<PAGE> 1
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ANNUAL REPORT
ARMADA
MAY 31, 1996
FUNDS
INCOME
SERIES
ARMADA TOTAL RETURN ADVANTAGE FUND
ARMADA FIXED INCOME FUND
ARMADA ENHANCED INCOME FUND
[LOGO]
ARMADA
FUNDS
Financial Power Close at
Hand
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ARMADA FUNDS
INCOME SERIES
ANNUAL REPORT - MAY 31, 1996
<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 ....................... 5
ARMADA Armada Fixed Income Fund ................................. 7
ENHANCED
INCOME Armada Enhanced Income Fund .............................. 10
FUND
PORTFOLIOS OF INVESTMENTS AND FINANCIAL STATEMENTS
Armada Total Return Advantage Fund ....................... 12
Armada Fixed Income Fund ................................. 19
Armada Enhanced Income Fund .............................. 24
NOTES TO FINANCIAL STATEMENTS................................. 30
REPORT OF INDEPENDENT AUDITORS .............................. 35
</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., 4400 Computer Drive,
Westborough, MA 01581-5108. 440 Financial Distributors, Inc. is not affiliated
with National City Bank and is not a bank.
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[LOGO]
ARMADA FUNDS ANNUAL REPORT
CHAIRMAN'S MESSAGE
DEAR ARMADA FUNDS SHAREHOLDERS:
During the past year, Armada Funds has experienced
many exciting changes which will further enhance the
investment options offered to our shareholders. We
believe these enhancements will better help you meet
today's investment challenges and achieve your
financial goals.
ARMADA MONEY MARKET FUNDS RECOGNIZED FOR QUALITY
We are proud to announce the Government and
Treasury Funds, two of the four money market funds
offered by Armada Funds, have received the highest
quality ratings from Standard & Poor's, a national
ratings service. Armada Government Fund was recently
rated "AAAm". Armada Treasury Fund has maintained
its rating of "AAAm-G" since October 1995. These
ratings signify that safety of invested principal is
excellent and that the management team's capacity to
maintain a net asset value of $1 per share and limit
exposure to loss is superior. Standard & Poor's
bases its ratings on an analysis of each Fund's
credit quality, investment policies, management and
market price exposure.
CONSOLIDATION WILL CREATE BROADER, STRONGER ARMADA
FUNDS FAMILY
The merger between National City Corporation and
Integra Financial Corporation in early May has
created an opportunity for the Armada Funds family
to expand its current selection of investment
products. On May 2, 1996, National City's Asset
Management Group assumed the investment advisory
responsibilities for Inventor Funds, Integra's
mutual fund family of seven funds with assets of
$800 million.
We are now in the process of integrating Inventor
Funds into Armada Funds. In the first phase of the
integration, we have already moved more than $450
million into the Armada money market funds from
Inventor Funds. With the transfer of these funds and
as a result of the favorable market conditions
during the past year, total assets in Armada Funds
have grown to $4.12 billion -- a 36% increase during
the year. During the second phase of the
integration, we anticipate adding new funds to the
Armada Funds family to provide you with a broader
array of investment options.
PERFORMANCE
The Armada Funds Equity Series experienced strong
capital appreciation during the past year as the
equity market performed well at favorable levels.
1
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ARMADA FUNDS ANNUAL REPORT
CHAIRMAN'S MESSAGE
As we look forward, the one goal shared by the
entire team is to continue to provide shareholders
with the best long-term performance results
possible, based on knowledge, experience and
consistent investment policies.
Although the first quarter of 1996 was a difficult
one for the fixed income markets as interest rates
increased, the Armada Funds Income Series generated
positive total returns. The asset managers of the
Armada Funds Income Series remain committed to
maintaining quality, while seeking varying levels of
current income using distinctive management and
maturity policies. That, we believe, is the key to
investment success.
The report that follows details the major economic
and market events of the 12 months ending May 31,
1996, as well as information about each fund's
specific holdings, assets and operating costs. The
report also reviews investment strategies used by
the Armada Funds investment advisers to take
advantage of this environment and looks at market
conditions that lie ahead. Armada Funds continues
its commitment to providing our shareholders with
quality investment products and services. To receive
more information about your investment or any of the
Armada Funds, please call 1-800-622-FUND (3863).
Sincerely,
/s/ Richard B. Tullis
Richard B. Tullis
Chairman
Armada Funds Board of Trustees
2
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[LOGO] ARMADA FUNDS ANNUAL REPORT
INCOME SERIES OVERVIEW
FINALLY, WHILE WE INCOME SERIES OVERVIEW
CONTINUE TO BELIEVE THE
ECONOMY WILL ULTIMATELY During the fiscal year ending May 31, 1996, the
SOFTEN IN THE FOURTH bond market rallied strongly, then retreated
QUARTER, PARTLY IN quickly. The benchmark 30-year bond ended at 6.99%,
RESPONSE TO THIS up from 6.65%. Most fixed income benchmarks
CONTINUED RISE IN RATES, generated small positive returns as the income
THE RISKS OF MORE component outweighed the price deterioration.
SUSTAINED INCREASES IN
GROWTH AND INFLATION The fiscal year began in the midst of a strong
HAVE RISEN. bond market rally as market participants saw signs
of a weakening economy and continued low inflation.
The market led the Fed by pushing rates lower in
advance of official interest rate cuts. During the
fiscal year, the Fed funds rate was cut from 6% to
5.25% in three 25 basis point installments, the last
being in January. However, a major shift in
sentiment began to occur in early February.
In late January, the market expected a 50 basis
point cut in Fed funds by June as reflected in the
inverted shape of the short end of the yield curve.
By May, the expectation was for a 75 basis point
increase in Fed funds by year end. The impetus for
this change in sentiment was evidence of an economy
much stronger than expected, combined with an
increase in inflationary expectations.
Beginning with the March employment number, the
markets were fed a string of strong economic data.
At the same time, prices for certain commodities
were soaring. This led the market to fear an
overheating economy and rates were quickly pushed
higher. As the fiscal year ended, evidence of a
strong economy continued to grow with some estimates
of second quarter gross domestic product as high as
5%.
MARKET OUTLOOK
We now foresee real gross domestic product
increasing by more than 3% in the second calendar
quarter. In particular, after beginning on a dismal
note, the first quarter ended with accelerating
strength. The growth was extremely well balanced
with all components of demand rising and inventories
falling. Though we do not believe this strength will
continue unabated into the year's second half, we do
believe growth will remain above its 2-2.25%
potential at least through the third quarter.
3
<PAGE> 6
[LOGO] ARMADA FUNDS ANNUAL REPORT
INCOME SERIES OVERVIEW
Coupled with our view that inflation has reached a
cyclical bottom, we now believe these conditions
will force the Federal Reserve to tighten monetary
policy in 1996. In fact, we are looking for a 25
basis point increase in the federal funds rate in
the third quarter and a like amount in the fourth
quarter. The long end of the market will continue to
suffer as this scenario plays out, with rates on the
30-year bond rising to at least 7.25% during the
summer months. Finally, while we continue to believe
the economy will ultimately soften in the fourth
quarter, partly in response to this continued rise
in rates, the risks of more sustained increases in
growth and inflation have risen. If such a pattern
were to occur, both the market and the Federal
Reserve would demand, and ultimately engender, even
higher interest rates across the yield curve.
4
<PAGE> 7
[LOGO] FUND OVERVIEW
ARMADA TOTAL RETURN ADVANTAGE FUND
ASSET MANAGER: KEY INVESTMENT CONCEPTS
FIXED MANAGEMENT GROUP, In seeking total return for shareholders of the
NATIONAL ASSET Armada Total Return Advantage Fund, the Fund's
MANAGEMENT management team uses three key strategies. The first
CORPORATION is maturity and duration management. This
encompasses how the management team distributes the
FUND'S DATE OF Fund's assets among investments of different
INCEPTION: maturities and adjusts the average maturity of the
JULY 7, 1994 Fund according to perceptions of intermediate and
(INSTITUTIONAL long-term trends in interest rates. Second, the
SHARES) Fund's investments are allocated among different
SEPTEMBER 6, 1994 market sectors based on their return potential.
(RETAIL SHARES) Third, we identify individual securities whose
yields we feel are attractive in terms of their own
ASSETS: historical standards.
$280,400,769
(INSTITUTIONAL PERFORMANCE
SHARES) The Fund achieved its goal of providing an annual
$ 2,040,140 return higher than market indices with similar
(RETAIL SHARES) maturity and quality characteristics for its
Institutional shares. The return for the Retail
INVESTMENT shares was below that of the indices. The returns
OBJECTIVE: for the entire fiscal year were 4.22% and 3.74%
PROVIDE A TOTAL RATE (before sales load) for Institutional and Retail
OF RETURN, INCOME shares, respectively, versus 4.10% for Lehman
AND PRICE Brothers Government/Corporate Bond Index (the
APPRECIATION GREATER "Index"). In the last six months of the fiscal year
THAN THAT OF POPULAR ended May 31, 1996, the Fund modestly underperformed
MARKET INDICES WITH the Index. The Fund's Institutional and Retail
SIMILAR MATURITY AND shares had total returns of -2.15% and -2.37%
QUALITY (before sales load), respectively, versus -1.75% for
CHARACTERISTICS. the Index. The reason for the weak relative and
UNDER NORMAL MARKET absolute returns in the second half of the fiscal
CONDITIONS, THE FUND year is the rise in interest rates that occurred in
MAINTAINS AN the last four months. Concern on the part of many
AVERAGE DOLLAR- investors that inflation would re-ignite in the face
WEIGHTED PORTFOLIO of strong economic reports pushed interest rates
MATURITY OF TWO significantly higher in a very short period of time.
