<PAGE>
- - --------------------------------------------------------------------------------
Government Income Portfolio
PORTFOLIO OF INVESTMENTS June 30, 1995 (unaudited)
- - --------------------------------------------------------------------------------
Principal
Amount
Issuer (000 omitted) Value
- - --------------------------------------------------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION -- 4.2%
8.00%, 2006............. $347 $ 358,602
8.00%, 2007............. 284 292,759
8.00%, 2017............. 630 645,787
8.00%, 2021............. 292 299,219
8.00%, 2022............. 268 274,236
9.50%, 2016............. 4 3,901
9.50%, 2017............. 74 77,896
9.50%, 2018............. 87 92,036
9.50%, 2019............. 92 97,306
9.50%, 2020............. 84 89,056
-------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
(Identified Cost $2,189,405) 2,230,798
---------
Principal
Amount
Issuer (000 omitted) Value
- - -------------------------------------------------------
U.S. GOVERNMENT
OBLIGATIONS -- 94.5%
U.S. Treasury Notes,
4.625%, 2/15/1996...... $ 2,564 $ 2,546,770
5.125%, 3/31/1996...... 1,050 1,045,401
7.25%, 8/31/1996....... 8,250 8,380,185
6.125%, 5/31/1997...... 10,425 10,478,793
6.125%, 5/15/1998...... 9,730 9,793,829
5.375%, 5/31/1998...... 2,100 2,070,138
6.875%, 3/31/2000...... 9,640 9,977,400
6.25%, 5/31/2000....... 3,000 3,032,344
---------
47,324,860
----------
United States Treasury Bond
7.50%, 1/31/2000....... 3,420 3,654,065
----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified Cost $50,959,225) 50,978,925
----------
TOTAL INVESTMENTS
(Identified Cost $53,148,630) 98.7% 53,209,723
OTHER ASSETS
LESS OTHER LIABILITIES.. 1.3 722,580
----- ----------
NET ASSETS............... 100.0% $53,932,303
===== ===========
See notes to financial statements
<PAGE>
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Government Income Portfolio
STATEMENT OF ASSETS AND LIABILITIES June 30, 1995 (unaudited)
- - --------------------------------------------------------------------------------
ASSETS:
Investments at value (Note 1A)
(Identified Cost, $53,148,630)....................... $53,209,723
Cash.................................................. 32,594
Interest receivable................................... 705,623
----------
Total assets...................................... 53,947,940
----------
LIABILITIES:
Payable to affiliates--Investment
advisory fee (Note 2)............................... 15,637
NET ASSETS ........................................... $53,932,303
==========
REPRESENTED BY:
Paid-in capital for beneficial interests.............. $53,932,303
==========
See notes to financial statements
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Government Income Portfolio
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1995 (unaudited)
- - --------------------------------------------------------------------------------
INTEREST INCOME (Note 1B):............................ $1,659,774
EXPENSES:
Investment advisory fees (Note 2)..................... $ 94,818
Administrative fees (Note 3).......................... 13,545
Expense fees (Note 6)................................. 500
----------
Total expenses...................................... 108,863
Less aggregate amount waived by the Investment
Advisor and Administrator (Note 2 and Note 3)........ (7,164)
-----------
Net Expense........................................... 101,699
----------
Net investment income............................... 1,558,075
---------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 5):
Net realized gain from investment transactions........ 301,476
Unrealized appreciation (depreciation)
of investments--
Beginning of period................................ (2,077,668)
End of period...................................... 61,093
----------
Net change in unrealized
appreciation (depreciation)....................... 2,138,761
----------
Net realized and unrealized gain on investments.... 2,440,237
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS...................................... $3,998,312
==========
See notes to financial statements
<PAGE>
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Government Income Portfolio
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Six Months May 1, 1994
Ended (Commencement
June 30, 1995 of Operations) to
(unaudited) December 31, 1994
------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income...................................................$ 1,558,075 $ 2,240,079
Net realized gain on investment transactions.......................... 301,476 (2,084,009)
Net change in unrealized appreciation (depreciation) of investments.... 2,138,761 443,611
--------- ---------
Net increase (decrease) in net assets resulting from operations.... 3,998,312 599,681
--------- ---------
CAPITAL TRANSACTIONS:
Proceeds from contributions............................................ 2,785,166 80,362,853
Value of withdrawals................................................... (8,524,247) (25,289,462)
--------- ---------
Net increase (decrease) in net assets from capital transactions.... (5,739,081) 55,073,391
--------- ---------
NET INCREASE (DECREASE) IN NET ASSETS: ................................ (1,740,769) 55,673,072
NET ASSETS:
Beginning of period.................................................... 55,673,072 --
---------- -----------
End of period.......................................................... $53,932,303 $55,673,072
========== ==========
See notes to financial statements
</TABLE>
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Government Income Portfolio
FINANCIAL HIGHLIGHTS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the Period
Six Months May 1, 1994
Ended (Commencement of
June 30, 1995 Operations) to
(unaudited) December 31, 1994
------------- ----------------
RATIOS/SUPPLEMENTAL DATA:
<S> <C> <C>
Net Assets, end of period (000 omitted)................................ $53,932 $55,673
Ratio of expenses to average net assets................................ 0.38%* 0.43%*
Ratio of net investment income to average net assets................... 5.75%* 5.27%*
Portfolio turnover..................................................... 113% 40%
<CAPTION>
Note: If Agents of the Portfolio had not voluntarily waived a portion of their fees during the period
indicated, the ratios would have been as follows:
RATIOS:
<S> <C> <C>
Expenses to average net assets......................................... 0.40%* 0.44%*
Net investment income to average net assets............................ 5.73%* 5.26%*
* Annualized
</TABLE>
See notes to financial statements
<PAGE>
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Government Income Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
- - --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Government Income Portfolio (the "Portfolio"), a separate series of The Premium
Portfolios (the "Portfolio Trust"), is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company which was organized as a trust under the laws of the State of New York.
