<PAGE> 1
[LOGO]
ANNUAL REPORT Armada
MAY 31, 1997 Funds
Income Series
ARMADA TOTAL RETURN ADVANTAGE FUND
ARMADA FIXED INCOME FUND
ARMADA ENHANCED INCOME FUND
ARMADA GNMA FUND
ARMADA INTERMEDIATE GOVERNMENT FUND
[ARMADA LOGO]
ARMADA
FUNDS
Financial Power Close at Hand
<PAGE> 2
LOGO ARMADA FUNDS
INCOME SERIES
ANNUAL REPORT - MAY 31, 1997
<TABLE>
<S> <C>
TABLE OF CONTENTS
Chairman's Message......................................... 1
Income Market Overview..................................... 3
FUND OVERVIEWS
Armada Total Return Advantage Fund....................... 4
Armada Fixed Income Fund................................. 6
Armada Enhanced Income Fund.............................. 8
Armada GNMA Fund......................................... 10
Armada Intermediate Government Fund...................... 12
PORTFOLIO OF INVESTMENTS AND FINANCIAL HIGHLIGHTS
Armada Total Return Advantage Fund....................... 14
Armada Fixed Income Fund................................. 19
Armada Enhanced Income Fund.............................. 22
Armada GNMA Fund......................................... 25
Armada Intermediate Government Fund...................... 31
FINANCIAL STATEMENTS
Statement of Assets and Liabilities...................... 35
Statement of Operations.................................. 36
Statement of Changes in Net Assets....................... 37
NOTES TO FINANCIAL STATEMENTS.............................. 38
REPORT OF INDEPENDENT AUDITORS............................. 45
</TABLE>
- - SHARES OF 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 ARMADA FUNDS ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
FDIC, OR ANY GOVERNMENTAL AGENCY OR STATE.
- - AN INVESTMENT IN 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 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 SEI Investments Distribution Co. (SIDC), Oaks, PA 19456. SIDC is
not affiliated with National City Bank and is not a bank.
ARMADA
TOTAL RETURN
ADVANTAGE FUND
ARMADA
FIXED INCOME FUND
ARMADA
ENHANCED INCOME
FUND
ARMADA
GNMA FUND
ARMADA
INTERMEDIATE
GOVERNMENT FUND
<PAGE> 3
LOGO CHAIRMAN'S MESSAGE
DEAR ARMADA FUNDS SHAREHOLDERS:
It is a pleasure to report to you that the total
assets in Armada Funds stand at $5.40 billion at May
31, 1997, an increase of 31% over the $4.12 billion
of a year ago. This growth resulted from additional
investments, sustained improvement in income, and
the transfer of the remaining Inventor Funds. The
accompanying annual report contains each fund's
audited financial statements and its specific
portfolio of investments.
INVESTMENT PERFORMANCE LEADERSHIP
In all our investment activity, we share one goal:
To seek to provide shareholders with a variety of
investment opportunities from a wide range of funds
that consistently outperform the benchmark indices
for each fund over time. Reflecting that objective,
Armada Funds is receiving recognition as a top
performer by the financial press. The funds have won
mentions in the Wall Street Journal's Mutual Fund
Scorecard on several occasions, as well as in
Investor's Business Daily. Performance for all funds
has been very competitive, reflecting the expertise
and dedication of our Armada Funds managers.
EXPANDED PRODUCT OFFERINGS
Developing new products and refining current
offerings are important functions of Armada Funds as
we strive to provide you with the highest quality
investment services. During the year, our
integration of the Inventor Funds allowed us to
offer you four new Armada portfolios: the
Intermediate Government Fund, the GNMA Fund, the
Pennsylvania Municipal Fund, and the Pennsylvania
Tax Exempt Fund (a money market fund). The Armada
Enhanced Income Fund adopted a new investment
objective which seeks increased total return
potential.
Armada Funds also serves as a mainstay for
National City's asset allocation program,
FutureQuest. For each FutureQuest investor, a
portfolio of mutual funds is created based on
individual goals, time frame, and tolerance for
risk. That portfolio is then monitored and
rebalanced as necessary. The FutureQuest process
adds value by defining and maintaining the
investor's focus, while Armada Funds provides a
quality investment vehicle for deploying the assets.
Our communication with you, our shareholders, is a
crucial function of our business. Please call
1-800-622-FUND (3863) when you want more information
about your investment or any of the Armada Funds.
You'll find
1
<PAGE> 4
LOGO CHAIRMAN'S MESSAGE
highly trained, licensed representatives on the
other end of the telephone who stand ready to assist
you.
You can also find a multitude of information about
Armada Funds on the National City World Wide Web
page at WWW.NATIONAL-CITY.COM. Click on Invest It!
and you and other prospective investors can access
performance information, view prospectuses and learn
more about the many benefits of investing with
Armada Funds.
We look forward to continuing to serve your
investment needs.
Sincerely,
/s/ Robert D. Neary
Robert D. Neary
Chairman
Armada Funds Board of Trustees
2
<PAGE> 5
LOGO INCOME MARKET OVERVIEW
REMARKS FROM THE ADVISERS
"IN THE PAST YEAR, THE FIXED
INCOME MARKETS WILL BE
REMEMBERED FOR THE VOLATILE,
BUT
STILL RANGE-BOUND NATURE OF
INTEREST RATES AND THE
CONTINUED
OUTPERFORMANCE OF SPREAD
SECTORS SUCH AS CORPORATES
AND
MORTGAGES."
In the past year, the fixed income markets will be
remembered for the volatile, but still range-bound
nature of interest rates and the continued
outperformance of spread sectors such as corporates
and mortgages. Drivers of interest rates over the
past year included the continued stamina of the
economy, the surprising specter of shrinking
inflation and the reactions to such developments by
Alan Greenspan and the Federal Reserve Open Market
Committee.
At this time last year, the yield on the 10 year
Treasury note was 6.85%. This yield subsequently
rose to 7.05% in late Summer only to drop a full
1.00% to 6.05% by December. This marked the lows in
yields as the yield on the 10 year Treasury note
climbed throughout the first quarter of 1997 and
finished at 6.67%.
One constant throughout the past year has been
trying to anticipate the actions of the Federal
Reserve Open Market Committee. Led by Alan
Greenspan, the Federal Reserve had been poised since
mid-1996 to raise rates to cool the economy and
alleviate growing inflationary pressures. The
economy showed strong growth in the spring of 1996,
and yields rose as the threat of a rate hike
increased. Throughout the fall, however, the fixed
income market rallied and yields fell in response to
an economy that was slowing without Fed action. The
beginning of 1997 ushered in a resurgence of
economic growth as continued income gains, large tax
refunds, and a warmer winter resulted in a
consumption-led, 5.9% increase in real GDP. This
time, the Fed had seen enough and finally raised
short-term rates .25% in March 1997.
Critics of the Fed action have argued that a
tightening was not warranted because inflation has
remained dormant. In fact, inflation has been
declining in 1997 and the vast majority of leading
inflation indicators, including the dollar, gold and
commodity price indices, have indicated that
pipeline inflation pressures remain dormant.
Clearly, this trend has prevented further Fed
tightening and played a large role in containing
interest rates. Is this the dawn of a "New Era", as
many have claimed, where the economy continues to
grow into the 7th year of an expansion, the labor
markets remain as tight as they have been in 25
years, and inflation remains benign? Or are the
seeds of inflation being planted by the excess
liquidity provided by the financial markets and the
"wealth effect" that results from a historic three
year stock market rally?
As managers of fixed income portfolios, we are
clearly focused on the potential for inflation and
the impact that it may have on interest rates and
the performance of the Armada Funds Income Series.
While we readily agree that there are a variety of
reasons why inflation has heretofore remained
dormant, we believe the market is increasingly
vulnerable to any inflation surprise, no matter how
small or secularly important. Accordingly, we will
continue managing the Funds conservatively with
respect to interest rate risk, while maintaining our
focus on the higher yielding, spread sectors.
3
<PAGE> 6
LOGO ARMADA TOTAL RETURN
ADVANTAGE FUND OVERVIEW
COMMENTS FROM THE MANAGER
PORTFOLIO MANAGER:
INVESTMENT MANAGEMENT GROUP,
NATIONAL ASSET
MANAGEMENT CORPORATION
FUND'S DATE OF INCEPTION:
JULY 7, 1994 (INSTITUTIONAL
SHARES)
SEPTEMBER 6, 1994 (RETAIL
SHARES)
ASSETS:
$259,227,625 (INSTITUTIONAL
SHARES)
$ 2,186,227 (RETAIL SHARES)
INVESTMENT OBJECTIVE:
PROVIDE A TOTAL RATE OF
RETURN,
INCOME AND PRICE
APPRECIATION GREATER THAN
THAT OF POPULAR MARKET
INDICES WITH SIMILAR MATURITY
AND QUALITY CHARACTERISTICS.
UNDER NORMAL MARKET
CONDITIONS, THE FUND MAIN-
TAINS AN AVERAGE DOLLAR-
WEIGHTED PORTFOLIO MATURITY
OF TWO YEARS ABOVE OR BELOW
THE AVERAGE MATURITY OF THE
LEHMAN BROTHERS
GOVERNMENT/CORPORATE
BOND INDEX.
KEY INVESTMENT CONCEPTS
In seeking total return for shareholders of the
Armada Total Return Advantage Fund, we use three key
strategies. First, we allocate the Fund's
investments among different market sectors based on
their return potential. Next, we adjust the average
maturity of the Fund according to our perceptions of
intermediate and long-term trends in interest rates.
Finally, we look for individual securities whose
yields we feel are attractive in terms of their own
historical standards and versus other securities
with similar characteristics.
PERFORMANCE
In the last 6 months of the fiscal year, the
period ending May 31, 1997, the Fund slightly
underperformed the bond market. The Fund's
institutional and retail shares had total returns of
0.26% and 0.23% (without sales charges),
respectively, versus 0.39% for the Lehman Brothers
Government/Corporate Bond Index. The Fund's
performance during the second half of the fiscal
year did not prevent the Fund from outperforming the
Index for the entire fiscal year, with a total
return of 8.51% for institutional shares and 8.35%
(without sales charges) for retail shares versus the
Index return of 7.90%. The interruption of the
decline in interest rates impeded results, as the
Fund continued to have an average duration longer
than that of the Index.
RECENT STRATEGY
The average duration of the Fund is approximately
5.75 years or .65 years longer than that of the
Index. This is consistent with our belief that the
longer term trend toward lower interest rates (that
began in 1981) is intact and will continue. Interest
rates moved decisively higher in December
1996/January 1997 and again in
mid-February/mid-April 1997. For much of the second
half of the fiscal year, approximately 34% of the
Fund was invested in corporate bonds, 8% in
mortgage-backed securities, 27% in asset-backed
securities and about 31% in government issues. In
comparison, the Index had an average duration of 5.1
years, 71% of its assets in government issues, 29%
in corporate issues, and no allocation to mortgage
or asset-backed securities.
LOOKING AHEAD
Our current holdings of mortgage-backed securities
are below normal at 8%, reflecting the full
valuation of the sector. We continue to be
overweighted in both corporates and asset-backed
securities. Should the
4
<PAGE> 7
LOGO ARMADA TOTAL RETURN
ADVANTAGE FUND OVERVIEW
COMMENTS FROM THE MANAGER
"THE INTERRUPTION OF THE DECLINE
IN INTEREST RATES IMPEDED RESULTS,
AS THE FUND CONTINUED TO HAVE
AN AVERAGE DURATION LONGER THAN
THAT OF THE INDEX."
economy show increasing signs of significant
weakness, we would look to decrease the Fund's
exposure to the corporate sector. Adding to the
returns provided by these sector weighting changes
will be our longer duration policy which should
benefit the Fund when interest rates continue their
expected decline.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
TOTAL RETURNS as of 5/31/97
--------------------------------------------------------------------
1-Year Since Inception (2,4)
-------------------------------
<S> <C> <C>
Armada Total Return Advantage Fund
Institutional Shares(1) 8.51% 8.22%
-------------------------------------------------------------------
Armada Total Return Advantage Fund
Retail Shares With Sales Charge 4.33% 6.24%
Without Sales Charge 8.35% 7.75%
-------------------------------------------------------------------
Past performance is not predictive of future performance.
GROWTH OF A $10,000 INVESTMENT (3)
<CAPTION>
ARMADA TOTAL RETURN ARMADA TOTAL RETURN
LEHMAN BROTHERS ADVANTAGE FUND ADVANTAGE FUND
MEASUREMENT PERIOD GOVERNMENT/CORPORATE (INSTITUTIONAL (RETAIL SHARES WITH
(FISCAL YEAR COVERED) BOND INDEX SHARES)(1) SALES CHARGE)
<S> <C> <C> <C>
JULY-1994 10,000.00 10,160.00
SEPT-1994 9,517.05
NOV-1994 10,021.00 10,011.37 9,496.49
MAY-1995 11,187.00 11,122.04 10,500.60
NOV-1995 11,853.00 11,846.19 11,156.65
MAY-1996 11,645.00 11,591.88 10,892.81
NOV-1996 12,516.00 12,545.75 11,775.05
MAY-1997 12,565.00 12,578.49 11,802.44
</TABLE>
1 Institutional shares are sold primarily to banks
and clients of National Asset Management
Corporation ("NAM"). 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.
5
<PAGE> 8
LOGO ARMADA FIXED INCOME FUND OVERVIEW
COMMENTS FROM THE MANAGER
PORTFOLIO MANAGER:
FIXED INCOME TEAM,
NATIONAL CITY'S
ASSET MANAGEMENT GROUP
FUND'S DATE OF INCEPTION:
DECEMBER 20, 1989 (INSTITUTIONAL SHARES)
APRIL 15, 1991 (RETAIL SHARES)
ASSETS:
$121,270,966 (INSTITUTIONAL SHARES)
$ 3,719,976 (RETAIL SHARES)
INVESTMENT OBJECTIVE:
PROVIDE AS HIGH A LEVEL OF
CURRENT INCOME AS IS CONSISTENT
WITH PRUDENT INVESTMENT RISK.
THE FUND INVESTS IN HIGH AND
MEDIUM GRADE BONDS AND OTHER
FIXED INCOME SECURITIES. UNDER
NORMAL MARKET CONDITIONS, THE
FUND MAINTAINS AN AVERAGE
DOLLAR-WEIGHTED PORTFOLIO
MATURITY OF TEN YEARS OR LESS.
KEY INVESTMENT CONCEPTS
The Armada Fixed Income Fund seeks to provide as
high a level of income as is consistent with prudent
investment risk. This is accomplished primarily
through actively managing the Fund's sector
allocation to those sectors that offer the best
income and return potential. Furthermore, we add to
performance by managing the Fund's sensitivity to
interest rates, increasing sensitivity when our
outlook is for lower interest rates, and decreasing
sensitivity when our outlook is for higher interest
rates. Finally, we seek out only those securities
that are attractive on a relative basis and are
consistent with the Fund's objectives. All the while
the Fund's credit quality is maintained at a high
level. Performance is measured against the Lehman
Intermediate Government/Corporate Bond Index.
