(CRESTAR LOGO OMITTED)
U.S. GOVERNMENT SECURITIES
MONEY FUND
PRIME OBLIGATIONS FUND
MANAGED BY
Crestar Asset Management Company
SEMI-ANNUAL REPORT
------------------
July 31, 1997
<PAGE>
Dear Shareholder:
The Prime Obligations Fund and the U.S. Government Securities Money Fund managed
by Crestar Asset Management Company ended the period July 31, 1997 with strong
performance. Since our last report to you dated January 31, the Funds have
experienced both growth in assets and high-ranking investment performance
compared to its peer group.
The Prime Obligations Fund had total assets of $539.9 million as of July 31,
1997 -- an increase of 20.7% from January 31. The 7-day effective yield was
5.74%, compared to 5.49% on January 31, and the 1-year total return of 5.54% was
ranked in the top 5% of all institutional money funds by Lipper Analytical
Services.
The U.S. Government Securities Money Fund also performed well during this
period. Total assets reached $660.1 million on July 31 -- up 12.5% from January
31. The 7-day effective yield was 5.61% on July 31 compared to 5.36% at the end
of January, and the 1-year total return of 5.39% was ranked in the top 13% of
all government-only institutional money market funds according to Lipper
Analytical Services.
A REVIEW OF THE LAST SIX MONTHS:
Since our last report, the economy continued to perform at an above-average pace
with few signs of imbalance that might lead to recession. There have been fears
that the strong pace of growth so far into the current economic cycle might
cause inflation to move higher and the Federal Reserve to become increasingly
restrictive. While the Fed did raise overnight rates at the end of March, the
move was only a quarter of a percent and no further tightening moves have
occurred since then. Our Funds were well-positioned for this increase in rates
causing the July yield to rise compared with yields at the end of January.
However, short-term yields have been quite volatile over the past six months.
The yield on the 91-day Treasury bill was up to 5.23% on July 31 from 5.15% on
January 31, while the yield on the 1-year Treasury note was down to 5.42% at the
end of July from 5.57% in January.
The most important development in the economy and the financial markets has been
the LACK of higher inflation. Consumer prices have risen less that 2 1/2% during
the past 12 months, and producer prices have actually FALLEN versus year-earlier
levels. This lack of higher inflation has allowed the Federal Reserve to remain
on the sidelines during the spring and early summer. The protracted period of
strong economic growth without rising inflation has been positive for many
investors, but fears are periodically rekindled by worrisome reports of tight
labor markets. During these periods of uncertainty, longer maturity yields have
risen, and we have extended durations modestly to improve returns.
THE NEAR TERM ECONOMIC OUTLOOK:
Despite the potential for problems, the outlook for the next several quarters is
favorable. The lack of excesses by business and consumers suggest limited need
for any significant economic adjustments. Inventories, though increasing, are at
comfortable levels. Consumer confidence is high and relative debt growth is low.
These factors suggest that the economic expansion that began in the Spring of
1991 is still on track.
While our longer-term expectations are for low inflation, the near term risks of
higher inflation are still present and should not be dismissed. Spending growth
by consumers is healthy. Unemployment is low, and delivery speeds from business
are slowing. Anecdotal evidence of skilled labor shortage is common. Under these
conditions, the Federal Reserve might see a need for a modest increase in short
term interest rates to reduce inflationary pressures. So while we are bullish on
interest rates longer term, we see a somewhat greater risk of higher rates over
the near term.
On behalf of all of us who manage the Prime Obligations and U.S. Government
Securities Money Funds, let me thank you again for the opportunity to serve you.
Please let us know if there is more we can do to help you fulfill your
investment objectives.
