<PAGE>
February 28, 1997
Dear Shareholder of The Palladian-Registered Trademark- Trust:
Congratulations on your purchase of The Fulcrum Fund variable annuity and the
underlying portfolios of The Palladian Trust ("Trust"). We are pleased to
provide you with the Trust's 1996 Annual Report.
The Palladian Portfolios try to offer real world solutions to such important
investor concerns as: (1) conflicts of interest between Portfolio Managers and
Shareholders, (2) results based compensation for Portfolio Managers and (3)
continual independent evaluation of each Portfolio Manager. Following is a
summary of how we are addressing these important issues.
1. INVESTMENT. Each Portfolio Manager has contractually agreed to invest $1
million in their respective portfolio. This requirement attempts to better
align the interests of the Portfolio Managers with each Shareholder. In effect,
once the investment is made, each Portfolio Manager is managing their money
along with each of the Shareholders of The Palladian Trust.
2. COMPENSATION. The Palladian portfolios try to replicate the real world in
that each Portfolio Manager, after the first year of operations, is paid on an
incentive fee basis or "fulcrum fee." What this means to our shareholders is
that the Portfolio Managers' compensation is tied to their ability to outperform
their respective benchmark. If they do so, they will earn higher than average
compensation. However, if they underperform, they could potentially receive no
compensation at all. What mutual fund today has this type of feature? To our
knowledge, we are the first.
3. INDEPENDENT CONSULTANT. Tremont Partners is an independent investment
consulting firm that will continually monitor performance, make periodic reports
and recommendations about existing Portfolio Managers. This type of continual
independent review will assist in maintaining the highest quality of investment
managers within The Palladian Trust. In addition, Tremont's compensation is
calculated in the same manner as the Portfolio Managers. Another check and
balance to make sure we have the best firms managing our money.
This Annual Report contains information on the performance of the Portfolios.
Enclosed are discussions by each Portfolio Manager on the performance of their
respective Portfolio, as well as graphs comparing the Portfolio's performance to
their benchmarks. Following these analyses are audited financial statements and
a listing of the individual
<PAGE>
securities held by each Portfolio. Overall, this Annual Report should give you
a comprehensive view of our performance in managing your investments.
With the decline in corporate pensions and the growing concerns about the Social
Security system in conjunction with longer life expectancies, variable insurance
programs offer unique tax-advantaged solutions for Americans who want to build,
manage, derive income from and transfer their nest eggs. The Palladian Trust is
committed to being a part of these solutions.
Thank you for your support of The Fulcrum Fund and The Palladian Trust.
Sincerely,
Matthew Stacom H. Michael Schwartz
Chairman President
The Palladian Trust The Palladian Trust
<PAGE>
THE VALUE PORTFOLIO &
THE GLOBAL INTERACTIVE / TELECOMM PORTFOLIO
In 1996 the U.S. equity markets staged an impressive rally. Moderate
economic growth, low inflation and interest rates, solid corporate profits, and
strong cash flows into equities mutual funds combined to power the market's
momentum. However, it was a narrow band of large capitalization companies that
dominated the rally in U.S. stocks as evidenced by the divergence in the S&P 500
and the small capitalization Russell 2000.
Several themes in your portfolio worked well including our investment in
companies tied to the aircraft cycle. Meanwhile, media and communication stocks
remain undervalued, as investors focused on companies with visible earnings
growth.
We anticipate 1997 will be another good year for the U.S. economy with
modest economic growth at 2-2 1/2% and inflation at 3-3 1/2%. We expect long
term interest rates to remain near their current level or to edge slightly
higher. Using this as a backdrop, we envision a stock market that will hover in
a plus or minus 10% range.
Our focused approach to the U.S. equity market should enable us to produce
value added results. There is a strong global appetite for extending product
lines and distribution systems via acquisitions. At the same time, corporate
managements that expect to remain independent are under pressure to surface the
value of their businesses by selling underperforming divisions, spinning off
assets, and repurchasing shares. The bottom line is that calendar 1997 looks
like a wonderful time to be picking stocks.
GAMCO INVESTORS, INC.
MANAGER OF THE VALUE PORTFOLIO &
GLOBAL INTERACTIVE/TELECOMM PORTFOLIO
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE VALUE PORTFOLIO AND S&P 500 INDEX
[GRAPH]
DATE VALUE S&P 500
---- ----- -------
01/31/96 10,000 10,000
02/29/96 9,990 10,093
03/31/96 10,210 10,190
04/30/96 10,250 10,340
05/31/96 10,780 10,607
06/30/96 10,840 10,647
07/31/96 9,800 10,177
08/31/96 10,060 10,391
09/30/96 11,060 10,976
10/31/96 11,160 11,279
11/30/96 11,460 12,132
12/31/96 11,513 11,891
RETURN 15.13% 18.91%
Past performance is not predictive of future performance. Persons who
invest in the Portfolio through a variable annuity contract should note this
graph does not reflect separate account expenses deducted by the insurance
company.
----------
* Portfolio's inception date
S&P 500 INDEX
Capitalization weighted index of 500 large stocks, representing
approximately 70% of the broad U.S. equity markets. Membership is decided upon
by the Standard & Poor's 500 committee. The index is calculated on a total
return basis, which includes reinvestment of gross dividends before deduction of
withholding taxes.
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE GLOBAL INTERACTIVE/TELECOMM PORTFOLIO AND S&P 500 INDEX
[GRAPH]
DATE GLOBAL INTERACTIVE / TELECOMM S&P 500
---- ----------------------------- -------
01/31/96 10,000 10,000
02/29/96 9,970 10,093
03/31/96 9,950 10,190
04/30/96 10,140 10,340
05/31/96 9,980 10,607
06/30/96 9,720 10,647
07/31/96 8,890 10,177
08/31/96 9,170 10,391
09/30/96 10,030 10,976
10/31/96 9,890 11,279
11/30/96 10,190 12,132
12/31/96 10,048 11,891
RETURN 0.48% 18.91%
Past performance is not predictive of future performance. Persons who
invest in the Portfolio through a variable annuity contract should note this
graph does not reflect separate account expenses deducted by the insurance
company.
----------
* Portfolio's inception date
S&P 500 INDEX
Capitalization weighted index of 500 large stocks, representing
approximately 70% of the broad U.S. equity markets. Membership is decided upon
by the Standard & Poor's 500 committee. The index is calculated on a total
return basis, which includes reinvestment of gross dividends before deduction of
withholding taxes.
<PAGE>
THE GROWTH PORTFOLIO
The U.S. equity market in 1996 continued to benefit from quiescent
inflation, stable economic growth and attractive real rates of return compared
with most other industrialized nations. As a result, the stock market was
buoyed by vigorous investment from overseas. One result of this flow of funds
was superior relative performance by larger capitalization, visible, listed
securities.
From an industry point of view, the most successful area of investment was
financial services, which at year-end 1996 accounted for 11.5% of the portfolio.
A combination of lower loan loss provisions, stable margins and industry
consolidation were all helpful. Less successful were investments in the retail
industry (8.6% of the portfolio at December 31). Pricing pressures in the
office products sector of retailing caused investor concern about margin
erosion. To date, there is little evidence that earnings will actually be
meaningfully hampered, but valuations have fallen. Health care was an area of
strong outperformance. However, the portfolio was somewhat underrepresented in
this group, which accounted for only 6.7% of the portfolio at year-end. We had
been concerned that the strong dollar might dampen investor enthusiasm for the
multinational drug stocks, but we were proven wrong. Apparently the appetite
for predictable, large cap growth stocks outweighed, at least for a time,
worries about currency and its impact on future earnings.
