HIGHLAND GROWTH FUND
ANNUAL REPORT
DECEMBER 31, 1997
<PAGE>
HIGHLAND GROWTH FUND
TABLE OF CONTENTS
DECEMBER 31, 1997
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SHAREHOLDER LETTER........................................................... 1
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT.......................... 3
INDEPENDENT AUDITORS' REPORT................................................. 4
FINANCIAL STATEMENTS
Statement of Assets and Liabilities................................. 5
Statement of Operations............................................. 6
Statement of Changes in Net Assets.................................. 7
Financial Highlights................................................ 8
Notes to Financial Statements....................................... 9
Schedule of Investments............................................. 12
<PAGE>
HIGHLAND GROWTH FUND
SHAREHOLDER LETTER
DECEMBER 31, 1997
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February 27, 1998
Dear Shareholder,
The Highland Growth Fund, which commenced operation on May 13, 1997, became
fully invested over the course of the summer. The Fund, riding in part a
resurgence in the small capitalization sector, got of to a particularly
favorable start. For the quarter ended September 30, 1997, the Fund's total
return after waivers was 16.5% as compared with returns of 14.1% for the S&P 500
and 9.8% for the Dow Jones Industrial Average.
Despite what appeared to be a very strong domestic economy, the stock market's
pace began to falter as the Asian currency woes came to the forefront. It became
clear over the next couple of months that the financial troubles in the Far East
economies of Korea, Hong Kong and Japan could not be taken lightly. As Asian
political leaders attempted along with the IMF to resolve their economic
problems and instill a sense of financial austerity, the U.S. stock market
retreated from its previous highs. Particular vulnerability was experienced in
the small capitalization sector, which had done particularly well during late
summer and early fall. The technology sector was especially hard hit. Given the
Fund's commitment to leading edge technology companies on the forefront of
change, the Fund's performance suffered in the interim as the market attempted
to find equilibrium.
When the Asian crisis initially hit, it was assumed as a result of the "new"
global economy that U.S. based companies operating overseas would experience an
immediate negative earnings effect. We, at Highland Investment Group, believed
while there would no doubt be some earnings shortfalls as a result of Asian
retrenchment, that fourth quarter earnings would in fact not be as disappointing
as expected. We believed that our own domestic economy was sufficiently strong
to withstand the ripple effects coming from another part of the global economy.
We also believed as a result of aggressive use of outsourcing, particularly of
components in the technology sector, that falling prices overseas would have
some positive long-term balance sheet implications for U.S. companies. Because
of our belief that this turmoil would pass, we maintained our commitment to our
positions in our "Delta Force" companies.
For the fiscal period ended December 31, 1997, the Fund's total return was 3.6%,
adjusting for a capital-gain distribution of $0.17.
With the advent of the new year, the market did not get off to its unusually
strong January start. However, our faith in the resilience of the Fund's
securities was rewarded. Through the close of February 26, 1998, the Fund's
total return was 10% for the period from inception on May 13, 1997.
As we have previously notified you, the Fund's Board of Trustees voted to
liquidate the Fund as of February 27, 1998. Unfortunately, the Fund was not able
to reach a level of assets that would have made the Fund self sufficient with
respect to its operating costs. The Fund's investment adviser is no longer able
to continue to subsidize the Fund's current expenses as it has done since the
inception of the Fund. It was decided, therefore, to liquidate the Fund to
insure maximum value for all shareholders.
1
<PAGE>
HIGHLAND GROWTH FUND
SHAREHOLDER LETTER
DECEMBER 31, 1997
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In the Highland Growth Fund we have tried to identify those companies that are
at the forefront of change and that make a difference with respect to
individuals and how they live their lives. Additionally we have sought to
identify those companies that as a result of their vision and innovation, are
providing new ways of doing business around the world.
We believe in the spirit of enterprise and believe that many American companies
continue to display the innovative energy which brought us from an agrarian
economy to an industrial nation. We believe in the importance of corporate
leadership to take us into the next millennium. The investment process requires
leadership as well, which we at Highland call investing in the Championship
Tradition. We believe the Fund's commitment to these ideals exemplifies the very
best of the Championship Tradition.