Sincerely,
/S/SIGNATURE
Ben L. Jones, CFA
President and Chief Investment Officer
Crestar Asset Management Company
<PAGE>
STATEMENT OF NET ASSETS THE ARBOR FUND
July 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Face
Amount Value
(000) U.S. GOVERNMENT SECURITIES MONEY FUND (000)
- -----------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 49.8%
FFCB
<S> <C> <C> <C>
$10,000 5.600%, 10/08/97 .................................................................. $ 9,900
25,000 5.583%, 11/14/97 .................................................................. 24,613
15,000 5.400%, 12/02/97 .................................................................. 14,994
FFCB (A)
9,000 5.530%, 08/01/97 .................................................................. 8,998
30,000 5.550%, 08/01/97 .................................................................. 29,993
5,000 5.570%, 08/20/97 .................................................................. 5,000
FHLB
10,000 5.600%, 09/25/97 .................................................................. 9,919
15,000 5.960%, 06/09/98 .................................................................. 15,002
FHLMC
20,000 5.640%, 08/28/97 .................................................................. 19,996
10,000 5.715%, 03/17/98 .................................................................. 9,994
FNMA
10,000 5.524%, 09/08/97 .................................................................. 9,944
10,000 5.400%, 12/05/97 .................................................................. 9,997
10,000 8.650%, 02/10/98 .................................................................. 10,143
25,000 5.510%, 02/24/98 .................................................................. 24,988
35,000 6.000%, 04/17/98 .................................................................. 34,992
35,000 5.840%, 06/18/98 .................................................................. 34,984
FNMA (A)
35,000 5.590%, 08/01/97 .................................................................. 34,990
SLMA (A)
20,000 5.470%, 08/05/97 .................................................................. 19,989
- -----------------------------------------------------------------------------------------------------------------
Total U.S. Government Agency Obligations (Cost $328,436) ...................... 328,436
- -----------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 50.2%
FirstBoston Securities, 5.87%, dated 07/31/97, matures 08/01/97,
repurchase price $30,004,892 (collateralized by various FHLB
obligations, total par value $3,700,000, 0.00%,
11/06/97-01/20/98; FHLMC obligation, par value $19,405,000,
0.00% 11/05/97; FNMA obligation, par value $8,690,000, 0.00%,
11/14/97; with total
30,000 market value $30,902,270) ......................................................... 30,000
Greenwich Securities, 5.81%, dated 07/31/97, matures 08/01/97, repurchase price
$122,518,790 (collateralized by various FNMA obligations ranging in par value
$73,809-$8,964,279, 6.00%-8.50%, 06/01/02-11/01/25; with total
122,499 market value $124,969,170) ........................................................ 122,499
Merrill Lynch Securities, 5.81%, dated 07/31/97, matures 08/01/97, repurchase price
$31,276,356 (collateralized by GNMA obligation par value $31,470,000, 6.00%,
31,271 07/20/27, with total market value $31,901,244) .................................... 31,271
Paine Webber Securities, 5.81%, dated 07/31/97, matures 08/01/97,
repurchase price $147,746,905 (collateralized by various FNMA
obligations ranging in par value $8,200-$45,000,000,
0.00%-12.50%, 09/01/00-02/01/27; with total
147,723 market value $150,701,843) ........................................................ 147,723
- -----------------------------------------------------------------------------------------------------------------
Total Repurchase Agreements (Cost $331,493) ................................... 331,493
- -----------------------------------------------------------------------------------------------------------------
Total Investments--100.0% (Cost $659,929) .............................................. 659,929
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF NET ASSETS (continued) THE ARBOR FUND
July 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Value
U.S. GOVERNMENT SECURITIES MONEY FUND (concluded) (000)
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES -- 0.0%
Other Asset and Liabilities, Net ........................................................ $ 199
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS:
Portfolio shares (unlimited authorization -- no par value) based on 660,153,142
outstanding shares of beneficial interest ............................................ 660,153
Accumulated net realized loss on investments ............................................ (25)
- -----------------------------------------------------------------------------------------------------------------
Total Net Assets--100.0% ....................................................... $660,128
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering and Redemption Price Per Share ....................... $1.00
