PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present you with the Annual Report for your investment in the
Arrow Equity and Income Funds. This report covers the one-year period ended
September 30, 1995.
This report contains complete financial information--including a commentary by
the portfolio manager and a list of holdings--for Arrow Equity Portfolio, Arrow
Fixed Income Portfolio, and Arrow Municipal Income Portfolio.
Please note the following highlights for each Arrow fund over the period:
- ARROW EQUITY PORTFOLIO rewarded shareholders with extremely strong
performance due to a favorable stock market environment. Its high-quality
stock holdings delivered a total return of 42.90% based on net asset value,
and 37.95% reflecting the fund's sales charge. The fund paid dividends of
$0.09 per share. Its net asset value increased from $9.74 on the first day
of the period to $13.80 on the last day of the period. At the end of the
report period, net assets stood at more than $43.7 million.*
- ARROW FIXED INCOME PORTFOLIO paid dividends of $0.59 per share, while its
net asset value increased from $9.31 on the first day of the period to
$10.06 on the last day of the period. The fund produced a strong total
return of 14.89% based on net asset value, and 10.84% reflecting the fund's
sales charge. At the end of the report period, net assets stood at more
than $30.7 million.*
- ARROW MUNICIPAL INCOME PORTFOLIO paid tax-free dividends of $0.46 per
share.** Its net asset value increased from $9.87 on the first day of the
period to $10.22 on the last day of the period. The fund produced a
tax-free total return of 8.46% based on net asset value, and 4.65%
reflecting the fund's sales charge. At the end of the report period, net
assets stood at more than $17.7 million.*
Thank you for your confidence in the Arrow Funds. We will continue to keep you
up to date on the progress of your investment.
Sincerely,
LOGO
Edward C. Gonzales
President
November 15, 1995
* Past performance may not be indicative of future performance. Your investment
return and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than their original cost.
** Income may be subject to the federal alternative minimum tax and state and
local taxes.
ARROW EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
The stock market by almost any measure has been a very pleasant surprise to
most investors during the last twelve months. In our view, equities have
been driven primarily by strong corporate earnings and lower interest
rates.
The Federal Reserve Board raised interest rates one last time in February
of this year, but by summer had done an about face, lowering them as
inflation appeared to be no immediate problem. This, coupled with generally
strong first and second quarter 1995 earnings reports, gave momentum to
stock prices. Third quarter 1995 earnings appear to be somewhat slower on
average, but good nonetheless.
There were several sectors that stood out as far as performance was
concerned. Those included technology, finance, and healthcare. The fund
benefited handsomely by being more heavily weighted in those areas.
Notwithstanding the possibility that the Federal Reserve Board could lower
interest rates before year end, the evidence suggests that the economy is
slowing, which may be reflected in corporate earnings overall in the next
three to six months. Matching recent results in the Equity markets may
prove difficult over that time horizon, however, we remain basically
optimistic longer term and believe individual stock selection is the key to
success.
ARROW EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN ARROW EQUITY PORTFOLIO
The graph below illustrates the hypothetical investment of $10,000 in the
Arrow Equity Portfolio (the "Fund") from January 3, 1993 (start of performance)
to September 30, 1995 compared to the Standard & Poor's Daily Stock Price Index
of 500 Common Stocks ("S&P 500")+.
<TABLE>
<CAPTION>
Measurement Period Arrow Equity
(Fiscal Year Covered) Portfolio* S&P 500
<S> <C> <C>
1/3/93 9650 10000
9/30/93 9708 10756
9/30/94 9530 11153
9/30/95 13618 14470
</TABLE>
AVERAGE ANNUAL TOTAL RETURN*** FOR THE
PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
1 year................................................................ 37.95%
Start of Performance (1/3/93)......................................... 11.94%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of the Fund from the start of business 1/3/93 through
9/30/95, on a cumulative basis.
** Represents a hypothetical investment of $10,000 in the Fund, after deducting
the maximum sales charge of 3.50% ($10,000 investment minus $350 sales
charge = $9,650). The Fund's performance assumes the reinvestment of all
dividends and distributions. The S&P 500 is adjusted to reflect reinvestment
of dividends on securities in the index.
*** Total return quoted reflects all applicable sales charges.
+ The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
ARROW FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
The Arrow Fixed Income Portfolio had total net assets of $30.7 million as
of September 30, 1995. The fund had an average maturity of 10.6 years, with
57% of the fund's assets invested in U.S. Treasury and government agency
securities, and 37% invested in investment grade corporate bonds.
Interest rates decreased during the reporting period due to favorable
inflation numbers and an economy which grew at a moderate pace. This
resulted in excellent returns for fixed income investors. Five, ten and
thirty year U.S. Treasury securities declined approximately one percentage
point in yield over the past six months. On July 6, 1995, the Federal
Reserve Board lowered short-term interest rates by one quarter of a
percent.
For the balance of the year we believe long-term and intermediate-term
interest rates will remain stable with a downward bias. Favorable news from
Congress on the deficit reduction front would be a positive for the bond
market, giving the Federal Reserve Board more impetus to lower short-term
rates.
ARROW FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN ARROW FIXED INCOME PORTFOLIO
The graph below illustrates the hypothetical investment of $10,000 in the
Arrow Fixed Income Portfolio (the "Fund") from January 3, 1993 (start of
performance) to September 30, 1995 compared to the Lehman Brothers
Government/Corporate Total Index ("LBGCTI")+.
<TABLE>
<CAPTION>
Arrow Fixed
Measurement Period Income Port-
(Fiscal Year Covered) folio* LBGCTI
<S> <C> <C>
1/3/93 9650 10000
9/30/93 10817 11138
9/30/94 9967 10677
9/30/95 11451 12209
</TABLE>
AVERAGE ANNUAL TOTAL RETURN*** FOR THE
PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
1 year................................................................ 10.84%
Start of Performance (1/3/93)......................................... 5.08%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of the Fund from the start of business 1/3/93 through
9/30/95, on a cumulative basis.
** Represents a hypothetical investment of $10,000 in the Fund, after deducting
the maximum sales charge of 3.50% ($10,000 investment minus $350 sales
charge = $9,650). The Fund' s performance assumes the reinvestment of all
dividends and distributions. The LBGCTI is adjusted to reflect reinvestment
of dividends on securities in the index.
*** Total return quoted reflects all applicable sales charges.
+ The LBGCTI is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
ARROW MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
During the first nine months of the fiscal year ended September 30, 1995,
the municipal market underperformed the Treasury market, primarily due to
investors' fears of major tax reform. These fears caused investors to turn
away from longer securities and move into shorter paper (likely to mature
before new tax reform is passed). During the last three months, however,
the municipal market outperformed the Treasury market. In early July, it
reached its cheapest levels year to date relative to Treasuries. These
cheap levels created a rally that carried through the end of the fiscal
year. New issuance was down approximately 30% during the final fiscal
quarter. This lack of supply put upward pressure on prices while yields
declined. The fund remained somewhat defensive during the year, although
duration increased slightly during the last fiscal quarter.
ARROW MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN ARROW MUNICIPAL INCOME PORTFOLIO
The graph below illustrates the hypothetical investment of $10,000 in the
Arrow Municipal Income Portfolio (the "Fund") from January 31, 1993 (start of
performance) to September 30, 1995 compared to the Lehman Brothers State General
Obligation Bond Index ("LBSGOBI")+.
