THE QUADRA FUNDS
SEMI-ANNUAL REPORT
(Unaudited)
09.30.97
<PAGE>
Table of Contents
A Message to Our Shareholders.............................................. 1
Report from Anhalt/O'Connell, Inc. ........................................ 3
Report from Carl Domino Associates, L.P. .................................. 4
Report from McDonald Investment Management, Inc. .......................... 5
Report from LM Capital Management, Inc. .................................... 6
Comparison of Change in Value of $10,000 Investment ....................... 7
Schedules of Investments:
QUADRA Limited Maturity Treasury Fund.................................. 11
QUADRA Value Equity Fund .............................................. 12
QUADRA International Equity Fund ...................................... 15
QUADRA Opportunistic Bond Fund......................................... 17
Statements of Assets and Liabilities....................................... 18
Statements of Operations................................................... 20
Statements of Changes in Net Assets........................................ 22
Financial Highlights....................................................... 24
Notes to Financial Statements.............................................. 26
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
- --------------------------------------------------------------------------------
Shareholder Inquiries:
QUADRA Capital Partners, L.P.
270 Congress Street
Boston, MA 02210
617.426.0900
800.595.9291
- --------------------------------------------------------------------------------
MESSAGE TO SHAREHOLDERS SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
Dear Shareholders,
We are pleased to report on The QUADRA Funds for the six months ended September
30, 1997. As you may know, the Quadra Limited Maturity Treasury Fund was opened
on January 27, 1997. The Quadra Value Equity Fund, Quadra International Equity
Fund, and the Quadra Opportunistic Bond Fund were opened on April 2, 1997. Total
returns for the funds for the six months ending this date are included in the
following table:
----------------------------------------------- -----------
Fund
Fund Return
----------------------------------------------- -----------
Quadra Limited Maturity Treasury Fund 2.90%
----------------------------------------------- -----------
Quadra Value Equity Fund 25.80%
----------------------------------------------- -----------
Quadra International Equity Fund 11.40%
----------------------------------------------- -----------
Quadra Opportunistic Bond Fund 4.39%
----------------------------------------------- -----------
The portfolio managers for the Quadra Limited Maturity Treasury Fund are Paul
Anhalt and Michael O'Connell of Anhalt/O'Connell, Inc. They remained committed
to their investment strategy of investing in U.S. Treasury securities which will
mature within five years of purchase. This provides the investor, seeking
maximum credit protection, an excellent conservative investment choice.
The lead portfolio manager for the Quadra Value Equity Fund is Carl J. Domino of
Carl Domino Associates, L.P. The CDA investment team uses its time-tested
process to build a portfolio of stocks traded on U.S. exchanges. The investment
process is value oriented and tends to select stocks which pay dividends at
higher rates than the median equity. We think this strategy works well for the
investor who wants to participate in the U.S. equity markets but who seeks some
measure of down-side protection.
The portfolio of the Quadra International Equity Fund is managed by Ray Di
Bernardo and John McDonald of McDonald Investment Management, Inc. They invest
the majority of the assets of the fund in equity securities listed in the major
developed countries outside the U.S. Up to twenty percent of the fund may be
invested in equities listed in emerging markets throughout the world. This fund
offers a client investment exposure to all attractive countries.
1
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
- --------------------------------------------------------------------------------
The portfolio of the Quadra Opportunistic Bond Fund is managed by John Chalker
and Luis Maizel of LM Capital Management, Inc. Messrs. Chalker and Maizel work
hard to find the fixed income investments which will provide an excellent return
for prudent levels of risk. They invest seventy percent of the portfolio in
bonds issued by the U.S. Government, Agencies and Corporations. The remainder of
the portfolio may be invested in bonds issued by non-U.S. issuers including
governments and highly rated companies. Any purchases made in emerging market
countries are U.S.-dollar demoninated. We think these investments provide an
excellent choice for the investor who seeks to receive greater return with some
added risk in the fixed income portion of their portfolios.
Attached please find market updates from each portfolio management team.
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 needs.
Quadra Capital Partners, L.P.
2
<PAGE>
- --------------------------------------------------------------------------------
REPORT FROM ANHALT/O'CONNELL, INC. SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
Dear Shareholders,
We are pleased to report on the Quadra Limited Maturity Treasury Fund for the
last six months. The Fund's return for that period was 2.90% versus the Lehman
1-3 Year Treasury Index return of 4.23% for the same period. The US Treasury
Bill Index return for the same period was 3.41%.
What is most notable about the current bond market is that the fear threshold of
inflation signs appears to be rising. During the current expansion, episodes of
rapid growth have had progressively less response from the market.
As expected, consumer spending rebounded in the third quarter. This combined
with continuing strength in the broader economy caused a brief sell off in the
market during August. The yield on the 30-year Treasury rose from 6.61% on July
31 to 6.78% on September 1. By September 30 the yield was back to 6.40% and
subsequently to lows for the year.
As we evaluate the factors which affect our market opinion we see the following:
Commodity prices continue to follow a well behaved path, as they have for the
past two years. If we were solely to review commodity price trends as the
precursor of inflation, we would not expect any further credit tightening by the
Federal Reserve Board. We see the continuing global supply of competitive
product as the major factor in creating an environment for stable to decreasing
rates. So far, at least, new supply has quickly met stronger demand. However,
domestic employment conditions are another matter. They continue to be tight,
especially in important knowledge-based industries. As a result we have seen
annual hourly earnings increasing at just under 4.0% -- a high for this economic
cycle. Wage pressures if continued and not offset by greater productivity gains
could justify a tighter monetary stance by the Federal Reserve Board. Credit
conditions which have been in a steady decline since late 1993, improved
slightly since the middle of the second quarter, thanks to some easing of credit
demand from the leveraged consumer sector.
After reviewing and weighing the above factors in their totality, we have
lengthened the duration of the Fund portfolio to a more neutral 1.2 years. A
more favorable cyclical environment for lower interest rates may be at hand, but
until credit demand weakens further, the threat of episodes of higher interest
rates remains. We will continue to adjust the portfolios with care, according to
market developments.
Anhalt/O'Connell, Inc.