Sincerely yours,
/s/ Robert Lamb, III
/s/ Catherine C. Lawson
Catherine C. Lawson Robert Lamb, III
2
<PAGE>
HIGHLAND GROWTH FUND
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
DECEMBER 31, 1997
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The following chart reflects a comparison in the change in value of a $10,000
investment in the Highland Growth Fund, including reinvested dividends and
distributions, and the performance of the Standard & Poor's 500 Index (the "S&P
500"). The S&P 500 is a market weighted index composed of 500 large
capitalization companies and reflects the reinvestment of dividends. The Index
excludes the effect of any expenses, which have been deducted from the Fund's
return. Investment return and principal value of an investment in the fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE CANNOT PREDICT NOR GUARANTEE FUTURE
RESULTS.
HIGHLAND GROWTH FUND VS. S&P 500 INDEX
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Inception* 31-May-97 30-Jun-97 31-Jul-97 31-Aug-97 30-Sep-97
S&P 500 Index $ 10,000 $ 10,608 $ 11,083 $ 11,965 $ 11,295 $ 11,914
Highland Growth Fund $ 10,000 $ 10,010 $ 10,290 $ 11,380 $ 11,220 $ 11,990
</TABLE>
<TABLE>
<S><C> <C> <C>
31-Oct-97 30-Nov-97 31-Dec-97
$ 11,516 $ 12,049 $ 12,255
$ 11,130 $ 10,690 $ 10,356
</TABLE>
*Inception date for Highland Growth Fund was May 13, 1997. Return for the S&P
500 Index based on an inception date of April 30, 1997.
3
<PAGE>
HIGHLAND GROWTH FUND
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Trustees of Highland Family of Funds and the Shareholders of Highland
Growth Fund:
We have audited the accompanying statement of assets and liabilities for the
Highland Growth Fund (a seperately managed Fund of the Highland Family of
Funds), including the schedule of investments, as of December 31, 1997, and the
related statement of operations, the statement of changes in net assets and the
financial highlights for the period May 13, 1997 (commencement of operations)
through December 31, 1997. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosure in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1997 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Highland Growth Fund as of December 31, 1997, the results of its operations, the
changes in its net assets and the financial highlights for the period May 13,
1997 (commencement of operations) through December 31, 1997 in conformity with
generally accepted accounting principles.
As explained in Note 8, the Board of Trustees of Highland Family of Funds have
voted to terminate the Fund effective as of February 27, 1998.
Boston, Massachusetts Coopers & Lybrand L.L.P.
February 27, 1998
4
<PAGE>
HIGHLAND GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMEBER 31, 1997
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<TABLE>
<S> <C>
ASSETS:
Investments (Note 2):
Investments at cost $ 561,646
Net unrealized appreciation (depreciation) (27,540)
--------------------
Total investments at value 534,106
Interest, dividends and other receivables 128
Receivable for Fund shares issued 700
Receivable from investment adviser (Note 5) 132,655
Organization costs, net of amortization (Note 2) 49,826
--------------------
Total Assets 717,415
--------------------
LIABILITIES:
Payable to investment adviser (Note 6) 57,188
Payable to administrator (Note 3) 25,381
Payable to transfer agent and accounting (Note 3) 38,946
Other accrued expenses and liabilities 65,198
--------------------
Total Liabilities 186,713
--------------------
NET ASSETS $ 530,702
====================
COMPONENTS OF NET ASSETS:
Paid in capital $ 558,247
Undistributed net investment income (loss) (2,983)
Accumulated net realized gain (loss) 2,978
Unrealized appreciation (depreciation) on investments (27,540)
--------------------
NET ASSETS $ 530,702
====================
SHARES OF BENEFICIAL INTEREST 52,141
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 10.18
(NET ASSETS / SHARES OF BENEFICIAL INTEREST)
</TABLE>
See Notes to Financial Statements. 5
<PAGE>
HIGHLAND GROWTH FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 13, 1997 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $ 967
Dividend income 781
--------------------
Total Investment Income 1,748
--------------------
EXPENSES:
Investment advisory (Note 3) 3,076
Administration (Note 3) 25,381
Transfer agent (Note 3) 17,421
Custody 1,814
