-----------
T H E Q U A D R A F U N D S
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ANNUAL REPORT
03.31.98
<PAGE>
Table of Contents
A Message to Our Shareholders............................................. 2
Report from Carl Domino Associates, L.P................................... 3
Report from Smith Asset Management Group, L.P............................. 4
Comparison of Change in Value of $10,000 Investment ...................... 5
Schedules of Investments:
QUADRA Value Equity Fund ............................................. 7
QUADRA Growth Fund ....................................................10
Statements of Assets and Liabilities.......................................13
Statements of Operations...................................................14
Statements of Changes in Net Assets........................................15
Financial Highlights.......................................................16
Notes to Financial Statements..............................................17
Report of Independent Auditors.............................................20
<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 MARCH 31, 1998
- - --------------------------------------------------------------------------------
Dear Shareholders,
We are pleased to present the Annual Report on The QUADRA Funds for the year
ending March 31, 1998. As you know, Quadra Value Equity Fund opened on April 2,
1997 and Quadra Growth Fund opened on November 4, 1997. Total returns for the
funds, and the comparable index returns, for the since inception periods ending
3/31/98 are included in the following table:
<TABLE>
<S> <C> <C>
- - ----------------------------------------------------------- ---------------- -----------------
Fund S&P 500
Fund Return Index Return
- - ----------------------------------------------------------- ---------------- -----------------
Quadra Value Equity Fund 37.5% 47.5%
- - ----------------------------------------------------------- ---------------- -----------------
Quadra Growth Fund 14.2% 17.9%
- - ----------------------------------------------------------- ---------------- -----------------
</TABLE>
We also compare the Fund's performance over similar time frames to the
appropriate Lipper Mutual Fund Index in the following table:
<TABLE>
<S> <C> <C> <C>
- - ------------------------------------- ---------------- ----------------- ----------------------------------
Fund Lipper
Fund Return Index Return Lipper Index
- - ------------------------------------- ---------------- ----------------- ----------------------------------
Quadra Value Equity Fund 37.5% 39.1% Growth & Income Index
- - ------------------------------------- ---------------- ----------------- ----------------------------------
Quadra Growth Fund 14.2% 16.9% Growth Fund Index
- - ------------------------------------- ---------------- ----------------- ----------------------------------
</TABLE>
Lipper indices are made up of 30 funds in their respective category; individuals
cannot invest in either index.
Quadra Capital Partners, L.P. is the investment adviser for Quadra Value Equity
Fund and Quadra Growth Fund.
Carl Domino Associates, L.P. is the sub-adviser for Quadra Value Equity Fund.
The sub-adviser 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.
Smith Management Group, L.P. is the sub-adviser for Quadra Growth Fund. The
sub-adviser utilizes information from Wall Street analysts to identify companies
which are poised to post positive earnings surprises. We believe that over time
a portfolio of positive earnings surprise companies will perform better than the
broader equity market. We think this strategy is an excellent choice for an
investor who seeks long-term capital appreciation.
Attached please find answers to selected questions from each of the portfolio
sub-advisers.
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>
- - --------------------------------------------------------------------------------
QUESTIONS & ANSWERS FROM
CARL DOMINO ASSOCIATES, L.P.
MARCH 31, 1998
- - --------------------------------------------------------------------------------
WHAT INVESTMENT PHILOSOPHY DO YOU PUT TO WORK IN THIS PORTFOLIO? We are
fundamental value investors. We seek to build diversified portfolios focused on
total returns. We believe our focus on using dividend yield results in
portfolios which offer a measure of down-side protection.
WHAT DO YOU LOOK FOR WHEN CHOOSING A COMPANY FOR THE PORTFOLIO? First we compare
the candidate company's current dividend yield to Carl Domino's yield target
which is based upon current interest rates and overall market yields. We buy
stocks which have a dividend yield at or above the target. The current yield
target is 2.4%. We then look for what we think are Catalysts for Value including
debt/equity ratios, return on assets, meaningful insider ownership, large cash
flows and our estimate of future potential profits. We then look for Catalysts
for Appreciation, which may be one or more of the following:
restructuring/mergers, new management, new products/services, or strategic
industry positioning. We believe that the combination of positive Catalysts for
Value combined with Catalysts for Appreciation should yield stocks which will
win in our portfolios.
WHY DO YOU SELL A STOCK? We sell a stock when and if price appreciation causes
the stock to exceed the yield sell target. We also sell if one or more of the
following exist: the stock declines more than 30% from costs, company
fundamentals deteriorate, or a more attractive investment is identified.