3
<PAGE>
- --------------------------------------------------------------------------------
REPORT FROM CARL DOMINO ASSOCIATES, L.P. SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
Dear Shareholders,
We are pleased to report on the Quadra Value Equity Fund for the last six
months. The Fund's return for that period was 25.80% versus the S&P 500 Index
return of 26.24% for the same period.
The six months past continued the trend of the past two and a half years with
returns materially above the historical average. Virtually all sectors of the
market participated in the advance. Notwithstanding the strong advance, some
disquieting signs appeared. Companies with substantial overseas exposure
suffered as many warned of earnings shortfalls due to strength in the dollar.
Although the quarter as a whole showed solid appreciation, it should be noted
that stock prices fell sharply in August. However, September's recovery would
indicate that investors remain complacent and stock prices may continue to show
strength.
The market is clearly sensitive to any increase in inflation rates and it is
appropriate to evaluate whether an inflation alert may be in order. Although the
government reports historically low levels, there is some indication we may be
reaching a turning point. At these levels, there is little room for
disappointment and the underlying data must be closely examined. Natural gas
prices are at $3.00 per MCF compared to $1.85 a year ago. The prices of raw
materials other than food and energy are up 3.3% after plunging 5.6% in 1996.
Corporate officers indicate that the labor market is increasingly tight. Further
gains in domestic economic activity might well be accompanied by increased wage
pressures that cannot be completely offset by productivity enhancements, thereby
edging up the reported inflation numbers. The recent U.S. trade deficit figures
are also cause for alarm. The July figures showed a surge in imports while the
level of exports barely rose. These trends, if continued, could cause further
instability in world currency markets and give rise to domestic political
pressures.
As value managers we must remember the basic tenets which have accounted for our
success. One must thoroughly evaluate all relevant, fundamental information
before making investment decisions. It is equally important to avoid the hype of
the moment and remember that, even after having done our homework and properly
diversifying our holdings, we must still have patience. Patience has rewarded
value investors with superior long term investment returns while moderating the
impact of a deep market decline.
Carl Domino Associates, L.P.
4
<PAGE>
- --------------------------------------------------------------------------------
REPORT FROM MCDONALD INVESTMENT MANAGEMENT, INC. SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
Dear Shareholders,
We are pleased to report on the Quadra International Equity Fund for the last
six months. The Fund's return for that period was 11.40% versus the Morgan
Stanley Capital International Europe, Australasia, Far East(R) (MSCI EAFE) Index
return of 12.18% for the same period.
In 1997 we have seen divergent performance between European and Asian equity
markets.
The major European markets performed well during the relatively quiet summer
months as concerns over the European Monetary Union subsided, economic growth
expectations remained positive and inflation concerns continued to be virtually
nonexistent. Growth in most markets is driven by the export sector which is
benefiting from weaker local currencies versus the US dollar. The British Pound
however has been quite strong relative to its continental counterparts and this
along with rising interest rates is causing us concern on the corporate profit
front. At the beginning of the 3rd quarter, we strongly raised our allocation to
Europe from 34% to 63.5% with our primary country focus remaining on Germany,
Italy, Belgium, Finland and the Netherlands.
In Asia, currency turmoil led to drastic market declines in many key Southeast
Asian countries. The catalyst for the decline was Thailand, where in early July,
the Thai Baht was allowed to float and proceeded to decline by over 25%.
Concerns about further currency devaluations spread to other regional markets,
primarily Malaysia, Philippines and Indonesia. In US dollar terms, each of these
markets lost over 40% in value during the 3rd quarter alone. Investors feared
that these markets had many similar characteristics to Thailand such as large
current account deficits, low foreign currency reserves, overextended banking
systems etc. The portfolio was relatively immune from the currency problems as
only 6.6% of the portfolio was allocated to Asia ex Japan, with the majority of
this in Hong Kong and New Zealand, two markets which were not included in the
bloodletting.
In Japan, the economic recovery continues to be elusive as recently reported
data suggests a slowing of growth and weakness in consumer sentiment following
an increase in consumption tax earlier in the year. Japanese equities fell by
over 17% during the 3rd quarter after a sharp 23% increase in the previous
quarter. The portfolio benefited from our decision to overweight our position in
the 2nd quarter and followed by our move in the 3rd quarter to significantly
underweight Japan, thereby sidestepping some of the recent market down-draft.
While we remain cautious about Japan, the current low level of equity prices and
the prolonged low interest rate environment could lead to opportunity in the
near to mid-term.
McDonald Investment Management, Inc.
5
<PAGE>
- --------------------------------------------------------------------------------
REPORT FROM LM CAPITAL MANAGEMENT, INC. SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
Dear Shareholders,
We are pleased to report on the Quadra Opportunistic Bond Fund for the last six
months. The Fund's return for that period was 4.39% versus the Lehman
Intermediate Government/Corporate Index return of 5.73% for the same period.
The first half of the year was haunted by the specter of irrational exuberance
and the Fed's March rate hike, so it was not surprising to see the bond market
begin the second half of the year searching for the announcement which was
finally going to deliver the bad news regarding inflation. When bad news failed
to materialize and the dust had settled, the 30 year bond yield had declined
from 6.8% on June 30 to 6.4% on September 30. The market has been fearing an
outbreak of inflation because of the continuing strong economic data, although
there is no evidence of inflationary pressures. Despite this, the market
continues to trade at high real interest rate levels and will likely continue to
do so as a result of inflationary fears and the Fed's expected response.
The portfolio was well positioned to take advantage of the bond market
environment in the second quarter. Our non-dollar exposure was less than 10% in
the portfolio, so we were able to avoid much of the currency problems that
affected most of the world in the second quarter. Our 15% position in Emerging
Market debt was not affected by the currency problems, as all our exposure to
Emerging Markets is in U.S. dollar denominated securities which hedges the
currency effect.
Europe continues to move toward currency union and there is no reason to expect
that it won't happen. Interest rates in Europe are generally low as are
inflation rates. European countries have been trying to keep inflation in check,
often at the expense of their economies and high unemployment rates. This
environment of trying to prepare for monetary union while attempting to address
inflation and high unemployment concerns creates a confusing and unattractive
area for fixed income investment at this point in time.
