January 31, 1999
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PORTFOLIOS OF THE ARBOR FUND
ANNUAL
REPORT
TO SHAREHOLDERS
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TABLE OF CONTENTS
Investment Adviser's Review.........................1
Management's Discussion & Analysis..................4
Report of Independent Accountants..................11
Financial Statements...............................12
Notice to Shareholders.............................41
The OVB Funds:
[bullet] Not FDIC insured
[bullet] No bank guarantee
[bullet] May lose value
<PAGE>
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Investment Adviser's Review
January 31, 1999
Investment Adviser's Review
We have frequently advised our investors to focus on the long-term
performance of the markets, and to "ignore" the inevitable short-term
volatility. In fiscal year 1998, such "ignorance" was truly bliss.
Certainly, it was not easy to remain calm as economic crises spread from one
developing country to the next. And it was even more difficult to ignore those
moments when the troubles appeared to reach our own shores in the form of hedge
fund failures and plummeting stock prices.
But those who tuned out the media frenzy and remembered that all crises
eventually pass were well rewarded by a fiscal year that ultimately produced
strongly positive results in stocks, bonds, and money market investments.
I am happy to report that the majority of OVB Funds investors were among
this blissfully "ignorant"--and very wise--group.
Money Market Review
Yields on money market funds remained strong for the first half of the
fiscal year, as short-term rates held steady. In the third quarter, however,
the Federal Reserve Board began a series of three quarter-point reductions in
short-term rates, in an effort to soothe financial markets that had been shaken
by global economic turmoil.
While these rate cuts were successful in calming the stock and bond markets,
they resulted in somewhat lower yields for money market investors on a
year-to-year basis.
In the coming year, we believe that any Federal Reserve Board action on rates
may be to the upside, rather than the downside. This outlook is based on recent
comments by Fed Chairman Alan Greenspan that indicate concern about overheating
in the U.S. economy. Any rate hikes would be positive for money market
investors, since they would have the dual effect of raising yields and holding
back inflation.
Whatever the trend in rates, our forecast for money market investors
continues to call for good after-inflation returns and relative stability.
Bond Market Review
Economic turmoil is generally favorable for bonds, and fiscal 1998 was no
exception. Throughout the year, global investors sought the safe haven of U.S.
issues, particularly Treasury and agency securities. As a result, prices on
these issues rose across the board, pushing yields down to their lowest levels
in recent years. In this flight to the highest
1
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Investment Adviser's Review (continued)
tiers of quality, corporate and high-yield bonds were less impressive
performers.
Among the factors driving investors to the Treasury markets were economic
weakness in many of the world's major economies, and the Federal Reserve
Board's actions to reduce interest rates. At the same time, the domestic
economy continued to offer a rare combination of strong economic growth with
little or no inflation.
Municipal markets sat out much of the bond market rally, due to the investor
focus on U.S. government securities, along with an increase in the supply of
new issues. As a result, municipal bonds delivered their regular coupon yields,
but little in the way of capital gains.
Looking ahead, we see continued weakness in the global economies, including
such critical nations as Germany, Japan and China. In addition, the
introduction of the new Euro currency could represent real competition for
dollar-denominated issues.
On the positive side, the U.S. economy appears to be positioned for another
year of growth with low inflation, and will benefit from the emergence of U.S.
budgetary surpluses.
Therefore, while we do not anticipate a repeat of last year's outstanding
performance, we are cautiously optimistic that bonds will continue to perform
well in the year ahead. Equity Market Review
For the equity markets, fiscal 1998 was a year of extremes. During the first
six months of the fiscal year, stocks showed surprisingly strong performance
despite considerable volatility. Then, as the impact of global currency
meltdowns was felt, stocks went into a sudden and unnerving tailspin. The
declines were greatest for small- and mid-cap issues, many of which saw their
values cut in half in a matter of weeks. However, even large cap issues fell by
an average of about 20 percent.
In September and October, the Federal Reserve Board took much-needed action
to restore liquidity and calm, reducing interest rates by a total of 0.75
percent. Almost magically, equity investors returned to the markets, eventually
pushing most stocks to new highs by fiscal year-end.
As in years past, the markets continued to be dominated by
large-capitalization issues that offered liquidity and relatively predictable
earnings growth--to the exclusion of many small-capitalization issues. As a
result, historical norms for price-earnings ratios among large-cap issues
continued to be a distant memory, with P/E's routinely reaching the high
double-digits--and beyond. Internet-related issues were partly responsible for
the abandonment of conventional measures,
2
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January 31, 1999
as fledgling companies with no earnings continued to attract market
capitalizations equal to those of some of America's largest and most profitable
corporations.
Looking ahead, we see weakness in global economies continuing to impact U.S.
corporations and the overall financial markets--although we hope not to the
extent that was experienced during the fiscal year ended January 31, 1999. We
believe that the markets will continue to favor large-capitalization issues,
although there are some signs of growing strength in the small- and mid-cap
sectors.
Conclusion
The OVB Funds were created to provide investors with a convenient,
affordable way to participate in the financial markets. For many of our
individual shareholders, they represent a first entry into the field of
investing.
Fiscal year 1999 demonstrated, however, that even our newest shareholders
have quickly come to understand the essential nature of investing, with all its
risks and opportunities. And by maintaining their individual strategies even in
the face of unprecedented global events, our investors have shown the maturity
and resiliency that are required for long-term success.
We salute your commitment to investing, and thank you for choosing to invest
through the OVB Family of Funds.
/s/ J. RANDY VALENTINE
J. Randy Valentine
Senior Vice President
One Valley Bank, N.A.
3
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Management's Discussion & Analysis
The OVB Funds
Prime Obligations Portfolio
- ------------------------------------------------
Sub-Adviser: Wellington Management Company, LLP
For the fiscal year ended January 31, 1999, the OVB Funds Prime Obligations
Portfolio, Class A, posted a total return of 5.20%, while Class B shares
returned 4.94%. By comparison, the Fund's benchmark, the Donoghue's/IBC First
Tier Average, returned 4.90%.
Money market yields were relatively stable during the first half of the
fiscal year, as the continued growth of the
[GRAPH OMITTED]
[CLASS A PLOT POINTS FOLLOWS:]
Comparison of Change in the Value of a $10,000 Investment in the OVB Prime
Obligations Portfolio, Class A, versus the IBC Financial First Tier Average
OVB-A IBC
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
Jan 99 12,848 12,681
One Year Annualized Annualized Annualized
Return 3 Year Return 5 Year Return Inception to Date
5.20% 5.21% 5.09% 5.02%
For the period ended 1/31/99. Past performance of
the portfolio is not predictive of future performance.
Class A shares were offered beginning 12/1/93.
[GRAPH OMITTED]
[CLASS B PLOT POINTS FOLLOWS:]
Comparison of Change in the Value of a $10,000 Investment in the OVB Prime
Obligations Portfolio, Class B, versus the IBC Financial First Tier Average
OVB-B IBC
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
Jan 99 12,632 12,629
One Year Annualized Annualized Annualized
Return 3 Year Return 5 Year Return Inception to Date
Class B 4.94% 4.95% N/A 4.84%
For the period ended 1/31/99. Past performance of
the portfolio is not predictive of future performance.
Class A shares were offered beginning 12/1/93.
economy and absence of inflation kept any Federal Reserve moves on hold.
However, as financial turmoil began to spread in the third quarter, the Federal
Reserve enacted three rate cuts of one-quarter percentage point each between
September and late November.
Despite the fact that yields followed the Fed's downward moves, asset flows
into money market portfolios--aided by the "flight to quality"--remained heavy,
topping out at a record $1.3 trillion in assets for calendar 1998. Asset backed
commercial paper continued its rapid growth
4
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January 31, 1999
within the money market universe, and now accounts for one-third of the
commercial paper outstanding.
As a result of this downward pressure on rates, we took action to extend the
average maturity of the Fund
somewhat, in order to lock in higher yields available with longer-range
instruments.
Looking ahead, we believe that continued economic growth will keep the
Federal Reserve on hold as we move into 1999. However, we expect the domestic
economy to slow in coming months, as consumer spending moderates from its
robust pace of last year. In this environment, we plan to continue seeking
higher yields by maintaining a longer average maturity for the Fund.
The OVB Funds West Virginia
Tax-Exempt Income Portfolio
- --------------------------------
For the fiscal year ended January 31, 1999, The OVB Funds West Virginia
Tax-Exempt Income Portfolio, Class A, posted a total return of 5.47%. For Class
B shares, total return was 5.11%. By comparison, the Fund's two benchmarks, the
Lipper Intermediate Term Muni Debt Funds Average and the Lipper General
Municipal Debt Funds Average, returned 5.69% and 5.49%, respectively, for the
period.
The municipal bond markets had a positive year overall, although two major
factors helped to hold total returns to relatively modest levels.
The first of these factors was an increase in the supply of new issues within
the state of West Virginia, as municipalities rushed to take advantage of the
low interest rate environment. This led to the second-largest volume of new
issues in the past decade, and kept prices in check for most of the year. As a
result, any gains in the Fund were primarily attributable to basic income,
rather than capital appreciation.
The second factor was the "flight to quality" that ensued in the taxable
government market as investors sought refuge from the destabilizations in
Russia, Brazil, and Japan. The municipal market did not benefit from this trend
as foreign investors sought the liquidity of the U.S. Treasury market. However,
as 1999 unfolds we expect the relative performance of the municipal market to
improve as the taxable rally, precipitated by fear, fades.
Throughout the year, the Fund remained fully invested in high-quality
issues, most of which were rated AAA and offered the additional security of
insurance or escrow. As a number of issues matured or were called in during the
year, the portfolio's duration decreased somewhat. However, we took steps to
reextend the duration as opportunities arose.
(CONTINUED)
5
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Management's Discussion & Analysis (continued)
[GRAPH OMITTED]
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 Term Municipal Debt Funds Average
OVB CLASS A OVB CLASS B LEHMAN LIPPER GENERAL LIPPER INTERMEDIATE
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 9,851 9,851
Jan 96 11,085 11,016 11,223 10,989 11,013
Jan 97 11,456 11,368 11,655 11,290 11,356
Jan 98 12,550 12,423 12,834 12,440 12,255
Jan 99 13,237 13,058 13,688 13,123 12,952
One Year Annualized Annualized Annualized
Return 3 Year Return 5 Year Return Inception to Date
Class A 5.47% 6.09% 5.57% 5.87%
Class B 5.11% 5.83% 5.29% 5.46%
For the period ended 1/31/99. 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.
