<PAGE>
POLYNOUS GROWTH FUND
ANNUAL REPORT
July 31, 1997
Polynous Capital Management, Inc., Investment Adviser
(800) 924-3863
<PAGE>
Dear Shareholder,
The Polynous Growth Fund (the "Fund") has now finished its first year of
operation and I would like to say "thank you" to all of the individuals and
entities who have contributed to the Fund's success.
As there are no successful enterprises without committed customers, I would
first like to express my appreciation to the investors in the Fund. I am
gratified by the initial enthusiasm for the Fund and our first year investors
will be remembered warmly.
The level of interest by a select group of professional financial advisors is
also deeply appreciated. We chose to distribute our Fund through experienced
advisors as we believe strongly that the complexities of today's financial
environment are best addressed with professional assistance. As the Fund's
investment manager, we have also chosen to allocate most of our resources to
investment management activities and very few resources to marketing. As such,
the support of professional advisors who have recommended our Fund to their
clients is something for which we will always be grateful.
We would also like to thank the home office personnel of the firms who have
chosen to distribute our Fund in our first year. As a whole, these firms have
demonstrated the thoughtful and entrepreneurial characteristics that will
separate the very successful financial services firms from those which will be
less successful as we approach the 21st century. In addition to thanking the
individuals who have overall responsibility for mutual funds at their
respective firms, I would also like to thank the support personnel who helped
ensure the efficient processing of client transactions in our Fund.
Finally, I would like to thank our employees for their hard work and
dedication. Starting a business has large amounts of both excitement and
challenges. I am happy to say after our first year that all of us have dealt
superbly with the challenges while also maintaining our sense of excitement and
enthusiasm.
Although words of appreciation may be nice, we also recognize that another type
of appreciation, i.e., capital appreciation, should be the primary focus of the
investment advisor of a mutual fund. The best "thank you" we can ultimately
give to our clients are attractive investment returns. We have mixed feelings
about our first year investment returns although we actually achieved our own
objectives and produced what in most years would be a very attractive return.
Our investment process is designed to produce attractive absolute returns with
lower levels of valuation and operating risk as compared with many other growth
stock managers. Our return-based portfolio management disciplines require 20
percent annual projected returns for individual stocks before being considered
for purchase. Our projected returns for individual companies are usually
realistic given that our seven-step research process gives us high levels of
knowledge about each company under consideration. As all of our research and
portfolio management requirements are
<PAGE>
consistently applied, average annual returns from our portfolios have typically
been similar to the returns required from individual stocks considered for the
Fund. This was also the case for the Fund in its first year of operation.
As mentioned above, the Fund's first year return was attractive compared with
historical market returns and it was in line with our objectives. The reason we
have mixed feelings, however, is that the stock market's return during our
first year in operation was among the highest 12-month returns ever recorded.
The two most relevant indexes given our Fund's emphasis on mid-cap and small-
cap stocks are the Standard & Poor's Mid-Cap 400 index and the Russell 2000
Small-Cap index which increased 39.32 percent and 28.58 percent, respectively,
during the period from the Fund's inception date of August 12, 1996 through the
end of the fiscal year on July 31, 1997. Although we regret that our
structured, controlled, and disciplined investment process did not achieve such
high returns in the past year's strongly advancing market, we believe that over
an entire market cycle our "growth at a reasonable price" approach should
produce attractive returns while also having less risk than many other growth
mutual funds.
There are a number of reasons why I believe the Fund did not keep up with
overall market averages during the very high returns of the last year and they
are described below.
The stocks we buy are usually within a universe of companies having annual
growth rates of between 15 percent to 30 percent with the average growth rate
typically being between 20 and 25 percent. These growth rates are actually
lower than market returns in the past year. For risk management purposes we
will not normally buy companies with extremely rapid current growth rates. To
have achieved the higher returns of the past year we would have had to either
raise the risk profile of the Fund's portfolio by buying more rapidly growing
companies or to have assumed that speculatively high price/earnings ratios for
our portfolio companies were more appropriate than the more conservative
price/earnings ratios which we normally use.
