UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM N-CSR
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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, 2009
DATE OF REPORTING PERIOD: DECEMBER 31, 2008
ITEM 1. REPORTS TO STOCKHOLDERS.
(PICTURE)
BISHOP STREET FUNDS
ANNUAL REPORT
DECEMBER 31, 2008
STRATEGIC GROWTH FUND
LARGE CAP CORE EQUITY FUND
HIGH GRADE INCOME FUND
HAWAII MUNICIPAL BOND FUND
GOVERNMENT 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
DEFINITION OF COMPARATIVE INDICES .............................................................. 4
STRATEGIC GROWTH FUND
Management Discussion ..................................................................... 5
Schedule of Investments ................................................................... 9
LARGE CAP CORE EQUITY FUND
Management Discussion ..................................................................... 12
Schedule of Investments ................................................................... 16
HIGH GRADE INCOME FUND
Management Discussion ..................................................................... 22
Schedule of Investments ................................................................... 24
HAWAII MUNICIPAL BOND FUND
Management Discussion ..................................................................... 33
Schedule of Investments ................................................................... 36
GOVERNMENT 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 ........................................ 75
DISCLOSURE OF FUND EXPENSES .................................................................... 76
NOTICE TO SHAREHOLDERS ......................................................................... 78
BOARD OF TRUSTEES AND OFFICERS ................................................................. 80
APPROVAL OF INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS .................................... 88
1
BISHOP STREET
LETTER TO SHAREHOLDERS
FUNDS
(PHOTO)
Dear Shareholder:
The year 2008 will go down in history as the year of the 200-year storm that
destroyed the credit markets and it is very difficult for me to imagine that any
other year in my lifetime will approach the magnitude and severity of events
that have unfolded over the past year. The carnage that remains in the wake of
this cataclysmic event has been incomprehensible to many familiar with the world
of finance (or at least the world of finance that we once knew). And for many, a
very important question that we all need answered is, "Is the worst finally
behind us and can we now look forward to the recovery that will help pull us out
of the abyss?" Unfortunately, I do not have those answers and can only guess as
we sail through these un-chartered waters.
In early 2007, we had expressed concern about the financial market turmoil that
had begun to unfold, stressing the importance of diversification and balance in
investment portfolios. Given the many issues that plagued the markets at that
time - deterioration in the housing market, growing weakness in the financial
sector, and the impending slowdown in economic activity worldwide - we
recommended a strategic shift away from credit risk and a focus on quality and
safety. Unfortunately, our greatest fears were realized leading to a systematic
re-pricing of risk that sent the world's financial markets into a tail spin.
Perhaps most noteworthy were the failures of Wall Street titans, Bear Stearns
and Lehman Brothers, as shock waves from their failures rippled across the
globe, requiring unprecedented Central Bank actions to save the world's
financial system from collapse. Credit markets froze and a liquidity squeeze
ensued, forcing the U.S. Treasury's takeover of mortgage firms Fannie Mae and
Freddie Mac and the Federal Reserve entering into a revolving credit facility
agreement with American International Group (AIG). These events, along with
others, will be a story for our grandchildren and the subject of many a
Bishop Street Funds 2
(BISHOP STREET FUNDS LOGO)
business school lecture no doubt, surpassing even the tales of Long-Term Capital
Management, 9/11, the Japanese bubble, and more.
So what does the future hold? More pain and uncertainty as well as a new
President to lead the charge. But with these seemingly insurmountable near-term
challenges comes undeniable opportunity to re-engineer the "system," to fix what
is broken, and to create solutions that will help to make the system and the
world's economy better and stronger.
Over the years, we have consistently urged our shareholders to take a
longer-term view and apply sound diversification principles when designing an
effective investment program, and these basic principles have become even more
important today. Our Bishop Street Funds are managed using the same basic
principles that have guided our investment thinking over the years. And with our
portfolio management teams focused on each Fund's investment goals and
objectives as well as the consistent execution of our investment strategy, our
Funds continue to offer excellent diversification across industries, sectors,
and individual issues. Lastly, we continue to believe that a balanced portfolio
comprised of a combination of our equity and fixed income funds should serve as
the building blocks of your carefully designed investment portfolio, reflective
of your investment goals and risk appetite.
Thank you for investing in the Bishop Street Funds. We appreciate your continued
trust and confidence.
Sincerely,
/s/ Michael K. Hirai
Michael K. Hirai, CFA, CPA
President and Chief Investment Officer
January 15, 2009
December 31, 2008 3 www.bishopstreetfunds.com
BISHOP STREET
DEFINITION OF COMPARATIVE INDICES
FUNDS
Definition of Comparative Indices
BARCLAYS U.S. GOVERNMENT/CREDIT INDEX is a widely-recognized, market value
weighted (higher market value bonds have more influence than lower market value
bonds) index of U.S. Treasury securities, U.S. government agency obligations,
corporate debt backed by the U.S. government and fixed-rate non-convertible
corporate debt securities issued or guaranteed by foreign governments and
agencies. All securities in the Index are rated investment grade (BBB) or
higher, with maturities of at least one year.
BARCLAYS MUNICIPAL BOND INDEX is a widely-recognized index of municipal bonds
with maturities of at least one year. The Consumer Price Index measures prices
of goods bought by a typical consumer such as food, gas, shelter and clothing.
It is widely used as a cost-of-living benchmark.
LIPPER CORPORATE DEBT A - RATED OBJECTIVE - Funds that invest primarily in
corporate debt issues rated "A" or better or government issues.
LIPPER LARGE CAP CORE CLASSIFICATION - Funds that, by portfolio practice, invest
at least 75% of their equity assets in companies with market capitalizations (on
a three-year weighted basis) greater than 300% of the dollar-weighted median
market capitalization of the middle 1,000 securities of the S&P Super Composite
1500 Index. Large-cap core funds have more latitude in the companies in which
they invest. These funds typically have an average price-to-earnings ratio,
price-to book ratio, and three-year sales-per-share growth value, compared to
the S&P 500 Composite Index.
LIPPER MULTI CAP CORE CLASSIFICATION - Funds that, by portfolio practice, invest
in a variety of market capitalization ranges without concentrating 75% of their
equity assets in any one market capitalization range over an extended period of
time. Multi-cap funds typically have between 25% and 75% of their assets
invested in companies with market capitalizations (on a three year weighted
basis) above 300% of the dollar-weighted median market capitalization of the
middle 1,000 securities of the S&P Super Composite 1500 Index. Multi-cap core
funds have more latitude in the companies in which they invest. These funds
typically have an average price-to- earnings ratio, price-to-book ratio, and
three-year sales-per-share growth value, compared to the S&P Super Composite
1500 Index.
LIPPER OTHER STATES MUNICIPAL DEBT FUNDS OBJECTIVE - Funds that invest in
municipal debt issues with dollar-weighted average maturities of five to ten
years and are exempt from taxation on a specified city or state basis.
THE CONSUMER PRICE INDEX measures prices of goods bought by a typical consumer
such as food, gas, shelter and clothing. It is widely used as a cost-of-living
benchmark.
THE S&P 500/CITIGROUP GROWTH INDEX is a subset of the S&P 500 Index and consists
of those companies with the highest price-to book ratios.
THE S&P 500 COMPOSITE INDEX is a widely recognized index of 500 stocks designed
to mimic the overall U.S. equity market's industry weightings.
Bishop Street Funds 4
BISHOP STREET
MANAGEMENT DISCUSSION
FUNDS
Strategic Growth Fund
The S&P 500 Composite Index lost 37.00% in 2008, as the financial crisis, which
had initially appeared to be controllable, eventually spiraled out of control
and caused a sharp deterioration of the economy. Our performance was reasonable
in the first part, but disappointing towards the end of the year.
The first few months of the year were, in many aspects, similar to the second
half of 2007. The confidence crisis caused by subprime lending and excessive
risk hidden behind certain derivatives resulted in huge losses for the financial
sector worldwide, and threatened even the largest players. While the potential
consequences on economic growth could not be ignored, these developments did not
appear likely to threaten more than a limited number of segments of the economy,
as the relevant authorities were determined to regain control through drastic
measures if necessary. In addition, the weakness of the dollar and the strong
demand from large emerging economies, in particular, appeared capable of
weathering the negative aspects, to keep the U.S. economy growing at a
reasonably sustained pace.
At the end of summer, however, it became clear that this benign scenario would
not unfold. The bankruptcy of Lehman and the disappearance of many other
prestigious players, who had to be acquired or supported through emergency
rescue packages, caused optimism to collapse completely. Economic indicators
published last fall were all extremely weak, and the sharp deterioration on the
employment front suggested that the worst was still ahead for an economy that is
largely dependent on consumption. The extension of this trend to worldwide
economies caused a brutal decline of energy prices, but this was of little help
to companies, who in addition had to face headwinds from a stronger dollar.
Investors' attention therefore swiftly shifted from inflation fears to the
recession threat, and the market went through several very bad months.
After a difficult start into the year, due in part to our underweight stance on
energy and in part to a normal correction after the very strong performance
achieved in 2007, our performance recovered to finish summer in line with the
market. This was due to a correct anticipation of the economy's resilience, and
a proactive adjustment of our exposure to financials: after maintaining a strong
stock-picking as long as we had exposure, we were completely out of investment
banks and asset
December 31, 2008 5 www.bishopstreetfunds.com
BISHOP STREET
MANAGEMENT DISCUSSION
FUNDS
managers as early as April. Unfortunately, the temporary disconnect between our
strategy's fundamental focus and the market's emotional behaviors then caused
the portfolio to underperform towards year-end. Some of our holdings in the most
economically-sensitive sectors were hit by a sell-off despite the
higher-than-average resilience of their specific businesses. In line with our
usual strategy in such environments, we refrained from reacting emotionally
ourselves, and kept our discipline and focus on fundamentals. This allowed the
portfolio to benefit from a solid rebound in December, but this was insufficient
to bring back our annual return above the benchmark.
The Strategic Growth Fund returned a negative 41.46% in 2008 (net of fees), vs.
negative 37.45% for its benchmark at the S&P 500 Composite Index (net dividend
reinvested.) Our investment decisions during the year resulted in a portfolio
turnover slightly below average, but largely modified the general
characteristics of our stock selection to reflect the global changes in the
outlook.
We started 2008 with a moderately aggressive stance, based on the assumption
that the financial crisis born in 2007 would be controlled by Central Banks and
regulators, and would not prevent worldwide economies from continuing to grow at
a high, although slightly lower pace. This is why our stock picks included a
high proportion of consumer-related stocks, as well as technology companies
benefiting from corporate investment and exports to emerging markets.
2008 can then be divided into two main parts in regards to our portfolio
strategy.
Until the end of summer, we mainly had to manage the financial crisis but
remained convinced that the economy, although gradually decelerating, was quite
resilient thanks largely to demand from the emerging markets and the low level
of the dollar. During that period, we continued to sell financials in such a way
that we were completely out of investment banks and asset managers as early as
April. In the meantime, we gradually shifted away from economically-sensitive
stocks to buy more resilient companies, without however proceeding with a
massive defensive move.
In the last few months of the year, when the Lehman bankruptcy and other events
changed the seriousness of the financial crisis, and the subsequent outlook for
worldwide economies, we took a much more defensive stance. Certain securities
were sold between September and the year-end which were all
economically-sensitive stocks and were replaced by much less cyclical stock
picks. It should be noted however that our anticipation of the economic slowdown
during the previous twelve months saved us from having to massively adjust the
portfolio in that period.
Bishop Street Funds 6
(BISHOP STREET FUNDS LOGO)
These moves also contributed to slightly reduce the growth bias of our
portfolio. Our stock selection started the year with an average 12-month forward
PE ratio slightly above market average, allowing a 500 bps long-term growth
advantage over the S&P 500 Composite Index. At the end of the year, the growth
bias was down to slightly less than 300 bps, but this decline was offset by a
much more attractive valuation, since our portfolio's PE was down to 9.97 vs
11.34 for the market.
Despite a possible psychological effect when Barack Obama takes office, the U.S.
economy is poised to remain weak for a long while. Activity indicators and
companies' announcements will certainly remain bad in absolute terms. However,
given that any stabilization may be interpreted as a leading sign of improvement
and cause a market rebound, we do not expect more defensive moves for the
moment.
We are now approaching the shift from the Bush administration to the new team
formed by President-elect Barack Obama, and we acknowledge that this event can
have a much bigger impact than its actual nature appears to justify. The
election of a black President was widely perceived as the beginning of a new
era, and very high expectations and hopes have been put in his mandate. In this
respect, a gradual disappointment is likely, but Mr. Obama's first few speeches
and decisions could have a very strong impact on the U.S. population's morale,
which experience shows sometimes does miracles to accelerate a post-crisis
rebound.
The next few weeks will also be key for another reason. Companies start
reporting their fourth quarter results. There appears to be no way these numbers
can be better than very bad, since the sharp economic slowdown only started in
September, and this will therefore be the first reporting term to fully reflect
the hit. As often is the case at this time of the year, especially when the
environment is uncertain, companies will probably be extremely cautious in
issuing guidance, and many of them may just indicate that they don't have enough
visibility to give any guidance at all.
Given the likely influence of pure subjective interpretation, it is difficult to
predict how the U.S. market will react to the above factors, and will
subsequently perform in the short term. We don't know either when investors will
start believing in an inflexion of current economic trends. The market's
reaction to news flow in December however confirms that current valuations
already discount a dark outlook, and this makes us confident that a rally can
take place some time in the next few months. Its magnitude and duration are
still uncertain but, for the moment, the scenario justifies avoiding an
excessively defensive stance.
December 31, 2008 7 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.
(PERFORMANCE GRAPH)
Strategic S&P 500/
Growth Citigroup S&P 500 Consumer Lipper Multi
Fund, Growth Composite Price Cap Core
Class I# Index(1) Index(1) Index(1) Classification++(1)
-------- --------- --------- --------- ------------------
7/1/02 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000
12/02 8,640 9,398 9,166 10,056 8,896
12/03 11,930 11,943 11,796 10,245 11,707
12/04 13,080 12,775 13,079 10,579 13,117
12/05 14,587 12,921 13,721 10,937 14,069
12/06 16,013 14,343 15,888 11,217 16,015
12/07 17,631 15,652 16,761 11,675 17,067
12/08 10,322 10,186 10,560 11,686 10,447
Past Performance is not predictive of future performance.
# Account value if you reinvested income and capital gains.
++ Performance begins on June 30, 2002.
(1) See page 4 for definition of comparative indices.
AVERAGE ANNUAL TOTAL RETURNS+
ONE ANNUALIZED ANNUALIZED
YEAR 3 YEAR INCEPTION
RETURN RETURN TO DATE
- ------- --------- -----------
(41.46)% (10.89)% 0.49% 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 8
Strategic Growth Fund
TOP TEN EQUITY HOLDINGS+
Percentage of
Investments
-------------
1. Symantec 2.2%
2. Danaher 2.2%
3. Occidental Petroleum 2.2%
4. Thermo Fisher Scientific 2.2%
5. Nasdaq Stock Market 2.2%
6. Accenture, Cl A 2.2%
7. Tyco International 2.2%
8. Cigna 2.2%
9. ACE 2.1%
10. Aetna 2.1%
SECTOR WEIGHTINGS (UNAUDITED)+
(BAR CHART)
Information Technology 23.8%
Health Care 20.4%
Industrials 18.2%
Energy 9.8%
Consumer Discretionary 9.5%
Financials 8.5%
Consumer Staples 8.0%
Materials 1.7%
Short-Term Investments 0.1%
+ Percentages are based on total investments.
SCHEDULE OF INVESTMENTS
Value
Shares (000)
------ --------
COMMON STOCK -- 99.1%
Consumer Discretionary -- 9.4%
15,200 Apollo Group, Cl A* $ 1,165
49,600 GameStop, Cl A* 1,074
19,000 McDonald's 1,182
24,600 Nike, Cl B 1,255
57,000 TJX 1,172
--------
5,848
--------
December 31, 2008 9 www.bishopstreetfunds.com
Strategic Growth Fund
SCHEDULE OF INVESTMENTS
(continued)
Value
Shares (000)
------ --------
Consumer Staples -- 7.9%
43,713 CVS $ 1,256
20,300 General Mills 1,233
25,300 Molson Coors Brewing, Cl B 1,238
27,700 Philip Morris International 1,205
--------
4,932
--------
Energy -- 9.8%
45,400 National Oilwell Varco* 1,110
22,900 Occidental Petroleum 1,374
60,900 Suncor Energy 1,187
23,621 Transocean* 1,116
89,000 Williams 1,289
--------
6,076
--------
Financials -- 8.2%
25,100 ACE 1,328
5,858 CME Group, Cl A 1,219
55,100 Nasdaq Stock Market* 1,362
30,000 State Street 1,180
--------
5,089
--------
Health Care -- 20.3%
46,500 Aetna 1,325
20,800 Amgen* 1,201
22,400 Baxter International 1,201
17,400 Becton Dickinson 1,190
79,000 Cigna 1,331
20,900 Express Scripts, Cl A* 1,149
18,900 Genzyme* 1,254
25,500 Gilead Sciences* 1,304
77,100 Schering-Plough 1,313
40,300 Thermo Fisher Scientific* 1,373
--------
12,641
--------
Industrials -- 18.1%
24,300 Danaher 1,376
9,200 First Solar* 1,269
27,800 ITT 1,278
13,900 Lockheed Martin 1,169
20,400 Precision Castparts 1,213
61,700 Tyco International 1,333
23,300 Union Pacific 1,114
22,900 United Technologies 1,227
16,500 W.W. Grainger 1,301
--------
11,280
--------
Bishop Street Funds 10
Strategic Growth Fund
SCHEDULE OF INVESTMENTS
(continued)
Value
Shares (000)
-------- --------
Information Technology -- 23.6%
41,000 Accenture, Cl A $ 1,344
70,400 Broadcom, Cl A* 1,195
3,800 Google, Cl A* 1,169
33,800 Hewlett-Packard 1,227
80,900 MEMC Electronic Materials* 1,155
58,300 Microsoft 1,133
74,500 Oracle* 1,321
36,100 Qualcomm 1,293
91,900 Red Hat* 1,215
102,100 Symantec* 1,380
92,300 Western Digital* 1,057
83,793 Western Union 1,202
--------
14,691
--------
Materials -- 1.8%
16,200 Monsanto 1,141
--------
TOTAL COMMON STOCK (Cost $80,188) 61,698
--------
CASH EQUIVALENTS (A) -- 0.3%
72,977 Dreyfus Cash Management Fund, Institutional
Shares, 1.570% 73
72,977 Fidelity Institutional Money Market Portfolio,
Institutional Shares, 2.110% 73
--------
TOTAL CASH EQUIVALENTS (Cost $146) 146
--------
TOTAL INVESTMENTS (Cost $80,334) -- 99.4% $ 61,844
========
Percentages are based on Net Assets of $62,237 ($ Thousands).