For the next six months we are looking at a potential big surprise in the market
if attitudes continue to change towards inflationary expectations. With a
minimal risk for higher rates the rally should continue in the 4th quarter of
1997. We expect the long bond to trade in the range of 6.00% to 6.50% and
possibly lower, with no Fed tightening through year end.
LM Capital Management, Inc.
6
<PAGE>
- --------------------------------------------------------------------------------
QUADRA LIMITED MATURITY TREASURY FUND
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
The following chart reflects a comparison in the change in value of a
$10,000 investment in QUADRA Limited Maturity Treasury Fund, including
reinvested dividends and distributions, and the performance of the Lehman 1-3
Year Treasury Index (the "Lehman Index"). 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
is not predictive nor a guarantee of future results.
QUADRA Limited Maturity Treasury Fund vs Lehman 1-3 Year Treasury Index
[GRAPH CHART]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Inception* Jan-97 Feb-97 Mar-97 Apr-97 May-97
QUADRA Limited Maturity Treasury Fund $ 10,000 $10,006 $ 10,034 $ 10,063 $ 10,116 $ 10,171
Lehman 1-3 Year Treasury Index $10,000 $ 10,024 $ 10,016 $ 10,097 $ 10,168
<C> <C> <C> <C>
Jun-97 Jul-97 Aug-97 Sep-97
$ 10,214 $ 10,278 $ 10,312 $ 10,355
$ 10,238 $ 10,352 $ 10,361 $ 10,440
</TABLE>
Investment Value on 9/30/97
- ---------------------------
QUADRA Limited Maturity Treasury Fund $ 10,355
Lehman 1-3 Year Treasury Index $ 10,440
Inception Inception
to Date to Date
Total Return Cumulative* Annualized**
- ------------- ----------- ------------
QUADRA Limited Maturity Treasury Fund 3.56% 5.31%
Lehman 1-3 Year Treasury Index 4.40% 6.50%
* Inception date for QUADRA Limited Maturity Treasury Fund was January 28, 1997.
**Annualized, return for the Lehman 1-3 Year Treasury Index based on an
inception date of January 31, 1997.
7
<PAGE>
- --------------------------------------------------------------------------------
QUADRA VALUE EQUITY FUND
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
The following chart reflects a comparison in the change in value of a
$10,000 investment in QUADRA Value Equity 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. 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 is not predictive nor a guarantee of future
results.
QUADRA Value Equity Fund vs S&P 500 Index
[GRAPH CHART]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Inception* Apr-97 May-97 Jun-97 Jul-97 Aug-97 Sep-97
$ 10,000 $10,540 $ 10,920 $ 11,170 $ 11,940 $ 11,900 $ 12,580
$ 10,000 $10,596 $ 11,241 $ 11,745 $ 12,679 $ 11,969 $ 12,624
</TABLE>
Investment Value on 9/30/97
- ---------------------------
QUADRA Value Equity Fund $ 12,580
S&P 500 Index $ 12,624
Inception Inception
to Date to Date
Total Return Cumulative Annualized
- ------------- ---------- ----------
QUADRA Value Equity Fund 25.80% 58.06%
S&P 500 Index 26.24% 59.38%
* Inception date for QUADRA Value Equity Fund was April 2, 1997. Return for
the S&P 500 Index based on an inception date of March 31, 1997.
8
<PAGE>
- --------------------------------------------------------------------------------
QUADRA INTERNATIONAL EQUITY FUND
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
The following chart reflects a comparison in the change in value of a
$10,000 investment in QUADRA International Equity Fund, including reinvested
dividends and distributions, and the performance of the Morgan Stanley Capital
International Europe, Australasia, Far East Index (the "MSCI EAFE"). The MSCI
EAFE is a market weighted index composed of companies representative of the
market structure of 20 Developed Market countries in Europe, Australasia, and
the Far East, and reflects the reinvestment of dividends. 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 is not predictive nor a guarantee of future results.
QUADRA International Equity Fund vs MSCI EAFE Index
[GRAPH CHART]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Inception* Apr-97 May-97 Jun-97 Jul-97 Aug-97 Sep-97
QUADRA International Equity Fund $ 10,000 $10,130 $ 10,500 $ 10,940 $ 11,280 $ 10,590 $ 11,140
MSCI EAFE Index $ 10,000 $10,053 $ 10,707 $ 11,298 $ 11,481 $ 10,623 $ 11,218
</TABLE>
Investment Value on 9/30/97
- ---------------------------
QUADRA International Equity Fund $ 11,140
MSCI EAFE Index $ 11,218
Inception Inception
to Date to Date
Total Return Cumulative Annualized
- ------------- ---------- -----------
QUADRA International Equity Fund 11.40% 24.03%
MSCI EAFE Index 12.18% 25.85%
* Inception date for QUADRA International Equity Fund was April 2, 1997.
Return for the MSCI EAFE Index based on an inception date of March 31,
1997.
9
<PAGE>
- --------------------------------------------------------------------------------
QUADRA OPPORTUNISTIC BOND FUND
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
The following chart reflects a comparison in the change in value of a
$10,000 investment in QUADRA Opportunistic Bond Fund, including reinvested
dividends and distributions, and the performance of the Lehman Intermediate
Corporate/Government Index (the "Lehman Index"). The Lehman Index is a market
index composed of fixed-rate government and investment grade securities with
maturities of up to 10 years. 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
is not predictive nor a guarantee of future results.
QUADRA Opportunistic Bond Fund vs Lehman Intermediate Government/Corporate Index
<TABLE>
[GRAPH CHART]
<S> <C> <C> <C> <C> <C> <C> <C>
Inception* Apr-97 May-97 Jun-97 Jul-97 Aug-97 Sep-97
$ 10,000 $10,066 $ 10,143 $ 10,221 $ 10,340 $ 10,309 $ 10,439
$ 10,000 $10,117 $ 10,201 $ 10,294 $ 10,503 $ 10,450 $ 10,573
</TABLE>
Investment Value on 9/30/97
- ---------------------------
QUADRA Opportunistic Bond Fund $ 10,439
Lehman Index $ 10,573
Inception Inception
to Date to Date
Total Return Cumulative Annualized
- -------------- ---------- ----------
QUADRA Opportunistic Bond Fund 4.39% 8.95%
Lehman Index 5.73% 11.76%
* Inception date for QUADRA Opportunistic Bond Fund was April 2, 1997.
