EQUITY AND
INCOME
FUNDS
ARROW
FUNDS
COMBINED
SEMI-ANNUAL REPORT
MARCH 31, 1995
MARK TWAIN BANK
Investment Adviser
Federated Securities Corp., Distributor
042749101
042749200
042749309
3041404 (5/95)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present you with the Semi-Annual Report for your investment in
the Arrow Funds. This report covers the six-month period ended March 31, 1995.
This report contains complete financial information, including Investment
Reviews by the portfolio managers and Financial Statements which include the
Portfolio of Investments for the Arrow Equity Portfolio, Arrow Fixed Income
Portfolio, and Arrow Municipal Income Portfolio.
The Arrow Equity Portfolio invests in a diversified portfolio of high-quality
stocks. At the end of the reporting period, the portfolio included many
household names like Mattel, Inc., Philip Morris Companies, Inc., Caterpillar,
Inc., Chrysler Corp., Kroger Co., Wal Mart Stores, Inc., American Telephone &
Telegraph Co., and Brunswick Corp. The fund's net asset value grew from $9.74 on
the first day of the period to $10.85 on the last day of the period.
The Arrow Fixed Income Portfolio invests in a combination of corporate bonds
issued by many well-known companies, and government bonds. The fund paid
dividends of $0.30 per share during the period, while its net asset value grew
from $9.31 on the first day of the period to $9.54 on the last day of the
period.
The Arrow Municipal Income Portfolio pursues income free of federal regular
income tax through a portfolio of highly rated, long-term municipal bonds issued
by municipalities across the nation.* The fund paid tax-free dividends of $0.23
per share during the period, while its net asset value grew from $9.87 on the
first day of the period to $10.04 on the last day of the period.
Thank you for your confidence in the Arrow Funds. As always, we welcome your
questions, comments, or suggestions.
Sincerely,
Edward C. Gonzales
President
May 15, 1995
* Income may be subject to the federal alternative minimum tax and state and
local taxes.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
ARROW EQUITY PORTFOLIO
(FORMERLY, MARK TWAIN EQUITY PORTFOLIO)
Notwithstanding the fact that the Federal Reserve Board (the "Fed") raised
short-term interest rates six times during 1994 to head off a perceived
inflation problem, the economy performed rather strongly during the calendar
year. The fourth quarter, in particular, moved ahead at a strong pace with
growth reaching about 5%. This, of course, was even better than the 4% number in
the third quarter which was fueled by a pickup in manufacturing in such key
industries as autos and steel.
In spite of above-average earnings, the equity markets turned in a flat
performance in the fourth quarter, 1994. The depressing factor, in our view, was
the concern over rising interest rates, as noted above.
Early in the first quarter of 1995, the Fed increased short-term interest rates
once again. As the quarter wore on, signs of an economic slowdown began to
surface. First, autos and housing started to slow down. Then, retail chains
reported sluggish March sales, and purchasing managers noted a moderation in
manufacturing growth. Finally, nonfarm payroll growth came in slightly below
expectations. These factors suggest that the economy will probably expand less
than 3% in the first half of 1995.
Meanwhile, equity investors like what they see. With the economy cooling off and
with inflation not threatening to veer out of control, the Fed's next move may
be to consider lowering interest rates. It's little wonder, then, that equity
prices are at record levels.
A test for the market will be first quarter earnings reports. So far, the
results are quite favorable, especially from the "core" growth companies such as
Abbott Laboratories and Motorola Inc. These core growth companies tend to be the
foundation of our portfolio. Our belief, at this time, is that underlying
economic conditions are still ripe for this to be the pattern going forward this
year.
The Arrow Equity Portfolio had total net assets of $30.9 million as of March 31,
1995. Because of the recent let-up in interest rate pressure and continuing
corporate profits, the Arrow Equity Portfolio has performed well.
- --------------------------------------------------------------------------------
ARROW FIXED INCOME PORTFOLIO
(FORMERLY, MARK TWAIN FIXED INCOME PORTFOLIO)
The Arrow Fixed Income Portfolio had total net assets of $28.5 million as of
March 31, 1995. The fund had an average maturity of 14.8 years, with 59% of the
fund's assets invested in U.S. Treasury and government agency securities and 38%
invested in investment grade corporate bonds.
Long-term interest rates, as measured by 30-year U.S. government securities,
rose to a 8.16% yield on November 7, 1994, before beginning a steady decline to
a 7.43% yield on March 31, 1995. We would expect 30-year government securities
to fluctuate in a trading range of 7 1/4% to 7 3/4% during the balance of the
year. For interest rates to decrease from current levels, more evidence of
economic slowing will be needed, as well as continued favorable inflation
numbers.
ARROW MUNICIPAL INCOME PORTFOLIO
(FORMERLY, MARK TWAIN MUNICIPAL INCOME PORTFOLIO)
The Arrow Municipal Income Portfolio continued its somewhat defensive strategy
during the period due to increased bond market volatility, uncertainty over
future tax legislation, rising interest rates and the fallout over the Orange
County municipal bankruptcy.
The municipal market suffered principal erosion during October and November
1994, due to several factors. The Federal Reserve Board continued to increase
interest rates during this period. Also, the Republicans won a majority in both
the House of Representatives and the Senate, as well as winning many state
governorships. With proposed tax cuts being on the Republican agenda, the market
reacted negatively toward municipal bonds. Finally, tax loss selling was in full
swing during November and portfolio managers were selling bonds in anticipation
of fund withdrawals. All of these factors weighed heavily on the municipal
market and made municipals very cheap relative to taxable issues. By early
December, the municipal market began a turnaround due to very attractive yields.
