<PAGE>
August 26, 1997
Dear Shareholder of The Palladian-Registered Trademark- Trust:
Congratulations on your purchase of The Fulcrum Fund-Registered Trademark-
variable annuity and the underlying portfolios of The Palladian-Registered
Trademark- Trust (the "Trust"). You are among the first investors in this
country to recognize this revolutionary approach to mutual fund management. We
believe the Trust will redefine the way mutual funds operate and compensate all
those who are responsible for the day-to-day activities of the investment
management process. We appreciate your support in this important endeavor.
We are pleased to provide you with the Trust's Semi-Annual Report. As you may
know, The Fulcrum Fund and the Trust were created to provide a range of
investment options, each seeking maximum long-term total return in a particular
asset class. Since the beginning of the year, assets invested in the Trust have
grown rapidly. As of August 26, 1997, Trust assets have increased 387% since
December 31, 1996. The main factor for the significant increase in Trust assets
was the official national rollout of The Fulcrum Fund variable annuity, which
occurred on March 13, 1997. Included among the firms in the rollout was a
national "wirehouse" brokerage firm.
Following this letter you will find detailed financial statements for each
portfolio including a listing of the individual securities held by each
portfolio. It is our hope that this Semi-Annual Report will 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 continued support of The Fulcrum Fund and The Palladian
Trust.
Very truly yours,
Matthew Stacom H. Michael Schwartz
Chairman President
The Palladian Trust The Palladian Trust
<PAGE>
THE PALLADIAN TRUST
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
AS OF JUNE 30, 1997
<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. . . . . . . . . . . . . . . . . . . $1,150,851 $1,000,969 $450,931 $1,660,258 $562,022
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
At value. . . . . . . . . . . . . . . . . . . . . . . . $1,304,919 $1,156,414 $479,817 $1,637,087 $659,735
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 1,248,518 385,241 875,671 350,683 492,723
Receivables:
Interest and dividends. . . . . . . . . . . . . . . . . 4,594 1,095 5,086 35,802 2,314
Investments sold. . . . . . . . . . . . . . . . . . . . ---- 17,813 ---- 153,453 ----
Forward foreign exchange contracts to buy . . . . . . . ---- ---- ---- 678,171 ----
Forward foreign exchange contracts to sell. . . . . . . ---- ---- ---- 437,227 ----
Expense reimbursements. . . . . . . . . . . . . . . . . 86,263 61,118 54,274 91,495 70,594
Pre-Paid Insurance . . . . . . . . . . . . . . . . . . . 2,169 2,169 2,169 2,169 2,169
Unamortized organization costs . . . . . . . . . . . . . 17,075 17,075 17,721 17,075 17,075
---------- ---------- ---------- ---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . . . . $2,663,538 $1,640,925 $1,434,738 $3,403,162 $1,244,610
---------- ---------- ---------- ---------- ----------
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . ---- $10,443 $15,605 $301,573 $94,925
Forward foreign exchange contracts to buy . . . . . . . ---- ---- ---- 683,582 ----
Forward foreign exchange contracts to sell. . . . . . . ---- ---- ---- 438,948 ----
Accrued expenses . . . . . . . . . . . . . . . . . . . $24,728 12,499 13,300 30,811 28,022
---------- ---------- ---------- ---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . . . 24,728 22,942 28,905 1,454,914 122,947
---------- ---------- ---------- ---------- ----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . $2,638,810 $1,617,983 $1,405,833 $1,948,248 $1,121,663
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
NET ASSETS CONSIST OF:
Undistributed net investment income. . . . . . . . . . . $11,203 $1,304 $5,565 $24,795 $2,789
Unrealized appreciation (depreciation)
of investments. . . . . . . . . . . . . . . . . . . . . 154,067 155,444 28,671 (19,540) 97,711
Accumulated net realized gain/(loss) . . . . . . . . . . 140,523 (29,597) 86 (45,154) 28,650
Capital shares . . . . . . . . . . . . . . . . . . . . . 2,333,017 1,490,832 1,371,511 1,988,147 992,513
---------- ---------- ---------- ---------- ----------
Total Net Assets. . . . . . . . . . . . . . . . . . . . $2,638,810 $1,617,983 $1,405,833 $1,948,248 $1,121,663
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Shares of beneficial interest outstanding . . . . . . . 210,566 133,074 130,613 198,435 97,763
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, offering price and redemption price
per share of beneficial interest outstanding. . . . . . $12.53 $12.16 $10.76 $9.82 $11.47
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
1
<PAGE>
THE PALLADIAN TRUST
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<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 $264
and $11 for the International Growth and Global
Interactive/Telecomm) portfolio . . . . . . . . . . . . $6,013 $771 $2,761 $0 $1,839
Interest . . . . . . . . . . . . . . . . . . . . . . . . 10,855 2,511 7,367 35,555 5,811
---------- ---------- ---------- ---------- ----------
Total Investment Income . . . . . . . . . . . . . . . . $16,868 $3,282 $10,128 $35,555 $7,650
---------- ---------- ---------- ---------- ----------
EXPENSES
Amortization of organization costs . . . . . . . . . . . $2,359 $2,359 $2,353 $2,359 $2,359
Auditing fees. . . . . . . . . . . . . . . . . . . . . . 10,347 2,328 1,860 11,839 6,355
Custodian fees . . . . . . . . . . . . . . . . . . . . . 4,420 5,731 3,742 3,639 2,575
Insurance. . . . . . . . . . . . . . . . . . . . . . . . 1,562 1,562 1,562 1,562 1,562
