THE ARBOR FUND
CALIFORNIA TAX EXEMPT PORTFOLIO
INSTITUTIONAL TAX FREE PORTFOLIO
ANNUAL REPORT
JANUARY 31, 1997
Advised By
PNC Institutional Management Corporation
<PAGE>
Dear Shareholder:
We are pleased to present this report to shareholders of the California Tax
Exempt and Institutional Tax Free Portfolios of The Arbor Fund for the 12 months
ended January 31, 1997.
In the past year, the twin issues of economic growth and inflation dominated
market movements and investor expectations. In a smaller way, budget impasses,
government shutdowns and a presidential election also took their turns as market
forces, but the preoccupation with accelerating business activity and the belief
that this would lead to higher inflation were the key issues on the minds of
Federal Reserve policy makers and watchers alike.
Yields on municipal notes generally moved higher early in 1996 through mid
September, and assets of tax-free money funds hit record levels. Bond calls and
coupon interest payments, uncertainty in the stock and bond markets, the
Washington budget impasse and the possibility of changes to the tax code all
contributed to this asset growth.
In the fourth quarter, the expected election results, a slowdown in municipal
new issuance and no tightening by the Federal Reserve contributed to a more
positive tax-exempt money market environment. As prices rose, yields on
municipal notes dropped, and became less attractive on an after-tax basis.
Assets of tax-exempt money funds continued to rise to record levels, reaching
$147 billion in early January.
Signs of economic strength at the beginning of 1997 contributed to a
steepening in the tax-free money market yield curve, and despite reports of tame
inflation, indications of stronger-than-expected manufacturing activity and
continued healthy employment led some market participants to conclude that while
Fed policy will remain on hold for the foreseeable future, the next move could
be a tightening.
Both portfolios experienced sharp asset swings during the one-year period
ended January 31, 1997. Hence, a relatively short average weighted maturity was
maintained for each portfolio, and a majority of assets of both portfolios were
held in liquid, variable rate demand instruments. The average weighted maturity
of the California Tax Exempt Portfolio was 34 days at January 31, 1997, compared
with 40 days for IBC's index, while the average weighted maturity of the
Institutional Tax Free Portfolio was 32 days, compared with 41 days for IBC's
index.
Total net assets on January 31, 1997 stood at $488.7 million for the
California Tax Exempt Portfolio and $57.6 million for the Institutional Tax Free
Portfolio.
PNC Institutional Management Corporation
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees
of The Arbor Fund
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
California Tax Exempt Portfolio and Institutional Tax Free Portfolio (separately
managed portfolios of The Arbor Fund, hereafter referred to as the "Fund") at
January 31, 1997, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the three years in
the period then ended and the period October 6, 1993 (commencement of
operations) through January 31, 1994, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at January 31, 1997 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Philadelphia, PA
March 14, 1997
<PAGE>
STATEMENT OF NET ASSETS THE ARBOR FUND
January 31, 1997
Face
CALIFORNIA TAX EXEMPT Amount Value
PORTFOLIO (000) (000)
- -------------------------------------------------------------------------
MUNICIPAL BONDS -- 99.8%
CALIFORNIA -- 95.2%
Big Bear Lake, California Industrial
Development Revenue Bond,
Southwest Gas Project, Ser A,
AMT (A) (B) (C)
3.500%, 02/05/97 .................. $ 6,200 $6,200
California, Abag Finance Authority
Revenue Bond, Lucile S. Packard
Children's Hospital Project,
Ser 93 (A) (B) (C)
3.400%, 02/05/97 .................. 5,250 5,250
California Education Revenue Bond,
California Education Facilities
Project, (A) (B)
3.400%, 02/05/97 .................. 3,000 3,000
California Educational Authority,
Stanford University Project,
Ser-G2 (A) (B)
3.400%, 02/03/97 .................. 2,400 2,400
California General Obligation, TECP
3.450%, 04/10/97 .................. 5,000 5,000
California Golden Empire Schools,
Educational Revenue Bond,
Kern High School District Project,
Ser 96 (A) (B) (C)
3.450%, 02/05/97 .................. 5,000 5,000
California Health Facilities Finance
Authority, St. Joseph Hospital
Project, (A) (B)
3.600%, 02/03/97 .................. 10,450 10,450
California Health Facilities Industrial
Development Revenue Bond,
Scripps Memorial Hospital Project,
Ser 85B (A) (B) (C)
3.400%, 02/05/97 .................. 3,700 3,700
California Health Facilities Revenue
Bond, Adventist Health Systems
Project, (A) (B)
3.400%, 02/06/97 .................. 8,800 8,800
California Health Facilities Revenue
Bond, Catholic Healthcare Project,
Ser 88B (A) (B) (C)
3.450%, 02/05/97 .................. 2,700 2,700
Face
CALIFORNIA TAX EXEMPT Amount Value
PORTFOLIO (continued) (000) (000)
