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ARMADA FUNDS
INCOME SERIES
SEMI-ANNUAL REPORT - NOVEMBER 30, 1995
(UNAUDITED)
<TABLE>
<S> <C>
ARMADA TABLE OF CONTENTS
TOTAL RETURN
ADVANTAGE Chairman's Message ......................................... 1
FUND
Income Series Overview ...................................... 3
ARMADA
FIXED INCOME FUND OVERVIEWS
FUND
Armada Total Return Advantage Fund ......................... 6
ARMADA
ENHANCED Armada Fixed Income Fund .................................... 8
INCOME
FUND Armada Enhanced Income Fund ................................ 11
PORTFOLIOS OF INVESTMENTS AND FINANCIAL STATEMENTS
Armada Total Return Advantage Fund ......................... 13
Armada Fixed Income Fund .................................... 20
Armada Enhanced Income Fund ................................ 26
NOTES TO FINANCIAL STATEMENTS .................................32
</TABLE>
- - SHARES OF THE ARMADA FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY NATIONAL CITY BANK, ITS
AFFILIATES OR ANY BANK.
- - SHARES OF THE ARMADA FUNDS ARE NOT INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, FDIC, OR ANY GOVERNMENTAL AGENCY OR STATE.
- - AN INVESTMENT IN THE ARMADA FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
- - PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE, AND THE INVESTMENT
RETURN WILL FLUCTUATE.
National City Bank and certain of its affiliates serve as investment advisers to
Armada Funds for which they receive an investment advisory fee. For more
complete information about the Armada Funds, including charges and expenses,
please contact your investment specialist or call 1-800-622-FUND (3863) for a
prospectus. Read it carefully before you invest or send money. Armada Funds are
distributed by 440 Financial Distributors, Inc., 290 Donald Lynch Boulevard,
Marlborough, MA, 01752. 440 Financial Distributors, Inc. is not affiliated with
National City Bank and is not a bank.
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ARMADA FUNDS SEMI-ANNUAL REPORT
CHAIRMAN'S MESSAGE
Dear Armada Shareholders:
For the six months ended November 30, 1995, the
equity and bond markets continued to flourish beyond
many expectations. Armada Funds investment advisers
responded in kind, producing decided gains for our
shareholders during this period.
While we are always pleased to see the markets
perform well in the short term, we continue to
stress to our shareholders the value of following a
disciplined and diversified, long-term investment
strategy. Over the years, a long-term investment
perspective has helped investors attain financial
goals such as providing a college education for
children, purchasing a new home or meeting
retirement needs.
ARMADA NEWS
I am pleased to announce two significant events
which have taken place during these past six months
with respect to the Armada Family of Funds:
TWO ASSET MANAGERS JOIN ARMADA
On September 28, 1995, Robert M. Leggett and James
R. Kirk joined Armada Funds as asset managers for
the Equity Fund and Equity Income Fund,
respectively. Both have significant investment
management expertise and have successfully managed
large institutional funds over the past two decades.
Mr. Leggett has held equity-related positions
including chief investment officer, director of
equity investments, and director of research. Mr.
Kirk is well-known in the Cleveland investment
community and comes to National City after holding
the investment management positions of chief
investment officer, head of equity asset management
and director of research.
TREASURY FUND RECOGNIZED FOR QUALITY
Armada Treasury Fund, one of the four money market
funds offered by Armada Funds, was recently rated
"AAAm-G" by Standard & Poor's, based on an analysis
of the Fund's credit quality, investment policies
and management and market price exposure. This
rating indicates that the Fund's safety
1
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ARMADA FUNDS SEMI-ANNUAL REPORT
CHAIRMAN'S MESSAGE (CONTINUED)
of invested principal is excellent and reflects its
superior capacity to maintain a $1 per share net
asset value at all times.
As you read ahead, you will find commentaries
which discuss market and fund activities during the
past six months for the Armada Income Series. Please
remember that the Armada Family of Funds offers a
full range of investment products. Each fund offers
a distinctive investment style and position along
the risk/reward spectrum. As always, Armada is
committed to providing our shareholders with quality
investment products and services. For more
information about Armada Funds, please contact your
investment specialist or call 1-800-622-FUND (3863).
Sincerely,
[SIGNATURE]
Richard B. Tullis
Chairman
Armada Funds Board of Trustees
2
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ARMADA FUNDS SEMI-ANNUAL REPORT
INCOME SERIES OVERVIEW
"CRITICAL TO THE BOND
MARKET'S ADVANCE FOR THIS
PERIOD WAS THE CONTINUED
GOOD NEWS WITH RESPECT
TO INFLATION." As the Armada Funds progressed through the first
half of fiscal year 1996, ending November 30, 1995,
the bond market advance born in late calendar year
1994 continued its impressive upward path. Based on
investor perceptions of both low and controlled
inflation, rising productivity, and the anticipation
of further Federal Reserve-initiated interest rate
reductions, the bond market was free to continue its
impressive rally. This was evidenced by the strong
5.95% total rate of return generated by the Lehman
Brothers Government/Corporate Bond Index for the
six-month period ending November 30, 1995.
Critical to the bond market's advance for this
period was the continued good news with respect to
inflation. While the consumer price index is in fact
generating inflation rates above that experienced
during the unusually docile 1994 year, the 2.9%
year-to-date inflation level being generated today
is still extremely impressive not only in the low
absolute level, but also when viewed in the context
of being generated in the fifth year of an economic
recovery. Furthermore, during this first half fiscal
year, most forward looking indicators of
inflationary pressure in the economy showed no signs
of significant upward trends. This was evidenced by
the producer price index generating a modest 1.4%
growth rate for the calendar year-to-date.
Especially encouraging was the behavior in unit
labor costs. In fact, productivity actually
increased at a rate near that of real wages, and in
the second quarter, it was actually above. As a
result, the economy experienced the first actual
drop in unit labor costs in more than 30 years. This
is an extremely bullish signal for future
inflationary trends.
Combined with this very positive inflationary
outlook was a growing perception within the bond
market that real and concrete federal budget deficit
reduction was at hand. As politicians, both
Republican and Democrat, talked tough on budget
cuts, the bond markets slowly filtered a positive
outcome from the budget deficit debate into
currently available yield levels. By the end of the
funds' first half fiscal year, most of the good news
on this issue had already been reflected in the bond
market, providing both more power to the bond
market's advance and a higher level of risk should
the debate fail to produce significant deficit
reduction.
3
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ARMADA FUNDS SEMI-ANNUAL REPORT
INCOME SERIES OVERVIEW (CONTINUED)
"WHILE WE CONTINUE TO EXPECT
THE FEDERAL RESERVE TO CUT
INTEREST RATES IN RESPONSE TO
THE SLOWING ECONOMIC GROWTH
RATES ANTICIPATED, THIS ALSO
APPEARS TO BE ALREADY
REFLECTED IN THE BOND
MARKETS." INVESTMENT STRATEGY
As the Armada Funds fiscal year progressed,
several of the investment strategies identified
early in the bond market's rally were continued.
Specifically, the funds increased their exposure to
the mortgage and asset-backed sectors of the bond
markets. This was influenced by the continued
attractive return available on the securities, not
only in absolute terms, but also when viewed in the
context of their historical returns relative to
corporate and Treasury securities. On balance, the
funds continued to maintain this focus on
high-quality fixed income securities.
With this commentary, we are introducing the
Lehman Brothers Intermediate Government/Corporate
Bond Index as the new benchmark index for Armada
Fixed Income Fund performance. The change to the
intermediate index better positions this fund within
the entire product array of the Armada Income
Series. We are now pleased to offer fixed income
funds across the full compliment of maturity ranges:
the Enhanced Income Fund for the short term sector,
the Fixed Income Fund covering the intermediate term
and the Total Return Advantage Fund on the longer
end of the maturity scale.
MARKET OUTLOOK
Economic growth, especially in the latter stages
of the Armada Funds first half fiscal year, has no
doubt been impressive. However, we believe that
gross domestic product growth rates in excess of
3.0%, as experienced in the third calendar quarter
of 1995, will not be repeated as the Armada Funds
close fiscal year 1996. Specifically, we are
concerned that the slowdown recently witnessed in
job creation, coupled with a possibly troubling
increase in consumer debt service burdens will
result in continued lackluster retail sales. This
would imply that inventory levels, which had
increased recently, will not be liquidated as
quickly as expected. Thus, orders to restock both
consumer durable and non-durable goods could be
slowed, having a cooling effect on economic growth.
4
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ARMADA FUNDS SEMI-ANNUAL REPORT
INCOME SERIES OVERVIEW (CONTINUED)
Specific to the bond markets, a significant amount
of good economic and financial news would appear to
be already reflected in current bond prices. While
we continue to expect the Federal Reserve to cut
interest rates in response to the slowing economic
growth rates anticipated, this also appears to be
already reflected in the bond markets. Thus, we see
the major risk to the current bond market advance
lying in the possibility of a political or economic
failure to meet an expectation already factored into
the bond market. As the financial markets have
demonstrated, failure to achieve built-in
expectations will be dealt with rather harshly.
5
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FUND OVERVIEW
ARMADA TOTAL RETURN ADVANTAGE FUND
ASSET MANAGER:
FIXED MANAGEMENT GROUP,
NATIONAL ASSET
MANAGEMENT CORPORATION
FUND'S DATE OF INCEPTION:
JULY 7, 1994 (INSTITUTIONAL SHARES)
SEPTEMBER 6, 1994 (RETAIL SHARES)
ASSETS:
$286,957,629 (INSTITUTIONAL SHARES)
$ 71,012 (RETAIL SHARES)
INVESTMENT OBJECTIVE:
PROVIDE A TOTAL RATE OF
RETURN, INCOME AND PRICE
APPRECIATION GREATER THAN
THAT OF POPULAR MARKET
INDICES WITH SIMILAR MATURITY
AND QUALITY CHARACTERISTICS.
UNDER NORMAL MARKET
CONDITIONS, THE FUND MAIN-
TAINS AN AVERAGE DOLLAR-
WEIGHTED PORTFOLIO MATURITY
OF TWO YEARS ABOVE OR BELOW
THE AVERAGE MATURITY OF THE
LEHMAN BROTHERS
GOVERNMENT/CORPORATE
BOND INDEX. KEY INVESTMENT CONCEPTS
In seeking total return for shareholders of the
Armada Total Return Advantage Fund, we use four key
strategies. First, we distribute the Fund's assets
among investments of different maturities,
emphasizing those whose yields, we believe, are
especially attractive compared to their potential
price risk. Second, we adjust the average maturity
of the Fund according to our perceptions of
intermediate and long-term trends in interest rates.