One area which we avoided was natural resources. On the one hand, these
companies typically do not fit our growth profile. Further, our conviction that
inflationary pressures would remain benign caused us to be particularly wary of
commodity related industries. While we believe this strategy was generally
correct, it did not serve us well in the case of the oil industry. This was an
area that performed well, and our token exposure of only 1.9% of the portfolio
hurt relative performance. Our exposure to technology was quite large at
year-end, accounting for more than 20% of total assets, though there was
considerable diversification within the broad sector. Emerging pricing pressure
in the hub and router markets caused stocks like Cisco and Cabletron (both of
which have been sold) to perform poorly in the fourth quarter.
Going forward, the relative performance of smaller capitalization growth
stocks will improve versus the more widely recognized giants whose stock prices
already reflect their growth prospects. The timing of this sea change is
impossible to pinpoint. One plausible scenario would be that the smaller cap
universe will begin to outperform in anticipation of comparatively stronger
second quarter profit growth. Such superior profitability would reflect the
adverse impact of a rising dollar on multinational giants, a factor which will
be its most powerful by mid-1997.
STONEHILL CAPITAL MANAGEMENT, INC.
MANAGER OF THE GROWTH PORTFOLIO
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE GROWTH PORTFOLIO AND S&P 500 INDEX
[GRAPH]
DATE GROWTH S&P 500
---- ------ -------
01/31/96 10,000 10,000
02/29/96 11,520 10,093
03/31/96 10,170 10,190
04/30/96 10,840 10,340
05/31/96 10,800 10,607
06/30/96 9,410 10,647
07/31/96 8,240 10,177
08/31/96 8,470 10,391
09/30/96 11,420 10,976
10/31/96 10,680 11,279
11/30/96 11,210 12,132
12/31/96 10,840 11,891
RETURN 8.40% 18.91%
Past performance is not predictive of future performance. Persons who
invest in the Portfolio through a variable annuity contract should note this
graph does not reflect separate account expenses deducted by the insurance
company.
----------
* Portfolio's inception date
S&P 500 INDEX
Capitalization weighted index of 500 large stocks, representing
approximately 70% of the broad U.S. equity markets. Membership is decided upon
by the Standard & Poor's 500 committee. The index is calculated on a total
return basis, which includes reinvestment of gross dividends before deduction of
withholding taxes.
<PAGE>
THE INTERNATIONAL GROWTH PORTFOLIO
Overall, 1996 was another successful year for investors as many of the
global equity markets continued to reach new highs. Low inflation coupled with
solid economic growth provided a favorable backdrop for stocks around the world,
which was especially apparent in the more developed financial market of the
United States and Europe.
The European markets displayed strong performance as tighter fiscal
policies fueled a lower interest rate environment. Growing optimism concerning
economic and monetary union, as well as genuine progress towards corporate
restructuring and cost rationalization, bolstered investor confidence in
European competitiveness. Yet most of Continental Europe has struggled with
high unemployment and anemic economic activity, supporting a relaxed monetary
stance by the Central Banks. Given this scenario, we are generally constructive
on the overall investment climate throughout the region looking into 1997. In
particular, we are excited by the steadily expanding universe of new investment
ideas, created as rapidly growing, small to medium-sized companies tap the
resources of the European equity markets. With diligent study and research,
this trend should provide a wealth of opportunities for those of us focused on
international stocks with a smaller market capitalization.
In the Asia Pacific region, the environment was markedly more difficult.
Japan continued to be plagued by fiscal woes and languishing growth, and has yet
to confront the numerous structural problems inherent in its economy. Despite
its underperformance, we still do not feel that valuations in the Japanese
market are yet compelling enough to warrant significant investment. Meanwhile,
in the emerging markets of the Pacific Rim, prospects of slowing export growth
and rising deficits have sparked investor concern. Thailand has been embroiled
with mounting issues on the economic, social, and political front; Singapore has
fallen victim to the weak demand for electronics around the world. A rare
bright spot in the region has been Hong Kong, where worries regarding the July
1997 transition to China seem to be abating, causing investors to focus on the
earnings-driven recovery and easing economic policies of the Chinese government.
We continue to find some very good companies in the Asian region trading at
attractive valuations---ever mindful, however, that the Asian markets are quite
susceptible to the volatility of US interest rates and currency.
Given current valuations and market conditions around the globe, it is
especially important to remain highly selective in evaluating investment
opportunities. We continue to believe strongly that investment in significantly
undervalued business franchises with solid profitability, defensible market
positions, and capable management teams, will prove to be very rewarding,
regardless of geography or prevailing macroeconomic issues.
BEE & ASSOCIATES, INC.
MANAGER OF THE INTERNATIONAL GROWTH PORTFOLIO
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE INTERNATIONAL GROWTH PORTFOLIO AND MORGAN STANLEY EAFE INDEX
CAPITAL INTERNATIONAL -- EUROPE, AUSTRALIA, FAR EAST INDEX
[GRAPH]
DATE INTL. GROWTH EAFE
---- ------------ ----
03/25/96 10,000 10,000
03/31/96 9,990 9,892
04/30/96 9,280 10,355
05/31/96 7,960 10,151
06/30/96 7,270 10,195
07/31/96 6,300 9,884
08/31/96 5,520 9,892
09/30/96 9,810 10,141
10/31/96 10,180 10,024
11/30/96 10,600 10,409
12/31/96 10,513 10,262
RETURN 5.13% 2.62%
Past performance is not predictive of future performance. Persons who
invest in the Portfolio through a variable annuity contract should note this
graph does not reflect separate account expenses deducted by the insurance
company.
----------
* Portfolio's inception date
MORGAN STANLEY CAPITAL INTERNATIONAL --
EUROPE, AUSTRALIA, FAR EAST INDEX
The arithmetic, market value-weighted average of the performance of over
900 securities listed on the stock exchanges of the following 18 countries:
Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Italy, Japan, Netherlands, New Zealand, Norway, Singapore/Malaysia, Spain,
Sweden, Switzerland, and the United Kingdom. The Index is calculated on a total
return basis, which includes reinvestment of gross dividends before deduction of
withholding taxes.
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
Global financial market and real economic conditions created the ideal
environment for a further decline in bond yields. The bias to US, German and
Japanese monetary policy was perceived as benign and accommodative; conversely,
the bias to fiscal policy was seen as uniformly restrictive. Global inflation
remained quiescent despite a modest rise in commodity prices.
Economic activity during the fourth quarter was generally weaker than
expected and seemed to assure the prolongation of a low interest rate
environment; both bond and equity markets were beneficiaries. US Treasury bond
yields declined 40 basis points as expectations of firmer monetary policy were
priced out of the market; a major factor was weak consumption data at the
beginning of the quarter. Canadian and Australian bond markets followed suit
and spreads contracted to reflect relatively weaker growth.
The Bundesbank maintained open market rates at 3% in the context of
sluggish production data and a sense that the fiscal requirements of European
monetary union would impede growth during 1997. As a result German bond yields
fell up to 30 basis points. Other European yields declined further as the
Italian, Spanish and Swedish central banks all reduced official short interest
rates. Only the Bank of England approved tightening in monetary policy as the
Base Rate was raised 25 basis points to reflect GDP growth of above 3% and
consumption growth well in excess of 4%. Gilt yields rose in tandem. Prospects
for fiscal contraction in 1997 dominated the Japanese financial markets. Bond
yields stayed at very low levels because short rates were expected to remain
static at least until the end of 1997.
Currencies remained in a low volatility environment during the fourth
quarter but there were more pronounced trends than was the case during the third
quarter. The currencies of low-interest rate economies depreciated. The
Japanese yen declined 4% and the Swiss franc declined 7% against the US dollar
in the face of sub-1% money market rates and stagnant domestic economies. Both
the Bank of Japan and the Swiss National Bank appeared to encourage weaker
trade-weighted exchange rates. Within Europe, higher yielding currencies
remained stable against the deutschmark as several central banks reduced
official rates, but the Bundesbank did not. Sterling, the only major
non-exchange rate mechanism European currency following the re-entry of the
Italian lira, appreciated sharply as the market anticipated higher short rates,
strong domestic demand and a firm export sector at least until the end of the
quarter. Investors also believed that probable non-participation in monetary
union reduced the fiscal drag upon the UK economy. The US dollar continued to
appreciate against the yen and the deutschmark, benefiting partly by default,
but also upon the view that the US economy was likely to be the strongest of the
"big three."