YEARS ABOVE OR BELOW This rise in interest rates penalized price
THE AVERAGE MATURITY performance of the Fund versus the Index due to the
OF THE LEHMAN longer maturity and duration of the Fund.
BROTHERS
GOVERNMENT/CORPORATE RECENT STRATEGY
BOND INDEX. The Fund's longer maturity and duration posture
reflects our belief that the long-term trend of
interest rates continues down. Though this has
penalized results in the last four months of the
fiscal year, we are confident it will provide
significant incremental return in fiscal 1997. In
the area of sector allocation, we continue to
emphasize corporate, mortgage and asset-backed
securities. This strategy should provide a yield
advantage in the Fund while maintaining a high
overall quality Fund.
5
<PAGE> 8
[LOGO] FUND OVERVIEW
ARMADA TOTAL RETURN ADVANTAGE FUND
IN THE AREA OF SECTOR GOING FORWARD
ALLOCATION, WE CONTINUE
TO EMPHASIZE CORPORATE, It is not unusual for there to be a burst of
MORTGAGE AND activity in the mature stages of an economic cycle.
ASSET-BACKED It has been such a burst that has unsettled the
SECURITIES. fixed income markets and pushed interest rates
higher. Our indicators point to a slowing economy in
the next six to twelve months, one that should allow
interest rates to decline. In this environment, we
expect to provide a total rate of return greater
than the popular market indices as was the case in
Fiscal 1995 with the Institutional shares.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
TOTAL RETURNS as of 5/31/96
- -----------------------------------------------------------------------------
1-Year Since Inception (2,4)
- -----------------------------------------------------------------------------
<S> <C> <C>
Armada Total Return Advantage Fund
Institutional Shares(1) 4.22 % 8.07%
- -----------------------------------------------------------------------------
Armada Total Return Advantage Fund
Retail Shares With Sales Load (.15)% 5.05%
Without Sales Load 3.74 % 7.41%
- -----------------------------------------------------------------------------
<FN>
Past performance is not predictive of future performance.
</TABLE>
GROWTH OF A $10,000 INVESTMENT(3)
[GRAPHIC]
<TABLE>
<CAPTION>
Armada Total Armada Total
Lehman Return Return
Brothers Advantage Fund Advantage
Govern- (Insti- Fund (Retail
Measurement Period ment/Corporate tutional Shares with
(Fiscal Year Covered) Bond Index Shares)(1) sales load)
<S> <C> <C> <C>
May-1994 10,000.00 10,000.00 9,725.00
Nov-1994 10,020.87 10,011.30 9,496.50
May-1995 11,186.74 11,122.00 10,011.30
Nov-1995 11,853.41 11,846.00 11,156.70
May-1996 11,645.28 11,591.70 10,892.70
<FN>
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.
</TABLE>
6
<PAGE> 9
[LOGO] FUND OVERVIEW
ARMADA FIXED INCOME FUND
ASSET MANAGER: The last 12 months will be remembered by fixed
ASSET MANAGEMENT GROUP-- income investors as one of the most turbulent
FIXED INCOME TEAM, 12-month periods on record. Yields on the 10-year
NATIONAL CITY Treasury Note gyrated from 6.20% at the beginning of
the Armada Fixed Income Fund's fiscal year, June 1,
FUND'S DATE OF INCEPTION: 1995, to a cyclical low of 5.55% in January 1996,
DECEMBER 20, 1989 only to rocket to the current level of 6.85%. In
(INSTITUTIONAL SHARES) this volatile interest rate environment, the Fixed
APRIL 15, 1991 (RETAIL Income Fund produced a total return of 3.79% and
SHARES) 3.44% (before sales load) for Institutional and
Retail investors, respectively, versus the benchmark
ASSETS: Lehman Intermediate Government/Corporate Index (the
$111,239,594 (INSTITUTIONAL "Index") total return of 4.60%. The 30-day SEC
SHARES) yields as of May 31, 1996 for Institutional and
$ 6,216,191 (RETAIL Retail shares were 5.86% and 5.40%, respectively.
(SHARES)
INVESTMENT OBJECTIVE: Investors should note that the Fund began using
PROVIDE AS HIGH A LEVEL the Lehman Intermediate Government/Corporate Index
OF CURRENT INCOME AS IS as a benchmark midway through the fiscal year to
CONSISTENT WITH PRUDENT more accurately position the Fund within the Armada
INVESTMENT RISK. THE Funds Income Series. This Index adequately reflects
FUND INVESTS IN HIGH the risk level of the Fund and serves as a good
AND MEDIUM GRADE BONDS basis for comparison of Fund performance.
AND OTHER FIXED INCOME
SECURITIES. UNDER In June 1995, the economy was showing signs of
NORMAL MARKET weakness. The market, sensing a Fed ease in interest
CONDITIONS, THE FUND rates, had begun a substantial rally. In July, the
MAINTAINS AN AVERAGE Fed complied by lowering the discount rate .25% --
DOLLAR-WEIGHTED the first of three such easings. These actions along
PORTFOLIO MATURITY OF with a stubborn economy fueled a .50% fourth quarter
TEN YEARS OR LESS. rally that extended into early 1996. A miserable
Christmas retail season followed by Federal
government shutdowns, an unusually harsh East coast
winter, and a crippling GM strike kept economists
and money managers alike calling for a further
slowdown and a prolonged market rally.
The first quarter 1996 rally abruptly came to an
end, however. February's amazing initial estimate of
$705,000,000 increase in non-farm payrolls signaled
an economic rebound. The prices of oil and gold,
which had been dormant for the past few years, came
to life briefly before retreating to their current
levels. Commodity prices in general kept fixed
income managers guessing as the Commodities Research
Bureau (CRB) Index reached a five year high while
the Journal of Commerce (JOC) Index simultaneously
fell. In the meantime, strong housing starts,
consumer spending, and the prospect of a Fed
reversal to a tightening mode pushed interest rates
on the 10-year Treasury up from 1.25% to 6.85%.
7
<PAGE> 10
[LOGO] FUND OVERVIEW
ARMADA FIXED INCOME FUND
GOING FORWARD, WE Throughout the past year, the Fund has emphasized
WILL CONTINUE TO corporate and agency bonds. This allocation proved
REDUCE THE FUND'S fruitful as credit spreads decreased to historically
ALLOCATION TO tight levels. The Fund's interest rate sensitivity,
CORPORATE AND AGENCY however, equaled that of the Index during the 1995
BONDS IN FAVOR OF THE rally and has been greater than that of the Index
RELATIVELY ATTRACTIVE during the 1996 sell-off. This positioning enabled
SPREADS OFFERED BY the Fund to recover the under-performance versus the
ASSET-BACKED AND Index due to greater interest rate sensitivity
MORTGAGE SECURITIES. through the incremental returns offered by
corporate, agency, and mortgage securities.
GOING FORWARD
Going forward, we will continue to reduce the
Fund's allocation to corporate and agency bonds in
favor of the relatively attractive spreads offered
by asset-backed and mortgage securities.
Furthermore, we have defensively matched the Fund's
duration to that of the benchmark Index due to our
expectation of continued interest rate volatility.
Given that the market now expects .50% of Fed
tightening by year-end, we believe this to be the
most prudent position. The Fixed Income Team's
economic outlook calls for higher interest rates and
heavy consumer debt levels to weigh down durable
goods sales, housing, and consumption for the
balance of 1996. The economy is forecast to slow
from a consensus second quarter gross domestic
product of more than 4% to 2-2.5% in the third and
fourth quarters. Should signs of an economic
slowdown in the second half of 1996 materialize, we
will increase the interest rate sensitivity of the
Fund in an effort to capture incremental returns
offered by a decrease in interest rates.
8
<PAGE> 11
[LOGO] FUND OVERVIEW
ARMADA FIXED INCOME FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURNS as of 5/31/96
- ----------------------------------------------------------------------------------------------------------
1-Year 3-Years(4) 5-Years(4) Since Inception(2,4)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Armada Fixed Income Fund
Institutional Shares(1) 3.79 % 4.37% 7.41% 7.77%
- ----------------------------------------------------------------------------------------------------------
Armada Fixed Income Fund
Retail Shares With Sales Load (.41)% 2.76% 6.29% 6.90%
Without Sales Load 3.44 % 4.09% 7.12% 7.53%
- ----------------------------------------------------------------------------------------------------------
<FN>
Past perfomrance is not predictive of future performance.