PERFORMANCE
For the year ended May 31, 1997, the Fund produced
a total return of 6.63% for institutional investors
and 6.36% (before sales charges) for retail
investors. Over the same period, our non-investable
benchmark, the Lehman Intermediate
Government/Corporate Bond Index, posted a total
return of 7.38%. As of May 31, 1997, the Fund
offered SEC 30-day yields of 5.86% and 5.39% for
institutional and retail shares, respectively.
RECENT STRATEGY
Over the past twelve months the yield on the
bellwether 10-year Treasury note moved from 6.85% in
May, 1996 to 6.04% in November, 1996, only to rise
to 6.67% as of May 30, 1997. Although rates have
been range-bound, the market has been characterized
as volatile and, at times, erratic. During this
period, the duration, or interest rate sensitivity,
of the Fund has remained close to that of the
benchmark. This reflects our short-term outlook for
moderately higher interest rates. The Fund's sector
allocation has featured asset-backed and
mortgage-backed securities while keeping corporates
market-weighted. This strategy has aided
performance, as these sectors have outperformed over
the last twelve months. Treasuries and agencies have
been underweighted as they continue to underperform
the higher yielding spread sectors.
LOOKING AHEAD
Our outlook calls for the economy to slow from its
torrid first quarter pace, but maintain above trend
growth. This continued strength could further
tighten the already strained labor market and raise
the fear of wage-led inflation. Under this scenario,
the Fed may be prompted to raise short interest
rates in order to sufficiently slow the economy and
ease growing inflationary pressures.
6
<PAGE> 9
LOGO ARMADA FIXED INCOME FUND OVERVIEW
COMMENTS FROM THE MANAGER
"...THE DURATION, OR INTEREST RATE
SENSITIVITY, OF THE FUND HAS
REMAINED CLOSE TO THAT OF THE
BENCHMARK."
Assuming higher short rates and relatively subdued
inflation, the yield curve should flatten as long
rates remain close to the current level and short
rates edge up. Over the long-term, the trend toward
lower interest rates should resume and bonds at or
near current levels should offer investors solid
returns going forward.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
TOTAL RETURNS as of 5/31/97
------------------------------------------------------------------------------------
1-Year 3-Years(4) 5-Years(4) Since Inception(2,4)
----------------------------------------------------
<S> <C> <C> <C> <C>
Armada Fixed Income Fund
Institutional Shares(1) 6.63% 6.63% 6.18% 7.61%
------------------------------------------------------------------------------------
Armada Fixed Income Fund
Retail Shares With Sales Charge 2.40% 4.99% 5.09% 6.82%
Without Sales Charge 6.36% 6.33% 5.89% 7.37%
------------------------------------------------------------------------------------
Past performance is not predictive of future performance.
GROWTH OF A $10,000 INVESTMENT (3)
<CAPTION>
ARMADA TOTAL RETURN ARMADA TOTAL RETURN
LEHMAN BROTHERS ADVANTAGE FUND ADVANTAGE FUND
MEASUREMENT PERIOD GOVERNMENT/CORPORATE (INSTITUTIONAL (RETAIL SHARES WITH
(FISCAL YEAR COVERED) BOND INDEX SHARES)(1) SALES CHARGE)
<S> <C> <C> <C>
NOV-1989 10,000.00 10,000.00 9,634.26
MAY-1990 10,167.00 10,097.90 9,718.88
NOV-1990 10,807.00 10,665.57 10,265.24
MAY-1991 11,376.00 11,332.27 10,904.74
NOV-1991 12,204.00 12,205.37 11,728.31
MAY-1992 12,666.00 12,800.90 12,283.23
NOV-1992 13,196.00 13,334.86 12,777.02
MAY-1993 13,937.00 14,250.16 13,687.26
NOV-1993 14,401.00 14,863.80 14,204.05
MAY-1994 14,110.00 14,249.53 13,605.76
NOV-1994 14,161.00 14,182.54 13,514.17
MAY-1995 15,392.00 15,610.05 14,865.48
NOV-1995 16,097.00 16,310.46 15,511.94
MAY-1996 16,090.00 16,201.78 15,377.42
NOV-1996 17,008.00 17,098.35 16,220.88
MAY-1997 17,235.00 17,275.90 16,355.00
</TABLE>
1 Institutional shares are sold primarily to banks
and clients of National Asset Management
Corporation ("NAM"). 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.
7
<PAGE> 10
LOGO ARMADA ENHANCED INCOME FUND OVERVIEW
COMMENTS FROM THE MANAGER
PORTFOLIO MANAGER:
INVESTMENT MANAGEMENT GROUP,
NATIONAL ASSET
MANAGEMENT CORPORATION
FUND'S DATE OF INCEPTION:
JULY 7, 1994 (INSTITUTIONAL SHARES)
SEPTEMBER 9, 1994 (RETAIL SHARES)
ASSETS:
$61,030,663 (INSTITUTIONAL SHARES)
$ 2,050,874 (RETAIL SHARES)
INVESTMENT OBJECTIVE:
SEEK A TOTAL RATE OF RETURN
GREATER THAN THAT OF THE MERRILL
LYNCH 1-3 YEAR TREASURY INDEX.
THE FUND WILL NORMALLY INVEST AT
LEAST 80% OF THE VALUE OF ITS
TOTAL ASSETS IN INVESTMENT GRADE
DEBT SECURITIES OF ALL TYPES.
HOWEVER, UP TO 20% OF THE
VALUE OF ITS TOTAL ASSETS MAY BE
INVESTED IN PREFERRED STOCKS AND
OTHER INVESTMENTS. UNDER NORMAL
MARKET CONDITIONS, THE FUND
INTENDS TO MAINTAIN AN AVERAGE
DOLLAR-WEIGHTED PORTFOLIO
MATURITY FOR ITS DEBT SECURITIES OF
11/2 TO 4 YEARS.
INVESTMENT OBJECTIVE CHANGE
The Armada Enhanced Income Fund experienced a
change in investment objective at the beginning of
October, 1996, following shareholder approval.
Previously the Fund's objective was to provide
current income that exceeds industry standard money
market returns by 0.5% to 1.5% per year over
complete market cycles. The new objective is to seek
a total rate of return greater than that of the
Merrill Lynch 1-3 Year Treasury Index. The change in
the objective was proposed by the Fund's adviser to
make the Fund a more attractive investment in the
limited duration fixed income market.
PERFORMANCE
In the last 6 months of the fiscal year, the
period ended May 31, 1997, the Fund slightly
underperformed its market index. The Fund's
institutional and retail shares had total returns of
2.06% and 2.01% (before sales charges),
respectively, versus 2.23% for the Index.
RECENT STRATEGY
The average duration of the Fund is approximately
1.8 years or .1 years longer than that of the Index.
This is consistent with our belief that the longer
term trend toward lower interest rates (that began
in 1981) is intact and will continue. Interest rates
moved decisively higher in December 1996/January
1997 and again from mid-February/mid-April 1997.
With the change in the Fund's objective,
approximately 9% of the Fund is invested in
corporate bonds, 48% in asset-backed securities and
about 43% in government issues. In comparison, the
Index has an average duration of 1.7 years and 100%
of its assets are in government issues.
LOOKING AHEAD
The current duration policy is expected to remain
in place during the upcoming fiscal year. Signs of
slowing economic activity should cause the recent
uptrend in interest rates to reverse itself, thereby
adding incremental price return to the Fund's
income. We are looking for opportunities to add to
the corporate sector, which would be funded through
a reduction in asset-backed securities.
8
<PAGE> 11
LOGO ARMADA ENHANCED INCOME FUND OVERVIEW
COMMENTS FROM THE MANAGER
"SIGNS OF SLOWING ECONOMIC
ACTIVITY SHOULD CAUSE THE RECENT
UPTREND IN INTEREST RATES TO
REVERSE ITSELF, THEREBY ADDING
INCREMENTAL PRICE RETURN TO THE
FUND'S INCOME."
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
TOTAL RETURNS as of 5/31/97
-------------------------------------------------------------------------
1-Year Since Inception(2,4)
------------------------------
<S> <C> <C>
Armada Enhanced Income Fund
Institutional Shares(1) 6.02% 5.95%
-------------------------------------------------------------------------
Armada Enhanced Income Fund
Retail Shares With Sales Charge 3.03% 4.77%
Without Sales Charge 5.91% 5.87%
-------------------------------------------------------------------------
Past performance is not predictive of future performance.
GROWTH OF A $10,000 INVESTMENT (3)
<CAPTION>
ARMADA ENHANCED ARMADA ENHANCED
INCOME FUND INCOME FUND (RETAIL
MEASUREMENT PERIOD (INSTITUTIONAL SHARES WITH SALES MERRILL LYNCH 1-3
(FISCAL YEAR COVERED) SHARES)(1) CHARGE) YEAR TREASURY INDEX
<S> <C> <C> <C>
JUN-1994 10,000.00
JUL-1994 10,050.00
AUG-1994 9,749.76
NOV-1994 10,165.40 9,795.67 10,076.00
MAY-1995 10,587.39 10,199.53 10,715.00
NOV-1995 10,931.51 10,524.71 11,122.00
MAY-1996 11,154.79 10,723.09 11,277.00
NOV-1996 11,587.36 11,133.25 11,766.00
MAY-1997 11,826.27 11,357.24 12,022.00
</TABLE>
1 Institutional shares are sold primarily to banks
and clients of National Asset Management
Corporation ("NAM"). 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.
9
<PAGE> 12
LOGO ARMADA GNMA FUND OVERVIEW
COMMENTS FROM THE MANAGER
PORTFOLIO MANAGER:
FIXED INCOME TEAM,
NATIONAL CITY'S
ASSET MANAGEMENT GROUP
FUND'S DATE OF INCEPTION:
AUGUST 10, 1994 (INSTITUTIONAL)
SEPTEMBER 11, 1996 (RETAIL)
ASSETS:
$64,501,298 (INSTITUTIONAL SHARES)
$ 128,326 (RETAIL SHARES)
INVESTMENT OBJECTIVE:
SEEK THE HIGHEST LEVEL OF CURRENT
INCOME CONSISTENT WITH
PRESERVATION OF CAPITAL AND A
HIGH DEGREE OF LIQUIDITY BY
INVESTING PRIMARILY IN MORTGAGE
PASS-THROUGH SECURITIES
GUARANTEED BY THE GOVERNMENT
NATIONAL MORTGAGE ASSOCIATION.
THE FUND INVESTS PRIMARILY IN
MORTGAGE PASS-THROUGH SECURITIES
GUARANTEED BY THE GOVERNMENT
NATIONAL MORTGAGE ASSOCIATION.
KEY INVESTMENT CONCEPTS
The Armada GNMA Fund seeks to maximize total
return by investing primarily in mortgage-backed
securities guaranteed by GNMA. The performance of
the Fund is measured against the Lehman GNMA Index.
The Fund seeks to add value by investing in the most
attractive sectors within the mortgage-backed
securities market.
PERFORMANCE
For the year ended May 31, 1997, the Fund produced
a total return of 9.03% for institutional investors
and 8.83% (before sales charges) for retail
investors. For the same period, the Index posted a
total return of 9.50%. As of May 31, 1997, the Fund
had SEC 30-day yields of 6.19% and 5.71% for
institutional and retail shares, respectively.
RECENT STRATEGY
For most of this period, the Fund's interest rate
sensitivity was equivalent to that of the Index. The
Fund has an overweighted position in seasoned
mortgage securities which have lower prepayment
sensitivity than more recent vintages. In addition,
the Fund is taking advantage of favorable financing
rates in the mortgage market by "rolling" a portion
of its newly issued mortgage securities.
LOOKING AHEAD
Our outlook calls for the economy to slow from its
torrid first quarter pace, but maintain above trend
growth. This continued strength could further
tighten the already strained labor market and raise
the fear of wage-led inflation. Under this scenario,
the Fed may be prompted to raise short interest
rates in order to sufficiently slow the economy and
ease growing inflationary pressures.
Assuming higher short rates and relatively subdued
inflation, the yield curve should flatten as long
rates remain close to the current level and short
rates edge up. Over the long-term, the trend toward
lower interest rates should resume and bonds at or
near current levels should offer investors solid
returns going forward.
10
<PAGE> 13
LOGO ARMADA GNMA FUND OVERVIEW
COMMENTS FROM THE MANAGER
"THE FUND SEEKS TO ADD VALUE
BY INVESTING IN THE MOST
ATTRACTIVE SECTORS WITHIN THE
MORTGAGE-BACKED SECURITIES
MARKET."
<TABLE>
<CAPTION>
-------------------------------------------------------------------
TOTAL RETURNS as of 5/31/97
-------------------------------------------------------------------
1-Year Since Inception(2,4)
----------------------------
<S> <C> <C>
Armada GNMA Fund
Institutional Shares(1) 9.03% 8.27%
-------------------------------------------------------------------
Armada GNMA Fund
Retail Shares With Sales Charge 4.76% 6.75%
Without Sales Charge 8.83% 8.21%
-------------------------------------------------------------------
Past performance is not predictive of future performance.
GROWTH OF A $10,000 INVESTMENT (3)
<CAPTION>
AMARDA GNMA FUND AMARDA GNMA FUND
MEASUREMENT PERIOD INSTITUTIONAL (RETAIL SHARES WITH
(FISCAL YEAR COVERED) LEHMAN GNMA INDEX SHARES (1) SALES CHARGE)
<S> <C> <C> <C>
JUL-1994 10,000.00
AUG-1994 10,105.10 9,725.83
NOV-1994 9,846.00 9,899.90 9,528.36
MAY-1995 10,960.00 10,963.80 10,552.26
NOV-1995 11,505.00 11,463.90 11,033.40
MAY-1996 11,547.00 11,466.40 11,039.25
NOV-1996 12,361.00 12,223.70 11,761.92
MAY-1997 12,643.00 12,513.60 12,026.03
</TABLE>
1 Institutional shares are sold primarily to banks
and clients of National Asset Management
Corporation ("NAM"). Certain account level charges
may apply.
2 The Armada GNMA Fund's date of inception was
August 10, 1994 for Institutional shares and
September 11, 1996 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.
5 The performance history for the Predecessor Fund
has been carried over to both the Institutional
and Retail classes.
