THE ARBOR FUNDS
U.S. GOVERNMENT SECURITIES MONEY FUND
PRIME OBLIGATIONS FUND
ANNUAL REPORT TO SHAREHOLDERS
AS OF JANUARY 31, 1997
<PAGE>
Dear Shareholder:
The period ended January 31, 1997 was another one of strong performance and
continued growth for the Prime Obligations Fund and the U.S. Government
Securities Money Fund.
The Prime Obligations Fund continued to achieve high performance both in yield
and growth of assets. Total assets in the Fund reached $477 million as of
January 31, 1997, a 14.7 percent increase since our last report six months ago.
Its 7-day yield was 5.35% and its 7-day effective yield was 5.49%. The Fund's
total return for the year ended January 31 placed it in the top 9% of all prime
institutional money funds according to Lipper Analytical Services.
The U.S. Government Securities Money Fund also performed well during this time.
As of January 31, 1997, the Fund has assets of $587 million, a 36.2% increase in
assets from July 31, 1996. The 7-day yield on January 31 was 5.22% and the 7-day
effective yield was 5.36%, placing it in the top 18% of all institutional
government money funds according to Lipper Analytical Services.
ECONOMIC ENVIRONMENT
The U.S. economy continued to grow during the past six months with little
increase in measured inflation. Consumer spending grew at a comfortable pace
during the period helped by continued job growth and improving consumer
confidence. Business conditions were generally good, with few imbalances.
Inventories remained low and output continued to increase. All of this good news
on growth was matched by low inflation reports. Core inflation for 1996 dropped
to the lowest level in recent memory.
Currently, the risk is that the GOLDILOCKS economy of moderate growth and low
inflation will suddenly come to an end. Fears of a surge in future wages have
been raised, and Fed Chairman Alan Greenspan has warned of a "preemptive strike"
against inflation if the conditions warrant such a move. This has placed
investors on edge that interest rates will head higher in the coming months.
THE OUTLOOK FOR INTEREST RATES
Currently, growth in the economy is strong, though inflation remains contained.
Investor concerns of future Fed rate hikes have already pushed mortgage rates
higher recently as a result of Chairman Greenspan's comments. This market
discipline may be adequate to slow the economy in the months ahead and keep
inflation at a low level.
We believe that the risk of an increase in rates by the Fed is much higher than
just a few months ago, but we also believe that any move to tighten will be
limited in magnitude. The current economic expansion is now entering its seventh
year, making it one of the longest periods of continuous growth in modern U.S.
history. A sharp increase in rates could put that record at risk. Our strategy
will be to selectively lengthen average maturities in the money funds as
opportunities become apparent.
We thank you for your participation in the Prime Obligations Fund and the U.S.
Government Securities Money Fund. We will continue to utilize prudent investment
strategies in our quest for strong investor returns.
Sincerely,
/S/ SIGNATURE
Ben L. Jones, CFA
President and Chief Investment Officer
Crestar Asset Management Company
<PAGE>
STATEMENT OF NET ASSETS THE ARBOR FUND
January 31, 1997
Face
Amount Value
(000) U.S. GOVERNMENT SECURITIES MONEY FUND (000)
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 68.7%
FFCB (A)
$ 9,000 5.280%, 02/03/97 $ 8,995
30,000 5.300%, 02/03/97 29,986
25,000 5.310%, 02/03/97 24,990
5,000 5.320%, 02/03/97 4,998
15,000 5.345%, 02/04/97 14,994
FFCB
10,000 5.840%, 06/18/97 9,994
FFCB Discount Note
10,000 5.600%, 10/08/97 9,633
25,000 5.583%, 11/14/97 23,945
15,000 5.400%, 12/02/97 14,984
FHLB (A)
35,000 5.460%, 02/03/97 35,008
FHLB Discount Note
10,000 5.600%, 09/25/97 9,651
FHLB
15,000 5.050%, 02/21/97 15,000
19,000 5.290%, 03/05/97 19,000
19,800 5.350%, 03/14/97 19,800
5,000 5.750%, 09/05/97 5,000
FHLMC Discount Note
25,000 5.340%, 02/24/97 24,915
FHLMC
20,000 5.640%, 08/28/97 19,972
FNMA
10,000 5.400%, 12/05/97 9,992
