EQUITY AND
INCOME
FUNDS
Combined
Annual Report
September 30, 1994
042749101
042749200
042749309
3101409 (11/94)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I'm pleased to present you with the Annual Report for your investment in the
Arrow Equity and Income Funds (formerly, the Mark Twain Equity and Income
Funds). This report covers the one-year period ended September 30, 1994.
This report contains complete financial information--including an investment
interview with the portfolio manager and a list of holdings--for the Arrow
Equity Portfolio, Arrow Fixed Income Portfolio, and Arrow Municipal Income
Portfolio (formerly, the Mark Twain Equity Portfolio, Mark Twain Fixed Income
Portfolio, and Mark Twain Municipal Income Portfolio).
Thank you for selecting the Arrow Funds to put your money to work. We'll
continue to keep you informed on your investment. Your questions, comments, or
suggestions are always welcome.
Sincerely,
Edward C. Gonzales
President
November 15, 1994
ARROW EQUITY PORTFOLIO
(FORMERLY, MARK TWAIN EQUITY PORTFOLIO)
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
As of September 30, 1994, the Arrow Equity Portfolio (the "Equity
Fund") had approximately $30.3 million in net assets.
The investment objective of the Equity Fund is capital appreciation,
and we continue to pursue this objective by investing in high quality,
large and medium, capitalized common stocks. We believe a long-term,
disciplined approach to investing in equities produces the best results
over longer periods of time.
The stock market has taken a very long road to produce little return
in 1994. While the year started off with a 7% rally, the gain soon
disappeared as the market declined 10%. This was then followed by a 9%
gain. Interest rates have been the real villain all year. The Federal
Reserve Board (the "Fed") has stepped in five times to increase short-term
interest rates in an effort to head off inflation. Although the economy
remains robust, we believe that inflation is under control.
While rising interest rates have added downward pressure on stock
prices, better than expected corporate earnings have kept the stock market
above water. What's true for the stock market has also held true for the
Equity Fund. Stocks such as Micron Technology, Medtronic, Inc., Federal
National Mortgage Association and Green Tree Financial Corp. continue to
report strong earnings. Although the market is responding positively to
these reports as they are announced, the current market pessimism continues
to hold back the stock prices.
The Fed is expected to raise rates again in the fourth quarter. This
rise in rates coupled with signs of moderate inflation could give the
market the added confidence needed to break out of its nervous state. In
addition, stock prices should begin to respond accordingly to continued
positive earnings reports.
ARROW EQUITY PORTFOLIO
(FORMERLY, MARK TWAIN EQUITY PORTFOLIO)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN ARROW EQUITY PORTFOLIO
The graph below illustrates the hypothetical investment of $10,000 in the
Arrow Equity Portfolio (the "Fund") from January 3, 1993 (start of performance)
to September 30, 1994 compared to the Standard & Poor's 500 Index ("S&P 500")+.
Graphic representation "A" omitted. See Appendix.
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED SEPTEMBER 30, 1994
1 year....................................................... (5.24%)
Start of Performance (1/3/93) (cumulative)................. . (4.67%)
Start of Performance (1/3/93)................................ (2.71%)
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of the Fund from the start of business 1/3/93 through
9/30/94, on a cumulative basis.
** Represents a hypothetical investment of $10,000 in the Fund, after deducting
the maximum sales charge of 3.50% ($10,000 investment minus $350 sales charge
= $9,650). The Fund's performance assumes the reinvestment of all dividends
and distributions. The S&P 500 is adjusted to reflect reinvestment of
dividends on securities in the index.
+ The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index is
unmanaged.
ARROW FIXED INCOME PORTFOLIO
(FORMERLY, MARK TWAIN FIXED INCOME PORTFOLIO)
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
The Arrow Fixed Income Portfolio (the "Fixed Income Fund") had total
net assets of $32.7 million as of September 30, 1994. The Fixed Income Fund
had an average maturity of 13.6 years. In keeping with our philosophy of
investing in high quality securities, approximately 62% of the Fund's
assets were invested in U.S. Treasury and government agency securities,
with the balance in investment grade corporate bonds.
Interest rates moved higher during the period as the bond market
continued to be concerned that a stronger economy would lead to higher
inflation. We believe that the increase in rates will slow economic growth
and that current inflation concerns are overblown. We feel that the
majority of the decline in prices of intermediate and longer-term bonds is
behind us, and at current levels, bond prices represent value for the
long-term investor.
ARROW FIXED INCOME PORTFOLIO
(FORMERLY, MARK TWAIN FIXED INCOME PORTFOLIO)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN ARROW FIXED INCOME PORTFOLIO
The graph below illustrates the hypothetical investment of $10,000 in the
Arrow Fixed Income Portfolio (the "Fund") from January 3, 1993 (start of
performance) to September 30, 1994 compared to the Lehman Brothers
Government/Corporate Total Index ("LBGCTI")+.
Graphic representation "B" omitted. See Appendix.
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED SEPTEMBER 30, 1994
1 year.......................................................(11.08%)
Start of Performance (1/3/93) (cumulative)................. . (0.30%)
Start of Performance (1/3/93)................................ (0.17%)
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of the Fund from the start of business 1/3/93 through
9/30/94, on a cumulative basis.
** Represents a hypothetical investment of $10,000 in the Fund, after deducting
the maximum sales charge of 3.50% ($10,000 investment minus $350 sales charge
= $9,650). The Fund's performance assumes the reinvestment of all dividends
and distributions. The LBGCTI is adjusted to reflect reinvestment of
dividends on securities in the index.
+ The LBGCTI is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index is
unmanaged.
ARROW MUNICIPAL INCOME PORTFOLIO
(FORMERLY, MARK TWAIN MUNICIPAL INCOME PORTFOLIO)
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
The municipal market declined during the past year due to five
interest rate increases in the Federal Funds rate. Municipal securities
declined to a lesser extent than taxable securities, due to larger demand
and reduced supply. Near the end of the year, municipal securities were
underperforming relative to taxable securities. With short-term interest
rates expected to increase more than long-term rates in the near future,
the intermediate to long part of the market should outperform going
forward. However, until interest rates in general stabilize, the bond
market will continue to be under pressure. The Arrow Municipal Income
Portfolio (the "Municipal Income Fund") has acquired premium issues with
limited call protection to help cushion the decline in the net asset value.
ARROW MUNICIPAL INCOME PORTFOLIO
(FORMERLY, MARK TWAIN MUNICIPAL INCOME PORTFOLIO)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN ARROW MUNICIPAL INCOME PORTFOLIO
The graph below illustrates the hypothetical investment of $10,000 in the
Arrow Municipal Income Portfolio (the "Fund") from January 31, 1993 (start of
performance) to September 30, 1994 compared to the Lehman Brothers State General
Obligation Bond Index ("LBSGOBI")+.
Graphic representation "C" omitted. See Appendix.
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED SEPTEMBER 30, 1994
1 year....................................................... (5.78%)
Start of Performance (1/31/93) (cumulative).................. 3.08%
Start of Performance (1/31/93)............................... 1.83%
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of the Fund from the start of business 1/31/93 through
9/30/94, on a cumulative basis.
** Represents a hypothetical investment of $10,000 in the Fund, after deducting
the maximum sales charge of 3.50% ($10,000 investment minus $350 sales charge
= $9,650). The Fund's performance assumes the reinvestment of all dividends
and distributions. The LBSGOBI is adjusted to reflect reinvestment of
dividends on securities in the index.
+ The LBSGOBI is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index is
unmanaged.
ARROW EQUITY PORTFOLIO
(FORMERLY, MARK TWAIN EQUITY PORTFOLIO)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--91.9%
- --------------------------------------------------------------------------------------
CHEMICALS--0.6%
-------------------------------------------------------------------
4,000 Goodrich (B.F.) Co. $ 168,000
------------------------------------------------------------------- -----------
CONSUMER DURABLES--7.2%
-------------------------------------------------------------------
9,000 Briggs & Stratton Corp. 632,250
-------------------------------------------------------------------
7,000 Foster Wheeler Corp. 240,625
-------------------------------------------------------------------
4,000 Grainger (W.W.), Inc. 237,000
-------------------------------------------------------------------
33,000 Mattel, Inc. 895,125
-------------------------------------------------------------------
5,000 Pitney Bowes, Inc. 177,500
------------------------------------------------------------------- -----------
Total 2,182,500
------------------------------------------------------------------- -----------
CONSUMER NON-DURABLES--11.1%
-------------------------------------------------------------------
9,000 Colgate Palmolive Co. 522,000
-------------------------------------------------------------------
1,000 ConAgra, Inc. 31,500
-------------------------------------------------------------------
2,000 Gillette Co. 141,500
-------------------------------------------------------------------
7,000 IBP, Inc. 229,250
-------------------------------------------------------------------
15,000 Philip Morris Companies, Inc. 916,875
-------------------------------------------------------------------
10,000 Premark International, Inc. 422,500
-------------------------------------------------------------------
4,000 Scott Paper Co. 244,500
-------------------------------------------------------------------
30,000 UST, Inc. 858,750
------------------------------------------------------------------- -----------
Total 3,366,875
------------------------------------------------------------------- -----------
</TABLE>
ARROW EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY--12.5%
-------------------------------------------------------------------
2,000 Avnet, Inc. $ 73,500
-------------------------------------------------------------------
4,000 COMPAQ Computer Corp. 130,500
-------------------------------------------------------------------
5,000 CTS Corp. 143,750
-------------------------------------------------------------------
50,000 Micron Technology 1,725,000
-------------------------------------------------------------------
13,000 Motorola, Inc. 685,750
-------------------------------------------------------------------
5,000 Tektronix, Inc. 193,750
-------------------------------------------------------------------
12,000 Texas Instruments, Inc. 820,500
------------------------------------------------------------------- -----------
Total 3,772,750
------------------------------------------------------------------- -----------
ENTERTAINMENT--2.7%
-------------------------------------------------------------------
9,000 Capital Cities/ABC, Inc. 738,000
-------------------------------------------------------------------
2,000 PolyGram N.V. 86,750
------------------------------------------------------------------- -----------
Total 824,750
------------------------------------------------------------------- -----------
FINANCE--14.7%
-------------------------------------------------------------------
5,000 Federal Home Loan Mortgage Corp. 266,875
-------------------------------------------------------------------
14,000 Federal National Mortgage Assn. 1,102,500
-------------------------------------------------------------------
12,000 First Interstate Bancorp 973,500
-------------------------------------------------------------------
40,000 Green Tree Financial Corp. 1,075,000
-------------------------------------------------------------------
15,000 MBNA Corp. 346,875
-------------------------------------------------------------------
5,000 Nationsbank Corp. 245,000
-------------------------------------------------------------------
18,000 Norwest Corp. 445,500
------------------------------------------------------------------- -----------
Total 4,455,250
------------------------------------------------------------------- -----------
HEALTH TECHNOLOGY--11.9%
-------------------------------------------------------------------
25,000 Abbott Laboratories 784,375
-------------------------------------------------------------------
24,000 Medtronic, Inc. 1,269,000
-------------------------------------------------------------------
21,000 Owens & Minor, Inc. 351,750
-------------------------------------------------------------------
17,000 Schering Plough Corp. 1,207,000
------------------------------------------------------------------- -----------
Total 3,612,125
------------------------------------------------------------------- -----------
</TABLE>
ARROW EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
INSURANCE--1.9%
-------------------------------------------------------------------
3,000 AFLAC, Inc. $ 102,375
-------------------------------------------------------------------
6,000 United Healthcare Corp. 318,000
-------------------------------------------------------------------
7,000 Washington National Corp. 160,125
------------------------------------------------------------------- -----------
Total 580,500
------------------------------------------------------------------- -----------
MACHINERY, EQUIPMENT AND AUTO--7.5%
-------------------------------------------------------------------
25,000 Chrysler Corp. 1,121,875
-------------------------------------------------------------------
3,000 * Clark Equipment Co. 207,750
-------------------------------------------------------------------
10,000 Cummins Engine Co., Inc. 393,750
-------------------------------------------------------------------
2,000 Donaldson, Inc. 44,500
-------------------------------------------------------------------
6,000 Ford Motor Co. 166,500
-------------------------------------------------------------------
7,000 General Motors Corp. 328,125
------------------------------------------------------------------- -----------
Total 2,262,500
------------------------------------------------------------------- -----------
PUBLISHING--1.8%
-------------------------------------------------------------------
18,000 Dow Jones & Co., Inc. 540,000
------------------------------------------------------------------- -----------
RETAIL--5.6%
-------------------------------------------------------------------
5,000 Home Depot, Inc. 210,000
-------------------------------------------------------------------
25,000 * Kroger Co. 665,625
-------------------------------------------------------------------
15,000 May Department Stores, Inc. 590,625
-------------------------------------------------------------------
10,000 Wal Mart Stores, Inc. 233,750
------------------------------------------------------------------- -----------
Total 1,700,000
------------------------------------------------------------------- -----------
TECHNOLOGY SERVICES--10.4%
-------------------------------------------------------------------
14,000 Computer Associates International, Inc. 623,000
-------------------------------------------------------------------
20,000 Fluor Corp. 995,000
-------------------------------------------------------------------
15,000 General Motors Corp. Class E 570,000
-------------------------------------------------------------------
5,000 Loral Corp. 196,875
-------------------------------------------------------------------
30,000 Reynolds & Reynolds Co. 753,750
------------------------------------------------------------------- -----------
Total 3,138,625
------------------------------------------------------------------- -----------
</TABLE>
ARROW EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
UTILITIES--2.7%
-------------------------------------------------------------------
15,000 American Telephone & Telegraph Co. $ 810,000
------------------------------------------------------------------- -----------
OTHER--1.3%
-------------------------------------------------------------------
20,000 Brunswick Corp. 402,500
------------------------------------------------------------------- -----------
TOTAL COMMON STOCKS (IDENTIFIED COST, $26,388,936) 27,816,375
------------------------------------------------------------------- -----------
MUTUAL FUND SHARES--6.7%
-------------------------------------------------------------------
1,173,711 Goldman Sachs, Money Market Trust 1,173,711
-------------------------------------------------------------------
842,353 SEI, Liquid Cash Trust 842,353
------------------------------------------------------------------- -----------
TOTAL MUTUAL FUND SHARES (AT NET ASSET VALUE) 2,016,064
------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $28,405,000) $29,832,439+
------------------------------------------------------------------- -----------
</TABLE>
* Non-income producing.