Looking ahead, we believe that the outlook for West Virginia continues to be
positive, with economic growth and employment both at healthy levels. In
addition, commercial investment and tourism continue to show strength. These
trends bode well for those who invest in debt securities issued within the
state.
The OVB Funds
Government Securities Portfolio
- ----------------------------------
For the fiscal year ended January 31, 1999, The OVB Funds Government Securities
Portfolio, Class A, posted a total return of 7.39%. For Class B shares, total
return was 7.12%. By comparison, the Fund's two benchmarks, the Lehman Brothers
Government/Corporate Index and the Lipper Intermediate Investment-Grade
[GRAPH OMITTED]
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 Brothers
Government/Corporate Index, and the Lipper Intermediate Investment-Grade Debt
Funds Average
[PLOT POINTS FOLLOWS]
OVB CLASS A OVB CLASS B LEHMAN LIPPER INTERMEDIATE
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 9,710
Jan 96 11,398 11,338 11,577 11,356
Jan 97 11,606 11,530 11,854 11,675
Jan 98 12,818 12,701 13,178 12,809
Jan 99 13,765 13,606 14,326 13,659
One Year Annualized Annualized Annualized
Return 3 Year Return 5 Year Return Inception to Date
Class A 7.39% 6.49% 6.39% 6.46%
Class B 7.12% 6.27% 6.15% 6.24%
For the period ended 1/31/99. 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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January 31, 1999
Debt Funds Average, returned 8.71% and 6.64%, respectively, for the period.
The Fund's strong performance was attributable to its focus on
high-quality government and agency securities, which were very much in demand
during a tumultuous year.
Fiscal year 1999 brought a rare combination of domestic growth,
disinflation, and global economic turmoil. Ultimately, these proved to be
positive trends for the Fund, as investors from around the world turned to
dollar-based assets--the strongest of which are U.S. Treasury securities.
Throughout the year, global economic conditions continued to worsen, with
currency devaluation taking place in Asia, Russia, and Latin America. By fall,
the impending failure of a leading hedge fund, Long Term Capital, appeared to
be the final straw for the already nervous U.S. equity markets, which began a
sharp decline.
The Federal Reserve Board responded to this turmoil by reducing interest
rates on three occasions, each time by one quarter of one percent. The Fed's
action had a strong effect, helping to stabilize markets not only in the U.S.
but worldwide.
Throughout this period, we maintained the portfolio's overall composition,
focusing on government issues of the highest quality, while maintaining a
relatively small percentage of mortgage-backed and corporate issues. We
increased the portfolio's duration by about eighteen months over the course of
the year on the assumption that lower rates will continue to prevail.
Looking ahead, we see continued weakness in global economies-- including not
only the traditional crisis spots, but also such stalwarts as Germany. On the
other hand, domestic inflation remains low, while the economy continues to show
strength.
A new factor on the horizon is the decrease in new Treasury issuance due to
the emerging U.S. Government surpluses. While this may lead to rising prices
for Treasury issues, it may be offset by an increase in issues from government
agencies.
While it is difficult to estimate the impact of these disparate factors, we
believe that the coming year should be a positive one for government securities
overall.
The OVB Funds
Capital Appreciation Portfolio
- ----------------------------------
For the fiscal year ended January 31, 1999, The OVB Funds Capital Appreciation
Portfolio, Class A, posted a total return of 42.72%, compared with a 32.51%
return for its benchmark, the Standard & Poor's 500 Composite Stock Index. For
Class B shares, total return was 42.34%.
The Fund's performance is attributable to a portfolio strategy that
emphasized large, well-capitalized issues, and that remained in place even
during the most severe declines of a very volatile year.
(CONTINUED)
7
<PAGE>
Management's Discussion & Analysis (CONTINUED)
From the beginning of the fiscal year through July, stocks behaved well
overall, despite periodic volatility. As in recent years, the market continued
to favor large-cap stocks in the technology, healthcare, and financial services
sectors.
Then, in late summer and early fall, international economic news sent the
markets into a sharp correction, with the Dow Jones Industrial Average falling
approximately 20%, and the NASDAQComposite Index falling nearly 30% from its
earlier highs. Many individual stocks declined by 50% or more.
By early October, however, interest rate cuts by the Federal Reserve Board
helped return calm to the markets, leading to a recovery that was every bit as
swift and dramatic as the earlier declines.
Throughout this period, the Fund avoided any dramatic shifts in its
holdings, and took advantage of opportunities to add to key issues during
times of weakness. By avoiding panic selling, the Fund was able to end the
year at a level well above its mid-year highs, led by its technology,
healthcare, and retailing stocks.
Not all sectors bounced back as quickly as others, however. The financial
sector in particular remained somewhat below its earlier levels due to
continued concerns about exposure to international loan defaults.
Among the Fund's best performers for the year were large healthcare
companies such as Pfizer, Merck, McKesson, and Guidant, as well as technology
leaders such as Microsoft, Cisco Systems, Lucent Technologies, and America
Online. In the financial services sector, strong performers included American
International Group and SunAmerica, which announced a merger later in the year.
Strong gains also came from Charles Schwab, Inc., which more than doubled since
being added to the portfolio during the third fiscal quarter. Other good
performers included drug retailers Walgreen and CVS.
Looking ahead, we see a continuation of the environment in which large-cap
stocks
[GRAPH OMITTED]
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
Brothers Government/Corporate Index, and the Lipper Intermediate
Investment-Grade Debt Funds Average
[PLOT POINTS FOLLOWS]
OVB CLASS A OVB CLASS B STANDARD& POOR'S 500
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
Jan 99 26,816 26,451 30,610
One Year Annualized Annualized Annualized
Return 3 Year Return 5 Year Return Inception to Date
Class A 42.72% 26.83% 21.32% 21.78%
Class B 42.34% 26.50% 20.98% 21.07%
For the period ended 1/31/99. 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.
8
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January 31, 1999
are preferred for their liquidity and relative predictability--despite the
fact that more attractive valuations exist in the small- and mid-cap sectors.
Therefore, we will continue to focus on the more prominent names in such areas
as pharmaceuticals, retailing, technology, and consumer nondurables.
The OVB Funds
Equity Income Portfolio
- -----------------------------
For the fiscal year ended January 31, 1999, The OVB Funds Equity Income
Portfolio, Class A, posted a total return of 14.69%, compared with a 18.45%
return for its benchmark, the S&P 500/BARRA Value Index. For Class B shares,
total return was 14.43%.
When the year's volatility is factored out, what emerges is a two-tier
market. In the upper tier, technology, media, and healthcare companies
benefited from strong earnings growth and high investor interest. In the lower
tier, energy stocks suffered from a dramatic decline in oil prices, while
traditional "rust belt" issues continued to languish due to their slower
growth rates.
Among the Fund's strongest performers were Merck, IBM, McGraw-Hill, General
Electric and Jefferson-Pilot. Weaker performers included Texaco, Kerr-McGee,
Schlumberger, and DuPont.
Looking ahead, we expect that continued economic strength will lead to
strong earnings for the companies that comprise our portfolio, particularly in
the pharmaceutical and telecommunications sectors. In addition, we believe that
cable television providers will continue to perform well, especially as they
add leading-edge telecommunications capabilities to their service offerings.
[GRAPH OMITTED]
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
[PLOT POINTS FOLLOWS]
STANDARD & POOR'S 500
OVB CLASS A OVB CLASS B BARR VALUE INDEX LIPPER
Aug 96 10,000 10,000 10,000 10,000
Jan 97 11,330 11,319 11,941 11,530
Jan 98 13,419 13,364 14,654 14,157
Jan 99 15,391 15,293 17,358 15,708
One Year Annualized
Return Inception to Date
Class A 14.69% 19.10%
Class B 14.43% 18.84%
For the period ended 1/31/99. Past performance of the portfolios is not
predictive of future performance.
Class A and B shares were offered beginning 8/31/96.
(CONTINUED)
9
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Management's Discussion & Analysis (concluded)
We plan to maintain our strategy of purchasing high-quality issues that are
positioned to benefit from larger trends in the economy. And while valuations
are at historically high levels, we believe that our long-term approach will
allow earnings to eventually justify current prices.
Above all, we remain committed to our primary objectives of current income,
long-term growth of capital, and growth of income. We believe that pursuing
these objectives on behalf of our investors will lead to continued good
performance with relatively low volatility.
