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T H E Q U A D R A F U N D S
ANNUAL REPORT
03.31.97
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QUADRA LIMITED MATURITY TREASURY FUND
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Shareholder Inquiries:
QUADRA Capital Partners, L.P.
270 Congress Street
Boston, MA 02210
617.426.0900
800.595.9291
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MESSAGE TO SHAREHOLDERS MARCH 31, 1997
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Dear Shareholders,
We are pleased to present the first Annual Report for the Quadra Limited
Maturity Treasury Fund. The fund opened on January 27, 1997 and total return to
date has been 0.6%. This compares to 0.2% for the Lehman 1-3 Year Treasury
Index. On an annualized basis, the Fund return was 3.7% and the Index return was
1.0%.
Our portfolio managers Michael O'Connell and Paul Anhalt, from Anhalt/O'Connell,
Inc., are dedicated to executing the Fund's investment strategy in the best way
possible. Our strategy of investing in US Treasury securities provides an
excellent option for the investor who is seeking a high level of income with
maximum credit protection and moderate fluctuation in value. Attached you will
find an update from Messrs. Anhalt and O'Connell on market conditions.
All of us at Quadra Capital Partners, L.P. strive to provide each of our clients
with investment solutions that meet their goals for today and tomorrow. We thank
you for the opportunity to help with your investment management needs.
Quadra Capital Partners, L.P.
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REPORT FROM ANHALT/O'CONNELL, INC. MARCH 31, 1997
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Dear Shareholders,
We are pleased to report on the Quadra Limited Maturity Treasury Fund's
abbreviated first fiscal year. The Fund's annualized return of 3.7% was
significantly above the Lehman 1-3 Year Treasury Index annualized return of
1.0%. Since inception, the Fund's total return to date has been 0.6%, which
compares favorably with the Index return of 0.2%.
The bond market's year-end 1996 rally ended abruptly in the first quarter on
news of unexpected strength in the economy. Increases in construction and
manufacturing, joined later by gains in employment and consumer spending, were
ammunition for the Federal Reserve Board, which raised its key Federal Funds
Rate a quarter-point to 5.50% on March 25, 1997. Economic conditions softened
since then and allowed the Fed to pass on further increases at the May 20th
meeting.
The Fed's tightening of monetary policy was minimal, but preemptive, as it
lacked the justification of higher-trending commodity prices that have presaged
higher inflation and Fed moves in the past. The threat of higher wage
inflation, poised to exceed 4% in the coming months, however, is of particular
concern to Fed officials and if realized, can be used to justify further
increases in interest rates.
Overall credit conditions have slowly deteriorated since late 1993, when
interest rates saw their cyclical lows, through March of 1997. It will take
steadiness in commodity prices and additional weakening in other key credit
demand indicators to keep inflation in check and allow interest rates to work
lower again later in the year. Meanwhile, we expect plenty of market volatility
in the months ahead.
Anhalt/O'Connell, Inc.
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QUADRA LIMITED MATURITY TREASURY FUND
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
MARCH 31, 1997
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The following chart compares a change in value of a $10,000 investment in the
Fund, including reinvested dividends and distributions, and the performance of
the Lehman 1-3 Year Treasury Index. The Index excludes the effect of any fees
or sales charges. 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.
QUADRA LIMITED MATURITY TREASURY FUND VS LEHMAN 1-3 YEAR TREASURY INDEX
[GRAPH]
Inception* 31-Jan-97 28-Feb-97 31-Mar-97
Quadra $ 10,000 $ 10,006 $ 10,034 $ 10,063
Lehman 1-3 Year $ 10,000 $ 10,000 $ 10,024 $ 10,016
INVESTMENT VALUE ON 3/31/97
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QUADRA Limited Maturity Treasury Fund $ 10,063
Lehman 1-3 Year Treasury Index $ 10,016
INCEPTION INCEPTION
TO DATE TO DATE
TOTAL RETURN CUMULATIVE* ANNUALIZED*
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QUADRA Limited Maturity Treasury Fund 0.6% 3.7%
Lehman 1-3 Year Treasury Index 0.2% 1.0%
* Inception date for QUADRA Limited Maturity Treasury Fund was January 27,
1997.
** Annualized, return for the Lehman 1-3 Year Treasury Index based on an
inception date of January 31, 1997.
3
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QUADRA LIMITED MATURITY TREASURY FUND
SCHEDULE OF INVESTMENTS
MARCH 31, 1997
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FACE
AMOUNT SECURITY DESCRIPTION VALUE
- ------ -------------------- -----
U.S. TREASURY BILLS(a) (78.4%)
$ 50,000 5.04%, 5/1/97 $ 49,787
85,000 5.26%, 1/8/98 81,331
290,000 5.19%, 9/4/97 283,302
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TOTAL U.S. TREASURY BILLS (COST $414,808) 414,420
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U.S. TREASURY NOTES (16.7%)
40,000 5.25%, 7/31/98 39,525
49,000 5.88%, 1/31/99 48,556
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TOTAL U.S. TREASURY NOTES (COST $88,593) 88,081
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SHARES
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SHORT-TERM HOLDINGS (4.9%)
26,066 1784 Institutional U.S. Treasury Money
Market Fund (cost $26,066) 26,066
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TOTAL INVESTMENTS (100.0%) (COST $529,467) $ 528,567
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(a) Annualized yields at time of purchase (unaudited).