+ The cost of investments for federal tax purposes amounts to $28,444,144. The
net unrealized appreciation of investments on a federal tax basis amounts to
$1,388,295, which is comprised of $2,770,773 appreciation and $1,382,478
depreciation at September 30, 1994.
Note: The categories of investments are shown as a percentage of net assets
($30,281,696) at September 30, 1994.
(See Notes which are an integral part of the Financial Statements)
ARROW EQUITY PORTFOLIO
(FORMERLY, MARK TWAIN EQUITY PORTFOLIO)
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (identified cost $28,405,000, tax cost
$28,444,144) $29,832,439
- --------------------------------------------------------------------------------
Cash 100
- --------------------------------------------------------------------------------
Receivable for investments sold 438,465
- --------------------------------------------------------------------------------
Dividends and interest receivable 59,130
- --------------------------------------------------------------------------------
Receivable for Fund shares sold 1,000
- --------------------------------------------------------------------------------
Deferred expenses 8,552
- -------------------------------------------------------------------------------- -----------
Total assets 30,339,686
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for Fund shares redeemed $ 16,665
- ---------------------------------------------------------------------
Accrued expenses 41,325
- --------------------------------------------------------------------- --------
Total liabilities 57,990
- -------------------------------------------------------------------------------- -----------
NET ASSETS for 3,109,853 shares of beneficial interest outstanding $30,281,696
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid-in capital $30,981,249
- --------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 1,427,439
- --------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (2,149,516)
- --------------------------------------------------------------------------------
Undistributed net investment income 22,524
- -------------------------------------------------------------------------------- -----------
Total Net Assets $30,281,696
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, and Redemption Proceeds Per Share:
($30,281,696 / 3,109,853 shares of beneficial interest outstanding) $9.74
- -------------------------------------------------------------------------------- -----------
COMPUTATION OF OFFERING PRICE:
- --------------------------------------------------------------------------------
Offering Price Per Share (100/96.5 of $9.74) $10.09*
- -------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
ARROW EQUITY PORTFOLIO
(FORMERLY, MARK TWAIN EQUITY PORTFOLIO)
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Interest income $ 59,594
- ----------------------------------------------------------------------------------
Dividend income 598,123
- ---------------------------------------------------------------------------------- -----------
Total investment income 657,717
- ----------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------
Investment advisory fee $234,468
- ----------------------------------------------------------------------
Trustees' fees 1,991
- ----------------------------------------------------------------------
Administrative personnel and services fee 50,000
- ----------------------------------------------------------------------
Custodian fees 24,000
- ----------------------------------------------------------------------
Portfolio accounting fees 53,085
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 35,710
- ----------------------------------------------------------------------
Fund share registration costs 14,271
- ----------------------------------------------------------------------
Auditing fees 7,000
- ----------------------------------------------------------------------
Printing and postage 6,770
- ----------------------------------------------------------------------
Insurance premiums 8,562
- ----------------------------------------------------------------------
Distribution services fee 78,171
- ----------------------------------------------------------------------
Miscellaneous 15
- ---------------------------------------------------------------------- --------
Total expenses 514,043
- ----------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------------
Waiver of investment advisory fee $ 9,037
- ------------------------------------------------------------
Waiver of distribution services fee 78,171 87,208
- ------------------------------------------------------------ ------- --------
Net expenses 426,835
- ---------------------------------------------------------------------------------- -----------
Net investment income 230,882
- ---------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (2,149,466)
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 1,408,803
- ---------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (740,663)
- ---------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ (509,781)
- ---------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW EQUITY PORTFOLIO
(FORMERLY, MARK TWAIN EQUITY PORTFOLIO)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1994 1993*
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------
Net investment income $ 230,882 $ 127,686
- ----------------------------------------------------------------
Net realized gain (loss) on investments ($41,210 net loss and
$90,022 net gain, respectively, as computed for federal tax
purposes) (2,149,466) 90,022
- ----------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on
investments 1,408,803 18,636
- ---------------------------------------------------------------- ------------ -----------
Change in net assets resulting from operations (509,781) 236,344
- ---------------------------------------------------------------- ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------
Dividends to shareholders from net investment income (220,766) (115,278)
- ----------------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions (90,072) --
- ---------------------------------------------------------------- ------------ -----------
Change in net assets resulting from distributions to
shareholders (310,838) (115,278)
- ----------------------------------------------------------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- ----------------------------------------------------------------
Proceeds from sale of shares 10,335,871 39,189,778
- ----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 17,410 5,313
- ----------------------------------------------------------------
Cost of shares redeemed (10,410,296) (8,156,827)
- ---------------------------------------------------------------- ------------ -----------
Change in net assets from Fund share transactions (57,015) 31,038,264
- ---------------------------------------------------------------- ------------ -----------
Change in net assets (877,634) 31,159,330
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 31,159,330 --
- ---------------------------------------------------------------- ------------ -----------
End of period (including undistributed net investment income of
$22,524 and $12,408, respectively) $ 30,281,696 $31,159,330
- ---------------------------------------------------------------- ------------ -----------
</TABLE>
* For the period from January 4, 1993 (date of initial public investment) to
September 30, 1993.