=================================================================================================================
<FN>
FFCB -- Federal Farm Credit Bank
FHLB -- Federal Home Loan Bank
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
GNMA -- Government National Mortgage Association
SLMA -- Student Loan Marketing Association
(A) Variable Rate Security -- The rate reported in the Statement of Net Assets
is the rate in effect on July 31, 1997. The date shown is the reset date.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS (continued) THE ARBOR FUND
July 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Face
Amount Value
(000) PRIME OBLIGATIONS FUND (000)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER -- 13.2%
FINANCIAL SERVICES -- 5.5%
Merrill Lynch
$15,000 5.750%, 02/06/98 ................................................................... $14,547
Strategic Asset Funding
15,500 5.730%, 10/31/97 ................................................................... 15,279
- -----------------------------------------------------------------------------------------------------------------
Total Financial Services ....................................................... 29,826
- -----------------------------------------------------------------------------------------------------------------
INDUSTRIAL -- 7.7%
Aes Shady Point
7,000 5.820%, 10/14/97 ................................................................... 6,916
Ford Motor Credit
20,000 5.510%, 11/13/97 ................................................................... 19,682
Mitsubishi Motors
10,000 5.650%, 09/11/97 ................................................................... 9,936
Orix America
5,000 5.650%, 01/09/98 ................................................................... 4,874
- -----------------------------------------------------------------------------------------------------------------
Total Industrial ............................................................... 41,408
- -----------------------------------------------------------------------------------------------------------------
Total Commercial Paper (Cost $71,234) .............................................. 71,234
- -----------------------------------------------------------------------------------------------------------------
CORPORATE BONDS -- 35.3%
BANKING -- 13.0%
Bank of New York
15,000 6.000%, 03/24/98 ................................................................... 14,996
FCC National Bank (A)
25,000 5.610%, 08/01/97 ................................................................... 24,990
PNC Bank (A)
18,000 5.640%, 08/01/97 ................................................................... 17,998
7,000 5.650%, 08/01/97 6,999
Wachovia Bank of North Carolina
5,000 5.950%, 08/11/97 ................................................................... 5,000
- -----------------------------------------------------------------------------------------------------------------
Total Banking .................................................................. 69,983
- -----------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 10.7%
Bear Stearns (A)
7,000 5.720%, 08/01/97 ................................................................... 7,000
8,000 5.650%, 08/01/97 ................................................................... 8,000
Bear Stearns MTN
10,000 6.100%, 06/09/98 ................................................................... 10,000
CS First Boston (A)
23,000 5.700%, 08/01/97 ................................................................... 23,000
Merrill Lynch (A)
10,000 5.690%, 08/01/97 ................................................................... 9,999
- -----------------------------------------------------------------------------------------------------------------
Total Financial Services ....................................................... 57,999
- -----------------------------------------------------------------------------------------------------------------
INDUSTRIAL -- 11.6%
Ford Motor Credit
5,000 7.125%, 12/01/97 ................................................................... 5,025
General Motors Acceptance
5,000 8.375%, 01/30/98 5,061
5,000 5.875%, 03/30/98 ................................................................... 4,990
2,000 7.000%, 04/15/98 ................................................................... 2,009
5,000 7.250%, 04/15/98 ................................................................... 5,040
10,000 7.500%, 05/18/98 ................................................................... 10,104
</TABLE>
<PAGE>
STATEMENT OF NET ASSETS (continued) THE ARBOR FUND
July 31, 1997 (Unaudited
<TABLE>
<CAPTION>
Face
Amount Value
(000) PRIME OBLIGATIONS FUND (continued) (000)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
IBM
$10,000 5.670%, 01/28/98 ................................................................... $ 9,995
IBM Credit
10,000 5.780%, 08/20/97 ................................................................... 9,999
Phillip Morris
10,000 9.250%, 12/01/97 ................................................................... 10,114
- -----------------------------------------------------------------------------------------------------------------