Our return objectives are also lower than the market returns obtained in the
past year. Our research indicates that if the Fund continues to achieve average
annual returns in line with our objectives that cumulative performance should
compare favorably to funds with similar objectives. Accordingly, we will
typically sell stocks once they have achieved what we believe to be reasonable
returns in line with our objectives. We believe our clients will normally
prefer this choice of action rather than to have the Fund bear the additional
risk that a stock will advance further to what we regard as unreasonable and
speculative price levels.
The market in the past year has also seemed to pay less attention than usual to
fair valuation levels for many stocks. Due to large amounts of new cash flowing
into mutual funds, we believe many mutual fund managers are aggressively
bidding up growth stock prices to speculative levels merely to keep their
portfolios fully invested. Our investment process requires us to consider each
new purchase according to the criteria of our return-based buy discipline. In a
valuation insensitive market, however, such individual
<PAGE>
disciplines can result in our portfolios not "riding the wave" along with other
valuation insensitive investors. Relative performance may be lost in the short-
term with such disciplines but we believe the intermediate to long-term
benefits of maintaining the integrity of our lower risk approach to growth
stock investing should produce an attractive balance between risk and return.
Although we have mixed feelings about our results in our first year, we also
have strong grounds for enthusiasm looking forward. Our typical portfolio
characteristics of having a weighted average price/earnings ratio of 15-times
current year earnings and a weighted average earnings growth rate above 20
percent remain intact even with the valuation inflation in the market during
the past year. Many growth oriented funds have average price/earnings ratios
above 25-times earnings and so I believe our Fund possesses more attractive
valuation characteristics than many other growth mutual funds.
There is also increasing amounts of commentary about smaller stocks being very
attractively valued as compared with larger capitalization stocks. Smaller
stocks as measured by the performance of the Russell 2000 Small-Cap index have
now underperformed the Standard & Poor's 500 index since the beginning of 1994.
Although there is no guarantee that such relative performance will
automatically change, the valuation versus growth characteristics for our
portfolio discussed above suggest the potential attractiveness of smaller
growth companies.
Given such potentially attractive characteristics, the Fund is also currently
invested a bit more heavily in smaller capitalization stocks relative to mid-
cap stocks than we originally anticipated when we started the Fund one year
ago. The Fund's average market capitalization is currently around $500 million
which is at the lower end of the range originally communicated as a universe
for the major portion of the Fund's investments. Accordingly, the Fund's
prospectus will be modified in our next annual filing with the Securities and
Exchange Commission to reflect our new targeted investment universe as being
companies between $50 million and $5 billion in market capitalization. Even
with the Fund possibly having more smaller capitalization companies, however,
we still anticipate the Fund's average market capitalization to remain in a
range between $400 million to $600 million.
In closing, I would again like to thank all of the individuals who have
contributed to the Fund's success. I would also like to mention that we are
happy to hear from any of our Fund's investors if you would ever like an update
on the Fund's investing activities.
Yours truly,
/s/ Kevin L. Wenck
President
Distributed by FPS Broker Services, Inc., 3200 Horizon Drive, King of Prussia,
PA 19406 - DFU 9/97
<PAGE>
POLYNOUS GROWTH FUND
SCHEDULE OF INVESTMENTS JULY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
---------- ------------
<C> <S> <C>
COMMON STOCKS - 98.52%
BASIC INDUSTRIES/MATERIALS - 2.31%
11,600 Mueller Industries, Inc.*............................ $ 520,550
------------
CAPITAL GOODS - 6.50%
15,900 American Buildings Co.*.............................. 477,000
8,500 Kaydon Corp. ........................................ 538,156