Insurance 22,000
Registration 22,029
Reporting 1,000
Accounting (Note 3) 22,839
Legal 7,988
Audit 28,000
Trustees fees and expenses 19,715
Amortization of organization costs (Note 2) 7,292
Miscellaneous 13,126
--------------------
Total Expenses 191,681
Fees waived and expenses reimbursed (Note 5) (186,468)
--------------------
Net Expenses 5,213
--------------------
NET INVESTMENT INCOME (LOSS) (3,465)
--------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) on Investments 11,878
Net Unrealized Gain (Loss) on Investments (27,540)
--------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (15,662)
--------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ (19,127)
====================
</TABLE>
See Notes to Financial Statements. 6
<PAGE>
HIGHLAND GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
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<TABLE>
<S> <C>
NET ASSETS - BEGINNING OF PERIOD (A) $ 100,000
- ------------------------------------ --------------------
OPERATIONS:
Net investment income (loss) (3,465)
Net realized gain (loss) on investments 11,878
Net change in unrealized appreciation (depreciation)
on investments (27,540)
--------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS (19,127)
--------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments (8,900)
--------------------
CAPITAL SHARE TRANSACTIONS (B):
Sale of shares 451,806
Reinvestment of distributions 8,595
Redemption of shares (1,672)
--------------------
NET INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS 458,729
--------------------
NET INCREASE (DECREASE) IN NET ASSETS 430,702
--------------------
NET ASSETS - DECEMBER 31, 1997 INCLUDING LINE (I) $ 530,702
- ------------------------------------------------- ====================
(I) Undistributed Net Investment Income (Loss) $ (2,983)
====================
(a) The Fund commenced operations on May 13, 1997.
(b) Shares Issued (Redeemed)
Sale of shares 41,433
Reinvestment of distributions 853
Redemption of shares (145)
--------------------
Net increase (decrease) in shares outstanding 42,141
====================
</TABLE>
See Notes to Financial Statements. 7
<PAGE>
HIGHLAND GROWTH FUND
FINANCIAL HIGHLIGHTS
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SELECTED PER SHARE DATA AND RATIOS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<S> <C>
FOR THE
PERIOD ENDED
DECEMBER 31, 1997 (A)
---------------------
Net Asset Value, Beginning of Period $10.00
-------------------
Investment Operations
Net Investment Income (Loss) (0.07)
Net Realized and Unrealized Gain (Loss) on Investments 0.42(b)
-------------------
Total from Investment Operations 0.35
-------------------
Distributions From
Net Realized Gain on Investments (0.17)
-------------------
Net Asset Value, End of Period $10.18
===================
Total Return (c) 3.56%(d)
Ratio/Supplementary Data:
Net Assets at End of Period (000's omitted) $531
Ratios to Average Net Assets:
Expenses including reimbursement/waiver of fees 1.95%(e)
Expenses excluding reimbursement/waiver of fees 71.67%(e)
Net investment income (loss) including reimbursement/waiver (1.30%)(e)
Average Commission Rate (f) $ 0.1986
Portfolio Turnover Rate 17.86%
</TABLE>
- --------------------------
(a) The Fund commenced operations on May 13, 1997.
(b) The amount shown for shares of beneficial interest does not correspond
with the aggregate net loss on investments for the period due to the
timing of sales and repurchases of the Fund shares to fluctuating market
value of the shares of the Fund.
(c) Total return would have been lower had certain fees and expenses not been
waived and reimbursed during the period shown (see Note 5).
(d) Not annualized.
(e) Annualized.
(f) Amount represents the average commission per share paid to brokers on the
purchase and sale of equity securities.
See Notes to Financial Statements. 8
<PAGE>
HIGHLAND GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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NOTE 1. ORGANIZATION
The Highland Family of Funds ("Trust") is an open-end, management investment
company registered under the Investment Company Act of 1940. The Trust is
organized as a Massachusetts business trust pursuant to a Declaration of Trust
dated October 7, 1996. The Highland Growth Fund ("Fund") is a separate
diversified series of the Trust and currently the Trust's only active series.
