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, 2009 ITEM 1. REPORTS TO STOCKHOLDERS. BISHOP STREET FUNDS ANNUAL REPORT DECEMBER 31, 2009 (GRAPHIC) STRATEGIC GROWTH FUND LARGE CAP CORE EQUITY FUND HIGH GRADE INCOME FUND HAWAII MUNICIPAL BOND FUND GOVERNMENT 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 ............................................... 6 Schedule of Investments ............................................. 11 LARGE CAP CORE EQUITY FUND Management Discussion ............................................... 14 Schedule of Investments ............................................. 18 HIGH GRADE INCOME FUND Management Discussion ............................................... 24 Schedule of Investments ............................................. 26 HAWAII MUNICIPAL BOND FUND Management Discussion ............................................... 34 Schedule of Investments ............................................. 36 GOVERNMENT MONEY MARKET FUND Management Discussion ............................................... 47 Schedule of Investments ............................................. 49 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 ................ 76 DISCLOSURE OF FUND EXPENSES ............................................ 77 NOTICE TO SHAREHOLDERS ................................................. 80 BOARD OF TRUSTEES AND OFFICERS ......................................... 82 SHAREHOLDER VOTING RESULTS ............................................. 90 1 BISHOP STREET LETTER TO SHAREHOLDERS FUNDS Dear Shareholder: (PHOTO OF MICHAEL K. HIRAI) What a difference a year makes. On the heels of the gut wrenching sell-off in 2008 and the first few months in 2009 that witnessed stock portfolio values cut by more than half, a stock investor's faith and commitment in the principles of investing were put to the test. Perhaps, this past year will go down in history as truly remarkable as the Fed and finance ministers around the globe struggled to find a solution to revive economies and companies on the verge of collapse. It does appear that we have avoided a global depression of massive proportions; however, it is still unclear if we are out of the woods since many of the factors that brought about the crisis remain, namely excessive debt and huge risk appetites, and the financial institutions that lay at the heart of the problem still probably believe that they are "too big to fail". That said, 2010 does appear to be looking better than 2009 in that global growth is likely to accelerate and provide much needed support to the markets. The key will rest in the ability of our central governments to unwind the easy money policies and rescue programs that are still in place today. Once removed, fundamentals and more normalized asset pricing will dominate as they have in the past. THE YEAR AHEAD With short-term interest rates and money market yields stubbornly low, investment in alternative asset classes such as stocks and commodities have become increasingly attractive. Improved corporate earnings, strong commodity demand, and improving investor confidence should help to drive asset prices and the stock market higher. Meanwhile, the bond market will be challenged - the result of high debt levels, long-standing "easy money" policies, and inflation. Perhaps the biggest driver of performance in 2010 will be the influx of cash away from safety (i.e., money markets and bonds) into the equity markets, commodities, real estate, and alternative asset classes as investors become Bishop Street Funds 2 (BISHOP STREET FUNDS LOGO) increasingly less risk averse. Today, investors still remain cautious but as we transition into the growth phase, revenue and profit margin expansion should serve to drive the global stock markets higher. DIVERSIFICATION REMAINS THE KEY Following a year in which nothing appeared to work, diversification once again becomes our focus as an important cornerstone for building investment portfolios. While it is always difficult to predict the future, especially during these difficult and challenging times, Bishop Street Capital Management continues to encourage shareholders to apply sound investment principles that include diversification across and within asset classes. As such, we continue to believe that these basic fundamentals will prove important as we navigate through the uncertain and turbulent times ahead. Our Bishop Street Funds are managed with these tenets in mind and our Funds continue to offer our shareholders excellent investment options. Our portfolio management team continues to focus on managing each Fund in a consistent manner and in accordance with its respective investment goals and objectives. Lastly, we continue to believe that a balanced portfolio comprised of a combination of our equity, fixed income, and money market funds can serve as a valuable building block of your carefully designed and balanced investment portfolio. Thank you for investing with the Bishop Street Funds. We value your continued trust and confidence. Sincerely, /s/ Michael K. Hirai Michael K. Hirai, CFA President and Chief Investment Officer Bishop Street Capital Management January 18, 2010 December 31, 2009 www.bishopstreetfunds.com 3 BISHOP STREET DEFINITION OF COMPARATIVE INDICES FUNDS Definition of Comparative Indices BARCLAYS U.S. GOVERNMENT/CREDIT INDEX is a widely-recognized, market value weighted 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. Bishop Street Funds 4 (BISHOP STREET FUNDS LOGO) 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. December 31, 2009 www.bishopstreetfunds.com 5 BISHOP STREET MANAGEMENT DISCUSSION FUNDS Strategic Growth Fund DESPITE A VERY BAD START IN THE FIRST TWO MONTHS OF 2009, THE S&P 500 COMPOSITE INDEX RETURNED AN UNEXPECTED 26% OVER THE WHOLE YEAR. AS THE STIMULUS PACKAGES IMPLEMENTED THROUGHOUT THE WORLD PRODUCED THEIR EFFECTS ON ECONOMIC GROWTH, INVESTORS GAINED A SENSE OF RELIEF, WHICH CONTINUED TO SUPPORT THE MARKET UNTIL THE END OF THE YEAR. The first two months of 2009 were very similar to the end of 2008. In the wake of the Lehman shock, the future of many other large financial groups appeared to be at stake. Investors remained worried that even the authorities' swift reaction and the emergency bail out deals involving solid foreign institutions would not manage to prevent the financial crisis from spreading, and ultimately spiraling out of control. Corporations of all kinds were hit by both by the direct impact of tough lending conditions on their financing and by the fast-deteriorating economic outlook. Car-makers were particularly impacted, with rumors of bankruptcy looming all along this period. This trouble pushed equities into a sharp decline, only interrupted by a few short-lived rallies triggered by the announcement of new rescue packages, and the somewhat irrational surge in hope that typically comes with a new President taking office. Confidence however gradually came back from March onwards, as the effects of the stimulus measures started to become visible. Various economic indicators appeared to stabilize and companies, although still cautious, also pointed to a better operating environment. Banks, in particular, led the rebound as positive rumors were spreading about their results in stress tests, while results were already showing the benefits of restructurings and supportive policies. Solutions also appeared to have been found for most other fragile industries, and worries about foreign economies also receded for similar reasons. Investors were relieved to see that things seemed to be under better control and that the economy was responding, and this was enough to cause a sharp rally in the following few months. More surprisingly, the rebound did not lose too much steam later in the year, despite clear evidence that the economy was still extremely weak and dependent on stimulus measures. The aggressive cost adjustment solutions implemented by American companies largely contributed to fuel this optimism; as productivity gains allowed a vast majority of quarterly earnings announcements to produce positive surprises. Bishop Street Funds 6 (BISHOP STREET FUNDS LOGO) This is how the S&P 500 Composite Index finished 2009 up roughly 26%, and 65% higher than the lows it had reached in March. Our strategy outperformed very strongly in the first half of the year, and then gave back part of its advance to finish 2009 approximately 600 bps ahead of the benchmark. Our best performers were in industries as diverse as technology (Western Digital, Broadcom), energy (Suncor Energy, Transocean), consumer discretionary (TJX), industrials (Tyco International) and health care (Express Scripts). Despite the market's fast style rotation in 2009, our structural growth bias proved marginally favorable. Our defensive stance (including a very low exposure to banks and cyclical companies, and a clear overweight on healthcare) was a solid contributor to performance in the first few months. This profile then penalized us in the second part of the year: our shift towards the current, neutral to moderately aggressive stance had intentionally been slow as we thought the rebound was overdone given the poor fundamentals, but the correction we had expected did not come, and our lack of economically-sensitive exposure penalized us in the summer. OUR STOCK SELECTION DECISIONS CAUSED THE REPLACEMENT OF 36% OF THE PORTFOLIO'S HOLDINGS, A LEVEL VERY SIMILAR TO THAT OBSERVED IN 2008, AND SLIGHTLY LOWER THAN THE STRATEGY'S HISTORICAL AVERAGE. In line with the evolution of our scenario, our first few trades of the year were meant to preserve the rather defensive profile of the selection, whereas decisions made later in the year were clearly introducing a more economically-sensitive bias. In the first quarter, the sales of rather defensive names such as Molson Coors Brewing led to the purchase of companies also expected to offer a stable growth profile, like Stericycle in the medical waste management field. A few more economically-sensitive picks, such as Accenture, Precision Castparts or the employment-dependent Cigna, even were sold between April and May, but their replacements (Best Buy, Yum! Brands, etc) were not significantly less reliant on GDP growth. The trades made during the second half of the year reflect a clearer confidence in the recovery, with the purchase of companies in sectors as diverse as investment banking (Goldman Sachs Group, Lazard), home furnishing (Bed Bath & Beyond), travel agency (Priceline.com) and IT (International Business Machines, Amphenol, NetApp). December 31, 2009 www.bishopstreetfunds.com 7 BISHOP STREET MANAGEMENT DISCUSSION FUNDS This evolution preserved our portfolio's attractive style balance which, as of year-end, mixed the advantages of a clear-cut growth bias (a long term earnings growth of 13.93% vs 9.90% for the index according to the Institutional Brokus Estimate System consensus) and those of an attractive valuation (a multiple of 14.08 on forward earnings, vs 14.52 for the index). Our stock selection resulted in strong exposures to technology and consumer discretionary holdings. In both of these sectors, the 10% maximum overweight spread accepted under our strategy's implementation principles was almost reached. We also had a significant overexposure to industrials. It should be noted however that many of our holdings in these economically-sensitive sectors were less aggressive choices than average in their respective industry classifications. The portfolio's Beta, which stands slightly below 1 according to a Barra model, confirms this slightly defensive stance. While we have clearly moved away from the very cautious outlook we had one year ago, we have been reluctant to accelerate the pace of our shift to a more aggressive profile because we feared that a market correction would be likely after the strong rally of the last nine months. WE BELIEVE THAT 2010 WILL BE AN INTERESTING BUT DIFFICULT YEAR. THE MARKET WILL LIKELY HESITATE BETWEEN TWO FACTORS WITH OPPOSITE INFLUENCES: THE SLUGGISHNESS OF THE ECONOMIC RECOVERY, AND THE STRENGTH OF PROFIT MARGINS. WE TRUST THAT THE LATTER WILL BE A POWERFUL MARKET MOVER, ESPECIALLY FOR COMPANIES OFFERING SOME EXPOSURE TO OVERSEAS DEMAND. While we understand that relief played a big supporting role in the rally, we think that the 65% rise of the U.S. equity market since last March lows is more than the current pace the economy calls for. Notwithstanding that even the strongest bull markets always involve correction periods, our concern comes from the fact that the recovery remains somewhat artificial so far. Should the stimulus measures be removed at this stage, the U.S. GDP would be very unlikely to manage any sort of growth in 2010. The sustainability of the recovery therefore remains very dependent on how smoothly the authorities will manage this removal. Uncertainty will be high during this key period and will, as always, trigger ups and downs in investors' mood. In the meantime, we count on two positive factors to limit the downside and, in the longer term, support a continuation of the market rebound: - - a large part of the aggressive cost cuts implemented by U.S. companies during the crisis appear unlikely to be reversed when demand recovers. The slightest Bishop Street Funds 8 (BISHOP STREET FUNDS LOGO) improvement in top lines will therefore be leveraged immediately into a strong earnings growth, and this could help mitigate the effects of the rally on valuations. - - investors' exposure to equities remains low and the above strength in earnings, if it materializes as we expect, could encourage a reallocation. We therefore intend to keep increasing the economically-sensitive profile of our portfolio. In doing so, we will have a preference for companies offering a steady earnings growth that can be boosted by both domestic factors and the favorable exchange rates. While our shift in that direction has been slow so far, any market correction would be seen as an opportunity to accelerate the move, unless it is triggered by economic news that we think should lead us to reconsider the scenario. THIS REPRESENTS THE MANAGEMENT'S ASSESSMENT OF THE FUNDS AND THE MARKET ENVIRONMENT AT A SPECIFIC POINT IN TIME AND SHOULD NOT BE RELIED UPON BY THE READER AS RESEARCH OR INVESTMENT ADVICE. December 31, 2009 www.bishopstreetfunds.com 9 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) Initial