* Non-income producing security.
(A) The rate shown is the 7-day effective yield as of December 31, 2008.
Cl -- Class
Cost Figures are shown in Thousands.
The accompanying notes are an integral part of the financial statements.
December 31, 2008 11 www.bishopstreetfunds.com
BISHOP STREET
MANAGEMENT DISCUSSION
FUNDS
Large Cap Core Equity Fund
The annual period ended December 31, 2008 was an extraordinarily difficult one
for the market as a whole. Equities suffered as fallout from the mortgage and
credit markets continued to take its toll on companies both directly and
indirectly related to these markets. The turmoil that began in 2007 worsened as
individuals and institutions tried to reduce risk and there were few buyers
willing to step in and take it off their hands. Short-term funding was very
difficult to obtain for all but the largest corporations, and signs of financial
distress were prevalent. The government initiated numerous programs to try and
stem the market panic, with some success eventually, but not before trillions in
value had been lost from worldwide equity indices. By the end of the year, the
markets settled somewhat. While we hope that the worst is behind us, the
fundamental data is still rather weak heading into 2009.
After expenses, the Large Cap Core Equity Fund (the "Fund") returned (42.02)%
for the year versus (37.00)% for the S&P 500 Composite Index. The relative
underperformance can primarily be attributed to our positions in the energy,
materials, information technology and consumer discretionary sectors.
In the energy sector, we owned less of the larger integrated oil companies and
more of the smaller specialized drillers throughout last year which contributed
to our underperformance. Since we do not believe there was a fundamental reason
for this, we suspect that a more normal investment environment will allow us to
recapture lost returns. In the long run, we feel the smaller drillers can
reinvest their capital far more efficiently, even though the large companies do
have lower costs of capital.
A similar dynamic played out in the materials sector as we have long been
invested primarily in the commodities rather than the chemical/materials.
Although there was some fundamental deterioration due to lower pricing, we think
the losses will, for the most part, reverse. We have long been attracted to
Bishop Street Funds 12
(BISHOP STREET FUNDS LOGO)
the miners due to the fact that they trade at a great discount to our fair value
models and provide us with an inflation hedge that seems attractive.
Our positions in the information technology and consumer discretionary sectors
also suffered. Stocks largely correlated to consumer spending were negatively
affected by deteriorating macro drivers of the U.S. economy such as rising
unemployment and declining housing values. There was a flight toward safety, as
market participants sought refuge in companies with strong and predictable cash
flows.
We follow a fairly conservative approach in managing the Fund with a focus on
risk control. We maintain a diversified portfolio both in terms of the number of
stocks held as well as the sector weights of the Fund. As of December 31, 2008,
the Fund held about 135 stocks, with no position larger than 3.5% of the Fund.
In addition, the portfolio sector allocation is very close to the sector
allocation of the benchmark with differences being less than 2% for any sector.
The largest sector over-weights were information technology and health care
while underweights existed in utilities and consumer staples. These small
divergences from the benchmark reflect our belief that the market's focus on
yield has driven down the relative attractiveness of slow-growth, high-dividend
paying companies.
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. We look for companies that offer high rates of return,
solid growth prospects, and attractive valuations.
While we are not pleased with our relative performance for the year, we believe
that over the long run the market will value good fundamentals and our portfolio
is well positioned in that respect. Currently we see many opportunities for
buying well positioned operations at prices that are not driven by fundamental
valuation concepts, but by panic or forced liquidation. In our opinion,
dislocations, in terms of rational pricing, are as extreme as we have ever seen
them.
December 31, 2008 13 www.bishopstreetfunds.com
BISHOP STREET
MANAGEMENT DISCUSSION
FUNDS
We have been able to move into premium franchises as the pricing in many
industries has become very compressed. We've also made a conscious effort to
reduce our exposure to names with high debt/equity ratios and debt that needs to
be refinanced. We are trying to further control tracking error, in light of the
tremendous market volatility and we think we can do so without reducing our
upside potential.
Like many others, we liked the market at levels much higher than current prices
and did not expect the credit crisis to turn into a major recession. These are
historic times. While the market faces some very real challenges, many of our
metrics have shown the recent downdraft to be more than what current
fundamentals warrant. We remain optimistic on the equity market as a whole and
believe that the market will shift toward out of favor industries trading at low
valuations relative to growth prospects.
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. We thank you for the confidence and trust you place in us and we
pledge to continue our hard work to bring value to our investors.
Bishop Street Funds 14
Large Cap Core Equity Fund
PERFORMANCE COMPARISON
Comparison of Change in the Value of a $10,000 Investment in the
Large Cap Core Equity Fund, Class I, versus the S&P 500 Composite Index,
the Consumer Price Index and the Lipper Large Cap Core Classification.
(PERFORMANCE GRAPH)
Large Cap Core S&P 500 Consumer Lipper Large
Equity Fund Composite Price Cap Core
Class I# Index(1) Index(1) Classificiation++(1)
-------------- --------- -------- --------------------
5/3/06 $10,000 $10,000 $10,000 $10,000
12/06 10,663 11,010 10,017 10,794
12/07 11,222 11,615 10,425 11,433
12/08 6,506 7,318 10,435 7,176
Past performance is not predictive of future performance.
# Account value if you reinvested income and capital gains.
++ Performance begins on April 30, 2006.
(1) See page 4 for definition of comparative indices.
AVERAGE ANNUAL TOTAL RETURNS+
ONE ANNUALIZED
YEAR INCEPTION
RETURN TO DATE
- ------ ---------
(42.02)% (14.90)% 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, 2008 15 www.bishopstreetfunds.com
Large Cap Core Equity Fund
TOP TEN EQUITY HOLDINGS+
Percentage of
Investments
-------------
1 Chevron 3.2%
2 Johnson & Johnson 2.5%
3 Wal-Mart Stores 2.4%
4 AT&T 2.3%
5 Microsoft 2.3%
6 Procter & Gamble 1.7%
7 Cisco Systems 1.7%
8 JPMorgan Chase 1.7%
9 PepsiCo 1.5%
10 Philip Morris International 1.4%
SECTOR WEIGHTINGS (UNAUDITED)+
(BAR CHART)
Health Care 15.9%
Information Technology 15.3%
Energy 13.7%
Financials 12.8%
Consumer Staples 11.9%
Industrials 11.7%
Consumer Discretionary 8.9%
Telecommunication Services 3.7%
Materials 2.5%
Utilities 2.1%
Exchange Traded Fund 1.4%
Short-Term Investments 0.1%
+ Percentages are based on total investments. Excludes securities purchased
with cash collateral received from securities lending.
SCHEDULE OF INVESTMENTS
Value
Shares (000)
- ---------- -----
COMMON STOCK -- 98.0%
Consumer Discretionary -- 8.9%
9,800 Bed Bath & Beyond* $249
11,610 Best Buy (A) 326
7,900 Carnival (A) 192
17,810 Coach* (A) 370
19,120 Comcast, Cl A (A) 323
21,700 Expedia* (A) 179
7,100 International Game Technology (A) 84
14,900 Johnson Controls (A) 271
Bishop Street Funds 16
Large Cap Core Equity Fund
SCHEDULE OF INVESTMENTS
(continued)
Value
Shares (000)
- ----------- --------
Consumer Discretionary -- (continued)
6,600 Kohl's* (A) $ 239
14,820 Liberty Media Entertainment, Ser A* 259
17,940 Lowe's (A) 386
3,000 McDonald's (A) 187
29,100 News, Cl A 265
7,100 Omnicom Group (A) 191
19,500 Staples (A) 349
36,620 Time Warner (A) 368
4,100 VF (A) 225
6,700 Walt Disney 152
--------
4,615
--------
Consumer Staples -- 11.8%
20,790 Archer-Daniels-Midland 599
7,700 Kimberly-Clark 406
13,910 PepsiCo 762
16,910 Philip Morris International 736
14,350 Procter & Gamble 887
22,820 SYSCO (A) 523
35,850 Tyson Foods, Cl A 314
27,330 Walgreen (A) 674
22,130 Wal-Mart Stores 1,241
--------
6,142
--------
Energy -- 13.6%
5,900 Canadian Natural Resources (A) 236
16,800 Chesapeake Energy 272
22,660 Chevron 1,676
6,200 ConocoPhillips 321
7,000 Consol Energy 200
7,400 Devon Energy 486
46,700 El Paso (A) 366
16,200 Halliburton 294
21,520 Marathon Oil 589
18,100 Nabors Industries* (A) 217
16,520 National Oilwell Varco* 404
15,100 Nexen (A) 265
8,000 Noble Energy 394
8,000 Range Resources 275
11,600 Suncor Energy (A) 226
25,200 Weatherford International* (A) 273
16,400 XTO Energy (A) 578
--------
7,072
--------
December 31, 2008 17 www.bishopstreetfunds.com
Large Cap Core Equity Fund
SCHEDULE OF INVESTMENTS
(continued)
Value
Shares (000)
- ----------- -------
Financials -- 12.7%
8,570 ACE $ 453
10,470 Allstate (A) 343
8,000 Annaly Capital Management+ (A) 127
39,190 Bank of America 552
12,700 Bank of New York Mellon 360
5,200 Chubb 265
51,510 Citigroup 346
1,600 CME Group, Cl A 333
3,830 Franklin Resources (A) 244
1,150 Goldman Sachs Group 97
8,870 Hartford Financial Services Group (A) 146
28,900 Host Hotels & Resorts+ (A) 219
1,900 Intercontinental Exchange* (A) 157
27,420 JPMorgan Chase 865
26,900 Keycorp 229
8,100 Loews 229
8,600 MetLife (A) 300
9,360 Morgan Stanley 150
11,500 State Street 452
8,130 Travelers 367
10,932 Wells Fargo 322
11,700 XL Capital, Cl A (A) 43
-------
6,599
-------
Health Care -- 15.9%
14,500 Aetna 413
3,700 Allergan 149
7,900 Amgen* 456
4,050 Biogen Idec* (A) 193
16,800 Bristol Myers Squibb (A) 391
8,200 Celgene* 453
2,300 Cephalon* (A) 177
11,600 Forest Laboratories* 295
5,990 Genzyme* 398
9,700 Gilead Sciences* (A) 496
21,210 Johnson & Johnson (A) 1,269
4,520 Laboratory Corp of America Holdings* (A) 291
7,500 McKesson 290
9,600 Medtronic 302
8,800 Merck 268
19,480 Pfizer 345
31,660 Schering-Plough (A) 539
10,300 St. Jude Medical* (A) 340
Bishop Street Funds 18
Large Cap Core Equity Fund
SCHEDULE OF INVESTMENTS
(continued)
Value
Shares (000)
- ----------- --------
Health Care -- (continued)
15,970 UnitedHealth Group (A) $ 425
13,010 Wyeth 488
5,970 Zimmer Holdings* 241
--------
8,219
--------
Industrials -- 11.6%
11,600 Boeing (A) 495
10,020 Caterpillar (A) 448
10,000 Deere 383
16,320 Dover 537
4,400 General Dynamics 253
17,200 General Electric 279
9,500 Honeywell International 312
13,250 Illinois Tool Works 464
15,660 Ingersoll-Rand, Cl A 272
5,930 L-3 Communications Holdings, Cl 3 437
12,340 Norfolk Southern 581
11,735 Parker Hannifin 499
7,700 Precision Castparts 458
11,100 United Technologies (A) 595
--------
6,013
--------
Information Technology -- 15.2%
6,600 Accenture, Cl A (A) 216
11,020 Adobe Systems* 235
8,140 Apple* 695
9,900 Applied Materials 100
13,100 Broadcom, Cl A* 222
13,300 CA 247
54,110 Cisco Systems* 882
24,460 Corning 233
23,250 EMC* 243
2,390 Google, Cl A* (A) 735
15,100 Hewlett-Packard 548
33,000 Intel 484
10,030 MEMC Electronic Materials* 143
60,680 Microsoft (A) 1,180
41,040 Oracle* 728
15,600 Qualcomm 559
4,100 Research In Motion* 166
19,100 Symantec* (A) 258
--------
7,874
--------
December 31, 2008 19 www.bishopstreetfunds.com
Large Cap Core Equity Fund
SCHEDULE OF INVESTMENTS
(continued)
Value
Shares (000)
- ----------- ---------
Materials -- 2.5%
9,690 Alcoa $ 109
17,600 Dow Chemical 266
13,360 Freeport-McMoRan Copper & Gold (A) 327
4,800 Mosaic (A) 166
18,990 Teck Cominco, Cl B (A) 93
5,600 United States Steel 208
4,400 Weyerhaeuser (A) 135
---------
1,304
---------
Telecommunication Services -- 3.7%
41,750 AT&T 1,190
5,700 NII Holdings* 104
17,620 Verizon Communications 597
---------
1,891
---------
Utilities -- 2.1%
3,100 Entergy 258
5,590 Exelon 311
3,400 FirstEnergy 165
11,100 Questar 364
---------
1,098
---------
TOTAL COMMON STOCK (Cost $76,482) 50,827
---------
EXCHANGE TRADED FUND -- 1.4%
7,744 SPDR Trust, Ser 1 699
---------
TOTAL EXCHANGE TRADED FUND (Cost $865) 699
---------
CASH EQUIVALENTS (C) -- 25.2%
1,001,017 AIM Liquid Asset Portfolio, Institutional Shares, 1.629% (B) 1,001
2,002,033 BlackRock FedFund, Institutional Shares, 0.696% (B) 2,002
2,002,033 BlackRock TempFund, Institutional Shares, 1.587% (B) 2,002
32,909 Dreyfus Cash Management Fund, Institutional Shares, 1.570% 33
1,001,017 Dreyfus Institutional Cash Advantage Fund, 1.486% (B) 1,001
32,909 Fidelity Institutional Money Market Portfolio, Institutional
Shares, 2.110% 33
2,002,033 Goldman Sachs Financial Square Government Fund, 1.090% (B) 2,002
1,001,017 JPMorgan Prime Money Market Fund, 1.815% (B) 1,001
2,002,033 JPMorgan U.S. Government Money Market Fund, 0.962% (B) 2,002
2,002,033 Merrill Lynch Select Institutional Fund, 1.574% (B) 2,002
---------
TOTAL CASH EQUIVALENTS (Cost $13,079) 13,079
---------
Bishop Street Funds 20
Large Cap Core Equity Fund
SCHEDULE OF INVESTMENTS
(continued)
Face
Amount Value
(000) (000)
- ----------- ---------
REPURCHASE AGREEMENT (B) -- 0.3%
$153 Greenwich Capital Management 0.290%, dated 12/31/08,
to be repurchased on 01/02/09, repurchase price $152,960
(collateralized by a U.S. Government obligation, par value
$152,655, 5.500%, 12/01/38, with a total market value of
$156,853)
TOTAL REPURCHASE AGREEMENT (Cost $153) $ 153
---------
TOTAL INVESTMENTS (Cost $90,579) -- 124.9% $ 64,758
=========
Percentages are based on Net Assets of $51,859 ($ Thousands).
* Non-income producing security.
(A) This security or portion of this security is on loan at December 31, 2008.
The total value of securities on loan at December 31, 2008 was $12,852 ($
Thousands).
(B) These securities were purchased with cash collateral received from
securities lending. The total value of such securities as of December 31,
2008 was $13,166 ($ Thousands).
(C) The rate shown is the 7-day effective yield as of December 31, 2008.
+ Real Estate Investment Trust
Cl -- Class
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, 2008 21 www.bishopstreetfunds.com
BISHOP STREET
MANAGEMENT DISCUSSION
FUNDS
High Grade Income Fund
Fixed-income investors fled to safety in 2008 as the economy slipped into a
recession. As the financial and credit crises intensified, a global crisis of
confidence unfolded. The Federal Reserve, Treasury, and FDIC aggressively
implemented unprecedented measures to thaw the credit freeze and to restore
confidence to the markets. Government takeovers, bailouts, government guaranteed
debt programs, and government buyback programs augmented the aggressive rate
cuts by the Federal Open Market Committee. By year-end, the fed funds rate was
lowered to a target range of 0 to 25 basis points. The government also committed
to implement more quantitative easing measures to support the economy and the
housing market.
Treasury sector returns repeated their outperformance relative to all other
sectors with a 13.74% total return on the year. In spite of a negative 4.94%
return for the corporate sector, the taxable bond indices gained more than 5%
for the year.
The Bishop Street High Grade Income Fund (the "Fund") returned a respectable
8.53% for the year compared to the 5.71% and (5.88)% returns of their respective
benchmarks, the Barclays U.S. Government/Credit Index and the Lipper Corporate
Debt A-Rated Objective. The Fund's underweight in the finance sector and its
long duration in the treasury sector were key contributors to its
outperformance.
Looking ahead, we expect volatility to persist until the financial markets and
the economy stabilize. We continue to focus on strong credit issuers and a more
defensive posture on the yield curve.
Bishop Street Funds 22
High Grade Income Fund
PERFORMANCE COMPARISON
Comparison of Change in the Value of a $10,000 Investment in
the High Grade Income Fund, Class I, versus the Barclays
U.S. Government/Credit Index, the Consumer Price Index and the
Lipper Corporate Debt A-Rated Objective.
(PERFORMANCE GRAPH)
High Grade Barclays Lipper Corporate
Income Fund, U.S. Government/ Consumer Debt A-Rated
Class I# Credit Index(1)++ Price Index(1) Objective(1)
----------- ----------------- -------------- ----------------
12/31/98 $10,000 $10,000 $10,000 $10,000
12/99 9,566 9,785 10,267 9,721
12/00 10,547 10,943 10,613 10,680
12/01 11,303 11,874 10,778 11,518
12/02 12,607 13,182 11,037 12,516
12/03 13,024 13,798 11,244 13,257
12/04 13,469 14,377 11,611 13,830
12/05 13,739 14,718 12,004 14,096
12/06 14,145 15,273 12,312 14,647
12/07 15,089 16,381 12,814 15,301
12/08 16,375 17,315 12,826 14,402
Past performance is not predictive of future performance.