10,000 8.650%, 02/10/98 10,278
FNMA (A)
42,500 5.245%, 02/03/97 42,494
20,000 5.450%, 02/03/97 20,003
FNMA Discount Note
10,000 5.524%, 09/08/97 9,679
SLMA (A)
20,000 5.420%, 02/04/97 19,986
- --------------------------------------------------------------------------------
Total U.S. Government Agency Obligations
(Cost $403,297) 403,297
- --------------------------------------------------------------------------------
<PAGE>
STATEMENT OF NET ASSETS (continued) THE ARBOR FUND
January 31, 1997
Face
Amount Value
(000) U.S. GOVERNMENT SECURITIES MONEY FUND (continued) (000)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 30.8%
First Boston Securities, 5.63%, dated 01/31/97,
matures 02/03/97, repurchase price $25,011,729
(collateralized by FHLMC obligation
par value $26,105,000,
5.35%, 05/02/97; with total market
$25,000 value $25,751,966) $ 25,000
Greenwich Securities, 5.56%, dated 01/31/97, matures 02/03/97,
repurchase price $75,187,590 (collateralized by various FNMA
obligations ranging in par value $8,194-$4,682,627,
6.50%-8.50%, 08/01/26-01/01/27; with total market
75,153 value $76,658,024) 75,153
Merrill Lynch Securities, 5.56%, dated 01/31/97, matures 02/03/97,
repurchase price $31,012,997 (collateralized by various GNMA
obligations ranging in par value $29,513-$21,443,000,
7.00%-10.50%, 05/15/10-06/15/25; with total market
30,999 value $31,619,674) 30,999
Paine Webber Securities, 5.56%, dated 01/31/97, matures 02/03/97,
repurchase price $49,592,246 (collateralized by various FNMA
obligations ranging in par value $1,000-$18,517,336,
0.00%-11.00%, 08/01/98-11/01/30; with total market
49,569 value $50,560,534) 49,569
- ------------------------------------------------------------------------------
Total Repurchase Agreements (Cost $180,721) 180,721
- ------------------------------------------------------------------------------
Total Investments--99.5% 584,018
- ------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES--0.5%
Other Assets and Liabilities, Net 2,713
- ------------------------------------------------------------------------------
NET ASSETS:
Portfolio shares (unlimited authorization - no par value)
based on 586,759,273 outstanding shares of
beneficial interest $586,759
Accumulated net realized loss on investments (28)
- ------------------------------------------------------------------------------
Total Net Assets--100.0% $586,731
==============================================================================
FFCB -- Federal Farm Credit Bank
FHLB -- Federal Home Loan Bank
FHLMC -- Federal Home Mortgage Corporation
FNMA -- Federal 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 January 31, 1997. The date shown is the reset date.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS (continued) THE ARBOR FUND
January 31, 1997
Face
Amount Value
(000) PRIME OBLIGATIONS FUND (000)
- -------------------------------------------------------------------------------
COMMERCIAL PAPER -- 10.3%
FINANCIAL SERVICES -- 2.1%
Strategic Asset
$ 5,000 5.516%, 02/28/97 $ 4,980
5,000 5.518%, 03/31/97 4,956
--------
Total Financial Services 9,936
INDUSTRIAL -- 8.2%
American Brands
10,000 5.400%, 02/07/97 9,991
General Electric Capital
10,000 5.460%, 04/21/97 9,882
General Motors Acceptance
5,000 5.600%, 02/28/97 4,979
Mitsubishi Motors
4,700 5.528%, 04/24/97 4,642
Walt Disney
10,000 5.459%, 07/25/97 9,746
--------
Total Industrial 39,240
- -------------------------------------------------------------------------------
Total Commercial Paper (Cost $49,176) 49,176
- -------------------------------------------------------------------------------
CORPORATE BONDS -- 30.3%
BANKING -- 6.9%
PNC Bank
18,000 5.390%, 10/01/97 17,993
Sanwa Business Credit (A)
10,000 5.400%, 02/03/97 9,999
Wachovia Bank of North Carolina
5,000 5.950%, 08/11/97 4,996
--------
Total Banking 32,988
FINANCIAL SERVICES -- 11.3%
Bear Stearns (A)
10,000 5.810%, 02/03/97 10,014
8,000 5.542%, 02/06/97 8,000
First Boston (A)
18,000 5.450%, 02/03/97 18,000
Merrill Lynch (A)
18,000 5.460%, 02/03/97 18,000
--------
Total Financial Services 54,014
INDUSTRIAL -- 12.1%
General Motors Acceptance