This, combined with very limited supply and a large amount of bond calls in
January and February created a four-month rally which extended through the end
of March 1995. For the six month period ended March 31, 1995, an investor in the
fund experienced a total return of 4.14%, based on net asset value, and 0.47%,
based on offering price.*
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
ARROW EQUITY PORTFOLIO
(FORMERLY, MARK TWAIN EQUITY PORTFOLIO)
PORTFOLIO OF INVESTMENTS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- -------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--94.5%
- --------------------------------------------------------------------------------------
BASIC INDUSTRY--1.1%
--------------------------------------------------------------------
6,000 Nucor Corp. $ 337,500
-------------------------------------------------------------------- -----------
CHEMICALS--2.3%
--------------------------------------------------------------------
5,000 Dow Chemical Co. 365,000
--------------------------------------------------------------------
5,000 Goodrich (B.F.) Co. 221,875
--------------------------------------------------------------------
4,000 Union Carbide Corp. 122,500
-------------------------------------------------------------------- -----------
Total 709,375
-------------------------------------------------------------------- -----------
CONSUMER DURABLES--4.2%
--------------------------------------------------------------------
10,000 Briggs & Stratton Corp. 368,750
--------------------------------------------------------------------
37,500 Mattel, Inc. 923,438
-------------------------------------------------------------------- -----------
Total 1,292,188
-------------------------------------------------------------------- -----------
CONSUMER NON-DURABLES--13.1%
--------------------------------------------------------------------
5,000 Colgate Palmolive Co. 330,000
--------------------------------------------------------------------
22,000 IBP, Inc. 717,750
--------------------------------------------------------------------
22,000 Philip Morris Companies, Inc. 1,435,500
--------------------------------------------------------------------
10,000 Premark International, Inc. 441,250
--------------------------------------------------------------------
2,000 Scott Paper Co. 178,750
--------------------------------------------------------------------
30,000 UST, Inc. 952,500
-------------------------------------------------------------------- -----------
Total 4,055,750
-------------------------------------------------------------------- -----------
</TABLE>
ARROW EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- -------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY--17.8%
--------------------------------------------------------------------
10,000 Avnet, Inc. $ 403,750
--------------------------------------------------------------------
5,000 CTS Corp. 157,500
--------------------------------------------------------------------
2,000 Hewlett Packard Co. 240,750
--------------------------------------------------------------------
30,000 Micron Technology 2,280,000
--------------------------------------------------------------------
20,000 Motorola, Inc. 1,092,500
--------------------------------------------------------------------
20,000 Tektronix, Inc. 800,000
--------------------------------------------------------------------
6,000 Texas Instruments, Inc. 531,000
-------------------------------------------------------------------- -----------
Total 5,505,500
-------------------------------------------------------------------- -----------
ENTERTAINMENT--3.4%
--------------------------------------------------------------------
12,000 Capital Cities/ABC, Inc. 1,059,000
-------------------------------------------------------------------- -----------
FINANCE--16.4%
--------------------------------------------------------------------
10,000 Federal Home Loan Mortgage Corp. 605,000
--------------------------------------------------------------------
5,000 Federal National Mortgage Assn. 406,875
--------------------------------------------------------------------
15,000 First Interstate Bancorp 1,185,000
--------------------------------------------------------------------
40,000 Green Tree Financial Corp. 1,640,000
--------------------------------------------------------------------
25,000 MBNA Corp. 725,000
--------------------------------------------------------------------
5,000 NationsBank Corp. 253,750
--------------------------------------------------------------------
10,000 Norwest Corp. 253,750
-------------------------------------------------------------------- -----------
Total 5,069,375
-------------------------------------------------------------------- -----------
HEALTH TECHNOLOGY--11.1%
--------------------------------------------------------------------
25,000 Abbott Laboratories 890,625
--------------------------------------------------------------------
15,000 Medtronic, Inc. 1,040,625
--------------------------------------------------------------------
10,000 Mylan Labs, Inc. 317,500
--------------------------------------------------------------------
7,000 Owens & Minor, Inc. 91,000
--------------------------------------------------------------------
15,000 Schering Plough Corp. 1,115,625
-------------------------------------------------------------------- -----------
Total 3,455,375
-------------------------------------------------------------------- -----------
</TABLE>
ARROW EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- -------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
INSURANCE--3.0%
--------------------------------------------------------------------
3,000 AFLAC Inc. $ 121,125
--------------------------------------------------------------------
17,000 United Healthcare Corp. 794,750
-------------------------------------------------------------------- -----------
Total 915,875
-------------------------------------------------------------------- -----------
MACHINERY, EQUIPMENT AND AUTO--6.6%
--------------------------------------------------------------------
14,000 Caterpillar, Inc. 778,750
--------------------------------------------------------------------
30,000 Chrysler Corp. 1,256,250
--------------------------------------------------------------------
2,000 * Strattec Sec Corp. 22,500
-------------------------------------------------------------------- -----------
Total 2,057,500
-------------------------------------------------------------------- -----------
RETAIL--3.6%
--------------------------------------------------------------------
5,000 Home Depot, Inc. 221,250
--------------------------------------------------------------------
6,000 * Kroger Co. 158,250
--------------------------------------------------------------------
12,000 May Department Stores, Inc. 444,000
--------------------------------------------------------------------
12,000 Wal Mart Stores, Inc. 306,000
-------------------------------------------------------------------- -----------
Total 1,129,500
-------------------------------------------------------------------- -----------
TECHNOLOGY SERVICES--8.2%
--------------------------------------------------------------------
3,000 Computer Associates International, Inc. 178,125
--------------------------------------------------------------------
18,000 Fluor Corp. 868,500
--------------------------------------------------------------------
3,000 General Motors Corp. Class E 116,625
--------------------------------------------------------------------
3,000 International Business Machines Corp. 245,625
--------------------------------------------------------------------
5,000 Loral Corp. 212,500
--------------------------------------------------------------------
2,000 Northrop Grumman Corp. 97,750
--------------------------------------------------------------------
30,000 Reynolds & Reynolds Co. 825,000
-------------------------------------------------------------------- -----------
Total 2,544,125
-------------------------------------------------------------------- -----------
TRANSPORTATION--0.2%
--------------------------------------------------------------------
2,000 Illinois Central Corp. 69,000
-------------------------------------------------------------------- -----------
</TABLE>
ARROW EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- -------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
UTILITIES--2.2%
--------------------------------------------------------------------
10,000 American Telephone & Telegraph Co. $ 517,500
--------------------------------------------------------------------
5,000 Century Telephone Enterprises, Inc. 151,875
-------------------------------------------------------------------- -----------
Total 669,375
-------------------------------------------------------------------- -----------
OTHER--1.3%
--------------------------------------------------------------------
20,000 Brunswick Corp. 402,500
-------------------------------------------------------------------- -----------
TOTAL COMMON STOCKS (IDENTIFIED COST, $25,068,136) 29,271,938
-------------------------------------------------------------------- -----------
MUTUAL FUND SHARES--1.1%
--------------------------------------------------------------------
351,974 Goldman Sachs, Money Market Trust 351,974
--------------------------------------------------------------------
620 SEI Liquid Cash Trust 620
-------------------------------------------------------------------- -----------
TOTAL MUTUAL FUND SHARES (AT NET ASSET VALUE) 352,594
-------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $25,420,730) $29,624,532+
-------------------------------------------------------------------- -----------
</TABLE>
+ The cost of investments for federal tax purposes amounts to $25,420,730. The
net unrealized appreciation of investments on a federal tax basis amounts to
$4,203,802, which is comprised of $4,990,505 appreciation and $786,703
depreciation at March 31, 1995.
* Non-income producing security.
Note: The categories of investments are shown as a percentage of net assets
($30,992,977) at March 31, 1995.
