<PAGE>
Balanced Portfolio
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS June 30, 1997 (unaudited)
- -------------------------------------------------------------------------------
ISSUER SHARES VALUE
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
COMMON STOCKS--56.0%
- ------------------------------------------------------------------------------
COMMERCIAL SERVICES--0.8%
Interpublic Group, Inc. ....................... 34,200 $ 2,096,887
------------
COMMODITIES & PROCESSING--3.9%
EI du Pont de Nemours ......................... 48,700 3,062,013
Praxair, Inc. ................................. 44,600 2,497,600
Nucor Corp. ................................... 23,500 1,327,750
Sherwin Williams Co. .......................... 58,100 1,793,838
Ucar Int'l Inc. ............................... 24,800 1,134,600
------------
9,815,801
------------
CONSUMER DURABLES--0.6%
Leggett & Platt Inc. .......................... 36,000 1,548,000
------------
CONSUMER NON-DURABLES--11.3%
Clorox Co. .................................... 18,100 2,389,200
Coca-Cola Co. ................................. 83,300 5,622,750
Colgate-Palmolive Co. ......................... 64,700 4,221,675
Gillette Co. .................................. 36,600 3,467,850
Kimberly-Clark Corp. .......................... 33,700 1,676,575
PepsiCo, Inc. ................................. 96,500 3,624,781
Philip Morris Companies, Inc. ................. 100,600 4,464,125
Procter & Gamble Co. .......................... 20,800 2,938,000
------------
28,404,956
------------
CONSUMER SERVICES--4.1%
Carnival Corp. ................................ 53,600 2,211,000
Gannett Co. Inc. .............................. 41,300 4,078,375
Service Corp. Intl ............................ 60,600 1,992,225
Walt Disney Co. ............................... 24,900 1,998,225
------------
10,279,825
------------
ELECTRONICS/TECHNOLOGICAL SERVICES--9.0%
Applied Materials Inc.* ....................... 18,400 1,302,950
Automatic Data Processing ..................... 60,400 2,838,800
Compaq Computer ............................... 12,700 1,260,475
First Data Corp. .............................. 55,600 2,442,925
Hewlett Packard Co. ........................... 29,500 1,652,000
Intel Corp. ................................... 22,300 3,162,419
Microsoft Corp.* .............................. 44,500 5,623,688
Motorola ...................................... 18,600 1,413,600
Perkin-Elmer Corp. ............................ 37,600 2,991,550
------------
22,688,407
------------
FINANCE--5.7%
American International Group .................. 10,700 1,598,313
Chubb Corp. ................................... 30,500 2,039,687
Federal National
Mortgage Association ......................... 32,400 1,413,450
Franklin Resources Inc. ....................... 28,200 2,046,262
Norwest Corp. ................................. 27,600 1,552,500
State Street Boston Corp. ..................... 36,800 1,702,000
Travelers Group Inc. .......................... 38,365 2,419,393
Zions BanCorporation .......................... 40,900 1,538,862
------------
14,310,467
------------
HEALTH SERVICES/TECHNOLOGY--9.1%
Abbott Labs ................................... 53,600 3,577,800
Eli Lilly & Co. ............................... 20,500 2,240,906
Health Management
Associates* .................................. 76,950 2,193,075
Johnson & Johnson ............................. 53,600 3,450,500
Merck & Co., Inc. ............................. 24,500 2,535,750
Pfizer Inc. ................................... 27,700 3,310,150
Schering-Plough Corp. ......................... 50,800 2,432,050
Warner Lambert Co. ............................ 26,400 3,280,200
------------
23,020,431
------------
PRODUCER/MANUFACTURING--7.1%
Deere & Co. ................................... 59,200 3,248,600
Emerson Electric Co. .......................... 36,100 1,987,756
General Electric Co. .......................... 99,700 6,517,887
Illinois Tool Works Inc. ...................... 58,100 2,901,369
Xerox Corp. ................................... 42,300 3,336,412
------------
17,992,024
------------
RETAIL TRADE--4.4%
Consolidated Stores Corp. ..................... 74,500 2,588,875
Gap Stores .................................... 37,400 1,453,926
Home Depot .................................... 21,900 1,509,731
Kohls Corp.* .................................. 47,600 2,519,825
Walgreen Co. .................................. 57,100 3,061,988
------------
11,134,345
------------
TOTAL COMMON STOCKS
(Identified Cost $110,277,701) ............... 141,291,143
------------
- ------------------------------------------------------------------------------
FIXED INCOME - 43.4%
- ------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
----------
ASSET BACKED SECURITIES--1.4%
Green Tree Financial Corp.