WHAT ARE YOUR TYPICAL PORTFOLIO CHARACTERISTICS? Our portfolios are typically
fully invested equally, in forty to fifty companies. Typically, dividend yield
should be greater than the broader market as measured by the S&P 500 Index
companies. We usually see price to earnings ratios below market average. Average
market capitalization will be approximately one-third to one-half the S&P 500
market capitalization.
Carl Domino Associates, L.P.
3
<PAGE>
- - --------------------------------------------------------------------------------
QUESTIONS & ANSWERS FROM
SMITH ASSET MANAGEMENT GROUP, L.P.
MARCH 31, 1998
- - --------------------------------------------------------------------------------
WHAT INVESTMENT PHILOSOPHY DO YOU PUT TO WORK IN THIS PORTFOLIO? Since 1992,
we've been discovering truth - truth about what drives share prices. Our
philosophy is built on five strong beliefs: 1) Risk control is key to
stabilizing the investment return pattern for clients over time; 2) Earnings
surprises, both positive and negative, are related to stock price; 3) Direction
and trend of earnings surprises can be predicted with a high degree of
reliability; 4) Skilled portfolio management is a combination of efficient
information processing, research, and experienced decision-making; 5) A rigid
sell discipline is essential in minimizing the impact of human emotions on the
sell decision.
WHAT DO YOU LOOK FOR WHEN CHOOSING A COMPANY FOR THE PORTFOLIO? At the outset,
we assess stocks for risk control and valuation. We control risk by only
investing in companies with market capitalization above $2 billion which also
are rated by S&P above B. (About 1,000 to 1,200 companies.) We only choose
stocks which maintain P/E ratios below their historic average. (About 500
companies.) We seek to own companies before they report their positive earnings
surprises. We seek to sell those companies before any earnings disappointments
are reported as well. To exploit this relationship between earnings and the
price of a stock, we use our Earnings Surprise Model which we believe is a
highly reliable process to identify companies that are poised to report positive
earnings surprises. Our success rate in predicting positive earnings surprises
has been outstanding - on average about 88% (About 100 companies). Finally, we
review the fundamentals and financials of candidate companies to arrive at our
portfolio of approximately 40 companies.
WHY DO YOU SELL A STOCK? We sell a company entirely and immediately if any of
the following five events occur: 1) The company reports a negative earnings
surprise, 2) The Earnings Surprise Model indicates a negative earnings surprise,
3) "Pre-announcement" of missed earnings targets, 4) the company becomes
relatively overvalued by the market, and 5) a buyout is announced. Upon the sale
of any security, all of the proceeds are fully reinvested in the single most
attractive company not already in the portfolio, as determined by the firm's
stock selection process.
WHAT ARE YOUR TYPICAL PORTFOLIO CHARACTERISTICS? Our portfolios are typically
fully invested, with cash levels typically less than 5%. There are approximately
40 holdings in the portfolio and annual turnover is historically 100%. All
sectors of the S&P 500 are represented within a +/- 50% band of the index
weight. The weight of the sector is driven by the bottom-up estimate of the
stock's earnings prospects and current valuation. The portfolio's earnings
growth rate is typically 3 to 4 times that of the average S&P 500 company. P/E,
company size, yield and beta are approximately that of the S&P 500 index.
Smith Asset Management Group, L.P.
4
<PAGE>
- - --------------------------------------------------------------------------------
THE QUADRA FUNDS
QUADRA VALUE EQUITY FUND
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
MARCH 31, 1998
- - --------------------------------------------------------------------------------
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 Composite
Stock 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.
[EDGAR REPRESENTATION OF GRAPH CHART]
QUADRA VALUE EQUITY VS. S&P 500
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception* Apr-97 May-97 Jun-97 Jul-97 Aug-97 Sep-97 Oct-97
QUADRA Value Equity Fund $ 10,000 10,540 $10,920 $11,170 $ 11,940 $11,900 $ 12,580 $ 12,200
S&P 500 $ 10,000 10,562 $11,204 $11,706 $ 12,637 $11,930 $ 12,583 $ 12,163
Nov-97 Dec-97 Jan-98 Feb-98 Mar-98
$ 12,620 $ 12,995 $ 12,866 $ 13,220 $ 13,747
$ 12,726 $ 12,944 $ 13,087 $ 14,030 $ 14,748
</TABLE>
- - --------------------------------------------------------------------------------
INVESTMENT VALUE ON 3/31/98
- - ---------------------------
QUADRA Value Equity $ 13,747
S&P 500 $ 14,748
AVERAGE ANNUAL TOTAL RETURN INCEPTION*
AS OF 3/31/98 TO DATE
- - --------------------------- -------
QUADRA Value Equity 37.47%
S&P 500 47.48%
* Inception date for QUADRA Value Equity Fund was April 2, 1997.
