MONEY MARKET FUND
ARROW FUNDS
SEMI-ANNUAL REPORT
MARCH 31, 1997
Federated Securities Corp., Distributor
CUSIP 042749408
3041403 (5/97)
PRESIDENT'S MESSAGE
Dear Investor:
I am pleased to present your Semi-Annual Report for the Arrow Government
Money Market Portfolio. This report covers the six-month reporting period
from October 1, 1996, through March 31, 1997. It contains complete financial
information, including an investment review by the portfolio manager and a
list of the fund's government money market holdings.
By investing exclusively in U.S. government money market securities, this
fund is one of the safest ways to put your ready cash to work. During the
reporting period, the fund paid dividends totaling $0.02 per share. The fund
also gives you daily access to your money at any time, and the confidence
that comes with knowing the fund's managers strive to maintain a stable
$1.00 share value.*
Finally, please note that on April 25, 1997, Mississippi Valley Advisors
Inc. succeeded Mark Twain Bank as the investment adviser to the Arrow
Government Money Market Portfolio. This change is a result of a merger of
Mark Twain Bancshares, Inc., the parent company of Mark Twain Bank, into
Mercantile Bancorporation Inc. The terms of the new investment advisory
contract with Mississippi Valley Advisors Inc. are substantially similar to
the previous investment advisory contract between Arrow Funds and Mark Twain
Bank.
Thank you for putting your ready cash to work every day through Arrow
Government Money Market Portfolio. We will continue to keep you informed
about your investment on a regular basis. Your questions, comments, or
suggestions are always welcome.
Sincerely,
[Graphic]
Edward C. Gonzales
President
May 15, 1997
* Although money market funds seek to maintain a stable net asset value of
$1.00 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 $220.5 million in total net
assets as of March 31, 1997, with 66% of net assets invested in U.S.
Government and agency obligations, and 41% invested in repurchase agreements
fully collateralized by U.S. Government obligations. At March 31, 1997, the
fund's average maturity was 27 days.
Short-term interest rates rose during the reporting period, with three-month
Treasury bills moving from a 5.03% yield on September 30, 1996 to 5.31%
yield on March 31, 1997.
On March 25, 1997, the Federal Reserve Board (the "Fed"), raised short-term
interest rates by one quarter of one percent. It was the first tightening of
monetary policy by the Fed in two years. The Fed cited persistent strength
in demand, which was increasing the risk of inflation, as the reason for
raising rates. Continued strength in the U.S. economy in the coming months
could result in additional raising of short-term rates. The fund intends to
continue to maintain a relatively short average maturity to take advantage
of the potential for higher money market rates.
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
GOVERNMENT AGENCIES -- 65.7%
$ 70,000,000 Federal Farm Credit Bank Bonds -- 29.5%
5.24% - 5.55%, 4/1/1997 - 7/1/1997 $ 65,000,000
35,000,000 (a)Federal Home Loan Bank Discount Notes -- 15.8%
5.28% - 5.35%, 4/1/1997 - 7/7/1997 34,846,056
15,000,000 Federal National Mortgage Association Bonds -- 6.8%
5.43% - 5.50%, 6/19/1997 - 9/11/1997 15,000,000
10,000,000 (a)Federal National Mortgage Association, Discount Notes -- 4.5%
5.28% - 5.31%, 4/17/1997 - 4/25/1997 9,971,022
20,000,000 (b)Student Loan Marketing Association Notes -- 9.1%
5.54% - 5.61%, 4/3/1997 - 4/8/1997 20,000,000
TOTAL GOVERNMENT AGENCIES 144,817,078
MUTUAL FUND SHARES -- 0.0%
72,443 SEI Government Money Market Portfolio (AT NET ASSET VALUE) 72,443
(C)REPURCHASE AGREEMENTS -- 41.1%
45,000,000 Morgan Stanley & Co., Inc., 6.00%, dated 3/31/1997, due 4/1/1997 45,000,000
45,700,000 Sanwa-BGK Securities Co., 6.40%, dated 3/31/1997, due 4/1/1997 45,700,000
TOTAL REPURCHASE AGREEMENTS 90,700,000
TOTAL INVESTMENTS (AT AMORTIZED COST AND VALUE)(D) $ 235,589,521
</TABLE>
(a) Each issue shows the rate of discount at time of purchase.
(b) Current rate and next reset date shown.
(c) The repurchase agreements are fully collateralized by U.S. government
obligations based on market prices at the date of the portfolio.
(d) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($220,536,873) at March 31, 1997.
(See Notes which are an integral part of the Financial Statements)
ARROW GOVERNMENT MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 90,700,000
Investments in securities 144,889,521
Total investments in securities, at amortized cost and value $ 235,589,521
Cash 101
Income receivable 801,411
Deferred expenses 7,013
Total assets 236,398,046
LIABILITIES:
Payable for investments purchased $ 15,000,000
Income distribution payable 851,534
Accrued expenses 9,639
Total liabilities 15,861,173
NET ASSETS for 220,536,873 shares outstanding $ 220,536,873
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$220,536,873 / 220,536,873 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, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 5,908,292
EXPENSES:
Investment advisory fee $ 556,576
Administrative personnel and services fee 160,273
Custodian fees 27,829
Transfer and dividend disbursing agent fees and expenses 17,826
Directors'/Trustees' fees 2,629
Auditing fees 6,497
Legal fees 1,909
Portfolio accounting fees 25,717
Share registration costs 12,863
Printing and postage 7,399
Insurance premiums 2,740
Miscellaneous 4,954
Total expenses 827,212
Net investment income $ 5,081,080
</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 YEAR ENDED
(UNAUDITED) SEPTEMBER 30,
MARCH 31, 1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 5,081,080 $ 10,105,545
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (5,081,080) (10,105,545)
SHARE TRANSACTIONS --
Proceeds from sale of shares 345,248,383 710,893,017
Net asset value of shares issued to shareholders in payment of
distributions declared 51 103
Cost of shares redeemed (337,953,959) (704,231,160)
Change in net assets resulting from share transactions 7,294,475 6,661,960
Change in net assets 7,294,475 6,661,960
NET ASSETS:
Beginning of period 213,242,398 206,580,438
End of period $ 220,536,873 $ 213,242,398
</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,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.02 0.05 0.05 0.03 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.02) (0.05) (0.05) (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 2.30% 4.78% 5.04% 2.90% 1.86%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.74%* 0.75% 0.78% 0.80% 0.73%*
Net investment income 4.57%* 4.70% 4.94% 2.86% 2.40%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $220,537 $213,242 $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 charge 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, 1997 (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"). 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 Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
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.
