OFFITBANK INVESTMENT FUND INC, N-30D, 1999-03-02

OFFITBANK INVESTMENT FUND INC
N-30D, 1999-03-02

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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, 1998

THE

[OFFITBANK LOGO]

INVESTMENT FUND, INC.
<PAGE>
PRESIDENT'S LETTER
- --------------------------------------------------------------------------------

Dear Shareholders:

We are very pleased to present you with the December 31, 1998 Annual Report for
The OFFITBANK Investment Fund, Inc. As of that date the Funds' investment
portfolios have assets of approximately $2.1 billion, an increase of
approximately $425 million over year-end 1997.

The specific results of the respective Funds, along with an investment and
market commentary from each portfolio manager, are part of this Annual Report.
As always, we have tried to make each market commentary informative, and I hope
that you will find them helpful.

We greatly value your participation in our Funds. 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,

[LOGO]

Morris W. Offit

February 16, 1999
<PAGE>
OFFITBANK
HIGH YIELD FUND

- --------------------------------------------------------------------------------
Second half 1998 performance was a function of the significant repricing of
risks across all markets after the well publicized Russian default and hedge
fund turmoil. The Fund's net investment return for the second half of 1998 after
all fees and expenses was approximately break-even. The full year total return
of 4.49% is virtually identical to the 4.48% return for the first half. The
December 31, 1998 NAV of $9.91 was approximately 4% lower than the $10.34 NAV at
the beginning of the year. Reflective of the higher market yields and lower
prices, the 30 day SEC yield increased to 9.40% at year end from 8.28% on June
30, 1998. The net assets of the Fund increased to $1,740 million from $1,347
million at December 31, 1997.

Over the course of 1998, a number of events had a significant impact on the high
yield market. At the beginning of the year, high yield benefited from
unexpectedly strong growth in the economy and robust demand for high yield
securities. Demand continued to outstrip supply until mid July, when new issues
finally needed wider spreads to clear the market. August brought a marked change
in the environment as Russia defaulted and a large hedge fund required
additional capital. The high yield market became swept up in the global turmoil
as all spread products, regardless of quality, widened against Treasuries. For
example, the double A corporate bond spread doubled from 60 basis points in May
to over 130 basis points in mid October. Illiquidity ruled all markets. Amidst a
declining equity market, problems in the emerging markets and forced portfolio
liquidations, dealers were unwilling to bid aggressively for high yield
securities. The quoted bid of the average high yield bond declined approximately
10 points, with lower quality credits falling even more.

By October the high yield market's spread to treasuries had widened over 400
basis points to about 700 basis points. After a series of interest rate cuts by
the Federal Reserve, the market stabilized during the fourth quarter and spreads
narrowed 140 basis points to close the year 560 basis points over Treasuries.
During the year, spreads within the high yield market also widened, with the
double B to single B spread increasing 110 basis points on the year to 260 basis
points. Better quality outperformed the lower quality sectors, reversing the
trend of the past few years.

For the first time, high yield spreads widened significantly in the absence of
any large scale defaults. Market risks, liquidity premiums and the fear of
future defaults have pushed spreads back to levels last seen in late 1991.
Year-end market spreads for high yield imply significantly higher default levels
than have been experienced the past few years. Domestic default rates for 1998
were still below 2% and below the historical average which is now approximately
3%. While the fundamental credit environment is not as positive as it has been
over the past several years, we still expect defaults to remain at or below the
historic averages.

The bonds of fundamentally sound credits have turned around after every cyclical
decline in the high yield market. History has shown that following a major
repricing of the high yield market, above average returns are earned over the
following 12 to 24 months. The benefit of higher spreads compounded over a
reasonable period of time cannot be emphasized strongly enough. Current spreads
provide a large cushion against a further increase in risk premiums or the
occasional credit loss that may occur.

Technically, 1998 was another record year for new issuance. Approximately
two-thirds of the $150 billion issued came to market in the first half of the
year. New issue supply was dominated by single B's and with the large number of
tenders and debt retirements in the double B sector, the composition of the
market is changing. The double B sector in aggregate did not grow in size in
1998 and declined to below 40% of the total market. This trend may lead to a
modest natural downgrading of the portfolio over time as it may become more
difficult to replace called or upgraded bonds with similar quality and value.

We intend to stay with our philosophy and strategy of holding better quality
high yield securities. While our approach has produced good returns in strong
markets, it has provided superior performance in down cycles or periods of
dislocation such as we experienced during the second half of 1998. We were able
to modestly upgrade the portfolio by buying better quality securities during the
period of market weakness.

Several corporate actions affected the portfolio during the second half of 1998.
A large number of holdings including Centennial Cellular, Vanguard Cellular,
Host Marriot Properties, Sifto Canada and Allied Waste announced tenders for
their debt securities at investment grade spreads. Additionally, several issues
including Time Warner, Pacific Lumber and World Color Press were called. During
the second half of 1998, 20 issues totaling approximately $110 million were
either called, tendered, or defeased. Over the past twelve months approximately
18% of average net assets of the Fund have been either tendered, called or
defeased.

2
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<PAGE>
OFFITBANK
HIGH YIELD FUND

- --------------------------------------------------------------------------------

In keeping with our focus on the better quality segment of the high yield
market, approximately 42% of the holdings in the Fund are rated either Ba3 or
better by Moody's or BB- or better by Standard & Poor's. Additionally, 65% of
the holdings are rated at least B1 or B+. The Fund is very well diversified with
over 225 issues and no single credit is larger than 1.5% of the Fund's assets.

Stephen T. Shapiro

January 15, 1999

The following graph represents the total return based on a $250,000 investment
made in the OFFITBANK High Yield Fund (including its predecessor partnership as
discussed below) at January 1, 1988 and held through December 31, 1998 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* INDEX
<S> <C> <C> <C>
12/31/87 $250,000 $250,000
12/31/88 $299,640 $283,683
12/31/89 $307,292 $295,683
12/31/90 $303,351 $282,830
12/31/91 $403,889 $380,623
12/31/92 $491,167 $449,746
12/31/93 $594,883 $527,026
12/31/94 $609,946 $520,872
12/31/95 $718,188 $624,541
12/31/96 $807,629 $693,634
12/31/97 $905,334 $782,593
12/31/98 $945,996 $811,279
Average Annual Total Return
One Year Five Years Ten Years
OFFITBANK High Yield Fund 4.49% 9.72% 12.18%
Merrill Lynch All High Yield Bond
Index 3.66% 9.03% 10.87%
</TABLE>

The OFFITBANK High Yield Fund-Advisor shares total return for the period May 1,
1998 (initial sale of Advisor shares) through December 31, 1998 was 0.67%.

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 restriction 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.

* 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.

3
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<PAGE>
OFFITBANK
HIGH YIELD FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
--------------------------------------------------------------------------------------------
CORPORATE BONDS (90.6%)
AEROSPACE/DEFENSE (0.5%)
Decrane Aircraft Hlds. 12.00%, 09/30/08
(144A)....................................... $ 3,000,000(1) $ 3,000,000
Sequa Corp. Sr Notes, 8.75%, 12/15/01......... 5,600,000 5,698,000
--------------
8,698,000
--------------
AUTOMOTIVE (2.7%)
Delco Remy International Inc. Sr Sub Notes,
10.625%, 08/01/06............................ 4,000,000 4,280,000
Exide Corp. Sr Notes, 10.00%, 04/15/05........ 7,000,000 6,965,000
Exide Holding Europe SA, 9.125%, 04/15/04
(144A)....................................... 18,000,000(a)(1) 10,591,287
Federal-Mogul Corp. Notes, 7.875%, 07/01/10... 6,000,000 6,142,440
Hayes Wheels International Inc. Sr Sub Notes,
9.125%, 07/15/07............................. 7,000,000 7,280,000
Sonic Automotive Sr Sub Notes, 11.00%,
08/01/08..................................... 8,000,000 7,680,000
Walbro Corp. Sr Notes, 10.125%, 12/15/07...... 3,500,000 3,395,000
--------------
46,333,727
--------------
BROADCAST/MEDIA (6.3%)
Big Flower Press Sr Sub Notes, 8.875%,
07/01/07..................................... 11,000,000 11,220,000
Echostar Communications Sr Discount Notes,
0/12.875%, 06/01/04.......................... 21,000,000(2) 21,472,500
Fox/Liberty Networks L.L.C. Sr Notes, 8.875%,
08/15/07..................................... 7,000,000 7,105,000
Granite Broadcasting Corp. Sr Sub Notes,
9.375%, 12/01/05............................. 6,000,000 5,895,000
Heritage Media Corp. Sr Sub Notes, 8.75%,
02/15/06..................................... 4,500,000 4,702,500
Hollinger International Publishing Sr Sub
Notes, 9.25%, 03/15/07....................... 6,500,000 6,857,500
Lamar Advertising Co. Sr Sub Notes, 9.625%,
12/01/06..................................... 6,500,000 7,036,250
Mail-Well Corp. Sr Sub Notes, 8.75%, 12/15/08
(144A)....................................... 5,000,000(1) 5,000,000
MDC Communications Corp. Sr Sub Notes, 10.50%,
12/01/06..................................... 4,750,000 4,845,000
Outdoor Systems Inc. Sr Sub Notes, 8.875%,
06/15/07..................................... 9,000,000 9,630,000
Satelites Mexicanos SA Sr Notes, 10.125%,
11/01/04..................................... 4,500,000 3,735,000
Sinclair Broadcast Group Inc Sr Sub Notes,
10.00%, 09/30/05............................. 4,000,000 4,200,000
Viacom Inc. Sub Notes, 8.00%, 07/07/06........ 11,000,000 11,484,000
World Color Press Sr Sub Notes, 8.375%,
11/15/08 (144A).............................. 6,000,000(1) 6,030,000
--------------
109,212,750
--------------
CABLE (8.4%)
Adelphia Communications Corp. Sr Notes, 9.50%,
02/15/04..................................... 8,150,781(4) 8,619,451
Adelphia Communications Corp. Sr Notes,
9.875%, 03/01/07............................. 6,000,000 6,645,000
Century Communications Corp. Sr Notes, 8.875%,
01/15/07..................................... 5,500,000 6,077,500
Century Communications Corp. Sr Notes, 9.75%,
02/15/02..................................... 6,500,000 7,020,000
Comcast Corp. Sr Sub Debs., 9.375%,
05/15/05..................................... 8,000,000 8,500,000
CSC Holdings Inc. Sr Notes, 9.25%, 11/01/05... 6,500,000 6,922,500
Diamond Holdings PLC Sr Notes, 9.125%,
02/01/08..................................... 5,000,000 4,887,500
Jones Intercable Inc. Sr Sub Debs., 10.50%,
03/01/08..................................... 7,500,000 8,287,500
Lenfest Communications, Inc. Sr Notes, 8.375%,
11/01/05..................................... 12,500,000 13,531,250
Marcus Cable Operating Sr Sub Discount Notes,
0/13.50%, 08/01/04........................... 13,500,000(2) 13,533,750
Mediacom L.L.C./Capital Sr Notes, 8.50%,
04/15/08..................................... 8,000,000 8,180,000
NTL Inc. Sr Notes, 0/9.75%, 04/01/08 (144A)... 12,500,000(1)(2) 7,703,125
NTL Inc. Sr Notes, 10.00%, 02/15/07........... 6,500,000 6,662,500
Olympus Communications L.P. Sr Notes, 10.625%,
11/15/06..................................... 10,000,000 11,000,000
Rogers Cablesystems Ltd. Sr 2nd Priority
Notes, 10.00%, 03/15/05...................... 3,000,000 3,360,000
Rogers Cablesystems Ltd. Sr Secured 2nd
Priority Notes, 9.625%, 08/01/02............. 3,000,000 3,225,000
Rogers Cablesystems Ltd. Sr Secured 2nd
Priority Notes, 9.65%, 01/15/14.............. 2,500,000(d) 1,709,051
Rogers Communications Inc. Sr Notes, 9.125%,
01/15/06..................................... 3,500,000 3,605,000
TeleWest Communications PLC Sr Discount Debs.,
0/11.00%, 10/01/07........................... 19,000,000(2) 15,865,000
--------------
145,334,127
--------------
CHEMICAL (2.0%)
Borden Chemicals & Plastics Sr Notes, 9.50%,
05/01/05..................................... 10,500,000 8,610,000
ISP Holdings Inc. Sr Notes, 9.00%, 10/15/03... 5,000,000 5,287,500
Pioneer Americas Acquisition Sr Secured Notes,
9.25%, 06/15/07.............................. 6,000,000 4,800,000
</TABLE>

The accompanying notes are an integral part of the financial statements.
4
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<PAGE>
OFFITBANK
HIGH YIELD FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
--------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
CHEMICAL (CONTINUED)
Polymer Group Inc. Sr Sub Notes, 9.00%,
07/01/07..................................... $ 6,000,000 $ 5,940,000
Terra Industries Inc. Sr Notes, 10.50%,
06/15/05..................................... 10,000,000 10,300,000
--------------
34,937,500
--------------
CONSUMER GROUPS (6.5%)
Albecca Inc. Sr Sub Notes, 10.75%, 08/15/08
(144A)....................................... 3,000,000(1) 3,007,500
Ameriserve Food Co. Sr Notes, 8.875%,
10/15/06..................................... 7,500,000 6,937,500
Chiquita Brands International Inc. Sr Notes,
10.25%, 11/01/06............................. 4,000,000 4,090,000
Chiquita Brands International Inc. Sr Notes,
9.125%, 03/01/04............................. 6,000,000 6,000,000
Chiquita Brands International Inc. Sr Notes,
9.625%, 01/15/04............................. 4,000,000 4,080,000
CHS Electronics Inc. Sr Notes, 9.875%,
04/15/05..................................... 7,000,000 6,755,000
Cott Corp. Sr Notes, 8.50%, 05/01/07.......... 4,000,000 3,520,000
Fedders N.A. Sr Sub Notes, 9.375%, 08/15/07... 8,500,000 8,500,000
Fisher Scientific International, Inc. Sr Sub
Notes, 9.00%, 02/01/08....................... 7,000,000 6,965,000
Fleming Companies Inc. Sr Sub Notes, 10.50%,
12/01/04..................................... 3,000,000 2,835,000
Host Marriott Travel Plaza Sr Notes, 9.50%,
05/15/05..................................... 9,000,000 9,360,000
Imperial Holly Sr Sub Notes, 9.75%,
12/15/07..................................... 7,500,000 7,387,500
Nash Finch Co. Sr Sub Notes, 8.50%,
05/01/08..................................... 6,500,000 6,142,500
Playtex Products Inc. Sr Notes, 8.875%,
07/15/04..................................... 9,000,000 9,405,000
Revlon Consumer Products Sr Sub Notes, 8.625%,
02/01/08..................................... 12,000,000 11,040,000
Samsonite Corp. Sr Sub Notes, 10.75%,
06/15/08..................................... 5,000,000 4,350,000
United Artists Theatre Pass Through
Certificates, 9.30%, 07/01/15................ 10,502,932 10,240,359
United Auto Group Inc. Sr Sub Notes, 11.00%,
07/15/07..................................... 4,000,000 3,320,000
--------------
113,935,359
--------------
FINANCIAL SERVICES/INSURANCE (1.8%)
Americo Life Inc. Sr Sub Notes, 9.25%,
06/01/05..................................... 3,000,000 3,075,000
Amresco Inc. Sr Sub Notes, 9.875%, 03/15/05... 10,000,000 7,000,000
Nationwide Credit Sr Notes, 10.25%,
01/15/08..................................... 4,000,000 3,200,000
Presidential Life Corp. Sr Notes, 9.50%,
12/15/00..................................... 3,500,000 3,561,250
Reliance Group Holdings Inc Sr Sub Notes,
9.75%, 11/15/03.............................. 7,500,000 7,781,250
United Companies Financial Sub Notes, 8.375%,
07/01/05..................................... 4,000,000 2,080,000
Veritas Holdings Sr Notes, 9.625%, 12/15/03... 4,536,000 4,581,360
--------------
31,278,860
--------------
FOREST & PAPER PRODUCTS (5.4%)
Ball Corp. Sr Sub Notes, 8.25%, 08/01/08
(144A)....................................... 5,000,000(1) 5,231,250
Container Corp. of America Sr Notes, 11.25%,
05/01/04..................................... 3,500,000 3,640,000
Container Corp. of America Sr Notes, 9.75%,
04/01/03..................................... 5,000,000 5,125,000
Crown Paper Co. Sr Sub Notes, 11.00%,
09/01/05..................................... 3,500,000 3,080,000
Doman Industries Limited Sr Notes, 9.25%,
11/15/07..................................... 8,000,000 5,920,000
Fort Howard Corp. Pass Through Certificates,
11.00%, 01/02/02............................. 2,098,966 2,098,965
Gaylord Container Corp. Sr Notes, 9.75%,
06/15/07..................................... 10,000,000 8,850,000
Pindo Deli Financial Mauritius Gtd. Sr Notes,
10.75%, 10/01/07............................. 5,500,000 2,915,000
Repap New Brunswick First Priority Sr Secured
Notes, 9.00%, 06/01/04....................... 11,000,000 10,010,000
Repap New Brunswick Sr Notes, 9.01%, 06/01/04
(144A)....................................... 5,000,000(1)(3) 4,718,750
Silgan Holdings, Inc. Sr Sub Debs., 9.00%,
06/01/09..................................... 3,500,000 3,605,000
Stone Container Corp. Sr Secured Notes,
10.75%, 10/01/02............................. 7,000,000 7,245,000
Stone Container Corp. Sr Sub Debs., 12.25%,
04/01/02..................................... 7,500,000 7,650,000
Stone Container Corp. Sr Sub Notes, 11.00%,
08/15/99..................................... 3,500,000 3,552,500
Stone Container Finance Co. Sr Notes, 11.5%,
08/15/06 (144A).............................. 5,500,000(1) 5,788,750
Tembec Finance Corp. Sr Notes, 9.875%,
09/30/05..................................... 8,500,000 8,882,500
U.S. Timberlands Finance Corp. Sr Notes,
9.625%, 11/15/07............................. 6,500,000 6,565,000
--------------
94,877,715
--------------
</TABLE>