Legal fees . . . . . . . . . . . . . . . . . . . . . . . 5,239 1,218 988 5,937 3,179
Management & advisory fees . . . . . . . . . . . . . . . 682 103 1,697 2,412 404
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 235 54 43 269 144
Portfolio accounting fees. . . . . . . . . . . . . . . . 22,787 22,787 22,787 22,787 22,787
Registration & filing fees . . . . . . . . . . . . . . . 871 201 163 989 529
Shareholders' expenses . . . . . . . . . . . . . . . . . 117 26 21 135 72
Trustees' fees and expenses. . . . . . . . . . . . . . . 3,143 709 568 3,578 1,921
---------- ---------- ---------- ---------- ----------
Total Expenses. . . . . . . . . . . . . . . . . . . . . $51,762 $37,078 $35,784 $55,506 $41,887
Less expense reimbursements. . . . . . . . . . . . . . . 46,097 35,100 31,221 44,746 37,026
---------- ---------- ---------- ---------- ----------
Net Expenses. . . . . . . . . . . . . . . . . . . . . . 5,665 1,978 4,563 10,760 4,861
---------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME. . . . . . . . . . . . . . . . . . $11,203 $1,304 $5,565 $24,795 $2,789
---------- ---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN/
(LOSS) ON INVESTMENTS:
Net realized gain / (loss) from:
Security transactions . . . . . . . . . . . . . . . . . $140,523 ($23,005) $0 ($9,672) $28,650
Forward foreign exchange contracts. . . . . . . . . . . ---- ---- 362 (32,089) ----
Forward currency transactions . . . . . . . . . . . . . ---- ---- (276) (3,393) ----
Net change in unrealized appreciation/(depreciation) on:
Security transactions . . . . . . . . . . . . . . . . . $102,091 $146,954 $25,637 $1,277 $94,771
Forward foreign exchange contracts. . . . . . . . . . . 0 0 (232) 20,764 0
Forward currency transactions . . . . . . . . . . . . . 0 0 16 (5,359) 0
---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain/(loss) on investments . $242,614 $123,949 $25,507 ($28,472) $123,421
---------- ---------- ---------- ---------- ----------
NET INCREASE / (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . $253,817 $125,253 $31,072 ($3,677) $126,210
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
<PAGE>
THE PALLADIAN TRUST
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
FOR THE PERIOD ENDED JUNE 30, 1997
<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) . . . . . . . . . . . . . . $11,203 $1,304 $5,565 $24,795 $2,789
Net realized gain/(loss) on securities,
forward foreign exchange contracts and
foreign currency transactions . . . . . . . . . . . . . 140,523 (23,005) 86 (45,154) 28,650
Net unrealized gain/(loss) on securities,
forward foreign exchange contracts and
other assets and liabilities denominated
in foreign currencies . . . . . . . . . . . . . . . . . 102,091 146,954 25,421 16,682 94,771
---------- ---------- ---------- ---------- ----------
Net increase/(decrease) in net assets
resulting from operations . . . . . . . . . . . . . . . $253,817 $125,253 $31,072 ($3,677) $126,210
Distributions to shareholders from:
Net investment income . . . . . . . . . . . . . . . . . $0 $0 $0 $0 $0
Distribution from capital . . . . . . . . . . . . . . . 0 0 0 0 0
NET INCREASE/(DECREASE)
FROM SHARES OF BENEFICIAL
INTEREST TRANSACTIONS . . . . . . . . . . . . . . . . . $1,484,662 $1,344,326 $1,277,374 $845,227 $401,138
Capital contribution from advisor. . . . . . . . . . . . 0 0 0 0 0
---------- ---------- ---------- ---------- ----------
NET INCREASE/(DECREASE) IN NET ASSETS. . . . . . . . . . 1,738,479 1,469,579 1,308,446 841,550 527,348
NET ASSETS:
Beginning of period. . . . . . . . . . . . . . . . . . . 900,331 148,404 97,387 1,106,698 594,315
---------- ---------- ---------- ---------- ----------
End of period. . . . . . . . . . . . . . . . . . . . . . $2,638,810 $1,617,983 $1,405,833 $1,948,248 $1,121,663
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE>
THE PALLADIAN TRUST
STATEMENTS OF CHANGES IN NET ASSETS (AUDITED)
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)
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.
4
<PAGE>
THE PALLADIAN TRUST
FINANCIAL HIGHLIGHTS
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
12/31/96 06/30/97 12/31/96 06/30/97 12/31/96 06/30/97
(UNAUDITED) (UNAUDITED) (UNAUDITED)
INTERNATIONAL INTERNATIONAL
VALUE VALUE GROWTH GROWTH GROWTH GROWTH
PORTFOLIO* PORTFOLIO PORTFOLIO* PORTFOLIO PORTFOLIO** PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year . . . . . . . . . . . . $10.00 $10.88 $10.00 $10.84 $10.00 $10.33
-------- -------- -------- -------- -------- --------
INCOME/(LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income/(loss) . . (0.64)(1,2) 0.09(1,4) (2.96)(1,2) 0.03(1,4) (4.16)(1,2) 0.11(1,4)
Net realized and unrealized gain/
(loss) on investments . . . . . 2.15 1.56 3.80 1.29 4.67 0.32
-------- -------- -------- -------- -------- --------
Total from investment
operations. . . . . . . . . . . 1.51 1.65 0.84 1.32 0.51 0.43
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income. . . . . . . . . . . . . 0.00 0.00 0.00 0.00 0.00 0.00
Distributions from capital . . . (0.63) 0.00 0.00 0.00 (0.18) 0.00
-------- -------- -------- -------- -------- --------
Total distributions. . . . . . . (0.63) 0.00 0.00 0.00 (0.18) 0.00
-------- -------- -------- -------- -------- --------
Net asset value, end of year . . $10.88 $12.53 $10.84 $12.16 $10.33 $10.76
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Total Return . . . . . . . . . . 15.13%(2,3) 15.18%(4) 8.40%(2,3) 12.18%(4) 5.13%(2,3) 4.21%(4)
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Net assets, end of reporting
period. . . . . . . . . . . . . $900,331 $2,638,810 $148,404 $1,617,983 $97,387 $1,405,833
Ratio of operating expenses to .