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
provision for federal tax is 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 over a period not to exceed 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.
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, SEPTEMBER 30,
1997 1996
<S> <C> <C>
Shares sold 345,248,383 710,893,017
Shares issued to shareholders in payment of
distributions declared 51 103
Shares redeemed (337,953,959) (704,231,160)
Net change resulting from share transactions 7,294,475 6,661,960
</TABLE>
At March 31, 1997, capital paid-in aggregated $220,536,873.
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.
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 ("FServ"), through its subsidiary, Federated Shareholder Services
Company ("FSSC") serves as transfer and dividend disbursing agent for the
Fund. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund'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 FAS. The Fund has agreed to reimburse FAS for the
organizational expenses during the five-year period following November 24,
1992 (the date the Fund became effective). For the period ended March 31,
1997, the Fund paid $5,063 pursuant to this agreement.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. SUBSEQUENT EVENT
Effective April 25, 1997, in connection with the merger of Mark Twain
Bancshares, Inc., the parent company of Mark Twain Bank, into Mercantile
Bancorporation Inc., Mississippi ValleyAdvisors Inc. succeeded Mark Twain
Bank as the investment adviser to the Trust. The terms of the investment
advisory contract between the Trust and Mississippi Valley Advisors Inc. are
substantially similar to the investment advisory contract between the Trust
and Mark Twain Bank.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Edward C. Gonzales
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Edward C. Gonzales
President and Treasurer
J. Christopher Donahue
Executive Vice President
John W. McGonigle
Executive Vice President and Secretary
Charles L. Davis, Jr.
Vice President and Assistant Secretary
Richard B. Fisher
Vice President
Gail Cagney
Assistant Secretary
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 risk, including
possible loss of principal. Although money market funds seek to maintain a
stable net asset value of $1.00 per share, there is no assurance that they
will be able to do so.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
EQUITY AND
INCOME
FUNDS
ARROW FUNDS
COMBINED
SEMI-ANNUAL REPORT
MARCH 31, 1997
Federated Securities Corp., Distributor
Cusip 042749101
Cusip 042749200
Cusip 042749309
3041404 (5/97)
PRESIDENT'S MESSAGE
Dear Investor:
I am pleased to present your Semi-Annual Report for the Arrow Equity and
Income Funds. This report covers the six-month reporting period from October
1, 1996, through March 31, 1997.
This report contains complete financial information, including an investment
review by the portfolio manager and a list of holdings, for the Arrow Equity
Portfolio, Arrow Fixed Income Portfolio, and Arrow Municipal Income
Portfolio.
The fund-by-fund highlights are as follows:
ARROW EQUITY PORTFOLIO
This high quality stock fund invests in many household names such as
BankAmerica, Chrysler, DuPont, General Electric, Hewlett-Packard, Intel,
Mattel, Pepsico, Pfizer, and Wal-Mart. For the six-month period ended March
31, 1997, the fund produced a total return of 7.98%, or 4.17% when adjusted
for the fund's sales charge.* Contributing to the total return was a $0.10
increase in net asset value, $0.05 per share in dividends, and capital gain
distributions totaling $1.05 per share. Total net assets stood at $58.5
million on the last day of the period.
ARROW FIXED INCOME PORTFOLIO
Arrow Fixed Income Portfolio invests in a combination of corporate bonds
issued by many well-known companies, and government bonds. The fund paid
dividends totaling $0.33 per share over the period, while its net asset
value decreased by $0.11 due to bond market volatility. For the six-month
period ended March 31, 1997, total return was 2.21%, or -1.35% when adjusted
for the fund's sales charge.* On the last day of the period, total net
assets stood at $28.2 million.
ARROW MUNICIPAL INCOME PORTFOLIO
This fund, designed for tax-sensitive investors, pursues income free of
federal income tax through a portfolio of investment-grade, long-term
municipal bonds.** On the last day of the period, Arrow Municipal Income
Portfolio included bonds issued by municipalities across 14 states. The fund
paid tax-free dividends of $0.22 per share during the period, while its net
asset value declined by $0.04 due to bond market volatility. For the
six-month period ended March 31, 1997, total return was 1.76%, or -1.78%
when adjusted for the fund's sales charge.* Total net assets stood at $13.8
million on the last day of the period.
Finally, please note that on April 25, 1997, Mississippi Valley Advisors
Inc. succeeded Mark Twain Bank as the investment adviser to the Arrow Funds.
This change is a result of a merger of Mark Twain Bancshares, Inc., the
parent company of Mark Twain Bank, into Mercantile Bancorporation Inc. The
terms of the Arrow Funds' new investment advisory contract with Mississippi
Valley Advisors Inc. are substantially similar to the previous investment
advisory contract between Arrow Funds and Mark Twain Bank.