<TABLE>
<CAPTION>
Arrow Mu-
nicipal In-
Measurement Period come
(Fiscal Year Covered) Portfolio* LBSGOBI
<S> <C> <C>
1/31/93 9650 10000
9/30/93 10560 10875
9/30/94 10305 10633
9/30/95 11177 12584
</TABLE>
AVERAGE ANNUAL TOTAL RETURN*** FOR THE
PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
1 year................................................................ 4.65%
Start of Performance (1/31/93)........................................ 4.27%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of the Fund from the start of business 1/31/93 through
9/30/95, on a cumulative basis.
** Represents a hypothetical investment of $10,000 in the Fund, after deducting
the maximum sales charge of 3.50% ($10,000 investment minus $350 sales
charge = $9,650). The Fund's performance assumes the reinvestment of all
dividends and distributions. The LBSGOBI is adjusted to reflect reinvestment
of dividends on securities in the index.
*** Total return quoted reflects all applicable sales charges.
+ The LBSGOBI is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
ARROW EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- -------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--93.1%
- --------------------------------------------------------------------------------------
BASIC INDUSTRY--0.6%
--------------------------------------------------------------------
6,000 Nucor Corp. $ 268,500
-------------------------------------------------------------------- -----------
BEVERAGES--0.2%
--------------------------------------------------------------------
2,000 Pepsico, Inc. 102,000
-------------------------------------------------------------------- -----------
CHEMICALS--3.0%
--------------------------------------------------------------------
4,000 Cabot Corp. 212,500
--------------------------------------------------------------------
5,000 Dow Chemical Co. 372,500
--------------------------------------------------------------------
5,000 Goodrich (B.F.) Co. 329,375
--------------------------------------------------------------------
10,000 Union Carbide Corp. 397,500
-------------------------------------------------------------------- -----------
Total 1,311,875
-------------------------------------------------------------------- -----------
CONSUMER DURABLES--2.5%
--------------------------------------------------------------------
37,500 Mattel, Inc. 1,101,562
-------------------------------------------------------------------- -----------
CONSUMER NON-DURABLES--11.2%
--------------------------------------------------------------------
25,000 IBP, Inc. 1,334,375
--------------------------------------------------------------------
22,000 Philip Morris Companies, Inc. 1,837,000
--------------------------------------------------------------------
13,000 Premark International, Inc. 661,375
--------------------------------------------------------------------
4,000 Scott Paper Co. 194,000
--------------------------------------------------------------------
30,000 UST, Inc. 858,750
-------------------------------------------------------------------- -----------
Total 4,885,500
-------------------------------------------------------------------- -----------
ELECTRONIC TECHNOLOGY--19.0%
--------------------------------------------------------------------
20,000 Avnet, Inc. 1,032,500
--------------------------------------------------------------------
5,000 CTS Corp. 155,000
--------------------------------------------------------------------
6,000 Hewlett Packard Co. 500,250
--------------------------------------------------------------------
44,000 Micron Technology 3,498,000
--------------------------------------------------------------------
14,000 Motorola, Inc. 1,069,250
--------------------------------------------------------------------
20,000 Tektronix, Inc. 1,180,000
--------------------------------------------------------------------
4,000 Texas Instruments, Inc. 319,500
--------------------------------------------------------------------
</TABLE>
ARROW EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY--CONTINUED
--------------------------------------------------------------------
10,000 Varian Associates, Inc. $ 530,000
-------------------------------------------------------------------- -----------
Total 8,284,500
-------------------------------------------------------------------- -----------
ENTERTAINMENT--3.2%
--------------------------------------------------------------------
12,000 Capital Cities/ABC, Inc. 1,411,500
-------------------------------------------------------------------- -----------
FINANCE--16.8%
--------------------------------------------------------------------
10,000 Federal Home Loan Mortgage Corp. 691,250
--------------------------------------------------------------------
5,000 Federal National Mortgage Assoc. 517,500
--------------------------------------------------------------------
15,000 First Interstate Bancorp 1,511,250
--------------------------------------------------------------------
40,000 Green Tree Financial Corp. 2,440,000
--------------------------------------------------------------------
5,000 Household International, Inc. 310,000
--------------------------------------------------------------------
25,000 MBNA Corp. 1,040,625
--------------------------------------------------------------------
5,000 NationsBank Corp. 336,250
--------------------------------------------------------------------
15,000 Norwest Corp. 491,250
-------------------------------------------------------------------- -----------
Total 7,338,125
-------------------------------------------------------------------- -----------
FOREST PRODUCTS & PAPER--0.3%
--------------------------------------------------------------------
3,000 Boise Cascade Corp. 121,125
-------------------------------------------------------------------- -----------
HEALTH TECHNOLOGY--10.0%
--------------------------------------------------------------------
25,000 Abbott Laboratories 1,065,625
--------------------------------------------------------------------
30,000 Medtronic, Inc. 1,612,500
--------------------------------------------------------------------
7,500 Mylan Labs, Inc. 150,000
--------------------------------------------------------------------
30,000 Schering Plough Corp. 1,545,000
-------------------------------------------------------------------- -----------
Total 4,373,125
-------------------------------------------------------------------- -----------
INSURANCE--3.5%
--------------------------------------------------------------------
10,000 AFLAC, Inc. 415,000
--------------------------------------------------------------------
6,000 Orion Capital Corp. 266,250
--------------------------------------------------------------------
17,000 United Healthcare Corp. 830,875
-------------------------------------------------------------------- -----------
Total 1,512,125
-------------------------------------------------------------------- -----------
</TABLE>
ARROW EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
MACHINERY & EQUIPMENT--5.4%
--------------------------------------------------------------------
17,000 Caterpillar, Inc. $ 966,875
--------------------------------------------------------------------
14,000 Chrysler Corp. 742,000
--------------------------------------------------------------------
5,000 Deere & Co. 406,875
--------------------------------------------------------------------
6,000 Dover Corp. 229,500
-------------------------------------------------------------------- -----------
Total 2,345,250
-------------------------------------------------------------------- -----------
MANUFACTURING--0.8%
--------------------------------------------------------------------
8,000 Allied Signal, Inc. 353,000
-------------------------------------------------------------------- -----------
METALS--0.5%
--------------------------------------------------------------------
5,000 Timken Co. 213,125
-------------------------------------------------------------------- -----------
OIL--0.2%
--------------------------------------------------------------------
2,000 Halliburton Co. 83,500
-------------------------------------------------------------------- -----------
PHARMACEUTICALS--0.3%
--------------------------------------------------------------------
2,000 Merck & Co., Inc. 112,000
-------------------------------------------------------------------- -----------
RETAIL TRADE--2.5%
--------------------------------------------------------------------
5,000 Home Depot, Inc. 199,375
--------------------------------------------------------------------
10,000 * Kroger Co. 341,250
--------------------------------------------------------------------
6,000 May Department Stores, Inc. 262,500
--------------------------------------------------------------------
12,000 Wal Mart Stores, Inc. 298,500
-------------------------------------------------------------------- -----------
Total 1,101,625
-------------------------------------------------------------------- -----------
TECHNOLOGY SERVICES--7.6%
--------------------------------------------------------------------
4,500 Computer Associates International, Inc. 190,125
--------------------------------------------------------------------
18,000 Fluor Corp. 1,008,000
--------------------------------------------------------------------
3,000 General Motors Corp. Class E 136,500