average net assets ***. . . . . 8.19%(2) 0.77%(4) 34.15%(2) 0.67%(4) 67.76%(2) 1.77%(4)
Ratio of net investment income/
(loss) to average net
assets ***. . . . . . . . . . . -6.55%(2) 1.53%(4) -31.31%(2) 0.44%(4) -56.37%(2) 2.16%(4)
Portfolio turnover rate. . . . . 73.63% 106.44% 580.48% 53.47% 116.21% 0.00%
</TABLE>
* COMMENCEMENT OF OPERATIONS FEBRUARY 1, 1996
** COMMENCEMENT OF OPERATIONS MARCH 26, 1996
*** ANNUALIZED
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE>
THE PALLADIAN TRUST
FINANCIAL HIGHLIGHTS
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
12/31/96 06/30/97 12/31/96 06/30/97
(UNAUDITED) (UNAUDITED)
GLOBAL GLOBAL GLOBAL GLOBAL
STRATEGIC STRATEGIC INTERACTIVE/ INTERACTIVE/
INCOME INCOME TELECOMM TELECOMM
PORTFOLIO* PORTFOLIO PORTFOLIO* PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of year . . . . . . . . . . . . . . . . . . . $10.00 $9.98 $10.00 $10.00
-------- -------- -------- --------
INCOME/(LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income/(loss) . . . . . . . . . (0.19)(1,2) 0.17(1,4) (0.75)(1,2) 0.04(1,4)
Net realized and unrealized gain/
(loss) on investments . . . . . . . . . . . . 0.23 (0.33) 0.80 1.43
-------- -------- -------- --------
Total from investment operations . . . . . . . 0.04 (0.16) 0.05 1.47
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income. . . . . . . . . . . . . . . . . . . . 0.00 0.00 0.00 0.00
Distributions from capital . . . . . . . . . . (0.06) 0.00 (0.05) 0.00
-------- -------- -------- --------
Total distributions. . . . . . . . . . . . . . (0.06) 0.00 (0.05) 0.00
-------- -------- -------- --------
Net asset value, end of year . . . . . . . . . $9.98 $9.82 $10.00 $11.47
-------- -------- -------- --------
-------- -------- -------- --------
Total Return. . . . . . . . . . . . . . . . . 0.44%(2,3) -1.58%(4) 0.49%(2,3) 14.67%(4)
-------- -------- -------- --------
-------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Net assets, end of reporting
period. . . . . . . . . . . . . . . . . . . . $1,106,697 $1,948,248 $594,315 $1,121,663
Ratio of operating expenses to
average net assets ***. . . . . . . . . . . . 7.37%(2) 1.55%(4) 9.83%(2) 1.28%(4)
Ratio of net investment income/(loss)
to average net assets *** . . . . . . . . . . -2.15%(2) 3.60%(4) -8.32%(2) 0.73%(4)
Portfolio turnover rate. . . . . . . . . . . . 212.36% 256.04% 71.44% 90.62%
</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 financial statements.
1. This information was prepared using the average number of shares
outstanding during the period.
2. The total return, ratio of operating expenses and the ratio of net
investment loss for the period ended December 31, 1996 reflect the impact
of an expense reimbursement totaling $169,554, allocated to each portfolio
following stipulated criteria (See Note 6). 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. For the period ended December 31, 1996 the total return
includes a capital infusion totaling $228,823 (See Note 6 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.
4. The total return, ratio of operating expenses and the ratio of net
investment loss for the six months ended June 30, 1997 reflect the impact
of an expense reimbursement totaling $194,190, allocated to each portfolio
following stipulated criteria (See Note 6). 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
($0.28), ($0.65), ($0.52), ($0.14) and, ($0.47), RESPECTIVELY, 7.18%,
12.86%, 14.27%,8.14%, AND 11.32%, RESPECTIVELY, (4.70%), (11.04%), (9.64%),
(2.85%), AND (8.80%), RESPECTIVELY.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE>
THE PALLADIAN TRUST
THE VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS - JUNE 30, 1997 (UNAUDITED)
VALUE
SHARES (NOTE 1)
- ------ --------
COMMON STOCKS 49.4%
AUTOMOTIVE 4.8%
600 Echlin Inc. . . . . . . . . . . . . . . . . . . . . . . $21,600
1,000 Federal-Mogul Corp. . . . . . . . . . . . . . . . . . . 35,000
1,000 ITT Industries Inc. . . . . . . . . . . . . . . . . . . 25,750
1,000 Kollmorgen . . . . . . . . . . . . . . . . . . . . . . 15,813
2,000 Standard Motor Products . . . . . . . . . . . . . . . . 27,500
125,663
AEROSPACE 2.4%
1,000 Sequa Corp. . . . . . . . . . . . . . . . . . . . . . . 62,250
APPAREL & TEXTILES 1.4%
2,000 Fieldcrest Cannon, Inc. . . . . . . . . . . . . . . . . 38,000
BEVERAGES 6.9%
4,000 Celestial Seasonings, Inc. .. . . . . . . . . . . . . . 100,000
3,000 Chock Full O'Nuts . . . . . . . . . . . . . . . . . . . 21,937
2,500 Whitman Corp . . . . . . . . . . . . . . . . . . . . . 60,000
---------
181,937
BROADCASTING & CABLE 3.9%
3,000 Intl. Family Entertainment . . . . . . . . . . . . . . 103,125
DEPARTMENT STORES 0.6%
600 Nieman Marcus Group, Inc. . . . . . . . . . . . . . . . 15,750
DIVERSIFIED 1.1%
1,500 Rollins, Inc. . . . . . . . . . . . . . . . . . . . . . 30,187
ENTERTAINMENT 5.9%
2,000 Time Warner, Inc. . . . . . . . . . . . . . . . . . . . 96,500
2,000 Viacom Inc. Class A . . . . . . . . . . . . . . . . . . 58,875
---------
155,375
GAMING 2.3%
1,000 ITT Corp. (New) . . . . . . . . . . . . . . . . . . . . 61,063
GROCERY STORES 1.7%
1,000 Bruno's Inc. . .. . . . . . . . . . . . . . . . . . . . 11,500
1,000 Giant Food Inc. . . . . . . . . . . . . . . . . . . . . 32,625
44,125
INDUSTRIAL INORGANIC CHEMICALS 0.5%
500 Church & Dwight Co., Inc. . . . . . . . . . . . . . . . 13,375