(See Notes which are an integral part of the Financial Statements)
ARROW EQUITY PORTFOLIO
(FORMERLY, MARK TWAIN EQUITY PORTFOLIO)
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost $25,420,730) $29,624,532
- --------------------------------------------------------------------------------
Receivable for investments sold 1,620,681
- --------------------------------------------------------------------------------
Income receivable 80,267
- --------------------------------------------------------------------------------
Receivable for shares sold 14,284
- --------------------------------------------------------------------------------
Deferred expenses 7,138
- -------------------------------------------------------------------------------- -----------
Total assets 31,346,902
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $344,332
- ---------------------------------------------------------------------
Accrued expenses 9,593
- --------------------------------------------------------------------- --------
Total liabilities 353,925
- -------------------------------------------------------------------------------- -----------
Net Assets for 2,855,218 shares outstanding $30,992,977
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $28,329,891
- --------------------------------------------------------------------------------
Net unrealized appreciation(depreciation) of investments 4,203,802
- --------------------------------------------------------------------------------
Accumulated net realized gain(loss) on investments (1,543,503)
- --------------------------------------------------------------------------------
Undistributed net investment income 2,787
- -------------------------------------------------------------------------------- -----------
Total Net Assets $30,992,977
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, and Redemption Proceeds Per Share:
($30,992,977 / 2,855,218 shares outstanding) $10.85
- -------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/96.50 of $10.85)* $11.24
- -------------------------------------------------------------------------------- -----------
</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
SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest $ 63,299
- ---------------------------------------------------------------------------------
Dividends 283,125
- --------------------------------------------------------------------------------- ----------
Total income 346,424
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee $114,723
- ----------------------------------------------------------------------
Administrative personnel and services fee 24,932
- ----------------------------------------------------------------------
Custodian fees 11,848
- ----------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 12,798
- ----------------------------------------------------------------------
Directors'/Trustees' fees 616
- ----------------------------------------------------------------------
Auditing fees 6,418
- ----------------------------------------------------------------------
Legal fees 1,580
- ----------------------------------------------------------------------
Portfolio accounting fees 21,488
- ----------------------------------------------------------------------
Share registration costs 8,757
- ----------------------------------------------------------------------
Printing and postage 2,714
- ----------------------------------------------------------------------
Insurance premiums 1,826
- ----------------------------------------------------------------------
Miscellaneous 1,876
- ----------------------------------------------------------------------
Distribution services fee 6,406
- ---------------------------------------------------------------------- --------
Total expenses 215,982
- ----------------------------------------------------------------------
Deduct--Waiver of distribution services fee 6,406
- ---------------------------------------------------------------------- --------
Net expenses 209,576
- --------------------------------------------------------------------------------- ----------
Net investment income 136,848
- --------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized gain(loss) on investments 606,013
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 2,776,362
- --------------------------------------------------------------------------------- ----------
Net realized and unrealized gain (loss) on investments 3,382,375
- --------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $3,519,223
- --------------------------------------------------------------------------------- ----------
</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>
SIX MONTHS ENDED
MARCH 31, 1995 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
---------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------
OPERATIONS--
- ----------------------------------------------------
Net investment income $ 136,848 230,882
- ----------------------------------------------------
Net realized gain (loss) on investments ($606,013
net gain and $41,210, net loss, respectively, as
computed for federal tax purposes) 606,013 (2,149,466)
- ----------------------------------------------------
Net change in unrealized appreciation (depreciation)
on investments 2,776,362 1,408,803
- ---------------------------------------------------- -------------- ----------------
Change in net assets resulting from operations 3,519,223 (509,781)
- ---------------------------------------------------- -------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------
Distributions from net investment income (156,585) (220,766)
- ----------------------------------------------------
Distributions from net realized gains -- (90,072)
- ---------------------------------------------------- -------------- ----------------
Change in net assets resulting from
distributions
to shareholders (156,585) (310,838)
- ---------------------------------------------------- -------------- ----------------
SHARE TRANSACTIONS
- ----------------------------------------------------
Proceeds from sale of shares 4,857,765 10,335,871
- ----------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 7,447 17,410
- ----------------------------------------------------
Cost of shares redeemed (7,516,569) (10,410,296)
- ---------------------------------------------------- -------------- ----------------
Change in net assets resulting from share
transactions (2,651,357) (57,015)
- ---------------------------------------------------- -------------- ----------------
Change in net assets 711,281 (877,634)
- ----------------------------------------------------
NET ASSETS:
- ----------------------------------------------------
Beginning of period 30,281,696 31,159,330
- ---------------------------------------------------- -------------- ----------------
End of period (including undistributed net
investment income of $2,787 and $22,524,
respectively) $ 30,992,977 $ 30,281,696
- ---------------------------------------------------- -------------- ----------------
</TABLE>
(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 EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED SEPTEMBER 30,
MARCH 31, 1995 ------------------
(UNAUDITED) 1994 1993(A)
--------------- ------ -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.74 $10.02 $10.00
- -------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------
Net investment income 0.04 0.07 0.04
- -------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.12 (0.25) 0.02
- ------------------------------------------------------------- ------ ------ ------
Total from investment operations 1.16 (0.18) 0.06
- -------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------
Distributions from net investment income (0.05) (0.07) (0.04)
- -------------------------------------------------------------
Distributions from net realized gains -- (0.03) --
- ------------------------------------------------------------- ------ ------ ------
TOTAL DISTRIBUTIONS (0.05) (0.10) (0.04)
- ------------------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.85 $ 9.74 $10.02
- ------------------------------------------------------------- ------ ------ ------
TOTAL RETURN (B) 11.97% (1.84%) 0.60%
- -------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------
Expenses 1.37%(c) 1.36% 1.32%(c)
- -------------------------------------------------------------
Net investment income 0.89%(c) 0.74% 0.62%(c)
- -------------------------------------------------------------
Expense waiver/reimbursement (d) 0.04%(c) 0.28% 0.30%(c)
- -------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------
Net assets, end of period (000 omitted) $30,993 $30,282 $31,159
- -------------------------------------------------------------
Portfolio Turnover 35% 127% 54%
- -------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from January 4, 1993 (date of initial
public investment) to September 30, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) 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
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
CORPORATE BONDS--37.8%
- --------------------------------------------------------------------------------------
AEROSPACE/DEFENSE--1.7%
-------------------------------------------------------------------
$ 500,000 Rockwell International Corp., 6.75%, 9/15/2002 $ 477,660
------------------------------------------------------------------- -----------
BANKING--3.3%
-------------------------------------------------------------------
500,000 BankAmerica Corp., 7.50%, 10/15/2002 488,075
-------------------------------------------------------------------
500,000 NationsBank Corp., 6.875%, 2/15/2005 461,480
------------------------------------------------------------------- -----------
Total 949,555
------------------------------------------------------------------- -----------
CONSUMER PRODUCTS--5.2%
-------------------------------------------------------------------
1,000,000 Kimberly Clark Corp., 7.875%, 2/1/2023 978,520
-------------------------------------------------------------------
500,000 Philip Morris Cos., Inc., 7.125%, 12/1/1999 487,800
------------------------------------------------------------------- -----------
Total 1,466,320
------------------------------------------------------------------- -----------
FINANCE--4.8%
-------------------------------------------------------------------
500,000 MBNA Corp., 6.875%, 10/1/1999 484,135
-------------------------------------------------------------------
1,000,000 Merrill Lynch & Co., Inc., 7.00%, 4/27/2008 894,280
------------------------------------------------------------------- -----------
Total 1,378,415
------------------------------------------------------------------- -----------
MULTI-LINE COMPANIES--3.4%
-------------------------------------------------------------------
1,000,000 Hanson PLC, 7.375%, 1/15/2003 976,760
------------------------------------------------------------------- -----------
OIL & GAS--3.3%
-------------------------------------------------------------------
1,000,000 Phillips Petroleum Co., 7.92%, 4/15/2023 935,530
------------------------------------------------------------------- -----------
RETAIL & APPAREL--6.3%
-------------------------------------------------------------------
1,000,000 Limited, Inc., 7.50%, 3/15/2023 873,940
-------------------------------------------------------------------
1,000,000 Wal Mart Stores, Inc., 7.25%, 6/1/2013 925,570
------------------------------------------------------------------- -----------
Total 1,799,510
------------------------------------------------------------------- -----------
</TABLE>
ARROW FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------
UTILITIES--9.8%
-------------------------------------------------------------------
$1,000,000 Duke Power Co., 7.375%, 3/1/2023 $ 911,270
-------------------------------------------------------------------
1,000,000 Illinois Power Co., 8.00%, 2/15/2023 927,140
-------------------------------------------------------------------
500,000 Midwest Power Systems, Inc., 7.00%, 2/15/2005 472,470
-------------------------------------------------------------------
500,000 United Telephone Co. of Florida, 7.25%, 12/15/2004 483,120
------------------------------------------------------------------- -----------
Total 2,794,000
------------------------------------------------------------------- -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $11,386,420) 10,777,750
------------------------------------------------------------------- -----------
GOVERNMENT BONDS--59.1%
- --------------------------------------------------------------------------------------
FOREIGN MUNICIPAL--3.2%
-------------------------------------------------------------------
500,000 Ontario Province, Canada, 7.375%, 1/27/2003 488,065
-------------------------------------------------------------------
500,000 Quebec Province, Canada, 7.125%, 2/9/2024 421,800
------------------------------------------------------------------- -----------
Total 909,865
------------------------------------------------------------------- -----------
GOVERNMENT AGENCIES--10.2%
-------------------------------------------------------------------
500,000 Federal Home Loan Bank, 6.32%, 2/1/2000 480,480
-------------------------------------------------------------------
500,000 Federal Home Loan Mortgage Corp., 7.23%, 12/17/2002 486,045
-------------------------------------------------------------------
1,000,000 Federal National Mortgage Association, 7.55%, 6/10/2004 981,090
-------------------------------------------------------------------
1,000,000 Federal National Mortgage Association, 7.65%, 4/29/2004 979,780
------------------------------------------------------------------- -----------
Total 2,927,395
------------------------------------------------------------------- -----------
U.S. TREASURY SECURITIES--45.7%
-------------------------------------------------------------------
3,000,000 U.S. Treasury Bonds, 7.50%, 11/15/2016 2,978,310
-------------------------------------------------------------------
2,500,000 U.S. Treasury Bonds, 8.00%, 11/15/2021 2,623,875
-------------------------------------------------------------------
500,000 U.S. Treasury Notes, 7.50%, 11/15/2001 509,175
-------------------------------------------------------------------
1,500,000 U.S. Treasury Notes, 7.50%, 5/15/2002 1,529,820
-------------------------------------------------------------------
1,750,000 U.S. Treasury Notes, 7.875%, 8/15/2001 1,814,750
-------------------------------------------------------------------
2,000,000 U.S. Treasury Notes, 8.00%, 5/15/2001 2,084,940
-------------------------------------------------------------------
1,400,000 U.S. Treasury Notes, 9.00%, 5/15/1998 1,479,716
------------------------------------------------------------------- -----------
Total 13,020,586
------------------------------------------------------------------- -----------
TOTAL GOVERNMENT BONDS (IDENTIFIED COST, $17,901,921) 16,857,846
------------------------------------------------------------------- -----------
</TABLE>
ARROW FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
MUTUAL FUND SHARES--1.4%
- -------------------------------------------------------------------------------------
392,962 Goldman Sachs ILA Treasury Money Market Fund (AT NET ASSET VALUE) $ 392,962
------------------------------------------------------------------ -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $29,681,303) $28,028,558+
------------------------------------------------------------------ -----------
</TABLE>
+ The cost of investments for federal tax purposes amounts to $29,681,303. The
net unrealized depreciation of investments on a federal tax basis amounts to
$1,652,745 which is comprised of $2,120 appreciation and $1,654,865
depreciation at March 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($28,511,714) at March 31, 1995.
