JANUARY 31, 1998
[LOGO OMITTED]
THE OVB FUNDS
PORTFOLIOS OF THE ARBOR FUND
ANNUAL
REPORT
TO SHAREHOLDERS
<PAGE>
[LOGO OMITTED] THE OVB FUNDS
TABLE OF CONTENTS
- -----------------------------------------------------
Investment Adviser's Review.........................1
Management's Discussion & Analysis..................4
Report of Independent Accountants..................11
Financial Statements...............................12
Notice to Shareholders.............................45
THE OVB FUNDS:
[bullet] NOT FDIC INSURED
[bullet] NO BANK GUARANTEE
[bullet] MAY LOSE VALUE
<PAGE>
INVESTMENT ADVISER'S REVIEW [LOGO OMITTED]
JANUARY 31, 1998
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INVESTMENT ADVISER'S REVIEW
For those of us who have been involved with the financial markets throughout
our careers, fiscal 1997 served as a real-world example of an environment that
we thought could exist only in theory.
It was a year in which all three asset classes, stocks, bonds, and money
market funds, enjoyed strong gains, fueled by economic conditions that could
hardly be more ideal: Low inflation, declining interest rates, moderate economic
growth, and the lowest unemployment rates in a generation.
We are pleased to report that investors in The OVB Funds were able to benefit
from this environment. And, we are gratified that the assets in our funds
continued to reach new levels during the year, thanks to the confidence of
existing shareholders, as well as that of new shareholders we have welcomed from
our expanding geographic market.
MONEY MARKET REVIEW
Money market investors continued to benefit from relatively stable rates, and
from low inflation that heightened real returns.
In March of 1997, the Federal Reserve Board raised short-term rates by one
quarter of one percent, due to concerns about possible overheating of the U.S.
economy. However, as domestic growth slowed and economic turmoil in Asia
appeared, rates fell back again, ending the fiscal year only slightly higher
than they were at the start.
In the year ahead, we believe that there is a real possibility that the U.S.
economy will see additional slowing, due to domestic and international factors.
Therefore, if the Federal Reserve Board takes any action at all, it is likely to
be toward decreasing, rather than increasing rates. This would limit yields on
money market funds somewhat. But we believe that the real returns provided by
today's low inflation environment offer adequate compensation for any minor
declines.
BOND MARKET REVIEW
Fiscal 1997 proved to be a very good year for bond investors, as the
combination of low inflation, declining rates, and favorable economic factors
led to strong returns.
Among the major factors fueling the bond market was continued vigilance not
only by the Federal Reserve Board but also by the central banks of the other G-7
nations. Together, these monetary regulators helped push global inflation to
almost imperceptible levels. At the same
1
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INVESTMENT ADVISER'S REVIEW (CONTINUED)
- --------------------------------------------------------------------------------
time, responsible budgetary policies in the U.S. and Europe helped reduce
government deficits, further enhancing the environment for bonds.
The world's major trouble spot, of course, was Asia, where long-term
structural flaws finally led to abrupt declines in currencies, financial
markets, and economic growth rates. For too many years, the economic policies of
many Asian nations have encouraged investment based on relationships, rather
than fiscal responsibility. The result has been excessive speculation, over
capacity, and limited collateralization.
Some of these nations have begun to institute reforms. But as their recovery
begins, the near-term effect on the global economy will likely be further
dampening of inflation and growth rates. This, along with the fact that the
other major economic conditions of 1997 remain in place, should continue to
benefit bonds in the year ahead.
EQUITY MARKET REVIEW
Equities continued their strong performance during fiscal 1997, with the
major indices reaching a number of new highs during the year. However, these
gains continued to be shared unequally, as large-capitalization issues dominated
the market while smaller stocks frequently lagged behind.
We believe that large corporations stand to gain the most from the current
economic environment of low inflation and moderate growth, since they have the
means to implement productivity enhancements and cost controls that are needed
to compensate for a lack of pricing flexibility. As a result, even though many
small companies continue to thrive in the current economy, investors have sought
the comfort of big names with more predictable earnings.
The equity markets continue to receive inflows of capital from the "baby
boom" generation, which steadily pours funds into 401(k) plans and other
retirement programs in an almost frantic effort to prepare for their golden
years. By doing so, they are moving more money into the hands of the private
sector, which has been very effective at translating capital into increased
productivity. This has further helped to offset inflation while building
stronger companies.
While valuations in the stock market remain at historically high levels,
continued profit growth may eventually justify the current optimism. Of course,
any widespread earnings disappointments in the coming year could have a negative
impact on stock prices -- particularly those of the large-cap issues that were
so strongly in favor last year.
2
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JANUARY 31, 1998
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CONCLUSION
After a year of across-the-board gains such as fiscal 1997, it is easy to
become complacent about the future. However, investors should keep in mind that
the markets never move in a straight line -- either up or down -- and that
circumstances are ever-changing.
Therefore, while we remain optimistic about the long-term future, and proud
of the performance of our funds in the year just past, we recognize that risk
goes hand-in-hand with opportunity. Those who share this view, and who invest
with a long-term perspective, should find that the opportunities will outweigh
the risks over time.
As always, we thank you for seeking investment opportunities through the OVB
funds, and look forward to continuing to earn your trust in the years ahead.
/S/SIGNATURE
J. RANDY VALENTINE
SENIOR VICE PRESIDENT
ONE VALLEY BANK, N.A.
3
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
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THE OVB FUNDS
PRIME OBLIGATIONS PORTFOLIO
- ---------------------------
SUB-ADVISER: WELLINGTON MANAGEMENT COMPANY, LLP
For the fiscal year ended January 31, 1998, The OVB Funds Prime Obligations
Portfolio, Class A, posted a total return of 5.33%, while Class B shares
returned 5.07%. By comparison, the Fund's benchmark, IBC Financial First Tier
Average, returned 5.03%.
The past year was one of stable short term interest rates. The Federal
Reserve Board increased the Fed Funds Target Rate
Comparison of Change in the Value of a $10,000
Investment in the OVB Prime Obligation
Money Market, Class A, versus
the IBC Financial First Tier Average
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
OVB Prime Obligation IBC Financial
Money Market, Class A First Tier Average
Dec 93 $10,000 $10,000
Jan 94 $10,025 $10,022
Jan 95 $10,441 $10,413
Jan 96 $11,031 $10,978
Jan 97 $11,595 $11,510
Jan 98 $12,213 $12,089
- --------------------------------------------------------------------------------
ANNUALIZED ANNUALIZED
ONE YEAR RETURN 3 YEAR RETURN INCEPTION TO DATE
- --------------------------------------------------------------------------------
CLASS A 5.33% 5.36% 4.98%
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED 1/31/98. PAST PERFORMANCE OF THE PORTFOLIO IS NOT
PREDICTIVE OF FUTURE PERFORMANCE. CLASS A SHARES WERE OFFERED BEGINNING 12/1/93.
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE
OVB PRIME OBLIGATION MONEY MARKET, CLASS B, VERSUS
THE IBC FINANCIAL FIRST TIER AVERAGE
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
OVB Prime Obligation IBC Financial
Money Market, Class B First Tier Average
Feb 94 $10,000 $10,000
Jan 95 $10,368 $10,370
Jan 96 $10,927 $10,933
Jan 97 $11,457 $11,462
Jan 98 $12,038 $12,038
- --------------------------------------------------------------------------------
ANNUALIZED ANNUALIZED
ONE YEAR RETURN 3 YEAR RETURN INCEPTION TO DATE
- --------------------------------------------------------------------------------
CLASS B 5.07% 5.10% 4.81%
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED 1/31/98. PAST PERFORMANCE OF THE PORTFOLIO IS NOT
PREDICTIVE OF FUTURE PERFORMANCE. CLASS B SHARES WERE OFFERED BEGINNING 2/8/94.
by 25 basis points (0.25 percent) to 5.50% in March, prompted by strong
economic growth. Despite continued growth, inflation remained subdued and
additional increases were unnecessary. As expected in this environment, the
monthly returns on the Fund were stable over the course of the year.
The environment was not without pitfalls, however. Early in the year, Mercury
Finance was unable to repay $500 million to its commercial paper investors. Some
aggressively managed money market mutual funds held Mercury Finance com-
4
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1998
- --------------------------------------------------------------------------------
mercial paper. Later in the year, market upheaval in southeast Asia spread
credit concerns through to the financial markets. Due to its conservative
investment profile and prudent investment management, the Fund avoided any
exposure to deteriorating credits. The OVB Prime Obligations Portfolio remains
concentrated in high quality commercial paper and bank instruments such as bank
notes and CDs.
Looking ahead, the U.S. economy is likely to moderate, and the inevitable
slowdown in Asia will also dampen domestic growth. These factors, combined with
a continued lack of inflation, will leave the central bank more inclined to
lower rates than to raise them. As we expect this to occur, our strategy will be
to buy longer maturity investments to lock in prevailing high market yields.
THE OVB FUNDS WEST VIRGINIA
TAX-EXEMPT INCOME PORTFOLIO
- ---------------------------
For the fiscal year ended January 31, 1998, The OVB Funds West Virginia
Tax-Exempt Income Portfolio, Class A, posted a total return of 9.55%. For Class
B shares, total return was 9.28%. By comparison, the Fund's two benchmarks,
the Lipper Intermediate Term Muni Debt Funds Average and the Lipper General
Municipal Debt Funds Average, returned 7.83% and 10.12%, respectively, for the
period.
Throughout the year, we continued to operate the fund conservatively, holding
the average maturity to about 15 years and emphasizing issues of the highest
quality. At fiscal year-end, over 80% of the portfolio was composed of
securities rated AAA.
Our sector selection was also conservative, emphasizing general obligation
and sewer and water issues while avoiding the types of bonds that may be subject
to economic uncertainties, such as health care-related securities.
Looking ahead, we believe that the state of West Virginia is in its best
economic condition in over a decade, with a healthy business environment and a
growing tax base. In addition, we believe that 1998 will be a fairly positive
year for municipal bonds, with key economic indicators remaining near their
current levels. Therefore, we look forward to a year of continued strong returns
for the Portfolio.
(CONTINUED)
5
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS (CONTINUED)
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COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE OVB WEST
VIRGINIA TAX-EXEMPT INCOME PORTFOLIO, CLASS A AND CLASS B, VERSUS THE LEHMAN
MUNICIPAL BOND INDEX, THE LIPPER GENERAL MUNICIPAL DEBT FUNDS AVERAGE, AND THE
LIPPER INTERMEDIATE MUNICIPAL DEBT FUNDS AVERAGE
[LINE GRAPH OMITTED]
PLOT POINTS AS FOLLOWS:
OVB OVB Lipper
West Virginia West Virginia Lipper Intermediate
Tax-Exempt Tax-Exempt Lehman General Term
Income Income Brothers Municipal Municipal
Portfolio Portfolio Municipal Debt Funds Debt Funds
Class A Class B Bond Index Average Average
Dec 93 $10,000 $10,000 $10,000 $10,000 $10,000
Jan 94 $10,094 $10,092 $10,114 $10,112 $10,104
Jan 95 $ 9,753 $ 9,727 $ 9,754 $ 9,626 $ 9,844
Jan 96 $11,085 $11,016 $11,223 $10,974 $11,002
Jan 97 $11,456 $11,368 $11,655 $11,285 $11,344
Jan 98 $12,550 $12,423 $12,834 $12,427 $12,232
- --------------------------------------------------------------------------------
ANNUALIZED ANNUALIZED
ONE YEAR RETURN 3 YEAR RETURN INCEPTION TO DATE
- --------------------------------------------------------------------------------
CLASS A 9.55% 8.77% 5.97%
CLASS B 9.28% 8.50% 5.54%
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED 1/31/98. PAST PERFORMANCE OF THE PORTFOLIOS IS NOT
PREDICTIVE OF FUTURE PERFORMANCE.
CLASS A SHARES WERE OFFERED BEGINNING 12/1/93.
CLASS B SHARES WERE OFFERED BEGINNING 12/17/93.
THE OVB FUNDS
GOVERNMENT SECURITIES PORTFOLIO
- -------------------------------
For the fiscal year ended January 31, 1998, The OVB Funds Government Securities
Portfolio, Class A, posted a total return of 10.44%. For Class B shares, total
return was 10.16%. By comparison, the Fund's two benchmarks, the Lehman Brothers
Government/Corporate Index and the Lipper Intermediate Investment-Grade Debt
Funds Average, returns 11.17% and 9.58%, respectively, for the period.
Conditions in the fixed income markets continued to be favorable throughout
fiscal 1997, as inflation, interest rates, and economic growth remained
relatively steady. Other positive factors for bond investors included the
dampening effect of economic difficulties in Asia, and the prospects for the
nation's first budget surplus in three decades. This latter point is
particularly significant for the Fund, as it indicates that the supply of new
long-term Treasury securities could actually begin to decline in the years
ahead, resulting in potentially higher prices for existing bonds.