Third, we allocate the Fund's investments among
different market sectors based on their return
potential. Finally, we look for individual
securities whose yields we feel are attractive in
terms of their own historical standards.
PERFORMANCE
In the first six months of the fiscal year, the
period ending November 30, 1995, the Fund handily
outperformed the bond market. The Fund's
Institutional and Retail shares had total returns of
6.51% and 6.25% (before sales load), respectively,
versus 5.95% for the Lehman Brothers
Government/Corporate Bond Index (the "Index"). This
performance places the Fund well on its way to
meeting its goal of adding incremental return to
that of the Index. Continuing declines in interest
rates aided results as the Fund continued with an
average duration approximately 0.5 years longer than
the Index.
RECENT STRATEGY
The average maturity and duration of the Fund
remain longer than that of the Index. This is
consistent with our belief that the longer term
trend toward lower interest rates that began in 1981
is still largely intact and will continue. In recent
months, approximately 25-30% of the Fund was
invested in corporate bonds, 10-12% in
mortgage-backed securities and about 40-50% in
government issues. Our increasing exposure to the
asset-backed sector has allowed us to increase yield
while maintaining quality. We have attained our 15%
target for this sector. In comparison, the Index has
approximately 75% of its assets in government
issues, 25% in corporate issues, and no allocation
to mortgage or asset-backed securities. At the end
of this period, the Fund's Institutional and Retail
shares had SEC 30-day yields of 6.54% and 6.21%
(before sales load), respectively. By comparison,
the average yield for the Index was 6.1%.
6
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FUND OVERVIEW
ARMADA TOTAL RETURN ADVANTAGE FUND (CONTINUED)
"OUR INCREASING EXPOSURE
TO THE ASSET-BACKED SECTOR
HAS ALLOWED US TO INCREASE
YIELD WHILE MAINTAINING
QUALITY." LOOKING AHEAD
Very recently we increased our exposure to
mortgage-backed securities to 20%. This move
reflects yield spreads for this sector that are very
high historically. Given our view of a gradual
decline in interest rates going forward, this
strategy should provide significant incremental
returns in the next six to twelve months. We
continue to be overweighted in both corporates and
asset-backed securities. Though the valuation in
these areas is less compelling, we find them
attractive. Adding to these returns will be our
duration policy that should continue to benefit the
Fund as interest rates decline.
<TABLE>
<CAPTION>
TOTAL RETURNS as of 11/30/95
Six Months 1-Year Since Inception (2,4)
---------- ------ ---------------------
<S> <C> <C> <C>
Armada Total Return Advantage Fund
Institutional Shares(1) 6.51% 18.33% 12.84%
Armada Total Return Advantage Fund
Retail Shares With Sales Load 2.27% 13.06% 9.26%
Without Sales Load 6.25% 17.48% 12.73%
</TABLE>
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
GROWTH OF A $10,000 INVESTMENT (BEGINNING 7/7/94) (3)
Armada Total Armada Total
Lehman Return Return
Brothers Advantage Fund Advantage
Government/ (Insti Fund (Retail
Measurement Period Corporate tutional Shares with
(Fiscal Year Covered) Bond Index Shares)(1) sales load)
<S> <C> <C> <C>
Jun-1994 $10000.00 $10000.00
Aug-1994 10204.08 10150.00 $10000.00
Oct-1994 10038.94 10011.30 9496.50
Dec-1994 10087.01 10075.40 9551.90
Feb-1995 10519.19 10417.10 9871.60
Apr-1995 10736.87 10647.60 10082.30
Jun-1995 11276.24 11204.10 10553.20
Aug-1995 11376.03 11325.70 10663.00
Oct-1995 11661.00 11627.60 10953.10
Nov-1995 11853.41 11846.00 11156.60
</TABLE>
(1) Institutional shares are sold primarily to Banks and
National Asset Management Corporation (NAM)
customers. Certain account level charges may apply.
(2) The Armada Total Return Advantage Fund's date of
inception was July 7, 1994 for Institutional shares
and September 6, 1994 for Retail shares.
(3) The return and principal value of an investment will
fluctuate. When redeemed, shares may be worth more
or less than their original cost.
(4) Annualized.
7
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FUND OVERVIEW
ARMADA FIXED INCOME FUND
ASSET MANAGER:
LARRY KEKST,
VICE PRESIDENT,
NATIONAL CITY
FUND'S DATE OF INCEPTION:
DECEMBER 20, 1989 (INSTITUTIONAL SHARES)
APRIL 15, 1991 (RETAIL SHARES)
ASSETS:
$100,064,038 (INSTITUTIONAL SHARES)
$ 8,193,354 (RETAIL SHARES)
INVESTMENT OBJECTIVE:
PROVIDE AS HIGH A LEVEL OF
CURRENT INCOME AS IS
CONSISTENT WITH PRUDENT
INVESTMENT RISK. THE FUND INVESTS
IN HIGH AND MEDIUM GRADE BONDS
AND OTHER FIXED INCOME SECURITIES.
UNDER NORMAL MARKET CONDITIONS,
THE FUND MAINTAINS AN AVERAGE
DOLLAR-WEIGHTED PORTFOLIO
MATURITY OF TEN YEARS OR
LESS. For the first six months of the Armada Funds'
fiscal year ending November 30, 1995, the Fixed
Income Fund had a total return of 4.49% to
Institutional shareholders and 4.35% (before sales
load) to Retail shareholders. This compares to the
returns on the Fund's benchmark, the Lehman Brothers
Intermediate Government/Corporate Bond Index (which
of course bears no expenses) of 4.84%. Please note
that it was during this time frame that the fund
management chose to begin using the Lehman Brothers
Intermediate Government/Corporate Bond Index (the
"Index") as its new benchmark. Previously, the Fund
had used a blend of the Lehman Brothers Aggregate
and the Government/Corporate Indices as its
standard. The sole reason for this change was that
we feel the Intermediate Index better reflects this
Fund's position within the entire product array of
the Armada Funds Income Series.
During the fiscal year's first six months,
interest rates continued their downward trajectory.
In addition, the yield curve continued to flatten as
the 30 year bond declined approximately .55%, while
the two year note fell .50% and the three month
T-Bill declined by only .31%. The Fund benefited
from this overall decline in rates, as its interest
rate sensitivity or "duration" was marginally
greater than the benchmark's. On the other hand, the
change in the yield curve was a small negative for
the Fund as its laddered maturity distribution did
not perform as well in the flattening scenario.
Finally, the Fund benefited substantially from its
sector allocation, which was heavily overweighted in
corporate securities. Corporate bonds, in general,
significantly outperformed their duration-equivalent
treasury benchmarks, as credit spreads continued to
tighten. At the end of the period, the Fund's
Institutional and Retail shares had SEC 30-day
yields of 5.41% and 5.08% (before sales load),
respectively.
8
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FUND OVERVIEW
ARMADA FIXED INCOME FUND (CONTINUED)
LOOKING AHEAD, THE FUND'S
CURRENT STRATEGY IS TO BE
SLIGHTLY MORE INTEREST RATE
SENSITIVE THAN IS THE INDEX,
AS WE BELIEVE RATES
WILL CONTINUE THEIR RECENT
DECLINES INTO MID-1996. LOOKING AHEAD
Looking ahead, the Fund's current strategy is to
be slightly more interest rate sensitive than is the
Index, as we believe rates will continue their
recent declines into mid-1996. This additional drop
in rates will be due to a continued slowing in the
economy and an expected reduction of at least 50
basis points in the Fed Funds rate (to 5%) before
mid-year. These two expectations are also the reason
why we've positioned the Fund to benefit from a
steepening in the yield curve.
In terms of sector allocation, our views for a
weakening economy lead us to worry about potential
problems developing in corporate credit performance.
While we do not think these concerns will prove
well-founded in the long term, spreads may widen in
the short run. Accordingly, we will continue to
selectively reduce our still overweighted corporate
position. The proceeds from any such sales will
likely be placed into either mortgage or
asset-backed securities. Agency mortgages currently
offer attractive yield premiums, while the
asset-backed market often allows one to pick-up
yield and increase credit protection versus
comparably rated corporate securities.
9
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FUND OVERVIEW
ARMADA FIXED INCOME FUND (CONTINUED)
<TABLE>
<CAPTION>
TOTAL RETURNS as of 11/30/95
Six Months 1-Year 3-Years(4) 5-Years(4) Since Inception(2,4)
---------- ------ --------- --------- --------------------
<S> <C> <C> <C> <C> <C>
Armada Fixed Income Fund
Institutional Shares(1) 4.49% 15.00% 6.95% 8.86% 8.57%
Armada Fixed Income Fund
Retail Shares With Sales Load 0.46% 10.44% 5.32% 7.77% 7.66%
Without Sales Load 4.35% 14.79% 6.68% 8.60% 8.35%
</TABLE>
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
GROWTH OF A $10,000 INVESTMENT (BEGINNING 12/20/89)(3)
Lehman
Lehman Brothers Armada Fixed Armada Fixed
Brothers Intermediate Income Fund Income Fund
Government/ Government/ (Insti- (Retail
Measurement Period Corporate Corporate tutional Shares with
(Fiscal Year Covered) Bond Index Bond Index Shares)(1) sales load)
<S> <C> <C> <C> <C>
Nov-1989 $10000.00 $10000.00 $10000.00 $10000.00
Nov-1990 10684.17 10768.80 10655.60 10265.30
Nov-1991 12183.80 12213.50 12205.40 11728.60
Nov-1992 13319.50 13232.20 13334.90 12777.70
Nov-1993 14979.73 14521.20 14863.70 14204.70
Nov-1994 14422.32 14255.60 14182.40 13514.80
Nov-1995 17034.21 16328.70 16310.50 15512.60
</TABLE>
(1) Institutional shares are sold primarily to Banks and
National Asset Management Corporation (NAM)
customers. Certain account level charges may apply.
(2) The Armada Fixed Income Fund's date of inception was
December 20, 1989 for Institutional shares and April
15, 1991 for Retail shares.
(3) The return and principal value of an investment will
fluctuate. When redeemed, shares may be worth more
or less than their original cost.
(4) Annualized.