(See Notes which are an integral part of the Financial Statements.)
ARROW FIXED INCOME PORTFOLIO
(FORMERLY, MARK TWAIN FIXED INCOME PORTFOLIO)
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost $29,681,303) $28,028,558
- -------------------------------------------------------------------------------
Cash 100
- -------------------------------------------------------------------------------
Income receivable 634,504
- -------------------------------------------------------------------------------
Receivable for shares sold 9,433
- -------------------------------------------------------------------------------
Deferred expenses 8,804
- ------------------------------------------------------------------------------- -----------
Total assets 28,681,399
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Income distribution payable $160,722
- --------------------------------------------------------------------
Payable for shares redeemed 3,005
- --------------------------------------------------------------------
Accrued expenses 5,958
- -------------------------------------------------------------------- --------
Total liabilities 169,685
- ------------------------------------------------------------------------------- -----------
Net Assets for 2,987,676 shares outstanding $28,511,714
- ------------------------------------------------------------------------------- -----------
NET ASSETS CONSISTS OF:
- -------------------------------------------------------------------------------
Paid in capital $30,584,994
- -------------------------------------------------------------------------------
Net unrealized appreciation(depreciation) of investments (1,652,745)
- -------------------------------------------------------------------------------
Accumulated net realized gain(loss) on investments (420,535)
- ------------------------------------------------------------------------------- -----------
Total Net Assets $28,511,714
- ------------------------------------------------------------------------------- -----------
NET ASSET VALUE, and Redemption Proceeds Per Share:
- -------------------------------------------------------------------------------
($28,511,714 / 2,987,676 shares outstanding) $9.54
- ------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/96.50 of $9.54)* $9.89
- ------------------------------------------------------------------------------- -----------
</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
SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Interest $1,228,207
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------
Investment advisory fee $ 95,455
- ---------------------------------------------------------------------
Administrative personnel and services fee 24,932
- ---------------------------------------------------------------------
Custodian fees 11,911
- ---------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 11,558
- ---------------------------------------------------------------------
Directors'/Trustees' fees 900
- ---------------------------------------------------------------------
Auditing fees 5,953
- ---------------------------------------------------------------------
Legal fees 1,637
- ---------------------------------------------------------------------
Portfolio accounting fees 24,943
- ---------------------------------------------------------------------
Share registration costs 9,391
- ---------------------------------------------------------------------
Printing and postage 1,537
- ---------------------------------------------------------------------
Insurance premiums 2,242
- ---------------------------------------------------------------------
Miscellaneous 1,692
- ---------------------------------------------------------------------
Distribution services fee 6,882
- --------------------------------------------------------------------- --------
Total expenses 199,033
- ---------------------------------------------------------------------
Deduct--Waiver of distribution services fee 6,882
- --------------------------------------------------------------------- --------
Net expenses 192,151
- -------------------------------------------------------------------------------- ----------
Net investment income 1,036,056
- -------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized gain(loss) on investments (237,918)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation(depreciation) on investments 1,029,958
- -------------------------------------------------------------------------------- ----------
Net realized and unrealized gain(loss) on investments 792,040
- -------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $1,828,096
- -------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW FIXED INCOME PORTFOLIO
(FORMERLY, MARK TWAIN FIXED INCOME PORTFOLIO)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, 1995 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
---------------- ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------
Net investment income $ 1,036,056 $ 2,230,983
- -------------------------------------------------------
Net realized gain (loss) on investments ($237,918 and
$24, net loss, respectively, as computed for federal
tax purposes) (237,918) (182,642)
- -------------------------------------------------------
Net change in unrealized appreciation (depreciation)
on investments 1,029,958 (5,169,128)
- ------------------------------------------------------- ----------- ------------
Change in net assets resulting from operations 1,828,096 (3,120,787)
- ------------------------------------------------------- ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------
Distributions from net investment income (1,036,056) (2,236,633)
- -------------------------------------------------------
Distributions from net realized gains -- (120,201)
- ------------------------------------------------------- ----------- ------------
Change in net assets resulting from distributions
to shareholders (1,036,056) (2,356,834)
- ------------------------------------------------------- ----------- ------------
SHARE TRANSACTIONS
- -------------------------------------------------------
Proceeds from sale of shares 2,255,150 9,523,204
- -------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 12,201 35,927
- -------------------------------------------------------
Cost of shares redeemed (7,290,624) (14,053,826)
- ------------------------------------------------------- ----------- ------------
Change in net assets resulting from share
transactions (5,023,273) (4,494,695)
- ------------------------------------------------------- ----------- ------------
Change in net assets (4,231,233) (9,972,316)
- -------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------
Beginning of period 32,742,947 42,715,263
- ------------------------------------------------------- ----------- ------------
End of period $28,511,714 $ 32,742,947
- ------------------------------------------------------- ----------- ------------
</TABLE>
(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>
SIX MONTHS YEAR ENDED
ENDED SEPTEMBER 30,
MARCH 31, 1995 -------------------
(UNAUDITED) 1994 1993(A)
--------------- ------ -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.31 $10.75 $10.00
- ----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------
Net investment income 0.30 0.59 0.44
- ----------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.23 (1.41) 0.75
- ---------------------------------------------------------- ----- ------ ------
Total from investment operations 0.53 (0.82) 1.19
- ----------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------
Distributions from net investment income (0.30) (0.59) (0.44)
- ----------------------------------------------------------
Distributions from net realized gains -- (0.03) --
- ---------------------------------------------------------- ----- ------ ------
TOTAL DISTRIBUTIONS (0.30) (0.62) (0.44)
- ---------------------------------------------------------- ----- ------ ------
NET ASSET VALUE, END OF PERIOD $9.54 $ 9.31 $10.75
- ---------------------------------------------------------- ----- ------ ------
TOTAL RETURN (B) 5.85% (7.85%) 12.09%
- ----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------
Expenses 1.21%(c) 1.15% 1.05%(c)
- ----------------------------------------------------------
Net investment income 6.54%(c) 5.86% 5.71%(c)
- ----------------------------------------------------------
Expense waiver/reimbursement (d) 0.04%(c) 0.26% 0.27%(c)
- ----------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------
Net assets, end of period (000 omitted) $28,512 $32,743 $42,715
- ----------------------------------------------------------