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,
[Graphic]
Edward C. Gonzales
President
May 15, 1997
* Performance quoted reflects past performance and is not indicative of
future results. 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.
** Income may be subject to the federal alternative minimum tax and state
and local taxes.
INVESTMENT REVIEW
ARROW EQUITY PORTFOLIO
The equity markets and the Arrow Equity Fund have provided an attractive
return for an extended period of time. This has been the case also for the
past twelve months, but not without some volatility. Common stocks generally
declined from about April - May of 1996 through July and then began a strong
recovery phase that lasted until December, only to lose ground during that
last month of the year.
Equities started off in January and February 1997 with a strong advance.
Most market averages and the Arrow Equity Fund were up about 10% to 11%
during this time. The primary support for the markets came from increasing
corporate earnings, a modestly advancing economy, low inflation, and
moderating bond yields.
The Federal Reserve Board's recent move to raise short-term interest rates
has weakened the yield support underpinning the equity markets, and in our
view, has been one of the reasons for the heavy selling of stocks in recent
weeks. The resulting drop in stock prices has little to do with
fundamentals, and more to do with a very nervous market. This is typical of
a "correction." We have not experienced what is classified as a "market
correction," a drop in stock prices of about 10%, for some time, and that
type of environment may be overdue.
Despite near-term uncertainty, we expect a relatively favorable environment
for financial assets in the coming months. That includes continuing moderate
economic growth, modest inflation, and rising corporate earnings. However,
we expect continued selective strength in common stocks, accompanied by a
degree of volatility. How selective? Just five companies, IBM, Intel,
Microsoft, Coca Cola and General Electric, accounted for almost one quarter
of the 20.3% price gain for 1996 in the Standard & Poor's 500 Stock Index.*
At this time it is especially important to stay invested in companies with
solid fundamentals and develop a somewhat defensive posture. We especially
favor those companies that have visible and predictable earnings growth
prospects.
ARROW FIXED INCOME PORTFOLIO
The Arrow Fixed Income Portfolio had total net assets of $28.2 million as of
March 31, 1997. The fund had an average maturity of 13 years, with 32% of
the fund's net assets invested in U.S. Treasury and Government Agency
securities, and 65% invested in investment grade corporate bonds.
Interest rates moved higher during the period, with ten-year U.S. Treasury
securities increasing 20 basis points to a 6.90% yield on March 31, 1997
versus a 6.70% yield on September 30, 1996. Thirty-year government bonds
increased in yield to a 7.10% yield versus a 6.92% yield at the end of the
third quarter of 1996. On March 25, 1997, the Federal Reserve Board raised
short-term interest rates by one quarter of one percent. It was the first
tightening of monetary policy in two years. While continuing stronger
economic numbers is a negative for the markets, inflation is still
relatively low and the recent strength of the dollar versus the Japanese yen
and the German mark should slow economic growth in the U.S. to a more
moderate pace. We therefore do not see longer-term interest rates increasing
substantially from current levels, with the upside on thirty-year government
securities being in the 7-1/4% to 7-1/2% range.
* The Standard & Poor's 500 Index is an unmanaged index of common stocks in
industry, transportation, and financial and public utility companies.
Investments cannot be made in an index.
ARROW MUNICIPAL INCOME PORTFOLIO
During the six-month reporting period ended March 31, 1997, total returns
from the municipal market have been only slightly positive. Municipal supply
increased during the fourth quarter of 1996, which limited upward movement
of bond prices. During the latter part of the first quarter of 1997, the
Federal Open Market Committee raised short-term interest rates by
one-quarter of one percent. This change in policy caused bond valuations to
decline further. Total return for the municipal market was essentially flat
to down slightly during the first quarter of 1997.
The Arrow Municipal Income Portfolio finished the first quarter of 1997 with
a positive total return (not adjusted for sales charge), due to defensive
measures taken late in 1996. The fund remains slightly more defensive in
terms of duration, but has remained nearly fully invested and diversified.
We expect the economy to continue growing moderately, which may necessitate
further increases in short-term interest rates during the next few quarters,
but we believe long bond yields are probably near their high. The fund
continues to emphasize high-quality issues.