Investment Date 7/1/02 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 - ----------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Bishop Street Strategic Growth Fund $10,000 $ 8,640 $11,930 $13,080 $14,587 $16,013 $17,631 $10,322 $13,592 S&P 500 Growth Index $10,000 $ 9,398 $11,943 $12,775 $12,921 $14,343 $15,652 $10,186 $13,402 S&P 500 Index $10,000 $ 9,166 $11,795 $13,079 $13,721 $15,888 $16,761 $10,560 $13,354 Consumer Price Index $10,000 $10,056 $10,245 $10,579 $10,937 $11,217 $11,675 $11,686 $12,004 Lipper Multi Cap Core Classification $10,000 $ 8,940 $11,737 $13,158 $14,140 $16,098 $17,212 $10,596 $13,987 CPI & LIPPER BENCHMARK DATA START DATE: 6/30/02 Strategic Growth Fund, Class I# S&P 500/Citigroup Growth Index(1) S&P 500 Composite Index(1) Consumer Price Index++(1) Lipper Multi Cap Core Classification++(1) # 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 ANNUALIZED YEAR 3 YEAR 5 YEAR INCEPTION RETURN RETURN RETURN TO DATE - ------ ---------- ---------- ---------- 31.68% (5.32)% 0.77% 4.18% Class I* * Commenced operations on 07/01/02. + Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Fee waivers are in effect; if they had not been in effect, performance would have been lower. Bishop Street Funds 10 Strategic Growth Fund TOP TEN EQUITY HOLDINGS+ Percentage of Investments ------------ 1. Western Digital 2.3% 2. First Solar 2.2% 3. Red Hat 2.2% 4. General Mills 2.2% 5. Priceline.com 2.2% 6. Amphenol, Cl A 2.2% 7. Oracle 2.2% 8. International Business Machines 2.1% 9. Apple 2.1% 10. Broadcom, Cl A 2.1% SECTOR WEIGHTINGS (UNAUDITED)+ (BAR-CHART) Information Technology 29.1% Consumer Discretionary 17.3% Industrials 15.7% Health Care 14.1% Financials 9.9% Energy 9.5% Consumer Staples 4.1% Short-Term Investments 0.3% + PERCENTAGES ARE BASED ON TOTAL INVESTMENTS. SCHEDULE OF INVESTMENTS Value Shares (000) - -------- -------- COMMON STOCK+ -- 99.7% CONSUMER DISCRETIONARY -- 17.3% 21,100 Apollo Group, Cl A* $ 1,278 32,500 Bed Bath & Beyond* 1,256 26,083 Best Buy 1,029 48,600 GameStop, Cl A* 1,066 20,400 Kohl's* 1,100 18,700 McDonald's 1,168 6,100 Priceline.com* 1,333 31,900 TJX 1,166 32,500 Yum! Brands 1,137 ------- 10,533 ------- December 31, 2009 www.bishopstreetfunds.com 11 Strategic Growth Fund SCHEDULE OF INVESTMENTS (CONTINUED) Value Shares (000) - --------- --------- CONSUMER STAPLES -- 4.1% 18,900 General Mills $ 1,338 24,400 Philip Morris International 1,176 --------- 2,514 --------- ENERGY -- 9.5% 28,000 National Oilwell Varco 1,234 14,400 Occidental Petroleum 1,171 24,500 Southwestern Energy* 1,181 32,500 Suncor Energy 1,148 12,921 Transocean* 1,070 --------- 5,804 --------- FINANCIALS -- 9.9% 24,400 ACE 1,230 29,200 American Express 1,183 6,900 Goldman Sachs Group 1,165 30,600 Lazard, Cl A 1,162 64,700 Nasdaq Stock Market* 1,282 --------- 6,022 --------- HEALTH CARE -- 14.1% 22,600 Amgen* 1,278 20,500 Baxter International 1,203 15,200 Becton Dickinson 1,199 14,800 Express Scripts, Cl A* 1,279 25,500 Gilead Sciences* 1,104 20,800 Quest Diagnostics 1,256 26,900 Thermo Fisher Scientific* 1,283 --------- 8,602 --------- INDUSTRIALS -- 15.7% 10,100 First Solar* 1,367 45,500 Iron Mountain* 1,035 24,300 ITT 1,209 23,000 Stericycle* 1,269 31,100 Tyco International 1,110 18,900 Union Pacific 1,208 17,500 United Technologies 1,215 11,800 W.W. Grainger 1,142 --------- 9,555 --------- Bishop Street Funds 12 Strategic Growth Fund SCHEDULE OF INVESTMENTS (CONTINUED) Value Shares (000) - --------- --------- INFORMATION TECHNOLOGY -- 29.1% 28,600 Amphenol, Cl A $ 1,321 6,200 Apple* 1,307 40,800 Broadcom, Cl A* 1,283 16,900 Factset Research Systems 1,113 2,050 Google, Cl A* 1,271 22,600 Hewlett-Packard 1,164 10,000 International Business Machines 1,309 36,600 NetApp* 1,259 53,500 Oracle 1,313 43,800 Red Hat* 1,354 65,600 Symantec* 1,174 48,200 Texas Instruments 1,256 31,600 Western Digital* 1,395 63,293 Western Union 1,193 --------- 17,712 --------- TOTAL COMMON STOCK (Cost $55,029) 60,742 --------- CASH EQUIVALENTS (A) -- 0.3% 98,276 Dreyfus Cash Management Fund, Institutional Shares, 0.260% 98 98,276 Fidelity Institutional Money Market Portfolio, Institutional Shares, 0.260% 98 --------- TOTAL CASH EQUIVALENTS (Cost $196) 196 --------- TOTAL INVESTMENTS (Cost $55,225) -- 100.0% $ 60,938 ========= PERCENTAGES ARE BASED ON NET ASSETS OF $60,929 ($ THOUSANDS). * NON-INCOME PRODUCING SECURITY. + MORE NARROW INDUSTRIES ARE UTILIZED FOR COMPLIANCE PURPOSES, WHEREAS BROAD SECTORS ARE UTILIZED FOR REPORTING. (A) THE RATE REPORTED IS THE 7-DAY EFFECTIVE YIELD AS OF DECEMBER 31, 2009. CL -- CLASS COST FIGURES ARE SHOWN IN THOUSANDS. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2009 www.bishopstreetfunds.com 13 BISHOP STREET MANAGEMENT DISCUSSION FUNDS Large Cap Core Equity Fund Market conditions have changed dramatically over the last year. The turmoil that began in September 2008, and reached a fevered pitch in March 2009, has greatly subsided. Market participants are now debating whether the recovery will continue or will we enter another recession. While we were confident the Federal Reserve would be able to bring order to the U.S. economy, we were surprised by the magnitude of the downturn in 2008. Although we are not out of the woods yet, we are becoming increasingly confident that the U.S. economy will be able to successfully weather the downturn and emerge stronger than before. Corporations have been actively fortifying their balance sheets with capital raises, while at the same time reducing costs to support earnings. Looking out to 2011-2012, we believe the potential for earnings growth is significant. Businesses have become more efficient and productive, which should lead to earnings growth that will exceed the general economic growth. Equity prices do not yet reflect a recovery in the market that we feel is inevitable. Time will tell. After expenses, the Large Cap Core Equity Fund (the "Fund") returned 31.28% for the year versus 26% for the S&P 500 Composite Index. Almost all of the sectors contributed to the relative outperformance with the strongest performance coming from the energy, materials and industrials sectors. The consumer discretionary and health care sectors contributed the least as they were essentially flat to the benchmark for the year. We continued with our previously held decision to remain significantly underweight large integrated oil companies, while overweighting the smaller specialized exploration and production companies (E&Ps). This has been the right decision for 2009, as our energy positions accounted for roughly 250 bps of the portfolios outperformance on the year. While short-term oil prices have likely stabilized around $70-$80 per barrel, we believe long-term prices will Bishop Street Funds 14 (BISHOP STREET FUNDS LOGO) continue to rise at a slow, yet steady pace. We believe upside potential for smaller E&Ps and drillers remains far greater relative to large integrated oil companies, who may likely be forced to buy the companies we hold to enhance their reserves. A number of large acquisitions recently in this space give us added comfort that this trend should continue. 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, 2009, the Fund held about 135 stocks, with no position larger than 3.5% of the Fund. Thus, no company-specific event had a significant effect on performance. 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 health care, consumer discretionary and information technology while under-weights 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. 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. We have a significant value advantage versus the benchmark with greater growth potential than the benchmark. We believe the holdings in the portfolio will continue to perform well coming into 2010. December 31, 2009 www.bishopstreetfunds.com 15 BISHOP STREET MANAGEMENT DISCUSSION FUNDS Our stock selection methodology looks for companies that are undervalued based on the projected cash flows of the company over a long period of time combined with various indicators that the company is moving toward improving value. The market environment had not been favorable for our strategy for a few years. The building up of the asset value bubble (real estate, stocks, commodities, etc) and the subsequent meltdown was a period of distortion when viewed through the lens of economic rationality on which we base our decisions. We believe that the events of 2008 have been sobering for investors and economic recovery will be slow. However, we believe that these events have brought about more focus on the fundamental foundation of a stock's value and more economic rationality in considering investments of all types. We have adhered to our investment principles and, as we expected, as the debris clears and risk aversion abates our investment process is proving to be one that adds significant value. 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. THIS REPRESENTS THE MANAGEMENT'S ASSESSMENT OF THE FUNDS AND THE MARKET ENVIRONMENT AT A SPECIFIC POINT IN TIME AND SHOULD NOT BE RELIED UPON BY THE READER AS RESEARCH OR INVESTMENT ADVICE. Bishop Street Funds 16 Large Cap Core Equity Fund PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE LARGE CAP CORE EQUITY FUND, CLASS I, VERSUS THE S&P 500 COMPOSITE INDEX, THE CONSUMER PRICE INDEX, THE LIPPER LARGE CAP CORE CLASSIFICATION. (PERFORMANCE GRAPH) Initial Investment Date 5/1/06 JUN 06 DEC 06 JUN 07 DEC 07 JUN 08 DEC 08 JUN 09 DEC 09 - ----------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Bishop Street Large Cap Core Equity Fund $10,000 $ 9,647 $10,663 $11,487 $11,222 $ 9,902 $ 6,506 $ 6,990 $ 8,541 S&P 500 Index $10,000 $ 9,766 $11,010 $11,776 $11,615 $10,231 $ 7,318 $ 7,549 $ 9,254 Consumer Price Index $10,000 $10,071 $10,017 $10,342 $10,425 $10,861 $10,435 $10,706 $10,719 Lipper Large Cap Core Classification $10,000 $ 9,690 $10,811 $11,584 $11,453 $10,189 $ 7,251 $ 7,581 $ 9,212 Large Cap Core Equity Fund, Class I# S&P 500 Composite Index Consumer Price Index++(1) Lipper Large Cap Core Classification++(1) # 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 ANNUALIZED YEAR 3 YEAR INCEPTION RETURN RETURN TO DATE - ------ ---------- ---------- 31.28% (7.13)% (4.21)% 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, 2009 www.bishopstreetfunds.com 17 Large Cap Core Equity Fund TOP TEN EQUITY HOLDINGS+ Percentage of Investments ------------- 1. Microsoft 2.5% 2. Apple 2.5% 3. SPDR Trust, Ser 1 2.4% 4. Johnson & Johnson 2.1% 5. Google, Cl A 2.0% 6. JPMorgan Chase 2.0% 7. Chevron 1.8% 8. Cisco Systems 1.8% 9. Hewlett-Packard 1.7% 10. AT&T 1.6% SECTOR WEIGHTINGS (UNAUDITED)+ (PERFORMANCE GRAPH) Information Technology 19.4% Health Care 13.7% Financials 13.4% Energy 12.0% Consumer Discretionary 10.0% Industrials 10.0% Consumer Staples 9.9% Materials 3.2% Telecommunication Services 2.9% Exchange Traded Fund 2.4% Utilities 2.1% Short-Term Investments 1.0% + PERCENTAGES ARE BASED ON TOTAL INVESTMENTS. EXCLUDES SECURITIES PURCHASED WITH CASH COLLATERAL RECEIVED FROM SECURITIES LENDING. SCHEDULE OF INVESTMENTS Value Shares (000) - --------- --------- COMMON STOCK -- 96.6% CONSUMER DISCRETIONARY -- 10.0% 5,390 Apollo Group, Cl A* $ 327 6,450 Best Buy (A) 254 5,840 Carnival* 185 6,280 Coach 229 20,420 Comcast, Cl A 344 11,030 DIRECTV, Cl A* (A) 368 Bishop Street Funds 18 Large Cap Core Equity Fund SCHEDULE OF INVESTMENTS (CONTINUED) Value Shares (000) - --------- --------- CONSUMER DISCRETIONARY -- (CONTINUED) 12,900 Expedia* (A) $ 332 10,690 GameStop, Cl A* (A) 235 4,530 Johnson Controls 123 5,000 Kohl's* 270 10,860 Lowe's 254 3,690 Nike, Cl B 244 12,270 Staples (A) 302 6,671 Time Warner Cable, Cl A 276 8,416 Time Warner 245 4,120 TJX 151 3,840 VF 281 10,400 Viacom, Cl B* 309 8,900 Yum! Brands 311 --------- 5,040 --------- CONSUMER STAPLES -- 9.9% 12,840 Altria Group 252 14,190 Archer-Daniels-Midland (A) 444 2,700 Colgate-Palmolive (A) 222 14,200 CVS 457 5,130 Kimberly-Clark 327 11,230 PepsiCo 683 7,330 Philip Morris International 353 10,360 Procter & Gamble 628 8,210 SYSCO (A) 230 19,260 Tyson Foods, Cl A (A) 236 10,320 Walgreen 379 14,030 Wal-Mart Stores 750 --------- 4,961 --------- ENERGY -- 12.0% 5,224 Anadarko Petroleum 326 4,148 Apache 428 12,920 Chesapeake Energy 334 11,850 Chevron 912 5,359 ConocoPhillips 274 5,190 Consol Energy 258 4,800 Devon Energy 353 24,570 El Paso 242 8,840 Exxon Mobil 603 6,890 National Oilwell Varco 304 8,760 Nexen 210 4,390 Noble Energy 313 December 31, 2009 www.bishopstreetfunds.com 19 Large Cap Core Equity Fund SCHEDULE OF INVESTMENTS (CONTINUED) Value Shares (000) - --------- --------- ENERGY -- (CONTINUED) 9,300 Noble $ 379 4,320 Range Resources 215 4,570 Schlumberger 297 10,462 Valero Energy (A) 175 8,340 XTO Energy 388 --------- 6,011 --------- FINANCIALS -- 13.4% 5,906 ACE 298 5,300 Aflac (A) 245 8,780 Allstate 264 9,110 Annaly Capital Management+ (A) 158 48,524 Bank of America (A) 731 7,280 Bank of New York Mellon 203 2,670 Boston Properties+ (A) 179 4,700 Capital One Financial (A) 180 6,530 Chubb 321 67,360 Citigroup (A) 223 4,700 Equity Residential+ (A) 159 2,800 Goldman Sachs Group 473 10,620 Host Hotels & Resorts+ (A) 124 13,980 Hudson City Bancorp 192 3,030 IntercontinentalExchange* 340 23,630 JPMorgan Chase 985 27,200 Keycorp (A) 151 6,877 Loews 250 10,140 MetLife 358 9,500 Morgan Stanley 281 8,090 State Street 352 5,070 Travelers 253 --------- 6,720 --------- HEALTH CARE -- 13.7% 7,887 Abbott Laboratories 426 6,420 Aetna 204 4,117 Allergan (A) 259 4,670 Amgen* 264 5,310 Baxter International 312 6,038 Biogen Idec* 323 14,230 Bristol-Myers Squibb 359 5,630 Celgene* 314 6,320 Cephalon* (A) 394 5,530 Forest Laboratories* 178 Bishop Street Funds 20 Large Cap Core Equity Fund SCHEDULE OF INVESTMENTS (CONTINUED) Value Shares (000) - --------- --------- HEALTH CARE -- (CONTINUED) 4,260 Genzyme* $ 209 8,460 Gilead Sciences* (A) 366 16,210 Johnson & Johnson 1,044 6,150 McKesson 384 3,410 Medco Health Solutions* (A) 218 8,390 Medtronic 369 23,630 Pfizer 430 5,100 Thermo Fisher Scientific* 243 6,160 Varian Medical Systems* (A) 289 5,170 WellPoint* 301 --------- 6,886 --------- INDUSTRIALS -- 10.0% 8,320 Boeing 450 4,400 C.H. Robinson Worldwide (A) 258 8,120 Caterpillar (A) 463 5,600 Deere (A) 303 8,470 Fluor 382 6,070 General Dynamics 414 25,877 General Electric 392 8,570 Honeywell International 336 4,190 L-3 Communications