Looking forward into 1997, we have a bias toward underweighting the US
Treasury market. Fourth quarter economic growth was stronger than expected and
the Federal Reserve appears set to persist with an asymmetric bias to monetary
policy. There
<PAGE>
have also been some glimmerings of inflationary pressure within the labour
market. Growth, inflation and job creation for 1996 all surpassed the Federal
Reserve's forecasts for 1996.
In our foreign exchange positions we have a bias toward overweighting the
US dollar and the higher yielding European currencies. As long as the trade
account does not deteriorate, the US dollar should benefit from relatively
stronger growth in North America than in Europe or the Far East. Neither the
Bundesbank nor the Bank of Japan has exhibited much interest in stronger
currencies at present and both may prefer steady to weak currencies to further
easing in interest rates. We expect the Spanish peseta to continue to
outperform the deutschmark and the Swiss franc based on the interest rate
differential and very limited scope for depreciation.
FISCHER FRANCIS TREES & WATTS, INC.
MANAGER OF THE GLOBAL STRATEGIC INCOME PORTFOLIO
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE GLOBAL STRATEGIC INCOME PORTFOLIO AND
J.P. MORGAN GLOBAL GOVERNMENT BOND INDEX, UNHEDGED
[GRAPH]
Date Global Strategic Income JP Morgan Govt. Bond
01/31/96 10,000 10,000
02/29/96 9,840 9,942
03/31/96 9,750 9,926
04/30/96 9,550 9,889
05/31/96 9,450 9,900
06/30/96 9,420 9,986
07/31/96 9,500 10,170
08/31/96 9,440 10,212
09/30/96 9,950 10,269
10/31/96 10,050 10,472
11/30/96 10,120 10,622
12/31/96 10,044 10,548
Return 0.44% 5.48%
Past performance is not predictive of future performance. Persons who
invest in the Portfolio through a variable annuity contract should note this
graph does not reflect separate account expenses deducted by the insurance
company.
* Portfolio's inception date
J.P. MORGAN GLOBAL GOVERNMENT BOND INDEX, UNHEDGED
Weighted by market capitalization and is comprised of 424 bonds with
maturities greater than one year in over 13 countries. Foreign currencies are
converted into dollars at spot rates which gives the index exposure to both bond
and currency markets.
<PAGE>
THE PALLADIAN TRUST
STATEMENTS OF ASSETS AND LIABILITIES
FOR THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GLOBAL GLOBAL
INTERNATIONAL STRATEGIC INTERACTIVE /
VALUE GROWTH GROWTH INCOME TELECOMM
PORTFOLIO * PORTFOLIO * PORTFOLIO ** PORTFOLIO * PORTFOLIO *
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments:
At identified cost . . . . . . . . . . . . . . . . . . $651,443 $111,691 $53,749 $820,322 $400,284
-------- -------- --------- ---------- --------
-------- -------- --------- ---------- --------
At value . . . . . . . . . . . . . . . . . . . . . . . $703,419 $120,181 $56,843 $795,873 $403,225
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 133,546 0 4,532 323,889 139,371
Receivables:
Interest and dividends . . . . . . . . . . . . . . . . 1,434 62 27 19,492 846
Investments sold . . . . . . . . . . . . . . . . . . . 0 0 18,218 83,908 0
Forward foreign exchange contracts to buy . . . . . . ---- ---- ---- 415,657 ----
Forward foreign exchange contracts to sell . . . . . . ---- ---- ---- 177,916 ----
Expense reimbursements . . . . . . . . . . . . . . . . 40,166 26,018 23,053 46,749 33,568
Capital contribution from advisor. . . . . . . . . . . 51,907 49,230 34,947 52,077 40,662
Unamortized organization costs . . . . . . . . . . . . . 19,434 19,434 20,074 19,434 19,434
-------- -------- --------- ---------- --------
Total Assets . . . . . . . . . . . . . . . . . . . . . $949,906 $214,925 $157,694 $1,934,995 $637,106
-------- -------- --------- ---------- --------
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . . . $0 $0 $7,265 $185,081 $0
Due custodian. . . . . . . . . . . . . . . . . . . . . ---- 7,635 ---- ---- ----
Forward foreign exchange contracts to buy . . . . . . ---- ---- ---- 417,104 ----
Forward foreign exchange contracts to sell . . . . . . ---- ---- ---- 177,558 ----
Shares of beneficial interest purchased. . . . . . . . 438 217 152 84 144
Accrued expenses . . . . . . . . . . . . . . . . . . . 49,137 58,669 52,890 48,470 42,647
-------- -------- --------- ---------- --------
Total Liabilities. . . . . . . . . . . . . . . . . . . $49,575 $66,521 $60,307 $828,297 $42,791
-------- -------- --------- ---------- --------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . $900,331 $148,404 $97,387 $1,106,698 $594,315
-------- -------- --------- ---------- --------
-------- -------- --------- ---------- --------
NET ASSETS CONSIST OF:
Undistributed net investment income / (loss) . . . . . . $0 $0 $0 $0 $0
Unrealized appreciation (depreciation)
of investments . . . . . . . . . . . . . . . . . . . . 51,976 8,490 3,250 (36,223) 2,939
Accumulated net realized gain / (loss) . . . . . . . . . 0 (6,592) 0 0 0
Capital shares at par value. . . . . . . . . . . . . . . 848,355 146,506 94,137 1,142,921 591,376
-------- -------- --------- ---------- --------
Total Net Assets . . . . . . . . . . . . . . . . . . . $900,331 $148,404 $97,387 $1,106,698 $594,315
-------- -------- --------- ---------- --------
-------- -------- --------- ---------- --------
Shares of beneficial interest outstanding . . . . . . 82,761 13,690 9,431 110,919 59,414
-------- -------- --------- ---------- --------
-------- -------- --------- ---------- --------
NET ASSET VALUE, offering price and redemption
price per share of beneficial interest outstanding . . $10.88 $10.84 $10.33 $9.98 $10.00
-------- -------- --------- ---------- --------
-------- -------- --------- ---------- --------
</TABLE>
* COMMENCEMENT OF OPERATIONS FEBRUARY 1, 1996
** COMMENCEMENT OF OPERATIONS MARCH 26, 1996
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
1
<PAGE>
THE PALLADIAN TRUST
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GLOBAL GLOBAL
INTERNATIONAL STRATEGIC INTERACTIVE /
VALUE GROWTH GROWTH INCOME TELECOMM
PORTFOLIO * PORTFOLIO * PORTFOLIO ** PORTFOLIO * PORTFOLIO *
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends (Net of foreign withholding taxes
of $11, $59 and $138 for the Value,
International Growth and Global
Interactive / Telecomm) portfolio. . . . . . . . . . . $8,105 $96 $568 $0 $4,984
Interest . . . . . . . . . . . . . . . . . . . . . . . . 2,746 1,696 470 49,636 2,370
-------- -------- --------- ---------- --------
Total Investment Income . . . . . . . . . . . . . . . $10,851 $1,792 $1,038 $49,636 $7,354
EXPENSES
Amortization of organization costs . . . . . . . . . . . $4,204 $4,204 $3,563 $4,204 $4,204
Auditing fees. . . . . . . . . . . . . . . . . . . . . . 19,815 2,581 1,403 27,903 14,898
Custodian fees . . . . . . . . . . . . . . . . . . . . . 5,846 7,597 6,455 7,634 5,240
Insurance . . . . . . . . . . . . . . . . . . . . . . . 4,007 4,007 4,007 4,007 4,007
Legal fees . . . . . . . . . . . . . . . . . . . . . . . 11,938 1,555 845 16,810 8,976