10,000 7.125%, 05/23/97 10,034
2,000 6.125%, 06/09/97 2,001
5,000 8.375%, 01/30/98 5,121
IBM Credit
10,000 5.780%, 08/20/97 9,993
IBM
10,000 5.670%, 01/28/98 9,990
Philip Morris
10,000 8.750%, 06/15/97 10,101
10,000 9.250%, 12/01/97 10,282
--------
Total Industrial 57,522
- -------------------------------------------------------------------------------
Total Corporate Bonds (Cost $144,524) 144,524
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 13.4%
FFCB (A)
20,000 5.310%, 02/03/97 19,992
FFCB
10,000 5.930%, 07/01/97 9,997
FHLB (A)
10,000 5.460%, 02/03/97 10,002
FHLB
5,000 5.780%, 07/08/97 4,997
FNMA (A)
19,000 5.850%, 02/03/97 19,003
- -------------------------------------------------------------------------------
Total U.S. Government Agency Obligations
(Cost $63,991) 63,991
- -------------------------------------------------------------------------------
<PAGE>
STATEMENT OF NET ASSETS (concluded) THE ARBOR FUND
January 31, 1997
Face
Amount Value
(000) PRIME OBLIGATIONS FUND (continued) (000)
- -------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT -- 13.2%
Bank of Tokyo
$15,000 5.680%, 03/19/97 $ 15,001
5,000 5.650%, 11/07/97 5,000
Sanwa Bank
15,000 5.450%, 03/25/97 15,000
8,000 5.560%, 04/28/97 8,000
Societe Generale
10,000 5.650%, 04/01/97 9,999
10,000 5.720%, 10/22/97 9,997
- -------------------------------------------------------------------------------
Total Certificates Of Deposit (Cost $62,997) 62,997
- -------------------------------------------------------------------------------
BANK NOTES -- 5.2%
Bank of New York
5,000 5.930%, 09/03/97 4,994
FCC National Bank of Detroit (A)
10,000 5.380%, 02/03/97 9,996
FCC National Bank of Detroit
10,000 5.500%, 03/14/97 9,999
- -------------------------------------------------------------------------------
Total Bank Notes (Cost $24,989) 24,989
- -------------------------------------------------------------------------------
GUARANTEED INVESTMENT CONTRACTS -- 5.2%
General American Life (A) (B)
25,000 5.870%, 02/01/97 25,000
- -------------------------------------------------------------------------------
Total Guaranteed Investment Contracts
(Cost $25,000) 25,000
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENTS --17.7%
Greenwich Securities, 5.60%, dated 01/31/97,
matures 02/03/97, repurchase price $21,256,968
(collateralized by various FNMA obligations
ranging in par value $27,299-$7,291,377,
6.50%-9.00%, 12/01/17-12/01/26; with total market
21,247 value $21,672,174) 21,247
Merrill Lynch Securities, 5.590%, dated 01/31/97,
matures 02/03/97, repurchase price $13,041,441
(collateralized by GNMA par value $15,810,000,
13,035 8.00%, 02/15/25, with market value $13,296,413) 13,035
Paine Webber Securities, 5.630%, dated 01/31/97,
matures 02/03/97, repurchase price $39,822,330
(collateralized by various FNMA obligations
ranging in par value $2,400-$42,032,000,
0.00%-9.50%, 06/01/97-06/01/29; with total market
39,804 value $40,604,541) 39,804
Swiss Bank Securities, 5.60%, dated 01/31/97,
matures 02/03/97, repurchase price $10,277,665
(collateralized by FMNA par value $10,740,000,
10,273 7.00%, 12/01/25; with market value $10,566,370) 10,273
- -------------------------------------------------------------------------------
Total Repurchase Agreements (Cost $84,359) 84,359
- -------------------------------------------------------------------------------
CASH EQUIVALENTS -- 4.2%
AIM Liquid Asset Portfolio
20,000 20,000
- -------------------------------------------------------------------------------
Total Cash Equivalents (Cost $20,000) 20,000
- -------------------------------------------------------------------------------
Total Investments--99.5%
(Cost $475,036) 475,036
- -------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES--0.5%
Other Assets and Liabilities, Net--0.5% 2,399
- -------------------------------------------------------------------------------
NET ASSETS:
Portfolio shares (unlimited authorization - no par value) based
on 477,435,159 outstanding shares of
beneficial interest 477,435
- -------------------------------------------------------------------------------