</TABLE>
GROWTH OF A $10,000 INVESTMENT(3)
[GRAPHIC]
<TABLE>
<CAPTION>
Lehman Brothers Lehman Brothers
Intermediate Government/ Armada Fixed Armada Fixed
Government/ Corporate Income Fund Income Fund
Measurement Period Corporate Bond (Institutional (Retail Shares
(Fiscal Year Covered) Bond Index Index(1) Shares) with sales load)
<S> <C> <C> <C> <C>
Nov-1989 10,000.00 10,000.00 10,000.00 9,725.00
May-1990 10,078.79 10,169.40 10,098.00 9,718.90
Nov-1990 10,668.17 10,768.80 10,665.60 10,265.30
May-1991 11,301.69 11,381.80 11,332.30 10,905.00
Nov-1991 12,165.55 12,213.50 12,205.40 11,728.60
May-1992 12,702.63 12,701.30 12,801.00 12,283.70
Nov-1992 13,299.55 13,232.20 13,334.90 12,777.70
May-1993 14,259.35 14,022.10 14,250.10 13,637.90
Nov-1993 14,957.30 14,521.20 14,863.70 14,204.70
May-1994 14,403.85 14,204.00 14,249.50 13,606.40
Nov-1994 14,400.72 14,255.60 14,182.40 13,514.80
May-1995 16,076.16 15,575.20 15,610.00 14,866.10
Nov-1995 17,034.21 16,328.70 16,310.50 15,512.60
May-1996 16,735.10 16,291.55 16,201.90 15,377.90
<FN>
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.
</TABLE>
9
<PAGE> 12
[LOGO] FUND OVERVIEW
ARMADA ENHANCED INCOME FUND
ASSET MANAGER: The returns for the Armada Enhanced Income Fund
FIXED MANAGEMENT GROUP, fiscal year ended May 31, 1996 were 5.36% and 5.13%
NATIONAL ASSET for Institutional and Retail shares (before sales
MANAGEMENT CORPORATION load), respectively, versus 5.40% for the 91-Day
Treasury Bill Index (the "Index"). In the last six
FUND'S DATE OF months of the fiscal year, the Fund modestly
INCEPTION: underperformed the Index. The Fund's Institutional
JULY 7, 1994 (INSTITUTIONAL and Retail shares had total returns of 2.04% and
SHARES) 1.88% (before sales load), respectively, versus
SEPTEMBER 9, 1994 (RETAIL 2.55% for the Index. The reason for the weak
SHARES) relative and absolute returns in the second half of
the fiscal year is the rise in interest rates that
ASSETS: occurred in the last four months. Concern on the
$66,918,343 (INSTITUTIONAL part of many investors that inflation would
SHARES) re-ignite in the face of strong economic reports
$ 1,717,579 (RETAIL pushed interest rates significantly higher in a very
SHARES) short period of time. This rise in interest rates
depressed the pricing of the one-third of the
INVESTMENT OBJECTIVE: portfolio invested in fixed-rate securities of one
to five years in maturity.
PROVIDE CURRENT INCOME
THAT EXCEEDS INDUSTRY To meet the Fund's investment objectives, the
STANDARD MONEY MARKET Fund's management allocates one-third of its assets
RETURNS BY .5% TO 1.5% to fixed-rate securities whose yields are
PER YEAR OVER COM- significantly higher than those on money market
PLETE MARKET CYCLES. instruments. Some of these securities are corporate
THE FUND INVESTS IN issues whose yields represent historically strong
HIGH-QUALITY FIXED AND value versus that of government issues. Another
FLOATING RATE DEBT third of the assets are allocated to floating-rate
SECURITIES, PREFERRED securities, whose coupons adjust monthly or
STOCKS AND CASH quarterly to keep up with recent movements in
EQUIVALENTS. UNDER interest rates. The Fund management places the last
NORMAL MARKET third in cash-equivalent securities, such as
CONDITIONS, THE FUND overnight investments, whose yields are similar to
MAINTAINS AN AVERAGE money market yields and whose prices tend to be
DOLLAR-WEIGHTED relatively stable. With these strategies, the Fund
PORTFOLIO MATURITY OF managers were able to produce a solid yield for the
TWO YEARS OR LESS. Fund during the fiscal year. The 30-day SEC yields
as of May 31, 1996 for Institutional and Retail
shares were 5.57% and 5.47%, respectively.
GOING FORWARD
A very positive change in relative and absolute
returns should take place in Fiscal 1995. Despite
the dramatic increase in interest rates in the last
four months of the fiscal year, we continue to
believe the long-term downtrend of interest rates is
intact. The resumption of this trend very soon
10
<PAGE> 13
[LOGO] FUND OVERVIEW
ARMADA ENHANCED INCOME FUND
A VERY POSITIVE CHANGE should provide investors with incremental price
IN RELATIVE AND return in addition to the yield generated by the
ABSOLUTE RETURNS Fund.
SHOULD TAKE PLACE IN
FISCAL 1996. It is not unusual for there to be a burst of
activity in the mature stages of an economic cycle.
It has been such a burst that has unsettled the
fixed income markets and pushed interest rates
higher. Our indicators point to a slowing economy in
the next six to twelve months, one that should allow
interest rates to decline materially.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
TOTAL RETURNS as of 5/31/96
- -----------------------------------------------------------------------------
1-Year Since Inception (2,4)
- -----------------------------------------------------------------------------
<S> <C> <C>
Armada Enhanced Income Fund
Institutional Shares(1) 5.36% 5.91%
- -----------------------------------------------------------------------------
Armada Enhanced income Fund
Retail Shares With Sales Load 2.22% 4.12%
Without Sales Load 5.13% 5.84%
- -----------------------------------------------------------------------------
<FN>
Past performance is not predictive of future performance.
</TABLE>
GROWTH OF A $10,000 INVESTMENT(3)
[GRAPHIC]
<TABLE>
<CAPTION>
Armada
Armada Enhanced
Enhanced Income Fund
91-Day U.S. Income Fund (Retail
Measurement Period Treasury Bill (Institutional Shares with
(Fiscal Year Covered) Index Shares)(1) sales load)
<S> <C> <C> <C>
May-1994 10,000.00 10,000.00 9,725.80
Nov-1994 10,194.49 10,165.40 9,795.80
May-1995 10,487.46 10,587.30 10,199.40
Nov-1995 10,783.49 10,931.40 10,524.70
May-1996 11,064.71 11,154.70 10,723.10
<FN>
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.
</TABLE>
11
<PAGE> 14
[LOGO] PORTFOLIO OF INVESTMENTS
MAY 31, 1996 ARMADA TOTAL RETURN ADVANTAGE FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS - 1.5%
Medium-Term Structured
Enhanced Return
Series 1993-G1
6.36%............. 11/15/08 $ 1,350 $ 1,246,279
Tennessee Valley Authority
8.25%............. 04/15/42 2,700 2,821,500
------------
TOTAL AGENCY OBLIGATIONS.....
4,067,779
------------
(Cost $4,069,134)
ASSET-BACKED SECURITIES (A) - 21.7%
AFC Home Equity Loan
Trust 1995-5, Class A4
6.87%............. 02/15/03 2,945 2,743,830
Citibank Credit Card
Master Trust
Series 1996-1, Class A
0.00%............. 02/07/03 2,165 1,559,972
Series 1996-1, Class B
0.00%............. 02/07/03 880 634,076
Community Program Trust
Series 1987-A3
4.50%............. 04/19/98 749 741,668
Copelco Capital Funding
Corporation
Series 1995-A, Class A2
7.075%............ 12/19/97 4,627 4,716,231
Discover Credit Card Trust
Series 1993-A
6.20%............. 05/16/06 6,985 6,586,509
Series 1993-B
6.75%............. 03/02/00 5,545 5,491,309
Fifth-Third Auto Trust
Series 1996-A, Class A
6.20%............. 09/15/01 5,813 5,774,440
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
First Deposit Master Trust
1995-2
6.05%............. 06/09/98 $ 5,435 $ 5,391,010
Green Tree Financial Corp.
Series 1994-A, Class A
6.90%............. 03/17/98 1,956 1,949,062
Series 1995-3 Class
A2
6.45%............. 12/17/98 1,240 1,242,728
Series 1995-6, Class A4
7.00%............. 08/15/01 2,440 2,425,185
Green Tree Home Improvement
Loan Trust
Series 1996-A, Class A3
6.35%............. 11/15/01 2,870 2,765,039
Mid-State Trust II
9.35%............. 03/24/97 10 10,435
Onyx Acceptance Grantor Trust
Series 1996-1, Class A
5.40%............. 09/25/97 3,203 3,142,774
Series 1996-2,
Class A
6.40%............. 10/15/01 3,540 3,527,831
Residential Asset
Security Corporation
Series 1996-Ks2, Class A2
7.04%............. 02/25/21 2,340 2,326,838
Standard Credit Card
Master Trust
Series 1995-10, Class A
5.90%............. 01/29/99 3,170 3,104,958
The Money Store
Home Equity Loan
Series 1994D-1
8.75%............. 08/09/99 1,175 1,203,356
UCFC Home Equity Loan
Series 1994-B1
6.75%............. 10/25/00 2,510 2,417,520
</TABLE>
See Accompanying Notes
12
<PAGE> 15
[LOGO] PORTFOLIO OF INVESTMENTS
MAY 31, 1996 ARMADA TOTAL RETURN ADVANTAGE FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
World Omni Automobile Lease
Series 1996-A, Class A2
6.55%............. 06/25/02 $ 3,215 $ 3,156,226
------------
TOTAL ASSET-BACKED
SECURITIES.................. 60,910,997
------------
(Cost $62,130,692)
MORTGAGE OBLIGATIONS (A) - 15.9%
U.S. GOVERNMENT OBLIGATIONS -- 12.8%
Government National
Mortgage Association
Pool 132781
10.50%............ 11/24/97 33 35,338
Federal Home Loan
Mortgage Corporation
Pool G10438
6.50%............. 03/06/98 1,316 1,265,637
Pool 181063
7.50%............. 04/01/99 202 198,464
Pool 160045
8.75%............. 07/16/99 8 7,968
Federal National
Mortgage Association
Pool 63471
6.50%............. 04/15/98 233 216,505
Pool 190911
6.0%.............. 01/13/01 2,145 2,015,134
Pool 303740
6.50%............. 01/25/02 6,994 6,722,705
Pool 36000
6.547%............ 12/01/02 7,935 7,745,304
Pool 250410
7.50%............. 06/25/05 9,344 9,151,022
Pool 73442
7.075%............ 05/01/06 8,560 8,531,912
------------
35,889,989
------------
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - 2.9%
Collateralized Mortgage
Obligations Trust
9.00%............. 05/07/97 $ 171 $ 175,099
5.81%............. 03/05/98 126 126,425
Conseco Commercial
Mortgage Trust
9.70%............. 11/13/96 840 851,129
General Electric Capital
Mortgage Services, Inc.