5
<PAGE>
- - --------------------------------------------------------------------------------
THE QUADRA FUNDS
QUADRA GROWTH FUND
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
MARCH 31, 1998
- - --------------------------------------------------------------------------------
The following chart reflects a comparison in the change in value of a
$10,000 investment in QUADRA Growth Fund, including reinvested dividends and
distributions, and the performance of the Standard & Poor's 500 Composite Stock
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.
[EDGAR REPRESENTATION OF GRAPH CHART.]
QUADRA Growth Fund vs. S&P 500
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Inception* Nov-97 Dec-97 Jan-98 Feb-98 Mar-98
QUADRA Growth Fund $ 10,000 $ 10,370 $10,362 $ 10,222 $ 10,983 $ 11,423
S&P 500 $ 10,000 $ 10,172 $10,346 $ 10,461 $ 11,215 $ 11,788
</TABLE>
- - --------------------------------------------------------------------------------
INVESTMENT VALUE ON 3/31/98
- - ---------------------------
QUADRA Growth Fund $ 11,423
S&P 500 $ 11,788
AVERAGE TOTAL RETURN INCEPTION *
AS OF 3/31/98 TO DATE
- - -------------------- -------
QUADRA Growth Fund 14.23%
S&P 500 17.88%
* Inception date for QUADRA Growth Fund was November 4, 1997.
6
<PAGE>
- - --------------------------------------------------------------------------------
THE QUADRA FUNDS
QUADRA VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS
MARCH 31, 1998
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHARES SECURITY DESCRIPTION VALUE
- - ------------------- ----------------------------------------------------------------------- -------------------
COMMON STOCK (93.9%)
APPAREL & ACCESSORY STORES (2.1%)
2,800 Intimate Brands, Inc. $ 75,775
-------------------
AUTOMOTIVE (3.1%)
950 Chrysler Corp. 39,484
1,100 Ford Motor Co. 71,294
-------------------
110,778
-------------------
BUSINESS SERVICES (4.1%)
1,500 Computer Associates International, Inc. 86,625
1,800 Deluxe Corp. 59,288
-------------------
145,913
-------------------
CHEMICALS & ALLIED PRODUCTS (12.0%)
1,500 Baxter International, Inc. 82,688
1,400 Goodrich (B.F.) Co. 71,487
1,800 International Flavors & Fragrances, Inc. 84,825
1,300 Lubrizol Corp. 50,050
700 Minnesota Mining & Mfg. 63,831
1,800 Witco Corp. 70,875
-------------------
423,756
-------------------
COMMUNICATIONS (6.5%)
1,000 AT&T Corp. 65,625
2,400 Frontier Corp. 78,150
500 RADCOM Ltd. (a) 2,250
2,200 Telefon. de Argentina ADR 83,738
-------------------
229,763
-------------------
CONSUMER CYCLICAL (3.6%)
550 Avon Products 42,900
2,000 Tenneco, Inc. 85,375
-------------------
128,275
-------------------
DEPOSITORY INSTITUTIONS (10.2%)
800 Bankers Trust New York Co. 96,250
1,500 First Union Corp. 85,125
1,250 NationsBank Corp. 91,172
1,700 Summit Bancorp 85,106
-------------------
357,653
-------------------
</TABLE>
See Notes to Financial Statements. 7
<PAGE>
- - --------------------------------------------------------------------------------
THE QUADRA FUNDS
QUADRA VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS (continued)
MARCH 31, 1998
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHARES SECURITY DESCRIPTION VALUE