Total Net Assets--100.0% $477,435
===============================================================================
FFCB -- Federal Farm Credit Bank
FHLB -- Federal Home Loan Bank
FNMA -- Federal National Mortgage Association
(A) Variable Rate Security--The rate reported in the Statement of Net Assets is
the rate in effect on January 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
General American Life.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENTS OF OPERATIONS THE ARBOR FUND
For the Year Ended January 31, 1997
(IN THOUSANDS)
- -------------------------------------------------------------------------------
U.S. GOVERNMENT PRIME
SECURITIES OBLIGATIONS
MONEY FUND FUND
- -------------------------------------------------------------------------------
Investment Income:
Interest Income $25,524 $23,136
- -------------------------------------------------------------------------------
Expenses:
Management Fees 380 335
Waiver of Management Fees (168) (126)
Investment Advisory Fees 950 837
Waiver of Advisory Fees (626) (629)
Custodian Fees 170 152
Transfer Agent Fees 143 126
Professional Fees 34 27
Registration Fees 15 22
Insurance Expense 4 3
Amortization of Organizational Cost 48 71
Other Fees 1 21
- -------------------------------------------------------------------------------
Total Expenses 951 839
- -------------------------------------------------------------------------------
Net Investment Income 24,573 22,297
- -------------------------------------------------------------------------------
Net Realized Gain (Loss) on Investments (14) 1
- -------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations $24,559 $22,298
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS THE ARBOR FUND
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT PRIME
SECURITIES OBLIGATIONS
MONEY FUND FUND
- ------------------------------------------------------------------------------------------------------------------
02/01/96 02/01/95 02/01/96 10/25/95(1)
TO 01/31/97 TO 01/31/96 TO 01/31/97 TO 01/31/96
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Activities:
Net Investment Income $ 24,573 $ 31,718 $ 22,297 $ 6,362
Net Realized Gain (Loss) on Investments (14) (14) 1 --
- ------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations 24,559 31,704 22,298 6,362
- ------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income (24,573) (31,718) (22,297) (6,362)
Capital Gains -- -- (1) --
- ------------------------------------------------------------------------------------------------------------------
Total Distributions (24,573) (31,718) (22,298) (6,362)
- ------------------------------------------------------------------------------------------------------------------
Capital Share Transactions (all at $1.00 per share):
Proceeds from Shares Issued 4,726,903 5,309,363 4,883,808 1,497,447
Reinvestment of Cash Distributions 1,621 1,480 846 --
Cost of Shares Redeemed (4,656,649) (5,375,381) (4,789,851) (1,114,815)
- ------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 71,875 (64,538) 94,803 382,632
- ------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 71,861 (64,552) 94,803 382,632
- ------------------------------------------------------------------------------------------------------------------
Net Assets: Beginning of Period 514,870 579,422 382,632 --
- ------------------------------------------------------------------------------------------------------------------
Net Assets: End of Period $ 586,731 $ 514,870 $ 477,435 $ 382,632
- ------------------------------------------------------------------------------------------------------------------
<FN>
(1) Commenced operations on October 25, 1995
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS THE ARBOR FUND
For a Share Outstanding Throughout the Year
<TABLE>
<CAPTION>
NET ASSET DIVIDENDS NET NET
VALUE NET FROM ASSET VALUE ASSETS
BEGINNING INVESTMENT NET INVESTMENT END TOTAL END OF PERIOD
OF PERIOD INCOME INCOME OF PERIOD RETURN (000)
- -------------------------------------------------------------------------------------------------