1995-25, Class A
6.00%............. 09/24/24 6,780 6,090,322
MDC Asset Investors Trust
9.325%............ 03/24/97 351 356,749
Salomon Brothers
Mortgage Securities
8.125%............ 03/24/99 263 263,827
Ryland Acceptance Corp.
9.85%............. 06/27/97 353 365,427
------------
8,228,978
------------
MORTGAGE PASS-THROUGH OBLIGATIONS - 0.2%
Thirty-Seventh FHA
Insurance Project
7.43%............. 03/20/02 466 468,435
------------
TOTAL MORTGAGE OBLIGATIONS... 44,587,402
(Cost $45,569,672) ------------
CORPORATE BONDS -- 27.3%
AEROSPACE -- 1.0%
Boeing Corporation
8.75%............. 09/15/31 2,475 2,790,563
------------
AGRICULTURE -- 0.3%
Cargill, Inc.
8.25%............. 03/06/97 900 914,625
------------
</TABLE>
See Accompanying Notes
13
<PAGE> 16
[LOGO] PORTFOLIO OF INVESTMENTS
MAY 31, 1996 ARMADA TOTAL RETURN ADVANTAGE FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
CORPORATE BONDS (CONT'D)
BANKING -- 1.7%
NationsBank
7.00%............. 04/01/03 $ 4,800 $ 4,728,000
------------
CHEMICALS -- 1.3%
ICI Wilmington
9.50%............. 11/15/00 3,340 3,648,950
------------
EDUCATION -- 0.9%
Harvard University
8.125%............ 04/15/07 2,400 2,596,233
------------
FINANCIAL SERVICES -- 1.5%
Associates Corp.
6.625%............ 11/15/97 4,200 4,221,798
------------
FOREIGN -- 6.7%
Cominco Limited
6.875%............ 02/15/06 2,200 2,026,750
Edelnor Incorporated
7.75%............. 03/15/06 1,325 1,280,016
Hydro Quebec
9.375%............ 04/15/30 5,240 6,012,900
News America Holdings
9.25%............. 02/01/13 1,125 1,213,594
Rogers Cablesystems Ltd.
9.625%............ 08/01/02 1,085 1,082,287
Tenaga Nasional Berhad
7.50%............. 11/01/25 4,850 4,522,625
Transgas de Occidente SA
9.79%............. 04/06/06 2,850 2,736,741
------------
18,874,913
------------
HEALTHCARE -- 2.7%
Columbia/HCA
6.91%............. 06/15/05 7,750 7,507,812
------------
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
INSURANCE -- 3.5%
Nationwide Capital Surplus
Notes
9.875%............ 02/15/25 $ 4,000 $ 4,361,120
Prudential Insurance
8.10%............. 07/15/15 5,715 5,557,838
------------
9,918,958
------------
LEISURE & ENTERTAINMENT -- 3.8%
The Walt Disney Company
6.375%............ 03/30/01 5,525 5,400,688
Time Warner Entertainment
10.15%............ 05/01/12 2,900 3,360,375
8.375%............ 07/15/33 1,870 1,820,913
------------
10,581,976
------------
OIL & GAS -- 0.7%
Amoco Canada
7.95%............. 10/01/22 1,955 1,918,754
------------
TOBACCO -- 0.4%
RJR Nabisco, Inc.
8.625%............ 12/01/02 1,195 1,206,950
------------
UTILITIES -- ELECTRIC -- 1.4%
Pacific Gas & Electric
7.25%............. 08/01/26 4,225 3,797,219
------------
UTILITIES -- GAS -- 1.4%
Columbia Gas Systems
7.32%............. 11/28/10 4,135 3,876,562
------------
TOTAL CORPORATE BONDS........ 76,583,313
(Cost $78,781,028) ------------
</TABLE>
See Accompanying Notes
14
<PAGE> 17
[LOGO] PORTFOLIO OF INVESTMENTS
MAY 31, 1996 ARMADA TOTAL RETURN ADVANTAGE FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 31.9%
U.S. TREASURY BONDS -- 7.1%
7.25%............. 05/15/16 $18,325 $ 18,497,620
7.50%............. 11/15/16 1,480 1,533,517
------------
20,031,137
------------
U.S. TREASURY NOTES -- 15.7%
5.50%............. 02/28/99 2,120 2,072,554
6.875%............ 03/31/00 16,925 17,089,340
6.125%............ 07/31/00 18,400 18,071,374
7.50%............. 11/15/01 3,000 3,109,290
6.375%............ 08/15/02 3,000 2,949,300
6.50%............. 05/15/05 915 893,186
------------
44,185,044
------------
U.S. TREASURY STRIPS -- 9.1%
0.00%............. 11/15/01 15,280 10,658,106
0.00%............. 05/15/08 34,350 14,853,624
------------
25,511,730
------------
TOTAL U.S. TREASURY
OBLIGATIONS................. 89,727,911
(Cost $94,492,209) ------------
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C> <C>
TEMPORARY INVESTMENT -- 1.7%
Fidelity Domestic Market
Portfolio................... 4,750,607 $ 4,750,607
(Cost $4,750,607) ------------
TOTAL INVESTMENTS -- 100.0% $280,628,009
(Cost $289,793,342*) ============
<FN>
* Cost for Federal income tax
purposes -- $290,099,741.
The gross unrealized appreciation (depreciation)
for Federal income tax purposes is as follows:
Gross appreciation................... $ 910,404
Gross depreciation................... (10,382,136)
-----------
$(9,471,732)
-----------
(A) Maturity dates represent weighted average lives
of the underlying obligations.