See Notes to Financial Statements. 4
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QUADRA LIMITED MATURITY TREASURY FUND
STATEMENT OF ASSETS AND LIABLILITIES
MARCH 31, 1997
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ASSETS:
Investments (Note 2):
Investments at cost $ 529,467
Net unrealized appreciation (depreciation) (900)
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Total investments at value 528,567
Interest receivable 932
Receivable for Fund shares sold 317,454
Receivable from Adviser (Note 3) 32,331
Organization costs, net of amortization (Note 2) 28,919
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Total assets 908,203
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LIABILITIES:
Payable to related parties (Note 2) 30,000
Accrued fees and other expenses 31,505
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Total liabilities 61,505
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NET ASSETS: $ 846,698
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COMPONENTS OF NET ASSETS:
Paid in capital $ 842,219
Undistributed net investment income (loss) 5,364
Unrealized appreciation (deprecation) on investments (900)
Accumulated net realized gain (loss) 15
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NET ASSETS $ 846,698
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SHARES OF BENEFICIAL INTEREST 84,855
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NET ASSET VALUE (OFFERING AND REDEMPTION
PRICE PER SHARE) $ 9.98
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See Notes to Financial Statements. 5
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QUADRA LIMITED MATURITY TREASURY FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 28, 1997 THROUGH MARCH 31, 1997
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INVESTMENT INCOME:
Interest income $ 2,951
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EXPENSES:
Investment advisory (Note 3) 256
Management (Note 3) 7,204
Transfer agency (Note 3) 4,356
Custody 745
Accounting (Note 3) 6,484
Audit 10,500
Registration 5,241
Reporting 2,500
Organization costs (Note 2) 1,081
Miscellaneous 1,680
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Total expenses 40,047
Expenses reimbursed and fees waived (Note 5) (39,791)
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Net expenses 256
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NET INVESTMENT INCOME (LOSS): 2,695
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NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments sold 15
Net change in unrealized appreciation (depreciation)
on investments (900)
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NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (885)
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NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 1,810
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See Notes to Financial Statements. 6
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QUADRA LIMITED MATURITY TREASURY FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED MARCH 31, 1997
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Amount Shares
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NET ASSETS - JANUARY 28, 1997 (a) $ 10
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OPERATIONS:
Net investment income (loss) 2,695
Net realized gain (loss) on investments sold 15
Net change in unrealized appreciation(depreciation)
on investments (900)
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Net increase (decrease) in net assets resulting
from operations 1,810
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DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,695)
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CAPITAL SHARE TRANSACTIONS (Note 6):
Sale of shares 844,918 84,588
Reinvestment of distributions 2,695 270
Redemption of shares (40) (4)
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Net increase (decrease) in capital transactions 847,573 84,854
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Net increase (decrease) 846,688
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NET ASSETS - MARCH 31, 1997 (Including line b) $ 846,698
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(a) Commencement of investment operations.
(b) Accumulated undistributed net investment income $ 5,364
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See Notes to Financial Statements. 7
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QUADRA LIMITED MATURITY TREASURY FUND
FINANCIAL HIGHLIGHTS
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Selected per share data and ratios for a share
outstanding throughout the period.
Period Ended
March 31,
1997(a)
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Net Asset Value, Beginning of Period $10.00
Investment Operations
Net Investment Income (Loss) 0.08
Net Realized and Unrealized Gain (Loss) on Investments (0.02)
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Total from Investment Operations 0.06
Distributions from Net Investment Income (0.08)
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Net Asset Value, End of Period $9.98
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Total Return 0.63%
Ratio/Supplementary Data:
Net Assets at End of Period (000's omitted) $847
Ratios to Average Net Assets:
Expenses including reimbursement/waiver 0.45%(b)
Expenses excluding reimbursement/waiver 70.40%(b)
Net investment income (loss) including
reimbursement/waiver 4.74%(b)
Portfolio Turnover Rate 0%
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(a) For the period January 28, 1997 (commencement of operations) through March
31, 1997.
(b) Annualized.
8
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QUADRA LIMITED MATURITY TREASURY FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
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NOTE 1. ORGANIZATION
Forum Funds-Registered Trademark- (the "Trust") is an open-end management
investment company organized as a Delaware business trust. The Trust currently
has eleven active investment portfolios (the "Funds"). The Trust Instrument of
the Trust authorizes each Fund to issue an unlimited number of shares of
beneficial interest without par value. Included in this report is Quadra
Limited Maturity Treasury Fund (the "Fund"), a diversified portfolio of the
Trust that commenced operations on January 28, 1997.