11
<PAGE> 14
LOGO ARMADA INTERMEDIATE
GOVERNMENT FUND OVERVIEW
COMMENTS FROM THE MANAGER
PORTFOLIO MANAGER:
FIXED INCOME TEAM,
NATIONAL CITY'S
ASSET MANAGEMENT GROUP
FUND'S DATE OF INCEPTION:
AUGUST 10, 1994 (INSTITUTIONAL)
SEPTEMBER 11, 1996 (RETAIL)
ASSETS:
$91,161,439 (INSTITUTIONAL SHARES)
$ 23,394 (RETAIL SHARES)
INVESTMENT OBJECTIVE:
SEEK PRESERVATION OF CAPITAL AND
A HIGH DEGREE OF LIQUIDITY WHILE
PROVIDING CURRENT INCOME. THE
FUND INVESTS PRIMARILY IN
OBLIGATIONS ISSUED OR GUARANTEED
AS TO PRINCIPAL AND INTEREST BY
THE U.S. GOVERNMENT AND ITS
AGENCIES AND INSTRUMENTALITIES.
KEY INVESTMENT CONCEPTS:
The Armada Intermediate Government Fund seeks to
maximize total return by investing in high quality
fixed income securities primarily issued or
guaranteed by the U.S. government and its agencies.
The performance of the Fund is measured against the
Lehman Intermediate Government Bond Index. The Fund
seeks to add value through sector rotation and
individual security selection.
PERFORMANCE
For the year ended May 31, 1997, the Fund produced
a total return of 7.41% for institutional investors
and 7.22% (before sales charges) for retail
investors. For the same period, the Index posted a
total return of 7.12%. As of May 31, 1997, the Fund
had SEC 30-day yields of 5.64% and 5.19% for
institutional and retail shares, respectively.
RECENT STRATEGY
For most of this period, the Fund's interest rate
sensitivity was equivalent to that of the Index. The
Fund has an overweighted position in stable
mortgage-backed securities which have low prepayment
sensitivity. These securities provide additional
yield with a minimal increase in risk.
LOOKING AHEAD
Our outlook calls for the economy to slow from its
torrid first quarter pace, but maintain above trend
growth. This continued strength could further
tighten the already strained labor market and raise
the fear of wage-led inflation. Under this scenario,
the Fed may be prompted to raise short interest
rates in order to sufficiently slow the economy and
ease growing inflationary pressures.
Assuming higher short rates and relatively subdued
inflation, the yield curve should flatten as long
rates remain close to the current level and short
rates edge up. Over the long-term, the trend toward
lower interest rates should resume and bonds at or
near current levels should offer investors solid
returns going forward.
12
<PAGE> 15
LOGO ARMADA INTERMEDIATE
GOVERNMENT FUND OVERVIEW
COMMENTS FROM THE MANAGER
"THE FUND HAS AN OVER-
WEIGHTED POSITION IN STABLE
MORTGAGE-BACKED SECURITIES
WHICH HAVE LOW PREPAYMENT
SENSITIVITY."
<TABLE>
<CAPTION>
------------------------------------------------------------------
TOTAL RETURNS as of 5/31/97(5)
------------------------------------------------------------------
1-Year Since Inception(2,4)
----------------------------
<S> <C> <C>
Armada Intermediate Government Fund
Institutional Shares(1) 7.41% 6.78%
------------------------------------------------------------------
Armada Intermediate Government Fund
Retail Shares With Sales Charge 3.19% 5.27%
Without Sales Charge 7.22% 6.72%
------------------------------------------------------------------
Past performance is not predictive of future performance.
GROWTH OF A $10,000 INVESTMENT (3)
<CAPTION>
ARMADA INTERMEDIATE
LEHMAN BROTHERS INTERMEDIATE ARMADA INTERMEDIATE GOVERNMENT FUND
MEASUREMENT PERIOD GOVERNMENT BOND GOVERNMENT FUND (RETAIL SHARES
(FISCAL YEAR COVERED) INDEX INSTITUTIONAL SHARES(1) WITH SALES CHARGE)
<S> <C> <C> <C>
JULY-1994 10,000.00
AUG-1994 10,072.37 9,694.29
NOV-1994 9,904.00 9,904.01 9,532.26
MAY-1995 10,765.00 10,773.31 10,368.92
NOV-1995 11,259.00 11,251.79 10,829.43
MAY-1996 11,253.00 11,196.04 10,775.88
NOV-1996 11,895.00 11,823.23 11,373.61
MAY-1997 12,054.00 12,025.53 11,554.39
</TABLE>
1 Institutional shares are sold primarily to banks
and clients of National Asset Management
Corporation ("NAM"). Certain account level charges
may apply.
2 The Armada Intermediate Government Fund's date of
inception was August 10, 1994 for Institutional
shares and September 11, 1996 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.
5 The performance history for the Predecessor Fund
has been carried over to both the Institutional
and Retail classes.
13
<PAGE> 16
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA TOTAL RETURN ADVANTAGE FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- --------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 1.6%
Medium-Term Structured Enhanced
Return Series 1993-G1
6.36%.......... 11/15/08 $ 1,350 $ 1,282,648
Tennessee Valley Authority
8.25%.......... 04/15/42 2,700 2,895,750
--------------
TOTAL AGENCY OBLIGATIONS............. 4,178,398
--------------
(Cost $4,076,137)
ASSET-BACKED SECURITIES (A) -- 27.2%
AUTOS -- 7.9%
Chase Manhattan Auto Owner Trust
Series 1997-A, Class A5
6.50%.......... 12/17/01 1,045 1,039,938
GMAC Series 97-A, Class A
6.50%.......... 04/15/02 3,032 3,039,780
Onyx Acceptance Grantor Trust Series
1996-2, Class A
6.40%.......... 09/10/98 2,283 2,292,926
Series 1996-3, Class A
6.45%.......... 10/09/98 2,772 2,761,145
Premier Auto Trust Series 1996-4
Class A4
6.40%.......... 07/25/99 3,215 3,196,328
World Omni Automobile Lease Series
1996-B, Class A2
6.20%.......... 11/15/02 1,000 1,001,346
Series 1997-A, Class A3
6.85%.......... 06/25/03 3,080 3,096,363
Series 1997-A, Class A4
6.90%.......... 06/25/03 4,000 4,017,500
--------------
20,445,326
--------------
CREDIT CARDS -- 12.8%
Chase Manhattan Credit Card Master
Trust Series 1996-3, Class
7.04%.......... 02/15/05 3,790 3,832,046
Chase Mortgage Series 1996-4, Class A
6.73%.......... 05/13/99 3,660 3,681,502
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- --------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES (A) -- CONTINUED
CREDIT CARDS -- CONTINUED
Citibank Credit Card Master Trust
Series 1997-3, Class A
6.84%.......... 02/10/04 $ 1,520 $ 1,509,665
Series 1996-1, Class B
0.00%.......... 02/07/03 880 653,175
Series 1996, Class A
0.00%.......... 02/03/01 2,165 1,690,153
Discover Credit Card Trust 1993-B
6.75%.......... 02/11/00 4,215 4,214,923
Metris Master Trust Series 1997-1,
Class A
6.87%.......... 10/20/05 5,480 5,485,139
Sears Credit Account Master Trust
Series 1995-5, Class A
6.05%.......... 01/16/08 2,140 2,062,759
Series 1996-1, Class A
6.20%.......... 02/15/06 910 895,909
Series 1996-3, Class A
7.00%.......... 07/29/03 5,305 5,346,447
Series 1996-4, Class A
6.45%.......... 10/27/01 3,820 3,766,307
--------------
33,138,025
--------------
HOME EQUITY LOANS -- 3.4%
Cityscape 1997-B, Class A4
7.16%.......... 04/25/12 1,525 1,533,578
Green Tree Home Improvement Loan
Trust Series 1996-A, Class A3
6.35%.......... 01/01/02 2,870 2,795,497
Green Tree Financial Corp. Series
1997-B Class A3
6.61%.......... 04/15/27 2,295 2,297,510
The Money Store Home Equity Trust
Series 1997-A Class A4
6.89%.......... 03/15/16 2,270 2,272,483
--------------
8,899,068
--------------
</TABLE>
See Accompanying Notes
14
<PAGE> 17
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA TOTAL RETURN ADVANTAGE FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- --------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES (A) -- CONTINUED
OTHER -- 3.1%
Capita Equipment Receivables Trust
Series 1996-1, Class A4
6.28%.......... 12/11/99 $ 3,365 $ 3,354,872
Metlife Capital Equipment Loan Trust
Series 1997-A Class A
6.85%.......... 05/20/08 835 838,653
Mid-State Trust II
9.35%.......... 08/12/97 5 5,087
Railcar Leasing Series 1997-1, Class A2
7.13%.......... 01/15/13 3,800 3,753,094
--------------
7,951,706
--------------
TOTAL ASSET-BACKED SECURITIES........ 70,434,125
(Cost $70,578,502) --------------
COLLATERALIZED MORTGAGE
OBLIGATIONS (A) -- 0.3%
Collateralized Mortgage Obligation Trust
6.06%.......... 12/07/98 88 87,164
9.00%.......... 07/14/98 103 105,650
Conseco Commercial Mortgage Trust
9.70%.......... 03/08/99 172 171,966
MDC Asset Investors Trust
9.33%.......... 09/10/97 157 156,894
Ryland Acceptance Corp.
9.85%.......... 12/25/97 207 211,115
--------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS......................... 732,789
(Cost $734,817) --------------
MORTGAGE PASS THROUGH OBLIGATIONS
(A) -- 0.2%
Thirty-Seventh FHA Insurance Project
7.43%.......... 03/20/02 459 456,101
(Cost $446,142) --------------
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (A) -- 12.7%
FEDERAL HOME LOAN MORTGAGE CORP. -- 4.6%
Pool 160045
8.75%.......... 06/03/00 $ 6 $ 6,678
Pool 181063
7.50%.......... 03/12/00 162 163,537
Series 1634 Class PW
4.00%.......... 11/15/22 9,100 7,513,188
Series 1684 G
6.50%.......... 03/15/23 4,290 4,149,234
--------------
11,832,637
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 8.1%
Pool 73442
7.08%.......... 09/17/05 8,461 8,479,431
Pool 36000
6.55%.......... 12/01/05 5,785 5,501,173
Pool 63471
6.50%.......... 05/25/99 163 156,531
Series 1997-W1, Class G
7.00%.......... 01/18/23 7,062 6,932,898
--------------
21,070,033
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 0.0%
Pool 132781
10.5%.......... 08/08/98 27 28,606
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS.... 32,931,276
(Cost $33,056,865) --------------
CORPORATE BONDS -- 28.6%
BANKING -- 1.3%
BankAmerica Corp.
7.88%.......... 12/01/02 3,300 3,432,000
--------------
EDUCATION -- 1.0%
Harvard University
8.13%.......... 04/15/07 2,400 2,574,878
--------------
</TABLE>
See Accompanying Notes
15
<PAGE> 18
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA TOTAL RETURN ADVANTAGE FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- --------------
<S> <C> <C> <C>
CORPORATE BONDS -- CONTINUED
FINANCIAL SERVICES -- 3.9%
Associates Corp.
6.63%.......... 11/15/97 $ 4,200 $ 4,219,530
Countrywide Capital I Trust
8.00%.......... 12/15/26 4,025 3,892,497
First of America
8.12%.......... 01/31/27 2,025 1,986,829
--------------
10,098,856
--------------
FOREIGN -- 10.0%
Bangkok Bank 144A
7.25%.......... 09/15/05 1,350 1,284,620
Bank Austria 144A
7.25%.......... 02/15/17 2,950 2,859,494
City of Naples
7.52%.......... 07/15/06 3,610 3,683,933
DSPL Finance
9.12%.......... 04/14/07 2,650 2,728,202
Hydro Quebec
9.38%.......... 04/15/30 4,000 4,700,000
Industrial Financial Corp. of
Thailand
6.88%.......... 04/01/03 4,250 4,116,168
Tenaga Nasional
7.50%.......... 11/01/25 3,650 3,508,563
Transgas de Occidente SA
9.79%.......... 04/03/06 2,838 2,976,129
--------------
25,857,109
--------------
INSURANCE -- 3.7%
Mutual of New York 144A
0.00%.......... 08/15/24 2,400 2,504,424
Nationwide Capital Surplus Notes
9.88%.......... 02/15/25 4,000 4,350,000
Prudential Insurance
8.10%.......... 07/15/15 2,595 2,598,244
--------------
9,452,668
--------------
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- --------------
<S> <C> <C> <C>
CORPORATE BONDS -- CONTINUED
LEISURE & ENTERTAINMENT -- 1.3%
Time Warner Entertainment
10.15%......... 05/01/12 $ 2,900 $ 3,458,250
--------------
RETAIL STORES -- 1.1%
May Department Stores
8.30%.......... 07/15/26 2,800 2,852,500
--------------
SPECIALTY CHEMICALS -- 2.0%
Engelhard Corp.
7.00%.......... 08/01/01 5,000 5,037,500
--------------
TECHNOLOGY -- 2.0%
CSC Enterprises
6.50%.......... 11/15/01 5,165 5,068,156
--------------
TELECOMMUNICATIONS -- 2.3%
Bellsouth Communications
6.30%.......... 05/12/08 3,136 2,949,939
Worldcom, Inc.
7.75%.......... 04/01/07 3,050 3,093,402
--------------
6,043,341
--------------
TOTAL CORPORATE BONDS................ 73,875,258
(Cost $74,061,184) --------------
U.S. TREASURY OBLIGATIONS -- 25.4%
U.S. TREASURY BONDS -- 11.9%
7.25%.......... 05/15/16 11,615 11,953,576
7.50%.......... 11/15/16 4,225 4,456,656
8.13%.......... 08/15/21 12,680 14,314,070
--------------
30,724,302
--------------
</TABLE>
See Accompanying Notes
16
<PAGE> 19
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA TOTAL RETURN ADVANTAGE FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- --------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- CONTINUED
U.S. TREASURY NOTES -- 11.3%
5.50%.......... 02/28/99 $ 1,675 $ 1,658,200
6.13%.......... 07/31/00 920 913,532
5.25%.......... 01/31/01 4,000 3,852,720
6.38%.......... 03/31/01 4,240 4,227,449
6.25%.......... 02/15/03 910 897,915
7.25%.......... 08/15/04 7,480 7,749,728
6.50%.......... 05/15/05 2,500 2,477,000
6.88%.......... 05/15/06 7,400 7,495,682
--------------
29,272,226
--------------
U.S. TREASURY NOTES -- STRIP -- 2.2%
0.00%.......... 11/15/01 7,580 5,711,074
--------------
TOTAL U.S. TREASURY OBLIGATIONS...... 65,707,602
(Cost $66,677,590) --------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------- --------------
<S> <C> <C>
TEMPORARY INVESTMENT -- 4.0%
Fidelity Cash Reserve 10,425,804 $ 10,425,804
(Cost $10,425,804) --------------
TOTAL INVESTMENTS -- 100.0% $ 258,741,353
(Cost $260,057,041) ==============
- ---------------
* Cost for Federal income tax
purposes -- $260,421,857.