</TABLE>
See Accompanying Notes
15
<PAGE> 18
[LOGO] FINANCIAL STATEMENTS
ARMADA TOTAL RETURN ADVANTAGE FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments at value
(Cost $289,793,342).................... $280,628,009
Interest receivable.................... 2,721,954
Receivable for Fund shares sold........ 6,798
Receivable for investments sold........ 4,413,860
Prepaid expenses....................... 19,577
-----------
TOTAL ASSETS.................. 287,790,198
--------------------------------------------
LIABILITIES
Dividends payable -- Institutional
class................................ 748,241
Payable for Fund shares redeemed....... 12,609
Payable for investments purchased...... 4,506,037
Accrued expenses....................... 82,402
-----------
TOTAL LIABILITIES............. 5,349,289
--------------------------------------------
NET ASSETS (based on
28,600,094 shares of
beneficial interest having no
par value).................... $282,440,909
--------------------------------------------
--------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital............... $288,018,671
Undistributed net realized
gain on investments sold...... 3,587,571
Net unrealized depreciation on
investments................... (9,165,333)
-----------
$282,440,909
--------------------------------------------
--------------------------------------------
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION PRICE PER
SHARE--Institutional class
($280,400,769 divided by 28,393,481
shares of beneficial
interest)..................... $ 9.88
--------------------------------------------
--------------------------------------------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE--Retail class
($2,040,140 divided by 206,613
shares of beneficial
interest)..................... $ 9.87
--------------------------------------------
--------------------------------------------
MAXIMUM OFFERING PRICE PER
RETAIL SHARE (9.87 divided
by .9625)..................... $ 10.25
--------------------------------------------
--------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................ $18,936,656
Dividends............................... 185,797
----------
Total investment income................. 19,122,453
----------
EXPENSES:
Investment Advisory fees................ 1,545,558
Administration fees..................... 260,951
Custodian fees.......................... 38,383
Legal fees.............................. 26,469
Distribution fees....................... 22,434
Transfer Agent fees..................... 11,806
Trustees' fees.......................... 9,187
Printing and shareholder reports........ 8,411
Registration and filing fees............ 7,150
Audit fees.............................. 6,791
Miscellaneous........................... 4,686
Amortization of organization costs...... 4,363
Insurance............................... 3,674
Shareholder servicing fees -- Retail
class only............................ 2,340
Fees waived by Investment Adviser....... (1,545,558)
Fees waived by Custodian................ (28,243)
----------
Total expenses................. 378,402
------------------------------------------------------
NET INVESTMENT INCOME...................... 18,744,051
- --------------------------------------------------------
REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
Net realized gain on
investments sold............... 12,820,049
Net change in unrealized
depreciation on investments.... (20,509,451)
----------
Net loss on investments........ (7,689,402)
--------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...... $11,054,649
--------------------------------------------
--------------------------------------------
</TABLE>
See Accompanying Notes
16
<PAGE> 19
[LOGO] FINANCIAL STATEMENTS
ARMADA TOTAL RETURN ADVANTAGE FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
MAY 31, MAY 31,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income.................................................................... $18,744,051 $15,564,406
Net realized gain/(loss) on investments sold............................................. 12,820,049 (887,986)
Net change in unrealized appreciation/
(depreciation) on investments.......................................................... (20,509,451) 11,344,118
------------ ------------
Net increase in net assets resulting from operations..................................... 11,054,649 26,020,538
Distributions to shareholders from net investment income................................... (18,744,051) (12,547,795)
Distributions to shareholders in excess of net investment income........................... (3,016,611) 0
Distributions to shareholders from net realized capital gains.............................. (8,344,492) 0
Increase in net assets derived from capital share transactions............................. 39,981,901 248,036,770
------------ ------------
Total increase in net assets............................................................... 20,931,396 261,509,513
------------ ------------
NET ASSETS:
Beginning of period...................................................................... 261,509,513 0
------------ ------------
End of period............................................................................ $282,440,909 $261,509,513
============ ============
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1996 MAY 31, 1995
------------ ------------
<S> <C> <C>
UNDISTRIBUTED NET INVESTMENT INCOME AS OF.................................................. $ 0 $ 3,016,611
============ ============
</TABLE>
See Accompanying Notes
17
<PAGE> 20
[LOGO] FINANCIAL HIGHLIGHTS
ARMADA TOTAL RETURN ADVANTAGE FUND
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE PERIOD ENDED
MAY 31, 1996 MAY 31, 1995
--------------------------- -----------------------------
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........................... .70(7) .62(7) .65(7) .49(7)
Net gain/(loss) on securities (realized
and unrealized)............................... (.24) (.22) .43 .40
------- ------- ------ ------
Total from investment operations............ .46 .40 1.08 .89
------- ------- ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income............ (.70) (.62) (.53) (.49)
Dividends in excess of net
investment income............................. (.12) (.14) (.00) (.02)
Dividends from net
realized capital gains........................ (.31) (.31) (.00) (.00)
------- ------- ------ ------
Total distributions......................... (1.13) (1.07) (.53) (.51)
------- ------- ------ ------
Net asset value, end of period.................... $ 9.88 $ 9.87 $10.55 $10.54
======= ====== ====== ======
TOTAL RETURN...................................... 4.22% 3.74%(5) 12.52%(4,6) 12.65%(4,5,6)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)............ $280,401 $2,040 $261,403 $106
Ratio of expenses to average net assets......... .13%(1) .36%(2) .18%(1,4) .31%(2,4)
Ratio of net investment income to average net
assets........................................ 6.67%(1) 6.12%(2) 7.23%(1,4) 6.92%(2,4)
Portfolio turnover rate......................... 268% 268% 166% 166%
<FN>
(1) The operating expense ratio and the net investment income ratio before fee
waivers by the Investment Adviser and Custodian for the Institutional Class
the year ended May 31, 1996 would have been .69% and 6.11%, 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
year ended May 31, 1996 would have been .89% and 5.59%, 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.
</TABLE>
See Accompanying Notes
18
<PAGE> 21
[LOGO] PORTFOLIO OF INVESTMENTS
MAY 31, 1996 ARMADA FIXED INCOME FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS - 11.8%
Federal Home Loan Bank
6.67%............. 12/14/98 $ 2,500 $ 2,349,075
6.96%............. 05/24/00 2,000 1,993,780
7.36%............. 07/01/04 2,000 2,037,520
Federal National Mortgage
Association
6.49%............. 11/03/00 2,000 1,959,440
5.80%............. 12/10/03 2,000 1,864,780
8.05%............. 05/20/04 1,000 1,008,280
7.87%............. 06/30/04 1,000 1,001,720
Inter-American Development
Bank -- Israel
8.00%............. 11/15/01 1,500 1,569,375
------------
TOTAL AGENCY OBLIGATIONS..... 13,783,970
(Cost $13,790,200) ------------
MORTGAGE OBLIGATIONS (A) - 9.8%
Federal Home Loan Mortgage
Corporation
7.00%............. 02/15/03 5,000 4,870,507
Federal National Mortgage
Association Pool 250452
6.50%............. 08/01/05 4,903 4,552,085
Vanderbilt Series 1996-A,
Class A3
6.85%............. 04/01/01 2,000 1,971,250
------------
TOTAL MORTGAGE OBLIGATIONS... 11,393,842
(Cost $11,639,211) ------------
CORPORATE BONDS - 36.4%
AUTOMOBILES - 2.2%
Ford Motor Company
9.00%............. 09/15/01 500 541,875
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
General Motors Acceptance
Corp.
7.75%............. 01/17/97 $ 2,000 $ 2,025,020
------------
2,566,895
CHEMICALS - 6.3% ------------
Dow Capital B.V.
5.75%............. 09/15/97 2,000 1,995,900
Dow Chemical Co.
9.35%............. 03/15/02 1,000 1,076,250
E.I. duPont de Nemours & Co.
8.65%............. 12/01/97 2,000 2,065,000
8.50%............. 02/15/03 2,120 2,236,600
------------
7,373,750
------------
FINANCIAL SERVICES - 11.1%
Commercial Credit Corp.
6.00%............. 06/15/00 3,000 2,906,250
General Electric Capital
Corp.
8.70%............. 02/15/03 1,000 1,090,000
International Lease Finance
Corp.
8.875%............ 04/15/01 3,000 3,221,250
Norwest Financial Corp.
6.50%............. 11/15/97 2,500 2,511,450
Scotland International Bank
8.85%............. 11/01/06 3,000 3,251,250
------------
12,980,200
------------
INSURANCE - 5.1%
Chubb Corp.
8.75%............. 04/01/98 2,000 2,107,500
CNA Financial Corp.
8.875%............ 03/01/98 1,000 1,036,250
Farmers Group
8.25%............. 07/15/96 2,825 2,832,401
------------
5,976,151
------------
NATURAL GAS - 1.7%
Consolidated Natural Gas
5.875%............ 10/01/98 2,000 1,970,000
------------
</TABLE>
See Accompanying Notes
19
<PAGE> 22
[LOGO] PORTFOLIO OF INVESTMENTS
MAY 31, 1996 ARMADA FIXED INCOME FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
CORPORATE BONDS (CONT'D)
POLLUTION CONTROL - 1.6%
WMX Technologies, Inc.
6.375%............ 12/01/03 $ 2,000 $ 1,902,500
------------
RETAIL MERCHANDISING - 2.3%
Wal-Mart Stores, Inc.
8.625%............ 04/01/01 2,500 2,671,875
------------
TELECOMMUNICATIONS - 0.9%
BellSouth Capital Corp.
8.90%............. 03/01/98 1,000 1,038,750
------------
UTILITIES - GAS & ELECTRIC - 2.7%
Consolidated Edison Corp.
7.60%............. 01/15/00 3,000 3,056,250
------------
UTILITIES - ELECTRIC - 2.5%
Florida Power and Light
6.625%............ 02/01/03 3,000 2,925,000
------------
TOTAL CORPORATE BONDS......... 42,461,371
(Cost $42,457,791) ------------
U.S. TREASURY OBLIGATIONS - 39.2%
U.S. TREASURY NOTES
5.625%............ 10/31/97 15,000 14,914,049
5.125%............ 02/28/98 6,000 5,895,719
5.125%............ 11/30/98 9,500 9,237,705
6.375%............ 07/15/99 2,000 1,995,080
7.75%............. 02/15/01 5,500 5,746,673
7.50%............. 11/15/01 1,000 1,036,430
6.375%............ 08/15/02 1,500 1,474,650
7.875%............ 11/15/04 5,000 5,321,100
------------
TOTAL U.S. TREASURY
OBLIGATIONS................. 45,621,406
(Cost $46,110,919) ------------
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ------------
<S> <C> <C> <C>
TEMPORARY INVESTMENT - 2.8%
Fidelity Domestic Market
Portfolio................... 3,259,886 $ 3,259,886
(Cost $3,259,886) ------------
TOTAL INVESTMENTS -- 100.0%
(Cost $117,258,007*) $116,520,475
============
* Also cost for Federal income tax purposes.
The gross unrealized appreciation (depreciation)
for Federal income tax purposes is as follows:
Gross appreciation................... $ 783,406
Gross depreciation................... (1,520,938)
-----------
$ (737,532)
-----------
<FN>
(A) Maturity dates represent weighted average lives
of the underlying mortgage obligations.