Total Industrial ............................................................... 62,337
- -----------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $190,319) .......................................... 190,319
- -----------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT -- 14.8%
Bank of Tokyo
10,000 5.740%, 09/12/97 ................................................................... 10,000
5,000 5.650%, 11/07/97 ................................................................... 5,000
10,000 5.780%, 01/28/98 ................................................................... 10,000
Regions Bank
10,000 5.650%, 10/31/97 ................................................................... 10,000
Sanwa Bank
25,000 5.730%, 08/22/97 ................................................................... 25,000
Societe Generale
10,000 5.720%, 10/22/97 ................................................................... 9,999
10,000 5.870%, 03/03/98 ................................................................... 9,998
- -----------------------------------------------------------------------------------------------------------------
Total Certificates of Deposit (Cost $79,997) ................................... 79,997
- -----------------------------------------------------------------------------------------------------------------
BANK NOTES -- 5.0%
Bank of New York
5,000 5.930%, 09/03/97 ................................................................... 4,999
Barclays Bank (A)
22,000 5.620%, 08/01/97 ................................................................... 21,996
- -----------------------------------------------------------------------------------------------------------------
Total Bank Notes (Cost $26,995) ................................................ 26,995
- -----------------------------------------------------------------------------------------------------------------
INSURANCE FUNDING AGREEMENTS -- 10.2%
General American Life GIC (A) (B)
25,000 5.890%, 08/01/97 ................................................................... 25,000
Integrity Life Insurance GIC (A) (B)
30,000 5.890%, 08/01/97 ................................................................... 30,000
- -----------------------------------------------------------------------------------------------------------------
Total Insurance Funding Agreements (Cost $55,000) .............................. 55,000
- -----------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 23.8%
Greenwich Securities, 5.81%, dated 07/31/97, matures 08/01/97,
repurchase price $50,952,328 (collateralized by various FNMA
obligations ranging in par value $4,000-$5,730,418,
6.00%-7.50%, 01/01/04-07/01/04; with total market
50,944 value $51,971,375) ................................................................. 50,944
Merrill Lynch Securities, 5.81%, dated 07/31/97, matures 08/01/97, repurchase price
$42,768,550 (collateralized by GNMA obligation par value $43,030,000, 6.00%,
42,762 07/20/27; with market value $43,619,655) ........................................... 42,762
Paine Webber Securities, 5.81%, dated 07/31/97, matures 08/01/97,
repurchase price $34,945,554 (collateralized by various FNMA
obligations ranging in par value $7,185,000-$19,205,000,
34,940 0.0%, 12/01/26-04/01/29; with total market value $35,640,379) ...................... 34,940
- -----------------------------------------------------------------------------------------------------------------
Total Repurchase Agreements (Cost $128,646) .................................... 128,646
- -----------------------------------------------------------------------------------------------------------------
Total Investments--102.3% (Cost $552,191) ............................................... 552,191
- -----------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (2.3%)
Other Assets and Liabilities, Net ....................................................... (12,246)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF NET ASSETS (concluded) THE ARBOR FUND
July 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Value
PRIME OBLIGATIONS FUND (concluded) (000)
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSETS:
Portfolio shares (unlimited authorization-- no par value) based on 539,942,243 outstanding
shares of beneficial interest ........................................................ $539,944
Accumulated net realized gain on investments ............................................ 1
- -----------------------------------------------------------------------------------------------------------------
Total Net Assets--100.0% ....................................................... $539,94
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering and Redemption Price Per Share ....................... $1.00
=================================================================================================================
<FN>
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
MTN -- Medium Term Note
(A) Variable Rate Security -- The rate reported in the Statement of Net Assets
is the rate in effect on July 31, 1997. The date shown is the reset date.
