EQUITY AND INCOMEFUNDS
ARROW FUNDS
Combined
SEMI-ANNUAL REPORT
March 31, 1996
[LOGO]
MARK TWAIN BANK
Investment Adviser
Federated Securities Corp., Distributor
Cusip 042749101
Cusip 042749200
Cusip 042749309
3041404 (5/96)
[LOGO]
MARK TWAIN BANK
Investment Adviser
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present the Semi-Annual Report for your investment in the Arrow
Equity and Income Funds. This report covers the six-month period from October 1,
1995 through March 31, 1996.
This report contains complete financial information, including investment
reviews by the portfolio managers and a list of holdings and Financial
Statements for the Arrow Equity Portfolio, Arrow Fixed Income Portfolio, and
Arrow Municipal Income Portfolio.
Please note the following highlights:
ARROW EQUITY PORTFOLIO
Arrow Equity Portfolio produced a total return for the six-month period of
6.81% or 3.08% taking into account the fund's sales charge.* Contributing
to the total return was an $0.82 increase in net asset value, $0.05 per
share in dividends, and $0.07 in capital gains. At the end of the reporting
period, the portfolio included many household names like Allstate, AT&T,
Brunswick, Caterpillar, Chrysler, GM, Intel, Mattel, Merck, NationsBank,
and Pepsico. Total net assets stood at $51.3 million on the last day of the
period.
ARROW FIXED INCOME PORTFOLIO
Arrow Fixed Income Portfolio invests in a combination of government bonds
and corporate bonds issued by many well-known companies. The fund paid
dividends of $0.29 per share during the period, while its net asset value
decreased by $0.22 due to interest rate increases that affected bond
prices. Total return for the six-month period was 0.64%, or -2.83% taking
into account the fund's sales charge.* On the last day of the period, total
net assets stood at $28.8 million.
ARROW MUNICIPAL INCOME PORTFOLIO
Designed for tax-sensitive investors, Arrow Municipal Income Portfolio
pursues income free of federal income tax through a portfolio of highly
rated, long-term municipal bonds.** On the last day of the period, the
portfolio included bonds issued by municipalities across 16 states. The
fund paid tax-free dividends of $0.24 per share during the period, while
its net asset value grew by $0.01. Total return for the six-month period
was 2.43%, or -1.15% taking into account the fund's sales charge.* Total
net assets stood at $17.1 million on the last day of the period.
Thank you for selecting an Arrow Fund to pursue your financial goals. You have
our commitment to bring you the highest level of service as we keep you
up-to-date on your investment progress.
Sincerely,
LOGO
Edward C. Gonzales
President
May 15, 1996
* Performance quoted reflects past performance. Investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
** State, local, and alternative minimum taxes may apply.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
ARROW EQUITY PORTFOLIO
1995 was a classic example of why investors in common stocks should maintain a
long term perspective. There was a great deal of caution early in the year,
because of concerns over how well the economy and corporate profits would fare.
There was fear of inflation returning three or four quarters down the road, or
in other words, late in 1995 or early in 1996. None of this happened and stocks
started the year strong and never turned back.
Last year was a difficult year to beat, in that the U.S. stock market rewarded
investors with one of the best returns in the last thirty years. It was also a
difficult year to beat, in that the Standard & Poor's 500 Index* (the "S&P 500")
outperformed the bulk of money managers. Despite many analysts feeling that the
equity markets were overvalued back in January, common stocks continued to do
well through the first quarter of 1996.
The Arrow Equity Portfolio was comfortably ahead of the S&P 500 for the
six-month period ended March 31, 1996. The Fund had a total return of 6.81%**
based on net asset value, compared to 5.37% for the S&P 500 and 4.51% for the
Lipper Growth Fund Index* for the first quarter 1996.
During the fourth quarter of 1995 and the first quarter of 1996, we reduced the
fund's weighting in technology holdings and increased those in the financial
sector. However, these changes to the portfolio have been rather modest,
basically being driven by individual company fundamentals and not market
conditions. We expect the balance of 1996 to be more challenging for the stock
market due to uncertainties about the economy, inflation, interest rates and
corporate profits.
* The S&P 500 Daily Stock Price Index of 500 Common Stocks, a composite index
of common stocks in industry, transportation, and financial and public
utility companies, can be used to compare the total returns of funds whose
portfolios are invested primarily in common stocks. Lipper Growth Fund Index
is an index of the net asset value weighted performance, adjusted for capital
gains distributions and income dividends, of the largest thirty growth funds
provided by Lipper Analytical Services. Lipper calculations do not include
the sales charges imposed by other funds. These indices are unmanaged and
actual investments can not be made in indices.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investors shares, when redeemed,
may be worth more or less than their original cost. Total return for the
period based on offering price was 3.08%.
ARROW FIXED INCOME PORTFOLIO
The Arrow Fixed Income Portfolio had total net assets of $28.8 million as of
March 31, 1996. The fund had an average maturity of 12.3 years, with 38% of the
fund's assets invested in U.S. Treasury and government agency securities, and
54% invested in investment grade corporate bonds.
Interest rates moved lower during the last three months of 1995, with the
thirty-year U.S. Treasury bond reaching a low of 5.95% at the end of the year.
Yields moved higher during the first quarter of 1996, with the thirty-year
treasury closing at a 6.67% yield at the end of March. Higher commodity prices
fueling inflation concerns and stronger economic numbers than the market
anticipated were the main reasons for the substantial rise in rates. While
rising commodity prices are a concern for the markets, we continue to feel that
fears of a sustained rise in the rate of inflation are overblown. We would
expect inflation to continue to be well contained this year, and as such, view
the first quarter sell-off in the bond market as an overreaction. While long
rates may test the 7% level as measured by thirty-year treasuries, we feel they
have the potential to move back down to the 6.50% level later in the year.
ARROW MUNICIPAL INCOME PORTFOLIO
During the past six-month period, municipal yields have moved more slowly in
both directions, first down and then up as compared to U.S. Treasury securities.
We have seen an easing of concern regarding the potential for a "flat tax".
However, there remains the risk of tax reform to some extent, depending upon the
1996 election results.
Recently, reports of a strengthening economy in terms of employment have caused
yields to increase, while some sectors of the economy are slowing. This
conflicting data has caused increased volatility in the bond markets. Municipal
bond calls have continued at a very high rate during 1995 and 1996. This has
kept demand for municipals up while supply has been low. The Fund has remained
slightly more defensive in terms of duration, but has remained fully invested
and diversified. We have concentrated on the longer intermediate area to find
value, while emphasizing higher quality bonds.