# Account value if you reinvested income and capital gains.
(1) See page 4 for definition of comparative indices.
++ Barclays Capital recently announced the indexes' name changes in order to
retire references to Lehman indexes. No changes are being made to the
Funds' investment objectives, tickers or respective index methodologies in
connection with these name changes.
AVERAGE ANNUAL TOTAL RETURNS+
ONE ANNUALIZED ANNUALIZED ANNUALIZED ANNUALIZED
YEAR 3 YEAR 5 YEAR 10 YEAR INCEPTION
RETURN RETURN RETURN RETURN TO DATE
- ------ ---------- ---------- ---------- ----------
8.53% 6.03% 4.69% 5.06% 5.66% 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, 2008 23 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 5.0%
2. U.S. Treasury Bond 7.500% 11/15/16 3.1%
3. U.S. Treasury Bond 6.250% 08/15/23 2.8%
4. U.S. Treasury Bond 6.375% 08/15/27 2.1%
5. FNMA MTN 7.250% 01/15/10 1.9%
6. U.S. Treasury Bond 7.250% 08/15/22 1.8%
7. FHLMC MTN 4.250% 05/22/13 1.6%
8. U.S. Treasury Bond 4.375% 02/15/38 1.6%
9. IBM 8.375% 11/01/19 1.5%
10. Hydro-Quebec 7.500% 04/01/16 1.4%
SECTOR WEIGHTINGS (UNAUDITED)+
(BAR CHART)
U.S. Treasury Obligations 27.8%
U.S. Government Agency Obligations 19.1%
Financials 12.0%
Industrials 10.9%
Consumer Staples 5.6%
U.S. Government Mortgage-Backed Obligations 5.4%
Information Technology 4.8%
Health Care 4.0%
Energy 2.9%
Materials 2.3%
Consumer Discretionary 2.2%
Municipal Bonds 1.4%
Asset-Backed Security 0.8%
Utilities 0.4%
Short-Term Investments 0.4%
+ Percentages are based on total investments. Excludes securities purchased
with cash collateral received from securities lending.
SCHEDULE OF INVESTMENTS
Face
Amount Value
(000) (000)
- ------- --------
CORPORATE OBLIGATIONS -- 42.7%
Aerospace & Defense -- 3.0%
Emerson Electric
$ 500 5.250%, 10/15/18 $ 511
General Dynamics
1,000 4.500%, 08/15/10 1,021
Rockwell Automation
800 6.700%, 01/15/28 887
United Technologies
1,200 6.350%, 03/01/11 1,269
--------
3,688
--------
Bishop Street Funds 24
High Grade Income Fund
SCHEDULE OF INVESTMENTS
(continued)
Face
Amount Value
(000) (000)
- ------- ---------
Auto Finance -- 1.0%
Toyota Motor Credit
$1,200 5.450%, 05/18/11 $ 1,218
---------
Banks -- 5.6%
American Express Bank
1,400 5.500%, 04/16/13 1,326
Bank of America (A)
1,325 1.878%, 03/22/09 1,331
Bank of Oklahoma (A)
500 5.750%, 05/15/12 443
BHP Billiton Finance
850 5.250%, 12/15/15 761
Citigroup (C)
700 2.875%, 12/09/11 722
JPMorgan Chase
1,400 5.875%, 06/13/16 1,397
Wells Fargo
850 4.375%, 01/31/13 832
---------
6,812
---------
Beverages -- 1.1%
PepsiCo
1,350 4.650%, 02/15/13 1,388
---------
Broadcasting & Cable -- 1.8%
TCI Communications
1,200 7.875%, 08/01/13 1,234
Turner Broadcasting System
975 8.375%, 07/01/13 951
---------
2,185
---------
Chemicals -- 1.3%
Monsanto
1,400 7.375%, 08/15/12 1,558
---------
December 31, 2008 25 www.bishopstreetfunds.com
High Grade Income Fund
SCHEDULE OF INVESTMENTS
(continued)
<Table>
<Caption>
Face
Amount Value
(000) (000)
- --------- --------
Computer Hardware -- 4.7%
Cisco Systems
$ 1,400 5.500%, 02/22/16 $ 1,483
Hewlett-Packard
1,275 4.500%, 03/01/13 1,294
IBM
1,400 8.375%, 11/01/19 1,768
Oracle
1,200 5.250%, 01/15/16 1,222
--------
5,767
--------
Consumer Discretionary -- 0.9%
Costco Wholesale
1,000 5.500%, 03/15/17 1,063
--------
Financials -- 4.2%
Bear Stearns LLC
1,400 7.250%, 02/01/18 1,534
Boeing Capital (C)
1,400 6.500%, 02/15/12 1,431
General Electric Capital MTN, Ser A
1,200 5.450%, 01/15/13 1,209
Jefferies Group
675 6.250%, 01/15/36 401
John Deere Capital
550 7.000%, 03/15/12 570
--------
5,145
--------
Food & Beverage -- 2.3%
ConAgra Foods
1,475 7.875%, 09/15/10 1,526
General Mills
1,200 6.000%, 02/15/12 1,245
--------
2,771
--------
Health Care -- 1.3%
Johnson & Johnson
1,200 6.950%, 09/01/29 1,554
--------
</Table>
Bishop Street Funds 26
High Grade Income Fund
SCHEDULE OF INVESTMENTS
(continued)
<Table>
<Caption>
Face
Amount Value
(000) (000)
- --------- --------
Household Products -- 1.2%
Procter & Gamble
$ 1,200 8.000%, 10/26/29 $ 1,512
--------
Independent Power Producers & Energy Trader -- 0.4%
Constellation Energy Group
500 7.000%, 04/01/12 456
--------
Industrials -- 0.5%
Burlington Northern Santa Fe
650 5.650%, 05/01/17 624
--------
Media -- 1.0%
Walt Disney MTN
1,200 6.200%, 06/20/14 1,274
--------
Oil & Gas -- Exploration/Production -- 1.8%
Anadarko Petroleum
1,250 7.200%, 03/15/29 1,101
Occidental Petroleum
1,000 6.750%, 01/15/12 1,041
--------
2,142
--------
Oil & Gas -- Integrated -- 2.4%
Atlantic Richfield
1,385 9.125%, 03/01/11 1,523
ConocoPhillips
1,400 4.750%, 10/15/12 1,395
--------
2,918
--------
Pharmaceuticals -- 3.4%
Abbott Laboratories
1,300 5.600%, 05/15/11 1,373
Bristol-Myers Squibb
625 5.450%, 05/01/18 647
Genentech
1,200 4.750%, 07/15/15 1,207
Teva Pharmaceutical Finance LLC
900 5.550%, 02/01/16 887
--------
4,114
--------
</Table>
December 31, 2008 27 www.bishopstreetfunds.com
High Grade Income Fund
SCHEDULE OF INVESTMENTS
(continued)
<Table>
<Caption>
Face
Amount Value
(000) (000)
- --------- --------
Retail Food -- 1.1%
McDonald's MTN
$ 1,400 4.125%, 06/01/13 $ 1,397
--------
Steel & Steel Works -- 1.0%
Nucor
1,300 4.875%, 10/01/12 1,262
--------
Telecommunications -- 1.1%
AT&T Wireless Services
1,200 8.125%, 05/01/12 1,287
--------
Transportation Services -- 0.2%
FedEx
300 7.250%, 02/15/11 305
--------
Utilities -- 1.4%
Hydro-Quebec
1,325 7.500%, 04/01/16 1,685
--------
TOTAL CORPORATE OBLIGATIONS (Cost $52,515) 52,125
--------
U.S. TREASURY OBLIGATIONS -- 27.5%
U.S. Treasury Bonds
2,750 7.500%, 11/15/16 3,755
4,500 7.250%, 05/15/16 6,025
1,500 7.250%, 08/15/22 2,181
1,700 6.375%, 08/15/27 (C) 2,488
2,500 6.250%, 08/15/23 3,410
800 6.250%, 05/15/30 1,203
1,000 6.000%, 02/15/26 (C) 1,396
1,000 5.250%, 11/15/28 1,320
1,000 5.000%, 05/15/37 (C) 1,449
1,000 4.500%, 02/15/36 1,329
1,400 4.375%, 02/15/38 (C) 1,875
U.S. Treasury Notes
500 4.750%, 08/15/17 598
1,250 4.250%, 11/15/14 (C) 1,446
1,400 4.250%, 08/15/15 1,626
1,000 4.250%, 11/15/17 1,165
1,000 4.125%, 08/31/12 1,106
1,000 4.000%, 02/15/14 (C) 1,133
--------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $26,945) 33,505
--------
</Table>
Bishop Street Funds 28
High Grade Income Fund
SCHEDULE OF INVESTMENTS
(continued)
<Table>
<Caption>
Face
Amount Value
(000) (000)
- --------- --------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 18.9%
FFCB
$ 350 4.000%, 02/01/13 $ 350
FHLB
1,000 6.000%, 07/10/13 1,025
725 5.600%, 06/28/11 799
450 5.375%, 06/10/11 494
1,000 4.875%, 12/14/12 1,092
FHLB, Ser KU10
1,300 4.750%, 08/13/10 1,378
FHLB, Ser VB15
1,400 5.000%, 12/21/15 (C) 1,568
FHLMC
875 8.250%, 06/01/16 1,059
1,000 5.875%, 05/23/16 1,075
1,000 5.000%, 01/30/14 1,118
800 4.000%, 06/12/13 851
FHLMC MTN
1,000 5.000%, 10/27/14 1,126
1,800 4.250%, 05/22/13 1,922
FNMA
1,000 6.410%, 11/13/12 1,143
1,500 5.750%, 05/11/22 1,567
1,400 5.550%, 02/16/17 1,456
600 5.500%, 11/17/16 618
500 5.000%, 03/02/15 560
1,000 4.000%, 04/30/18 (D) 1,002
FNMA MTN
2,100 7.250%, 01/15/10 2,242
FNMA, Ser 84, Cl KA
548 5.000%, 09/25/36 540
--------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $21,834) 22,985
--------
</Table>
December 31, 2008 29 www.bishopstreetfunds.com
High Grade Income Fund
SCHEDULE OF INVESTMENTS
(continued)
<Table>
<Caption>
Face
Amount Value
(000) (000)
- --------- --------
U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS -- 5.3%
FHLMC REMIC, Ser 2844, Cl VB
$ 188 5.500%, 12/15/19 $ 192
FHLMC REMIC, Ser 3070, Cl DH
414 5.500%, 11/15/35 415
FHLMC REMIC, Ser 3196, Cl CB
613 5.250%, 08/15/11 618
FHLMC REMIC, Ser R010, Cl AB
961 5.500%, 12/15/19 981
FNMA
986 5.000%, 10/01/23 1,014
677 3.500%, 08/01/10 675
FNMA REMIC, Ser B1, Cl BE
1,087 5.450%, 12/25/20 1,122
GNMA, Ser 7, Cl PE
1,400 5.500%, 11/16/31 1,439
--------
TOTAL U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS (Cost $6,296) 6,456
--------
FOREIGN GOVERNMENT BONDS -- 1.9%
Province of Ontario Canada (C)
1,200 2.750%, 02/22/11 1,192
Republic of Italy
1,000 5.375%, 06/12/17 1,094
--------
TOTAL FOREIGN GOVERNMENT BONDS (Cost $2,193) 2,286
--------
MUNICIPAL BONDS -- 1.4%
Michigan Municipal Bond Authority, RB, Merrill
Lynch Insured (A)
500 7.377%, 09/01/48 500
New Jersey State, Turnpike Authority, Ser B, RB,
AMBAC
Insured, Pre-Refunded @ 100 (B)
1,250 4.252%, 01/01/15 1,238
--------
TOTAL MUNICIPAL BONDS (Cost $1,767) 1,738
--------
ASSET-BACKED SECURITY (A)(G) -- 0.8%
Citibank Omni Master Trust, Ser 2007, Cl A9
1,000 1.455%, 12/23/13 950
--------
TOTAL ASSET-BACKED SECURITY (Cost $1,000) 950
--------
</Table>
Bishop Street Funds 30
High Grade Income Fund
SCHEDULE OF INVESTMENTS
(continued)
<Table>
<Caption>
Shares/Face Value
Amount (000) (000)
- -------------- ---------
CASH EQUIVALENTS (F) -- 11.0%
998,983 AIM Liquid Asset Portfolio, Institutional Shares, 1.629% (E) $ 999
1,997,967 BlackRock FedFund, Institutional Shares, 0.696% (E) 1,998
1,997,967 BlackRock TempFund, Institutional Shares, 1.587% (E) 1,998
327,128 Dreyfus Cash Management Fund, Institutional
Shares, 1.570% 327
998,983 Dreyfus Institutional Cash Advantage Fund, 1.486% (E) 999
327,128 Fidelity Institutional Money Market Portfolio,
Institutional Shares, 2.110% 327
1,997,967 Goldman Sachs Financial Square Government Fund,
1.090% (E) 1,998
998,983 JPMorgan Prime Money Market Fund, 1.815% (E) 999
1,997,967 JPMorgan U.S. Government Money Market Fund,
0.962% (E) 1,998
1,997,967 Merrill Lynch Select Institutional Fund, 1.574% (E) 1,998
---------
TOTAL CASH EQUIVALENTS (Cost $13,641) 13,641
---------
REPURCHASE AGREEMENT (E) -- 0.1%
$ 153 Greenwich Capital Management 0.290%, dated 12/31/08, to be
repurchased on 01/02/09, repurchase price $152,649
(collateralized by a U.S. Government obligation, par value
$152,345, 5.500%, 12/01/38, with a total market value of
$156,535)
TOTAL REPURCHASE AGREEMENT (Cost $153) 153
---------
TOTAL INVESTMENTS (Cost $126,344) -- 109.6% $ 133,839
=========
</Table>
Percentages are based on Net Assets of $121,976 ($ Thousands).
(A) Floating Rate Security -- The rate reflected on the Schedule of
Investments is the rate in effect on December 31, 2008. The maturity date
shown is the next scheduled reset date.
(B) Pre-Refunded Security -- The maturity date shown is the pre-refunded date.
(C) This security or portion of this security is on loan at December 31, 2008.
The total value of securities on loan at December 31, 2008 was $12,614
($ Thousands).
(D) Step Bond -- Coupon rate increases in increments to maturity. Rate
disclosed is as of December 31, 2008.
(E) These securities were purchased with cash collateral received from
securities lending. The total value of such securities as of December 31,
2008 was $13,140 ($ Thousands).
(F) The rate shown is the 7-day effective yield as of December 31, 2008.
(G) 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, 2008,
these securities amounted to $950 ($ Thousands), representing 0.8% of net
assets of the Fund.
December 31, 2008 31 www.bishopstreetfunds.com
High Grade Income Fund
SCHEDULE OF INVESTMENTS
(continued)
AMBAC -- American Municipal Bond Assurance Company
Cl -- Class
FFCB -- Federal Farm Credit Bank
FHLB -- Federal Home Loan Bank
FHLMC -- Federal Home Loan Mortgage Association
FNMA -- Federal National Mortgage Association
GNMA -- Government National Mortgage Association
LLC -- Limited Liability Company
MTN -- Medium Term Note
RB -- Revenue Bond
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.
Bishop Street Funds 32
BISHOP STREET
MANAGEMENT DISCUSSION
FUNDS
Hawaii Municipal Bond Fund
The financial market crisis and the weakening economy spread fear to municipal
bond investors in 2008. Traditionally, municipal bonds have been viewed as a
safe fixed income alternative. However, many municipal bond investors fled to
safety in the treasury market as the full force of government intervention
unfolded. The short end of the municipal curve was the beneficiary of the
aggressive rate cuts by the Federal Open Market Committee. The long end of the
curve, in contrast, was pummeled as investors feared that lower tax receipts
would impair a municipality's ability to meet their debt payments. With the
tenuous ability of the monoline insurers to cover debt obligations in the event
of default, spreads for states with a weaker housing market and or weaker
revenue streams widened dramatically.
Stronger performance for the year was garnered by high quality issuers in the
short to intermediate part of the curve. Four to eight year general obligation
bonds generated an approximate 5.5% return while the return on the long end of
the curve was a negative 14.68%. Hawaii municipal bonds outperformed many other
state bonds due to our high quality and fiscal discipline.
The broad municipal indices did not close the year with a positive return. The
Barclays Municipal Bond Index generated a negative 2.47% return while the Lipper
Other States Municipal Debt Funds Objective returned a negative 8.05%. The
Bishop Street Hawaii Municipal Bond Fund outperformed its target benchmarks with
a negative 1.02% return.
Looking ahead, we expect that the higher quality municipalities will be able to
uphold their fiscal responsibility because of their budget cuts and
reappropriation of revenues. Therefore, we continue to find value in municipal
bonds as they are currently trading at historical highs as a percentage to
treasury yields.
December 31, 2008 33 www.bishopstreetfunds.com
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 Barclays Municipal Bond Index, the Consumer Price Index
and the Lipper Other States Municipal Debt Funds Objective.
(PERFORMANCE GRAPH)
Hawaii Municipal Lipper Other
Bond Fund, Hawaii Municipal Barclays Consumer States Municipal
Institutional Bond Fund, Municipal Price Debt Funds
Class I# Class A# Bond Index(1)++ Index(1) Objective(1)
---------------- ---------------- ----------------- ----------- ----------------
12/31/98 $ 10,000 $ 9,700 $ 10,000 $ 10,000 $ 10,000
12/99 9,735 9,418 9,794 10,267 9,568
12/00 10,962 10,580 10,939 10,613 10,601
12/01 11,428 11,017 11,499 10,778 11,050
12/02 12,572 12,090 12,604 11,037 11,932
12/03 13,235 12,696 13,274 11,244 12,482
12/04 13,679 13,089 13,868 11,611 12,912
12/05 14,023 13,384 14,356 12,004 13,247
12/06 14,643 13,941 15,051 12,312 13,844
12/07 15,004 14,250 15,556 12,814 14,111
12/08 14,851 14,070 15,172 12,826 12,975
Past performance is not predictive of future performance.
# Account value if you reinvested income and capital gains.
(1) See page 4 for definition of comparative indices.
++ Barclays Capital recently announced the indexes' name changes in order to
retire references to Lehman indexes. No changes are being made to the Funds'
investment objectives, tickers or respective index methodologies in
connection with these name changes.
