<PAGE>
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Balanced Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCKS - 50.1%
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES - 2.2%
Interpublic Group, Inc. ........................... 51,600 $ 2,418,750
Sysco Corp. ....................................... 93,000 3,185,250
------------
5,604,000
------------
COMMODITIES & PROCESSING - 1.9%
Praxair, Inc. ..................................... 67,300 2,843,425
Sigma Aldrich, Inc. ............................... 33,900 1,813,650
------------
4,657,075
------------
CONSUMER DURABLES - 1.0%
Mattel Inc. ....................................... 90,125 2,579,828
------------
CONSUMER NON-DURABLES - 4.7%
Colgate-Palmolive Co. ............................. 34,500 2,923,875
Gillette Co. ...................................... 23,000 1,434,625
PepsiCo Inc. ...................................... 87,700 3,102,388
Procter & Gamble Co. .............................. 20,800 1,885,000
Sara Lee Corp. .................................... 78,300 2,534,962
------------
11,880,850
------------
CONSUMER SERVICES - 2.1%
Carnival Corp. .................................... 96,500 2,786,438
McDonald's Corp. .................................. 55,200 2,580,600
------------
5,367,038
------------
ELECTRONICS/TECHNOLOGICAL SERVICES - 8.8%
Affiliated Computer Service A* .................... 12,200 573,400
American Express "DECS" ........................... 49,700 3,261,562
Andrew Corp.* ..................................... 43,000 2,311,250
Applied Materials, Inc. ........................... 31,500 960,750
Cisco Systems Inc.* ............................... 54,500 3,086,063
Computer Associates Intl. Inc. .................... 46,650 3,323,812
Electronic Data Systems Corp. ..................... 55,000 2,956,250
Oracle Corp.* ..................................... 42,450 1,674,122
Parametric Technology Corp.* ...................... 34,000 1,474,750
Solectron Corp. ................................... 27,800 1,052,925
Sungard Data Systems Inc.* ........................ 35,400 1,420,425
------------
22,095,309
------------
ENERGY/MINERALS - 4.1%
Amoco Corp. ....................................... 35,700 2,583,788
Exxon Corp. ....................................... 31,100 2,701,813
Mobil Corp. ....................................... 19,300 2,164,012
Royal Dutch Petroleum Co. ADRs .................... 17,900 2,752,125
------------
10,201,738
------------
FINANCE - 3.4%
American International Group Inc. ................. 31,100 3,067,238
Federal National Mortgage Association ............. 93,000 3,115,500
State Street Boston Corp. ......................... 44,300 2,259,300
------------
8,442,038
------------
HEALTH SERVICES/TECHNOLOGY - 5.3%
Cardinal Health Inc. ............................. 22,000 1,586,750
Health Management Associates* .................... 97,350 1,971,338
Johnson & Johnson ................................ 70,000 3,465,000
Manor Care Inc. .................................. 32,500 1,279,688
Pacificare Health Systems, Inc. .................. 12,300 833,324
Pfizer Inc. ...................................... 39,600 2,826,450
Schein Henry, Inc.* .............................. 35,000 1,338,750
------------
13,301,300
------------
INDUSTRIAL SERVICES - 1.2%
Fluor Corp. ...................................... 45,000 2,941,874
------------
PRODUCER MANUFACTURING - 5.1%
Danaher Corp. .................................... 54,500 2,370,750
Emerson Electric Co. ............................. 35,000 3,163,125
Federal Signal Corp. ............................. 51,200 1,203,200
General Electric Co. ............................. 33,200 2,871,800
Xerox Corp. ...................................... 57,300 3,065,550
------------
12,674,425
------------
RETAIL TRADE - 5.6%
Autozone Inc.* ................................... 72,000 2,505,475
Hannaford Brothers Co. ........................... 20,200 659,025
Home Depot ....................................... 46,500 2,511,000
Kohls Corp.* ..................................... 67,600 2,475,850
Nine West Group Inc.* ............................ 50,500 2,581,812
Viking Office Products, Inc.* .................... 62,800 1,970,350
Walgreen Co. ..................................... 43,000 1,440,500
-----------
14,144,012
-----------
TRANSPORTATION - 1.0%
Wisconsin Central Transport* .................... 76,500 2,486,250
------ -----------
UTILITIES - 3.7%
FPL Group Inc. .................................. 41,000 1,886,000
GTE Corp. ....................................... 67,300 3,011,675
PacifiCorp ...................................... 115,000 2,558,750
Texas Utilities Co. ............................. 43,100 1,842,525
-----------
9,298,950
-----------
TOTAL COMMON STOCKS
(Identified Cost $96,452,699) ................. 125,674,687
------------
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FIXED INCOME - 42.2%
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PRINCIPAL
AMOUNT
----------
ASSET BACKED SECURITIES - 1.7%
Contimortgage Home Equity Loan Trust Series 95
6.95%, due 1/15/14 ............................ $ 4,300,000 4,164,953
------------
MORTGAGE OBLIGATIONS - 27.4%
COLLATERALIZED MORTGAGE ASSOCIATION - 8.3%
Asset Securitization Corp. Series 95
7.384%, due 8/13/29 ........................... 2,500,000 2,434,375
Bank America Manufactured
Housing Series 96
7.55%, due 10/10/06 ........................... 3,500,000 3,500,000
Federal National Mortgage Association
5.00%, due 10/25/21 ........................... 8,304,000 6,922,163
Lehman Brothers Mortgage Trust
7.144%, due 9/25/25 ........................... 4,953,389 4,925,526
Nomura Asset Securities Corp.