Management & advisory fees . . . . . . . . . . . . . . . 5,158 646 336 7,622 3,991
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 466 62 33 656 351
Portfolio accounting fees . . . . . . . . . . . . . . . 35,000 35,000 35,000 35,000 35,000
Registration & filing fees . . . . . . . . . . . . . . . 4,314 562 305 6,075 3,243
Shareholders' expenses . . . . . . . . . . . . . . . . . 33 4 2 47 25
Trustees' fees and expenses. . . . . . . . . . . . . . . 4,954 645 351 6,976 3,725
-------- -------- --------- ---------- --------
Total Expenses . . . . . . . . . . . . . . . . . . . . $95,735 $56,863 $52,300 $116,934 $83,660
Less expense reimbursements. . . . . . . . . . . . . . . 40,166 26,018 23,053 46,749 33,568
-------- -------- --------- ---------- --------
Net Expenses . . . . . . . . . . . . . . . . . . . . . 55,569 30,845 29,247 70,185 50,092
-------- -------- --------- ---------- --------
NET INVESTMENT LOSS. . . . . . . . . . . . . . . . . . . ($44,718) ($29,053) ($28,209) ($20,549) ($42,738)
-------- -------- --------- ---------- --------
REALIZED AND UNREALIZED GAIN /
(LOSS) ON INVESTMENTS:
Net realized gain / (loss) from:
Security transactions . . . . . . . . . . . . . . . . $49,534 ($6,592) $1,042 $1,082 $2,887
Forward foreign exchange contracts . . . . . . . . . . ---- ---- 783 6,032 ----
Forward currency transactions. . . . . . . . . . . . . ---- ---- (123) (17) ----
Net change in unrealized appreciation / (depreciation) on:
Security transactions . . . . . . . . . . . . . . . . $51,976 $8,490 $3,249 ($24,448) $2,940
Forward foreign exchange contracts . . . . . . . . . . 0 0 0 (1,089) 0
Forward currency transactions. . . . . . . . . . . . . 0 0 0 (10,686) (1)
Net realized and unrealized gain / (loss) on investments $101,510 $1,898 $4,951 ($29,126) $5,826
-------- -------- --------- ---------- --------
NET INCREASE / (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . . $56,792 ($27,155) ($23,258) ($49,675) ($36,912)
-------- -------- --------- ---------- --------
-------- -------- --------- ---------- --------
</TABLE>
* COMMENCEMENT OF OPERATIONS FEBRUARY 1, 1996
** COMMENCEMENT OF OPERATIONS MARCH 26, 1996
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
<PAGE>
THE PALLADIAN TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GLOBAL GLOBAL
INTERNATIONAL STRATEGIC INTERACTIVE /
VALUE GROWTH GROWTH INCOME TELECOMM
PORTFOLIO * PORTFOLIO * PORTFOLIO ** PORTFOLIO * PORTFOLIO *
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income/ (loss). . . . . . . . . . . . . . ($44,718) ($29,053) ($28,209) ($20,549) ($42,738)
Net realized gain / (loss) on securities,
forward foreign exchange contracts and
foreign currency transactions. . . . . . . . . . . . . 49,534 (6,592) 1,702 7,097 2,887
Net unrealized gain / (loss) on securities,
forward foreign exchange contracts and
other assets and liabilities denominated
in foreign currencies. . . . . . . . . . . . . . . . . 51,976 8,490 3,249 (36,223) 2,939
-------- -------- --------- ---------- --------
Net increase / (decrease) in net assets
resulting from operations. . . . . . . . . . . . . . . $56,792 ($27,155) ($23,258) ($49,675) ($36,912)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income . . . . . . . . . . . . . . . . $0 $0 $0 $0 $0
Distribution from capital. . . . . . . . . . . . . . . (49,534) 0 (1,702) (7,097) (2,887)
SHARE TRANSACTIONS:
Net proceeds from sales of shares. . . . . . . . . . . $783,945 $140,698 $83,446 $1,387,995 $586,289
Issued to shareholders in
reinvestment of dividends. . . . . . . . . . . . . . . $49,532 $0 $1,702 $7,098 $2,886
Cost of shares repurchased . . . . . . . . . . . . . . ($2,310) ($24,370) ($7,748) ($333,700) ($5,723)
NET INCREASE / (DECREASE)
FROM SHARES OF BENEFICIAL
INTEREST TRANSACTIONS. . . . . . . . . . . . . . . . . $831,167 $116,328 $77,400 $1,061,393 $583,452
-------- -------- --------- ---------- --------
CAPITAL CONTRIBUTION FROM ADVISOR. . . . . . . . . . . . 51,906 49,231 34,947 52,077 40,662
Net increase / (decrease) in net assets. . . . . . . . . 890,331 138,404 87,387 1,056,698 584,315
NET ASSETS:
Beginning of period. . . . . . . . . . . . . . . . . . . 10,000 10,000 10,000 50,000 10,000
-------- -------- --------- ---------- --------
End of period. . . . . . . . . . . . . . . . . . . . . . $900,331 $148,404 $97,387 $1,106,698 $594,315
-------- -------- --------- ---------- --------
-------- -------- --------- ---------- --------
</TABLE>
* COMMENCEMENT OF OPERATIONS FEBRUARY 1, 1996
** COMMENCEMENT OF OPERATIONS MARCH 26, 1996
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE>
THE PALLADIAN TRUST
FINANCIAL HIGHLIGHTS
FOR THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GLOBAL GLOBAL
INTERNATIONAL STRATEGIC INTERACTIVE /
VALUE GROWTH GROWTH INCOME TELECOMM
PORTFOLIO * PORTFOLIO * PORTFOLIO ** PORTFOLIO * PORTFOLIO *
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, commencement
of operations. . . . . . . . . . . . . . . . $10.00 $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------ ------
INCOME / (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment loss 1. . . . . . . . . . . . . (0.64) 2 (2.96) 2 (4.16) 2 (0.19) 2 (0.75) 2
Net realized and unrealized gain /
(loss) on investments . . . . . . . . . . . 2.15 3.80 4.67 0.23 0.80
------ ------ ------ ------ ------
Total from investment operations . . . . . . . 1.51 0.84 0.51 0.04 0.05
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income . . . . . . . . . . . . . . . . . . . 0.00 0.00 0.00 0.00 0.00
Distributions from capital . . . . . . . . . . (0.63) 0.00 (0.18) (0.06) (0.05)
------ ------ ------ ------ ------
Total distributions . . . . . . . . . . . . . (0.63) 0.00 (0.18) (0.06) (0.05)
------ ------ ------ ------ ------
Net asset value, end of year . . . . . . . . . $10.88 $10.84 $10.33 $9.98 $10.00
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return . . . . . . . . . . . . . . . . . 15.13% 2,3 8.40% 2,3 5.13% 2,3 0.44% 2,3 0.49% 2,3
------ ------ ------ ------ ------
------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS /
SUPPLEMENTAL DATA:
Net assets, end of reporting period. . . . . . $900,331 $148,404 $97,387 $1,106,697 $594,315
Ratio of operating expenses to
average net assets***. . . . . . . . . . . . 8.19% 2 34.15% 2 67.76% 2 7.37% 2 9.83% 2
Ratio of net investment loss to
average net assets***. . . . . . . . . . . . (6.55%) 2 (31.31%) 2 (56.37%) 2 (2.15%) 2 (8.32%) 2
Portfolio turnover rate. . . . . . . . . . . . 73.63% 580.48% 116.21% 212.36% 71.44%
</TABLE>
* COMMENCEMENT OF OPERATIONS FEBRUARY 1, 1996
** COMMENCEMENT OF OPERATIONS MARCH 26, 1996
*** ANNUALIZED
- --------------------------------------------------------------------------------
The table above provides condensed financial information concerning income and
capital changes for one share for each portfolio of the Palladian Trust. Such
information is based upon the Trust's audited financial statements.