(See Notes which are an integral part of the Financial Statements)
ARROW EQUITY PORTFOLIO
(FORMERLY, MARK TWAIN EQUITY PORTFOLIO)
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30,
--------------------
1994 1993*
------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.02 $10.00
- ---------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------
Net investment income 0.07 0.04
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.25) 0.02
- --------------------------------------------------------------------------------- ------- -------
Total from investment operations (0.18) 0.06
- ---------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.07) (0.04)
- ---------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions (0.03) --
- --------------------------------------------------------------------------------- ------ ------
Total Distributions (0.10) (0.04)
- --------------------------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.74 $10.02
- --------------------------------------------------------------------------------- ------ ------
TOTAL RETURN** (1.84%) 0.60%
- ---------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------
Expenses 1.36% 1.32%(a)
- ---------------------------------------------------------------------------------
Net investment income 0.74% 0.62%(a)
- ---------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.28% 0.30%(a)
- ---------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $30,282 $31,159
- ---------------------------------------------------------------------------------
Portfolio turnover rate 127% 54%
- ---------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 4, 1993 (date of initial
public investment) to
September 30, 1993.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
ARROW FIXED INCOME PORTFOLIO
(FORMERLY, MARK TWAIN FIXED INCOME PORTFOLIO)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
CORPORATE BONDS--34.7%
- --------------------------------------------------------------------------------------
AEROSPACE/DEFENSE--1.4%
-------------------------------------------------------------------
$ 500,000 Rockwell International Corp., 6.75%, 9/15/2002 $ 467,405
------------------------------------------------------------------- -----------
BANKING--2.8%
-------------------------------------------------------------------
500,000 BankAmerica Corp., 7.50%, 10/15/2002 472,565
-------------------------------------------------------------------
500,000 Nationsbank Corp., 6.875%, 2/15/2005 451,420
------------------------------------------------------------------- -----------
Total 923,985
------------------------------------------------------------------- -----------
CONSUMER PRODUCTS--4.3%
-------------------------------------------------------------------
1,000,000 Kimberly Clark Corp., 7.875%, 2/1/2023 926,570
-------------------------------------------------------------------
500,000 Philip Morris Cos., Inc., 7.125%, 12/1/99 480,735
------------------------------------------------------------------- -----------
Total 1,407,305
------------------------------------------------------------------- -----------
FINANCE--4.1%
-------------------------------------------------------------------
500,000 MBNA Corp., 6.875%, 10/1/99 477,765
-------------------------------------------------------------------
1,000,000 Merrill Lynch & Co., Inc., 7.00%, 4/27/2008 870,890
------------------------------------------------------------------- -----------
Total 1,348,655
------------------------------------------------------------------- -----------
MULTI-LINE COMPANIES--2.9%
-------------------------------------------------------------------
1,000,000 Hanson PLC, 7.375%, 1/15/2003 955,730
------------------------------------------------------------------- -----------
OIL & GAS--2.7%
-------------------------------------------------------------------
1,000,000 Phillips Petroleum Co., 7.92%, 4/15/2023 871,840
------------------------------------------------------------------- -----------
RETAIL & APPAREL--5.4%
-------------------------------------------------------------------
1,000,000 Limited, Inc., 7.50%, 3/15/2023 861,340
-------------------------------------------------------------------
1,000,000 Wal Mart Stores, Inc., 7.25%, 6/1/2013 890,530
------------------------------------------------------------------- -----------
Total 1,751,870
------------------------------------------------------------------- -----------
UTILITIES--11.1%
-------------------------------------------------------------------
1,000,000 Duke Power Co., 7.375%, 3/1/2023 864,020
-------------------------------------------------------------------
1,000,000 Illinois Power Co., 8.00%, 2/15/2023 887,150
-------------------------------------------------------------------
</TABLE>
ARROW FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------
UTILITIES--CONTINUED
-------------------------------------------------------------------
$ 500,000 Midwest Power Systems, Inc., 7.00%, 2/15/2005 $ 462,395
-------------------------------------------------------------------
1,000,000 Quebec Hydro Electric Co., 7.375%, 2/1/2003 947,980
-------------------------------------------------------------------
500,000 United Telephone Co. of Florida, 7.25%, 12/15/2004 471,805
------------------------------------------------------------------- -----------
Total 3,633,350
------------------------------------------------------------------- -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $12,386,421) 11,360,140
------------------------------------------------------------------- -----------
GOVERNMENT BONDS--61.5%
- --------------------------------------------------------------------------------------
FOREIGN MUNICIPAL--2.7%
-------------------------------------------------------------------
500,000 Ontario Province, Canada, 7.375%, 1/27/2003 477,195
-------------------------------------------------------------------
500,000 Quebec Province, Canada, 7.125%, 2/9/2024 407,255
------------------------------------------------------------------- -----------
Total 884,450
------------------------------------------------------------------- -----------
GOVERNMENT AGENCIES--8.7%
-------------------------------------------------------------------
500,000 Federal Home Loan Bank, 6.32%, 2/1/2000 474,215
-------------------------------------------------------------------
500,000 Federal Home Loan Mortgage Corp., 7.23%, 12/17/2002 476,155
-------------------------------------------------------------------
2,000,000 Federal National Mortgage Association, 7.55% - 7.65%,
4/29/2004 - 6/10/2004 1,910,310
------------------------------------------------------------------- -----------
Total 2,860,680
------------------------------------------------------------------- -----------
U.S. TREASURY SECURITIES--50.1%
-------------------------------------------------------------------
5,500,000 U.S. Treasury Bonds, 7.50% - 8.00%, 11/15/2016 - 11/15/2021 5,347,670
-------------------------------------------------------------------
10,850,000 U.S. Treasury Notes, 5.50% - 9.00%, 7/31/97 - 11/15/2001 11,073,699
------------------------------------------------------------------- -----------
Total 16,421,369
------------------------------------------------------------------- -----------
TOTAL GOVERNMENT BONDS (IDENTIFIED COST, $21,796,671) 20,166,499
------------------------------------------------------------------- -----------
</TABLE>
ARROW FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------- --------------------------------------------------------------------- -----------
<C> <C> <S> <C>
PREFERRED STOCK--0.7%
- -------------------------------------------------------------------------------------
FINANCE--0.7%
---------------------------------------------------------------------
10,000 Bear Stearns Cos., Inc., Series B (identified cost, $250,000) $ 223,750
--------------------------------------------------------------------- -----------
MUTUAL FUND SHARES--1.5%
- -------------------------------------------------------------------------------------
480,940 Goldman Sachs ILA Treasury Money Market Fund (at net asset value) 480,940
--------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $34,914,032) $32,231,329+
--------------------------------------------------------------------- -----------
</TABLE>
+ The cost for federal tax purposes amounts to $34,914,032. The unrealized
depreciation of investments on a federal tax basis amounts to $2,682,703 which
is comprised entirely of depreciation at September 30, 1994.
Note: The categories of investments are shown as a percentage of net assets
($32,742,947) at September 30, 1994.
(See Notes which are in integral part of the Financial Statements)
ARROW FIXED INCOME PORTFOLIO
(FORMERLY, MARK TWAIN FIXED INCOME PORTFOLIO)
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value
(identified and tax cost $34,914,032) $32,231,329
- --------------------------------------------------------------------------------
Cash 101
- --------------------------------------------------------------------------------
Dividends and interest receivable 722,727
- --------------------------------------------------------------------------------
Receivable for Fund shares sold 1,000
- --------------------------------------------------------------------------------
Deferred expenses 10,586
- -------------------------------------------------------------------------------- -----------
Total assets 32,965,743
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Dividends payable $178,395
- ---------------------------------------------------------------------
Payable for Fund shares redeemed 9,934
- ---------------------------------------------------------------------
Accrued expenses 34,467
- --------------------------------------------------------------------- --------
Total liabilities 222,796
- -------------------------------------------------------------------------------- -----------
NET ASSETS for 3,518,071 shares of beneficial interest outstanding $32,742,947
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid-in capital $35,608,267
- --------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investments (2,682,703)
- --------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (182,617)
- -------------------------------------------------------------------------------- -----------
Total Net Assets $32,742,947
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE and Redemption Proceeds Per Share:
($32,742,947 / 3,518,071 shares of beneficial interest outstanding) $9.31
- -------------------------------------------------------------------------------- -----------
COMPUTATION OF OFFERING PRICE:
- --------------------------------------------------------------------------------
Offering Price Per Share (100/96.5 of $9.31) $9.65*
- -------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
ARROW FIXED INCOME PORTFOLIO
(FORMERLY, MARK TWAIN FIXED INCOME PORTFOLIO)
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------
Interest income $ 2,649,309
- ---------------------------------------------------------------------------------------
Dividend income 19,700
- --------------------------------------------------------------------------------------- -----------
Total investment income 2,669,009
- ---------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $228,546
- ---------------------------------------------------------------------------
Trustees' fees 2,054
- ---------------------------------------------------------------------------
Administrative personnel and services fees 57,055
- ---------------------------------------------------------------------------
Custodian fees 24,000
- ---------------------------------------------------------------------------
Portfolio accounting fees 55,249
- ---------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 31,166
- ---------------------------------------------------------------------------
Fund share registration costs 17,820
- ---------------------------------------------------------------------------
Auditing fees 7,203
- ---------------------------------------------------------------------------
Printing and postage 7,648
- ---------------------------------------------------------------------------
Insurance premiums 9,895
- ---------------------------------------------------------------------------
Distribution services fee 95,223
- ---------------------------------------------------------------------------
Miscellaneous 126
- --------------------------------------------------------------------------- --------
Total expenses 535,985
- ---------------------------------------------------------------------------
Deduct--
- ---------------------------------------------------------------------------
Waiver of investment advisory fee $ 2,736
- -----------------------------------------------------------------
Waiver of distribution services fee 95,223 97,959
- ----------------------------------------------------------------- ------- --------
Net expenses 438,026
- --------------------------------------------------------------------------------------- -----------
Net investment income 2,230,983
- --------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (identified cost basis)-- (182,642)
- ---------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (5,169,128)
- --------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (5,351,770)
- --------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $(3,120,787)
- --------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW FIXED INCOME PORTFOLIO
(FORMERLY, MARK TWAIN INCOME PORTFOLIO)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1994 1993*
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------
Net investment income $ 2,230,983 $ 1,595,194
- ----------------------------------------------------------------
Net realized gain (loss) on investments ($24 net loss and
$120,226 net gain, respectively, as computed for federal tax
purposes) (182,642) 120,226
- ----------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments (5,169,128) 2,486,425
- ---------------------------------------------------------------- ------------ -----------
Change in net assets resulting from operations (3,120,787) 4,201,845
- ---------------------------------------------------------------- ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------
Dividends to shareholders from net investment income (2,236,633) (1,589,544)
- ----------------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions (120,201) --
- ---------------------------------------------------------------- ------------ -----------
Change in net assets from distributions to shareholders (2,356,834) (1,589,544)
- ---------------------------------------------------------------- ------------ -----------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- ----------------------------------------------------------------
Proceeds from sale of shares 9,523,204 50,683,901
- ----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 35,927 16,174
- ----------------------------------------------------------------
Cost of shares redeemed (14,053,826) (10,597,113)
- ---------------------------------------------------------------- ------------ -----------
Change in net assets from Fund share transactions (4,494,695) 40,102,962
- ---------------------------------------------------------------- ------------ -----------
Change in net assets (9,972,316) 42,715,263
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 42,715,263 --
- ---------------------------------------------------------------- ------------ -----------
End of period (including undistributed net investment income of
$0 and $5,650, respectively) $ 32,742,947 $42,715,263
- ---------------------------------------------------------------- ------------ -----------
</TABLE>
* For the period from January 4, 1993 (date of initial public investment) to
September 30, 1993.