- -----------------------------------------------------------------------
California Health Facilities Revenue
Bond, Catholic Healthcare West
Project, Ser D (A) (B) (C)
3.450%, 02/05/97 .................. $ 2,000 $ 2,000
California Health Facilities Revenue
Bond, Kaiser Permanente
Project, Ser 93A (A) (B)
3.450%, 02/05/97 .................. 8,000 8,000
California Health Facilities Revenue
Bond, Kaiser Permanente Project,
Ser 93B (A) (B)
3.450%, 02/05/97 .................. 3,600 3,600
California Health Facilities Revenue
Bond, Scripps Memorial Hospital
Project, Ser 91B (A) (B) (C)
3.400%, 02/05/97 .................. 6,700 6,700
California Housing Finance Authority,
Multi-Family Revenue Bond,
Ser 95, AMT (A) (B) (C)
3.550%, 02/06/97 .................. 6,100 6,100
California Pollution Control Authority,
Plant Industrial Development
Revenue Bond, Chevron USA
Project, Ser 83
3.900%, 11/15/97 .................. 2,400 2,403
California Pollution Control Financing
Authority, Shell Oil Project,
Ser 85A, AMT (A) (B)
3.700%, 02/03/97 .................. 8,500 8,500
California Pollution Control Revenue
Bond, Colmac Energy Project,
Ser A, AMT (A) (B) (C)
3.500%, 02/05/97 .................. 4,000 4,000
California Pollution Control Revenue
Bond, Pacific Gas & Electric
Project, Ser 96, AMT (A) (B)
3.500%, 02/05/97 .................. 1,000 1,000
California Pollution Control Revenue
Bond, Sierra Pacific Project (A) (B) (C)
3.450%, 02/05/97 .................. 7,400 7,400
California Pollution Control Revenue
Bond, U.S. Borax Project,
Ser 95A (A) (B) (C)
3.500%, 02/06/97 .................. 5,100 5,100
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS (continued) THE ARBOR FUND
January 31, 1997
Face
CALIFORNIA TAX EXEMPT Amount Value
PORTFOLIO (continued) (000) (000)
- ------------------------------------------------------------------------
California Pollution Control Revenue
Bond, Wadham Energy Project,
Ser A, AMT (A) (B) (C)
3.500%, 02/05/97 ................... $ 3,680 $ 3,680
California Pollution Control Revenue
Bond, Wadham Energy Project,
Ser B, AMT (A) (B) (C)
3.500%, 02/05/97 ................... 3,000 3,000
California Pollution Control Revenue
Bond, Wadham Energy Project,
Ser C, AMT (A) (B)
3.500%, 02/05/97 ................... 4,800 4,800
California Pollution Control, Pacific
Gas and Electric Project,
Ser 96 D, TECP (A)
3.500%, 02/26/97 ................... 7,000 7,000
California Revenue Bond,
California Pollution Control
Financing Project, AMT (A) (B)
3.450%, 02/05/97 ................... 6,800 6,800
California Pollution Control
Finance Authority, Southern
California Edison Project, Ser A
3.350%, 02/12/97 ................... 4,900 4,900
California State, RAN, Ser C-3 (A) (B)
3.500%, 02/05/97 ................... 11,200 11,200
California State, RAN, Ser 96A
4.500%, 06/30/97 ................... 7,500 7,516
California Statewide Community
Development Authority Revenue
Bond, Chino Basin Municipal
Water Project, AMT (A) (B)
3.550%, 02/05/97 ................... 4,130 4,130
California Statewide Community
Development Authority Revenue
Bond, Ser 95A - 5 (A) (B)
3.400%, 02/05/97 ................... 5,600 5,600
California Statewide Community
Development Authority Revenue
Bond, Ser 95A - 6 (A) (B)
3.400%, 02/05/97 ................... 5,000 5,000
California Statewide Community
Development Industrial Development
Revenue Bond, Tri Valley Growers
Project, Ser 95F, AMT (A) (B)
3.550%, 02/05/97 ................... 7,100 7,100
Face
CALIFORNIA TAX EXEMPT Amount Value
PORTFOLIO (continued) (000) (000)
- -----------------------------------------------------------------------
Chula Vista, California Industrial
Development Revenue Bond,
San Diego Gas & Electric Company,
Ser 92B, AMT (A) (B)
3.550%, 02/05/97 ................... $ 1,000 $ 1,000
Contra Costa County, California
Housing Authority Multi-Family
Revenue Bond, Park Regency
Project, Ser A, AMT (A) (B) (C)
3.700%, 02/05/97 ................... 12,925 12,925
Grand Terrace California, Multi-Family
Housing Revenue Bond,
Mount Vernon Villas Project,
Ser 85 (A) (B) (C)
3.650%, 02/05/97 ................... 4,300 4,300
Los Angeles County, California
TRAN, Ser A
4.500%, 06/30/97 ................... 12,000 12,031
Los Angeles, California Certificate of
Participation, Unified School District,
Parking Project, Ser B (C)
3.800%, 10/01/97 ................... 2,000 2,000
Los Angeles County, California Multi-Family
Housing Revenue Bond, Canyon
Villas Project, Ser A, AMT (A) (B)
3.700%, 02/05/97 ................... 5,500 5,500
Los Angeles County, California Sales
Tax Revenue Bond, Ser A (A) (B)
3.400%, 02/05/97 ................... 8,850 8,850
Los Angeles County, California TRAN
4.500%, 06/30/97 ................... 4,500 4,512
Los Angeles County, Housing Authority
Revenue Bond, Malibu Meadows II
Project, Ser B (A) (B)
3.600%, 02/05/97 ................... 5,000 5,000
Los Angeles County Pension Obligation
Revenue Bond, Ser C (A) (B) (C)
3.400%, 02/05/97 ................... 3,300 3,300
Los Angeles County Pension Obligation,
Ser C, RB (A) (B) (C)
3.400%, 02/03/97 ................... 2,000 2,000
Modesto - Santa Clara - Redding,
California Utility Revenue Bond,
