- 4. Thermo Fisher Scientific 2.1% ----------------------------------------------------------------------- 5. Accenture Ltd., Cl A 2.1% ----------------------------------------------------------------------- 6. Allegheny Technologies 2.1% ----------------------------------------------------------------------- 7. Akamai Technologies 2.0% ----------------------------------------------------------------------- 8. Coach 2.0% ----------------------------------------------------------------------- 9. McDermott International 2.0% ----------------------------------------------------------------------- 10. Express Scripts 2.0% ----------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] 25.2% Information Technology 17.3% Health Care 16.9% Financials 13.6% Industrials 9.7% Consumer Discretionary 6.0% Energy 4.0% Materials 3.9% Consumer Staples 3.4% Short-Term Investments - -------------------------------------------------------------------------------- + PERCENTAGES ARE BASED ON TOTAL INVESTMENTS. SCHEDULE OF INVESTMENTS Market Value Shares (000) ------ -------- COMMON STOCK -- 98.1%++ CONSUMER DISCRETIONARY -- 9.9% 32,500 Apollo Group, Cl A* $ 2,280 85,700 Coach* 2,621 44,300 GameStop, Cl A* 2,752 43,700 McDonald's 2,574 95,640 Wyndham Worldwide 2,253 -------- 12,480 -------- CONSUMER STAPLES -- 4.0% 62,813 CVS 2,497 December 31, 2007 11 www.bishopstreetfunds.com Strategic Growth Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Market Value Shares (000) ------ -------- CONSUMER STAPLES -- (CONTINUED) 56,300 Hansen Natural* $ 2,493 -------- 4,990 -------- ENERGY -- 6.1% 33,600 National Oilwell Varco* 2,468 24,600 Suncor Energy 2,675 17,821 Transocean 2,551 -------- 7,694 -------- FINANCIALS -- 17.1% 20,400 Affiliated Managers Group* 2,396 40,000 American International Group 2,332 23,000 Everest Re Group Ltd. 2,309 19,400 Franklin Resources 2,220 11,300 Goldman Sachs Group 2,430 52,300 JPMorgan Chase 2,283 52,600 Nasdaq Stock Market* 2,603 18,600 Nymex Holdings 2,485 31,900 State Street 2,591 -------- 21,649 -------- HEALTH CARE -- 17.5% 40,600 Aetna 2,344 43,200 Baxter International 2,508 48,000 Cigna 2,579 35,700 Express Scripts* 2,606 34,000 Genzyme* 2,531 50,800 Gilead Sciences* 2,337 82,100 ScheringPlough 2,187 46,200 Thermo Fisher Scientific* 2,665 41,000 UnitedHealth Group 2,386 -------- 22,143 -------- INDUSTRIALS -- 13.8% 28,300 Danaher 2,483 24,200 Lockheed Martin 2,547 45,600 Manpower 2,595 44,300 McDermott International* 2,615 16,100 Precision Castparts 2,233 32,200 United Technologies 2,465 29,000 W.W. Grainger 2,538 -------- 17,476 -------- Bishop Street Funds 12 Strategic Growth Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Market Value Shares (000) ------ -------- INFORMATION TECHNOLOGY -- 25.6% 73,400 Accenture Ltd., Cl A $ 2,645 75,900 Akamai Technologies* 2,626 84,700 Cisco Systems* 2,293 3,400 Google, Cl A* 2,351 46,700 HewlettPackard 2,357 85,000 Intuit* 2,687 27,500 MEMC Electronic Materials* 2,433 68,300 Microsoft 2,432 76,200 Nvidia* 2,592 110,100 Oracle* 2,486 63,700 Qualcomm 2,507 120,400 Red Hat* 2,509 80,600 Western Digital* 2,435 -------- 32,353 -------- MATERIALS -- 4.1% 30,500 Allegheny Technologies 2,635 23,000 Monsanto 2,568 -------- 5,203 -------- TOTAL COMMON STOCK (Cost $102,085) 123,988 -------- CASH EQUIVALENTS (A) -- 3.4% 2,168,647 Dreyfus Cash Management Fund, Institutional Shares, 4.740% 2,169 2,168,647 Fidelity Institutional Money Market Portfolio, Institutional Shares, 4.870% 2,169 -------- TOTAL CASH EQUIVALENTS (Cost $4,338) 4,338 -------- TOTAL INVESTMENTS (Cost $106,423) -- 101.5% $128,326 ======== PERCENTAGES ARE BASED ON NET ASSETS OF $126,384 ($ THOUSANDS). * NON-INCOME PRODUCING SECURITY. ++ NARROW INDUSTRIES ARE UTILIZED FOR COMPLIANCE PURPOSES, WHEREAS BROAD SECTORS ARE UTILIZED FOR REPORTING. (A) THE RATE SHOWN REPRESENTS THE 7-DAY EFFECTIVE YIELD AS OF DECEMBER 31, 2007. CL -- CLASS LTD. -- LIMITED COST FIGURES ARE SHOWN IN THOUSANDS. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2007 13 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- Large Cap Core Equity Fund - -------------------------------------------------------------------------------- U.S. equities were mixed during the year. The first half of the year produced strong gains, led by private equity activity and continued strong earnings reports. Earnings significantly exceeded analysts' forecasts, but other economic news was considerably less rosy as sales of existing homes plunged due mainly to the fallout in the subprime sector. The Federal Reserve, (the "Fed") acknowledged that the troubled housing sector would take longer to recover than originally anticipated, while maintaining its prediction of moderate economic growth. Inflation pressures appeared to be waning, with the economy growing at a mediocre 0.7% during the first quarter. Bond yields rose and spreads widened based on expectations for continued moderate growth and anticipated weakening foreign demand for U.S. assets. During the second half of the year, equities suffered as the fallout from the mortgage and credit markets continued to take its toll on companies both directly and indirectly related to these markets. The Fed cut interest rates three times during the six month period in an attempt to bolster the economy. While banks began aggressively taking write-offs and recapitalizing in light of the mortgage turmoil, the Fed coordinated with world banks to address the global credit crunch. The downturn in sub-prime housing engaged the interests of Washington, which implied that interest rate relief was just around the corner. Ultimately, we believe this was a positive development for the economy. However uncertainties regarding the health of the financial system continued to dominate equities despite what we believe were positive signs the market was recovering faster than anticipated. After expenses, the Large Cap Core Equity Fund (the "Fund") returned 5.24% for the year versus 5.49% for the S&P 500 Composite Index. The Fund benefited from our exposures in agriculture, alternative energy, consumer Bishop Street Funds 14 - -------------------------------------------------------------------------------- [BISHOP STREET FUNDS LOGO OMITTED] - -------------------------------------------------------------------------------- technology, and global industrials. These industries performed extremely well in 2007, as strong global growth continued to drive up demand on everything from food and energy to materials and capital equipment. However, our exposures in the mortgage and homebuilding markets suffered as fallout from sub-prime mortgage paper and the ensuing tightening of credit weighed on results for a handful of holdings. 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, 2007, 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 information technology. 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 indications 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. 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 December 31, 2007 15 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- growth such as earnings growth tend to indicate a "growth" bias. As of December 31, 2007, the price-to-earnings measure on a 12-month trailing basis was 16.4 for the Fund versus 17.2 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 16 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. [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE MATERIAL.] 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 6/07 11,486 11,776 10,342 11,563 12/07 11,221 11,615 10,426 11,433 # Account value if you reinvested income and capital gains. ++ Performance begins on April 30, 2006. AVERAGE ANNUAL TOTAL RETURNS+ ---------------------------- ONE ANNUALIZED YEAR INCEPTION RETURN TO DATE ---------------------------- 5.24% 7.17% 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, 2007 17 www.bishopstreetfunds.com Large Cap Core Equity Fund - -------------------------------------------------------------------------------- TOP TEN EQUITY HOLDINGS+ ----------------------------------------------------------------------- Percentage of Investments ----------------------------------------------------------------------- 1. Microsoft 3.0% ----------------------------------------------------------------------- 2. JPMorgan Chase 2.2% ----------------------------------------------------------------------- 3. American International Group 2.1% ----------------------------------------------------------------------- 4. Johnson & Johnson 2.1% ----------------------------------------------------------------------- 5. Cisco Systems 1.8% ----------------------------------------------------------------------- 6. Chevron 1.8% ----------------------------------------------------------------------- 7. Apple 1.8% ----------------------------------------------------------------------- 8. Procter & Gamble 1.8% ----------------------------------------------------------------------- 9. Google, Cl A 1.7% ----------------------------------------------------------------------- 10. Bank of America 1.6% ----------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] 18.7% Information Technology 17.0% Financials 13.2% Health Care 12.9% Energy 11.6% Industrials 9.3% Consumer Discretionary 8.7% Consumer Staples 3.5% Materials 2.7% Telecommunications 1.4% Utilities 0.6% Short-Term Investments 0.4% 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 -- 99.0% CONSUMER DISCRETIONARY -- 9.2% 15,610 Best Buy (A) $ 822 7,800 Carnival 347 10,610 Coach* 324 24,420 Comcast, Cl A* 446 7,430 EchoStar Communications, Cl A* 280 20,900 Expedia* 661 3,400 Garmin(A) 330 10,770 Harman International Industries 794 Bishop Street Funds 18 Large Cap Core Equity Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Market Value Shares (000) ------ -------- CONSUMER DISCRETIONARY -- (CONTINUED) 14,600 Hasbro $ 373 9,100 International Game Technology 400 9,700 Kohl's* 444 5,605 Liberty Media Capital, Ser A* 653 19,140 Lowe's 433 9,700 Omnicom Group 461 23,500 Pulte Homes (A) 248 19,100 Staples 441 26,220 Time Warner 433 16,760 Viacom, Cl B* 736 7,990 Whirlpool 652 -------- 9,278 -------- CONSUMER STAPLES -- 8.7% 18,910 Altria Group 1,429 26,590 Archer-Daniels-Midland 1,235 5,100 Colgate-Palmolive 398 9,050 Costco Wholesale 631 16,010 PepsiCo 1,215 24,850 Procter & Gamble 1,824 24,230 Walgreen 923 25,330 Wal-Mart Stores 1,204 -------- 8,859 -------- ENERGY -- 12.9% 12,470 Apache 1,341 9,700 Canadian Natural Resources 709 17,700 Chesapeake Energy 694 20,160 Chevron 1,882 12,790 ConocoPhillips 1,129 11,180 Devon Energy 994 30,700 El Paso 529 20,500 Halliburton 777 12,490 Marathon Oil 760 10,620 National Oilwell Varco* 780 11,700 Peabody Energy 721 8,100 Suncor Energy 881 15,220 Valero Energy 1,066 12,400 Weatherford International* 851 -------- 13,114 -------- December 31, 2007 19 www.bishopstreetfunds.com Large Cap Core Equity Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Market Value Shares (000) ------ -------- FINANCIALS -- 17.1% 12,570 ACE $ 777 7,800 Allstate 407 36,870 American International Group 2,150 39,290 Bank of America 1,621 11,160 Capital One Financial 527 51,530 Citigroup 1,517 9,530 Franklin Resources 1,090 27,220 Genworth Financial, Cl A 693 3,550 Goldman Sachs Group 763 10,170 Hartford Financial Services Group 887 16,600 Host Hotels & Resorts (A)+ 283 51,720 JPMorgan Chase 2,258 7,530 Legg Mason 551 7,830 Lehman Brothers Holdings 512 9,850 Merrill Lynch 529 19,220 Morgan Stanley 1,021 14,540 Travelers 782 23,930 Wachovia 910 -------- 17,278 -------- HEALTH CARE -- 13.2% 11,500 Abbott Laboratories 646 9,400 Allergan 604 11,200 Amgen* 520 13,580 Biogen Idec* 773 5,100 Celgene* 236 14,640 Coventry Health Care* 867 5,100 Genentech* 342 10,690 Genzyme* 796 9,800 Gilead Sciences* 451 32,010 Johnson & Johnson 2,135 9,320 Laboratory Corp of America Holdings* (A) 704 18,600 Merck 1,081 22,250 Pfizer 506 26,860 Schering-Plough 715 20,000 St. Jude Medical* 813 19,370 UnitedHealth Group 1,127 11,510 Wyeth 508 8,070 Zimmer Holdings* 534 -------- 13,358 -------- Bishop Street Funds 20 Large Cap Core Equity Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Market Value Shares (000) ------ -------- INDUSTRIALS -- 11.6% 8,600 Boeing $ 752 9,500 C.H. Robinson Worldwide 514 11,320 Caterpillar 821 11,840 Danaher 1,039 17,120 Dover 789 15,120 General Dynamics 1,346 21,700 General Electric 804 16,850 Illinois Tool Works 902 11,560 Ingersoll-Rand, Cl A 537 8,330 L-3 Communications Holdings 883 27,840 Norfolk Southern 1,404 12,235 Parker Hannifin 921 7,300 Precision Castparts 1,013 -------- 11,725 -------- INFORMATION TECHNOLOGY -- 18.7% 17,120 Adobe Systems* 731 9,340 Apple* 1,850 8,870 Autodesk* 441 16,300 Broadcom, Cl A* 426 69,510 Cisco Systems* 1,882 16,300 Citrix Systems* 620 35,460 Corning 851 7,400 eBay* 246 12,340 Electronic Arts* (A) 721 37,350 EMC* 692 2,490 Google, Cl A* 1,722 38,200 Intel 1,018 7,920 International Business Machines 856 5,230 MEMC Electronic Materials* 463 85,420 Microsoft 3,041 18,135 Nvidia* 617 45,840 Oracle* 1,035 16,480 SanDisk* 547 19,200 Sun Microsystems* 348 25,550 Texas Instruments 853 -------- 18,960 -------- MATERIALS -- 3.5% 17,290 Alcoa 632 6,690 Allegheny Technologies 578 8,200 Dow Chemical 323 December 31, 2007 21 www.bishopstreetfunds.com Large Cap Core Equity Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Shares/Face Market Amount Value (000) (000) - ----------- -------- MATERIALS -- (CONTINUED) 7,660 Freeport-McMoRan Copper & Gold, Cl B $ 785 10,690 Teck Cominco Ltd., Cl B 382 6,980 United