12,400 NCI Building Systems, Inc.*.......................... 447,950
------------
1,463,106
------------
CONSUMER DURABLES - 3.57%
44,300 Marker International*................................ 188,275
75,800 Meade Instruments Corp.*............................. 615,875
------------
804,150
------------
CONSUMER NON-DURABLES - 8.54%
4,800 Lancaster Colony Corp. .............................. 248,400
75,400 Lifetime Hoan Corp.*................................. 650,325
54,200 Q.E.P. Company, Inc.*................................ 453,925
27,100 Quaker Fabric Corp.*................................. 569,100
------------
1,921,750
------------
CONSUMER SERVICES - 35.43%
30,000 Apple South, Inc..................................... 476,250
54,600 Finish Line, Inc., Class A*/1/....................... 737,100
28,500 Friedman's Inc., Class A*............................ 438,188
27,700 Global DirectMail Corp.*/1/.......................... 723,663
22,800 Lone Star Steakhouse & Saloon, Inc.*................. 540,075
39,000 Marks Bros. Jewelers, Inc.*.......................... 502,125
15,000 Metro Networks, Inc.*................................ 485,625
73,000 Nashville Country Club, Inc.*........................ 305,687
28,100 OfficeMax, Inc.*..................................... 393,400
21,600 Outback Steakhouse, Inc.*............................ 538,650
10,000 Proffitt's, Inc.*.................................... 530,000
36,900 Rio Hotel and Casino, Inc.*.......................... 650,363
60,700 RMH Teleservices, Inc.*.............................. 402,137
25,900 Scientific Games Holdings Corp.*..................... 464,581
26,100 Sports Authority, Inc.*.............................. 466,537
11,800 Superior Industries International, Inc. ............. 320,075
------------
7,974,456
------------
ENERGY - 2.53%
28,300 Belco Oil & Gas Corp.*............................... 569,537
------------
</TABLE>
<PAGE>
POLYNOUS GROWTH FUND
SCHEDULE OF INVESTMENTS JULY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
---------- ------------
<C> <S> <C>
COMMON STOCKS - CONTINUED
FINANCE - 8.68%
26,000 Agree Realty Corp. .................................. $ 533,000
27,700 Equity Inns, Inc. ................................... 387,800
5,000 Hartford Life, Inc., Class A*........................ 205,625
23,200 Net.B@nk, Inc.*...................................... 271,874
30,400 RFS Hotel Investors, Inc. ........................... 554,800
------------
1,953,099
------------
HEALTH CARE - 17.01%
23,200 ADAC Laboratories.................................... 452,400
23,500 American Retirement Corp.*........................... 475,875
11,900 Coherent, Inc.*...................................... 583,100
28,000 CONMED Corp.*........................................ 479,500
6,300 Cooper Companies, Inc.*.............................. 176,400
33,000 Healthcare Recoveries, Inc.*......................... 602,250
15,000 Lumisys, Inc.*....................................... 116,250
26,200 Lunar Corp.*......................................... 530,550
54,000 Zoll Medical Corp.*.................................. 411,750
------------
3,828,075
------------
TECHNOLOGY - 12.46%
12,100 Active Voice Corp.*.................................. 152,763
26,000 Aspect Telecommunications Corp.*..................... 549,656
57,200 Auspex Systems, Inc.*/1/............................. 629,200
16,400 Dallas Semiconductor Corp. .......................... 640,625
33,600 DataWorks Corp.*..................................... 483,000
7,600 Mercury Interactive Corp.*/1/........................ 135,375
10,000 PairGain Technologies, Inc.*/1/...................... 215,000
------------
2,805,619
------------
TRANSPORTATION - 1.49%
11,900 ASA Holdings, Inc.................................... 336,175
------------
TOTAL COMMON STOCKS (COST $19,704,242)............... 22,176,517
------------
</TABLE>
<PAGE>
POLYNOUS GROWTH FUND
SCHEDULE OF INVESTMENTS JULY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
<C> <S> <C>
SHORT-TERM INVESTMENTS - 0.81%
$181,197 The Bank of New York Cash Reserve, 4.60% ........... $ 181,197
------------
TOTAL SHORT TERM INVESTMENTS (COST $181,197) ....... 181,197
------------
TOTAL INVESTMENTS (COST $19,885,439**) - 99.33% .... 22,357,714
OTHER ASSETS, LESS OTHER LIABILITIES - 0.67% ....... 151,341
------------
NET ASSETS - 100.00% ............................... $ 22,509,055
============
/1/Investments held in escrow as collateral for open option contracts.