(See Notes which are an integral part of the Financial Statements)
ARROW FIXED INCOME PORTFOLIO
(FORMERLY, MARK TWAIN FIXED INCOME PORTFOLIO)
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30,
--------------------
1994 1993*
------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.75 $10.00
- -----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------
Net investment income 0.59 0.44
- -----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (1.41) 0.75
- ----------------------------------------------------------------------------- ------ ------
Total from investment operations (0.82) 1.19
- -----------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.59) (0.44)
- -----------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment
transactions (0.03) --
- ----------------------------------------------------------------------------- ------ ------
Total distributions (0.62) (0.44)
- ----------------------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.31 $10.75
- ----------------------------------------------------------------------------- ------ ------
TOTAL RETURN** (7.85%) 12.09 %
- -----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------
Expenses 1.15 % 1.05 %(a)
- -----------------------------------------------------------------------------
Net investment income 5.86 % 5.71 %(a)
- -----------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.26 % 0.27 %(a)
- -----------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $32,743 $42,715
- -----------------------------------------------------------------------------
Portfolio turnover rate 28 % 28 %
- -----------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 4, 1993 (date of initial
public investment) to September 30, 1993.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
ARROW MUNICIPAL INCOME PORTFOLIO
(FORMERLY, MARK TWAIN MUNICIPAL INCOME PORTFOLIO)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATINGS:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ----------- ------------------------------------------------------- ------------ -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--97.9%
- ---------------------------------------------------------------------
ARIZONA--4.2%
-------------------------------------------------------
$ 700,000 Phoenix, AZ, 6.00% Streets & Highways Revenue Bonds
(Series A)/(FGIC Insured), 7/1/2008 AAA $ 700,427
-------------------------------------------------------
250,000 Phoenix, AZ, 6.60% Streets & Highways Revenue Bonds,
7/1/2007 A+ 263,185
------------------------------------------------------- -----------
Total 963,612
------------------------------------------------------- -----------
FLORIDA--2.2%
-------------------------------------------------------
500,000 Florida State Board of Education Capital Outlay,
6.625%,
(Series C), 6/1/2014 AA 513,355
------------------------------------------------------- -----------
ILLINOIS--14.1%
-------------------------------------------------------
500,000 Illinois Development Finance Authority, 6.00% School
District Program Revenue Bonds (Rockford, IL, School
District)/(FGIC Insured), 2/1/2006 AAA 504,450
-------------------------------------------------------
420,000 Illinois Health Facility Authority, 6.75% Revenue
Refunding Bonds (Rush-Presbyterian-St. Luke's Medical
Center), 10/1/2006 A+ 419,946
-------------------------------------------------------
500,000 Illinois State, 6.10%, 10/1/2003 AA- 517,845
-------------------------------------------------------
300,000 Illinois State, 6.25%, 10/1/2007 AA- 305,352
-------------------------------------------------------
100,000 Illinois State, 6.60%, 12/1/2006 AA- 105,081
-------------------------------------------------------
400,000 Schaumburg, IL, 6.05% GO UT Refunding Bonds, 12/1/2007 AA+ 402,516
-------------------------------------------------------
500,000 Springfield, IL, 6.50% Water Revenue Bonds, 3/1/2015 AA 503,605
-------------------------------------------------------
485,000 Waukegan, IL, 6.80%, 12/30/2007 A1 510,220
------------------------------------------------------- -----------
Total 3,269,015
------------------------------------------------------- -----------
</TABLE>
ARROW MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATINGS:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ----------- ------------------------------------------------------- ------------ -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
INDIANA--3.1%
-------------------------------------------------------
$ 300,000 Indiana Municipal Power Agency, 5.90% Power Supply
System Revenue Bonds (Series A)/(MBIA Insured),
1/1/2005 AAA $ 302,262
-------------------------------------------------------
225,000 Indiana Municipal Power Agency, 6.00% Power Supply
System Revenue Bonds (Series A)/(MBIA Insured),
1/1/2006 AAA 227,549
-------------------------------------------------------
190,000 Indiana Municipal Power Agency, 6.00% Power Supply
System Revenue Bonds (Series A)/(MBIA Insured),
1/1/2007 AAA 190,699
------------------------------------------------------- -----------
Total 720,510
------------------------------------------------------- -----------
IOWA--2.2%
-------------------------------------------------------
500,000 Cedar Rapids, IA, 5.65% GO UT Bonds (Series B),
6/1/2005 AAA 501,055
------------------------------------------------------- -----------
KANSAS--1.7%
-------------------------------------------------------
400,000 Johnson County, KS, 5.70% GO UT School District No. 512
Shawnee Mission, 10/1/2007 AA+ 395,660
------------------------------------------------------- -----------
MASSACHUSETTS--2.1%
-------------------------------------------------------
500,000 Massachusetts State, 6.00%, (Series A), 6/1/2011 A 483,105
------------------------------------------------------- -----------
MINNESOTA--9.6%
-------------------------------------------------------
500,000 Northern Municipal Power Agency, MN, 5.80% Electric
System Revenue Refunding Bonds (Series A), 1/1/2006,
(AMBAC Insured) AAA 498,720
-------------------------------------------------------
695,000 Southern Minnesota Municipal Power Agency, 5.70%,
(Series A), 1/1/2005 A+ 687,501
-------------------------------------------------------
1,000,000 Western Minnesota Municipal Power Agency, 7.00%,
(Series A), 1/1/2013 A 1,050,040
------------------------------------------------------- -----------
Total 2,236,261
------------------------------------------------------- -----------
</TABLE>
ARROW MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATINGS:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ----------- ------------------------------------------------------- ------------ -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
MISSOURI--20.8%
-------------------------------------------------------
$ 500,000 Missouri State Environmental Energy Resources
Authority, 7.375% Pollution Control Revenue Bonds
(Saint Joe Lighting & Power Co.)/(AMBAC Insured),
2/1/2013 AAA $ 511,260
-------------------------------------------------------
650,000 Missouri State, 5.00% HEFA Revenue Bonds (Barnes
Jewish, Inc.), 5/15/2006 AA- 603,304
-------------------------------------------------------
300,000 Missouri State, 6.50% HEFA Revenue Bonds (Saint Louis
University)/(AMBAC Insured), 8/1/2016 AAA 303,579
-------------------------------------------------------
250,000 Missouri State, 6.875% HEFA Revenue Bonds (Saint Luke's
Episcopal-Presbyterian Hospital)/(FGIC Insured),
12/1/2007 AAA 261,325
-------------------------------------------------------
375,000 Missouri State, 7.00% HEFA Revenue Bonds (St. Anthony's
Medical Center)/(Series D), 12/1/2009 AA- 393,431
-------------------------------------------------------
200,000 Missouri State Housing Development Commission, 6.00%
SFM Revenue Bonds (Series A)/(GNMA Collateralized),
6/1/2015 AAA 197,170
-------------------------------------------------------
740,000 Missouri State Housing Development Commission, 6.625%
SFM Revenue Bonds (Series A)/(GNMA Collateralized),
12/1/2017 AAA 727,413
-------------------------------------------------------
330,000 Missouri State Housing Development Commission, 6.80%
SFM Revenue Bonds (Series A)/(GNMA Collateralized),
8/1/2015 AAA 329,244
-------------------------------------------------------
475,000 Missouri State Housing Development Commission, 7.15%
SFM Revenue Bonds (Series A)/(GNMA Collateralized),
8/1/2018 AAA 483,441
-------------------------------------------------------
1,000,000 Missouri State Third State Building, 6.30% GO UT Bonds
(Series B), 11/1/2012 AAA 1,011,300
------------------------------------------------------- -----------
Total 4,821,467
------------------------------------------------------- -----------
</TABLE>
ARROW MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATINGS:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ----------- ------------------------------------------------------- ------------ -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
NORTH CAROLINA--1.5%
-------------------------------------------------------
$ 400,000 North Carolina, 5.75% Eastern Municipal Power Agency
(Series G), 12/1/2016 A- $ 350,564
------------------------------------------------------- -----------
OHIO--2.1%
-------------------------------------------------------
500,000 Ohio State Building Authority, 5.40%, (Series A),
10/1/2004 A+ 486,455
------------------------------------------------------- -----------
PENNSYLVANIA--1.8%
-------------------------------------------------------
420,000 Harrisburg, PA, 5.60% Water Authority Revenue Bonds
(Series A)/(FGIC Insured), 7/15/2007 AAA 412,814
------------------------------------------------------- -----------
TEXAS--16.0%
-------------------------------------------------------
500,000 Houston, TX, 6.00% Refunding Bonds (Series C), 3/1/2004 AA- 511,215
-------------------------------------------------------
800,000 Houston, TX, 6.00% Refunding Bonds (Series C), 3/1/2005 AA- 811,408
-------------------------------------------------------
500,000 Texas State, 6.00% College Student Loans, 8/1/2007 AAA 497,740
-------------------------------------------------------
1,000,000 Texas State, 7.00% GO UT Water Development (Series A),
8/1/2011 AA 1,064,170
-------------------------------------------------------
800,000 Texas University, 6.25% Permanent University Fund
(Series A), 7/1/2007 AA+ 817,624
------------------------------------------------------- -----------
Total 3,702,157
------------------------------------------------------- -----------
VIRGINIA--1.2%
-------------------------------------------------------
300,000 Virginia State, 5.35% Housing Development Authority
(Series E), 11/1/2005 AA 286,458
------------------------------------------------------- -----------
WASHINGTON--6.4%
-------------------------------------------------------
725,000 King City, WA, School District #415 Kent, 6.00% GO UT
Bonds (Series B), 12/1/2008 AA- 720,824
-------------------------------------------------------
245,000 Washington State, 6.00% Refunding Bonds (Series R-92C),
9/1/2004 AA 253,497
-------------------------------------------------------
500,000 Washington State, 6.625%, (Series B), 6/1/2006 AA 520,810
------------------------------------------------------- -----------
Total 1,495,131
------------------------------------------------------- -----------
</TABLE>
ARROW MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATINGS:
AMOUNT MOODY'S
OR SHARES OR S&P* VALUE
- ----------- ------------------------------------------------------- ------------ -----------
<C> <S> <C> <C>
WISCONSIN--8.9%
-------------------------------------------------------
$ 500,000 Alma, WI, 6.125% Pollution Control Revenue Bonds
(Dairyland Power Co-op), 3/1/2008 AA- $ 499,965
-------------------------------------------------------
385,000 Beloit, WI, School District, 6.20% GO UT School
Building Bonds (MBIA Insured), 10/1/2011 AAA 381,015
-------------------------------------------------------
1,000,000 Green Bay, WI, 5.50%, Public School District (Series
A), 4/1/2012 AA 912,920
-------------------------------------------------------
255,000 Madison, WI, 6.75% IDR (Madison Gas & Electric Co.),
4/1/2027 AA 260,008
------------------------------------------------------- -----------
Total 2,053,908
------------------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST, $23,273,807) 22,691,527
------------------------------------------------------- -----------
MUTUAL FUND SHARES--0.9%
- ---------------------------------------------------------------------
209,021 Goldman Sachs, ILA Exempt Trust (at net asset value) AAA 209,021
------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $23,482,828) $22,900,548+
------------------------------------------------------- -----------
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
+ The cost of investments for federal tax purposes amounts to $23,482,828. The
net unrealized depreciation of investments on a federal tax basis amounts to
$582,280, which is comprised of $18,531 appreciation and $600,811 depreciation
at September 30, 1994.
Note: The categories of investments are shown as a percentage of net assets
($23,186,679) at September 30, 1994.
ARROW MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
The following abbreviations are used throughout this portfolio:
<TABLE>
<S> <C>
AMBAC -- American Municipal Bond Assurance Corp.
FGIC -- Financial Guaranty Insurance Co.
GNMA -- Government National Mortgage Association
GO -- General Obligation
HEFA -- Health and Education Facilities Authority
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Investors Assurance Corp.