10
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January 31, 1999
Report of Independent Accountants
To the Shareholders and Board of Trustees
of The Arbor Fund
In our opinion, the accompanying statements of net assets and the
related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the
financial position of OVB Prime Obligations, OVB West Virginia
Tax-Exempt Income, OVB Government Securities, OVB Capital Appreciation
and OVB Equity Income Portfolios (separately managed portfolios of The
Arbor Fund, hereafter referred to as the "Trust") at January 31, 1999,
the results of each of their operations for the year then ended, the
changes in each of their net assets for the two years in the period
then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
Trust'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, 1999 by correspondence with
the custodian and brokers, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Philadelphia, PA
March 15, 1999
11
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Statement of Net Assets
PRIME OBLIGATIONS PORTFOLIO
[PIE CHART OMITTED]
[PLOT POINTS FOLLOWS]
CERTIFICATES OF DEPOSIT 19.5%
CORPORATE OBLIGATIONS 0.8%
FLOATING RATE INSTRUMENTS 7.6%
MORTGAGE RELATED 4.5%
COMMERCIAL PAPER 67.0%
U.S. GOVERNMENT AGENCY OBLIGATIONS 0.2%
REPURCHASE AGREEMENT 0.4%
% of Total Portfolio Investments
Pie chart unaudited
<TABLE>
- --------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------
COMMERCIAL PAPER -- 66.9%
Automotive -- 6.9%
Chrysler Financial
5.050%, 02/19/99 $2,000 $ 1,995
Ford Motor Credit
5.030%, 04/20/99 1,800 1,780
Ford Motor Credit Europe
5.030%, 04/21/99 800 791
- --------------------------------------------------------
TOTAL AUTOMOTIVE 4,566
- --------------------------------------------------------
Banks -- 6.8%
Abbey National PLC
4.880%, 04/06/99 2,500 2,478
JP Morgan
4.790%, 05/19/99 2,000 1,972
- --------------------------------------------------------
TOTAL BANKS 4,450
- --------------------------------------------------------
FINANCIAL SERVICES -- 33.7%
Aesop Funding
5.000%, 02/26/99 2,400 2,392
- --------------------------------------------------------
- --------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------
COMMERCIAL PAPER -- 66.9%
Associates Corporation of NA
5.350%, 02/05/99 $ 1,000 $ 1,000
CIT Group Holdings
5.370%, 02/08/99 2,000 1,998
Delaware Funding
5.150%, 03/16/99 1,565 1,555
Enterprise Funding
5.170%, 03/10/99 2,200 2,188
Greenwich Funding
5.300%, 02/26/99 625 623
Greyhawk Funding
5.440%, 02/12/99 2,000 1,997
Island Finance
5.160%, 03/30/99 2,000 1,984
Kitty Hawk Funding
5.500%, 02/26/99 1,800 1,793
5.190%, 03/12/99 795 791
Mont Blanc Capital
5.350%, 02/26/99 1,800 1,793
Park Avenue Receivables
5.500%, 02/12/99 2,000 1,997
Rose Funding
5.490%, 02/26/99 2,000 1,992
- --------------------------------------------------------
TOTAL FINANCIAL SERVICES 22,103
- --------------------------------------------------------
Industrial -- 15.7%
Archer-Daniels-Midland
5.150%, 02/25/99 775 772
5.050%, 03/23/99 1,800 1,787
Coca-Cola Enterprises
5.200%, 03/17/99 2,000 1,987
Glaxo Wellcome PLC
4.760%, 04/21/99 2,000 1,979
Sears Roebuck Acceptance
5.050%, 02/12/99 1,800 1,797
Xerox Capital Europe PLC
4.720%, 07/14/99 2,000 1,957
- --------------------------------------------------------
TOTAL INDUSTRIAL 10,279
- --------------------------------------------------------
Utilities -- 3.8%
National Rural Utilities
5.040%, 03/24/99 2,500 2,482
- --------------------------------------------------------
TOTAL UTILITIES 2,482
- --------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST $43,880) 43,880
- --------------------------------------------------------
12
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JANUARY 31, 1999
PRIME OBLIGATIONS PORTFOLIO (CONCLUDED)
- ---------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- ---------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATION -- 0.2%
FNMA
4.970%, 03/17/99 $ 125 $ 124
- ---------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATION (COST $124) 124
- ---------------------------------------------------------------------
CORPORATE OBLIGATION -- 0.8%
Wachovia
7.000%, 12/15/99 500 508
- ---------------------------------------------------------------------
TOTAL CORPORATE OBLIGATION (COST $508) 508
- ---------------------------------------------------------------------
FLOATING RATE INSTRUMENTS -- 7.6%
Monumental Life Insurance (A)
5.320% 02/01/99 3,000 3,000
Travelers Insurance (A)
5.300% 03/01/99 2,000 2,000
- ---------------------------------------------------------------------
TOTAL FLOATING RATE INSTRUMENTS (COST $5,000) 5,000
- ---------------------------------------------------------------------
MORTGAGE RELATED -- 4.6%
FNMA (A)
4.592%, 05/25/99 3,000 3,000
- ---------------------------------------------------------------------
TOTAL MORTGAGE RELATED (COST $3,000) 3,000
- ---------------------------------------------------------------------
CERTIFICATES OF DEPOSIT -- 19.5%
American Express Centurion Bank (A)
4.880%, 07/26/99 1,800 1,800
Bank Austria AG
5.685%, 08/03/99 1,800 1,805
Chase Manhattan Bank
5.700%, 07/02/99 1,000 1,000
Fleet Financial Bank
4.870%, 06/15/99 2,000 2,000
Harris Bankcorp
5.150%, 02/22/99 1,700 1,700
Rabobank Nederland
5.750%, 04/27/99 2,000 2,000
Svenska Handels
5.740%, 06/01/99 1,000 1,000
Swiss Bank
5.650%, 03/24/99 1,500 1,501
- ---------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT (COST $12,806) 12,806
- ---------------------------------------------------------------------
- --------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- ---------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.3%
Lehman Brothers
4.750%, dated 01/29/99, matures 02/01/99,
repurchase price $232,092 (collateralized by
U.S Treasury STRIPS: total market value
$238,268) $ 232 $ 232
- ---------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT (COST $232) 232
- ---------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.9% (COST $65,550) 65,550
- ---------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET -- 0.1%
Other Assets and Liabilities, Net 52
- ---------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Class A (unlimited
authorization -- no par value) based
on 61,463,270 outstanding shares
of beneficial interest 61,463
Portfolio Shares of Class B (unlimited
authorization -- no par value) based on
4,136,206 outstanding shares
of beneficial interest 4,136
Accumulated net realized gain on investments 3
- ---------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $65,602
- ---------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- CLASS A $1.00
NET ASSET VALUE, OFFERING 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, 1999. The date
shown is the next scheduled reset date.
FNMA -- Federal National Mortgage Association
PLC -- Public Limited Company
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
[PIE CHART OMITTED]
[PLOT POINT FOLLOWS]
MUNICIPAL BONDS 99.7%
CASH EQUIVALENT 0.3%
% of Total Portfolio Investments
Pie chart unaudited
- --------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------
MUNICIPAL BONDS -- 98.8%
West Virginia -- 98.8%
Beckley, Industrial Development Authority,
Beckley Water Project, RB
7.000%, 10/01/17 $ 1,000 $ 1,092
Beckley, Nursing Facility, Health Care
Project, Series A, RB
6.000%, 09/01/12 310 326
Beckley, Sewage System Refunding Bond,
Series A, RB
6.750%, 10/01/25 400 426
Berkeley County, Board of Education, GO,
BIG, Escrowed to Maturity
7.375%, 04/01/03 425 486
Berkeley County, Board of Education,
GO, FGIC
4.500%, 06/01/09 540 549
Berkeley County, Sewer System Refunding
Bond, RB, MBIA
5.625%, 10/01/19 895 963
Cabell County, Board of Education, GO,
MBIA, Escrowed to Maturity
6.600%, 05/01/04 1,000 1,135
- --------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------
Cabell, Putnam & Wayne Counties, Single
Family Mortgage, RB, FGIC,
Escrowed to Maturity
7.375%, 04/01/10 $ 250 $ 300
7.375%, 04/01/11 440 554
Charles Town, Waterworks & Sewer
System, RB, FSA
5.250%, 10/01/18 500 512
Charleston, Civic Center, RB
5.100%, 09/01/23 250 242
Charleston, Building Community Parking
Facility, Capital Appreciation,
Series A, RB
7.000%, 06/01/16 580 584
Charleston, Building Community Parking
Facility, Capital Appreciation,
Subseries C, RB
6.000%, 12/01/10 290 317
5.700%, 12/01/15 385 161
5.700%, 12/01/16 380 151
6.080%, 12/01/26 1,000 202
Charleston, Public Housing Authority, RB
5.000%, 02/01/99 100 100
Clarksburg, Water Refunding &
Improvements, RB
6.100%, 09/01/04 450 495
6.200%, 09/01/05 500 549
6.250%, 09/01/19 430 457
Fairmont, Waterworks, RB
5.250%, 07/01/22 1,500 1,569
Fairmont, Waterworks, RB, MBIA
5.375%, 07/01/13 680 727
Greenbrier County, Public Service,
District Sewer Project, RB, MBIA
5.600%, 10/01/11 175 191
Harrison County, Board of Education,
GO, FGIC, Escrowed to Maturity
6.200%, 05/01/04 850 948
6.400%, 05/01/07 175 204
Harrison County, Building Commission,
Health Care-Maplewood Retirement,
RB, AMBAC
5.150%, 04/01/18 1,680 1,699
Harrison County, Solid Waste Disposal,
Monongahela Power Company,
Series A, RB, MBIA
6.875%, 04/15/22 2,150 2,352
14
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1999
WEST VIRGINIA TAX-EXEMPT INCOME PORTFOLIO
- --------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
Harrison County, Solid Waste Disposal,
Potomac Edison Project,
Series B, RB, AMBAC
6.250%, 05/01/23 $ 400 $ 430
Harrison County, Solid Waste Disposal,
RB, MBIA
6.300%, 05/01/23 200 216
Harrison County, Solid Waste Disposal,
West Penn Power Harrison Project,
Series B, RB, AMT
6.300%, 05/01/23 500 539
Harrison County, Special Obligation Bonds,
Series A, Escrowed to Maturity
6.250%, 05/15/10 100 115
Huntington County, Sewer System
Refunding, RB, FSA
5.375%, 11/01/23 1,000 1,020
Jefferson County, Public Service, District
Sewer Project, Series A, RB
5.125%, 10/01/18 215 218
Kanawha & Putnam Counties, Huntington/
Charleston, Single Family Mortgage,
Series A, RB, Escrowed to Maturity,
6.399%, 12/01/16 2,000 820
Kanawha County, Building Commission,
Charleston Area Medical Center Project,
Series A, RB, AMBAC
7.500%, 11/01/08 1,000 1,053
Kanawha County, Residential Mortgage,
RB, FGIC, Escrowed to Maturity
7.375%, 09/01/11 285 358
Kanawha County, Single Family Mortgage,
RB, FGIC, Escrowed to Maturity
7.100%, 12/01/99 15 15
7.300%, 12/01/04 805 924
7.400%, 12/01/10 185 227
Logan County, Health Care Center Project,
RB, Escrowed to Maturity
8.000%, 12/01/16 690 887
Marion County, Single Family Mortgage,
RB, FGIC, Escrowed to Maturity
7.100%, 08/01/99 135 138
7.375%, 08/01/11 495 614
Marshall County, Pollution Control, Ohio
Power Project, Series B, RB, MBIA
5.450%, 07/01/14 800 836
Marshall County, Pollution Control, Ohio
Power Project, Series C, RB, MBIA
6.850%, 06/01/22 1,000 1,104
- --------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------
Mason County, Pollution Control, Ohio
Power Project, Series B, RB, AMBAC
5.450%, 12/01/16 $ 720 $ 744
Mason County, Single Family Mortgage,
RB, FGIC
7.400%, 08/01/11 608 732