ARROW EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
COMMON STOCKS--88.2%
- ------------------------------------------------------------------------------------
CHEMICALS--6.8%
------------------------------------------------------------------
20,000 Cabot Corp. $ 610,000
------------------------------------------------------------------
5,000 Dow Chemical Co. 434,375
------------------------------------------------------------------
10,000 Eastman Chemical Co. 691,250
------------------------------------------------------------------
5,000 Goodrich (B.F.) Co. 397,500
------------------------------------------------------------------
4,000 Praxair, Inc. 159,500
------------------------------------------------------------------
25,000 Union Carbide Corp. 1,240,625
------------------------------------------------------------------ -----------
Total 3,533,250
------------------------------------------------------------------ -----------
CONSUMER DURABLES--2.5%
------------------------------------------------------------------
46,875 Mattel, Inc. 1,271,484
------------------------------------------------------------------ -----------
CONSUMER NON-DURABLES--8.6%
------------------------------------------------------------------
26,000 IBP, Inc. 666,250
------------------------------------------------------------------
9,000 PepsiCo, Inc. 569,250
------------------------------------------------------------------
22,000 Philip Morris Companies, Inc. 1,930,500
------------------------------------------------------------------
5,000 Premark International, Inc. 268,125
------------------------------------------------------------------
30,000 UST, Inc. 956,250
------------------------------------------------------------------ -----------
Total 4,390,375
------------------------------------------------------------------ -----------
ELECTRONIC TECHNOLOGY--9.3%
------------------------------------------------------------------
7,000 Hewlett Packard Co. 658,000
------------------------------------------------------------------
3,000 Intel Corp. 170,625
------------------------------------------------------------------
11,000 International Business Machines Corp. 1,222,375
------------------------------------------------------------------
16,000 Micron Technology 502,000
------------------------------------------------------------------
7,000 Motorola, Inc. 371,000
------------------------------------------------------------------
2,000 Raychem Corp. 129,000
------------------------------------------------------------------
15,000 Tektronix, Inc. 487,500
------------------------------------------------------------------
4,000 Texas Industries, Inc. 254,500
------------------------------------------------------------------
18,000 Varian Associates, Inc. 897,750
------------------------------------------------------------------ -----------
Total 4,692,750
------------------------------------------------------------------ -----------
</TABLE>
ARROW EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------
ENTERTAINMENT--2.5%
------------------------------------------------------------------
20,000 Brunswick Corp. $ 460,000
------------------------------------------------------------------
12,591 Disney (Walt) Co. 804,250
------------------------------------------------------------------ -----------
Total 1,264,250
------------------------------------------------------------------ -----------
FINANCE--26.2%
------------------------------------------------------------------
30,000 Aflac, Inc. 937,500
------------------------------------------------------------------
5,000 American International Group, Inc. 468,125
------------------------------------------------------------------
14,000 BankAmerica Corp. 1,085,000
------------------------------------------------------------------
10,000 Federal Home Loan Mortgage Corp. 852,500
------------------------------------------------------------------
20,000 Federal National Mortgage Association 637,500
------------------------------------------------------------------
15,000 First Interstate Bancorp 2,602,500
------------------------------------------------------------------
80,000 Green Tree Financial Corp. 2,750,000
------------------------------------------------------------------
10,000 Household International, Inc. 672,500
------------------------------------------------------------------
37,500 MBNA Corp. 1,110,938
------------------------------------------------------------------
5,000 NationsBank Corp. 400,625
------------------------------------------------------------------
12,000 Norwest Corp. 441,000
------------------------------------------------------------------
10,000 Travelers Group, Inc. 660,000
------------------------------------------------------------------
3,000 Wells Fargo & Co. 783,000
------------------------------------------------------------------ -----------
Total 13,401,188
------------------------------------------------------------------ -----------
HEALTH SERVICES--2.0%
------------------------------------------------------------------
17,000 United Healthcare Corp. 1,045,500
------------------------------------------------------------------ -----------
HEALTH TECHNOLOGY--9.1%
------------------------------------------------------------------
25,000 Abbott Laboratories 1,018,750
------------------------------------------------------------------
30,000 Medtronic, Inc. 1,788,750
------------------------------------------------------------------
2,000 Merck & Co., Inc. 124,500
------------------------------------------------------------------
30,000 Schering Plough Corp. 1,743,750
------------------------------------------------------------------ -----------
Total 4,675,750
------------------------------------------------------------------ -----------
</TABLE>
ARROW EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ -----------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
INDUSTRIAL SERVICES--3.6%
------------------------------------------------------------------
18,000 Fluor Corp. $ 1,228,500
------------------------------------------------------------------
11,000 Halliburton Co. 625,625
------------------------------------------------------------------ -----------
Total 1,854,125
------------------------------------------------------------------ -----------
INSURANCE--0.7%
------------------------------------------------------------------
3,000 Allstate Corp. 126,375
------------------------------------------------------------------
6,000 Orion Capital Corp. 271,500
------------------------------------------------------------------ -----------
Total 397,875
------------------------------------------------------------------ -----------
MACHINERY & EQUIPMENT--4.7%
------------------------------------------------------------------
10,000 Caterpillar, Inc. 680,000
------------------------------------------------------------------
14,000 Chrysler Corp. 871,500
------------------------------------------------------------------
4,000 Deere & Co. 167,000
------------------------------------------------------------------
13,000 Dover Corp. 594,750
------------------------------------------------------------------
2,000 Thermo Electron Corp. 119,000
------------------------------------------------------------------ -----------
Total 2,432,250
------------------------------------------------------------------ -----------
PROCESS INDUSTRIES--0.8%
------------------------------------------------------------------
10,000 Archer-Daniels-Midland Co. 183,750
------------------------------------------------------------------
4,000 Avery Dennison Corp. 216,000
------------------------------------------------------------------ -----------
Total 399,750
------------------------------------------------------------------ -----------
PRODUCER MANUFACTURING--3.7%
------------------------------------------------------------------
15,000 Allied Signal, Inc. 886,875
------------------------------------------------------------------
5,000 Gleason Corp. 203,125
------------------------------------------------------------------
13,000 Illinois Tool Works, Inc. 840,125
------------------------------------------------------------------ -----------
Total 1,930,125
------------------------------------------------------------------ -----------
RETAIL TRADE--1.3%
------------------------------------------------------------------
5,000 Home Depot, Inc. 239,375
------------------------------------------------------------------
10,000 (A) Kroger Co. 405,000
------------------------------------------------------------------ -----------
Total 644,375
------------------------------------------------------------------ -----------
</TABLE>
ARROW EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ---------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------
TECHNOLOGY SERVICES--4.4%
------------------------------------------------------------------
12,000 Avnet, Inc. $ 579,000
------------------------------------------------------------------
4,500 Computer Associates International, Inc. 322,313
------------------------------------------------------------------
3,000 General Motors Corp., Class E 171,000
------------------------------------------------------------------
30,000 Reynolds & Reynolds Co., Class A 1,230,000
------------------------------------------------------------------ -----------
Total 2,302,313
------------------------------------------------------------------ -----------
TRANSPORTATION--0.8%
------------------------------------------------------------------
15,000 Illinois Central Corp. 427,500
------------------------------------------------------------------ -----------
UTILITIES--1.2%
------------------------------------------------------------------
10,000 AT&T Corp. 612,500
------------------------------------------------------------------ -----------
TOTAL COMMON STOCKS (IDENTIFIED COST $32,646,149) 45,275,360
------------------------------------------------------------------ -----------
(B)U.S. TREASURY--5.8%
- ------------------------------------------------------------------------------------
$3,000,000 U.S. Treasury Bill, 4/18/1996 2,993,270
------------------------------------------------------------------ -----------
TOTAL U.S. TREASURY (AT AMORTIZED COST) 2,993,270
------------------------------------------------------------------ -----------
MUTUAL FUNDS--4.2%
- ------------------------------------------------------------------------------------
1,736,452 Goldman Sachs ILA Treasury Instruments 1,736,452
------------------------------------------------------------------
409,318 SEI Government Portfolio Money Market Fund 409,318
------------------------------------------------------------------ -----------
TOTAL MUTUAL FUNDS (AT NET ASSET VALUE) 2,145,770
------------------------------------------------------------------ -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $37,785,189)(C) $50,414,400
------------------------------------------------------------------ -----------
</TABLE>
(A) Non-income producing security.
(B) The issue shows the rate of discount at time of purchase.
(C) The cost of investments for federal tax purposes amounts to $37,785,189. The
net unrealized appreciation of investments on a federal tax basis amounts to
$12,629,211 which is comprised of $12,766,011 appreciation and $136,800
depreciation at March 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($51,263,265) at March 31, 1996.