- -------------------------------------
U.S. GOVERNMENT SECURITIES MONEY FUND
- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended January 31,:
1997 $1.00 0.05 (0.05) $1.00 5.29% $586,731
1996 $1.00 0.06 (0.06) $1.00 5.88% $514,870
1995(1) $1.00 0.03 (0.03) $1.00 4.98%* $579,422
- ----------------------
PRIME OBLIGATIONS FUND
- ----------------------
For the Year Ended January 31,:
1997 $1.00 0.05 (0.05) $1.00 5.45% $477,435
1996(2) $1.00 0.02 (0.02) $1.00 5.82%* $382,632
=================================================================================================
RATIO RATIO OF
RATIO OF EXPENSES NET INCOME
RATIO OF NET TO AVERAGE TO AVERAGE
OF EXPENSES INCOME NET ASSETS NET ASSETS
TO AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING
NET ASSETS NET ASSETS WAIVERS) WAIVERS)
- ------------------------------------------------------------------------
- -------------------------------------
U.S. GOVERNMENT SECURITIES MONEY FUND
- -------------------------------------
<S> <C> <C> <C> <C>
For the Year Ended January 31,:
1997 0.20% 5.17% 0.37% 5.00%
1996 0.20% 5.72% 0.37% 5.55%
1995(1) 0.20%* 4.98%* 0.38%* 4.80%*
- ----------------------
PRIME OBLIGATIONS FUND
- ----------------------
For the Year Ended January 31,:
1997 0.20% 5.33% 0.38% 5.15%
1996(2) 0.20%* 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
January 31, 1997
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.
OTHER--On January 31, 1997 the total cost of securities and the net
realized gains or losses on securities sold for federal income tax purposes
was not significantly different from amounts reported for financial
reporting purposes.
3. Administration, Transfer Agent and Distribution Agreements:
SEI Fund Resources (the "Administrator"), a Delaware business trust, serves as
administrator to the Funds. SEI Financial Management Corporation, a wholly-owned
subsidiary of SEI Investments
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded) THE ARBOR FUND
January 31, 1997
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, 1996 to January 31, 1997, the
Administrator received net administration fees totaling approximately .04% of
the average daily net assets of each Fund. 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 Financial Services Company (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, 1996 to
January 31, 1997, the Advisor received net fees totaling approximately .07% and
.05% 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>
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
U.S. Government Securities Money Portfolio and Prime Obligations 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, and the changes in each of their net assets and the financial
highlights for each of the periods presented, 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 with respect to unsettled securities
transactions, the application of alternative auditing procedures, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Philadelphia, PA
March 14, 1997
<PAGE>
NOTICE TO SHAREHOLDERS THE ARBOR FUND
January 31, 1997 (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 advisor 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.
<TABLE>
<CAPTION>
(A) (B) (C)
LONG TERM ORDINARY INCOME TOTAL
CAPITAL GAINS DISTRIBUTIONS DISTRIBUTIONS
PORTFOLIO (TAX BASIS) (TAX BASIS) (TAX BASIS)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Securities Money Fund 0% 100% 100%
Prime Obligations Fund 0% 100% 100%
===================================================================================================
(D) (E) (F)
QUALIFYING TAX EXEMPT FOREIGN
PORTFOLIO DIVIDENDS(1) INTEREST TAX CREDIT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Securities Money Fund 0% 0% 0%
Prime Obligations Fund 0% 0% 0%
===================================================================================================
<FN>
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* 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.
</FN>
</TABLE>
None of the Arbor Funds 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.
<PAGE>
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.