Monongalia County, Board of Education,
Series A, GO, MBIA
7.000%, 04/01/03 1,000 1,126
Monongalia County, Community Building,
Series A, RB
5.750%, 11/15/14 175 175
6.000%, 11/15/27 300 302
Monongalia County, Single Family Mortgage,
RB, Escrowed to Maturity
7.200%, 03/01/11 1,280 1,512
Morgantown, Building Commission,
Municipal Lease, RB, MBIA
5.750%, 01/01/19 250 265
Ohio County, Board of Education, GO,
MBIA, Escrowed to Maturity
5.250%, 06/01/16 1,070 1,146
5.250%, 06/01/17 830 891
5.125%, 06/01/18 700 709
Ohio County, Single Family Residence
Mortgage, RB, Escrowed to Maturity
5.200%, 05/01/11 100 109
Parkersburg, Waterworks & Sewer
System Project, RB, FSA
5.800%, 09/01/19 2,660 2,889
Pea Ridge, Public Service, District Sewer
Project, Series 1994, RB, AMBAC
7.000%, 05/01/20 10 11
Pleasants County, Pollution Control,
Potomac Edison Project, RB, AMBAC
6.150%, 05/01/15 500 554
Pleasants County, Pollution Control,
West Penn Power, RB, AMBAC
6.150%, 05/01/15 500 554
Raleigh, Fayette & Nicholas Counties,
Special Obligation Bonds,
Escrowed to Maturity
6.250%, 08/01/11 795 946
Randolph County, Community Health
Systems, Davis Health Systems,
Series A, RB, FSA
5.200%, 11/01/21 700 704
(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, RB, MBIA
5.500%, 10/01/09 $ 520 $ 543
Webster County, Multifamily Housing,
Circlebrook Project, Series A, RB, FHA
6.500%, 04/01/18 1,010 1,084
West Virginia State, Building Commission,
Series B, RB, AMBAC
5.000%, 07/01/21 1,595 1,619
West Virginia State, Building Commission,
Series A, RB, AMBAC
5.375%, 07/01/18 1,000 1,070
West Virginia State College, RB, AMBAC
6.000%, 04/01/06 225 247
6.000%, 04/01/07 425 464
6.000%, 04/01/12 890 976
West Virginia State University, Dorm Project,
Series B, RB, AMBAC
5.000%, 05/01/22 400 396
West Virginia State University, Marshall
Library Project, RB, AMBAC
5.750%, 04/01/16 1,000 1,084
West Virginia State University, RB, AMBAC
6.000%, 04/01/07 400 437
6.000%, 04/01/12 700 767
West Virginia State, Board of Directors,
State College, Series A, RB, AMBAC
5.125%, 04/01/27 300 301
West Virginia State, Board of Regents,
RB, MBIA
5.900%, 04/01/04 340 367
West Virginia State, Board of Regents, RB,
MBIA, Escrowed to Maturity
6.000%, 04/01/04 225 240
West Virginia State, Building Commission,
Series A, RB, MBIA
5.250%, 07/01/09 1,500 1,637
West Virginia State, Economic Development &
Tourism Authority, RB, FGIC
4.800%, 05/15/00 340 346
5.782%, 05/15/07 500 358
5.800%, 05/15/13 140 151
West Virginia State, Economic Development &
Tourism Authority, RB, FGIC,
Escrowed to Maturity
4.706%, 07/01/03 250 212
- --------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------
West Virginia State, Economic Development &
Tourism Authority, Series B, RB, FGIC,
Pre-refunded @ 102 (A)
4.625%, 07/01/99 $ 900 $ 924
West Virginia State, Highway Improvements,
GO, FGIC
5.000%, 06/01/17 1,500 1,504
West Virginia State, Hospital Finance
Authority, Charleston Area Medical
Center Project, Series A, RB
6.500%, 09/01/16 875 945
6.500%, 09/01/23 1,810 1,950
West Virginia State, Hospital Finance
Authority, Linked Bears and Bulls,
RB, MBIA
6.100%, 01/01/18 1,300 1,381
West Virginia State, Hospital Finance
Authority RB, AMBAC
5.000%, 06/01/22 500 492
West Virginia State, Hospital Finance
Authority RB, FSA #73
4.700%, 08/01/06 300 315
West Virginia State, Hospital Finance
Authority RB, FSA
4.750%, 08/01/08 200 209
5.000%, 08/01/09 500 527
West Virginia State, Hospital Finance
Authority, University Medical Center
Project, RB, MBIA
5.900%, 01/01/06 680 728
West Virginia State, Housing Development
Fund, HUD Section 236, RB
6.000%, 12/15/08 600 610
6.000%, 12/15/09 600 610
West Virginia State, Housing Development
Fund, Series A, RB
4.550%, 05/01/01 100 102
6.700%, 11/01/09 285 303
5.450%, 11/01/21 100 103
West Virginia State, Housing Development
Fund, Series A, RB, AMBAC
5.500%, 11/01/11 530 547
West Virginia State, Housing Development
Fund, Series E, RB
6.250%, 11/01/12 1,000 1,060
6.350%, 05/01/24 1,375 1,449
West Virginia State, Public Improvements,
GO, FGIC
5.000%, 11/01/21 500 495
16
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1999
WEST VIRGINIA TAX-EXEMPT INCOME PORTFOLIO (CONCLUDED)
- --------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
West Virginia State, School Building Authority,
Capital Improvements, RB, MBIA
5.250%, 07/01/99 $ 100 $ 101
6.250%, 07/01/01 500 533
West Virginia State, School Building Authority,
Capital Improvements, Series B, RB, MBIA
5.750%, 07/01/15 1,000 1,041
West Virginia State, School Building Authority,
Capital Improvements, Series B, RB,
MBIA, Pre-refunded @ 102 (A)
6.750%, 07/01/00 900 961
West Virginia State, School Building Authority,
Series A, RB, MBIA, Pre-refunded @ 102 (A)
7.000%, 07/01/01 210 231
West Virginia State, School Building Authority,
Series B, RB, FSA
5.125%, 07/01/13 100 104
West Virginia State, Series A, GO, FGIC
5.000%, 11/01/21 1,500 1,485
5.750%, 11/01/21 2,340 2,477
5.200%, 11/01/26 4,000 4,120
5.250%, 11/01/26 4,820 4,886
West Virginia State, Series D, GO, FGIC
5.000%, 11/01/21 2,000 1,980
5.250%, 11/01/23 200 207
6.500%, 11/01/26 1,000 1,188
West Virginia State, Water Development
Authority, Loan Program II,
Series A, RB, FSA
7.000%, 11/01/11 800 877
West Virginia State, Water Development
Authority, Loan Program II, Series A, RB,
Pre-refunded @ 102 (A)
7.700%, 11/01/00 500 547
7.300%, 11/01/01 475 531
West Virginia State, Water Development
Authority, Loan Program II,
Series A-II, RB, FSA
6.050%, 11/01/13 915 937
5.500%, 11/01/23 625 647
5.750%, 11/01/29 150 159
West Virginia State, Water Development
Authority, Loan Program II,
Series A, RB, FSA
5.375%, 11/01/25 785 804
Series B, RB, FSA
5.375%, 11/01/25 955 978
5.250%, 11/01/35 1,660 1,685
West Virginia State, Water Development
Authority, Loan Program, Series A, RB, FSA
7.000%, 11/01/25 190 206
- --------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------
West Virginia State, Water Development
Authority, Loan Program, Series A-I, RB, FSA
5.800%, 11/01/12 $ 425 $ 435
5.250%, 11/01/21 795 806
West Virginia State, Water Development
Authority, Sewer System Loan Program,
RB, Escrowed to Maturity
7.100%, 11/01/09 1,275 1,501
Wheeling, Waterworks & Sewage System,
Series B, RB, FGIC, Pre-refunded @ 100 (A)
6.450%, 06/01/02 1,000 1,090
6.650%, 06/02/02 1,100 1,206
- --------------------------------------------------------------------------
TOTAL WEST VIRGINIA 98,450
- --------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $92,465) 98,450
- --------------------------------------------------------------------------
CASH EQUIVALENT -- 0.3%
SEI Tax Exempt Trust, Tax Free Portfolio 340 340
- --------------------------------------------------------------------------
TOTAL CASH EQUIVALENT (COST $340) 340
- --------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.1% (COST $92,805) 98,790
- --------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET -- 0.9%
Other Assets and Liabilities, Net 915
- --------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Class A (unlimited
authorization -- no par value) based on
8,789,084 outstanding shares
of beneficial interest 84,359
Portfolio Shares of Class B (unlimited
authorization -- no par value) based on
923,736 outstanding shares
of beneficial interest 9,183
Distribution in excess of net investment income (2)
Accumulated net realized gain on investments 180
Net unrealized appreciation on investments 5,985
- --------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $99,705
- --------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- CLASS A $10.27
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- CLASS B $10.26
- --------------------------------------------------------------------------
(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
AMT -- Alternative minimum tax
FGIC -- Financial Guaranty Insurance Corporation
FHA -- Federal Housing Authority
FSA -- Financial Security Assurance
GO -- General Obligation
MBIA -- Municipal Bond Investors 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 FOLLOWS]
REPURCHASE AGREEMENT 4.9%
PREFERRED STOCKS 2.9%
U.S. GOVERNMENT AGENCY OBLIGATIONS 51.0%
U.S. TREASURY OBLIGATIONS 28.4%
MUNICIPAL BONDS 8.5%
CORPORATE OBLIGATIONS 4.3%
% OF TOTAL PORTFOLIO INVESTMENTS
PIE CHART UNAUDITED
- --------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 28.0%
U.S. Treasury Bonds
8.375%, 08/15/08 $ 550 $ 631
8.750%, 11/15/08 300 348
9.125%, 05/15/09 300 358
7.500%, 11/15/24 500 651
6.000%, 02/15/26 1,000 1,096
6.125%, 11/15/27 500 562
U.S. Treasury Notes
8.000%, 05/15/01 1,131 1,212
7.500%, 11/15/01 1,500 1,610
6.250%, 01/31/02 500 522
7.500%, 05/15/02 1,169 1,268
6.000%, 07/31/02 2,000 2,084
7.875%, 11/15/04 500 579
7.625%, 02/15/07 1,000 1,081
5.625%, 05/15/08 500 532
U.S. Treasury STRIPS
6.475%, 02/15/07 1,000 679
6.990%, 05/15/11 1,000 530
6.900%, 11/15/20 1,400 423
10.035%, 02/15/21 3,000 888
- --------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $14,029) 15,054
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 50.4%
FFCB MTN
5.690%, 03/03/00 $ 2,000 $ 2,017
6.150%, 03/03/03 1,000 1,038
8.400%, 12/01/05 1,500 1,775
6.900%, 09/08/15 600 676
FHLB
8.375%, 10/25/99 440 451
7.780%, 10/19/01 500 536
8.090%, 12/28/04 400 460
8.125%, 03/07/05 1,000 1,030
6.500%, 09/18/13 500 497
FHLB MTN
6.880%, 04/26/00 500 512
5.990%, 10/01/03 500 516
7.030%, 05/06/11 500 571
FHLMC
6.900%, 04/04/03 500 510
8.640%, 10/14/09 400 410
7.500%, 11/01/09 970 999
8.060%, 03/24/10 500 515
6.500%, 11/01/12 1,879 1,912
Financing Corporation
8.600%, 09/26/19 500 664
FNMA
8.250%, 10/12/04 500 511
6.240%, 01/14/08 1,000 1,033
FNMA MTN
6.250%, 03/10/03 500 505
FNMA STRIPS
4.954%, 07/24/05 1,000 714
FNMA, Callable 10/24/00 @ 100
6.400%, 10/24/02 500 510
Housing Urban Development 92a Scranton,
Callable 08/01/02 @ 100
7.800%, 08/01/10 400 430
Housing Urban Development 94a Abilene,
Callable 08/01/03 @ 100
7.180%, 08/01/13 160 171
Housing Urban Development 94a Barberton,
Callable 08/01/03 @ 100
7.180%, 08/01/13 520 553
Housing Urban Development 94a Egg Harbor,
Callable 08/01/03 @ 100
6.930%, 08/01/08 160 170
7.180%, 08/01/13 220 235
18
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1999
GOVERNMENT SECURITIES PORTFOLIO
- --------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
Housing Urban Development 94a Ocean Shores,
Callable 08/01/03 @ 100
6.930%, 08/01/08 $ 225 $ 237
Housing Urban Development 94a
Pohatcong Township,
Callable 08/01/03 @ 100
6.930%, 08/01/08 240 251
Housing Urban Development 94a Providence,
Callable 08/01/03 @ 100
6.930%, 08/01/08 130 138
Housing Urban Development 94a Roanoke,
Callable 08/01/03 @ 100
7.180%, 08/01/13 100 107
Housing Urban Development 94a Tacoma,
Callable 08/01/03 @ 100
7.080%, 08/01/11 365 385
Housing Urban Development 94a-I
Montgomery, Callable 08/01/03 @ 100
6.930%, 08/01/08 55 58
Private Export Funding
7.300%, 01/31/02 2,100 2,234
6.240%, 05/15/02 250 259
7.950%, 11/01/06 1,500 1,708
Tennessee Valley Authority
8.375%, 10/01/99 1,169 1,194
9.764%, 10/15/09 1,000 555