1. This information was prepared using the average number of shares
outstanding during the year.
2. These amounts reflect the impact of an expense reimbursement totaling
$169,553, allocated to each portfolio following stipulated criteria (See
Note 5). Absent the reimbursement, net investment loss per share, and the
ratios of expenses and net investment loss to average net assets for the
Value Portfolio, the Growth Portfolio, the International Growth Portfolio,
the Global Strategic Income Portfolio and the Global Interactive /Telecomm
Portfolio shares would have been ($1.22), ($5.61), ($7.56), ($0.63) and,
($1.34), respectively, 14.13%, 63.54%, 126.26%, 12.30%, and 16.45%,
respectively, (12.40%), (58.37%), (92.05%), (7.02%), and (14.82%),
respectively.
3. Total return measures the change in the value of an investment for the year
indicated. It includes a capital infusion totaling $228,823 (See Note 5
concerning amount allocated to each Portfolio). Absent the infusion, total
return for the Value Portfolio, the Growth Portfolio, the International
Growth Portfolio, the Global Strategic Income Portfolio and Global
Interactive /Telecomm Portfolio would have been 7.64%, (41.75%), (46.50%),
(4.49%), and (6.68%), respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE>
THE PALLADIAN TRUST
THE VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1996
VALUE
SHARES (NOTE 1)
------ --------
COMMON STOCKS 78.1%
ADVERTISING 1.3%
1,000 Ackerly Communications, Inc. . . . . . . . . . . . . $11,750
--------
AEROSPACE & DEFENSE 4.8%
500 Precision Castparts Corp . . . . . . . . . . . . . . 24,812
1,000 Gencorp, Inc . . . . . . . . . . . . . . . . . . . . 18,126
--------
42,938
AUTOMOTIVE EQUIPMENT & SUPPLIES 15.9%
600 Echlin Inc . . . . . . . . . . . . . . . . . . . . . 18,975
1,000 Kollmorgen . . . . . . . . . . . . . . . . . . . . . 11,000
1,000 Standard Motor Products . . . . . . . . . . . . . . 13,875
1,500 Wynn's International, Inc. . . . . . . . . . . . . . 47,437
1,000 Federal-Mogul Corp . . . . . . . . . . . . . . . . . 22,000
500 Barnes Group, Inc. . . . . . . . . . . . . . . . . . 30,000
--------
143,287
BEVERAGES 4.3%
1,000 Celestial Seasonings, Inc. . . . . . . . . . . . . . 19,750
500 Seagrams. . . . . . . . . . . . . . . . . . . . . . 19,377
--------
39,127
BROADCASTING & CABLE 4.6%
309 Chris-Craft Industries, Inc. . . . . . . . . . . . . 12,939
1,000 Liberty Media Group . . . . . . . . . . . . . . . . 28,562
--------
41,501
COMMUNICATION SERVICES 1.4%
500 Comsat Corp. . . . . . . . . . . . . . . . . . . . . 12,312
DEPARTMENT STORES 1.7%
600 Nieman Marcus Group, Inc. . . . . . . . . . . . . . 15,300
--------
DIVERSIFIED 3.3%
1,500 Rollins, Inc . . . . . . . . . . . . . . . . . . . . 30,000
--------
MEDICAL EQUIPMENT 2.3%
--------
1,000 Thomas Industries, Inc . . . . . . . . . . . . . . . 20,875
GROCERY STORES 3.1%
300 Giant Food Inc . . . . . . . . . . . . . . . . . . . 10,350
1,000 Bruno's Inc. . . . . . . . . . . . . . . . . . . . . 17,250
--------
27,600
INDUSTRIAL INORGANIC CHEMICALS 1.3%
500 Church & Dwight Co., Inc . . . . . . . . . . . . . . 11,437
--------
INDUSTRIAL EQUIPMENT & SUPPLIES 9.4%
2,000 AMPCO - Pittsburgh Corp. . . . . . . . . . . . . . . 24,000
2,000 Goulds Pumps . . . . . . . . . . . . . . . . . . . . 45,876
300 Sequa Corp . . . . . . . . . . . . . . . . . . . . . 15,000
--------
84,876
--------
LABORATORY APPARATUS 2.5%
1,000 Ametek Inc . . . . . . . . . . . . . . . . . . . . . 22,250
--------
METALS & MINING 5.2%
--------
1,636 Handy & Harman . . . . . . . . . . . . . . . . . . . 28,630
500 Trinova Corp . . . . . . . . . . . . . . . . . . . . 18,187
--------
46,817
NEWSPAPERS / PUBLISHING 3.0%
500 Lee Enterprises, Inc . . . . . . . . . . . . . . . . 11,625
500 Media General Inc. . . . . . . . . . . . . . . . . . 15,125
--------
26,750
NON-DURABLE GOODS 3.6%
500 Culbro Corporation . . . . . . . . . . . . . . . . . 32,437
--------
OIL & GAS 1.7%
1,000 RPC Inc. . . . . . . . . . . . . . . . . . . . . . . 15,000
--------
PAPER & PLASTIC PRODUCTS 4.1%
500 Ferro Corp . . . . . . . . . . . . . . . . . . . . . 14,187
800 Grief Bros. Corp . . . . . . . . . . . . . . . . . . 22,600
--------
36,787
--------
TELECOMMUNICATIONS 4.7%
2,000 Centennial Cellular Corp. . . . . . . . . . . . . . 24,250
500 Telephone & Data System. . . . . . . . . . . . . . . 18,125
--------
42,375
TOTAL INVESTMENTS (COST $651,443) * 78.1% 703,419
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) 21.9% 196,912
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $900,331
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* AGGREGATE COST FOR FEDERAL TAX PURPOSES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE>
THE PALLADIAN TRUST
THE GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1996
VALUE
SHARES (NOTE 1)
------ --------
COMMON STOCKS 81.0%
BANKS & FINANCIAL SERVICES 9.33%
50 Bank of New York - Warrants. . . . . . . . . . . . . $3,706
100 Charles Schwab & Co. . . . . . . . . . . . . . . . . 3,200
200 First USA Inc. . . . . . . . . . . . . . . . . . . . 6,925
0 Travelers, Inc . . . . . . . . . . . . . . . . . . . 14
--------
13,845
CAPITAL GOODS 7.1%
200 Tyco Lab . . . . . . . . . . . . . . . . . . . . . . 10,575
--------
COMPUTERS & DATA PROCESSING 4.7%
140 Hewlett-Packard Company . . . . . . . . . . . . . . 7,035
ENVIRONMENTAL SCVS.& WASTE DISPOSAL 3.6%
80 United Waste Systems, Inc. . . . . . . . . . . . . . 2,750
80 USA Waste Services, Inc. . . . . . . . . . . . . . . 2,550
--------
5,300
HEALTHCARE 2.8%
100 Coherent, Inc. . . . . . . . . . . . . . . . . . . . 4,225
--------
HOUSING 1.7%
120 Continental Homes Holding Corp . . . . . . . . . . . 2,550
--------
INDUSTRIAL EQUIPMENT 1.3%
200 Starsight Telecast, Inc. . . . . . . . . . . . . . . 1,875
--------
LEISURE 0.9%
100 Carmike Cinemas, Inc . . . . . . . . . . . . . . . . 1,268
--------
MEDICAL SUPPLIES 2.6%
80 Safeskin Corp. . . . . . . . . . . . . . . . . . . . 3,900
--------
POLLUTION CONTROL 4.3%
200 U.S. Filter Corp . . . . . . . . . . . . . . . . . . 6,350
--------
RESTAURANTS 7.8%
100 Apple South. . . . . . . . . . . . . . . . . . . . . 1,350
50 CKE Restaurants . . . . . . . . . . . . . . . . . . 1,800
200 Cooker Restaurant Corp . . . . . . . . . . . . . . . 2,326
230 Lone Star Steakhouse & Saloon. . . . . . . . . . . . 6,152
--------
11,628
RESTAURANT EQUIPMENT 4.5%
300 Turbochef, Inc. . . . . . . . . . . . . . . . . . . 6,638
RETAIL 9.9%
200 Bed Bath & Beyond, Inc . . . . . . . . . . . . . . . 4,850
100 North Face, Inc. . . . . . . . . . . . . . . . . . . 1,926
200 OfficeMax Inc. . . . . . . . . . . . . . . . . . . . 2,125
200 Tyco Toys, Inc . . . . . . . . . . . . . . . . . . . 2,351
100 U.S.Office Products Co . . . . . . . . . . . . . . . 3,412
--------
14,664
SEMICONDUCTOR CAPITAL EQUIPMENT 1.2%
100 Advanced Technology Material . . . . . . . . . . . . 1,725
TECHNOLOGY 18.6%
100 Applied Magnetics Corp . . . . . . . . . . . . . . . 2,988
100 Cabletron Systems. . . . . . . . . . . . . . . . . . 3,325
50 Cisco Systems, Inc . . . . . . . . . . . . . . . . . 3,181
50 Compaq Computer. . . . . . . . . . . . . . . . . . . 3,712
80 Computer Associates Intl . . . . . . . . . . . . . . 3,980
100 Insight Enterprises, Inc . . . . . . . . . . . . . . 2,800
