[CRESTAR LOGO OMITTED]
U.S. GOVERNMENT SECURITIES
MONEY FUND
PRIME OBLIGATIONS FUND
MANAGED BY
Crestar Asset Management Company
SEMI-ANNUAL REPORT
------------------
July 31, 1998
<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, 1998 with strong
performance. During the past year, the combined 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 $732.2 million as of July 31,
1998 -- an increase of 35.6% from a year ago. The 7-day effective yield was
5.61%, compared to 5.74% on July 31, 1997, and the 1-year total return of 5.67%
was ranked in the top 9% of all institutional money funds by Lipper Analytical
Services.
The U.S. Government Securities Money Fund also performed well during this
period. Although total assets were off 6.1% from July 31, 1997 to $619.9
million, the 1-year total return of 5.54% was ranked in the top 14% of all
government-only institutional money market funds according to Lipper Analytical
Services. The 7-day effective yield was 5.43% on July 31 compared to 5.61% a
year ago. Combined assets of the two funds were up 12.7% during the twelve-month
period to $1,352.1 million.
A REVIEW OF THE SIX MONTHS:
In our last report, we expressed our belief that the financial crisis in Asia
would keep Federal Reserve monetary policy neutral, despite continued growth in
the economy. Robust consumer spending pushed the economy higher during the first
half of the year, despite a sharp deterioration in the trade balance. And
despite some acceleration in wage growth in recent months and a low unemployment
rate, falling commodity prices have kept inflation near historically low levels.
The impact of these events on money markets has been limited, with one-year
Treasury bill yields fluctuating between 51/4% and 51/2%. However, the
deterioration on exports has raised investor concerns regarding debt quality
causing relative spreads for commercial paper to widen.
THE NEAR TERM ECONOMIC OUTLOOK:
The tension between favorable news for consumers and deteriorating conditions
for trade manufacturers is likely to continue in the months ahead. Low mortgage
rates, tight labor markets and steady prices suggest additional gains in
consumer spending in the second half of the year though perhaps at a more
sustainable pace by historical standards. Unfortunately, the crisis in Asia,
Russia and developing countries is not yet under control, and the negative
impact could spread.
The key unknown in the outlook is the magnitude and duration of the weakness in
the Far East. Under these conditions, the Federal Reserve could continue to stay
on the sidelines as they have for over a year. Our strategy will be to look for
opportunities to enhance yield in the funds, while maintaining a close watch on
credit quality.
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
1
<PAGE>
STATEMENT OF NET ASSETS THE ARBOR FUND
July 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Face
Amount Value
(000) U.S. GOVERNMENT SECURITIES MONEY FUND (000)
- -----------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 62.0%
FFCB
<S> <C> <C> <C> <C>
$ 25,000 5.500%, 04/01/99 .................................................................... $ 24,974
FHLB
20,000 5.630%, 06/15/99 .................................................................... 20,005
FHLB (A)
35,000 5.383%, 08/05/98 .................................................................... 34,990
35,000 5.486%, 08/05/98 .................................................................... 34,994
20,000 5.488%, 08/05/98 .................................................................... 19,994
FHLMC
20,000 5.800%, 12/18/98 .................................................................... 20,004
20,000 5.505%, 03/12/99 .................................................................... 19,989
FHLMC (A)
50,000 5.515%, 08/04/98 .................................................................... 50,000
FNMA
35,000 5.410%, 08/24/98 .................................................................... 34,882
25,000 5.710%, 09/09/98 .................................................................... 24,998
20,000 5.425%, 10/13/98 .................................................................... 19,780
20,000 5.540%, 07/16/99 .................................................................... 19,988
FNMA MTN
20,000 5.410%, 02/23/99 .................................................................... 19,979
20,000 5.570%, 05/07/99 .................................................................... 19,981
SLMA (A)
20,000 5.301%, 08/02/98 .................................................................... 19,994
- -----------------------------------------------------------------------------------------------------------------
Total U.S. Government Agency Obligations (Cost $384,552) ......................... 384,552
- -----------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 37.8%
First Boston Securities, 5.68%, dated 07/31/98, matures 08/03/98, repurchase price
$30,014,200 (collateralized by U.S. Government Agency Instruments:
30,000 total market value $30,902,601) ...................................................... 30,000
Greenwich Securities, 5.63%, dated 07/31/98, matures 08/03/98, repurchase price
$83,078,608 (collateralized by U.S. Government Agency Instruments:
83,040 total market value $84,704,397) ...................................................... 83,040
JP Morgan, 5.63%, dated 07/31/98, matures 08/03/98, repurchase price
$15,977,450 (collateralized by various GNMA Obligations:
15,970 total market value $16,289,357) ...................................................... 15,970
Merrill Lynch Securities, 5.63%, dated 07/31/98, matures 08/03/98, repurchase price
$23,818,914 (collateralized by GNMA Obligation:
23,808 total market value $24,287,315) ...................................................... 23,808
Paine Webber, 5.63%, dated 07/31/98, matures 08/03/98, repurchase price
$81,661,839 (collateralized by various GNMA Obligations:
81,623 total market value $83,258,441) ...................................................... 81,623