San Juan Project, Ser B (A) (B)
3.450%, 02/06/97 ................... 1,900 1,900
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS (continued) THE ARBOR FUND
January 31, 1997
Face
CALIFORNIA TAX EXEMPT Amount Value
PORTFOLIO (continued) (000) (000)
- -----------------------------------------------------------------------
Monterey County, California Revenue
Bond, Reclamation and Distribution
Project, Ser 95A (A) (B) (C)
3.700%, 02/06/97 ..................... $ 2,800 $ 2,800
Monterey Peninsula, California
Certificate of Participation, Wastewater
Reclamation Project (A) (B) (C)
3.400%, 02/06/97 ..................... 3,700 3,700
Oakland, California Children Hospital
Medical Center, Ser B (A) (B) (C)
3.450%, 02/05/97 ..................... 6,000 6,000
Oakland County, California Certificate
of Participation, Capital Equipment
Project (A) (B) (C)
3.750%, 02/05/97 ..................... 1,900 1,900
Oakland County, California TRAN
4.750%, 06/30/97 4,000 4,014
Regents of University of California
TECP, Ser A (C)
3.600%, 05/14/97 ..................... 6,000 6,000
Regents of University of California TECP (C)
3.500%, 05/22/97 ..................... 6,000 6,000
Riverside County, California Certificate
of Participation, Riverside
Public Facilities Project,
Ser 85D (A) (B) (C)
3.300%, 02/04/97 ..................... 4,080 4,080
Riverside County, California
TRAN, Ser A
4.500%, 06/30/97 ..................... 5,000 5,012
Riverside County, California
TRAN, Ser B (A) (B) (C)
3.450%, 02/05/97 ..................... 11,400 11,400
Sacramento, California Municipal
Utility District, Ser I, TECP (C)
3.450%, 05/12/97 ..................... 8,800 8,800
Sacramento, California, Administration
Center & Court House Project (A) (B) (C)
3.400%, 02/06/97 ..................... 3,340 3,340
Sacramento, California Municipal
Utility District, Ser I, TECP (C)
3.400%, 02/19/97 ..................... 7,000 7,000
San Bernadino County, California
Certificate of Participation, Center
Refinancing Project, Ser 96 (A) (B) (C)
3.500%, 02/05/97 ..................... 2,500 2,500
Face
CALIFORNIA TAX EXEMPT Amount Value
PORTFOLIO (continued) (000) (000)
- ---------------------------------------------------------------------
San Bernadino County, California TRAN (C)
4.500%, 06/30/97 .................. $ 5,000 $ 5,012
San Bernardino County, California
Housing Authority Multi-Family
Revenue Bond, Montclair Heritage
Project, Ser A (A) (B) (C)
3.500%, 02/06/97 .................. 4,620 4,620
San Bernardino County, California
Housing Authority Multi-Family
Revenue Bond, Rialto Heritage
Park Apartments Project,
Ser 93 (A) (B) (C)
3.500%, 02/06/97 .................. 4,330 4,330
San Diego, California, San Diego
Gas & Electric Co., Ser 95A, TECP
3.450%, 05/13/97 .................. 10,200 10,200
San Diego, California, Housing Authority
Multi-Family Revenue Bond, Lusk
Mira Apartments Project,
Ser 85E (A) (B) (C)
3.450%, 02/06/97 .................. 3,600 3,600
San Francisco, California Financing
Authority Revenue Bond,
Yerba Buena Garden
Project (A) (B) (C)
3.600%, 02/05/97 .................. 4,850 4,850
San Francisco, California, City & County
Redevelopment Agency,
Bayside Village Project,
Ser A (A) (B) (C)
3.500%, 02/06/97 .................. 5,100 5,100
San Francisco, California, City & County
Redevelopment Agency
Multi-Family Revenue Bond,
Fillmore Center Project,
Ser 92B - 1 (A) (B) (C)
3.500%, 02/05/97 .................. 8,900 8,900
San Jose, California Redevelopment
Agency Revenue Bond, Merged
Area Redevelopment Project,
Ser A (A) (B)(C)
3.500%, 02/05/97 .................. 13,400 13,400
San Jose - Santa Clara, California Water
Financing Authority Revenue Bond,
Ser 95B (A) (B) (C)
3.400%, 02/05/97 .................. 3,400 3,400
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS (continued) THE ARBOR FUND
January 31, 1997
Face
CALIFORNIA TAX EXEMPT Amount Value
PORTFOLIO (continued) (000) (000)
- --------------------------------------------------------------------
Santa Clara, California Electric
Revenue Bond, Ser 85B (A)(B)(C)
3.500%, 02/05/97 .................... $ 2,905 $ 2,905
Santa Clara, California Transit District
Santa Clara Transportation, (A) (B) (C)
3.700%, 02/03/97 .................... 4,000 4,000
Southeast Resource Recovery Facilities
Authority, California Lease Revenue,
Ser A (A) (B) (C)
3.600%, 02/05/97 .................... 31,300 31,300
Southeast Resource Recovery,
California Lease Revenue Bond,
Ser 95B AMT (A) (B) (C)
3.700%, 02/05/97 .................... 1,500 1,500
Southern California Public Power Authority,
Transmission Project Revenue,
Southern Transmission, Ser 91
(A) (B) (C)
3.400%, 02/05/97 .................... 9,800 9,800
Southern California Public Power Revenue
Bond Transmission Project,
Ser 96B (A) (B) (C)
3.450%, 02/05/97 .................... 8,000 8,000
Turlock Irrigation District, California
Certificate of Participation,
Ser A12 (A) (B) (C)
3.500%, 02/05/97 .................... 6,215 6,215
Vallejo, California Housing Authority,
Multi-Family Revenue Bond,
Crow Western Project, Phase II -
Ser 85C (A) (B) (C)
3.550%, 02/05/97 .................... 9,200 9,200