200 LTX Corp . . . . . . . . . . . . . . . . . . . . . . 1,175
200 Retix. . . . . . . . . . . . . . . . . . . . . . . . 1,350
100 Tech Data Corp . . . . . . . . . . . . . . . . . . . 2,737
125 Veritas DGC, Inc . . . . . . . . . . . . . . . . . . 2,313
--------
27,561
TELECOMMUNICATIONS 0.7%
40 Worldcom, Inc. . . . . . . . . . . . . . . . . . . . 1,042
--------
TOTAL INVESTMENTS (COST $111,691)* 81.0% 120,181
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) 19.0% 28,223
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $148,404
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* AGGREGATE COST FOR FEDERAL TAX PURPOSES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE>
THE PALLADIAN TRUST
THE INTERNATIONAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1996
VALUE
SHARES (NOTE 1)
------ --------
COMMON STOCKS 58.4%
SWITZERLAND 13.31%
10 Stratec Holding. . . . . . . . . . . . . . . . . . . $12,964
--------
FINLAND 4.46%
250 Benefon. . . . . . . . . . . . . . . . . . . . . . . 4,347
--------
HONG KONG 5.86%
22,500 Joyce Boutique . . . . . . . . . . . . . . . . . . . 5,702
--------
SWEDEN 10.62%
250 Nobel Biocare . . . . . . . . . . . . . . . . . . . 4,403
500 Investment AB Bure . . . . . . . . . . . . . . . . . 5,944
--------
10,347
--------
DENMARK 11.20%
250 Inwear Group . . . . . . . . . . . . . . . . . . . . 10,911
--------
ENGLAND 7.36%
1,550 Victrex PLC. . . . . . . . . . . . . . . . . . . . . 7,171
--------
UNITED STATES 5.55%
300 Pfeiffer Vacuum Tech-SP ADR. . . . . . . . . . . . . 5,401
--------
TOTAL INVESTMENTS (COST $53,749)* 58.4% 56,843
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) 41.6% 40,543
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $97,386
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* AGGREGATE COST FOR FEDERAL TAX PURPOSES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE>
THE PALLADIAN TRUST
THE GLOBAL STRATEGIC INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1996
VALUE
FACE VALUE (NOTE 1)
- ---------- --------
UNITED STATES DOLLAR BOND 39.4%
450,000 U.S. Treasury Note
5.250% due 1/31/01 $436,218
GERMAN DEUTSCHE MARK BOND 23.5%
350,000 Deutschland Republic
8.000% due 7/22/02 259,631
JAPANESE YEN BOND 9.0%
11,400,000 JAPAN - 184 (10 Year Issue)
2.900% due 12/20/05 100,024
TOTAL INVESTMENTS (COST $820,322)* 71.9% 795,873
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) 28.1% 310,824
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $1,106,697
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE OF FORWARD FOREIGN EXCHANGE CONTRACTS
NUMBER CONTRACT MARKET
OF VALUE VALUE
CONTRACTS DATE (NOTE 1)
- --------- -------- --------
FORWARD FOREIGN EXCHANGE CONTRACTS TO BUY
100,000 Netherlands Guilder . . . . . . . . . . 01/28/97 $57,980
17,404,074 Japanese Yen . . . . . . . . . . . . . . 01/28/97 150,976
3,800,000 Spanish Peseta . . . . . . . . . . . . . 01/28/97 29,257
77,200,008 Italian Lira . . . . . . . . . . . . . . 01/28/97 50,789
1,100,000 Belgian Franc . . . . . . . . . . . . . 01/28/97 34,752
400,000 French Franc . . . . . . . . . . . . . . 01/28/97 77,203
100,000 Swedish Krona. . . . . . . . . . . . . . 01/28/97 14,700
- --------------------------------------------------------------------------------
TOTAL FORWARD FOREIGN EXCHANGE CONTRACTS TO BUY
(CONTRACT AMOUNT $417,104) $415,657
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER CONTRACT MARKET
OF VALUE VALUE
CONTRACTS DATE (NOTE 1)
- --------- -------- --------
FORWARD FOREIGN EXCHANGE CONTRACTS TO SELL
177,916 United States Dollar. . . . . . . . . . 01/28/97 $177,916
TOTAL FORWARD FOREIGN EXCHANGE CONTRACTS TO SELL
(CONTRACT AMOUNT $177,558) $177,916
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* AGGREGATE COST FOR FEDERAL TAX PURPOSES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
<PAGE>
THE PALLADIAN TRUST
THE GLOBAL INTERACTIVE / TELECOMM PORTFOLIO
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1996
VALUE
SHARES (NOTE 1)
------ --------
COMMON STOCKS 67.8%
CANADA 2.7%
500 British Columbia Telecomm. . . . . . . . . . . . . . $10,825
--------
GREAT BRITAIN 5.8%
2,000 Flextech PLC . . . . . . . . . . . . . . . . . . . . 23,303
--------
FOREIGN 2.2%
500 Havas S.A. Spons, ADR. . . . . . . . . . . . . . . . 8,752
--------
UNITED STATES 60.6%
BROADCASTING, MEDIA & RADIO 7.2%
500 The News Corporation, Ltd., ADR. . . . . . . . . . . 10,437
500 Time Warner, Inc . . . . . . . . . . . . . . . . . . 18,751
--------
29,188
CABLE 10.4%
450 Home Shopping Network. . . . . . . . . . . . . . . . 10,688
1,000 Comcast Corp, Class A. . . . . . . . . . . . . . . . 17,625
400 Viacom Inc Class A . . . . . . . . . . . . . . . . . 13,801
--------
42,114
--------
COMMUNICATION SERVICES 4.9%
500 Comsat Corp. . . . . . . . . . . . . . . . . . . . . 12,312
1,000 Rogers Communications, Class B . . . . . . . . . . . 7,375
--------
19,687
--------
DIVERSIFIED 13.1%
300 Sony Corp., ADR. . . . . . . . . . . . . . . . . . . 19,687
1,450 Gaylord Entertainment. . . . . . . . . . . . . . . . 33,168
--------
52,855
--------
ENTERTAINMENT 3.8%
1,000 Intl. Family Entertainment . . . . . . . . . . . . . 15,500
--------
MISCELLANEOUS 12.7%
400 Santa Anita Realty Entertainment . . . . . . . . . . 10,500
1,000 United International Holding, Class A. . . . . . . . 12,250
1,000 Liberty Media Group, Class A . . . . . . . . . . . . 28,562
--------
51,312
--------
TELECOMMUNICATIONS 37.1%
300 BCE, Inc . . . . . . . . . . . . . . . . . . . . . . 14,326
300 Bell Atlantic. . . . . . . . . . . . . . . . . . . . 19,425
500 Century Telephone Enterprises. . . . . . . . . . . . 15,438
1,500 Rogers Cantel Mobile, Class B. . . . . . . . . . . . 29,062
300 Telephone Data Systems . . . . . . . . . . . . . . . 10,875
1,000 Ackerly Communications . . . . . . . . . . . . . . . 11,751
1,000 Renaissance Communications . . . . . . . . . . . . . 35,750
1,000 Tele-Communications Inc Ser. . . . . . . . . . . . . 13,062
--------
149,689
TOTAL INVESTMENTS (COST $400,284)* 67.8% 403,225
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) 32.2% 191,090
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $594,315
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* AGGREGATE COST FOR FEDERAL TAX PURPOSES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
9
<PAGE>
The Palladian Trust
Notes to Financial Statements
1. ORGANIZATION
The Palladian Trust (the "Trust") is registered under the Investment Company Act
of 1940, as amended, (the "Act") as an open-end management investment company
organized as a Massachusetts business trust. As of the date of this report the
Trust had five managed investment portfolios that commenced operations: Value
Portfolio, Growth Portfolio, International Growth Portfolio, Global Strategic
Income Portfolio and Global Interactive/Telecomm Portfolio. The Trust is
intended to serve as an investment medium for (i) variable life insurance
policies and variable annuity contracts offered by insurance companies, (ii)
certain qualified pension and retirement plans, as permitted by Treasury
Regulations; and (iii) and advisers to the Portfolios and their affiliates.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Portfolios in the
preparation of their financial statements.