The Fund is authorized to issue an unlimited number of shares of beneficial
interest. The Fund commenced operations on May 13, 1997.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual results could differ from those
estimates.
The following represent significant accounting policies of the Fund:
SECURITY VALUATION - Securities held by the Fund for which market quotations are
readily available are valued using the last reported sales price on the exchange
on which the securities are principally traded. Prices are provided by
independent pricing services. If no sales are reported, the mean of the last bid
and asked price is used. In the absence of readily available market quotations,
securities are valued at fair value as determined by the investment adviser
pursuant to guidelines established by the Board of Trustees. Securities with a
maturity of 60 days or less are valued at amortized cost.
INVESTMENT INCOME - Dividend income is recorded on the ex-dividend date.
Interest income is recorded on an accrual basis.
DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income and capital
gain distributions, if any, are distributed to shareholders at least annually.
Distributions are based on amounts calculated in accordance with applicable
federal income tax regulations. These differences are due primarily to differing
treatments of income and gain on various investment securities held by the Fund,
timing differences and differing characterizations of distributions made by the
Fund.
FEDERAL TAXES - The Fund intends to qualify each year as a regulated investment
company and distribute all of its taxable income. In addition, by distributing
in each calendar year substantially all of its net investment income, capital
gain and certain other amounts, if any, the Fund will not be subject to a
federal excise tax.
Therefore, no federal income or excise tax provision is required.
REALIZED GAIN AND LOSS - Security transactions are recorded on a trade date
basis. Realized gain and loss on investments sold are recorded on the basis of
identified cost.
ORGANIZATIONAL COSTS- Costs incurred by the Fund in connection with its
organization have been deferred and will be amortized on a straight-line basis
over a period of five years from the date the Fund commenced operations. If any
of the initial shares of the Fund are redeemed during the amortization period,
the redemption proceeds will be reduced by any unamortized organization costs in
the same proportion as the number of shares being redeemed bears to the number
of initial shares outstanding at the time of such redemption.
9
<PAGE>
HIGHLAND GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 3. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER - The investment adviser is Highland Investment Group L.P.
(the "Adviser"). Pursuant to an Investment Advisory Agreement, the Adviser is
entitled to receive an advisory fee at an annual rate of 1.15% of the Fund's
average daily net assets.
ADMINISTRATION - Pursuant to an Administration Agreement, Forum Administrative
Services, LLC ("FAS") acts as administrator for the Fund. FAS is entitled to
receive an administration fee at an annual rate of 0.10% of the Fund's first
$100 million of the averages net assets of the fund and 0.05% thereafter on the
average net assets. The minimum annual fee payable for administration is
$40,000. In addition, for the period ended December 31, 1997, FAS was
compensated for legal expenses provided to the Fund in the amount of $3,244.
DISTRIBUTION SERVICES - Forum Financial Services, Inc.(R) ("FFSI") acts as the
distributor for the Fund pursuant to a Distribution Agreement.
OTHER SERVICES - Forum Financial Corp.(R) ("FFC") an affiliate of FAS and FFSI,
acts as the transfer agent and dividend disbursing agent for the Fund. FFC also
provides fund accounting services to the Fund pursuant to a Fund Accounting
Agreement.
NOTE 4. PURCHASES AND SALES OF SECURITIES
The cost of securities purchased and the proceeds from sales of securities
(excluding short-term investments) for the period ended December 31, 1997,
aggregated $633,777 and $84,009, respectively.
For federal income tax purposes, the tax basis of investment securities owned as
of December 31, 1997, was $561,646 and the net unrealized depreciation of
investment securities was $27,540. The aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax cost
was $47,450, and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value was $74,990.
NOTE 5. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
The Adviser has agreed to waive a portion of its fee and/or assume certain
expenses of the Fund so that the total operating expenses of the Fund do not
exceed 1.95% of its average daily net assets until March 14, 1998. FAS and FFC
may waive voluntarily all or a portion of their fees, from time to time. For the
period ended December 31, 1997, the Adviser waived fees and reimbursed expenses
of $3,076 and $183,392, respectively.