SFM -- Single Family Mortgage
UT -- Unlimited Tax
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW MUNICIPAL INCOME PORTFOLIO
(FORMERLY, MARK TWAIN MUNICIPAL INCOME PORTFOLIO)
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost $23,482,828) $22,900,548
- --------------------------------------------------------------------------------
Interest receivable 402,865
- --------------------------------------------------------------------------------
Deferred expenses 6,794
- -------------------------------------------------------------------------------- -----------
Total assets 23,310,207
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Dividends payable $90,202
- ----------------------------------------------------------------------
Payable for Fund shares redeemed 2,083
- ----------------------------------------------------------------------
Accrued expenses 31,243
- ---------------------------------------------------------------------- -------
Total liabilities 123,528
- -------------------------------------------------------------------------------- -----------
NET ASSETS for 2,350,051 shares of beneficial interest outstanding $23,186,679
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid-in capital $23,789,922
- --------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (582,280)
- --------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (20,963)
- -------------------------------------------------------------------------------- -----------
Total $23,186,679
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, and Redemption Proceeds Per Share:
($23,186,679 / 2,350,051 shares of beneficial interest outstanding) $9.87
- -------------------------------------------------------------------------------- -----------
COMPUTATION OF OFFERING PRICE:
Offering Price Per Share (100/96.5 of $9.87) $10.23*
- -------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
ARROW MUNICIPAL INCOME PORTFOLIO
(FORMERLY, MARK TWAIN MUNICIPAL INCOME PORTFOLIO)
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Interest income $ 1,348,800
- ----------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------
Investment advisory fee $172,640
- ----------------------------------------------------------------------
Trustees' fees 1,955
- ----------------------------------------------------------------------
Administrative personnel and services fee 50,000
- ----------------------------------------------------------------------
Custodian fees 6,460
- ----------------------------------------------------------------------
Portfolio accounting fees 50,365
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 27,099
- ----------------------------------------------------------------------
Fund share registration costs 17,979
- ----------------------------------------------------------------------
Auditing fees 6,300
- ----------------------------------------------------------------------
Legal fees 459
- ----------------------------------------------------------------------
Printing and postage 5,950
- ----------------------------------------------------------------------
Insurance premiums 4,670
- ----------------------------------------------------------------------
Distribution services fee 61,650
- ----------------------------------------------------------------------
Miscellaneous 2,690
- ---------------------------------------------------------------------- --------
Total expenses 408,217
- ----------------------------------------------------------------------
Deduct--
- -----------------------------------------------------------
Waiver of investment advisory fee $136,730
- -----------------------------------------------------------
Waiver of distribution services fee 61,650 198,380
- ----------------------------------------------------------- -------- --------
Net expenses 209,837
- ---------------------------------------------------------------------------------- -----------
Net investment income 1,138,963
- ---------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (21,051)
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (1,714,717)
- ---------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (1,735,768)
- ---------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ (596,805)
- ---------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW MUNICIPAL INCOME PORTFOLIO
(FORMERLY, MARK TWAIN MUNICIPAL INCOME PORTFOLIO)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1994 1993*
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------
Net investment income $ 1,138,963 $ 662,123
- -----------------------------------------------------------------
Net realized gain (loss) on investments ($0 net loss and $41,659
net gain, respectively, as computed for federal tax purposes) (21,051) 41,659
- -----------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on
investments (1,714,717) 1,132,437
- ----------------------------------------------------------------- ----------- -----------
Change in net assets resulting from operations (596,805) 1,836,219
- ----------------------------------------------------------------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------
Dividends to shareholders from net investment income (1,138,966) (662,120)
- -----------------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions (41,571) --
- ----------------------------------------------------------------- ----------- -----------
Change in net assets from distributions to shareholders (1,180,537) (662,120)
- ----------------------------------------------------------------- ----------- -----------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- -----------------------------------------------------------------
Proceeds from sale of shares 5,242,876 27,342,830
- -----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 32,772 15,614
- -----------------------------------------------------------------
Cost of shares redeemed (4,398,602) (4,445,568)
- ----------------------------------------------------------------- ----------- -----------
Change in net assets from Fund share transactions 877,046 22,912,876
- ----------------------------------------------------------------- ----------- -----------
Change in net assets (900,296) 24,086,975
- -----------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------
Beginning of period 24,086,975 --
- ----------------------------------------------------------------- ----------- -----------
End of period (including undistributed net investment income of
$0 and $3, respectively) $23,186,679 $24,086,975
- ----------------------------------------------------------------- ----------- -----------
</TABLE>
* For the period from February 1, 1993 (date of initial public investment) to
September 30, 1993.
(See Notes which are an integral part of the Financial Statements)
ARROW MUNICIPAL INCOME PORTFOLIO
(FORMERLY, MARK TWAIN MUNICIPAL INCOME PORTFOLIO)
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------
1994 1993*
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.61 $10.00
- -------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------
Net investment income 0.47 0.32
- -------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.72) 0.61
- ------------------------------------------------------------------------- ------ ------
Total from investment operations (0.25) 0.93
- -------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.47) (0.32)
- -------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment
transactions (0.02) --
- ------------------------------------------------------------------------- ------ ------
Total distributions (0.49) (0.32)
- ------------------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.87 $10.61
- ------------------------------------------------------------------------- ------ ------
TOTAL RETURN** (2.41%) 9.43%
- -------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------
Expenses 0.85% 0.72%(a)
- -------------------------------------------------------------------------
Net investment income 4.62% 4.71%(a)
- -------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.81% 0.85%(a)
- -------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------
Net assets, end of period (000 omitted) $23,187 $24,087
- -------------------------------------------------------------------------
Portfolio turnover rate 27% 14%
- -------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from February 1, 1993 (date of initial
public investment) to September 30, 1993.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
ARROW FUNDS
(FORMERLY, MARK TWAIN FUNDS)
COMBINED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Arrow Funds (the "Trust") is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end, management investment company. The
Trust consists of four, diversified portfolios (individually referred to as the
"Fund", or collectively as the "Funds"): Arrow Equity Portfolio ("Equity Fund"),
Arrow Fixed Income Portfolio ("Fixed Income Fund"), Arrow Government Money
Market Portfolio ("Government Money Market Fund"), and Arrow Municipal Income
Portfolio ("Municipal Income Fund"). The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The financial statements included herein are only those of the Equity
Fund, Fixed Income Fund, and Municipal Income Fund. The financial statements of
Government Money Market Fund are presented separately.
Effective October 1, 1994, the Funds changed their names to Arrow Equity
Portfolio, Arrow Fixed Income Portfolio, Arrow Government Money Market
Portfolio, and Arrow Municipal Income Portfolio. Previously, Government Money
Market Fund provided two classes of shares ("Trust Shares" and "Investment
Shares"). As of August 25, 1994, the "Investment Shares" were no longer offered
and the designation "Trust Shares" was rescinded for the remaining class.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing service
taking into consideration yield, liquidity, risk, credit-quality, coupon, maturity, type
of issue, and any other factors or market data it deems relevant in determining
valuations for normal institutional size trading units of debt securities. The
independent pricing service does not rely exclusively on quoted prices.
Listed equity securities are valued at the last sale price reported on national
securities exchanges. Unlisted securities and short-term obligations (and private
placement securities) are generally valued at the prices provided by an independent
pricing service.
U.S. government obligations are generally valued at the mean between the over-the-counter
bid and asked prices as furnished by an independent pricing service. Corporate bonds (and
other fixed-income and asset backed securities) are valued at the last sale price
reported on national securities exchanges on that day, if available. Otherwise, corporate
bonds (and other fixed-income and asset backed securities) and short-term obligations are
valued at the prices provided by an independent pricing service.
</TABLE>
ARROW FUNDS
(FORMERLY, MARK TWAIN FUNDS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Short-term securities with remaining maturities of sixty days or less may be stated at
amortized cost, which approximates value. Investments in other regulated investment
companies are valued at net asset value.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income and expenses are
accrued daily. Bond premium and discount, if applicable, are amortized as required by the
Internal Revenue Code, as amended (the "Code").
C. FEDERAL TAXES--It is the Funds policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to shareholders each year
substantially all of its taxable income for the Equity Fund and the Fixed Income Fund and
substantially all of its tax-exempt income for the Municipal Income Fund. Accordingly, no
provisions for federal tax are necessary. Additionally, net capital losses in the Equity
Fund, Fixed Income Fund and Municipal Income Fund of $2,069,112, $182,618 and $21,051,
respectively, attributable to security transactions incurred after October 31, 1993 are
treated as arising on the first day (October 1, 1994) of each Fund's next taxable year.
At September 30, 1994, the Equity Fund and Fixed Income Fund, for federal tax purposes,
had a capital loss carryforward of $41,210 and $24, respectively, which will reduce the
Fund's taxable income arising from future net realized gain on investments, if any, to
the extent permitted by the Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Funds of any liability for
federal tax. Pursuant to the Code, such capital loss carryforwards will expire in 2002.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Funds may engage in when-issued or
delayed delivery transactions. The Funds record when-issued securities on the trade date
and maintain security positions such that sufficient liquid assets will be available to
make payment for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning interest on the
settlement date.
E. DEFERRED EXPENSES--The costs incurred by the Funds with respect to registration of their
shares in the first fiscal year, excluding the initial expense of registering its shares,
have been deferred and are being amortized using the straight-line method up to a period
of five years from the Trust's commencement date.
F. OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
ARROW FUNDS
(FORMERLY, MARK TWAIN FUNDS)
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
MUNICIPAL
EQUITY FUND FIXED INCOME FUND INCOME FUND
------------------------ ------------------------ ---------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------
1994 1993* 1994 1993* 1994 1993**
- -------------------------------- ---------- ---------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 1,054,265 3,934,990 941,051 4,994,021 504,010 2,700,073
- --------------------------------
Shares issued to shareholders in
payment of dividends declared 1,757 557 3,602 1,534 3,205 1,505
- --------------------------------
Shares redeemed (1,056,371) (825,345) (1,400,669) (1,021,468) (428,373) (430,369)
- -------------------------------- ---------- ---------- ---------- ---------- -------- ---------
Net change resulting from Fund
share transactions (349) 3,110,202 (456,016) 3,974,087 78,842 2,271,209
- -------------------------------- ---------- ---------- ---------- ---------- -------- ---------
</TABLE>
* For the period from January 4, 1993 (date of initial public investment) to
September 30, 1993.
** For the period from February 1, 1993 (date of initial public investment) to
September 30, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Mark Twain Bank, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee based on
a percentage of each Fund's average daily net assets (see below).
<TABLE>
<S> <C>
Equity Fund........................ 0.75%
Fixed Income Fund.................. 0.60%
Municipal Income Fund.............. 0.70%
</TABLE>
The Adviser may voluntarily choose to waive a portion of its fee and reimburse
certain operating expenses of each Fund. The Adviser can modify or terminate
this voluntary waiver and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Funds
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Funds have adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Funds compensate Federated Securities Corp. ("FSC"), the principal distributor,
from the net assets of the Fund to finance activities intended to result in the
sale of the Fund's shares. The Plan provides that each Fund may incur
distribution expenses up to 0.25 of 1% of its average daily net assets,
annually, to compensate FSC. The distributor
ARROW FUNDS
(FORMERLY, MARK TWAIN FUNDS)
- --------------------------------------------------------------------------------
may voluntarily choose to waive a portion of its fee. The distributor can modify
or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Funds. The FServ fee is based on the size, type, and number of accounts and
transactions made by shareholders.
FServ also maintains the Funds' accounting records. The fee is based on the
level of the Fund's average net assets for the period plus, out-of-pocket
expenses.
Mark Twain Bank is the Funds' custodian. The fee is based on the level of the
Fund's average net assets for the period plus, out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses were borne initially by FAS.
The Funds have agreed to reimburse FAS for the organizational expenses during
the five-year period following November 24, 1992 (the effective date of the
Trust).
<TABLE>
<CAPTION>
AMOUNTS REIMBURSED
EXPENSES OF TO FAS FOR
ORGANIZING THE YEAR ENDED
THE FUND SEPTEMBER 30, 1994
- ------------------------------------------------------ ------------ --------------------
<S> <C> <C>
Equity Fund $ 17,560 $1,892
- ------------------------------------------------------
Fixed Income Fund 17,401 2,158
- ------------------------------------------------------
Municipal Income Fund 16,729 2,158
- ------------------------------------------------------
</TABLE>
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended
September 30, 1994 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
- ----------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Equity Fund $36,254,888 $36,328,179
- -----------------------------------------------------------------
Fixed Income Fund 10,499,762 14,336,700
- -----------------------------------------------------------------
Municipal Income Fund 7,758,595 6,346,367
- -----------------------------------------------------------------
</TABLE>
Certain of the Officers and Trustees of the Funds are Officers and Directors or
Trustees of the above companies.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders
ARROW FUNDS:
We have audited the statements of assets and liabilities, including the
portfolios of investments, for the Arrow Fund portfolios, listed below, as of
September 30, 1994, and the related statements of operations, changes in net
assets, and the financial highlights for each of the years or periods listed
below:
- Arrow Equity Portfolio (formerly, "Mark Twain Equity
Portfolio")--statement of operations for the year ended September 30,
1994, and the statement of changes in net assets and the financial
highlights for the year ended September 30, 1994 and for the period from
January 4, 1993 (commencement of operations) to September 30, 1993.