States Steel 844 -------- 3,544 -------- TELECOMMUNICATION SERVICES -- 2.7% 33,850 AT&T 1,407 9,300 NII Holdings* 449 20,420 Verizon Communications 892 -------- 2,748 -------- UTILITIES -- 1.4% 3,800 Entergy 455 12,290 Exelon 1,004 -------- 1,459 -------- TOTAL COMMON STOCK (Cost $94,702) 100,323 -------- MASTER NOTES (C) -- 0.5% $305 Bear Stearns 4.700%, 01/02/08 305 204 JPMorgan Securities 4.600%, 01/15/08 204 -------- TOTAL MASTER NOTES (Cost $509) 509 -------- EXCHANGE TRADED FUND -- 0.4% 2,900 SPDR Trust, Ser 1 424 -------- TOTAL EXCHANGE TRADED FUND (Cost $436) 424 -------- BANK NOTE (C) -- 0.2% 204 National City, 4.572%, 04/18/08 204 -------- TOTAL BANK NOTE (Cost $204) 204 -------- COMMERCIAL PAPER (C) (D) -- 0.1% 102 Queens Health, 5.333%, 1/23/08 100 -------- TOTAL COMMERCIAL PAPER (Cost $100) 100 -------- Bishop Street Funds 22 Large Cap Core Equity Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Shares/Face Market Amount Value (000) (000) - ----------- -------- CASH EQUIVALENTS (B) -- 0.6% 302,391 Dreyfus Cash Management Fund, Institutional Shares, 4.740% $ 302 302,391 Fidelity Institutional Money Market Portfolio, Institutional Shares, 4.870% 302 -------- TOTAL CASH EQUIVALENTS (Cost $604) 604 -------- REPURCHASE AGREEMENT (C) -- 0.7% $656 Lehman Brothers 4.580%, dated 12/31/07, to be repurchased on 01/02/08, repurchase price $656,527 (collateralized by a U.S. Government obligation, par value $792,529, 7.000%, 03/01/37, with a total market value of $669,586) TOTAL REPURCHASE AGREEMENT (Cost $656) 656 -------- TOTAL INVESTMENTS (Cost $97,211) -- 101.5% $102,820 ======== PERCENTAGES ARE BASED ON NET ASSETS OF $101,342 ($ THOUSANDS). * NON-INCOME PRODUCING SECURITY. (A) THIS SECURITY OR PORTION OF THIS SECURITY IS ON LOAN AT DECEMBER 31, 2007. THE TOTAL VALUE OF SECURITIES ON LOAN AT DECEMBER 31, 2007 WAS $1,410 ($ THOUSANDS). (B) THE RATE SHOWN REPRESENTS THE 7-DAY EFFECTIVE YIELD AS OF DECEMBER 31, 2007. (C) THESE SECURITIES WERE PURCHASED WITH CASH COLLATERAL RECEIVED FROM SECURITIES LENDING. THE TOTAL VALUE OF SUCH SECURITIES AS OF DECEMBER 31, 2007 WAS $1,469 ($ THOUSANDS). (D) SECURITY EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF 1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM REGISTRATION, NORMALLY TO QUALIFIED INSTITUTIONS. AT DECEMBER 31, 2007, THE VALUE OF THESE SECURITIES AMOUNTED TO $100 ($ THOUSANDS), REPRESENTING 0.1% OF NET ASSETS OF THE FUND. + -- REAL ESTATE INVESTMENT TRUST CL -- CLASS LTD. -- LIMITED SER -- SERIES SPDR -- STANDARD & POOR'S DEPOSITARY RECEIPTS COST FIGURES ARE SHOWN IN THOUSANDS. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2007 23 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- High Grade Income Fund - -------------------------------------------------------------------------------- Interest rate volatility increased sharply in 2007 as the sub-prime mortgage meltdown turned into a full-blown global liquidity crisis. Investors hoping to side step the damage fled to the safety of the U.S. Treasury market, driving yields significantly lower and widening credit spreads on riskier bonds. As a result, the yield curve steepened dramatically as recession fears mounted forcing Federal Reserve Board action to lower its key interest rate target. The central bank moved quickly and decisively lowering the target rate by 100 basis points to 4.25% in three separate moves late in the year. Treasury sector returns outpaced all other sectors for the year as the "flight to quality" trade prevailed. Treasury inflation protected securities (TIPS) outperformed with a return of 11.63% while broad taxable investment grade bond indices gained more than 7% for the year. As would be expected, the credit sector posted its worst performance on record as yield spreads gapped wider due in part to a poorly performing financial sector and increased uncertainty about the safety and soundness of the world's capital markets. The High Grade Income Fund (The "Fund") returned 6.67% for the year compared to the 4.47% return and 7.25%, respectively, for the Fund's benchmarks - the Lipper Corporate Debt A-Rated Objective and the Lehman Brothers U.S. Government/Credit Index. The Fund's higher credit quality bias and its underweighting in the financial sector were positive contributors to performance but could not compensate for the underweighting in the Treasury sector. Looking ahead, we expect volatility to persist until the financial industries problems are resolved. We will continue to focus on credit quality and strategic yield curve positioning as we navigate through the uncertain times ahead. Bishop Street Funds 24 High Grade Income Fund - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE HIGH GRADE INCOME FUND, CLASS I, VERSUS THE LEHMAN BROTHERS U.S. GOVERNMENT/CREDIT INDEX, THE CONSUMER PRICE INDEX AND THE LIPPER CORPORATE DEBT A-RATED OBJECTIVE. [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] Lehman Brothers High Grade Income U.S. Government/ Consumer Price Lipper Corporate Debt Fund, Class I# Credit Index Index A-Rated Objective++ 12/31/97 $ 10,000 $ 10,000 $ 10,000 $ 10,000 12/98 10,909 10,947 10,161 10,743 12/99 10,436 10,712 10,432 10,451 12/00 11,505 11,980 10,784 11,483 12/01 12,329 12,999 10,951 12,379 12/02 13,752 14,432 11,214 13,452 12/03 14,207 15,106 11,425 14,247 12/04 14,691 15,739 11,797 14,860 12/05 14,985 16,112 12,197 15,145 12/06 15,429 16,719 12,509 15,736 12/07 16,458 17,931 13,020 16,439 # Account value if you reinvested income and capital gains. AVERAGE ANNUAL TOTAL RETURNS+ - ---------------------------------------------------------------------- ONE ANNUALIZED ANNUALIZED ANNUALIZED ANNUALIZED YEAR 3 YEAR 5 YEAR 10 YEAR INCEPTION RETURN RETURN RETURN RETURN TO DATE - ---------------------------------------------------------------------- 6.67% 3.86% 3.66% 5.11% 5.41% 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, 2007 25 www.bishopstreetfunds.com High Grade Income Fund - -------------------------------------------------------------------------------- TOP TEN HOLDINGS+ - -------------------------------------------------------------------------------- Percentage Coupon Maturity of Rate Date Investments - -------------------------------------------------------------------------------- 1. U.S. Treasury Bond 7.250% 05/15/16 3.3% - -------------------------------------------------------------------------------- 2. U.S. Treasury Bond 7.500% 11/15/16 2.0% - -------------------------------------------------------------------------------- 3. U.S. Treasury Bond 6.250% 08/15/23 2.0% - -------------------------------------------------------------------------------- 4. U.S. Treasury Bond 4.500% 02/15/36 1.8% - -------------------------------------------------------------------------------- 5. FNMA MTN 7.250% 01/15/10 1.5% - -------------------------------------------------------------------------------- 6. General Electric Capital MTN, Ser A 5.450% 01/15/13 1.4% - -------------------------------------------------------------------------------- 7. FHLMC 5.125% 10/15/08 1.4% - -------------------------------------------------------------------------------- 8. Bank of America 4.875% 01/15/13 1.4% - -------------------------------------------------------------------------------- 9. Abbott Laboratories 5.600% 05/15/11 1.3% - -------------------------------------------------------------------------------- 10. U.S. Treasury Bond 6.375% 08/15/27 1.3% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] 24.1% U.S. Government Agency Obligations 23.7% U.S. Treasury Obligations 11.1% Financials 7.8% Consumer Discretionary 5.6% Information Technology 5.5% Energy 5.5% Health Care 3.4% Industrials 2.8% U.S. Government Mortgage-Backed Obligations 2.6% Short-Term Investments 2.2% Utilities 1.9% Consumer Staples 1.9% Telecommunications 1.2% Materials 0.7% Asset-Backed Security - -------------------------------------------------------------------------------- +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 -- 45.5% AEROSPACE & DEFENSE -- 2.7% General Dynamics $ 1,000 4.500%, 08/15/10 $ 1,007 Rockwell Automation 1,200 6.700%, 01/15/28 1,372 United Technologies 1,200 6.350%, 03/01/11 1,278 -------- 3,657 -------- Bishop Street Funds 26 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 $ 1,562 -------- AUTOMOTIVE -- 0.6% DaimlerChrysler NA Holding 700 8.000%, 06/15/10 747 -------- BANKS -- 3.4% Bank of America 2,350 4.875%, 01/15/13 2,328 BHP Billiton Finance 850 5.250%, 12/15/15 823 JPMorgan Chase 1,400 5.875%, 06/13/16 1,410 -------- 4,561 -------- BROADCASTING & CABLE -- 1.8% TCI Communications 1,200 7.875%, 08/01/13 1,315 Turner Broadcasting System 975 8.375%, 07/01/13 1,095 -------- 2,410 -------- COMPUTER HARDWARE -- 4.6% Cisco Systems 1,400 5.500%, 02/22/16 1,424 Dell 1,325 6.550%, 04/15/08 1,330 IBM 500 4.250%, 09/15/09 503 1,400 8.375%, 11/01/19 1,746 Oracle (A) 1,200 5.250%, 01/15/16 1,198 -------- 6,201 -------- FINANCIALS -- 5.7% Boeing Capital 1,400 6.500%, 02/15/12 1,503 CIT Group (A) 1,350 5.000%, 11/24/08 1,336 General Electric Capital MTN, Ser A (A) 2,350 5.450%, 01/15/13 2,422 Goldman Sachs Group 650 6.600%, 01/15/12 688 December 31, 2007 27 www.bishopstreetfunds.com High Grade Income Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Face Market Amount Value (000) (000) - ----------- -------- FINANCIALS -- (CONTINUED) Jefferies Group $ 675 6.250%, 01/15/36 $ 603 Merrill Lynch MTN 1,200 5.000%, 02/03/14 1,145 -------- 7,697 -------- FOOD & BEVERAGE -- 1.9% ConAgra Foods 1,475 7.875%, 09/15/10 1,583 General Mills 1,000 6.000%, 02/15/12 1,026 -------- 2,609 -------- FOREIGN GOVERNMENTS -- 0.8% Republic of Italy 1,000 5.375%, 06/12/17 1,060 -------- GENERAL MERCHANDISE -- 1.2% Office Depot 600 6.250%, 08/15/13 626 Target 1,000 6.350%, 01/15/11 1,048 -------- 1,674 -------- HEALTH CARE -- 1.2% Johnson & Johnson 1,400 6.950%, 09/01/29 1,671 -------- HEALTHCARE - DISTRIBUTION/SERVICES -- 0.8% Hillenbrand Industries 1,125 4.500%, 06/15/09 1,134 -------- HOUSEHOLD PRODUCTS -- 1.1% Procter & Gamble 1,200 8.000%, 10/26/29 1,530 -------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.4% Constellation Energy Group 500 7.000%, 04/01/12 535 -------- MEDIA -- 1.9% News America 1,200 7.250%, 05/18/18 1,321 Walt Disney MTN 1,200 6.200%, 06/20/14 1,275 -------- 2,596 -------- Bishop Street Funds 28 High Grade Income Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Face Market Amount Value (000) (000) - ----------- -------- OIL & GAS - EQUIPMENT/SERVICES -- 1.0% Baker Hughes $ 1,400 6.000%, 02/15/09 $ 1,418 -------- OIL & GAS - EXPLORATION/PRODUCTION -- 1.8% Anadarko Petroleum 1,250 7.200%, 03/15/29 1,346 Occidental Petroleum 1,000 6.750%, 01/15/12 1,082 -------- 2,428 -------- OIL & GAS - INTEGRATED -- 2.2% Atlantic Richfield 1,385 9.125%, 03/01/11 1,569 ConocoPhillips 1,400 4.750%, 10/15/12 1,412 -------- 2,981 -------- PHARMACEUTICALS -- 3.3% Abbott Laboratories 2,100 5.600%, 05/15/11 2,175 Genentech 1,200 4.750%, 07/15/15 1,181 Teva Pharmaceutical Finance LLC 1,200 5.550%, 02/01/16 1,185 -------- 4,541 -------- RETAIL - FOOD -- 1.1% McDonald's MTN 1,400 6.000%, 04/15/11 1,480 -------- SEMI-CONDUCTORS -- 0.9% Duke Energy (A) 1,275 4.200%, 10/01/08 1,267 -------- STEEL & STEEL WORKS -- 1.3% Nucor 1,800 4.875%, 10/01/12 1,796 -------- TELECOMMUNICATIONS -- 1.9% AT&T Wireless Services 1,200 8.125%, 05/01/12 1,334 Sprint Capital 1,200 7.625%, 01/30/11 1,251 -------- 2,585 -------- December 31, 2007 29 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 -- 2.2% Dominion Resources 1,350 4.125%, 02/15/08 1,348 Hydro-Quebec 1,325 7.500%, 04/01/16 1,583 -------- 2,931 -------- TOTAL CORPORATE OBLIGATIONS (Cost $61,796) 61,923 -------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 23.8% FHLB 1,000 6.000%, 07/10/13 1,031 1,000 3.875%, 07/24/09 1,003 FHLB, Ser GH10 200 6.875%, 08/13/10 216 FHLB, Ser KU10 1,300 4.750%, 08/13/10 1,337 FHLB, Ser RH10 1,750 3.875%, 02/12/10 1,761 FHLMC 875 8.250%, 06/01/16 1,094 2,400 5.125%, 10/15/08 2,419 1,000 5.000%, 01/30/14 1,046 1,400 4.750%, 05/06/13 1,402 500 4.625%, 08/15/08 501 1,400 4.375%, 03/01/10 1,422 1,100 4.000%, 06/12/13 1,099 FHLMC MTN 1,400 5.750%, 05/23/11 1,406 1,400 5.500%, 02/22/13 1,401 1,400 5.500%, 03/22/22 1,449 1,000 5.400%, 01/11/12 1,000 1,400 5.400%, 02/01/16 1,402 1,000 5.000%, 10/27/14 1,050 200 5.000%, 06/18/18 (B) 200 1,800 4.250%, 05/22/13 1,821 1,000 4.000%, 01/28/19 1,000 FHLMC REMIC, Ser R010, Cl AB 1,111 5.500%, 12/15/19 1,123 Bishop Street Funds 30 High Grade Income Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Face Market Amount Value (000) (000) - ----------- -------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- (CONTINUED) FNMA $ 400 6.000%, 08/22/16 $ 404 1,400 5.650%, 04/10/13 1,406 625 4.750%, 03/30/09 (B) 632 FNMA MTN 2,400 7.250%, 01/15/10 2,572 FNMA, Ser B1, Cl BE 1,237 5.450%, 12/25/20 1,248 -------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $31,838) 32,445 -------- U.S. TREASURY OBLIGATIONS -- 23.4% U.S. Treasury Bonds 2,750 7.500%, 11/15/16 (A) 3,452 4,500 7.250%, 05/15/16 (A) 5,534 1,500 7.250%, 08/15/22 (A) 1,948 1,700 6.375%, 08/15/27 (A) 2,110 2,800 6.250%, 08/15/23 (A) 3,352 800 6.250%, 05/15/30 998 1,000 6.000%, 02/15/26 (A) 1,183 1,300 5.250%, 11/15/28 (A) 1,430 400 4.750%, 02/15/37 (A) 419 3,100 4.500%, 02/15/36 (A) 3,116 U.S. Treasury Notes (A) 700 4.750%, 08/15/17 740 1,250 4.250%, 11/15/14 1,290 1,400 4.250%, 08/15/15 1,437 1,000 4.250%, 11/15/17 1,017 1,325 4.125%, 08/31/12 1,364 1,200 4.000%, 02/15/14 1,226 1,200 4.000%, 02/15/15 1,217 -------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $29,615) 31,833 -------- U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS -- 2.8% FHLMC 49 3.500%, 05/01/08 48 FHLMC, Ser 2844, Cl VB 188 5.500%, 12/15/19 175 FHLMC, Ser 3070, Cl DH 492 5.500%, 11/15/35 484 December 31, 2007 31 www.bishopstreetfunds.com High Grade Income Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Face Market Amount Value (000) (000) - ----------- -------- U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS -- (CONTINUED) FHLMC, Ser 3196, Cl CB $ 811 5.250%, 08/15/11 $ 809 FNMA 822 3.500%, 08/01/10 809 GNMA, Ser 7 1,400 5.500%, 11/16/31 1,420 -------- TOTAL U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS (Cost $3,744) 3,745 -------- MASTER NOTES (D) -- 8.8% Bear Stearns 7,195 4.700%, 01/02/08 7,195 JPMorgan Securities 4,796 4.600%, 01/15/08 4,796 -------- TOTAL MASTER NOTES (Cost $11,991) 11,991 -------- BANK NOTE (D) -- 3.5% National City 4,796 4.572%, 04/18/08 4,798 -------- TOTAL BANK NOTE (Cost $4,798) 4,798 -------- COMMERCIAL PAPER (D) (E) -- 1.7% 2,398 Queens Health 5.222%, 1/23/08 2,365 -------- TOTAL COMMERCIAL PAPER (Cost $2,365) 2,365 -------- ASSET-BACKED SECURITY -- 0.7% 1,000 Citibank Omni Master Trust, Ser 2007, Cl A9 5.996%, 12/23/13 1,000 -------- TOTAL ASSET-BACKED SECURITY (Cost $1,000) 1,000 -------- Bishop Street Funds 32 High Grade Income Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Market Shares/Face Value Amount (000) (000) - ------------ -------- CASH EQUIVALENTS (C) -- 2.5% 1,726,993 Dreyfus Cash Management Fund, Institutional Shares, 4.740% $ 1,727 1,726,993 Fidelity Institutional Money Market Portfolio, Institutional Shares, 4.870% 1,727 -------- TOTAL CASH EQUIVALENTS (Cost $3,454) 3,454 -------- REPURCHASE AGREEMENT (D) -- 11.4% $15,460 Lehman Brothers 4.580%, dated 12/31/07, to be repurchased on 01/02/08, repurchase price $15,464,049 (collateralized by a U.S. Government obligation, par value $15,771,633, 7.000%, 03/01/37, with a total market value of $15,771,633) TOTAL REPURCHASE AGREEMENT (Cost $15,460) 15,460 -------- TOTAL INVESTMENTS (Cost $166,061) -- 124.1% $169,014 ======== PERCENTAGES ARE BASED ON NET ASSETS OF $136,223 ($ THOUSANDS). (A) THIS SECURITY OR PORTION OF THIS SECURITY IS ON LOAN AT DECEMBER 31, 2007. THE TOTAL VALUE OF SECURITIES ON LOAN AT DECEMBER 31, 2007 WAS $33,818 ($ THOUSANDS). (B) STEP BOND -- COUPON RATE INCREASES IN INCREMENTS TO MATURITY. RATE DISCLOSED IS AS OF DECEMBER 31, 2007. (C) THE RATE SHOWN REPRESENTS THE 7-DAY EFFECTIVE YIELD AS OF DECEMBER 31, 2007. (D) THESE SECURITIES WERE PURCHASED WITH CASH COLLATERAL RECEIVED FROM SECURITIES LENDING. THE TOTAL VALUE OF SUCH SECURITIES AS OF DECEMBER 31, 2007 WAS $34,614 ($ THOUSANDS). (E) SECURITY EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF 1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM REGISTRATION, NORMALLY TO QUALIFIED INSTITUTIONS. AT DECEMBER 31, 2007, THESE SECURITIES AMOUNTED TO $2,365 ($ THOUSANDS), REPRESENTING 1.7% OF NET ASSETS OF THE FUND. CL -- CLASS FHLB -- FEDERAL HOME LOAN BANK FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION LLC -- LIMITED LIABILITY COMPANY MTN -- MEDIUM TERM NOTE NA -- NORTH AMERICA REMIC -- REAL ESTATE MORTGAGE INVESTMENT CONDUIT SER -- SERIES COST FIGURES ARE SHOWN IN THOUSANDS. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2007 33 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- The sub-prime contagion that originated in the high grade fixed income markets spread to the municipal bond markets as bond insurers disclosed similar mortgage-related problems in their investment portfolios. With the values of their investment portfolios in rapid decline, monoline insurers faced the possibility of credit downgrades thereby creating another liquidity crisis in the tax-free municipal bond world. The news created a panic as investors attempted to determine the extent of the damage and the ability of these bond insurers to maintain the capital base required. Fears of credit downgrades of these municipal bond issuers rippled through the market as it was no longer clear if these insurer's could provide a backstop in the event of default. This placed municipal bond investors in an unfamiliar position. Prior to this credit crisis, little attention had been paid to the underlying credit rating and strength of the bond's issuer. But with investors now focused on the underlying financial strength and credit risk of each bond issuer, municipal bond prices have had to readjust to reflect these "new" factors. During the year, Treasury yields fell precipitously as investors rushed to the safety of the U.S. Treasury market. And while municipal bond yields fell as well, municipal bonds generally lagged the Treasury market as municipal yields as a percentage of treasury yields hit all-time highs. As a result, nominal municipal bond returns were the worst since 1999. The Hawaii Municipal Bond Fund, Class I (the "Fund") generated a return of 2.47%, outperforming the Lipper Hawaii Municipal Debt Objective Index by 78 basis points. Excess returns were captured through yield curve positioning in intermediate maturities and our continued focus on the underlying credit quality of the issuers. Looking ahead, we expect the volatility to persist so long as the Federal Reserve's policy is unclear and the outlook for monocline bond insurers is resolved. And with a stable Hawaii economy and strong underlying credit quality of its issuers, we look to continue to add value by maintaining our focus on sound credit analysis and strategic positioning on the yield curve. Bishop Street Funds 34 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE HAWAII MUNICIPAL BOND FUND, CLASS I OR CLASS A, VERSUS THE LEHMAN BROTHERS MUNICIPAL BOND INDEX, THE CONSUMER PRICE INDEX AND THE LIPPER HAWAII MUNICIPAL DEBT OBJECTIVE. [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL. Hawaii Municipal Bond Hawaii Municipal Lehman Brothers Municipal Consumer Price Lipper Hawaii Municipal Fund, Class I# Bond Fund, Class A# Bond Index Index Debt Objective 12/31/97 $ 10,000 $ 9,700 $ 10,000 $ 10,000 $ 10,000 12/98 10,584 10,266 10,648 10,161 10,556 12/99 10,304 9,968 10,428 10,432 10,125 12/00 11,603 11,198 11,647 10,784 11,260 12/01 12,095 11,660 12,244 10,951 11,714 12/02 13,307 12,797 13,419 11,214 12,719 12/03 14,008 13,438 14,133 11,425 13,351 12/04 14,479 13,855 14,765 11,797 13,772 12/05 14,842 14,167 15,283 12,197 14,058 12/06 15,498 14,756 16,025 12,509 14,663 12/07 15,881 15,082 16,565 13,020 14,911 # Account value if you reinvested income and capital gains. AVERAGE ANNUAL TOTAL RETURNS+ - -------------------------------------------------------------------- ONE ANNUALIZED ANNUALIZED ANNUALIZED ANNUALIZED YEAR 3 YEAR 5 YEAR 10 YEAR INCEPTION RETURN RETURN RETURN RETURN TO DATE - -------------------------------------------------------------------- 2.47% 3.13% 3.60% 4.73% 5.39% Class I - -------------------------------------------------------------------- 2.21% 2.87% 3.34% 4.51%* 5.22%* Class A - -------------------------------------------------------------------- - -0.82% 1.84% 2.71% 4.20%* 4.97%* 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, 2007 35 www.bishopstreetfunds.com Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- TOP TEN HOLDINGS+ - -------------------------------------------------------------------------------------- Percentage Coupon Maturity of Rate Date Investments - -------------------------------------------------------------------------------------- 1. University of Hawaii RB 4.625% 07/15/31 2.9% - -------------------------------------------------------------------------------------- 2. Hawaii State RB 5.000% 07/01/12 2.5% - -------------------------------------------------------------------------------------- 3. Puerto Rico Public Buildings Authority RB 5.250% 07/01/25 2.3% - -------------------------------------------------------------------------------------- 4. Hawaii State Department of Budget & Finance RB 5.650% 10/01/27 2.1% - -------------------------------------------------------------------------------------- 5. Hawaii State Housing Finance & Development RB 5.400% 07/01/29 1.8% - -------------------------------------------------------------------------------------- 6. Honolulu City & County RB 5.000% 07/01/31 1.7% - -------------------------------------------------------------------------------------- 7. Honolulu City & County GO 5.000% 07/01/19 1.5% - -------------------------------------------------------------------------------------- 8. Hawaii State RB 5.000% 07/01/16 1.5% - -------------------------------------------------------------------------------------- 9. Hawaii State GO 6.500% 12/01/13 1.4% - -------------------------------------------------------------------------------------- 10. Honolulu City & County, Board of Water Supply RB 4.750% 07/01/14 1.3% - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] 31.7% General Obligations 13.0% Transportation 9.7% Housing 9.7% Water 8.9% Facilities 4.9% Airport 4.7% Utilities 4.6% Power 4.3% General Revenue 3.2% Medical 2.9% Single-Family Housing 1.0% Development 0.8% School District 0.5% Short-Term Investments 0.1% Multi-Family Housing - -------------------------------------------------------------------------------- + PERCENTAGES ARE BASED ON TOTAL INVESTMENTS. SCHEDULE OF INVESTMENTS Face Market Amount Value (000) (000) - ----------- ------- MUNICIPAL BONDS -- 98.0% CALIFORNIA -- 1.1% Highland, Redevelopment Agency, Project Area No. 1, TA, AMBAC Insured $1,440 5.650%, 12/01/24 $ 1,679 La Mesa-Spring Valley, School District, Electric of 2002 Project, Ser B, GO, FGIC Insured (A) 630 5.017%, 08/01/27 237 ------- 1,916 ------- Bishop Street Funds 36 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Face Market Amount Value (000) (000) - ----------- ------- GEORGIA -- 1.2% Main Street, Natural Gas, Ser B, RB $2,000 5.000%, 03/15/18 $ 1,995 ------- HAWAII -- 79.8% Hawaii County, Refunding & Improvement Project, Ser A, GO, FGIC Insured 450 5.600%, 05/01/12 491 430 5.600%, 05/01/13 476 400 5.550%, 05/01/09 413 Hawaii County, Ser A, GO, AMBAC Insured 1,000 5.000%, 07/15/15 1,096 500 4.250%, 07/15/26 484 Hawaii County, Ser A, GO, FSA Insured 1,500 5.000%, 07/15/23 1,565 Hawaii County, Ser A, GO, FSA Insured, Pre-Refunded @ 101 (B) 500 5.400%, 05/15/09 521 Hawaii County, Ser A, GO, MBIA Insured 1,055 5.250%, 07/15/18 1,141 1,205 5.000%, 07/15/15 1,298 1,470 5.000%, 07/15/24 1,530 Hawaii State, Airport System, RB, AMT, FGIC Insured 1,000 5.750%, 07/01/15 1,052 280 5.250%, 07/01/21 285 Hawaii State, Airport System, Second Ser, RB, AMT, ETM 60 6.900%, 07/01/12 65 Hawaii State, Airport System, Second Ser, RB, AMT, ETM, MBIA Insured 1,505 6.900%, 07/01/12 1,628 Hawaii State, Airport System, Ser B, RB, AMT, FGIC Insured 1,500 6.625%, 07/01/18 1,597 1,500 6.500%, 07/01/14 1,602 500 6.000%, 07/01/19 524 Hawaii State, Department of Budget & Finance, Chaminade University, RB, Radian Insured 1,000 5.000%, 01/01/26 984 1,000 4.750%, 01/01/36 927 1,000 4.700%, 01/01/31 937 Hawaii State, Department of Budget & Finance, Electric Company & Subsidiary Project, RB, AMT, 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 1,497 December 31, 2007 37 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, Ser B, RB, AMT, XLCA Insured $1,025 5.000%, 12/01/22 $ 1,046 Hawaii State, Department of Budget & Finance, Hawaiian Electric, Ser A, RB, AMT, AMBAC Insured 675 5.100%, 09/01/32 684 Hawaii State, Department of Budget & Finance, Hawaiian Electric, Ser A, RB, AMT, FGIC Insured 1,000 4.650%, 03/01/37 912 Hawaii State, Department of Budget & Finance, Hawaiian Electric, Ser A, RB, AMT, MBIA Insured 3,380 5.650%, 10/01/27 3,557 Hawaii State, Department of Budget & Finance, Hawaiian Electric, Ser C, RB, AMT, AMBAC Insured 1,000 6.200%, 11/01/29 1,054 Hawaii State, Department of Budget & Finance, Mid Pacific Institute, RB, Radian Insured 1,000 5.000%, 01/01/26 984 1,000 4.625%, 01/01/31 927 Hawaii State, Department of Budget & Finance, Queens Health Systems, Ser B, RB, MBIA Insured, Pre-Refunded @ 101 (B) 750 5.250%, 07/01/08 766 Hawaii State, Department of Hawaiian Home Lands, Kapolei Office Facilities, Ser A, COP, FSA Insured 2,000 5.000%, 11/01/31 2,072 Hawaii State, Harbor System, Ser A, RB, AMT, FSA Insured 2,025 5.750%, 07/01/17 2,133 670 5.750%, 07/01/29 698 1,210 5.700%, 07/01/16 1,275 1,000 5.600%, 07/01/15 1,054 500 5.000%, 01/01/31 508 Hawaii State, Harbor System, Ser B, RB, AMT, AMBAC Insured 200 5.500%, 07/01/19 211 Hawaii State, Harbor System, Ser B, RB, AMT, FSA Insured 1,000 5.000%, 01/01/13 1,059 Hawaii State, Highway, RB 1,000 6.000%, 07/01/08 1,015 2,000 6.000%, 07/01/09 2,085 Hawaii State, Highway, RB, FSA Insured 4,000 5.000%, 07/01/12 4,280 Hawaii State, Highway, Ser A, RB, FSA Insured 725 5.000%, 07/01/21 772 1,565 5.000%, 07/01/22 1,659 1,805 5.000%, 07/01/23 1,906 Bishop Street Funds 38 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Face Market Amount Value (000) (000) - --------- -------- HAWAII -- (CONTINUED) Hawaii State, Highway, Ser B, RB, FSA Insured $2,300 5.000%, 07/01/16 $ 2,500 Hawaii State, Housing Finance & Development, Ser A, RB, AMT, FNMA Collateral 3,000 5.400%, 07/01/29 3,029 Hawaii State, Housing Finance & Development, Single-Family Housing, Ser A, RB, AMT, FNMA Collateral 285 5.750%, 07/01/30 292 620 5.400%, 07/01/30 624 Hawaii State, Housing Finance & Development, Single-Family Housing, Ser B, RB, FNMA Collateral 1,000 5.450%, 07/01/17 1,015 Hawaii State, Housing Finance & Development, University of Hawaii Faculty Housing