The gross unrealized appreciation (depreciation) for
Federal income tax purposes is as follows:
Gross appreciation.................. $ 1,658,819
Gross depreciation.................. (3,339,323)
--------------
$ (1,680,504)
--------------
(A) Maturity dates represent weighted average lives of
the underlying obligations.
</TABLE>
See Accompanying Notes
17
<PAGE> 20
LOGO FINANCIAL HIGHLIGHTS
ARMADA TOTAL RETURN ADVANTAGE FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31
-------------------------------------------------- FOR THE PERIOD
1997 1996 ENDED MAY 31, 1995
----------------------- ----------------------- -----------------------
INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL(3) RETAIL(3)
------------- ------ ------------- ------ ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 9.88 $ 9.87 $ 10.55 $10.54 $ 10.00 $10.16
-------- ------ ------- ------ ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income......................... 0.67 0.64 0.70(7) 0.62(7) 0.65(7) 0.49(7)
Net gain/(loss) on securities (realized and
unrealized)................................. 0.15 0.16 (0.24) (0.22) 0.43 0.40
-------- ------ ------- ------ ------- ------
Total from investment operations............ 0.82 0.80 0.46 0.40 1.08 0.89
-------- ------ ------- ------ ------- ------
LESS DISTRIBUTIONS
Dividends from net investment income.......... (0.67) (0.64) (0.70) (0.62) (0.53) (0.49)
Dividends in excess of net investment income.. (0.00) (0.00) (0.12) (0.14) (0.00) (0.02)
Dividends from net realized capital gains..... (0.00) (0.00) (0.31) (0.31) (0.00) (0.00)
Dividends in excess of net realized capital
gains....................................... (0.14) (0.14) (0.00) (0.00) (0.00) (0.00)
-------- ------ ------- ------ ------- ------
Total distributions......................... (0.81) (0.78) (1.13) (1.07) (0.53) (0.51)
-------- ------ ------- ------ ------- ------
Net asset value, end of period.................. $ 9.89 $ 9.89 $ 9.88 $ 9.87 $ 10.55 $10.54
======== ====== ======= ====== ======= ======
TOTAL RETURN.................................... 8.51% 8.35%(5) 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)............ $ 259,228 $2,186 $ 280,401 $2,040 $ 261,403 $ 106
Ratio of expenses to average net assets......... .16%(1) .41%(2) .13%(1) .36%(2) .18%(1,4) .31%(2,4)
Ratio of net investment income to average net
assets........................................ 6.70%(1) 6.46%(2) 6.67%(1) 6.12%(2) 7.23%(1,4) 6.92%(2,4)
Portfolio turnover rate......................... 169% 169% 268% 268% 166% 166%
</TABLE>
(1) The operating expense ratio and the net investment income ratio before fee
waivers by the Investment Advisers for the Institutional class for the year
ended May 31, 1997 would have been .71% and 6.15%, respectively. 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 .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 Advisers for the Retail class for the year ended
May 31, 1997 would have been .96% and 5.91%, respectively. The operating
expense ratio and the net investment income ratio before fee waivers by the
Investment Advisers 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 charge.
(6) Total returns have been annualized based upon the period from each class'
commencement date through May 31, 1995. Gross total returns of the
Institutional and Retail classes for the period were 11.22% and 9.14%,
respectively.
(7) Calculated based upon average shares outstanding.
See Accompanying Notes
18
<PAGE> 21
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA FIXED INCOME FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS -- 3.3%
Federal Home Loan Bank
7.36%............ 07/01/04 $ 2,000 $ 2,066,480
Federal National Mortgage Association
6.49%............ 11/03/00 2,000 1,981,200
--------------
TOTAL AGENCY OBLIGATIONS............... 4,047,680
(Cost $3,980,271) --------------
ASSET-BACKED SECURITIES (A) -- 11.0%
Aegis Auto Funding 1996-3 A
8.80%............ 03/20/02 4,052 4,074,665
AFG Receivables Trust Series 1996-D
Class A
6.10%............ 10/15/01 3,480 3,448,478
Equivantage 1997-1 A4
7.275%........... 02/07/06 4,000 4,020,000
IMC Home Equity Loan Trust Series
1997-2, Class A6
7.67%............ 07/02/10 2,058 2,063,145
--------------
TOTAL ASSET-BACKED SECURITIES.......... 13,606,288
(Cost $13,641,577) --------------
MORTGAGE OBLIGATIONS (A) -- 11.0%
Chase Commercial Mortgage Securities
Corp.
Series 1996-1, Class A1
7.60%............ 09/15/08 2,936 2,997,167
Series 1996-2
6.70%............ 03/17/02 3,501 3,455,228
Federal National Mortgage Association
Pool #190996
7.50%............ 05/26/01 2,277 2,315,004
Norwest Asset Securities Corp. Series
1996-9, Class A4
8.00%............ 12/30/98 2,500 2,531,641
Prudential Home Mortgage Securities
Series 1996-7, Class A7
6.75%............ 01/02/07 2,500 2,399,609
--------------
TOTAL MORTGAGE OBLIGATIONS............. 13,698,649
(Cost $13,679,743) --------------
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
CORPORATE BONDS -- 28.8%
AUTOMOBILES -- 11.0%
Ford Motor Credit
8.20%............ 02/15/02 $ 3,500 $ 3,679,375
GMAC Global Bond
6.75%............ 02/07/02 5,000 4,975,000
Hertz Corp.
7.00%............ 05/01/02 4,950 4,950,000
--------------
13,604,375
--------------
CHEMICALS -- 4.1%
Dow Capital B.V.
5.75%............ 09/15/97 2,000 2,001,220
Dow Chemical Co.
9.35%............ 03/15/00 1,000 1,061,250
E.I. DuPont de Nemours & Co.
8.65%............ 12/01/97 2,000 2,028,460
--------------
5,090,930
--------------
FINANCIAL SERVICES -- 6.7%
American Express Commercial Paper
5.58%............ 06/06/97 5,000 4,996,900
Scotland International Bank
8.85%............ 11/01/06 3,000 3,270,000
--------------
8,266,900
--------------
INSURANCE -- 4.9%
CNA Financial Corp.
8.875%........... 03/01/98 1,000 1,020,750
Prudential Insurance
7.65%............ 07/01/07 5,000 5,050,000
--------------
6,070,750
--------------
RETAIL MERCHANDISING -- 2.1%
Wal-Mart Stores, Inc.
8.625%........... 04/01/01 2,500 2,659,375
--------------
TOTAL CORPORATE BONDS.................. 35,692,330
(Cost $35,769,456) --------------
</TABLE>
See Accompanying Notes
19
<PAGE> 22
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA FIXED INCOME FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 43.4%
U.S. TREASURY BILLS -- 5.5%
5.29%............ 02/05/98 $ 2,000 $ 1,925,955
5.34%............ 02/05/98 2,000 1,925,955
5.43%............ 02/05/98 2,000 1,925,955
5.49%............ 02/05/98 1,000 962,977
--------------
6,740,842
--------------
U.S. TREASURY NOTES -- 37.9%
5.125%........... 02/28/98 12,000 11,941,079
6.25%............ 06/30/98 1,000 1,004,260
6.375%........... 07/15/99 9,000 9,035,280
7.75%............ 02/15/01 6,000 6,256,379
6.375%........... 08/15/02 5,775 5,742,833
6.50%............ 10/15/06 8,000 7,900,000
**3.375%......... 01/15/07 5,110 5,074,072
--------------
46,953,903
--------------
TOTAL U.S. TREASURY OBLIGATIONS........ 53,694,745
(Cost $53,690,287) --------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------- ------------
<S> <C> <C>
TEMPORARY INVESTMENT -- 2.5%
Fidelity Domestic Market
Portfolio 3,061,540 $ 3,061,540
(Cost $3,061,540) --------------
TOTAL INVESTMENTS -- 100.0% $123,801,232
(Cost $123,822,874*) ==============
- ---------------
* Cost for Federal income tax
purposes -- $124,044,428.
The gross unrealized appreciation (depreciation) for
Federal income tax purposes is as follows:
Gross appreciation.................... $ 442,151
Gross depreciation.................... (685,347)
--------------
$ (243,196)
--------------
** Denotes inflation indexed security. Par value shown
is original par before indexing for inflation
(A) Maturity dates represent weighted average lives of
the underlying obligations.
</TABLE>
See Accompanying Notes
20
<PAGE> 23
LOGO FINANCIAL HIGHLIGHTS
ARMADA FIXED INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31
---------------------------------------------------------------------------------------------
1997 1996 1995 1994
------------------------ ------------------------ ----------------------- -------------
INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL
------------- -------- ------------- -------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 10.30 $ 10.35 $ 10.54 $ 10.60 $ 10.24 $ 10.30 $ 10.93
-------- -------- -------- -------- -------- ------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income........ 0.60 0.57 0.61 0.59 0.63 0.61 0.61
Net gain/(loss) on securities
(realized and unrealized)... 0.07 0.07 (0.22) (0.23) 0.30 0.30 (0.59)
-------- -------- -------- -------- -------- ------- --------
Total from investment
operations............... 0.67 0.64 0.39 0.36 0.93 0.91 0.02
-------- -------- -------- -------- -------- ------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income..................... (0.60) (0.57) (0.61) (0.59) (0.63) (0.61) (0.61)
Dividends in excess of net
investment income.......... (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.05)
Dividends from net realized
capital gains.............. (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.03)
Dividends in excess of net
realized capital gains..... (0.00) (0.00) (0.02) (0.02) (0.00) (0.00) (0.02)
-------- -------- -------- -------- -------- ------- --------
Total distributions........ (0.60) (0.57) (0.63) (0.61) (0.63) (0.61) (0.71)
-------- -------- -------- -------- -------- ------- --------
Net asset value, end of
period....................... $ 10.37 $ 10.42 $ 10.30 $ 10.35 $ 10.54 $ 10.60 $ 10.24
======== ======== ======== ======== ======== ======= ========
TOTAL RETURN.................. 6.63% 6.36%(3) 3.79% 3.44%(3) 9.55% 9.26%(3) 0.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
000's)....................... $ 121,271 $ 3,720 $ 111,240 $ 6,216 $ 88,047 $ 5,527 $ 95,907
Ratio of expenses to average
net assets................... .70%(1) .96%(2) .80%(1) 1.04%(2) .85%(1) 1.09%(2) .83%
Ratio of net investment income
to average net assets........ 5.76%(1) 5.52%(2) 5.78%(1) 5.50%(2) 6.24%(1) 5.95%(2) 5.59%
Portfolio turnover rate....... 217% 217% 45% 45% 42% 42% 34%
<CAPTION>
1994 1993
------ -----------------------
RETAIL INSTITUTIONAL RETAIL
------ ------------- -------
<S> <C> <C> <C>
Net asset value, beginning of
period....................... $10.98 $ 10.60 $ 10.63
------ -------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income........ 0.58 0.70 0.65
Net gain/(loss) on securities
(realized and
unrealized)................ (0.58) 0.46 0.48
------ -------- -------
Total from investment
operations............... 0.00 1.16 1.13
------ -------- -------
LESS DISTRIBUTIONS
Dividends from net investment
income..................... (0.58) (0.70) (0.65)
Dividends in excess of net
investment income.......... (0.05) (0.02) (0.02)
Dividends from net realized
capital gains.............. (0.03) (0.11) (0.11)
Dividends in excess of net
realized capital gains..... (0.02) (0.00) (0.00)
------ -------- -------
Total distributions........ (0.68) (0.83) (0.78)
------ -------- -------
Net asset value, end of
period....................... $10.30 $ 10.93 $ 10.98
====== ======== =======
TOTAL RETURN.................. (0.23)%(3) 11.32% 11.03%(3)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
000's)....................... $5,480 $ 95,246 $ 5,208
Ratio of expenses to average
net assets................... 1.08% .32%(1) .57%(2)
Ratio of net investment income
to average net assets........ 5.34% 6.46%(1) 6.21%(2)
Portfolio turnover rate....... 34% 33% 33%
</TABLE>
(1) The operating expense ratio and net investment income ratio before fee
waivers by the Investment Advisers for the Institutional class for the year
ended May 31, 1997 would have been .79% and 5.66%, respectively. 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 year ended May 31, 1993 would have been .80% and 5.98% ,
respectively.
(2) The operating expense ratio and net investment income ratio before fee
waivers by the Investment Advisers for the Retail class for the year ended
May 31, 1997 would have been 1.05% and 5.44%, respectively. The operating
expense ratio and 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 year ended May 31,
1993 would have been 1.05% and 5.73%, respectively.
(3) Total Return excludes sales charge.
See Accompanying Notes
21
<PAGE> 24
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA ENHANCED INCOME FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ---------- -----------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES (A) -- 48.3%
AUTO -- 18.4%
Bay View Auto Trust Series 1997, Class A2
6.59%............. 12/15/04 $ 2,055 $ 2,047,615
Nafco Auto Trust 3
6.50%............. 02/21/98 904 897,443
Premier Auto Trust Series 1996-4 Class A4
6.40%............. 08/05/99 2,755 2,739,000
World Omni Automobile Lease
Securitization Trust
Series 1996-B, Class A2
6.20%............. 05/09/99 750 751,009
Series 1996-B, Class A3
6.25%............. 11/08/99 3,010 2,996,686
Series 1997-A, Class A3
6.85%............. 06/25/03 2,035 2,045,811
-----------
11,477,564
-----------
CREDIT CARDS -- 20.3%
Chase Manhattan Credit Card Master Trust
Series 1996-4, Class A
6.73%............. 05/09/99 2,980 2,997,507
Discover Card Trust
Series 1991-D, Class A
8.00%............. 10/10/98 2,800 2,855,915
Series 1993-B, Class A
6.75%............. 02/15/00 2,200 2,199,960
Fingerhut Master Trust
Series 1996-1, Class A
6.45%............. 05/13/99 3,010 3,004,909
Standard Credit Card Master Trust Series
1995-6, Class B
6.90%............. 05/31/98 1,595 1,608,275
-----------
12,666,566
-----------
HOME EQUITY LOANS -- 0.4%
Cityscape 1997-B A4
7.16%............. 04/25/12 280 281,575
-----------
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ---------- -----------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES (A) -- CONTINUED
OTHER -- 9.2%
Capita Equipment Receivables Trust Series
1996-1, Class A4
6.28%............. 12/11/99 $ 2,170 $ 2,163,469
Met Life Equity Trust
6.85%............. 05/20/08 2,985 2,998,059
Small Business Administration Pool
9.725%............ 02/07/00 550 599,917
-----------
5,761,445
-----------
TOTAL ASSET-BACKED SECURITIES............ 30,187,150
(Cost $30,284,036) -----------
CORPORATE BONDS -- 8.6%
CSC Enterprises
6.50%............. 11/15/01 1,600 1,570,000
Hydro Quebec (Euro)
5.938%............ 11/15/99 1,850 1,829,187
Petroliam Nacional Berhard 144A
6.625%............ 10/18/01 950 940,500
Sears Medium Term Note
9.75%............. 03/21/00 1,000 1,078,750
-----------
TOTAL CORPORATE BONDS.................... 5,418,437
(Cost $5,436,959) -----------
MORTGAGE OBLIGATION (A) -- 0.1%
Federal Home Loan Mortgage Corp.