Holdings, Cl 3 (A) 364 5,630 Norfolk Southern 295 5,550 Rockwell Collins 307 7,320 Union Pacific (A) 468 8,880 United Technologies 616 --------- 5,048 --------- INFORMATION TECHNOLOGY -- 19.4% 5,790 Adobe Systems* 213 7,200 Analog Devices 227 765 AOL* 18 5,850 Apple* 1,233 9,150 Broadcom, Cl A* (A) 288 37,050 Cisco Systems* (A) 887 6,380 Cognizant Technology Solutions, Cl A* 289 12,890 eBay* 303 22,280 EMC* 389 7,300 FLIR Systems* (A) 239 1,640 Google, Cl A* (A) 1,017 5,690 Harris 271 16,170 Hewlett-Packard 833 31,970 Intel 652 December 31, 2009 www.bishopstreetfunds.com 21 Large Cap Core Equity Fund SCHEDULE OF INVESTMENTS (CONTINUED) Value Shares (000) - --------- --------- INFORMATION TECHNOLOGY -- (CONTINUED) 1,230 Mastercard, Cl A (A) $ 315 41,090 Microsoft 1,253 28,330 Oracle 695 13,940 Qualcomm 645 --------- 9,767 --------- MATERIALS -- 3.2% 11,650 Dow Chemical (A) 322 6,360 Freeport-McMoRan Copper & Gold 511 3,160 Monsanto 258 2,940 Mosaic 175 5,500 PPG Industries (A) 322 --------- 1,588 --------- TELECOMMUNICATION SERVICES -- 2.9% 28,540 AT&T 800 8,250 NII Holdings* 277 11,220 Verizon Communications (A) 372 --------- 1,449 --------- UTILITIES -- 2.1% 17,630 AES* 235 7,700 Edison International 268 2,200 Entergy 180 3,470 Exelon 170 5,520 Questar 229 --------- 1,082 --------- TOTAL COMMON STOCK (Cost $48,540) 48,552 --------- EXCHANGE TRADED FUND -- 2.4% 10,800 SPDR Trust, Ser 1 1,203 --------- TOTAL EXCHANGE TRADED FUND (Cost $1,541) 1,203 --------- CASH EQUIVALENTS (B) -- 10.3% 242,734 Dreyfus Cash Management Fund, Institutional Shares, 0.260% 243 242,734 Fidelity Institutional Money Market Portfolio, Institutional Shares, 0.260% 243 2,302,627 Fidelity Institutional Prime Money Market, Institutional Shares, 0.273% (C) 2,302 2,417,759 RBC Prime Money Market Fund, 0.362% (C) 2,418 --------- TOTAL CASH EQUIVALENTS (Cost $5,206) 5,206 --------- Bishop Street Funds 22 Large Cap Core Equity Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - ---------- --------- REPURCHASE AGREEMENT (C) -- 13.5% $ 6,775 Bank of America 0.143%, dated 12/31/09, to be repurchased on 01/04/10, repurchase price $6,775,169 (collateralized by a Corporate obligation, par value $7,049,956, 5.94%, 1/15/53, with a total market value of $6,920,801) TOTAL REPURCHASE AGREEMENT (Cost $6,775) $ 6,775 --------- TOTAL INVESTMENTS (Cost $62,062) -- 122.8% $ 61,736 ========= PERCENTAGES ARE BASED ON NET ASSETS OF $50,259 ($ THOUSANDS). * NON-INCOME PRODUCING SECURITY. (A) THIS SECURITY OR PORTION OF THIS SECURITY IS ON LOAN AT DECEMBER 31, 2009. THE TOTAL VALUE OF SECURITIES ON LOAN AT DECEMBER 31, 2009 WAS $11,048 ($ THOUSANDS). (B) THE RATE SHOWN IS THE 7-DAY EFFECTIVE YIELD AS OF DECEMBER 31, 2009. (C) THIS SECURITY WAS PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES ON LOAN. THE TOTAL VALUE OF SUCH SECURITIES AS OF DECEMBER 31, 2009 WAS $11,495 ($ THOUSANDS). + REAL ESTATE INVESTMENT TRUST. CL -- CLASS SER -- SERIES SPDR -- STANDARD & POOR'S DEPOSITORY RECEIPTS COST FIGURES ARE SHOWN IN THOUSANDS. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2009 www.bishopstreetfunds.com 23 BISHOP STREET MANAGEMENT DISCUSSION FUNDS High Grade Income Fund During the first six months of the year, interest rates remained low as fears of a double-dip recession and deflation forced the Federal Reserve (the "Fed") to keep its targeted rate near zero. Investors continued to flock to the safety of U.S. treasuries and higher quality assets fearing further weakness in the economy. In addition to traditional easing measures, the Fed continued to provide additional liquidity to the markets through quantitative easing, interjecting liquidity in support of the weak housing market. These programs helped serve to restore economic growth and confidence in the financial system. By the second half of the year, investors regained their confidence and searched for higher returns in the stock market and elsewhere, reversing the panic that gripped the markets early in the year. Credit spreads, which had widened dramatically as a result of the flight-to-quality, offered extremely attractive yields relative to money market and U.S. government bonds. The best returns were earned in riskier assets such as high yield and corporate bonds, as investors' appetite for risk increased. But as prospects for future economic growth improved and inflation expectations increased, the yield curve steepened dramatically offsetting some of the bond market gains earned earlier. For the year, the Bishop Street High Grade Income Fund (the "Fund") significantly outperformed the Barclays U.S. Government/Credit Index, maintaining its "5-Star" Morningstar rating. The Fund benefited from investments in corporate bonds and an underweight in longer-dated maturities. Looking ahead, we anticipate stronger growth in 2010 and higher interest rates towards the latter half of the year. The Fund is positioned to perform well as we continue to hold a defensive posture on the yield curve and a sound position in credit. THIS REPRESENTS THE MANAGEMENT'S ASSESSMENT OF THE FUNDS AND THE MARKET ENVIRONMENT AT A SPECIFIC POINT IN TIME AND SHOULD NOT BE RELIED UPON BY THE READER AS RESEARCH OR INVESTMENT ADVICE. Bishop Street Funds 24 High Grade Income Fund PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE HIGH GRADE INCOME FUND, CLASS I, VERSUS THE BARCLAYS U.S. GOVERNMENT/CREDIT INDEX, THE CONSUMER PRICE INDEX AND THE LIPPER CORPORATE DEBT A-RATED OBJECTIVE. (PERFORMANCE GRAPH) Initial Investment Date 12/31/99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 - ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Bishop Street High Grade Income Fund $10,000 $11,025 $11,815 $13,179 $13,615 $14,079 $14,361 $14,786 $15,773 $17,117 $18,557 Barclays US Government/Credit Index $10,000 $11,185 $12,136 $13,475 $14,105 $14,696 $15,044 $15,613 $16,741 $17,696 $18,496 Consumer Price Index $10,000 $10,337 $10,498 $10,750 $10,952 $11,309 $11,692 $11,992 $12,481 $12,493 $12,833 Lipper Corporate Debt A-Rated Objective $10,000 $10,988 $11,857 $12,876 $13,643 $14,231 $14,503 $15,076 $15,751 $14,767 $17,008 High Grade Income Fund, Class I # Barclays U.S. Government/Credit Index(1) Consumer Price Index(1) Lipper Corporate Debt A-Rated Objective(1) # Account value if you reinvested income and capital gains. (1) See page 4 for definition of comparitive indices. AVERAGE ANNUAL TOTAL RETURNS+ ONE ANNUALIZED ANNUALIZED ANNUALIZED YEAR 3 YEAR 5 YEAR 10 YEAR RETURN RETURN RETURN RETURN - ------ ---------- ---------- ---------- 8.41% 7.87% 5.68% 6.38% Class I + 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, 2009 www.bishopstreetfunds.com 25 High Grade Income Fund TOP TEN HOLDINGS+ Percentage Coupon Maturity of Rate Date Investments ------ -------- ----------- 1. Countrywide Asset-Backed Certificates, Cl 1A4 5.323% 02/25/36 2.3% 2. Bank of America, MTN 7.375% 05/15/14 2.3% 3. Citibank Credit Card Issuance Trust, Cl A3 2.700% 06/23/13 2.1% 4. Ford Credit Auto Owner Trust, Cl A3 1.000% 01/15/14 2.0% 5. GSR Mortgage Loan Trust, Cl 3A2 2.152% 04/25/32 1.9% 6. Potash Corp of Saskatchewan 5.250% 05/15/14 1.9% 7. Dow Chemical 8.550% 05/15/19 1.9% 8. Xerox 8.250% 05/15/14 1.8% 9. General Electric Capital MTN, Ser A 5.450% 01/15/13 1.7% 10. Rio Tinto Finance USA 9.000% 05/01/19 1.7% SECTOR WEIGHTINGS (UNAUDITED)+ (BAR CHART) Banks 16.8% Asset-Backed Security 14.7% Materials 10.9% Information Technology 8.2% Industrials 7.4% U.S. Government Agency Obligations 7.1% Consumer Discretionary 6.8% Financials 5.2% U.S. Treasury Obligations 4.8% U.S. Government Mortgage-Backed Obligations 4.4% Municipal Bond 2.9% Telecommunication Services 2.7% Health Care 2.7% Energy 2.5% Consumer Staples 2.1% Short-Term Investments 0.8% + 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 -- 64.7% BANKS -- 16.6% American Express Bank $ 600 5.500%, 04/16/13 $ 640 Australia & New Zealand Banking Group (A) 1,500 0.534%, 06/18/12 1,488 Bank of America MTN (B) 2,500 7.375%, 05/15/14 2,837 Bishop Street Funds 26 High Grade Income Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - -------- -------- BANKS -- (CONTINUED) Bank of New York Mellon (B) $ 1,325 4.300%, 05/15/14 $ 1,395 Bank of Oklahoma (A) (G) 500 5.750%, 05/15/17 465 Barclays Bank PLC (B) 1,150 6.750%, 05/22/19 1,283 500 5.200%, 07/10/14 530 Bear Stearns LLC 1,500 7.250%, 02/01/18 1,722 Citigroup 1,500 6.500%, 08/19/13 1,599 Goldman Sachs Group 1,300 7.500%, 02/15/19 1,516 JPMorgan Chase (B) 1,400 5.875%, 06/13/16 1,469 750 5.125%, 09/15/14 791 JPMorgan Chase Capital XXVII (B) 1,000 7.000%, 11/01/39 1,009 Morgan Stanley (B) 1,300 7.300%, 05/13/19 1,460 1,400 4.200%, 11/20/14 1,401 Wells Fargo Bank (A) 1,600 0.483%, 05/16/16 1,416 -------- 21,021 -------- CONSUMER DISCRETIONARY -- 6.8% Comcast (B) 1,000 6.500%, 01/15/17 1,107 Home Depot (B) 1,400 5.875%, 12/16/36 1,351 McDonald's MTN (B) 1,525 4.125%, 06/01/13 1,594 Time Warner Cable (B) 1,350 8.250%, 04/01/19 1,608 Walt Disney MTN 1,300 6.200%, 06/20/14 1,456 Whirlpool MTN (B) 1,275 8.600%, 05/01/14 1,444 -------- 8,560 -------- December 31, 2009 www.bishopstreetfunds.com 27 High Grade Income Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - -------- -------- CONSUMER STAPLES -- 2.0% Costco Wholesale (B) $ 1,100 5.500%, 03/15/17 $ 1,174 Wal-Mart Stores (B) 1,300 5.375%, 04/05/17 1,399 -------- 2,573 -------- ENERGY -- 2.5% Anadarko Petroleum 1,250 7.200%, 03/15/29 1,291 BP Capital Markets PLC 725 3.625%, 05/08/14 742 ConocoPhillips (B) 1,000 4.750%, 10/15/12 1,072 -------- 3,105 -------- FINANCIALS --5.1% Capital One Financial (B) 1,000 7.375%, 05/23/14 1,132 General Electric Capital MTN (A) 1,325 0.425%, 05/08/13 1,268 General Electric Capital MTN, Ser A (B) 2,050 5.450%, 01/15/13 2,179 Jefferies Group (B) 675 6.250%, 01/15/36 538 WEA Finance LLC 1,300 5.750%, 09/02/15 1,370 -------- 6,487 -------- HEALTH CARE -- 2.7% Bristol-Myers Squibb (B) 680 5.450%, 05/01/18 727 Genentech 1,300 4.750%, 07/15/15 1,391 Merck (B) 1,200 5.000%, 06/30/19 1,248 -------- 3,366 -------- INDUSTRIALS -- 7.3% Boeing 500 4.875%, 02/15/20 501 Bunge Finance 1,300 8.500%, 06/15/19 1,482 Bishop Street Funds 28 High Grade Income Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - -------- -------- INDUSTRIALS -- (CONTINUED) Caterpillar (B) $ 1,250 7.900%, 12/15/18 $ 1,525 Continental Airlines 1,300 9.000%, 07/08/16 1,378 Emerson Electric (B) 500 5.250%, 10/15/18 525 John Deere Capital 550 7.000%, 03/15/12 610 News America (B) 1,000 6.650%, 11/15/37 1,056 President and Fellows of Harvard College 1,300 3.700%, 04/01/13 1,337 Rockwell Automation 800 6.700%, 01/15/28 844 -------- 9,258 -------- INFORMATION TECHNOLOGY -- 8.2% Cisco Systems (B) 1,500 5.500%, 02/22/16 1,647 Dell (B) 400 5.625%, 04/15/14 436 Hewlett-Packard (B) 1,375 4.500%, 03/01/13 1,458 IBM 1,500 8.375%, 11/01/19 1,913 Nokia 1,250 5.375%, 05/15/19 1,276 Oracle (B) 1,200 5.250%, 01/15/16 1,296 Xerox 2,000 8.250%, 05/15/14 2,293 -------- 10,319 -------- MATERIALS -- 10.8% ArcelorMittal (B) 1,050 9.850%, 06/01/19 1,358 BHP Billiton Finance 950 5.250%, 12/15/15 1,029 Boeing Capital 1,250 3.250%, 10/27/14 1,241 Dow Chemical (B) 1,950 8.550%, 05/15/19 2,327 200 5.900%, 02/15/15 215 December 31, 2009 www.bishopstreetfunds.com 29 High Grade Income Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - -------- -------- MATERIALS -- (CONTINUED) Monsanto $ 1,400 7.375%, 08/15/12 $ 1,587 Nucor (B) 1,300 4.875%, 10/01/12 1,401 Potash Corp of Saskatchewan 2,200 5.250%, 05/15/14 2,363 Rio Tinto Finance USA (B) 1,700 9.000%, 05/01/19 2,152 -------- 13,673 -------- TELECOMMUNICATION SERVICES -- 2.7% AT&T (B) 500 5.800%, 02/15/19 533 AT&T Wireless Services 1,300 8.125%, 05/01/12 1,469 Cellco Partnership (B) 1,300 5.550%, 02/01/14 1,410 -------- 3,412 -------- TOTAL CORPORATE OBLIGATIONS (Cost $76,227) 81,774 -------- ASSET-BACKED SECURITIES -- 14.6% Ally Auto Receivables Trust, Cl A3 (D) 1,750 1.980%, 10/15/13 1,747 Capital One Multi-Asset Execution Trust 1,600 3.200%, 04/15/14 1,636 Chase Issuance Trust, Ser A5, Cl A5 (A) 2,000 1.033%, 06/15/12 2,006 Citibank Credit Card Issuance Trust, Cl A3 2,600 2.700%, 06/23/13 2,643 Countrywide Asset-Backed Certificates, Cl 1A4 (A) 3,281 1.000%, 02/25/36 2,845 Ford Credit Auto Owner Trust, Cl A3 2,500 1.510%, 01/15/14 2,487 GSR Mortgage Loan Trust, Cl 3A2 2,556 2.152%, 04/25/32 (A) 2,397 Mercedes-Benz Auto Receivables, Cl A3 1,250 1.670%, 01/15/14 1,250 WaMu Mortgage Pass-Through Certificates, Cl 2A 1,532 2.509%, 07/25/42 (A) 1,424 -------- TOTAL ASSET-BACKED SECURITIES (Cost $18,127) 18,435 -------- Bishop Street Funds 30 High Grade Income Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - -------- -------- U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS -- 4.4% FHLMC REMIC, Ser 2844, Cl VB $ 146 5.500%, 12/15/19 $ 150 FHLMC REMIC, Ser 3196, Cl CB 492 5.250%, 08/15/11 489 FHLMC REMIC, Ser R010, Cl AB 704 5.500%, 12/15/19 738 FNMA REMIC, Ser B1, Cl BE 859 5.450%, 12/25/20 910 FNMA, Ser 33, Cl AB 1,844 3.750%, 03/25/33 1,883 FNMA, Ser 84, Cl KA 131 5.000%, 09/25/36 131 GNMA, Ser 7, Cl PE 1,175 5.500%, 11/16/31 1,232 -------- TOTAL U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS (Cost $5,342) 5,533 -------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 7.1% FHLMC 875 8.250%, 06/01/16 1,052 1,000 5.875%, 05/23/16 1,056 FHLMC MTN 1,000 4.250%, 05/22/13 1,066 FNMA 1,400 5.550%, 02/16/17 1,408 700 5.000%, 03/02/15 769 733 5.000%, 10/01/23 767 410 3.500%, 08/01/10 417 1,200 3.500%, 08/25/14 1,209 1,200 2.125%, 06/24/13 1,194 -------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $8,745) 8,938 -------- U.S. TREASURY OBLIGATIONS -- 4.8% U.S. TIPS 1,700 2.125%, 01/15/19 1,815 U.S. Treasury Bonds 1,200 7.250%, 05/15/16 (B) 1,485 1,070 4.500%, 08/15/39 (B) 1,046 December 31, 2009 www.bishopstreetfunds.com 31 High Grade Income Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount (000)/ Value Shares (000) - -------- -------- U.S. TREASURY OBLIGATIONS -- (CONTINUED) U.S. Treasury Notes $ 500 3.375%, 11/15/19 (B) $ 481 800 3.125%, 05/15/19 (B) 758 500 2.125%, 11/30/14 (B) 488 -------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $5,905) 6,073 -------- MUNICIPAL BONDS -- 2.9% MUNICIPAL -- 2.9% California State, GO 1,500 7.550%, 04/01/39 1,454 Michigan Municipal Bond Authority, RB, Merrill Lynch Insured (A) 500 3.205%, 09/01/48 500 New Jersey State, Turnpike Authority, Ser B, RB, AMBAC Insured, Pre-Refunded @ 100 (C) 1,250 4.252%, 01/01/16 1,243 