--------------------------------------------------------------------
6,000 International Business Machines Corp. 566,250
--------------------------------------------------------------------
5,000 Loral Corp. 285,000
--------------------------------------------------------------------
2,000 Northrop Grumman Corp. 121,750
--------------------------------------------------------------------
30,000 Reynolds & Reynolds Co. 1,031,250
-------------------------------------------------------------------- -----------
Total 3,338,875
-------------------------------------------------------------------- -----------
</TABLE>
ARROW EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
TRANSPORTATION--1.8%
-------------------------------------------------------------------
20,000 Illinois Central Corp. $ 782,500
------------------------------------------------------------------- -----------
UTILITIES--1.9%
-------------------------------------------------------------------
10,000 American Telephone & Telegraph Co. 657,500
-------------------------------------------------------------------
5,000 Century Telephone Enterprises, Inc. 151,875
------------------------------------------------------------------- -----------
Total 809,375
------------------------------------------------------------------- -----------
OTHER--1.9%
-------------------------------------------------------------------
5,000 American International Group, Inc. 425,000
-------------------------------------------------------------------
20,000 Brunswick Corp. 405,000
------------------------------------------------------------------- -----------
Total 830,000
------------------------------------------------------------------- -----------
TOTAL COMMON STOCKS (IDENTIFIED COST, $28,419,929) 40,679,187
------------------------------------------------------------------- -----------
U.S. TREASURY SECURITIES--3.0%
- --------------------------------------------------------------------------------------
$1,300,000 United States Treasury Bill, 10/05/95 1,299,278
------------------------------------------------------------------- -----------
TOTAL SHORT-TERM U.S. TREASURY SECURITIES (AT AMORTIZED COST) 1,299,278
------------------------------------------------------------------- -----------
MUTUAL FUND SHARES--3.2%
- --------------------------------------------------------------------------------------
1,316,932 Goldman Sachs ILA Treasury Money Market Fund 1,316,932
-------------------------------------------------------------------
72,908 SEI Liquid Cash Trust 72,908
------------------------------------------------------------------- -----------
TOTAL MUTUAL FUND SHARES (AT NET ASSET VALUE) 1,389,840
------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $31,109,047) $43,368,305+
------------------------------------------------------------------- -----------
</TABLE>
+ The cost of investments for federal tax purposes amounts to $31,159,865. The
net unrealized appreciation of investments on a federal tax basis amounts to
$12,208,440, which is comprised of $12,499,233 appreciation and $290,793
depreciation at September 30, 1995.
* Non-income producing security.
Note: The categories of investments are shown as a percentage of net assets
($43,707,668) at September 30, 1995.
(See Notes which are an integral part of the Financial Statements)
ARROW EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at value (identified cost $31,109,047
and tax cost $31,159,865) $43,368,305
- --------------------------------------------------------------------------------
Cash 18,100
- --------------------------------------------------------------------------------
Income receivable 89,651
- --------------------------------------------------------------------------------
Receivable for shares sold 246,280
- --------------------------------------------------------------------------------
Deferred expenses 5,755
- -------------------------------------------------------------------------------- -----------
Total assets 43,728,091
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for shares redeemed $ 69
- ----------------------------------------------------------------------
Accrued expenses 20,354
- ---------------------------------------------------------------------- -------
Total liabilities 20,423
- -------------------------------------------------------------------------------- -----------
Net Assets for 3,166,785 shares outstanding $43,707,668
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $32,169,593
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments 12,259,258
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (756,363)
- --------------------------------------------------------------------------------
Undistributed net investment income 35,180
- -------------------------------------------------------------------------------- -----------
Total Net Assets $43,707,668
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, and Redemption Proceeds Per Share:
($43,707,668 / 3,166,785 shares outstanding) $13.80
- -------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/96.50 of $13.80)* $14.30
- -------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
ARROW EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Dividends $ 583,628
- ----------------------------------------------------------------------------------
Interest 152,210
- ---------------------------------------------------------------------------------- -----------
Total income 735,838
- ----------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------
Investment advisory fee $ 253,371
- ---------------------------------------------------------------------
Administrative personnel and services fee 52,746
- ---------------------------------------------------------------------
Custodian fees 23,926
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 25,844
- ---------------------------------------------------------------------
Directors'/Trustees' fees 1,243
- ---------------------------------------------------------------------
Auditing fees 12,960
- ---------------------------------------------------------------------
Legal fees 3,190
- ---------------------------------------------------------------------
Portfolio accounting fees 43,393
- ---------------------------------------------------------------------
Share registration costs 17,684
- ---------------------------------------------------------------------
Printing and postage 5,481
- ---------------------------------------------------------------------
Insurance premiums 3,687
- ---------------------------------------------------------------------
Distribution services fee 84,456
- ---------------------------------------------------------------------
Miscellaneous 3,788
- --------------------------------------------------------------------- ---------
Total expenses 531,769
- ---------------------------------------------------------------------
Waivers and reimbursements--
- ---------------------------------------------------------------------
Waiver of investment advisory fee $(15,785)
- ----------------------------------------------------------
Waiver of distribution services fee (84,456)
- ---------------------------------------------------------- --------
Total waivers and reimbursements (100,241)
- --------------------------------------------------------------------- ---------
Net expenses 431,528
- ---------------------------------------------------------------------------------- -----------
Net investment income 304,310
- ---------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------
Net realized gain on investments 1,393,153
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 10,831,819
- ---------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 12,224,972
- ---------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $12,529,282
- ---------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------
OPERATIONS--
- ---------------------------------------------------
Net investment income $ 304,310 $ 230,882
- ---------------------------------------------------
Net realized gain (loss) on investments ($664,284
net loss and $41,210 net loss, respectively, as
computed for federal tax purposes) 1,393,153 (2,149,466)
- ---------------------------------------------------
Net change in unrealized appreciation
(depreciation)
of investments 10,831,819 1,408,803
- --------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations 12,529,282 (509,781)
- --------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------
Distributions from net investment income (291,654) (220,766)
- ---------------------------------------------------
Distributions from net realized gains -- (90,072)
- --------------------------------------------------- ---------------- ----------------
Change in net assets resulting from
distributions
to shareholders (291,654) (310,838)
- --------------------------------------------------- ---------------- ----------------
SHARE TRANSACTIONS--
- ---------------------------------------------------
Proceeds from sale of shares 12,062,494 10,335,871
- ---------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 17,333 17,410
- ---------------------------------------------------
Cost of shares redeemed (10,891,483) (10,410,296)
- --------------------------------------------------- ---------------- ----------------
Change in net assets resulting from share
transactions 1,188,344 (57,015)