10
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FUND OVERVIEW
ARMADA ENHANCED INCOME FUND
ASSET MANAGER:
FIXED MANAGEMENT GROUP,
NATIONAL ASSET
MANAGEMENT CORPORATION
FUND'S DATE OF INCEPTION:
JULY 7, 1994 (INSTITUTIONAL SHARES)
SEPTEMBER 9, 1994 (RETAIL SHARES)
ASSETS:
$60,133,079 (INSTITUTIONAL SHARES)
$ 4,112,361 (RETAIL SHARES)
INVESTMENT OBJECTIVE:
PROVIDE CURRENT INCOME THAT
EXCEEDS INDUSTRY STANDARD
MONEY MARKET RETURNS BY .5%
TO 1.5% PER YEAR OVER COM-
PLETE MARKET CYCLES. THE
FUND INVESTS IN HIGH-QUALITY
FIXED AND FLOATING RATE DEBT
SECURITIES, PREFERRED STOCKS
AND CASH EQUIVALENTS. UNDER
NORMAL MARKET CONDITIONS,
THE FUND MAINTAINS AN AVERAGE
DOLLAR-WEIGHTED PORTFOLIO
MATURITY OF TWO YEARS OR
LESS. In the first six months of the fiscal year, the
period ending November 30, 1995, the Fund handily
outperformed Treasury Bills. The Fund's
Institutional and Retail shares had total returns of
3.25% and 3.19% (before sales load), respectively,
versus 2.82% for the Salomon 91-Day Treasury Bill
Index (the "Index"). This performance places the
Fund well on its way to meeting its goal of adding
.5% to 1.5% incremental return to that of the Index.
Continuing declines in interest rates aided results
as the third of the fund invested in one to
five-year fixed-income securities experienced
incremental price gains.
To meet the Fund's investment objectives, we
allocate approximately one-third of its assets to
fixed-rate securities whose yields are normally
higher than those on money market instruments. Some
of these securities are corporate issues whose
yields represented historically strong value versus
governments. We allocate approximately another third
of the assets to floating-rate securities, whose
coupons adjust monthly or quarterly to keep up with
movements in interest rates. We put the last third
in cash-equivalent securities whose yields are
similar to money market yields and whose prices are
very stable. With these strategies, we are able to
produce a solid yield for the Fund. At the end of
the period, the Fund's Institutional and Retail
shares had SEC 30-day yields of 5.64% and 5.60%
(before sales load), respectively.
We believe the economy is slowing but not to the
point where recession is imminent. It is very likely
that the Federal Reserve will lower short-term
interest rates in the next six months. The
fixed-income markets seem to reflect this already.
The Fund is well positioned whether this happens or
not. In this environment, we continue a duration
policy of approximately 1.1 years. Should interest
rates rise as a result of the Fed maintaining a
tougher stance towards inflation, the two-thirds
invested in cash equivalents
11
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FUND OVERVIEW
ARMADA ENHANCED INCOME FUND (CONTINUED)
"CONTINUING DECLINES IN
INTEREST RATES AIDED RESULTS
AS THE THIRD OF THE PORTFOLIO
INVESTED IN ONE TO FIVE-YEAR
FIXED-INCOME SECURITIES
EXPERIENCED INCREMENTAL
PRICE GAINS." and floating-rate securities will help soften the
impact of declining prices in the third invested in
fixed-rate securities. If interest rates continue
their decline, the third invested in fixed-rate
securities will continue to provide incremental
price gains to aid in offsetting declining income.
<TABLE>
<CAPTION>
TOTAL RETURNS as of 11/30/95
Six Months 1-Year Since Inception(2,4)
---------- ------ --------------------
<S> <C> <C> <C>
Armada Enhanced Income Fund
Institutional Shares(1) 3.25% 7.54% 6.55%
Armada Enhanced Income Fund
Retail Shares With Sales Load 0.33% 4.46% 4.25%
Without Sales Load 3.19% 7.44% 6.69%
</TABLE>
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
GROWTH OF A $10,000 INVESTMENT (BEGINNING 7/7/94)(3)
Armada
Armada Enhanced
Enhanced Income Fund
91-Day Income Fund (Retail
Measurement Period Salomon U.S. (Institutional Shares with
(Fiscal Year Covered) Treasury Bill Shares)(1) sales load)
<S> <C> <C> <C>
Jun-1994 $10000.00 $10000.00
Aug-1994 10073.13 10090.00 $10000.00
Oct-1994 10151.86 10135.00 9776.40
Dec-1994 10241.39 10208.90 9836.00
Feb-1995 10333.77 10352.70 9982.60
Apr-1995 10435.29 10472.70 10089.20
Jun-1995 10538.85 10626.70 10235.10
Aug-1995 10639.21 10733.70 10336.90
Oct-1995 10736.25 10868.90 10455.90
Nov-1995 10783.49 10931.40 10524.70
</TABLE>
(1) Institutional shares are sold primarily to Banks and
National Asset Management Corporation (NAM)
customers. Certain account level charges may apply.
(2) The Armada Enhanced Income Fund's date of inception
was July 7, 1994 for Institutional shares and
September 9, 1994 for Retail shares.
(3) The return and principal value of an investment will
fluctuate. When redeemed, shares may be worth more
or less than their original cost.
(4) Annualized.
12
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PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1995 ARMADA TOTAL RETURN ADVANTAGE FUND
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C> <C>
PREFERRED STOCK - 0.5%
Carolina Power and Light
Quarterly
Income Preferred Shares..... 53,075 $ 1,406,487
(Cost $1,326,875) ------------
<CAPTION>
PAR
MATURITY (000)
-------- ---------
<S> <C> <C> <C>
AGENCY OBLIGATIONS - 1.1%
Tennessee Valley Authority
8.25%............. 04/15/42 $ 2,700 3,145,500
(Cost $2,872,287) ------------
ASSET-BACKED SECURITIES - 17.3%(A)
AFC Home Equity Loan
Trust 1995-4 A2
6.75%............. 10/16/00 4,000 4,009,630
Community Program
Trust Series
1987-A3
4.50%............. 11/30/97 2,097 2,091,278
Copelco Series 1995A-A2
7.075%............ 12/18/97 5,085 5,207,434
Dayton Hudson Credit Card
Master Trust 1995-1A
6.10%............. 10/12/98 4,100 4,151,568
Discover Credit Card
Trust 1993-B
6.75%............. 03/02/00 5,545 5,707,130
First Deposit Master
Trust 1995-2
6.05%............. 07/02/98 5,435 5,505,913
Green Tree Financial Corp.
Series 1994
6.90%............. 01/24/98 2,202 2,207,787
Green Tree Financial Corp.
Series 1995
6.45%............. 12/17/98 1,240 1,257,038
Mid-State Trust II
9.35%............. 03/04/97 13 13,396
NationsBank Grantor Trust
Series 1995-5, Class A
5.85%............. 03/15/99 6,275 6,275,373
Premier Auto Trust
Series 1995-3
6.10%............. 01/20/98 3,540 3,571,435
Standard Credit Card
Master Trust
Series 1995-10, Class A
5.90%............. 02/10/99 2,995 3,006,493
The Money Store Home
Equity Loan
Series 1994D-1
8.75%............. 08/09/99 1,175 1,265,941
The Money Store Home Equity
Series 1995-B, Class A3
6.65%............. 10/16/98 2,340 2,376,937
UCFC Home Equity Loan
Series 1994-B1
6.75%............. 01/25/01 2,510 2,516,120
------------
TOTAL ASSET-BACKED
SECURITIES.................. 49,163,473
(Cost $48,540,428) ------------
MORTGAGE OBLIGATIONS - 21.0%(A)
U.S. GOVERNMENT OBLIGATIONS - 18.3%
Government National Mortgage
Association
10.50%............ 10/23/97 38 40,703
9.50%............. 08/24/98 1,068 1,130,637
Federal Home Loan Mortgage
Corporation
9.50%............. 01/08/00 1,677 1,777,340
Federal Home Loan Mortgage
Corporation Pool 181063
7.50%............. 04/07/99 224 227,270
</TABLE>
See Accompanying Notes
13
<PAGE> 15
[ARROW LOGO]
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1995 ARMADA TOTAL RETURN ADVANTAGE FUND (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (CONT'D.)
Federal Home Loan Mortgage
Corporation Pool 160045
8.75%............. 06/22/99 $ 9 $ 8,899
Federal Home Loan Mortgage
Corporation
6.50%............. 06/25/00 2,361 2,361,086
Federal National Mortgage
Association
7.00%............. 10/17/03 10,600 10,593,375
7.00%............. 01/02/04 3,163 3,164,381
6.50%............. 02/07/04 739 723,377
6.50%............. 03/15/05 17,915 17,914,880
7.00%............. 12/01/25 6,225 6,221,109
Federal National Mortgage
Association Pool 124291
6.50%............. 11/05/03 911 892,374
Federal National Mortgage
Association Pool 190911
6.00%............. 02/13/01 2,257 2,217,001
Federal National Mortgage
Association Pool 250004
6.50%............. 05/24/06 2,736 2,679,199
Federal National Mortgage
Association Pool 63471
6.50%............. 02/20/98 270 264,674
Federal National Mortgage
Association 1992 129-G
4.00%............. 07/15/00 1,935 1,744,594
------------
51,960,899
------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 2.5%
Collateralized Mortgage
Obligations Trust
9.00%............. 07/04/97 202 205,460
6.375%............ 03/05/98 145 145,479
Conseco Commercial
Mortgage Trust
9.70%............. 10/03/96 1,089 1,137,803
Drexel Burnham Lambert
CMO Trust
6.55%............. 10/15/00 183 184,381
MDC Asset Investors Trust
9.325%............ 02/08/97 475 487,119
Ryland Acceptance Corp.
9.85%............. 06/27/97 426 444,710
Salomon Brothers Mortgage
Securities
8.125%............ 05/02/99 292 299,729
United States Department of
Veterans Affairs
9.78%............. 10/20/04 3,816 4,195,007
------------
7,099,688
------------
MORTGAGE PASS-THROUGH OBLIGATIONS - 0.2%
Thirty-Seventh FHA
Insurance Project
7.43%............. 02/13/02 470 479,040
------------
TOTAL MORTGAGE OBLIGATIONS...
(Cost $58,397,854) 59,539,627
------------
CORPORATE BONDS - 24.6%
AEROSPACE - 1.1%
Boeing Corporation
8.75%............. 09/15/31 2,475 3,087,563
------------
AGRICULTURE - 0.3%
Cargill, Inc.
8.25%............. 03/06/97 900 924,750
------------
</TABLE>
See Accompanying Notes
14
<PAGE> 16
[ARROW LOGO]
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1995 ARMADA TOTAL RETURN ADVANTAGE FUND (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
BUILDING & BUILDING SUPPLIES - 0.7%
Owens Corning Fiberglas Corp.
8.875%............ 06/01/02 $ 1,870 $ 2,057,000
------------
CHEMICALS - 1.4%
ICI Wilmington
9.50%............. 11/15/00 3,340 3,832,650
------------
EDUCATION - 0.9%
Harvard University
8.125%............ 04/15/07 2,400 2,672,052
------------
FINANCE - 1.5%
Associates Corp.