*Non-income producing security
**Cost for Federal income tax purposes is $19,885,439 and net unrealized
appreciation consists of:
Gross unrealized appreciation....................... $ 2,658,344
Gross unrealized depreciation....................... (186,069)
------------
Net unrealized appreciation......................... $ 2,472,275
============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
POLYNOUS GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at market value (Cost $19,885,439) (Note 1).......... $22,357,714
Receivables:
Investment securities sold...................................... 590,862
Capital stock sold.............................................. 112,561
Dividends and interest.......................................... 160,330
Reimbursement due from Adviser.................................. 22,062
Deferred organization costs (Note 1)............................. 60,506
Other assets..................................................... 7,974
-----------
TOTAL ASSETS................................................... 23,312,009
-----------
LIABILITIES:
Payables:
Investment securities purchased................................. 645,503
Capital stock redeemed.......................................... 12,694
Accrued expenses................................................ 29,762
Accrued distribution expense.................................... 4,526
Option contracts written (Proceeds $100,654) (Note 4)............ 110,469
-----------
TOTAL LIABILITIES.............................................. 802,954
-----------
NET ASSETS:
Applicable to 1,568,072 shares; unlimited number of shares
of beneficial interest authorized with no par value............. $22,509,055
===========
Net asset value and redemption price ($22,509,055 / 1,568,072
shares)......................................................... $ 14.35
===========
Offering price per share ($14.35/0.9550)......................... $ 15.03
===========
NET ASSETS CONSIST OF:
Paid-in capital.................................................. $19,512,846
Accumulated undistributed net investment income.................. 1,505,354
Accumulated net realized loss on investments..................... (971,605)
Net unrealized appreciation on investments....................... 2,462,460
-----------
NET ASSETS..................................................... $22,509,055
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
POLYNOUS GROWTH FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 12, 1996*
THROUGH
JULY 31, 1997
INVESTMENT INCOME: ----------------
<S> <C>
Dividends.................................................... $1,722,473
Interest..................................................... 78,642
----------
TOTAL INCOME............................................... 1,801,115
----------
EXPENSES:
Investment advisory fees (Note 3)............................ 147,881
Administration fees.......................................... 54,008
Registration fees............................................ 45,663
Distribution expense (Note 3)................................ 36,970
Transfer agent fees.......................................... 34,780
Accounting fees.............................................. 23,052
Professional fees............................................ 22,733
Custodian fees............................................... 15,603
Amortization of organization costs (Note 1).................. 14,494
Directors' fees.............................................. 4,000
Insurance expense............................................ 3,104
Miscellaneous fees........................................... 1,353
----------
TOTAL EXPENSES............................................. 403,641
Expenses reimbursed by Adviser (Note 3).................... (107,880)
----------
NET EXPENSES............................................... 295,761
----------
NET INVESTMENT INCOME......................................... 1,505,354
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments............................. (942,391)
Net change in unrealized appreciation on investments......... 2,462,460
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............ 1,520,069
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $3,025,423
==========
</TABLE>
*Commencement of investment operations.
See accompanying notes to financial statements.
<PAGE>
POLYNOUS GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 12, 1996*
THROUGH
JULY 31, 1997
OPERATIONS: ----------------
<S> <C>
Net investment income........................................ $ 1,505,354
Net realized loss on investments............................. (942,391)
Net change in unrealized appreciation on investments......... 2,462,460
------------
Net increase in net assets resulting from operations......... 3,025,423
------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net capital gains............................................ (29,214)
------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold.................................... 24,708,409
Reinvestment of dividends.................................... 26,628
Cost of shares redeemed...................................... (5,406,152)
------------
Increase in net assets derived from capital share
transactions (a)............................................ 19,328,885
------------
TOTAL INCREASE IN NET ASSETS............................... 22,325,094
------------
NET ASSETS:
Beginning of period.......................................... 183,961
------------
End of period................................................ $ 22,509,055
============
(a)Transactions in capital stock were:
Shares sold................................................. 1,977,549
Shares issued through reinvestment of dividends............. 2,107
Shares redeemed............................................. (426,914)
------------
Increase in shares outstanding................................ 1,552,742
============
</TABLE>
*Commencement of investment operations.
See accompanying notes to financial statements.
<PAGE>
POLYNOUS GROWTH FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for one share of capital stock
outstanding throughout the period presented.