ARROW EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 88.9%
COMMERCIAL SERVICES -- 2.2%
53,000 Reynolds & Reynolds Co., Class A $ 1,265,375
CONSUMER DURABLES -- 2.6%
18,000 Brunswick Corp. 483,750
22,000 Chrysler Corp. 660,000
15,000 Mattel, Inc. 360,000
Total 1,503,750
CONSUMER NON-DURABLES -- 8.0%
2,000 Gillette Co. 145,250
32,000 PepsiCo, Inc. 1,044,000
22,000 Philip Morris Cos., Inc. 2,510,750
35,000 UST, Inc. 975,625
Total 4,675,625
ELECTRONIC TECHNOLOGY -- 12.0%
25,000 Hewlett-Packard Co. 1,331,250
15,000 Intel Corp. 2,086,875
15,000 McDonnell-Douglas Corp. 915,000
25,000 (a)Sun Microsystems, Inc. 721,875
14,000 United Technologies Corp. 1,053,500
17,000 Varian Association, Inc. 909,500
Total 7,018,000
ENERGY MINERALS -- 2.6%
5,000 Texaco, Inc. 547,500
25,000 Unocal Corp. 953,125
Total 1,500,625
FINANCE -- 26.1%
4,000 Aflac, Inc. 150,000
6,000 American International Group, Inc. 704,250
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
FINANCE -- CONTINUED
17,000 BankAmerica Corp. $ 1,712,750
13,000 Citicorp 1,407,250
40,000 Federal Home Loan Mortgage Corp. 1,090,000
20,000 Federal National Mortgage Association 722,500
80,000 Green Tree Financial Corp. 2,700,000
11,000 Household International, Inc. 947,375
56,250 MBNA Corp. 1,567,969
25,000 NationsBank Corp. 1,384,375
10,000 Norwest Corp. 462,500
27,000 Travelers Group, Inc. 1,292,625
4,000 Wells Fargo & Co. 1,136,500
Total 15,278,094
HEALTH SERVICES -- 1.5%
18,000 United Healthcare Corp. 857,250
HEALTH TECHNOLOGY -- 13.2%
25,000 Abbott Laboratories 1,403,125
20,000 (a)Amgen, Inc. 1,117,500
20,000 Medtronic, Inc. 1,245,000
14,000 Merck & Co., Inc. 1,179,500
7,000 Pfizer, Inc. 588,875
30,000 Schering Plough Corp. 2,182,500
Total 7,716,500
INDUSTRIAL SERVICES -- 1.7%
15,000 Halliburton Co. 1,016,250
NON-ENERGY MINERALS -- 1.9%
40,000 Texas Industries, Inc. 1,100,000
PROCESS INDUSTRIES -- 1.3%
14,000 Avery Dennison Corp. 539,000
2,000 Du Pont (E.I.) de Nemours & Co. 212,000
Total 751,000
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
PRODUCER MANUFACTURING -- 8.9%
22,000 Allied-Signal, Inc. $ 1,567,500
5,000 Dover Corp. 262,500
5,000 General Electric Co. 496,250
17,000 Illinois Tool Works, Inc. 1,387,625
8,000 Raychem Corp. 659,000
20,000 (a)Thermo Electron Corp. 617,500
8,000 (a)U.S. Filter Corp. 247,000
Total 5,237,375
RETAIL TRADE -- 2.4%
15,000 Home Depot, Inc. 802,500
22,000 Wal-Mart Stores, Inc. 613,250
Total 1,415,750
TECHNOLOGY SERVICES -- 0.3%
5,000 Computer Associates International, Inc. 194,375
TELECOMMUNICATIONS -- 1.3%
15,000 Lucent Technologies, Inc. 791,250
TRANSPORTATION -- 2.9%
15,000 (a)AMR Corp. 1,237,500
16,000 Illinois Central Corp. 504,000
Total 1,741,500
TOTAL COMMON STOCKS (IDENTIFIED COST $38,834,648) 52,062,719
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. TREASURY SECURITIES -- 3.4%
$ 2,000,000 United States Treasury Bill, 4/24/1997 (AT AMORTIZED COST) $ 1,993,381
MUTUAL FUNDS -- 7.5%
2,526,371 Goldman Sachs ILA Treasury Instuments 2,526,371
1,861,756 SEI Government Portfolio Money Market Fund 1,861,756
TOTAL MUTUAL FUND SHARES (AT NET ASSET VALUE) 4,388,127
TOTAL INVESTMENTS (IDENTIFIED COST $45,216,156)(B) $58,444,227
</TABLE>
(a) Non-income producing security.
(b) The cost of investments for federal tax purposes amounts to $45,216,156.
The net unrealized appreciation of investments on a federal tax basis
amounts to $13,228,071 which is comprised of $14,043,135 appreciation and
$815,064 depreciation at March 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($58,554,898) at March 31, 1997.
(See Notes which are an integral part of the Financial Statements)
ARROW EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $45,216,156) $58,444,227
Cash 8,130
Income receivable 102,531
Deferred expenses 1,612
Total assets 58,556,500
LIABILITIES:
Accrued expenses 1,602
NET ASSETS for 3,862,138 shares outstanding $58,554,898
NET ASSETS CONSIST OF:
Paid in capital $42,015,621
Net unrealized appreciation of investments 13,228,071
Accumulated net realized gain on investments 3,263,064
Undistributed net investment income 48,142
Total Net Assets $58,554,898
NET ASSET VALUE, AND REDEMPTION PROCEEDS PER SHARE:
$58,554,898 / 3,862,138 shares outstanding $15.16
Offering Price Per Share (100/96.50 of $15.16)* $15.71
</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, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 431,697
Interest 62,569
Total income 494,266
EXPENSES:
Investment advisory fee $ 225,024
Administrative personnel and services fee 43,254
Custodian fees 11,960
Transfer and dividend disbursing agent fees and expenses 14,619
Directors'/Trustees' fees 723
Auditing fees 6,488
Legal fees 1,716
Portfolio accounting fees 23,693
Distribution services fee 75,008
Share registration costs 8,179
Printing and postage 2,784
Insurance premiums 1,965
Miscellaneous 2,625
Total expenses 418,038
Waivers --
Waiver of distribution services fee (75,008)
Net expenses 343,030
Net investment income 151,236
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 3,511,369
Net change in unrealized appreciation of investments 980,648
Net realized and unrealized gain on investments 4,492,017
Change in net assets resulting from operations $4,643,253
</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
(UNAUDITED) YEAR ENDED
MARCH 31, SEPTEMBER 30,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 151,236 $ 423,781
Net realized gain on investments ($3,511,369 and $4,600,860 net gain,
respectively, as computed for federal tax purposes) 3,511,369 4,612,534
Net change in unrealized appreciation (depreciation) 980,648 (11,835)
Change in net assets resulting from operations 4,643,253 5,024,480
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (180,833) (381,222)
Distributions from net realized gains (3,886,419) (218,057)
Change in net assets resulting from distributions to shareholders (4,067,252) (599,279)
SHARE TRANSACTIONS --
Proceeds from sale of shares 10,910,353 12,339,545
Net asset value of shares issued to shareholders in payment of
distributions declared 389,067 47,007
Cost of shares redeemed (8,893,275) (4,946,669)
Change in net assets resulting from share transactions 2,406,145 7,439,883
Change in net assets 2,982,146 11,865,084
NET ASSETS:
Beginning of period 55,572,752 43,707,668
End of period (including undistributed net investment income
of $48,142 and $77,739, respectively) $ 58,554,898 $ 55,572,752
</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, YEAR ENDED SEPTEMBER 30,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.06 $13.80 $ 9.74 $10.02 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.06 0.12 0.10 0.07 0.04
Net realized and unrealized gain (loss)
on investments 1.14 1.32 4.05 (0.25) 0.02
Total from investment operations 1.20 1.44 4.15 (0.18) 0.06
LESS DISTRIBUTIONS
Distributions from net
investment income (0.05) (0.11) (0.09) (0.07) (0.04)
Distributions from net realized gain
on investments (1.05) (0.07) -- (0.03) --
Total distributions (1.10) (0.18) (0.09) (0.10) (0.04)
NET ASSET VALUE, END OF PERIOD $15.16 $15.06 $13.80 $ 9.74 $10.02
TOTAL RETURN(B) 7.98% 10.48% 42.90% (1.84%) 0.60%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.14%* 1.17% 1.28% 1.36% 1.32%*
Net investment income 0.50%* 0.86% 0.90% 0.74% 0.62%*
Expense waiver/reimbursement(c) 0.25%* 0.28% 0.30% 0.28% 0.30%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $58,555 $55,573 $43,708 $30,282 $31,159
Average commission rate paid(d) $0.0905 $0.0756 -- -- --
Portfolio turnover 25% 45% 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 charge 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.