</TABLE>
See Accompanying Notes
20
<PAGE> 23
[LOGO] FINANCIAL STATEMENTS
ARMADA FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments at value
(Cost $117,258,007).................... $116,520,475
Interest receivable.................... 1,509,587
Receivable for Fund shares sold........ 50,963
Prepaid expenses....................... 3,552
-----------
TOTAL ASSETS.................. 118,084,577
------------------------------------------------------
LIABILITIES
Dividends payable -- Institutional
class................................ 383,820
Payable for Fund shares redeemed....... 137,623
Accrued expenses....................... 107,349
-----------
TOTAL LIABILITIES............. 628,792
------------------------------------------------------
NET ASSETS (based on
11,402,459 shares of
beneficial interest having no
par value).................... $117,455,785
------------------------------------------------------
------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital............... $120,131,095
Accumulated net realized loss
on investments sold........... (1,937,778)
Net unrealized depreciation on
investments................... (737,532)
-----------
$117,455,785
------------------------------------------------------
------------------------------------------------------
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION PRICE PER
SHARE -- Institutional class
($111,239,594 divided by 10,801,748
shares of beneficial
interest)..................... $ 10.30
------------------------------------------------------
------------------------------------------------------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE -- Retail
class ($6,216,191 divided by 600,711
shares of beneficial
interest)..................... $ 10.35
------------------------------------------------------
------------------------------------------------------
MAXIMUM OFFERING PRICE PER
RETAIL SHARE
($10.35 divided by .9625)..... $ 10.75
------------------------------------------------------
------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................. $7,037,032
---------
EXPENSES:
Investment Advisory fees................. 588,875
Administration fees...................... 107,068
Transfer Agent fees...................... 48,266
12b-1 fees............................... 45,931
Custodian fees........................... 20,984
Shareholder servicing fees -- Retail
class only............................. 19,477
Registration and filing fees............. 19,339
Legal fees............................... 12,377
Distribution fees........................ 7,410
Miscellaneous............................ 6,284
Printing and shareholder reports......... 5,581
Audit fees............................... 3,556
Trustees' fees........................... 2,214
Insurance................................ 2,038
Fees waived by Custodian................. (15,509)
---------
Total expenses.................. 873,891
------------------------------------------------------
NET INVESTMENT INCOME....................... 6,163,141
- ------------------------------------------------------
REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
Net realized gain on
investments sold................ 664,254
Net change in unrealized
depreciation on investments..... (3,207,398)
---------
Net loss on investments......... (2,543,144)
------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... $3,619,997
------------------------------------------------------
------------------------------------------------------
</TABLE>
See Accompanying Notes
21
<PAGE> 24
[LOGO] FINANCIAL STATEMENTS
ARMADA FIXED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
MAY 31, 1996 MAY 31, 1995
-------------------- --------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income................................................... $ 6,163,141 $ 5,592,154
Net realized gain/(loss) on investments sold............................ 664,254 (2,602,032)
Net change in unrealized appreciation/(depreciation)
on investments........................................................ (3,207,398) 5,234,800
------------ ------------
Net increase in net assets resulting from operations.................... 3,619,997 8,224,922
Distributions to shareholders from net investment income.................... (6,163,141) (5,592,154)
Distributions to shareholders in excess of net realized gains............... (253,500) 0
Increase/(decrease) in net assets derived from capital share transactions... 26,678,768 (10,445,820)
------------ ------------
Total increase/(decrease) in net assets..................................... 23,882,124 (7,813,052)
------------ ------------
NET ASSETS:
Beginning of period....................................................... 93,573,661 101,386,713
------------ ------------
End of period............................................................. $117,455,785 $ 93,573,661
============ ============
</TABLE>
See Accompanying Notes
22
<PAGE> 25
[LOGO] FINANCIAL HIGHLIGHTS
ARMADA FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31
----------------------------------------------------------------------------------
1996 1995 1994
------------------------ ------------------------ ------------------------
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............... .61 .59 .63 .61 .61 .58
Net gain/(loss) on securities
(realized and unrealized).......... (.22) (.23) .30 .30 (.59) (.58)
-------- ------ ------- ------ ------- ------
Total from investment
operations..................... .39 .36 .93 .91 .02 .00
-------- ------ ------- ------ ------- ------
LESS DISTRIBUTIONS
Dividends from net investment
income............................. (.61) (.59) (.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...................... (.02) (.02) (.00) (.00) (.02) (.02)
-------- ------ ------- ------ ------- ------
Total distributions.............. (.63) (.61) (.63) (.61) (.71) (.68)
-------- ------ ------- ------ ------- ------
Net asset value, end of period......... $ 10.30 $10.35 $ 10.54 $10.60 $ 10.24 $10.30
======== ====== ======= ====== ======= ======
TOTAL RETURN........................... 3.79% 3.44%(3) 9.55% 9.26%(3) 0.00% (0.23)%(3)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
000's).............................. $111,240 $6,216 $88,047 $5,527 $95,907 $5,480
Ratio of expenses to average net
assets.............................. .80%(1) 1.04%(2) .85%(1) 1.09%(2) 0.83% 1.08%
Ratio of net investment income to
average net assets.................. 5.78%(1) 5.50%(2) 6.24%(1) 5.95%(2) 5.59% 5.34%
Portfolio turnover rate............... 45% 45% 42% 42% 34% 34%
<CAPTION>
1993 1992
------------------------ ------------------------
INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL
------------- ------ ------------- ------
<S> <C> <C> <C> <C>
Net asset value, beginning of period... $ 10.60 $10.63 $ 10.15 $10.15
------- ------ ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income............... .70 .65 .81 .79
Net gain/(loss) on securities
(realized and unrealized).......... .46 .48 .45 .45
------- ------ ------- ------
Total from investment
operations..................... 1.16 1.13 1.26 1.24
------- ------ ------- ------
LESS DISTRIBUTIONS
Dividends from net investment
income............................. (.70) (.65) (.81) (.76)
Dividends in excess of net
investment income.................. (.02) (.02) (.00) (.00)
Dividends from net realized capital
gains.............................. (.11) (.11) (.00) (.00)
Dividends in excess of net realized
capital gains...................... (.00) (.00) (.00) (.00)
------- ------ ------- ------
Total distributions.............. (.83) (.78) (.81) (.76)
------- ------ ------- ------
Net asset value, end of period......... $ 10.93 $10.98 $ 10.60 $10.63
======= ====== ======= ======
TOTAL RETURN........................... 11.32% 11.03%(3) 12.96% 12.64%(3)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
000's).............................. $95,246 $5,208 $40,414 $1,033
Ratio of expenses to average net
assets.............................. .32%(1) .57%(2) .30%(1) .55%(2)
Ratio of net investment income to
average net assets.................. 6.46%(1) 6.21%(2) 7.84% (1) 7.57%(2)
Portfolio turnover rate............... 33% 33% 13% 13%
<FN>
(1) The operating expense ratio and net investment income ratio before fee
waivers by the Custodian for the Institutional class for the years ended May
31, 1996 and 1995 would have been .82% and 5.76%, 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 and 1992 would have been .80% and 5.98%,
and .85% and 7.29%, respectively.
(2) The operating expense ratio and the net investment income ratio before fee
waivers by the Custodian for the Retail class for the years ended May 31,
1996 and 1995 would have been 1.06% and 5.48%, 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 would have been 1.05% and 5.73%, and 1.10%
and 7.02%, respectively.
(3) Total returns exclude sales load.
</TABLE>
See Accompanying Notes
23
<PAGE> 26
[LOGO] PORTFOLIO OF INVESTMENTS
MAY 31, 1996 ARMADA ENHANCED INCOME FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- -----------
<S> <C> <C> <C>
AGENCY OBLIGATIONS - 34.3%
FEDERAL FARM CREDIT BANK
DISCOUNT NOTES -- 10.2%
5.20%.............. 06/03/96 $ 2,000 $ 2,000,000
5.19%.............. 06/11/96 3,000 2,996,442
5.21%.............. 07/31/96 2,000 1,982,411
------------
6,978,853
------------
FEDERAL HOME LOAN BANK
DISCOUNT NOTES -- 7.3%
5.20%.............. 06/03/96 2,000 2,000,000
5.22%.............. 07/01/96 3,000 2,987,820
------------
4,987,820
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
DISCOUNT NOTE -- 2.9%
5.22%.............. 07/15/96 2,000 1,987,820
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
DISCOUNT NOTES -- 13.9%
5.18%.............. 06/07/96 3,000 2,998,273
5.16%.............. 06/18/96 2,000 1,995,637
5.19%.............. 06/26/96 1,500 1,494,799
5.22%.............. 07/03/96 3,000 2,986,950
------------
9,475,659
------------
TOTAL AGENCY OBLIGATIONS...... 23,430,152
(Cost $23,424,554) ------------
ASSET-BACKED SECURITIES (A) - 32.1%
Chase Manhattan Credit Card
Master Trust Series 1996-1,
Class A
5.54%.............. 02/22/99 2,075 2,075,000
Contimortgage Home Equity Loan
Trust Series 1994-4, Class A1
8.09%.............. 09/25/96 32 32,192
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- -----------
<S> <C> <C> <C>
Discover Card Master Trust I
Series 1994-2, Class A
5.78%.............. 10/21/01 $ 450 $ 452,385
Series 1996-1, Class A
5.60%.............. 04/15/97 2,500 2,500,000
Fingerhut Master Trust Series
1994-1, Class A
5.74%.............. 07/15/97 1,150 1,151,380
Series 1996-1, Class A
6.45%.............. 06/20/96 250 247,987
Green Tree
Financial Corp.
Series 1993-2, Class A1
5.93%.............. 09/08/96 283 282,131
Green Tree
Home Improvement Loan Trust
Series 1995-A, Class A1
7.00%.............. 03/10/97 575 577,037
Merrill Lynch Home Equity Loan
Series 1992-1, Class A
5.84%.............. 01/01/98 976 975,519
NAFCO Auto Trust 3
6.50%.............. 12/27/97 1,500 1,469,156
Residential Asset Security
Corp.
