<PAGE>
-------------------------------------------
OFFITBANK High Yield Fund
OFFITBANK Emerging Markets Fund
OFFITBANK Latin America Equity Fund
OFFITBANK New York Municipal Fund
OFFITBANK California Municipal Fund
OFFITBANK National Municipal Fund
OFFITBANK U.S. Government Securities Fund
OFFITBANK Mortgage Securities Fund
---------------------------
ANNUAL REPORT
DECEMBER 31, 1997
THE
[OFFITBANK LOGO]
INVESTMENT FUND, INC.
<PAGE>
PRESIDENT'S LETTER
- --------------------------------------------------------------------------------
Dear Shareholders:
We are very pleased to present you with the Annual Report for The OFFITBANK
Investment Fund, Inc. for the year ended December 31, 1997. This year we added
several new portfolios, the California Municipal Fund, the National Municipal
Fund, the U.S. Government Securities Fund and the Mortgage Securities Fund to
our four existing portfolios and changed the investment objective and name of
the Latin America Total Return Fund to the Latin America Equity Fund. As of year
end, The OFFITBANK Investment Funds have $1,683,031,728 in assets, an increase
of $681,702,009 over year-end 1996.
The specific results of the respective Funds, along with an investment and
market commentary from each portfolio manager are part of this Annual Report. I
believe that each of these commentaries provides useful and informative insights
into our Funds, and I hope that you will find them helpful.
We greatly value your participation in the Fund. Let us know of your interests
and concerns as we continue to try to serve you better. If you have any
questions, please do not hesitate to call.
Sincerely,
[SIGNATURE]
Morris W. Offit
February 9, 1998
<PAGE>
OFFITBANK
HIGH YIELD FUND
- --------------------------------------------------------------------------------
The Fund's Select Share net investment return for the second half of 1997 after
all fees and expenses was 6.24%. The full year 1997 total return was 12.09%. The
1997 year-end NAV price of $10.34 compares favorably to the $10.15 NAV at
year-end 1996. The $10.34 NAV is after the $0.118 distribution paid at year-end.
As of December 31, 1997, the Fund had a 30 day SEC yield of 8.55%, average
quality of B1/B+ and an effective duration of 3.80 years. The Fund continued to
grow as net assets increased to $1,347 million at year-end from $1,064 million
on June 30, 1997.
During the fourth quarter, Treasury rates declined over 30 basis points and the
high yield sector lagged, as is typical when there is a sudden downward move in
interest rates. High yield spreads widened approximately 40 basis points with
the Asian crisis, largely due to the decline in Treasury yields. As the problems
in Asia create concerns for the U.S. economy as well, quality spreads within the
high yield market also widened slightly, about 10 basis points for double B to
single B. We believe the recent spread widening has helped restore relative
value to the high yield market from the tight spreads seen throughout most of
1997.
High yield outperformed most fixed income asset classes in 1997 with long double
B's returning about 13.0% and shorter double B's returning 11.4%. Driving these
returns was an impressive Treasury rally which lowered rates over 65 basis
points by year-end. For all of 1997, high yield market spreads were essentially
flat. Overall, high yield investors were rewarded for taking risk as lower
quality issues along with long-dated securities outperformed. Particularly
strong were zero coupon bonds of telecommunications start-ups.
Our commitment to holding intermediate term, better quality securities remains
intact. While our approach has produced good returns in strong markets, it has
provided superior performance when the cycle turns down. This past year was a
year when credit, per se, did not play a large role and securities with high
coupons or long duration were the big winners. All of this took place in an
almost euphoric environment of unprecedented new issue supply and demand,
readily available financing with bankers competing for loans, increased M&A
activity and an IPO friendly stock market. Through this credit friendly
environment, we have maintained our discipline, focusing on the better quality
part of the high yield market. After seven years of U.S. economic expansion and
growing global problems, we believe some caution is advised and that credit
selection will play an increasing role in determining future returns. We
continue to believe the upper tier has the potential to provide superior returns
over time.
Technically, 1997 was another very strong year for the high yield market. Close
to $30 billion of high yield debt was issued during the fourth quarter, bringing
the yearly total to over $135 billion from over 700 issuers. This year's new
issuance shattered last year's previous record of $77 billion. Credit quality of
the new issue calendar was modestly lower than the past few years as double B
issues comprised only about 25% of the total. There were several very large
double B issues, priced at very tight spreads, which went quickly to crossover
hands. New single B issues, however, were priced cheap to the secondary market.
On the demand side, CBO issuance more than doubled during 1997 and large
retirement funds continued to increase their allocations to high yield. Mutual
fund inflows to high yield were $21 billion in 1997, up from $15 billion in
1996. Net mutual fund flows in the fourth quarter topped $5.1 billion, a very
strong showing.
Credit fundamentals were also very strong during 1997. For the second year in a
row, both Moody's and S&P posted more upgrades than downgrades. For the fifth
consecutive year, high yield default rates were less than 2%. Default rates
should remain relatively low by historic standards as the overall quality of
today's market is better than its historic average. Additionally, the total high
yield universe has grown very large and the size of the average issue has
declined. However, we do anticipate an uptick in the default rate as this
positive environment changes and the new issues of the last few years reach
their peak mortality period. Generally new issues do not default immediately as
they have just been financed and it takes some time for things to deteriorate.
The peak risk period for lower rated credits is about three years.
Several corporate actions affected the portfolio during the second half of 1997.
UNC, Inc. was tendered for at even yield to treasuries subsequent to General
Electric announcing the purchase of Greenwich Air, the parent of UNC. Dominion
Textile was acquired by Polymer Corporation and the securities are being
tendered for at plus 50 basis points to Treasuries on the first call date.
Wheeling Pittsburgh announced a defeasance of their senior notes to release the
Company from certain covenants of the indenture. If legally defeased, these
bonds will, in essence, be triple A. IMC Global, a triple B rated company,
announced the proposed acquisition of Harris Chemical Corporation. Clear Channel
Communications, also a triple B rated company, announced the acquisition of
Universal Outdoor. During the second half of 1997, 19 issues totaling over $75
million were either called or tendered and 19 issuers were upgraded by Moody's
and/or Standard & Poor's while 7 were downgraded.
2
<PAGE>
OFFITBANK
HIGH YIELD FUND
- --------------------------------------------------------------------------------
Although the portfolio has increased considerably in size, the composition of
the Fund has remained steady. We continue to focus on the better quality segment
of the high yield market. Approximately 40% of the holdings in the Fund are
rated either Ba3 or better by Moody's or BB- or better by Standard & Poor's.
Additionally, 67% of the holdings are rated at least B1 or B+. The Fund is very
well diversified with over 200 issues and no single credit larger than 1.8% of
the Fund's assets at December 31, 1997. We continue to believe that better
quality high yield credits will outperform fixed income alternatives over time.
Stephen T. Shapiro
January 13, 1998
The following graph represents the total return based on a $250,000 investment
made in the Select Shares of the OFFITBANK High Yield Fund (including its
predecessor partnership as discussed below) at January 1, 1988 and held through
December 31, 1997 as well as the performance of the Merrill Lynch All High Yield
Bond Index over the same period. Past performance is not predictive of future
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MERRILL LYNCH ALL HIGH YIELD BOND
OFFITBANK HIGH YIELD FUND - SELECT SHARES INDEX
<S> <C> <C>
1/1/88 $250,000 $250,000
12/31/88 $299,640 $283,676
12/31/89 $307,292 $295,676
12/31/90 $303,351 $282,825
12/31/91 $403,889 $380,624
12/31/92 $491,167 $449,723
12/31/93 $594,663 $527,021
12/31/94 $609,939 $520,896
12/31/95 $718,179 $624,623
12/31/96 $807,619 $693,728
12/31/97 $905,276 $782,702
Average Annual Total Return One Year Five Years
OFFITBANK High Yield Fund - Select Shares 12.09% 13.01%
Merrill Lynch All High Yield Bond Index 12.83% 11.72%
<CAPTION>
<S> <C>
1/1/88
12/31/88
12/31/89
12/31/90
12/31/91
12/31/92
12/31/93
12/31/94
12/31/95
12/31/96
12/31/97
Average Annual Total Return Ten Years
OFFITBANK High Yield Fund - Select Shares 13.73%
Merrill Lynch All High Yield Bond Index 12.09%
</TABLE>
The OFFITBANK High Yield Fund-Advisor shares total return for the period August
14, 1997 (initial sale of Advisor shares) through December 31, 1997 was 3.93%.
The performance information for the period January 1, 1988 through March 1, 1994
reflects the performance of The Senior Securities Fund, L.P. (the
"Partnership"), the predecessor limited partnership to the Fund. As a registered
investment company, the Fund is subject to certain restrictions under the
Investment Company Act and the Internal Revenue Code to which the Partnership
was not subject. Had the Partnership been registered under the Act and subject
to the Code, its performance may have been adversely affected.
3
<PAGE>
OFFITBANK
HIGH YIELD FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS (0.3%)
OIL/GAS (0.3%)
Reading & Bates Energy Co. Conv. Eurobonds, 8.00%, 12/31/98................ $ 1,871,000 $ 3,386,510
-------------
TOTAL CONVERTIBLE BONDS (COST $2,780,365).................................. 3,386,510
-------------
CORPORATE BONDS (90.2%)
AEROSPACE/DEFENSE(0.9%)
Moog Inc. Sr Sub Notes, 10.00%, 05/01/06................................... 2,000,000 2,160,000
Newport News Shipbuilding Sr Sub Notes, 9.25%, 12/01/06.................... 3,750,000 3,970,350
Sequa Corp. Sr Notes, 8.75%, 12/15/01...................................... 5,600,000 5,684,000
-------------
11,814,350
-------------
AUTOMOTIVE (2.3%)
Delco Remy International Inc. Sr Notes, 8.625%, 12/15/07................... 1,500,000 1,522,500
Delco Remy International Inc. Sr Sub Notes, 10.625%, 08/01/06 (144A)....... 4,000,000(1) 4,320,000
Exide Corp. Sr Notes, 10.00%, 04/15/05..................................... 8,500,000 9,010,000
Exide Holding Europe SA, 9.125%, 04/15/04 (144A)........................... 10,000,000(a)(1) 5,669,186
Hayes Wheels International Inc. Sr Sub Notes, 9.125%, 07/15/07............. 7,000,000 7,236,250
Walbro Corp. Sr Notes, 10.125%, 12/15/07 (144A)............................ 2,500,000(1) 2,562,500
-------------
30,320,436
-------------
BROADCAST/TELECOMMUNICATIONS (10.7%)
CCPR Services Sr Sub Notes, 10.00%, 02/01/07............................... 4,875,000 4,680,000
Centennial Cellular Corp. Sr Notes, 8.875%, 11/01/01....................... 14,000,000 14,349,999
Comcast Cellular Holdings Sr Notes, 9.50%, 05/01/07........................ 9,000,000 9,405,000
Echostar Communications Sr Disc Notes, 0/12.875%, 06/01/04................. 18,000,000(2) 16,470,000
Fox/Liberty Networks L.L.C. Sr Notes, 8.875%, 08/15/07 (144A).............. 7,000,000(1) 6,982,500
Granite Broadcasting Corp. Sr Sub Notes, 9.375%, 12/01/05.................. 6,000,000 6,075,000
Heritage Media Corp. Sr Sub Notes, 8.75%, 02/15/06......................... 4,500,000 4,851,405
Intermedia Communications Sr Notes, 8.875%, 11/01/07 (144A)................ 7,000,000(1) 7,175,000
Metrocall Inc. Sr Sub Notes, 9.75%, 11/01/07 (144A)........................ 3,000,000(1) 2,985,000
Nextel Communications Sr Discount Notes, 0/9.75%, 08/15/04................. 5,000,000(2) 4,437,500
Nextel Communications Sr Discount Notes, 0/10.65%, 09/15/07 (144A)......... 12,500,000(1)(2) 7,828,125
Paging Network Sr Sub Notes, 10.125%, 08/01/07............................. 11,000,000 11,440,000
Pegasus Comm Sr Notes, 9.625%, 10/15/05 (144A)............................. 3,500,000(1) 3,570,000
PriCellular Wireless Sr Notes, 10.75%, 11/01/04............................ 7,500,000 8,156,250
Rogers Cantel Inc. Sr Sub Notes, 8.80%, 10/01/07........................... 7,500,000 7,443,750
Sinclair Broadcast Group Inc Sr Sub Notes, 10.00%, 09/30/05................ 4,000,000 4,240,000
Star Choice Communication Sr Secured Notes with warrants, 13.00%, 12/15/05
(144A).................................................................... 1,500,000(1) 1,545,000
Vanguard Cellular Systems, Inc. Sr Debs., 9.375%, 04/15/06................. 6,350,000 6,604,000
Viacom Inc. Sub Notes, 8.00%, 07/07/06..................................... 11,000,000 11,110,000
Worldcom Inc. Sr Notes, 9.375% 01/15/04.................................... 4,358,000 4,619,480
-------------
143,968,009
-------------
CABLE (9.7%)
Adelphia Communications Corp. Sr Notes, 9.50%, 02/15/04.................... 7,150,780(3) 7,302,734
Adelphia Communications Corp. Sr Notes, 9.875%, 03/01/07................... 6,000,000 6,330,000
Cablevision Systems Corp. Sr Notes, 9.25%, 11/01/05........................ 7,500,000 7,950,000
Century Communications Corp. Sr Notes, 9.75%, 02/15/02..................... 6,500,000 6,825,000
Century Communications Corp. Sr Notes, 8.875%, 01/15/07.................... 5,500,000 5,644,375
Comcast Corp. Sr Sub Debs., 9.375%, 05/15/05............................... 8,000,000 8,500,000
Fundy Cable Ltd. Sr Notes, 11.00%, 11/15/05................................ 3,000,000 3,217,500
Jones Intercable Inc. Sr Sub Debs., 10.50%, 03/01/08....................... 7,500,000 8,193,750
Lenfest Communications, Inc. Sr Notes, 8.375%, 11/01/05.................... 12,500,000 12,875,000
Marcus Cable Company L.P. Sr Debs, 11.875%, 10/01/05....................... 6,000,000 6,510,000
Marcus Cable Company L.P. Sr Discount Notes, 0/14.25%, 12/15/05............ 2,000,000(2) 1,725,000
Marcus Cable Operating Sr Sub Discount Notes, 0/13.50%, 08/01/04........... 10,500,000(2) 9,686,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
OFFITBANK
HIGH YIELD FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
CABLE (9.7%) (CONTINUED)
NTL, Inc. Sr Notes, 10.00%, 02/15/07....................................... $ 4,500,000 $ 4,770,000
Olympus Communications L.P. Sr Notes, 10.625%, 11/15/06.................... 10,000,000 11,075,000
Rogers Cablesystems Ltd. Sr Secured 2nd Priority Notes, 9.625%, 08/01/02... 3,000,000 3,195,000
Rogers Cablesystems Ltd. Sr Secured 2nd Priority Notes, 10.00%, 03/15/05... 3,000,000 3,315,000
Rogers Cablesystems Ltd. Sr Secured 2nd Priority Notes, 9.65%, 01/15/14.... 2,500,000(b) 1,850,315
Rogers Communications Inc. Sr Notes, 9.125%, 01/15/06...................... 3,500,000 3,552,500
TeleWest Plc Sr Discount Debs., 0/11.00%, 10/01/07......................... 14,000,000(2) 10,885,000
Videotron Holdings PLC Sr Discount Debs., 0/11.125%, 07/01/04.............. 5,000,000(2) 4,712,500
Videotron Ltd. Sr Sub Notes, 10.25%, 10/15/02.............................. 2,500,000 2,650,000
-------------
130,764,924
-------------
CHEMICAL (3.1%)
Borden Chemicals & Plastics Sr Notes, 9.50%, 05/01/05...................... 6,000,000 6,420,000
Harris Chemical North America, Inc. Sr Secured Notes, 10.25%, 07/15/01..... 7,500,000 7,912,500
ISP Holdings Inc. Sr Notes, 9.00%, 10/15/03................................ 5,000,000 5,181,250
Pioneer Americas Acquisition Sr Secured Notes, 9.25%, 06/15/07............. 5,000,000 5,037,500
Polymer Group Inc. Sr Sub Notes, 9.00%, 07/01/07........................... 5,000,000 5,000,000
Sifto Canada Inc. Sr Notes, 8.50%, 07/15/00................................ 5,500,000 5,720,000
Terra Industries Inc., Sr Notes, 10.50%, 06/15/05.......................... 6,000,000 6,435,000
-------------
41,706,250
-------------
CONSUMER GROUPS (5.5%)
Ameriserve Food Co. Sr Notes, 8.875%, 10/15/06............................. 7,500,000 7,565,625
Ameriserve Food Co. Sr Sub Notes, 10.125%, 07/15/07........................ 5,000,000 5,225,000
Chiquita Brands International Inc. Sr Notes, 9.125%, 03/01/04.............. 6,000,000 6,240,000
Cott Corp. Sr Notes, 8.50%, 05/01/07....................................... 4,000,000 4,090,000
Fedders N.A Sr Sub Notes, 9.375%, 08/15/07 (144A).......................... 5,000,000(1) 5,137,500
Fleming Companies Inc. Sr Sub Notes, 10.50%, 12/01/04 (144A)............... 3,000,000(1) 3,142,500
Host Marriott Travel Plaza Sr Notes, 9.50%, 05/15/05....................... 7,000,000 7,437,500
Imperial Holly Sr Sub Notes, 9.75%, 12/15/07 (144A)........................ 5,000,000(1) 5,037,500
Livent Incorporated Sr Notes, 9.375%, 10/15/04 (144A)...................... 4,000,000(1) 4,000,000
Revlon Consumer Products Sr Notes, 9.375%, 04/01/01........................ 7,500,000 7,725,000
Revlon Consumer Products Sr Sub Notes, 10.50%, 02/15/03.................... 6,500,000 6,857,500
Ryder Transportation Inc. Sr Sub Notes, 10.00%, 12/01/06................... 3,000,000 3,007,500
The Krystal Company Sr Notes, 10.25%, 10/01/07 (144A)...................... 5,000,000(1) 5,125,000
United Auto Group Inc. Sr Sub Notes, 11.00%, 07/15/07...................... 4,000,000 3,930,000
-------------
74,520,625
-------------
FINANCIAL SERVICES/INSURANCE (2.6%)
Americo Life Inc. Sr Notes, 9.25%, 06/01/05................................ 3,000,000 3,067,500
Amresco Inc. Sr Sub Notes, 10.00%, 03/15/04................................ 3,000,000 3,105,000
Navistar Financial Corp. Sr Sub Notes, 8.875%, 11/15/98.................... 4,500,000 4,567,500
Navistar Financial Corp. Sr Sub Notes, 9.00%, 06/01/02..................... 2,200,000 2,282,500
Presidential Life Corp. Sr Notes, 9.50%, 12/15/00.......................... 3,500,000 3,644,375
Reliance Group Holdings, Inc Sr Sub Notes, 9.75%, 11/15/03................. 10,500,000 11,077,500
Veritas Holdings Sr Notes, 9.625%, 12/15/03................................ 7,000,000 7,577,500
-------------
35,321,875
-------------
FOREST & PAPER PRODUCTS (6.3%)
Crown Paper Co. Sr Sub Notes, 11.00%, 09/01/05............................. 3,500,000 3,605,000
Doman Industries Ltd. Sr Notes, 8.75%, 03/15/04............................ 5,000,000 4,825,000
Fort Howard Corp. Pass Through Certificates, 11.00%, 01/02/02.............. 2,181,928 2,291,024
Indah Kiat Finance Mauritius Ltd., Gtd. Sr Notes, 10.00%, 07/01/07
(144A).................................................................... 7,000,000(1) 5,810,000
Maxxam Group Inc. Sr Notes, 0/12.25%, 08/01/03............................. 2,500,000(2) 2,475,000
Maxxam Group Inc. Sr Secured Notes, 11.25%, 08/01/03....................... 3,000,000 3,195,000
Pindo Deli Finance Mauritius Gtd. Sr Notes, 10.75%, 10/01/07 (144A)........ 7,000,000(1) 6,020,000
Repap New Brunswick 1st Priority Floating Rate Sr Secured Notes, 9.0625%,
07/15/00.................................................................. 17,000,000(4) 16,745,000
Repap New Brunswick 1st Priority Sr Secured Notes, 9.875%, 07/15/00........ 3,000,000 3,060,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
OFFITBANK
HIGH YIELD FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
FOREST & PAPER PRODUCTS (6.3%) (CONTINUED)
Stone Container Co. Sr Sub Debs., 12.25%, 04/01/02......................... $ 7,500,000 $ 7,650,000
Stone Container Corp. Sr Secured Notes, 10.75%, 10/01/02................... 5,000,000 5,212,500
Stone Container Corp. Sr Sub Notes, 11.00%, 08/15/99....................... 3,500,000 3,570,000
Stone Container Finance Co. Sr Notes, 11.50%, 08/15/06 (144A).............. 5,500,000(1) 5,830,000
Tembec Finance Corp. Sr Notes, 9.875%, 09/30/05............................ 8,000,000 8,220,000
U.S. Timberlands Finance Corporation Sr Notes, 9.625%, 11/15/07............ 6,500,000 6,760,000
-------------
85,268,524
-------------
GENERAL INDUSTRIES/MANUFACTURING (7.6%)
Advanced Micro Devices Sr Notes, 11.00%, 08/01/03.......................... 3,000,000 3,217,500
Allied Waste N.A. Sr Sub Notes, 10.25%, 12/01/06........................... 4,500,000 4,938,750
American Standard Companies Inc. Sr Sub Discount Debs., 0/10.50%,
06/01/05.................................................................. 8,000,000(2) 8,120,000
Calmar Inc. Sr Sub Notes, 11.50%, 08/15/05................................. 2,500,000 2,650,000
Celestica International Sr Sub Notes, 10.50%, 12/31/06..................... 5,000,000 5,275,000
Communication and Power Industries, Inc. Sr Sub Notes, 12.00%, 08/01/05.... 2,500,000 2,800,000
Emcor Group Inc. Notes, 11.00%, 12/15/01................................... 3,394,400 3,564,120
Envirosource Inc. Sr Notes, 9.75%, 06/15/03................................ 3,000,000 3,048,750
Envirosource Inc. Sr Notes B, 9.75%, 06/15/03 (144A)....................... 1,500,000(1) 1,524,375
Essex Group Inc. Sr Notes, 10.00%, 05/01/03................................ 4,000,000 4,180,000
Flextronics International Services Sr Sub Notes, 8.75%, 10/15/07 (144A).... 3,750,000(1) 3,731,250
Foamex L.P. Sr Sub Notes, 9.875%, 06/15/07................................. 2,500,000 2,500,000
Johns Manville International Group Sr Notes, 10.875%, 12/15/04............. 10,000,000 11,075,000
Nortek Inc. Sr Notes, 9.125%, 09/01/07..................................... 5,000,000 5,062,500
Nortek Inc. Sr Sub Notes, 9.875%, 03/01/04................................. 6,000,000 6,135,000
Park-Ohio Industries Sr Sub Notes, 9.25%, 12/01/07, (144A)................. 5,000,000(1) 5,118,750
Southdown Inc. Sr Sub Notes, 10.00%, 03/01/06.............................. 5,500,000 6,105,000