- -----------------------------------------------------------------------------------------------------------------
Total Repurchase Agreements (Cost $234,441) ...................................... 234,441
- -----------------------------------------------------------------------------------------------------------------
Total Investments--99.8% (Cost $618,993) .................................................. 618,993
- -----------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- 0.2%
Other Assets and Liabilities, Net ......................................................... 930
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
STATEMENT OF NET ASSETS THE ARBOR FUND
July 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Value
U.S. GOVERNMENT SECURITIES MONEY FUND (concluded) (000)
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS:
<S> <C>
Portfolio Shares (unlimited authorization -- no par value) based on 619,948,184
outstanding shares of beneficial interest ............................................... $619,948
Accumulated net realized loss on investments .............................................. (25)
- -----------------------------------------------------------------------------------------------------------------
Total Net Assets--100.0% ......................................................... $619,923
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering and Redemption Price Per Share ......................... $1.00
=================================================================================================================
<FN>
(A) Adjustable Rate Security -- The rate reported on the Statement of Net Assets
is the rate in effect on July 31, 1998. The date shown is the next scheduled
reset date.
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
MTN -- Medium Term Note
SLMA -- Student Loan Marketing Association
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATEMENT OF NET ASSETS THE ARBOR FUND
July 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Face
Amount Value
(000) PRIME OBLIGATIONS FUND (000)
- -----------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- 17.5%
FINANCIAL SERVICES -- 17.5%
CS First Boston
<S> <C> <C> <C> <C>
$10,000 5.800%, 05/06/99 .................................................................... $ 10,000
Ford Motor Credit
10,000 5.710%, 10/02/98 .................................................................... 9,906
20,000 5.450%, 01/13/99 .................................................................... 19,500
General Electric Capital
15,000 5.520%, 08/17/98 .................................................................... 14,964
25,000 5.470%, 09/25/98 .................................................................... 24,791
General Motors Acceptance
10,000 5.510%, 08/17/98 .................................................................... 9,976
Goldman Sachs
10,000 5.480%, 02/09/99 .................................................................... 9,708
Merrill Lynch
5,000 5.850%, 09/04/98 .................................................................... 4,973
15,000 5.551%, 11/13/98 .................................................................... 14,769
10,000 5.470%, 02/26/99 .................................................................... 9,682
- -----------------------------------------------------------------------------------------------------------------
Total Financial Services ......................................................... 128,269
- -----------------------------------------------------------------------------------------------------------------
Total Commercial Paper (Cost $128,269) ........................................... 128,269
- -----------------------------------------------------------------------------------------------------------------
CORPORATE BONDS -- 19.8%
BANKING -- 4.1%
PNC Bank (A)
10,000 5.540%, 08/01/98 .................................................................... 9,994
20,000 5.550%, 08/01/98 .................................................................... 19,991
- -----------------------------------------------------------------------------------------------------------------
Total Banking .................................................................... 29,985
- -----------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 9.6%
Associates MTN
5,000 6.750%, 06/28/99 .................................................................... 5,039
Bear Stearns MTN
10,000 5.700%, 03/02/99 .................................................................... 10,000
15,000 5.715%, 07/30/99 .................................................................... 15,000
Beta Finance (A)
25,000 5.600%, 08/01/98 .................................................................... 25,000
CS First Boston (A)
15,000 5.610%, 08/01/98 .................................................................... 15,000
- -----------------------------------------------------------------------------------------------------------------
Total Financial Services ......................................................... 70,039
- -----------------------------------------------------------------------------------------------------------------
INDUSTRIAL -- 6.1%
International Business Machines (A)
15,000 5.605%, 08/01/98 .................................................................... 14,998
PHH MTN (A)
10,000 5.610%, 08/01/98 .................................................................... 9,999
20,000 5.690%, 08/01/98 .................................................................... 19,999
- -----------------------------------------------------------------------------------------------------------------
Total Industrial ................................................................. 44,996
- -----------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $145,020) ............................................ 145,020
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
STATEMENT OF NET ASSETS (continued) THE ARBOR FUND
July 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Face