6.625%............ 11/15/97 4,200 4,273,500
------------
FINANCE-CONDUIT - 0.5%
Medium-Term Structured
Enhanced Return Series
1993-G1
6.36%............. 11/15/08 1,350 1,371,372
------------
FOREIGN - 3.7%
Grupo Irsa
8.375%............ 07/15/98 1,055 933,675
News America Holdings
9.25%............. 02/01/13 1,125 1,314,844
Republic of Italy
6.875%............ 09/27/23 6,940 6,601,675
Rogers Cablesystems Ltd.
9.625%............ 08/01/02 1,515 1,568,025
------------
10,418,219
------------
HEALTHCARE - 2.8%
Columbia/HCA
6.91%............. 06/15/05 7,750 7,924,375
------------
INSURANCE - 3.5%
Metropolitan Life Insurance
Co.
7.00%............. 11/01/05 4,050 4,095,563
Prudential Insurance
8.10%............. 07/15/15 5,715 5,972,175
------------
10,067,738
------------
LEISURE & ENTERTAINMENT - 1.9%
Time Warner Entertainment
10.15%............ 05/01/12 2,900 3,563,375
8.375%............ 07/15/33 1,870 1,975,188
------------
5,538,563
------------
NATURAL GAS - 1.6%
Columbia Gas Systems
7.05%............. 11/28/07 4,375 4,442,069
------------
TOBACCO - 1.7%
RJR Nabisco, Inc.
8.625%............ 12/01/02 4,645 4,795,963
------------
</TABLE>
See Accompanying Notes
15
<PAGE> 17
[ARROW LOGO]
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1995 ARMADA TOTAL RETURN ADVANTAGE FUND (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
UTILITIES - ELECTRIC - 3.0%
Consolidated Edison
8.05%............. 12/15/27 $ 4,100 $ 4,330,625
Pacific Gas & Electric
7.25%............. 08/01/26 4,225 4,177,469
------------
8,508,094
------------
TOTAL CORPORATE BONDS........ 69,913,908
(Cost $66,232,960) ------------
U.S. TREASURY OBLIGATIONS - 30.7%
U.S. TREASURY BONDS - 14.2%
13.75%............ 08/15/04 1,260 1,938,006
8.75%............. 08/15/20 4,375 5,728,231
8.125%............ 08/15/21 26,425 32,639,629
------------
40,305,866
------------
U.S. TREASURY NOTES - 16.5%
5.125%............ 06/30/98 2,515 2,499,608
7.75%............. 11/30/99 16,430 17,728,133
6.25%............. 08/31/00 4,885 5,025,542
7.25%............. 08/15/04 19,525 21,464,418
------------
46,717,701
------------
TOTAL U.S. TREASURY
OBLIGATIONS................. 87,023,567
(Cost $ 84,045,122) ------------
<CAPTION>
NUMBER
OF SHARES
(000)
---------
<S> <C> <C>
TEMPORARY INVESTMENT - 4.8%
Fidelity Domestic Market
Portfolio................... 13,535 $ 13,535,394
(Cost $ 13,535,394) ------------
TOTAL INVESTMENTS - 100.0% $283,727,956
(Cost $274,950,920*) ============
* Also cost for Federal income tax purposes.
The gross unrealized appreciation (depreciation)
for Federal income tax purposes is as follows:
Gross appreciation................... $ 8,864,063
Gross depreciation................... (87,027)
-----------
$ 8,777,036
-----------
(A) Maturity dates represent weighted average lives
of the underlying mortgage obligations.
</TABLE>
See Accompanying Notes
16
<PAGE> 18
[ARROW LOGO]
FINANCIAL STATEMENTS
ARMADA TOTAL RETURN ADVANTAGE FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1995 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments at value
(Cost $274,950,920).................... $283,727,956
Interest receivable.................... 3,861,001
Receivable for Fund shares sold........ 11,749
Receivable for investments sold........ 65,213,846
Prepaid expenses....................... 22,859
-----------
TOTAL ASSETS.................. 352,837,411
------------------------------------------------------
LIABILITIES
Dividends payable - Institutional
class................................ 696,755
Payable for Fund shares redeemed....... 196,585
Payable for investments purchased...... 64,824,134
Accrued expenses....................... 91,296
-----------
TOTAL LIABILITIES............. 65,808,770
------------------------------------------------------
NET ASSETS (based on
26,735,195 shares of
beneficial interest
having no par value).......... $287,028,641
======================================================
NET ASSETS CONSIST OF:
Paid-in capital............... $268,501,425
Undistributed net realized
gain on investments sold...... 9,750,180
Net unrealized appreciation
on investments................ 8,777,036
-----------
$287,028,641
======================================================
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION PRICE PER
SHARE - Institutional class
($286,957,629 / 26,728,582
shares of beneficial
interest)..................... $ 10.74
======================================================
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE - Retail class
($71,012 / 6,613 shares of
beneficial interest).......... $ 10.74
======================================================
MAXIMUM OFFERING PRICE PER
RETAIL SHARE
($10.74 / .9625).............. $ 11.16
======================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1995 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................ $ 9,131,766
Dividends............................... 352,601
----------
Total investment income................. 9,484,367
----------
EXPENSES:
Investment Advisory fees................ 749,902
Administration fees..................... 127,356
Custodian fees.......................... 23,305
Legal fees.............................. 17,983
Distribution fees....................... 10,998
Miscellaneous........................... 6,896
Transfer Agent fees..................... 6,483
Printing and shareholder reports........ 6,424
Trustees' fees.......................... 5,177
Audit fees.............................. 4,942
Registration and filing fees............ 4,016
Insurance............................... 2,308
Amortization of organization costs...... 2,181
Shareholder servicing fees - Retail
class only............................ 112
Fees waived by Investment Adviser....... (749,902)
Fees waived by Custodian................ (23,305)
----------
Total expenses................. 194,876
------------------------------------------------------
NET INVESTMENT INCOME...................... 9,289,491
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS
Net realized gain on
investments sold............... 10,638,166
Net change in unrealized
depreciation on investments.... (2,567,081)
----------
Net gain on investments........ 8,071,085
------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...... $17,360,576
======================================================
</TABLE>
See Accompanying Notes
17
<PAGE> 19
[ARROW LOGO]
FINANCIAL STATEMENTS
ARMADA TOTAL RETURN ADVANTAGE FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED PERIOD ENDED
NOVEMBER 30, 1995 MAY 31, 1995
----------------- ------------
(UNAUDITED)
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................................................. $ 9,289,491 $ 15,564,406
Net realized gain/(loss) on investments sold...................................... 10,638,166 (887,986)
Net change in unrealized appreciation/(depreciation) on investments............... (2,567,081) 11,344,118
------------ ------------
Net increase in net assets resulting from operations.............................. 17,360,576 26,020,538
Distributions to shareholders from net investment income.............................. (12,306,103) (12,547,795)
Increase in net assets derived from capital share transactions........................ 20,464,655 248,036,770
------------ ------------
Total increase in net assets.......................................................... 25,519,128 261,509,513
------------ ------------
NET ASSETS:
Beginning of period............................................................... 261,509,513 0
------------ ------------
End of period..................................................................... $287,028,641 $261,509,513
============ ============
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30, 1995 MAY 31, 1995
----------------- ------------
<S> <C> <C>
UNDISTRIBUTED NET INVESTMENT INCOME AS OF............................................. $ 0 $ 3,016,611
============ ============
</TABLE>
See Accompanying Notes
18
<PAGE> 20
[ARROW LOGO]
FINANCIAL HIGHLIGHTS
ARMADA TOTAL RETURN ADVANTAGE FUND
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE PERIOD ENDED
NOVEMBER 30, 1995 MAY 31, 1995
--------------------------- -----------------------------
(UNAUDITED)
INSTITUTIONAL RETAIL INSTITUTIONAL(3) RETAIL(3)
------------- ------ ---------------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.................. $10.55 $10.54 $10.00 $10.16
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................... .36(7) .35(7) .65(7) .49(7)
Net gain on securities (realized and unrealized).... .31 .29 .43 .40
------ ------ ------ ------
Total from investment operations.................. .67 .64 1.08 .89
------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income................ (.36) (.35) (.53) (.49)
Dividends in excess of net investment income........ (.12) (.09) (.00) (.02)
------ ------ ------ ------
Total distributions............................... (.48) (.44) (.53) (.51)
------ ------ ------ ------
Net asset value, end of period........................ $10.74 $10.74 $10.55 $10.54
====== ====== ====== ======
TOTAL RETURN.......................................... 13.41%(4) 12.85%(4,5) 12.52%(4,6) 12.65%(4,5,6)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)................ $286,957 $71 $261,403 $106
Ratio of expenses to average net assets............. .14%(1,4) .39%(2,4) .18%(1,4) .31%(2,4)
Ratio of net investment income to average net
assets............................................ 6.81%(1,4) 6.53%(2,4) 7.23%(1,4) 6.92%(2,4)
Portfolio turnover rate............................. 119% 119% 166% 166%
</TABLE>
(1) The operating expense ratio and the net investment income ratio before fee
waivers by the Investment Adviser and Custodian for the Institutional class
for the period ended November 30, 1995 would have been .71% and 6.24%,
respectively. The operating expense ratio and the net investment income
ratio before fee waivers by the Investment Adviser, Administrator and
Custodian for the Institutional class for the period ended May 31, 1995
would have been .77% and 6.64%, respectively.
(2) The operating expense ratio and the net investment income ratio before fee
waivers by the Investment Adviser and Custodian for the Retail class for the
period ended November 30, 1995 would have been .95% and 5.97%, respectively.
The operating expense ratio and the net investment income ratio before fee
waivers by the Investment Adviser, Administrator and Custodian for the
Retail class for the period ended May 31, 1995 would have been .87% and
6.36%, respectively.
(3) Institutional and Retail classes commenced operations on July 7, 1994 and
September 6, 1994, respectively.
(4) Annualized.
(5) Total Return excludes sales load.
(6) Total returns have been annualized based upon the period from each class'
commencement date through May 31, 1995. Gross total returns of the
Institutional and Retail classes for the period were 11.22% and 9.14%,
respectively.
(7) Calculated based upon average shares outstanding.