7.50%............. 07/17/00 45 45,817
(Cost $44,828) -----------
U.S. TREASURY OBLIGATIONS -- 39.5%
Government Trust Certificate
8.00%............. 10/06/97 90 90,000
U.S. Treasury Notes
5.25%............. 07/31/98 8,000 7,939,839
4.75%............. 10/31/98 6,145 6,039,552
5.50%............. 02/28/99 9,695 9,597,758
</TABLE>
See Accompanying Notes
22
<PAGE> 25
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA ENHANCED INCOME FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ---------- -----------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- CONTINUED
U.S. Treasury Notes -- Continued
6.625%............ 06/30/01 $ 1,000 $ 1,005,050
-----------
TOTAL U.S. TREASURY OBLIGATIONS.......... 24,672,199
(Cost $24,688,794) -----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
TEMPORARY INVESTMENT -- 3.5%
Fidelity Domestic Market
Portfolio.................. 2,183,210 2,183,210
(Cost $2,183,210)
TOTAL INVESTMENTS -- 100.0% $62,506,813
(Cost $62,637,827*) ===========
- ---------------
* Cost for Federal income tax
purposes -- $62,728,641.
The gross unrealized appreciation (depreciation)
for Federal income tax purposes is as follows:
Gross appreciation.................. $ 62,502
Gross depreciation.................. (284,330)
-----------
$ (221,828)
-----------
(A) Maturity dates represent weighted average lives of
the underlying obligations.
</TABLE>
See Accompanying Notes
23
<PAGE> 26
LOGO FINANCIAL HIGHLIGHTS
ARMADA ENHANCED INCOME FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31
--------------------------------------------------
FOR THE PERIOD
1997 1996 ENDED MAY 31, 1995
----------------------- ----------------------- -----------------------
INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL(3) RETAIL(3)
------------- ------ ------------- ------ ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 10.01 $10.02 $ 10.16 $10.18 $ 10.00 $10.10
-------- ------ -------- ------ -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income......................... 0.58 0.57 0.58 0.56 0.51(7) 0.43(7)
Net gain/(loss) on securities (realized and
unrealized)................................. 0.01 0.01 (0.05) (0.05) 0.06 0.06
-------- ------ -------- ------ -------- -------
Total from investment operations............ 0.59 0.58 0.53 0.51 0.57 0.49
-------- ------ -------- ------ -------- -------
LESS DISTRIBUTIONS
Dividends from net investment income.......... (0.58) (0.57) (0.58) (0.56) (0.41) (0.41)
Dividends in excess of net investment income.. (0.00) (0.00) (0.10) (0.11) (0.00) (0.00)
Dividends in excess of net realized capital
gains....................................... (0.03) (0.03) (0.00) (0.00) (0.00) (0.00)
-------- ------ -------- ------ -------- -------
Total distributions......................... (0.61) (0.60) (0.68) (0.67) (0.41) (0.41)
-------- ------ -------- ------ -------- -------
Net asset value, end of period.................. $ 9.99 $10.00 $ 10.01 $10.02 $ 10.16 $10.18
======== ====== ======== ====== ======== =======
TOTAL RETURN.................................... 6.02% 5.91%(5) 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)............ $61,031 $2,051 $66,918 $1,718 $60,467 $2,547
Ratio of expenses to average net assets......... .21%(1) .31%(2) .23%(1) .33%(2) .21%(1,4) .32%(2,4)
Ratio of net investment income to average net
assets........................................ 5.74%(1) 5.63%(2) 5.72%(1) 5.55%(2) 5.70%(1,4) 5.89%(2,4)
Portfolio turnover rate......................... 225% 225% 98% 98% 36% 36%
</TABLE>
(1) The operating expense ratio and the net investment income ratio before fee
waivers by the Investment Adviser for the Institutional class for the year
ended May 31, 1997 would have been .66% and 5.29%, respectively. 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 for the Retail class for the year ended
May 31, 1997 would have been .75% and 5.18%, respectively. 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 charge.
(6) Total returns have been annualized based upon the period from each class'
commencement date through May 31, 1995. Gross total returns of the
Institutional and Retail classes for the period were 5.87% and 4.92%,
respectively.
(7) Calculated based upon average shares outstanding.
See Accompanying Notes
24
<PAGE> 27
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA GNMA FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (A) -- 99.1%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 78.2%
Pool# 130626
11.50%.......... 04/19/00 $ 43 $ 48,454
Pool# 136667
11.50%.......... 05/18/00 35 39,326
Pool# 146462
11.50%.......... 04/22/00 18 19,937
Pool# 162246
9.00%........... 05/18/02 47 50,376
Pool# 183426
8.50%........... 12/12/02 97 101,849
Pool# 199649
8.00%........... 08/21/03 44 45,648
Pool# 200669
8.50%........... 02/27/03 151 159,020
Pool# 202671
8.00%........... 09/15/03 29 29,493
Pool# 202955
8.50%........... 03/20/03 172 181,240
Pool# 203154
8.50%........... 01/25/03 95 99,551
Pool# 206979
8.50%........... 03/13/03 94 98,804
Pool# 208540
8.00%........... 08/13/03 94 97,369
Pool# 209632
9.00%........... 08/28/02 127 135,867
Pool# 210565
8.00%........... 04/30/03 16 16,501
Pool# 212306
8.50%........... 03/02/03 99 103,802
Pool# 213458
8.00%........... 09/12/03 95 97,887
Pool# 216632
8.50%........... 03/20/03 85 88,971
Pool# 220950
9.00%........... 07/08/02 442 472,237
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (A) -- CONTINUED
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- CONTINUED
Pool# 228869
8.50%........... 01/10/03 $ 1,344 $ 1,413,701
Pool# 231935
9.00%........... 07/04/02 229 244,880
Pool# 248132
8.50%........... 11/09/03 357 374,027
Pool# 266484
7.00%........... 04/10/06 90 88,199
Pool# 266878
7.50%........... 09/18/05 478 478,290
Pool# 289354
9.00%........... 01/10/03 226 241,819
Pool# 300698
9.00%........... 12/16/02 413 439,438
Pool# 301286
8.50%........... 11/02/03 363 380,083
Pool# 302597
8.50%........... 09/26/03 33 34,422
Pool# 303772
8.50%........... 12/12/03 272 284,105
Pool# 312919
8.50%........... 12/16/03 386 403,785
Pool# 314292
8.50%........... 06/23/03 249 260,475
Pool# 316989
8.50%........... 11/09/03 113 118,605
Pool# 320229
7.50%........... 07/07/05 377 377,665
Pool# 325411
7.00%........... 01/20/06 24 22,994
Pool# 327085
7.50%........... 06/19/05 45 45,221
Pool# 32767
9.00%........... 07/15/02 3,365 3,595,089
Pool# 330280
7.00%........... 04/03/06 137 133,884
</TABLE>
See Accompanying Notes
25
<PAGE> 28
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA GNMA FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (A) -- CONTINUED
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- CONTINUED
Pool# 331837
7.00%........... 02/22/06 $ 292 $ 285,106
Pool# 333977
7.50%........... 08/16/05 98 98,519
Pool# 334116
7.50%........... 08/09/05 344 344,087
Pool# 336541
7.50%........... 09/11/05 178 178,755
Pool# 337353
7.00%........... 01/31/06 26 25,375
Pool# 337540
7.00%........... 02/17/06 1,293 1,263,554
Pool# 338766
7.50%........... 07/29/05 326 325,989
Pool# 338845
7.00%........... 02/15/06 421 412,121
Pool# 340307
7.50%........... 07/29/05 335 335,439
Pool# 340792
7.50%........... 08/31/05 30 29,632
Pool# 344011
8.00%........... 10/28/04 15 15,624
Pool# 345892
7.00%........... 04/25/06 87 85,098
Pool# 348356
7.50%........... 08/01/06 239 239,720
Pool# 348778
7.50%........... 07/15/04 467 467,628
Pool# 351910
7.00%........... 03/15/05 19 18,861
Pool# 352047
7.00%........... 04/25/06 855 835,926
Pool# 352108
7.00%........... 04/10/06 418 408,400
Pool# 352143
7.50%........... 08/31/05 31 31,285
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (A) -- CONTINUED
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- CONTINUED
Pool# 352144
7.50%........... 08/23/05 $ 414 $ 414,353
Pool# 352189
7.50%........... 09/25/05 28 28,123
Pool# 352190
7.00%........... 03/16/06 32 31,511
Pool# 352724
7.50%........... 09/11/05 179 179,381
Pool# 353023
7.50%........... 12/11/05 344 344,762
Pool# 353162
7.00%........... 04/10/06 337 329,619
Pool# 354106
7.50%........... 09/11/05 58 57,901
Pool# 355806
7.00%........... 03/08/06 719 703,153
Pool# 356016
7.00%........... 03/16/06 400 391,009
Pool# 357235
7.50%........... 10/21/05 748 748,585
Pool# 357338
7.00%........... 04/18/06 56 54,286
Pool# 357351
7.00%........... 05/02/06 75 73,311
Pool# 357841
7.00%........... 04/10/06 285 278,820
Pool# 358074
7.00%........... 04/10/06 274 267,918
Pool# 358251
7.00%........... 04/03/06 439 429,001
Pool# 358308
7.50%........... 10/06/05 356 356,773
Pool# 358845
7.50%........... 09/11/05 208 208,136
Pool# 359600
7.50%........... 09/29/05 84 84,353
</TABLE>
See Accompanying Notes
26
<PAGE> 29
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA GNMA FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (A) -- CONTINUED
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- CONTINUED
Pool# 359897
7.00%........... 04/03/06 $ 191 $ 186,684
Pool# 362039
7.00%........... 05/24/06 100 97,358
Pool# 362141
8.00%........... 02/15/04 4,763 4,879,117
Pool# 362619
7.50%........... 08/23/05 449 449,741
Pool# 363566
7.00%........... 05/10/06 72 70,747
Pool# 364258
7.50%........... 07/29/05 316 316,755
Pool# 366037
7.00%........... 05/24/06 52 50,737
Pool# 366357
7.00%........... 04/25/06 745 727,820
Pool# 368918
7.00%........... 05/06/06 30 29,430
Pool# 369696
7.50%........... 09/29/05 308 308,545
Pool# 369707
7.00%........... 04/18/06 52 50,449
Pool# 370019
7.50%........... 07/29/05 189 189,368
Pool# 371816
7.50%........... 12/15/05 159 159,510
Pool# 371844
7.00%........... 07/11/06 573 560,049
Pool# 373227
7.00%........... 05/10/06 23 22,231
Pool# 374837
7.00%........... 03/08/06 119 116,043
Pool# 374876
7.50%........... 08/31/05 373 373,226
Pool# 375857
7.00%........... 05/10/06 429 418,881
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (A) -- CONTINUED
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- CONTINUED
Pool# 377922
7.00%........... 03/16/06 $ 409 $ 399,337
Pool# 377942
7.00%........... 03/01/06 194 189,363
Pool# 378661
7.00%........... 04/25/06 14 13,851
Pool# 384077
8.00%........... 10/21/04 667 683,270
Pool# 384540
7.00%........... 05/06/06 423 412,993
Pool# 385608
7.00%........... 06/26/06 38 37,241
Pool# 385654
8.00%........... 12/29/04 834 854,422
Pool# 388144
7.00%........... 06/26/06 915 894,371
Pool# 388741
7.50%........... 11/26/05 333 332,926
Pool# 402183
7.00%........... 08/20/07 990 964,698
Pool# 407922
7.00%........... 09/11/07 991 965,651
Pool# 408674
7.00%........... 02/26/07 731 712,676
Pool# 410588
7.00%........... 09/11/07 991 965,198
Pool# 412235
7.00%........... 08/05/07 710 691,971
Pool# 412760
8.75%........... 09/19/02 926 969,148
Pool# 416211
7.00%........... 08/12/07 982 956,618
Pool# 419305
7.00%........... 07/01/02 1,855 1,853,003
Pool# 422720
7.00%........... 08/12/07 498 485,276
</TABLE>
See Accompanying Notes
27
<PAGE> 30
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA GNMA FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (A) -- CONTINUED
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- CONTINUED
Pool# 425771
7.00%........... 10/06/07 $ 267 $ 259,693
Pool# 4280
8.50%........... 02/15/23 4,068 4,243,768
Pool# 428443
7.50%........... 02/15/06 3,218 3,211,428
Pool# 432663
7.00%........... 09/03/07 496 482,929
Pool# 433050
7.00%........... 09/22/07 991 965,014
Pool# 5147
7.25%........... 01/22/00 181 180,168
Pool# 59129
11.50%.......... 03/09/00 14 15,790
Pool# 59786
11.50%.......... 03/06/00 27 29,828
Pool# 60456
11.50%.......... 01/15/00 33 37,170
Pool# 60543
11.50%.......... 03/28/00 28 31,630
Pool# 608
9.00%........... 05/29/02 1,680 1,783,300
Pool# 61230
11.50%.......... 03/24/00 17 19,197
Pool# 61730
11.50%.......... 04/08/00 10 11,650
Pool# 61733
11.50%.......... 04/04/00 21 23,770
Pool# 63551
11.50%.......... 03/28/00 24 26,482
Pool# 66093
11.50%.......... 12/06/99 7 7,619
Pool# 69510
11.50%.......... 03/24/00 15 17,272
Pool# 70538
11.50%.......... 03/17/00 22 24,410
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (A) -- CONTINUED
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- CONTINUED
Pool# 71263
11.50%.......... 04/11/00 $ 23 $ 25,396
Pool# 780048
8.50%........... 01/17/03 485 504,539
Pool# 90038
10.00%.......... 09/14/04 21 23,108
Pool# 90069
9.00%........... 01/26/99 85 89,398
Pool# 90223
9.00%........... 11/21/99 69 72,927
Pool# 90250
9.00%........... 09/09/99 125 131,768
Pool# 90332
9.00%........... 11/25/98 71 75,254
Pool# 90337
9.00%........... 11/05/03 99 104,910
Pool# 905259
11.25%.......... 06/13/97 36 39,504
Pool# 905646
11.25%.......... 05/01/09 50 55,727
Pool# 905680
11.25%.......... 10/16/08 6 6,572
Pool# 905738
11.25%.......... 05/01/09 33 36,872
Pool# 905999
11.25%.......... 05/01/09 37 40,331
Pool# 90626
9.00%........... 03/07/99 114 120,315
Pool# 90727
10.00%.......... 10/07/03 5 5,810
Pool# 90923
9.00%........... 07/04/00 184 194,229
Pool# 91020
10.00%.......... 05/30/99 7 7,412
Pool# 91080
10.00%.......... 03/09/00 43 47,622
</TABLE>
See Accompanying Notes
28
<PAGE> 31
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA GNMA FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (A) -- CONTINUED
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- CONTINUED
Pool# 91434
10.00%.......... 03/09/00 $ 50 $ 54,925
Pool# 9223
10.25%.......... 11/14/09 30 32,712
Pool# 9306
10.25%.......... 07/23/03 102 111,989
Pool# 93064
10.00%.......... 05/12/99 71 77,867
Pool# 9342
10.25%.......... 09/13/11 107 116,948
---------
55,941,085
---------
FEDERAL HOME LOAN MORTGAGE CORP. -- 1.2%
Pool# E61857
7.00%........... 01/28/02 874 870,639
---------
FEDERAL HOME LOAN MORTGAGE CORP. DISCOUNT
NOTE -- 9.8%
5.420%............ 06/10/97 7,000 6,991,569
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
TBA+ -- 9.9%
8.00%............. 08/12/04 7,000 7,120,312
---------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS............................ 70,923,605
(Cost $70,751,206) ---------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
----------
<S> <C> <C>
TEMPORARY INVESTMENT -- 0.9%
Goldman Financial Square
Government Fund............ 658,162 $ 658,162
--------------
(Cost $658,162)
TOTAL INVESTMENTS -- 100.0% $ 71,581,767
==============
(Cost $71,409,368*)
</TABLE>
- ---------------
* Also cost for Federal income tax purposes.