(See Notes which are an integral part of the Financial Statements)
ARROW EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $37,785,189) $50,414,400
- --------------------------------------------------------------------------------
Cash 7,278
- --------------------------------------------------------------------------------
Income receivable 102,436
- --------------------------------------------------------------------------------
Receivable for shares sold 1,524,000
- --------------------------------------------------------------------------------
Deferred expenses 4,340
- -------------------------------------------------------------------------------- -----------
Total assets 52,052,454
- -------------------------------------------------------------------------------- -----------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for shares redeemed $780,695
- ---------------------------------------------------------------------
Accrued expenses 8,494
- --------------------------------------------------------------------- --------
Total liabilities 789,189
- -------------------------------------------------------------------------------- -----------
Net Assets for 3,507,353 shares outstanding $51,263,265
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $36,970,201
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments 12,629,211
- --------------------------------------------------------------------------------
Accumulated net realized gain on investments 1,608,678
- --------------------------------------------------------------------------------
Undistributed net investment income 55,175
- -------------------------------------------------------------------------------- -----------
Total Net Assets $51,263,265
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, and Redemption Proceeds Per Share:
($51,263,265 / 3,507,353 shares outstanding) $14.62
- -------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/96.50 of $14.62)* $15.15
- -------------------------------------------------------------------------------- -----------
</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
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Dividends $ 348,585
- ---------------------------------------------------------------------------------
Interest 113,261
- --------------------------------------------------------------------------------- ----------
Total income 461,846
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee $173,421
- ----------------------------------------------------------------------
Administrative personnel and services fee 33,651
- ----------------------------------------------------------------------
Custodian fees 11,827
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 13,046
- ----------------------------------------------------------------------
Directors'/Trustees' fees 628
- ----------------------------------------------------------------------
Auditing fees 6,542
- ----------------------------------------------------------------------
Legal fees 1,610
- ----------------------------------------------------------------------
Portfolio accounting fees 21,905
- ----------------------------------------------------------------------
Share registration costs 8,927
- ----------------------------------------------------------------------
Printing and postage 2,767
- ----------------------------------------------------------------------
Insurance premiums 1,861
- ----------------------------------------------------------------------
Distribution services fee 57,789
- ----------------------------------------------------------------------
Miscellaneous 1,912
- ---------------------------------------------------------------------- --------
Total expenses 335,886
- ----------------------------------------------------------------------
Waiver--
- ----------------------------------------------------------------------
Waiver of distribution services fee (57,789)
- ---------------------------------------------------------------------- --------
Net expenses 278,097
- --------------------------------------------------------------------------------- ----------
Net investment income 183,749
- --------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized gain on investments 2,583,098
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 369,953
- --------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 2,953,051
- --------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $3,136,800
- --------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, 1966 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1995
----------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------
OPERATIONS--
- -------------------------------------------------
Net investment income $ 183,749 $ 304,310
- -------------------------------------------------
Net realized gain (loss) on investments
($2,583,098 net gain and $664,284 net loss,
respectively, as computed for federal tax
purposes) 2,583,098 1,393,153
- -------------------------------------------------
Net change in unrealized appreciation
(depreciation) of investments 369,953 10,831,819
- ------------------------------------------------- --------------- ----------------
Change in net assets resulting from
operations 3,136,800 12,529,282
- ------------------------------------------------- --------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------
Distributions from net investment income (163,754) (291,654)
- -------------------------------------------------
Distributions from net realized gains (218,057) --
- ------------------------------------------------- --------------- ----------------
Change in net assets resulting from
distributions to shareholders (381,811) (291,654)
- ------------------------------------------------- --------------- ----------------
SHARE TRANSACTIONS--
- -------------------------------------------------
Proceeds from sale of shares 7,168,580 12,062,494
- -------------------------------------------------
Net asset value of shares issued to shareholders
in payment of distributions declared 30,105 17,333
- -------------------------------------------------
Cost of shares redeemed (2,398,077) (10,891,483)
- ------------------------------------------------- --------------- ----------------
Change in net assets resulting from share
transactions 4,800,608 1,188,344
- ------------------------------------------------- --------------- ----------------
Change in net assets 7,555,597 13,425,972
- -------------------------------------------------
NET ASSETS:
- -------------------------------------------------
Beginning of period 43,707,668 30,281,696
- ------------------------------------------------- --------------- ----------------
End of period (including undistributed net
investment income of $55,175 and $35,180,
respectively) $51,263,265 $ 43,707,668
- ------------------------------------------------- --------------- ----------------
</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>
SIX MONTHS
ENDED
(UNAUDITED)
MARCH 31, YEARS ENDED SEPTEMBER 30,
----------- -------------------------------
1996 1995 1994 1993(A)
----------- ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.80 $ 9.74 $10.02 $10.00
- -----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------
Net investment income 0.05 0.10 0.07 0.04
- -----------------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.89 4.05 (0.25) 0.02
-----
- ----------------------------------------------------- -------- ------ ------
Total from investment operations 0.94 4.15 (0.18) 0.06
-----
- ----------------------------------------------------- -------- ------ ------
LESS DISTRIBUTIONS
- -----------------------------------------------------
Distributions from net investment income (0.05) (0.09) (0.07) (0.04 )
- -----------------------------------------------------
Distributions from net realized gain on investments (0.07) -- (0.03) --
-----
- ----------------------------------------------------- -------- ------ ------
Total distributions (0.12) (0.09) (0.10) (0.04 )
-----
- ----------------------------------------------------- -------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 14.62 $13.80 $ 9.74 $10.02
-----
- ----------------------------------------------------- -------- ------ ------
TOTAL RETURN(B) 6.81% 42.90% (1.84%) 0.60 %
- -----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------
Expenses 1.20%* 1.28% 1.36% 1.32 %*
- -----------------------------------------------------
Net investment income 0.79%* 0.90% 0.74% 0.62 %*
- -----------------------------------------------------
Expense waiver/reimbursement(C) 0.25%* 0.30% 0.28% 0.30 %*
- -----------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------
Net assets, end of period (000 omitted) $51,263 $43,708 $30,282 $31,159
- -----------------------------------------------------
Portfolio turnover 25% 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
MARCH 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
CORPORATE BONDS--54.2%
- --------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--1.8%
-------------------------------------------------------------------
$ 500,000 Rockwell International Corp., 6.75%, 9/15/2002 $ 504,090
------------------------------------------------------------------- -----------
BANKING--8.4%
-------------------------------------------------------------------
1,000,000 Bank of Scotland, Edinburgh, 6.50%, 2/15/2011 933,750
-------------------------------------------------------------------
500,000 BankAmerica Corp., 7.50%, 10/15/2002 518,450
-------------------------------------------------------------------
500,000 NationsBank Corp., 6.50%, 3/15/2006 482,330
-------------------------------------------------------------------
500,000 NationsBank Corp., 6.875%, 2/15/2005 496,975
------------------------------------------------------------------- -----------
Total 2,431,505
------------------------------------------------------------------- -----------
CONSUMER PRODUCTS--3.5%
-------------------------------------------------------------------
1,000,000 Kimberly Clark Corp., 7.875%, 2/1/2023 1,008,630
------------------------------------------------------------------- -----------
FINANCE--11.8%
-------------------------------------------------------------------
500,000 MBNA Corp., 6.875%, 10/1/1999 504,490
-------------------------------------------------------------------
1,000,000 Merrill Lynch & Co., Inc., 7.00%, 4/27/2008 985,290
-------------------------------------------------------------------
1,000,000 Smurfit Capital, 6.75%, 11/20/2005 971,410
-------------------------------------------------------------------
1,000,000 Travelers Group, Inc., 6.25%, 12/1/2005 950,730
------------------------------------------------------------------- -----------
Total 3,411,920
------------------------------------------------------------------- -----------
INDUSTRIAL--9.0%
-------------------------------------------------------------------
500,000 La Quinta Inns, Inc., 7.25%, 3/15/2004 490,540
-------------------------------------------------------------------
1,000,000 Time Warner, Inc., 8.05%, 1/15/2016 978,230
-------------------------------------------------------------------
1,000,000 USX Corp., 9.375%, 5/15/2022 1,124,550