The accompanying notes are an integral part of the financial statements.
5
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<PAGE>
OFFITBANK
HIGH YIELD FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
--------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
GENERAL INDUSTRIES/MANUFACTURING (7.1%)
Advanced Micro Devices Sr Notes, 11.00%,
08/01/03..................................... $ 3,000,000 $ 3,217,500
Allied Waste North America Sr Notes, 7.625%,
01/01/06 (144A).............................. 7,500,000(1) 7,575,000
American Business Inform Sr Sub Notes, 9.50%,
06/15/08 (144A).............................. 3,500,000(1) 2,800,000
Celestica International Sr Sub Notes, 10.50%,
12/31/06..................................... 3,175,000 3,460,750
CEX Holdings Inc. Sr Sub Notes, 9.625%,
06/01/08..................................... 8,000,000 7,200,000
Congoleum Corp. Sr Notes, 8.625%, 08/01/08.... 6,000,000 5,910,000
Delta Mills Inc. Sr Notes, 9.625%, 09/01/07... 7,000,000 6,772,500
Envirosource Inc. Sr Notes, 9.75%, 06/15/03... 3,000,000 2,760,000
Foamex L.P. Sr Sub Notes, 9.875%, 06/15/07.... 2,500,000 2,625,000
Furon Company Sr Sub Notes, 8.125%,
03/01/08..................................... 5,000,000 4,950,000
Galey & Lord Inc. Sr Sub Notes, 9.125%,
03/01/08..................................... 7,500,000 6,487,500
Hadco Corp. Sr Sub Notes, 9.50%, 06/15/08..... 5,000,000 4,937,500
Nortek Inc. Sr Notes, 9.125%, 09/01/07........ 5,000,000 5,137,500
Nortek Inc. Sr Notes, 8.875%, 08/01/08
(144A)....................................... 4,000,000(1) 4,110,000
Nortek Inc. Sr Sub Notes, 9.875, 03/01/04..... 6,000,000 6,255,000
Pillowtex Corporation Sr Sub Notes, 10.00%,
11/15/06..................................... 2,500,000 2,675,000
Primark Corp. Sr Sub Notes, 9.25%, 12/15/08
(144A)....................................... 6,000,000(1) 6,030,000
Southdown Inc. Sr Sub Notes, 10.00%,
03/01/06..................................... 5,500,000 6,133,050
Unisys Corp. Sr Notes, 11.75%, 10/15/04....... 5,700,000 6,612,000
United Rentals Inc. Sr Sub Notes, 9.50%,
06/01/08..................................... 8,000,000 8,080,000
Wesco Distribution Inc. Sr Sub Notes, 9.125%,
06/01/08..................................... 9,000,000 9,000,000
Williams Scotsman Inc. Sr Notes, 9.875%,
06/01/07..................................... 10,000,000 10,400,000
--------------
123,128,300
--------------
HEALTH CARE (5.4%)
Columbia/HCA Healthcare Medium Term Notes,
8.85%, 01/01/07.............................. 7,500,000 7,978,725
Columbia/HCA Healthcare Notes, 7.00%,
07/01/07..................................... 3,500,000 3,378,410
Columbia/HCA Healthcare Notes, 7.25%,
05/20/08..................................... 5,000,000 4,896,050
Conmed Corp. Sr Sub Notes, 9.00%, 03/15/08.... 8,500,000 8,521,250
Extendicare Health Services Sr Sub Notes,
9.35%, 12/15/07.............................. 7,000,000 6,650,000
Genesis Health Ventures Sr Sub Notes, 9.875%,
01/15/09 (144A).............................. 6,500,000(1) 6,272,500
Integrated Health Services Inc. Sr Sub Notes,
9.50%, 09/15/07.............................. 12,000,000 11,280,000
Magellan Health Services Sr Sub Notes, 9.00%,
02/15/08..................................... 7,000,000 6,160,000
Medaphis Corp. Sr Notes, 9.50%, 02/15/05...... 6,500,000 4,810,000
Pharmerica Inc. Sr Sub Notes, 8.375%,
04/01/08..................................... 7,000,000 6,265,000
Quest Diagnostic Inc. Sr Sub Notes, 10.75%,
12/15/06..................................... 3,000,000 3,330,000
Sun Healthcare Group Inc. Sr Sub Notes,
9.375%, 05/01/08 (144A)...................... 6,000,000(1) 4,800,000
Tenet Healthcare Corp. Sr Sub Notes, 8.125%,
12/01/08 (144A).............................. 7,000,000(1) 7,227,500
Tenet Healthcare Corp. Sr Sub Notes, 8.625%,
01/15/07..................................... 4,500,000 4,680,000
Vencor Operating Inc. Sr Sub Notes, 9.875%,
05/01/05..................................... 8,500,000 7,055,000
--------------
93,304,435
--------------
HOTELS & GAMING (6.0%)
Alliance Gaming Corp. Sr Sub Notes, 10.00%,
08/01/07..................................... 6,500,000 5,850,000
Felcor Suites L.P. Sr Notes, 7.625%,
10/01/07..................................... 10,000,000 9,445,100
Grand Casino Inc. Sr Sub Notes, 10.125%,
12/01/03..................................... 4,000,000 4,361,080
HMH Properties Sr Notes, 7.875%, 08/01/08..... 10,000,000 9,700,000
Hollywood Park Operating Inc. Sr Sub Notes,
9.50%, 08/01/07.............................. 9,000,000 9,000,000
John Q. Hammons Hotels L.P. First Mtg. Notes,
8.875%, 02/15/04............................. 10,500,000 9,660,000
John Q. Hammons Hotels L.P. First Mtg. Notes,
9.75%, 10/01/05.............................. 7,000,000 6,545,000
Park Place Entertainment Sr Sub Notes, 7.875%,
12/15/05 (144A).............................. 5,000,000(1) 5,006,250
Prime Hospitality Corp. First Mtg. Notes,
9.25%, 01/15/06.............................. 8,000,000 8,320,000
Prime Hospitality Corp. Sr Sub Notes, 9.75%,
04/01/07..................................... 6,000,000 6,120,000
Red Roof Inns Inc. Sr Sub Notes, 9.625%,
12/15/03..................................... 4,000,000 4,070,000
Station Casinos Sr Sub Notes, 8.875%, 12/01/08
(144A)....................................... 5,000,000(1) 5,000,000
Station Casinos Sr Sub Notes, 9.75%,
04/15/07..................................... 2,500,000 2,600,000
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, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
--------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
HOTELS & GAMING (CONTINUED)
Trump Atlantic City First Mtg. Notes II,
11.25%, 05/01/06............................. $ 5,000,000 $ 4,375,000
Trump Atlantic City First Mtg. Notes, 11.25%,
05/01/06..................................... 8,500,000 7,437,500
--------------
104,699,930
--------------
METALS & MINING (7.5%)
AK Steel Corp. Sr Notes, 9.125%, 12/15/06..... 11,000,000 11,467,500
Armco Inc. Sr Notes, 8.875%, 12/01/08
(144A)....................................... 8,000,000(1) 7,960,000
Armco Inc. Sr Notes, 9.00%, 09/15/07.......... 10,000,000 10,200,000
Armco Inc. Sr Notes, 9.375%, 11/01/00......... 5,600,000 5,684,000
Centaur Mining Exploration Sr Secured Notes,
11.00%, 12/01/07............................. 7,500,000 6,825,000
EES Coke Battery Co. Inc. Series B, Sr Secured
Notes, 9.382%, 04/15/07 (144A)............... 5,750,000(1) 5,635,000
Freeport McMoran C&G Deb., 7.20%, 11/15/26.... 8,500,000 5,525,000
Glencore Nickel Pty Limited Sr Secured Bonds,
9.00%, 12/01/14.............................. 16,000,000 13,120,000
Great Central Mines Ltd. Sr Notes, 8.875%,
04/01/08..................................... 5,000,000 4,987,500
Inland Steel Co. First Mortgage, 7.90%,
01/15/07..................................... 7,000,000 7,000,000
Kaiser Aluminum & Chemical Corp. Sr Notes,
10.875%, 10/15/06............................ 6,000,000 6,150,000
Kaiser Aluminum & Chemical Corp. Sr Notes,
9.875%, 02/15/02............................. 4,500,000 4,545,000
LTV Corp. Sr Notes, 8.20%, 09/15/07........... 13,500,000 12,150,000
National Steel Corp., 8.375%, 08/01/06........ 7,735,000 7,870,362
Oregon Steel Mills First Mtg. Notes, 11.00%,
06/15/03..................................... 5,000,000 5,150,000
Wheeling-Pittsburgh Corp. Sr Notes, 9.25%,
11/15/07..................................... 10,000,000 9,400,000
WHX Corporation Sr Notes, 10.50%, 04/15/05.... 7,000,000 6,440,000
--------------
130,109,362
--------------
OIL/GAS (7.3%)
Clark R&M Inc. Sr Notes, 8.625%, 08/15/08..... 5,000,000 4,725,000
Clark R&M Inc. Sr Sub Notes, 8.875%,
11/15/07..................................... 6,000,000 5,340,000
Crown Central Petroleum Corp. Sr Notes,
10.875%, 02/01/05............................ 2,400,000 2,208,000
Denbury Management Inc., 9.00%, 03/01/08...... 5,000,000 4,450,000
Energy Corp of America Sr Sub Notes, 9.50%,
05/15/07..................................... 5,000,000 4,625,000
Ferrellgas Partner L.P. Sr Notes, 9.375%,
06/15/06..................................... 7,000,000 7,000,000
Frontier Oil Corp. Sr Notes, 9.125%,
02/15/06..................................... 3,500,000 3,220,000
Giant Industries Services, Inc. Sr Sub Notes,
9.00%, 09/01/07.............................. 10,000,000 9,600,000
Grey Wolf Inc. Sr Notes, 8.875%, 07/01/07..... 11,500,000 8,625,000
Gulf Canada Resources Ltd. Sr Sub Debs.,
9.25%, 01/15/04.............................. 10,000,000 9,999,300
Houston Exploration Co. Sr Sub Notes, 8.625%,
01/01/08..................................... 6,000,000 5,880,000
J Ray McDermott S.A. Sr Sub Notes, 9.375%,
07/15/06..................................... 7,500,000 7,800,000
KCS Energy, Inc. Sr Notes, 11.00%, 01/15/03... 11,000,000 9,680,000
Newpark Resources Inc. Sr Sub Notes, 8.625%,
12/15/07..................................... 10,000,000 9,500,000
Nuevo Energy Co. Sr Sub Notes, 9.50%,
04/15/06..................................... 3,000,000 2,970,000
Parker Drilling Co. Sr Notes, 9.75%,
11/15/06..................................... 8,000,000 7,160,000
Pride Petroleum Services Sr Notes, 9.375%,
05/15/07..................................... 3,000,000 2,790,000
Tesoro Petroleum Corp. Sr Sub Notes, 9.00%,
07/01/08..................................... 9,000,000 8,820,000
Transamerican Energy Sr Secured Discount
Notes, 0/13.00%, 06/15/02.................... 8,000,000(2) 1,920,000
Trico Marine Services Sr Notes, 8.50%,
08/01/05..................................... 11,750,000 9,987,500
--------------
126,299,800
--------------
REAL ESTATE (3.6%)
CB Richard Ellis Sr Sub Notes, 8.875%,
06/01/06..................................... 10,500,000 10,185,000
Forest City Enterprises Sr Notes, 8.50%,
03/15/08..................................... 8,500,000 8,521,250
MDC Holdings Inc. Sr Notes, 8.375%,
02/01/08..................................... 8,500,000 8,372,500
NVR Inc. Sr Notes, 8.00%, 06/01/05............ 8,000,000 7,840,000
Rockefeller Center Properties Sr Notes, 0.00%,
12/31/00..................................... 20,000,000 15,600,000
Tanger Properties L.P. Sr Notes, 7.875%,
10/24/04..................................... 9,000,000 8,505,000
Trizec Finance Ltd. Sr Notes, 10.875%,
10/15/05..................................... 2,965,000 3,239,262
--------------
62,263,012
--------------
</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, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
--------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
RETAIL (2.4%)
Finlay Fine Jewelry Corp. Sr Notes, 8.375%,
05/01/08..................................... $ 9,000,000 $ 8,280,000
Nine West Group Inc. Sr Notes, 8.375%,
08/15/05..................................... 6,000,000 5,790,000
Petro Stopping Centers Sr Notes, 10.50%,
02/01/07..................................... 6,000,000 6,270,000
Phillips Van-Heusen Sr Sub Notes, 9.50%,
05/01/08..................................... 6,000,000 6,000,000
The Pantry Inc. Sr Sub Notes, 10.25%,
10/15/07..................................... 4,500,000 4,702,500
Travelcenters of America, Inc. Sr Sub Notes,
10.25%, 04/01/07............................. 6,000,000 5,970,000
Zale Corp. Sr Notes, 8.50%, 10/01/07.......... 5,000,000 4,850,000
--------------
41,862,500
--------------
TELECOMMUNICATIONS-WIRELESS (6.5%)
CCPR Services Inc. Sr Notes, 10.00%,
02/01/07..................................... 4,875,000 4,875,000
Centennial Cellular Corp. Sr Notes, 8.875%,
11/01/01..................................... 14,000,000 14,840,000
Centennial Cellular Corp. Sr Sub Notes,
10.75%, 12/15/08 (144A)...................... 6,000,000(1) 6,030,000
Comcast Cellular Holdings Sr Notes, 9.50%,
05/01/07..................................... 9,000,000 9,607,500
Globalstar L.P. Capital Corp. Sr Notes,
10.75%, 07/01/08............................. 6,000,000 4,320,000
Ico Global Communications Sr Notes, 15.00%,
08/01/05..................................... 6,000,000 4,470,000
Metrocall Inc. Sr Sub Notes, 11.00%, 09/15/08
(144A)....................................... 6,000,000(1) 6,030,000
Nextel Communications Sr Discount Notes,
0/10.65%, 09/15/07........................... 22,000,000(2) 14,190,000
Orange PLC Sr Notes, 7.625%, 08/01/08......... 12,500,000(b) 14,678,253
Paging Network Sr Sub Notes, 10.125%,
08/01/07..................................... 12,500,000 12,187,500
Price Communications Wireless Sr Notes,
9.125%, 12/15/06 (144A)...................... 12,000,000(1) 12,120,000
Rogers Cantel Inc. Sr Sub Notes, 8.80%,
10/01/07..................................... 10,500,000 10,591,875
--------------
113,940,128
--------------
TELECOMMUNICATIONS-WIRELINE (4.5%)
Call Net Enterprises Sr Discount Notes,
0/8.94%, 08/15/08............................ 10,000,000(2) 5,875,000
E.Spire Communications Sr Discount Notes,
0/10.625%, 07/01/08.......................... 6,000,000(2) 2,460,000
Flag Limited Sr Notes, 8.25%, 01/30/08........ 12,000,000 11,880,000
Hermes Europe Railtel Sr Notes, 10.375%,
01/15/09 (144A).............................. 4,000,000(1) 4,060,000
Intermedia Communications Sr Discount Notes,
0/12.50%, 05/15/06........................... 10,000,000(2) 7,825,000
Intermedia Communications Sr Discount Notes,
0/11.25%, 07/15/07........................... 12,000,000(2) 8,280,000
IXC Communications Inc. Sr Sub Notes, 9.00%,
04/15/08..................................... 7,000,000 7,008,750
Metronet Communications Corp. Sr Discount
Notes, 0/9.95%, 06/15/08..................... 10,000,000(2) 6,125,000
Nextlink Communications Sr Notes, 10.75%,
11/15/08 (144A).............................. 7,500,000(1) 7,668,750
Psinet Inc. Sr Notes, 10.00%, 02/15/05........ 8,000,000 7,920,000
Time Warner Telecom L.L.C. Sr Notes, 9.75%,
07/15/08..................................... 7,000,000 7,350,000
Verio Inc. Sr Notes, 11.25%, 12/01/08
(144A)....................................... 2,000,000(1) 2,020,000
--------------
78,472,500
--------------
TRANSPORTATION (4.3%)
Airtrans Airlines Sr Notes, 10.50%,
04/15/01..................................... 5,500,000 4,812,500
Canadian Airlines Corp. Sr Notes, 10.00%,
05/01/05..................................... 6,000,000 5,130,000
Coach USA Inc. Sr Sub Notes, 9.375%,
07/01/07..................................... 8,500,000 8,755,000
Eletson Holdings Inc. 1st Pfd. Mtg. Notes,
9.25%, 11/15/03.............................. 5,000,000 4,875,000
Eurotunnel Finance Ltd, 5.28%, 01/15/12....... 96,000,000(c)(5) 14,693,851
Navigator Gas Transport First Priority Ship
Mtg. Notes, 10.50%, 06/30/07 (144A).......... 6,000,000(1) 5,280,000
Piedmont Aviation Inc. Equipment Trust
Certificates 1988 Series A, 9.80%,
01/15/00..................................... 942,000 959,342
Piedmont Aviation Inc. Equipment Trust
Certificates 1988 Series F, 10.15%,
03/28/03..................................... 1,000,000 1,072,070
Sea Containers Ltd. Sr Notes, 9.50%,
07/01/03..................................... 3,000,000 3,090,000
Sea Containers Ltd. Sr Notes, 7.875%,
02/15/08..................................... 7,500,000 7,312,500
Stena AB Sr Notes, 10.50%, 12/15/05........... 5,000,000 5,162,500
Stena Line Sr Notes, 10.625%, 06/01/08........ 6,000,000 5,400,000
U.S. Air Inc. Equipment Trust Certificates
1990 Series A, 11.20%, 03/19/05.............. 3,421,871 3,644,293
U.S. Air, Inc. Equipment Trust Certificates
1988 Series B, 10.00%, 01/15/02.............. 1,334,000 1,404,609
U.S. Air, Inc. Equipment Trust Certificates
1990 Series B, 10.33%, 06/27/02.............. 803,000 858,897
U.S. Air, Inc. Equipment Trust Certificates
1990 Series D, 10.28%, 06/27/01.............. 837,000 879,185
U.S. Air, Inc. Equipment Trust Certificates
1990 Series D, 10.43%, 06/27/04.............. 1,014,000 1,109,265
</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, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
--------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
TRANSPORTATION (CONTINUED)
U.S. Air, Inc. Equipment Trust Certificates
1998 Series B, 9.80%, 01/15/00............... $ 654,000 $ 666,040
--------------
75,105,052
--------------
UTILITIES (2.4%)
AES Corp. Sr Notes, 8.00%, 12/31/08........... 6,000,000 5,962,500
AES Corp. Sr Sub Notes, 8.375%, 08/15/07...... 6,000,000 6,030,000
AES Corp. Sr Sub Notes, 8.50%, 11/01/07....... 5,500,000 5,555,000
Calpine Corp. Sr Notes, 10.50%, 05/15/06...... 5,500,000 6,022,500
Calpine Corp. Sr Notes, 8.75%, 07/15/07....... 8,500,000 8,925,000
Cleveland Electric Illum 1st Mtg. Bonds,
9.50%, 05/15/05.............................. 4,000,000 4,331,920
Tucson Electric Power Company, Springerville
Unit 1, 10.21%, 01/01/09..................... 5,526,015 5,857,576
--------------
42,684,496
--------------
TOTAL CORPORATE BONDS (COST $1,601,996,509)... 1,576,477,553
--------------
FOREIGN GOVERNMENTS (1.0%)
SOVEREIGN DEBT (1.0%)
Brazil Brady NMB Series L, Floating Rate
Bonds, 6.1875%, 04/15/09..................... 14,500,000(3)+ 7,929,687
Republic of Brazil IDU, Floating Rate Note,
6.75%, 01/01/01.............................. 10,762,500(3) 9,692,977
--------------
TOTAL FOREIGN GOVERNMENTS (COST
$17,612,596)................................. 17,622,664
--------------
MORTGAGE-BACKED SECURITIES (0.3%)
REAL ESTATE (0.2%)
RTC Mtg. Tr. Series 1994-C1 Class F Mortgage
Loan Backed Bonds, 8.00%, 06/25/26........... 2,002,167 2,022,189
RTC Mtg. Tr. Series 1994-C2 Class G Mortgage
Loan Backed Bonds, 8.00%, 04/25/25........... 1,410,924 1,425,034
--------------
3,447,223
--------------
RETAIL (0.1%)
National Convenience Realty Co. Secured Notes,
9.50%, 06/30/03.............................. 1,457,821(5) 1,523,423
--------------
TOTAL MORTGAGE-BACKED SECURITIES (COST
$3,933,177).................................. 4,970,646
--------------
PREFERRED STOCKS (2.3%)
CABLE (0.4%)
CSC Holdings Inc. Pfd., 11.125%, Series M,
04/01/08..................................... 65,824(4) 7,372,251
--------------
FINANCIAL SERVICES (0.3%)
IBJ Preferred Cap Co. LLC Series A, 8.79%,
06/30/08 (144A).............................. (6,0001)(3) 5,280,000
--------------
FOREST & PAPER PRODUCTS (0.0%)
Stone Container, $1.75, Series E, 03/18/99.... 16,700 315,212
--------------
HEALTH CARE (0.9%)
Fresenius Medical Care Capital Trust II Pfd.,
7.875%, 02/01/08............................. 5,000 4,975,000
Fresenius Medical Care Capital Trust Pfd.,
9.00%, 12/01/06.............................. 10,000 10,450,000
--------------
15,425,000
--------------
METALS & MINING (0.1%)
Freeport McMoran Corp. Series Gold,
08/01/03..................................... 75,500 1,123,063
--------------
TELECOMMUNICATIONS-WIRELESS (0.6%)
Centaur Funding Corp. Pfc., 9.08%, 04/21/20
(144A)....................................... 10,000(1) 10,200,000
--------------
TOTAL PREFERRED STOCKS (COST $39,088,111)..... 39,715,526
--------------
</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, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
--------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS (4.0%)
Bank of New York Repurchase Agreement 4.50%,
01/04/99 (dated 12/31/98; proceeds
$69,795,180, collateralized by $50,000,000
U.S. Treasury Notes, 6.00%, due 08/15/00,
valued at $52,125,000 and $17,665,000 U.S.
Treasury Notes, 6.375%, due 08/15/02, valued
at $19,034,038).............................. $ 69,760,300 $ 69,760,300
--------------
TOTAL REPURCHASE AGREEMENTS (COST
$69,760,300)................................. 69,760,300
--------------
TOTAL INVESTMENTS (COST $1,732,390,693)(+) --
98.2%........................................ 1,708,546,689
OTHER ASSETS IN EXCESS OF LIABILITIES 1.8%.... 31,082,538
--------------
TOTAL NET ASSETS -- 100.0%.................... $1,739,629,227
--------------
--------------
</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 .......................... $ 38,414,840
Unrealized depreciation .......................... (62,258,844)
------------
Net unrealized depreciation ...................... $(23,844,004)
------------
------------
</TABLE>

(a) German Deutsche Mark
(b) European Currency Unit
(c) French Franc
(d) 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) Interest rate in effect at December 31, 1998.
(4) Payment In Kind Security.
(5) Illiquid Security.

The accompanying notes are an integral part of the financial statements.
10
- -------------
<PAGE>
OFFITBANK
EMERGING MARKETS FUND

- --------------------------------------------------------------------------------

Even though The OFFITBANK Emerging Markets Fund for the period of September 30,
1998 to December 31, 1998 produced a total return of 17.1%, the total return for
1998 was still a disappointing negative 11.9%. The net asset value per share as
of December 31, 1998 was $8.20.

The 30-day SEC yield as of December 31, 1998 for the Fund was 14.4%, compared to
16.1% on September 30, 1998. The Fund had an average duration of 3.9 years and
an average maturity of 7.7 years.

Dollar-denominated instruments account for 100% of the portfolio. Country
diversification is as follows: Brazil (48%), Argentina (27%), and Mexico (25%).
We remain primarily focused on the U.S. dollar-denominated corporate Eurobonds
with 75% of the portfolio invested in this sector, 23% invested in U.S.
dollar-denominated sovereign debt and 2% in cash and accrued interest.

1998 proved a difficult year for the Emerging Markets investor. The continued
effects of 1997's Asian currency crises, Russia's default on its domestic debt
in August, and the well publicized collapse of several large hedge funds
triggered a global upward re-pricing of risk. As global investors began to
increasingly avoid risky investments, credit and capital available to Emerging
Markets borrowers contracted sharply, causing further concern for those
countries and companies that had been relying on financing from the
international capital markets.

All eyes focused on Brazil in late 1998 and remain fixed there today. The
successful re-election of President Fernando Henrique Cardoso and the IMF-led
support package of US$42 billion temporarily reassured the markets in December.
However, the political reality of passing restrictive budget measures through a
politically diverse legislature in an economy already in recession with rising
unemployment was fraught with difficulties. Political missteps and the time
required to negotiate with Congress placed Brazil under pressure.

As we were preparing this report, Brazil announced a 9% devaluation of the Real
in an effort to execute a controlled devaluation. However, confidence in the new
foreign exchange policy collapsed and the resulting large increases in capital
outflows made the new currency target unsustainable. Within two days the
currency was allowed to free float and depreciated an additional 15%, for a
total depreciation of approximately 25%. We did not think such a devaluation was
necessary. All the implications of this action are not clear at this point, but
we do know that Brazil is a significant economy ($800 billion) with a strong
banking sector. We will be sending you an extended commentary on the economic
conditions in Brazil and their implications in the near future.

Political conditions and other imponderables not withstanding, the Fund's
portfolio is well invested in rigorously selected credits--all U.S.
Dollar-denominated bonds--solely sovereigns and top-tier companies in Brazil,
Argentina and Mexico with established business franchises with every indication
that they will be able to service their debt in this environment.

Richard M. Johnston Wallace Mathai-Davis

January 15, 1999

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, 1998 as well as the performance of
the J.P. Morgan Latin Eurobond Index, the J.P. Morgan Emerging Markets Bond
Index+ and the Lipper Analytical Emerging Market Debt 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>
OFFITBANK EMERGING 50% J.P. MORGAN EMERGING MARKETS

<S> <C> <C>
Markets Fund Bond Index+ and 50% J.P. Morgan
Latin America Eurobond Index
3/8/94 $250,000 $250,000
12/31/94 $240,114 $223,245
12/31/95 $296,290 $283,016
12/31/96 $374,924 $394,257
12/31/97 $414,750 $445,583
12/31/98 $365,244 $381,644
Average Annual Total Return One Year
OFFITBANK Emerging Markets Fund* (11.92%)
Composite Index; 50% J.P. Morgan Emerging Markets Bond Index+
and 50% J.P. Morgan Latin America Eurobond Index (8.51%)
J.P. Morgan Latin America Eurobond Index (2.67%)
J.P. Morgan Emerging Markets Bond Index+ (14.35%)
Lipper Analytical Emerging Market Debt Index (21.21%)

<CAPTION>
J.P. MORGAN LATIN J.P. MORGAN EMERGING
<S> <C>
America Eurobond Index Markets Bond Index+

3/8/94 $250,000 $250,000
12/31/94 $223,131 $223,768
12/31/95 $279,125 $282,157
12/31/96 $333,644 $364,410
12/31/97 $370,364 $408,258
12/31/98 $360,469 $372,959
Since Inception
Average Annual Total Return (March 8, 1994)
OFFITBANK Emerging Markets Fund* 8.16%
Composite Index; 50% J.P. Morgan Emerging Markets Bond Index+
and 50% J.P. Morgan Latin America Eurobond Index 8.45%
J.P. Morgan Latin America Eurobond Index 7.87%
J.P. Morgan Emerging Markets Bond Index+ 9.15%
Lipper Analytical Emerging Market Debt Index 5.76%

<CAPTION>
LIPPER ANALYTICAL EMERGING
Market Debt Index

3/8/94 $250,000
12/31/94 $221,380
12/31/95 $264,063
12/31/96 $364,884
12/31/97 $416,020
12/31/98 $327,773

Average Annual Total Return
OFFITBANK Emerging Markets Fund*
Composite Index; 50% J.P. Morgan Emerging Markets Bond Index+
and 50% J.P. Morgan Latin America Eurobond Index
J.P. Morgan Latin America Eurobond Index
J.P. Morgan Emerging Markets Bond Index+
Lipper Analytical Emerging Market Debt Index
</TABLE>