- - ------------------- ----------------------------------------------------------------------- -------------------
DRUGS & PHARMACEUTICALS (4.5%)
1,400 Glaxo Wellcome plc ADR $ 75,775
1,900 Pharmacia & Upjohn, Inc. 83,125
-------------------
158,900
-------------------
ELECTRIC, GAS & SANITARY SERVICES (14.9%)
1,300 Atmos Energy Corp. 38,512
7,000 Korea Electric Power 69,562
1,100 MCN Energy Group, Inc. 41,112
550 Midcoast Energy Resources 12,065
2,000 Sonat, Inc. 87,000
1,900 USX-Marathon Group 71,488
2,500 Waste Management, Inc. 77,031
1,500 Williams Companies, Inc. 48,000
2,500 YPF Sociedad Anonima 85,000
-------------------
529,770
-------------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER EQUIPMENT (2.1%)
200 Rayovac Corp. (a) 4,713
1,100 Thomas & Betts Corp. 70,400
-------------------
75,113
-------------------
FORESTRY (2.5%)
1,600 Weyerhaeuser Co. 90,400
-------------------
GENERAL MERCHANDISE STORES (1.4%)
800 May Department Stores 50,800
-------------------
HEALTH CARE (2.1%)
800 American Home Products 76,300
-------------------
INDUSTRIAL & COMMERCIAL MACHINERY (2.1%)
3,400 Pall Corp. 73,100
-------------------
INSURANCE CARRIERS (0.6%)
1,500 Oxford Health Plans, Inc. (a) 22,406
-------------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC, MEDICAL & OPTICAL GOODS (2.4%)
1,300 Eastman Kodak Co. 84,338
-------------------
MEDIA (0.3%)
500 TV Azteca SA de CV (a) 9,813
-------------------
PAPER & ALLIED PRODUCTS (2.1%)
1,500 Kimberly-Clark Corp. 75,188
-------------------
</TABLE>
See Notes to Financial Statements. 8
<PAGE>
- - --------------------------------------------------------------------------------
THE QUADRA FUNDS
QUADRA VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS (concluded)
MARCH 31, 1998
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHARES SECURITY DESCRIPTION VALUE
- - ------------------- ----------------------------------------------------------------------- -------------------
PERSONAL SERVICES (1.7%)
1,300 H & R Block, Inc. $ 61,831
-------------------
PRINTING & PUBLISHING (0.3%)
400 Readers Digest 10,925
-------------------
REAL ESTATE INVESTMENT TRUSTS (3.8%)
400 CCA Prison Realty Trust 16,575
600 Ocwen Asset Investment 10,238
3,570 Patriot American Hospitality, Inc. 96,390
500 SL Green Realty Corp. (a) 12,781
-------------------
135,984
-------------------
RUBBER & MISCELLANEOUS PLASTIC (1.8%)
2,400 Tupperware Corp. 63,900
-------------------
TOBACCO PRODUCTS (1.9%)
1,600 Philip Morris Cos., Inc. 66,700
-------------------
TRANSPORTATION (5.6%)
700 Avis Rent A Car, Inc. (a) 22,706
2,500 Federal Signal Corp. 56,875
500 Knightsbridge Tankers Ltd. 14,250
1,850 Union Pacific Corp. 103,947
-------------------
197,778
-------------------
WHOLESALE TRADE-NONDURABLE GOODS (2.2%)
6,400 Unisource Worldwide, Inc. 79,200
-------------------
TOTAL COMMON STOCK (COST $3,114,145) 3,334,359
-------------------
SHORT-TERM INVESTMENTS (6.1%)
218,440 The Collateralized Master Repurchase
Agreement Program, Collateralized by
U.S. Treasury Obligations
(cost $218,440) 218,440
-------------------
TOTAL INVESTMENTS (100.0%) (COST $3,332,585) $ 3,552,799
===================
</TABLE>
- - -------------------
ADR - American Depository Receipts
(a) Non-income producing security.