The gross unrealized appreciation (depreciation) for Federal income tax purposes
is as follows:
<TABLE>
<S> <C>
Gross appreciation........................ $ 515,452
Gross depreciation...................... (343,053)
------------
$ 172,399
------------
</TABLE>
(A) Maturity dates represent average weighted lives of the underlying
obligations.
+ When-issued security
See Accompanying Notes
29
<PAGE> 32
LOGO FINANCIAL HIGHLIGHTS
ARMADA GNMA FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE FOR THE FOR THE
MAY 31, 1997(4) PERIOD ENDED YEAR ENDED PERIOD ENDED
----------------------- MAY 31, APRIL 30, APRIL 30,
INSTITUTIONAL RETAIL(5) 1996(4) 1996(4) 1995(4)
------------- ------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 10.03 $ 10.02 $ 10.12 $ 10.16 $ 10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................................ 0.65 0.45 0.05 0.66 0.48
Net gain/(loss) on securities (realized and
unrealized)........................................ 0.22 0.23 (0.09) 0.14 0.16
------- ------- ------- ------- -------
Total from investment operations................... 0.87 0.68 (0.04) 0.80 0.64
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income................. (0.65) (0.45) (0.05) (0.66) (0.48
Dividends from net realized capital gains............ (0.01) (0.01) (0.00) (0.18) (0.00)
Dividends in excess of net realized capital gains.... (0.09) (0.09) (0.00) (0.00) (0.00)
------- ------- ------- ------- -------
Total distributions................................ (0.75) (0.55) (0.05) (0.84) (0.48)
------- ------- ------- ------- -------
Net asset value, end of period......................... $ 10.15 $ 10.15 $ 10.03 $ 10.12 $ 10.16
======= ======= ======= ======= =======
TOTAL RETURN........................................... 9.03% 8.83%(6) (0.35)%(3,6) 7.97%(6) 6.61%(3,6)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)................... $64,501 $ 128 $ 60,532 $ 62,161 $ 42,212
Ratio of expenses to average net assets................ .86%(1) 1.12%(2) .85%(1,2) .85%(1) .85%(1,2)
Ratio of net investment income to average net assets... 6.45%(1) 6.17%(2) 6.33%(1,2) 6.30%(1) 6.68%(1,2)
Portfolio turnover rate................................ 57% 57% 1% 149% 226%
</TABLE>
(1) The operating expense ratio and the net investment income ratio before fee
waivers for the Institutional class and the Predecessor Fund for the year
ended May 31, 1997, for the period ended May 31, 1996, for the year ended
April 30, 1996, and for the period ended April 30, 1995 would have been
1.01% and 6.30%, 1.28% and 5.90%, 1.29% and 5.86%, and 1.40% and 6.13%,
respectively.
(2) Annualized
(3) Not annualized.
(4) Activity for the period presented includes that of the Predecessor Fund
through September 6, 1996. The Predecessor Fund commenced operations on
August 10, 1994. During 1996, the Predecessor Fund changed its fiscal
year-end from April 30 to May 31.
(5) Retail class commenced operations on September 11, 1996.
(6) Total return excludes sales charge.
See Accompanying Notes
30
<PAGE> 33
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- -----------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS (A) -- 39.6%
FEDERAL HOME LOAN MORTGAGE CORP. -- 18.5%
Pool# 141138
7.50%............ 10/31/03 $ 658 $ 663,304
Pool# 219329
9.25%............ 07/18/99 113 117,697
Pool# 280417
8.50%............ 10/31/01 15 15,668
Pool# 294315
8.50%............ 05/09/02 25 26,230
Pool# 450074
8.50%............ 01/01/03 180 188,170
Pool# E20204
6.50%............ 05/16/02 881 861,082
Pool# E20206
7.50%............ 01/01/02 322 326,678
Pool# E60894
7.50%............ 12/07/01 65 66,360
Pool# E61277
7.50%............ 10/31/01 190 192,568
Pool# E64179
7.50%............ 06/04/02 657 665,826
Pool# E64198
7.50%............ 04/25/02 247 250,768
Pool# E64229
7.50%............ 03/30/02 27 27,233
Pool# E64248
7.50%............ 06/29/02 1,151 1,166,818
Pool# M14983
7.50%............ 06/01/97 6 6,239
Series 1038, Class
F
9.00%............ 08/13/98 53 54,113
Series 1244, Class
H
8.00%............ 03/15/21 5,000 5,129,140
Series 1400, Class
A
6.25%............ 05/05/00 298 294,150
Series 1587, Class
Ez
5.75%............ 10/07/99 4,471 4,272,102
Series 1606, Series Ea
5.75%............ 11/21/99 300 294,808
Series 1612, Class
Pd
5.75%............ 09/26/99 500 492,009
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- -----------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS (A) -- CONTINUED
FEDERAL HOME LOAN MORTGAGE CORP. -- CONTINUED
Series 1635, Class
D
5.20%............ 06/23/98 $ 500 $ 495,035
Series 1673, Class
B
4.95%............ 09/08/97 94 93,911
Series 1679, Class
A
5.25%............ 01/02/99 529 518,416
Series 23, Class Pc
4.75%............ 08/28/97 219 217,925
Series 78, Class D
8.70%............ 11/23/98 325 330,956
-----------
16,767,206
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 6.4%
Pool# 20089
5.39%............ 08/05/98 3,000 2,983,590
Pool# 210452
9.50%............ 04/06/02 153 165,099
Pool# 250007
6.50%............ 12/03/02 399 380,222
Pool# 31592
7.50%............ 02/19/00 211 212,887
Pool# 77831
7.50%............ 04/14/00 230 231,263
Series 1993-29,
Class Pe
6.00%............ 03/13/99 500 493,524
Series 1994-65,
Class Pd
6.50%............ 10/25/98 945 947,013
Series 1994-72,
Class E
6.00%............ 04/25/00 400 392,746
Series G92-1, Class
C
8.25%............ 09/08/97 42 42,613
-----------
5,848,957
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 14.7%
Pool# 362141
8.00%............ 12/29/03 2,524 2,585,932
Pool# 1388
9.00%............ 07/17/02 504 535,478
</TABLE>
See Accompanying Notes
31
<PAGE> 34
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- -----------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS (A) -- CONTINUED
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- CONTINUED
Pool# 164759
9.00%............ 10/17/02 $ 92 $ 98,783
Pool# 164775
9.50%............ 04/03/02 294 318,461
Pool# 170814
9.00%............ 10/20/02 164 175,550
Pool# 174837
9.00%............ 10/06/02 136 145,584
Pool# 183976
7.50%............ 09/09/04 134 133,681
Pool# 190295
9.00%............ 10/17/02 509 544,615
Pool# 208541
9.00%............ 10/24/02 258 275,384
Pool# 211630
8.00%............ 07/25/03 247 255,667
Pool# 212415
8.00%............ 08/16/03 168 174,014
Pool# 213252
9.00%............ 10/31/02 202 216,090
Pool# 214178
8.00%............ 08/16/03 328 339,519
Pool# 303442
8.50%............ 01/16/03 77 80,775
Pool# 304732
7.50%............ 08/22/04 1,082 1,083,883
Pool# 310780
8.50%............ 01/16/03 32 33,111
Pool# 314586
8.50%............ 01/16/03 428 447,152
Pool# 315728
8.50%............ 01/16/03 396 413,979
Pool# 319999
8.50%............ 11/15/02 261 272,038
Pool# 321563
8.50%............ 01/01/03 134 140,298
Pool# 321786
8.50%............ 12/29/02 374 390,369
PAR
MATURITY (000) VALUE
-------- --------- -----------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (A) -- CONTINUED
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- CONTINUED
Pool# 325399
7.50%............ 07/27/04 $ 19 $ 19,337
Pool# 328142
8.00%............ 12/25/03 25 25,173
Pool# 331869
7.50%............ 10/05/04 495 495,558
Pool# 332285
8.50%............ 12/03/02 343 358,414
Pool# 334669
7.50%............ 10/08/04 355 355,831
Pool# 337049
7.50%............ 09/24/04 693 694,009
Pool# 337062
7.50%............ 09/27/04 434 434,766
Pool# 348665
7.50%............ 09/09/04 412 412,285
Pool# 353996
7.50%............ 09/27/04 112 112,370
Pool# 306473
8.50%............ 01/16/03 191 199,766
Pool# 371437
7.00%............ 12/28/04 271 264,904
Pool# 378507
8.00%............ 01/27/04 710 727,104
Pool# 780153
9.00%............ 09/18/02 151 160,844
Pool# 9244
8.25%............ 03/30/03 116 119,695
Pool# 9279
8.25%............ 04/03/03 259 267,772
-----------
13,308,191
-----------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS............................. 35,924,354
(Cost $35,915,319) -----------
</TABLE>
See Accompanying Notes
32
<PAGE> 35
LOGO PORTFOLIO OF INVESTMENTS
MAY 31, 1997 ARMADA INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- -----------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 33.2%
U.S. Treasury Notes
7.375%............. 11/15/97 $ 3,500 $ 3,527,125
8.875%............. 11/15/97 4,400 4,463,359
5.375%............. 11/30/97 12,750 12,737,249
6.375%............. 08/15/02 3,000 2,983,290
6.50%.............. 10/15/06 2,500 2,468,750
**3.375%........... 01/15/07 4,000 3,971,876
-----------
TOTAL U.S. TREASURY OBLIGATIONS..........
30,151,649
-----------
(Cost $30,053,974)
ASSET-BACKED SECURITIES (A) -- 8.2%
Equicredit Series 1996-4,
Class A9
6.89%.............. 03/30/03 1,570 1,541,874
Equivantage 1997-1, Class A4
7.275%............. 02/07/00 3,000 3,015,000
IMC Home Equity Loan Trust,
Series 1997-2, Class A6
7.67%.............. 07/02/10 2,900 2,907,250
-----------
TOTAL ASSET-BACKED SECURITIES............ 7,464,124
-----------
(Cost $7,469,260)
PRIVATE LABEL MORTGAGE-BACKED
SECURITIES (A) -- 15.5%
Midland Realty Acceptance
Corp.
7.02%.............. 05/20/02 2,836 2,828,906
Norwest Asset Securities Corp.
Series 1996-9, Class A4
8.00%.............. 12/30/98 2,500 2,531,641
Prudential Home Mortgage
Securities Series 1996-7,
Class A7
6.75%.............. 01/02/07 1,500 1,439,766
Residential Asset
Securitization Trust Series
1996-A2, Class A7
7.50%.............. 08/12/02 2,000 1,983,437
<CAPTION>
PAR
MATURITY (000) VALUE
-------- --------- -----------
<S> <C> <C> <C>
PRIVATE LABEL MORTGAGE-BACKED
SECURITIES (A) -- CONTINUED
Residential Asset
Securitization Trust Series
1996-A4, Class A10
7.50%.............. 02/11/02 $ 2,000 $ 1,994,687
Structured Asset Sales Inc.
Series 1994-5, Class Am
7.00%.............. 10/30/07 3,387 3,255,554
-----------
TOTAL PRIVATE LABEL MORTGAGE-BACKED
SECURITIES.............................. 14,033,991
-----------
(Cost $14,032,067)
COMMERCIAL PAPER -- 1.6%
General Electric
Capital Corporation
5.55%.............. 07/21/97 1,500 1,488,376
(Cost $1,488,376) -----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C> <C> <C>
TEMPORARY INVESTMENT -- 1.9%
Goldman Sachs Financial Square
Government Fund.............. 1,750,111 1,750,111
(Cost $1,750,111) -----------
TOTAL INVESTMENTS -- 100.0% $90,812,605
(Cost $90,709,107*) ===========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C>
* Also cost for Federal income tax purposes.
The gross unrealized appreciation (depreciation) for
Federal income tax purposes is as follows:
Gross appreciation..................... $ 414,532
Gross depreciation..................... (311,034)
-----------
$ 103,498
-----------
** Denotes inflation indexed security. Par value shown
is original par before indexing for inflation.
(A) Maturity dates represent weighted average lives of
the underlying obligations.
</TABLE>
See Accompanying Notes
33
<PAGE> 36
LOGO FINANCIAL HIGHLIGHTS
ARMADA INTERMEDIATE GOVERNMENT FUND
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE FOR THE FOR THE
MAY 31, 1997(4) PERIOD ENDED YEAR ENDED PERIOD ENDED
------------------------ MAY 31, APRIL 30, APRIL 30,
INSTITUTIONAL RETAIL(5) 1996(4) 1996(4) 1995(4)
------------- --------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 9.97 $ 9.97 $ 10.04 $ 10.02 $ 10.00
------- ------ ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income........................ 0.59 0.41 0.05 0.64 0.44
Net gain/(loss) on securities (realized and
unrealized)................................ 0.13 0.13 (0.07) 0.07 0.02
------- ------ ------- ------- -------
Total from investment operations......... 0.72 0.54 (0.02) 0.71 0.46
------- ------ ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income......... (0.59) (0.41) (0.05) (0.64) (0.44)
Dividends from net realized capital gains.... (0.00) (0.00) (0.00) (0.05) (0.00)
Dividends in excess of net realized capital
gains...................................... (0.08) (0.08) (0.00) (0.00) (0.00)
------- ------ ------- ------- -------
Total distributions...................... (0.67) (0.49) (0.05) (0.69) (0.44)
------- ------ ------- ------- -------
Net asset value, end of period................. $ 10.02 $10.02 $ 9.97 $ 10.04 $ 10.02
======= ====== ======= ======= =======
TOTAL RETURN................................... 7.41% 7.22%(6) (0.19)%(3,6) 7.09%(6) 4.75%(3,6)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)........... $91,161 $ 23 $ 88,829 $ 89,901 $ 53,316
Ratio of expenses to average net assets........ 0.83%(1) 1.07%(2) 0.85%(1,2) 0.85%(1) 0.85%(1,2)
Ratio of net investment income to average net
assets....................................... 5.83%(1) 5.64%(2) 5.88%(1,2) 6.20%(1) 6.17%(1,2)
Portfolio turnover rate........................ 96% 96% 2% 94% 172%
</TABLE>
(1) The operating expense ratio and the net investment income ratio before fee
waivers by the Investment Advisers and other service providers for the
Institutional class and the Predecessor Fund for the year ended May 31,
1997, for the period ended May 31, 1996, for the year ended April 30, 1996,
and for the period ended April 30, 1995 would have been .96% and 5.71%,
1.25% and 5.48%, 1.25% and 5.80%, and 1.33% and 5.69%, respectively.