8.15%, due 3/04/20 ............................ 3,000,000 3,126,563
------------
20,908,627
------------
MORTGAGE BACKED SECURITIES - 14.4%
Federal Home Loan Mortgage Corp.
6.50%, due 03/01/11 ........................... 30,642 29,656
6.50%, due 04/01/11 ........................... 1,350,357 1,306,891
6.50%, due 05/01/11 ........................... 1,580,275 1,529,406
8.00%, due 08/15/06 ........................... 4,000,000 4,153,720
8.00%, due 07/01/29 ........................... 3,500,000 3,526,250
8.50%, due 06/01/01 ........................... 29,084 29,839
9.50%, due 02/01/01 ........................... 16,922 16,922
Federal National Mortgage Association
5.50%, due 03/01/11 ........................... 1,095,145 1,013,689
5.50%, due 04/01/11 ........................... 1,793,779 1,660,360
5.50%, due 06/01/11 ........................... 128,486 118,930
6.50%, due 12/01/23 ........................... 8,480,460 7,958,404
7.00%, due 05/01/03 ........................... 6,924,409 6,902,736
7.00%, due 07/01/25 ........................... 479,147 460,878
7.00%, due 01/01/26 ........................... 229,401 220,654
7.00%, due 04/01/26 ........................... 698,735 672,094
7.00%, due 05/01/26 ........................... 2,608,734 2,509,265
7.50%, due 10/01/25 ........................... 288,461 284,584
7.50%, due 11/01/25 ........................... 3,739,804 3,689,542
9.00%, due 11/01/01 ........................... 23,499 24,379
------------
36,108,199
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 4.7%
6.50%, due 05/15/26 ........................... 252,281 234,778
8.25%, due 07/15/05 ........................... 808,113 813,164
7.50%, due 07/15/25 ........................... 3,361,931 3,313,587
6.50%, due 12/15/25 ........................... 618,551 575,636
6.50%, due 08/15/25 ........................... 897,818 835,528
6.50%, due 12/15/25 ........................... 288,549 268,530
6.50%, due 11/15/25 ........................... 248,462 231,224
7.50%, due 06/15/26 ........................... 1,926,065 1,898,368
6.50%, due 03/15/26 ........................... 689,923 642,056
7.50%, due 01/15/26 ........................... 2,997,536 2,954,432
------------
11,767,303
------------
TOTAL MORTGAGE OBLIGATIONS .................................. 68,784,129
------------
YANKEES BONDS - 0.6%
Midland Bank, PLC
5.95%, due 3/15/11 ............................ 1,500,000 1,407,014
------------
UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS - 12.5%
UNITED STATES TREASURY BONDS - 2.4%
6.875%, due 8/15/25 ........................... 6,000,000 5,939,040
------------
UNITED STATES TREASURY NOTES - 9.3%
7.375%, due 11/15/97 .......................... 3,600,000 3,664,116
5.125%, due 2/28/98 ........................... 10,000,000 9,853,100
6.250%, due 4/30/01 ........................... 10,000,000 9,904,700
------------
23,421,916
------------
UNITED STATES AGENCY OBLIGATIONS - 0.8%
Tennessee Valley Authority 1996 Ser A,
5.98%, due 4/01/36 ............................ 2,000,000 2,011,598
------------
TOTAL UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS ......... 31,372,554
------------
TOTAL FIXED INCOME
(Identified Cost $106,006,448) ................ 105,728,650
------------
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SHORT-TERM OBLIGATIONS - 7.9%
- --------------------------------------------------------------------------------
Shearson Lehman Repurchase Agreement
5.25%, due 7/01/96, proceeds at
maturity $4,009,754 (collateralized
by $4,057,031 U.S. Treasury Note 12.75%,
due 11/15/10) ................................. 4,008,000 4,008,000
United States Treasury Bill due 9/12/96 ......... 16,000,000 15,829,591
------------
TOTAL SHORT-TERM OBLIGATIONS
AT AMORTIZED COST ............................. 19,837,591
------------
TOTAL INVESTMENTS
(Identified Cost $222,296,738) ................ 100.2% 251,240,928
OTHER ASSETS
LESS LIABILITIES .............................. (0.2) (508,888)
---- ------------
NET ASSETS ...................................... 100.0% $250,732,040
===== ============
See notes to financial statements
<PAGE>
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Balanced Portfolio
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STATEMENT OF ASSETS AND LIABILITIES June 30, 1996 (unaudited)
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ASSETS:
Investments at value (Note 1A) (Identified Cost, $222,296,738) .. $251,240,928
Cash ............................................................ 580
Receivable for investments sold ................................. 7,396,251
Dividends and interest receivable ............................... 1,149,486
------------
Total assets ................................................ 259,787,245