Portfolio Turnover 0% 28% 28%
- ----------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from January 4, 1993 (date of initial
public investment) to September 30, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) 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
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATINGS:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ----------- ------------------------------------------------------- ------------ -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--92.7%
- ---------------------------------------------------------------------
CALIFORNIA--4.0%
-------------------------------------------------------
$ 700,000 Long Beach, California, Harbor Revenue Bonds, 7.25%,
(Series A)/(Subject to AMT), 5/15/2019 Aa $ 736,148
------------------------------------------------------- -----------
FLORIDA--2.9%
-------------------------------------------------------
500,000 Florida State Board of Education Capital Outlay,
6.625%, (Series C), 6/1/2014 AA 529,810
------------------------------------------------------- -----------
GEORGIA--3.0%
-------------------------------------------------------
500,000 Appling County, Georgia, Development Authority, 7.00%
Pollution Control Revenue Bonds, (Oglethorpe Power
Corp. Hatch Project)/(MBIA Insured), 1/1/2012 AAA 547,290
------------------------------------------------------- -----------
ILLINOIS--13.9%
-------------------------------------------------------
480,000 Illinois Health Facility Authority, 6.75% Revenue
Refunding Bonds (Rush-Presbyterian-St. Luke's Medical
Center), 10/1/2006 A+ 479,933
-------------------------------------------------------
500,000 Illinois State, 6.10%, 10/1/2003 Aa 525,345
-------------------------------------------------------
100,000 Illinois State, 6.60%, 12/1/2006 Aa 103,903
-------------------------------------------------------
400,000 Schaumburg, IL, 6.05% GO UT Refunding Bonds, 12/1/2007 AA+ 412,060
-------------------------------------------------------
500,000 Springfield, IL, 6.50% Water Revenue Bonds, 3/1/2015 AA 512,260
-------------------------------------------------------
485,000 Waukegan, IL, 6.80%, 12/30/2007 A1 519,241
------------------------------------------------------- -----------
Total 2,552,742
------------------------------------------------------- -----------
IOWA--2.8%
-------------------------------------------------------
500,000 Cedar Rapids, IA, 5.65% GO UT Bonds (Series B),
6/1/2005 Aaa 508,270
------------------------------------------------------- -----------
</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
- ---------------------------------------------------------------------
KANSAS--2.2%
-------------------------------------------------------
$ 400,000 Johnson County, KS, 5.70% GO UT School District No. 512
Shawnee Mission, 10/1/2007 AA+ $ 406,152
------------------------------------------------------- -----------
MASSACHUSETTS--2.7%
-------------------------------------------------------
500,000 Massachusetts State, 6.00%, (Series A), 6/1/2011 A 500,205
------------------------------------------------------- -----------
MINNESOTA--5.7%
-------------------------------------------------------
1,000,000 Western Minnesota Municipal Power Agency, 7.00%,
(Series A), 1/1/2013 A 1,042,260
------------------------------------------------------- -----------
MISSISSIPPI--2.9%
-------------------------------------------------------
500,000 Mississippi Higher Education Student Loan Revenue
Bonds, 7.50%, (Series C)/(Subject to AMT), 9/1/2009 A 524,005
------------------------------------------------------- -----------
MISSOURI--22.1%
-------------------------------------------------------
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 508,885
-------------------------------------------------------
650,000 Missouri State, 5.00% HEFA Revenue Bonds (Barnes
Jewish, Inc.), 5/15/2006 Aa 610,305
-------------------------------------------------------
300,000 Missouri State, 6.50% HEFA Revenue Bonds (Saint Louis
University)/(AMBAC Insured), 8/1/2016 AAA 310,287
-------------------------------------------------------
250,000 Missouri State, 6.875% HEFA Revenue Bonds (Saint Luke's
Episcopal-Presbyterian Hospital)/(FGIC Insured),
12/1/2007 AAA 262,053
-------------------------------------------------------
375,000 Missouri State, 7.00% HEFA Revenue Bonds (St. Anthony's
Medical Center)/(Series D), 12/1/2009 Aa 394,054
-------------------------------------------------------
185,000 Missouri State Housing Development Commission, 6.00%
SFM Revenue Bonds (Series A)/(GNMA Collateralized)/
(Subject to AMT), 6/1/2015 AAA 185,886
-------------------------------------------------------
740,000 Missouri State Housing Development Commission, 6.625%
SFM Revenue Bonds (Series A)/(GNMA Collateralized)/
(Subject to AMT), 12/1/2017 AAA 752,349
-------------------------------------------------------
</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--CONTINUED
-------------------------------------------------------
$ 1,000,000 Missouri State Third State Building, 6.30% GO UT Bonds
(Series B), 11/1/2012 AAA $ 1,036,650
------------------------------------------------------- -----------
Total 4,060,469
------------------------------------------------------- -----------
NORTH CAROLINA--2.0%
-------------------------------------------------------
400,000 North Carolina, 5.75% Eastern Municipal Power Agency
(Series G), 12/1/2016 A 359,364
------------------------------------------------------- -----------
TEXAS--15.8%
-------------------------------------------------------
500,000 North Texas State Higher Education Student Loan Revenue
Bonds, 6.30%, (Series D)/(Subject to AMT), 4/1/2010 A 491,445
-------------------------------------------------------
500,000 Texas State, 6.60%, Veterans Housing Assistance,
(Series A)/(Subject to AMT), 12/1/2016 AA 514,700
-------------------------------------------------------
1,000,000 Texas State, 7.00% GO UT Water Development (Series A),
8/1/2011 AA 1,063,670
-------------------------------------------------------
800,000 Texas University, 6.25% Permanent University Fund
(Series A), 7/1/2007 AA+ 835,392
------------------------------------------------------- -----------
Total 2,905,207
------------------------------------------------------- -----------
VIRGINIA--3.1%
-------------------------------------------------------
550,000 Virginia State, 6.55% Housing Development Authority
(Series B), 1/1/2011 AA+ 565,747
------------------------------------------------------- -----------
WASHINGTON--5.4%
-------------------------------------------------------
725,000 King City, WA, School District #415 Kent, 6.00% GO UT
Bonds (Series B), 12/1/2008 AA- 742,618
-------------------------------------------------------
245,000 Washington State, 6.00% Refunding Bonds (Series R-92C),
9/1/2004 AA 256,745
------------------------------------------------------- -----------
Total 999,363
------------------------------------------------------- -----------
</TABLE>
ARROW MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATINGS:
AMOUNT MOODY'S
OR SHARES OR S&P* VALUE
- ----------- ------------------------------------------------------- ------------ -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
WISCONSIN--4.2%
-------------------------------------------------------
$ 500,000 Alma, WI, 6.125% Pollution Control Revenue Bonds
(Dairyland Power Co-op), 3/1/2008 AA- $ 500,905
-------------------------------------------------------
255,000 Madison, WI, 6.75% IDR (Madison Gas & Electric Co.)/
(Subject to AMT), 4/1/2027 AA 261,385
------------------------------------------------------- -----------
Total 762,290
------------------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST, $16,987,114) 16,999,322
------------------------------------------------------- -----------
MUTUAL FUND SHARES--5.7%
- ---------------------------------------------------------------------
712,400 Goldman Sachs, ILA Exempt Trust AAA 712,400
-------------------------------------------------------
328,962 SEI Tax Exempt Trust AAA 328,962
------------------------------------------------------- -----------
TOTAL MUTUAL FUND SHARES (AT NET ASSET VALUE) 1,041,362
------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $18,028,476) $18,040,684+
------------------------------------------------------- -----------
</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 income tax purposes amounts to
$18,028,476. The net unrealized appreciation of investments on a federal tax
basis amounts to $12,208 which is comprised of $175,415 appreciation and
$163,207 depreciation at March 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($18,335,605) at March 31, 1995.