Ventura County, California TRAN
4.750%, 07/02/97 .................... 7,000 7,024
West Covina, California Redevelopment
Agency Revenue Bond, Barranca
Garvey Public Parking Project (A) (B) (C)
3.500%, 02/05/97 .................... 8,000 8,000
--------
Total California ................ 465,249
--------
PUERTO RICO -- 4.6%
Puerto Rico Government Development
Bank, TECP
3.600%, 02/13/97 .................... 5,000 5,000
3.400%, 05/09/97 .................... 5,000 5,000
3.500%, 05/09/97 .................... 5,500 5,500
Face
CALIFORNIA TAX EXEMPT Amount Value
PORTFOLIO (concluded) (000) (000)
- -------------------------------------------------------------------------------
Puerto Rico, TRAN
4.000%, 07/30/97 .................... $ 7,000 $ 7,019
--------
Total Puerto Rico ............... 22,519
--------
Total Municipal Bonds
(Cost $487,768) .............. 487,768
--------
Total Investments-- 99.8%
(Cost $487,768) .............. 487,768
--------
OTHER ASSETS AND LIABILITIES -- 0.2%
Other Assets and Liabilities, Net ... 970
--------
Total Other Assets and Liabilities ...... 970
--------
NET ASSETS:
Portfolio Shares (unlimited
authorization - no par value)
based on 488,809,547 outstanding
shares of beneficial interest ....... 488,810
Distributions in Excess of Net Investment
Income (6)
Accumulated Net Realized Loss
on Investments ...................... (66)
--------
Total Net Assets-- 100.0% ............... $488,738
========
Net Asset Value, Offering Price
and Redemption Price Per Share ...... $1.00
========
(A) Variable Rate Security -- the rate reported in the Statement of Net Assets
is the rate in effect on January 31, 1997.
(B) Put or Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the earlier of the
put, demand or maturity date.
(C) Security is held in connection with a guarantee, guaranteed investment
contract, collateral agreement, letter of credit or standby bond purchase
agreement issued by a major commercial bank or other financial
institution.
AMT -- Income from this security is subject to the Alternative Minimum Tax
RAN -- Revenue Anticipation Note
Ser -- Series
TECP -- Tax Exempt Commercial Paper
TRAN -- Tax and Revenue Anticipation Note
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS (continued) THE ARBOR FUND
January 31, 1997
Face
INSTITUTIONAL TAX FREE Amount Value
PORTFOLIO (000) (000)
- ---------------------------------------------------------------------
MUNICIPAL BONDS -- 99.7%
ARIZONA -- 6.5%
Apache County, Arizona Industrial
Development Revenue Bond,
Tucson Electric Power, Ser 83A
(A) (B) (C)
3.550%, 02/05/97 ...................... $2,100 $2,100
Phoenix, Arizona, Industrial Development
Authority, Multi-Family Housing
Revenue Bond, Paradise
Shadows Apartments Project
(A) (B) (C)
3.205%, 02/05/97 ...................... 1,650 1,650
-------
Total Arizona ..................... 3,750
-------
DISTRICT OF COLUMBIA -- 1.7%
Metro Washington, D.C. Airports Authority
Passenger Facilities TECP (C)
3.550%, 02/25/97 ...................... 1,000 1,000
-------
FLORIDA -- 5.6%
Jacksonville, Florida , TECP (C)
3.550%, 05/14/97 ...................... 1,000 1,000
Saint Lucie County, Florida, Pollution
Control Authority, Florida Power
and Light Project (A) (B)
3.600%, 02/03/97 ...................... 200 200
Sunshine State (Florida) Governmental
Financing Commission
Revenue Note, TECP
3.550%, 05/13/97 ...................... 2,000 2,000
-------
Total Florida ..................... 3,200
-------
GEORGIA -- 3.5%
Fulton County, Georgia Educational
Revenue Bond, Alfred and Adele Davis
Academy Project, Ser 95 (A) (B) (C)
3.550%, 02/05/97 ...................... 2,000 2,000
-------
ILLINOIS -- 17.4%
Chicago, Illinois O'Hare International
Airport Revenue Bond,
Ser 84A (A) (B) (C)
3.500%, 02/05/97 ...................... 2,200 2,200
Illinois State, Educational Revenue
Bond, Art Institute of Chicago
Project (A) (B) (C)
3.550%, 02/05/97 ...................... 1,700 1,700
Face
INSTITUTIONAL TAX FREE Amount Value
PORTFOLIO (continued) (000) (000)
- --------------------------------------------------------------------
Illinois State, Health Facility Authority,
General Revenue Bond, Victory
Health Project, Ser C (C)
3.500%, 02/06/97 ...................... $2,600 $ 2,600
Illinois State, Industrial Development
Authority, Revenue Bond, Webster
Wayne Shopping Center
Project (A) (B) (C)
3.550%, 02/06/97 ...................... 2,440 2,440
Illinois State, Pollution Control Revenue
Bond, Illinois Power Company
Project, AMT (A) (B) (C)
3.650%, 02/04/97 ...................... 1,100 1,100
-------
Total Illinois .................... 10,040
-------
IOWA -- 3.5%
Iowa State, Higher Education Revenue
Bond, Ser 85 (A) (B) (C)
3.550%, 02/05/97 ...................... 2,000 2,000
-------
LOUISIANA -- 2.1%
Jefferson Parish, Louisiana Hospital
Revenue Bond (A) (B) (C)
3.550%, 02/05/97 ...................... 800 800
West Baton Rouge, Louisiana, Industrial
Development Authority, Dow
Chemical Project, AMT (A) (B)
3.800%, 02/03/97 ...................... 400 400
-------
Total Louisiana ................... 1,200
-------
MICHIGAN -- 7.8%
Michigan State, TECP (C)