------------
LIABILITIES:
Payable for investments purchased ............................... 8,942,423
Payable to affiliates --
Investment advisory fees (Note 2) ............................. 81,569
Accrued expenses and other liabilities .......................... 31,213
------------
Total liabilities 9,055,205
------------
NET ASSETS ...................................................... $250,732,040
============
REPRESENTED BY:
Paid-in capital for beneficial interests ........................ $250,732,040
============
See notes to financial statements
<PAGE>
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Balanced Portfolio
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STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (unaudited)
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INVESTMENT INCOME:
Interest ..................................... $3,833,109
Dividends .................................... 1,258,975
----------
Total Income ............................. $5,092,084
EXPENSES:
Investment advisory fees (Note 2) ............ 498,661
Administrative fees (Note 3) ................. 62,333
Expense fees (Note 6) ........................ 124,728
----------
Total expenses ........................... 685,722
----------
Net investment income .................... 4,406,362
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions
and futures contracts ...................... 5,219,468
Unrealized appreciation (depreciation) of
investments and futures contracts
Beginning of period ....................... 30,180,320
End of period ............................. 28,944,190
-----------
Net change in unrealized appreciation
(depreciation) of investments and futures
contracts ............................... (1,236,130)
----------
Net realized and unrealized gain (loss) on
investments and futures contracts ...... 3,983,338
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ................................. $8,389,700
==========
See notes to financial statments
<PAGE>
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Balanced Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income ....................... $ 4,406,362 $ 8,819,568
Net realized gain (loss) from investment
transactions and futures contracts ........ 5,219,468 12,205,642
Net change in unrealized appreciation
(depreciation) of investments and futures
contracts ................................. (1,236,130) 28,644,636
----------- ------------
Net increase in net assets resulting from
operations ............................ 8,389,700 49,669,846
----------- ------------
CAPITAL TRANSACTIONS:
Proceeds from contributions ................ 12,377,410 8,144,524
Value of withdrawals ....................... (21,553,836) (35,243,567)
----------- ------------
Net increase (decrease in net assets from
capital transactions ................... (9,176,426) (27,099,043)
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS ...... (786,726) 22,570,803
NET ASSETS:
Beginning of period ........................ 251,518,766 228,947,963
------------ ------------
End of period .............................. $250,732,040 $251,518,766
============ ============
See notes to financial statements
<PAGE>
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Balanced Portfolio
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Financial Highlights
- -------------------------------------------------------------------------------
MAY 1, 1994
SIX MONTHS ENDED (COMMENCEMENT
JUNE 30, 1996 YEAR ENDED OF OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1995 DECEMBER 31, 1994
--------------- ----------------- -----------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of
period (000's omitted) ... $250,732 $251,519 $228,948
Ratio of expenses to average
net assets ............... 0.55%* 0.53% 0.51%*
Ratio of net investment
income to average net
assets ................... 3.53%* 3.69% 3.53%*
Portfolio turnover ......... 144% 2.10% 1.05%
Average commission rate per
share (A) ............... $0.059 N/A N/A
* Annualized
(A) The average commission rate paid is applicable for Funds that invest greater
than 10% of average net assets in equity transactions on which commissions
are charged. This disclosure is required for fiscal periods beginning on or
after September 1, 1995.
See notes to financial statements
<PAGE>
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Balanced Portfolio
- --------------------------------------------------------------------------------
Notes To Financial Statements (unaudited)
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Balanced 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. Signature Financial Group (Grand Cayman), Ltd. ("SFG") acts as
the Portfolios Administrator.