Project, RB, AMBAC Insured 645 5.650%, 10/01/16 646 Hawaii State, Kapolei Office Building, Ser A, COP, AMBAC Insured 1,475 5.250%, 05/01/13 1,513 1,000 5.000%, 05/01/08 1,006 1,100 5.000%, 05/01/15 1,125 1,000 5.000%, 05/01/16 1,023 1,000 5.000%, 05/01/17 1,023 500 5.000%, 05/01/18 511 Hawaii State, No. 1 Capitol District State Office, COP, MBIA Insured 1,000 5.200%, 05/01/14 1,035 175 5.000%, 05/01/11 181 Hawaii State, Ser CM, GO, FGIC Insured 2,000 6.500%, 12/01/13 2,320 500 6.000%, 12/01/09 526 1,500 6.000%, 12/01/11 1,647 Hawaii State, Ser CP, GO, FGIC Insured 90 5.000%, 10/01/16 91 Hawaii State, Ser CU, GO, MBIA Insured 550 5.750%, 10/01/12 584 Hawaii State, Ser CU, GO, MBIA Insured, Pre-Refunded @ 100 (B) 25 5.750%, 10/01/10 27 Hawaii State, Ser CV, GO, FGIC Insured 1,000 5.250%, 08/01/21 1,052 Hawaii State, Ser CX, GO, FSA Insured 1,000 5.500%, 02/01/21 1,066 Hawaii State, Ser DD, GO, MBIA Insured 1,000 5.000%, 05/01/16 1,069 Hawaii State, Ser DF, GO, AMBAC Insured 1,250 5.000%, 07/01/21 1,326 December 31, 2007 39 www.bishopstreetfunds.com Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Face Market Amount Value (000) (000) - --------- -------- HAWAII -- (CONTINUED) Hawaii State, Ser DG, GO, AMBAC Insured $1,000 5.000%, 07/01/16 $ 1,084 Honolulu City & County, 1st Board Resolution, Senior Ser C, RB, MBIA Insured 2,850 5.000%, 07/01/31 2,950 Honolulu City & County, 2nd Board Resolution, Junior Ser A-1, RB, MBIA Insured 815 5.000%, 07/01/22 864 1,130 5.000%, 07/01/23 1,192 Honolulu City & County, 2nd Board Resolution, Junior Ser B-1, RB, MBIA Insured 865 5.000%, 07/01/23 913 1,485 5.000%, 07/01/24 1,560 Honolulu City & County, Board of Water Supply, Ser A, RB, FGIC Insured 2,000 5.000%, 07/01/33 2,053 Honolulu City & County, Board of Water Supply, Ser A, RB, FGIC Insured, Pre-Refunded @ 100 (B) 1,700 4.750%, 07/01/14 1,834 2,000 4.750%, 07/01/14 2,157 Honolulu City & County, Board of Water Supply, Ser B, RB, AMT, MBIA Insured 1,000 5.250%, 07/01/20 1,068 1,000 5.250%, 07/01/21 1,063 325 5.000%, 07/01/15 345 Honolulu City & County, GO, ETM 230 6.000%, 12/01/09 243 Honolulu City & County, Senior Ser A, RB, FGIC Insured 2,000 5.000%, 07/01/18 2,139 1,280 5.000%, 07/01/20 1,359 Honolulu City & County, Ser A, GO 55 6.000%, 01/01/10 58 1,000 5.750%, 04/01/12 1,096 Honolulu City & County, Ser A, GO, ETM 500 6.000%, 01/01/09 515 95 6.000%, 01/01/10 100 Honolulu City & County, Ser A, GO, MBIA Insured 625 5.250%, 03/01/17 669 500 5.250%, 03/01/28 522 1,000 5.000%, 07/01/14 1,082 Honolulu City & County, Ser B, GO, ETM, FGIC Insured 635 5.500%, 10/01/11 687 Bishop Street Funds 40 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Face Market Amount Value (000) (000) - -------- -------- HAWAII -- (CONTINUED) Honolulu City & County, Ser C, GO, FGIC Insured $ 565 5.125%, 07/01/11 $ 585 1,100 5.125%, 07/01/15 1,138 2,500 5.000%, 07/01/19 2,579 Honolulu City & County, Ser C, GO, MBIA Insured 500 5.000%, 07/01/16 542 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%, 07/01/19 945 2,000 5.000%, 07/01/23 2,106 Honolulu City & County, Ser E, GO, FGIC Insured 1,500 5.250%, 07/01/20 1,626 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 1,027 Honolulu Hawaii City & County, Ser A, GO, MBIA Insured 2,000 5.000%, 07/01/21 2,122 Kauai County, Ser A, GO, FGIC Insured 1,610 5.000%, 08/01/21 1,703 1,440 5.000%, 08/01/23 1,512 Kauai County, Ser A, GO, FGIC Insured, Pre-Refunded @ 100 (B) 1,135 6.250%, 08/01/10 1,223 1,480 6.250%, 08/01/10 1,595 1,335 6.250%, 08/01/10 1,439 1,050 6.250%, 08/01/10 1,132 Kauai County, Ser A, GO, MBIA Insured 490 5.625%, 08/01/18 526 1,500 5.000%, 08/01/25 1,536 Kauai County, Ser A, GO, MBIA Insured, Pre-Refunded @ 100 (B) 260 5.625%, 08/01/11 281 Maui County, GO, MBIA Insured 1,100 5.000%, 03/01/24 1,148 Maui County, Ser A, GO 260 5.375%, 03/01/12 276 Maui County, Ser A, GO, FGIC Insured, Pre-Refunded @ 101 (B) 50 5.000%, 03/01/08 51 Maui County, Ser A, GO, MBIA Insured 1,000 4.750%, 07/01/25 1,023 Maui County, Ser A, GO, Pre-Refunded @ 100 (B) 225 5.375%, 03/01/11 240 December 31, 2007 41 www.bishopstreetfunds.com Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Face Market Amount Value (000) (000) - --------- -------- HAWAII -- (CONTINUED) Maui County, Ser B, GO, MBIA Insured $ 500 5.000%, 09/01/17 $ 533 University of Hawaii, Ser A, RB, FGIC Insured, Pre-Refunded @ 100 (B) 1,605 5.500%, 07/15/12 1,757 500 5.125%, 07/15/12 539 University of Hawaii, Ser A, RB, MBIA Insured 5,000 4.625%, 07/15/31 5,009 750 4.500%, 07/15/32 735 500 3.625%, 10/01/12 504 University of Hawaii, Ser B, RB, FSA Insured 320 5.250%, 10/01/16 338 775 5.250%, 10/01/17 817 -------- 138,764 -------- ILLINOIS -- 1.9% Chicago O'Hare International Airport, General Airport, Ser E, RB, CIFG Insured 1,550 5.250%, 01/01/22 1,636 Illinois State, Educational Facilities Authority, Northwestern University, RB 670 5.000%, 12/01/38 689 Illinois State, Finance Authority, Hospital Sisters Services, Ser A, RB 1,000 5.000%, 03/15/27 1,013 -------- 3,338 -------- INDIANA -- 1.5% Indiana Finance Authority, Highway Revenue, Ser A, RB, FGIC Insured 1,200 4.500%, 06/01/27 1,186 Indiana State, Health & Educational Facilities Financing Authority, Clarian Health Obligation, Ser A, RB 1,500 5.000%, 02/15/39 1,408 -------- 2,594 -------- MASSACHUSETTS -- 0.3% Massachusetts State, Water Resources Authority, Ser J, RB 565 5.000%, 08/01/42 576 -------- NEVADA -- 0.6% Las Vegas New Convention & Visitors Authority, RB, AMBAC Insured 1,055 5.000%, 07/01/28 1,098 -------- Bishop Street Funds 42 Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Face Market Amount Value (000) (000) - ----------- -------- OKLAHOMA -- 2.3% Tulsa County, Oklahoma Industrial Authority, St. Francis Health System, RB $2,000 5.000%, 12/15/36 $ 1,970 Tulsa Industrial Authority, University of Tulsa, RB 2,000 5.000%, 10/01/37 1,975 -------- 3,945 -------- PUERTO RICO -- 5.8% Commonwealth of Puerto Rico, GO, MBIA Insured 500 6.500%, 07/01/14 578 1,500 6.000%, 07/01/15 1,706 Commonwealth of Puerto Rico, Public Improvement, GO, FSA Insured 380 5.000%, 07/01/21 391 Commonwealth of Puerto Rico, Public Improvement, GO, FSA Insured, Pre-Refunded @ 100 (B) 55 5.000%, 07/01/11 58 Puerto Rico Municipal Finance Agency, Ser B, GO, CIFG Insured 970 5.250%, 07/01/20 1,055 Puerto Rico, Electric Power Authority, Ser HH, RB, FSA Insured, Pre-Refunded @ 101 (B) 500 5.250%, 07/01/10 531 Puerto Rico, Industrial Tourist Educational Medical Environmental Control Facilities, Hospital Auxilio Mutuo Obligation Group, Ser A, RB, MBIA Insured 300 6.250%, 07/01/24 301 Puerto Rico, Public Buildings Authority, Government Facilities, Ser F, RB, CIFG Insured 3,650 5.250%, 07/01/25 3,924 University of Puerto Rico, Ser O, RB, MBIA Insured, Pre-Refunded @ 100 (B) 1,500 5.750%, 06/01/10 1,594 -------- 10,138 -------- SOUTH CAROLINA -- 1.2% Edisto Beach, GO 735 5.000%, 04/01/37 740 Sumter South Carolina, Waterworks & Sewer Improvement Systems, RB, XLCA Insured 500 5.000%, 12/01/21 533 840 5.000%, 12/01/24 884 -------- 2,157 -------- December 31, 2007 43 www.bishopstreetfunds.com Hawaii Municipal Bond Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Market Shares/Face Value Amount (000) (000) - ------------ --------- TEXAS -- 2.3% Harris County, Houston Texas Sports Authority, Ser A, RB, MBIA Insured (A) $5,000 5.400%, 11/15/40 $ 794 Rockdale, Independent School District, School Building, GO 1,140 5.000%, 02/15/27 1,193 University of Texas, Permanent University Fund, Ser B, RB 2,000 4.500%, 07/01/33 1,957 -------- 3,944 -------- TOTAL MUNICIPAL BONDS (Cost $168,342) 170,465 -------- CASH EQUIVALENTS (C) -- 0.5% 457,840 Dreyfus Cash Management Fund, Institutional Shares, 3.030% 458 457,840 Fidelity Institutional Tax-Exempt Portfolio, Institutional Shares, 2.990% 458 -------- TOTAL CASH EQUIVALENTS (Cost $916) 916 -------- TOTAL INVESTMENTS (Cost $169,258) -- 98.5% $171,381 ======== PERCENTAGES ARE BASED ON NET ASSETS OF $173,943 ($ THOUSANDS). (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) THE RATE SHOWN REPRESENTS THE 7-DAY EFFECTIVE YIELD AS OF DECEMBER 31, 2007. AMBAC -- AMERICAN MUNICIPAL BOND ASSURANCE COMPANY AMT -- ALTERNATIVE MINIMUM TAX CIFG -- CDC IXIS FINANCIAL GUARANTEE COP -- CERTIFICATE OF PARTICIPATION ETM -- ESCROWED TO MATURITY FGIC -- FINANCIAL GUARANTEE INSURANCE 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 TA -- TAX ALLOCATION XLCA -- XL CAPITAL COST FIGURES ARE SHOWN IN THOUSANDS. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Bishop Street Funds 44 - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- Money Market & Treasury Money Market Funds - -------------------------------------------------------------------------------- The most notable event of 2007 was the emergence of a credit crisis in the summer months. Panic induced investors, reacting to difficulties in the mortgage market, shunned short term credit securities for the safety of U.S. Treasury Bills. Commercial paper yields soared in a traditional investor "flight to quality." Central banks in the US and Europe injected liquidity in to the system in an effort to control overnight lending rates and calm markets. In successive steps, the Federal Reserve reduced policy rates at each meeting through year end. Tightening credit markets coupled with declining home prices negatively impacted the U.S. economy. Unemployment rose as fewer jobs were created in the labor sector. Manufacturing sector expanded at a much slower rate. On the inflation front, energy prices continued to soar resulting in elevated headline inflation figures. Core inflation measures remained above the comfort zone of policy makers, despite a decline in the third and fourth quarter. The market responded to difficulties in the economy with a rally short duration treasuries. Falling short term yields resulted in steeper yield curve. At year end, the Federal Open Market Committee indicated that additional action may be necessary to address the challenges in the credit markets. The direction of future interest rates in the U.S. has become very dependent on the health of the credit markets. Markets are forecasting continued reduction in policy rates in 2008. December 31, 2007 45 www.bishopstreetfunds.com - -------------------------------------------------------------------------------- BISHOP STREET MANAGEMENT DISCUSSION FUNDS - -------------------------------------------------------------------------------- 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 attractive yield levels throughout 2007. Though, with monetary policy rates declining we expect that opportunities to capture additional yield premium by extending the average maturity of the Funds may emerge in 2008. Meanwhile, we continue to strive to improve the yield of the Funds while maintaining a high level of credit quality. Bishop Street Funds 46 Money Market Fund - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] 66.4% Commercial Paper 15.5% Repurchase Agreements 12.8% U.S. Government Agency Obligations 5.3% Certificates of Deposit/Bank Notes - -------------------------------------------------------------------------------- + PERCENTAGES ARE BASED ON TOTAL INVESTMENTS. SCHEDULE OF INVESTMENTS Face Amount Value (000) (000) - ------------ ---------- COMMERCIAL PAPER (A) -- 69.1% BANKS -- 49.7% Bank of Montreal $11,000 4.808%, 02/07/08 $ 10,946 Danske (B) 2,500 4.716%, 01/07/08 2,498 9,000 4.418%, 02/04/08 8,964 Deutsche Bank Financial 12,000 3.501%, 01/02/08 11,999 Dresdner Funding 11,500 4.980%, 01/02/08 11,498 Fortis Banque Luxembourg 7,000 5.174%, 01/04/08 6,997 5,000 4.691%, 01/15/08 4,991 JPMorgan Chase 10,000 5.093%, 01/15/08 9,980 Lloyds TSB Bank 6,500 4.658%, 01/04/08 6,498 Royal Bank of Scotland PLC 11,000 5.015%, 01/07/08 10,991 Societe General 12,500 4.779%, 02/07/08 12,439 Svenska Handelsbanken 12,500 4.737%, 02/07/08 12,440 UBS Finance 7,200 4.413%, 01/24/08 7,180 Westpac Capital (B) 3,500 4.708%, 02/05/08 3,484 ---------- 120,905 ---------- FINANCIALS -- 19.4% Abbey National Treasury Services 11,500 4.352%, 01/04/08 11,496 ABN Amro North American Finance 5,000 5.157%, 01/09/08 4,994 December 31, 2007 47 www.bishopstreetfunds.com Money Market Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - ----------- -------- FINANCIALS -- (CONTINUED) CBA Delaware Finance $ 6,100 4.706%, 01/30/08 $ 6,077 Dexia Delaware 12,000 4.756%, 01/02/08 11,999 ING Funding 5,000 4.700%, 01/04/08 4,998 7,600 5.074%, 01/16/08 7,584 -------- 47,148 -------- TOTAL COMMERCIAL PAPER (Cost $168,053) 168,053 -------- U.S. GOVERNMENT AGENCY OBLIGATIONS (A) -- 13.3% FHLB 12,000 4.348%, 01/30/08 11,958 15,000 4.053%, 01/04/08 14,995 FNMA 5,400 4.273%, 01/22/08 5,387 -------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $32,340) 32,340 -------- CERTIFICATES OF DEPOSIT/BANK NOTES -- 5.5% UBS Finance 1,500 5.128%, 01/14/08 1,497 JPMorgan Chase 2,000 5.130%, 01/10/08 2,000 Toronto Dominion New York Yankee 10,000 4.840%, 04/21/08 10,000 -------- TOTAL CERTIFICATES OF DEPOSIT/BANK NOTES (Cost $13,497) 13,497 -------- Bishop Street Funds 48 Money Market Fund - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - ----------- -------- REPURCHASE AGREEMENTS -- 16.1% $12,000 Bank of America 4.300%, dated 12/31/07, to be repurchased on 01/02/08, repurchase price $12,002,867 (collateralized by a U.S. Government obligation, par value $16,313,950, 5.000%, 07/01/35 with a total market value $12,240,001) $ 12,000 15,000 Barclays Bank 1.350%, dated 12/31/07, to be repurchased on 01/02/08, repurchase price $15,001,125 (collateralized by a U.S. Government obligation, par value $11,186,000, 7.875%, 02/15/21 with a total market value $15,301,232) 12,100 Barclays Bank 4.500%, dated 12/31/07, to be repurchased on 01/02/08, repurchase price 15,000 $12,103,025 (collateralized by a U.S. Government obligation, par value $12,783,337, 6.000%, 03/01/37, with a total market value of $12,342,001) 12,100 -------- TOTAL REPURCHASE AGREEMENTS (Cost $39,100) 39,100 -------- TOTAL INVESTMENTS (Cost $252,990) -- 104.0% $252,990 ======== PERCENTAGES ARE BASED ON NET ASSETS OF $243,293 ($ THOUSANDS). (A) THE RATE REPORTED ON THE SCHEDULE OF INVESTMENTS IS THE EFFECTIVE YIELD AT TIME OF PURCHASE. (B) SECURITY EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF 1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM REGISTRATION, NORMALLY TO QUALIFIED INSTITUTIONS. AT DECEMBER 31, 2007, THE VALUE OF THESE SECURITIES AMOUNTED TO $14,946 ($THOUSANDS), REPRESENTING 6.1% OF THE NET ASSETS OF THE FUND. FHLB -- FEDERAL HOME LOAN BANK FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION PLC -- PUBLIC LIMITED COMPANY COST FIGURES ARE SHOWN IN THOUSANDS. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2007 49 www.bishopstreetfunds.com Treasury Money Market Fund - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR WEIGHTINGS (UNAUDITED)+ [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] 67.2% U.S. Treasury Obligations 32.8% Repurchase Agreement - -------------------------------------------------------------------------------- +PERCENTAGES BASED ON TOTAL INVESTMENTS. SCHEDULE OF INVESTMENTS Face Amount Value (000) (000) - ----------- --------- U.S. TREASURY OBLIGATIONS (A) -- 67.4% U.S. Treasury Bills $20,000 1.851%, 01/10/08 $ 19,991 30,000 2.372%, 01/31/08 29,941 30,000 3.119%, 03/27/08 29,778 20,000 3.249%, 05/15/08 19,759 --------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $99,469) 99,469 --------- REPURCHASE AGREEMENT -- 32.9% 48,500 Barclays Bank 1.350%, dated 12/31/07, to be repurchased on 01/02/08, repurchase price $48,503,638 (collateralized by a U.S. Treasury obligation, par value $36,166,000, 7.875%, 02/15/21, with a total market value of $49,471,155) TOTAL REPURCHASE AGREEMENT (Cost $48,500) 48,500 --------- TOTAL INVESTMENTS (Cost $147,969) -- 100.3% $ 147,969 ========= PERCENTAGES ARE BASED ON NET ASSETS OF $147,512 ($ THOUSANDS). (A) THE RATE REPORTED ON THE SCHEDULE OF INVESTMENTS IS THE EFFECTIVE YIELD AT TIME OF PURCHASE. COST FIGURES ARE SHOWN IN THOUSANDS. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Bishop Street Funds 50 Bishop Street Funds - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2007 (IN THOUSANDS) Large High Strategic Cap Core Grade Growth Equity Income Fund Fund Fund - ---------------------------------------------------------------------------------------------------------- ASSETS: Investments, at Cost $ 106,423 $ 96,555 $150,601 Repurchase Agreements, at Cost -- 656 15,460 ========================================================================================================== Investments, at Value $ 128,326 $ 102,164(1) $153,554(1) Repurchase Agreements, at Value -- 656 15,460 Dividends and Interest Receivable 43 89 1,992 Receivable for Fund Shares Sold 10 27 181 Prepaid Expenses 2 2 2 - ---------------------------------------------------------------------------------------------------------- Total Assets 128,381 102,938 171,189 - ---------------------------------------------------------------------------------------------------------- LIABILITIES: Payable for Investment Securities Purchased 1,471 -- -- Payable for Fund Shares Redeemed 378 -- 7 Income Distribution Payable -- -- 219 Collateral on Securities Loaned -- 1,469 34,614 Advisory Fees Payable 80 71 54 Administrative Fees Payable 13 10 14 Shareholder Servicing Fees Payable 11 9 11 Chief Compliance Officer Fees Payable 2 2 2 Trustees' Fees Payable 1 1 1 Accrued Expenses Payable 41 34 44 - ---------------------------------------------------------------------------------------------------------- Total Liabilities 1,997 1,596 34,966 - ---------------------------------------------------------------------------------------------------------- Net Assets $ 126,384 $ 101,342 $136,223 ========================================================================================================== Fund Shares $ 102,860 $ 95,652 $134,279 Undistributed Net Investment Income 2 -- 2 Accumulated Net Realized Gain (Loss) on Investments 1,619 81 (1,011) Net Unrealized Appreciation on Investments 21,903 5,609 2,953 - ---------------------------------------------------------------------------------------------------------- Net Assets $ 126,384 $ 101,342 $136,223 ========================================================================================================== Class I Shares: Net Assets $ 126,384 $ 101,342 $136,223 Outstanding Shares of Beneficial Interest (unlimited authorization -- no par value) 8,997 9,617 13,416 Net Asset Value, Offering and Redemption Price Per Share (Net Assets / Shares Outstanding) $ 14.05 $ 10.54 $ 10.15 ========================================================================================================== (1) INCLUDED IN "INVESTMENTS, AT VALUE" IS THE MARKET VALUE OF SECURITIES ON LOAN IN THE AMOUNTS OF $1,410 ($ THOUSANDS), AND $33,818 ($ THOUSANDS) 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, 2007 51 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2007 (IN THOUSANDS) Hawaii Treasury Municipal Money Money Bond Market Market Fund Fund Fund - ------------------------------------------------------------------------------------------------------- ASSETS: Investments, at Cost $ 169,258 $ 213,890 $ 99,469 Repurchase Agreements, at Cost -- 39,100 48,500 ======================================================================================================= Investments, at Value $ 171,381 $ 213,890 $ 99,469 Repurchase Agreements, at Value -- 39,100 48,500 Cash -- 20 74 Interest Receivable 3,386 30 2 Receivable for Fund Shares Sold -- 1 -- Prepaid Expenses 3 4 3 - ------------------------------------------------------------------------------------------------------- Total Assets 174,770 253,045 148,048 - ------------------------------------------------------------------------------------------------------- LIABILITIES: Payable for Investment Securities Purchased -- 8,964 -- Income Distribution Payable 474 610 431 Payable for Fund Shares Redeemed 211 -- -- Advisory Fees Payable 45 41 22 Administrative Fees Payable 11 24 16 Shareholder Servicing Fees Payable 15 20 13 Distribution Fees Payable 6 14 -- Chief Compliance Officer Fees Payable 2 3 2 Trustees' Fees Payable 2 3 2 Accrued Expenses Payable 61 73 50 - ------------------------------------------------------------------------------------------------------- Total Liabilities 827 9,752 536 - ------------------------------------------------------------------------------------------------------- Net Assets $ 173,943 $ 243,293 $147,512 ======================================================================================================= Fund Shares $ 171,858 $ 243,312 $147,490 Undistributed Net Investment Income 2 -- -- Accumulated Net Realized Gain (Loss) on Investments (40) (19) 22 Net Unrealized Appreciation on Investments 2,123 -- -- - ------------------------------------------------------------------------------------------------------- Net Assets $ 173,943 $ 243,293 $147,512 ======================================================================================================= Class I Shares: Net Assets $ 144,828 $ 179,725 $147,512 Outstanding Shares of Beneficial Interest (unlimited authorization -- no par value) 13,717 179,749 147,491 Net Asset Value, Offering and Redemption Price Per Share (Net Assets / Shares Outstanding) $ 10.56 $ 1.00 $ 1.00 ======================================================================================================= Class A Shares: Net Assets $ 29,115 $ 63,568 -- Outstanding Shares of Beneficial Interest (unlimited authorization -- no par value) 2,757 63,566 -- Net Asset Value, Offering and Redemption Price Per Share (Net Assets / Shares Outstanding) $ 10.56 $ 1.00 $ -- ======================================================================================================= Maximum Offering Price Per Shares -- Class A ($10.56 / 97.00%) $ 10.89 -- -- ======================================================================================================= 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 OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2007 (IN THOUSANDS) Large High Strategic Cap Core Grade Growth Equity Income Fund Fund Fund - -------------------------------------------------------------------------------- INVESTMENT INCOME: Dividend Income $ 1,158 $ 1,520 $ 107 Interest Income -- -- 6,743 Securities Lending, Net -- 9 77 Foreign Taxes Withheld (2) (5) -- - -------------------------------------------------------------------------------- Total Investment Income 1,156 1,524 6,927 - -------------------------------------------------------------------------------- EXPENSES: Investment Adviser Fees 1,010 788 741 Shareholder Servicing Fee 341 266 337 Administrative Fees 273 213 270 Chief Compliance Officer Fees 3 3 3 Transfer Agent Fees 43 39 42 Professional Fees 40 32 37 Printing Fees 25 20 25 Custody Fees 14 11 13 Trustees' Fees 9 7 9 Registration Fees 3 2 2 Line of Credit 3 2 -- Miscellaneous Expenses 11 9 19 - -------------------------------------------------------------------------------- Total Expenses 1,775 1,392 1,498 - -------------------------------------------------------------------------------- Less Waivers: Investment Adviser Fees -- (21) (158) Shareholder Servicing Fees (205) (160) (202) Administrative Fees (116) (91) (115) - -------------------------------------------------------------------------------- Total Waivers (321) (272) (475) - -------------------------------------------------------------------------------- Total Net Expenses 1,454 1,120 1,023 - ------------------------------------------------------------------------------- Net Investment Income (Loss) (298) 404 5,904 - -------------------------------------------------------------------------------- Net Realized Gain (Loss) on Investments 19,654 5,352 (237) Change in Unrealized Appreciation (Depreciation) on Investments (6,388) (407) 3,129 - -------------------------------------------------------------------------------- Net Realized and Unrealized Gain on Investments 13,266 4,945 2,892 - -------------------------------------------------------------------------------- Increase in Net Assets Resulting from Operations $ 12,968 $ 5,349 $ 8,796 ================================================================================ 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, 2007 53 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2007 (IN THOUSANDS) Hawaii Treasury Municipal Money Money Bond Market Market Fund Fund Fund - -------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest Income $ 7,646 $ 11,956 $ 7,789 Dividend Income 46 -- -- - -------------------------------------------------------------------------------------------- Total Investment Income 7,692 11,956 7,789 - -------------------------------------------------------------------------------------------- EXPENSES: Investment Adviser Fees 602 683 485 Shareholder Servicing Fee 430 569 404 Administrative Fees 344 455 323 Distribution Fees, Class A 74 156 -- Chief Compliance Officer Fees 3 5 2 Transfer Agent Fees 71 76 46 Professional Fees 51 67 45 Printing Fees 32 43 30 Custody Fees 17 22 16 Trustees' Fees 12 15 11 Registration Fees 4 5 4 Line of Credit 1 1 3 Miscellaneous Expenses 34 23 47 - -------------------------------------------------------------------------------------------- Total Expenses 1,675 2,120 1,416 - -------------------------------------------------------------------------------------------- Less Waivers: Investment Adviser Fees (172) (286) (324) Shareholder Servicing Fees (258) (342) (242) Administrative Fees (224) (194) (138) - -------------------------------------------------------------------------------------------- Total Waivers (654) (822) (704) - -------------------------------------------------------------------------------------------- Total Net Expenses 1,021 1,298 712 - -------------------------------------------------------------------------------------------- Net Investment Income 6,671 10,658 7,077 - -------------------------------------------------------------------------------------------- Net Realized Gain on Investments 502 3 121 Change in Unrealized Depreciation on Investments (3,000) -- -- - -------------------------------------------------------------------------------------------- Net Realized and Unrealized Gain (Loss) on Investments (2,498) 3 121 - -------------------------------------------------------------------------------------------- Increase in Net Assets Resulting from Operations $ 4,173 $ 10,661 $ 7,198 ============================================================================================ 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 THE YEARS OR PERIOD ENDED DECEMBER 31, (IN THOUSANDS) Strategic Large Cap Core Growth Fund Equity Fund - ------------------------------------------------------------------------------------------------------------------ 2007 2006 2007 2006* - ------------------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income (Loss) $ (298) $ (316) $ 404 $ 310 Net Realized Gain on Investments 19,654 7,651 5,352 300 Change in Unrealized Appreciation (Depreciation) on Investments (6,388) 5,124 (407) 6,016 - ------------------------------------------------------------------------------------------------------------------ Increase in Net Assets Resulting from Operations 12,968 12,459 5,349 6,626 - ------------------------------------------------------------------------------------------------------------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net Investment Income: Class I Shares -- -- (404) (318) Capital Gains: Class I Shares (18,469) (8,326) (5,563) -- - ------------------------------------------------------------------------------------------------------------------ Total Dividends and Distributions (18,469) (8,326) (5,967) (318) - ------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS: Class I Shares: Proceeds from Shares Issued 11,212 32,077 11,637 100,103 Reinvestments of Cash Distributions 13,283 5,766 4,516 275 Cost of Shares Redeemed (35,539) (22,388) (17,043) (3,836) - ------------------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Net Assets From Capital Share Transactions (11,044) 15,455 (890) 96,542 - ------------------------------------------------------------------------------------------------------------------ Total Increase (Decrease) in Net Assets (16,545) 19,588 (1,508) 102,850 - ------------------------------------------------------------------------------------------------------------------ NET ASSETS: Beginning of Period 142,929 123,341 102,850 -- - ------------------------------------------------------------------------------------------------------------------ End of Period $126,384 $142,929 $101,342 $102,850 ================================================================================================================== Undistributed Net Investment Income (Accumulated Net Investment Loss) $ 2 $ (2) $ -- $ -- ================================================================================================================== SHARE TRANSACTIONS: Class I Shares: Shares Issued 733 2,180 1,053 10,032 Shares Issued in Lieu of Cash Distributions 933 395 422 27 Shares Redeemed (2,301) (1,539) (1,542) (375) - ------------------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Shares Outstanding from Share Transactions (635) 1,036 (67) 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, 2007 55 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) High Grade Hawaii Municipal Income Fund Bond Fund - ------------------------------------------------------------------------------------------------------------------ 2007 2006 2007 2006 - ------------------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income $ 5,904 $ 5,601 $ 6,671 $ 6,726 Net Realized Gain (Loss) on Investments (237) (681) 502 842 Change in Unrealized Appreciation (Depreciation) on Investments 3,129 (1,041) (3,000) (354) - ------------------------------------------------------------------------------------------------------------------ Increase in Net Assets Resulting from Operations 8,796 3,879 4,173 7,214 - ------------------------------------------------------------------------------------------------------------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net Investment Income: Class I Shares (5,901) (5,603) (5,627) (5,556) Class A Shares -- -- (1,099) (1,160) Capital Gains: Class I Shares -- -- (665) (486) Class A Shares -- -- (134) (107) - ------------------------------------------------------------------------------------------------------------------ Total Dividends and Distributions (5,901) (5,603) (7,525) (7,309) - ------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS: Class I Shares: Proceeds from Shares Issued 17,815 21,382 23,661 18,308 Reinvestments of Cash Distributions 3,274 3,249 818 838 Cost of Shares Redeemed (29,209) (22,898) (15,222) (25,935) - ------------------------------------------------------------------------------------------------------------------ Total Class I Capital Share Transactions (8,120) 1,733 9,257 (6,789) - ------------------------------------------------------------------------------------------------------------------ Class A Shares: Proceeds from Shares Issued -- -- 1,924 1,111 Reinvestments of Cash Distributions -- -- 540 543 Cost of Shares Redeemed -- -- (3,180) (2,744) - ------------------------------------------------------------------------------------------------------------------ Total Class A Capital Share Transactions -- -- (716) (1,090) - ------------------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Net Assets from Capital Share Transactions (8,120) 1,733 8,541 (7,879) - ------------------------------------------------------------------------------------------------------------------ Total Increase (Decrease) in Net Assets (5,225) 9 5,189 (7,974) - ------------------------------------------------------------------------------------------------------------------ NET ASSETS: Beginning of Year 141,448 141,439 168,754 176,728 - ------------------------------------------------------------------------------------------------------------------ End of Year $136,223 $141,448 $173,943 $168,754 ================================================================================================================== Undistributed Net Investment Income $ 2 $ 3 $ 2 $ 58 ================================================================================================================== SHARE TRANSACTIONS: Class I Shares: Shares Issued 1,789 2,158 2,226 1,709 Shares Issued in Lieu of Cash Distributions 329 328 77 78 Shares Redeemed (2,934) (2,320) (1,434) (2,425) - ------------------------------------------------------------------------------------------------------------------ Total Class I Share Transactions (816) 166 869 (638) - ------------------------------------------------------------------------------------------------------------------ Class A Shares: Shares Issued -- -- 181 104 Shares Issued in Lieu of Cash Distributions -- -- 51 51 Shares Redeemed -- -- (300) (256) - ------------------------------------------------------------------------------------------------------------------ Total Class A Share Transactions -- -- (68) (101) - ------------------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Shares Outstanding from Share Transactions (816) 166 801 (739) ================================================================================================================== AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Bishop Street Funds 56 Bishop Street Funds - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) Money Market Treasury Money Fund Market Fund - ------------------------------------------------------------------------------------------------------------------ 2007 2006 2007 2006 - ------------------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income $ 10,658 $ 9,883 $ 7,077 $ 8,671 Net Realized Gain (Loss) on Investments 3 1 121 (3) - ------------------------------------------------------------------------------------------------------------------ Increase in Net Assets Resulting from Operations 10,661 9,884 7,198 8,668 - ------------------------------------------------------------------------------------------------------------------ DIVIDENDS TO SHAREHOLDERS: Net Investment Income: Class I Shares (7,832) (7,975) (7,077) (8,671) Class A Shares (2,826) (1,904) -- -- Capital Gains: Class I Shares -- -- (42) -- Class A Shares -- -- -- -- - ------------------------------------------------------------------------------------------------------------------ Total Dividends (10,658) (9,879) (7,119) (8,671) - ------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS (ALL AT $1.00 PER SHARE): Class I Shares: Proceeds from Shares Issued 428,470 434,439 543,810 410,744 Reinvestments of Cash Distributions 305 284 11 17 Cost of Shares Redeemed (408,095) (446,137) (554,752) (476,008) - ------------------------------------------------------------------------------------------------------------------ Total Class I Capital Share Transactions 20,680 (11,414) (10,931) (65,247) - ------------------------------------------------------------------------------------------------------------------ Class A Shares: Proceeds from Shares Issued 110,288 164,007 -- -- Reinvestments of Cash Distributions 2.826 1,905 -- -- Cost of Shares Redeemed (108,760) (142,232) -- -- - ------------------------------------------------------------------------------------------------------------------ Total Class A Capital Share Transactions 4,354 23,680 -- -- - ------------------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Net Assets from Capital Share Transactions 25,034 12,266 (10,931) (65,247) - ------------------------------------------------------------------------------------------------------------------ Total Increase (Decrease) in Net Assets 25,037 12,271 (10,852) (65,250) - ------------------------------------------------------------------------------------------------------------------ NET ASSETS: Beginning of Year 218,256 205,985 158,364 223,614 - ------------------------------------------------------------------------------------------------------------------ End of Year $ 243,293 $ 218,256 $ 147,512 $ 158,364 ================================================================================================================== Undistributed Net Investment Income $ -- $ -- $ -- $ -- ================================================================================================================== 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, 2007 57 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: 2007(1) $ 14.84 $ (0.03) $ 1.53 $ 1.50 $ -- $ (2.29) $ (2.29) 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 -- -- -- - -------------------------- LARGE CAP CORE EQUITY FUND - -------------------------- CLASS I SHARES: 2007(1) $ 10.62 $ 0.04 $ 0.52 $ 0.56 $ (0.04) $ (0.60) $ (0.64) 2006(1)(2) 10.00 0.04 0.62 0.66 (0.04) -- (0.04) - ---------------------- HIGH GRADE INCOME FUND - ---------------------- CLASS I SHARES: 2007(1) $ 9.94 $ 0.44 $ 0.21 $ 0.65 $ (0.44) $ -- $ (0.44) 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) - -------------------------- HAWAII MUNICIPAL BOND FUND - -------------------------- CLASS I SHARES: 2007(1) $ 10.77 $ 0.42 $ (0.16) $ 0.26 $ (0.42) $ (0.05) $ (0.47) 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) CLASS A SHARES: 2007(1) $ 10.77 $ 0.39 $ (0.16) $ 0.23 $ (0.39) $ (0.05) $ (0.44) 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) + 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. (2) COMMENCED OPERATIONS ON MAY 3, 2006. * ANNUALIZED. 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 (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: 2007(1) $ 14.05 10.10% $ 126,384 1.07% 1.30% (0.22)% 61% 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 - -------------------------- LARGE CAP CORE EQUITY FUND - -------------------------- CLASS I SHARES: 2007(1) $ 10.54 5.24% $ 101,342 1.05% 1.31% 0.38% 65% 2006(1)(2) 10.62 6.63 102,850 1.05* 1.32* 0.64* 51 - ---------------------- HIGH GRADE INCOME FUND - ---------------------- CLASS I SHARES: 2007(1) $ 10.15 6.67% $ 136,223 0.76% 1.11% 4.38% 26% 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 - -------------------------- HAWAII MUNICIPAL BOND FUND - -------------------------- CLASS I SHARES: 2007(1) $ 10.56 2.47% $ 144,828 0.55% 0.93% 3.92% 25% 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 CLASS A SHARES: 2007(1) $ 10.56 2.21% $ 29,115 0.80% 1.18% 3.67% 25% 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 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2007 59 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31, INVESTMENT ACTIVITIES DIVIDENDS AND DISTRIBUTIONS --------------------------- TOTAL --------------------------- NET ASSET NET REALIZED INVESTMENT VALUE, NET AND UNREALIZED ACTIVITIES NET BEGINNING INVESTMENT GAIN (LOSS) ON FROM INVESTMENT CAPITAL TOTAL OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS DIVIDENDS ---------- ---------- -------------- ----------- ----------- ----------- ---------- - ----------------- MONEY MARKET FUND - ----------------- CLASS I SHARES: 2007(1) $ 1.00 $ 0.05 $ -- $ 0.05 $ (0.05) $ -- $ (0.05) 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) CLASS A SHARES: 2007(1) $ 1.00 $ 0.05 $ -- $ 0.05 $ (0.05) $ -- $ (0.05) 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) - -------------------------- TREASURY MONEY MARKET FUND - -------------------------- CLASS I SHARES: 2007(1) $ 1.00 $ 0.04 $ -- $ 0.04 $ (0.04) $ --* $ (0.04) 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) + 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. * AMOUNT REPRESENTS LESS THAN $0.01. (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 60 - -------------------------------------------------------------------------------- RATIO OF RATIO OF EXPENSES RATIO OF NET NET ASSET NET ASSETS, EXPENSES TO TO AVERAGE INVESTMENT VALUE, END OF AVERAGE NET ASSETS INCOME END OF TOTAL PERIOD NET EXCLUDING FEE TO AVERAGE PERIOD RETURN+ (000) ASSETS WAIVERS NET ASSETS --------- ------- ----------- ------------ ------------------ -------------- - ----------------- MONEY MARKET FUND - ----------------- CLASS I SHARES: 2007(1) $ 1.00 4.86% $ 179,725 0.50% 0.86% 4.75% 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 CLASS A SHARES: 2007(1) $ 1.00 4.60% $ 63,568 0.75% 1.11% 4.50% 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 - -------------------------- TREASURY MONEY MARKET FUND - -------------------------- CLASS I SHARES: 2007(1) $ 1.00 4.49% $ 147,512 0.44% 0.88% 4.38% 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 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2007 61 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 62 - -------------------------------------------------------------------------------- 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 delisted 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 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 Funds may be delayed or limited. December 31, 2007 63 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- CLASSES Class-specific expenses are borne by the applicable 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, 2007, 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. For the year ended December 31, 2007, there were no cash overdrafts. 