Amount Value
(000) PRIME OBLIGATIONS FUND (continued) (000)
- -----------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT -- 18.6%
Bankers Trust
<S> <C> <C> <C> <C>
$15,000 5.970%, 08/28/98 .................................................................... $ 15,000
5,000 5.835%, 10/05/98 .................................................................... 4,999
Bankers Trust (A)
10,000 5.600%, 08/01/98 .................................................................... 9,997
10,000 5.650%, 08/01/98 .................................................................... 10,000
Barclays Bank
15,000 5.645%, 03/02/99 .................................................................... 14,995
CS First Boston
5,000 5.920%, 12/14/98 .................................................................... 5,000
NationsBank
30,000 5.600%, 12/21/98 .................................................................... 30,000
Societe Generale
5,000 5.970%, 09/15/98 .................................................................... 5,000
15,000 5.850%, 12/17/98 .................................................................... 14,996
5,000 5.670%, 03/11/99 .................................................................... 4,999
Swiss Bank
21,000 5.750%, 05/07/99 .................................................................... 20,997
- -----------------------------------------------------------------------------------------------------------------
Total Certificates of Deposit (Cost $135,983) .................................... 135,983
- -----------------------------------------------------------------------------------------------------------------
BANK NOTES -- 8.2%
First of America Bank
10,000 5.940%, 08/31/98 .................................................................... 10,000
First Union
20,000 5.660%, 04/15/99 .................................................................... 20,000
Key Bank (A)
30,000 5.700%, 08/01/98 .................................................................... 30,000
- -----------------------------------------------------------------------------------------------------------------
Total Bank Notes (Cost $60,000) .................................................. 60,000
- -----------------------------------------------------------------------------------------------------------------
INSURANCE FUNDING AGREEMENTS -- 12.3%
General American Life Insurance GIC (A) (B)
45,000 5.850%, 08/01/98 .................................................................... 45,000
Integrity Life Insurance GIC (A) (B)
45,000 5.850%, 08/01/98 .................................................................... 45,000
- -----------------------------------------------------------------------------------------------------------------
Total Insurance Funding Agreements (Cost $90,000) ................................ 90,000
- -----------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 22.6%
Greenwich Securities, 5.63%, dated 07/31/98, matures 08/03/98, repurchase price
$31,797,190 (collateralized by U.S. Treasury Instruments:
31,782 total market value $32,422,084) ...................................................... 31,782
JP Morgan, 5.63%, dated 07/31/98, matures 08/03/98, repurchase price
$21,080,043 (collateralized by various GNMA obligations:
21,070 total market value $21,491,561) ...................................................... 21,070
Merrill Lynch Securities, 5.63%, dated 07/31/98, matures 08/03/98, repurchase price
$15,263,920 (collateralized by various GNMA obligations:
15,257 total market value $15,563,554) ..................................................... 15,257
Paine Webber, 5.63%, dated 07/31/98, matures 08/03/98, repurchase price
$97,185,735 (collateralized by various GNMA obligations:
97,140 total market value $99,084,392) ...................................................... 97,140
- -----------------------------------------------------------------------------------------------------------------
Total Repurchase Agreements (Cost $165,249) ...................................... 165,249
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
STATEMENT OF NET ASSETS (concluded) THE ARBOR FUND
July 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Face
Amount Value
(000) PRIME OBLIGATIONS FUND (concluded) (000)
- -----------------------------------------------------------------------------------------------------------------
CASH EQUIVALENT -- 4.1%
<S> <C>
$30,000 Aim Liquid Assets Portfolio ............................................................... $ 30,000
- -----------------------------------------------------------------------------------------------------------------
Total Cash Equivalent (Cost $30,000) ............................................. 30,000
- -----------------------------------------------------------------------------------------------------------------
Total Investments--103.1% (Cost $754,521) ................................................. 754,521
- -----------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (3.1%)
Other Assets and Liabilities, Net ......................................................... (22,286)
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares (unlimited authorization -- no par value) based on
732,237,629 outstanding shares of beneficial interest .......................... 732,238
Accumulated net realized loss on investments ..................................... (3)
- -----------------------------------------------------------------------------------------------------------------
Total Net Assets--100.0% ......................................................... $732,235
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering and Redemption Price Per Share ......................... $1.00
=================================================================================================================
<FN>
(A) Adjustable Rate Security -- The rate reported on the Statement of Net Assets
is the rate in effect on July 31, 1998. The date shown is the next scheduled
reset date.