8.05% due 11/15/27 ........................... $3,500,000 3,636,710
------------
MORTGAGE OBLIGATIONS--17.9%
COLLATERALIZED MORTGAGE OBLIGATIONS--7.6%
Asset Securitization Corp. Ser. 95
8.15% due 3/04/20 ............................ 2,000,000 2,137,813
Asset Securitization Corp. Ser. 95
7.384% due 8/13/29 ........................... 2,500,000 2,539,063
Associates Corp. N.A 5.96% due 5/15/37 ....... 1,750,000 1,765,977
Atlantic City Electric
7.01% due 8/23/02 ............................ 1,380,000 1,386,955
Federal Home Loan Mortgage Corp.
6.00% due 3/15/09 ............................ 1,156,012 1,054,132
Interamerica Development Bank
6.95% due 8/01/26 ............................ 2,000,000 2,051,700
GE Capital Mortgage Services, Inc.
7.50% due 3/25/27 ............................ 997,259 998,038
GMAC Commercial Mortgage 7.22% due 2/15/06 .... 1,000,000 1,010,937
Merrill Lynch Mortgage Corp. 6.95% due 6/18/29 1,425,000 1,433,906
Norwest Asset Securities Corp. 7.50% due 3/25/27 1,495,879 1,496,814
Norwest Asset Securities Corp. 7.00% due 4/25/12 1,981,266 1,963,001
Residential Asset Securitization
Trust 7.75% due 4/25/27 ...................... 1,500,000 1,524,844
------------
19,363,180
------------
MORTGAGE BACKED SECURITIES/PASSTHROUGHS--4.3%
Federal Home Loan Mortgage Corp.
7.50% due 7/1/12 (TBA) ....................... 2,200,000 2,232,312
7.50% due 1/15/20 ............................ 2,839,478 2,854,922
7.50% due 5/15/23 ............................ 1,772,757 1,779,404
8.50% due 6/01/01 ............................ 19,893 20,222
9.50% due 2/01/01 ............................ 11,427 11,915
Federal National Mortgage Association
7.50% due 10/01/25 ........................... 267,768 268,352
7.50% due 11/01/25 ........................... 3,557,051 3,564,805
9.00% due 11/01/01 ........................... 17,452 17,970
------------
10,749,902
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--6.0%
7.25% due 10/16/22 ........................... 6,452,961 6,469,094
7.50% due 7/15/25 ............................ 3,131,076 3,139,874
7.50% due 5/15/26 ............................ 2,867,453 2,875,511
7.50% due 6/15/26 ............................ 1,879,546 1,884,828
8.25% due 7/15/05 ............................ 746,450 763,708
------------
15,133,015
------------
TOTAL MORTGAGE OBLIGATIONS 45,246,097
============
DOMESTIC CORPORATE BONDS--0.7% Aetna Services Inc.
6.97% due 8/15/36 ............................ 1,700,000 1,716,796
------------
YANKEES--0.8%
Enersis, 6.90% due 12/01/06 ................... 2,000,000 1,942,560
------------
UNITED STATES GOVERNMENT
& AGENCY OBLIGATIONS--22.6%
UNITED STATES TREASURY BOND--2.3%
6.625% due 2/15/27 ........................... $5,850,000 $ 5,723,874
------------
UNITED STATES TREASURY NOTES--19.6%
6.25% due 6/30/98 ............................ 9,500,000 9,541,515
5.875% due 11/15/99 .......................... 1,200,000 1,192,308
6.625% due 6/30/01 ........................... 14,000,000 14,131,180
6.50% due 5/31/02 ............................ 4,500,000 4,518,270
6.625% due 4/30/02 ........................... 5,500,000 5,550,710
5.875% due 2/15/04 ........................... 7,000,000 6,782,370
6.50% due 10/15/06 ........................... 7,800,000 7,767,084
------------
49,483,437
------------
UNITED STATES AGENCY OBLIGATIONS-0.7%
Tennessee Valley Authority
5.98% due 4/01/36 ............................ 1,750,000 1,762,728
------------
TOTAL UNITED STATES GOVERNMENT
& AGENCY OBLIGATIONS 56,970,039
------------
TOTAL FIXED INCOME
(Identified cost $109,703,448) 109,512,202
------------
- ------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 1.2%
- ------------------------------------------------------------------------------
Merrill Lynch Repurchase Agreement
5.75% due 7/01/97, proceeds
at maturity $2,921,467 (collateralized
by $2,983,944 U.S. Treasury Strips
zero coupon due 11/15/03) ..................... $ 2,921,000
United States Treasury Bill
5.18% due 12/11/97 ........................... 116,737
------------
3,037,737
------------
TOTAL INVESTMENTS
(Identified cost $223,018,886) ................ 100.6% 253,841,082
OTHER ASSETS
LESS LIABILITIES ............................. (0.6) (1,505,370)
----- ------------
NET ASSETS .................................... 100.0% $252,335,712
===== ============
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FUTURES CONTRACTS
- ------------------------------------------------------------------------------
Futures contracts which were open at June 30,1997 are as follows:
NUMBER OF EXPIRATION UNREALIZED
CONTRACTS CONTRACTS DATE GAIN/LOSS
- ------- --------- ---------- ----------
U.S. Treasury 5-year Note .... 35 September 1997 (14,375)
*Non-income producing
See notes to financial statements
<PAGE>
Balanced Portfolio
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES June 30, 1997 (unaudited)
ASSETS:
Investments at value (Note 1A) (Identified Cost, $223,018,886) ... $253,841,082
Cash ............................................................. 92
Receivable for investments sold .................................. 2,017,161
Dividends and interest receivable ................................ 1,918,210
Receivable for daily variation on future contracts ............... 8,750
------------
Total assets .................................................... 257,785,295
------------
LIABILITIES:
Payable for investments purchased ................................ 5,335,178
Payable to affiliates--Investment advisory fees (Note 2) ......... 82,501
Accrued expenses and other liabilities ........................... 31,904