The following abbreviations are used throughout this portfolio:
<TABLE>
<S> <C>
AMBAC -- American Municipal Bond
Assurance Corp.
AMT -- Alternative Minimum Tax
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
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
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost $18,028,476) $18,040,684
- --------------------------------------------------------------------------------
Cash 100
- --------------------------------------------------------------------------------
Income receivable 336,865
- --------------------------------------------------------------------------------
Receivable for shares sold 25,000
- --------------------------------------------------------------------------------
Deferred expenses 5,661
- -------------------------------------------------------------------------------- -----------
Total assets 18,408,310
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Income distribution payable $71,141
- ----------------------------------------------------------------------
Payable for shares redeemed 1,275
- ----------------------------------------------------------------------
Accrued expenses 289
- ---------------------------------------------------------------------- -------
Total liabilities 72,705
- -------------------------------------------------------------------------------- -----------
Net Assets for 1,827,018 shares outstanding $18,335,605
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $18,728,665
- --------------------------------------------------------------------------------
Net unrealized appreciation(depreciation) of investments 12,208
- --------------------------------------------------------------------------------
Accumulated net realized gain(loss) on investments (405,268)
- -------------------------------------------------------------------------------- -----------
Total Net Assets $18,335,605
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, and Redemption Proceeds Per Share:
($18,335,605 / 1,827,018 shares outstanding) $10.04
- -------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/96.50 of $10.04)* $10.40
- -------------------------------------------------------------------------------- -----------
</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
SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $588,654
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $70,244
- -------------------------------------------------------------------------
Administrative personnel and services fee 24,932
- -------------------------------------------------------------------------
Custodian fees 2,509
- -------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 15,061
- -------------------------------------------------------------------------
Directors'/Trustees' fees 742
- -------------------------------------------------------------------------
Auditing fees 6,429
- -------------------------------------------------------------------------
Legal fees 1,731
- -------------------------------------------------------------------------
Portfolio accounting fees 30,679
- -------------------------------------------------------------------------
Share registration costs 7,383
- -------------------------------------------------------------------------
Printing and postage 3,091
- -------------------------------------------------------------------------
Insurance premiums 2,612
- -------------------------------------------------------------------------
Miscellaneous 1,708
- -------------------------------------------------------------------------
Distribution service fee 4,844
- ------------------------------------------------------------------------- -------
Total expenses 171,965
- -------------------------------------------------------------------------
Deduct--
- -------------------------------------------------------------------------
Waiver of investment advisory fee 52,427
- -------------------------------------------------------------------------
Waiver of distribution services fee 4,844 57,271
- ------------------------------------------------------------------------- ------- --------
Net Expenses 114,694
- ----------------------------------------------------------------------------------- --------
Net investment income 473,960
- ----------------------------------------------------------------------------------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------
Net realized gain(loss) on investments (384,305)
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation(depreciation) on investments 594,488
- ----------------------------------------------------------------------------------- --------
Net realized and unrealized gain(loss) on investments 210,183
- ----------------------------------------------------------------------------------- --------
Change in net assets resulting from operations $684,143
- ----------------------------------------------------------------------------------- --------
</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>
SIX MONTHS ENDED
MARCH 31, 1995 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
----------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------
Net investment income $ 473,960 $ 1,138,963
- ------------------------------------------------------
Net realized gain (loss) on investments ($384,305 and
$0, net loss, respectively, as computed for federal
tax purposes) (384,305) (21,051)
- ------------------------------------------------------
Net change in unrealized appreciation (depreciation)
on investments 594,488 (1,714,717)
- ------------------------------------------------------ ----------- -----------
Change in net assets resulting from operations 684,143 (596,805)
- ------------------------------------------------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS-
- ------------------------------------------------------
Distributions from net investment income (473,960) (1,138,966)
- ------------------------------------------------------
Distributions from net realized gains -- (41,571)
- ------------------------------------------------------ ----------- -----------
Change in net assets resulting from distributions
to shareholders (473,960) (1,180,537)
- ------------------------------------------------------ ----------- -----------
SHARE TRANSACTIONS--
- ------------------------------------------------------
Proceeds from sale of shares 360,278 5,242,876
- ------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 13,593 32,772
- ------------------------------------------------------
Cost of shares redeemed (5,435,128) (4,398,602)
- ------------------------------------------------------ ----------- -----------
Change in net assets resulting from share
transactions (5,061,257) 877,046
- ------------------------------------------------------ ----------- -----------
Change in net assets (4,851,074) (900,296)
- ------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------
Beginning of period 23,186,679 24,086,975
- ------------------------------------------------------ ----------- -----------
End of period $18,335,605 $23,186,679
- ------------------------------------------------------ ----------- -----------
</TABLE>
(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 EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS SEPTEMBER 30,
ENDED ----------------------
MARCH 31, 1995 1993
(UNAUDITED) 1994 (A)
-------------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.87 $10.61 $10.00
- -----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------
Net investment income 0.23 0.47 0.32
- -----------------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.17 (0.72) 0.61
- ----------------------------------------------------- --------- ------ ------
Total from investment operations 0.40 (0.25) 0.93
- -----------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------
Distributions from net investment income (0.23) (0.47) (0.32)
- -----------------------------------------------------
Distributions from net realized gains -- (0.02) --
- ----------------------------------------------------- --------- ------ ------
TOTAL DISTRIBUTIONS (0.23) (0.49) (0.32)
- ----------------------------------------------------- --------- ------ ------
NET ASSET VALUE, END OF PERIOD $10.04 $9.87 $10.61
- ----------------------------------------------------- --------- ------ ------
TOTAL RETURN (B) 4.14% (2.41%) 9.43 %
- -----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------
Expenses 1.14%(c) 0.85% 0.72 %(c)
- -----------------------------------------------------
Net investment income 4.71%(c) 4.62% 4.71 %(c)
- -----------------------------------------------------
Expense waiver/reimbursement (d) 0.57%(c) 0.81% 0.85 %(c)
- -----------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------
Net assets, end of period (000 omitted) $ 18,336 $23,187 $24,087
- -----------------------------------------------------
Portfolio Turnover 21% 27% 14 %
- -----------------------------------------------------
</TABLE>
(a) Reflects operations for the period from February 1, 1993 (date of initial
public investment) to September 30, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) 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
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
(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 following portfolios comprise
the Trust:
<TABLE>
<CAPTION>
PORTFOLIO NAME
- ----------------------------------------------------------------------------
<S> <C>
Arrow Equity Portfolio ("Equity Fund")
Arrow Fixed Income Portfolio ("Fixed Income Fund")
Arrow Government Money Market Portfolio ("Government Money Market Fund")
Arrow Municipal Income Portfolio ("Municipal Income Fund")
</TABLE>
The financial statements of the following portfolios (individually referred to
as the "Fund", or collectively as the "Funds") are presented herein:
PORTFOLIO NAME
- ----------------------
Equity Fund
Fixed Income Fund
Municipal Income Fund
The financial statements of Government Money Market Fund 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, shareholders approved a change in the name of the
funds 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" class of
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.