(B) The contract has no stated maturity date, but may be terminated
unconditionally by the fund at any time upon at least 7 days notice to the
issuer.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF OPERATIONS THE ARBOR FUND
For the Six Month Period Ended July 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------
U.S. GOVERNMENT PRIME
SECURITIES OBLIGATIONS
MONEY FUND FUND
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Interest Income ................................................... $18,815 $15,048
- --------------------------------------------------------------------------------------------------------
Expenses:
Management Fees ................................................... 272 212
Waiver of Management Fees ......................................... (115) (110)
Investment Advisory Fees .......................................... 679 531
Waiver of Advisory Fees ........................................... (447) (318)
Custodian Fees .................................................... 103 93
Transfer Agent Fees ............................................... 102 80
Professional Fees ................................................. 16 14
Registration Fees ................................................. 26 16
Insurance Expense ................................................. 4 3
Amortization of Organizational Cost ............................... 30 2
Other Fees ........................................................ 9 7
- --------------------------------------------------------------------------------------------------------
Total Expenses .................................................. 679 530
- --------------------------------------------------------------------------------------------------------
Net Investment Income ............................................. 18,136 14,518
- --------------------------------------------------------------------------------------------------------
Net Realized Gain on Investments .................................. 3 1
- --------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations .................. $18,139 $14,519
========================================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS THE ARBOR FUND
<TABLE>
<CAPTION>
For the Six Month Period Ended July 31, 1997 (Unaudited) and for the Period Ended January 31, 1997
(IN THOUSANDS)
----------------------------------------------------------
U.S. GOVERNMENT PRIME
SECURITIES OBLIGATIONS
MONEY FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------
02/01/97 02/01/96 02/01/97 02/01/96
TO 07/31/97 TO 01/31/97 TO 07/31/97 TO 01/31/97
- ---------------------------------------------------------------------------------------------------------------------------
Investment Activities:
<S> <C> <C> <C> <C>
Net Investment Income ...................................... $ 18,136 $ 24,573 $ 14,518 $ 22,297
Net Realized Gain (Loss) on Investments 3 (14) 1 1
- ---------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations .............. 18,139 24,559 14,519 22,298
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income ...................................... (18,136) (24,573) (14,518) (22,297)
Capital Gains .............................................. -- -- -- (1)
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions ...................................... (18,136) (24,573) (14,515) (22,298)
- ---------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions (all at $1.00 per share):
Proceeds from Shares Issued ................................ 3,405,901 4,726,903 2,769,516 4,883,808
Reinvestment of Distributions .............................. 4,145 1,621 2,064 846
Cost of Shares Redeemed .................................... (3,336,652) (4,656,649) (2,709,071) (4,789,851)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
from Capital Share Transactions ............................ 73,394 71,875 62,509 94,803
- ---------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets ............................. 73,397 71,861 62,510 94,803
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets: Beginning of Period ............................... 586,731 514,870 477,435 382,632
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets: End of Period ..................................... $ 660,128 $ 586,731 $ 539,945 $ 477,435
===========================================================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS THE ARBOR FUND
For a Share Outstanding Throughout the Period or Year
<TABLE>
<CAPTION>
NET ASSET DISTRIBUTIONS NET NET RATIO
VALUE NET FROM ASSET VALUE ASSETS OF EXPENSES
BEGINNING INVESTMENT NET INVESTMENT END TOTAL END OF PERIOD TO AVERAGE
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
- -------------------------------------
U.S. GOVERNMENT SECURITIES MONEY FUND
- -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
For the Six Month Period Ended July 31, (unaudited):
1997 $1.00 0.03 (0.03) $1.00 5.34%* $660,128 0.20%*