Comparison of Change in the Value of a $10,000 Investment in the
OVB Government Securities Portfolio, Class A and Class B, versus the
Lehman Government/Corporate Index, and the Lipper Intermediate
Investment-Grade Debt Funds Average
[LINE GRAPH OMITTED]
PLOT POINTS AS FOLLOWS:
Lipper
OVB OVB Lehman Intermediate
Government Government Brothers Investment-
Securities Securities Government/ Grade Debt
Portfolio Portfolio Corporate Funds
Class A Class B Index Average
Dec 93 $10,000 $10,000 $10,000 $10,000
Jan 94 $10,100 $10,098 $10,150 $10,129
Jan 95 $ 9,648 $ 9,631 $ 9,834 $ 9,789
Jan 96 $11,398 $11,338 $11,577 $11,342
Jan 97 $11,606 $11,530 $11,854 $11,662
Jan 98 $12,818 $12,701 $13,178 $12,779
- --------------------------------------------------------------------------------
ANNUALIZED ANNUALIZED
ONE YEAR RETURN 3 YEAR RETURN INCEPTION TO DATE
- --------------------------------------------------------------------------------
CLASS A 10.44% 9.93% 6.24%
CLASS B 10.16% 9.66% 6.03%
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED 1/31/98. PAST PERFORMANCE OF THE PORTFOLIOS IS NOT
PREDICTIVE OF FUTURE PERFORMANCE. CLASS A SHARES WERE OFFERED BEGINNING 12/1/93.
CLASS B SHARES WERE OFFERED BEGINNING 12/31/93.
6
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[LOGO OMITTED]
JANUARY 31, 1998
- --------------------------------------------------------------------------------
In this stable environment, we avoided any major shifts in the asset mix or
maturity levels of the Fund. We continued to emphasize government issues,
although we moved a modest percentage of the portfolio into mortgage-backed and
corporate issues late in the year in order to take advantage of their higher
yields. In addition, we continued to operate at the long end of the portfolio's
duration and maturity parameters, in order to gain the incremental yields
available in longer-term instruments. During fiscal 1997, for example, the
Government Securities Fund had an average weighted maturity of approximately 9
years.
Looking ahead, we believe that the conditions of 1997 remain very much in
place for the coming year. Despite the current vibrancy of the economy, we
believe growth may slow toward the summer months. A potential cause for such a
slowdown could include the spread of Asia's difficulties into key trading
partner nations such as Russia, Brazil, and China. Whatever the cause, any
slowdown could cause the Federal Reserve Board to stimulate the economy through
a modest rate cut.
Therefore, we anticipate a year in which bond prices deliver at least their
coupon yields, and perhaps some modest capital gains. Overall, we believe that
it remains a good time to be an investor in high-quality fixed income
instruments.
THE OVB FUNDS
EMERGING GROWTH PORTFOLIO
- -------------------------
For the fiscal year ended January 31, 1998, The OVB Funds Emerging Growth
Portfolio, Class A, posted a total return of (0.30)%, compared with a 8.73%
return for its benchmark, the Frank Russell 2000 Growth Index. For Class B
shares, total return was (0.56)%.
After a lackluster start to the fiscal year, emerging growth stocks rallied
strongly from April to October, with the Russell 2000 index outperforming the
S&P 500 for several months. However, this rally was cut short in the Fall by the
turmoil in Asia, which is perceived to have a strong impact on
technology-related companies.
The Fund participated fully in the ups and downs of this trend, due to its
aggressive natures and strong technology component. However, several portfolio
holdings delivered outstanding performance during the year, including Applied
Graphics, a provider of specialized digital services; Computer Learning Centers,
a provider of computer-related education and training; CKE Restaurants, a
leading fast-food chain operator; Lernout and Hauspie, the developer of a speech
recognition system selected by Microsoft; and Pacific Sunwear, a casual apparel
manufacturer.
In addition, our holdings in the fund reflected our traditional concentration
in more aggressive areas of the marketplace
(CONTINUED)
7
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
where companies exhibited dynamic earnings growth. Going forward, we plan to
increase our weighting in other sectors of the market, such as financials, in
order to better correlate our performance with our stated benchmark.
Comparison of Change in the Value of a $10,000 Investment in the OVB Emerging
Growth Portfolio, Class A and Class B, versus the NASDAQ/OTC Index, and the
Frank Russell 2000 Growth Index
[LINE GRAPH OMITTED]
PLOT POINTS AS FOLLWS:
OVB OVB
Emerging Emerging
Growth Growth NASDAQ/OTC Frank Russell
Portfolio Portfolio Index 2000
Class A Class B (Price Return) Growth Index
Dec 93 $10,000 $10,000 $10,000 $10,000
Jan 94 $10,325 $10,325 $10,305 $10,266
Jan 95 $ 7,744 $ 7,714 $ 9,723 $ 9,558
Jan 96 $11,261 $11,191 $13,645 $12,678
Jan 97 $12,308 $12,208 $17,766 $14,580
Jan 98 $12,271 $12,140 $20,855 $15,853
- --------------------------------------------------------------------------------
ANNUALIZED ANNUALIZED
ONE YEAR RETURN 3 YEAR RETURN INCEPTION TO DATE
- --------------------------------------------------------------------------------
CLASS A -0.30% 16.58% 5.41%
CLASS B -0.56% 16.32% 5.50%
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED 1/31/98. PAST PERFORMANCE OF THE PORTFOLIOS IS NOT
PREDICTIVE OF FUTURE PERFORMANCE. CLASS A SHARES WERE OFFERED BEGINNING 12/1/93.
CLASS B SHARES WERE OFFERED BEGINNING 12/29/93.
Looking ahead, we remain aware that any economic slowdown could have a
disproportionate impact on small-cap stocks. Despite these concerns, we believe
that the valuations of small-cap issues remain compelling, and that certain
sectors will perform well in the year ahead. Therefore, we will continue to
choose selectively among the issues available, seeking those with the greatest
prospects for long-term growth.
THE OVB FUNDS
CAPITAL APPRECIATION PORTFOLIO
- ------------------------------
For the fiscal year ended January 31, 1998, The OVB Funds Capital Appreciation
Portfolio, Class A, posted a total return of 17.12%, compared with a 26.91%
return for its benchmark, the Standard & Poor's 500 Composite Stock Index. For
Class B shares, total return was 16.76%.
The Fund's underperformance of the benchmark is primarily attributable to its
holdings of mid-capitalization issues at a time when the markets strongly
favored large-capitalization stocks. Additionally, the Fund was overweighted in
technology issues and underweighted in financial issues early in the year.
To adjust for this trend, the Fund gradually moved closer to a market-
neutral weighting in all sectors, focusing on large-cap companies that dominate
their respective industries.
Among the Fund's best performers for the year were large healthcare companies
such as Merck, Pfizer, and SmithKline Beecham, as well as technology leaders
such as Microsoft and Cisco Systems. In the Fund's large financial services
component, gainers included American Express, Allstate Insurance, American
International
8
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1998
Group, and Travelers. Other strong issues were retailers, TJX, Dollar General
and CVS.
Looking ahead, we anticipate a continuation of last year's economic picture,
with inflation declining and interest rates drifting lower. The yield curve has
been flattening in recent months, indicating that an economic slowdown may be on
the horizon. If this occurs, investors may continue to focus on relatively
predictable large-capitalization issues. We believe the portfolio is well
positioned for this type of scenario, holding mostly large capitalization stocks
with solid earnings prospects and good visibility.
Comparison of Change in the Value of a $10,000 Investment in the
OVB Capital Appreciation Portfolio, Class A and Class B,
versus the Standard & Poor's 500 Composite Index
[LINE GRAPH OMITTED]
PLOT POINTS AS FOLLWS:
OVB OVB
Capital Capital
Appreciation Appreciation Standard & Poor's
Portfolio Portfolio 500 Composite
Class A Class B Index
Dec 93 $10,000 $10,000 $10,000
Jan 94 $10,203 $10,204 $10,340
Jan 95 $ 9,301 $ 9,274 $10,395
Jan 96 $13,143 $13,066 $14,409
Jan 97 $16,043 $15,915 $18,203
Jan 98 $18,789 $18,583 $23,102
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ANNUALIZED ANNUALIZED
ONE YEAR RETURN 3 YEAR RETURN INCEPTION TO DATE
- --------------------------------------------------------------------------------
CLASS A 17.12% 26.41% 17.23%
CLASS B 16.76% 26.07% 16.37%
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED 1/31/98. PAST PERFORMANCE OF THE PORTFOLIOS IS NOT
PREDICTIVE OF FUTURE PERFORMANCE. CLASS A SHARES WERE OFFERED BEGINNING 12/1/93.
CLASS B SHARES WERE OFFERED BEGINNING 12/31/93.
THE OVB FUNDS
EQUITY INCOME PORTFOLIO
- -----------------------
For the fiscal year ended January 31, 1998, The OVB Funds Equity Income
Portfolio, Class A, posted a total return of 18.44%, compared with a 22.72%
return for its benchmark, the S&P/BARRA Value Index. For Class B shares, total
return was 18.07%.
Throughout the year, the Fund remained focused on its three primary
objectives: Current income, long-term growth of capital, and growth of income.
This strategy resulted in a strong total return, and relatively low volatility.
The large-capitalization issues in our portfolio benefited from the
prevailing low-inflation/low-interest rate environment. In addition, they were
not greatly affected by the Asian crisis since most of their profits are earned
in the United States or Europe.
The Fund's three largest holdings -- Williams Companies, McGraw-Hill,
and GE -- were each up in excess of 40% for the year. Williams Companies was a
particular standout, thanks to strong management and a continuing focus on
shareholder value. Other good performers included publisher McGraw-Hill, defense
contractor Lockheed Martin, healthcare leaders Merck and Bristol Myers-Squibb.
Among the issues added to the portfolio were selected Real Estate Investment
Trusts (REITs). Today's REITs have little in common with the highly-leveraged
real estate
(CONTINUED)
9
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS (CONCLUDED)
- --------------------------------------------------------------------------------
partnerships of the 1980's, and are generally well-capitalized issues that
have the potential for appreciation while offering above-average yields.
The Fund has also taken a significant position in electric utilities,
selecting issues that appear to be well-positioned to take advantage of industry
deregulation. These included Southern Company, Allegheny Energy, and Montana
Power.
Looking ahead, we believe the outlook for large, established companies
remains very positive. These companies continue to benefit from low inflation
and increased consumer confidence, and have demonstrated an ability to boost
profits through top-line revenue growth and productivity enhancements.
Therefore, we plan to maintain our
strategy of owning leading companies in a variety of industries. We believe
this approach will continue to offer attractive long-term returns to our
shareholders.
Comparison of Change in the Value of a $10,000 Investment in the OVB Equity
Income Portfolio, Class A and Class B, versus the S&P 500/BARRA Value Index,
and the Lipper Equity Income Average
[LINE GRAPH OMITTED]
PLOT POINTS AS FOLLOWS:
OVB OVB
Equity Income Equity Income S&P Lipper
Portfolio Portfolio 500/BARRA Equity Income
Class A Class A Value Index Average
Aug 96 $10,000 $10,000 $10,000 $10,000
Jan 97 $11,330 $11,319 $11,941 $11,588
Jan 98 $13,419 $13,364 $14,654 $14,230
- --------------------------------------------------------------------------------
ANNUALIZED
ONE YEAR RETURN INCEPTION TO DATE
- --------------------------------------------------------------------------------
CLASS A 18.44% 22.13%
CLASS B 18.07% 21.87%
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED 1/31/98. PAST PERFORMANCE OF THE PORTFOLIOS IS NOT
PREDICTIVE OF FUTURE PERFORMANCE. CLASS A AND B SHARES WERE OFFERED BEGINNING
8/31/96.