INDUSTRIAL EQUIPMENT & SUPPLIES 1.7%
3,000 AMPCO - Pittsburgh Corp. .. . . . . . . . . . . . . . . 44,063
LABORATORY APPARATUS 0.9%
1,000 Ametek Inc. . . . . . . . . . . . . . . . . . . . . . . 23,500
METALS & MINING 1.0%
1,500 Handy & Harman .. . . . . . . . . . . . . . . . . . . . 26,062
NEWSPAPERS / PUBLISHING 1.5%
1,000 Media General Inc. . . . . . . . . . . . . . . . . . . 40,000
OIL & GAS 4.3%
1,000 RPC Inc . . . . . . . . . . . . . . . . . . . . . . . . 14,750
5,000 Southwest Gas Co. . . . . . . . . . . . . . . . . . . . 99,375
---------
114,125
PAPER & PLASTIC PRODUCTS 1.5%
500 Ferro Corp. . . . . . . . . . . . . . . . . . . . . . . 18,531
800 Grief Bros. Corp. . . . . . . . . . . . . . . . . . . . 21,600
---------
40,131
PHARMACEUTICALS 0.8%
2,000 Ivax Corporation . . . . . . . . . . . . . . . . . . . 22,375
RETAILING 1.9%
3,000 Lillian Vernon Corporation . . . . . . . . . . . . . . 50,625
REAL ESTATE 1.8%
1,500 Santa Anita Realty Enter. . . . . . . . . . . . . . . . 46,594
TELECOMMUNICATIONS 2.5%
3,000 Centennial Cellular Corp. .. . . . . . . . . . . . . . 47,625
500 Telephone & Data System . . . . . . . . . . . . . . . . 18,969
---------
66,594
TOTAL INVESTMENTS (COST $1,150,852) * 49.4% 1,304,919
- -------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) 50.6% 1,333,891
- -------------------------------------------------------------------------------
NET ASSETS 100.0% $2,638,810
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* AGGREGATE COST FOR FEDERAL TAX PURPOSES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE>
THE PALLADIAN TRUST
THE GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS - JUNE 30, 1997 (UNAUDITED)
VALUE
SHARES (NOTE 1)
- ------ --------
COMMON STOCKS 71.5%
BANKS & FINANCIAL SERVICES 14.2%
233 Banc One Corp. .. . . . . . . . . . . . . . . . . . . . $11,294
250 Bank of New York - Warrants . . . . . . . . . . . . . . 28,250
800 Charles Schwab & Co. .. . . . . . . . . . . . . . . . . 32,550
1,000 Cityscape Financial Corp. . . . . . . . . . . . . . . . 19,938
800 Firstplus Financial Group . . . . . . . . . . . . . . . 27,200
600 Hambrecht & Quist Group . . . . . . . . . . . . . . . . 19,650
300 Loews Corp. . . . . . . . . . . . . . . . . . . . . . . 30,038
600 Paine Webber Group, Inc. .. . . . . . . . . . . . . . . 21,000
500 Southern Pacific Funding Cr . . . . . . . . . . . . . . 8,313
500 Travelers, Inc. . . . . . . . . . . . . . . . . . . . . 31,531
---------
229,764
CAPITAL GOODS 1.3%
300 Tyco Lab. . . . . . . . . . . . . . . . . . . . . . . . 20,868
COMMUNICATION 3.1%
400 Harte-Hanks Communications .. . . . . . . . . . . . . . 11,800
400 LCI International Inc. .. . . . . . . . . . . . . . . . 8,750
1,500 Metromedia Intl Group Inc. .. . . . . . . . . . . . . . 18,938
340 Worldcom, Inc. . . . . . . . . . . . . . . . . . . . . 10,880
---------
50,368
ENERGY 3.8%
600 Cliffs Drilling Co. . . . . . . . . . . . . . . . . . . 21,900
500 Global Marine Inc. .. . . . . . . . . . . . . . . . . . 11,625
400 Noble Drilling Corp. .. . . . . . . . . . . . . . . . . 9,025
200 Seacor Smit Inc. .. . . . . . . . . . . . . . . . . . . 10,463
400 Trico Marine Services Inc. .. . . . . . . . . . . . . . 8,725
---------
61,738
HEALTHCARE 8.0%
400 American Home Products Corp.. . . . . . . . . . . . . . 30,600
500 American Oncology Resources.. . . . . . . . . . . . . . 8,437
1,000 Capstone Pharmacy Services. . . . . . . . . . . . . . . 10,875
1,000 Physician Support Systems.. . . . . . . . . . . . . . . 12,250
560 Safeskin Corp. . . . . . . . . . . . . . . . . . . . . 16,485
800 Schering-Plough Corp. . . . . . . . . . . . . . . . . . 38,300
500 Vivus.. . . . . . . . . . . . . . . . . . . . . . . . . 11,906
---------
128,853
HOUSING 0.1%
120 Continental Homes Holding Corp. . . . . . . . . . . . . 2,115
LEISURE 5.6%
350 Carmike Cinemas, Inc. . . . . . . . . . . . . . . . . . 11,462
400 Consolidated Cigars Hldgs.. . . . . . . . . . . . . . . 11,100
600 DM Management Company.. . . . . . . . . . . . . . . . . 6,825
300 Family Golf Centers Inc. .. . . . . . . . . . . . . . . 6,900
2,300 Grand Casinos Inc. .. . . . . . . . . . . . . . . . . . 33,925
597 Mattel. . . . . . . . . . . . . . . . . . . . . . . . . 20,223
---------
90,435
POLLUTION CONTROL 3.1%
280 United Waste Systems, Inc. .. . . . . . . . . . . . . . 11,480
280 USA Waste Services, Inc. .. . . . . . . . . . . . . . . 10,815
1,000 U.S. Filter Corp. . . . . . . . . . . . . . . . . . . . 27,250
---------
49,545
RESTAURANTS 10.5%
275 CKE Restaurants . . . . . . . . . . . . . . . . . . . . 8,696
300 Daka International Inc. . . . . . . . . . . . . . . . . 4,050
400 Dave & Buster's Inc. .. . . . . . . . . . . . . . . . . 10,700
1,200 Landry's Seafood Restaurant.. . . . . . . . . . . . . . 27,600
1,930 Lone Star Steakhouse & Saloon . . . . . . . . . . . . . 50,180
500 O'Charleys Inc. . . . . . . . . . . . . . . . . . . . . 8,500
200 Outback Steakhouse Inc. . . . . . . . . . . . . . . . . 4,838
800 Papa John's Intl. Inc. .. . . . . . . . . . . . . . . . 29,400
1,000 PJ America Inc. . . . . . . . . . . . . . . . . . . . . 17,000
400 Planet Hollywood International . . . . . . . . . . . . 9,200
---------
170,164
RESTAURANT EQUIPMENT 0.3%
300 Turbochef, Inc. .. . . . . . . . . . . . . . . . . . . 4,050
RETAIL 5.8%