12
- -------------
<PAGE>
OFFITBANK
EMERGING MARKETS FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
- --------------------------------------------------------------------------------------
CORPORATE BONDS (74.7%)
AUTOMOTIVE (1.0%)
BRAZIL (1.0%)
Ford Brasil Ltd, 9.25%, 01/22/07............ $ 1,680,000 $ 1,499,400
------------
BANKS (6.8%)
ARGENTINA (6.0%)
Banco de la Ciudad, 9.375%, 03/31/01
(144A)..................................... 500,000(1) 475,000
Banco Hipotecario S.A., 10.00%, 04/17/03
(144A)..................................... 8,900,000(1) 8,099,000
Banco Roberts, 11.75%, 11/16/00............. 300,000 304,500
------------
8,878,500
------------
BRAZIL (0.6%)
Banco Barclay, 8.00%, 10/15/05.............. 500,000 450,000
Banco Credibanco S.A., 7.75%, 08/15/05...... 500,000 430,000
------------
880,000
------------
MEXICO (0.2%)
Grupo Financiero Banamex Convertible,
11.00%, 07/15/03........................... 400,000 351,000
------------
10,109,500
------------
BUILDING MATERIALS (1.2%)
MEXICO (1.2%)
Cemex International Capital L.L.C., 9.66%,
11/29/49................................... 250,000 225,625
Cemex International Capital L.L.C., 9.66%,
11/29/49 (144A)............................ 1,750,000(1) 1,579,375
------------
1,805,000
------------
FOOD (8.4%)
ARGENTINA (4.7%)
Mastellone Hermanos S.A., 11.75%,
04/01/08................................... 8,750,000 7,000,000
------------
BRAZIL (3.7%)
Arisco Products Alimenticios, 10.75%,
05/22/05................................... 8,000,000 4,900,000
Arisco Products Alimenticios, 10.75%,
05/22/05 (144A)............................ 1,000,000(1) 612,500
------------
5,512,500
------------
12,512,500
------------
INDUSTRIAL (6.8%)
MEXICO (6.8%)
Sanluis Corp. S.A., 8.875%, 03/18/08
(144A)..................................... 4,000,000(1) 3,120,000
Vicap S.A., 11.375%, 05/15/07............... 8,000,000 7,060,000
------------
10,180,000
------------
INFRASTRUCTURE (2.3%)
ARGENTINA (2.3%)
Cia Latino Americana, 11.625%, 06/01/04..... 4,550,000 2,775,500
Cia Latino Americana, 11.625%, 06/01/04
(144A)..................................... 1,000,000(1) 610,000
------------
3,385,500
------------
MANUFACTURING (3.5%)
MEXICO (3.5%)
International de Ceramica S.A., 9.75%,
08/01/02................................... 7,150,000 5,183,750
------------
</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, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
MEDIA (5.8%)
BRAZIL (4.0%)
Global Communicacoes Participacoes, 10.625%,
12/05/08................................... $ 2,470,000 $ 1,586,975
Global Communicacoes Participacoes, 10.625%,
12/05/08 (144A)............................ 850,000(1) 546,125
Globo Communicacoes Participacoes, 10.50%,
12/20/06................................... 3,250,000 2,088,125
O Estado De Sao Paulo, 9.375%, 07/03/05..... 750,000 562,500
RBS Participacoes S.A., 11.00%, 04/01/07
(144A)..................................... 2,000,000(1) 1,200,000
------------
5,983,725
------------
MEXICO (1.8%)
Grupo Televisa S.A., (Regular), 0/13.25%,
05/15/08................................... 850,000(2) 622,625
Grupo Televisa S.A., 0/13.25%, 05/15/08..... 1,650,000(2) 1,208,625
TV Azteca S.A. de C.V., 10.125%, 02/15/04... 1,000,000 840,000
------------
2,671,250
------------
8,654,975
------------
METALS & MINING (1.1%)
BRAZIL (1.1%)
Companhia Vale do Rio Doce, 10.00%,
04/02/04................................... 1,700,000 1,606,500
------------
PACKAGING (5.8%)
MEXICO (5.8%)
Grupo Industrial Durango, 12.625%,
08/01/03................................... 9,915,000 8,650,838
------------
PETROCHEMICALS (2.0%)
BRAZIL (2.0%)
Opp Petroquimica, 11.00%, 10/29/04 (144A)... 550,000(1) 357,500
Opp Petroquimica, 11.50%, 02/23/04.......... 2,400,000 2,268,000
Trikem, 10.625%, 07/24/07................... 600,000 282,000
------------
2,907,500
------------
RETAIL (2.2%)
ARGENTINA (2.2%)
Disco S.A., 9.125%, 05/15/03................ 1,450,000 1,276,000
Disco S.A., 9.875%, 05/15/08................ 2,400,000 2,052,000
------------
3,328,000
------------
STEEL (13.4%)
ARGENTINA (4.0%)
Acindar, 11.25%, 02/15/04................... 7,500,000 6,000,000
------------
BRAZIL (6.0%)
CSN Iron S.A., 9.125%, 06/01/07............. 10,900,000 6,812,500
Metalurgica Gerdau, 11.125%, 05/24/04....... 2,250,000 2,176,875
------------
8,989,375
------------
MEXICO (3.4%)
Hylsa S.A. de C.V., 9.25%, 09/15/07......... 6,600,000 5,082,000
------------
20,071,375
------------
TELECOMMUNICATIONS (6.9%)
ARGENTINA (5.0%)
Impsat Corp., 12.125%, 07/15/03............. 6,500,000 5,882,500
Telefonica Argentina, 9.125%, 05/07/08
(144A)..................................... 1,750,000(1) 1,601,250
------------
7,483,750
------------
MEXICO (1.9%)
Grupo Iusacell S.A. de C.V., 10.00%,
07/15/04................................... 3,250,000 2,827,500
------------
10,311,250
------------
</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, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (7.5%)
ARGENTINA (1.5%)
Edenor, 9.75%, 12/04/01..................... $ 1,300,000 $ 1,222,000
IEBA, 9.00%, 09/16/04....................... 1,250,000 925,000
------------
2,147,000
------------
BRAZIL (6.0%)
Companhia Energia Minas Gerais, 9.125%,
11/18/04................................... 3,200,000 2,656,000
Companhia Paranaense de Energia, 9.75%,
05/02/05................................... 2,750,000 2,282,500
Furnas Centrais Electrica, 9.00%,
05/23/05................................... 1,000,000 840,000
SABESP, 10.00%, 07/28/05.................... 4,500,000 3,150,000
------------
8,928,500
------------
11,075,500
------------
TOTAL CORPORATE BONDS (COST $137,682,183)... 111,281,588
------------
FOREIGN GOVERNMENTS (22.7%)
SOVEREIGN DEBT (22.7%)
ARGENTINA (0.5%)
Republic of Argentina, 11.00%, 10/09/06..... 750,000 735,465
------------
BRAZIL (22.2%)
Brazil Brady Capitalization Step-Up Bonds,
5.00/8.00%, 04/15/14....................... 8,832,150(2) 5,238,569
Brazil Brady DCB Floating Rate Bonds,
6.1875%, 04/15/12.......................... 6,250,000(3) 3,128,906
Brazil Brady Discount Z, Floating Rate
Notes, 6.125%, 04/15/24.................... 3,000,000(3) 1,756,875
Brazil Brady NMB Series L, Floating Rate
Bonds, 6.1875%, 04/15/09................... 12,150,000(3) 6,644,531
Brazil Brady NMB, Floating Rate Bonds,
6.1875%, 04/15/09.......................... 7,060,000(3) 3,860,938
Republic of Brazil EI, Floating Rate Notes,
6.125%, 04/15/06........................... 16,464,000(3) 10,567,830
Republic of Brazil IDU, Floating Rate Notes,
6.75%, 01/01/01............................ 1,998,750(3) 1,800,124
------------
32,997,773
------------
TOTAL FOREIGN GOVERNMENTS (COST
$47,227,930)............................... 33,733,238
------------
REPURCHASE AGREEMENTS (0.8%)
UNITED STATES (0.8%)
Chase Manhattan Bank Repurchase Agreement,
3.95%, 01/04/99 (dated 12/31/98; proceeds
$1,228,502, collateralized by $895,000 U.S.
Treasury Note 8.75% due 05/15/17, valued at
$1,255,238).................................. 1,227,425 1,227,425
------------
TOTAL REPURCHASE AGREEMENTS (COST
$1,227,425).................................. 1,227,425
------------
TOTAL INVESTMENTS (COST $186,137,538)(+) --
98.2%........................................ 146,242,251
OTHER ASSETS IN EXCESS OF LIABILITIES 1.8%.... 2,663,261
------------
TOTAL NET ASSETS -- 100.0%.................... $148,905,512
------------
------------
</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 .......................... $ 765,591
Unrealized depreciation .......................... (40,660,878)
------------
Net unrealized depreciation ...................... $(39,895,287)
------------
------------
</TABLE>

(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 in effect at December 31, 1998.

Country Diversification (as a percentage of Total Investments):

<TABLE>
<S> <C>
Brazil .......................................... 47.79%
Argentina ....................................... 26.87%
Mexico .......................................... 25.34%
-----
100.00%
-----
-----
</TABLE>

The accompanying notes are an integral part of the financial statements.
15
-------------
<PAGE>
OFFITBANK
LATIN AMERICA EQUITY FUND

- --------------------------------------------------------------------------------
The OFFITBANK Latin America Equity Fund's total return for 1998 was a
disappointing negative 46.96%. The market began to recover, however, in the
fourth quarter, resulting in a total return of 5.00% for that period. The net
asset value per share as of December 31, 1998 was $7.34.

As of December 31, 1998, the Fund was fully invested and was diversified across
the three largest economies in Latin America, with 55% in Brazil, 30% in Mexico
and 15% in Argentina. At year-end, the Fund was invested across 11 industries
with the largest positions in Telecommunications (23%), Retail (16%), Banks
(13%), and Electric Utilities (13%). We believe these sectors present the best
prospects for earnings growth during 1999.

1998 was an exceedingly difficult year for the Latin American equity markets, as
the continuing effects of the Asian currency crises of 1997, the Russian
domestic debt default in August 1998, and the well publicized collapse of
several hedge funds drove risk premia dramatically higher. Interest rate spreads
over US Treasurys for Latin American sovereign bonds increased to 1700 basis
points from 600 basis points at mid-year before falling to 1100 basis point by
year-end (these spreads resulted in yields of approximately 22% and 17%,
respectively). As a result, the stock indices of the three largest markets,
Argentina, Brazil, and Mexico, were down 37%, 38%, and 38% respectively, for the
year. Our relative under-performance versus the indices was due to our focus on
the larger capitalization companies in these indices which bore the brunt of the
correction, as sellers unloaded those positions which offered the most
liquidity.

The companies in our portfolio have Price to Earnings (P/E) multiples (based on
depressed 1999 estimated earnings) in the range of 7-10x, with two-year
(1998-2000) annual earnings growth of 8-15%. The "blue-chip" companies of Latin
America have significant franchise value arising from their dominant market
positions and strong management. The strategic value of these companies is
recognized in the level of acquisitions in the region by G-7 (mostly US and
European) multinational corporations.

Based on our view that yields on Latin American debt will decline over the
course of 1999, we believe that the equity markets will first stabilize, and
then refocus on fundamentals. It is both the long-term franchise value of Latin
American companies as well as their ability to deliver good earnings growth
which substantiate our confidence in these investments.

Richard M. Johnston

January 15, 1999

16
- -------------
<PAGE>
OFFITBANK
LATIN AMERICA EQUITY FUND

- --------------------------------------------------------------------------------

The following graph represents the total return based on a $250,000 investment
made in the OFFITBANK Latin America Equity Fund at the trading commencement date
of February 13, 1996 and held through December 31, 1998 as well as the
performance of the ING Barings Emerging Markets--Latin America Equity 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 LATIN AMERICA ING BARINGS EMERGING MARKETS-LATIN
EQUITY FUND* AMERICA EQUITY INDEX
2/13/96 $239,525 $233,886
3/1/96 $242,447 $238,123
6/30/96 $271,686 $260,942
<S> <C> <C>
9/30/96 $287,227 $260,552
12/31/96 $308,425 $267,341
3/31/97 $345,817 $307,872
6/30/97 $408,202 $375,022
9/30/97 $442,013 $383,655
12/31/97 $383,042 $343,173
3/31/98 $382,389 $343,195
6/30/98 $302,813 $277,281
9/31/98 $193,480 $206,600
12/31/98 $203,155 $221,735
Total Return One Year Since Inception (February 13, 1996)
OFFITBANK Latin America Equity Fund -46.96% -6.87%
ING Barings Emerging Markets-Latin America Equity Index -35.39% -4.03%
</TABLE>

17
-------------
<PAGE>
OFFITBANK
LATIN AMERICA EQUITY FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
- -----------------------------------------------------------------
COMMON STOCKS (42.2%)
BANKS (6.2%)
ARGENTINA (6.2%)
Banco de Galicia y Buenos Aires
S.A. de CV -- ADR................ 57,703 $ 1,017,015
-----------
BEVERAGES (2.5%)
MEXICO (2.5%)
Coca-Cola Femsa S.A. -- ADR....... 31,300 414,725
-----------
BREWERY (7.3%)
ARGENTINA (2.8%)
Quilmes Industrial S.A. -- ADR.... 49,000 456,313
-----------
MEXICO (4.5%)
Grupo Modelo S.A. de CV Series
C................................ 349,800 741,004
-----------
1,197,317
-----------
BUILDING MATERIALS (2.9%)
MEXICO (2.9%)
Cemex S.A. de CV.................. 221,225 477,583
-----------
FOOD (7.9%)
MEXICO (7.9%)
Grupo Industrial Bimbo S.A. de CV
Series A......................... 452,222 868,804
Sigma Alimentos S.A. Series B..... 239,234 416,071
-----------
1,284,875
-----------
IRON & STEEL (2.1%)
BRAZIL (2.1%)
Companhia Siderurgica Nacional
S.A.............................. 15,500 346,383
-----------
RETAIL (11.2%)
ARGENTINA (0.8%)
Importadora y Exportadora de la
Patagonia Class B................ 16,254 126,895
-----------
MEXICO (10.4%)
Cifra S.A. de CV Series V*........ 390,357 473,652
Grupo Elektra S.A. de CV -- GDR... 57,750 288,750
Organizacion Soriana S.A. de CV
Class B.......................... 287,900 931,554
-----------
1,693,956
-----------
1,820,851
-----------
UTILITIES (2.1%)
BRAZIL (2.1%)
Companhia de Electricidade do
Estado do Rio de Janeiro*........ 1,029,200 340,738
-----------
TOTAL COMMON STOCKS (COST
$8,683,647)...................... 6,899,487
-----------
PREFERRED STOCKS (52.4%)
BANKS (7.0%)
BRAZIL (7.0%)
Banco Bradesco S.A. Class A....... 54,780 303,779
Banco Itau S.A. Class A........... 933 455,604
Unibanco Class A -- GDR........... 26,740 386,059
-----------
1,145,442
-----------
IRON & STEEL (0.7%)
BRAZIL (0.7%)
Gerdau S.A. Class A............... 14,613 108,856
-----------
METALS & MINING (2.2%)
BRAZIL (2.2%)
Companhia Vale do Rio Doce S.A.
Class A.......................... 28,100 360,495
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.
18
- -------------
<PAGE>
OFFITBANK
LATIN AMERICA EQUITY FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS (CONTINUED)
OIL/GAS (3.8%)
BRAZIL (3.8%)
Petroleo Brasileiro S.A. Class
A................................ 5,550 $ 629,325
-----------
RETAIL (5.1%)
BRAZIL (5.1%)
Companhia Brasileira de
Distribuicao Grupo Pao de Acucar
Class A.......................... 51,436 830,162
-----------
TELECOMMUNICATIONS (22.7%)
ARGENTINA (5.0%)
Telecom Argentina S.A. Class B --
ADR.............................. 13,870 381,425
Telefonica de Argentina S.A. Class
B -- ADR......................... 15,620 436,384
-----------
817,809
-----------
BRAZIL (17.7%)
Embratel Participacoes S.A. Class
A*............................... 48,000 655,521
Tele Sudeste Celular Participacoes
S.A. Class A..................... 27,960 118,023
Telecomunicacoes de Sao Paulo S.A.
Class A.......................... 5,382 733,645
Telerj Celular S.A. Class B....... 15,060 355,247
Telesp Celular Participacoes S.A.
Class A.......................... 10,810 79,630
Telesp Celular S.A. Class B....... 16,126 708,724
Telesp Participacoes S.A. Class
A................................ 10,580 240,813
-----------
2,891,603
-----------
3,709,412
-----------
UTILITIES (10.9%)
BRAZIL (10.9%)
Centrais Eletricas Brasileiras
S.A. Class B..................... 17,850 342,758
Companhia Energetica de Minas
Gerais Class A................... 30,589 582,302
Companhia Energetica do Ceara
Class A.......................... 135,884 337,404
Companhia Paulista de Forca e Luz
Class A.......................... 1,840 132,495
Electropaulo Metropolitana de Sao
Paulo S.A. Class A............... 8,463 392,259
-----------
1,787,218
-----------
TOTAL PREFERRED STOCKS (COST
$13,531,536)..................... 8,570,910
-----------
RIGHTS/WARRANTS (0.0%)
BANKS (0.0%)
BRAZIL (0.0%)
Banco Bradesco S.A................ 2,105 0
-----------
TOTAL RIGHTS/WARRANTS (COST $0)... 0
-----------
</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, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS (7.9%)
UNITED STATES (7.9%)
Chase Manhattan Bank Repurchase
Agreement, 3.95%, 01/04/99 (dated
12/31/98; proceeds $1,299,062,
collateralized by $1,060,000 U.S.
Treasury Note 7.50% due 11/15/16,
valued at $1,326,325)............ $1,298,492 $ 1,298,492
-----------
TOTAL REPURCHASE AGREEMENTS (COST
$1,298,492)...................... 1,298,492
-----------
TOTAL INVESTMENTS (COST
$23,513,675)(+) -- 102.5%........ 16,768,889
LIABILITIES IN EXCESS OF OTHER
ASSETS (2.5%).................... (412,757)
-----------
TOTAL NET ASSETS -- 100.0%........ $16,356,132
-----------
-----------
</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 .......................... $ 485,150
Unrealized depreciation .......................... (7,229,936)
-----------
Net unrealized depreciation ...................... $(6,744,786)
-----------
-----------
</TABLE>

* Denotes non-income producing security.
ADR -- American Depository Receipt.
GDR -- Global Depository Receipt.

Country Diversification (as a percentage of Total Investments):

<TABLE>
<S> <C>
Brazil ........................................... 54.56%
Mexico ........................................... 29.81%
Argentina ........................................ 15.63%
-----------
100.00%
-----------
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.
20
- -------------
<PAGE>
OFFITBANK
NEW YORK MUNICIPAL FUND

- --------------------------------------------------------------------------------
The second half and full year 1998 total returns for the OFFITBANK New York
Municipal Fund were 2.37% and 6.03%, respectively. The Lehman Brothers Five Year
Municipal Index returned 2.29% and 5.84% for the comparable time periods. The
net assets of the Fund continued to grow, finishing the year at approximately
$67 million, up from $42 million at December 31, 1997. The 30-day SEC yield for
the month ending December 1998 was 3.85%. Average annual return for the Fund
since inception on April 3, 1995 was 6.9%. For that time period, the annualized
return of the Lehman Brothers Five Year Municipal Index was 6.3%.

The Fund's year end net asset value (NAV) price of $10.82 is 1.2% higher than
the 1997 year end price of $10.69. Vital to the management of the Fund is the
after-tax return. We avoid gains unless we are attempting to protect the
principal of the account or if the projected after-tax return of a prospective
purchase is greater than a sale candidate. This year our net realized gain
totaled approximately $.06 per share.

In 1998 the underlying fundamentals for the municipal market were extremely
positive as inflation was low and the economy continued to grow at a healthy
pace. Although international and national events made bond markets throughout
the nation and the world more volatile, municipal yields fluctuated within a
narrow range. Shorter maturites finally declined sharply after the Fed eased in
August.

Most notable for the municipal market during the 1998 calendar year was the
tremendous amount of supply that continued unabated throughout the year. The
year's $282 billion of issuance was second to 1993's record of $291 billion. The
combination of supply plus the bond buyer's flight to safety resulted in a
modest under-performance of the municipal market versus the Treasury market.
However, of all of the high grade domestic bond sectors, the municipal market
was the second best performing market. As we enter 1999, our expectation for
moderate economic growth, low inflation, and slightly lower municipal new
issuance bodes well for the performance of municipals.

For the year, the issuance of New York bonds was significant as its state and
local governments, and state and local agencies sold $36.5 billion of debt,
representing a 32% increase over the $27.6 billion issued in 1997. Most of the
incremental issuance consisted of the Long Island Power Authority (LIPA) and New
York State Power's refunding. The excess supply of New York municipals weighed
heavily on the New York market. Within the state, there is a bifurcation of the
market in which the mega issuers such as the State, the MTA, LIPA, are valued
modestly cheaper than those issuers which come to the market infrequently or
have a smaller amount of debt outstanding. Included in the latter category are
issuers such as Monroe County, Albany County and New York State Dormitory for
Columbia. The portfolio continues to have a nice balance of both the mega
issuers and the smaller issuers. We seek yield with the former and liquidity
with the latter. The municipal investor is no longer paid to downgrade their
holdings as credit spreads are extremely narrow. Therefore the portfolio is
entirely invested in investment grade securities and the average quality rating
of the portfolio's holdings is above average at AA.

Over the past fifteen years, we have seen a sharp decline in the absolute level
of municipal yields. This decline has occurred during a generally healthy,
disinflationary economic environment. In 1998, the municipal investor suffered
from what is colloquially referred to as "sticker" shock and attempted to avoid
yields less than 5% during the first half of the year. By the fourth quarter,
the investor was more concerned with the preservation of capital and yields with
the 4 handle became the norm. At these yield levels an extension of the
portfolio's maturity can only be warranted if the economy slows. We expect to
maintain a somewhat neutral maturity posture for the Fund and will extend if
yields increase to more compelling levels or if the economy shows consistent
signs of slowing. At year end the portfolio's average maturity was 6.5 years and
the average duration was 5.2 years.