(2) Annualized
(3) Not annualized.
(4) Activity for the period presented includes that of the Predecessor Fund
through September 6, 1996. The Predecessor Fund commenced operations on
August 10, 1994. During 1996, the Predecessor Fund changed its fiscal
year-end from April 30 to May 31.
(5) Retail class commenced operations on September 11, 1996.
(6) Total return excludes sales charge.
See Accompanying Notes
34
<PAGE> 37
LOGO FINANCIAL STATEMENTS
MAY 31, 1997 ARMADA FUNDS INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
TOTAL RETURN FIXED ENHANCED INTERMEDIATE
ADVANTAGE INCOME INCOME GNMA GOVERNMENT
FUND FUND FUND FUND FUND
------------ ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments at value (cost $260,057,041,
$123,822,874, $62,637,827, $71,409,368, and
$90,709,107, respectively)................. $258,741,353 $123,801,232 $62,506,813 $71,581,767 $90,812,605
Interest and dividends receivable............ 2,770,136 1,629,194 614,353 373,955 926,875
Receivable for Fund shares sold.............. 659,450 197,926 241,882 156,110 541
Receivable for investments sold.............. 4,312,694 0 3,344,697 0 0
Prepaid expenses............................. 10,280 182 10,588 6,209 6,209
------------ ------------ ----------- ----------- -----------
TOTAL ASSETS................................. 266,493,913 125,628,534 66,718,333 72,118,041 91,746,230
------------ ------------ ----------- ----------- -----------
LIABILITIES
Dividends payable -- Institutional class..... 647,462 497,114 116,520 329,294 451,183
Dividends payable -- Retail class............ 18 1,393 42 89 112
Payable for Fund shares redeemed............. 56,392 55,975 465 0 0
Payable for investments purchased............ 4,310,000 0 3,498,298 7,096,250 0
Accrued expenses............................. 66,189 83,110 21,471 62,784 110,102
------------ ------------ ----------- ----------- -----------
TOTAL LIABILITIES............................ 5,080,061 637,592 3,636,796 7,488,417 561,397
------------ ------------ ----------- ----------- -----------
NET ASSETS................................... $261,413,852 $124,990,942 $63,081,537 $64,629,624 $91,184,833
============ ============ =========== =========== ===========
NET ASSETS CONSIST OF:
Paid-in capital.............................. $265,939,838 $126,558,500 $63,227,964 $64,378,530 $91,483,046
Undistributed net realized gain (loss) on
investments sold........................... (3,210,298) (1,545,916) (15,413) 78,695 (401,711)
Net unrealized appreciation (depreciation) on
investments................................ (1,315,688) (21,642) (131,014) 172,399 103,498
------------ ------------ ----------- ----------- -----------
$261,413,852 $124,990,942 $63,081,537 $64,629,624 $91,184,833
============ ============ =========== =========== ===========
Net Assets -- Institutional class............ $259,227,625 $121,270,966 $61,030,663 $64,501,298 $91,161,439
Shares outstanding -- Institutional class.... 26,203,807 11,696,026 6,111,731 6,355,180 9,098,961
Net asset value, Offering and Redemption
price per share -- Institutional class..... $ 9.89 $ 10.37 $ 9.99 $ 10.15 $ 10.02
============ ============ =========== =========== ===========
Net Assets -- Retail class................... $ 2,186,227 $ 3,719,976 $2,050,874 $ 128,326 $ 23,394
Shares outstanding -- Retail class........... 221,051 357,016 205,025 12,644 2,335
Net asset value and Redemption price per
share -- Retail class...................... $ 9.89 $ 10.42 $ 10.00 $ 10.15 $ 10.02
============ ============ =========== =========== ===========
Maximum sales charge -- Retail class......... 3.75% 3.75% 2.75% 3.75% 3.75%
Maximum Offering price per Retail share...... $ 10.28 $ 10.83 $ 10.28 $ 10.55 $ 10.41
============ ============ =========== =========== ===========
</TABLE>
See Accompanying Notes
35
<PAGE> 38
LOGO FINANCIAL STATEMENTS
ARMADA FUNDS INCOME SERIES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1997
<TABLE>
<CAPTION>
TOTAL RETURN FIXED ENHANCED INTERMEDIATE
ADVANTAGE INCOME INCOME GNMA GOVERNMENT
FUND FUND FUND FUND(1) FUND(1)
------------ --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest......................................... $19,095,616 $7,845,351 $3,913,606 $4,635,569 $6,095,459
----------- ---------- ---------- ---------- ----------
EXPENSES:
Investment Advisory fees......................... 1,530,963 668,549 296,129 374,304 539,562
Administration fees.............................. 258,768 121,554 65,807 76,954 111,146
Custodian fees................................... 38,762 22,508 13,516 13,991 16,010
Distribution fees................................ 27,362 11,971 6,641 6,934 7,659
Legal fees....................................... 23,281 10,787 5,892 5,549 4,823
Transfer Agent fees.............................. 19,589 46,065 12,573 23,833 24,422
Miscellaneous.................................... 15,344 10,881 7,319 34,141 55,561
Registration and filing fees..................... 14,543 9,833 8,544 17,115 8,673
Audit fees....................................... 11,028 6,191 5,480 8,860 4,874
Trustees' fees................................... 8,138 3,508 2,104 3,028 4,419
Printing and shareholder reports................. 6,608 1,733 1,733 8,366 7,110
Shareholder servicing fees -- Retail class
only........................................... 5,299 10,931 2,042 223 41
Insurance........................................ 5,112 2,105 1,216 1,038 1,506
Amortization of organization costs............... 4,360 0 4,157 3,323 3,323
12b-1 fees....................................... 0 48,628 0 60,822 88,491
Fees waived...................................... 0 0 0 (42,191) (61,844)
Fees waived by Investment Adviser................ (1,530,963) (118,288) (296,129) (50,450) (54,417)
----------- ---------- ---------- ---------- ----------
Total expenses................................... 438,194 856,956 137,024 545,840 761,359
----------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME.............................. 18,657,422 6,988,395 3,776,582 4,089,729 5,334,100
----------- ---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain/(loss) on investments sold..... (2,903,899) 391,862 (14,163) 78,695 (382,742)
Net change in unrealized appreciation on
investments.................................... 7,849,645 715,890 105,038 1,305,734 1,587,049
----------- ---------- ---------- ---------- ----------
Net gain on investments.......................... 4,945,746 1,107,752 90,875 1,384,429 1,204,307
----------- ---------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $23,603,168 $8,096,147 $3,867,457 $5,474,158 $6,538,407
=========== ========== ========== ========== ==========
</TABLE>
(1) Activity for the year ended May 31, 1997 includes that of the Predecessor
Fund through September 6, 1996.
See Accompanying Notes
36
<PAGE> 39
LOGO FINANCIAL STATEMENTS
ARMADA FUNDS INCOME SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TOTAL RETURN
ADVANTAGE FUND FIXED INCOME FUND ENHANCED INCOME FUND
-------------------------- ----------------------------- ------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1997 MAY 31, 1996 MAY 31, 1997 MAY 31, 1996 MAY 31, 1997 MAY 31, 1996
------------ ------------ --------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................ $ 18,657,422 $ 18,744,051 $ 6,988,395 $ 6,163,141 $ 3,776,582 $ 3,787,166
Net realized gain/(loss) on
investments sold................... (2,903,899) 12,820,049 391,862 664,254 (14,163) 302,951
Net change in unrealized
appreciation/(depreciation) on
investments........................ 7,849,645 (20,509,451) 715,890 (3,207,398) 105,038 (648,178)
------------ ------------ ------------ ------------ ----------- -----------
Net increase in net assets resulting
from operations.................... 23,603,168 11,054,649 8,096,147 3,619,997 3,867,457 3,441,939
------------ ------------ ------------ ------------ ----------- -----------
Distributions to shareholders from net
investment income.................... (18,657,422) (18,744,051) (6,988,395) (6,163,141) (3,776,582) (3,787,166)
Distributions to shareholders in excess
of net investment income............. 0 (3,016,611) 0 0 0 (589,947)
Distributions to shareholders from net
realized capital gains............... 0 (8,344,492) 0 0 0 0
Distributions to shareholders in excess
of net realized capital gains........ (3,893,970) 0 0 (253,500) (184,525) 0
Increase/(decrease) in net assets
derived from capital share
transactions......................... (22,078,833) 39,981,901 6,427,405 26,678,768 (5,460,735) 6,557,090
------------ ------------ ------------ ------------ ----------- -----------
Total increase/(decrease) in net
assets............................... (21,027,057) 20,931,396 7,535,157 23,882,124 (5,554,385) 5,621,916
------------ ------------ ------------ ------------ ----------- -----------
NET ASSETS:
Beginning of period.................... 282,440,909 261,509,513 117,455,785 93,573,661 68,635,922 63,014,006
------------ ------------ ------------ ------------ ----------- -----------
End of period.......................... $261,413,852 $282,440,909 $124,990,942 $117,455,785 $63,081,537 $68,635,922
============ ============ ============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
GNMA FUND INTERMEDIATE GOVERNMENT FUND
------------------------------------------- --------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
MAY 31, MAY 31, APRIL 30, MAY 31, MAY 31, APRIL 30,
1997(1) 1996(2) 1996(2) 1997(1) 1996(2) 1996(2)
------------ ------------ --------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................ $ 4,089,729 $ 334,533 $ 3,469,175 $ 5,334,100 $ 451,062 $ 5,339,979
Net realized gain/(loss) on
investments sold................... 78,695 0 1,610,808 (382,742) (18,968) 1,517,121
Net change in unrealized
appreciation/(depreciation) on
investments........................ 1,305,734 (528,892) (1,241,955) 1,587,049 (623,881) (1,491,969)
------------ ------------ ------------ ------------ ----------- -----------
Net increase/(decrease) in net assets
resulting from operations.......... 5,474,158 (194,359) 3,838,028 6,538,407 (191,787) 5,365,131
------------ ------------ ------------ ------------ ----------- -----------
Distributions to shareholders from net
investment income.................... (4,088,918) (334,533) (3,469,175) (5,328,745) (451,062) (5,339,979)
Distributions to shareholders in excess
of net investment income............. 0 (814) (6) 0 (5,354) 0
Distributions to shareholders from net
realized capital gains............... (78,695) 0 (1,053,382) 0 0 (403,604)
Distributions to shareholders in excess
of net realized capital gains........ (559,059) 0 0 (751,433) 0 0
Increase/(decrease) in net assets
derived from capital share
transactions......................... 3,349,838 (1,098,837) 20,633,207 1,897,457 (423,959) 36,963,267
------------ ------------ ------------ ------------ ----------- -----------
Total increase/(decrease) in net
assets............................... 4,097,324 (1,628,543) 19,948,672 2,355,686 (1,072,162) 36,584,815
------------ ------------ ------------ ------------ ----------- -----------
NET ASSETS:
Beginning of period.................... 60,532,300 62,160,843 42,212,171 88,829,147 89,901,309 53,316,494
------------ ------------ ------------ ------------ ----------- -----------
End of period.......................... $ 64,629,624 $ 60,532,300 $62,160,843 $ 91,184,833 $88,829,147 $89,901,309
============ ============ ============ ============ =========== ===========
</TABLE>
(1) Activity for the year ended May 31, 1997 includes that of the Predecessor
Fund through September 6, 1996.
(2) Activity for the periods ended May 31, 1996 and April 30, 1996 represents
that of the Predecessor Fund.
See Accompanying Notes
37
<PAGE> 40
LOGO NOTES TO FINANCIAL STATEMENTS
1. FUND ORGANIZATION
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 thirty-two classes of shares of
beneficial interest, each of which evidences an interest in one of 16 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 Growth 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)
Total Return Advantage Fund
(Class P "Institutional" shares and Class P-Special Series 1 "Retail" shares)
Pennsylvania Tax Exempt Fund
(Class Q "Institutional" shares and Class Q-Special Series 1 "Retail" shares)
Intermediate Government Fund
(Class R "Institutional" shares and Class R-Special Series 1 "Retail" shares)
GNMA Fund
(Class S "Institutional" shares and Class S-Special Series 1 "Retail" shares)
Pennsylvania Municipal Fund
(Class T "Institutional" shares and Class T-Special Series 1 "Retail" shares)
As of the date of this report, the National Tax Exempt Fund has not commenced
operations.
FUND REORGANIZATION: On May 3, 1996, Integra Financial Corporation ("Integra
Financial") merged into National City Corporation ("National City"). Integra
Trust Company, an affiliate of Integra Financial, served as Investment Adviser
to Inventor Funds, Inc. ("Inventor"). A new investment advisory agreement
between Inventor and affiliates of National City received shareholder approval
in May, 1996.
On February 15 and March 18, 1996, the respective Boards of Trustees/Directors
of the Trust and Inventor each approved the Agreement and Plan of Reorganization
between Armada Funds and Inventor (the "Agreement"). Subsequently, a shareholder
38
<PAGE> 41
LOGO NOTES TO FINANCIAL STATEMENTS
meeting was held to approve the Agreement; the unaudited results are listed
below:
<TABLE>
<CAPTION>
SHARES VOTED
----------------------------- PERCENT
FOR AGAINST ABSTAIN VOTED
--------- ------- ------- -------
<S> <C> <C> <C> <C>
Inventor Intermediate
Government Securities
Fund................. 8,128,329 2,217 12,189 91%
Inventor GNMA
Securities Fund...... 5,504,614 7,087 14,280 92%
</TABLE>
The Reorganization was executed on September 9, 1996.