Series 1996-Ks2, Class A2
7.04%.............. 02/25/21 485 482,272
Small Business
Administration Pool
9.48%.............. 02/15/04 675 739,623
Standard Credit Card Master
Trust
Series 1992-3, Class A
5.72%.............. 09/08/97 1,500 1,503,150
Series 1994-1, Class A
4.65%.............. 03/07/99 1,860 1,836,845
Series 1995-5, Class A
5.63%.............. 05/25/98 1,150 1,152,162
Series 1995-6, Class B
6.90%.............. 06/02/98 1,595 1,597,771
Series 1995-11, Class A
5.59%.............. 11/15/98 2,075 2,075,000
</TABLE>
See Accompanying Notes
24
<PAGE> 27
[LOGO] PORTFOLIO OF INVESTMENTS
MAY 31, 1996 ARMADA ENHANCED INCOME FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- -----------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES (CONT'D.)
The Money Store
Home Equity Trust
Series 1994-D1, Class A4
8.75%.............. 04/19/99 $ 240 $ 245,792
World Omni Wholesale
Master Trust
Series 1994-1, Class A
5.64%.............. 10/18/99 2,550 2,553,060
-----------
TOTAL ASSET-BACKED
SECURITIES................... 21,948,462
(Cost $22,007,376) -----------
MORTGAGE OBLIGATIONS (A) -- 6.1%
U.S. GOVERNMENT OBLIGATIONS -- 0.3%
Government Trust Certificate
8.00%.............. 03/26/97 219 218,783
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 5.7%
Collateralized Mortgage
Obligation Trust Series 13,
Class A
5.94%.............. 03/06/98 168 168,567
Merrill Lynch Trust
Series 10, Class B
6.10%.............. 11/01/00 870 876,015
Prudential Home Mortgage
Securities Co.
Series 1993-14, Class A12
6.20%.............. 05/14/97 265 265,778
Residential Funding Mortgage
Securities
Series 1993-S11, Class A6
6.25%.............. 07/30/96 2,132 2,140,528
Sears Mortgage Securities
Series 1993-3, Class F
6.45%.............. 09/01/96 460 464,085
-----------
3,914,973
-----------
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- -----------
<S> <C> <C> <C>
MORTGAGE PASS THROUGH OBLIGATIONS -- 0.1%
Federal Home Loan
Mortgage Corporation
7.50%.............. 06/13/97 $ 79 $ 77,131
-----------
TOTAL MORTGAGE OBLIGATIONS... 4,210,887
(Cost $4,186,244) -----------
CORPORATE BONDS -- 3.2%
DIVERSIFIED -- 0.5%
General Electric Credit Corp.
6.20%.............. 03/15/97 353 353,836
-----------
FOREIGN -- 2.6%
Hydro Quebec (Euro)
5.375%............. 07/26/02 1,850 1,810,595
-----------
TOTAL CORPORATE BONDS 2,164,431
(Cost $2,159,410) -----------
U.S. TREASURY OBLIGATIONS -- 22.6%
U.S. TREASURY NOTES -- 22.6%
8.75%.............. 10/15/97 2,000 2,069,300
5.25%.............. 07/31/98 1,465 1,435,964
4.75%.............. 10/31/98 1,000 964,900
8.875%............. 11/15/98 950 1,003,361
6.875%............. 07/31/99 2,210 2,233,072
7.50%.............. 10/31/99 2,500 2,572,100
8.50%.............. 02/15/00 550 584,276
8.75%.............. 05/15/00 1,570 1,691,204
6.25%.............. 08/31/00 1,000 986,370
5.75%.............. 10/31/00 2,000 1,934,220
-----------
TOTAL U.S. TREASURY
OBLIGATIONS................. 15,474,767
(Cost $15,687,167)
</TABLE>
See Accompanying Notes
25
<PAGE> 28
[LOGO] PORTFOLIO OF INVESTMENTS
MAY 31, 1996 ARMADA ENHANCED INCOME FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----------
<S> <C> <C> <C>
TEMPORARY INVESTMENT - 1.7%
Fidelity Domestic Market
Portfolio....................... 1,137,253 $ 1,137,253
(Cost $1,137,253)
TOTAL INVESTMENTS -- 100%.................. $68,365,952
(Cost $68,602,004*) -----------
<FN>
* Also cost for Federal income tax purposes.
The gross unrealized appreciation (depreciation)
for Federal income tax purposes is as follows:
Gross appreciation................... $ 41,408
Gross depreciation................... (277,460)
-----------
$ (236,052)
-----------
(A) Maturity dates represent weighted average lives
of the underlying obligations.
</TABLE>
See Accompanying Notes
26
<PAGE> 29
[LOGO] FINANCIAL STATEMENTS
ARMADA ENHANCED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments at value
(Cost $68,602,004)...................... $68,365,952
Interest receivable..................... 413,815
Receivable for Fund shares sold......... 1,188
Prepaid expenses........................ 17,798
----------
TOTAL ASSETS................... 68,798,753
------------------------------------------------------
LIABILITIES
Dividends payable -- Institutional
class................................... 123,567
Payable for Fund shares redeemed........ 9,723
Accrued expenses........................ 29,541
----------
TOTAL LIABILITIES.............. 162,831
------------------------------------------------------
NET ASSETS (based on 6,859,280
shares of beneficial interest
having no par value)........... $68,635,922
------------------------------------------------------
------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital................ $68,688,699
Undistributed net realized gain
on investments sold............ 183,275
Net unrealized depreciation on
investments.................... (236,052)
----------
$68,635,922
------------------------------------------------------
------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER SHARE
- Institutional class
($66,918,343 divided by 6,687,888
shares of beneficial
interest)...................... $ 10.01
------------------------------------------------------
------------------------------------------------------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE - Retail class
($1,717,579 divided by 171,392
shares of beneficial
interest)...................... $ 10.02
------------------------------------------------------
------------------------------------------------------
MAXIMUM OFFERING PRICE PER
RETAIL SHARE (10.02 divided
by .9725)...................... $ 10.30
------------------------------------------------------
------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................. $3,943,722
---------
EXPENSES:
Investment Advisory fees................. 298,505
Administration fees...................... 66,336
Transfer Agent Fees...................... 36,631
Custodian fees........................... 13,116
Legal fees............................... 12,808
Printing and shareholder reports......... 8,464
Distribution fees........................ 7,465
Amortization of Organization costs....... 6,543
Audit fees............................... 3,179
Miscellaneous............................ 2,883
Trustees' fees........................... 2,758
Shareholder servicing fees -- Retail
class only............................. 2,367
Insurance................................ 2,187
Registration and filing fees............. 1,659
Fees waived by Investment Adviser........ (298,505)
Fees waived by Custodian................. (9,840)
---------
Total expenses.................. 156,556
------------------------------------------------------
NET INVESTMENT INCOME....................... 3,787,166
- --------------------------------------------------------
REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
Net realized gain on
investments sold................ 302,951
Net change in unrealized
depreciation on investments..... (648,178)
---------
Net loss on investments......... (345,227)
------------------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS................. $3,441,939
------------------------------------------------------
------------------------------------------------------
</TABLE>
See Accompanying Notes
27
<PAGE> 30
[LOGO] FINANCIAL STATEMENTS
ARMADA ENHANCED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
MAY 31, 1996 MAY 31, 1995
------------ -------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................................................ $ 3,787,166 $ 2,999,540
Net realized gain/(loss) on investments sold..................................... 302,951 (118,426)
Net change in unrealized appreciation/(depreciation) on investments.............. (648,178) 412,126
----------- -----------
Net increase in net assets resulting from operations............................. 3,441,939 3,293,240
Distributions to shareholders from net investment income............................. (3,787,166) (2,409,593)
Distributions to shareholders in excess of net investment income..................... (589,947) 0
Distributions to shareholders in excess of net realized gains........................ 0 (1,250)
Increase in net assets derived from capital share transactions....................... 6,557,090 62,131,609
----------- -----------
Total increase in net assets......................................................... 5,621,916 63,014,006
----------- -----------
NET ASSETS:
Beginning of period.............................................................. 63,014,006 0
----------- -----------
End of period.................................................................... $68,635,922 $63,014,006
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1996 MAY 31, 1995
------------ -------------
<S> <C> <C>
UNDISTRIBUTED NET INVESTMENT INCOME AS OF............................................ $ 0 $ 589,947
============ =============
</TABLE>
See Accompanying Notes
28
<PAGE> 31
[LOGO] FINANCIAL HIGHLIGHTS
ARMADA ENHANCED INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE PERIOD ENDED
MAY 31, 1996 MAY 31, 1995
---------------------------- -----------------------------
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............................... .58 .56 .51(7) .43(7)
Net gain/(loss) on securities (realized and
unrealized)....................................... (.05) (.05) .06 .06
------- ------ ------- ------
Total from investment operations.................. .53 .51 .57 .49
------- ------ ------- ------
LESS DISTRIBUTIONS
Dividends from net investment income................ (.58) (.56) (.41) (.41)
Dividends in excess of net investment income........ (.10) (.11) (.00) (.00)
------- ------ ------- ------
Total distributions............................... (.68) (.67) (.41) (.41)
------- ------ ------- ------
Net asset value, end of period........................ $ 10.01 $ 10.02 $ 10.16 $ 10.18
======= ====== ======= ======
TOTAL RETURN.......................................... 5.36% 5.13%(5) 6.54%(4,6) 6.84%(4,5,6)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)................ $66,918 $ 1,718 $ 60,467 $ 2,547
Ratio of expenses to average net assets............. .23%(1) .33%(2) .21%(1,4) .32%(2,4)
Ratio of net investment income to average net
assets............................................ 5.72%(1) 5.55%(2) 5.70%(1,4) 5.89%(2,4)
Portfolio turnover rate............................. 98% 98% 36% 36%
<FN>
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 year ended May 31, 1996 would have been .70% and 5.25%, 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
year ended May 31, 1996 would have been .80% and 5.08%, 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.