Tally Manufacturing & Technology Inc. Sr Notes, 10.75%, 10/15/03........... 2,500,000 2,718,750
Unisys Corp. Sr Notes, 10.625%, 10/01/99................................... 5,500,000 5,610,000
Unisys Corp. Sr Notes, 11.75%, 10/15/04.................................... 5,700,000 6,526,500
Williams Scotsman Inc. Sr Notes, 9.875%, 06/01/07.......................... 8,000,000 8,240,000
-------------
102,141,245
-------------
HEALTH CARE (3.4%)
Alliance Imaging Sr Sub Notes, 9.625%, 12/15/05............................ 2,000,000 2,027,500
Extendicare Health Sr Sub Notes, 9.35%, 12/15/07 (144A).................... 7,000,000(1) 7,157,500
ICN Pharmaceuticals Inc. Sr Notes, 9.25%, 08/15/05......................... 4,000,000 4,230,000
Integrated Health Services, Inc. Sr Sub Notes, 9.50%, 09/15/07............. 11,500,000 11,845,000
Quest Diagnostic Inc. Sr Sub Notes, 10.75%, 12/15/06....................... 3,000,000 3,270,000
Tenet Healthcare Corp. Sr Sub Notes, 10.125%, 03/01/05..................... 4,500,000 4,905,000
Tenet Healthcare Corp. Sr Sub Notes, 8.625%, 01/15/07...................... 4,500,000 4,635,000
Vencor Inc. Sr Sub Notes, 8.625%, 07/15/07................................. 8,000,000 8,000,000
-------------
46,070,000
-------------
HOTELS & GAMING (6.5%)
Alliance Gaming Corp. Sr Sub Notes, 10.00%, 08/01/07 (144A)................ 5,000,000(1) 5,025,000
Grand Casinos Inc. Sr Notes, 10.125%, 12/01/03............................. 4,000,000 4,320,000
Hollywood Park Inc. Sr Sub Notes, 9.50%,08/01/07 (144A).................... 6,500,000(1) 6,971,250
Host Marriott Properties Inc Sr Secured Notes, 9.50%, 05/15/05............. 8,000,000 8,530,000
Host Marriott Properties Inc. Sr Notes, 8.875%, 07/15/07................... 3,500,000 3,683,750
John Q Hammons Hotels L.P. 1st Mtg, Notes, 9.75%, 10/01/05................. 7,000,000 7,420,000
John Q Hammons Hotels L.P. 1st Mtg. Notes, 8.875%, 02/15/04................ 5,000,000 5,106,250
Prime Hospitality Corp. 1st Mtg. Notes, 9.25%, 01/15/06.................... 8,000,000 8,420,000
Prime Hospitality Corp. Sr Sub Notes, 9.75%, 04/01/07...................... 6,000,000 6,390,000
Red Roof Inns Inc. Sr Sub Notes, 9.625%, 12/15/03.......................... 6,000,000 6,195,000
Sun International Hotels Ltd. Sr Sub Notes, 9.00%, 03/15/07................ 7,000,000 7,210,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
OFFITBANK
HIGH YIELD FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
HOTELS & GAMING (6.5%) (CONTINUED)
Trump Atlantic City 1st Mtg. Notes, 11.25%, 05/01/06....................... $ 8,500,000 $ 8,287,500
Trump Atlantic City 1st Mtg. Notes II, 11.25% 05/01/06 (144A).............. 5,000,000(1) 4,837,500
Venetian Casino Mtg. Notes, 12.25%, 11/15/04 (144A)........................ 5,000,000(1) 5,006,250
-------------
87,402,500
-------------
INDEPENDENT POWER (2.2%)
AES Corp. Sr Sub Notes, 8.375%, 08/15/07................................... 6,000,000 5,985,000
AES Corp. Sr Sub Notes, 8.50% 11/01/07 (144A).............................. 5,500,000(1) 5,506,875
California Energy Co. Inc. Sr Notes, 10.25%, 01/15/04...................... 4,500,000 4,837,500
Calpine Corp. Sr Notes, 10.50%, 05/15/06................................... 5,500,000 5,967,500
Calpine Corp. Sr Notes, 8.75%, 07/15/07.................................... 7,500,000 7,650,000
-------------
29,946,875
-------------
METALS & MINING (7.0%)
AK Steel Corp. Sr Notes, 9.125%, 12/15/06.................................. 8,000,000 8,200,000
Armco Inc. Sr Notes, 9.375%, 11/01/00...................................... 5,600,000 5,768,000
Armco Inc. Sr Notes, 9.00%, 09/15/07....................................... 5,000,000 4,925,000
Centaur Mining Exploration Sr Secured Notes, 11.00%, 12/01/07 (144A)....... 7,500,000(1) 7,537,500
EES Coke Battery Co. Inc. Series B, Sr Secured Notes, 9.382%, 04/15/07
(144A).................................................................... 5,750,000(1) 6,066,250
Glencore Nickel Pty Limited Sr Secured Bonds, 9.00%, 12/01/14 (144A)....... 7,000,000(1) 6,930,000
Hylsa S.A. de C.V. Notes, 9.25%, 09/15/07 (144A)........................... 5,000,000(1) 4,950,000
Jorgensen Earle M. Co. Sr Notes, 10.75%, 03/01/00.......................... 2,500,000 2,575,000
Kaiser Aluminum & Chemical Corp. Sr Notes, 9.875%, 02/15/02................ 4,500,000 4,635,000
Kaiser Aluminum & Chemical Corp. Sr Notes, 10.875%, 10/15/06............... 3,000,000 3,240,000
LTV Corp. Sr Notes, 8.20%, 09/15/07 (144A)................................. 8,000,000(1) 7,760,000
Murrin Murrin Sr Sub Notes, 9.375%, 08/31/07 (144A)........................ 7,000,000(1) 6,965,000
Oregon Steel Mills 1st Mtg. Notes, 11.00%, 06/15/03........................ 5,000,000 5,412,500
Westmin Resources Ltd. Sr Secured Notes, 11.00%, 03/15/07.................. 4,500,000 4,927,500
Wheeling Pittsburgh Corp. Sr Notes, 9.25%, 11/15/07 (144A)................. 7,500,000(1) 7,293,750
Wheeling-Pittsburgh Corp. Sr Notes, 9.375%, 11/15/03....................... 7,000,000 7,700,000
-------------
94,885,500
-------------
OIL/GAS (5.8%)
Crown Central Petroleum Corp. Sr Notes, 10.875%, 02/01/05.................. 2,400,000 2,532,000
DI Industries Sr Notes, 8.875%, 07/01/07................................... 5,000,000 5,200,000
Energy Corp Of America Sr Sub Notes, 9.50%, 05/15/07....................... 5,500,000 5,500,000
Ferrellgas Partner L.P. Sr Notes, 9.375%, 06/15/06......................... 7,000,000 7,420,000
Giant Industries Sr Sub Notes, 9.00%, 09/01/07 (144A)...................... 10,000,000(1) 9,950,000
Gulf Canada Resources, Ltd. Sr Sub Debs, 9.25%, 01/15/04................... 4,000,000 4,203,720
J Ray McDermott S.A. Sr Sub Notes, 9.375%, 07/15/06........................ 7,500,000 8,062,500
Mariner Energy Corporation Sr Sub Notes, 10.50%, 08/01/06.................. 3,500,000 3,675,000
Nuevo Energy Co. Sr Sub Notes, 9.50%, 04/15/06............................. 3,000,000 3,191,250
Parker Drilling Co. Sr Notes, 9.75%, 11/15/06.............................. 8,000,000 8,600,000
Petroleum Heat & Power Sub Notes, 10.125%, 04/01/03........................ 4,500,000 4,275,000
Pride Petroleum Services Sr Notes, 9.375%, 05/15/07........................ 3,000,000 3,225,000
Transamerican Energy Corp. Sr Secured Notes, 11.50%, 06/15/02 (144A)....... 7,000,000(1) 6,860,000
Trico Marine Serv Senior Note, 8.50%, 08/01/05 (144A)...................... 5,000,000(1) 5,012,500
Wainoco Oil Corp. Sr Notes, 12.00%, 08/01/02............................... 646,000 671,840
-------------
78,378,810
-------------
PACKAGING/CONTAINERS (2.4%)
Container Corp. of America Sr Notes, 9.75%, 04/01/03....................... 5,000,000 5,400,000
Container Corp. of America Sr Notes, 11.25%, 05/01/04...................... 3,500,000 3,832,500
Gaylord Container Corp. Sr Notes, 9.75%, 06/15/07.......................... 7,500,000 7,537,500
Gaylord Container Sr Sub Debs., 12.75%, 05/15/05........................... 7,000,000 7,507,500
Silgan Corp. Sr Sub Debs., 9.00%, 06/01/09................................. 3,500,000 3,587,500
Vicap S.A. Gtd. Sr Notes, 10.25%, 05/15/02 (144A).......................... 4,750,000(1) 4,963,750
-------------
32,828,750
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
OFFITBANK
HIGH YIELD FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
PUBLISHING/ADVERTISING (3.8%)
Big Flower Press Sr Sub Notes, 8.875%, 07/01/07............................ $ 5,000,000 $ 5,037,500
Hollinger International Publishing Sr Sub Notes, 9.25%, 03/15/07........... 6,000,000 6,330,000
ITT Promedia Sr Sub Notes, 9.125%, 09/15/07 (144A)......................... 12,000,000(a)(1) 7,011,450
Lamar Advertising Co. Sr Sub Notes, 9.625%, 12/01/06....................... 4,500,000 4,848,750
MDC Communications Corp. Sr Sub Notes, 10.50%, 12/01/06.................... 4,750,000 5,023,125
Outdoor Systems Inc Sr Sub Notes, 8.875%, 06/15/07......................... 9,000,000 9,405,000
Petersen Publishing Sr Sub Notes, 11.125%, 11/15/06........................ 3,000,000 3,390,000
Universal Outdoor Inc. Sr Sub Notes, 9.75%, 10/15/06....................... 4,500,000 5,040,000
World Color Press Inc. Sr Sub Notes, 9.125%, 03/15/03...................... 5,400,000 5,643,000
-------------
51,728,825
-------------
REAL ESTATE (1.1%)
Rockefeller Center Properties Sr Notes, 0.00%, 12/31/00.................... 16,000,000 11,560,000
Trizec Finance Ltd. Sr Notes, 10.875%, 10/15/05............................ 2,965,000 3,320,800
-------------
14,880,800
-------------
RETAIL (2.7%)
Jitney-Jungle Stores Sr Sub Notes, 10.375%, 09/15/07....................... 6,000,000 6,210,000
Nine West Group Inc. Sr Notes, 8.375%, 08/15/05 (144A)..................... 5,000,000(1) 4,762,500
Nine West Group Inc. Sr Sub Notes, 9.00%, 08/15/07 (144A).................. 6,000,000(1) 5,715,000
Petro Stopping Centers Sr Notes, 10.50%, 02/01/07.......................... 6,000,000 6,360,000
The Pantry Inc. Sr Sub Notes, 10.25%, 10/15/07 (144A)...................... 4,500,000(1) 4,623,750
TravelCenters of America Sr Sub Notes, 10.25%, 04/01/07.................... 5,000,000 5,250,000
Zale Corp. Senior Note, 8.50%, 10/01/07 (144A)............................. 3,000,000(1) 2,985,000
-------------
35,906,250
-------------
TEXTILES (1.9%)
Delta Mills Inc. Sr Notes, 9.625%, 09/01/07 (144A)......................... 7,000,000(1) 7,105,000
Dominion Textile (USA) Inc. Gtd. Sr Notes, 9.25%, 04/01/06................. 8,500,000 9,520,000
Pillowtex Corp. Sr Sub Notes, 10.00%, 11/15/06............................. 2,500,000 2,675,000
Westpoint Stevens, Inc. Sr Sub Notes, 9.375%, 12/15/05..................... 6,000,000 6,300,000
-------------
25,600,000
-------------
TRANSPORTATION (3.5%)
Coach USA Inc. Sr Sub Notes, 9.375%, 07/01/07.............................. 5,000,000 5,150,000
Eletson Holdings Inc. 1st Pfd. Mtg. Notes, 9.25%, 11/15/03................. 3,000,000 3,067,500
GPA Delaware Inc. Gtd. Notes, 8.75%, 12/15/98.............................. 4,000,000 4,060,000
Navigator Gas Transport, First Priority Ship Mtg. Notes, 10.50%, 06/30/07
(144A).................................................................... 6,000,000(1) 6,360,000
Piedmont Aviation Inc. Equipment Trust Certificates 1988 Series A, 9.80%,
01/15/00.................................................................. 942,000 979,445
Piedmont Aviation Inc. Equipment Trust Certificates 1988 Series F, 10.15%,
03/28/03.................................................................. 1,000,000 1,041,680
Sea Containers Ltd. Sr Notes, 9.50%, 07/01/03.............................. 3,000,000 3,120,000
Stena AB Sr Notes, 10.50%, 12/15/03........................................ 5,000,000 5,437,500
U.S. Air Inc. Equipment Trust Certificates 1988 Series B, 9.80%,
01/15/00.................................................................. 654,000 679,997
U.S. Air Inc. Equipment Trust Certificates 1988 Series B, 10.00%,
01/15/02.................................................................. 1,334,000 1,393,096
U.S. Air Inc. Equipment Trust Certificates 1990 Series A, 11.20%,
03/19/05.................................................................. 3,678,885 3,954,802
U.S. Air Inc. Equipment Trust Certificates 1990 Series B, 10.33%,
06/27/02.................................................................. 803,000 838,717
U.S. Air Inc. Equipment Trust Certificates 1990 Series D, 10.28%,
06/27/01.................................................................. 837,000 878,791
U.S. Air Inc. Equipment Trust Certificates 1990 Series D, 10.43%,
06/27/04.................................................................. 1,014,000 1,054,874
US Air, Inc Sr Notes, 10.00%, 07/01/03..................................... 3,000,000 3,105,000
Valuejet Inc. Sr Notes, 10.50%, 04/15/01 (144A)............................ 6,000,000(1) 5,925,000
-------------
47,046,402
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
OFFITBANK
HIGH YIELD FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
UTILITIES -- ELECTRIC (1.2%)
Beaver Valley Funding Corp. Debs., 8.625%, 06/01/07........................ $ 1,499,000 $ 1,596,150
Cleveland Electric Illum 1st Mtg. Bonds, 9.50%, 05/15/05................... 4,000,000 4,388,120
Long Island Lighting Co. Debs., 7.125%, 06/01/05........................... 4,000,000 4,106,520
Tucson Electric Power Company, Springerville Unit 1, 10.21%, 01/01/09...... 5,526,015 5,802,316
-------------
15,893,106
-------------
TOTAL CORPORATE BONDS (COST $1,167,872,213)................................ 1,216,394,056
-------------
FOREIGN GOVERNMENTS (1.5%)
SOVEREIGN DEBT(1.5%)
Brazil Brady Capitalization Step-Up Bonds, 4.00/8.00%, 04/15/14............ 15,393,510(2) 12,083,905
Republic of Brazil IDU, Floating Rate Note, 6.8125%, 01/01/01.............. 7,850,000(4) 7,477,125
-------------
TOTAL FOREIGN GOVERNMENTS (COST $18,618,517)............................... 19,561,030
-------------
MORTGAGE-BACKED SECURITIES (0.4%)
REAL ESTATE(0.3%)
RTC Mtg. Tr. Series 1994-C1 Class F Mortgage Loan Backed Bonds, 8.00%,
06/25/26.................................................................. 2,163,114 2,163,114
RTC Mtg. Tr. Series 1994-C2 Class G Mortgage Loan Backed Bonds, 8.00%,
04/25/25.................................................................. 1,500,759 1,504,511
-------------
3,667,625
-------------
RETAIL (0.1%)
National Convenience Realty Co. Secured Notes, 9.50%, 06/30/03............. 1,617,538 1,690,327
-------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $4,251,282)......................... 5,357,952
-------------
PREFERRED STOCKS (1.4%)
CABLE (0.5%)
Cablevision Systems Corp. 11.125% Series M................................. 58,983(3) 6,871,514
-------------
CONSUMER GROUPS (0.1%)
Pantry Pride Inc. $14.875 Series B......................................... 11,000 1,100,000
-------------
FOREST & PAPER PRODUCTS (0.4%)
Asia Pulp & Paper, 12.00%, Series A........................................ 6,000,000 4,980,000
-------------
HEALTH CARE (0.3%)
Fresenius Medical Care Capital Trust, Trust Pfd., 9.00%.................... 4,000,000 4,180,000
-------------
METALS & MINING (0.1%)
Freeport McMoran Corp. Series Gold......................................... 70,000 1,680,000
-------------
TOTAL PREFERRED STOCKS (COST $18,629,359).................................. 18,811,514
-------------
COMMERCIAL PAPER (1.0%)
FINANCIAL SERVICES/INSURANCE (0.2%)
Mercury Finance, 7.00%, 03/07/97........................................... 2,531,721 2,126,646
-------------
TEXTILES (0.8%)
ING / Pt Polysindo, Discount Note, 02/10/98................................ 5,000,000 4,825,000
ING / Pt Polysindo, Discount Note, 04/08/98................................ 4,578,034 4,372,022
ING / Pt Polysindo, 10.50%, 07/15/98....................................... 2,130,250 1,970,481
-------------
11,167,503
-------------
TOTAL COMMERCIAL PAPER (COST $13,678,187).................................. 13,294,149
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
OFFITBANK
HIGH YIELD FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS (4.2%)
Bank Of New York Repurchase Agreement 5.75%, 01/02/98 (dated 12/31/97;
proceeds $56,845,753, collateralized by $56,690,000 U.S. Treasury Notes,
6.375%, due 05/15/00, valued at $57,965,525).............................. $ 56,827,600 $ 56,827,600
-------------
TOTAL REPURCHASE AGREEMENTS (COST $56,827,600)............................. 56,827,600
-------------
MONEY MARKET FUNDS (0.0%)
Bank Of New York Cash Reserve MM Fund...................................... 39 39
-------------
TOTAL MONEY MARKET FUNDS (COST $39)........................................ 39
-------------
TOTAL INVESTMENTS (COST $1,282,657,562) (+) -- 99.0%....................... 1,333,632,850
OTHER ASSETS IN EXCESS OF LIABILITIES 1.0%................................. 12,935,124
-------------
TOTAL NET ASSETS -- 100.0%................................................. $1,346,567,974
-------------
-------------
</TABLE>
- ---------------
+ Represents cost for federal income tax purposes and differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.................. $57,062,657
Unrealized depreciation.................. (6,087,369)
----------
Net unrealized appreciation.............. $50,975,288
----------
----------
</TABLE>
Principal denominated in the following currencies:
(a) German Deutsche Mark. (b) Canadian Dollar.
(1) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(2) Step-Up Bond.
(3) Payment In Kind Security.
(4) Interest rate reflected is rate in effect at December 31, 1997.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
OFFITBANK
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
The full year 1997 and fourth quarter total return of the OFFITBANK Emerging
Markets Fund were 10.67% and -3.36%, respectively. In the corresponding periods
our composite benchmark, composed of 50% JP Morgan Emerging Markets Bond Index+
and 50% JP Morgan Latin America Eurobond Index, returned 12.03% and -3.09%. The
net asset value per share as of December 31, 1997 was $10.46 versus $11.03 at
the beginning of the year. NAV growth is after the $0.58 year end distribution.
Since its inception on March 8, 1994, the Fund's average annualized return is
14.12%. On December 31, 1997, the Fund had an approximate current yield of
10.25%, an approximate average duration of 4.4 years, and a 30 day SEC yield of
10.25%.
At year end, 55% of the Fund was invested in dollar-denominated Eurobonds, 31%
in U.S. dollar-denominated Brady and pre-Brady sovereign debt, 9% in local
market instruments, and 5% in cash and accrued income. The Fund's foreign
currency exposure was limited to 6% of assets. At quarter end, the fund
maintained a 96% allocation to Latin America with the largest allocations to
Brazil (30%), Mexico (23%), and Argentina (22%), as well as 4% in Moroccan
sovereign, dollar-denominated bank debt.
The recent financial crisis in Asia led to an indiscriminate sell-off of all
emerging markets financial securities. In our opinion, the decline in bond
prices in Latin America was exaggerated. All markets are not alike. Latin
American economies, which restructured in the 1980s and 1990s, are fundamentally
strong, and their corporations are far less leveraged and better prepared for
today's globally competitive business environment. Accordingly, we view this
indiscriminate sell-off as an opportunity to selectively buy Latin American
dollar-denominated debt securities at attractive prices.
Looking ahead to 1998, we expect volatility sparked by the Asian crisis to
subside outside of Asia and fundamentals to reassert themselves in global
markets. In this environment, we expect that investors will begin to reassess
the attractiveness of other emerging markets, particularly Latin America. We
believe that our approach of investing based on fundamental research and credit
risk management will be rewarded with competitive risk-adjusted returns.
The Fund continues to focus on good quality, dollar-denominated, non-investment
grade emerging markets corporate Eurobonds. In today's environment, the fixed
income investor is presented with opportunities to invest in good quality
corporate credits offering spreads of 450-650 basis points over comparable U.S.
Treasury issues and carrying absolute yields to maturity of approximately
10%-12%.
Richard M. Johnston Wallace Mathai-Davis
January 13, 1998
11
<PAGE>
OFFITBANK
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
The following graph represents the total return based on a $250,000 investment
made in the OFFITBANK Emerging Markets Fund at the trading commencement date of
March 8, 1994 and held through December 31, 1997 as well as the performance of
the J.P. Morgan Latin America Eurobond Index and the J.P. Morgan Emerging
Markets Bond Index+ over the same period. In addition, to provide a comparison
to the overall performance of the various asset classes in which the Fund
invests, the graph below includes a composite of the return of the J.P. Morgan
Emerging Markets Bond Index+ and the J.P. Morgan Latin America Eurobond Index.
Past performance is not predictive of future performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
50% J.P. MORGAN EMERGING
<S> <C> <C>
Markets Bond Index(7)
OFFITBANK Emerging and 50% J.P. Morgan
Markets Fund Latin America Eurobond Index
3/8/94 $250,000 $250,000
3/31/94 $247,800 $229,750
6/30/94 $251,046 $227,544
9/30/94 $260,360 $246,476
12/31/94 $240,078 $223,776
3/31/95 $237,269 $199,339
6/30/95 $259,833 $243,892
9/30/95 $278,645 $262,647
12/31/95 $296,256 $281,873
3/31/96 $309,291 $292,387
6/30/96 $330,725 $314,374
9/30/96 $352,916 $342,133
12/31/96 $374,868 $364,167
3/31/97 $383,839 $368,766
6/30/97 $410,289 $398,219
9/30/97 $429,105 $420,997
12/31/97 $414,883 $407,988
Average Annual Total Return One Year
OFFITBANK Emerging Markets Fund* 10.67%
Composite Index; 50% J.P. Morgan Emerging Markets Bond Index+
and 50% J.P. Morgan Latin America Eurobond Index 12.03%
J.P. Morgan Latin America Eurobond Index 11.01%
J.P. Morgan Emerging Markets Bond Index+ 13.03%
<CAPTION>
<S> <C> <C>
J.P. Morgan Latin J.P. Morgan Emerging
America Eurobond Index Markets Bond Index+
3/8/94 $250,000 $250,000
3/31/94 $242,500 $217,000
6/30/94 $237,771 $217,087
9/30/94 $244,881 $246,741
12/31/94 $223,135 $223,226
3/31/95 $199,126 $198,493
6/30/95 $242,336 $244,146
9/30/95 $264,268 $259,601
12/31/95 $279,146 $282,991
3/31/96 $288,860 $294,254
6/30/96 $300,386 $326,769
9/30/96 $315,345 $368,171
12/31/96 $333,635 $394,237
3/31/97 $339,440 $397,312
6/30/97 $361,708 $434,739
9/30/97 $378,129 $464,736
12/31/97 $370,377 $445,589
Since Inception
Average Annual Total Return (March 8, 1994)
OFFITBANK Emerging Markets Fund* 14.12%
Composite Index; 50% J.P. Morgan Emerging Markets Bond Index+
and 50% J.P. Morgan Latin America Eurobond Index 13.69%
J.P. Morgan Latin America Eurobond Index 10.85%
J.P. Morgan Emerging Markets Bond Index+ 16.35%
</TABLE>
*The total return may reflect the waiver of a portion of the Fund's advisory or
administrative fees for certain periods since the inception date. Without
waiver of fees, total return would have been lower.