Return for the Lehman Index based on an inception date of March 31, 1997.
10
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
QUADRA LIMITED MATURITY TREASURY FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Face Amount Security Description Value
- ------------------ --------------------------------- -----------------
U. S. Treasury Bills (a) (30.8%)
$ 65,000 5.45%, 3/5/98 $ 63,587
105,000 5.38%, 5/28/98 101,452
-----------------
Total U. S. Treasury Bills (cost $164,959) 165,039
-----------------
U. S. Treasury Notes (64.3%)
90,000 5.25%, 7/31/98 89,775
99,000 5.88%, 1/31/99 99,185
155,000 5.88%, 8/31/99 155,146
-----------------
Total U. S. Treasury Notes (cost $343,296) 344,106
-----------------
Shares
- ------------------
Short-Term Holdings (4.9%)
26,427 U.S. Government Repurchase Agreement 2,
Collateralized by U.S. Treasury Obligations
(cost $26,427) 26,427
-----------------
Total Investments (100.0%) (cost $534,682) $ 535,572
=================
</TABLE>
- ----------------------------------
(a) Annualized yield at time of purchase.
See Notes to Financial Statements. 11
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
QUADRA VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Shares Security Description Value
- ------------------ --------------------------------- ----------------
Common Stock (98.6%)
Apparel & Accessory Stores (4.7%)
600 Intimate Brands, Inc. $ 13,988
500 Polo Ralph Lauren Corp. (a) 13,094
----------------
27,082
----------------
Automotive (3.8%)
350 Chrysler Corp. 12,884
200 Ford Motor Co. 9,050
----------------
21,934
----------------
Business Services (4.1%)
300 Deluxe Corp. 10,069
500 DIDAX, Inc. (a) 2,375
400 Galileo International, Inc. (a) 11,175
----------------
23,619
----------------
Chemical & Allied Products (5.7%)
200 International Flavors & Fragrances, Inc. 9,800
100 Minnesota Mining & Manufacturing Co. 9,250
300 Witco Corp. 13,688
----------------
32,738
----------------
Communications (6.5%)
400 AT&T Corp. 17,725
600 Frontier Corp. 13,800
500 RADCOM Ltd. (a) 5,875
----------------
37,400
----------------
Consumer Cyclical (2.7%)
100 Avon Products, Inc. 6,200
200 Tenneco, Inc. 9,575
----------------
15,775
----------------
Depository Institutions (3.9%)
150 NationsBank Corp. 9,281
300 Summit Bancorp 13,331
----------------
22,612
----------------
Drugs & Pharmaceuticals (6.1%)
100 Bristol-Myers Squibb Co. 8,275
200 Pfizer, Inc. 12,013
400 Pharmacia & Upjohn, Inc. 14,600
----------------
34,888
----------------
</TABLE>
See Notes to Financial Statements. 12
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
QUADRA VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Shares Security Description Value
- ------------------ --------------------------------- ----------------
Electric, Gas & Sanitary Services (13.0%)
400 Atmos Energy Corp. $ 9,950
400 MCN Energy Group, Inc. 12,800
500 Midcoast Energy Resources, Inc. 10,281
200 Sonat, Inc. 10,175
200 The Williams Cos., Inc. 9,363
300 USX-Marathon Group, Inc. 11,156
300 YPF Sociedad Anonima ADR 11,063
----------------
74,788
----------------
Forestry (2.1%)
200 Weyerhaeuser Co. 11,875
----------------
General Merchandise Stores (1.9%)
200 May Department Stores Co. 10,900
----------------
Health Care (2.5%)
200 American Home Products Corp. 14,600
----------------
Industrial & Commercial Machinery & Computer Equipment (2.3%)
600 Pall Corp. 12,938
----------------
Measuring, Analyzing & Controlling Instruments; Photographic, Medical &
Optical Goods (2.3%)
200 Eastman Kodak Co. 12,988
----------------
Media (2.0%)
500 TV Azteca, SA de CV (a) 11,250
----------------
Personal Services (2.0%)
300 H & R Block, Inc. 11,588
----------------
Printing & Publishing (2.1%)
400 The Readers Digest Association, Inc. 12,000
----------------
Real Estate Investment Trusts (13.6%)
600 CCA Prison Realty Trust 22,650
600 Ocwen Asset Investment Corp. 13,800
900 Patriot American Hospitality, Inc. 28,688
500 SL Green Realty Corp. (a) 12,938
----------------
78,076
----------------
</TABLE>
See Notes to Financial Statements. 13
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
QUADRA VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS (concluded)
SEPTEMBER 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Shares Security Description Value
- ------------------ --------------------------------- ----------------
Tobacco Products (1.4%)
200 Philip Morris Cos., Inc. $ 8,313
----------------
Transportation (13.6%)
700 Avis Rent A Car, Inc. (a) 16,711
500 Federal Signal Corp. 12,688
500 Knightsbridge Tankers Ltd. 14,156
550 Union Pacific Corp. 34,440
----------------
77,995
----------------
Wholesale Trade-Nondurable Goods (2.3%)
700 Unisource Worldwide, Inc. 13,300
----------------
Total Common Stock (cost $510,798) 566,659
----------------
Short-Term Holdings (1.4%)
7,288 U.S. Government Repurchase Agreement 2,
Collateralized by U.S. Treasury Obligations
(cost $7,288) 7,288
----------------
Total Investments (100.0%) (cost $518,086) $ 573,947
================
</TABLE>
- ----------------------------------
ADR - American Depositary Receipts
(a) Non-income producing security.