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 the financial statements. Actual
results could differ from those estimates.
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 -- Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sales prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less), are valued on the basis
of valuations furnished by pricing services approved by the Board of Trustees
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. Short-term obligations, maturing in sixty
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 federal income tax purposes. Gain and loss from principal
paydowns are recorded as interest income. Dividend income is recorded on the
ex-dividend date.
C. U.S. FEDERAL TAXES -- The Portfolio is considered a partnership under the
U.S. Internal Revenue Code. Accordingly, no provision for federal income or
excise tax is necessary.
D. EXPENSES -- 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. REPURCHASE AGREEMENTS -- It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Portfolio to
monitor, on a daily basis, the market value of the repurchase agreements
underlying investments to ensure the existence of a proper level of collateral.
F. TBA PURCHASE COMMITMENTS -- The Portfolio enters into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount of
the commitment will not fluctuate more than 2.0% from the principal amount. The
Portfolio holds, and maintains until the settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price. TBA
purchase commitments may be considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in the value
of the Portfolio's other assets. Unsettled TBA purchase commitments are valued
at the current market value of the underlying securities, generally according to
the procedures described under Note 1A.
Although the Portfolio will generally enter into TBA purchase commitments with
the intention of acquiring securities for its portfolio, the Portfolio may
dispose of a commitment prior to settlement if the Portfolio's Adviser deems it
appropriate to do so.
G. FUTURES CONTRACTS -- The Portfolios may engage in futures transactions. The
Portfolios may use futures contracts in order to protect the Portfolio from
fluctuation in interest rates without actually buying or selling debt
securities, or to manage the effective maturity or duration of fixed income
securities in the Portfolio in an effort to reduce potential losses or enhance
potential gains. The underlying value of a futures contract is incorporated
within unrealized appreciation/depreciation in the Portfolio of Investments
under the caption "Futures Contracts". The Portfolio had no open futures
contracts at June 30, 1996. Buying futures contracts tends to increase the
Portfolio's exposure to the underlying instrument. Selling futures contracts
tends to either decrease the Portfolio's exposure to the underlying instrument,
or to hedge other Portfolio investments.
Upon entering into a futures contract, the Portfolio is required to deposit with
the broker an amount of cash or cash equivalents equal to a certain percentage
of the contract amount. This is known as the "initial margin." Subsequent
payments ("variation margin") are made or received by the Portfolio each day,
depending on the daily fluctuation of the value of the contract. The daily
changes in contract value are recorded as unrealized gains or losses and the
Portfolio recognizes a realized gain or loss when the contract is closed.
Futures contracts are values at the settlement price established by the board of
trade or exchange on which they are traded.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in the value of futures contracts primarily
corresponds with the value of their underlying instruments, which may not
correlate with the change in the value of the hedged instruments. In addition,
there is the risk the Portfolio may not be able to enter into a closing
transaction because of an illiquid secondary market. Futures contracts involve,
to varying degrees, risk of loss in excess of the futures variation margin
reflected in the Statement of Assets and Liabilities.
H. 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 fees paid to Citibank, as compensation for overall
investment management services, amounted to $498,661 for the six months ended
June 30, 1996. The investment advisory fees are computed at the annual rate of
0.40% of the Portfolio's average daily net assets.
(3) ADMINISTRATIVE FEES
Under the terms of an Administrative Services Agreement, the administrative fees
paid to the Administrator, as compensation for overall administrative services
and general office facilities, is computed at an annual rate of 0.05% of the
Portfolio's average daily net assets. The Administrative fees amounted to
$62,333 for the six months ended June 30, 1996. 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 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.
(4) PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term obligations,
aggregated $349,921,716 and $350,683,940, respectively, for the six months ended
June 30, 1996. Purchases and sales of U.S. Government securities aggregated to
$124,276,483 and $167,033,985, respectively.
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at June 30, 1996, as computed on a federal income tax basis,
are as follows:
Aggregate cost .................................. $222,296,738
============
Gross unrealized appreciation ................... $ 30,980,273
Gross unrealized depreciation ................... (2,036,083)
------------
Net unrealized appreciation .................... $ 28,944,190
============
(6) EXPENSE FEES
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 and expenses waived by the Administrator would, on an
annual basis, exceed an agreed upon rate, currently 0.55% of average daily net
assets.
(7) LINE OF CREDIT
The Portfolio, along with the 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 the 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, 1996,
the commitment fee allocated to the Portfolio was $706. Since the line of credit
was established, there have been no borrowings.