12
<PAGE>
OFFITBANK
EMERGING MARKETS FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT MARKET VALUE
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (0.8%)
BANKING (0.8%)
CHILE (0.8%)
Citibank Chilean Peso-Linked Time Deposit, UF + 4.95%, 05/14/98............ 700,561,311(a)(4) $ 1,710,389
------------
TOTAL CERTIFICATES OF DEPOSIT (COST $1,803,444)............................. 1,710,389
------------
CORPORATE BONDS (45.1%)
AUTOMOTIVE (1.3%)
BRAZIL (1.3%)
Ford Brazil Ltd, 9.125%, 11/08/04.......................................... $ 750,000 716,250
Iochpe Maxion S.A., 12.375%, 11/08/02...................................... 2,400,000 2,064,000
------------
2,780,250
------------
BANKS (2.4%)
ARGENTINA (0.1%)
Banco Roberts, 11.75%, 11/16/00............................................ 300,000 306,000
------------
MEXICO (0.2%)
Grupo Financiero Banamex Convertible, 11.00%, 07/15/03, (144A)............. 400,000(1) 430,000
------------
MOROCCO (2.1%)
Morocco Tranche A Loan, 6.66%, 01/01/09.................................... 5,000,000(3) 4,328,125
------------
5,064,125
------------
BUILDING MATERIALS (2.1%)
MEXICO (2.1%)
Cemex, 12.75%, 07/15/06.................................................... 3,700,000 4,421,500
------------
FOOD (2.6%)
BRAZIL (2.6%)
Arisco Prod Alimenticios, 10.75%, 05/22/05, (144A)......................... 6,000,000(1) 5,580,000
------------
HOTEL & TOURISM (3.0%)
MEXICO (3.0%)
Grupo Posadas S.A. de C.V., 10.375%, 02/13/02, (144A)...................... 6,200,000(1) 6,355,000
------------
INDUSTRIAL (4.6%)
BRAZIL (0.5%)
Elevadores Atlas, 11.00/11.50/11.75%, 07/11/04............................. 1,000,000(2) 1,000,000
------------
MEXICO (4.1%)
Vicap S.A., 11.375%, 05/15/07.............................................. 3,000,000 3,210,000
Vicap S.A. Gtd. Sr Notes, 10.25%, 05/15/02 (144A).......................... 5,300,000(1) 5,538,500
------------
8,748,500
------------
9,748,500
------------
INFRASTRUCTURE (1.2%)
ARGENTINA (1.2%)
Cia Latino Americana, 11.625%, 06/01/04.................................... 2,450,000 2,462,250
------------
MANUFACTURING (1.2%)
MEXICO (1.2%)
Internacional De Ceramica, 9.750%, 8/1/02, (144A).......................... 2,750,000(1) 2,571,250
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
OFFITBANK
EMERGING MARKETS FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
MEDIA (8.8%)
ARGENTINA (2.4%)
Impsat Corp., 12.125%, 07/15/03............................................ $ 5,000,000 $ 5,037,500
------------
BRAZIL (3.3%)
Abril S.A., 12.00%, 10/25/03............................................... 2,500,000 2,525,000
Globo Communicacoes Participacoes, 10.50%, 12/20/06........................ 250,000 232,500
RBS Participacoes S.A., 14.00%, 12/15/03................................... 2,280,000 2,371,200
RBS Participacoes S.A., 11.00%, 04/01/07, (144A)........................... 2,000,000(1) 1,850,000
------------
6,978,700
------------
MEXICO (3.1%)
Grupo Televisa, 0/13.25%, 05/15/08, (144A)................................. 850,000(1)(2) 637,500
Grupo Televisa S.A., (Regular), 0/13.25%, 05/15/08......................... 1,000,000(2) 750,000
Grupo Televisa S.A., 0/13.25%, 05/15/08.................................... 4,150,000(2) 3,112,500
TV Azteca S.A. de C.V., 10.125%, 02/15/04.................................. 2,000,000 2,040,000
------------
6,540,000
------------
18,556,200
------------
PAPER/PULP (2.9%)
MEXICO (2.9%)
Grupo Industrial Durango, 12.625%, 08/01/03................................ 5,550,000 6,202,125
------------
PETROCHEMICALS (2.4%)
BRAZIL (1.2%)
Opp Petroquimica, 11.50%, 02/23/04, (144A)................................. 2,150,000(1) 2,085,500
Trikem, 10.625%, 07/24/07.................................................. 500,000 425,000
------------
2,510,500
------------
MEXICO (1.2%)
Cydsa S.A., 9.375%, 06/25/02 (144A)........................................ 2,500,000(1) 2,481,250
------------
4,991,750
------------
STEEL (8.6%)
ARGENTINA (3.4%)
Acindar, 11.25%, 02/15/04.................................................. 7,250,000 7,159,375
------------
BRAZIL (2.5%)
Csn Iron S.A., 9.125%, 06/01/07............................................ 5,250,000 4,462,500
Metalurgica Gerdau, 11.125%, 05/24/04...................................... 750,000 750,000
------------
5,212,500
------------
MEXICO (2.7%)
Hylsa S.A. de C.V. Bonds, 9.25%, 09/15/07.................................. 5,600,000 5,544,000
------------
17,915,875
------------
TELECOMMUNICATIONS (2.0%)
DOMINICAN REPUBLIC (0.5%)
Tricom S.A., 11.375%, 09/01/04, (144A)..................................... 1,000,000(1) 960,000
------------
MEXICO (1.5%)
Grupo Iusacell S.A. de C.V., 10.00%, 07/15/04.............................. 3,250,000 3,250,000
------------
4,210,000
------------
UTILITIES (2.0%)
ARGENTINA (0.4%)
Ieba, 9.00%, 09/16/04...................................................... 1,000,000 932,500
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
OFFITBANK
EMERGING MARKETS FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
BRAZIL (1.6%)
Companhia Saneamento Basico, 10.00%, 07/28/05, (144A)...................... $ 2,900,000(1) $ 2,581,000
Compania Paranaense De Energy, 9.75%, 05/02/05............................. 750,000 721,875
------------
3,302,875
------------
4,235,375
------------
TOTAL CORPORATE BONDS (COST $96,485,143).................................... 95,094,200
------------
FOREIGN GOVERNMENTS (51.6%)
SOVEREIGN DEBT (51.6%)
ARGENTINA (15.1%)
Argentina, 11.00%, 10/09/06................................................ 6,000,000 6,307,500
Argentina Bocon Pre-2 Floating Rate Bonds, 5.6875%, 04/01/01............... 1,650,000(3) 1,684,031
Argentina Bocon Pro 1 Floating Rate Bonds, 3.39%, 04/01/07................. 14,500,000(b)(3) 12,907,583
Republic of Argentina Brady FRB Bond, 6.6875%, 03/31/05.................... 9,744,000(3) 8,684,340
Republic of Argentina Global Bonds, 11.375%, 01/30/17...................... 2,000,000 2,186,250
------------
31,769,704
------------
BRAZIL (18.2%)
Brazil Brady Capitalization Step-Up Bonds, 4.00/8.00%, 04/15/14............ 15,678,575(2) 12,297,882
Brazil Brady DCB Floating Rate Brady Bonds, 6.75%, 04/15/12................ 12,250,000(3) 9,294,688
Brazil Brady Disc. Z Floating Rate, 6.6875%, 04/15/24...................... 5,000,000(3) 4,090,625
Brazil Brady NMB, Floating Rate Brady, 6.75%, 04/15/09..................... 8,000,000(3) 6,440,000
Republic of Brazil IDU, Floating Rate Note, 6.81%, 01/01/01................ 6,672,500(3) 6,343,045
------------
38,466,240
------------
COLOMBIA (0.3%)
Colombian Treasury Bonds, 25.50%, 08/19/98................................. 750,000,000(c) 614,337
------------
ECUADOR (3.6%)
Ecuador Brady Discount Floating Rate Bonds, 6.6875%, 02/28/25.............. 6,500,000(3) 4,915,625
Republic of Ecuador 11.25%, 04/25/02....................................... 2,500,000 2,588,750
------------
7,504,375
------------
MEXICO (1.3%)
Mexican Undibonos, UDI + 6.50%, 05/09/02................................... 110,000(d)(4) 2,816,202
------------
MOROCCO (2.0%)
Morocco Snap Notes, 11.50%, 01/29/09....................................... 7,500,000(e) 4,294,768
------------
VENEZUELA (11.1%)
Republic Of Venezuela, 10.25%, 10/4/03..................................... 11,000,000(e) 6,604,770
Venezuela Brady DCB, Floating Rate Bond, 6.75%, 12/18/07................... 2,857,142(3) 2,555,356
Venezuela Brady FLIRB, Floating Rate Bonds, 6.75%, 03/31/07................ 9,047,607(3) 8,120,227
Republic of Venezuela, 9.25%, 09/15/27..................................... 6,500,000 5,825,625
Venezuelan Brady FLIRB Ser B, Floating Rate Brady Note, 6.75%, 03/31/07.... 226,190(3) 203,006
------------
23,308,984
------------
TOTAL FOREIGN GOVERNMENTS (COST $107,924,883)............................... 108,774,610
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
OFFITBANK
EMERGING MARKETS FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS (3.0%)
UNITED STATES (3.0%)
Chase Manhattan Bank Repurchase Agreement, 5.40%, 01/02/98 (dated 12/31/97;
proceeds $6,265,212, collateralized by $4,990,000 U.S. Treasury Bonds
8.125% due 08/15/19, valued at $6,370,369)
TOTAL REPURCHASE AGREEMENTS (COST $6,263,333)............................... $ 6,263,333 $ 6,263,333
------------
6,263,333
------------
TOTAL INVESTMENTS (COST $212,476,803) (+) -- 100.5%......................... 211,842,532
LIABILITIES IN EXCESS OF OTHER ASSETS (0.5%)................................ (1,065,939)
------------
TOTAL NET ASSETS -- 100.0%.................................................. $210,776,593
------------
------------
</TABLE>
- ---------------
+ Represents cost for federal income tax purposes and differs from value by net
unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.................. $4,051,209
Unrealized depreciation.................. (4,685,480)
---------
Net unrealized depreciation.............. $(634,271)
---------
---------
</TABLE>
Principal denominated in the following currencies:
(a) Chilean Peso (b) Argentine Peso (c) Columbian Peso (d) Mexican
Peso (e) German Deutsche Mark
(1) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(2) Step-Up Bond.
(3) Interest rate reflected is rate in effect at December 31, 1997.
(4) Fair valued security.
UDI -- Unidades de Inversion.
UF -- Unidad de Fomento.
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
OFFITBANK
LATIN AMERICA EQUITY FUND
- --------------------------------------------------------------------------------
The full year 1997 and fourth quarter total return of the OFFITBANK Latin
America Equity Fund Select Shares were 24.22% and -13.33% respectively. In the
corresponding periods our comparative benchmark* returned 24.05% and -10.55%.
The net asset value per share as of December 31, 1997 was $14.13 versus $11.66
as of December 31, 1996. NAV growth is after the $0.25 year end distribution.
Since its inception on February 13, 1996, the Fund's average annualized return
is 25.50%.
As of December 31, 1997, the Fund was fully invested with a residual cash
position of 2%. The Fund was diversified across seven countries with the highest
weightings concentrated in the largest economies of Brazil (36%), Mexico (32%),
and Argentina (14%). The Fund held 66 separate securities at year end, and was
diversified across 16 industries with the largest positions in
Telecommunications (22%), Food/Beverage (13%), Electric Utilities (10%),
Iron/Steel (10%), and Retail (10%).
As you may recall, the Fund changed investment objectives as of May 1, 1997 to
permit a 100% allocation to equity instead of the previous 80% limit. Since the
change in investment objective, the Fund has returned 7.68% versus 6.73% for the
ING Barings Emerging Markets Latin America Equity Index.
The recent financial crisis in Asia led to an indiscriminate sell-off of all
emerging markets financial securities. In our opinion, the decline in asset
prices in Latin America was exaggerated. All markets are not alike. Latin
American economies, which restructured in the 1980s and 1990s, are fundamentally
strong, and their corporations are far better prepared for today's globally
competitive business environment. In our view, these events have created
opportunities to selectively buy securities of companies with sound businesses
at cheaper prices.
Looking ahead to 1998, we expect volatility sparked by the Asian crisis to
subside outside of Asia and fundamentals to reassert themselves in global
markets. In this environment, we expect that investors will begin to reassess
the attractiveness of other emerging markets, particularly Latin America. Latin
America, we believe, will prove particularly attractive as relatively high
economic growth, underpinned by sound macro policies and strong financial
systems, spurs rising corporate earnings and declining perceived risk.
We continue to believe that our approach of focusing on large capitalization,
well managed, "blue chip" companies and privatization plays (where the
government is selling to the private sector) will provide competitive returns at
lower levels of volatility.
Richard M. Johnston
January 13, 1998
*Prior to May 1, 1997, the Fund was known as the OFFITBANK Latin America Total
Return Fund and its Benchmark was composed of 75% of the Latin America equity
component of ING Barings Emerging Markets Index and 25% J.P. Morgan Latin
America Eurobond Index. Effective May 1, 1997, and due to the change of
investment objective, the Benchmark was changed to 100% of the Latin America
equity component of the ING Barings Emerging Markets Index.
17
<PAGE>
OFFITBANK
LATIN AMERICA EQUITY FUND
- --------------------------------------------------------------------------------
The following graph represents the total return based on a $250,000 investment
made in the Select Shares of the OFFITBANK Latin America Equity Fund at the
trading commencement date of February 13, 1996 and held through December 31,
1997 as well as the performance of the ING Barings Emerging Markets--Latin
America Equity Index and the J.P. Morgan Latin America Eurobond Index over the
same period. In addition, to provide a comparison to the overall performance of
the various asset classes in which the Fund invests, the graph below includes a
composite of the return of the ING Barings Emerging Markets--Latin America
Equity Index and the J.P. Morgan Latin America Eurobond Index. Past performance
is not predictive of future performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
75% ING BARINGS EMERGING
OFFITBANK LATIN MARKETS-LATIN AMERICA
AMERICA FUND - EQUITY INDEX AND 25%
SELECT SHARES J.P. MORGAN LATIN
AMERICA EUROBOND INDEX**
<S> <C> <C>
2/13/96 $250,000 $250,000
3/31/96 $242,450 $240,175
6/30/96 $271,689 $259,845
9/30/96 $287,230 $262,781
12/31/96 $308,399 $271,742
3/31/97 $345,805 $303,606
6/30/97 $408,196 $368,367
9/30/97 $442,040 $376,839
12/31/97 $383,099 $337,083
Total Return One Year Since Inception
OFFITBANK Latin America Equity Fund Select Shares* 24.22% 25.50%(a)
OFFITBANK Latin America Equity Fund Advisor Shares* N/A (4.64%)(b)
Composite Index; 75% ING Barings Emerging Markets-Latin America
Equity Index and 25% J.P. Morgan Latin America Eurobond Index** 24.05% 17.24%
ING Barings Emerging Markets-Latin America Equity Index 28.36% 18.36%
J.P. Morgan Latin America Eurobond Index 11.01% 13.26%
<CAPTION>
ING BARINGS EMERGING J.P. MORGAN
MARKETS-LATIN AMERICA LATIN AMERICA
EQUITY INDEX EUROBOND INDEX
<S> <C> <C>
2/13/96 $250,000 $250,000
3/31/96 $238,100 $246,375
6/30/96 $260,934 $256,205
9/30/96 $260,542 $268,964
12/31/96 $267,343 $284,564
3/31/97 $307,872 $289,515
6/30/97 $375,019 $308,508
9/30/97 $383,645 $322,514
12/31/97 $343,170 $315,902
Total Return
OFFITBANK Latin America Equity Fund Select Shares*
OFFITBANK Latin America Equity Fund Advisor Shares*
Composite Index; 75% ING Barings Emerging Markets-Latin America
Equity Index and 25% J.P. Morgan Latin America Eurobond Index**
ING Barings Emerging Markets-Latin America Equity Index
J.P. Morgan Latin America Eurobond Index
</TABLE>
* The total return may reflect the waiver of a portion of the Fund's advisory
or administrative fees for certain periods since the inception date. Without
waiver of fees, total return would have been lower.
**Effective May 1, 1997, due to the change of investment objective, the
Benchmark was changed to 100% of the ING Barings Emerging Markets--Latin
America Equity Index.
(a)Inception of Select Shares was February 13, 1996.
(b)Inception of Advisor Shares was June 23, 1997.
18
<PAGE>
OFFITBANK
LATIN AMERICA EQUITY FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (72.2%)
AUTO PARTS/RELATED (2.3%)
MEXICO (1.3%)
Corporacion Sanluis S.A. de C.V........................................... 86,200 $ 708,625
-----------
PERU (1.0%)
Ferreyros S.A............................................................. 535,371 563,137
-----------
1,271,762
-----------
BANKS (5.0%)
ARGENTINA (2.6%)
Banco de Galicia -- ADR*.................................................. 14,834 381,975
Banco del Suquia S.A...................................................... 42,944 111,677
Banco Rio -- ADR*......................................................... 66,033 924,461
-----------
1,418,113
-----------
COLOMBIA (1.0%)
Banco De Bogota........................................................... 111,204 570,962
-----------
MEXICO (1.4%)
Grupo Financiero Banorte Class B*......................................... 437,000 761,838
-----------
2,750,913
-----------
BEVERAGES (4.7%)
CHILE (1.7%)
Embotelladora Andina -- ADR............................................... 34,000 707,625
Vina Concha y Toro -- ADR................................................. 9,000 227,250
-----------
934,875
-----------
MEXICO (3.0%)
Coca-Cola Femsa -- ADR.................................................... 16,000 928,000
Panamerican Beverages Inc................................................. 22,900 747,113
-----------
1,675,113
-----------
2,609,988
-----------
BREWERY (4.8%)
ARGENTINA (0.9%)
Quilmes Industrial S.A. -- ADR............................................ 37,000 506,438
-----------
COLOMBIA (2.4%)
Bavaria................................................................... 127,100 1,305,351
-----------
MEXICO (1.5%)
Grupo Modelo S.A.......................................................... 99,450 836,046
-----------
2,647,835
-----------
BUILDING MATERIALS (2.3%)
MEXICO (1.6%)
Cemex SA de CV*........................................................... 196,500 890,524
-----------
PERU (0.7%)
Cementos Lima, S.A........................................................ 18,100 392,541
-----------
1,283,065
-----------
FINANCIAL SERVICES/INSURANCE (1.1%)
COLOMBIA (1.1%)
Suramericana De Seguros................................................... 30,900 584,595
-----------
FOOD (2.4%)
MEXICO (2.4%)
Grupo Industrial Bimbo.................................................... 110,000 1,063,856
Industrias Bachoco, S.A.*................................................. 14,600 284,700
-----------
1,348,556
-----------
FOREST & PAPER PRODUCTS (1.0%)
MEXICO (1.0%)
Grupo Industrial Durango S.A. -- ADR*..................................... 38,000 541,500
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
OFFITBANK
LATIN AMERICA EQUITY FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INDUSTRIAL (4.6%)
MEXICO (4.6%)
Desc S.A. -- ADR.......................................................... 35,396 $ 1,327,350
Grupo Alfa S.A. de C.V.................................................... 180,115 1,221,611
-----------
2,548,961
-----------
IRON/STEEL (8.8%)
ARGENTINA (2.8%)
Acindar Industria S.A.*................................................... 134,373 319,872
Siderar S.A. Class A...................................................... 80,600 342,619
Siderca S.A. Class A...................................................... 302,955 842,383
-----------
1,504,874
-----------
BRAZIL (0.7%)
Companhia Siderurgica Nacional S.A........................................ 14,000 388,889
-----------
MEXICO (5.3%)
Hylsamex S.A. de C.V...................................................... 174,530 1,027,920
Industrias CH, S.A.*...................................................... 100,550 603,425
Tubos de Acero de Mexico -- ADR........................................... 57,650 1,246,680
-----------
2,878,025
-----------
4,771,788
-----------
MEDIA (3.0%)
MEXICO (3.0%)
Grupo Radio Centro S.A. -- ADR............................................ 34,400 490,200
Grupo Televisa -- GDR*.................................................... 20,000 773,750
TV Azteca S.A. ADR........................................................ 17,400 392,588
-----------
1,656,538
-----------
METALS & MINING (0.1%)
BRAZIL (0.1%)
Companhia Vale Do Rio Doce, S.A. -- ON.................................... 4,000 71,685
-----------
OIL/GAS (4.5%)
ARGENTINA (4.5%)
Perez Companc S.A. -- ADR*................................................ 71,104 1,015,365
YPF S.A. -- ADR........................................................... 42,200 1,442,713
-----------
2,458,078
-----------
RETAIL (7.7%)
ARGENTINA (0.5%)
Importadora Y Exporadora de la Patagonia.................................. 16,254 292,631
-----------
COLOMBIA (0.6%)
Cadenalco................................................................. 309,223 322,356
-----------
MEXICO (6.6%)
Cifra S.A., De Cv Series V................................................ 267,640 660,389
Grupo Elektra S.A. -- GDR................................................. 47,700 1,678,443
Organizacion Soriana S.A. Class B......................................... 287,900 1,267,259
-----------
3,606,091
-----------
4,221,078
-----------
TELECOMMUNICATIONS (17.0%)
ARGENTINA (2.6%)
Telecom Argentina S.A. -- ADR............................................. 22,600 807,950
Telefonica de Argentina S.A. -- ADR....................................... 15,690 584,453
-----------
1,392,403
-----------
BRAZIL (8.7%)
Telebras -- ADR........................................................... 32,400 3,772,574
Telecomunicacoes Brasileiras S.A.......................................... 9,600 976,344
-----------
4,748,918
-----------
CHILE (1.7%)
Compania de Telecommunicaciones de Chile S.A. -- ADR...................... 31,125 929,859
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
OFFITBANK
LATIN AMERICA EQUITY FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PERU (1.7%)
Telefonica del Peru S.A. -- ADR*.......................................... 40,895 $ 953,365
-----------
VENEZUELA (2.3%)
Compania Anonima Nacional Telefonos de Venezuela -- ADR................... 31,000 1,290,375
-----------
9,314,920
-----------
UTILITIES (2.9%)
VENEZUELA (2.9%)
Citibank Equity Pass-Through Note Linked to C.A. La Electricidad de
Caracas.................................................................. 1,330,464 1,596,293
-----------
TOTAL COMMON STOCKS (COST $34,343,390).................................. 39,677,555
-----------
PREFERRED STOCKS (26.4%)
AUTO PARTS/RELATED (0.5%)
BRAZIL (0.5%)
Iochpe Maxion S.A.*....................................................... 4,937 278,834
-----------
BANKS (3.1%)
BRAZIL (3.1%)
Banco Bradesco S.A........................................................ 61,980 610,915
Banco Itau S.A............................................................ 1,433 770,430
Unibanco GDR.............................................................. 10,540 339,256
-----------
1,720,601
-----------
BREWERY (1.0%)
BRAZIL (1.0%)
Companhia Cervejaria Brahma............................................... 380 255,376
Companhia Cervejaria Brahma -- ADR........................................ 21,400 303,613
-----------
558,989
-----------
IRON/STEEL (1.4%)
BRAZIL (1.4%)
Gerdau S.A................................................................ 59,380 744,910
-----------
MANUFACTURING (0.4%)
BRAZIL (0.4%)
Ericsson Telecomunicacoes S.A.*........................................... 7,492 240,335
-----------
METALS & MINING (1.8%)
BRAZIL (1.8%)
Compania Vale do Rio Doce S.A. -- PN...................................... 50,520 1,016,285
-----------
OIL/GAS (3.6%)
BRAZIL (3.6%)
Petroleo Brasileiro....................................................... 8,490 1,985,565
-----------
RETAIL (2.1%)
BRAZIL (2.1%)
Companhia Brasileira de Distribuigao Pao de Acucar........................ 63,636 1,163,239
-----------
TELECOMMUNICATIONS (5.2%)
BRAZIL (5.2%)
Telecomunicacoes de Minas Gerais S.A...................................... 5,463 684,280
Telecomunicacoes do Rio de Janeiro........................................ 7,936 824,887
Telecomunicacoes do Sao Paulo............................................. 5,129 1,364,877
-----------
2,874,044
-----------
UTILITIES (7.3%)
BRAZIL (7.3%)
Centrais Electricas Brasileiras........................................... 34,250 1,749,327
Companhia Energetica de Minas Gerais...................................... 27,340 1,187,918
Companhia Paranaense de Energia........................................... 16,304 221,331
Electricidade de Sao Paolo Class B*....................................... 4,320 812,903
-----------
3,971,479
-----------
TOTAL PREFERRED STOCKS (COST $15,378,644)............................... 14,554,281
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
OFFITBANK
LATIN AMERICA EQUITY FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPTIONS (0.0%)
BRAZIL (0.0%)
Banco Bradesco Rts. @ 7.00, 02/09/98...................................... $ 70,800 $ 0
-----------
TOTAL OPTIONS (COST $0)................................................. 0
-----------
REPURCHASE AGREEMENTS (1.8%)
UNITED STATES (1.8%)
Chase Manhattan Bank Repurchase Agreement, 5.40%, 01/02/98 (dated
12/31/97; proceeds $1,016,223, collateralized by $890,000 U.S. Treasury
Bonds 7.125% due 02/15/23, valued at $1,034,936)
TOTAL REPURCHASE AGREEMENTS (COST $1,015,919)........................... 1,015,919 1,015,919
-----------
1,015,919
-----------
TOTAL INVESTMENTS (COST $50,737,953) (+) -- 100.4%...................... 55,247,755
LIABILITIES IN EXCESS OF OTHER ASSETS (0.4%)............................ (195,537)
-----------
TOTAL NET ASSETS 100.0%................................................. $55,052,218
-----------
-----------
</TABLE>
- ---------------
+ Represents cost for federal income tax purposes and differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.................. $6,896,251
Unrealized depreciation.................. (2,386,449)
---------
Net unrealized appreciation.............. $4,509,802
---------
---------
</TABLE>
* Denotes non-income producing security.