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[LOGO OMITTED]
JANUARY 31, 1998
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 OVB Prime Obligations, OVB West Virginia
Tax-Exempt Income, OVB Government Securities, OVB Emerging Growth, OVB
Capital Appreciation and OVB Equity Income Portfolios (separately
managed portfolios of The Arbor Fund, hereafter referred to as the
"Fund") at January 31, 1998, 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 indicated, 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, 1998 by correspondence with the custodian and
the application of alternative auditing procedures where securities
purchased had not been received, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Philadelphia, PA
March 13, 1998
11
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
PRIME OBLIGATIONS PORTFOLIO
- --------------------------------------------------------------------------------
[PIE CHART OMITTED]
Plot points are as follows:
Floating Rate Instruments - 13.9%
U.S. Government Agency Obligations - 10.4%
Commercial Paper - 38.7%
Mortgage Related - 5.2%
Certificates of Deposit - 25.8%
Bank Note - 4.3%
Repurchase Agreement - 1.7%
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------------
COMMERCIAL PAPER -- 38.1%
Drugs -- 2.3%
Glaxo Wellcome
5.895%, 03/16/98 $ 1,350 $ 1,341
- --------------------------------------------------------------------------------
TOTAL DRUGS 1,341
- --------------------------------------------------------------------------------
Financial Services -- 20.6%
Beneficial
5.764%, 02/24/98 2,500 2,491
Commoloco
5.823%, 04/15/98 2,500 2,472
Enterprise Funding
5.827%, 02/20/98 1,386 1,382
Eureka Securities
5.720%, 03/16/98 1,300 1,291
Falcon Asset Securities
5.750%, 03/23/98 2,500 2,480
Island Finance
5.750%, 03/04/98 2,000 1,990
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES 12,106
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------------
Insurance -- 10.1%
Aon
5.770%, 03/18/98 $ 3,000 $ 2,978
General Re
5.928%, 03/27/98 3,000 2,974
- --------------------------------------------------------------------------------
TOTAL INSURANCE 5,952
- --------------------------------------------------------------------------------
MORTGAGE RELATED -- 5.1%
New Center Asset Trust
5.944%, 03/16/98 3,000 2,979
- --------------------------------------------------------------------------------
TOTAL MORTGAGE RELATED 2,979
- --------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST $22,378) 22,378
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATION -- 10.2%
FNMA (A)
5.389%, 02/25/98 6,000 6,000
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATION
(COST $6,000) 6,000
- --------------------------------------------------------------------------------
FLOATING RATE INSTRUMENTS -- 13.6%
Bank of America (A)
5.650%, 04/16/98 3,000 3,000
People's Security Life (A)
5.880%, 08/01/98 3,000 3,000
Travelers Insurance (A)
5.956%, 05/31/98 2,000 2,000
- --------------------------------------------------------------------------------
TOTAL FLOATING RATE INSTRUMENTS
(COST $8,000) 8,000
- --------------------------------------------------------------------------------
MORTGAGE RELATED -- 5.1%
Goldman Sachs Investment Trust,
Series 1997-C, Class N (A)
5.594%, 02/15/98 3,000 3,000
- --------------------------------------------------------------------------------
TOTAL MORTGAGE RELATED (COST $3,000) 3,000
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT -- 25.4%
Chase Manhattan Bank
5.710%, 03/05/98 2,500 2,500
International Nederlanden Bank
5.840%, 03/09/98 3,000 3,000
Rabobank Nederland
5.990%, 03/24/98 2,400 2,400
- --------------------------------------------------------------------------------
12
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1998
- --------------------------------------------------------------------------------
PRIME OBLIGATIONS PORTFOLIO (CONCLUDED)
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (CONTINUED)
Royal Bank of Canada
5.950%, 03/24/98 $ 2,500 $ 2,500
Swiss Bank
5.690%, 01/07/99 2,000 1,999
Wilmington Trust
5.847%, 05/29/98 2,500 2,500
- --------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
(COST $14,899) 14,899
- --------------------------------------------------------------------------------
BANK NOTE -- 4.2%
Morgan Guaranty NY
5.955%, 06/22/98 2,500 2,499
- --------------------------------------------------------------------------------
TOTAL BANK NOTE (COST $2,499) 2,499
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.7%
JP Morgan
5.560%, dated 01/30/98, matures
02/02/98, repurchase price $970,449
(collateralized by U.S. Government
Agency Instruments: total market
value $988,899) 970 970
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT (COST $970) 970
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS-- 98.3% (COST $57,746) 57,746
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET -- 1.7%
Other Assets and Liabilities, Net 981
- --------------------------------------------------------------------------------
TOTAL OTHER ASSETS AND LIABILITIES 981
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION (000)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Class A (unlimited
authorization -- no par value) based on
52,175,157 outstanding shares
of beneficial interest $52,175
Portfolio Shares of Class B (unlimited
authorization -- no par value) based on
6,550,107 outstanding shares
of beneficial interest 6,550
Accumulated net realized gain on investments 2
- --------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $58,727
- --------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE -- CLASS A $1.00
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE -- CLASS B $1.00
- --------------------------------------------------------------------------------
(A)Floating Rate Instrument. Rate reflected on the Statement of Net Assets is
the rate in effect on January 31, 1998. The date shown is the next scheduled
reset date.
FNMA Fannie Mae
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
WEST VIRGINIA TAX-EXEMPT INCOME PORTFOLIO
- --------------------------------------------------------------------------------
[PIE CHART OMITTED]
Plot points are as follows:
Municipal Bonds - 99.3%
Cash Equivalent - 0.7%
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS -- 98.3%
West Virginia -- 98.3%
Beckley, Industrial
Development Authority,
RB, Beckley Water Project
7.000%, 10/01/17 $ 1,000 $ 1,100
Beckley, Nursing Facility
Health Care Project,
RB, Series A
6.000%, 09/01/12 310 323
Beckley, Sewage System
Refunding, RB
6.750%, 10/01/25 400 428
Berkeley County,
Board of Education,
GO, BIG
7.375%, 04/01/03 425 488
Berkeley County,
Board of Education,
GO, FGIC
4.500%, 06/01/09 540 538
Berkeley County,
Sewer System Refunding,
RB, MBIA
5.625%, 10/01/19 895 945
Brooke County,
Board of Education,
GO, AMBAC
9.000%, 08/01/98 15 15
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------------
Cabell County,
Board of Education,
GO, MBIA
6.500%, 05/01/03 $ 150 $ 166
6.600%, 05/01/04 1,000 1,130
Cabell, Putnam &
Wayne Counties, Single
Family Mortgages, RB, FGIC
7.375%, 04/01/10 250 295
7.375%, 04/01/11 440 540
Charleston, Public
Housing Authority, RB
5.000%, 02/01/99 100 101
Charleston Building Community
Parking Facility,
Capital Appreciation,
RB, Series A
7.000%, 06/01/16 580 644
Charleston Building Community
Parking Facility,
Capital Appreciation,
RB, Subseries C
6.000%, 12/01/10 290 313
0.000%, 12/01/15 385 148
0.000%, 12/01/16 380 138
0.000%, 12/01/26 1,000 176
Clarksburg, Water Refunding &
Improvements, RB
6.100%, 09/01/04 450 496
6.200%, 09/01/05 500 551
6.250%, 09/01/19 430 456
Fairmont, Waterworks, RB, MBIA
5.375%, 07/01/13 680 710
Fayette County,
Pollution Control,
Union Carbide Project, RB
5.200%, 02/01/98 127 127
Greenbrier County,
Public Service,
District Sewer Project, RB
5.625%, 10/01/19 500 527
Harrison County,
Board of Education,
GO, FGIC
6.200%, 05/01/04 850 951
6.400%, 05/01/07 175 204
Harrison County,
Solid Waste Disposal,
RB, MBIA
6.300%, 05/01/23 200 215
Harrison County,
Solid Waste Disposal,
Monongahela Power Company,
Series A, AMT, RB
6.875%, 04/15/22 2,150 2,368
Harrison County,
Solid Waste Disposal,
Potomac Edison Project,
Series B, AMBAC, RB
6.250%, 05/01/23 400 428
14
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1998
- --------------------------------------------------------------------------------
WEST VIRGINIA TAX-EXEMPT INCOME PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
Harrison County,
Solid Waste Disposal,
West Penn Power
Harrison Project,
Series B, AMT, RB
6.300%, 05/01/23 $ 500 $ 542
Huntington County,
Sewer System
Refunding, RB, FSA
5.375%, 11/01/23 1,000 1,011
Jackson County,
Residential Mortgage,
RB, FGIC
7.375%, 06/01/10 420 492
Kanawha & Putnam Counties,
Huntington/Charleston,
Single Family Mortgage,
Series A, RB
0.000%, 12/01/16 2,000 767
Kanawha County,
Building Commission,
Charleston Area Medical
Center Project, Series A,
AMBAC, RB
7.500%, 11/01/08 1,000 1,080
Kanawha County, Residential
Mortgages, RB, FGIC,
Escrowed to Maturity
7.375%, 09/01/10 1,030 1,200
7.375%, 09/01/11 285 349
Kanawha County, Single Family
Mortgages, RB, FGIC,
Escrowed to Maturity
7.100%, 12/01/99 15 16
7.300%, 12/01/04 805 927
7.400%, 12/01/10 185 223
Logan County, Health Care
Center Project, RB,
Escrowed to Maturity
8.000%, 12/01/16 690 872
Marion County, Single Family
Mortgages, RB, FGIC,
Escrowed to Maturity
7.100%, 08/01/99 135 141
7.375%, 08/01/11 495 604
Marshall County, Pollution
Control, Ohio Power Project,
Series B, MBIA, RB
5.450%, 07/01/14 800 827
Marshall County, Pollution
Control, Ohio Power Project,
Series C, MBIA, RB
6.850%, 06/01/22 1,000 1,114
Marshall County, Special
Obligation, GO,
Escrowed to Maturity
6.500%, 05/15/10 855 958
Mason County, Pollution
Control, Ohio Power Project,
Series B, AMBAC, RB
5.450%, 12/01/16 720 741
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------------
Mason County, Single Family
Mortgages, RB, FGIC
7.400%, 08/01/11 $ 608 $ 738
Monongalia County, Board of
Education, Series A, GO, MBIA
7.000%, 04/01/03 1,000 1,135
Monongalia County, Community
Building, Series A, RB
5.750%, 11/15/14 175 175
Monongalia County, Community
Building, RB,
Escrowed to Maturity
6.000%, 11/15/27 300 303
Monongalia County,
Single Family
Mortgages, RB
7.200%, 03/01/11 1,280 1,483
Morgantown, Building
Commission Municipal
Lease, RB, MBIA
5.750%, 01/01/19 250 263
Ohio County,
Board of Education,
GO, MBIA
5.250%, 06/01/16 1,070 1,121
5.250%, 06/01/17 830 870
5.125%, 05/01/18 1,000 1,006
Parkersburg, Waterworks & Sewer
System Project, RB, FSA
5.800%, 09/01/19 2,600 2,772
Pea Ridge, Public Service,
District Sewer Project,
Series 1994, AMBAC, RB
7.000%, 05/01/20 10 11
Pleasants County, Pollution
Control, Potomac Edison
Project, AMBAC, RB
6.150%, 05/01/15 500 546
Pleasants County, Pollution
Control, West Penn Power,
AMBAC, RB
6.150%, 05/01/15 500 546
Raleigh County,
Community Public
Office Building, RB
4.850%, 04/01/04 300 304
5.050%, 04/01/06 330 335
5.250%, 04/01/08 365 371
Raleigh, Fayette & Nicholas
Counties, Special
Obligation Bonds
6.150%, 08/01/03 100 110
6.250%, 08/01/11 795 908
South Charleston,
Herbert J. Thomas Memorial
Hospital Project, RB,
Pre-refunded @ 102 (A)
8.000%, 10/01/98 500 524
(CONTINUED)
15
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
WEST VIRGINIA TAX-EXEMPT INCOME PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
South Charleston, Herbert J.