AVERAGE ANNUAL TOTAL RETURNS+
<Table>
<Caption>
ONE ANNUALIZED ANNUALIZED ANNUALIZED ANNUALIZED
YEAR 3 YEAR 5 YEAR 10 YEAR INCEPTION
RETURN RETURN RETURN RETURN TO DATE
- ------- --------- ---------- ---------- ----------
(1.02)% 1.93% 2.33% 4.03% 4.92% Class I
(1.27)% 1.68% 2.08% 3.79%* 4.74%* Class A
(4.26)% 0.66% 1.45% 3.48%* 4.51%* Clas 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.
Bishop Street Funds 34
Hawaii Municipal Bond Fund
TOP TEN HOLDINGS+
<Table>
<Caption>
Percentage
Coupon Maturity of
Rate Date Investments
----- -------- -----------
1. Honolulu Hawaii City & County GO 5.000% 07/01/17 2.1%
2. Honolulu City & County GO 5.000% 07/01/21 1.9%
3. Hawaii State GO 5.250% 05/01/15 1.8%
4. Hawaii State, Department of Budget & Finance RB 5.650% 10/01/27 1.7%
5. Hawaii State, Housing Finance & Development RB 5.350% 07/01/18 1.6%
6. Hawaii State Highway RB 5.000% 07/01/16 1.6%
7. Hawaii State GO 6.500% 12/01/13 1.5%
8. Honolulu City & County, Board of Water Supply RB 4.750% 07/01/14 1.5%
9. Honolulu Hawaii City & County GO 5.000% 07/01/15 1.4%
10. Hawaii State Highway RB 5.000% 07/01/12 1.4%
</Table>
SECTOR WEIGHTINGS (UNAUDITED)+
(BAR CHART)
General Obligation 43.3%
Transportation 13.6%
Housing 7.1%
Facilities 6.4%
Water 5.9%
Pollution Control 4.6%
Airport 4.1%
Power 4.0%
Single-Family Housing 3.4%
General Revenue 2.4%
Utilities 1.9%
Medical 1.2%
Development 0.8%
Short-Term Investments 0.7%
School District 0.5%
Multi-Family Housing 0.1%
+ Percentages are based on total investments.
December 31, 2008 35 www.bishopstreetfunds.com
Hawaii Municipal Bond Fund
SCHEDULE OF INVESTMENTS
Face
Amount Value
(000) (000)
- --------- -------
MUNICIPAL BONDS -- 97.6%
Alabama -- 0.7%
Alabama State, Federal Highway Finance Authority, Ser A,
RB, MBIA Insured
$ 1,000 5.000%, 03/01/16 $ 1,046
-------
Arizona -- 0.9%
Phoenix Civic Improvement, Ser A, RB
1,435 5.000%, 07/01/21 1,425
-------
California -- 0.8%
Highland, Redevelopment Agency, Project Area No. 1, TA,
AMBAC Insured
1,440 5.650%, 12/01/24 1,268
-------
Georgia -- 0.5%
Main Street, Natural Gas, Ser B, RB
1,000 5.000%, 03/15/18 790
-------
Hawaii -- 82.8%
Hawaii County, Hawaii, Ser A, GO
505 5.000%, 07/15/21 517
1,000 5.000%, 07/15/22 1,008
Hawaii County, Refunding & Improvement Project, Ser A,
GO, MBIA-Re-insures FGIC Insured
450 5.600%, 05/01/12 490
430 5.600%, 05/01/13 475
Hawaii County, Ser A, GO, AMBAC Insured
1,000 5.000%, 07/15/15 1,087
Hawaii County, Ser A, GO, FSA Insured
125 5.000%, 07/15/21 127
1,500 5.000%, 07/15/23 1,510
Hawaii County, Ser A, GO, MBIA Insured
1,055 5.250%, 07/15/18 1,124
1,000 5.000%, 07/15/24 1,004
Hawaii State, Airport System, RB, AMT, MBIA Re-insures FGIC Insured
1,000 5.750%, 07/01/15 1,008
280 5.250%, 07/01/21 242
Hawaii State, Airport System, Second Ser, RB, AMT, ETM
50 6.900%, 07/01/12 53
Hawaii State, Airport System, Ser B, RB, AMT, MBIA Re-insures
FGIC Insured
1,500 6.625%, 07/01/18 1,519
500 6.000%, 07/01/19 489
Bishop Street Funds 36
Hawaii Municipal Bond Fund
SCHEDULE OF INVESTMENTS
(continued)
Face
Amount Value
(000) (000)
- --------- -------
Hawaii -- (continued)
Hawaii State, Department of Budget & Finance,
Chaminade University, RB, RADIAN
$ 1,000 4.750%, 01/01/36 $ 817
Hawaii State, Department of Budget & Finance, Electric
Company & Subsidiary Project, RB, AMT, MBIA Insured
170 5.450%, 11/01/23 141
Hawaii State, Department of Budget & Finance, Electric
Company & Subsidiary Project, Ser A, RB, AMT, FGIC Insured
1,500 4.800%, 01/01/25 1,170
Hawaii State, Department of Budget & Finance, Electric
Company & Subsidiary Project, Ser B, RB, AMT, XLCA Insured
1,025 5.000%, 12/01/22 863
Hawaii State, Department of Budget & Finance, Hawaiian
Electric, Ser A, RB, AMT, AMBAC Insured
675 5.100%, 09/01/32 506
Hawaii State, Department of Budget & Finance, Hawaiian
Electric, Ser A, RB, AMT, FGIC Insured
1,000 4.650%, 03/01/37 567
Hawaii State, Department of Budget & Finance, Hawaiian
Electric, Ser A, RB, AMT, MBIA Insured
3,000 5.650%, 10/01/27 2,548
Hawaii State, Department of Budget & Finance, Hawaiian
Electric, Ser C, RB, AMT, AMBAC Insured
1,000 6.200%, 11/01/29 907
Hawaii State, Department of Budget & Finance, Mid Pacific
Institute, RB, RADIAN
1,000 5.000%, 01/01/26 893
1,000 4.625%, 01/01/31 811
Hawaii State, Department of Hawaiian Home Lands,
Kapolei Office Facilities, Ser A, COP, FSA Insured
2,000 5.000%, 11/01/31 1,884
Hawaii State, Harbor System, Ser A, RB, AMT, FSA Insured
2,025 5.750%, 07/01/17 2,102
670 5.750%, 07/01/29 678
1,210 5.700%, 07/01/16 1,260
1,000 5.600%, 07/01/15 1,040
Hawaii State, Harbor System, Ser B, RB, AMT, AMBAC Insured
200 5.500%, 07/01/19 208
Hawaii State, Harbor System, Ser B, RB, AMT, FSA Insured
1,000 5.000%, 01/01/13 1,043
Hawaii State, Highway, RB, FSA Insured
2,000 5.000%, 07/01/12 2,179
December 31, 2008 37 www.bishopstreetfunds.com
Hawaii Municipal Bond Fund
SCHEDULE OF INVESTMENTS
(continued)
Face
Amount Value
(000) (000)
- --------- -------
Hawaii -- (continued)
Hawaii State, Highway, Ser A, RB, FSA Insured
$ 1,725 5.000%, 07/01/21 $ 1,759
1,565 5.000%, 07/01/22 1,583
1,805 5.000%, 07/01/23 1,812
Hawaii State, Highway, Ser B, RB, FSA Insured
2,300 5.000%, 07/01/16 2,485
Hawaii State, Housing Finance & Development, Ser A, RB,
AMT, FNMA Collateral
1,000 5.400%, 07/01/29 822
2,500 5.350%, 07/01/18 2,489
Hawaii State, Housing Finance & Development,
Single-Family Housing, Ser A, RB, AMT, FNMA Collateral
285 5.750%, 07/01/30 283
620 5.400%, 07/01/30 502
Hawaii State, Housing Finance & Development,
Single-Family Housing, Ser B, RB, FNMA Collateral
1,000 5.450%, 07/01/17 1,000
Hawaii State, Housing Finance & Development, University
of Hawaii Faculty Housing Project, RB, AMBAC Insured
590 5.650%, 10/01/16 590
Hawaii State, Kapolei Office Building, Ser A, COP, AMBAC Insured
1,475 5.250%, 05/01/13 1,493
1,000 5.000%, 05/01/16 1,012
1,000 5.000%, 05/01/17 1,014
500 5.000%, 05/01/18 507
Hawaii State, No. 1 Capitol District State Office, COP, MBIA Insured
1,000 5.200%, 05/01/14 1,028
Hawaii State, RB
500 5.500%, 01/01/25 515
Hawaii State, Ser CL, GO, FGIC-TCRS Insured
1,000 6.000%, 03/01/11 1,076
Hawaii State, Ser CM, GO, MBIA Re-insures FGIC Insured
2,000 6.500%, 12/01/13 2,338
Hawaii State, Ser CU, GO, MBIA Insured
550 5.750%, 10/01/12 579
Hawaii State, Ser CU, GO, MBIA Insured, Pre-Refunded @ 100 (A)
25 5.750%, 10/01/10 27
Hawaii State, Ser CV, GO, MBIA Re-insures FGIC Insured
1,620 5.375%, 08/01/19 1,669
1,000 5.250%, 08/01/21 1,019
Hawaii State, Ser CV, GO, MBIA Re-insures FGIC Insured
475 5.375%, 08/01/18 496
Hawaii State, Ser CX, GO, FSA Insured
1,000 5.500%, 02/01/16 1,063
1,000 5.500%, 02/01/21 1,036
Bishop Street Funds 38
Hawaii Municipal Bond Fund
SCHEDULE OF INVESTMENTS
(continued)
Face
Amount Value
(000) (000)
- --------- -------
Hawaii -- (continued)
Hawaii State, Ser CZ, GO, FSA Insured
$ 225 5.250%, 07/01/16 $ 238
Hawaii State, Ser DB, GO, MBIA Insured
200 5.250%, 09/01/15 217
Hawaii State, Ser DD, GO, MBIA Insured
2,500 5.250%, 05/01/15 2,733
1,000 5.000%, 05/01/16 1,076
Hawaii State, Ser DF, GO, AMBAC Insured
1,250 5.000%, 07/01/21 1,289
90 5.000%, 07/01/22 92
Hawaii State, Ser DG, GO, AMBAC Insured
1,000 5.000%, 07/01/16 1,091
Hawaii State, Ser DJ, GO, AMBAC Insured
500 5.000%, 04/01/13 544
300 5.000%, 04/01/15 330
Hawaii State, Ser DO, GO
1,000 5.000%, 08/01/16 1,108
Honolulu City & County, 1st Board Resolution, Senior Ser C, RB,
MBIA Insured
2,000 5.000%, 07/01/31 1,914
Honolulu City & County, 2nd Board Resolution, Junior Ser A-1, RB,
MBIA Insured
815 5.000%, 07/01/22 824
630 5.000%, 07/01/23 631
Honolulu City & County, 2nd Board Resolution, Junior Ser B-1, RB,
MBIA Insured
865 5.000%, 07/01/23 867
Honolulu City & County, Board of Water Supply, Ser A, RB,
FGIC Insured, Pre-Refunded @ 100 (A)
1,700 4.750%, 07/01/14 1,925
2,000 4.750%, 07/01/14 2,264
Honolulu City & County, Board of Water Supply, Ser A, RB,
MBIA Re-insures FGIC Insured
2,000 5.000%, 07/01/33 1,940
Honolulu City & County, Board of Water Supply, Ser B, RB,
AMT, MBIA Insured
1,000 5.250%, 07/01/20 976
1,000 5.250%, 07/01/21 952
325 5.000%, 07/01/15 332
Honolulu City & County, GO, ETM, FGIC Insured
1,000 6.000%, 12/01/12 1,149
December 31, 2008 39 www.bishopstreetfunds.com
Hawaii Municipal Bond Fund
SCHEDULE OF INVESTMENTS
(continued)
Face
Amount Value
(000) (000)
- --------- -------
Hawaii -- (continued)
Honolulu City & County, Junior Ser A-1, RB, MBIA Insured
$ 200 4.500%, 07/01/13 $ 212
Honolulu City & County, Ser A, GO
55 6.000%, 01/01/10 58
1,000 5.750%, 04/01/12 1,100
Honolulu City & County, Ser A, GO, MBIA Insured
625 5.250%, 03/01/17 660
500 5.250%, 03/01/28 500
1,100 5.000%, 07/01/14 1,222
2,800 5.000%, 07/01/21 2,886
1,730 5.000%, 07/01/26 1,726
Honolulu City & County, Ser B, GO, MBIA Insured
1,500 5.000%, 07/01/16 1,643
Honolulu City & County, Ser B, RB, MBIA Insured
735 4.250%, 07/01/17 779
Honolulu City & County, Ser C, GO, MBIA Insured
500 5.000%, 07/01/16 549
Honolulu City & County, Ser C, GO, MBIA Re-insures FGIC Insured
1,865 5.125%, 07/01/15 1,902
1,020 5.125%, 07/01/17 1,038
Honolulu City & County, Ser D, GO, AMT, MBIA Re-insures FGIC Insured
245 4.850%, 02/01/10 252
Honolulu City & County, Ser D, GO, MBIA Insured
885 5.000%, 07/01/19 932
1,700 5.000%, 07/01/23 1,725
Honolulu City & County, Ser E, GO, MBIA Re-insures FGIC Insured
1,500 5.250%, 07/01/20 1,590
Honolulu City & County, Ser F, GO, FSA-Credit FGIC Insured
820 5.000%, 07/01/24 842
Honolulu City & County, Waipahu Towers Project, Ser A,
RB, AMT, GNMA Collateral
200 6.900%, 06/20/35 205
Honolulu Hawaii City & County, Senior Ser A, RB, MBIA Insured
500 5.000%, 07/01/20 521
1,000 5.000%, 07/01/36 938
Honolulu Hawaii City & County, Ser A, GO, MBIA Insured
1,000 5.250%, 03/01/20 1,030
1,500 5.250%, 03/01/24 1,522
Honolulu Hawaii City & County, Ser A, RB, FSA Insured
1,000 5.000%, 07/01/23 1,006
Bishop Street Funds 40
Hawaii Municipal Bond Fund
SCHEDULE OF INVESTMENTS
(continued)
Face
Amount Value
(000) (000)
- -------- ---------
Hawaii -- (continued)
Honolulu Hawaii City & County, Ser B, GO, MBIA Insured
$ 2,000 5.000%, 07/01/15 $ 2,190
2,950 5.000%, 07/01/17 3,155
Kauai County, Ser A, GO, MBIA Insured
1,500 5.000%, 08/01/25 1,505
Kauai County, Ser A, GO, MBIA Re-insures FGIC Insured
1,610 5.000%, 08/01/21 1,638
1,440 5.000%, 08/01/23 1,436
Maui County, GO, MBIA Insured
100 5.000%, 03/01/17 108
1,100 5.000%, 03/01/24 1,117
Maui County, Hawaii, Ser A, GO
1,000 5.000%, 07/01/19 1,068
Maui County, Ser A, GO
260 5.375%, 03/01/12 276
Maui County, Ser A, GO, FSA Insured
1,000 3.500%, 07/01/16 1,030
Maui County, Ser A, GO, MBIA Insured
1,000 4.750%, 07/01/25 966
Maui County, Ser A, GO, Pre-Refunded @ 100 (A)
225 5.375%, 03/01/11 243
Maui County, Ser B, GO, MBIA Insured
500 5.000%, 07/01/16 561
500 5.000%, 09/01/17 534
University of Hawaii, Ser A, RB, AGC MBIA Insured
1,400 5.000%, 10/01/23 1,416
University of Hawaii, Ser A, RB, FGIC Insured,
Pre-Refunded @ 100 (A)
1,605 5.500%, 07/15/12 1,806
500 5.125%, 07/15/12 556
University of Hawaii, Ser A, RB, MBIA Insured
150 5.000%, 07/15/19 158
975 5.000%, 07/15/21 1,000
150 5.000%, 07/15/22 153
University of Hawaii, Ser B, RB, FSA Insured
320 5.250%, 10/01/16 336
775 5.250%, 10/01/17 810
---------
127,859
---------
December 31, 2008 41 www.bishopstreetfunds.com
Hawaii Municipal Bond Fund
SCHEDULE OF INVESTMENTS
(continued)
Face
Amount Value
(000) (000)
- -------- ---------
Illinois -- 1.5%
Chicago O'Hare International Airport, General Airport,
Ser E, RB, CIFG Insured
$ 1,550 5.250%, 01/01/22 $ 1,468
Illinois State, Finance Authority, Hospital Sisters
Services, Ser A, RB
1,000 5.000%, 03/15/27 853
---------
2,321
---------
Indiana -- 1.8%
Indiana Finance Authority, Highway Revenue, Ser A, RB,
1,200 4.500%, 06/01/27 1,042
Indiana State, Health & Educational Facilities Financing
Authority, Clarion Health Obligation, Ser A, RB
1,500 5.000%, 02/15/39 960
Wayne Township School Building, RB, MBIA Re-insures FGIC
Insured
1,000 3.500%, 07/15/24 811
---------
2,813
---------
Massachusetts -- 0.3%
Massachusetts State, Water Resources Authority, Ser J, RB
565 5.000%, 08/01/42 529
---------
Nevada -- 0.7%
Las Vegas New Convention & Visitors Authority, RB,
AMBAC Insured
1,055 5.000%, 07/01/28 1,028
---------
New Mexico -- 0.4%
New Mexico Finance Authority, Ser B, RB,
AMBAC Insured
500 5.000%, 06/15/13 550
---------
Oklahoma -- 2.2%
Durant Community Facilities Authority, GO, XLCA Insured
1,730 5.750%, 11/01/24 1,775
Tulsa Industrial Authority, University of Tulsa, RB
2,000 5.000%, 10/01/37 1,639
---------
3,414
---------
Bishop Street Funds 42
Hawaii Municipal Bond Fund
SCHEDULE OF INVESTMENTS
(continued)
Face Amount
Shares Value
(000)/ (000)
- ----------- ----------
Puerto Rico -- 1.3%
Commonwealth of Puerto Rico, GO, MBIA Insured
$ 1,500 6.000%, 07/01/15 $ 1,461
Commonwealth of Puerto Rico, Public Improvement, GO,
FSA Insured, Pre-Refunded @ 100 (A)
55 5.000%, 07/01/11 60
Puerto Rico, Electric Power Authority, Ser HH, RB, FSA
Insured, Pre-Refunded @ 101 (A)
500 5.250%, 07/01/10 534
---------
2,055
---------
South Carolina -- 1.3%
Edisto Beach, GO
735 5.000%, 04/01/37 701
Sumter South Carolina, Waterworks & Sewer Improvement
Systems, RB, XLCA Insured
500 5.000%, 12/01/21 502
840 5.000%, 12/01/24 811
---------
2,014
---------
Texas -- 2.4%
Alamo Community College District, GO, MBIA Re-insures
MBIA FGIC Insured
1,000 4.500%, 08/15/26 918
North Texas Tollway Authority, RB, Assured Guarantee Insured (B)
5,000 5.295%, 01/01/30 1,298
University of Texas, Permanent University Fund, Ser B, RB
1,600 4.500%, 07/01/33 1,411
---------
3,627
---------
TOTAL MUNICIPAL BONDS (Cost $156,416) 150,739
---------
CASH EQUIVALENTS (C) -- 0.7%
572,473 Dreyfus Tax-Exempt Cash Management Fund,
Institutional Shares, 1.390% 572
572,473 Fidelity Institutional Tax-Exempt Portfolio,
Institutional Shares, 0.930% 572
---------
TOTAL CASH EQUIVALENTS (Cost $1,144) 1,144
---------
TOTAL INVESTMENTS (Cost $157,560) -- 98.3% $ 151,883
=========
December 31, 2008 43 www.bishopstreetfunds.com
Hawaii Municipal Bond Fund
SCHEDULE OF INVESTMENTS
(continued)
Percentages are based on Net Assets of $154,514 ($ Thousands).