3.500%, 05/01/97 ...................... 2,500 2,500
Michigan Strategic Fund, Dow
Chemical Project, TECP, Ser 86
3.500%, 05/12/97 ...................... 2,000 2,000
-------
Total Michigan .................... 4,500
-------
MISSOURI -- 2.8%
Missouri State, Environmental
Improvement and Energy
Revenue Bond, Monsanto
Project, Ser 88 (A) (B)
3.600%, 02/05/97 ...................... 1,600 1,600
-------
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS (continued) THE ARBOR FUND
January 31, 1997
Face
INSTITUTIONAL TAX FREE Amount Value
PORTFOLIO (continued) (000) (000)
- --------------------------------------------------------------------
MONTANA -- 1.0%
Forsyth, Montana, Pollution Control Revenue
Bond, Portland General Electric
Project, Ser C (A) (B) (C)
3.600%, 02/03/97 ...................... $ 600 $ 600
-------
NEW YORK -- 3.6%
New York City, New York RAN,
Ser A
4.500%, 04/15/97 ...................... 1,000 1,002
New York State, Energy Research &
Development Authority, NY Electric &
Gas, Ser B (A) (B) (C)
3.550%, 02/03/97 ...................... 1,100 1,100
-------
Total New York .................... 2,102
-------
NORTH CAROLINA -- 7.3%
North Carolina State, Hospital Revenue
Bond, Moses H. Cone Memorial
Hospital Project (A) (B) (C)
3.550%, 02/06/97 ...................... 2,200 2,200
Wake County, North Carolina, Pollution
Control Revenue Bond, Carolina
Power and Light Project,
Ser B5 (A) (B) (C)
3.750%, 02/05/97 ...................... 2,000 2,000
-------
Total North Carolina .............. 4,200
-------
NORTH DAKOTA -- 3.5%
Mercer County, North Dakota, Solid Waste
Disposal Revenue Bond, United Power
Association Project, Ser 95A, AMT
3.700%, 03/01/97 ...................... 2,000 2,000
-------
OHIO -- 7.1%
Clermont County, Ohio, Hospital Facility
Revenue Bond, Mercy Health
System Project, Ser B1 (A) (B)
3.500%, 02/05/97 ...................... 2,100 2,100
Youngstown, Ohio, Industrial Development
Revenue Bond, Portage Transformer
Project, AMT (A) (B) (C)
3.750%, 02/06/97 ...................... 2,000 2,000
-------
Total Ohio ........................ 4,100
-------
Face
INSTITUTIONAL TAX FREE Amount Value
PORTFOLIO (continued) (000) (000)
- -------------------------------------------------------------------
PENNSYLVANIA -- 0.9%
Beaver County, Pennsylvania, Pollution
Control Revenue Bond, Atlantic
Richfield Project, (A) (B)
3.352%, 02/05/97 ...................... $ 500 $ 500
-------
PUERTO RICO -- 3.5%
Puerto Rico, Government
Development Bank, TECP
3.600%, 02/13/97 ...................... 2,000 2,000
-------
SOUTH DAKOTA -- 3.5%
Lawrence County, South Dakota,
Pollution Control Revenue Bond,
Homestake Mining Project,
Ser 83 (A) (B) (C)
3.500%, 02/05/97 ...................... 2,000 2,000
-------
TENNESSEE -- 1.7%
Montgomery County, Tennessee General
Revenue Bond, Ser 96 (A) (B) (C)
3.550%, 02/06/97 ...................... 1,000 1,000
-------
TEXAS -- 7.0%
Hockley County, Texas, Industrial
Development Corporate
Pollution Control Revenue Bond,
Amoco Project, Ser 83
3.750%, 03/01/97 ...................... 1,000 1,000
Texas State, TRAN
4.750%, 08/29/97 ...................... 3,000 3,013
-------
Total Texas ....................... 4,013
-------
VIRGINIA -- 4.2%
Fairfax County, Virginia, Industrial
Development Revenue Bond,
Fairfax Hospital System Project,
Ser 88C (A) (B) (C)
3.550%, 02/05/97 ...................... 2,400 2,400
-------
WASHINGTON -- 3.3%
Washington State, Public Power Supply
System Nuclear Project Number 1,
Ser 1A3 (A) (B) (C)
3.550%, 02/05/97 ...................... 900 900
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS (continued) THE ARBOR FUND
January 31, 1997
Face
INSTITUTIONAL TAX FREE Amount Value
PORTFOLIO (continued) (000) (000)
- -------------------------------------------------------------------
Yakima County, Washington Industrial
Development Revenue Bond,
Hi-Country Foods Project,
Ser 96, AMT (A) (B) (C)
3.700%, 02/05/97 ...................... $1,000 $ 1,000
-------
Total Washington .................. 1,900
-------
WISCONSIN -- 2.2%
Oak Creek, Wisconsin, Industrial
Development Revenue Bond,
Wisconsin Electric Power Project (A) (B)
3.600%, 02/05/97 ...................... 1,300 1,300
-------
Total Municipal Bonds
(Cost $57,405) ................. 57,405
-------
Total Investments -- 99.7%
(Cost $57,405) ................. 57,405
-------
OTHER ASSETS AND LIABILITIES -- 0.3%
Other Assets and Liabilities, Net ......... 169
-------
Total Other Assets and Liabilities ........ 169
-------
INSTITUTIONAL TAX FREE Value
PORTFOLIO (concluded) (000)
- -------------------------------------------------------------------
NET ASSETS:
Portfolio Shares (unlimited
authorization - no par value) based
on 57,605,872 outstanding shares
of beneficial interest ................ $57,606
Accumulated Net Realized Loss
on Investments ........................ (32)
---------
Total Net Assets -- 100.0% ................ 57,574
=========
Net Asset Value, Offering Price
and Redemption Price Per Share ........ $1.00
=========
(A) Variable Rate Security--the rate reported in the Statement of Net Assets is
the rate in effect on January 31, 1997.