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 fee to the extent necessary to keep operating expenses at or below certain percentages of the respective average daily net assets. The voluntary expense limitations Bishop Street Funds 64 - -------------------------------------------------------------------------------- are as follows: Strategic Growth Fund (Class I) 1.07%, 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, Inc. ("FFTW") serves as the investment sub-adviser for the Treasury and 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. Lotsoff Capital Management ("Lotsoff") serves as the investment sub-adviser for the Large Cap Core Equity Fund pursuant to a sub-adviser agreement dated April 28, 2006. Lotsoff is entitled to receive from the Adviser a fee, computed daily and paid monthly, at the annual rate of 0.24% of the average daily net assets of the Large Cap Core Equity Fund up to (but not including) $300 million, 0.225% of the average daily net assets of the Large Cap Core Equity Fund up to (but not including) $1 billion and 0.20% of the average daily net assets of the Large Cap Core Equity Fund in excess of, and including $1 billion. 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. December 31, 2007 65 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- SEI Investments Distribution Co. ("SIDCO"), a wholly owned subsidiary of SEI Investments Company, acts as the Trust's Distributor pursuant to a distribution agreement dated June 10, 1999. The Funds have adopted a Distribution Plan (the "Plan") on behalf of Class A Shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plan provides that Class A Shares will bear the cost of their distribution expenses. SIDCO, as compensation for its services under the Plan, receives a distribution fee, computed daily and payable monthly, of 0.25% of the average daily net assets attributable to each Fund's Class A Shares. The Trust has adopted and entered into a shareholder service plan and agreement with SIDCO. Each Fund pays to SIDCO a shareholder servicing fee at an annual rate of 0.25% of the average daily net asset value of all shares of each fund, which is computed daily and paid monthly. Under the shareholder service plan, SIDCO may perform, or may compensate other service providers for performing various shareholder and administrative services. SIDCO may also retain as profit any difference between the fee it receives and amount it pays to third parties. For the period, SIDCO paid the entire amount of fees received under the shareholder service plan to First Hawaiian Bank, the Parent Company of Bishop Street Capital Management, for shareholder services performed for the Funds. SIDCO has voluntarily agreed to waive a portion of its shareholder servicing fee to the extent necessary to keep operating expenses at or below certain percentages of the respective average daily net assets. Certain ministerial officers of the Trust are also ministerial officers of the Administrator. Such officers are paid no fees by the Trust. 5. SECURITIES LENDING Each Fund may lend portfolio securities to brokers, dealers and other financial organizations that meet capital and other credit requirements or other criteria established by the Board. These loans may not exceed 33 1/3% of the total asset value of the Fund (including the loan collateral). No Fund will lend portfolio securities to its investment adviser, sub-adviser or their affiliates unless it has applied for and received specific authority to do so from the SEC. Loans of portfolio securities will be fully collateralized by cash, letters of credit or U.S. Government securities, and the collateral will be maintained in an amount equal to at least 100% of the current market value of the loaned securities by marking to market daily, although the borrower will be required to deliver collateral of 102% of the market value of borrowed securities. Although the risk of lending is mitigated by the collateral, 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 presented net of commissions to the security lending agent. Bishop Street Funds 66 - -------------------------------------------------------------------------------- 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, 2007 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 $ -- $ -- $ 16,955 $ -- Other 81,587 68,391 14,243 48,045 Sales and Maturities U.S. Government Securities $ -- $ -- $ 18,877 $ -- Other 114,184 74,209 14,614 41,270 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, 2007 67 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- Accordingly, the following permanent differences, primarily attributable to paydown gains and losses have been reclassified: Undistributed Accumulated Net Investment Net Realized Income (Loss) Gain (Loss) (000) (000) -------------- ------------ Strategic Growth Fund $ 302 $ (302) High Grade Income Fund (4) 4 Hawaii Municipal Bond Fund (1) 1 These 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, 2007 and December 31, 2006 were as follows: Ordinary Tax Exempt Long-Term Income Income Capital Gain Total (000) (000) (000) (000) -------- ---------- ------------ -------- Strategic Growth Fund 2007 $ 1,827 $ -- $ 16,642 $ 18,469 2006 93 -- 8,233 8,326 Large Cap Core Equity Fund 2007 $ 4,190 $ -- $ 1,777 $ 5,967 2006 318 -- -- 318 High Grade Income Fund 2007 $ 5,901 $ -- $ -- $ 5,901 2006 5,603 -- -- 5,603 Hawaii Municipal Bond Fund 2007 $ 181 $ 6,697 $ 647 $ 7,525 2006 67 6,717 525 7,309 Money Market Fund 2007 $ 10,658 $ -- $ -- $ 10,658 2006 9,879 -- -- 9,879 Treasury Money Market Fund 2007 $ 7,119 $ -- $ -- $ 7,119 2006 8,671 -- -- 8,671 Bishop Street Funds 68 - -------------------------------------------------------------------------------- As of December 31, 2007, 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 $ -- $ -- $ -- $ -- $ -- $ 22 Undistributed long-term capital gain 1,793 404 -- -- -- -- Capital loss carryforwards -- -- (958) -- (19) -- Post-October losses -- -- -- (37) -- -- Other temporary differences -- -- 2 -- -- -- Unrealized appreciation 21,731 5,286 2,900 2,122 -- -- -------- ------- ------- ------- ----- ---- Total Distributable Earnings (Accumulated Losses) $ 23,524 $ 5,690 $ 1,944 $ 2,085 $ (19) $ 22 ======== ======= ======= ======= ===== ==== Post-October losses represent losses realized on investment transactions from November 1, 2007 through December 31, 2007 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, 2007 69 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 Grade Money Income Market Fund Fund (000) (000) ------ ------ Dec. 2009 $ -- $ 16 Dec. 2013 -- 3 Dec. 2014 642 -- Dec. 2015 316 -- ----- ---- Total $ 958 $ 19 ===== ==== During the year ended December 31, 2007, the Money Market Fund and Treasury Money Market Fund, utilized capital loss carryforwards of $3 and $57, respectively, 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, 2007 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 $ 106,595 $ 97,534 $ 166,114 $ 169,259 --------- -------- --------- --------- Gross Unrealized Appreciation 26,507 12,004 3,598 3,333 Gross Unrealized Depreciation (4,776) (6,718) (698) (1,211) --------- -------- --------- --------- Net Unrealized Appreciation $ 21,731 $ 5,286 $ 2,900 $ 2,122 ========= ======== ========= ========= Bishop Street Funds 70 - -------------------------------------------------------------------------------- 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. 9. LINE OF CREDIT The Funds entered into an agreement which enables them to participate in a $5 million unsecured committed revolving line of credit with Union Bank of California, N.A. (the "Bank"). The proceeds from the borrowings shall be used to finance the Funds short term general working capital requirements, including the funding of shareholder redemptions. Interest is charged to the Funds based on their borrowings at the current reference rate minus 1%. For the year ended December 31, 2007, the Funds had borrowings costs of $3,444 for the Strategic Growth Fund, $1,895 for the Large Cap Core Equity Fund, $844 for the Hawaii Municipal Bond Fund, and $3,208 for the Treasury Money Market Fund. As of December 31, 2007, there are no outstanding borrowings by the Funds. 10. OTHER At December 31, 2007, 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 1 93.31% Large Cap Core Equity Fund, Class I Shares 1 94.72 High Grade Income Fund, Class I Shares 2 95.14 Hawaii Municipal Bond Fund, Class I Shares 1 90.84 Hawaii Municipal Bond Fund, Class A Shares 2 25.88 Money Market Fund, Class I Shares 1 96.24 Money Market Fund, Class A Shares 2 100.00 Treasury Money Market Fund, Class I Shares 1 99.81 December 31, 2007 71 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- 11. 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 determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. Adoption of FIN 48 was required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Based on its analysis, management has determined that the adoption of FIN 48 did not have a material impact to the Fund's financial statements upon adoption. However, management's conclusions regarding FIN 48 may be subject to review and adjustment at a later date based on factors including, but not limited to, further implementation guidance expected from the FASB, and on-going analyses of and changes to tax laws, regulations and interpretations thereof. 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, 2007, 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 72 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 schedules 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 "Trust") at December 31, 2007, the results of their operations for the year then ended, and the changes in their net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trust's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 22, 2008 December 31, 2007 73 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 74 - -------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Beginning Ending Expenses Account Account Annualized Paid Value Value Expense During 7/1/07 12/31/07 Ratios Period* ====================================================================================================================== STRATEGIC GROWTH FUND -- CLASS I - ---------------------------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,014.90 1.07% $5.43 HYPOTHETICAL 5% RETURN 1,000.00 1,019.81 1.07 5.45 - ---------------------------------------------------------------------------------------------------------------------- LARGE CAP CORE EQUITY FUND -- CLASS I - ---------------------------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $ 976.90 1.05% $5.23 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 $1,059.80 0.76% $3.95 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 $1,028.40 0.55% $2.81 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 $1,026.20 0.80% $4.09 HYPOTHETICAL 5% RETURN 1,000.00 1,021.17 0.80 4.08 - ---------------------------------------------------------------------------------------------------------------------- MONEY MARKET FUND -- CLASS I - ---------------------------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN $1,000.00 $1,023.70 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 $1,022.50 0.75% $3.82 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 $1,020.60 0.44% $2.24 HYPOTHETICAL 5% RETURN 1,000.00 1,022.99 0.44 2.24 - ---------------------------------------------------------------------------------------------------------------------- * Expenses are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). December 31, 2007 75 www.bishopstreetfunds.com Bishop Street Funds - -------------------------------------------------------------------------------- NOTICE TO SHAREHOLDERS OF BISHOP STREET FUNDS (UNAUDITED) For shareholders that do not have a December 31, 2007 taxable year end, this notice is for informational purposes only. For shareholders with a December 31, 2007 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 Fund 90% 10% 0% Large Cap Core Equity Fund 30% 70% 0% High Grade Income Fund 0% 100% 0% Hawaii Municipal Bond Fund 9% 2% 89% Money Market Fund 0% 100% 0% Treasury Money Market Fund 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 THRESHOLD REQUIREMENTS WERE NOT SATISFIED TO PERMIT EXEMPTION OF THESE AMOUNTS FROM STATE INCOME. Bishop Street Funds 76 - -------------------------------------------------------------------------------- For the fiscal year ended December 31, 2007, 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 FUND (TAX BASIS) DEDUCTION(1) INCOME(2) INTEREST (3) INCOME (4) GAIN (5) - --------- ------------- ------------ ---------- ------------ ---------- ---------- Strategic Growth Fund 100% 68% 59% 0% 0% 100% Large Cap Core Equity Fund 100% 