(A) Pre-Refunded Security -- The maturity date shown is the pre-refunded date.
(B) Zero Coupon Security -- The rate reported on the Schedule of Investments
is the effective yield at time of purchase.
(C) The rate reported is the 7-day effective yield as of December 31, 2008.
AGC -- Assured Guarantee Insurance
AMBAC -- American Municipal Bond Assurance Company
AMT -- Alternative Minimum Tax
CIFG -- CIFG Assurance North America, Inc.
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
RADIAN -- Radian Guarantee
RB -- Revenue Bond
Ser -- Series
TA -- Tax Allocation
TCRS -- Tax Credit Return Summary
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
Government Money Market & Treasury Money Market Funds
2008 proved to be a challenging year for the money market industry. A banking
crisis developed mid-year resulting in short term funding difficulties for the
financial industry. Investors shunned short term credit securities for the
safety of U.S. Treasury Bills, driving yields to single digits. The commercial
paper markets were frozen leaving issuers unable to fund short term obligations
in the traditional manner. The U.S. Treasury intervened through the adoption of
several programs aimed at providing liquidity to both holders and issuers of
commercial paper. The short term credit markets responded positively with yield
spreads contracting into year end.
Tight credit markets, declining home prices and rising unemployment negatively
impacted U.S. growth. Consumption fell significantly as it became apparent that
the economy had slipped into recession. Despite the positive effects of falling
energy prices, real GDP declined below zero in the second half of the year with
indications of additional contraction in early 2009.
Demand for government securities depressed yields on short term securities.
Federal Funds traded at near zero levels throughout the fourth quarter. The
Federal Open Market Committee announced a reduction in the target funds rate to
a range between 0 and 25 basis points. Additional stimulus will involve the
direct purchase of assets by U.S. Treasury, similar in concept to Bank of
Japan's quantitative easing introduced in the early 2000's.
December 31, 2008 45 www.bishopstreetfunds.com
BISHOP STREET
MANAGEMENT DISCUSSION
FUNDS
During the year the Money Market and Treasury Money Market Funds (the "Funds")
were managed in a very conservative fashion. The allocation to commercial paper
and bank deposits was eliminated in favor of government securities. The
maturities of the portfolios were extended slightly to take advantage of yield
opportunities further out the yield curve. Given the uncertain environment
maturities were structured in a laddered format across the curve to allow for
continued opportunities to reinvest at attractive yield levels. Meanwhile, we
continue to strive to improve the yield of the Funds while maintaining a high
level of credit quality.
Bishop Street Funds 46
Government Money Market Fund
SECTOR WEIGHTINGS (UNAUDITED)+
(BAR CHART)
U.S. Government Agency Obligations 83.0%
U.S. Treasury Obligations 9.5%
Repurchase Agreements 7.5%
+ Percentages are based on total investments.
SCHEDULE OF INVESTMENTS
Face
Amount Value
(000) (000)
- -------- ---------
U.S. GOVERNMENT AGENCY OBLIGATIONS (A) -- 83.0%
FHLB
$ 10,000 1.990%, 02/18/09 $ 9,986
13,000 1.990%, 02/27/09 12,959
2,836 1.307%, 03/30/09 2,827
2,500 1.203%, 01/05/09 2,500
7,000 1.153%, 01/26/09 6,994
5,134 1.054%, 03/13/09 5,123
2,000 1.053%, 02/03/09 2,000
8,000 0.781%, 01/15/09 7,998
5,000 0.601%, 02/23/09 4,996
3,000 0.550%, 01/12/09 2,999
1,100 0.150%, 04/01/09 1,100
1,000 0.120%, 03/31/09 1,000
1,060 0.100%, 03/12/09 1,060
7,000 0.070%, 01/13/09 7,000
3,400 0.040%, 01/07/09 3,400
6,100 0.010%, 03/06/09 6,100
FHLMC
5,000 1.457%, 02/27/09 4,989
15,000 1.389%, 02/17/09 14,973
2,000 1.310%, 06/23/09 1,987
5,000 1.054%, 04/28/09 4,983
5,000 1.004%, 04/17/09 4,985
5,000 0.954%, 04/21/09 4,985
2,070 0.601%, 02/11/09 2,069
8,000 0.451%, 05/20/09 7,986
3,250 0.320%, 04/22/09 3,247
1,850 0.300%, 04/14/09 1,848
6,000 0.240%, 03/16/09 5,997
1,965 0.130%, 04/01/09 1,964
December 31, 2008 47 www.bishopstreetfunds.com
Government Money Market Fund
SCHEDULE OF INVESTMENTS
(continued)
Face
Amount Value
(000) (000)
- -------- ---------
U.S. GOVERNMENT AGENCY OBLIGATIONS (A) -- (continued)
FNMA
$ 3,000 1.224%, 02/17/09 $ 2,995
3,000 1.166%, 05/13/09 2,987
3,000 1.156%, 05/01/09 2,988
4,500 1.003%, 03/16/09 4,491
15,000 0.935%, 01/26/09 14,990
9,000 0.150%, 02/23/09 8,998
5,000 0.150%, 03/11/09 4,999
6,020 0.150%, 04/01/09 6,018
---------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $186,521) 186,521
---------
U.S. TREASURY OBLIGATIONS (A) -- 9.6%
U.S. Cash Management Bills
2,500 1.581%, 04/29/09 2,494
U.S. Treasury Bills
5,000 1.250%, 01/29/09 4,995
7,000 0.686%, 04/23/09 6,962
7,000 0.455%, 01/22/09 6,998
---------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $21,449) 21,449
---------
REPURCHASE AGREEMENTS -- 7.4%
11,000 Bank of America 0.080%, dated 12/31/08, to be repurchased
on 01/02/09, repurchase price $11,000,049 (collateralized
by a U.S. Government obligation, par value $15,568,521,
5.000%, 07/01/35, with a total market value of $11,220,000) 11,000
5,700 Barclays Bank 0.040%, dated 12/31/08, to be repurchased
on 01/02/09, repurchase price $5,700,013 (collateralized
by a U.S. Government obligation, par value $5,827,768,
4.000%, 09/01/23, with a total market value of $5,814,000) 5,700
---------
TOTAL REPURCHASE AGREEMENTS (Cost $16,700) 16,700
---------
TOTAL INVESTMENTS (Cost $224,670)+ -- 100.0% $ 224,670
=========
Bishop Street Funds 48
Government Money Market Fund
SCHEDULE OF INVESTMENTS
(continued)
Percentages are based on Net Assets of $224,611 ($ Thousands).
+ For Federal tax purposes, the Fund's aggregate tax cost is equal to book
cost
(A) The rate reported on the Schedule of Investments is the effective yield at
time of purchase.
FHLB -- Federal Home Loan Bank
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
Cost Figures are shown in Thousands.
The accompanying notes are an integral part of the financial statements.
December 31, 2008 49 www.bishopstreetfunds.com
Treasury Money Market Fund
SECTOR WEIGHTINGS (UNAUDITED)+
(BAR CHART)
Repurchase Agreements 62.6%
U.S. Treasury Obligations 37.4%
+ Percentages based on total investments.
SCHEDULE OF INVESTMENTS
Face
Amount Value
(000) (000)
- -------- ---------
U.S. TREASURY OBLIGATIONS (A) -- 37.4%
U.S. Cash Management Bills
$ 10,000 1.581%, 04/29/09 $ 9,974
8,000 0.939%, 05/15/09 7,972
U.S. Treasury Bills
10,000 0.686%, 04/23/09 9,973
2,000 0.427%, 10/22/09 1,993
----------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $29,912) 29,912
----------
REPURCHASE AGREEMENTS -- 62.5%
25,000 Bank of America 0.010%, dated 12/31/08, to be
repurchased on 01/02/09, repurchase price $ 25,000,014
(collateralized by a U.S. Treasury obligation, par value
$18,233,500, 4.500%, 05/15/38, with a total market value
of $ 25,500,065) 25,000
25,000 Barclays Bank 0.010%, dated 12/31/08, to be repurchased
on 01/02/09, repurchase price $25,000,014
(collateralized by a U.S. Treasury obligation, par value
$21,233,800, 3.000%, 07/15/12, with a total market
value of $25,500,080) 25,000
----------
TOTAL REPURCHASE AGREEMENTS (Cost $50,000) 50,000
----------
TOTAL INVESTMENTS (Cost $79,912)+ -- 99.9% $ 79,912
==========
Percentages are based on Net Assets of $79,967 ($ Thousands).
+ For Federal tax purposes, the Fund's aggregate tax cost is equal to book
cost
(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, 2008
(In Thousands)
Large High
Strategic Cap Core Grade
Growth Equity Income
Fund Fund Fund
- -----------------------------------------------------------------------------------------------
ASSETS:
Investments, at Cost $ 80,334 $ 90,426 $ 126,191
Repurchase Agreements, at Cost -- 153 153
===============================================================================================
Investments, at Value $ 61,844 $ 64,605(1) $ 133,686(1)
Repurchase Agreements, at Value -- 153 153
Receivable for Investment Securities Sold 379 225 --
Dividends and Interest Receivable 78 102 1,631
Receivable for Fund Shares Sold 1 -- 3
Prepaid Expenses 1 1 2
- -----------------------------------------------------------------------------------------------
Total Assets 62,303 65,086 135,475
- -----------------------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund Shares Redeemed 1 -- 52
Income Distribution Payable -- -- 202
Collateral on Securities Loaned -- 13,166 13,140
Advisory Fees Payable 38 37 50
Administrative Fees Payable 6 5 13
Shareholder Servicing Fees Payable 5 4 11
Chief Compliance Officer Fees Payable -- -- 1
Other accrued Expenses Payable 16 15 30
- -----------------------------------------------------------------------------------------------
Total Liabilities 66 13,227 13,499
- -----------------------------------------------------------------------------------------------
Net Assets $ 62,237 $ 51,859 $ 121,976
===============================================================================================
Fund Shares $ 87,678 $ 86,424 $ 115,515
Undistributed Net Investment Income 2 -- 2
Accumulated Net Realized Loss on Investments (6,953) (8,744) (1,036)
Net Unrealized Appreciation (Depreciation) on
Investments (18,490) (25,821) 7,495
- -----------------------------------------------------------------------------------------------
Net Assets $ 62,237 $ 51,859 $ 121,976
===============================================================================================
Class I Shares:
Net Assets $ 62,237 $ 51,859 $ 121,976
Outstanding Shares of Beneficial Interest
(unlimited authorization -- no par value) 7,702 8,609 11,547
Net Asset Value, Offering and Redemption Price
Per Share
(Net Assets / Shares Outstanding) $ 8.08 $ 6.02 $ 10.56
===============================================================================================
(1) Included in "Investments, at Value" is the market value of securities on
loan in the amounts of $12,852 ($ Thousands), and $12,614 ($ 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, 2008 51 www.bishopstreetfunds.com
Bishop Street Funds
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2008
(In Thousands)
Hawaii Government Treasury
Municipal Money Money
Bond Market Market
Fund Fund Fund
- --------------------------------------------------------------------------------------------
ASSETS:
Investments, at Cost $ 157,560 $ 207,970 $ 29,912
Repurchase Agreements, at Cost -- 16,700 50,000
============================================================================================
Investments, at Value $ 151,883 $ 207,970 $ 29,912
Repurchase Agreements, at Value -- 16,700 50,000
Cash -- 32 96
Interest Receivable 3,018 -- --
Receivable for Fund Shares Sold 146 61 --
Prepaid Expenses 2 3 2
- --------------------------------------------------------------------------------------------
Total Assets 155,049 224,766 80,010
- --------------------------------------------------------------------------------------------
LIABILITIES:
Income Distribution Payable 422 16 3
Advisory Fees Payable 43 26 12
Shareholder Servicing Fees Payable 13 20 --
Administrative Fees Payable 9 25 9
Distribution Fees Payable 5 12 --
Chief Compliance Officer Fees Payable 1 2 1
Other accrued Expenses Payable 42 54 18
- --------------------------------------------------------------------------------------------
Total Liabilities 535 155 43
- --------------------------------------------------------------------------------------------
Net Assets $ 154,514 $ 224,611 $ 79,967
============================================================================================
Fund Shares $ 160,594 $ 224,625 $ 79,886
Undistributed Net Investment Income 10 -- 22
Accumulated Net Realized Gain (Loss) on
Investments (413) (14) 59
Net Unrealized Depreciation on Investments (5,677) -- --
- --------------------------------------------------------------------------------------------
Net Assets $ 154,514 $ 224,611 $ 79,967
============================================================================================
Class I Shares:
Net Assets $ 130,807 $ 164,165 $ 79,967
Outstanding Shares of Beneficial Interest
(unlimited authorization -- no par value) 13,014 164,186 79,887
Net Asset Value, Offering and Redemption Price
Per Share -- Class I
(Net Assets / Shares Outstanding) $ 10.05 $ 1.00 $ 1.00
============================================================================================
Class A Shares:
Net Assets $ 23,707 $ 60,446 $ --
Outstanding Shares of Beneficial Interest
(unlimited authorization -- no par value) 2,358 60,442 --
Net Asset Value, Offering and Redemption Price
Per Share -- Class A
(Net Assets / Shares Outstanding) $ 10.05 $ 1.00 $ --
============================================================================================
Maximum Offering Price Per Shares -- Class A
($10.05 / 97.00%) $ 10.36 -- --
============================================================================================
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, 2008
(In Thousands)
Large High
Strategic Cap Core Grade
Growth Equity Income
Fund Fund Fund
- --------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend Income $ 837 $ 1,471 $ 38
Interest Income -- -- 6,338
Securities Lending, Net of commissions paid to lending agent -- 14 201
Less: Foreign Taxes Withheld (1) (1) --
- --------------------------------------------------------------------------------------------------------
Total Investment Income 836 1,484 6,577
- --------------------------------------------------------------------------------------------------------
EXPENSES:
Investment Adviser Fees 710 581 725
Shareholder Servicing Fee 240 196 330
Administrative Fees 192 157 264
Chief Compliance Officer Fees -- -- 1
Transfer Agent Fees 38 36 43
Professional Fees 22 19 33
Printing Fees 8 7 16
Custody Fees 8 6 10
Trustees' Fees 7 5 8
Line of Credit 5 3 --
Registration Fees 3 3 3
Miscellaneous Expenses 4 9 23
- --------------------------------------------------------------------------------------------------------
Total Expenses 1,237 1,022 1,456
- --------------------------------------------------------------------------------------------------------
Less Waivers:
Investment Adviser Fees -- (13) (150)
Shareholder Servicing Fees (144) (118) (198)
Administrative Fees (78) (64) (106)
- --------------------------------------------------------------------------------------------------------
Total Waivers (222) (195) (454)
- --------------------------------------------------------------------------------------------------------
Total Net Expenses 1,015 827 1,002
- --------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) (179) 657 5,575
- --------------------------------------------------------------------------------------------------------
Net Realized Loss on Investments (6,780) (8,415) (29)
Change in Unrealized Appreciation
(Depreciation) on Investments (40,393) (31,430) 4,542
- --------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on Investments (47,173) (39,845) 4,513
- --------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Resulting from
Operations $ (47,352) $ (39,188) $ 10,088
- --------------------------------------------------------------------------------------------------------
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, 2008 53 www.bishopstreetfunds.com
Bishop Street Funds
STATEMENTS OF OPERATIONS
For the year ended December 31, 2008
(In Thousands)
Hawaii Government Treasury
Municipal Money Money
Bond Market Market
Fund Fund Fund
- --------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest Income $ 7,329 $ 6,336 $ 2,464
Dividend Income 19 -- --
- --------------------------------------------------------------------------------------------
Total Investment Income 7,348 6,336 2,464
- --------------------------------------------------------------------------------------------
EXPENSES:
Investment Adviser Fees 576 705 385
Shareholder Servicing Fee 412 587 321
Administrative Fees 329 470 257
Distribution Fees, Class A 67 172 --
Chief Compliance Officer Fees 1 2 --
Transfer Agent Fees 70 89 49
Professional Fees 41 91 48
Printing Fees 20 30 13
Custody Fees 13 18 10
Trustees' Fees 10 14 8
Registration Fees 4 6 4
Line of Credit 1 -- --
Treasury Guarantee Program -- 22 --
Miscellaneous Expenses 32 34 17
- --------------------------------------------------------------------------------------------
Total Expenses 1,576 2,240 1,112
- --------------------------------------------------------------------------------------------
Less Waivers:
Investment Adviser Fees (143) (328) (104)
Shareholder Servicing Fees (247) (352) (203)
Administrative Fees (213) (189) (249)
- --------------------------------------------------------------------------------------------
Total Waivers (603) (869) (556)
- --------------------------------------------------------------------------------------------
Total Net Expenses 973 1,371 556
- --------------------------------------------------------------------------------------------
Net Investment Income 6,375 4,965 1,908
- --------------------------------------------------------------------------------------------
Net Realized Gain (Loss) on Investments (373) 5 59
Change in Unrealized Depreciation on Investments (7,800) -- --
- --------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on Investments (8,173) 5 59
- --------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Resulting from
Operations $ (1,798) $ 4,970 $ 1,967
============================================================================================
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 ended December 31,
(In Thousands)
Strategic Large Cap Core
Growth Fund Equity Fund
- ----------------------------------------------------------------------------------------------------------
2008 2007 2008 2007
- ----------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES FROM OPERATIONS:
Net Investment Income (Loss) $ (179) $ (298) $ 657 $ 404
Net Realized Gain (Loss) on Investments (6,780) 19,654 (8,415) 5,352
Change in Unrealized Depreciation on Investments (40,393) (6,388) (31,430) (407)