New Mexico Mortgage Finance Authority, RB, AMT, GNMA/FNMA/FHLMC Collateral 455 4.200%, 07/01/28 453 -------- TOTAL MUNICIPAL BONDS (Cost $3,690) 3,650 -------- CASH EQUIVALENTS (F) - 13.2% 454,870 Dreyfus Cash Management Fund, Institutional Shares, 0.260% 455 454,870 Fidelity Institutional Money Market Portfolio, Institutional Shares, 0.260% 455 7,697,373 Fidelity Prime Money Market, Institutional Shares, 0.273% (E) 7,698 8,082,241 RBC Prime Money Market Fund, 0.362% (E) 8,082 -------- TOTAL CASH EQUIVALENTS (Cost $16,690) 16,690 -------- REPURCHASE AGREEMENT (E) -- 17.9% 22,648 Bank of America 0.143%, dated 12/31/09, to be repurchased on 01/04/10, repurchase price $22,648,478 (collateralized by a Corporate obligation, par value $23,567,055, 5.94%, 1/15/53, with a total market value of $23,135,306) TOTAL REPURCHASE AGREEMENT (Cost $22,648) 22,648 -------- TOTAL INVESTMENTS (Cost $157,374) -- 129.6% $163,741 ======== Bishop Street Funds 32 High Grade Income Fund SCHEDULE OF INVESTMENTS (CONTINUED) PERCENTAGES ARE BASED ON NET ASSETS OF $126,334 ($ THOUSANDS). (A) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE SCHEDULE OF INVESTMENTS IS THE RATE IN EFFECT ON DECEMBER 31, 2009. THE MATURITY DATE SHOWN IS THE FINAL MATURITY DATE. (B) THIS SECURITY OR PORTION OF THIS SECURITY IS ON LOAN AT DECEMBER 31, 2009. THE TOTAL VALUE OF SECURITIES ON LOAN AT DECEMBER 31, 2009 WAS $36,948 ($ THOUSANDS). (C) PRE-REFUNDED SECURITY -- THE MATURITY DATE SHOWN IS THE PRE-REFUNDED DATE. (D) SECURITY EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF 1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM REGISTRATION, NORMALLY TO QUALIFIED INSTITUTIONS. AT DECEMBER 31, 2009, THESE SECURITIES AMOUNTED TO $1,747 ($ THOUSANDS), REPRESENTING 1.38% OF NET ASSETS OF THE FUND. (E) THIS SECURITY WAS PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES ON LOAN. THE TOTAL VALUE OF SUCH SECURITIES AS OF DECEMBER 31, 2009 WAS $38,428 ($ THOUSANDS). (F) THE RATE SHOWN IS THE 7-DAY EFFECTIVE YIELD AS OF DECEMBER 31, 2009. (G) STEP BOND -- COUPON RATE INCREASES IN INCREMENTS TO MATURITY. RATE DISCLOSED IS THE RATE IN EFFECT AS OF DECEMBER 31, 2009. AMBAC -- AMERICAN MUNICIPAL BOND ASSURANCE COMPANY AMT -- ALTERNATIVE MINIMUM TAX CL -- CLASS FHLMC -- FEDERAL HOME LOAN MORTGAGE ASSOCIATION FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION GO -- GENERAL OBLIGATION LLC -- LIMITED LIABILITY COMPANY MTN -- MEDIUM TERM NOTE PLC -- PUBLIC LIMITED COMPANY RB -- REVENUE BOND REMIC -- REAL ESTATE MORTGAGE INVESTMENT CONDUIT SER -- SERIES TIPS -- TREASURY INFLATION-PROTECTED SECURITIES COST FIGURES ARE SHOWN IN THOUSANDS. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2009 www.bishopstreetfunds.com 33 BISHOP STREET MANAGEMENT DISCUSSION FUNDS Hawaii Municipal Bond Fund Municipal bond returns in 2009 were outstanding as the market experienced its sharpest rally in fourteen years. Confidence improved from the panic in 2008 as investors unwound the flight-to-quality trade. Riskier sectors outperformed all others led by industrial development, hospital and housing revenue bonds. Demand for municipal bonds remained high in anticipation of higher federal income tax rates and a decrease in issuance of tax-exempt bonds due to the increased issuance of taxable Build America Bonds. By year end, yields returned to more normal valuation levels; however, the yield curve remained very steep with a 357 basis points difference in yield between the 2-year note and 30-year bond. The Bishop Street Hawaii Municipal Bond Fund underperformed the Barclays Municipal Bond Index for the year but performed relatively in line with the performance of Hawaii bonds. The lag in performance was primarily due to the high quality bias of the Fund and its shorter duration relative to its benchmark. Looking ahead, concerns over impending budget deficits and the prospect of further credit rating downgrades will likely keep risk premiums high over the near term. As we anticipate interest rates moving higher in 2010, we will continue to apply a disciplined and defensive approach with a bias for higher credit quality. THIS REPRESENTS THE MANAGEMENT'S ASSESSMENT OF THE FUNDS AND THE MARKET ENVIRONMENT AT A SPECIFIC POINT IN TIME AND SHOULD NOT BE RELIED UPON BY THE READER AS RESEARCH OR INVESTMENT ADVICE. Bishop Street Funds 34 Hawaii Municipal Bond Fund PERFORMANCE COMPARISON COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE HAWAII MUNICIPAL BOND FUND, CLASS I OR CLASS A, VERSUS THE BARCLAYS MUNICIPAL BOND INDEX, THE CONSUMER PRICE INDEX AND THE LIPPER OTHER STATES MUNICIPAL DEBT FUNDS OBJECTIVE. (PERFORMANCE GRAPH) Initial Investment Date 12/31/99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 - ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Bishop Street Hawaii Municipal Bond Fund, Institutional $10,000 $11,261 $11,739 $12,915 $13,595 $14,052 $14,405 $15,042 $15,413 $15,256 $16,724 Bishop Street Hawaii Municipal Bond Fund, Synthetic Retail $ 9,700 $10,897 $11,347 $12,452 $13,076 $13,481 $13,785 $14,359 $14,677 $14,491 $15,846 Barclays Municipal Bond Index $10,000 $11,168 $11,741 $12,869 $13,552 $14,159 $14,657 $15,367 $15,883 $15,490 $17,491 Consumer Price Index $10,000 $10,337 $10,498 $10,750 $10,952 $11,309 $11,692 $11,992 $12,481 $12,493 $12,833 Lipper Other States Municipal Debt Funds $10,000 $11,063 $11,535 $12,484 $13,072 $13,545 $13,905 $14,528 $14,810 $13,635 $15,863 Hawaii Municipal Bond Fund, Class I# Hawaii Municipal Bond Fund, Class A# Barclays Municipal Bond Index(1) Consumer Price Index(1) Lipper Other States Municipal Debt Funds Objective(1) # Account value if you reinvested income and capital gains. (1) See page 4 for definition of comparative indices. AVERAGE ANNUAL TOTAL RETURNS+ ONE ANNUALIZED ANNUALIZED ANNUALIZED YEAR 3 YEAR 5 YEAR 10 YEAR RETURN RETURN RETURN RETURN - ------ ---------- ---------- ---------- 9.63% 3.60% 3.54% 5.28% Class I 9.35% 3.34% 3.29% 5.03% Class A Class A, 6.08% 2.31% 2.66% 4.71% with load** ** Reflects 3.00% sales charge. + Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Fee waivers are in effect; if they had not been in effect, performance would have been lower. December 31, 2009 www.bishopstreetfunds.com 35 Hawaii Municipal Bond Fund TOP TEN HOLDINGS+ Percentage Coupon Maturity of Rate Date Investments ------ -------- ----------- 1. Honolulu Hawaii City & County, GO 5.000% 07/01/17 3.3% 2. Honolulu Hawaii City & County, GO 5.000% 07/01/26 1.7% 3. Hawaii State, RB 5.000% 07/01/16 1.5% 4. Honolulu City & County, Board of Water Supply, RB 4.750% 07/01/17 1.4% 5. Honolulu Hawaii City & County, GO 5.000% 07/01/15 1.4% 6. Hawaii State, RB 5.000% 07/01/12 1.3% 7. Hawaii State, Housing Finance & Development, RB 6.500% 07/01/33 1.3% 8. Hawaii State, Housing Finance & Development, RB 5.350% 07/01/18 1.3% 9. Hawaii State, Department of Hawaiian Home Lands, COP 5.000% 11/01/31 1.3% 10. Honolulu City & County, Board of Water Supply, RB 5.000% 07/01/33 1.2% SECTOR WEIGHTINGS (UNAUDITED)+ (BAR-CHART) General Obligation 49.9% Transportation 11.5% Water 10.4% Higher Education 7.8% Airport 4.4% Power 3.9% General Revenue 3.9% Single-Family Housing 2.6% Housing 1.3% Facilities 0.8% Utilities 0.7% Education 0.6% Pollution 0.6% School District 0.6% Short-Term Investments 0.5% Beneficiary Bank 0.4% Medical 0.1% + PERCENTAGES ARE BASED ON TOTAL INVESTMENTS. SCHEDULE OF INVESTMENTS Face Amount Value (000) (000) - -------- -------- MUNICIPAL BONDS -- 98.2% ALASKA -- 0.1% City of Anchorage Alaska, Water Department, RB, NPFGC Re-insures Insured $ 200 5.000%, 05/01/37 $ 205 -------- Bishop Street Funds 36 Hawaii Municipal Bond Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - ---------- --------- ARIZONA -- 0.9% Phoenix Civic Improvement, Ser A, RB $ 1,435 5.000%, 07/01/21 $ 1,534 --------- CALIFORNIA -- 0.2% San Jose Evergreen Community College District, Ser B, GO, FSA Insured (A) 1,000 6.052%, 09/01/28 318 --------- GEORGIA -- 0.6% Main Street, Natural Gas, Ser B, RB 1,000 5.000%, 03/15/18 1,005 --------- HAWAII -- 81.2% Hawaii County, Refunding & Improvement Project, Ser A, GO, NPFGC Re-insures FGIC Insured 430 5.600%, 05/01/13 486 Hawaii County, Ser A, GO, AGM Insured 125 5.000%, 07/15/21 132 1,500 5.000%, 07/15/23 1,570 Hawaii County, Ser A, GO, NPFGC Re-Insured 1,055 5.250%, 07/15/18 1,133 1,000 5.000%, 07/15/24 1,050 Hawaii County, Unlimited Public Improvements, Ser A, GO, AMBAC Insured 1,000 5.000%, 07/15/15 1,134 Hawaii County, Unlimited Public Improvements, Ser A, GO, NPFGC Insured 505 5.000%, 07/15/21 550 1,000 5.000%, 07/15/22 1,083 Hawaii State, Airport System, RB, AMT, NPFGC Re-insures FGIC Insured 1,000 5.750%, 07/01/15 1,036 Hawaii State, Airport System, Ser B, RB, AMT, ETM 40 6.900%, 07/01/12 42 Hawaii State, Airport System, Ser B, RB, AMT, NPFGC Re-insures FGIC Insured 1,500 6.625%, 07/01/18 1,531 500 6.000%, 07/01/19 508 Hawaii State, Department of Budget & Finance, Chaminade University, RB, Radian Insured 1,000 4.750%, 01/01/36 877 December 31, 2009 www.bishopstreetfunds.com 37 Hawaii Municipal Bond Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - ---------- --------- HAWAII -- (CONTINUED) Hawaii State, Department of Budget & Finance, Electric Company & Subsidiary Project, Ser A, RB, AMT, FGIC Insured $ 750 4.800%, 01/01/25 $ 687 Hawaii State, Department of Budget & Finance, Electric Company & Subsidiary Project, Ser B, RB, AMT, XLCA Insured 1,025 5.000%, 12/01/22 977 Hawaii State, Department of Budget & Finance, Hawaiian Electric, Ser A, RB, AMT, AMBAC Insured 445 5.100%, 09/01/32 404 Hawaii State, Department of Budget & Finance, Hawaiian Electric, Ser A, RB, AMT, FGIC Insured 1,000 4.650%, 03/01/37 826 Hawaii State, Department of Budget & Finance, Hawaiian Electric, Ser A, RB, AMT, NPFGC Re-Insured 2,000 5.650%, 10/01/27 1,987 Hawaii State, Department of Budget & Finance, Hawaiian Electric, Ser C, RB, AMT, AMBAC Insured 1,000 6.200%, 11/01/29 1,005 Hawaii State, Department of Budget & Finance, Mid Pacific Institute, RB, Radian Insured 1,000 5.000%, 01/01/26 982 Hawaii State, Department of Hawaiian Home Lands, Kapolei Office Facilities, Ser A, COP, AGM Insured 2,000 5.000%, 11/01/31 2,078 Hawaii State, Harbor System, Ser A, RB, AMT, AGM Insured 2,025 5.750%, 07/01/17 2,062 770 5.750%, 07/01/29 779 1,210 5.700%, 07/01/16 1,233 1,000 5.600%, 07/01/15 1,020 Hawaii State, Harbor System, Ser B, RB, AMT, AGM Insured 1,000 5.000%, 01/01/13 1,078 500 5.000%, 01/01/23 521 Hawaii State, Harbor System, Ser B, RB, AMT, AMBAC Insured 200 5.500%, 07/01/19 208 Hawaii State, Highway, RB 300 5.500%, 07/01/18 350 500 5.500%, 01/01/25 578 Hawaii State, Highway, RB, AGM Insured 2,000 5.000%, 07/01/12 2,191 Hawaii State, Highway, Ser A, RB, AGM Insured 1,725 5.000%, 07/01/21 1,834 1,565 5.000%, 07/01/22 1,661 1,805 5.000%, 07/01/23 1,910 Bishop Street Funds 38 Hawaii Municipal Bond Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - ---------- --------- HAWAII -- (CONTINUED) Hawaii State, Highway, Ser B, RB, AGM Insured $ 2,300 5.000%, 07/01/16 $ 2,515 Hawaii State, Housing Finance & Development, Ser B, RB, AGM Insured 2,000 6.500%, 07/01/33 2,179 Hawaii State, Housing Finance & Development, Single-Family Housing, Ser A, RB, AMT, FNMA Collateral 510 5.400%, 07/01/30 511 2,145 5.350%, 07/01/18 2,151 Hawaii State, Housing Finance & Development, Single-Family Housing, Ser B, RB, FNMA Collateral 555 5.450%, 07/01/17 557 Hawaii State, Improvements Authority, GO, FGIC-TCRS Insured 1,000 6.000%, 03/01/11 1,063 Hawaii State, Improvements Authority, Ser DA, GO, NPFGC Re-Insured 850 5.250%, 09/01/23 922 Hawaii State, Improvements Authority, Ser DB, GO, NPFGC Re-Insured 200 5.250%, 09/01/15 225 Hawaii State, Improvements Authority, Ser DD, GO, NPFGC Re-Insured 1,500 5.250%, 05/01/15 1,702 Hawaii State, Improvements Authority, Ser DF, GO, AMBAC Insured 1,250 5.000%, 07/01/18 1,369 1,250 5.000%, 07/01/21 1,364 90 5.000%, 07/01/22 98 Hawaii State, No. 1 Capitol District State Office, COP, NPFGC Re-Insured, Pre-Refunded @ 100 (B) 1,000 5.200%, 05/01/14 1,016 Hawaii State, Ser CM, GO, AGM FGIC Insured 1,000 6.500%, 12/01/14 1,218 Hawaii State, Ser CU, GO, NPFGC Re-Insured, Pre-Refunded @ 100 (B) 25 5.750%, 10/01/11 26 Hawaii State, Ser CV, GO, NPFGC Re-insures FGIC Insured 350 5.375%, 08/01/19 369 Hawaii State, Ser CV, GO, NPFGC Re-insures FGIC Insured, Pre-Refunded @ 100 (B) 650 5.375%, 08/01/19 699 Hawaii State, Ser CX, GO, FSA Insured 1,000 5.500%, 02/01/16 1,070 580 5.500%, 02/01/21 614 Hawaii State, Ser CX, GO, FSA Insured, Pre-Refunded @ 100 (B) 420 5.500%, 02/01/21 461 December 31, 2009 www.bishopstreetfunds.com 39 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 $ 242 Hawaii State, Ser DI, GO, AGM Insured 1,000 5.000%, 03/01/26 1,071 Hawaii State, Ser DK, GO 350 5.000%, 05/01/24 386 225 5.000%, 05/01/25 247 Hawaii State, Ser DN, GO 1,000 5.500%, 08/01/26 1,124 Hawaii State, Ser DO, GO 1,000 5.000%, 08/01/16 1,147 Hawaii State, Ser DQ, GO 500 5.000%, 06/01/27 545 1,100 5.000%, 06/01/28 1,194 Hawaii State, Ser DV, GO 600 2.000%, 11/01/12 616 Hawaii State, Unlimited Public Improvements, Ser DD, GO, NPFGC Re-Insured 1,000 5.000%, 05/01/16 1,100 Hawaii State, Unlimited Public Improvements, Ser DJ, GO, AMBAC Insured 500 5.000%, 04/01/13 559 Honolulu City & County, Board of Water Supply, Ser A, RB, FGIC Insured, Pre-Refunded @ 100 (B) 1,300 4.750%, 07/01/16 1,489 2,000 4.750%, 07/01/17 2,290 Honolulu City & County, Board of Water Supply, Ser A, RB, NPFGC Re-insures FGIC Insured 2,000 5.000%, 07/01/33 2,063 Honolulu City & County, Board of Water Supply, Ser B, RB, AMT, NPFGC Re-Insured 1,000 5.250%, 07/01/20 1,059 1,000 5.250%, 07/01/21 1,058 325 5.000%, 07/01/15 347 Honolulu Hawaii City & County, 1st Board Resolution, Ser A, RB 1,300 4.000%, 07/01/25 1,303 Honolulu Hawaii City & County, 2nd Board Resolution, Ser A, RB, AGM Insured 1,000 5.000%, 07/01/23 1,089 1,900 5.000%, 07/01/27 2,040 Honolulu Hawaii City & County, Ser A, GO 200 5.250%, 04/01/31 217 1,100 5.250%, 04/01/32 1,188 550 5.000%, 04/01/27 591 1,000 5.000%, 04/01/33 1,054 Bishop Street Funds 40 Hawaii Municipal Bond Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - ---------- --------- HAWAII -- (CONTINUED) Honolulu Hawaii City & County, Ser A, GO, AGM Insured $ 375 5.000%, 07/01/20 $ 414 1,070 5.000%, 07/01/23 1,160 275 5.000%, 07/01/24 296 1,000 5.000%, 07/01/30 1,051 Honolulu Hawaii City & County, Ser A, GO, NPFGC Re-Insured 725 5.250%, 03/01/18 