ARROW FUNDS
(FORMERLY, MARK TWAIN FUNDS)
<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 the pricing service 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.
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. Listed corporate
bonds, unlisted securities (and other fixed-income and asset-backed securities and /or
private placements) and short-term securities are valued at the prices provided by an
independent pricing service.
Short-term securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market value.
Investments in other open-end investment companies are valued at net asset value.
B. REPURCHASE AGREEMENTS--It is the policy of the Funds to require a 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
under repurchase agreements transactions. Additionally, procedures have been established
by the Funds to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Funds will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the Funds' adviser to
be creditworthy pursuant to the guidelines and/or standards reviewed or established by
the Boards of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the terms of the
repurchase agreement. Accordingly, the Funds could receive less than the repurchase price
on the sale of collateral securities.
C. 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").
D. FEDERAL TAXES--It is each 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 income. Accordingly, no provisions for federal tax are
necessary.
At September 30, 1994, the Equity Fund and Fixed Income Fund, for federal tax purposes,
had capital loss carryforwards 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
</TABLE>
ARROW FUNDS
(FORMERLY, MARK TWAIN FUNDS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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.
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
transaction incurred after October 31, 1993 are treated as arising on the first day
(October 1, 1994) of each Fund's taxable year.
E. 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.
F. DEFERRED EXPENSES--The costs incurred by the Funds with respect to registration of their
shares in their first fiscal year, excluding the initial expense of registering their
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>
(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>
EQUITY FUND FIXED INCOME FUND MUNICIPAL INCOME FUND
--------------------------- --------------------------- ---------------------------
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
---------- -------------- ---------- -------------- ---------- --------------
1995 1994 1995 1994 1995 1994
- ------------------------------ -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 489,132 1,054,265 244,645 941,051 36,298 504,010
- --------------------
Shares issued to
shareholders in
payment of
dividends declared 764 1,757 1,314 3,602 1,397 3,205
- --------------------
Shares redeemed (744,531) (1,056,371) (776,354) (1,400,669) (560,728) (428,373)
- -------------------- -------- ---------- -------- ---------- -------- --------
Net change
resulting from
Fund share
transactions (254,635) (349) (530,395) (456,016) (523,033) 78,842
- -------------------- -------- ---------- -------- ---------- -------- --------
</TABLE>
ARROW FUNDS
(FORMERLY, MARK TWAIN FUNDS)
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Mark Twain Bank, the Trust'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. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides each 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 Funds have adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, each
Fund compensates 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 may voluntarily choose to waive a
portion of its fee. The distributor can modify or terminate this voluntary
waiver at anytime at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES, PORTFOLIO ACCOUNTING
AND CUSTODIAN FEES--Federated Services Company ("FServ") serves as transfer and
dividend disbursing agent for the Funds for which it receives a fee. The fee is
based on the size, type, and number of accounts and transactions made by
shareholders.
FServ also maintains the Funds' accounting records for which it receives a fee.
The fee is based on the level of each Fund's average net assets for the period
plus, out-of-pocket expenses.
Mark Twain Bank is the Funds' custodian for which it receives a fee. The fee is
based on the level of each Fund's average net assets for the period plus,
out-of-pocket expenses.
ARROW FUNDS
(FORMERLY, MARK TWAIN FUNDS)
- --------------------------------------------------------------------------------
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
ORGANIZING FOR THE SIX MONTHS ENDED
THE FUND MARCH 31, 1995
- ---------------------------------------------- ------------- ---------------------------
<S> <C> <C>
Equity Fund $17,560 $ 675
- ----------------------------------------------
Fixed Income Fund 17,401 551
- ----------------------------------------------
Municipal Income Fund 16,729 494
- ----------------------------------------------
</TABLE>
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended March 31, 1995, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
- ------------------------------------------------------------------ ---------- -----------
<S> <C> <C>
Equity Fund $8,480,978 $10,407,791
- ------------------------------------------------------------------
Fixed Income Fund 0 4,906,831
- ------------------------------------------------------------------
Municipal Income Fund 4,031,334 9,898,754
- ------------------------------------------------------------------
</TABLE>
Certain of the Officers and Trustees of the Funds are Officers and Directors or
Trustees of the above companies.
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- -----------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Edward C. Gonzales
William J. Copeland President and Treasurer
James E. Dowd Charles L. Davis, Jr.
Lawrence D. Ellis, M.D. Vice President and Assistant Treasurer
Edward L. Flaherty, Jr. J. Christopher Donahue
Edward C. Gonzales Vice President
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
John E. Murray, Jr. John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts 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.
MONEY
MARKET
FUND
ARROW
FUNDS
SEMI-ANNUAL REPORT
MARCH 31, 1995
MARK TWAIN BANK
Investment Adviser
FEDERATED SECURITIES CORP., Distributor
042749408
3041403 (5/95)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present you with the Semi-Annual Report for the Arrow Government
Money Market Portfolio. This report covers the six-month period ended March 31,
1995.
It contains complete financial information, including an Investment Review by
the fund's manager, and Financial Statements which include the Portfolio of
Investments.
During the reporting period, the fund paid dividends of $0.02 per share. In
addition to pursuing daily income from your investment, you always have access
to your money when you need it, and the peace of mind that comes with knowing
the fund's manager strives to maintain a stable share value. Each dollar you
invest can be redeemed for a dollar, plus any earned income.*
Thank you for putting your cash to work through the Arrow Government Money
Market Portfolio. We will continue to keep you informed about your investment on
a regular basis, and we welcome your questions, comments, or suggestions.
Sincerely,
Edward C. Gonzales
President
May 15, 1995
* No money market mutual fund can guarantee that a stable net asset value will
be maintained. An investment in the fund is neither insured nor guaranteed by
the U.S. government.
INVESTMENT REVIEW
------------------------------------------------------------------------------
On February 1, 1995, the Federal Reserve Board (the "Fed") raised short-term
rates for the seventh time in a year boosting the Federal Funds rate to 6%. As
the U.S. economy began to show signs of slowing, the Fed elected not to change
rates in March. For short-term rates to remain at current levels, further
evidence of economic slowing and continued favorable inflation numbers will be
needed.
The Arrow Government Money Market Portfolio had $173.3 million in total net
assets as of March 31, 1995, with 67% of assets invested in U.S. government and
agency obligations, and 40% invested in repurchase agreements fully
collateralized by government obligations. At March 31, 1995, the average
maturity was 27 days.