ADR -- American Depository Receipt.
GDR -- Global Depository Receipt.
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
OFFITBANK
NEW YORK MUNICIPAL FUND
- --------------------------------------------------------------------------------
The second half and full year 1997 total returns for the OFFITBANK New York
Municipal Fund were 4.91% and 7.84%, respectively. The Lehman Brothers Five Year
Municipal Bond Index returned 3.88% and 6.38% for the comparable time periods.
The net assets of the Fund continued to grow, finishing the year at
approximately $42 million, up from $20 million at December 31, 1996. The 30-day
SEC yield for the month ending December 1997 was 4.05%. Average annual return
for the Fund since inception on April 3, 1995 was 7.17%. For that time period,
the annualized return of the Lehman Brothers Five Year Municipal Bond Index was
6.54%.
In managing our municipal funds, our objective is to earn after-tax income and
increase principal value over time. In 1997 the New York Municipal Fund's year
end net asset value (NAV) price of $10.69 is 2.8% higher than the 1996 year-end
price of $10.40. Since the Fund's inception, the NAV is 6.9% greater than the
$10.00 inception price. In addition to the price appreciation over the last few
years, there have been municipal capital gains realized. This year we realized
and paid out approximately $.05 per share.
During 1997, the municipal market benefited from a myriad of factors including
low inflation, a strong technical situation (as discussed below), and finally
sharply lower Treasury interest rates. In normal circumstances, 1997's economic
growth would have continued to create jobs and result in wage pressures.
However, problems in the Asian countries beginning in August and continuing
through the end of the year have undermined forecasts of continued worldwide and
domestic economic growth. By year end, concerns relating to slower economic
growth pushed municipals with maturities of 10 years and longer to levels that
were at or below the lows of October 1993. Longer (20 and 30 year) dated
municipals have reached levels not seen since 1972.
Unique to today's yield levels is the flatness of the municipal yield curve. The
most recent decline in interest rates at year end had long rates declining
slightly more than shorter rates. The New York Municipal Fund is ideally
positioned for a yield curve steepening as the Fund's maturities are
concentrated in the 3-10 year range. In this current flat yield environment one
only picks up 38 basis points going from the 10 to 15 year maturity and there is
no incentive for us to extend the portfolio. As we move into the year we expect
an increase in municipal issuance and a market anticipation of a lower Federal
Funds Rate, both of which are likely to present us with some attractive
opportunities to sell our shorter maturities and purchase longer intermediate
maturities. As of December 31, 1997, the portfolio's average maturity is 6.4
years and the duration is 5.1 years.
Technicals remain positive for the municipal market as retail investors are
joined by property and casualty companies as well as mutual funds that
reinvested approximately $6 billion of dividend income during 1997. Value
continues to be present in the municipal market which, because of the seasonal
year-end inundation of supply, could not keep up with the Treasury market.
Current yield ratios (municipals as a percentage of Treasurys) in the 75-80%
range are attractive. Also of importance is the improving credit quality of some
local governments that benefit from increases in personal income tax receipts.
We are, however, vigilant about the most recent surpluses found in government
budgets, particularly in New York, as the large increase in tax receipts may
reflect the 3 year surge in the stock market rather than any permanent change in
the state's economic structure. The Fund's investments in the state's Northwest
credits continue to be under-weighted because of the region's continued
population decline and corporate downsizing. The average quality rating of the
portfolio at year end is AA.
As we begin 1998, individual investors may be seeking to become more defensive.
Because they are less volatile, short and intermediate municipal bonds become
the obvious choice.
Carolyn N. Dolan
January 13, 1998
23
<PAGE>
OFFITBANK
NEW YORK MUNICIPAL FUND
- --------------------------------------------------------------------------------
The following graph represents the total return based on a $250,000 investment
made in the OFFITBANK New York Municipal Fund at the trading commencement date
of April 3, 1995 and held through December 31, 1997 as well as the performance
of the Lehman Brothers 5 Year Municipal Bond Index over the same period. Past
performance is not predictive of future performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
OFFITBANK NEW YORK MUNICIPAL FUND LEHMAN BROTHERS 5 YEAR MUNICIPAL BOND INDEX
<S> <C> <C>
4/3/95 $250,000 $250,000
6/30/95 $256,150 $256,700
9/30/95 $262,912 $262,835
12/31/95 $270,274 $268,223
3/31/96 $268,679 $268,250
6/30/96 $269,969 $269,699
9/30/96 $273,991 $274,149
12/31/96 $280,375 $279,577
3/31/97 $280,180 $279,492
6/30/97 $288,268 $286,305
9/30/97 $295,658 $292,438
12/31/97 $302,347 $297,406
Since Inception
Average Annual Total Return One Year (April 3, 1995)
OFFITBANK New York Municipal Fund* 7.84% 7.17%
Lehman Brothers 5 Year Municipal Bond Index 6.38% 6.54%
</TABLE>
* The total return may reflect the waiver of a portion of the Fund's advisory or
administrative fees for certain periods since the inception date. Without waiver
of fees, total return would have been lower.
24
<PAGE>
OFFITBANK
NEW YORK MUNICIPAL FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT MARKET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
FLOATING RATE NOTES (5.7%)
TRANSPORTATION REVENUE (2.4%)
Port Authority of New York & New Jersey Bonds Series 86, 4.90%,
06/01/20*................................................................. $ 1,000,000 $ 1,000,000
-------------
WATER/SEWER (3.3%)
New York City Municipal Water Financing Authority Water & Sewer System
Revenue Bonds Series G, (FGIC), 5.00%, 06/15/24, 1-Day Notes*............. 1,400,000 1,400,000
-------------
TOTAL FLOATING RATE NOTES (COST $2,400,000)............................. 2,400,000
-------------
MUNICIPAL BONDS (95.9%)
EDUCATION REVENUE (4.7%)
New York State Dormitory Authority Revenue Bonds, 5.70%, 05/15/04.......... 470,000 503,488
New York State Dormitory Authority Revenue Bonds Cornell University, 4.80%,
07/01/03.................................................................. 250,000 260,313
New York State Dormitory Authority Revenue Bonds Cornell University, 5.25%,
07/01/07.................................................................. 350,000 376,250
New York State Dormitory Authority Revenue Bonds New York University,
(MBIA), 5.50%, 07/01/04................................................... 315,000 335,475
New York State Dormitory Authority Revenue Bonds VASSAR College, 5.00%,
07/01/09.................................................................. 500,000 519,999
-------------
1,995,525
-------------
GENERAL OBLIGATIONS (28.9%)
Albany County General Obligation Bonds Series B, 5.60%, 03/15/07........... 300,000 325,500
Albany County General Obligation Bonds Series B, (FGIC), 5.60%, 03/15/09... 400,000 429,000
Dutchess County General Obligation Bonds, 4.90%, 08/01/04.................. 215,000 222,794
Dutchess County General Obligation Bonds, (FGIC), 7.20%, 01/01/02.......... 250,000 269,375
Hempstead General Obligation Bonds Series B, (AMBAC), 5.00%, 02/15/09...... 500,000 516,875
Hempstead General Obligation Bonds Series B, (FGIC), 5.63%, 02/01/01....... 245,000 256,025
Hempstead General Obligation Bonds Series B, (FGIC), 5.63%, 02/01/04....... 140,000 150,500
Islip General Obligation Bonds, (FGIC), 6.00%, 11/01/05.................... 100,000 109,375
Monroe County General Obligation Bonds, 5.50%, 06/01/09.................... 300,000 319,875
New Castle General Obligation Bonds, 4.75%, 06/01/08....................... 210,000 211,838
New York City General Obligation Bonds Series A, 7.00%, 08/01/06........... 300,000 345,375
New York City General Obligation Bonds Series B, 6.10%, 10/01/00........... 500,000 523,750
New York City General Obligation Bonds Series B, 5.375%, 08/15/04.......... 500,000 518,750
New York City General Obligation Bonds Series D, 5.75%, 08/01/07........... 325,000 348,156
New York City General Obligation Bonds Series I, 6.00%, 04/15/08........... 555,000 601,480
New York City Gold Series B, 5.20%, 08/01/09............................... 250,000 252,813
New York State Environmental Quality General Obligation Bonds, 5.50%,
11/15/01.................................................................. 200,000 209,750
New York State General Obligation Bonds, 6.75%, 08/15/03................... 500,000 552,499
New York State General Obligation Bonds, 5.60%, 08/15/07................... 350,000 374,938
New York State General Obligation Bonds, 5.70%, 03/15/10................... 400,000 424,500
Onondaga County General Obligation Bonds, 5.40%, 04/01/01.................. 150,000 156,375
Onondaga County General Obligation Bonds Series B, 5.85%, 02/15/00......... 390,000 405,600
Ontario County General Obligation Bonds, (FGIC), 5.00%, 08/15/02........... 250,000 260,313
Orange County General Obligation Bonds, 5.00%, 09/01/01.................... 500,000 517,500
Orange County General Obligation Bonds, 6.00%, 11/15/08.................... 470,000 534,625
Oyster Bay General Obligation Bonds, 4.00%, 02/15/99....................... 400,000 400,500
Oyster Bay General Obligation Bonds, (MBIA), 5.70%, 02/15/07............... 360,000 396,450
Rochester General Obligation Bonds, 4.00%, 10/01/99........................ 1,000,000 1,002,499
Rochester General Obligation Bonds Series A, (AMBAC), 4.25%, 09/15/01...... 500,000 505,625
Rochester General Obligation Bonds, (FGIC), 5.00%, 10/01/03................ 450,000 471,375
Schenectady County (N.Y.) General Obligation Bonds, 6.00%, 08/15/05........ 200,000 222,750
Westchester County General Obligation Bonds Series A, 5.85%, 11/15/04...... 250,000 275,625
-------------
12,112,405
-------------
HEALTH CARE (1.0%)
New York Medical Care Facility Finance Authority, (FHA), 6.20%, 08/15/14... 375,000 405,000
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
OFFITBANK
NEW YORK MUNICIPAL FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT MARKET VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
HOUSING (5.7%)
New York State Mortgage Agency Revenue Bonds Series 37-A, 5.85%,
10/01/06.................................................................. $ 125,000 $ 136,250
New York State Mortgage Agency Revenue Bonds Series 37-A, 5.95%,
04/01/07.................................................................. 100,000 109,000
New York State Mortgage Agency Revenue Bonds Series 37-A, (AMT), 5.80%,
10/01/06.................................................................. 200,000 216,000
New York State Mortgage Agency Revenue Bonds Series 46, (AMT), 5.75%,
04/01/04.................................................................. 200,000 212,250
New York State Mortgage Agency Revenue Bonds Series 53, 5.35%, 04/01/07.... 240,000 253,800
New York State Mortgage Agency Revenue Bonds Series 61, 5.60%, 10/01/11.... 500,000 526,250
New York State Mortgage Agency Revenue Bonds Series 67, (AMT), 4.55%,
10/01/02.................................................................. 325,000 327,031
New York State Mortgage Agency Revenue Bonds Series 67, (AMT), 5.30%,
10/01/10.................................................................. 585,000 598,894
-------------
2,379,475
-------------
POWER AUTHORITY REVENUE (5.2%)
New York State Power Authority Revenue Bonds Series CC, 4.80%, 01/01/05.... 400,000 411,500
New York State Power Authority Revenue Bonds Series CC, 4.90%, 01/01/06.... 430,000 442,900
New York State Power Authority Revenue Bonds Series CC, (MBIA), 4.90%,
01/01/06.................................................................. 200,000 205,500
New York State Power Authority Revenue Bonds Series Y, 6.25%, 01/01/05..... 100,000 106,750
New York State Power Authority Revenue Bonds Series Z, 5.85%, 01/01/00..... 900,000 931,500
New York State Power Authority Revenue Bonds Series Z ETM, 5.85%,
01/01/00.................................................................. 100,000 103,500
-------------
2,201,650
-------------
PRE-REFUNDED (5.5%)
Grand Central District Management Association Inc. New York Special
Assessment Bonds, 6.50%, 01/01/22......................................... 150,000 165,000
New York State Environmental Facilities Corporation Pollution Control
Revenue Bonds, 6.40%, 06/15/03............................................ 185,000 201,650
New York State Environmental Facilities Corporation Pollution Control
Revenue Bonds, 6.50%, 06/15/04............................................ 95,000 103,906
New York State Environmental Facilities Corporation Pollution Control
Revenue Bonds, 7.20%, 06/15/06............................................ 200,000 223,250
New York State Environmental Facilities Corporation Pollution Control
Revenue Bonds, 6.50%, 06/15/14............................................ 500,000 546,875
New York State Environmental Facilities Corporation Pollution Control
Revenue Bonds, 6.875%, 06/15/14........................................... 370,000 425,963
New York State Power Authority Revenue Bonds Series CC, 4.80%, 01/01/05.... 100,000 104,125
New York State Power Authority Revenue Bonds Series CC, 4.90%, 01/01/06.... 70,000 72,975
Niagra Falls Bridge Commission New York Revenue Bonds, (FGIC), 6.125%,
10/01/19.................................................................. 415,000 455,981
-------------
2,299,725
-------------
SALES TAX REVENUE (14.0%)
Grand Central District Management Association Inc. New York Special
Assessment Bonds, 6.20%, 01/01/00......................................... 120,000 124,500
Grand Central District Management Association Inc. New York Special
Assessment Bonds, 5.10%, 01/01/08......................................... 330,000 339,900
Municipal Assistance Corp. for City of New York Revenue Bonds Series D,
(AMBAC), 5.00%, 07/01/03.................................................. 250,000 260,000
Municipal Assistance Corp. for City of New York Revenue Bonds Series E,
(AMBAC), 4.70%, 07/01/02.................................................. 500,000 512,500
Municipal Assistance Corp. for City of New York Revenue Bonds Series I,
(AMBAC), 6.25%, 07/01/07.................................................. 750,000 853,125
New York City Transitional Finance Authority Revenue Bonds, 4.50%,
8/15/06................................................................... 500,000 503,125
New York State Local Government Assistance Corp. Revenue Bonds Series A,
6.75%, 04/01/02........................................................... 315,000 342,563
New York State Local Government Assistance Corp. Revenue Bonds Series A,
5.00%, 04/01/06........................................................... 100,000 103,125
New York State Local Government Assistance Corp. Revenue Bonds Series A,
(AMBAC), 5.00%, 04/01/05.................................................. 500,000 520,000
New York State Local Government Assistance Corp. Revenue Bonds Series D,
4.75%, 04/01/04........................................................... 500,000 508,125
New York State Local Government Assistance Corp. Revenue Bonds Series D,
6.75%, 04/01/07........................................................... 250,000 278,125
New York State Local Government Assistance Corp. Revenue Bonds, (MBIA),
5.25%, 04/01/04........................................................... 1,000,000 1,051,250
United Nations Development Corp. Revenue Bonds, 4.20%, 07/01/99............ 500,000 501,250
-------------
5,897,588
-------------
TELECOMMUNICATION REVENUE (1.6%)
Puerto Rico Telephone Authority Revenue Bonds, 5.75%, 01/01/08............. 500,000 530,625
Puerto Rico Telephone Authority Revenue Bonds Series M, (AMBAC), 5.05%,
01/01/04.................................................................. 150,000 156,938
-------------
687,563
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
OFFITBANK
NEW YORK MUNICIPAL FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT MARKET VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
TRANSPORTATION REVENUE (20.6%)
Metropolitan Transit Authority Revenue Bonds Series A, (MBIA), 5.25%,
04/01/09.................................................................. $ 300,000 $ 315,000
Metropolitan Transit Authority Revenue Bonds Series B-1, (AMBAC), 5.00%,
07/01/10.................................................................. 500,000 511,875
Metropolitan Transit Authority Revenue Bonds Series C-1, (FGIC), 5.00%,
07/01/08.................................................................. 1,000,000 1,036,249
Metropolitan Transit Authority Revenue Bonds, New York Commuter Facs, 4.0%,
07/01/99.................................................................. 250,000 250,313
New York State Bridge Authority Revenue Bonds, 5.00%, 01/01/08............. 500,000 517,500
New York State Thruway Service Contract Revenue Bonds, 5.00%, 04/01/00..... 350,000 355,688
New York State Thruway, Highway & Bridge Authority Bonds Series B, (FSA),
5.00%, 04/01/04........................................................... 500,000 516,875
New York State Thruway, Highway & Bridge Authority Revenue Bonds, 5.20%,
04/01/09.................................................................. 1,830,000 1,868,887
New York State Thruway, Highway & Bridge Trust Fund Bonds Series A, 5.80%,
04/01/09.................................................................. 300,000 321,375
New York State Thruway, Highway & Bridge Trust Fund Bonds Series B (FGIC),
6.40%, 04/01/04........................................................... 200,000 223,500
New York State Thruway, Highway & Bridge Trust Fund Bonds Series B, (FGIC),
5.80%, 04/01/07........................................................... 600,000 653,250
New York State Thruway, Highway & Bridge Trust Fund Bonds Series B, (FGIC),
5.75%, 01/01/09........................................................... 500,000 540,625
New York State Thruway, Highway & Bridge Trust Fund Bonds Series B, (MBIA),
5.75%, 04/01/06........................................................... 200,000 218,750
Port Authority of New York & New Jersey Bonds Series 79, 5.80%, 07/15/03... 200,000 215,250
Port Authority of New York & New Jersey Bonds Series 81, 5.70%, 08/01/07... 270,000 285,525
Port Authority of New York & New Jersey Bonds Series 86, 5.00%, 07/01/06... 250,000 259,063
Triborough Bridge & Tunnel Authority General Purpose Bonds Series A, 4.75%,
01/01/05.................................................................. 375,000 382,031
Triborough Bridge & Tunnel Authority General Purpose Bonds Series Y, 5.75%,
01/01/05.................................................................. 170,000 183,388
-------------
8,655,144
-------------
WATER/SEWER (8.7%)
Erie County Water Authority Improvement Revenue Bonds, 5.75%, 12/01/08..... 650,000 699,562
New York City Municipal Water Finance Authority Series A, 4.90%,
06/15/02.................................................................. 200,000 206,500
New York City Municipal Water Financing Authority Water & Sewer System
Revenue Bonds, 4.75%, 06/15/01............................................ 650,000 665,437
New York City Municipal Water Financing Authority Water & Sewer System
Revenue Bonds, 5.20%, 06/15/05............................................ 500,000 528,124
New York City Municipal Water Financing Authority Water & Sewer System
Revenue Bonds, 5.35%, 06/15/09............................................ 225,000 235,125
New York City Municipal Water Financing Authority Water & Sewer Unrefunded
System Revenue Bonds, 7.00%, 06/15/07..................................... 105,000 115,369
New York State Environmental Facilities Corporation Pollution Control
Revenue Bonds, 6.40%, 06/15/03............................................ 15,000 16,313
New York State Environmental Facilities Corporation Pollution Control
Revenue Bonds, 6.50%, 06/15/04............................................ 55,000 59,744
New York State Environmental Facilities Corporation Pollution Control
Revenue Bonds, 5.40%, 05/15/06............................................ 250,000 268,750
New York State Environmental Facilities Corporation Pollution Control
Revenue Bonds, 7.20%, 06/15/06............................................ 50,000 55,500
New York State Environmental Facilities Corporation Pollution Control
Revenue Bonds, 6.875%, 06/15/14........................................... 130,000 148,038
Suffolk County Water Revenue Bonds, (MBIA), 5.10%, 06/01/05................ 250,000 261,563
Suffolk County Water Revenue Bonds, (MBIA), 5.10%, 06/01/06................ 400,000 418,000
-------------
3,678,025
-------------
TOTAL MUNICIPAL BONDS (COST $39,124,360)................................... 40,312,100
-------------
MONEY MARKET FUNDS (0.1%)
Dreyfus Municipal Money Market............................................. 58,258 58,258
-------------
TOTAL MONEY MARKET FUNDS (COST $58,258).................................... 58,258
-------------
TOTAL INVESTMENTS (COST $41,582,618) (+) -- 101.7%......................... 42,770,358
LIABILITIES IN EXCESS OF OTHER ASSETS (1.7%)............................... (724,672)
-------------
TOTAL NET ASSETS -- 100.0%................................................. $ 42,045,686
-------------
-------------
</TABLE>
- ---------------
+ Represents cost for federal income tax purposes and differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.................. $1,187,740
Unrealized depreciation.................. 0
---------
Net unrealized appreciation.............. $1,187,740
---------
---------
</TABLE>
* Interest rate reflected is rate in effect at December 31, 1997.
AMBAC -- AMBAC Indemnity Corporation.
AMT -- Interest on securities subject to Federal Alternative Minimum Tax.
ETM -- Escrowed to Maturity.
FGIC -- Insured by Financial Guaranty Insurance Corp.
FHA -- Insured by Federal Housing Administration.
FSA -- Financial Security Assurance.
MBIA -- Municipal Bond Insurance Association.
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
OFFITBANK
CALIFORNIA MUNICIPAL FUND
- ---------------------------------------------------------------
The OFFITBANK California Municipal Fund began operating on April 2, 1997. Total
return for the Fund in the fourth quarter was 1.91% and 7.14% from inception.
Over those two periods, the Lehman Brothers Five Year Municipal Bond Index
returned 1.70% and 6.41%, respectively. The Net Asset Value of $10.37 at
December 31, 1997 was 0.8% above the $10.29 value at the beginning of the
quarter and 3.7% above the initial value. The 30 day SEC yield for the Fund was
4.28% for the month ending December 31, 1997.
The Fund's inception date corresponded to the point when municipal yields peaked
in 1997. Yields generally trended down during the rest of the year, accelerating
in the fourth quarter after the Asian turmoil began. As Asian financial markets
exhibited sharp declines and increased volatility, investors repatriated
investment dollars into U.S. fixed income securities. The primary beneficiary of
the flight to quality and concern over reduced global economic growth was the
Treasury market as long-dated rates declined to levels not seen since the 1960s.
Municipal yields followed, but to a lesser degree.
The bond market rally is all the more remarkable because it occurred in the
seventh year of the second longest economic expansion in post-war history. While
rates on long-dated municipals are now at 1993 lows, short rates are still
significantly higher and intermediate rates modestly so. Prior to the Asian
crisis, yields appeared to be rising in response to concerns that the robust
economy would cause inflation to increase. Our view held that inflation would
remain subdued and so we maintained duration targets at the long end of our
range, a strategy that contributed much of the total return.
As 1998 begins, we plan to keep the Fund fully invested with an
intermediate-term duration. Although municipal yields have moved lower over the
past year, they still compare favorably to taxable alternatives. According to a
WALL STREET JOURNAL survey of economists and the IMF, real economic growth is
expected to slow from 3.7% in 1997 to 2.2% - 2.4% in the first half of 1998.
That level will contain inflation pressures and maintain a strong foundation for
municipal credits.
While a recession among Asian countries will impact California's economy,
particularly port facilities, more than those of other states, the underlying
fundamentals remain strong. The state's budget strains of the early 1990s have
been transformed to a surplus, and employment, consumer spending, and investment
are robust. We remain concerned, however, with several specific credits and will
continue to focus on high grade, essential purpose issuers.
The Fund's average credit rating is AA1 with no security rated less than A. The
very small incremental yields offered on lower rated bonds offer no incentive to
downgrade. The portfolio is broadly diversified by issuer and type of borrower.
Despite the lower yields, we remain optimistic about the municipal market and
hold few bonds due in less than five years. The average duration was 5.0 years
on December 31.
John H. Haldeman, Jr.
January 13, 1998
28
<PAGE>
OFFITBANK
CALIFORNIA MUNICIPAL FUND
- ---------------------------------------------------------------
The following graph represents the total return based on a $250,000 investment
made in the OFFITBANK California Municipal Fund at the trading commencement date
of April 2, 1997 and held through December 31, 1997 as well as the performance
of the Lehman Brothers 5 Year Municipal Bond Index over the same period. Past
performance is not predictive of future performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
OFFITBANK CALIFORNIA MUNICIPAL FUND LEHMAN BROTHERS 5 YEAR MUNICIPAL BOND INDEX
<S> <C> <C>
4/2/87 $250,000 $250,000
4/30/97 $252,178 $251,075
5/31/97 $254,611 $254,163
6/30/97 $257,063 $256,095
7/31/97 $262,556 $260,602
8/31/97 $260,422 $259,273
9/30/97 $262,828 $261,581
10/31/97 $263,990 $262,941
11/30/97 $264,893 $263,756
12/31/97 $267,849 $266,024
Since Inception
Total Return (April 2, 1997)
OFFITBANK California Municipal Fund* 7.14%
Lehman Brothers 5 Year Municipal Bond Index 6.41%
</TABLE>
* The total return may reflect the waiver of a portion of the Fund's advisory or
administrative fees for certain periods since the inception date. Without waiver
of fees, total return would have been lower.