------------------------------------------------------------------- -----------
Total 2,593,320
------------------------------------------------------------------- -----------
MULTI-LINE COMPANIES--3.5%
-------------------------------------------------------------------
1,000,000 Hanson PLC, 7.375%, 1/15/2003 1,020,800
------------------------------------------------------------------- -----------
OIL & GAS--3.4%
-------------------------------------------------------------------
1,000,000 Phillips Petroleum Co., 7.92%, 4/15/2023 988,060
------------------------------------------------------------------- -----------
</TABLE>
ARROW FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------
UTILITIES--12.7%
-------------------------------------------------------------------
$ 699,000 Arkansas Electric Coop Corp., 7.33%, 6/30/2008 $ 710,275
-------------------------------------------------------------------
1,000,000 Central LA Electric Co., 6.95%, 6/21/2006 992,850
-------------------------------------------------------------------
1,000,000 Duke Power Co., 7.375%, 3/1/2023 952,840
-------------------------------------------------------------------
500,000 Midwest Power Systems, Inc., 7.00%, 2/15/2005 504,065
-------------------------------------------------------------------
500,000 United Telephone Co. of Florida, 7.25%, 12/15/2004 512,800
------------------------------------------------------------------- -----------
Total 3,672,830
------------------------------------------------------------------- -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $15,726,870) 15,631,155
------------------------------------------------------------------- -----------
GOVERNMENT BONDS--39.7%
- --------------------------------------------------------------------------------------
FOREIGN MUNICIPAL--1.8%
-------------------------------------------------------------------
500,000 Ontario Province, Canada, 7.375%, 1/27/2003 518,120
------------------------------------------------------------------- -----------
GOVERNMENT AGENCIES--5.3%
-------------------------------------------------------------------
500,000 Federal Home Loan Bank, 6.32%, 2/1/2000 502,560
-------------------------------------------------------------------
1,000,000 Federal National Mortgage Association, 7.55%, 6/10/2004 1,020,050
------------------------------------------------------------------- -----------
Total 1,522,610
------------------------------------------------------------------- -----------
U.S. TREASURY--32.6%
-------------------------------------------------------------------
3,000,000 U.S. Treasury Bond, 7.50%, 11/15/2016 3,219,000
-------------------------------------------------------------------
500,000 U.S. Treasury Note, 7.50%, 11/15/2001 531,050
-------------------------------------------------------------------
1,500,000 U.S. Treasury Note, 7.50%, 5/15/2002 1,598,565
-------------------------------------------------------------------
1,750,000 U.S. Treasury Note, 7.875%, 8/15/2001 1,886,115
-------------------------------------------------------------------
2,000,000 U.S. Treasury Note, 8.00%, 5/15/2001 2,162,419
------------------------------------------------------------------- -----------
Total 9,397,149
------------------------------------------------------------------- -----------
TOTAL GOVERNMENT BONDS (IDENTIFIED COST, $11,500,574) 11,437,879
------------------------------------------------------------------- -----------
</TABLE>
ARROW FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
PREFERRED STOCK--1.7%
- --------------------------------------------------------------------------------------
FINANCE--1.7%
-------------------------------------------------------------------
20,000 Salomon, Inc., Series E (IDENTIFIED COST, $500,000) $ 492,500
------------------------------------------------------------------- -----------
MUTUAL FUND--3.0%
- --------------------------------------------------------------------------------------
875,551 Goldman Sachs ILA Treasury Money Market Fund (AT NET ASSET VALUE) 875,551
------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $28,602,995)(A) $28,437,085
------------------------------------------------------------------- -----------
</TABLE>
(A) The cost of investments for federal tax purposes amounts to $28,602,995. The
net unrealized depreciation of investments on a federal tax basis amounts to
$165,910 which is comprised of $220,826 appreciation and $386,736
depreciation at March 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($28,848,408) at March 31, 1996.
The following acronym is used throughout this portfolio:
PLC -- Public Limited Company
(See Notes which are an integral part of the Financial Statements)
ARROW FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $28,602,995) $28,437,085
- --------------------------------------------------------------------------------
Cash 6,509
- --------------------------------------------------------------------------------
Income receivable 546,971
- --------------------------------------------------------------------------------
Deferred expenses 5,396
- -------------------------------------------------------------------------------- -----------
Total assets 28,995,961
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Income distribution payable $141,665
- ---------------------------------------------------------------------
Accrued expenses 5,888
- --------------------------------------------------------------------- --------
Total liabilities 147,553
- -------------------------------------------------------------------------------- -----------
Net Assets for 2,930,710 shares outstanding $28,848,408
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $29,953,072
- --------------------------------------------------------------------------------
Net unrealized depreciation of investments (165,910)
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (938,754)
- -------------------------------------------------------------------------------- -----------
Total Net Assets $28,848,408
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, and Redemption Proceeds Per Share:
Net Asset Value Per Share ($28,848,408 / 2,930,710 shares outstanding) $9.84
- -------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/96.50 of $9.84)* $10.20
- -------------------------------------------------------------------------------- -----------
</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
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Dividends $ 10,459
- ---------------------------------------------------------------------------------
Interest 1,026,605
- --------------------------------------------------------------------------------- ----------
Total income 1,037,064
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee $ 89,345
- ----------------------------------------------------------------------
Administrative personnel and services fee 25,012
- ----------------------------------------------------------------------
Custodian fees 11,517
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 11,653
- ----------------------------------------------------------------------
Directors'/Trustees' fees 1,362
- ----------------------------------------------------------------------
Auditing fees 6,008
- ----------------------------------------------------------------------
Legal fees 1,533
- ----------------------------------------------------------------------
Portfolio accounting fees 24,712
- ----------------------------------------------------------------------
Share registration costs 7,529
- ----------------------------------------------------------------------
Printing and postage 1,545
- ----------------------------------------------------------------------
Insurance premiums 1,928
- ----------------------------------------------------------------------
Distribution services fee 37,151
- ----------------------------------------------------------------------
Miscellaneous 2,036
- ---------------------------------------------------------------------- --------
Total expenses 221,331
- ----------------------------------------------------------------------
Waiver--
- ----------------------------------------------------------------------
Waiver of distribution services fee (37,151)
- ---------------------------------------------------------------------- --------
Net expenses 184,180
- --------------------------------------------------------------------------------- ----------
Net investment income 852,884
- --------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized loss on investments (160,544)
- ---------------------------------------------------------------------------------
Net change in unrealized (depreciation) of investments (440,700)
- --------------------------------------------------------------------------------- ----------
Net realized and unrealized loss on investments (601,244)
- --------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $ 251,640
- --------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, 1996 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1995
----------------- ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------
OPERATIONS--
- --------------------------------------------------
Net investment income $ 852,884 $ 1,895,110
- --------------------------------------------------
Net realized gain (loss) on investments ($160,545
net loss and $227,158 net loss, respectively, as
computed for federal tax purposes) (160,544) (595,593)
- --------------------------------------------------
Net change in unrealized appreciation
(depreciation) (440,700) 2,957,493
- -------------------------------------------------- --------------- ----------------
Change in net assets resulting from
operations 251,640 4,257,010
- -------------------------------------------------- --------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------
Distributions from net investment income (852,884) (1,895,110)
- -------------------------------------------------- --------------- ----------------
Change in net assets resulting from
distributions to shareholders (852,884) (1,895,110)
- -------------------------------------------------- --------------- ----------------
SHARE TRANSACTIONS--
- --------------------------------------------------
Proceeds from sale of shares 4,046,374 6,044,571
- --------------------------------------------------
Net asset value of shares issued to shareholders
in payment of distributions declared 12,183 31,130
- --------------------------------------------------
Cost of shares redeemed (5,270,355) (10,519,098)
- -------------------------------------------------- --------------- ----------------
Change in net assets resulting from share
transactions (1,211,798) (4,443,397)
- -------------------------------------------------- --------------- ----------------
Change in net assets (1,813,042) (2,081,497)
- --------------------------------------------------
NET ASSETS:
- --------------------------------------------------
Beginning of period 30,661,450 32,742,947
- -------------------------------------------------- --------------- ----------------
End of period $28,848,408 $ 30,661,450
- -------------------------------------------------- --------------- ----------------
</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>
