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SUPPLEMENT DATED MARCH 13, 1997
TO PROSPECTUS DATED MAY 1, 1996
THE PALLADIAN TRUST
The Trust commenced operations on February 1, 1996, and thus the performance-
based fee arrangement described in the prospectus on pages 9-11 is effective
starting February 1, 1997. This supplement provides a revised "Summary of
Expenses" reflecting the performance-based fee and supplemental information
about an expense limitation arrangement and capital contribution.
* * * * * *
The following replaces the "Summary of Expenses" section on page 5 of the
prospectus.
SUMMARY OF EXPENSES
The following tables show the expenses that will be incurred by each Portfolio,
expressed as a percentage of average net assets during the year. If you have
been given this prospectus because you are considering the purchase of a
variable annuity contract, you should refer instead to the corresponding table
in the variable annuity contract prospectus.
SHAREHOLDER TRANSACTIONS EXPENSES (FOR EACH PORTFOLIO)
Sales Load on Purchases None
Sales Load on Reinvested Dividends None
Deferred Sales Load Imposed on Redemption None
Exchange Fees None
Annual Fund Operating Expenses
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Beginning February 1, 1997, a performance-based advisory fee is in effect. The
base fee is 2.00%, but the total fee may vary from between 0.00% to 4.00%,
depending on the Portfolio's performance. The base fee of 2.00% would be paid
if Portfolio performance (net of all fees and expenses, including the advisory
fee) is between 1.5 and 3.0 percentage points better than the benchmark index.
A fee of 4.00% would be paid only if Portfolio performance (net of all fees
and expenses, including the advisory fee) was at least 7.5 percentage points
better than the benchmark index. No fee will apply if the Portfolio's
performance is more than 3.0 percentage points lower than the benchmark index.
See "Management and Portfolio Management Investment Advisory Fees," pages 9-11.
Because of this variation, we show below expense information assuming fees of
0.00%, 2.00% and 4.00%. You should note, however, that the fee could be any
figure between 0.00% and 4.00%.
For each of the three fee levels shown -- 0.00%, 2.00% and 4.00% -- we have
included an example prepared in accordance with the requirements of the
Securities and Exchange Commission. The purpose of the examples is to assist
investors in understanding the various costs and expenses that an investor in
the Portfolios will bear directly or indirectly. They show the total expenses
that would be payable if you redeemed your shares after having held them for one
and three year periods respectively. Each example assumes a 5% annual rate of
return pursuant to requirements of the Securities and Exchange Commission. This
hypothetical rate of return is not intended to be representative of past or
future performance. The amounts shown are based upon estimates. Actual
expenses may be greater than or less than those shown.
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1. ASSUMING MANAGEMENT FEE OF 0%
An advisory fee of 0% would be paid if the Portfolio's performance (net of all
fees and expenses) was more than 3.0 percentage points lower than the benchmark
index.
<TABLE>
<CAPTION>
OTHER EXPENSES
(AFTER ANY
MANAGEMENT APPLICABLE TOTAL OPERATING
FUND FEES REIMBURSEMENT) EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Value Portfolio 0% (1) 0.70% (2) 0.70%
Growth Portfolio 0% (1) 0.70% (2) 0.70%
International Growth 0% (1) 1.20% (2) 1.20%
Portfolio
Global Strategic Income 0% (1) 1.20% (2) 1.20%
Portfolio
Global Interactive/ 0% (1) 1.20% (2) 1.20%
Telecomm Portfolio
</TABLE>
EXAMPLE. A shareholder would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return, (2) an advisory fee of 0%, and
(3) redemption at the end of each time period.
1 Year 3 Years
Value Portfolio $ 7.00 $21.92
Growth Portfolio $ 7.00 $21.92
International Growth Portfolio $12.00 $37.39
Global Strategic Income Portfolio $12.00 $37.39
Global Interactive/Telecomm Portfolio $12.00 $37.39
2. ASSUMING MANAGEMENT FEE OF 2.00%
An advisory fee of 2.00% would be paid if the Portfolio's performance (net of
all fees and expenses, including the 2.00% advisory fee) was between 1.5 and 3.0
percentage points better than the benchmark index.
<TABLE>
<CAPTION>
OTHER EXPENSES
(AFTER ANY
MANAGEMENT APPLICABLE TOTAL OPERATING
FUND FEES REIMBURSEMENT) EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Value Portfolio 2.00% (1) 0.70% (2) 2.70%
Growth Portfolio 2.00% (1) 0.70% (2) 2.70%
International Growth 2.00% (1) 1.20% (2) 3.20%
Portfolio
Global Strategic Income 2.00% (1) 1.20% (2) 3.20%
Portfolio
Global Interactive/Telecomm 2.00% (1) 1.20% (2) 3.20%
Portfolio
</TABLE>
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EXAMPLE. A shareholder would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return, (2) an advisory fee of 2%, and
(3) redemption at the end of each time period.