- --------------------------------------------------- ---------------- ----------------
Change in net assets 13,425,972 (877,634)
- ---------------------------------------------------
NET ASSETS:
- ---------------------------------------------------
Beginning of period 30,281,696 31,159,330
- --------------------------------------------------- ---------------- ----------------
End of period (including undistributed net
investment income of $35,180 and $22,524,
respectively) $ 43,707,668 $ 30,281,696
- --------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1995 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 0.10 0.07 0.04
- -----------------------------------------------------------
Net realized and unrealized gain (loss) on investments 4.05 (0.25) 0.02
- ----------------------------------------------------------- ------ ------ -------
Total from investment operations 4.15 (0.18) 0.06
- -----------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------
Distributions from net investment income (0.09) (0.07) (0.04)
- -----------------------------------------------------------
Distributions from net realized gain on investment
transactions -- (0.03) --
- ----------------------------------------------------------- ------ ------ -------
TOTAL DISTRIBUTIONS (0.09) (0.10) (0.04)
- ----------------------------------------------------------- ------ ------ -------
NET ASSET VALUE, END OF PERIOD $13.80 $ 9.74 $10.02
- ----------------------------------------------------------- ------ ------ -------
TOTAL RETURN (B) 42.90% (1.84%) 0.60%
- -----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------
Expenses 1.28% 1.36% 1.32%*
- -----------------------------------------------------------
Net investment income 0.90% 0.74% 0.62%*
- -----------------------------------------------------------
Expense waiver/reimbursement (c) 0.30% 0.28% 0.30%*
- -----------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------
Net assets, end of period (000 omitted) $43,708 $30,282 $31,159
- -----------------------------------------------------------
Portfolio Turnover 45% 127% 54%
- -----------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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) 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
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
CORPORATE BONDS--37.0%
- --------------------------------------------------------------------------------------
AEROSPACE/DEFENSE--1.7%
-------------------------------------------------------------------
$ 500,000 Rockwell International Corp., 6.75%, 9/15/2002 $ 507,030
------------------------------------------------------------------- -----------
BANKING--3.3%
-------------------------------------------------------------------
500,000 BankAmerica Corp., 7.50%, 10/15/2002 520,795
-------------------------------------------------------------------
500,000 NationsBank Corp., 6.875%, 2/15/2005 497,815
------------------------------------------------------------------- -----------
Total 1,018,610
------------------------------------------------------------------- -----------
CONSUMER PRODUCTS--5.1%
-------------------------------------------------------------------
1,000,000 Kimberly Clark Corp., 7.875%, 2/1/2023 1,051,180
-------------------------------------------------------------------
500,000 Philip Morris Cos., Inc., 7.125%, 12/1/1999 509,420
------------------------------------------------------------------- -----------
Total 1,560,600
------------------------------------------------------------------- -----------
FINANCE--4.9%
-------------------------------------------------------------------
500,000 MBNA Corp., 6.875%, 10/1/1999 504,075
-------------------------------------------------------------------
1,000,000 Merrill Lynch & Co., Inc., 7.00%, 4/27/2008 994,610
------------------------------------------------------------------- -----------
Total 1,498,685
------------------------------------------------------------------- -----------
MULTI-LINE COMPANIES--3.4%
-------------------------------------------------------------------
1,000,000 Hanson PLC, 7.375%, 1/15/2003 1,038,060
------------------------------------------------------------------- -----------
OIL & GAS--3.3%
-------------------------------------------------------------------
1,000,000 Phillips Petroleum Co., 7.92%, 4/15/2023 1,025,380
------------------------------------------------------------------- -----------
RETAIL & APPAREL--3.1%
-------------------------------------------------------------------
1,000,000 Limited, Inc., 7.50%, 3/15/2023 947,320
------------------------------------------------------------------- -----------
UTILITIES--12.2%
-------------------------------------------------------------------
701,000 Arkansas Electric Coop Corp., 7.33%, 6/30/2008 729,664
-------------------------------------------------------------------
1,000,000 Central LA Electric Co., Inc., 6.95%, 6/21/2006 1,009,490
-------------------------------------------------------------------
1,000,000 Duke Power Co., 7.375%, 3/1/2023 980,640
-------------------------------------------------------------------
500,000 Midwest Power Systems, Inc., 7.00%, 2/15/2005 507,545
-------------------------------------------------------------------
</TABLE>
ARROW FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------
UTILITIES--CONTINUED
-------------------------------------------------------------------
$ 500,000 United Telephone Co. of Florida, 7.25%, 12/15/2004 $ 519,545
------------------------------------------------------------------- -----------
Total 3,746,884
------------------------------------------------------------------- -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $11,097,950) 11,342,569
------------------------------------------------------------------- -----------
GOVERNMENT BONDS--50.9%
- --------------------------------------------------------------------------------------
FOREIGN MUNICIPAL--1.7%
-------------------------------------------------------------------
500,000 Ontario Province, Canada, 7.375%, 1/27/2003 522,595
------------------------------------------------------------------- -----------
GOVERNMENT AGENCIES--13.2%
-------------------------------------------------------------------
500,000 Federal Home Loan Bank, 6.32%, 2/1/2000 502,505
-------------------------------------------------------------------
500,000 Federal Home Loan Mortgage Corp., 7.23%, 12/17/2002 505,260
-------------------------------------------------------------------
1,000,000 Federal Home Loan Mortgage Corp., 7.375%, 6/02/2000 1,002,750
-------------------------------------------------------------------
1,000,000 Federal National Mortgage Association, 7.55%, 6/10/2004 1,024,430
-------------------------------------------------------------------
1,000,000 Federal National Mortgage Association, 7.65%, 4/29/2004 1,012,760
------------------------------------------------------------------- -----------
Total 4,047,705
------------------------------------------------------------------- -----------
U.S. TREASURY SECURITIES--36.0%
-------------------------------------------------------------------
3,000,000 U.S. Treasury Bond, 7.50%, 11/15/2016 3,293,100
-------------------------------------------------------------------
500,000 U.S. Treasury Notes, 7.50%, 11/15/2001 535,930
-------------------------------------------------------------------
1,500,000 U.S. Treasury Notes, 7.50%, 11/15/2002 1,614,585
-------------------------------------------------------------------
1,750,000 U.S. Treasury Notes, 7.875%, 8/15/2001 1,903,738
-------------------------------------------------------------------
2,000,000 U.S. Treasury Notes, 8.00%, 5/15/2001 2,182,640
-------------------------------------------------------------------
1,400,000 U.S. Treasury Notes, 9.00%, 5/15/1998 1,504,272
------------------------------------------------------------------- -----------
Total 11,034,265
------------------------------------------------------------------- -----------
TOTAL GOVERNMENT BONDS (IDENTIFIED COST, $15,604,565) 15,604,565
------------------------------------------------------------------- -----------
SHORT TERM U.S. TREASURY SECURITIES--8.1%
- --------------------------------------------------------------------------------------
2,000,000 U.S. Treasury Bills, 10/19/1995 1,995,640
-------------------------------------------------------------------
500,000 U.S. Treasury Bills, 11/30/1995 495,604
------------------------------------------------------------------- -----------
TOTAL SHORT TERM U.S. TREASURY SECURITIES (AT AMORTIZED COST) 2,491,244
------------------------------------------------------------------- -----------
</TABLE>
ARROW FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
MUTUAL FUND SHARES--2.7%
- --------------------------------------------------------------------------------------
824,780 Goldman Sachs ILA Treasury Money Market Fund (AT NET ASSET VALUE) $ 824,780
------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $29,988,368) $30,263,158+
------------------------------------------------------------------- -----------
</TABLE>
+ The cost of investments for federal tax purposes amounts to $29,988,368. The
net unrealized appreciation of investments on a federal tax basis amounts to
$274,790 which is comprised of $462,416 appreciation and $187,626 depreciation
at September 30, 1995.