- --------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $25,643) 27,047
- --------------------------------------------------------------------------
MUNICIPAL BONDS -- 8.4%
Berkeley County, WV, IRS Computer
Center Facility Project,
Taxable RB, Series 1994
7.900%, 07/15/03 640 699
Fairview, MN, Hospital & Health Care
Services, Taxable RB, Series B, MBIA
7.000%, 11/15/15 670 719
Gardena, CA Financing Agency, Taxable
RB, Pre-refunded @ 102 (A)
9.250%, 07/01/13 200 234
Henry County, GA, Water & Sewer Authority,
Taxable RB, Series B, AMBAC
6.000%, 02/01/04 250 256
6.000%, 02/01/05 220 224
6.700%, 02/01/11 200 210
- --------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------
Las Vegas, NV, Fremont Street Project,
Taxable GO, FGIC,
Callable 07/01/03 @ 101
7.200%, 07/01/15 $ 800 $ 847
Portsmouth, VA, Taxable GO,
Callable 07/15/07@102
6.630%, 07/15/14 500 516
Saint Paul, MN, Taxable GO, Series B,
Callable 02/01/08 @ 100
6.450%, 02/01/15 500 514
San Bernardino County, CA, Cop,
Taxable RB, Pre-refunded @ 102 (A)
8.500%, 03/01/14 275 316
- --------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (COST $4,283) 4,535
- --------------------------------------------------------------------------
Corporate Obligations -- 4.3%
American Heavy Lift Title XI
7.180%, 06/01/17 200 209
Bellsouth Telecom, Callable 05/15/05 @ 103.66
7.625%, 05/15/35 500 556
General Electric Capital MTN
6.020%, 12/15/03 500 516
Salomon Smith Barney
6.250%, 01/15/05 1,000 1,013
- --------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS (COST $2,225) 2,294
- --------------------------------------------------------------------------
PREFERRED STOCKS -- 2.9%
Duke Capital Financing 20,000 511
Public Service of Colorado Capital 20,000 513
Transcanada Pipeline Ltd 20,000 520
- --------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (COST $1,500) 1,544
- --------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.8%
Morgan Stanley
4.500%, dated 01/29/99, matures 02/01/99,
repurchase price $2,588,910 (collateralized by
U.S. Treasury Bill: total market value
$2,646,973) $2,582 2,582
- --------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT (COST $2,582) 2,582
- --------------------------------------------------------------------------
TOTAL INVESTMENTS -- 98.8% (COST $50,262) 53,056
- --------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET -- 1.2%
Other Assets and Liabilities, Net 621
- --------------------------------------------------------------------------
(CONTINUED)
19
<PAGE>
STATEMENT OF NET ASSETS
GOVERNMENT SECURITIES PORTFOLIO (CONCLUDED)
- --------------------------------------------------------------------------
VALUE
DESCRIPTION (000)
- --------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Class A (unlimited
authorization -- no par value) based on
5,070,207 outstanding shares
of beneficial interest $48,775
Portfolio Shares of Class B (unlimited
authorization -- no par value) based on
202,405 outstanding shares
of beneficial interest 2,005
Undistributed net investment income 6
Accumulated net realized gain on investments 97
Net unrealized appreciation on investments 2,794
- --------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $53,677
- --------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- CLASS A $10.18
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- CLASS B $10.19
- --------------------------------------------------------------------------
(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 -- Certificate of Participation
FFCB -- Federal Farm Credit Bank
FGIC -- Financial Guaranty Insurance Corporation
FHLB -- Federal Home Loan Bank
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
GO -- General Obligation
MBIA -- Municipal Bond Insurance Association
MTN -- Medium Term Note
RB -- Revenue Bond
STRIPS -- Separately Traded Registered Interest and Principal Securities
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1999
CAPITAL APPRECIATION PORTFOLIO
[PIE CHART OMITTED]
[PLOT POINTS FOLLOWS]
COMMON STOCKS 95.5%
REPURCHASE AGREEMENT 4.5
% OF TOTAL PORTFOLIO INVESTMENTS
PIE CHART UNAUDITED
- --------------------------------------------------------------------------
FACE AMOUNT VALUE
DESCRIPTION (000) (000)
- --------------------------------------------------------------------------
COMMON STOCKS -- 95.1%
Broadcasting, Newspapers and Advertising -- 1.8%
Fox Entertainment Group, Cl A* 60,000 $ 1,672
TMP Worldwide 20,000 1,200
- --------------------------------------------------------------------------
TOTAL BROADCASTING, NEWSPAPERS AND ADVERTISING 2,872
- --------------------------------------------------------------------------
Communications Equipment-- 5.3%
Broadcom, Cl A* 6,000 799
General Instrument* 57,300 2,034
Lucent Technologies 49,000 5,516
- --------------------------------------------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT 8,349
- --------------------------------------------------------------------------
Computer Networking Products -- 3.4%
Cisco Systems* 48,300 5,388
- --------------------------------------------------------------------------
TOTAL COMPUTER NETWORKING PRODUCTS 5,388
- --------------------------------------------------------------------------
Computer Software -- 3.9%
Microsoft* 29,600 5,180
Oracle Systems* 16,600 919
- --------------------------------------------------------------------------
TOTAL COMPUTER SOFTWARE 6,099
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES (000)
- --------------------------------------------------------------------------
Computers & Services -- 14.3%
America Online* 59,000 $ 10,366
Compaq Computer 40,000 1,905
Computer Sciences* 25,000 1,714
Dell Computer* 9,300 930
EMC** 24,600 2,678
International Business Machines 12,500 2,291
Seagate Technology* 38,200 1,554
Sun Microsystems* 8,000 894
- --------------------------------------------------------------------------
TOTAL COMPUTERS & SERVICES 22,332
- --------------------------------------------------------------------------
Conglomerates -- 6.6%
General Electric 50,000 5,244
Tyco International 65,400 5,040
- --------------------------------------------------------------------------
TOTAL CONGLOMERATES 10,284
- --------------------------------------------------------------------------
Drugs -- 11.0%
Abbott Laboratories 26,000 1,207
American Home Products 25,000 1,467
Amgen* 13,500 1,725
Biogen* 20,000 1,965
Merck 22,400 3,287
Pfizer 39,700 5,106
Warner Lambert 35,000 2,527
- --------------------------------------------------------------------------
TOTAL DRUGS 17,284
- --------------------------------------------------------------------------
Entertainment -- 2.1%
Time Warner 28,800 1,800
Walt Disney 45,000 1,485
- --------------------------------------------------------------------------
TOTAL ENTERTAINMENT 3,285
- --------------------------------------------------------------------------
Financial Services -- 7.6%
American Express 15,200 1,564
Charles Schwab 79,500 5,590
Fannie Mae 20,500 1,494
Freddie Mac 27,000 1,674
Merrill Lynch 20,000 1,520
- --------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES 11,842
- --------------------------------------------------------------------------
Household Products -- 3.7%
Clorox 34,800 4,354
Colgate-Palmolive 18,500 1,488
- --------------------------------------------------------------------------
TOTAL HOUSEHOLD PRODUCTS 5,842
- --------------------------------------------------------------------------
(CONTINUED)
21
<PAGE>
STATEMENT OF NET ASSETS
CAPITAL APPRECIATION PORTFOLIO (CONCLUDED)
- --------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES (000)
- --------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Insurance -- 5.9%
AIG 59,215 $ 6,095
Marsh & McLennan 51,000 3,207
- --------------------------------------------------------------------------
TOTAL INSURANCE 9,302
- --------------------------------------------------------------------------
Medical Products & Services -- 5.1%
Guidant 64,000 3,772
McKesson HBOC 55,000 4,132
- --------------------------------------------------------------------------
TOTAL MEDICAL PRODUCTS & SERVICES 7,904
- --------------------------------------------------------------------------
Retail -- 13.6%
Albertson's 24,000 1,464
CVS 78,700 4,309
Home Depot 31,700 1,914
Lowe's Companies 39,200 2,286
Rite Aid 41,400 2,034
Safeway* 29,500 1,656
Staples* 47,250 1,353
Wal-mart Stores 31,000 2,666
Walgreen 57,800 3,612
- --------------------------------------------------------------------------
TOTAL RETAIL 21,294
- --------------------------------------------------------------------------
Semi-Conductors/Instruments -- 3.8%
Applied Materials* 14,800 935
Intel 21,000 2,960
Texas Instruments 20,000 1,978
- --------------------------------------------------------------------------
TOTAL SEMI-CONDUCTORS/INSTRUMENTS 5,873
- --------------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATION -- 7.0%
Ameritech 25,000 1,628
Bell Atlantic 46,000 2,760
MCI WorldCom** 25,000 1,994
Mediaone Group* 38,000 2,130
Tele-Communications-TCI, Cl A* 35,000 2,400
- --------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATION 10,912
- --------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $78,922) 148,862
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES (000)
- --------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.5%
JP Morgan
4.750%, dated 01/29/99, matures 02/01/99,
repurchase price $7,043,326 (collateralized
by Government National Mortgage Association:
total market value: $7,161,400) $ 7,021 $ 7,021
- --------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT (COST $7,021) 7,021
- --------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.6% (COST $85,943) 155,883
- --------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET -- 0.4%
Other Assets and Liabilities, Net 613
- --------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Class A (unlimited
authorization -- no par value) based on
7,750,425 outstanding shares
of beneficial interest 70,360
Portfolio Shares of Class B (unlimited
authorization -- no par value) based
on 1,014,823 outstanding shares
of beneficial interest 13,773
Accumulated net investment loss (87)
Accumulated net realized gain on investments 2,510
Net unrealized appreciation on investments 69,940
- --------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $156,496
- --------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- CLASS A $17.89
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- CLASS B $17.61
- --------------------------------------------------------------------------
* Non-income producing security
** Irregular-income producing security
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1999
EQUITY INCOME PORTFOLIO
[PIE CHART OMITTED]
[PLOT POINTS FOLLOWS]
REPURCHASE AGREEMENT 2.2%
PREFERRED STOCKS 5.1%
COMMON STOCKS 91.3%
CONVERTIBLE BONDS 1.4%
% of Total Portfolio Investments
Pie chart unaudited
- --------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES (000)
- --------------------------------------------------------------------------