29
<PAGE>
OFFITBANK
CALIFORNIA MUNICIPAL BOND FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (98.5%)
EDUCATION REVENUE (6.8%)
California Educational Facilities Authority Revenue Santa Clara University,
5.30%, 09/01/05........................................................... $ 75,000 $ 79,500
California Educational Facilities Authority Revenue Santa Clara University,
5.40%, 09/01/06........................................................... 75,000 79,688
California State Public Works Revenue BRD Lease Series A, 6.75%,
09/01/11.................................................................. 150,000 166,124
-------------
325,312
-------------
GENERAL OBLIGATIONS (30.7%)
Berkeley California General Obligation Series A, 5.55%, 09/01/07........... 50,000 53,938
California State General Obligation, 5.40%, 03/01/03....................... 50,000 52,813
California State General Obligation, 5.25%, 10/01/11 (FGIC)................ 125,000 130,000
Cotati-Rohnert Park Uniform School District Series D, 6.00%, 08/01/04
(FSA)..................................................................... 100,000 109,000
Cupertino Uniform School District Series B, 6.125%, 08/01/03 (FGIC)........ 50,000 54,813
Los Angeles Uniform School District Series A, 4.50%, 07/01/05 (FGIC)....... 200,000 202,499
Palo Alto Uniform School District Series B, 5.25%, 08/01/03................ 100,000 105,500
San Francisco California City And County, 5.30%, 06/15/07.................. 175,000 183,093
San Francisco City & County Recreational Facilities Improvements, 5.30%,
06/15/07 (FGIC)........................................................... 250,000 264,687
Santa Monica - Malibu Uniform School District, 5.40%, 08/01/08............. 250,000 263,437
Santa Monica - Malibu Uniform School District, 5.40%, 08/01/10............. 50,000 52,063
-------------
1,471,843
-------------
HOUSING (4.3%)
California Housing Finance Agency Issue B-2, 5.20%,08/01/04, Municipal
Bond...................................................................... 125,000 129,219
California Housing Finance Agency Revenue Home Mortgage Series B, 5.15%,
08/01/05 (MBIA), AMT...................................................... 75,000 77,156
-------------
206,375
-------------
POLLUTION CONTROL REVENUE (1.1%)
California Pollution Control Financing Authority Southern California Edison
Series C, 6.85%, 12/01/08................................................. 50,000 52,938
-------------
POWER AUTHORITY REVENUE (7.6%)
Los Angeles Department of Water & Electric Plant Revenue, 5.70%, 09/01/11
(FGIC).................................................................... 50,000 52,938
Southern California Public Power San Juan Series A, 5.375%, 01/01/11
(MBIA).................................................................... 200,000 206,499
Southern California Public Power San Juan Unit 3 Series A, 5.125%, 01/01/05
(MBIA).................................................................... 100,000 104,500
-------------
363,937
-------------
RECREATION FACILITIES (5.6%)
Los Angeles County California Public Works Financing Authority, 5.375%,
10/01/06,................................................................. 200,000 212,500
Los Angeles County Public Works Financing Authority Revenue Regional Park &
Open Space District A, 5.875%, 10/01/06................................... 50,000 55,313
-------------
267,813
-------------
SALES TAX REVENUE (3.8%)
Contra Costa Transportation Authority Sales Tax Revenue Series A, 5.50%,
03/01/08 (FGIC)........................................................... 50,000 52,807
Los Angeles County Transportation Commission Sales Tax Revenue Series A,
6.90%, 07/01/21........................................................... 25,000 27,719
Riverside County Transportation Series A, 6.00%, 06/01/06 (FGIC)........... 90,000 100,237
-------------
180,763
-------------
TELECOMMUNICATION REVENUE (3.3%)
Puerto Rico Telephone Authority Revenue Bonds, 5.75%, 01/01/08............. 150,000 159,188
-------------
TRANSPORTATION REVENUE (5.6%)
Long Beach California Harbor Revenue, 5.75%, 05/15/07, (MBIA).............. 100,000 109,124
San Francisco Bay Area Rapid Transit District Sales Tax Revenue, 6.40%,
07/01/05 (FGIC)........................................................... 50,000 54,313
San Francisco City & County International Airport Revenue Second Series
Issue 1, 6.30%, 05/01/11 (AMBAC).......................................... 50,000 54,125
San Francisco City & County International Airport Revenue Second Series
Issue 12-A, 5.625%, 05/01/11, AMT (FGIC).................................. 50,000 52,438
-------------
270,000
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
OFFITBANK
CALIFORNIA MUNICIPAL BOND FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL OBLIGATIONS (CONTINUED)
WATER & SEWER (29.7%)
California State Department of Water Resources Series S, 5.00%, 12/01/04... $ 300,000 $ 313,124
Contra Costa Water District Water Revenue Series G, 6.00%, 10/01/09
(MBIA).................................................................... 50,000 54,688
Long Beach California Water Revenue Series A, 4.35%,05/01/05............... 200,000 199,749
Los Angeles County Sanitation District Financing Authority Revenue Capital
Projects Series A, 5.25%, 10/01/10........................................ 100,000 103,000
Los Angeles Department of Water & Power Revenue, 5.80%, 07/15/04........... 150,000 161,438
Los Angeles Wastewater, 5.375%, 11/01/06................................... 150,000 159,375
Los Angeles Wastewater System Revenue Series A, 6.125%, 12/01/05 (FGIC).... 50,000 54,188
Metropolitan Water District Southern California Water Works Revenue, 5.60%,
07/01/06.................................................................. 55,000 58,713
Metropolitan Water District Southern California Water Works Revenue, 5.40%,
07/01/08.................................................................. 250,000 265,937
Santa Clara Valley Water District Water Utility System Revenue Series A,
5.20%,06/01/02............................................................ 50,000 52,125
-------------
1,422,337
-------------
TOTAL MUNICIPAL BONDS (COST $4,644,876).................................... 4,720,506
-------------
MONEY MARKET FUNDS (0.1%)
Federated California Municipal Fund........................................ 3,867 3,867
-------------
TOTAL MONEY MARKET FUNDS (COST $3,867)..................................... 3,867
-------------
TOTAL INVESTMENTS (COST $4,648,743) (+) 98.6%.............................. 4,724,373
OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%................................. 67,702
-------------
TOTAL NET ASSETS -- 100.00%................................................ $ 4,792,075
-------------
-------------
</TABLE>
- ---------------
+ Represents cost for federal income tax purposes and differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation................... $ 76,222
Unrealized depreciation................... (592)
---------
Net unrealized appreciation............... $ 75,630
---------
---------
</TABLE>
<TABLE>
<S> <C><C>
AMBAC -- AMBAC Indemnity Corporation.
AMT -- Interest on securities subject to Federal Alternative Minimum Tax.
FGIC -- Insured by Financial Guaranty Insurance Corp.
FSA -- Financial Security Assurance.
MBIA -- Municipal Bond Insurance Association.
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
OFFITBANK
NATIONAL MUNICIPAL FUND
- --------------------------------------------------------------------------------
The OFFITBANK National Municipal Fund opened on October 20, 1997. Since
inception the total return of the Fund was 2.70%. For comparative purposes, the
Fund returned 1.96% from October 31, 1997 through December 31, 1997, while the
Lehman Brothers 5 Year Municipal Bond Index returned 1.17% for the same time
period.
In managing our municipal funds, our objective is to earn after-tax income and
increase principal value over time. The National Municipal Fund's net asset
value (NAV) of $10.19 on December 31, 1997 was 1.9% above the October 20, 1997
inception date price of $10.00. As of year end, these gains were unrealized.
We used the supply issued in November to structure a well diversified, high
quality portfolio. At December 31, the securities in the Fund's portfolio had an
average credit rating of AA and a maturity of slightly greater than 6 years. The
portfolio's duration as of year end was 5 years.
In 1997, several state and local governments experienced improving fundamentals
as their revenues from personal income tax receipts exceeded expenditures,
generating surpluses. This credit improvement was combined with increased
borrowing for infrastructure projects in some of the nation's fastest growing
areas of the South and Southwest. Typically, the combination of economic growth
and increased borrowing is accompanied by higher rates. However, 1997 proved to
be the exception because of the persistence of Asia's economic and monetary
problems. The dollar and U.S. securities proved to be safe havens as investors
assessed the impact of Asia's crisis on domestic corporate profitability.
The OFFITBANK National Municipal Fund is over-weighted in the larger states,
such as Connecticut, Pennsylvania, and Texas, where personal income tax rates
are low or nonexistent. Also, contrary to conventional thought, we frequently
find value in high tax states, such as New York, California, and Massachusetts,
as they tend to be the largest issuers. These states have seasonal periods of
low issuance in which the demand is likely to provide us with attractive sale
opportunities. Also, in structuring the portfolio, we have overweighted
essential purpose revenue bonds for which the stream of revenues is identifiable
and independent of a municipal entity's taxing authority.
We believe that municipals are fairly valued today and we continue to be
directed by the yield ratio of municipals to Treasurys. We begin 1998 with yield
ratios of 75-80%, which are at the higher end of the yield ratios over the past
12 months. At these ratios, an individual in the maximum Federal tax bracket can
achieve an after tax return in municipals that we believe is far superior to
that achieved in high grade taxable investments.
Carolyn N. Dolan
January 13, 1998
32
<PAGE>
OFFITBANK
NATIONAL MUNICIPAL FUND
- --------------------------------------------------------------------------------
The following graph represents the total return based on a $250,000 investment
made in the OFFITBANK National Municipal Fund at October 31, 1997 and held
through December 31, 1997 as well as the performance of the Lehman Brothers 5
Year Municipal Bond Index over the same period. Past performance is not
predictive of future performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
OFFITBANK NATIONAL MUNICIPAL FUND LEHMAN BROTHERS 5 YEAR MUNICIPAL BOND INDEX
<S> <C> <C>
10/31/97 $250,000 $250,000
11/30/97 $251,805 $250,775
12/31/97 $254,900 $252,932
Since Inception
Total Return (October 20, 1997)
OFFITBANK National Municipal Fund* 2.70%
</TABLE>
* The total return may reflect the waiver of a portion of the Fund's advisory or
administrative fees for certain periods since the inception date. Without waiver
of fees, total return would have been lower.
33
<PAGE>
OFFITBANK
NATIONAL MUNICIPAL FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
FLOATING RATE NOTES (3.6%)
TRANSPORTATION REVENUE (3.6%)
NEW YORK (3.6%)
Port Authority of New York & New Jersey Bonds Series 86, 4.90%,
06/01/20*................................................................. $ 100,000 $ 100,000
-------------
TOTAL FLOATING RATE NOTES (COST $100,000).................................. 100,000
-------------
MUNICIPAL BONDS (99.6%)
EDUCATION REVENUE (3.9%)
NEW JERSEY (3.9%)
Rutgers State University of New Jersey-Serial R, 6.40%, 05/01/07........... 100,000 110,125
-------------
GENERAL OBLIGATIONS (47.7%)
CALIFORNIA (3.9%)
California State, 6.00%, 10/01/04.......................................... 100,000 110,000
-------------
CONNECTICUT (2.9%)
Connecticut State Special Assessment Unemployment, 5.50%, 05/15/00,
(AMBAC)................................................................... 80,000 82,700
-------------
GEORGIA (7.1%)
Atlanta, Georgia, 5.00%, 12/01/08.......................................... 190,000 196,887
-------------
ILLINOIS (1.9%)
Chicago Illinois Project Serial B, 6.00%, 01/01/03, (FGIC)................. 50,000 53,813
-------------
MARYLAND (4.6%)
Carroll County, Maryland, 5.00%, 11/01/08.................................. 125,000 128,911
-------------
MASSACHUSETTS (3.1%)
Worcester Massachusetts, 5.75%, 08/01/07, (LOC - MBIA)..................... 80,000 87,700
-------------
NEVADA (2.7%)
Clark County Nevada-Las Vegas Convention & Visitor, 4.80%, 07/01/01,
(MBIA).................................................................... 75,000 76,781
-------------
NEW MEXICO (8.2%)
Alberquerque, New Mexico, Series-B, 4.25%, 07/01/99........................ 125,000 125,624
State of New Mexico Capitalization Projects, 4.75%, 08/01/02............... 100,000 101,807
-------------
227,431
-------------
OHIO (1.8%)
Ohio State, 5.00%, 08/01/00................................................ 50,000 51,313
-------------
PENNSYLVANIA (1.9%)
Pennsylvania State, 6.00%, 09/15/01........................................ 50,000 53,313
-------------
VIRGINIA (5.6%)
Fairfax County, Virginia, 5.25%, 05/01/07.................................. 150,000 158,063
-------------
WASHINGTON (2.1%)
Washington State Series 1995c, 5.35%, 07/01/06............................. 55,000 58,506
-------------
WISCONSIN(1.9%)
Wisconsin State, 5.60%, 05/01/02........................................... 50,000 52,750
-------------
1,338,168
-------------
HOUSING (9.0%)
MASSACHUSETTS (5.4%)
Massachusetts State Housing Finance Agency, 4.70%, 12/01/06, AMT (LOC -
MBIA)..................................................................... 150,000 150,000
-------------
PENNSYLVANIA (3.6%)
Pennsylvania Housing Finance Agency, 4.90%, 10/01/08, AMT.................. 100,000 101,625
-------------
251,625
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
OFFITBANK
NATIONAL MUNICIPAL FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
POLLUTION CONTROL REVENUE (2.8%)
NEW YORK (2.8%)
New York State Environmental Facilities Pollution Corp, 6.50%, 06/15/08.... $ 70,000 $ 79,450
-------------
TRANSPORTATION REVENUE (13.7%)
CONNECTICUT (3.8%)
Connecticut State Special Tax Obligation, 5.25%, 09/01/07.................. 100,000 106,375
-------------
NEW YORK (5.6%)
New York State Thruway, Highway & Bridge Trust Fund, 5.00%, 04/01/02....... 50,000 51,563
New York State Thruway, Highway & Bridge Trust Fund, 5.50%, 04/01/09, (LOC
- FSA).................................................................... 100,000 106,750
-------------
158,313
-------------
PENNSYLVANIA (4.3%)
Pennsylvania State Turnpike Common Turnpike, 5.35%, 12/01/02, (FGIC)....... 115,000 120,606
-------------
385,294
-------------
WATER & SEWER (22.5%)
CALIFORNIA (7.6%)
Los Angeles California Waste Water Systems, 6.60%, 02/01/01................ 100,000 104,619
Los Angeles County California Public Works Financing Authority, 5.50%,
10/01/09.................................................................. 100,000 107,500
-------------
212,119
-------------
MASSACHUSETTS (3.7%)
Massachusetts State Water Resource Authority, 4.90%, 12/01/02.............. 100,000 103,125
-------------
NEW YORK (3.7%)
New York City Municipal Water Finance Authority, 5.00%, 06/15/03........... 100,000 104,250
-------------
TEXAS (7.5%)
Dallas, Texas Water & Sewer, 5.90%, 10/01/00............................... 50,000 51,511
Texas Water Development Board Revenue, 4.20%, 07/15/02..................... 50,000 50,313
Texas Water Development Board Revenue, 5.00%, 07/15/07..................... 105,000 110,512
-------------
212,336
-------------
631,830
-------------
Total Municipal Bonds (Cost $2,754,449)............................. 2,796,492
-------------
MONEY MARKET FUNDS (4.7%)
Dreyfus Tax Exempt Cash Management Money Market............................ 64,589 64,589
-------------
The J.P. Morgan Institutional Service Tax Exempt........................... 66,161 66,161
-------------
TOTAL MONEY MARKET FUNDS (COST $130,750)................................... 130,750
-------------
TOTAL INVESTMENTS (COST $2,985,199) (+) -- 107.9%.......................... 3,027,242
LIABILITIES IN EXCESS OF OTHER ASSETS (7.9%)............................... (222,155)
-------------
TOTAL NET ASSETS -- 100.0%................................................. $ 2,805,087
-------------
-------------
</TABLE>
- ---------------
+ Represents cost for federal income tax purposes and differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation................... $ 42,043
Unrealized depreciation................... 0
---------
Net unrealized appreciation............... $ 42,043
---------
---------
</TABLE>
* Interest rate reflected is rate in effect at December 31, 1997.
<TABLE>
<S> <C><C>
AMBAC -- AMBAC Indemnity Corporation.
AMT -- Interest on securities subject to Federal Alternative Minimum Tax.
FGIC -- Insured by Financial Guaranty Insurance Corp.
FSA -- Financial Security Assurance.
LOC -- Letter of Credit.
MBIA -- Municipal Bond Insurance Association.
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
OFFITBANK
U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
The OFFITBANK U.S. Government Securities Fund began operating on July 1, 1997.
From that date through December 31, 1997, the Fund earned a total return of
4.71%. For comparative purposes, the Merrill Lynch 5 Year U.S. Treasury Index
had a total return of 5.57%.
The Fund had an average maturity of 6.0 years and a duration of 3.2 years on
December 31. This is slightly below our targets for both maturity and duration
and was caused by new cash inflows at year-end. The 30 day SEC yield for the
Fund was 5.71% for the month ending December 31, 1997.
The decline in bond yields during the last six months of 1997 was underpinned by
the financial turmoil in Asia. While we understand the market's outlook that
Asian problems will result in slower economic growth and lower inflation, we are
concerned as to whether the slowdown will be of sufficient magnitude and
duration to relieve the tight labor market and high resource utilization that
exist in the U.S. In addition, low absolute bond yields and a very flat yield
curve provide little protection if investor expectations are wrong and yields
rise.
Therefore, the global situation supports an aggressive portfolio stance while
the domestic environment argues that caution is warranted. Given these
counterbalancing forces, we believe that it is appropriate to maintain a neutral
investment strategy.
Jack D. Burks
January 13, 1998
36
<PAGE>
OFFITBANK
U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
The following graph represents the total return based on a $250,000 investment
made in the OFFITBANK U.S Government Securities Fund at the trading commencement
date of July 1, 1997 and held through December 31, 1997 as well as the
performance of the Merrill Lynch 5 Year U.S Treasury Index over the same period.
Past performance is not predictive of future performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MERRILL LYNCH 5 YEAR U.S.
TREASURY OFFITBANK U.S. GOVERNMENT SECURITIES FUND
<S> <C> <C>
7/1/97 $250,000 $250,000
7/31/97 $256,425 $254,075
8/31/97 $254,245 $251,483
9/30/97 $257,500 $255,155
10/31/97 $261,553 $258,600
11/30/97 $261,317 $259,246
12/31/97 $263,915 $261,787
Since Inception
Total Return (July 1, 1997)
OFFITBANK U.S. Government Securities Fund* 4.71%
Merrill Lynch 5 Year U.S. Treasury Index 5.57%
</TABLE>
* The total return may reflect the waiver of a portion of the Fund's advisory or
administrative fees for certain periods since the inception date. Without waiver
of fees, total return would have been lower.
37
<PAGE>
OFFITBANK
U.S. GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
- -----------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (13.9%)
Federal National Mortgage
Assoc., Discount Notes,
5.77%, 01/05/98.............. $550,000 $ 549,559
----------
TOTAL FEDERAL NATIONAL
MORTGAGE ASSOCIATION (COST
$549,559).................... 549,559
----------
U.S. TREASURY NOTES (81.9%)
Notes, 5.625%, 02/28/01....... 685,000 683,075
Notes, 6.50%, 08/31/01........ 695,000 712,153
Notes, 5.75%, 08/15/03........ 500,000 500,115
Notes, 7.50%, 02/15/05........ 630,000 692,446
Notes, 7.00%, 07/15/06........ 605,000 652,928
----------
TOTAL U.S. TREASURY NOTES
(COST $3,210,224)............ 3,240,717
----------
MONEY MARKET FUNDS (2.9%)
Bank of New York Cash Reserve
MM Fund...................... 113,412 113,412
----------
TOTAL MONEY MARKET FUNDS (COST
$113,412).................... 113,412
----------
TOTAL INVESTMENTS (COST
$3,873,195) (+) -- 98.7%..... 3,903,688
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.3%............. 50,988
----------
TOTAL NET ASSETS -- 100.0%.... $3,954,676
----------
----------
</TABLE>
- ---------------
+ Represents cost for federal income tax purposes and differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation................... $ 30,968
Unrealized depreciation................... (475)
---------
Net unrealized appreciation............... $ 30,493
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
OFFITBANK
MORTGAGE SECURITIES FUND
- --------------------------------------------------------------------------------
The OFFITBANK Mortgage Securities Fund began operating on July 1, 1997. From
that date through December 31, 1997, the Fund earned a total return of 5.10%.
For comparative purposes, the Merrill Lynch Mortgage Master Index had a total
return of 5.31%.
The Fund had an average maturity of 4.6 years and the duration of 3.7 years on
December 31. The 30 day SEC yield for the Fund was 6.01% for the month ending
December 31, 1997.
The decline in bond yields during the last six months of 1997 was underpinned by
the financial turmoil in Asia. While we understand the market's outlook that
Asian problems will result in slower economic growth and lower inflation, we are
concerned as to whether the slowdown will be of sufficient magnitude and
duration to relive the tight labor market and high resource utilization that
exist in the U.S. In addition, low absolute bond yields and a very flat yield
curve provide little protection if investor expectations are wrong and yields
rise.
Therefore, the global situation supports an aggressive portfolio stance while
the domestic environment argues that caution is warranted. Given these
counterbalancing forces, we believe that it is appropriate to maintain a neutral
investment strategy.
Jack D. Burks
January 13, 1998
39
<PAGE>
OFFITBANK
MORTGAGE SECURITIES FUND
- --------------------------------------------------------------------------------
The following graph represents the total return based on a $250,000 investment
made in the OFFITBANK Mortgage Securities Fund at the trading commencement date
of July 1, 1997 and held through December 31, 1997 as well as the performance of
the Merrill Lynch Mortgage Master Index over the same period. Past performance
is not predictive of future performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
OFFTIBANK MORTGAGE SECURITIES FUND MERRILL LYNCH MORTGAGE MASTER INDEX
<S> <C> <C>
7/1/97 $250,000 $250,000
7/31/97 $254,585 $254,677
8/31/97 $253,243 $254,308
9/30/97 $256,520 $257,335
10/31/97 $259,309 $260,103
11/30/97 $260,856 $260,879
12/31/97 $262,742 $263,282
Since Inception
Total Return (July 1, 1997)
OFFITBANK Mortgage Securities Fund* 5.10%
Merrill Lynch Mortgage Master Index 5.31%
</TABLE>
* The total return may reflect the waiver of a portion of the Fund's advisory or
administrative fees for certain periods since the inception date. Without waiver
of fees, total return would have been lower.