200 Bed Bath & Beyond, Inc. . . . . . . . . . . . . . . . . 6,075
200 Borders Group Inc.. . . . . . . . . . . . . . . . . . . 4,825
500 Central Garden & Pet Co . . . . . . . . . . . . . . . . 12,500
500 Just For Feet Inc.. . . . . . . . . . . . . . . . . . . 8,719
500 Oakley Inc. . . . . . . . . . . . . . . . . . . . . . . 7,031
500 OfficeMax Inc. . . . . . . . . . . . . . . . . . . . . 7,219
300 Petco Animal Supplies.. . . . . . . . . . . . . . . . . 9,000
500 Renters Choice Inc. . . . . . . . . . . . . . . . . . . 9,938
300 Tiffany & Co. . . . . . . . . . . . . . . . . . . . . . 13,856
500 Travis Boats & Motors Inc.. . . . . . . . . . . . . . . 6,562
500 Ugly Duckling Corp. . . . . . . . . . . . . . . . . . . 7,750
---------
93,475
SERVICES 6.3%
700 Accustaff, Inc. . . . . . . . . . . . . . . . . . . . . 16,581
500 American Residential Svcs.. . . . . . . . . . . . . . . 11,625
500 Corestaff Inc . . . . . . . . . . . . . . . . . . . . . 13,500
200 Corrections Corp of America.. . . . . . . . . . . . . . 7,950
800 Detection Systems Inc. . . . . . . . . . . . . . . . . 14,600
500 Personnel Group of Amer Inc. .. . . . . . . . . . . . . 14,406
1,100 Prepaid Legal Services. . . . . . . . . . . . . . . . . 23,238
---------
101,900
TECHNOLOGY 7.8%
175 3 Com Corp. . . . . . . . . . . . . . . . . . . . . . . 7,875
200 Advanced Technology Material .. . . . . . . . . . . . . 5,875
300 Cisco Systems, Inc. . . . . . . . . . . . . . . . . . . 20,139
200 Compaq Computer.. . . . . . . . . . . . . . . . . . . . 19,850
200 Computer Associates Intl. . . . . . . . . . . . . . . . 11,138
400 JPM Company.. . . . . . . . . . . . . . . . . . . . . . 14,250
200 LTX Corp. . . . . . . . . . . . . . . . . . . . . . . . 1,300
5,000 Marine Management Systems - Warrants. . . . . . . . . . 2,812
7,000 Marine Management Systems . . . . . . . . . . . . . . . 21,000
1,000 Network Computing Devices . . . . . . . . . . . . . . . 11,625
400 Raptor Systems Inc. . . . . . . . . . . . . . . . . . . 4,475
200 STB Systems Inc . . . . . . . . . . . . . . . . . . . . 6,550
---------
126,889
TRANSPORTATION 1.6%
5,000 General Parcel Services Inc . . . . . . . . . . . . . . 26,250
---------
TOTAL INVESTMENTS (COST $1,000,969) * 71.5% 1,156,414
- -------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) 28.5% 461,569
- -------------------------------------------------------------------------------
NET ASSETS 100.0% $1,617,983
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* AGGREGATE COST FOR FEDERAL TAX PURPOSES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
<PAGE>
THE PALLADIAN TRUST
THE INTERNATIONAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS - JUNE 30, 1997 (UNAUDITED)
VALUE
SHARES (NOTE 1)
- ------ --------
COMMON STOCKS 34.1%
DENMARK 0.9%
250 Inwear Group. . . . . . . . . . . . . . . . . . . . . . $12,353
ENGLAND 4.7%
23,225 Victrex PLC.. . . . . . . . . . . . . . . . . . . . . . 66,129
FINLAND 0.3%
250 Benefon . . . . . . . . . . . . . . . . . . . . . . . . 4,334
FRANCE 0.6%
75 Axime . . . . . . . . . . . . . . . . . . . . . . . . . 8,869
HONG KONG 10.6%
22,500 Joyce Boutique . . . . . . . . . . . . . . . . . . . . 3,514
175,000 Lung Kee (Bermuda) Holdings . . . . . . . . . . . . . . 66,636
160,000 Sinocan Holdings Limited . . . . . . . . . . . . . . . 78,995
---------
149,145
INDONESIA 3.5%
40,000 PT Davomas Abadi-Foreign . . . . . . . . . . . . . . . 49,342
NORWAY 4.2%
7,000 Radio P4 . . . . . . . . . . . . . . . . . . . . . . . 59,232
SINGAPORE 0.8%
6,000 Electronic resources, LTD . . . . . . . . . . . . . . . 9,443
6,000 Electronic resources, LTD - Rights . . . . . . . . . . 1,700
---------
11,143
SWEDEN 2.5%
500 Investment AB Bure. . . . . . . . . . . . . . . . . . . 6,304
2,000 Nobel Biocare .. . . . . . . . . . . . . . . . . . . . 28,189
34,493
SWITZERLAND 5.4%
10 Stratec Holding . . . . . . . . . . . . . . . . . . . . $15,208
400 Selecta Group-Reg . . . . . . . . . . . . . . . . . . . 60,830
---------
76,038
UNITED STATES 0.6%
300 Pfeiffer Vacuum Tech. . . . . . . . . . . . . . . . . . 8,739
TOTAL INVESTMENTS (COST $450,931) * 34.1% 479,817
- -------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) 65.9% 926,016
- -------------------------------------------------------------------------------
NET ASSETS 100.0% $1,405,833
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* AGGREGATE COST FOR FEDERAL TAX PURPOSES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
9
<PAGE>
THE PALLADIAN TRUST
THE GLOBAL STRATEGIC INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS - JUNE 30, 1997 (UNAUDITED)
VALUE
FACE VALUE (NOTE 1)
- ---------- --------
UNITED STATES DOLLAR BONDS 33.1%
40,000 U.S. Treasury Bond
7.625% due 2/15/25 . . . . . . . . . . . . . . . $43,787
80,000 U.S. Treasury Bond
6.50% due 11/15/26. . . . . . . . . . . . . . . . 76,700
200,000 U.S. Treasury Note
6.625% due 4/30/02. . . . . . . . . . . . . . . . 201,875
300,000 U.S. Treasury Note
6.625% due 5/15/07. . . . . . . . . . . . . . . . 302,531
20,000 U.S. Treasury Note
6.250% due 6/30/02. . . . . . . . . . . . . . . . 19,888
---------
644,781
ITALIAN LIRA BOND 11.8%
370,000 Italy BTPS
7.750% due 9/15/01 . . . . . . . . . . . . . . . 229,030
GERMAN DEUTSCHE MARK BOND 19.1%
220,000 Deutschland Republic
7.375% due 1/3/05. . . . . . . . . . . . . . . . 141,870
350,000 Deutschland Republic