As part of the Reorganization, on September 9, 1996, Inventor GNMA Securities
Fund and Inventor Intermediate Government Securities Fund (the "Predecessor
Funds") transferred all of their assets and liabilities with approximate values
of $63,566,229 and $92,883,276, respectively, in exchange for shares of Armada
GNMA Fund and Armada Intermediate Government Fund, respectively. Net unrealized
depreciation on investment securities included in the above amounts were
$1,064,753 and $1,459,226 for the Inventor GNMA Securities and Inventor
Intermediate Government Securities Funds, respectively. The Reorganizations of
the Armada GNMA and Intermediate Government Funds were executed as tax-free
reorganizations in accordance with Section 368(a)(1)(F) of the Internal Revenue
Code of 1986, (the "Internal Revenue Code") as amended. The results of
operations, changes in net assets and financial highlights of the Armada GNMA
and Intermediate Government Funds for the year ended May 31, 1997 include those
of the respective Predecessor Funds.
In accordance with provisions of the Agreement, the Trust and Inventor were
each responsible for the payment of their own expenses incurred in connection
with the Reorganization to the extent not borne by their respective Investment
Advisers. Accordingly, the Trust recognized approximately $200,000 in costs
connected with the Reorganization, which has been allocated among the various
funds in the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Total Return Advantage, Fixed Income, Enhanced Income, GNMA and Intermediate
Government Funds (the "Funds") in preparation of their financial statements.
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.
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.
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,
39
<PAGE> 42
LOGO NOTES TO FINANCIAL STATEMENTS
discount earned (including both original issue and market discount), less
amortization of any market premium and accrued expenses. Any net realized
capital gains will be distributed at least annually.
FEDERAL INCOME TAXES: Each of the Funds is classified as a separate taxable
entity for Federal income tax purposes. Each of the Funds intends to qualify as
a separate "regulated investment company" under the Internal Revenue Code and
make the requisite distributions to its shareholders that will be sufficient to
relieve it from Federal income tax and Federal excise tax. Therefore, no Federal
tax provision is required. To the extent that distributions from net investment
income and realized net capital gains exceed amounts reported in the financial
statements, such amounts are reported separately.
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.
3. 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%, .45%, .55% and .55% of the
average daily net assets of the Total Return Advantage, Fixed Income, Enhanced
Income, GNMA, and Intermediate Government Funds, respectively. The Advisers may
from time to time waive their fees payable by the Funds. For the year ended May
31, 1997, the Advisers have earned and waived fees as follows:
<TABLE>
<CAPTION>
EARNED WAIVED
---------- ----------
<S> <C> <C>
Total Return Advantage Fund..... $1,530,963 $1,530,963
Fixed Income Fund............... 668,549 118,288
Enhanced Income Fund............ 296,129 296,129
GNMA Fund....................... 374,304 50,450
Intermediate Government Fund.... 539,562 54,417
</TABLE>
At May 31, 1997, advisory fees accrued and unpaid amounted to:
<TABLE>
<S> <C>
Total Return Advantage Fund................... $ 0
Fixed Income Fund............................. 41,880
Enhanced Income Fund.......................... 0
GNMA Fund..................................... 30,292
Intermediate Government Fund.................. 42,500
</TABLE>
The Trust maintains a Shareholder Services Plan (the "Services Plan") with
respect to the Retail shares in the Funds. Pursuant to the Services Plan, the
Trust enters into shareholder servicing agreements with certain financial
institutions under which they agree to provide shareholder administrative
services to their customers who beneficially own Retail shares in consideration
for the payment of up to .25% on an annualized basis of net asset value of
Retail shares of the Total Return Advantage, Fixed Income, GNMA and Intermediate
Government Funds and .10% on an annualized basis of the net asset value of
Retail shares of the Enhanced Income Fund. For the year ended May 31, 1997, fees
paid under the Services Plan to NatCity Investments, Inc., a wholly-owned
subsidiary of National City Corporation, amounted to:
<TABLE>
<S> <C>
Total Return Advantage Fund.................... $3,250
Fixed Income Fund.............................. 5,824
Enhanced Income Fund........................... 1,280
GNMA Fund...................................... 223
Intermediate Government Fund................... 39
</TABLE>
National City Bank, a wholly-owned subsidiary of National City Corporation,
serves as the Funds' Custodian. National City Bank commenced services as
custodian to the GNMA Fund and Intermediate Government Fund effective August 5,
1996. For the
40
<PAGE> 43
LOGO NOTES TO FINANCIAL STATEMENTS
year ended May 31, 1997, National City Bank has earned Custodian fees as
follows:
<TABLE>
<S> <C>
Total Return Advantage Fund................... $38,762
Fixed Income Fund............................. 22,508
Enhanced Income Fund.......................... 13,516
GNMA Fund..................................... 13,063
Intermediate Government Fund.................. 13,130
</TABLE>
Pursuant to Board of Trustees' approval on November 15, 1996, SEI Investments
Distribution Co., a wholly-owned subsidiary of SEI Investments Company ("SEI" or
"Distributor"), began serving as the Trust's Distributor on March 10, 1997. Each
Fund pays a fee to the Distributor for distributing its shares. Under the
Trust's Distribution Agreement and related Distribution Plan adopted pursuant to
Rule 12b-1 under the 1940 Act, the Trust compensates the Distributor for
services provided and expenses assumed in providing advertising, marketing,
prospectus printing and other distribution services up to a maximum of .10% per
annum of the average net assets of each Fund, inclusive of an annual base fee of
$1,250,000 plus incentive fees related to asset growth, which are allocated
among the investment funds with respect to which the Distributor is distributing
shares.
440 Financial Distributors, Inc., ("440"), a wholly-owned subsidiary of The
Shareholder Services Group, Inc., and an indirect wholly-owned subsidiary of
First Data Corp., served as the Trust's distributor until March 7, 1997. Each
Fund reimbursed 440 for direct and indirect expenses incurred in performing
distribution services, up to a maximum of .10% per annum of the average net
assets of the Fund, inclusive of an annual fee of $250,000, which was allocated
among the investment funds for which 440 was distributing shares.
SEI served as distributor to the GNMA and Intermediate Government Funds prior
to the Reorganization. Under a Rule 12b-1 Distribution Plan, SEI earned and
waived Fees at an annual rate of up to .25% of the average daily net assets of
the Predecessor Funds' Class A 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, 1997 include legal fees paid to Drinker
Biddle & Reath LLP. A partner of the firm is Secretary of the Trust.
PFPC Inc. ("PFPC") serves as Administrator and Accounting Agent to the Trust.
As compensation for services performed, each Fund pays PFPC an asset-based fee
plus reimbursement of reasonable out-of-pocket expenses. An officer of PFPC
serves as Treasurer to the Trust.
4. PURCHASES AND SALES OF SECURITIES
During the fiscal year, 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...................... $324,514,901 $321,012,097
Fixed Income Fund........... 86,258,734 67,056,275
Enhanced Income Fund........ 67,459,446 55,281,951
GNMA Fund................... 2,900,625 2,861,250
Intermediate Government
Fund...................... 40,154,304 14,517,146
</TABLE>
41
<PAGE> 44
LOGO NOTES TO FINANCIAL STATEMENTS
Purchases and sales of long-term U.S. government obligations were:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Total Return Advantage
Fund...................... $126,055,337 $154,788,023
Fixed Income Fund........... 198,865,067 183,557,545
Enhanced Income Fund........ 74,910,373 65,876,172
GNMA Fund................... 39,488,035 32,128,498
Intermediate Government
Fund...................... 54,390,087 76,786,092
</TABLE>
5. 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, Enhanced Income, GNMA and Intermediate
Government Funds.
6. CHANGE IN INVESTMENT POLICY
During the year ended May 31, 1997, shareholders of the Enhanced Income Fund,
through a proxy solicitation, approved a revision to the Fund's investment
objective. Effective September 30, 1996, the Fund's investment objective is to
seek a total rate of return greater than that of the Merrill Lynch 1-3 year
Treasury Index. The unaudited results of shareholder voting are summarized
below:
<TABLE>
<CAPTION>
PERCENT
FOR AGAINST ABSTAIN VOTED
- --------- ------- ------- -------
<S> <C> <C> <C>
5,652,415 -- -- 91%
</TABLE>
42
<PAGE> 45
LOGO NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, 1997
----------------------------------------------------------
INSTITUTIONAL CLASS RETAIL CLASS
----------------------------- ------------------------
SHARES VALUE SHARES VALUE
----------- ------------- -------- -----------
<S> <C> <C> <C> <C>
TOTAL RETURN ADVANTAGE FUND
Shares sold......................................... 6,547,407 $ 65,364,214 803 $ 7,984
Shares reinvested................................... 1,322,747 13,218,136 16,658 166,278
Shares repurchased.................................. (10,059,828) (100,805,700) (3,023) (29,745)
----------- ------------- -------- -----------
Net increase/(decrease)............................. (2,189,674) $ (22,223,350) 14,438 $ 144,517
=========== ============= ======== ===========
FIXED INCOME FUND
Shares sold......................................... 7,749,485 $ 80,231,676 1,197 $ 9,558
Shares reinvested................................... 55,659 578,148 22,068 230,165
Shares repurchased.................................. (6,910,866) (71,840,259) (266,960) (2,781,883)
----------- ------------- -------- -----------
Net increase/(decrease)............................. 894,278 $ 8,969,565 (243,695) $(2,542,160)
=========== ============= ======== ===========
ENHANCED INCOME FUND
Shares sold......................................... 5,917,556 $ 59,245,312 241,948 $ 2,429,148
Shares reinvested................................... 228,118 2,285,415 12,057 120,956
Shares repurchased.................................. (6,721,831) (67,329,305) (220,372) (2,212,261)
----------- ------------- -------- -----------
Net increase/(decrease)............................. (576,157) $ (5,798,578) 33,633 $ 337,843
=========== ============= ======== ===========
GNMA FUND
Shares sold......................................... 1,574,235 $ 15,942,378 16,716 $ 167,900
Shares reinvested................................... 11,290 114,351 580 5,884
Shares repurchased.................................. (1,263,481) (12,833,755) (4,652) (46,920)
----------- ------------- -------- -----------
Net increase........................................ 322,044 $ 3,222,974 12,644 $ 126,864
=========== ============= ======== ===========
INTERMEDIATE GOVERNMENT FUND
Shares sold......................................... 1,897,212 $ 19,050,260 4,439 $ 44,547
Shares reinvested................................... 10,541 105,888 110 1,106
Shares repurchased.................................. (1,717,697) (17,281,982) (2,214) (22,362)
----------- ------------- -------- -----------
Net increase........................................ 190,056 $ 1,874,166 2,335 $ 23,291
=========== ============= ======== ===========
</TABLE>
43
<PAGE> 46
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>
<TABLE>
<CAPTION>
FOR THE ONE MONTH PERIOD FOR THE YEAR ENDED
ENDED MAY 31, 1996* APRIL 30, 1996*
--------------------------- -------------------------
SHARES VALUE SHARES VALUE
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
GNMA FUND
Shares sold.......................................... 51,968 $ 523,896 2,340,970 $24,291,889
Shares reinvested.................................... 857 8,594 8,066 83,503
Shares repurchased................................... (162,499) (1,631,327) (360,442) (3,742,185)
---------- ------------ -------- -----------
Net decrease......................................... (109,674) $ (1,098,837) 1,988,594 $20,633,207
========== ============ ======== ===========
INTERMEDIATE GOVERNMENT FUND
Shares sold.......................................... 125,648 $ 1,259,861 4,610,231 $47,044,196
Shares reinvested.................................... 835 8,326 6,216 63,736
Shares repurchased................................... (169,583) (1,692,146) (983,908) (10,144,665)
---------- ------------ -------- -----------
Net increase/(decrease).............................. (43,100) $ (423,959) 3,632,539 $36,963,267
========== ============ ======== ===========
</TABLE>
* Formerly Inventor GNMA Securities Fund and Inventor Intermediate Government
Securities Fund.
44
<PAGE> 47
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, Armada
Enhanced Income Fund, Armada GNMA Fund, Armada Intermediate Government Fund, and
Armada Total Return Advantage Fund (the "Funds") as of May 31, 1997, and the
related statements of operations for the year then ended. We have also audited
the statements of changes in net assets and financial highlights for each of the
periods presented for the Armada Fixed Income Fund, Armada Enhanced Income Fund,
and Armada Total Return Advantage Fund and for the year ended May 31, 1997 for
the Armada GNMA Fund and Armada Intermediate Government Fund. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The statements of
changes in net assets for the year ended April 30, 1996 and the one month period
ended May 31, 1996 and the financial highlights for the periods ended April 30,
1995 through May 31, 1996 for the Armada GNMA Fund and Armada Intermediate
Government Fund were audited by other auditors whose report dated July 26, 1996
expressed an unqualified opinion on those statements and financial highlights.
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, 1997, and
confirmation of securities not held by the custodian, by correspondence with
brokers. 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 1997 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Armada Fixed Income Fund, Armada Enhanced Income Fund, Armada
GNMA Fund, Armada Intermediate Government Fund, and Armada Total Return
Advantage Fund at May 31, 1997, the results of their operations for the year
then ended, and for the Armada Fixed Income Fund, Armada Enhanced Income Fund,
and Armada Total Return Fund, the changes in their net assets and their
financial highlights for each of the periods presented herein, and for the
Armada GNMA Fund and Armada Intermediate Government Fund, the changes in their
net assets and their financial highlights for the year ended May 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, PA
July 3, 1997
45
<PAGE> 48
LOGO ARMADA FUNDS
BOARD OF TRUSTEES Robert D. Neary
Chairman and President
Retired Co-Chairman, Ernst & Young
Director, Cold Metal Products, Inc.
Director, Zurn Industries, Inc.
Thomas R. Benua, Jr.
Chairman, EBCO Manufacturing Company
Leigh Carter
Retired President and Chief Operating
Officer, B.F. Goodrich Company
Director, Adams Express Company
Director, Acromed Corporation
Director, Petroleum & Resources Corp.
Director, Morrison Products
John F. Durkott
President and Chief Operating Officer,
Kittle's Home Furnishings Center, Inc.
Richard W. Furst, Dean
Professor of Finance and Dean,
Carol Martin Gatton College of Business
and Economics, University of Kentucky
Director, The Seed Corporation
Director, Foam Design, Inc.
J. William Pullen
President and Chief Executive Officer,
Whayne Supply Company
President and Chief Executive Officer,
American Contractors Rentals & Sales
Richard B. Tullis
Chairman Emeritus, Harris Corporation
Director, NACCO Materials Handling Group, Inc.
Director, Hamilton Beach/Proctor-Silex, Inc.
Director, Waste-Quip, Inc.
0
<PAGE> 49
LOGO NOTES
<PAGE> 50
[ARMADA LOGO] --------------------
ARMADA | BULK RATE |
FUNDS | U.S. POSTAGE |
| PAID |
Oaks, Pennsylvania 19456 | CLEVELAND, OH |
*Address Correction Requested | PERMIT NO. 1535 |
--------------------
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