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
(FORMERLY, MARK TWAIN GOVERNMENT MONEY MARKET PORTFOLIO)
PORTFOLIO OF INVESTMENTS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ------------ -------------------------------------------------------------------- ------------
<C> <C> <S> <C>
SHORT-TERM OBLIGATIONS--66.5%
- ----------------------------------------------------------------------------------------
FEDERAL FARM CREDIT BANK--19.5%
--------------------------------------------------------------------
$ 33,750,000 6.00%-6.20%, 4/3/1995-7/5/1995 $ 33,750,000
-------------------------------------------------------------------- ------------
* FEDERAL FARM CREDIT BANK, DISCOUNT NOTES--4.0%
--------------------------------------------------------------------
7,000,000 5.90%, 4/5/1995 6,995,411
-------------------------------------------------------------------- ------------
* FEDERAL HOME LOAN BANK, DISCOUNT NOTES--11.5%
--------------------------------------------------------------------
20,000,000 5.89%-6.01%, 4/3/1995-7/6/1995 19,868,165
-------------------------------------------------------------------- ------------
* FEDERAL HOME LOAN MORTGAGE CORPORATION, DISCOUNT NOTES--5.7%
--------------------------------------------------------------------
10,000,000 5.91%, 4/13/1995 9,980,300
-------------------------------------------------------------------- ------------
* FEDERAL NATIONAL MORTGAGE ASSOCIATION, DISCOUNT NOTES--14.3%
--------------------------------------------------------------------
25,000,000 5.91%-6.11%, 4/18/1995-7/17/1995 24,734,885
-------------------------------------------------------------------- ------------
U.S. TREASURY BILLS--11.5%
--------------------------------------------------------------------
20,000,000 4/6/1995-4/27/1995 19,944,758
-------------------------------------------------------------------- ------------
TOTAL SHORT-TERM OBLIGATIONS 115,273,519
-------------------------------------------------------------------- ------------
MUTUAL FUND SHARES--0.1%
- ----------------------------------------------------------------------------------------
70,231 SEI Treasury Portfolio (AT NET ASSET VALUE) 70,231
-------------------------------------------------------------------- ------------
** REPURCHASE AGREEMENTS--39.5%
- ----------------------------------------------------------------------------------------
35,000,000 Morgan Stanley & Co., Inc., 6.03%, dated 3/31/1995, due 4/3/1995 35,000,000
--------------------------------------------------------------------
33,500,000 Sanwa Securities USA Co., LP, 5.75%, dated 3/31/1995, due 4/3/1995 33,500,000
-------------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS 68,500,000
-------------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST AND VALUE $183,843,750+
-------------------------------------------------------------------- ------------
</TABLE>
* Each issue shows the rate of discount at 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
($173,321,098) at March 31, 1995.
(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
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in repurchase agreements $ 68,500,000
- -----------------------------------------------------------------
Investments in securities 115,343,750
- ----------------------------------------------------------------- ------------
Total investments, at amortized cost and value $183,843,750
- --------------------------------------------------------------------------------
Cash 100
- --------------------------------------------------------------------------------
Income receivable 232,798
- --------------------------------------------------------------------------------
Prepaid expenses 9,914
- --------------------------------------------------------------------------------
Deferred expenses 30,960
- -------------------------------------------------------------------------------- ------------
Total assets 184,117,522
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased 10,000,000
- -----------------------------------------------------------------
Income distribution payable 796,424
- ----------------------------------------------------------------- ------------
Total liabilities 10,796,424
- -------------------------------------------------------------------------------- ------------
Net Assets for 173,321,098 shares outstanding $173,321,098
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per
Share: ($173,321,098 / 173,321,098 shares 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
SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest $4,710,018
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee $426,507
- ----------------------------------------------------------------------
Administrative personnel and services fee 127,369
- ----------------------------------------------------------------------
Custodian fees 21,635
- ----------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 18,134
- ----------------------------------------------------------------------
Directors'/Trustees' fees 1,805
- ----------------------------------------------------------------------
Auditing fees 6,020
- ----------------------------------------------------------------------
Legal fees 2,759
- ----------------------------------------------------------------------
Portfolio accounting fees 25,445
- ----------------------------------------------------------------------
Share registration costs 14,296
- ----------------------------------------------------------------------
Printing and postage 11,137
- ----------------------------------------------------------------------
Insurance premiums 5,702
- ----------------------------------------------------------------------
Miscellaneous 3,764
- ---------------------------------------------------------------------- --------
Total expenses 664,573
- --------------------------------------------------------------------------------- ----------
Net investment income $4,045,445
- --------------------------------------------------------------------------------- ----------
</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 CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, 1995 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1994
----------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------
OPERATIONS--
- ------------------------------------------------
Net investment income $ 4,045,445 $ 4,530,766
- ------------------------------------------------ ----------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------
Distributions from net investment income (4,045,445) (4,530,766)
- ------------------------------------------------ ----------------- ------------------
SHARE TRANSACTIONS
- ------------------------------------------------
Proceeds from sale of shares 199,059,461 549,781,518
- ------------------------------------------------
Net asset value of shares issued to shareholders
in payment of distributions declared -- 57
- ------------------------------------------------
Cost of shares redeemed (179,908,545) (546,931,468)
- ------------------------------------------------ ----------------- ------------------
Change in net assets resulting from share
transactions 19,150,916 2,850,107
- ------------------------------------------------ ----------------- ------------------
Change in net assets 19,150,916 2,850,107
- ------------------------------------------------
NET ASSETS:
- ------------------------------------------------
Beginning of period 154,170,182 151,320,075
- ------------------------------------------------ ----------------- ------------------
End of period $ 173,321,098 $ 154,170,182
- ------------------------------------------------ ----------------- ------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
(FORMERLY, MARK TWAIN GOVERNMENT MONEY MARKET PORTFOLIO)
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED SEPTEMBER 30,
MARCH 31, 1995 ----------------------
(UNAUDITED) 1994 1993(A)
-------------- ------ -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------
Net investment income 0.02 0.03 0.02
- --------------------------------------------- ---------- ------ -------
LESS DISTRIBUTIONS
- ---------------------------------------------
Distributions from net investment income (0.02) (0.03) (0.02)
- --------------------------------------------- ---------- ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------- ---------- ------ -------
TOTAL RETURN (B) 2.37% 2.90% 1.86%
- ---------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------
Expenses 0.78%(c) 0.80% 0.73%(c)
- ---------------------------------------------
Net investment income 4.74%(c) 2.86% 2.40%(c)
- ---------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------
Net assets, end of period (000 omitted) $173,321 $154,170 $151,311
- ---------------------------------------------
</TABLE>
(a) Reflects operations for the period from December 21, 1992 (date of initial
public investment) to September 30, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(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
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
(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
presented herein present 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>
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. Investments in other open-end
investment companies are valued at net asset value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require a 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 transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
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 and/or standards reviewed or established by
the Board of Trustees (the "Trustees").
</TABLE>
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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.
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.
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 income. Accordingly, no provisions for federal tax are
necessary.
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.
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.
OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
ARROW 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 March 31, 1995, capital paid-in aggregated $173,321,098.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
TRUST SHARES MARCH 31, 1995 SEPTEMBER 30, 1994
- --------------------------------------------------- --------------- -------------------
<S> <C> <C>
Shares sold 199,059,461 549,781,518
- ---------------------------------------------------
Shares issued to shareholders in payment of
distributions declared -- --
- ---------------------------------------------------
Shares redeemed (179,908,545) (546,922,476)
- --------------------------------------------------- -------------- ----------------
Net change resulting from Trust share
transactions 19,150,916 2,859,042
- --------------------------------------------------- -------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
INVESTMENT SHARES SEPTEMBER 30, 1994
- --------------------------------------------------- -------------------
<S> <C> <C>
Shares sold --
- ---------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 57
- ---------------------------------------------------
Shares redeemed (8,992)
- --------------------------------------------------- ------------
Net change resulting from Investment share
transactions (8,935)
- --------------------------------------------------- ------------
</TABLE>
(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.
TRANSFER AND DIVIDEND DISBURSING AGENT, PORTFOLIO ACCOUNTING AND CUSTODY
FEES--Federated Services Company ("FServ") serves as transfer and dividend
disbursing agent for the Fund for which it receives a fee. The fee is based on
the size, type, and number of accounts and transactions made by shareholders.
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
FServ also maintains the Fund's accounting records for which it receives a fee.
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 for which it receives a fee. 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 initially borne
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 became
effective). For the six months ended March 31, 1995, the Fund paid $1,682,
pursuant to this agreement.
GENERAL--Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- -----------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Edward C. Gonzales
William J. Copeland President and Treasurer
James E. Dowd Charles L. Davis, Jr.
Lawrence D. Ellis, M.D. Vice President and Assistant Treasurer
Edward L. Flaherty, Jr. J. Christopher Donahue
Edward C. Gonzales Vice President
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
John E. Murray, Jr. John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts 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. Although money market funds seek to
maintain a stable net asset value of $1.00 per share, there is no assurance that
they will be able to do so.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