Thomas Memorial
Hospital Project,
Series A, MBIA, RB
5.500%, 10/01/09 $ 520 $ 539
Webster County, Multifamily
Housing, Circlebrook Project,
Series A, RB
6.500%, 04/01/18 1,010 1,082
West Virginia State, GO
6.000%, 06/01/98 15 15
West Virginia State,
Series A, FGIC, GO
5.750%, 11/01/21 2,340 2,501
5.250%, 11/01/26 2,645 2,701
West Virginia State,
Series D, FGIC, GO
5.000%, 11/01/21 2,000 1,997
5.250%, 11/01/23 200 207
6.500%, 11/01/26 1,000 1,200
West Virginia State,
Board of Directors,
State College, Series A,
AMBAC, RB
5.125%, 04/01/27 300 300
West Virginia State
Board of Regents,
RB, MBIA
5.900%, 04/01/04 385 414
6.000%, 04/01/04 280 297
West Virginia State
Building Commission,
Lottery Revenue, RB
5.250%, 07/01/09 2,000 2,125
West Virginia State
Building Commission
Lease, Regional Jail &
Correction Facility Project,
Series A, MBIA, RB
6.500%, 07/01/00 105 111
West Virginia State College,
RB, AMBAC
5.875%, 04/01/05 900 979
6.000%, 04/01/06 225 246
6.000%, 04/01/07 425 464
6.000%, 04/01/12 890 966
West Virginia State Economic
Development & Tourism Authority,
Series B, FGIC, RB
4.625%, 07/01/19 900 927
West Virginia State
Hospital Finance
Authority, RB, FSA
4.700%, 08/01/06 300 306
4.750%, 08/01/08 200 203
5.000%, 08/01/09 500 516
West Virginia State
Hospital Finance
Authority, Cabell
County Project, RB,
Pre-refunded @ 102 (A)
7.875%, 01/01/99 200 211
West Virginia State
Hospital Finance
Authority, Charleston
Area Medical Center Project,
Series A, RB
6.500%, 09/01/16 625 679
6.500%, 09/01/23 3,310 3,587
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------------
West Virginia State
Hospital Finance
Authority, MBIA, RB
6.100%, 01/01/18 $1,300 $1,368
West Virginia State
Hospital Finance
Authority, University
Medical Center Project,
MBIA, RB
5.900%, 01/01/06 680 727
West Virginia State Housing
Development Fund,
Series A, RB
6.700%, 11/01/09 285 305
5.450%, 11/01/21 120 122
West Virginia State Housing
Development Fund, Series A,
AMBAC, RB
5.500%, 11/01/11 530 545
West Virginia State Housing
Development Fund,
Series A, BIG, RB
7.375%, 11/01/05 500 510
West Virginia State
Housing Development
Fund, Series E, RB
6.250%, 11/01/12 1,000 1,065
6.350%, 05/01/24 1,375 1,456
West Virginia State
Housing Development
Fund, HUD Section 236, RB
6.000%, 12/15/08 600 617
6.000%, 12/15/09 600 617
West Virginia State Parkways
Economic Development &
Tourism Authority,
RB, FGIC
4.800%, 05/15/00 340 346
0.000%, 05/15/07 500 329
5.800%, 05/15/13 140 149
West Virginia State Parkways
Economic Development &
Tourism Authority, RB, FGIC,
Escrowed to Maturity
0.000%, 07/01/03 250 199
West Virginia State School
Building Authority,
Series A, MBIA, RB
Pre-refunded @ 102 (A)
7.000%, 07/01/01 210 233
West Virginia State School
Building Authority,
Series B, FSA, RB
5.125%, 07/01/13 100 102
West Virginia State Water
Development Authority,
Loan Program II,
Series A, RB
7.000%, 11/01/11 800 889
7.300%, 11/01/11 475 536
West Virginia State Water
Development Authority,
Loan Program II,
Series A, FSA, RB
5.500%, 11/01/23 625 641
5.750%, 11/01/29 150 157
16
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1998
- --------------------------------------------------------------------------------
WEST VIRGINIA TAX-EXEMPT INCOME PORTFOLIO (CONCLUDED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
West Virginia State Water
Development Authority,
Loan Program II,
Series A, RB,
Pre-refunded @ 102 (A)
7.700%, 11/01/00 $1,500 $1,669
West Virginia State Water
Development Authority,
Loan Program II,
Series A-II, FSA, RB
6.050%, 11/01/13 1,000 1,029
West Virginia State Water
Development Authority,
Loan Program II,
Series B, RB
7.500%, 11/01/29 500 540
West Virginia State Water
Development Authority,
Loan Program II,
Series B, FSA, RB
5.375%, 11/01/25 1,705 1,735
West Virginia State School
Building Authority, RB, MBIA,
Pre-refunded @ 102 (A)
7.250%, 07/01/00 560 613
West Virginia State School
Building Authority,
Capital Improvement,
MBIA, RB
5.250%, 07/01/99 100 102
6.250%, 07/01/01 500 535
West Virginia State School
Building Authority,
Capital Improvement,
Series B, MBIA, RB,
5.750%, 07/01/15 1,000 1,035
6.750%, 07/01/17 900 974
West Virginia State University
Project, AMBAC, RB
6.000%, 04/01/07 400 435
6.000%, 04/01/12 700 760
West Virginia University,
Dorm Project,
Series B, AMBAC, RB
5.000%, 05/01/22 400 395
West Virginia University,
Marshall Library Project,
AMBAC, RB
5.750%, 04/01/16 1,000 1,063
West Virginia State Water
Development Authority,
RB, FSA
5.250%, 11/01/35 1,660 1,675
West Virginia State Water
Development Authority,
Loan Program,
Series A, FSA, RB
5.800%, 11/01/12 450 462
West Virginia State Water
Development Authority,
Loan Program,
Series A-I, FSA, RB
5.250%, 11/01/21 795 801
West Virginia State Water
Development Authority,
Sewer System Loan
Program, RB,
Escrowed to Maturity
7.100%, 11/01/09 1,350 1,595
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------------
Wheeling, Waterworks &
Sewage System,
Series B, FGIC, RB
6.450%, 12/01/07 $1,000 $ 1,093
6.650%, 12/01/15 1,100 1,210
- --------------------------------------------------------------------------------
TOTAL WEST VIRGINIA 91,113
- --------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $85,093) 91,113
- --------------------------------------------------------------------------------
CASH EQUIVALENT -- 0.7%
SEI Tax Exempt Trust,
Tax Free Portfolio 649 649
- --------------------------------------------------------------------------------
TOTAL CASH EQUIVALENT (COST $649) 649
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.0% (COST $85,742) 91,762
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET -- 1.0%
Other Assets and Liabilities, Net 939
- --------------------------------------------------------------------------------
TOTAL OTHER ASSETS AND LIABILITIES 939
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Class A (unlimited
authorization -- no par value) based
on 8,238,932 outstanding shares of
beneficial interest 78,709
Portfolio Shares of Class B (unlimited
authorization -- no par value) based
on 742,332 outstanding shares of
beneficial interest 7,320
Accumulated net realized gain on investments 652
Net unrealized appreciation on investments 6,020
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $92,701
- --------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PRICE PER SHARE -- CLASS A $10.32
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PRICE PER SHARE -- CLASS B $10.32
- --------------------------------------------------------------------------------
(A) Pre-refunded Security. The pre-refunded date is shown as the maturity date
on the Statement of Net Assets.
AMT Alternative Minimum Tax
AMBAC American Municipal Bond Assurance Corporation
BIG Bond Investors Guaranty
FGIC Financial Guaranty Insurance Corporation
FSA Financial Security Assurance
GO General Obligation
HUD Department of Housing and Urban Development
MBIA Municipal Bond Insurance Association
RB Revenue Bond
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
STATEMENT OF NET ASSETS
GOVERNMENT SECURITIES PORTFOLIO
[PIE CHART OMITTED]
Plot points are as follows:
CORPORATE OBLIGATIONS - 4.4%
MUNICIPAL BONDS - 8.7%
U.S. TREASURY OBLIGATIONS - 25.2%
COMMON STOCKS - 4.0%
REPURCHASE AGREEMENT - 1.0%
U.S. GOVERNMENT AGENCY OBLIGATIONS - 56.7%
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 24.9%
U.S.Treasury Bonds
8.375%, 08/15/08 $ 550 $ 621
8.750%, 11/15/08 300 346
9.125%, 05/15/09 300 355
7.500%, 11/15/24 500 607
U.S.Treasury Notes
7.000%, 04/15/99 431 439
8.000%, 05/15/01 1,331 1,433
7.500%, 11/15/01 1,500 1,605
6.250%, 01/31/02 500 515
7.500%, 05/15/02 1,169 1,260
6.000%, 07/31/02 2,000 2,045
7.875%, 11/15/04 1,000 1,133
7.625%, 02/15/07 1,000 1,071
U.S.Treasury STRIPS
0.000%, 02/15/07 1,000 603
0.000%, 05/15/11 1,000 465
0.000%, 11/15/20 1,400 365
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $12,116) 12,863
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 56.1%
FFCB MTN
5.690%, 03/03/00 $2,000 $ 2,008
5.800%, 12/18/00 400 400
6.150%, 03/03/03 1,000 1,020
8.400%, 12/01/05 1,500 1,739
6.900%, 09/08/15 600 644
FHLB
7.040%, 05/24/99 500 509
8.375%, 10/25/99 750 784
7.780%, 10/19/01 500 536
8.090%, 12/28/04 400 452
8.125%, 03/07/05 1,000 1,048
FHLB MTN
6.880%, 04/26/00 500 514
5.990%, 10/01/03 500 499
7.030%, 05/06/11 500 548
FHLMC
6.900%, 04/04/03 500 510
8.640%, 10/14/09 400 419
7.500%, 11/01/09 1,490 1,536
8.060%, 03/24/10 500 521
6.500%, 11/01/12 1,967 1,982
Financing Corporation
8.600%, 09/26/19 500 633
FNMA
6.390%, 12/09/03 1,000 1,011
6.320%, 12/23/03 400 404
8.250%, 10/12/04 500 521
6.240%, 01/14/08 1,000 1,002
FNMA STRIPS
0.000%, 07/24/05 1,000 650
FNMA, Callable 10/24/00 @ 100
6.400%, 10/24/02 500 506
Housing Urban Development
92a Scranton, Callable
08/01/02 @ 100
7.800%, 08/01/10 400 431
Housing Urban Development
94a Abilene, Callable
08/01/03 @ 100
7.180%, 08/01/13 160 168
Housing Urban Development
94a Barberton, Callable
08/01/03 @ 100
7.180%, 08/01/13 520 545
18
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1998
- --------------------------------------------------------------------------------
GOVERNMENT SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
Housing Urban Development
94a Egg Harbor, Callable
08/01/03 @ 100
6.930%, 08/01/08 $ 160 $ 167
7.180%, 08/01/13 220 230
Housing Urban Development
94a Ocean Shores, Callable
08/01/03 @ 100
6.930%, 08/01/08 225 233
Housing Urban Development
94a Pohatcong Township,
Callable
08/01/03 @ 100
6.930%, 08/01/08 240 247
Housing Urban Development
94a Providence, Callable
08/01/03 @ 100
6.930%, 08/01/08 130 135
Housing Urban Development
94a Roanoke, Callable
08/01/03 @ 100
7.180%, 08/01/13 100 105
Housing Urban Development
94a Tacoma, Callable
08/01/03 @ 100
7.080%, 08/01/11 365 376
Housing Urban Development
94a-I Montgomery, Callable
08/01/03 @ 100
6.930%, 08/01/08 55 57
Private Export Funding
7.300%, 01/31/02 2,100 2,223
6.240%, 05/15/02 250 255
7.950%, 11/01/06 1,500 1,669
Tennessee Valley Authority
8.375%, 10/01/99 1,169 1,219
0.000%, 10/15/09 1,000 499
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS (COST $27,841) 28,955
- --------------------------------------------------------------------------------
MUNICIPAL BONDS -- 8.7%
Berkeley County, WV, IRS Computer
Center Facility Project, Taxable RB,
Series 1994
7.900%, 07/15/03 640 698
- --------------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------------
Fairview, MN, Hospital &
Health Care Services,
Taxable RB,
Series B, MBIA
7.000%, 11/15/15 $ 670 $ 716
Gardena, CA, Financing
Agency, Taxable RB,
Pre-refunded @ 102 (A)
9.250%, 07/01/03 200 232
Henry County, GA, Water
& Sewer Authority,
Taxable RB,
Series B, AMBAC
6.000%, 02/01/04 250 250
6.000%, 02/01/05 220 219
6.700%, 02/01/11 200 203
Las Vegas, NV, Fremont
Street Project,
Taxable GO, FGIC,
Callable 07/01/03 @ 101
7.200%, 07/01/15 800 837
Portsmouth, VA, Taxable GO,
Callable 07/15/07 @ 102
6.630%, 07/15/14 500 500
Saint Paul, MN, Taxable GO,
Series B,
Callable 02/01/08 @ 100
6.450%, 02/01/15 500 498
San Bernardino County,
CA, COP, Taxable RB,
Pre-refunded @ 102 (A)
8.500%, 03/01/04 275 317
- --------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $4,287) 4,470
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS -- 4.3%
American Heavy Lift Title XI
7.180%, 06/01/17 200 211
Bellsouth Telecom, Callable
05/15/05 @ 103.66
7.625%, 05/15/35 500 530
General Electric Capital MTN
6.020%, 12/15/03 500 507
Salomon Smith Barney
6.250%, 01/15/05 1,000 993
- --------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(COST $2,226) 2,241
- --------------------------------------------------------------------------------
(CONTINUED)
19
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
GOVERNMENT SECURITIES PORTFOLIO (CONCLUDED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES/FACE VALUE
DESCRIPTION AMOUNT (000) (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 4.0%
Communications Equipment -- 0.5%
SBC Communications 3,300 $ 257
- --------------------------------------------------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT 257
- --------------------------------------------------------------------------------
Electric Services -- 3.0%
American Electric Power 6,200 306
CMS Energy 5,000 213
Duke Power 5,000 271
FPL Group 4,200 241
LG&E 10,000 234
New Century Energies 6,200 282
- --------------------------------------------------------------------------------
TOTAL ELECTRIC SERVICES 1,547
- --------------------------------------------------------------------------------
Electrical Utilities -- 0.5%
Allegheny Energy 8,300 254
- --------------------------------------------------------------------------------
TOTAL ELECTRICAL UTILITIES 254
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $1,506) 2,058
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.0%
Lehman Brothers
5.080%, dated 01/30/98,
matures 02/02/98, repurchase
price $509,161 (collateralized
by U.S. Treasury Instruments:
total market value $523,654) $ 509 509
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $509) 509
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.0%
(COST $48,485) 51,096
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET -- 1.0%
Other Assets and Liabilities, Net 523
- --------------------------------------------------------------------------------
TOTAL OTHER ASSETS AND LIABILITIES 523
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION (000)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Class A (unlimited
authorization -- no par value) based
on 4,924,901 outstanding shares of
beneficial interest $47,329
Portfolio Shares of Class B (unlimited
authorization -- no par value) based
on 149,155 outstanding shares of
beneficial interest 1,462
Accumulated net realized gain on investments 217
Net unrealized appreciation on investments 2,611
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $51,619
- --------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PRICE PER SHARE -- CLASS A $10.17
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PRICE PER SHARE -- CLASS B $10.18
- --------------------------------------------------------------------------------
(A) Pre-refunded Security. The pre-refunded date is shown as the maturity date
on the Statement of Net Assets.