(d) Represents total commissions paid on portfolio securities divided by
total portfolio shares purchased or sold on which commissions were charged.
This disclosure is required for fiscal years beginning on or after
September 1, 1995.
(See Notes which are an integral part of the Financial Statements)
ARROW FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- 64.5%
AEROSPACE & DEFENSE -- 1.8%
$ 500,000 Rockwell International Corp., 6.75%, 9/15/2002 $ 492,840
BANKING -- 8.3%
1,000,000 Bank of Scotland, Edinburgh, 6.50%, 2/15/2011 892,150
500,000 BankAmerica Corp., 7.50%, 10/15/2002 504,795
500,000 NationsBank Corp., 6.50%, 3/15/2006 466,085
500,000 NationsBank Corp., 6.875%, 2/15/2005 482,765
Total 2,345,795
CONSUMER PRODUCTS -- 6.8%
1,000,000 Kimberly Clark Corp., 7.875%, 2/1/2023 967,360
1,000,000 Philip Morris Cos., Inc., 7.75%, 1/15/2027 952,780
Total 1,920,140
FINANCE -- 8.4%
500,000 MBNA Corp., 6.875%, 10/1/1999 499,250
1,000,000 Smurfit Capital, 6.75%, 11/20/2005 944,360
1,000,000 Travelers Group, Inc., 6.25%, 12/1/2005 926,370
Total 2,369,980
INDUSTRIAL -- 23.3%
500,000 La Quinta Inns, Inc., 7.25%, 3/15/2004 487,175
1,000,000 Millenium America, Inc., 7.00%, 11/15/2006 947,920
1,000,000 Tele-Communications, Inc., 9.875%, 6/15/2022 1,073,700
1,000,000 Time Warner, Inc., 8.05%, 1/15/2016 975,640
1,000,000 USX Corp., 9.375%, 5/15/2022 1,133,860
1,000,000 WMX Technologies, Inc., 7.125%, 6/15/2001 999,660
1,000,000 Wharf International Finance Ltd., 7.625%, 3/13/2007 972,030
Total 6,589,985
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
OIL -- 3.4%
$ 1,000,000 Phillips Petroleum Co., 7.92%, 4/15/2023 $ 969,960
UTILITIES -- 12.5%
674,000 Arkansas Electric Co-op Corp., 7.33%, 6/30/2008 671,843
1,000,000 Central LA Electric Co., 6.95%, 6/21/2006 956,450
1,000,000 Duke Power Co., 7.375%, 3/1/2023 921,000
500,000 Midwest Power Systems, Inc., 7.00%, 2/15/2005 486,715
500,000 United Telephone Co. of Florida, 7.25%, 12/15/2004 497,940
Total 3,533,948
TOTAL CORPORATE BONDS (IDENTIFIED COST $18,767,970) 18,222,648
GOVERNMENT BONDS -- 31.5%
FOREIGN MUNICIPAL -- 1.8%
500,000 Ontario, Province, Canada, 7.375%, 1/27/2003 506,080
GOVERNMENT AGENCIES -- 5.3%
500,000 Federal Home Loan Bank, 6.32%, 2/1/2000 495,570
1,000,000 Federal National Mortgage Association, 7.55%, 6/10/2004 994,690
Total 1,490,260
U.S. TREASURY SECURITIES -- 24.4%
3,000,000 U.S. Treasury Bond, 7.50%, 11/15/2016 3,087,000
1,000,000 U.S. Treasury Note, 5.875%, 2/15/2004 945,890
1,500,000 U.S. Treasury Note, 7.50%, 5/15/2002 1,547,190
1,250,000 U.S. Treasury Note, 8.00%, 5/15/2001 1,307,150
Total 6,887,230
TOTAL GOVERNMENT BONDS (IDENTIFIED COST $9,275,418) 8,883,570
MUTUAL FUND -- 2.6%
720,022 Goldman Sachs ILA Treasury Money Market Fund (AT NET ASSET VALUE) 720,022
TOTAL INVESTMENTS (IDENTIFIED COST $28,763,410)(A) $ 27,826,240
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $28,763,410.