- ----------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Resulting
from Operations (47,352) 12,968 (39,188) 5,349
- ----------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income:
Class I Shares -- -- (663) (404)
Capital Gains:
Class I Shares (1,792) (18,469) (405) (5,563)
- ----------------------------------------------------------------------------------------------------------
Total Dividends and Distributions (1,792) (18,469) (1,068) (5,967)
- ----------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Class I Shares:
Proceeds from Shares Issued 7,881 11,212 7,026 11,637
Reinvestments of Cash Distributions 1,339 13,283 802 4,516
Cost of Shares Redeemed (24,223) (35,539) (17,055) (17,043)
- ----------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets From
Capital Share Transactions (15,003) (11,044) (9,227) (890)
- ----------------------------------------------------------------------------------------------------------
Total Decrease in Net Assets (64,147) (16,545) (49,483) (1,508)
- ----------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Year 126,384 142,929 101,342 102,850
- ----------------------------------------------------------------------------------------------------------
End of Year $ 62,237 $ 126,384 $ 51,859 $ 101,342
==========================================================================================================
Undistributed Net Investment Income $ 2 $ 2 $ -- $ --
==========================================================================================================
SHARE TRANSACTIONS:
Class I Shares:
Shares Issued 713 733 906 1,053
Shares Issued in Lieu of Cash Distributions 110 933 100 422
Shares Redeemed (2,118) (2,301) (2,014) (1,542)
- ----------------------------------------------------------------------------------------------------------
Net Decrease in Shares Outstanding from
Share Transactions (1,295) (635) (1,008) (67)
==========================================================================================================
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, 2008 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
- ----------------------------------------------------------------------------------------------------------
2008 2007 2008 2007
- ----------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES FROM OPERATIONS:
Net Investment Income $ 5,575 $ 5,904 $ 6,375 $ 6,671
Net Realized Gain (Loss) on Investments (29) (237) (373) 502
Change in Unrealized Appreciation (Depreciation)
on Investments 4,542 3,129 (7,800) (3,000)
- ----------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets Resulting
from Operations 10,088 8,796 (1,798) 4,173
- ----------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income:
Class I Shares (5,571) (5,901) (5,387) (5,627)
Class A Shares -- -- (980) (1,099)
Capital Gains:
Class I Shares -- -- -- (665)
Class A Shares -- -- -- (134)
- ----------------------------------------------------------------------------------------------------------
Total Dividends and Distributions (5,571) (5,901) (6,367) (7,525)
- ----------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Class I Shares:
Proceeds from Shares Issued 15,292 17,815 13,137 23,661
Reinvestments of Cash Distributions 3,249 3,274 685 818
Cost of Shares Redeemed (37,305) (29,209) (20,981) (15,222)
- ----------------------------------------------------------------------------------------------------------
Total Class I Capital Share Transactions (18,764) (8,120) (7,159) 9,257
- ----------------------------------------------------------------------------------------------------------
Class A Shares:
Proceeds from Shares Issued -- -- 1,938 1,924
Reinvestments of Cash Distributions -- -- 423 540
Cost of Shares Redeemed -- -- (6,466) (3,180)
- ----------------------------------------------------------------------------------------------------------
Total Class A Capital Share Transactions -- -- (4,105) (716)
- ----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets from
Capital Share Transactions (18,764) (8,120) (11,264) 8,541
- ----------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (14,247) (5,225) (19,429) 5,189
- ----------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Year 136,223 141,448 173,943 168,754
- ----------------------------------------------------------------------------------------------------------
End of Year $ 121,976 $ 136,223 $ 154,514 $ 173,943
==========================================================================================================
Undistributed Net Investment Income $ 2 $ 2 $ 10 $ 2
==========================================================================================================
SHARE TRANSACTIONS:
Class I Shares:
Shares Issued 1,504 1,789 1,294 2,226
Shares Issued in Lieu of Cash Distributions 320 329 67 77
Shares Redeemed (3,693) (2,934) (2,064) (1,434)
- ----------------------------------------------------------------------------------------------------------
Total Class I Share Transactions (1,869) (816) (703) 869
- ----------------------------------------------------------------------------------------------------------
Class A Shares:
Shares Issued -- -- 188 181
Shares Issued in Lieu of Cash Distributions -- -- 41 51
Shares Redeemed -- -- (628) (300)
- ----------------------------------------------------------------------------------------------------------
Total Class A Share Transactions -- -- (399) (68)
- ----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Shares Outstanding
from Share Transactions (1,869) (816) (1,102) 801
==========================================================================================================
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)
Government
Money Market Treasury Money
Fund Market Fund
- ----------------------------------------------------------------------------------------------------------
2008 2007 2008 2007
- ----------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES FROM OPERATIONS:
Net Investment Income $ 4,965 $ 10,658 $ 1,908 $ 7,077
Net Realized Gain on Investments 5 3 59 121
- ----------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations 4,970 10,661 1,967 7,198
- ----------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income:
Class I Shares (3,629) (7,832) (1,908) (7,077)
Class A Shares (1,336) (2,826) -- --
Capital Gains:
Class I Shares -- -- -- (42)
- ----------------------------------------------------------------------------------------------------------
Total Dividends and Distributions (4,965) (10,658) (1,908) (7,119)
- ----------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (ALL AT $1.00 PER SHARE):
Class I Shares:
Proceeds from Shares Issued 497,017 428,470 497,540 543,810
Reinvestments of Cash Distributions 952 305 267 11
Cost of Shares Redeemed (513,532) (408,095) (565,411) (554,752)
- ----------------------------------------------------------------------------------------------------------
Total Class I Capital Share Transactions (15,563) 20,680 (67,604) (10,931)
- ----------------------------------------------------------------------------------------------------------
Class A Shares:
Proceeds from Shares Issued 93,907 110,288 -- --
Reinvestments of Cash Distributions 1,336 2,826 -- --
Cost of Shares Redeemed (98,367) (108,760) -- --
- ----------------------------------------------------------------------------------------------------------
Total Class A Capital Share Transactions (3,124) 4,354 -- --
- ----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
from Capital Share Transactions (18,687) 25,034 (67,604) (10,931)
- ----------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (18,682) 25,037 (67,545) (10,852)
- ----------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Year 243,293 218,256 147,512 158,364
- ----------------------------------------------------------------------------------------------------------
End of Year $ 224,611 $ 243,293 $ 79,967 $ 147,512
==========================================================================================================
Undistributed Net Investment Income $ -- $ -- $ 22 $ --
==========================================================================================================
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, 2008 57 www.bishopstreetfunds.com
Bishop Street Funds
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the years ended December 31,
DIVIDENDS AND
INVESTMENT ACTIVITIES DISTRIBUTIONS FROM
---------------------------- TOTAL ---------------------
NET ASSET NET NET REALIZED INVESTMENT TOTAL
VALUE, INVESTMENT AND UNREALIZED ACTIVITIES NET DIVIDENDS
BEGINNING INCOME GAIN (LOSS) ON FROM INVESTMENT CAPITAL AND
OF PERIOD (LOSS) (1) INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
--------- ---------- -------------- ---------- ---------- ------- -------------
STRATEGIC GROWTH FUND
CLASS I SHARES:
2008 $ 14.05 $ (0.02) $ (5.73) $ (5.75) $ -- $ (0.22) $ (0.22)
2007 14.84 (0.03) 1.53 1.50 -- (2.29) (2.29)
2006 14.35 (0.03) 1.41 1.38 -- (0.89) (0.89)
2005 13.08 (0.05) 1.56 1.51 -- (0.24) (0.24)
2004 11.93 (0.05) 1.20 1.15 -- -- --
LARGE CAP CORE EQUITY FUND
CLASS I SHARES:
2008 $ 10.54 $ 0.07 $ (4.47) $ (4.40) $ (0.07) $ (0.05) $ (0.12)
2007 10.62 0.04 0.52 0.56 (0.04) (0.60) (0.64)
2006(2) 10.00 0.04 0.62 0.66 (0.04) -- (0.04)
HIGH GRADE INCOME FUND
CLASS I SHARES:
2008 $ 10.15 $ 0.43 $ 0.41 $ 0.84 $ (0.43) $ -- $ (0.43)
2007 9.94 0.44 0.21 0.65 (0.44) -- (0.44)
2006 10.06 0.41 (0.12) 0.29 (0.41) -- (0.41)
2005 10.33 0.39 (0.19) 0.20 (0.39) (0.08) (0.47)
2004 10.40 0.38 (0.03) 0.35 (0.38) (0.04) (0.42)
HAWAII MUNICIPAL BOND FUND
CLASS I SHARES:
2008 $ 10.56 $ 0.40 $ (0.51) $ (0.11) $ (0.40) $ -- $ (0.40)
2007 10.77 0.42 (0.16) 0.26 (0.42) (0.05) (0.47)
2006 10.77 0.43 0.04 0.47 (0.43) (0.04) (0.47)
2005 11.02 0.43 (0.16) 0.27 (0.43) (0.09) (0.52)
2004 11.21 0.44 (0.07) 0.37 (0.44) (0.12) (0.56)
CLASS A SHARES:
2008 $ 10.56 $ 0.38 $ (0.51) $ (0.13) $ (0.38) $ -- $ (0.38)
2007 10.77 0.39 (0.16) 0.23 (0.39) (0.05) (0.44)
2006 10.77 0.40 0.04 0.44 (0.40) (0.04) (0.44)
2005 11.02 0.41 (0.16) 0.25 (0.41) (0.09) (0.50)
2004 11.21 0.41 (0.07) 0.34 (0.41) (0.12) (0.53)
+ Total return is for the period indicated and has not been annualized.
Returns shown do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares. Fee
waivers are in effect; if they had not been in effect, performance would
have been lower.
* Annualized.
(1) Per share net investment income amount calculated using average shares.
(2) Commenced operations on May 3, 2006.
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
- --------- ------ ----------- ----------- ----------------- ------------ ---------
$ 8.08 (41.46)% $ 62,237 1.06% 1.29% (0.19)% 73%
14.05 10.10 126,384 1.07 1.30 (0.22) 61
14.84 9.78 142,929 1.06 1.30 (0.23) 53
14.35 11.52 123,341 1.07 1.31 (0.35) 55
13.08 9.64 79,168 1.05 1.29 (0.38) 59
$ 6.02 (42.02)% $ 51,859 1.05% 1.30% 0.84% 75%
10.54 5.24 101,342 1.05 1.31 0.38 65
10.62 6.63 102,850 1.05* 1.32* 0.64* 51
$ 10.56 8.53% $ 121,976 0.76% 1.10% 4.22% 28%
10.15 6.67 136,223 0.76 1.11 4.38 26
9.94 2.96 141,448 0.76 1.12 4.12 41
10.06 2.00 141,439 0.76 1.13 3.82 45
10.33 3.41 157,170 0.76 1.11 3.68 45
$ 10.05 (1.02)% $ 130,807 0.55% 0.92% 3.91% 36%
10.56 2.47 144,828 0.55 0.93 3.92 25
10.77 4.42 138,333 0.55 0.93 3.99 47
10.77 2.51 145,213 0.55 0.93 3.97 41
11.02 3.36 148,575 0.55 0.92 3.97 40
$ 10.05 (1.27)% $ 23,707 0.80% 1.17% 3.66% 36%
10.56 2.21 29,115 0.80 1.18 3.67 25
10.77 4.16 30,421 0.80 1.18 3.74 47
10.77 2.25 31,515 0.80 1.18 3.72 41
11.02 3.10 30,484 0.80 1.17 3.72 40
The accompanying notes are an integral part of the financial statements.
December 31, 2008 59 www.bishopstreetfunds.com
Bishop Street Funds
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the years ended December 31,
DIVIDENDS AND
INVESTMENT ACTIVITIES DISTRIBUTIONS FROM
---------------------------- TOTAL ---------------------
NET ASSET NET NET REALIZED INVESTMENT TOTAL
VALUE, INVESTMENT AND UNREALIZED ACTIVITIES NET DIVIDENDS
BEGINNING INCOME GAIN (LOSS) ON FROM INVESTMENT CAPITAL AND
OF PERIOD (LOSS) (1) INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS
--------- ---------- -------------- ---------- ---------- ------- -------------
GOVERNMENT MONEY MARKET FUND
CLASS I SHARES:
2008 $ 1.00 $ 0.02 $ --* $ 0.02 $ (0.02) $-- $ (0.02)
2007 1.00 0.05 -- 0.05 (0.05) -- (0.05)
2006 1.00 0.05 -- 0.05 (0.05) -- (0.05)
2005 1.00 0.03 -- 0.03 (0.03) -- (0.03)
2004 1.00 0.01 -- 0.01 (0.01) -- (0.01)
CLASS A SHARES:
2008 $ 1.00 $ 0.02 $ --* $ 0.02 $ (0.02) $-- $ (0.02)
2007 1.00 0.05 -- 0.05 (0.05) -- (0.05)
2006 1.00 0.04 -- 0.04 (0.04) -- (0.04)
2005 1.00 0.03 -- 0.03 (0.03) -- (0.03)
2004 1.00 0.01 -- 0.01 (0.01) -- (0.01)
TREASURY MONEY MARKET FUND
CLASS I SHARES:
2008 $ 1.00 $ 0.01 $ --* $ 0.01 $ (0.01) $-- $ (0.01)
2007 1.00 0.04 -- 0.04 (0.04) --* (0.04)
2006 1.00 0.04 -- 0.04 (0.04) -- (0.04)
2005 1.00 0.03 -- 0.03 (0.03) -- (0.03)
2004 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.
(2) The Ratio of Expenses to Average Net Assets includes the impact of the
cost of the Treasury Guarantee Program. If this expense had been subject
to the adviser's voluntary expense limitation, the ratio would have been
.50% for Class I shares and .75% for Class A shares, for fiscal year ended
2008.
(3) The Ratio of Expenses to Average Net Assets includes the impact of a yield
floor waiver which is included in Shareholder Servicing Fees waivers on
the statement of operations. If this expense were not waived, the ratio
would have been .44%, for fiscal year ended 2008.
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
- --------- ------- ----------- ----------- ----------------- ------------
$ 1.00 2.18% $ 164,165 0.51%(2) 0.88% 2.19%
1.00 4.86 179,725 0.50 0.86 4.75
1.00 4.63 159,044 0.50 0.86 4.55
1.00 2.78 170,455 0.50 0.87 2.73
1.00 0.92 167,910 0.50 0.84 0.90
$ 1.00 1.93% $ 60,446 0.76%(2) 1.13% 1.94%
1.00 4.60 63,568 0.75 1.11 4.50
1.00 4.37 59,212 0.75 1.11 4.33
1.00 2.53 35,530 0.75 1.12 2.60
1.00 0.67 17,824 0.75 1.09 0.65
$ 1.00 1.37% $ 79,967 0.43%(3) 0.87% 1.49%
1.00 4.49 147,512 0.44 0.88 4.38
1.00 4.51 158,364 0.44 0.87 4.39
1.00 2.62 223,614 0.44 0.87 2.61
1.00 0.91 208,153 0.44 0.84 0.89
The accompanying notes are an integral part of the financial statements.
December 31, 2008 61 www.bishopstreetfunds.com
Bishop Street Funds
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
The amounts included in the Notes to Financial Statements are in thousands
unless otherwise noted.
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, Government
Money Market Fund (formerly 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 in the most advantageous market, 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 fair 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 Government 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.
In September, 2006, the Financial Accounting Standards Board ("FASB")
released Statement of Financial Accounting Standards ("SFAS") No. 157, which
provides enhanced guidance for using fair value to measure assets and
liabilities. The Fund adopted SFAS No. 157 on January 1, 2008. SFAS No. 157
establishes a fair value hierarchy and specifies that a valuation technique used
to measure fair value shall maximize the use of observable inputs and minimize
the use of unobservable inputs. The objective of a fair value measurement is to
determine the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the
measurement date (an exit price). Accordingly, the fair value hierarchy gives
the highest priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The three levels of the fair value hierarchy
under SFAS No. 157 are described below:
- Level 1 -- Unadjusted quoted prices in active markets for identical,
unrestricted assets or liabilities that the Fund has the ability to
access at the measurement date;
- Level 2 -- Quoted prices which are not in active markets, or inputs
that are observable (either directly or indirectly) for
substantially similar assets.
- Level 3 -- Prices, inputs or exotic modeling techniques which are
both significant to the fair value measurement and unobservable
(supported by little or no market activity).
As required by SFAS No. 157, investments are classified within the level
of the lowest significant input considered in determining fair value.
Investments classified within Level 3, whose fair value measurement considers
several inputs, may include Level 1 or Level 2 inputs as components of the
overall fair value measurement. The table below sets
December 31, 2008 63 www.bishopstreetfunds.com
Bishop Street Funds
forth information about the level within the fair value hierarchy at which the
Fund's investments are measured at December 31, 2008:
INVESTMENTS IN SECURITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
- ---------------------------- ------- --------- ------- --------
Strategic Growth Fund $61,844 $ -- $ -- $ 61,844
Large Cap Core Equity Fund 64,758 -- -- 64,758
High Grade Income Fund 13,794 120,045 -- 133,839
Hawaii Municipal Bond Fund 1,146 150,737 -- 151,883
Government Money Market Fund 16,700 207,970 -- 224,670
Treasury Money Market Fund 50,000 29,912 -- 79,912
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 and 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 Government Money Market and Treasury Money Market
Funds use the straight line method.
Repurchase Agreements
In connection with transactions involving repurchase agreements, a third
party custodian bank takes possession of the underlying securities
("collateral"), the value of which exceeds the principal amount of the
repurchase transaction, including accrued interest. In the event of default on
the obligation to repurchase, the Funds have the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. In the
event of default or bankruptcy by the counterparty to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
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.
Distribution fees are the only class-specific expense.
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.