40
<PAGE>
OFFITBANK
MORTGAGE SECURITIES FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR MARKET
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (5.3%)
FINANCIAL SERVICES/INSURANCE (5.3%)
Danske Kredit, 8.00%, 10/01/26............................................. 1,900,000(a) $ 285,199
NYKredit Mortgage, 8.00%, 10/01/26......................................... 2,080,000(a) 312,432
Unikredit Realkredit, 8.00%, 10/01/26...................................... 2,073,000(a) 311,379
-------------
TOTAL CORPORATE BONDS (COST $950,945)...................................... 909,010
-------------
FEDERAL HOME LOAN BANKS (2.7%)
Federal Home Loan Bank, Discount Note, 5.75%, 01/02/98..................... $ 465,000 464,851
-------------
TOTAL FEDERAL HOME LOAN BANKS (COST $464,926).............................. 464,851
-------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (27.5%)
Federal Home Loan Mortgage Corp., 7.00%, 07/01/12, Gold Pool#E00497........ 312,251 317,016
Federal Home Loan Mortgage Corp., 7.00%, 08/01/12, #E67369................. 986,280 1,001,360
Federal Home Loan Mortgage Corp., 7.00%, 09/01/12, #E67493................. 993,870 1,009,076
Federal Home Loan Mortgage Corp., 6.00%, 02/01/26, Gold Pool#D68418........ 445,331 430,078
Federal Home Loan Mortgage Corp., 6.00%, 03/01/26, Gold Pool#D69408........ 476,563 459,873
Federal Home Loan Mortgage Corp., 6.00%, 03/01/26, Gold Pool#D69088........ 477,859 461,755
Federal Home Loan Mortgage Corp., 6.00%, 05/01/26, Gold Pool#D71231........ 50,997 49,326
Federal Home Loan Mortgage Corp., 6.00%, 10/01/27, Gold Pool#D82901........ 324,054 312,521
Federal Home Loan Mortgage Corp., 6.00%, 12/01/27, Gold Pool#C00583........ 685,945 652,720
-------------
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION (COST $4,643,660)............. 4,693,725
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (37.9%)
Federal National Mortgage Assoc., Discount Notes, 5.77%, 01/05/98.......... 935,000 934,251
Federal National Mortgage Assoc., 6.50%, 11/01/03.......................... 147,693 148,014
Federal National Mortgage Assoc., 6.50%, 01/01/04.......................... 439,568 440,522
Federal National Mortgage Assoc., 6.50%, 12/01/04.......................... 198,000 198,416
Federal National Mortgage Assoc., 6.50%, 09/01/04.......................... 302,382 303,042
Federal National Mortgage Assoc., 6.50%, 10/01/04.......................... 408,337 409,227
Federal National Mortgage Assoc., 7.50%, 07/01/12, Pool#370718............. 288,554 296,007
Federal National Mortgage Assoc., 6.50%, 05/01/26, Pool#345964............. 192,042 189,697
Federal National Mortgage Assoc., 7.00%, 02/01/27, Pool#369025............. 677,089 681,951
Federal National Mortgage Assoc., 6.50%, 08/01/27, Pool#378287............. 503,092 496,658
Federal National Mortgage Assoc., 7.00%, 10/01/27, Pool#397741............. 330,403 332,775
Federal National Mortgage Assoc., 7.00%, 10/01/27, Pool#376790............. 997,936 1,005,100
Federal National Mortgage Assoc., 7.00%, 12/01/27, Pool#407239............. 29,042 29,160
Federal National Mortgage Assoc., 7.00%, 12/01/27, Pool#395797............. 965,542 969,465
-------------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION (COST $6,392,891).............. 6,434,285
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (12.0%)
Government National Mortgage Assoc., 9.00%, 10/15/27, Pool # 452816........ 487,768 521,521
Government National Mortgage Assoc. II, ARM, 6.00%, 10/20/27, Pool #
80122..................................................................... 1,008,330 1,017,778
Government National Mortgage Assoc. II, ARM, 6.00% 11/20/27, Pool #
80136..................................................................... 495,000 499,639
-------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (COST $2,030,864)........... 2,038,938
-------------
U.S. TREASURY NOTES (13.6%)
U.S. TREASURY NOTES (13.6%)
Notes, 7.00%, 07/15/06........................................................ 2,150,000 2,320,323
-------------
TOTAL U.S. TREASURY NOTES (COST $2,299,148)................................... 2,320,323
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
OFFITBANK
MORTGAGE SECURITIES FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR MARKET
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MONEY MARKET FUNDS (0.5%)
Bank of New York Cash Reserve MM Fund...................................... $ 87,263 $ 87,263
-------------
TOTAL MONEY MARKET FUNDS (COST $87,263).................................... 87,263
-------------
Total Investments (Cost $16,869,697) (+) -- 99.5%.......................... 16,948,395
Other assets in excess of liabilities 0.5%................................. 89,024
-------------
Total Net Assets -- 100.0%................................................. $ 17,037,419
-------------
-------------
</TABLE>
- ---------------
+ Represents cost for federal income tax purposes and differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation................... $ 125,680
Unrealized depreciation................... (46,982)
---------
Net unrealized appreciation............... $ 78,698
---------
---------
</TABLE>
Principal denominated in the following currency:
(a) Danish Kroner
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
THE OFFITBANK INVESTEMENT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
HIGH YIELD FUND
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS:
Investments, at market value (cost $1,282,657,562)...... $ 1,333,632,850
Cash.................................................... 50,788
Interest and dividends receivable....................... 27,392,598
Receivable for capital shares sold...................... 394,167
Unrealized appreciation on open forward currency
contracts.............................................. 190,126
Prepaid expenses and other assets....................... 3,114
-----------------
Total Assets.......................................... $ 1,361,663,643
LIABILITIES:
Dividends payable....................................... 10,159,491
Payable for investment securities purchased............. 3,097,500
Payable for forward currency contracts.................. 269,512
Payable for capital shares redeemed..................... 333,833
Investment advisory fees payable........................ 800,312
Administration fees payable............................. 84,504
Fund accounting fees payable............................ 814
Transfer agent fees payable............................. 24,849
Other payables and accrued expenses..................... 324,854
-----------------
Total Liabilities..................................... 15,095,669
-----------------
NET ASSETS................................................ $ 1,346,567,974
-----------------
-----------------
Net Assets consist of:
Shares of capital stock, $0.001 par value per share,
130,240,972 issued and outstanding..................... $ 130,241
Additional paid-in capital.............................. 1,295,873,767
Distributions in excess of net investment income........ (594,996)
Net unrealized appreciation of investments and foreign
currency transactions.................................. 51,158,962
-----------------
NET ASSETS................................................ $ 1,346,567,974
-----------------
-----------------
SELECT SHARES:
NET ASSETS.............................................. $ 1,346,553,018
-----------------
-----------------
SHARES OF CAPITAL STOCK OUTSTANDING..................... 130,239,526
-----------------
-----------------
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER
SHARE)................................................. $10.34
-----------------
-----------------
ADVISOR SHARES:
NET ASSETS.............................................. $14,956
-----------------
-----------------
SHARES OF CAPITAL STOCK OUTSTANDING..................... 1,446
-----------------
-----------------
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER
SHARE)................................................. $10.34
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
EMERGING MARKETS FUND
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
ASSETS:
Investments, at market value (cost $212,476,803).......... $ 211,842,532
Cash...................................................... 458,881
Foreign currency (cost $12,074)........................... 10,819
Interest and dividends receivable......................... 6,143,661
Receivable for forward currency contracts................. 25,512
Unrealized appreciation on open forward currency
contracts................................................ 326,518
Foreign tax reclaim receivable............................ 168,787
Prepaid expenses and other assets......................... 3,943
---------------
Total Assets............................................ $ 218,980,653
LIABILITIES:
Dividends payable......................................... 5,953,855
Payable for investment securities purchased............... 1,319,625
Payable for forward currency contracts.................... 460,542
Investment advisory fees payable.......................... 158,643
Administration fees payable............................... 13,281
Fund accounting fees payable.............................. 5,520
Transfer agent fees payable............................... 5,772
Custody fees payable...................................... 151,445
Other payables and accrued expenses....................... 135,377
---------------
Total Liabilities....................................... 8,204,060
---------------
NET ASSETS $ 210,776,593
---------------
---------------
Net Assets consist of:
Shares of capital stock, $0.001 par value per share,
20,146,148 Select Shares issued and outstanding.......... $ 20,146
Additional paid-in capital................................ 214,839,163
Distributions in excess of net investment income.......... (1,322,901)
Accumulated distributions in excess of net realized gains
on investments and foreign currency transactions......... (2,433,125)
Net unrealized depreciation of investments and foreign
currency transactions.................................... (326,690)
---------------
NET ASSETS.................................................. $ 210,776,593
---------------
---------------
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE)... $10.46
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
LATIN AMERICA EQUITY FUND
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
ASSETS:
Investments, at market value (cost $50,737,953)........... $ 55,247,755
Foreign currency (cost $62,553)........................... 62,910
Interest and dividends receivable......................... 234,018
Receivable for capital shares sold........................ 136
Deferred organization expense............................. 18,025
Prepaid expenses and other assets......................... 14,204
-------------
Total Assets............................................ $ 55,577,048
LIABILITIES:
Payable for investment securities purchased............... 63,283
Payable for capital shares redeemed....................... 263,967
Investment advisory fees payable.......................... 47,943
Administration fees payable............................... 3,596
Fund accounting fees payable.............................. 1,241
Transfer agent fees payable............................... 1,846
Shareholder service fees payable.......................... 97
Custody fees payable...................................... 88,586
Audit fees payable........................................ 23,917
Registration and filing fees payable...................... 27,557
Other payables and accrued expenses....................... 2,797
-------------
Total Liabilities....................................... 524,830
-------------
NET ASSETS.................................................. $ 55,052,218
-------------
-------------
Net Assets consist of:
Shares of capital stock, $0.001 par value per share,
3,894,905 issued and outstanding......................... $ 3,894
Additional paid-in capital................................ 52,862,569
Distributions in excess of net investment income.......... (68,499)
Accumulated distributions in excess of net realized losses
on investment and foreign currency transactions.......... (2,253,277)
Net unrealized appreciation of investments and foreign
currency transactions.................................... 4,507,531
-------------
NET ASSETS.................................................. $ 55,052,218
-------------
-------------
SELECT SHARES:
NET ASSETS................................................ $ 55,034,162
-------------
-------------
SHARES OF CAPITAL STOCK OUTSTANDING....................... 3,893,628
-------------
-------------
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER
SHARE)................................................... $14.13
-------------
-------------
ADVISOR SHARES:
NET ASSETS................................................ $18,056
-------------
-------------
SHARES OF CAPITAL STOCK OUTSTANDING....................... 1,277
-------------
-------------
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER
SHARE)................................................... $14.14
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
45
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
NEW YORK MUNICIPAL FUND
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
ASSETS:
Investments, at market value (cost $41,582,618)........... $ 42,770,358
Interest and dividends receivable......................... 656,528
Deferred organization expense............................. 14,787
Prepaid expenses and other assets......................... 1,312
-------------
Total Assets............................................ $ 43,442,985
LIABILITIES:
Payable for investment securities purchased............... 1,045,830
Dividends payable......................................... 151,228
Payable for capital shares redeemed....................... 120,561
Investment advisory fees payable.......................... 28,556
Administration fees payable............................... 8,418
Transfer agent fees payable............................... 186
Audit fees payable........................................ 22,674
Other payables and accrued expenses....................... 19,846
-------------
Total Liabilities....................................... 1,397,299
-------------
NET ASSETS.................................................. $ 42,045,686
-------------
-------------
Net Assets consist of:
Shares of capital stock, $0.001 par value per share,
3,932,716 Select Shares issued and outstanding........... $ 3,933
Additional paid-in capital................................ 40,839,492
Accumulated net realized gains on investment
transactions............................................. 14,521
Net unrealized appreciation of investments................ 1,187,740
-------------
NET ASSETS.................................................. $ 42,045,686
-------------
-------------
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE)... $10.69
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
CALIFORNIA MUNICIPAL FUND
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
ASSETS:
Investments, at market value (cost $4,648,743)............ $ 4,724,373
Cash...................................................... 104
Interest and dividends receivable......................... 74,514
Deferred organization expense............................. 36,390
---------------
Total Assets............................................ $ 4,835,381
LIABILITIES:
Dividends payable......................................... 17,410
Payable to Adviser........................................ 528
Fund accounting fees payable.............................. 1,514
Transfer agent fees payable............................... 182
Audit fees payable........................................ 19,700
Other payables and accrued expenses....................... 3,972
---------------
Total Liabilities....................................... 43,306
---------------
NET ASSETS.................................................. $ 4,792,075
---------------
---------------
Net Assets consist of:
Shares of capital stock, $0.001 par value per share,
462,332 Select Shares issued and outstanding............. $ 462
Additional paid-in capital................................ 4,714,669
Accumulated undistributed net investment income........... 1,350
Accumulated distributions in excess of net realized gains
on investment transactions............................... (36)
Net unrealized appreciation of investments................ 75,630
---------------
NET ASSETS.................................................. $ 4,792,075
---------------
---------------
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE)... $10.37
---------------
---------------
</TABLE>
NATIONAL MUNICIPAL FUND
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
ASSETS:
Investments, at market value (cost $2,985,199)............ $ 3,027,242
Interest and dividends receivable......................... 34,649
Receivable from Adviser................................... 1,983
Deferred organization expense............................. 30,630
---------------
Total Assets............................................ $ 3,094,504
LIABILITIES:
Payable for investment securities purchased............... 250,000
Dividends payable......................................... 8,585
Cash overdraft............................................ 6,718
Fund accounting fees payable.............................. 2,121
Transfer agent fees payable............................... 69
Audit fees payable........................................ 19,700
Other payables and accrued expenses....................... 2,224
---------------
Total Liabilities....................................... 289,417
---------------
NET ASSETS.................................................. $ 2,805,087
---------------
---------------
Net Assets consist of:
Shares of capital stock, $0.001 par value per share,
275,238 Select Shares issued and outstanding............. $ 275
Additional paid-in capital................................ 2,759,848
Accumulated net realized gains on investments............. 2,921
Net unrealized appreciation of investments................ 42,043
---------------
NET ASSETS.................................................. $ 2,805,087
---------------
---------------
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE)... $10.19
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
ASSETS:
Investments, at market value (cost $3,873,195)............ $ 3,903,688
Interest and dividends receivable......................... 76,948
Deferred organization expense............................. 19,400
---------------
Total Assets............................................ $ 4,000,036
LIABILITIES:
Dividends payable......................................... 19,097
Payable to Adviser........................................ 1,540
Fund accounting fees payable.............................. 2,271
Transfer agent fees payable............................... 113
Audit fees payable........................................ 19,700
Other payables and accrued expenses....................... 2,639
---------------
Total Liabilities....................................... 45,360
---------------
NET ASSETS.................................................. $ 3,954,676
---------------
---------------
Net Assets consist of:
Shares of capital stock, $0.001 par value per share,
388,932 Select Shares issued and outstanding............. $ 389
Additional paid-in capital................................ 3,918,939
Accumulated net realized gains on investment
transactions............................................. 4,855
Net unrealized appreciation of investments................ 30,493
---------------
NET ASSETS.................................................. $ 3,954,676
---------------
---------------
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE)... $10.17
---------------
---------------
</TABLE>
MORTGAGE SECURITIES FUND
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
ASSETS:
Investments, at market value (cost $16,869,697)........... $ 16,948,395
Interest and dividends receivable......................... 150,197
Receivable for forward currency contracts................. 25,307
Receivable from Adviser................................... 7,388
Deferred organization expenses............................ 19,400
Unrealized appreciation on open forward currency
contracts................................................ 3,716
Foreign tax reclaim receivable............................ 987
Prepaid expenses and other assets......................... 348
---------------
Total Assets............................................ $ 17,155,738
LIABILITIES:
Dividends payable......................................... 89,913
Fund accounting fees payable.............................. 1,525
Transfer agent fees payable............................... 370
Audit fees payable........................................ 19,700
Registration and filing fees payable...................... 5,463
Other payables and accrued expenses....................... 1,348
---------------
Total Liabilities....................................... 118,319
---------------
NET ASSETS.................................................. $ 17,037,419
---------------
---------------
Net Assets consist of:
Shares of capital stock, $0.001 par value per share,
1,675,581 Select Shares issued and outstanding........... $ 1,676
Additional paid-in capital................................ 16,906,213
Accumulated undistributed net investment income........... 19,449
Accumulated net realized gains on investment and foreign
currency transactions.................................... 27,956
Net unrealized appreciation of investments and foreign
currency transactions.................................... 82,125
---------------
NET ASSETS.................................................. $ 17,037,419
---------------
---------------
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE PER SHARE)... $10.17
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENT OF OPERATIONS
HIGH YIELD FUND
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest...................................................................... $ 99,660,411
Dividends..................................................................... 1,308,697
----------------
Total Income................................................................ $ 100,969,108
EXPENSES:
Advisory...................................................................... 7,832,049
Administration................................................................ 1,622,785
Fund accounting............................................................... 53,975
Transfer agent and shareholder servicing fees................................. 75,497
Custody....................................................................... 191,784
Miscellaneous................................................................. 471,477
----------------
Total expenses before waivers/reimbursements................................ 10,247,567
Less expenses waived/reimbursed............................................. (811,392)
----------------
Net expenses................................................................ 9,436,175
----------------
NET INVESTMENT INCOME........................................................... 91,532,933
----------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions................................. 14,211,763
Net realized gain on foreign currency transactions............................ 336,915
Net change in unrealized appreciation of investments.......................... 17,266,243
Net change in unrealized appreciation of foreign currency transactions........ 135,013
----------------
Net realized and unrealized gains on investments................................ 31,949,934
----------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 123,482,867
----------------
----------------
</TABLE>
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest...................................................................... $ 18,360,557
----------------
Total Income................................................................ $ 18,360,557
EXPENSES:
Advisory...................................................................... 1,527,416
Administration................................................................ 254,833
Fund accounting............................................................... 33,020
Transfer agent................................................................ 16,097
Custody....................................................................... 307,277
Registration and filing fees.................................................. 72,461
Miscellaneous................................................................. 120,537
----------------
Total expenses before waivers/reimbursements................................ 2,331,641
Less expenses waived/reimbursed............................................. (127,416)
----------------
Net expenses................................................................ 2,204,225
----------------
NET INVESTMENT INCOME........................................................... 16,156,332
----------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions................................. 6,864,591
Net realized gains on foreign currency transactions........................... 694,638
Net change in unrealized appreciation of investments.......................... (9,009,779)
Net change in unrealized appreciation of foreign currency transactions........ 82,635
----------------
Net realized and unrealized gains on investments................................ (1,367,915)
----------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 14,788,417
----------------
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENT OF OPERATIONS (CONTINUED)
LATIN AMERICA EQUITY FUND
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest...................................................................... $ 309,279
Dividends (net of foreign tax withholding of $6,038).......................... 785,578
----------------
Total Income................................................................ $ 1,094,857
EXPENSES:
Advisory...................................................................... 589,281
Administration................................................................ 88,392
Fund accounting............................................................... 32,565
Transfer agent................................................................ 6,446
Shareholder services.......................................................... 97
Custody....................................................................... 168,421
Registration and filing fees.................................................. 56,255
Miscellaneous................................................................. 47,151
----------------
Total expenses before waivers/reimbursements................................ 988,608
Less expenses waived/reimbursed............................................. (44,196)
----------------
Net expenses................................................................ 944,412
----------------
NET INVESTMENT INCOME........................................................... 150,445
----------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized loss on investment transactions.................................. (1,005,114)
Net realized loss on foreign currency transactions............................ (64,941)
Net change in unrealized appreciation of investments.......................... 3,462,520
Net change in unrealized appreciation of foreign currency transactions........ (2,271)
----------------
Net realized and unrealized gains on investments................................ 2,390,194
----------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 2,540,639
----------------
----------------
</TABLE>
NEW YORK MUNICIPAL FUND
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest...................................................................... $ 1,446,379
Dividends..................................................................... 1,992
----------------
Total Income................................................................ $ 1,448,371
EXPENSES:
Advisory...................................................................... 108,310
Administration................................................................ 44,828
Fund accounting............................................................... 36,868
Transfer agent................................................................ 2,959
Audit......................................................................... 22,945
Amortization of organization expenses......................................... 20,234
Miscellaneous................................................................. 32,667
----------------
Total expenses before waivers/reimbursements................................ 268,811
Less expenses waived/reimbursed............................................. (116,164)
----------------
Net expenses................................................................ 152,647
----------------
NET INVESTMENT INCOME........................................................... 1,295,724
----------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions................................. 201,875
Net change in unrealized appreciation of investments.......................... 898,649
----------------
Net realized and unrealized gains on investments................................ 1,100,524
----------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 2,396,248
----------------
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENT OF OPERATIONS (CONTINUED)
CALIFORNIA MUNICIPAL FUND
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
APRIL 2, 1997*
THROUGH DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest...................................................................... $ 102,176
Dividend...................................................................... 2,903
--------
Total Income................................................................ $ 105,079
EXPENSES:
Advisory...................................................................... 7,908
Administration................................................................ 3,373
Fund accounting............................................................... 24,140
Transfer agent................................................................ 333
Audit......................................................................... 20,706
Amortization of organization expenses......................................... 6,403
Registration and filing....................................................... 3,997
Miscellaneous................................................................. 3,627
--------
Total expenses before waivers/reimbursements................................ 70,487
Less expenses waived/reimbursed............................................. (59,289)
--------
Net expenses................................................................ 11,198
--------
NET INVESTMENT INCOME........................................................... 93,881
--------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions................................. 3,306
Net change in unrealized appreciation of investments.......................... 75,630
--------
Net realized and unrealized gains on investments................................ 78,936
--------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 172,817
--------
--------
</TABLE>
NATIONAL MUNICIPAL FUND
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
OCTOBER 20, 1997*
THROUGH DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C>
Interest...................................................................... $ 21,056
--------
Total Income................................................................ $ 21,056
EXPENSES:
Advisory...................................................................... 1,654
Administration................................................................ 709
Fund accounting............................................................... 5,886
Transfer agent................................................................ 72
Audit......................................................................... 19,700
Registration and filing....................................................... 4,491
Printing...................................................................... 1,350
Miscellaneous................................................................. 1,320
--------
Total expenses before waivers/reimbursements................................ 35,182
Less expenses waived/reimbursed............................................. (32,823)
--------
Net expenses................................................................ 2,359
-------
NET INVESTMENT INCOME........................................................... 18,697
-------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions................................. 2,921
Net change in unrealized appreciation of investments.......................... 42,043
--------
Net realized and unrealized gains on investments................................ 44,964
-------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 63,661
-------
-------
</TABLE>
- ---------------
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENT OF OPERATIONS (CONTINUED)
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JULY 1, 1997*
THROUGH DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest...................................................................... $ 59,760
Dividend...................................................................... 958
--------
Total income................................................................ $ 60,718
EXPENSES:
Advisory...................................................................... 3,596
Administration................................................................ 1,541
Fund accounting............................................................... 15,049
Transfer agent................................................................ 230
Audit......................................................................... 19,700
Registration and filing....................................................... 2,749
Amortization of organization expenses......................................... 2,183
Miscellaneous................................................................. 1,626
--------
Total expenses before waivers/reimbursements................................ 46,674
Less expenses waived/reimbursed............................................. (41,472)
--------
Net expenses................................................................ 5,202
-------
NET INVESTMENT INCOME........................................................... 55,516
-------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions................................. 13,802
Net change in unrealized appreciation of investments.......................... 30,493
--------
Net realized and unrealized gains on investments................................ 44,295
-------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 99,811
-------
-------
</TABLE>
MORTGAGE SECURITIES FUND
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JULY 1, 1997*
THROUGH DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest...................................................................... $ 359,692
Dividend...................................................................... 4,975
--------
Total income................................................................ $ 364,667
EXPENSES:
Advisory...................................................................... 20,098
Administration................................................................ 8,613
Fund accounting............................................................... 15,050
Transfer agent................................................................ 634
Audit......................................................................... 19,700
Registration and filing....................................................... 7,053
Custodian..................................................................... 3,603
Amortization of organization expenses......................................... 2,183
Miscellaneous................................................................. 1,921
--------
Total expenses before waivers/reimbursements................................ 78,855
Less expenses waived/ reimbursed............................................ (50,010)
--------
Net expenses................................................................ 28,845
--------
NET INVESTMENT INCOME........................................................... 335,822
--------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions................................. 86,502
Net realized gains on foreign currency transactions........................... 31,104
Net change in unrealized appreciation of investments.......................... 78,698
Net change in unrealized appreciation of foreign currency transactions........ 3,427
--------
Net realized and unrealized gains on investments................................ 199,731
--------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 535,553
--------
--------
</TABLE>
- ---------------
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
HIGH YIELD FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income..................................... $ 91,532,933 $ 57,226,940
Net realized gains on investment and foreign currency
transactions............................................. 14,548,678 5,036,933
Net change in unrealized appreciation of investments and
foreign currency
transactions............................................. 17,401,256 17,933,182
------------------ ------------------
------------------ ------------------
Net increase in net assets resulting from operations...... 123,482,867 80,197,055
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (91,532,933) (57,226,940)
Excess of net investment income........................... (317,636) (413,377)
Net realized gains........................................ (14,175,584) (4,650,440)
Excess of net realized gains.............................. (555,849) --
------------------ ------------------
------------------ ------------------
Total dividends and distributions to shareholders......... (106,582,002) (62,290,757)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued............................... 607,587,659 412,849,673
Dividends reinvested...................................... 68,319,193 41,938,736
Cost of shares redeemed................................... (197,959,947) (100,064,884)
------------------ ------------------
Net increase in net assets from capital share
transactions............................................. 477,946,905 354,723,525
------------------ ------------------
Total increase in net assets.............................. 494,847,770 372,629,823
NET ASSETS:
Beginning of year......................................... 851,720,204 479,090,381
------------------ ------------------
End of year (Including distributions in excess of net
investment income of $594,996 and $107,856,
respectively.)........................................... $ 1,346,567,974 $ 851,720,204
------------------ ------------------
------------------ ------------------
</TABLE>
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income..................................... $ 16,156,332 $ 8,116,698
Net realized gains on investment and foreign currency
transactions............................................. 7,559,229 5,650,631
Net change in unrealized appreciation (depreciation) of
investments and foreign currency transactions............ (8,927,144) 5,867,944
------------------ ------------------
------------------ ------------------
Net increase in net assets resulting from operations...... 14,788,417 19,635,273
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (16,156,332) (8,116,698)
Excess of net investment income........................... (987,668) --
Net realized gains........................................ (7,559,229) (4,209,138)
Excess of net realized gains.............................. (3,624,156) --
------------------ ------------------
------------------ ------------------
Total dividends and distributions to shareholders......... (28,327,385) (12,325,836)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued............................... 121,772,445 73,997,689
Dividends reinvested...................................... 16,925,719 8,976,597
Cost of shares redeemed................................... (30,526,769) (23,390,002)
------------------ ------------------
Net increase in net assets from capital share
transactions............................................. 108,171,395 59,584,284
------------------ ------------------
Total increase in net assets.............................. 94,632,427 66,893,721
NET ASSETS:
Beginning of year......................................... 116,144,166 49,250,445
------------------ ------------------
End of year (Including distributions in excess of net
investment income of $1,322,901 and $230,534,
respectively.)........................................... $ 210,776,593 $ 116,144,166
------------------ ------------------
------------------ ------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
LATIN AMERICA EQUITY FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD FROM
ENDED FEBRUARY 13, 1996*
DECEMBER 31, 1997 THROUGH DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income................................. $ 150,445 $ 105,925
Net realized gains/losses on investment and foreign
currency transactions................................ (1,070,055) 398,414
Net change in unrealized appreciation of investments
and foreign currency transactions.................... 3,460,249 1,047,282
----------------- -------------------------
Net increase in net assets resulting from
operations........................................... 2,540,639 1,551,621
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................. (150,445) (105,925)
Excess of net investment income....................... (222,445) --
Net realized gains.................................... (952,958) (496,221)
Total dividends and distributions to shareholders..... (1,325,848) (602,146)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued........................... 68,585,066 13,192,197
Dividends reinvested.................................. 1,094,992 427,936
Cost of shares redeemed............................... (29,150,348) (1,261,911)
Net increase in net assets from capital share
transactions......................................... 40,529,710 12,358,222
----------------- -------------------------
Total increase in net assets.......................... 41,744,501 13,307,697
NET ASSETS:
Beginning of period................................... 13,307,717 20
----------------- -------------------------
End of period (Including distributions in excess of
net investment income of $68,499 and $59,985,
respectively.)....................................... $55,052,218 $13,307,717
----------------- -------------------------
----------------- -------------------------
</TABLE>
- ---------------
* Commencement of operations.