See Accompanying Notes
19
<PAGE> 21
[ARROW LOGO]
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1995 ARMADA FIXED INCOME FUND
(UNAUDITED)
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS - 13.9%
Federal Home Loan Bank
6.96%............. 05/24/00 $ 2,000 $ 2,005,040
7.05%............. 10/11/00 3,000 3,041,370
7.36%............. 07/01/04 2,000 2,169,080
Federal National
Mortgage
Association
6.49%............. 11/03/00 2,000 2,019,940
5.80%............. 12/10/03 2,000 1,969,780
8.05%............. 05/20/04 1,000 1,037,140
7.87%............. 06/30/04 1,000 1,033,850
Inter-American Development
Bank - Israel
8.00%............. 11/15/01 1,500 1,655,625
------------
TOTAL AGENCY OBLIGATIONS..... 14,931,825
(Cost $14,288,528) ------------
MORTGAGE OBLIGATIONS - 4.1%(A)
U.S. GOVERNMENT OBLIGATIONS - 4.0%
Federal National
Mortgage Association
8.50%............. 06/01/99 211 219,196
8.50%............. 06/01/99 220 229,061
8.50%............. 06/01/99 396 412,092
8.50%............. 06/01/99 418 434,924
8.50%............. 06/01/99 455 473,054
8.50%............. 06/01/99 741 770,425
8.50%............. 06/01/99 755 784,821
8.50%............. 06/01/99 922 958,858
------------
4,282,431
------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.1%
Travelers Mortgage Services,
Inc. Series 1990-3, Class B
9.45%............. 06/04/99 71 70,958
------------
TOTAL MORTGAGE OBLIGATIONS... 4,353,389
(Cost $4,304,301) ------------
CORPORATE BONDS - 45.7%
AUTOMOBILES - 2.4%
Ford Motor Company
9.00%............. 09/15/01 500 569,375
General Motors Acceptance
Corp.
7.75%............. 01/17/97 2,000 2,045,000
------------
2,614,375
------------
CHEMICALS - 6.5%
Dow Capital B.V.
5.75%............. 09/15/97 2,000 1,995,000
Dow Chemical Co.
9.35%............. 03/15/02 1,000 1,122,500
E.I. duPont de
Nemours & Co.
8.65%............. 12/01/97 2,000 2,107,500
8.50%............. 02/15/03 1,620 1,784,025
------------
7,009,025
------------
FINANCIAL SERVICES - 15.9%
American General Finance
8.25%............. 01/15/98 1,000 1,047,500
Commercial Credit Corp.
6.00%............. 06/15/00 3,000 3,003,750
General Electric Capital
Corp.
8.70%............. 02/15/03 1,000 1,145,000
</TABLE>
See Accompanying Notes
20
<PAGE> 22
[ARROW LOGO]
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1995 ARMADA FIXED INCOME FUND (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
FINANCIAL SERVICES - (CONT'D)
International Lease Finance
Corporation
8.875%............ 04/15/01 $ 3,000 $ 3,378,750
Kroger/Secured Finance
9.05%............. 12/15/04 2,000 2,370,000
Norwest Financial Corp.
6.50%............. 11/15/97 2,500 2,540,625
Scotland International Bank
8.85%............. 11/01/06 3,000 3,510,000
------------
16,995,625
------------
INSURANCE - 5.7%
Chubb Corp.
8.75%............. 04/01/98 2,000 2,150,000
CNA Financial Corp.
8.875%............ 03/01/98 1,000 1,061,250
Farmers Group
8.25%............. 07/15/96 2,825 2,867,375
------------
6,078,625
------------
NATURAL GAS - 1.9%
Consolidated Natural Gas
5.875%............ 10/01/98 2,000 2,005,000
------------
OIL - 2.5%
Societe Nationale Elf
Aquataine
7.75%............. 05/01/99 2,500 2,646,875
------------
POLLUTION CONTROL - 1.9%
WMX Technologies, Inc.
6.375%............ 12/01/03 2,000 2,012,500
------------
RETAIL MERCHANDISING - 2.6%
Wal-Mart Stores, Inc.
8.625%............ 04/01/01 2,500 2,796,875
------------
TELECOMMUNICATIONS - 1.0%
BellSouth Capital Corp.
8.90%............. 03/01/98 $ 1,000 $ 1,065,000
------------
UTILITIES - GAS & ELECTRIC - 2.4%
Consolidated Edison Corp.
7.60%............. 01/15/00 2,500 2,643,750
------------
UTILITIES - ELECTRIC - 2.9%
Florida Power and Light
6.625% 02/01/03 3,000 3,097,500
------------
TOTAL CORPORATE
BONDS....................... 48,965,150
(Cost $47,045,864) ------------
U.S. TREASURY OBLIGATIONS - 29.5%
U.S. TREASURY NOTES
5.625% 10/31/97 5,000 5,023,549
5.125% 11/30/98 5,500 5,455,614
6.375% 07/15/99 2,000 2,058,580
7.875% 11/15/99 4,000 4,331,960
6.75% 04/30/00 2,500 2,617,850
7.75% 02/15/01 5,500 6,039,879
7.50% 11/15/01 1,000 1,095,060
6.375% 08/15/02 1,500 1,561,530
7.875% 11/15/04 3,000 3,432,180
------------
TOTAL U.S. TREASURY
OBLIGATIONS................. 31,616,202
(Cost $30,743,462) ------------
</TABLE>
See Accompanying Notes
21
<PAGE> 23
[ARROW LOGO]
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1995 ARMADA FIXED INCOME FUND (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES
(000) VALUE
--------- ------------
<S> <C> <C>
TEMPORARY INVESTMENTS - 6.8%
Fidelity Domestic Market
Portfolio................... 5,412 $ 5,411,702
Financial Square Prime
Obligations Portfolio....... $ 1,825 1,824,611
------------
TOTAL TEMPORARY
INVESTMENTS................. 7,236,313
(Cost $7,236,313) ------------
TOTAL INVESTMENTS - 100.0% $107,102,879
(Cost $103,618,468*) ============
* Also cost for Federal income tax purposes.
The gross unrealized appreciation (depreciation)
for Federal income tax purposes is as follows:
Gross appreciation................... $3,492,174
Gross depreciation................... (7,763)
----------
$3,484,411
----------
(A) Maturity dates represent weighted average lives
of the underlying mortgage obligations.
</TABLE>
See Accompanying Notes
22
<PAGE> 24
[ARROW LOGO]
FINANCIAL STATEMENTS
ARMADA FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1995 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments at value
(Cost $103,618,468).................... $107,102,879
Interest receivable.................... 1,453,441
Receivable for Fund shares sold........ 148,322
Prepaid expenses....................... 5,986
-----------
TOTAL ASSETS.................. 108,710,628
- --------------------------------------------------------
LIABILITIES
Dividends payable - Institutional
class................................ 305,557
Payable for Fund shares redeemed....... 54,127
Accrued expenses....................... 93,552
-----------
TOTAL LIABILITIES............. 453,236
- --------------------------------------------------------
NET ASSETS (based on
10,118,572 shares of
beneficial interest having
no par value)................. $108,257,392
========================================================
NET ASSETS CONSIST OF:
Paid-in capital............... $106,614,162
Accumulated net realized loss
on investments sold........... (1,841,181)
Net unrealized appreciation
on investments................ 3,484,411
-----------
$108,257,392
========================================================
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION PRICE PER
SHARE - Institutional class
($100,064,038 / 9,356,474
shares of beneficial
interest)..................... $ 10.69
========================================================
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE - Retail class
($8,193,354 / 762,098 shares
of beneficial interest)....... $ 10.75
========================================================
MAXIMUM OFFERING PRICE PER
RETAIL SHARE
($10.75 / .9625).............. $ 11.17
========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1995 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................. $3,382,042
---------
EXPENSES:
Investment Advisory fees................. 275,953
Administration fees...................... 50,174
12b-1 fees............................... 21,623
Transfer Agent fees...................... 18,367
Custodian fees........................... 12,543
Shareholder servicing fees - Retail class
only................................... 9,562
Registration and filing fees............. 8,156
Legal fees............................... 7,315
Printing and shareholders reports........ 5,684
Distribution fees........................ 4,043
Audit fees............................... 2,164
Miscellaneous............................ 1,362
Insurance................................ 1,199
Trustees' fees........................... 900
Fees waived by Custodian................. (12,543)
---------
Total expenses.................. 406,502
- --------------------------------------------------------
NET INVESTMENT INCOME....................... 2,975,540
- --------------------------------------------------------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain on
investments sold................ 507,351
Net change in unrealized
appreciation on investments..... 1,014,545
---------
Net gain on investments......... 1,521,896
- --------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... $4,497,436
========================================================
</TABLE>
See Accompanying Notes
23
<PAGE> 25
[ARROW LOGO]
FINANCIAL STATEMENTS
ARMADA FIXED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
NOVEMBER 30, 1995 MAY 31, 1995
----------------- ------------
(UNAUDITED)
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income................................................... $ 2,975,540 $ 5,592,154
Net realized gain/(loss) on investments sold............................ 507,351 (2,602,032)
Net change in unrealized appreciation on investments.................... 1,014,545 5,234,800
------------ ------------
Net increase in net assets resulting from operations.................... 4,497,436 8,224,922
Distributions to shareholders from net investment income.................... (2,975,540) (5,592,154)
Increase/(decrease) in net assets derived from capital share transactions... 13,161,835 (10,445,820)
------------ ------------
Total increase/(decrease) in net assets..................................... 14,683,731 (7,813,052)
------------ ------------
NET ASSETS:
Beginning of period..................................................... 93,573,661 101,386,713
------------ ------------
End of period........................................................... $108,257,392 $ 93,573,661
============ ============
</TABLE>
See Accompanying Notes
24
<PAGE> 26
[ARROW LOGO]
FINANCIAL HIGHLIGHTS
ARMADA FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
NOVEMBER 30, 1995 FOR THE YEAR ENDED MAY 31
----------------------- --------------------------------------------------
1995 1994
(UNAUDITED) ----------------------- -----------------------
INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL
------------- ------ ------------- ------ ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period......... $10.54 $10.60 $10.24 $10.30 $10.93 $10.98
----- ------ ----- ------ ----- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income....... .31 .30 .63 .61 .61 .58
Net gains/(losses) on
securities (realized
and unrealized)... .15 .15 .30 .30 (.59) (.58)
----- ------ ----- ------ ----- ------
Total from investment
operations............. .46 .45 .93 .91 .02 .00
----- ------ ----- ------ ----- ------
LESS DISTRIBUTIONS
Dividends from net
investment income......... (.31) (.30) (.63) (.61) (.61) (.58)
Dividends in excess of net
investment income......... (.00) (.00) (.00) (.00) (.05) (.05)
Dividends from net realized
capital gains............. (.00) (.00) (.00) (.00) (.03) (.03)
Dividends in excess of net
realized capital gains.... (.00) (.00) (.00) (.00) (.02) (.02)
----- ------ ----- ------ ----- ------
Total distributions...... (.31) (.30) (.63) (.61) (.71) (.68)
----- ------ ----- ------ ----- ------
Net asset value, end of
period...................... $10.69 $10.75 $10.54 $10.60 $10.24 $10.30
====== ====== ===== ====== ====== ======
TOTAL RETURN................. 9.15%(4) 8.86%(4,5) 9.55% 9.26%(5) 0.00% (0.23%)(5)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's)................ $100,064 $8,193 $88,047 $5,527 $95,907 $5,480
Ratio of expenses to average
net assets................ .79%(1,4) 1.03%(2,4) .85%(1) 1.09%(2) 0.83% 1.08%
Ratio of net investment
income to average
net assets................ 5.95%(1,4) 5.65%(2,4) 6.24%(1) 5.95%(2) 5.59% 5.34%
Portfolio turnover rate..... 14% 14% 42% 42% 34% 34%
<CAPTION>
1993 1992 1991
---------------------- ----------------------- ------------------------
INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL(3)
------------- ------ ------------- ------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period......... $10.60 $10.63 $10.15 $10.15 $9.83 $10.11
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income....... ,70 .65 .81 .79 .76 .10
Net gains/(losses) on
securities (realized
and unrealized)........... .46 .48 .45 .45 .39 .01
------ ------ ------ ------ ------ ------
Total from investment
operations............. 1.16 1.13 1.26 1.24 1.15 .11
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net
investment income......... (.70) (.65) (.81) (.76) (.76) (.07)
Dividends in excess of net
investment income......... (.02) (.02) (.00) (.00) (.07) (.00)
Dividends from net realized
capital gains............. (.11) (.11) (.00) (.00) (.00) (.00)
Dividends in excess of net
realized capital gains.... (.00) (.00) (.00) (.00) (.00) (.00)
------ ------ ------ ------ ------ ------
Total distributions...... (.83) (.78) (.81) (.76) (.83) (.07)
------ ------ ------ ------ ------ ------
Net asset value, end of
period...................... $10.93 $10.98 $10.60 $10.63 $10.15 $10.15
====== ====== ====== ====== ====== ======
TOTAL RETURN................. 11.32% 11.03%(5) 12.96% 12.64%(5) 12.20% 8.45%(4,5)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's)................ $95,246 $5,208 $40,414 $1,033 $34,664 $284
Ratio of expenses to average
net assets................ .32%(1) .57%(2) .30%(1) .55%(2) .33%(1) .56%(2,4)
Ratio of net investment
income to average
net assets................ 6.46%(1) 6.21%(2) 7.84%(1) 7.57%(2) 8.34%(1) 7.89%(2,4)
Portfolio turnover rate..... 33% 33% 13% 13% 0% 0%
</TABLE>
(1) The operating expense ratio and net investment income ratio before fee
waivers by the Custodian for the Institutional class for the period ended
November 30, 1995 and the year ended May 31, 1995 would have been .82%
and 5.92%, and .86% and 6.23%, respectively. The operating expense ratio
and net investment income ratio before fee waivers by the Investment
Advisers for the Institutional Class for the years ended May 31, 1993,
1992 and 1991 would have been .80% and 5.98%, .85% and 7.29%, and .88%
and 7.79%, respectively.