Bishop Street Funds 64
Dividends and Distributions to Shareholders
The Strategic Growth and Large Cap Core Equity Funds declare and pay
dividends from any net investment income, if available, on a quarterly basis.
Dividends from net investment income are declared daily and paid on a monthly
basis for the High Grade Income, Hawaii Municipal Bond, Government Money Market
and Treasury Money Market Funds. 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, 2008, there were no illiquid securities held by the
Funds.
Front-End Sales Commission
Front-End sales commissions and CDSC (collectively the "sales charges")
are not recorded as expenses of the Hawaii Municipal Bond Fund. Front-end sales
commissions are deducted from proceeds from the sales of Hawaii Municipal Bond
Fund shares prior to investment in Class A shares. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended December 31, 2008 the Hawaii Municipal Bond Fund retained $25 in front-end
sales commissions from the sales of Class A shares imposed on redemptions by
shareholders.
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, 2008, there were overdraft
charges in the amount of $3 for the Government Money Market Fund and $1 for the
Treasury Money Market Fund.
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
Government Money Market and Treasury Money Market Funds (collectively, the
"Money Market Funds"). The Adviser has voluntarily agreed to waive a portion of
its
December 31, 2008 65 www.bishopstreetfunds.com
Bishop Street Funds
advisory fee to the extent necessary to keep operating expenses at or below
certain percentages of the respective average daily net assets. The voluntary
expense limitations are as follows: 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%, Government Money Market Fund (Class I) 0.50%, Government Money Market
Fund (Class A) 0.75% and Treasury Money Market Fund (Class I) 0.44%. These fees
and waivers are labeled on the Statement of Operations as "Investment Adviser
Fees."
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 Government 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. These fees
are disclosed on the Statement of Operations as "Custodian Fees."
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
Bishop Street Funds 66
respective average daily net assets. These fees and waivers are labeled as
"Administrative Fees" on the Statement of Operations.
Pursuant to an agreement dated January 30, 1995, DST Systems, Inc. ("DST")
acts as the Transfer Agent of the Trust. As such, DST provides transfer agency,
dividend disbursing and shareholder services to the Trust. These fees are
disclosed on the Statement of Operations as "Transfer Agent Fees."
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. This fee is disclosed as "Distribution Fees, Class A" in
the Hawaii Municipal Bond Fund on the Statement of Operations.
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. Additionally,
SIDCO has voluntarily agreed to waive a portion of its shareholder servicing fee
in order to limit the one-day net income yield of the Government Money Market
Fund, and the Treasury Money Market Fund to not less than 0.0015% of the average
daily net assets. These fees and waivers are represented as "Shareholder
Servicing Fees" on the Statement of Operations.
Certain ministerial officers of the Trust are also ministerial officers of
the Administrator. Such officers are paid no fees by the Trust.
5. TRANSACTIONS WITH AFFILIATES
Certain officers of the Trust are also officers of SEI Investments Global
Funds Services (the "Administrator"), a wholly owned subsidiary of SEI
Investments Company, and/or SEI Investments Distribution Co. (the
"Distributor"). Such officers are paid no fees by the Trust for serving as
officers of the Trust.
December 31, 2008 67 www.bishopstreetfunds.com
Bishop Street Funds
A portion of the services provided by the Chief Compliance Officer ("CCO")
and his staff, whom are employees of the Administrator, are paid for by the
Trust as incurred. The services include regulatory oversight of the Trust's
Advisers and service providers as required by SEC regulations. The CCO's
services have been approved by and are reviewed by the Board. These fees are
disclosed on the Statement of Operations as "Chief Compliance Officer Fees."
6. SECURITIES LENDING
The Fund may lend securities having a market value up to one-third of the
Fund's total assets. Such loans are secured by collateral equal to no less than
the market value of the loaned securities determined daily. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any
agencies. Cash collateral received in connection with these loans is invested in
short-term money market instruments. It's the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of the
next business day, following the valuation date of the securities loaned.
Therefore, the value of the collateral held may be temporarily less than the
value of the securities on loan. Lending securities entails a risk of loss to
the Fund if and to the extent that the market value of the securities loans were
to increase and the borrower did not increase the collateral accordingly, and
the borrower fails to return the securities. The Fund could also experience
delays and costs in gaining access to the collateral. The Fund bears the risk of
any deficiency in the amount of the collateral available for return to the
borrower due to any loss on the collateral invested. At December 31, 2008, four
counterparties held 94.13% of the total securities on loan of the Large Cap
Core Equity Fund and six counterparties held 87.20% of the total securities on
loan of the High Grade Income Fund.
7. 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, 2008 are presented below for the Funds.
Strategic Large High Grade Hawaii
Growth Cap Core Income Municipal
Fund Equity Fund Fund Bond Fund
--------- ----------- ---------- ---------
Purchases
U.S. Government Securities $ -- $ -- $ 16,756 $ --
Other 69,402 58,900 18,515 8,235
Bishop Street Funds 68
Strategic Large High Grade Hawaii
Growth Cap Core Income Municipal
Fund Equity Fund Fund Bond Fund
--------- ----------- ---------- ---------
Sales and Maturities
U.S. Government Securities $ -- $ -- $ 24,543 $ --
Other 82,866 68,270 24,770 69,484
8. TREASURY GUARANTEE PROGRAM
The Bishop Street Government Money Market Fund ("Government Fund"), with
the approval of the Board of Trustees of Bishop Street Funds, applied to
participate in the Temporary Guarantee Program for Money Market Funds (the
"Program") established by the U.S. Treasury Department (the "Treasury"). The
Treasury has accepted the Government Fund application to participate in the
Program and has entered into a Guarantee Agreement with the Government Fund
dated September 19, 2008.
Under the Program, the Treasury will guarantee the share price of shares
of the Government Fund outstanding as of September 19, 2008 at $1.00 per share
if the Government Fund's net asset value falls below $0.995 (a "Guarantee
Event"). Recovery under the Program is subject to certain conditions and
limitations, including the following:
- For each shareholder of the Government Fund, the Program provides a
guarantee for the lesser of (a) the number of shares of the
Government Fund owned by the shareholder as of the close on
September 19, 2008, or (b) the number of shares of the Government
Fund owned by the shareholder on the date of the Guarantee Event.
The Program does not protect investors who were not shareholders of
the Government Fund on September 19, 2008.
- The total amount of coverage available for all participants in the
Program is limited to the amount of funds available under the
Federal Exchange Stabilization Government Fund at the time of a
Guarantee Event (currently approximately $50 billion).
- Recovery under the Program requires the Government Fund to
liquidate.
- In order to recover, a Guarantee Event must occur during the term of
the Program (discussed below).
The initial term of the Program expired on December 18, 2008. The Program
was extended through April 30, 2009 at the sole discretion of the Treasury, but
expires not later than September 18, 2009. In order to participate in the
Program during the initial term, the Fund was required to pay a participation
fee of $22. The cost of participating in the Program was borne by the Fund, and
is not subject to any expense limitation or
December 31, 2008 69 www.bishopstreetfunds.com
Bishop Street Funds
reimbursement agreement. Participation in any extension of the Program would
have required payment of an additional fee. The Fund has elected not to
participate in the extension of the Program beyond the initial term, which
expired December 18, 2008.
9. 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.
On November 1, 2007, the Funds adopted Financial Accounting Standards
Board ("FASB") Interpretation No 48, "Accounting for Uncertainty in Income
Taxes" ("FIN 48"). FIN 48 defines the threshold for recognizing the benefits of
tax-return positions in the financial statements as "more-likely-than-not" to be
sustained by the applicable taxing authority and requires measurement of a tax
position meeting the "more-likely-than-not" threshold, based on the largest
benefit that is more than 50 percent likely to be realized.
The Funds are not aware of any tax positions for which it is reasonably
possible that the total amounts of unrecognized tax benefits will significantly
change in the next twelve months. Management has completed their analysis and
has determined that the adoption of FIN 48 will not have an impact on the Fund's
financial statements, and therefore the Funds did not record any tax expense in
the current period. If the Funds were to record a tax expense as a result of the
adoption of FIN 48, the tax expense would include any interest and penalties.
The Funds file U. S. federal income tax returns. While the statute of
limitations remains open to examine the Fund's U.S. federal income tax returns
filed for the fiscal years 2005 to 2008, no examinations are in progress or
anticipated at this time. 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.
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.
Bishop Street Funds 70
Accordingly, the following permanent differences, primarily attributable
to paydown gains and losses net operating losses, REIT adjustments, and
distributions have been reclassified:
Undistributed Accumulated Paid
Net Investment Net Realized in
Income Loss Capital
--------------- ------------ -------
Strategic Growth Fund $ 179 $ -- $(179)
Large Cap Core Equity Fund 6 (5) (1)
High Grade Income Fund (4) 4 --
Treasury Money Market Fund 22 (22) --
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, 2008 and 2007 were as follows:
Ordinary Tax Exempt Long-Term
Income Income Capital Gain Total
-------- ---------- ------------ -------
Strategic Growth Fund
2008 $ -- $ -- $ 1,792 $ 1,792
2007 1,827 -- 16,642 18,469
Large Cap Core Equity Fund
2008 $ 663 $ -- $ 405 $ 1,068
2007 4,190 -- 1,777 5,967
High Grade Income Fund
2008 $ 5,571 $ -- $ -- $ 5,571
2007 5,901 -- -- 5,901
Hawaii Municipal Bond Fund
2008 $ -- $ 6,367 $ -- $ 6,367
2007 181 6,697 647 7,525
Government Money Market Fund
2008 $ 4,965 $ -- $ -- $ 4,965
2007 10,658 -- -- 10,658
Treasury Money Market Fund
2008 $ 1,908 $ -- $ -- $ 1,908
2007 7,119 -- -- 7,119
December 31, 2008 71 www.bishopstreetfunds.com
Bishop Street Funds
As of December 31, 2008, the components of Distributable Earnings
(Accumulated Losses) on a tax basis were as follows:
Large Cap Government Treasury
Strategic Core High Grade Hawaii Money Money
Growth Equity Income Municipal Market Market
Fund Fund Fund Bond Fund Fund Fund
--------- --------- ---------- --------- ---------- --------
Undistributed net
investment income $ -- $ -- $ -- $ -- $ -- $ 81
Undistributed tax-
exempt income -- -- -- 1 -- --
Capital loss
carryforwards (839) (5,569) (983) (410) (14) --
Post-October losses (2,317) (2,267) -- -- -- --
Unrealized appreciation
(depreciation) (22,285) (26,729) 7,444 (5,671) -- --
--------- --------- ------- --------- ----- ----
Total Distributable Earnings
(Accumulated Losses) $ (25,441) $ (34,565) $ 6,461 $ (6,080) $ (14) $ 81
========= ========= ======= ========= ===== ====
Post-October losses represent losses realized on investment transactions
from November 1, 2008 through December 31, 2008 that, in accordance with Federal
income tax regulations, the Funds have elected to defer and treat as having
arisen in the following fiscal year.
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:
Large High Government
Strategic Cap Core Grade Hawaii Money
Growth Growth Income Municipal Market
Fund Fund Fund Bond Fund Fund
--------- -------- ------ --------- ----------
Dec. 2009 $ -- $ -- $ -- $ -- $ 11
Dec. 2013 -- -- -- -- 3
Dec. 2014 -- -- 642 -- --
Dec. 2015 -- -- 316 -- --
Dec. 2016 839 5,569 25 410 --
------ -------- ------ ----- ----
Total $ 839 $ 5,569 $ 983 $ 410 $ 14
====== ======== ====== ===== ====
During the year ended December 31, 2008, the Government Money Market
utilized capital loss carryforwards of $5 to offset realized capital gains.
Bishop Street Funds 72
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, 2008
were as follows:
Strategic Large Cap High Grade Hawaii
Growth Core Income Municipal
Fund Equity Fund Fund Bond Fund
--------- ----------- ---------- ---------
Federal Tax Cost $ 84,129 $ 91,487 $ 126,395 $ 157,554
--------- ----------- ---------- ---------
Gross Unrealized Appreciation 3,611 782 8,949 2,144
Gross Unrealized Depreciation (25,896) (27,511) (1,505) (7,815)
--------- ----------- ---------- ---------
Net Unrealized Appreciation
(Depreciation) $ (22,285) $ (26,729) $ 7,444 $ (5,671)
========= =========== ========== =========
10. 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 addition, each Fund's
investments are subject to "credit risk," which is the risk that an issuer will
be unable, or will be perceived to be unable, to repay its obligations at
maturity. Funds that invest primarily in high quality securities generally are
subject to less credit risk than funds that invest in lower quality securities.
Certain securities are backed by credit enhancements from various
financial institutions and financial guarantee assurance agencies. These credit
enhancements reinforce the credit quality of the individual securities; however,
if any of the financial institutions or financial guarantee assurance agencies'
credit quality should deteriorate, it could cause the individual security's
credit quality to change. Additionally, if any of the Funds concentrate their
credit enhancements in any one financial institution, the risk of credit quality
deterioration increases.
The value of asset-backed securities may be affected by the credit risk of
the servicing agent for the pool, the originator of the loans or receivables, or
the financial institution(s) providing the credit support. In addition to credit
risk, asset-backed securities and other securities with early redemption
features are subject to pre-payment risk. During periods of declining interest
rates, prepayment of loans underlying asset-backed securities can be expected to
accelerate or an issuer may retire an outstanding bond early to reduce interest
costs. A Fund's ability to maintain positions in such securities will be
affected by reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable
yields is subject to generally prevailing interest rates at that time.
December 31, 2008 73 www.bishopstreetfunds.com
Bishop Street Funds
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 claims are considered remote.
Due to volatility in the fixed income and equity markets, the market value
of some of the Fund's holdings may currently be lower than shown in the
Schedules of Investments ("SOI"). The values shown in the SOI's were the market
values as of December 31, 2008 and do not reflect any market events after
December 31, 2008.
11. LINE OF CREDIT
The Funds entered into an agreement which enables them to participate in a
$5 million unsecured committed revolving line of credit on a first come, first
serve basis, with Union Bank of California, N.A. (the "Bank") which expires June
11, 2009. 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 during the year at the Bank current reference rate minus 1%. As of
December 31, 2008 the Funds had no borrowings outstanding. For the year ended
December 31, 2008, the Funds had borrowings costs of $5 for the Strategic Growth
Fund, $3 for the Large Cap Core Equity Fund, and $1 for the Hawaii Municipal
Bond Fund over a period of 86 days at a weighted average interest rate of 3.86%.
12. OTHER
At December 31, 2008, 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 93.09%
Large Cap Core Equity Fund, Class I Shares 1 95.81
High Grade Income Fund, Class I Shares 1 95.18
Hawaii Municipal Bond Fund, Class I Shares 1 91.00
Hawaii Municipal Bond Fund, Class A Shares 1 29.97
Government Money Market Fund, Class I Shares 1 91.71
Government Money Market Fund, Class A Shares 1 99.36
Treasury Money Market Fund, Class I Shares 1 99.71
13. SUBSEQUENT EVENT
Effective January 30, 2009, the Government Money Market Fund and Treasury
Money Market Fund no longer invest in repurchase agreements.
Bishop Street Funds 74
Bishop Street Funds
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of Bishop Street Funds:
In our opinion, the accompanying statements of 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, Government
Money Market Fund and Treasury Money Market Fund (constituting Bishop Street
Funds, hereafter referred to as the "Funds") at December 31, 2008, the results
of each of their operations for the year then ended, the changes in each of
their net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2008 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 26, 2009
December 31, 2008 75 www.bishopstreetfunds.com
Bishop Street Funds
DISCLOSURE OF FUND EXPENSES (unaudited)
All mutual funds have operating expenses. As a shareholder of a mutual fund,
your investment is affected by these ongoing costs, which include (among others)
costs for portfolio management, administrative services, distribution fees, 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:
- - 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."
- - HYPOTHETICAL 5% RETURN. This section helps you compare your Fund's costs with
those of other mutual funds. It assumes that the Fund had an annual 5% return
before expenses during the year, but that the expense ratio (Column 3) for the
period is unchanged. This example is useful in making comparisons because the
Securities and Exchange Commission requires all mutual funds to make this 5%
calculation. You can assess your Fund's comparative cost by comparing the
hypothetical result for your Fund in the "Expenses Paid During Period" column
with those that appear in the same charts in the shareholder reports for other
funds.
NOTE: Because the return is set at 5% for comparison purposes -- NOT your Fund's
actual return -- the account values shown may not apply to your specific
investment.
Bishop Street Funds 76
Beginning Ending Expenses
Account Account Annualized Paid
Value Value Expense During
7/1/08 12/31/08 Ratios Period*
---------- ---------- ---------- --------
Strategic Growth Fund -- Class I
ACTUAL FUND RETURN $ 1,000.00 $ 670.90 1.04% $ 4.37
HYPOTHETICAL 5% RETURN 1,000.00 1,019.91 1.04 5.28
Large Cap Core Equity Fund -- Class I
ACTUAL FUND RETURN $ 1,000.00 $ 657.10 1.05% $ 4.37
HYPOTHETICAL 5% RETURN 1,000.00 1,019.86 1.05 5.33
High Grade Income Fund -- Class I
ACTUAL FUND RETURN $ 1,000.00 $ 1,070.30 0.76% $ 3.96
HYPOTHETICAL 5% RETURN 1,000.00 1,021.32 0.76 3.86
Hawaii Municipal Bond Fund -- Class I
ACTUAL FUND RETURN $ 1,000.00 $ 994.30 0.55% $ 2.76
HYPOTHETICAL 5% RETURN 1,000.00 1,022.37 0.55 2.80
Hawaii Municipal Bond Fund -- Class A
ACTUAL FUND RETURN $ 1,000.00 $ 993.00 0.80% $ 4.01
HYPOTHETICAL 5% RETURN 1,000.00 1,021.11 0.80 4.06
Government Money Market Fund -- Class I
ACTUAL FUND RETURN $ 1,000.00 $ 1,008.00 0.52% $ 2.62
HYPOTHETICAL 5% RETURN 1,000.00 1,022.52 0.52 2.64
Government Money Market Fund -- Class A
ACTUAL FUND RETURN $ 1,000.00 $ 1,006.70 0.77% $ 3.88
HYPOTHETICAL 5% RETURN 1,000.00 1,021.27 0.77 3.91
Treasury Money Market Fund -- Class I
ACTUAL FUND RETURN $ 1,000.00 $ 1,004.20 0.42% $ 2.12
HYPOTHETICAL 5% RETURN 1,000.00 1,023.03 0.42 2.14
* Expenses are equal to the Fund's annualized expense ratio multiplied by
the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
December 31, 2008 77 www.bishopstreetfunds.com
Bishop Street Funds
NOTICE TO SHAREHOLDERS OF BISHOP STREET FUNDS (unaudited)
For shareholders that do not have a December 31, 2008 taxable year end,
this notice is for informational purposes only. For shareholders with a December
31, 2008 tax year end, please consult your tax adviser 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 100% 0% 0%
Large Cap Core Equity Fund 38% 62% 0%
High Grade Income Fund 0% 100% 0%
Hawaii Municipal Bond Fund 0% 0% 100%
Government 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
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 created 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 78
For the fiscal year ended December 31, 2008, 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) SHORT-TERM
TOTAL DIVIDENDS QUALIFYING U.S. INTEREST CAPITAL
DISTRIBUTIONS RECEIVABLE DIVIDEND GOVERNMENT RELATED GAIN
(TAX BASIS) DEDUCTION(1) INCOME(2) INTEREST(3) DIVIDENDS(4) DIVIDENDS(5)
- ------------- ------------ ---------- ----------- ------------ ------------
100% 0% 0% 0% 0% 0%
100% 100% 100% 0% 0% 0%
100% 0% 0% 36% 96% 0%
100% 0% 0% 0% 100% 0%
100% 0% 0% 7% 100% 0%
100% 0% 0% 55% 100% 100%
(4) The percentage in this column represents the amount of "Interest Related
Dividends" as created by the American Jobs Creation Act of 2004 and is
reflected as a percentage of net investment income distributions that is
exempt from U.S. withholding tax when paid to foreign investors.