SIX MONTHS
ENDED
(UNAUDITED)
MARCH 31, YEAR ENDED SEPTEMBER 30,
----------- -------------------------------
1996 1995 1994 1993(A)
----------- ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.06 $ 9.31 $10.75 $10.00
- -----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------
Net investment income 0.29 0.59 0.59 0.44
- -----------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.22) 0.75 (1.41) 0.75
-----
- ----------------------------------------------------- -------- ------ ------
Total from investment operations 0.07 1.34 (0.82) 1.19
-----
- ----------------------------------------------------- -------- ------ ------
LESS DISTRIBUTIONS
- -----------------------------------------------------
Distributions from net investment income (0.29) (0.59) (0.59) (0.44)
- -----------------------------------------------------
Distributions from net realized gain on investments -- -- (0.03) --
-----
- ----------------------------------------------------- -------- ------ ------
Total distributions (0.29) (0.59) (0.62) (0.44)
-----
- ----------------------------------------------------- -------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.84 $10.06 $ 9.31 $10.75
-----
- ----------------------------------------------------- -------- ------ ------
TOTAL RETURN(B) 0.64% 14.89% (7.85%) 12.09%
- -----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------
Expenses 1.24%* 1.22% 1.15% 1.05%*
- -----------------------------------------------------
Net investment income 5.74%* 6.17% 5.86% 5.71%*
- -----------------------------------------------------
Expense waiver/reimbursement (C) 0.25%* 0.26% 0.26% 0.27%*
- -----------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------
Net assets, end of period (000 omitted) $28,848 $30,661 $32,743 $42,715
- -----------------------------------------------------
Portfolio turnover 32% 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
MARCH 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATINGS:
PRINCIPAL MOODY'S
AMOUNT OR S&P(B) VALUE
- ----------- ------------------------------------------------------- ------------ -----------
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS--96.2%
- ---------------------------------------------------------------------
CALIFORNIA--4.4%
-------------------------------------------------------
$ 700,000 Long Beach California Harbor, Revenue Bonds (Series A),
7.25% (Subject to AMT), 5/15/2019 Aa $ 745,213
------------------------------------------------------- -----------
GEORGIA--3.2%
-------------------------------------------------------
500,000 Appling County, GA, Development Authority, PCR
Refunding Bonds, 7.00% (Oglethorpe Power Corp.)/
(MBIA Insured), 1/1/2012 AAA 553,230
------------------------------------------------------- -----------
ILLINOIS--15.0%
-------------------------------------------------------
480,000 Illinois Health Facilities Authority, Refunding Revenue
Bonds, 6.75% (Rush-Presbyterian-St. Luke's Medical),
10/1/2006 A+ 480,470
-------------------------------------------------------
500,000 Illinois Housing Development Authority, Mortgage
Revenue Bonds (Series D-1), 6.40%, 8/1/2017 Aa 505,570
-------------------------------------------------------
100,000 Illinois State, GO UT Bonds, 6.60%, 12/1/2006 A1 104,019
-------------------------------------------------------
400,000 Schaumburg, IL, GO UT Refunding Bonds, 6.05%, 12/1/2007 AA+ 419,500
-------------------------------------------------------
500,000 Springfield, IL, Water Revenue Bonds, 6.50%, 3/1/2015 AA 521,605
-------------------------------------------------------
485,000 Waukegan, IL, GO UT Bonds, 6.80%, 12/30/2007 A1 525,939
------------------------------------------------------- -----------
Total 2,557,103
------------------------------------------------------- -----------
INDIANA--3.0%
-------------------------------------------------------
500,000 Ball State University, University Revenue Bonds (Series
G), 6.125% (FGIC Insured), 7/1/2014 AAA 511,640
------------------------------------------------------- -----------
IOWA--10.0%
-------------------------------------------------------
500,000 Cedar Rapids, IA, GO UT Bonds (Series B), 5.65%,
6/1/2005 Aaa 515,875
-------------------------------------------------------
500,000 Iowa Student Loan Liquidity Corp., Student Loan Revenue
Bonds (Series B), 6.75%, (Subject to AMT), 3/1/2004 Aa1 544,550
-------------------------------------------------------
</TABLE>
ARROW MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATINGS:
PRINCIPAL MOODY'S
AMOUNT OR S&P(B) VALUE
- ---------- --------- ------------
LONG-TERM MUNICIPALS--CONTINUED
- ---------------------------------------------------------------------
<C> <C> <S> <C>
IOWA--CONTINUED
-------------------------------------------------------
$ 650,000 Ottumwa, Iowa, Community School District, GO UT Bonds,
5.60% (CGIC Insured), 6/1/2010 AAA $ 656,091
------------------------------------------------------- -----------
Total 1,716,516
------------------------------------------------------- -----------
KANSAS--4.9%
-------------------------------------------------------
400,000 Johnson County, KS School District #512 Shawnee
Mission, GO UT Bonds, 5.70%, 10/1/2007 AA 423,752
-------------------------------------------------------
400,000 Kansas City, KS, GO UT Refunding Bonds (Series A),
5.50% (MBIA Insured), 9/1/2008 AAA 408,084
------------------------------------------------------- -----------
Total 831,836
------------------------------------------------------- -----------
KENTUCKY--2.2%
-------------------------------------------------------
350,000 Kentucky Higher Education Student Loan Corp., Insured
Student Loan Revenue Bonds (Series D), 7.10%,
(Subject to AMT), 12/1/2011 AA 371,259
------------------------------------------------------- -----------
MASSACHUSETTS--3.0%
-------------------------------------------------------
500,000 Commonwealth of Massachusetts, GO UT Bonds (Series A),
6.00%, 6/1/2011 A+ 507,370
------------------------------------------------------- -----------
MISSISSIPPI--3.1%
-------------------------------------------------------
500,000 Mississippi Higher Education, Student Loan Revenue
Bonds (Sub-Series C), 7.50%, (Subject to AMT), 9/1/2009 A 528,845
------------------------------------------------------- -----------
MISSOURI--18.9%
-------------------------------------------------------
300,000 Missouri State HEFA, Refunding Revenue Bonds (Series
A), 4.30% (Sisters of Mercy Health System), 12/1/2000 AA 295,347
-------------------------------------------------------
375,000 Missouri State HEFA, Revenue Bonds (Series D), 7.00%
(St. Anthonys Medical Center), 12/1/2009 Aa 401,070
-------------------------------------------------------
300,000 Missouri State HEFA, Revenue Bonds, 6.50% (St. Louis
University)/(AMBAC Insured), 8/1/2016 AAA 322,731
-------------------------------------------------------
</TABLE>
ARROW MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATINGS:
PRINCIPAL MOODY'S
AMOUNT OR S&P(B) VALUE
- ----------- --------- -----------
LONG-TERM MUNICIPALS--CONTINUED
- ---------------------------------------------------------------------
<C> <C> <S> <C>
MISSOURI--CONTINUED
-------------------------------------------------------
$ 155,000 Missouri State Housing Development Commission,
SFM Revenue Bonds (Series A), 6.00% (GNMA COL)/
(Subject to AMT), 6/1/2015 AAA $ 156,178
-------------------------------------------------------
740,000 Missouri State Housing Development Commission,
SFM Revenue Bonds (Series A), 6.625% (GNMA COL)/
(Subject to AMT), 12/1/2017 AAA 758,411
-------------------------------------------------------
1,000,000 Missouri State, 3rd State Building GO UT Refunding
Bonds (Series B), 6.30%, 11/1/2012 AAA 1,053,440
-------------------------------------------------------
250,000 St. Louis, MO Municipal Finance Corporation,
Revenue Bonds, 5.75% (Civil Courts Building Project)/
(FGIC Insured), 8/1/2013 AAA 252,403
------------------------------------------------------- -----------
Total 3,239,580
------------------------------------------------------- -----------
NEVADA--3.1%
-------------------------------------------------------
500,000 Clark County, NV, PCR Refunding Bonds (Series B),
6.60% (Nevada Power Co.), 6/1/2019 AAA 536,240
------------------------------------------------------- -----------
PENNSYLVANIA--4.2%
-------------------------------------------------------
700,000 Delaware County, PA, GO UT Refunding Bonds, 6.00%,
11/15/2014 AA 711,592
------------------------------------------------------- -----------
TEXAS--10.2%
-------------------------------------------------------
500,000 North Texas Higher Education Student Loan, Refunding
Revenue Bonds (Series D), 6.30%, (Subject to AMT),
4/1/2010 A 497,930
-------------------------------------------------------
155,000 Texas State, GO UT Bonds (Series A), 6.60% (Veterans
Housing Assistance Fund)/(Subject to AMT), 12/1/2016 AA 157,748
-------------------------------------------------------
1,000,000 Texas State, GO UT Water Development, (Series A),
7.00%, 8/1/2011 AA 1,096,850
------------------------------------------------------- -----------
Total 1,752,528
------------------------------------------------------- -----------
</TABLE>
ARROW MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATINGS:
AMOUNT MOODY'S
OR SHARES OR S&P(B) VALUE
- ----------- ------------------------------------------------------- ------------ -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
- ---------------------------------------------------------------------
VIRGINIA--3.4%
-------------------------------------------------------
$ 550,000 Virginia State Housing Development Authority, Revenue
Bonds (Series B), 6.55%, 1/1/2011 AA+ $ 576,136
------------------------------------------------------- -----------
WASHINGTON--6.0%
-------------------------------------------------------
725,000 King County, WA School District #415 Kent, GO UT Bonds
(Series B), 6.00%, 12/1/2008 AA- 771,690
-------------------------------------------------------
245,000 Washington State, GO UT Refunding Bonds (Series R-92C),
6.00%, 9/1/2004 AA 261,550
------------------------------------------------------- -----------
Total 1,033,240
------------------------------------------------------- -----------
WISCONSIN--1.6%
-------------------------------------------------------
255,000 Madison, WI, IDR, (Series A), 6.75% (Madison Gas &
Electric Co.)/(Subject to AMT), 4/1/2027 AA 269,254
------------------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST,
$16,096,763) 16,441,582
------------------------------------------------------- -----------
MUTUAL FUNDS--6.6%
- ---------------------------------------------------------------------
414,801 Goldman Sachs ILA Tax-Exempt 414,801
-------------------------------------------------------
725,447 SEI Tax Exempt Trust 725,447
------------------------------------------------------- -----------
TOTAL MUTUAL FUNDS (AT NET ASSET VALUE) 1,140,248
------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $17,237,011)(C) $17,581,830
------------------------------------------------------- -----------
</TABLE>
(A) At March 31, 1996, 22.9% of the total investments at market value were
subject to alternative minimum tax.