Carolyn N. Dolan

January 15, 1999

21
-------------
<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, 1998 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 LEHMAN BROTHERS 5 YEAR

<S> <C> <C> <C>
Municipal Fund Municipal Bond Index
4/3/1995 $250,300 $250,960
6/30/1995 $256,160 $256,666
9/30/1995 $262,926 $262,804
12/31/1995 $270,276 $268,200
3/31/1996 $268,670 $268,233
6/30/1996 $269,954 $269,680
9/30/1996 $273,963 $274,123
12/31/1996 $280,342 $279,570
3/31/1997 $280,144 $279,489
6/30/1997 $288,231 $286,303
9/30/1997 $295,894 $292,435
12/31/1997 $302,386 $297,413
3/31/1998 $305,805 $300,870
6/31/98 $309,555 $304,233
9/31/98 $318,663 $312,236
12/31/1998 $320,642 $314,803
Since Inception
Average Annual Total Return One Year (April 3, 1995)
OFFITBANK New York Municipal Fund* 6.03% 6.86%
Lehman Brothers 5 Year Municipal Bond Index 5.84% 6.34%
</TABLE>

22
- -------------
<PAGE>
'>

OFFITBANK
NEW YORK MUNICIPAL FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
- -----------------------------------------------------------------
FLOATING RATE NOTES (2.3%)
TRANSPORTATION REVENUE (0.1%)
New York State Thruway Authority,
5.05%, 01/01/24 (FGIC), 1-Day
Notes*............................. $ 100,000 $ 100,000
-----------
WATER & SEWER REVENUE (2.2%)
New York City Municipal Water
Financial Authority Water & Sewer
System Revenue Bonds, Series G,
5.10%, 06/15/24 (FGIC), 1-Day
Notes*............................. 1,400,000 1,400,000
New York City Municipal Water
Financing Authority Water & Sewer
System Revenue Bonds Series A,
5.20%, 06/15/25 (FGIC), 1-Day
Notes*............................. 100,000 100,000
-----------
1,500,000
-----------
TOTAL FLOATING RATE NOTES (COST
$1,600,000)........................ 1,600,000
-----------
MUNICIPAL BONDS (94.3%)
EDUCATION REVENUE (4.7%)
New York State Dormitory Authority
Revenue Bonds Columbia University,
5.00%, 07/01/02.................... 500,000 520,625
New York State Dormitory Authority
Revenue Bonds Columbia University,
5.25%, 07/01/06.................... 500,000 540,625
New York State Dormitory Authority
Revenue Bonds Cornell University,
4.80%, 07/01/03.................... 250,000 260,000
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,
5.50%, 07/01/04 (MBIA)............. 390,000 423,637
New York State Dormitory Authority
Revenue Bonds Rockefeller
University, 5.00%, 07/01/10........ 500,000 530,000
New York State Dormitory Authority
Revenue Bonds Vassar College,
5.00%, 07/01/09.................... 500,000 523,750
-----------
3,174,887
-----------
GENERAL OBLIGATIONS (31.0%)
Albany County General Obligation
Bonds Series B, 5.60%, 03/15/07
(FGIC)............................. 300,000 331,125
Albany County General Obligation
Bonds Series B, 5.60%, 03/15/09
(FGIC)............................. 400,000 440,500
Albany County New York General
Obligation Bonds, 4.80%, 10/01/02
(FGIC)............................. 850,000 880,812
Dutchess County General Obligation
Bonds, 4.90%, 08/01/04............. 215,000 226,556
Hempstead General Obligation Bonds
Series B, 5.00%, 02/15/09
(AMBAC)............................ 500,000 527,500
Hempstead General Obligation Bonds
Series B, 5.25%, 02/01/01 (FGIC)... 245,000 254,800
Hempstead General Obligation Bonds
Series B, 5.625%, 02/01/04
(FGIC)............................. 140,000 151,200
Hempstead Township General
Obligation Bonds Series A, 5.00%,
02/15/10 (AMBAC)................... 1,000,000 1,047,500
Islip General Obligation Bonds,
5.00%, 07/15/10 (FGIC)............. 1,000,000 1,040,000
Islip General Obligation Bonds,
6.00%, 11/01/05 (FGIC)............. 100,000 109,375
Monroe County General Obligation
Bonds, 5.50%, 06/01/09............. 300,000 328,500
Monroe County General Obligation
Bonds, 4.25%, 3/01/09.............. 1,500,000(1) 1,500,000
New Castle General Obligation Bonds,
4.75%, 06/01/08.................... 210,000 216,300
New York City General Obligation
Bonds Series B, 5.375%, 08/15/04... 500,000 531,250
New York City General Obligation
Bonds Series D, 5.75%, 08/01/07.... 325,000 356,687
New York City General Obligation
Bonds Series G, 5.35%, 08/01/13.... 1,025,000 1,066,000
New York City General Obligation
Bonds Series I, 6.00%, 04/15/08.... 805,000 900,594
New York State General Obligation
Bonds, 5.00%, 09/15/05............. 2,000,000 2,112,500
New York State General Obligation
Bonds, 5.00%, 10/15/06............. 1,260,000 1,332,450
New York State General Obligation
Bonds, 5.25%, 09/15/11............. 2,000,000 2,137,500
New York State General Obligation
Bonds, 5.70%, 03/15/10............. 400,000 431,000
Onondaga County General Obligation
Bonds, 5.00%, 05/01/11............. 1,000,000 1,060,000
Onondaga County General Obligation
Bonds, 5.40%, 04/01/01............. 150,000 155,625
Ontario County General Obligation
Bonds, 5.00%, 08/15/02 (FGIC)...... 250,000 260,312
Orange County General Obligation
Bonds, 5.00%, 09/01/01............. 500,000 516,875
Orange County General Obligation
Bonds, 6.00%, 11/15/08............. 470,000 539,325
Oyster Bay General Obligation Bonds,
5.70%, 02/15/07 (MBIA)............. 360,000 398,700
Putnam County General Obligation
Bonds, 4.15%, 04/15/05............. 695,000 701,950
Rochester General Obligation Bonds
Series A , 4.24%, 09/15/01......... 500,000 508,125
Rochester General Obligation Bonds,
5.00%, 10/01/03 (FGIC)............. 450,000 472,500
Schenectady County General
Obligation Bonds, 6.00%,
08/15/05........................... 200,000 223,500
Westchester County General
Obligation Bonds Series A, 5.85%,
11/15/04........................... 250,000 276,562
-----------
21,035,623
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.
23
-------------
<PAGE>
OFFITBANK
NEW YORK MUNICIPAL FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
HEALTH CARE (1.1%)
New York Medical Care Facility
Finance Authority, 6.20%, 08/15/14
(FHA).............................. $ 650,000 $ 729,625
-----------
HOUSING REVENUE (5.5%)
New York State Mortgage Agency
Revenue Bonds Series 50, 5.80%,
10/01/06 (AMT)..................... 200,000 213,500
New York State Mortgage Agency
Revenue Bonds Series 28, 6.45%,
10/01/20 (AMT)..................... 185,000 192,862
New York State Mortgage Agency
Revenue Bonds Series 37-A, 5.85%,
10/01/06........................... 125,000 134,687
New York State Mortgage Agency
Revenue Bonds Series 37-A, 5.95%,
04/01/07........................... 100,000 107,750
New York State Mortgage Agency
Revenue Bonds Series 46, 5.75%,
04/01/04 (AMT)..................... 200,000 211,000
New York State Mortgage Agency
Revenue Bonds Series 53, 5.35%,
04/01/07........................... 240,000 253,200
New York State Mortgage Agency
Revenue Bonds Series 61, 5.60%,
10/01/11........................... 650,000 683,312
New York State Mortgage Agency
Revenue Bonds Series 67, 4.55%,
10/01/02 (AMT)..................... 325,000 330,281
New York State Mortgage Agency
Revenue Bonds Series 67, 5.30%,
10/01/10 (AMT)..................... 585,000 604,012
New York State Mortgage Agency
Revenue Bonds Series 69, 4.90%,
04/01/08 (AMT)..................... 1,000,000 1,023,750
-----------
3,754,354
-----------
POWER AUTHORITY REVENUE (6.2%)
Long Island Power Authority Revenue
Bonds Series A, 4.30%, 12/01/02.... 770,000 777,700
Long Island Power Authority Revenue
Bonds, 4.25%, 04/01/03............. 2,000,000 2,012,500
New York State Power Authority
Revenue Bonds Series A, 5.00%,
02/15/04........................... 1,050,000 1,101,187
New York State Power Authority
Revenue Bonds Series CC, 4.90%,
01/01/06 (MBIA).................... 200,000 211,250
New York State Power Authority
Revenue Bonds Series Y, 6.25%,
01/01/05........................... 100,000 106,750
-----------
4,209,387
-----------
PREREFUNDED (2.9%)
New York State Environmental
Facilities Corporation Pollution
Control Revenue, 6.875%, 06/15/14,
Prerefunded 06/15/04............... 370,000 425,963
New York State Power Authority
Revenue Bonds Series CC, 4.80%,
01/01/05, Prerefunded 01/01/03..... 500,000 525,000
New York State Power Authority
Revenue Bonds Series CC, 4.90%,
01/01/06, Prerefunded 01/01/03..... 500,000 528,125
Niagara Falls Bridge Commission New
York Revenue Bonds, 6.125%,
10/01/19 (FGIC), Prerefunded
10/01/02........................... 415,000 456,500
-----------
1,935,588
-----------
SALES TAX REVENUE (13.0%)
Grand Central District Management
Association Inc., New York Special
Assessment Bonds, 6.20%,
01/01/00........................... 120,000 122,808
Grand Central District Management
Association Inc., New York Special
Assessment Bonds, 6.50%,
01/01/22........................... 150,000 164,250
Municipal Assistance Corp. for City
of New York Revenue Bonds Series D,
5.00%, 07/01/03 (AMBAC)............ 250,000 261,875
Municipal Assistance Corp. for City
of New York Revenue Bonds Series E,
4.70%, 07/01/02.................... 600,000 617,250
Municipal Assistance Corp. for City
of New York Revenue Bonds Series I,
6.25%, 07/01/07 (AMBAC)............ 750,000 860,625
Municipal Assistance Corp. for City
of New York Revenue Bonds Series M,
5.25%, 07/01/04.................... 500,000 531,875
New York City Transitional Finance
Authority Revenue Bonds, 4.50%,
08/15/06........................... 500,000 512,500
New York City Transitional Finance
Authority Revenue Bonds, 5.50%,
08/15/07........................... 1,000,000 1,096,250
New York City Transitional Finance
Authority Revenue Bonds, Series B,
4.00%, 11/15/01.................... 1,000,000 1,007,500
New York State Local Government
Assistance Corp. Revenue Bonds
Series A, 5.00%, 04/01/02
(AMBAC)............................ 315,000 340,200
New York State Local Government
Assistance Corp. Revenue Bonds
Series A, 5.00%, 04/01/05
(AMBAC)............................ 500,000 527,500
New York State Local Government
Assistance Corp. Revenue Bonds
Series A, 5.00%, 04/01/06.......... 100,000 105,000
New York State Local Government
Assistance Corp. Revenue Bonds
Series B, 5.25%, 04/01/04 (MBIA)... 1,750,000 1,863,750
New York State Local Government
Assistance Corp. Revenue Bonds
Series D, 4.75%, 04/01/04.......... 500,000 518,750
New York State Local Government
Assistance Corp. Revenue Bonds
Series D, 6.75%, 04/01/07.......... 250,000 277,188
-----------
8,807,321
-----------
TELECOMMUNICATION REVENUE (1.0%)
Puerto Rico Telephone Authority
Revenue Bonds Series L, 5.75%,
01/01/08........................... 500,000 528,125
Puerto Rico Telephone Authority
Revenue Bonds Series M, 5.05%,
01/01/04 (AMBAC)................... 150,000 157,688
-----------
685,813
-----------
TRANSPORTATION REVENUE (19.5%)
Metropolitan Transit Authority
Revenue Bonds Series A, 5.00%,
07/01/09 (MBIA).................... 300,000 321,000
Metropolitan Transit Authority
Revenue Bonds Series A, 5.25%,
04/01/09 (MBIA).................... 800,000 845,000
Metropolitan Transit Authority
Revenue Bonds Series B-1, 5.00%,
07/01/10 (AMBAC)................... 500,000 523,750
Metropolitan Transit Authority
Revenue Bonds Series C-1, 5.00%,
07/01/08 (FGIC).................... 1,000,000 1,061,250
</TABLE>

The accompanying notes are an integral part of the financial statements.
24
- -------------
<PAGE>
OFFITBANK
NEW YORK MUNICIPAL FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
TRANSPORTATION REVENUE (CONTINUED)
New York State Thruway Authority
General Revenue Bonds Series E,
5.25%, 01/01/10.................... $1,000,000 $ 1,071,250
New York State Thruway, Highway &
Bridge Authority Bonds Series B,
5.00%, 04/01/04 (FSA).............. 500,000 526,875
New York State Thruway, Highway &
Bridge Trust Bonds Series B, 5.75%,
04/01/06 (MBIA).................... 200,000 221,500
New York State Thruway, Highway &
Bridge Trust Fund Bonds Series A,
5.80%, 04/01/09.................... 300,000 321,750
New York State Thruway, Highway &
Bridge Trust Fund Bonds Series B,
5.75%, 01/01/09 (FGIC)............. 500,000 552,500
New York State Thruway, Highway &
Bridge Trust Fund Bonds Series B,
5.80%, 04/01/07 (FGIC)............. 600,000 662,250
Port Authority of New York & New
Jersey Bonds Series 112, 5.00%,
12/01/09 (AMT)..................... 1,250,000 1,292,188
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........................... 250,000 262,813
Port Authority of New York & New
Jersey Bonds Series 104, 5.125%,
07/15/12 (AMBAC)................... 2,000,000 2,077,500
Triborough Bridge & Tunnel Authority
Bonds Series A, 4.75%, 01/01/05.... 375,000 389,063
Triborough Bridge & Tunnel Authority
Bonds Series Y, 5.75%, 01/01/05.... 170,000 185,300
Triborough Bridge & Tunnel Authority
General Purpose Bonds, 5.625%,
01/01/04........................... 1,000,000 1,077,500
Triborough Bridge & Tunnel Authority
Special Obligation Bonds Series A,
5.25%, 01/01/13.................... 1,250,000 1,314,063
-----------
13,206,327
-----------
WATER & SEWER REVENUE (9.4%)
Erie County Water Authority
Improvement Revenue Bonds, 5.75%,
12/01/08........................... 650,000 708,500
New York City Municipal Water &
Sewer System Revenue Bonds Series
B, 4.75%, 06/15/01................. 650,000 665,438
New York City Municipal Water
Financing Authority Water & Sewer
System Revenue Bonds Series A,
4.90%, 06/15/02.................... 200,000 207,000
New York City Municipal Water
Financing Authority Water & Sewer
System Revenue Bonds Series A,
5.35%, 06/15/09.................... 225,000 237,094
New York City Municipal Water
Financing Authority Water & Sewer
System Revenue Bonds Series A,
7.00%, 06/15/07.................... 105,000 112,875
New York City Municipal Water
Financing Authority Water & Sewer
System Revenue Bonds Series B,
5.20%, 06/15/05.................... 500,000 528,750
New York City Municipal Water
Financing Authority Water & Sewer
System Revenue Bonds Series D,
5.00%, 06/15/05.................... 1,805,000 1,897,506
New York State Environmental
Facilities Corporation Pollution
Control Revenue Bonds, 5.40%,
05/15/06........................... 250,000 270,938
New York State Environmental
Facilities Corporation State Clean
Water & Drinking Revenue Bonds
Series F, 5.00%, 06/15/05.......... 1,000,000 1,056,250
Suffolk County Water Revenue Bonds,
5.10%, 06/01/05 (MBIA)............. 250,000 265,938
Suffolk County Water Revenue Bonds,
5.10%, 06/01/06 (MBIA)............. 400,000 425,000
-----------
6,375,289
-----------
TOTAL MUNICIPAL BONDS (COST
$62,057,953)....................... 63,914,214
-----------
MONEY MARKET FUNDS (0.1%)
Dreyfus NY Municipal Money Market
Fund............................... 45,878 45,878
-----------
TOTAL MONEY MARKET FUNDS (COST
$45,878)........................... 45,878
-----------
TOTAL INVESTMENTS (COST $63,703,831)
(+) -- 96.7%....................... 65,560,092
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 3.3%................ 2,232,854
-----------
TOTAL NET ASSETS -- 100.0%.......... $67,792,946
-----------
-----------
</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 .......................... $ 1,878,910
Unrealized depreciation .......................... (22,649)
-----------
Net unrealized appreciation ...................... $ 1,856,261
-----------
-----------
</TABLE>

(1) When issued security.
* Interest rate in effect at December 31, 1998.
AMBAC -- AMBAC Indemnity Corporation.
AMT -- Interest on securities subject to Federal Alternative Minimum Tax.
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.
25
-------------
<PAGE>
OFFITBANK
CALIFORNIA MUNICIPAL FUND

- --------------------------------------------------------------------------------
Total return for the OFFITBANK California Municipal Fund in the fourth quarter
was .45% and 6.14% for the full year. Over those two periods, the Lehman
Five-Year Municipal Index returned 0.82% and 5.84%, respectively. The Fund's net
asset value was $10.54 on December 31, 1998, compared to $10.37 at the beginning
of the year. The 30 day SEC yield for the Fund was 3.62% as of December 31,
1998.

In the second half of 1998, interest rates were driven by a global effort to
provide liquidity to stabilize the capital markets. This effort, led by the
world's major central banks including the Federal Reserve, was successful to the
extent that investors' worst fears did not occur. These changes resulted in a
sharp decline in U.S. Treasury and municipal yields through October, although
municipal prices lagged, occasionally creating yields that came close to
matching those of Treasurys. By the end of 1998, the equity markets recovered
and Treasury yields rose as "flight capital" began to return to other fixed
income markets. Municipals resisted the move to higher rates as spreads
recovered somewhat.

The extreme moves in the markets in the early Fall reflected a flight-to-quality
triggered by Russia's default and its effect on leveraged investors. As dealers
had many of the same leveraged positions as their clients, their market-making
function was curtailed and the markets became extremely illiquid. The result was
that Treasury yields declined, and other market yields increased, more than
fundamentals justified. While easing of monetary policies by a number of central
banks calmed the markets, markets remain priced for slower global growth and
continued disinflation.

Two factors standout from last year:

- The 75 basis points in easing by the U.S. Federal Reserve was based on
global rather than domestic concerns. This underscores the impact
international economic events now have on U.S. markets and reflects the
increasing role of the Fed as the "World Central Bank".

- Central banks have apparently shifted their focus from fighting inflation
to faster economic growth. While it is premature to argue for a
significant increase in inflation, the new emphasis by central bankers
does raise a warning flag that the trend to lower interest rates may be
coming to an end.

In our view, interest rates should remain in a relatively narrow range for the
immediate future. While global economic growth should slow in 1999, this is
already largely discounted in the markets. A more pronounced slowdown is less
likely because of the central banks new commitment on avoiding an economic
downturn. Also, global disinflationary pressures should continue, but that too,
has been largely discounted by investors.

We are particularly optimistic about the municipal market, which presently
offers yields unusually close to Treasury yields. Municipal supply is expected
to decline modestly in 1999 which, when combined with a healthy credit
environment and relatively attractive yields, create positive prospects for the
sector. California municipals are presently priced to yield less than comparably
rated issues in other states. This is due to the strong rebound in economic
growth over the past three years, a change that has increased demand from
wealthier Californians and buttressed credits that suffered during the last
recession.

In 1999, the global economy is faced with numerous uncertainties--Y2K, Euro
conversion, impeachment, revival of the emerging economies, U.S. trade deficit,
the declining growth rate of corporate profits, heavy consumer and corporate
debt levels, accelerating global monetary growth, deflationary pressures--and
certainly some not yet visible. Consequently, we will continue to include only
bonds rated at the high end of the credit spectrum in the Fund. The average
rating at year-end was AA and the average duration was 5.1 years.

John H. Haldeman, Jr.

January 15, 1999

26
- -------------
<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, 1998 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 LEHMAN BROTHERS 5 YEAR

<S> <C> <C> <C>
Municipal Fund Municipal Bond Index
4/2/1997 $252,185 $251,075
6/30/1997 $257,065 $256,095
9/30/1997 $262,849 $261,581
12/31/1997 $267,857 $266,033
3/31/1998 $270,966 $269,126
6/30/1998 $273,633 $272,133
9/30/1998 $283,035 $279,292
12/31/1998 $284,310 $281,588
(April 2, 1997)
Total Return One Year Since Inception
OFFITBANK California Municipal Fund* 6.14% 7.63%
Lehman Brothers 5 Year Municipal Bond Index 5.84% 7.04%
</TABLE>

27
-------------
<PAGE>
OFFITBANK
CALIFORNIA MUNICIPAL FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
- -------------------------------------------------------------------
FLOATING RATE NOTES (5.4%)
POLLUTION CONTROL REVENUE (5.4%)
California Pollution Control
Financing Authority Pollution
Control Revenue Series A, 5.20%,
02/28/08*.......................... $300,000 $ 300,000
California Pollution Control
Financing Authority Pollution
Control Revenue Series B, 5.20%,
02/28/08*.......................... 100,000 100,000
California Pollution Control
Financing Authority Pollution
Control Revenue Series C, 5.20%,
02/28/08*.......................... 200,000 200,000
------------
600,000
------------
TOTAL FLOATING RATE NOTES (COST
$600,000).......................... 600,000
------------
MUNICIPAL BONDS (89.9%)
EDUCATION REVENUE (11.5%)
California Educational Facilities
Authority Revenue Santa Clara
University, 5.30%, 09/01/05........ 175,000 188,125
California Educational Facilities
Authority Revenue Santa Clara
University, 5.40%, 09/01/06........ 75,000 80,531
California State Public Works
Revenue BRD Lease Series B, 5.25%,
11/01/12........................... 500,000 533,125
California State Public Works
Revenue BRD Lease Series C, 5.125%,
10/01/12........................... 450,000 470,250
------------
1,272,031
------------
GENERAL OBLIGATIONS (22.9%)
Berkeley California, Series A,
5.55%, 09/01/07.................... 50,000 55,375
California State, 5.00%, 10/01/06... 500,000 532,500
California State, 5.25%, 10/01/11
(FGIC)............................. 125,000 133,125
Cotati-Rohnert Park Uniform School
District Series B, 6.00%, 08/01/04
(FSA).............................. 100,000 109,250
Cupertino Uniform School District
Series B, 6.125%, 08/01/03
(FGIC)............................. 50,000 55,000
Fresno California Uniform School
District Series D, 5.25%, 08/01/05
(FSA).............................. 300,000 322,875
Los Angeles Uniform School District
Series A, 4.50%, 07/01/05 (FGIC)... 200,000 206,500
Palo Alto Uniform School District
Series B, 5.25%, 08/01/03.......... 100,000 106,375
Pasadena California Uniform School
District Series A, 5.00%, 05/01/25
(FGIC)............................. 375,000 397,500
San Francisco California City and
County, 5.30%, 06/15/07 (MBIA)..... 175,000 183,312
San Francisco City & County, 5.30%,
06/15/07 (FGIC).................... 250,000 266,875
Santa Monica - Malibu Uniform School
District, 5.00%, 08/01/08.......... 150,000 160,125
------------
2,528,812
------------
HOUSING REVENUE (2.8%)
California Housing Finance Agency
Issue B-1, 5.30%, 02/01/99 (AMT)... 100,000 100,132
California Housing Finance Agency
Revenue Home Mortgage Series B,
5.15%, 08/01/05 (MBIA) ( AMT)...... 75,000 77,344
California Housing Finance Agency
Single Family Mortgage Issue B-2,
5.20%, 08/01/04 (AMT).............. 125,000 129,375
------------
306,851
------------
POLLUTION CONTROL REVENUE (0.5%)
California Pollution Control
Financing Authority Southern
California Edison Series C, 6.85%,
12/01/08........................... 50,000 51,750
------------
POWER AUTHORITY REVENUE (4.3%)
Los Angeles Department of Water &
Electric Plant Revenue, 5.70%,
09/01/11 (FGIC).................... 50,000 53,937
Southern California Public Power San
Juan Unit 3 Series A, 5.125%,
01/01/05 (MBIA).................... 100,000 106,000
Southern California Public Power San
Juan Unit 3 Series A, 5.375%,
01/01/11 (MBIA).................... 300,000 315,375
------------
475,312
------------
PREREFUNDED (2.9%)
Santa Monica - Malibu Uniform School
District, 5.40%, 08/01/08,
Prerefunded 08/01/03............... 250,000 270,938
Santa Monica - Malibu Uniform School
District, 5.40%, 08/01/10,
Prerefunded 08/01/03............... 50,000 54,187
------------
325,125
------------
RECREATION FACILITIES (2.0%)
Los Angeles County California Public
Works Financing Authority Revenue
Series A, 5.375%, 10/01/06......... 200,000 218,000
------------
SALES TAX REVENUE (10.3%)
Contra Costa Transportation
Authority Sales Tax Revenue Series
A, 5.50%, 03/01/08 (FGIC).......... 50,000 53,875
Orange County California Local
Transportation Authority Sales Tax
Revenue, 5.70%, 02/15/03........... 350,000 375,812
Riverside County California
Transportation Commission Sales Tax
Revenue Series A, 6.50%, 06/01/00
(FGIC)............................. 175,000 182,219
San Francisco Bay Area Rapid
Transportation District Sales Tax
Revenue, 5.50%, 07/01/05........... 250,000 272,500
</TABLE>

The accompanying notes are an integral part of the financial statements.
28
- -------------
<PAGE>
OFFITBANK
CALIFORNIA MUNICIPAL FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
SALES TAX REVENUE (CONTINUED)
San Francisco Bay Area Rapid
Transportation District Sales Tax
Revenue, 6.10%, 07/01/00 (FGIC).... $250,000 $ 260,000
------------
1,144,406
------------
TELECOMMUNICATION REVENUE (1.4%)
Puerto Rico Telephone Authority
Revenue Bonds Series L, 5.75%,
01/01/08........................... 150,000 158,438
------------
TRANSPORTATION REVENUE (14.8%)
Long Beach California Harbor
Revenue, 4.60%, 05/15/03........... 250,000 257,500
Long Beach California Harbor
Revenue, 5.75%, 05/15/07 (MBIA).... 100,000 110,625
Los Angeles California Department of
Airports Refunding Revenue Series
A, 5.375%, 05/15/07 (FGIC)......... 300,000 324,750
San Diego California Open Space
Parking Facilities District, 5.60%,
01/01/05........................... 325,000 353,031
San Francisco California City &
County Airport Revenue Series B,
6.25%, 05/01/11 (AMBAC)............ 200,000 222,500
San Francisco City & County Airport
Community International Airport
Revenue, 5.00%, 05/01/07 (MBIA).... 250,000 266,250
San Francisco City & County Airport
Revenue Series I, 6.30%, 05/01/11
(AMBAC)............................ 100,000 109,000
------------
1,643,656
------------
WATER & SEWER REVENUE (16.5%)
California State Department of Water
Resources Series S, 5.00%,
12/01/04........................... 300,000 318,375
California State Department of Water
Resources Series U, 5.00%,
12/01/09........................... 300,000 319,500
Contra Costa Water District Water
Revenue Series G, 6.00%, 10/01/09
(MBIA)............................. 50,000 55,875
Long Beach California Water Revenue
Series A, 4.35%, 05/01/05 (MBIA)... 200,000 204,750
Los Angeles California Department of
Water and Power Revenue, 5.80%,
07/15/04........................... 150,000 162,750
Los Angeles County Sanitation
District Financing Authority
Revenue Capital Projects Series A,
5.25%, 10/01/10.................... 100,000 105,125
Metropolitan Water Distribution
Southern California Waterworks
Revenue Series A, 5.40%, 07/01/08
(MBIA)............................. 250,000 272,188
Sacramento County Sanitation
District Financing Authority
Revenue, 5.125%, 12/01/13.......... 200,000 205,250
San Diego California Water Utilities
Fund, 4.25%, 08/01/06 (FGIC)....... 175,000 176,969
------------
1,820,782
------------
TOTAL MUNICIPAL BONDS (COST
$9,761,183)........................ 9,945,163
------------
MONEY MARKET FUNDS (3.1%)
Dreyfus Tax Exempt Cash Management
Money Market Fund.................. 150,000 150,000
Federated California Municipal
Fund............................... 195,732 195,732
------------
TOTAL MONEY MARKET FUNDS (COST
$345,732).......................... 345,732
------------
TOTAL INVESTMENTS (COST
$10,706,915)(+) -- 98.4%........... 10,890,895
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.6%................... 174,948
------------
TOTAL NET ASSETS -- 100.0%.......... $ 11,065,843
------------
------------
</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 .......................... $ 192,311
Unrealized depreciation .......................... (8,331)
-----------
Net unrealized appreciation ...................... $ 183,980
-----------
-----------
</TABLE>

* Interest rate in effect at December 31, 1998.
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.