The Declaration of Trust permits the Trustees to issue beneficial interests in
the Portfolio. The Investment Adviser of the Portfolio is Citibank, N.A.
("Citibank"). Signature Financial Group (Grand Cayman), Ltd. ("SFG") acts as the
Portfolio's Administrator.
The significant accounting policies consistently followed by the Portfolio are
in conformity with generally accepted accounting principles and are as follows:
A. INVESTMENT SECURITY VALUATIONS -- Debt securities (other than short-term
obligations maturing in 60 days or less) are valued on the basis of valuations
furnished by 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, and other market data, without exclusive
reliance on quoted prices or exchange or over-the counter prices, since such
valuations are believed to reflect more accurately the fair value of the
securities. Short-term obligations maturing in 60 days or less are valued at
amortized cost, which approximates market value. Securities, if any, for which
there are no such valuations or quotations are valued at fair value as
determined in good faith by or under guidelines established by the Trustees.
B. INCOME -- Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for U.S. federal income tax purposes. Gain and loss from principal
paydowns are recorded as ordinary income.
C. U.S. FEDERAL INCOME TAXES -- The Portfolio is considered a partnership under
the U.S. Internal Revenue Code. Accordingly, no provision for federal income
taxes is necessary.
D. EXPENSES -- The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
E. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.
(2) INVESTMENT ADVISORY FEES
The investment advisory fee paid to Citibank, as compensation for overall
investment management services, amounted to $94,818, of which $945 was
voluntarily waived for the six months ended June 30, 1995. The investment
advisory fee is computed at the annual rate of 0.35% of the Portfolio's average
daily net assets.
(3) ADMINISTRATIVE FEE
Under the terms of an Administrative Services Agreement, the administrative fee
paid to the Administrator, as compensation for overall administrative services
and general office facilities, is computed at the annual rate of 0.05% of the
Portfolio's average daily net assets. The administrative fee amounted to $13,545
of which $6,219 was voluntarily waived, for the six months ended June 30, 1995.
Citibank acts as Sub-Administrator and performs such duties and receives such
compensation from SFG as from time to time is agreed to by SFG and Citibank. The
Portfolio pays no compensation directly to any Trustee or any officer who is
affiliated with the Administrator, all of whom receive remuneration for their
services to the Portfolio from the Administrator or its affiliates. Certain of
the officers and a Trustee of the Portfolio are officers or directors of the
Administrator or its affiliates.
<PAGE>
(4) PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of U.S. Government securities, other than short-term
obligations, aggregated $59,367,434 and $62,869,456, respectively, for the six
months ended June 30, 1995.
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at June 30, 1995, as computed on a federal income tax basis,
are as follows:
Aggregate cost...................... $ 53,148,630
==============
Gross unrealized appreciation....... $ 456,832
Gross unrealized depreciation....... (395,739)
--------------
Net unrealized depreciation......... $ 61,093
==============
(6) EXPENSE FEE
SFG has entered into an expense agreement with the Portfolio. SFG has agreed to
pay all of the ordinary operating expenses (excluding interest, taxes, brokerage
commissions, litigation costs or other extraordinary costs or expenses) of the
Portfolio, other than fees paid under the Advisory Agreement and Administrative
Services Agreement. The Agreement may be terminated by either party upon not
less than 30 days nor more than 60 days written notice.
The Portfolio has agreed to pay SFG an expense fee on an annual basis, accrued
daily and paid monthly; provided, however, that such fee shall not exceed the
amount such that immediately after any such payment the aggregate ordinary
expenses of the Portfolio would, on an annual basis, exceed an agreed upon rate,
currently 0.45% of the Portfolio's average daily net assets.
(7) LINE OF CREDIT
The Portfolio, along with other Landmark Funds entered into an ongoing agreement
with a bank which allows the Funds collectively to borrow up to $40 million for
temporary or emergency purposes. Interest on borrowings, if any, is charged to
the specific fund executing the borrowing at the base rate of the bank. In
addition, the $15 million committed portion of the line of credit requires a
quarterly payment of a commitment fee based on the average daily unused portion
of the line of credit. For the six months ended June 30, 1995 the commitment fee
allocated to the Portfolio was $221. Since the line of credit was established,
there have been no borrowings.