PORTFOLIO VALUATION: Domestic and foreign portfolio securities, except as noted
below, for which market quotations are readily available are stated at market
value. Market value is determined on the basis of the last reported sales price
in the principal market where such securities are traded or, if no sales are
reported, the mean between representative bid and asked quotations obtained from
a quotation reporting system or from established market makers.
Long-term debt securities, including those to be purchased under firm commitment
agreements, are normally valued on the basis of quotes obtained from brokers and
dealers or pricing services, which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other market
data. Under certain circumstances, long-term debt securities having a maturity
of sixty days or less may be valued at amortized cost. Debt securities with a
maturity date at time of purchase of 60 days or less are valued at amortized
cost which approximates fair value.
Securities for which market quotations are not readily available are valued at
fair market value as determined in good faith by, or under the direction of the
Board of Trustees.
FOREIGN CURRENCY. The books and records of the Portfolios are maintained in
U.S. dollars. Foreign currencies, investments and other assets and liabilities
are translated into
<PAGE>
U.S. dollars at the exchange rates prevailing at the end of the period, and
purchases and sales of investment securities, income and expenses are translated
on the respective dates of such transactions. Foreign exchange fluctuation's
effect on investments is included in net gain/(loss) on securities
transactions in the Statement of Operations.
Unrealized gains and losses, not relating to securities, which result from
changes in foreign currency exchange rates have been included in unrealized
appreciation/(depreciation) of foreign currency transactions. Unrealized gains
and losses of securities, which result from changes in forward currency exchange
rates as well as changes in market prices of securities, have been included in
unrealized appreciation/(depreciation) of securities. Net realized foreign
currency gains and losses resulting from changes in exchange rates include
foreign currency gains and losses between trade date and settlement date on
investment securities transactions, gains and losses on foreign currency
transactions and the difference between the amounts of interest and dividends
recorded on the books of the Portfolios and the amount actually received. The
portion of foreign currency gains and losses related to fluctuations in exchange
rates between the initial purchase trade date and subsequent sale trade is
included in realized gain/(loss) from investment securities sold.
FORWARD FOREIGN CURRENCY CONTRACTS. All portfolios may enter into forward
foreign currency contracts. Foreign currency contracts are agreements to
exchange one currency for another at a future date and at a specified price.
The Portfolios may use forward foreign currency contracts to facilitate
transactions in foreign securities and to manage the Portfolios' foreign
currency exposure. The U.S. dollar market value, contract value and the foreign
currencies the Portfolios have committed to buy or sell are shown in the
Portfolio of Investments under the caption "Schedule of Forward Foreign Currency
Contracts." These amounts represent the aggregate exposure to each foreign
currency the Portfolios have acquired or hedged through currency contracts at
December 31, 1996. Forward foreign currency contracts that have been offset
with different counterparties are reflected as both a forward foreign currency
contract to buy and a forward foreign currency contract to sell. Forward
foreign currency contracts to buy generally are used to acquire exposure to
foreign currencies, while forward foreign currency contracts to sell are used to
hedge the Portfolios' investments against currency fluctuations. Also, a
forward foreign currency contract to buy or sell can offset a previously
acquired opposite forward foreign currency contract.
Forward foreign currency contracts are marked-to-market daily using foreign
currency exchange rates supplied by an independent pricing service. The change
in a contract's market value is recorded by the Portfolios as an unrealized gain
or loss. When the contract is closed or delivery is taken, the Portfolios
record a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate fluctuations in
the underlying prices of the Portfolio's securities, but it does establish a
rate of exchange that can be achieved in the future. Although forward foreign
currency contracts used for
<PAGE>
hedging purposes limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might result should the
value of the currency increase. In addition, the Portfolios could be exposed to
risks if the counterparties to the contracts are unable to meet the terms of
their contracts.
FEDERAL INCOME TAXES. Each Portfolio of the Trust is a separate entity for
Federal income tax purposes. No provision for Federal income taxes has been
made since each Portfolio of the Trust, except the Growth Portfolio, has
complied and intends to continue to comply with the provisions of Sub Chapter M
of the Internal Revenue Code available to regulated investment companies and to
distribute its taxable income to shareholders sufficient to relieve it from all
or substantially all federal income taxes.
The Growth Portfolio did not comply with certain provisions of Sub Chapter M of
the Internal Revenue Code. However, since the Growth Portfolio is in a net loss
position, no income tax has been accrued at December 31, 1996. The Growth
Portfolio intends to comply in future years.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Investment transactions are
recorded on trade date. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Interest income (including amortization of
premium and discount on securities) and expenses are accrued daily. Realized
gains and losses from investment transactions are recorded on an identified cost
basis which is the same basis the Trust uses for Federal income tax purposes.
Purchases of securities under agreements to resell are carried at cost, and the
related accrued interest is included in interest receivable.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends from net investment
income are declared and paid quarterly for all portfolios. Net realized capital
gains, if any, are distributed at least annually.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
Permanent book and tax basis differences relating to shareholder distributions
will result in reclassifications to paid in capital. Undistributed net
investment income may include temporary book and tax basis differences which
will reverse in a subsequent period.
EXPENSES. The Trust accounts separately for the assets, liabilities and
operations of each Portfolio. Expenses directly attributable to a Portfolio are
charged to a Portfolio, while expenses which are attributable to more than one
Portfolio of the Trust are allocated among the respective Portfolios based upon
the relative net assets of each Portfolio.