- Arrow Fixed Income Portfolio (formerly, "Mark Twain Fixed Income
Portfolio")--statement of operations for the year ended September 30,
1994, and the statement of changes in net assets and the financial
highlights for the year ended September 30, 1994 and for the period from
January 4, 1993 (commencement of operations) to September 30, 1993.
- Arrow Municipal Income Portfolio (formerly, "Mark Twain Municipal Income
Portfolio")--statement of operations for the year ended September 30,
1994, and the statement of change in net assets and the financial
highlights for the year ended September 30, 1994 and for the period from
February 1, 1993 (commencement of operations) to September 30, 1993.
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.
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 the financial highlights. Investment securities held in custody
are confirmed to us by the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Arrow Equity Portfolio, Arrow Fixed Income Portfolio and Arrow Municipal Income
Portfolio as of September 30, 1994, and the results of their operations, changes
in their net assets, and the financial highlights for each of the periods listed
above, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
November 11, 1994
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- ---------------------------------------------------------------------------------------------
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Edward C. Gonzales
James E. Dowd President and Treasurer
Lawrence D. Ellis, M.D. Charles L. Davis, Jr.
Edward L. Flaherty, Jr. Vice President and Assistant Treasurer
Edward C. Gonzales J. Christopher Donahue
Peter E. Madden Vice President
Gregor F. Meyer Richard B. Fisher
Wesley W. Posvar Vice President
Marjorie P. Smuts John W. McGonigle
Vice President and Secretary
David M. Taylor
Assistant Treasurer
C. Grant Anderson
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Funds' prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
(A PORTFOLIO OF ARROW FUNDS)
PROSPECTUS
Arrow Funds (the "Trust") is an open-end management investment company (a mutual
fund). This prospectus offers investors interests in the diversified portfolio
known as Arrow Government Money Market Portfolio (the "Fund").
The investment objective of the Fund is current income consistent with stability
of principal and liquidity. The Fund pursues this investment objective by
investing in a portfolio of short-term U.S. government securities.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF MARK
TWAIN BANK, ARE NOT GUARANTEED BY MARK TWAIN BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference. The Fund has also
filed a Statement of Additional Information dated November 30, 1994 with the
Securities and Exchange Commission.
The information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of the
Statement of Additional Information free of charge, obtain other information, or
make inquiries about the Fund by writing or calling the Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated November 30, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Repurchase Agreements 4
When-Issued and Delayed
Delivery Transactions 4
Investing in Securities of Other
Investment Companies 4
Investment Limitations 4
Regulatory Compliance 5
ARROW FUNDS INFORMATION 5
- ------------------------------------------------------
Management of Arrow Funds 5
Board of Trustees 5
Investment Adviser 5
Advisory Fees 5
Adviser's Background 5
Distribution of Fund Shares 6
Shareholder Servicing Arrangements 6
ADMINISTRATION OF THE FUND 6
- ------------------------------------------------------
Administrative Services 6
Custodian 6
Transfer Agent, Dividend Disbursing
Agent and Portfolio Recordkeeping 6
Legal Counsel 6
Independent Auditors 6
Expenses of the Fund 6
NET ASSET VALUE 7
- ------------------------------------------------------
INVESTING IN THE FUND 7
- ------------------------------------------------------
Minimum Investment Required 7
What Shares Cost 7
Share Purchases 7
Through Mark Twain 7
Systematic Investment Plan 8
Certificates and Confirmations 8
Dividends 8
Capital Gains 8
EXCHANGE PRIVILEGE 9
- ------------------------------------------------------
REDEEMING SHARES 9
- ------------------------------------------------------
Through Mark Twain 9
By Telephone 9
By Mail 10
Receiving Payment 11
Checkwriting 11
Systematic Withdrawal Program 11
Accounts with Low Balances 11
SHAREHOLDER INFORMATION 11
- ------------------------------------------------------
Voting Rights 11
Massachusetts Partnership Law 12
EFFECT OF BANKING LAWS 12
- ------------------------------------------------------
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
FINANCIAL STATEMENTS 14
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 22
- ------------------------------------------------------
ADDRESSES 23
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)........................................... None
Exchange Fee.................................................................... None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of average net assets)
Management Fee ................................................................ 0.50%
12b-1 Fees...................................................................... None
Total Other Expenses(1) ........................................................ 0.30%
Total Fund Operating Expenses............................................... 0.80%
</TABLE>
(1) The maximum administrative fee is the greater of $50,000, or the charges
based upon a sliding fee scale ranging from 0.075% to 0.15% of the fund's
average daily net assets. Total other expenses include a fixed fee plus a
charge based on assets and accounts for transfer agent and dividend
disbursing agent and portfolio accounting services.
* EXPENSES IN THIS TABLE ARE BASED ON EXPENSES INCURRED DURING THE FISCAL YEAR
ENDED SEPTEMBER 30, 1994. DURING THE COURSE OF THIS PERIOD, EXPENSES MAY HAVE
BEEN MORE OR LESS THAN THE AMOUNT SHOWN.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "THE ARROW FUNDS INFORMATION" AND "INVESTING IN THE FUND."
WIRE-TRANSFERRED REDEMPTIONS MAY BE SUBJECT TO AN ADDITIONAL FEE.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ------------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end
of each time period. The Fund charges no redemption fees... $8 $26 $44 $ 99
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON THE FUND'S FISCAL YEAR ENDING SEPTEMBER 30, 1994.
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
(FORMERLY, MARK TWAIN GOVERNMENT MONEY MARKET PORTFOLIO)
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 22.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------
1994 1993*
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income 0.03 0.02
- ---------------------------------------------------------------------- ------ ------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Dividends to shareholders from net investment income (0.03) (0.02)
- ---------------------------------------------------------------------- ----- -----
NET ASSET VALUE, END OF PERIOD $1.00 $1.00
- ----------------------------------------------------------------------
TOTAL RETURN** 2.90% 1.86%
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 0.80% 0.73%(a)
- ----------------------------------------------------------------------
Net investment income 2.86% 2.40%(a)
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $154,170 $151,311
- ----------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 21, 1992 (date of initial
public investment) to September 30, 1993.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Arrow Funds was established as a Massachusetts business trust under a
Declaration of Trust dated July 1, 1992.
The Declaration of Trust permits Arrow Funds to offer separate series of shares
of beneficial interest representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
Prior to August 25, 1994, the Fund was offered in both a Trust Shares class and
an Investment Shares class. As of August 25, 1994, the Investment Shares of the
Fund were no longer offered. This prospectus relates only to the Arrow
Government Money Market Portfolio. In addition, the Trust offers three other
investment portfolios, Arrow Equity Portfolio, Arrow Fixed Income Portfolio and
Arrow Municipal Income Portfolio.
The Fund is designed as a convenient means of accumulating an interest in a
professionally managed portfolio limited to short-term U.S. government
securities. A minimum initial investment of $1,000 is required. Subsequent
investments may be made in any amounts.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income consistent with stability
of principal and liquidity. The Fund pursues this investment objective by
investing in a portfolio of short-term U.S. government securities. The average
maturity of the U.S. government securities in the Fund's portfolio, computed on
a dollar weighted basis, will be 90 days or less. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus. The investment
objective cannot be changed without approval of shareholders. Unless indicated
otherwise, the investment policies of the Fund may be changed by the Trustees
without the approval of shareholders. Shareholders will be notified before any
material change in these policies becomes effective.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund invests
are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. These securities include, but are not limited to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the Federal Home Loan Bank, Federal Farm
Credit Bank, and Student Loan Marketing Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial
support to other agencies or instrumentalities, since it is not obligated to do
so. These instrumentalities are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
REPURCHASE AGREEMENTS. The U.S. government securities in which the Fund
invests may be purchased pursuant to repurchase agreements. Repurchase
agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell U.S. government securities or other
securities to the Fund and agree at the time of sale to repurchase them at
a mutually agreed upon time and price. To the extent that the original
seller does not repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
value of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more/less than the market value of these
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3%
of the total outstanding voting stock of any investment company, invest more
than 5% of its total assets in any one investment company, or invest more than
10% of its total assets in investment companies in general. The Fund will only
invest in other investment companies that are money market funds having
investment objectives and policies similar to its own, and primarily for the
purpose of investing short-term cash which has not yet been invested in other
portfolio instruments. The adviser will waive its investment advisory fee on
assets invested in securities of open-end investment companies.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of those assets to secure such
borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including certain restricted securities.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, the Fund
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Fund will determine the effective maturity of its
investments according to Rule 2a-7. The Fund may change these operational
policies to reflect changes in the laws and regulations without approval of its
shareholders.
ARROW FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF ARROW FUNDS
BOARD OF TRUSTEES. The Board of Trustees is responsible for managing the
business affairs of the Trust and for exercising all of the powers of the Trust
except those reserved for the shareholders. The Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Mark Twain Bank, the Fund's
adviser (the "Adviser"), subject to direction by the Trustees. The Adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee equal
to 0.50 of 1% of the Fund's average daily net assets. The investment
advisory contract provides for the voluntary waiver of expenses by the
Adviser from time to time. The Adviser has undertaken to waive up to the
amount of the advisory fee, for operating expenses, in excess of limitations
established by certain states. The Adviser may voluntarily choose to waive a
portion of its fees or reimburse the Fund for certain other expenses, but
reserves the right to terminate such waiver or reimbursement at any time at
its sole discretion.
ADVISER'S BACKGROUND. Mark Twain Bank, a Missouri state chartered bank, is a
wholly-owned subsidiary of Mark Twain Bancshares, Inc., a bank holding
company organized under the laws of the state of Missouri. Mark Twain Bank
is a commercial bank offering a wide range of banking services to its
customers. As of September 30, 1994, Mark Twain Bank managed assets in
excess of $1.3 billion on a discretionary basis and provided custody
services for additional assets in excess of $1.4 billion. Mark Twain Bank
has advised the Trust since 1992. In addition to the Mark Twain Funds, the
Trust Division of Mark Twain Bank manages two commingled funds with total
assets of over $18 million. As part of their regular banking operations,
Mark Twain Bank may make loans to public companies. Thus, it may be
possible, from time to time, for a Fund to hold or acquire the securities of
issuers which are also lending clients of Mark Twain Bank. The lending
relationship will not be a factor in the selection of securities.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICING ARRANGEMENTS. The distributor may pay administrators a fee
for providing distribution or administrative services. This fee, if paid, will
be reimbursed by the Adviser and not the Fund.
ADMINISTRATION OF THE FUND
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate as follows:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- --------------------------------------------------------------
<S> <C>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per Fund. Federated Administrative Services may voluntarily reimburse or waive a
portion of its fee.