(5) The percentage in this column represents the amount of "Short-Term Capital
Gain Dividends" 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, 2008 79 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)
62 yrs. old of the Board
of Trustees
WILLIAM M. DORAN Trustee (Since 2006)
1701 Market Street
Philadelphia, PA 19103
68 yrs. old
Bishop Street Funds 80
(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 December 31, 2008.
NUMBER OF
PORTFOLIOS
IN BISHOP
STREET FUNDS
PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DURING PAST 5 YEARS BOARD MEMBER HELD BY BOARD MEMBER(3)
- -------------------------------------- ------------ --------------------------------------
Currently performs various services on 6 Trustee of The Advisors' Inner Circle
behalf of SEI Investments for which Fund, The Advisors' Inner Circle
Mr. Nesher is compensated. Fund II, SEI Asset Allocation Trust,
SEI Daily Income Trust, SEI
Institutional International Trust,
SEI Institutional Investments Trust,
SEI Institutional Managed Trust, SEI
Liquid Asset Trust, SEI Tax Exempt
Trust, and SEI Alpha Strategy
Portfolios, L.P., Director of 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),
Limited, SEI Investments - Unit Trust
Management (UK), Limited, SEI Global
Nominee Ltd., SEI Opportunity Fund,
L.P., SEI Structured Credit Fund,
L.P., and SEI Multi-Strategy Funds
plc.
Self-employed consultant since 2003. 6 Trustee of The Advisors' Inner
Partner, Morgan, Lewis & Bockius LLP Circle Fund, The Advisors' Inner
(law firm) from 1976-2003, counsel to Circle Fund II, SEI Asset
the Trust, SEI, SIMC, the Allocation Trust, SEI Daily
Administrator and the Distributor. Income Trust, SEI Institutional
Secretary of SEI since 1978. International Trust, SEI
Institutional Investments Trust,
SEI Institutional Managed Trust,
SEI Liquid Asset Trust and SEI
Tax Exempt Trust, and SEI Alpha
Strategy Portfolios, LP.,
Director of SEI since 1974.
Director of the Distributor since
2003. Director of SEI Investments
- Global Fund Services, Limited,
SEI Investments Global, Limited,
SEI Investments (Europe),
Limited, SEI Investments (Asia),
Limited, SEI Asset Korea Co.,
Ltd.
December 31, 2008 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)
- ---------------------- ----------- -------------
INDEPENDENT
BOARD MEMBERS
JAMES M. STOREY Trustee (Since 2006)
77 yrs. old
GEORGE J. SULLIVAN, JR. Trustee (Since 2006)
66 yrs. old
BETTY L. KRIKORIAN Trustee (Since 2006)
65 yrs. old
CHARLES E. CARLBOM Trustee (Since 2006)
74 yrs. old
Bishop Street Funds 82
(unaudited)
NUMBER OF
PORTFOLIOS
IN BISHOP
STREET FUNDS
PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DURING PAST 5 YEARS BOARD MEMBER HELD BY BOARD MEMBER(3)
- -------------------------------------- ------------ -----------------------------------------
Attorney, solo practitioner since 6 Trustee of The Advisors' Inner Circle
1994. Partner, Dechert Price & Rhoads Fund, The Advisors' Inner Circle
(law firm) September 1987-December Fund II, Massachusetts Health and
1993. Education Tax-Exempt Trust, U.S.
Charitable Gift Trust, SEI Asset
Allocation Trust, SEI Daily Income
Trust, SEI Institutional International
Trust, SEI Institutional Investments
Trust, SEI Institutional Managed
Trust, SEI Liquid Asset Trust, SEI Tax
Exempt Trust, and SEI Alpha Strategy
Portfolios, L.P.
Self-Employed consultant, Newfound 6 Trustee of The Advisors' Inner Circle
Consultants, Inc. since April 1997. Fund, The Advisors' Inner Circle
Fund II, State Street Navigator
Securities Lending Trust, SEI Asset
Allocation Trust, SEI Daily Income
Trust, SEI Institutional International
Trust, SEI Institutional Investments
Trust, SEI Institutional Managed
Trust, SEI Liquid Asset Trust, SEI Tax
Exempt Trust, and SEI Alpha Strategy
Portfolios, L.P., Director of SEI
Opportunity Fund, L.P., and SEI
Structured Credit Fund, L.P.
Vice President Compliance, AARP 6 Trustee of The Advisors' Inner Circle
Financial Inc. since September 2008. Fund and The Advisors' Inner Circle
Self-Employed Legal and Financial Fund II.
Services Consultant since 2003.
In-house counsel, State Street Bank
Global Securities and Cash Operations
from 1995 to 2003.
Self-Employed Business Consultant, 6 Director, Crown Pacific, Inc. and Trustee
Business Project Inc. since 1997. of The Advisors' Inner Circle Fund and
CEO and President, United Grocers Inc. The Advisors' Inner Circle Fund II.
from 1997 to 2000.
December 31, 2008 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)
- ------------------------- --------------------- --------------
INDEPENDENT
BOARD MEMBERS (CONTINUED)
MITCHELL A. JOHNSON Trustee (Since 2006)
66 yrs. old
JOHN K. DARR Trustee (Since 2008)
64 yrs. old
OFFICERS
PHILLIP T. MASTERSON President (Since 2008)
44 yrs. old
MICHAEL LAWSON Treasurer, Controller (Since 2005)
48 yrs. old and Chief
Financial Officer
RUSSELL EMERY Chief Compliance (Since 2006)
46 yrs. old Officer
JOSEPH M. GALLO Vice President (Since 2007)
35 yrs. old and Secretary
Bishop Street Funds 84
(unaudited)
NUMBER OF
PORTFOLIOS
IN BISHOP
STREET FUNDS
PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DURING PAST 5 YEARS BOARD MEMBER HELD BY BOARD MEMBER(3)
- -------------------------------------- ------------ -----------------------------------------
Private Investor since 1994. 6 Trustee of The Advisors' Inner Circle
Fund, The Advisors' Inner Circle Fund II,
SEI Asset Allocation Trust, SEI Daily
Income Trust, SEI Institutional
International Trust, SEI Institutional
Investments Trust, SEI Institutional
Managed Trust, SEI Liquid Asset Trust,
SEI Tax Exempt Trust, and SEI Alpha
Strategies Portfolios, L.P.
CEO, Office of Finance, FHL Banks Director of Federal Home Loan Bank
from 1992 to 2007. of Pittsburgh and Manna, Inc. and
Trustee of The Advisors' Inner Circle
Fund and The Advisors' Inner Circle
Fund II.
Managing Director of SEI Investments N/A N/A
since 2006, Vice President and
Assistant Secretary of the
Administration from 2004 to 2006.
General Counsel of Citco Mutual
Fund Services from 2003 to 2004. Vice
President and Associate Counsel for
the Oppenheimer Funds from 2001-2003.
Director, SEI Investments, Fund N/A N/A
Accounting since July 2005. Manager,
SEI Investments AVP from April 1995
to February 1998 and November 1998 to
July 2005.
Director of Investment Product N/A N/A
Management and Development at SEI
Investments since February 2003.
Senior Investment Analyst, Equity
team at SEI Investments from March
2000 to February 2003.
Corporate Counsel of SEI since 2007; N/A N/A
Associate Counsel, ICMA Retirement
Corporation, 2004-2007; Federal
Investigator, U.S. Department of
Labor, 2002-2004; U.S. Securities and
Exchange Commission - Department of
Investment Management, 2003.
December 31, 2008 85 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)
CAROLYN F. MEAD Vice President (Since 2007)
51 yrs. old and Secretary
JAMES NDIAYE Vice President and (Since 2005)
40 yrs. old Assistant Secretary
TIMOTHY D. BARTO Assistant Vice President and (Since 2000)
40 yrs. old Assistant Secretary
ANDREW S. DECKER AML Officer (Since 2008)
45 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 86
(unaudited)
NUMBER OF
PORTFOLIOS
IN BISHOP
STREET FUNDS
PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
DURING PAST 5 YEARS BOARD MEMBER HELD BY BOARD MEMBER(3)
- -------------------------------------------------- ------------------- -----------------------
Corporate Counsel of SEI since 2007; N/A N/A
Associate, Stradley, Ronon, Steven & Young
2004-2007; Counsel, ING Variable Annuities,
1999-2002.
Employed by SEI Investments Company N/A N/A
since 2004. Vice President, Deutsche
Asset Management from 2003-2004.
Associate, Morgan, Lewis & Bockius LLP
from 2000-2003. Counsel, Assistant Vice
President, ING Variable Annuities
Group from 1999-2000.
General Counsel, Vice President and Assistant N/A N/A
Secretary of SEI Investments Global Funds
Services since 1999; Associate, Dechert
(law firm) from 1997-1999; Associate, Richter,
Miller & Finn (law firm) from 1994-1997.
Compliance Officer and Product Manager, N/A N/A
of SEI 2005-2008. Vice President, Old Mutual
Capital 2000-2005. Operations Director, Prudential
Investments, 1998-2000.
(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, 2008 87 www.bishopstreetfunds.com
Bishop Street Funds (unaudited)
APPROVAL OF INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS IN RE-APPROVING THE SUB-ADVISORY AGREEMENT
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the "1940
Act"), the Board of Trustees (the "Board") of the Bishop Street Funds (the
"Trust") must annually review and re-approve the existing Sub-Advisory Agreement
after its initial two-year term: (i) by the vote of the Trustees or by a vote of
the shareholders of each Fund; and (ii) by the vote of a majority of the
Trustees who are not parties to the Sub-Advisory Agreement or "interested
persons" of any party thereto, as defined in the 1940 Act (the "Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
approval. Each year, the Board calls and holds a meeting to decide whether to
renew the Sub-Advisory Agreement for an additional one-year term. In preparation
for the meeting, the Board requests and reviews a wide variety of information
from the Sub-Adviser. The Trustees use this information, as well as other
information that the Sub-Adviser and other service providers of the Funds may
submit to the Board, to help them decide whether to renew the Sub-Advisory
Agreement for an additional year.
Prior to this year's meeting held on November 11-12, 2008, the Board, including
the Independent Trustees advised by their independent legal counsel, received
and reviewed written materials from the Sub-Adviser regarding, among other
things: (i) the nature, extent and quality of the services to be provided by the
Sub-Adviser; (ii) the investment performance of the Funds and the Sub-Adviser;
(iii) the costs of the services to be provided and profits to be realized by the
Sub-Adviser and its affiliates from its relationship with the Funds; (iv) the
extent to which economies of scale would be realized as the Funds grow; and (v)
whether fee levels reflect these economies of scale for the benefit of Fund
investors, as discussed in further detail below.
At the meeting, representatives from the Sub-Adviser, along with other Fund
service providers, presented additional oral and written information to help the
Board evaluate the Sub-Adviser's fees and other aspects of the Sub-Advisory
Agreement. Among other things, the representatives presented an overview of the
Sub-Adviser, discussing the Sub-Adviser's client base, investment philosophy and
investment process, and reviewed the upcoming transition of the Money Market
Fund's investment strategy in response to industry developments in the credit
markets. The Trustees then discussed the written materials that the Board
received before the meeting and the Sub-Adviser's oral presentation and the
other information that the Board received at the meeting, and
Bishop Street Funds 88
(unaudited)
deliberated on the renewal of the Sub-Advisory Agreement in light of this
information. In its deliberations, the Board considered the factors and reached
the conclusions described below relating to the selection of the Sub-Adviser and
the re-approval of the Sub-Advisory Agreement, and did not identify any single
piece of information discussed below that was all-important, controlling or
determinative of its decision.
NATURE, EXTENT, AND QUALITY OF SERVICES PROVIDED BY THE SUB-ADVISER
In considering the nature, extent and quality of the services provided by the
Sub-Adviser, the Board reviewed the portfolio management services provided by
the Sub-Adviser to the Funds, including the quality and continuity of the
Sub-Adviser's portfolio management personnel. The most recent investment adviser
registration form ("Form ADV") for the Sub-Adviser was provided to the Board, as
was the response of the Sub-Adviser to a detailed series of questions which
included, among other things, information about the background and experience of
the portfolio managers primarily responsible for the day-to-day management of
the Funds.
The Trustees also considered other services to be provided to the Funds by the
Sub-Adviser, such as selecting broker-dealers for executing portfolio
transactions, monitoring adherence to the Funds' investment restrictions, and
monitoring compliance with various Fund policies and procedures and with
applicable securities regulations. Based on the factors above, as well as those
discussed below, the Board concluded that it was satisfied with the nature,
extent and quality of the services provided to the Funds by the Sub-Adviser.
INVESTMENT PERFORMANCE OF THE FUNDS AND THE SUB-ADVISER
The Board was provided with information regarding each Fund's performance over
various periods, as well as information regarding each Fund's performance since
its inception. The Board also compared each Fund's performance to its benchmark
index and other similar mutual funds over various periods of time. The
Sub-Adviser provided information regarding and led a discussion of factors
impacting the performance of the Funds over the past year, focusing on the
Sub-Adviser's investment approach with respect to each Fund, Fund holdings and
general economic factors. Based on this information, the Board concluded that
each Fund's performance was comparable to its peer group, and was overall
satisfied with the investment results that the Sub-Adviser had been able to
achieve for the Funds.
December 31, 2008 89 www.bishopstreetfunds.com
Bishop Street Funds (unaudited)
COSTS OF ADVISORY SERVICES, PROFITABILITY AND ECONOMIES OF SCALE
In concluding that the advisory fees payable by each Fund were reasonable, the
Trustees reviewed a report of the fees paid to the Sub-Adviser by the adviser
and the costs and other expenses incurred by the Sub-Adviser in providing
advisory services. The Sub-Adviser's representatives then discussed the profits
realized by the Sub-Adviser from its relationship with the Funds. The Trustees
considered the information provided and concluded that such profits were not
excessive. The Trustees also reviewed reports comparing the expense ratio and
advisory fee paid by each Fund to those paid by other comparable mutual funds
and concluded that the advisory fees were the result of arm's length
negotiations, appeared reasonable in light of the services rendered and, after
waivers, were comparable to the average advisory fees paid by similarly managed
mutual funds. In addition, the Board considered whether economies of scale were
realized during the current contract period, but did not conclude that such
economies of scale had yet been achieved with respect to the Funds.
Based on the Board's deliberations and its evaluation of the information
described above, the Board, including all of the Independent Trustees,
unanimously: (a) concluded that terms of the Sub-Advisory Agreement are fair and
reasonable; (b) concluded that the Sub-Adviser's fees are reasonable in light of
the services that the Sub-Adviser provides to the Funds; and (c) agreed to renew
the Sub-Advisory Agreement for another year.
Bishop Street Funds 90
NOTES
NOTES
INVESTMENT ADVISER
BISHOP STREET CAPITAL MANAGEMENT
HONOLULU, HI 96813
ADMINISTRATOR
SEI INVESTMENTS GLOBAL FUNDS SERVICES
OAKS, PA 19456
DISTRIBUTOR
SEI INVESTMENTS DISTRIBUTION CO.
OAKS, PA 19456
TRANSFER AGENT
DST SYSTEMS, INC.
KANSAS CITY, MO 64121
CUSTODIAN
UNION BANK OF CALIFORNIA, N.A.
SAN FRANCISCO, CA 94101
LEGAL COUNSEL
MORGAN, LEWIS & BOCKIUS LLP
PHILADELPHIA, PA 19103
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PRICEWATERHOUSECOOPERS LLP
PHILADELPHIA, PA 19103
(BISHOP STREET FUNDS LOGO)
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-006-1400
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:
- ------------------ ----------------------------------------------------- -----------------------------------------------------
2008 2007
- ------------------ ----------------------------------------------------- -----------------------------------------------------
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 $103,140 N/A N/A $109,200 N/A N/A
Fees(1)
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(b) Audit- N/A N/A N/A N/A N/A N/A
Related
Fees
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(c) Tax N/A N/A N/A N/A N/A N/A
Fees
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(d) All N/A N/A N/A N/A N/A N/A
Other
Fees
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Notes:
(1) Audit fees include amounts related to the audit of the registrant's
annual financial statements and services normally provided by the
accountant in connection with statutory and regulatory filings.
(e)(1) Not applicable.
(e)(2) Percentage of fees billed applicable to non-audit services pursuant to
waiver of pre-approval requirement were as follows:
-------------------------- ----------------- ----------------
2008 2007
-------------------------- ----------------- ----------------
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 2008 and 2007, 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) Not applicable for semi-annual report.
(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/ Philip T. Masterson
-----------------------
Philip T. Masterson, President
Date: March 9, 2009
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/ Philip T. Masterson
-----------------------
Philip T. Masterson, President
Date: March 9, 2009
By (Signature and Title)* /s/ Michael Lawson
------------------
Michael Lawson
Controller & CFO
Date: March 9, 2009
* Print the name and title of each signing officer under his or her signature.