ORGANIZATION EXPENSE. Organization expense were deferred and are being
amortized by each Portfolio on a straight-line basis over a five-year period
from commencement of operations. Each Portfolio's organizational fees payable
includes fees and expenses payable to PAI totaling $141,828, which were divided
equally among the Portfolios. The amount paid by the Trust on any redemption by
PAI or, any other then-current holder of
<PAGE>
the organizational seed capital shares ("Initial Shares") of the Portfolio, will
be reduced by a portion of any unamortized organization expenses of the
Portfolio determined by the proportion of the number of the Initial Shares of
the Portfolio redeemed to the number of the Initial Shares of the Portfolio
outstanding after into account any prior redemptions of the Initial Shares of
the Portfolio.
TRUSTEES. Each Trustee who is not an "interested person" (as defined in the
Act) of the Trust, receives $1,500 per meeting attended, as well as
reimbursement for reasonable out-of-pocket expenses, from the Trust. For the
quarter ending December 31, 1996 the Trust incurred $16,500 in Trustee fees,
which was prorated to each portfolio.
3. MANAGER, PORTFOLIO ADVISOR, PORTFOLIO MANAGERS, ADMINISTRATION FEES AND
OTHER TRANSACTIONS.
Palladian Advisors, Inc. ("PAI") provides general supervision over the Trust,
recommends investment advisors to serve as portfolio managers, assesses their
performance and makes periodic reports to the Trust. In performing these
responsibilities, PAI relies upon Tremont Partners, Inc. as Portfolio Advisor.
PAI, not the Trust, pays the fees of the Portfolio Advisor
The Trust and PAI have entered into portfolio management agreements with various
Portfolio Managers. The Portfolio Managers for the Portfolios are as follows:
GAMCO Investors, Inc. serves as the Portfolio Manager for The Value Portfolio
and The Global Interactive/Telecomm Portfolio; Stonehill Capital Management,
Inc. serves as the Portfolio Manager of The Growth Portfolio; Bee & Associates
Incorporated serves as the Portfolio Manager of The International Growth
Portfolio, and Fischer Francis Trees & Watts serves as the Portfolio Manager of
The Global Strategic Income Portfolio.
Each Portfolio pays an overall management fee, computed and accrued daily and
paid monthly, based on its average daily net assets. For the first twelve
months of operations, the management fee is .80% of average net assets. After
that time, the base fee will be 2.0%, but may vary between 0% and 4% depending
on the performance of a Portfolio compared to that of an appropriate benchmark.
Each Portfolio Manager will receive 80% of the fee, and PAI will receive the
remaining 20%. PAI is responsible for paying the fee of Tremont, which equals
32.5% of the fee received by PAI.
Investors Bank & Trust Company provides transfer agency, portfolio accounting
and custody services for the Trust. The transfer agency and portfolio
accounting fees are the greater of $40,000 or .05% of net assets for the first
$600 million and .03% of the net assets in excess of $600 million. Custody fees
are separated between domestic and global.
Western Capital Financial Group, Inc. (the "Distributor") serves as the
principal underwriter and distributor of the shares of the Trust. The
Distributor does not currently charge any fees for servicing in this capacity.
<PAGE>
Certain officers of the Trust are also officers of PAI and the Distributor.
An individual, together with certain affiliated entities, owns a majority
interest in the parent company of Tremont. The individual is also an officer of
GAMCO Investors, Inc. selected by Tremont to provide investment advisory
services to two Portfolios of the Trust.
An officer of the Distributor is also an officer of PAI, and a trustee and
officer of the Trust. An officer of PAI is also a trustee and officer of the
Trust.
4. PURCHASES AND SALES OF SECURITIES. The aggregate cost of purchases and
proceeds from sales of securities, excluding U.S. Government and short-term
investments, for the year period ending December 31, 1996 were as follows:
Portfolio Purchases Sales
--------- --------- -----
Value $1,108,875 $506,966
Growth $945,895 $834,937
International Growth $104,657 $54,690
Global Strategic Income $2,038,929 $1,668,243
Global Telecomm/Interactive $758,380 $360,983
The aggregate cost of purchases and proceeds from sales of long-term U.S.
Government Securities, excluding short-term investments, for the period ending
December 31, 1996 were as follows:
Portfolio Purchases Sales
--------- --------- -----
Global Strategic Income $451,688 ------
The aggregate gross unrealized appreciation, aggregate gross unrealized
depreciation, net unrealized appreciation (depreciation), and cost of all
securities as computed on Federal income tax basis, at December 31, 1996 for
each portfolio is as follows:
Portfolio Appreciation (Depreciation)
--------- ------------ --------------
Value $76,082 $(24,106)
Growth $13,407 $(4,917)
International Growth $5,763 $(2,670)
Global Strategic Income $0 $(24,448)
Global Telecomm/Interactive $32,144 $(29,203)
Portfolio Net Cost
--------- --- ----
Value $51,976 $651,443
Growth $8,490 $111,691
International Growth $3,250 $53,749
Global Strategic Income ($36,223) $820,322
Global Telecomm/Interactive $2,939 $400,284
<PAGE>
5. EXPENSE LIMITATION AND CAPITAL INFUSION. Under terms approved by the Board
of Trustees of the Portfolios, PAI agreed to waive fees and reimburse expenses
from September 11, 1996 through December 31, 1997 that would cause the
Portfolios' ratio of non-management fee expenses to average net assets to exceed
specified rates (Value, and Growth - 0.70%; International Growth, Global
Strategic Income, and Global Interactive/Telecomm - 1.20%). Thereafter
through December 31, 1999, the Portfolios are required to reimburse PAI for
these expenses, provided that average net assets have grown or expenses have
declined sufficiently to allow reimbursement without causing the Portfolios'
ratio of non-management fee expenses to average net assets to exceed the
specified rates. Through December 31, 1996, the fees waived and expenses
reimbursed for each Portfolio that are subject to reimbursement to PAI are as
follows:
Portfolio Amount
--------- ------
Value $40,166
Growth $26,018
International Growth $23,053
Global Strategic Income $46,749
Global Interactive/Telecomm $33,568
PAI has acknowledged that, upon termination of the Investment Management
Agreement between PAI and the Portfolios, the Portfolios would not be liable to
PAI for any waived or reimbursed fees which have not been reimbursed. Under the
terms of the Agreement, the Board of Trustees or the Portfolios shareholders may
terminate the Agreement at any time upon 60 days notice.
In addition, on September 24, 1996 PAI agreed to voluntarily contribute capital
to each of Portfolios as follows:
Portfolio Amount
--------- ------
Value $51,907
Growth $49,230
International Growth $34,947
Global Strategic Income $52,077
Global Interactive/Telecomm $40,662
The amounts were contributed to offset expenses accrued to the Portfolios in
excess of the expense limitations set forth above from the period from the
inception of the Portfolios to September 10, 1996. PAI received no shares of
beneficial interest or other consideration in exchange for these contributions.
These capital contributions resulted in an increase to paid capital for each
Portfolio.
<PAGE>
[LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
The Palladian Trust:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Value Portfolio, Growth Portfolio,
International Growth Portfolio, Global Strategic Income Portfolio and Global
Interactive /Telecomm Portfolio (five portfolios of the Palladian Trust and
collectively the "Portfolios"), as of December 31, 1996, and the related
statements of operations, statement of changes in net assets and financial
highlights for the period from February 1, 1996 (commencement of operations) to
December 31, 1996 except for International Growth Portfolio which is for the
period from March 26, 1996 (commencement of operations) to December 31, 1996.
These financial statements and financial highlights are the responsibility of
the Portfolios' 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 are free of material
misstatements. 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 December 31, 1996, by correspondence with
the custodian and brokers. An audit 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 referred to above present fairly, in
all material respects, the financial positions of the Portfolios as of December
31, 1996, the results of their operations, their changes in net assets and their
financial highlights for each of the respective periods stated in the first
paragraph, in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 27, 1997
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International,
a Swiss limited liability association.