The accompanying notes are an integral part of the financial statements.
29
-------------
<PAGE>
OFFITBANK
NATIONAL MUNICIPAL FUND

- --------------------------------------------------------------------------------
The OFFITBANK National Municipal Fund's net asset value (NAV) as of December 31,
1998 is $10.43. The NAV is up approximately 1.40% over the June 30, 1998 NAV of
$10.28. The year-to-date total return for the Fund was 6.91%. For comparative
purposes, the Lehman Brothers Five-Year Municipal Bond Index returned 5.84% for
the same time period. The net assets of the Fund continued to grow, finishing
the year at approximately $30 million, up from $2.8 million at December 31,
1997. Given its size, the Fund is now listed in the Wall Street Journal.

The dominant story of the year in the municipal bond market was the surge in new
issue volume. Totals for 1998 show that municipalities sold 29% more debt than
they had in 1997. The consequence of this increased supply were historically
high municipal ratios relative to U.S. Treasuries.

Currently, the average credit quality of the portfolio is AA. One investment
theme that we applied in 1998 was overweighting the portfolio in "High Grade"
credits. We anticipated that with the increasing new issue supply, higher grade
credits would be more coveted by institutional investors seeking to enhance
portfolio liquidity. General Obligation Bonds of Franklin County Ohio and Lamar
Texas Independent School District (PSF guaranteed) are two examples of the high
grade credits in which we invested. PSF guaranteed bonds offer AAA rated paper
at a significant concession to similarly rated bonds. This is attributed to the
fact that Texas paper does not trade at a premium in the municipal market due to
the absence of a state income tax.

Moving forward, we believe that credit selection will be a dominant factor in
the Fund's performance. While it is true that at present credit upgrades are far
outpacing credit downgrades, potential trouble spots remain. For instance,
Allegheny Health, Education, and Research Foundation stunned the municipal
market when it filed for bankruptcy in July. As a result, hundreds of millions
of dollars in interest payments may not be received by bondholders. At the
present time, while the Fund does not own any health care related credits it is
our belief that significant downside risks remain a possibility in this sector
over the intermediate term.

At year end the portfolio's average maturity is 6.8 years. Average duration is
5.5 years. We expect to maintain this duration through the beginning of 1999 as
we believe that municipals at current levels are attractive and will perform
better relative to Treasuries than they had in 1998. The combination of a
potential slowdown in supply, a possible equity market correction, and continued
benign inflation should keep municipals well bid in 1999.

Michael Pietronico

January 15, 1999

30
- -------------
<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 the trading commencement date
of October 20, 1997 and held through December 31, 1998 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 LEHMAN BROTHERS 5 YEAR

<S> <C> <C> <C> <C>
Municipal Fund Municipal Bond Index
10/31/1997 $250,000 $250,000
12/31/1997 $254,897 $252,940
3/31/1998 $258,343 $255,880
6/30/1998 $262,117 $258,740
9/30/1998 $270,420 $265,547
12/31/1998 $272,453 $267,730
Since Inception
Total Return One Year (October 20, 1997)
OFFITBANK National Municipal Fund* 6.91% 8.13%
Lehman Brothers 5 Year Municipal Bond Index 5.84% 6.38%
</TABLE>

31
-------------
<PAGE>
OFFITBANK
NATIONAL MUNICIPAL FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
- -----------------------------------------------------------------
FLOATING RATE NOTES (0.7%)
TRANSPORTATION REVENUE (0.7%)
NEW YORK (0.7%)
New York State Thruway Authority,
5.05%, 01/01/24 (FGIC), 1-Day
Notes*........................... $ 200,000 $ 200,000
-----------
TOTAL FLOATING RATE NOTES (COST
$200,000)........................ 200,000
-----------
MUNICIPAL BONDS (93.0%)
EDUCATION REVENUE (14.9%)
CALIFORNIA (0.8%)
Los Angeles, California Series A,
6.00%, 07/01/08 (FGIC)........... 200,000 228,750
-----------
FLORIDA (2.2%)
Florida State Board Education
Series A, 5.20%, 06/01/08........ 220,000 234,575
Florida State Board Education
Series C, 5.40%, 06/01/07........ 400,000 432,500
-----------
667,075
-----------
INDIANA (3.5%)
Purdue University Student Fee
Series P, 5.00%, 07/01/05........ 1,000,000 1,052,500
-----------
MARYLAND (4.4%)
University of Maryland Auxiliary
Facility and Tuition Series A,
5.00%, 04/01/10.................. 1,250,000 1,310,937
-----------
PENNSYLVANIA (0.5%)
West Chester, Pennsylvania, 5.30%,
01/15/07......................... 150,000 156,187
-----------
TEXAS (3.5%)
Lamar, Texas Consolidated School
District, 5.25%, 02/15/13........ 1,000,000 1,046,250
-----------
4,461,699
-----------
GENERAL OBLIGATIONS (41.6%)
ALABAMA (4.2%)
Huntsville, Alabama Series A,
4.10%, 11/01/07.................. 1,145,000 1,139,275
Huntsville, Alabama Series E,
5.85%, 08/01/05.................. 115,000 124,056
-----------
1,263,331
-----------
ARIZONA (0.7%)
Phoenix, Arizona Series A, 5.20%,
07/01/05......................... 200,000 214,250
-----------
CALIFORNIA (0.4%)
California State, 6.00%,
10/01/04......................... 100,000 111,125
-----------
CONNECTICUT (3.6%)
Connecticut State Series A,
5.125%, 03/01/11................. 1,000,000 1,060,000
-----------
ILLINOIS (0.2%)
Chicago, Illinois Project Series
B, 6.00%, 01/01/03 (FGIC)........ 50,000 53,687
-----------
MARYLAND (1.6%)
Maryland National Capital Park &
Planning Commission Prince
Georges County, Maryland
Unrefunded Balance Series S-2,
5.00%, 07/01/08.................. 250,000 265,000
Maryland National Capital Park &
Planning Commission, 5.00%,
07/01/08......................... 50,000 53,187
Maryland State, 5.80%, 05/15/04... 150,000 159,750
-----------
477,937
-----------
MASSACHUSETTS (1.8%)
Massachusetts State Refunding
Series A, 5.50%, 02/01/11........ 500,000 530,625
-----------
NEVADA (1.8%)
Clark County, Nevada-Las Vegas
Convention & Visitor, 4.80%,
07/01/01, (MBIA)................. 75,000 76,969
Clark County, Nevada Series A,
5.00%, 7/01/08................... 120,000 127,350
Nevada State Municipal Bond
Projects 66 & 67 - A, 5.25%,
05/15/10......................... 300,000 318,375
-----------
522,694
-----------
NEW JERSEY (0.9%)
Ocean County, 4.625%, 06/01/07.... 245,000 253,881
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.
32
- -------------
<PAGE>
OFFITBANK
NATIONAL MUNICIPAL FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
GENERAL OBLIGATIONS (CONTINUED)
NEW YORK (2.7%)
New York, New York Series A,
4.75%, 08/01/02.................. $ 500,000 $ 513,750
New York, New York Series G,
5.75%, 10/15/10.................. 105,000 115,369
New York, New York Series H,
5.75%, 03/15/10.................. 150,000 163,312
-----------
792,431
-----------
NORTH CAROLINA (4.0%)
Mecklenburg County, Public
Improvements, 5.50%, 04/01/13.... 730,000 779,275
North Carolina State Series A,
5.10%, 03/01/03.................. 395,000 415,244
-----------
1,194,519
-----------
OHIO (3.6%)
Franklin County, Ohio, 5.50%,
12/01/13......................... 1,000,000 1,067,500
-----------
TENNESSEE (3.1%)
Metropolitan Nashville & Davidson
County, 5.00%, 05/15/03.......... 100,000 104,625
Metropolitan Nashville & Davidson
County, 5.25%, 05/15/08.......... 750,000 814,687
-----------
919,312
-----------
TEXAS (2.8%)
Austin, Texas Public Improvement,
7.25%, 09/01/03 (AMBAC).......... 200,000 222,500
Texas State Financial Authority,
4.80%, 10/01/09.................. 575,000 597,281
-----------
819,781
-----------
VIRGINIA (1.8%)
Fairfax County, Virginia, Series
C, 5.25%, 05/01/07............... 250,000 265,937
Virginia Beach Public
Improvements, 5.50%, 11/01/05.... 250,000 274,687
-----------
540,624
-----------
WASHINGTON (3.9%)
Washington State Series 1995C,
5.35%, 07/01/06.................. 55,000 58,850
Washington State Series R - 93B,
5.375%, 10/01/08................. 1,000,000 1,096,250
-----------
1,155,100
-----------
WISCONSIN (4.5%)
Milwaukee, Wisconsin Series L,
5.00%, 12/15/10.................. 1,190,000 1,246,525
Wisconsin State Series C, 5.60%,
05/01/02......................... 100,000 105,625
-----------
1,352,150
-----------
12,328,947
-----------
HOUSING REVENUE (4.1%)
MARYLAND (0.3%)
Maryland State Community
Development Administration
Department, 5.15%, 04/01/01...... 100,000 102,125
-----------
MASSACHUSETTS (0.5%)
Massachusetts State Housing
Finance Agency, 4.70%, 12/01/06
(MBIA) (AMT)..................... 150,000 152,625
-----------
NEW YORK (1.7%)
New York Mortgage Agency Series
71, 4.80%, 10/01/08 (AMT)........ 500,000 508,750
-----------
PENNSYLVANIA (1.6%)
Pennsylvania Housing Finance
Agency Series 61a, 4.90%,
10/01/08 (AMT)................... 100,000 102,500
Pennsylvania Housing Finance
Agency Series 63a, 4.55%,
10/01/08 (AMT)................... 375,000 373,594
-----------
476,094
-----------
1,239,594
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.
33
-------------
<PAGE>
OFFITBANK
NATIONAL MUNICIPAL FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
POLLUTION CONTROL REVENUE (3.1%)
MICHIGAN (2.8%)
Michigan Authority Revenue Clean
Water, 5.25%, 10/01/10........... $ 520,000 $ 555,750
Michigan Authority Revenue Clean
Water, 5.00%, 10/01/04........... 250,000 263,125
-----------
818,875
-----------
NEW YORK (0.3%)
New York Environmental Pollution
Corp., 6.50%, 06/15/08........... 70,000 78,663
-----------
897,538
-----------
POWER AUTHORITY REVENUE (12.6%)
NEBRASKA (7.7%)
Nebraska Public Power Series B,
4.25%, 01/01/03.................. 1,000,000 1,013,750
Nebraska Public Power Series B,
5.00%, 01/01/03.................. 1,225,000 1,274,000
-----------
2,287,750
-----------
TEXAS (1.8%)
San Antonio, Texas Electric & Gas,
4.70%, 02/01/05.................. 20,000 20,975
San Antonio, Texas Electric & Gas,
4.70%, 02/01/05.................. 505,000 522,675
-----------
543,650
-----------
WASHINGTON (3.1%)
Washington State Public Power
Supply System Nuclear Project
3-A, 5.00%, 07/01/01............. 200,000 205,500
Washington State Public Power
Supply System Nuclear Project
2-B, 5.00%, 07/01/01............. 500,000 513,750
Washington State Public Power
Supply System Nuclear Project
3-C, 4.60%, 07/01/01............. 200,000 203,500
-----------
922,750
-----------
3,754,150
-----------
SALES TAX REVENUE (6.0%)
ILLINOIS (0.7%)
Illinois State Series Q, 5.50%,
06/15/03......................... 200,000 212,750
-----------
NEW MEXICO (0.9%)
New Mexico State Severance Tax
Series B, 4.75%, 07/01/06........ 250,000 256,250
-----------
NEW YORK (4.4%)
Municipal Assistance Corporation
for City of New York Series G,
5.50%, 07/01/04.................. 250,000 269,063
New York State Local Government
Assistance Corporation Series A,
5.25%, 04/01/13.................. 1,000,000 1,045,000
-----------
1,314,063
-----------
1,783,063
-----------
TRANSPORTATION (1.1%)
MICHIGAN (1.1%)
Wayne Charter County, Michigan
Airport Series A, 5.25%, 12/01/11
(AMT)............................ 300,000 315,000
-----------
TRANSPORTATION REVENUE (4.3%)
CALIFORNIA (0.7%)
Long Beach, California, 5.50%,
05/15/10 (MBIA) (AMT)............ 200,000 215,750
-----------
CONNECTICUT (0.4%)
Connecticut Special Tax Obligation
Series A, 5.25%, 09/01/07........ 120,000 129,600
-----------
ILLINOIS (0.9%)
Illinois State, 5.50%, 08/01/03... 250,000 266,875
-----------
NEW YORK (1.9%)
Metropolitan Transportation
Authority Series A, 5.00%,
04/01/03 (FGIC).................. 200,000 209,250
New York State Thruway, Highway &
Bridge Trust Fund, 5.50%,
04/01/09 (FSA)................... 100,000 109,125
Port Authority of New York & New
Jersey Bonds Series 112, 5.00%,
12/01/09 (AMT)................... 250,000 258,438
-----------
576,813
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.
34
- -------------
<PAGE>
OFFITBANK
NATIONAL MUNICIPAL FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
TRANSPORTATION REVENUE (CONTINUED)
PENNSYLVANIA (0.4%)
Pennsylvania State Turnpike,
Series O, 5.35%, 12/01/02
(FGIC)........................... $ 115,000 $ 121,038
-----------
1,310,076
-----------
WATER & SEWER REVENUE (5.3%)
CALIFORNIA (0.7%)
Los Angeles County Public Works
Financing Authority, 5.50%,
10/01/09......................... 200,000 220,250
-----------
MASSACHUSETTS (1.4%)
Massachusetts Water Pollution
Abatement, 5.00%, 08/01/07....... 290,000 308,488
Massachusetts Water Resource
Authority-C, 4.90%, 12/01/02..... 100,000 103,750
-----------
412,238
-----------
MISSOURI (0.8%)
Kansas City, Missouri Water Series
B, 5.00%, 12/01/08............... 225,000 236,813
-----------
NEW YORK (0.4%)
New York City Municipal Water
Finance Authority Series B,
5.00%, 06/15/03.................. 100,000 104,500
-----------
TENNESSEE (0.6%)
Metropolitan Government Nashville
& Davidson County Water & Sewer
Revenue, 5.75%, 01/01/15
(AMBAC).......................... 170,000 182,750
-----------
TEXAS (1.4%)
Texas Water Development Board
Revenue Series A, 5.00%,
07/15/07......................... 105,000 111,563
Texas Water Development Board
Revenue Series B, 4.20%,
07/15/02......................... 50,000 50,625
Texas Water Financial Assistance
Series C, 5.00%, 08/01/09........ 250,000 263,750
-----------
425,938
-----------
1,582,489
-----------
TOTAL MUNICIPAL BONDS (COST
$27,323,180)..................... 27,672,556
-----------
FEDERAL HOME LOAN BANKS (8.4%)
Federal Home Loan Bank Discount
Note, 4.26%, 01/04/99.............. 2,500,000 2,499,125
-----------
TOTAL FEDERAL HOME LOAN BANKS (COST
$2,499,125)........................ 2,499,125
-----------
MONEY MARKET FUNDS (0.9%)
Dreyfus Tax Exempt Cash Management
Money Market Fund.................. 129,774 129,774
The J.P. Morgan Institutional
Service Tax Exempt Cash Fund....... 129,368 129,368
-----------
TOTAL MONEY MARKET FUNDS (COST
$259,142).......................... 259,142
-----------
TOTAL INVESTMENTS (COST
$30,281,447)(+) -- 103.0%.......... 30,630,823
LIABILITIES IN EXCESS OF OTHER
ASSETS (3.0%)...................... (896,322)
-----------
TOTAL NET ASSETS -- 100.0%.......... $29,734,501
-----------
-----------
</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 .......................... $ 353,254
Unrealized depreciation .......................... (3,878)
-----------
Net unrealized appreciation ...................... $ 349,376
-----------
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.
35
-------------
<PAGE>
OFFITBANK
U.S. GOVERNMENT SECURITIES FUND

- --------------------------------------------------------------------------------
The calendar 1998 total return for the U.S. Government Securities Fund was
9.82%. This compares with a return of 9.81% for the benchmark Merrill Lynch 5
Year Treasury Index.

The Fund's NAV of $10.46 at December 31 is higher than the $10.17 at year-end
1997. Net assets of the Fund have grown to approximately $39 million versus some
$4 million at year-end 1997.

The investments of the Fund are in U.S. Treasurys and U.S. Agencies. The average
maturity of the Fund is approximately 5.5 years and the duration 4.4 years. The
investments are structured with the greatest weights in 2 to 4 year maturities
and 6 to 8 year maturities.

We believe that interest rates will remain in a relatively narrow range, but
with a bias to move slightly lower. While global economic growth should slow in
1999, this is already largely discounted in the markets. A more pronounced
slowdown is less likely as central banks have begun to focus on maintaining
economic growth rather than reducing inflation.

Our strategy is to maintain a moderate interest rate exposure until we have a
clearer sense of the degree to which the global economy will slow. Also, the
current investments provide the flexibility to alter the Fund's risk profile if
we anticipate that market conditions are changing.

Jack D. Burks

January 15, 1999

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, 1998 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>
OFFITBANK U.S. GOVERNMENT MERRILL LYNCH 5 YEAR

<S> <C> <C> <C>
Securities Fund U.S. Treasury Index
7/1/1997 $254,075 $255,705
9/30/1997 $255,155 $256,777
12/31/1997 $261,787 $263,179
3/31/1998 $265,840 $267,378
6/30/1998 $270,814 $272,153
9/30/1998 $287,773 $290,467
12/31/1998 $287,473 $288,994
Since Inception
Total Return One Year (July 1, 1997)
OFFITBANK U.S. Government Securities Fund* 9.82% 9.76%
Merrill Lynch 5 Year U.S. Treasury Index 9.81% 10.15%
</TABLE>

37
-------------
<PAGE>
OFFITBANK
U.S. GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998

- ---------------
+ Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation .......................... $ 224,140
Unrealized depreciation .......................... (182,706)
-----------
Net unrealized appreciation ...................... $ 41,434
-----------
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.
38
- -------------
<PAGE>
OFFITBANK
MORTGAGE SECURITIES FUND

- --------------------------------------------------------------------------------

The calendar 1998 total return for the Mortgage Securities Fund was 7.26%. This
compares with a return of 7.19% for the benchmark Merrill Lynch Mortgage Master
Index.

The Fund's NAV of $10.28 at December 31 is higher than the $10.17 at year-end
1997. Net assets of the Fund have grown to approximately $54 million versus some
$17 million at year-end 1998.

The average maturity of the Fund is approximately 6.0 years and the effective
duration 2.5 years. The investments are in Pass-Thru securities issued by the
Federal National Mortgage Association (Fannie Mae), the Federal Home Loan
Mortgage Corporation (Freddie Mac), and the Government National Mortgage
Association (Ginnie Mae).

Our strategy remains to concentrate investments that have a premium price (above
100.00) in Ginnie Mae issues, as these securities tend to prepay more slowly
than Fannie Mae and Freddie Mac Pass-Thrus. Also, the Fund has a larger than
normal allocation to 15 year Pass-Thrus. The reason for this is that these
securities have a more stable average maturity profile than do 30 year issues
while still offering a compensatory yield.

In this environment, mortgage investments should perform well due to their
relatively high yields and very high credit quality. Also, the current
investments provide the flexibility to alter the Fund's risk profile if we
anticipate that market conditions are changing.