AMBAC American Municipal Bond Assurance Corporation
COP Certificates of Participation
FFCB Federal Farm Credit Bank
FGIC Financial Guaranty Insurance Corporation
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Fannie Mae
GO General Obligation
MBIA Municipal Bond Insurance Association
MTN Medium Term Note
RB Revenue Bond
STRIPS Separate Trading of Registered Interest and Principal of Securities
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1998
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
[PIE CHART OMITTED]
Plot points are as follows:
Repurchase Agreement - 4.0%
Common Stocks - 96%
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.5%
Banks -- 4.1%
Community First Bankshares 10,000 $ 489
Golden State Bancorp* 24,000 793
- --------------------------------------------------------------------------------
TOTAL BANKS 1,282
- --------------------------------------------------------------------------------
Catalogs -- 1.6%
Delia's* 18,500 511
- --------------------------------------------------------------------------------
TOTAL CATALOGS 511
- --------------------------------------------------------------------------------
Communications Equipment -- 1.8%
Ciena* 10,000 551
- --------------------------------------------------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT 551
- --------------------------------------------------------------------------------
Computer Software -- 10.0%
CBT Group* 6,000 545
Keane* 14,400 585
Lernout & Hauspie Speech* 22,500 1,325
Siebel Systems* 13,000 640
- --------------------------------------------------------------------------------
TOTAL COMPUTER SOFTWARE 3,095
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES (000)
- --------------------------------------------------------------------------------
Computers & Services -- 2.8%
SCM Microsystems* 25,600 $ 883
- --------------------------------------------------------------------------------
TOTAL COMPUTERS & SERVICES 883
- --------------------------------------------------------------------------------
Drugs -- 5.6%
Incyte Pharmaceuticals* 26,400 1,145
Medicis Pharmaceutical,
Class A* 13,000 604
- --------------------------------------------------------------------------------
TOTAL DRUGS 1,749
- --------------------------------------------------------------------------------
Entertainment -- 1.5%
Ballantyne of Omaha* 28,000 467
- --------------------------------------------------------------------------------
TOTAL ENTERTAINMENT 467
- --------------------------------------------------------------------------------
Financial Services -- 5.4%
Federal Agricultural Mortgage* 7,500 418
Franchise Mortgage Acceptance* 26,000 439
Medallion Financial 35,500 805
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES 1,662
- --------------------------------------------------------------------------------
Food, Beverage & Tobacco -- 2.4%
Suiza Foods* 12,000 731
- --------------------------------------------------------------------------------
TOTAL FOOD, BEVERAGE & TOBACCO 731
- --------------------------------------------------------------------------------
Insurance -- 8.4%
CMAC Investment 7,600 474
ESG Re 15,000 368
Fidelity National Financial 40,040 1,151
Mercury General 12,800 617
- --------------------------------------------------------------------------------
TOTAL INSURANCE 2,610
- --------------------------------------------------------------------------------
Medical Products & Services -- 9.9%
Arterial Vascular* 10,000 735
Boron Lepore & Associates* 20,400 553
Curative Technologies* 25,000 863
Medquist* 30,000 915
- --------------------------------------------------------------------------------
TOTAL MEDICAL PRODUCTS & SERVICES 3,066
- --------------------------------------------------------------------------------
Miscellaneous Business Services -- 16.6%
Abacus Direct* 21,500 720
AHL Services* 27,000 611
CSG Systems International* 10,700 443
Lightbridge* 24,700 445
MSC Industrial Direct* 27,000 1,205
Saville Systems Ireland* 20,000 815
(CONTINUED)
21
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO (CONCLUDED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES/FACE VALUE
DESCRIPTION AMOUNT (000) (000)
- --------------------------------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES (CONTINUED)
Snyder Communications* 24,000 $ 903
- --------------------------------------------------------------------------------
TOTAL MISCELLANEOUS BUSINESS SERVICES 5,142
- --------------------------------------------------------------------------------
Nutritional Supplements -- 2.1%
Twinlab 24,000 660
- --------------------------------------------------------------------------------
TOTAL NUTRITIONAL SUPPLEMENTS 660
- --------------------------------------------------------------------------------
Printing & Publishing -- 5.2%
Applied Graphics Technologies* 30,000 1,605
- --------------------------------------------------------------------------------
TOTAL PRINTING & PUBLISHING 1,605
- --------------------------------------------------------------------------------
Restaurants -- 8.2%
CKE Restaurants 41,800 1,847
GB Food 31,000 256
WSMP* 25,000 431
- --------------------------------------------------------------------------------
TOTAL RESTAURANTS 2,534
- --------------------------------------------------------------------------------
Retail -- 7.5%
Pacific Sunwear of California* 39,150 1,126
Whole Foods Market* 9,000 452
Wild Oates Markets* 24,450 737
- --------------------------------------------------------------------------------
TOTAL RETAIL 2,315
- --------------------------------------------------------------------------------
Schools -- 3.1%
Computer Learning Centers* 28,500 971
- --------------------------------------------------------------------------------
TOTAL SCHOOLS 971
- --------------------------------------------------------------------------------
Toys -- 1.3%
Action Performance* 12,400 392
- --------------------------------------------------------------------------------
TOTAL TOYS 392
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $23,306) 30,226
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.1%
Dresdner
5.570%, dated 01/30/98,
matures 02/02/98, repurchase
price $1,261,522 (collateralized
by U.S. Government Agency
Obligations: total market
value $1,287,480) $ 1,261 1,261
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT (COST $1,261) 1,261
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 101.6% (COST $24,567) 31,487
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION (000)
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET -- (1.6%)
Other Assets and Liabilities, Net $ (500)
- --------------------------------------------------------------------------------
TOTAL OTHER ASSETS AND LIABILITIES (500)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Class A (unlimited
authorization -- no par value) based
on 2,664,091 outstanding shares of
beneficial interest 19,889
Portfolio Shares of Class B (unlimited
authorization -- no par value) based
on 296,046 outstanding shares of
beneficial interest 3,169
Accumulated net investment loss (2)
Accumulated net realized gain on investments 1,011
Net unrealized appreciation on investments 6,920
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $30,987
- --------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PRICE PER SHARE -- CLASS A $10.48
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PRICE PER SHARE -- CLASS B $10.35
- --------------------------------------------------------------------------------
* Non-income producing securities
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1998
CAPITAL APPRECIATION PORTFOLIO
[PIE CHART OMITTED]
Plot points are as follows:
Repurchase Agreement - 0.3%
Common Stocks - 99.7%
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 99.4%
Air Transportation -- 3.2%
AMR* 15,300 $ 1,932
Delta Air Lines 16,500 1,883
- --------------------------------------------------------------------------------
TOTAL AIR TRANSPORTATION 3,815
- --------------------------------------------------------------------------------
Automotive -- 2.9%
Avis Rent A Car* 94,700 3,391
- --------------------------------------------------------------------------------
TOTAL AUTOMOTIVE 3,391
- --------------------------------------------------------------------------------
Banks -- 3.1%
NationsBank 31,600 1,896
PNC Bank 34,300 1,769
- --------------------------------------------------------------------------------
TOTAL BANKS 3,665
- --------------------------------------------------------------------------------
Communications Equipment -- 3.3%
L.M. Ericsson Telephone ADR 21,350 825
Lucent Technologies 24,500 2,168
Tellabs* 17,450 893
- --------------------------------------------------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT 3,886
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES (000)
- --------------------------------------------------------------------------------
Computer Networking Products -- 3.1%
America Online* 17,500 $ 1,675
Cisco Systems* 32,200 2,031
- --------------------------------------------------------------------------------
TOTAL COMPUTER NETWORKING PRODUCTS 3,706
- --------------------------------------------------------------------------------
Computer Software -- 3.8%
Computer Associates
International 37,500 1,995
Microsoft* 10,000 1,492
Peoplesoft* 30,000 1,050
- --------------------------------------------------------------------------------
TOTAL COMPUTER SOFTWARE 4,537
- --------------------------------------------------------------------------------
Computers & Services -- 1.0%
Sun Microsystems* 25,500 1,222
- --------------------------------------------------------------------------------
TOTAL COMPUTERS & SERVICES 1,222
- --------------------------------------------------------------------------------
Drugs -- 13.3%
Abbott Laboratories 27,200 1,926
Johnson & Johnson 28,300 1,894
Merck 26,850 3,148
Pfizer 46,300 3,794
SmithKline Beecham 56,200 3,544
Warner Lambert 10,000 1,505
- --------------------------------------------------------------------------------
TOTAL DRUGS 15,811
- --------------------------------------------------------------------------------
Electrical Utilities -- 2.3%
AES* 64,600 2,766
- --------------------------------------------------------------------------------
TOTAL ELECTRICAL UTILITIES 2,766
- --------------------------------------------------------------------------------
Entertainment -- 1.3%
Walt Disney 15,000 1,598
- --------------------------------------------------------------------------------
TOTAL ENTERTAINMENT 1,598
- --------------------------------------------------------------------------------
Financial Services -- 4.9%
American Express 30,100 2,519
Franklin Resources 44,000 1,972
Merrill Lynch 21,200 1,338
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES 5,829
- --------------------------------------------------------------------------------
(CONTINUED)
23
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Food, Beverage & Tobacco -- 8.1%
Campbell Soup 26,000 $ 1,391
Flowers Industries 60,000 1,384
Interstate Bakeries 40,000 1,390
PepsiCo 30,800 1,111
Quaker Oats 48,000 2,580
Sara Lee 33,500 1,828
- --------------------------------------------------------------------------------
TOTAL FOOD, BEVERAGE & TOBACCO 9,684
- --------------------------------------------------------------------------------
Household Products -- 5.0%
Clorox 34,800 2,667
Colgate-Palmolive 37,000 2,710
Gillette 6,000 592
- --------------------------------------------------------------------------------
TOTAL HOUSEHOLD PRODUCTS 5,969
- --------------------------------------------------------------------------------
Industrial -- 5.7%
General Electric 50,000 3,875
Tyco International 65,400 2,902
- --------------------------------------------------------------------------------
TOTAL INDUSTRIAL 6,777
- --------------------------------------------------------------------------------
Insurance -- 12.1%
AIG 11,775 1,299
Allstate 31,000 2,744
Marsh & McLennan 34,000 2,512
MGIC Investment 45,500 3,077
Sunamerica 48,600 1,953
Travelers 56,250 2,784
- --------------------------------------------------------------------------------
TOTAL INSURANCE 14,369
- --------------------------------------------------------------------------------
Medical Products & Services -- 5.4%
Guidant 32,000 2,056
McKesson 57,400 2,748
Medtronic 32,400 1,654
- --------------------------------------------------------------------------------
TOTAL MEDICAL PRODUCTS & SERVICES 6,458
- --------------------------------------------------------------------------------
Miscellaneous Business Services -- 3.3%
Cendant* 78,000 2,642
HBO & Company 24,000 1,256
- --------------------------------------------------------------------------------
TOTAL MISCELLANEOUS BUSINESS SERVICES 3,898
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES/FACE VALUE
DESCRIPTION AMOUNT (000) (000)
- --------------------------------------------------------------------------------
Oil & Gas Well Equipment -- 2.6%
Diamond Offshore Drilling 16,500 $ 737
Global Marine* 30,900 709
Halliburton 19,100 858
Schlumberger 11,500 847
- --------------------------------------------------------------------------------
TOTAL OIL & GAS WELL EQUIPMENT 3,151
- --------------------------------------------------------------------------------
Retail -- 12.5%
CVS 55,000 3,606
Dollar General 71,000 2,583
Family Dollar Stores 44,800 1,428
Rite Aid 20,700 1,292
TJX 90,000 3,049
Walgreen 88,000 2,915
- --------------------------------------------------------------------------------
TOTAL RETAIL 14,873
- --------------------------------------------------------------------------------
Telephones & Telecommunication -- 2.5%
Bell Atlantic 32,000 2,962
- --------------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATION 2,962
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $86,614) 118,367
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.3%
Dresdner
5.570%, dated 01/30/98,
matures 02/02/98, repurchase
price $348,282 (collateralized
by U.S. Government Agency
Instruments: total market
value $357,765) $ 348 $ 348
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $348) 348
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.7% (COST $86,962) 118,715
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET -- 0.3%
Other Assets and Liabilities, Net 354
- --------------------------------------------------------------------------------
TOTAL OTHER ASSETS AND LIABILITIES 354
- --------------------------------------------------------------------------------
24
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1998
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO (CONCLUDED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION (000)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Class A (unlimited
authorization -- no par value) based
on 8,049,195 outstanding shares of
beneficial interest $ 76,706
Portfolio Shares of Class B (unlimited
authorization -- no par value) based
on 433,343 outstanding shares of
beneficial interest 5,761
Accumulated net investment income 97
Accumulated net realized gain on investments 4,752
Net unrealized appreciation on investments 31,753
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $119,069
- --------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PRICE PER SHARE -- CLASS A $14.05
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PRICE PER SHARE -- CLASS B $13.89
- --------------------------------------------------------------------------------
* Non-income producing securities
ADR American Depository Receipt
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
[PIE CHART OMITTED]
Plot points are as follows:
CONVERTIBLE BONDS - 1.5%
COMMON STOCKS - 92.9%
REPURCHASE AGREEMENT - 1.1%
PREFERRED STOCKS - 4.5%
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 93.0%
Aerospace & Defense -- 4.7%
Lockheed Martin 14,000 $ 1,457
United Technologies 12,000 979
- --------------------------------------------------------------------------------
TOTAL AEROSPACE & DEFENSE 2,436
- --------------------------------------------------------------------------------
Automotive -- 2.2%
Chrysler 33,000 1,149
- --------------------------------------------------------------------------------
TOTAL AUTOMOTIVE 1,149
- --------------------------------------------------------------------------------
Banks -- 5.4%
