UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------- FORM N-CSR -------- CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES INVESTMENT COMPANY ACT FILE NUMBER 811-08572 BISHOP STREET FUNDS (Exact name of registrant as specified in charter) -------- 101 Federal Street Boston, MA 02110 (Address of principal executive offices) SEI Investments One Freedom Valley Drive Oaks, PA 19456 (Name and address of agent for service) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-800-262-9565 DATE OF FISCAL YEAR END: DECEMBER 31, 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.