NEW YORK MUNICIPAL FUND
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income........................................ $ 1,295,724 $ 750,678
Net realized gains on investments............................ 201,875 13,921
Net change in unrealized appreciation (depreciation) of
investments................................................. 898,649 (10,829)
----------------- -----------------
Net increase in net assets resulting from operations......... 2,396,248 753,770
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDER FROM:
Net investment income........................................ (1,295,724) (750,678)
Excess of net investment income.............................. (3,541) --
Net realized gains........................................... (192,144) (11,455)
----------------- -----------------
Total dividends and distributions to shareholders............ (1,491,409) (762,133)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued.................................. 29,031,529 9,898,661
Dividends reinvested......................................... 1,189,875 589,238
Cost of shares redeemed...................................... (9,238,189) (2,837,811)
Net increase in net assets from capital share transactions... 20,983,215 7,650,088
----------------- -----------------
Total increase in net assets................................. 21,888,054 7,641,725
NET ASSETS:
Beginning of period.......................................... 20,157,632 12,515,907
----------------- -----------------
End of period................................................ $42,045,686 $20,157,632
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
CALIFORNIA MUNICIPAL FUND
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
APRIL 2, 1997*
THROUGH
DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income........................................................ $ 93,881
Net realized gains on investment transactions................................ 3,306
Net change in unrealized appreciation of investments......................... 75,630
----------
Net increase in net assets resulting from operations......................... 172,817
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................................................ (93,881)
Excess of net investment income.............................................. (695)
Net realized gains........................................................... (3,342)
----------
Total dividends and distributions to shareholders............................ (97,918)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued.................................................. 4,636,788
Dividends reinvested......................................................... 80,338
----------
Net increase in net assets from capital share transactions................... 4,717,126
----------
Total increase in net assets................................................. 4,792,025
NET ASSETS:
Beginning of period.......................................................... 50
----------
End of period (Including undistributed net investment income of $1,350)...... $4,792,075
----------
----------
</TABLE>
NATIONAL MUNICIPAL FUND
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
OCTOBER 20, 1997*
THROUGH DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income.................................................... $ 18,697
Net realized gains on investments........................................ 2,921
Net change in unrealized appreciation of investments..................... 42,043
-------------------------
Net increase in net assets resulting from operations..................... 63,661
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................... (18,697)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued.............................................. 2,750,010
Dividends reinvested..................................................... 10,113
-------------------------
Net increase in net assets from capital share transactions............... 2,760,123
-------------------------
Total increase in net assets............................................. 2,805,087
NET ASSETS:
Beginning of period...................................................... --
-------------------------
End of period............................................................ $2,805,087
-------------------------
-------------------------
</TABLE>
- ---------------
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JULY 1, 1997*
THROUGH DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income.................................................... $ 55,516
Net realized gains on investment transactions............................ 13,802
Net change in unrealized appreciation of investments..................... 30,493
-------------------------
Net increase in net assets resulting from operations..................... 99,811
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................................... (55,516)
Excess of net investment income.......................................... (3,940)
Net realized gains....................................................... (5,280)
-------------------------
Total dividends and distributions to shareholders........................ (64,736)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued.............................................. 3,943,065
Dividends reinvested..................................................... 45,655
Cost of shares redeemed.................................................. (69,119)
-------------------------
Net increase in net assets from capital share transactions............... 3,919,601
-------------------------
Total increase in net assets............................................. 3,954,676
NET ASSETS:
Beginning of period...................................................... --
-------------------------
End of period............................................................ $ 3,954,676
-------------------------
-------------------------
</TABLE>
MORTGAGE SECURITIES FUND
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JULY 1, 1997*
THROUGH DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income.................................................... $ 335,822
Net realized gains on investment and foreign currency transactions....... 117,606
Net change in unrealized appreciation of investment and foreign currency
transactions............................................................ 82,125
-------------------------
Net increase in net assets resulting from operations..................... 535,553
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................................... (335,822)
Excess of net investment income.......................................... (13,631)
Realized gains........................................................... (58,364)
-------------------------
Total dividends and distributions to shareholders........................ (407,817)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued.............................................. 16,626,836
Dividends reinvested..................................................... 307,847
Cost of shares redeemed.................................................. (25,000)
Net increase in net assets from capital share transactions............... 16,909,683
-------------------------
Total increase in net assets............................................. 17,037,419
NET ASSETS:
Beginning of period...................................................... --
-------------------------
End of period (Including undistributed net investment income of
$19,449)................................................................ $17,037,419
-------------------------
-------------------------
</TABLE>
- ---------------
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
FINANCIAL HIGHLIGHTS
HIGH YIELD FUND
<TABLE>
<CAPTION>
SELECT SHARES
---------------------------------------------------------------------------
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR FOR THE YEAR FROM MARCH 2,
ENDED DECEMBER ENDED DECEMBER ENDED DECEMBER 1994* THROUGH
31, 1997 31, 1996 31, 1995 DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 10.15 $ 9.92 $ 9.25 $ 10.00
--------------- -------- -------- --------
Net investment income..................... 0.87 0.89 0.90 0.72
Net realized and unrealized gain (loss)... 0.31 0.29 0.67 (0.75)
--------------- -------- -------- --------
Total income from investment operations... 1.18 1.18 1.57 (0.03)
--------------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTION FROM:
Net investment income..................... (0.87) (0.89) (0.89) (0.72)
Net realized gains........................ (0.12) (0.06) (0.01) --
--------------- -------- -------- --------
Total dividends and distributions........... (0.99) (0.95) (0.90) (0.72)
--------------- -------- -------- --------
Net change in net asset value per share... 0.19 0.23 0.67 (0.75)
--------------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.............. $ 10.34 $ 10.15 $ 9.92 $ 9.25
--------------- -------- -------- --------
--------------- -------- -------- --------
TOTAL RETURN(A)............................. 12.09% 12.46% 17.72% (0.27%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands).... $1,346,553 $851,720 $479,090 $222,317
Ratios to average net assets:
Expenses**................................ 0.87% 0.98% 1.05% 1.14%(c)
Net investment income..................... 8.46% 8.86% 9.38% 8.97%(c)
PORTFOLIO TURNOVER RATE..................... 47% 41% 34% 42%
<CAPTION>
ADVISOR SHARES
---------------
FOR THE
PERIOD*** ENDED
DECEMBER 31,
1997
- --------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD........ $10.37
------
Net investment income..................... 0.32
Net realized and unrealized gain (loss)... 0.09
------
Total income from investment operations... 0.41
------
LESS DIVIDENDS AND DISTRIBUTION FROM:
Net investment income..................... (0.32)
Net realized gains........................ (0.12)
------
Total dividends and distributions........... (0.44)
------
Net change in net asset value per share... (0.03)
------
NET ASSET VALUE, END OF PERIOD.............. $10.34
------
------
TOTAL RETURN(A)............................. 3.93%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands).... $ 15
Ratios to average net assets:
Expenses**................................ 1.03%(c)
Net investment income..................... 7.87%(c)
PORTFOLIO TURNOVER RATE..................... 47%
</TABLE>
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
SELECT SHARES(D)
-------------------------------------------------------------
FOR THE YEAR FOR THE YEAR
ENDED DECEMBER ENDED DECEMBER FOR THE YEAR ENDED
31, 1997 31, 1996 DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 11.03 $ 9.91 $ 8.84
--------------- --------------- -------
Net investment income..................... 1.15 1.00 0.90
Net realized and unrealized gain (loss)... -- 1.55 1.07
--------------- --------------- -------
Total income from investment operations... 1.15 2.55 1.97
--------------- --------------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income..................... (1.15) (1.00) (0.60)
Excess of net investment income........... (0.04) -- --
Net realized gains........................ (0.53) (0.43) --
Return of capital......................... -- -- (0.30)
--------------- --------------- -------
Total dividends and distributions........... (1.72) (1.43) (0.90)
--------------- --------------- -------
Net change in net asset value per share... (0.57) 1.12 1.07
--------------- --------------- -------
NET ASSET VALUE, END OF PERIOD.............. $ 10.46 $ 11.03 $ 9.91
--------------- --------------- -------
--------------- --------------- -------
TOTAL RETURN(A)............................. 10.67% 26.56% 23.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands)............................... $210,777 $116,144 $ 49,250
Ratios to average net assets:
Expenses**................................ 1.29% 1.16% 1.50%
Net investment income..................... 9.49% 9.62% 9.97%
PORTFOLIO TURNOVER RATE..................... 179% 136% 60%
<CAPTION>
FOR THE PERIOD FROM MARCH
8, 1994* THROUGH DECEMBER
31, 1994
- -------------------------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 10.00
-------
Net investment income..................... 0.81
Net realized and unrealized gain (loss)... (1.16)
-------
Total income from investment operations... (0.35)
-------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income..................... (0.81)
Excess of net investment income........... --
Net realized gains........................ --
Return of capital......................... --
-------
Total dividends and distributions........... (0.81)
-------
Net change in net asset value per share... (1.16)
-------
NET ASSET VALUE, END OF PERIOD.............. $ 8.84
-------
-------
TOTAL RETURN(A)............................. (3.82%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands)............................... $ 28,117
Ratios to average net assets:
Expenses**................................ 1.50%(c)
Net investment income..................... 10.39%(c)
PORTFOLIO TURNOVER RATE..................... 47%
</TABLE>
- ---------------
* Commencement of operations.
**During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been higher.
***Sales of Advisor Shares began on August 14, 1997.
(a)Total return is based on the change in net asset value during the period
and assumes reinvestment of all dividends and distributions.
(b)Not annualized.
(c )
Annualized.
(d)As of December 31, 1997 there were no Advisor Shares outstanding.
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
LATIN AMERICA EQUITY FUND
<TABLE>
<CAPTION>
SELECT SHARES
------------------------------------------- ADVISOR SHARES
FOR THE PERIOD FROM -----------------
FOR THE YEAR FEBRUARY 13, 1996* FOR THE PERIOD ***
ENDED THROUGH DECEMBER 31, ENDED
DECEMBER 31, 1997 1996 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 11.66 $ 10.00 $ 15.11
------- ------- -------
Net investment income (loss).............. 0.09 0.20 (0.21)
Net realized and unrealized gain (loss)... 2.74 2.11 (0.50)
------- ------- -------
Total income from investment operations... 2.83 2.31 (0.71)
------- ------- -------
LESS DIVIDENDS AND DISTRIBUTION FROM:
Net investment income (loss).............. (.09) (0.20) (0.01)
Excess of net investment income........... (.02) -- --
Net realized gains........................ (0.25) (0.45) (0.25)
------- ------- -------
Total dividends and distributions........... (0.36) (0.65) (0.26)
------- ------- -------
Net change in net asset value per share... 2.47 1.66 (0.97)
------- ------- -------
NET ASSET VALUE, END OF PERIOD.............. $ 14.13 $ 11.66 $ 14.14
------- ------- -------
------- ------- -------
TOTAL RETURN(A)............................. 24.22% 23.36%(b) (4.64%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (in
thousands)............................... $ 55,034 $ 13,308 $ 18
Ratios to average net assets:
Expenses**................................ 1.60% 2.00%(c) 1.73%(c)
Net investment income (loss).............. 0.26% 1.97%(c) (0.73%)(c)
PORTFOLIO TURNOVER RATE..................... 98% 133% 98%
AVERAGE COMMISSION RATE PAID(d)............. $ .0185 $ 0.026 $ .0185
</TABLE>
- ---------------
* Commencement of operations.
**During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratio would have been higher.
***
Sales of Advisor Shares began on June 23, 1997.
(a)Total return is based on the change in net asset value during the period
and assumes reinvestment of all dividends and distributions.
(b)Not annualized.
(c)Annualized.
(d)Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of portfolio shares purchased and sold for
which commissions were charged and is calculated on the basis of the Fund
as a whole without distinguishing between the classes of shares issued.
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
NEW YORK MUNICIPAL FUND
<TABLE>
<CAPTION>
SELECT SHARES(D)
-----------------------------------------------------------------
FOR THE PERIOD FROM
FOR THE YEAR FOR THE YEAR APRIL 3, 1995*
ENDED ENDED THROUGH DECEMBER 31,
DECEMBER 31, 1997 DECEMBER 31, 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 10.40 $ 10.47 $ 10.00
------- ------- -------
Net investment income..................... 0.46 0.44 0.33
Net realized and unrealized gain (loss)... 0.34 (0.06) 0.47
------- ------- -------
Total income from investment operations... 0.80 0.38 0.80
------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income..................... (0.46) (0.44) (0.32)
Net realized gains........................ (0.05) (0.01) (0.01)
------- ------- -------
Total dividends and distributions........... (0.51) (0.45) (0.33)
------- ------- -------
Net change in net asset value per share..... 0.29 (0.07) 0.47
------- ------- -------
NET ASSET VALUE, END OF PERIOD.............. $ 10.69 $ 10.40 $ 10.47
------- ------- -------
------- ------- -------
TOTAL RETURN(A)............................. 7.84% 3.72% 8.13%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands)............................... $ 42,046 $ 20,158 $ 12,516
Ratios to average net assets:
Expenses**................................ 0.50% 0.55% 0.54%(c)
Net investment income..................... 4.22% 4.28% 4.20%(c)
PORTFOLIO TURNOVER RATE..................... 144% 33% 35%
</TABLE>
- ---------------
* Commencement of operations.
**During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratio would have been higher.
(a)Total return is based on the change in net asset value during the period
and assumes reinvestment of all dividends and distributions.
(b)Not annualized.
(c)Annualized.
(d)As of December 31, 1997 there were no Advisor Shares outstanding.
The accompanying notes are an integral part of the financial statements.
59
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
CALIFORNIA MUNICIPAL FUND
<TABLE>
<CAPTION>
SELECT SHARES(d)
-----------------------
FOR THE PERIOD FROM
APRIL 2, 1997*
THROUGH DECEMBER 31,
1997
- ---------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.33
Net realized and unrealized gains......... 0.38
------
Total income from investment operations... 0.71
------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income..................... (0.33)
Net realized gains........................ (0.01)
------
Total dividends and distributions......... (0.34)
------
Net change in net asset value per share..... 0.37
------
NET ASSET VALUE, END OF PERIOD.............. $ 10.37
------
------
TOTAL RETURN(A)............................. 7.14%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (in
thousands)............................... $ 4,792
Ratios to average net assets:
Expenses**................................ 0.50%(c)
Net investment income..................... 4.15%(c)
PORTFOLIO TURNOVER RATE..................... 41%
</TABLE>
NATIONAL MUNICIPAL FUND
<TABLE>
<CAPTION>
SELECT SHARES(d)
-------------------------
FOR THE PERIOD FROM
OCTOBER 20, 1997*
THROUGH DECEMBER 31, 1997
- -----------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 10.00(e)
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.08
Net realized and unrealized gains......... 0.19
------
Total income from investment operations... 0.27
------
LESS DIVIDENDS FROM:
Net investment income..................... (0.08)
------
Net change in net asset value per share... 0.19
------
NET ASSET VALUE, END OF PERIOD.............. $ 10.19
------
------
TOTAL RETURN(A)............................. 2.70%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (in
thousands)............................... $ 2,805
Ratios to average net assets
Expenses**................................ 0.50%(c)
Net investment income..................... 3.95%(c)
PORTFOLIO TURNOVER RATE..................... 46%
</TABLE>
- ---------------
* Commencement of operations.
**During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratio would have been higher.
(a)Total return is based on the change in net asset value during the period
and assumes reinvestment of all dividends and distributions.
(b)Not annualized.
(c)Annualized.
(d)As of December 31, 1997 there were no Advisor Shares outstanding.
(e)Initial offering price.
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
SELECT SHARES(d)
-----------------------
FOR THE PERIOD FROM
JULY 1, 1997*
THROUGH DECEMBER 31,
1997
- ---------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 10.00(e)
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.27
Net realized and unrealized gains......... 0.19
------
Total income from investment operations... 0.46
------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income..................... (0.27)
Excess of net investment income........... (0.01)
Net realized gains........................ (0.01)
------
Total dividends and distributions........... (0.29)
------
Net change in net asset value per share..... 0.17
------
NET ASSET VALUE, END OF PERIOD.............. $ 10.17
------
------
TOTAL RETURN(A)............................. 4.71%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (in
thousands)............................... $ 3,955
Ratios to average net assets:
Expenses**................................ 0.50%(c)
Net investment income..................... 5.32%(c)
PORTFOLIO TURNOVER RATE..................... 153%
</TABLE>
MORTGAGE SECURITIES FUND
<TABLE>
<CAPTION>
SELECT SHARES(d)
-------------------------
FOR THE PERIOD FROM
JULY 1, 1997*
THROUGH DECEMBER 31, 1997
- -----------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 10.00(e)
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.29
Net realized and unrealized gains......... 0.22
-------
Total income from investment operations... 0.51
-------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income..................... (0.29)
Excess of net investment income........... (0.01)
Net realized gains........................ (0.04)
-------
Total dividends and distributions........... (0.34)
-------
Net change in net asset value per share..... 0.17
-------
NET ASSET VALUE, END OF PERIOD.............. $ 10.17
-------
-------
TOTAL RETURN(A)............................. 5.10%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year (in
thousands)............................... $ 17,037
Ratios to average net assets:
Expenses**................................ 0.50%(c)
Net investment income..................... 5.77%(c)
PORTFOLIO TURNOVER RATE..................... 81%
</TABLE>
- ---------------
* Commencement of operations.
**During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratio would have been higher.
(a)Total return is based on the change in net asset value during the period
and assumes reinvestment of all dividends and distributions.
(b)Not annualized.
(c)Annualized.
(d)As of December 31, 1997 there were no Advisor Shares outstanding.
(e)Initial offering price.
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
1. ORGANIZATION. The OFFITBANK Investment Fund, Inc. (the "Company") was
incorporated in Maryland on September 8, 1993. The Company is registered under
the Investment Company Act of 1940, as amended (the "1940" Act) and operates as
a non-diversified, no-load and open-end management investment company. The
Company consists of eleven separately managed funds, of which eight, OFFITBANK
High Yield Fund, OFFITBANK Emerging Markets Fund, OFFITBANK Latin America Equity
Fund (formerly "OFFITBANK Latin America Total Return Fund"), OFFITBANK New York
Municipal Fund, OFFITBANK California Municipal Fund, OFFITBANK National
Municipal Fund, OFFITBANK U.S. Government Securities Fund, and OFFITBANK
Mortgage Securities Fund (individually, a "Fund", and collectively, the "Funds")
have commenced operations. The Funds have the following inception dates:
<TABLE>
<S> <C>
High Yield Fund......................... March 2, 1994
Emerging Markets Fund................... March 8, 1994
Latin America Equity Fund............... February 13, 1996
New York Municipal Fund................. April 3, 1995
California Municipal Fund............... April 2, 1997
National Municipal Fund................. October 20, 1997
U.S. Government Securities Fund......... July 1, 1997
Mortgage Securities Fund................ July 1, 1997
</TABLE>
Effective May 1, 1996, all of the outstanding shares of each of the Funds then
in existence were reclassified as "Select Shares" and each Fund began offering a
new class of shares, designated as "Advisor Shares." Each class of shares
outstanding bears the same voting, dividend, liquidation and other rights and
conditions, except that the Advisor shares are expected to bear additional
shareholder servicing expenses.
The High Yield Fund's primary investment objective is high current income with
capital appreciation as a secondary objective. The Emerging Markets Fund seeks
to provide investors with a competitive total return by focusing on current
yield and opportunities for capital appreciation. The Latin America Equity
Fund's primary investment objective is capital appreciation with current income
as a secondary objective. The New York Municipal Fund seeks to maximize total
after-tax return for New York residents, consistent with a prudent level of
credit risk. The California Municipal Fund seeks to maximize total after-tax
return for California residents, consistent with a prudent level of credit risk.
The National Municipal Fund seeks to maximize total after-tax return, consistent
with a prudent level of credit risk. The U.S. Government Securities Fund seeks
to provide shareholders with current income. The Mortgage Securities Fund's
investment objective is to maximize total return from a combination of
investment income and capital appreciation.
OFFITBANK (the "Adviser") serves as the Funds' investment adviser. BISYS Fund
Services, Limited Partnership ("BISYS"), serves as the Funds' administrator.
OFFIT Funds Distributor, Inc. (the "Distributor"), serves as the distributor of
the Funds' shares. BISYS Fund Services, Inc. serves as fund accountant and
transfer and dividend disbursing agent of the Funds. BISYS, the Distributor, and
BISYS Fund Services, Inc. are each a wholly-owned subsidiary of The BISYS Group,
Inc.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of significant
accounting policies followed by the Funds in the preparation of their financial
statements. The policies are in conformity with generally accepted accounting
principles. The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
PORTFOLIO VALUATIONS:
Equity securities held by a Fund are valued at the last reported sales price on
the securities exchange or in the principal over-the-counter market in which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price. Debt securities held by a Fund generally are valued based on quoted bid
prices. Short-term debt investments having maturities of 60 days or less are
valued at amortized cost, which approximates market value, and, if applicable,
adjusted for foreign exchange translation. Securities for which market
quotations are not readily available are valued at fair value determined in good
faith by or under the direction of the Company's Board of Directors. Securities
may be valued by independent pricing services, approved by the Company's Board
of Directors, which use prices provided by market-makers or estimates of market
value obtained from yield data relating to instruments or securities with
similar characteristics.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Funds record securities transactions on a trade date basis. Interest income,
including accretion of discount and amortization of premium is accrued daily.