Compass Bancshares 20,000 865
Crestar Financial 21,500 1,129
J.P. Morgan 8,000 809
- --------------------------------------------------------------------------------
TOTAL BANKS 2,803
- --------------------------------------------------------------------------------
Chemicals -- 3.9%
E.I. Du Pont de Nemours 14,000 793
Witco 30,000 1,215
- --------------------------------------------------------------------------------
TOTAL CHEMICALS 2,008
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES (000)
- --------------------------------------------------------------------------------
Cosmetics, Soaps & Toiletries -- 2.6%
Colgate-Palmolive 10,800 $ 791
Procter & Gamble 7,000 549
- --------------------------------------------------------------------------------
TOTAL COSMETICS, SOAPS & TOILETRIES 1,340
- --------------------------------------------------------------------------------
Drugs -- 4.6%
Bristol-Myers Squibb 12,000 1,196
Merck 10,000 1,172
- --------------------------------------------------------------------------------
TOTAL DRUGS 2,368
- --------------------------------------------------------------------------------
Electrical Utilities -- 6.0%
Allegheny Energy 40,000 1,225
Montana Power 30,000 900
Southern 40,000 972
- --------------------------------------------------------------------------------
TOTAL ELECTRICAL UTILITIES 3,097
- --------------------------------------------------------------------------------
Electronic & Other Electrical Equipment -- 3.0%
General Electric 20,200 1,565
- --------------------------------------------------------------------------------
TOTAL ELECTRONIC & OTHER
ELECTRICAL EQUIPMENT 1,565
- --------------------------------------------------------------------------------
Financial Services -- 3.7%
A.G. Edwards & Sons 20,000 758
American Express 6,500 544
FNMA 10,000 618
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES 1,920
- --------------------------------------------------------------------------------
Food, Beverage & Tobacco -- 5.5%
General Mills 7,200 536
H.J. Heinz 20,600 1,142
Sara Lee 21,000 1,146
- --------------------------------------------------------------------------------
TOTAL FOOD, BEVERAGE & TOBACCO 2,824
- --------------------------------------------------------------------------------
Forestry -- 2.2%
Rayonier 26,500 1,133
- --------------------------------------------------------------------------------
TOTAL FORESTRY 1,133
- --------------------------------------------------------------------------------
Gas/Natural Gas -- 5.6%
MCN 12,000 444
National Fuel & Gas 20,000 920
Williams Company 54,400 1,550
- --------------------------------------------------------------------------------
TOTAL GAS/NATURAL GAS 2,914
- --------------------------------------------------------------------------------
26
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1998
- --------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES (000)
- --------------------------------------------------------------------------------
Insurance -- 5.7%
Jefferson Pilot 19,000 $ 1,552
Marsh & McLennan 7,000 517
Travelers 18,049 893
- --------------------------------------------------------------------------------
TOTAL INSURANCE 2,962
- --------------------------------------------------------------------------------
Machinery -- 3.2%
Dresser Industries 25,000 894
Lincoln Electric 20,000 735
- --------------------------------------------------------------------------------
TOTAL MACHINERY 1,629
- --------------------------------------------------------------------------------
Medical Products & Services -- 1.2%
C.R. Bard 20,000 620
- --------------------------------------------------------------------------------
TOTAL MEDICAL PRODUCTS & SERVICES 620
- --------------------------------------------------------------------------------
Petroleum Refining -- 8.9%
Amoco 13,000 1,058
Exxon 20,000 1,186
Mobil 19,500 1,328
Texaco 20,000 1,041
- --------------------------------------------------------------------------------
TOTAL PETROLEUM REFINING 4,613
- --------------------------------------------------------------------------------
Printing & Publishing -- 5.7%
Knight-Ridder 25,800 1,421
McGraw-Hill 22,000 1,536
- --------------------------------------------------------------------------------
TOTAL PRINTING & PUBLISHING 2,957
- --------------------------------------------------------------------------------
Real Estate Investment Trusts -- 6.2%
Centerpoint Properties Trust 13,000 436
Duke Realty Investments 24,000 570
Mack Cali Realty 14,000 564
National Golf Properties 13,000 394
Security Capital Pacific Trust 16,000 377
Sovran Self Storage 20,000 615
Storage Trust Realty 10,000 258
- --------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS 3,214
- --------------------------------------------------------------------------------
Retail -- 0.8%
Nike 10,000 401
- --------------------------------------------------------------------------------
TOTAL RETAIL 401
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES/FACE VALUE
DESCRIPTION AMOUNT (000) (000)
- --------------------------------------------------------------------------------
Telephones & Telecommunication -- 5.9%
Bell Atlantic 14,000 $ 1,296
CFW Communication 30,000 653
GTE 12,000 655
Sprint 8,000 475
- --------------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATION 3,079
- --------------------------------------------------------------------------------
Transportation Services -- 2.2%
CSX 21,200 1,124
- --------------------------------------------------------------------------------
TOTAL TRANSPORTATION SERVICES 1,124
- --------------------------------------------------------------------------------
Water Utilities -- 3.8%
Aquarion 20,000 694
Southern California Water 50,000 1,266
- --------------------------------------------------------------------------------
TOTAL WATER UTILITIES 1,960
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $39,874) 48,116
- --------------------------------------------------------------------------------
PREFERRED STOCKS -- 4.5%
MCI 20,000 524
Merrill Lynch 20,000 500
Microsoft 10,000 919
Tennessee Valley Authority 15,000 403
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (COST $2,205) 2,346
- --------------------------------------------------------------------------------
CONVERTIBLE BOND -- 1.5%
Oryx Energy
7.500%, 05/15/14 $ 800 793
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE BOND (COST $791) 793
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.1%
Lehman Brothers
5.080%, dated 01/30/98,
matures 02/02/98, repurchase
price $562,620 (collateralized
by U.S. Treasury Instruments:
total market value $578,634) 562 562
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT (COST $562) 562
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.1% (COST $43,432) 51,817
- --------------------------------------------------------------------------------
(CONTINUED)
27
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO (CONCLUDED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION (000)
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET -- (0.1%)
Other Assets and Liabilities, Net $ (63)
- --------------------------------------------------------------------------------
TOTAL OTHER ASSETS AND LIABILITIES (63)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Class A (unlimited
authorization -- no par value) based
on 3,809,654 outstanding shares of
beneficial interest 39,035
Portfolio Shares of Class B (unlimited
authorization -- no par value) based
on 291,491 outstanding shares of
beneficial interest 3,307
Accumulated net realized gain on investments 1,027
Net unrealized appreciation on investments 8,385
- --------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $51,754
- --------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PRICE PER SHARE -- CLASS A $12.62
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PRICE PER SHARE -- CLASS B $12.62
- --------------------------------------------------------------------------------
FNMA Fannie Mae
28
<PAGE>
This Page Intentionally Left Blank
<PAGE>
<TABLE>
<CAPTION>
[LOGO OMITTED]
JANUARY 31, 1998
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31, 1998
(IN THOUSANDS)
----------------------------------------------------------------------------------------
PRIME OBLIGATIONS WEST VIRGINIA TAX-EXEMPT GOVERNMENT SECURITIES
PORTFOLIO INCOME PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C> <C>
Interest income ............................ $5,033 $5,382 $3,415
Dividend income ............................ -- -- 118
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME .................... 5,033 5,382 3,533
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Administrator fees ......................... 177 187 107
Investment advisory fees ................... 221 421 401
Less: investment advisory fees waived ..... (142) (43) (119)
Sub-advisory fees ......................... 66 -- --
Custodian fees ............................ 9 12 4
Professional fees ......................... 29 30 8
Registration & filing fees ................ -- 11 (6)
Printing expenses ......................... 15 17 9
Trustee fees .............................. 4 8 3
Pricing fees .............................. 3 9 3
Distribution fees (1) ..................... 17 17 4
Transfer agent fees ....................... 42 46 32
Amortization of organization costs ........ 5 5 5
Miscellaneous expenses .................... -- 1 (3)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES ............................ 446 721 448
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) ............ 4,587 4,661 3,085
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments .......... 9 1,316 303
Net change in unrealized appreciation
(depreciation) on investments ........... -- 2,500 1,794
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments .......................... 9 3,816 2,097
====================================================================================================================================
Increase (decrease) in net assets resulting
from operations ......................... $4,596 $8,477 $5,182
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------------------------------------------------------------------------
EMERGING GROWTH CAPITAL APPRECIATION EQUITY INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C> <C>
Interest income ........................... $ 91 $ 222 $ 141
Dividend income ........................... 61 1,064 1,510
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME ................... 152 1,286 1,651
EXPENSES:
Administrator fees ........................ 90 232 119
Investment advisory fees .................. 429 1,101 363
Less: investment advisory fees waived ..... (59) (295) (18)
Sub-advisory fees ......................... -- -- --
Custodian fees ............................ 4 13 10
Professionalfees .......................... 8 44 20
Registration & filing fees ................ -- -- --
Printing expenses ......................... 7 20 13
Trustee fees .............................. 3 7 3
Pricing fees .............................. 2 4 2
Distribution fees (1) ..................... 8 13 7
Transfer agent fees ....................... 30 53 29
Amortization of organization costs ........ 5 5 5
Miscellaneous expenses .................... -- (2) --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES ............................ 527 1,195 553
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) ............ (375) 91 1,098
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments .......... 7,337 25,364 2,589
Net change in unrealized appreciation
(depreciation) on investments ........... (8,532) (7,199) 4,595
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments .......................... (1,195) 18,165 7,184
====================================================================================================================================
Increase (decrease) in net assets resulting
from operations ......................... $(1,570) $18,256 $8,282
====================================================================================================================================
<FN>
(1) Distribution fees are only incurred on Class B shares.
The accompanying notes are an integral part of the financial statements.
30 & 31
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
[LOGO OMITTED]
JANUARY 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31,
(IN THOUSANDS)
----------------------------------------------------------------------------------------
PRIME OBLIGATIONS WEST VIRGINIA TAX-EXEMPT GOVERNMENT SECURITIES
PORTFOLIO INCOME PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income ..................... $ 4,587 $ 4,773 $ 4,661 $ 2,753 $ 3,085 $ 3,254
Net realized gain (loss) on investments ... 9 -- 1,316 (53) 303 32
Net change in unrealized appreciation .....
(depreciation) on investments ........... -- -- 2,500 2,317 1,794 (2,140)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM INVESTMENT OPERATIONS .............. 4,596 4,773 8,477 5,017 5,182 1,146
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income:
Class A ................................. (4,252) (4,444) (4,334) (2,511) (3,000) (3,166)
Class B ................................. (335) (329) (327) (242) (85) (88)
Realized net gains:
Class A ................................. -- -- (410) -- (39) --
Class B ................................. -- -- (36) -- (1) --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ....................... (4,587) (4,773) (5,107) (2,753) (3,125) (3,254)
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Class A:
Shares issued ........................... 162,497 170,977 2,749 62,118 6,732 30,767
Shares issued in lieu of cash distributions 13 1 -- -- 39 --
Shares redeemed ......................... (200,643) (165,337) (13,440) (8,422) (17,688) (29,916)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS A TRANSACTIONS ................ (38,133) 5,641 (10,691) 53,696 (10,917) 851
- ------------------------------------------------------------------------------------------------------------------------------------
Class B:
Shares issued ........................... 8,411 14,171 2,096 3,020 331 1,183
Shares issued in lieu of cash distributions 224 244 307 203 71 71
Shares redeemed ......................... (9,586) (13,068) (1,191) (1,296) (767) (548)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS B TRANSACTIONS ................ (951) 1,347 1,212 1,927 (365) 706
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS ................ (39,084) 6,988 (9,479) 55,623 (11,282) 1,557
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ... (39,075) 6,988 (6,109) 57,887 (9,225) (551)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year ......................... 97,802 90,814 98,810 40,923 60,844 61,395
- ------------------------------------------------------------------------------------------------------------------------------------
End of year ............................... $58,727 $ 97,802 $ 92,701 $98,810 $51,619 $60,844
====================================================================================================================================
CAPITAL SHARE TRANSACTIONS:
Class A:
Shares issued ........................... 162,497 170,977 273 6,540 681 3,187
Shares issued in lieu of cash distributions 13 1 -- -- 4 --
Shares redeemed ......................... (200,643) (165,337) (1,342) (851) (1,810) (3,073)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS A SHARE TRANSACTIONS .......... (38,133) 5,641 (1,069) 5,689 (1,125) 114
- ------------------------------------------------------------------------------------------------------------------------------------
Class B:
Shares issued ........................... 8,411 14,171 207 308 34 122
Shares issued in lieu of cash distributions 224 244 30 20 7 3
Shares redeemed ......................... (9,586) (13,068) (118) (132) (79) (26)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS B SHARE TRANSACTIONS .......... (951) 1,347 119 196 (38) 99
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SHARE TRANSACTIONS .................. (39,084) 6,988 (950) 5,885 (1,163) 213
====================================================================================================================================
The accompanying notes are an integral part of the financial statements.