(B) Put or Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the earlier of the
put, demand or maturity date.
(C) Security is held in connection with a guarantee, guaranteed investment
contract, letter of credit or standby bond purchase agreement issued by a
major commercial bank or other financial institution.
AMT -- Income from this security is subject to the Alternative Minimum Tax
RAN -- Revenue Anticipation Note
Ser -- Series
TECP -- Tax Exempt Commercial Paper
TRAN -- Tax and Revenue Anticipation Note
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF OPERATIONS (000) THE ARBOR FUND
For the Year Ended January 31, 1997
<TABLE>
<CAPTION>
CALIFORNIA INSTITUTIONAL
TAX EXEMPT TAX FREE
PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Interest Income............................................................ $15,250 $2,520
- ---------------------------------------------------------------------------------------------------------------
Total Investment Income.................................................. 15,250 2,520
- ---------------------------------------------------------------------------------------------------------------
Expenses:
Administration Fees......................................................... 1,034 215
Less: Waiver of Administration Fees......................................... (226) (186)
Investment Advisory Fees.................................................... 423 61
Custodian Fees.............................................................. 33 10
Transfer Agent Fees......................................................... 47 28
Professional Fees........................................................... 75 10
Registration Fees........................................................... 50 --
Trustee Fees................................................................ 19 3
Printing Expenses........................................................... 39 10
Amortization of Organizational Costs........................................ 3 3
Other Expenses.............................................................. 14 4
- ---------------------------------------------------------------------------------------------------------------
Total Expenses........................................................... 1,511 158
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income....................................................... 13,739 2,362
- ---------------------------------------------------------------------------------------------------------------
Net Realized Loss on Investments............................................ (2) (9)
- ---------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting From Operations............................ 13,737 2,353
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000) THE ARBOR FUND
For the Periods Ended January 31,
<TABLE>
<CAPTION>
CALIFORNIA INSTITUTIONAL
TAX EXEMPT TAX FREE
PORTFOLIO PORTFOLIO
----------------------- -------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Operations:
Net Investment Income $ 13,739 $ 13,269 $ 2,362 $ 4,190
Net Realized Loss on Securities Sold (2) (3,043) (9) (4)
Net Change in Unrealized Appreciation on Investments -- 3,012 -- --
- --------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Investment Operations 13,737 13,238 2,353 4,186
- --------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income (13,745) (13,269) (2,362) (4,190)
Net Realized Gains on Securities Sold -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Total Distributions (13,745) (13,269) (2,362) (4,190)
- --------------------------------------------------------------------------------------------------------------
Capital Share Transactions (at $1.00 per share):
Shares Issued 1,827,668 1,185,021 366,265 862,136
Shares Redeemed (1,730,604) (1,189,342) (425,418) (859,120)
- --------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Capital Share
Transactions 97,064 (4,321) (59,153) 3,016
- --------------------------------------------------------------------------------------------------------------
Contribution of Capital From Affiliate -- 30 -- --
- --------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 97,056 (4,322) (59,162) 3,012
- --------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period 391,682 396,004 116,736 113,724
- --------------------------------------------------------------------------------------------------------------
End of Period $ 488,738 $ 391,682 $ 57,574 $ 116,736
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS THE ARBOR FUND
For a Share Outstanding Throughout the Period
For the Periods Ended January 31,
<TABLE>
<CAPTION>
RATIO OF
REALIZED NET EXPENSES
NET ASSET AND DISTRIBUTIONS ASSET TO
VALUE NET UNREALIZED FROM NET VALUE NET ASSETS AVERAGE
BEGINNING INVESTMENT LOSSES ON INVESTMENT CONTRIBUTION END OF TOTAL END OF NET
OF PERIOD INCOME SECURITIES INCOME OF CAPITAL PERIOD RETURN PERIOD (000) ASSETS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALIFORNIA TAX EXEMPT PORTFOLIO
1997..... $1.00 0.030 -- (0.030) -- $1.00 3.09% $488,738 0.33%
1996..... 1.00 0.034 -- (0.034) -- 1.00 3.42++ 391,682 0.42
1995..... 1.00 0.027 (.008) (0.027) .008 1.00 2.79+ 396,004 0.28
1994(1).. 1.00 0.007 -- (0.007) -- 1.00 2.17* 402,814 0.28*
INSTITUTIONAL TAX FREE PORTFOLIO
1997..... $1.00 0.033 -- (0.033) -- $1.00 3.37% $57,574 0.22%
1996..... 1.00 0.036 -- (0.036) -- 1.00 3.69 116,736 0.30
1995..... 1.00 0.028 -- (0.028) -- 1.00 2.80 113,724 0.30
1994(1).. 1.00 0.007 -- (0.007) -- 1.00 2.20* 130,768 0.30*
=================================================================================================================
RATIO OF RATIO OF
EXPENSES NET
RATIO OF TO INCOME TO
NET AVERAGE AVERAGE
INCOME TO NET NET
AVERAGE ASSETS ASSETS
NET (EXCLUDING (EXCLUDING
ASSETS WAIVERS) WAIVERS)
- -----------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA TAX EXEMPT PORTFOLIO
1997..... 3.04% 0.38% 2.99%
1996..... 3.36 0.42 3.36
1995..... 2.72 0.34 2.66
1994(1).. 2.14* 0.34* 2.08*
INSTITUTIONAL TAX FREE PORTFOLIO
1997..... 3.29% 0.48% 3.03%
1996..... 3.60 0.48 3.42
1995..... 2.73 0.46 2.57
1994(1).. 2.17* 0.47* 2.00*
===============================================
<FN>
* Annualized
+ The total return for the period ended January 31, 1995 includes the effect of
a capital contribution from an affiliate of the former Adviser. Without the
capital contribution, the total return would have been .74%.