8.000% due 7/22/02 . . . . . . . . . . . . . . . 231,099
---------
372,969
JAPANESE YEN BOND 11.3%
24,400,000 JAPAN - 184 (10 Year Issue)
2.900% due 12/20/05. . . . . . . . . . . . . . . 220,479
CANADIAN DOLLAR BONDS 3.8%
50,000 Canadian Government
7.250% due 6/1/07. . . . . . . . . . . . . . . . 38,734
50,000 Canadian Government
4.000% due 3/15/99 . . . . . . . . . . . . . . . 35,942
---------
74,676
BRITISH POUND BOND 4.9%
50,000 UK Gilt Stock
9.000% due 10/13/08. . . . . . . . . . . . . . . 95,152
TOTAL INVESTMENTS (COST $1,660,258) * 84.0% 1,637,087
- -------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) 16.0% 311,160
- -------------------------------------------------------------------------------
NET ASSETS 100.0% $1,948,247
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SCHEDULE OF FORWARD FOREIGN EXCHANGE CONTRACTS
NUMBER CONTRACT MARKET
OF VALUE VALUE
CONTRACTS DATE (NOTE 1)
- --------- ---- --------
FORWARD FOREIGN EXCHANGE CONTRACTS TO BUY
50,242 Canadian Dollar . . . . . . . . . . . . . 07/03/97 $36,385
250,781 Canadian Dollar . . . . . . . . . . . . . 07/28/97 181,939
100,420 Canadian Dollar . . . . . . . . . . . . . 07/28/97 72,853
48,746 German Deutsche . . . . . . . . . . . . . 07/28/97 28,014
3,800,001 Spanish Peseta . . . . . . . . . . . . . 07/28/97 25,812
400,000 French Franc . . . . . . . . . . . . . . 07/28/97 68,201
17,404,072 Japanese Yen . . . . . . . . . . . . . . 07/28/97 152,526
11,353,000 Japanese Yen . . . . . . . . . . . . . . 07/28/97 99,495
100,000 Swedish Krona . . . . . . . . . . . . . . 07/28/97 12,946
- -------------------------------------------------------------------------------
TOTAL FORWARD FOREIGN EXCHANGE CONTRACTS TO BUY
(CONTRACT AMOUNT $683,582) * $678,171
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NUMBER CONTRACT MARKET
OF VALUE VALUE
CONTRACTS DATE (NOTE 1)
- --------- ---- --------
FORWARD FOREIGN EXCHANGE CONTRACTS TO SELL
107,942 United States Dollar. . . . . . . . . . . 06/18/97 $108,822
107,959 United States Dollar. . . . . . . . . . . 06/18/97 108,822
36,481 United States Dollar. . . . . . . . . . . 06/27/97 36,450
184,844 United States Dollar. . . . . . . . . . . 06/13/97 184,854
- -------------------------------------------------------------------------------
TOTAL FORWARD FOREIGN EXCHANGE CONTRACTS TO SELL
(CONTRACT AMOUNT $437,227) * $438,948
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* AGGREGATE COST FOR FEDERAL TAX PURPOSES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
10
<PAGE>
THE PALLADIAN TRUST
THE GLOBAL INTERACTIVE / TELECOMM PORTFOLIO
PORTFOLIO OF INVESTMENTS - JUNE 30, 1997 (UNAUDITED)
VALUE
SHARES (NOTE 1)
- ------ --------
COMMON STOCKS 58.8%
CANADA 1.0%
500 British Columbia Telecomm . . . . . . . . . . . . . . . $11,675
FOREIGN 0.8%
500 Havas S.A. Spons, ADR . . . . . . . . . . . . . . . . . 9,017
UNITED STATES 57.0%
BROADCASTING, MEDIA & RADIO 15.1%
2,000 Ackerly Communications .. . . . . . . . . . . . . . . . 22,500
1,000 Time Warner, Inc. . . . . . . . . . . . . . . . . . . . 48,250
1,000 United Television . . . . . . . . . . . . . . . . . . . 99,000
---------
169,750
CABLE 15.9%
500 BET Holdings Inc. Class A . . . . . . . . . . . . . . . 16,375
1,000 Cablevision Systems Corp. . . . . . . . . . . . . . . . 53,500
1,500 Century Communications .. . . . . . . . . . . . . . . . 8,062
1,000 Home Shopping Network . . . . . . . . . . . . . . . . . 31,250
1,000 United International Holding, Class A . . . . . . . . . 10,375
2,000 Viacom Inc Class A .. . . . . . . . . . . . . . . . . . 58,875
---------
178,437
COMMUNICATION SERVICES 1.1%
500 Comsat Corp. . . . . . . . . . . . . . . . . . . . . . 11,906
DIVERSIFIED 2.4%
300 Sony Corp., ADR . . . . . . . . . . . . . . . . . . . . 26,400
ENTERTAINMENT 9.4%
244 Ascent Entertainment Group .. . . . . . . . . . . . . . 2,230
3,000 Intl. Family Entertainment . . . . . . . . . . . . . . 103,125
---------
105,355
MISCELLANEOUS 6.4%
3,000 Liberty Media Group, Class A. . . . . . . . . . . . . . 71,250
TELECOMMUNICATIONS 5.2%
1,000 Century Telephone Enterprises . . . . . . . . . . . . . 33,689
300 Telephone Data Systems . . . . . . . . . . . . . . . . 11,381
1,000 Winstar Communications Inc. . . . . . . . . . . . . . . 13,375
---------
58,445
WIRELESS COMMUNICATIONS 1.5%
2,000 Price Communications .. . . . . . . . . . . . . . . . . 17,500
TOTAL INVESTMENTS (COST $562,022) * 58.8% 659,735
- -------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) 41.2% 461,928
- -------------------------------------------------------------------------------
NET ASSETS 100.0% $1,121,663
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* AGGREGATE COST FOR FEDERAL TAX PURPOSES
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
11
<PAGE>
The Palladian Trust
Notes to Financial Statements - Unaudited
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 U.S. dollars at the exchange rates prevailing at the end of
the period, and purchases and
1
<PAGE>
sales of investment securities, income and expenses are translated on the
respective dates of such transactions.
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
June 30, 1997. 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 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
2
<PAGE>
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.