787 1,000 5.250%, 03/01/20 1,078 1,500 5.250%, 03/01/24 1,605 500 5.250%, 03/01/28 532 1,800 5.000%, 07/01/21 1,944 1,500 5.000%, 07/01/23 1,618 550 5.000%, 07/01/25 587 540 5.000%, 07/01/26 578 1,000 5.000%, 07/01/27 1,058 Honolulu Hawaii City & County, Ser B, GO, NPFGC Re-Insured 2,000 5.000%, 07/01/15 2,242 1,500 5.000%, 07/01/16 1,676 Honolulu Hawaii City & County, Ser D, GO 1,000 4.000%, 09/01/25 1,008 1,000 4.000%, 09/01/26 1,003 Honolulu Hawaii City & County, Ser D, GO, NPFGC Re-Insured 885 5.000%, 07/01/19 962 1,700 5.000%, 07/01/23 1,829 Honolulu Hawaii City & County, Ser E, GO, NPFGC Re-insures FGIC Insured 1,500 5.250%, 07/01/20 1,670 Honolulu Hawaii City & County, Ser F, GO, AGM FGIC Insured 820 5.000%, 07/01/24 885 Honolulu Hawaii City & County, Sewer Improvements, 1st Board Resolution, Ser C, RB, NPFGC Re-Insured 250 5.000%, 07/01/31 261 Honolulu Hawaii City & County, Sewer Improvements, 2nd Board Resolution, Ser A-1, RB, NPFGC Re-Insured 815 5.000%, 07/01/22 861 630 5.000%, 07/01/23 663 Honolulu Hawaii City & County, Sewer Improvements, 2nd Board Resolution, Ser B-1, RB, NPFGC Re-Insured 865 5.000%, 07/01/23 910 Honolulu Hawaii City & County, Valorem Tax Project, Ser A, GO, NPFGC Re-Insured 2,680 5.000%, 07/01/26 2,852 December 31, 2009 www.bishopstreetfunds.com 41 Hawaii Municipal Bond Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - ---------- --------- HAWAII -- (CONTINUED) Honolulu Hawaii City & County, Valorem Tax Project, Ser B, GO, NPFGC Re-Insured $ 4,950 5.000%, 07/01/17 $ 5,459 Honolulu Hawaii City & County, Waipahu Towers Project, Ser A, RB, AMT, GNMA Collateral 195 6.900%, 06/20/35 197 Honolulu Hawaii City & County, Water Utility Improvement, GO, ETM, FGIC-TCRS Insured 1,000 6.000%, 12/01/12 1,146 Kauai County, Ser A, GO, NPFGC Re-insures FGIC Insured 1,610 5.000%, 08/01/21 1,709 1,440 5.000%, 08/01/23 1,517 Kauai County, Ser A, GO, NPFGC Re-Insured 1,500 5.000%, 08/01/25 1,529 Maui County, GO, NPFGC Re-Insured 100 5.000%, 03/01/17 110 1,100 5.000%, 03/01/24 1,172 Maui County, Hawaii, Ser A, GO, NPFGC Re-Insured 1,000 5.000%, 07/01/19 1,105 Maui County, Ser A, GO, FSA Insured 1,000 3.500%, 07/01/16 1,048 Maui County, Ser A, GO, NPFGC Re-Insured 1,000 4.750%, 07/01/25 1,047 Maui County, Ser B, GO, NPFGC Re-Insured 500 5.000%, 07/01/16 568 500 5.000%, 09/01/17 544 University of Hawaii, College Improvements Project, Ser A, RB, FGIC Insured, Pre-Refunded @ 100 (B) 1,605 5.500%, 07/15/14 1,791 500 5.125%, 07/15/32 553 University of Hawaii, College Improvements Project, Ser A, RB, NPFGC Re-Insured 200 5.000%, 07/15/19 214 University of Hawaii, Ser A, RB 500 5.000%, 10/01/14 560 University of Hawaii, Ser A, RB, AGC MBIA Insured 1,400 5.000%, 10/01/23 1,515 University of Hawaii, Ser A, RB, MBIA Insured 400 4.500%, 07/15/32 391 University of Hawaii, Ser A, RB, NPFGC Re-Insured 975 5.000%, 07/15/21 1,044 150 5.000%, 07/15/22 160 1,300 3.500%, 07/15/27 1,158 Bishop Street Funds 42 Hawaii Municipal Bond Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - ---------- --------- HAWAII -- (CONTINUED) University of Hawaii, Ser B, RB, FSA Insured $ 320 5.250%, 10/01/16 $ 333 775 5.250%, 10/01/17 803 --------- 134,854 --------- ILLINOIS -- 1.0% Chicago O'Hare International Airport, General Airport, Ser E, RB, CIFG Insured 1,550 5.250%, 01/01/22 1,619 --------- INDIANA -- 1.7% Indiana Bond Bank, Ser B, RB, AGM Insured (A) 2,125 5.483%, 06/01/32 629 Indiana Finance Authority, Highway Revenue, Ser A, RB, NPFGC Re-insures FGIC Insured 1,200 4.500%, 06/01/27 1,208 Wayne Township School Building, RB, NPFGC Re-insures FGIC Insured 1,000 3.500%, 07/15/24 912 --------- 2,749 --------- NEVADA -- 0.8% Las Vegas New Convention & Visitors Authority, RB, AMBAC Insured 1,055 5.000%, 07/01/28 1,091 Nevada State, Municipal Bond Bank Project, Ser F, GO, FSA Insured 250 5.000%, 12/01/24 262 --------- 1,353 --------- NEW MEXICO -- 0.6% New Mexico Mortgage Finance Authority, RB, AMT, GNMA/FNMA/FHLMC Insured 1,005 4.200%, 07/01/28 999 --------- NEW YORK -- 1.3% New York City Municipal Water Finance Authority, Ser BB, RB 1,000 5.000%, 06/15/27 1,072 New York State, Dormitory Authority, Ser A, RB 1,000 3.100%, 07/01/17 1,005 --------- 2,077 --------- December 31, 2009 www.bishopstreetfunds.com 43 Hawaii Municipal Bond Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - ---------- --------- NORTH CAROLINA -- 0.9% Mecklenburg County, Public Facilities, RB $ 1,300 5.000%, 03/01/27 $ 1,409 --------- OKLAHOMA -- 1.7% Durant Community Facilities Authority, GO, XLCA Insured 1,730 5.750%, 11/01/24 1,854 Tulsa Airports Improvement Trust, Ser B, RB 1,000 5.375%, 06/01/24 980 --------- 2,834 --------- OREGON -- 0.6% Oregon State, Ser C, GO 1,000 4.100%, 08/01/28 990 --------- PUERTO RICO -- 1.3% Commonwealth of Puerto Rico, GO, NPFGC Re-Insured 1,500 6.000%, 07/01/15 1,624 Commonwealth of Puerto Rico, Public Improvement, GO, FSA Insured, Pre-Refunded @ 100 (B) 55 5.000%, 07/01/11 59 Puerto Rico, Electric Power Authority, Ser HH, RB, FSA Insured, Pre-Refunded @ 101 (B) 500 5.250%, 07/01/29 517 --------- 2,200 --------- SOUTH CAROLINA -- 1.3% College of Charleston, Ser D, RB, XLCA Insured 765 4.500%, 04/01/37 715 Sumter South Carolina, Waterworks & Sewer Improvement Systems, RB, XLCA Insured 500 5.000%, 12/01/21 535 840 5.000%, 12/01/24 887 --------- 2,137 --------- TEXAS -- 3.0% Alamo Community College District, Improvements Authority, GO, NPFGC Re-insures FGIC Insured 1,000 4.500%, 08/15/26 1,017 City of El Paso Texas, GO 500 4.000%, 08/15/16 536 Bishop Street Funds 44 Hawaii Municipal Bond Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000) (000) - ---------- --------- TEXAS -- (CONTINUED) City of Fort Worth Texas, RB $ 1,000 4.300%, 02/15/35 $ 943 North Texas Tollway Authority, Highway Revenue, RB, Assured Guarantee Insured (A) 3,000 3.345%, 01/01/30 933 University of Texas, Permanent University Fund, Ser B, RB 1,600 4.500%, 07/01/33 1,612 --------- 5,041 --------- WASHINGTON -- 0.3% Washington State, Motor Vehicles Tax Authority, Ser F GO, AMBAC Insured (A) 1,000 4.725%, 12/01/25 490 --------- WISCONSIN -- 0.7% Wisconsin State, Ser D, GO, FSA Insured 1,000 5.000%, 05/01/21 1,095 --------- TOTAL MUNICIPAL BONDS (Cost $159,246) 162,909 --------- CASH EQUIVALENTS (C) -- 0.5% 420,738 Dreyfus Cash Management Fund, Institutional Shares, 0.120% 421 420,738 Fidelity Institutional Tax-Exempt Portfolio, Institutional Shares, 0.260% 421 --------- TOTAL CASH EQUIVALENTS (Cost $842) 842 --------- TOTAL INVESTMENTS (Cost $160,088) -- 98.7% $ 163,751 ========= PERCENTAGES ARE BASED ON NET ASSETS OF $165,977 ($ THOUSANDS). December 31, 2009 www.bishopstreetfunds.com 45 Hawaii Municipal Bond Fund SCHEDULE OF INVESTMENTS (CONTINUED) (A) ZERO COUPON SECURITY -- THE RATE SHOWN ON THE SCHEDULE OF INVESTMENTS IS THE EFFECTIVE YIELD AT TIME OF PURCHASE. (B) PRE-REFUNDED SECURITY - THE MATURITY DATE SHOWN IS THE PRE-REFUNDED DATE. (C) THE RATE SHOWN IS THE 7-DAY EFFECTIVE YIELD AS OF DECEMBER 31, 2009. AGC -- AMERICAN GUARANTEE CORPORATION AGM -- ASSURED GUARANTY MUNICIPAL CORP. 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 FHLMC -- FEDERAL HOME LOAN MORTGAGE ASSOCIATION FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION FSA -- FINANCIAL SECURITY ASSURANCE GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION GO -- GENERAL OBLIGATION MBIA -- MUNICIPAL BOND INVESTORS ASSURANCE NPFGC -- NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION RB -- REVENUE BOND SER -- SERIES 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 46 BISHOP STREET MANAGEMENT DISCUSSION FUNDS Government Money Market Fund The world changed significantly in the last twelve months. We started the fiscal year in the depths of a recession, precipitated largely by the credit crisis that emerged following the Lehman Brothers bankruptcy. Market conditions were extremely challenging during this difficult period. Ultimately, the Federal Reserve helped stabilize the market with the creation of a funding facility designed to provide liquidity to money market investors. Funding pressures abated and markets calmed. In the months following the liquidity crisis, the economic environment slowly improved as the credit markets stabilized. Risky assets rebounded sharply as systemic risks declined. Despite positive developments in the financial markets, the money market industry continued to experience an extremely low interest rate environment. Economic growth resumed in the second half of the year as the financial markets stabilized. Evidence of the recovery was most apparent in data from the manufacturing sector which exhibited steady monthly increases throughout the year. Consumption rebounded from low levels as the year progressed. The labor sector, however, continued to lag. Job losses were more severe in this contraction than in others experienced in the post war period and continued to mount late in the cycle. A significant increase in consumption would seem unlikely to occur until after the unemployment rate peaks. A consequence of monetary stimulus is depressed short-term interest rates. In the past year, short term government yields remained at the lowest levels in history. The low interest rate environment can be attributed to the near-zero Federal Funds target rate. The challenges of low interest rates are most evident in the money market industry which has significant exposure to short term U.S. Treasury bills. Money market funds increased their allocation to risk-free December 31, 2009 www.bishopstreetfunds.com 47 BISHOP STREET MANAGEMENT DISCUSSION FUNDS government securities in the period following the liquidity crisis. The elevated allocation to low yielding Treasury bills has pushed fund yields toward single digit levels. During the year the Money Market Funds were converted to a government fund and the allocation to commercial paper and bank deposits was eliminated in favor of government securities. The maturity of the portfolio was 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 while maintaining a high level of credit quality. THIS REPRESENTS THE MANAGEMENT'S ASSESSMENT OF THE FUNDS AND THE MARKET ENVIRONMENT AT A SPECIFIC POINT IN TIME AND SHOULD NOT BE RELIED UPON BY THE READER AS RESEARCH OR INVESTMENT ADVICE. Bishop Street Funds 48 Government Money Market Fund SECTOR WEIGHTINGS (UNAUDITED)+ (PERFORMANCE GRAPH) U.S. Government Agency Obligations 91.6% Cash Equivalents 5.3% U.S. Treasury Obligation 3.1% + PERCENTAGES ARE BASED ON TOTAL INVESTMENTS. SCHEDULE OF INVESTMENTS Face Amount Value (000) (000) - ------------ ---------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 91.6% FFCB (B) $ 4,500 0.266%, 12/27/10 $ 4,499 FHLB (A) 1,800 0.180%, 01/11/10 1,800 1,775 0.155%, 05/21/10 1,774 1,000 0.120%, 01/13/10 1,000 3,362 0.110%, 01/07/10 3,362 5,000 0.105%, 03/17/10 4,999 12,000 0.100%, 01/04/10 12,000 2,857 0.100%, 01/21/10 2,857 FHLMC (A) 5,000 0.270%, 02/16/10 4,998 1,059 0.261%, 06/01/10 1,058 2,000 0.245%, 03/15/10 1,999 1,100 0.170%, 01/26/10 1,100 5,400 0.170%, 02/23/10 5,399 3,000 0.170%, 05/17/10 2,998 4,600 0.160%, 01/21/10 4,599 3,000 0.150%, 01/06/10 3,000 4,000 0.150%, 03/30/10 3,998 9,816 0.133%, 01/27/10 9,815 2,000 0.110%, 03/23/10 1,999 3,849 0.100%, 01/20/10 3,849 4,100 0.100%, 01/28/10 4,100 2,000 0.080%, 03/22/10 2,000 2,600 0.065%, 02/08/10 2,600 FNMA (A) 1,300 0.150%, 05/05/10 1,299 3,000 0.150%, 05/12/10 2,998 7,948 0.117%, 02/24/10 7,947 5,000 0.110%, 03/17/10 4,999 5,000 0.100%, 03/10/10 4,999 3,000 0.080%, 02/17/10 3,000 2,500 0.080%, 03/03/10 2,500 3,434 0.050%, 01/13/10 3,434 ---------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $116,979) 116,979 ---------- December 31, 2009 www.bishopstreetfunds.com 49 Government Money Market Fund SCHEDULE OF INVESTMENTS (CONTINUED) Face Amount Value (000)/Shares (000) - ------------ ---------- U.S. TREASURY OBLIGATION (A) -- 3.1% U.S. Government Cash Management Bills $ 4,000 0.277%, 06/10/10 $ 3,995 ---------- TOTAL U.S. TREASURY OBLIGATION (Cost $3,995) 3,995 ---------- CASH EQUIVALENTS (C) -- 5.3% 2,216,154 AIM STIT-Government & Agency Portfolio, 0.020% 2,216 2,283,310 Dreyfus Government Cash Management Fund, Institutional Shares, 0.020% 2,283 2,216,154 Fidelity Institutional Money Market Funds, Institutional Shares, 0.060% 2,216 ---------- TOTAL CASH EQUIVALENTS (Cost $6,715) 6,715 ---------- TOTAL INVESTMENTS (Cost $127,689) + -- 100.0% $ 127,689 ========== PERCENTAGES ARE BASED ON NET ASSETS OF $127,638 ($ THOUSANDS). + FOR FEDERAL TAX PURPOSES, THE FUND'S AGGREGATE TAX COST IS EQUAL TO ITS BOOK COST. (A) ZERO COUPON SECURITY -- THE RATE SHOWN ON THE SCHEDULE OF INVESTMENTS IS THE EFFECTIVE YIELD AT TIME OF PURCHASE. (B) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE SCHEDULE OF INVESTMENTS IS THE RATE IN EFFECT ON DECEMBER 31, 2009. THE MATURITY DATE SHOWN IS THE NEXT SCHEDULED RESET DATE. (C) THE RATE SHOWN IS THE 7-DAY EFFECTIVE YIELD AS OF DECEMBER 31, 2009. FFCB -- FEDERAL FARM CREDIT BANK FHLB -- FEDERAL HOME LOAN BANK FHLMC -- FEDERAL HOME LOAN MORTGAGE ASSOCIATION FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION 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, 2009 (IN THOUSANDS) Large High Strategic Cap Core Grade Growth Equity Income Fund Fund Fund --------- -------- -------- ASSETS: Investments, at Cost $ 55,225 $ 55,287 $134,726 Repurchase Agreements, at Cost -- 6,775 22,648 ======== ======== ======== Investments, at Value $ 60,938 $ 54,961(1) $141,093(1) Repurchase Agreements, at Value -- 6,775 22,648 Dividends and Interest Receivable 51 70 1,260 Reclaim Receivable 5 1 2 Receivable for Fund Shares Sold 4 -- 36 Prepaid Expenses 4 3 17 -------- -------- -------- Total Assets 61,002 61,810 165,056 -------- -------- -------- LIABILITIES: Advisory Fees Payable 38 26 45 Administrative Fees Payable 6 5 12 Shareholder Servicing Fees Payable 5 4 11 Chief Compliance Officer Fees Payable 1 -- 1 Payable for Fund Shares Redeemed -- -- 23 Income Distribution Payable -- -- 153 Collateral on Securities Loaned -- 11,495 38,428 Accrued Expenses Payable 23 21 49 -------- -------- -------- Total Liabilities 73 11,551 38,722 -------- -------- -------- Net Assets $ 60,929 $ 50,259 $126,334 ======== ======== ======== Paid-in Capital $ 69,258 $ 72,386 $118,786 Undistributed Net Investment Income 2 -- 2 Accumulated Net Realized Gain (Loss) on Investments (14,044) (21,801) 1,179 Net Unrealized Appreciation (Depreciation) on Investments 5,713 (326) 6,367 -------- -------- -------- Net Assets $ 60,929 $ 50,259 $126,334 ======== ======== ======== Class I Shares: Net Assets $ 60,929 $ 50,259 $126,334 Outstanding Shares of Beneficial Interest (unlimited authorization -- no par value) 5,727 6,420 11,861 Net Asset Value, Offering and Redemption Price Per Share -- Class I (Net Assets / Shares Outstanding) $ 10.64 $ 7.83 $ 10.65 ======== ======== ======== (1) INCLUDED IN "INVESTMENTS, AT VALUE" IS THE MARKET VALUE OF SECURITIES ON LOAN IN THE AMOUNTS OF $11,048 ($ THOUSANDS), AND $36,948 ($ 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, 2009 www.bishopstreetfunds.com 51 Bishop Street Funds STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2009 (IN THOUSANDS) Hawaii Government Municipal Money Bond Market Fund Fund --------- ---------- ASSETS: Investments, at Cost $160,088 $127,689 ======== ======== Investments, at Value $163,751 $127,689 Interest Receivable 3,090 1 Prepaid Expenses 11 11 -------- -------- Total Assets 166,852 127,701 -------- -------- LIABILITIES: Income Distribution Payable 395 -- Payable for Fund Shares Redeemed 345 2 Advisory Fees Payable 35 24 Shareholder Servicing Fees Payable 14 11 Administrative Fees Payable 10 14 Distribution Fees Payable 6 10 Chief Compliance Officer Fees Payable 2 1 Accrued Expenses Payable 68 1 -------- -------- Total Liabilities 875 63 -------- -------- Net Assets $165,977 $127,638 ======== ======== Paid-in Capital $163,354 $127,638 Undistributed Net Investment Income 7 -- Accumulated Net Realized Loss on Investments (1,047) -- Net Unrealized Appreciation on Investments 3,663 -- -------- -------- Net Assets $165,977 $127,638 ======== ======== Class I Shares: Net Assets $139,872 $ 82,405 Outstanding Shares of Beneficial Interest (unlimited authorization -- no par value) 13,176 82,410 Net Asset Value, Offering and Redemption Price Per Share -- Class I (Net Assets / Shares Outstanding) $ 10.62 $ 1.00 ======== ======== Class A Shares: Net Assets $ 26,105 $ 45,233 Outstanding Shares of Beneficial Interest (unlimited authorization -- no par value) 2,459 45,231 Net Asset Value, Offering and Redemption Price Per Share -- Class A (Net Assets / Shares Outstanding) $ 10.62 $ 1.00 ======== ======== Maximum Offering Price Per Shares -- Class A ($10.62 / 97.00%) $ 10.95 -- ======== ======== 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, 2009 (IN THOUSANDS) Large High Strategic Cap Core Grade Growth Equity Income Fund Fund Fund --------- -------- ------- INVESTMENT INCOME: Dividend Income $ 678 $ 912 $ -- Interest Income -- -- 6,000 Securities Lending, Net of commissions paid to lending agent -- 23 57 ------- -------- ------- Total Investment Income 678 935 6,057 ------- -------- ------- EXPENSES: Investment Adviser Fees 454 356 688 Shareholder Servicing Fee 153 120 313 Administrative Fees 123 96 250 Chief Compliance Officer Fees 2 1 3 Transfer Agent Fees 38 35 50 Professional Fees 19 18 40 Printing Fees 13 11 26 Trustees' Fees 5 4 8 Custody Fees 4 4 6 Registration Fees 3 2 8 Line of Credit 2 -- -- Miscellaneous Expenses 4 5 27 ------- -------- ------- Total Expenses 820 652 1,419 ------- -------- ------- Less Waivers: Investment Adviser Fees -- (37) (181) Shareholder Servicing Fees (92) (72) (188) Administrative Fees (49) (38) (100) ------- -------- ------- Total Waivers (141) (147) (469) ------- -------- ------- Total Net Expenses 679 505 950 ------- -------- ------- Net Investment Income (Loss) (1) 430 5,107 ------- -------- ------- Net Realized Gain (Loss) on Investments (7,091) (13,050) 6,222 Change in Unrealized Appreciation (Depreciation) on Investments 24,203 25,495 (1,128) ------- -------- ------- Net Realized and Unrealized Gain on Investments 17,112 12,445 5,094 ------- -------- ------- Increase in Net Assets Resulting from Operations $17,111 $ 12,875 $10,201 ======= ======== ======= 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, 2009 www.bishopstreetfunds.com 53 Bishop Street Funds STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2009 (IN THOUSANDS) Hawaii Government Municipal Money Bond Market Fund Fund --------- ---------- INVESTMENT INCOME: Interest Income $ 6,864 $ 650 Dividend Income 5 33 -------- ------- Total Investment Income 6,869 683 -------- ------- EXPENSES: Investment Adviser Fees 569 567 Shareholder Servicing Fee 406 472 Administrative Fees 325 378 Distribution Fees, Class A 63 130 Chief Compliance Officer Fees 4 4 Transfer Agent Fees 82 87 Professional Fees 52 61 Printing Fees 35 37 Trustees' Fees 13 17 Custody Fees 8 9 Registration Fees 6 10 Rating Expense -- 21 Miscellaneous Expenses 49 18 -------- ------- Total Expenses 1,612 1,811 -------- ------- Less Waivers/Reimbursements: Investment Adviser Fees (201) (567) Shareholder Servicing Fees (244) (436) Administrative Fees (211) (151) Expenses Reimbursed by Advisor -- (21) -------- ------- Total Waivers (656) (1,175) -------- ------- Total Net Expenses 956 636 -------- ------- Net Investment Income 5,913 47 -------- ------- Net Realized Gain (Loss) on Investments (634) 55 -------- ------- Change in Unrealized Appreciation on Investments 9,340 -- -------- ------- Net Realized and Unrealized Gain on Investments 8,706 55 -------- ------- Increase in Net Assets Resulting from Operations $ 14,619 $ 102 ======== ======= 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 ------------------- ------------------- 2009 2008 2009 2008 -------- -------- -------- -------- INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income (Loss) $ (1) $ (179) $ 430 $ 657 Net Realized Loss on Investments (7,091) (6,780) (13,050) (8,415) Change in Unrealized Appreciation (Depreciation) on Investments 24,203 (40,393) 25,495 (31,430) -------- -------- -------- -------- Increase (Decrease) in Net Assets Resulting from Operations 17,111 (47,352) 12,875 (39,188) -------- -------- -------- -------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net Investment Income: Class I Shares -- -- (437) (663) Capital Gains: Class I Shares -- (1,792) -- (405) -------- -------- -------- -------- Total Dividends and Distributions -- (1,792) (437) (1,068) -------- -------- -------- -------- CAPITAL SHARE TRANSACTIONS: Class I Shares: Proceeds from Shares Issued 3,665 7,881 2,362 7,026 Reinvestments of Cash Distributions -- 1,339 296 802 Cost of Shares Redeemed (22,084) (24,223) (16,696) (17,055) -------- -------- -------- -------- Net Decrease in Net Assets From Capital Share Transactions (18,419) (15,003) (14,038) (9,227) -------- -------- -------- -------- Total Decrease in Net Assets (1,308) (64,147) (1,600) (49,483) -------- -------- -------- -------- NET ASSETS: Beginning of Year 62,237 126,384 51,859 101,342 -------- -------- -------- -------- End of Year $ 60,929 $ 62,237 $ 50,259 $ 51,859 ======== ======== ======== ======== Undistributed Net Investment Income $ 2 $ 2 $ -- $ -- ======== ======== ======== ======== SHARE TRANSACTIONS: Class I Shares: Shares Issued 411 713 394 906 Shares Issued in Lieu of Cash Distributions -- 110 46 100 Shares Redeemed (2,386) (2,118) (2,629) (2,014) -------- -------- -------- -------- Net Decrease in Shares Outstanding from Share Transactions (1,975) (1,295) (2,189) (1,008) ======== ======== ======== ======== AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR ZERO SHARES, OR HAVE BEEN ROUNDED TO $0 OR ZERO SHARES. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2009 www.bishopstreetfunds.com 55 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 ------------------- ------------------- 2009 2008 2009 2008 -------- -------- -------- -------- INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income $ 5,107 $ 5,575 $ 5,913 $ 6,375 Net Realized Gain (Loss) on Investments 6,222 (29) (634) (373) Change in Unrealized Appreciation (Depreciation) on Investments (1,128) 4,542 9,340 (7,800) -------- -------- -------- -------- Increase (Decrease) in Net Assets Resulting from Operations 10,201 10,088 14,619 (1,798) -------- -------- -------- -------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net Investment Income: Class I Shares (5,099) (5,571) (5,052) (5,387) Class A Shares -- -- (864) (980) Capital Gains: Class I Shares (4,015) -- -- -- Class A Shares -- -- -- -- -------- -------- -------- -------- Total Dividends and Distributions (9,114) (5,571) (5,916) (6,367) -------- -------- -------- -------- CAPITAL SHARE TRANSACTIONS: Class I Shares: Proceeds from Shares Issued 27,826 15,292 15,742 13,137 Reinvestments of Cash Distributions 5,616 3,249 704 685 Cost of Shares Redeemed (30,171) (37,305) (14,730) (20,981) -------- -------- -------- -------- Total Class I Capital Share Transactions 3,271 (18,764) 1,716 (7,159) -------- -------- -------- -------- Class A Shares: Proceeds from Shares Issued -- -- 2,270 1,938 Reinvestments of Cash Distributions -- -- 413 423 Cost of Shares Redeemed -- -- (1,639) (6,466) -------- -------- -------- -------- Total Class A Capital Share Transactions -- -- 1,044 (4,105) -------- -------- -------- -------- Net Increase (Decrease) in Net Assets from Capital Share Transactions 3,271 (18,764) 2,760 (11,264) -------- -------- -------- -------- Total Increase (Decrease) in Net Assets 4,358 (14,247) 11,463 (19,429) -------- -------- -------- -------- NET ASSETS: Beginning of Year 121,976 136,223 154,514 173,943 -------- -------- -------- -------- End of Year $126,334 $121,976 $165,977 $154,514 ======== ======== ======== ======== Undistributed Net Investment Income $ 2 $ 2 $ 7 $ 10 ======== ======== ======== ======== SHARE TRANSACTIONS: Class I Shares: Shares Issued 2,641 1,504 1,507 1,294 Shares Issued in Lieu of Cash Distributions 524 320 67 67 Shares Redeemed (2,851) (3,693) (1,412) (2,064) -------- -------- -------- -------- Total Class I Share Transactions 314 (1,869) 162 (703) -------- -------- -------- -------- Class A Shares: Shares Issued -- -- 218 188 Shares Issued in Lieu of Cash Distributions -- -- 39 41 Shares Redeemed -- -- (156) (628) -------- -------- -------- -------- Total Class A Share Transactions -- -- 101 (399) -------- -------- -------- -------- Net Increase (Decrease) in Shares Outstanding from Share Transactions 314 (1,869) 263 (1,102) ======== ======== ======== ======== AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR ZERO SHARES, OR HAVE BEEN ROUNDED TO $0 OR ZERO SHARES. 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 Fund --------------------- 2009 2008 --------- --------- INVESTMENT ACTIVITIES FROM OPERATIONS: Net Investment Income $ 47 $ 4,965 Net Realized Gain on Investments 55 5 --------- --------- Increase in Net Assets Resulting from Operations 102 4,970 --------- --------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net Investment Income: Class I Shares (47) (3,629) Class A Shares -- (1,336) Capital Gains: Class I Shares (26) -- Class A Shares (15) -- --------- --------- Total Dividends and Distributions (88) (4,965) --------- --------- CAPITAL SHARE TRANSACTIONS (ALL AT $1.00 PER SHARE): Class I Shares: Proceeds from Shares Issued 384,869 497,017 Reinvestments of Cash Distributions 51 952 Cost of Shares Redeemed (466,696) (513,532) --------- --------- Total Class I Capital Share Transactions (81,776) (15,563) --------- --------- Class A Shares: Proceeds from Shares Issued 47,093 93,907 Reinvestments of Cash Distributions 15 1,336 Cost of Shares Redeemed (62,319) (98,367) --------- --------- Total Class A Capital Share Transactions (15,211) (3,124) --------- --------- Net Decrease in Net Assets from Capital Share Transactions (96,987) (18,687) --------- --------- Total Decrease in Net Assets (96,973) (18,682) --------- --------- NET ASSETS: Beginning of Year 224,611 243,293 --------- --------- End of Year $ 127,638 $ 224,611 ========= ========= 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, 2009 www.bishopstreetfunds.com 57 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 YEAR (LOSS)(1) INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS --------- ---------- --------------- ---------- ---------- ------- ------------- STRATEGIC GROWTH FUND CLASS I SHARES: 2009 $ 8.08 $ --** $ 2.56 $ 2.56 $ -- $ -- $ -- 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) LARGE CAP CORE EQUITY FUND CLASS I SHARES: 2009 $ 6.02 $ 0.06 $ 1.81 $ 1.87 $(0.06) $ -- $(0.06) 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: 2009 $10.56 $ 0.43 $ 0.44 $ 0.87 $(0.43) $(0.35) $(0.78) 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) HAWAII MUNICIPAL BOND FUND CLASS I SHARES: 2009 $10.05 $ 0.38 $ 0.57 $ 0.95 $(0.38) $ -- $(0.38) 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) CLASS A SHARES: 2009 $10.05 $ 0.36 $ 0.57 $ 0.93 $(0.36) $ -- $(0.36) 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) + 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. ** AMOUNT REPRESENTS LESS THAN $0.01. (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 YEAR RETURN+ (000) ASSETS WAIVERS NET ASSETS RATE - --------- ------- ----------- ----------- ----------------- ------------- --------- $10.64 31.68% $ 60,929 1.11% 1.34% 0.00% 54% 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 $ 7.83 31.28% $ 50,259 1.05% 1.36% 0.89% 82% 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 $10.65 8.41% $126,334 0.76% 1.13% 4.08% 82% 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 $10.62 9.63% $139,872 0.55% 0.95% 3.68% 27% 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 $10.62 9.35% $ 26,105 0.80% 1.20% 3.43% 27% 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 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2009 www.bishopstreetfunds.com 59 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 REALIZED INVESTMENT TOTAL VALUE, NET AND UNREALIZED ACTIVITIES NET DIVIDENDS BEGINNING INVESTMENT GAIN (LOSS) ON FROM INVESTMENT CAPITAL AND OF YEAR INCOME(1) INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS --------- ---------- -------------- ---------- ---------- ------- ------------- GOVERNMENT MONEY MARKET FUND CLASS I SHARES: 2009 $1.00 $ --* $--* $ --* $ --* $--* $ --* 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) CLASS A SHARES: 2009 $1.00 $ --* $--* $ --* $ --* $--* $ --* 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) + 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. (SEE NOTE 8). 