See Notes to Financial Statements. 9
<PAGE>
- - --------------------------------------------------------------------------------
THE QUADRA FUNDS
QUADRA GROWTH FUND
SCHEDULE OF INVESTMENTS
MARCH 31, 1998
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHARES SECURITY DESCRIPTION VALUE
- - ------------------- ----------------------------------------------------------------------- -------------------
COMMON STOCK (98.9%)
APPAREL & ACCESSORY STORES (5.3%)
2,230 Ross Stores, Inc. $ 98,399
2,180 TJX Cos., Inc. 98,645
-------------------
197,044
-------------------
APPAREL & OTHER FINISHED PRODUCT MADE FROM FABRICS & SIMILAR MATERIALS (2.4%)
1,480 Tommy Hilfiger Corp. (a) 88,892
-------------------
BUSINESS SERVICES (7.6%)
1,180 BMC Software, Inc. (a) 98,898
2,700 Cadence Design Systems (a) 93,488
1,900 Robert Half International (a) 91,200
-------------------
283,586
-------------------
COMMUNICATIONS (5.2%)
1,400 AT&T Corp. 91,875
1,500 BellSouth Corp. 101,344
-------------------
193,219
-------------------
DEPOSITORY INSTITUTIONS (5.0%)
900 Comerica, Inc. 95,231
3,000 Dime Bancorp, Inc. 90,187
-------------------
185,418
-------------------
EATING & DRINKING PLACES (2.4%)
1,120 Marriott International 41,650
1,120 Marriott International - A 40,110
280 Sodexho Marriott Services, Inc. 7,438
-------------------
89,198
-------------------
ELECTRIC, GAS & SANITARY SERVICES (2.6%)
2,150 GPU, Inc. 95,137
-------------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER EQUIPMENT (4.8%)
700 Lucent Technologies, Inc. 89,512
2,500 SCI Systems, Inc. (a) 89,063
-------------------
178,575
-------------------
FABRICATED METAL PRODUCTS, EXCEPT MACHINERY & TRANSPORTATION EQUIPMENT (2.5%)
1,790 Parker Hannifin 91,738
-------------------
</TABLE>
See Notes to Financial Statements. 10
<PAGE>
- - --------------------------------------------------------------------------------
THE QUADRA FUNDS
QUADRA GROWTH FUND
SCHEDULE OF INVESTMENTS (continued)
MARCH 31, 1998
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHARES SECURITY DESCRIPTION VALUE
- - ------------------- ----------------------------------------------------------------------- -------------------
FOOD & KINDRED PRODUCTS (5.0%)
1,800 Dean Foods Co. $ 90,563
2,900 Interstate Bakeries Corp. 93,706
-------------------
184,269
-------------------
GENERAL MERCHANDISE STORES (2.7%)
1,140 Dayton Hudson Corp. 100,320
-------------------
HEAVY CONSTRUCTION OTHER THAN BUILDING CONSTRUCTION - CONTRACTORS (2.6%)
1,900 Halliburton Co. 95,356
-------------------
INDUSTRIAL & COMMERCIAL MACHINERY (7.2%)
1,550 Caterpillar, Inc. 85,347
2,500 EMC Corp. (a) 94,531
2,000 Lexmark International (a) 90,250
-------------------
270,128
-------------------
INSURANCE CARRIERS (4.9%)
1,920 SunAmerica, Inc. 91,920
1,480 Travelers Group, Inc. 88,800
-------------------
180,720
-------------------
MISCELLANEOUS RETAIL (2.3%)
1,600 Costco Cos., Inc. (a) 85,600
-------------------
NONDEPOSITORY CREDIT INSTITUTIONS (2.3%)
2,000 SLM Holding Corp. 87,250
-------------------
OIL & GAS EXTRACTION (4.7%)
2,400 BJ Services Co. (a) 87,450
3,200 ENSCO International, Inc. 88,800
-------------------
176,250
-------------------
PAPER & ALLIED PRODUCTS (2.4%)
1,600 Bowater, Inc. 90,300
-------------------
PHARMACEUTICAL PREPARATIONS (2.5%)
1,130 Schering-Plough Corp. 92,307
-------------------
PRIMARY METAL INDUSTRIES (2.5%)
2,450 USX - US Steel Group, Inc. 92,488
-------------------
</TABLE>
See Notes to Financial Statements. 11
<PAGE>
- - --------------------------------------------------------------------------------
THE QUADRA FUNDS
QUADRA GROWTH FUND
SCHEDULE OF INVESTMENTS (concluded)
MARCH 31, 1998
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHARES SECURITY DESCRIPTION VALUE
- - ------------------- ----------------------------------------------------------------------- -------------------
PRINTING, PUBLISHING & ALLIED INDUSTRIES (4.8%)
1,300 Gannett Co., Inc. $ 93,438
1,350 Times Mirror Co. 85,556
-------------------
178,994
-------------------
TRANSPORTATION BY AIR (2.5%)
1,000 UAL Corp. (a) 92,938
-------------------
TRANSPORTATION EQUIPMENT (9.7%)
890 Eaton Corp. 84,716
1,580 Ford Motor Co. 102,404
1,000 General Dynamics Corp. 86,125
1,500 Paccar, Inc. 89,344
-------------------
362,589
-------------------
WHOLESALE TRADE-DURABLE GOODS (2.7%)
3,000 Harley-Davidson, Inc. 99,000
-------------------
WHOLESALE TRADE-NONDURABLE GOODS (2.3%)
1,920 Universal Corp. 84,600
-------------------
TOTAL COMMON STOCK (COST $3,414,361) 3,675,916
-------------------
SHORT-TERM INVESTMENTS (1.1%)
41,114 The Collateralized Master Repurchase
Agreement Program, Collateralized by
U.S. Treasury Obligations
(cost $41,114) 41,114
-------------------
TOTAL INVESTMENTS (100.0%) (COST $3,455,475) $ 3,717,030
===================
</TABLE>
- - -------------------
(a) Non-income producing security.