Jack D. Burks

January 15, 1999

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, 1998 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>
OFFITBANK MORTGAGE MERRILL LYNCH MORTGAGE

<S> <C> <C> <C>
Securities Fund Master Index
7/1/1997 $250,000 $250,000
9/30/1997 $259,288 $256,577
12/31/1997 $262,722 $262,506
3/31/1998 $267,386 $266,985
6/30/1998 $271,984 $271,635
9/30/1998 $279,996 $278,883
12/31/1998 $281,760 $281,385
Since Inception
Total Return One Year (July 1, 1997)
OFFITBANK Mortgage Securities Fund* 7.26% 8.30%
Merrill Lynch Mortgage Master Index 7.19% 8.20%
</TABLE>

40
- -------------
<PAGE>
OFFITBANK
MORTGAGE SECURITIES FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
- -----------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (36.1%)
Federal Home Loan Mortgage Corp.,
Discount Notes, 4.25%, 01/04/99.... $4,800,000 $ 4,798,300
Federal Home Loan Mortgage Corp.,
6.00%, 04/01/03, Gold
Pool#M90534........................ 958,110 965,296
Federal Home Loan Mortgage Corp.,
6.00%, 12/01/13, Gold
Pool#E73827........................ 2,020,000 2,027,575
Federal Home Loan Mortgage Corp.,
6.00%, 12/01/13, Gold
Pool#E00592........................ 990,000 993,713
Federal Home Loan Mortgage Corp.,
7.50%, 01/01/18, Gold
Pool#C90203........................ 215,253 221,105
Federal Home Loan Mortgage Corp.,
6.00%, 02/01/24, Gold
Pool#C80110........................ 17,801 17,589
Federal Home Loan Mortgage Corp.,
6.00%, 01/01/26, Gold
Pool#D67671........................ 517,702 511,554
Federal Home Loan Mortgage Corp.,
6.00%, 02/01/26, Gold
Pool#D68418........................ 434,470 429,310
Federal Home Loan Mortgage Corp.,
6.00%, 03/01/26, Gold
Pool#D69088........................ 426,145 421,085
Federal Home Loan Mortgage Corp.,
6.00%, 03/01/26, Gold
Pool#D69408........................ 420,399 415,406
Federal Home Loan Mortgage Corp.,
6.00%, 04/01/26, Gold
Pool#C80395........................ 422,634 417,615
Federal Home Loan Mortgage Corp.,
6.00%, 05/01/26, Gold
Pool#D71231........................ 45,281 44,743
Federal Home Loan Mortgage Corp.,
7.50%, 06/01/26, Gold
Pool#D72344........................ 351,761 361,324
Federal Home Loan Mortgage Corp.,
7.50%, 11/01/26, Gold
Pool#C80444........................ 56,056 57,580
Federal Home Loan Mortgage Corp.,
7.50%, 05/01/27, Gold
Pool#G00702........................ 437,368 449,260
Federal Home Loan Mortgage Corp.,
7.50%, 06/01/27, Gold
Pool#D80669........................ 918,369 943,338
Federal Home Loan Mortgage Corp.,
6.00%, 10/01/27, Gold
Pool#D82901........................ 319,176 315,386
Federal Home Loan Mortgage Corp.,
6.00%, 12/01/27, Gold
Pool#C00583........................ 670,454 662,493
Federal Home Loan Mortgage Corp.,
7.50%, 04/01/28, Gold
Pool#C00612........................ 165,036 169,523
Federal Home Loan Mortgage Corp.,
6.00%, 05/01/28, Gold
Pool#D89506........................ 482,558 476,827
Federal Home Loan Mortgage Corp.,
6.00%, 05/01/28, Gold
Pool#D89955........................ 494,600 488,726
Federal Home Loan Mortgage Corp.,
6.00%, 05/01/28, Gold
Pool#C00614........................ 514,199 508,093
Federal Home Loan Mortgage Corp.,
6.00%, 07/01/28, Gold
Pool#C00635........................ 992,841 981,051
Federal Home Loan Mortgage Corp.,
6.00%, 07/01/28, Gold
Pool#C12759........................ 68,861 68,044
Federal Home Loan Mortgage Corp.,
6.00%, 08/01/28, Gold
Pool#C13742........................ 56,879 56,203
Federal Home Loan Mortgage Corp.,
6.00%, 10/01/28, Gold
Pool#C16785........................ 881,737 871,266
Federal Home Loan Mortgage Corp.,
7.50%, 10/01/28, Gold
Pool#C16855........................ 34,841 35,788
Federal Home Loan Mortgage Corp., 30
year TBA, 6.00%.................... 2,000,000(1) 1,975,626
-----------
TOTAL FEDERAL HOME LOAN MORTGAGE
CORPORATION (COST $19,537,627)..... 19,683,819
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (27.2%)
Federal National Mortgage Assoc.,
6.50%, 12/01/99, Pool#303111....... 118,019 119,494
Federal National Mortgage Assoc.,
6.50%, 11/01/03, Pool#356437....... 105,561 106,880
Federal National Mortgage Assoc.,
6.50%, 01/01/04, Pool#359915....... 324,531 328,588
Federal National Mortgage Assoc.,
6.50%, 09/01/04, Pool#393759....... 285,795 289,368
Federal National Mortgage Assoc.,
6.50%, 10/01/04, Pool#398370....... 402,818 407,853
Federal National Mortgage Assoc.,
6.00%, 09/01/10, Pool#250376....... 82,700 82,933
Federal National Mortgage Assoc.,
6.00%, 04/01/11, Pool#339774....... 88,421 88,670
Federal National Mortgage Assoc.,
6.00%, 03/01/13, Pool#379876....... 846,060 848,439
Federal National Mortgage Assoc.,
6.00%, 03/01/13, Pool#419336....... 97,679 97,953
Federal National Mortgage Assoc.,
6.00%, 04/01/13, Pool#411502....... 926,470 929,076
Federal National Mortgage Assoc.,
6.00%, 04/01/13, Pool#425916....... 1,423,102 1,427,105
Federal National Mortgage Assoc.,
6.00%, 05/01/13, Pool#429019....... 983,743 986,510
Federal National Mortgage Assoc.,
6.00%, 06/01/13, Pool#426763....... 807,015 809,285
Federal National Mortgage Assoc.,
6.00%, 09/01/13, Pool#439280....... 83,636 83,871
Federal National Mortgage Assoc.,
6.00%, 09/01/13, Pool#440197....... 510,975 512,413
Federal National Mortgage Assoc.,
6.00%, 09/01/13, Pool#440240....... 257,013 257,736
Federal National Mortgage Assoc.,
6.00%, 09/01/13, Pool#444718....... 489,060 490,435
Federal National Mortgage Assoc.,
6.00%, 10/01/13, Pool#436691....... 382,456 383,532
Federal National Mortgage Assoc.,
6.50%, 05/01/26, Pool#345964....... 172,088 173,217
Federal National Mortgage Assoc.,
6.50%, 08/01/27, Pool#378287....... 479,359 482,504
Federal National Mortgage Assoc.,
6.50%, 11/01/27, Pool#397998....... 906,109 912,055
Federal National Mortgage Assoc.,
6.50%, 04/01/28, Pool#419955....... 22,969 23,120
Federal National Mortgage Assoc.,
6.50%, 05/01/28, Pool#425761....... 999,890 1,006,451
Federal National Mortgage Assoc.,
6.50%, 05/01/28, Pool#426090....... 24,412 24,572
Federal National Mortgage Assoc.,
6.50%, 07/01/28, Pool#251813....... 928,800 934,895
Federal National Mortgage Assoc.,
6.50%, 10/01/28, Pool#446616....... 368,924 371,345
Federal National Mortgage Assoc.,
6.50%, 10/01/28, Pool#447986....... 639,222 643,417
</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, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
Federal National Mortgage Assoc., 15
year TBA, 6.00%.................... $1,000,000(1) $ 1,002,500
Federal National Mortgage Assoc., 30
year TBA, 6.50%.................... 1,000,000(1) 1,006,563
-----------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION (COST $14,658,053)..... 14,830,780
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (36.2%)
Government National Mortgage Assoc.,
7.00%, 10/15/07, Pool#297658....... 69,020 70,961
Government National Mortgage Assoc.,
7.00%, 07/15/08, Pool#266910....... 30,709 31,573
Government National Mortgage Assoc.,
6.00%, 02/15/09, Pool#335278....... 99,984 100,672
Government National Mortgage Assoc.,
7.00%, 09/15/09, Pool#380616....... 219,122 225,285
Government National Mortgage Assoc.,
7.00%, 07/15/10, Pool#780193....... 752,436 774,068
Government National Mortgage Assoc.,
7.00%, 10/15/10, Pool#377618....... 307,007 315,642
Government National Mortgage Assoc.,
7.00%, 02/15/11, Pool#292339....... 414,837 426,504
Government National Mortgage Assoc.,
6.00%, 05/15/11, Pool#412601....... 46,193 46,511
Government National Mortgage Assoc.,
6.00%, 06/15/11, Pool#424501....... 184,692 185,962
Government National Mortgage Assoc.,
7.00%, 06/15/11, Pool#347186....... 339,901 349,460
Government National Mortgage Assoc.,
6.00%, 01/15/13, Pool#407233....... 836,388 842,138
Government National Mortgage Assoc.,
6.00%, 02/15/13, Pool#460756....... 664,023 668,589
Government National Mortgage Assoc.,
6.00%, 01/15/24, Pool#345932....... 165,276 163,881
Government National Mortgage Assoc.,
6.00%, 01/15/24, Pool#376364....... 450,208 446,409
Government National Mortgage Assoc.,
6.00%, 05/15/24, Pool#352981....... 196,687 195,027
Government National Mortgage Assoc.,
7.00%, 09/15/25, Pool#410280....... 96,707 98,974
Government National Mortgage Assoc.,
6.00%, 01/15/26, Pool#780312....... 548,947 544,658
Government National Mortgage Assoc.,
7.00%, 02/15/26, Pool#347156....... 44,046 45,079
Government National Mortgage Assoc.,
6.00%, 03/15/26, Pool#426301....... 24,284 24,079
Government National Mortgage Assoc.,
8.00%, 06/15/26, Pool#428867....... 401,126 416,670
Government National Mortgage Assoc.,
8.00%, 07/15/26, Pool#432905....... 105,437 109,522
Government National Mortgage Assoc.,
8.00%, 08/15/26, Pool#419634....... 55,115 57,251
Government National Mortgage Assoc.,
8.00%, 08/15/26, Pool#421763....... 232,956 241,983
Government National Mortgage Assoc.,
8.00%, 09/15/26, Pool#398884....... 694,599 721,515
Government National Mortgage Assoc.,
8.00%, 11/15/26, Pool#415657....... 204,340 212,258
Government National Mortgage Assoc.,
7.00%, 12/15/26, Pool#442642....... 182,099 186,367
Government National Mortgage Assoc.,
8.00%, 12/15/26, Pool#442190....... 77,391 80,390
Government National Mortgage Assoc.,
8.00%, 06/15/27, Pool#447202....... 68,776 71,441
Government National Mortgage Assoc.,
7.00%, 12/15/27, Pool#443779....... 35,535 36,368
Government National Mortgage Assoc.,
7.00%, 12/15/27, Pool#460653....... 565,159 578,405
Government National Mortgage Assoc.,
7.00%, 01/15/28, Pool#458763....... 411,902 421,556
Government National Mortgage Assoc.,
7.00%, 01/15/28, Pool#460690....... 458,531 469,278
Government National Mortgage Assoc.,
7.00%, 01/15/28, Pool#463365....... 357,988 366,378
Government National Mortgage Assoc.,
7.00%, 02/15/28, Pool#433595....... 507,274 519,163
Government National Mortgage Assoc.,
6.00%, 04/15/28, Pool#433722....... 395,375 392,039
Government National Mortgage Assoc.,
6.00%, 04/15/28, Pool#452780....... 247,556 245,467
Government National Mortgage Assoc.,
6.00%, 04/15/28, Pool#473500....... 357,981 354,961
Government National Mortgage Assoc.,
6.00%, 05/15/28, Pool#465359....... 454,125 450,294
Government National Mortgage Assoc.,
7.00%, 05/15/28, Pool#475480....... 964,819 987,432
Government National Mortgage Assoc.,
6.00%, 06/15/28, Pool#449548....... 491,947 487,796
Government National Mortgage Assoc.,
6.00%, 06/15/28, Pool#476330....... 37,953 37,632
Government National Mortgage Assoc.,
6.00%, 09/15/28, Pool#433994....... 512,286 507,964
Government National Mortgage Assoc.,
6.00%, 09/15/28, Pool#457821....... 474,743 470,737
Government National Mortgage Assoc.,
6.00%, 10/15/28, Pool#465564....... 372,941 369,795
Government National Mortgage Assoc.,
6.00%, 10/15/28, Pool#467286....... 473,103 469,111
Government National Mortgage Assoc.,
6.00%, 10/15/28, Pool#475620....... 460,800 456,912
Government National Mortgage Assoc.,
6.00%, 10/15/28, Pool#484473....... 490,582 486,443
Government National Mortgage Assoc.,
6.00%, 10/15/28, Pool#490686....... 1,138,312 1,128,708
Government National Mortgage Assoc.,
7.00%, 12/15/28, Pool#472893....... 731,193 748,330
Government National Mortgage Assoc.,
30 year TBA, 7.00%................. 1,000,000(1) 1,022,500
Government National Mortgage Assoc.,
30 year TBA, 8.00%................. 1,000,000(1) 1,038,750
-----------
TOTAL GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (COST $19,556,186)..... 19,698,888
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.
42
- -------------
<PAGE>
OFFITBANK
MORTGAGE SECURITIES FUND
- -------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY BILLS (11.1%)
Treasury Bill, 4.40%, 01/21/99...... $6,060,000 $ 6,045,187
-----------
TOTAL U.S. TREASURY BILLS (COST
$6,045,187)........................ 6,045,187
-----------
MONEY MARKET FUNDS (0.1%)
Bank of New York Cash Reserve....... 31,158 31,158
-----------
TOTAL MONEY MARKET FUNDS (COST
$31,158)........................... 31,158
-----------
TOTAL INVESTMENTS (COST $59,828,211)
(+) -- 110.7%...................... 60,289,832
LIABILITIES IN EXCESS OF OTHER
ASSETS (10.7%)..................... (5,828,372)
-----------
TOTAL NET ASSETS -- 100.0%.......... $54,461,460
-----------
-----------
</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 .......................... $ 486,022
Unrealized depreciation .......................... (24,401)
-----------
Net unrealized appreciation ...................... $ 461,621
-----------
-----------
</TABLE>

(1) When-issued security.

The accompanying notes are an integral part of the financial statements.
43
-------------
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
HIGH YIELD FUND
- -------------------------------------------------------------------

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at market value (cost
$1,732,390,693)..................... $1,708,546,689
Interest and dividends receivable..... 35,341,841
Receivable for capital shares sold.... 1,200,388
Receivable for investment securities
sold................................ 5,936,442
Prepaid expenses and other assets..... 6,902
--------------
Total Assets........................ $1,751,032,262
LIABILITIES:
Dividends payable..................... 4,380,709
Payable for investment securities
purchased........................... 4,000,000
Payable for capital shares redeemed... 1,428,712
Unrealized depreciation on forward
currency contracts - net (Note 2)... 97,172
Investment advisory fees payable...... 1,015,810
Administration fees payable........... 118,200
Transfer agent fees payable........... 20,806
Other payables and accrued expenses... 341,626
--------------
Total Liabilities................... 11,403,035
--------------
NET ASSETS.............................. $1,739,629,227
--------------
--------------
Net Assets consist of:
Shares of capital stock, $0.001 par
value per share, 175,540,759 issued
and outstanding..................... $ 175,541
Additional paid-in capital............ 1,764,860,006
Distributions in excess of net
investment income................... (1,435,436)
Accumulated net realized loss on
investments and foreign currency
transactions........................ (62,898)
Net unrealized depreciation of
investments and foreign currency
transactions........................ (23,907,986)
--------------
NET ASSETS.............................. $1,739,629,227
--------------
--------------
SELECT SHARES:
NET ASSETS............................ $1,739,622,141
--------------
--------------
SHARES OF CAPITAL STOCK OUTSTANDING... 175,540,044
--------------
--------------
NET ASSET VALUE (OFFERING AND
REDEMPTION PRICE PER SHARE)......... $ 9.91
-----
-----
ADVISOR SHARES:
NET ASSETS............................ $ 7,086
------
------
SHARES OF CAPITAL STOCK OUTSTANDING... 715
---
---
NET ASSET VALUE (OFFERING AND
REDEMPTION PRICE PER SHARE)......... $ 9.91
-----
-----
</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, 1998

EMERGING MARKETS FUND
- -------------------------------------------------------------------

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at market value (cost
$186,137,538)....................... $146,242,251
Cash.................................. 160,000
Foreign currency (cost $12,074)....... 9,993
Interest receivable................... 4,427,147
Receivable for capital shares sold.... 27,586
Receivable for investment securities
sold................................ 6,442,161
Prepaid expenses and other assets..... 449
------------
Total Assets........................ $157,309,587
LIABILITIES:
Dividends payable..................... 2,018,373
Payable for capital shares redeemed... 6,088,859
Investment advisory fees payable...... 124,197
Custody fees payable.................. 88,295
Administration fees payable........... 13,210
Transfer agent fees payable........... 6,000
Fund accounting fees payable.......... 1,250
Other payables and accrued expenses... 63,891
------------
Total Liabilities................... 8,404,075
------------
NET ASSETS.............................. $148,905,512
------------
------------
Net Assets consist of:
Shares of capital stock, $0.001 par
value per share, 18,150,265 Select
Shares issued and outstanding....... $ 18,150
Additional paid-in capital............ 218,877,213
Distributions in excess of net
investment income................... (2,210,458)
Accumulated net realized loss on
investments and foreign currency
transactions........................ (27,882,025)
Net unrealized depreciation of
investments and foreign currency
transactions........................ (39,897,368)
------------
NET ASSETS.............................. $148,905,512
------------
------------
NET ASSET VALUE (OFFERING AND REDEMPTION
PRICE PER SHARE)...................... $ 8.20
-----
-----
</TABLE>

LATIN AMERICA EQUITY FUND
- -------------------------------------------------------------------

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at market value (cost
$23,513,675)........................ $16,768,889
Cash.................................. 2,700
Interest and dividends receivable..... 219,347
Deferred organization expenses........ 16,357
Prepaid expenses and other assets..... 114
-----------
Total Assets........................ $17,007,407
LIABILITIES:
Payable for investment securities
purchased........................... 493,740
Investment advisory fees payable...... 13,370
Custody fees payable.................. 99,207
Professional fees payable............. 35,111
Transfer agent fees payable........... 3,001
Other payables and accrued expenses... 6,846
-----------
Total Liabilities................... 651,275
-----------
NET ASSETS.............................. $16,356,132
-----------
-----------
Net Assets consist of:
Shares of capital stock, $0.001 par
value per share, 2,228,978 Select
Shares issued and outstanding....... $ 2,229
Additional paid-in capital............ 37,615,161
Accumulated undistributed net
investment income................... 86,976
Accumulated net realized loss on
investment and foreign currency
transactions........................ (14,597,008)
Net unrealized depreciation of
investments and foreign currency
transactions........................ (6,751,226)
-----------
NET ASSETS.............................. $16,356,132
-----------
-----------
NET ASSET VALUE (OFFERING AND REDEMPTION
PRICE PER SHARE)...................... $ 7.34
-----
-----
</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, 1998

NEW YORK MUNICIPAL FUND
- -------------------------------------------------------------------

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at market value (cost
$63,703,831)........................ $65,560,092
Interest and dividends receivable..... 985,652
Receivable for capital shares sold.... 2,106,154
Receivable for investment securities
sold................................ 735,117
Deferred organization expenses........ 8,213
Prepaid expenses and other assets..... 207
-----------
Total Assets........................ $69,395,435
LIABILITIES:
Dividends payable..................... 30,452
Payable for investment securities
purchased........................... 1,500,000
Investment advisory fees payable...... 20,037
Professional fees payable............. 27,369
Administration fees payable........... 5,412
Other payables and accrued expenses... 19,219
-----------
Total Liabilities................... 1,602,489
-----------
NET ASSETS.............................. $67,792,946
-----------
-----------
Net Assets consist of:
Shares of capital stock, $0.001 par
value per share, 6,265,371 Select
Shares issued and outstanding....... $ 6,265
Additional paid-in capital............ 65,930,420
Net unrealized appreciation of
investments......................... 1,856,261
-----------
NET ASSETS.............................. $67,792,946
-----------
-----------
NET ASSET VALUE (OFFERING AND REDEMPTION
PRICE PER SHARE)...................... $ 10.82
-----------
-----------
</TABLE>

CALIFORNIA MUNICIPAL FUND
- -------------------------------------------------------------------

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at market value (cost
$10,706,915)........................ $10,890,895
Receivable from Adviser............... 21,570
Interest and dividends receivable..... 164,183
Deferred organization expense......... 27,998
-----------
Total Assets........................ $11,104,646
LIABILITIES:
Dividends payable..................... 9,419
Professional fees payable............. 19,631
Due to custodian...................... 3,679
Other payables and accrued expenses... 6,074
-----------
Total Liabilities................... 38,803
-----------
NET ASSETS.............................. $11,065,843
-----------
-----------
Net Assets consist of:
Shares of capital stock, $0.001 par
value per share, 1,050,154 Select
Shares issued and outstanding....... $ 1,050
Additional paid-in capital............ 10,880,813
Net unrealized appreciation of
investments......................... 183,980
-----------
NET ASSETS.............................. $11,065,843
-----------
-----------
NET ASSET VALUE (OFFERING AND REDEMPTION
PRICE PER SHARE)...................... $ 10.54
-----------
-----------
</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, 1998

NATIONAL MUNICIPAL FUND
- -------------------------------------------------------------------

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at market value (cost
$30,281,447)........................ $30,630,823
Interest and dividends receivable..... 369,039
Receivable from Adviser............... 13,303
Deferred organization expenses........ 24,044
Prepaid expenses and other assets..... 1,397
-----------
Total Assets........................ $31,038,606
LIABILITIES:
Dividends payable..................... 7,278
Payable for investment securities
purchased........................... 1,250,176
Professional fees payable............. 17,335
Due to custodian...................... 11,618
Administration fees payable........... 2,287
Transfer agent fees payable........... 1,643
Other payables and accrued expenses... 13,768
-----------
Total Liabilities................... 1,304,105
-----------
NET ASSETS.............................. $29,734,501
-----------
-----------
Net Assets consist of:
Shares of capital stock, $0.001 par
value per share, 2,850,783 Select
Shares issued and outstanding....... $ 2,851
Additional paid-in capital............ 29,382,274
Net unrealized appreciation of
investments......................... 349,376
-----------
NET ASSETS.............................. $29,734,501
-----------
-----------
NET ASSET VALUE (OFFERING AND REDEMPTION
PRICE PER SHARE)...................... $ 10.43
-----------
-----------
</TABLE>

U.S. GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------------

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at market value (cost
$38,648,894)........................ $38,690,328
Interest and dividends receivable..... 689,724
Receivable from Adviser............... 9,085
Receivable for capital shares sold.... 9,743
Deferred organization expenses........ 15,020
-----------
Total Assets........................ $39,413,900
LIABILITIES:
Dividends payable..................... 13,112
Professional fees payable............. 25,587
Administration fees payable........... 3,034
Transfer agent fees payable........... 1,866
Fund accounting fees payable.......... 1,250
Other payables and accrued expenses... 9,913
-----------
Total Liabilities................... 54,762
-----------
NET ASSETS.............................. $39,359,138
-----------
-----------
Net Assets consist of:
Shares of capital stock, $0.001 par
value per share, 3,762,982 Select
Shares issued and outstanding....... $ 3,763
Additional paid-in capital............ 39,295,846
Accumulated undistributed net realized
gains on investment transactions.... 18,095
Net unrealized appreciation of
investments......................... 41,434
-----------
NET ASSETS.............................. $39,359,138
-----------
-----------
NET ASSET VALUE (OFFERING AND REDEMPTION
PRICE PER SHARE)...................... $ 10.46
-----------
-----------
</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, 1998

MORTGAGE SECURITIES FUND
- -------------------------------------------------------------------

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at market value (cost
$59,828,211)........................ $60,289,832
Interest receivable................... 250,519
Receivable for capital shares sold.... 50,000
Deferred organization expenses........ 15,020
-----------
Total Assets........................ $60,605,371
LIABILITIES:
Dividends payable..................... 33,067
Payable for investment securities
purchased........................... 6,062,634
Professional fees payable............. 26,026
Administration fees payable........... 3,880
Transfer agent fees payable........... 2,106
Fund accounting fees payable.......... 1,250
Other payables and accrued expenses... 14,948
-----------
Total Liabilities................... 6,143,911
-----------
NET ASSETS.............................. $54,461,460
-----------
-----------
Net Assets consist of:
Shares of capital stock, $0.001 par
value per share, 5,300,194 Select
Shares issued and outstanding....... $ 5,300
Additional paid-in capital............ 53,992,844
Accumulated undistributed net realized
gains on investment transactions.... 1,695
Net unrealized appreciation of
investments......................... 461,621
-----------
NET ASSETS.............................. $54,461,460
-----------
-----------
NET ASSET VALUE (OFFERING AND REDEMPTION
PRICE PER SHARE)...................... $ 10.28
-----------
-----------
</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, 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................. $149,953,222
Dividends............................. 829,585
-----------------
Total Income........................ $150,782,807
EXPENSES:
Advisory.............................. 11,091,248
Administration........................ 1,638,533
Custody............................... 345,273
Registration & filing................. 252,124
Transfer agent and shareholder
servicing fees...................... 134,127
Professional.......................... 109,803
Fund accounting....................... 57,961
Miscellaneous......................... 204,448
-----------------
Total expenses before
waivers/reimbursements............. 13,833,517
Less expenses waived/reimbursed..... (442,728)
-----------------
Net expenses........................ 13,390,789
-----------------
NET INVESTMENT INCOME................... 137,392,018
-----------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss on investment
transactions........................ (45,302)
Net realized loss on foreign currency
transactions........................ (858,036)
Net change in unrealized depreciation
of investments...................... (74,819,292)
Net change in unrealized depreciation
of foreign currency transactions.... (247,656)
-----------------
Net realized and unrealized loss on
investments........................... (75,970,286)
-----------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................ $ 61,421,732
-----------------
-----------------
</TABLE>