40% 31% 0% 0% 100% High Grade Income Fund 100% 0% 0% 24% 100% 0% Hawaii Municipal Bond Fund 100% 0% 0% 0% 100% 100% Money Market Fund 100% 0% 0% 1% 100% 0% Treasury Money Market Fund 100% 0% 0% 32% 97% 100% (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, 2007 77 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) 61 yrs. old of the Board of Trustees - ----------------------------------------------------------------------------- WILLIAM M. DORAN Trustee (Since 2006) 1701 Market Street Philadelphia, PA 19103 67 yrs. old - ----------------------------------------------------------------------------- Bishop Street Funds 78 (UNAUDITED) - -------------------------------------------------------------------------------- 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. NUMBER OF PORTFOLIOS IN BISHOP STREET FUNDS NAME, ADDRESS, PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS AGE 1 DURING PAST 5 YEARS BOARD MEMBER HELD BY BOARD MEMBER 3 - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED BOARD MEMBERS - ------------- ROBERT A. NESHER SEI employee 1974-present. Currently performs 6 Trustee of The Advisors' Inner Circle Fund, The 61 yrs. old various services on behalf of SEI Investments Advisors' Inner Circle Fund II, SEI Asset for which Mr. Nesher is compensated. Executive Allocation Trust, SEI Daily Income Trust, SEI Vice President of SEI Investments, 1986-1994. Index Funds, SEI Institutional International Director and Executive Vice President of the Trust, SEI Institutional Investments Trust, SEI Administrator and the Distributor, 1981-1994. Institutional Managed Trust, 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. - ------------------------------------------------------------------------------------------------------------------------------------ WILLIAM M. DORAN Self-employed consultant since 2003. Partner, 6 Director of SEI Investments Company and SEI 1701 Market Street Morgan, Lewis & Bockius LLP (law firm) from Investments Distribution Co., SEI Philadelphia, 1976-2003, counsel to the Trust, SEI Investments-Global Fund Services, Limited, SEI PA 19103 Investments, the Administrator and the Investments Global Limited, SEI Investments 67 yrs. old Distributor. Director of SEI Investments since (Europe), Limited, SEI Investments (Asia) Limited, 1974; Secretary of SEI Investments since 1978. 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, 2007 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 - ------------- JAMES M. STOREY Trustee (Since 2006) 76 yrs. old - -------------------------------------------------------------------------------------------------------------------- GEORGE J. SULLIVAN, JR. Trustee (Since 2006) 65 yrs. old - -------------------------------------------------------------------------------------------------------------------- BETTY L. KRIKORIAN Trustee (Since 2006) 65 yrs. old - -------------------------------------------------------------------------------------------------------------------- CHARLES E. CARLBOM Trustee (Since 2006) 73 yrs. old - -------------------------------------------------------------------------------------------------------------------- MITCHELL A. JOHNSON Trustee (Since 2006) 65 yrs. old - -------------------------------------------------------------------------------------------------------------------- Bishop Street Funds 80 (UNAUDITED) - -------------------------------------------------------------------------------- NUMBER OF PORTFOLIOS IN BISHOP STREET FUNDS NAME, ADDRESS, PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS AGE 1 DURING PAST 5 YEARS BOARD MEMBER HELD BY BOARD MEMBER 3 - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT BOARD MEMBERS - ------------- JAMES M. STOREY Attorney, Solo Practitioner since 1994. 6 Trustee of The Advisors' Inner Circle Fund, The 76 yrs. old Partner, Dechert (law firm), September Advisors' Inner Circle Fund II, SEI Asset 1987-December 1993. 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. - ------------------------------------------------------------------------------------------------------------------------------------ GEORGE J. Chief Executive Officer, Newfound Consultants, 6 Trustee, State Street Navigator Securities Lending SULLIVAN, JR. Inc. since April 1997. General Partner, Teton Trust, since 1995. Trustee of The Fulcrum Trust. 65 yrs. old Partners, L.P., June 1991-December 1996; Chief Trustee of The Advisors' Inner Circle Fund, The Financial Officer, Nobel Partners, L.P., March Advisors' Inner Circle Fund II, SEI Asset 1991-December 1996; Treasurer and Clerk, Peak Allocation Trust, SEI Daily Income Trust, SEI Asset Management, Inc., since 1991. Index Funds, SEI 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., SEI Absolute Return Fund, L.P. and SEI Opportunity Fund, L.P. - ------------------------------------------------------------------------------------------------------------------------------------ BETTY L. KRIKORIAN Self-Employed Legal and Financial Services 6 Trustee of The Advisors' Inner Circle Fund and The 65 yrs. old Consultant since 2003. State Street Bank Global Advisors' Inner Circle Fund II. Securities and Cash Operations from 1995 to 2003. - ------------------------------------------------------------------------------------------------------------------------------------ CHARLES E. CARLBOM Self-Employed Business Consultant, Business 6 Director, Crown Pacific, Inc. and Trustee of The 73 yrs. old Project Inc. since 1997. CEO and President, Advisors' Inner Circle Fund and The Advisors' United Grocers Inc. from 1997 to 2000. Inner Circle Fund II. - ------------------------------------------------------------------------------------------------------------------------------------ MITCHELL A. Retired. 6 Director, Federal Agricultural Mortgage JOHNSON Corporation. Trustee of The Advisors' Inner Circle 65 yrs. old Fund and The Advisors' Inner Circle Fund II. - ------------------------------------------------------------------------------------------------------------------------------------ December 31, 2007 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 - -------- JAMES F. VOLK, CPA President (Since 2006) 45 yrs. old - -------------------------------------------------------------------------------- MICHAEL LAWSON Controller (Since 2005) 47 yrs. old and Chief Financial Officer - -------------------------------------------------------------------------------- RUSSELL EMERY Chief Compliance (Since 2006) 45 yrs. old Officer - -------------------------------------------------------------------------------- CAROLYN F. MEAD Vice President (Since 2007) 50 yrs. old and Secretary - -------------------------------------------------------------------------------- JAMES NDIAYE Vice President and (Since 2005) 39 yrs. old Assistant Secretary - -------------------------------------------------------------------------------- Bishop Street Funds 82 (UNAUDITED) - -------------------------------------------------------------------------------- NUMBER OF PORTFOLIOS IN BISHOP STREET FUNDS NAME, ADDRESS, PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS AGE 1 DURING PAST 5 YEARS BOARD MEMBER HELD BY BOARD MEMBER 3 - ------------------------------------------------------------------------------------------------------------ OFFICERS - -------- JAMES F. VOLK, CPA Senior Operations Officer, SEI Investments, N/A N/A 45 yrs. old Fund Accounting and Administration (1996-present); Assistant Chief Accountant for the U.S. Securities and Exchange Commission's Division of Investment Management (1993-1996). - ------------------------------------------------------------------------------------------------------------ MICHAEL LAWSON Director, SEI Investments, Fund N/A N/A 47 yrs. old Accounting since July 2005. Manager, SEI Investments AVP from April 1995 to February 1998 and November 1998 to July 2005. - ------------------------------------------------------------------------------------------------------------ RUSSELL EMERY Director of Investment Product Management N/A N/A 45 yrs. old and Development at SEI Investments since February 2003. Senior Investment Analyst, Equity team at SEI Investments from March 2000 to February 2003. - ------------------------------------------------------------------------------------------------------------ CAROLYN F. MEAD Corporate Counsel of SEI since 2007; N/A N/A 50 yrs. old Associate, Stradley, Ronon, Steven & Young 2004-2007; Counsel, ING Variable Annuities, 1999-2002. - ------------------------------------------------------------------------------------------------------------ JAMES NDIAYE Employed by SEI Investments Company N/A N/A 39 yrs. old 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, 2007 83 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) 39 yrs. old Assistant Secretary - -------------------------------------------------------------------------------- SOFIA ROSALA Vice President and (Since 2005) 34 yrs. old Assistant Secretary - -------------------------------------------------------------------------------- JOSEPH M. GALLO Vice President and (Since 2007) 34 yrs. old Assistant Secretary - -------------------------------------------------------------------------------- NICOLE WELCH AML Officer (Since 2006) 30 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 84 (UNAUDITED) - -------------------------------------------------------------------------------- NUMBER OF PORTFOLIOS IN BISHOP STREET FUNDS NAME, ADDRESS, PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS AGE 1 DURING PAST 5 YEARS BOARD MEMBER HELD BY BOARD MEMBER 3 - ------------------------------------------------------------------------------------------------------------------- OFFICERS (CONTINUED) - -------------------- TIMOTHY D. BARTO General Counsel, Vice President and Assistant N/A N/A 39 yrs. old 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. - ------------------------------------------------------------------------------------------------------------------- SOFIA ROSALA Vice President and Assistant Secretary of SEI N/A N/A 34 yrs. old 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. - ------------------------------------------------------------------------------------------------------------------- JOSEPH M. GALLO Corporate Counsel of SEI since 2007; N/A N/A 34 yrs. old Associate Counsel, ICMA Retirement Corporation 2004-2007; Federal Investigator, U.S. Department of Labor 2002-2004; U.S. Securities and Exchange Commission - Division of Investment Management, 2003 - ------------------------------------------------------------------------------------------------------------------- NICOLE WELCH Assistant Vice President and AML Compliance N/A N/A 30 yrs. old 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, 2007 85 www.bishopstreetfunds.com NOTES NOTES NOTES - -------------------------------------------------------------------------------- INVESTMENT ADVISER BISHOP STREET CAPITAL MANAGEMENT HONOLULU, HI 96813 ADMINISTRATOR SEI INVESTMENTS GLOBAL FUNDS SERVICES [GRAPHIC OMITTED] OAKS, PA 19456 DISTRIBUTOR SEI INVESTMENTS DISTRIBUTION CO. OAKS, PA 19456 TRANSFER AGENT DST SYSTEMS, INC. KANSAS CITY, MO 64121 CUSTODIAN UNION BANK OF CALIFORNIA, N.A. SAN FRANCISCO, CA 94101 LEGAL COUNSEL MORGAN, LEWIS & BOCKIUS LLP PHILADELPHIA, PA 19103 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PRICEWATERHOUSECOOPERS LLP PHILADELPHIA, PA 19103 [BISHOP STREET FUNDS LOGO] FOR MORE INFORMATION ABOUT BISHOP STREET FUNDS, CALL 1-800-262-9565 OR YOUR INVESTMENT SPECIALIST VISIT US ONLINE AT WWW.BISHOPSTREETFUNDS.COM - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [BISHOP STREET FUNDS LOGO] BISHOP STREET FUNDS P.O. BOX 219721 KANSAS CITY, MO 64121-9721 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-006-1300 - -------------------------------------------------------------------------------- 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: - ------------------ ----------------------------------------------------- ----------------------------------------------------- 2007 2006 - ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- 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 $109,200 N/A N/A $102,900 N/A N/A Fees(1) - ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- (b) Audit- N/A N/A N/A N/A N/A N/A Related Fees - ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- (c) Tax N/A N/A N/A N/A N/A N/A Fees - ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- (d) All N/A N/A N/A N/A N/A N/A Other Fees - ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- Notes: (1) Audit fees include amounts related to the audit of the registrant's annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. (e)(1) Not applicable. (e)(2) Percentage of fees billed applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows: ---------------------------- ----------------- ---------------- 2007 2006 ---------------------------- ----------------- ---------------- 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 2007 and 2006, 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 Schedule of Investments is included as part of the Report to Shareholders filed under Item 1 of this form. 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)), is 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 6, 2008 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 6, 2008 By (Signature and Title)* /s/ Michael Lawson ------------------------ Michael Lawson Controller & CFO Date: March 6, 2008 * Print the name and title of each signing officer under his or her signature.