See Notes to Financial Statements. 12
<PAGE>
- - --------------------------------------------------------------------------------
THE QUADRA FUNDS
STATEMENTS OF ASSETS & LIABILITIES
MARCH 31, 1998
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
QUADRA QUADRA
VALUE EQUITY GROWTH
FUND FUND
--------------------- ----------------------
ASSETS:
Investments (Note 2):
Investments at cost $ 3,332,585 $ 3,455,475
Net unrealized appreciation (depreciation) 220,214 261,555
--------------------- ----------------------
Total investments at value 3,552,799 3,717,030
Interest, dividends and other receivables 10,692 2,512
Receivable for Fund shares sold 1,638 6,242
Receivable from adviser (Note 3) 44,140 41,607
Organization costs, net of amortization (Note 2) 24,017 27,550
--------------------- ----------------------
Total Assets 3,633,286 3,794,941
--------------------- ----------------------
LIABILITIES:
Payable to administrator (Note 3) - 10,000
Accrued expenses and other liabilities 75,638 63,044
--------------------- ----------------------
Total Liabilities 75,638 73,044
--------------------- ----------------------
NET ASSETS $ 3,557,648 $ 3,721,897
===================== ======================
COMPONENTS OF NET ASSETS:
Paid in capital $ 3,314,449 $ 3,464,233
Undistributed net investment income 14,307 3,599
Unrealized appreciation (depreciation) on investments 220,214 261,555
Accumulated net realized gain (loss) 8,678 (7,490)
--------------------- ----------------------
NET ASSETS $ 3,557,648 $ 3,721,897
===================== ======================
SHARES OF BENEFICIAL INTEREST: 277,950 325,950
===================== ======================
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE
PER SHARE): $ 12.80 $ 11.42
===================== ======================
</TABLE>
See Notes to Financial Statements. 13
<PAGE>
- - --------------------------------------------------------------------------------
THE QUADRA FUNDS
STATEMENTS OF OPERATIONS
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
QUADRA QUADRA
VALUE EQUITY GROWTH
FUND FUND
--------------------- ---------------------
For the Period For the Period
April 2, 1997 to November 4, 1997
March 31, 1998 to March 31, 1998
-------------- -----------------
INVESTMENT INCOME:
Interest income $ 8,999 $ 5,008
Dividend income 21,506 5,595
--------------------- ---------------------
Total Investment Income 30,505 10,603
--------------------- ---------------------
EXPENSES:
Advisory (Note 3) 8,367 5,793
Administration (Note 3) 39,889 16,333
Transfer agent (Note 3) 24,310 9,883
Custody 2,586 5,164
Accounting (Note 3) 36,900 14,700
Audit 10,000 10,000
Legal 4,001 188
Trustees 943 617
Registration 3,120 4,899
Amortization of organization costs (Note 2) 5,983 2,450
Miscellaneous 2,516 400
--------------------- ---------------------
Total Expenses 138,615 70,427
Expenses assumed and fees waived (Note 5) (130,257) (64,642)
--------------------- ---------------------
Net Expenses 8,358 5,785
--------------------- ---------------------
NET INVESTMENT INCOME (LOSS) 22,147 4,818
--------------------- ---------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments sold 40,519 (7,490)
Net change in unrealized appreciation (depreciation)
on investments 220,214 261,555
--------------------- ---------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS 260,733 254,065
--------------------- ---------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 282,880 $ 258,883
===================== =====================
</TABLE>
See Notes to Financial Statements. 14
<PAGE>
- - --------------------------------------------------------------------------------
THE QUADRA FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
QUADRA QUADRA
VALUE EQUITY GROWTH
FUND FUND
--------------------- ----------------------
For the Period For the Period
April 2, 1997 to November 4, 1997
March 31, 1998 to March 31, 1998
-------------- -----------------
NET ASSETS - BEGINNING OF PERIOD $ 10 $ 10
- - -------------------------------- --------------------- ----------------------
OPERATIONS:
Net investment income (loss) 22,147 4,818
Net realized gain (loss) on investments sold 40,519 (7,490)
Net change in unrealized appreciation (depreciation) on
investments 220,214 261,555
--------------------- ----------------------
Net increase (decrease) in net assets resulting from operations 282,880 258,883
--------------------- ----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (7,840) (1,219)
Net realized gain on investments (31,841) -
--------------------- ----------------------
Total distributions to shareholders (39,681) (1,219)
--------------------- ----------------------
CAPITAL SHARE TRANSACTIONS (a):
Sale of shares 3,389,076 3,517,545