(B) The contract has no stated maturity date, but may be terminated
unconditionally by the fund at anytime upon at least 7 days notice to the
issuer.
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
MTN -- Medium Term Note
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATEMENT OF OPERATIONS THE ARBOR FUND
For the Six Month Period Ended July 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------
U.S. GOVERNMENT PRIME
SECURITIES OBLIGATIONS
MONEY FUND FUND
- ---------------------------------------------------------------------------------------------------
Investment Income:
<S> <C> <C>
Interest Income ............................................... $18,813 $20,995
- ---------------------------------------------------------------------------------------------------
Expenses:
Administrative Fees ........................................... 269 295
Waiver of Administrative Fees ................................. (112) (123)
Investment Advisory Fees ...................................... 673 737
Waiver of Advisory Fees ....................................... (383) (368)
Custodian Fees ................................................ 107 101
Transfer Agent Fees ........................................... 101 109
Professional Fees ............................................. 16 15
Registration Fees ............................................. 40 15
Insurance Expense ............................................. 3 3
Trustees Fees ................................................. 4 4
Printing Fees ................................................. 4 4
Pricing Fees .................................................. -- --
Amortization of Deferred Organizational Costs ................. 2 2
Other ......................................................... 1 1
- ---------------------------------------------------------------------------------------------------
Total Expenses .............................................. 725 795
- ---------------------------------------------------------------------------------------------------
Net Investment Income ......................................... 18,088 20,200
- ---------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) on Investments ....................... -- --
- ---------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations .............. $18,088 $20,200
===================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS THE ARBOR FUND
For the Six Month Period Ended July 31, 1998 (Unaudited) and for the Period
Ended January 31, 1998
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------------------------------
U.S. GOVERNMENT PRIME
SECURITIES OBLIGATIONS
MONEY FUND FUND
- ------------------------------------------------------------------------------------------------------------------
02/01/98 02/01/97 02/01/98 02/01/97
TO 07/31/98 TO 01/31/98 TO 07/31/98 TO 01/31/98
- ------------------------------------------------------------------------------------------------------------------
Investment Activities:
<S> <C> <C> <C> <C>
Net Investment Income ................................. $ 18,088 $ 37,262 $ 20,200 $ 31,705
Net Realized Gain (Loss) on Investments ............... -- 3 -- (3)
- -----------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations ......... 18,088 37,265 20,200 31,702
- -----------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income ................................. (18,088) (37,262) (20,201) (31,704)
Capital Gains ......................................... -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
Total Distributions ................................. (18,088) (37,262) (20,201) (31,704)
- -----------------------------------------------------------------------------------------------------------------
Capital Share Transactions (all at $1.00 per share):
Proceeds from Shares Issued ........................... 3,503,130 7,090,197 3,577,889 6,369,124
Reinvestment of Distributions ......................... 6,633 9,939 3,992 5,066
Cost of Shares Redeemed ...............................(3,679,250) (6,897,460) (3,590,482) (6,110,786)
- -----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
from Capital Share Transactions ....................... (169,487) 202,676 (8,601) 263,404
- -----------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets ............. (169,487) 202,679 (8,602) 263,402
- -----------------------------------------------------------------------------------------------------------------
Net Assets: Beginning of Period .......................... 789,410 586,731 740,837 477,435