EMERGING MARKETS FUND

<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign tax
witholding of $10,132).............. $ 25,782,023
-----------------
Total Income........................ $ 25,782,023
EXPENSES:
Advisory.............................. 1,960,803
Administration........................ 304,676
Custody............................... 105,420
Professional.......................... 50,785
Registration and filing............... 45,066
Transfer agent........................ 34,304
Fund accounting....................... 18,471
Miscellaneous......................... 22,484
-----------------
Total expenses before
waivers/reimbursements............. 2,542,009
Less expenses waived/reimbursed..... (110,256)
-----------------
Net expenses........................ 2,431,753
-----------------
NET INVESTMENT INCOME................... 23,350,270
-----------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss on investment
transactions........................ (24,823,068)
Net realized loss on foreign currency
transactions........................ (1,456,688)
Net change in unrealized depreciation
of investments...................... (39,261,016)
Net change in unrealized depreciation
of foreign currency transactions.... (309,662)
-----------------
Net realized and unrealized loss on
investments........................... (65,850,434)
-----------------
DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................ $(42,500,164)
-----------------
-----------------
</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, 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................. $ 37,130
Dividends (net of foreign tax
witholding of $45,399).............. 1,627,992
-----------------
Total Income........................ $ 1,665,122
EXPENSES:
Advisory.............................. 370,195
Custody............................... 204,252
Professional.......................... 59,903
Administration........................ 51,504
Fund accounting....................... 32,619
Transfer agent........................ 16,608
Amortization of organization
expenses............................ 5,824
Miscellaneous......................... 15,039
-----------------
Total expenses before
waivers/reimbursements............. 755,944
Less expenses waived/reimbursed..... (25,882)
-----------------
Net expenses........................ 730,062
-----------------
NET INVESTMENT INCOME................... 935,060
-----------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss on investment
transactions........................ (12,296,302)
Net realized loss on foreign currency
transactions........................ (101,287)
Net change in unrealized depreciation
of investments...................... (11,254,588)
Net change in unrealized depreciation
of foreign currency transactions.... (4,169)
-----------------
Net realized and unrealized loss on
investments........................... (23,656,346)
-----------------
DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................ $(22,721,286)
-----------------
-----------------
</TABLE>

NEW YORK MUNICIPAL FUND

<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................. $2,615,960
Dividends............................. 1,094
-----------------
Total Income........................ $2,617,054
EXPENSES:
Advisory.............................. 203,373
Administration........................ 71,276
Professional.......................... 42,418
Fund accounting....................... 33,493
Transfer agent........................ 14,001
Custody............................... 11,777
Amortization of organization
expenses............................ 6,574
Miscellaneous......................... 18,102
-----------------
Total expenses before
waivers/reimbursements............. 401,014
Less expenses waived/reimbursed..... (117,772)
-----------------
Net expenses........................ 283,242
-----------------
NET INVESTMENT INCOME................... 2,333,812
-----------------
REALIZED AND UNREALIZED GAINS ON
INVESTMENTS:
Net realized gains on investment
transactions........................ 358,577
Net change in unrealized appreciation
of investments...................... 668,521
-----------------
Net realized and unrealized gains on
investments........................... 1,027,098
-----------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................ $3,360,910
-----------------
-----------------
</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
YEAR ENDED
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................. $350,227
Dividends............................. 9,236
--------
Total Income........................ $359,463
EXPENSES:
Advisory.............................. 28,769
Fund accounting....................... 25,404
Professional.......................... 20,558
Transfer agent........................ 11,076
Administration........................ 11,004
Amortization of organization
expenses............................ 8,395
Custody............................... 1,313
Miscellaneous......................... 9,311
--------
Total expenses before
waivers/reimbursements............. 115,830
Less expenses waived/reimbursed..... (74,732)
--------
Net expenses........................ 41,098
--------
NET INVESTMENT INCOME................... 318,365
--------
REALIZED AND UNREALIZED GAINS ON
INVESTMENTS:
Net realized gains on investment
transactions........................ 39,740
Net change in unrealized appreciation
of investments...................... 108,350
--------
Net realized and unrealized gains on
investments........................... 148,090
--------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................ $466,455
--------
--------
</TABLE>

NATIONAL MUNICIPAL FUND

<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................. $615,810
--------
Total Income........................ $615,810
EXPENSES:
Advisory.............................. 48,983
Fund accounting....................... 24,043
Professional.......................... 18,243
Administration........................ 17,962
Registration and filing............... 14,274
Transfer agent........................ 10,774
Amortization of organization
expenses............................ 6,586
Custodian............................. 2,082
Miscellaneous......................... 11,818
--------
Total expenses before
waivers/reimbursements............. 154,765
Less expenses waived/reimbursed..... (84,790)
--------
Net expenses........................ 69,975
--------
NET INVESTMENT INCOME................... 545,835
--------
REALIZED AND UNREALIZED GAINS ON
INVESTMENTS:
Net realized gains on investment
transactions........................ 119,562
Net change in unrealized appreciation
of investments...................... 307,333
--------
Net realized and unrealized gains on
investments........................... 426,895
--------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................ $972,730
--------
--------
</TABLE>

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
YEAR ENDED
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................. $ 975,977
Dividends............................. 1,102
-----------------
Total Income........................ $ 977,079
EXPENSES:
Advisory.............................. 67,110
Professional.......................... 26,975
Administration........................ 25,039
Registration and filing............... 21,637
Fund accounting....................... 21,295
Transfer agent........................ 11,080
Custody............................... 4,640
Amortization of organization
expenses............................ 4,380
Miscellaneous......................... 3,514
-----------------
Total expenses before
waivers/reimbursements............. 185,670
Less expenses waived/reimbursed..... (89,805)
-----------------
Net expenses........................ 95,865
-----------------
NET INVESTMENT INCOME................... 881,214
-----------------
REALIZED AND UNREALIZED GAINS ON
INVESTMENTS:
Net realized gains on investment
transactions........................ 705,098
Net change in unrealized appreciation
of investments...................... 10,941
-----------------
Net realized and unrealized gains on
investments......................... 716,039
-----------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................ $1,597,253
-----------------
-----------------
</TABLE>

MORTGAGE SECURITIES FUND

<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................. $2,136,742
-----------------
Total Income........................ $2,136,742
EXPENSES:
Advisory.............................. 120,529
Administration........................ 39,730
Professional.......................... 40,814
Fund accounting....................... 25,264
Registration and filing............... 21,067
Transfer agent........................ 11,529
Custody............................... 8,064
Amortization of organization
expenses............................ 4,380
Miscellaneous......................... 12,657
-----------------
Total expenses before
waivers/reimbursements............. 284,034
Less expenses waived/reimbursed..... (113,712)
-----------------
Net expenses........................ 170,322
-----------------
NET INVESTMENT INCOME................... 1,966,420
-----------------
REALIZED AND UNREALIZED GAINS (LOSS) ON
INVESTMENTS:
Net realized gains on investment and
foreign currency transactions....... 55,332
Net change in unrealized appreciation
of investments...................... 382,923
Net change in unrealized depreciation
of foreign currency transactions.... (3,427)
-----------------
Net realized and unrealized gains on
investments........................... 434,828
-----------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................ $2,401,248
-----------------
-----------------
</TABLE>

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 FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
<S> <C> <C>
- ---------------------------------------------------------------------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income................. $ 137,392,018 $ 91,532,933
Net realized gains (loss) on
investment and foreign currency
transactions........................ (903,338) 14,548,678
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency transactions....... (75,066,948) 17,401,256
--------------- ---------------
Net increase in net assets resulting
from operations..................... 61,421,732 123,482,867
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income................. (137,392,018) (91,532,933)
Excess of net investment income....... -- (317,636)
Net realized gains.................... -- (14,175,584)
Excess of net realized gains.......... -- (555,849)
--------------- ---------------
Total dividends and distributions to
shareholders........................ (137,392,018) (106,582,002)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued........... 769,293,164 607,587,659
Dividends reinvested.................. 95,379,400 68,319,193
Cost of shares redeemed............... (395,641,025) (197,959,947)
--------------- ---------------
Net increase in net assets from
capital share transactions.......... 469,031,539 477,946,905
--------------- ---------------
Total increase in net assets.......... 393,061,253 494,847,770
NET ASSETS:
Beginning of year..................... 1,346,567,974 851,720,204
--------------- ---------------
End of year (Including distributions
in excess of net investment income
of $1,435,436 and $594,996,
respectively.)...................... $ 1,739,629,227 $ 1,346,567,974
--------------- ---------------
--------------- ---------------
</TABLE>

EMERGING MARKETS FUND

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
<S> <C> <C>
- -----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................. $ 23,350,270 $ 16,156,332
Net realized gains (loss) on
investment and foreign currency
transactions........................ (26,279,756) 7,559,229
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency transactions....... (39,570,678) (8,927,144)
------------------- -------------------
Net increase (decrease) in net assets
resulting from operations........... (42,500,164) 14,788,417
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income................. (22,781,139) (16,156,332)
Excess of net investment income....... -- (987,668)
Net realized gains.................... -- (7,559,229)
Excess of net realized gains.......... (625,832) (3,624,156)
Return of capital..................... (569,131) --
------------------- -------------------
Total dividends and distributions to
shareholders........................ (23,976,102) (28,327,385)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued........... 101,711,812 121,772,445
Dividends reinvested.................. 16,044,606 16,925,719
Cost of shares redeemed............... (113,151,233) (30,526,769)
------------------- -------------------
Net increase in net assets from
capital share transactions.......... 4,605,185 108,171,395
------------------- -------------------
Net increase (decrease) in net
assets.............................. (61,871,081) 94,632,427
NET ASSETS:
Beginning of year..................... 210,776,593 116,144,166
------------------- -------------------
End of year (Including distributions
in excess of net investment income
of $2,210,458 and $1,322,901,
respectively.)...................... $ 148,905,512 $ 210,776,593
------------------- -------------------
------------------- -------------------
</TABLE>

The accompanying notes are an integral part of the financial statements.
53
-------------
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

LATIN AMERICA EQUITY FUND

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
<S> <C> <C>
- -----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................. $ 935,060 $ 150,445
Net realized loss on investment and
foreign currency transactions....... (12,397,589) (1,070,055)
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency transactions....... (11,258,757) 3,460,249
------------------- -------------------
Net increase (decrease) in net assets
resulting from operations........... (22,721,286) 2,540,639
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income................. (773,732) (150,445)
Excess of net investment income....... -- (222,445)
Net realized gains.................... (40,064) (952,958)
------------------- -------------------
Total dividends and distributions to
shareholders........................ (813,796) (1,325,848)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued........... 6,292,203 68,585,066
Dividends reinvested.................. 445,995 1,094,992
Cost of shares redeemed............... (21,899,202) (29,150,348)
------------------- -------------------
Net increase (decrease) in net assets
from capital share transactions..... (15,161,004) 40,529,710
------------------- -------------------
Total increase (decrease) in net
assets.............................. (38,696,086) 41,744,501
NET ASSETS:
Beginning of year..................... 55,052,218 13,307,717
------------------- -------------------
End of year (Including undistributed
net investment income of $86,976 and
distributions in excess of net
investment income of $68,499,
respectively.)...................... $ 16,356,132 $ 55,052,218
------------------- -------------------
------------------- -------------------
</TABLE>

NEW YORK MUNICIPAL FUND

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
<S> <C> <C>
- -----------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income................. $ 2,333,812 $ 1,295,724
Net realized gains on investments..... 358,577 201,875
Net change in unrealized appreciation
of investments...................... 668,521 898,649
------------------- -------------------
Net increase in net assets resulting
from operations..................... 3,360,910 2,396,248
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDER FROM:
Net investment income................. (2,333,812) (1,295,724)
Excess of net investment income....... (9,835) (3,541)
Net realized gains.................... (358,577) (192,144)
Excess of realized gains.............. (14,521) --
------------------- -------------------
Total dividends and distributions to
shareholders........................ (2,716,745) (1,491,409)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued........... 46,233,943 29,031,529
Dividends reinvested.................. 2,328,952 1,189,875
Cost of shares redeemed............... (23,459,800) (9,238,189)
------------------- -------------------
Net increase in net assets from
capital share transactions.......... 25,103,095 20,983,215
------------------- -------------------
Net increase in net assets............ 25,747,260 21,888,054
NET ASSETS:
Beginning of year..................... 42,045,686 20,157,632
------------------- -------------------
End of year........................... $ 67,792,946 $ 42,045,686
------------------- -------------------
------------------- -------------------
</TABLE>

The accompanying notes are an integral part of the financial statements.
54
- -------------
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

CALIFORNIA MUNICIPAL FUND

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
APRIL 2,
FOR THE YEAR 1997*
ENDED THROUGH
DECEMBER 31, DECEMBER
1998 31, 1997
<S> <C> <C>
------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income........................... $ 318,365 $ 93,881
Net realized gains on investment transactions... 39,740 3,306
Net change in unrealized appreciation of
investments................................... 108,350 75,630
------------ -----------
Net increase in net assets resulting from
operations.................................... 466,455 172,817
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................... (318,365) (93,881)
Excess of net investment income................. (9,756) (695)
Net realized gains.............................. (39,704) (3,342)
------------ -----------
Total dividends and distributions to
shareholders.................................. (367,825) (97,918)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued..................... 8,055,789 4,636,788
Dividends reinvested............................ 297,972 80,338
Cost of shares redeemed......................... (2,178,623) 0
------------ -----------
Net increase in net assets from capital share
transactions.................................. 6,175,138 4,717,126
------------ -----------
Total increase in net assets.................... 6,273,768 4,792,025
NET ASSETS:
Beginning of period............................. 4,792,075 50
------------ -----------
End of period (Including undistributed net
investment income of $1,350 for December 31,
1997.)........................................ $ 11,065,843 $ 4,792,075
------------ -----------
------------ -----------
</TABLE>

NATIONAL MUNICIPAL FUND

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
OCTOBER 20,
FOR THE YEAR 1997*
ENDED THROUGH
DECEMBER 31, DECEMBER
1998 31, 1997
<S> <C> <C>
------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income........................... $ 545,835 $ 18,697
Net realized gains on investments............... 119,562 2,921
Net change in unrealized appreciation of
investments................................... 307,333 42,043
------------ -----------
Net increase in net assets resulting from
operations.................................... 972,730 63,661
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................... (545,835) (18,697)
Excess of net investment income................. (6,615) --
Net realized gain............................... (122,483) --
------------ -----------
Total dividends and distributions to
shareholders.................................. (674,933) (18,697)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued..................... 31,253,540 2,750,010
Dividends reinvested............................ 630,967 10,113
Cost of shares redeemed......................... (5,252,890) --
------------ -----------
Net increase in net assets from capital share
transactions.................................. 26,631,617 2,760,123
------------ -----------
Total increase in net assets.................... 26,929,414 2,805,087
NET ASSETS:
Beginning of period............................. 2,805,087 --
------------ -----------
End of period................................... $ 29,734,501 $ 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,
FOR THE YEAR 1997*
ENDED THROUGH
DECEMBER 31, DECEMBER
1998 31, 1997
<S> <C> <C>
------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income........................... $ 881,214 $ 55,516
Net realized gains on investment transactions... 705,098 13,802
Net change in unrealized appreciation of
investments................................... 10,941 30,493
------------ -----------
Net increase in net assets resulting from
operations.................................... 1,597,253 99,811
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................... (881,214) (55,516)
Excess of net investment income................. (4,391) (3,940)
Net realized gains.............................. (690,853) (5,280)
------------ -----------
Total dividends and distributions to
shareholders.................................. (1,576,458) (64,736)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued..................... 39,744,486 3,943,065
Dividends reinvested............................ 1,476,753 45,655
Cost of shares redeemed......................... (5,837,572) (69,119)
------------ -----------
Net increase in net assets from capital share
transactions.................................. 35,383,667 3,919,601
------------ -----------
Total increase in net assets.................... 35,404,462 3,954,676
NET ASSETS:
Beginning of period............................. 3,954,676 --
------------ -----------
End of period................................... $ 39,359,138 $ 3,954,676
------------ -----------
------------ -----------
</TABLE>

MORTGAGE SECURITIES FUND

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JULY 1,
FOR THE YEAR 1997*
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1998 1997
<S> <C> <C>
-------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income........................... $ 1,966,420 $ 335,822
Net realized gains on investment and foreign
currency transactions......................... 55,332 117,606
Net change in unrealized appreciation of
investment and foreign currency transactions.. 379,496 82,125
------------ ------------
Net increase in net assets resulting from
operations.................................... 2,401,248 535,553
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDER FROM:
Net investment income........................... (1,966,420) (335,822)
Excess of net investment income................. (21,491) (13,631)
Realized gains.................................. (55,332) (58,364)
Excess of realized gains........................ (27,956) --
------------ ------------
Total dividends and distributions to
shareholders.................................. (2,071,199) (407,817)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued..................... 38,457,330 16,626,836
Dividends reinvested............................ 1,911,337 307,847
Cost of shares redeemed......................... (3,274,675) (25,000)
------------ ------------
Net increase in net assets from capital share
transactions.................................. 37,093,992 16,909,683
------------ ------------
Total increase in net assets.................... 37,424,041 17,037,419
NET ASSETS:
Beginning of period............................. 17,037,419 --
------------ ------------
End of period (Including undistributed net
investment income of $19,449 for December 31,
1997.)........................................ $ 54,461,460 $ 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
------------------------------------------------------------------------------ ADVISOR SHARES
FOR THE PERIOD ---------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FROM MARCH 2, FOR THE PERIOD
ENDED ENDED ENDED ENDED 1994* THROUGH ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1994 1998
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE:
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 10.34 $ 10.15 $ 9.92 $ 9.25 $ 10.00(e) $10.34
------------- ------------- ------------- ------------- -------------- ------
Net investment
income............... 0.88 0.87 0.89 0.90 0.72 0.60
Net realized and
unrealized gain
(loss)............... (0.43) 0.31 0.29 0.67 (0.75) (0.43)
------------- ------------- ------------- ------------- -------------- ------
Total income from
investment (loss)
operations........... 0.45 1.18 1.18 1.57 (0.03) 0.17
------------- ------------- ------------- ------------- -------------- ------
LESS DIVIDENDS AND
DISTRIBUTION FROM:
Net investment
income............... (0.88) (0.87) (0.89) (0.89) (0.72) (0.60)
Net realized gains..... -- (0.12) (0.06) (0.01) -- --
------------- ------------- ------------- ------------- -------------- ------
Total dividends and
distributions.......... (0.88) (0.99) (0.95) (0.90) (0.72) (0.60)
------------- ------------- ------------- ------------- -------------- ------
Net change in net asset
value per share...... (0.43) 0.19 0.23 0.67 (0.75) (0.43)
------------- ------------- ------------- ------------- -------------- ------
NET ASSET VALUE, END OF
PERIOD................. $ 9.91 $ 10.34 $ 10.15 $ 9.92 $ 9.25 $ 9.91
------------- ------------- ------------- ------------- -------------- ------
------------- ------------- ------------- ------------- -------------- ------
TOTAL RETURN(a).......... 4.49% 12.09% 12.46% 17.72% 0.27%(b) 0.67%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (in
thousands)........... $ 1,739,622 $1,346,553 $851,720 $479,090 $222,317 $ 7
Ratios to average net
assets:
Expenses**............. 0.84% 0.87% 0.98% 1.05% 1.14%(c) 0.93%(c)
Net investment
income............... 8.67% 8.46% 8.86% 9.38% 8.97%(c) 9.54%(c)
PORTFOLIO TURNOVER
RATE................... 36% 47% 41% 34% 42% 36%

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 (loss)
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
period (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 FOR THE YEAR FOR THE YEAR FOR THE PERIOD
ENDED ENDED ENDED ENDED FROM MARCH 8,
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994* THROUGH
1998 1997 1996 1995 DECEMBER 31, 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE:
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 10.46 $ 11.03 $ 9.91 $ 8.84 $ 10.00(e)
------------- ------------- ------------- ------------- -------
Net investment
income............... 0.99 1.15 1.00 0.90 0.81
Net realized and
unrealized gain
(loss)............... (2.23) 0.00 1.55 1.07 (1.16)
------------- ------------- ------------- ------------- -------
Total income (loss)
from investment
operations........... (1.24) 1.15 2.55 1.97 (0.35)
------------- ------------- ------------- ------------- -------
LESS DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment
income............... (0.97) (1.15) (1.00) (0.60) (0.81)
Excess of net
investment income.... -- (0.04) -- -- --
Net realized gains..... -- (0.53) (0.43) -- --
Excess of realized
gains................ (0.03) -- -- -- --
Return of capital...... (0.02) -- -- (0.30) --
------------- ------------- ------------- ------------- -------
Total dividends and
distributions.......... (1.02) (1.72) (1.43) (0.90) (0.81)
------------- ------------- ------------- ------------- -------
Net change in net asset
value per share...... (2.26) (0.57) 1.12 1.07 (1.16)
------------- ------------- ------------- ------------- -------
NET ASSET VALUE, END OF
PERIOD................. $ 8.20 $ 10.46 $ 11.03 $ 9.91 $ 8.84
------------- ------------- ------------- ------------- -------
------------- ------------- ------------- ------------- -------
TOTAL RETURN(a).......... (11.92%) 10.67% 26.56% 23.38% (3.82%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of
period (in
thousands)........... $148,908 $210,777 $116,144 $49,250 $28,117
Ratios to average net
assets:
Expenses**............. 1.10% 1.29% 1.16% 1.50% 1.50%(c)
Net investment
income............... 10.53% 9.49% 9.62% 9.97% 10.39%(c)
PORTFOLIO TURNOVER
RATE................... 77% 179% 136% 60% 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, 1998, there were no Advisor Shares outstanding.
(e) Initial offering price.