NOTE 6. PAYABLE TO INVESTMENT ADVISER
As of December 31, 1997, the Fund owes the Adviser $57,188 for the costs
incurred with the Fund's organization which were paid by the Adviser on behalf
of the Fund.
NOTE 7. BENEFICIAL INTEREST
As of the period ended December 31, 1997, there is one affiliated and two
unaffiliated shareholders, each of whom own more than 10% of the Fund's total
shares aggregating 50.39%.
10
<PAGE>
HIGHLAND GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (concluded)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 8. FUND TERMINATION
On February 19, 1998, the Board of Trustees voted to terminate the Fund pursuant
to Section 6.2 of the Declaration of Trust effective as of February 27, 1998,
and that proper officers of the Trust be authorized to perform on behalf of the
Fund and the Trust any and all acts as such officer may deem necessary or
advisable in order to wind up the affairs of the Fund and the Trust and to
liquidate the business of the Fund and the Trust.
- -----------------------
FEDERAL TAX STATUS OF DIVIDENDS DECLARED DURING THE FISCAL YEAR (UNAUDITED)
For federal income tax purposes, dividends from short-term capital gains are
classified as ordinary income. The percentage of qualifying dividends eligible
for the corporate dividends received deduction is 44.66%.
11
<PAGE>
HIGHLAND GROWTH FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHARES SECURITY DESCRIPTION VALUE (NOTE 2)
- ------------- --------------------------------------------------------------- ----------------
COMMON STOCK (100.0%)
APPAREL & ACCESSORY STORES (1.5%)
200 St. John Knits, Inc. $ 8,000
----------------
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS & SIMILAR
MATERIALS (1.7%)
500 Cutter & Buck, Inc. (a) 9,312
----------------
BUSINESS SERVICES (24.5%)
500 Accustaff, Inc. (a) 11,500
150 CSG Systems International Inc. (a) 6,000
1,000 Cabletron Systems, Inc. (a) 15,000
300 Caribiner International, Inc. (a) 13,350
200 Cerner Corp. (a) 4,225
300 Excite, Inc. (a) 9,000
200 IDX Systems Corp. (a) 7,400
700 MetaCreations Corp. (a) 7,788
600 Oracle Corp. (a) 13,388
1,000 QAD Inc. (a) 12,625
150 Robert Half International, Inc. (a) 6,000
200 Volt Information Sciences, Inc. (a) 10,774
200 Yahoo, Inc. (a) 13,850
----------------
130,900
----------------
CHEMICALS & ALLIED PRODUCTS (2.4%)
500 International Murex Technologies Corp. (a) 5,031
100 Proctor & Gamble Co. 7,981
----------------
13,012
----------------
COMMUNICATIONS (0.9%)
200 MasTec, Inc. (a) 4,574
----------------
DEPOSITORY INSTITUTIONS (3.2%)
300 Queens County Bancorp, Inc. 12,150
100 Santa Barbara Bancorp 4,713
----------------
16,863
----------------
EATING & DRINKING PLACES (2.2%)
800 Il Fornaio America Corp. (a) 11,900
----------------
ELECTRIC, GAS & SANITARY SERVICES (1.0%)
100 Duke Energy Corp. 5,538
----------------
</TABLE>
See Notes to Financial Statements. 12
<PAGE>
HIGHLAND GROWTH FUND
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHARES SECURITY DESCRIPTION VALUE (NOTE 2)
- ------------- --------------------------------------------------------------- ----------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER
EQUIPMENT (7.0%)
300 Ade Corp. (a) $ 5,250
300 Advanced Technology Materials, Inc. (a) 7,275
300 Atmel Corp. (a) 5,569
300 Bay Networks, Inc. (a) 7,669
100 Linear Technology Corp. 5,763
200 Zoltek Cos., Inc. (a) 5,574
----------------
37,100
----------------
ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT & RELATED SERVICES (6.4%)
500 Corrections Corp. of America (a) 18,531
200 Incyte Pharmaceutiacls (a) 9,000