++ The total return for the period ended January 31, 1996 includes the effect
of a capital contribution from an affiliate of the former Adviser. Without
the capital contribution, the total return would have been 2.42%.
(1)Commenced operations on October 6, 1993.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS THE ARBOR FUND
January 31, 1997
1. Organization:
THE CALIFORNIA TAX EXEMPT AND INSTITUTIONAL TAX FREE PORTFOLIOS are separate
investment portfolios of The Arbor Fund (the "Trust"). The Trust was organized
as a Massachusetts business trust under a Declaration of Trust dated July 24,
1992 and had no operations through February 1, 1993 other than those related to
organizational matters and the sale of initial shares to SEI Fund Resources (the
"Administrator") on October 9, 1992. SEI Financial Management Corporation, a
wholly-owned subsidiary of SEI Investments Company, is the owner of all
beneficial interest in the Administrator. The Trust is registered under the
Investment Company Act of 1940, as amended, as an open-end management company.
These financial statements relate to the Trust's California Tax Exempt Portfolio
and Institutional Tax Free Portfolio (the "Portfolios"). The Portfolios'
prospectus provides a description of each Portfolio's investment objectives,
policies and strategies. The assets of each portfolio are segregated, and a
shareholder's interest is limited to the Portfolio in which shares are held. The
Portfolios commenced operations on October 6, 1993 ("commencement of
operations").
2. Significant Accounting Policies:
The following is a summary of the significant accounting policies followed by
the Portfolios.
SECURITY VALUATION--Investment securities held by the Portfolios are stated
at amortized cost, which approximates market value. Under this valuation
method, purchase discounts and premiums are accreted and amortized ratably
to maturity and are included in interest income.
FEDERAL INCOME TAXES--It is each Portfolio's intention to continue to qualify
as a regulated investment company 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 tax 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 accrued as earned. Costs used in determining realized gains and
losses on the sale of investment securities are those of the specific
securities sold.
EXPENSES--Expenses that are directly related to one of the Portfolios are
charged directly to that Portfolio. Other operating expenses of the Trust
are prorated to the Portfolios on the basis of relative net assets.
OTHER--Distributions from net investment income are declared daily and paid
monthly to Shareholders. Any net realized gains on sales of securities are
distributed to Shareholders at least annually.
3. Administration and Distribution Agreements:
The Trust and the Administrator have entered into an Administration Agreement
dated January 28,1993 (the "Administration Agreement"). 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 .23% and .30% of the
average daily net assets of the California Tax Exempt and Institutional Tax Free
Portfolios, respectively. The Administrator has agreed to voluntarily waive a
portion of its fee in order to limit annual operating expenses to .33% of the
California Tax Exempt Portfolio's average daily net assets and .20% of the
average daily net assets of the Institutional Tax Free Portfolio effective March
15, 1996.Fee waivers by the Administrator are voluntary and may be terminated at
any time. The
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued) THE ARBOR FUND
January 31, 1997
Administrator also serves as the shareholder servicing agent for the
portfolios. Compensation for this service is paid under the Administration
Agreement.
The Trust and SEI Financial Services Company (the "Distributor"), a
wholly-owned subsidiary of SEI Investments Company, have entered into a
Distribution Agreement (the "Distribution Agreement"). The Distributor receives
no fees for its services under the Distribution Agreement.
4. Investment Advisory Agreement:
The Trust has entered into an investment advisory agreement (the"Advisory
Agreement") with PNC Institutional Management Corporation (the "Adviser"), a
wholly-owned subsidiary of PNC Bank, N.A., dated December 1, 1995. Under the
terms of the Advisory Agreement, the Adviser is entitled to a fee, that is
calculated daily and paid monthly, at an annual rate of .095% of the average
daily net assets of each of the California Tax Exempt and Institutional Tax Free
Portfolios.
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.