(2) The operating expense ratio and the net investment income ratio before fee
waivers by the Custodian for the Retail class for the period ended November
30, 1995 and the year ended May 31, 1995 would have been 1.06% and 5.62%,
and 1.10% and 5.94%, respectively. The operating expense ratio and net
investment income ratio before fee waivers by the Investment Advisers
for the Retail class for the years ended May 31, 1993 and 1992 and for
the period ended May 31, 1991 would have been 1.05% and 5.73%, 1.10% and
7.02%, and 1.11% and 7.34%, respectively.
(3) Retail class commenced operations on April 15, 1991.
(4) Annualized.
(5) Total return excludes sales load.
See Accompanying Notes
25
<PAGE> 27
[ARROW LOGO]
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1995 ARMADA ENHANCED INCOME FUND
(UNAUDITED)
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- -----------
<S> <C> <C> <C>
AGENCY OBLIGATIONS - 9.2%
FEDERAL HOME LOAN BANK DISCOUNT NOTE - 1.5%
5.52%.............. 02/28/96 $ 1,000 $ 986,100
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
DISCOUNT NOTES - 7.7%
5.60%.............. 01/08/96 1,000 994,089
5.62%.............. 01/18/96 1,000 992,507
5.59%.............. 01/29/96 1,000 990,686
5.47%.............. 03/04/96 1,000 985,381
5.39%.............. 03/27/96 1,000 981,874
------------
4,944,537
------------
TOTAL AGENCY OBLIGATIONS...... 5,930,637
(Cost $5,931,987) ------------
ASSET-BACKED SECURITIES - 20.1% (A)
Contimortgage Home Equity Loan
Trust Series 1994-4, Class A1
8.09%.............. 04/09/96 335 337,713
Discover Card Master Trust I
Series 1994-2, Class A
6.16%.............. 11/15/01 450 451,980
First Deposit Master Trust
Series 1994-1, Class A
6.90%.............. 07/02/97 250 254,789
First USA Master Credit Card
Trust Series 1995-2, Class A
6.11%.............. 03/31/02 1,000 1,000,600
Green Tree Financial
Corporation Series 1993-2,
Class A1
6.31%.............. 07/27/96 636 636,440
Green Tree Home Improvement
Loan Trust Series 1995-A,
Class A1
7.00%.............. 02/06/97 1,041 1,045,356
MBNA Master Credit Card Trust
Series 1994-C, Class A
6.06%.............. 10/31/01 1,000 1,006,800
Small Business Administration
Pool
9.975%............. 01/08/04 695 768,844
Standard Credit Card Master
Trust Series 1992-3, Class A
6.175%............. 09/15/97 1,500 1,506,600
Standard Credit Card Master
Trust Series 1995-5, Class A
6.01%.............. 05/25/98 1,150 1,153,212
Standard Credit Card Master
Trust Series 1995-6, Class B
6.90%.............. 06/24/98 1,595 1,636,821
The Money Store Home Equity
Trust Series 1994-D1, Class A4
8.75%.............. 08/09/99 240 258,575
The Money Store Home Equity
Trust Series 1995-B, Class A3
6.65%.............. 10/16/98 485 492,656
World Omni Wholesale Master
Trust Series 1994-1, Class A
6.075%............. 11/10/99 2,350 2,352,115
------------
TOTAL ASSET-BACKED
SECURITIES................... 12,902,501
(Cost $12,840,430) ------------
MORTGAGE OBLIGATIONS - 8.1% (A)
U.S. GOVERNMENT OBLIGATIONS - 0.5%
Government Trust Certificate
8.00%.............. 03/25/97 283 286,361
------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 7.4%
Collateralized Mortgage
Obligation Trust Series 13,
Class A
6.375%............. 03/05/98 193 193,972
</TABLE>
See Accompanying Notes
26
<PAGE> 28
[ARROW LOGO]
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1995 ARMADA ENHANCED INCOME FUND (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- -----------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (CONT'D.)
Merrill Lynch Home Equity Loan
Series 1992-1, Class A
6.275%............. 07/22/98 $ 925 $ 925,483
Merrill Lynch Mortgage
Investors, Inc. Series
1993-B, Class A1
6.325%............. 02/12/96 396 396,034
Merrill Lynch Trust Series 10,
Class B
6.54%.............. 09/28/00 677 681,279
Prudential Home Mortgage
Securities Co. Series
1993-14, Class A12
6.64%.............. 09/11/98 288 289,232
Residential Funding Mortgage
Securities Series 1993-S11,
Class A6
6.69%.............. 10/17/96 1,715 1,720,863
Sears Mortgage Securities
Series 1993-3, Class F
6.89%.............. 01/01/97 566 570,734
------------
4,777,597
------------
MORTGAGE PASS THROUGH OBLIGATIONS - 0.2%
Federal Home Loan Mortgage
Corporation
7.50%.............. 05/13/97 96 97,013
------------
TOTAL MORTGAGE OBLIGATIONS.... 5,160,971
(Cost $5,127,421) ------------
CORPORATE BONDS - 10.0%
BANKING - 4.9%
First Bank System
6.06%.............. 02/29/96 1,850 1,832,703
National Bank of Detroit
(Euro)
6.00%.............. 12/22/95 1,350 1,328,940
------------
3,161,643
------------
DIVERSIFIED - 0.7%
General Electric Credit
6.20%.............. 03/15/97 470 473,525
------------
FOREIGN - 2.8%
Hydro Quebec (Euro)
5.94%.............. 07/26/02 1,850 1,795,240
------------
OIL - 1.6%
Chevron Corp.
6.92%.............. 01/01/96 1,000 1,001,250
------------
TOTAL CORPORATE
BONDS........................ 6,431,658
(Cost $6,410,998) ------------
</TABLE>
See Accompanying Notes
27
<PAGE> 29
[ARROW LOGO]
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1995 ARMADA ENHANCED INCOME FUND (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- -----------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS - 45.4%
U.S. TREASURY BILLS - 20.1%
5.35%.............. 12/07/95 $ 1,000 $ 999,069
5.36%.............. 12/14/95 1,000 998,021
5.28%.............. 12/21/95 1,000 996,984
5.29%.............. 01/04/96 1,000 994,715
5.30%.............. 01/11/96 1,000 993,543
5.23%.............. 01/18/96 1,000 992,609
5.34%.............. 01/25/96 1,000 991,451
5.275%............. 02/01/96 1,000 990,664
5.29%.............. 02/08/96 1,000 989,568
5.29%.............. 02/15/96 1,000 988,653
5.29%.............. 02/22/96 1,000 987,598
5.29%.............. 02/29/96 1,000 986,539
5.28%.............. 03/07/96 1,000 985,558
------------
12,894,972
------------
U.S. TREASURY NOTES - 25.3%
8.50%.............. 04/15/97 765 796,082
8.75%.............. 10/15/97 2,000 2,118,300
7.875%............. 04/15/98 550 580,123
8.25%.............. 07/15/98 2,500 2,671,150
5.25%.............. 07/31/98 2,200 2,191,178
8.875%............. 11/15/98 950 1,038,217
6.875%............. 07/31/99 2,210 2,309,428
8.50%.............. 02/15/00 550 610,473
8.75%.............. 05/15/00 2,570 2,907,261
6.25%.............. 08/31/00 1,000 1,028,770
------------
16,250,982
------------
TOTAL U.S. TREASURY
OBLIGATIONS.................. 29,145,954
(Cost $28,865,762) ------------
TEMPORARY INVESTMENTS - 7.2%
Fidelity Domestic Market
Portfolio.................... 2,612 $ 2,611,943
Financial Square Prime
Obligations Portfolio........ 2,026 2,026,424
------------
TOTAL TEMPORARY INVESTMENTS... 4,638,367
(Cost $4,638,367) ------------
TOTAL INVESTMENTS - 100.0%...... $64,210,088
(Cost $63,814,965*) ============
* Also cost for Federal income tax purposes.