Note: The categories of investments are shown as a percentage of net assets
($30,661,450) at September 30, 1995.
The following acronym is used within this portfolio:
<TABLE>
<S> <C>
PLC -- Public Limited Company
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $29,988,368) $30,263,158
- --------------------------------------------------------------------------------
Cash 101
- --------------------------------------------------------------------------------
Income receivable 553,077
- --------------------------------------------------------------------------------
Deferred expenses 7,099
- -------------------------------------------------------------------------------- -----------
Total assets 30,823,435
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Income distribution payable $143,902
- ---------------------------------------------------------------------
Payable for shares redeemed 50
- ---------------------------------------------------------------------
Accrued expenses 18,033
- --------------------------------------------------------------------- --------
Total liabilities 161,985
- -------------------------------------------------------------------------------- -----------
Net Assets for 3,046,535 shares outstanding $30,661,450
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $31,164,870
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments 274,790
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (778,210)
- -------------------------------------------------------------------------------- -----------
Total Net Assets $30,661,450
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, and Redemption Proceeds Per Share:
($30,661,450 / 3,046,535 shares outstanding) $10.06
- -------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/96.50 of $10.06)* $10.42
- -------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
ARROW FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $2,270,384
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $184,158
- -----------------------------------------------------------------------
Administrative personnel and services fee 50,000
- -----------------------------------------------------------------------
Custodian fees 23,989
- -----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 23,269
- -----------------------------------------------------------------------
Directors'/Trustees' fees 1,811
- -----------------------------------------------------------------------
Auditing fees 11,985
- -----------------------------------------------------------------------
Legal fees 3,295
- -----------------------------------------------------------------------
Portfolio accounting fees 50,213
- -----------------------------------------------------------------------
Share registration costs 18,905
- -----------------------------------------------------------------------
Printing and postage 3,095
- -----------------------------------------------------------------------
Insurance premiums 4,513
- -----------------------------------------------------------------------
Distribution services fee 76,734
- -----------------------------------------------------------------------
Miscellaneous 3,407
- ----------------------------------------------------------------------- --------
Total expenses 455,374
- -----------------------------------------------------------------------
Waivers and reimbursements --
- -----------------------------------------------------------------------
Waiver of investment advisory fee $ (3,366)
- ------------------------------------------------------------
Waiver of distribution services fee (76,734)
- ------------------------------------------------------------ --------
Total waivers and reimbursements (80,100)
- ----------------------------------------------------------------------- --------
Net expenses 375,274
- ----------------------------------------------------------------------------------- ----------
Net investment income 1,895,110
- ----------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------
Net realized loss on investments (595,593)
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 2,957,493
- ----------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 2,361,900
- ----------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $4,257,010
- ----------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------
OPERATIONS--
- ---------------------------------------------------
Net investment income $ 1,895,110 $ 2,230,983
- ---------------------------------------------------
Net realized gain (loss) on investments ($227,158
net loss and $24 net loss, respectively, as
computed
for federal tax purposes) (595,593) (182,642)
- ---------------------------------------------------
Net change in unrealized appreciation
(depreciation)
of investments 2,957,493 (5,169,128)
- --------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations 4,257,010 (3,120,787)
- --------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------
Distributions from net investment income (1,895,110) (2,236,633)
- ---------------------------------------------------
Distributions from net realized gains -- (120,201)
- --------------------------------------------------- ---------------- ----------------
Change in net assets resulting from
distributions
to shareholders (1,895,110) (2,356,834)
- --------------------------------------------------- ---------------- ----------------
SHARE TRANSACTIONS--
- ---------------------------------------------------
Proceeds from sale of shares 6,044,571 9,523,204
- ---------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 31,130 35,927
- ---------------------------------------------------
Cost of shares redeemed (10,519,098) (14,053,826)
- --------------------------------------------------- ---------------- ----------------
Change in net assets resulting from share
transactions (4,443,397) (4,494,695)
- --------------------------------------------------- ---------------- ----------------
Change in net assets (2,081,497) (9,972,316)
- ---------------------------------------------------
NET ASSETS:
- ---------------------------------------------------
Beginning of period 32,742,947 42,715,263
- --------------------------------------------------- ---------------- ----------------
End of period $ 30,661,450 $ 32,742,947
- --------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW FIXED INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1995 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 0.59 0.59 0.44
- -----------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.75 (1.41) 0.75
----- ----- ----
- -----------------------------------------------------------
Total from investment operations 1.34 (0.82) 1.19
- -----------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------
Distributions from net investment income (0.59) (0.59) (0.44)
- -----------------------------------------------------------
Distributions from net realized gain on investment
transactions -- (0.03) --
----- ----- -----
- -----------------------------------------------------------
TOTAL DISTRIBUTIONS (0.59) (0.62) (0.44)
-----
- ----------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $10.06 $ 9.31 $10.75
----- ------ ------
- -----------------------------------------------------------
TOTAL RETURN (B) 14.89% (7.85%) 12.09%
- -----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------
Expenses 1.22% 1.15% 1.05%*
- -----------------------------------------------------------
Net investment income 6.17% 5.86% 5.71%*
- -----------------------------------------------------------
Expense waiver/reimbursement (c) 0.26% 0.26% 0.27%*
- -----------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------
Net assets, end of period (000 omitted) $30,661 $32,743 $42,715
- -----------------------------------------------------------
Portfolio Turnover 33% 28% 28%
- -----------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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) 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
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATINGS:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ----------- ------------------------------------------------------- ------------ -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--95.7%
- ---------------------------------------------------------------------
CALIFORNIA--4.2%
-------------------------------------------------------
$ 700,000 Long Beach, CA, Harbor Revenue Bonds, 7.25%,
(Series A)/(Subject to AMT), 5/15/2019 Aa $ 747,348
------------------------------------------------------- -----------
FLORIDA--3.0%
-------------------------------------------------------
500,000 Florida State Board of Education Capital Outlay,
6.625%, (Series C), 6/1/2014 AA 535,360
------------------------------------------------------- -----------
GEORGIA--3.1%
-------------------------------------------------------
500,000 Appling County, GA, Development Authority, 7.00%,
Pollution Control Revenue Bonds, (Oglethorpe Power
Corp. Hatch Project)/(MBIA Insured), 1/1/2012 AAA 550,965
------------------------------------------------------- -----------
ILLINOIS--14.4%
-------------------------------------------------------
480,000 Illinois Health Facility Authority, 6.75%, Revenue
Refunding Bonds (Rush-Presbyterian-St. Luke's Medical
Center), 10/1/2006 A+ 479,942
-------------------------------------------------------
500,000 Illinois Housing Development Authority, 6.40%,
Revenue Bonds, 8/1/2017 Aa 505,320
-------------------------------------------------------
100,000 Illinois State, 6.60%, 12/1/2006 Aa 105,241
-------------------------------------------------------
400,000 Schaumburg, IL, 6.05%, GO UT Refunding Bonds, 12/1/2007 AA+ 419,860
-------------------------------------------------------
500,000 Springfield, IL, 6.50%, Water Revenue Bonds, 3/1/2015 AA 515,350
-------------------------------------------------------
485,000 Waukegan, IL, 6.80%, 12/30/2007 A1 527,976
------------------------------------------------------- -----------
Total 2,553,689
------------------------------------------------------- -----------
IOWA--9.6%
-------------------------------------------------------
500,000 Cedar Rapids, IA, 5.65%, GO UT Bonds (Series B),
6/1/2005 Aaa 518,335
-------------------------------------------------------
500,000 Iowa Student Loan Liquidity Corporation, 6.75%, Student
Loan Revenue Bonds (Series B)/(Subject to AMT),
3/1/2004 Aa1 535,390
-------------------------------------------------------
</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
- ---------------------------------------------------------------------
IOWA--CONTINUED
-------------------------------------------------------
$ 650,000 Ottumwa, IA, Community School District, 5.60%, GO UT
Bonds, (CGIC Insured), 6/1/2010 AAA $ 653,933
------------------------------------------------------- -----------
Total 1,707,658
------------------------------------------------------- -----------
KANSAS--4.7%
-------------------------------------------------------
400,000 Johnson County, KS, 5.70%, GO UT School District No.