COMMON STOCKS -- 91.5%
Aerospace & Defense -- 1.5%
Lockheed Martin 24,000 $ 846
- --------------------------------------------------------------------------
TOTAL AEROSPACE & DEFENSE 846
- --------------------------------------------------------------------------
Banks -- 1.2%
Compass Bancshares 20,000 712
- --------------------------------------------------------------------------
TOTAL BANKS 712
- --------------------------------------------------------------------------
Broadcasting, Newspapers and Advertising -- 2.6%
Comcast, Cl A 5,500 374
TCA Cable TV 30,000 1,157
- --------------------------------------------------------------------------
TOTAL BROADCASTING, NEWSPAPERS AND ADVERTISING 1,531
- --------------------------------------------------------------------------
Chemicals -- 1.2%
E.I. Du Pont de Nemours 14,000 717
- --------------------------------------------------------------------------
TOTAL CHEMICALS 717
- --------------------------------------------------------------------------
Communications Equipment -- 2.9%
Lucent Technologies 15,000 1,688
- --------------------------------------------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT 1,688
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES (000)
- --------------------------------------------------------------------------
Computers & Services -- 3.2%
International Business Machines 10,000 $ 1,832
- --------------------------------------------------------------------------
TOTAL COMPUTERS & SERVICES 1,832
- --------------------------------------------------------------------------
Cosmetics, Soaps & Toiletries -- 1.6%
Procter & Gamble 10,000 909
- --------------------------------------------------------------------------
TOTAL COSMETICS, SOAPS & TOILETRIES 909
- --------------------------------------------------------------------------
DRUGS -- 5.7%
Bristol-Myers Squibb 12,000 1,538
Merck 12,000 1,761
- --------------------------------------------------------------------------
TOTAL DRUGS 3,299
- --------------------------------------------------------------------------
Electrical Utilities -- 8.6%
Allegheny Energy 40,000 1,265
Avista 60,000 1,110
Montana Power 30,000 1,575
Southern 40,000 1,077
- --------------------------------------------------------------------------
TOTAL ELECTRICAL UTILITIES 5,027
- --------------------------------------------------------------------------
Electronic & Other Electrical Equipment -- 3.6%
General Electric 20,200 2,118
- --------------------------------------------------------------------------
TOTAL ELECTRONIC & OTHER ELECTRICAL EQUIPMENT 2,118
- --------------------------------------------------------------------------
Entertainment -- 1.1%
Walt Disney 20,000 660
- --------------------------------------------------------------------------
TOTAL ENTERTAINMENT 660
- --------------------------------------------------------------------------
FINANCIAL SERVICES -- 4.9%
A.G. Edwards & Sons 30,000 1,016
American Express 18,000 1,852
- --------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES 2,868
- --------------------------------------------------------------------------
Food, Beverage & Tobacco-- 4.5%
General Mills 7,200 604
H.J. Heinz 20,600 1,160
Quaker Oats 15,000 834
- --------------------------------------------------------------------------
TOTAL FOOD, BEVERAGE & TOBACCO 2,598
- --------------------------------------------------------------------------
Forestry -- 2.0%
Rayonier 26,500 1,166
- --------------------------------------------------------------------------
TOTAL FORESTRY 1,166
- --------------------------------------------------------------------------
Gas/Natural Gas -- 2.8%
Williams Company 50,000 1,650
- --------------------------------------------------------------------------
TOTAL GAS/NATURAL GAS 1,650
- --------------------------------------------------------------------------
(CONTINUED)
23
<PAGE>
STATEMENT OF NET ASSETS
EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES (000)
- --------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Insurance -- 5.3%
Jefferson Pilot 28,500 $ 2,159
Marsh & McLennan 15,000 943
- --------------------------------------------------------------------------
TOTAL INSURANCE 3,102
- --------------------------------------------------------------------------
Machinery -- 6.0%
Lincoln Electric Holdings 60,000 1,267
Parker Hannifin 30,000 923
Timken 60,000 1,301
- --------------------------------------------------------------------------
TOTAL MACHINERY 3,491
- --------------------------------------------------------------------------
Office Equipment -- 2.1%
Xerox 10,000 1,240
- --------------------------------------------------------------------------
TOTAL OFFICE EQUIPMENT 1,240
- --------------------------------------------------------------------------
Petroleum & Fuel Products -- 3.3%
Kerr-McGee 23,000 781
Schlumberger 23,600 1,124
- --------------------------------------------------------------------------
TOTAL PETROLEUM & FUEL PRODUCTS 1,905
- --------------------------------------------------------------------------
Petroleum Refining -- 5.9%
Exxon 20,000 1,409
Mobil 15,000 1,315
Texaco 15,000 711
- --------------------------------------------------------------------------
TOTAL PETROLEUM REFINING 3,435
- --------------------------------------------------------------------------
Printing & Publishing -- 7.3%
Knight-Ridder 25,800 1,232
McGraw-Hill 22,000 2,379
Tribune 10,000 639
- --------------------------------------------------------------------------
TOTAL PRINTING & PUBLISHING 4,250
- --------------------------------------------------------------------------
Real Estate Investment Trusts -- 5.1%
Boykin Lodging 50,000 691
Centerpoint Properties Trust 13,000 424
Duke Realty Investments 24,000 552
National Golf Properties 13,000 335
Sovran Self Storage 40,000 993
- --------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS 2,995
- --------------------------------------------------------------------------
Telephones & Telecommunication -- 3.5%
Alltel 10,000 646
Bell Atlantic 10,000 600
GTE 12,000 810
- --------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATION 2,056
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
SHARES/FACE VALUE
DESCRIPTION AMOUNT (000) (000)
- --------------------------------------------------------------------------
Trucking -- 2.3%
CNF Transportation 30,000 $ 1,331
- --------------------------------------------------------------------------
TOTAL TRUCKING 1,331
- --------------------------------------------------------------------------
Water Utilities -- 3.3%
American States Water 40,000 1,143
Aquarion 20,000 771
- --------------------------------------------------------------------------
TOTAL WATER UTILITIES 1,914
- --------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $41,446) 53,340
- --------------------------------------------------------------------------
PREFERRED STOCKS -- 5.1%
MCI 20,000 518
Microsoft 10,000 983
TCI Communications 12,000 1,500
- --------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (COST $2,345) 3,001
- --------------------------------------------------------------------------
CONVERTIBLE BOND -- 1.4%
Oryx Energy
7.500%, 05/15/14 800 793
- --------------------------------------------------------------------------
TOTAL CONVERTIBLE BOND (COST $791) 793
- --------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 2.2%
JP Morgan
4.750%, dated 01/29/99, matures 02/01/99,
repurchase price $1,311,067 (collateralized by
Government National Mortgage Association:
total market value $1,326,936) $1,301 1,301
- --------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT (COST $1,301) 1,301
- --------------------------------------------------------------------------
TOTAL INVESTMENTS-- 100.2% (COST $45,883) 58,435
- --------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET -- (0.2%)
Other Assets and Liabilities, Net (134)
- --------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Class A (unlimited
authorization -- no par value) based on
3,875,079 outstanding shares
of beneficial interest 39,618
Portfolio Shares of Class B (unlimited
authorization -- no par value) based on
461,634 outstanding shares
of beneficial interest 5,574
Distributions in excess of net investment income (35)
Accumulated net realized gain on investments 592
Net unrealized appreciation on investments 12,552
- --------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $58,301
- --------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- CLASS A $13.44
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- CLASS B $13.44
- --------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1999
<CAPTION>
(IN THOUSANDS) (IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
WEST VIRGINIA GOVERNMENT CAPITAL
PRIME OBLIGATIONS TAX-EXEMPT SECURITIES APPRECIATION EQUITY INCOME
PORTFOLIO INCOME PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C> <C> <C> <C>
Interest income ...................... $ 3,494 $ 5,395 $ 3,247 $ 228 $ 135
Dividend income ...................... -- -- 96 1,022 1,471
- -----------------------------------------------------------------------------------------------------------------------------------
TotalInvestment Income ............... 3,494 5,395 3,343 1,250 1,606
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Administrator fees ................... 126 196 105 258 109
Investment advisory fees ............. 157 441 394 1,228 405
Less: investment advisory fees waived. (108) (65) (148) (326) (68)
Sub-advisory fees .................... 47 -- -- -- --
Custodian fees ....................... 3 7 2 9 --
Professionalfees ..................... 11 24 13 35 14
Registration & filing fees ........... 3 4 3 5 2
Printing expenses .................... 7 13 7 17 3
Trustee fees ......................... 5 7 4 10 4
Pricing fees ......................... -- 14 3 1 1
Distribution fees (1) ................ 17 22 5 23 13
Transfer agent fees .................. 52 67 52 79 51
Amortization of organization costs ... -- -- -- -- 4
Miscellaneous expenses ............... 4 2 1 1 --
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES ....................... 324 732 441 1,340 538
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) ....... 3,170 4,663 2,902 (90) 1,068
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments ..... 1 564 686 10,750 2,415
Net change in unrealized appreciation
(depreciation) on investments ...... -- (35) 183 38,187 4,167
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
on investments ..................... 1 529 869 48,937 6,582
===================================================================================================================================
Increase in net assets resulting
from operations .................... $ 3,171 $ 5,192 $ 3,771 $48,847 $ 7,650
===================================================================================================================================
<FN>
(1) Distribution fees are only incurred on Class B shares.
</FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
26, 27
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1999
Statement of Changes in Net Assets
FOR THE PERIOD ENDED JANUARY 31,
<TABLE>
<CAPTION>
(IN THOUSANDS) (IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
PRIME OBLIGATIONS WEST VIRGINIA TAX-EXEMPT GOVERNMENT SECURITIES
PORTFOLIO INCOME PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income ........................ $ 3,170 $ 4,587 $ 4,663 $ 4,661 $ 2,902 $ 3,085
Net realized gain on investments ............. 1 9 564 1,316 686 303
Net change in unrealized appreciation
(depreciation) on investments .............. -- -- (35) 2,500 183 1,794
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM INVESTMENT OPERATIONS ................. 3,171 4,596 5,192 8,477 3,771 5,182
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income:
Class A .................................... (2,846) (4,252) (4,265) (4,334) (2,798) (3,000)
Class B .................................... (324) (335) (400) (327) (100) (85)
Realized gains:
Class A .................................... -- -- (939) (410) (772) (39)
Class B .................................... -- -- (97) (36) (32) (1)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ........................... (3,170) (4,587) (5,701) (5,107) (3,702) (3,125)
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARETRANSACTIONS:
CLASS A:
Shares issued .............................. 185,391 162,497 12,367 2,749 9,227 6,732
Shares issued in lieu of cash distributions. 241 13 938 -- 772 39
Shares redeemed ............................(176,344) (200,643) (7,655) (13,440) (8,553) (17,688)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS A TRANSACTIONS .................... 9,288 (38,133) 5,650 (10,691) 1,446 (10,917)
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares issued .............................. 155,956 8,411 2,477 2,096 942 331
Shares issued in lieu of cash distributions 150 224 405 307 107 71
Shares redeemed ............................(158,520) (9,586) (1,019) (1,191) (506) (767)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS B TRANSACTIONS .................... (2,414) (951) 1,863 1,212 543 (365)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets from
CapitalShare Transactions .................... 6,874 (39,084) 7,513 (9,479) 1,989 (11,282)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ....... 6,875 (39,075) 7,004 (6,109) 2,058 (9,225)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year ............................ 58,727 97,802 92,701 98,810 51,619 60,844
- -----------------------------------------------------------------------------------------------------------------------------------
End of year ..................................$ 65,602 $ 58,727 $99,705 $92,701 $53,677 $51,619
===================================================================================================================================
CAPITAL SHARE TRANSACTIONS:
CLASS A:
Sharesissued ............................... 185,391 162,497 1,206 273 908 681
Shares issued in lieu of cash distributions. 241 13 91 -- 75 4
Shares redeemed ............................(176,344) (200,643) (747) (1,342) (838) (1,810)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS A SHARETRANSACTIONS ............... 9,288 (38,133) 550 (1,069) 145 (1,125)
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares issued .............................. 155,956 8,411 242 207 93 34
Shares issued in lieu of cash distributions. 150 224 39 30 10 7
Shares redeemed ............................(158,520) (9,586) (99) (118) (50) (79)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS B SHARE TRANSACTIONS ............. (2,414) (951) 182 119 53 (38)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL SHARES TRANSACTIONS ................... 6,874 (39,084) 732 (950) 198 (1,163)
===================================================================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
28, 29
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1999
Statement of Changes in Net Assets
FOR THE PERIOD ENDED JANUARY 31,
<TABLE>
<CAPTION>
(IN THOUSANDS) (IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION EQUITY INCOME
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ......................... $ (90) $ 91 $ 1,068 $ 1,098
Net realized gain on investments ..................... 10,750 25,364 2,415 2,589
Net change in unrealized appreciation (depreciation)
on investments ..................................... 38,187 (7,199) 4,167 4,595
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Investment Operations ......................... 48,847 18,256 7,650 8,282
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income:
Class A ............................................ -- (43) (992) (1,038)
Class B ............................................ -- -- (95) (60)
Net realized gains:
Class A ............................................ (12,234) (25,454) (2,596) (1,455)
Class B ............................................ (832) (1,340) (270) (108)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS .................................. (13,066) (26,837) (3,953) (2,661)
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARETRANSACTIONS:
Class A:
Shares issued ...................................... 5,860 31,733 6,541 11,078
Shares issued in lieu of cash distributions ........ 12,234 -- 2,596 --
Shares redeemed .................................... (24,460) (29,505) (8,554) (9,925)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS A TRANSACTIONS ........................... (6,366) 2,228 583 1,153
- -----------------------------------------------------------------------------------------------------------------------------------
Class B:
Shares issued ...................................... 140,979 2,254 3,150 2,340
Shares issued in lieu of cash distributions ........ 822 1,331 333 157
Shares redeemed .................................... (133,789) (1,518) (1,216) (601)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS B TRANSACTIONS ........................... 8,012 2,067 2,267 1,896
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS ........................... 1,646 4,295 2,850 3,049
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .............. 37,427 (4,286) 6,547 8,670
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year .................................... 119,069 123,355 51,754 43,084
- -----------------------------------------------------------------------------------------------------------------------------------
End of year .......................................... $156,496 $119,069 $58,301 $51,754
===================================================================================================================================
CAPITAL SHARE TRANSACTIONS:
Class A:
Sharesissued ....................................... 374 2,220 492 917
Shares issued in lieu of cash distributions ........ 866 -- 205 --
Shares redeemed .................................... (1,539) (1,898) (632) (809)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS A SHARETRANSACTIONS ...................... (299) 322 65 108
- -----------------------------------------------------------------------------------------------------------------------------------
Class B:
Shares issued ...................................... 9,335 147 236 193
Shares issued in lieu of cash distributions ........ 59 94 26 13
Shares redeemed .................................... (8,812) (101) (91) (48)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS B SHARE TRANSACTIONS ..................... 582 140 171 158
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL SHARE TRANSACTIONS ............................. 283 462 236 266
===================================================================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
30, 31
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1999
Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JANUARY 31,
<TABLE>
<CAPTION>
RATIO OF
NET
NET REALIZED RATIO OF RATIO OF RATIO OF INVESTMENT
NET AND DIS- DIS- NET NET EXPENSES NET EXPENSES INCOME
ASSET UNREALIZED TRIBUTIONS TRIBUTIONS ASSET ASSETS, TO INVESTMENT AVERAGE TO AVERAGE
VALUE NET GAINS FROM NET FROM VALUE, END OF AVERAGE INCOME NET ASSETS NET ASSETS PORTFOLIO
BEGINNING INVESTMENT LOSSES) INVESTMENT REALIZED END OF TOTAL PERIOD NET TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
OF PERIOD INCOME INVESTMENTS INCOME GAINS PERIOD RETURN (000) ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
- -----------------------------------------------------------------------------------------------------------------------------------
PRIME OBLIGATIONS PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $ 1.00 $0.05 $ 0.00 $(0.05) $ 0.00 $ 1.00 5.20% $61,465 0.49% 5.06% 0.66% 4.89% N/A
1998 1.00 0.05 0.00 (0.05) 0.00 1.00 5.33 52,177 0.49 5.21 0.65 5.05 N/A
1997 1.00 0.05 0.00 (0.05) 0.00 1.00 5.11 90,301 0.49 5.00 0.66 4.83 N/A