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(d) ADVISOR SHARES
-------------------------------------------------------------------- ------------------
FOR THE YEAR FOR THE YEAR FOR THE PERIOD FROM FOR THE PERIOD ***
ENDED ENDED FEBRUARY 13, 1996* ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 THROUGH DECEMBER 31, 1996 DECEMBER 31, 1997
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE:
NET ASSET VALUE, BEGINNING OF
PERIOD...................... $ 14.13 $ 11.66 $ 10.00(e) $ 15.11
-------- ------- ------- -------
Net investment income
(loss).................... 0.27 0.09 0.20 (0.21)
Net realized and unrealized
gain (loss)............... (6.82) 2.74 2.11 (0.50)
-------- ------- ------- -------
Total income (loss) from
investment operations..... (6.55) 2.83 2.31 (0.71)
-------- ------- ------- -------
LESS DIVIDENDS AND
DISTRIBUTION FROM:
Net investment income....... (0.23) (0.09) (0.20) (0.01)
Excess of net investment
income.................... -- (0.02) -- --
Net realized gains.......... (0.01) (0.25) (0.45) (0.25)
-------- ------- ------- -------
Total dividends and
distributions............... (0.24) (0.36) (0.65) (0.26)
-------- ------- ------- -------
Net change in net asset
value per share........... (6.79) 2.47 1.66 (0.97)
-------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD...................... $ 7.34 $ 14.13 $ 11.66 $ 14.14
-------- ------- ------- -------
-------- ------- ------- -------
TOTAL RETURN(a)............... (46.96%) 24.22% 23.36%(b) (4.64%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(in thousands)............ $ 16,356 $55,034 $13,308 $ 18
Ratios to average net assets
Expenses**.................. 1.97% 1.60% 2.00%(c) 1.73%(c)
Net investment income
(loss).................... 2.53% 0.26% 1.97%(c) (0.73%)(c)
Portfolio turnover rate....... 53% 98% 133% 98%
</TABLE>

NEW YORK MUNICIPAL FUND

<TABLE>
<CAPTION>
SELECT SHARES(d)
-----------------------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE PERIOD FROM
ENDED ENDED ENDED APRIL 3, 1995*
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 THROUGH DECEMBER 31, 1995
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE:
NET ASSET VALUE, BEGINNING OF
PERIOD...................... $ 10.69 $ 10.40 $ 10.47 $ 10.00(e)
------- ------- ------- -------
Net investment income....... 0.44 0.46 0.44 0.33
Net realized and unrealized
gain (loss)............... 0.19 0.34 (0.06) 0.47
------- ------- ------- -------
Total income from investment
operations................ 0.63 0.80 0.38 0.80
------- ------- ------- -------
LESS DIVIDENDS AND
DISTRIBUTIONS FROM:
Net investment income....... (0.44) (0.46) (0.44) (0.32)
Net realized gains.......... (0.06) (0.05) (0.01) (0.01)
------- ------- ------- -------
Total dividends and
distributions............... (0.50) (0.51) (0.45) (0.33)
------- ------- ------- -------
Net change in net asset
value per share........... 0.13 0.29 (0.07) 0.47
------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD...................... $ 10.82 $ 10.69 $ 10.40 $ 10.47
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN(a)............... 6.03% 7.84% 3.72% 8.13%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
(in thousands)............ $67,793 $42,046 $20,158 $12,516
Ratios to average net assets:
Expenses**.................. 0.50% 0.50% 0.55% 0.54%(c)
Net investment income....... 4.08% 4.22% 4.28% 4.20%(c)
PORTFOLIO TURNOVER RATE....... 132% 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.
*** 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) As of December 31, 1998 there were no Advisor Shares outstanding.
(e) Initial offering price.

The accompanying notes are an integral part of the financial statements.
58
- -------------
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)

CALIFORNIA MUNICIPAL FUND

<TABLE>
<CAPTION>
SELECT SHARES(d)
------------------------------------------------
FOR THE PERIOD FROM
FOR THE YEAR ENDED APRIL 2, 1997*
DECEMBER 31, 1998 THROUGH DECEMBER 31, 1997
<S> <C> <C>
- ------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 10.37 $10.00(e)
------- ------
Net investment income................. 0.40 0.33
Net realized and unrealized gains..... 0.22 0.38
------- ------
Total income from investment
operations.......................... 0.62 0.71
------- ------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income................. (0.40) (0.33)
Excess of net investment income....... (0.01) --
Net realized gains.................... (0.04) (0.01)
------- ------
Total dividends and distributions....... (0.45) (0.34)
------- ------
Net change in net asset value per
share............................... 0.17 0.37
------- ------
NET ASSET VALUE, END OF PERIOD.......... $ 10.54 $10.37
------- ------
------- ------
TOTAL RETURN(a)......................... 6.14% 7.14%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands).......................... $11,066 $4,792
Ratios to average net assets:
Expenses**............................ 0.50% 0.50%(c)
Net investment income................. 3.87% 4.15%(c)
PORTFOLIO TURNOVER RATE................. 51% 41%
</TABLE>

NATIONAL MUNICIPAL FUND

<TABLE>
<CAPTION>
SELECT SHARES(d)
------------------------------------------------
FOR THE PERIOD FROM
FOR THE YEAR ENDED OCTOBER 20, 1997*
DECEMBER 31, 1998 THROUGH DECEMBER 31, 1997
<S> <C> <C>
- ------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 10.19 $10.00(e)
------- ------
Net investment income................. 0.40 0.08
Net realized and unrealized gains..... 0.29 0.19
------- ------
Total income from investment
operations............................ 0.69 0.27
------- ------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income................. (0.40) (0.08)
Net realized gains.................... (0.05) --
------- ------
Total Dividends and Distributions....... (0.45) (0.08)
------- ------
Net change in net asset value per
share............................... 0.24 0.19
------- ------
NET ASSET VALUE, END OF PERIOD.......... $ 10.43 $10.19
------- ------
------- ------
TOTAL RETURN(a)......................... 6.91% 2.70%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands).......................... $29,735 $2,805
Ratios to average net assets
Expenses**............................ 0.50% 0.50%(c)
Net investment income................. 3.90% 3.95%(c)
PORTFOLIO TURNOVER RATE................. 226% 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, 1998 there were no Advisor Shares outstanding.
(e) Initial offering price.

The accompanying notes are an integral part of the financial statements.
59
-------------
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)

U.S. GOVERNMENT SECURITIES FUND

<TABLE>
<CAPTION>
SELECT SHARES(d)
------------------------------------------------
FOR THE PERIOD FROM
FOR THE YEAR ENDED JULY 1, 1997*
DECEMBER 31, 1998 THROUGH DECEMBER 31, 1997
<S> <C> <C>
- ------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 10.17 $10.00(e)
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.50 0.27
Net realized and unrealized gains..... 0.48 0.19
------- ------
Total income from investment
operations.......................... 0.98 0.46
------- ------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income................. (0.50) (0.27)
Excess of net investment income....... -- (0.01)
Net realized gains.................... (0.19) (0.01)
------- ------
Total dividends and distributions....... (0.69) (0.29)
------- ------
Net change in net asset value per
share............................... 0.29 0.17
------- ------
NET ASSET VALUE, END OF PERIOD.......... $ 10.46 $10.17
------- ------
------- ------
TOTAL RETURN(a)......................... 9.82% 4.71%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands).......................... $39,359 $3,955
Ratios to average net assets:
Expenses**............................ 0.50% 0.50%(c)
Net investment income................. 4.59% 5.32%(c)
PORTFOLIO TURNOVER RATE................. 423% 153%
</TABLE>

MORTGAGE SECURITIES FUND

<TABLE>
<CAPTION>
SELECT SHARES(d)
------------------------------------------------
FOR THE PERIOD
FOR THE YEAR ENDED JULY 1, 1997*
DECEMBER 31, 1998 THROUGH DECEMBER 31, 1997
<S> <C> <C>
- ------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 10.17 $ 10.00(e)
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.58 0.29
Net realized and unrealized gains..... 0.14 0.22
------- -------
Total income from investment
operations.......................... 0.72 0.51
------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income................. (0.58) (0.29)
Excess of net investment income....... (0.01) (0.01)
Net realized gains.................... (0.02) (0.04)
------- -------
Total dividends and distributions..... (0.61) (0.34)
------- -------
Net change in net asset value per
share............................... 0.11 0.17
------- -------
NET ASSET VALUE, END OF PERIOD.......... $ 10.28 $ 10.17
------- -------
------- -------
TOTAL RETURN(a)......................... 7.26% 5.10%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands).......................... $54,461 $17,037
Ratios to average net assets:
Expenses**............................ 0.50% 0.50%(c)
Net investment income................. 5.72% 5.77%(c)
PORTFOLIO TURNOVER RATE................. 78% 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, 1998 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.
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. As of December 31, 1998, the High Yield Fund was
the only Fund with Advisor Shares.

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. Effective
June 1, 1998, PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC
Bank Corp., began providing administrative and fund accounting services for the
Funds. OFFIT Funds Distributor, Inc. (the "Distributor") serves as the
distributor of the Funds' shares. PFPC also provides transfer and dividend
disbursing agent services for the Funds. Prior to June 1, 1998, BISYS Fund
Services, Limited Partnership, and BISYS Fund Services, Inc. provided the
aforementioned services.

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 security 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 security 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 gains and losses on investments of a fund
are allocated to

61
-------------
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
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 COSTS:

Costs incurred in connection with the organization and initial registration of
the Funds have been deferred and are being amortized on a straight-line basis
over a sixty-month period beginning with each of the Fund's commencement of
operations.

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 each Fund. 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 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 they exceed
net investment income and net realized capital gains for tax purposes, they are
reported as distributions of capital.

As of December 31, 1998, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to
paid-in-capital:

<TABLE>
<CAPTION>
ACCUMULATED
UNDISTRIBUTED ACCUMULATED
NET NET REALIZED
INVESTMENT GAIN/(LOSS) ON
INCOME INVESTMENTS
-------------- --------------
<S> <C> <C>
High Yield Fund............. $ (840,440) $ 840,440
Emerging Markets Fund....... (887,557) 1,456,688
Latin America Equity Fund... 34,211 53,858
New York Municipal Fund..... 9,835 --
California Municipal Fund... 8,406 --
National Municipal Fund..... 6,615 --
U.S. Government Securities
Fund....................... 4,391 (1,005)
Mortgage Securities Fund.... 2,042 1,695
</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, all of
their 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.......... $4,470,549 $ 192,085
Latin America Fund............. 3,107,405 11,802
U.S. Government Securities
Fund.......................... 24,619 --
Mortgage Securities Fund....... 7,361 --
</TABLE>

For federal income tax purposes, the following Funds had capital loss
carryforwards:

<TABLE>
<CAPTION>
DATE OF
FUND CLCF EXPIRATION
- ---------------------------- ---------- -----------------
<S> <C> <C>
High Yield Fund............. $ 62,898 December 31, 2006
Emerging Markets Fund....... 23,411,476 December 31, 2006
Latin America Equity Fund... 11,489,603 December 31, 2006
</TABLE>

Accordingly, no capital gain distribution is expected to be paid to shareholders
until net gains have been realized in excess of the aggregate of each amount.

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, other 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.

Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward currency contracts and certain
foreign currency denominated debt obligations, 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

62
- -------------
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
arise from changes in the value of assets and liabilities other than investments
in securities, resulting from changes in exchange rates.
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 exposure to changes in foreign currency
exchange rates on their portfolio holdings.

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, which 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. A Fund bears the market
risk which 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 related 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, 1998 are recorded for financial reporting purposes as unrealized gains and
losses by the Funds.

The table below indicates the High Yield Fund's outstanding forward currency
contract positions at December 31, 1998:

<TABLE>
<CAPTION>
VALUE ON VALUE AT UNREALIZED
CONTRACT MATURITY ORIGINATION DECEMBER 31, APPRECIATION
CURRENCY AMOUNTS DATE DATE 1998 (DEPRECIATION)
----------- ----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Sell CAD (2,620,000) 01/22/99 $ (1,696,342) $(1,704,276) $ (7,934)
Sell DEM (18,783,000) 02/05/99 (11,268,898) (11,284,266) (15,368)
Sell ECU (12,511,000) 02/05/99 (14,706,681) (14,688,065) 18,616
Sell FRF (72,572,500) 02/23/99 (12,907,744) (12,998,463) (90,719)
Sell FRF (9,130,000) 02/23/99 (1,633,508) (1,635,275) (1,767)
-------------
Net unrealized depreciation on forward positions............................ $ (97,172)
-------------
-------------
</TABLE>

Currency Abbreviations:

<TABLE>
<S> <C> <C>
CAD -- Canadian Dollar
DEM -- German Deutsche Mark
ECU -- European Currency Unit
FRF -- French Franc
</TABLE>

The Emerging Markets Fund may also invest 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.

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% of the
first $200,000,000 of such net assets, 0.75% for the next $400,000,000 of such
net assets, and 0.65% for amounts in excess of $600,000,000 of such net assets
in the case of the High Yield Fund; 0.90% for the first $200,000,000 of such net
assets of 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. For the year ended December 31, 1998, the Adviser earned fees of
$11,091,248, $1,960,803, and $370,195 for the High Yield Fund, Emerging Markets
Fund and Latin America Equity Fund, respectively. The Adviser earned fees of
$203,373, $28,769, $48,983, $67,110 and $120,529 and waived fees of $90,180,
$28,008, $32,995, $38,093 and $78,778 for the New York Municipal Fund,
California Municipal Fund, National Municipal Fund, U.S. Government Securities
Fund and the Mortgage Securities Fund, respectively.

Commencing on June 1, 1998, PFPC provided 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

63
-------------
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
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 PFPC a monthly fee for its services at an annual rate of 0.125% of each
Portfolio's first $300 million in average daily net assets; 0.11% of each
Portfolio's next $300 million in average daily net assets; 0.08% of each
Portfolio's next $300 million in average daily net assets; 0.05% of each
Portfolio's next $300 million in average daily net assets; and 0.0275% of each
Portfolio's average daily net assets in excess of $1.2 billion. From time to
time, PFPC may waive all or a portion of its fees. For the period from June 1,
1998 through December 31, 1998, PFPC was entitled to fees of $734,239, $155,434,
$20,155, $46,666, $6,628, $15,150, $18,606 and $31,400 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. PFPC waived fees of
$37,304, $8,428, $11,200, $6,628, $6,283, $8,925 and $7,536 for the 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. For the period from January 1, 1998
through May 31, 1998 BISYS Fund Services, Inc., the previous administrator was
entitled to fees of $904,294, $149,242, $31,349, $24,610, $4,376, $2,812, $6,433
and $8,330 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 $442,728, $72,952, $15,674, $14,871, $4,376,
$2,812, $6,433 and $11,945 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.

Commencing on June 1, 1998, PFPC provided the Funds with fund accounting and
related services pursuant to a fund accounting agreement with the Company. For
these services PFPC is entitled a fee of $1,250 per month per Fund plus out of
pocket expenses. From time to time, PFPC may waive all or a portion of its fees.
For the period from June 1, 1998 through December 31, 1998, PFPC earned fees of
$22,117, $8,992, $8,992, $8,992, $8,750, $8,750, $8,992 and $8,750 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. PFPC waived fees
of $8,750, $4,951 and $8,750 for the California Municipal Fund, U.S. Government
Securities Fund and National Municipal Fund, respectively. For the period from
January 1, 1998 through May 31, 1998 BISYS Funds Services, Inc., the previous
Fund accounting agent earned fees, including reimbursement of out of pocket
expenses, of $35,844, $9,479, $23,627, $24,501, $16,654, $15,293, $12,303 and
$16,514, 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.

Commencing on June 1, 1998, PFPC also served as transfer agent for the Funds and
receives reimbursement of certain expenses plus a fee for related services
pursuant to a transfer agency agreement with the Company. From time to time,
PFPC may waive all or portion of these fees. For the period from June 1, 1998
through December 31, 1998, PFPC earned fees of $81,418, $22,225, $10,791,
$10,500, $10,500, $10,500 $10,500 and $10,500 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
Mortgage Securities Fund, respectively. PFPC waived fees of $1,780, $1,521,
$4,803, $4,660, $3,264 and $2,627 for the Latin America Equity Fund, New York
Municipal Fund, California Municipal Fund, National Municipal Fund, U.S.
Government Securities Fund and Mortgage Securities Fund, respectively. For the
period from January 1, 1998 through May 31, 1998 BISYS Fund Services, Inc., the
previous transfer agent earned fees, including reimbursement of out pocket
expenses of $52,709, $12,079, $5,817, $3,501, $576, $274, $580 and $1,029, 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 Fund and 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 ended December 31,
1998, 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

64
- -------------
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
Advisor Shares. For the services provided, the Company's Shareholder Servicing
Plan permits each Fund to pay fees to Shareholder Servicing 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, 1998, no shareholder servicing fees were
incurred.

OFFITBANK has voluntarily agreed to limit the expense ratios for the California
Municipal Fund, the National Municipal Fund the U.S. Government Securities Fund
and 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,
$22,167, $29,290, $28,139 and $12,826 respectively.

4. SECURITIES TRANSACTIONS. For the year ended December 31, 1998, 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.... $1,165,994,178 $541,828,413 $ -- $ --
Emerging Markets
Fund.............. 178,712,225 162,258,203 -- --
Latin America
Equity Fund....... 19,354,570 34,678,149 -- --
New York Municipal
Fund.............. 95,217,613 73,184,597 -- --
California
Municipal Fund.... 9,588,377 3,896,475 -- --
National Municipal
Fund.............. 55,482,476 30,858,595 -- --
U.S. Government
Securities Fund... 490,258 494,707 107,077,512 74,094,919
Mortgage Securities
Fund.............. -- 294,119 71,486,725 24,562,744
</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 year ended December 31, 1998 and for the period
ended December 31, 1997, were as follows:

<TABLE>
<CAPTION>
HIGH YIELD FUND SELECT SHARES
------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares issued....... 74,958,569 $ 769,112,164 58,935,603 $ 607,572,659
Shares reinvested... 9,400,869 95,379,400 6,635,971 68,319,193
Shares redeemed..... (39,058,920) (395,454,066) (19,219,765) (197,959,947)
----------- ------------- ----------- -------------
Net increase........ 45,300,518 $ 469,037,498 46,351,809 $ 477,931,905
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>

<TABLE>
<CAPTION>
HIGH YIELD FUND ADVISOR SHARES
----------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Shares issued........................ 17,980 $ 181,000 1,446 $ 15,000
Shares reinvested.................... -- -- -- --
Shares redeemed...................... (18,711) (186,959) -- --
--------- --------- ----- -----------
Net increase (decrease).............. (731) $ (5,959) 1,446 $ 15,000
--------- --------- ----- -----------
--------- --------- ----- -----------
</TABLE>

<TABLE>
<CAPTION>
EMERGING MARKETS FUND SELECT SHARES
----------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares issued......... 10,089,980 $ 101,711,812 10,783,609 $121,597,415
Shares reinvested..... 1,812,672 16,044,606 1,550,297 16,925,719
Shares redeemed....... (13,898,524) (113,151,233) (2,718,271) (30,354,173)
----------- ------------- ---------- ------------
Net increase
(decrease)........... (1,995,883) $ 4,605,185 9,615,635 $108,168,961
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
</TABLE>

<TABLE>
<CAPTION>
LATIN AMERICA EQUITY FUND SELECT SHARES
--------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares issued........... 628,612 $ 6,292,203 4,783,824 $ 67,593,866
Shares reinvested....... 39,391 445,995 78,005 1,094,992
Shares redeemed......... (2,332,653) (21,881,263) (2,109,165) (28,221,087)
---------- ------------ ---------- ------------
Net increase
(decrease)............. (1,664,650) $(15,143,065) 2,752,664 $ 40,467,771
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>

<TABLE>
<CAPTION>
LATIN AMERICA EQUITY FUND ADVISOR SHARES
--------------------------------------------
PERIOD ENDED PERIOD ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shares issued....................... -- $ -- 60,128 $ 991,200
Shares redeemed..................... (1,277) (17,939) (58,851) (929,261)
----------- --------- --------- ---------
Net increase (decrease)............. (1,277) $ (17,939) 1,277 $ 61,939
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
NEW YORK MUNICIPAL FUND SELECT SHARES
------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Shares issued............. 4,296,577 $ 46,233,943 2,757,463 $29,031,529
Shares reinvested......... 215,897 2,328,952 112,876 1,189,875
Shares redeemed........... (2,179,819) (23,459,800) (875,489) (9,238,189)
---------- ------------ --------- -----------
Net increase.............. 2,332,655 $ 25,103,095 1,994,850 $20,983,215
---------- ------------ --------- -----------
---------- ------------ --------- -----------
</TABLE>

<TABLE>
<CAPTION>
CALIFORNIA MUNICIPAL FUND SELECT SHARES
---------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Shares issued.................. 763,930 $ 8,055,789 454,503 $4,636,788
Shares reinvested.............. 30,165 297,972 7,824 80,388
Shares redeemed................ (206,273) (2,178,623) -- --
--------- ----------- --------- ----------
Net increase................... 587,822 $ 6,175,138 462,327 $4,717,126
--------- ----------- --------- ----------
--------- ----------- --------- ----------
</TABLE>

<TABLE>
<CAPTION>
NATIONAL MUNICIPAL FUND SELECT SHARES
---------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Shares issued................. 3,017,817 $31,253,540 274,236 $2,750,010
Shares reinvested............. 60,611 630,967 1,002 10,113
Shares redeemed............... (502,883) (5,252,890) -- --
--------- ----------- --------- ----------
Net increase.................. 2,575,545 $26,631,617 275,238 $2,760,123
--------- ----------- --------- ----------
--------- ----------- --------- ----------
</TABLE>

<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND SELECT SHARES
---------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Shares issued................. 3,790,582 $39,744,486 391,245 $3,943,065
Shares reinvested............. 141,379 1,476,753 4,514 45,655
Shares redeemed............... (557,911) (5,837,572) (6,827) (69,119)
--------- ----------- --------- ----------
Net increase.................. 3,374,050 $35,383,667 388,932 $3,919,601
--------- ----------- --------- ----------
--------- ----------- --------- ----------
</TABLE>

65
-------------
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------

<TABLE>
<CAPTION>
MORTGAGE SECURITIES FUND SELECT SHARES
----------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares issued.............. 3,757,709 $38,457,330 1,647,704 $16,626,836
Shares reinvested.......... 186,150 1,911,337 30,335 307,847
Shares redeemed............ (319,246) (3,274,675) (2,458) (25,000)
--------- ----------- --------- -----------
Net increase............... 3,624,613 $37,093,992 1,675,581 $16,909,683
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>

6. OTHER MATTERS. The High Yield Fund, the Emerging Markets Fund and the Latin
America Equity 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 the 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 State 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
government 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,
1998, the following Funds declared long-term capital gain distributions in the
following amounts:

<TABLE>
<S> <C>
Emerging Markets Fund............................. $625,837
Latin America Equity Fund......................... 40,064
New York Municipal Fund........................... 195,789
National Municipal Fund........................... 2,912
Mortgage Securities............................... 23,033
</TABLE>

During the year ended December 31, 1998, the following funds declared tax-exempt
income distributions in the following amounts:

<TABLE>
<S> <C>
New York Municipal Fund........................... $2,326,665
California Municipal Fund......................... 320,281
National Municipal Fund........................... 521,723
</TABLE>

For corporate shareholders 2.3% of the total ordinary income distributions paid
during the fiscal year ended December 31, 1998 for the High Yield Fund qualifies
for the corporate dividends received deduction.

66
- -------------
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

- --------------------------------------------------------------------------------

To the Board of Directors
and Shareholders 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, 1998, 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, 1998 by correspondence with the
custodians and brokers, provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 22, 1999

67
-------------
<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

David C. Lebisky
ASSISTANT SECRETARY

Gary M. Gardner
ASSISTANT SECRETARY

Stephen Brent Wells
ASSISTANT TREASURER

Vincent M. Rella
ASSISTANT TREASURER

David D. Marky
ASSISTANT TREASURER

Stephen M. Wynne
ASSISTANT TREASURER

INVESTMENT ADVISER
OFFITBANK
520 Madison Avenue
New York, New York 10022

DISTRIBUTOR
OFFIT Funds Distributor, Inc.
Four Falls Corporate Center, 6th Floor
West Conshohocken, Pennsylvania 19428-2961

ADMINISTRATOR
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809

TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809

CUSTODIANS
The Chase Manhattan Bank
3 MetroTech Center, 8th Floor South
Brooklyn, New York, 11245
(OFFITBANK EMERGING MARKETS FUND AND
OFFITBANK LATIN AMERICA EQUITY FUND)

The Bank of New York
48 Wall Street
New York, New York 10286
(ALL OTHER OFFITBANK FUNDS)

LEGAL COUNSEL
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
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This report is submitted for the information of the shareholders of the Funds.
It is not authorized for distribution to prospective investors in the Funds
unless preceded or accompanied by an effective prospectus which includes
information regarding the Funds' objectives and policies, charges, expenses and
other data. Please read the prospectus carefully before you invest or send
money.

The OFFITBANK Investment Fund, Inc.
400 Bellevue Parkway, Suite 108
Wilmington, DE 19809
(800) 618-9510