512 Shawnee Mission, 10/1/2007 AA+ 416,860
-------------------------------------------------------
400,000 Kansas City, KS, 5.50%, GO UT Bonds,
(Series A)/(MBIA Insured), 9/1/2008 AAA 407,636
------------------------------------------------------- -----------
Total 824,496
------------------------------------------------------- -----------
MASSACHUSETTS--2.9%
-------------------------------------------------------
500,000 Massachusetts State, 6.00%, (Series A), 6/1/2011 A+ 507,615
------------------------------------------------------- -----------
MINNESOTA--5.9%
-------------------------------------------------------
1,000,000 Western Minnesota Municipal Power Agency, 7.00%,
(Series A), 1/1/2013 A 1,048,870
------------------------------------------------------- -----------
MISSISSIPPI--3.0%
-------------------------------------------------------
500,000 Mississippi Higher Education Student Loan Revenue
Bonds, 7.50%, (Series C)/(Subject to AMT), 9/1/2009 A 536,210
------------------------------------------------------- -----------
MISSOURI--19.5%
-------------------------------------------------------
250,000 Missouri State Housing Development Commission, 5.85%,
FHA--VA Revenue Bonds, (GNMA Collateralized)/ (Subject
to AMT), 9/1/2009 AAA 247,873
-------------------------------------------------------
170,000 Missouri State Housing Development Commission, 6.00%,
SFM Revenue Bonds (Series A)/(GNMA Collateralized)/
(Subject to AMT), 6/1/2015 AAA 171,124
-------------------------------------------------------
740,000 Missouri State Housing Development Commission, 6.625%,
SFM Revenue Bonds (Series A)/(GNMA Collateralized)/
(Subject to AMT), 12/1/2017 AAA 760,269
-------------------------------------------------------
</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
-------------------------------------------------------
$ 375,000 Missouri State, 7.00%, HEFA Revenue Bonds (St.
Anthony's Medical Center)/(Series D), 12/1/2009 Aa $ 401,220
-------------------------------------------------------
300,000 Missouri State, 6.50%, HEFA Revenue Bonds (Saint Louis
University)/(AMBAC Insured), 8/1/2016 AAA 318,867
-------------------------------------------------------
250,000 Missouri State, 6.875%, HEFA Revenue Bonds (St. Luke's
Episcopal-Presbyterian Hospital)/(FGIC Insured),
12/1/2007 AAA 263,353
-------------------------------------------------------
1,000,000 Missouri State, Third State Building, 6.30%, GO UT
Bonds (Series B), 11/1/2012 AAA 1,051,400
-------------------------------------------------------
250,000 St. Louis, MO, Municipal Finance Corp., 5.75%,
Revenue Bonds, (FGIC Insured), 8/1/2013 AAA 251,177
------------------------------------------------------- -----------
Total 3,465,283
------------------------------------------------------- -----------
TEXAS--12.0%
-------------------------------------------------------
500,000 North Texas State Higher Education Student Loan Revenue
Bonds, 6.30%, (Series D)/(Subject to AMT), 4/1/2010 A 509,295
-------------------------------------------------------
500,000 Texas State, 6.60%, Veterans Housing Assistance,
(Series A)/(Subject to AMT), 12/1/2016 AA 514,265
-------------------------------------------------------
1,000,000 Texas State, 7.00%, GO UT Water Development,
(Series A), 8/1/2011 AA 1,096,610
------------------------------------------------------- -----------
Total 2,120,170
------------------------------------------------------- -----------
VIRGINIA--3.3%
-------------------------------------------------------
550,000 Virginia State, 6.55%, Housing Development Authority
(Series B), 1/1/2011 AA+ 577,379
------------------------------------------------------- -----------
WASHINGTON--5.8%
-------------------------------------------------------
725,000 King City, WA, School District #415 Kent, 6.00%, GO UT
Bonds (Series B), 12/1/2008 AA- 763,461
-------------------------------------------------------
245,000 Washington State, 6.00%, Refunding Bonds
(Series R-92C), 9/1/2004 AA 262,772
------------------------------------------------------- -----------
Total 1,026,233
------------------------------------------------------- -----------
</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--4.3%
-------------------------------------------------------
$ 500,000 Alma, WI, 6.125%, Pollution Control Revenue Bonds,
(Dairyland Power Co-op), 3/1/2008 AA- $ 502,150
-------------------------------------------------------
255,000 Madison, WI, 6.75%, IDR (Madison Gas & Electric Co.)/
(Subject to AMT), 4/1/2027 AA 267,594
------------------------------------------------------- -----------
Total 769,744
------------------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST, $16,610,239) 16,971,020
------------------------------------------------------- -----------
MUTUAL FUND SHARES--3.1%
- ---------------------------------------------------------------------
543,353 Goldman Sachs ILA Tax Exempt (AT NET ASSET VALUE) 543,353
------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $17,153,592) $17,514,373+
------------------------------------------------------- -----------
</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
$17,153,592. The net unrealized appreciation of investments on a federal tax
basis amounts to $360,781 which is comprised of $390,831 appreciation and
$30,050 depreciation at September 30, 1995.