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 YEAR RETURN+ (000) ASSETS WAIVERS NET ASSETS - --------- ------- ----------- ----------- ----------------- ------------ $1.00 0.05% $ 82,405 0.33% 0.89% 0.04% 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 0.03% $ 45,233 0.35% 1.14% 0.00% 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 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2009 www.bishopstreetfunds.com 61 Bishop Street Funds NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2009 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 five 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, and the Government 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 FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") has issued FASB ASC 105 (formerly FASB Statement No. 168), The "FASB ACCOUNTING STANDARDS CODIFICATION(TM)" AND THE HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("ASC 105"). ASC 105 established the FASB Accounting Standards Codification(TM) ("Codification" or "ASC") as the single source of authoritative U.S. generally accepted accounting principles ("GAAP") recognized by the FASB to be applied by non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission ("SEC") under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative. Following the Codification, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates, which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification. GAAP is not intended to be changed as a result of the FASB's Codification project, but it will change the way the guidance is organized and presented. As a result, these changes will have a significant impact on how companies reference GAAP in their financial statements and in their accounting policies for financial statements issued for interim and annual periods ending after September 15, 2009. The Trust has implemented the Codification as of December 31, 2009. 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 Bishop Street Funds 62 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 NAS-DAQ 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. 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 Fund 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 accordance with the authoritative guidance on fair value measurements and disclosure under GAAP, ASC 820 (formerly FASB Statement No. 157), the Fund discloses December 31, 2009 www.bishopstreetfunds.com 63 Bishop Street Funds fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. 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 ASC 820 are described below: - Level 1 -- Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that the Funds have the ability to access at the measurement date; - Level 2 -- Quoted prices which are not active, or inputs that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and - 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). 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. As of December 31, 2009, all the investments for the Strategic Growth Fund are Level 1. For the Large Cap Core Equity Fund all of the investments are Level 1, except for the Repurchase Agreement which is Level 2. For the High Grade Income Fund, the Hawaii Municipal Bond Fund and the Government Money Market Fund, all of the investments are Level 2, except for the Short-Term Investments, which are Level 1. All cash equivalents are considered Short Term Investments. For details of investment classifications, reference the Schedule of Investments. For the year ended December 31, 2009, there have been no significant changes to the Funds' fair value methodologies. FEDERAL INCOME TAXES It is each Fund's intention to continue to qualify as a regulated investment company for federal income tax purposes under Subchapter M of the Internal Revenue Code, as amended, and to distribute substantially all of its taxable income and net capital gains. Accordingly, no provision for federal income taxes is required. The Funds evaluate tax positions taken or expected to be taken in the course of preparing the Funds' tax returns to determine whether it is "more-likely-than- not" (i.e., greater than 50-percent) that each tax position will be sustained upon examination by a taxing authority based on the technical merits of the position. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the Bishop Street Funds 64 current year. The Funds did not record any tax provision in the current period. However, management's conclusions regarding tax positions taken may be subject to review and adjustment at a later date based on factors including, but not limited to, examination by tax authorities (i.e., the last 3 tax year ends, as applicable), on-going analysis of and changes to tax laws, regulations and interpretations thereof. 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 effective interest method. The Government Money Market Fund uses the straight line method, which approximates the effective interest 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. 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, and the Government Money Market Fund. Any net realized capital gains will be distributed at least annually for all Funds. Distributions to shareholders are recorded on the ex-dividend date. December 31, 2009 www.bishopstreetfunds.com 65 Bishop Street Funds FRONT-END SALES COMMISSION Front-end sales commissions (the "sales charge") 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. During the year ended December 31, 2009 the Hawaii Municipal Bond Fund retained $13 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, 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, 2009, there were no cash overdrafts. 3. INVESTMENT ADVISORY AND CUSTODIAN AGREEMENT Investment advisory services are provided to the Funds by Bishop Street Capital Management (the "Adviser"), a registered adviser and wholly owned subsidiary of First Hawaiian Bank. First Hawaiian Bank is a subsidiary of Banc West Corporation, itself a subsidiary of BNP Paribas. The Adviser is entitled to receive an annual fee of 0.74% of the average daily net assets of the Strategic Growth and the Large Cap Core Equity Funds, 0.55% of the average daily net assets of the High Grade Income Fund, 0.35% of the average daily net assets of the Hawaii Municipal Bond Fund, and 0.30% of the average daily net assets of the Government Money Market Fund. The Adviser has voluntarily agreed to waive a portion of its advisory fee to the extent necessary to keep operating expenses at or below certain percentages of the respective average daily net assets. The voluntary expense limitations are as follows: Strategic Growth Fund (Class I) 1.25%, Large Cap Core Equity Fund (Class I) 1.05%, High Grade Income Fund (Class I) 0.76%, Hawaii Municipal Bond Fund (Class I) 0.55%, Hawaii Municipal Bond Fund (Class A) 0.80%, Government Money Market Fund (Class I) 0.50%, and Government Money Market Fund (Class A) 0.75%. 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 Government Money Market Fund, pursuant to a sub-adviser agreement dated December 15, 2006 as approved by shareholders on December 15, 2006. FFTW is entitled Bishop Street Funds 66 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 Government Money Market Fund up to $500 million and 0.020% of the average daily net assets of the Government Money Market Fund 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, 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 each Fund's 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" on the Statement of Operations. December 31, 2009 www.bishopstreetfunds.com 67 Bishop Street Funds The Trust has adopted and entered into a shareholder service plan and agreement with SIDCO. Each Fund pays to SIDCO a shareholder servicing fee at an annual rate of 0.25% of the average daily net asset value of all shares of each fund, which is computed daily and paid monthly. Under the shareholder service plan, SIDCO may perform, or may compensate other service providers for performing various shareholder and administrative services. SIDCO may also retain as profit any difference between the fee it receives and amount it pays to third parties. For the period, SIDCO paid the entire amount of fees received under the shareholder service plan to First Hawaiian Bank, the parent company of Bishop Street Capital Management, for shareholder services performed for the Funds. SIDCO has voluntarily agreed to waive a portion of its shareholder servicing fee to the extent necessary to keep operating expenses at or below certain percentages of each Fund's 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, to not less than 0.0000% of the average daily net assets. These fees and waivers are represented as "Shareholder Servicing Fees" on the Statement of Operations. The Adviser and SIDCO have voluntarily agreed to further waive and reduce their fees and/or reimburse certain expenses of the Government Money Market Fund in order to maintain a one-day net income yield (yield floor) of the Fund of not less than 0.00% of the Fund's average daily net assets. The following table shows waivers, with respect to such yield floor for the year ended December 31, 2009: Investment Shareholder Advisory Fee Servicing Fee Waived/Reimbursed (000) Waiver (000) - ----------------------- ------------- $286 $153 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. 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." Bishop Street Funds 68 6. SECURITIES LENDING The Funds may lend securities having a market value up to one-third of each 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 is each 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 Funds 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 Funds could also experience delays and costs in gaining access to the collateral. The Funds 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, 2009, four counterparties held 84.64% of the total securities on loan of the Large Cap Core Equity Fund and three counterparties held 83.09% 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, 2009 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 $ -- $ -- $16,263 $ -- Other 32,634 38,881 79,747 48,079 Sales and Maturities U.S. Government Securities $ -- $ -- $51,464 $ -- Other 50,642 53,080 47,988 42,245 December 31, 2009 www.bishopstreetfunds.com 69 Bishop Street Funds 8. TREASURY GUARANTEE PROGRAM The 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 guaranteed 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 fell below $0.995 (a "Guarantee Event"). Recovery under the Program was 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 did 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 was limited to the amount of funds available under the Federal Exchange Stabilization Government Fund at the time of a Guarantee Event (which was 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 expired on September 18, 2009. In order to participate in the Program during the initial term, the Fund was required to pay a participation fee of $22,000. The cost of participating in the Program was borne by the Fund and was not subject to any expense limitation or reimbursement agreement. 9. FEDERAL TAX INFORMATION 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. Bishop Street Funds 70 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. 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 in Net Investment Net Realized Capital Income Loss ------- -------------- ----------- Strategic Growth Fund (1) 1 -- Large Cap Core Equity Fund -- 7 (7) High Grade Income Fund -- (8) 8 The tax character of dividends and distributions declared during the years ended December 31, 2009 and 2008 were as follows: Ordinary Tax Exempt Long-Term Income Income Capital Gain Total -------- ---------- ------------ ------ Strategic Growth Fund 2009 $ -- $ -- $ -- $ -- 2008 -- -- 1,792 1,792 Large Cap Core Equity Fund 2009 $ 437 $ -- $ -- $ 437 2008 663 -- 405 1,068 High Grade Income Fund 2009 $5,220 $ -- $3,894 $9,114 2008 5,571 -- -- 5,571 Hawaii Municipal Bond Fund 2009 $ -- $5,916 $ -- $5,916 2008 -- 6,367 -- 6,367 Government Money Market Fund 2009 $ 88 $ -- $ -- $ 88 2008 4,965 -- -- 4,965 December 31, 2009 www.bishopstreetfunds.com 71 Bishop Street Funds As of December 31, 2009, the components of Distributable Earnings (Accumulated Losses) on a tax basis were as follows: Large Cap Strategic Core High Grade Hawaii Growth Equity Income Municipal Fund Fund Fund Bond Fund --------- --------- ---------- --------- Undistributed net investment income -- -- 620 -- Undistributed long term capital gain income -- -- 557 -- Undistributed tax exempt income -- -- -- 2 Capital loss carryforwards (12,703) (20,193) -- (1,020) Post-October losses (830) (584) -- (24) Unrealized appreciation (depreciation) 5,204 (1,350) 6,371 3,665 -------- -------- ------ ------- Total Distributable Earnings (Accumulated Losses) $ (8,329) $(22,127) $7,548 $ 2,623 ======== ======== ====== ======= Post-October losses represent losses realized on investment transactions from November 1, 2009 through December 31, 2009 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 Strategic Cap Core Hawaii Growth Growth Municipal Fund Fund Bond Fund --------- -------- --------- Dec. 2016 $ 839 $ 5,569 $ 410 Dec. 2017 11,864 14,624 610 ------- ------- ------ Total $12,703 $20,193 $1,020 ======= ======= ====== During the year ended December 31, 2009, the High Grade Income Fund and the Government Money Market Fund utilized capital loss carryforwards of $983 and $14, respectively, 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, 2009 were as follows: Strategic Large Cap High Grade Hawaii Growth Core Income Municipal Fund Equity Fund Fund Bond Fund --------- ----------- ---------- --------- Federal Tax Cost $55,734 $63,086 $157,370 $160,086 ------- ------- -------- -------- Gross Unrealized Appreciation 10,053 5,551 6,878 4,608 Gross Unrealized Depreciation (4,849) (6,901) (507) (943) ------- ------- -------- -------- Net Unrealized Appreciation (Depreciation) $ 5,204 $(1,350) $ 6,371 $ 3,665 ======= ======= ======== ======== For Federal income tax purposes, the Government Money Market Fund's aggregate tax cost is equal to its book cost. 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 in debt securities 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 debt securities generally are subject to less credit risk than funds that invest in lower quality debt securities. Certain debt 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) December 31, 2009 www.bishopstreetfunds.com 73 Bishop Street Funds 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. 