- -----------------------------------------------------------------------------------------------------------------
Net Assets: End of Period ................................ $ 619,923 $ 789,410 $ 732,235 $ 740,837
=================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
FINANCIAL HIGHLIGHTS THE ARBOR FUND
For a Share Outstanding Throughout the Period or Year
<TABLE>
<CAPTION>
RATIO
RATIO OF EXPENSES
NET ASSET DISTRIBUTIONS NET NET RATIO OF NET TO AVERAGE
VALUE NET FROM ASSET VALUE ASSETS OF EXPENSES INCOME NET ASSETS
BEGINNING INVESTMENT NET INVESTMENT END TOTAL END OF PERIOD TO AVERAGE TO AVERAGE (EXCLUDING
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) NET ASSETS NET ASSETS WAIVERS)
- -----------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------
U.S. GOVERNMENT SECURITIES MONEY FUND
- -------------------------------------
For the Six Month Period Ended July 31, (unaudited):
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $1.00 0.03 (0.03) $1.00 5.40%* $619,923 0.22%* 5.38%* 0.37%*
For the Year Ended January 31,:
1998 $1.00 0.05 (0.05) $1.00 5.52% $789,410 0.20% 5.39% 0.37%
1997 $1.00 0.05 (0.05) $1.00 5.29% $586,731 0.20% 5.17% 0.37%
1996 $1.00 0.06 (0.06) $1.00 5.88% $514,870 0.20% 5.72% 0.37%
1995(1) $1.00 0.03 (0.03) $1.00 4.98%* $579,422 0.20%* 4.98%* 0.38%*
- ----------------------
PRIME OBLIGATIONS FUND
- ----------------------
For the Six Month Period Ended July 31, (unaudited):
1998 $1.00 0.03 (0.03) $1.00 5.50%* $732,235 0.22%* 5.48%* 0.36%*
For the Year Ended January 31,:
1998 $1.00 0.06 (0.06) $1.00 5.66% $740,837 0.20% 5.52% 0.36%
1997 $1.00 0.05 (0.05) $1.00 5.45% $477,435 0.20% 5.33% 0.38%
1996(2) $1.00 0.02 (0.02) $1.00 5.82%* $382,632 0.20%* 5.61%* 0.40%*
===================================================================================================================================
RATIO OF
NET INCOME
TO AVERAGE
NET ASSETS
(EXCLUDING
WAIVERS)
- -------------------------------------
- -------------------------------------
U.S. GOVERNMENT SECURITIES MONEY FUND
- -------------------------------------
For the Six Month Period Ended July 31, (unaudited):
1998 5.23%*
For the Year Ended January 31,:
1998 5.22%
1997 5.00%
1996 5.55%
1995(1) 4.80%*
- ----------------------
PRIME OBLIGATIONS FUND
- ----------------------
For the Six Month Period Ended July 31, (unaudited):
1998 5.34%*
For the Year Ended January 31,:
1998 5.36%
1997 5.15%
1996(2) 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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS THE ARBOR FUND
July 31, 1998 (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. Actual results may
differ from these estimates.
3. Administration, Transfer Agent and Distribution Agreements:
SEI Investments Mutual Funds Services (the "Administrator"), a Delaware business
trust, serves as administrator to the Funds. SEI Investments Management
Corporation, 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
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded) THE ARBOR FUND
July 31, 1998 (Unaudited)
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 .25% of
average daily net assets. During the period from February 1, 1998 to July 31,
1998, the Administrator received net administration fees totaling approximately
.05% 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.
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 Investments 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. For the period ended
July 31, 1998, the Funds paid commissions of $129,071 to affiliated
broker-dealers.
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, 1998 to July
31, 1998, the Advisor received net fees totaling approximately .09% and .10% 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.
On July 20, 1998, it was announced that Crestar Financial Corporation
("Crestar"), the parent of Crestar Bank which is the parent of Crestar Asset
Management Corporation ("CAMCO"), the Funds' investment advisor, and SunTrust
Banks, Inc. ("SunTrust"), have signed a definitive agreement for the acquisition
of Crestar by SunTrust. Subject to certain conditions being met, it is currently
anticipated that Crestar will become a wholly-owned subsidiary of SunTrust in
the fourth quarter of 1998.
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.
7. Capital Loss Carryovers:
As of January 31, 1998, the U.S. Government Securities Money Fund had a capital
loss carryover, to the extent provided in the regulations, for Federal Income
tax purposes as follows:
$11,641 expiring in 2004
$13,848 expiring in 2005
11
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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.