See Notes to Financial Statements. 14
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
QUADRA INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Shares Security Description Value U.S. $
- ----------------- ------------------------------ --------------
Belgium (7.9%)
Common Stock
70 Electrabel SA $ 14,675
40 PetroFina SA (a) 15,668
--------------
30,343
--------------
Canada (4.5%)
Common Stock
2,225 Gold Reserve Corp. (a) 17,218
--------------
Chile (5.4%)
Common Stock
100 Chilquinta SA ADR (b) 1,630
200 Embotelladora Andina SA 5,150
100 Enersis SA 3,706
200 Laboratorio Chile ADR 5,375
200 Santa Isabel SA ADR 4,662
--------------
20,523
--------------
Finland (8.8%)
Common Stock
600 Kymmene OY 16,684
180 Nokia OY 17,059
--------------
33,743
--------------
Germany (23.3%)
Common Stock
130 Adidas AG 16,922
200 Fresenius Medical Care AG (a) 13,656
70 SAP AG 17,993
60 Schmalbach Lubeca AG 13,062
Preferred Stock
480 CompuGROUP Holding AG 12,039
20 Wella Aktiengesellschaft 15,253
--------------
88,925
--------------
Israel (3.6%)
Common Stock
400 Koor Industries Ltd. 8,250
100 Teva Pharmaceutical Industries Ltd. ADR 5,575
--------------
13,825
--------------
</TABLE>
See Notes to Financial Statements. 15
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
QUADRA INTERNATIONAL EQUITY FUND
SCHEDULE OF INVESTMENTS (concluded)
SEPTEMBER 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Shares Security Description Value U.S. $
- ----------------- ------------------------------ --------------
Italy (12.4%)
Common Stock
600 Industrie Natuzzi Spa ADR $ 14,213
250 Luxottica Group Spa ADR 14,234
1,000 SAES Getters Spa 18,894
--------------
47,341
--------------
Japan (22.2%)
Common Stock
300 Fuji Photo Film ADR 12,415
300 Honda Motor Co., Ltd. ADR 20,925
200 Nintendo Co., Ltd. 18,719
300 Nipon Telegraph & Telephone ADR 13,800
200 Sony Corp. ADR 18,788
--------------
84,647
--------------
Netherlands (1.4%)
Common Stock
70 Kas Associatie NV 5,480
--------------
United States (3.9%)
Common Stock
1,000 Argentina Fund, Inc. 14,875
--------------
Total Stocks (93.4%) (cost $332,667) 356,920
--------------
Short-Term Holdings (6.6%)
25,118 U.S. Government Repurchase Agreement 2,
Collateralized by U.S. Treasury Obligations
(cost $25,118) 25,118
--------------
Total Investments (100.0%) (cost $357,785) $ 382,038
==============
</TABLE>
- ---------------------------------
ADR - American Depositary Receipts
(a) Non-income producing security.
(b) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended.
See Notes to Financial Statements. 16
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
QUADRA OPPORTUNISTIC BOND FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Face Amount U.S. $ Security Description Value U.S. $
- ----------------------- ------------------------------- ----------------
Foreign Bonds (18.8%)
Australia (5.3%)
20,000 Queensland Treasury - Global Notes,
8.00%, 8/14/01 $ 15,705
----------------
Mexico (13.5%)
20,000 Banco Nacional de Commercio Exterior,
7.25%, 2/2/04 19,100
20,000 Grupo Posadas, 10.38%, 2/13/02 (a) 21,050
----------------
40,150
----------------
Total Foreign Bonds (cost $54,776) 55,855
----------------
Government Agency Notes (27.1%)
Federal Home Loan Mortgage Corp. (10.2%)
30,000 6.63%, 11/5/01 30,328
----------------
Federal National Mortgage Association (16.9%)
50,000 6.79%, 2/4/02 50,322
----------------
Total Government Agency Notes (cost $78,823) 80,650
----------------
U. S. Treasury Notes (49.0%)
45,000 5.00%, 1/31/99 44,578
60,000 6.25%, 4/30/02 61,464
40,000 5.88%, 2/15/04 39,600
----------------
Total U. S. Treasury Notes (cost $144,369) 145,642
----------------
Short-Term Holdings (5.1%)
15,075 U.S. Government Repurchase Agreement 2,
Collateralized by U.S. Treasury Obligations
(cost $15,075) 15,075
----------------
Total Investments (100.0%) (cost $293,043) $ 297,222
================
</TABLE>
- ----------------------------
(a) - Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended.
See Notes to Financial Statements. 17
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
STATEMENTS OF ASSETS & LIABILITIES
SEPTEMBER 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
QUADRA
LIMITED QUADRA
MATURITY VALUE
TREASURY EQUITY
FUND FUND
---------------------- ----------------------
ASSETS:
Investments (Note 2):
Investments at cost $ 534,682 $ 518,086
Net unrealized appreciation (depreciation) 890 55,861
---------------------- ----------------------
Total investments at value 535,572 573,947
Interest, dividends and other receivables 2,641 1,519
Receivable for Fund shares sold 211 1,791
Receivable from Adviser (Note 3) 56,598 42,963
Organization costs, net of amortization (Note 2) 25,919 27,017
---------------------- ----------------------
Total Assets 620,941 647,237
---------------------- ----------------------
LIABILITIES:
Payable to Custodian - 2,500
Payable to other related parties (Note 3) 30,000 30,000
Accrued expenses and other liabilites 53,944 42,100
---------------------- ----------------------
Total Liabilities 83,944 74,600
---------------------- ----------------------
NET ASSETS $ 536,997 $ 572,637
====================== ======================
COMPONENTS OF NET ASSETS:
Paid in capital $ 530,668 $ 482,193
Undistributed net investment income (loss) 5,364 4,993
Unrealized appreciation (depreciation) on investments 890 55,861
Accumulated net realized gain (loss) 75 29,590
---------------------- ----------------------
NET ASSETS $ 536,997 $ 572,637
====================== ======================
SHARES OF BENEFICIAL INTEREST 53,629 45,516
====================== ======================
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE
PER SHARE) $ 10.01 $ 12.58
====================== ======================
</TABLE>
See Notes to Financial Statements. 18
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
STATEMENTS OF ASSETS & LIABILITIES
SEPTEMBER 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
QUADRA QUADRA
INTERNATIONAL OPPORTUNISTIC
EQUITY BOND
FUND FUND
---------------------- ---------------------
ASSETS:
Investments (Note 2):
Investments at cost $ 357,785 $ 293,043
Net unrealized appreciation (depreciation) 24,253 4,179
---------------------- ---------------------
Total investments at value 382,038 297,222
Interest, dividends and other receivables 342 4,418
Receivable for Fund shares sold 1,311 1,414
Receivable from Adviser (Note 3) 48,803 41,023
Organization costs, net of amortization (Note 2) 27,017 27,017
---------------------- ---------------------
Total Assets 459,511 371,094
---------------------- ---------------------
LIABILITIES:
Payable to Custodian - -
Payable to other related parties (Note 3) 30,000 30,000
Accrued expenses and other liabilites 47,929 38,952
---------------------- ---------------------
Total Liabilities 77,929 68,952
---------------------- ---------------------
NET ASSETS $ 381,582 $ 302,142
====================== =====================
COMPONENTS OF NET ASSETS:
Paid in capital $ 345,227 $ 297,925
Undistributed net investment income (loss) 2,235 77
Unrealized appreciation (depreciation) on investments 24,253 4,102
Accumulated net realized gain (loss) 9,867 38
---------------------- ---------------------
NET ASSETS $ 381,582 $ 302,142
====================== =====================
SHARES OF BENEFICIAL INTEREST 34,247 29,751
====================== =====================
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE
PER SHARE) $ 11.14 $ 10.16
====================== =====================
</TABLE>
See Notes to Financial Statements. 19
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS OR PERIOD ENDED SEPTEMBER 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
QUADRA
LIMITED QUADRA
MATURITY VALUE
TREASURY EQUITY
FUND FUND (a)
--------------------- ---------------------
INVESTMENT INCOME:
Interest income $ 14,474 $ 3,111
Dividend income - 4,002
--------------------- ---------------------
Total Investment Income 14,474 7,113
-------------------------------------------
EXPENSES:
Investment advisory (Note 3) 1,170 2,123
Management (Note 3) 20,000 19,889
Transfer agency (Note 3) 12,042 12,110
Custody 304 411
Accounting (Note 3) 19,000 18,900
Audit 7,250 7,750
Legal 218 215
Trustees 320 317
Amortization of Organization Costs (Note 2) 3,000 2,983
Miscellaneous 3,176 2,801
--------------------- ---------------------
Total Expenses 66,480 67,499
Expenses reimbursed and fees waived (Note 4) (65,310) (65,379)
--------------------- ---------------------
Net Expenses 1,170 2,120
--------------------- ---------------------
NET INVESTMENT INCOME (LOSS) 13,304 4,993
--------------------- ---------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on investments sold 60 29,590
Net realized gain (loss) on foreign currency transactions - -
--------------------- ---------------------
Net realized gain (loss) on investments and foreign
currency transactions 60 29,590
--------------------- ---------------------
Net change in unrealized appreciation (depreciation)
on investments 1,790 55,861
--------------------- ---------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS 1,850 85,451
--------------------- ---------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 15,154 $ 90,444
===================== =====================
</TABLE>
------------------------------------------------------------------
(a)See Note 1 of Notes to Financial Statements for date of commencement of
operations.
See Notes to Financial Statements. 20
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
QUADRA QUADRA
INTERNATIONAL OPPORTUNISTIC
EQUITY BOND
FUND (a) FUND (a)
-------------------- -------------------
INVESTMENT INCOME:
Interest income $ 3,114 $ 8,139
Dividend income 1,230 -
-------------------- -------------------
Total Investment Income 4,344 8,139
------------------------------------------
EXPENSES:
Investment advisory (Note 3) 2,110 912
Management (Note 3) 19,889 19,889
Transfer agency (Note 3) 12,050 12,000
Custody 82 143
Accounting (Note 3) 24,867 17,900
Audit 9,000 8,250
Legal 327 118
Trustees 313 311
Amortization of Organization Costs (Note 2) 2,983 2,983
Miscellaneous 2,966 2,293
-------------------- -------------------
Total Expenses 74,587 64,799
Expenses reimbursed and fees waived (Note 4) (72,478) (63,886)
-------------------- -------------------
Net Expenses 2,109 913
-------------------- -------------------
NET INVESTMENT INCOME (LOSS) 2,235 7,226
-------------------- -------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on investments sold 14,013 -
Net realized gain (loss) on foreign currency transactions (4,146) 38
-------------------- -------------------
Net realized gain (loss) on investments and foreign
currency transactions 9,867 38
-------------------- -------------------
Net change in unrealized appreciation (depreciation)
on investments 24,253 4,179
Net change in unrealized appreciation (depreciation)
on foreign currency transactions - (77)
-------------------- -------------------
Net change in unrealized appreciation (depreciation)
on investments and foreign currency transactions 24,253 4,102
-------------------- -------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS 34,120 4,140
-------------------- -------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 36,355 $ 11,366
==================== ===================
</TABLE>
- ----------------------------------------------------------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations.
See Notes to Financial Statements. 21
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
QUADRA LIMITED MATURITY
TREASURY FUND
-----------------------------------------------
Six Months Ended
September 30, 1997 Period Ended
(unaudited) March 31, 1997 (a)
NET ASSETS - BEGINNING OF PERIOD $ 846,698 $ 10
---------------------- ----------------------
OPERATIONS:
Net investment income (loss) 13,304 2,695
Net realized gain (loss) on investments sold 60 15
Net change in unrealized appreciation (depreciation) on
investments 1,790 (900)
---------------------- ----------------------
Net increase (decrease) in net assets resulting from operations 15,154 1,810
---------------------- ----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (13,304) (2,695)
---------------------- ----------------------
CAPITAL SHARE TRANSACTIONS:
Sale of shares 17,450 844,918
Reinvestment of distributions 12,865 2,695
Redemption of shares (341,866) (40)
---------------------- ----------------------
Net increase (decrease) from capital transactions (311,551) 847,573
---------------------- ----------------------
Net increase (decrease) (309,701) 846,688
---------------------- ----------------------
NET ASSETS - END OF PERIOD (Including line b) $ 536,997 $ 846,698
====================== ======================
CAPITAL SHARE TRANSACTIONS: Shares Shares
---------------------- ----------------------
Sale of shares 1,743 84,588
Reinvestment of distributions 1,286 270
Redemption of shares (34,255) (4)
---------------------- ----------------------
Net increase (decrease) in shares (31,226) 84,854
====================== ======================
- ------------------------------------------------------
(a) For the period from January 27, 1997, commencement of operations, to March
31, 1997.