------------
Total liabilities ............................................... 5,449,583
------------
Net Assets ....................................................... $252,335,712
============
REPRESENTED BY:
Paid-in capital for beneficial interests ......................... $252,335,712
============
See notes to financial statements
<PAGE>
Balanced Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997 (unaudited)
INVESTMENT INCOME:
Interest ........................................... $ 3,766,241
Dividends .......................................... 755,569
-----------
Total investment income ........................... $ 4,521,810
EXPENSES:
Investment advisory fees (Note 2) .................. 488,379
Administrative fees (Note 3) ....................... 61,047
Expense fees (Note 6) .............................. 122,096
-----------
Total expenses .................................... 671,522
-----------
Net investment income ............................. 3,850,288
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions
and futures contracts ............................ 15,781,020
Unrealized appreciation (depreciation) of investments
and futures contracts
Beginning of period .............................. 23,092,617
End of period .................................... 30,807,820
-----------
Net change in unrealized appreciation (depreciation)
of investments and futures contracts ............ 7,715,203
-----------
Net realized and unrealized gain on investments
and futures contracts ........................... 23,496,223
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $27,346,511
===========
See notes to financial statements
<PAGE>
Balanced Portfolio
===============================================================================
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
-------------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income ........................................... $ 3,850,288 $ 8,718,839
Net realized gain from investment transactions
and futures contracts ......................................... 15,781,020 17,739,660
Net change in unrealized appreciation (depreciation) of
investments and futures contracts .............................. 7,715,203 (7,087,703)
------------ ------------
Net increase in net assets resulting from operations ........... 27,346,511 19,370,796
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from contributions ..................................... 4,866,774 18,210,247
Value of withdrawals ............................................ (27,403,641) (41,573,741)
------------- -------------
Net decrease in net assets from capital transactions ........... (22,536,867) (23,363,494)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS ........................... 4,809,644 (3,992,698)
NET ASSETS:
Beginning of period ............................................. 247,526,068 251,518,766
------------ ------------
End of period ................................................... $252,335,712 $247,526,068
============ =============
</TABLE>
See notes to financial statements
Balanced Portfolio
===============================================================================
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED MAY 1, 1994
SIX MONTHS ENDED DECEMBER 30, 1997 (COMMENCEMENT)
JUNE 30, 1997 ----------------- OF OPERATIONS) TO
(UNAUDITED) 1996 1995 DECEMBER 31, 1994
----------- ---- ---- -----------------
<S> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) .. $252,336 $247,526 $251,519 $228,948
Ratio of expenses to average net assets .... 0.55% * 0.55% 0.53% 0.51%*
Ratio of net investment income to average
net assets ............................... 3.15% * 3.50% 3.69% 3.53%*
Portfolio turnover ......................... 71% 241% 210% 105%
Average commission rate per share (A) ...... $0.0565 $0.0589 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.
</TABLE>
See notes to financial statements
<PAGE>
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 Portfolio's Administrator.
The preparation of financial statements in accordance with U.S. 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
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 -- 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 agreement's
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". 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 valued 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 $488,379 for the six months ended
June 30, 1997. 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
$61,047 for the six months ended June 30, 1997. 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 $170,934,502 and $169,302,435, respectively, for the six months ended
June 30, 1997. Purchases and sales of U.S. Government securities aggregated to
$45,234,871 and $36,080,289, respectively.
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investment
securities owned at June 30, 1997, as computed on a federal income tax basis,
are as follows:
Aggregate cost ..................... $223,018,886
============
Gross unrealized appreciation ...... $ 31,705,213
Gross unrealized depreciation ...... (897,393)
------------
Net unrealized appreciation ........ $ 30,807,820
============
(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 less 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 $60
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, 1997,
the commitment fee allocated to the Portfolio was $522. Since the line of credit
was established, there have been no borrowings.