1996 1.00 0.06 0.00 (0.06) 0.00 1.00 5.65 84,660 0.49 5.50 0.64 5.35 N/A
1995 1.00 0.04 0.00 (0.04) 0.00 1.00 4.15 77,295 0.49 4.08 0.69 3.88 N/A
CLASS B
1999 $ 1.00 $0.05 $ 0.00 $(0.05) $ 0.00 $ 1.00 4.94% $ 4,137 0.74% 4.82% 0.91% 4.65% N/A
1998 1.00 0.05 0.00 (0.05) 0.00 1.00 5.07 6,550 0.74 4.96 0.90 4.80 N/A
1997 1.00 0.05 0.00 (0.05) 0.00 1.00 4.85 7,501 0.74 4.75 0.91 4.58 N/A
1996 1.00 0.05 0.00 (0.05) 0.00 1.00 5.39 6,154 0.74 5.15 0.89 5.00 N/A
1995(1)1.00 0.04 0.00 (0.04) 0.00 1.00 3.95 669 0.74 4.33 0.93 4.14 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
WEST VIRGINIA TAX-EXEMPT INCOME PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
CLASSA
1999 $10.32 $0.49 $ 0.06 $(0.49) $(0.11) $10.27 5.47% $90,228 0.72% 4.77% 0.79% 4.70% 14%
1998 9.95 0.50 0.42 (0.50) (0.05) 10.32 9.55 85,043 0.75 5.00 0.80 4.96 17
1997 10.12 0.49 (0.17) (0.49) 0.00 9.95 3.35 92,619 0.75 5.01 0.85 4.91 26
1996 9.36 0.49 0.76 (0.49) 0.00 10.12 13.66 36,611 0.75 5.02 0.89 4.88 43
1995 10.17 0.46 (0.81) (0.46) 0.00 9.36 (3.38) 26,096 0.75 4.88 1.09 4.54 28
CLASSB
1999 $10.32 $0.47 $ 0.05 $(0.47) $(0.11) $10.26 5.11% $ 9,477 0.97% 4.52% 1.04% 4.45% 14%
1998 9.95 0.48 0.42 (0.48) (0.05) 10.32 9.28 7,658 1.00 4.74 1.05 4.70 17
1997 10.11 0.47 (0.16) (0.47) 0.00 9.95 3.19 6,191 1.00 4.76 1.10 4.66 26
1996 9.36 0.47 0.75 (0.47) 0.00 10.11 13.26 4,312 1.00 4.78 1.14 4.64 43
1995 10.17 0.43 (0.81) (0.43) 0.00 9.36 (3.62) 2,263 1.00 4.68 1.34 4.34 28
- -----------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT SECURITIES PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
1999 $10.17 $0.56 $ 0.17 $(0.56) $(0.16) $10.18 7.39% $51,614 0.83% 5.54% 1.11% 5.26% 11%
1998 9.76 0.57 0.42 (0.57) (0.01) 10.17 10.44 50,100 0.83 5.77 1.05 5.55 21
1997 10.15 0.56 (0.39) (0.56) 0.00 9.76 1.83 59,014 0.83 5.75 1.16 5.42 46
1996 9.09 0.55 1.06 (0.55) 0.00 10.15 18.14 60,228 0.83 5.68 1.11 5.40 28
1995 10.06 0.51 (0.97) (0.51) 0.00 9.09 (4.48) 61,067 0.83 5.61 1.17 5.27 13
CLASS B
1999 $10.18 $0.54 $ 0.17 $(0.54) $(0.16) $10.19 7.12% $ 2,063 1.08% 5.28% 1.36% 5.00% 11%
1998 9.77 0.54 0.42 (0.54) (0.01) 10.18 10.16 1,519 1.08 5.52 1.30 5.30 21
1997 10.15 0.53 (0.38) (0.53) 0.00 9.77 1.69 1,830 1.08 5.50 1.41 5.17 46
1996 9.10 0.53 1.05 (0.53) 0.00 10.15 17.72 1,167 1.08 5.39 1.36 5.11 28
1995 10.06 0.49 (0.96) (0.49) 0.00 9.10 (4.62) 457 1.08 5.34 1.42 5.00 13
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Commenced operations on February 7, 1994. All ratios for the period have been annualized.
</FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
32, 33
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1999
Financial Highlights
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED JANUARY 31,
<TABLE>
<CAPTION>
RATIO OF
NET
NET REALIZED RATIO OF RATIO OF RATIO OF INVESTMENT
NET AND DIS- DIS- NET NET EXPENSES NET EXPENSES INCOME (LOSS)
ASSET UNREALIZED TRIBUTIONS TRIBUTIONS ASSET ASSETS, TO INVESTMENT AVERAGE TO AVERAGE
VALUE NET GAINS FROM NET FROM VALUE, END OF AVERAGE INCOME(LOSS) NET ASSETS NET ASSETS PORTFOLIO
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT REALIZED END OF TOTAL PERIOD NET TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
OF PERIOD INCOME (LOSS) INVESTMENTS INCOME GAINS PERIOD RETURN (000) ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $14.05 $(0.02) $5.52 $ 0.00 $(1.66) $17.89 42.72% $138,624 1.02% (0.05)% 1.28% (0.31)% 74%
1998 15.38 0.03 2.52 (0.01) (3.87) 14.05 17.12 113,048 1.02 0.09 1.28 (0.17) 118
1997 13.31 0.00 2.86 (0.01) (0.78) 15.38 22.06 118,873 1.02 (0.01) 1.28 (0.27) 90
1996 9.57 0.01 3.93 (0.01) (0.19) 13.31 41.31 99,612 1.02 0.08 1.27 (0.17) 119
1995 10.53 0.03 (0.96) (0.03) 0.00 9.57 (8.84) 70,502 1.02 0.28 1.33 (0.03) 107
CLASS B
1999 $13.89 $(0.01) $5.39 $ 0.00 $(1.66) $17.61 42.34% $ 17,872 1.27% (0.28)% 1.53% (0.54)% 74%
1998 15.28 0.02 2.46 0.00 (3.87) 13.89 16.76 6,021 1.27 (0.16) 1.53 (0.42) 118
1997 13.25 (0.03) 2.84 0.00 (0.78) 15.28 21.81 4,482 1.27 (0.27) 1.53 (0.53) 90
1996 9.55 (0.01) 3.90 0.00 (0.19) 13.25 40.88 2,233 1.27 (0.16) 1.52 (0.41) 119
1995 10.52 0.01 (0.97) (0.01) 0.00 9.55 (9.11) 505 1.27 0.02 1.58 (0.29) 107
- -----------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
1999 $12.62 $0.27 $1.52 $(0.27) $(0.70) $13.44 14.69% $ 52,095 0.96% 1.97% 1.09% 1.84% 47%
1998 11.23 0.27 1.78 (0.27) (0.39) 12.62 18.44 48,076 1.11 2.26 1.15 2.22 68
1997(1)10.00 0.16 1.23 (0.16) 0.00 11.23 13.98 41,580 1.20 3.27 1.25 3.22 10
CLASS B
1999 $12.62 $0.22 $1.54 $(0.24) $(0.70) $13.44 14.43% $ 6,206 1.21% 1.72% 1.34% 1.59% 47%
1998 11.24 ppp0.23 1.79 (0.25) (0.39) 12.62 18.07 3,678 1.36 2.01 1.40 1.97 68
1997(1)10.00 0.15 1.24 (0.15) 0.00 11.24 13.98 1,504 1.45 3.02 1.50 2.97 10
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Commenced operations on August 2, 1996. All ratios for the period have been annualized.
</FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
34, 35
<PAGE>
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 and Equity Income Portfolio (the "Equity
Portfolios"), Government Securities Portfolio and West Virginia Tax-Exempt
Income Portfolio (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.
36
<PAGE>
[LOGO OMITTED]
January 31, 1999
FEDERAL INCOME TAXES--
It is each Portfolio's intention to con- tinue to qualify as a regulated
investment company for Federal income tax purposes by complying with the
appropriate provisions of the Internal Revenue Code of 1986, as amended.
Accordingly, no provision for Federal income taxes has been made in the
financial statements.
SECURITY TRANSACTIONS AND RELATED INCOME--
Security transactions are accounted for on the date the security is purchased or
sold (trade date). 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)
37
<PAGE>
Notes to Financial Statements (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.
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%,
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
38
<PAGE>
[LOGO OMITTED]
January 31, 1999
.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 $75,000 payable to the Administrator by each Portfolio. At its
discretion, the Administrator may voluntarily choose not to invoke the $75,000
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 SEIInvestments Distribution Co. (the "Distributor"),
a wholly-owned subsidiary of SEIInvestments 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 $23,000 for
organizational work performed by a law firm of which two officers of the Trust
and a Trustee of the Trust are partners.
Certain officers of the Trust and a Trustee are also officers of the
Administrator and/or Distributor.Such officers are paid no fees by theTrust for
serving in their respective roles.
(CONTINUED)
39
<PAGE>
Notes to FinancialStatements (CONCLUDED)
5. INVESTMENT TRANSACTIONS:
The cost of security purchases and the proceeds from the sale of securities,
other than temporary cash investments, during the period ended January 31, 1999
were as follows:
U.S. GOVERNMENT OTHER INVESTMENT
SECURITIES SECURITIES
--------------- ----------------
PURCHASES SALES PURCHASES SALES
PORTFOLIO (000) (000) (000) (000)
- --------- --------- ------ -------- -----
West Virginia
Tax-Exempt Income ....$ -- $ -- $20,239 $ 13,473
Government
Securities ........... 3,487 4,470 2,001 2,081
Capital Appreciation ... -- -- 92,251 110,306
Equity Income .......... -- -- 24,902 25,604
At January 31, 1999, 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, 1999, 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 ......... $ 6,103 $ (118) $ 5,985
Government
Securities ..... 2,853 (59) 2,794
Capital
Appreciation ... 70,018 (78) 69,940
Equity
Income ......... 13,652 (1,100) 12,552
6. CONCENTRATION OF CREDIT RISK:
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.
40
<PAGE>
[LOGO OMITTED]
JANUARY 31, 1999
Notice to Shareholders of The OVB Funds
UNAUDITED
FOR TAXPAYERS FILING ON A CALENDAR YEAR BASIS, THIS NOTICE IS FOR INFORMATIONAL
PURPOSES ONLY.
For the fiscal year ended January 31, 1999, 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 ORDINARY TAX EXEMPT
CAPITAL GAINS INCOME INCOM
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
PORTFOLIO (TAX BASIS) (TAX BASIS) (TAX BASIS)
- --------- ------------- ------------- ----------
Prime Obligations Money Market..... 0% 100% 0%
Capital Appreciation............... 98% 2% 0%
Equity Income...................... 64% 36% 0%
Government Securities.............. 22% 78% 0%
WestVirginia Tax-Exempt Income..... 17% 1% 82%
Qualifying
Portfolio Dividends (1)
- --------- -------------
Prime Obligations Money Market..... 0%
Capital Appreciation............... 0%
Equity Income...................... 97%
Government Securities.............. 3%
WestVirginia Tax-Exempt Income..... 0%
Please consult your tax adviser for proper treatment of this information.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
41
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
[LOGOS 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-004-06