For the Year Ended January 31,:
1997 $1.00 0.05 (0.05) $1.00 5.29% $586,731 0.20%
1996 $1.00 0.06 (0.06) $1.00 5.88% $514,870 0.20%
1995(1) $1.00 0.03 (0.03) $1.00 4.98%* $579,422 0.20%*
- ----------------------
PRIME OBLIGATIONS FUND
- ----------------------
For the Six Month Period Ended July 31, (unaudited):
1997 $1.00 0.03 (0.03) $1.00 5.48%* $539,945 0.20%*
For the Year Ended January 31,:
1997 $1.00 0.05 (0.05) $1.00 5.45% $477,435 0.20%
1996(2) $1.00 0.02 (0.02) $1.00 5.82%* $382,632 0.20%*
============================================================================================================================
RATIO RATIO OF
RATIO OF EXPENSES NET INCOME
OF NET TO AVERAGE TO AVERAGE
INCOME NET ASSETS NET ASSETS
TO AVERAGE (EXCLUDING (EXCLUDING
NET ASSETS WAIVERS) WAIVERS)
- ------------------------------------------------------------------------
- -------------------------------------
U.S. GOVERNMENT SECURITIES MONEY FUND
- -------------------------------------
<S> <C> <C> <C>
For the Six Month Period Ended July 31, (unaudited):
1997 5.36%* 0.37%* 5.19%*
For the Year Ended January 31,:
1997 5.17% 0.37% 5.00%
1996 5.72% 0.37% 5.55%
1995(1) 4.98%* 0.38%* 4.80%*
- ----------------------
PRIME OBLIGATIONS FUND
- ----------------------
For the Six Month Period Ended July 31, (unaudited):
1997 5.48%* 0.36%* 5.32%*
For the Year Ended January 31,:
1997 5.33% 0.38% 5.15%
1996(2) 5.61%* 0.40%* 5.41%*
========================================================================
<FN>
(1) Commenced operations on August 1, 1994
(2) Commenced operations on October 25, 1995
*Annualized
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS THE ARBOR FUND
July 31, 1997 (Unaudited)
1. Organization:
THE U. S. GOVERNMENT SECURITIES MONEY AND PRIME OBLIGATIONS FUNDS (the "Funds")
are separate investment portfolios of The Arbor Fund (the "Trust"), an open-end
management investment company. The Trust was organized as a Massachusetts
business trust under a Declaration of Trust dated July 24, 1992. The Trust is
registered under the Investment Company Act of 1940, as amended, as an open-end
management company. The financial statements included herein relate only to the
U.S Government Securities Money and Prime Obligations Funds. The Funds'
prospectus provides a description of the Funds' investment objectives, policies
and strategies.
2. Significant Accounting Policies:
The following is a summary of the significant accounting policies followed by
the Funds. The policies are in conformity with generally accepted accounting
principles.
SECURITY VALUATION--Investment securities held by the Funds are stated at
amortized cost, which approximates market value. Under this method,
purchase discounts and premiums are accreted and amortized ratably to
maturity and are included in interest income.
FEDERAL INCOME TAXES--It is the Funds' intention to continue to qualify as
regulated investment companies for Federal income tax purposes by complying
with the appropriate provisions of the Internal Revenue Code of 1986, as
amended. Accordingly, no provision for Federal income taxes is required in
the financial statements.
SECURITY TRANSACTIONS AND RELATED INCOME--Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Interest income is recognized using the accrual method of accounting. Costs
used in determining realized gains and losses on sales of investment
securities are those of the specific securities sold adjusted for the
accretion and amortization of purchase discounts and premiums during the
respective holding periods.
REPURCHASE AGREEMENTS--The Funds invest in tri-party repurchase agreements.
Securities held as collateral for tri-party repurchase agreements are
maintained in a segregated account by the broker's custodian bank until
maturity of the repurchase agreement. Provisions of the repurchase
agreements require that the market value of the collateral, including
accrued interest thereon, is sufficient in the event of default of the
counterparty. If the counterparty defaults and the value of the collateral
declines or if the counterparty enters an insolvency proceeding,
realization and/or retention of the collateral by the Fund may be delayed
or limited.
NET ASSET VALUE PER SHARE--The net asset value per share of the Funds is
calculated on each business day. In general, it is computed by dividing the
assets of each Fund, less its liabilities, by the number of outstanding
shares of each Fund.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions from net investment income are
declared and recorded daily and paid monthly to shareholders. Any net
realized capital gains on sales of securities are distributed to
shareholders at least annually.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS--The Financial
Statements have been prepared in conformity with generally accepted
accounting principles which permit management to make certain estimates and
assumptions at the date of the financial statements.