Dividend income is recognized on the ex- dividend date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
EXPENSES:
The Company accounts separately for the assets, liabilities and operations of
each Fund. Direct expenses of a Fund are charged to that Fund, while general
Company expenses are allocated among the Company's respective portfolios based
on relative net assets.
The investment income and expenses of a Fund (other than class specific
expenses) and realized and unrealized
62
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
gains and losses on investments of a Fund are allocated to each class of shares
based upon their relative net asset value on the date income is earned or
expenses are realized and unrealized gains and losses are incurred.
ORGANIZATIONAL EXPENSES:
Costs incurred in connection with the organization and initial registration of
the Funds have been deferred and are being amortized over a sixty-month period,
beginning with each Fund's commencement of operations.
OFFITBANK assumed the organizational expenses for the High Yield and the
Emerging Markets Funds.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from the High Yield, New York Municipal, California Municipal,
National Municipal, U.S. Government Securities, and the Mortgage Securities
Funds' net investment income, if any, are declared daily and paid monthly.
Dividends from the Emerging Markets Fund's net investment income, if any, are
declared daily and paid quarterly. Dividends from the Latin America Equity
Fund's net investment income, if any, are declared and paid quarterly. Net
realized gains on portfolio securities, if any, are distributed at least
annually by the Funds. However, to the extent net realized gains can be offset
by capital loss carryovers, such gains will not be distributed. Dividends and
distributions are recorded by the Funds on the ex-dividend date.
The amount of dividends from net investment income and distributions from net
realized gains are determined in accordance with federal income tax regulations
which may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the composition of net assets based on their federal tax-basis treatment;
temporary differences do not require a reclassification. Distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as distributions in
excess of net investment income or net realized gains. To the extent
distributions exceed net investment income and net realized capital gains for
tax purposes, they are reported as distributions of capital.
As of December 31, 1997, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to
paid-in-capital:
<TABLE>
<CAPTION>
ACCUMULATED
ACCUMULATED NET REALIZED GAIN/
UNDISTRIBUTED NET (LOSS) ON
INVESTMENT INCOME INVESTMENTS
----------------- --------------------
<S> <C> <C>
High Yield Fund.... ($169,504) $ 169,544
Emerging Markets
Fund.............. (104,699) 131,853
Latin America
Equity Fund....... 213,931 (192,442)
New York Municipal
Fund.............. 3,541 (3,386)
California
Municipal Fund.... 2,045 --
U.S. Government
Securities Fund... 3,940 (3,667)
Mortgage Securities
Fund.............. 33,080 (31,286)
</TABLE>
FEDERAL INCOME TAXES:
It is the Funds' policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute timely, all
of its net investment company taxable income and net capital gains to
shareholders. Therefore, no federal income tax provision is required.
Capital and currency losses incurred within the Funds' fiscal year, but after
October 31, are deemed to arise on the first business day of the following
fiscal year for tax purposes. The following Funds have incurred and will elect
to defer capital and currency losses as follows:
<TABLE>
<CAPTION>
CAPITAL LOSS CURRENCY LOSS
DEFERRED DEFERRED
------------ -------------
<S> <C> <C>
Emerging Markets Fund.......... $3,025,289 $ 184,458
California Municipal Fund...... 36 --
</TABLE>
FOREIGN CURRENCY TRANSLATION:
The accounting records of the Funds are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars at the current rate of
exchange to determine the value of investments, assets and liabilities.
Purchases and sales of securities, and income and expenses are translated at the
prevailing rate of exchange on the respective dates of such transactions. The
Funds do not isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gains or losses from investments. However,
the Funds do isolate the effect of fluctuations in foreign exchange rates when
determining the gain or loss upon the sale or maturity of foreign currency
denominated debt obligations pursuant to U.S. federal income tax regulations.
Such amount is categorized as foreign exchange gain or loss for both financial
reporting and income tax reporting purposes.
63
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities and forward currency contracts, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest and foreign withholding amounts actually received
or paid. Net unrealized foreign exchange gains and losses arise from changes in
the value of assets and liabilities, other than investments in securities,
resulting from changes in the exchange rate.
REPURCHASE AGREEMENTS:
The Funds may purchase instruments from financial institutions, such as banks
and broker-dealers, subject to the seller's agreement to repurchase them at an
agreed upon time and price ("repurchase agreements"). The seller under a
repurchase agreement is required to maintain the value of the securities subject
to the agreement at not less than the repurchase price. Default by the seller
would, however, expose the relevant Funds to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations.
DERIVATIVE INSTRUMENTS:
Each Fund (other than the Municipal Funds) may invest in various financial
instruments including positions in forward currency contracts, enter into
currency swaps and purchase foreign currency options. The Funds enter into such
contracts for the purposes of hedging exposures to changes in foreign currency
exchange rates on their portfolio holdings.
Each of the Funds (other than the Municipal Funds) is also permitted to enter
into swap agreements to manage interest rate or currency exposure. Swap
agreements involve the commitment to exchange with another party cash flows that
are based upon the application of interest rates, currency movements or other
financial indices to a notional principal amount. Gains and losses associated
with currency swap transactions entered into by the Emerging Markets Fund and
the Latin America Equity Fund are included in realized gains and losses on
foreign currency transactions.
The Municipal Funds may, in order to further their investment objectives,
purchase or sell futures contracts on (a) U.S. Government Securities and (b)
municipal bond indices. Such Funds reserve the right to conduct futures
transactions based on an index that may be developed in the future to correlate
with price movements in municipal obligations.
A forward foreign exchange contract is a commitment to sell or buy a foreign
currency at a future date at a negotiated exchange rate. The Fund bears the
market risk that arises from possible changes in foreign exchange values. Risks
may arise from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of the foreign
currency relative to the U.S. dollar. Forward foreign exchange contracts involve
market or credit risk in excess of the amounts reflected on the Fund's statement
of assets and liabilities. The gain or loss from the difference between the cost
of original contracts and the amount realized upon the closing of such contracts
is included in net realized gain on foreign currency transactions. Fluctuations
in the value of forward contracts held at December 31, 1997 are recorded for
financial reporting purposes as unrealized gains and losses by the Funds.
The table below indicates the High Yield, Emerging Markets and Mortgage
Securities Funds' outstanding forward currency contract positions at December
31, 1997:
HIGH YIELD FUND
<TABLE>
<CAPTION>
VALUE ON VALUE AT
CONTRACT MATURITY ORIGINATION DECEMBER 31, UNREALIZED
CURRENCY AMOUNTS DATE DATE 1997 APPRECIATION
----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sell CAD (2,750,000) 2/11/98 ($1,939,352) $(1,925,016) $ 14,336
Sell DEM (5,400,000) 2/11/98 (3,037,120) (3,008,727) 28,393
Sell DEM (2,700,000) 2/11/98 (1,531,915) (1,504,364) 27,551
Sell DEM (2,700,000) 2/11/98 (1,525,424) (1,504,364) 21,060
Sell DEM (13,000,000) 2/24/98 (7,346,916) (7,248,130) 98,786
------------
Net unrealized appreciation on forward positions........................... $ 190,126
------------
------------
</TABLE>
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
VALUE ON VALUE AT
CONTRACT MATURITY ORIGINATION DECEMBER 31, UNREALIZED
CURRENCY AMOUNTS DATE DATE 1997 APPRECIATION
----------- ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sell DEM (5,750,000) 1/26/98 ($3,337,203) $(3,201,846) $ 135,357
Sell DEM (3,000,000) 1/26/98 (1,724,138) (1,670,528) 53,610
Sell DEM (8,200,000) 1/26/98 (4,672,364) (4,566,110) 106,254
Sell DEM (3,850,000) 1/26/98 (2,175,141) (2,143,844) 31,297
------------
Net unrealized appreciation on forward positions.......................... $ 326,518
------------
------------
</TABLE>
MORTGAGE SECURITIES FUND
<TABLE>
<CAPTION>
VALUE ON VALUE AT
CONTRACT MATURITY ORIGINATION DECEMBER 31, UNREALIZED
CURRENCY AMOUNTS DATE DATE 1997 APPRECIATION
----------- ---------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Sell DAK (6,075,000) 4/1/98 $(893,382) $ (889,666) $ 3,716
</TABLE>
A purchased option contract gives the Fund the right to sell (puts) or purchase
(calls) a specified amount of foreign currency at a fixed price. The maximum
exposure to loss for any purchased option is limited to the premium initially
paid for the option. Such options are reflected at value in the Fund's portfolio
of investments.
The Emerging Markets Fund also is invested in indexed securities whose value is
linked directly to changes in foreign currencies, interest rates and other
financial indices. Indexed securities may be more volatile than the underlying
instrument but the risk of loss is limited to the amount of the original
investment.
64
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
3. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES. The Company has entered
into investment advisory agreements (the "Investment Advisory Agreements") with
the Adviser. Pursuant to the terms of the Investment Advisory Agreements the
Adviser is entitled to a fee that is calculated daily and paid monthly based on
the average daily net assets of each Fund, at the annual rate of: 0.85% for the
first $200,000,000 of net assets, 0.75% for the next $400,000,000, and 0.65% for
amounts in excess of $600,000,000 in the case of the High Yield Fund; 0.90% for
the first $200,000,000 of net assets and 0.80% for amounts in excess thereof in
the case of the Emerging Markets Fund; 1.00% for the Latin America Equity Fund;
0.35% in the case of the New York Municipal Fund, the California Municipal Fund,
the National Municipal Fund, the U.S. Government Securities Fund, and the
Mortgage Securities Fund. (Prior to May 1, 1997, the annual rate was 0.40% for
the New York Municipal and California Municipal Funds). For the period ended
December 31, 1997, the Adviser earned fees of $7,832,049, $1,527,416, and
$589,281 for the High Yield Fund, Emerging Markets Fund, and Latin America
Equity Fund, respectively. The Adviser earned fees of $108,310 and waived fees
of $79,754 for the New York Municipal Fund. The Adviser earned and waived fees
of $7,908, $1,654, $3,596, and $20,098 for the California Municipal Fund,
National Municipal Fund, U.S. Government Securities Fund, and Mortgage
Securities Fund, respectively.
BISYS provides the Company with administrative services pursuant to an
administration agreement (the "Administration Agreement"). The services under
the Administration Agreement are subject to the supervision of the Company's
Board of Directors and officers and include the day-to-day administration of
matters related to the corporate existence of the Company, maintenance of its
records, preparation of reports, supervision of the Company's arrangements with
its custodian and assistance in the preparation of the Company's registration
statements under federal and state laws. Pursuant to the Administration
Agreement, the Company pays BISYS a monthly fee for its services at an annual
rate of 0.15% of the aggregate average daily net assets of the Funds. For the
period ended December 31, 1997, BISYS was entitled to fees of $1,622,785,
$254,833, $88,392, $44,828, $3,373, $709, $1,541, and $8,613 for the High Yield
Fund, Emerging Markets Fund, Latin America Equity Fund, New York Municipal Fund,
California Municipal Fund, National Municipal Fund, U.S. Government Securities
Fund, and the Mortgage Securities Fund, respectively. BISYS waived fees of
$811,392, $127,416, $44,196, $36,410, $3,373, $709, $1,541, and $8,613, for the
High Yield Fund, Emerging Markets Fund, Latin America Equity Fund, New York
Municipal Fund, California Municipal Fund, National Municipal Fund, U.S.
Government Securities Fund, and the Mortgage Securities Fund, respectively.
BISYS Fund Services, Inc., provides the Funds with fund accounting and related
services pursuant to a fund accounting agreement with the Company. For these
services BISYS was paid a fee of $2,500 per month per Fund. For the period ended
December 31, 1997, BISYS Fund Services, Inc. earned fees, including
reimbursement of out of pocket expenses, of $53,975, $33,020, $32,565, $36,868,
$24,140, $5,886, $15,049, and $15,050, for the High Yield Fund, Emerging Markets
Fund, Latin America Equity Fund, New York Municipal Fund, California Municipal
Fund, National Municipal Fund, U.S. Government Securities Fund, and the Mortgage
Securities Fund, respectively.
BISYS Fund Services, Inc., also serves as transfer agent for the Funds and
pursuant to a transfer agency agreement with the Company, receives reimbursement
of certain expenses plus a per account fee of $15.00 per year. For the period
ended December 31, 1997, BISYS Fund Services, Inc. earned fees, including
reimbursement of out of pocket expenses, of $75,497, $16,097, $6,446, $2,959,
$333, $72, $230, and $634, for the High Yield Fund, Emerging Markets Fund, Latin
America Equity Fund, New York Municipal Fund, California Municipal Fund,
National Municipal Fund, U.S. Government Securities Fund, and the Mortgage
Securities Fund, respectively.
Shares in each Fund are sold on a continuous basis by the Distributor. Solely
for the purpose of reimbursing the Distributor for activities primarily intended
to result in the sale of its shares, each Fund is authorized to spend up to
0.25% of its net assets annually with respect to each class of shares of the
Fund in accordance with a Plan of Distribution (the "Plan") pursuant to Rule
12b-1 promulgated under the 1940 Act. Activities for which the Distributor may
be reimbursed include (but are not limited to) the development and
implementation of direct mail promotions and advertising for the Funds and the
preparation, printing and distribution of prospectuses for the Funds to
recipients other than existing shareholders. For the year December 31, 1997, no
distribution costs were incurred.
Pursuant to a Shareholder Servicing Plan adopted by the Board of Directors of
the Company, the Company may enter into Shareholder Servicing Agreements with
financial institutions ("Shareholder Servicing Agents") with respect to Advisor
Shares. Shareholder administrative support services will be performed by
Shareholder Servicing Agents for their customers who beneficially own Advisor
Shares. For the services provided, the Company's Shareholder Servicing Plan
permits each Fund to pay fees to Shareholder Servicing
65
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
Agents at an annual rate of up to 0.25% of the average daily net asset value of
Advisor Shares of the Fund for which such Shareholder Servicing Agents provide
services for the benefit of customers. Shareholder Servicing Agents will provide
their customers with a schedule of any credits, fees or of the terms or
conditions that may be applicable to the investments of customers assets in each
Fund's Advisor Shares. For the year ended December 31, 1997, no shareholder
servicing fees were incurred.
OFFITBANK has voluntarily agreed to limit the expense ratios for the California
Municipal Fund, National Municipal Fund, U.S. Government Securities Fund, and
the Mortgage Securities Fund at 0.50%. In order to maintain this ratio, the
Adviser has waived its advisory fee and has also agreed to reimburse the Funds
$48,008, $30,460, $36,335, and $21,299, respectively.
4. SECURITIES TRANSACTIONS. For the period ended December 31, 1997, the cost of
purchases and the proceeds from sales of the Funds' portfolio securities
(excluding short-term investments), were as follows:
<TABLE>
<CAPTION>
COMMON STOCKS U.S. GOVERNMENT
AND CORPORATE BONDS OBLIGATIONS
-------------------------- ------------------------
PURCHASES SALES PURCHASES SALES
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
High Yield Fund...... $900,427,621 $443,557,234 $24,894,250 $24,761,133
Emerging Markets
Fund................ 358,757,494 251,955,422 0 0
Latin America Equity
Fund................ 95,265,822 54,676,598 0 0
New York Municipal
Fund................ 64,812,297 42,915,082 0 0
California Municipal
Fund................ 5,770,437 1,121,152 0 0
National Municipal
Fund................ 3,654,683 800,847 0 0
U.S. Government
Securities Fund..... 0 0 6,146,143 2,946,063
Mortgage Securities
Fund................ 996,194 201,716 22,358,031 7,851,005
</TABLE>
5. CAPITAL STOCK TRANSACTIONS. The Company's Articles of Incorporation, permit
the Company to issue ten billion shares (par value $0.001). Transactions in
shares of common stock for the periods ended December 31, 1997 and December 31,
1996 were as follows:
<TABLE>
<CAPTION>
HIGH YIELD FUND SELECT SHARES
------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares issued....... 58,935,603 $ 607,572,659 41,432,333 $ 412,849,673
Shares reinvested... 6,635,971 68,319,193 4,197,280 41,938,736
Shares redeemed..... (19,219,765) (197,959,947) (10,052,610) (100,064,884)
----------- ------------- ----------- -------------
Net increase........ 46,351,809 $ 477,931,905 35,577,003 $ 354,723,525
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD FUND
ADVISOR SHARES
--------------------------
PERIOD ENDED
DECEMBER 31, 1997
--------------------------
SHARES AMOUNT
----------- -------------
<S> <C> <C> <C> <C>
Shares issued....... 1,446 $ 15,000
----------- -------------
Net increase........ 1,446 $ 15,000
----------- -------------
----------- -------------
</TABLE>
<TABLE>
<CAPTION>
EMERGING MARKETS FUND SELECT SHARES
------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares issued....... 10,783,609 $ 121,597,415 6,960,725 $ 73,997,689
Shares reinvested... 1,550,297 16,925,719 820,976 8,976,597
Shares redeemed..... (2,718,271) (30,354,173) (2,220,079) (23,390,002)
----------- ------------- ----------- -------------
Net increase........ 9,615,635 $ 108,168,961 5,561,622 $ 59,584,284
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
EMERGING MARKETS FUND
ADVISOR SHARES
--------------------------
PERIOD ENDED
DECEMBER 31, 1997
--------------------------
SHARES AMOUNT
----------- -------------
<S> <C> <C> <C> <C>
Shares issued....... 15,214 $ 175,030
Shares redeemed..... (15,214) (172,596)
----------- -------------
Net increase........ 0 $ 2,434
----------- -------------
----------- -------------
</TABLE>
<TABLE>
<CAPTION>
LATIN AMERICA EQUITY FUND SELECT SHARES
--------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares issued........... 4,783,824 $ 67,593,866 1,214,457 $ 13,192,197
Shares reinvested....... 78,005 1,094,992 36,887 427,936
Shares redeemed......... (2,109,165) (28,221,087) (110,382) (1,261,911)
---------- ------------ ---------- ------------
Net increase............ 2,752,664 $ 40,467,771 1,140,962 $ 12,358,222
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
LATIN AMERICA EQUITY
FUND ADVISOR SHARES
------------------------
PERIOD ENDED
DECEMBER 31, 1997
------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C> <C> <C>
Shares issued........... 60,128 $ 991,200
Shares redeemed......... (58,851) (929,261)
---------- ------------
Net increase............ 1,277 $ 61,939
---------- ------------
---------- ------------
</TABLE>
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL FUND SELECT SHARES
----------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares issued............... 2,757,463 $29,031,529 957,098 $ 9,898,661
Shares reinvested........... 112,876 1,189,875 57,067 589,238
Shares redeemed............. (875,489) (9,238,189) (272,129) (2,837,811)
--------- ----------- --------- -----------
Net increase................ 1,994,850 $20,983,215 742,036 $ 7,650,088
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA MUNICIPAL
FUND SELECT SHARES
----------------------
PERIOD ENDED
DECEMBER 31, 1997
----------------------
SHARES AMOUNT
--------- -----------
<S> <C> <C> <C> <C>
Shares issued............... 454,503 $ 4,636,788
Shares reinvested........... 7,824 80,338
--------- -----------
Net increase................ 462,327 $ 4,717,126
--------- -----------
--------- -----------
</TABLE>
66
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATIONAL MUNICIPAL
FUND SELECT SHARES
----------------------
PERIOD ENDED
DECEMBER 31, 1997
----------------------
SHARES AMOUNT
--------- -----------
<S> <C> <C> <C> <C>
Shares issued............... 274,236 $ 2,750,010
Shares reinvested........... 1,002 10,113
--------- -----------
Net increase................ 275,238 $ 2,760,123
--------- -----------
--------- -----------
</TABLE>
67
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT
SECURITIES FUND
SELECT SHARES
---------------------
PERIOD ENDED
DECEMBER 31, 1997
---------------------
SHARES AMOUNT
--------- ----------
<S> <C> <C>
Shares issued........................................... 391,245 $3,943,065
Shares reinvested....................................... 4,514 45,655
Shares redeemed......................................... (6,827) (69,119)
--------- ----------
Net increase............................................ 388,932 $3,919,601
--------- ----------
--------- ----------
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE SECURITIES
FUND SELECT SHARES
----------------------
PERIOD ENDED
DECEMBER 31, 1997
----------------------
SHARES AMOUNT
--------- -----------
<S> <C> <C>
Shares issued......................................... 1,647,704 $16,626,836
Shares reinvested..................................... 30,335 307,847
Shares redeemed....................................... (2,458) (25,000)
--------- -----------
Net increase.......................................... 1,675,581 $16,909,683
--------- -----------
--------- -----------
</TABLE>
6. OTHER MATTERS. The High Yield Fund, the Emerging Markets Fund, the Latin
America Equity Fund, and the Mortgage Securities Fund invest in obligations of
foreign entities and securities denominated in foreign currencies. Such
investments involve risk not typically involved in domestic investments. Such
risks include fluctuations in foreign exchange rates, inability to convert
proceeds into U.S. dollars, application of foreign tax laws, foreign investment
restrictions, less publicly available information about foreign financial
instruments, less liquidity resulting from substantially less trading volume,
more volatile prices and generally less government supervision of foreign
securities markets and issuers.
The New York Municipal and California Municipal Funds invest primarily in
municipal obligations issued by the States of New York and California,
respectively, and their agencies, instrumentalities and various political
subdivisions. The Funds are more susceptible to factors adversely affecting
issuers of such obligations than comparable municipal securities funds that are
not so concentrated. If either New York or California or any of their local
governmental entities are unable to meet their financial obligations, the income
derived by the Funds and their ability to preserve capital and liquidity could
be adversely affected.
7. FEDERAL INCOME TAX INFORMATION (UNAUDITED). During the year ended December
31, 1997, the following Funds declared long-term capital distributions in the
following amounts:
<TABLE>
<S> <C>
High Yield Fund..................... $10,951,160
Emerging Markets Fund............... 3,777,145
Latin America Equity Fund........... 2,910
New York Municipal Fund............. 96,824
</TABLE>
During the year ended December 31, 1997, the following funds declared tax-exempt
income distributions in the following amounts:
<TABLE>
<S> <C>
New York Municipal Fund............. $1,286,481
California Municipal Fund........... 90,691
National Municipal.................. 16,597
</TABLE>
For corporate shareholders 1.05% of the total ordinary income distributions paid
during the fiscal year ended December 31, 1997 for the High Yield Fund qualifies
for the corporate dividends received deduction.
68
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------------------------------------
To the Shareholders
and Board of Directors of
The OFFITBANK Investment Fund, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, 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 OFFITBANK High Yield Fund,
OFFITBANK Emerging Markets Fund, OFFITBANK Latin America Equity Fund (formerly
"OFFITBANK Latin America Total Return Fund"), OFFITBANK New York Municipal Fund,
OFFITBANK California Municipal Fund, OFFITBANK National Municipal Fund,
OFFITBANK U.S. Government Securities Fund, and OFFITBANK Mortgage Securities
Fund (collectively, the "Funds," each constituting a portfolio of The OFFITBANK
Investment Fund, Inc.) at December 31, 1997, and the results of each of their
operations, the changes in each of their net assets and the financial highlights
for each of the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' 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 December 31, 1997 by correspondence with the
custodians and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 16, 1998
68
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
- -----------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Morris W. Offit
CHAIRMAN OF THE BOARD, PRESIDENT AND
DIRECTOR
Edward J. Landau
DIRECTOR
The Very Reverend
James Parks Morton
DIRECTOR
Dr. Wallace Mathai-Davis
SECRETARY AND TREASURER
Ellen F. Stoutamire
ASSISTANT SECRETARY
Alaina Metz
ASSISTANT SECRETARY
Matthew Constancio
ASSISTANT SECRETARY
Stephen Brent Wells
ASSISTANT TREASURER
Vincent M. Rella
ASSISTANT TREASURER
Martin R. Dean
ASSISTANT TREASURER
INVESTMENT ADVISER
OFFITBANK
520 Madison Avenue
New York, New York 10022
DISTRIBUTOR
OFFIT Funds Distributor, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
ADMINISTRATOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AND DIVIDEND DISBURSING AGENT
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIANS
The Chase Manhattan Bank
4 MetroTech Center, 18th Floor
Brooklyn, New York 11245
(OFFITBANK EMERGING MARKETS FUND AND
OFFITBANK LATIN AMERICAN EQUITY FUND)
The Bank of New York
48 Wall Street
New York, New York 10286
(ALL OTHER OFFITBANK FUNDS)
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3909
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
<PAGE>
The OFFITBANK Investment Fund, Inc.
125 West 55th Street, New York, NY 10019
(212) 758 9600
OFFITBANK Funds Distributor, Inc. is the distributor of the Funds' shares.
2/98