The gross unrealized appreciation (depreciation)
for Federal income tax purposes is as follows:
Gross appreciation................... $ 411,572
Gross depreciation................... (16,449)
-----------
$ 395,123
-----------
(A) Maturity dates represent weighted average lives
of the underlying mortgage obligations.
</TABLE>
See Accompanying Notes
28
<PAGE> 30
[ARROW LOGO]
FINANCIAL STATEMENTS
ARMADA ENHANCED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1995 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments at value
(Cost $63,814,965)...................... $64,210,088
Interest receivable..................... 577,998
Receivable for Fund shares sold......... 43,126
Prepaid expenses........................ 21,026
----------
TOTAL ASSETS................... 64,852,238
------------------------------------------------------
LIABILITIES
Dividends payable - Institutional
class................................. 79,326
Payable for Fund shares redeemed........ 504,800
Accrued expenses........................ 22,672
----------
TOTAL LIABILITIES.............. 606,798
------------------------------------------------------
NET ASSETS (based on
6,368,096 shares of
beneficial interest
having no par value)........... $64,245,440
======================================================
NET ASSETS CONSIST OF:
Paid-in capital................ $63,771,168
Undistributed net realized gain
on investments sold............ 79,149
Net unrealized appreciation
on investments................. 395,123
----------
$64,245,440
======================================================
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER
SHARE - Institutional class
($60,133,079 / 5,961,311 shares
of beneficial interest)........ $ 10.09
======================================================
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE - Retail class
($4,112,361 / 406,785 shares
of beneficial interest)........ $ 10.11
======================================================
MAXIMUM OFFERING PRICE PER
RETAIL SHARE
($10.11 / .9725)............... $ 10.40
======================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1995 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................. $2,024,697
---------
EXPENSES:
Investment Advisory fees................. 150,763
Administration fees...................... 33,503
Miscellaneous............................ 16,883
Transfer Agent fees...................... 11,367
Custodian fees........................... 8,185
Printing and shareholder reports......... 5,353
Legal fees............................... 4,893
Registration and filing fees............. 3,886
Distribution fees........................ 2,648
Amortization of organization costs....... 2,079
Shareholder servicing fees - Retail class
only................................... 1,531
Audit fees............................... 1,360
Trustees' fees........................... 1,054
Insurance................................ 818
Fees waived by Investment Adviser........ (150,763)
Fees waived by Custodian................. (8,185)
---------
Total expenses.................. 85,375
------------------------------------------------------
NET INVESTMENT INCOME....................... 1,939,322
------------------------------------------------------
REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
Net realized gain on
investments sold................ 198,825
Net change in unrealized
depreciation on investments..... (17,003)
---------
Net gain on investments......... 181,822
------------------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS................. $2,121,144
======================================================
</TABLE>
See Accompanying Notes
29
<PAGE> 31
[ARROW LOGO]
FINANCIAL STATEMENTS
ARMADA ENHANCED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED PERIOD ENDED
NOVEMBER 30, 1995 MAY 31, 1995
-------------------- --------------------
(UNAUDITED)
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................................. $ 1,939,322 $ 2,999,540
Net realized gain/(loss) on investments sold...................... 198,825 (118,426)
Net change in unrealized appreciation/(depreciation) on
investments..................................................... (17,003) 412,126
------------ ------------
Net increase in net assets resulting from operations.............. 2,121,144 3,293,240
Distributions to shareholders from net investment income.............. (2,529,269) (2,409,593)
Distributions to shareholders in excess of net realized gains......... 0 (1,250)
Increase in net assets derived from capital share transactions........ 1,639,559 62,131,609
------------ ------------
Total increase in net assets.......................................... 1,231,434 63,014,006
------------ ------------
NET ASSETS:
Beginning of period............................................... 63,014,006 0
------------ ------------
End of period..................................................... $ 64,245,440 $ 63,014,006
============ ============
<CAPTION>
NOVEMBER 30, 1995 MAY 31, 1995
-------------------- --------------------
<S> <C> <C>
UNDISTRIBUTED NET INVESTMENT INCOME AS OF............................. $ 0 $ 589,947
============ ============
</TABLE>
See Accompanying Notes
30
<PAGE> 32
[ARROW LOGO]
FINANCIAL HIGHLIGHTS
ARMADA ENHANCED INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE PERIOD ENDED
NOVEMBER 30, 1995 MAY 31, 1995
--------------------------- -----------------------------
(UNAUDITED)
INSTITUTIONAL RETAIL INSTITUTIONAL(3) RETAIL(3)
------------- ------ -------------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period..................... $10.16 $10.18 $10.00 $10.10
------- ------ ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................................. .30(7) .28(7) .51(7) .43(7)
Net gains on securities (realized and unrealized)...... .02 .04 .06 .06
------- ------ ------- ------
Total from investment operations..................... .32 .32 .57 .49
------- ------ ------- ------
LESS DISTRIBUTIONS
Dividends from net investment income................... (.30) (.28) (.41) (.41)
Dividends in excess of net investment income........... (.09) (.11) -- --
------- ------ ------- ------
Total distributions.................................. (.39) (.39) (.41) (.41)
------- ------ ------- ------
Net asset value, end of period........................... $10.09 $10.11 $10.16 $10.18
======= ====== ======= ======
TOTAL RETURN............................................. 6.59%(4) 6.46%(4,5) 6.54%(4,6) 6.84%(4,5,6)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)................... $60,133 $4,112 $60,467 $2,547
Ratio of expenses to average net assets................ .25%(1,4) 35%(2,4) .21%(1,4) .32%(2,4)
Ratio of net investment income to average net assets... 5.80%(1,4) 5.63%(2,4) 5.70%(1,4) 5.89%(2,4)
Portfolio turnover rate................................ 21% 21% 36% 36%
</TABLE>
(1) The operating expense ratio and the net investment income ratio before fee
waivers by the Investment Adviser and Custodian for the Institutional class
for the period ended November 30, 1995 would have been .73% and 5.32%,
respectively. The operating expense ratio and the net investment income
ratio before fee waivers by the Investment Adviser, Administrator, and
Custodian for the Institutional class for the period ended May 31, 1995
would have been .71% and 5.20%, respectively.
(2) The operating expense ratio and the net investment income ratio before fee
waivers by the Investment Adviser and Custodian for the Retail class for the
period ended November 30, 1995 would have been .82% and 5.16%, respectively.
The operating expense ratio and the net investment income ratio before fee
waivers by the Investment Adviser, Administrator, and Custodian for the
Retail class for the period ended May 31, 1995 would have been .79% and
5.42% respectively.
(3) Institutional and Retail classes commenced operations on July 7, 1994 and
September 9, 1994, respectively.
(4) Annualized.
(5) Total return excludes sales load.
(6) Total returns have been annualized based upon the period from each class'
commencement date through May 31, 1995. Gross total returns of the
Institutional and Retail classes for the period were 5.87% and 4.92%,
respectively.
(7) Calculated based upon average shares outstanding.
See Accompanying Notes
31
<PAGE> 33
[ARROW LOGO]
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Armada Funds (the "Trust") is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. Effective May
22, 1995, the Trust changed its name from NCC Funds to Armada Funds. The Trust
was organized as a Massachusetts business trust on January 28, 1986. The Trust
is a series fund which is authorized to issue twenty-four classes of shares of
beneficial interest, each of which evidences an interest in one of twelve
investment funds:
Money Market Fund (Class A "Institutional" shares and Class A-Special Series 1
"Retail" shares),
Government Fund (Class B "Institutional" shares and Class B-Special Series 1
"Retail" shares),
Treasury Fund (Class C "Institutional" shares and Class C-Special Series 1
"Retail" shares),
Tax Exempt Fund (Class D "Institutional" shares and Class D-Special Series 1
"Retail" shares),
Equity Fund (Class H "Institutional" shares and Class H-Special Series 1
"Retail" shares),
Fixed Income Fund, (Class I "Institutional" shares and Class I-Special Series
1 "Retail" shares),
Ohio Tax Exempt Fund (Class K "Institutional" shares and Class K-Special
Series 1 "Retail" shares),
National Tax Exempt Fund (Class L "Institutional" Shares and Class L-Special
Series 1 "Retail" shares),
Equity Income Fund (Class M "Institutional" shares and Class M-Special Series
1 "Retail" shares),
Mid Cap Regional Fund (Class N "Institutional" shares and Class N-Special
Series 1 "Retail" shares),
Enhanced Income Fund (Class O "Institutional" shares and Class O-Special
Series 1 "Retail" shares), and
Total Return Advantage Fund (Class P "Institutional" shares and Class
P-Special Series 1 "Retail" shares).
As of the date of this report, the National Tax Exempt Fund has not commenced
operations.
The Total Return Advantage and Enhanced Income Funds commenced operations
on July 7, 1994. The formation of the Funds was executed through a purchase
of securities by the Funds from two collective trust funds which were
affiliates of the Adviser. The Total Return Advantage Fund purchased all of
the assets of the Bond Fund for Tax Exempt Trust. Similarly, the Enhanced
Income Fund purchased all of the assets of the Current Income Bond Fund for
Tax Exempt Trust. These purchases were executed in accordance with procedures
approved by the Board of Trustees relating to purchases and sales of
securities pursuant to Rule 17a-7 of the Investment Company Act of 1940.
The market values of the assets purchased on July 6, 1994 by the Total Return
Advantage Fund and Enhanced Income Fund were $233,021,591 and $59,915,768,
respectively.
The following is a summary of significant accounting policies followed by the
Fixed Income, Enhanced Income, and the Total Return Advantage Funds (the
"Funds") in preparation of their financial statements.
PORTFOLIO VALUATION: Securities for which market quotations are readily
available are valued at their market values determined on the basis of the mean
between their current available bid and asked prices in the principal market
(closing sales prices if the principal market is an exchange) in which such
securities are normally traded. Securities and other assets for which quotations
are not readily available are valued at their fair market value under procedures
approved by the Board of Trustees. Short-term investments having maturities of
60 days or less are generally valued on the basis of amortized cost.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are
accounted for on the trade date. Realized gains and losses on investments sold
are recorded on the identified cost basis. Interest income is accrued on a daily
basis. Dividends are recorded on the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from the net investment
income of the Funds are declared daily and paid no later than five business days
after the end of the month. With respect to each Fund, net income for dividend
purposes consists of dividends and interest income, and discount earned
(including both original issue and market discount), less amortization of any
market premium and accrued expenses. Any net realized capital gains will be
distributed at least annually.