The net unrealized depreciation of investments on a federal tax basis
amounts to $937,170 which is comprised of $39,465 appreciation and $976,635
depreciation at March 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($28,229,184) at March 31, 1997.
(See Notes which are an integral part of the Financial Statements)
ARROW FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $28,763,410) $ 27,826,240
Income receivable 543,692
Deferred expenses 1,998
Total assets 28,371,930
LIABILITIES:
Income distribution payable $139,793
Accrued expenses 2,953
Total liabilities 142,746
NET ASSETS for 2,943,000 shares outstanding $ 28,229,184
NET ASSETS CONSIST OF:
Paid in capital $ 30,075,419
Net unrealized depreciation of investments (937,170)
Accumulated net realized loss on investments (909,065)
Total Net Assets $ 28,229,184
NET ASSET VALUE, AND REDEMPTION PROCEEDS PER SHARE:
$28,229,184 / 2,943,000 shares outstanding $9.59
Offering Price Per Share (100/96.50 of $9.59)* $9.94
</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, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 30,901
Interest 992,466
Total income 1,023,367
EXPENSES:
Investment advisory fee $ 86,990
Administrative personnel and services fee 24,863
Custodian fees 11,934
Transfer and dividend disbursing agent fees and expenses 19,004
Directors'/Trustees' fees 1,492
Auditing fees 5,968
Legal fees 1,487
Portfolio accounting fees 24,406
Distribution services fee 36,246
Share registration costs 6,881
Printing and postage 1,532
Insurance premiums 1,813
Miscellaneous 4,568
Total expenses 227,184
Waivers --
Waiver of distribution services fee (36,246)
Net expenses 190,938
Net investment income 832,429
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 53,460
Net change in unrealized depreciation of investments (368,730)
Net realized and unrealized loss on investments (315,270)
Change in net assets resulting from operations $ 517,159
</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
(UNAUDITED) YEAR ENDED
MARCH 31, SEPTEMBER 30,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 832,429 $ 1,705,740
Net realized gain (loss) on investments ($53,460 net gain, and $540,150
net loss, respectively, as computed for federal tax purposes) 53,460 (184,315)
Net change in unrealized appreciation (depreciation) (368,730) (843,230)
Change in net assets resulting from operations 517,159 678,195
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (832,429) (1,705,740)
SHARE TRANSACTIONS --
Proceeds from sale of shares 2,742,731 6,570,600
Net asset value of shares issued to shareholders in payment of
distributions declared 12,062 27,485
Cost of shares redeemed (2,918,670) (7,523,659)
Change in net assets resulting from share transactions (163,877) (925,574)
Change in net assets (479,147) (1,953,119)
NET ASSETS:
Beginning of period 28,708,331 30,661,450
End of period $28,229,184 $ 28,708,331
</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,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.70 $10.06 $ 9.31 $10.75 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.33 0.57 0.59 0.59 0.44
Net realized and unrealized gain (loss)
on investments (0.11) (0.36) 0.75 (1.41) 0.75
Total from investment operations 0.22 0.21 1.34 (0.82) 1.19
LESS DISTRIBUTIONS
Distributions from net investment income (0.33) (0.57) (0.59) (0.59) (0.44)
Distributions from net realized gain
on investments -- -- -- (0.03) --
Total distributions (0.33) (0.57) (0.59) (0.62) (0.44)
NET ASSET VALUE, END OF PERIOD $ 9.59 $ 9.70 $10.06 $ 9.31 $10.75
TOTAL RETURN(B) 2.21% 2.12% 14.89% (7.85%) 12.09%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.32%* 1.27% 1.22% 1.15% 1.05%*
Net investment income 5.74%* 5.84% 6.17% 5.86% 5.71%*
Expense waiver/reimbursement(c) 0.25%* 0.26% 0.26% 0.26% 0.27%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $28,229 $28,708 $30,661 $32,743 $42,715
Portfolio turnover 25% 55% 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 charge 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, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)LONG-TERM MUNICIPALS -- 91.6%
CALIFORNIA -- 5.3%
$ 700,000 Long Beach Harbor, CA, Revenue Bonds (Series A), 7.25% 5/15/2019 $ 733,194
GEORGIA -- 4.0%
500,000 Appling County, GA Development Authority, PCR Refunding Bonds,
7.00% (Oglethorpe Power Corp.)/(MBIA Insured), 1/1/2012 548,930
ILLINOIS -- 7.5%
500,000 Illinois Housing Development Authority, Mortgage Revenue Bonds
(Series D-1), 6.40%, 8/1/2017 510,550
485,000 Waukegan, IL, GO UT Bonds, 6.80%, 12/30/2007 521,074
Total 1,031,624
INDIANA -- 3.7%
500,000 Ball State University, University Revenue Bonds (Series G), 6.125%
(FGIC Insured), 7/1/2014 511,975
IOWA -- 8.6%
500,000 Iowa Student Loan Liquidity Corporation, Student Loan Revenue Bonds
(Series B), 6.75%, 3/1/2004 529,635
650,000 Ottumwa Iowa Community School District, GO UT Bonds, 5.60% (CGIC
Insured), 6/1/2010 655,324
Total 1,184,959
KENTUCKY -- 2.7%
350,000 Kentucky Higher Education Student Loan Corporation, Insured Student
Loan Revenue Bonds (Series D), 7.10%, 12/1/2011 373,618
MISSISSIPPI -- 3.9%
500,000 Mississippi Higher Education, Student Loan Revenue Bonds
(Sub-Series C), 7.50% (Guaranteed Student Loans LOC), 9/1/2009 532,190
MISSOURI -- 22.5%
340,000 Kansas City, MO, Sewer Authority, Refunding Revenue Bonds, 6.40%,
3/1/2010 352,628
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)LONG-TERM MUNICIPALS -- CONTINUED
MISSOURI -- CONTINUED
$ 500,000 Missouri State Environmental Improvement & Energy Authority,
Refunding Revenue Bonds, 5.50% (Associated Electric Cooperative
Thomas Hill), 12/1/2010 $ 500,170