(b) Accumulated undistributed net investment income $ 5,364 $ 5,364
====================== ======================
</TABLE>
See Notes to Financial Statements. 22
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
QUADRA QUADRA
QUADRA VALUE INTERNATIONAL OPPORTUNISTIC
EQUITY FUND EQUITY FUND BOND FUND
--------------------- ---------------------- ----------------------
Period Ended Period Ended Period Ended
September 30, 1997 (a) September 30, 1997 (a) September 30, 1997 (a)
(unaudited) (unaudited) (unaudited)
NET ASSETS - BEGINNING OF PERIOD $ 10 $ 10 $ 10
--------------------- ---------------------- ----------------------
OPERATIONS:
Net investment income (loss) 4,993 2,235 7,226
Net realized gain (loss) on investments sold 29,590 9,867 38
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency transactions 55,861 24,253 4,102
--------------------- ---------------------- ----------------------
Net increase (decrease) in net assets
resulting from operations 90,444 36,355 11,366
--------------------- ---------------------- ----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - - (7,149)
--------------------- ---------------------- ----------------------
CAPITAL SHARE TRANSACTIONS:
Sale of shares 482,303 348,777 292,203
Reinvestment of distributions - - 5,752
Redemption of shares (120) (3,560) (40)
--------------------- ---------------------- ----------------------
Net increase (decrease) from capital transactions 482,183 345,217 297,915
--------------------- ---------------------- ----------------------
Net increase (decrease) 572,627 381,572 302,132
--------------------- ---------------------- ----------------------
NET ASSETS - END OF PERIOD (Including line b) $ 572,637 $ 381,582 $ 302,142
===================== ====================== ======================
CAPITAL SHARE TRANSACTIONS: Shares Shares Shares
--------------------- ---------------------- ----------------------
Sale of shares 45,528 34,567 29,185
Reinvestment of distributions - - 570
Redemption of shares (12) (320) (4)
--------------------- ---------------------- ----------------------
Net increase (decrease) in shares 45,516 34,247 29,751
===================== ====================== ======================
- -------------------------------------------
(a) For the period from April 2, 1997, commencement of operations, to
September 30, 1997.
(b) Accumulated undistributed net investment income $ 4,993 $ 2,235 $ -
===================== ====================== ======================
</TABLE>
See Notes to Financial Statements. 23
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Selected per share data and ratios for a share
outstanding throughout the period. Quadra
Limited Quadra
Maturity Value
Treasury Equity
Fund Fund
---------------------------------- ---------------
Six Months Ended Period Ended Period Ended
September 30, March 31, September 30,
1997 (a) (b) 1997 (a) 1997 (a) (b)
---------------- ------------- ---------------
Net Asset Value, Beginning of Period $9.98 $10.00 $10.00
Investment Operations
Net Investment Income (Loss) 0.29 0.08 0.11
Net Realized and Unrealized Gain (Loss) on Investments - (0.02) 2.47
---------------- ------------- ---------------
Total from Investment Operations 0.29 0.06 2.58
Distributions from Net Investment Income (0.26) (0.08) -
---------------- ------------- ---------------
Net Asset Value, End of Period $10.01 $9.98 $12.58
================ ============= ===============
Total Return 2.90% 0.63% 25.80%
Ratio/Supplementary Data:
Net Assets at End of Period (000's omitted) $537 $847 $573
Ratios to Average Net Assets:
Expenses including reimbursement/waiver 0.45%(c) 0.45%(c) 1.00%(c)
Expenses excluding reimbursement/waiver 25.56%(c) 70.40%(c) 31.79%(c)
Net investment income (loss) including reimbursement/waiver 5.12%(c) 4.74%(c) 2.35%(c)
Average commission rate (d) N/A N/A $0.0596
Portfolio Turnover Rate 37.95% 0 % 49.79%
</TABLE>
- -------------------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations.
(b) Unaudited.
(c) Annualized.
(d) Amount represents the average commission per share paid to brokers on the
purchase and sale of equity securities.
24
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected per share data and ratios for a share outstanding throughout the
period.
<TABLE>
<S> <C> <C>
Quadra Quadra
International Opportunistic
Equity Bond
Fund Fund
---------------- ---------------
Period Ended Period Ended
September 30, September 30,
1997 (a) (b) 1997 (a) (b)
---------------- ---------------
Net Asset Value, Beginning of Period $10.00 $10.00
Investment Operations
Net Investment Income (Loss) 0.07 0.28
Net Realized and Unrealized Gain (Loss) on Investments 1.07 0.16
---------------- ---------------
Total from Investment Operations 1.14 0.44
Distributions from Net Investment Income - (0.28)
---------------- ---------------
Net Asset Value, End of Period $11.14 $10.16
================ ===============
Total Return 11.40% 4.39%
Ratio/Supplementary Data:
Net Assets at End of Period (000's omitted) $382 $302
Ratios to Average Net Assets:
Expenses including reimbursement/waiver 1.25%(c) 0.70%(c)
Expenses excluding reimbursement/waiver 44.18%(c) 49.73%(c)
Net investment income (loss) including reimbursement/waiver 1.32%(c) 5.55%(c)
Average commission rate (d) $0.0036 N/A
Portfolio Turnover Rate 26.57% 0 %
</TABLE>
- ----------------------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations.
(b) Unaudited.
(c) Annualized.
(d) Amount represents the average commission per share paid ot brokers on the
purchase and sale of equity securities.
25
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
Forum Funds(R) (the "Trust") is an open-end management investment company
organized as a Delaware business trust. The Trust currently has fourteen active
investment portfolios (each a "Fund" and collectively 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 are the
four funds listed below, all diversified portfolios of the Trust. Commencement
of operations for each Fund was as follows:
Quadra Limited Maturity Treasury Fund January 28, 1997
Quadra Value Equity Fund April 2, 1997
Quadra International Equity Fund April 2, 1997
Quadra Opportunistic Bond Fund April 2, 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 Funds:
Security Valuation - Securities held by the Funds 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.
Foreign currency amounts are translated into U.S. dollars at the mean of the bid
and asked prices of such currencies against U.S. dollars as follows: (i) assets
and liabilities at the rate of exchange at the end of the respective period; and
(ii) purchases and sales of securities and income and expenses at the rate of
exchange prevailing on the dates of such transactions. The portion of the
results of operations arising from changes in the exchange rates and the portion
due to fluctuations arising from changes in the market prices of securities are
not isolated. Such fluctuations are included with the net realized and
unrealized gain or loss on investments.