CUSTODIAN. Mark Twain Bank, St. Louis, Missouri, is custodian for the securities
and cash of the Fund.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PORTFOLIO RECORDKEEPING. Federated
Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated Investors,
is transfer agent for the shares of the Fund, and dividend disbursing agent for
the Fund. Federated Services Company also provides certain accounting and
recordkeeping services with respect to the portfolio investments of the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania and Dickstein, Shapiro and Morin, L.L.P., Washington,
D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat
Marwick LLP, Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable portion of Trust
expenses.
The expenses for the Fund include, but are not limited to, the cost of:
organizing the Trust and continuing its existence; Trustees' fees; investment
advisory and administrative services; printing prospectuses and other Fund
documents for shareholders; registering the Trust, the Fund and shares of the
Fund; taxes and commissions; issuing, purchasing, repurchasing, and redeeming
shares; fees for
custodians, transfer agents, dividend disbursing agents, shareholder servicing
agents, and registrars; printing, mailing, auditing, accounting and legal
expenses; reports to shareholders and governmental agencies; meetings of
Trustees and shareholders and proxy solicitations therefor; insurance premiums;
association membership dues; and such non-recurring and extraordinary items as
may arise. It should be noted that investment companies incur certain expenses
such as management fees, and, therefore, any investment by the Fund in shares of
another investment company would be subject to such duplicate expenses. To the
extent that the Fund invests in the securities of other investment companies,
the Adviser will waive its advisory fee on assets invested in open-end
management companies.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Fund, of
course, cannot guarantee that its net asset value will always remain at $1.00
per Share.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $1,000. Subsequent
investments may be made in any amounts. An institutional investor's minimum
investment will be calculated by combining all accounts it maintains with the
Fund.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund.
The net asset value is determined at 12:00 noon, 3:00 p.m. and 4:00 p.m.
(Eastern time), Monday through Friday, except on: (i) days on which there are
not sufficient changes in the value of the Fund's portfolio securities that its
net asset value might be materially affected; (ii) days during which no shares
are tendered for redemption and no orders to purchase shares are received; or
(iii) the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Wire System are open for business. A trust customer may purchase shares
through Mark Twain Bank Trust Division. Retail customers may purchase shares
through Mark Twain Brokerage Services, Inc. In connection with the sale of
shares, the distributor may from time to time offer certain items of nominal
value to any shareholder or investor. The Fund reserves the right to reject any
purchase request.
THROUGH MARK TWAIN. To place an order to purchase shares, a trust customer may
contact the Mark Twain Bank Trust Division by telephone at 314-889-0715.
Customers of Mark Twain Brokerage
Services, Inc. should contact their individual Mark Twain broker. Other
customers should telephone Mark Twain Brokerage Services, Inc. at
1-800-866-6040. Texas residents may telephone Federated Services Company at
1-800-618-8573.
Purchase orders must be received by 11:00 a.m. (St. Louis time) in order to be
credited on the same day. Payment is required on the same business day in order
to earn dividends for that day. Payment may be made by either check or federal
funds or by debiting a customer's account at Mark Twain Bank. Purchases by check
are considered received after payment by check is converted into federal funds
and received by Mark Twain Bank. When payment is made with federal funds, the
order is considered received when federal funds are received by Mark Twain Bank.
SYSTEMATIC INVESTMENT PLAN
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received by the Fund, plus any applicable sales charge. A shareholder may apply
for participation in this program through Mark Twain Brokerage Services, Inc. or
directly through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued unless
requested by contacting the Fund in writing.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends will be reinvested in
additional shares on payment dates unless cash payments are requested by writing
to the Fund or Mark Twain, as appropriate. Share purchase settlements received
by the Fund before 2:00 p.m. (St. Louis time) earn dividends that day.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses
could result in a decrease in dividends. If, for some extraordinary reason, the
Fund realizes net long-term capital gains, it will distribute them at least once
every 12 months.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
A shareholder may exchange shares of the Fund for shares of any of the other
funds in the Trust by calling or sending a written request to Mark Twain.
Orders to exchange shares of one fund for shares of any of the other funds will
be executed by redeeming the shares owned at net asset value and purchasing
shares of any of the other funds at the net asset value determined after the
exchange request is received, plus any applicable sales charge. Orders for
exchanges received by the Fund prior to 3:00 p.m. (St. Louis time) on any day
that the Fund is open for business will be executed as of the close of business
that day. Orders for exchanges received after 3:00 p.m. (St. Louis time) on any
business day will be executed at the close of the next business day. Telephone
exchange instructions may be recorded.
When exchanging into and out of shares of the funds in the Trust, shareholders
who have paid a sales load once upon purchasing shares of any fund, including
those shares obtained through the reinvestment of dividends, will not have to
pay a sales load again on an exchange.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege of any shareholder who makes more
than six exchanges of shares of the funds in a year, or three in a calendar
quarter. Shareholders would be notified prior to any modification or
termination.
An exchange order must comply with the requirements for a redemption and
purchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial investment requirement
of the fund being acquired. An exchange constitutes a sale for federal income
tax purposes.
The exchange privilege is only available in states where shares of the fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the fund for which the exchange is being made.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemption
must be received in proper form as described below and can be made through Mark
Twain by its respective customers or directly through the Fund by all other
investors.
THROUGH MARK TWAIN
BY TELEPHONE. A shareholder who is a customer of the Mark Twain Bank Trust
Division may telephone their Mark Twain Bank Trust Officer. Customers of Mark
Twain Brokerage Services, Inc.
should contact their individual Mark Twain broker. Other shareholders may
telephone Mark Twain Brokerage Services, Inc. at 1-800-866-6040. Telephone
redemption instructions may be recorded.
For calls received before 11:00 a.m. (St. Louis time), proceeds will normally be
wired the same day to the shareholder's account at Mark Twain Bank or a check
will be sent to the address of record. Those Shares will not be entitled to a
dividend declared on the day the redemption request was received. In no event
will proceeds be wired or a check sent more than seven days after a proper
request for redemption has been received. An authorization form permitting the
Fund to accept telephone requests must first be completed. Authorization forms
and information on this service are available from Mark Twain Bank.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as a written request to Federated Services Company or
Mark Twain should be considered.
If at any time, the Fund shall determine it necessary to terminate or modify
this method of redemption, shareholders shall be promptly notified.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
BY MAIL. A shareholder who is a customer of Mark Twain Brokerage Services, Inc.,
may redeem shares by sending a written request to:
Mark Twain Brokerage Services, Inc.
Attn: Arrow Funds
1630 South Lindebergh
St. Louis, MO 63131
The written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested and the proper
endorsement. If share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail with the written
request. Shareholders should call Mark Twain Brokerage Services, Inc. for
assistance in redeeming by mail.
Shareholders requesting a redemption of $50,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record must have signatures
on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
- a savings and loan association or a savings bank whose deposits are
insured by the Savings Association Insurance Fund ("SAIF"), which is
administered by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed to the
shareholder within one business day, but in no event more than seven days, after
receipt of a proper written redemption request.
CHECKWRITING. At the shareholder's request, a checking account may be
established for redeeming shares. For information on the availability of
checkwriting and related matters, contact Mark Twain Brokerage Services, Inc.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Fund
shares, and the fluctuation of the net asset value of Fund shares redeemed under
this program, redemptions may reduce, and eventually deplete, the shareholder's
investment in the Fund. For this reason, payments under this program should not
be considered as yield or income on the shareholder's investment in the Fund. To
be eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through Mark Twain Brokerage Services, Inc. Due to the fact that shares
are sold with a sales charge, it is not advisable for shareholders to be
purchasing shares while participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $1,000. Before redeeming shares to close an account, the Fund will
notify the shareholder in writing and allow the shareholder 30 days to purchase
additional shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each Fund in the
Trust have equal voting rights, except that in matters affecting only a
particular Fund, only shares of that Fund are entitled to vote. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances. As of November 14, 1994, the Trust Division of Mark
Twain Bank, acting in various capacities for numerous accounts, was the owner of
record of 157,755,984 shares (100%) of the Fund, and therefore, may, for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by shareholders at a special meeting. The Trustees shall call a
special meeting of the shareholders upon the written request of shareholders
owning at least 10% of the Trust's outstanding shares of all series entitled to
vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust. To protect shareholders,
the Trust has filed legal documents with Massachusetts that expressly disclaim
the liability of shareholders for such acts or obligations of the Trust. These
documents require inclusion of this disclaimer in each agreement, obligation, or
instrument the Trust or its Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust cannot meet its obligations to
indemnify shareholders and pay judgments against them from its assets.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling or distributing securities in general.
Such laws and regulations do not prohibit such a holding company or affiliate
from acting as investment adviser, transfer agent or custodian to such an
investment company or from purchasing shares of such a company as agent for and
upon the order of their customers. The Fund's Adviser, Mark Twain Bank, is
subject to such banking laws and regulations.
Mark Twain Bank believes that it may perform the investment advisory services
for any Fund contemplated by its advisory agreement with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Mark Twain Bank from continuing to perform all or a part of the above services
for its customers and/or a Fund. In such event, changes in the operation of a
Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment or redemption services then being
provided by Mark Twain Bank, and the Trustees would consider alternative
investment advisers and other means of continuing available investment services.
It is not expected that a Fund's shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Mark Twain Bank is
found) as a result of any of these occurrences.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Fund will not be combined for tax purposes with those realized by any of the
other funds of the Trust.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield and effective yield.
The yield of the Fund represents the annualized rate of income earned on an
investment in the Fund over a seven-day period. It is the annualized dividends
earned during the period on the investment, shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specific period of time, in the value of an
investment in the Fund after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
(FORMERLY, MARK TWAIN GOVERNMENT MONEY MARKET PORTFOLIO)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ------------ ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
SHORT-TERM OBLIGATIONS--53.0%
- ------------------------------------------------------------------------------------
* FEDERAL FARM CREDIT BANK--9.7%
----------------------------------------------------------------
$ 15,000,000 4.45%-4.83%, 10/3/94-12/1/94 $ 15,000,000
----------------------------------------------------------------
* FEDERAL HOME LOAN BANK, DISCOUNT NOTES--6.5%
----------------------------------------------------------------
10,000,000 4.51%-4.74%, 10/20/94-12/7/94 9,943,990
----------------------------------------------------------------
* FEDERAL HOME LOAN MORTGAGE CORPORATION, DISCOUNT NOTES--11.0%
----------------------------------------------------------------
17,000,000 4.51%-4.74%, 10/11/94-11/21/94 16,923,256
----------------------------------------------------------------
* FEDERAL NATIONAL MORTGAGE ASSOCIATION, DISCOUNT NOTES--4.5%
----------------------------------------------------------------
7,000,000 4.81%-4.84%, 12/12/94-12/19/94 6,928,656
----------------------------------------------------------------
U.S. TREASURY BILLS--21.3%
----------------------------------------------------------------
33,000,000 10/13/94-12/1/94 32,861,909
---------------------------------------------------------------- ------------
TOTAL SHORT-TERM OBLIGATIONS 81,657,811
---------------------------------------------------------------- ------------
MUTUAL FUND SHARES--0.0%
- ------------------------------------------------------------------------------------
50,017 SEI Government Portfolio (at net asset value) 50,017
---------------------------------------------------------------- ------------
**REPURCHASE AGREEMENTS--47.2%
- ------------------------------------------------------------------------------------
36,800,000 Morgan Stanley & Co., Inc., 4.83%, dated 9/30/94, due 10/3/94 36,800,000
----------------------------------------------------------------
36,000,000 Sanwa-BGK Securities, Co., 4.60%, dated 9/30/94, due 10/3/94 36,000,000
---------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS 72,800,000
---------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST AND VALUE $154,507,828+
---------------------------------------------------------------- ------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase.