300,000 Missouri State HEFA, Revenue Bonds, 6.50% (St. Louis University)/
(AMBAC Insured), 8/1/2016 321,003
120,000 Missouri State Housing Development Commission, SFM Revenue Bonds
(Series A), 6.00% (GNMA COL), 6/1/2015 121,100
740,000 Missouri State Housing Development Commission, SFM Revenue Bonds
(Series A), 6.625% (GNMA COL), 12/1/2017 762,200
1,000,000 Missouri State, Third State Building GO UT Refunding Bonds (Series B),
6.30%, 11/1/2012 1,041,610
Total 3,098,711
NEVADA -- 3.9%
500,000 Clark County, NV, Pollution Control, Refunding Revenue Bonds
(Series B), 6.60% (Nevada Power Co.), 6/1/2019 534,870
PENNSYLVANIA -- 5.3%
545,000 Delaware County, PA, GO UT Refunding Bonds, 6.00% (United States
Treasury PRF), 11/15/2002 (@102) 575,896
155,000 Delaware County, PA, Refunding Bonds, 6.00%, 11/15/2014 157,682
Total 733,578
TEXAS -- 12.5%
500,000 North Texas Higher Education Authority, Inc., Student Loan Revenue
Refunding Bonds (Series D), 6.30% (Guaranteed Student Loans LOC),
4/1/2010 498,905
155,000 Texas State, GO UT Bonds (Series A), 6.60% (Veterans Housing
Assistance Fund), 12/1/2016 158,120
1,000,000 Texas State, GO UT Bonds (Series A), 7.00%, 8/1/2011 1,078,590
Total 1,735,615
VIRGINIA -- 4.2%
550,000 Virginia State Housing Development Authority, Revenue Bonds (Series B),
6.55%, 1/1/2011 581,691
<CAPTION>
PRINCIPAL
AMOUNT
OR
SHARES VALUE
<C> <S> <C>
(A)LONG-TERM MUNICIPALS -- CONTINUED
WASHINGTON -- 5.6%
$ 725,000 King County, WA School District #415 Kent, GO UT Bonds (Series B),
6.00%, 12/1/2008 $ 766,412
WISCONSIN -- 1.9%
255,000 Madison, WI, IDR (Series A), 6.75% (Madison Gas & Electric Co.), 4/1/2027 268,523
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $12,365,280) 12,635,890
MUTUAL FUNDS -- 7.1%
666,542 Goldman Sachs ILA Tax Exempt Money Market Fund 666,542
316,223 SEI Tax Exempt Money Market Fund 316,223
TOTAL MUTUAL FUNDS (AT NET ASSET VALUE) 982,765
TOTAL INVESTMENTS (IDENTIFIED COST $13,348,045)(B) $ 13,618,655
</TABLE>
(a) At March 31, 1997, 29.2% of the total investments at market value were
subject to alternative minimum tax.
(b) The cost of investments for federal tax purposes amounts to $13,348,045.
The net unrealized appreciation of investments on a federal tax basis
amounts to $270,610 which is comprised of $285,624 appreciation and $15,014
depreciation at March 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($13,795,291) at March 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
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
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
PRF -- Prerefunded
SFM -- Single Family Mortgage
UT -- Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
ARROW MUNICIPAL INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $13,348,045) $ 13,618,655
Cash 100
Income receivable 226,151
Deferred expenses 1,282
Total assets 13,846,188
LIABILITIES:
Income distribution payable $49,640
Accrued expenses 1,257
Total liabilities 50,897
NET ASSETS for 1,349,879 shares outstanding $ 13,795,291
NET ASSETS CONSIST OF:
Paid in capital $ 13,854,163
Net unrealized appreciation of investments 270,610
Accumulated net realized loss on investments (329,482)
Total Net Assets $ 13,795,291
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$13,795,291 / 1,349,879 shares outstanding $10.22
Offering Price Per Share (100/96.50 of $10.22)* $10.59
</TABLE>
* See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
ARROW MUNICIPAL INCOME PORTFOLIO
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 406,301
EXPENSES:
Investment advisory fee $ 50,185
Administrative personnel and services fee 24,863
Custodian fees 1,792
Transfer and dividend disbursing agent fees and expenses 16,252
Directors'/Trustees' fees 947
Auditing fees 6,284
Legal fees 1,348
Portfolio accounting fees 24,730
Distribution services fee 17,923
Share registration costs 6,142
Printing and postage 3,216
Insurance premiums 1,377
Miscellaneous 3,579
Total expenses 158,638
Waivers --
Waiver of investment advisory fee $ (42,299)
Waiver of distribution services fee (17,923)
Total waivers (60,222)
Net expenses 98,416
Net investment income 307,885
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 31,968
Net change in unrealized appreciation of investments (89,523)
Net realized and unrealized loss on investments (57,555)
Change in net assets resulting from operations $ 250,330
</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
(UNAUDITED) YEAR ENDED
MARCH 31, SEPTEMBER 30,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 307,885 $ 763,708
Net realized gain (loss) on investments ($31,968 net gain and
$284,885 net loss, respectively, as computed for federal tax purposes) 31,968 70,342
Net change in unrealized appreciation (depreciation) (89,523) (648)
Change in net assets resulting from operations 250,330 833,402
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (307,885) (763,708)
SHARE TRANSACTIONS --
Proceeds from sale of shares 388,776 1,294,036
Net asset value of shares issued to shareholders in payment of
distributions declared 8,955 22,639
Cost of shares redeemed (1,491,846) (4,175,893)
Change in net assets resulting from share transactions (1,094,115) (2,859,218)
Change in net assets (1,151,670) (2,789,524)
NET ASSETS:
Beginning of period 14,946,961 17,736,485
End of period $13,795,291 $14,946,961
</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,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.26 $10.22 $ 9.87 $10.61 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.22 0.47 0.46 0.47 0.32
Net realized and unrealized gain (loss)
on investments (0.04) 0.04 0.35 (0.72) 0.61