NOTE 2. SUMMARY OF 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 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 Board of
Trustees. Securities with a maturity of 60 days or less are valued at amortized
cost.
INTEREST INCOME - Interest income is determined on the basis of interest accrued
and discount earned.
DISTRIBUTIONS TO SHAREHOLDERS - Distributions from net investment income are
declared daily and paid monthly. Net capital gains, if any, are declared and
paid at least annually. Distributions are based on amounts calculated in
accordance with applicable income tax regulations.
ORGANIZATION COSTS - The costs incurred by the Fund in connection with its
organization and registration of shares have been capitalized and are being
amortized using the straight-line method over a five year period beginning with
the commencement of the Fund's operations. Certain of these costs were paid by
Forum Financial Services, Inc.-Registered Trademark- and will be reimbursed by
the Fund.
FEDERAL TAXES - The Fund intends to qualify and continue 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 gains and certain other amounts, if any, the Fund
will not be subject to a Federal excise tax. Therefore, no Federal income tax
provision is required.
EXPENSE ALLOCATION - The Trust accounts separately for the assets and
liabilities and operations of each Fund. Expenses that are directly
attributable to more than one Fund are allocated among the respective Funds.
REALIZED GAIN AND LOSS - Security transactions are accounted for on a trade date
basis and realized gain and loss on investments sold are determined on the basis
of identified cost.
9
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QUADRA LIMITED MATURITY TREASURY FUND
NOTES TO FINANCIAL STATEMENTS (continued)
MARCH 31, 1997
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NOTE 3. ADVISORY FEES, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser to the Fund is Quadra Capital Partners, L.P. (the
"Adviser"). Pursuant to an Investment Advisory Agreement, the Adviser receives
an advisory fee from the Fund at an annual rate of 0.45% of the average daily
net assets of the Fund. The Adviser has, however, agreed to waive a portion of
its advisory fee until May 1, 1997 in order to cap the Fund's expenses at 0.45%
of the average daily net assets of the Fund.
Quadra has entered into an investment sub-advisory agreement with
Anhalt/O'Connell, Inc. (the "Sub-Adviser"). Fees related to these services are
borne directly by the Adviser.
The administrator of the Fund is Forum Administrative Services, LLC (the
"Administrator"). Pursuant to an Administration Agreement, FAS receives a fee
from the Fund at an annual rate of 0.10% of the first $50 million of the Fund's
average daily net assets and 0.05% of the average daily net assets over $50
million, subject to an annual minimum of $40,000. FAS, in its sole discretion,
may waive all or any portion of its fees.
The distributor of the Fund is Forum Financial Services, Inc.-Registered
Trademark- ("Forum"). Pursuant to a Distribution Agreement, Forum receives no
compensation for its services. Forum may delegate to other persons
responsibility for certain services under this Agreement.
Forum Financial Corp.-Registered Trademark- ("FFC"), an affiliate of Forum,
serves as the Fund's transfer agent and dividend disbursing agent, and fund
accountant. For its services in these capacities, FFC receives $24,000 per
year, plus certain shareholder account fees and $36,000 plus certain adjustments
based on the type and volume of portfolio transactions, respectively.
NOTE 4. SECURITY TRANSACTIONS
Purchases and sales of government securities, other than short-term investments,
totaled $88,593 and $0 respectively, for the period ended March 31, 1997.
For Federal income tax purposes, the tax basis of investment securities owned at
March 31, 1997 was $529,467. The aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost was $0
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over market value was $900.
NOTE 5. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
The Adviser and Administrator have voluntarily waived a portion of their fees
and assumed certain expenses of the Fund so that total expenses of the Fund
would not exceed a certain limitation. For the period ended March 31, 1997,
fees waived and expenses reimbursed were as follows:
WAIVED REIMBURSED
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Adviser $ 256 $32,331
Administrator 7,204 -
NOTE 6. SHARES OF BENEFICIAL INTEREST
At March 31, 1997, two shareholders were record owners of approximately 60% and
27% respectively of the total outstanding shares of the Fund. The 27% owner is
affiliated with the Adviser.
10
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REPORT OF INDEPENDENT ACCOUNTANTS
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To the Shareholders of QUADRA Limited Maturity Treasury Fund and Trustees of
Forum Funds:
We have audited the accompanying statement of assets and liabilities of
QUADRA Limited Maturity Treasury Fund (the "Fund") (a separate portfolio of
Forum Funds), including the schedule of investments, as of March 31, 1997, and
the related statement of operations, the statement of changes in net assets and
the financial highlights for the period January 28, 1997 (commencement of
operations) to March 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 disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
March 31, 1997 by correspondence with the custodian and brokers. 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
QUADRA Limited Maturity Treasury Fund as of March 31, 1997, the results of its
operations, the changes in its net assets and the financial highlights for the
period January 28, 1997 (commencement of operations) to March 31, 1997, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 9, 1997
11