For the year ended December 31, 1996, 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 expenses were deferred and are being
amortized by each Portfolio on a straight-line basis over a five-year period
from commencement of operations. The amount paid by the Trust on any redemption
by Palladian Advisors, Inc. ("PAI") or, any other then-current holder of 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
3
<PAGE>
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.
3. MANAGER, PORTFOLIO ADVISOR, PORTFOLIO MANAGERS, ADMINISTRATION FEES AND
OTHER TRANSACTIONS.
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.
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.
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 and sole shareholder of the Distributor is also an officer of PAI,
and a trustee and officer of the Trust. Certain officers of PAI are also
trustees and officers of the Trust.
The Value Portfolio and The Global Interactive / Telecomm Portfolio placed a
significant portion of their portfolio transactions through Gabelli & Co., an
affiliated entity of both
4
<PAGE>
portfolios and the Sub-Advisor, GAMCO Investors, Inc. Total commissions paid to
Gabelli & Co. were as follows:
FOR THE PERIOD ENDED DECEMBER 31, 1996
Portfolio Amount
--------- ------
Value $4,896
Global Interactive / Telecomm $3,200
FOR THE SIX MONTHS ENDED JUNE 30, 1997
Portfolio Amount
--------- ------
Value $3,780
Global Interactive / Telecomm $1,862
4. MANAGEMENT FEES
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 was .80% of average net assets.
Beginning with February 1, 1997 (Value Portfolio, Growth Portfolio, Global
Strategic Income Portfolio and Global Interactive / Telecomm ) and beginning
with March 26, 1997 (International Growth Portfolio), each Portfolio will pay at
the end of each month, a monthly advisory fee equal to a Basic Fee plus or minus
an Incentive Fee. (As explained below, the fee might be reduced if absolute
performance is negative.) The monthly Basic Fee will equal one-twelfth of the
annual Basic Fee rate of 2.0% multiplied by average daily net assets over the
previous 12 months. The Incentive Fee rate ranges from -2.0% to +2.0% on an
annual basis, depending on a comparison of the Portfolio's performance
(reflecting a deduction of Portfolio expenses) and the performance of a selected
benchmark index over the past 12 months. The monthly Incentive Fee, like the
monthly Basic Fee, is calculated by multiplying one- twelfth of the Incentive
Fee rate on an annual basis by the average daily net assets over the previous 12
months. Accordingly, the Total Fee could range from 0.0% to an annual rate of
4.0%, depending on performance. 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.
No Incentive Fee will be paid if the Portfolio's performance equals the targeted
performance -- selected benchmark index plus 2.25 percentage points. The maximum
fee will be paid if performance is 5.25 percentage points higher than the target
(i.e., 7.5 percentage points higher than the selected benchmark index). No fee
will be paid if performance is 5.25 percentage points lower than the target
(i.e., more than 3 percentage points below the selected benchmark index). The
chart below further explains the Incentive Fee at various performance levels.
5
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE POINT DIFFERENCE BETWEEN PERFORMANCE OF THE PORTFOLIO
(NET OF EXPENSES INCLUDING BASIC FEE AND INCENTIVE FEE) TOTAL
AND CHANGE IN SELECTED BENCHMARK INDEX BASIC FEE (%) INCENTIVE FEE (%) ADVISORY FEE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
+7.5 or greater 2.0 2.0 4.0
+6.0 or greater, but less than +7.5 2.0 1.5 3.5
+4.5 or greater, but less than +6.0 2.0 1.0 3.0
+3.0 or greater, but less than +4.5 2.0 0.5 2.5
+1.5 or greater, but less than +3.0 2.0 0.0 2.0
0.0 or greater, but less than +1.5 2.0 (0.5) 1.5
- -1.5 or greater, but less than 0.0 2.0 (1.0) 1.0
- -3.0 or greater, but less than -1.5 2.0 (1.5) 0.5
Less than -3.0 2.0 (2.0) 0.0
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
MAXIMUM FEE IF PERFORMANCE IS NEGATIVE. Notwithstanding the above schedule, if
the absolute performance of a Portfolio (after payment of all expenses,
including the Basic Fee and any Incentive Fee) is negative, the monthly advisory
fee will be the lesser of the fee calculated pursuant to the above schedule or
the alternative monthly advisory fee described below, which under certain
circumstances results in the Portfolios paying either no advisory fee or a lower
monthly advisory fee than under the performance fee schedule above. If a
Portfolio's performance (after payment of all expenses including advisory fees)
is negative and does not exceed the selected benchmark by six percentage points
(on an annual basis), no monthly advisory fee will be paid. If the Portfolio's
performance (after payment of all expenses including advisory fees) is negative
and does not exceed the selected benchmark by twelve percentage points but does
exceed the selected benchmark by six percentage points (on an annual basis), the
alternate monthly advisory fee will be based on an annual rate of 1.0% of
average daily net assets over the previous 12 months. If, on the other hand, the
performance of a Portfolio (after payment of all expenses including advisory
fees) is negative but exceeds the selected benchmark by twelve percentage points
or more (on an annual basis), the alternative monthly advisory fee will be based
on an annual rate of 2.0% of average daily net assets over the previous 12
months.
5. PORTFOLIO MANAGER INVESTMENT
Each Portfolio Manager has contractually agreed that it or an affiliate (either
directly or through a qualified plan) will invest at least a total of $1
million in the Portfolio or Portfolios it manages. The Portfolio Manager for
the Global Strategic Income Portfolio made the investment shortly after the
Portfolio commenced operations. The Portfolio Managers for the International
Growth Portfolio (Bee & Associates Incorporated) and the Growth Portfolio
(Stonehill Capital Management, Inc.) have each agreed that it or its principals
will make the investment (directly or through qualified plans) when that
Portfolio reaches $10 million in total assets. Since GAMCO Investors, Inc.
manages both the Value Portfolio and the Global Interactive/Telecomm Portfolio,
it agreed to invest $500,000 in each Portfolio. GAMCO Investors, Inc. made
those investments shortly after the Portfolios commenced operations. Although a
Portfolio Manager is permitted by law to sell its shares at any time, each
Portfolio Manager currently intends to maintain that investment as long as it
manages the Portfolio. Once a Portfolio Manager makes that investment, and for
as long as it maintains the investment, the Portfolio Manager will be managing a
portion of their own money along with your money.