</TABLE>
See Accompanying Notes
29
<PAGE> 32
[LOGO] NOTES TO FINANCIAL STATEMENTS
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. 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 preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
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.
30
<PAGE> 33
[LOGO] NOTES TO FINANCIAL STATEMENTS
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
makes 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.
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 of Columbus, National City Bank of 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 year ended May 31, 1996, the Advisers have earned and
waived fees as follows:
<TABLE>
<CAPTION>
EARNED WAIVED
---------- ----------
<S> <C> <C>
Total Return Advantage Fund $1,545,558 $1,545,558
Fixed Income Fund 588,875 0
Enhanced Income Fund 298,505 298,505
</TABLE>
At May 31, 1996, advisory fees accrued and unpaid amounted to:
<TABLE>
<S> <C> <C>
Total Return Advantage Fund 0
Fixed Income Fund $ 50,900
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 daily net assets of the Retail class of the Enhanced Income
Fund. NatCity Investments, Inc. and National City Investments Corporation earned
fees for the year ended May 31, 1996 in the following amounts:
<TABLE>
<CAPTION>
NATCITY NATIONAL CITY
INVESTMENTS, INVESTMENTS
INC. CORPORATION
----------- -------------
<S> <C> <C>
Total Return Advantage Fund $ 0 $ 2,385
Fixed Income Fund 33 19,458
Enhanced Income Fund 0 2,353
</TABLE>
National City Bank, a wholly-owned subsidiary of National City Corporation,
serves as the Funds' Custo-
31
<PAGE> 34
[LOGO] NOTES TO FINANCIAL STATEMENTS
dian. For the year ended May 31, 1996, National City
Bank has earned and waived Custodian fees as follows:
<TABLE>
<CAPTION>
EARNED WAIVED
------------ ------------
<S> <C> <C>
Total Return Advantage Fund $ 38,383 $ 28,243
Fixed Income Fund 20,984 15,509
Enhanced Income Fund 13,116 9,840
</TABLE>
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 $7,500 plus $2,500 for each Board
Meeting attended and reimbursement of out-of-pocket expenses. The Chairman of
the Board receives an additional $2,500 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, 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 year ended May 31, 1996 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 year ended May 31, 1996, 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 $319,663,074 $266,225,789
Fixed Income Fund 10,783,213 18,661,992
Enhanced Income Fund 28,928,403 19,629,098
</TABLE>
Purchases and sales of long-term U.S. Government obligations were:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Total Return Advantage Fund $431,792,270 $445,211,693
Fixed Income Fund 63,134,032 24,712,017
Enhanced Income Fund 16,888,368 12,531,191
</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 pages for
the Total Return Advantage, Fixed Income and Enhanced Income Funds.
32
<PAGE> 35
[LOGO] NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, 1996
-----------------------------------------------------------
INSTITUTIONAL CLASS RETAIL CLASS
---------------------------- -------------------------
SHARES VALUE SHARES VALUE
---------- ------------ -------- -----------
<S> <C> <C> <C> <C>
TOTAL RETURN ADVANTAGE FUND
Shares sold................................................. 6,069,365 $ 63,120,427 198,864 $ 2,071,494
Shares reinvested........................................... 1,738,749 18,107,023 5,933 60,359
Shares repurchased.......................................... (4,201,350) (43,291,219) (8,252) (86,183)
----------- ----------- --------- -----------
Net increase................................................ 3,606,764 $ 37,936,231 196,545 $ 2,045,670
=========== =========== ========= ===========
FIXED INCOME FUND
Shares sold................................................. 4,306,756 $ 45,487,815 570,360 $ 6,042,304
Shares reinvested........................................... 185,623 1,959,188 42,366 449,879
Shares repurchased.......................................... (2,042,322) (21,618,175) (533,517) (5,642,243)
----------- ----------- --------- -----------
Net increase................................................ 2,450,057 $ 25,828,828 79,209 $ 849,940
=========== =========== ========= ===========
ENHANCED INCOME FUND
Shares sold................................................. 5,145,841 $ 51,804,487 507,880 $ 5,129,994
Shares reinvested........................................... 285,634 2,872,860 16,044 161,694
Shares repurchased.......................................... (4,696,970) (47,321,908) (602,768) (6,090,037)
----------- ----------- --------- -----------
Net increase/(decrease)..................................... 734,505 $ 7,355,439 (78,844) $ (798,349)
=========== =========== ========= ===========
</TABLE>
33
<PAGE> 36
[LOGO] NOTES TO FINANCIAL STATEMENTS
<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
=========== =========== ========= ===========
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)
=========== =========== ========= ===========
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>
5. SUBSEQUENT EVENT AND FUND REORGANIZATION
On May 2, 1996, Integra Financial Corporation ("Integra Financial") merged
into National City Corporation ("National City"). Since Integra Trust Company,
an affiliate of Integra Financial, served as the Investment Adviser to Inventor
Funds, Inc., the merger of Integra Financial into National City required
approval of a new investment advisory agreement between the Inventor Funds, Inc.
and National City Bank. That approval was received from shareholders of Inventor
Funds, Inc. on May 2, 1996.
National City Bank has now begun the process of reorganizing the Armada Funds
and Inventor Funds, Inc. On February 15, 1996, the Board of Trustees of Armada
Funds and on March 18, 1996, the Board of Trustees of Inventor Funds each
approved the Agreement and Plan of Reorganization between Armada Funds and
Inventor Funds, Inc. (the "Plan"), which is subject to shareholder approval. The
Plan provides that, to the extent not borne by their respective Investment
Advisers, Armada and Inventor will each be responsible for the payments of its
own expenses incurred in connection with the Reorganization. Armada estimates
that it will bear approximately $200,000 of the total costs of the
Reorganization. Inventor does not expect to bear any of such costs. The
reorganization is intended to be effected on a tax-free basis, so that none of
the Funds' shareholders will recognize taxable gains or losses as a result of
the reorganization.
A proxy statement/prospectus describing the reorganization and the reasons
therefore has been sent to Inventor shareholders for their approval.
34
<PAGE> 37
[LOGO] REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and
Shareholders of Armada Funds:
We have audited the accompanying statements of
assets and liabilities, including the portfolios of
investments, of the Armada Fixed Income Fund, the
Armada Enhanced Income Fund, and the Armada Total
Return Advantage (the "Funds") as of May 31, 1996,
and the related statements of operations, the
statements of changes in net assets and the
financial highlights for each of the periods
presented herein. These financial statements and
financial highlights are the responsibility of the
Fund's management. Our responsibility is to express
an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the audit
to obtain reasonable assurance about whether the
financial statements and financial highlights are
free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements
and financial highlights. Our procedures included
verification by examination of securities held by
the custodian, as of May 31, 1996, and confirmation
of securities not held by the custodian, by
correspondence with others. An audit also includes
assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and
financial highlights referred to above present
fairly, in all material respects, the financial
position of the Armada Fixed Income Fund, the Armada
Enhanced Income Fund and the Armada Total Return
Advantage Fund at May 31, 1996, the results of their
operations, the changes in their net assets and the
financial highlights for each of the periods
presented herein, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP SIGNATURE
Philadelphia, Pennsylvania
July 2, 1996
35
<PAGE> 38
[LOGO] NOTES
<PAGE> 39
[LOGO] ARMADA FUNDS
BOARD OF TRUSTEES Richard B. Tullis
Chairman of the Board
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
Chairman, EBCO Manufacturing Company
and Subsidiaries
Leigh Carter
Trustee, President and Treasurer
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,
Carol Martin Gatton College of Business
and Economics, University of Kentucky
Robert D. Neary
Trustee
Retired Co-Chairman, Ernst & Young LLP
J. William Pullen
Trustee
President and Chief Executive Officer,
Whayne Supply Company
<PAGE> 40
[LOGO] BULK RATE
ARMADA U.S. POSTAGE
FUNDS PAID
4400 Computer Drive BOSTON, MA
Westborough, Massachusetts 01581 PERMIT NO. 54201
INVESTMENT ADVISERS
AFFILIATES OF
NATIONAL CITY
CORPORATION
National Asset Management
Corporation*
101 South Fifth Street
Louisville, KY 40202
National City Bank+
1900 East Ninth Street
Cleveland, Ohio 44114
National City Bank of Columbus+
155 East Broad Street
Columbus, Ohio 43251
National City Bank of Kentucky+
101 South Fifth Street
Louisville, Kentucky 40202
*Armada Enhanced Income and
Total Return Advantage Funds
+Armada Fixed Income Fund
NC-142 (6/96)