Reinvestment of distributions 39,681 1,219
Redemption of shares (114,318) (54,541)
--------------------- ----------------------
Net increase (decrease) from capital transactions 3,314,439 3,464,223
--------------------- ----------------------
Net increase (decrease) in net assets 3,557,638 3,721,887
--------------------- ----------------------
NET ASSETS - END OF PERIOD (Including line (b)) $ 3,557,648 $ 3,721,897
- - ----------------------------------------------- ===================== ======================
(a) Shares Issued (Redeemed)
Sale of shares 283,895 330,663
Reinvestment of distributions 3,366 118
Redemption of shares (9,311) (4,831)
--------------------- ----------------------
Net increase (decrease) in shares 277,950 325,950
===================== ======================
(b) Accumulated undistributed net investment income $ 14,307 $ 3,599
===================== ======================
</TABLE>
See Notes to Financial Statements. 15
<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
VALUE EQUITY GROWTH
FUND FUND
------------------- -------------------
For the Period For the Period
April 2, 1997 to November 4, 1997
March 31, 1998 to March 31, 1998
------------------- -------------------
Net Asset Value, Beginning of Period $10.00 $10.00
Investment Operations
Net Investment Income (Loss) 0.22 0.01
Net Realized and Unrealized Gain (Loss) on Investments 3.45 1.41
------------------- -------------------
Total from Investment Operations 3.67 1.42
Distributions from Net Investment Income (0.17) - (a)
Distributions from Net Realized Gains (0.70) -
------------------- -------------------
Net Asset Value, End of Period $12.80 $11.42
=================== ===================
Total Return 37.47% 14.23%
Ratio/Supplementary Data:
Net Assets at End of Period (000's omitted) $3,558 $3,722
Ratios to Average Net Assets: (b)
Expenses including assumption of expenses/waivers 1.00% 1.00%
Expenses excluding assumption of expenses/waivers 16.57% 12.16%
Net investment income (loss) including assumption of expenses/waivers 2.65% 0.83%
Average commission rate (c) $0.0598 $0.0591
Portfolio Turnover Rate 32.45% 21.81%
</TABLE>
- - ---------------------------------------------------------------------------
(a) Less than $0.01 per share.
(b) Annualized.
(c) Amount represents the average commission per share paid to brokers on the
purchase and sale of equity securities.
See Notes to Financial Statements. 16
<PAGE>
- - --------------------------------------------------------------------------------
THE QUADRA FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
- - --------------------------------------------------------------------------------
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 twenty-two
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 two funds listed below, both diversified portfolios of the Trust.
Commencement of operations for Quadra Value Equity Fund and Quadra Growth Fund
was April 2, 1997 and November 4, 1997, respectively.
During the period ended March 31, 1998, Quadra Limited Maturity Bond Fund,
Quadra Opportunistic Bond Fund and Quadra International Equity Fund, three
previously active portfolios of the Trust, ceased operations after all
outstanding shares were redeemed.
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.
REPURCHASE AGREEMENTS - A fund may enter into repurchase agreements,
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, if
any, are declared and paid at least annually by Quadra Value Equity Fund and
Quadra Growth Fund. Capital gain distributions, if any, are declared and paid at
least annually by both Funds. Distributions are based on amounts calculated in
accordance with applicable income tax regulations.
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 the Adviser and will
be reimbursed by the Funds.
17
<PAGE>
- - --------------------------------------------------------------------------------
THE QUADRA FUNDS
NOTES TO FINANCIAL STATEMENTS (continued)
MARCH 31, 1998
- - --------------------------------------------------------------------------------
FEDERAL TAXES - Each Fund intends to qualify and continue to qualify each year
as a regulated investment company and distribute substantially 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, 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
an annual advisory fee of 1.00% of the average daily net assets of each Fund.
Quadra has entered into investment sub-advisory agreements with Carl Domino
Associates, L.P., which manages Quadra Value Equity Fund and Smith Asset
Management Group, L.P., which manages Quadra Growth 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 Funds is Forum Administrative Services, LLC ( "FAdS").