(B) Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
(C) The cost of investments for federal income tax purposes amounts to
$17,237,011. The net unrealized appreciation of investments on a federal tax
basis amounts to $344,819 which is comprised of $371,908 appreciation and
$27,089 depreciation at March 31,1996.
Note: The categories of investments are shown as a percentage of net assets
($17,105,514) at March 31, 1996.
ARROW MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
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
COL -- Collateralized
FGIC -- Financial Guaranty Insurance Company
GNMA -- Government National Mortgage Association
GO -- General Obligation
HEFA -- Health and Education Facilities Authority
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
SFM -- Single Family Mortgage
UT -- Unlimited Tax
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW MUNICIPAL INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $17,237,011) $17,581,830
- --------------------------------------------------------------------------------
Cash 6,502
- --------------------------------------------------------------------------------
Income receivable 306,715
- --------------------------------------------------------------------------------
Deferred expenses 3,468
- -------------------------------------------------------------------------------- -----------
Total assets 17,898,515
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $725,447
- ---------------------------------------------------------------------
Income distribution payable 65,012
- ---------------------------------------------------------------------
Accrued expenses 2,542
- --------------------------------------------------------------------- --------
Total liabilities 793,001
- -------------------------------------------------------------------------------- -----------
Net Assets for 1,672,759 shares outstanding $17,105,514
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $17,153,628
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments 344,819
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (392,933)
- -------------------------------------------------------------------------------- -----------
Total Net Assets $17,105,514
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, and Redemption Proceeds Per Share:
($17,105,514 / 1,672,759 shares outstanding) $10.23
- -------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/96.50 of $10.23)* $10.60
- -------------------------------------------------------------------------------- -----------
</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
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $ 498,086
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $ 61,513
- -----------------------------------------------------------------------
Administrative personnel and services fee 25,011
- -----------------------------------------------------------------------
Custodian fees 2,197
- -----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 13,176
- -----------------------------------------------------------------------
Directors'/Trustees' fees 752
- -----------------------------------------------------------------------
Auditing fees 6,517
- -----------------------------------------------------------------------
Legal fees 1,755
- -----------------------------------------------------------------------
Portfolio accounting fees 28,182
- -----------------------------------------------------------------------
Share registration costs 7,741
- -----------------------------------------------------------------------
Printing and postage 3,133
- -----------------------------------------------------------------------
Insurance premiums 915
- -----------------------------------------------------------------------
Distribution services fee 21,973
- -----------------------------------------------------------------------
Miscellaneous 1,730
- ----------------------------------------------------------------------- --------
Total expenses 174,595
- -----------------------------------------------------------------------
Waivers--
- -----------------------------------------------------------------------
Waiver of investment advisory fee $(51,846)
- ------------------------------------------------------------
Waiver of distribution services fee (21,973)
- ------------------------------------------------------------ --------
Total waivers (73,819)
- ----------------------------------------------------------------------- --------
Net expenses 100,776
- ----------------------------------------------------------------------------------- ----------
Net investment income 397,310
- ----------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------
Net realized gain on investments 38,859
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (15,962)
- ----------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 22,897
- ----------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $ 420,207
- ----------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW MUNICIPAL INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, 1996 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1995
----------------- ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------
OPERATIONS--
- --------------------------------------------------
Net investment income $ 397,310 $ 894,154
- --------------------------------------------------
Net realized gain (loss) on investments ($38,859
net gain and $76,653 net loss, respectively, as
computed for federal tax purposes) 38,859 (410,829)
- --------------------------------------------------
Net change in unrealized appreciation
(depreciation) (15,962) 943,061
- -------------------------------------------------- --------------- ---------------
Change in net assets resulting from
operations 420,207 1,426,386
- -------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------
Distributions from net investment income (397,310) (894,154)
- --------------------------------------------------
Distributions from net realized gains -- --
- -------------------------------------------------- --------------- ---------------
Change in net assets resulting from
distributions to shareholders (397,310) (894,154)
- -------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS--
- --------------------------------------------------
Proceeds from sale of shares 648,276 961,834
- --------------------------------------------------
Net asset value of shares issued to shareholders
in payment of distributions declared 9,643 24,481
- --------------------------------------------------
Cost of shares redeemed (1,311,787) (6,968,741)
- -------------------------------------------------- --------------- ---------------
Change in net assets resulting from share
transactions (653,868) (5,982,426)
- -------------------------------------------------- --------------- ---------------
Change in net assets (630,971) (5,450,194)
- --------------------------------------------------
NET ASSETS:
- --------------------------------------------------
Beginning of period 17,736,485 23,186,679
- -------------------------------------------------- --------------- ---------------
End of period $17,105,514 $ 17,736,485
- -------------------------------------------------- --------------- ---------------
</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>
SIX MONTHS
ENDED
(UNAUDITED)
MARCH 31, YEAR ENDED SEPTEMBER 30,
----------- -------------------------------
1996 1995 1994 1993(A)
----------- ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.22 $ 9.87 $10.61 $10.00
- ---------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------
Net investment income 0.24 0.46 0.47 0.32
- ---------------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.01 0.35 (0.72) 0.61
- --------------------------------------------------- -------- ------ ------ ------
Total from investment operations 0.25 0.81 (0.25) 0.93
- --------------------------------------------------- -------- ------ ------ ------
LESS DISTRIBUTIONS
- ---------------------------------------------------
Distributions from net investment income (0.24) (0.46) (0.47) (0.32)
- ---------------------------------------------------
Distribution from net realized gain on
investments -- -- (0.02) --
- --------------------------------------------------- -------- ------ ------ -------
Total distributions (0.24) (0.46) (0.49) (0.32)
-----
- --------------------------------------------------- -------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 10.23 $10.22 $ 9.87 $10.61
- --------------------------------------------------- -------- ------ ------ ------
TOTAL RETURN(B) 2.43% 8.46% (2.41%) 9.43%
- ---------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------
Expenses 1.15%* 1.09% 0.85% 0.72%*
- ---------------------------------------------------
Net investment income 4.52%* 4.70% 4.62% 4.71%*
- ---------------------------------------------------
Expense waiver/reimbursement(C) 0.84%* 0.80% 0.81% 0.85%*
- ---------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------
Net assets, end of period (000 omitted) $17,106 $17,736 $23,187 $24,087
- ---------------------------------------------------
Portfolio turnover 14% 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
MARCH 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Arrow Funds (the "Trust") is registered under the Investment Company Act of
1940, as amended (the "Act") as an open-end, management investment company. The
Trust consists of four diversified portfolios (individually referred to as the
"Fund", or collectively as the "Funds"). The following portfolios are included
herein:
<TABLE>
<S> <C>
PORTFOLIO NAME INVESTMENT OBJECTIVE
- ----------------------------------- --------------------------------------------------------
Arrow Equity Portfolio Capital appreciation.