FEDERAL INCOME TAXES: Each of the Funds is classified as a separate taxable
entity for Federal income tax purposes. Each of the Funds intends to qualify as
a separate "regulated investment company" under the Internal Revenue Code and
make the requisite distributions to its shareholders that will be sufficient to
relieve it from Federal income tax and Federal excise tax. Therefore, no Federal
tax provision is required. To the extent that distributions from net investment
income and realized net capital gains exceed amounts reported in the financial
statements, such amounts are reported separately.
As of May 31, 1995, Total Return Advantage, Fixed Income, and Enhanced Income
Funds had available capital loss carryforwards amounting to $865,324,
$2,602,032, and $118,426, respectively. Such losses may be carried forward and
offset against future capital gains.
ORGANIZATION COSTS: The Trust bears all costs in connection with its
organization, including the fees and expenses of registering and qualifying its
shares for distribution under Federal and state securities regulations. All
organization expenses are being amortized on the straight-line method over a
period of five years from the date of commencement of operations.
2. INVESTMENT ADVISERS, DISTRIBUTION FEE AND OTHER RELATED PARTY TRANSACTIONS
Fees paid by the Trust pursuant to the Advisory Agreements with National City
Bank, National City Bank, Columbus, National City Bank, Kentucky, and National
Asset Management Corporation, wholly-owned subsidiaries of National City
Corporation, (collectively, the "Adviser" or "Advisers"), are payable monthly
based on an annual rate of .55%, .55%, and .45% of the average daily net assets
of the Total Return Advantage, Fixed Income, and the Enhanced Income Funds,
respectively. The Advisers may from time to time waive their fees payable by the
Funds. For the period ended November 30, 1995, the Advisers have earned and
waived fees as follows:
<TABLE>
<CAPTION>
EARNED WAIVED
------- -------
<S> <C> <C>
Total Return Advantage Fund $749,902 $749,902
Fixed Income Fund 275,953 0
Enhanced Income Fund 150,763 150,763
</TABLE>
At November 30, 1995, advisory fees accrued and unpaid amounted to:
<TABLE>
<S> <C>
Total Return Advantage Fund $ 0
Fixed Income Fund 43,547
Enhanced Income Fund 0
</TABLE>
Fees paid by the Trust, under a Shareholder Servicing Plan (the "Plan") to
NatCity Investments, Inc. and National City Investments Corporation, both
wholly-owned subsidiaries of National City Corporation, are payable monthly,
based on an aggregate annual rate of up to .25% of the average daily net assets
of the Retail class of the Total Return Advantage and Fixed Income Funds and
.10% of the average
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<PAGE> 35
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
daily net assets of the Retail class of the Enhanced Income Fund. NatCity
Investments, Inc. and National City Investments Corporation earned fees for the
period ended November 30, 1995 in the following amounts:
<TABLE>
<CAPTION>
NATIONAL CITY
NATCITY INVESTMENTS
INVESTMENTS, INC. CORPORATION
-------------- ------------
<S> <C> <C>
Total Return Advantage
Fund $15 $ 9,604
Fixed Income Fund 0 1,558
Enhanced Income Fund 0 55
</TABLE>
National City Bank, a wholly-owned subsidiary of National City Corporation,
serves as the Funds' Custodian. For the period ended November 30, 1995, National
City Bank has earned and waived Custodian fees representing $23,305, $12,543,
and $8,185 for the Total Return Advantage, Fixed Income and Enhanced Income
Funds, respectively.
440 Financial Distributors, Inc. ("Distributor"), a wholly-owned subsidiary of
The Shareholder Services Group, Inc., and an indirect wholly-owned subsidiary of
First Data Corp., serves as the Trust's Distributor. Under the Trust's
Distribution Agreement and related Distribution Plan adopted under Rule 12b-1 of
the Investment Company Act of 1940, each Fund reimburses the Distributor for the
direct and indirect expenses incurred by the Distributor in providing Fund
advertising, marketing, prospectus printing and other distribution services up
to a maximum of .10% per annum of the average daily net assets of each Fund,
inclusive of an annual distribution fee of $250,000 which is payable monthly and
accrued daily among the Funds with respect to which the Distributor is
distributing shares.
Each Trustee receives an annual fee of $6,000 plus $2,000 for each Board
Meeting attended and reimbursement of out-of-pocket expenses. The Chairman of
the Board receives an additional $2,000 per annum for services in such capacity.
Such fees are paid for services rendered to all of the Funds and are allocated
accordingly. No person who is an officer, director, trustee, or employee of the
Investment Advisers, Administrator, Distributor, or of any parent or subsidiary
thereof, who serves as an officer, trustee, or employee of the Trust receives
any compensation from the Trust.
Expenses for the period ended November 30, 1995 include legal fees paid to
Drinker Biddle & Reath. A partner of the firm is Secretary of the Trust.
3. PURCHASES AND SALES OF SECURITIES
During the period ended November 30, 1995, purchases and sales of securities,
other than short-term investments or U.S. Government obligations, aggregated:
<TABLE>
<CAPTION>
PURCHASES SALES
---------- ----------
<S> <C> <C>
Total Return Advantage Fund $137,260,791 $109,399,537
Fixed Income Fund 5,523,521 10,097,085
Enhanced Income Fund 7,370,813 1,659,878
</TABLE>
Purchases and sales of long-term U.S. Government obligations were:
<TABLE>
<CAPTION>
PURCHASES SALES
---------- ----------
<S> <C> <C>
Total Return Advantage Fund $198,091,517 $201,371,814
Fixed Income Fund 19,786,448 2,444,844
Enhanced Income Fund 11,321,963 6,593,460
</TABLE>
4. SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust authorizes the Board of Trustees to issue an
unlimited number of shares of beneficial interest and to classify or reclassify
any unissued shares of the Trust into one or more additional classes of shares
and to classify or reclassify any class of shares into one or more series of
shares. Transactions in capital shares are summarized on the following page for
the Fixed Income, Enhanced Income and Total Return Advantage Funds.
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<PAGE> 36
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1995
-----------------------------------------------------------
INSTITUTIONAL CLASS RETAIL CLASS
--------------- ----------
(UNAUDITED) (UNAUDITED)
SHARES VALUE SHARES VALUE
---------- ------------ -------- -----------
<S> <C> <C> <C> <C>
TOTAL RETURN ADVANTAGE FUND
Shares sold................................................. 2,277,969 $ 24,021,571 4,187 $ 43,885
Shares reinvested........................................... 706,525 7,412,132 176 1,847
Shares repurchased.......................................... (1,042,629) (10,933,059) (7,818) (81,721)
---------- ------------ -------- -----------
Net increase/(decrease)..................................... 1,941,865 $ 20,500,644 (3,455) $ (35,989)
========== ============ ======== ===========
FIXED INCOME FUND
Shares sold................................................. 1,454,383 $ 15,352,913 323,598 $ 3,442,411
Shares reinvested........................................... 92,771 979,594 20,504 217,686
Shares repurchased.......................................... (542,371) (5,734,437) (103,506) (1,096,332)
---------- ------------ -------- -----------
Net increase................................................ 1,004,783 $ 10,598,070 240,596 $ 2,563,765
========== ============ ======== ===========
ENHANCED INCOME FUND
Shares sold................................................. 2,124,103 $ 21,393,126 274,849 $ 2,778,823
Shares reinvested........................................... 178,027 1,790,220 11,507 115,959
Shares repurchased.......................................... (2,294,202) (23,126,177) (129,807) (1,312,392)
---------- ------------ -------- -----------
Net increase................................................ 7,928 $ 57,169 156,549 $ 1,582,390
========== ============ ======== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MAY 31, 1995
-----------------------------------------------------------
INSTITUTIONAL CLASS RETAIL CLASS
--------------- ----------
SHARES VALUE SHARES VALUE
---------- ------------ -------- -----------
<S> <C> <C> <C> <C>
TOTAL RETURN ADVANTAGE FUND
Shares sold................................................. 3,911,522 $ 39,224,860 385,451 $ 3,899,503
Shares issued in connection with the purchase of securities 23,301,401 233,014,009
from the Bond Fund for Tax Exempt Trust...................
Shares reinvested........................................... 854,734 8,425,967 111 1,109
Shares repurchased.......................................... (3,280,940) (32,635,024) (375,494) (3,893,654)
---------- ------------ -------- -----------
Net increase................................................ 24,786,717 $248,029,812 10,068 $ 6,958
========== ============ ======== ===========
</TABLE>
35
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, 1995
-----------------------------------------------------------
INSTITUTIONAL CLASS RETAIL CLASS
--------------- ----------
SHARES VALUE SHARES VALUE
---------- ------------ -------- -----------
<S> <C> <C> <C> <C>
FIXED INCOME FUND
Shares sold................................................. 2,579,112 $ 26,075,762 151,187 $ 1,555,605
Shares reinvested........................................... 225,807 2,288,573 27,089 275,960
Shares repurchased.......................................... (3,817,668) (38,727,589) (188,857) (1,914,131)
---------- ------------ -------- -----------
Net decrease................................................ (1,012,749) $(10,363,254) (10,581) $ (82,566)
========== ============ ======== ===========
<CAPTION>
FOR THE PERIOD ENDED MAY 31, 1995
-----------------------------------------------------------
INSTITUTIONAL CLASS RETAIL CLASS
--------------- ----------
SHARES VALUE SHARES VALUE
---------- ------------ -------- -----------
<S> <C> <C> <C> <C>
ENHANCED INCOME FUND
Shares sold................................................. 1,913,955 $ 19,245,822 471,306 $ 4,773,909
Shares issued in connection with the purchase of securities 5,992,175 59,921,749
from Current Income Bond Fund for Tax Exempt Trust........
Shares reinvested........................................... 166,884 1,664,893 8,121 81,569
Shares repurchased.......................................... (2,119,631) (21,236,775) (229,191) (2,319,558)
---------- ------------ -------- -----------
Net increase................................................ 5,953,383 $ 59,595,689 250,236 $ 2,535,920
========== ============ ======== ===========
</TABLE>
36
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ARMADA FUNDS
BOARD OF TRUSTEES Richard B. Tullis
Chairman of the Board, President and Treasurer
Chairman Emeritus, Harris
Corporation
Director, NACCO Materials
Handling Group, Inc.
Director, Hamilton Beach/Proctor-
Silex, Inc.
Director, Waste-Quip, Inc.
Thomas R. Benua, Jr.
Trustee
President, EBCO Manufacturing Company
and Subsidiaries
Leigh Carter
Trustee
Retired President and Chief Operating
Officer, B.F. Goodrich Company
John F. Durkott
Trustee
President and Chief
Operating Officer, Kittle's Home
Furnishings Center, Inc.
Richard W. Furst, Dean
Trustee
Professor of Finance and Dean,
College of Business and Economics,
University of Kentucky
J. William Pullen
Trustee
President and Chief Executive Officer,
Whayne Supply Company