6
<PAGE>
6. 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 periods as follows:
JUNE 30, 1997
Portfolio Purchases Sales
--------- --------- -----
Value $1,650,693 $985,376
Growth 1,144,486 238,221
International Growth 390,195 0
Global Strategic Income 2,321,135 1,676,797
Global Telecomm / Interactive 559,973 426,885
DECEMBER 31, 1996
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 periods as
follows:
JUNE 30, 1997
Portfolio Purchases Sales
--------- --------- -----
Global Strategic Income $954,771 $746,875
DECEMBER 31, 1996
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, each portfolio for the
periods as follows:
JUNE 30, 1997
Portfolio Appreciation (Depreciation)
--------- --------- --------------
Value $169,994 $(15,927)
Growth 178,155 (22,711)
International Growth 45,180 (16,509)
Global Strategic Income 18,007 (37,547)
Global Telecomm / Interactive 114,666 (16,955)
Portfolio Net Cost
--------- --- ----
Value $154,067 $1,150,851
Growth 155,444 1,000,969
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<PAGE>
International Growth 28,671 450,931
Global Strategic Income (19,540) 1,660,258
Global Telecomm / Interactive 97,711 562,022
DECEMBER 31, 1996
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
7. SHARES OF BENEFICIAL INTEREST. Each Portfolio of the Trust may issue an
unlimited number of shares of beneficial interest without par value.
VALUE PORTFOLIO SHARES AMOUNT
- --------------------------------------------------------------------------------
For the period ended: June 30, 1997
Sold . . . . . . . . . . . . . . . . . . . . 129,557 $1,504,840
Issued as reinvestment of dividends. . . . . 0 0
Redeemed . . . . . . . . . . . . . . . . . . (1,752) (20,178)
------- --------
Net Increase . . . . . . . . . . . . . . . . 127,805 $1,484,662
------- ----------
------- ----------
For the period ended: December 31, 1996
Sold . . . . . . . . . . . . . . . . . . . . 78,424 $783,947
Issued as reinvestment of dividends. . . . . 4,552 49,532
Redeemed . . . . . . . . . . . . . . . . . . (215) (2,312)
----- -------
Net Increase . . . . . . . . . . . . . . . . 81,761 $831,167
------ --------
------ --------
GROWTH PORTFOLIO SHARES AMOUNT
- --------------------------------------------------------------------------------
For the period ended: June 30, 1997
Sold . . . . . . . . . . . . . . . . . . . . 121,307 $1,365,584
Issued as reinvestment of dividends. . . . . 0 0
Redeemed . . . . . . . . . . . . . . . . . . (1,923) (21,258)
------- --------
Net Increase . . . . . . . . . . . . . . . . 119,384 $1,344,326
------- ----------
------- ----------
8
<PAGE>
For the period ended: December 31, 1996
Sold . . . . . . . . . . . . . . . . . . . . 15,062 $140,699
Issued as reinvestment of dividends. . . . . 0 0
Redeemed . . . . . . . . . . . . . . . . . . (2,372) (24,371)
------- --------
Net Increase . . . . . . . . . . . . . . . . 12,690 $116,328
------ --------
------ --------
INTERNATIONAL GROWTH PORTFOLIO SHARES AMOUNT
- --------------------------------------------------------------------------------
For the period ended: June 30, 1997
Sold . . . . . . . . . . . . . . . . . . . . 125,884 $1,326,977
Issued as reinvestment of dividends. . . . . 0 0
Redeemed . . . . . . . . . . . . . . . . . . (4,702) (49,603)
------- --------
Net Increase . . . . . . . . . . . . . . . . 121,182 $1,277,374
------- ----------
------- ----------
For the period ended: December 31, 1996 . .
Sold . . . . . . . . . . . . . . . . . . . . 9,266 $83,446
Issued as reinvestment of dividends. . . . . 164 1,702
Redeemed . . . . . . . . . . . . . . . . . . (999) (7,748)
----- -------
Net Increase . . . . . . . . . . . . . . . . 8,431 $77,400
----- -------
----- -------
GLOBAL STRATEGIC INCOME PORTFOLIO PORTFOLIO SHARES AMOUNT
- --------------------------------------------------------------------------------
For the period ended: June 30, 1997
Sold . . . . . . . . . . . . . . . . . . . . 89,200 $861,680
Issued as reinvestment of dividends. . . . . 0 0
Redeemed . . . . . . . . . . . . . . . . . . (1,683) (16,453)
------- --------
Net Increase . . . . . . . . . . . . . . . . 87,517 $845,227
------ --------
------ --------
For the period ended: December 31, 1996
Sold . . . . . . . . . . . . . . . . . . . . 140,820 $1,387,996
Issued as reinvestment of dividends. . . . . 711 7,097
Redeemed . . . . . . . . . . . . . . . . . . (35,612) (333,700)
-------- ---------
Net Increase . . . . . . . . . . . . . . . . 105,919 $1,061,393
------- ----------
------- ----------
GLOBAL INTERACTIVE/TELECOM PORTFOLIO SHARES AMOUNT
- --------------------------------------------------------------------------------
For the period ended: June 30, 1997
Sold . . . . . . . . . . . . . . . . . . . . 40,151 $421,078
Issued as reinvestment of dividends. . . . . 0 0
Redeemed . . . . . . . . . . . . . . . . . . (1,802) (19,940)
------- --------
9
<PAGE>
Net Increase . . . . . . . . . . . . . . . . 38,349 $401,138
------ --------
------ --------
For the period ended: December 31, 1996
Sold . . . . . . . . . . . . . . . . . . . . 58,734 $586,289
Issued as reinvestment of dividends. . . . . 288 2,886
Redeemed . . . . . . . . . . . . . . . . . . (608) (5,723)
----- -------
Net Increase . . . . . . . . . . . . . . . . 58,414 $583,452
------ --------
------ --------
8. 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 June 30, 1997, the fees waived and expenses subject to
reimbursement by PAI for each Portfolio (which amounts may later be returned by
the Portfolios to PAI, as explained above) are as follows:
Portfolio 12/31/1996 6/30/1997 Cumulative
--------- ---------- --------- ----------
Value $40,166 $46,097 $86,263
Growth $26,018 $35,100 $61,118
International Growth $23,053 $31,221 $54,274
Global Strategic Income $46,749 $44,746 $91,495
Global Interactive / Telecomm $33,568 $37,026 $70,594
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 $51,906
Growth $49,231
International Growth $34,947
Global Strategic Income $52,077
Global Interactive / Telecomm $40,662
10
<PAGE>
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.
11