Pursuant to an Administration Agreement, the Administrator receives a fee from
each 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.
The distributor of the Funds is Forum Financial Services, Inc. ("FFSI").
Pursuant to a Distribution Agreement, FFSI receives no compensation for its
services. FFSI may delegate to other persons responsibility for certain services
under this Agreement.
Forum Shareholder Services, LLC(R) ("FSS"), an affiliate of Forum, serves as the
Funds' transfer agent and dividend disbursing agent. For its services in these
capacities, FSS receives $24,000 per year, plus certain shareholder account
fees. FSS became the Funds' transfer agent effective January 1, 1998 when it
succeeded to the transfer agency business of Forum Financial Corp. ("FFC").
Forum Accounting Services, LLC ("FAcS"), an affiliate of FFSI, FFC, FSS and
FAdS, is the Funds' fund accountant and for its services receives an annual fee
of $36,000 per fund plus certain adjustments based on the type and volume of
portfolio transactions.
FAdS, FFSI, FSS, FFC and FAcS are affiliated companies 100% commonly controlled
by one individual. FAdS possesses a nominal interest in the Adviser, which was
obtained through the waiver of certain fees.
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 March 31,
1998 were as follows:
18
<PAGE>
- - --------------------------------------------------------------------------------
THE QUADRA FUNDS
NOTES TO FINANCIAL STATEMENTS (concluded)
MARCH 31, 1998
- - --------------------------------------------------------------------------------
COST OF PROCEEDS
PURCHASES FROM SALES
--------- ----------
Quadra Value Equity Fund $3,343,503 $269,877
Quadra Growth Fund 3,802,018 380,167
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 March 31, 1998, were as follows:
<TABLE>
<S> <C> <C> <C> <C>
NET UNREALIZED
TAX UNREALIZED UNREALIZED APPRECIATION
COST BASIS APPRECIATION DEPRECIATION (DEPRECIATION)
---------- ------------ ------------ --------------
Quadra Value Equity Fund $3,332,585 $261,893 $41,679 $220,214
Quadra Growth Fund 3,455,475 310,365 48,810 261,555
</TABLE>
NOTE 5. WAIVER OF FEES AND ASSUMPTION OF EXPENSES
The Adviser, FAcS and FAS have voluntarily undertaken to waive a portion of
their fees and assume certain expenses of the Funds so that total expenses of
the Funds would not exceed a certain limitation. For the period ended March 31,
1998, fees waived and expenses assumed were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
EXPENSES
FEES WAIVED BY ASSUMED BY
--------------------------------------------- -------------------------
FADS ADVISER FACS FADS ADVISER TOTAL
---- ------- ---- ---- ------- -----
Quadra Value Equity Fund $39,889 $8,367 $27,900 $9,558 $44,543 $130,257
Quadra Growth Fund 6,333 5,793 5,700 5,209 41,607 64,642
</TABLE>
The Adviser, FAdS and FAcS , at their discretion, may revise or discontinue the
voluntary waivers. As of April 1, 1998, FAdS and FAcS are no longer waiving fees
or assuming expenses. As of the date hereof the Adviser has maintained the
fund's ratio of expenses to average net assets at 1.00%. The Adviser however is
not obligated to continue to waive its fees or assume fund expenses.
On May 20, 1998, the cumulative $85,747 receivable outstanding from the Adviser
was collected by the Funds.
19
<PAGE>
- - --------------------------------------------------------------------------------
THE QUADRA FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
- - --------------------------------------------------------------------------------
The Board of Trustees and Shareholders
Quadra Value Equity Fund and
Quadra Growth Fund
We have audited the accompanying statements of assets and liabilities
of Quadra Value Equity Fund and Quadra Growth Fund, portfolios of Forum
Funds (the Trust), including the schedules of investments, as of March
31, 1998, and the related statements of operations, changes in net
assets, and financial highlights for the period April 2, 1997
(commencement of operations) to March 31, 1998 for the Quadra Value
Equity Fund, and for the period November 4, 1997 (commencement of
operations) to March 31, 1998 for the Quadra Growth Fund. These
financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our
audits.
We conducted our audits 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 and financial highlights.
Our procedures included confirmation of securities owned as of March
31, 1998 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 audits provide 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 Value Equity Fund and Quadra Growth Fund
as of March 31, 1998, the results of their operations, changes in their
net assets and financial highlights for the initial periods then ended
in conformity with generally accepted accounting principles.
Wolf & Company, P.C.
Boston, Massachusetts
May 15, 1998
20