300 Transition Systems, Inc. (a) 6,637
----------------
34,168
----------------
FABRICATED METAL PRODUCTS (1.6%)
200 Tower Automotive, Inc. (a) 8,413
----------------
HEALTH SERVICES (4.7%)
500 Medical Resources, Inc. (a) 4,687
450 National Surgery Centers, Inc. (a) 11,813
100 Pediatrix Medical Group, Inc. (a) 4,275
100 Sunrise Assisted Living, Inc. (a) 4,313
----------------
25,088
----------------
HOTELS, ROOMING HOUSES, CAMPS & OTHER LODGING PLACES (1.3%)
100 Marriott International, Inc. 6,924
----------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT (10.9%)
425 3Com Corp. (a) 14,848
225 Cisco Systems, Inc. (a) 12,544
200 EMC Corp. (a) 5,488
450 Gateway 2000, Inc. (a) 14,681
500 JetFax, Inc. (a) 2,688
130 Smith International, Inc. (a) 7,978
----------------
58,227
----------------
INSURANCE CARRIERS (2.0%)
700 Oxford Health Plans, Inc. (a) 10,894
----------------
</TABLE>
See Notes to Financial Statements. 13
<PAGE>
HIGHLAND GROWTH FUND
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHARES SECURITY DESCRIPTION VALUE (NOTE 2)
- ------------- --------------------------------------------------------------- ----------------
MEASURING, ANALYZING & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC, MEDICAL &
OPTICAL GOODS (2.9%)
200 Mentor Corp. 7,300
200 Wind River Systems (a) 7,938
----------------
15,238
----------------
MINING METALS/MINERALS (2.2%)
1,000 C3, Inc. (a) $ 11,563
----------------
MISCELLANEOUS (0.9%)
900 Firearms Training Systems, Inc. (a) 4,669
----------------
OIL & GAS EXTRACTION (5.4%)
200 Cooper Cameron Corp. (a) 12,200
200 Falcon Drilling Co., Inc. (a) 7,013
300 Global Marine, Inc. (a) 7,350
100 Newfield Exploration Co. (a) 2,331
----------------
28,894
----------------
PHARMACEUTICAL PREPARATIONS (6.3%)
200 ArQule, Inc. (a) 4,588
275 Merck & Co., Inc. 29,219
----------------
33,807
----------------
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES (2.0%)
150 Charles Schwab Corp. 6,291
200 E*TRADE Group, Inc. (a) 4,600
----------------
10,891
----------------
TELECOMMUNICATIONS (3.1%)
300 International Telecommunication Data Systems, Inc. (a) 9,600
200 Newbridge Networks Corp. (a) 6,975
----------------
16,575
----------------
TRANSPORTATION BY AIR (1.1%)
100 Federal Express Corp. (a) 6,105
----------------
TRANSPORTATION EQUIPMENT (1.1%)
200 Gulfstream Aerospace Corp. (a) 5,850
----------------
WHOLESALE TRADE-DURABLE GOODS (2.0%)
500 Physician Sales & Service, Inc. (a) 10,750
----------------
</TABLE>
See Notes to Financial Statements. 14
<PAGE>
HIGHLAND GROWTH FUND
SCHEDULE OF INVESTMENTS (concluded)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHARES SECURITY DESCRIPTION VALUE (NOTE 2)
- ------------- --------------------------------------------------------------- ----------------
WHOLESALE TRADE-NONDURABLE GOODS (1.7%)
100 Borg-Warner Automotive, Inc. 5,200
100 Synetic, Inc. (a) 3,651
----------------
8,851
----------------
TOTAL INVESTMENTS (100.0%) (COST $561,646) $ 534,106
================
</TABLE>
- ----------------------------------------
(a) Non-income producing security.
See Notes to Financial Statements. 15
<PAGE>
INVESTMENT ADVISER
Highland Investment Group L.P.
1248 Post Road
Fairfield, Connecticut 06430
ADMINISTRATOR
Forum Administrative Services, LLC
Two Portland Square
Portland, Maine 04101
DISTRIBUTOR
Forum Financial Services, Inc.(R)
Two Portland Square
Portland, Maine 04101
CUSTODIAN
BankBoston, N.A.
P.O. Box 1959
Boston, Massachusetts 02105
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY TO SHAREHOLDERS OF THE HIGHLAND
GROWTH FUND.