Certain officers and a trustee of the Trust are also officers of the
Administrator and/or Distributor. Such officers and trustee are not compensated
by the Trust for serving in their respective roles.
On December 15, 1994, Prudential Securities Group, Inc. ("PSG"), an affiliate
of the former adviser to the Portfolio, granted to the California Tax Exempt
Portfolio (the "California Portfolio") the right to require PSG to purchase from
the California Portfolio sufficient amounts of two bonds, at amortized cost plus
accrued interest, in order to maintain the California Portfolio's
marked-to-market net asset value per share at no less than $.9971 (the
"Agreement"). The California Portfolio's rights under the Agreement provided for
immediate exercise upon the occurrence of certain conditions, including reaching
the date of July 19, 1995.
The securities subject to the Agreement were:
PAR
(000) DESCRIPTION
------- ----------------------------------------
$ 5,000 Orange County TRAN, 4.5%, 7/19/95
$20,000 Orange County Teeter Note, 4.2%, 6/30/95
On the date of the Agreement, the California Portfolio recorded an unrealized
loss of $3,012,750 for the difference between the market value of the bonds and
their amortized cost and a contribution to capital in the same amount.
On March 13, 1995, PSG extended the date of the Agreement until the maturity
date for each security subject to the Agreement. In connection with this
extension, the California Portfolio recorded an unrealized loss of $29,557 and a
contribution to capital in the same amount.
On June 30, 1995, the Orange County Teeter Note matured and the California
Portfolio received the full face amount of the note plus accrued interest. On
July 19, 1995, the California Portfolio exercised its right under the Agreement
and put the Orange County TRAN to PSG for an amount equivalent to the full face
amount plus accrued interest.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded) THE ARBOR FUND
January 31, 1997
The California Portfolio then recognized a realized loss of $3,042,307 and a
corresponding reduction in unrealized depreciation in the Statement of
Operations. The realized loss was then reclassified from the California
Portfolio's accumulated net realized losses to paid-in-capital. The
reclassification had no effect on the California Portfolio's net asset value per
share.
6. Investment Transactions:
At January 31, 1997, the Portfolios had available realized capital losses as
follows to offset future net capital gains through fiscal year ending:
2003 2004 2005
(000) (000) (000)
----- ----- -----
California Tax Exempt $61 $ 2 $ 2
Institutional Tax Free 18 4 10
7. Concentration of Credit Risk:
The Portfolios invest primarily in municipal money market instruments maturing
in 397 days or less whose ratings are within the highest ratings category
assigned by a nationally recognized statistical rating organization or, if not
rated, are believed to be of comparable quality. The ability of the issuers of
the securities held by the Portfolios to meet their obligations may be affected
by economic and political developments in a specific industry, state or region.
<PAGE>
SHAREHOLDER VOTING RESULTS
(UNAUDITED)
There was a special meeting of shareholders on February 22, 1996 for the Trust
to approve the selection of PNC Institutional Management Corporation ("PIMC") as
the Investment Adviser and to approve a new Investment Advisory Agreement
between the Trust and PIMC. Due to lack of quorum, the meeting was adjourned for
the Institutional Tax Free Portfolio. The following were the results of the vote
for the California Portfolio:
FOR 238,197,686
AGAINST 2,658,882
ABSTAIN 3,889,497
The special meeting of shareholders was reconvened on April 15, 1996 for the
Institutional Tax Free Portfolio to approve the selection of PIMC as the
Investment Adviser and to approve a new Investment Advisory Agreement between
the Trust and PIMC. The following were the results of the vote:
FOR 58,866,096
AGAINST 70,722
ABSTAIN 1,317,391
There were no other proposals voted upon at such meetings.
<PAGE>
NOTICE TO SHAREHOLDERS
OF
THE ARBOR FUND
(UNAUDITED)
For shareholders that do not have a January 31, 1997 tax year end, this notice
is for informational purposes only. For shareholders with a January 31, 1997 tax
year end, please consult your tax adviser as to the pertinence of this notice.
For the fiscal year ended January 31, 1997, each portfolio is designating the
following items with regard to distributions paid during the year.
(A) (B) (C)
LONG TERM ORDINARY INCOME TOTAL
CAPITAL GAINS DISTRIBUTIONS DISTRIBUTIONS
PORTFOLIO (TAX BASIS) (TAX BASIS) (TAX BASIS)
- --------------------------------------------------------------------------------
California Tax Exempt 0% 100% 100%
Institutional Tax Free 0% 100% 100%
================================================================================
(D) (E) (F)
QUALIFYING TAX EXEMPT FOREIGN
PORTFOLIO DIVIDENDS(1) INTEREST (2) TAX CREDIT
- --------------------------------------------------------------------------------
California Tax Exempt 0% 100% 0%
Institutional Tax Free 0% 100% 0%
================================================================================
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
(2) None of the portfolios of The Arbor Fund satisfy California's,
Connecticut's, or New York's statutory requirements to pass through income
from Federal obligations. Accordingly, the pro rata portion of income from
Federal obligations will not be exempt from these states' respective income
tax.
* Items (A) and (B) are based on a percentage of each portfolio's total
distributions.
** Items (D), (E), and (F) are based on a percentage of ordinary income
distributions of each portfolio.
<PAGE>
INVESTMENT ADVISER
PNC Institutional Management Corporation
DISTRIBUTOR
SEI Financial Services Company
Oaks, PA 19456
FOR MORE INFORMATION CALL:
1-800-545-6331
PIC-F-003-04