("Equity Fund")
Arrow Fixed Income Portfolio Current income.
("Fixed Income Fund")
Arrow Municipal Income Portfolio Current income which is exempt from federal regular
("Municipal Income Fund") income tax.
</TABLE>
The financial statements of Arrow Government Money Market Portfolio 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--Municipal bonds are valued by an independent pricing
service, taking into consideration yield, liquidity, risk, credit quality,
coupon, maturity, type of issue, and any other factors or market data the
pricing service deems relevant. U.S. government securities and listed
corporate bonds are generally valued at the mean of the latest bid and
asked price as furnished by an independent pricing service. Listed equity
securities are valued at the last sale price reported on a national
securities exchange. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities
with remaining maturities of sixty days or less at the time of purchase may
be valued at amortized cost, which approximates fair market value.
Investments in other open-end regulated investment companies are valued at
net asset value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal
ARROW EQUITY AND INCOME FUNDS
- --------------------------------------------------------------------------------
Revenue Code, as amended (the "Code"). Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Funds' policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of their income. Accordingly, no
provisions for federal tax are necessary.
At September 30, 1995, the Funds, for federal tax purposes, had capital
loss carryforwards, as noted below, which will reduce the Funds' taxable
income arising from future net realized gain on investments, if any, to the
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Funds of any liability for federal tax.
<TABLE>
<CAPTION>
CAPITAL LOSS CAPITAL LOSS
CARRYFORWARD TO CARRYFORWARD TO
FUND EXPIRE IN 2002 EXPIRE IN 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, as noted below, attributable to security
transactions incurred after October 31, 1994 were treated as arising on
October 1, 1995, the first day of the Funds' taxable year.
<TABLE>
<CAPTION>
TOTAL TAX LOSS
FUND PUSHFORWARD
- ---------------------- ---------------
<S> <C>
Fixed Income Fund $ 551,053
Municipal Income Fund 355,227
</TABLE>
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 their shares in their first fiscal year, excluding the
initial expense of registering their shares, have been deferred and are
being amortized using the straight-line method over a period of five years
from each Fund's commencement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
ARROW EQUITY AND INCOME FUNDS
- --------------------------------------------------------------------------------
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
------------------------- ------------------------- -------------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED SEPTEMBER ENDED SEPTEMBER ENDED SEPTEMBER
MARCH 31, 30, MARCH 31, 30, MARCH 31, 30,
1996 1995 1996 1995 1996 1995
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 509,902 1,078,775 399,647 625,388 62,728 95,393
- ---------------------------
Shares issued to sharehold-
ers in payment of distri-
butions declared 2,138 1,543 1,189 3,225 931 2,464
- ---------------------------
Shares redeemed (171,472) (1,023,386) (516,661) (1,100,149) (126,719) (712,089)
- --------------------------- --------- ----------- --------- ----------- --------- ---------
Net change resulting from
share transactions 340,568 56,932 (115,825) (471,536) (63,060) (614,232)
- --------------------------- --------- ----------- --------- ----------- --------- ---------
</TABLE>
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 as annual investment advisory fee based on
a percentage of each Fund's average daily net assets as follows:
<TABLE>
<CAPTION>
FUND ADVISORY FEE
- ------------------------- ------------
<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. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Funds
with certain administrative personnel and services. The fee paid to FAS 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 will compensate Federated Securities
ARROW EQUITY AND INCOME FUNDS
- --------------------------------------------------------------------------------
Corp., the principal distributor, from the net assets of the Funds to finance
activities intended to result in the sale of the Funds' shares. The Plan
provides that the Funds may incur distribution expenses up to 0.25% of the
average daily net assets, annually, to compensate Federated Securities Corp. The
distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company,
through its subsidiary Federated Shareholder Services Company, serves as
transfer and dividend disbursing agent for the Funds. The fee paid to Federated
Services Company is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--Federated Services Company also maintains the Funds'
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.
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 effective date. For the six
months ended March 31, 1996, each Fund paid the following amounts to FAS
pursuant to this agreement:
<TABLE>
<CAPTION>
AMOUNTS REIMBURSED
TO FAS FOR
EXPENSES OF THE SIX MONTHS
ORGANIZING ENDED
FUND THE FUND MARCH 31, 1996
- ----------------------------------------------- ----------- ------------------
<S> <C> <C>
Equity Fund $17,560 $1,409
- -----------------------------------------------
Fixed Income Fund 17,401 1,344
- -----------------------------------------------
Municipal Income Fund 16,729 1,277
- -----------------------------------------------
</TABLE>
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended March 31, 1996, were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- --------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Equity Fund $12,139,248 $10,496,304
- ---------------------------------------------------------------
Fixed Income Fund 9,265,791 10,057,011
- ---------------------------------------------------------------
Municipal Income Fund 2,445,128 2,968,940
- ---------------------------------------------------------------
</TABLE>
<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.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Funds' prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
MONEY
MARKET
FUND
ARROW
FUNDS
SEMI-ANNUAL REPORT
March 31, 1996
MARK TWAIN BANK
Investment Adviser
FEDERATED SECURITIES CORP., Distributor
Cusip 042749408
3041403 (5/96)
[LOGO]
MARK TWAIN BANK
Investment Adviser
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present you with the Semi-Annual Report for the Arrow Government
Money Market Portfolio. This report covers the six-month period from October 1,
1995 through March 31, 1996.
The report contains complete financial information, including an investment
review by the fund's portfolio manager and a list of the fund's holdings and
Financial Statements.
During the period, the fund continued to help your ready cash earn daily
dividends, paying a total of $0.02 per share. The fund also gives you daily
access to your money when you need it, and the reassurance of knowing that the
fund's manager strives to maintain a stable share value. Each dollar you invest
can be redeemed for a dollar, plus any earned income.*
Thank you for participating in the daily earning power of Arrow Government Money
Market Portfolio. We'll continue to keep you informed about your investment on a
regular basis, and we welcome your questions, comments, or suggestions.
Sincerely,
LOGO
Edward C. Gonzales
President
May 15, 1996
* Although money market funds seek to maintain a stable net asset value of $1
per share, there is no guarantee that they will be able to do so. An
investment in the fund is neither insured nor guaranteed by the U.S.
government.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The Arrow Government Money Market Portfolio had $227 million in total net assets
as of March 31, 1996, with 68% of assets invested in U.S. government and agency
obligations, and 36% invested in repurchase agreements fully collateralized by
U.S. government obligations. At March 31, 1996, the fund's average maturity was
23 days.
Short-term interest rates declined during the period, with three month Treasury
bills moving from a 5.40% yield on September 30, 1995 to a 5.14% yield on March
31, 1996.
On December 19, 1995 and January 31, 1996, the Federal Reserve Board (the "Fed")
lowered the Fed funds rate by one quarter of a percent to 5.50% and 5.25%,
respectively. Stronger economic data in the first quarter of 1996 has put the
Fed's further lowering of short rates on hold for several months. As such, we
would expect to keep the fund's average maturity relatively short until clearer
signs of the direction of the economy and short-term rates emerge.