Note: The categories of investments are shown as a percentage of net assets
($17,736,485) at September 30, 1995.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
AMBAC -- American Municipal Bond Assurance
Corporation
AMT -- Alternative Minimum Tax
CGIC -- Capital Guaranty Insurance
Corporation
FGIC -- Financial Guaranty Insurance
Company
FHA -- Federal Housing Administration
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
VA -- Veterans Administration
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW MUNICIPAL INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $17,153,592) $17,514,373
- --------------------------------------------------------------------------------
Cash 7,078
- --------------------------------------------------------------------------------
Income receivable 293,654
- --------------------------------------------------------------------------------
Deferred expenses 4,564
- -------------------------------------------------------------------------------- -----------
Total assets 17,819,669
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Income distribution payable $75,369
- ----------------------------------------------------------------------
Accrued expenses 7,815
- ---------------------------------------------------------------------- -------
Total liabilities 83,184
- -------------------------------------------------------------------------------- -----------
Net Assets for 1,735,819 shares outstanding $17,736,485
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $17,807,496
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments 360,781
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (431,792)
- -------------------------------------------------------------------------------- -----------
Total Net Assets $17,736,485
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, and Redemption Proceeds Per Share:
($17,736,485 / 1,735,819 shares outstanding) $10.22
- -------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/96.50 of $10.22)* $10.59
- -------------------------------------------------------------------------------- -----------
</TABLE>
*See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
ARROW MUNICIPAL INCOME PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $1,101,755
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $133,160
- -----------------------------------------------------------------------
Administrative personnel and services fee 50,000
- -----------------------------------------------------------------------
Custodian fees 4,756
- -----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 27,372
- -----------------------------------------------------------------------
Directors'/Trustees' fees 1,470
- -----------------------------------------------------------------------
Auditing fees 12,700
- -----------------------------------------------------------------------
Legal fees 1,905
- -----------------------------------------------------------------------
Portfolio accounting fees 56,524
- -----------------------------------------------------------------------
Share registration costs 16,638
- -----------------------------------------------------------------------
Printing and postage 5,695
- -----------------------------------------------------------------------
Insurance premiums 1,762
- -----------------------------------------------------------------------
Distribution services fee 47,558
- -----------------------------------------------------------------------
Miscellaneous 1,075
- ----------------------------------------------------------------------- --------
Total expenses 360,615
- -----------------------------------------------------------------------
Waivers and reimbursements--
- -----------------------------------------------------------------------
Waiver of investment advisory fee $(105,456)
- -----------------------------------------------------------
Waiver of distribution services fee (47,558)
- ----------------------------------------------------------- ---------
Total waivers and reimbursements (153,014)
- ----------------------------------------------------------------------- --------
Net expenses 207,601
- ----------------------------------------------------------------------------------- ----------
Net investment income 894,154
- ----------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------
Net realized loss on investments (410,829)
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 943,061
- ----------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 532,232
- ----------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $1,426,386
- ----------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW MUNICIPAL INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------
OPERATIONS--
- ---------------------------------------------------
Net investment income $ 894,154 $ 1,138,963
- ---------------------------------------------------
Net realized gain (loss) on investments ($76,653
net loss and $0 net loss, respectively, as computed
for federal tax purposes) (410,829) (21,051)
- ---------------------------------------------------
Net change in unrealized appreciation
(depreciation) of investments 943,061 (1,714,717)
- --------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations 1,426,386 (596,805)
- --------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------
Distributions from net investment income (894,154) (1,138,966)
- ---------------------------------------------------
Distributions from net realized gains -- (41,571)
- --------------------------------------------------- ---------------- ----------------
Change in net assets resulting from
distributions to shareholders (894,154) (1,180,537)
- --------------------------------------------------- ---------------- ----------------
SHARE TRANSACTIONS--
- ---------------------------------------------------
Proceeds from sale of shares 961,834 5,242,876
- ---------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 24,481 32,772
- ---------------------------------------------------
Cost of shares redeemed (6,968,741) (4,398,602)
- --------------------------------------------------- ---------------- ----------------
Change in net assets resulting from share
transactions (5,982,426) 877,046
- --------------------------------------------------- ---------------- ----------------
Change in net assets (5,450,194) (900,296)
- ---------------------------------------------------
NET ASSETS:
- ---------------------------------------------------
Beginning of period 23,186,679 24,086,975
- --------------------------------------------------- ---------------- ----------------
End of period $17,736,485 $23,186,679
- --------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW MUNICIPAL INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1995 1994 1993(A)
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.87 $10.61 $10.00
- --------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------
Net investment income 0.46 0.47 0.32
- --------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.35 (0.72) 0.61
- -------------------------------------------------------- ------ ------ -------
Total from investment operations 0.81 (0.25) 0.93
- -------------------------------------------------------- ------ ------ -------
LESS DISTRIBUTIONS
- --------------------------------------------------------
Distributions from net investment income (0.46) (0.47) (0.32)
- --------------------------------------------------------
Distributions from net realized gain on investment
transactions -- (0.02) --
- -------------------------------------------------------- ------ ------ -------
TOTAL DISTRIBUTIONS (0.46) (0.49) (0.32)
- -------------------------------------------------------- ------ ------ -------
NET ASSET VALUE, END OF PERIOD $10.22 $ 9.87 $10.61
- -------------------------------------------------------- ------ ------ -------
TOTAL RETURN (B) 8.46% (2.41%) 9.43%
- --------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------
Expenses 1.09% 0.85% 0.72%*
- --------------------------------------------------------
Net investment income 4.70% 4.62% 4.71%*
- --------------------------------------------------------
Expense waiver/reimbursement (c) 0.80% 0.81% 0.85%*
- --------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------
Net assets, end of period (000 omitted) $17,736 $23,187 $24,087
- --------------------------------------------------------
Portfolio Turnover 38% 27% 14%
- --------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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) 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 EQUITY AND INCOME FUNDS
COMBINED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Arrow Funds (the "Trust") is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end, management investment company. The
Trust consists of four, diversified portfolios (individually referred to as the
"Fund", or collectively as the "Funds"):
<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 included herein are only those of Equity Fund, Fixed
Income Fund, and 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.
(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.
INVESTMENT VALUATIONS--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. All other securities are valued at
prices provided by an independent pricing service. Investments in other
open-end regulated investment companies are valued at net asset value.
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").
FEDERAL TAXES--It is the Funds' policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all their income. Accordingly, no
provision for federal tax is necessary.
At September 30, 1995, Equity Fund, Fixed Income Fund, and Municipal Income
Fund had capital loss carryforwards of $705,494, $227,182, and $76,653,
respectively for federal tax purposes, which will reduce each Fund's
taxable income arising from future net realized gain on investments, if
any, to the extent permitted by the Code, and thus will reduce the amount
of the distributions to
ARROW EQUITY AND INCOME FUNDS
- --------------------------------------------------------------------------------
shareholders which would otherwise be necessary to relieve each Fund of any
liability for federal tax. Pursuant to the Code, such capital loss
carryforwards will expire as listed below:
<TABLE>
<CAPTION>
CAPITAL LOSS CAPITAL LOSS
CARRYFORWARD CARRYFORWARD
TO EXPIRE IN TO EXPIRE IN
FUND 2002 2003
- ---------------------- ------------ ------------
<S> <C> <C>
Equity Fund $ 41,210 $664,284
Fixed Income Fund 24 227,158
Municipal Income Fund -- 76,653
</TABLE>
Additionally, net capital losses on Fixed Income Fund, and Municipal Income
Fund of $551,053, and $355,227, attributable to security transactions
incurred after October 31, 1994, are treated as arising on October 1, 1995,
the first day of each Fund's next taxable year.
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.
DEFERRED EXPENSES--The costs incurred by each 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 over a period of five years from
the Fund's commencement date.
OTHER--Investment transactions are accounted for on the trade date.