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 12, 1996*
THROUGH
JULY 31, 1997
----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................... $ 12.00
--------
Income from investment operations:
Net investment income........................................ 0.96
Net realized and unrealized gain on investments.............. 1.41
--------
Total from investment operations............................ 2.37
--------
Less distributions from:
Net capital gains............................................ (0.02)
--------
NET ASSET VALUE, END OF PERIOD................................ $ 14.35
========
TOTAL RETURN+................................................. 20.53% /1/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s).......................... $ 22,509
Ratio of expenses to average net assets:
Before expense reimbursement................................ 2.73% /1/
After expense reimbursement................................. 2.00% /1/
Ratio of net investment income to average net assets:
Before expense reimbursement................................ 9.44%/1/
After expense reimbursement................................. 10.17% /1/
Portfolio turnover rate...................................... 925.07% /2/
Average commission rate paid................................. $ 0.0308
</TABLE>
*Commencement of investment operations.
+Total return calculation does not reflect sales load.
/1/Annualized.
/2/Not Annualized.
See accompanying notes to financial statements.
<PAGE>
POLYNOUS GROWTH FUND
NOTES TO FINANCIAL STATEMENTS JULY 31, 1997
- -------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Polynous Trust (the "Trust" ) is organized as a Delaware business trust
pursuant to a Trust Agreement dated April 10, 1996. The Trust is registered
under the Investment Company Act of 1940, as amended, as an open-end,
diversified management investment company. The Trust is organized to offer
separate series of shares and is currently offering a single series of shares
called Polynous Growth Fund (the "Fund"). The Fund is organized to offer
separate classes of shares and currently offers one class (Class A). The
following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
A. SECURITY VALUATION. Investments in securities traded on a national
securities exchange are valued at the last reported sales price. Unlisted
securities, or listed securities in which there were no sales, are valued at
the mean of the closing bid and ask prices. When market quotations are not
readily available, securities and other assets are valued at fair value as
determined in good faith by the Board of Trustees. Short-term obligations
having a maturity of 60 days or less are valued at amortized cost, which the
Board of Trustees believes represents fair value.
B. OPTIONS. Premiums received by the Fund upon writing put or call options are
recorded as an asset with a corresponding liability which is subsequently
adjusted to the current market value of the option. When an option expires, is
exercised, or is closed, the Fund realizes a gain or loss, and the liability
is eliminated. The risk in writing a call option is that the Fund may forego
the opportunity of profit if the market value of the underlying security
increases and the option is exercised, although any potential loss would be
reduced by the amount of option premium received.
C. INVESTMENT INCOME AND SECURITIES TRANSACTIONS. Security transactions are
accounted for on the date the securities are purchased or sold (trade date).
Cost is determined and gains and losses are based on the identified cost basis
for both financial statement and federal income tax purposes. Dividend income
is reported on the ex-dividend date. Interest income and expenses are accrued
daily.
D. ORGANIZATION COSTS. Organization costs are being amortized on a straight
line basis over five years from commencement of operations.
E. FEDERAL INCOME TAXES. It is the policy of the Fund to comply with all
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no Federal income tax provision is required.
F. DISTRIBUTIONS TO SHAREHOLDERS. The Fund will distribute substantially all
of its net investment income in December, and capital gains, if any, annually.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
G. USE OF ESTIMATES. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
<PAGE>
POLYNOUS GROWTH FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED JULY 31, 1997
- -------------------------------------------------------------------------------
NOTE 2 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term investments, totaled
$146,953,614 and $126,205,445, respectively, for the period ended July 31,
1997.
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Polynous Capital Management, Inc. (the "Adviser"), a registered investment
adviser, provides the Fund with investment management services. For providing
investment advisory services, the Fund pays the Adviser a monthly fee which is
calculated by applying the following annual rates: 1.00% of the first $100
million of average net assets, 0.75% of the next $150 million, 0.60% of the
next $250 million, 0.50% of the next $500 million, and 0.40% of all amounts of
average net assets above $1 billion. The Adviser has voluntarily agreed to
waive its fees to the extent total annualized fund operating expenses,
inclusive of distribution expenses, exceed 2.00% of the Fund's average daily
net assets. For the period ended July 31, 1997, advisory fees of $147,881 were
paid to the Adviser and the Adviser reimbursed the Fund $107,880. The Fund has
adopted a Distribution Plan (the "Plan"), pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, which permits the Fund to pay
certain expenses associated with the distribution of its shares. The Plan
provides that the Fund will reimburse FPS Broker Services, Inc. (the
"Distributor"), the Fund's sole underwriter and distributor, for actual
distribution and shareholder servicing expenses incurred by the Distributor
not exceeding, on an annual basis, 0.25% of the Fund's average daily net
assets. For the period ended July 31, 1997, the Fund reimbursed the
Distributor $36,970 for distribution costs incurred. Certain officers and
trustees of the Fund are affiliated persons of the Adviser. All officers serve
without direct compensation from the Fund.