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ------------ ------------------------------------------------------------------- ------------
<C> <C> <S> <C>
GOVERNMENT AGENCIES--52.8%
- ---------------------------------------------------------------------------------------
FEDERAL FARM CREDIT BANK--22.0%
-------------------------------------------------------------------
$ 50,000,000 5.125%-5.32%, 4/1/1996-7/1/1996 $ 50,001,534
------------------------------------------------------------------- ------------
(A) FEDERAL HOME LOAN BANK, DISCOUNT NOTES--8.8%
-------------------------------------------------------------------
20,000,000 5.20%-5.28%, 4/3/1996-4/4/1996 19,992,734
------------------------------------------------------------------- ------------
(A) FEDERAL NATIONAL MORTGAGE ASSOCIATION, DISCOUNT NOTES--15.4%
-------------------------------------------------------------------
35,000,000 5.00%-5.47%, 4/3/1996-6/12/1996 34,803,683
------------------------------------------------------------------- ------------
STUDENT LOAN MARKETING ASSOCIATION--6.6%
-------------------------------------------------------------------
15,000,000 5.36%-5.42%, 6/13/1996-7/11/1996 15,000,000
------------------------------------------------------------------- ------------
TOTAL GOVERNMENT AGENCIES 119,797,951
------------------------------------------------------------------- ------------
(A)U.S. TREASURY--15.3%
- ---------------------------------------------------------------------------------------
35,000,000 U.S. Treasury Bills, 4.98%-5.14%, 4/18/1996-5/30/1996 34,842,102
------------------------------------------------------------------- ------------
MUTUAL FUND--0.0%
- ---------------------------------------------------------------------------------------
8,505 SEI Government Portfolio (AT NET ASSET VALUE) 8,505
------------------------------------------------------------------- ------------
(B)REPURCHASE AGREEMENTS--36.4%
- ---------------------------------------------------------------------------------------
42,700,000 Morgan Stanley & Co., Inc., 5.30%, dated 3/29/1996, due 4/1/1996 42,700,000
-------------------------------------------------------------------
40,000,000 Sanwa Securities USA Co., LP, 5.25%, dated 3/29/1996, due 4/1/1996 40,000,000
------------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS 82,700,000
------------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST AND VALUE(C) $237,348,558
------------------------------------------------------------------- ------------
</TABLE>
(a) Each issue shows the rate of discount at time of purchase.
(b) The repurchase agreements are fully collateralized by U.S. government
obligations based on market prices at the date of the portfolio.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($227,060,065) at
March 31, 1996.
(See Notes which are an integral part of the Financial Statements)
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in repurchase agreements $ 82,700,000
- -----------------------------------------------------------------
Investments in securities 154,648,558
- ----------------------------------------------------------------- ------------
Total investments in securities, at amortized cost and value $237,348,558
- --------------------------------------------------------------------------------
Cash 17,644
- --------------------------------------------------------------------------------
Income receivable 584,981
- --------------------------------------------------------------------------------
Deferred expenses 18,970
- -------------------------------------------------------------------------------- ------------
Total assets 237,970,153
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased 10,000,000
- -----------------------------------------------------------------
Income distribution payable 870,037
- -----------------------------------------------------------------
Accrued expenses 40,051
- ----------------------------------------------------------------- ------------
Total liabilities 10,910,088
- -------------------------------------------------------------------------------- ------------
Net Assets for 227,060,065 shares outstanding $227,060,065
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$227,060,065 / 227,060,065 shares outstanding $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest $6,003,763
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee $542,527
- ----------------------------------------------------------------------
Administrative personnel and services fee 157,603
- ----------------------------------------------------------------------
Custodian fees 27,126
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 19,040
- ----------------------------------------------------------------------
Directors'/Trustees' fees 2,095
- ----------------------------------------------------------------------
Auditing fees 6,433
- ----------------------------------------------------------------------
Legal fees 2,603
- ----------------------------------------------------------------------
Portfolio accounting fees 45,666
- ----------------------------------------------------------------------
Share registration costs 8,723
- ----------------------------------------------------------------------
Printing and postage 10,300
- ----------------------------------------------------------------------
Insurance premiums 3,457
- ----------------------------------------------------------------------
Miscellaneous 3,538
- ---------------------------------------------------------------------- --------
Total expenses 829,111
- --------------------------------------------------------------------------------- ----------
Net investment income $5,174,652
- --------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, 1996 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1995
----------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------
OPERATIONS--
- ------------------------------------------------
Net investment income $ 5,174,652 $ 8,628,318
- ------------------------------------------------ ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------
Distributions from net investment income (5,174,652) (8,628,318)
- ------------------------------------------------ ------------- -------------
SHARE TRANSACTIONS--
- ------------------------------------------------
Proceeds from sale of shares 409,223,511 414,847,916
- ------------------------------------------------
Net asset value of shares issued to shareholders
in payment of distributions declared -- --
- ------------------------------------------------
Cost of shares redeemed (388,743,884) (362,437,660)
- ------------------------------------------------ ------------- -------------
Change in net assets resulting from share
transactions 20,479,627 52,410,256
- ------------------------------------------------ ------------- -------------
Change in net assets 20,479,627 52,410,256
- ------------------------------------------------
NET ASSETS:
- ------------------------------------------------
Beginning of period 206,580,438 154,170,182
- ------------------------------------------------ ------------- -------------
End of period $ 227,060,065 $ 206,580,438
- ------------------------------------------------ ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
MARCH 31, YEAR ENDED SEPTEMBER 30,
-------------- -----------------------------
1996 1995 1994 1993(A)
-------------- ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------
Net investment income 0.02 0.05 0.03 0.02
- ------------------------------------------ ------ ------ ------ ------
LESS DISTRIBUTIONS
- ------------------------------------------
Distributions from net investment income (0.02) (0.05) (0.03) (0.02 )
- ------------------------------------------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------ ------ ------ ------ ------
TOTAL RETURN (B) 2.42% 5.04% 2.90% 1.86 %
- ------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------
Expenses 0.77%* 0.78% 0.80% 0.73 %*
- ------------------------------------------
Net investment income 4.78%* 4.94% 2.86% 2.40 %*
- ------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------
Net assets, end of period (000 omitted) $227,060 $206,580 $154,170 $151,311
- ------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 21, 1992 (date of initial
public investment) to September 30, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Arrow Funds (the "Trust") is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end, management investment company. The
Trust consists of four portfolios. The financial statements included herein are
only those of Arrow Government Money Market Portfolio (the "Fund"), a
diversified portfolio. The investment objective of the Fund is current income
consistent with stability of principal and liquidity. The financial statements
of the other portfolios are presented separately. The assets of each portfolio
are segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio
securities is in accordance with Rule 2a-7 under the Act. Investments in other open-end
regulated investment companies are valued at net asset value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry System, or to
have segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been established
by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to
be creditworthy pursuant to the guidelines and/or standards reviewed or established by
the Board of Trustees (the "Trustees"). Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund
could receive less than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued
daily. Bond premium and discount, if applicable, are amortized as required by the
Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are
recorded on the ex-dividend date.
</TABLE>
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. The Fund records when-issued securities on the trade date
and maintains security positions such that sufficient liquid assets will be available to
make payment for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its
shares in its first fiscal year, excluding the initial expense of registering its shares,
have been deferred and are being amortized using the straight-line method over a period
of five years from the Fund's commencement date.
USE OF ESTIMATES--The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1996 SEPTEMBER 30, 1995
- ------------------------------------------------ ----------------- -------------------
<S> <C> <C>
Shares sold 409,223,511 414,847,916
- ------------------------------------------------
Shares issued to shareholders in payment of
distributions declared -- --
- ------------------------------------------------
Shares redeemed (388,743,884) (362,437,660)
- ------------------------------------------------ ------------ ------------
Net change resulting from share transactions 20,479,627 52,410,256
- ------------------------------------------------ ------------ ------------
</TABLE>
At March 31, 1996, capital paid-in aggregated $227,060,065.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Mark Twain Bank, the Fund's investment adviser, (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.50% of the Fund's average daily net assets.
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The fee paid to FAS is based
on the level of average aggregate net assets of the Trust for the period.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company,
through its subsidiary Federated Shareholder Services Company, serves as
transfer and dividend disbursing agent for the Fund. The fee paid to Federated
Services Company is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--Federated Services Company maintains the Trust's
accounting records for which it receives a fee. The fee is based on the level of
the Trust's average daily net assets for the period, plus out-of-pocket
expenses.
CUSTODIAN FEES--Mark Twain Bank is the Fund's custodian. The fee is based on the
level of the Fund's average daily net assets for the period, plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $34,683 were borne initially
by Federated Administrative Services.
The Fund has agreed to reimburse Federated Administrative Services for the
organizational expenses during the five year period following effective date.
For the period ended March 31, 1996, the Fund paid $2,908 pursuant to this
agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- -----------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Edward C. Gonzales
William J. Copeland President and Treasurer
James E. Dowd 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. Although money market funds seek to
maintain a stable net asset value of $1.00 per share, there is no assurance that
they will be able to do so.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus which contains facts concerning