Repurchase Agreements - A fund may enter into repurchase agrements, transactions
in which a Fund purchases a security and simultaneously commits to resell that
security to the seller at an agreed-upon price on an agreed-upon future date,
normally 1 to 7 days later. The resale price of a repurchase agreement reflects
a market rate of interest that is not related to the coupon rate or maturity of
the purchased security. The Trust's custodian maintains possession of the
collateral underlying a repurchase agreement, which has a market value,
determined daily, at least equal to the repurchase price, and which consists of
the types of securities in which the Fund may invest directly.
Interest and Dividend Income - Interest income is determined on the basis of
interest accrued and discount earned. Dividends on securities held by the Funds
are recorded on the ex-dividend date.
Distributions to Shareholders - Distributions from net investment income are
declared daily and paid monthly by Limited Maturity Treasury Fund and
Opportunistic Bond Fund. Distributions from net investment income, if any, are
declared and paid at least annually by Value Equity Fund and International
Equity Fund. Capital gain distributions, if any, are declared and paid at least
annually by all Funds. Distributions are based on amounts calculated in
accordance with applicable income tax regulations.
26
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
Organization Costs - The costs incurred by the Funds in connection with their
organization have been capitalized and are being amortized using the
straight-line method over a five year period beginning on the commencement of
each Fund's operations. Certain of these costs were paid by Forum Financial
Services, Inc.(R) and will be reimbursed by the Funds.
Federal Taxes - Each 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 gain and certain other amounts, if any, each 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. Realized gain and loss on investments sold are determined on the basis of
identified cost.
NOTE 3. ADVISORY FEES, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser to the Funds is Quadra Capital Partners, L.P. (the
"Adviser"). Pursuant to an Investment Advisory Agreement, the Adviser receives
the following annual advisory fees from the Funds:
As a percent of the average
Funds daily net assets of the fund
- ---- ----------------------------
Quadra Limited Maturity Treasury Fund 0.45%
Quadra Value Equity Fund 1.00%
Quadra International Equity Fund 1.25%
Quadra Opportunistic Bond Fund 0.70%
The Adviser has, however, agreed to waive a portion of its advisory fees until
May 1, 1997, in order to cap each Fund's annual operating expenses at the
amounts listed in the above table.
Quadra has entered into investment sub-advisory agreements with the following:
Anhalt/O'Connell, Inc., which manages Quadra Limited Maturity Treasury Fund Carl
Domino Associates, L.P., which manages Quadra Value Equity Fund McDonald
Investment Management, Inc., which manages Quadra International Equity Fund LM
Capital Management, Inc., which manages Quadra Opportunistic Bond Fund
Fees related to sub-advisory services are borne directly by the Adviser and do
not increase the fees paid by shareholders to the Funds.
The administrator of the Fund is Forum Administrative Services, Limited
Liability Company (the "Administrator"). Pursuant to an Administration
Agreement, the Administrator 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. The Administrator, in its sole discretion, may waive all or any
portion of its fees.
27
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
The distributor of the Fund is Forum Financial Services, Inc.(R) ("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.(R) ("FFC"), an affiliate of Forum, serves as the Fund's
transfer agent and dividend disbursing agent. For its services in these
capacities, FFC receives $24,000 per year, plus certain shareholder account
fees. Forum Accounting Services, Limited Liability Company, an affiliate of
Forum and FFC, is the Funds' fund accountant and for its services receives an
annual fee of $36,000 plus certain adjustments based on the type and volume of
portfolio transactions.
NOTE 4. SECURITY TRANSACTIONS
The cost of purchases and the proceeds from sales (including maturities) of
securities (excluding short-term investments) for the period ended September 30,
1997 were as follows:
Cost of Proceeds from
Purchases Sales
--------- -----
Quadra Limited Maturity Treasury Fund $ 434,362 $ 179,719
Quadra Value Equity Fund 658,759 177,551
Quadra International Equity Fund 411,037 92,390
Quadra Opportunistic Bond Fund 277,968 -
For federal income tax purposes, the tax basis of investment securities owned,
the aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost and the aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost over
market value as of September 30, 1997, were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Net Unrealized
Tax Unrealized Unrealized Appreciation
Cost Basis Appreciation Depreciation (Depreciation)
---------- ------------ ------------ --------------
Quadra Limited Maturity Treasury Fund $ 534,682 $ 1,022 $ 132 $ 890
Quadra Value Equity Fund 518,086 63,932 8,071 55,861
Quadra International Equity Fund 357,785 37,995 13,748 24,247
Quadra Opportunistic Bond Fund 293,043 4,814 634 4,180
</TABLE>
NOTE 5. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
The Adviser and the Administrator have voluntarily undertaken to waive a portion
of their fees and assume certain expenses of the the Funds so that total
expenses of the Funds would not exceed a certain limitation. The Adviser and the
Administrator, at their discretion, may revise or discontinue the voluntary
waivers. For the period ended September 30, 1997, fees waived and expenses
reimbursed were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Administration Investment Expenses
Fee Advisory Fee Reimbursed Total
-------------- ------------ ---------- -----
Quadra Limited Maturity Treasury Fund $ 20,000 $ 1,170 $ 44,140 $ 65,310
Quadra Value Equity Fund 19,889 2,123 43,367 63,379
Quadra International Equity Fund 19,889 2,110 50,479 72,478
Quadra Opportunistic Bond Fund 19,889 912 43,085 63,886
</TABLE>
28
<PAGE>
- --------------------------------------------------------------------------------
THE QUADRA FUNDS
NOTES TO FINANCIAL STATEMENTS (concluded)
SEPTEMBER 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
NOTE 6. SHARES OF BENEFICIAL INTEREST
For the period ended September 30, 1997, an affiliate or affiliates to the
Adviser owned 22.93% of the shares outstanding in the Quadra Value Equity Fund,
45.18% of the shares outstanding in the Quadra International Equity Fund, and
44.98% of the shares outstanding in the Quadra Opportunistic Bond Fund.
29