NOTE 4 - OPEN OPTION CONTRACTS WRITTEN
Transactions in call options for Polynous Growth Fund for the period ended
July 31, 1997 were as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE EXPIRATION
ISSUER CONTRACTS PRICE DATE VALUE
- ------ --------- -------- ---------- --------
<S> <C> <C> <C> <C>
Auspex Systems, Inc..................... 10 $12.50 10/18/97 $ 1,250
Finish Line, Inc. Class A............... 100 12.50 9/20/97 19,375
Global DirectMail Corp.................. 100 25.00 9/20/97 30,000
Mercury Interactive Corp................ 75 17.50 10/18/97 21,094
PairGain Technologies, Inc.............. 100 20.00 10/18/97 38,750
--------
$110,469
========
</TABLE>
<PAGE>
POLYNOUS GROWTH FUND
ILLUSTRATION OF $10,000 INVESTMENT
- --------------------------------------------------------------------------------
The graph below compares the increase in value of a $10,000 investment in the
Polynous Growth Fund with the performance of the Russell 2000 Index. The values
and returns for Polynous Growth Fund include reinvested dividends, and the
impact of the maximum sales charge placed on purchases.
LOGO
Average Annual Total Return
for the period ending 7/31/97
Since Inception........14.93%
POLYNOUS RUSSELL 2000
GROWTH INDEX*
-------------------------------
08/12/96 9,550 10,000
10/31/96 9,693 10,417
01/31/97 10,348 11,371
04/30/97 9,806 10,600
07/31/97 11,441 12,858
Past performance is not indicative of future results.
<PAGE>
POLYNOUS GROWTH FUND
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
The Board of Trustees and Shareholders,
Polynous Growth Fund
(a series of Polynous Trust):
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Polynous Growth Fund (the "Fund") as
of July 31, 1997 and the related statements of operation, changes in net
assets and financial highlights for the period August 12, 1996 (commencement
of investment operations) to July 31, 1997. These financial statements and
financial highlights are the responsibility of the Funds management. Our
responsibility is to express an opinion of these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of July 31, 1997 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Polynous Growth
Fund at July 31, 1997, the results of its operations, the changes in its net
assets and financial highlights for the period presented in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
San Francisco, California
August 20, 1997
<PAGE>
BOARD OF TRUSTEES OFFICERS
Kevin L. Wenck Kevin L. Wenck
Richard H. Kimball Erin Fry Sinclair
Ronald H. Kase
INVESTMENT ADVISER SHAREHOLDER SERVICES
Polynous Capital Management, Inc. FPS Services, Inc.
88 Kearny Street, Suite 1300 3200 Horizon Drive
San Francisco, CA 94108 King of Prussia, PA 19406
(800) 924-3863 (800) 528-8069
(415) 956-3384 (610) 239-4600
UNDERWRITER LEGAL COUNSEL
FPS Broker Services, Inc. Paul, Hastings, Janofsky & Walker LLP
3200 Horizon Drive 345 California Street
King of Prussia, PA 19406 San Francisco, CA 94104
CUSTODIAN INDEPENDENT AUDITORS
The Bank of New York Deloitte & Touche LLP
48 Wall Street 50 Fremont Street
New York, NY 10286 San Francisco, CA 94105
For Additional Information about Polynous Growth Fund call:
(800) 924-3863
(415) 956-3384
or Access our Internet Web Site at www.polynous.com
THIS REPORT IS SUBMITTED FOR GENERAL INFORMATION OF THE SHAREHOLDERS OF THE
FUND. IT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE
FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS WHICH INCLUDES
DETAILS REGARDING THE FUND'S OBJECTIVES, POLICIES, EXPENSES AND OTHER
INFORMATION.