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. 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, N.A. (the "Bank") which expires June 11, 2010. 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, 2009 the Funds had no borrowings outstanding. For the year ended December 31, 2009, the Funds had borrowings costs of $2,072 for the Strategic Growth Fund, $426 for the Large Cap Core Equity Fund, $254 for the High Grade Income Fund, and $394 for the Hawaii Municipal Bond Fund, over a period of 124 days at a weighted average interest rate of 2.25%. 12. OTHER At December 31, 2009, 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 94.07% Large Cap Core Equity Fund, Class I Shares 1 99.47 High Grade Income Fund, Class I Shares 2 97.08 Hawaii Municipal Bond Fund, Class I Shares 1 90.69 Hawaii Municipal Bond Fund, Class A Shares 1 29.17 Government Money Market Fund, Class I Shares 2 96.50 Government Money Market Fund, Class A Shares 1 99.77 Bishop Street Funds 74 13. ACCOUNTING PRONOUNCEMENT In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2010-6, FAIR VALUE MEASUREMENTS AND DISCLOSURES (TOPIC 820): IMPROVING DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS. ASU No. 2010-6 enhances and clarifies existing fair value measurement disclosure requirements and is effective for interim and annual periods beginning after December 15, 2009. The Fund is currently evaluating the impact, if any, of applying the provisions of ASU No. 2010-6. 14. SUBSEQUENT EVENT The Funds have evaluated the need for disclosures and/or adjustments resulting from subsequent events through March 1, 2010, the date the financial statements were available to be issued. This evaluation resulted in the following subsequent event that necessitated disclosures and/or adjustments: On November 12, 2009, the Trust approved a new sub-advisory agreement with Columbia Management Advisors, LLC ("Columbia") on behalf of the Large Cap Core Equity Fund (the "Fund"). In connection with the approval of Columbia as the Fund's new sub-adviser, the Board also approved a new investment goal, principal investment strategy and name for the Fund. Effective on January 30, 2010, and subject to shareholder approval of the new sub-advisory agreement with Columbia and the new investment goal for the Fund, the Fund will change its name to the Bishop Street Dividend Value Fund. At the same time, the Fund will change its strategy of investing at least 80% of its net assets in common stocks and other equity securities of large capitalization companies to a strategy of investing at least 80% of its net assets in income-producing (dividend-paying) equity securities. Under the new investment strategy, the Fund may invest in companies that have market capitalizations of any size. In addition, the Fund will change its benchmark from the S&P 500 Composite Index and the Consumer Price Index to the Russell 1000 Value Index. December 31, 2009 www.bishopstreetfunds.com 75 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, and Government Money Market Fund (constituting Bishop Street Funds, hereafter referred to as the "Funds") at December 31, 2009, 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, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania March 1, 2010 Bishop Street Funds 76 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. December 31, 2009 www.bishopstreetfunds.com 77 Bishop Street Funds DISCLOSURE OF FUND EXPENSES (UNAUDITED) Beginning Ending Expenses Account Account Annualized Paid Value Value Expense During 7/1/09 12/31/09 Ratios Period* --------- --------- ---------- -------- STRATEGIC GROWTH FUND -- CLASS I ACTUAL FUND RETURN $1,000.00 $1,134.30 1.10% $5.92 HYPOTHETICAL 5% RETURN 1,000.00 1,019.66 1.10 5.60 LARGE CAP CORE EQUITY FUND -- CLASS I ACTUAL FUND RETURN $1,000.00 $1,222.00 1.05% $5.88 HYPOTHETICAL 5% RETURN 1,000.00 1,019.91 1.05 5.35 HIGH GRADE INCOME FUND -- CLASS I ACTUAL FUND RETURN $1,000.00 $1,063.40 0.76% $3.95 HYPOTHETICAL 5% RETURN 1,000.00 1,021.37 0.76 3.87 HAWAII MUNICIPAL BOND FUND -- CLASS I ACTUAL FUND RETURN $1,000.00 $1,049.90 0.55% $2.84 HYPOTHETICAL 5% RETURN 1,000.00 1,022.43 0.55 2.80 HAWAII MUNICIPAL BOND FUND -- CLASS A ACTUAL FUND RETURN $1,000.00 $1,048.60 0.80% $4.13 HYPOTHETICAL 5% RETURN 1,000.00 1,021.17 0.80 4.08 GOVERNMENT MONEY MARKET FUND -- CLASS I ACTUAL FUND RETURN $1,000.00 $1,000.30 0.20% $1.01 HYPOTHETICAL 5% RETURN 1,000.00 1,024.20 0.20 1.02 GOVERNMENT MONEY MARKET FUND -- CLASS A ACTUAL FUND RETURN $1,000.00 $1,000.30 0.21% $1.06 HYPOTHETICAL 5% RETURN 1,000.00 1,024.15 0.21 1.07 * Expenses are equal to the Funds' annualized expense ratio multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Bishop Street Funds 78 This page intentionally left blank. Bishop Street Funds NOTICE TO SHAREHOLDERS OF BISHOP STREET FUNDS (UNAUDITED) For shareholders that do not have a December 31, 2009 taxable year end, this notice is for informational purposes only. For shareholders with a December 31, 2009 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 0% 0% 0% Large Cap Core Equity Fund 0% 100% 0% High Grade Income Fund 43% 57% 0% Hawaii Municipal Bond Fund 0% 0% 100% Government Money Market Fund 0% 100% 0% * ITEMS (A), (B) AND (C) ARE BASED ON THE PERCENTAGE OF EACH FUND'S TOTAL DISTRIBUTION. (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 80 For the fiscal year ended December 31, 2009, 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) - ------------- ------------ ---------- ------------ ------------- ------------ 0% 0% 0% 0% 0% 0% 100% 100% 100% 0% 0% 0% 100% 0% 0% 13% 99% 100% 100% 0% 0% 0% 0% 0% 100% 0% 0% 16% 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. THIS PROVISION OF THE IRC WILL BE EXPIRING FOR YEARS BEGINNING AFTER JANUARY 1, 2010. (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. THIS PROVISION OF THE IRC WILL BE EXPIRING FOR YEARS BEGINNING AFTER JANUARY 1, 2010. December 31, 2009 www.bishopstreetfunds.com 81 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 of the Board of Trustees (Since 1998) 63 yrs. old WILLIAM M. DORAN Trustee (Since 2006) 1701 Market Street Philadelphia, PA 19103 69 yrs. old Bishop Street Funds 82 (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 5 Trustee of The Advisors' Inner Circle on behalf of SEI Investments for Fund, The Advisors' Inner Circle Fund II, which Mr. Nesher is compensated. 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., SEI Islamic Investment Fund plc. Self-employed consultant since 2003. 5 Trustee of The Advisors' Inner Circle Partner, Morgan, Lewis & Bockius LLP (law Fund, The Advisors' Inner Circle Fund II, firm) from 1976-2003, counsel to the SEI Asset Allocation Trust, SEI Daily Trust, SEI, SIMC, the Administrator and Income Trust, SEI Institutional the Distributor. Secretary of SEI since International Trust, SEI Institutional 1978. 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., SEI Global Nominee Limited and SEI Investments Unit Trust Management (UK) Limited. December 31, 2009 www.bishopstreetfunds.com 83 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) 78 yrs. old GEORGE J. SULLIVAN, JR. Trustee (Since 2006) 66 yrs. old BETTY L. KRIKORIAN Trustee (Since 2006) 66 yrs. old CHARLES E. CARLBOM Trustee (Since 2006) 75 yrs. old 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) ----------------------- ------------ ------------------------------------------------ Attorney, solo practitioner since 1994. 5 Trustee of The Advisors' Inner Circle Fund, The Partner, Dechert Price & Rhoads (law Advisors' Inner Circle Fund II, Massachusetts firm) September 1987-December 1993. Health and 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 5 Trustee of The Advisors' Inner Circle Fund, The Consultants, Inc. since April 1997. 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., member of the independent review committee for SEI Canadian-registered mutual funds. Vice President Compliance, AARP 5 Trustee of The Advisors' Inner Circle Fund and Financial Inc. since September 2008. The Advisors' Inner Circle Fund II. Self-Employed Legal and Financial Services Consultant since 2003. In-house counsel, State Street Bank Global Securities and Cash Operations from 1995 to 2003. Self-Employed Business Consultant, 5 Director, Crown Pacific, Inc. and Trustee of The Business Project Inc. since 1997. CEO Advisors' Inner Circle Fund and The Advisors' and President, United Grocers Inc. from Inner Circle Fund II. 1997 to 2000. December 31, 2009 www.bishopstreetfunds.com 85 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) 67 yrs. old JOHN K. DARR Trustee (Since 2008) 65 yrs. old OFFICERS PHILLIP T. MASTERSON President (Since 2008) 45 yrs. old MICHAEL LAWSON Treasurer, Controller (Since 2005) 49 yrs. old and Chief Financial Officer RUSSELL EMERY Chief Compliance (Since 2006) 46 yrs. old Officer JOSEPH M. GALLO Vice President (Since 2007) 36 yrs. old and Secretary 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) ----------------------- ------------ ------------------------------------------- Private Investor since 1994. 5 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 from 1992 to 5 Director of Federal Home Loan Bank of 2007. Pittsburgh and Manna, Inc. and Trustee of The Advisors' Inner Circle Fund and The Advisors' Inner Circle Fund II. Managing Director of SEI Investments since 2006, N/A N/A 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 Accounting since N/A N/A July 2005. Manager, SEI Investments AVP from April 1995 to February 1998 and November 1998 to July 2005. Director of Investment Product Management and N/A N/A 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; Associate N/A N/A 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, 2009 www.bishopstreetfunds.com 87 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) 52 yrs. old and Secretary JAMES NDIAYE Vice President and (Since 2005) 41 yrs. old Assistant Secretary TIMOTHY D. BARTO Assistant Vice President (Since 2000) 41 yrs. old and Assistant Secretary ANDREW S. DECKER AML Officer (Since 2008) 46 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 88 (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; Associate, N/A N/A Stradley, Ronon, Steven & Young 2004-2007; Counsel, ING Variable Annuities, 1999-2002. Employed by SEI Investments Company since 2004. Vice N/A N/A 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 Secretary N/A N/A 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, of SEI N/A N/A 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, 2009 www.bishopstreetfunds.com 89 Bishop Street Funds SHAREHOLDER VOTING RESULTS At a special meeting held on January 15, 2010, the shareholders of the Large Cap Core Equity Fund (the "Fund") voted to approve a new investment sub-advisory agreement between Bishop Street Funds, on behalf of the Fund, Bishop Street Capital Management, and Columbia Management Advisors, LLC, a new investment goal for the Fund, which in the future would be changeable by the Board of Trustees of Bishop Street Funds (the "Trust") without shareholder approval and an interim sub-advisory agreement among the Trust, on behalf of the Fund, the Adviser and Lotsoff Capital Management ("Lotsoff"). The results of the voting were as follows: BISHOP STREET LARGE CAP CORE EQUITY FUND % OF % OF SHARES OUTSTANDING SHARES VOTED SHARES PRESENT --------- ----------- ------ AFFIRMATIVE 6,212,154 96.28% 100.00% AGAINST -- --% --% ABSTAIN -- --% --% --------- ----- ------ TOTAL 6,212,154 96.28% 100.00% 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, 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-006-1500 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 experts are George Sullivan and John Darr, and are 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: 2009 2008 ------------------------------------------------- ------------------------------------------------- All fees and All other fees All fees and All other fees services to and services to services to and services to All fees and service service All fees and service service services to the affiliates that affiliates that services to the affiliates that affiliates that Trust that were were did not require Trust that were were did not require pre-approved pre-approved pre-approval pre-approved pre-approved pre-approval --------------- --------------- --------------- --------------- --------------- --------------- (a) Audit $89,820 N/A N/A $103,140 N/A N/A Fees(1) (b) Audit- N/A N/A N/A N/A N/A N/A Related Fees (c) Tax Fees N/A N/A N/A N/A N/A N/A (d) All N/A N/A N/A N/A N/A N/A Other Fees Notes: (1) Audit fees include amounts related to the audit of the registrant's annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. (e)(1) Not applicable. (e)(2) Percentage of fees billed applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows: 2009 2008 ---- ---- 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 2009 and 2008, 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 registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "1940 Act")) are effective, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934 as of a date within 90 days of the filing date of this report. The registrant's fund accountant identified a weakness in its internal controls relating to the application of fair value pricing for certain international equity securities held by international equity funds that used an automated fair valuation process. (b) Except for the corrections noted above, there were no significant changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEMS 12. EXHIBITS. (a)(1) Code of Ethics attached hereto. (a)(2) A separate certification for the principal executive officer and the principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), is filed herewith. (b) Officer certifications as required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing as an exhibit. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Bishop Street Funds By (Signature and Title)* \s\ Philip T. Masterson --------------------------------------- Philip T. Masterson, President Date: March 8, 2010 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 8, 2010 By (Signature and Title)* \s\ Michael Lawson --------------------------------------- Michael Lawson Treasurer, Controller & CFO Date: March 8, 2010 * Print the name and title of each signing officer under his or her signature.