32 & 33
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
[LOGO OMITTED]
JANUARY 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31,
(IN THOUSANDS)
---------------------------------------------------------------------------------------
EMERGING GROWTH CAPITAL APPRECIATION EQUITY INCOME
PORTFOLIO PORTFOLIO PORTFOLIO*
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) .............. $ (375) $ (519) $ 91 $ (21) $ 1,098 $ 536
Net realized gain on investments .......... 7,337 3,935 25,364 9,585 2,589 1
Net change in unrealized appreciation
(depreciation) on investments .......... (8,532) 3,217 (7,199) 15,858 4,595 3,790
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM INVESTMENT OPERATIONS .... (1,570) 6,633 18,256 25,422 8,282 4,327
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income:
Class A ................................. -- -- (43) -- (1,038) (522)
Class B ................................. -- -- -- -- (60) (14)
In Excess of Net Investment Income:
Class A ................................. -- -- -- (38) -- --
Class B ................................. -- -- -- -- -- --
Net realized gains:
Class A ................................. (4,978) (625) (25,454) (5,300) (1,455) --
Class B ................................. (445) (43) (1,340) (198) (108) --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ....................... (5,423) (668) (26,837) (5,536) (2,661) (536)
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Class A:
Shares issued ........................... 34,519 21,222 31,733 31,064 11,078 39,723
Shares issued in lieu of cash distributions -- -- -- -- -- --
Shares redeemed ......................... (56,079) (19,180) (29,505) (31,168) (9,925) (1,841)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS A TRANSACTIONS ................ (21,560) 2,042 2,228 (104) 1,153 37,882
- ------------------------------------------------------------------------------------------------------------------------------------
Class B:
Shares issued ........................... 706 2,726 2,254 1,997 2,340 1,424
Shares issued in lieu of cash distributions 435 42 1,331 197 157 14
Shares redeemed ......................... (1,284) (1,502) (1,518) (466) (601) (27)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS B TRANSACTIONS ................ (143) 1,266 2,067 1,728 1,896 1,411
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS ................ (21,703) 3,308 4,295 1,624 3,049 39,293
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ... (28,696) 9,273 (4,286) 21,510 8,670 43,084
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year ......................... 59,683 50,410 123,355 101,845 43,084 --
- ------------------------------------------------------------------------------------------------------------------------------------
End of year ............................... $30,987 $59,683 $119,069 $123,355 $51,754 $43,084
===================================================================================================================================-
CAPITAL SHARE TRANSACTIONS:
Class A:
Shares issued ........................... 3,070 1,871 2,220 2,489 917 3,875
Shares issued in lieu of cash distributions -- -- -- -- -- --
Shares redeemed ......................... (4,938) (1,547) (1,898) (2,247) (809) (173)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS A SHARE TRANSACTIONS .......... (1,868) 324 322 242 108 3,702
- ------------------------------------------------------------------------------------------------------------------------------------
Class B:
Shares issued ........................... 61 222 147 144 193 135
Shares issued in lieu of cash distributions 45 3 94 14 13 1
Shares redeemed ......................... (117) (122) (101) (34) (48) (2)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS B SHARE TRANSACTIONS .......... (11) 103 140 124 158 134
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SHARE TRANSACTIONS .................. (1,879) 427 462 366 266 3,836
===================================================================================================================================-
<FN>
*Commenced operations on August 2, 1996.
The accompanying notes are an integral part of the financial statements.
34 & 35
<PAGE>
</FN>
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
[LOGO OMITTED]
JANUARY 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NET ASSET NET REALIZED DISTRIBUTIONS DISTRIBUTIONS NET ASSET
VALUE, NET AND UNREALIZED FROM NET FROM VALUE,
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT CAPITAL END OF
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
PRIME OBLIGATIONS PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
<S> <C> <C> <C> <C> <C> <C>
1998 $ 1.00 $ 0.05 $ 0.00 $(0.05) $ 0.00 $ 1.00
1997 1.00 0.05 0.00 (0.05) 0.00 1.00
1996 1.00 0.06 0.00 (0.06) 0.00 1.00
1995 1.00 0.04 0.00 (0.04) 0.00 1.00
1994 (1) 1.00 0.00 0.00 0.00 0.00 1.00
CLASS B
1998 $ 1.00 $ 0.05 $ 0.00 $(0.05) $ 0.00 $ 1.00
1997 1.00 0.05 0.00 (0.05) 0.00 1.00
1996 1.00 0.05 0.00 (0.05) 0.00 1.00
1995 (2) 1.00 0.04 0.00 (0.04) 0.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
WEST VIRGINIA TAX-EXEMPT INCOME PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
1998 $ 9.95 $ 0.50 $ 0.42 $(0.50) $(0.05) $10.32
1997 10.12 0.49 (0.17) (0.49) 0.00 9.95
1996 9.36 0.49 0.76 (0.49) 0.00 10.12
1995 10.17 0.46 (0.81) (0.46) 0.00 9.36
1994 (1) 10.00 0.07 0.17 (0.07) 0.00 10.17
CLASS B
1998 $ 9.95 $ 0.48 $ 0.42 $(0.48) $(0.05) $10.32
1997 10.11 0.47 (0.16) (0.47) 0.00 9.95
1996 9.36 0.47 0.75 (0.47) 0.00 10.11
1995 10.17 0.43 (0.81) (0.43) 0.00 9.36
1994 (3) 10.07 0.05 0.10 (0.05) 0.00 10.17
- ------------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT SECURITIES PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
1998 $ 9.76 $ 0.57 $ 0.42 $(0.57) $(0.01) $10.17
1997 10.15 0.56 (0.39) (0.56) 0.00 9.76
1996 9.09 0.55 1.06 (0.55) 0.00 10.15
1995 10.06 0.51 (0.97) (0.51) 0.00 9.09
1994 (1) 10.00 0.08 0.06 (0.08) 0.00 10.06
CLASS B
1998 $ 9.77 $ 0.54 $ 0.42 $(0.54) $(0.01) $10.18
1997 10.15 0.53 (0.38) (0.53) 0.00 9.77
1996 9.10 0.53 1.05 (0.53) 0.00 10.15
1995 10.06 0.49 (0.96) (0.49) 0.00 9.10
1994 (4) 10.01 0.04 0.05 (0.04) 0.00 10.06
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET INVESTMENT
RATIO OF EXPENSES TO INCOME
RATIO OF NET INVESTMENT AVERAGE TO AVERAGE
NET ASSETS, EXPENSES TO INCOME NET ASSETS NET ASSETS PORTFOLIO
TOTAL END OF AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
RETURN PERIOD (000) NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
- ------------------------------------------------------------------------------------------------------------------------------------
PRIME OBLIGATIONS PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
<S> <C> <C> <C> <C> <C> <C> <C>
1998 5.33% $52,177 0.49% 5.21% 0.65% 5.05% N/A
1997 5.11 90,301 0.49 5.00 0.66 4.83 N/A
1996 5.65 84,660 0.49 5.50 0.64 5.35 N/A
1995 4.15 77,295 0.49 4.08 0.69 3.88 N/A
1994 (1) 2.95 82,477 0.49 2.89 0.80 2.58 N/A
CLASS B
1998 5.07% $ 6,550 0.74% 4.96% 0.90% 4.80% N/A
1997 4.85 7,501 0.74 4.75 0.91 4.58 N/A
1996 5.39 6,154 0.74 5.15 0.89 5.00 N/A
1995 (2) 3.95 669 0.74 4.33 0.93 4.14 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
WEST VIRGINIA TAX-EXEMPT INCOME PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
1998 9.55% $85,043 0.75% 5.00% 0.80% 4.96% 17%
1997 3.35 92,619 0.75 5.01 0.85 4.91 26
1996 13.66 36,611 0.75 5.02 0.89 4.88 43
1995 (3.38) 26,096 0.75 4.88 1.09 4.54 28
1994 (1) 2.43 20,477 0.75 4.18 1.62 3.31 17
CLASS B
1998 9.28% $ 7,658 1.00% 4.74% 1.05% 4.70% 17%
1997 3.19 6,191 1.00 4.76 1.10 4.66 26
1996 13.26 4,312 1.00 4.78 1.14 4.64 43
1995 (3.62) 2,263 1.00 4.68 1.34 4.34 28
1994 (3) 1.48 935 1.00 3.87 2.14 2.73 17
- ------------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT SECURITIES PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
1998 10.44% $50,100 0.83% 5.77% 1.05% 5.55% 21%
1997 1.83 59,014 0.83 5.75 1.16 5.42 46
1996 18.14 60,228 0.83 5.68 1.11 5.40 28
1995 (4.48) 61,067 0.83 5.61 1.17 5.27 13
1994 (1) 1.39 34,654 0.83 4.64 1.49 3.98 5
CLASS B
1998 10.16% $ 1,519 1.08% 5.52% 1.30% 5.30% 21%
1997 1.69 1,830 1.08 5.50 1.41 5.17 46
1996 17.72 1,167 1.08 5.39 1.36 5.11 28
1995 (4.62) 457 1.08 5.34 1.42 5.00 13
1994 (4) 0.89 141 1.08 4.47 2.00 3.35 5
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Commenced operations on December 1, 1993. All ratios for the period have been annualized.
(2) Commenced operations on February 7, 1994. All ratios for the period have been annualized.
(3) Commenced operations on December 17, 1993. All ratios for the period have been annualized.
(4) Commenced operations on December 31, 1993. All ratios for the period have been annualized.
The accompanying notes are an integral part of the financial statements.
36 & 37
<PAGE>
</FN>
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
[LOGO OMITTED]
JANUARY 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NET ASSET NET REALIZED DISTRIBUTIONS DISTRIBUTIONS NET ASSET
VALUE, NET AND UNREALIZED FROM NET FROM VALUE, NET ASSETS,
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT CAPITAL END OF TOTAL END OF
OF PERIOD INCOME (LOSS) ON INVESTMENTS INCOME GAINS PERIOD RETURN PERIOD (000)
- ------------------------------------------------------------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $12.34 $ 0.14 $(0.29) $ 0.00 $(1.71) $10.48 (0.30)%$ 27,923
1997 11.43 (0.10) 1.16 0.00 (0.15) 12.34 9.30 55,924
1996 7.86 (0.10) 3.67 0.00 0.00 11.43 45.42 48,090
1995 10.48 (0.06) (2.56) 0.00 0.00 7.86 (25.00) 34,772
1994 (1) 10.00 0.00 0.48 0.00 0.00 10.48 (4.80) 36,670
CLASS B
1998 $12.24 $ 0.05 $(0.23) $ 0.00 $(1.71) $10.35 (0.56)%$ 3,064
1997 11.36 (0.12) 1.15 0.00 (0.15) 12.24 9.09 3,759
1996 7.83 (0.12) 3.65 0.00 0.00 11.36 45.08 2,320
1995 10.48 (0.06) (2.59) 0.00 0.00 7.83 (25.29) 730
1994 (2) 9.77 0.00 0.71 0.00 0.00 10.48 7.27 330
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
1998 $15.38 $ 0.03 $ 2.52 $(0.01) $(3.87) $14.05 17.12% $113,048
1997 13.31 0.00 2.86 (0.01) (0.78) 15.38 22.06 118,873
1996 9.57 0.01 3.93 (0.01) (0.19) 13.31 41.31 99,612
1995 10.53 0.03 (0.96) (0.03) 0.00 9.57 (8.84) 70,502
1994 (1) 10.00 0.00 0.53 0.00 0.00 10.53 5.30 54,022
CLASS B
1998 $15.28 $ 0.02 $ 2.46 $ 0.00 $(3.87) $13.89 16.76% $ 6,021
1997 13.25 (0.03) 2.84 0.00 (0.78) 15.28 21.81 4,482
1996 9.55 (0.01) 3.90 0.00 (0.19) 13.25 40.88 2,233
1995 10.52 0.01 (0.97) (0.01) 0.00 9.55 (9.11) 505
1994 (3) 10.33 0.00 0.19 0.00 0.00 10.52 1.84 171
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
1998 $11.23 $ 0.27 $ 1.78 $(0.27) $(0.39) $12.62 18.44% $ 48,076
1997 (4) 10.00 0.16 1.23 (0.16) 0.00 11.23 13.98 41,580
CLASS B
1998 $11.24 $ 0.23 $ 1.79 $(0.25) $(0.39) $12.62 18.07% $ 3,678
1997 (4) 10.00 0.15 1.24 (0.15) 0.00 11.24 13.98 1,504
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET INVESTMENT
RATIO OF EXPENSES TO INCOME (LOSS)
RATIO OF NET INVESTMENT AVERAGE TO AVERAGE
EXPENSES TO INCOME (LOSS) NET ASSETS NET ASSETS PORTFOLIO AVERAGE
AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER COMMISSION
NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE RATE+
- ------------------------------------------------------------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
<S> <C> <C> <C> <C> <C> <C>
1998 1.15% (0.81)% 1.28% (0.94)% 133% $0.0572
1997 1.15 (0.91) 1.33 (1.09) 119 0.0574
1996 1.15 (0.92) 1.32 (1.09) 117 N/A
1995 1.15 (0.75) 1.42 (1.02) 126 N/A
1994 (1) 1.15 (0.83) 1.70 (1.38) 7 N/A
CLASS B
1998 1.40% (1.06)% 1.53% (1.19)% 133% $0.0572
1997 1.40 (1.15) 1.58 (1.33) 119 0.0574
1996 1.40 (1.19) 1.57 (1.36) 117 N/A
1995 1.40 (0.98) 1.67 (1.25) 126 N/A
1994 (2) 1.40 (1.08) 2.15 (1.83) 7 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
1998 1.02% 0.09% 1.28% (0.17)% 118% $0.0782
1997 1.02 (0.01) 1.28 (0.27) 90 0.0739
1996 1.02 0.08 1.27 (0.17) 119 N/A
1995 1.02 0.28 1.33 (0.03) 107 N/A
1994 (1) 1.02 0.12 1.51 (0.37) 7 N/A
CLASS B
1998 1.27% (0.16)% 1.53% (0.42)% 118% $0.0782
1997 1.27 (0.27) 1.53 (0.53) 90 0.0739
1996 1.27 (0.16) 1.52 (0.41) 119 N/A
1995 1.27 0.02 1.58 (0.29) 107 N/A
1994 (3) 1.27 0.19 2.01 (0.55) 7 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
1998 1.11% 2.26% 1.15% 2.22% 68% $0.0692
1997 (4) 1.20 3.27 1.25 3.22 10 0.0787
CLASS B
1998 1.36% 2.01% 1.40% 1.97% 68% $0.0692
1997 (4) 1.45 3.02 1.50 2.97 10 0.0787
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Commenced operations on December 1, 1993. All ratios for the period have been annualized.