(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 shares were as follows:
<TABLE>
<CAPTION>
MUNICIPAL
EQUITY FUND FIXED INCOME FUND INCOME FUND
------------------------- ------------------------- ---------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994
----------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 1,078,775 1,054,265 625,388 941,051 95,393 504,010
- ------------------------------------
Shares issued to shareholders in
payment of distributions declared 1,543 1,757 3,225 3,602 2,464 3,205
- ------------------------------------
Shares redeemed (1,023,386) (1,056,371) (1,100,149) (1,400,669) (712,089) (428,373)
- ------------------------------------
-------- ---------- -------- ---------- -------- --------
Net change resulting from share
transactions 56,932 (349) (471,536) (456,016) (614,232) 78,842
- ------------------------------------
-------- ---------- -------- ---------- -------- --------
</TABLE>
ARROW EQUITY AND INCOME FUNDS
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Mark Twain Bank, the Funds' 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 any portion of its fee and/or
reimburse certain operating expenses of each Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Funds
with certain administrative personnel and services. This fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Funds have adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Funds compensate Federated Securities Corp. ("FSC"), the principal distributor,
from the net assets of the Fund to finance activities intended to result in the
sale of the Fund's shares. The Plan provides that each Fund may incur
distribution expenses up to 0.25 of 1% of its average daily net assets,
annually, to compensate FSC. The distributor may voluntarily choose to waive a
portion of its fee. The distributor can modify or terminate this voluntary
waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT AND PORTFOLIO ACCOUNTING FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Funds for which it receives a fee. This fee is based on the size, type, and
number of accounts and transactions made by shareholders.
FServ also maintains each Fund's accounting records for which it receives a fee.
The fee is based on the level of each Fund's average daily net assets for the
period, plus out-of-pocket expenses.
CUSTODIAN FEES--Mark Twain Bank is the Funds' custodian. The fee is based on the
level of each Fund's average daily net assets for the period, plus out-of-pocket
expenses.
ARROW EQUITY AND INCOME FUNDS
- --------------------------------------------------------------------------------
ORGANIZATIONAL EXPENSES--Organizational expenses for the Funds 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 date the
Trust became effective). For the year ended September 30, 1995, each Fund paid
the following amounts to FAS pursuant to this agreement:
<TABLE>
<CAPTION>
AMOUNTS REIMBURSED
EXPENSES OF TO FAS FOR
ORGANIZING THE YEAR ENDED
THE FUND SEPTEMBER 30, 1995
- ----------------------------------------------- ----------- ------------------
<S> <C> <C>
Equity Fund $17,560 $2,976
- -----------------------------------------------
Fixed Income Fund 17,401 2,869
- -----------------------------------------------
Municipal Income Fund 16,729 2,733
- -----------------------------------------------
</TABLE>
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended September 30, 1995, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
- ----------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Equity Fund $14,687,908 $14,050,068
- -----------------------------------------------------------------
Fixed Income Fund 9,802,856 15,055,805
- -----------------------------------------------------------------
Municipal Income Fund 7,018,489 13,209,297
- -----------------------------------------------------------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders
ARROW FUNDS:
We have audited the statements of assets and liabilities, including the
portfolios of investments, for the Arrow Fund portfolios, listed below, as of
September 30, 1995, and the related statements of operations, changes in net
assets, and the financial highlights for each of the years or periods listed
below:
- Arrow Equity Portfolio--statement of operations for the year ended
September 30, 1995, the statement of changes in net assets for each of
the years in the two year period then ended, and the financial highlights
for each of the years or periods from January 4, 1993 (commencement of
operations) to September 30, 1995.
- Arrow Fixed Income Portfolio--statement of operations for the year ended
September 30, 1995, the statement of changes in net assets for each of
the years in the two year period then ended, and the financial highlights
for each of the years or periods from January 4, 1993 (commencement of
operations) to September 30, 1995.
- Arrow Municipal Income Portfolio--statement of operations for the year
ended September 30, 1995, the statement of changes in net assets for each
of the years in the two year period then ended, and the financial
highlights for each of the years or periods from February 1, 1993
(commencement of operations) to September 30, 1995.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and the financial highlights. Investment securities held in custody
are confirmed to us by the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Arrow Equity Portfolio, Arrow Fixed Income Portfolio, and Arrow Municipal Income
Portfolio as of September 30, 1995, and the results of their operations, changes
in their net assets, and the financial highlights for each of the periods listed
above, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
November 10, 1995
<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 J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. John W. McGonigle
Edward C. Gonzales Executive Vice President and
Peter E. Madden Secretary
Gregor F. Meyer Charles L. Davis, Jr.
John E. Murray, Jr. Vice President and Assistant
Wesley W. Posvar Treasurer
Marjorie P. Smuts Richard B. Fisher
Vice President
David M. Taylor
Assistant Treasurer
Gail Cagney
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. Mark Twain Bank acts as investment adviser
for the funds. Mark Twain Brokerage Services, Inc. is a wholly owned subsidiary
of Mark Twain Bank. Possible conflicts of interest could arise between potential
investors in the Funds due to the affiliation of Mark Twain Bank and Mark Twain
Brokerage Services, Inc. and/or their existing clients.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Funds' prospectus which contains facts concerning
APPENDIX
A1. The graphic presentation here displayed consists of a legend in the upper
left quadrant indicating the components of the corresponding line graph. Arrow
Equity Portfolio (the "Fund") is represented by a solid line. Standard & Poor's
Daily Stock Price Index of 500 Common Stocks ("S&P 500") is represented by a
broken line. The line graph is a visual representation of a comparison of the
change in value of a hypothetical $10,000 investment in the Fund and in the S&P
500. The "x" axis reflects the cost of the investment. The "y" axis reflects
annual computation periods from the Funds start of performance 1/3/93, through
9/30/95. The right margin reflects the ending value of the hypothetical
investment in the Fund as compared to the S&P 500; the ending values are $13,618
and $14,470, respectively. There is also a legend appearing below the graphic
presentation which indicates the Average Annual Total Return for the period
ended September 30, 1995, beginning with the inception date of the Fund (1/3/93)
and the one-year period; the Average Annual Total Returns were 11.94%, and
37.95%, respectively.
A2. The graphic presentation here displayed consists of a legend in the upper
left quadrant indicating the components of the corresponding line graph. Arrow
Fixed Income Portfolio (the "Fund") is represented by a solid line. Lehman
Brothers Government/Corporate Total Index ("LBGCTI") is indicated by a broken
line. The line graph is a visual representation of a comparison of the change
in value of a hypothetical $10,000 investment in the Fund and in the LBGCTI.
The "x" axis reflects the cost of the investment. The "y" axis reflects annual
computation periods from the Funds start of performance 1/3/93, through 9/30/95.
The right margin reflects the ending value of the hypothetical investment in the
Fund as compared to the LBGCTI; the ending values are $11,451 and $12,209,
respectively. There is also a legend appearing below the graphic presentation
which indicates the Average Annual Total Return for the period ended September
30, 1995, beginning with the inception date of the Fund (1/3/93), and the one-
year period; the Average Annual Total Returns were 5.08%, and 10.84%,
respectively.
A3. The graphic presentation here displayed consists of a legend in the upper
left quadrant indicating the components of the corresponding line graph. Arrow
Municipal Income Portfolio (the "Fund") is represented by a solid line. Lehman
Brothers State General Obligation Bond Index ("LBSGOBI") is indicated by a
broken line. The line graph is a visual representation of a comparison of the
change in value of a hypothetical $10,000 investment in the Fund and in the
LBSGOBI. The "x" axis reflects the cost of the investment. The "y" axis
reflects annual computation periods from the Funds start of performance 1/31/93,
through 9/30/95. The right margin reflects the ending value of the hypothetical
investment in the Fund as compared to the LBSGOBI; the ending values are
$11,177 and $12,584, respectively. There is also a legend appearing below the
graphic presentation which indicates the Average Annual Total Return for the
period ended September 30, 1995, beginning with the inception date of the Fund
(1/31/93), and the one-year period; the Average Annual Total Returns were