3. Administration, Transfer Agent and Distribution Agreements:
SEI Fund Resources (the "Administrator"), a Delaware business trust, serves as
administrator to the Funds. SEI Investments Management Corporation,
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded) THE ARBOR FUND
July 31, 1997 (Unaudited)
a wholly-owned subsidiary of SEI Investments Company, is the owner of all
beneficial interest in the Administrator. The Trust and the Administrator
have entered into an administration agreement dated August 1, 1994. Under terms
of the Administration Agreement, the Administrator is entitled to a fee which is
calculated daily and paid monthly at an annual rate of .08% of the average daily
net assets of each Fund. The Administrator and Crestar Asset Management Company
(the "Advisor") have agreed to waive a portion of their respective fees to the
extent necessary so that the total operating expenses of the Funds do not exceed
an annual rate of .20% of average daily net assets. During the period from
February 1, 1997 to July 31, 1997, the Administrator received net administration
fees totaling approximately .05% and .04% of the average daily net assets for
U.S. Government Securities Money and Prime Obligations Funds, respectively. Fee
waivers and expense reimbursements are voluntary and may be terminated at any
time.
Crestar Bank (the "Transfer Agent") serves as the transfer agent and dividend
disbursing agent for each Fund. The Transfer Agent also acts as the shareholder
servicing agent and custodian of the Funds.
The Trust and SEI Investment Distribution Co. (the "Distributor"), a
wholly-owned subsidiary of SEI Investments Company and an affiliate of the
Administrator, have entered into a distribution agreement (the "Distribution
Agreement") dated August 1, 1994. The Distributor receives no fees for its
distribution services under the Distribution Agreement.
4. Investment Advisory Agreement:
The Trust has entered into an investment advisory agreement with the Advisor
dated August 1, 1994 under which the Advisor is entitled to a fee which is
calculated daily and paid monthly, at an annual rate of .20% of the average
daily net assets of each Fund. During the period from February 1, 1997 to July
31, 1997, the Advisor received net fees totaling approximately .07% and .08% of
the average daily net assets for U.S. Government Securities Money and Prime
Obligations Funds, respectively. Fee waivers and expense reimbursements are
voluntary and may be terminated at any time. The Advisor is a wholly-owned
subsidiary of Crestar Bank, which is a wholly-owned subsidiary of Crestar
Financial Corporation.
5. Organizational Costs and Transactions with Affiliates:
Organizational costs have been capitalized by the Trust and are being amortized
over sixty months beginning with the commencement of operations. In the event
any of the initial shares of the Trust are redeemed by any holder thereof during
the period that the Trust is amortizing its organizational costs, the redemption
proceeds payable to the holder thereof by the Trust will be reduced by the
unamortized organizational costs in the same ratio as the number of initial
shares being redeemed bears to the number of initial shares outstanding at the
time of redemption. These costs include legal fees of $24,600 for organizational
work performed by a law firm of which two officers and a trustee of the Trust
are partners.
Certain officers and a trustee of the Trust are also officers of the
Administrator and/or Distributor. Such officers and trustee are paid no fees by
the Trust for serving in their respective roles.
6. Concentration of Credit Risk:
The Funds invest primarily in money market instruments maturing in 397 days or
less whose ratings are within the highest ratings category assigned by a
nationally recognized statistical rating agency or, if not rated, are believed
to be of comparable quality. The ability of the issuers of the securities held
by the Fund to meet their obligations may be affected by economic and political
developments in a specific industry, state or region.
<PAGE>
NOTES
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This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Funds. The report is not
authorized for distribution to prospective investors in the Funds unless
preceded or accompanied by an effective prospectus. Shares in the Funds are not
deposits or obligations of, or guaranteed or endorsed by Crestar Bank, the
parent corporation of the Funds' investment adviser. Such shares are also not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency.