** The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
+ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($154,170,182) at September 30, 1994.
(See Notes which are an integral part of the Financial Statements)
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
(FORMERLY, MARK TWAIN GOVERNMENT MONEY MARKET PORTFOLIO)
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in repurchase agreements $72,800,000
- ------------------------------------------------------------------
Investments in other securities 81,707,828
- ------------------------------------------------------------------ -----------
Total investments, at amortized cost and value $154,507,828
- --------------------------------------------------------------------------------
Cash 101
- --------------------------------------------------------------------------------
Interest receivable 124,834
- --------------------------------------------------------------------------------
Deferred expenses 37,156
- -------------------------------------------------------------------------------- ------------
Total assets 154,669,919
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Dividends payable 486,531
- ------------------------------------------------------------------
Accrued expenses 13,206
- ------------------------------------------------------------------ -----------
Total liabilities 499,737
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 154,170,182 shares of beneficial interest outstanding $154,170,182
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
- --------------------------------------------------------------------------------
($154,170,182 / 154,170,182 shares of beneficial interest outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
(FORMERLY, MARK TWAIN GOVERNMENT MONEY MARKET PORTFOLIO)
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest income $5,788,418
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee $788,681
- ----------------------------------------------------------------------
Trustees' fees 2,886
- ----------------------------------------------------------------------
Administrative personnel and services fees 236,784
- ----------------------------------------------------------------------
Custodian fees 39,463
- ----------------------------------------------------------------------
Portfolio accounting fees 59,452
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 55,248
- ----------------------------------------------------------------------
Fund share registration costs 38,232
- ----------------------------------------------------------------------
Auditing fees 12,013
- ----------------------------------------------------------------------
Legal fees 2,301
- ----------------------------------------------------------------------
Printing and postage 11,080
- ----------------------------------------------------------------------
Insurance premiums 8,174
- ----------------------------------------------------------------------
Miscellaneous 3,338
- ---------------------------------------------------------------------- --------
Total expenses 1,257,652
- ---------------------------------------------------------------------- ----------
Net investment income $4,530,766
- --------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are integral part of the Financial Statements)
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
(FORMERLY, MARK TWAIN GOVERNMENT MONEY MARKET PORTFOLIO)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1994 1993*
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------
Net investment income $ 4,530,766 $ 2,947,911
- --------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------
Dividends to shareholders from net investment income:
- ---------------------------------------------------------------
Trust shares (4,530,766) (2,947,815)
- ---------------------------------------------------------------
Investment shares 0 (96)
- --------------------------------------------------------------- ------------- -------------
Change in net assets from distributions to shareholders (4,530,766) (2,947,911)
- --------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- ---------------------------------------------------------------
Proceeds from sale of shares 549,781,518 486,456,340
- ---------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 57 86
- ---------------------------------------------------------------
Cost of shares redeemed (546,931,468) (335,236,351)
- --------------------------------------------------------------- ------------- -------------
Change in net assets from Fund share transactions 2,850,107 151,220,075
- --------------------------------------------------------------- ------------- -------------
Change in net assets 2,850,107 151,220,075
- ---------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------
Beginning of period 151,320,075 100,000
- --------------------------------------------------------------- ------------- -------------
End of period $ 154,170,182 $ 151,320,075
- --------------------------------------------------------------- ------------- -------------
</TABLE>
* For the period from November 9, 1992 (start of business) to September 30,
1993.
(See Notes which are an integral part of the Financial Statements)
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
(FORMERLY, MARK TWAIN GOVERNMENT MONEY MARKET PORTFOLIO)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Arrow Funds (the "Trust"), is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end, management investment company.
The Trust consists
of four, diversified portfolios. The financial statements included herein are
only those of Arrow Government Money Market Portfolio (the "Fund"). The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
Effective October 1, 1994, the Fund changed its name to Arrow Government Money
Market Portfolio.
Previously, the Fund provided two classes of shares ("Trust Shares" and
"Investment Shares"). As of August 25, 1994, the "Investment Shares" were no
longer offered and the designation "Trust Shares" was rescinded for the
remaining class.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio
securities is in accordance with Rule 2a-7 under the Act.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry System, or to
have segregated within the custodian bank's vault, all securities held as collateral in
support of repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's underlying collateral to ensure that the value of collateral at least equals
the principal amount of the repurchase agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to
be creditworthy pursuant to the guidelines established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
</TABLE>
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
(FORMERLY, MARK TWAIN GOVERNMENT MONEY MARKET PORTFOLIO)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued
daily. Bond premium and discount, if applicable, are amortized as required by the
Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are
recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to shareholders each year
substantially all of its taxable income. Accordingly, no provisions for federal tax are
necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. The Fund records when-issued securities on the trade date
and maintains security positions such that sufficient liquid assets will be available to
make payment for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its
shares in its first fiscal year, excluding the initial expense of registering its shares,
have been deferred and are being amortized using the straight-line method not to exceed a
period of five years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
(FORMERLY, MARK TWAIN GOVERNMENT MONEY MARKET PORTFOLIO)
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At September 30, 1994, capital paid-in aggregated $154,170,182.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
TRUST SHARES 1994 1993*
- ----------------------------------------------------------- -------------- --------------
<S> <C> <C>
Shares sold 549,781,518 486,443,490
- -----------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared -- --
- -----------------------------------------------------------
Shares redeemed (546,922,476) (335,232,351)
- ----------------------------------------------------------- -------------- --------------
Net change resulting from Trust share transactions 2,859,042 151,211,139
- ----------------------------------------------------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
INVESTMENT SHARES 1994 1993**
- ----------------------------------------------------------- -------------- --------------
<S> <C> <C>
Shares sold -- 12,850
- -----------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 57 86
- -----------------------------------------------------------
Shares redeemed (8,992) (4,000)
- ----------------------------------------------------------- -------------- --------------
Net change resulting from Investment share transactions (8,935) 8,936
- ----------------------------------------------------------- -------------- --------------
Net change resulting from Fund share transactions 2,850,107 151,220,075
- ----------------------------------------------------------- -------------- --------------
</TABLE>
* For the period from December 21, 1992 (date of initial public investment) to
September 30, 1993.
** For the period from April 8, 1993 (date of initial public investment) to
September 30, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Mark Twain Bank, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.50 of 1% of the Fund's average daily net assets.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Fund adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund
compensated Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Investment Shares. The Plan provided that the Fund could incur
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
(FORMERLY, MARK TWAIN GOVERNMENT MONEY MARKET PORTFOLIO)
- --------------------------------------------------------------------------------
distribution expenses up to 0.40 of 1% of the average daily net assets of the
Investment Shares, annually, to compensate FSC.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund. The FServ fee is based on the size, type, and number of accounts and
transactions made by shareholders.
FServ also maintains the Fund's accounting records. The fee is based on the
level of the Fund's average net assets for the period plus, out-of-pocket
expenses.
Mark Twain Bank is the Fund's custodian. The fee is based on the level of the
Fund's average net assets for the period plus, out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $34,683 were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following November 24, 1992 date the Fund first
became effective. For the year ended September 30, 1994, the Fund paid $2,808,
pursuant to this agreement.
Certain of the Officers and Trustees of the Fund are Officers and Directors or
Trustees of the above companies.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholder of
ARROW FUNDS:
We have audited the statement of assets and liabilities, including the portfolio
of investments of the Arrow Government Money Market Portfolio (formerly, "Mark
Twain Government Money Market Portfolio"), a portfolio within Arrow Funds, as of
September 30, 1994, and the related statement of operations for the year then
ended, the statement of changes in net assets and the financial highlights,
which are presented on page 2 of this prospectus, for the year ended September
30, 1994 and period from December 9, 1992 (commencement of operations) to
September 30, 1993. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audit.
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. Investment securities held in custody are
confirmed to us by the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
Arrow Government Money Market Portfolio at September 30, 1994 and the results of
its operations for the year then ended, the changes in net assets and the
financial highlights for the year-ended September 30, 1994 and for the period
from December 9, 1992 to September 30, 1993, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
November 11, 1994
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Arrow Government Federated Investors Tower
Money Market Portfolio Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Mark Twain Bank 8820 Ladue Road
St. Louis, Missouri 63124
- ------------------------------------------------------------------------------------------------
Custodian
Mark Twain Bank 8820 Ladue Road
St. Louis, Missouri 63124
- ------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent
and Portfolio Recordkeeper
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- ------------------------------------------------------------------------------------------------
Independent Auditors
KPMG Peat Marwick LLP One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
ARROW GOVERNMENT
MONEY MARKET PORTFOLIO
Prospectus
A Diversified Portfolio of
the Arrow Funds, an Open-End,
Management Investment Company
NOVEMBER 30, 1994
Federated Securities Corp., Distributor.
042749309
2110905A (11/94)
APPENDIX
A. The graphic presentation here displayed consists of a
legend in the upper left quadrant of the chart indicating
the components of the corresponding line graph. Arrow
Equity Portfolio (the "Fund") is represented by a solid
line. The Standard & Poor's 500 Index ("S&P 500") is
represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund and the S&P 500
The "y" axis reflects the cost of the investment. The "x"
axis reflects computation periods from the Fund's start of
performance, 01-03-93, through 09-30-94. The right margin
of the chart reflects the ending value of the hypothetical
investment in the Fund as compared to the S&P 500; the
ending values are $9,530 and $11,153, respectively.
B. The graphic presentation here displayed consists of a
legend in the upper left quadrant of the chart indicating
the components of the corresponding line graph. Arrow Fixed
Income Portfolio (the "Fund") is represented by a solid
line. The Lehman Brothers Government/Corporate Total Index
("LBGCTI") is represented by a broken line. The line graph
is a visual representation of a comparison of change in
value of a hypothetical $10,000 purchase in the Fund and
LBGCTI. The "y" axis reflects the cost of the investment.
The "x" axis reflects computation periods from the Fund's
start of performance, 01-03-93, through 09-30-94. The right
margin of the chart reflects the ending value of the
hypothetical investment in the Fund as compared to LBGCTI;
the ending values are $9,967 and $10,677, respectively.
C. The graphic presentation here displayed consists of a
legend in the upper left quadrant of the chart indicating
the components of the corresponding line graph. Arrow
Municipal Income Portfolio (the "Fund") is represented by a
solid line. The Lehman Brothers State General Obligation
Bond Index ("LBSGOBI") is represented by a broken line. The
line graph is a visual representation of a comparison of
change in value of a hypothetical $10,000 purchase in the
Fund and LBSGOBI. The "y" axis reflects the cost of the
investment. The "x" axis reflects computation periods from
the Fund's start of performance, 01-31-93, through 09-30-94.
The right margin of the chart reflects the ending value of
the hypothetical investment in the Fund as compared to
LBSGOBI; the ending values are $10,305 and $10,633,
respectively.