(2) Commenced operations on December 29, 1993. All ratios for the period have been annualized.
(3) Commenced operations on December 31, 1993. All ratios for the period have been annualized.
(4) Commenced operations on August 2, 1996. All ratios for the period have been annualized.
+ Presentation of average commission rate is required only for the fiscal years beginning after September 1, 1995.
The accompanying notes are an integral part of the financial statements.
38 & 39
<PAGE>
</FN>
</TABLE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION:
The Arbor Fund (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 Investments 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. The financial statements included
herein relate to the Trust's OVBFamily of Funds. The OVB Family of Funds
includes the Prime Obligations Portfolio (the "Money Market Portfolio"), Capital
Appreciation Portfolio, Emerging Growth Portfolio, Equity Income Portfolio (the
"Equity Portfolios"), Government Securities Portfolio and West Virginia
Tax-Exempt IncomePortfolio (the "Fixed Income Portfolios"). The financial
statements of the remaining portfolios of the Trust are presented separately.
The assets of each Portfolio are segregated, and a shareholder's interest is
limited to the Portfolio in which shares are held.The Portfolios' prospectus
provides a description of each Portfolio's investment objectives, policies and
strategies. The Portfolios are registered to offer two classes of shares:
Class A and Class B (see note 3).
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies consistently
followed by the Portfolios.
SECURITY VALUATION--
Investments in equity securities that are traded on a national securities
exchange (or reported on NASDAQ national market system) are stated at the last
quoted sales price, if readily available for such equity securities on each
business day; other equity securities traded in the over-the-counter market and
listed equity securities for which no sale was reported on that date are stated
at the last quoted bid price. When market quotations are not readily available,
securities are valued at fair value as determined in good faith by procedures
established and approved by the Board of Trustees. Debt obligations exceeding
sixty days to maturity for which market quotations are readily available are
valued at the most recently quoted bid price. Debt obligations with sixty days
or less until maturity are valued at their amortized cost.
Investment securities held by the Money Market Portfolio are stated at
amortized cost which approximates market value. Under the amortized cost method,
any discount or premium is amortized ratably to the maturity of the security and
is included in interest income.
FEDERAL INCOME TAXES--
It is each Portfolio's intention to continue to qualify as a regulated
investment
40 <PAGE>
[LOGO OMITTED]
JANUARY 31, 1998
- --------------------------------------------------------------------------------
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 taxes has been made in the financial statements.
On the Statement of Net Assets the following adjustments were made (000):
ACCUMULATED UNDISTRIBUTED
NET REALIZED NET INVESTMENT
PORTFOLIO GAIN (LOSS) INCOME PAID-IN-CAPITAL
- -------- ------------ -------------- ---------------
Emerging
Growth $ -- $373 $(373)
Capital
Appreciation (84) 104 (20)
SECURITY TRANSACTIONS AND RELATED INCOME--
Security transactions are accounted for on the date the security is purchased
or sold (trade date). Dividend income is recognized on the ex-dividend date,
and interest income is recognized on the accrual basis. Costs used in
determining realized gains and losses on the sales of investment securities are
those of the specific securities sold.Purchase discounts and premiums on
securities held by the Fixed Income Portfolios are accreted and amortized to
maturity using the scientific interest method, which approximates the effective
interest method.
REPURCHASE AGREEMENTS--
The Portfolios, except the West Virginia Tax-Exempt Income Portfolio, 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 Portfolios may be delayed or limited.
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. Class B shares bear a class
specific 12b-1 fee. Income, expenses and accumulated realized and unrealized
gains and losses of a Portfolio are allocated to the respective class on the
basis of relative net asset value each day.
DISTRIBUTIONS--
Distributions from net investment income for the Equity Portfolios are paid to
shareholders in the form of quarterly dividends. Distributions from net
investment income for the Money Market and Fixed Income Portfolios are declared
daily and paid to shareholders on a monthly basis.Any net realized capital gains
on sales of securities are distributed to shareholders at least annually.
(CONTINUED)
41
<PAGE>
NOTES TO FINANCIALSTATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The amounts of distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax regulations,
which may differ from those amounts determined under generally accepted
accounting principles. These book/tax differences are either temporary or
permanent in nature.To the extent these differences are permanent, they are
charged or credited to paid-in capital in the period that the difference arises.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS--
The preparation of financial statements, in conformity with generally accepted
accounting principals, requires management to make estimates and assumptions
that affect the reported amount of net assets and liabilities and disclosure of
contingent assets at the date of the financial statements and the reported
results of operations during the reporting period. Actual results could differ
from those estimates.
3. INVESTMENT ADVISORY, ADMINISTRATION, TRANSFER AGENT, AND DISTRIBUTION
AGREEMENTS:
One Valley Bank, N.A. (the "Adviser") serves as Investment Adviser to each
Portfolio pursuant to an investment advisory agreement (the "Advisory
Agreement") with the Trust. For its services, the Adviser is entitled to a fee,
that is calculated daily and paid monthly, at an annual rate based on the
average daily net assets of each Portfolio as follows: Prime Obligations
Portfolio --.25%, Capital Appreciation Portfolio --.95%, Emerging Growth
Portfolio --.95%, Equity Income Portfolio --.74%, Government Securities
Portfolio --.75% and West Virginia Tax-Exempt IncomePortfolio--.45%. The Adviser
has agreed to voluntarily waive a portion of its fee so that the total annual
expenses of each Portfolio will not exceed the voluntary expense limitations
adopted by the Adviser. In the event that the total annual expenses of a
Portfolio, after reflecting a waiver of all fees by the Adviser, exceed the
specific limitations, the Adviser has agreed to bear such excess. Fee waivers by
the Adviser are voluntary and may be terminated at any time.
Wellington Management Company, LLP (the "Sub-Adviser") serves as the
Investment Sub-Adviser to the Prime Obligations Portfolio pursuant to a
sub-advisory agreement (the "Sub-Advisory Agreement") with the Adviser and the
Trust. Under the Sub-Advisory Agreement, the Sub-Adviser manages the Portfolio,
selects investments, and places all orders for purchases and sales of the
Portfolio's securities, subject to the general supervision of the Trustees of
the Trust and the Adviser. For the services provided and expenses incurred
pursuant to the Sub-Advisory Agreement, the Sub-Adviser is entitled to receive a
fee, computed daily and paid monthly, at the annual rate of .075% of the first
$500 million of "managed assets" and
42
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1998
- --------------------------------------------------------------------------------
.02% of "managed assets" in excess of $500 million. "Managed assets" are all
of the Money Market Portfolio assets that the Sub-Adviser manages for the Trust,
plus the assets of money market portfolios other than the Prime Obligations
Portfolio. The fee paid by the Portfolio is based on its proportionate share of
"managed assets."
The Trust and the Administrator have entered into an Administration
Agreement. Under terms of the Administration Agreement, the Administrator is
entitled to a fee calculated daily and paid monthly at an annual rate of .20% of
the average daily net assets of each Portfolio. There is a minimum annual fee of
$100,000 payable to the Administrator by each Portfolio. At its discretion, the
Administrator may voluntarily choose not to invoke the $100,000 minimum annual
fee. The Administrator also serves as the shareholder servicing agent for the
Trust.Compensation for this service is paid under the Administration Agreement.
DST Systems, Inc. serves as the transfer agent and dividend disbursing
agent for the Portfolios under a Transfer Agency Agreement with the Trust.
The Trust and SEI Investments Distribution Co. (the "Distributor"),
a wholly-owned subsidiary of SEI Investments Company, have entered into
a Distribution Agreement. The Class B shares of each Portfolio have a
distribution plan (the "Class B Plan"), pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. As provided in the Distribution
Agreement and the Class B Plan, the Trust will pay a fee, at an annual rate of
.25% of each Portfolio's average daily net assets attributable to Class B shares
to the Distributor as compensation for its services.
4. 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 are redeemed by any holder thereof during the period
that the fund 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 the
redemption. These costs include legal fees of approximately $23,000 for
organizational work performed by a law firm of which two officers of the Trust
and a Trustee of the Trust are partners.
Certain officers of the Trust and a Trustee are also officers of the
Administrator and/or Distributor. Such officers are paid no fees by the Trust
for serving in their respective roles.
(CONTINUED)
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
- --------------------------------------------------------------------------------
5. INVESTMENT TRANSACTIONS:
The cost of security purchases and the proceeds from the sale of securities,
other than temporary cash investments, during the period ended January 31, 1998
were as follows:
U.S. GOVERNMENT OTHER INVESTMENT
SECURITIES SECURITIES
--------------- ----------------
PURCHASES SALES PURCHASES SALES
PORTFOLIO (000) (000) (000) (000)
- --------- ------- ------- -------- --------
West Virginia
Tax-Exempt Income $ -- $ -- $ 15,982 $ 25,255
Government
Securities 6,635 18,891 4,637 2,719
Emerging Growth -- -- 57,393 85,565
Capital Appreciation -- -- 132,152 154,975
Equity Income -- 2,005 36,578 30,151
At January 31, 1998, the total cost of securities and the net realized gains or
losses on securities sold for Federal income tax purposes were not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation on investment securities at
January 31, 1998, for each Equity and Fixed Income Portfolio is as follows:
NET
APPRECIATED DEPRECIATED UNREALIZED
SECURITIES SECURITIES APPRECIATION
PORTFOLIO (000) (000) (000)
- --------- ---------- ----------- ------------
West Virginia
Tax-Exempt
Income $ 6,133 $(113) $ 6,020
Government
Securities 2,636 (25) 2,611
Emerging
Growth 7,646 (726) 6,920
Capital
Appreciation 32,279 (526) 31,753
Equity
Income 9,133 (748) 8,385
6. CONCENTRATION OF CREDIT RISK:
The Money Market Portfolio invests primarily in money market instruments
maturing in 397 days or less whose ratings are within the two highest ratings
categories assigned by a nationally recognized statistical rating organization
or, if not rated, are believed to be of comparable quality. The Fixed Income
Portfolios invest primarily in marketable debt instruments. The market value of
these investments will change in response to interest rate changes and other
factors. During periods of falling interest rates, the values of debt securities
generally rise. Conversely, during periods of rising interest rates the values
of such securities generally decline. The ability of the issuers of the
securities held by these Portfolios to meet their obligations may be affected by
economic and political developments in a specific industry, state or region.
Changes by recognized rating organizations in the ratings of any debt security
and in the ability of an issuer to make payments of interest and principal may
also affect the value of these investments.
The West Virginia Tax-Exempt Income Portfolio Invests in debt instruments
of municipal issuers. Although this Portfolio monitors investment concentration,
the issuers' ability to meet their obligations may be affected by economic
developments in a specific state or region.
44
<PAGE>
<TABLE>
<CAPTION>
NOTICE TO SHAREHOLDERS OF THE OVB FUNDS
[LOGO OMITTED]
JANUARY 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
UNAUDITED
FOR TAXPAYERS FILING ON A CALENDAR YEAR BASIS, THIS NOTICE IS FOR INFORMATIONAL PURPOSES ONLY.
For the fiscal year ended January 31, 1998, each fund is designating long term and mid term capital gains, qualifying dividends,
and exempt income with regard to distributions paid during the year as follows:
LONG TERM MID TERM ORDINARY TAX EXEMPT
CAPITAL GAINS CAPITAL GAINS INCOME INCOME
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
PORTFOLIO (TAX BASIS) (TAX BASIS) (TAX BASIS) (TAX BASIS)
- --------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Prime Obligations Money Market.................... 0% 0% 100% 0%
Capital Appreciation.............................. 21% 64% 15% 0%
Emerging Growth................................... 68% 32% 0% 0%
Equity Income..................................... 0% 14% 86% 0%
Government Securities............................. 1% 0% 99% 0%
WestVirginia Tax-Exempt Income.................... 7% 2% 0% 91%
QUALIFYING
PORTFOLIO DIVIDENDS (1)
- --------- ------------
Prime Obligations Money Market.................... 0%
Capital Appreciation.............................. 84%
Emerging Growth................................... 87%
Equity Income..................................... 74%
Government Securities............................. 0%
WestVirginia Tax-Exempt Income.................... 0%
<FN>
Please consult your tax advisor for proper treatment of this information.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
45
<PAGE>
</FN>
</TABLE>
NOTES
<PAGE>
NOTES
<PAGE>
NOTES
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
THE OVB FUNDS
PORTFOLIOS OF THE ARBOR FUND
- --------------------------------------------------------------------------------
INVESTMENT ADVISER:
One Valley Bank, N.A.
One Valley Square, P.O. Box 1793
Charleston, WV 25326
DISTRIBUTOR:
SEI Investments Distribution Co.
Oaks, PA 19456
SEI Investments Distribution Co., the Distributor of the OVB Funds,
is not affiliated with One Valley Bank, N.A. One Valley Bank, N.A.
serves as Investment Adviser for the OVB Funds.
This material must be preceded or accompanied by a current prospectus.
FOR MORE INFORMATION, CALL:
1-800-545-6331
OVB-F-004-05