Total from investment operations 0.18 0.51 0.81 (0.25) 0.93
LESS DISTRIBUTIONS
Distributions from net
investment income (0.22) (0.47) (0.46) (0.47) (0.32)
Distributions from net realized gain
on investments -- -- -- (0.02) --
Total distributions (0.22) (0.47) (0.46) (0.49) (0.32)
NET ASSET VALUE, END OF PERIOD $10.22 $10.26 $10.22 $ 9.87 $10.61
TOTAL RETURN(B) 1.76% 5.04% 8.46% (2.41%) 9.43%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.37%* 1.20% 1.09% 0.85% 0.72%*
Net investment income 4.29%* 4.49% 4.70% 4.62% 4.71%*
Expense waiver/reimbursement(c) 0.84%* 0.84% 0.80% 0.81% 0.85%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $13,795 $14,947 $17,736 $23,187 $24,087
Portfolio turnover 7% 20% 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 charge 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, 1997 (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>
<CAPTION>
PORTFOLIO NAME INVESTMENT OBJECTIVE
<S> <S>
Arrow Equity Portfolio ("Equity Fund") Capital appreciation by investing primarily in
equity securities.
Arrow Fixed Income Portfolio Current income by investing primarily in a portfolio of
("Fixed Income Fund") U.S. government and investment grade corporate securities.
Arrow Municipal Income Portfolio Current income which is exempt from regular federal income
("Municipal Income Fund") tax by investing primarily in a diversified portfolio of
municipal securities.
</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 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, 1996, the funds listed below, for federal tax purposes, had
capital loss carryforwards, which will reduce each fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the funds of
any liability for federal tax.
<TABLE>
<CAPTION>
CAPITAL LOSS CAPITAL LOSS CAPITAL LOSS
CARRYFORWARD CARRYFORWARD CARRYFORWARD TOTAL
TO EXPIRE IN TO EXPIRE IN TO EXPIRE IN CAPITAL LOSS
FUND 2002 2003 2004 CARRYFORWARDS
<S> <C> <C> <C> <C>
Fixed Income Fund $24 $227,158 $540,150 $767,332
Municipal Income Fund -- 76,653 284,885 361,538
</TABLE>
Additionally, net capital losses on Fixed Income Fund of $195,217,
attributable to security transactions incurred after October 31, 1995, were
treated as arising on October 1, 1996, the first day of the Fund's next
taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Funds may engage in
when-issued or delayed delivery transactions. The Funds record when-issued
securities on the trade date and maintain security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES -- The costs incurred by each Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized over a period not to exceed 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.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Board of 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>
EQUITY FUND FIXED INCOME FUND MUNICIPAL INCOME FUND
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold 718,054 867,438 276,196 661,379 37,670 126,133
Shares issued to share-
holders in payment of
distributions declared 25,709 3,298 1,217 2,772 871 2,204
Shares redeemed (572,168) (346,978) (295,025) (750,074) (144,871) (407,947)
Net change resulting
from share
transactions 171,595 523,758 (17,612) (85,923) (106,330) (279,610)
</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 an 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 Funds for
the period.
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 Corp. ("FSC"), 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 average daily net assets,
annually, to compensate FSC. 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 ("FServ"), through its subsidiary, Federated Shareholder Services
Company ("FSSC") serves as transfer and dividend disbursing agent for the
Funds. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ also maintains the Funds' accounting
records for which it receives a fee. The fee is based on the level of each
Fund's average 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 November 24,
1992 (the date the Trust became effective). For the six months ended March
31, 1997, each Fund paid the following amounts to FAS pursuant to this
agreement:
<TABLE>
<CAPTION>
EXPENSES OF AMOUNTS REIMBURSED TO
ORGANIZING FAS FOR THE SIX MONTHS
FUND THE FUND ENDED MARCH 31, 1997
<S> <C> <C>
Equity Fund $17,560 $2,524
Fixed Income Fund 17,401 2,456
Municipal Income Fund 16,729 2,346
</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, 1997, were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
<S> <C> <C>
Equity Fund $14,145,966 $21,016,202
Fixed Income Fund 6,997,988 7,873,901
Municipal Income Fund 923,770 2,661,022
</TABLE>
6. SUBSEQUENT EVENT
Effective April 25, 1997, in connection with the merger of Mark Twain
Bancshares, Inc., the parent company of Mark Twain Bank, into Mercantile
Bancorporation Inc., Mississippi Valley Advisors Inc. succeeded Mark Twain
Bank as the investment adviser to the Trust. The terms of the investment
advisory contract between the Trust and Mississippi Valley Advisors Inc. are
substantially similar to the investment advisory contract between the Trust
and Mark Twain Bank.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Edward C. Gonzales
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Edward C. Gonzales
President and Treasurer
J. Christopher Donahue
Executive Vice President
John W. McGonigle
Executive Vice President and Secretary
Charles L. Davis, Jr.
Vice President and Assistant Treasurer
Richard B. Fisher
Vice President
Gail Cagney
Assistant Secretary
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 their objectives and policies, management fees, expenses and
other information.