1 Year 3 Years
Value Portfolio $27.00 $82.88
Growth Portfolio $27.00 $82.88
International Growth Portfolio $32.00 $97.74
Global Strategic Income Portfolio $32.00 $97.74
Global Interactive/Telecomm Portfolio $32.00 $97.74
3. ASSUMING MANAGEMENT FEE OF 4.00%
An advisory fee of 4.00% would be paid if the Portfolio's performance (net of
all fees and expenses, including the 4.00% advisory fee) was at least 7.5
percentage points better than the benchmark index.
<TABLE>
<CAPTION>
OTHER EXPENSES
(AFTER ANY
MANAGEMENT APPLICABLE TOTAL OPERATING
FUND FEES REIMBURSEMENT) EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Value Portfolio 4.00% (1) 0.70% (2) 4.70%
Growth Portfolio 4.00% (1) 0.70% (2) 4.70%
International Growth 4.00% (1) 1.20% (2) 5.20%
Portfolio
Global Strategic Income 4.00% (1) 1.20% (2) 5.20%
Portfolio
Global Interactive/Telecomm 4.00% (1) 1.20% (2) 5.20%
Portfolio
</TABLE>
EXAMPLE. A shareholder would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return, (2) an advisory fee of 4%, and
(3) redemption at the end of each time period. In order to have both a
5% annual return and an advisory fee of 4%, the Portfolio's performance
would have to be 9% before deduction of the 4% fee (resulting in
performance of 5%) and the benchmark index would have to DECREASE at least
2.5 percentage points (meaning that the Portfolio's performance after fees
and expenses was at least 7.5 percentage points better than the benchmark
index).
1 Year 3 Years
Value Portfolio $47.00 $141.42
Growth Portfolio $47.00 $141.42
International Growth Portfolio $52.00 $155.69
Global Strategic Income Portfolio $52.00 $155.69
Global Interactive/Telecomm Portfolio $52.00 $155.69
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(1) Beginning February 1, 1997, a performance-based advisory fee is in effect.
See "Management and Portfolio Management Investment Advisory Fees," pages 9-11.
(2) Based on estimates for the current fiscal year (1997), taking into account
expense limitation arrangement. The Manager has agreed to waive fees or
reimburse expenses until at least December 31, 1997 to the extent a Portfolio's
"other expenses" (I.E., expenses other than management fees) exceed the
following expense limitations: Value Portfolio, 0.70%; Growth Portfolio, 0.70%;
International Growth Portfolio, 1.20%; Global Strategic Income Portfolio, 1.20%;
Global Interactive/Telecomm Portfolio, 1.20%. Without those limitations, it is
estimated that the 1997 "other expenses" would be as follows: Value Portfolio,
2.49%; Growth Portfolio, 2.64%; International Growth Portfolio, 2.54%; Global
Strategic Income Portfolio, 3.03%; Global Interactive/Telecomm Portfolio, 2.38%.
* * * * * *
The following supplements "Management and Portfolio Management Investment
Advisory Fees" on pages 9-10 of the prospectus.
EXPENSE LIMITATION
The Manager has agreed to limit operating expenses and reimburse those expenses
to the extent that each Portfolio's "other expenses" (I.E., expenses other than
management fees) from September 11, 1996 through December 31, 1997 exceed the
expense limitation for that Portfolio. The chart below sets forth the expense
limitation for each Portfolio. The limitation is expressed as an annualized
percentage of average daily net assets.
Limitation on "other
Portfolio expenses"
------------------------------------------------------------
Value 0.70%
Growth 0.70%
International Growth 1.20%
Global Strategic Income 1.20%
Global Interactive/Telecomm 1.20%
The Manager, if agreed to by the Board, may continue the voluntary expense
limitation past December 31, 1997. For the two years following the date that
the expense limitation ends, each Portfolio will reimburse the Manager for any
fees it waived or expenses it reimbursed pursuant to the expense limitation,
provided that such reimbursement does not cause the Portfolio's "other expense"
ratio to exceed the expense limitation for that Portfolio set forth in the chart
above. After this two year period, the Portfolios' reimbursement liability to
the Manager will cease. In addition, if at any time the investment management
agreement between the Manager and the Portfolios terminates, the Portfolios'
reimbursement liability to the Manager will cease.
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CAPITAL CONTRIBUTION
The Manager has agreed to voluntarily contribute capital to the Portfolios as
follows:
Portfolio Capital Contribution
------------------------------------------------------------
Value $51,906.35
Growth $49,230.63
International Growth $34,947.29
Global Strategic Income $52,077.06
Global Interactive/Telecomm $40,662.47
The amounts were contributed to offset expenses accrued to the Portfolios in
excess of the expense limitations described in the previous section during the
period from the commencement of operations to September 10, 1996 when the
expense limitations became effective. The Manager 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.
